<PAGE> 1
As filed with the Securities and Exchange Commission on March 27, 1998
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. 4 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 7 [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
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<S> <C>
Name and Address of Agent for Service: Copy to:
Peter C. Clapman, Esquire Paul J. Mason, Esquire
Teachers Insurance and Annuity Sutherland, Asbill & Brennan LLP
Association of America 1275 Pennsylvania Avenue, N.W.
730 Third Ave Washington, D.C. 20004-2415
New York, New York 10017-3206
</TABLE>
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 April 1, 1998, 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.
Title & Securities Being Registered: Interests in a separate account funding
variable annuity contracts.
<PAGE> 2
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)
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<CAPTION>
Item of Form N-3 Part A (Prospectus) Caption
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<S> <C> <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> 3
PART B (STATEMENT OF ADDITIONAL INFORMATION)
<TABLE>
<CAPTION>
Item of Form N-3 Part B (Statement of Additional Information) Caption
- ----------------- ----------------------------------------------------
<S> <C> <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 Transfer 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>
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LOGO
- ---------------------------------------------------------------
PROSPECTUS
TEACHERS INSURANCE AND
ANNUITY ASSOCIATION
INDIVIDUAL DEFERRED
VARIABLE ANNUITIES
Funded Through TIAA
Separate Account VA-1
April 1, 1998
LOGO
<PAGE> 5
PROSPECTUS
DATED APRIL 1, 1998
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 non-profit or publicly supported colleges, universities, and other
educational and research organizations and for other eligible persons. 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 April 1, 1998. 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 April 1, 1998.
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[This page intentionally left blank]
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
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<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... 8
Investment Practices........ 8
Performance Information..... 12
Valuation of Assets......... 12
Management and Investment
Advisory Arrangements..... 13
The Contract................ 13
Eligible Purchasers of the
Contract............... 13
Remitting Premiums........ 13
Accumulation Units........ 14
The Fixed Account......... 15
Transfers Between the
Separate Account and
the Fixed Account...... 16
</TABLE>
<TABLE>
<CAPTION>
ITEM PAGE
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Cash Withdrawals.......... 16
General Considerations for
All Transfers and Cash
Withdrawals............ 16
Tax Issues................ 17
Charges................... 17
The Annuity Period........ 18
Income Options............ 19
Death Benefits............ 21
Timing of Payments.......... 23
Federal Income Taxes........ 24
Voting Rights............... 27
General Matters............. 28
Distribution of the
Contracts................. 30
Legal Proceedings........... 30
Table of Contents for
Statement of Additional
Information............... 31
</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> 8
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, and the main purpose of which is to offer
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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 15). The contract
is an individual deferred annuity that is available to any employee, trustee or
retired employee of an eligible institution, or his or her spouse (or surviving
spouse) as well as certain other eligible persons (see "Eligible Purchasers of
the Contract," page 13). The availability of the variable component of the
contract is subject to applicable regulatory approval.
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<PAGE> 10
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, 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. (Advisors), 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 18).
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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.
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<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 17.
"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 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 14) 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 19, and "Federal Income Taxes,"
page 24.
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CONDENSED FINANCIAL INFORMATION
Below you'll find condensed audited financial information for the separate
account for the periods presented. 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) YEAR ENDED YEAR ENDED YEAR ENDED
TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994(1) 1995 1996 1997
--------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Per Accumulation Unit Data:
Investment income $ 0.138 $ 0.745 $ 0.807 $ 0.847
Expense charges 0.023 0.170 0.150 0.182
------- ------- ------- -------
Investment income--net 0.115 0.575 0.657 0.665
Net realized and unrealized
gain (loss) on investments (0.676) 8.565 6.755 12.429
------- ------- ------- -------
Net increase (decrease) in
Accumulation Unit Value (0.561) 9.140 7.412 13.094
Accumulation Unit Value:
Beginning of period 25.832 25.271 34.411 41.823
------- ------- ------- -------
End of period $25.271 $34.411 $41.823 $54.917
======= ======= ======= =======
Ratios to Average Net Assets:
Expenses(2) 0.09% 0.55% 0.40% 0.37%
Investment income--net 0.45% 1.87% 1.74% 1.36%
Portfolio turnover rate 0.04% 0.98% 4.55% 2.39%
Thousands of Accumulation Units
outstanding at end of period 1,171 2,605 6,768 9,901
</TABLE>
- ---------------
(1) The percentages shown for this period are not annualized.
(2) Advisors has agreed to waive a portion of its investment advisory fee.
Without this waiver the Stock Index Account's expense ratio for the periods
listed would have been higher (see Note 3 of the notes to financial
statements).
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
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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.
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 two
million people at about 8,050 institutions. As of December 31, 1997, TIAA's
assets were approximately $93 billion; the combined assets for TIAA and CREF
totalled approximately $213 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
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taxed until withdrawn or paid as annuity income (see "Federal Income Taxes,"
page 24).
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, 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. Advisors manages the separate
account's assets (see "Management and Investment Advisory Arrangements," page
13). Personnel of Advisors, a subsidiary of TIAA, may also manage assets of one
or more CREF accounts on behalf of TIAA-CREF Investment Management, LLC, an
investment adviser which is also a TIAA subsidiary. Personnel of Advisors may
also manage assets of other investment companies, including
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TIAA-CREF Mutual Funds. 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,
including TIAA-CREF Mutual Funds. 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.
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
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<PAGE> 16
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 the
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 million to $240.14 billion, with an average of $3.42 billion as of December
31, 1997.
The Frank Russell Company includes stocks in the Index solely on their market
capitalization and weights them by relative market value. The Frank Russell
Company can change stocks and their weightings in the Index. We'll adjust the
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 isn't promoted, endorsed, sponsored or sold by and isn't
affiliated with the Frank Russell Company. A stock's presence in the Russell
3000 doesn't mean that the Frank Russell Company believes that it's an
attractive investment. The Frank Russell Company isn't responsible for any
literature about the separate account and makes no representations or warranties
about its content. The Russell 3000 is a trademark and service mark of the 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, recapitaliza-
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tions, 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.
Repurchase Agreements
The separate account can use repurchase agreements to manage cash balances. 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.
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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 29).
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. We may also use
"fair value" in certain other circumstances. For more information, see the SAI.
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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. Transactions in securities by those
individuals must be reported and approved and they must also 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 and the District of Columbia.
ELIGIBLE PURCHASERS OF THE CONTRACT
An employee, trustee or a retiree of an eligible institution can purchase a
contract. For this purpose, an individual who is at least 55 years old and
completed at least five years of service at an eligible institution is
considered to be a "retiree." A spouse (or surviving spouse) of an employee,
trustee or retiree of an eligible institution can also purchase a contract. Any
individual who owns a TIAA-CREF annuity contract or individual insurance policy,
as well as the spouse or surviving spouse of such a person can also purchase a
contract.
REMITTING PREMIUMS
We'll issue you a contract as soon as we receive your completed application and
your initial premium of at least $250 at our home office, even if you don't
initially allocate any premiums to the separate account. (The $250 minimum
doesn't apply if application and payment of at least $25 is accompanied by an
agreement for electronic funds transfer (EFT) or if you are using payroll
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deduction. We also reserve the right to temporarily waive the $250 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 $25. 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>
JURISDICTION "FREE LOOK" PERIOD (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 29).
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, 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
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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 18).
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 21).
The value of the accumulation units will depend mainly on investment experience,
though the unit value reflects expense deductions from assets (see "Charges,"
page 17). 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 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.
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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 $250 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
$250. 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 1 800 842-2252.
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 24.
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
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annually. Accumulations and annuity payments aren't affected by changes in
actual mortality experience or by TIAA's actual expenses.
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,
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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.
We transfer your separate account accumulation to the fixed account on that day.
The total value of annuity payments may be more or less than total premiums paid
by the contractowner.
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 of the annuitant's ninetieth birthday).
You can change the annuity starting date at any time before annuity payments
begin (see "Choices and Changes," page 28). 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 29.) 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. 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
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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.
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.
- 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.
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- 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.
- 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.
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 28). 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
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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 15). 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 29.) 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 have the
option of paying the entire death benefit 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 25.) 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.
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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 28). 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 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.
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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 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
24
<PAGE> 31
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
"investment 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.
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<PAGE> 32
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. Generally, under the
Interest Payments method the death benefit will be taxed as though it were
distributed as a single-sum payment at the beginning of the payment period, with
interest taxed 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. Legislation has been proposed in 1998 that, if enacted,
would adversely modify the federal taxation of certain insurance and annuity
contracts. For example, one proposal would tax transfers among investment
options and tax exchanges involving variable contracts. A second proposal would
reduce the "investment in the contract" under cash value life insurance and
certain annuity contracts by certain amounts, thereby increasing the amount of
income for purposes of computing gain. Although the likelihood of there being
any change is uncertain, there is always the possibility that the tax treatment
of the Contracts could change by legislation or other means. Moreover, it is
also possible that any change could be retroactive (that is, effective prior to
the date of the change). You should consult a tax adviser with respect to
legislative developments and their effect on the Contract.
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
26
<PAGE> 33
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 18), 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
elect the management committee; (2) to ratify the selection of an independent
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<PAGE> 34
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. (Beginning at the end of 1998 or
early in 1999, we expect that contractowners will be able to execute
transactions over the Internet.) To use the Automated Service Center, you need
to call 1 800 842-2252 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
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<PAGE> 35
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 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.
YEAR 2000 ISSUES
Many computer software systems in use today cannot recognize the year 2000 and
may revert to 1900 or some other date because of the way in which dates were
encoded and calculated. The separate account could be adversely affected if its
computer systems or those of its service providers do not properly process and
calculate date-related information and data on and after January 1, 2000. We
have been actively working on necessary changes to our computer systems to
prepare for the Year 2000 and have also obtained reasonable assurances from our
service providers that they are taking comparable steps with respect to their
computer systems. However, the steps we are taking do not guarantee complete
success or eliminate the possibility that interaction with outside computer
systems may have an adverse impact on the separate account.
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.
HOUSEHOLDING
To cut costs and eliminate duplicate documents sent to your home, we may, if the
SEC allows, begin mailing only one copy of the separate account prospectus,
prospectus supplements, annual and semi-annual reports, or any other required
documents, to your household, even if more than one contractowner lives there.
If you would prefer to continue receiving your own copy of any of these
documents, you may call us toll-free at 1 800 842-2733, extension 5509, or write
us.
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<PAGE> 36
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.
ERRORS OR OMISSIONS
We reserve the right to correct any errors or omissions on any form, report or
statement that we send you.
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.
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<PAGE> 37
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-8
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-11
Money Market Instruments........................ B-11
Options......................................... B-11
Investments for Which Market Quotations Are Not
Readily Available............................. B-12
Management.......................................... B-13
Separate Account Management Committee and
Officers...................................... B-13
Compensation of Managers........................ B-14
Investment Advisory and Related Services............ B-14
Custody of Portfolio............................ B-14
Auditors........................................ B-15
Brokerage Allocation................................ B-15
Performance Information............................. B-16
Total Return Information for the Separate
Account....................................... B-16
Performance Comparisons......................... B-17
Illustrating Compounding, Tax Deferral, and
Expense Deductions............................ B-18
Periodic Reports.................................... B-18
General Matters..................................... B-18
Assignment of Contracts......................... B-18
Payment to an Estate, Guardian, Trustee, etc.... B-18
Benefits Based on Incorrect Information......... B-19
Proof of Survival............................... B-19
State Regulation.................................... B-19
Legal Matters....................................... B-19
Experts............................................. B-19
Additional Considerations........................... B-19
Additional Information.............................. B-20
Financial Statements................................ B-20
</TABLE>
31
<PAGE> 38
<TABLE>
<CAPTION>
<S> <C> <C>
---------------------
[TIAA Graphic] TEACHERS INSURANCE AND Bulk Rate
ANNUITY ASSOCIATION U.S. Postage Paid
730 Third Avenue Permit 20
New York, NY 10017-3206 Holliston, MA 01746
---------------------
</TABLE>
TVA1PRO-4/98
[LOGO] Printed on recycled paper
<PAGE> 39
ll l l ll
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 6353 NEW YORK, NY
POSTAGE WILL BE PAID BY ADDRESSEE
TEACHERS INSURANCE AND ANNUITY ASSOCIATION
ATTN: PERSONAL ANNUITY ADMINISTRATION
730 3RD AVE
NEW YORK NY 10164-1462
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
-----------------
-----------------
-----------------
-----------------
-----------------
-----------------
-----------------
-----------------
-----------------
<PAGE> 40
- -
TEACHERS PERSONAL ANNUITY
Please return this card to TIAA if you would like to receive the
Statement of Additional Information, which supplements the prospectus
for the variable component of the Teachers Personal Annuity Contract.
