As filed with the Securities and Exchange Commission on April 16, 1997
Registration File Nos. 33-79124 and 811-8520
U.S. SECURITIES AND EXCHANGE COMMISSION
=======================================
Washington, D.C. 20549
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 3 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 6 |X|
(Check appropriate box or boxes.)
TIAA SEPARATE ACCOUNT VA-1
--------------------------
(Exact Name of Registrant)
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
------------------------------------------------------
(Name of Insurance Company)
730 Third Avenue
New York, New York 10017-3206
-----------------------------
(Address of Insurance Company's Principal Executive Offices)
Insurance Company's Telephone Number, including Area Code: (212) 490-9000
Name and Address of Agent for Service: Copy to:
Peter C. Clapman, Esquire Paul J. Mason, Esquire
Teachers Insurance and Annuity Sutherland, Asbill & Brennan, L.L.P.
Association of America 1275 Pennsylvania Avenue, N.W.
730 Third Avenue Washington, D.C. 20004-2404
New York, New York 10017-3206
Approximate Date of Proposed Public Offering: As soon as practicable after
effectiveness of this filing
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|X| on May 1, 1997, pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph(a)(1)
|_| on(date) pursuant to paragraph(a)(1)
|_| 75 days after filing pursuant to paragraph(a)(2)
|_| on(date)pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for the Registrant's fiscal year ended December
31, 1995, was filed on February 13, 1997.
<PAGE>
CROSS REFERENCE SHEET
---------------------
Showing Location of Information Required by Form N-3
in Part A (Prospectus) and Part B (Statement of Additional Information)
of the Registration Statement
PART A (PROSPECTUS)
<TABLE>
<CAPTION>
Item of Form N-3 Part A (Prospectus) Caption
- ---------------- ---------------------------
<S> <C>
1. Cover Page.................................. Cover Page
2. Definitions................................. Definitions
3. Synopsis ................................... Summary
4. Condensed Financial Information............. Condensed Financial Information; Performance
Information
5. General Description of Registrant
and Insurance Company....................... Teachers Insurance and Annuity Association of
America; The Separate Account; Investment Practices
6. Management.................................. Management and Investment Advisory Arrangements
7. Deductions and Expenses..................... The Contract (Charges)
8. General Description of Variable
Annuity Contracts........................... Adding, Closing, or Substituting Portfolios; The
Contract; Voting Rights; General Matters
9. Annuity Period.............................. The Contract (The Annuity Period; Income Options)
10. Death Benefit............................... The Contract (Death Benefits)
11. Purchases and Contract Value................ Valuation of Assets; The Contract (Remitting
Premiums; Accumulation Units); Distribution of the
Contracts
12. Redemptions................................. The Contract (Remitting Premiums; Cash Withdrawals;
General Considerations for All Transfers and Cash
Withdrawals)
13. Taxes....................................... The Contract (Tax Issues); Federal Income Taxes
14. Legal Proceedings........................... Legal Proceedings
15. Table of Contents of the Statement of
Additional Information...................... Table of Contents for the Statement of Additional
Information
</TABLE>
<PAGE>
PART B (STATEMENT OF ADDITIONAL INFORMATION)
<TABLE>
<CAPTION>
Item of Form N-3 Part B (Statement of Additional Information) Caption
- ---------------- ----------------------------------------------------
<S> <C>
16. Cover Page.................................. Cover Page
17. Table of Contents........................... Table of Contents
18. General Information and History............. (Prospectus) Teachers Insurance and Annuity
Association of America
19. Investment Objectives and Policies........... Investment Restrictions; Investment Policies and Risk
Considerations; Portfolio Turnover
20. Management................................... Management
21. Investment Advisory and Other Services....... Investment Advisory and Related Services
22. Brokerage Allocation......................... Brokerage Allocation
23. Purchase and Pricing of Securities Being
Offered...................................... Valuation of Assets; (Prospectus) The Contract
(Transfers Between the Separate Account and the Fixed
Account; General Considerations for All Transfers and
Cash Withdrawals)
24. Underwriters................................. (Prospectus) Distribution of the Contracts
25. Calculation of Performance Data.............. Performance Information
26. Annuity Payments............................. (Prospectus) The Contract (The Annuity Period;
Income Options)
27. Financial Statements......................... Financial Statements; (Prospectus) Condensed Financial
Information
</TABLE>
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
Prospectus
Teachers Insurance and
Annuity Association
Individual Deferred
Variable Annuities
Funded Through TIAA
Separate Account VA-1
May 1, 1997
[TIAA logo]
<PAGE>
PROSPECTUS
Dated May 1, 1997
Individual Deferred Variable Annuities
Funded Through
TIAA Separate Account VA-1 of
Teachers Insurance and Annuity Association
of America
This prospectus tells you about an individual deferred variable annuity funded
through TIAA Separate Account VA-1 of Teachers Insurance and Annuity Association
of America (TIAA). Read it carefully before investing, and keep it for future
reference.
TIAA Separate Account VA-1 (the separate account) is a segregated investment
account of TIAA. The separate account provides individual variable annuities for
employees of tax-exempt or publicly supported colleges, universities, and other
educational and research organizations and for other eligible persons, including
retired employees of eligible institutions. Its main purpose is to accumulate,
invest, and then disburse funds for lifetime income or through other payment
options.
TIAA offers this variable annuity as part of the contract, which also has a
fixed account. Whether the variable annuity is available to you is subject to
approval by regulatory authorities in your state.
As with all variable annuities, your accumulation can increase or decrease,
depending on how well the underlying investments in the separate account do over
time. TIAA doesn't guarantee the investment performance of the separate account,
and you bear the entire investment risk.
More information about the separate account and the variable component of the
contract is on file with the Securities and Exchange Commission (SEC) in a
"Statement of Additional Information" (SAI) dated May 1, 1997. You can get it by
writing us at TIAA, 730 Third Avenue, New York, New York 10017-3206 (attention:
Central Services), or by calling 1 800 842-2733, extension 5509. The SAI, as
supplemented from time to time, is "incorporated by reference" into the
prospectus; that means it's legally part of the prospectus. The SAI's table of
contents is on the last page of this prospectus. The SEC maintains a Website
(http:// www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the separate account.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is May 1, 1997.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Item Page
- ---------------------------------- ----
<S> <C>
Definitions 2
Summary 3
Condensed Financial
Information 6
Teachers Insurance and
Annuity Association of
America 6
The Separate Account 7
Adding, Closing, or
Substituting Portfolios 7
Investment Practices 8
Performance Information 11
Valuation of Assets 12
Management and Investment
Advisory Arrangements 12
The Contract 12
Eligible Purchasers of the
Contract 12
Remitting Premiums 13
Accumulation Units 14
The Fixed Account 14
Transfers Between the
Separate Account and
the Fixed Account 15
Cash Withdrawals 15
General Considerations for
All Transfers and Cash
Withdrawals 15
Tax Issues 16
Charges 16
The Annuity Period 17
Income Options 18
Death Benefits 20
Timing of Payments 22
Federal Income Taxes 22
Voting Rights 25
General Matters 26
Distribution of the Contracts 27
Legal Proceedings 27
Table of Contents for
Statement of Additional
Information 28
</TABLE>
This prospectus outlines the terms under which the variable annuity issued by
TIAA is available. 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.
<PAGE>
Definitions
Throughout the prospectus, "TIAA," "we," and "our" refer to Teachers Insurance
and Annuity Association of America. "You" and "your" mean any contractowner or
any prospective contractowner.
The terms and phrases below are defined so you'll know precisely how we're using
them. To understand some definitions, you may have to refer to other defined
terms.
Accumulation. The total value of your accumulation units.
Accumulation Period. The period that begins with your first premium and
continues as long as you still have an amount accumulated in either the separate
account or the fixed account.
Accumulation Unit. A share of participation in the separate account.
Annuitant. The natural person whose life is used in determining the annuity
payments to be received. The annuitant may be the contractowner or another
person.
Annuity Partner. The natural person whose life is used in determining the
annuity payments to be received under a survivor income option if the annuitant
dies. The annuity partner is also known as the second annuitant.
Beneficiary. Any person or institution named to receive benefits if you die
during the accumulation period or if you die while any annuity income or death
benefit payments remain due. You don't have to name the same beneficiary for
each of these two situations.
Business Day. Any day the New York Stock Exchange (NYSE) is open for trading. A
business day ends at 4 p.m. Eastern Time, or when trading closes on the NYSE, if
earlier.
Calendar Day. Any day of the year. Calendar days end at the same time as
business days.
Contract. The fixed and variable components of the individual, flexible premium,
deferred annuity described in this prospectus.
Contractowner. The person (or persons) who controls all the rights and benefits
under a contract.
CREF. The College Retirement Equities Fund, TIAA's companion organization.
Eligible Institution. A public or private institution in the United States that
is nonproprietary and nonprofit. A private institution has to be tax-exempt
under IRC section 501(c)(3) or earlier versions of the section and cannot be a
"private foundation," as that term is used in the IRC. The main purpose of any
eligible institution
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must be to offer instruction; conduct research; serve and support education or
research; or perform ancillary functions for such institutions.
Fixed Account. The component of the contract guaranteeing principal plus a
specified rate of interest supported by assets in the general account.
General Account. All of TIAA's assets other than those allocated to TIAA
Separate Account VA-1 or to any other TIAA separate account.
Income Option. Any of the ways you can receive annuity income, which must be
from the fixed account.
Internal Revenue Code (IRC). The Internal Revenue Code of 1986, as amended.
Premium. Any amount you invest in the contract.
Separate Account. TIAA Separate Account VA-1, which was established by TIAA
under New York State law to fund your variable annuity. The account holds its
assets apart from TIAA's other assets.
Survivor Income Option. An option that continues lifetime annuity payments as
long as either the annuitant or the annuity partner is alive.
TIAA. Teachers Insurance and Annuity Association of America.
Valuation Day. Any day the NYSE is open for trading, as well as the last
calendar day of each month. Valuation days end as of the close of all U.S.
national exchanges where securities or other investments of the separate account
are principally traded. Valuation days that aren't business days end at 4 p.m.
Eastern Time.
Summary
Read this summary together with the detailed information you'll find in the rest
of the prospectus.
This prospectus describes the variable component of the contract, which also
provides fixed annuity benefits (see "The Fixed Account," page 14). The contract
is an individual deferred annuity that is available to any employee or retired
employee of an eligible institution, or his or her spouse or domestic partner
(see "Eligible Purchasers of the Contract," page 12). The availability of the
variable component of the contract is subject to applicable regulatory approval.
The Separate Account
TIAA Separate Account VA-1 is an open-end management investment company.
Currently the separate account has only one investment portfolio, the Stock
Index Account. Like any other portfolio that we might add in the future, the
Stock Index Account is subject to the risks involved in professional investment
management,
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including those resulting from general economic conditions. The value of your
accumulation in any portfolio can fluctuate, and you bear the entire risk.
Expenses
Here's a summary of the direct and indirect expenses under the contract.
<TABLE>
<S> <C>
Contractowner Transaction Expenses
Deductions from premiums (as a percentage of premiums) None
Charges for Transfers and Cash Withdrawals
(as a percentage of transaction amount)
Transfers to the fixed account None
Cash withdrawals None
Annual Expenses (as a percentage of average net assets)
Investment Advisory Charge (after fee waiver) (1) .07%
Mortality and Expense Risk Charge (current) (2) .10%
Administrative Expense Charge .20%
--------
Total Annual Expenses (3) .37%
</TABLE>
(1) Although Teachers Advisors, Inc., the separate account's investment
adviser, is entitled to an annual fee of 0.30% of the separate account's
average daily net assets, it has voluntarily agreed to waive a portion of
its fee.
(2) TIAA reserves the right to increase the mortality and expense risk charge
to a maximum of 1.00% per year.
(3) If we imposed the full amount of the administrative expense, investment
advisory and mortality and expense risk charges, total annual expenses
would be 1.50%. TIAA guarantees that total annual expenses will never
exceed this level.
You will receive at least three months' notice before we raise any of these
charges.
Premium taxes apply to certain contracts (see "Other Charges," page 17).
The next table gives an example of the expenses you'd incur on a hypothetical
investment of $1,000 over several periods. The table assumes a 5 percent annual
return on assets.
<TABLE>
<CAPTION>
Annual Expense Deductions from Net Assets 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
If you withdraw your entire accumulation at the end of the
applicable time period: $4 $12 $21 $47
If you annuitize at the end of the applicable time period: $4 $12 $21 $47
If you do not withdraw your entire accumulation: $4 $12 $21 $47
</TABLE>
These tables are to help you understand the various expenses you would bear
directly or indirectly as an owner of a contract. Remember that they don't
represent actual past or future expenses or investment performance. Actual
expenses may be higher or lower. For more information, see "Charges," page 16.
"Free Look" Right
Until the end of the period of time specified in the contract (the "free look"
period), you can examine the contract and return it to TIAA for a refund. The
time period
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will depend on the state in which you live. In states that permit it, we'll
refund the accumulation value calculated on the date that you mailed or
delivered the contract and the refund request to us. In states that don't allow
us to refund accumulation value only, we'll refund the premiums you paid to the
contract. If you live in a state that requires refund of premiums (see page 13)
and we issued you a contract on or after November 1, 1994, your premiums and
transfers allocated to the separate account during the "free look" period can't
exceed $10,000. We will consider the contract returned on the date it's
postmarked and properly addressed with postage pre-paid or, if it's not
postmarked, on the day we receive it. We will send you the refund within seven
(7) days after we get written notice of cancellation and the return contract. We
will cancel the contract as of the date of issue.
Restrictions on Transfers and Cash Withdrawals
Currently, you can transfer funds from the separate (variable) account to the
fixed account as often as you like, but you can transfer from the fixed account
to the separate account no more than once every 180 days. After you have been
given three months' notice, we may limit the number of transfers from the
separate account to one in any 90-day period. All transfers or cash withdrawals
must be for at least $1,000 or your entire account balance, if less.
You may have to pay a tax penalty if you want to make a cash withdrawal before
age 59-1/2. For more, see "Income Options," page 18, and "Federal Income Taxes,"
page 22.
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Condensed Financial Information
Below you'll find condensed audited financial information for the separate
account for the two year and two month period from November 1, 1994 (date of
initial registration) to December 31, 1996. The audited financial statements for
the separate account and TIAA are in the SAI, which is available free upon
request. The table should be read in conjunction with the audited financial
statements and related notes appearing in the SAI.
<TABLE>
<CAPTION>
November 1, 1994 (date of
initial registration) to Year Ended Year Ended
December 31, 1994 December 31, 1995 December 31, 1996
---------------------------- ----------------- -----------------
<S> <C> <C> <C>
Per Accumulation Unit Data:
Investment income $ 0.138 $ 0.745 $ 0.807
Expense charges 0.023 0.170 0.150
------- ------- -------
Investment income--net 0.115 0.575 0.657
Net realized and unrealized
gain (loss) on investments (0.676) 8.565 6.755
------- ------- -------
Net increase (decrease) in
Accumulation Unit Value (0.561) 9.140 7.412
Accumulation Unit Value:
Beginning of period 25.832 25.271 34.411
------- ------- -------
End of period $25.271 $34.411 $41.823
======= ======= =======
Ratios to Average Net Assets:
Expenses 0.09% 0.55% 0.40%
Investment income--net 0.45% 1.87% 1.74%
Portfolio turnover rate 0.04% 0.98% 4.55%
Thousands of Accumulation
Units
outstanding at end of period 1,171 2,605 6,768
</TABLE>
Teachers Insurance and Annuity Association of America
TIAA is a nonprofit stock life insurance company, organized under the laws of
New York State. It was founded on March 4, 1918, by the Carnegie Foundation for
the Advancement of Teaching. All of the stock of TIAA is held by the TIAA Board
of Overseers, a nonprofit New York membership corporation whose main purpose is
to hold TIAA's stock. TIAA's headquarters are at 730 Third Avenue, New York, New
York 10017-3206; there are also regional offices in Atlanta, Boston, Chicago,
Dallas, Denver, Detroit, New York, Philadelphia, San Francisco, and Washington,
D.C., and a telephone service center in Denver. TIAA's general account offers
traditional annuities, which guarantee principal and a specified interest rate
while providing the opportunity for additional dividends. TIAA also offers life,
long-term disability, and long-term care insurance. TIAA has received the
highest ratings from the leading independent insurance industry rating agencies:
A++ (Superior) from A.M. Best Company, AAA from Duff & Phelps Credit Rating
Company, Aaa from Moody's Investor's Service and AAA from Standard and Poor's.
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TIAA is the companion organization of the College Retirement Equities Fund
(CREF), the first company in the United States to issue a variable annuity. CREF
is a nonprofit membership corporation established in New York State in 1952.
Together, TIAA and CREF form the principal retirement system for the nation's
education and research communities and the largest retirement system in the
U.S., based on assets under management. TIAA-CREF serves approximately 1.8
million people at about 6,100 institutions. As of December 31, 1996, TIAA's
assets were approximately $86.4 billion; the combined assets for TIAA and CREF
totalled approximately $185.3 billion (although CREF doesn't stand behind TIAA's
guarantees).
The Separate Account
Separate Account VA-1 was established on February 16, 1994, as a separate
investment account of TIAA under New York law, by resolution of TIAA's Board of
Trustees. The separate account is governed by a management committee. As an
"open-end" diversified management investment company, the separate account has
no limit on how many units of participation it can issue. The separate account
is registered with the SEC under the Investment Company Act of 1940, as amended
(the 1940 Act), though registration doesn't entail SEC supervision of its
management and investment practices. As part of TIAA, the separate account is
also subject to regulation by the State of New York Insurance Department (NYID)
and the insurance departments of some other jurisdictions in which the contracts
are offered (see the SAI).
Although TIAA owns the assets of the separate account, the contract states that
the separate account's income, investment gains, and investment losses are
credited to or charged against the assets of the separate account without regard
to TIAA's other income, gains, or losses. Under New York law, we cannot charge
the separate account with liabilities incurred by any other TIAA separate
account or other business activity TIAA may undertake.
The contract accepts only after-tax dollars. In contrast, TIAA-CREF's other
fixed and variable annuity products are part of employer retirement plans and
accept premiums consisting primarily of before-tax dollars. Like earnings from
other annuity products, earnings on accumulations in the separate account aren't
taxed until withdrawn or paid as annuity income (see "Federal Income Taxes,"
page 22).
Adding, Closing, or Substituting Portfolios
The separate account currently consists of a single investment portfolio, but we
can add new investment portfolios in the future. We don't guarantee that the
separate account, or any investment portfolio added in the future, will always
be available. We reserve the right, subject to any applicable law, to change the
separate account and its investments. We can add or close portfolios, substitute
one portfolio for another,
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or combine portfolios, subject to the requirements of applicable law. We can
also make any changes to the separate account or to the contract required by
applicable insurance law, the Internal Revenue Code, or the 1940 Act. TIAA can
make some changes at its discretion, subject to NYID and SEC approval as
required. The separate account can (i) operate under the 1940 Act as a unit
investment trust that invests in another investment company, or in any other
form permitted by law, (ii) deregister under the 1940 Act if registration is no
longer required, or (iii) combine with other separate accounts. As permitted by
law, TIAA can transfer the separate account assets to another separate account
or accounts of TIAA or another insurance company or transfer the contract to
another insurance company.
Investment Practices
The separate account is subject to several types of risks. One is market risk --
price volatility due to changing conditions in the financial markets. Another is
financial risk. For stocks or other equity securities, financial risk comes from
the possibility that current earnings will fall or that overall financial
soundness will decline, reducing the security's value.
The separate account currently consists solely of the Stock Index Account.
Changing the investment objective of the separate account won't require a vote
by contractowners. The separate account can also change some of its investment
policies (that is, the methods used to pursue the objective) without such
approval. Of course, there's no guarantee that the separate account will meet
its investment objective.
The separate account's general perspective is long-term, and we avoid both
extreme conservatism and high risk in investing. Teachers Advisors, Inc.
(Advisors) manages the separate account's assets (see "Management and Investment
Advisory Arrangements," page 12). Personnel of Advisors, a subsidiary of TIAA,
may also manage assets of one or more CREF accounts on behalf of TIAA-CREF
Investment Management, Inc., an investment adviser which is also a TIAA
subsidiary. Personnel of Advisors may also manage assets of other investment
companies. Ordinarily, investment decisions for the separate account will be
made independently, but managers for the separate account may at times decide to
buy or sell a particular security at the same time as for a CREF account or
another investment company whose assets they may also be managing. If so,
investment opportunities are allocated equitably, which can have an adverse
effect on the size of the position the separate account buys or sells, as well
as the price paid or received for it.
Investment Objective
The investment objective of the separate account is favorable long-term return
from a diversified portfolio selected to track the overall market for common
stocks publicly traded in the U.S., as represented by a broad stock market
index.
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Investment Mix
The separate account 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 (See "The Russell 3000 Index," below). The separate account
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.
Using the Russell 3000 as the measure of the U.S. equity market isn't
fundamental to the separate account's objective or investment policies, and the
management committee can substitute other indices without contractowner
approval. We'll notify you, however, before making any change in the target
index.
We expect that in periods when the overall U.S. stock market is rising, the
separate account's unit value will also rise, while in market declines, the
separate account's unit value will likewise decline. We don't expect to match
the index precisely. However, we expect the separate account to closely track
the index. To ensure this, a correlation coefficient will be calculated daily
using the separate account's returns from the most 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 separate account.
Since the index's returns aren't reduced by operating or investment expenses,
the separate account's ability to match the index will be adversely affected by
the costs of buying and selling stocks and other expenses. However, we expect
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 Frank
Russell Company, Russell 3000 companies account for about 98 percent 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
$20.0 million to $163.27 billion, with an average of $2.56 billion as of
December 31, 1996.
Frank Russell Company chooses the stocks in the index solely on a statistical
basis, using market capitalization. The stocks are weighted in the index by
relative market value. Frank Russell Company can change stocks in the index and
their weightings from time to time. We'll adjust the separate account's
portfolio to reflect the changes as appropriate. We can also adjust the separate
account's portfolio because of mergers and similar events.
The separate account hasn't been endorsed or sponsored by and isn't affiliated
with Frank Russell Company. A stock's presence in the Russell 3000 doesn't
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mean that Frank Russell Company believes that it's an attractive investment.
Frank Russell Company isn't responsible for any literature about the separate
account and makes no representations or warranties about its content. The
Russell 3000 is a trademark and service mark of Frank Russell Company.
Other Investments
The separate account can also hold other investments whose return depends on
stock market prices. These include 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. The separate
account can also make swap arrangements where the return is linked to a
recognized stock market index. The separate account would make such investments
in order to seek to match the total return of the 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. For more information, see the SAI. Such
investing by the separate account is subject to any necessary regulatory
approvals.
The separate account 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. In addition, the
separate account can hold fixed- income securities that it acquires because of
mergers, recapitalizations, or otherwise. For liquidity, the separate account
can also invest in short-term debt securities and other money market
instruments, including those denominated in foreign currencies.
Other Investment Issues and Risks
Options, Futures, and Other Investments
The separate account 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. We intend to use options and futures
primarily as hedging techniques or for cash management, not for speculation, but
they involve special considerations and risks nonetheless. For more information,
see the SAI.
The separate account can also invest in 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. For more information, see the SAI.
Illiquid Securities
The separate account can invest up to 10 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.
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Repurchase Agreements
Repurchase agreements are one of several short-term vehicles the separate
account 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 may involve special risks. For more
information, see the SAI.
Firm Commitment Agreements
The separate account can enter "firm commitment" agreements to buy securities at
a fixed price or yield on a specified future date. We expect that these
transactions will be relatively infrequent. For more information, see the SAI.
Investment Companies
The separate account can invest up to 10 percent of its assets in other
investment companies.
Securities Lending
Subject to certain restrictions, the separate account can seek additional income
by lending securities to brokers, dealers, and other financial institutions.
Brokers and dealers must be registered with the SEC and be members of the
National Association of Securities Dealers, Inc. (NASD); any recipient must be
unaffiliated with TIAA. All loans will be fully collateralized. If we lend a
security, we can call in the loan at any time. For more information, see the
SAI.
Borrowing
The separate account can borrow money from banks (no more than 33-1/3 percent of
the market value of its assets at the time of borrowing). 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). For more information, see the
SAI.
Performance Information
From time to time, we advertise the total return and average annual total return
of the separate account. "Total return" means the cumulative percentage increase
or decrease in the value of an investment over standard one-, five-, and
ten-year periods (and occasionally other periods as well).
"Average annual total return" means the annually compounded rate that would
result in the same cumulative total return over the stated period.
All performance figures are based on past investment results. They aren't a
guarantee that the separate account will perform equally or similarly in the
future. Write or call us for current performance figures for the separate
account (see "Contacting TIAA," page 27).
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Valuation of Assets
We calculate the value of the assets as of the close of every valuation day.
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 fair value, as decided in
good faith under the direction of the management committee. For more
information, see the SAI.
Management and Investment Advisory Arrangements
The principal responsibility for directing the separate account's investments
and administration rests with its management committee. Advisors manages the
assets in the separate account. A wholly-owned subsidiary of TIAA, Advisors is
registered under the Investment Advisers Act of 1940. Its duties include
conducting research, recommending investments, and placing orders to buy and
sell securities. It also provides for all portfolio accounting, custodial, and
related services for the separate account. Advisors and its personnel act
consistently with the investment objectives, policies, and restrictions of the
separate account.
TIAA restricts the ability of those personnel of Advisors who have direct
responsibility and authority for making investment decisions for the separate
account to trade in securities for their own accounts. The restrictions also
apply to members of their households, i.e., spouses, domestic partners and
relatives sharing the same home. Transactions in securities by those individuals
are subject to preclearance procedures and reporting requirements, including a
requirement that they send duplicate confirmation statements and other account
reports to a special compliance unit.
The Contract
The contract is an individual flexible-premium (you can contribute varying
amounts) deferred annuity that accepts only after-tax dollars from eligible
purchasers. The rights and benefits under the variable component of the contract
are summarized below; however, the descriptions you read here are qualified
entirely by the contract itself. Subject to regulatory approval, we offer the
contracts to residents of all fifty states, the District of Columbia, and Puerto
Rico.
Eligible Purchasers of the Contract
An employee or a retiree of an eligible institution can purchase a contract. For
this purpose, an individual who retired after attainment of age 55 and completed
at least five years of service at an eligible institution is considered to be a
"retiree." A spouse or domestic partner of an employee or retiree can also
purchase a contract. Two adults will be considered to be "domestic partners" if
they have lived together continuously for at least six months and intend to
reside together perma-
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nently, are mutually responsible for their common welfare, have no other
domestic partnership or marriage, and are not blood relatives.
Remitting Premiums
We'll issue you a contract as soon as we receive your completed application and
your initial premium of at least $2,000 at our home office, even if you don't
initially allocate any premiums to the separate account. (The $2,000 minimum
doesn't apply if application and payment of at least $25 is accompanied by an
agreement for electronic funds transfer (EFT) or are collected by payroll
deduction and forwarded by your employer. We also reserve the right to
temporarily waive the $2,000 minimum initial premium amount.) We will credit
your initial premium within two business days after we receive all necessary
information or the premium itself, whichever is later. If we don't have the
necessary information within five business days, we'll contact you to explain
the delay. We'll return the initial premium at that time unless you consent to
our keeping it and crediting it as soon as we receive the missing information
from you.
Subsequent premiums must be for at least $100. However, we will also accept
premiums of at least $25 through electronic funds transfer or payroll deduction.
Additional premiums will be credited as of the business day we receive them.
Except as described below, the contract doesn't restrict how large your premiums
are or how often you send them, although we reserve the right to impose
restrictions in the future. Unless your contract was issued before November 1,
1994, your total premiums and transfers to the separate account during the "free
look" period can't exceed $10,000 if you live in any of the following states:
<TABLE>
<CAPTION>
"Free Look" Period
Jurisdiction (days)
- ------------ ------------------
<S> <C>
Georgia 10
Idaho 20
Massachusetts 10
Nebraska 10
Nevada 10
North Carolina 30
South Carolina 31
Texas 30
Utah 10
Washington 10
West Virginia 10
</TABLE>
Total premiums and transfers to the fixed account in any 12-month period could
be limited to $300,000, so you should contact us if you want more than $300,000
to be credited to the fixed account during any such period (see "Contacting
TIAA," page 27).
Currently, TIAA will accept premiums at any time both the contractowner and the
annuitant are living and your contract is in the accumulation period. However we
reserve the right not to accept premiums under this contract after you have been
given three months' notice. If TIAA stops accepting premiums under this
contract,
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we will accept premiums under a new contract issued to you with the same
annuitant, annuity starting date, beneficiary, and methods of benefit payment as
those under this contract at the time of replacement.
Accumulation Units
Premiums paid to the separate account purchase accumulation units. When you
remit premiums or transfer amounts into the separate account, the number of your
units will increase; when you transfer amounts from the account (including
applying funds to the fixed account to begin annuity income) or take a cash
withdrawal, the number of your units will decrease. We calculate how many
accumulation units to credit by dividing the amount allocated to the separate
account by its unit value for the business day when we received your premium. We
may use a later business day for your initial premium. To determine how many
accumulation units to subtract for transfers and cash withdrawals, we use the
unit value for the business day when we receive your completed transaction
request and all required information and documents. (You can choose to have your
transaction completed at a later date; if you do, we will use that later date as
the valuation day.) For amounts to be applied to begin annuity income, the unit
value will be the one for the last valuation day of the month when we receive
all required information and documentation (see "The Annuity Period," page 17).
For amounts to be applied to begin death benefits, the unit value will be the
one for the valuation day when we receive proof of death (see "Death Benefits,"
page 20).
The value of the accumulation units will depend mainly on investment experience,
though the unit value reflects expense deductions from assets (see "Charges,"
page 16). The unit value is calculated at the close of each valuation day. We
multiply the previous day's unit value by the net investment factor for the
separate account. The net investment factor is calculated as A divided by B,
where A and B are defined as: A equals the value of the separate account's net
assets at the end of the day, excluding the net effect of transactions (i.e.,
premiums received, benefits paid, and transfers to and from the account) made
during that day. This amount is equal to the net assets at the end of the prior
day (including the net effect of transactions made during the prior day)
increased/decreased by realized and unrealized capital gains/losses, dividends,
and investment income and decreased by expense and risk charges. B is the value
of the separate account's net assets at the end of the prior day (including the
net effect of transactions made during the prior day).
The Fixed Account
Premiums allocated and amounts transferred to the fixed account become part of
the general account assets of TIAA, which support insurance and annuity
obligations. The general account includes all the assets of TIAA, except those
in the separate account or in any other TIAA separate investment account.
Interests in the fixed account have not been registered under the Securities Act
of 1933 (the
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1933 Act), nor is the fixed account registered as an investment company under
the 1940 Act. Neither the fixed account nor any interests therein are generally
subject to the 1933 Act or 1940 Act. The SEC staff has told us that they haven't
reviewed the information in this prospectus about the fixed account.
You can allocate premiums to the fixed account or transfer from the separate
account to the fixed account at any time. In contrast, you can transfer or take
a cash withdrawal from the fixed account only once every 180 days. TIAA may
defer payment of a transfer or cash withdrawal from the fixed account for up to
six months.
When you invest in the separate account, you bear the investment risk. However,
TIAA bears the full investment risk for all accumulations in the fixed account.
Currently TIAA guarantees that amounts in the fixed account will earn interest
of at least 3 percent per year. At its discretion, TIAA can credit amounts in
the fixed account with interest at a higher rate than 3 percent per year. TIAA
has sole investment discretion for the fixed account, subject to applicable law.
This prospectus provides information mainly about the contract's variable
component, which is funded by the separate account. For more about the fixed
account, see the contract itself.
Transfers Between the Separate Account and the Fixed Account
Subject to the conditions below, you can transfer some (at least $1,000 at a
time) or all of the amount accumulated under your contract between the separate
account and the fixed account. Currently, we don't charge you for transfers from
the separate account to the fixed account. We don't currently limit the number
of transfers from the separate account, but we reserve the right to do so in the
future to one every 90 days. Transfers to the fixed account begin participating
on the day following effectiveness of the transfer (see below).
Cash Withdrawals
You can withdraw some or all of your accumulation in the separate account as
cash. Cash withdrawals must be for at least $1,000 (or your entire accumulation,
if less). We reserve the right to cancel any contract where no premiums have
been paid to either the separate account or the fixed account for three years
and your total amount in the separate account and the fixed account falls below
$2,000. Currently, there's no charge for cash withdrawals.
If you withdraw your entire accumulation in the separate account and the fixed
account, we'll cancel your contract and all of our obligations to you under the
contract will end.
General Considerations for All Transfers and Cash Withdrawals
You can tell us how much you want to transfer or withdraw in dollars,
accumulation units, or as a percentage of your accumulation.
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Transfers and cash withdrawals are effective at the end of the business day we
receive your request and any required information and documentation. You can
also defer the effective date of a transfer or cash withdrawal to a future
business day acceptable to us.
To request a transfer, write to TIAA's home office or call us at 1 800 223-1200.
If you make a telephone transfer at any time other than during a business day,
it will be effective at the close of the next business day. We reserve the right
to suspend or terminate transfers by telephone.
Tax Issues
Make sure you understand the possible federal and other income tax consequences
of transfers and cash withdrawals. Cash withdrawals are usually taxed at the
rates for ordinary income -- i.e., they are not treated as capital gains. They
may subject you to early-distribution taxes as well. For details, see "Federal
Income Taxes," page 22.
Charges
Separate Account Charges
Charges are deducted each valuation day from the assets of the separate account
for various services required to manage investments, administer the separate
account and the contracts, and to cover certain insurance risks borne by TIAA.
We expect that expense deductions will be relatively low.
Advisors, a wholly-owned subsidiary of TIAA, provides the investment management
services. TIAA itself provides the administrative services for the separate
account and the contracts.
Investment Advisory Charge. This charge is for investment advice, portfolio
accounting, custodial, and similar services provided for by Advisors. The
investment management agreement between Advisors and the separate account sets
the investment advisory fee at 0.30 percent annually. Currently, Advisors has
agreed to waive a portion of that fee, so that the daily deduction is equivalent
to 0.07 percent of net assets annually.
Administrative Expense Charge. This charge is for administration and operations,
such as allocating premiums and administering accumulations. The current daily
deduction is equivalent to 0.20 percent of net assets annually.
Mortality and Expense Risk Charge. TIAA imposes a daily charge as compensation
for bearing certain mortality and expense risks in connection with the contract.
The current daily deduction is equal to 0.10 percent of net assets annually.
Accumulations and annuity payments aren't affected by changes in actual
mortality experience or by TIAA's actual expenses.
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TIAA's mortality risks come from its contractual obligations to make annuity
payments and to pay death benefits before the annuity starting date. This
assures that neither your own longevity nor any collective increase in life
expectancy will lower the amount of your annuity payments. TIAA also bears a
risk in connection with its death benefit guarantee, since a death benefit may
exceed the actual amount of an accumulation at the time when it's payable.
TIAA's expense risk is the possibility that TIAA's actual expenses for
administering the contract and the separate account will exceed the amount
recovered through the administrative expense deduction.
If the mortality and expense risk charge isn't enough to cover TIAA's actual
costs, TIAA will absorb the deficit. On the other hand, if the charge more than
covers costs, the excess will belong to TIAA. TIAA will pay a fee from its
general account assets, which may include amounts derived from the mortality and
expense risk charge, to Teachers Personal Investors Services, Inc. (TPIS), the
principal underwriter of the variable component of the contract for distribution
of the variable component of the contract.
Other Charges
No Deductions from Premiums. The contract provides for no front-end charges.
Premium Taxes. Currently, contracts issued to residents of several states and
the District of Columbia are subject to a premium tax. Charges for premium taxes
on a particular contract ordinarily will be deducted from the accumulation when
it's applied to provide annuity payments. However, if a jurisdiction requires
payment of premium taxes at other times, such as when premiums are paid or when
cash withdrawals are taken, we'll deduct premium taxes at those times. Current
state premium taxes, where charged, range from 1.00 percent to 3.50 percent of
annuity payments.
Brokerage Fees and Related Transaction Expenses
Brokers' commissions, transfer taxes, and other portfolio fees are charged to
the separate account (see the SAI).
The Annuity Period
All annuity payments are paid to the contractowner from the fixed account.
(Annuity payments may be available from the separate account in the future.)
TIAA fixed annuity payments are usually monthly. You can choose quarterly, semi-
annual, and annual payments as well. TIAA reserves the right not to make
payments at any interval that would cause the initial payment to be less than
$100.
The value of the amount accumulated upon which payments are based will be set at
the end of the last calendar day of the month before the annuity starting date.
The total value of annuity payments may be more or less than total premiums paid
by the contractowner.
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Technically all benefits are payable at TIAA's home office, but we'll send your
annuity payments by mail to your home address or (on your request) by mail or
electronic fund transfer to your bank. If the address or bank where you want
your payments sent changes, it's your responsibility to let us know. We can send
payments to your residence or bank abroad, although there are some countries
where the U.S. Treasury Department imposes restrictions.
