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PROSPECTUS
Dated January 4, 1999
TIAA-CREF Life Funds
Stock Index Fund
THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT THE TIAA-CREF LIFE FUNDS,
MUTUAL FUNDS AVAILABLE ONLY THROUGH THE PURCHASE OF A VARIABLE ANNUITY OR OTHER
VARIABLE INSURANCE CONTRACT ISSUED BY TIAA-CREF LIFE INSURANCE COMPANY
(TIAA-CREF LIFE). PLEASE READ THIS PROSPECTUS, ALONG WITH THE PROSPECTUS
DESCRIBING THE CONTRACT, BEFORE INVESTING AND KEEP BOTH PROSPECTUSES FOR FUTURE
REFERENCE.
The TIAA-CREF Life Funds currently offers the investment portfolio (fund) listed
below.
The Stock Index Fund seeks to increase the value of your investment over
the long-term by investing in a diversified portfolio of common stocks
selected to track the overall U.S. stock market, as represented by a broad
stock market index.
TIAA-CREF Life Insurance Company and the TIAA-CREF Life Funds are part of the
TIAA-CREF group of companies.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Table of Contents
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ITEM PAGE
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The Stock Index Fund -- In Brief............................ 3
Investment Objective and Principal Investment Strategies.... 4
Investment Objective...................................... 4
Principal Investment Strategies........................... 4
The Russell 3000 Index.................................... 5
Other Investments......................................... 5
Fund Management............................................. 6
Related Fund Performance Information........................ 7
Pricing of Fund Shares...................................... 7
Offering, Purchasing and Redeeming Shares................... 8
Dividends, Distributions and Taxes.......................... 8
Financial Highlights Information............................ 9
General Matters............................................. 9
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This prospectus outlines the terms of the fund. It doesn't constitute an
offering in any jurisdiction where such an offering can't lawfully be made. No
dealer, salesman, or anyone else is authorized to give any information or to
make any representation in connection with this offering other than those
contained in this prospectus. If anyone does offer you such information or
representations, you shouldn't rely on them.
An investment in the Fund is not a deposit of the TIAA-CREF Trust Company, FSB,
and is not insured or guaranteed by the Federal Deposit Insurance Corporation
(FDIC) or any other government agency.
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The TIAA-CREF Life Funds are mutual funds available only to separate accounts of
TIAA-CREF Life Insurance Company (TIAA-CREF Life) to fund individual variable
annuity or other variable insurance contracts (the contract). This prospectus
describes the Stock Index Fund, the only investment portfolio (fund) currently
offered by the TIAA-CREF Life Funds. Throughout this prospectus, "we" and "our"
refer to the TIAA-CREF Life Funds or the Stock Index Fund. "You" and "your"
means any contractowner or any prospective contractowner.
The Stock Index Fund -- In Brief
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Stock Index Fund seeks to increase the value of your investment over the
long-term by investing in a diversified portfolio of common stocks selected to
track the overall U.S. stock market, as represented by a broad stock market
index.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
The Stock Index Fund attempts to track the U.S. stock market as a whole by
investing substantially all of its assets in stocks included in the Russell
3000(R) index, an index consisting of the 3,000 largest publicly-traded U.S.
corporations. The fund doesn't try to match the Russell 3000 precisely by
holding all 3,000 stocks. Rather, we use sampling to try to emulate the index's
overall investment characteristics. The portfolio won't be managed in the
traditional sense of picking individual securities based on economic, financial,
and market analysis, which means that a company may remain in the portfolio even
if it performs poorly. We will, however, use certain techniques to attempt to
slightly outperform the Russell 3000.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The Stock Index Fund's returns will fluctuate, so you could lose money on your
investment. Normally, we expect that when the overall U.S. stock market is
rising, the fund's value will rise, and when the stock market is falling, the
fund's value will fall. Stock values will rise and fall in response to changes
in overall market and economic conditions, and the financial condition of
individual companies. Stocks in general are subject to the following types of
risks:
- Market risk -- price volatility due to changing conditions in the
financial markets and, in some cases, changes in overall interest rates.
- Financial risk -- the possibility that a company's current earnings will
fall or that overall financial soundness will decline, reducing the
stock's value.
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We also can't guarantee that the fund will be able to match the returns of the
Russell 3000 or the stock market in general.
HOW HAS THE FUND PERFORMED?
Because the fund has been operating only for a short time, we have not included
past performance information for the fund. For a discussion of the performance
of the TIAA Stock Index Account, an investment company managed by the same
adviser as the fund, see the "Related Fund Performance Information" section of
this prospectus.
Investment Objective and Principal Investment Strategies
This section describes the Stock Index Fund's investment objective and the
principal investment policies and techniques it uses to accomplish its
objective. For a complete listing of the fund's policies and restrictions, see
the SAI.
INVESTMENT OBJECTIVE
The Stock Index Fund seeks to increase the value of your investment over the
long-term by investing in a diversified portfolio of common stocks selected to
track the overall U.S. stock market, as represented by a broad stock market
index. There's no guarantee that the fund will meet this investment objective.
We can change the fund's investment objective without a shareholder vote,
although we'll notify you of any change if it is material.
PRINCIPAL INVESTMENT STRATEGIES
The fund attempts to track the U.S. stock market as a whole by investing
substantially all of its assets in stocks included in the Russell 3000 Index(R)
(See "The Russell 3000 Index," below). The fund doesn't try to match the Russell
3000 precisely by holding all 3,000 stocks. Rather, we use sampling to try to
emulate the index's overall investment characteristics. The portfolio won't be
managed in the traditional sense of picking individual securities based on
economic, financial, and market analysis. This means that a company can remain
in the portfolio even if it performs poorly, unless the company is removed from
the Russell 3000. We will, however, use proprietary quantitative scoring and
trading techniques to attempt to slightly outperform the Russell 3000.
We expect that in periods when the overall U.S. stock market is rising, the
fund's net asset value will also rise, while in market declines, the fund's net
asset value will likewise decline. We won't match the index precisely. However,
we expect the fund to closely track the index. The fund seeks to track the index
by calculating daily a correlation coefficient using the fund's returns from the
most
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recent 30 trading days and the index's returns for the same period. We expect
the correlation coefficient usually to be above 0.99 and, in any case, never to
fall below 0.98. If it approaches 0.98, we'll rebalance the portfolio -- a
process which involves realigning portfolio weights and/or adding more stocks to
the fund's portfolio. Since the index's returns aren't reduced by operating or
investment expenses, the fund may not be able to match the index because of the
costs of buying and selling stocks and other expenses. However, we expect
investment expenses to be low compared to an actively managed stock portfolio.
THE RUSSELL 3000 INDEX
The Russell 3000 is an index of the 3,000 largest publicly traded U.S.
corporations, based on the value of their outstanding stock. According to the
Frank Russell Company, Russell 3000 companies account for about 98% of the total
market capitalization of the publicly-traded U.S. equity market. The market
capitalization of individual companies in the Russell 3000 ranged from $10
million to $304.22 billion, with an average of $3.96 billion as of November 30,
1998.
The Frank Russell Company includes stocks in the index solely on their market
capitalization and weights them by relative market value. The Frank Russell
Company can change stocks and their weightings in the index. We'll adjust the
fund's portfolio to reflect the changes as appropriate.
The Russell 3000 is a trademark and service mark of the Frank Russell Company.
The fund isn't promoted, endorsed, sponsored or sold by and isn't affiliated
with the Frank Russell Company. A stock's presence in the Russell 3000 doesn't
mean that the Frank Russell Company believes that it's an attractive investment.
The Frank Russell Company isn't responsible for any literature about the fund
and makes no representations or warranties about its content.
Using the Russell 3000 as the measure of the U.S. equity market isn't a
fundamental investment policy, so we can substitute other indices without
shareholder approval. We'll notify you, however, before making any change in the
target index.
OTHER INVESTMENTS
The fund can hold other investments in seeking to achieve its investment
objective. These include:
- investments whose return depends on stock market prices, such as stock
index futures contracts, stock options and options (puts and calls) on
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futures contracts, and debt securities whose prices or interest rates are linked
to the return of a recognized stock market index;
- investments with equity characteristics, such as bonds convertible into
common stock, warrants, preferred stock, and depository receipts for such
securities;
- short-term debt securities and other money market instruments, including
those denominated in foreign currencies, for cash management purposes;
and
- options, futures contracts, options on futures, and other financial
contracts. The fund will make these types of investments for cash
management or hedging purposes, rather than for speculation.
For more information about these and other permitted fund investments and their
risks, see the SAI.
Fund Management
Teachers Advisors, Inc. (Advisors) manages the Stock Index Fund's assets, under
the supervision of the Board of Trustees of TIAA-CREF Life Funds, and is a
wholly-owned indirect subsidiary of Teachers Insurance and Annuity Association
of America (TIAA). Advisors is registered with the Securities and Exchange
Commission (SEC) under the Investment Advisers Act of 1940. The personnel of
Advisors who manage the fund also manage the investments of TIAA Separate
Account VA-1 and TIAA-CREF Mutual Funds and, through an affiliated investment
adviser, TIAA-CREF Investment Management, LLC, the investment accounts of the
College Retirement Equities Fund (CREF). Advisors is located at 730 Third
Avenue, New York, New York 10017.
Under its investment management agreement with TIAA-CREF Life Funds, Advisors is
entitled to an annual fee of 0.30% of the average daily net assets of the Stock
Index Fund for managing that fund. Advisors has voluntarily agreed to waive a
portion of its fee, so that the current investment advisory charge is 0.07% of
fund's average daily net assets.
Advisors duties include conducting research, recommending investments, and
placing orders to buy and sell securities. Advisors is also responsible for
providing or obtaining at its own expense the services necessary to operate the
TIAA-CREF Life Funds on a day-to-day basis. These include custodial,
administrative, portfolio accounting, dividend disbursing, auditing, and
ordinary legal services.
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Related Fund Performance Information
The following table contains information about the historical performance of the
TIAA Separate Account VA-1 Stock Index Account (the "TIAA Stock Index Account"),
the only other existing stock index portfolio managed by Advisors, as of
September 30, 1998. The TIAA Stock Index Account is not a mutual fund; rather it
funds a variable annuity contract. It has an investment objective, policies,
strategies and risks substantially the same as those of the TIAA-CREF Life
Funds' Stock Index Fund. The data is provided to illustrate the experience of
Advisors' personnel in managing a substantially similar investment portfolio. It
doesn't represent the performance of the Stock Index Fund described in this
prospectus.
These investment results are unaudited. They aren't intended to predict or
suggest the returns that either the Stock Index Fund or TIAA Stock Index Account
might experience in the future. The results are net of investment management and
other operating expenses (including separate account charges of 0.30%) for the
TIAA Stock Index Account and reflect the waiver by Advisors of 0.23% of its
0.30% investment management fee. The Stock Index Fund has been designed to have
similar investment management expense charges and waivers. Note that no separate
account charges are deducted at the fund level for the Stock Index Fund,
although comparable charges will be deducted at the separate account contract
level.
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TIAA STOCK INDEX ACCOUNT AVERAGE ANNUAL RATES OF CUMULATIVE RATES OF
(AS OF SEPTEMBER 30, 1998) TOTAL RETURN TOTAL RETURN
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1 year 4.34% 4.34%
3 years 19.64% 71.26%
Since inception (11/1/94) 21.84% 116.76%
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Pricing of Fund Shares
We determine the net asset value (NAV) per share (share price) of a fund on each
day the New York Stock Exchange is open for business, when trading closes on all
U.S. national exchanges where securities or other investments of the fund are
principally traded. We will not price fund shares on days that the New York
Stock Exchange is closed. We compute the fund's NAV by dividing the value of a
fund's assets, less its liabilities, by the number of outstanding shares of that
fund.
Except as noted below, we use market quotations or independent pricing services
to value securities and other instruments. If market quotations or independent
pricing services aren't readily available, we'll use a security's "fair
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value", as determined in good faith by or under the direction of the TIAA-CREF
Life Funds' Board of Trustees. We also may use fair value if events materially
affecting the value of an investment (as determined in our sole discretion)
occur between the time when its price is determined and the time the fund's net
asset value is calculated.
Offering, Purchasing and Redeeming Shares
Shares of the Stock Index Fund are not sold directly to you, but rather are sold
in a continuous offering to TIAA-CREF Life separate accounts to fund variable
annuity or other insurance contracts. Your premiums under the contracts are
placed in the appropriate investment account of the separate account, and the
assets of the investment account are invested in the shares of the Stock Index
Fund. The separate account purchases and redeems shares of the fund for net
asset value without sales or redemption charges.
For each day on which the fund's net asset value is calculated, the separate
account transmits to the fund any orders to purchase or redeem shares of the
fund based on the purchase payments, redemption requests, death benefits,
contract charges, and transfer requests from contractowners and beneficiaries
that have been processed on that day. The separate account purchases and redeems
shares of the fund at the fund's net asset value per share calculated as of that
same day.
For more information about investing in the fund, see the prospectus describing
the contract, which can be obtained by calling us toll-free at 800 842-2733,
extension 5509.
Dividends, Distributions and Taxes
The tax status of your investment in the fund depends upon your contract. For a
complete discussion of the tax status of your contract, please refer to the
prospectus describing the contract.
Shares in the Stock Index Fund may only be held through a variable annuity or
other variable insurance contract. Under current tax law, any dividend or
capital gains distributions from the fund will be exempt from current taxation
if left to accumulate within your variable contract. Withdrawals from your
contract may be taxed as ordinary income. You may also be subject to a 10%
penalty tax if a withdrawal is made before age 59 1/2.
The fund expects to declare and distribute to its shareholders (i.e., separate
accounts) substantially all of its net investment income and net realized
capital gains. Normally, the fund will distribute dividends and capital gains
annually. In
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addition, the fund may occasionally be required to make supplemental dividend or
capital gains distributions at some other time during the year.
All dividend and capital gains distributions from a fund will be automatically
reinvested by the separate account in additional shares of the fund.
The fund intends to qualify for taxation as a "regulated investment company"
under the Internal Revenue Code so that it will not be subject to federal income
tax to the extent its income is distributed to shareholders. In addition, the
fund intends to qualify under the Internal Revenue Code with respect to the
diversification requirements related to the tax-deferred status of insurance
company separate accounts.
Financial Highlights Information
Because the fund has limited operating history, no financial highlights
information is included in this prospectus. Financial statements for the fund
are in the SAI, which is available free upon request.
General Matters
VOTING RIGHTS
We don't plan to hold annual shareholder meetings. However, we may hold special
meetings to elect trustees, change fundamental policies, approve a management
agreement, or for other purposes. Each share (including fractional shares) is
entitled to one vote for each dollar of net asset value represented by that
share on all matters to which shareholders are entitled to vote. You should
refer to the SAI, as well as the separate prospectus describing your contract
and the separate account, which accompanies this prospectus, for more
information on your voting rights.
YEAR 2000 ISSUES
Many computer software systems in use today cannot recognize the year 2000 and
may revert to 1900 or some other date because of the way in which dates were
encoded and calculated. The TIAA-CREF Life Funds could be adversely affected if
its computer systems or those of its external service providers do not properly
process and calculate date-related information and data on and after January 1,
2000. TIAA-CREF Life Funds, along with Advisors, have been actively working on
necessary changes to its computer systems to prepare for the Year 2000 and have
also obtained reasonable assurances from our service providers that they are
taking comparable steps for their computer systems. However, the steps we are
taking do not guarantee complete success or eliminate
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the possibility that interaction with outside computer systems may have an
adverse impact on the TIAA-CREF Life Funds.
ELECTRONIC PROSPECTUSES
If you received this or the contract prospectus electronically and would like a
paper copies, please call 800 842-2733, extension 5509, and we will send paper
copies to you.
HOUSEHOLDING
To lower costs and eliminate duplicate documents sent to your home, we may, if
the SEC allows, begin mailing only one copy of this and the contract prospectus,
prospectus supplements, annual and semi-annual reports, or any other required
documents, to your household, even if more than one participant lives there. If
you would prefer to continue receiving your own copy of any of these documents,
you may call us toll-free at 800 842-2733, extension 5509, or write us.
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IF YOU HAVE ANY QUESTIONS ABOUT THE TIAA-CREF LIFE FUNDS' STOCK INDEX FUND OR
THE VARIABLE CONTRACT, PLEASE CALL US AT 800 223-1200.
More information about TIAA-CREF Life Funds can be found in the Statement of
Additional Information (SAI) for the funds dated January 4, 1999. When
available, the TIAA-CREF Life Funds will also provide more information about its
investments in its annual and semi-annual reports to shareholders. You can get
copies of the SAI and annual and semi-annual reports without charge by calling
800-842-2733, extension 5509 or writing us at TIAA-CREF Life Funds, 730 Third
Avenue, New York, New York 10017-3206. The SAI is "incorporated by reference"
into this prospectus -- that means it's legally part of the prospectus.
Information about TIAA-CREF Life Funds (including the SAI) can be reviewed and
copied at the Securities and Exchange Commission's (SEC) public reference room
(1-800-SEC-0330) in Washington, D.C. The information is also available through
the SEC's internet website at www.sec.gov. Copies of the information can also be
obtained, upon payment of a duplicating fee, by writing the SEC's Public
Reference Section, Washington, DC 20549-6009.