<TABLE>
<S> <C>
----------------------------------------------
Name
----------------------------------------------
Address
----------------------------------------------
City
----------------------------------------------
State Zip
TVA1BSAI-4/98 [LOGO]Printed on recycled paper
</TABLE>
<PAGE> 41
INDIVIDUAL DEFERRED VARIABLE ANNUITIES
FUNDED THROUGH
TIAA SEPARATE ACCOUNT VA-1
OF
TEACHERS INSURANCE AND ANNUITY ASSOCIATION
OF AMERICA
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1998
This Statement of Additional Information is not a prospectus and should be read
in connection with the current prospectus dated April 1, 1998 (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> 42
TABLE OF CONTENTS
<TABLE>
<CAPTION>
LOCATION OF
PAGE IN THE ADDITIONAL
STATEMENT OF INFORMATION IN
ADDITIONAL PROSPECTUS, IF
ITEM INFORMATION APPLICABLE
---- ------------ --------------
<S> <C> <C>
Investment
Restrictions........ B-3 11
Investment Policies
and Risk
Considerations...... B-4 8-12
Options and
Futures.......... B-4 11
Firm Commitment
Agreements and
Purchase of
"When-Issued"
Securities....... B-8 11
Lending of
Securities....... B-8 12
Repurchase
Agreements....... B-8 11
Swap Transactions... B-9 11
Segregated
Accounts......... B-10
Other Investment
Techniques and
Opportunities.... B-10
Portfolio Turnover.... B-10
Valuation of Assets... B-10 12
Equity Securities... B-11
Money Market
Instruments...... B-11
Options............. B-11
Investments for
Which Market
Quotations are
Not Readily
Available........ B-12
Management............ B-13 13
Separate Account
Management
Committee and
Officers......... B-13 8,13
Compensation of
Managers......... B-14
</TABLE>
<TABLE>
<CAPTION>
LOCATION OF
PAGE IN THE ADDITIONAL
STATEMENT OF INFORMATION IN
ADDITIONAL PROSPECTUS, IF
ITEM INFORMATION APPLICABLE
---- ------------ --------------
<S> <C> <C>
Investment Advisory
and Related
Services............ B-14
Custody of
Portfolio........ B-14
Auditors............ B-15
Brokerage
Allocation.......... B-15
Performance
Information......... B-16 12
Total Return
Information for
the Separate
Account.......... B-16
Performance
Comparisons...... B-17
Illustrating
Compounding, Tax
Deferral, and
Expense
Deductions....... B-18
Periodic Reports...... B-18
General Matters....... B-18
Assignment of
Contracts........ B-18
Payment to an
Estate, Guardian,
Trustee, etc..... B-18
Benefits Based on
Incorrect
Information...... B-19
Proof of Survival... B-19
State Regulation...... B-19 7
Legal Matters......... B-19 30
Experts............... B-19
Additional
Considerations...... B-19
Additional
Information......... B-20
Financial
Statements.......... B-20 6
</TABLE>
B-2
<PAGE> 43
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> 44
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
B-4
<PAGE> 45
previously bought 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> 46
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
B-6
<PAGE> 47
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.
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.
B-7
<PAGE> 48
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, 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 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
B-8
<PAGE> 49
banks of the Federal Reserve System, and with primary dealers in United States
Government securities or their wholly-owned subsidiaries whose creditworthiness
has been reviewed and found satisfactory by Advisors and who have, therefore,
been determined to present minimal credit risk.
Securities underlying repurchase agreements will be limited to certificates of
deposit, commercial paper, bankers' acceptances, or obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities,
in which the 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,"
below).
B-9
<PAGE> 50
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
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 or other securities 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 1997 and 1996 were 2.39% and 4.55%,
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.
B-10
<PAGE> 51
EQUITY SECURITIES
Investments for which market quotations are readily available are valued at the
market value of such investments, determined as follows:
Equity securities listed or traded on the New York Stock Exchange or the
American Stock Exchange are valued based on their last sale price on such
exchange on the date of valuation, or at the mean of the closing bid and asked
prices if no sale is reported. Equity securities which are listed or traded on
any other exchange are valued in a comparable manner on the principal exchange
where traded.
Equity securities traded in the United States over-the-counter market are valued
based on the last sale price on the date of valuation for NASDAQ National Market
System securities, or at the mean of the closing bid and asked prices if no sale
is reported. Other U.S. over-the-counter equity securities are valued at the
mean of the closing bid and asked prices.
Equity securities traded in the United States may be valued at fair value as
determined in good faith under the direction of the Management Committee (see
"Management," below) if events materially affecting the value of a domestic
investment (as determined in our sole discretion) occur between the time when
its price is determined and the time the separate account's net asset value is
calculated.
MONEY MARKET INSTRUMENTS
Money market instruments for which market quotations are readily available are
valued based on the most recent bid price or the equivalent quoted yield for
such securities (or those of comparable maturity, quality, and type). Values for
money market instruments will be obtained either from one or more of the major
market makers or from one or more of the financial information services for the
securities to be valued.
OPTIONS
Portfolio investments underlying options are valued as described above. Stock
options written by the 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
B-11
<PAGE> 52
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).
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<PAGE> 53
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 58 Manager Vice President, Business and Finance, and
Canisius College Treasurer, Canisius College
2001 Main Street
Buffalo, New York 14208
Jeanmarie C. Grisi 39 Manager Treasurer, Carnegie Corporation of New York
Carnegie Corporation
of New York
437 Madison Avenue
New York, New York 10022
Richard M. Norman 53 Manager Vice President for Administration and
Rutgers University Associate Treasurer, Rutgers, The State
Old Queens Building, Room 101 University of New Jersey
Somerset-George Street
New Brunswick, New Jersey 08903
Thomas G. Walsh** 56 Chairman of the President, Teachers Personal Investors
Management Services, Inc. ("TPIS"), since February
Committee and 1994, and Executive Vice President, TIAA
President and CREF
Richard L. Gibbs 51 Executive Vice Executive Vice President, TIAA, CREF,
President TIAA-CREF Investment Management, LLC
("Investment Management") and TIAA-CREF
Individual & Institutional Services, Inc.
("Services"), since 1993, Vice President,
Investment Management and Services, from
1992 to 1993. Formerly, Vice President,
Finance, TIAA and CREF
Peter C. Clapman 62 Senior Vice Senior Vice President and Chief Counsel,
President, Investments, TIAA and CREF
Secretary and
Chief Counsel,
Investments
Richard J. Adamski 56 Vice President Vice President and Treasurer, Investment
and Treasurer Management and Services, since January 1992
and TPIS, since 1994, and Vice President
and Treasurer, TIAA and CREF
</TABLE>
- ---------------
* The address for all officers of the separate account is 730 Third Avenue, New
York, New York 10017-3206.
** This Manager is or may be an "interested person" within the meaning of the
Investment Company Act of 1940.
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<PAGE> 54
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, 1997:
<TABLE>
<CAPTION>
(1) (2) (3) (5)
AGGREGATE PENSION OR RETIREMENT (4)
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. $-0-* $-0- $-0- $-0-
Grisi,
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.
For the years ended December 31, 1997, 1996 and 1995, the separate account paid
investment advisory fees of $293,938, $141,057 and $61,238, respectively. These
fees reflect the waiver by Advisors of a portion of its investment advisory fee
for the years ended December 31, 1997, 1996 and 1995 of $965,646, $426,181 and
$122,454, respectively.
TIAA provides the administrative services for the separate account and the
contracts. The current daily deduction for such services equates to 0.20% of net
assets annually. For the years ended December 31, 1997, 1996 and 1995,
administrative expenses incurred were $839,672, $378,136 and $122,454,
respectively.
CUSTODY OF PORTFOLIO
The custodian for the assets of the separate account is Bankers Trust Company,
16 Wall Street, New York, New York 10015.
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<PAGE> 55
AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, serves as the
separate account's independent auditors and, in that regard, provides general
auditing services for the separate account.
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, LLC ("Investment
Management"), another investment adviser also affiliated with TIAA, or (ii) any
other investment company whose assets Advisors may be managing, including
TIAA-CREF Mutual Funds. 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 1997, 1996 and 1995 was $42,630,
$60,134 and $22,442, 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 1997, 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 TIAA-CREF Mutual Funds or the CREF accounts for
Investment Management. In such circumstances, the expenses incurred will be
allocated in an equitable manner consistent with the fiduciary obligations of
personnel of Advisors to the separate account and TIAA-CREF Mutual Funds, and on
behalf of Investment Management to the CREF Accounts.
During 1997, 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
B-15
<PAGE> 56
entities and the value of the securities of these entities held by the separate
account as of December 31, 1997, are set forth below:
A. REGULAR BROKER OR DEALER BASED ON BROKERAGE
COMMISSION PAID
Bear, Stearns & Co. Inc.
(Parent-Bear Stearns Cos. Inc.) $428,640
Jefferies & Co., Inc.
(Parent-Jefferies Group, Inc.) $24,563
Morgan (J.P.) Securities Corp.
(Parent-Morgan (J.P.) & Co., Inc.) $1,207,763
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING
AS PRINCIPAL
Lehman Commercial Paper Inc.
(Parent-Lehman Brothers Holdings, Inc.) $397,800
Morgan (J.P.) Securities Corp.
(Parent-Morgan (J.P.) & Co., Inc.) $1,207,763
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:
n
P(1 + T) = 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.
B-16
<PAGE> 57
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, 1997 to December 31, 1997) 31.31% 31.31%
3 years and 2 months
(from November 1, 1994 date of SEC registration
to December 31, 1997) 26.89% 112.59%
</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 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.
B-17
<PAGE> 58
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.
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.
B-18
<PAGE> 59
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.
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 LLP, Washington, D.C.
EXPERTS
The financial statements of TIAA and the separate account included in this
Statement of Additional Information have been audited by Ernst & Young 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.
B-19
<PAGE> 60
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 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-20
<PAGE> 61
INDEX TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TIAA SEPARATE ACCOUNT VA-1--STOCK INDEX ACCOUNT
Report of Management Responsibility......................... B-22
Report of Independent Auditors.............................. B-23
AUDITED FINANCIAL STATEMENTS
Statement of Assets and Liabilities....................... B-24
Statement of Operations................................... B-25
Statements of Changes in Net Assets....................... B-26
Notes to Financial Statements............................... B-27
Statement of Investments.................................... B-30
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
Chairman's Letter........................................... B-66
Report of Management Responsibility......................... B-67
Report of Independent Auditors.............................. B-68
STATUTORY-BASIS FINANCIAL STATEMENTS
Balance Sheets............................................ B-69
Statements of Operations.................................. B-70
Statements of Changes in Contingency Reserves............. B-71
Statements of Cash Flows.................................. B-72
Notes to Statutory-Basis Financial Statements............... B-73
</TABLE>
B-21
<PAGE> 62
[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
property 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 for 1997 have been audited by the
independent auditing firm of Ernst & Young 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 Ernst & Young LLP and internal auditing personnel to review matters relating
to financial reporting, internal controls and auditing.