Annuity Starting Date
Generally you pick an annuity starting date (it has to be the first day of a
month) when you first apply for a contract. If you don't, we'll tentatively
assume the annuity starting date will be the latest permissible annuity starting
date (i.e., the first day of the month after the annuitant's eighty-fifth
birthday). You can change the annuity starting date at any time before annuity
payments begin (see "Choices and Changes," page 26). In any case, the annuity
starting date must be at least fourteen months after the date your contract is
issued.
For payments to begin on the annuity starting date, we must have received all
information and documentation necessary for the income option you've picked.
(For more information, contact TIAA--see page 27.) If we haven't received all
the necessary information, we'll defer the annuity starting date until the first
day of the month after the information has reached us, but not beyond the latest
permissible annuity starting date. If, by the latest permissible annuity
starting date, you haven't picked an income option or if we have not otherwise
received all the necessary information, we will begin payments under a Single
Life Annuity with a 10-Year Guaranteed Period (or a shorter period if required
to meet federal tax law). Your first annuity check may be delayed while we
process your choice of income options and calculate the amount of your initial
payment.
Income Options
You have a number of different annuity options to choose among. You may select
from the several income options set forth in your contract (all from the fixed
account) or any other annuity option available from TIAA at the time of
selection. However, federal tax law might limit the options available to you.
You may change your choice any time before payments begin, but once they have
begun no change can be made. At the annuity starting date, the dollar amount of
each periodic annuity payment is fixed, based upon the number and value of the
separate account accumulation units being converted to annuity income, the ages
of the annuitant and (under a survivor income option) the annuity partner, and
the annuity purchase rates at that time. (These will not be lower than the rates
provided in your contract.) Payments won't change while the annuitant and the
annuity partner (under a survivor income option) are alive. After the end of the
accumulation period, your contract will no longer participate in the separate
account.
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The current options are:
Single Life Annuity. Pays income (usually monthly) as long as the annuitant
lives. Remember: All payments end at the annuitant's death so that it would
be possible, for example, for the contractowner to receive only one payment
if the annuitant died less than a month after annuity payments started. If
you die before the annuitant, your beneficiary becomes the contractowner.
Single Life Annuity with a 10-, 15-, or 20-Year Guaranteed Period. Pays
income (usually monthly) as long as the annuitant lives or until the end of
the guaranteed period, whichever is longer. If the annuitant dies before the
period is up, payments continue for the remaining time. If you die while any
payments remain due, your beneficiary becomes the contractowner.
Payments for a Fixed Period. Pays income (usually monthly) for a stipulated
period of not less than two nor more than thirty years. At the end of the
period you've chosen, payments stop. If you die before the period is up, your
beneficiary becomes the contractowner.
Survivor Income Options. Pays income at least as long as the annuitant and
the annuity partner are alive, then continue upon the death of one at either
the same or a reduced level at least until the second person dies. Once
annuity payments begin under a survivor annuity, you can't change the annuity
partner. If you die while any payments remain due, your beneficiary becomes
the contractowner.
(bullet) Full Benefit, with or without Guaranteed Period. If the annuitant or
the annuity partner dies, payments continue for the life of the
survivor. If you haven't chosen a guaranteed period, all payments
stop when the second person dies. If you've chosen a guaranteed
period of 10, 15, or 20 years and both the annuitant and the annuity
partner die before it elapses, payments continue for the rest of the
period.
(bullet) Two-Thirds Benefit, with or without Guaranteed Period. If the
annuitant or the annuity partner dies, payments of two-thirds of the
amount that would have been paid if both had lived continue for the
life of the survivor. If you haven't chosen a guaranteed period, all
payments stop when the second person dies. If you've chosen a
guaranteed period of 10, 15, or 20 years and both the annuitant and
the annuity partner die before it elapses, payments of two- thirds of
the amount that would have been paid if both had lived continue for
the rest of the period.
(bullet) Half-Benefit after the Death of the Annuitant, with or without
Guaranteed Period. If the annuity partner outlives the annuitant,
payments of half the amount that would have been paid if the
annuitant had lived will continue for the life of the annuity
partner. If you haven't chosen a guaranteed period, all payments stop
when the second person dies. If you've chosen a guaranteed period of
10, 15, or 20 years and both the annuitant and the annuity partner
die before it elapses, payments of half the amount that would have
been paid if the annuitant had lived continue for the rest of the
period.
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We may make variable income options available in the future, subject to
applicable law.
Death Benefits
Death benefits become payable when we receive proof that you or the annuitant
has died during the accumulation period. When you fill out an application for a
contract, you name one or more beneficiaries to receive the death benefit if you
die. You can change your beneficiary at any time during the accumulation period
(see "Choices and Changes," page 26). For more information on designating
beneficiaries, contact TIAA or your legal advisor. If the annuitant dies during
the accumulation period, you become the death benefit payee.
Your accumulation will continue participating in the investment experience of
the separate account up to and including the day when we receive proof of death.
Ordinarily, we will transfer your separate account accumulation to the fixed
account as of the day we receive proof of death. However, if the contractowner's
spouse is the sole beneficiary, when the contractowner dies the spouse can
choose to become the contractowner and continue the contract, or receive the
death benefit. If the spouse does not make a choice within 60 days after we
receive proof of death, the spouse will automatically become the contractowner.
The spouse will also become the annuitant if the contractowner was the
annuitant.
The amount of the death benefit will equal the greater of (1) the amount you
have accumulated in the separate and fixed accounts on the day we receive proof
of death or, if that isn't a business day, on the next business day, or (2) the
total premiums paid under your contract minus any cash withdrawals (or surrender
charges on cash withdrawals or transfers from the fixed account). If (2) is
greater than (1), we'll deposit the difference in the fixed account as of the
day we receive proof of death.
You can choose in advance the method by which death benefits should be paid, or
you can leave it up to the death benefit payee. Except with the Single-Sum
Payment and Interest Payments methods, the amount of each periodic payment is
fixed (see "The Fixed Account," page 14). While you and the annuitant are both
alive, you can change the method of payment you've chosen. You can also
stipulate that your beneficiary not change the method you've specified in
advance. (To choose, change, or restrict the method by which death benefits are
to be paid, you or your beneficiary has to notify us in writing.) Once death
benefits start, the method of payment can't be changed.
To pay a death benefit, TIAA must have received all necessary forms and
documentation. (For more information, contact TIAA--see page 27) Even if we have
not received all of the required information, death benefits must begin by the
first day of the month following the 60th day after we receive proof of death.
If no method of payment has been chosen by that time, we'll pay the entire death
benefit
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to the death benefit payee within five years of death, using the Payments for a
Fixed Period method. If the contractowner isn't a natural person (e.g., it's an
estate or a corporation), we'll apply these distribution requirements if the
annuitant dies.
Methods of Payment
TIAA limits the methods of payment for death benefits to those suitable under
federal income tax law for annuity contracts. (For more information, see
"Taxation of Annuities," page 23) With methods offering periodic payments,
benefits are usually monthly, but the death benefit payee can request to receive
them quarterly, semiannually, or annually instead. Federal law may restrict the
availability of certain methods to the death benefit payee; conversely, TIAA may
offer additional methods in the future. At present, the methods of payment for
TIAA death benefits are: Single-Sum Payment. The entire death benefit is paid at
once (within seven days after we receive all necessary forms and documentation).
When the beneficiary is an estate, the single-sum method is automatic, and TIAA
reserves the right to pay death benefits only as a single sum to corporations,
trustees, partnerships, guardians, or any beneficiary not a natural person.
Single Life Annuity. Payable monthly for the life of the death benefit
payee, with payments ending when he or she dies.
Single Life Annuity with a 10-, 15-, or 20-Year Guaranteed Period. Payable
monthly for the death benefit payee's lifetime or until the end of the
period chosen, whichever is later. If he or she dies before the period is
up, the remaining payments continue to the person named to receive them (see
"Choices and Changes," page 26). Federal tax law says the guaranteed period
selected can't exceed the death benefit payee's life expectancy.
Payments for a Fixed Period. Payable over two to thirty years, as determined
by you or your beneficiary. At the end of the selected period, payments
stop. If the death benefit payee dies before the period is up, the remaining
payments continue to the person named to receive them. Federal tax law says
the fixed period selected can't exceed the death benefit payee's life
expectancy.
Interest Payments. We'll pay interest on the amount of the death benefit
each month for two to thirty years. You (or your beneficiary, unless you
specify otherwise) choose the period. The death benefit is payable at the
end of the period chosen. If the death benefit payee dies before the
interest payment period is up, the death benefit becomes payable
immediately. For this interest-only method, the death benefit must be at
least $5,000.
The Single Life Annuity and the Single Life Annuity with a 10-, 15-, or 20-Year
Guaranteed Period methods are available only if the death benefit payee is a
natural person. Under any method (except the Interest Payments method) that
would result in payments of less than $100 a month, we reserve the right to
require a
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change in choice that will result in payments of $100 or more. You or your
beneficiary can use more than one method of payment, but each has to meet the
same $100 minimum-payment requirement.
Timing of Payments
Usually we'll make the following kinds of payments from the separate account
within seven calendar days after we've received the information we need to
process a request:
1. Cash withdrawals;
2. Transfers to the fixed account; and
3. Death benefits.
We can extend the seven-day period only if (1) the New York Stock Exchange is
closed (or trading restricted by the SEC) on a day that isn't a weekend or
holiday; (2) an SEC-recognized emergency makes it impractical for us to sell
securities or determine the value of assets in the separate account; or (3) the
SEC says by order that we can or must postpone payments to protect you and other
separate account contractowners.
Federal Income Taxes
The following discussion is based on our understanding of current federal income
tax law as the IRS now interprets it. We can't guarantee that the law or the
IRS's interpretation won't change.
We haven't considered any applicable state or other tax laws. Of course, your
own tax status or that of your beneficiary can affect your final outcome.
Tax Status of the Contract
Diversification Requirements. Section 817(h) of the Internal Revenue Code (IRC)
and the regulations under it provide that separate account investments
underlying a contract must be "adequately diversified" for it to qualify as an
annuity contract under IRC section 72. The separate account intends to comply
with the diversification requirements of the regulations under section 817(h).
This will affect how we make investments.
Under the IRC, you could be considered the owner of the assets of the separate
account used to support your contract. If this happens, you'd have to include
income and gains from the separate account assets in your gross income. The IRS
has published rulings stating that a variable contractowner will be considered
the owner of separate account assets if the contractowner has any powers that
the actual owner of the assets might have, such as the ability to exercise
investment control. The Treasury Department says that the regulations on
investment
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diversification don't provide guidance about when and how investor control of a
segregated asset account's investment could cause the investor rather than the
insurance company to be treated as the owner of the assets for tax purposes. The
Treasury Department has also stated that the IRS would issue regulations or
rulings clarifying the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."
Your ownership rights under the contract are similar but not identical to those
described by the IRS in rulings that held that contractowners were not owners of
separate account assets, so the IRS might not rule the same way in your case.
TIAA reserves the right to change the contract if necessary to help prevent your
being considered the owner of the separate account's assets.
Required Distributions. To qualify as an annuity contract under section 72(s) of
the IRC, a contract must provide that: (a) if any owner dies on or after the
annuity starting date but before all amounts under the contract have been
distributed, the remaining amounts will be distributed at least as quickly as
under the method being used when the owner died; and (b) if any owner dies
before the annuity starting date, all amounts under the contract will be
distributed within five years of the date of death. So long as the distributions
begin within a year of the owner's death, the IRS will consider these
requirements satisfied for any part of the owner's interest payable to or for
the benefit of a "designated beneficiary" and distributed over the beneficiary's
life or over a period that cannot exceed the beneficiary's life expectancy. A
designated beneficiary is the person the owner names to assume ownership when
the owner dies. A designated beneficiary must be a natural person. If a
contractowner's spouse is the designated beneficiary, he or she can continue the
contract when the contractowner dies.
The contract is designed to comply with section 72(s). TIAA will review the
contract and amend it if necessary to make sure that it continues to comply with
the section's requirements.
Taxation of Annuities
Assuming the contracts qualify as annuity contracts for federal income tax
purposes:
In General. IRC section 72 governs annuity taxation generally. We believe an
owner who is a natural person usually won't be taxed on increases in the value
of a contract until there is a distribution (i.e., the owner withdraws all or
part of the accumulation or takes annuity payments). Assigning, pledging, or
agreeing to assign or pledge any part of the accumulation usually will be
considered a distribution. Withdrawals of accumulated investment earnings are
taxable as ordinary income. Generally under the IRC, withdrawals are first
allocated to investment earnings.
The owner of any annuity contract who is not a natural person generally must
include in income any increase in the excess of the accumulation over the
"invest
23
<PAGE>
ment in the contract" during the taxable year. There are some exceptions to
this, and agents of prospective owners that are not natural persons may wish to
discuss them with a competent tax advisor.
The following discussion applies generally to contracts owned by a natural
person:
Withdrawals. If you withdraw funds from your contract before the annuity
starting date, IRC section 72(e) usually deems taxable any amounts received to
the extent that the accumulation value immediately before the withdrawal exceeds
the investment in the contract. Any remaining portion of the withdrawal is not
taxable. The investment in the contract usually equals all premiums paid by the
contractowner or on the contractowner's behalf.
If you withdraw your entire accumulation under a contract, you will be taxed
only on the part that exceeds your investment in the contract.
Annuity Payments. Although tax consequences can vary with the income option you
pick, IRC section 72(b) provides generally that, before you recover the
investment in the contract, gross income does not include that fraction of any
annuity income payments that equals the ratio of investment in the contract to
the expected return at the annuity starting date. After you recover your
investment in the contract, all additional annuity payments are fully taxable.
Taxation of Death Benefit Proceeds. Amounts may be paid from a contract because
an owner has died. If the payments are made in a single sum, they're taxed the
same way a full withdrawal from the contract is taxed. If they are distributed
as annuity payments, they're taxed as annuity payments. Death benefits paid
under the Interest Payments method are usually taxed like a full withdrawal from
the contract, and the interest payable thereon is taxable as it is paid.
Penalty Tax on Some Withdrawals. You may have to pay a penalty tax (10 percent
of the amount treated as taxable income) on some withdrawals. However, there is
usually no penalty on distributions:
(1) on or after you reach 59-1/2;
(2) after you die (or after the annuitant dies, if the owner isn't an
individual);
(3) after you become disabled; or
(4) that are part of a series of substantially equal periodic (at least
annual) payments for your life (or life expectancy) or the joint life
(or life expectancy) of you and your beneficiary.
Possible Tax Changes. In recent years, legislation has been proposed that would
adversely change the federal taxation of certain annuities. For example, one
proposal would have taxed income on non-qualified annuities that did not have
"substantial life contingencies" when it was credited to the annuity. As of the
date of this prospectus, Congress is not considering any legislation on annuity
taxation.
24
<PAGE>
However, there is always the possibility that the tax treatment of annuities
could change, and it's also possible that some changes could be retroactive
(that is, effective prior to the actual date of the change).
Transfers, Assignments, or Exchanges of a Contract
Transferring contract ownership, designating an annuitant, payee or other
beneficiary who is not also the owner, or exchanging a contract can have other
tax consequences that we don't discuss here. If you're thinking about any of
those transactions, contact a tax advisor.
Withholding
Annuity distributions usually are subject to withholding for the recipient's
federal income tax liability at rates that vary according to the type of
distribution and the recipient's tax status. However, recipients can usually
choose not to have tax withheld from distributions.
Multiple Contracts
In determining gross income, section 72(e) generally treats as one contract all
TIAA non-qualified deferred annuity contracts issued after October 21, 1988 to
the same owner during any calendar year. This could affect when income is
taxable and how much might be subject to the 10 percent penalty tax (see above).
It is possible, for instance, that if you take annuity payments from only one of
the contracts, they could be taxed like individual withdrawals (see above).
There might be other situations where Treasury concludes that it would be
appropriate to treat two or more annuity contracts purchased by the same owner
as if they were one contract. Consult a tax advisor before buying more than one
annuity contract for the purpose of gaining a tax advantage.
Possible Charge for TIAA's Taxes
Currently we don't charge the separate account for any federal, state, or local
taxes on it or its contracts (other than premium taxes--see page 17), but we
reserve the right to charge the separate account or the contracts for any tax or
other cost resulting from the tax laws that we believe should be attributed to
them.
Tax Advice
What we tell you here about federal and other taxes isn't comprehensive and is
for general information only. It doesn't cover every situation. Taxation varies
depending on the circumstances, and state and local taxes may also be involved.
For complete information on your personal tax situation, check with a qualified
tax advisor.
Voting Rights
The separate account doesn't plan to hold annual meetings of contractowners.
When contractowner meetings are held, contractowners generally can vote (1) to
25
<PAGE>
elect the management committee; (2) to ratify the selection of an independent
auditor for the separate account; and (3) on any other matter that requires a
vote by contractowners.
On the record date, you'll have one vote per dollar of your accumulation.
When we use the phrase "majority of outstanding voting securities" in this
prospectus and the SAI, we mean the lesser of (a) 67 percent of the voting
securities present, as long as the holders of at least half the voting
securities are present or represented by proxy; or (b) 50 percent of the
outstanding voting securities. If a majority of outstanding voting securities
isn't required to decide a question, we'll generally require a quorum of 10
percent of the securities, with a simple majority required to decide the issue.
If laws, regulations, or legal interpretations make it unnecessary to submit any
issue to a vote, or otherwise restrict your voting rights, we reserve the right
to act as permitted.
General Matters
Choices and Changes
As long as the contract permits, the contractowner (or the annuitant, the
annuity partner, beneficiary, or any other payee) can choose or change any of
the following: (1) an annuity starting date; (2) an income option; (3) a
transfer; (4) a method of payment for death benefits; (5) an annuity partner,
beneficiary, or other person named to receive payments; and (6) a cash
withdrawal or other distribution. You have to make your choices or changes via a
written notice satisfactory to us and received at our home office (see below).
You can change the terms of a transfer, cash withdrawal, or other cash
distribution only before they're scheduled to take place. When we receive a
notice of a change in beneficiary or other person named to receive payments,
we'll execute the change as of the date it was signed, even if the signer dies
in the meantime. We execute all other changes as of the date received. As
already mentioned, we'll delay the effective date of some transactions until we
receive additional documentation (see "Remitting Premiums," page 13).
Telephone Transactions
You can use our Automated Service Center to check your accumulation balances
and/or your current allocation percentages, transfer between the separate
account and the fixed account, and/or allocate future premiums to the separate
account or the fixed account by telephone. To use the Automated Service Center,
you need to call 1 800 223-1200 on a touch-tone phone. You will be prompted
through whatever transactions you select. We'll use reasonable care to confirm
that instructions given by telephone are genuine. You will be asked for your
contract number and Personal Access Code (PAC) as part of these procedures. The
first time you call, you will have to change your PAC. Your PAC can be any 4- to
7-digit number you select, and can also be the same number you use to get
information about your Retirement Annuity or
26
<PAGE>
Supplemental Retirement Annuity through the TIAA-CREF Automated Telephone
Service. The Automated Service Center is available 24 hours a day. If you are
calling from a rotary phone, you may call weekdays between 8 a.m. and 8 p.m.,
Eastern Time--stay on the line after the initial greeting, and a service
representative will assist you. Calls may be recorded for verification.
Contacting TIAA
We won't consider any notice, form, request, or payment to have been received by
TIAA until it reaches our home office: Teachers Insurance and Annuity
Association of America, 730 Third Avenue, New York, New York 10017-3206. You can
ask questions by calling toll-free 1 800 223-1200.
Electronic Prospectuses
If you received this prospectus electronically and would like a paper copy,
please call 1 800 842-2733, extension 5509, and we will send it to you.
Signature Requirements
For some transactions, we may require your signature to be notarized or
guaranteed by a commercial bank or a member of a national securities exchange.
Distribution of the Contracts
The contracts are offered continuously by Teachers Personal Investors Services,
Inc. (TPIS) and, in some instances, TIAA-CREF Individual & Institutional
Services, Inc. (Services), which are both registered with the SEC as broker-
dealers, are members of the NASD and are direct or indirect subsidiaries of
TIAA. TPIS may be considered the "principal underwriter" for interests in the
contract. Anyone distributing the contract must be a registered representative
of either TPIS or Services, whose main offices are both at 730 Third Avenue, New
York, New York 10017-3206. No commissions are paid in connection with the
distribution of the contracts.
Legal Proceedings
The assets of the separate account are not subject to any legal actions. Neither
TIAA nor TPIS nor Advisors is involved in any legal action that we consider
material to its obligations to the separate account.
27
<PAGE>
Table of Contents for
Statement of Additional Information
<TABLE>
<CAPTION>
Page in the Statement of
Item Additional Information
- -------------------------------------------------- ------------------------
<S> <C>
Investment Restrictions B-3
Investment Policies and Risk Considerations B-4
Options and Futures B-4
Firm Commitment Agreements and Purchase of
"When-Issued" Securities B-7
Lending of Securities B-8
Repurchase Agreements B-8
Swap Transactions B-9
Segregated Accounts B-10
Other Investment Techniques and Opportunities B-10
Portfolio Turnover B-10
Valuation of Assets B-10
Equity Securities B-10
Money Market Instruments B-11
Options B-11
Investments for Which Market Quotations Are Not
Readily Available B-11
Management B-12
Separate Account Management Committee and Officers B-12
Compensation of Managers B-13
Investment Advisory and Related Services B-13
Custody of Portfolio B-13
Auditors B-13
Brokerage Allocation B-14
Performance Information B-15
Total Return Information for the Separate Account B-15
Performance Comparisons B-15
Illustrating Compounding, Tax Deferral, and Expense
Deductions B-16
Periodic Reports B-17
General Matters B-17
Assignment of Contracts B-17
Payment to an Estate, Guardian, Trustee, etc. B-17
Benefits Based on Incorrect Information B-17
Proof of Survival B-17
State Regulation B-17
Legal Matters B-18
Experts B-18
Additional Considerations B-18
Additional Information B-19
Financial Statements B-19
</TABLE>
28
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
Individual Deferred Variable Annuities
Funded Through
TIAA SEPARATE ACCOUNT VA-1
of
TEACHERS INSURANCE AND ANNUITY ASSOCIATION
OF AMERICA
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
This Statement of Additional Information is not a prospectus and should be read
in connection with the current prospectus dated May 1, 1997 (the "Prospectus"),
for the variable annuity that is the variable component of the contract. The
Prospectus is available without charge upon written or oral request to: Teachers
Insurance and Annuity Association of America, 730 Third Avenue, New York, New
York 10017-3206, Attention: Central Services; telephone 1 800 842-2733,
extension 5509. Terms used in the Prospectus are incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACTS.
[TIAA logo]
<PAGE>
TABLE OF CONTENTS
Location of
Page in the Additional
Statement of Information in
Additional Prospectus, if
Item Information applicable
- --------------------------- ------------ --------------
Investment Restrictions B-3 10-11
Investment Policies and
Risk Considerations B-4 8-11
Options and Futures B-4 10
Firm Commitment
Agreements and Purchase
of "When-Issued"
Securities B-7 11
Lending of Securities B-8 11
Repurchase Agreements B-8 11
Swap Transactions B-9 10
Segregated Accounts B-10
Other Investment
Techniques and
Opportunities B-10
Portfolio Turnover B-10
Valuation of Assets B-10 12
Equity Securities B-10
Money Market Instruments B-11
Options B-11
Investments for Which
Market Quotations Are
Not Readily Available B-11
Management B-12 12
Separate Account
Management Committee
and Officers B-12
Compensation of Managers B-13
Investment Advisory and
Related Services B-13 8, 12
Custody of Portfolio B-13
Auditors B-13
Brokerage Allocation B-14
Performance Information B-15 11
Total Return Information
for the Separate Account B-15
Performance Comparisons B-15
Illustrating Compounding,
Tax Deferral, and
Expense Deductions B-16
Periodic Reports B-17
General Matters B-17
Assignment of Contracts B-17
Payment to an Estate,
Guardian, Trustee, etc. B-17
Benefits Based on
Incorrect Information B-17
Proof of Survival B-17
State Regulation B-17 7
Legal Matters B-18 27
Experts B-18
Additional Considerations B-18
Additional Information B-19
Financial Statements B-19 6
B-2
<PAGE>
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies with respect to the separate
account and may not be changed without the approval of a majority of the
outstanding voting securities, as that term is defined under the 1940 Act, in
the separate account:
1. The separate account will not issue senior securities except as SEC
regulations permit;
2. The separate account will not borrow money, except: (a) the separate
account 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 separate account's assets at the time of borrowing), and,
from other sources, for temporary purposes (only in amounts not exceeding 5%
of the separate account's total assets taken at market value at the time of
borrowing). Money may be temporarily obtained through bank borrowing, rather
than through the sale of portfolio securities, when such borrowing appears
more attractive for the separate account;
3. The separate account 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 separate account 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 separate account will not make an investment in an industry if after
giving effect to that investment the separate account's holding in that
industry would exceed 25% of the separate account's total assets--this
restriction, however, does not apply to investments in obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities;
6. The separate account will not purchase real estate or mortgages directly;
7. The separate account will not purchase commodities or commodities
contracts, except to the extent futures are purchased as described herein;
8. The separate account will not make loans, except: (a) that it 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
102% of the market value of the loaned securities, or such lesser percentage
as may be permitted by the New York State Insurance Department (not to fall
below 100% of the market value of the loaned securities), as reviewed daily;
(b) loans through entry into repurchase agreements may be made; (c)
privately-placed debt securities may be purchased; or (d) participation
interests in loans, and similar investments, may be purchased; and
9. The separate account will not purchase any security on margin (except that
the separate account 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 in portfolio securities will not be considered a violation.
B-3
<PAGE>
INVESTMENT POLICIES AND RISK CONSIDERATIONS
Options and Futures
The separate account may engage in options and futures strategies to the extent
permitted by the New York State Insurance Department and subject to SEC and
Commodity Futures Trading Commission ("CFTC") requirements. It is not the
intention of the separate account to use options and futures strategies in a
speculative manner but rather to use them primarily as hedging techniques or for
cash management purposes.
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) the buying of covered put option contracts,
and the selling of put option contracts to close out a position acquired through
the purchase of such options; and (3) the selling of call option contracts or
the buying of put option contracts on groups of securities and on futures on
groups of securities and the buying of similar call option contracts or the
selling of 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 separate account 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 having a duration of 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. As the seller of a call option, the separate account 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.
The selling of a call option benefits the separate account 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 separate
account risks an "opportunity loss" of profits if the underlying security
appreciates above the aggregate value of the exercise price and the premium.
The separate account 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 which it had previously sold on that
security. Depending on the premium for the call option purchased by the separate
account, the separate account 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
separate account, as 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 separate account, 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.
The separate account 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
B-4
<PAGE>
on the security. Depending on the premium of the put option sold by the separate
account, the separate account 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 separate account's portfolio
of securities. To the extent that the separate account'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 separate account 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
separate account 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 a 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
separate account 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.
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 separate account usually
will be liquidated in this manner, the separate account may instead make or take
delivery of the underlying securities or instruments whenever it appears
economically advantageous to the separate account 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.
B-5
<PAGE>
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 simply 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 separate
account 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 separate account 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
separate account 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 separate account
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
separate account upon the purchase or sale of a futures contract. Initially, the
separate account 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 separate account 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 separate account 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 separate account will receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the separate
account 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
separate account would be required to make a variation margin payment to the
broker. At any time prior to expiration of the futures contract, the separate
account may elect to close the position by taking an opposite position which
will operate to terminate the separate account'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 separate account, and the
separate account realizes a loss or a gain. All margin payments will be made to
a custodian in the broker's name.
There are several risks in connection with the use by the separate account 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 separate account 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 separate account's portfolio securities or instruments
sought to be hedged.
B-6
<PAGE>
Successful use of futures contracts by the separate account 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 separate
account 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 separate account's portfolio may decline.
If this occurred, the separate account 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 separate account'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 separate account has
hedged against the possibility of the decline in the market adversely affecting
stocks held in its portfolio and stock prices increased instead, the separate
account 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 separate account 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 separate account 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 and the portion of the portfolio
being hedged, even a correct forecast of general market trends by Advisors still
may not result in a successful hedging transaction over a very short time
period.
The separate account may also use futures contracts and options on futures
contracts to manage its cash flow more effectively. To the extent that the
separate account 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 separate account'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% ).
Options and futures transactions may increase the separate account's transaction
costs and portfolio turnover rate and will be initiated only when consistent
with its investment objectives.
Firm Commitment Agreements and Purchase of "When-Issued" Securities
The separate account can enter into firm commitment agreements for the purchase
of securities on a specified future date. When the separate account enters into
firm commitment agreements, liability for the purchase price--and the rights and
risks of ownership of the securities--accrues to the separate account at the
time it becomes obligated to purchase such securities, although delivery and
payment occur at a later date. Accordingly,
B-7
<PAGE>
if the market price of the security should decline, the effect of the agreement
would be to obligate the separate account to purchase the security at a price
above the current market price on the date of delivery and payment. During the
time the separate account is obligated to purchase such securities, it will be
required to segregate assets (see "Segregated Accounts," page B-10). The
separate account will not purchase securities on a "when issued" basis if, as a
result, more than 15% of its net assets would be so invested.
Lending of Securities
Subject to investment restriction 8(a) on page B-3 (relating to loans of
portfolio securities), the separate account may lend its securities to brokers
and dealers that are not affiliated with TIAA, 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 separate account 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 New York State Insurance Department (not
to fall below 100% of the market value of the loaned securities), as reviewed
daily. By lending its securities, the separate account 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
separate account by the borrower of the securities. Such loans will be
terminable by the separate account at any time and will not be made to
affiliates of TIAA. The separate account 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 separate account may pay reasonable fees to persons
unaffiliated with the separate account 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 recovering the loaned
securities, should the borrower of securities default, become the subject of
bankruptcy proceedings, or otherwise be unable to fulfill its obligations or
fail financially.
Repurchase Agreements
Repurchase agreements have the characteristics of loans by the separate account,
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 separate account 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 separate account's seller to deposit
with the separate account 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 separate account 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.
B-8
<PAGE>
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 separate account may otherwise invest.
If a seller of a repurchase agreement defaults and does not repurchase the
security subject to the agreement, the separate account 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 separate account; in such event the separate account 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 separate account may, to the extent permitted by the New York State
Insurance Department and 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.
By entering into swap transactions, the separate account may be able to protect
the value of a portion of its portfolio against declines in market value. The
separate account 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 separate account 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 separate account. However, there can be no assurance that the
return the separate account receives from the counterparty to the swap
transaction will exceed the return it swaps to that party.
While the separate account 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 separate account would be limited to
contractual remedies under the swap agreement. There can be no assurance that
the separate account will succeed when pursuing its contractual remedies. To
minimize the separate account's exposure in the event of default, the separate
account 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 separate account enters into swap transactions
on a net basis, the net amount of the excess, if any, of the separate account'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
separate account's custodian. To the extent the separate account enters into
swap transactions other than on a net basis, the amount segregated will be the
full amount of the separate account's obligations, if any, with respect to each
such swap agreement, accrued on a daily basis (see "Segregated Accounts," page
B-10).
Swap agreements may be considered illiquid by the SEC staff and subject to the
limitations on illiquid investments.
To the extent that there is an imperfect correlation between the return the
separate account is obligated to swap and the securities or instruments
representing such return, the value of the swap transaction may be adversely
B-9
<PAGE>
affected. The separate account therefore will not 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 the separate account 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
separate account.
Segregated Accounts
In connection with when-issued securities, firm commitment agreements, and
certain other transactions in which the separate account incurs an obligation to
make payments in the future, the separate account may be required to segregate
assets with its custodian bank in amounts sufficient to settle the transaction.
To the extent required, such segregated assets will consist of liquid assets
such as cash, United States Government securities or other appropriate high
grade debt obligations as may be permitted by law.
Other Investment Techniques and Opportunities
The separate account 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,
irrespective of how these actions may affect the weight of the particular
securities in the separate account's portfolio.
PORTFOLIO TURNOVER
The transactions engaged in by the separate account are reflected in the
separate account's 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 separate account'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 separate account and ultimately by the separate account's
contractowners. 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 separate account has no fixed policy on portfolio turnover. The portfolio
turnover rates for the separate account in 1996 and 1995 were 4.55% and
0.98%, respectively.
Because a higher portfolio turnover rate will increase brokerage costs to the
separate account, Advisors will carefully weigh the added costs of short-term
investment against the gains anticipated from such transactions.
VALUATION OF ASSETS
The assets of the separate account are valued as of the close of each valuation
day.
Equity Securities
Investments for which market quotations are readily available are valued at the
market value of such investments, determined as follows:
B-10
<PAGE>
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.
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 separate account 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 separate account 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 separate account writes a call option, the amount of the
premium is included in the separate account'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 separate account enters into a closing
purchase transaction it realizes a gain (or a loss if the cost of the
transaction exceeds the premium 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 separate account 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 separate
account'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 Management Committee (see "Management," below).
B-11
<PAGE>
MANAGEMENT
Separate Account Management Committee and Officers
The names of the members of the separate account Management Committee
("Managers") and certain officers of the separate account and information about
their principal occupations during the past five years are shown below:
<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 57 Manager Vice President, Business and Finance, and Treasurer,
Canisius College Canisius College
2001 Main Street
Buffalo, New York 14208
Jeanmarie C. Grisi Carnegie 38 Manager Treasurer, Carnegie Corporation of New York
Corporation of New York 437
Madison Avenue New York, New
York 10022
Richard M. Norman Rutgers 52 Manager Vice President for Administration and Associate Treasurer,
University Old Queens Building, Rutgers, The State University of New Jersey
Room 101 Somerset-George Street
New Brunswick, New Jersey 08903
Thomas W. Jones** 47 Chairman of the Vice Chairman, TIAA and CREF, since November 1995. President
Management Committee and Chief Operating Officer, TIAA and CREF, since January
and President 1993. Formerly, Executive Vice President, Finance and
Planning, TIAA and CREF
Thomas G. Walsh** 55 Manager and Executive President, Teachers Personal Investors Services, Inc., since
Vice President February 1994, and Executive Vice President, TIAA and CREF
Richard L. Gibbs 50 Executive Vice Executive Vice President, TIAA and CREF, since March 1993,
President and Vice President, TIAA-CREF Investment Management, Inc.
("Investment Management") and TIAA-CREF Individual &
Institutional Services, Inc. ("Services"), since January
1992. Formerly, Vice President, Finance, TIAA and CREF
Peter C. Clapman 60 Senior Vice Senior Vice President and Chief Counsel, Investments, TIAA
President, Secretary and CREF
and Chief Counsel,
Investments
Richard J. Adamski 54 Vice President and Vice President and Treasurer, Investment Management and
Treasurer Services, since January 1992, and Vice President and
Treasurer, TIAA and CREF
</TABLE>
- ---------------
* The address for all officers of the separate account is 730 Third Avenue, New
York, New York 10017-3206. ** These Managers are or may be "interested persons"
within the meaning of the Investment Company Act of 1940.
B-12
<PAGE>
Compensation of Managers
Managers who are not active officers of TIAA each receive $2,500 per year, plus
$1,000 for each meeting of the Management Committee attended. Managers who are
active officers of TIAA do not receive any additional compensation for their
services as Managers. The following table sets forth the compensation paid by
the separate account to Managers for the year ended December 31, 1996:
<TABLE>
<CAPTION>
(2) (3)
Aggregate Pension or Retirement (4) (5)
(1) Compensation Benefits Accrued As Estimated Total
Name of Person, From Separate Part of Separate Benefits Upon Compensation From
Position Account Account Expenses Retirement Fund Complex
- ------------------------ --------------- ------------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Laurence W. Franz, $5,500 $-0- $-0- $5,500
Manager
Jeanmarie C. Grisi, $ -0-* $-0- $-0- $ -0-
Manager
Richard M. Norman, $5,500 $-0- $-0- $5,500
Manager
</TABLE>
- --------------------
* Ms. Grisi declined to accept compensation for her services.
INVESTMENT ADVISORY AND RELATED SERVICES
Investment advisory services and related services for the separate account are
provided by personnel of Teachers Advisors, Inc. ("Advisors"). Advisors is a
subsidiary of TIAA and is registered as an investment adviser under the
Investment Advisers Act of 1940. Advisors manages the investment and
reinvestment of the assets of the separate account, subject to the direction and
control of the Management Committee of the separate account. The advisory
personnel of Advisors perform all research, make recommendations, and place
orders for the purchase and sale of securities. Advisors also provides for all
portfolio accounting, custodial, and related services for the assets of the
separate account.
As described in the Prospectus, the investment management agreement between
Advisors and the separate account provides for payment by the separate account
of an investment advisory fee of 0.30% of assets annually. Currently, with
Advisors waiving a portion of that fee, a daily deduction from the net assets of
the separate account is made at an annual rate of 0.07% for expenses related to
the management of the assets of the separate account.
Custody of Portfolio
The custodian for the assets of the separate account is Bankers Trust Company,
16 Wall Street, New York, New York 10015.
Auditors
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281,
serves as the separate account's independent auditors and, in that regard,
provides general auditing services for the separate account.
