10-K 1 c23617_10k-.txt ANNUAL REPORT 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, 2001 [ ] 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 nonprofit 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, 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 will invest in publicly-traded securities and other investments that are easily converted to cash to make redemptions, purchase or improve properties or cover other expenses. INVESTMENT STRATEGY. The Account seeks to invest between 70 percent to 95 percent of its assets directly in real estate or real estate-related investments. The Account's principal strategy is to purchase direct ownership interests in income-producing real estate, such as office, industrial, retail, and multi-family residential properties. The Account can also invest in other real estate or real estate-related investments, through joint ventures, real estate partnerships or real estate investment trusts (REITs). To a limited extent, the Account can also invest in conventional mortgage loans, participating mortgage loans, common or preferred stock of companies whose operations involve real estate (i.e., that primarily own or manage real estate), and collateralized mortgage obligations (CMOs). The Account will invest the remaining portion of its assets in government and corporate debt securities, money market instruments and other cash equivalents, and, at times, stock of companies that don't primarily own or manage real estate. In some circumstances, the Account can increase the portion of its assets invested in debt securities or money market instruments. This could happen if the Account receives a large inflow of money in a short period of time, there is a lack of attractive real estate investments available on the market, or the Account anticipates a need to have more cash available. The amount the Account invests in real estate and real estate-related investments at a given time will vary depending on market conditions and real estate prospects, among other factors. At December 31, 2001, the Account had 83.0% percent of its portfolio invested in real estate and real estate-related investments (including REITs). 2 NET ASSETS AND PORTFOLIO INVESTMENTS. As of December 31, 2001, the Account's net assets totaled $3,213,667,177. Through December 31, 2001 the Account held a total of 65 real estate properties, including 25 office properties (one of which is held in joint venture), 18 industrial properties (including one development project joint venture), 18 apartment complexes, and four neighborhood shopping centers. As of December 31, 2001, these properties represented 73.1% of the Account's total investment portfolio. As of that date, the Account also held investments in commercial paper, representing 17.0% of the portfolio, real estate investment trusts (REITs), representing 4.2% of the portfolio, and other real estate-related investments, including commercial mortgage backed securities (CMBS), a mortgage and one fund investment, representing 5.7% of the portfolio. 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, Inc. ("Services"), a subsidiary of TIAA, provide all portfolio accounting, custodial, distribution, administrative and related services for the Account at cost. ITEM 2. PROPERTIES. As of December 31, 2001, the Account had 65 properties in its real estate portfolio. The following charts break down the Account's real estate assets by region and property type. EAST MIDWEST SOUTH WEST TOTAL ---- ------- ----- ---- ----- OFFICE 35.6% 6.3% 3.8% 7.1% 52.8% INDUSTRIAL 4.7% 2.3% 6.3% 9.6% 22.9% RESIDENTIAL 6.4% 1.3% 8.9% 6.3% 22.9% RETAIL 0.6% 0.5% 0.3% 0 1.4% TOTAL 47.3% 10.4% 19.3% 23.0% 100.0% 3 In the table below you will find general information about each of the Account's portfolio properties as of December 31, 2001.

ANNUAL AVG. RENTABLE BASE RENT YEAR YEAR AREA PERCENT PER LEASED MARKET PROPERTY LOCATION BUILT PURCHASED (SQ. FT.) LEASED SQ. FT.(1) VALUE(2) -------- -------- ----- --------- --------- ------ ---------- -------- OFFICE PROPERTIES 780 Third Avenue New York, NY 1984 1999 487,501 98% $46.18 $ 177,500,000 1801 K Street Washington, DC 1971(3) 2000 564,359 99% $32.31 $ 150,339,845 Ten & Twenty Westport Rd Wilton, CT 2001 2001 538,840 100% $25.34 $ 140,105,661 Morris Corporate Center III Parsippany, NJ 1990 2000 525,154 92% $22.21 $ 106,214,595 88 Kearny Street San Francisco, CA 1986 1999 228,470 89% $36.80 $ 82,116,702 Sawgrass Portfolio Sunrise, FL 1997-2000 1997, 344,009 100% $15.12 $ 50,800,000 1999-2000 Parkview Plaza(4) Oakbrook, IL 1990 1997 266,020 100% $19.11 $ 50,500,000 1015 15th Street Washington, DC 1978(3) 2001 189,681 100% $30.91 $ 48,736,575 Maitland Promenade One Maitland, FL 1999 2000 227,814 95% $21.18 $ 39,000,000 Columbia Centre III Rosemont, IL 1989 1997 238,696 89% $20.29 $ 37,500,000 One Monument Place Fairfax, VA 1990 1999 219,837 100% $22.26 $ 35,400,000 Biltmore Commerce Center Phoenix, AZ 1985 1999 262,875 38% $ 9.30 $ 32,295,058 10 Waterview Boulevard Parsippany, NJ 1984 1999 209,553 98% $22.70 $ 30,400,000 Fairgate at Ballston(4) Arlington, VA 1988 1997 143,457 99% $26.63 $ 30,300,000 Tysons Executive Plaza II(5) McLean, VA 1988 2000 252,552 100% $24.25 $ 28,538,029(5) (held in joint venture) Columbus Office Portfolio -- -- 259,626 100% $12.76 $ 28,400,000 Metro South Building Dublin, OH 1997 1999 90,726 -- $11.64 -- Vision Service Plan Building Eaton, OH 1997 1999 50,000 -- $11.88 -- One Metro Place Dublin, OH 1998 2001 118,900 -- 13.99 $ -- Needham Corporate Center Needham, MA 1987 2001 138,684 97% $27.68 $ 28,294,526 Longview Executive Park(4) Hunt Valley, MD 1988 1997 258,999 100% $11.84 $ 28,200,800 9 Hutton Centre Santa Ana, CA 1990 2001 148,265 91% $19.68 $ 20,448,764 BISYS Fund Services Building Eaton, OH 1995 1999 155,964 100% $12.32 $ 20,400,000 Five Centerpointe(4) Lake Oswego, OR 1988 1997 113,971 98% $22.65 $ 18,001,499 Batterymarch Park II Quincy, MA 1986 2001 104,718 96% $25.51 $ 17,990,854 371 Hoes Lane Piscataway, NJ 1986 1997 139,670 83% $12.35 $ 14,700,000 Southbank Building Phoenix, AZ 1995 1996 122,535 100% $ 8.75 $ 13,565,218 Northmark Business Center(4) Blue Ash, OH 1985 1997 108,561 95% $12.53 $ 12,200,000 --------- -------------- SUBTOTAL--OFFICE PROPERTIES 6,249,711 $1,241,948,126 INDUSTRIAL PROPERTIES Ontario Portfolio 2,698,717 100% $ 3.40 $ 108,000,000 Timberland Building Ontario, CA 1998 1998 414,435 -- 5200 Airport Drive Ontario, CA 1997 1998 404,500 -- 1200 S. Etiwanda Ave. Ontario, CA 1998 1998 223,170 -- Park Mira Loma West Mira Loma, CA 1998 1998 557,500 -- Wineville Center Buildings Mira Loma, CA 1999 2000 1,099,112 -- Dallas Industrial Portfolio Dallas and 1997- 2000; 2,609,031 94% $ 2.72 $ 97,245,850 (formerly Parkwest Center) Coppell, TX 2000 2001

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ANNUAL AVG. RENTABLE BASE RENT YEAR YEAR AREA PERCENT PER LEASED MARKET PROPERTY LOCATION BUILT PURCHASED (SQ. FT.) LEASED SQ. FT.(1) VALUE(2) -------- -------- ----- --------- --------- ------ ---------- -------- INDUSTRIAL PROPERTIES (CONTINUED) IDI Kentucky Portfolio 1,437,022 100% $ 2.80 $ 53,600,000 (formerly, Parkwest Int'l) Building C Hebron, KY 1998 1998 520,000 - Building D Hebron, KY 1998 1998 184,800 - Building E Hebron, KY 2000 2000 207,222 - Building J Hebron, KY 2000 2000 525,000 - Chicago Industrial Portfolio Chicago and 1997- 1998; 866,064 100% $ 4.18 $ 42,591,186 (consolidation of Rockrun, Joliet, IL 2000 2000 Glen Pointe and Woodcreek Business Parks) Atlanta Industrial Portfolio Lawrenceville, GA 1996-99 2000 1,145,693 84% $ 2.79 $ 40,459,044 Northpointe Commerce Center Fullerton, CA 1990-94 2000 612,023 100% $ 5.90 $ 37,456,149 Cabot Industrial Portfolio Rancho 2001(6) 2000; 2001 641,475 100% $ 2.42 $ 34,363,752(6) (under development and Cucamonga, CA held in joint venture) South River Road Industrial Cranbury, NJ 1999 2001 626,071 100%(7) $ 2.30 $ 32,688,565 Konica Photo Imaging Mahwah, NJ 1999 1999 168,000 100% $ 9.43 $ 17,700,000 Headquarters Eastgate Distribution Center San Diego, CA 1996 1997 200,000 100% $ 5.21 $ 14,500,000 Landmark at Salt Lake City Salt Lake City, UT 2000 2000 328,508 100% $ 3.98 $ 13,600,000 Building #4 Arapahoe Park East Boulder, CO 1979-82 1996 129,425 100% $10.18 $ 13,100,000 UPS Distribution Facility Fernley, NV 1998 1998 256,000 100% $ 3.54 $ 11,100,000 FedEx Distribution Facility Crofton, MD 1998 1998 111,191 100% $ 6.39 $ 7,600,000 Westinghouse Facility Coral Springs, FL 1997 1997 75,630 100% $ 7.29 $ 5,300,000 Interstate Crossing Eagan, MN 1995 1996 131,380 100% $ 4.01 $ 6,504,740 Butterfield Industrial Park El Paso, TX 1980-81 1995 183,510 100% $ 2.96 $ 4,700,000 River Road Distribution Center Fridley, MN 1995 1995 100,456 100% $ 3.49 $ 4,131,571 ---------- -------------- SUBTOTAL--INDUSTRIAL PROPERTIES 12,320,196 $ 544,640,857 RETAIL PROPERTIES Rolling Meadows Rolling Meadows, IL 1957(3) 1997 130,909 99% $ 9.07 $ 12,390,000 Lynnwood Collection Raleigh, NC 1988 1996 86,362 96% $ 7.53 $ 7,900,000 Millbrook Collection Raleigh, NC 1988 1996 102,221 84% $ 6.04 $ 7,200,000 Plantation Grove Ocoee, FL 1995 1995 73,655 100% $10.01 $ 7,700,000 ---------- -------------- SUBTOTAL--RETAIL PROPERTIES 393,147 $ 35,190,000 ---------- -------------- SUBTOTAL--COMMERCIAL PROPERTIES 18,968,054 $1,821,778,983 RESIDENTIAL PROPERTIES(8) Ashford Meadows Apartments Herndon, VA 1998 2000 NA 91% NA $ 64,195,500 The Colorado New York, NY 1987 1999 NA 93% NA $ 60,500,000 Larkspur Courts Apartments Larkspur, CA 1991 1999 NA 96% NA $ 53,200,000 South Florida Apartment Boca Raton and 1986 2001 NA 97% NA $ 46,700,000 Portfolio Plantation, FL Doral Pointe Apartments Miami, FL 1990 2001 NA 97% NA $ 45,341,796 Lodge at Willow Creek Douglas County, CO 1997 1997 NA 88% NA $ 32,000,000 Golfview Apartments Lake Mary, FL 1998 1998 NA 87% NA $ 27,050,000