/s/ THOMAS G. WALSH
----------------------------------
Chairman of
Management Committee and President
/s/ RICHARD L. GIBBS
----------------------------------
Principal Accounting Officer
and Executive Vice President
B-22
<PAGE> 63
[ERNST & YOUNG LLP 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, 1997, and the related statements of
operations and changes in net assets for the year 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 audit. The
statement of changes in net assets for the year ended December 31, 1996 and the
condensed financial information for the year then ended and periods prior
thereto were audited by other auditors whose report dated February 6, 1997
expressed an unqualified opinion on the statement and condensed financial
information.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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, 1997, by correspondence with
the custodians and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Stock Index Account of VA-1
at December 31, 1997, the results of its operations and the changes in its net
assets for the year then ended, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
February 6, 1998
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
B-23
<PAGE> 64
TIAA SEPARATE ACCOUNT VA-1
STOCK INDEX ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
(amounts in thousands, except per accumulation unit amounts)
<TABLE>
<S> <C>
ASSETS
Investments, at cost...................................... $399,428
Net unrealized appreciation of investments................ 144,871
--------
Investments, at value..................................... 544,299
Cash...................................................... 140
Dividends and interest receivable......................... 736
Receivable from securities transactions................... 14
--------
TOTAL ASSETS 545,189
--------
LIABILITIES
Payable for securities transactions....................... 1,112
Amounts due to General Account............................ 346
--------
TOTAL LIABILITIES 1,458
--------
NET ASSETS--Accumulation Fund............................... $543,731
========
THOUSANDS OF ACCUMULATION UNITS OUTSTANDING--Notes 5 and
6......................................................... 9,901
=====
NET ASSET VALUE, PER ACCUMULATION UNIT--Note 5.............. $54.92
======
</TABLE>
See notes to financial statements.
B-24
<PAGE> 65
TIAA SEPARATE ACCOUNT VA-1
STOCK INDEX ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(amounts in thousands)
<TABLE>
<S> <C>
INVESTMENT INCOME
Income:
Interest............................................... $ 133
Dividends.............................................. 7,116
--------
TOTAL INCOME 7,249
--------
Expenses--Note 3:
Investment advisory charges............................ 1,259
Administrative expenses................................ 840
Mortality and expense risk charges..................... 420
--------
EXPENSES BEFORE WAIVER 2,519
Investment advisory charges waived--Note 3............. (965)
--------
NET EXPENSES 1,554
--------
INVESTMENT INCOME--NET 5,695
--------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS--Note 4
Net realized gain on investments....................... 7,108
Net change in unrealized appreciation on investments... 96,189
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 103,297
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $108,992
========
</TABLE>
See notes to financial statements.
B-25
<PAGE> 66
TIAA SEPARATE ACCOUNT VA-1
STOCK INDEX ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(amounts in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
FROM OPERATIONS
Investment income--net.................................... $ 5,695 $ 3,283
Net realized gain on investments.......................... 7,108 2,456
Net change in unrealized appreciation on investments...... 96,189 32,294
-------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 108,992 38,033
-------- --------
FROM CONTRACTOWNER TRANSACTIONS
Premiums.................................................. 154,463 144,253
Net contractowner transfers from fixed account............ 9,216 17,326
TIAA seed money withdrawn................................. -- (93)
Withdrawals............................................... (10,917) (5,711)
Death benefits............................................ (1,068) (391)
-------- --------
NET INCREASE IN NET ASSETS RESULTING
FROM CONTRACTOWNER TRANSACTIONS 151,694 155,384
-------- --------
NET INCREASE IN NET ASSETS 260,686 193,417
NET ASSETS
Beginning of year......................................... 283,045 89,628
-------- --------
End of year............................................... $543,731 $283,045
======== ========
</TABLE>
See notes to financial statements.
B-26
<PAGE> 67
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. By early 1996, all of TIAA's Accumulation
Units had been withdrawn.
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 preparation of financial statements may require management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, income,
expenses and related disclosures. Actual results may differ from those
estimates. The following is a summary of the significant accounting policies
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
B-27
<PAGE> 68
TIAA SEPARATE ACCOUNT VA-1
STOCK INDEX ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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 the daily deduction is equivalent to an annual
charge of 0.07% 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 equivalent
to an annual rate of 0.10% of the net assets of the Account.
NOTE 4--INVESTMENTS
At December 31, 1997, the net unrealized appreciation on investments was
$144,871,385, consisting of gross unrealized appreciation of $155,367,267 and
gross unrealized depreciation of $10,495,882.
Purchases and sales of securities, other than short-term money market
instruments, for the year ended December 31, 1997, were $166,548,014 and
$9,939,008, respectively.
B-28
<PAGE> 69
TIAA SEPARATE ACCOUNT VA-1
STOCK INDEX ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 5--CONDENSED FINANCIAL INFORMATION
Selected condensed financial information for an Accumulation Unit of the Account
is presented below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, OCTOBER 3, 1994
----------------------------------- (DATE ESTABLISHED) TO
1997 1996 1995 DECEMBER 31, 1994(1)
------- ------- ------- ---------------------
<S> <C> <C> <C> <C>
Per Accumulation Unit Data:
Investment Income..................... $ .847 $ .807 $ .745 $ .206
Expenses.............................. .182 .150 .170 .034
------- ------- ------- -------
Investment income--net................ .665 .657 .575 .172
Net realized and unrealized gain on
investments........................ 12.429 6.755 8.565 .099
------- ------- ------- -------
Net increase in Accumulation Unit
Value.............................. 13.094 7.412 9.140 .271
Accumulation Unit Value:
Beginning of period................ 41.823 34.411 25.271 25.000
------- ------- ------- -------
End of period...................... $54.917 $41.823 $34.411 $25.271
======= ======= ======= =======
Total return............................ 31.31% 21.54% 36.17% 1.08%
Ratios to Average Net Assets:
Expenses (2).......................... 0.37% 0.40% 0.55% 0.13%
Investment income--net................ 1.36% 1.74% 1.87% 0.68%
Portfolio turnover rate................. 2.39% 4.55% 0.98% 0.04%
Thousands of Accumulation Units
outstanding at end of period.......... 9,901 6,768 2,605 1,171
</TABLE>
(1) The percentages shown for this period are not annualized.
(2) 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).
NOTE 6--ACCUMULATION UNITS
Changes in the number of Accumulation Units outstanding were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
Accumulation Units:
Credited for premiums..................................... 3,195,114 3,851,585
Credited (cancelled) for transfers and disbursements...... (61,762) 311,506
Outstanding:
Beginning of year...................................... 6,767,696 2,604,605
--------- ---------
End of year............................................ 9,901,048 6,767,696
========= =========
</TABLE>
B-29
<PAGE> 70
TIAA SEPARATE ACCOUNT VA-1
STATEMENT OF INVESTMENTS--STOCK INDEX ACCOUNT
DECEMBER 31, 1997
SUMMARY BY INDUSTRY
(000)
<TABLE>
<CAPTION>
VALUE %
-------- --------
<S> <C> <C>
PREFERRED STOCK
LIFE INSURANCE........................... $ 28 0.01%
MEDICAL INSTRUMENTS AND SUPPLIES......... 0 0.00
-------- ----
TOTAL PREFERRED STOCK
(Cost $25)............................. 28 0.01
-------- ----
COMMON STOCK
ADVERTISING.............................. 1,126 0.21
AGRICULTURAL CHEMICALS................... 536 0.10
AIR TRANSPORTATION, SCHEDULED............ 3,257 0.60
AIRCRAFT AND PARTS....................... 6,317 1.16
AIRPORTS, FLYING FIELDS, AND SERVICES.... 11 0.00
APPAREL, PIECE GOODS, AND NOTIONS........ 421 0.08
AUTO AND HOME SUPPLY STORES.............. 84 0.02
AUTOMOBILE PARKING....................... 61 0.01
AUTOMOTIVE RENTALS, NO DRIVERS........... 443 0.08
AUTOMOTIVE SERVICES, EXCEPT REPAIR....... 73 0.01
BAKERY PRODUCTS.......................... 332 0.06
BEAUTY SHOPS............................. 33 0.01
BEVERAGES................................ 14,831 2.73
BITUMINOUS COAL AND LIGNITE MINING....... 26 0.00
BLANKBOOKS AND BOOKBINDING............... 183 0.03
BLAST FURNACE AND BASIC STEEL PRODUCTS... 1,940 0.36
BOAT DEALERS............................. 20 0.00
BOOKS.................................... 621 0.11
BROADWOVEN FABRIC MILLS, COTTON.......... 192 0.04
BROADWOVEN FABRIC MILLS, MANMADE......... 109 0.02
BUSINESS CREDIT INSTITUTIONS............. 538 0.10
CABLE AND OTHER PAY TV SERVICES.......... 2,330 0.43
CARPENTRY AND FLOOR WORK................. 51 0.01
CARPETS AND RUGS......................... 78 0.01
CASH GRAINS.............................. 174 0.03
CEMENT, HYDRAULIC........................ 214 0.04
CHEMICAL AND FERTILIZER MINERALS......... 35 0.01
CHEWING AND SMOKING TOBACCO.............. 336 0.06
CHILDREN'S AND INFANTS' WEAR STORES...... 55 0.01
CIGARETTES............................... 6,643 1.22
CIGARS................................... 34 0.01
</TABLE>
<TABLE>
<CAPTION>
VALUE %
-------- --------
<S> <C> <C>
COMBINATION UTILITY SERVICES............. $ 6,634 1.22%
COMMERCIAL BANKS......................... 49,066 9.02
COMMERCIAL PRINTING...................... 398 0.07
COMMUNICATIONS EQUIPMENT................. 6,260 1.15
COMMUNICATIONS SERVICES, NEC............. 240 0.04
COMPUTER AND DATA PROCESSING SERVICES.... 20,829 3.83
COMPUTER AND OFFICE EQUIPMENT............ 23,791 4.38
CONCRETE, GYPSUM, AND PLASTER PRODUCTS... 197 0.04
CONSTRUCTION AND RELATED MACHINERY....... 2,593 0.48
COPPER ORES.............................. 88 0.02
CREDIT REPORTING AND COLLECTION.......... 864 0.16
CRUSHED AND BROKEN STONE................. 317 0.06
CUTLERY, HANDTOOLS, AND HARDWARE......... 3,815 0.70
DAIRY PRODUCTS........................... 182 0.03
DEEP SEA FOREIGN TRANSPORTATION OF
FREIGHT................................ 205 0.04
DEPARTMENT STORES........................ 7,452 1.37
DRUG STORES AND PROPRIETARY STORES....... 2,191 0.40
DRUGS.................................... 39,522 7.27
DRUGS, PROPRIETARIES, AND SUNDRIES....... 2,169 0.40
EATING AND DRINKING PLACES............... 3,436 0.63
ELECTRIC DISTRIBUTION EQUIPMENT.......... 1,783 0.33
ELECTRIC LIGHTING AND WIRING EQUIPMENT... 242 0.04
ELECTRIC SERVICES........................ 13,205 2.43
ELECTRICAL GOODS......................... 1,127 0.21
ELECTRICAL INDUSTRIAL APPARATUS.......... 2,364 0.43
ELECTRICAL WORK.......................... 18 0.00
ELECTRONIC COMPONENTS AND ACCESSORIES.... 13,443 2.47
ENGINEERING AND ARCHITECTURAL SERVICES... 41 0.01
ENGINES AND TURBINES..................... 773 0.14
FABRICATED RUBBER PRODUCTS, NEC.......... 318 0.06
FABRICATED STRUCTURAL METAL PRODUCTS..... 202 0.04
FAMILY CLOTHING STORES................... 1,041 0.19
</TABLE>
See notes to financial statements.