January 4, 1999
SEC File Nos. 333-61759, 811-08961
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STATEMENT OF ADDITIONAL INFORMATION
TIAA-CREF Life Funds
Stock Index Fund
This Statement of Additional Information (SAI) is not a prospectus, although it
should be read carefully in conjunction with the TIAA-CREF Life Funds'
prospectus dated January 4, 1999 (the prospectus). A copy of the prospectus may
be obtained by writing us at TIAA-CREF Life Funds, 730 Third Avenue, New York,
New York 10017-3206 or by calling 800 842-2733, extension 5509. Terms used in
the prospectus are incorporated in this SAI.
The date of this SAI is January 4, 1999.
LOGO
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TABLE OF CONTENTS
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PAGE
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Investment Policies, Strategies and Restrictions............ B-3
Management of the Fund...................................... B-12
Control Persons............................................. B-14
Investment Advisory and Other Services...................... B-14
Fund History and Description of the Fund.................... B-15
Valuation of Assets......................................... B-17
Brokerage Allocation........................................ B-18
Performance Information..................................... B-19
Tax Status.................................................. B-22
Underwriters................................................ B-23
Legal Matters............................................... B-23
Experts..................................................... B-23
Other Information........................................... B-24
Financial Statements........................................ B-24
Index to Audited Financial Statements....................... B-25
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B-2
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For purposes of this SAI, the term "fund" shall refer to the TIAA-CREF Life
Funds' Stock Index Fund.
INVESTMENT POLICIES, STRATEGIES AND RESTRICTIONS
The following information is intended to supplement the description of the
investment objective and policies of the fund in the prospectus. Under the
Investment Company Act of 1940, as amended (the 1940 Act), any of the fund's
fundamental policies may not be changed without the vote of a majority of the
fund's outstanding voting securities (as defined in the 1940 Act). The
non-fundamental investment restrictions contained in "Non-Principal Investment
Strategies and Risk Considerations" below, may be changed by the TIAA-CREF Life
Funds' Board of Trustees at any time.
FUNDAMENTAL POLICIES
The following restrictions are fundamental policies of the fund:
1. The fund will not issue senior securities except as SEC regulations
permit;
2. The fund will not borrow money, except: (a) it may purchase securities
on margin, as described in restriction 9 below; and (b) from banks (only
in amounts not in excess of 33 1/3% of the market value of the fund's
assets at the time of borrowing), and, from other sources, for temporary
purposes (only in amounts not exceeding 5% of the fund's total assets
taken at market value at the time of borrowing);
3. The fund will not underwrite the securities of other companies, except
to the extent that it may be deemed an underwriter in connection with
the disposition of securities from its portfolio;
4. The fund will not, with respect to at least 75% of the value of its
total assets, invest more than 5% of its total assets in the securities
of any one issuer, other than securities issued or guaranteed by the
United States Government, its agencies or instrumentalities;
5. The fund will not invest in an industry if after giving effect to that
investment the fund's holding in that industry would exceed 25% of its
total assets; however, this restriction does not apply to investments in
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities;
6. The fund will not purchase real estate or mortgages directly;
7. The fund will not purchase commodities or commodities contracts, except
to the extent financial contracts (such as futures) are purchased as
described herein;
8. The fund will not make loans, except: (a) that the fund may make loans
of portfolio securities not exceeding 33 1/3% of the value of its total
assets, which are collateralized by either cash, United States
Government securities, or other means permitted by applicable law, equal
to at least the market value of the loaned securities, as reviewed
daily; (b) loans through entry into repurchase agreements; (c)
privately-placed debt securities may be purchased; (d) participation
interests in loans, and similar investments, may be purchased; or (e)
through an interfund loan
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program with affiliated investment companies, to the extent permitted by
applicable SEC regulations; and
9. The fund will not purchase any security on margin except that the fund
may obtain such short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities).
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change of values of portfolio securities will not be considered a violation.
NON-PRINCIPAL INVESTMENT STRATEGIES AND RISKS
General
Besides equities, the fund can hold stock index futures contracts, options (puts
and calls) on futures contracts, and debt securities whose prices or interest
rates are linked to the return of a recognized stock market index, or swap
arrangements where the return is linked to a recognized stock market index. The
fund would make such investments in order to seek to match the total return of
Russell 3000. However, they might not track the return of the Russell 3000 in
all cases and can involve additional credit risks. Investing in options or
futures contracts and entering into equity swaps involve special risks. These
are discussed below. Such investing by the fund is subject to any necessary
regulatory approvals.
The fund can hold other types of securities with equity characteristics, such as
bonds convertible into common stock, warrants, preferred stock, and depository
receipts for such securities. These securities are generally subject to the same
types of market and financial risks that are described under "What are the
Principal Risks of Investing in the Fund?" in the Prospectus.
The fund can hold fixed-income securities that it acquires because of mergers,
recapitalizations, or otherwise. For liquidity, the fund can also invest in
short-term debt securities and other money-market instruments, including those
denominated in foreign currencies. Fixed-income securities, including short-
term debt securities and other money market instruments, are subject to interest
rate risks and financial risks. Interest rate risks are the risks that the
instrument's value will decline if interest rates change. A rise in interest
rates usually causes the market value of fixed-rate securities to go down, while
rate deductions usually result in a market value increase. Financial risks come
from the possibility the issuer won't be able to pay principal and interest when
due.
The fund also can invest in options and futures, as well as newly developed
financial instruments, such as equity swaps and equity-linked fixed-income
securities, so long as these are consistent with its investment objective and
regulatory requirements.
These investments and other fund investment strategies are discussed in detail
below.
B-4
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Options and Futures
The fund can buy and sell options (puts and calls) and futures to the extent
permitted by the New York State Insurance Department, the SEC, and the Commodity
Futures Trading Commission ("CFTC"). We do not intend to use options and futures
strategies in a speculative manner but rather we would use them primarily as
hedging techniques or for cash management purposes.
Options and futures transactions may increase the fund's transaction costs and
portfolio turnover rate and will be initiated only when consistent with its
investment objectives.
Options. Option-related activities could include: (1) the sale of covered call
option contracts, and the purchase of call option contracts for the purpose of a
closing purchase transaction; (2) buying covered put option contracts, and
selling put option contracts to close out a position acquired through the
purchase of such options; and (3) selling call option contracts or buying put
option contracts on groups of securities and on futures on groups of securities
and buying similar call option contracts or selling put option contracts to
close out a position acquired through a sale of such options. This list of
options-related activities is not intended to be exclusive, and the fund may
engage in other types of options transactions consistent with its investment
objective and policies and applicable law.
A call option is a short-term contract (generally for nine months or less) which
gives the purchaser of the option the right to purchase the underlying security
at a fixed exercise price at any time prior to the expiration of the option
regardless of the market price of the security during the option period. As
consideration for the call option, the purchaser pays the seller a premium,
which the seller retains whether or not the option is exercised. The seller of a
call option has the obligation, upon the exercise of the option by the
purchaser, to sell the underlying security at the exercise price at any time
during the option period. Selling a call option would benefit the seller if,
over the option period, the underlying security declines in value or does not
appreciate above the aggregate of the exercise price and the premium. However,
the seller risks an "opportunity loss" of profits if the underlying security
appreciates above the aggregate value of the exercise price and the premium.
The fund may close out a position acquired through selling a call option by
buying a call option on the same security with the same exercise price and
expiration date as the call option that it had previously sold on that security.
Depending on the premium for the call option purchased by the fund, the fund
will realize a profit or loss on the transaction.
A put option is a similar short-term contract that gives the purchaser of the
option the right to sell the underlying security at a fixed exercise price at
any time prior to the expiration of the option regardless of the market price of
the security during the option period. As consideration for the put option the
purchaser pays the seller a premium, which the seller retains whether or not the
option is exercised. The seller of a put option has the obligation, upon the
exercise of the option by the purchaser, to purchase the underlying security at
the exercise price at any time during the option period. The buying of a covered
put contract limits the downside exposure for the investment in the underlying
security to the combination of the exercise price less the premium paid. The
risk of purchasing a put is that the market price of the underlying stock
prevailing on the expiration date may be above the option's exercise price. In
that case the option would expire worthless and the entire premium would be
lost.
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The fund may close out a position acquired through buying a put option by
selling a put option on the same security with the same exercise price and
expiration date as the put option which it had previously bought on the
security. Depending on the premium of the put option sold by the fund, the fund
would realize a profit or loss on the transaction.
In addition to options (both calls and puts) on individual securities, there are
also options on groups of securities, such as the Standard & Poor's 100 Index
traded on the Chicago Board Options Exchange. There are also options on the
futures of groups of securities such as the Standard & Poor's 500 Stock Index
and the New York Stock Exchange Composite Index. The selling of such calls can
be used in anticipation of, or in, a general market or market sector decline
that may adversely affect the market value of the fund's portfolio of
securities. To the extent that the fund's portfolio of securities changes in
value in correlation with a given stock index, the sale of call options on the
futures of that index would substantially reduce the risk to the portfolio of a
market decline, and, by so doing, provides an alternative to the liquidation of
securities positions in the portfolio with resultant transaction costs. A risk
in all options, particularly the relatively new options on groups of securities
and on the futures on groups of securities, is a possible lack of liquidity.
This will be a major consideration before the fund deals in any option.
There is another risk in connection with selling a call option on a group of
securities or on the futures of groups of securities. This arises because of the
imperfect correlation between movements in the price of the call option on a
particular group of securities and the price of the underlying securities held
in the portfolio. Unlike a covered call on an individual security, where a large
movement on the upside for the call option will be offset by a similar move on
the underlying stock, a move in the price of a call option on a group of
securities may not be offset by a similar move in the price of securities held
due to the difference in the composition of the particular group and the
portfolio itself.
Futures. To the extent permitted by applicable regulatory authorities, the fund
may purchase and sell futures contracts on securities or other instruments, or
on groups or indexes of securities or other instruments. The purpose of hedging
techniques using financial futures is to protect the principal value of the fund
against adverse changes in the market value of securities or instruments in its
portfolio, and to obtain better returns on future investments than actually may
be available at the future time. Since these are hedging techniques, the gains
or losses on the futures contract normally will be offset by losses or gains
respectively on the hedged investment. Futures contracts also may be offset
prior to the future date by executing an opposite futures contract transaction.
A futures contract on an investment is a binding contractual commitment which,
if held to maturity, will result in an obligation to make or accept delivery,
during a particular future month, of the securities or instrument underlying the
contract. By purchasing a futures contract -- assuming a "long" position -- the
fund legally will obligate itself to accept the future delivery of the
underlying security or instrument and pay the agreed price. By selling a futures
contract -- assuming a "short" position -- it legally will obligate itself to
make the future delivery of the security or instrument against payment of the
agreed price.
B-6
<PAGE> 18
Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While futures positions taken by the fund usually will be
liquidated in this manner, the fund may instead make or take delivery of the
underlying securities or instruments whenever it appears economically
advantageous to the fund to do so. A clearing corporation associated with the
exchange on which futures are traded assumes responsibility for closing out
positions and guarantees that the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
A stock index futures contract, unlike a contract on a specific security, does
not provide for the physical delivery of securities, but merely provides for
profits and losses resulting from changes in the market value of the contract to
be credited or debited at the close of each trading day to the respective
accounts of the parties to the contract. On the contract's expiration date, a
final cash settlement occurs and the futures positions are closed out. Changes
in the market value of a particular stock index futures contract reflect changes
in the specified index of equity securities on which the future is based.
Stock index futures may be used to hedge the equity investments of the fund with
regard to market (systematic) risk (involving the market's assessment of overall
economic prospects), as distinguished from stock specific risk (involving the
market's evaluation of the merits of the issuer of a particular security). By
establishing an appropriate "short" position in stock index futures, the fund
may seek to protect the value of its securities portfolio against an overall
decline in the market for equity securities. Alternatively, in anticipation of a
generally rising market, the fund can seek to avoid losing the benefit of
apparently low current prices by establishing a "long" position in stock index
futures and later liquidating that position as particular equity securities are
in fact acquired. To the extent that these hedging strategies are successful,
the fund will be affected to a lesser degree by adverse overall market price
movements, unrelated to the merits of specific portfolio equity securities, than
would otherwise be the case.
Unlike the purchase or sale of a security, no price is paid or received by the
fund upon the purchase or sale of a futures contract. Initially, the fund will
be required to deposit in a custodial account an amount of cash, United States
Treasury securities, or other permissible assets equal to approximately 5% of
the contract amount. This amount is known as "initial margin." The nature of
initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments to and from the broker, called "variation margin," will be made on a
daily basis as the price of the underlying stock index fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as "marking to the market." For example, when the fund has
purchased a stock index futures contract and the price of the underlying stock
index has risen, that position will have increased in value, and the fund will
receive from the broker a variation margin payment equal to that increase in
value. Conversely, where the fund has purchased a stock index futures contract
and the price of the underlying stock index has declined, the position would be
less valuable and the fund would be required to make a variation margin payment
to the broker. At any time prior to
B-7
<PAGE> 19
expiration of the futures contract, the fund may elect to close the position by
taking an opposite position which will operate to terminate the fund's position
in the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the fund, and the fund
realizes a loss or a gain.
There are several risks in connection with the use of a futures contract as a
hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the securities
or instruments which are the subject of the hedge. The fund will attempt to
reduce this risk by engaging in futures transactions, to the extent possible,
where, in our judgment, there is a significant correlation between changes in
the prices of the futures contracts and the prices of the fund's portfolio
securities or instruments sought to be hedged.
Successful use of futures contracts for hedging purposes also is subject to the
user's ability to predict correctly movements in the direction of the market.
For example, it is possible that, where the fund has sold futures to hedge its
portfolio against declines in the market, the index on which the futures are
written may advance and the values of securities or instruments held in the
fund's portfolio may decline. If this occurred, the fund would lose money on the
futures and also experience a decline in value in its portfolio investments.
However, we believe that over time the value of the fund's portfolio will tend
to move in the same direction as the market indices which are intended to
correlate to the price movements of the portfolio securities or instruments
sought to be hedged. It also is possible that, for example, if the fund has
hedged against the possibility of the decline in the market adversely affecting
stocks held in its portfolio and stock prices increased instead, the fund will
lose part or all of the benefit of increased value of those stocks that it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the fund has insufficient cash, it may have to
sell securities or instruments to meet daily variation margin requirements. Such
sales may be, but will not necessarily be, at increased prices which reflect the
rising market. The fund may have to sell securities or instruments at a time
when it may be disadvantageous to do so.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the futures contracts and the portion
of the portfolio being hedged, the prices of futures contracts may not correlate
perfectly with movements in the underlying security or instrument due to certain
market distortions. First, all transactions in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, the margin requirements in the futures market
are less onerous than margin requirements in the securities market, and as a
result the futures market may attract more speculators than the securities
market does. Increased participation by speculators in the futures market also
may cause temporary price distortions. Due to the possibility of price
distortion in the futures market and also because of the imperfect correlation
between movements in the futures contracts arid the portion of the portfolio
being hedged, even a correct forecast of general market trends by Advisors, the
investment advisor for the fund, still may not result in a successful hedging
transaction over a very short time period.
B-8
<PAGE> 20
The fund may also use futures contracts and options on futures contracts to
manage its cash flow more effectively. To the extent that the fund enters into
non-hedging positions, it will do so only in accordance with certain CFTC
exemptive provisions. Thus, pursuant to CFTC Rule 4.5, the aggregate initial
margin and premiums required to establish non-hedging positions in commodity
futures or commodity options contracts may not exceed 5% of the liquidation
value of the fund's portfolio, after-taking into account unrealized profits and
unrealized losses on any such contracts it has entered into (provided that the
in-the-money amount of an option that is in-the-money when purchased may be
excluded in computing such 5%).
Firm Commitment Agreements and Purchase of "When-Issued" Securities
The fund can enter into firm commitment agreements for the purchase of
securities on a specified future date. We expect that these transactions will be
relatively infrequent. When the fund enters into a firm commitment agreement,
liability for the purchase price -- and the rights and risks of ownership of the
securities -- accrues to the fund at the time it becomes obligated to purchase
such securities, although delivery and payment occur at a later date.
Accordingly, if the market price of the security should decline, the effect of
the agreement would be to obligate the fund to purchase the security at a price
above the current market price on the date of delivery and payment. During the
time the fund is obligated to purchase such securities, it will be required to
segregate assets. See "Segregated Accounts," below.
Securities Lending
Subject to investment restriction 8(a) (relating to loans of portfolio
securities) set forth above, the fund may lend its securities to brokers and
dealers that are not affiliated with TIAA-CREF Life Insurance Company, are
registered with the SEC and are members of the NASD, and also to certain other
financial institutions. All loans will be fully collateralized. In connection
with the lending of its securities, the fund will receive as collateral cash,
securities issued or guaranteed by the United States Government (i.e., Treasury
securities), or other collateral permitted by applicable law, which at all times
while the loan is outstanding will be maintained in amounts equal to at least
102% of the current market value of the loaned securities, or such lesser
percentage as may be permitted by the Securities and Exchange Commission (SEC)
(not to fall below 100% of the market value of the loaned securities), as
reviewed daily. By lending its securities, the fund will receive amounts equal
to the interest or dividends paid on the securities loaned and in addition will
expect to receive a portion of the income generated by the short-term investment
of cash received as collateral or, alternatively, where securities or a letter
of credit are used as collateral, a lending fee paid directly to the fund by the
borrower of the securities. Such loans will be terminable by the fund at any
time and will not be made to affiliates of TIAA. The fund may terminate a loan
of securities in order to regain record ownership of, and to exercise beneficial
rights related to, the loaned securities, including but not necessarily limited
to voting or subscription rights, and may, in the exercise of its fiduciary
duties, terminate a loan in the event that a vote of holders of those securities
is required on a material matter. The fund may pay reasonable fees to persons
unaffiliated with the fund for services or for arranging such loans. Loans of
securities will be made only to firms deemed creditworthy. As with any extension
of credit, however, there are risks of delay in
B-9
<PAGE> 21
recovering the loaned securities, or in liquidating collateral, should the
borrower of securities default, become the subject of bankruptcy proceedings, or
otherwise be unable to fulfill its obligations or fail financially.