B-13
<PAGE>
BROKERAGE ALLOCATION
Advisors is responsible for decisions to buy and sell securities for the
separate account 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
price, execution, and available data. When purchasing or selling securities
traded on the over-the-counter market, Advisors generally will execute the
transaction 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 separate account, its personnel may, consistent with their fiduciary
obligations, decide either to buy or to sell a particular security for the
separate account at the same time as for (i) a CREF account that they may also
be managing on behalf of TIAA-CREF Investment Management, Inc. ("Investment
Management"), another investment adviser also affiliated with TIAA, or (ii) any
other investment company whose assets Advisors may be managing. 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 separate account. The aggregate amount of brokerage
commissions paid by the separate account during 1996, 1995, and 1994 was
$60,134, $22,442, and $16,886, respectively.
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 commissions may be available from
brokers not providing such services. Advisors follows guidelines established by
the Management Committee of the separate account for the placing of orders with
brokers providing such services. In 1996, no brokerage commissions were paid by
the separate account to such brokers as a result of such allocation.
Research or services obtained for the separate account may be used by personnel
of Advisors in managing 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
separate account.
During 1996, the separate account acquired securities of certain of its regular
brokers or dealers or their parents, where the parent derives more than 15% of
its total income from securities related activities. These entities and the
value of the securities of these entities held by the separate account as of
December 31, 1996, are set forth below:
A. Regular broker or dealer based on brokerage commission paid
Bear, Stearns & Co. Inc.
(Parent-Bear, Stearns Cos., Inc.) $145,731
B. Regular broker or dealer based on entities acting as principal
Lehman Commercial Paper Inc.
(Parent-Lehman Brothers Holdings, Inc.) $160,012
Morgan (J.P.) Securities Corp.
(Parent-Morgan (J.P.) & Co., Inc.) $790,762
B-14
<PAGE>
PERFORMANCE INFORMATION
Total Return Information for the Separate Account
Total return quotations for the separate account may be advertised. Total return
quotations will reflect all aspects of the separate account's return. Average
annual total returns are determined by finding the average annual compounded
rate of return over a period that reflects the growth (or decline) in value of a
hypothetical $1,000 investment made at the beginning of the period through the
end of that period, according to the following formula:
P(1 + T)n = EV
where: P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years in the period
EV = ending value of the hypothetical investment at the
end of the 1, 5, or 10 year period.
To derive the total return quotations from this formula, the percentage net
change in the value of the $1,000 investment from the beginning of the period to
the end of such period ("cumulative total return") is determined. Cumulative
total returns simply reflect the change in value of an investment over a stated
period. Since the accumulation unit value is a "total return" unit value that
reflects the investment experience of the separate account and all expense
deductions made against the assets of the separate account, the ending value, or
EV, of the $1,000 hypothetical investment is determined by applying the
percentage change in the accumulation unit value over the period to the
hypothetical initial payment of $1,000 less the current deductions from premiums
(0%). We then solve the equation for T to derive the average annual compounded
rate of return for the separate account over the span of the period, and the
resulting "total return" quotation is carried out to the nearest hundredth of
one percent.
Set forth below is the total return information for the separate account, which
reflects all deductions made from the assets in the account, applied to a
hypothetical investment of $1,000:
<TABLE>
<CAPTION>
Average Annual
Compound Rate Cumulative Rate
Period of Total Return of Total Return
- ------- --------------- ------------------
<S> <C> <C>
1 year
(from January 1, 1996 to December 31, 1996) 21.54% 21.54%
2 years and 2 months
(from November 1, 1994 date of SEC registration
to December 31, 1996) 24.91% 61.91%
</TABLE>
Performance Comparisons
Performance information for the separate account may be compared, in
advertisements, sales literature, and reports to contractowners and annuitants,
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) the S&P 500, (2) the Dow Jones Industrial Average ("DJIA"), (3) Lipper
Analytical Services, Inc. Mutual Fund Performance Analysis Reports and the
Lipper General Equity Funds Average, (4) Money Magazine Fund Watch, (5) Business
Week's Mutual Fund Scoreboard, (6) SEI Funds Evaluation Services Equity Fund
Report, (7) CDA Mutual
B-15
<PAGE>
Funds Performance Review and CDA Growth Mutual Fund Performance Index, (8) Value
Line Composite Average (geometric), (9) Wilshire 5000 Equity Index, (10) Russell
1000, 2000, and 3000 indices, (11) the Consumer Price Index, published by the
U.S. Bureau of Labor Statistics (measurement of inflation), (12) VARDS, and (13)
Morningstar, Inc. 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 separate account also may be compared to other indices or
averages that measure performance of a pertinent group of securities.
Contractowners should keep in mind that the composition of the investments in
the reported averages will not be identical to that of the separate account and
that certain formula calculations (i.e., yield) may differ from index to index.
In addition, there can be no assurance that the separate account will continue
its performance as compared to such indices.
The separate account 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 separate account 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 separate account or
its 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
TIAA 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 separate account. 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.
TIAA 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 separate account's expense charges to those of other variable
annuities and other investment products.
B-16
<PAGE>
PERIODIC REPORTS
Prior to the time an entire accumulation has been withdrawn in cash or
transferred to the fixed account a contractowner will be sent a statement each
quarter which sets forth the following:
(1) Premiums paid during the quarter; (2) the number and dollar value of
accumulation units in the separate account credited to the contractowner during
the quarter and in total; (3) cash withdrawals from the separate account during
the quarter; and (4) any transfers between the separate account and the fixed
account during the quarter.
The separate account also will transmit to contractowners, at least
semi-annually, reports showing the financial condition of the separate account
and a schedule of investments held in the separate account in which they have
accumulations.
GENERAL MATTERS
Assignment of Contracts
You can assign the contract at any time.
Payment to an Estate, Guardian, Trustee, etc.
We reserve the right to pay in one sum the commuted value of any benefits due an
estate, corporation, partnership, trustee or other entity not a natural person.
Neither TIAA nor the separate account will be responsible for the conduct of any
executor, trustee, guardian, or other third party to whom payment is made.
Benefits Based on Incorrect Information
If the amounts of benefits provided under a contract were based on information
that is incorrect, benefits will be recalculated on the basis of the correct
data. If any overpayments or underpayments have been made by the separate
account, appropriate adjustments will be made.
Proof of Survival
We reserve the right to require satisfactory proof that anyone named to receive
benefits under a contract is living on the date payment is due. If this proof is
not received after a request in writing, the separate account will have the
right to make reduced payments or to withhold payments entirely until such proof
is received.
STATE REGULATION
TIAA and the separate account are subject to regulation by the New York State
Superintendent of Insurance ("Superintendent") as well as by the insurance
regulatory authorities of certain other states and jurisdictions.
TIAA and the separate account must file with the Superintendent both quarterly
and annual statements on forms promulgated by the New York State Insurance
Department. The separate account books and assets are subject to review and
examination by the Superintendent and the Superintendent's agents at all times,
and a full examination into the affairs of the separate account is made at least
every five years. In addition, a full examination of the separate account's
operations is usually conducted periodically by some other states.
B-17
<PAGE>
LEGAL MATTERS
All matters of applicable state law pertaining to the contracts, including
TIAA's right to issue the contracts, have been passed upon by Charles H. Stamm,
Executive Vice President and General Counsel of TIAA. Legal matters relating to
the federal securities laws have been passed upon by Sutherland, Asbill &
Brennan, L.L.P., Washington, D.C.
EXPERTS
The financial statements of TIAA and the separate account included in this
Statement of Additional Information have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein (which report
on the financial statements of TIAA expresses an opinion that such financial
statements are presented in conformity with statutory accounting practices, a
comprehensive basis of accounting as described in Note 2, and not in conformity
with generally accepted accounting principles), and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
ADDITIONAL CONSIDERATIONS
Over the past several years, TIAA and CREF have added many new investment
vehicles to their line of products. The growing family of TIAA and CREF products
is designed to provide additional investment options for those who want to
diversify their holdings. Most experts recommend diversification as a good
strategy for retirement and other long-term investing, both because a
diversified portfolio offers a degree of safety from the volatility of specific
markets, and because it allows the investor to benefit from the potential for
growth in several different types of investments.
The separate account's Stock Index Account is ideal for people who are seeking
growth and are able to make long-term investments. Although past performance is
no guarantee of future results, in the past stocks have outperformed many other
types of investments. Investors who seek to counter the effects of inflation on
their long- term investments should therefore consider investing in stocks. The
Stock Index Account could be an appropriate investment for someone who is
seeking to supplement his or her retirement income, to purchase a retirement
home, finance an extended trip, or build a fund for philanthropic purposes. Of
course, there is no guarantee that the investment objective of that or any other
fund will be met.
Before investing, you should consider whether your pension plan and social
security payments will meet your retirement needs. You should look at your
assets and liabilities to help determine whether you need to invest more money
to help provide retirement income. You should consider how much time you have
until retirement and the effect of inflation and taxes on your savings and
investments. You should also keep in mind that experts say that people need 70%
to 80% of their pre-retirement income to maintain the same standard of living
after retirement. Before contributing to a contract, you should consider whether
you have already reached your contribution limit on your TIAA-CREF basic
Retirement Annuities, Supplemental Retirement Annuities, and other 403(b)
savings plans. Consult your tax advisor to learn more about these limits. You
should also consider the risks of any investment relative to its potential
rewards. In particular, you should be aware of the risk that arises from market
timing.
Market timing is an investment technique whereby amounts are transferred from
one category of investment to another (for example, from stocks to bonds) based
upon a perception of how each of those categories of investments will perform
relative to the others at a particular time. Investors who engage in market
timing run the risk
B-18
<PAGE>
that they may transfer out of a type of investment with a rising market value or
transfer into a type of investment with a falling market value. We do not
endorse the practice of market timing. The variety of issues to consider
highlights the importance of the support and services that TIAA provides. These
services include: (1) retirement and life insurance planning expertise from
professional counselors rather than commissioned salespeople; (2) detailed
information through quarterly transaction reports, newsletters and other
publications about retirement planning; and (3) seminars, individual counseling,
a Participant Information Center, and 24-hour toll-free numbers for transactions
and inquiries. If you request it, we will send you periodic reminders to remit
premiums to the contract.
ADDITIONAL INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the 1933 Act, with respect to the contracts discussed in the
Prospectus and in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments, and exhibits
thereto has been included in the Prospectus or this Statement of Additional
Information. Statements contained herein concerning the contents of the
contracts and other legal instruments are intended to be summaries. For a
complete statement of the terms of these documents, reference should be made to
the instruments filed with the Commission.
FINANCIAL STATEMENTS
The audited financial statements of the separate account and TIAA follow.
The financial statements of TIAA should be distinguished from the financial
statements of the separate account and should be considered only as bearing upon
the ability of TIAA to meet its obligations under the contracts. They should not
be considered as bearing on the investment performance of the assets held in the
separate account.
B-19
<PAGE>
INDEX TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Page
-----
TIAA Separate Account VA-1--Stock Index Account
Report of Management Responsibility B-21
Report of Independent Auditors B-22
Audited Financial Statements
Statement of Assets and Liabilities B-23
Statement of Operations B-24
Statements of Changes in Net Assets B-25
Notes to Financial Statements B-26
Statement of Investments B-29
Teachers Insurance and Annuity Association of America
Chairman's Letter B-51
Report of Management Responsibility B-52
Report of Independent Auditors B-53
Audited Financial Statements
Balance Sheets B-55
Statements of Operations B-56
Statements of Changes in Contingency Reserves B-57
Statements of Cash Flows B-58
Notes to Financial Statements B-59
B-20
<PAGE>
[TIAA logo]
REPORT OF MANAGEMENT RESPONSIBILITY
To the Contractowners of TIAA Separate Account VA-1:
The accompanying financial statements of the Stock Index Account ("Account") of
TIAA Separate Account VA-1 ("VA-1") are the responsibility of management. They
have been prepared in accordance with generally accepted accounting principles
and have been presented fairly and objectively in accordance with such
principles.
Teachers Insurance and Annuity Association of America ("TIAA") has established
and maintains a strong system of internal controls designed to provide
reasonable assurance that assets are properly safeguarded and transactions are
properly executed in accordance with management's authorization, and to carry
out the ongoing responsibilities of management for reliable financial
statements. In addition, TIAA's internal audit personnel provide a continuing
review of the internal controls and operations of TIAA, including its separate
account operations. The internal Auditor regularly reports to the Audit
Committee of the TIAA Board of Trustees and to the Management Committee of VA-1.
The accompanying financial statements have been audited by the independent
auditing firm of Deloitte & Touche LLP. The independent auditors' report, which
appears on the following page, expresses an independent opinion on the fairness
of presentation of these financial statements.
The Audit Committee of the TIAA Board of Trustees, consisting of trustees who
are not officers of TIAA, and the Management Committee of VA-1, the majority of
which are not officers of TIAA, meet regularly with management, representatives
of Deloitte & Touche LLP and internal auditing personnel to review matters
relating to financial reporting, internal controls and auditing.
/s/ Thomas W. Jones
-----------------------------------
Chairman of
Management Committee and President
/s/ Thomas G Walsh
-----------------------------------
Manager and
Executive Vice President
Richard Gibbs
-----------------------------------
Principal Accounting Officer
and Executive Vice President
B-21
<PAGE>
[Deloitte and Touche Letterhead]
REPORT OF INDEPENDENT AUDITORS
To the Contractowners and Management Committee of
TIAA Separate Account VA-1:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of the Stock Index Account of TIAA Separate
Account VA-1 ("VA-1") as of December 31, 1996, and the related statements of
operations for the year then ended and of changes in net assets for each of the
years in the two year period then ended. These financial statements are the
responsibility of VA-1's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1996, by correspondence with
the custodians and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Stock Index Account of VA-1 at December
31, 1996, the results of its operations and the changes in its net assets for
the above-stated periods, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
February 6, 1997
[Deloitte Touche Tohmatsu logo]
B-22
<PAGE>
TIAA SEPARATE ACCOUNT VA-1
STOCK INDEX ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
ASSETS
Investments, at cost ..................................... $235,212,131
Net unrealized appreciation of investments ............... 48,682,049
--------------
Investments, at value .................................... 283,894,180
Cash ..................................................... 494,960
Dividends and interest receivable ........................ 491,523
Receivable from securities transactions .................. 945,510
Amounts due from General Account ......................... 66,034
--------------
TOTAL ASSETS 285,892,207
--------------
LIABILITIES
Payable for securities transactions ...................... 2,846,861
--------------
TOTAL LIABILITIES 2,846,861
--------------
NET ASSETS--Accumulation Fund ............................. $283,045,346
==============
NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 5 and 6 ... 6,767,696
==============
NET ASSET VALUE, PER ACCUMULATION UNIT--Note 5 ............ $41.82
==============
B-23
<PAGE>
TIAA SEPARATE ACCOUNT VA-1
STOCK INDEX ACCOUNT
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
INVESTMENT INCOME
Income:
Dividends ........................................... $ 3,932,066
Interest ............................................ 103,095
------------
TOTAL INCOME 4,035,161
------------
Expenses--Note 3:
Investment advisory charges ......................... 567,238
Administrative expenses ............................. 378,136
Mortality and expense risk charges .................. 232,520
------------
EXPENSES BEFORE WAIVER 1,177,894
Investment advisory charges waived--Note 3 .......... (426,181)
------------
NET EXPENSES 751,713
------------
INVESTMENT INCOME--NET 3,283,448
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS--Note 4
Net realized gain on investments .................... 2,455,871
Net change in unrealized appreciation on investments 32,294,163
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 34,750,034
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $38,033,482
============
B-24
<PAGE>
TIAA SEPARATE ACCOUNT VA-1
STOCK INDEX ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1996 1995
------------ -----------
<S> <C> <C>
FROM OPERATIONS
Investment income--net ............................... $ 3,283,448 $ 1,146,430
Net realized gain on investments ..................... 2,455,871 481,973
Net change in unrealized appreciation on investments . 32,294,163 16,241,820
------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 38,033,482 17,870,223
------------ ------------
FROM CONTRACTOWNER TRANSACTIONS
Premiums ............................................. 144,253,413 61,534,705
TIAA seed money withdrawn--Note 1 .................... (92,970) (33,252,105)
Contractowner transfers from fixed account ........... 17,326,369 14,563,961
Withdrawals .......................................... (5,711,031) (683,251)
Death benefits ....................................... (391,510) (2,296)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM CONTRACTOWNER TRANSACTIONS 155,384,271 42,161,014
------------ ------------
NET INCREASE IN NET ASSETS 193,417,753 60,031,237
NET ASSETS
Beginning of year .................................... 89,627,593 29,596,356
------------ ------------
End of year .......................................... $283,045,346 $ 89,627,593
============ ============
</TABLE>
B-25
<PAGE>
TIAA SEPARATE ACCOUNT VA-1
STOCK INDEX ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
TIAA Separate Account VA-1 ("VA-1") is a segregated investment account of
Teachers Insurance and Annuity Association of America ("TIAA") and was organized
on February 16, 1994 under the insurance laws of the State of New York for the
purpose of issuing and funding variable annuity contracts. VA-1 was registered
with the Securities and Exchange Commission ("Commission") effective November 1,
1994 as an open-end, diversified management investment company under the
Investment Company Act of 1940. Currently, VA-1 consists of a single investment
portfolio, the Stock Index Account ("Account"), which invests in a diversified
portfolio of equity securities selected to track the overall United States stock
market.
The Account was established on October 3, 1994 with a $25,000,000 seed money
investment by TIAA. TIAA purchased 1,000,000 Accumulation Units of the Account
and such Units shared in the pro rata investment experience of the Account and
were subject to the same valuation procedures and expense deductions as all
other Accumulation Units in the Account. On November 14, 1994, VA-1 began to
offer Accumulation Units of the Account to participants other than TIAA. On
October 2, 1995, TIAA began to withdraw its Accumulation Units from the Account
at prevailing daily net asset values. At December 31, 1996 all of TIAA's
Accumulation Units have been withdrawn and such withdrawals for both 1995 and
1996 are reflected in the accompanying financial statements.
Teachers Advisors, Inc. ("Advisors"), an indirect subsidiary of TIAA which is
registered with the Commission as an investment adviser, provides investment
advisory services for VA-1 pursuant to an Investment Management Agreement
between TIAA, Advisors and VA-1. TIAA provides all administrative services for
VA-1 pursuant to an Administrative Services Agreement with VA-1. The contracts
are distributed primarily by Teachers Personal Investors Services, Inc.
("TPIS"), also an indirect subsidiary of TIAA, which is registered with the
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consistently
followed by the Account, 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 and in accordance with the
responsibilities of the Management Committee of VA-1.
Accounting for Investments: Securities transactions are accounted for as of the
date the securities are purchased or sold (trade date). 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. Realized gains and losses on security transactions are
accounted for on the average cost basis.
Federal Income Taxes: Based on provisions of the Internal Revenue Code, no
federal taxes are attributable to the net investment experience of the
Account.
B-26
<PAGE>
TIAA SEPARATE ACCOUNT VA-1
STOCK INDEX ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3--MANAGEMENT AGREEMENTS
Daily charges are deducted from the net assets of the Account for services
required to manage investments, administer the separate account and the
contracts, and to cover certain insurance risks borne by TIAA. The Investment
Management Agreement sets the investment advisory charge at an annual rate of
0.30% of the net assets of the Account. Currently, Advisors has agreed to waive
a portion of such fee, so that effective April 1, 1996 the daily deduction is
equivalent to an annual charge of 0.07% of the net assets of the Account. Prior
to April 1, 1996, this daily deduction was equivalent to an annual charge of
0.10% of the net assets of the Account. The Administrative Services Agreement
sets the administrative expense charge at an annual rate of 0.20% of the net
assets of the Account. TIAA also imposes a daily charge for bearing certain
mortality and expense risks in connection with the contracts. Effective April 1,
1996 this daily charge is equivalent to an annual rate of 0.10% of the net
assets of the Account. Prior to April 1, 1996, this daily charge was equivalent
to an annual rate of 0.25% of the net assets of the Account.
NOTE 4--INVESTMENTS
At December 31, 1996, the net unrealized appreciation on investments was
$48,682,049, consisting of gross unrealized appreciation of $53,776,637 and
gross unrealized depreciation of $5,094,588.
Purchases and sales of securities, other than short-term money market
instruments, for the year ended December 31, 1996, were $167,765,508 and
$8,516,651, respectively.
NOTE 5--CONDENSED FINANCIAL INFORMATION
Selected condensed financial information for an Accumulation Unit of the Account
is presented below.
<TABLE>
<CAPTION>
October 3, 1994
Years Ended (date established)
December 31, to December 31,
1996 1995 1994
----------- ----------- ------------------
<S> <C> <C> <C>
Per Accumulation Unit Data:
Investment income ............................. $ .807 $ .745 $ .206
Expenses ...................................... .150 .170 .034
----------- ----------- ------------------
Investment income--net ........................ .657 .575 .172
Net realized and unrealized gain on investments 6.755 8.565 .099
----------- ----------- ------------------
Net increase in Accumulation Unit Value ....... 7.412 9.140 .271
Accumulation Unit Value:
Beginning of period ........................... 34.411 25.271 25.000
----------- ----------- ------------------
End of period ................................. $41.823 $34.411 $25.271
=========== =========== ==================
Total return ................................... 21.54% 36.17% 1.08%
Ratios to Average Net Assets:
Expenses (1) .................................. 0.40% 0.55% 0.13%
Investment income--net ........................ 1.74% 1.87% 0.68%
Portfolio turnover rate ........................ 4.55% 0.98% 0.04%
Thousands of Accumulation Units outstanding at
end of period ................................ 6,768 2,605 1,171
</TABLE>
(1) Advisors has agreed to waive a portion of its investment advisory fee.
Without this waiver, the Account's expense ratio for the periods listed would
have been higher (see Note 3 of the notes to financial statements).
B-27
<PAGE>
TIAA SEPARATE ACCOUNT VA-1
STOCK INDEX ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6--ACCUMULATION UNITS
Changes in the number of Accumulation Units outstanding were as follows:
Years Ended December 31,
1996 1995
----------- -----------
Accumulation Units:
Credited for premiums 3,851,585 1,999,245
Credited (cancelled) for transfers and disbursements 311,506 (565,817)
Outstanding:
Beginning of year 2,604,605 1,171,177
----------- -----------
End of year 6,767,696 2,604,605
=========== ===========
B-28
<PAGE>
TIAA SEPARATE ACCOUNT VA-1
STATEMENT OF INVESTMENTS--STOCK INDEX ACCOUNT
DECEMBER 31, 1996 SUMMARY
VALUE %
-------------- ---------
PREFERRED STOCK
HEALTHCARE--SERVICE $ 31,331 0.01%
-------------- ---------
TOTAL PREFERRED STOCK
(Cost $25,431) 31,331 0.01
-------------- ---------
COMMON STOCK
AEROSPACE 3,913,024 1.38
AIR TRANSPORTATION 1,505,178 0.53
AUTOMOTIVE & RELATED 6,487,346 2.29
BANKS 23,992,041 8.48
BEVERAGES 8,366,950 2.96
BROADCASTERS 2,144,661 0.76
BUSINESS SERVICES 4,172,825 1.47
CHEMICALS--MAJOR 6,000,173 2.12
CHEMICALS--SPECIALTY 2,815,378 0.99
COMMUNICATION EQUIPMENT &
SERVICES 7,860,099 2.78
COMPUTER SERVICE 11,463,947 4.05
CONGLOMERATES 5,931,987 2.10
CONSTRUCTION--MATERIALS &
BUILDERS 1,824,702 0.64
CONTAINERS 365,089 0.13
COSMETICS 1,960,112 0.69
ELECTRICAL EQUIPMENT 9,381,150 3.31
ELECTRICAL EQUIPMENT--
COMPONENTS DIVERSIFIED 10,902,897 3.85
ELECTRICAL EQUIPMENT--
INSTRUMENTS 1,107,847 0.39
ENVIRONMENTAL CONTROL 1,470,948 0.52
FINANCIAL--MISCELLANEOUS 12,003,932 4.24
FOODS 5,963,224 2.11
FOREST PRODUCTS 1,211,899 0.43
HEALTHCARE--DRUGS 16,434,419 5.81
HEALTHCARE--HOSPITAL SUPPLY 5,844,986 2.07
HEALTHCARE--OTHER 2,698,847 0.95
HEALTHCARE--SERVICE 5,241,811 1.85
HOUSEHOLD--CONSUMER ELECTRONICS 71,708 0.03
HOUSEHOLD--DURABLE GOODS 989,150 0.35
HOUSEHOLD--PRODUCTS 5,594,473 1.98
INSURANCE--BROKERS & OTHER 913,050 0.32
INSURANCE--LIFE 2,053,224 0.73
INSURANCE--MULTI-LINE,
PROPERTY & CASUALTY 8,557,255 3.02
LEISURE TIME 3,607,651 1.27
MACHINERY $ 4,067,153 1.44%
METALS--ALUMINUM 649,336 0.23
METALS--GOLD 910,768 0.32
METALS--NON-FERROUS 697,660 0.25
METALS--STEEL 905,342 0.32
MISCELLANEOUS MATERIALS &
COMMODITIES 31,950 0.01
OFFICE EQUIPMENT 10,061,415 3.55
PAPER 1,862,576 0.66
PETROLEUM--EXPLORATION &
PRODUCTION 2,877,943 1.02
PETROLEUM--INTEGRATED 13,825,352 4.88
PETROLEUM--SERVICE 2,798,605 0.99
PHOTOGRAPHY 1,252,575 0.44
PROPERTY--REAL ESTATE 593,048 0.21
PUBLISHING--NEWSPAPER 1,466,777 0.52
PUBLISHING--OTHER 1,862,010 0.66
RAILROAD 2,427,857 0.86
RESTAURANTS & HOTELS 3,801,361 1.34
RETAIL--FOOD 1,952,482 0.69
RETAIL--GENERAL MERCHANDISE 10,376,164 3.66
TEXTILE & APPAREL 1,442,018 0.51
TOBACCO 5,000,848 1.77
TRUCKERS & SHIPPING 707,072 0.25
UTILITIES--ELECTRIC 10,360,741 3.66
UTILITIES--GAS & PIPELINE 3,941,450 1.39
UTILITIES--OTHER 23,000 0.01
UTILITIES--TELEPHONE 15,815,522 5.59
-------------- ---------
TOTAL COMMON STOCK
(Cost $233,886,895) 282,563,008 99.83
-------------- ---------
SHORT TERM INVESTMENTS
U.S. GOVERNMENTS & AGENCIES 1,299,604 0.46
-------------- ---------
TOTAL SHORT TERM INVESTMENTS
(Cost $1,299,805) 1,299,604 0.46
-------------- ---------
ROUNDING 237 0.00
-------------- ---------
TOTAL PORTFOLIO
(Cost $235,212,131) 283,894,180 100.30
-------------- ---------
OTHER ASSETS & LIABILITIES, NET (848,834) (0.30)
-------------- ---------
NET ASSETS $283,045,346 100.00%
============== =========
See notes to financial statements.
B-29
<PAGE>
TIAA SEPARATE ACCOUNT VA-1
STATEMENT OF INVESTMENTS--STOCK INDEX ACCOUNT
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
SHARES VALUE
- --------- --------------
PREFERRED STOCK--0.01%
HEALTHCARE--SERVICE--0.01%
389 AETNA, INC CV 6.25% $ 30,876
3,500 * FRESENIUS MEDICAL CARE (CLASS D) 455
--------------
31,331
--------------
TOTAL PREFERRED STOCK
(Cost $25,431) 31,331
--------------
COMMON STOCK--99.83%
AEROSPACE--1.38%
14,377 BOEING CO 1,529,353
2,400 EG & G, INC 48,300
2,300 GENERAL DYNAMICS CORP 162,150
4,200 GENERAL MOTORS CORP (CLASS H) 236,250
2,000 * HEXCEL CORP 32,500
6,796 LOCKHEED MARTIN CORP 621,834
6,400 MCDONNELL DOUGLAS CORP 409,600
2,100 NORTHROP GRUMMAN CORP 173,775
1,100 OEA, INC 50,325
1,800 * ORBITAL SCIENCES CORP 31,050
1,400 PRECISION CAST PARTS CORP 69,475
10,000 RAYTHEON CO 481,250
1,100 * ROHR, INC 24,887
1,900 * WYMAN-GORDON CO 42,275
--------------
3,913,024
--------------
AIR TRANSPORTATION--0.53%
1,550 AIR EXPRESS INTERNATIONAL CORP 49,987
1,100 AIRBORNE FREIGHT CORP 25,712
3,400 AMERICA WEST AIRLINES, INC
(CLASS B) 53,975
3,500 * AMR CORP 308,437
1,100 ATLANTIC SOUTHEAST AIRLINES, INC 24,062
700 * ATLAS AIR, INC 33,425
2,025 COMAIR HOLDINGS, INC 48,600
1,400 * CONTINENTAL AIRLINES, INC
(Class B) 39,550
2,800 DELTA AIRLINES, INC 198,450
1,000 EXPEDITORS INTERNATIONAL OF
WASHINGTON 23,000
5,000 * FEDERAL EXPRESS CORP 222,500
3,000 * NORTHWEST AIRLINES CORP
(Class A) 117,375
6,300 SOUTHWEST AIRLINES CO $ 139,387
2,400 * U.S. AIR GROUP, INC 56,100
2,500 * UAL CORP NEW 156,250
1,300 * VALUJET, INC 8,368
--------------
1,505,178
--------------
AUTOMOTIVE & RELATED--2.29%
1,600 * ALLEN GROUP, INC 35,600
1,200 * AMERICREDIT CORP 24,600
1,300 APOGEE ENTERPRISES, INC 51,675
1,300 ARVIN INDUSTRIES, INC 32,175
1,800 BANDAG, INC 85,275
1,400 BORG-WARNER AUTOMOTIVE, INC 53,900
900 BREED TECHNOLOGIES, INC 23,400
25,800 CHRYSLER CORP 851,400
2,800 COOPER TIRE & RUBBER CO 55,300
1,900 CUMMINS ENGINE CO, INC 87,400
4,600 DANA CORP 150,075
1,900 DANAHER CORP 88,587
2,800 EATON CORP 195,300
2,700 ECHLIN, INC 85,387
1,100 EXIDE CORP 25,300
1,800 FEDERAL-MOGUL CORP 39,600
47,800 FORD MOTOR CO 1,523,625
1,300 GENCORP, INC 23,562
31,226 GENERAL MOTORS CORP 1,740,849
4,900 GENUINE PARTS CO 218,050
6,000 GOODYEAR TIRE & RUBBER CO 308,250
3,200 HARLEY DAVIDSON, INC 150,400
70 HAYES WHEELS INTERNATIONAL, INC 2,695
2,700 * LEAR CORP 92,137
1,300 MODINE MANUFACTURING CO 34,775
3,500 * NAVISTAR INTERNATIONAL CORP 31,937
1,600 PACCAR, INC 108,800
2,100 POLARIS INDUSTRIES, INC 49,875
1,200 * RENTERS CHOICE, INC 17,400
900 * SAFESKIN CORP 43,875
3,100 SAFETY-KLEEN CORP 50,762
2,850 SNAP-ON, INC 101,531
1,100 STANDARD PRODUCTS CO 28,050
1,100 SUPERIOR INDUSTRIES
INTERNATIONAL, INC 25,437
2,700 TRANSPRO, INC 24,637
See notes to financial statements.
B-30
<PAGE>
SHARES VALUE
- --------- --------------
1,400 WABASH NATIONAL CORP $ 25,725
--------------
6,487,346
--------------
BANKS--8.48%
2,900 AMSOUTH BANCORP 140,287
17,585 BANC ONE CORP 756,155
2,300 BANCORP HAWAII, INC 96,600
15,900 BANK OF NEW YORK CO, INC 536,625
14,900 BANKAMERICA CORP 1,486,275
6,135 BANKBOSTON CORP 394,173
3,100 BANKERS TRUST NEW YORK CORP 267,375
7,700 BARNETT BANKS, INC 316,662
6,400 BOATMENS BANCSHARES, INC 412,800
800 CAPITAL ONE FINANCIAL CORP 28,800
1,600 CCB FINANCIAL CORP 109,200
3,050 CENTRAL FIDELITY BANKS, INC 78,537
2,100 CHARTER ONE FINANCIAL, INC 88,200
17,820 CHASE MANHATTAN CORP NEW 1,590,435
19,846 CITICORP N.A. 2,044,138
2,400 CITY NATIONAL CORP 51,900
2,945 CNB BANCSHARES, INC 122,953
4,700 COMERICA, INC 246,162
8,897 CORESTATES FINANCIAL CORP 461,531
2,051 CRESTAR FINANCIAL CORP 152,543
1,900 CULLEN FROST BANKERS, INC 63,175
2,000 DAUPHIN DEPOSIT CORP 66,000
3,400 DEPOSIT GUARANTY CORP 105,400
4,600 * DIME BANCORP, INC 67,850
3,700 FIFTH THIRD BANCORP 232,406
1,800 FIRST AMERICAN CORP 103,725
5,526 FIRST BANK SYSTEM, INC 377,149
12,853 FIRST CHICAGO NBD CORP 690,848
2,060 FIRST COMMERCE CORP 80,082
2,594 FIRST COMMERCIAL CORP 96,302
2,860 FIRST FINANCIAL BANCORP 92,950
1,800 FIRST HAWAIIAN, INC 63,000
3,458 FIRST MICHIGAN BANK CORP 102,443
2,787 FIRST OF AMERICA BANK CORP 167,568
3,400 FIRST SECURITY CORP 114,750
3,000 FIRST TENNESSEE NATIONAL CORP 112,500
11,186 FIRST UNION CORP 827,764
3,000 FIRSTAR CORP NEW 157,500
2,500 FIRSTMERIT CORP 88,750
10,527 FLEET FINANCIAL GROUP, INC NEW 525,034
1,200 GREENPOINT FINANCIAL CORP 56,850
5,194 HIBERNIA CORP (CLASS A) 68,820
6,343 HUNTINGTON BANCSHARES, INC 167,296
700 * IMPERIAL BANCORP 16,800
1,400 * IMPERIAL CREDIT INDUSTRIES, INC $ 29,400
9,200 KEYCORP NEW 464,600
2,300 LONG ISLAND BANCORP, INC 80,500
3,200 MAGNA GROUP, INC 94,400
4,200 MARSHALL & ILSLEY CORP 145,425
5,450 MELLON BANK CORP 386,950
2,900 MERCANTILE BANCORP, INC 148,987
2,837 MERCANTILE BANKSHARES CORP 90,784
8,100 MORGAN (J.P.) & CO, INC 790,762
9,077 NATIONAL CITY CORP 407,330
1,100 NATIONAL COMMERCE BANCORP 42,075
11,740 NATIONSBANK CORP 1,147,585
1,700 NORTH FORK BANCORP, INC 60,562
4,800 NORTHERN TRUST CORP 174,000
15,100 NORWEST CORP 656,850
2,432 OLD KENT FINANCIAL CORP 116,128
3,162 OLD NATIONAL BANCORP 124,108
1,600 ONBANCORP, INC 59,400
2,875 ONE VALLEY BANCORP, INC 106,734
1,000 PEOPLES BANK OF BRIDGEPORT CO 28,875
2,400 PEOPLES HERITAGE FINANCIAL
GROUP, INC 67,200
13,350 PNC BANK CORP 502,293
3,028 REGIONS FINANCIAL CORP 156,509
2,400 REPUBLIC NEW YORK CORP 195,900
900 RIGGS NATIONAL CORP 15,525
2,779 SIGNET BANKING CORP 85,454
4,825 SOUTHERN NATIONAL CORP 174,906
4,500 SOUTHTRUST CORP 156,937
5,375 SOVEREIGN BANCORP, INC 70,546
2,600 ST. PAUL BANCORP, INC 76,375
1,100 STANDARD FEDERAL BANCORP 62,562
1,400 STAR BANC CORP 128,625
3,500 STATE STREET BOSTON CORP 225,750
4,078 SUMMIT BANCORP 178,412
9,200 SUNTRUST BANKS, INC 453,100
5,100 SYNOVUS FINANCIAL CORP 163,837
6,629 U.S. BANCORP 297,890
2,532 UNION PLANTERS CORP 98,748
3,280 VALLEY NATIONAL BANCORP 84,050
7,100 WACHOVIA CORP NEW 401,150
2,970 WASHINGTON FEDERAL, INC 78,705
2,800 WASHINGTON MUTUAL, INC 121,275
3,824 WELLS FARGO & CO 1,031,524
2,000 WILMINGTON TRUST CORP 79,000
1,000 ZIONS BANCORP 104,000
--------------
23,992,041
See notes to financial statements.