B-30
<PAGE> 71
TIAA SEPARATE ACCOUNT VA-1
STATEMENT OF INVESTMENTS--STOCK INDEX ACCOUNT
DECEMBER 31, 1997
SUMMARY BY INDUSTRY (CONTINUED)
(000)
<TABLE>
<CAPTION>
VALUE %
-------- --------
<S> <C> <C>
FARM AND GARDEN MACHINERY................ $ 1,275 0.23%
FARM-PRODUCT RAW MATERIALS............... 183 0.03
FEDERAL AND FEDERALLY-SPONSORED CREDIT
AGENCIES............................... 5,783 1.06
FIRE, MARINE, AND CASUALTY INSURANCE..... 5,063 0.93
FLAT GLASS............................... 594 0.11
FOOTWEAR EXCEPT, RUBBER.................. 174 0.03
FREIGHT TRANSPORTATION ARRANGEMENT....... 162 0.03
FUNERAL SERVICE AND CREMATORIES.......... 742 0.14
FURNITURE AND HOME FURNISHINGS STORES.... 439 0.08
GAS PRODUCTION AND DISTRIBUTION.......... 3,054 0.56
GENERAL INDUSTRIAL MACHINERY............. 1,692 0.31
GLASS AND GLASSWARE, PRESSED OR BLOWN.... 1,110 0.20
GOLD AND SILVER ORES..................... 647 0.12
GRAIN MILL PRODUCTS...................... 4,013 0.74
GREETING CARDS........................... 157 0.03
GROCERIES AND RELATED PRODUCTS........... 1,311 0.24
GROCERY STORES........................... 3,116 0.57
GUIDED MISSILES, SPACE VEHICLES AND
PARTS.................................. 1,467 0.27
HARDWARE, PLUMBING AND HEATING
EQUIPMENT.............................. 69 0.01
HEALTH AND ALLIED SERVICES, NEC.......... 1,755 0.32
HEAVY CONSTRUCTION, EXCEPT HIGHWAY....... 257 0.05
HOLDING OFFICES.......................... 1,221 0.22
HOME HEALTH CARE SERVICES................ 74 0.01
HORTICULTURAL SPECIALTIES................ 440 0.08
HOSPITALS................................ 2,357 0.43
HOTELS AND MOTELS........................ 3,838 0.71
HOUSEHOLD APPLIANCE STORES............... 164 0.03
HOUSEHOLD APPLIANCES..................... 14,968 2.75
HOUSEHOLD AUDIO AND VIDEO EQUIPMENT...... 7 0.00
HOUSEHOLD FURNITURE...................... 432 0.08
INDUSTRIAL INORGANIC CHEMICALS........... 2,425 0.45
INDUSTRIAL MACHINERY, NEC................ 121 0.02
INDUSTRIAL ORGANIC CHEMICALS............. 633 0.12
INSURANCE AGENTS, BROKERS, AND SERVICE... 1,564 0.29
INSURANCE CARRIERS, NEC.................. 454 0.08
IRON ORES................................ 60 0.01
</TABLE>
<TABLE>
<CAPTION>
VALUE %
-------- --------
<S> <C> <C>
JEWELRY, SILVERWARE, AND PLATED WARE..... $ 131 0.02%
KNITTING MILLS........................... 140 0.03
LANDSCAPE AND HORTICULTURAL SERVICES..... 41 0.01
LAUNDRY, CLEANING, AND GARMENT
SERVICES............................... 368 0.07
LEAD AND ZINC ORES....................... 25 0.00
LEATHER TANNING AND FINISHING............ 82 0.02
LEGAL SERVICES........................... 65 0.01
LIFE INSURANCE........................... 17,769 3.27
LOGGING.................................. 59 0.01
LUGGAGE.................................. 44 0.01
LUMBER AND CONSTRUCTION MATERIALS........ 442 0.08
LUMBER AND OTHER BUILDING MATERIALS...... 3,058 0.56
MACHINERY, EQUIPMENT, AND SUPPLIES....... 47 0.01
MAILING, REPRODUCTION AND STENOGRAPHIC
SERVICES............................... 93 0.02
MANAGEMENT AND PUBLIC RELATIONS.......... 531 0.10
MANIFOLD BUSINESS FORMS.................. 135 0.02
MEASURING AND CONTROLLING DEVICES........ 2,576 0.47
MEAT PRODUCTS............................ 1,283 0.24
MEDICAL AND DENTAL LABORATORIES.......... 50 0.01
MEDICAL INSTRUMENTS AND SUPPLIES......... 10,295 1.89
MEDICAL SERVICE AND HEALTH INSURANCE..... 1,438 0.26
MEN'S AND BOYS' CLOTHING STORES.......... 31 0.01
MEN'S AND BOYS' FURNISHINGS.............. 617 0.11
MEN'S AND BOYS' SUITS AND COATS.......... 75 0.01
METAL CANS AND SHIPPING CONTAINERS....... 429 0.08
METAL FORGINGS AND STAMPINGS............. 685 0.13
METALS AND MINERALS, EXCEPT PETROLEUM.... 104 0.02
METALWORKING MACHINERY................... 400 0.07
MISCELLANEOUS AMUSEMENT, RECREATION
SERVICES............................... 493 0.09
MISCELLANEOUS APPAREL AND ACCESSORY
STORES................................. 344 0.06
MISCELLANEOUS APPAREL AND ACCESSORIES.... 63 0.01
</TABLE>
See notes to financial statements.
B-31
<PAGE> 72
TIAA SEPARATE ACCOUNT VA-1
STATEMENT OF INVESTMENTS--STOCK INDEX ACCOUNT
DECEMBER 31, 1997
SUMMARY BY INDUSTRY (CONTINUED)
(000)
<TABLE>
<CAPTION>
VALUE %
-------- --------
<S> <C> <C>
MISCELLANEOUS BUSINESS SERVICES.......... $ 1,275 0.23%
MISCELLANEOUS CHEMICAL PRODUCTS.......... 1,179 0.22
MISCELLANEOUS CONVERTED PAPER PRODUCTS... 2,785 0.51
MISCELLANEOUS DURABLE GOODS.............. 648 0.12
MISCELLANEOUS ELECTRICAL EQUIPMENT AND
SUPPLIES............................... 214 0.04
MISCELLANEOUS EQUIPMENT RENTAL AND
LEASING................................ 65 0.01
MISCELLANEOUS FABRICATED METAL
PRODUCTS............................... 716 0.13
MISCELLANEOUS FOOD AND KINDRED
PRODUCTS............................... 192 0.04
MISCELLANEOUS FOOD STORES................ 268 0.05
MISCELLANEOUS GENERAL MERCHANDISE
STORES................................. 272 0.05
MISCELLANEOUS INVESTING.................. 6,860 1.26
MISCELLANEOUS MANUFACTURES............... 524 0.10
MISCELLANEOUS METAL ORES................. 30 0.01
MISCELLANEOUS NONDURABLE GOODS........... 122 0.02
MISCELLANEOUS NONMETALLIC MINERAL
PRODUCTS............................... 2,060 0.38
MISCELLANEOUS NONMETALLIC MINERALS....... 26 0.00
MISCELLANEOUS PERSONAL SERVICES.......... 282 0.05
MISCELLANEOUS PETROLEUM AND COAL
PRODUCTS............................... 2,175 0.40
MISCELLANEOUS PLASTICS PRODUCTS, NEC..... 4,142 0.76
MISCELLANEOUS SHOPPING GOOD STORES....... 1,268 0.23
MISCELLANEOUS TRANSPORTATION EQUIPMENT... 109 0.02
MOBILE HOME DEALERS...................... 93 0.02
MORTGAGE BANKERS AND BROKERS............. 2,741 0.50
MOTION PICTURE PRODUCTION AND SERVICES... 4,743 0.87
MOTION PICTURE THEATERS.................. 223 0.04
MOTOR VEHICLES AND EQUIPMENT............. 10,471 1.93
MOTOR VEHICLES, PARTS, AND SUPPLIES...... 359 0.07
MOTORCYCLES, BICYCLES, AND PARTS......... 249 0.05
NATURAL GAS LIQUIDS...................... 394 0.07
NEW AND USED CAR DEALERS................. 261 0.05
</TABLE>
<TABLE>
<CAPTION>
VALUE %
-------- --------
<S> <C> <C>
NEWSPAPERS............................... $ 3,317 0.61%
NONFERROUS FOUNDRIES (CASTINGS).......... 99 0.02
NONFERROUS ROLLING AND DRAWING........... 471 0.09
NONSTORE RETAILERS....................... 1,440 0.26
NURSING AND PERSONAL CARE FACILITIES..... 469 0.09
OFFICE FURNITURE......................... 480 0.09
OFFICES AND CLINICS OF MEDICAL DOCTORS... 388 0.07
OFFICES AND CLINICS OF DENTISTS.......... 33 0.01
OFFICES OF OTHER HEALTH PRACTITIONERS.... 19 0.00
OIL AND GAS EXTRACTION................... 20,438 3.76
OIL AND GAS FIELD SERVICES............... 4,113 0.76
OPERATIVE BUILDERS....................... 348 0.06
OPHTHALMIC GOODS......................... 172 0.03
ORDNANCE AND ACCESSORIES, NEC............ 113 0.02
PAINT, GLASS, AND WALLPAPER STORES....... 31 0.01
PAINTS AND ALLIED PRODUCTS............... 544 0.10
PAPER AND PAPER PRODUCTS................. 862 0.16
PAPER MILLS.............................. 1,341 0.25
PAPERBOARD CONTAINERS AND BOXES.......... 95 0.02
PAPERBOARD MILLS......................... 939 0.17
PASSENGER TRANSPORTATION ARRANGEMENT..... 2,622 0.48
PENSION, HEALTH, AND WELFARE FUNDS....... 33 0.01
PERIODICALS.............................. 2,077 0.38
PERSONAL CREDIT INSTITUTIONS............. 1,407 0.26
PERSONNEL SUPPLY SERVICES................ 1,329 0.24
PETROLEUM AND PETROLEUM PRODUCTS......... 988 0.18
PETROLEUM REFINING....................... 6,291 1.16
PHOTOGRAPHIC EQUIPMENT AND SUPPLIES...... 2,757 0.51
PIPELINES, EXCEPT NATURAL GAS............ 176 0.03
PLASTICS MATERIALS AND SYNTHETICS........ 4,848 0.89
PLUMBING AND HEATING, EXCEPT ELECTRIC.... 541 0.10
POULTRY AND EGGS......................... 197 0.04
PRESERVED FRUITS AND VEGETABLES.......... 4,835 0.89
PRIMARY NONFERROUS METALS................ 1,422 0.26
</TABLE>
See notes to financial statements.
B-32
<PAGE> 73
TIAA SEPARATE ACCOUNT VA-1
STATEMENT OF INVESTMENTS--STOCK INDEX ACCOUNT
DECEMBER 31, 1997
SUMMARY BY INDUSTRY (CONTINUED)
(000)
<TABLE>
<CAPTION>
VALUE %
-------- --------
<S> <C> <C>
PRODUCERS, ORCHESTRAS, ENTERTAINERS...... $ 85 0.02%
PRODUCTS OF PURCHASED GLASS.............. 145 0.03
PROFESSIONAL AND COMMERCIAL EQUIPMENT.... 506 0.09
RADIO AND TELEVISION BROADCASTING........ 2,003 0.37
RADIO, TELEVISION, AND COMPUTER STORES... 764 0.14
RAILROADS................................ 3,616 0.66
REAL ESTATE OPERATORS AND LESSORS........ 256 0.05
REFRIGERATION AND SERVICE MACHINERY...... 668 0.12
RENTAL OF RAILROAD CARS.................. 116 0.02
RESEARCH AND TESTING SERVICES............ 626 0.12
RESIDENTIAL BUILDING CONSTRUCTION........ 367 0.07
RETAIL STORES, NEC....................... 127 0.02
SAND AND GRAVEL.......................... 95 0.02
SANITARY SERVICES........................ 2,301 0.42
SAVINGS INSTITUTIONS..................... 4,147 0.76
SAWMILLS AND PLANING MILLS............... 1,211 0.22
SCHOOLS AND EDUCATIONAL SERVICES, NEC.... 104 0.02
SCREW MACHINE PRODUCTS, BOLTS, ETC....... 275 0.05
SEARCH AND NAVIGATION EQUIPMENT.......... 1,269 0.23
SECURITY AND COMMODITY SERVICES.......... 1,647 0.31
SECURITY BROKERS AND DEALERS............. 5,272 0.97
SHIP AND BOAT BUILDING AND REPAIRING..... 413 0.08
SHOE STORES.............................. 203 0.04
SOAP, CLEANERS, AND TOILET GOODS......... 9,746 1.79
SOCIAL SERVICES, NEC..................... 157 0.03
SPECIAL INDUSTRY MACHINERY............... 1,496 0.28
STRUCTURAL CLAY PRODUCTS................. 48 0.01
SUBDIVIDERS AND DEVELOPERS............... 96 0.02
</TABLE>
<TABLE>
<CAPTION>
VALUE %
-------- --------
<S> <C> <C>
SUGAR AND CONFECTIONERY PRODUCTS......... $ 899 0.17%
SURETY INSURANCE......................... 841 0.15
TELEPHONE COMMUNICATIONS................. 37,825 6.96
TIRES AND INNER TUBES.................... 970 0.18
TITLE INSURANCE.......................... 153 0.03
TOYS AND SPORTING GOODS.................. 1,029 0.19
TRUCKING AND COURIER SERVICES, EXCEPT
AIR.................................... 586 0.11
VARIETY STORES........................... 1,126 0.21
VIDEO TAPE RENTAL........................ 22 0.00
VOCATIONAL SCHOOLS....................... 96 0.02
WATER SUPPLY............................. 188 0.03
WATER TRANSPORTATION OF FREIGHT, NEC..... 35 0.01
WATER TRANSPORTATION SERVICES............ 176 0.03
WOMEN'S ACCESSORY AND SPECIALTY STORES... 420 0.08
WOMEN'S AND MISSES' OUTERWEAR............ 270 0.05
WOMEN'S CLOTHING STORES.................. 178 0.03
WOOD BUILDINGS AND MOBILE HOMES.......... 72 0.01
YARN AND THREAD MILLS.................... 203 0.04
-------- -------
TOTAL COMMON STOCK
(Cost $397,604)........................... 542,473 99.76
-------- -------
SHORT TERM INVESTMENTS
U.S. GOVERNMENT AND AGENCIES............. 1,798 0.33
-------- -------
TOTAL SHORT TERM INVESTMENTS
(Cost $1799).............................. 1,798 0.33
-------- -------
TOTAL PORTFOLIO (Cost $399,428)............ 544,299 100.10
-------- -------
OTHER ASSETS AND LIABILITIES, NET........ (568) (0.10)
-------- -------
NET ASSETS................................. $543,731 100.00%
======== =======
</TABLE>
See notes to financial statements.