Illiquid Securities
The fund can invest up to 15 percent of its assets in investments that may not
be readily marketable. It may be difficult to sell these investments for their
fair market value.
Repurchase Agreements
Repurchase agreements are one of several short-term vehicles the fund can use to
manage cash balances effectively. In a repurchase agreement, we buy an
underlying debt instrument on condition that the seller agrees to buy it back at
a fixed time (usually a relatively short period) and price. The period from
purchase to repurchase is usually no more than a week and never more than a
year. Repurchase agreements have the characteristics of loans, and will be fully
collateralized (either with physical securities or evidence of book entry
transfer to the account of the custodian bank) at all times. During the term of
the repurchase agreement, the fund retains the security subject to the
repurchase agreement as collateral securing the seller's repurchase obligation,
continually monitors the market value of the security subject to the agreement,
and requires the fund's seller to deposit with the fund additional collateral
equal to any amount by which the market value of the security subject to the
repurchase agreement falls below the resale amount provided under the repurchase
agreement. The fund will enter into repurchase agreements only with member banks
of the Federal Reserve System, and with primary dealers in United States
Government securities or their wholly-owned subsidiaries whose creditworthiness
has been reviewed and found satisfactory by Advisors and who have, therefore,
been determined to present minimal credit risk.
Securities underlying repurchase agreements will be limited to certificates of
deposit, commercial paper, bankers' acceptances, or obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities,
in which the fund entering into the agreement may otherwise invest.
If a seller of a repurchase agreement defaults and does not repurchase the
security subject to the agreement, the fund entering into the agreement would
look to the collateral security underlying the seller's repurchase agreement,
including the securities subject to the repurchase agreement, for satisfaction
of the seller's obligation to the fund; in such event the fund might incur
disposition costs in liquidating the collateral and might suffer a loss if the
value of the collateral declines. In addition, if bankruptcy proceedings are
instituted against a seller of a repurchase agreement, realization upon the
collateral may be delayed or limited.
Swap Transactions
The fund may, to the extent permitted by the SEC, enter into privately
negotiated "swap" transactions with other financial institutions in order to
take advantage of investment opportunities generally not available in public
markets. In general, these transactions involve "swapping" a return based on
certain securities, instruments, or financial indices with another party, such
as a commercial bank, in exchange for a return based on different securities,
instruments, or financial indices.
B-10
<PAGE> 22
By entering into a swap transaction, the fund may be able to protect the value
of a portion of its portfolio against declines in market value. The fund may
also enter into swap transactions to facilitate implementation of allocation
strategies between different market segments or countries or to take advantage
of market opportunities which may arise from time to time. The fund may be able
to enhance its overall performance if the return offered by the other party to
the swap transaction exceeds the return swapped by the fund. However, there can
be no assurance that the return the fund receives from the counterparty to the
swap transaction will exceed the return it swaps to that party.
While the fund will only enter into swap transactions with counterparties it
considers creditworthy (and will monitor the creditworthiness of parties with
which it enters into swap transactions), a risk inherent in swap transactions is
that the other party to the transaction may default on its obligations under the
swap agreement. If the other party to the swap transaction defaults on its
obligations, the fund entering into the agreement would be limited to the
agreement's contractual remedies. There can be no assurance that the fund will
succeed when pursuing its contractual remedies. To minimize the fund's exposure
in the event of default, it will usually enter into swap transactions on a net
basis (i.e., the parties to the transaction will net the payments payable to
each other before such payments are made). When the fund enters into swap
transactions on a net basis, the net amount of the excess, if any, of the fund's
obligations over its entitlements with respect to each such swap agreement will
be accrued on a daily basis and an amount of liquid assets having an aggregate
market value at least equal to the accrued excess will be segregated by the
fund's custodian. To the extent the fund enters into swap transactions other
than on a net basis, the amount segregated will be the full amount of the fund's
obligations, if any, with respect to each such swap agreement, accrued on a
daily basis. See "Segregated Accounts," below.
Swap agreements may be considered illiquid by the SEC staff and subject to the
limitations on illiquid investments. See "Illiquid Securities" above.
To the extent that there is an imperfect correlation between the return the fund
is obligated to swap and the securities or instruments representing such return,
the value of the swap transaction may be adversely affected. No fund therefore
will enter into a swap transaction unless it owns or has the right to acquire
the securities or instruments representative of the return it is obligated to
swap with the counterparty to the swap transaction. It is not the intention of
any fund to engage in swap transactions in a speculative manner but rather
primarily to hedge or manage the risks associated with assets held in, or to
facilitate the implementation of portfolio strategies of purchasing and selling
assets for, the fund.
Segregated Accounts
In connection with when-issued securities, firm commitment agreements, and
certain other transactions in which the fund incurs an obligation to make
payments in the future, the fund may be required to segregate assets with its
custodian bank in amounts sufficient to settle the transaction. To the extent
required, such segregated assets can consist of liquid assets, including equity
or other securities, or other instruments such as cash, United States Government
securities or other obligations as may be permitted by law.
B-11
<PAGE> 23
Investment Companies
The fund can invest up to 10 percent of its assets in other investment
companies.
Borrowing
The fund can borrow money from banks (no more than 33 1/3 percent of the market
value of its assets at the time of borrowing), rather than through the sale of
portfolio securities, when such borrowing appears more attractive for the fund.
It can also borrow money from other sources temporarily (no more than 5 percent
of the total market value of its assets at the time of borrowing), when, for
example, the fund needs to meet liquidity requirements caused by greater than
anticipated redemptions. See "Fundamental Policies" above.
Other Investment Techniques and Opportunities
The fund may take certain actions with respect to merger proposals, tender
offers, conversion of equity-related securities and other investment
opportunities with the objective of enhancing the portfolio's overall return,
regardless of how these actions may affect the weight of the particular
securities in the fund's portfolio. It is not our policy to select investments
based primarily on the possibility of one or more of these investment techniques
and opportunities being presented.
PORTFOLIO TURNOVER
The transactions the fund engages in are reflected in its portfolio turnover
rate. The rate of portfolio turnover is calculated by dividing the lesser of the
amount of purchases or sales of portfolio securities during the fiscal year by
the monthly average of the value of the fund's portfolio securities (excluding
from the computation all securities, including options, with maturities at the
time of acquisition of one year or less). A high rate of portfolio turnover
generally involves correspondingly greater brokerage commission expenses, which
must be borne directly by the fund and ultimately by the fund's shareholders.
However, because portfolio turnover is not a limiting factor in determining
whether or not to sell portfolio securities, a particular investment may be sold
at any time, if investment judgment or account operations make a sale advisable.
The fund does not have a fixed policy on portfolio turnover although, because a
higher portfolio turnover rate will increase brokerage costs, Advisors will
carefully weigh the added costs of short term investment against the gains
anticipated from such transactions.
MANAGEMENT OF THE FUND
THE BOARD
A Board of Trustees (the Board) oversees the TIAA-CREF Life Funds' business
affairs and is responsible for major decisions about its investment objective
and policies. The Board delegates the day-to-day management of the fund to
Advisors and its officers (see below). The Board meets periodically to review
the fund's activities, contractual arrangements with companies that provide
services to the fund, and the performance of the investment portfolio.
B-12
<PAGE> 24
TRUSTEES AND OFFICERS OF THE TIAA-CREF LIFE FUNDS
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AND ADDRESS* AGE WITH REGISTRANT PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------- --- ---------------- -------------------------------------------
<S> <C> <C> <C>
Laurence W. Franz 58 Trustee Vice President, Business and Finance, and
Canisius College Treasurer, Canisius College
2001 Main Street
Buffalo, New York 14208
Jeanmarie C. Grisi 39 Trustee Treasurer, Carnegie Corporation of New York
Carnegie Corporation (a philanthropic grantmaking foundation)
of New York
437 Madison Avenue
New York, New York 10022
Richard M. Norman 53 Trustee Vice President for Administration and
Rutgers University Associate Treasurer, Rutgers, The State
Old Queens Building, Room 101 University of New Jersey
Somerset-George Street
New Brunswick, New Jersey 08903
Thomas G. Walsh** 56 Chairman of the President, Teachers Personal Investors
Board and Services, Inc. ("TPIS"), since February
President 1994, and Executive Vice President, TIAA
and CREF
John J. McCormack** 54 Trustee and Executive Vice President, TIAA and CREF,
Executive Vice since November 1983 and President,
President TIAA-CREF Enterprises, since June 1998
Richard L. Gibbs 51 Executive Vice Executive Vice President, TIAA, CREF,
President TIAA-CREF Investment Management, LLC
("Investment Management") and TIAA-CREF
Individual & Institutional Services, Inc.
("Services"), since 1993
Peter C. Clapman 62 Senior Vice Senior Vice President and Chief Counsel,
President, Investments, TIAA and CREF
Secretary and
Chief Counsel,
Investments
Richard J. Adamski 56 Vice President Vice President and Treasurer, Investment
and Treasurer Management and Services, since January 1992
and TPIS, since 1994, and Vice President
and Treasurer, TIAA and CREF
</TABLE>
- ---------------
* The address for all officers of the TIAA-CREF Life Funds is 730 Third Avenue,
New York, New York 10017-3206.
** This Trustee is or may be an "interested person" within the meaning of the
Investment Company Act of
1940.
COMPENSATION OF TRUSTEES
Trustees who are not active officers of Teachers Insurance and Annuity
Association (TIAA) each receive a total of $5,000 per year, plus $1,000 for each
meeting of the Board of Trustees attended, for their service to both the
TIAA-CREF Life Funds and TIAA Separate Account VA-1 (the "Fund Complex").
B-13
<PAGE> 25
Compensation is allocated between the companies in the Fund Complex based on
assets. Trustees who are active officers of TIAA do not receive any additional
compensation for their services as trustees. (See "Advisors and TIAA" below).
The following table sets forth the compensation paid to the TIAA-CREF Life
Funds' trustees for the year ended December 31, 1998:
<TABLE>
<CAPTION>
(1) (2) (4) (5)
AGGREGATE (3) ESTIMATED
COMPENSATION PENSION OR RETIREMENT ANNUAL TOTAL
NAME OF PERSON, FROM TIAA-CREF BENEFITS ACCRUED AS BENEFITS UPON COMPENSATION FROM
POSITION LIFE FUNDS PART OF FUND EXPENSES RETIREMENT FUND COMPLEX**
--------------- -------------- --------------------- ------------- -----------------
<S> <C> <C> <C> <C>
Laurence W. Franz, $23 $-0- $-0- $5,500
Trustee
Jeanmarie C. $-0-* $-0- $-0-* $-0-
Grisi,
Trustee
Richard M. Norman, $23 $-0- $-0- $5,500
Trustee
</TABLE>
- ---------------
* Ms. Grisi has declined to accept compensation for her services.
** For purposes of this information, the Fund Complex consists of the TIAA-CREF
Life Funds and TIAA Separate Account VA-1.
CONTROL PERSONS
Teachers Insurance and Annuity Association (TIAA), as the contributor of the
initial capital for the TIAA-CREF Life Funds, owned 99.6% of the shares of the
fund as of December 31, 1998.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY SERVICES
As explained in the prospectus, investment advisory services and related
services for the TIAA-CREF Life Funds are provided by personnel of Advisors,
which is registered under the Investment Advisers Act of 1940. Advisors manages
the investment and reinvestment of the assets of the TIAA-CREF Life Funds,
subject to the direction and control of the TIAA-CREF Life Funds' Board of
Trustees. Advisors' will perform all research, make recommendations, and place
orders for the purchase and sale of securities. Advisors also provides for
portfolio accounting, custodial, and related services for the assets of the
TIAA-CREF Life Funds.
As described in the prospectus, the investment management agreement between
Advisors and the TIAA-CREF Life Funds provides for payment of an investment
advisory fee of 0.30% of net assets annually for managing the Stock Index Fund.
Currently, with Advisors waiving a portion of that fee, a daily deduction from
the net assets of the Stock Index Fund is made at an annual rate of 0.07% for
expenses related to the management of the assets of the Stock Index Fund.
ADVISORS AND TIAA
Advisors is a wholly-owned indirect subsidiary of TIAA. The main offices of both
TIAA and Advisors are at 730 Third Avenue, New York, New York 10017-3206. TIAA
is a stock life insurance company, organized under the laws of New York State.
It was founded on March 4, 1918, by the Carnegie
B-14
<PAGE> 26
Foundation for the Advancement of Teaching. TIAA is the companion organization
of the College Retirement Equities Fund (CREF), the first company in the United
States to issue a variable annuity. Together, TIAA and CREF form the principal
retirement system for the nation's education and research communities and the
largest retirement system in the world, based on assets under management.
TIAA-CREF serves approximately two million people. As of September 30, 1998,
TIAA's assets were approximately $100.3 billion; the combined assets for TIAA
and CREF totalled approximately $222.1 billion.
TIAA holds all of the shares of TIAA-CREF Enterprises, Inc., which in turn holds
all the shares of Advisors, TIAA-CREF Life Insurance Company, and Teachers
Personal Investors Services, Inc., the principal underwriter for the TIAA-CREF
Life Funds and the TIAA-CREF Life Insurance Company variable annuity contracts
funded by the TIAA-CREF Life Funds. TIAA also holds all the shares of TIAA-CREF
Investment Management, LLC ("Investment Management"). Investment Management
provides investment advisory services to the College Retirement Equities Fund,
TIAA's companion organization. All of the foregoing are affiliates of the
TIAA-CREF Life Funds and Advisors.
CUSTODIAN
The custodian for the assets of the fund is State Street Bank & Trust Company
("State Street"), 225 Franklin Street, Boston, Massachusetts 02209.
ADMINISTRATIVE SERVICES
Teachers Advisors has retained State Street to provide the TIAA-CREF Life Funds
with certain administrative services, including preparation of each fund's
federal, state and local tax returns, preparation of fund financial information,
and various other administrative services. Advisors, not the TIAA-CREF Life
Funds, has agreed to pay State Street a fee for such services.
AUDITORS
The financial statements of TIAA-CREF Life Funds are audited by Ernst & Young
LLP. The principal business address of Ernst & Young LLP is 787 Seventh Avenue,
New York, New York 10019.
FUND HISTORY AND DESCRIPTION OF THE FUND
TIAA-CREF Life Funds is a Delaware business trust organized on August 13, 1998,
and is registered with the U.S. Securities and Exchange Commission (SEC) as a
diversified "open-end" management investment company. It currently has only one
investment portfolio, the Stock Index Fund (fund). As a Delaware business trust,
the fund's operations are governed by its Declaration of Trust dated August 13,
1998, as amended (the Declaration). A copy of the fund's Certificate of Trust,
dated August 13, 1998, is on file with the Office of the Secretary of State of
the State of Delaware.
SHAREHOLDERS MEETINGS AND VOTING RIGHTS
Under the Declaration, the TIAA-CREF Life Funds are not required to hold annual
meetings to elect Trustees or for other purposes, and therefore, we do not
anticipate that the fund will hold shareholders' meetings unless required by
law. The TIAA-CREF Life Funds will be required to hold a meeting to
B-15
<PAGE> 27
elect Trustees to fill any existing vacancies on the Board if, at any time,
fewer than a majority of the Trustees have been elected by the shareholders of
the TIAA-CREF Life Funds.
With regard to matters for which the Investment Company Act of 1940 requires a
shareholder vote, the separate account which issues the variable contracts
funded by the TIAA-CREF Life Funds, as the legal owner of the TIAA-CREF Life
Funds shares, typically votes fund shares in accordance with instructions
received from contractowners (or annuitants or beneficiaries thereunder) having
a voting interest in the separate account. Shares held by the separate account
for which no instructions are received are generally voted by the separate
account for or against any proposition, or in abstention, in the same proportion
as the shares for which instructions have been received. You should refer to the
separate prospectus, which accompanies this prospectus, describing your contract
and the separate account, for more information on your voting rights.
SHARES
The fund is authorized to issue an unlimited number of shares of beneficial
interest in the fund, $.0001 par value. Shares are divided into and may be
issued in a designated series representing beneficial interests in one of the
fund's investment portfolios. There is currently one series of shares and one
investment portfolio.
Each share of a series issued and outstanding is entitled to participate equally
in dividends and distributions declared by such series and, upon liquidation or
dissolution, in net assets allocated to such series remaining after satisfaction
of outstanding liabilities. The shares of each series, when issued, will be
fully paid and non-assessable and have no preemptive or conversion rights.
Each share (including fractional shares) is entitled to one vote for each dollar
of net asset value represented by the share on all matters to which the holder
of that share is entitled to vote. The shares do not have cumulative voting
rights.
