10-K 1 c27345_10k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to __________ Commission file numbers 33-92990, 333-13477, 333-22809, 333-59778, and 333-83964 TIAA REAL ESTATE ACCOUNT (Exact name of registrant as specified in its charter) New York Not Applicable (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) c/o Teachers Insurance and Annuity Association of America 730 Third Avenue New York, New York 10017-3206 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (212) 490-9000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: [X] -- Not Applicable Aggregate market value of voting stock held by non-affiliates: Not Applicable Documents Incorporated by Reference: None PART I ITEM 1. BUSINESS. GENERAL. The TIAA Real Estate Account (the "Real Estate Account" or the "Account") was established on February 22, 1995, as a separate investment account of Teachers Insurance and Annuity Association of America ("TIAA"), a New York insurance company, by resolution of TIAA's Board of Trustees. The Account, which invests mainly in real estate and real estate-related investments, is a variable annuity investment option offered through individual, group and tax-deferred annuity contracts available to employees of educational and research institutions. The Account commenced operations on July 3, 1995, when TIAA contributed $100 million of seed money to the Account, and interests in the Account were first offered to eligible participants on October 2, 1995. INVESTMENT OBJECTIVE. The Real Estate Account seeks favorable long term returns primarily through rental income and appreciation of real estate investments owned by the Account. The Account also invests in publicly-traded securities and other investments that are easily converted to cash to make redemptions, purchase or improve properties or cover expenses. INVESTMENT STRATEGY. The Account seeks to invest between 70 percent to 95 percent of its assets directly in real estate or real estate-related investments. The Account's principal strategy is to purchase direct ownership interests in income-producing real estate, such as office, industrial, retail, and multi-family residential properties. The Account can also invest in other real estate or real estate-related investments, through joint ventures, real estate partnerships or real estate investment trusts (REITs). To a limited extent, the Account can also invest in conventional mortgage loans, participating mortgage loans, common or preferred stock of companies whose operations involve real estate (I.E., that primarily own or manage real estate), and collateralized mortgage obligations, including commercial mortgage backed securities and other similar instruments. The Account will invest the remaining portion of its assets in government and corporate debt securities, money market instruments and other cash equivalents, and, at times, stock of companies that don't primarily own or manage real estate. In some circumstances, the Account can increase the portion of its assets invested in debt securities or money market instruments. This could happen if the Account receives a large inflow of money in a short period of time, there is a lack of attractive real estate investments available on the market, or the Account anticipates a need to have more cash available. The amount the Account invests in real estate and real estate-related investments at a given time will vary depending on market conditions and real estate prospects, among other factors. NET ASSETS AND PORTFOLIO INVESTMENTS. As of December 31, 2002, the Account's net assets totaled $3,675,988,560. At December 31, 2002 the Account held a total of 77 real estate properties (including its interests in four real estate-related joint ventures), 2 representing 92.56% of the Account's total investment portfolio. As of that date, the Account also held investments in real estate investment trusts (REITs), representing 2.87% of the portfolio, commercial mortgage backed securities (CMBSs), representing 1.16% of the portfolio, real estate limited partnerships, representing 0.31% of the portfolio and commercial paper and government bonds, representing 3.10% 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. AVAILABLE INFORMATION. The Account's annual report on Form 10-K, any quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports, filed by the Account with the Securities and Exchange Commission on or after the date hereof, can be accessed free of charge at www.tiaa-cref.org. ITEM 2. PROPERTIES. THE PROPERTIES--IN GENERAL As of December 31, 2002, the TIAA Real Estate Account owned a total of 77 real estate properties, including 30 office properties (three of which are held in joint venture), 17 industrial properties (including one development joint venture project), 22 apartment complexes, and 8 retail properties (including the three joint ventures that each own a regional mall in which the Account owns an approximately 50% partnership interest). In the table below you will find general information about each of the Account's portfolio properties as of December 31, 2002.

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 Mellon Financial Center at One Boston Place(3) Boston, MA 1970(4) 2002 782,241 96% $39.09 $261,896,938 780 Third Avenue New York, NY 1984 1999 487,501 92% $45.73 $178,500,000 701 Brickell Miami, FL 1986(4) 2002 677,667 99% $28.27 $172,088,618 1801 K Street, N.W. Washington, DC 1971(4) 2000 564,359 99% $33.34 $162,636,836 Ten & Twenty Westport Road Wilton, CT 1974(4); 2001 2001 538,840 100% $25.11 $140,000,000 Morris Corporate Center III Parsippany, NJ 1990 2000 525,154 85% $23.88 $ 92,400,000 Corporate Boulevard Rockville, MD 1984-1989 2002 339,786 90% $22.95 $ 68,020,401 Oak Brook Regency Towers Oakbrook, IL 1977(4) 2002 402,318 88% $16.65 $ 66,602,200 88 Kearny Street San Francisco, CA 1986 1999 228,470 89% $41.72 $ 65,083,257 1015 15th Street Washington, DC 1978(4) 2001 184,825 100% $31.24 $ 51,600,000

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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) -------- -------- ----- --------- --------- ------- ---------- -------- OFFICE PROPERTIES (CONTINUED) Parkview Plaza(5) Oakbrook, IL 1990 1997 266,020 94% $18.79 $ 50,315,694 The Farragut Building Washington, DC 1962(4) 2002 146,792 90% $36.27 $ 46,500,000 Sawgrass Office Portfolio Sunrise, FL 1997-2000 1997, 344,009 93% $14.61 $ 45,000,000 1999-2000 The Pointe on Tampa Bay Tampa, FL 1982(4) 2002 249,215 93% $23.45 $ 41,239,643 Maitland Promenade One Maitland, FL 1999 2000 227,814 95% $21.08 $ 37,600,000 Columbia Centre III Rosemont, IL 1989 1997 238,696 79% $18.89 $ 33,800,000 Monument Place Fairfax, VA 1990 1999 221,538 91% $20.28 $ 33,500,000 BISYS Fund Services Building(6) Eaton, OH 1995; 2002 1999; 2002 155,964 100% $ 8.41 $ 34,700,000 Fairgate at Ballston(5) Arlington, VA 1988 1997 137,117 99% $29.67 $ 30,700,000 Biltmore Commerce Center Phoenix, AZ 1985 1999 259,792 66% $ 6.75 $ 28,394,213 10 Waterview Boulevard Parsippany, NJ 1984 1999 209,553 60% $16.02 $ 27,000,000 Needham Corporate Center Needham, MA 1987 2001 138,684 97% $26.15 $ 26,500,000 Tysons Executive Plaza II(7) McLean, VA 1988 2000 252,552 97% $25.05 $ 25,632,730 Longview Executive Park(5) Hunt Valley, MD 1988 1997 258,999 89% $11.50 $ 24,990,805 Columbus Portfolio 259,626 $12.18 $ 23,600,000 Metro South Building Dublin, OH 1997 1999 90,726 72% -- Vision Service Plan Building Eaton, OH 1997 1999 50,000 100% -- One Metro Place Dublin, OH 1998 2001 118,900 97% -- 9 Hutton Centre Santa Ana, CA 1990 2001 148,265 85% $16.79 $ 19,425,493 Five Centerpointe(5) Lake Oswego, OR 1988 1997 113,910 70% $21.60 $ 16,002,154 Batterymarch Park II Quincy, MA 1986 2001 104,718 88% $21.60 $ 15,000,000 371 Hoes Lane Piscataway, NJ 1986 1997 139,670 30% $10.38 $ 10,817,795 Northmark Business Center(5) Blue Ash, OH 1985 1997 108,561 83% $12.35 $ 8,000,000 ------------- SUBTOTAL--OFFICE PROPERTIES $1,837,546,777 INDUSTRIAL PROPERTIES Dallas Industrial Portfolio Dallas and 1997- 2000- 3,763,886 94% $2.95 $ 136,034,954 (formerly Parkwest Center) Coppell, TX 2001 2002 Ontario Industrial Portfolio 2,698,717 100% $3.41 $ 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 -- IDI Kentucky Portfolio (formerly, Parkwest Int'l) 1,437,022 100% $3.20 $ 50,200,000 Building C Hebron, KY 1998 1998 520,000 -- Building D Hebron, KY 1998 1998 184,800 -- Building E Hebron, KY 2000 2000 207,222 -- Building J Hebron, KY 2000 2000 525,000 -- Chicago Industrial Portfolio Chicago and 1997- 1998; 866,064 90% $4.14 $ 40,100,000 (consolidation of Rockrun, Joliet, IL 2000 2000 Glen Pointe and Woodcreek Business Parks)

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ANNUAL AVG. RENTABLE BASE RENT YEAR YEAR AREA PERCENT PER LEASED MARKET PROPERTY LOCATION BUILT PURCHASED (SQ. FT.) LEASED SQ. FT.(1) VALUE(2) -------- -------- ----- --------- --------- ------- ---------- -------- INDUSTRIAL PROPERTIES (CONTINUED) Atlanta Industrial Portfolio Lawrenceville, GA 1996-99 2000 1,145,693 92% $ 2.63 $ 38,400,000 Northpoint Commerce Center Fullerton, CA 1990-94 2000 612,023 100% $ 5.85 $ 37,972,054 Cabot Industrial Portfolio(8) Rancho 2000- 2000; 1,214,475 47% $ 1.82 $ 41,586,565 Cucamonga, CA 2002 2001; 2002 South River Road Industrial Cranbury, NJ 1999 2001 626,071 82% $ 3.80 $ 32,800,000 Konica Photo Imaging Headquarters Mahwah, NJ 1999 1999 168,000 100% $ 9.71 $ 17,900,000 Eastgate Distribution Center San Diego, CA 1996 1997 200,000 100% $ 6.22 $ 15,200,000 Landmark at Salt Lake City Salt Lake City, UT 2000 2000 328,508 100% $ 3.98 $ 12,700,000 Building #4 UPS Distribution Facility Fernley, NV 1998 1998 256,000 100% $ 3.54 $ 11,500,000 FEDEX Distribution Facility Crofton, MD 1998 1998 111,191 100% $ 6.41 $ 7,500,000 Interstate Crossing Eagan, MN 1995 1996 131,380 79% $ 5.03 $ 6,304,905 Westinghouse Facility Coral Springs, FL 1997 1997 75,630 100% $ 8.02 $ 5,300,000 Butterfield Industrial Park El Paso, TX 1980-81 1995 183,510 100% $ 3.00 $ 4,500,000 River Road Distribution Center Fridley, MN 1995 1995 100,456 100% $ 4.19 $ 4,150,000 -------------- SUBTOTAL--INDUSTRIAL PROPERTIES $ 570,148,478 RETAIL PROPERTIES The Florida Mall(9) Orlando, FL 1986(4) 2002 921,370(10) 93% $45.45 $ 84,997,624(11) Westwood Marketplace Los Angeles, CA 1950(12) 2002 202,201 100% $27.25 $ 74,026,411 West Town Mall(9) Knoxville, TN 1972(4) 2002 684,777(10) 97% $29.96 $ 67,216,965(11) Miami International Mall(9) Miami, FL 1982(4) 2002 290,299(10) 99% $36.39 $ 57,322,356(11) Rolling Meadows Rolling Meadows, IL 1957(4) 1997 130,909 99% $10.69 $ 12,850,000 Plantation Grove Ocoee, FL 1995 1995 73,655 100% $10.53 $ 8,200,000 The Lynnwood Collection Raleigh, NC 1988 1996 86,362 92% $ 7.95 $ 7,983,285 The Millbrook Collection Raleigh, NC 1988 1996 102,221 82% $ 6.19 $ 7,000,000 -------------- SUBTOTAL--RETAIL PROPERTIES $ 319,596,641 -------------- SUBTOTAL--COMMERCIAL PROPERTIES $2,727,291,896 RESIDENTIAL PROPERTIES(13) The Legacy at Westwood Apartments Los Angeles, CA 2001 2002 NA 97% NA $ 85,075,210 Longwood Towers Brookline, MA 1926(4) 2002 NA 87% NA $ 80,202,248 Ashford Meadows Apartments Herndon, VA 1998 2000 NA 94% NA $ 62,000,000 The Colorado New York, NY 1987 1999 NA 94% NA $ 55,702,614 Larkspur Courts Larkspur, CA 1991 1999 NA 94% NA $ 55,014,500 Regents Court Apartments San Diego, CA 2001 2002 NA 94% NA $ 49,567,031 South Florida Apartment Boca Raton and 1986 2001 NA 95% NA $ 46,800,000 Portfolio Plantation, FL Alexan Buckhead Atlanta, GA 2002 2002 NA 24%(14) NA $ 45,739,570