B-33
<PAGE> 74
TIAA SEPARATE ACCOUNT VA-1
STATEMENT OF INVESTMENTS--STOCK INDEX ACCOUNT
DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
PREFERRED STOCK--0.01%
LIFE INSURANCE--0.01%
389 AETNA, INC 6.25% (CLASS C)........... $ 28
--------
MEDICAL INSTRUMENTS AND
SUPPLIES--0.00%
3,500 * FRESENIUS MEDICAL CARE (CLASS D)..... 0
--------
TOTAL PREFERRED STOCK
(Cost $25).......................... 28
--------
COMMON STOCK--99.76%
ADVERTISING--0.21%
1,400 * CATALINA MARKETING CORP.............. 65
7,350 INTERPUBLIC GROUP OF COS, INC........ 366
1,000 * LAMAR ADVERTISING CO (CLASS A)....... 40
9,600 OMNICOM GROUP, INC................... 407
1,100 * OUTDOOR SYSTEMS, INC................. 42
1,100 * SNYDER COMMUNICATIONS, INC........... 40
1,900 TRUE NORTH COMMUNICATIONS, INC....... 47
1,000 * UNIVERSAL OUTDOOR HOLDINGS, INC...... 52
1,800 * VALASSIS COMMUNICATIONS, INC......... 67
--------
1,126
--------
AGRICULTURAL CHEMICALS--0.10%
1,700 * FMC CORP............................. 114
422 * FREEPORT-MCMORAN SULPHUR, INC........ 5
7,080 IMC GLOBAL, INC...................... 232
666 * IMC GLOBAL, INC WTS 12/22/00......... 3
2,700 MISSISSIPPI CHEMICAL CORP............ 49
1,900 * MYCOGEN CORP......................... 36
3,200 * SCOTTS CO (CLASS A).................. 97
--------
536
--------
AIR TRANSPORTATION, SCHEDULED--0.60%
2,925 AIR EXPRESS INTERNATIONAL CORP....... 89
3,400 * AMERICA WEST HOLDINGS CORP
(CLASS B)........................... 63
5,200 * AMR CORP............................. 668
1,600 ASA HOLDINGS, INC.................... 46
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
AIR TRANSPORTATION, SCHEDULED--(continued)
700 * ATLAS AIR, INC....................... $ 17
3,887 COMAIR HOLDINGS, INC................. 94
3,000 * CONTINENTAL AIRLINES, INC
(CLASS B)........................... 144
4,200 DELTA AIRLINES, INC.................. 500
7,200 * FEDERAL EXPRESS CORP................. 440
4,600 * NORTHWEST AIRLINES CORP
(CLASS A)........................... 220
1,800 PITTSTON BURLINGTON GROUP CO......... 47
13,050 SOUTHWEST AIRLINES CO................ 321
3,600 * UAL CORP............................. 333
4,400 * US AIRWAYS GROUP, INC................ 275
--------
3,257
--------
AIRCRAFT AND PARTS--1.16%
2,500 * AIRTRAN HOLDINGS, INC................ 10
30,300 ALLIED SIGNAL, INC................... 1,180
2,000 * BE AEROSPACE, INC.................... 54
60,954 BOEING CO............................ 2,983
900 BREED TECHNOLOGIES, INC.............. 16
4,700 * GULFSTREAM AEROSPACE CORP............ 137
3,177 NORTHROP GRUMMAN CORP................ 365
1,100 OEA, INC............................. 32
8,100 TEXTRON, INC......................... 506
14,200 UNITED TECHNOLOGIES CORP............. 1,034
--------
6,317
--------
AIRPORTS, FLYING FIELDS, AND
SERVICES--0.00%
400 * EAGLE USA AIRFREIGHT, INC............ 11
--------
APPAREL, PIECE GOODS, AND
NOTIONS--0.08%
1,320 BURLINGTON COAT FACTORY WAREHOUSE
CORP................................ 22
8,100 NIKE, INC (CLASS B).................. 318
2,807 * REEBOK INTERNATIONAL LTD............. 81
--------
421
--------
AUTO AND HOME SUPPLY STORES--0.02%
3,500 PEP BOYS MANNY, MOE, & JACK CO....... 84
--------
</TABLE>
See notes to financial statements.
B-34
<PAGE> 75
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
AUTOMOBILE PARKING--0.01%
1,350 CENTRAL PARKING CORP................. $ 61
--------
AUTOMOTIVE RENTALS, NO DRIVERS--0.08%
800 * BUDGET GROUP, INC.................... 28
1,800 HERTZ CORP (CLASS A)................. 72
1,700 * RENTERS CHOICE, INC.................. 35
5,500 ROLLINS TRUCK LEASING CORP........... 98
4,600 RYDER SYSTEM, INC.................... 151
1,000 XTRA CORP............................ 59
--------
443
--------
AUTOMOTIVE SERVICES, EXCEPT
REPAIR--0.01%
1,400 BORG-WARNER AUTOMOTIVE, INC.......... 73
--------
BAKERY PRODUCTS--0.06%
3,000 INTERSTATE BAKERIES CORP............. 112
1,900 LANCE, INC........................... 50
3,500 NABISCO HOLDINGS CORP (CLASS A)...... 170
--------
332
--------
BEAUTY SHOPS--0.01%
1,300 REGIS CORP........................... 33
--------
BEVERAGES--2.73%
27,200 ANHEUSER BUSCH COS, INC.............. 1,197
1,600 BROWN FORMAN, INC (CLASS B).......... 88
1,000 * CANANDAIGUA BRANDS, INC
(CLASS A)........................... 55
137,800 COCA COLA CO......................... 9,181
13,100 COCA COLA ENTERPRISES, INC........... 466
2,900 COORS (ADOLPH) CO (CLASS B).......... 96
9,800 FORTUNE BRANDS, INC.................. 363
92,900 PEPSICO, INC......................... 3,385
--------
14,831
--------
BITUMINOUS COAL AND LIGNITE
MINING--0.00%
1,600 ZEIGLER COAL HOLDINGS CO............. 26
--------
BLANKBOOKS AND BOOKBINDING--0.03%
3,700 DELUXE CORP.......................... 128
2,500 * FRANKLIN COVEY CO.................... 55
--------
183
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
BLAST FURNACE AND BASIC STEEL
PRODUCTS--0.36%
3,200 AK STEEL HOLDINGS CORP............... $ 57
6,787 ALLEGHENY TELEDYNE, INC.............. 176
6,300 * ARMCO, INC........................... 31
6,400 * BETHLEHEM STEEL CORP................. 55
5,100 BIRMINGHAM STEEL CORP................ 80
1,600 CARPENTER TECHNOLOGY CORP............ 77
3,600 INLAND STEEL INDUSTRIES, INC......... 62
2,700 J & L SPECIALTY STEEL, INC........... 27
1,800 * LONE STAR TECHNOLOGIES, INC.......... 51
5,600 LTV CORP............................. 55
5,200 NUCOR CORP........................... 251
2,900 OREGON STEEL MILLS, INC.............. 62
2,900 * STEEL DYNAMICS, INC.................. 46
1,600 TEXAS INDUSTRIES, INC................ 72
17,800 USX-MARATHON GROUP, INC.............. 601
4,900 USX-US STEEL GROUP, INC.............. 153
5,100 WORTHINGTON INDUSTRIES, INC.......... 84
--------
1,940
--------
BOAT DEALERS--0.00%
900 * WEST MARINE, INC..................... 20
--------
BOOKS--0.11%
2,300 BANTA CORP........................... 62
2,400 HOUGHTON MIFFLIN CO.................. 92
5,800 MCGRAW HILL COS, INC................. 429
1,000 * SCHOLASTIC CORP...................... 38
--------
621
--------
BROADWOVEN FABRIC MILLS, COTTON--0.04%
4,500 * BURLINGTON INDUSTRIES, INC........... 62
1,300 * TRIARC COS, INC...................... 35
2,000 * WESTPOINT STEVENS, INC............... 95
--------
192
--------
BROADWOVEN FABRIC MILLS,
MANMADE--0.02%
1,800 ALBANY INTERNATIONAL CORP (CLASS
A).................................. 41
1,300 SPRING INDUSTRIES, INC............... 68
--------
109
--------
</TABLE>
See notes to financial statements.
B-35
<PAGE> 76
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
BUSINESS CREDIT INSTITUTIONS--0.10%
3,700 * ARCADIA FINANCIAL LTD................ $ 28
3,900 ASSOCIATES FIRST CAPITAL CORP........ 277
500 CAPITAL ONE FINANCIAL CORP........... 27
3,400 FINOVA GROUP, INC.................... 169
1,500 TOTAL SYSTEM SERVICES, INC........... 37
--------
538
--------
CABLE AND OTHER PAY TV SERVICES--0.43%
3,722 * ASCENT ENTERTAINMENT GROUP, INC...... 39
300 * CABLE MICHIGAN, INC.................. 7
900 * CABLEVISION SYSTEMS CORP
(CLASS A)........................... 86
21,289 COMCAST CORP (CLASS A) SPECIAL....... 672
3,991 * COX COMMUNICATIONS, INC
(CLASS A)........................... 160
1,150 * MASTEC, INC.......................... 26
1,769 * PANAMSAT CORP........................ 76
1,600 TCA CABLE TV, INC.................... 74
6,980 * TCI SATELLITE ENTERTAINMENT
(CLASS A)........................... 48
27,066 * TELE-COMMUNICATIONS, INC
(CLASS A)........................... 756
13,634 * TELECOM-TCI VENTURES GROUP
(CLASS A)........................... 386
--------
2,330
--------
CARPENTRY AND FLOOR WORK--0.01%
2,200 GEON CO.............................. 51
--------
CARPETS AND RUGS--0.01%
6,700 SHAW INDUSTRIES, INC................. 78
--------
CASH GRAINS--0.03%
2,300 DEKALB GENETICS CORP (CLASS B)....... 90
2,754 DELTA & PINE LAND CO................. 84
--------
174
--------
CEMENT, HYDRAULIC--0.04%
1,900 CENTEX CONSTRUCTION PRODUCTS, INC.... 57
1,500 MEDUSA CORP.......................... 63
1,600 SOUTHDOWN, INC....................... 94
--------
214
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
CHEMICAL AND FERTILIZER
MINERALS--0.01%
425 POTASH CORP OF SASKATCHEWAN, INC..... $ 35
--------
CHEWING AND SMOKING TOBACCO--0.06%
9,100 UST, INC............................. 336
--------
CHILDREN'S AND INFANTS' WEAR
STORES--0.01%
2,000 * GYMBOREE CORP........................ 55
--------
CIGARETTES--1.22%
146,600 PHILIP MORRIS COS, INC............... 6,643
--------
CIGARS--0.01%
1,600 * GENERAL CIGAR HOLDINGS, INC
(CLASS A)........................... 34
--------
COMBINATION UTILITY SERVICES--1.22%
8,500 BALTIMORE GAS & ELECTRIC CO.......... 290
1,900 CENTRAL HUDSON GAS & ELECTRIC CORP... 83
10,266 CENTRAL MAINE POWER CO............... 157
1,200 CILCORP, INC......................... 59
2,000 CIPSCO, INC.......................... 89
11,091 * CITIZENS UTILITIES CO (CLASS B)...... 107
13,600 CONSOLIDATED EDISON CO OF NEW YORK,
INC................................. 558
5,300 DELMARVA POWER & LIGHT CO............ 122
23,500 EDISON INTERNATIONAL CO.............. 639
6,200 ENOVA CORP........................... 168
3,700 IPALCO ENTERPRISES, INC.............. 155
4,200 KANSAS CITY POWER & LIGHT CO......... 124
7,200 LONG ISLAND LIGHTING CO.............. 217
5,800 MIDAMERICAN ENERGY HOLDINGS CO....... 128
4,100 MONTANA POWER CO..................... 130
6,285 NEW CENTURY ENERGIES, INC............ 301
4,600 NEW YORK STATE ELECTRIC & GAS CORP... 163
9,100 * NIAGARA MOHAWK POWER CORP............ 96
3,600 NIPSCO INDUSTRIES, INC............... 178
4,100 NORTHERN STATES POWER CO............. 239
6,400 ORANGE & ROCKLAND UTILITY, INC....... 298
16,700 PACIFICORP........................... 456
12,300 PECO ENERGY CO....................... 298
</TABLE>
See notes to financial statements.