Teachers Insurance and Annuity Association of America (TIAA) provided the
initial capital for the fund by purchasing $25 million of shares of the Stock
Index Fund. A separate account of TIAA-CREF Life Insurance Company invested an
additional $100,000 in the fund. Such shares were acquired for investment and
can only be disposed of by redemption.
ADDITIONAL PORTFOLIOS
The TIAA-CREF Life Funds currently consists of a single investment portfolio, or
fund. Pursuant to the Declaration, the Trustees may establish additional
investment funds (technically "series" of shares).
B-16
<PAGE> 28
VALUATION OF ASSETS
The assets of the TIAA-CREF Life Funds are valued as of the close of each
valuation day in the following manner:
EQUITY SECURITIES
Investments for which market quotations are readily available are valued at the
market value of such investments, determined as follows:
Equity securities listed or traded on the New York Stock Exchange or the
American Stock Exchange are valued based on their last sale price on such
exchange on the date of valuation, or at the mean of the closing bid and asked
prices if no sale is reported. Equity securities which are listed or traded on
any other exchange are valued in a comparable manner on the principal exchange
where traded.
Equity securities traded in the United States over-the-counter market are valued
based on the last sale price on the date of valuation for NASDAQ National Market
System securities, or at the mean of the closing bid and asked prices if no sale
is reported. Other U.S. over-the-counter equity securities are valued at the
mean of the closing bid and asked prices.
Equity securities may be valued at fair value as determined in good faith under
the direction of the Board of Trustees if events materially affecting the value
of an investment (as determined in our sole discretion) occur between the time
when its price is determined and the time the fund's net asset value is
calculated.
MONEY MARKET INSTRUMENTS
Money market instruments for which market quotations are readily available are
valued based on the most recent bid price or the equivalent quoted yield for
such securities (or those of comparable maturity, quality, and type). Values for
money market instruments will be obtained either from one or more of the major
market makers or from one or more of the financial information services for the
securities to be valued.
OPTIONS
Portfolio investments underlying options are valued as described above. Stock
options written by the fund are valued at the last quoted sale price, or at the
closing bid price if no sale is reported for the day of valuation as determined
on the principal exchange on which the option is traded. The value of the fund's
net assets will be increased or decreased by the difference between the premiums
received on writing options and the costs of liquidating such positions measured
by the closing price of the options on the date of valuation.
For example, when the fund writes a call option, the amount of the premium is
included in the fund's assets and an equal amount is included in its
liabilities. The liability thereafter is adjusted to the current market value of
the call. Thus, if the current market value of the call exceeds the premium
received, the excess would be unrealized depreciation; conversely, if the
premium exceeds the current market value, such excess would be unrealized
appreciation. If a call expires or if the fund enters into a closing purchase
transaction it realizes a gain (or a loss if the cost of the transaction exceeds
the premium
B-17
<PAGE> 29
received when the call was written) without regard to any unrealized
appreciation or depreciation in the underlying securities, and the liability
related to such call is extinguished. If a call is exercised, the fund realizes
a gain or loss from the sale of the underlying securities and the proceeds of
the sale increased by the premium originally received.
A premium paid on the purchase of a put will be deducted from the fund's assets
and an equal amount will be included as an investment and subsequently adjusted
to the current market value of the put. For example, if the current market value
of the put exceeds the premium paid, the excess would be unrealized
appreciation; conversely, if the premium exceeds the current market value, such
excess would be unrealized depreciation.
Stock and bond index futures, and options thereon, which are traded on
commodities exchanges, are valued at their last sale prices as of the close of
such commodities exchanges.
INVESTMENTS FOR WHICH MARKET QUOTATIONS ARE NOT READILY AVAILABLE
Portfolio securities or other assets for which market quotations are not readily
available will be valued at fair value as determined in good faith under the
direction of the Board of Trustees.
BROKERAGE ALLOCATION
Advisors is responsible for decisions to buy and sell securities for the fund as
well as for selecting brokers and, where applicable, negotiating the amount of
the commission rate paid. It is the intention of Advisors to place brokerage
orders with the objective of obtaining the best execution, which includes such
factors as best price, research and available data. When purchasing or selling
securities traded on the over-the-counter market, Advisors generally will
execute the transactions with a broker engaged in making a market for such
securities. When Advisors deems the purchase or sale of a security to be in the
best interests of the fund, its personnel may, consistent with their fiduciary
obligations, decide either to buy or to sell a particular security for the fund
at the same time as for TIAA Separate Account VA-1, TIAA-CREF Mutual Funds or
any other investment account that it may be managing, or at the same time as for
a CREF account or other account that it may also be managing on behalf of
Investment Management, the other investment adviser affiliated with TIAA. In
that event, allocation of the securities purchased or sold, as well as the
expenses incurred in the transaction, will be made in an equitable manner.
Domestic brokerage commissions are negotiated, as there are no standard rates.
All brokerage firms provide the service of execution of the order made; some
brokerage firms also provide research and statistical data, and research reports
on particular companies and industries are customarily provided by brokerage
firms to large investors. In negotiating commissions, consideration is given by
Advisors to the quality of execution provided and to the use and value of the
data. The valuation of such data may be judged with reference to a particular
order or, alternatively, may be judged in terms of its value to the overall
management of the portfolio.
Advisors will place orders with brokers providing useful research and
statistical data services if reasonable commissions can be negotiated for the
total services furnished even though lower
B-18
<PAGE> 30
commissions may be available from brokers not providing such services. Advisors
follows guidelines established by the Board for the placing of orders with the
brokers providing such services.
Research or services obtained for the fund may be used by personnel of Advisors
in managing other investment company accounts, or the CREF accounts for
Investment Management. In such circumstances, the expenses incurred will be
allocated in an equitable manner consistent with the fiduciary obligations of
personnel of Advisors to the fund.
PERFORMANCE INFORMATION
From time to time, we will advertise the total return and average annual total
return of the fund. Total return is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Total return generally is
expressed as a percentage rate which is calculated by combining the income and
principal changes for a specified period and dividing by the net asset value per
share at the beginning of the period. Advertisements may include the percentage
rate of total return or may include the value of a hypothetical investment at
the end of the period, which assumes the application of the percentage rate of
total return.
Average annual total return is calculated pursuant to a standardized formula
which assumes that an investment in the fund was purchased with an initial
payment of $1,000 and that the investment was redeemed at the end of a stated
period of time, after giving effect to the reinvestment of dividends and
distributions during the period. The return is expressed as a percentage rate
which, if applied on a compounded annual basis, would result in the redeemable
value of the investment at the end of the period. Advertisements of the fund's
performance will include the fund's average annual total return for one-, five-
and ten-year periods (and occasionally other periods as well).
All performance figures are based on past investment results. They aren't a
guarantee that the fund will perform equally or similarly in the future. Write
or call us for current performance figures for the fund.
CALCULATION OF PERFORMANCE DATA
We may quote the fund's performance in various ways. All performance information
in advertising is historical and is not intended to indicate future returns. The
fund's share price, yield, and total return fluctuate in response to market
conditions and other factors, and the value of fund shares when redeemed may be
more or less than their original cost. Performance of the fund will be presented
net of any separate account fees and charges.
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the fund's returns,
including the effect of reinvesting dividends and capital gain distributions,
and any change in the fund's NAV over a stated period. Average annual returns
are calculated by determining the growth or decline in value of a hypothetical
historical investment in the fund over a stated period, and then calculating the
annually
B-19
<PAGE> 31
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period according to the
following formula:
<TABLE>
<S> <C> <C> <C>
P(1-T) to the nth power = ERV
where: P = the hypothetical initial payment
T = average annual total return
n = number of years in the period
ERV = ending redeemable value of the hypothetical payment
made at the beginning of the one-, five-, or 10-year
period at the end of the one-, five-, or 10-year
period (or fractional portion thereof).
</TABLE>
For example, a cumulative return of 100% over ten years would produce an average
annual return of 7.18%, which is the steady annual rate that would equal 100%
growth on a compounded basis in ten years. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that the fund's performance is not constant over time, but changes from year to
year, and that average annual returns represent averaged figures as opposed to
the actual year-to-year performance of the fund.
In addition to average annual returns, we may quote the fund's unaveraged or
cumulative total returns reflecting the actual change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, or a series of redemptions, over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted on a before or after tax basis. Total
returns, yields, and other performance information may be quoted numerically or
in a table, graph, or similar illustration.
PERFORMANCE COMPARISONS
Performance information for the fund may be compared in advertisements, sales
literature, and reports to Shareholders, to the performance information reported
by other investments and to various indices and averages. Such comparisons may
be made with, but are not limited to (1) Frank Russell Co. Inc. indices, (2) the
S&P 500, (3) the Dow Jones Industrial Average ("DJIA"), (4) Lipper Analytical
Services, Inc. Mutual Fund Performance Analysis Reports and the Lipper General
Equity Funds Average, (5) Money Magazine Fund Watch, (6) Business Week's Mutual
Fund Scoreboard, (7) SEI Funds Evaluation Services Equity Fund Report, (8) CDA
Mutual Funds Performance Review and CDA Growth Mutual Fund Performance Index,
(9) Value Line Composite Average (geometric), (10) Wilshire Associates indices,
(11) the Consumer Price Index, published by the U.S. Bureau of Labor Statistics
(measurement of inflation), (12) Morningstar, Inc., and (13) VARDS. We may also
discuss ratings or rankings received from these entities, accompanied in some
cases by an explanation of those ratings or rankings, when applicable. In
addition, advertisements may discuss the performance of the indices listed
above.
The performance of the fund also may be compared to other indices or averages
that measure performance of a pertinent group of securities. You should keep in
mind that the composition of the investments in the reported averages will not
be identical to that of the fund and that certain formula
B-20
<PAGE> 32
calculations (e.g., yield) may differ from index to index. In addition, there
can be no assurance that any of the funds will continue its performance as
compared to such indices.
We may also advertise ratings or rankings the fund receives from various rating
services and organizations, including but not limited to any organization listed
above.
The fund is not promoted, sponsored, endorsed, or sold by, nor affiliated with,
Frank Russell Company. Frank Russell Company is not responsible for and has not
reviewed the fund literature or publications and makes no representation or
warranty, express or implied, as to their accuracy, completeness, or otherwise.
Frank Russell Company reserves the right, at any time and without notice, to
change or terminate the Russell 3000 Index. Frank Russell Company has no
obligation to take the needs of the fund or the separate account contractowners
into consideration in determining the index. Frank Russell Company's publication
of the Russell 3000 Index in no way suggests or implies an opinion by Frank
Russell Company as to the attractiveness or appropriateness of investment in any
or all of the securities upon which the Index is based. Frank Russell Company
makes no representation, warranty, or guarantee as to the accuracy, completeness
or reliability of the Index or any data included in the Index. Frank Russell
Company makes no representation or warranty regarding the use, or the results of
use, of the Index or any securities comprising the Index. FRANK RUSSELL MAKES NO
EXPRESS OR IMPLIED WARRANTIES OF ANY KIND OR NATURE, INCLUDING WITHOUT
LIMITATION, WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO THE INDEX OR ANY DATA OR SECURITIES INCLUDED THEREIN.
ILLUSTRATING COMPOUNDING, TAX DEFERRAL, AND EXPENSE DEDUCTIONS
We may illustrate in advertisements, sales literature, and reports to
contractowners or annuitants the effects of tax deferral and/or compounding of
earnings on an investment in the TIAA-CREF Life Funds. We may do this using a
hypothetical investment earning a specified rate of return. To illustrate the
effects of compounding, we would show how the total return from an investment of
the same dollar amount, earning the same or different interest rate, varies
depending on when the investment was made. To illustrate the effects of tax
deferral, we will show how the total return from an investment of the same
dollar amount, earning the same or different interest rates, for individuals in
the same tax bracket, would vary between tax-deferred and taxable investments.
We may also illustrate in advertisements, sales literature, and reports to
contractowners or annuitants the effect of an investment fund's expenses on
total return over time. We may do this using a hypothetical investment earning a
specified rate of return. We would show how the total return, net of expenses,
from an investment of the same dollar amount in funds with the same investment
results but different expense deductions varies increasingly over time. In the
alternative, we would show the difference in the dollar amount of total expense
charges paid over time by an investor in two or more different funds that have
the same annual total return but different asset-based expense charges. We may
also compare the TIAA-CREF Life Funds' expense charges to those of other
investment products.
B-21
<PAGE> 33
NET ASSET VALUE
Charts and graphs using the fund's NAVs, adjusted NAVs, and benchmark indices
may be used to exhibit performance. An adjusted NAV includes any distributions
paid by the fund and reflects all elements of its return.
MOVING AVERAGES
We may illustrate the fund's performance using moving averages. A long-term
moving average is the average of each week's adjusted closing NAV for a
specified period. A short-term moving average is the average of each day's
adjusted closing NAV for a specified period. "Moving Average Activity
Indicators" combine adjusted closing NAVs from the last business day of each
week with moving averages for a specified period to produce indicators showing
when an NAV has crossed, stayed above, or stayed below its moving average.
TAX STATUS
Although the TIAA-CREF Life Funds are organized as a Delaware business trust,
neither the TIAA-CREF Life Funds nor the fund will be subject to any corporate
excise or franchise tax in the State of Delaware, nor will it be liable for
Delaware income taxes provided that the fund and any additional fund added
qualifies as a "regulated investment company" ("RIC") for federal income tax
purposes and satisfies certain income source requirements of Delaware law. If
the fund or any additional fund so qualifies and distributes all of its income
and capital gains, it will also be exempt from the New York State franchise tax
and the New York City general corporation tax, except for small minimum taxes.
The fund intends to qualify as a RIC under Subchapter M of the Code. In general,
to qualify as a RIC: (a) at least 90% of the gross income of the fund for the
taxable year must be derived from dividends, interest, payments with respect to
loans of securities, gains from the sale or other disposition of securities, or
other income derived with respect to its business of investing in securities;
(b) the fund must distribute to its shareholders 90% of its ordinary income and
net short-term capital gains. Moreover, undistributed net income may be subject
to tax at the RIC level; and (c) the fund must diversify its assets so that, at
the close of each quarter of its taxable year, (i) at least 50% of the fair
market value of its total (gross) assets is comprised of cash, cash items, U.S.
Government securities, securities of other regulated investment companies and
other securities limited in respect of any one issuer to no more than 5% of the
fair market value of the fund's total assets and 10% of the outstanding voting
securities of such issuer and (ii) no more than 25% of the fair market value of
its total assets is invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies) or of two or more issuers controlled by the fund and engaged in the
same, similar, or related trades or businesses.
If, in any taxable year, the fund should not qualify as a RIC under the Code:
(1) the fund would be taxed at normal corporate rates on the entire amount of
its taxable income without deduction for dividends or other distributions to its
shareholders, and (2) the fund's distributions to the extent made out of the
fund's current or accumulated earnings and profits would be taxable to its
shareholders (other
B-22
<PAGE> 34
than shareholders in tax deferred accounts) as ordinary dividends (regardless of
whether they would otherwise have been considered capital gains dividends), and
may qualify for the deduction for dividends received by corporations.
The fund must declare and distribute dividends equal to at least 98% of its
ordinary income (as of the twelve months ended December 31) and distributions of
at least 98% of its net capital gains (as of the twelve months ended October
31), in order to avoid a federal excise tax. The fund intends to make the
required distributions, but they cannot guarantee that they will do so.
Dividends attributable to the funds's ordinary income and capital gains
distributions are taxable as such to shareholders in the year in which they are
received except dividends declared in October, November or December and paid in
January. Dividends in the latter category are treated as paid on December 31.
A distribution of net capital gains reflects the fund's excess of net long-term
gains over its net short-term losses. The fund must designate income dividends
and distributions of net capital gains and must notify shareholders of these
designations within sixty days after the close of the fund's taxable year.
At the time of a share purchase, the fund's net asset value may reflect
undistributed income or net capital gains. A subsequent distribution to
shareholders of such amounts, although constituting a return of their
investment, would be taxable either as dividends or capital gain distributions.
For federal income tax purposes, the fund is permitted to carry forward its net
realized capital losses, if any, for eight years, and realize net capital gains
up to the amount of such losses without being required to pay taxes on, or
distribute such gains. If a shareholder held shares for six months or less and
during that period received a distribution taxable to such shareholder as a long
term capital gain, any loss realized on the sale of such shares during the six
month period would be a long term loss to the extent of such distribution.
This discussion of the tax treatment of the funds and their distributions is
based on the federal, Delaware and New York tax laws in effect as of the date of
this SAI. Shareholders should consult their tax advisers to determine the tax
treatment of an investment by him or her in any fund.
UNDERWRITERS
The shares of the TIAA-CREF Life Funds are offered continuously by Teachers
Personal Investors Services, Inc. (TPIS), which is registered with the SEC as a
broker-dealer and is a member of the NASD. TPIS may be considered the "principal
underwriter" for the shares of the fund. No commissions are paid in connection
with the distribution of the shares of the TIAA-CREF Life Funds. The principal
business address of TPIS is 730 Third Avenue, New York, New York 10017.
LEGAL MATTERS
All matters of applicable state law have been passed upon by Charles H. Stamm,
Executive Vice President and General Counsel of TIAA and CREF. Legal matters
relating to the federal securities laws have been passed upon by Sutherland,
Asbill & Brennan LLP, Washington, D.C.
