10-K 1 c30671_10-k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to __________ Commission file numbers 33-92990, 333-13477, 333-22809, 333-59778, and 333-83964 TIAA REAL ESTATE ACCOUNT (Exact name of registrant as specified in its charter) New York Not Applicable (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) c/o Teachers Insurance and Annuity Association of America 730 Third Avenue New York, New York 10017-3206 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (212) 490-9000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: [X] -- Not Applicable Aggregate market value of voting stock held by non-affiliates: Not Applicable Documents Incorporated by Reference: None PART I ITEM 1. BUSINESS. GENERAL. The TIAA Real Estate Account (the "Real Estate Account" or the "Account") was established on February 22, 1995, as a separate investment account of Teachers Insurance and Annuity Association of America ("TIAA"), a New York insurance company, by resolution of TIAA's Board of Trustees. The Account, which invests mainly in real estate and real estate-related investments, is a variable annuity investment option offered through individual, group and tax-deferred annuity contracts available to employees of educational and research institutions. The Account commenced operations on July 3, 1995, when TIAA contributed $100 million of seed money to the Account (all of which has been repaid by the Account), and interests in the Account were first offered to eligible participants on October 2, 1995. 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 invests in publicly-traded securities and other investments that are easily converted to cash to make redemptions, purchase or improve properties or cover expenses. INVESTMENT STRATEGY. The Account seeks to invest between 70 percent to 95 percent of its assets directly in real estate or real estate-related investments. The Account's principal strategy is to purchase direct ownership interests in income-producing real estate, such as office, industrial, retail, and multi-family residential properties. The Account can also invest in other real estate or real estate-related investments, through joint ventures, real estate partnerships or real estate investment trusts (REITs). To a limited extent, the Account can also invest in conventional mortgage loans, participating mortgage loans, common or preferred stock of companies whose operations involve real estate (I.E., that primarily own or manage real estate), and collateralized mortgage obligations, including commercial mortgage backed securities and other similar instruments. The Account will invest the remaining portion of its assets in government and corporate debt securities, money market instruments and other cash equivalents, and, at times, stock of companies that don't primarily own or manage real estate. In some circumstances, the Account can increase the portion of its assets invested in debt securities or money market instruments. This could happen if the Account receives a large inflow of money in a short period of time, there is a lack of attractive real estate investments available on the market, or the Account anticipates a need to have more cash available. The amount the Account invests in real estate and real estate-related investments at a given time will vary depending on market conditions and real estate prospects, among other factors. NET ASSETS AND PORTFOLIO INVESTMENTS. As of December 31, 2003, the Account's net assets totaled $4,793,422,161. At December 31, 2003, the Account held a total of 87 real estate properties (including its interests in four real estate-related joint ventures), representing 2 84.26% of the Account's total investment portfolio. As of that date, the Account also held investments in real estate investment trusts (REITs), representing 5.24% of the portfolio, collateralized mortgage backed securities (CMBSs), representing 1.05% of the portfolio, real estate limited partnerships, representing 0.83% of the portfolio, and commercial paper and government bonds, representing 8.62% of the portfolio. PERSONNEL AND MANAGEMENT. The Real Estate Account does not directly employ any persons nor does the Account have its own management or board of directors. Rather, TIAA employees, under the direction and control of TIAA's Board of Trustees and Investment Committee, manage the investment of the Account's assets pursuant to investment management procedures adopted by TIAA for the Account. TIAA and TIAA-CREF Individual & Institutional Services, LLC ("Services"), a subsidiary of TIAA, provide all portfolio accounting, custodial, distribution, administrative and related services for the Account at cost. AVAILABLE INFORMATION. The Account's annual report on Form 10-K, any quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports, filed by the Account with the Securities and Exchange Commission on or after the date hereof, can be accessed free of charge at www.tiaa-cref.org. ITEM 2. PROPERTIES. THE PROPERTIES--IN GENERAL In the table below you will find general information about each of the Account's portfolio properties as of December 31, 2003.

ANNUAL AVG. RENTABLE BASE RENT YEAR YEAR AREA PERCENT PER LEASED MARKET PROPERTY LOCATION BUILT PURCHASED (SQ. FT.)(1) LEASED SQ. FT.(2) VALUE(3) -------- -------- ----- --------- ------------ ------ ---------- -------- OFFICE PROPERTIES Mellon Financial Center at One Boston Place(4) Boston, MA 1970(6) 2002 782,241 90% $36.57 $ 248,000,000 161 North Clark Street(5) Chicago, IL 1992 2003 1,010,520 97% $15.14 $ 209,051,330 780 Third Avenue New York, NY 1984 1999 487,501 90% $42.75 $ 180,000,000 701 Brickell Miami, FL 1986(6) 2002 677,667 95% $17.01 $ 177,009,565 Ten & Twenty Westport Road Wilton, CT 1974(6); 2001 2001 538,840 100% $25.15 $ 144,000,000 Treat Towers(5) Walnut Creek, CA 1999 2003 367,313 100% $32.00 $ 112,941,315 Prominence in Buckhead(5) Atlanta, GA 1999 2003 424,309 90% $28.62 $ 92,494,922 Morris Corporate Center III Parsippany, NJ 1990 2000 525,154 83% $20.91 $ 90,000,000 Corporate Boulevard Rockville, MD 1984-1989 2002 339,786 91% $21.48 $ 69,500,000 Oak Brook Regency Towers Oakbrook, IL 1977(6) 2002 402,318 89% $14.06 $ 67,300,000 88 Kearny Street San Francisco, CA 1986 1999 228,470 82% $37.62 $ 62,541,205 1015 15th Street Washington, DC 1978(6) 2001 184,825 99% $30.44 $ 54,300,000 Parkview Plaza(7) Oakbrook, IL 1990 1997 266,020 95% $19.19 $ 50,400,000 The Farragut Building Washington, DC 1962(6) 2002 146,792 66% $25.82 $ 45,700,000

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ANNUAL AVG. RENTABLE BASE RENT YEAR YEAR AREA PERCENT PER LEASED MARKET PROPERTY LOCATION BUILT PURCHASED (SQ. FT.)(1) LEASED SQ. FT.(2) VALUE(3) -------- -------- ----- --------- ------------ ------ ---------- -------- Sawgrass Office Portfolio Sunrise, FL 1997-2000 1997, 344,009 95% $12.43 $ 45,400,000 1999-2000 The Pointe on Tampa Bay Tampa, FL 1982(6) 2002 249,215 88% $20.94 $ 42,100,000 3 Hutton Centre Santa Ana, CA 1985(6) 2003 197,817 91% $22.10 $ 39,991,353 Capitol Place Sacramento, CA 1988(6) 2003 151,803 93% $28.97 $ 38,805,345 Maitland Promenade One Maitland, FL 1999 2000 227,814 95% $18.88 $ 35,192,924 BISYS Fund Services Building(8) Eaton, OH 1995;2002 1999; 2002 155,964 100% $14.33 $ 35,500,000 4200 West Cypress Street Tampa, FL 1989 2003 220,579 96% $20.14 $ 32,824,935 Monument Place Fairfax, VA 1990 1999 221,538 82% $17.47 $ 33,334,338 Columbia Centre III Rosemont, IL 1989 1997 238,696 68% $15.46 $ 30,000,000 Biltmore Commerce Center Phoenix, AZ 1985 1999 259,792 85% $18.00 $ 28,639,089 Fairgate at Ballston(7) Arlington, VA 1988 1997 137,117 96% $14.32 $ 28,400,000 10 Waterview Boulevard Parsippany, NJ 1984 1999 209,553 64% $12.49 $ 27,000,000 Tysons Executive Plaza II(9) McLean, VA 1988 2000 252,552 97% $22.79 $ 25,577,096 Longview Executive Park(7) Hunt Valley, MD 1988 1997 258,999 87% $ 3.31 $ 22,200,000 Columbus Portfolio 259,626 $ 9.12 $ 22,000,000 Metro South Building Dublin, OH 1997 1999 90,726 67% -- Vision Service Plan Building Eaton, OH 1997 1999 50,000 100% -- One Metro Place Dublin, OH 1998 2001 118,900 97% -- 9 Hutton Centre Santa Ana, CA 1990 2001 148,265 93% $ 9.43 $ 20,343,676 Five Centerpointe(7) Lake Oswego, OR 1988 1997 113,910 93% $19.05 $ 13,850,797 Needham Corporate Center Needham, MA 1987 2001 138,684 95% $22.36 $ 12,544,934 Batterymarch Park II Quincy, MA 1986 2001 104,718 88% $18.88 $ 10,000,000 371 Hoes Lane Piscataway, NJ 1986 1997 139,670 66% $ 6.65 $ 8,500,000 Northmark Business Center(7) Blue Ash, OH 1985 1997 108,561 29% $10.09 $ 5,200,000 -------------- SUBTOTAL--OFFICE PROPERTIES $2,160,642,824 -------------- INDUSTRIAL PROPERTIES Dallas Industrial Portfolio Dallas and 1997- 2000- 3,763,886 94% $ 3.15 $ 138,000,000 (formerly Parkwest Center) Coppell, TX 2001 2002 Ontario Industrial Portfolio 2,698,717 100% $ 3.54 $ 117,500,000 Timberland Building Ontario, CA 1998 1998 414,435 -- 5200 Airport Drive Ontario, CA 1997 1998 404,500 -- 1200 S. Etiwanda Ave. Ontario, CA 1998 1998 223,170 -- Park Mira Loma West Mira Loma, CA 1998 1998 557,500 -- Wineville Center Buildings Mira Loma, CA 1999 2000 1,099,112 -- Chicago Industrial Portfolio Chicago and 1997- 1998; 1,325,134 93% $ 3.60 $ 59,292,310 (consolidation of Rockrun, Joliet, IL 2000 2000 Glen Pointe and Woodcreek Business Parks)

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ANNUAL AVG. RENTABLE BASE RENT YEAR YEAR AREA PERCENT PER LEASED MARKET PROPERTY LOCATION BUILT PURCHASED (SQ. FT.)(1) LEASED SQ. FT.(2) VALUE(3) -------- -------- ----- --------- ------------ ------ ---------- -------- Rainier Corporate Park Fife, WA 1991-1997 2003 1,104,646 94% $ 3.56 $ 53,994,267 Memphis CALEast Industrial Portfolio Memphis, TN 1996-1997 2003 1,600,232 83% $ 2.72 $ 43,036,559 Northpointe Commerce Center Fullerton, CA 1990-1994 2000 612,023 100% $ 4.44 $ 41,800,000 Chicago CALEast Industrial Portfolio Chicago, IL 1974-1999 2003 834,549 99% $ 4.36 $ 40,232,195 New Jersey CALEast Industrial Portfolio Cranbury, NJ 1982-1989 2003 807,773 100% $ 4.39 $ 39,843,924 2002 Summit Distribution Center Memphis, TN 2003 708,532 100% $ 2.52 $ 21,961,420 Cabot Industrial Portfolio(10) Rancho 2000-2002 2000; 2001; 1,214,475 100% $ 3.44 $ 52,223,082 Cucamonga, CA 2002 IDI Kentucky Portfolio (formerly, Parkwest Int'l) 1,437,022 100% $ 3.44 $ 52,000,000 Building C Hebron, KY 1998 1998 520,000 -- Building D Hebron, KY 1998 1998 184,800 -- Building E Hebron, KY 2000 2000 207,222 -- Building J Hebron, KY 2000 2000 525,000 -- Atlanta Industrial Portfolio Lawrenceville, GA 1996-99 2000 1,145,693 87% $ 2.22 $ 37,300,000 South River Road Industrial Cranbury, NJ 1999 2001 626,071 82% $ 2.69 $ 31,000,000 Konica Photo Imaging Headquarters Mahwah, NJ 1999 1999 168,000 100% $10.30 $ 18,500,000 Eastgate Distribution Center San Diego, CA 1996 1997 200,000 100% $ 6.58 $ 16,600,000 Landmark at Salt Lake City Building #4 Salt Lake City, UT 2000 2000 328,508 100% $ 3.98 $ 12,500,000 UPS Distribution Facility Fernley, NV 1998 1998 256,000 100% $ 4.07 $ 11,500,000 FEDEX Distribution Facility Crofton, MD 1998 1998 111,191 100% $ 7.18 $ 7,600,000 Interstate Crossing Eagan, MN 1995 1996 131,380 95% $ 4.29 $ 6,345,000 Butterfield Industrial Park El Paso, TX 1980-81 1995 183,510 100% $ 2.41 $ 4,506,687 River Road Distribution Center Fridley, MN 1995 1995 100,456 100% $ 4.23 $ 4,150,000 -------------- SUBTOTAL--INDUSTRIAL PROPERTIES $ 809,885,444 -------------- RETAIL PROPERTIES The Florida Mall(11) Orlando, FL 1986(6) 2002 921,370(12) 98% $36.49 $ 99,279,653(13) Westwood Marketplace Los Angeles, CA 1950(14) 2002 202,201 100% $26.97 $ 74,000,000 West Town Mall(11) Knoxville, TN 1972(6) 2002 684,777(12) 98% $18.84 $ 76,375,643(13) Miami International Mall(11) Miami, FL 1982(6) 2002 290,299(12) 98% $29.20 $ 39,789,620(13) Rolling Meadows Rolling Meadows, IL 1957(6) 1997 130,909 100% $10.62 $ 13,550,000 Plantation Grove Ocoee, FL 1995 1995 73,655 100% $10.83 $ 9,100,000