B-36
<PAGE> 77
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
COMBINATION UTILITY
SERVICES--(continued)
3,500 PUBLIC SERVICE CO OF NEW MEXICO...... $ 83
13,300 PUBLIC SERVICE ENTERPRISE GROUP,
INC................................. 421
2,900 ROCHESTER GAS & ELECTRIC CORP........ 99
6,300 SCANA CORP........................... 189
2,900 SIERRA PACIFIC RESOURCES............. 109
6,000 UNION ELECTRIC CO.................... 260
2,997 UTILICORP UNITED, INC................ 116
5,500 WASHINGTON WATER POWER CO............ 134
3,900 WESTERN RESOURCES, INC............... 168
--------
6,634
--------
COMMERCIAL BANKS--9.02%
4,450 AMSOUTH BANCORP...................... 242
4,192 ASSOCIATED BANC CORP................. 231
35,196 BANC ONE CORP........................ 1,912
1,900 BANCORPSOUTH, INC.................... 90
23,000 BANK OF NEW YORK CO, INC............. 1,330
42,600 BANKAMERICA CORP..................... 3,110
8,635 BANKBOSTON CORP...................... 811
5,645 BANKERS TRUST NEW YORK CORP.......... 635
11,900 BARNETT BANKS, INC................... 855
7,174 BB&T CORP............................ 460
1,600 CCB FINANCIAL CORP................... 172
2,100 CENTURA BANKS, INC................... 145
26,520 CHASE MANHATTAN CORP................. 2,904
28,946 CITICORP CO.......................... 3,660
2,400 CITIZENS BANKING CORP................ 83
2,400 CITY NATIONAL CORP................... 89
3,092 * CNB BANCSHARES, INC.................. 149
3,200 COLONIAL BANCGROUP, INC.............. 110
6,000 COMERICA, INC........................ 542
3,400 COMMERCE BANCORP, INC................ 173
2,310 COMMERCE BANCSHARES, INC............. 157
1,700 * COMMUNITY FIRST BANKSHARES, INC...... 91
4,200 COMPASS BANCSHARES, INC.............. 184
11,997 CORESTATES FINANCIAL CORP............ 961
6,334 CRESTAR FINANCIAL CORP............... 361
1,900 CULLEN FROST BANKERS, INC............ 115
2,800 DEPOSIT GUARANTY..................... 159
2,100 F & M NATIONAL CORP.................. 72
7,200 FIFTH THIRD BANCORP.................. 589
3,633 FIRST AMERICAN CORP.................. 181
18,753 FIRST CHICAGO NBD CORP............... 1,566
2,528 FIRST COMMERCE CORP.................. 170
2,789 FIRST COMMERCIAL CORP................ 164
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
COMMERCIAL BANKS--(continued)
200 FIRST COMMONWEALTH FINANCIAL CORP.... $ 7
100 FIRST EMPIRE STATE CORP.............. 47
2,646 FIRST FINANCIAL BANCORP.............. 128
2,200 FIRST HAWAIIAN, INC.................. 87
1,500 FIRST MIDWEST BANCORP, INC........... 66
5,109 FIRST OF AMERICA BANK CORP........... 394
7,000 FIRST SECURITY CORP.................. 293
3,900 FIRST TENNESSEE NATIONAL CORP........ 260
3,500 FIRST VIRGINIA BANKS, INC............ 181
6,900 FIRSTAR CORP......................... 293
5,000 FIRSTMERIT CORP...................... 142
15,327 FLEET FINANCIAL GROUP, INC........... 1,149
4,525 FRANCHISE FINANCE CORP OF AMERICA.... 122
2,300 GREENPOINT FINANCIAL CORP............ 167
2,575 HUBCO, INC........................... 101
12,755 HUNTINGTON BANCSHARES, INC........... 459
1,670 * IMPERIAL BANCORP..................... 82
13,000 KEYCORP.............................. 921
3,750 KEYSTONE FINANCIAL, INC.............. 151
3,200 MAGNA GROUP, INC..................... 146
6,059 MARSHALL & ILSLEY CORP............... 376
25,737 MBNA CORP............................ 703
15,300 MELLON BANK CORP..................... 928
7,596 MERCANTILE BANCORP, INC.............. 467
4,255 MERCANTILE BANKSHARES CORP........... 166
10,700 MORGAN (J.P.) & CO, INC.............. 1,208
12,527 NATIONAL CITY CORP................... 824
3,800 NATIONAL COMMERCE BANCORP............ 134
44,432 NATIONSBANK CORP..................... 2,702
4,400 NORTH FORK BANCORP, INC.............. 148
6,500 NORTHERN TRUST CORP.................. 453
45,500 NORWEST CORP......................... 1,757
5,106 OLD KENT FINANCIAL CORP.............. 202
3,802 OLD NATIONAL BANCORP................. 184
1,600 ONBANCORP, INC....................... 113
3,493 ONE VALLEY BANCORP, INC.............. 135
5,400 PACIFIC CENTURY FINANCIAL CORP....... 134
500 PARK NATIONAL CORP................... 44
2,400 PEOPLES HERITAGE FINANCIAL GROUP,
INC................................. 110
19,050 PNC BANK CORP........................ 1,087
4,100 POPULAR, INC......................... 203
2,800 * PROVIDENT FINANCIAL GROUP............ 136
3,900 QUEENS COUNTY BANCORP, INC........... 158
7,756 REGIONS FINANCIAL CORP............... 327
</TABLE>
See notes to financial statements.
B-37
<PAGE> 78
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
COMMERCIAL BANKS--(continued)
3,100 REPUBLIC NEW YORK CORP............... $ 354
1,600 RIGGS NATIONAL CORP.................. 43
5,500 SOUTHTRUST CORP...................... 349
5,100 STAR BANC CORP....................... 293
9,400 STATE STREET CORP.................... 547
10,467 SUMMIT BANCORP....................... 557
12,400 SUNTRUST BANKS, INC.................. 885
2,300 SUSQUEHANNA BANCSHARES, INC.......... 88
8,850 SYNOVUS FINANCIAL CORP............... 290
2,700 TRUSTMARK CORP....................... 125
14,912 U.S. BANCORP......................... 1,669
1,900 U.S. TRUST CORP...................... 119
4,125 UNION PLANTERS CORP.................. 280
3,759 VALLEY NATIONAL BANCORP.............. 148
11,436 WACHOVIA CORP........................ 928
4,724 WELLS FARGO & CO..................... 1,604
1,100 WESTAMERICA BANCORP.................. 112
2,000 WILMINGTON TRUST CORP................ 125
4,000 ZIONS BANCORP........................ 182
--------
49,066
--------
COMMERCIAL PRINTING--0.07%
1,300 * APPLIED GRAPHICS TECHNOLOGIES, INC... 69
2,100 BOWNE & CO, INC...................... 84
5,400 DONNELLEY (R.R.) & SONS CO........... 201
2,100 HARLAND (JOHN H.) CO................. 44
--------
398
--------
COMMUNICATIONS EQUIPMENT--1.15%
20,842 * 3COM CORP............................ 728
7,900 * ADC TELECOMMUNICATIONS, INC.......... 330
3,900 * ADVANCED FIBRE COMMUNICATIONS........ 114
2,900 ALIANT COMMUNICATIONS, INC........... 91
5,475 * ANDREW CORP.......................... 131
3,000 * ANTEC CORP........................... 47
3,300 * ASPECT TELECOMMUNICATIONS CORP....... 69
1,700 * BILLING INFORMATION CONCEPTS CORP.... 82
1,500 * BOSTON TECHNOLOGY, INC............... 38
1,600 * CHYRON CORP.......................... 7
6,100 * CIENA CORP........................... 373
2,800 * DIGITAL MICROWAVE CORP............... 41
6,900 * DSC COMMUNICATIONS CORP.............. 166
2,400 * DSP COMMUNICATIONS, INC.............. 29
2,439 * EXCEL COMMUNICATIONS, INC............ 35
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
COMMUNICATIONS EQUIPMENT--(continued)
3,500 FEDERAL SIGNAL CORP.................. $ 76
4,800 * GENERAL DATACOMM INDUSTRIES, INC..... 23
11,700 * GEOTEK COMMUNICATIONS, INC........... 18
4,125 * GLENAYRE TECHNOLOGIES, INC........... 41
5,000 HARRIS CORP.......................... 229
6,200 * ITT CORP............................. 514
7,000 ITT INDUSTRIES, INC.................. 220
36,300 MOTOROLA, INC........................ 2,071
1,700 * NETWORK EQUIPMENT TECHNOLOGIES, INC.. 25
6,900 * NEXTLEVEL SYSTEMS, INC............... 123
2,800 * P-COM, INC........................... 48
3,600 * PAIRGAIN TECHNOLOGIES, INC........... 70
2,200 * PICTURETEL CORP...................... 14
1,000 PITTWAY CORP (CLASS A)............... 70
1,100 * POWERWAVE TECHNOLOGIES, INC.......... 18
2,100 * PREMISYS COMMUNICATIONS, INC......... 55
4,100 SCIENTIFIC-ATLANTA, INC.............. 69
3,800 * SHIVA CORP........................... 33
2,400 SYMBOL TECHNOLOGIES, INC............. 91
1,400 * TCSI CORP............................ 11
1,600 * TEKELEC.............................. 49
1,400 * TELE-COMMUNICATIONS INTERNATIONAL
(CLASS A)........................... 25
3,500 * WESTELL TECHNOLOGIES, INC (CLASS A).. 45
2,700 * XYLAN CORP........................... 41
--------
6,260
--------
COMMUNICATIONS SERVICES, NEC--0.04%
3,700 COMSAT CORP SERIES 1................. 90
2,000 * MCLEODUSA, INC (CLASS A)............. 64
2,600 WPL HOLDINGS, INC.................... 86
--------
240
--------
COMPUTER AND DATA PROCESSING
SERVICES--3.83%
3,200 * ACXIOM CORP.......................... 62
4,200 ADOBE SYSTEMS, INC................... 173
2,600 * AFFILIATED COMPUTER SERVICES, INC
(CLASS A)........................... 68
1,800 * AFFYMETRIX, INC...................... 56
6,300 * AMERICA ONLINE, INC.................. 562
2,650 * AMERICAN MANAGEMENT SYSTEMS, INC..... 52
1,500 ANALYSTS INTERNATIONAL CORP.......... 52
</TABLE>
See notes to financial statements.