EXPERTS
The financial statements of the TIAA-CREF Life Funds included in this Statement
of Additional Information have been audited by Ernst & Young LLP, independent
auditors, as stated in their report
B-23
<PAGE> 35
appearing herein, and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
OTHER INFORMATION
This Statement of Additional Information and the Prospectus for the fund do not
contain all the information set forth in the registration statement and exhibits
relating thereto (including the Declaration of Trust), which the fund has filed
with the SEC, to which reference is hereby made.
FINANCIAL STATEMENTS
The financial statements of the TIAA-CREF Life Funds follow.
B-24
<PAGE> 36
TIAA-CREF LIFE FUNDS--STOCK INDEX FUND
INDEX TO AUDITED FINANCIAL STATEMENTS
DECEMBER 14, 1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TIAA-CREF Life Funds--Stock Index Fund:
Report of Independent Auditors.............................. B-26
Statement of Assets and Liabilities......................... B-27
Notes to Statement of Assets and Liabilities................ B-28
Statement of Investments.................................... B-30
</TABLE>
B-25
<PAGE> 37
ERNST & YOUNG LLP LOGO 787 Seventh Avenue Phone: 212-773-3000
New York, New York 10019
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
the Stock Index Fund of TIAA-CREF Life Funds:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of the Stock Index Fund of TIAA-CREF Life Funds
(the "Fund") as of December 14, 1998. This statement of assets and liabilities
is the responsibility of the Fund's management. Our responsibility is to express
an opinion on the statement of assets and liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. Our procedures included confirmation of securities owned at
December 14, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of assets and
liabilities presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Stock Index
Fund of TIAA-CREF Life Funds at December 14, 1998, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
December 18, 1998
B-26
<PAGE> 38
TIAA-CREF LIFE FUNDS
STOCK INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 14, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at cost...................................... $27,103,020
Net unrealized depreciation of investments................ (1,001,448)
-----------
Investments, at value..................................... 26,101,572
Cash...................................................... 536
Dividends and interest receivable......................... 7,987
-----------
TOTAL ASSETS 26,110,095
-----------
LIABILITIES
Payable for securities transactions....................... 1,972,892
Accrued expenses.......................................... 642
-----------
TOTAL LIABILITIES 1,973,534
-----------
NET ASSETS.................................................. $24,136,561
===========
Net assets consist of:
Paid in capital........................................... $25,100,000
Accumulated undistributed net investment income........... 38,009
Accumulated net unrealized depreciation on investments.... (1,001,448)
-----------
NET ASSETS.................................................. $24,136,561
===========
NUMBER OF SHARES OUTSTANDING, $.0001 par value, unlimited
number of shares of beneficial interest authorized........ 1,004,000
---------
---------
NET ASSET VALUE PER SHARE................................... $24.04
------
------
</TABLE>
See notes to statement of assets and liabilities.
B-27
<PAGE> 39
TIAA-CREF LIFE FUNDS
STOCK INDEX FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
Note 1--Organization
TIAA-CREF Life Funds is a Delaware business trust that was organized on August
13, 1998 and is registered with the Securities and Exchange Commission (the
"Commission") under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company. It currently consists of
one series, the Stock Index Fund (the "Fund") which invests in a diversified
portfolio selected to track the overall market for common stocks publicly traded
in the United States, as represented by a broad stock market index. TIAA-CREF
Life Separate Account VA-1 (the "Account"), which is registered with the
Commission as a unit investment trust under the 1940 Act, invests in the Fund.
The Account is a separate investment account of TIAA-CREF Life Insurance Company
("TIAA-CREF Life") which commenced operations as a legal reserve life insurance
company under the insurance laws of the State of New York on December 18, 1996,
and is a wholly-owned indirect subsidiary of Teachers Insurance and Annuity
Association of America ("TIAA"), also a legal reserve life insurance company
established under the insurance laws of the State of New York in 1918.
The Fund commenced operations on December 1, 1998 when the Account purchased
4,000 shares at $25 per share, for a total of $100,000 and TIAA purchased
1,000,000 shares at $25 per share, for a total of $25,000,000. The Fund then
began to gradually invest its assets consistent with its stated investment
objective and policies. At December 14, 1998, the Account retained the 4,000
shares, with a total value of $96,160 and TIAA retained the 1,000,000 shares,
with a total value of $24,040,401.
Teachers Advisors, Inc. ("Advisors"), an indirect subsidiary of TIAA, which is
registered with the Commission as an investment adviser, provides investment
advisory services for the Fund pursuant to an Investment Management Agreement
between Advisors and the Fund.
Note 2--Significant Accounting Policies
The preparation of the statement of assets and liabilities may require
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities and related disclosures. Actual results may differ from
those estimates. The following is a summary of the significant accounting
policies consistently followed by the Fund, which are in conformity with
generally accepted accounting principles.
VALUATION OF INVESTMENTS: Securities listed or traded on any United States
national securities exchange are valued at the last sales 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.
Securities traded only in the over-the-counter market and quoted in the NASDAQ
National Market System are valued at the last sales price, or at the mean of the
last bid and asked prices if no sale is reported. All other over-the-counter
securities are valued at the mean of the last bid and asked prices. Short-term
money market instruments are stated at market value. Portfolio securities for
which market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Fund's Board of Trustees.
B-28
<PAGE> 40
TIAA-CREF LIFE FUNDS
STOCK INDEX FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES--(Concluded)
ACCOUNTING FOR INVESTMENTS: Securities transactions are accounted for as of the
date the securities are purchased or sold (trade date). Realized gains and
losses are based on the specific identification method for both financial
statement and federal income tax purposes. Interest income is recorded as earned
and, for short-term money market instruments, includes accrual of discount and
amortization of premium. Dividend income is recorded on the ex-dividend date.
FEDERAL INCOME TAXES: The Fund intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code and, as such, will not
be subject to federal income taxes to the extent that it distributes
substantially all taxable income each year.
Note 3--Management Agreement
Daily charges are deducted from the net assets of the Fund for investment
management services provided by Advisors. The Investment Management Agreement
sets the investment advisory fee at an annual rate of 0.30% of the average daily
net assets of the Fund. Currently, Advisors has agreed to waive a portion of
such fee, so that the daily deduction is equivalent to an annual charge of 0.07%
of the average daily net assets of the Fund.
Note 4--Investments
At December 14, 1998, net unrealized depreciation of investments was $1,001,448,
consisting of gross unrealized appreciation of $63,968 and gross unrealized
depreciation of $1,065,416. These amounts are not materially different from such
amounts on a federal income tax basis.
B-29
<PAGE> 41
TIAA-CREF LIFE FUNDS
STATEMENT OF INVESTMENTS--STOCK INDEX FUND
DECEMBER 14, 1998
SUMMARY BY INDUSTRY
<TABLE>
<CAPTION>
VALUE %
-------------- ------
<S> <C> <C>
COMMON STOCK
AGRICULTURAL PRODUCTION-CROPS...... $ 8,156.25 0.03%
AMUSEMENT AND RECREATION
SERVICES......................... 8,700.00 0.04
APPAREL AND ACCESSORY STORES....... 121,618.75 0.51
APPAREL AND OTHER TEXTILE
PRODUCTS......................... 23,025.00 0.10
AUTO REPAIR, SERVICES AND
PARKING.......................... 11,600.00 0.05
AUTOMOTIVE DEALERS AND SERVICE
STATIONS......................... 12,225.00 0.05
BUILDING MATERIALS AND GARDEN
SUPPLIES......................... 246,337.50 1.02
BUSINESS SERVICES.................. 1,545,887.50 6.41
CHEMICALS AND ALLIED PRODUCTS...... 3,358,231.25 13.92
COMMUNICATIONS..................... 2,327,318.75 9.64
DEPOSITORY INSTITUTIONS............ 2,050,512.50 8.50
EATING AND DRINKING PLACES......... 156,625.00 0.65
EDUCATIONAL SERVICES............... 12,393.75 0.05
ELECTRIC, GAS, AND SANITARY
SERVICES......................... 1,040,956.25 4.31
ELECTRONIC & OTHER ELECTRIC
EQUIPMENT........................ 2,102,993.75 8.71
ENGINEERING AND MANAGEMENT
SERVICES......................... 35,575.00 0.15
FABRICATED METAL PRODUCTS.......... 196,143.75 0.81
FOOD AND KINDRED PRODUCTS.......... 1,053,762.50 4.37
FOOD STORES........................ 181,190.63 0.75
FURNITURE AND FIXTURES............. 32,531.25 0.13
FURNITURE AND HOMEFURNISHING
STORES........................... 48,737.50 0.20
GENERAL BUILDING CONTRACTORS....... 27,712.50 0.12
GENERAL MERCHANDISE STORES......... 509,956.25 2.11
HEALTH SERVICES.................... 111,787.50 0.46
HOLDING AND OTHER INVESTMENT
OFFICES.......................... 186,587.50 0.77
HOTELS AND OTHER LODGING PLACES.... 40,143.75 0.17
INDUSTRIAL MACHINERY AND
EQUIPMENT........................ 1,789,456.25 7.41
INSTRUMENTS AND RELATED PRODUCTS... 503,968.75 2.09
</TABLE>
<TABLE>
<CAPTION>
VALUE %
-------------- ------
<S> <C> <C>
INSURANCE AGENTS, BROKERS AND
SERVICE.......................... $ 22,225.00 0.09%
INSURANCE CARRIERS................. 1,213,650.00 5.03
LOCAL AND INTERURBAN PASSENGER
TRANSIT.......................... 5,800.00 0.02
LUMBER AND WOOD PRODUCTS........... 46,275.00 0.19
METAL MINING....................... 25,287.50 0.10
MISCELLANEOUS MANUFACTURING
INDUSTRIES....................... 92,731.25 0.38
MISCELLANEOUS RETAIL............... 276,700.00 1.15
MOTION PICTURES.................... 170,956.25 0.71
NONDEPOSITORY INSTITUTIONS......... 542,293.75 2.25
NONMETALLIC MINERALS, EXCEPT
FUELS............................ 9,887.50 0.04
OIL AND GAS EXTRACTION............. 107,731.25 0.45
PAPER AND ALLIED PRODUCTS.......... 220,487.50 0.91
PERSONAL SERVICES.................. 51,137.50 0.21
PETROLEUM AND COAL PRODUCTS........ 1,156,900.00 4.79
PRIMARY METAL INDUSTRIES........... 73,306.25 0.30
PRINTING AND PUBLISHING............ 307,012.50 1.27
RAILROAD TRANSPORTATION............ 106,556.25 0.44
RUBBER AND MISCELLANEOUS PLASTIC
PRODUCTS......................... 131,834.38 0.55
SECURITY AND COMMODITY BROKERS..... 244,846.88 1.01
STONE, CLAY, AND GLASS PRODUCTS.... 30,900.00 0.13
TEXTILE MILL PRODUCTS.............. 9,625.00 0.04
TOBACCO PRODUCTS................... 340,050.00 1.41
TRANSPORTATION BY AIR.............. 112,418.75 0.47
TRANSPORTATION EQUIPMENT........... 751,831.25 3.11
TRANSPORTATION SERVICES............ 14,700.00 0.06
TRUCKING AND WAREHOUSING........... 2,600.00 0.01
WATER TRANSPORTATION............... 11,237.50 0.05
WHOLESALE TRADE-DURABLE GOODS...... 35,368.75 0.15
WHOLESALE TRADE-NONDURABLE GOODS... 172,087.50 0.71
-------------- ------
TOTAL COMMON STOCK
(Cost $25,032,019.59)............... 24,030,571.89 99.56
-------------- ------
</TABLE>
See notes to statement of assets and liabilities.
B-30
<PAGE> 42
TIAA-CREF LIFE FUNDS
STATEMENT OF INVESTMENTS--STOCK INDEX FUND
DECEMBER 14, 1998
SUMMARY BY INDUSTRY (CONCLUDED)
<TABLE>
<CAPTION>
VALUE %
-------------- ------
<S> <C> <C>
SHORT TERM INVESTMENTS
U.S. GOVERNMENT & AGENCIES......... $ 2,071,000.00 8.58%
-------------- ------
TOTAL SHORT TERM INVESTMENTS
(Cost $2,071,000.00)................ 2,071,000.00 8.58
-------------- ------
TOTAL PORTFOLIO (Cost
$27,103,019.59)..................... 26,101,571.89 108.14
-------------- ------
</TABLE>
<TABLE>
<CAPTION>
VALUE %
-------------- ------
<S> <C> <C>
OTHER ASSETS & LIABILITIES,
NET.............................. ($ 1,965,011.00) (8.14)%
-------------- ------
NET ASSETS........................... $24,136,560.89 100.00%
============== ======
</TABLE>
See notes to statement of assets and liabilities.
B-31
<PAGE> 43
TIAA-CREF LIFE FUNDS
STATEMENT OF INVESTMENTS--STOCK INDEX FUND
DECEMBER 14, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK--99.56%
AGRICULTURAL
PRODUCTION--CROPS--0.03%
300 PIONEER-HI-BRED INTERNATIONAL,
INC............................ $ 8,156.25
--------------
AMUSEMENT AND RECREATION
SERVICES--0.04%
600 * HARRAHS ENTERTAINMENT, INC.... 8,700.00
--------------
APPAREL AND ACCESSORY
STORES--0.51%
200 * ABERCROMBIE & FITCH CO (CLASS
A)............................. 11,500.00
200 * ANN TAYLOR STORES CORP........ 7,400.00
1,300 GAP, INC........................ 61,750.00
300 NORDSTROM, INC.................. 9,806.25
200 ROSS STORES, INC................ 6,600.00
1,000 TJX COS, INC.................... 24,562.50
--------------
121,618.75
--------------
APPAREL AND OTHER TEXTILE PRODUCTS--0.10%
400 * FRUIT OF THE LOOM, INC (CLASS
A)............................. 5,425.00
400 * JONES APPAREL GROUP, INC...... 8,400.00
200 VF CORP......................... 9,200.00
--------------
23,025.00
--------------
AUTO REPAIR, SERVICES AND PARKING--0.05%
100 HERTZ CORP (CLASS A)............ 3,762.50
300 RYDER SYSTEM, INC............... 7,837.50
--------------
11,600.00
--------------
AUTOMOTIVE DEALERS AND SERVICE
STATIONS--0.05%
400 AUTOZONE, INC................... 12,225.00
--------------
BUILDING MATERIALS AND GARDEN SUPPLIES--1.02%
200 * EAGLE HARDWARE & GARDEN,
INC............................ 5,675.00
3,900 HOME DEPOT, INC................. 198,412.50
1,000 LOWES COS, INC.................. 42,250.00
--------------
246,337.50
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
--------------
BUSINESS SERVICES--6.41%
300 * ACNEILSEN CORP................ $ 7,800.00
100 * ACXIOM CORP................... 2,343.75
100 * AMAZON.COM, INC............... 22,225.00
1,300 AMERICA ONLINE, INC............. 116,350.00
200 * AMERICAN MANAGEMENT SYSTEMS,
INC............................ 6,837.50
600 * ASCEND COMMUNICATIONS, INC.... 35,175.00
200 AUTODESK, INC................... 8,025.00
600 AUTOMATIC DATA PROCESSING,
INC............................ 44,812.50
600 * BMC SOFTWARE, INC............. 25,762.50
300 * CADENCE DESIGN SYSTEMS, INC... 7,575.00
100 * CHOICEPOINT, INC.............. 5,750.00
100 * CITRIX SYSTEMS, INC........... 7,856.25
100 * CMG INFORMATION SERVICES,
INC............................ 6,600.00
1,300 COMPUTER ASSOCIATES
INTERNATIONAL, INC............. 50,700.00
100 * COMPUTER HORIZONS CORP........ 2,018.75
300 * COMPUTER SCIENCES CORP........ 19,518.75
500 COMPUWARE CORP.................. 32,062.50
100 CSG SYSTEMS INTERNATIONAL,
INC............................ 6,756.25
1,000 ELECTRONIC DATA SYSTEMS CORP.... 43,187.50
300 * ELECTRONICS FOR IMAGING,
INC............................ 9,525.00
300 EQUIFAX, INC.................... 12,656.25
1,500 FIRST DATA CORP................. 37,687.50
400 GALILEO INTERNATIONAL,
INC............................ 15,900.00
300 * GTECH HOLDINGS CORP........... 6,956.25
1,500 HBO & CO........................ 36,750.00
300 * INTERIM SERVICES, INC......... 5,531.25
100 * INTERNATIONAL NETWORK
SERVICES....................... 5,262.50
300 INTERPUBLIC GROUP OF COS, INC... 19,725.00
100 * INTUIT, INC................... 6,362.50
300 * J.D.EDWARDS & CO.............. 7,237.50
300 * KEANE, INC.................... 9,150.00
400 * LEARNING CO, INC.............. 10,000.00
</TABLE>
See notes to statement of assets and liabilities.