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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(13) (CONTINUED) Doral Pointe Apartments Miami, FL 1990 2001 NA 95% NA $ 43,507,416 The Lodge at Willow Creek Denver, CO 1997 1997 NA 86% NA $ 31,000,000 Golfview Apartments Lake Mary, FL 1998 1998 NA 95% NA $ 26,240,000 The Legends at Chase Oaks Plano, TX 1997 1998 NA 98% NA $ 26,000,000 Lincoln Woods Apartments Lafayette Hill, PA 1991 1997 NA 93% NA $ 24,676,180 Kenwood Mews Apartments Burbank, CA 1991 2001 NA 97% NA $ 22,700,000 Monte Vista Littleton, CO 1995 1996 NA 93% NA $ 20,499,262 Westcreek Apartments Westlake Village, CA 1988 1997 NA 97% NA $ 18,686,112 Indian Creek Apartments Farmington Hills, MI 1988 1998 NA 99% NA $ 17,700,000 Quiet Waters at Coquina Lakes Deerfield Beach, FL 1995 2001 NA 97% NA $ 17,600,000 Royal St. George W. Palm Beach, FL 1995 1996 NA 94% NA $ 17,100,000 The Fairways of Carolina Margate, FL 1993 2001 NA 98% NA $ 16,100,000 The Greens at Metrowest Orlando, FL 1990 1995 NA 93% NA $ 13,900,000 Apartments Bent Tree Apartments Columbus, OH 1987 1998 NA 93% NA $ 13,400,000 -------------- SUBTOTAL--RESIDENTIAL NA $ 789,210,143 PROPERTIES -------------- TOTAL--ALL PROPERTIES $3,516,502,039 ==============

(1) Based on total contractual rent on leases existing at December 31, 2002. For those properties purchased in 2002, 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 and as stated in the Consolidated Statement of Investments. (3) The Account purchased a 50.25% interest in a private REIT which owns this property. The remaining 49.70% is owned by Societe Immobiler Trans-Quebec, and .05% is owned by 100 individuals. (4) Undergone extensive renovations since original construction. (5) Purchased through Light Street Partners, L.P. (now 100% owned by the Account). (6) Property held in 96%/4% joint venture with Georgetown BISYS Phase II LLC. Phase II was purchased in 2002. (7) 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. (8) The property is held in an 80%/20% joint venture with Cabot Industrial Trust. (9) Each property is held in an approximately 50%/50% joint venture with the Simon Property Group. (10) Reflects the square footage owned by the joint venture. (11) Market value shown represents the Account's interest after debt. (12) Total renovation completed in 2001. (13) For the average unit size and annual average rent per unit for each residential property, see "Residential Properties" below. (14) This property was completed in late 2002 and is currently in its lease-up phase. At closing, an escrow was established to provide the Account with a 7% return on this property during the first twelve months of ownership. COMMERCIAL (NON-RESIDENTIAL) PROPERTIES IN GENERAL. At December 31, 2002, the Account held 55 commercial (non-residential) properties in its portfolio. Three of these properties, which are held through joint ventures, are subject to mortgages. Although the terms vary under each lease, certain expenses, such as real estate taxes and other operating expenses, are paid or reimbursed by the tenants. The Account had a portfolio of 30 office properties containing approximately 8.8 million square feet located in 12 states and the District of Columbia, 17 industrial properties containing 14 million square feet located in 11 states, and 8 retail properties containing approximately 2.6 million square feet located in 5 states. 6 As of December 31, 2002, the overall occupancy rate of Account's real estate portfolio was 92% on a weighted average basis. Office properties were 90% leased with 770 leases, industrial properties were 92% leased with 116 leases, and retail properties were 96% leased with 521 leases. No single tenant accounts for more than 4.8% of the total rentable area of the Account's commercial properties. RESIDENTIAL PROPERTIES The Account's residential property portfolio currently consists of 22 first class or luxury multi-family garden apartment complexes, mid-rise and high rise apartment buildings containing approximately 5,796 units located in 11 states and the District of Columbia. The overall occupancy rate for the residential properties is 94%. None of the residential properties in the portfolio is subject to a mortgage. The complexes generally contain one- to three-bedroom apartment units, with a range of amenities, such as patios or balconies, washers and dryers, and central air conditioning. Many of these apartment communities have use of on-site fitness facilities, including some with swimming pools. Rents on each of the properties tend to be comparable with competitive communities and are not subject to rent regulation. The Account is responsible for the expenses of operating the properties. In the table below you will find additional information regarding the residential properties in the Account's portfolio as of December 31, 2002.

AVERAGE AVG. RENT NUMBER UNIT SIZE PER UNIT/ PROPERTY LOCATION OF UNITS (SQUARE FEET) PER MONTH ------------------------------------------------------------------------------------------------------------ The Legacy at Westwood Apartments Los Angeles, CA 187 1,180 $4,070.93 Longwood Towers Brookline, MA 268 938 $2,541.80 Ashford Meadows Herndon, VA 440 1,050 $1,473.40 The Colorado New York, NY 254 622 $2,573.11 Larkspur Courts Larkspur, CA 248 1,001 $2,015.84 Regents Court Apartments San Diego, CA 251 886 $1,535.03 South Florida Apartment Portfolio Boca Raton, Plantation, FL 550 889 $1,057.59 Alexan Buckhead Atlanta, GA 230 984 $1,532.00 Doral Pointe Apartments Miami, FL 440 1,150 $1,162.93 The Lodge at Willow Creek Denver, CO 316 996 $1,219.66 Golfview Apartments Lake Mary, FL 277 1,134 $1,170.89 The Legends at Chase Oaks Plano, TX 346 972 $1,058.60 Lincoln Woods Apartments Lafayette Hill, PA 216 774 $1,140.45 Kenwood Mews Apartments Burbank, CA 141 942 $1,424.00 Monte Vista Littleton, CO 219 888 $1,099.65 Westcreek Apartments Westlake Village, CA 126 951 $1,571.71 Indian Creek Apartments Farmington Hills, MI 196 1,139 $1,011.11 Quiet Waters at Coquina Lakes Deerfield Beach, FL 200 1,048 $1,099.07 Royal St. George West Palm Beach, FL 224 870 $ 983.32 The Fairways of Carolina Margate, FL 208 1,026 $1,024.33 The Greens at Metrowest Apartments Orlando, FL 203 920 $ 867.15 Bent Tree Apartments Columbus, OH 256 928 $ 739.73

RECENT PROPERTY PURCHASES AND SALES THE FOLLOWING DESCRIBES A RECENT PROPERTY SALE BY THE ACCOUNT. WHEN REVIEWING THIS INFORMATION, IT IS IMPORTANT TO KEEP IN MIND THAT ANY CHANGES IN THE VALUATION OF THE PROPERTY SINCE IT WAS PURCHASED HAVE BEEN REFLECTED IN THE ACOUNT'S DAILY UNIT VALUE OVER THE PERIOD THE ACCOUNT HELD THE PROPERTY. 7 On January 9, 2003, the Account sold one industrial property building (the Westinghouse Facility) located in Coral Springs, Florida for approximately $5.4 million. The Account had purchased the building in February, 1997 at a cost of approximately $6.1 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. 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, 2002 to December 31, 2002, the high and low accumulation unit values for the Account were $173.899 and $168.224, respectively. (b) APPROXIMATE NUMBER OF HOLDERS. The number of contract owners at February 28, 2003 was 524,633. (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.

YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- ---- ---- Investment income: Real estate income, net: Rental income .............. $308,948,225 $253,839,662 $192,894,812 $129,523,631 $ 78,404,412 $ 41,686,852 $ 9,504,481 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Real estate property level expenses and taxes: Operating expenses ......... 67,604,266 52,274,213 39,876,941 27,177,841 17,192,385 8,843,562 1,995,822 Real estate taxes .......... 38,410,380 29,408,054 22,604,315 15,631,453 8,755,526 4,234,044 1,053,703 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total real estate property level expenses and taxes . 106,014,646 81,682,267 62,481,256 42,809,294 25,947,911 13,077,606 3,049,525 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Real estate income, net .. 202,933,579 172,157,395 130,413,556 86,714,337 52,456,501 28,609,246 6,454,956 Income from real estate joint ventures ................ 14,125,306 2,392,594 756,133 -- -- -- -- Dividends and interest ......... 26,437,901 33,687,343 31,334,291 24,932,733 23,943,728 16,486,279 6,027,486 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total investment income .. 243,496,786 208,237,332 162,503,980 111,647,070 76,400,229 45,095,525 12,482,442 Expenses ....................... 23,304,336 17,191,929 13,424,566 9,278,410 6,274,594 3,526,545 1,155,796 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Investment income, net ... 220,192,450 191,045,403 149,079,414 102,368,660 70,125,635 41,568,980 11,326,646 Net realized and unrealized gain on investments ........... (106,424,480) (23,485,614) 54,147,449 9,834,743 7,864,659 18,147,053 3,330,539 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations before minority interest and discontinued operations ....... 113,767,970 167,559,789 203,226,863 112,203,403 77,990,294 59,716,033 14,657,185 Minority interest .............. (1,484,585) (811,789) -- 1,364,619 (3,487,991) (1,881,178) -- Discontinued operations ........ 3,958,653 2,470,985 2,215,831 2,375,745 2,109,359 2,236,545 1,125,730 Participant transactions ....... 346,079,345 657,326,121 486,196,949 383,171,774 333,936,510 356,052,262 233,653,793 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net increase in net assets ..... $462,321,383 $826,545,106 $691,639,643 $499,115,541 $410,548,172 $416,123,662 $249,436,708 ============ ============ ============ ============ ============ ============ ============

JULY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995 ---- $ 165,762 ------------ 29,173 14,659 ------------ 43,832 ------------ 121,930 -- 2,828,900 ------------ 2,950,830 310,433 ------------ 2,640,397 35,603 ------------ 2,676,000 -- -- 117,582,345 ------------ $120,258,345 ============ 8

DECEMBER 31, 2002 2001 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- ---- ---- Total assets ............ $3,870,532,278 $3,270,384,450 $2,423,100,402 $1,719,457,715 $1,229,603,431 $815,760,825 $426,372,007 Total liabilities and minority interest ...... 194,543,718 56,717,273 35,978,331 23,975,287 33,236,544 29,942,110 56,676,954 -------------- -------------- -------------- -------------- -------------- ------------ ------------ Total net assets ........ $3,675,988,560 $3,213,667,177 $2,387,122,071 $1,695,482,428 $1,196,366,887 $785,818,715 $369,695,053 ============== ============== ============== ============== ============== ============ ============ Accumulation units outstanding ........... 20,346,696 18,456,445 14,604,673 11,487,360 8,833,911 6,313,015 3,295,786 Accumulation unit value . $173.90 $168.16 $158.21 $142.97 $132.17 $122.30 $111.11 ======= ======= ======= ======= ======= ======= =======

1995 ---- $143,177,421 22,919,076 ------------ $120,258,345 ============ 1,172,498 $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:

2002 FOR THE THREE MONTHS ENDED ------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- ------- ------------ ----------- Investment income, net $47,812,962 $54,419,265 $55,532,867 $62,427,356 Net realized gain (loss) on investments 4,320,393 3,091,947 1,428,243 (1,914,498) Net unrealized gain (loss) on investments (29,088,106) (20,049,625) (30,606,185) (33,606,649) Minority interest (119,166) (521,681) 42,020 (885,758) Discontinued operations 2,181,256 1,777,397 -- -- ----------- ----------- ----------- ----------- Net increase in net assets resulting from operations $25,107,339 $38,717,303 $26,396,945 $26,020,451 =========== =========== =========== =========== Total return 0.77% 1.13% 0.75% 0.72% ==== ==== ==== ====

2001 FOR THE THREE MONTHS ENDED ------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- ------- ------------ ----------- Investment income, net $44,988,150 $47,346,855 $49,788,149 $48,922,249 Net realized gain (loss) on investments 978,396 514,453 759,534 (3,522,087) Net unrealized gain (loss) on investments (4,436,522) 11,549,836 (8,110,459) (21,218,765) Minority interest -- (448,023) (213,578) (150,188) Discontinued operations 276,485 585,167 697,453 911,880 ----------- ----------- ----------- ----------- 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% ==== ==== ==== ====

9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ACCOUNT'S FINANCIAL CONDITION AND OPERATING RESULTS THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ TOGETHER WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES CONTAINED IN THIS REPORT. As of December 31, 2002, the TIAA Real Estate Account owned a total of 77 real estate properties, representing 92.56% of the Account's total investment portfolio. These included 30 office properties (three of which are held in joint venture), 17 industrial properties (including one development joint venture project), 22 apartment complexes, and 8 retail properties (including the three joint ventures that each own a regional mall in which the Account owns an approximately 50% partnership interest). The following chart breaks down the Account's real estate assets by region and property type, based on the market values of the properties as stated in the consolidated financial statements: EAST MIDWEST SOUTH WEST TOTAL (26) (12) (21) (18) (77) ------- ------- ------- ------- ------- Office (30) 34.0% 6.2% 8.4% 3.7% 52.3% Industrial (17) 3.1% 1.4% 5.2% 6.5% 16.2% Residential (22) 6.3% 0.9% 7.2% 8.0% 22.4% Retail (8) 0.4% 0.4% 6.2% 2.1% 9.1% ----- ---- ----- ----- ------ TOTAL (77) 43.8% 8.9% 27.0% 20.3% 100.0% ( ) Number of properties in parentheses. The following table lists the Account's 10 largest properties by market value as of December 31, 2002:

MARKET VALUE % OF NET PROPERTY NAME STATE PROPERTY TYPE (000,000) ASSETS ------------- ----- ------------ ----------- ------- Mellon Financial Center at One Boston Place MA Office $261.9* 7.12%* 780 Third Avenue NY Office $178.5 4.86% 701 Brickell FL Office $172.1 4.68% 1801 K Street, N.W. DC Office $162.6 4.42% Ten & Twenty Westport Road CT Office $140.0 3.81% Dallas Industrial Portfolio TX Industrial $136.0 3.70% Ontario Industrial Portfolio CA Industrial $108.0 2.94% Morris Corporate Center III NJ Office $ 92.4 2.51% The Legacy at Westwood Apartments CA Residential $ 85.1 2.31% The Florida Mall** FL Retail $ 85.0 2.31%