B-31
<PAGE>
SHARES VALUE
- --------- --------------
BEVERAGES--2.96%
18,600 ANHEUSER BUSCH COS, INC $ 744,000
2,000 BROWN FORMAN, INC (CLASS B) 91,500
103,000 COCA COLA CO 5,420,375
3,000 COCA COLA ENTERPRISES, INC 145,500
2,000 COORS (ADOLPH) CO (CLASS B) 38,000
65,900 PEPSICO, INC 1,927,575
--------------
8,366,950
--------------
BROADCASTERS--0.76%
1,100 * AMERICAN RADIO SYSTEMS CORP 29,975
900 * BHC COMMUNICATIONS, INC
(CLASS A) 91,237
2,000 * CLEAR CHANNEL COMMUNICATIONS,
INC 72,250
10,989 COMCAST CORP (CLASS A) SPL 195,741
1,450 * EVERGREEN MEDIA CORP (CLASS A) 36,250
3,163 GAYLORD ENTERTAINMENT CO 72,353
3,000 * HERITAGE MEDIA CORP
(CLASS A) NEW 33,750
4,800 * INFINITY BROADCASTING CORP
(CLASS A) 161,400
1,400 * JACOR COMMUNICATIONS, INC WTS
9/18/01 2,800
1,300 * KING WORLD PRODUCTIONS, INC 47,937
6,475 * LIBERTY MEDIA GROUP (CLASS A) 184,942
1,200 * LIN TELEVISION CORP 50,700
6,300 SCRIPPS (E.W.) CO (CLASS A) 220,500
900 TCA CABLE TV, INC 27,112
2,580 * TCI SATELLITE ENTERTAINMENT
(CLASS A) 25,477
26,800 * TELE-COMMUNICATIONS, INC
(CLASS A) NEW 350,075
600 UNITED TELEVISION, INC 51,675
4,300 * VIACOM, INC (CLASS A) 148,350
9,000 * VIACOM, INC (CLASS B) 313,875
1,700 * WESTWOOD ONE, INC 28,262
--------------
2,144,661
--------------
BUSINESS SERVICES--1.47%
2,883 * ACCUSTAFF, INC 60,903
3,133 * ACNEILSEN CORP 47,386
2,700 ADVO, INC 37,800
2,000 * AFFILIATED COMPUTER SERVICES,
INC (CLASS A) 59,500
1,200 * ALTERNATIVE RESOURCES CORP 20,850
3,300 * AMERICA ONLINE, INC 109,725
1,900 * APOLLO GROUP, INC (CLASS A) 63,531
800 * ASPEN TECHNOLOGY INC 64,200
1,900 AUTODESK, INC $ 53,200
2,300 BANTA CORP 52,612
4,100 BLOCK (H&R), INC 118,900
900 * CABLEVISION SYSTEMS CORP
(CLASS A) 27,562
1,400 * CATALINA MARKETING CORP 77,175
1,500 * CHECKPOINT SYSTEMS, INC 37,125
500 * CIBER INC 15,000
1,600 CINTAS CORP 94,000
6,800 COGNIZANT CORP 224,400
1,100 * COMPUTER HORIZONS CORP 42,350
3,000 * COMPUTERVISION CORP 27,750
1,350 * CORESTAFF, INC 31,978
3,400 * CORPORATE EXPRESS, INC 100,087
3,500 * CORRECTIONS CORP OF AMERICA 107,187
1,000 * CREDENCE SYSTEMS CORP 20,125
3,400 DELUXE CORP 111,350
700 * DIALOGIC CORP 22,050
2,300 DIEBOLD, INC 144,612
2,047 * DOUBLETREE CORP 92,115
500 * ENCAD, INC 20,625
1,800 FIRST INDUSTRIAL REALTY TRUST,
INC 54,675
2,000 * FORE SYSTEMS, INC $ 65,750
1,600 * FRANKLIN QUEST CO 33,600
900 * FRITZ COS, INC 11,475
800 * GATEWAY 2000, INC 42,850
1,800 HARLAND (JOHN H.) CO 59,400
600 * HCIA, INC 20,700
800 * INSO CORP 31,800
1,300 * INTERIM SERVICES, INC 46,150
2,900 INTERPUBLIC GROUP OF COS, INC 137,750
700 * ITRON, INC 12,425
1,900 KELLY SERVICES, INC (CLASS A) 51,300
2,700 LIBERTY PROPERTY TRUST CO 69,525
3,000 MANPOWER, INC 97,500
1,775 * MCAFEE ASSOCIATES, INC 78,100
1,300 * MICRO WAREHOUSE, INC 15,275
1,600 * NATIONAL EDUCATION CORP 24,400
2,300 NATIONAL SERVICE INDUSTRIES, INC 85,962
5,000 * OFFICE DEPOT, INC 88,750
2,814 OLSTEN CORP 42,561
3,100 OMNICOM GROUP, INC 141,825
2,400 PAYCHEX, INC 123,450
1,700 PHH CORP 73,100
1,900 PITTSTON BRINKS GROUP CO 51,300
1,426 * PURE ATRIA CORP 35,293
See notes to financial statements.
B-32
<PAGE>
SHARES VALUE
- --------- --------------
800 * REMEDY CORP $ 43,000
2,600 * ROBERT HALF INTERNATIONAL, INC 89,375
3,200 SENSORMATIC ELECTRONICS CORP 53,600
9,500 SERVICE CORP INTERNATIONAL 266,000
2,000 * SUNGARD DATA SYSTEMS, INC 79,000
300 * SYLVAN LEARNING SYSTEMS, INC 8,550
700 * THERMOLASE CORP 11,025
1,600 * TRACOR, INC 34,000
1,900 TRUE NORTH COMMUNICATIONS, INC 41,562
2,100 * U.S. CELLULAR CORP 58,537
1,000 * VERIFONE, INC 29,500
600 * WACKENHUT CORRECTIONS CORP 12,000
1,000 WALLACE COMPUTER SERVICES, INC 34,500
700 * WIND RIVER SYSTEMS, INC 33,162
--------------
4,172,825
--------------
CHEMICALS--MAJOR--2.12%
4,400 AIR PRODUCTS & CHEMICALS, INC 304,150
1,800 ARCADIAN CORP 47,700
900 * CHEMFIRST, INC (W/I) 20,812
9,800 DOW CHEMICAL CO 768,075
23,000 DU PONT (E.I.) DE NEMOURS & CO 2,170,625
3,400 EASTMAN CHEMICAL CO 187,850
2,700 GOODRICH (B.F.) CO 109,350
4,200 HERCULES, INC 181,650
1,800 MISSISSIPPI CHEMICAL CORP 43,200
24,500 MONSANTO CO 952,437
1,700 * OAK TECHNOLOGY, INC 19,125
2,000 OLIN CORP 75,250
7,800 PPG INDUSTRIES, INC 437,775
6,400 PRAXAIR, INC 295,200
600 * QUINTILES TRANSNATIONAL CORP 39,750
1,700 ROHM & HAAS CO 138,762
5,100 UNION CARBIDE CORP 208,462
--------------
6,000,173
--------------
CHEMICALS--SPECIALTY--0.99%
2,400 * AIRGAS, INC 52,800
2,300 ALBEMARLE CORP 41,687
1,400 BETZDEARBORN, INC 81,900
2,700 CALGON CARBON CORP 33,075
1,700 COMMERCIAL METALS CO 51,212
3,100 CROMPTON & KNOWLES CORP 59,675
2,100 * CYTEC INDUSTRIES, INC 85,312
1,300 DEXTER CORP 41,437
2,400 ECOLAB, INC 90,300
4,450 ENGELHARD CORP $ 85,106
5,000 ETHYL CORP 48,125
1,200 FERRO CORP 34,050
1,800 FOSTER WHEELER CORP 66,825
600 FULLER (H.B.) CO 28,200
1,800 GEON CO 35,325
1,700 GEORGIA GULF CORP 45,687
3,800 GRACE (W.R.) & CO 196,650
2,600 GREAT LAKES CHEMICAL CORP 121,550
2,634 ICN PHARMACEUTICALS, INC NEW 51,692
2,780 IMC GLOBAL, INC 108,767
2,100 * INTERNATIONAL SPECIALTY
PRODUCTS, INC 25,725
2,600 LAWTER INTERNATIONAL, INC 32,825
1,500 LOCTITE CORP 91,312
2,500 LUBRIZOL CORP 77,500
2,100 LYONDELL PETROCHEMICAL CO 46,200
3,200 MALLINCKRODT, INC 141,200
5,800 MORTON INTERNATIONAL, INC 236,350
1,900 * MYCOGEN CORP 40,850
3,100 NALCO CHEMICAL CORP 111,987
1,900 RAYCHEM CORP 152,237
3,825 RPM, INC 65,025
2,100 SCHULMAN (A.), INC 51,450
1,900 * SEALED AIR CORP 79,087
2,100 SIGMA ALDRICH CORP 131,118
2,000 TERRA INDUSTRIES, INC 29,500
1,000 THIOKOL CORP 44,750
1,500 WELLMAN, INC 25,687
2,400 WITCO CORP 73,200
--------------
2,815,378
--------------
COMMUNICATION EQUIPMENT &
SERVICES--2.78%
5,266 * 360 COMMUNICATIONS CO 121,776
7,042 * 3COM CORP 516,706
1,150 ACC CORP 34,787
20,700 * AIRTOUCH COMMUNICATIONS, INC 522,675
2,450 * ANDREW CORP 130,003
1,300 * ANTEC CORP 11,700
1,000 * APAC TELESERVICES INC 38,375
1,900 * ARCH COMMUNICATIONS GROUP, INC 17,812
5,100 * ASCEND COMMUNICATIONS, INC 316,837
1,400 * AVID TECHNOLOGIES, INC 14,525
3,400 * BRINKER INTERNATIONAL, INC 54,400
1,300 * CABLE DESIGN TECHNOLOGIES CO 40,462
4,800 * CABLETRON SYSTEMS, INC 159,600
See notes to financial statements.
B-33
<PAGE>
SHARES VALUE
- --------- --------------
2,800 * CASCADE COMMUNICATIONS CORP $ 154,350
2,700 CENTURY TELEPHONE ENTERPRISES,
INC 83,362
4,800 * CHYRON CORP 13,800
28,400 * CISCO SYSTEMS, INC 1,806,950
2,100 COMSAT CORP SERIES 1 51,712
9,300 CORNING, INC 430,125
5,000 * DSC COMMUNICATIONS CORP 89,375
2,400 * DSP COMMUNICATIONS, INC 46,500
1,000 * DYNATECH CORP 44,250
1,300 * GENERAL DATACOMM INDUSTRIES, INC 13,650
3,700 * GEOTEK COMMUNICATIONS, INC 26,362
1,800 HARRIS CORP 123,525
1,000 * HIGHWAYMASTER COMMUNICATIONS,
INC 18,125
1,100 * INTERCEL, INC 13,475
1,000 * INTERMEDIA COMMUNICATIONS, INC 25,750
1,600 * INTERNATIONAL CABLETEL, INC 40,400
700 * JACOR COMMUNICATIONS, INC 19,162
3,500 * LCI INTERNATIONAL, INC 75,250
700 * LEVEL ONE COMMUNICATIONS, INC 25,025
26,091 * LUCENT TECHNOLOGIES, INC 1,206,708
1,300 * MACROMEDIA, INC 23,400
500 * MASTEC, INC 26,500
4,044 * MFS COMMUNICATIONS CO, INC 220,398
1,700 * NETWORK EQUIPMENT TECHNOLOGIES,
INC 28,050
2,300 * NEW WORLD COMMUNICATIONS GROUP,
INC 58,075
12,000 * NOVELL, INC 113,625
2,000 * OCTEL COMMUNICATIONS CORP 35,000
1,300 * OMNIPOINT CORP 25,025
800 * P-COM, INC 23,700
4,800 * PAGING NETWORK, INC 73,200
2,800 * PAIRGAIN TECHNOLOGIES, INC 85,225
3,100 * PANAMSAT CORP 86,800
1,200 * PICTURETEL CORP NEW 31,200
1,400 * PMT SERVICES, INC 24,500
700 * PREMIERE TECHNOLOGIES INC 17,500
1,200 * PREMISYS COMMUNICATIONS, INC 40,500
2,200 * QUALCOMM, INC 87,725
1,400 * RENAISSANCE COMMUNICATIONS CORP 50,050
3,100 SCIENTIFIC-ATLANTA, INC $ 46,500
1,000 * SITEL CORP 14,125
2,000 * TECH DATA CORP 54,750
900 * TEL-SAVE HOLDINGS, INC 26,100
1,400 * TELE-COMMUNICATIONS
INTERNATIONAL (CLASS A) 18,550
6,800 * TELLABS, INC 255,850
2,700 * VANGUARD CELLULAR SYSTEMS, INC 42,525
1,500 * WESTELL TECHNOLOGIES, INC
(CLASS A) 34,312
1,400 * WINSTAR COMMUNICATIONS, INC 29,400
--------------
7,860,099
--------------
COMPUTER SERVICE--4.05%
3,200 * ACXIOM CORP 76,800
4,400 * ADAPTEC, INC 176,000
5,400 * ADC TELECOMMUNICATIONS, INC 168,075
2,700 ADOBE SYSTEMS, INC 100,912
2,250 * AMERICAN MANAGEMENT SYSTEMS, INC 55,125
2,000 * AUSPEX SYSTEMS, INC 23,250
11,800 AUTOMATIC DATA PROCESSING, INC 505,925
600 * AVANT CORP 19,050
7,302 * BAY NETWORKS, INC 152,429
900 * BBN CORP 20,250
400 * BDM INTERNATIONAL, INC 21,700
1,700 * BISYS GROUP, INC 63,006
4,200 * BMC SOFTWARE, INC 173,775
1,000 * BOSTON TECHNOLOGY, INC 28,750
1,000 * BRODERBUND SOFTWARE, INC 29,750
1,400 * C-CUBE MICROSYSTEMS, INC 51,712
3,825 * CADENCE DESIGN SYSTEMS, INC 152,043
1,700 * CAMBRIDGE TECHNOLOGY PARTNERS,
INC 57,056
400 * CDW COMPUTER CENTERS, INC 23,725
2,700 * CERIDIAN CORP 109,350
2,100 * CHECKFREE CORP 35,962
1,200 * CITRIX SYSTEMS, INC 46,875
500 * CLARIFY INC 24,000
3,800 * COMPUSA, INC 78,375
12,000 COMPUTER ASSOCIATES
INTERNATIONAL, INC 597,000
2,948 * COMPUTER SCIENCES CORP 242,104
1,700 * COMPUWARE CORP 85,212
900 * CYRIX CORP 15,975
See notes to financial statements.
B-34
<PAGE>
SHARES VALUE
- --------- --------------
1,000 * DIAMOND MULTIMEDIA SYSTEMS, INC $ 11,875
1,700 * DST SYSTEMS, INC 53,337
2,100 * ELECTRONIC ARTS, INC 62,868
13,700 ELECTRONIC DATA SYSTEMS CORP 592,525
8,800 * EMC CORP 291,500
1,000 * EMPLOYEE SOLUTIONS, INC 20,500
17,306 FIRST DATA CORP 631,669
2,300 * FISERV, INC 84,525
1,300 * FORTE SOFTWARE, INC 42,575
2,200 * GT INTERACTIVE SOFTWARE CORP 15,675
3,500 HBO & CO 207,812
1,200 * HMT TECHNOLOGY CORP 18,018
1,000 * HNC SOFTWARE 31,250
2,330 * IMATION CORP 65,531
6,100 * INFORMIX CORP 124,287
900 * INTEGRATED SYSTEMS, INC 23,400
2,500 * INTERGRAPH CORP 25,625
1,800 * INTUIT, INC 56,700
1,500 * LEARNING CO, INC 21,562
1,000 * LEGATO SYSTEMS, INC 32,625
1,300 * MEDIC COMPUTER SYSTEMS, INC 52,406
2,700 * MENTOR GRAPHICS CORP 26,325
1,750 * MICROCHIP TECHNOLOGY, INC 89,031
1,100 * MICRON ELECTRONICS, INC 21,381
34,400 * MICROSOFT CORP 2,842,300
1,600 NATIONAL DATA CORP 69,600
2,000 * NETMANAGE, INC 12,000
2,000 * NETSCAPE COMMUNICATIONS CORP 113,750
2,500 * NETWORK GENERAL CORP 75,625
1,000 * OBJECTIVE SYSTEMS INTEGRATORS,
INC 23,875
20,850 * ORACLE CORP 870,487
5,500 * PARAMETRIC TECHNOLOGY CORP 282,562
3,000 * PEOPLESOFT, INC 143,812
1,200 * PHYSICIAN COMPUTER NETWORK, INC 10,200
1,100 * PIXAR INC 14,300
2,700 * PLATINUM TECHNOLOGY, INC 36,787
1,200 * POLICY MANAGEMENT SYSTEMS CORP 55,350
1,400 * PSINET, INC 15,225
1,700 * RATIONAL SOFTWARE CORP 67,256
1,800 * READ RITE CORP 45,450
4,300 REYNOLDS & REYNOLDS CO (CLASS A) 111,800
1,800 * SAFEGUARD SCIENTIFICS, INC 57,150
700 * SCOPUS TECHNOLOGY, INC $ 32,550
1,400 * SECURITY DYNAMICS TECHNOLOGIES,
INC 44,100
1,000 SHARED MEDICAL SYSTEMS CORP 49,250
1,400 * SHIVA CORP 48,825
3,111 * STERLING COMMERCE INC 109,662
1,200 * STERLING SOFTWARE, INC 37,950
1,200 * STRUCTURAL DYNAMICS RESEARCH
CORP 24,000
3,100 * SYBASE, INC 51,731
2,600 * SYMANTEC CORP 37,700
1,800 * SYNOPSYS, INC 83,250
1,600 SYSTEM SOFTWARE ASSOCIATES, INC 17,000
1,000 * SYSTEMSOFT CORP 14,875
900 * TECHNOLOGY SOLUTIONS CO 37,350
1,400 * TRANSACTION SYSTEM ARCHITECTURE 46,550
1,700 * VANSTAR CORP 41,650
1,000 * VANTIVE CORP (THE) 31,250
600 * VERITAS SOFTWARE CORP 29,850
800 * VIASOFT INC 37,800
800 * VIDEOSERVER, INC 34,000
300 * VISIO CORP 14,850
900 * YAHOO INC 15,300
1,700 * ZEBRA TECHNOLOGY CORP 39,737
--------------
11,463,947
--------------
CONGLOMERATES--2.10%
5,300 ALCO STANDARD CORP 273,612
2,800 ALEXANDER & BALDWIN, INC 70,000
10,100 ALLIED SIGNAL, INC 676,700
1,600 AMERICAN FINANCIAL GROUP, INC 60,400
2,800 * ANIXTER INTERNATIONAL, INC 45,150
1,100 * BLYTH INDUSTRIES, INC 50,187
2,500 * COLTEC INDUSTRIES, INC 47,187
2,475 * CONCORD EFS, INC 69,918
2,600 * COPYTELE, INC 12,837
2,400 CRANE CO 69,600
5,000 ITT INDUSTRIES, INC 122,500
1,900 JOHNSON CONTROLS, INC 157,462
3,150 KEYSTONE FINANCIAL, INC 78,750
2,000 * LITTON INDUSTRIES, INC 95,250
3,000 LOEWS CORP 282,750
3,032 MARK IV INDUSTRIES, INC 68,599
1,800 * METROMEDIA INTERNATIONAL GROUP,
INC 17,775
16,900 MINNESOTA MINING & MANUFACTURING
CO 1,400,587
See notes to financial statements.
B-35
<PAGE>
SHARES VALUE
- --------- --------------
6,600 * ROCKWELL INTERNATIONAL CORP NEW $ 401,775
1,800 SCHULLER CORP 19,125
1,700 STANDEX INTERNATIONAL CORP 52,487
3,100 TEXTRON, INC 292,175
5,400 TRW, INC 267,300
5,900 TYCO INTERNATIONAL LTD 311,962
2,700 * U.S. INDUSTRIES, INC 92,812
10,600 UNITED TECHNOLOGIES CORP 699,600
4,000 VIAD CORP 66,000
5,100 WHITMAN CORP 116,662
600 ZEIGLER COAL HOLDING CO 12,825
--------------
5,931,987
--------------
CONSTRUCTION--MATERIALS &
BUILDERS--0.64%
2,100 ARMSTRONG WORLD INDUSTRIES, INC 145,950
2,500 BAY APARTMENT COMMUNITIES, INC 90,000
1,466 * CASTLE & COOKE, INC 23,272
1,200 * CDI CORP 34,050
1,500 CENTEX CORP 56,437
2,700 * CHAMPION ENTERPRISES, INC 52,650
3,906 CLAYTON HOMES, INC 52,731
1,200 * EAGLE HARDWARE & GARDEN, INC 24,900
1,400 FASTENAL CO 64,050
1,600 FLEETWOOD ENTERPRISES, INC 44,000
1,300 * JACOBS ENGINEERING GROUP, INC 30,712
2,700 KAUFMAN & BROAD HOME CORP 34,762
3,178 LAFARGE CORP 63,957
1,900 LENNAR CORP 51,775
2,779 MARTIN MARIETTA MATERIALS, INC 64,611
6,900 MASCO CORP 248,400
1,050 * MILLER INDUSTRIES, INC 21,000
2,000 OAKWOOD HOMES CORP 45,750
2,300 OWENS CORNING CO 98,037
1,900 PLY-GEM INDUSTRIES, INC 23,512
1,100 PULTE CORP 33,825
3,100 SHERWIN-WILLIAMS CO 173,600
3,664 SIMON DEBARTOLO GROUP, INC 113,584
1,700 * SOLA INTERNATIONAL, INC 64,600
2,100 * USG CORP 71,137
1,600 VULCAN MATERIALS CO 97,400
--------------
1,824,702
--------------
CONTAINERS--0.13%
1,739 BALL CORP 45,214
4,000 CROWN CORK & SEAL CO, INC $ 217,500
4,500 * OWENS ILLINOIS, INC 102,375
--------------
365,089
--------------
COSMETICS--0.69%
5,500 AVON PRODUCTS, INC 314,187
18,200 GILLETTE CO 1,415,050
4,000 INTERNATIONAL FLAVORS &
FRAGRANCES, INC 180,000
1,000 LAUDER (ESTEE) CO (CLASS A) 50,875
--------------
1,960,112
--------------
ELECTRICAL EQUIPMENT--3.31%
3,400 * AMERICAN POWER CONVERSION CORP 92,650
2,400 AMETEK, INC 53,400
1,800 BELDEN, INC 66,600
4,800 DURACELL INTERNATIONAL, INC 335,400
9,100 EMERSON ELECTRIC CO 880,425
68,200 GENERAL ELECTRIC CO 6,743,275
2,100 GENERAL SIGNAL CORP 89,775
1,900 GRAINGER (W.W.), INC 152,475
5,100 HONEYWELL, INC 335,325
3,260 HUBBELL, INC (CLASS B) 140,995
2,999 THOMAS & BETTS CORP 133,080
18,000 WESTINGHOUSE ELECTRIC CORP 357,750
--------------
9,381,150
--------------
ELECTRICAL EQUIPMENT--
COMPONENTS DIVERSIFIED--3.85%
5,400 * ADVANCED MICRO DEVICES, INC 139,050
1,900 * ALTERA CORP 138,106
9,000 AMP, INC 345,375
1,800 * AMPHENOL CORP (CLASS A) 40,050
5,225 * ANALOG DEVICES, INC 176,996
2,400 * ARROW ELECTRONICS, INC 128,400
3,900 * ATMEL CORP 129,187
2,100 AVNET, INC 122,325
1,500 AVX CORP 32,250
2,600 BALDOR ELECTRIC CO 64,025
1,200 * CHIPS & TECHNOLOGIES, INC 21,900
2,800 * CIRRUS LOGIC, INC 43,400
1,200 * COMPUTER PRODUCTS, INC 23,400
1,000 * COMVERSE TECHNOLOGY, INC 37,812
460 * CYBERGUARD CORP 5,577
3,200 * CYPRESS SEMICONDUCTOR CORP 45,200
2,000 DALLAS SEMICONDUCTOR CORP 46,000
1,900 * ESS TECHNOLOGY 53,437
1,200 * ETEC SYSTEMS, INC 45,900
See notes to financial statements.
B-36
<PAGE>
SHARES VALUE
- --------- --------------
1,300 FISHER SCIENTIFIC INTERNATIONAL,
INC $ 61,262
5,500 * GENERAL INSTRUMENT CORP NEW 118,937
500 * HADCO CORP 24,500
3,600 * INTEGRATED DEVICE TECHNOLOGY,
INC 49,050
35,500 INTEL CORP 4,648,281
2,200 * INTERNATIONAL RECTIFIER CORP 33,550
400 * JABIL CIRCUIT, INC 16,000
1,800 * KEMET CORP 41,850
1,600 * KENT ELECTRONICS CORP 41,200
1,400 * LAM RESEARCH CORP 39,375
1,400 * LATTICE SEMICONDUCTOR CORP 64,400
3,400 LINEAR TECHNOLOGY CO 149,175
5,000 * LSI LOGIC CORP 133,750
2,400 * MAGNETEK, INC 30,900
1,900 * MARSHALL INDUSTRIES, INC 58,187
2,800 * MAXIM INTEGRATED PRODUCTS 121,100
800 * MEMC ELECTRONIC MATERIALS, INC 18,000
2,100 METHODE ELECTRONICS, INC
(CLASS A) 42,525
7,300 MICRON TECHNOLOGY, INC 212,612
3,656 MOLEX, INC 143,041
24,300 MOTOROLA, INC 1,491,412
5,500 * NATIONAL SEMICONDUCTOR CORP 134,062
1,400 * NEWPORT NEWS SHIPBUILDING, INC 21,000
1,000 * OAK INDUSTRIES, INC NEW 23,000
2,100 * S3, INC 34,125
900 * SANMINA CORP 50,850
1,000 * SIERRA SEMICONDUCTOR CORP 15,000
1,200 * SYMBOL TECHNOLOGIES, INC 53,100
1,400 * TCSI CORP 8,750
7,700 TEXAS INSTRUMENTS, INC 490,875
1,900 * TRIMBLE NAVIGATION LTD 21,850
3,500 * U.S. ROBOTICS CORP 252,000
1,100 * UCAR INTERNATIONAL INC 41,387
1,000 * UNIPHASE CORP 52,500
1,500 * VICOR CORP 25,031
2,575 * VISHAY INTERTECHNOLOGY, INC. 60,190
1,000 * VITESSE SEMICONDUCTOR CORP 45,500
1,900 * VLSI TECHNOLOGY, INC 45,362
1,400 * WATERS CORP 42,525
1,900 * WESTERN DIGITAL CORP 108,062
1,200 WYLE ELECTRONICS 47,400
3,300 * XILINX, INC 121,481
1,200 * ZILOG, INC $ 31,350
--------------
10,902,897
--------------
ELECTRICAL EQUIPMENT--
INSTRUMENTS--0.39%
7,400 * APPLIED MATERIALS, INC 265,937
1,500 BECKMAN INSTRUMENTS, INC NEW 57,562
600 * COHERENT, INC 25,350
1,400 * DIONEX CORP 49,000
1,400 * ELECTRONICS FOR IMAGING, INC 115,150
1,000 * GENRAD, INC 23,250
1,700 * INPUT/OUTPUT, INC 31,450
2,100 * KLA INSTRUMENTS CORP 74,550
1,800 PERKIN-ELMER CORP 105,975
1,700 * SILICON VALLEY GROUP, INC 34,212
1,500 TEKTRONIX, INC 76,875
1,600 * TENCOR INSTRUMENTS 42,200
3,300 * TERADYNE, INC 80,437
700 * THERMO INSTRUMENT SYSTEMS, INC 23,187
1,500 VARIAN ASSOCIATES, INC 76,312
1,600 X RITE, INC 26,400
--------------
1,107,847
--------------
ENVIRONMENTAL CONTROL--0.52%
4,100 * ALLIED WASTE INDUSTRIES, INC 37,925
8,200 BROWNING FERRIS INDUSTRIES, INC 215,250
2,600 OGDEN CORP 48,750
6,100 * REPUBLIC INDUSTRIES, INC 190,243
1,950 * U.S. FILTER CORP 61,912
4,910 * U.S.A. WASTE SERVICES, INC 156,506
2,100 * UNITED WASTE SYSTEMS, INC 72,187
3,400 WHEELABRATOR TECHNOLOGIES, INC
NEW 55,250
19,400 WMX TECHNOLOGIES, INC 632,925
--------------
1,470,948
--------------
FINANCIAL--MISCELLANEOUS--4.24%
1,000 AAMES FINANCIAL CORP 35,875
2,100 ADVANTA CORP (CLASS A) 89,775
800 ALEX BROWN, INC 58,000
1,500 AMBAC, INC 99,562
19,500 AMERICAN EXPRESS CO 1,101,750
9,400 AMERICAN GENERAL CORP 384,225
1,600 * AMRESCO, INC 42,800
2,500 ASTORIA FINANCIAL CORP 92,187
1,700 AVALON PROPERTIES, INC 48,875
See notes to financial statements.
B-37
<PAGE>
SHARES VALUE
- --------- --------------
1,956 BEACON PROPERTIES CORP $ 71,638
5,228 BEAR STEARNS COS, INC 145,730
2,400 BENEFICIAL CORP 152,100
2,700 * CALIFORNIA FEDERAL BANCORP, INC 66,150
2,452 CAPSTEAD MORTGAGE CORP 58,848
2,300 CARR REALTY CORP 67,275
2,400 CASE CORP 130,800
4,000 * CATELLUS DEVELOPMENT CORP 45,500
500 * CITYSCAPE FINANCIAL CORP 13,125
2,000 CMAC INVESTMENT CORP 73,500
1,300 * COAST SAVINGS FINANCIAL, INC 47,612
1,500 COLLECTIVE BANCORP, INC 52,687
1,900 COMDISCO, INC 60,325
3,952 COUNTRYWIDE CREDIT INDUSTRIES,
INC 113,126
1,000 * CREDIT ACCEPTANCE CORP 23,500
2,300 CWM MORTGAGE HOLDINGS, INC 49,450
6,100 DEAN WITTER, DISCOVER & CO 404,125
1,600 DEVELOPERS DIVERSIFIED REALTY
CORP 59,400
1,800 DUKE REALTY INVESTMENTS, INC 69,300
240 * ECHELON INTERNATIONAL CORP 3,750
2,900 EDWARDS (A.G.), INC 97,512
800 * ENVOY CORP 30,000
2,400 EQUITY RESIDENTIAL PROPERTIES
TRUST CO 99,000
7,200 FEDERAL HOME LOAN MORTGAGE CORP 792,900
43,000 FEDERAL NATIONAL MORTGAGE
ASSOCIATION 1,601,750
3,100 FINANCIAL SECURITY
ASSURANCE HOLDINGS LTD 101,912
1,400 FINOVA GROUP, INC 89,950
2,750 FIRST FINANCIAL CORP (WISCONSIN) 67,375
4,900 FIRST USA, INC 169,662
4,218 FRANCHISE FINANCE CORP OF
AMERICA 116,522
2,300 FRANKLIN RESOURCES, INC 157,262
3,420 FULTON FINANCIAL CORP 73,530
2,300 * GARTNER GROUP, INC (CLASS A) NEW 89,556
1,800 GENERAL GROWTH PROPERTIES, INC 58,050
3,400 * GLENDALE FEDERAL SAVINGS BANK,
INC NEW 79,050
1,900 GOLDEN WEST FINANCIAL CORP 119,937
4,183 GREAT WESTERN FINANCIAL CORP 121,307
5,500 GREEN TREE FINANCIAL CORP $ 212,437
3,400 H.F. AHMANSON & CO 110,500
4,600 HEALTH AND RETIREMENT PROPERTY
TRUST 89,125
2,100 HIGHWOODS PROPERTIES, INC 70,875
3,900 HOUSEHOLD INTERNATIONAL, INC 359,775
5,100 LEHMAN BROTHERS HOLDINGS, INC 160,012
1,900 LEUCADIA NATIONAL CORP 50,825
7,950 MBNA CORP 329,925
3,400 MEDITRUST CORP 136,000
5,850 MERCURY FINANCE CO 71,662
7,600 MERRILL LYNCH & CO, INC 619,400
2,734 MERRY LAND & INVESTMENT CO, INC 58,781
3,800 MORGAN STANLEY GROUP, INC 217,075
3,957 NEW PLAN REALTY TRUST 100,408
1,500 * OLYMPIC FINANCIAL LTD 21,562
3,200 PAINE WEBBER GROUP INC 90,000
1,700 PENNCORP FINANCIAL GROUP, INC 61,200
3,400 PIONEER GROUP, INC 80,750
1,100 PMI GROUP, INC 60,912
2,400 PRICE (T. ROWE) ASSOCIATES, INC 104,400
3,300 PUBLIC STORAGE, INC 102,300
1,000 QUICK & REILLY GROUP, INC 29,875
1,100 RESOURCE MORTGAGE CAPITAL CORP 32,312
3,200 ROOSEVELT FINANCIAL GROUP, INC 67,200
4,200 SALOMON, INC 197,925
4,600 SCHWAB (CHARLES) CORP 147,200
600 * SEACOR HOLDINGS, INC 37,800
2,700 SECURITY CAPITAL PACIFIC TRUST 61,762
2,100 SPIEKER PROPERTIES, INC 75,600
2,900 STORAGE USA, INC 109,112
2,200 STUDENT LOAN MARKETING
ASSOCIATION 204,875
1,800 TCF FINANCIAL CORP 78,300
1,300 THE MONEY STORE, INC 35,912
3,100 TIG HOLDINGS, INC 105,012
3,400 UNITED ASSET MANAGEMENT CORP 90,525
1,300 UNITED COS FINANCIAL CORP 34,612
3,982 UNITED DOMINION REALTY TRUST CO 61,721
--------------
12,003,932
--------------
FOODS--2.11%
22,102 ARCHER DANIELS MIDLAND CO 486,244
5,400 CAMPBELL SOUP CO 433,350
See notes to financial statements.
B-38
<PAGE>
SHARES VALUE
- --------- --------------
1,900 CHIQUITA BRANDS INTERNATIONAL,
INC $ 24,225
9,300 CONAGRA, INC 462,675
5,800 CPC INTERNATIONAL, INC 449,500
1,900 DEAN FOODS CO 61,275
2,000 DOLE FOOD, INC 67,750
800 DREYERS GRAND ICE CREAM, INC 23,200
804 EARTHGRAINS CO 42,009
2,500 FLOWERS INDUSTRIES, INC 53,750
6,500 GENERAL MILLS, INC 411,937
3,600 * GENERAL NUTRITION COS, INC 60,750
13,100 HEINZ (H.J.) CO 468,325
4,000 HERSHEY FOODS CORP 175,000
2,100 HORMEL FOODS CORP 56,700
4,100 IBP, INC 99,425
3,700 KELLOGG CO 242,812
1,900 LANCE, INC 34,200
3,600 MCCORMICK & CO, INC (NON-VOTE) 84,825
3,400 NABISCO HOLDINGS CORP (CLASS A) 132,175
1,300 NATURES SUNSHINE PRODUCTS, INC 23,400
2,800 PIONEER-HI-BRED INTERNATIONAL,
INC 196,000
5,700 QUAKER OATS CO 217,312
2,500 * RALCORP HOLDINGS, INC 52,812
4,300 RALSTON PURINA CO 315,512
2,550 RICHFOOD HOLDINGS, INC 61,837
19,400 SARA LEE CORP 722,650
1,300 * SMITHFIELD FOODS, INC 49,400
779 SMITH'S FOOD & DRUG CENTERS, INC
(CLASS B) 24,149
3,400 TYSON FOODS, INC 116,450
1,300 UNIVERSAL FOODS CORP 45,825
1,400 * WHOLE FOODS MARKET, INC 31,500
4,200 WRIGLEY (WM) JR CO 236,250
--------------
5,963,224
--------------
FOREST PRODUCTS--0.43%
1,800 BOISE CASCADE CORP 57,150
3,100 CHAMPION INTERNATIONAL CORP 134,075
3,700 GEORGIA-PACIFIC CORP 266,400
4,800 LOUISIANA PACIFIC CORP 101,400
1,400 POTLATCH CORP 60,200
1,700 RAYONIER, INC 65,237
7,900 WEYERHAEUSER CO 374,262
2,200 WILLAMETTE INDUSTRIES, INC 153,175
--------------
1,211,899
--------------
HEALTHCARE--DRUGS--5.81%
1,100 * AGOURON PHARMACEUTICALS, INC $ 74,525
1,800 * ALLIANCE PHARMACEUTICAL CORP 24,525
3,700 * ALZA CORP 95,737
26,500 AMERICAN HOME PRODUCTS CORP 1,553,562
11,300 * AMGEN, INC 614,437
3,300 ARBOR DRUGS, INC 57,337
1,900 BERGEN BRUNSWIG CORP (CLASS A) 54,150
1,000 * BIO-TECHNOLOGY GENERAL CORP 13,125
3,200 * BIOGEN, INC 124,000
20,700 BRISTOL MYERS SQUIBB CO 2,251,125
2,900 * CENTOCOR, INC 103,675
1,200 * CEPHALON, INC 24,600
7,140 * CHIRON CORP 132,982
1,900 * DURA PHARMACEUTICALS, INC 90,725
708 * ELAN CORP PLC ADR 23,541
2,200 * FOREST LABORATORIES, INC 72,050
3,000 * GENZYME CORP (GENERALDIVISION) 65,250
40 * GENZYME CORP (TISSUE REPAIR
DIVISION) 285
1,800 * GILEAD SCIENCES, INC 45,000
1,900 * IMMUNEX CORP NEW 37,050
2,000 * INTERNEURON PHARMACEUTICALS, INC 52,000
1,600 * ISIS PHARMACEUTICALS, INC 28,800
4,400 IVAX CORP 45,100
1,300 JONES MEDICAL INDUSTRIES, INC 47,612
19,146 LILLY (ELI) & CO 1,397,658
2,000 * LIPOSOME CO, INC 38,250
1,400 * MATRIX PHARMACEUTICALS, INC 8,575
1,900 MCKESSON CORP NEW 106,400
50,300 MERCK & CO, INC 3,986,275
5,500 MYLAN LABORATORIES, INC 92,125
1,900 * NEXSTAR PHARMACEUTICALS, INC 28,500
26,500 PFIZER, INC 2,196,187
18,180 PHARMACIA & UPJOHN, INC 720,382
2,100 RHONE-POULNEC RORER, INC 164,062
1,400 * ROBERTS PHARMACEUTICAL CORP 15,750
1,200 * SCHERER (R.P.) CORP 60,300
15,400 SCHERING-PLOUGH CORP 997,150
1,600 * SEQUUS PHARMACEUTICALS, INC 25,600
1,200 * THERMEDICS, INC 21,750
1,400 * VERTEX PHARMACEUTICALS, INC 56,350
11,000 WARNER-LAMBERT CO 825,000
1,400 * WATSON PHARMACEUTICALS, INC 62,912
--------------
16,434,419
See notes to financial statements.