B-32
<PAGE> 44
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
BUSINESS SERVICES--(continued)
100 * LYCOS, INC.................... $ 5,243.75
400 MANPOWER, INC................... 8,550.00
200 * MEDQUIST, INC................. 6,250.00
100 * METAMOR WORLDWIDE, INC........ 2,287.50
4,500 * MICROSOFT CORP................ 575,718.75
100 * MINDSPRING ENTERPRISES, INC... 5,887.50
200 * NETWORKS ASSOCIATES, INC...... 10,750.00
400 NIELSEN MEDIA RESEARCH.......... 6,400.00
900 * NOVELL, INC................... 15,187.50
300 OMNICOM GROUP, INC.............. 15,206.25
2,200 * ORACLE CORP................... 81,675.00
800 * PARAMETRIC TECHNOLOGY CORP.... 11,400.00
500 PAYCHEX, INC.................... 22,968.75
400 * PLATINUM TECHNOLOGY,
INC............................ 7,750.00
200 * POLICY MANAGEMENT SYSTEMS
CORP........................... 10,687.50
400 * RATIONAL SOFTWARE CORP........ 9,925.00
400 * ROBERT HALF INTERNATIONAL,
INC............................ 17,200.00
100 SEI INVESTMENT CO............... 9,312.50
300 * SIEBEL SYSTEMS, INC........... 7,668.75
200 * SNYDER COMMUNICATIONS, INC.... 5,900.00
200 * STRUCTURAL DYNAMICS RESEARCH
CORP........................... 3,525.00
300 TRUE NORTH COMMUNICATIONS,
INC............................ 7,481.25
200 * USCS INTERNATIONAL, INC....... 6,662.50
200 * VALASSIS COMMUNICATIONS,
INC............................ 8,825.00
100 * VERITAS SOFTWARE CORP......... 5,387.50
200 * YAHOO, INC.................... 38,250.00
200 * YOUNG & RUBICAM, INC.......... 5,687.50
--------------
1,545,887.50
--------------
CHEMICALS AND ALLIED
PRODUCTS--13.92%
3,900 ABBOTT LABORATORIES CO.......... 186,225.00
200 * AGOURON PHARMACEUTICALS,
INC............................ 9,725.00
900 AIR PRODUCTS & CHEMICALS, INC... 33,075.00
300 ALBERTO CULVER CO (CLASS B)..... 7,293.75
100 ALLERGAN, INC................... 6,200.00
200 ALPHARMA, INC (CLASS A)......... 6,650.00
</TABLE>
<TABLE>
<CAPTION>
CHEMICALS AND ALLIED
PRODUCTS--(continued)
SHARES VALUE
------ --------------
<C> <S> <C>
3,000 AMERICAN HOME PRODUCTS CORP..... $ 154,312.50
800 * AMGEN, INC.................... 65,000.00
200 AVON PRODUCTS, INC.............. 7,475.00
300 * BIOGEN, INC................... 24,750.00
2,400 BRISTOL MYERS SQUIBB CO......... 290,550.00
300 * CENTOCOR, INC................. 10,800.00
200 CLOROX CO....................... 22,550.00
600 COLGATE PALMOLIVE CO............ 49,725.00
400 CROMPTON & KNOWLES CORP......... 7,650.00
600 DOW CHEMICAL CO................. 55,875.00
2,700 DU PONT (E.I.) DE NEMOURS &
CO............................. 145,800.00
100 EASTMAN CHEMICAL CO............. 5,687.50
300 ENGELHARD CORP.................. 5,643.75
100 * FMC CORP...................... 5,475.00
700 HERCULES, INC................... 20,475.00
100 * ICOS CORP..................... 2,431.25
200 * IDEC PHARMACEUTICALS CORP..... 8,275.00
100 * IMMUNEX CORP.................. 9,712.50
200 INTERNATIONAL FLAVORS &
FRAGRANCES, INC................ 8,287.50
600 * IVAX CORP..................... 6,450.00
3,400 JOHNSON & JOHNSON CO............ 268,175.00
200 JONES PHARMACEUTICAL, INC....... 6,337.50
300 LAUDER (ESTEE) CO (CLASS A)..... 21,675.00
2,400 LILLY (ELI) & CO................ 210,450.00
300 LUBRIZOL CORP................... 7,650.00
400 MALLINCKRODT, INC............... 12,200.00
400 * MARK IV INDUSTRIES, INC....... 6,050.00
100 * MEDIMMUNE, INC................ 8,550.00
2,900 MERCK & CO, INC................. 422,312.50
400 MILLENNIUM CHEMICAL, INC........ 7,800.00
1,200 MONSANTO CO..................... 49,500.00
700 MORTON INTERNATIONAL, INC....... 18,768.75
700 MYLAN LABORATORIES, INC......... 18,900.00
200 OLIN CORP....................... 5,925.00
3,100 PFIZER, INC..................... 346,425.00
1,000 PHARMACIA & UPJOHN, INC......... 52,062.50
500 PPG INDUSTRIES, INC............. 28,437.50
500 PRAXAIR, INC.................... 17,687.50
3,400 PROCTER & GAMBLE CO............. 294,525.00
</TABLE>
See notes to statement of assets and liabilities.
B-33
<PAGE> 45
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
CHEMICALS AND ALLIED
PRODUCTS--(continued)
600 ROHM & HAAS CO.................. $ 19,837.50
3,500 SCHERING-PLOUGH CORP............ 187,468.75
300 SCHULMAN (A.), INC.............. 6,750.00
300 SHERWIN-WILLIAMS CO............. 8,343.75
400 SIGMA ALDRICH CORP.............. 11,425.00
2,100 WARNER-LAMBERT CO............... 154,481.25
200 * WATSON PHARMACEUTICALS, INC... 10,400.00
--------------
3,358,231.25
--------------
COMMUNICATIONS--9.64%
200 * ADELPHIA COMMUNICATIONS CORP
(CLASS A)...................... 7,525.00
1,400 * AIRTOUCH COMMUNICATIONS,
INC............................ 79,712.50
200 ALIANT COMMUNICATIONS, INC...... 6,050.00
500 ALLTEL CORP..................... 26,875.00
2,600 AMERITECH CORP.................. 147,225.00
100 * ASSOCIATED GROUP, INC (CLASS
A)............................. 3,643.75
4,500 AT & T CORP..................... 308,250.00
4,100 BELL ATLANTIC CORP.............. 219,350.00
2,500 BELLSOUTH CORP.................. 223,125.00
400 * CABLEVISION SYSTEMS CORP
(CLASS A)...................... 17,700.00
2,000 CBS CORP........................ 55,500.00
200 CENTURY TELEPHONE ENTERPRISES,
INC............................ 12,137.50
300 CINCINNATI BELL, INC............ 9,712.50
200 * CLEAR CHANNEL COMMUNICATIONS,
INC............................ 8,950.00
900 COMCAST CORP (CLASS A)
SPECIAL........................ 49,668.75
100 * EXODUS COMMUNICATIONS, INC.... 4,650.00
2,600 GTE CORP........................ 164,775.00
300 * HEARST-ARGYLE TELEVISION,
INC............................ 7,556.25
200 * HEFTEL BROADCASTING CORP
(CLASS A)...................... 8,812.50
300 * ICG COMMUNICATIONS, INC....... 6,225.00
1,100 * LEVEL 3 COMMUNICATIONS, INC... 37,125.00
600 * LIBERTY MEDIA GROUP (CLASS
A)............................. 23,400.00
4,400 * MCI WORLDCOM, INC............. 273,625.00
300 * MCLEODUSA, INC (CLASS A)...... 7,481.25
</TABLE>
<TABLE>
<CAPTION>
COMMUNICATIONS--(continued)
SHARES VALUE
------ --------------
<C> <S> <C>
1,100 * MEDIA ONE GROUP, INC.......... $ 41,731.25
300 * NEXTLINK COMMUNICATIONS,
INC............................ 7,800.00
200 * NTL, INC...................... 10,187.50
4,900 SBC COMMUNICATIONS, INC......... 235,812.50
400 * SKYTEL COMMUNICATIONS, INC.... 9,125.00
700 SPRINT CORP (FON GROUP)......... 53,987.50
1,000 * SPRINT CORP (PCS GROUP)....... 14,875.00
1,000 * TELE-COMMUNICATIONS, INC
(CLASS A)...................... 46,312.50
1,700 * TELECOM-TCI VENTURES GROUP
(CLASS A)...................... 33,468.75
1,400 U.S. WEST, INC.................. 83,387.50
200 * UNIVISION COMMUNICATIONS,
INC............................ 6,300.00
300 * U.S.A NETWORKS, INC........... 7,500.00
900 * VIACOM, INC (CLASS B)......... 59,906.25
400 * WESTERN WIRELESS CORP (CLASS
A)............................. 7,850.00
--------------
2,327,318.75
--------------
DEPOSITORY
INSTITUTIONS--8.50%
200 AMSOUTH BANCORP................. 8,187.50
300 ASSOCIATED BANC-CORP............ 10,181.25
300 ASTORIA FINANCIAL CORP.......... 13,125.00
300 BANCORPSOUTH, INC............... 5,418.75
200 BANCWEST CORP................... 8,600.00
1,600 BANK OF NEW YORK CO, INC........ 53,300.00
3,200 BANK ONE CORP................... 165,000.00
4,100 BANKAMERICA CORP................ 231,906.25
800 BANKBOSTON CORP................. 30,750.00
300 BANKERS TRUST CORP.............. 24,581.25
500 BB&T CORP....................... 18,750.00
100 CCB FINANCIAL CORP.............. 5,156.25
2,300 CHASE MANHATTAN CORP............ 135,556.25
500 COMERICA, INC................... 32,406.25
300 COMMUNITY FIRST
BANKSHARES, INC................ 5,962.50
400 COMPASS BANCSHARES, INC......... 14,950.00
100 CRESTAR FINANCIAL CORP.......... 6,681.25
100 CULLEN FROST BANKERS, INC....... 5,393.75
600 DIME BANCORP, INC............... 13,912.50
200 F.N.B. CORP..................... 5,500.00
600 FIFTH THIRD BANCORP............. 40,762.50
500 FIRST AMERICAN CORP............. 20,500.00
400 FIRST SECURITY CORP............. 8,275.00
500 FIRST TENNESSEE NATIONAL CORP... 16,531.25
</TABLE>
See notes to statement of assets and liabilities.
B-34
<PAGE> 46
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
DEPOSITORY
INSTITUTIONS--(continued)
2,500 FIRST UNION CORP................ $ 150,000.00
400 FIRSTAR CORP.................... 29,550.00
1,700 FLEET FINANCIAL GROUP, INC...... 66,406.25
200 FULTON FINANCIAL CORP........... 4,525.00
300 GOLDEN WEST FINANCIAL CORP...... 25,331.25
200 GREENPOINT FINANCIAL CORP....... 6,650.00
900 HIBERNIA CORP (CLASS A)......... 14,231.25
300 HUBCO, INC...................... 8,531.25
600 HUNTINGTON BANCSHARES, INC...... 17,175.00
1,600 KEYCORP......................... 49,300.00
2,200 MBNA CORP....................... 52,250.00
500 MELLON BANK CORP................ 32,468.75
600 MERCANTILE BANCORP, INC......... 27,337.50
400 MERCANTILE BANKSHARES CORP...... 13,950.00
300 MORGAN (J.P.) & CO, INC......... 29,100.00
1,000 NATIONAL CITY CORP.............. 66,562.50
800 NORTH FORK BANCORP, INC......... 16,000.00
100 NORTHERN TRUST CORP............. 7,868.75
200 ONE VALLEY BANCORP, INC......... 6,550.00
400 PACIFIC CENTURY FINANCIAL
CORP........................... 8,625.00
1,000 PNC BANK CORP................... 50,187.50
200 POPULAR, INC.................... 5,937.50
400 PROVIDIAN FINANCIAL CORP........ 35,975.00
700 REGIONS FINANCIAL CORP.......... 26,425.00
200 REPUBLIC NEW YORK CORP.......... 8,750.00
200 ROSLYN BANCORP, INC............. 3,612.50
700 SOUTHTRUST CORP................. 24,150.00
300 STATE STREET CORP............... 20,381.25
600 SUMMIT BANCORP.................. 25,050.00
700 SUNTRUST BANKS, INC............. 49,000.00
300 TCF FINANCIAL CORP.............. 6,956.25
200 TRUSTMARK CORP.................. 4,300.00
1,400 U.S. BANCORP.................... 46,637.50
100 U.S. TRUST CORP................. 6,437.50
400 UNION PLANTERS CORP............. 17,375.00
300 UST CORP........................ 6,525.00
400 WACHOVIA CORP................... 33,400.00
200 WASHINGTON FEDERAL, INC......... 4,800.00
1,100 WASHINGTON MUTUAL, INC.......... 36,162.50
3,600 WELLS FARGO CO.................. 124,650.00
--------------
2,050,512.50
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
EATING AND DRINKING PLACES--0.65%
300 BOB EVANS FARMS, INC............ $ 7,256.25
300 CKE RESTAURANTS, INC............ 8,887.50
800 DARDEN RESTAURANTS, INC......... 14,800.00
300 * FOODMAKER, INC................ 5,531.25
1,800 MCDONALDS CORP.................. 120,150.00
--------------
156,625.00
--------------
EDUCATIONAL
SERVICES--0.05%
200 * DEVRY, INC.................... 4,875.00
300 * SYLVAN LEARNING SYSTEMS,
INC............................ 7,518.75
--------------
12,393.75
--------------
ELECTRIC, GAS, AND SANITARY
SERVICES--4.31%
300 AGL RESOURCES, INC.............. 6,468.75
600 ALLEGHENY ENERGY, INC........... 19,950.00
500 * ALLIED WASTE INDUSTRIES,
INC............................ 10,187.50
600 AMEREN CORP..................... 25,050.00
700 AMERICAN ELECTRIC POWER CO,
INC............................ 32,943.75
100 ATMOS ENERGY CORP............... 2,925.00
700 BALTIMORE GAS & ELECTRIC CO..... 21,525.00
200 BEC ENERGY...................... 8,075.00
600 BROWNING FERRIS
INDUSTRIES, INC................ 17,925.00
300 * CALENERGY, INC................ 9,675.00
100 CAROLINA POWER & LIGHT CO....... 4,656.25
900 CENTRAL & SOUTH WEST CORP....... 24,862.50
200 CENTRAL HUDSON GAS & ELECTRIC
CORP........................... 8,450.00
700 CINERGY CORP.................... 24,237.50
700 COASTAL CORP.................... 22,050.00
400 COLUMBIA ENERGY GROUP........... 22,400.00
200 COMMONWEALTH ENERGY SYSTEM CO... 7,912.50
600 CONECTIV, INC................... 14,512.50
300 CONSOLIDATED EDISON CO OF N.Y.,
INC............................ 15,431.25
500 CONSOLIDATED NATURAL GAS CO..... 25,750.00
200 DOMINION RESOURCES, INC......... 9,237.50
600 DTE ENERGY CO................... 24,900.00
700 DUKE ENERGY CORP................ 43,137.50
200 EASTERN ENTERPRISES CO.......... 8,212.50
500 EDISON INTERNATIONAL CO......... 13,906.25
</TABLE>
See notes to statement of assets and liabilities.