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ANNUAL AVG. RENTABLE BASE RENT YEAR YEAR AREA PERCENT PER LEASED MARKET PROPERTY LOCATION BUILT PURCHASED (SQ. FT.)(1) LEASED SQ. FT.(2) VALUE(3) -------- -------- ----- --------- ------------ ------ ---------- -------- The Lynnwood Collection Raleigh, NC 1988 1996 86,362 98% $ 9.04 $ 8,100,000 The Millbrook Collection Raleigh, NC 1988 1996 102,221 72% $ 6.23 $ 7,000,000 -------------- SUBTOTAL--RETAIL PROPERTIES $ 327,194,916 -------------- SUBTOTAL--COMMERCIAL PROPERTIES $3,297,723,184 -------------- RESIDENTIAL PROPERTIES(15) The Legacy at Westwood Apartments Los Angeles, CA 2001 2002 NA 92% NA $ 84,400,000 Longwood Towers Brookline, MA 1926(6) 2002 NA 95% NA $ 76,400,000 Ashford Meadows Apartments Herndon, VA 1998 2000 NA 96% NA $ 62,000,000 Larkspur Courts Larkspur, CA 1991 1999 NA 94% NA $ 55,000,000 The Colorado New York, NY 1987 1999 NA 98% NA $ 54,008,059 Regents Court Apartments San Diego, CA 2001 2002 NA 93% NA $ 49,600,000 South Florida Boca Raton and 1986 2001 NA 96% NA $ 46,700,000 Apartment Portfolio Plantation, FL Doral Pointe Apartments Miami, FL 1990 2001 NA 95% NA $ 42,600,000 Alexan Buckhead Atlanta, GA 2002 2002 NA 64% NA $ 41,000,000 The Lodge at Willow Creek Denver, CO 1997 1997 NA 93% NA $ 31,698,947 Golfview Apartments Lake Mary, FL 1998 1998 NA 91% NA $ 27,750,000 Lincoln Woods Apartments Lafayette Hill, PA 1991 1997 NA 92% NA $ 26,704,000 The Legends at Chase Oaks Plano, TX 1997 1998 NA 96% NA $ 26,000,000 Kenwood Mews Apartments Burbank, CA 1991 2001 NA 96% NA $ 22,700,000 Westcreek Apartments Westlake Village, CA 1988 1997 NA 97% NA $ 22,000,000 Monte Vista Littleton, CO 1995 1996 NA 97% NA $ 20,600,000 Quiet Waters at Coquina Lakes Deerfield Beach, FL 1995 2001 NA 97% NA $ 18,800,000 The Fairways of Carolina Margate, FL 1993 2001 NA 97% NA $ 18,000,000 Indian Creek Apartments Farmington Hills, MI 1988 1998 NA 95% NA $ 17,700,000 Royal St. George W. Palm Beach, FL 1995 1996 NA 98% NA $ 17,700,000 The Greens at Metrowest Apartments Orlando, FL 1990 1995 NA 96% NA $ 14,000,000 Bent Tree Apartments Columbus, OH 1987 1998 NA 93% NA $ 13,000,000 -------------- SUBTOTAL--RESIDENTIAL PROPERTIES $ 788,361,006 --------------

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ANNUAL AVG. RENTABLE BASE RENT YEAR YEAR AREA PERCENT PER LEASED MARKET PROPERTY LOCATION BUILT PURCHASED (SQ. FT.)(1) LEASED SQ. FT.(2) VALUE(3) -------- -------- ----- --------- ------------ ------ ---------- -------- OTHER COMMERCIAL PROPERTIES Storage Portfolio I, LLC (16) Various, U.S. 1972-1990 2003 2,230,743 78% $12.57 $ 175,676,890 -------------- TOTAL--ALL PROPERTIES $4,261,761,080 ==============

(1) The square footage is an approximate measure and is subject to periodic remeasurement. (2) Based on total contractual rent on leases existing at December 31, 2003. For those properties purchased in fourth quarter of 2003, the number was derived by annualizing the rents charged by the Account since acquiring the property. (3) Market value reflects the value determined in accordance with the procedures described in the Account's prospectus and as stated in the Consolidated Statement of Investments. (4) The Account purchased a 50.25% interest in a private REIT, which owns this property. A 49.70% interest is owned by Societe Immobiler Trans-Quebec, and .05% is owned by 100 individuals. (5) Property held in a 75%/25% joint venture with Equity Office Properties. (6) Undergone extensive renovations since original construction. (7) Purchased through Light Street Partners, L.P.(now 100% owned by the Account). (8) Property held in 96%/4% joint venture with Georgetown BISYS Phase II LLC. Phase II was purchased in 2002. (9) Property held in 50%/50% joint venture with Tennessee Consolidated Retirement System. Market value shown reflects the value of the Account's interest in the property. (10) The property is held in an 80%/20% joint venture with Cabot Industrial Trust. (11) Each property is held in an approximately 50%/50% joint venture with the Simon Property Group. (12) Reflects the square footage owned by the joint venture. (13) Market value shown represents the Account's interest after debt. (14) Total renovation completed in 2001. (15) For the average unit size and annual average rent per unit for each residential property, see "Residential Properties" below. (16) Property held in 75%/25% joint venture with Storage USA. COMMERCIAL (NON-RESIDENTIAL) PROPERTIES IN GENERAL. At December 31, 2003, the Account held 65 commercial (non-residential) properties in its portfolio. Fourteen of these properties are held through joint ventures, three of which are subject to mortgages. Although the terms vary under each lease, certain expenses, such as real estate taxes and other operating expenses, are paid or reimbursed by the tenants. The Account's portfolio is well diversified by both property type, as well as geographic location. The portfolio consists of: 35 office properties containing approximately 10.6 million square feet located in 13 states and the District of Columbia; 21 industrial properties containing 19.4 million square feet located in 12 states; and 8 retail properties containing approximately 2.6 million square feet located in 5 states. In addition, the Account has a 75% interest in a portfolio of storage facilities located throughout the United States. As of December 31, 2003, the overall occupancy rate of Account's commercial real estate portfolio was 94% on a weighted average basis. Office properties were 90% leased with 844 leases, industrial properties were 95% leased with 166 leases, and retail properties were 94% leased with 518 leases. No single tenant accounts for more than 3.74% of the total rentable area of the Account's commercial properties. 7 RESIDENTIAL PROPERTIES The Account's residential property portfolio currently consists of 22 first class or luxury multi-family garden apartment complexes, mid-rise and high rise apartment buildings. The portfolio contains approximately 5,796 units located in 11 states, with an overall occupancy rate of 94%. None of the residential properties in the portfolio is subject to a mortgage. The complexes generally contain one- to three-bedroom apartment units, with a range of amenities, such as patios or balconies, washers and dryers, and central air conditioning. Many of these apartment communities have use of on-site fitness facilities, including some with swimming pools. Rents on each of the properties tend to be comparable with competitive communities and are not subject to rent regulation. The Account is responsible for the expenses of operating the properties. In the table below you will find additional information regarding the residential properties in the Account's portfolio as of December 31, 2003.

================================================================================================================== 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 1,180 $3,842.00 Longwood Towers Brookline, MA 268 938 $2,245.00 Ashford Meadows Herndon, VA 440 1,050 $1,385.00 The Colorado New York, NY 254 622 $2,361.00 Larkspur Courts Larkspur, CA 248 1,001 $1,884.00 Regents Court Apartments San Diego, CA 251 886 $1,426.00 South Florida Apartment Portfolio Boca Raton, Plantation, FL 550 889 $ 990.00 Alexan Buckhead Atlanta, GA 231 990 $1,641.00 Doral Pointe Apartments Miami, FL 440 1,150 $1,136.00 The Lodge at Willow Creek Denver, CO 316 996 $1,197.00 Golfview Apartments Lake Mary, FL 277 1,134 $1,147.00 The Legends at Chase Oaks Plano, TX 346 972 $ 994.00 Lincoln Woods Apartments Lafayette Hill, PA 216 774 $1,247.00 Kenwood Mews Apartments Burbank, CA 141 942 $1,416.00 Monte Vista Littleton, CO 219 888 $1,022.00 Westcreek Apartments Westlake Village, CA 126 951 $1,661.00 Indian Creek Apartments Farmington Hills, MI 196 1,139 $1,021.00 Quiet Waters at Coquina Lakes Deerfield Beach, FL 200 1,048 $1,078.00 Royal St. George West Palm Beach, FL 224 870 $ 927.00 The Fairways of Carolina Margate, FL 208 1,026 $1,012.00 The Greens at Metrowest Apartments Orlando, FL 200 920 $ 886.00 Bent Tree Apartments Columbus, OH 256 928 $ 794.00 ==================================================================================================================

ITEM 3. LEGAL PROCEEDINGS. There are no material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS. (a) MARKET INFORMATION. There is no established public trading market for participating interests in the TIAA Real Estate Account. Accumulation units in the Account are sold to eligible participants at the Account's current accumulation unit value, which is based on the value of the Account's then current net assets. For the period from January 1, 2003 to December 31, 2003, the high and low accumulation unit values for the Account were $186.9585 and $174.0058, respectively. (b) APPROXIMATE NUMBER OF HOLDERS. The number of contract owners at January 31, 2004 was 644,303. (c) DIVIDENDS. Not applicable. 9 ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data should be considered in conjunction with the Account's consolidated financial statements and notes provided in this report.

YEAR ENDING YEAR ENDING YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2001 2000 ---- ---- ---- ---- Investment income: Real estate income, net: Rental income .................. $ 393,497,346 $ 287,419,001 $ 233,574,957 $ 180,751,733 --------------- --------------- --------------- --------------- Real estate property level expenses and taxes: Operating expenses ............... 96,026,718 63,789,057 48,690,151 37,784,524 Real estate taxes ................ 53,413,903 35,848,075 27,963,306 21,677,181 --------------- --------------- --------------- --------------- Total real estate property level expenses and taxes .... 149,440,621 99,637,132 76,653,457 59,461,705 --------------- --------------- --------------- --------------- Real estate income, net ....... 244,056,725 187,781,869 156,921,500 121,290,028 Income from real estate joint ventures .................... 19,492,494 14,125,306 2,392,594 756,133 Dividends and interest .............. 19,461,931 26,437,901 33,687,343 31,334,291 --------------- --------------- --------------- --------------- Total investment income ....... 283,011,150 228,345,076 193,001,437 153,380,452 Expenses ............................ 31,654,065 23,304,336 17,191,929 13,424,566 --------------- --------------- --------------- --------------- Investment income, net ........ 251,357,085 205,040,740 175,809,508 139,955,886 Net realized and unrealized gain on investments ............... 17,229,435 (106,424,480) (23,485,614) 54,147,449 --------------- --------------- --------------- --------------- Net increase in net assets resulting from continuing operations before minority interest and discontinued operations ....... 268,586,520 98,616,260 152,323,894 194,103,335 Minority interest ................... (6,655,183) (1,484,585) (811,789) -- Discontinued operations ............. 41,641,549 19,110,363 17,706,880 11,339,359 Participant transactions ............ 813,860,715 346,079,345 657,326,121 486,196,949 --------------- --------------- --------------- --------------- Net increase in net assets .......... $ 1,117,433,601 $ 462,321,383 $ 826,545,106 $ 691,639,643 =============== =============== =============== ===============

JULY 3, 1995 (COMMENCEMENT OF YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Investment income: Real estate income, net: Rental income .................. $ 128,971,928 $ 77,852,934 $ 41,189,608 $ 9,504,481 $ 165,762 --------------- --------------- --------------- --------------- --------------- Real estate property level expenses and taxes: Operating expenses ............... 27,175,434 17,190,095 8,843,557 1,995,822 29,173 Real estate taxes ................ 15,631,453 8,755,526 4,234,044 1,053,703 14,659 --------------- --------------- --------------- --------------- --------------- Total real estate property level expenses and taxes .... 42,806,887 25,945,621 13,077,601 3,049,525 43,832 --------------- --------------- --------------- --------------- --------------- Real estate income, net ....... 86,165,041 51,907,313 28,112,007 6,454,956 121,930 Income from real estate joint ventures .................... -- -- -- -- -- Dividends and interest .............. 24,932,733 23,943,728 16,486,279 6,027,486 2,828,900 --------------- --------------- --------------- --------------- --------------- Total investment income ....... 111,097,774 75,851,041 44,598,286 12,482,442 2,950,830 Expenses ............................ 9,278,410 6,274,594 3,526,545 1,155,796 310,433 --------------- --------------- --------------- --------------- --------------- Investment income, net ........ 101,819,364 69,576,447 41,071,741 11,326,646 2,640,397 Net realized and unrealized gain on investments ............... 9,834,743 7,864,659 18,147,053 3,330,539 35,603 --------------- --------------- --------------- --------------- --------------- Net increase in net assets resulting from continuing operations before minority interest and discontinued operations ....... 111,654,107 77,441,106 59,218,794 14,657,185 2,676,000 Minority interest ................... 1,364,619 (3,487,991) (1,881,178) -- -- Discontinued operations ............. 2,925,041 2,658,547 2,733,784 1,125,730 -- Participant transactions ............ 383,171,774 333,936,510 356,052,262 233,653,793 117,582,345 --------------- --------------- --------------- --------------- --------------- Net increase in net assets .......... $ 499,115,541 $ 410,548,172 $ 416,123,662 $ 249,436,708 $ 120,258,345 =============== =============== =============== =============== ===============

DECEMBER 31, 2003 2002 2001 2000 1999 -------------- -------------- -------------- -------------- -------------- Total assets ................. $5,165,683,386 $3,870,532,278 $3,270,384,450 $2,423,100,402 $1,719,457,715 Total liabilities and minority interest ................... 372,261,225 194,543,718 56,717,273 35,978,331 23,975,287 -------------- -------------- -------------- -------------- -------------- Total net assets ............. $4,793,422,161 $3,675,988,560 $3,213,667,177 $2,387,122,071 $1,695,482,428 ============== ============== ============== ============== ============== Accumulation units outstanding 24,724,183 20,346,696 18,456,445 14,604,673 11,487,360 ============== ============== ============== ============== ============== Accumulation unit value ...... $ 186.94 $ 173.90 $ 168.16 $ 158.21 $ 142.97 ============== ============== ============== ============== ==============

DECEMBER 31, 1998 1997 1996 1995 -------------- -------------- -------------- -------------- Total assets ................. $1,229,603,431 $ 815,760,825 $ 426,372,007 $ 143,177,421 Total liabilities and minority interest ................... 33,236,544 29,942,110 56,676,954 22,919,076 -------------- -------------- -------------- -------------- Total net assets ............. $1,196,366,887 $ 785,818,715 $ 369,695,053 $ 120,258,345 ============== ============== ============== ============== Accumulation units outstanding 8,833,911 6,313,015 3,295,786 1,172,498 ============== ============== ============== ============== Accumulation unit value ...... $ 132.17 $ 122.30 $ 111.11 $ 102.57 ============== ============== ============== ==============

10 QUARTERLY SELECTED FINANCIAL INFORMATION The following is selected financial information for the Account for each full quarter within the past two calendar years:

2003 FOR THE THREE MONTHS ENDED -------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- ------- ------------ ----------- Investment income, net $ 59,964,355 $ 61,367,758 $ 62,077,623 $ 67,947,349 Net realized gain (loss) on investments (396,673) (441,873) 40,568 8,490,244 Net unrealized gain (loss) on investments (8,597,738) (12,077,579) 17,190,244 13,022,242 Minority interest (2,688,475) 1,059,606 (2,893,330) (2,132,984) Discontinued operations 3,275,420 18,080,818 34,686,260 (14,400,949) ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations $ 51,556,889 $ 67,988,730 $ 111,101,365 $ 72,925,902 ============= ============= ============= ============= Total return 1.38% 1.74% 2.71% 1.67% ============= ============= ============= =============