B-38
<PAGE> 79
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
COMPUTER AND DATA PROCESSING
SERVICES--(continued)
1,600 * ASPEN TECHNOLOGY, INC................ $ 55
2,600 AUTODESK, INC........................ 96
17,400 AUTOMATIC DATA PROCESSING, INC....... 1,068
1,900 * AVANT CORP........................... 32
1,000 * BEA SYSTEMS, INC..................... 17
2,100 * BISYS GROUP, INC..................... 70
6,200 * BMC SOFTWARE, INC.................... 407
1,600 * BRODERBUND SOFTWARE, INC............. 41
11,450 * CADENCE DESIGN SYSTEMS, INC.......... 281
2,500 * CAMBRIDGE TECHNOLOGY PARTNERS, INC... 104
4,500 * CERIDIAN CORP........................ 206
1,500 * CERNER CORP.......................... 32
2,600 * CHECKPOINT SYSTEMS, INC.............. 46
980 * CHOICEPOINT, INC..................... 47
900 * CIBER, INC........................... 52
4,900 * CIRRUS LOGIC, INC.................... 52
1,600 * CITRIX SYSTEMS, INC.................. 122
1,900 * CLARIFY, INC......................... 22
3,750 COMDISCO, INC........................ 125
1,000 * COMPUSERVE CORP...................... 12
25,000 COMPUTER ASSOCIATES INTERNATIONAL,
INC................................. 1,322
1,650 * COMPUTER HORIZONS CORP............... 75
4,548 * COMPUTER SCIENCES CORP............... 380
1,300 COMPUTER TASK GROUP, INC............. 46
4,100 * COMPUTERVISION CORP.................. 16
8,900 * COMPUWARE CORP....................... 285
2,550 * CORESTAFF, INC....................... 68
1,700 * CSG SYSTEMS INTERNATIONAL, INC....... 68
6,060 * CYBERGUARD CORP...................... 34
700 * DIALOGIC CORP........................ 31
1,200 * DOCUMENTUM, INC...................... 51
2,000 * DST SYSTEMS, INC..................... 85
2,000 * E TRADE GROUP, INC................... 46
3,100 * ELECTRONIC ARTS, INC................. 117
19,700 ELECTRONIC DATA SYSTEMS CORP......... 866
3,400 * ELECTRONICS FOR IMAGING, INC......... 57
1,700 * ENVOY CORP........................... 50
1,800 * FILENET CORP......................... 54
23,606 FIRST DATA CORP...................... 690
3,500 * FISERV, INC.......................... 172
5,200 * FORE SYSTEMS, INC.................... 79
3,800 * FORTE SOFTWARE, INC.................. 29
2,200 * GT INTERACTIVE SOFTWARE CORP......... 14
2,900 * GTECH HOLDINGS CORP.................. 93
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
COMPUTER AND DATA PROCESSING
SERVICES--(continued)
1,600 * HARBINGER CORP....................... $ 45
12,000 HBO & CO............................. 576
1,100 * HCIA, INC............................ 13
2,300 * HEALTH MANAGEMENT SYSTEMS, INC....... 14
1,000 * HNC SOFTWARE......................... 43
1,000 * HYPERION SOFTWARE CORP............... 36
600 * I2 TECHNOLOGIES, INC................. 32
500 * IDX SYSTEMS CORP..................... 19
1,500 * INDUSTRI-MATEMATIK INTERNATIONAL
CORP................................ 44
2,300 * INSO CORP............................ 27
1,300 * INTEGRATED SYSTEMS, INC.............. 18
2,000 * INTERNATIONAL NETWORK SERVICES....... 46
2,200 * INTUIT, INC.......................... 91
2,200 * ITRON, INC........................... 40
4,300 * KEANE, INC........................... 175
2,200 * LEARNING CO, INC..................... 35
1,000 * LEGATO SYSTEMS, INC.................. 44
500 * LHS GROUP, INC....................... 30
2,500 * MACROMEDIA, INC...................... 21
1,400 * MANUGISTICS GROUP, INC............... 62
3,500 * MENTOR GRAPHICS CORP................. 34
46,200 * MICROSOFT CORP....................... 5,971
1,600 * MIDWAY GAMES, INC.................... 29
2,000 NATIONAL DATA CORP................... 72
2,250 * NATIONAL INSTRUMENTS CORP............ 65
5,000 * NETMANAGE, INC....................... 14
3,037 * NETSCAPE COMMUNICATIONS CORP......... 74
4,433 * NETWORKS ASSOCIATES, INC............. 234
20,700 * NOVELL, INC.......................... 155
46,375 * ORACLE CORP.......................... 1,035
7,700 * PARAMETRIC TECHNOLOGY CORP........... 365
5,100 PAYCHEX, INC......................... 258
700 * PEGASYSTEMS, INC..................... 14
9,400 * PEOPLESOFT, INC...................... 367
2,700 * PHYSICIAN COMPUTER NETWORK, INC...... 11
4,200 * PLATINUM TECHNOLOGY, INC............. 119
1,200 * POLICY MANAGEMENT SYSTEMS CORP....... 83
1,600 * PROTEIN DESIGN LABORATORIES, INC..... 64
2,600 * PSINET, INC.......................... 13
1,400 * REMEDY CORP.......................... 29
800 * SAPIENT CORP......................... 49
</TABLE>
See notes to financial statements.
B-39
<PAGE> 80
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
COMPUTER AND DATA PROCESSING
SERVICES--(continued)
2,050 * SCOPUS TECHNOLOGY, INC............... $ 25
2,000 * SECURITY DYNAMICS TECHNOLOGIES, INC.. 72
1,600 SHARED MEDICAL SYSTEMS CORP.......... 106
2,000 * SIEBEL SYSTEMS, INC.................. 84
5,411 * STERLING COMMERCE, INC............... 208
2,000 * STERLING SOFTWARE, INC............... 82
2,300 * STRUCTURAL DYNAMICS RESEARCH CORP.... 52
4,700 * SUNGARD DATA SYSTEMS, INC............ 146
5,000 * SYBASE, INC.......................... 67
800 * SYKES ENTERPRISES, INC............... 16
3,600 * SYMANTEC CORP........................ 79
3,200 * SYNOPSYS, INC........................ 114
1,600 * SYSTEM SOFTWARE ASSOCIATES, INC...... 14
1,000 * SYSTEMS & COMPUTER TECHNOLOGY CORP... 50
1,000 * SYSTEMSOFT CORP...................... 6
2,250 * TECHNOLOGY SOLUTIONS CO.............. 59
1,800 * TRANSACTION SYSTEM ARCHITECTURE...... 68
2,000 * USCS INTERNATIONAL, INC.............. 34
2,600 * VANSTAR CORP......................... 29
1,000 * VANTIVE CORP......................... 25
1,650 * VERITAS SOFTWARE CORP................ 84
1,200 * VIASOFT, INC......................... 51
1,400 * VISIO CORP........................... 54
1,850 * WIND RIVER SYSTEMS, INC.............. 73
1,350 * YAHOO, INC........................... 93
1,700 * ZILOG, INC........................... 32
--------
20,829
--------
COMPUTER AND OFFICE EQUIPMENT--4.38%
1,400 * ADTRAN, INC.......................... 39
7,700 * APPLE COMPUTER, INC.................. 101
10,080 * ASCEND COMMUNICATIONS, INC........... 247
6,800 * AUSPEX SYSTEMS, INC.................. 68
3,700 * BANCTEC, INC......................... 99
11,802 * BAY NETWORKS, INC.................... 302
1,600 * BELL & HOWELL CO..................... 39
6,600 * CABLETRON SYSTEMS, INC............... 99
62,250 * CISCO SYSTEMS, INC................... 3,470
43,317 COMPAQ COMPUTER CORP................. 2,445
1,600 * COMVERSE TECHNOLOGY, INC............. 62
3,775 * CONCORD EFS, INC..................... 94
7,100 * COPYTELE, INC........................ 25
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
COMPUTER AND OFFICE
EQUIPMENT--(continued)
2,400 * DATA GENERAL CORP.................... $ 42
16,900 * DELL COMPUTER CORP................... 1,420
2,200 * DIAMOND MULTIMEDIA SYSTEMS, INC...... 20
4,350 DIEBOLD, INC......................... 220
9,100 * DIGITAL EQUIPMENT CORP............... 337
1,000 * DYNATECH CORP........................ 47
30,400 * EMC CORP............................. 834
2,100 * ENCAD, INC........................... 58
3,800 * GATEWAY 2000, INC.................... 124
49,800 HEWLETT-PACKARD CO................... 3,113
2,900 * HMT TECHNOLOGY CORP.................. 38
4,030 * IMATION CORP......................... 64
800 * IN FOCUS SYSTEMS, INC................ 24
3,500 * INTERGRAPH CORP...................... 35
59,300 INTERNATIONAL BUSINESS MACHINES
CORP................................ 6,201
13,600 * IOMEGA CORP.......................... 169
4,600 * LEXMARK INTERNATIONAL GROUP
(CLASS A)........................... 175
2,000 * LITTON INDUSTRIES, INC............... 115
3,225 * MICROCHIP TECHNOLOGY, INC............ 97
1,100 * MICRON ELECTRONICS, INC.............. 10
287 * NCR CORP............................. 8
1,500 * NEOMAGIC CORP........................ 19
2,000 * NETWORK APPLIANCE, INC............... 71
8,800 PITNEY BOWES, INC.................... 791
6,700 * QUANTUM CORP......................... 134
4,483 * RATIONAL SOFTWARE CORP............... 51
3,300 REYNOLDS & REYNOLDS CO (CLASS A)..... 61
2,100 * SAFEGUARD SCIENTIFICS, INC........... 66
14,648 * SEAGATE TECHNOLOGY, INC.............. 282
3,200 * SEQUENT COMPUTER SYSTEMS, INC........ 64
10,708 * SILICON GRAPHICS, INC................ 133
6,400 * SOLECTRON CORP....................... 266
3,800 * STORAGE TECHNOLOGY CORP.............. 235
1,800 * STRATUS COMPUTER, INC................ 68
23,100 * SUN MICROSYSTEMS, INC................ 921
12,100 * UNISYS CORP.......................... 168
1,300 * VIDEOSERVER, INC..................... 21
2,400 * WANG LABORATORIES, INC............... 53
5,400 * WESTERN DIGITAL CORP................. 87
5,900 * XIRCOM, INC.......................... 59
--------
23,791
--------
</TABLE>
See notes to financial statements.