B-35
<PAGE> 47
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
ELECTRIC, GAS, AND SANITARY
SERVICES--(continued)
200 EL PASO ENERGY CORP............. $ 6,062.50
200 ENTERGY CORP.................... 6,387.50
900 FIRSTENERGY CORP................ 27,956.25
200 FPL GROUP, INC.................. 12,475.00
600 GPU, INC........................ 26,325.00
200 HAWAIIAN ELECTRIC
INDUSTRIES, INC................ 7,850.00
600 HOUSTON INDUSTRIES, INC......... 19,762.50
200 IDACORP, INC.................... 7,025.00
400 ILLINOVA CORP................... 10,950.00
100 INDIANA ENERGY, INC............. 2,150.00
200 INTERSTATE ENERGY CORP.......... 6,200.00
300 KANSAS CITY POWER & LIGHT CO.... 8,756.25
400 MCN ENERGY GROUP, INC........... 7,425.00
200 NATIONAL FUEL GAS CO............ 9,162.50
300 NEVADA POWER CO................. 7,275.00
300 NEW ENGLAND ELECTRIC
SYSTEMS CO..................... 14,531.25
200 NICOR, INC...................... 8,087.50
800 NORTHERN STATES POWER CO........ 22,650.00
300 OGDEN CORP...................... 7,218.75
200 OGE ENERGY CORP................. 5,525.00
400 PECO ENERGY CO.................. 15,675.00
200 PEOPLES ENERGY CORP............. 7,487.50
1,200 PG&E CORP....................... 37,950.00
400 PINNACLE WEST CAPITAL CORP...... 17,025.00
700 POTOMAC ELECTRIC POWER CO....... 18,375.00
800 PP&L RESOURCES, INC............. 21,850.00
200 PUBLIC SERVICE ENTERPRISE GROUP,
INC............................ 7,900.00
300 PUGET SOUND ENERGY, INC......... 8,212.50
500 QUESTAR CORP.................... 8,937.50
300 ROCHESTER GAS & ELECTRIC CORP... 9,393.75
400 SCANA CORP...................... 12,725.00
1,000 SEMPRA ENERGY................... 25,250.00
200 SIERRA PACIFIC RESOURCES........ 7,087.50
1,300 SOUTHERN CO..................... 37,618.75
600 TEXAS UTILITIES CO.............. 28,200.00
300 UGI CORP........................ 6,975.00
600 UNICOM CORP..................... 23,137.50
300 UTILICORP UNITED, INC........... 10,725.00
300 WASHINGTON GAS LIGHT CO......... 7,762.50
400 WASHINGTON WATER POWER CO....... 7,550.00
</TABLE>
<TABLE>
<CAPTION>
ELECTRIC, GAS, AND SANITARY
SERVICES--(continued)
SHARES VALUE
------ --------------
<C> <S> <C>
1,200 WASTE MANAGEMENT, INC........... $ 52,275.00
500 WILLIAMS COS, INC............... 13,750.00
200 WPS RESOURCES CORP.............. 6,937.50
--------------
1,040,956.25
--------------
ELECTRONIC & OTHER ELECTRIC
EQUIPMENT--8.71%
400 * ADVANCED MICRO DEVICES, INC... 11,425.00
800 ALLEGHENY TELEDYNE, INC......... 15,100.00
200 * ALTERA CORP................... 10,637.50
500 * AMERICAN POWER
CONVERSION CORP................ 20,875.00
300 * ANALOG DEVICES, INC........... 7,537.50
500 * ANDREW CORP................... 8,812.50
600 * ATMEL CORP.................... 8,437.50
300 * CIENA CORP.................... 4,350.00
500 * CIRRUS LOGIC, INC............. 5,062.50
300 * COMVERSE TECHNOLOGY, INC...... 20,100.00
500 * CYPRESS SEMICONDUCTOR CORP.... 5,187.50
900 EMERSON ELECTRIC CO............. 54,787.50
8,300 GENERAL ELECTRIC CO............. 719,506.25
200 * GENERAL INSTRUMENT CORP....... 6,112.50
200 HARRIS CORP..................... 7,062.50
200 HUBBELL, INC (CLASS B).......... 7,587.50
4,300 INTEL CORP...................... 479,718.75
200 * JABIL CIRCUIT, INC............ 12,400.00
200 LINEAR TECHNOLOGY CO............ 14,887.50
3,100 LUCENT TECHNOLOGIES, INC........ 290,431.25
200 * MICROCHIP TECHNOLOGY, INC..... 7,487.50
300 * MICRON TECHNOLOGY, INC........ 14,362.50
400 MOLEX, INC...................... 14,100.00
1,700 MOTOROLA, INC................... 94,775.00
800 * NATIONAL SEMICONDUCTOR CORP... 11,100.00
100 * PLANTRONICS, INC.............. 6,850.00
300 * QUALCOMM, INC................. 14,737.50
100 * RAYOVAC CORP.................. 2,500.00
200 * SANMINA CORP.................. 10,106.25
200 * SCI SYSTEMS, INC.............. 9,800.00
400 * SOLECTRON CORP................ 27,400.00
600 * TELLABS, INC.................. 38,587.50
1,100 TEXAS INSTRUMENTS, INC.......... 86,693.75
300 THOMAS & BETTS CORP............. 12,543.75
500 U.S. INDUSTRIES, INC............ 8,562.50
200 * UCAR INTERNATIONAL, INC....... 3,125.00
</TABLE>
See notes to statement of assets and liabilities.
B-36
<PAGE> 48
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
ELECTRONIC & OTHER ELECTRIC
EQUIPMENT--(continued)
300 * VITESSE SEMICONDUCTOR CORP.... $ 13,593.75
200 WHIRLPOOL CORP.................. 11,162.50
100 * XILINX, INC................... 5,487.50
--------------
2,102,993.75
--------------
ENGINEERING AND MANAGEMENT
SERVICES--0.15%
200 * CATALYTICA, INC............... 3,450.00
200 * JACOBS ENGINEERING GROUP,
INC............................ 7,387.50
200 * METZLER GROUP, INC............ 7,937.50
300 * QUINTILES TRANSNATIONAL
CORP........................... 16,800.00
--------------
35,575.00
--------------
FABRICATED METAL
PRODUCTS--0.81%
200 CRANE CO........................ 5,600.00
2,800 GILLETTE CO..................... 116,025.00
1,200 MASCO CORP...................... 32,175.00\
600 PARKER-HANNIFIN CORP............ 18,637.50
200 POLARIS INDUSTRIES, INC......... 7,037.50
200 ROCKWELL INTERNATIONAL CORP..... 9,787.50
300 TOWER AUTOMOTIVE, INC........... 6,881.25
--------------
196,143.75
--------------
FOOD AND KINDRED
PRODUCTS--4.37%
1,300 ANHEUSER BUSCH COS, INC......... 80,762.50
1,200 ARCHER DANIELS MIDLAND CO....... 19,425.00
900 BESTFOODS, INC.................. 48,150.00
300 CAMPBELL SOUP CO................ 16,443.75
5,700 COCA COLA CO.................... 361,593.75
1,000 COCA COLA ENTERPRISES, INC...... 33,625.00
1,100 CONAGRA, INC.................... 35,268.75
300 CORN PRODUCTS
INTERNATIONAL, INC............. 8,062.50
200 DEAN FOODS CO................... 8,200.00
300 DOLE FOOD, INC.................. 8,831.25
300 EARTHGRAINS CO.................. 8,831.25
600 GENERAL MILLS, INC.............. 44,700.00
900 HEINZ (H.J.) CO................. 49,050.00
100 HERSHEY FOODS CORP.............. 6,312.50
200 HORMEL FOODS CORP............... 6,100.00
500 IBP, INC........................ 14,093.75
</TABLE>
<TABLE>
<CAPTION>
FOOD AND KINDRED
PRODUCTS--(continued)
SHARES VALUE
------ --------------
<C> <S> <C>
300 INTERSTATE BAKERIES CORP........ $ 7,518.75
200 * KEEBLER FOODS CO.............. 6,750.00
100 KELLOGG CO...................... 3,550.00
100 LANCASTER COLONY CORP........... 2,900.00
3,300 PEPSICO, INC.................... 122,306.25
400 QUAKER OATS CO.................. 24,050.00
1,000 RALSTON PURINA CO............... 33,125.00
600 RJR NABISCO HOLDINGS CORP....... 17,287.50
1,100 SARA LEE CORP................... 61,737.50
200 * SMITHFIELD FOODS, INC......... 5,650.00
100 TOOTSIE ROLL INDUSTRIES, INC.... 3,850.00
300 UNIVERSAL FOODS CORP............ 7,406.25
100 WRIGLEY (WM) JR CO.............. 8,181.25
--------------
1,053,762.50
--------------
FOOD STORES -- 0.75%
700 ALBERTSONS, INC................. 44,406.25
400 AMERICAN STORES CO.............. 14,700.00
1,500 FOOD LION, INC (CLASS B)........ 13,828.13
200 GREAT ATLANTIC & PACIFIC TEA CO,
INC............................ 5,862.50
500 * KROGER CO..................... 26,531.25
1,400 * SAFEWAY, INC.................. 75,862.50
--------------
181,190.63
--------------
FURNITURE AND FIXTURES--0.13%
300 JOHNSON CONTROLS, INC........... 16,687.50
300 KIMBALL INTERNATIONAL, INC
(CLASS B)...................... 5,718.75
500 MILLER (HERMAN), INC............ 10,125.00
--------------
32,531.25
--------------
FURNITURE AND HOMEFURNISHING
STORES--0.20%
700 * BED BATH & BEYOND, INC........ 20,168.75
100 * BEST BUY, INC................. 4,912.50
500 PIER 1 IMPORTS, INC............. 4,656.25
500 TANDY CORP...................... 19,000.00
--------------
48,737.50
--------------
GENERAL BUILDING
CONTRACTORS--0.12%
300 CENTEX CORP..................... 11,906.25
300 KAUFMAN & BROAD HOME CORP....... 8,643.75
300 LENNAR CORP..................... 7,162.50
--------------
27,712.50
--------------
</TABLE>
See notes to statement of assets and liabilities.
B-37
<PAGE> 49
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
GENERAL MERCHANDISE STORES--2.11%
200 * BJS WHOLESALE CLUB, INC....... $ 8,000.00
400 * COSTCO COS, INC............... 26,175.00
800 DAYTON HUDSON CORP.............. 37,350.00
700 DILLARDS, INC (CLASS A)......... 20,037.50
300 * DOLLAR TREE STORES, INC....... 11,606.25
700 * FEDERATED DEPARTMENT STORES,
INC............................ 28,043.75
100 * FRED MEYER, INC............... 5,112.50
1,900 * K MART CORP................... 26,125.00
200 * KOHLS CORP.................... 10,012.50
500 MAY DEPARTMENT STORES CO........ 29,250.00
300 PENNEY (J.C.) CO, INC........... 16,331.25
600 * SAKS, INC..................... 16,650.00
200 * SHOPKO STORES, INC............ 5,937.50
3,600 WAL-MART STORES, INC............ 269,325.00
--------------
509,956.25
--------------
HEALTH SERVICES--0.46%
900 COLUMBIA/HCA HEALTHCARE CORP.... 20,475.00
1,000 * HEALTH MANAGEMENT
ASSOCIATES, INC
(CLASS A) NEW.................. 19,875.00
1,600 * HEALTHSOUTH CORP.............. 21,000.00
200 * LINCARE HOLDINGS, INC......... 6,812.50
1,100 * MEDPARTNERS, INC.............. 5,362.50
100 * PEDIATRIX MEDICAL GROUP,
INC............................ 5,168.75
200 * RENAL CARE GROUP, INC......... 5,525.00
1,100 * TENET HEALTHCARE CORP......... 27,568.75
--------------
111,787.50
--------------
HOLDING AND OTHER
INVESTMENT OFFICES--0.77%
400 AMB PROPERTY CORP............... 8,625.00
200 ARCHSTONE COMMUNITIES TRUST..... 4,050.00
200 CENTERPOINT PROPERTIES CORP..... 6,762.50
100 DEVELOPERS DIVERSIFIED
REALTY CORP.................... 1,787.50
500 DUKE REALTY INVESTMENTS, INC.... 11,406.25
1,100 EQUITY OFFICE PROPERTIES
TRUST.......................... 27,293.75
100 EQUITY RESIDENTIAL
PROPERTIES TRUST CO............ 4,168.75
300 FEDERAL REALTY
INVESTMENT TRUST............... 7,237.50
</TABLE>
<TABLE>
<CAPTION>
HOLDING AND OTHER
INVESTMENT
OFFICES--(continued)
SHARES VALUE
------ --------------
<C> <S> <C>
200 FRANCHISE FINANCE CORP OF
AMERICA........................ $ 4,825.00
200 GENERAL GROWTH
PROPERTIES, INC................ 7,337.50
200 KIMCO REALTY CORP............... 7,662.50
400 LIBERTY PROPERTY TRUST CO....... 9,750.00
100 MACERICH CO (THE)............... 2,562.50
200 MACK-CALI REALTY CORP........... 6,150.00
300 MERISTAR HOSPITALITY CORP....... 6,000.00
500 NEW PLAN EXCEL REALTY TRUST..... 11,500.00
200 POST PROPERTIES, INC............ 7,650.00
400 PUBLIC STORAGE, INC............. 10,925.00
300 RECKSON ASSOCIATES REALTY
CORP........................... 6,600.00
100 SHURGARD STORAGE CENTERS, INC... 2,625.00
200 STARWOOD FINANCIAL TRUST........ 11,800.00
300 VORNADO REALTY TRUST............ 10,668.75
200 WEINGARTEN REALTY
INVESTORS, INC................. 9,200.00
--------------
186,587.50
--------------
HOTELS AND OTHER LODGING
PLACES--0.17%
1,300 * CENDANT CORP.................. 23,562.50
400 * EXTENDED STAY AMERICA, INC.... 3,700.00
900 * HOST MARRIOTT CORP............ 12,881.25
--------------
40,143.75
--------------
INDUSTRIAL MACHINERY AND
EQUIPMENT--7.41%
1,200 * 3COM CORP..................... 50,925.00
500 * ADAPTEC, INC.................. 9,031.25
200 * AMERICAN STANDARD COS, INC.... 6,287.50
800 * APPLE COMPUTER, INC........... 26,000.00
1,200 * APPLIED MATERIALS, INC........ 46,950.00
200 * APPLIED POWER, INC
(CLASS A)...................... 6,662.50
700 BAKER HUGHES, INC............... 11,768.75
100 BLACK & DECKER CORP............. 5,287.50
600 CATERPILLAR, INC................ 27,750.00
4,000 * CISCO SYSTEMS, INC............ 321,500.00
300 * COLTEC INDUSTRIES, INC........ 5,006.25
3,900 COMPAQ COMPUTER CORP............ 159,412.50
200 CUMMINS ENGINE CO, INC.......... 6,925.00
200 DEERE & CO...................... 6,200.00
</TABLE>
See notes to statement of assets and liabilities.
B-38
<PAGE> 50
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
INDUSTRIAL MACHINERY AND
EQUIPMENT--(continued)
2,700 * DELL COMPUTER CORP............ $ 174,825.00
400 DIEBOLD, INC.................... 13,250.00
200 DOVER CORP...................... 6,912.50
1,400 * EMC CORP...................... 109,200.00
200 FOSTER WHEELER CORP............. 3,262.50
2,100 HEWLETT-PACKARD CO.............. 133,350.00
400 INGERSOLL-RAND CO............... 17,475.00
2,200 INTERNATIONAL BUSINESS
MACHINES CORP.................. 358,325.00
200 * LEXMARK INTERNATIONAL GROUP
(CLASS A)...................... 16,500.00
300 MILACRON, INC................... 5,887.50
100 NACCO INDUSTRIES, INC (CLASS
A)............................. 8,900.00
200 * NOVELLUS SYSTEMS, INC......... 9,525.00
600 PALL CORP....................... 14,437.50
500 PITNEY BOWES, INC............... 30,500.00
300 * QUANTUM CORP.................. 6,168.75
700 * SEAGATE TECHNOLOGY, INC....... 21,350.00
500 * SILICON GRAPHICS, INC......... 6,656.25
500 * STORAGE TECHNOLOGY CORP....... 16,093.75
900 * SUN MICROSYSTEMS, INC......... 68,625.00
200 SYMBOL TECHNOLOGIES, INC........ 10,750.00
100 TECUMSEH PRODUCTS CO (CLASS
A)............................. 4,743.75
600 TENNECO, INC.................... 20,625.00
300 TIMKEN CO....................... 5,287.50
400 * U.S. FILTER CORP.............. 8,650.00
300 * UNISYS CORP................... 9,093.75
200 * VISUAL NETWORKS, INC.......... 6,175.00
300 * XYLAN CORP.................... 5,381.25
200 YORK INTERNATIONAL CORP......... 7,800.00
--------------
1,789,456.25
--------------
INSTRUMENTS AND RELATED
PRODUCTS--2.09%
200 * ARTERIAL VASCULAR
ENGINEERING, INC............... 9,800.00
100 BAUSCH & LOMB, INC.............. 5,625.00
500 BAXTER INTERNATIONAL, INC....... 31,281.25
100 BECKMAN COULTER, INC............ 4,881.25
400 BECTON DICKINSON & CO........... 15,425.00
100 * BOSTON SCIENTIFIC CORP........ 2,556.25
200 DENTSPLY INTERNATIONAL, INC..... 4,987.50
1,000 EASTMAN KODAK CO................ 70,875.00
500 GUIDANT CORP.................... 46,093.75
300 HON INDUSTRIES, INC............. 6,600.00
500 HONEYWELL, INC.................. 38,218.75
</TABLE>
<TABLE>
<CAPTION>
INSTRUMENTS AND RELATED
PRODUCTS--(continued)
SHARES VALUE
------ --------------
<C> <S> <C>
1,400 MEDTRONIC, INC.................. $ 95,112.50
300 * METTLER-TOLEDO
INTERNATIONAL, INC............. 7,518.75
300 POLAROID CORP................... 5,700.00
600 RAYTHEON CO (CLASS B)........... 31,387.50
200 SNAP-ON, INC.................... 6,550.00
100 * SOFAMOR DANEK GROUP, INC...... 11,350.00
600 * ST. JUDE MEDICAL, INC......... 18,375.00
300 TEKTRONIX, INC.................. 7,331.25
100 TELEFLEX, INC................... 4,075.00
100 * VISX, INC..................... 7,425.00
700 XEROX CORP...................... 72,800.00
--------------
503,968.75
--------------
INSURANCE AGENTS, BROKERS AND
SERVICE--0.09%
400 MARSH & MCLENNAN COS, INC....... 22,225.00
--------------
INSURANCE CARRIERS--5.03%
300 AETNA, INC...................... 23,175.00
1,100 AFLAC, INC...................... 40,700.00
100 ALLMERICA FINANCIAL CORP........ 5,450.00
2,200 ALLSTATE CORP................... 82,912.50
100 AMBAC FINANCIAL GROUP, INC...... 5,218.75
200 AMERICAN FINANCIAL GROUP, INC... 7,425.00
500 AMERICAN GENERAL CORP........... 34,312.50
2,700 AMERICAN INTERNATIONAL GROUP,
INC............................ 235,575.00
100 AON CORP........................ 5,525.00
300 CHUBB CORP...................... 19,800.00
700 CIGNA CORP...................... 50,706.25
400 CINCINNATI FINANCIAL CORP....... 13,950.00
5,400 CITIGROUP, INC.................. 248,737.50
100 CMAC INVESTMENT CORP............ 4,362.50
200 COMMERCE GROUP, INC............. 6,625.00
600 CONSECO, INC.................... 18,075.00
100 ENHANCE FINANCIAL
SERVICES GROUP, INC............ 2,725.00
400 EQUITALE COS, INC............... 19,125.00
200 EVEREST REINSURANCE HOLDINGS,
INC............................ 6,700.00
200 FIDELITY NATIONAL
FINANCIAL, INC................. 5,950.00
300 FIRST AMERICAN FINANCIAL CORP... 9,168.75
400 FREMONT GENERAL CORP............ 9,050.00
100 GENERAL REINSURANCE CORP........ 21,581.25
</TABLE>
See notes to statement of assets and liabilities.