2002 FOR THE THREE MONTHS ENDED -------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- ------- ------------ ----------- Investment income, net $ 44,171,299 $ 50,812,802 $ 51,683,669 $ 58,372,970 Net realized gain (loss) on investments 4,320,393 3,091,947 1,428,243 (1,914,498) Net unrealized gain (loss) on investments (29,088,106) (22,640,922) (30,606,185) (31,015,352) Minority interest (119,166) (521,681) 42,020 (885,758) Discontinued operations 5,822,819 7,975,157 3,849,198 1,463,189 ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations $ 25,107,239 $ 38,717,303 $ 26,396,945 $ 26,020,551 ============= ============= ============= ============= Total return 0.77% 1.14% 0.76% 0.74% ============= ============= ============= =============

11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ACCOUNT'S FINANCIAL CONDITION AND OPERATING RESULTS THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ TOGETHER WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES CONTAINED IN THIS REPORT. 2003 OVERVIEW As of December 31, 2003, the TIAA Real Estate Account had total net assets in the amount of $4,793,422,161, a 30.40% increase over the 2002 year end total net assets. The Account closed 19 transactions in 2003 in the total net amount of $615.6 million. It purchased 12 properties: six office properties, including three joint ventures, five industrial properties and one portfolio of storage facilities for a total of $753.5 million. Additional transactions included: the purchase of additional nominal interest in three existing joint ventures (a total amount of $181 thousand), a commitment to purchase an interest in a real estate-related fund ($25 million) and the expansion of an existing industrial property to accommodate the growth on an existing tenant under long term lease ($18.0 million). In 2003, the Account also sold two properties (one office and one industrial) for a total of $187 million. As of December 31, 2003, the Account owned a total of 87 real estate properties, representing 84.26% of the Account's total investment portfolio. This real estate portfolio includes 35 office properties (six of which are held in joint ventures), 21 industrial properties (including four joint ventures), 22 apartment complexes, 8 retail properties (including three joint ventures, each owning a regional mall, in which the Account owns a 50% partnership interest), and a 75% joint venture partnership interest in a portfolio of storage facilities. The two charts below reflect the diversification of the Account's real estate assets by region and property type as well as its ten largest holdings. All information is based on the values of the properties as stated in the consolidated financial statements as of December 31, 2003. DIVERSIFICATION OF ACCOUNT'S REAL ESTATEASSETS ----------------------------------------------------------- EAST MIDWEST SOUTH WEST VARIOUS TOTAL (26) (14) (24) (22) (1) (87) ----- ------- ------ ----- ------- ------ Office (35) 23.5% 9.9% 10.0% 7.5% 0 50.9% Industrial (21) 3.5% 2.5% 5.7% 7.2% 0 18.9% Residential (22) 5.2% 0.7% 5.9% 6.7% 0 18.5% Retail (8) 0.4% 0.3% 5.2% 1.7% 0 7.6% Other (1)* 0.0% 0.0% 0.0% 0.0% 4.1% 4.1% ----- ----- ----- ----- ----- ----- TOTAL (87) 32.6% 13.4% 26.8% 23.1% 4.1% 100.0% ( ) Number of properties in parentheses. * Represents a portfolio of storage facilities located in various regions. 12

VALUE % OF NET PROPERTY NAME STATE PROPERTY TYPE (000,000) ASSETS ------------- ----- ------------- --------- -------- Mellon Financial Center at One Boston Place MA Office $248.0(1) 5.17% 161 North Clark Street IL Office $209.1(2) 4.36% 780 Third Avenue NY Office $180.0 3.76% 701 Brickell FL Office $177.0 3.69% Storage Portfolio I, LLC Various Other-Commercial(3) $175.7(4) 3.67% Ten & Twenty Westport Road CT Office $144.0 3.00% Dallas Industrial Portfolio TX Industrial $138.0 2.88% Ontario Industrial Portfolio CA Industrial $117.5 2.45% Treat Towers CA Office $112.9(5) 2.36% The Florida Mall FL Retail $ 99.3(6) 2.07%