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ANNUAL AVG. RENTABLE BASE RENT YEAR YEAR AREA PERCENT PER LEASED MARKET PROPERTY LOCATION BUILT PURCHASED (SQ. FT.) LEASED SQ. FT.(1) VALUE(2) -------- -------- ----- --------- --------- ------ ---------- -------- RESIDENTIAL PROPERTIES(8) (CONTINUED) The Legends at Chase Oaks Plano, TX 1997 1998 NA 96% NA $ 26,000,000 Lincoln Woods Lafayette Hill, PA 1991 1997 NA 92% NA $ 24,800,000 Kenwood Mews Apartments Burbank, CA 1991 2001 NA 97% NA $ 22,686,216 Monte Vista Littleton, CO 1995 1996 NA 98% NA $ 21,800,000 Westcreek Apartments Westlake Village, CA 1988 1997 NA 91% NA $ 17,900,000 Carolina Apartments Margate, FL 1993 2001 NA 94% NA $ 17,600,000 Indian Creek Apartments Farmington Hills, MI 1988 1998 NA 96% NA $ 16,800,000 Royal St. George W. Palm Beach, FL 1995 1996 NA 98% NA $ 16,400,000 Quiet Waters Apartments Deerfield Beach, FL 1995 2001 NA 96% NA $ 16,100,000 Bent Tree Apartments Columbus, OH 1987 1998 NA 85% NA $ 14,500,000 The Greens at Metrowest Orlando, FL 1990 1995 NA 91% NA $ 14,100,000 --------------- SUBTOTAL--RESIDENTIAL PROPERTIES NA $ 537,673,512 ---------- --------------- TOTAL--ALL PROPERTIES 18,968,055 $ 2,359,452,495 ========== ===============

(1) Based on total contractual rent on leases existing at December 31, 2001. For those properties purchased in 2001, the number was derived by annualizing the rents charged by the Account since acquiring the property. (2) Market value reflects the value determined in accordance with the procedures described in the Account's prospectus. (3) Undergone extensive renovations. (4) Purchased through Light Street Partners, L.P. (now 100% owned by the Account). (5) Property held in 50%/50% joint venture with Tennessee Consolidated Retirement System. Market value shown reflects the value of the Account's interest in the property. (6) The property is held in a 80%/20% joint venture with Cabot Industrial Trust, and consists of one completed building and one under development. The existing building is at market value and the property under development is currently valued at cost. It is anticipated that the building under development will be ready for occupancy in 2002. (7) One tenant representing 17% of the space filed for bankruptcy protection and has vacated its space. (8) For the average unit size and annual average rent per unit for each residential property, see "Residential Properties" below. COMMERCIAL (NON-RESIDENTIAL) PROPERTIES IN GENERAL. At December 31, 2001, the Account held 47 commercial (non-residential) properties in its portfolio. None of these properties is subject to a mortgage, and although the terms vary under each lease, certain expenses, such as real estate taxes and other operating expenses, are paid or reimbursed by the tenants. At December 31, 2001, the Account's office property portfolio consisted of 25 office properties located in metropolitan areas throughout the United States (including one property held in a 50%/50% joint venture). The office properties together are approximately 92 percent leased with 549 leases. At December 31, 2001, the Account's industrial property portfolio consisted of 18 properties (including one which is held in an 80%/20% joint venture and is currently under development) used primarily for warehousing, distribution, or light manufacturing activities. The Account's industrial properties together are 99 percent leased with 107 leases. At December 31, 2001, the Account's retail property portfolio consisted of four neighborhood shopping centers, each of which is anchored by a supermarket tenant. These retail properties together are approximately 95 percent leased with 57 leases. 6 RESIDENTIAL PROPERTIES The Account's residential property portfolio currently consists of 17 first class or luxury multi-family garden apartment complexes and one high rise apartment building for a total of 18 properties. None of the properties in the portfolio is subject to a mortgage. The complexes generally contain one- to three-bedroom apartment units, with a range of amenities, such as patios or balconies, washers and dryers, and central air conditioning. Many of these apartment communities have use of on-site fitness facilities, including some with swimming pools. Rents on each of the properties tend to be comparable with competitive communities and are not subject to rent regulation. The Account is responsible for the expenses of operating the properties. In the following table you will find more detailed information regarding the apartment complexes in the Account's portfolio as of December 31, 2001.

================================================================================================================================ AVERAGE AVG. RENT NUMBER UNIT SIZE PER UNIT/ PERCENT PROPERTY LOCATION OF UNITS (SQUARE FEET) PER MONTH LEASED -------------------------------------------------------------------------------------------------------------------------------- Ashford Meadows Apartments Herndon, VA 440 1,050 $1,315 91% The Colorado New York, NY 256 632 $2,434 93% Larkspur Courts Apartments Larkspur, CA 248 1,001 $2,247 96% South Florida Apartment Portfolio Boca Raton and Plantation, FL 500 888 $ 980 97% Lodge at Willow Creek Douglas County, CO 316 1,001 $1,055 88% Golfview Apartments Lake Mary, FL 276 1,139 $1,116 87% The Legends at Chase Oaks Plano, TX 346 972 $1,037 96% Lincoln Woods Lafayette Hill, PA 216 773 $1,206 92% Monte Vista Littleton, CO 219 888 $1,049 98% Indian Creek Apartments Farmington Hills, MI 196 1,139 $ 999 96% Westcreek Apartments Westlake Village, CA 126 948 $1,490 91% Royal St. George West Palm Beach, FL 224 870 $ 884 98% Bent Tree Apartments Columbus, OH 256 928 $ 745 85% The Greens at Metrowest Orlando, FL 200 920 $ 857 91% Carolina Apartments Margate, FL 208 1,026 $ 961 94% Quiet Waters Apartments Deerfield Beach, FL 200 1,048 $1,019 96% Doral Pointe Miami, FL 440 1,130 $1,101 97% Kenwood Mews Burbank, CA 141 942 $1,283 97% ================================================================================================================================

RECENT PROPERTY PURCHASES AND SALES On January 31, 2002, the Account sold one office building (the Southbank Building) located in Phoenix, Arizona for approximately $13 million. The Account had purchased the building in February, 1996 at a cost of approximately $10.1 million. ITEM 3. LEGAL PROCEEDINGS. There are no material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 7 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, 2001 to December 31, 2001, the high and low accumulation unit values for the Account were $168.7811 and $158.2119, respectively. (b) APPROXIMATE NUMBER OF HOLDERS. The number of contractowners at February 28, 2002 was 367,694. (c) DIVIDENDS. Not applicable. 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.

JULY 3, 1995 (COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2000 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Investment income: Real estate income, net: Rental income .............. $256,755,315 $195,537,993 $132,316,878 $ 81,009,203 $ 44,342,342 $ 10,951,183 $ 165,762 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Real estate property level expenses and taxes: Operating expenses ......... 52,456,479 40,056,716 27,334,060 17,339,706 9,024,240 2,116,334 29,173 Real estate taxes .......... 29,670,456 22,851,890 15,892,736 9,103,637 4,472,311 1,254,163 14,659 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total real estate property level expenses and taxes ................ 82,126,935 62,908,606 43,226,796 26,443,343 13,496,551 3,370,497 43,832 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Real estate income, net .. 174,628,380 132,629,387 89,090,082 54,565,860 30,845,791 7,580,686 121,930 Income from real estate joint venture ................ 2,251,593 756,133 -- -- -- -- -- Dividends and interest ......... 33,687,343 31,334,291 24,932,733 23,943,728 16,486,279 6,027,486 2,828,900 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total investment income .. 210,567,316 164,719,811 114,022,815 78,509,588 47,332,070 13,608,172 2,950,830 Expenses ....................... 17,191,929 13,424,566 9,278,410 6,274,594 3,526,545 1,155,796 310,433 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Investment income, net ... 193,375,387 151,295,245 104,744,405 72,234,994 43,805,525 12,452,376 2,640,397 Net realized and unrealized gain on investments .......... (23,344,613) 54,147,449 9,834,743 7,864,659 18,147,053 3,330,539 35,603 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations before minority interest ..... 170,030,774 205,442,694 114,579,148 80,099,653 61,952,578 15,782,915 2,676,000 Minority interest in net increase in net assets resulting from operations .... (811,789) -- 1,364,619 (3,487,991) (1,881,178) -- -- Net increase in net assets resulting from participant transactions ................. 657,326,121 486,196,949 383,171,774 333,936,510 356,052,262 233,653,793 117,582,345 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net increase in net assets ..... $826,545,106 $691,639,643 $499,115,541 $410,548,172 $416,123,662 $249,436,708 $120,258,345 ============ ============ ============ ============ ============ ============ ============

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DECEMBER 31, 2001 2000 1999 1998 1997 1996 1995 -------------- -------------- -------------- -------------- ------------ ------------ ------------ Total assets ............. $3,270,384,450 $2,423,100,402 $1,719,457,715 $1,229,603,431 $815,760,825 $426,372,007 $143,177,421 Total liabilities and minority interest ...... 56,717,273 35,978,331 23,975,287 33,236,544 29,942,110 56,676,954 22,919,076 -------------- -------------- -------------- -------------- ------------ ------------ ------------ Total net assets ......... $3,213,667,177 $2,387,122,071 $1,695,482,428 $1,196,366,887 $785,818,715 $369,695,053 $120,258,345 ============== ============== ============== ============== ============ ============ ============ Accumulation units outstanding ............ 18,456,445 14,604,673 11,487,360 8,833,911 6,313,015 3,295,786 1,172,498 ========== ========== ========== ========= ========= ========= ========= Accumulation unit value ............. $168.16 $158.21 $142.97 $132.17 $122.30 $111.11 $102.57 ======= ======= ======= ======= ======= ======= =======