* This amount reflects the market value of the property, as stated in the Consolidated Financial Statements, which includes minority interests. The market value of the Account's interest in the property is $131.6 million, which represents 3.58% of the Account's net assets. ** This property is held in joint venture and is subject to debt. The market value reflects the Account's interest in the joint venture after debt. The Account closed 19 transactions in 2002 in the total net amount of $1.1 billion. It purchased 16 properties: seven office properties, including two joint ventures, four apartment properties, four retail properties and one industrial property for a total of $1.1 billion. In 10 addition, the Account made a commitment of $25 million for one real estate-related fund investment and sold two properties (one office and one industrial) for a total of $26 million. The Account continues to pursue suitable real estate properties for acquisition. As of December 31, 2002, the Account also held investments in real estate investment trusts (REITs), representing 2.87% of the portfolio, commercial mortgage backed securities (CMBS), representing 1.16% of the portfolio, real estate limited partnerships, representing 0.31% of the portfolio and commercial paper and government bonds, representing 3.10% of the portfolio. REAL ESTATE MARKET OUTLOOK IN GENERAL We believe the outlook for the commercial real estate market is clouded by persistent weakness in the U.S. economy and the uncertainties of war. These uncertainties make businesses cautious about hiring and making new space commitments. Of positive note are the continued growth in U.S. GDP (gross domestic product, a basic economic indicator), the ongoing improvement in business productivity, and an increase in hiring by temporary help firms, which often precedes full-time hiring. In addition, office and warehouse construction have declined sharply, which should ultimately improve supply/demand fundamentals when employment growth resumes. Nonetheless, the timing and strength of the economic recovery are not predictable. RESULTS OF OPERATIONS WHEN REVIEWING THIS DISCUSSION, IT IS IMPORTANT TO NOTE THAT WHEN THE ACCOUNT OWNS A CONTROLLING INTEREST (OVER 50%) IN A JOINT VENTURE, CONSISTENT WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP), THE ACCOUNT'S CONSOLIDATED FINANCIAL STATEMENTS AND ALL FINANCIAL DATA DISCUSSED IN THE REPORT REFLECT 100% OF THE MARKET VALUE OF THE JOINT VENTURE'S ASSETS. THE INTERESTS OF THE OTHER JOINT VENTURE PARTNERS ARE REFLECTED AS MINORITY INTERESTS IN THE ACCOUNT'S CONSOLIDATED FINANCIAL STATEMENTS. WHEN THE ACCOUNT DOES NOT HAVE A CONTROLLING INTEREST IN A JOINT VENTURE, THEN ONLY THE ACCOUNT'S NET INVESTMENT IN THE JOINT VENTURE IS RECORDED BY THE ACCOUNT. NOTE ALSO THAT ALL OF THE ACCOUNT'S PROPERTIES ARE APPRAISED AND REVALUED ON A QUARTERLY BASIS, IN ACCORDANCE WITH THE VALUATION POLICIES DESCRIBED IN NOTE 1 TO THE CONSOLIDATED FINANCIAL STATEMENTS. UNTIL A PROPERTY IS SOLD, THESE CHANGES IN PROPERTY VALUES ARE RECORDED AS UNREALIZED GAINS OR LOSSES. UPON THE SALE OF A PROPERTY, THE DIFFERENCE BETWEEN THE ACCOUNT'S THEN CURRENT COST FOR THE PROPERTY (ORIGINAL PURCHASE PRICE PLUS THE COST OF ANY CAPITAL IMPROVEMENTS MADE) AND THE SALE PRICE IS RECORDED AS A REALIZED GAIN OR LOSS. YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001 RESULTS FROM CONTINUING OPERATIONS The Account's total net return was 3.41% for the year ended December 31, 2002 and 6.29% for 2001. The substantial decline in the Account's overall performance on a year-to-year basis reflects the continuing effects of the economic recession, which began in early 2001, and persisted throughout 2002. The decline in the 2002 performance of the Account's real estate and real estate-related assets from its 2001 performance had the largest negative impact on the Account's total net return. The real estate properties owned by the Account experienced continued declines in value due to deteriorating market conditions. The negative impact of the recessionary economy was reflected in lower market rental rates, higher vacancies, and increased leasing costs and tenant concessions. In 2002, the Account's real estate properties, however, continued to produce strong income returns, and at year end 2002, the non-residential property portfolio was 92% occupied overall with only 10% of the non-residential property portfolio's square footage up for renewal or re-leasing in 2003. The modest returns produced by the REIT markets in 2002, as well as the low interest rates earned by its short-term holdings, also negatively affected the Account's overall performance. 11 The Account's net investment income after deduction of all expenses was 15.26% higher for the year ended December 31, 2002 compared to the same period in 2001 primarily due to a 14.39% increase in total net assets and an 49.16% increase in the Account's real estate holdings over the same period. The Account's real estate holdings, including joint venture investments, generated approximately 89% and 84% of the Account's total investment income (before deducting Account level expenses) during 2002 and 2001, respectively. The remaining portion of the Account's total investment income was generated by marketable securities investments. Gross real estate rental income increased approximately 22% in the year ended December 31, 2002 over the same period in 2001. This increase was primarily due to the increase in the number of properties owned by the Account from 65 properties as of December 31, 2001 to 77 properties (including joint ventures) as of December 31, 2002. Income from real estate joint ventures was $14,125,306 vs. $2,392,594, respectively for the same periods. This increase was due to an increase in the number of joint venture partnership interests owned by the Account in the year ended December 31, 2002. Interest income on the Account's marketable securities investments decreased from $24,490,376 for 2001 to $13,546,694 for 2002 due to a decline in short-term rates from 2001 to 2002 and the decrease in the amount of non-real estate assets held by the Account. Dividend income on the Account's REIT investments increased from $9,196,967 for the year ended December 31, 2001 to $12,891,207 for the year ended December 31, 2002. Total property level expenses for the year ended December 31, 2002 and 2001 were $106,014,646, and $81,682,267, respectively. In both years ended 2002 and 2001, 64% of the total expenses represented operating expenses and 36% represented real estate taxes. The 30% increase in property level expenses during 2002 reflected the increased number of properties in the Account, as well as an increase in operating expenses. The Account also incurred expenses for the years ended December 31, 2002 and 2001 of $9,495,736 and $5,896,729, respectively, for investment advisory services, $10,390,705 and $8,470,496, respectively, for administrative and distribution services and $3,417,895 and $2,824,704, respectively, for the mortality and expense risk charges and the liquidity guarantee charges. Such expenses increased primarily as a result of the larger net asset base in the Account and increased costs associated with managing and administering a larger account. The expenses for investment advisory services for the year ended December 31, 2001 also were substantially lower than those in 2002 since they included adjustments related to fourth quarter 2000 expenses. The Account had net realized and unrealized losses on investments of $106,424,480 and $23,485,614 for the years ended December 31, 2002 and 2001, respectively. The unrealized losses were primarily due to the continued decrease in the aggregate market value of the Account's real estate holdings amounting to $94,447,265 during 2002, as compared to unrealized losses of $26,611,066 during 2001. The Account's marketable securities in the year ended December 31, 2002 had net realized and unrealized losses totaling $6,195,855 and net realized and unrealized gains of $5,231,736 for the year ended December 31, 2001. For the year 12 ended December 31, 2002, the Account's investments in other real estate-related investments had net unrealized losses of $5,781,360 as compared to net unrealized gains of $2,002,837 for the year ended December 31, 2001. RESULTS FROM DISCONTINUED OPERATIONS In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS No. 144"). The Account adopted SFAS No. 144 as of January 1, 2002. During the year ended December 31, 2002, the Account sold two real estate properties. In accordance with SFAS No. 144, the investment income and realized gain for the years ended December 31, 2002, 2001, and 2000 relating to those properties were removed from continuing operations in the accompanying financial statements and classified as discontinued operations. The income from the two properties, one sold on January 31, 2002 and one sold on April 30, 2002, for the year ended December 31, 2002 consisted of rental income of $643,564 less operating expenses of $68,031 and real estate taxes of $74,076, resulting in net investment income of $501,457. The income from these two properties sold in 2002 for the full year ended December 31, 2001 consisted of rental income of $2,915,653 less operating expenses of $182,266 and real estate taxes of $262,402, resulting in net investment income of $2,470,985. The net investment income represents income for the properties for one month and four months, respectively, for the year ended December 31, 2002 and twelve months in 2001. At the time of sale, the properties had a cost of $22,592,804 and the proceeds of sale were $26,050,000, resulting in a net realized gain of $3,457,196. 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 $191,045,403 for the year ended December 31, 2001 and $149,079,414 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 $23,485,614 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 that were experiencing declining economic conditions. The Account's investments in marketable securities had modest realized and unrealized gains in 2001 totaling $5,231,736, as compared to substantial net gains of $22,145,715 in 2000. 13 The Account's real estate holdings, including real estate joint ventures, generated approximately 84% 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 $253,839,662 for the year ended December 31, 2001 and $192,894,812 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 years ended December 31, 2001 and 2000 were $81,682,267 and $62,481,256, respectively. For both years, 64% of total expenses represented operating expenses and 36% represented 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 were allocated to the Account. LIQUIDITY AND CAPITAL RESOURCES At year end 2002 and 2001, the Account's liquid assets (i.e., its REITs, CMBSs, commercial paper, government securities and cash) had a value of $271,568,803 and $853,769,802, respectively. The decline in the Account's liquid assets was primarily due to the Account's increased investment in real estate. During 2002, the Account received $395,464,695 in premiums and $64,698,804 in net participants transfers from the TIAA and CREF Accounts, while for the same time period in 2001, the Account received $254,149,962 in premiums and $486,614,583 in net participant transfers from other TIAA and CREF accounts. The slowdown in net participant transfers into the Account in 2002 is contrasted against the unprecedented volume of net participant's transfers in 2001. Real estate properties costing approximately $1.1 billion and $538.4 million were purchased during 2002 and 2001, respectively. In 2002, the Account also received approximately $26 million in proceeds from the sale of one office and one industrial property. The Account's liquid assets, exclusive of the REITs, will continue to be available to purchase additional suitable real estate properties and to meet expense needs and redemption requests (i.e., cash withdrawals or transfers). In the unlikely event that the Account's liquid assets and its 14 cash flow from operating activities and participant transactions are not sufficient to meet its cash needs, including redemption requests, TIAA's general account will purchase liquidity units in accordance with TIAA's liquidity guarantee to the Account. The Account, under certain conditions more fully described in the Account's prospectus, may borrow money and assume or obtain a mortgage on a property -- i.e., to make leveraged real estate investments. Also, to meet any short-term cash needs, the Account may obtain a line of credit whose terms may require that the Account secure a loan with one or more of its properties. The Account's total borrowings may not exceed 20% of the Account's total net asset value. EFFECTS OF INFLATION AND INCREASING OPERATING EXPENSES Inflation, along with increased insurance and security costs, may increase property operating expenses in the future. We anticipate that these increases in operating expenses will generally be billed to tenants either through contractual lease provisions in office, industrial, and retail properties or through rent increases in apartment complexes. However, depending on how long any vacant space in a property remains unleased, the Account may not be able to recover the full amount of such increases in operating expenses. CRITICAL ACCOUNTING POLICIES THE CONSOLIDATED FINANCIAL STATEMENTS OF THE ACCOUNT AND ITS SUBSIDIARIES ARE PREPARED IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES. In preparing the Account's consolidated financial statements, management is required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances -- the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes that the following policies relating to the valuation of the Account's assets reflected in the Account's consolidated financial statements affect the significant judgments, estimates and assumptions used in preparing its financial statements: VALUATION OF REAL ESTATE PROPERTIES: Investments in real estate properties are stated at fair value, as determined in accordance with procedures approved by the Investment Committee of the Board of Trustees. Fair value for real estate properties is defined as the most probable price for which a property will sell in a competitive market under all conditions requisite to a fair sale. Determining fair value involves subjective judgment because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. The Account's properties are initially valued at their respective purchase prices (including acquisition costs). Subsequently, independent appraisers value each real estate property at least once a year. TIAA's appraisal staff performs a valuation of each real estate property on a quarterly basis and updates the property value if it believes that the value of the 15 property has changed since the previous valuation or appraisal. The appraisals are performed in accordance with Uniform Standards of Professional Appraisal Practices (USPAP), the real estate appraisal industry standards created by The Appraisal Foundation. Real estate appraisals are estimates of property values based on a professional's opinion. VALUATION OF MORTGAGES: Mortgages are initially valued at their face amount. Fixed rate mortgages thereafter are valued quarterly by discounting payments of principal and interest to their present value using a rate at which commercial lenders would make similar mortgage loans. Floating variable rate mortgages are generally valued at their face amount, although the value may be adjusted as market conditions dictate. VALUATION OF REAL ESTATE JOINT VENTURES: Real estate joint ventures are stated at the Account's equity in the net assets of the underlying entity, which value their real estate holdings at fair value. VALUATION OF MARKETABLE SECURITIES: Equity securities listed or traded on any United States national securities exchange are valued at the last sale price as of the close of the principal securities exchange on which such securities are traded or, if there is no sale, at the mean of the last bid and asked prices on such exchange. Short-term money market instruments are stated at market value. Portfolio securities and limited partnership interests for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Investment Committee of the Board of Trustees and in accordance with the responsibilities of the Board as a whole. FORWARD-LOOKING STATEMENTS Some statements in this report which are not historical facts may be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations, beliefs, intentions or strategies for the future, and the assumptions underlying these forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or management's present expectations. Caution should be taken not to place undue reliance on management's forward-looking statements, which represent management's views only as of the date this report is filed. Neither management nor the Account undertake any obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise. 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS TIAA REAL ESTATE ACCOUNT -------------------------------------------------------------------------------- Page ---- Report of Management Responsibility ...................................... 18 Report of Audit Committee ................................................ 19 Audited Consolidated Financial Statements: Consolidated Statements of Assets and Liabilities ...................... 20 Consolidated Statements of Operations .................................. 21 Consolidated Statements of Changes in Net Assets ....................... 22 Consolidated Statements of Cash Flows .................................. 23 Notes to Consolidated Financial Statements ............................. 24 Report of Independent Auditors. ........................................ 29 Consolidated Statement of Investments .................................. 30 Schedule III - Real Estate Owned ......................................... 34 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. 17 -------------------------------------------------------------------------------- REPORT OF MANAGEMENT RESPONSIBILITY To the Participants of the TIAA Real Estate Account: The accompanying consolidated financial statements of the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity Association of America ("TIAA") are the responsibility of TIAA's management. They have been prepared in accordance with accounting principles generally accepted in the United States and have been presented fairly and objectively in accordance with such principles. TIAA has established and maintains a strong system of internal controls and disclosure controls designed to provide reasonable assurance that assets are properly safeguarded and transactions are properly executed in accordance with management's authorization, and to carry out the ongoing responsibilities of management for reliable financial statements. In addition, TIAA's internal audit personnel provide a continuing review of the internal controls and operations of TIAA, including its separate account operations, and the chief audit executive regularly reports to the Audit Committee of the TIAA Board of Trustees. The accompanying consolidated financial statements have been audited by the independent auditing firm of Ernst & Young LLP. To maintain auditor independence and avoid even the appearance of conflict of interest, it continues to be the Account's policy that any management advisory or consulting services be obtained from a firm other than the external financial audit firm. The independent auditors' report, which follows the notes to consolidated financial statements, expresses an independent opinion on the fairness of presentation of these consolidated financial statements. The Audit Committee of the TIAA Board of Trustees, consisting entirely of trustees who are not officers of TIAA, meets regularly with management, representatives of Ernst & Young LLP and internal audit personnel to review matters relating to financial reporting, internal controls and auditing. In addition to the annual audit of the Account's consolidated financial statements by the independent auditing firm, the New York State Insurance Department and other state insurance departments perform periodic examinations of the Account's operations. /s/ Herbert M. Allison, Jr. ----------------------------- Chairman, President and Chief Executive Officer /s/ Richard L. Gibbs ----------------------------- Executive Vice President and Principal Accounting Officer 18 -------------------------------------------------------------------------------- REPORT OF THE AUDIT COMMITTEE To the Participants of the TIAA Real Estate Account: The TIAA Audit Committee oversees the financial reporting process of the TIAA Real Estate Account ("Account") on behalf of TIAA's Board of Trustees. The Audit Committee operates in accordance with a formal written charter (copies are available upon request) which describes the Audit Committee's responsibilities. All members of the Audit Committee ("Committee") are independent, as defined under the listing standards of the New York Stock Exchange. Management has the primary responsibility for the Account's consolidated financial statements, development and maintenance of a strong system of internal controls and disclosure controls, and compliance with applicable laws and regulations. In fulfilling its oversight responsibilities, the Committee reviewed and approved the audit plans of the internal auditing group and the independent auditing firm in connection with their respective audits of the Account. The Committee also meets regularly with the internal and independent auditors, both with and without management present, to discuss the results of their examinations, their evaluation of internal controls, and the overall quality of financial reporting. The committee has direct responsibility for the appointment, compensation and oversight of the independent auditing firm. As required by its charter, the Committee will evaluate rotation of the external financial audit firm whenever circumstances warrant, but in no event will the evaluation be later than between their fifth and tenth year of service. The Committee reviewed and discussed the accompanying audited consolidated financial statements with management, including a discussion of the quality and appropriateness of the accounting principles and financial reporting practices followed, the reasonableness of significant judgments, and the clarity and completeness of disclosures in the consolidated financial statements. The Committee has also discussed the audited consolidated financial statements with Ernst & Young LLP, the independent auditing firm responsible for expressing an opinion on the conformity of these audited consolidated financial statements with generally accepted accounting principles. The discussion with Ernst & Young LLP focused on their judgments concerning the quality and appropriateness of the accounting principles and financial reporting practices followed by the Account, the clarity and completeness of the consolidated financial statements and related disclosures, and other significant matters, such as any significant changes in accounting policies, internal controls, management judgments and estimates, and the nature of any uncertainties or unusual transactions. In addition, the Committee discussed with Ernst & Young LLP the auditors' independence from management and the Account and has received a written disclosure regarding such independence, as required by the Independence Standards Board. Based on the review and discussions referred to above, the Committee has approved the release of the accompanying audited consolidated financial statements for publication and filing with appropriate regulatory authorities. Willard T. Carleton, Audit Committee Chair Leonard S. Simon, Audit Committee Member Rosalie J. Wolf, Audit Committee Member March 19, 2003 19 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

DECEMBER 31, DECEMBER 31, 2002 2001 -------------- -------------- ASSETS Investments, at value: Real estate properties (cost: $3,321,279,641 and $2,276,414,478) .............................. $3,281,332,364 $2,330,914,466 Mortgages (cost: $--and $7,265,887) .............................................. -- 7,265,887 Other real estate related investments, including joint ventures (cost: $249,182,234 and $30,925,755) ................................... 246,906,005 34,430,886 Marketable securities: Real estate related (cost: $163,146,056 and $301,967,699) ................................. 153,137,369 305,250,475 Other (cost: $117,786,465 and $548,265,288) ................................. 117,934,570 548,243,870 Cash ..................................................................... 496,864 275,457 Other .................................................................... 70,725,106 44,003,409 -------------- -------------- TOTAL ASSETS 3,870,532,278 3,270,384,450 -------------- -------------- LIABILITIES Accrued real estate property level expenses and taxes .................... 43,795,572 39,595,315 Security deposits held ................................................... 11,718,245 8,767,676 Other .................................................................... 868 618,289 -------------- -------------- TOTAL LIABILITIES 55,514,685 48,981,280 -------------- -------------- MINORITY INTEREST IN SUBSIDIARIES ........................................ 139,029,033 7,735,993 -------------- -------------- NET ASSETS Accumulation Fund ....................................................... 3,538,288,326 3,103,639,556 Annuity Fund ............................................................ 137,700,234 110,027,621 -------------- -------------- TOTAL NET ASSETS $3,675,988,560 $3,213,667,177 ============== ============== NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 6 and 7 ............................................... 20,346,696 18,456,445 ========== ========== NET ASSET VALUE, PER ACCUMULATION UNIT--Note 6 ........................... $173.90 $168.16 ======= =======