(1) This amount reflects the value of the property as stated in the Consolidated Financial Statements, which includes minority interests. The value of the Account's interest in the property is $124.6 million, which represents 2.60% of the Account's Total Net Assets. (2) This amount reflects the value of the property as stated in the Consolidated Financial Statements, which includes minority interests. The value of the Account's interest in the property is $156.8 million, which represents 3.27% of the Account's Total Net Assets. (3) This property is a portfolio of storage facilities. (4) This amount represents the value of the property as stated in the Consolidated Financial Statements, which includes minority interests. The value of the Account's interest in the property is $131.8 million, which represents 2.75% of the Account's Total Net Assets. (5) This amount reflects the value of the property as stated in the Consolidated Financial Statements, which includes minority interests. The value of the Account's interest in the property is $84.7 million, which represents 1.77% of the Account's Total Net Assets. (6) This property is held in an unconsolidated joint venture and is subject to debt. The value reflects the Account's interest in the joint venture after debt. As of December 31, 2003, the Account also held investments in real estate investment trusts (REITs), representing 5.24% of the portfolio, commercial mortgage-backed securities (CMBS), representing 1.05% of the portfolio, real estate limited partnerships, representing 0.83% of the portfolio, and commercial paper and government bonds, representing 8.62% of the portfolio. REAL ESTATE MARKET OUTLOOK IN GENERAL While the National Bureau of Economic Research (NBER) announced mid-2003 that the recession was over, the U.S. economic recovery has been weak. U.S. payroll employment did not start to grow until late-2003, and job growth has been modest and generally below economists' expectations. Because there was only minimal job growth, commercial real estate markets remained sluggish through much of 2003. Office vacancies averaged 16.8% as of the end of 2003, compared with 16.5% at year-end 2002. Vacancies in the nation's CBDs (central business districts) averaged 13.9% versus 18.5% in the suburbs. The national vacancy rate declined modestly in both the third and fourth quarters of 2003, which along with anecdotal reports, suggests that office markets have stabilized. Nonetheless, office space demand is lackluster as U.S. corporations are closely watching costs and hiring very reluctantly. On a positive note, construction has fallen sharply. Total construction was 40 million square feet in 2003 versus 70 million square feet in 2002. 13 Sustained growth in U.S. payrolls combined with modest construction would materially improve supply/demand fundamentals. Industrial vacancies averaged 11.6% as of year-end 2003, compared with 11.0% at year-end 2002. Industrial vacancies have increased for twelve consecutive quarters, though the rate of increase has slowed markedly of late. Construction has also slowed significantly. As of year-end 2003, there was total construction of roughly 73 million square feet in 2003 versus 98 million square feet in 2002. Historically, there has been a positive correlation between growth in the U.S. economy, as indicated by GDP growth, and warehouse space demand. Despite eight consecutive quarters of GDP growth, industrial space demand has remained slack, but continued growth in U.S. GDP would bode well for industrial market prospects. Apartment demand was lackluster in 2003 due to job losses and rising unemployment during the first half of the year, significant new construction and a booming single-family home market which pulled households out of rental housing. According to the Census Bureau, rental vacancies rose to 10.2% as of the third quarter of 2003 compared to 9.3% as of the third quarter of 2002. Vacancies in institutional grade apartments averaged 6.5% as of the third quarter of 2003 compared with 5.4% as of the third quarter of 2002. (Year-end 2003 data were not available at the time this was written). Notably, vacancies in institutional grade apartments improved modestly during 2003 as the economic recovery gained momentum and demand began to recover. Concessions, such as free rent and free Internet access, are still necessary to attract and retain tenants, but show signs of abating. Despite lackluster economic conditions, retail space markets were healthy through much of 2003. Consumer spending remained robust as households benefited from personal income tax cuts, rebate checks for families with children, and falling prices for apparel, electronics goods and other items. Vacancies at regional malls owned by the largest REITs averaged 8.5% as of third quarter 2003 compared with 9.0% at third quarter 2002. Vacancies in neighborhood and community centers averaged 6.9% as of the end of 2003, versus 6.8% at year-end 2002. ECONOMIC OUTLOOK FOR 2004 Prospects for commercial real estate markets are linked to prospects for the U.S. economy, which has shown indications that the economic recovery has gained momentum. U.S. GDP has grown for eight consecutive quarters, initial unemployment claims have fallen and The Conference Board's "U.S. leading index", which is designed to provide an indication of economic conditions in the near future, has grown at a 4.7% annual rate since March 2003. In addition, employment in temporary help services, a precursor to full-time employment, has grown by 166,000 since April 2003. Further, corporate profits have started to increase, and profitability is often a precursor to new hiring and investment in new offices, factories and equipment. Nonetheless, the strength of the economic recovery is not predictable, and changes in real estate market conditions often lag changes in economic conditions. Consequently, a sustained and prolonged economic recovery may be necessary to generate material improvement in real estate market conditions. 14 RESULTS OF OPERATIONS WHEN REVIEWING THIS DISCUSSION, IT IS IMPORTANT TO NOTE THAT WHEN THE ACCOUNT OWNS A CONTROLLING INTEREST (OVER 50%) IN A JOINT VENTURE, CONSISTENT WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP), THE ACCOUNT'S CONSOLIDATED FINANCIAL STATEMENTS AND ALL FINANCIAL DATA DISCUSSED IN THE REPORT REFLECT 100% OF THE MARKET VALUE OF THE JOINT VENTURE'S ASSETS. THE INTERESTS OF THE OTHER JOINT VENTURE PARTNERS ARE REFLECTED AS MINORITY INTERESTS IN THE ACCOUNT'S CONSOLIDATED FINANCIAL STATEMENTS. WHEN THE ACCOUNT DOES NOT HAVE A CONTROLLING INTEREST IN A JOINT VENTURE, THEN ONLY THE ACCOUNT'S NET INVESTMENT IN THE JOINT VENTURE IS RECORDED BY THE ACCOUNT. NOTE ALSO THAT ALL OF THE ACCOUNT'S PROPERTIES ARE APPRAISED AND REVALUED ON A QUARTERLY BASIS, IN ACCORDANCE WITH THE VALUATION POLICIES DESCRIBED IN NOTE 1 TO THE CONSOLIDATED FINANCIAL STATEMENTS. UNTIL A PROPERTY IS SOLD, THESE CHANGES IN PROPERTY VALUES ARE RECORDED AS UNREALIZED GAINS OR LOSSES. UPON THE SALE OF A PROPERTY, THE DIFFERENCE BETWEEN THE ACCOUNT'S THEN CURRENT COST FOR THE PROPERTY (ORIGINAL PURCHASE PRICE PLUS THE COST OF ANY CAPITAL IMPROVEMENTS MADE) AND THE SALE PRICE IS RECORDED AS A REALIZED GAIN OR LOSS ON DISCONTINUED OPERATIONS. NOTE ALSO THAT IN ACCORDANCE WITH THE FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 144 (SFAS NO. 144), THE INCOME AND GAINS FROM PROPERTIES SOLD OR HELD FOR SALE DURING THE PERIODS COVERED WERE REMOVED FROM CONTINUING OPERATIONS IN THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS AND WERE RECLASSIFIED AS DISCONTINUED OPERATIONS. FOR MORE DETAILS, SEE "RESULTS FROM DISCONTINUED OPERATIONS" BELOW. YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002 RESULTS FROM CONTINUING OPERATIONS PERFORMANCE The Account's total return was 7.50% for the year ended December 31, 2003 and 3.41% for 2002. The substantial increase in the Account's overall performance on a year-to-year basis reflects the strong performance of the Account's real estate properties and REIT holdings. The 2003 total return on the Account's real estate holdings was significantly higher than the 2002 annual total return. Many of the Account's real estate properties increased in value in 2003, as compared to the substantial declines in value experienced by the Account's real estate assets in 2002, which enhanced its strong income returns. This difference can be attributed to the strength of the institutional investors' interest in real estate as an asset class, notwithstanding the challenges to the underlying fundamentals posed by the overall economic conditions. The strong performance of the Account's REIT holdings also added to the total return. INCOME AND EXPENSES The Account's net investment income after deduction of all expenses was 22.6% higher for the year ended December 31, 2003 compared to the same period in 2002 primarily due to a 15 30.4% increase in total net assets, which included a 21.19% increase in the Account's real estate holdings, including joint ventures. The Account's real estate holdings, including joint venture investments, generated approximately 93% and 88% of the Account's total investment income (before deducting Account level expenses) during 2003 and 2002, respectively. The remaining portion of the Account's total investment income was generated by marketable securities investments. Gross real estate rental income increased approximately 37% in the year ended December 31, 2003 as compared to a 23% increase over the same period in 2002. This was primarily due to the increased number of properties owned by the Account from 77 properties (including joint ventures) as of December 31, 2002 to 87 properties (including joint ventures) as of December 31, 2003. Income from real estate joint ventures was $19,492,494 as of December 31, 2003 as compared with $14,125,306 as of December 31, 2002. The increase in joint venture income was due to the increase in number of joint ventures from 2002 to 2003, as well as the positive effect of re-financing the debt on one of the Account's leveraged properties. Interest income on the Account's marketable securities investments decreased from $13,546,694 in 2002 to $7,221,765 in 2003 due to a decline in short-term rates from 2002 to 2003. Dividend income on the Account's REIT investments decreased from $12,891,207 for the year ended December 31, 2002, to $12,240,166 for the year ended December 31, 2003. Total property level expenses for the year ended December 31, 2003 and 2002 were $149,440,621, and $99,637,132, respectively. In both years ended 2003 and 2002, 64% of the total expenses represented operating expenses and 36% represented real estate taxes. The almost 50% increase in property level expenses during 2003 reflected the increased number of properties in the Account, as well as an increase in certain operating expenses including insurance and security costs. The Account also incurred expenses for the years ended December 31, 2003 and 2002 of $12,751,191 and $9,495,736 respectively, for investment advisory services, $14,786,580 and $10,390,705 respectively, for administrative and distribution services and the $4,116,294 and $3,417,895 respectively, for the mortality, expense risk and liquidity guarantee charges. The overall 36% increase in expenses is a result of the larger net asset base in the Account, and the increased costs associated with managing and administering the Account. NET REALIZED AND UNREALIZED GAINS AND LOSSES ON INVESTMENTS Including the net gains and losses realized by the Account for properties sold (see details under "Results from Discontinued Operations"), the Account had a 161% increase in net assets resulting from operations ($303,572,866 in December 2003 as compared to $116,242,038 in December 2002). The increase is due to the realization of substantial gains on the two properties sold in 2003, as well as substantial realized and unrealized gains on the Account's marketable securities and joint venture properties. The strong 2003 performance can also be attributed to the decrease in the magnitude of unrealized losses on the Account's real estate holdings in 2003 as compared to 2002. 16 The Account had net realized gains of $32,598,548 on the sale of two properties during the year ended December 31, 2003, as compared with $3,457,196 on the sale of two properties during 2002. The Account had unrealized gains on its other real estate-related holdings of $29,401,727 during the year ended December 31, 2003, as compared with losses of $5,781,360 during the same period in 2002, which can be attributed primarily to the increase in value of three regional malls in which the Account owns a joint venture interest. The decrease in unrealized losses on the Account's real estate holdings can be attributed to a decrease in the number of properties affected by declines in value during the year ended December 31, 2003, as compared with the same period in 2002. The Account's marketable securities for the year ended December 31, 2003 had net realized and unrealized gains totaling $39,963,920 as compared with net realized and unrealized losses of $6,195,855 for the year ended December 31, 2002. The net gains on the Account's marketable securities for the year ended December 31, 2003 was due primarily to the strong performance of the REIT markets during the period. RESULTS FROM DISCONTINUED OPERATIONS In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. The Account adopted SFAS No. 144 as of January 1, 2002. During both the year ended December 31, 2003 and the year ended December 31, 2002, two real estate properties were sold (four properties in total). In accordance with SFAS No. 144, the investment income and realized gain for the years ended December 31, 2003 and 2002 related to each of these properties was removed from continuing operations in the accompanying consolidated financial statements and was classified as discontinued operations. The income from the properties sold in the year ended December 31, 2003, consisted of rental income of $14,215,497 less operating expenses of $3,502,961 and real estate taxes of $1,669,535, resulting in net investment income of $9,043,001. The income from the properties sold in the year ended December 31, 2003, together with the two properties sold in the year ended December 31, 2002 consisted of rental income of $22,172,787 less operating expenses of $3,883,239 and real estate taxes of $2,636,381 resulting in net investment income of $15,653,167. At the time of sale, the properties sold in 2003 had a cost of $154,626,452 and the proceeds of sale were $187,225,000, resulting in a net realized gain of $32,598,548, The properties sold in 2002 had a cost of $22,592,804 and the proceeds of sale were $26,050,000, resulting in a net realized gain of $3,457,196. YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001 RESULTS FROM CONTINUED OPERATIONS PERFORMANCE The Account's total net return was 3.41% for the year ended December 31, 2002 and 6.29% for 2001. The substantial decline in the Account's overall performance on a year-to-year basis reflected the effects of the economic recession, which began in early 2001, and persisted throughout 2002. The decline in value of the real estate properties owned by the Account reflecting the effects of the deteriorating market conditions was the primary reason for the 17 decline in its total return. The negative impact of the recessionary economy was reflected in lower market rental rates, higher vacancies, and increased leasing costs and tenant concessions. In 2002, the Account's real estate properties continued to produce strong income returns, and at year end 2002, the non-residential property portfolio was 92% occupied overall with only 10% of the non-residential property portfolio's square footage up for renewal or re-leasing in 2003. The modest returns produced by the REIT markets in 2002, as well as the low interest rates earned by its short-term holdings, also negatively affected the Account's overall performance. INCOME AND EXPENSES The Account's net investment income after deduction of all expenses was 16.63% higher for the year ended December 31, 2002 compared to the same period in 2001 primarily due to a 14.39% increase in total net assets and an 49.04% increase in the Account's real estate holdings, including joint ventures. The Account's real estate holdings, including joint venture investments, generated approximately 88% and 83% of the Account's total investment income (before deducting Account level expenses) during 2002 and 2001, respectively. The remaining portion of the Account's total investment income was generated by marketable securities investments. Gross real estate rental income increased approximately 23% in the year ended December 31, 2002 over the same period in 2001. This was primarily due to the increase in the number of properties owned by the Account from 65 properties (including joint ventures) as of December 31, 2001 to 77 properties (including joint ventures) as of December 31, 2002. Income from real estate joint ventures increased by 490% for the same periods due to an increase in the number of joint venture partnership interests owned by the Account in the year ended December 31, 2002. Interest income on the Account's marketable securities investments decreased from $24,490,376 for 2001 to $13,546,694 for 2002 due to the decline in short-term rates from 2001 to 2002 and the decrease in the amount of non-real estate assets held by the Account. Dividend income on the Account's REIT investments increased from $9,196,967 for the year ended December 31, 2001 to $12,891,207 for the year ended December 31, 2002. Total property level expenses for the year ended December 31, 2002 and 2001 were $99,637,132, and $76,653,457, respectively. In both years ended 2002 and 2001, 64% of the total expenses represented operating expenses and 36% represented real estate taxes. The 30% increase in property level expenses during 2002 reflected the increased number of properties in the Account, as well as an increase in operating expenses. The Account also incurred expenses for the years ended December 31, 2002 and 2001 of $9,495,736 and $5,896,729, respectively, for investment advisory services, $10,390,705 and $8,470,496, respectively, for administrative and distribution services and $3,417,895 and $2,824,704, respectively, for the mortality and expense risk charges and the liquidity guarantee charges. Such expenses increased primarily as a result of the larger net asset base in the Account and increased costs associated with managing and administering a larger account. The expenses 18 for investment advisory services for the year ended December 31, 2001 also were substantially lower than those in 2002 since they included adjustments related to fourth quarter 2000 expenses. NET REALIZED AND UNREALIZED GAINS AND LOSSES ON INVESTMENTS Including the net gains and losses realized by the Account for the properties sold (see details under "Results from Discontinued Operations"), the Account had a 31% decline in net assets resulting from operations ($116,242,038 in December 2002 vs. $169,218,985 in December 2001). The decrease was due to the substantial unrealized losses on each of the Account's asset types. The Account's real estate had net realized and unrealized losses of $94,447,265 in 2002 as compared to net losses of $30,720,187 in 2001. The Account's marketable securities in the year ended December 31, 2002 had net realized and unrealized losses totaling $6,195,855 and net realized and unrealized gains of $5,231,736 for the year ended December 31, 2001. The Account's investments in joint ventures had net unrealized losses of $5,781,360 in 2002 as compared to net unrealized gains of $2,002,837 in 2001 on its investments in other real estate-related investments. RESULTS FROM DISCONTINUED OPERATIONS In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). The Account adopted SFAS No. 144 as of January 1, 2002. During the year ended December 31, 2002, the Account sold two real estate properties. In accordance with SFAS No. 144, the investment income and realized gain for the years ended December 31, 2002 and 2001 relating to those properties were removed from continuing operations in the accompanying financial statements and classified as discontinued operations. The income from the two properties sold in the year ended December 31, 2002 for that year consisted of rental income of $643,564 less operating expenses of $68,031 and real estate taxes of $74,076, resulting in net investment income of $501,457. The income from these two properties sold in 2002 for the full year ended December 31, 2001 consisted of rental income of $2,915,653 less operating expenses of $182,266 and real estate taxes of $262,402, resulting in net investment income of $2,470,985. The income from the properties sold in 2003 and 2002 combined for the full year ended December 31, 2001 consisted of rental income of $23,180,358 less operating expenses of $3,766,328 and real estate taxes of $1,707,150 resulting in net investment income of $17,706,880. At the time of sale, the properties had a cost of $22,592,804 and the proceeds of sale were $26,050,000, resulting in a net realized gain of $3,457,196. LIQUIDITY AND CAPITAL RESOURCES At year end 2003 and 2002, the Account's liquid assets (i.e., its REITs, CMBSs, commercial paper, government securities and cash) had a value of $753,971,810 and $271,568,803, respectively. The increase in the Account's liquid assets was primarily due to the substantial net positive inflow of transfers and premiums into the Account in 2003, when at the same time there were fewer opportunities to purchase real estate meeting the Account's investment criteria. 19 In 2003, the account received $515,435,665 in premiums and $433,792,602 in net participant transfers from TIAA and CREF Accounts and affiliated mutual funds, while for 2002 the Account received $395,464,695 in premiums and $64,698,804 in net participants' transfers. Real estate properties costing approximately $753.3 million and $1.1 billion were purchased during 2003 and 2002, respectively. In 2003, the Account also received approximately $187.2 million in proceeds from the sale of one office and one industrial property. The Account's liquid assets, exclusive of the REITs, will continue to be available to purchase additional suitable real estate properties and to meet expense needs and redemption requests (i.e., cash withdrawals or 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., to make leveraged real estate investments. Also, to meet any short-term cash needs, the Account may obtain a line of credit whose terms may require that the Account secure a loan with one or more of its properties. The Account's total borrowings may not exceed 20% of the Account's total net asset value. EFFECTS OF INFLATION AND INCREASING OPERATING EXPENSES Inflation, along with increased insurance and security costs, may increase property operating expenses in the future. We anticipate that these increases in operating expenses will generally be billed to tenants either through contractual lease provisions in office, industrial, and retail properties or through rent increases in apartment complexes. However, depending on how long any vacant space in a property remains unleased, the Account may not be able to recover the full amount of such increases in operating expenses. CRITICAL ACCOUNTING POLICIES THE CONSOLIDATED FINANCIAL STATEMENTS OF THE ACCOUNT ARE PREPARED IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES. In preparing the Account's consolidated financial statements, management is required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances--the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Management believes that the following policies related to the valuation of the Account's assets reflected in the Account's consolidated financial statements affect the significant judgments, estimates and assumptions used in preparing its financial statements: VALUATION OF REAL ESTATE PROPERTIES: Investments in real estate properties are stated at fair value, as determined in accordance with procedures approved by the Investment 20 Committee of the TIAA Board of Trustees. Fair value for real estate properties is defined as the most probable price for which a property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair value involves subjective judgment because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. The Account's properties are initially valued at their respective purchase prices (including acquisition costs). Subsequently, independent appraisers value each real estate property at least once a year. TIAA's appraisal staff performs a valuation of each real estate property on a quarterly basis and updates the property value if it believes that the value of the property has changed since the previous valuation or appraisal. The appraisals are performed in accordance with Uniform Standards of Professional Appraisal Practices (USPAP), the real estate appraisal industry standards created by The Appraisal Foundation. Real estate appraisals are estimates of property values based on a professional's opinion. VALUATION OF MORTGAGES: Mortgages are initially valued at their face amount. Fixed rate mortgages are thereafter valued quarterly by discounting payments of principal and interest to their present value using a rate at which commercial lenders would make similar mortgage loans. Floating variable rate mortgages are generally valued at their face amount, although the value may be adjusted as market conditions dictate. VALUATION OF REAL ESTATE JOINT VENTURES: Real estate joint ventures are stated at the Account's equity in the net assets of the underlying joint venture entities, which value their real estate holdings at fair value. VALUATION OF MARKETABLE SECURITIES: Equity securities listed or traded on any United States national securities exchange are valued at the last sale price as of the close of the principal securities exchange on which such securities are traded or, if there is no sale, at the mean of the last bid and asked prices on such exchange. Short-term money market instruments are stated at market value. Portfolio securities and limited partnership interests for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Investment Committee of the Board of Trustees and in accordance with the responsibilities of the Board as a whole. FORWARD-LOOKING STATEMENTS Some statements in this report which are not historical facts may be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations, beliefs, intentions or strategies for the future, and the assumptions underlying these forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or management's present expectations. Caution should be taken not to place undue reliance on management's forward-looking statements, which represent management's views only as of the date this report is filed. Neither management nor the Account undertake any obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise. 21 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As of December 31, 2003, 14.91% of the Account's investments were in market risk sensitive instruments, comprised entirely of marketable securities. These include real estate investment trusts (REITs), commercial mortgage-backed securities (CMBSs), and high-quality short-term debt instruments (i.e., commercial paper). 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: o FINANCIAL RISK -- for debt securities, the possibility that the issuer won't be able to pay principal and interest when due, and for common or preferred stock, the possibility that the issuer's current earnings will fall or that its overall financial soundness will decline, reducing the security's value. o MARKET RISK -- price volatility due to changing conditions in the financial markets and, particularly for debt securities, changes in overall interest rates. o INTEREST RATE VOLATILITY, which may affect current income from an investment. 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 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. In addition to these risks, REITs 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. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS TIAA REAL ESTATE ACCOUNT -------------------------------------------------------------------------------- Page ---- Report of Management Responsibility ................................... 24 Report of Audit Committee ............................................. 25 Audited Consolidated Financial Statements: Consolidated Statements of Assets and Liabilities ................... 26 Consolidated Statements of Operations ............................... 27 Consolidated Statements of Changes in Net Assets .................... 28 Consolidated Statements of Cash Flows ............................... 29 Notes to Consolidated Financial Statements .......................... 30 Report of Independent Auditors. ..................................... 35 Consolidated Statement of Investments ............................... 36 Schedule III--Real Estate Owned ....................................... 42 All other schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule or because the information is included in the financial statements and notes thereto. 23 -------------------------------------------------------------------------------- REPORT OF MANAGEMENT RESPONSIBILITY To the Participants of the TIAA Real Estate Account: The accompanying consolidated financial statements of the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity Association of America ("TIAA") are the responsibility of TIAA's management. They have been prepared in accordance with accounting principles generally accepted in the United States and have been presented fairly and objectively in accordance with such principles. TIAA has established and maintains a strong system of internal controls 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 TIAA, including its separate account operations, and the chief audit executive regularly reports to the Audit Committee of the TIAA Board of Trustees. The accompanying consolidated financial statements have been audited by the independent auditing firm of Ernst & Young LLP. To maintain auditor independence and avoid even the appearance of conflict of interest, it continues to be the Account's policy that any management advisory or consulting services be obtained from a firm other than the external financial audit firm. The independent auditors' report, which follows the notes to financial statements, expresses an independent opinion on the fairness of presentation of these financial statements. The Audit Committee of the TIAA Board of Trustees, consisting entirely of trustees who are not officers of TIAA, meets regularly with management, representatives of Ernst & Young LLP and internal audit personnel to review matters relating to financial reporting, internal controls and auditing. In addition to the annual audit of the Account's financial statements by the independent auditing firm, the New York State Insurance Department and other state insurance departments perform periodic examinations of the Accounts' operations. /s/ Herbert M. Allison, Jr. ------------------------------- Chairman, President and Chief Executive Officer /s/ Elizabeth A. Monrad ------------------------------- Executive Vice President and Chief Financial Officer 24 -------------------------------------------------------------------------------- REPORT OF THE AUDIT COMMITTEE To the Participants of the TIAA Real Estate Account: The TIAA Audit Committee oversees the financial reporting process of the TIAA Real Estate Account ("Account") on behalf of TIAA's Board of Trustees. The Audit Committee operates in accordance with a formal written charter (copies are available upon request) which describes the Audit Committee's responsibilities. All members of the Audit Committee ("Committee") are independent, as defined under the listing standards of the New York Stock Exchange. Management has the primary responsibility for the Account's consolidated 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 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. 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 consolidated 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 consolidated financial statements with Ernst & Young LLP, the independent auditing firm responsible for expressing an opinion on the conformity of these audited consolidated financial statements with generally accepted accounting principles. The discussion with Ernst & Young LLP focused on their judgments concerning the quality and appropriateness of the accounting principles and financial reporting practices followed by the Account, the clarity and completeness of the consolidated 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 Public Company Accounting Oversight Board and theIndependence Standards Board. Based on the review and discussions referred to above, the Committee has approved the release of the accompanying audited consolidated financial statements for publication and filing with appropriate regulatory authorities. Rosalie J. Wolf, Audit Committee Chair Leonard S. Simon, Audit Committee Member Paul R. Tregurtha, Audit Committee Member February 18, 2004 25 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