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

2001 FOR THE THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ----------- ----------- ----------- ----------- Investment income, net $45,264,635 $47,931,306 $50,435,135 $49,744,311 Net realized gain (loss) on investments 978,396 514,453 759,534 (3,522,087) Net unrealized gain on investments (4,436,522) 11,550,552 (8,059,992) (21,128,947) ----------- ----------- ----------- ----------- Minority interest in net increase in net assets resulting from operations -- (448,023) (213,578) (150,188) ----------- ----------- ----------- ----------- Net increase in net assets resulting from operations $41,806,509 $59,548,288 $42,921,099 $24,943,089 =========== =========== =========== =========== Total return 1.67% 2.21% 1.46% 0.82% ==== ==== ==== ====

2000 FOR THE THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ----------- ----------- ----------- ----------- Investment income, net $31,774,860 $36,145,064 $40,552,504 $42,822,817 Net realized gain (loss) on investments (147,448) 58,263 (241,717) 8,606,836 Net unrealized gain on investments 5,603,540 14,044,336 15,013,318 11,210,321 ----------- ----------- ----------- ----------- Net increase in net assets resulting from operations $37,230,952 $50,247,663 $55,324,105 $62,639,974 =========== =========== =========== =========== Total return 2.15% 2.67% 2.67% 2.77% ==== ==== ==== ====