B-39
<PAGE>
SHARES VALUE
- --------- --------------
HEALTHCARE--HOSPITAL SUPPLY--2.07%
31,800 ABBOTT LABORATORIES CO $1,613,850
2,680 ALLEGIANCE CORP 74,035
2,300 BARD (C.R.), INC 64,400
10,800 BAXTER INTERNATIONAL, INC 442,800
5,200 BECTON DICKINSON & CO 225,550
900 DENTSPLY INTERNATIONAL, INC NEW 42,750
2,856 GUIDANT CORP 162,792
500 * GULF SOUTH MEDICAL SUPPLY, INC 12,812
1,500 * HAEMONETICS CORP 28,312
55,302 JOHNSON & JOHNSON CO 2,751,274
2,100 MILLIPORE CORP 86,887
2,500 * NEUROMEDICAL SYSTEMS, INC 33,125
3,600 OWENS & MINOR, INC NEW 36,900
1,900 * PATTERSON DENTAL CO 53,675
2,200 * PHYSICIAN SALES & SERVICE, INC 31,625
900 * SCHEIN (HENRY), INC 30,937
1,200 * SOFAMOR DANEK GROUP, INC 36,600
2,400 U.S. SURGICAL CORP 94,500
900 * VENTRITEX, INC 22,162
--------------
5,844,986
--------------
HEALTHCARE--OTHER--0.95%
900 * ACCESS HEALTH, INC 40,275
1,400 * ACUSON CORP 34,125
1,000 * ADVANCED TECHNOLOGY
LABORATORIES, INC 31,000
1,900 * ADVANCED TISSUE SCIENCE CO 18,168
2,900 ALLERGAN, INC 103,312
1,600 * AMERICAN MEDICAL RESPONSE, INC 52,000
1,700 BALLARD MEDICAL PRODUCTS CO 31,662
2,000 BAUSCH & LOMB, INC 70,000
4,700 BIOMET, INC 71,087
4,200 * BOSTON SCIENTIFIC CORP 252,000
1,050 * CLINTRIALS INC 23,887
1,600 * COVENTRY CORP 14,825
3,671 * FRESENIUS MEDICAL CARE AG. ADR 103,246
1,500 * GENESIS HEALTH VENTURES, INC 46,687
2,200 HILLENBRAND INDUSTRIES, INC 79,750
1,400 * HUMAN GENOME SCIENCES, INC 57,050
1,600 * IDEXX LABORATORIES, INC 57,600
1,700 KINETIC CONCEPTS, INC 20,825
3,400 * MEDAPHIS CORP 38,037
9,800 MEDTRONIC, INC 666,400
1,500 MENTOR CORP 44,250
2,800 * NELLCOR PURITAN BENNETT, INC 61,250
4,800 PALL CORP $ 122,400
1,200 * PHYMATRIX CORP 17,100
1,800 * PHYSICIAN RELIANCE NETWORK, INC 13,950
1,600 * PLAYTEX PRODUCTS, INC 12,800
3,100 * ST. JUDE MEDICAL, INC 132,137
1,800 * STERIS CORP 78,300
2,600 STEWART ENTERPRISES, INC
(CLASS A) 88,400
3,100 STRYKER CORP 92,612
2,850 * SUMMIT TECHNOLOGY, INC 15,675
1,900 * SUNRISE MEDICAL, INC 30,162
2,600 * SYBRON INTERNATIONAL CORP 85,800
600 * TARGET THERAPEUTICS, INC 25,200
900 * THERMO CARDIOSYSTEMS, INC 27,000
1,100 * VIVUS, INC 39,875
--------------
2,698,847
--------------
HEALTHCARE--SERVICE--1.85%
5,667 AETNA, INC 453,360
1,400 * AMERISOURCE HEALTH CORP
(CLASS A) 67,550
2,000 * APRIA HEALTHCARE GROUP, INC 37,500
4,300 * BEVERLY ENTERPRISES CO 54,825
3,913 CARDINAL HEALTH, INC 227,932
1,500 * CERNER CORP 23,250
27,538 COLUMBIA/HCA HEALTHCARE CORP 1,122,173
2,000 * FHP INTERNATIONAL CORP 74,250
2,200 * FOUNDATION HEALTH CORP 69,850
1,750 * HEALTH CARE & RETIREMENT CORP 50,093
2,000 HEALTH CARE PROPERTY INVESTORS,
INC 70,000
4,600 * HEALTH MANAGEMENT ASSOCIATES,
INC (CLASS A) NEW 103,500
1,300 * HEALTH MANAGEMENT SYSTEMS, INC 18,200
2,200 * HEALTH SYSTEMS INTERNATIONAL,
INC 54,450
1,700 * HEALTHCARE COMPARE CO 72,037
2,600 * HEALTHSOURCE, INC 34,125
6,400 * HEALTHSOUTH CORP 247,200
2,200 * HORIZON/CMS HEALTHCARE CORP 27,775
6,400 * HUMANA, INC 122,400
1,500 INTEGRATED HEALTH SERVICES, INC 36,562
2,000 INVACARE CORP 55,000
See notes to financial statements.
B-40
<PAGE>
SHARES VALUE
- --------- --------------
6,252 * LABORATORY CORP OF AMERICA
HOLDINGS $ 17,974
260 * LABORATORY CORP OF AMERICA
HOLDINGS WTS 4/28/00 24
1,600 * LINCARE HOLDINGS, INC 65,600
1,500 * LIVING CENTERS OF AMERICA, INC 41,625
2,200 * MAGELLAN HEALTH SERVICES, INC 49,225
2,100 MANOR CARE, INC 56,700
2,600 * MARINER HEALTH GROUP, INC 21,775
900 * MAXICARE HEALTH PLANS, INC 20,025
5,130 * MEDPARTNERS, INC 107,730
1,500 * MID ATLANTIC MEDICAL SERVICES,
INC 20,062
666 MORRISON HEALTH CARE, INC 9,823
1,500 * MULTICARE COS, INC 30,375
3,100 * NOVACARE, INC 34,100
1,100 * OCCUSYSTEMS, INC 29,700
3,400 OMEGA HEALTHCARE INVESTORS, INC 113,050
2,500 OMNICARE, INC 80,312
2,300 * ORNDA HEALTHCORP 67,275
1,000 * ORTHODONTIC CENTERS OF AMERICA,
INC 16,000
3,300 * OXFORD HEALTH PLANS, INC 193,256
400 * PACIFICARE HEALTH SYSTEMS, INC
(CLASS A) 32,500
800 * PACIFICARE HEALTH SYSTEMS, INC
(CLASS B) 68,200
800 * PEDIATRIX MEDICAL GROUP, INC 29,600
2,600 * PHYCOR, INC 73,775
1,700 * PHYSICIAN CORP OF AMERICA 17,000
1,400 * PHYSICIANS RESOURCE GROUP INC 24,850
1,500 * RENAL TREATMENT CENTERS, INC 38,250
1,700 * ROTECH MEDICAL CORP 35,700
1,000 * SIERRA HEALTH SERVICES, INC 24,625
2,400 * SUN HEALTHCARE GROUP, INC 32,400
8,520 * TENET HEALTHCARE CORP 186,375
1,300 * TOTAL RENAL CARE HOLDINGS, INC 47,125
7,600 UNITED HEALTHCARE CORP 342,000
2,500 * UNIVERSAL HEALTH SERVICES, INC 71,562
2,500 * VALUE HEALTH, INC 48,750
2,241 * VENCOR, INC 70,871
2,100 * VIVRA, INC 58,012
1,267 * WELLPOINT HEALTH NETWORKS, INC 43,553
--------------
5,241,811
--------------
HOUSEHOLD--CONSUMER ELECTRONICS--0.03%
1,035 HARMAN INTERNATIONAL INDUSTRIES,
INC $ 57,571
1,300 * ZENITH ELECTRONICS CORP 14,137
--------------
71,708
--------------
HOUSEHOLD--DURABLE GOODS--0.35%
1,200 BASSETT FURNITURE INDUSTRIES,
INC 29,400
4,000 BLACK & DECKER CORP 120,500
1,800 * GENTEX CORP 36,225
4,200 LEGGETT & PLATT, INC 145,425
4,500 MAYTAG CO 88,875
6,300 NEWELL COS, INC 198,450
4,700 SHAW INDUSTRIES, INC 55,225
2,900 STANLEY WORKS CO 78,300
3,400 SUNBEAM CORP 87,550
3,200 WHIRLPOOL CORP 149,200
--------------
989,150
--------------
HOUSEHOLD--PRODUCTS--1.98%
1,600 APTARGROUP, INC 56,400
700 * BRIGHTPOINT, INC 20,825
1,400 CLOROX CO 140,525
5,800 COLGATE PALMOLIVE CO 535,050
5,000 DIAL CORP 73,750
2,100 FIRST BRANDS CORP 59,587
11,150 KIMBERLY-CLARK CORP 1,062,037
1,300 LANCASTER COLONY CORP 59,800
4,300 * PERRIGO CO 39,237
2,400 PREMARK INTERNATIONAL, INC 53,400
28,400 PROCTER & GAMBLE CO 3,053,000
6,400 RUBBERMAID, INC 145,600
2,100 * SCOTTS CO (CLASS A) 41,737
1,300 STANHOME, INC 34,450
1,600 TAMBRANDS, INC 65,400
2,400 TUPPERWARE CORP 128,700
600 * USA DETERGENTS INC 24,975
--------------
5,594,473
--------------
INSURANCE--BROKERS & OTHER--0.32%
600 * ABR INFORMATION SERVICES, INC 23,625
2,400 ALEXANDER & ALEXANDER SERVICES,
INC 41,700
6,200 EQUIFAX, INC 189,875
1,600 GALLAGHER (ARTHUR J.) & CO 49,600
1,700 JOHN ALDEN FINANCIAL CORP 31,450
2,900 MARSH & MCLENNAN COS, INC 301,600
See notes to financial statements.
B-41
<PAGE>
SHARES VALUE
- --------- --------------
1,800 MBIA, INC $ 182,250
900 NORRELL CORP 24,525
2,300 * QUORUM HEALTH GROUP, INC 68,425
--------------
913,050
--------------
INSURANCE--LIFE--0.73%
2,100 * AMERIN CORP 54,075
4,100 AON CORP 254,712
900 BERKLEY (W.R.) CORP 45,675
3,516 CONSECO, INC 224,145
3,400 EQUITABLE COS, INC 83,725
3,200 JEFFERSON-PILOT CORP 181,200
200 * PAUL REVERE CORP 7,450
1,400 PROVIDENT COS, INC 67,725
4,200 PROVIDIAN CORP 215,775
2,600 RELIANCE GROUP HOLDINGS, INC 23,725
1,920 RELIASTAR FINANCIAL CORP 110,880
4,400 SUNAMERICA, INC 195,250
3,000 TORCHMARK CORP 151,500
3,000 UNUM CORP 216,750
2,600 USLIFE CORP 86,450
1,700 VESTA INSURANCE GROUP, INC 53,337
4,200 WESTERN NATIONAL CORP 80,850
--------------
2,053,224
--------------
INSURANCE--MULTI-LINE,
PROPERTY & CASUALTY--3.02%
2,700 20TH CENTURY INDUSTRIES 45,562
5,750 AFLAC, INC 245,812
1,800 ALLIED GROUP, INC 58,725
2,400 ALLMERICA FINANCIAL CORP 80,400
2,800 ALLMERICA PROPERTY & CASUALTY
COS, INC 85,050
17,278 ALLSTATE CORP 999,964
1,500 AMERICAN BANKERS INSURANCE
GROUP, INC 76,687
16,100 AMERICAN INTERNATIONAL GROUP,
INC 1,742,825
7,400 CHUBB CORP 397,750
3,300 CIGNA CORP 450,862
2,696 CINCINNATI FINANCIAL CORP 174,903
3,000 EVEREST REINSURANCE HOLDINGS,
INC 86,250
1,650 FREMONT GENERAL CORP 51,150
3,100 GENERAL REINSURANCE CORP 489,025
1,820 * HIGHLANDS INSURANCE GROUP, INC 36,855
1,400 HORACE MANN EDUCATORS CORP 56,525
1,300 * INSURANCE AUTO AUCTIONS, INC 12,350
5,000 ITT HARTFORD GROUP, INC $ 337,500
4,300 LINCOLN NATIONAL CORP 225,750
700 MERCURY GENERAL CORP NEW 36,750
2,300 MGIC INVESTMENT CORP 174,800
1,500 NAC RE CORP 50,812
1,700 OHIO CASUALTY CORP 60,350
4,300 OLD REPUBLIC INTERNATIONAL CORP 115,025
2,000 PROGRESSIVE CORP 134,750
5,400 SAFECO CORP 212,962
1,700 SELECTIVE INSURANCE GROUP, INC 64,600
3,100 ST. PAUL COS, INC 181,737
3,000 TRANSAMERICA CORP 237,000
26,200 TRAVELERS GROUP, INC 1,188,825
2,300 TRAVELERS/AETNA PROPERTY
CASUALTY CORP 81,362
2,400 * UICI 78,000
1,900 UNITRIN, INC 105,925
4,900 USF&G CORP 102,287
2,500 ZURICH REINSURANCE CENTRE
HOLDINGS, INC 78,125
--------------
8,557,255
--------------
LEISURE TIME--1.27%
600 * ANCHOR GAMING CO 24,150
3,200 ARCTIC CAT, INC 31,600
1,800 AUTHENTIC FITNESS CORP 21,600
2,600 * BOYD GAMING CORP 21,450
4,300 BRUNSWICK CORP 103,200
2,700 CALLAWAY GOLF CO 77,625
600 CARNIVAL CORP (CLASS A) 19,800
1,460 * CHRIS CRAFT INDUSTRIES, INC 61,137
4,100 * CIRCUS CIRCUS ENTERPRISES, INC 140,937
27,478 DISNEY (WALT) CO 1,913,155
1,100 * GALOOB TOYS, INC 15,400
1,400 * GRAND CASINOS, INC 18,900
2,000 * GTECH HOLDINGS CORP 64,000
4,400 * HARRAHS ENTERTAINMENT, INC 87,450
3,000 HASBRO, INC 116,625
1,100 * HOLLYWOOD ENTERTAINMENT CORP 20,350
4,900 INTERNATIONAL GAME TECHNOLOGY CO 89,425
2,000 JOSTENS, INC 42,250
11,193 MATTEL, INC 310,605
7,900 * MIRAGE RESORT, INC 170,837
2,100 OUTBOARD MARINE CORP 34,650
1,950 * PLAYERS INTERNATIONAL, INC 10,481
See notes to financial statements.
B-42
<PAGE>
SHARES VALUE
- --------- --------------
500 * PRIMADONNA RESORTS, INC $ 8,500
1,500 * REGAL CINEMAS, INC 46,125
1,500 SHOWBOAT, INC 25,875
600 * SODAK GAMING, INC 9,225
700 * SPEEDWAY MOTORSPORTS, INC 14,700
2,700 * SPELLING ENTERTAINMENT GROUP,
INC 19,912
1,900 * STATION CASINOS, INC 19,237
1,200 STRUM, RUGER & CO, INC 23,250
1,600 * TRUMP HOTEL & CASINO RESORT, INC 19,200
1,300 * WMS INDUSTRIES, INC 26,000
--------------
3,607,651
--------------
MACHINERY--1.44%
2,700 AGCO CORP 77,287
1,400 BRIGGS & STRATTON CORP 61,600
7,800 CATERPILLAR, INC 586,950
2,000 CINCINNATI MILACRON, INC 43,750
1,400 * COGNEX CORP 25,900
1,021 * COOPER CAMERON CORP 78,106
3,735 COOPER INDUSTRIES, INC 157,336
10,800 DEERE & CO 438,750
1,100 DELTA & PINE LAND CO 35,200
4,600 DOVER CORP 231,150
1,700 DURIRON CO, INC 46,112
2,300 FEDERAL SIGNAL CORP 59,512
1,500 * FMC CORP NEW 105,187
2,100 GIDDINGS & LEWIS, INC 27,037
1,700 GOULDS PUMPS, INC 38,993
1,300 GREENFIELD INDUSTRIES, INC 39,812
2,300 HARNISCHFEGER INDUSTRIES, INC 110,687
1,200 HARSCO CORP 82,200
1,500 IDEX CORP 59,812
4,200 ILLINOIS TOOL WORKS, INC 335,475
4,300 INGERSOLL-RAND CO 191,350
1,900 JLG INDUSTRIES, INC 30,400
1,300 KAYDON CORP 61,262
1,821 KENNAMETAL, INC 70,791
1,900 KEYSTONE INTERNATIONAL, INC 38,237
1,600 MASCOTECH, INC 26,200
1,100 * MOLTEN METAL TECHNOLOGY, INC 12,925
700 * NOVELLUS SYSTEMS, INC 37,931
3,200 PARKER-HANNIFIN CORP 124,000
1,600 STEWART & STEVENSON SERVICES,
INC 46,600
2,500 SUNDSTRAND CORP 106,250
1,300 TECUMSEH PRODUCTS CO (CLASS A) $ 74,587
5,975 * THERMO ELECTRON CORP 246,468
1,737 TIMKEN CO 79,684
2,000 TRINITY INDUSTRIES, INC 75,000
1,900 TRINOVA CORP 69,112
1,000 * ULTRATECH STEPPER, INC 23,750
2,000 YORK INTERNATIONAL CORP 111,750
--------------
4,067,153
--------------
METALS--ALUMINUM--0.23%
1,500 * ACX TECHNOLOGIES, INC 29,812
1,600 * ALUMAX, INC 53,400
6,500 ALUMINUM CO OF AMERICA 414,375
1,900 * KAISER ALUMINUN CORP 22,087
2,300 REYNOLDS METALS CO 129,662
--------------
649,336
--------------
METALS--GOLD--0.32%
3,800 * AMAX GOLD, INC 24,225
11,500 BATTLE MOUNTAIN GOLD CO 79,062
3,000 COEUR DALENE MINES CORP 45,375
3,900 FREEPORT MCMORAN COPPER & GOLD,
INC (CLASS A) 109,687
3,963 FREEPORT-MCMORAN COPPER &
GOLD INC, (CLASS B) 118,394
1,400 * GETCHELL GOLD CORP 53,725
7,800 HOMESTAKE MINING CO 111,150
1,100 NEWMONT GOLD CO 48,125
4,700 NEWMONT MINING CORP 210,325
7,200 * SANTA FE PACIFIC GOLD CORP 110,700
--------------
910,768
--------------
METALS--NON-FERROUS--0.25%
2,100 ASARCO, INC 52,237
1,700 BMC INDUSTRIES, INC 53,550
1,600 * COLEMAN CO, INC 22,000
3,900 CYPRUS AMAX MINERALS CO 91,162
1,100 FREEPORT-MCMORAN, INC 35,337
3,100 * HECLA MINING CO 17,437
2,800 MAPCO, INC 95,200
1,800 MINERALS TECHNOLOGIES, INC 73,800
500 * OREGON METALLURICAL CORP 16,125
2,900 PHELPS DODGE CORP 195,750
700 * RMI TITANIUM CO 19,687
1,400 * STILLWATER MINING CO 25,375
--------------
697,660
See notes to financial statements.
B-43
<PAGE>
SHARES VALUE
- --------- --------------
METALS--STEEL--0.32%
1,300 AK STEEL HOLDINGS CORP $ 51,512
4,987 ALLEGHENY TELEDYNE, INC 114,701
5,300 * BETHLEHEM STEEL CORP 47,700
2,400 BIRMINGHAM STEEL CORP 45,600
1,000 CARPENTER TECHNOLOGY CORP 36,625
1,950 HANNA (M.A.) CO 42,656
2,400 INLAND STEEL INDUSTRIES, INC 48,000
1,700 J & L SPECIALTY STEEL, INC 19,337
4,500 LTV CORP NEW 53,437
3,500 NUCOR CORP 178,500
1,400 OREGON STEEL MILLS, INC 23,450
4,600 UNR INDUSTRIES, INC 27,600
3,300 USX-US STEEL GROUP, INC 103,537
1,500 * WOLVERINE TUBE, INC 52,875
3,300 WORTHINGTON INDUSTRIES, INC 59,812
--------------
905,342
--------------
MISCELLANEOUS MATERIALS &
COMMODITIES--0.01%
1,600 * OAKLEY, INC 17,400
400 * ZOLTEK COS, INC 14,550
--------------
31,950
--------------
OFFICE EQUIPMENT--3.55%
3,800 * AMDAHL CORP 46,075
5,100 * APPLE COMPUTER, INC 106,462
1,500 * APPLIED MAGNETICS CORP 44,812
1,200 * ASPECT TELECOMMUNICATIONS CORP 76,200
4,600 AVERY DENNISON CORP 162,725
700 * BOISE CASCADE OFFICE PRODUCTS
CORP 14,700
11,400 * COMPAQ COMPUTER CORP 846,450
2,400 * DATA GENERAL CORP 34,800
6,000 * DELL COMPUTER CORP 318,750
6,300 * DIGITAL EQUIPMENT CORP 229,162
800 * FILENET CORP 25,600
34,000 HEWLETT-PACKARD CO 1,708,500
1,200 HON INDUSTRIES, INC 39,600
800 * IN FOCUS SYSTEMS, INC 17,300
21,700 INTERNATIONAL BUSINESS MACHINES
CORP 3,276,700
4,800 * IOMEGA CORP 83,400
2,300 * KOMAG, INC 62,387
3,400 * LEXMARK INTERNATIONAL GROUP
(CLASS A) 93,925
1,200 MILLER (HERMAN), INC 67,950
6,600 PITNEY BOWES, INC 359,700
2,500 * QUANTUM CORP $ 71,562
1,400 * SCI SYSTEMS, INC 62,475
8,748 * SEAGATE TECHNOLOGY, INC 345,546
2,200 * SEQUENT COMPUTER SYSTEMS, INC 39,050
7,208 * SILICON GRAPHICS, INC 183,804
2,000 * SOLECTRON CORP 106,750
2,500 * STORAGE TECHNOLOGY CORP 119,062
1,800 * STRATUS COMPUTER, INC 49,050
15,600 * SUN MICROSYSTEMS, INC 400,725
5,300 * TANDEM COMPUTERS, INC 72,875
1,600 * U.S. OFFICE PRODUCTS CO 54,600
8,400 * UNISYS CORP 56,700
3,500 * VIKING OFFICE PRODUCTS, INC 93,406
2,400 * WANG LABORATORIES, INC 48,600
14,100 XEROX CORP 742,012
--------------
10,061,415
--------------
PAPER--0.66%
1,500 ALBANY INTERNATIONAL CORP
(CLASS A) NEW 34,687
2,500 BEMIS, INC 92,187
1,700 BOWATER, INC 63,962
1,800 CARAUSTAR INDUSTRIES, INC 59,850
1,100 CHESAPEAKE CORP 34,512
1,400 CONSOLIDATED PAPERS, INC 68,775
1,360 * CROWN VANTAGE, INC 11,560
1,800 * FORT HOWARD CORP 49,837
2,000 GLATFELTER (P.H.) CO 36,000
11,914 INTERNATIONAL PAPER CO 481,027
3,500 JAMES RIVER CORP OF VIRGINIA 115,937
1,400 * JEFFERSON SMURFIT CORP 22,487
2,800 LONGVIEW FIBRE CO 51,450
2,100 MEAD CORP 122,062
2,600 PENTAIR, INC 83,850
3,965 SONOCO PRODUCTS CO 102,594
3,200 STONE CONTAINER CORP 47,600
2,300 TEMPLE-INLAND, INC 124,487
2,600 UNION CAMP CORP 124,150
1,500 WAUSAU PAPER MILLS CO 27,750
3,750 WESTVACO CORP 107,812
--------------
1,862,576
--------------
PETROLEUM--EXPLORATION &
PRODUCTION--1.02%
3,500 AMERADA HESS CORP 202,562
2,100 ANADARKO PETROLEUM CORP 135,975
3,400 APACHE CORP 120,275
2,300 ASHLAND, INC 100,912
See notes to financial statements.
B-44
<PAGE>
SHARES VALUE
- --------- --------------
1,500 * BARNETT RESOURCES CORP $ 63,937
1,400 * BENTON OIL & GAS CO 31,675
5,000 BURLINGTON RESOURCES, INC 251,875
700 * CHESAPEAKE ENERGY CORP 38,937
1,300 DEVON ENERGY CORP 45,175
1,200 * ENERGY VENTURES, INC 61,050
2,400 ENRON OIL & GAS CO 60,600
900 * FALCON DRILLING CO, INC 35,325
900 * FLORES & RUCKS, INC 47,925
2,000 KERR-MCGEE CORP 144,000
1,400 LOUISIANA LAND & EXPLORATION CO 75,075
2,700 MITCHELL ENERGY & DEVELOPMENT
CORP (CLASS A) 60,412
1,900 MURPHY OIL CORP 105,687
2,800 * NEWFIELD EXPLORATION CO 72,800
1,700 NOBLE AFFILIATES, INC 81,387
1,000 * NUEVO ENERGY CO 52,000
5,000 * ORYX ENERGY CO 123,750
1,800 PARKER & PARSLEY PETROLEUM CO 66,150
2,100 PENNZOIL CO 118,650
1,400 POGO PRODUCING CO 66,150
5,000 * SANTA FE ENERGY RESOURCES, INC 69,375
2,600 * SEAGULL ENERGY CORP 57,200
1,800 SNYDER OIL CORP 31,275
800 SOUTHDOWN INC 24,900
800 * SWIFT ENERGY CO 23,900
10,614 UNION PACIFIC RESOURCES GROUP,
INC 310,459
3,400 UNION TEXAS PETROLEUM HOLDINGS,
INC 76,075
1,500 * UNITED MERIDIAN CORP 77,625
1,300 VINTAGE PETROLEUM, INC 44,850
--------------
2,877,943
--------------
PETROLEUM--INTEGRATED--4.88%
20,100 AMOCO CORP 1,618,050
6,300 ATLANTIC RICHFIELD CO 834,750
27,000 CHEVRON CORP 1,755,000
51,600 EXXON CORP 5,056,800
16,300 MOBIL CORP 1,992,675
13,200 OCCIDENTAL PETROLEUM CORP 308,550
8,400 PHILLIPS PETROLEUM CO 371,700
2,200 QUAKER STATE OIL REFINING CORP 31,075
3,800 SUN CO, INC 92,625
10,800 TEXACO, INC $ 1,059,750
10,345 UNOCAL CORP 420,265
11,900 USX-MARATHON GROUP, INC NEW 284,112
--------------
13,825,352
--------------
PETROLEUM--SERVICE--0.99%
5,900 BAKER HUGHES, INC 203,550
1,400 * BJ SERVICES CO 71,400
3,200 CABOT CORP 80,400
1,800 CAMCO INTERNATIONAL, INC 83,025
900 * DIAMOND OFFSHORE DRILLING, INC 51,300
6,900 DRESSER INDUSTRIES, INC 213,900
2,800 * ENSCO INTERNATIONAL, INC 135,800
3,400 FLUOR CORP 213,350
1,600 * GLOBAL INDUSTRIES LTD 29,800
2,200 * GLOBAL INDUSTRIAL TECHNOLOGIES,
INC 48,675
5,500 * GLOBAL MARINE, INC NEW 113,437
4,716 HALLIBURTON CO 284,139
1,300 HELMERICH & PAYNE, INC 67,762
1,900 * MARINE DRILLING CO, INC 37,406
4,200 * NABORS INDUSTRIES, INC 80,850
4,200 * NOBLE DRILLING CORP 83,475
2,400 * PARKER DRILLING CO 23,100
1,700 * PRIDE PETROLEUM SERVICES, INC 39,525
2,300 * READING & BATES CORP 60,950
3,000 * ROWAN COS, INC 67,875
1,900 * SMITH INTERNATIONAL, INC 85,262
2,600 TIDEWATER, INC 117,650
1,916 TOSCO CORP 151,603
700 TRANSOCEAN OFFSHORE, INC 43,837
2,000 * TUBOSCOPE VETCO INTERNATIONAL
CORP 31,000
3,426 ULTRAMAR DIAMOND SHAMROCK CORP 108,347
1,100 * VARCO INTERNATIONAL, INC 25,437
1,000 VASTAR RESOURCES, INC 38,000
2,200 * WEATHERFORD ENTERRA, INC 66,000
2,000 * WESTERN ATLAS, INC 141,750
--------------
2,798,605
--------------
PHOTOGRAPHY--0.44%
14,100 EASTMAN KODAK CO 1,131,525
1,800 POLAROID CORP 78,300
600 * PRESSTEK, INC 42,750
--------------
1,252,575
See notes to financial statements.
B-45
<PAGE>
SHARES VALUE
- --------- --------------
PROPERTY--REAL ESTATE--0.21%
1,600 CRESCENT REAL ESTATE EQUITIES,
INC $ 84,400
2,200 HOSPITALITY PROPERTIES TRUST 63,800
2,000 KIMCO REALTY CORP 69,750
1,100 PATRIOT AMERICAN HOSPITALITY 47,437
2,100 SECURITY CAPITAL INDUSTRIAL
TRUST 44,887
3,300 TAUBMAN CENTERS, INC 42,487
2,100 * TOLL BROTHERS, INC 40,950
3,100 WASHINGTON REAL ESTATE
INVESTMENT TRUST 54,250
1,900 WEINGARTEN REALTY INVESTORS, INC 77,187
2,800 WELLSFORD RESIDENTIAL PROPERTY
TRUST 67,900
--------------
593,048
--------------
PUBLISHING--NEWSPAPER--0.52%
2,100 BELO (A.H.) CORP SERIES A 73,237
1,600 CENTRAL NEWSPAPERS, INC
(CLASS A) 70,400
3,591 * COX COMMUNICATIONS, INC
(CLASS A) NEW 83,041
2,500 DOW JONES & CO, INC 84,687
5,700 GANNETT CO, INC 426,787
3,000 HOLLINGER INTERNATIONAL, INC 34,500
3,700 KNIGHT-RIDDER, INC 141,525
4,000 NEW YORK TIMES CO (CLASS A) 152,000
3,800 TIMES MIRROR CO (SERIES A) NEW 189,050
2,200 TRIBUNE CO NEW 173,525
1,800 * VALASSIS COMMUNICATIONS, INC 38,025
--------------
1,466,777
--------------
PUBLISHING--OTHER--0.66%
3,500 AMERICAN GREETINGS CORP
(CLASS A) 99,312
4,700 DONNELLEY (R.R.) & SONS CO 147,462
7,100 DUN & BRADSTREET CORP 168,625
2,300 HARCOURT GENERAL, INC 106,087
1,200 HOUGHTON MIFFLIN CO 67,950
8,600 * K-III COMMUNICATIONS CORP 92,450
2,900 x* MARVEL ENTERTAINMENT GROUP,
INC 5,437
4,200 MCGRAW HILL COS, INC 193,725
1,100 MEREDITH CORP 58,025
4,000 READER'S DIGEST ASSOCIATION, INC
(CLASS A) (NON-VTG) 161,000
700 * SCHOLASTIC CORP 47,075
19,063 TIME WARNER, INC $ 714,862
--------------
1,862,010
--------------
RAILROAD--0.86%
6,240 BURLINGTON NORTHERN SANTA FE
CORP 538,980
2,603 CONRAIL, INC 259,323
9,000 CSX CORP 380,250
2,600 ILLINOIS CENTRAL CORP SERIES A 83,200
1,600 KANSAS CITY SOUTHERN INDUSTRIES,
INC 72,000
5,200 NORFOLK SOUTHERN CORP 455,000
8,982 UNION PACIFIC CORP 540,042
2,500 * WISCONSIN CENTRAL TRANSIT CORP 99,062
--------------
2,427,857
--------------
RESTAURANTS & HOTELS--1.34%
1,500 APPLE SOUTH, INC 20,250
1,600 APPLEBEES INTERNATIONAL, INC 44,000
2,500 * AZTAR CORP 17,500
2,800 BOB EVANS FARMS, INC 37,800
2,700 * BOSTON CHICKEN, INC 96,862
2,900 * BUFFETS, INC 26,462
2,100 * CHOICE HOTELS INTERNATIONAL, INC 37,012
1,200 CKE RESTAURANTS, INC 43,200
2,800 CRACKER BARREL OLD COUNTRY
STORE, INC 71,050
7,500 DARDEN RESTAURANTS, INC 65,625
2,200 * EXTENDED STAY AMERICA, INC 44,275
2,800 FELCOR SUITE HOTELS, INC 99,050
5,400 * HFS INC 322,650
7,800 HILTON HOTELS CORP 203,775
339 * HOMESTEAD VILLAGE, INC 6,102
227 * HOMESTEAD VILLAGE, INC WTS 1,844
6,600 * HOST MARRIOTT CORP 105,600
2,760 * HOST MARRIOTT SERVICES CORP 25,185
4,900 * ITT CORP (NEW) 212,537
2,575 LA QUINTA INNS, INC 49,246
1,400 * LANDRYS SEAFOOD RESTAURANTS, INC 29,925
1,400 * LONE STAR STEAKHOUSE & SALOON,
INC 37,450
1,800 LUBYS CAFETERIA, INC 35,775
4,300 MARRIOTT INTERNATIONAL, INC 237,575
28,700 MCDONALDS CORP 1,298,675
800 * MGM GRAND, INC 27,900
See notes to financial statements.
B-46
<PAGE>
SHARES VALUE
- --------- --------------
350 MORRISON FRESH COOKING, INC $ 1,618
2,200 * OUTBACK STEAKHOUSE, INC 58,850
900 * PAPA JOHNS INTERNATIONAL, INC 30,375
2,400 * PRIME HOSPITALITY CORP 38,700
2,450 * PROMUS HOTEL CORP 72,581
900 * RAINFOREST CAFE, INC 21,150
1,200 RUBY TUESDAY, INC 22,200
3,200 * RYANS FAMILY STEAK HOUSES, INC 22,000
7,300 SYSCO CORP 238,162
4,800 WENDYS INTERNATIONAL, INC 98,400
--------------
3,801,361
--------------
RETAIL--FOOD--0.69%
9,100 ALBERTSONS, INC 324,187
4,700 AMERICAN STORES CO NEW 192,112
39 * BRUNOS, INC 672
2,206 FLEMING COS, INC 38,053
14,200 FOOD LION, INC (CLASS B) 143,775
2,400 GIANT FOOD, INC (CLASS A) 82,800
1,200 GREAT ATLANTIC & PACIFIC TEA CO,
INC 38,250
1,600 HANNAFORD BROTHERS, INC 54,400
4,600 * KROGER CO 213,900
3,000 RUDDICK CORP 42,000
9,900 * SAFEWAY, INC NEW 423,225
6,500 * SOUTHLAND CORP 19,296
3,400 * STARBUCKS CORP 97,325
3,200 SUPERVALU, INC 90,800
1,300 * VONS COS, INC 77,837
3,600 WINN DIXIE STORES, INC 113,850
--------------
1,952,482
--------------
RETAIL--GENERAL MERCHANDISE--3.66%
6,000 * AUTOZONE, INC 165,000
600 * BABY SUPERSTORE, INC 14,400
1,200 * BARNES & NOBLE, INC 32,400
2,000 * BED BATH & BEYOND, INC 48,500
1,100 * BEST BUY, INC 11,687
1,700 * BORDERS GROUP, INC 60,987
2,400 x* CALDOR CORP 2,700
2,100 CASEYS GENERAL STORES, INC 39,375
4,100 * CHARMING SHOPPES, INC 20,756
4,000 CIRCUIT CITY STORES, INC 120,500
2,250 CLAIRES STORES, INC 29,250
2,875 * CONSOLIDATED STORES CORP 92,718
14,072 * CUC INTERNATIONAL, INC 334,210
4,100 CVS CORP 169,637
8,800 DAYTON HUDSON CORP 345,400
900 * DEPARTMENT 56, INC 22,275
4,700 DILLARD DEPARTMENT STORES, INC
(CLASS A) $ 145,112
3,743 DOLLAR GENERAL CORP 119,776
1,200 * DOLLAR TREE STORES, INC 45,900
2,157 * ECKERD CORP 69,024
1,000 ETHAN ALLEN INTERIORS, INC 38,500
2,100 FAMILY DOLLAR STORES, INC 42,787
8,270 * FEDERATED DEPARTMENT STORES, INC 282,213
2,400 FINGERHUT COS, INC 29,400
1,465 * FOOTSTAR, INC 36,441
4,200 * FURNITURE BRANDS INTERNATIONAL,
INC 58,800
8,800 GAP, INC 265,100
1,100 * GYMBOREE CORP 25,162
4,200 HECHINGER CO (CLASS A) 8,662
2,600 HEILIG MEYERS CO 42,250
19,700 HOME DEPOT, INC 987,462
1,125 * HSN, INC 26,718
2,800 INTIMATE BRANDS, INC (CLASS A) 47,600
1,900 * JONES APPAREL GROUP, INC 71,012
18,700 * K MART CORP 194,012
2,200 * KOHLS CORP 86,350
800 * LANDS END, INC 21,200
8,546 LIMITED, INC 157,032
5,800 LOWES COS, INC 205,900
1,100 * MAC FRUGALS BARGAINS CLOSE-
OUTS, INC 28,737
10,200 MAY DEPARTMENT STORES CO 476,850
900 * MENS WAREHOUSE, INC 22,050
1,200 MERCANTILE STORES CO, INC 59,250
1,500 * MEYER (FRED), INC 53,250
3,000 * MUSICLAND STORES CORP 4,500
900 * NEIMAN-MARCUS GROUP, INC 22,950
2,300 NORDSTROM, INC 81,506
5,650 * OFFICEMAX, INC 60,031
2,024 * PAYLESS SHOESOURCE, INC 75,900
7,500 PENNEY, (J.C.) CO, INC 365,625
2,500 PEP BOYS MANNY, MOE, & JACK CO 76,875
4,900 * PETSMART, INC 107,187
2,300 PIER 1 IMPORTS, INC 40,537
8,300 * PRICE/COSTCO, INC 208,537
1,100 * PROFFITTS, INC 40,562
2,100 * REVCO (D.S.), INC NEW 77,700
600 * REXALL SUNDOWN, INC 16,312
5,510 RITE AID CORP 219,022
1,300 ROSS STORES, INC 65,000
See notes to financial statements.