DECEMBER 31, DECEMBER 31, 2003 2002 -------------- -------------- ASSETS Investments, at value: Real estate properties (cost: $4,112,822,557 and $3,321,279,641) .......................... $4,020,739,068 $3,281,332,364 Other real estate related investments, including joint ventures (cost: $256,127,352 and $249,182,234) .............................. 283,252,850 246,906,005 Marketable securities: Real estate related (cost: $295,835,312 and $163,146,056) ............................. 318,251,737 153,137,369 Other (cost: $435,725,426 and $117,786,465) ............................. 435,720,073 117,934,570 Cash ................................................................. -- 496,864 Other ................................................................ 107,719,658 70,725,106 -------------- -------------- TOTAL ASSETS 5,165,683,386 3,870,532,278 -------------- -------------- LIABILITIES Amount due to bank ................................................... 1,015,345 -- Accrued real estate property level expenses and taxes ................ 67,791,195 43,796,440 Security deposits held ............................................... 13,137,670 11,718,245 -------------- -------------- TOTAL LIABILITIES 81,944,210 55,514,685 -------------- -------------- MINORITY INTEREST IN SUBSIDIARIES .................................... 290,317,015 139 ,029,033 -------------- -------------- NET ASSETS Accumulation Fund ................................................... 4,621,918,975 3,538,288,326 Annuity Fund ........................................................ 171,503,186 137,700,234 -------------- -------------- TOTAL NET ASSETS $4,793,422,161 $3,675,988,560 ============== ============== NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 6 and 7 ......................................... 24,724,183 20,346,696 ============== ============== NET ASSET VALUE, PER ACCUMULATION UNIT--Note 6 ....................... $ 186.94 $ 173.90 ============== ==============

See notes to consolidated financial statements. 26 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, ------------------------------------------------- 2003 2002 2001 ------------- ------------- ------------- INVESTMENT INCOME Real estate income, net: Rental income ..................................................... $ 393,497,346 $ 287,419,001 $ 233,574,957 ------------- ------------- ------------- Real estate property level expenses and taxes: Operating expenses ............................................... 96,026,718 63,789,057 48,690,151 Real estate taxes ................................................ 53,413,903 35,848,075 27,963,306 ------------- ------------- ------------- Total real estate property level expenses and taxes 149,440,621 99,637,132 76,653,457 ------------- ------------- ------------- Real estate income, net 244,056,725 187,781,869 156,921,500 Income from real estate joint ventures ............................. 19,492,494 14,125,306 2,392,594 Interest ........................................................... 7,221,765 13,546,694 24,490,376 Dividends .......................................................... 12,240,166 12,891,207 9,196,967 ------------- ------------- ------------- TOTAL INCOME 283,011,150 228,345,076 193,001,437 ------------- ------------- ------------- Expenses--Note 2: Investment advisory charges ....................................... 12,751,191 9,495,736 5,896,729 Administrative and distribution charges ........................... 14,786,580 10,390,705 8,470,496 Mortality and expense risk charges ................................ 2,916,880 2,430,240 1,987,604 Liquidity guarantee charges ....................................... 1,199,414 987,655 837,100 ------------- ------------- ------------- TOTAL EXPENSES 31,654,065 23,304,336 17,191,929 ------------- ------------- ------------- INVESTMENT INCOME, NET 251,357,085 205,040,740 175,809,508 ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on: Real estate properties ............................................ -- -- (4,109,121) Marketable securities ............................................. 7,692,266 6,926,085 2,839,417 ------------- ------------- ------------- Net realized gain (loss) on investments 7,692,266 6,926,085 (1,269,704) ------------- ------------- ------------- Net change in unrealized appreciation (depreciation) on: Real estate properties ............................................ (52,136,212) (94,447,265) (26,611,066) Other real estate related investments ............................. 29,401,727 (5,781,360) 2,002,837 Marketable securities ............................................. 32,271,654 (13,121,940) 2,392,319 ------------- ------------- ------------- Net change in unrealized appreciation (depreciation) on investments 9,537,169 (113,350,565) (22,215,910) ------------- ------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 17,229,435 (106,424,480) (23,485,614) ------------- ------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST AND DISCONTINUED OPERATIONS 268,586,520 98,616,260 152,323,894 Minority interest in net increase in net assets resulting from operations ......................................... (6,655,183) (1,484,585) (811,789) ------------- ------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS BEFORE DISCONTINUED OPERATIONS 261,931,337 97,131,675 151,512,105 ------------- ------------- ------------- Discontinued operations--Note 3: Investment income from discontinued operations .................... 9,043,001 15,653,167 17,706,880 Realized gain from discontinued operations ........................ 32,598,548 3,457,196 -- ------------- ------------- ------------- Net increase in net assets resulting from discontinued operations 41,641,549 19,110,363 17,706,880 ------------- ------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 303,572,886 $ 116,242,038 $ 169,218,985 ============= ============= =============

See notes to consolidated financial statements. 27 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31, ------------------------------------------------------- 2003 2002 2001 --------------- --------------- --------------- FROM OPERATIONS Investment income, net ................................... $ 251,357,085 $ 205,040,740 $ 175,809,508 Net realized gain (loss) on investments .................. 7,692,266 6,926,085 (1,269,704) Net change in unrealized appreciation (depreciation) on investments .......................................... 9,537,169 (113,350,565) (22,215,910) Minority interest in net increase in net assets resulting from operations ............................... (6,655,183) (1,484,585) (811,789) Discontinued operations .................................. 41,641,549 19,110,363 17,706,880 --------------- --------------- --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 303,572,886 116,242,038 169,218,985 --------------- --------------- --------------- FROM PARTICIPANT TRANSACTIONS Premiums ................................................. 515,435,665 395,464,695 254,149,962 Net transfers from (to) TIAA ............................. 30,198,200 (158,282,438) (6,241,427) Net transfers from CREF Accounts ......................... 403,594,402 222,981,242 492,856,010 Annuity and other periodic payments ...................... (22,213,682) (18,024,403) (13,710,081) Withdrawals and death benefits ........................... (113,153,870) (96,059,751) (69,728,343) --------------- --------------- --------------- NET INCREASE IN NET ASSETS RESULTING FROM PARTICIPANT TRANSACTIONS 813,860,715 346,079,345 657,326,121 --------------- --------------- --------------- NET INCREASE IN NET ASSETS 1,117,433,601 462,321,383 826,545,106 NET ASSETS Beginning of year ........................................ 3,675,988,560 3,213,667,177 2,387,122,071 --------------- --------------- --------------- End of year .............................................. $ 4,793,422,161 $ 3,675,988,560 $ 3,213,667,177 =============== =============== ===============

See notes to consolidated financial statements. 28 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, ------------------------------------------------------- 2003 2002 2001 --------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net increase in net assets resulting from operations ........... $ 303,572,886 $ 116,242,038 $ 169,218,985 Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: Increase in investments ....................................... (1,258,653,420) (573,204,724) (836,986,805) Increase in other assets ...................................... (36,994,552) (26,721,697) (10,737,652) Increase in accrued real estate property level expenses and taxes .................................................... 23,994,755 1,713,246 15,199,279 Increase in security deposits held ............................ 1,419,425 2,950,569 1,949,704 Increase (decrease) in other liabilities ...................... 1,015,345 1,869,590 (1,117,817) Increase in minority interest ................................. 151,287,982 131,293,040 4,707,776 --------------- --------------- --------------- NET CASH USED IN OPERATING ACTIVITIES (814,357,579) (345,857,938) (657,766,530) --------------- --------------- --------------- CASH FLOWS FROM PARTICIPANT TRANSACTIONS Premiums ....................................................... 515,435,665 395,464,695 254,149,962 Net transfers from (to) TIAA ................................... 30,198,200 (158,282,438) (6,241,427) Net transfers from CREF Accounts ............................... 403,594,402 222,981,242 492,856,010 Annuity and other periodic payments ............................ (22,213,682) (18,024,403) (13,710,081) Withdrawals and death benefits ................................. (113,153,870) (96,059,751) (69,728,343) --------------- --------------- --------------- NET CASH PROVIDED BY PARTICIPANT TRANSACTIONS 813,860,715 346,079,345 657,326,121 --------------- --------------- --------------- NET INCREASE (DECREASE) IN CASH (496,864) 221,407 (440,409) CASH Beginning of year .............................................. 496,864 275,457 715,866 --------------- --------------- --------------- End of year .................................................... $ -- $ 496,864 $ 275,457 =============== =============== ===============

See notes to consolidated financial statements. 29 TIAA REAL ESTATE ACCOUNT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SIGNIFICANT ACCOUNTING POLICIES The TIAA Real Estate Account ("Account") is a segregated investment account of Teachers Insurance and Annuity Association of America ("TIAA") and was established by resolution of TIAA's Board of Trustees on February 22, 1995, under the insurance laws of the State of New York, for the purpose of funding variable annuity contracts issued by TIAA. The Account holds various properties in wholly-owned and majority-owned subsidiaries which are consolidated for financial statement purposes. The investment objective of the Account is a favorable long-term rate of return primarily through rental income and capital appreciation from real estate investments owned by the Account. The Account also invests in publicly-traded securities and other instruments to maintain adequate liquidity for operating expenses, capital expenditures and to make benefit payments. The financial statements were prepared in accordance with accounting principles generally accepted in the United States which may require the use of estimates made by management. Actual results may vary from those estimates. The following is a summary of the significant accounting policies consistently followed by the Account. BASIS OF PRESENTATION: The accompanying consolidated financial statements include the Account and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. VALUATION OF REAL ESTATE PROPERTIES: Investments in real estate properties are stated at fair value, as determined in accordance with procedures approved by the Investment Committee of the 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. The independent fiduciary reviews all appraisals and approves any valuation adjustments which exceed certain prescribed limits before such adjustments are recorded by the Account. TIAA continues to use the revised value to calculate the Account's net asset value until the next valuation review or appraisal. VALUATION OF MORTGAGES: Mortgages are initially valued at their face amount. Fixed rate mortgages are, thereafter, valued quarterly by discounting payments of principal and interest to their present value using a rate at which commercial lenders would make similar mortgage loans. Floating variable rate mortgages are generally valued at their face amount, although the value may be adjusted as market conditions dictate. VALUATION OF REAL ESTATE JOINT VENTURES: Real estate joint ventures are stated at the Account's equity in the net assets of the underlying entity, which value their real estate holdings at fair value. VALUATION OF MARKETABLE SECURITIES: Equity securities listed or traded on any United States national securities exchange are valued at the last sale price as of the close of the principal securities exchange on 30 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 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. Realized gains and losses on real estate transactions are accounted for under the specific identification method. Securities transactions are accounted for as of the date the securities are purchased or sold (trade date). Interest income is recorded as earned and includes amortization of discounts and premiums. Dividend income is recorded on the ex-dividend date. 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. 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. RECLASSIFICATIONS: Certain amounts in the 2002 consolidated financial statements have been reclassified to conform with the 2003 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. Distribution and administrative services for the Account are provided by TIAA-CREF Individual & Institutional Services, Inc. ("Services") pursuant to a Distribution and Administrative Services Agreement with the Account. Services, a wholly-owned subsidiary of TIAA, is a registered broker-dealer and member 31 of the National Association of Securities Dealers, Inc. Effective January 1, 2004 Services was converted from a regular corporation to a limited liability corporation. The services provided by TIAA and Services are provided at cost. TIAA and Services receive payments from the Account on a daily basis according to formulas established each year with the objective of keeping the payments as close as possible to the Account's actual expenses. Any differences between actual expenses and the amounts paid are adjusted quarterly. 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. NOTE 3--REAL ESTATE PROPERTIES Had the Account's real estate properties which were purchased during the year ended December 31, 2003 been acquired at the beginning of the year (January 1, 2003), rental income and real estate property level expenses and taxes for the year ended December 31, 2003 would have increased by approximately $91,488,000 and $36,464,000, respectively. In addition, interest income for the year ended December 31, 2003 would have decreased by approximately $7,222,000. Accordingly, the total proforma effect on the Account's net investment income for the year ended December 31, 2003 would have been an increase of approximately $37,663,000, if the real estate properties acquired during the year ended December 31, 2003 had been acquired at the beginning of the year. During the year ended December 31, 2003 the Account sold two real estate properties. The income for these properties during 2003 (prior to the sale) consisted of rental income of $14,215,497 less operating expenses of $3,502,961 and real estate taxes of $1,669,535, resulting in net investment income of $9,043,001. At the time of sale, the properties had a cost basis of $154,626,452 and the proceeds of sale were $187,225,000, resulting in a realized gain of $32,598,548. NOTE 4--LEASES The Account's real estate properties are leased to tenants under operating lease agreements which expire on various dates through 2046. Aggregate minimum annual rentals for the properties owned, excluding short-term residential and storage facility leases, are as follows: Years Ending December 31, ------------ 2004 $ 384,239,000 2005 347,178,000 2006 297,300,000 2007 262,404,000 2008 223,367,000 Thereafter 707,247,000 -------------- Total $2,221,735,000 ============== Certain leases provide for additional rental amounts based upon the recovery of actual operating expenses in excess of specified base amounts. 32 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 mortgages payable on the properties owned. The Account's allocated portion of the mortgages payable at December 31, 2003 is $218,224,058. The Accounts' equity in the joint ventures at December 31, 2003 is $241,022,012. A condensed summary of the financial position and results of operations of the joint ventures is shown below.

DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2001 ----------------- ----------------- ----------------- ASSETS Real estates properties ......... $914,645,112 $851,578,413 $ 56,686,326 Other assets .................... 24,673,188 32,997,030 1,435,578 ------------ ------------ ------------ Total assets ............... $939,318,300 $884,575,443 $ 58,121,904 ============ ============ ============ LIABILITIES AND EQUITY Mortgages payable, including accrued interest .... $436,448,116 $385,456,582 $ -- Other liabilities ............... 20,826,160 15,040,756 708,502 ------------ ------------ ------------ Total liabilities .......... 457,274,276 400,497,338 708,502 EQUITY ........................... 482,044,024 484,078,105 57,413,402 ------------ ------------ ------------ Total liabilities and equity $939,318,300 $884,575,443 $ 58,121,904 ============ ============ ============

YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2001 ----------------- ----------------- ----------------- OPERATING REVENUES AND EXPENSES Revenues ........................ $ 98,912,953 $ 93,708,332 $ 6,461,814 Expenses ........................ 57,489,623 54,386,720 2,240,630 ------------ ------------ ------------ Excess of revenues over expenses $ 41,423,330 $ 39,321,612 $ 4,221,184 ============ ============ ============

33 NOTE 6--CONDENSED CONSOLIDATED FINANCIAL INFORMATION Selected condensed consolidated financial information for an Accumulation Unit of the Account is presented below.

YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- 2003 2002 2001 2000 1999 --------- --------- --------- --------- --------- Per Accumulation Unit data: Rental income ........................................ $ 16.514 $ 14.537 $ 14.862 $ 14.530 $ 12.168 Real estate property level expenses and taxes ........ 6.263 4.988 4.754 4.674 3.975 --------- --------- --------- --------- --------- Real estate income, net 10.251 9.549 10.108 9.856 8.193 Income from real estate joint ventures ............... 0.790 0.665 0.130 0.056 -- Dividends and interest ............................... 0.788 1.244 1.950 2.329 2.292 --------- --------- --------- --------- --------- Total income 11.829 11.458 12.188 12.241 10.485 Expense charges (1) .................................. 1.282 1.097 0.995 0.998 0.853 --------- --------- --------- --------- --------- Investment income, net 10.547 10.361 11.193 11.243 9.632 Net realized and unrealized gain (loss) on investments .......................... 2.492 (4.621) (1.239) 3.995 1.164 --------- --------- --------- --------- --------- Net increase in Accumulation Unit Value .............. 13.039 5.740 9.954 15.238 10.796 Accumulation Unit Value: Beginning of year ................................... 173.900 168.160 158.206 142.968 132.172 --------- --------- --------- --------- --------- End of year ......................................... $ 186.939 $ 173.900 $ 168.160 $ 158.206 $ 142.968 ========= ========= ========= ========= ========= Total return ......................................... 7.50% 3.41% 6.29% 10.66% 8.17% Ratios to Average Net Assets: Expenses (1) ........................................ 0.76% 0.67% 0.61% 0.67% 0.63% Investment income, net ............................... 6.25% 6.34% 6.81% 7.50% 7.13% Portfolio turnover rate: Real estate properties .............................. 5.12% 0.93% 4.61% 3.87% 4.46% Securities .......................................... 71.83% 52.08% 40.62% 32.86% 27.68% Thousands of Accumulation Units outstanding at end of year .......................... 24,724 20,347 18,456 14,605 11,487

(1) Expense charges per Accumulation Unit and the Ratio of Expenses to Average Net Assets exclude real estate property level expenses and taxes. If the real estate property level expenses and taxes were included, the expense charge per Accumulation Unit for the year ended December 31, 2003 would be $7.545 ($6.085, $5.749, $5.672 and $4.828 for the years ended December 31, 2002, 2001, 2000 and 1999, respectively), and the Ratio of Expenses to Average Net Assets for the year ended December 31, 2003 would be 4.47% (3.72%, 3.50%, 3.79% and 3.58% for the years ended December 31, 2002, 2001, 2000 and 1999, respectively). 34 NOTE 7--ACCUMULATION UNITS Changes in the number of Accumulation Units outstanding were as follows:

FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 2003 2002 2001 ----------- ----------- ----------- Accumulation Units: Credited for premiums ............................... 2,860,354 2,310,355 1,542,511 Credited (cancelled) for transfers, net disbursements and amounts applied to the Annuity Fund ............ 1,517,133 (420,104) 2,309,261 Outstanding: Beginning of year .................................. 20,346,696 18,456,445 14,604,673 ----------- ----------- ----------- End of year ........................................ 24,724,183 20,346,696 18,456,445 =========== =========== ===========

NOTE 8--COMMITMENTS During the normal course of business, the Account enters into discussions and agreements to purchase or sell real estate properties. As of December 31, 2003, the account had no outstanding commitments. -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Participants of the TIAA Real Estate Account and the Board of Trustees of Teachers Insurance and Annuity Association of America: We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated statement of investments as of December 31, 2003, of the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity Association of America ("TIAA") as of December 31, 2003 and 2002, and the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the Index at item 15(a). These financial statements and schedule are the responsibility of TIAA's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Account at December 31, 2003 and 2002, and the consolidated results of its operations and the changes in its net assets and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP New York, New York February 18, 2004 -------------------------------------------------------------------------------- 35 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENT OF INVESTMENTS DECEMBER 31, 2003

REAL ESTATE PROPERTIES--79.49% LOCATION / DESCRIPTION VALUE ---------------------- ----- ARIZONA: Biltmore Commerce Center - Office building .................................................. $ 28,639,089 CALIFORNIA: 3 Hutton Centre - Office building ........................................................... 39,991,353 9 Hutton Centre - Office building ........................................................... 20,343,676 88 Kearny Street - Office building .......................................................... 62,541,205 Treat Towers - Office building .............................................................. 112,941,315(1) Cabot Industrial Portfolio - Industrial building ............................................ 52,223,082(1) Capitol Place - Office building ............................................................. 38,805,345 Eastgate Distribution Center - Industrial building .......................................... 16,600,000 Kenwood Mews - Apartments ................................................................... 22,700,000 Larkspur Courts - Apartments ................................................................ 55,000,000 The Legacy at Westwood - Apartments ......................................................... 84,400,000 Northpoint Commerce Center - Industrial building ............................................ 41,800,000 Ontario Industrial Portfolio - Industrial building .......................................... 117,500,000 Regents Court - Apartments .................................................................. 49,600,000 Westcreek - Apartments ...................................................................... 22,000,000 Westwood Marketplace - Shopping center ...................................................... 74,000,000 COLORADO: The Lodge at Willow Creek - Apartments ...................................................... 31,698,947 Monte Vista - Apartments .................................................................... 20,600,000 CONNECTICUT: Ten & Twenty Westport Road - Office building ................................................ 144,000,000 FLORIDA: 701 Brickell - Office building .............................................................. 177,009,565 4200 West Cypress Street - Office building .................................................. 32,824,935 Doral Pointe- Apartments .................................................................... 42,600,000 Golfview - Apartments ....................................................................... 27,750,000 The Fairways of Carolina - Apartments ....................................................... 18,000,000 The Greens at Metrowest - Apartments ........................................................ 14,000,000 Maitland Promenade One - Office building .................................................... 35,192,924 Plantation Grove - Shopping center .......................................................... 9,100,000 Pointe on Tampa Bay - Office building ....................................................... 42,100,000 Quiet Waters at Coquina Lakes - Apartments .................................................. 18,800,000 Royal St. George - Apartments ............................................................... 17,700,000 Sawgrass Office Portfolio - Office building ................................................. 45,400,000 South Florida Apartment Portfolio - Apartments .............................................. 46,700,000 GEORGIA: Alexan Buckhead - Apartments ................................................................ 41,000,000 Atlanta Industrial Portfolio - Industrial building .......................................... 37,300,000 Prominence in Buckhead - Office building .................................................... 92,494,922(1) ILLINOIS: 161 North Clark Street - Office building .................................................... 209,051,330(1) Chicago CalEast Industrial Portfolio- Industrial building ................................... 40,232,195 Chicago Industrial Portfolio - Industrial building .......................................... 59,292,310 Columbia Center III - Office building ....................................................... 30,000,000 Oak Brook Regency Towers - Office building .................................................. 67,300,000 Parkview Plaza - Office building ............................................................ 50,400,000 Rolling Meadows - Shopping center ........................................................... 13,550,000

36

LOCATION / DESCRIPTION VALUE ---------------------- ----- KENTUCKY: IDI Kentucky Portfolio - Industrial building ................................................ $ 52,000,000 MARYLAND: Corporate Boulevard - Office building ....................................................... 69,500,000 FEDEX Distribution Facility - Industrial building ........................................... 7,600,000 Longview Executive Park - Office building ................................................... 22,200,000 MASSACHUSETTS: Batterymarch Park II - Office building ...................................................... 10,000,000 Longwood Towers - Apartments ................................................................ 76,400,000 Mellon Financial Center at One Boston Place - Office building ............................... 248,000,000(1) Needham Corporate Center - Office building .................................................. 12,544,934 MICHIGAN: Indian Creek - Apartments ................................................................... 17,700,000 MINNESOTA: Interstate Crossing - Industrial building ................................................... 6,345,000 River Road Distribution Center - Industrial building ........................................ 4,150,000 NEVADA: UPS Distribution Facility - Industrial building ............................................. 11,500,000 NEW JERSEY: 10 Waterview Boulevard - Office building .................................................... 27,000,000 371 Hoes Lane - Office building ............................................................. 8,500,000 Konica Photo Imaging Headquarters - Industrial building ..................................... 18,500,000 Morris Corporate Center III - Office building ............................................... 90,000,000 NJ CalEast Industrial Portfolio- Industrial building ........................................ 39,843,924 South River Road Industrial - Industrial building ........................................... 31,000,000 NEW YORK: 780 Third Avenue - Office building .......................................................... 180,000,000 The Colorado - Apartments ................................................................... 54,008,059 NORTH CAROLINA: The Lynnwood Collection - Shopping center ................................................... 8,100,000 The Millbrook Collection - Shopping center .................................................. 7,000,000 OHIO: Bent Tree - Apartments ...................................................................... 13,000,000 BISYS Fund Services Building - Office building .............................................. 35,500,000(1) Columbus Portfolio - Office building ........................................................ 22,000,000 Northmark Business Center III - Office building ............................................. 5,200,000 OREGON: Five Centerpointe - Office building ......................................................... 13,850,797 PENNSYLVANIA: Lincoln Woods - Apartments .................................................................. 26,704,000 TENNESSEE: Memphis CalEast Industrial Portfolio- Industrial building ................................... 43,036,559 Summit Distribution Center- Industrial building ............................................. 21,961,420 TEXAS: Butterfield Industrial Park - Industrial building ........................................... 4,506,687(2) Dallas Industrial Portfolio - Industrial building ........................................... 138,000,000 The Legends at Chase Oaks - Apartments ...................................................... 26,000,000 UTAH: Landmark at Salt Lake City (Building #4) - Industrial building .............................. 12,500,000

37

LOCATION / DESCRIPTION VALUE ---------------------- ----- VIRGINIA: Ashford Meadows - Apartments ................................................................ $ 62,000,000 Fairgate at Ballston - Office building ...................................................... 28,400,000 Monument Place - Office building ............................................................ 33,334,338 WASHINGTON: Rainier Corporate Park- Industrial building ................................................. 53,994,267 WASHINGTON DC: 1015 15th Street - Office building .......................................................... 54,300,000 The Farragut Building - Office building ..................................................... 45,700,000 OTHER: Storage Portfolio I LLC ..................................................................... 175,676,890(1) -------------- TOTAL REAL ESTATE PROPERTIES (Cost $4,112,822,557) .......................................... 4,020,739,068 -------------- OTHER REAL ESTATE RELATED INVESTMENTS--5.60% REAL ESTATE JOINT VENTURES--4.77% Florida Mall Association, Ltd. The Florida Mall (50% Account Interest)* .................................................. 99,279,653 Teachers REA IV, LLC, which owns Tyson's Executive Plaza II (50% Account Interest) ......................................... 25,577,096 West Dade County Associates Miami International Mall (50% Account Interest)* .......................................... 39,789,620 West Town Mall Joint Venture West Town Mall (50% Account Interest)* .................................................... 76,375,643 -------------- TOTAL REAL ESTATE JOINT VENTURES (Cost $213,788,540) ........................................ 241,022,012 -------------- LIMITED PARTNERSHIPS-- 0.83% Essex Apartment Value Fund, L.P. (10% Account Interest) ..................................... 20,864,368 MONY/Transwestern Mezzanine Realty Partners L.P. (19.76% Account Interest) .................. 21,366,470 -------------- TOTAL LIMITED PARTNERSHIP (Cost $42,338,812) ................................................ 42,230,838 -------------- TOTAL OTHER REAL ESTATE RELATED INVESTMENTS (Cost $256,127,352) .................................... 283,252,850 --------------

* The market value reflects the Account's interest in the joint venture after debt. (1) This amount reflects the market value of the property as stated in the consolidated financial statements, which includes minority interest. (2) Leasehold interest only. 38

MARKETABLE SECURITIES--14.91% REAL ESTATE RELATED--6.29% REAL ESTATE INVESTMENT TRUSTS--5.24% SHARES ISSUER VALUE ------ ------ ----- 30,000 Apartment Investment & Management Co ......................................... $ 1,035,000 120,325 Archstone-Smith Trust ........................................................ 3,366,694 560,000 Ashford Hospitality Trust .................................................... 5,258,400 115,000 Avalonbay Communities Inc .................................................... 5,497,000 206,800 Boston Properties, Inc ....................................................... 9,965,692 315,000 BRE Properties ............................................................... 10,521,000 440,000 Cedar Shopping Centers Inc ................................................... 5,464,800 40,000 Chelsea Property Group Inc ................................................... 2,192,400 200,000 Entertainment Properties Trust ............................................... 6,942,000 300,000 Equity Office Properties Trust ............................................... 8,595,000 300,000 Equity One Inc ............................................................... 5,064,000 203,800 Equity Residential ........................................................... 6,014,138 40,000 Essex Property Trust Inc ..................................................... 2,568,800 400,000 Falcon Financial Investment .................................................. 3,920,000 70,000 Gables Residential Trust ..................................................... 2,431,800 140,000 Health Care Reit Inc ......................................................... 5,040,000 114,700 Hilton Hotels Corp ........................................................... 1,964,811 822,800 Host Marriott Corp ........................................................... 10,136,896 300,000 Interstate Hotels & Resorts .................................................. 1,605,000 250,000 Istar Financial Inc .......................................................... 9,725,000 640,000 Keystone Property Trust ...................................................... 14,137,600 100,000 Kimco Realty Corp ............................................................ 4,475,000 640,000 Lexington Corporate Properties Trust ......................................... 12,921,600 230,000 Liberty Property Trust ....................................................... 8,947,000 290,000 LTC Properties 8.5% .......................................................... 9,097,300 200,000 Macerich Company/ The ........................................................ 8,900,000 800,000 Meristar Hospitality Trust ................................................... 5,208,000 200,000 Mission West Properties, Inc ................................................. 2,590,000 130,000 Post Properties, Inc ......................................................... 3,629,600 250,000 Prentiss Properties Trust .................................................... 8,247,500 330,000 Prologis Trust ............................................................... 10,589,700 285,000 PS Business Parks Inc ........................................................ 11,759,100 172,500 Ramco-Gershenson Properties .................................................. 4,881,750 235,900 Simon Property Group, Inc .................................................... 10,931,606 22,100 Sun Communities Inc .......................................................... 855,270 200,000 Tanger Factory Outlet Center ................................................. 8,140,000 800,000 United Dominion Realty Trust ................................................. 15,360,000 260,000 US Restaurant Properties ..................................................... 4,430,400 131,300 Washington Real Estate Inv ................................................... 3,833,960 85,000 Weingarten Realty Investors .................................................. 3,769,750 170,000 Windrose Medical Properties .................................................. 2,109,700 306,300 Winston Hotels Inc ........................................................... 3,124,260 ------------- TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $242,402,103) ...................................... 265,247,527 -------------