B-39
<PAGE> 51
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
INSURANCE CARRIERS--(continued)
300 HARTFORD FINANCIAL
SERVICES GROUP, INC............ $ 15,843.75
100 HARTFORD LIFE, INC
(CLASS A)...................... 5,143.75
500 JEFFERSON-PILOT CORP............ 34,093.75
100 LANDAMERICA FINANCIAL GROUP,
INC............................ 5,712.50
300 LINCOLN NATIONAL CORP........... 24,168.75
300 LOEWS CORP...................... 28,556.25
100 MBIA, INC....................... 6,225.00
600 MGIC INVESTMENT CORP............ 21,375.00
500 * OXFORD HEALTH PLANS, INC...... 6,500.00
300 * PACIFICARE HEALTH SYSTEMS, INC
(CLASS B)...................... 22,687.50
100 PMI GROUP, INC.................. 5,068.75
200 PROGRESSIVE CORP................ 27,900.00
200 PROTECTIVE LIFE CORP............ 6,825.00
100 REINSURANCE GROUP OF AMERICA,
INC............................ 6,775.00
200 RELIASTAR FINANCIAL CORP........ 8,575.00
100 SAFECO CORP..................... 4,093.75
200 ST. PAUL COS, INC............... 6,950.00
300 SUNAMERICA, INC................. 22,106.25
200 TORCHMARK CORP.................. 7,025.00
200 TRAVELERS PROPERTY
CASUALTY CORP.................. 5,750.00
700 UNITED HEALTHCARE CORP.......... 30,100.00
500 UNUM CORP....................... 27,250.00
100 * WELLPOINT HEALTH
NETWORKS, INC.................. 8,075.00
--------------
1,213,650.00
--------------
LOCAL AND INTERURBAN
PASSENGER TRANSIT--0.02%
200 * COACH U.S.A., INC............. 5,800.00
--------------
LUMBER AND WOOD PRODUCTS--0.19%
300 * CHAMPION ENTERPRISES, INC..... 6,937.50
600 CLAYTON HOMES, INC.............. 7,462.50
400 GEORGIA-PACIFIC CORP
(PACKAGING GROUP).............. 22,475.00
200 WEYERHAEUSER CO................. 9,400.00
--------------
46,275.00
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
METAL MINING--0.10%
600 CYPRUS AMAX MINERALS CO......... $ 5,850.00
800 FREEPORT-MCMORAN COPPER & GOLD,
INC (CLASS B).................. 8,550.00
200 NEWMONT MINING CORP............. 3,650.00
200 * STILLWATER MINING CO.......... 7,237.50
--------------
25,287.50
--------------
MISCELLANEOUS
MANUFACTURING INDUSTRIES--0.38%
300 JOSTENS, INC.................... 7,293.75
500 MATTEL, INC..................... 11,000.00
1,000 MINNESOTA MINING &
MANUFACTURING CO............... 74,437.50
--------------
92,731.25
--------------
MISCELLANEOUS
RETAIL--1.15%
1,000 CVS CORP........................ 52,000.00
500 * OFFICE DEPOT, INC............. 14,718.75
500 OMNICARE, INC................... 13,218.75
300 RITE AID CORP................... 12,356.25
1,100 SEARS ROEBUCK & CO.............. 44,825.00
1,000 * STAPLES, INC.................. 37,312.50
900 * TOYS R US, INC................ 15,637.50
1,400 WALGREEN CO..................... 77,875.00
300 * ZALE CORP..................... 8,756.25
--------------
276,700.00
--------------
MOTION PICTURES--0.71%
5,500 DISNEY (WALT) CO................ 168,093.75
100 * HOLLYWOOD ENTERTAINMENT
CORP........................... 2,862.50
--------------
170,956.25
--------------
NONDEPOSITORY
INSTITUTIONS--2.25%
1,200 AMERICAN EXPRESS CO............. 109,800.00
300 * AMERICREDIT CORP.............. 3,693.75
900 ASSOCIATES FIRST CAPITAL CORP... 65,137.50
200 CAPITAL ONE FINANCIAL CORP...... 20,337.50
100 COUNTRYWIDE CREDIT
INDUSTRIES, INC................ 4,487.50
2,700 FEDERAL NATIONAL MORTGAGE
ASSOCIATION.................... 181,575.00
100 FINOVA GROUP, INC............... 5,106.25
1,900 FREDDIE MAC..................... 109,250.00
800 HOUSEHOLD INTERNATIONAL, INC.... 25,450.00
</TABLE>
See notes to statement of assets and liabilities.
B-40
<PAGE> 52
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
NONDEPOSITORY
INSTITUTIONS--(continued)
300 * LEUCADIA NATIONAL CORP........ $ 8,606.25
200 SLM HOLDING CORP................ 8,850.00
--------------
542,293.75
--------------
NONMETALLIC MINERALS, EXCEPT
FUELS--0.04%
200 MARTIN MARIETTA MATERIALS,
INC............................ 9,887.50
--------------
OIL AND GAS EXTRACTION--0.45%
500 APACHE CORP..................... 11,468.75
300 DIAMOND OFFSHORE DRILLING,
INC............................ 7,237.50
800 ENSCO INTERNATIONAL, INC........ 7,450.00
1,100 HALLIBURTON CO.................. 35,475.00
200 KERR-MCGEE CORP................. 7,250.00
600 PIONEER NATURAL RESOURCES CO.... 5,250.00
400 * ROWAN COS, INC................ 4,125.00
300 TRANSOCEAN OFFSHORE, INC ....... 7,837.50
1,400 UNION PACIFIC RESOURCES GROUP,
INC............................ 13,125.00
200 VASTAR RESOURCES, INC........... 8,512.50
--------------
107,731.25
--------------
PAPER AND ALLIED PRODUCTS--0.91%
300 BOISE CASCADE CORP.............. 8,962.50
500 CHAMPION INTERNATIONAL CORP..... 19,812.50
1,000 FORT JAMES CORP................. 36,875.00
800 INTERNATIONAL PAPER CO.......... 33,250.00
1,400 KIMBERLY-CLARK CORP............. 72,100.00
100 PENTAIR, INC.................... 3,625.00
100 ST. JOE CORP.................... 2,381.25
100 TEMPLE-INLAND, INC.............. 5,256.25
400 UNION CAMP CORP................. 25,350.00
400 WILLAMETTE INDUSTRIES, INC ..... 12,875.00
--------------
220,487.50
--------------
PERSONAL SERVICES--0.21%
400 BLOCK (H&R), INC................ 16,250.00
200 CINTAS CORP..................... 11,800.00
</TABLE>
<TABLE>
<CAPTION>
PERSONAL SERVICES--(continued)
SHARES VALUE
------ --------------
<C> <S> <C>
200 NATIONAL SERVICE INDUSTRIES,
INC............................ $ 7,050.00
200 SERVICE CORP INTERNATIONAL...... 7,362.50
400 STEWART ENTERPRISES, INC (CLASS
A)............................. 8,675.00
--------------
51,137.50
--------------
PETROLEUM AND COAL
PRODUCTS--4.79%
2,100 AMOCO CORP...................... 114,581.25
400 ASHLAND, INC.................... 19,575.00
700 ATLANTIC RICHFIELD CO........... 45,543.75
1,700 CHEVRON CORP.................... 145,668.75
6,200 EXXON CORP...................... 461,512.50
2,000 MOBIL CORP...................... 178,750.00
200 MURPHY OIL CORP................. 7,712.50
200 PENNZOIL CO..................... 7,000.00
800 PHILLIPS PETROLEUM CO........... 32,700.00
500 SUNOCO, INC..................... 15,500.00
1,500 TEXACO, INC..................... 82,781.25
800 TOSCO CORP...................... 18,800.00
500 ULTRAMAR DIAMOND SHAMROCK
CORP........................... 12,343.75
200 UNOCAL CORP..................... 6,125.00
300 USX-MARATHON GROUP, INC......... 8,306.25
--------------
1,156,900.00
--------------
PRIMARY METAL INDUSTRIES--0.30%
300 ALUMINUM CO OF AMERICA.......... 21,881.25
100 * CABLE DESIGN TECHNOLOGIES
CO............................. 2,075.00
200 CARPENTER TECHNOLOGY CORP....... 6,400.00
100 * MAXXAM, INC................... 5,462.50
200 * MUELLER INDUSTRIES, INC....... 3,862.50
600 NUCOR CORP...................... 24,750.00
400 USX-US STEEL GROUP, INC......... 8,875.00
--------------
73,306.25
--------------
PRINTING AND PUBLISHING--1.27%
500 BELO (A.H.) CORP SERIES A....... 8,843.75
100 CENTRAL NEWSPAPERS, INC (CLASS
A)............................. 6,700.00
600 DELUXE CORP..................... 21,150.00
300 DOW JONES & CO, INC............. 13,931.25
1,000 GANNETT CO, INC................. 61,125.00
200 KNIGHT-RIDDER, INC.............. 9,837.50
</TABLE>
See notes to statement of assets and liabilities.
B-41
<PAGE> 53
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
PRINTING AND
PUBLISHING--(continued)
300 LEE ENTERPRISES, INC............ $ 8,550.00
100 MCGRAW HILL COS, INC............ 9,606.25
400 REYNOLDS & REYNOLDS CO (CLASS
A)............................. 8,450.00
1,100 TIME WARNER, INC................ 119,900.00
500 TRIBUNE CO...................... 30,593.75
300 * WORLD COLOR PRESS, INC........ 8,325.00
--------------
307,012.50
--------------
RAILROAD TRANSPORTATION--0.44%
1,500 BURLINGTON NORTHERN SANTA FE
CORP........................... 49,218.75
200 CSX CORP........................ 8,312.50
400 NORFOLK SOUTHERN CORP........... 12,525.00
800 UNION PACIFIC CORP.............. 36,500.00
--------------
106,556.25
--------------
RUBBER AND MISCELLANEOUS PLASTIC
PRODUCTS--0.55%
100 APTARGROUP, INC................. 2,693.75
100 ARMSTRONG WORLD INDUSTRIES,
INC............................ 6,631.25
200 FIRST BRANDS CORP............... 7,800.00
400 GOODRICH (B.F.) CO.............. 13,200.00
100 GOODYEAR TIRE & RUBBER CO ...... 5,456.25
500 ILLINOIS TOOL WORKS, INC........ 28,562.50
500 NIKE, INC (CLASS B)............. 19,062.50
300 PREMARK INTERNATIONAL, INC...... 9,900.00
400 RAYCHEM CORP.................... 12,650.00
300 * SAFESKIN CORP................. 5,728.13
600 SOLUTIA, INC.................... 13,500.00
400 TUPPERWARE CORP................. 6,650.00
--------------
131,834.38
--------------
SECURITY AND COMMODITY
BROKERS--1.01%
200 * AFFILIATED MANAGERS GROUP,
INC............................ 5,487.50
200 BEAR STEARNS COS, INC........... 7,225.00
100 DONALDSON, LUFKIN, & JENRETTE,
INC............................ 3,350.00
500 EDWARDS (A.G.), INC............. 16,406.25
600 LEHMAN BROTHERS HOLDINGS, INC... 24,450.00
700 MERRILL LYNCH & CO, INC......... 43,312.50
</TABLE>
<TABLE>
<CAPTION>
SECURITY AND COMMODITY
BROKERS--(continued)
SHARES VALUE
------ --------------
<C> <S> <C>
1,500 MORGAN STANLEY, DEAN WITTER, &
CO............................. $ 93,468.75
100 PRICE (T. ROWE) ASSOCIATES,
INC............................ 3,462.50
200 RAYMOND JAMES FINANCIAL CORP.... 4,175.00
1,050 SCHWAB (CHARLES) CORP........... 43,509.38
--------------
244,846.88
--------------
STONE, CLAY, AND GLASS
PRODUCTS--0.13%
200 CORNING, INC.................... 8,600.00
200 * DEPARTMENT 56, INC............ 7,225.00
100 NEWELL COS, INC................. 3,956.25
300 OWENS CORNING CO................ 11,118.75
--------------
30,900.00
--------------
TEXTILE MILL PRODUCTS--0.04%
200 * MOHAWK INDUSTRIES, INC........ 6,962.50
100 * WESTPOINT STEVENS, INC........ 2,662.50
--------------
9,625.00
--------------
TOBACCO PRODUCTS--1.41%
600 FORTUNE BRANDS, INC............. 19,200.00
6,200 PHILIP MORRIS COS, INC.......... 320,850.00
--------------
340,050.00
--------------
TRANSPORTATION BY AIR--0.47%
300 AIRBORNE FREIGHT CORP........... 8,850.00
700 * AMR CORP...................... 38,193.75
200 COMAIR HOLDINGS, INC............ 6,050.00
600 DELTA AIRLINES, INC............. 27,450.00
200 * FDX CORP...................... 14,025.00
400 SOUTHWEST AIRLINES CO........... 8,550.00
200 * U.S. AIRWAYS GROUP, INC....... 9,300.00
--------------
112,418.75
--------------
TRANSPORTATION EQUIPMENT--3.11%
1,000 ALLIED SIGNAL, INC.............. 40,437.50
700 AUTOLIV, INC.................... 25,025.00
100 * BE AEROSPACE, INC............. 2,368.75
2,400 BOEING CO....................... 80,550.00
200 BORG-WARNER AUTOMOTIVE, INC..... 10,000.00
200 CORDANT TECHNOLOGIES, INC....... 7,012.50
700 DANA CORP....................... 26,600.00
200 DANAHER CORP.................... 9,350.00
</TABLE>
See notes to statement of assets and liabilities.
B-42
<PAGE> 54
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
TRANSPORTATION EQUIP-
MENT--(continued)
300 EATON CORP...................... $ 20,081.25
200 FLEETWOOD ENTERPRISES, INC...... 6,812.50
2,600 FORD MOTOR CO................... 136,175.00
200 GENCORP, INC.................... 5,250.00
300 GENERAL DYNAMICS CORP........... 16,200.00
1,900 GENERAL MOTORS CORP............. 124,925.00
400 * GULFSTREAM AEROSPACE CORP..... 19,125.00
600 HARLEY DAVIDSON, INC............ 24,412.50
300 LOCKHEED MARTIN CORP............ 29,006.25
400 MERITOR AUTOMOTIVE, INC......... 8,375.00
400 * NAVISTAR INTERNATIONAL CORP... 10,375.00
200 NORTHROP GRUMMAN CORP........... 14,450.00
400 PACCAR, INC..................... 16,325.00
300 SUNDSTRAND CORP................. 14,400.00
300 TEXTRON, INC.................... 21,300.00
200 TRINITY INDUSTRIES, INC......... 7,537.50
100 TRW, INC........................ 5,387.50
700 UNITED TECHNOLOGIES CORP........ 70,350.00
--------------
751,831.25
--------------
TRANSPORTATION SERVICES--0.06%
400 GATX CORP....................... 14,700.00
--------------
TRUCKING AND WAREHOUSING--0.01%
100 USFREIGHTWAYS CORP.............. 2,600.00
--------------
WATER TRANSPORTATION--0.05%
200 ALEXANDER & BALDWIN, INC........ 4,150.00
300 TIDEWATER, INC.................. 7,087.50
--------------
11,237.50
--------------
WHOLESALE TRADE-DURABLE
GOODS--0.15%
400 * ARROW ELECTRONICS, INC........ 8,650.00
200 * FISHER SCIENTIFIC
INTERNATIONAL, INC............. 3,700.00
</TABLE>
<TABLE>
<CAPTION>
WHOLESALE TRADE-DURABLE
GOODS--(continued)
SHARES VALUE
------ --------------
<C> <S> <C>
700 IKON OFFICE SOLUTIONS, INC...... $ 6,431.25
200 * INGRAM MICRO, INC (CLASS A)... 8,487.50
200 * TECH DATA CORP................ 8,100.00
--------------
35,368.75
--------------
WHOLESALE TRADE-NONDURABLE
GOODS--0.71%
600 BERGEN BRUNSWIG CORP (CLASS
A)............................. 17,287.50
700 CARDINAL HEALTH, INC............ 50,225.00
600 ENRON CORP...................... 32,325.00
400 MCKESSON CORP NEW............... 27,925.00
700 SUPERVALU, INC.................. 17,850.00
800 SYSCO CORP...................... 21,250.00
200 UNITED STATIONERS, INC.......... 5,225.00
--------------
172,087.50
--------------
TOTAL COMMON STOCK
(Cost $25,032,019.59).......... 24,030,571.89
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
- ---------
<C> <S> <C> <C> <C>
SHORT TERM INVESTMENTS--8.58%
U.S. GOVERNMENT & AGENCIES--8.58%
FEDERAL HOME LOAN MORTGAGE
$2,071,000 CORP.......................... 5.010
--------------
TOTAL SHORT TERM INVESTMENTS
(Cost $2,071,000.00).......... 2,071,000.00
--------------
TOTAL PORTFOLIO
(Cost $27,103,019.59)........................ $26,101,571.89
==============
- ---------------
* NON-INCOME PRODUCING
</TABLE>
See notes to statement of assets and liabilities.
B-43