See notes to consolidated financial statements. 20 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, ------------------------------------------------ 2002 2001 2000 ------------ ------------ ------------ INVESTMENT INCOME Real estate income, net: Rental income ................................................. $308,948,225 $253,839,662 $192,894,812 ------------ ------------ ------------ Real estate property level expenses and taxes: Operating expenses ........................................... 67,604,266 52,274,213 39,876,941 Real estate taxes ............................................ 38,410,380 29,408,054 22,604,315 ------------ ------------ ------------ Total real estate property level expenses and taxes 106,014,646 81,682,267 62,481,256 ------------ ------------ ------------ Real estate income, net 202,933,579 172,157,395 130,413,556 Income from real estate joint ventures ......................... 14,125,306 2,392,594 756,133 Interest ....................................................... 13,546,694 24,490,376 24,294,579 Dividends ...................................................... 12,891,207 9,196,967 7,039,712 ------------ ------------ ------------ TOTAL INCOME 243,496,786 208,237,332 162,503,980 ------------ ------------ ------------ Expenses -- Note 2: Investment advisory charges ................................... 9,495,736 5,896,729 6,924,202 Administrative and distribution charges ....................... 10,390,705 8,470,496 4,392,882 Mortality and expense risk charges ............................ 2,430,240 1,987,604 1,414,888 Liquidity guarantee charges ................................... 987,655 837,100 692,594 ------------ ------------ ------------ TOTAL EXPENSES 23,304,336 17,191,929 13,424,566 ------------ ------------ ------------ INVESTMENT INCOME, NET 220,192,450 191,045,403 149,079,414 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on: Real estate properties ........................................ -- (4,109,121) 8,382,660 Marketable securities ......................................... 6,926,085 2,839,417 (106,726) ------------ ------------ ------------ Net realized gain (loss) on investments 6,926,085 (1,269,704) 8,275,934 ------------ ------------ ------------ Net change in unrealized appreciation (depreciation) on: Real estate properties ........................................ (94,447,265) (26,611,066) 22,257,781 Other real estate related investments ......................... (5,781,360) 2,002,837 1,361,293 Marketable securities ......................................... (13,121,940) 2,392,319 22,252,441 ------------ ------------ ------------ Net change in unrealized appreciation (depreciation) on investments (113,350,565) (22,215,910) 45,871,515 ------------ ------------ ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (106,424,480) (23,485,614) 54,147,449 ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST AND DISCONTINUED OPERATIONS 113,767,970 167,559,789 203,226,863 Minority interest in net increase in net assets resulting from operations (1,484,585) (811,789) -- ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS BEFORE DISCONTINUED OPERATIONS 112,283,385 166,748,000 203,226,863 ------------ ------------ ------------ Discontinued operations -- Note 3: Investment income from discontinued operations ................ 501,457 2,470,985 2,215,831 Realized gain from discontinued operations .................... 3,457,196 -- -- ------------ ------------ ------------ Net increase in net assets resulting from discontinued operations 3,958,653 2,470,985 2,215,831 ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $116,242,038 $169,218,985 $205,442,694 ============ ============ ============

See notes to consolidated financial statements. 21 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

YEARS ENDED DECEMBER 31, -------------------------------------------------- 2002 2001 2000 -------------- -------------- -------------- FROM OPERATIONS Investment income, net ......................................... $ 220,192,450 $ 191,045,403 $ 149,079,414 Net realized gain (loss) on investments ........................ 6,926,085 (1,269,704) 8,275,934 Net change in unrealized appreciation (depreciation) on investments ................................................ (113,350,565) (22,215,910) 45,871,515 Minority interest in net increase in net assets resulting from operations ..................................... (1,484,585) (811,789) -- Discontinued operations ........................................ 3,958,653 2,470,985 2,215,831 -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 116,242,038 169,218,985 205,442,694 -------------- -------------- -------------- FROM PARTICIPANT TRANSACTIONS Premiums ....................................................... 395,464,695 254,149,962 161,668,073 Net transfers from (to) TIAA ................................... (158,282,438) (6,241,427) 36,271,547 Net transfers from CREF Accounts ............................... 222,981,242 492,856,010 343,338,864 Annuity and other periodic payments ............................ (18,024,403) (13,710,081) (9,924,802) Withdrawals and death benefits ................................. (96,059,751) (69,728,343) (45,156,733) -------------- -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PARTICIPANT TRANSACTIONS 346,079,345 657,326,121 486,196,949 -------------- -------------- -------------- NET INCREASE IN NET ASSETS 462,321,383 826,545,106 691,639,643 NET ASSETS Beginning of year .............................................. 3,213,667,177 2,387,122,071 1,695,482,428 -------------- -------------- -------------- End of year .................................................... $3,675,988,560 $3,213,667,177 $2,387,122,071 ============== ============== ==============

See notes to consolidated financial statements. 22 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, ------------------------------------------------- 2002 2001 2000 ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net increase in net assets resulting from operations ........... $ 116,242,038 $ 169,218,985 $ 205,442,694 Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: Increase in investments ....................................... (573,204,724) (836,986,805) (702,336,424) Increase in other assets ...................................... (26,721,697) (10,737,652) (1,207,996) Increase in accrued real estate property level expenses and taxes .................................................... 1,713,246 15,199,279 5,970,708 Increase in security deposits held ............................ 2,950,569 1,949,704 1,268,013 Increase (decrease) in other liabilities ...................... 1,869,590 (1,117,817) 1,736,106 Increase in minority interest ................................. 131,293,040 4,707,776 3,028,217 ------------- ------------- ------------- NET CASH USED IN OPERATING ACTIVITIES (345,857,938) (657,766,530) (486,098,682) ------------- ------------- ------------- CASH FLOWS FROM PARTICIPANT TRANSACTIONS Premiums ....................................................... 395,464,695 254,149,962 161,668,073 Net transfers from (to) TIAA ................................... (158,282,438) (6,241,427) 36,271,547 Net transfers from CREF Accounts ............................... 222,981,242 492,856,010 343,338,864 Annuity and other periodic payments ............................ (18,024,403) (13,710,081) (9,924,802) Withdrawals and death benefits ................................. (96,059,751) (69,728,343) (45,156,733) ------------- ------------- ------------- NET CASH PROVIDED BY PARTICIPANT TRANSACTIONS 346,079,345 657,326,121 486,196,949 ------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH 221,407 (440,409) 98,267 CASH Beginning of year .............................................. 275,457 715,866 617,599 ------------- ------------- ------------- End of year .................................................... $ 496,864 $ 275,457 $ 715,866 ============= ============= =============

See notes to consolidated financial statements. 23 TIAA REAL ESTATE ACCOUNT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SIGNIFICANT ACCOUNTING POLICIES The TIAA Real Estate Account ("Account") is a segregated investment account of Teachers Insurance and Annuity Association of America ("TIAA") and was established by resolution of TIAA's Board of Trustees on February 22, 1995, under the insurance laws of the State of New York, for the purpose of funding variable annuity contracts issued by TIAA. The Account holds various properties in wholly-owned and majority-owned subsidiaries which are consolidated for financial statement purposes. The investment objective of the Account is a favorable long-term rate of return primarily through rental income and capital appreciation from real estate investments owned by the Account. The Account also invests in publicly-traded securities and other instruments to maintain adequate liquidity for operating expenses, capital expenditures and to make benefit payments. The financial statements were prepared in accordance with accounting principles generally accepted in the United States which may require the use of estimates made by management. Actual results may vary from those estimates. The following is a summary of the significant accounting policies consistently followed by the Account. BASIS OF PRESENTATION: The accompanying consolidated financial statements include the Account and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. VALUATION OF REAL ESTATE PROPERTIES: Investments in real estate properties are stated at fair value, as determined in accordance with procedures approved by the Investment Committee of the TIAA Board of Trustees and in accordance with the responsibilities of the Board as a whole; accordingly, the Account does not record depreciation. Fair value for real estate properties is defined as the most probable price for which a property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair value involves subjective judgement because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. Real estate properties owned by the Account are initially valued at their respective purchase prices (including acquisition costs). Subsequently, independent appraisers value each real estate property at least once a year. The independent fiduciary, The Townsend Group, must approve all independent appraisers used by the Account. The independent fiduciary can also require additional appraisals if it believes that a property's value has changed materially or otherwise to assure that the Account is valued correctly. TIAA's appraisal staff performs a valuation review of each real estate property on a quarterly basis and updates the property value if it believes that the value of the property has changed since the previous valuation review or appraisal. The independent fiduciary reviews all appraisals and approves any valuation adjustments which exceed certain prescribed limits before such adjustments are reconciled by the Account. TIAA continues to use the revised value to calculate the Account's net asset value until the next valuation review or appraisal. VALUATION OF MORTGAGES: Mortgages are initially valued at their face amount. Fixed rate mortgages are, thereafter, valued quarterly by discounting payments of principal and interest to their present value using a rate at which commercial lenders would make similar mortgage loans. Floating variable rate mortgages are generally valued at their face amount, although the value may be adjusted as market conditions dictate. VALUATION OF REAL ESTATE JOINT VENTURES: Real estate joint ventures are stated at the Account's equity in the net assets of the underlying entity, which value their real estate holdings at fair value. VALUATION OF MARKETABLE SECURITIES: Equity securities listed or traded on any United States national securities exchange are valued at the last sale price as of the close of the principal securities exchange on 24 which such securities are traded or, if there is no sale, at the mean of the last bid and asked prices on such exchange. Short-term money market instruments are stated at market value. Portfolio securities and limited partnership interests for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Investment Committee of the TIAA Board of Trustees and in accordance with the responsibilities of the Board as a whole. ACCOUNTING FOR INVESTMENTS: Real estate transactions are accounted for as of the date on which the purchase or sale transactions for the real estate properties close (settlement date). Rent from real estate properties consists of all amounts earned under tenant operating leases, including base rent, recoveries of real estate taxes and other expenses and charges for miscellaneous services provided to tenants. Rental income is recognized in accordance with the billing terms of the lease agreements. The Account bears the direct expenses of the real estate properties owned. These expenses include, but are not limited to, fees to local property management companies, property taxes, utilities, maintenance, repairs, insurance and other operating and administrative costs. An estimate of the net operating income earned from each real estate property is accrued by the Account on a daily basis and such estimates are adjusted as soon as actual operating results are determined. Realized gains and losses on real estate transactions are accounted for under the specific identification method. Securities transactions are accounted for as of the date the securities are purchased or sold (trade date). Interest income is recorded as earned and includes 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. RECENT ACCOUNTING PRONOUNCEMENTS: In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS No. 144"). SFAS No. 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. It also supersedes the accounting and reporting of APB Opinion No. 30 "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" related to the disposal of a segment of a business. The Account adopted SFAS No. 144 as of January 1, 2002. RECLASSIFICATIONS: Certain amounts in the 2001 and 2000 consolidated financial statements have been reclassified to conform with the 2002 presentation. NOTE 2--MANAGEMENT AGREEMENTS Investment advisory services for the Account are provided by TIAA employees, under the direction of TIAA's Board of Trustees and its Investment Committee, pursuant to investment management procedures adopted by TIAA for the Account. TIAA's investment management decisions for the Account are also subject to review by the Account's independent fiduciary. TIAA also provides all portfolio accounting and related services for the Account. Distribution and administrative services for the Account are provided by TIAA-CREF Individual & Institutional Services, Inc. ("Services") pursuant to a Distribution and Administrative Services Agreement 25 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. NOTE 3--REAL ESTATE PROPERTIES Had the Account's real estate properties which were purchased during the year ended December 31, 2002 been acquired at the beginning of the year (January 1, 2002), rental income and real estate property level expenses and taxes for the year ended December 31, 2002 would have increased by approximately $92,211,000 and $40,363,000, respectively and income from real estate joint ventures would have increased by $5,469,000. In addition, interest income for the year ended December 31, 2002 would have decreased by approximately $23,477,000. Accordingly, the total proforma effect on the Account's net investment income for the year ended December 31, 2002 would have been an increase of approximately $33,840,000, if the real estate properties acquired during the year ended December 31, 2002 had been acquired at the beginning of the year. During the year ended December 31, 2002 the Account sold two real estate properties. The income for these properties during 2002 (prior to the sale) consisted of rental income of $643,564 less operating expenses of $68,031 and real estate taxes of $74,076 resulting in net investment income of $501,457. At the time of sale, the properties had a cost basis of $22,592,804 and the proceeds of sale were $26,050,000, resulting in a realized gain of $3,457,196. NOTE 4--LEASES The Account's real estate properties are leased to tenants under operating lease agreements which expire on various dates through 2046. Aggregate minimum annual rentals for the properties owned, excluding short-term residential leases, are as follows: Years Ending December 31, ------------ 2003 $ 318,638,000 2004 287,959,000 2005 248,748,000 2006 200,419,000 2007 167,190,000 Thereafter 584,414,000 -------------- Total $1,807,368,000 ============== Certain leases provide for additional rental amounts based upon the recovery of actual operating expenses in excess of specified base amounts. 26 NOTE 5--INVESTMENT IN JOINT VENTURES The Account owns several real estate properties through joint ventures and receives distributions and allocations of profits and losses from the joint ventures based on the Account's ownership interest percentages. Several of these joint ventures have mortgages payable on the properties owned. The Account's allocated portion of the mortgages payable at December 31, 2002 is $192,588,252. The Accounts' equity in the joint ventures at December 31, 2002 is $235,169,675. A condensed summary of the financial position and results of operations of the joint ventures is shown below.