39

COMMERCIAL MORTGAGE BACKED SECURITIES--1.05% PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE VALUE --------- -------------------------------------- ----- $ 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 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 5,000,000 Trize 2001 - TZHA A3FL 1.533% 03/15/13 ............................................................ 4,871,440 -------------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $53,433,209) .............................. 53,004,210 -------------- TOTAL REAL ESTATE RELATED (Cost $295,835,312) ............................................... 318,251,737 -------------- OTHER--8.62% COMMERCIAL PAPER--8.62%

PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE VALUE --------- -------------------------------------- ----- 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 25,000,000 Ciesco LP 1.080% 02/13/04 ............................................................ 24,967,917 18,000,000 Corporate Asset Funding Corp, Inc 1.090% 01/14/04 ............................................................ 17,992,720 20,275,000 Delaware Funding Corp 1.080% 01/22/04 ............................................................ 20,261,866 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 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 10,000,000 Greyhawk Funding LLC 1.100% 01/20/04 ............................................................ 9,994,111

40

PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE VALUE --------- -------------------------------------- ----- $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 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 4,460,000 Receivables Capital Corp 1.050% 01/05/04 ............................................................ 4,459,368 19,285,000 Receivables Capital Corp 1.070% 01/20/04 ............................................................ 19,273,643 25,000,000 Sigma Finance Inc 1.090% 01/06/04 ............................................................ 24,995,750 10,000,000 UBS Finance, (Delaware) Inc 0.960% 01/02/04 ............................................................ 9,999,433 -------------- TOTAL COMMERCIAL PAPER (Amortized cost $435,725,426) ........................................ 435,720,073 -------------- TOTAL OTHER (Cost $435,725,426) ............................................................. 435,720,073 -------------- TOTAL MARKETABLE SECURITIES (Cost $731,560,738) ............................................. 753,971,810 -------------- TOTAL INVESTMENTS--100.00% (Cost $5,100,510,647) ............................................ $5,057,963,728 ==============

See notes to consolidated financial statements. 41 TIAA REAL ESTATE ACCOUNT SCHEDULE III--REAL ESTATE OWNED DECEMBER 31, 2003

COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION INITIAL COST (INCLUDING VALUE AT YEAR ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE DESCRIPTION BRANCES PROPERTY AND LOSSES) 2003 COMPLETED ACQUIRED ----------- ------- ------------ ----------------- ------------ ------------ -------- River Road Distribution Center $-0- $4,174,182 ($24,182) $4,150,000 1995 11/22/95 Industrial Building Fridley, Minnesota The Greens At Metrowest Apartments -0- 12,522,047 1,477,953 14,000,000 1990 12/15/95 Apartments Orlando, Florida Butterfield Industrial Park -0- 4,456,125 50,562 4,506,687 1981 12/22/95 Industrial Building El Paso, Texas (1) Plantation Grove Shopping Center -0- 7,350,129 1,749,871 9,100,000 1995 12/28/95 Shopping Center Ocoee, Florida The Millbrook Collection -0- 6,774,711 225,289 7,000,000 1988 03/29/96 Shopping Center Raleigh, North Carolina The Lynnwood Collection -0- 6,708,120 1,391,880 8,100,000 1988 03/29/96 Shopping Center Raleigh, North Carolina Monte Vista -0- 17,663,849 2,936,151 20,600,000 1995 06/21/96 Apartments Littleton, Colorado

42

COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION INITIAL COST (INCLUDING VALUE AT YEAR ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE DESCRIPTION BRANCES PROPERTY AND LOSSES) 2003 COMPLETED ACQUIRED ----------- ------- ------------ ----------------- ------------ ------------ -------- Royal St. George $-0- $16,072,612 $1,627,388 $17,700,000 1995 12/20/96 Apartments West Palm Beach, Florida Interstate Crossing -0- 6,454,888 (109,888) 6,345,000 1995 12/31/96 Industrial Building Eagan, Minnesota Westcreek Apartments -0- 13,488,279 8,511,721 22,000,000 1988 01/02/97 Apartments Westlake Village, California Rolling Meadows Shopping Center -0- 12,930,463 619,537 13,550,000 1957 05/28/97 Shopping Center Rolling Meadows, Illinois Eastgate Distribution Center -0- 11,952,402 4,647,598 16,600,000 1996 05/29/97 Industrial Building San Diego, California Five Centerpointe -0- 15,656,341 (1,805,544) 13,850,797 1988 04/21/97 Office Building Lake Oswego, Oregon Longview Executive Park -0- 23,628,567 (1,428,567) 22,200,000 1988 04/21/97 Office Building Longview, Maryland Northmark Business Center -0- 8,812,644 (3,612,644) 5,200,000 1985 04/21/97 Office Building Blue Ash, Ohio

43

COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION INITIAL COST (INCLUDING VALUE AT YEAR ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE DESCRIPTION BRANCES PROPERTY AND LOSSES) 2003 COMPLETED ACQUIRED ----------- ------- ------------ ----------------- ------------ ------------ -------- Fairgate at Ballston $-0- $26,977,436 $1,422,564 $28,400,000 1988 04/21/97 Office Building Arlington, Virginia Parkview Plaza -0- 49,412,494 987,506 50,400,000 1990 04/29/97 Office Building Oakbrook Terrace, Illinois Lincoln Woods Apartments -0- 21,564,483 5,139,517 26,704,000 1991 10/20/97 Apartments Lafayette Hill, Pennsylvania 371 Hoes Lane -0- 15,499,306 (6,999,306) 8,500,000 1986 12/15/97 Office Building Piscataway, New Jersey Columbia Centre III -0- 38,580,069 (8,580,069) 30,000,000 1989 12/23/97 Office Building Rosemont, Illinois The Lodge at Willow Creek -0- 27,562,882 4,136,065 31,698,947 1997 12/24/97 Apartments Douglas County, Colorado The Legends at Chase Oaks -0- 29,701,668 (3,701,668) 26,000,000 1997 03/31/98 Apartments Plano, Texas Chicago Industrial Portfolio -0- 60,281,860 (989,550) 59,292,310 1997 06/30/98 Industrial Building Joliet, Illinois

44

COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION INITIAL COST (INCLUDING VALUE AT YEAR ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE DESCRIPTION BRANCES PROPERTY AND LOSSES) 2003 COMPLETED ACQUIRED ----------- ------- ------------ ----------------- ------------ ------------ -------- Golfview Apartments $-0- $28,066,591 ($316,591) $27,750,000 1998 07/31/98 Apartments Lake Mary, Florida Indian Creek Apartments -0- 17,002,932 697,068 17,700,000 1988 10/08/98 Apartments Farmington Hills, Michigan Bent Tree Apartments -0- 14,420,590 (1,420,590) 13,000,000 1987 10/22/98 Apartments Columbus, Ohio UPS Distribution Facility -0- 10,989,393 510,607 11,500,000 1998 11/13/98 Industrial Building Fernley, Nevada Ontario Industrial Portfolio -0- 105,364,400 12,135,600 117,500,000 1997 12/17/98 Industrial Building Ontario, California IDI Kentucky Portfolio -0- 53,030,599 (1,030,599) 52,000,000 1998 12/17/98 Industrial Building Hebron, Kentucky FEDEX Distribution Facility -0- 7,828,025 (228,025) 7,600,000 1998 12/18/98 Industrial Building Crofton, Maryland Biltmore Commerce Center -0- 37,323,057 (8,683,968) 28,639,089 1985 02/23/99 Office Building Phoenix, Arizona

45

COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION INITIAL COST (INCLUDING VALUE AT YEAR ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE DESCRIPTION BRANCES PROPERTY AND LOSSES) 2003 COMPLETED ACQUIRED ----------- ------- ------------ ----------------- ------------ ------------ -------- The Colorado $-0- $52,687,840 $1,320,219 $54,008,059 1987 04/14/99 Apartments New York, New York Sawgrass Office Portfolio -0- 52,933,368 (7,533,368) 45,400,000 1998 05/11/99 Office Building Sunrise, Florida 780 Third Avenue -0- 161,511,019 18,488,981 180,000,000 1984 07/08/99 Office Building New York, New York Monument Place -0- 34,597,697 (1,263,359) 33,334,338 1990 07/15/99 Office Building Fairfax, Virginia 88 Kearney Street -0- 65,795,171 (3,253,966) 62,541,205 1986 07/22/99 Office Building San Francisco, California 10 Waterview Boulevard -0- 31,063,635 (4,063,635) 27,000,000 1984 07/27/99 Office Building Parsippany, New Jersey Larkspur Courts -0- 53,038,988 1,961,012 55,000,000 1991 08/17/99 Apartments Larkspur, California Columbus Portfolio -0- 30,227,305 (8,227,305) 22,000,000 1997 11/30/99 Office Building Columbus, Ohio

46

COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION INITIAL COST (INCLUDING VALUE AT YEAR ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE DESCRIPTION BRANCES PROPERTY AND LOSSES) 2003 COMPLETED ACQUIRED ----------- ------- ------------ ----------------- ------------ ------------ -------- Konica Photo Imaging Headquarters $-0- $17,049,875 $1,450,125 $18,500,000 1999 12/21/99 Industrial Building Mahwah, New Jersey Atlanta Industrial Portfolio -0- 39,816,868 (2,516,868) 37,300,000 1999 04/04/00 Industrial Building Atlanta, Georgia Northpoint Commerce Center -0- 38,818,013 2,981,987 41,800,000 1994 06/15/00 Industrial Building Fullerton, California Morris Corporate Center III -0- 103,119,739 (13,119,739) 90,000,000 1990 07/12/00 Office Building Parsippany, New Jersey Ashford Meadows Apartments -0- 64,171,626 (2,171,626) 62,000,000 1998 09/28/00 Apartments Herndon, Virginia Landmark at Salt Lake City (Building #4) -0- 14,411,089 (1,911,089) 12,500,000 2000 11/03/00 Industrial Building Salt Lake City, Utah Cabot Industrial Portfolio -0- 40,713,096 11,509,986 52,223,082 2000 11/17/00 Industrial Building Rancho Cucamonga, California Maitland Promenade One -0- 36,520,162 (1,327,238) 35,192,924 1999 12/14/00 Office Building Maitland, Florida

47

COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION INITIAL COST (INCLUDING VALUE AT YEAR ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE DESCRIPTION BRANCES PROPERTY AND LOSSES) 2003 COMPLETED ACQUIRED ----------- ------- ------------ ----------------- ------------ ------------ -------- Dallas Industrial Portfolio $-0- $138,389,123 ($389,123) $138,000,000 1997 12/19/00 Industrial Building Coppell, Texas BISYS Fund Services Building -0- 32,332,485 3,167,515 35,500,000 2001 11/30/99 Office Building Columbus, Ohio Batterymarch Park II -0- 17,824,765 (7,824,765) 10,000,000 1986 05/31/01 Office Building Quincy, Massachusetts South River Road Industrial -0- 33,700,429 (2,700,429) 31,000,000 1999 06/25/01 Industrial Building Cranbury, New Jersey Needham Corporate Center -0- 28,150,986 (15,606,052) 12,544,934 1987 07/30/01 Office Building Needham, Massachusetts South Florida Apt Portfolio -0- 44,114,457 2,585,543 46,700,000 1986 08/24/01 Apartments Boca Raton, Florida The Fairways of Carolina -0- 17,286,931 713,069 18,000,000 1993 08/24/01 Apartments Margate, Florida Quiet Waters at Coquina Lakes -0- 19,094,415 (294,415) 18,800,000 1995 08/24/01 Apartments Deerfield Beach, Florida

48

COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION INITIAL COST (INCLUDING VALUE AT YEAR ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE DESCRIPTION BRANCES PROPERTY AND LOSSES) 2003 COMPLETED ACQUIRED ----------- ------- ------------ ----------------- ------------ ------------ -------- 9 Hutton Centre $-0- $20,448,764 ($105,088) $20,343,676 1981 10/30/01 Office Building Santa Ana, California Doral Pointe Apartments -0- 45,321,796 (2,721,796) 42,600,000 1990 11/06/01 Apartments Miami, Florida 1015 15th Street -0- 48,743,491 5,556,509 54,300,000 1978 11/09/01 Office Building Washington D.C. Kenwood Mews Apartments -0- 22,686,216 13,784 22,700,000 1991 11/30/01 Apartments Burbank, California Ten & Twenty Westport Road -0- 140,178,508 3,821,492 144,000,000 2001 12/28/01 Office Building Wilton, Connecticut The Farragut Building -0- 46,170,678 (470,678) 45,700,000 1962 05/16/02 Office Building Washington, DC The Legacy at Westwood Apartments -0- 85,066,625 (666,625) 84,400,000 2001 09/09/02 Apartments Los Angeles, California Westwood Marketplace -0- 74,022,241 (22,241) 74,000,000 1950 09/26/02 Shopping Center Los Angeles, California

49

COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION INITIAL COST (INCLUDING VALUE AT YEAR ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE DESCRIPTION BRANCES PROPERTY AND LOSSES) 2003 COMPLETED ACQUIRED ----------- ------- ------------ ----------------- ------------ ------------ -------- The Pointe on Tampa Bay $-0- $41,204,643 $895,357 $42,100,000 1982 10/09/02 Office Building Tampa, Florida Corporate Boulevard -0- 68,042,737 1,457,263 69,500,000 1989 10/31/02 Office Building Rockville, Maryland Regents Court Apartments -0- 49,566,014 33,986 49,600,000 2001 11/15/02 Apartments San Diego, California Oak Brook Regency Towers -0- 66,599,086 700,914 67,300,000 1977 11/26/02 Office Building Oakbrook, Illinois 701 Brickell -0- 172,058,614 4,950,951 177,009,565 1986 11/27/02 Office Building Miami, Florida Mellon Financial Center at -0- 261,995,246 (13,995,246) 248,000,000 1970 12/03/02 One Boston Place Office Building Boston, Massachusetts Longwood Towers -0- 80,212,239 (3,812,239) 76,400,000 1926 12/12/02 Apartments Brookline, Massachusetts Alexan Buckhead -0- 45,707,820 (4,707,820) 41,000,000 2002 12/30/02 Apartments Atlanta, Georgia