9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF ACCOUNT'S FINANCIAL CONDITION AND OPERATING RESULTS The Account continued its positive growth in 2001, with approximately $3.2 billion in net assets as of year-end 2001. As of December 31, 2001, the Account owned a total of 65 real estate properties, including 25 office properties (one held in joint venture), 18 industrial properties (including one development project joint venture), 18 apartment complexes and four neighborhood shopping centers. At December 31, 2001, these properties represented 73.1% of the Account's total investment portfolio. The Account closed 21 real estate transactions in 2001. It purchased 15 properties (seven office properties, including one development project, three industrial properties, and five apartment properties) made one fund investment, and sold five properties (one office, one retail, one apartment, and two industrial properties). The Account continues to pursue suitable properties, and is currently in various stages of negotiations with a number of prospective sellers. As of December 31, 2001, the Account also held investments in commercial paper, representing 17.0% of the portfolio, real estate investment trusts (REITs), representing 4.2% of the portfolio, and other real estate related investments, including commercial mortgage backed securities (CMBS), a mortgage and one fund investment, representing 5.7% of the portfolio. The tragic events of September 11th did not directly affect the Account's real estate holdings in New York City, which are holdings located in the midtown and upper east side areas of Manhattan. While these events had a sobering effect on the overall economy, it is not currently possible to quantify any long-term impact on the real estate market. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 The Account's total net return was 6.29% for the year ended December 31, 2001 and 10.66% for 2000. The 2001 performance of each of the Account's asset types, i.e., real estate, REITs and commercial paper, declined as compared to 2000, with the decline in the value of the Account's real estate having the largest impact. The Account's net investment income, after deducting all expenses, was $193,375,387 for the year ended December 31, 2001 and $151,295,245 for 2000, a 28% increase. This increase was the result of a 35% increase in net assets and an increase in the Account's real estate holdings from December 31, 2000 to December 31, 2001. The Account had net realized and unrealized losses on investments of $23,344,613 for the year ended December 31, 2001, compared with the net realized and unrealized gains on its investments of $54,147,449 for 2000. This difference was primarily due to the decrease of $26,611,066 in the aggregate market value of the Account's real estate holdings during 2001, as compared to 2000, during which the Account's holdings experienced a $22,257,781 market value increase. The Account's net realized losses in 2001 were primarily due to the sale of certain properties identified as sales candidates because they no longer met the Account's investment objectives or were located in markets which were experiencing 10 declining economic conditions. The unrealized losses in 2001 can be attributed to the decline in market value of some of the Account's real estate properties. The Account's marketable securities had modest realized and unrealized gains in 2001 totaling $5,231,736, as compared to the substantial net gains of $22,145,715 in 2000. The Account's real estate holdings generated approximately 83% of the Account's total investment income (before deducting Account level expenses) during 2001 compared with 81% during 2000. The remaining portion of the Account's total investment income was generated by investments in marketable securities. Gross real estate rental income was $256,755,315 for the year ended December 31, 2001 and $195,537,993 for the same period in 2000. This increase was primarily due to the increase in the number of properties owned by the Account, from 60 properties at the end of 2000 to 65 properties at the end of 2001. Interest income on the Account's short-term investments for 2001 and 2000 totaled $24,490,376 and $24,294,579, respectively. Dividend income on the Account's REIT investments totaled $9,196,967 and $7,039,712, respectively, for the same periods. Total property level expenses for the year ended December 31, 2001 were $82,126,935 of which $52,456,479 was attributable to operating expenses and $29,670,456 was attributable to real estate taxes. Total property level expenses for the year ended December 31, 2000 were $62,908,606, of which $40,056,716 represented operating expenses and $22,851,890 was attributable to real estate taxes. The increase in property level expenses during 2001 reflected the increased number of properties in the Account. The Account incurred expenses for the years ended December 31, 2001 and 2000 of $5,896,729 and $6,924,202, respectively, for investment advisory services, $8,470,496 and $4,392,882, respectively, for administrative and distribution services, and $2,824,704 and $2,107,482, respectively, for mortality and expense risk charges and liquidity guarantee charges. Such expenses generally increased as a result of the larger net asset base in the Account. The expenses for investment advisory services in 2001, however, decreased because they included an expense adjustment credit in the first quarter of 2001 to reflect a change in the way certain investment expenses are allocated to the Account. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 The Account's total net return was 10.66% for the year ended December 31, 2000 and 8.17% for 1999. The Account's net investment income, after deducting all expenses, was $151,295,245 for the year ended December 31, 2000 and $104,744,405 for 1999, a 44% increase. This increase was the result of a 41% increase in net assets and a 45% increase in the market value of the Account's real estate holdings from December 31, 1999 to December 31, 2000. The Account had net realized and unrealized gains on investments of $54,147,449 for the year ended December 31, 2000 compared with $9,834,743 for 1999. This difference was due in part to the increase in realized and unrealized gains on the Account's real estate properties from 11 $23,232,711 in 1999 to $32,001,734 for 2000, and, significantly, to the Account's gain of $22,145,715 on its marketable securities in 2000, compared with its loss of $13,397,968 on its marketable securities in 1999. The Account's real estate holdings generated approximately 81% of the Account's total investment income (before deducting Account level expenses) during 2000 compared with 78% during 1999. The remaining portion of the Account's total investment income was generated by investments in marketable securities. Gross real estate rental income was $195,537,993 for the year ended December 31, 2000 and $132,316,878 for the same period in 1999. This increase was primarily due to the increase in the number of properties owned by the Account -- from 54 properties at the end of 1999 to 60 properties at the end of 2000. (The total number of properties in 2000 reflects the consolidation of certain groups of properties into single portfolios.) Interest and dividend income on the Account's marketable securities investments increased from $24,932,733 for 1999 to $31,334,291 in 2000. Total property level expenses for the year ended December 31, 2000 were $62,908,606 of which $40,056,716 was attributable to operating expenses and $22,851,890 was attributable to real estate taxes. Total property level expenses for the year ended December 31, 1999 were $43,226,796, of which $27,334,060 represented operating expenses and $15,892,736 was attributable to real estate taxes. The increase in property level expenses during 2000 reflected the increased number of properties in the Account. The Account incurred expenses for the years ended December 31, 2000 and 1999 of $6,924,202 and $4,246,911, respectively, for investment advisory services, $4,392,882 and $3,442,282, respectively, for administrative and distribution services, and $2,107,482 and $1,589,217, respectively, for mortality and expense risk charges and liquidity guarantee charges. These expenses increased significantly as a result of the increased costs of managing a growing account, including the costs of acquiring and managing additional properties, and the increased staffing costs associated with administering a larger account. LIQUIDITY AND CAPITAL RESOURCES During 2001, the Account received $254,149,962 in premiums and $486,614,583 in net participant transfers from the TIAA Traditional account and the CREF accounts, while in 2000 the Account received $161,668,073 in premiums and $379,610,411 in net participant transfers from other TIAA and CREF accounts. The unprecedented volume of net participants' transfers into the Account in 2001 can be attributed to the substantial decline in the equity markets. Real estate properties costing $538,400,000 and $625,800,000 were purchased during 2001 and 2000, respectively. In 2001, the Account also received $94,800,000 in proceeds from the sale of properties. By year end 2001, the Account's liquid assets (i.e., its cash, REITs, short- and intermediate-term investments, and government securities) had a value of $853,769,802, while at the end of 2000 those assets were valued at $464,544,434. 12 We plan to use much of the Account's liquid assets as of December 31, 2001, exclusive of the REITs, to purchase additional suitable real estate properties. The remaining liquid assets, exclusive of the REITs, will continue to be available to meet expense needs and redemption requests (e.g., cash withdrawals or transfers). In the unlikely event that the Account's liquid assets and its cash flow from operating activities and participant transactions are not sufficient to meet its cash needs, including redemption requests, TIAA's general account will purchase liquidity units in accordance with TIAA's liquidity guarantee to the Account. The Account spent approximately $21.9 million in 2001 for capital (long-term) expenses, including ongoing tenant improvements and leasing commissions at the commercial properties relating to the renewal of existing tenants or re-leasing of space to new tenants during the normal course of business. In 2002, it is estimated that the Account will expend approximately $29.8 million in capital expenses. These expenditures will be for the costs routinely incurred by the Account for painting, re-carpeting and minor replacements to re-lease apartments as they become vacant and the costs associated with the renewal of existing tenants or releasing of space to new tenants in the commercial properties. EFFECTS OF INFLATION - 2002 To the extent that inflation may increase property operating expenses in the future, we anticipate that increases will generally be billed to tenants either through contractual lease provisions in office, industrial, and retail properties or through rent increases in apartment complexes. However, depending on how long any vacant space in a property remains unleased, the Account may not be able to recover the full amount of such increases in operating expenses. 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS TIAA REAL ESTATE ACCOUNT ================================================================================ PAGE Report of Management Responsibility ......................................... 15 Report of Audit Committee ................................................... 16 Audited Consolidated Financial Statements: Consolidated Statements of Assets and Liabilities ......................... 17 Consolidated Statements of Operations ..................................... 18 Consolidated Statements of Changes in Net Assets .......................... 19 Consolidated Statements of Cash Flows ..................................... 20 Notes to Consolidated Financial Statements ................................ 21 Report of Independent Auditors ............................................ 25 Consolidated Statement of Investments ..................................... 26 Schedule III - Real Estate Owned ............................................ 31 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. 14 ================================================================================ REPORT OF MANAGEMENT RESPONSIBILITY To the Participants of the TIAA Real Estate Account: The accompanying financial statements of the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity Association of America ("TIAA") are the responsibility of TIAA's management. They have been prepared in accordance with accounting principles generally accepted in the United States and have been presented fairly and objectively in accordance with such principles. TIAA has established and maintains a strong system of internal controls designed to provide reasonable assurance that assets are properly safeguarded and transactions are properly executed in accordance with management's authorization, and to carry out the ongoing responsibilities of management for reliable financial statements. In addition, TIAA's internal audit personnel provide a continuing review of the internal controls and operations of TIAA, including its separate account operations. The accompanying financial statements have been audited by the independent auditing firm of Ernst & Young LLP. To maintain auditor independence and avoid even the appearance of conflict of interest, it continues to be the Account's policy that any non-audit services be obtained from a firm other than the external financial audit firm. For the periods covered by these financial statements, the Account did not engage Ernst & Young LLP for any management advisory or consulting services. The independent auditors' report, which follows the notes to financial statements, expresses an independent opinion on the fairness of presentation of these financial statements. The Audit Committee of the TIAA Board of Trustees, consisting entirely of trustees who are not officers of TIAA, meets regularly with management, representatives of Ernst & Young LLP and internal audit personnel to review matters relating to financial reporting, internal controls and auditing. /s/ John H. Biggs ------------------------------- Chairman, President and Chief Executive Officer /s/ Richard L. Gibbs ------------------------------- Executive Vice President and Principal Accounting Officer 15 ================================================================================ REPORT OF THE AUDIT COMMITTEE To the Participants of the TIAA Real Estate Account: The TIAA Audit Committee oversees the financial reporting process of the TIAA Real Estate Account ("Account") on behalf of TIAA's Board of Trustees. The Audit Committee is a standing committee of the Board and operates in accordance with a formal written charter (copies are available upon request) which describes the Audit Committee's responsibilities. All members of the Audit Committee ("Committee") are independent, as defined under the listing standards of the New York Stock Exchange. Management has the primary responsibility for the Account's financial statements, development and maintenance of a strong system of internal controls, and compliance with applicable laws and regulations. In fulfilling its oversight responsibilities, the Committee reviewed and approved the audit plans of the internal auditing group and the independent auditing firm in connection with their respective audits. The Committee also meets regularly with the internal and independent auditors, both with and without management present, to discuss the results of their examinations, their evaluation of external controls, and the overall quality of financial reporting. As required by its charter, the Committee will evaluate rotation of the external financial audit firm whenever circumstances warrant, but in no event later than between their fifth and tenth years of service. The Committee reviewed and discussed the accompanying audited financial statements with management, including a discussion of the quality and appropriateness of the accounting principles and financial reporting practices followed, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Committee has also discussed the audited financial statements with Ernst & Young LLP, the independent auditing firm responsible for expressing an opinion on the conformity of these audited financial statements with generally accepted accounting principles. The discussion with Ernst & Young LLP focused on their judgments concerning the quality and appropriateness of the accounting principles and financial reporting practices followed by the Account, the clarity of the financial statements and related disclosures, and other significant matters, such as any significant changes in accounting policies, management judgments and estimates, and the nature of any uncertainties or unusual transactions. In addition, the Committee discussed with Ernst & Young LLP the auditors' independence from management and the Account, and has received a written disclosure regarding such independence, as required by the Independence Standards Board. Based on the review and discussions referred to above, the Committee has approved the release of the accompanying audited financial statements for publication and filing with appropriate regulatory authorities. Willard T. Carleton, Audit Committee Chair Frederick R. Ford, Audit Committee Member Leonard S. Simon, Audit Committee Member Rosalie J. Wolf, Audit Committee Member February 20, 2002 16 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, DECEMBER 31, 2001 2000 -------------- -------------- ASSETS Investments, at value: Real estate properties (cost: $2,276,414,478 and $1,818,143,290) .. $2,330,914,466 $1,899,254,344 Mortgages (cost: $7,265,887 and $-) .................. 7,265,887 -- Other real estate related investments (cost: $30,925,755 and $24,674,574) ........ 34,430,886 26,035,867 Marketable securities: Real estate related (cost: $301,967,699 and $134,898,725) .... 305,250,475 135,854,484 Other (cost: $548,265,288 and $328,060,804) ...... 548,243,870 327,974,084 Cash ........................................... 275,457 715,866 Other .......................................... 44,003,409 33,265,757 -------------- -------------- TOTAL ASSETS 3,270,384,450 2,423,100,402 -------------- -------------- LIABILITIES Accrued real estate property level expenses and taxes .................................... 39,595,315 24,396,036 Security deposits held ......................... 8,767,676 6,817,972 Other .......................................... 618,289 1,736,106 -------------- -------------- TOTAL LIABILITIES 48,981,280 32,950,114 -------------- -------------- MINORITY INTEREST IN SUBSIDIARIES .............. 7,735,993 3,028,217 -------------- -------------- NET ASSETS Accumulation Fund ............................. 3,103,639,556 2,310,540,978 Annuity Fund .................................. 110,027,621 76,581,093 -------------- -------------- TOTAL NET ASSETS $3,213,667,177 $2,387,122,071 ============== ============== NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 5 and 6 ..................... 18,456,445 14,604,673 ============== ============== NET ASSET VALUE, PER ACCUMULATION UNIT--Note 5 ................................. $ 168.16 $ 158.21 ============== ============== See notes to consolidated financial statements. 17 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, ------------------------------------------------ 2001 2000 1999 ------------ ------------ ------------ INVESTMENT INCOME Real estate income, net: Rental income ......................................... $256,755,315 $195,537,993 $132,316,878 ------------ ------------ ------------ Real estate property level expenses and taxes: Operating expenses .................................. 52,456,479 40,056,716 27,334,060 Real estate taxes ................................... 29,670,456 22,851,890 15,892,736 ------------ ------------ ------------ Total real estate property level expenses and taxes 82,126,935 62,908,606 43,226,796 ------------ ------------ ------------ Real estate income, net 174,628,380 132,629,387 89,090,082 Income from real estate joint venture .................. 2,251,593 756,133 -- Interest ............................................... 24,490,376 24,294,579 17,117,917 Dividends .............................................. 9,196,967 7,039,712 7,814,816 ------------ ------------ ------------ TOTAL INCOME 210,567,316 164,719,811 114,022,815 ------------ ------------ ------------ Expenses -- Note 2: Investment advisory charges ........................... 5,896,729 6,924,202 4,246,911 Administrative and distribution charges ............... 8,470,496 4,392,882 3,442,282 Mortality and expense risk charges .................... 1,987,604 1,414,888 1,027,707 Liquidity guarantee charges ........................... 837,100 692,594 561,510 ------------ ------------ ------------ TOTAL EXPENSES 17,191,929 13,424,566 9,278,410 ------------ ------------ ------------ INVESTMENT INCOME, NET 193,375,387 151,295,245 104,744,405 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on: Real estate properties .............................. (4,109,121) 8,382,660 8,788,795 Marketable securities ............................... 2,839,417 (106,726) (3,022,098) ------------ ------------ ------------ Net realized gain (loss) on investments (1,269,704) 8,275,934 5,766,697 ------------ ------------ ------------ Net change in unrealized appreciation (depreciation) on: Real estate properties .............................. (26,611,066) 22,257,781 14,443,916 Real estate joint venture ........................... 2,143,838 1,361,293 -- Marketable securities ............................... 2,392,319 22,252,441 (10,375,870) ------------ ------------ ------------ Net change in unrealized appreciation (depreciation) on investments (22,074,909) 45,871,515 4,068,046 ------------ ------------ ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (23,344,613) 54,147,449 9,834,743 ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS BEFORE MINORITY INTEREST 170,030,774 205,442,694 114,579,148 Minority interest in net increase in net assets resulting from operations ........................... (811,789) -- 1,364,619 ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $169,218,985 $205,442,694 $115,943,767 ============ ============ ============

See notes to consolidated financial statements. 18 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31, -------------------------------------------------- 2001 2000 1999 -------------- -------------- -------------- FROM OPERATIONS Investment income, net ................................. $ 193,375,387 $ 151,295,245 $ 104,744,405 Net realized gain (loss) on investments ................ (1,269,704) 8,275,934 5,766,697 Net change in unrealized appreciation (depreciation) on investments ........................................ (22,074,909) 45,871,515 4,068,046 Minority interest in net increase in net assets resulting from operations ............................. (811,789) -- 1,364,619 -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 169,218,985 205,442,694 115,943,767 -------------- -------------- -------------- FROM PARTICIPANT TRANSACTIONS Premiums ............................................... 254,149,962 161,668,073 126,200,561 Net transfers from (to) TIAA ........................... (6,241,427) 36,271,547 24,155,178 Net transfers from CREF Accounts ....................... 492,856,010 343,338,864 269,199,426 Annuity and other periodic payments .................... (13,710,081) (9,924,802) (6,330,436) Withdrawals and death benefits ......................... (69,728,343) (45,156,733) (30,052,955) -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PARTICIPANT TRANSACTIONS 657,326,121 486,196,949 383,171,774 -------------- -------------- -------------- NET INCREASE IN NET ASSETS 826,545,106 691,639,643 499,115,541 NET ASSETS Beginning of year ...................................... 2,387,122,071 1,695,482,428 1,196,366,887 -------------- -------------- -------------- End of year ............................................ $3,213,667,177 $2,387,122,071 $1,695,482,428 ============== ============== ==============