DECEMBER 31, 2002 DECEMBER 31, 2001 ----------------- ----------------- ASSETS Real estates properties ......................... $851,578,413 $56,686,326 Other assets .................................... 32,997,030 1,435,578 ------------ ----------- Total assets ............................... $884,575,443 $58,121,904 ============ =========== LIABILITIES AND EQUITY Mortgages payable, including accrued interest ... $385,456,582 $ -- Other liabilities ............................... 15,040,756 708,502 ------------ ----------- Total liabilities .......................... 400,497,338 708,502 EQUITY ........................................... 484,078,105 57,413,402 ------------ ----------- Total liabilities and equity ............... $884,575,443 $58,121,904 ============ ===========

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

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

YEARS ENDED DECEMBER 31, ---------------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Per Accumulation Unit data: Rental income ........................................ $ 14.537 $ 14.862 $ 14.530 $ 12.168 $ 10.425 Real estate property level expenses and taxes ........ 4.988 4.754 4.674 3.975 3.403 -------- -------- -------- -------- -------- Real estate income, net 9.549 10.108 9.856 8.193 7.022 Income from real estate joint ventures ............... 0.665 0.130 0.056 -- -- Dividends and interest ............................... 1.244 1.950 2.329 2.292 3.082 -------- -------- -------- -------- -------- Total income 11.458 12.188 12.241 10.485 10.104 Expense charges (1) .................................. 1.097 0.995 0.998 0.853 0.808 -------- -------- -------- -------- -------- Investment income, net 10.361 11.193 11.243 9.632 9.296 Net realized and unrealized gain (loss) on investments .......................... (4.621) (1.239) 3.995 1.164 0.579 -------- -------- -------- -------- -------- Net increase in Accumulation Unit Value .............. 5.740 9.954 15.238 10.796 9.875 Accumulation Unit Value: Beginning of year ................................... 168.160 158.206 142.968 132.172 122.297 -------- -------- -------- -------- -------- End of year ......................................... $173.900 $168.160 $158.206 $142.968 $132.172 ======== ======== ======== ======== ======== Total return ......................................... 3.41% 6.29% 10.66% 8.17% 8.07% Ratios to Average Net Assets: Expenses (1) ........................................ 0.67% 0.61% 0.67% 0.63% 0.64% Investment income, net ............................... 6.34% 6.81% 7.50% 7.13% 7.34% Portfolio turnover rate: Real estate properties .............................. 0.93% 4.61% 3.87% 4.46% 0% Securities .......................................... 52.08% 40.62% 32.86% 27.68% 24.54% Thousands of Accumulation Units outstanding at end of year .................... 20,347 18,456 14,605 11,487 8,834

(1) Expense charges per Accumulation Unit and the Ratio of Expenses to Average Net Assets exclude real estate property level expenses and taxes. If the real estate property level expenses and taxes were included, the expense charge per Accumulation Unit for the year ended December 31, 2002 would be $6.085 ($5.749, $5.672, $4.828 and $4.211 for the years ended December 31, 2001, 2000, 1999 and 1998, respectively), and the Ratio of Expenses to Average Net Assets for the year ended December 31, 2002 would be 3.72% (3.50%, 3.79%, 3.58% and 3.32% for the years ended December 31, 2001, 2000, 1999 and 1998, respectively). 28 NOTE 7--ACCUMULATION UNITS Changes in the number of Accumulation Units outstanding were as follows:

FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------- 2002 2001 2000 ---------- ---------- ---------- Accumulation Units: Credited for premiums ..................................... 2,310,355 1,542,511 1,074,708 Credited (cancelled) for transfers, net disbursements and amounts applied to the Annuity Fund .................. (420,104) 2,309,261 2,042,605 Outstanding: Beginning of year ........................................ 18,456,445 14,604,673 11,487,360 ---------- ---------- ---------- End of year .............................................. 20,346,696 18,456,445 14,604,673 ========== ========== ==========