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COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION INITIAL COST (INCLUDING VALUE AT YEAR ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE DESCRIPTION BRANCES PROPERTY AND LOSSES) 2003 COMPLETED ACQUIRED ----------- ------- ------------ ----------------- ------------ ------------ -------- Capitol Place $-0- $38,792,367 $12,978 $38,805,345 1988 8/28/03 Office Building Sacramento, California Summit Distribution Center -0- 21,961,420 0 21,961,420 2002 11/24/03 Industrial Building Memphis, Tennessee NJ CalEast Industrial Portfolio -0- 39,843,924 0 39,843,924 Various 12/22/03 Industrial Building Middlesex, New Jersey Chicago CalEast Industrial Portfolio -0- 40,232,195 0 40,232,195 Various 12/22/03 Industrial Building Chicago, Illinois Memphis CalEast Industrial Portfolio -0- 43,036,559 0 43,036,559 Various 12/22/03 Industrial Building Memphis, Tennessee Storage Portfolio I, LLC -0- 175,676,890 0 175,676,890 Various 12/23/03 Property type--Other Various locations 4200 West Cypress Street -0- 32,824,935 0 32,824,935 1989 12/29/03 Office Building Tampa, Florida 161 North Clark Street (EOP) -0- 209,051,330 0 209,051,330 1992 12/30/03 Office Building Chicago, Illinois

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COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION INITIAL COST (INCLUDING VALUE AT YEAR ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE DESCRIPTION BRANCES PROPERTY AND LOSSES) 2003 COMPLETED ACQUIRED ----------- ------- ------------ ----------------- ------------ ------------ -------- Treat Towers (EOP) $-0- $112,941,315 $0 $112,941,315 1999 12/30/03 Office Building Walnut Creek, California Prominence in Buckhead (EOP) -0- 92,494,922 0 92,494,922 1999 12/30/03 Office Building Atlanta, Georgia Rainier Corporate Park -0- 53,994,267 0 53,994,267 1991-1997 12/31/03 Industrial Building Fife, Washington 3 Hutton Centre -0- 39,991,353 0 39,991,353 1985 12/31/03 Office Building Santa Ana, California ---- -------------- ------------ -------------- $-0- $4,048,486,421 ($27,747,353) $4,020,739,068 ==== ============== ============ ==============

(1) Leasehold interest only Reconciliation of investment property owned: Balance at beginning of period $3,281,332,364 Acquisitions (including properties under construction) 921,314,361 Dispositions (154,626,452) (Initial Cost 146,813,313, costs capitalized 7,813,139) Capital improvements and carrying costs (including unrealized gains and losses) (27,281,205) -------------- Balance at end of period $4,020,739,068 ============== 52 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 9A. CONTROLS AND PROCEDURES. (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. An evaluation was performed as of December 31, 2003 under the supervision of the registrant's management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the registrant's disclosure controls and procedures. Based on that evaluation, the registrant's management, including the principal executive officer and principal financial officer, concluded that the registrant's disclosure controls and procedures were effective for this annual reporting period. (b) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. There have been no significant changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal quarter that materially affected, or is reasonably likely to materially affect, the registrant's internal controls over financial reporting. ITEMS 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE COMPENSATION The Real Estate Account has no officers or directors and no TIAA trustee or executive officer receives compensation from the Account. The Trustees and principal executive officers of TIAA, and their principal occupations during the last five years, are as follows: TRUSTEES ELIZABETH E. BAILEY, 65 John C. Hower Professor of Public Policy and Management, Wharton School, University of Pennsylvania. Director, CSX Corporation and Altria Group, Inc. ROBERT C. CLARK, 60 Harvard University Distinguished Service Professor and Austin Wakeman Scott Professor of Law, Harvard Law School, Harvard University. Director, Collins & Aikman Corporation and Time Warner Inc. ESTELLE A. FISHBEIN, 69 Vice President and General Counsel Emerita, Johns Hopkins University. Director, Medical Centre Insurance Co. and MCIC Vermont, Inc. MARJORIE FINE KNOWLES, 64 Professor of Law, Georgia State University College of Law. 53 ROBERT M. O'NEIL, 69 Professor of Law, University of Virginia and Director, Thomas Jefferson Center for the Protection of Free Expression. DONALD K. PETERSON, 54 Chairman and Chief Executive Officer, Avaya Inc. Formerly, Executive Vice President and Chief Financial Officer, Lucent Technologies. Director, Reynolds & Reynolds Co. LEONARD S. SIMON, 67 Former Vice Chairman, Charter One Financial, Inc. Formerly, Chairman, President and Chief Executive Officer, RCSB Financial, Inc. and Chairman and Chief Executive Officer, Rochester Community Savings Bank. Director, Landmark Technology Partners, Inc. and Integrated Nano-Technologies, LLC. DAVID F. SWENSEN, 50 Chief Investment Officer, Yale University. Director, Schroders plc. RONALD L. THOMPSON, 54 Chairman and Chief Executive Officer, Midwest Stamping Co. Director,Interstate Bakeries and Ryerson Tull. PAUL R. TREGURTHA, 68 Chairman and Chief Executive Officer, Mormac Marine Group, Inc. and Moran Transportation Company, Inc.; Vice Chairman, Interlake Steamship Company and Lakes Shipping Company; Formerly, Chairman, Meridian Aggregates, L.P. Director, FPL Group, Inc. WILLIAM H. WALTRIP, 66 Former Chairman, Technology Solutions Company. Formerly, Chairman and Chief Executive Officer, Bausch & Lomb, Inc. Director, Charles River Laboratories, Bausch & Lomb, Inc. and Thomas & Betts Corporation. ROSALIE J. WOLF, 62 Managing Partner, Botanica Capital Partners LLC. Formerly, Managing Director, Offit Hall Capital Management LLC and its predecessor company, Laurel Management Company LLC; earlier, Treasurer and Chief Investment Officer, The Rockefeller Foundation. Director, North European Oil Royalty Trust. OFFICER--TRUSTEES HERBERT M. ALLISON, JR., 60 Chairman, President and Chief Executive Officer, TIAA. President and Chief Executive Officer, CREF. Formerly, President, Chief Operating Officer and Member of the Board of Directors of Merrill Lynch & Co., Inc., 1997-1999 and President and Chief Executive Officer of Alliance for LifeLong Learning, Inc., 1999 -2002. Director, New York Stock Exchange. OTHER OFFICERS GARY CHINERY, 54 Vice President and Treasurer, TIAA and CREF. E. LAVERNE JONES, 55 Vice President and Corporate Secretary, TIAA and CREF. 54 ELIZABETH A. MONRAD, 49 Executive Vice President and Chief Financial Officer, TIAA and CREF. JOHN SOMERS, 60 Executive Vice President, TIAA and CREF. PORTFOLIO MANAGEMENTTEAM JOSEPH LUIK, 52 Senior Managing Director--TIAA Mortgage and Real Estate Division, TIAA. THOMAS GARBUTT, 45 Group Managing Director--TIAA Real Estate Equities Group, TIAA. PHILIP J. MCANDREWS, 45 Managing Director--TIAA Real Estate Account, TIAA. AUDIT COMMITTEE FINANCIAL EXPERT On August 20, 2003, the Board of Trustees of TIAA determined that Rosalie J. Wolf was qualified and would serve as the audit committee financial expert on the TIAA's audit committee. Ms. Wolf is independent (as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934) and has not accepted, directly or indirectly, any consulting, advisory or other compensatory fee from TIAA, other than in her capacity as Trustee. CODE OF ETHICS The Board of Trustees of TIAA has adopted a new code of ethics for senior financial officers, including its principal executive officer, principal financial officer, principal accounting officer, or controller, and persons performing similar functions, in conformity with rules promulgated under the Sarbanes-Oxley Act of 2002. The code of ethics is filed as an exhibit to this annual report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Not applicable. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. TIAA's general account plays a significant role in operating the Real Estate Account, including providing a liquidity guarantee, and investment management and other services. LIQUIDITY GUARANTEE. If the Account's cash flow is insufficient to fund redemption requests, TIAA's general account has agreed to fund them by purchasing accumulation units. TIAA thereby guarantees that a participant can redeem accumulation units at their then 55 current daily net asset value. For the year ended December 31, 2003, the Account paid TIAA $1,199,414 for this liquidity guarantee through a daily deduction from the net assets of the Account. INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICES/CERTAIN RISKS BORNE BY TIAA. Deductions are made each valuation day from the net assets of the Account for various services required to manage investments, administer the Account and distribute the contracts. These services are performed at cost by TIAA and Services. Deductions are also made each valuation day to cover mortality and expense risks borne by TIAA. For the year ended December 31, 2003, the Account paid TIAA $12,751,191 for investment management services and $2,916,880 for mortality and expense risks. For the same period, the Account paid Services $14,786,580 for its administrative and distribution services. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Ernst & Young LLP ("Ernst & Young") performs independent audits of the Registrant's financial statements. To maintain auditor independence and avoid even the appearance of conflicts of interest, the Registrant, as a policy, does not engage Ernst & Young for management advisory or consulting services. AUDIT FEES. Ernst & Young's fees for professional services rendered for the audit of the Registrant's annual financial statements for the fiscal years ended December 31, 2003 and December 31, 2002 and review of financial statements included in Registrant's quarterly reports were $151,671 and $132,930, respectively. AUDIT-RELATED FEES. Ernst & Young fees for audit-related services (Sarbanes-Oxley-related activities) for the fiscal years ended December 31, 2003 and 2002, were $0 and $8,500, respectively. TAX FEES. Ernst & Young had no tax fees for the fiscal years ended December 31, 2003 and 2002. ALL OTHER FEES. Other than as set forth above, Ernst & Young had no additional fees with respect to Registrant. PREAPPROVAL POLICY. In June of 2003, the Registrant's audit committee ("Audit Committee") adopted a Preapproval Policy for External Audit Firm Services (the "Policy"). The Policy describes the types of services that may be provided by the independent auditor to the Registrant without impairing the auditor's independence. Under the Policy, the Audit Committee is required to preapprove services to be performed by the Registrant's independent auditor in order to ensure that such services do not impair the auditor's independence. The Policy requires the Audit Committee to: (i) appoint the independent auditor to perform the financial statement audit for the Registrant and certain of its affiliates, including 56 approving the terms of the engagement and (ii) preapprove the audit, audit-related and tax services to be provided by the independent auditor and the fees to be charged for provision of such services from year to year. AUDITOR FEES FOR RELATED ENTITIES. The aggregate non-audit fees billed by Ernst & Young for services rendered to the Registrant and affiliates performing on-going services to the Registrant, including TIAA, for the years ended December 31, 2003 and 2002 were $177,000 and $173,350, respectively. Ernst & Young's aggregate fees for professional services rendered in connection with the audit of financial statements for Teachers Insurance and Annuity Association of America ("TIAA") and the College Retirement Equities Fund ("CREF") and their affiliated entities were $3,684,508 for the year ended December 31, 2003 and $3,167,680 for the year ended December 31, 2002. Ernst & Young's aggregate fees for audit related-services provided to TIAA and CREF and their affiliated entities were $177,000 for the year ended December 31, 2003 and $159,000 for the year ended December 31, 2002. Ernst & Young's aggregate fees for tax services provided to TIAA and CREF and their affiliated entities were $229,871 for the year ended December 31, 2003 and $212,625 for the year ended December 31, 2002. Ernst & Young's aggregate fees for all other services provided to TIAA and CREF and their affiliated entities were $0 for the year ended December 31, 2003 and $22,850 for the year ended December 31, 2002. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. See Item 8 for required financial statements. (a) 2. Financial Statement Schedules. See Item 8 for required financial statement schedules. (a) 3. Exhibits. (1) Distribution and Administrative Services Agreement by and between TIAA and TIAA-CREF Individual & Institutional Services, Inc. (as amended)* (3) (A) Charter of TIAA (as amended)**** (B) Bylaws of TIAA (as amended)** (4) (A) Forms of RA, GRA, GSRA, SRA, and IRA Real Estate Account Contract Endorsements* (B) Forms of Income-Paying Contracts* (10) (A) Independent Fiduciary Agreement by and among TIAA, the Registrant, and Institutional Property Consultants, Inc. (as amended)*** (B) Custodial Services Agreement by and between TIAA and Morgan Guaranty Trust Company of New York with respect to the Real Estate Account* (14) Code of Ethics (31) Rule 13a-15(e)/15d-15(e) Certifications (32) Section 1350 Certifications 57 (b) Reports on 8-K. No reports on Form 8-K have been filed during the last quarter of the period covered by this report. The Account filed a report on Form 8-K on January 21, 2004 under Item 5 of the form with respect to the acquisition of properties for its portfolio. ---------- * - Previously filed and incorporated herein by reference to Post-Effective Amendment No. 2 to the Account's previous Registration Statement on Form S-1 filed April 30, 1996 (File No. 33-92990). ** - Previously filed and incorporated herein by reference to the Account's Form 10-Q Quarterly Report for the period ended September 30, 1997, filed November 13, 1997. *** - 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, 1997 (File No. 333-22809). **** - Previously filed and incorporated herein by reference to the Account's Form 10-K Annual Report for the period ended December 31, 2000, filed March 27, 2001. 58 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. TIAA REAL ESTATE ACCOUNT By: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By: /s/ Herbert M. Allison, Jr. ------------------------------------------ Herbert M. Allison, Jr. Chairman of the Board, President and Chief Executive Officer February 24, 2004 ------------------------------------------ Date Pursuant to the requirements of the Securities Exchange Act of 1934, this Report 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 of the Board, President, and Chief 2/24/04 ------------------------------- Executive Officer (Principal Executive Officer) Herbert M. Allison, Jr. /s/ Elizabeth A. Monrad Executive Vice President (Principal Financial 2/24/04 ------------------------------- and Accounting Officer) Elizabeth A. Monrad

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SIGNATURE OF TRUSTEE DATE SIGNATURE OF TRUSTEE DATE -------------------- ---- -------------------- ---- /s/ Herbert M. Allison, Jr. 2/24/04 /s/ Leonard S. Simon 2/24/04 ---------------------------------- ------------------------------------ Herbert M. Allison, Jr. Leonard S. Simon /s/ Elizabeth E. Bailey 2/24/04 /s/ David F. Swensen 2/24/04 ---------------------------------- ------------------------------------ Elizabeth E. Bailey David F. Swensen /s/Robert C. Clark 2/24/04 /s/ Ronald L. Thompson 2/24/04 ---------------------------------- ------------------------------------ Robert C. Clark Ronald L. Thompson /s/ Estelle A. Fishbein 2/24/04 /s/ Paul R. Tregurtha 2/24/04 ---------------------------------- ------------------------------------ Estelle A. Fishbein Paul R. Tregurtha /s/ Marjorie Fine Knowles 2/24/04 /s/ William H. Waltrip 2/24/04 ---------------------------------- ------------------------------------ Marjorie Fine Knowles William H. Waltrip /s/ Robert M. O'Neill 2/24/04 /s/ Rosalie J. Wolf 2/24/04 ---------------------------------- ------------------------------------ Robert M. O'Neill Rosalie J. Wolf ---------------------------------- Donald K. Peterson

60 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT Because the Registrant has no voting securities, nor its own management or board of directors, no annual report or proxy materials will be sent to contractowners holding interests in the Account. 61