See notes to consolidated financial statements. 19 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, ------------------------------------------------ 2001 2000 1999 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net increase in net assets resulting from operations ... $169,218,985 $205,442,694 $115,943,767 Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: Increase in investments .............................. (836,986,805) (702,336,424) (475,537,558) Increase in other assets ............................. (10,737,652) (1,207,996) (14,271,470) Increase in accrued real estate property level expenses and taxes ................................. 15,199,279 5,970,708 6,992,799 Increase in security deposits held ..................... 1,949,704 1,268,013 3,659,536 Increase (decrease) in other liabilities ............... (1,117,817) 1,736,106 -- Increase (decrease) in minority interest ............... 4,707,776 3,028,217 (19,913,592) ------------ ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (657,766,530) (486,098,682) (383,126,518) ------------ ------------ ------------ CASH FLOWS FROM PARTICIPANT TRANSACTIONS Premiums ............................................... 254,149,962 161,668,073 126,200,561 Net transfers from (to) TIAA ........................... (6,241,427) 36,271,547 24,155,178 Net transfers from CREF Accounts ....................... 492,856,010 343,338,864 269,199,426 Annuity and other periodic payments .................... (13,710,081) (9,924,802) (6,330,436) Withdrawals and death benefits ......................... (69,728,343) (45,156,733) (30,052,955) ------------ ------------ ------------ NET CASH PROVIDED BY PARTICIPANT TRANSACTIONS 657,326,121 486,196,949 383,171,774 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH (440,409) 98,267 45,256 CASH Beginning of year ....................................... 715,866 617,599 572,343 ------------ ------------ ------------ End of year ............................................. $ 275,457 $ 715,866 $ 617,599 ============ ============ ============

See notes to consolidated financial statements. 20 TIAA REAL ESTATE ACCOUNT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SIGNIFICANT ACCOUNTING POLICIES The TIAA Real Estate Account ("Account") is a segregated investment account of Teachers Insurance and Annuity Association of America ("TIAA") and was established by resolution of TIAA's Board of Trustees on February 22, 1995, under the insurance laws of the State of New York, for the purpose of funding variable annuity contracts issued by TIAA. The Account holds various properties in wholly-owned and majority-owned subsidiaries which are consolidated for financial statement purposes. The investment objective of the Account is a favorable long-term rate of return primarily through rental income and capital appreciation from real estate investments owned by the Account. The Account also invests in publicly-traded securities and other instruments to maintain adequate liquidity for operating expenses, capital expenditures and to make benefit payments. The financial statements were prepared in accordance with accounting principles generally accepted in the United States which may require the use of estimates made by management. Actual results may vary from those estimates. The following is a summary of the significant accounting policies consistently followed by the Account. BASIS OF PRESENTATION: The accompanying consolidated financial statements include the Account and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. VALUATION OF REAL ESTATE PROPERTIES: Investments in real estate properties are stated at fair value, as determined in accordance with procedures approved by the Investment Committee of the Board of Trustees and in accordance with the responsibilities of the Board as a whole; accordingly, the Account does not record depreciation. Fair value for real estate properties is defined as the most probable price for which a property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair value involves subjective judgement because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. Real estate properties owned by the Account are initially valued at their respective purchase prices (including acquisition costs). Subsequently, independent appraisers value each real estate property at least once a year. The independent fiduciary, The Townsend Group, must approve all independent appraisers used by the Account. The independent fiduciary can also require additional appraisals if it believes that a property's value has changed materially or otherwise to assure that the Account is valued correctly. TIAA's appraisal staff performs a valuation review of each real estate property on a quarterly basis and updates the property value if it believes that the value of the property has changed since the previous valuation review or appraisal. The independent fiduciary reviews and approves any such valuation adjustments which exceed certain prescribed limits. TIAA continues to use the revised value to calculate the Account's net asset value until the next valuation review or appraisal. VALUATION OF REAL ESTATE JOINT VENTURES: Real estate joint ventures are stated at the Account's equity in the net assets of the underlying entity, which values its real estate holdings at fair value. VALUATION OF MORTGAGES: Mortgages are initially valued at their face amount. Fixed rate mortgages are, thereafter, valued quarterly by discounting payments of principal and interest to their present value using a rate at which commercial lenders would make similar mortgage loans. Floating variable rate mortgages are generally valued at their face amount, although the value may be adjusted as market conditions dictate. VALUATION OF MARKETABLE SECURITIES: Equity securities listed or traded on any United States national securities exchange are valued at the last sale price as of the close of the principal securities exchange on which such securities are traded or, if there is no sale, at the mean of the last bid and asked prices on such exchange. 21 Short-term money market instruments are stated at market value. Portfolio securities, including limited partnership interests, for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Investment Committee of the Board of Trustees and in accordance with the responsibilities of the Board as a whole. ACCOUNTING FOR INVESTMENTS: Real estate transactions are accounted for as of the date on which the purchase or sale transactions for the real estate properties close (settlement date). Rent from real estate properties consists of all amounts earned under tenant operating leases, including base rent, recoveries of real estate taxes and other expenses and charges for miscellaneous services provided to tenants. Rental income is recognized in accordance with the billing terms of the lease agreements. The Account bears the direct expenses of the real estate properties owned. These expenses include, but are not limited to, fees to local property management companies, property taxes, utilities, maintenance, repairs, insurance and other operating and administrative costs. An estimate of the net operating income earned from each real estate property is accrued by the Account on a daily basis and such estimates are adjusted as soon as actual operating results are determined. Realized gains and losses on real estate transactions are accounted for under the specific identification method. Securities transactions are accounted for as of the date the securities are purchased or sold (trade date). Interest income is recorded as earned and includes accrual of discount and amortization of premium. Dividend income is recorded on the ex-dividend date. Realized gains and losses on securities transactions are accounted for on the average cost basis. FEDERAL INCOME TAXES: Based on provisions of the Internal Revenue Code, the Account is taxed as a segregated asset account of TIAA. The Account should incur no material federal income tax attributable to the net investment experience of the Account. NOTE 2--MANAGEMENT AGREEMENTS Investment advisory services for the Account are provided by TIAA employees, under the direction of TIAA's Board of Trustees and its Investment Committee, pursuant to investment management procedures adopted by TIAA for the Account. TIAA's investment management decisions for the Account are also subject to review by the Account's independent fiduciary. TIAA also provides all portfolio accounting and related services for the Account. Distribution and administrative services for the Account are provided by TIAA-CREF Individual & Institutional Services, Inc. ("Services") pursuant to a Distribution and Administrative Services Agreement with the Account. Services, a wholly-owned subsidiary of TIAA, is a registered broker-dealer and member of the National Association of Securities Dealers, Inc. TIAA also provides a liquidity guarantee to the Account, for a fee, to ensure that sufficient funds are available to meet participant transfer and cash withdrawal requests in the event that the Account's cash flows and liquid investments are insufficient to fund such requests. TIAA also receives a fee for assuming certain mortality and expense risks. The services provided by TIAA and Services are provided at cost. TIAA and Services receive payments from the Account on a daily basis according to formulas established each year with the objective of keeping the payments as close as possible to the Account's actual expenses. Any differences between actual expenses and the amounts paid are adjusted quarterly. 22 NOTE 3--REAL ESTATE PROPERTIES Had the Account's real estate properties which were purchased during the year ended December 31, 2001 been acquired at the beginning of the period (January 1, 2001), rental income and real estate property level expenses and taxes for the year ended December 31, 2001 would have increased by approximately $36,395,000 and $12,691,000, respectively. In addition, interest income for the year ended December 31, 2001 would have decreased by approximately $18,520,000. Accordingly, the total proforma effect on the Account's net investment income for the year ended December 31, 2001 would have been an increase of approximately $5,184,000, if the real estate properties acquired during the year ended December 31, 2001 had been acquired at the beginning of the year. NOTE 4--LEASES The Account's real estate properties are leased to tenants under operating lease agreements which expire on various dates through 2021. Aggregate minimum annual rentals for the properties owned, excluding short-term residential leases, are as follows: Years Ending December 31, ------------ 2002 $ 192,814,000 2003 180,210,000 2004 159,868,000 2005 137,375,000 2006 104,650,000 Thereafter 313,328,000 -------------- Total $1,088,245,000 ============== Certain leases provide for additional rental amounts based upon the recovery of actual operating expenses in excess of specified base amounts. 23 NOTE 5--CONDENSED CONSOLIDATED FINANCIAL INFORMATION Selected condensed consolidated financial information for an Accumulation Unit of the Account is presented below.

FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- Per Accumulation Unit data: Rental income .................................... $ 14.862 $ 14.530 $ 12.168 $ 10.425 $ 7.288 Real estate property level expenses and taxes ....................... 4.754 4.674 3.975 3.403 2.218 -------- -------- -------- -------- -------- Real estate income, net 10.108 9.856 8.193 7.022 5.070 Income from real estate joint venture ............ 0.130 0.056 -- -- -- Dividends and interest ........................... 1.950 2.329 2.292 3.082 2.709 -------- -------- -------- -------- -------- Total income 12.188 12.241 10.485 10.104 7.779 Expense charges (1) .............................. 0.995 0.998 0.853 0.808 0.580 -------- -------- -------- -------- -------- Investment income, net 11.193 11.243 9.632 9.296 7.199 Net realized and unrealized gain (loss) on investments ..................... (1.239) 3.995 1.164 .579 3.987 -------- -------- -------- -------- -------- Net increase in Accumulation Unit Value ........................ 9.954 15.238 10.796 9.875 11.186 Accumulation Unit Value: Beginning of year .............................. 158.206 142.968 132.172 122.297 111.111 -------- -------- -------- -------- -------- End of year .................................... $168.160 $158.206 $142.968 $132.172 $122.297 ======== ======== ======== ======== ======== Total return ..................................... 6.29% 10.66% 8.17% 8.07% 10.07% Ratios to Average Net Assets: Expenses (1) ................................... 0.61% 0.67% 0.63% 0.64% 0.58% Investment income, net ........................... 6.81% 7.50% 7.13% 7.34% 7.25% Portfolio turnover rate: Real estate properties ......................... 4.61% 3.87% 4.46% 0% 0% Securities ..................................... 40.62% 32.86% 27.68% 24.54% 7.67% Thousands of Accumulation Units outstanding at end of year ..................... 18,456 14,605 11,487 8,834 6,313