-------------------------------------------------------------------------------- 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, 2002, of the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity Association of America ("TIAA") as of December 31, 2002 and 2001, 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, 2002. 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. 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, 2002 and 2001, 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, 2002, 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. As discussed in Note 1 to the consolidated financial statements, TIAA Real Estate Account adopted Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. New York, New York February 7, 2003 /s/ Ernst & Young LLP -------------------------------------------------------------------------------- 29 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENT OF INVESTMENTS DECEMBER 31, 2002 REAL ESTATE PROPERTIES--86.37% LOCATION / DESCRIPTION VALUE ---------------------- --------- ARIZONA: Biltmore Commerce Center - Office building ................ $ 28,394,213 CALIFORNIA: 9 Hutton Centre - Office building ......................... 19,425,493 88 Kearny Street - Office building ........................ 65,083,257 Cabot Industrial Portfolio - Industrial building .......... 41,586,565 Eastgate Distribution Center - Industrial building ........ 15,200,000 Kenwood Mews Apartments - Apartments ...................... 22,700,000 Larkspur Courts - Apartments .............................. 55,014,500 The Legacy at Westwood Apartments - Apartments ............ 85,075,210 Northpoint Commerce Center - Industrial building .......... 37,972,054 Ontario Industrial Portfolio - Industrial building ........ 108,000,000 Regents Court Apartments - Apartments ..................... 49,567,031 Westcreek Apartments - Apartments ......................... 18,686,112 Westwood Marketplace - Shopping Center .................... 74,026,411 COLORADO: The Lodge at Willow Creek - Apartments .................... 31,000,000 Monte Vista - Apartments .................................. 20,499,262 CONNECTICUT: Ten & Twenty Westport Road - Office building .............. 140,000,000 FLORIDA: 701 Brickell - Office building ............................ 172,088,618 Doral Pointe Apartments - Apartments ...................... 43,507,416 Golfview Apartments - Apartments .......................... 26,240,000 The Fairways of Carolina - Apartments ..................... 16,100,000 The Greens at Metrowest Apartments - Apartments ........... 13,900,000 Maitland Promenade One - Office building .................. 37,600,000 Plantation Grove - Shopping center ........................ 8,200,000 The Pointe on Tampa Bay - Office building ................. 41,239,643 Quiet Waters at Coquina Lakes - Apartments ................ 17,600,000 Royal St. George - Apartments ............................. 17,100,000 Sawgrass Office Portfolio - Office building ............... 45,000,000 South Florida Apartment Portfolio - Apartments ............ 46,800,000 Westinghouse Facility - Industrial building ............... 5,300,000 GEORGIA: Alexan Buckhead - Apartments .............................. 45,739,570 Atlanta Industrial Portfolio - Industrial building ........ 38,400,000 ILLINOIS: Chicago Industrial Portfolio - Industrial building ........ 40,100,000 Columbia Center III - Office building ..................... 33,800,000 Oak Brook Regency Towers - Office building ................ 66,602,200 Parkview Plaza - Office building .......................... 50,315,694 Rolling Meadows - Shopping center ......................... 12,850,000 KENTUCKY: IDI Kentucky Portfolio - Industrial building .............. 50,200,000 30 LOCATION / DESCRIPTION VALUE ---------------------- --------- MARYLAND: Corporate Boulevard - Office building ................... $ 68,020,401 FEDEX Distribution Facility - Industrial building ....... 7,500,000 Longview Executive Park - Office building ............... 24,990,805 MASSACHUSETTS: Batterymarch Park II - Office building .................. 15,000,000 Longwood Towers - Apartments ............................ 80,202,248 Mellon Financial Center at One Boston Place - Office building .............................................. 261,896,938 Needham Corporate Center - Office building .............. 26,500,000 MICHIGAN: Indian Creek Apartments - Apartments .................... 17,700,000 MINNESOTA: Interstate Crossing - Industrial building ............... 6,304,905 River Road Distribution Center - Industrial building .... 4,150,000 NEVADA: UPS Distribution Facility - Industrial building ......... 11,500,000 NEW JERSEY: 10 Waterview Boulevard - Office building ................ 27,000,000 371 Hoes Lane - Office building ......................... 10,817,795 Konica Photo Imaging Headquarters - Industrial building . 17,900,000 Morris Corporate Center III - Office building ........... 92,400,000 South River Road Industrial - Industrial building ....... 32,800,000 NEW YORK: 780 Third Avenue - Office building ...................... 178,500,000 The Colorado - Apartments ............................... 55,702,614 NORTH CAROLINA: The Lynnwood Collection - Shopping center ............... 7,983,285 The Millbrook Collection - Shopping center .............. 7,000,000 OHIO: Bent Tree Apartments - Apartments ....................... 13,400,000 BISYS Fund Services Building - Office building .......... 34,700,000 Columbus Portfolio - Office building .................... 23,600,000 Northmark Business Center - Office building ............. 8,000,000 OREGON: Five Centerpointe - Office building ..................... 16,002,154 PENNSYLVANIA: Lincoln Woods Apartments - Apartments ................... 24,676,180 TEXAS: Butterfield Industrial Park - Industrial building ....... 4,500,000(1) Dallas Industrial Portfolio - Industrial building ....... 136,034,954 The Legends at Chase Oaks - Apartments .................. 26,000,000 UTAH: Landmark at Salt Lake City (Building #4) - Industrial building .............................................. 12,700,000 VIRGINIA: Ashford Meadows Apartments - Apartments ................. 62,000,000 Fairgate at Ballston - Office building .................. 30,700,000 Monument Place - Office building ........................ 33,500,000 WASHINGTON DC: 1015 15th Street - Office building ...................... 51,600,000 1801 K Street, N.W. - Office building ................... 162,636,836 The Farragut Building - Office building ................. 46,500,000 ------------- TOTAL REAL ESTATE PROPERTIES (Cost $3,321,279,641) .... 3,281,332,364 ------------- (1) Leasehold interest only. 31 VALUE --------- OTHER REAL ESTATE RELATED INVESTMENTS--6.50% REAL ESTATE JOINT VENTURE--6.19% Florida Mall Association, Ltd. The Florida Mall (49.975% Account Interest) * ........... $ 84,997,624 Teachers REA IV, LLC, which owns Tyson's Executive Plaza II (50% Account Interest) ....... 25,632,730 West Dade County Associates Miami International Mall (49.950% Account Interest) * ... 57,322,356 West Town Mall Joint Venture West Town Mall (49.932% Account Interest) * ............. 67,216,965 ------------- TOTAL REAL ESTATE JOINT VENTURE (Cost $237,492,256) ....... 235,169,675 ------------- LIMITED PARTNERSHIPS-- 0.31% MONY/Transwestern Mezzanine Realty Partners L.P. (19.76% Account Interest) ....................................... 6,457,921 Essex Apartment Value Fund, L.P. (10% Account Interest) ... 5,278,409 ------------- TOTAL LIMITED PARTNERSHIP (Cost $11,689,978) .............. 11,736,330 ------------- TOTAL OTHER REAL ESTATE RELATED INVESTMENTS (Cost $249,182,234) .. 246,906,005 ------------- MARKETABLE SECURITIES--7.13% REAL ESTATE RELATED--4.03% REAL ESTATE INVESTMENT TRUSTS--2.87% SHARES ISSUER ----------- ---------- 75,600 Alexandria Real Estate Equities, Inc. ........ 3,220,560 210,000 Apartment Investment & Management Co ......... 7,870,800 335,325 Archstone-Smith Trust ........................ 7,893,551 125,700 Avalonbay Communities, Inc. .................. 4,919,898 306,800 Boston Properties, Inc ....................... 11,308,648 154,500 Chateau Communities, Inc ..................... 3,553,500 500,000 Equity Office Properties Trust. .............. 12,490,000 463,800 Equity Residential Properties Trust Co. ...... 11,400,204 125,000 Heritage Property Investment . ............... 3,121,250 114,700 Hilton Hotels Corp ........................... 1,457,837 222,800 Host Marriott Corp (New). .................... 1,971,780 230,750 Kimco Realty Corp. ........................... 7,070,180 47,100 Manufactured Home Communities, Inc. .......... 1,395,573 56,000 Mills Corp. .................................. 1,643,040 290,000 Mission West Properties, Inc. ................ 2,871,000 180,000 Post Properties, Inc. ........................ 4,302,000 180,000 Prologis Trust ............................... 4,527,000 184,700 Public Storage, Inc. ......................... 5,967,657 230,000 Reckson Associates Realty Corp ............... 4,841,500 160,900 Simon Property Group, Inc. ................... 5,481,863 43,700 Sun Communities, Inc ......................... 1,598,109 ------------- TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $117,775,472) ... 108,905,950 ------------- * The market value reflects the Account's interest in the joint venture after debt. 32 COMMERICAL MORTGAGE BACKED SECURITIES--1.16% PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE VALUE --------- -------------------------------------- --------- $ 10,000,000 GSMS 2001-Rock A2FL 1.799% 05/03/11 ...............................$ 9,473,810 10,000,000 MSDW Capital 1.830% 02/03/11 ............................... 9,669,950 8,000,000 MSDWC 2001 - FRMA C 2.001% 07/12/16 ............................... 7,780,528 2,378,141 MSDWC 2001 - XLF A1 1.940% 10/07/13 ............................... 2,378,386 10,000,000 Opryland Hotel Trust 1.840% 04/01/04 ............................... 9,983,850 5,000,000 Trize 2001 - TZHA A3FL 1.790% 03/15/13 ............................... 4,944,895 -------------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $45,370,584) ..................................... 44,231,419 -------------- TOTAL REAL ESTATE RELATED (Cost $163,146,056) ............ 153,137,369 ------------- OTHER--3.10% COMMERCIAL PAPER--2.94% PRINCIPAL ISSUER, COUPON AND MATURITY DATE --------- -------------------------------- $ 25,000,000 General Electric Capital Corp 1.260% 01/09/03 ............................... 24,991,500 10,000,000 Merck, Inc 1.200% 01/02/03 ............................... 9,999,267 1,800,000 Pharmacia Corp 1.180% 01/02/03 ............................... 1,799,868 25,000,000 Royal Bank of Scotland PLC 1.320% 01/09/03 ............................... 24,991,500 25,000,000 Salomon Smith Barney Holdings, Inc 1.150% 01/02/03 ............................... 24,998,167 25,000,000 UBS Finance (Delaware) Inc 1.200% 01/02/03 ............................... 24,998,168 -------------- TOTAL COMMERCIAL PAPER (Amortized cost $111,783,643) ..... 111,778,470 -------------- GOVERNMENT BONDS--0.16% PRINCIPAL ISSUER, COUPON AND MATURITY DATE --------- -------------------------------- $ 5,610,798 Treasury Inflation Indexed 3.625% 01/15/08 ............................... 6,156,100 -------------- TOTAL GOVERNMENT BONDS (Cost $6,002,822) ................. 6,156,100 -------------- TOTAL OTHER (Cost $117,786,465) .......................... 117,934,570 -------------- TOTAL MARKETABLE SECURITIES (Cost $280,932,521) .......... 271,071,939 -------------- TOTAL INVESTMENTS--100.00% (Cost $3,851,394,396) .........$3,799,310,308 ============== See notes to consolidated financial statements. 33 TIAA REAL ESTATE ACCOUNT SCHEDULE III - REAL ESTATE OWNED DECEMBER 31, 2002 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) 2002 COMPLETED ACQUIRED ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------ River Road Distribution Center $-0- $4,174,182 ($24,182) $4,150,000 1995 11/22/95 Industrial Building Fridley, Minnesota The Greens At Metrowest Apartments -0- 12,522,047 1,377,953 13,900,000 1990 12/15/95 Apartments Orlando, Florida Butterfield Industrial Park -0- 4,456,125 43,875 4,500,000 1981 12/22/95 Industrial Building El Paso, Texas (1) Plantation Grove Shopping Center -0- 7,350,129 849,871 8,200,000 1995 12/28/95 Shopping Center Ocoee, Florida The Millbrook Collection -0- 6,774,711 225,289 7,000,000 1988 03/29/96 Shopping Center Raleigh, North Carolina The Lynnwood Collection -0- 6,708,120 1,275,165 7,983,285 1988 03/29/96 Shopping Center Raleigh, North Carolina Monte Vista -0- 17,663,849 2,835,413 20,499,262 1995 06/21/96 Apartments Littleton, Colorado 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) 2002 COMPLETED ACQUIRED ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------ Royal St. George $-0- $16,072,612 $ 1,027,388 $ 17,100,000 1995 12/20/96 Apartments West Palm Beach, Florida Interstate Crossing -0- 6,454,888 (149,982) 6,304,906 1995 12/31/96 Industrial Building Eagan, Minnesota Westcreek Apartments -0- 13,488,279 5,197,833 18,686,112 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 Shopping Center -0- 12,930,463 (80,463) 12,850,000 1957 05/28/97 Shopping Center Rolling Meadows, Illinois Eastgate Distribution Center -0- 11,952,402 3,247,598 15,200,000 1996 05/29/97 Industrial Building San Diego, California Five Centerpointe -0- 15,656,341 345,813 16,002,154 1988 04/21/97 Office Building Lake Oswego, Oregon Longview Executive Park -0- 23,628,567 1,362,237 24,990,804 1988 04/21/97 Office Building Longview, Maryland 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) 2002 COMPLETED ACQUIRED ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------ Northmark Business Center $-0- $8,812,644 ($812,644) $8,000,000 1985 04/21/97 Office Building Blue Ash, Ohio Fairgate at Ballston -0- 26,977,436 3,722,564 30,700,000 1988 04/21/97 Office Building Arlington, Virginia Parkview Plaza -0- 49,412,494 903,200 50,315,694 1990 04/29/97 Office Building Oakbrook Terrace, Illinois Lincoln Woods Apartments -0- 21,464,483 3,211,697 24,676,180 1991 10/20/97 Apartments Lafayette Hill, Pennsylvania 371 Hoes Lane -0- 15,499,306 (4,681,511) 10,817,795 1986 12/15/97 Office Building Piscataway, New Jersey Columbia Centre III -0- 38,580,069 (4,780,069) 33,800,000 1989 12/23/97 Office Building Rosemont, Illinois The Lodge at Willow Creek -0- 27,562,882 3,437,118 31,000,000 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 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) 2002 COMPLETED ACQUIRED ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------ Chicago Industrial Portfolio $-0- $41,953,686 ($1,853,686) $40,100,000 1997 06/30/98 Industrial Building Joliet, Illinois Golfview Apartments -0- 28,066,591 (1,826,591) 26,240,000 1998 07/31/98 Apartments Lake Mary, Florida Indian Creek Apartments -0- 17,002,932 697,068 17,700,000 1988 10/08/98 Apartments Farmington Hills, Michigan Bent Tree Apartments -0- 14,420,590 (1,020,590) 13,400,000 1987 10/22/98 Apartments Columbus, Ohio UPS Distribution Facility -0- 10,989,393 510,607 11,500,000 1998 11/13/98 Industrial Building Fernly, Nevada Ontario Industrial Portfolio -0- 105,364,400 2,635,600 108,000,000 1997 12/17/98 Industrial Building Ontario, California IDI Kentucky Portfolio -0- 53,030,599 (2,830,599) 50,200,000 1998 12/17/98 Industrial Building Hebron, Kentucky FEDEX Distribution Facility -0- 7,828,025 (328,025) 7,500,000 1998 12/18/98 Industrial Building Crofton, Maryland 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) 2002 COMPLETED ACQUIRED ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------ Biltmore Commerce Center $-0- $37,323,058 ($8,928,845) $28,394,213 1985 02/23/99 Office Building Phoenix, Arizona The Colorado -0- 52,687,840 3,014,774 55,702,614 1987 04/14/99 Apartments New York, New York Sawgrass Office Portfolio -0- 52,933,368 (7,933,368) 45,000,000 1998 05/11/99 Office Building Sunrise, Florida 780 Third Avenue -0- 161,511,019 16,988,981 178,500,000 1984 07/08/99 Office Building New York, New York Monument Place -0- 34,597,698 (1,097,698) 33,500,000 1990 07/15/99 Office Building Fairfax, Virginia 88 Kearney Street -0- 65,795,171 (711,914) 65,083,257 1986 07/22/99 Office Building San Francisco, California 10 Waterview Boulevard -0- 31,063,636 (4,063,636) 27,000,000 1984 07/27/99 Office Building Parsippany, New Jersey Larkspur Courts -0- 53,038,988 1,975,512 55,014,500 1991 08/17/99 Apartments Larkspur, 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) 2002 COMPLETED ACQUIRED ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------ Columbus Portfolio $-0- 30,227,305 ($6,627,305) $ 23,600,000 1997 11/30/99 Office Building Columbus, Ohio Konica Photo Imaging Headquarters -0- 17,049,875 850,125 17,900,000 1999 12/21/99 Industrial Building Mahwah, New Jersey Atlanta Industrial Portfolio -0- 39,816,868 (1,416,868) 38,400,000 1999 04/04/00 Industrial Building Atlanta, Georgia 1801 K Street, N.W. -0- 40,719,040 21,917,796 162,636,836 1971 05/15/00 Office Building Washington, DC Northpoint Commerce Center -0- 38,818,013 (845,959) 37,972,054 1994 06/15/00 Industrial Building Fullerton, California Morris Corporate Center III -0- 03,119,739 (10,719,739) 92,400,000 1990 07/12/00 Office Building Parsippany, New Jersey Ashford Meadows Apartments -0- 64,171,626 (2,171,626) 62,000,000 1998 09/28/00 Apartments Herndon, Virginia Landmark at Salt Lake City (Building #4) -0- 14,411,088 (1,711,088) 12,700,000 2000 11/03/00 Industrial Building Salt Lake City, Utah 39 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) 2002 COMPLETED ACQUIRED ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------ Cabot Industrial Portfolio $-0- $ 38,659,380 $ 2,927,185 $ 41,586,565 2000 11/17/00 Industrial Building Rancho Cucamonga, California Maitland Promenade One -0- 36,520,162 1,079,838 37,600,000 1999 12/14/00 Office Building Maitland, Florida Dallas Industrial Portfolio -0- 138,389,123 (2,354,169) 136,034,954 1997 12/19/00 Industrial Building Coppell, Texas BISYS Fund Services Building -0- 32,332,485 2,367,515 34,700,000 2001 11/30/99 Office Building Columbus, Ohio Batterymarch Park II -0- 17,824,765 (2,824,765) 15,000,000 1986 05/31/01 Office Building Quincy, Massachusetts South River Road Industrial -0- 33,700,429 (900,429) 32,800,000 1999 06/25/01 Industrial Building Cranbury, New Jersey Needham Corporate Center -0- 28,150,986 (1,650,986) 26,500,000 1987 07/30/01 Office Building Needham, Massachusetts South Florida Apt Portfolio -0- 44,114,457 2,685,543 46,800,000 1986 08/24/01 Apartments Boca Raton, Florida 40 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) 2002 COMPLETED ACQUIRED ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------ The Fairways of Carolina $-0- $ 17,286,931 ($1,186,931) $ 16,100,000 1993 08/24/01 Apartments Margate, Florida Quiet Waters at Coquina Lakes -0- 19,094,415 (1,494,415) 17,600,000 1995 08/24/01 Apartments Deerfield Beach, Florida 9 Hutton Centre -0- 20,448,764 (1,023,272) 19,425,493 1981 10/30/01 Office Building Santa Ana, California Doral Pointe Apartments -0- 45,341,796 (1,834,379) 43,507,416 1990 11/06/01 Apartments Miami, Florida 1015 15th Street -0- 48,749,491 2,850,509 51,600,000 1978 11/09/01 Office Building Washington D.C. Kenwood Mews Apartments -0- 22,686,216 13,784 22,700,000 1991 11/30/01 Apartments Burbank, California Ten & Twenty Westport Road -0- 140,178,508 (178,508) 140,000,000 2001 12/28/01 Office Building Wilton, Connecticut The Farragut Building -0- 46,170,678 329,323 46,500,000 1962 05/16/02 Office Building Washington, DC 41 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) 2002 COMPLETED ACQUIRED ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------ The Legacy at Westwood Apartments $-0- $ 85,075,210 $0 $ 85,075,210 2001 09/09/02 Apartments Los Angeles, California Westwood Marketplace -0- 74,026,411 0 74,026,411 1950 09/26/02 Shopping Center Los Angeles, California The Point on Tampa Bay -0- 41,239,643 0 41,239,643 1982 10/09/02 Office Building Tampa, Florida Corporate Boulevard -0- 68,020,401 0 68,020,401 1989 10/31/02 Office Building Rockville, Maryland Regents Court Apartments -0- 49,567,031 0 49,567,031 2001 11/15/02 Apartments San Diego, California Oak Brook Regency Towers -0- 66,602,200 0 66,602,200 1977 11/26/02 Office Building Oakbrook, Illinois 701 Brickell -0- 172,088,618 0 172,088,618 1986 11/27/02 Office Building Miami, Florida Mellon Financial Center at -0- 261,896,938 0 261,896,938 1970 12/03/02 One Boston Place Office Building Boston, Massachusetts 42 COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION INITIAL COST (INCLUDING VALUE AT YEAR ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE DESCRIPTION BRANCES PROPERTY AND LOSSES) 2002 COMPLETED ACQUIRED -------------------------------- --------- ------------ ----------------- ------------ ------------ ------------ Longwood Towers $-0- $ 80,202,248 $0 $80,202,248 1926 12/12/02 Apartments Brookline, Massachusetts Alexan Buckhead -0- 45,739,570 0 45,739,570 2002 12/30/02 Apartments Atlanta, Georgia ----- -------------- ----------- -------------- $ -0- $3,273,980,574 $ 7,351,791 $3,281,332,364 ===== ============== =========== ============== (1) Leasehold interest only Reconciliation of investment property owned: Balance at beginning of period $2,330,914,466 Acquisitions (including properties under construction) 1,051,818,027 Dispositions (25,923,370) (Initial Cost 20,003,383, costs capitalized 5,919,987) Capital improvements and carrying costs (including unrealized gains and losses) (75,476,759) -------------- Balance at end of period $3,281,332,364 ============== 43 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEMS 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE COMPENSATION The Real Estate Account has no officers or directors and no TIAA trustee or executive officers receives compensation from the Account. The Trustees and principal executive officers of TIAA, and their principal occupations during the last five years, are as follows: TRUSTEES -------- ELIZABETH E. BAILEY, 64 John C. Hower Professor of Public Policy and Management, Wharton School, University of Pennsylvania. Director, CSX Corporation and Philip Morris Companies, Inc. WILLARD T. CARLETON, 68. Donald R. Diamond Professor of Finance Emeritus, College of Business and Public Administration, University of Arizona. ROBERT C. CLARK, 59. Dean and Royall Professor of Law, Harvard Law School, Harvard University. ESTELLE A. FISHBEIN, 68. Vice President and General Counsel, Johns Hopkins University. RUTH SIMMS HAMILTON, 65. Professor, Department of Sociology, and Director, African Diaspora Research Project, Michigan State University. MARJORIE FINE KNOWLES, 63 Professor of Law, Georgia State University College of Law. ROBERT M. O'NEIL, 68. Professor of Law, University of Virginia and Director, Thomas Jefferson Center for the Protection of Free Expression. LEONARD S. SIMON, 66. Vice Chairman, Charter One Financial, Inc. Formerly, Chairman, President and Chief Executive Officer, RCSB Financial, Inc. and Chairman and Chief Executive Officer, Rochester Community Savings Bank. 44 RONALD L. THOMPSON, 53. Chairman and Chief Executive Officer, Midwest Stamping Co. PAUL R. TREGURTHA, 67. Chairman and Chief Executive Officer, Mormac Marine Group, Inc. and Moran Transportation Company, Inc.; Vice Chairman, Interlake Steamship Company and Lakes Shipping Company; formerly, Chairman, Meridian Aggregates, L.P. WILLIAM H. WALTRIP, 65. Chairman, Technology Solutions Company. Formerly, Chairman and Chief Executive Officer, Bausch & Lomb, Inc. ROSALIE J. WOLF, 61. Managing Director, Offit Hall Capital Management LLC and its predecessor company, Laurel Management Company LLC. Formerly, Treasurer and Chief Investment Officer, The Rockefeller Foundation. OFFICER-TRUSTEES ---------------- HERBERT M. ALLISON, JR., 59. Chairman, President and Chief Executive Officer, TIAA. President and Chief Executive Officer, CREF. Formerly, President and Chief Executive Officer of Alliance for LifeLong Learning, Inc., 1999 -2002. President, Chief Operating Officer and Member of the Board of Directors of Merrill Lynch & Co., Inc., 1997-1999. MARTIN L. LEIBOWITZ, 66. Vice Chairman and Chief Investment Officer, TIAA and CREF. OTHER OFFICERS -------------- RICHARD J. ADAMSKI, 61. Vice President and Treasurer, TIAA and CREF. RICHARD L. GIBBS, 56. Executive Vice President, Finance and Planning, TIAA and CREF. E. LAVERNE JONES, 54. Vice President and Corporate Secretary, TIAA and CREF. 45 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, 2002, the Account paid TIAA $987,655 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, 2002, the Account paid TIAA $9,495,736 for investment management services and $2,430,240 for mortality and expense risks. For the same period, the Account paid Services $10,390,705 for its administrative and distribution services. ITEM 14. CONTROLS AND PROCEDURES (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. An evaluation was performed within 90 days from the date hereof under the supervision of the registrant's management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the registrant's disclosure controls and procedures. Based on that evaluation, the registrant's management, including the principal executive officer and principal financial officer, concluded that the registrant's disclosure controls and procedures were effective for this annual reporting period. (b) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the registrant's internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation described above, including any corrective actions with regard to significant deficiencies and material weaknesses. 46 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. See Item 8 for required financial statements. (a) 2. Financial Statement Schedules. See Item 8 for required financial statement schedules. (a) 3. Exhibits. (1) Distribution and Administrative Services Agreement by and between TIAA and TIAA-CREF Individual & Institutional Services, Inc. (as amended)* (3) (A) Charter of TIAA (as amended)**** (B) Bylaws of TIAA (as amended)** (4) (A) Forms of RA, GRA, GSRA, SRA, and IRA Real Estate Account Contract Endorsements* (B) Forms of Income-Paying Contracts* (10) (A) Independent Fiduciary Agreement by and among TIAA, the Registrant, and Institutional Property Consultants, Inc. (as amended)*** (B) Custodial Services Agreement by and between TIAA and Morgan Guaranty Trust Company of New York with respect to the Real Estate Account* (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 9, 2003 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. 47 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 24, 2003 -------------------------------- Date Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons, trustees and officers of Teachers Insurance and Annuity Association of America, in the capacities and on the dates indicated.