B-47
<PAGE>
SHARES VALUE
- --------- --------------
2,700 ROUSE CO $ 85,725
13,800 SEARS ROEBUCK & CO 636,525
5,000 * SERVICE MERCHANDISE, INC 21,250
2,900 * SHOPKO STORES, INC 43,500
3,300 SOTHEBYS HOLDINGS, INC (CLASS A) 61,462
7,050 * STAPLES, INC 127,340
800 * STEIN MART, INC 16,200
2,800 STRIDE RITE CORP 28,000
2,400 * SUNGLASS HUT INTERNATIONAL, INC 17,400
900 TALBOTS, INC 25,762
2,600 TANDY CORP 114,400
1,650 * THE SPORTS AUTHORITY, INC 35,887
1,400 TIFFANY & CO NEW 51,275
3,800 TJX COS, INC NEW 180,025
10,300 * TOYS R US, INC 309,000
1,500 * WABAN, INC 39,000
58,600 WAL-MART STORES, INC 1,340,475
10,000 WALGREEN CO 400,000
600 * WEST MARINE, INC 16,950
1,200 * WILLIAMS-SONOMA, INC 43,650
5,300 * WOOLWORTH CORP 115,937
2,500 * ZALE CORP 47,812
--------------
10,376,164
--------------
TEXTILE & APPAREL--0.51%
1,000 * ANN TAYLOR STORES CORP 17,500
4,500 * BURLINGTON INDUSTRIES, INC 49,500
3,200 * FRUIT OF THE LOOM, INC
(CLASS A) 121,200
1,050 * JUST FOR FEET, INC 27,562
2,500 KELLWOOD CO 50,000
2,800 LIZ CLAIBORNE, INC 108,150
1,400 * MOHAWK INDUSTRIES, INC 30,800
1,800 * NAUTICA ENTERPRISES, INC 45,450
5,300 NIKE, INC (CLASS B) 316,675
1,200 * NINE WEST GROUP, INC 55,650
2,507 REEBOK INTERNATIONAL LTD 105,294
1,700 RUSSELL CORP 50,575
1,200 ST. JOHN KNITS, INC 52,200
2,700 UNIFI, INC 86,737
2,300 VF CORP 155,250
2,400 WARNACO GROUP, INC (CLASS A) 71,100
1,400 * WESTPOINT STEVENS, INC 41,825
1,950 WOLVERINE WORLD WIDE, INC 56,550
--------------
1,442,018
--------------
TOBACCO--1.77%
7,100 AMERICAN BRANDS, INC $ 352,337
33,900 PHILIP MORRIS COS, INC 3,817,987
13,201 RJR NABISCO HOLDINGS CORP 448,834
1,440 SCHWEITZER-MAUDUIT
INTERNATIONAL, INC 45,540
2,200 UNIVERSAL CORP 70,675
8,200 UST, INC 265,475
--------------
5,000,848
--------------
TRUCKERS & SHIPPING--0.25%
2,500 * AMERICAN FREIGHTWAYS CORP 27,812
1,600 APL LTD 37,800
1,400 CALIBER SYSTEM, INC 26,950
2,300 CNF TRANSPORTATION, INC 51,175
1,150 * CONSOLIDATED FREIGHTWAYS CORP 10,206
1,800 HUNT (J.B.) TRANSPORT SERVICES,
INC 25,200
1,800 PITTSTON BURLINGTON GROUP CO 36,000
2,200 ROADWAY EXPRESS, INC 42,625
5,500 ROLLINS TRUCK LEASING CORP 69,437
3,300 RYDER SYSTEM, INC 92,812
3,500 SHURGARD STORAGE CENTERS, INC 103,687
1,500 * SWIFT TRANSPORTATION CO, INC 35,250
2,100 USFREIGHTWAYS CORP 57,618
2,600 WERNER ENTERPRISES, INC 47,125
1,000 XTRA CORP 43,375
--------------
707,072
--------------
UTILITIES--ELECTRIC--3.66%
2,400 * AES CORP 111,600
5,200 ALLEGHENY POWER SYSTEMS, INC 157,950
7,000 AMERICAN ELECTRIC POWER CO, INC 287,875
3,500 ATLANTIC ENERGY, INC 59,937
5,900 BALTIMORE GAS & ELECTRIC CO 157,825
2,900 BOSTON EDISON CO 77,937
5,700 CAROLINA POWER & LIGHT CO 208,050
10,100 CENTERIOR ENERGY CORP 108,575
7,200 CENTRAL & SOUTH WEST CORP 184,500
4,200 CENTRAL MAINE POWER CO 48,825
6,500 CINERGY CORP 216,937
5,448 CITIZENS UTILITIES CO (CLASS B) 60,609
3,800 CMS ENERGY CORP 127,775
9,200 CONSOLIDATED EDISON CO OF
NEW YORK, INC 269,100
3,900 DELMARVA POWER & LIGHT CO 79,462
7,000 DOMINION RESOURCES, INC 269,500
See notes to financial statements.
B-48
<PAGE>
SHARES VALUE
- --------- --------------
4,000 DPL, INC $ 98,000
3,400 DQE, INC 98,600
5,400 DTE ENERGY CO 174,825
8,200 DUKE POWER CO 379,250
2,700 EASTERN UTILITIES ASSOCIATION CO 46,912
17,200 EDISON INTERNATIONAL CO 341,850
4,300 ENOVA CORP 97,825
8,700 ENTERGY CORP NEW 241,425
3,600 FLORIDA PROGRESS CORP 116,100
7,000 FPL GROUP, INC 322,000
4,900 GPU, INC 164,762
1,700 HAWAIIAN ELECTRIC INDUSTRIES,
INC 61,412
8,500 HOUSTON INDUSTRIES, INC 192,312
2,600 IDAHO POWER CO 80,925
1,900 IES INDUSTRIES, INC 56,762
3,500 ILLINOVA CORP 96,250
3,500 IPALCO ENTERPRISES, INC 95,375
2,400 KANSAS CITY POWER & LIGHT CO 68,400
4,500 LONG ISLAND LIGHTING CO 99,562
3,900 LOUISVILLE GAS & ELECTRIC ENERGY
CORP 95,550
5,800 MIDAMERICAN ENERGY HOLDINGS CO 92,075
2,700 MONTANA POWER CO 57,712
3,300 NEVADA POWER CO 67,650
2,900 NEW ENGLAND ELECTRIC SYSTEMS CO 101,137
3,500 NEW YORK STATE ELECTRIC & GAS
CORP 75,687
7,300 * NIAGARA MOHAWK POWER CORP 72,087
2,300 NIPSCO INDUSTRIES, INC 91,137
6,000 NORTHEAST UTILITIES CO 79,500
2,900 NORTHERN STATES POWER CO 133,037
6,000 OHIO EDISON CO 136,500
1,900 OKLAHOMA GAS & ELECTRIC CO 79,325
16,500 PACIFIC GAS & ELECTRIC CO 346,500
11,600 PACIFICORP 237,800
8,900 PECO ENERGY CO 224,725
3,700 PINNACLE WEST CAPITAL CORP 117,475
2,200 PORTLAND GENERAL CORP 92,400
4,300 POTOMAC ELECTRIC POWER CO 110,725
6,100 PP&L RESOURCES, INC 140,300
2,800 PUBLIC SERVICE CO OF COLORADO 108,850
3,000 PUBLIC SERVICE CO OF NEW MEXICO 58,875
9,500 PUBLIC SERVICE ENTERPRISE GROUP,
INC $ 258,875
3,500 PUGET SOUND POWER & LIGHT CO 84,000
2,900 ROCHESTER GAS & ELECTRIC CORP 55,462
4,400 SCANA CORP 117,700
2,900 SIERRA PACIFIC RESOURCES 83,375
27,000 SOUTHERN CO 610,875
2,100 SOUTHWESTERN PUBLIC SERVICE CO 74,287
5,200 TECO ENERGY, INC 125,450
8,800 TEXAS UTILITIES CO 358,600
1,600 * TUCSON ELECTRIC POWER CO 26,600
8,900 UNICOM CORP 241,412
3,800 UNION ELECTRIC CO 146,300
1,800 UNITED ILLUMINATING CO 56,475
2,527 UTILICORP UNITED, INC 68,229
3,200 WASHINGTON WATER POWER CO 59,600
2,800 WESTERN RESOURCES, INC 86,450
4,800 WISCONSIN ENERGY CORP 129,000
--------------
10,360,741
--------------
UTILITIES--GAS & PIPELINE--1.39%
2,800 AGL RESOURCES, INC 59,150
3,600 * AMERICAN STANDARD COS, INC 137,700
3,100 AMERICAN WATER WORKS CO, INC 63,937
1,200 * BLACK BOX CORP 49,500
2,300 BROOKLYN UNION GAS CO 69,287
2,100 CABOT OIL & GAS CORP (CLASS A) 35,962
2,300 * CALENERGY, INC 77,337
3,900 COASTAL CORP 190,612
2,400 COLUMBIA GAS SYSTEMS, INC 152,700
3,900 CONSOLIDATED NATURAL GAS CO 215,475
2,051 EL PASO NATURAL GAS CO NEW 103,575
8,600 ENRON CORP 370,875
2,900 ENSERCH CORP 66,700
1,900 EQUITABLE RESOURCES, INC 56,525
2,100 INDIANA ENERGY, INC 51,187
1,300 * IONICS, INC 62,400
1,400 KN ENERGY, INC 54,950
3,000 MCN CORP 86,625
1,600 NATIONAL FUEL GAS CO 66,000
5,200 NGC CORP 120,900
2,200 NICOR, INC 78,650
5,124 NORAM ENERGY CORP 78,781
2,850 NORTHWEST NATURAL GAS CO 68,400
1,329 ONEOK, INC 39,870
3,400 PACIFIC ENTERPRISES, INC 103,275
See notes to financial statements.
B-49
<PAGE>
SHARES VALUE
- --------- --------------
6,200 PANENERGY CORP $ 279,000
1,800 PEOPLES ENERGY CORP 60,975
3,107 PIEDMONT NATURAL GAS CO, INC 72,626
1,300 * PRIMARK CORP 32,175
1,900 QUESTAR CORP 69,825
3,500 SONAT, INC 180,250
7,000 * TENNECO, INC NEW 315,875
1,737 UGI CORP NEW 38,865
2,200 VALERO ENERGY CORP 62,975
2,300 WASHINGTON ENERGY CO 47,437
2,100 WICOR, INC 75,337
6,553 WILLIAMS COS, INC 245,737
-------------
3,941,450
-------------
UTILITIES--OTHER--0.01%
800 * BILLING INFORMATION CONCEPTS
CORP 23,000
-------------
UTILITIES--TELEPHONE--5.59%
800 * ADTRAN, INC 33,200
2,900 ALIANT COMMUNICATIONS, INC 49,300
8,000 ALLTEL CORP 251,000
22,400 AMERITECH CORP NEW 1,358,000
67,000 AT & T CORP $ 2,914,500
17,700 BELL ATLANTIC CORP 1,146,075
41,100 BELLSOUTH CORP 1,659,412
1,200 * C-TEC CORP 29,100
3,000 CINCINNATI BELL, INC 184,875
6,800 FRONTIER CORP 153,850
2,625 * GLENAYRE TECHNOLOGIES, INC 56,601
39,500 GTE CORP 1,797,250
28,900 MCI COMMUNICATIONS CORP 944,668
2,900 * MOBILE TELECOMMUNICATIONS
TECHNOLOGIES CORP 24,650
6,200 * NEXTEL COMMUNICATIONS, INC
(CLASS A) 80,987
18,000 NYNEX CORP $ 866,250
17,200 PACIFIC TELESIS GROUP CO 632,10
25,100 SBC COMMUNICATIONS, INC 1,298,925
2,900 SOUTHERN NEW ENGLAND
TELECOMMUNICATIONS CORP 112,737
17,600 SPRINT CORP 701,800
3,026 TELEPHONE & DATA SYSTEMS, INC 109,692
1,700 * U.S. LONG DISTANCE CORP 13,600
19,200 U.S. WEST COMMUNICATIONS GROUP,
INC 619,200
19,500 * U.S. WEST MEDIA GROUP, INC 360,750
16,000 * WORLDCOM, INC 417,000
-------------
15,815,522
-------------
TOTAL COMMON STOCK
(Cost $233,886,895) 282,563,008
-------------
SHORT TERM INVESTMENTS--0.46%
U.S. GOVERNMENTS &
AGENCIES--0.46%
$1,300,000 FEDERAL HOME LOAN MORTGAGE CORP
5.400% 1/2/97 1,299,604
--------------
TOTAL SHORT TERM INVESTMENTS
(Cost $1,299,805) 1,299,604
-------------
ROUNDING 237
-------------
TOTAL PORTFOLIO
(Cost $235,212,131) $283,894,180
==============
- ---------------------
* Non-Income Producing
x In Bankruptcy
</TABLE>
See notes to financial statements.
B-50
<PAGE>
[TIAA logo]
CHAIRMAN'S LETTER
To the Policyholders of
Teachers Insurance and Annuity
Association of America:
We are pleased to provide you with the accompanying audited financial statements
of Teachers Insurance and Annuity Association of America ("TIAA") for the
year-ended December 31, 1996. As you review these statements, it is also
important to note that TIAA continues to maintain the highest possible financial
strength ratings from each of the four nationally recognized independent rating
organizations. We continue to manage TIAA in a prudent manner with the goal of
maximizing our long-term performance within reasonable risk parameters for the
long- term benefit of our policyholders.
The report of management responsibility, on the following page, demonstrates our
ongoing commitment to conduct TIAA's activities in a well-controlled management
environment. Additionally, the accompanying audit report indicates an
unqualified opinion from the independent auditing firm of Deloitte & Touche LLP
regarding TIAA's statutory financial statements. These statements have been
prepared consistently in accordance with statutory accounting practices, a
comprehensive basis of accounting comprised of accounting policies prescribed or
permitted by the New York State Insurance Department.
Let me specifically address the reference to generally accepted accounting
principles ("GAAP") contained in the auditors' report. GAAP is an overall
accounting methodology that, while similar in many respects to statutory
accounting, is a separate basis of accounting. As noted in the independent
auditors' report, our financial statements are not intended to conform with
GAAP. This is the first year that the auditors have referred to this
distinction, even though we have not changed the way in which we prepare our
financial statements. This reference to GAAP is a change that has been required
by the auditors' professional standards.
Statutory accounting is the only basis of accounting recognized by the New York
State Insurance Department ("Department") for regulatory purposes. It is the
only basis of accounting used by the Department in measuring the financial
condition and results of operations of an insurance company. It is also the
basis for determining insurance company solvency under the New York Insurance
Law. While we could prepare a separate set of GAAP financial statements, there
is no legal requirement for us to do so. Additionally, TIAA does not believe at
this time that it would be a worthwhile expenditure to maintain two separate
sets of financial records, particularly since it would provide little added
value for our policyholders. Accordingly, we believe that it is prudent for us
to continue to manage and report on the operations of TIAA under the
conservative statutory accounting methodology that we have always utilized.
/s/ John H. Biggs
Chairman and
Chief Executive Officer
B-51
<PAGE>
[TIAA logo]
REPORT OF MANAGEMENT RESPONSIBILITY
To the Policyholders of
Teachers Insurance and Annuity
Association of America:
The accompanying financial statements of Teachers Insurance and Annuity
Association of America ("TIAA") are the responsibility of management. They have
been prepared on the basis of statutory accounting practices, a comprehensive
basis of accounting comprised of accounting policies prescribed or permitted by
the New York State Insurance Department. The financial statements of TIAA have
been presented fairly and objectively in accordance with such statutory
accounting practices.
TIAA has established and maintains a strong system of internal controls designed
to provide reasonable assurance that assets are properly safeguarded and
transactions are properly executed in accordance with management's
authorization, and to carry out the ongoing responsibilities of management for
reliable financial statements. In addition, TIAA's internal audit personnel
provide a continuing review of the internal controls and operations of TIAA, and
the internal Auditor regularly reports to the Audit Committee of the TIAA Board
of Trustees.
The accompanying financial statements of TIAA have been audited by the
independent auditing firm of Deloitte & Touche LLP. The independent auditors'
report, which appears on the following page, expresses an independent opinion on
the fairness of presentation of these financial statements.
The Audit Committee of the TIAA Board of Trustees, consisting of trustees who
are not officers of TIAA, meets regularly with management, representatives of
Deloitte & Touche LLP and internal auditing personnel to review matters relating
to financial reporting, internal controls and auditing. In addition to the
annual audit of the TIAA financial statements, the New York State Insurance
Department and other state insurance departments regularly examine the financial
statements of TIAA as part of the periodic corporate examinations.
/s/ John H. Biggs
Chairman and
Chief Executive Officer
/s/ Thomas W. Jones
Vice Chairman, President and
Chief Operating Officer
/s/ Richard Gibbs
Executive Vice President and
Principal Accounting Officer
B-52
<PAGE>
[Deloitte & Touche LLP Letterhead]
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of
Teachers Insurance and Annuity
Association of America:
We have audited the accompanying statutory balance sheets of Teachers Insurance
and Annuity Association of America ("TIAA") as of December 31, 1996 and 1995,
and the related statutory statements of operations, changes in contingency
reserves, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of TIAA's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 2 to these financial statements, TIAA prepared
these financial statements using accounting practices prescribed or permitted by
the New York State Insurance Department, hereinafter referred to as statutory
accounting practices, which is a comprehensive basis of accounting other than
generally accepted accounting principles. Accordingly, these financial
statements are not intended to be presented in conformity with generally
accepted accounting principles. The effects on the financial statements of the
differences between statutory accounting practices and generally accepted
accounting principles are presumed to be material.
In our report dated March 12, 1996, we expressed an opinion that the 1995 and
1994 financial statements, prepared using statutory accounting practices,
presented fairly, in all material respects, the financial position of TIAA as of
December 31, 1995, and the results of its operations, changes in contingency
reserves, and its cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As described in Note 2 to these financial statements, pursuant to the
pronouncements of the Financial Accounting Standards Board, the 1995 and 1994
financial statements of TIAA, prepared using statutory accounting practices, are
no longer considered to be presentations in conformity with generally accepted
accounting principles when presented for comparative purposes with the company's
statutory financial statements for periods beginning after December 15, 1995.
Accordingly, our present opinion on the presentation of the 1995 and 1994
financial statements in conformity with generally accepted accounting
principles, as presented herein, is different from that expressed in our
previous report.
In our opinion, because of the effects of the matters discussed in the third and
fourth paragraphs, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of TIAA as of December 31, 1996 and 1995, or the results of
its operations, changes in contingency reserves or its cash flows for each of
the three years in the period ended December 31, 1996.
B-53
<PAGE>
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the statutory financial position of TIAA at December
31, 1996 and 1995 and the results of its operations, changes in its contingency
reserves, and its cash flows for each of the three years in the period ended
December 31, 1996 on the basis of statutory accounting practices as described in
Note 2.
/s/ Deloitte & Touche LLP
March 11, 1997
[Deloitte Touche Tohmatsu logo]
B-54
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1996 1995
--------------------- ---------------------
<S> <C> <C>
ASSETS
Bonds ...................................................... $56,092,130,827 $48,835,831,058
Mortgages .................................................. 20,074,002,277 21,000,279,330
Real Estate ................................................ 6,704,888,918 7,013,052,678
Stocks ..................................................... 355,093,378 223,028,483
Other long-term investments ................................ 500,351,437 476,803,951
Cash and short-term investments ............................ 615,082,177 713,051,046
Investment income due and accrued .......................... 1,140,956,380 1,118,707,821
Separate Account assets .................................... 663,457,762 209,170,183
Other assets ............................................... 211,515,189 204,688,878
--------------------- ---------------------
TOTAL ASSETS $86,357,478,345 $79,794,613,428
===================== =====================
LIABILITIES, CAPITAL AND CONTINGENCY RESERVES
Policy and contract reserves .............................. $75,909,906,253 $70,983,830,958
Dividends declared for the following year ................. 1,636,737,654 1,493,744,768
Asset Valuation Reserve ................................... 2,134,921,269 1,860,867,891
Interest Maintenance Reserve .............................. 729,089,789 621,365,961
Separate Account liabilities .............................. 559,754,255 106,511,880
Other liabilities ......................................... 636,364,432 672,112,096
--------------------- ---------------------
Total Liabilities 81,606,773,652 75,738,433,554
Capital: 2,500 shares of $1,000 par value common stock
issued and outstanding .................................. 2,500,000 2,500,000
--------------------- ---------------------
Contingency reserves:
For group life insurance ................................. 8,738,769 7,761,722
For investment losses, annuity and insurance mortality,
and other risks ........................................ 4,739,465,924 4,045,918,152
--------------------- ---------------------
Total Contingency Reserves 4,748,204,693 4,053,679,874
--------------------- ---------------------
Total Capital and Contingency Reserves 4,750,704,693 4,056,179,874
--------------------- ---------------------
TOTAL LIABILITIES, CAPITAL AND CONTINGENCY RESERVES $86,357,478,345 $79,794,613,428
===================== =====================
</TABLE>
See notes to financial statements.
B-55
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
INCOME
Insurance and annuity premiums
and deposits ......................... $ 2,781,826,827 $ 2,854,599,816 $ 2,785,546,486
Transfers from CREF, net ............... 366,920,403 351,869,029 191,582,916
Annuity dividend additions ............. 2,131,889,910 1,943,614,354 1,844,416,805
Net investment income .................. 6,525,528,935 6,108,496,984 5,486,071,238
Supplementary contract consideration ... 203,769,996 150,975,982 104,999,526
--------------------- --------------------- ---------------------
TOTAL INCOME $12,009,936,071 $11,409,556,165 $10,412,616,971
===================== ===================== =====================
DISTRIBUTION OF INCOME
Policy and contract benefits ........... $ 1,916,596,781 $ 1,718,596,923 $ 1,538,301,850
Dividends .............................. 3,399,581,218 3,098,930,945 2,874,077,216
Increase in policy and contract reserves 5,097,213,011 5,329,040,178 5,043,786,384
Operating expenses ..................... 249,000,231 241,795,245 216,465,411
Transfers to Separate Accounts, net .... 395,686,225 92,995,463 4,270,646
Federal income taxes ................... 13,153,881 9,487,967 9,843,630
Other, net ............................. 1,111,320 (4,380,395) (2,972,008)
Increase in contingency reserves
from operations ...................... 937,593,404 923,089,839 728,843,842
--------------------- --------------------- ---------------------
TOTAL DISTRIBUTION OF INCOME $12,009,936,071 $11,409,556,165 $10,412,616,971
===================== ===================== =====================
</TABLE>
See notes to financial statements.
B-56
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATEMENTS OF CHANGES IN CONTINGENCY RESERVES
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Changes in Contingency Reserves:
From operations ...................................... $ 937,593,404 $ 923,089,839 $ 728,843,842
Net realized capital gain (loss) on investments ...... 163,950,475 (56,264,893) (95,070,954)
Net unrealized capital gain on investments ........... 30,452,145 52,706,109 38,906,936
Transfer to the Interest Maintenance Reserve ......... (167,086,192) (114,840,183) (170,430,156)
Transfers from (to) the Asset Valuation Reserve:
Required formula contribution ....................... (246,181,408) (302,387,557) (249,405,235)
Net capital (gains) losses absorbed ................. (27,871,970) 106,215,365 226,638,932
Voluntary contribution (193,508,281)
Increase in non-admitted assets other than investments (4,763,942) (802,629) (22,194,906)
Change in valuation basis of policy reserves ......... 2,314,689
Other, net ........................................... 8,432,307 10,639,807 1,522,064
--------------------- --------------------- ---------------------
NET CHANGE IN CONTINGENCY RESERVES 694,524,819 618,355,858 267,616,931
CONTINGENCY RESERVES AT BEGINNING OF YEAR 4,053,679,874 3,435,324,016 3,167,707,085
--------------------- --------------------- ---------------------
CONTINGENCY RESERVES AT END OF YEAR $4,748,204,693 $4,053,679,874 $3,435,324,016
===================== ===================== =====================
</TABLE>
See notes to financial statements.
B-57
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
CASH PROVIDED By operating activities:
Insurance and annuity premiums, deposits and
considerations ........................... $ 2,973,898,849 $ 2,999,426,179 $ 2,886,724,538
Transfers from CREF, net ................... 366,920,403 351,869,029 191,582,916
Annuity dividend additions ................. 2,131,889,910 1,943,614,354 1,844,416,805
Investment income, net ..................... 6,485,402,589 5,998,015,040 5,372,299,141
--------------------- --------------------- ---------------------
Total Receipts 11,958,111,751 11,292,924,602 10,295,023,400
--------------------- --------------------- ---------------------
Policy and contract benefits ............... 2,084,121,901 1,715,727,236 1,500,323,250
Dividends .................................. 3,251,329,333 2,987,866,832 2,819,852,489
Operating expenses ......................... 247,250,730 240,323,235 214,008,001
Federal income taxes ....................... 14,984,747 8,510,881 10,114,286
Transfers to Separate Accounts, net ........ 396,239,152 92,270,003 4,164,199
Separate Accounts seed money investment
contributed (withdrawn), net ............. (7,387,104) 66,747,895 25,000,000
Other, net ................................. 48,215,232 6,823,917 6,798,405
--------------------- --------------------- ---------------------
Total Disbursements 6,034,753,991 5,118,269,999 4,580,260,630
--------------------- --------------------- ---------------------
Cash Provided by Operating Activities 5,923,357,760 6,174,654,603 5,714,762,770
--------------------- --------------------- ---------------------
By investing activities:
Sales and redemptions of bonds and stocks .. 4,480,206,152 3,863,412,778 3,810,787,301
Repayment of mortgage principal ............ 3,481,965,154 1,166,625,456 1,684,113,871
Sales of real estate ........................ 834,010,275 1,084,222,765 1,610,589,922
Other, net ................................. 276,394,277 135,661,132 243,837,007
--------------------- --------------------- ---------------------
Cash Provided by Investing Activities 9,072,575,858 6,249,922,131 7,349,328,101
--------------------- --------------------- ---------------------
TOTAL CASH PROVIDED 14,995,933,618 12,424,576,734 13,064,090,871
--------------------- --------------------- ---------------------
DISBURSEMENTS FOR NEW INVESTMENTS
Investments acquired:
Bonds and stocks ........................... 11,577,235,443 8,696,169,089 10,084,139,605
Mortgages .................................. 2,761,896,596 2,352,232,441 2,217,021,154
Real Estate ................................ 488,543,147 866,388,613 1,495,492,478
Other, net ................................. 266,227,301 228,181,527 352,457,763
--------------------- --------------------- ---------------------
TOTAL DISBURSEMENTS FOR
NEW INVESTMENTS 15,093,902,487 12,142,971,670 14,149,111,000
--------------------- --------------------- ---------------------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (97,968,869) 281,605,064 (1,085,020,129)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF YEAR 713,051,046 431,445,982 1,516,466,111
--------------------- --------------------- ---------------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF YEAR $ 615,082,177 $ 713,051,046 $ 431,445,982
===================== ===================== =====================
</TABLE>
See notes to financial statements.
B-58
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 1--Organization
Teachers Insurance and Annuity Association of America ("TIAA") was established
as a legal reserve life insurance company under the insurance laws of the State
of New York in 1918. TIAA was formed by the Carnegie Foundation for the
Advancement of Teaching for the express purpose of aiding and strengthening
nonprofit educational and research organizations by providing retirement and
insurance benefits for their faculties and other staff members, and by
counseling these organizations and their employees on benefit plans and other
measures of economic security. All of the outstanding common stock of TIAA is
collectively held by the TIAA Board of Overseers, a nonprofit corporation
created solely for the purpose of holding the stock of TIAA.
Note 2--Significant Accounting Policies
TIAA's financial statements have been prepared on the basis of accounting
policies prescribed or permitted by the New York State Insurance Department
("Department"). Such policies are hereinafter referred to as statutory
accounting practices, a comprehensive basis of accounting that differs from
generally accepted accounting principles ("GAAP"). The 1995 and 1994 financial
statements presented for comparative purposes were previously described as being
in conformity with GAAP, but they are no longer considered to be prepared in
accordance with GAAP. (Refer to the separate sections, entitled "Generally
Accepted Accounting Principles" and "Permitted Statutory Accounting Policies",
within this note.)
The preparation of TIAA's financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses. Actual results could differ from those
estimates. The following is a summary of the significant accounting policies
consistently followed by TIAA.
Valuation of Investments: Bonds and short-term investments (debt securities with
maturities of one year or less at the time of acquisition) not in default are
generally stated at amortized cost; medium to highest quality preferred stocks
at cost; common stocks at market value; and all other bond, short-term and
preferred stock investments at the lower of amortized cost or market value.
Mortgages are stated at amortized cost, and directly-owned real estate at
depreciated cost (net of encumbrances). Investments in wholly-owned
subsidiaries, real estate limited partnerships and securities limited
partnerships are stated at TIAA's equity in the net assets of the underlying
entities. Policy loans are stated at outstanding principal amounts. All
investments are stated net of any permanent impairments, which are determined on
an individual asset basis. Depreciation is generally computed over a 40 year
period on the constant yield method for properties acquired prior to 1991, and
on the straight-line method for properties acquired thereafter.
Accounting for Investments: Investment transactions are accounted for as of the
date the investments are purchased or sold (trade date) for publicly traded
common stocks and as of the date the investment transactions are settled
(settlement date) for all other investments. Realized capital gains and losses
on investment transactions are accounted for under the specific identification
method.
B-59
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 2--Significant Accounting Policies--(Continued)
Foreign Currency Transactions and Translation: Investments denominated in
foreign currencies and foreign currency contracts are valued in U.S. dollars,
based on exchange rates at the end of the period. Investment transactions in
foreign currencies are recorded at the exchange rates prevailing on the
respective transaction dates. All other asset and liability accounts that are
denominated in foreign currencies are adjusted to reflect exchange rates at the
end of the period. Realized and unrealized gains and losses due to foreign
exchange transactions, and those due to translation adjustments, are not
separately reported and are reflected in realized and unrealized capital gains
and losses, respectively.
Securities Lending: TIAA has a securities lending program whereby it loans
securities to qualified brokers in exchange for cash collateral, generally at
least equal to 102% of the market value of the securities loaned. When
securities are loaned, TIAA receives additional income on the collateral and
continues to receive income on the securities loaned. The collateral liability
is netted against the short-term investments in which the cash collateral is
invested and such short-term investments and the equivalent liability are not
reflected in the balance sheet caption, "Cash and short-term investments". TIAA
may bear the risk of delay in recovery of, or loss of rights in, the securities
loaned should a borrower of securities fail to return the securities in a timely
manner.
Foreign Currency Swap Contracts: TIAA enters into foreign currency swap
contracts to exchange fixed and variable amounts of foreign currency at
specified future dates and at specified rates (in U.S. dollars) to hedge against
currency risks on investments denominated in foreign currencies. Changes in the
value of the contracts related to foreign currency exchange rates are recognized
at the end of the period as unrealized gains or losses. Foreign currency swap
contracts incorporate a series of swap transactions which result in the exchange
of TIAA's fixed and variable foreign currency cash flows into fixed amounts of
U.S. dollar cash flows. Foreign currency swap contracts are entered into
directly with a counterparty and TIAA is exposed to the risk of default of such
counterparty, although TIAA does not anticipate non-performance by any of its
counterparties. The maximum potential loss from such risk is equal to the change
in the value of the foreign currency swap during the term of the contract. In
order to minimize the risk associated with potential counterparty default, TIAA
monitors the credit quality of its counterparties.
Foreign Currency Forward Contracts: TIAA enters into foreign currency forward
contracts to exchange fixed amounts of foreign currency at specified future
dates and at specified rates (in U.S. dollars) to hedge against currency risks
on investments denominated in foreign currencies. Changes in the value of the
contracts related to foreign currency exchange rates are recognized at the end
of the period as unrealized gains or losses. Forward contracts incorporate one
swap transaction which results in the exchange of TIAA's fixed foreign currency
cash flow into a fixed amount of U.S. dollar cash flow. A foreign exchange
premium (discount) is recorded at the time the contract is opened, and it is
calculated based on the difference between the forward exchange rate and the
spot rate. TIAA amortizes the foreign exchange premium (discount) into
investment income over the life of the
B-60
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 2--Significant Accounting Policies--(Continued)
forward contract, or at the settlement date if the forward contract is less than
a year. TIAA is subject to counterparty credit risk upon entering into foreign
currency forward contracts, as discussed above for foreign currency swap
contracts.
Interest Rate Swap Contracts: TIAA enters into interest rate swap contracts to
hedge against the effect of interest rate fluctuations on certain variable
interest rate bonds. These contracts allow TIAA to lock in a fixed interest rate
and to transfer the risk of higher or lower interest rates. TIAA also enters
into interest rate swap contracts to exchange the cash flows on certain fixed
interest rate bonds into variable interest rate cash flows in connection with
certain adjustable rate products. Payments received and payments made under
interest rate swap contracts are reflected in net investment income. Interest
rate swap contracts subject TIAA to credit risk should the counterparties not
perform according to the terms of the contracts. However, the maximum potential
loss from such credit risk is much smaller than the par value of the related
notes, and TIAA does not anticipate non-performance by any of its
counterparties. In order to minimize the risk associated with potential
counterparty default, TIAA monitors the credit quality of its counterparties.
Swap Options: TIAA writes (sells) swap options on selected bonds to hedge
against the effect of interest rate fluctuations as part of TIAA's asset and
liability management program for certain adjustable rate products. Swap options
give the holder the right, but not the obligation, to enter into an interest
rate swap contract with TIAA where TIAA would pay a fixed interest rate and
would receive a variable interest rate on a specified notional amount. When a
swap option is written, the premium received is recorded as a liability. Because
the swap options expire within one year of their inception date, the premium is
recognized as investment income at the earlier of the exercise date or the
expiration of the swap option. TIAA would be exposed to counterparty credit risk
upon entering into an interest rate swap contract, as discussed above.
Interest Rate Cap Contracts: TIAA purchases interest rate cap contracts to hedge
against the risk of a rising interest rate environment as part of TIAA's asset
and liability management program for certain adjustable rate products. Under the
terms of the interest rate cap contracts, the selling entity makes payments to
TIAA on a specified notional amount if an agreed-upon index exceeds a
predetermined strike rate. Payments received under interest rate cap contracts
are recognized as investment income. When an interest rate cap contract is
purchased, the premium paid is recorded as an asset, and the premium is
amortized into investment expense over the life of the interest rate cap
contract. TIAA would be subject to counterparty credit risk if the index exceeds
the predetermined strike rate, causing a payment to be payable to TIAA. In order
to minimize the risk associated with potential counterparty default, TIAA
monitors the credit quality of its counterparties.