(1) Expense charges per Accumulation Unit and the Ratio of Expenses to Average Net Assets include the portion of expenses related to the minority interests and exclude real estate property level expenses and taxes. If the real estate property level expenses and taxes were included, the expense charge per Accumulation Unit for the year ended December 31, 2001 would be $5.749 ($5.672, $4.828, $4.211 and $2.798 for the years ended December 31, 2000, 1999, 1998 and 1997, respectively), and the Ratio of Expenses to Average Net Assets for the year ended December 31, 2001 would be 3.50% (3.79%, 3.58%, 3.32% and 2.82% for the years ended December 31, 2000, 1999, 1998 and 1997, respectively). 24 NOTE 6--ACCUMULATION UNITS Changes in the number of Accumulation Units outstanding were as follows: FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 2001 2000 1999 ---------- ---------- ---------- Accumulation Units: Credited for premiums .............. 1,542,511 1,074,708 918,728 Credited for transfers, net disbursements and amounts applied to the Annuity Fund ...... 2,309,261 2,042,605 1,734,721 Outstanding: Beginning of year ................ 14,604,673 11,487,360 8,833,911 ---------- ---------- ---------- End of year ...................... 18,456,445 14,604,673 11,487,360 ========== ========== ========== -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS To the Participants of the TIAA Real Estate Account and the Board of Trustees of Teachers Insurance and Annuity Association of America: We have audited the accompanying consolidated statements of assets and liabilities, including the statement of investments as of December 31, 2001, of the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity Association of America ("TIAA") as of December 31, 2001 and 2000, and the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule listed in the Index at item 14(a). These financial statements and schedule are the responsibility of TIAA's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Account at December 31, 2001 and 2000, and the consolidated results of its operations and the changes in its net assets and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. New York, New York /s/ Ernst & Young LLP February 1, 2002 -------------------------------------------------------------------------------- 25 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENT OF INVESTMENTS DECEMBER 31, 2001 REAL ESTATE PROPERTIES--72.25% LOCATION / DESCRIPTION VALUE ---------------------- ----- ARIZONA: Biltmore Commerce Center - Office building ............. $ 32,295,058 Southbank Building - Office building ................... 13,565,218 CALIFORNIA: 9 Hutton Centre - Office building ...................... 20,448,764 88 Kearny Street - Office building ..................... 82,116,702 Cabot Industrial Portfolio - Industrial building ....... 34,363,752 Eastgate Distribution Center - Industrial building ..... 14,500,000 Kenwood Mews - Apartments .............................. 22,686,216 Larkspur Courts - Apartments ........................... 53,200,000 Northpoint Commerce Center - Industrial building ....... 37,456,149 Ontario Industrial Properties - Industrial building .... 108,000,000 Westcreek - Apartments ................................. 17,900,000 COLORADO: Arapahoe Park East - Industrial building ............... 13,100,000 The Lodge at Willow Creek - Apartments ................. 32,000,000 Monte Vista - Apartments ............................... 21,800,000 CONNECTICUT: Ten & Twenty Westport Road - Office building ........... 140,105,661 FLORIDA: Carolina Apartments - Apartments ....................... 17,600,000 Doral Pointe- Apartments ............................... 45,341,796 Golfview - Apartments .................................. 27,050,000 The Greens at Metrowest - Apartments ................... 14,100,000 Maitland Promenade One - Office building ............... 39,000,000 Plantation Grove - Shopping center ..................... 7,700,000 Quiet Waters - Apartments .............................. 16,100,000 Royal St. George - Apartments .......................... 16,400,000 Sawgrass Portfolio - Office building ................... 50,800,000 South Florida Apartment Portfolio - Apartments ......... 46,700,000 Westinghouse Facility - Industrial building ............ 5,300,000 GEORGIA: Atlanta Industrial Portfolio - Industrial building ..... 40,459,044 ILLINOIS: Chicago Industrial Portfolio - Industrial building ..... 42,591,186 Columbia Center III - Office building .................. 37,500,000 Parkview Plaza - Office building ....................... 50,500,000 Rolling Meadows - Shopping center ...................... 12,390,000 KENTUCKY: IDI Kentucky Portfolio - Industrial building .......... 53,600,000 MARYLAND: FedEx Distribution Facility - Industrial building ...... 7,600,000 Longview Executive Park - Office building .............. 28,200,800 MASSACHUSETTS: Batterymarch Park II - Office building ................. 17,990,854 Needham Corporate Center - Office building ............. 28,294,526 26 LOCATION / DESCRIPTION VALUE ---------------------- ----- MICHIGAN: Indian Creek - Apartments .............................. $ 16,800,000 MINNESOTA: Interstate Crossing - Industrial building .............. 6,504,740 River Road Distribution Center - Industrial building ... 4,131,571 NEVADA: UPS Distribution Facility - Industrial building ........ 11,100,000 NEW JERSEY: 10 Waterview Boulevard - Office building ............... 30,400,000 371 Hoes Lane - Office building ........................ 14,700,000 Konica Photo Imaging Headquarters - Industrial building ............................................. 17,700,000 Morris Corporate Center III - Office building .......... 106,214,595 South River Road Industrial - Industrial building ...... 32,688,565 NEW YORK: 780 Third Avenue - Office building ..................... 177,500,000 The Colorado - Apartments .............................. 60,500,000 NORTH CAROLINA: The Lynnwood Collection - Shopping center .............. 7,900,000 The Millbrook Collection - Shopping center ............. 7,200,000 OHIO: Bent Tree - Apartments ................................. 14,500,000 Bisys Fund Services Building - Office building ......... 20,400,000 Columbus Portfolio - Office building ................... 28,400,000 Northmark Business Center III - Office building ........ 12,200,000 OREGON: Five Centerpointe - Office building .................... 18,001,499 PENNSYLVANIA: Lincoln Woods - Apartments ............................. 24,800,000 TEXAS: Butterfield Industrial Park - Industrial building ...... 4,700,000(1) Dallas Industrial Portfolio - Industrial building ...... 97,245,850 The Legends at Chase Oaks - Apartments ................. 26,000,000 UTAH: Landmark at Salt Lake City - Industrial building ....... 13,600,000 VIRGINIA: Ashford Meadows - Apartments ........................... 64,195,500 Fairgate at Ballston - Office building ................. 30,300,000 Monument Place - Office building ....................... 35,400,000 WASHINGTON DC: 1015 15th Street - Office building ..................... 48,736,575 1801 K Street N W - Office building .................... 150,339,845 -------------- TOTAL REAL ESTATE PROPERTIES (Cost $2,276,414,478) ..... 2,330,914,466 -------------- (1) Leasehold interest only MORTGAGES--0.23% The Georgetown Company - a 90% participation in a construction loan with a total commitment of $13 million, bearing interest payable monthly at LIBOR plus 200 basis points, currently 3.90%, due April 1, 2003 with an option to extend to April 1, 2004 .......................................... 7,265,887 -------------- TOTAL MORTGAGES (Cost $7,265,887) ..................... 7,265,887 -------------- 27 VALUE ----- OTHER REAL ESTATE RELATED INVESTMENTS--1.07% REAL ESTATE JOINT VENTURE--0.89% Teachers REA IV, LLC, which owns Tyson's Executive Plaza II (50% Account Interest) ............ $ 28,538,029 -------------- TOTAL REAL ESTATE JOINT VENTURE (Cost $25,032,898) ..... 28,538,029 -------------- LIMITED PARTNERSHIP--0.18% MONY/Transwestern Mezzanine Realty Partners L.P. ....... 5,892,857 -------------- TOTAL LIMITED PARTNERSHIP (Cost $5,892,857) ............ 5,892,857 -------------- TOTAL OTHER REAL ESTATE RELATED INVESTMENTS (Cost $30,925,755) ........................................ 34,430,886 -------------- MARKETABLE SECURITIES--26.45% REAL ESTATE RELATED--9.46% REAL ESTATE INVESTMENT TRUSTS--4.20% SHARES ISSUER -------- ------ 50,600 Alexandria Real Estate Equities, Inc. ........ 2,079,660 205,000 AMB Property Corporation ..................... 5,330,000 170,000 Apartment Investment & Management Co ......... 7,774,100 260,325 Archstone-Smith Trust ........................ 6,846,548 100,400 Avalonbay Communities, Inc. .................. 4,749,924 296,800 Boston Properties, Inc ....................... 11,278,400 230,400 Brandywine Realty Trust ...................... 4,854,528 130,000 Carramerica Realty Series B Pfd .............. 3,186,300 84,400 Centerpoint Properties Corp. ................. 4,203,120 83,300 Chateau Communities, Inc ..................... 2,490,670 266,900 Cousins Properties, Inc ...................... 6,501,684 271,300 Duke Realty Corp. ............................ 6,600,729 499,033 Equity Office Properties Trust ............... 15,010,913 213,400 Equity Residential Properties Trust Co. ...... 6,126,714 114,700 Hilton Hotels Corp ........................... 1,252,524 40,000 Hospitality Properties Trust ................. 1,180,000 222,800 Host Marriott Corp (New) ..................... 2,005,200 125,250 Kimco Realty Corp. ........................... 4,094,422 51,650 Macerich Company ............................. 1,373,890 82,100 Manufactured Home Communities, Inc. .......... 2,562,341 240,500 Mission West Properties Inc. ................. 3,059,160 331,600 Prologis Trust ............................... 7,132,716 130,600 Public Storage, Inc. ......................... 4,362,040 232,400 Reckson Associates Realty Corp ............... 5,428,864 260,900 Simon Property Group, Inc. ................... 7,652,197 8,600 SL Green Realty Corp. ........................ 264,106 153,000 Starwood Hotels & Resorts Worldwide .......... 4,567,050 95,000 Sun Communities, Inc ......................... 3,538,750 ------------ TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $130,502,519) ................................. 135,506,550 ------------ 28 COLLATERALIZED MORTGAGE BACKED SECURITIES--5.26% PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE VALUE --------- -------------------------------------- ----- $11,000,000 Ball 2001-116A B 2.490% 09/17/05 ............................. $ 10,936,706 20,000,000 COMM 2.35 2.350% 11/15/13 ............................. 19,996,660 20,000,000 CSFB 2001-TFLA 2.350% 11/13/13 ............................. 19,996,620 10,000,000 GGPMP 3.20 3.200% 02/15/14 ............................. 9,981,970 20,000,000 GGPMP 2.60 2.600% 02/15/14 ............................. 19,961,680 10,000,000 GSMS 2001-Rock A2FL 2.500% 05/03/11 ............................. 9,641,070 10,000,000 JPMCC 2001-FL1A B 2.320% 06/13/13 ............................. 9,955,960 10,000,000 MSDW Capital 2.500% 02/03/11 ............................. 9,826,920 10,000,000 MSDWC 2001 - XLF A1 2.610% 10/07/13 ............................. 9,999,990 8,000,000 MSDWC 2001 - FRMA C 2.470% 07/12/16 ............................. 7,756,312 7,500,000 MSDWC 2001 - SGMA B 2.450% 07/11/11 ............................. 7,434,885 10,000,000 Opryland Hotel Trust 2.600% 04/01/04 ............................. 9,953,540 7,484,348 Strategic Hotel Cap 2.330% 04/17/06 ............................. 7,240,276 7,484,348 Strategic Hotel Cap 3.090% 04/17/06 ............................. 7,197,226 5,000,000 Trize 2001 - TZHA A3FL 2.270% 03/15/13 ............................. 4,898,260 5,000,000 USC Oakbrook Trust 2.340% 11/01/05 ............................. 4,965,850 ------------ TOTAL COLLATERALIZED MORTGAGE BACKED SECURITIES (Cost $171,465,180) .................................... 169,743,925 ------------ TOTAL REAL ESTATE RELATED (Cost $301,967,699) ............ 305,250,475 ------------ OTHER--16.99% COMMERCIAL PAPER--16.99% PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE --------- -------------------------------------- 15,950,000 Abbot Laboratories 1.780% 01/03/02 ............................. 15,947,607 25,000,000 Abbot Laboratories 1.740% 01/10/02 ............................. 24,987,360 25,000,000 American Honda Finance Corp 1.770% 01/17/02 ............................. 24,978,632 25,000,000 Beta Finance Inc 2.05% 01/25/02 .............................. 24,968,578 18,065,000 BMW US Capital Corp 1.83% 01/03/02 .............................. 18,062,290 29 PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE VALUE --------- -------------------------------------- ----- $ 5,400,000 Ciesco LP 1.85% 01/04/02 .............................. $ 5,398,920 9,300,000 Ciesco LP 1.82% 02/07/02 .............................. 9,282,231 8,150,000 Coca-Cola Enterprises Inc 1.80% 01/03/02 .............................. 8,148,778 4,750,000 Coca-Cola Enterprises Inc 2.02% 02/15/02 .............................. 4,739,075 15,000,000 Corporate Asset Funding Corp, Inc 2.07% 01/04/02 .............................. 14,997,000 23,000,000 Delaware Funding Corp 1.88% 01/22/02 .............................. 22,974,560 26,700,000 Edison Asset Securitization LLC 1.82% 01/11/02 .............................. 26,685,152 20,000,000 Equilon Enterprises LLC 1.76% 01/14/02 .............................. 19,985,844 12,400,000 Federal Home Loan Mortgage Corp 1.81% 01/02/02 .............................. 12,398,781 25,000,000 Gannett Inc 1.83% 01/24/02 .............................. 24,969,832 25,000,000 Goldman Sachs Group LP 1.75% 01/14/02 .............................. 24,982,305 25,000,000 Govco Incorporated 1.80% 02/25/02 .............................. 24,930,000 24,700,000 International Business Machine Corp 1.88% 01/07/02 .............................. 24,691,355 25,000,000 Kitty Hawk Funding Corp 1.77% 01/15/02 .............................. 24,981,145 25,000,000 Park Avenue Receivables Corp 1.83% 01/11/02 .............................. 24,986,098 21,700,000 Parker Hannifin Corp 2.00% 01/02/02 .............................. 21,697,830 11,500,000 Pfizer Inc 1.75% 01/31/02 .............................. 11,482,076 26,475,000 Pitney Bowes Inc 1.90% 01/11/02 .............................. 26,460,277 7,500,000 Preferred Receivables Funding Corp 1.78% 01/09/02 .............................. 7,496,588 25,000,000 Receivables Capital Corp 1.90% 01/23/02 .............................. 24,971,090 25,000,000 Salomon Smith Barney Holdings Inc 1.90% 01/02/02 .............................. 24,997,500 8,400,000 SBC Communications Inc 2.00% 01/10/02 .............................. 8,395,753 25,000,000 United Parcel Service of America Inc 1.78% 02/01/02 .............................. 24,959,778 14,700,000 Verizon Global Funding 1.85% 01/17/02 .............................. 14,687,435 -------------- TOTAL COMMERCIAL PAPER (Amortized cost $548,265,288) ..... 548,243,870 -------------- TOTAL OTHER (Cost $548,265,288) .......................... 548,243,870 -------------- TOTAL MARKETABLE SECURITIES (Cost $850,232,987) .......... 853,494,345 -------------- TOTAL INVESTMENTS--100.00% (Cost $3,164,839,107) ......... $3,226,105,584 ============== See notes to consolidated financial statements. 30