Signature Title Date --------- ----- ---- /s/ Herbert M. Allison, Jr. Chairman of the Board, President, and Chief 3/24/03 ---------------------------- Executive Officer (Principal Executive and Herbert M. Allison, Jr. Financial Officer) /s/ Martin L. Leibowitz Vice Chairman and Chief Investment Officer 3/24/03 ---------------------------- (Principal Investment Officer) Martin L. Leibowitz /s/ Richard L. Gibbs Executive Vice President (Principal Accounting 3/24/03 ---------------------------- Officer) Richard L. Gibbs

48 Signature of Trustee Date Signature of Trustee Date -------------------- ---- -------------------- ---- /s/ Elizabeth E. Bailey 3/24/03 /s/ Robert M. O'Neil 3/24/03 ---------------------------- ------------------------ Elizabeth E. Bailey Robert M. O'Neil /s/ Willard T. Carleton 3/24/03 /s/ Leonard S. Simon 3/24/03 ---------------------------- ------------------------ Willard T. Carleton Leonard S. Simon /s/ Robert C. Clark 3/24/03 /s/ Ronald L. Thompson 3/24/03 ---------------------------- ------------------------ Robert C. Clark Ronald L. Thompson /s/ Paul R. Tregurtha 3/24/03 ---------------------------- ------------------------ Estelle A. Fishbein Paul R. Tregurtha /s/ Ruth Simms Hamilton 3/24/03 /s/ William H. Waltrip 3/24/03 ---------------------------- ------------------------ Ruth Simms Hamilton William H. Waltrip /s/ Marjorie Fine Knowles 3/24/03 /s/ Rosalie J. Wolf 3/24/03 ---------------------------- ------------------------ Marjorie Fine Knowles Rosalie J. Wolf 49 CERTIFICATIONS I, Herbert M. Allison, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of the TIAA Real Estate Account; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 50 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 24, 2003 /s/ Herbert M. Allison, Jr. ------------------------------------------- Herbert M. Allison, Jr. Chairman of the Board, President and Chief Executive Officer, Teachers Insurance and Annuity Association of America 51 I, Richard L. Gibbs, certify that: 1. I have reviewed this annual report on Form 10-K of the TIAA Real Estate Account; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 52 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 24, 2003 /s/ Richard L. Gibbs ------------------------------------------- Richard L. Gibbs Executive Vice President (Chief Financial Officer), Teachers Insurance and Annuity Association of America 53 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Teachers Insurance and Annuity Association of America, do hereby certify, to such officer's knowledge, that: The annual report on Form 10-K of the TIAA Real Estate Account (the "Account") for the year ended December 31, 2002 (the "Form 10-K") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Account. Dated: March 24, 2003 /s/ Herbert M. Allison, Jr. ------------------------------------------- Herbert M. Allison, Jr. Chairman of the Board, President and Chief Executive Officer, Teachers Insurance and Annuity Association of America Dated: March 24, 2003 /s/ Richard L. Gibbs ------------------------------------------- Richard L. Gibbs Executive Vice President (Chief Financial Officer), Teachers Insurance and Annuity Association of America 54 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. 55 [LOGO] 730 Third Avenue New York NY 10017-3206