Covered Call Options: TIAA writes (sells) covered call options on selected bonds
as part of TIAA's asset and liability management program for certain adjustable
rate products. When an option is written, the premium received is recorded as a
liability. Premiums received on options which expire are recorded as realized
capital gains.
B-61
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 2--Significant Accounting Policies--(Continued)
Premiums received from writing options which are exercised are added to the
proceeds from the sale of the underlying bond in recognizing the net realized
capital gain or loss on the disposition. In writing options, it is assumed that
the option may be exercised at any time prior to the expiration of TIAA's
obligation as a writer, and that in such circumstances the net proceeds of the
sale of the underlying bond pursuant to the call option may be below the
prevailing market value.
Investment Income Due and Accrued: Investment income due and accrued excludes
non-admitted amounts of approximately $291,742,000 and $311,279,000 at December
31, 1996 and 1995, respectively.
Non-Admitted Assets Other than Investments: Certain non-investment assets, such
as furniture and fixtures and various receivables, are designated as
non-admitted assets by the Department and, as such, cannot be included in life
insurance company balance sheets filed with the Department. Such non-admitted
assets approximated $179,363,000 at December 31, 1996 and $174,603,000 at
December 31, 1995.
Policy and Contract Reserves: TIAA offers a range of group and individual
retirement annuities and group and individual life and other insurance products.
Policy and contract reserves for such products are determined in accordance with
standard valuation methods approved by the Department. Reserves are stated at
account balances for annuities in the accumulation phase, at the present value
of all future guaranteed benefits for annuities in the payout phase and, for
insurance policies, are computed in accordance with standard actuarial formulas.
The reserves established utilize assumptions for interest (at an average rate of
approximately 3%), mortality and other risks insured. Such reserves establish a
sufficient provision for all contractual benefits guaranteed under policy and
contract provisions.
Dividends Declared for the Following Year: Dividends on insurance policies and
pension annuity contracts in the payout phase are generally declared by the TIAA
Board of Trustees ("Board") in November of each year, and such dividends are
credited to policyholders in the following calendar year. Dividends on pension
annuity contracts in the accumulation phase are generally declared by the Board
in February of each year and such dividends on the various existing vintages of
pension annuity contracts in the accumulation phase are credited to
policyholders during the ensuing twelve month period beginning March 1.
Asset Valuation Reserve: The Asset Valuation Reserve ("AVR"), which covers all
invested asset classes, is an explicit liability reserve required by the
National Association of Insurance Commissioners ("NAIC") and is intended to
provide for potential future credit and equity losses. Reserve components of the
AVR are maintained for bonds, stocks, mortgages, real estate and other invested
assets. Realized and unrealized credit and equity capital gains and losses, net
of capital gains taxes, are credited to or charged against the related
components of the AVR. Formula calculations determine the required contribution
amounts for each component. Insurance companies may also make voluntary
contributions to any component as long as the resulting ending balance does not
exceed the computed maximum reserve for that component. TIAA makes voluntary
contributions to the mortgage and real
B-62
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 2--Significant Accounting Policies--(Continued)
estate reserves of the AVR as necessary to keep the reserve balances at least
equal to the aggregate differences between carrying value and the most recent
valuation for mortgage and real estate investments under valuation review.
Contributions to the AVR are reported as transfers from Contingency Reserves.
Interest Maintenance Reserve: The Interest Maintenance Reserve ("IMR") is a
liability reserve required by the NAIC which accumulates realized capital gains
and losses resulting from interest rate fluctuations. Such capital gains and
losses are amortized out of the IMR as an adjustment to net investment income
over the remaining lives of the assets sold.
Contingency Reserves: By Charter, TIAA operates without profit to the
corporation or its sole shareholder, the TIAA Board of Overseers. As a result,
all contingency reserves are held solely for the benefit of TIAA's
policyholders.
Income and Expenses: Premiums, investment income and expenses are reported as
incurred.
Federal Income Taxes: TIAA is a nonprofit educational organization exempt from
federal income taxation under Section 501(c)(3) of the Internal Revenue Code.
However, any non-pension related income is subject to federal income taxation as
unrelated business income. The federal income tax provision in the accompanying
statements of operations is based on taxes actually paid or anticipated to be
paid with the tax return filing.
Separate Accounts: The balance sheet captions for Separate Account assets and
liabilities (which include participant account values) are stated at market
value. The Separate Accounts' operating results are reflected in the changes to
these assets and liabilities.
TIAA Separate Account VA-1 ("VA-1") is a segregated investment account and was
organized on February 16, 1994 under the insurance laws of the State of New York
for the purpose of issuing and funding variable annuity contracts. VA-1 was
registered with the Securities and Exchange Commission ("Commission") effective
November 1, 1994 as an open-end, diversified management investment company under
the Investment Company Act of 1940. Currently, VA-1 consists of a single
investment portfolio, the Stock Index Account ("SIA"), which invests in a
diversified portfolio of equity securities selected to track the overall United
States stock market. SIA was established on October 3, 1994 with a $25,000,000
seed money investment by TIAA. TIAA purchased 1,000,000 Accumulation Units of
SIA and such units shared in the pro rata investment experience of SIA and were
subject to the same valuation procedures and expense deductions as all other
Accumulation Units in SIA. On November 14, 1994, TIAA began to offer
Accumulation Units of SIA to participants other than TIAA. At December 31, 1995,
the value of TIAA's 2,685 units in SIA was approximately $92,000, and TIAA
redeemed its remaining units during 1996.
The TIAA Real Estate Account ("REA") is a segregated investment account and was
organized on February 22, 1995 under the insurance laws of the State of New York
for the purpose of funding variable annuity contracts.
B-63
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 2--Significant Accounting Policies--(Continued)
REA was registered with the Commission under the Securities Act of 1933
effective October 2, 1995. REA's target is to invest between 70% and 80% of its
assets directly in real estate or in real estate-related investments, with the
remainder of its assets invested in publicly-traded securities to maintain
adequate liquidity. REA was established on July 3, 1995 with a $100,000,000 seed
money investment by TIAA. TIAA purchased 1,000,000 Accumulation Units of REA and
such units share in the pro rata investment experience of REA and are subject to
the same valuation procedures and expense deductions as all other Accumulation
Units in REA. On October 2, 1995, TIAA began to offer Accumulation Units of REA
to participants other than TIAA. At December 31, 1996 and 1995, the number of
units retained by TIAA in REA were 933,333 and 1,000,000, respectively, with a
total value of approximately $103,704,000 and $102,566,000, respectively.
Generally Accepted Accounting Principles: The Financial Accounting Standards
Board ("FASB") issued FASB Interpretation No. 40, entitled "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises" ("Interpretation"), in April 1993. The Interpretation clarifies
that financial statements that are intended to be in conformity with GAAP should
follow all authoritative accounting pronouncements except to the extent that a
pronouncement explicitly exempts a particular type of enterprise or that
enterprise does not have the transaction, event, or circumstance addressed in
the pronouncement. The Interpretation, as amended, is effective for 1996 annual
financial statements.
The effect of the Interpretation is that, beginning in 1996, TIAA (and mutual
life insurance and other enterprises) can no longer refer to financial
statements prepared in accordance with statutory accounting practices as having
been prepared in accordance with GAAP. Furthermore, financial statements
prepared in conformity with statutory accounting practices for periods prior to
the effective date of the Interpretation are no longer considered to be GAAP
statements when presented in comparative form with financial statements for
periods subsequent to the Interpretation's effective date. Accordingly, TIAA's
1995 and 1994 statutory financial statements, while presented in full
conformance with statutory accounting practices, are no longer considered to be
presented in conformity with GAAP.
The differences between generally accepted accounting principles and statutory
accounting practices would have a material effect on TIAA's financial
statements, and the primary differences can be summarized as follows. Under
GAAP:
(bullet) The AVR is eliminated and valuation allowances are established as
contra assets based on asset-specific analyses rather than the
formula-based AVR being reflected as a liability reserve;
(bullet) The IMR is eliminated and realized gains and losses resulting from
interest rate fluctuations are reported as a component of net income
rather than being accumulated in and subsequently amortized out of the
IMR;
(bullet) Dividends on insurance policies and annuity contracts are accrued as
the necessary earnings emerge from operations rather than being accrued
in the year when they are declared;
B-64
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 2--Significant Accounting Policies--(Concluded)
(bullet) The "non-admitted" asset designation is not utilized;
(bullet) Policy acquisition costs are deferred and amortized over the lives of
the policies issued rather than being charged to operations as
incurred;
(bullet) Policy and contract reserves are based on estimates of expected
mortality and interest rather than being based on statutory mortality
and interest requirements;
(bullet) Investments in wholly-owned subsidiaries are consolidated in the
parent's financial statements rather than being carried at the parent's
equity in the net assets of the subsidiaries;
(bullet) Long-term bond investments considered to be "available for sale" are
carried at fair value rather than at amortized cost. Management
believes that the effects of these differences on TIAA's financial
statements, if GAAP were implemented, would increase TIAA's capital.
Permitted Statutory Accounting Policies: Statutory accounting policies
prescribed by the Department include accounting practices reflected in New York
State Insurance Laws and Regulations as well as in NAIC publications. Permitted
statutory accounting policies encompass all accounting practices which are
allowed by the Department but have not been prescribed. TIAA does not utilize
any statutory accounting practices which depart from prescribed statutory
accounting practices; however, TIAA does follow certain permitted statutory
accounting practices. The following permitted statutory accounting policies have
been approved by the Department: inclusion of real estate subsidiaries and real
estate limited partnerships in the Real Estate caption in the accompanying
balance sheets; determination of permanent impairments; and netting of
securities lending collateral against short-term investments.
The NAIC issued prescribed accounting requirements for loan-backed securities,
including collateralized mortgage obligations ("CMO's"), in 1993. The new
accounting requirements stipulated that loan-backed securities should be
accounted for using the interest method. Under the interest method, actual and
anticipated cash flows of a security are utilized to determine the carrying
value of that security. TIAA elected the prospective method for determining
yields and carrying values for interest-only CMO's and the retrospective method
for all other CMO's.
Certain provisions of these statutory accounting policies were required to be
implemented in 1994; the remaining provisions were required for 1995. TIAA
implemented the required provisions of the new accounting policies in 1994 and
also adopted the provisions in 1994 for TIAA's public market CMO portfolio. This
early adoption for public market CMO's represented a permitted accounting
practice which was also approved by the Department. The required provisions of
the new accounting policies for TIAA's private market CMO portfolio were
implemented in 1995. The effect of this change in accounting in 1995 and 1994
was to increase contingency reserves by approximately $11 million and $50
million, respectively.
Reclassifications: Certain amounts in the 1995 and 1994 financial statements
have been reclassified to conform with the 1996 presentations.
B-65
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 3--Investments
Securities Investments: At December 31, 1996 and 1995, the carrying values
(balance sheet amounts) and estimated market values of long-term bond
investments, and gross unrealized gains and losses with respect to such
market values, are shown below:
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Estimated
December 31, 1996 Value Gains Losses Market Value
------------------------------------ ----------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations ........ $ 708,002,451 $ 58,453,457 $101,219,004 $ 665,236,904
Debt securities issued by foreign
governments ...................... 1,318,580,240 160,530,266 5,770,226 1,473,340,280
Corporate securities ............... 29,838,430,523 1,723,358,249 236,333,975 31,325,454,797
Mortgage-backed securities ......... 18,880,847,006 1,360,640,261 224,627,980 20,016,859,287
Asset-backed securities ............ 5,346,270,607 539,946,158 78,199,108 5,808,017,657
----------------- ----------------- ----------------- -------------------
Total .......................... $56,092,130,827 $3,842,928,391 $646,150,293 $59,288,908,925
================= ================= ================= ===================
December 31, 1995
------------------------------------
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations ........ $ 805,105,863 $ 195,202,463 $ 1,000,308,326
Debt securities issued by foreign
governments ...................... 1,456,997,622 226,995,685 $ 1,494,536 1,682,498,771
Corporate securities ............... 28,094,698,003 2,942,081,089 78,607,386 30,958,171,706
Mortgage-backed securities ......... 15,163,886,154 1,547,907,663 45,110,081 16,666,683,736
Asset-backed securities ............ 3,315,143,416 317,275,533 4,448,112 3,627,970,837
----------------- ----------------- ----------------- -------------------
Total .......................... $48,835,831,058 $5,229,462,433 $129,660,115 $53,935,633,376
================= ================= ================= ===================
</TABLE>
At December 31, 1996 and 1995, approximately 95.4% and 94.9%, respectively, of
the long-term bond portfolio was comprised of investment grade securities. At
December 31, 1996, outstanding forward commitments for future long-term bond
investments approximated $1,171,942,000, and it is anticipated that all
commitments will be disbursed during 1997. The funding of bond commitments is
contingent upon the continued favorable financial performance of the potential
borrowers. Debt securities amounting to approximately $2,610,000 and
$237,943,000 at December 31, 1996 and 1995, respectively, were on deposit with
governmental authorities or trustees as required by law.
B-66
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 3--Investments--(Continued)
The carrying values and estimated market values of long-term bond investments at
December 31, 1996, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Carrying Estimated
Value Market Value
----------------- ------------------
<S> <C> <C>
Due in one year or less ................ $ 369,061,445 $ 375,202,319
Due after one year through five years .. 3,760,546,344 3,972,202,814
Due after five years through ten years . 12,148,746,120 12,582,733,274
Due after ten years .................... 15,586,659,305 16,533,893,574
----------------- ------------------
Subtotal ........................... 31,865,013,214 33,464,031,981
Mortgage-backed securities ............. 18,880,847,006 20,016,859,287
Asset-backed securities ................ 5,346,270,607 5,808,017,657
----------------- ------------------
Total .............................. $56,092,130,827 $59,288,908,925
================= ==================
</TABLE>
Bonds not due at a single maturity date have been included in the preceding
table based on the year of final maturity. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations, although prepayment premiums may be applicable.
At December 31, 1996 and 1995, the carrying values of long-term bond
investments were diversified by industry classification as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Mortgage-backed securities ..... 33.7% 31.1%
Manufacturing .................. 13.0 14.0
Public utilities ............... 12.9 15.5
Asset-backed securities ........ 9.5 6.8
Finance and financial services . 8.9 8.8
Government ..................... 4.8 5.7
Retail and wholesale trade ..... 4.3 5.1
Oil and gas .................... 4.0 3.9
Communications ................. 3.7 4.3
Other .......................... 5.2 4.8
-------- -------
Total ...................... 100.0% 100.0%
======== =======
</TABLE>
B-67
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 3--Investments--(Continued)
The approximate carrying values and market values of debt securities loaned, and
the cash collateral received in connection therewith, were as follows:
<TABLE>
<CAPTION>
Carrying Market Cash
Value Value Collateral
----------------- -----------------------------------
<S> <C> <C> <C>
December 31, 1996 $1,625,029,000 $1,678,166,000 $1,746,346,000
December 31, 1995 $1,345,534,000 $1,410,965,000 $1,482,603,000
</TABLE>
At December 31, 1996 and 1995, TIAA had interest rate swap contracts outstanding
with a total notional value of $187,355,000 and $105,600,000, respectively.
At December 31, 1996 and 1995, TIAA had foreign currency swap contracts
outstanding with a total notional value of approximately $337,404,000 and
$238,063,000, respectively. The net change in unrealized gains (losses) on
foreign currency swap contracts was approximately $1,367,000, $(1,099,000) and
$(7,635,000) for the years ended December 31, 1996, 1995 and 1994, respectively.
During 1996, TIAA entered into five foreign currency forward contracts with a
total notional value of approximately $12,522,000, and recorded total premiums
of approximately $188,000. All five forward contracts remained outstanding at
December 31, 1996, and the unamortized value of the premiums was approximately
$188,000. Unrealized gains on the forward contracts were approximately $28,000
for the year ended December 31, 1996.
During 1996, TIAA wrote four swap options with a total notional value of
$132,000,000, and received a total premium of approximately $554,000. One of
these swap options expired and one was exercised during the year, with total
notional values of $30,000,000 and $44,000,000, respectively. The interest rate
swap contract created from the exercise of the swap option is reflected in the
aggregate totals for interest rate swap contracts disclosed in the related
paragraph above. At December 31, 1996, the unamortized value of the premiums was
approximately $434,000, and two swap options remained outstanding with a total
notional value of $58,000,000. During 1996, TIAA purchased three interest rate
cap contracts with a total notional value of $32,520,000, and paid a total
premium of approximately $553,000. All three interest rate cap contracts
remained outstanding at December 31, 1996, and the unamortized value of the
premiums was approximately $507,000. TIAA received no payments under the
interest rate cap contracts during 1996.
During 1995, TIAA wrote two covered call options related to $13,500,000 par
value of bonds and received premiums of approximately $142,000. The options were
exercised and the premiums were recorded as additional proceeds on the
dispositions. There were no outstanding covered call options at December 31,
1996 and 1995.
Mortgage Loan and Real Estate Investments: TIAA makes mortgage loans,
principally collateralized by commercial real estate, and direct investments in
real estate. TIAA's mortgage underwriting standards generally limit mortgage
investments to first mortgage liens on completed income-producing properties for
which the loan-to- value ratio at the time of closing generally ranges between
65% and 75%. TIAA employs a system to monitor
B-68
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 3--Investments--(Continued)
the effects of current and expected market conditions and other factors on the
collectability of mortgage loans and the realizability of real estate
investments. This system is utilized to identify and quantify any permanent
impairments in value and to determine the appropriate level of mortgage and real
estate reserves in the AVR.
At December 31, 1996 and 1995, the carrying values of mortgage loan investments
were diversified by property type and geographic region as follows:
<TABLE>
<CAPTION>
Property Type 1996 1995
- --------------------- --------------- ----------------
<S> <C> <C>
Office buildings ...... 41.3% 41.1%
Shopping centers ...... 29.4 30.6
Mixed-use projects .... 10.7 9.9
Apartments ............ 7.3 8.1
Industrial buildings .. 5.4 3.9
Hotels ................ 4.2 4.6
Other ................. 1.7 1.8
--------------- ----------------
Total ............. 100.0% 100.0%
=============== ================
Geographic Region
---------------------
West .................. 28.1% 29.2%
Northeast ............. 22.5 23.1
Midwest ............... 20.5 20.4
Southeast ............. 18.6 17.1
Southwest/Plains ...... 10.3 10.2
--------------- ----------------
Total ............. 100.0% 100.0%
=============== ================
</TABLE>
At December 31, 1996 and 1995, approximately 22% and 24%, respectively, of the
mortgage portfolio was invested in California and is included in the West region
shown above.
At December 31, 1996, the contractual maturity schedule of mortgage loans is
shown below:
<TABLE>
<CAPTION>
Carrying Value
------------------
<S> <C>
Due in one year or less ............... $ 1,467,338,932
Due after one year through five years . 3,710,129,134
Due after five years through ten years 9,137,638,879
Due after ten years ................... 5,758,895,332
------------------
Total ............................. $20,074,002,277
==================
</TABLE>
B-69
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 3--Investments--(Continued)
Actual maturities may differ from contractual maturities because borrowers may
have the right to prepay mortgage loans, although prepayment premiums may be
applicable.
At December 31, 1996, outstanding forward commitments for future mortgage loan
investments approximated $1,217,430,000, including commitments under litigation.
Of this, $836,936,000 is scheduled for disbursement in 1997, $309,276,000 in
1998 and $71,218,000 in later years. The funding of mortgage loan commitments is
contingent upon the underlying properties meeting specified construction,
leasing, occupancy and other requirements. Of the total commitments scheduled
for disbursement in 1997, $250,000,000 is related to a mortgage loan refinancing
which occurred in 1993. In connection with the refinancing, a third party made a
five year, interest-only loan to a TIAA borrower and the borrower made a partial
repayment to TIAA. TIAA made a one year forward commitment to loan $250,000,000
to the borrower. The loan commitment may be extended, at TIAA's option, for
additional one year periods, up to a total of five years, provided that the
borrower's first mortgage to the third party is not in default at the time the
loan commitment is extended. The loan commitment has been extended to 1997.
At December 31, 1996, 1995 and 1994, the aggregate carrying values of mortgages
with restructured or modified terms, as defined by generally accepted accounting
principles, were approximately $621,056,000, $872,377,000 and $913,551,000,
respectively. For the years ended December 31, 1996, 1995 and 1994, the
investment income earned on such mortgages was approximately $43,408,000,
$57,142,000 and $41,643,000, respectively, which would have been approximately
$68,371,000, $96,625,000 and $101,394,000, respectively, if they had performed
in accordance with their original terms. When restructuring mortgage loans, TIAA
generally requires participation features, yield maintenance stipulations,
and/or the establishment of property specific escrow accounts funded by the
borrowers.
At December 31, 1996 and 1995, the carrying values of real estate investments
were diversified by property type and geographic region as follows:
<TABLE>
<CAPTION>
Property Type 1996 1995
- ----------------------------------------------------- --------------- ----------------
<S> <C> <C>
Office buildings .................................... 63.2% 61.7%
Shopping centers .................................... 16.3 15.2
Mixed-use projects .................................. 7.3 7.3
Industrial buildings ................................ 3.5 3.4
Income-producing land underlying improved real estate 3.5 3.3
Land held for future development .................... 1.8 2.0
Apartments .......................................... 0.4 0.7
Other ............................................... 4.0 6.4
--------------- ----------------
Total ........................................... 100.0% 100.0%
=============== ================
</TABLE>
B-70
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 3--Investments--(Concluded)
<TABLE>
<CAPTION>
Geographic Region 1996 1995
- ----------------- ------------ ------------
<S> <C> <C>
Midwest 34.6% 34.8%
Southeast 26.0 24.7
Northeast 14.5 14.2
West 14.4 16.2
Southwest/Plains 10.5 10.1
------------ ------------
Total 100.0% 100.0%
============ ============
</TABLE>
At December 31, 1996 and 1995, approximately 12% of the real estate portfolio
was invested in Minnesota and included in the Midwest region shown above. At
December 31, 1995, approximately 12% of the real estate portfolio was also
invested in California and included in the West region shown above. The
percentage of the portfolio invested in California declined to 10% at December
31, 1996.
At December 31, 1996, outstanding forward commitments for future real estate
investments approximated $99,640,000. Under these commitments, it is estimated
that $79,412,000 will be disbursed in 1997 and $20,228,000 in later years. The
funding of real estate investment commitments is contingent upon the properties
meeting specified construction, leasing, occupancy and other requirements.
Depreciation expense on real estate investments for the years ended December 31,
1996, 1995 and 1994, was approximately $135,982,000, $98,198,000 and
$84,872,000, respectively; the amount of accumulated depreciation at December
31, 1996 was approximately $646,662,000.
Asset Valuation Reserves: The AVR balances at December 31, 1996 and 1995 were
comprised of the following asset-specific reserves:
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
<S> <C> <C>
Bonds and preferred stock $ 692,863,748 $ 673,859,636
Mortgages 647,666,546 564,444,067
Real Estate 707,054,921 514,833,826
Common stock 53,869,704 62,372,040
Other invested assets 33,466,350 45,358,322
------------------- -------------------
Total $2,134,921,269 $1,860,867,891
=================== ===================
</TABLE>
B-71
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 4--Investment Income and Capital Gains and Losses
Net Investment Income: For the years ended December 31, 1996, 1995 and 1994,
the components of net investment income were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- -----------------------------------
<S> <C> <C> <C>
Gross Investment Income:
Bonds ........................................... $4,397,330,653 $4,113,077,743 $3,591,625,656
Mortgages ....................................... 1,704,612,536 1,688,836,730 1,613,072,996
Real Estate (net of property expenses, taxes and
depreciation) ................................. 349,550,153 279,016,562 298,290,866
Stocks .......................................... 14,512,747 24,460,434 12,296,076
Other long-term investments ..................... 16,299,166 16,706,459 10,794,114
Cash and short-term investments ................. 64,600,106 52,050,980 37,997,294
Other ........................................... 30,748,262 8,500,640 9,894,077
----------------- -----------------------------------
Total ........................................ 6,577,653,623 6,182,649,548 5,573,971,079
Less investment expenses ......................... (111,487,052) (112,287,010) (102,523,873)
----------------- -----------------------------------
Net investment income before amortization of net
IMR gains ...................................... 6,466,166,571 6,070,362,538 5,471,447,206
Plus amortization of net IMR gains ............... 59,362,364 38,134,446 14,624,032
----------------- -----------------------------------
Net investment income ............................ $6,525,528,935 $6,108,496,984 $5,486,071,238
================= ===================================
</TABLE>
Participation income received on securities, mortgages and real estate included
in the above table was approximately $21,121,000, $28,088,000 and $27,488,000 in
1996, 1995 and 1994, respectively.
The net earned rates of investment income on total invested assets (computed as
net investment income before amortization of net IMR gains divided by mean
invested assets) were 8.17%, 8.29% and 8.11% in 1996, 1995 and 1994,
respectively.
Future rental income expected to be received during the next five years under
existing real estate leases in effect as of December 31, 1996 is approximately
$510,962,000 in 1997, $460,487,000 in 1998, $396,760,000 in 1999, $322,444,000
in 2000 and $244,048,000 in 2001.
B-72
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 4--Investment Income and Capital Gains and Losses--(Concluded)
Realized Capital Gains and Losses: For the years ended December 31, 1996,
1995 and 1994, the net realized capital gains (losses) on sales, redemptions
and writedowns of investments computed under the specific identification
method were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
<S> <C> <C> <C>
Bonds ................................................. $ 83,521,853 $ 32,698,203 $ 23,169,838
Mortgages ............................................. (120,569,347) (204,033,034) (103,763,171)
Real Estate ........................................... 62,836,567 99,207,556 (24,555,825)
Stocks ................................................ 123,374,256 9,808,562 5,435,716
Other long-term investments ........................... 27,068,040 7,885,199 1,550,624
Cash and short-term investments ....................... (13,797,036) (758,274) 2,377,735
Other ................................................. 14,400 1,360,695 714,129
------------------- ------------------- -------------------
Total realized gains (losses) before capital gains tax 162,448,733 (53,831,093) (95,070,954)
Capital gains (tax) benefit ........................... 1,501,742 (2,433,800) 0
------------------- ------------------- -------------------
Total ............................................. $ 163,950,475 $ (56,264,893) $ (95,070,954)
=================== =================== ===================
</TABLE>
Proceeds from sales and redemptions of long-term bond investments during 1996,
1995 and 1994 were approximately $4,329,771,000, $3,822,394,000 and
$3,685,078,000, respectively. Gross gains of approximately $133,807,000,
$122,093,000 and $96,579,000 and gross losses of approximately $45,397,000,
$49,736,000 and $75,097,000 were realized on these sales and redemptions during
1996, 1995 and 1994, respectively.
Unrealized Capital Gains and Losses: For the years ended December 31, 1996, 1995
and 1994, the net changes in unrealized capital gains (losses) on investments,
resulting in a net increase (decrease) in the valuation of investments, were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
<S> <C> <C> <C>
Bonds $ 3,982,108 $ 51,534,565 $ 64,026,744
Mortgages 2,393,812 (1,807,561) (3,125,696)
Real Estate 20,766,890 (42,391,326) (37,141,679)
Stocks (26,004,886) 26,290,762 19,432,861
Other long-term investments 10,306,026 22,455,069 824,045
Cash and short-term investments 8,605 0 1,285,511
Other 18,999,590 (3,375,400) (6,394,850)
------------------- ------------------- -------------------
Total $ 30,452,145 $ 52,706,109 $ 38,906,936
=================== =================== ===================
</TABLE>
B-73
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 5--Disclosures About Fair Value of Financial Instruments
The estimated fair value amounts of financial instruments presented in the
following tables have been determined by TIAA using market information available
as of December 31, 1996 and 1995 and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market data
in developing the estimates of fair value for financial instruments for which
there are no available market value quotations. The estimates presented are not
necessarily indicative of the amounts TIAA could have realized in a market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
Notional Carrying Estimated
December 31, 1996 Value Value Fair Value
----------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Assets
Bonds $56,092,130,827 $59,288,908,925
Mortgages 20,074,002,277 20,605,405,622
Stocks 355,093,378 355,093,378
Cash and short-term investments 615,082,177 615,082,177
Policy loans 187,636,651 187,636,651
Liabilities
Teachers Personal Annuity--Fixed Account 700,580,748 700,580,748
Other financial instruments
Foreign currency swap contracts $337,403,818 (6,031,762) (26,524,318)
Foreign currency forward contracts 12,522,424 216,215 30,162
Interest rate swap contracts 187,355,000 8,463,177
Swap options 58,000,000 (433,554) (308,108)
Interest rate cap contracts 32,520,000 506,579 443,878
Stock warrants --
December 31, 1995
-----------------------------------------
Assets
Bonds $48,835,831,058 $53,935,633,376
Mortgages 21,000,279,330 22,600,402,237
Stocks 223,028,483 223,028,483
Cash and short-term investments 713,051,046 713,051,046
Policy loans 134,538,623 134,538,623
Liabilities
Teachers Personal Annuity--Fixed Account 580,720,683 580,720,683
Other financial instruments
Foreign currency swap contracts $238,063,450 (7,398,975) (27,116,738)
Interest rate swap contracts 105,600,000 15,152,000
Stock warrants 6,532,500
</TABLE>
B-74
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 5--Disclosures About Fair Value of Financial Instruments--(Continued)
Bonds: Fair values for publicly traded long-term bond investments were
determined using quoted market prices. For privately placed long-term bond
investments without a readily ascertainable market value, such values were
determined with the assistance of an independent pricing service utilizing a
discounted cash flow methodology based on coupon rates, maturity provisions and
assigned credit ratings. The aggregate carrying values and estimated fair values
of publicly traded and privately placed bonds at December 31, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- ----------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Publicly traded bonds $33,088,013,741 $34,773,725,991 $28,152,735,556 $31,029,476,823
Privately placed bonds 23,004,117,086 24,515,182,934 20,683,095,502 22,906,156,553
------------------- ------------------- ------------------- -------------------
Total $56,092,130,827 $59,288,908,925 $48,835,831,058 $53,935,633,376
=================== =================== =================== ===================
</TABLE>
Mortgages: The fair value of mortgages was determined with the assistance of an
independent pricing service utilizing a discounted cash flow methodology based
on coupon rates, maturity provisions and assigned credit ratings.
Stocks, Cash and Short-Term Investments, and Policy Loans: The carrying values
are reasonable estimates of fair values.
Teachers Personal Annuity--Fixed Account: The carrying values of the liabilities
are reasonable estimates of fair values.
Foreign Currency Swap Contracts: The fair value of foreign currency swap
contracts, which are used for hedging purposes, is the estimated net gain or
(loss) that TIAA would record if the foreign currency swaps were liquidated at
year-end. The fair value of foreign currency swap contracts was estimated by
external parties, including TIAA's counterparties, based on future cash flows
and anticipated exchange relationships, and such values were reviewed internally
for reasonableness.
Foreign Currency Forward Contracts: The fair value of foreign currency forward
contracts, which are used for hedging purposes, is the estimated net gain or
(loss) that TIAA would record if the foreign currency forward contracts were
liquidated at year-end. The fair value of the foreign currency forward contracts
was estimated internally based on future cash flows and anticipated exchange
relationships, and such values were reviewed for reasonableness with estimates
from external parties, including TIAA's counterparties.
Interest Rate Swap Contracts: The fair value of interest rate swap contracts,
which are used for hedging purposes, is the estimated net gain or (loss) that
TIAA would record if the interest rate swaps were liquidated at year- end. The
swap agreements have no carrying value. The fair value of interest rate swap
contracts was estimated internally using modeling software developed by
independent third parties, and such values were reviewed for reasonableness with
estimates from external parties, including TIAA's counterparties.
B-75
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 5--Disclosures About Fair Value of Financial Instruments--(Continued)
Swap Options: The fair value of swap options, which are used for hedging
purposes, is the estimated amount that TIAA would receive or (pay) if the swap
options were liquidated at year-end. The fair value of the swap options was
estimated by external parties, including TIAA's counterparties, using option
pricing models, and such values were reviewed internally for reasonableness
using option pricing software developed by independent third parties.
Interest Rate Cap Contracts: The fair value of interest rate cap contracts,
which are used for hedging purposes, is the estimated amount that TIAA would
receive or (pay) if the interest rate cap contracts were liquidated at year-end.
The fair value of the interest rate cap contracts was estimated by external
parties, including TIAA's counterparties, using option pricing models, and such
values were reviewed internally for reasonableness using option pricing software
developed by independent third parties.
Stock Warrants: The fair value of stock warrants represents the excess, if any,
of the market value of the related stock over the exercise price associated with
the stock warrant. The stock warrants have no carrying value.
Commitments to Extend Credit or Purchase Investments: TIAA does not charge
commitment fees on these agreements, and the related interest rates reflect
market levels at the time of the commitments.
Insurance and Annuity Contracts: TIAA's insurance and annuity contracts, other
than the Teachers Personal Annuity--Fixed Account disclosed above, entail
mortality risks and are, therefore, exempt from the fair value disclosure
requirements related to financial instruments.
Note 6--Management Agreements
All services necessary for the operation of College Retirement Equities Fund
(CREF), a companion organization, are provided, at cost, by two subsidiaries of
TIAA, TIAA-CREF Investment Management, Inc. ("Investment Management") and
TIAA-CREF Individual & Institutional Services, Inc. ("Services"), which provide
investment advisory, administrative and distribution services for CREF. Such
services are provided in accordance with an Investment Management Services
Agreement between CREF and Investment Management, and in accordance with a
Principal Underwriting and Administrative Services Agreement between CREF and
Services. Investment Management is registered with the Commission as an
investment adviser; Services is registered with the Commission as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. Investment Management and Services receive management fee payments from
each CREF account on a daily basis according to formulas established each year
with the objective of keeping the management fees as close as possible to each
account's actual expenses. Any differences between actual expenses and the
management fees are adjusted quarterly. Such fees and the equivalent allocated
expenses, which amounted to approximately $274,447,000, $226,645,000 and
$199,396,000 in 1996, 1995 and 1994, respectively, are not included in the
statements of operations and had no effect on TIAA's operations.
B-76
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 6--Management Agreements--(Continued)
All services necessary for the operation of REA are provided, at cost, by TIAA
and Services. TIAA provides investment management services for REA, while
distribution and administrative services are provided by Services in accordance
with a Distribution and Administrative Services Agreement between REA and
Services. TIAA also provides a liquidity guarantee to REA, for a fee, to ensure
that funds are available to meet participant transfer and cash withdrawal
requests in the event that REA's cash flows and liquid investments are
insufficient to fund such requests. TIAA also receives a fee for assuming
certain mortality and expense risks. Fee payments are made from REA on a daily
basis to TIAA and Services according to formulas established annually. Any
differences between actual expenses and daily charges are adjusted quarterly.
Teachers Advisors, Inc. ("Advisors"), a subsidiary of TIAA VA Holdings, Inc.
("Holdings"), which is itself a wholly-owned subsidiary of TIAA (see Note 11),
provides investment advisory services for VA-1 in accordance with an Investment
Management Agreement between TIAA, Advisors and VA-1. TIAA provides all
administrative services for VA-1 in accordance with an Administrative Services
Agreement with VA-1 and also receives a fee for assuming certain mortality and
expense risks. Teachers Personal Investors Services, Inc. ("TPIS"), a subsidiary
of Holdings, distributes contracts for VA-1. Expense deductions are made from
VA-1 on a daily basis. Advisors is registered with the Commission as an
investment adviser; TPIS is registered with the Commission as a broker- dealer
and is a member of the National Association of Securities Dealers, Inc.
Note 7--Pension Plan and Postretirement Benefits
TIAA maintains a qualified, noncontributory defined contribution pension plan
covering substantially all employees. All pension plan liabilities are fully
funded through individually owned retirement annuity contracts. Contributions
are made semi-monthly to each participant's contract based on a percentage of
salary, with the applicable percentage varying by attained age. All
contributions are fully vested after five years of service. Forfeitures arising
from terminations prior to vesting are used to reduce future employer
contributions. The accompanying statements of operations include contributions
to the pension plan of approximately $20,808,000, $19,467,000 and $17,828,000 in
1996, 1995 and 1994, respectively.
In addition to the pension plan, TIAA provides certain other postretirement life
and health insurance benefits to eligible retired employees who meet prescribed
age and service requirements. The cost of such benefits reflected in the
accompanying statements of operations were approximately $3,022,000, $2,273,000
and $2,307,000 for 1996, 1995 and 1994, respectively. TIAA also maintains a
deferred compensation plan for non-officer trustees and members of the TIAA
Board of Overseers. Under this plan, an eligible board member who has served at
least five years is eligible for a single-sum payment upon leaving the board
equal to 50% of the annual stipend in effect during the last term multiplied by
the number of years of credited service, up to a maximum of 20 years.
B-77
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 8--Unconsolidated Subsidiaries and Other Affiliates
TIAA's wholly-owned subsidiaries primarily involve real estate investment
activities and are primarily included in real estate assets on the accompanying
balance sheets. At December 31, 1996 and 1995, the carrying values of TIAA's
investments in real estate subsidiaries and other affiliates were approximately
$4,234,818,000 and $4,599,673,000, respectively. Subsidiary total assets,
liabilities and gross rental income of real estate subsidiaries, as of and for
the years ended December 31, 1996 and 1995, were approximately as follows:
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
<S> <C> <C>
Assets $5,149,487,000 $5,523,739,000
Liabilities 933,678,000 981,438,000
Gross rental income 760,704,000 841,970,000
</TABLE>
Earnings of approximately $238,313,000, $164,676,000 and $210,302,000 in 1996,
1995 and 1994, respectively, primarily from real estate subsidiaries are
included in net investment income in the accompanying statements of operations.