TIAA REAL ESTATE ACCOUNT SCHEDULE III - REAL ESTATE OWNED DECEMBER 31, 2001 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) 2001 COMPLETED ACQUIRED ---------------------------------- ------- -------------- ----------------- -------------- ------------ -------- River Road Distribution Center $-0- $ 4,174,182 ($ 42,611) $ 4,131,571 1995 11/22/95 Industrial Building Fridley, Minnesota The Greens At Metrowest -0- 12,522,047 1,577,953 14,100,000 1990 12/15/95 Apartments Orlando, Florida Butterfield Industrial Park -0- 4,456,125 243,875 4,700,000 1981 12/22/95 Industrial Building El Paso, Texas (1) Plantation Grove Shopping Center -0- 7,350,129 349,871 7,700,000 1995 12/28/95 Shopping Center Ocoee, Florida Southbank Business Park -0- 10,069,898 3,495,320 13,565,218 1995 02/27/96 Office Building Phoenix, Arizona Millbrook Collection -0- 6,774,711 425,289 7,200,000 1988 03/29/96 Shopping Center Raleigh, North Carolina Lynnwood Collection -0- 6,708,120 1,191,880 7,900,000 1988 03/29/96 Shopping Center Raleigh, North Carolina

31

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) 2001 COMPLETED ACQUIRED ---------------------------------- ------- -------------- ----------------- -------------- ------------ -------- Monte Vista Apartments $-0- $ 17,663,849 $ 4,136,151 $ 21,800,000 1995 06/21/96 Apartments Littleton, Colorado Arapahoe Park East -0- 9,933,485 3,166,515 13,100,000 1982 10/31/96 Industrial Building Boulder, Colorado Royal St. George Apartments -0- 16,072,612 327,388 16,400,000 1995 12/20/96 Apartments West Palm Beach, Florida Interstate Crossing -0- 6,454,888 49,851 6,504,739 1995 12/31/96 Industrial Building Eagan, Minnesota West Creek Apartments -0- 13,488,279 4,411,721 17,900,000 1988 01/02/97 Apartments Westlake Village, California Westinghouse Facility -0- 6,089,473 (789,473) 5,300,000 1997 02/05/97 Industrial Building Coral Springs, Florida Rolling Meadows -0- 12,930,463 (540,463) 12,390,000 1957 05/28/97 Shopping Center Rolling Meadows, Illinois Eastgate Distribution Center -0- 11,952,402 2,547,598 14,500,000 1996 05/29/97 Industrial Building San Diego, California

32

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) 2001 COMPLETED ACQUIRED ---------------------------------- ------- -------------- ----------------- -------------- ------------ -------- Five Centerpointe $-0- $ 15,656,341 $ 2,345,158 $ 18,001,499 1988 04/21/97 Office Building Lake Oswego, Oregon Longview Executive Park -0- 23,628,567 4,572,233 28,200,800 1988 04/21/97 Office Building Longview, Maryland Northmark Business Center III -0- 8,812,644 3,387,356 12,200,000 1985 04/21/97 Office Building Blue Ash, Ohio Fairgate at Ballston -0- 26,977,436 3,322,564 30,300,000 1988 04/21/97 Office Building Arlington, Virginia Parkview Plaza -0- 49,412,494 1,087,506 50,500,000 1990 04/29/97 Office Building Oakbrook Terrace, Illinois Lincoln Woods Apartments -0- 21,464,483 3,335,517 24,800,000 1991 10/20/97 Apartments Lafayette Hill, Pennsylvania 371 Hoes Lane -0- 15,499,306 (799,306) 14,700,000 1986 12/15/97 Office Building Piscataway, New Jersey Columbia Centre III -0- 38,580,069 (1,080,069) 37,500,000 1989 12/23/97 Office Building Rosemont, Illinois

33

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) 2001 COMPLETED ACQUIRED ---------------------------------- ------- -------------- ----------------- -------------- ------------ -------- The Lodge at Willow Creek $-0- $ 27,562,882 $ 4,437,118 $ 32,000,000 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- 41,953,686 637,500 42,591,186 1997 06/30/98 Industrial Building Joliet, Illinois Golfview Apartments -0- 28,066,591 (1,016,591) 27,050,000 1998 07/31/98 Apartments Lake Mary, Florida Indian Creek Apartments -0- 17,002,932 (202,932) 16,800,000 1988 10/08/98 Apartments Farmington Hills, Michigan Bent Tree Apartments -0- 14,420,590 79,410 14,500,000 1987 10/22/98 Apartments Columbus, Ohio UPS Distribution Center -0- 10,989,393 110,607 11,100,000 1998 11/13/98 Industrial Building Fernly, Nevada Ontario Industrial Properties -0- 105,364,400 2,635,600 108,000,000 1997 12/17/98 Industrial Building Ontario, California

34

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) 2001 COMPLETED ACQUIRED ---------------------------------- ------- -------------- ----------------- -------------- ------------ -------- IDI Kentucky Portfolio $-0- $ 53,083,000 $ 517,000 $ 53,600,000 1998 12/17/98 Industrial Building Hebron, Kentucky Fedex Distribution Center -0- 7,828,025 (228,025) 7,600,000 1998 12/18/98 Industrial Building Crofton, Maryland Biltmore Commerce Center -0- 37,323,058 (5,028,000) 32,295,058 1985 02/23/99 Office Building Phoenix, Arizona The Colorado -0- 52,687,840 7,812,160 60,500,000 1987 04/14/99 Apartments New York, New York Sawgrass Portfolio -0- 52,963,368 (2,163,368) 50,800,000 1998 05/11/99 Office Building Sunrise, Florida 780 Third Avenue -0- 161,511,019 15,988,981 177,500,000 1984 07/08/99 Office Building New York, New York Monument Place -0- 34,597,698 802,302 35,400,000 1990 07/15/99 Office Building Fairfax, Virginia 88 Kearny Street -0- 65,795,171 16,321,531 82,116,702 1986 07/22/99 Office Building San Francisco, California

35

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) 2001 COMPLETED ACQUIRED ---------------------------------- ------- -------------- ----------------- -------------- ------------ -------- 10 Waterview Boulevard $-0- $ 31,063,636 ($ 663,636) $ 30,400,000 1984 07/27/99 Office Building Parsippany, New Jersey Larkspur Courts -0- 53,038,988 161,012 53,200,000 1991 08/17/99 Apartments Larkspur, California Columbus Portfolio -0- 30,238,233 (1,838,233) 28,400,000 1997 11/30/99 Office Building Columbus, Ohio Konica Photo Imaging Headquarters -0- 17,049,875 650,125 17,700,000 1999 12/21/99 Industrial Building Mahwah, New Jersey Atlanta Industrial Portfolio -0- 39,855,509 603,536 40,459,045 1999 04/04/00 Industrial Building Atlanta, Georgia 1801 K Street -0- 140,719,040 9,620,806 150,339,846 1971 05/15/00 Office Building Washington, DC Northpoint Commerce Center -0- 38,818,013 (1,361,864) 37,456,149 1994 06/15/00 Industrial Building Fullerton, California Morris Corporate Center III -0- 103,119,739 3,094,856 106,214,595 1990 07/12/00 Office Building Parsippany, New Jersey

36

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) 2001 COMPLETED ACQUIRED ---------------------------------- ------- -------------- ----------------- -------------- ------------ -------- Ashford Meadows Apartments $-0- $ 64,171,626 $ 23,874 $ 64,195,500 1998 09/28/00 Apartments Herndon, Virginia Landmark at Salt Lake City -0- 14,434,653 (834,653) 13,600,000 2000 11/03/00 Industrial Building Salt Lake City, Utah Cabot Industrial Portfolio -0- 32,155,307 2,208,445 34,363,752 2000 11/17/00 Industrial Building Rancho Cucamonga, California Maitland Promenade One -0- 36,520,162 2,479,838 39,000,000 1999 12/14/00 Office Building Maitland, Florida Dallas Industrial Portfolio -0- 96,904,758 341,092 97,245,850 1997 12/19/00 Industrial Building Coppell, Texas Bisys Fund Service Building -0- 19,070,377 1,329,623 20,400,000 2001 11/30/99 Office Building Columbus, Ohio Batterymarch Park 11 -0- 17,816,460 174,393 17,990,853 1986 05/31/01 Office Building Quincy, Massachusetts South River Road Industrial -0- 33,700,429 (1,011,864) 32,688,565 1999 06/25/01 Industrial Building Cranbury, New Jersey

37

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) 2001 COMPLETED ACQUIRED ---------------------------------- ------- -------------- ----------------- -------------- ------------ -------- Needham Corporate Center $-0- $ 28,150,986 $ 143,540 $ 28,294,526 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 Carolina Apartments -0- 17,286,931 313,069 17,600,000 1993 08/24/01 Apartments Margate, Florida Quiet Waters Apartments -0- 19,094,415 (2,994,415) 16,100,000 1995 08/24/01 Apartments Deerfield Beach, Florida 9 Hutton Centre -0- 20,448,764 0 20,448,764 1981 10/30/01 Office Building Santa Ana, California Doral Pointe Apartments -0- 45,341,796 0 45,341,796 1990 11/06/01 Apartments Miami, Florida 1015 15th Street -0- 48,736,575 0 48,736,575 1978 11/09/01 Office Building Washington D.C. Kenwood Mews Apartments -0- 22,686,216 0 22,686,216 1991 11/30/01 Apartments Burbank, California

38

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) 2001 COMPLETED ACQUIRED ---------------------------------- ------- -------------- ----------------- -------------- ------------ -------- Ten & Twenty Westport Road $-0- $ 140,105,661 $ 0 $ 140,105,661 2001 12/28/01 Office Building Wilton, Connecticut ----- -------------- ----------- -------------- $ -0- $2,242,165,930 $88,748,536 $2,330,914,466 ===== ============== =========== ============== (1) Leasehold interest only Reconciliation of investment property owned: Balance at beginning of period $1,899,254,344 Acquisitions 538,396,767 Dispositions (94,797,368) (Initial Cost $95,125,231, costs capitalized ($327,863)) Capital improvements and carrying costs (including unrealized gains and losses) (11,939,277) -------------- Balance at end of period $2,330,914,466 ==============

39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Account has no officers or directors. The Trustees and principal executive officers of TIAA, and their principal occupations during the last five years, are as follows: TRUSTEES -------- DAVID ALEXANDER, 69. President Emeritus, Pomona College. Formerly, Trustees' Professor, Pomona College and American Secretary, Rhodes Scholarship Trust. MARCUS ALEXIS, 70. Board of Trustees Professor of Economics and Professor of Management and Strategy, J.L. Kellogg Graduate School of Management, Northwestern University, and Visiting Professor of Economics, Stanford University. WILLARD T. CARLETON, 67. Donald R. Diamond Professor of Finance Emeritus, College of Business and Public Administration, University of Arizona. ROBERT C. CLARK, 58. Dean and Royall Professor of Law, Harvard Law School, Harvard University. ESTELLE A. FISHBEIN, 67. Vice President and General Counsel, The Johns Hopkins University. FREDERICK R. FORD, 66. Executive Vice President and Treasurer Emeritus, Purdue University. Formerly, Executive Vice President and Treasurer, Purdue University. RUTH SIMMS HAMILTON, 64. Professor, Department of Sociology, and Director, African Diaspora Research Project, Michigan State University. ROCHELLE B. LAZARUS, 54. Chairman and Chief Executive Officer, Ogilvy & Mather Worldwide. Formerly, President and Chief Operating Officer, Ogilvy & Mather Worldwide. 40 ROBERT M. O'NEIL, 67. Professor of Law, University of Virginia and Director, The Thomas Jefferson Center for the Protection of Free Expression. LEONARD S. SIMON, 65. Vice Chairman, Charter One Financial Inc. Formerly, Chairman, President and Chief Executive Officer, RCSB Financial, Inc. and Chairman and Chief Executive Officer, The Rochester Community Savings Bank. RONALD L. THOMPSON, 52. Chairman and Chief Executive Officer, Midwest Stamping Co. PAUL R. TREGURTHA, 66. Chairman and Chief Executive Officer, Mormac Marine Group, Inc. and Moran Transportation Company, Inc.; Formerly, Chairman, Meridian Aggregates, L.P.; Vice Chairman, The Interlake Steamship Company and Lakes Shipping Company. WILLIAM H. WALTRIP, 64. Chairman, Technology Solutions Company. Formerly, Chairman and Chief Executive Officer, Bausch & Lomb Inc. ROSALIE J. WOLF, 60. Managing Director, Laurel Management, LLC. Formerly, Treasurer and Chief Investment Officer, The Rockefeller Foundation. OFFICER-TRUSTEES JOHN H. BIGGS, 65. Chairman, President and Chief Executive Officer, TIAA and CREF. MARTIN L. LEIBOWITZ, 65. Vice Chairman and Chief Investment Officer, TIAA and CREF. OTHER OFFICERS RICHARD J. ADAMSKI, 59. Vice President and Treasurer, TIAA and CREF. RICHARD L. GIBBS, 54. Executive Vice President, Finance and Planning, TIAA and CREF. E. LAVERNE JONES, 53. Vice President and Corporate Secretary, TIAA and CREF. 41 ITEM 11. EXECUTIVE COMPENSATION. Not applicable. 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 current daily net asset value. For the year ended December 31, 2001, the Account paid TIAA $837,100 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, and to cover mortality and expense risks borne by TIAA. These services are performed at cost by TIAA and Services. For the year ended December 31, 2001, the Account paid TIAA $5,896,729 for investment management services and $1,987,604 for mortality and expense risks. For the same period, the Account paid Services $8,470,496 for its administrative and distribution services. 42 PART IV ITEM 14. 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* (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 8, 2002 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. 43 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/ Lisa Snow -------------------------------- Lisa Snow Vice President and Chief Counsel, Corporate Law March 15, 2002 ----------------------------------- 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/ John H. Biggs Chairman of the Board, President, 3/15/02 -------------------------- and Chief Executive Officer John H. Biggs (Principal Executive and Financial Officer) /s/ Martin L. Leibowitz Vice Chairman and 3/15/02 -------------------------- Chief Investment Officer Martin L. Leibowitz (Principal Investment Officer) /s/ Richard L. Gibbs Executive Vice President 3/15/02 -------------------------- (Principal Accounting Officer) Richard L. Gibbs 44 SIGNATURE OF TRUSTEE DATE SIGNATURE OF TRUSTEE DATE -------------------- ---- -------------------- ---- /s/ David Alexander 3/15/02 /s/ Rochelle B. Lazarus 3/15/02 ---------------------------- --------------------------- David Alexander Rochelle B. Lazarus /s/ Marcus Alexis 3/15/02 /s/ Robert M. O'Neil 3/15/02 ---------------------------- --------------------------- Marcus Alexis Robert M. O'Neil /s/ Willard T. Carleton 3/15/02 /s/ Leonard S. Simon 3/15/02 ---------------------------- --------------------------- Willard T. Carleton Leonard S. Simon /s/ Robert C. Clark 3/15/02 /s/ Ronald L. Thompson 3/15/02 ---------------------------- --------------------------- Robert C. Clark Ronald L. Thompson /s/ Estelle A. Fishbein 3/15/02 /s/ Paul R. Tregurtha 3/15/02 ---------------------------- --------------------------- Estelle A. Fishbein Paul R. Tregurtha /s/ Frederick R. Ford 3/15/02 /s/ William H. Waltrip 3/15/02 ---------------------------- --------------------------- Frederick R. Ford William H. Waltrip /s/ Ruth Simms Hamilton 3/15/02 /s/ Rosalie J. Wolf 3/15/02 ---------------------------- --------------------------- Ruth Simms Hamilton Rosalie J. Wolf 45 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. 46 [TIAA CREF LOGO] 730 Third Avenue New York NY 10017-3206