Some of the real estate subsidiaries referred to above are partners in joint
ventures. At December 31, 1996 and 1995, the carrying values of TIAA real estate
subsidiaries that are partners in joint ventures were approximately
$2,242,791,000 and $2,371,931,000. Joint venture total assets, liabilities and
gross rental income, as of and for the years ended December 31, 1996 and 1995,
were approximately as follows:
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
<S> <C> <C>
Assets $3,099,467,000 $3,437,761,000
Liabilities 1,116,222,000 1,233,262,000
Gross rental income 484,657,000 608,507,000
</TABLE>
The subsidiaries' equity share in these total assets, liabilities and gross
rental income were approximately as follows:
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
<S> <C> <C>
Assets $2,981,156,000 $3,307,523,000
Liabilities 778,312,000 937,673,000
Gross rental income 455,196,000 551,259,000
</TABLE>
Net income earned by the subsidiaries from joint venture investments was
approximately $130,887,000, $60,689,000 and $92,342,000 in 1996, 1995 and 1994,
respectively. Some of the real estate joint ventures have mortgage loans from
TIAA. At December 31, 1996 and 1995, the unpaid principal of such mortgage loans
was approximately $782,460,000 and $826,216,000, respectively.
B-78
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS-(Continued)
Note 9--Termination of Business in Canada
Effective January 1, 1996, TIAA ceased conducting insurance and annuity
operations in Canada and reinsured all existing business with an independent
third party insurer under an assumption reinsurance agreement. Under this
agreement, TIAA transferred approximately $129 million (U.S.) of assets to the
independent third party insurer, and, under the reinsurance agreement, this
transfer released all of TIAA's Canadian policy reserves and other liabilities.
The financial effect of TIAA's withdrawal from Canada is reflected in the 1996
statement of operations, and the transaction had no material effect on TIAA's
financial results. TIAA has no continuing material obligation associated with
its withdrawal from the Canadian insurance market.
Note 10--Contingencies
It is the opinion of management that any liabilities which might arise from
litigation, state guaranty fund assessments, and other matters, over and above
amounts already provided for in the financial statements, are not considered
material in relation to TIAA's financial position or the results of its
operations.
Note 11--Subsequent Events
Effective January 1, 1997, TIAA VA Holdings, Inc. merged into TIAA Holdings,
Inc. ("THI"), a wholly-owned subsidiary of TIAA, and TIAA VA Holdings, Inc.
ceased to exist. THI was established in 1996 as a holding company for various
subsidiaries of TIAA.
In addition, effective January 1, 1997, TIAA contributed all of the outstanding
stock of its wholly-owned subsidiary, Macallister Holdings, Inc. ("Macallister")
to THI. Macallister is a holding company that owns various real estate
subsidiaries.
B-79
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
Part C - OTHER INFORMATION
Item 28. Financial Statements and Exhibits
(a) Financial Statements
The following Financial Statements for TIAA Separate
Account VA-1 (the "Registrant") and Teachers Insurance and Annuity Association
of America ("TIAA") are included with Part B (the Statement of Additional
Information) of this Registration Statement:
Page
(1) The Registrant--Stock Index Account
Report of Management Responsibility...................................B-21
Report of Independent Auditors........................................B-22
Audited Financial Statements:
Statement of Assets and Liabilities.................................B-23
Statement of Operations.............................................B-24
Statements of Changes in Net Assets.................................B-25
Notes to Financial Statements.........................................B-26
Statement of Investments..............................................B-29
(2) TIAA
Chairman's Letter.....................................................B-51
Report of Management Responsibility...................................B-52
Report of Independent Auditors........................................B-53
Audited Financial Statements:
Balance Sheets .....................................................B-55
Statements of Operations............................................B-56
Statements of Changes in Contingency Reserves.......................B-57
Statements of Cash Flows............................................B-58
Notes to Financial Statements.........................................B-59
(b) Exhibits
(1) Resolution of the Board of Trustees of TIAA establishing the
Registrant 1/
(2) Rules and Regulations of the Registrant 2/
(3) Custodial Services Agreement by and between TIAA and Bankers
Trust Company 3/
(4) Investment Management Agreement by and among TIAA, the
Registrant, and Teachers Advisors, Inc. 2/
(5) Distribution Agreement by and among TIAA, the Registrant,
and Teachers Personal Investors Services, Inc., as amended4/
(6) (A) Form of Teachers Personal Annuity Contract (effective
November 1, 1994) 2/
C-1
<PAGE>
(B) Form of Endorsement to Teachers Personal Annuity
Contract (in-force prior to November 1, 1994) 2/
(7) Form of Application for Teachers Personal Annuity Contract
2/
(8) (A) Charter of TIAA 1/ (B) Bylaws of TIAA, as amended*
(9) None
(10) Not Applicable
(11) Administrative Services Agreement by and between TIAA and
the Registrant, as amended 4/
(12) (A) Consent of Charles H. Stamm, Esquire*
(B) Consent of Sutherland, Asbill & Brennan, L.L.P.*
(13) Consent of Deloitte & Touche LLP*
(14) None
(15) Seed Money Agreement by and between TIAA and the Registrant
2/
(16) Schedule of Computation of Performance Information*
(17) Financial Data Schedule*
- ------------------
* Filed herewith.
1/ Previously filed in the initial Registration Statement on Form N-3 dated May
18, 1994 (File No. 33-79124) and incorporated herein by reference.
2/ Previously filed in Pre-Effective Amendment No. 1 to Form N-3 dated October
7, 1994 (File No. 33-79124) and incorporated herein by reference.
3/ Previously filed in Pre-Effective Amendment No. 2 to Form N-3 dated October
18, 1994 (File No. 33-79124) and incorporated herein by reference.
4/ Previously filed in Post-Effective Amendment No. 2 to Form N-3 dated March
26, 1996 (File No. 33-79124) and incorporated herein by reference.
C-2
<PAGE>
Item 29. Directors and Officers of the Insurance Company
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name and Principal Business Address Insurance Company Registrant
- ----------------------------------- ----------------- -------------
<S> <C> <C>
David Alexander Trustee
American Secretary
The Rhodes Scholarship Trust
and Trustees' Professor
Pomona College
Rhodes Scholarship Trust Office
Claremont, California 91711
Marcus Alexis Trustee
Professor of Economics and Professor
of Management and Strategy
J. L. Kellogg Graduate School of
Management
Northwestern University
Leverone Hall
2001 Sheridan Road
Evanston, Illinois 60208-2001
John H. Biggs Trustee,
TIAA-CREF Chairman and
730 Third Avenue Chief Executive
New York, New York 10017-3206 Officer
Willard T. Carleton Trustee
Karl L. Eller Professor of Finance
College of Business and Public
Administration
University of Arizona
McClelland Hall
Tucson, Arizona 85721
Robert C. Clark Trustee
Dean and Royall Professor of Law
Harvard Law School
Harvard University
Griswold 200
Cambridge, Massachusetts 02138
Flora Mancuso Edwards Trustee
of Counsel to Law Firm of Dublirer,
Haydon, Straci & Victor
Professor of English As
A Second Language and
Former President
Middlesex County College
155 Mill Road
Edison, New Jersey 08818
Estelle A. Fishbein Trustee
Vice President and General Counsel
The Johns Hopkins University
113 Garland Hall
Baltimore, Maryland 21218
Frederick R. Ford Trustee
Executive Vice President and Treasurer
Purdue University
1032 Hovde Hall of Administration
West Lafayette, Indiana 47907-1032
C-3
<PAGE>
Positions and Positions and
Offices with Offices with
Name and Principal Business Address Insurance Company Registrant
- ----------------------------------- ----------------- -------------
Martin J. Gruber Trustee
Chairman of the Department of Finance
Nomura Professor of Finance
New York University Stern School of
Business
229 South Irving Street
Ridgewood, New Jersey 07450
Ruth Simms Hamilton Trustee
Professor of Sociology
Michigan State University
W142 Owen Graduate Hall
East Lansing, Michigan 48824
Thomas W. Jones Trustee, Chairman of
TIAA-CREF Vice Chairman, the Management
730 Third Avenue President and Committee and
New York, New York 10017-3206 Chief Operating President
Officer
Dorothy Ann Kelly, O.S.U. Trustee
President
College of New Rochelle
New Rochelle, New York 10805
Martin L. Leibowitz Trustee, Vice
TIAA-CREF Chairman and Chief
730 Third Avenue Investment Officer
New York, New York 10017-3206
Robert M. O'Neil Trustee
Director
The Thomas Jefferson Center for the
Protection of Free Expression
400 Peter Jefferson Place
Charlottesville, Virginia 22901
Leonard S. Simon Trustee
Chairman, President and
Chief Executive Officer
RCSB Financial, Inc.
235 East Main Street
Rochester, New York 14604
Ronald L. Thompson Trustee
Chairman and Chief Executive Officer
Midwest Stamping Co.
513 Napoleon Road
Bowling Green, Ohio 43402
Paul R. Tregurtha Trustee
Chairman
Mormac Marine Group, Inc.
Three Landmark Square
Stamford, Connecticut 06901
Charles J. Urstadt Trustee
Chairman and Chief Executive Officer
HRE Properties
321 Railroad Avenue
Greenwich, Connecticut 06830
C-4
<PAGE>
Positions and Positions and
Offices with Offices with
Name and Principal Business Address Insurance Company Registrant
- ----------------------------------- ----------------- -------------
William H. Waltrip Trustee
Chairman and Chief Executive Officer
Bausch and Lomb, Inc.
One Bausch and Lomb Place
Rochester, New York 14604
Rosalie J. Wolf Trustee
Treasurer and Chief Investment Officer
The Rockefeller Foundation
420 Fifth Avenue
New York, New York 10018-2702
Richard J. Adamski Vice President Vice President
TIAA-CREF and Treasurer and Treasurer
730 Third Avenue
New York, New York 10017-3206
Jonah J. Applebaum Senior Counsel
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
Diane M. Axelrod Senior Managing Senior Managing
TIAA-CREF Director Director
730 Third Avenue
New York, New York 10017-3206
Anthony V. Betro Director, Director,
TIAA-CREF Investment Investment
730 Third Avenue Accounting Accounting
New York, New York 10017-3206
Laura M. Bramson Senior Counsel Assistant
TIAA-CREF Secretary
730 Third Avenue and Senior
New York, New York 10017-3206 Counsel
Jeffrey A. Casale Assistant
TIAA-CREF Insurance
730 Third Avenue Premium Officer
New York, New York 10017-3206
Gary Chinery Associate Associate
TIAA-CREF Treasurer Treasurer
730 Third Avenue
New York, New York 10017-3206
Peter C. Clapman Senior Vice Senior Vice
TIAA-CREF President President,
730 Third Avenue and Chief Counsel, Secretary and
New York, New York 10017-3206 Investments Chief Counsel,
Investments
Virgil H. Cumming Executive Vice Executive Vice
TIAA-CREF President President
730 Third Avenue
New York, New York 10017-3206
Madeleine D'Ambrosio Vice President
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
C-5
<PAGE>
Positions and Positions and
Offices with Offices with
Name and Principal Business Address Insurance Company Registrant
- ----------------------------------- ----------------- -------------
Douglas Dial Senior Managing Senior Managing
TIAA-CREF Director Director
730 Third Avenue
New York, New York 10017-3206
Eric E. Fisher Senior Managing Senior Managing
TIAA-CREF Director Director
730 Third Avenue
New York, New York 10017-3206
Dennis D. Foley Director, Research Director,
TIAA-CREF and Development Research and
730 Third Avenue Development
New York, New York 10017-3206
Richard L. Gibbs Executive Executive
TIAA-CREF Vice President Vice President
730 Third Avenue
New York, New York 10017-3206
David Grunbaum Vice President, Vice President,
TIAA-CREF General General
730 Third Avenue Accounting and Accounting and
New York, New York 10017-3206 Payment Payment
Services Services
Harvey Halpert Vice President, Vice President,
TIAA-CREF Actuarial Actuarial
730 Third Avenue
New York, New York 10017-3206
Don Harrell Executive
TIAA-CREF Vice President
730 Third Avenue
New York, New York 10017-3206
Matina Horner Executive
TIAA-CREF Vice President
730 Third Avenue
New York, New York 10017-3206
Roseanne Lipman Klein Vice President and
TIAA-CREF Chief Counsel, Tax
730 Third Avenue
New York, New York 10017-3206
Gary Korbel Manager,
TIAA-CREF Individual
730 Third Avenue Counseling
New York, New York 10017-3206
Henry Liedtka Manager,
TIAA-CREF Individual
730 Third Avenue Insurance
New York, New York 10017-3206 Systems
Mary Ann E. Masters Vice President, Vice President,
TIAA-CREF Corporate Tax Corporate Tax
730 Third Avenue and Payroll and Payroll
New York, New York 10017-3206
C-6
<PAGE>
Positions and Positions and
Offices with Offices with
Name and Principal Business Address Insurance Company Registrant
- ----------------------------------- ----------------- -------------
John J. McCormack, Jr. Executive Executive
TIAA-CREF Vice President Vice President
730 Third Avenue
New York, New York 10017-3206
Gerald K. McCullough Vice President, Vice President,
TIAA-CREF Investment Investment
730 Third Avenue Accounting Accounting
New York, New York 10017-3206 and Reporting and Reporting
John J. McGovern Second Vice
TIAA-CREF President
730 Third Avenue
New York, New York 10017-3206
Ronald P. McPhee Senior Vice Senior Vice
TIAA-CREF President President
730 Third Avenue
New York, New York 10017-3206
Maureen Milet Second Vice Second Vice
TIAA-CREF President and President and
730 Third Avenue Director Director
New York, New York 10017-3206
Carolyn C. Mitchell Second Vice
TIAA-CREF President
730 Third Avenue
New York, New York 10017-3206
Frances Nolan Vice President
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
Walter Nolan Vice President
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
John A. Putney, Jr. Executive
TIAA-CREF Vice President
730 Third Avenue
New York, New York 10017-3206
Jeanne Ray Vice President and
TIAA-CREF Chief Counsel,
730 Third Avenue Insurance
New York, New York 10017-3206
David Rubel Actuary Actuary
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
Larry H. Rubin Vice Vice
TIAA-CREF President President
730 Third Avenue
New York, New York 10017-3206
Richard Schlefer Assistant Assistant
TIAA-CREF Vice President Vice President
730 Third Avenue
New York, New York 10017-3206
C-7
<PAGE>
Positions and Positions and
Offices with Offices with
Name and Principal Business Address Insurance Company Registrant
- ----------------------------------- ----------------- -------------
Mark L. Serlen Senior Counsel Assistant
TIAA-CREF Secretary and
730 Third Avenue Senior Counsel
New York, New York 10017-3206
David Shunk Vice President
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
Barbara Solan Cash Management Cash Management
TIAA-CREF Officer Officer
730 Third Avenue
New York, New York 10017-3206
John Somers Executive Vice Executive Vice
TIAA-CREF President President
730 Third Avenue
New York, New York 10017-3206
Lisa Snow Vice President, Vice President,
TIAA-CREF Chief Counsel and Chief Counsel and
730 Third Avenue Assistant Assistant
New York, New York 10017-3206 Secretary, Secretary,
Corporate Law Corporate Law
Charles H. Stamm Executive Executive
TIAA-CREF Vice President Vice President
730 Third Avenue and General
New York, New York 10017-3206 Counsel
Elizabeth Sutherland Vice President Vice President
TIAA-CREF and Actuary and Actuary
730 Third Avenue
New York, New York 10017-3206
Steven I. Traum Director--
TIAA-CREF Portfolio
730 Third Avenue Management
New York, New York 10017-3206
Leonard Tribuch Vice President Vice President
TIAA-CREF and Actuary and Actuary
730 Third Avenue
New York, New York 10017-3206
Bruce Wallach Vice President, Vice President,
TIAA-CREF Corporate Corporate
730 Third Avenue Financial Financial
New York, New York 10017-3206 Planning and Planning and
Reporting Reporting
Thomas G. Walsh Executive Member of the
TIAA-CREF Vice President Management
730 Third Avenue Committee and
New York, New York 10017-3206 Executive Vice
President
Steven Weisbart Vice President, Vice President,
TIAA-CREF Policyholder Policyholder
730 Third Avenue Reports Reports
New York, New York 10017-3206
C-8
<PAGE>
Positions and Positions and
Offices with Offices with
Name and Principal Business Address Insurance Company Registrant
- ----------------------------------- ----------------- -------------
Albert Wilson Chief Counsel
TIAA-CREF and Corporate
730 Third Avenue Secretary
New York, New York 10017-3206
Leonard B. Zimmerman Vice President Vice President
TIAA-CREF and Insurance and Insurance
730 Third Avenue Actuary Actuary
New York, New York 10017-3206
</TABLE>
C-9
<PAGE>
Item 30. Persons Controlled by or under Common Control with the
Insurance Company or Registrant
The following companies are subsidiaries of TIAA and are included in
the consolidated financial statements of TIAA:
AIC Properties, Inc.
Chesapeake Investors, Inc.
College Credit Trust
Country Commons Doylestown Trust
Country Commons Joint Venture Trust
DAN Properties, Inc.
Florida Teachers Properties, Inc.
HSD Properties, Inc.
Illinois Teachers Properties, Inc.
JV California Two, Inc.
JV California Three, Inc.
JV District of Columbia One, Inc.
JV Florida One, Inc.
JV Florida Three, Inc.
JV Florida Four, Inc.
JV Georgia One, Inc.
JV Indiana Three, Inc.
JV Maryland One, Inc.
JV Michigan One, Inc.
JV Michigan Two, Inc.
JV Michigan Three, Inc.
JV Minnesota One, Inc.
JV Missouri One, Inc.
JV North Carolina One, Inc.
JV Virginia One, Inc.
JV Virginia Two, Inc.
JV Virginia Three, Inc.
JWL Properties, Inc.
Liberty Place Retail, Inc.
Macallister Holdings, Inc.
Mass. Norwood Properties, Inc.
MAV Properties, Inc.
McCandless Joint Venture, Inc.
Minnesota CC Properties, Inc.
Minnesota Teachers Realty Corp.
MN Properties, Inc.
M.O.A. Enterprises, Inc.
MRC Properties, Inc.
ND Properties, Inc.
New Jersey Teachers Properties, Inc.
NMA II Properties, Inc.
NMA Properties, Inc.
One Liberty Place Land, Inc.
One Liberty Place Tower, Inc.
PBB Properties, Inc.
Reserve Management, Inc.
Rouse-Teachers Properties, Inc.
Savannah Teachers Properties, Inc.
T-Investment Properties, Inc.
T-Land Corp.
T-Las Colinas Towers Corp.
Teachers Advisors, Inc.
Teachers Boca Properties, Inc.
Teachers Pennsylvania Realty, Inc.
Teachers Personal Investors Services,
Inc.
Teachers Properties, Inc.
Teachers Realty Corporation
TIAA-CREF Individual & Institutional
Services, Inc.
TIAA-CREF Investment Management, Inc.
TIAA Holdings, Inc.
TIAA VA Holdings, Inc.
TPI Housing, Inc.
Washington Teachers Properties I, Inc.
Washington Teachers Properities II,
Inc.
Windermere Place Joint Venture Trust
Windermere Goshen Trust
WRC Properties, Inc.
730 Properties, Inc.
730 Cal Hotel Properties I, Inc.
730 Cal Hotel Properties II, Inc.
730 Georgia Hotel Properties I, Inc.
730 Mass. Holding I, Inc.
730 Mass. Hotel Properties I, Inc.
730 Minn. Holding I, Inc.
730 Minn. Hotel Properties I, Inc.
730 MO Hotel Properties I, Inc.
730 Penn. Hotel Properties I, Inc.
C-10
<PAGE>
(1) All subsidiaries are Delaware corporations except as
follows:
A) Teachers Realty Corporation is an Ohio corporation.
B) Minnesota Teachers Realty Corporation is a Minnesota
corporation.
C) All Trusts are Pennsylvania business trusts.
(2) All subsidiaries are 100%-owned directly by TIAA, except as
follows:
A) M.O.A. Enterprises, Inc., Teachers Properties, Inc., 730
Properties, Inc., T-Investment Properties Corp. and T-Land Corp.
are 100% owned by Macallister Holdings, Inc.
B) Chesapeake Investors, Inc. is 95%-owned by Teachers
Properties, Inc. and 5%-owned by The Rouse Company. Rouse-
Teachers Properties, Inc. is 100%-owned by Chesapeake
Investors, Inc.
C) TPI Housing, Inc. is 100%-owned by Teachers Properties, Inc.
D) Teachers Personal Investors Services, Inc. and Teachers
Advisors, Inc. are 100%-owned by TIAA VA Holdings, Inc.
E) 730 Cal Hotel Properties I, Inc., 730 Cal Hotel Properties II,
Inc., 730 Georgia Hotel Properties I, Inc., 730 Mass Holding
I, Inc., 730 Minn. Holding I, Inc., 730 MO Hotel Properties I,
Inc., 730 Penn Hotel Properties I, Inc. are 100%-owned by 730
Properties, Inc.
(3) All subsidiaries have as their sole purpose the ownership of
investments which could, pursuant to New York State Insurance Law, be owned by
TIAA itself, except the following:
A) Teachers Advisors, Inc., which provides investment advice for
the Registrant.
B) Teachers Personal Investors Services, Inc., which provides
broker-dealer services for the Registrant.
C) TIAA-CREF Investment Management, Inc., which provides
investment advice for College Retirement Equities Fund.
D) TIAA-CREF Individual & Institutional Services, Inc., which
provides broker-dealer and administrative services for College
Retirement Equities Fund.
E) Reserve Management, Inc., which is intended to be used by TIAA
as a vehicle for short-term borrowing.
Item 31. Number of Contractowners
As of December 31, 1996, 11,952 contractowners have allocated premiums to
the Separate Account (Stock Index Account).
C-11
<PAGE>
Item 32. Indemnification
The Registrant shall indemnify each of the members of the Management
Committee ("Managers") and officers of the Registrant against all liabilities
and expenses, including but not limited to counsel fees, amounts paid in
satisfaction of judgments, as fines or penalties, or in compromise or
settlement, reasonably incurred in connection with the defense or disposition of
any threatened, pending, or completed claim, action, suit, or other proceeding,
whether civil, criminal, administrative, or investigative, whether before any
court or administrative or legislative body, to which such person may be or may
have been subject, while holding office or thereafter, by reason of being or
having been such a Manager or officer; provided that such person acted, or
failed to act, in good faith and in the reasonable belief that such action was
in the best interests of the Separate Account, and, with respect to any criminal
action or proceeding, such person had no reasonable cause to believe the conduct
was unlawful; and except that no such person shall be indemnified for any
liabilities or expenses arising by reason of disabling conduct, whether or not
there is an adjudication of liability.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Managers and officers of the Registrant,
pursuant to the foregoing provision or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in that Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment of expenses incurred or paid by a
Manager or officer in the successful defense of any action, suit or proceeding)
is asserted by a Manager or officer in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in that Act and will be governed by the final adjudication
of such issue.
Item 33. Business and Other Connections of Investment Adviser
Investment advisory services for the Registrant are provided by
Teachers Advisors, Inc. ("Advisors"). In this connection, Advisors
is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended.
The business and other connections of Advisors' officers are listed in
Schedules A and D of Form ADV as currently on file with the Commission (File No.
801-46887), the text of which is hereby incorporated by reference.
C-12
<PAGE>
Item 34. Principal Underwriters
(a) Not Applicable.
(b) Teachers Personal Investors Services, Inc. ("TPIS") may be
considered the principal underwriter for the Registrant. The
officers of TPIS and their positions and offices with TPIS and the
Registrant are listed in Schedule A of Form BD as currently on file
with the Commission (File No. 8-47051), the text of which is hereby
incorporated by reference.
(c) Not Applicable.
Item 35. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder will be
maintained at the Registrant's home office, 730 Third Avenue, New York, New York
10017, and at other offices of the Registrant located at 750 Third Avenue and
485 Lexington Avenue, both in New York, New York 10017. In addition, certain
duplicated records are maintained at Pierce Leahy Archives, 64 Leone Lane,
Chester, New York 10918.
Item 36. Management Services
Not Applicable.
Item 37. Undertakings and Representations
(a) Not Applicable.
(b) The Registrant undertakes to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted.
(c) The Registrant undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
(d) The Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
Form N-3 promptly upon written or oral request.
C-13
<PAGE>
(e) TIAA represents that the fees and charges deducted under the
Contracts, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by TIAA.
C-14
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, TIAA Separate Account VA-1 certifies that it meets the requirements
of Securities Act Rule 485(b) for effectiveness of this Registration Statement
and has caused this Registration Statement to be signed on its behalf, in the
City of New York and State of New York on the eleventh day of April, 1997.
TIAA SEPARATE ACCOUNT VA-1
By: /s/ Thomas W. Jones
-----------------------
Thomas W. Jones
President
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Thomas W. Jones Chairman of the Management 4/11/97
- ------------------------- Committee and President
Thomas W. Jones (Principal Executive Officer)
/s/ Thomas G. Walsh Executive Vice President 4/11/97
- ------------------------- (Principal Financial Officer)
Thomas G. Walsh and Manager
/s/ Richard L. Gibbs Executive Vice President 4/11/97
- ------------------------- (Principal Accounting Officer)
Richard L. Gibbs
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Laurence W. Franz Manager 4/11/97
- -------------------------
Laurence W. Franz
/s/ Jeanmarie C. Grisi Manager 4/11/97
- -------------------------
Jeanmarie C. Grisi
/s/ Richard M. Norman Manager 4/11/97
- -------------------------
Richard M. Norman
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, Teachers Insurance and Annuity Association of America certifies
that it meets the requirements of Securities Act Rule 485(b) for effectiveness
of this Registration Statement and has caused this Registration Statement to be
signed on its behalf, in the City of New York and State of New York on the
eleventh day of April, 1997.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:/s/ Peter C. Clapman
-----------------------------
Peter C. Clapman
Senior Vice President and
Chief Counsel, Investments
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John H. Biggs Chairman of the Board and 4/11/97
- ------------------------- Chief Executive Officer
John H. Biggs (Principal Executive Officer)
/s/ Thomas W. Jones Vice Chairman, President, 4/11/97
- ------------------------- Chief Operating Officer, and
Thomas W. Jones Trustee (Principal Financial
Officer)
/s/ Martin L. Leibowitz Vice Chairman, Chief 4/11/97
- ------------------------- Investment Officer, and
Martin L. Leibowitz Trustee (Principal Investment
Officer)
/s/ Richard L. Gibbs Executive Vice President 4/11/97
- ------------------------- (Principal Accounting Officer)
Richard L. Gibbs
<PAGE>
<TABLE>
<CAPTION>
Signature of Trustee Date Signature of Trustee Date
- -------------------- ---- -------------------- ----
<S> <C> <C> <C>
/s/ David Alexander 4/11/97
- -------------------------------- -----------------------------------
David Alexander Dorothy Ann Kelly, O.S.U.
/s/ Marcus Alexis 4/11/97 /s/ Robert M. O'Neil 4/11/97
- -------------------------------- -----------------------------------
Marcus Alexis Robert M. O'Neil
/s/ Willard T. Carleton 4/11/97 /s/ Leonard S. Simon 4/11/97
- -------------------------------- -----------------------------------
Willard T. Carleton Leonard S. Simon
/s/ Robert C. Clark 4/11/97 /s/ Ronald L. Thompson 4/11/97
- -------------------------------- -----------------------------------
Robert C. Clark Ronald L. Thompson
- -------------------------------- -----------------------------------
Flora Mancuso Edwards Paul R. Tregurtha
/s/ Charles J. Urstadt 4/11/97
- -------------------------------- -----------------------------------
Estelle A. Fishbein Charles J. Urstadt
/s/ Frederick R. Ford 4/11/97 /s/ William H. Waltrip 4/11/97
- -------------------------------- -----------------------------------
Frederick R. Ford William H. Waltrip
/s/ Martin J. Gruber 4/11/97 /s/ Rosalie J. Wolf 4/11/97
- -------------------------------- -----------------------------------
Martin J. Gruber Rosalie J. Wolf
/s/ Ruth Simms Hamilton 4/11/97
- --------------------------------
Ruth Simms Hamilton
</TABLE>
<PAGE>
Exhibit Index
Exhibit
Number Description of Exhibit
- ------ ----------------------
8(B) Bylaws of TIAA (as amended)
12(a) Opinion and Consent of Charles H. Stamm,
Esquire
12(b) Consent of Sutherland, Asbill & Brennan, L.L.P.
13 Consent of Deloitte & Touche LLP
16 Schedules for Computation of Performance
Quotations
27 Financial Data Schedule
EXHIBIT 8(B)
TIAA BYLAWS
ARTICLE TWO
Trustees
TIAA and CREF Boards of Trustees, November 13, 1996
Section 1. General Management. The general management of
the property, business and affairs of the Association shall be vested in the
board of trustees provided by the charter. A trustee need not be a stockholder.
At least one-third of such trustees must not be officers or employees of the
Association or any entity controlling, controlled by, or under common control
with the Association and who are not beneficial owners of a controlling interest
in the voting stock of the Association or any such entity.
<PAGE>
TIAA BYLAWS
ARTICLE FOUR
Committees
TIAA and CREF Boards of Trustees, November 13, 1996
Section 5. Audit Committee. The audit committee shall
consist of five trustees who are not officers or salaried employees of the
Association. Two members shall constitute a quorum. The committee shall itself,
or through public accountants or otherwise, make such audits and examinations of
the records and affairs of the Association as it may deem necessary.
* * *
Section 1. Appointment. At each annual meeting of the
board of trustees, the board shall appoint an executive committee, an investment
committee, a nominating and personnel committee, an audit committee, a committee
on reimbursement agreements with CREF, a committee on products and services, and
a committee on corporate governance and social responsibility, each member of
which shall hold office until the close of the next annual meeting of the board
and until a successor shall be appointed or until the member shall cease to be a
trustee except that for the audit committee, the board may specify a different
period of membership. The board of trustees, the executive committee, or the
chairman may appoint such other trustee committees and subcommittees as may from
time to time be found necessary or convenient for the proper conduct of the
business of the Association, and designate their duties.
Section 3. Investment Committee. The investment committee
shall consist of the chief executive officer, three other trustees, and such
additional trustees, if any, as the board of trustees or the executive committee
may appoint. Three members shall constitute a quorum, among whom only one
salaried officer of the Association may be counted for that purpose.
(a) Subject to review by the board of trustees the
investment committee shall determine the investment policies of the Association.
(b) The investment committee shall supervise the
investment of the funds of the Association. No loan or investment other than
policy loans shall be made or disposed of without authorization or approval by
the investment committee.
Section 4 is deleted and all subsequent sections are renumbered.
<PAGE>
TIAA BYLAWS
ARTICLE FOUR
Committees
TIAA and CREF Boards of Trustees, February 21, 1996
Section 1. Appointment. At each annual meeting of the board of
trustees, the board shall appoint an executive committee, a finance committee, a
mortgage committee, a nominating and personnel committee, an audit committee, a
committee on reimbursement agreements with CREF, a committee on products and
services, and a committee on corporate governance and social responsibility,
each member of which shall hold office until the close of the next annual
meeting of the board and until a successor shall be appointed or until the
member shall cease to be a trustee except that for the audit committee, the
board may specify a different period of membership. The board of trustees, the
executive committee, or the chairman may appoint such other trustee committees
and subcommittees as may from time to time be found necessary or convenient for
the proper conduct of the business of the Association, and designate their
duties.
EXHIBIT 12(A)
[Letterhead of Teachers Insurance and Annuity Association
and Charles H. Stamm]
April 11, 1997
The Management Committee
TIAA Separate Account VA-1
730 Third Avenue
New York, New York 10017-3206
Ladies and Gentlemen:
This opinion is furnished in connection with the filing by
TIAA Separate Account VA-1 (the "Separate Account") of Post- Effective Amendment
No. 3 to the Registration Statement (File Nos. 33-79124 and 811-8520) of Form
N-3 under the Securities Act of 1933 for certain individual variable annuity
contracts (the "Contracts") offered and funded by the Separate Account. The
Registration Statement covers an indefinite amount of securities in the form of
interests in the Contracts.
I have examined the Charter, Bylaws and other corporate
records of Teachers Insurance and Annuity Association of America ("TIAA"), the
Rules and Regulations and other organizational records of the Separate Account,
and the relevant statutes and regulations of the State of New York. On the basis
of such examination, it is my opinion that:
1. TIAA is a nonprofit life insurance company duly
organized and validly existing under the laws of the
State of New York.
2. The Separate Account is a "separate account" of TIAA
within the meaning of Section 4240 of the New York
Insurance Law, duly established by a resolution of
TIAA's Board of Trustees and validly existing under the
laws of the State of New York.
3. To the extent New York State law governs, the Contracts
have been duly authorized by TIAA and, when issued as
contemplated by the Registration Statement, will
constitute legal, validly issued and binding obligations
of TIAA enforceable in accordance with their terms.
<PAGE>
I hereby consent to the use of this opinion as an exhibit
to the Registration Statement, and to the reference to my name under the heading
"Legal Matters" in the Statement of Additional Information.
Sincerely,
/s/ Charles H. Stamm
--------------------------
Executive Vice President
and General Counsel
EXHIBIT 12(B)
April 11, 1997
The Management Committee
TIAA Separate Account VA-1
730 Third Avenue
New York, New York 10017-3206
Re: Registration of Individual Deferred
Variable Annuity Contracts (Registration
Nos. 33-79124 and 811-8520)
----------------------------------------------
Ladies and Gentlemen:
We hereby consent to the reference to our name under the
caption "Legal Matters" in the Statement of Additional Information filed as a
part of Post-Effective Amendment No. 3 to the above-captioned registration
statement on Form N-3. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By:/s/ Steven B. Boehm
----------------------------
EXHIBIT 13
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 3 to Registration
Statement No. 33-79124 and Amendment No. 6 to Registration Statement No.
811-8520 of TIAA Separate Account VA-1 ("VA-1") on Form N-3 of our report dated
February 6, 1997 relating to the financial statements of the Stock Index Account
of VA-1 included in the Statement of Additional Information, which is a part of
such Registration Statement.
We also consent to the use in such Amendments to such Registration Statements of
our report dated March 11, 1997 relating to the financial statements of Teachers
Insurance and Annuity Association of America ("TIAA") included in the Statement
of Additional Information. Such report expresses our opinion that the financial
statements present fairly the financial position, results of operations, changes
in contingency reserves and cash flows of TIAA in conformity with statutory
accounting practices, a comprehensive basis of accounting as described in Note 2
of those financial statements, and not in conformity with generally accepted
accounting principles.
We also consent to the reference to us under the heading "Experts" in the
Statement of Additional Information.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
April 11, 1997
EXHIBIT 16
Schedule of Computation
Total Return Information for the TIAA Separate Account VA-1
Stock Index Account
<TABLE>
<CAPTION>
January 1, 1996 26 months (From November 1, 1994
to Commencement of operations to
December 31, 1996 December 31, 1996)
----------------- ------------------
<S> <C> <C>
Hypothetical initial
payment of $1,000 (P) $1,000 $1,000
Accumulation unit value:
At start of period (A) $34.4112 $25.8318
At end of period (B) $41.8230 $41.8230
Ending value of
hypothetical investment
(Ev) = P x (B/A) $1,215.39 $1,619.05
Cumulative rate of total
return = {(EV/P) - 1} x 100 21.54% 61.91%
Number of years
in period (n) 1 2.17
Net change factor (1 + T)
= EV/P 1.2154 1.6191
Average annual compound
rate of total return (T) 21.54% 24.91%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000923524
<NAME> TIAA SEPARATE ACCOUNT VA-1
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 235,212,131
<INVESTMENTS-AT-VALUE> 283,894,180
<RECEIVABLES> 1,503,067
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 494,960
<TOTAL-ASSETS> 285,892,207
<PAYABLE-FOR-SECURITIES> 2,846,861
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 2,846,861
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 6,767,696
<SHARES-COMMON-PRIOR> 2,604,605
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 283,045,346
<DIVIDEND-INCOME> 3,932,066
<INTEREST-INCOME> 103,095
<OTHER-INCOME> 0
<EXPENSES-NET> (751,713)
<NET-INVESTMENT-INCOME> 3,283,448
<REALIZED-GAINS-CURRENT> 2,455,871
<APPREC-INCREASE-CURRENT> 32,294,163
<NET-CHANGE-FROM-OPS> 38,033,482
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,163,091
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 193,417,753
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 567,238
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,177,894
<AVERAGE-NET-ASSETS> 188,831,216
<PER-SHARE-NAV-BEGIN> 34.411
<PER-SHARE-NII> .657
<PER-SHARE-GAIN-APPREC> 6.755
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 41.823
<EXPENSE-RATIO> .400
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