B-40
<PAGE> 81
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
CONCRETE, GYPSUM, AND PLASTER
PRODUCTS--0.04%
2,028 LAFARGE CORP......................... $ 60
2,800 * USG CORP............................. 137
--------
197
--------
CONSTRUCTION AND RELATED
MACHINERY--0.48%
9,500 BAKER HUGHES, INC.................... 414
2,300 CAMCO INTERNATIONAL, INC............. 146
23,100 CATERPILLAR, INC..................... 1,122
13,800 DOVER CORP........................... 499
2,400 * EVI, INC............................. 124
2,200 * GLOBAL INDUSTRIAL TECHNOLOGIES, INC.. 37
2,900 HARNISCHFEGER INDUSTRIES, INC........ 102
3,200 JLG INDUSTRIES, INC.................. 45
1,750 MANITOWOC, INC....................... 57
2,200 * VARCO INTERNATIONAL, INC............. 47
--------
2,593
--------
COPPER ORES--0.02%
5,700 CYPRUS AMAX MINERALS CO.............. 88
--------
CREDIT REPORTING AND COLLECTION--0.16%
3,933 * ACNEILSEN CORP....................... 96
9,500 COGNIZANT CORP....................... 423
9,800 DUN & BRADSTREET CORP................ 303
3,000 * PMT SERVICES, INC.................... 42
--------
864
--------
CRUSHED AND BROKEN STONE--0.06%
3,079 MARTIN MARIETTA MATERIALS, INC....... 113
2,000 VULCAN MATERIALS CO.................. 204
--------
317
--------
CUTLERY, HANDTOOLS, AND
HARDWARE--0.70%
34,339 GILLETTE CO.......................... 3,449
3,850 SNAP-ON, INC......................... 168
4,200 STANLEY WORKS CO..................... 198
--------
3,815
--------
DAIRY PRODUCTS--0.03%
2,400 DEAN FOODS CO........................ 143
1,600 DREYERS GRAND ICE CREAM, INC......... 39
--------
182
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
DEEP SEA FOREIGN TRANSPORTATION OF
FREIGHT--0.04%
3,300 ALEXANDER & BALDWIN, INC............. $ 90
7,500 * OMI, INC............................. 69
2,100 OVERSEAS SHIPHOLDING GROUP, INC...... 46
--------
205
--------
DEPARTMENT STORES--1.37%
2,400 x* CALDOR CORP.......................... 1
2,000 * CARSON PIRIE SCOTT & CO.............. 100
13,300 DAYTON HUDSON CORP................... 898
6,000 DILLARDS, INC (CLASS A).............. 212
12,370 * FEDERATED DEPARTMENT STORES, INC..... 533
5,874 * FRED MEYER, INC...................... 214
4,000 * KOHLS CORP........................... 273
14,500 MAY DEPARTMENT STORES CO............. 764
1,200 MERCANTILE STORES CO, INC............ 73
1,500 * NEIMAN-MARCUS GROUP, INC............. 45
13,145 PENNEY, (J.C.) CO, INC............... 793
3,000 * PROFFITTS, INC....................... 85
3,100 ROSS STORES, INC..................... 113
84,900 WAL-MART STORES, INC................. 3,348
--------
7,452
--------
DRUG STORES AND PROPRIETARY
STORES--0.40%
4,450 ARBOR DRUGS, INC..................... 82
10,256 CVS CORP............................. 657
2,500 LONGS DRUG STORES CORP............... 80
7,410 * RITE AID CORP........................ 435
344 * VITALINK PHARMACY SERVICES, INC...... 8
29,600 WALGREEN CO.......................... 929
--------
2,191
--------
DRUGS--7.27%
47,200 ABBOTT LABORATORIES CO............... 3,095
2,600 * ALKERMES, INC........................ 52
3,580 ALLEGIANCE CORP...................... 127
3,900 ALLERGAN, INC........................ 131
3,300 * ALLIANCE PHARMACEUTICAL CORP......... 24
39,500 AMERICAN HOME PRODUCTS CORP.......... 3,022
5,800 * AMYLIN PHARMACEUTICALS, INC.......... 32
1,300 * BARR LABORATORIES, INC............... 44
16,400 BAXTER INTERNATIONAL, INC............ 827
3,800 * BIO-TECHNOLOGY GENERAL CORP.......... 41
</TABLE>
See notes to financial statements.
B-41
<PAGE> 82
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
DRUGS--(continued)
4,200 * BIOGEN, INC.......................... $ 153
61,100 BRISTOL MYERS SQUIBB CO.............. 5,782
4,500 * CENTOCOR, INC........................ 150
10,440 * CHIRON CORP.......................... 177
4,925 * COVANCE, INC......................... 98
2,760 * CRESCENDO PHARMACEUTICALS CORP....... 32
2,900 * DURA PHARMACEUTICALS, INC............ 133
908 * ELAN CORP PLC ADR.................... 46
2,800 * FOREST LABORATORIES, INC............. 138
5,000 * GENZYME CORP (GENERAL DIVISION)...... 139
160 * GENZYME CORP (TISSUE REPAIR
DIVISION)........................... 1
1,800 * GILEAD SCIENCES, INC................. 69
2,634 ICN PHARMACEUTICALS, INC............. 129
2,000 * IDEXX LABORATORIES, INC.............. 32
2,100 * INTERNATIONAL SPECIALTY PRODUCTS,
INC................................. 31
2,000 * INTERNEURON PHARMACEUTICALS, INC..... 19
6,100 * IVAX CORP............................ 41
1,900 JONES MEDICAL INDUSTRIES, INC........ 73
55,992 LILLY (ELI) & CO..................... 3,898
4,600 MALLINCKRODT, INC.................... 175
4,508 MARK IV INDUSTRIES, INC.............. 99
3,500 * MATRIX PHARMACEUTICALS, INC.......... 12
800 * MEDICIS PHARMACEUTICAL CORP
(CLASS A)........................... 41
8,574 * MEDPARTNERS, INC..................... 192
72,800 MERCK & CO, INC...................... 7,735
7,600 MYLAN LABORATORIES, INC.............. 159
1,900 * NEXSTAR PHARMACEUTICALS, INC......... 22
1,400 * PAREXEL INTERNATIONAL CORP........... 52
4,300 * PERRIGO CO........................... 58
79,200 PFIZER, INC.......................... 5,905
2,100 * PHARMACEUTICAL PRODUCT DEVELOPMENT... 32
30,480 PHARMACIA & UPJOHN, INC.............. 1,116
3,000 * QUINTILES TRANSNATIONAL CORP......... 115
3,300 * ROBERTS PHARMACEUTICAL CORP.......... 32
44,600 SCHERING-PLOUGH CORP................. 2,771
1,700 * SEPRACOR, INC........................ 68
3,200 * SEQUUS PHARMACEUTICALS, INC.......... 24
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
DRUGS--(continued)
1,900 * TWINLAB CORP......................... $ 47
2,200 * VERTEX PHARMACEUTICALS, INC.......... 73
16,800 WARNER-LAMBERT CO.................... 2,083
5,400 * WATSON PHARMACEUTICALS, INC.......... 175
--------
39,522
--------
DRUGS, PROPRIETARIES, AND
SUNDRIES--0.40%
1,800 * AMERISOURCE HEALTH CORP (CLASS A).... 105
15,800 * AMGEN, INC........................... 855
3,175 BERGEN BRUNSWIG CORP (CLASS A)....... 134
6,573 CARDINAL HEALTH, INC................. 494
333 * HERBALIFE INTERNATIONAL, INC
(CLASS A)........................... 7
666 * HERBALIFE INTERNATIONAL, INC
(CLASS B)........................... 14
1,800 * IMMUNEX CORP......................... 97
2,400 MCKESSON CORP........................ 260
2,400 * NBTY, INC............................ 80
3,000 * REXALL SUNDOWN, INC.................. 91
900 * SCHEIN (HENRY), INC.................. 32
--------
2,169
--------
EATING AND DRINKING PLACES--0.63%
2,100 APPLE SOUTH, INC..................... 28
2,000 APPLEBEES INTERNATIONAL, INC......... 36
4,300 * BOSTON CHICKEN, INC.................. 28
5,100 * BRINKER INTERNATIONAL, INC........... 82
3,100 * BUFFETS, INC......................... 29
3,000 CKE RESTAURANTS, INC................. 126
3,200 CRACKER BARREL OLD COUNTRY STORE,
INC................................. 107
8,500 DARDEN RESTAURANTS, INC.............. 106
2,800 * FOODMAKER, INC....................... 42
1,400 * LANDRYS SEAFOOD RESTAURANTS, INC..... 34
1,800 * LONE STAR STEAKHOUSE & SALOON, INC... 32
1,800 LUBYS CAFETERIA, INC................. 32
41,100 MCDONALDS CORP....................... 1,963
5,066 MORRISON HEALTH CARE, INC............ 101
3,650 MORRISON RESTAURANTS, INC............ 9
2,700 * OUTBACK STEAKHOUSE, INC.............. 78
1,300 * PAPA JOHNS INTERNATIONAL, INC........ 45
1,900 * PLANET HOLLYWOOD, INC (CLASS A)...... 25
900 * RAINFOREST CAFE, INC................. 30
</TABLE>
See notes to financial statements.
B-42
<PAGE> 83
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
EATING AND DRINKING
PLACES--(continued)
1,200 * RUBY TUESDAY, INC.................... $ 31
4,100 * RYANS FAMILY STEAK HOUSES, INC....... 35
1,500 SBARRO, INC.......................... 39
8,740 * TRICON GLOBAL RESTAURANTS, INC....... 254
6,000 WENDYS INTERNATIONAL, INC............ 144
--------
3,436
--------
ELECTRIC DISTRIBUTION EQUIPMENT--0.33%
42,806 CBS CORP............................. 1,260
6,235 COOPER INDUSTRIES, INC............... 306
4,500 * LITTLEFUSE, INC...................... 112
3,100 * MAGNETEK, INC........................ 60
1,500 * OAK INDUSTRIES, INC.................. 45
--------
1,783
--------
ELECTRIC LIGHTING AND WIRING
EQUIPMENT--0.04%
500 * CHICAGO MINIATURE LAMP, INC.......... 17
3,399 THOMAS & BETTS CORP.................. 161
3,300 VALMONT INDUSTRIES................... 64
--------
242
--------
ELECTRIC SERVICES--2.43%
8,700 * AES CORP............................. 406
7,100 ALLEGHENY ENERGY, INC................ 231
10,600 AMERICAN ELECTRIC POWER CO, INC...... 547
4,300 ATLANTIC ENERGY, INC................. 91
3,200 BOSTON EDISON CO..................... 121
3,100 * CALENERGY, INC....................... 89
8,500 CAROLINA POWER & LIGHT CO............ 361
11,500 CENTRAL & SOUTH WEST CORP............ 311
2,300 CENTRAL LOUISIANA ELECTRIC, INC...... 74
8,500 CINERGY CORP......................... 326
5,300 CMS ENERGY CORP...................... 234
5,800 COMMONWEALTH ENERGY SYSTEM CO........ 193
10,600 DOMINION RESOURCES, INC.............. 451
6,000 DPL, INC............................. 173
4,800 DQE, INC............................. 169
8,600 DTE ENERGY CO........................ 298
21,433 DUKE ENERGY CORP..................... 1,187
8,200 EASTERN UTILITIES ASSOCIATION CO..... 215
12,900 ENTERGY CORP......................... 386
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
ELECTRIC SERVICES--(continued)
14,602 * FIRSTENERGY CORP..................... $ 423
5,200 FLORIDA PROGRESS CORP................ 204
9,300 FPL GROUP, INC....................... 550
7,200 GPU, INC............................. 303
2,300 HAWAIIAN ELECTRIC INDUSTRIES, INC.... 94
17,603 HOUSTON INDUSTRIES, INC.............. 470
2,600 IDAHO POWER CO....................... 98
4,400 ILLINOVA CORP........................ 119
2,900 KU ENERGY CORP....................... 114
4,100 LOUISVILLE GAS & ELECTRIC ENERGY
CORP................................ 101
2,800 MINNESOTA POWER & LIGHT CO........... 122
4,200 NEVADA POWER CO...................... 112
4,200 NEW ENGLAND ELECTRIC SYSTEMS CO...... 180
9,800 NORTHEAST UTILITIES CO............... 116
2,700 OGE ENERGY CORP...................... 148
24,529 PG&E CORP............................ 747
4,800 PINNACLE WEST CAPITAL CORP........... 203
7,200 POTOMAC ELECTRIC POWER CO............ 186
9,300 PP&L RESOURCES, INC.................. 223
5,478 PUGET SOUND ENERGY, INC.............. 165
39,500 SOUTHERN CO.......................... 1,022
7,000 TECO ENERGY, INC..................... 197
13,567 TEXAS UTILITIES CO................... 564
1,600 * TUCSON ELECTRIC POWER CO............. 29
2,637 UGI CORP............................. 77
12,400 UNICOM CORP.......................... 381
1,800 UNITED ILLUMINATING CO............... 83
7,400 WISCONSIN ENERGY CORP................ 213
2,900 WPS RESOURCES CORP................... 98
--------
13,205
--------
ELECTRICAL GOODS--0.21%
6,200 * ARROW ELECTRONICS, INC............... 201
1,400 * AVID TECHNOLOGIES, INC............... 37
2,600 AVNET, INC........................... 172
900 * CELLSTAR CORP........................ 18
2,400 GRAINGER (W.W.), INC................. 233
3,225 * HSN, INC............................. 166
1,900 * KENT ELECTRONICS CORP................ 48
1,900 * MARSHALL INDUSTRIES, INC............. 57
2,700 * OAK TECHNOLOGY, INC.................. 18
3,500 * QUALCOMM, INC........................ 177
--------
1,127
--------
</TABLE>
See notes to financial statements.
B-43
<PAGE> 84
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
ELECTRICAL INDUSTRIAL APPARATUS--0.43%
4,900 * AMERICAN POWER CONVERSION CORP....... $ 116
2,400 AMETEK, INC.......................... 65
3,466 BALDOR ELECTRIC CO................... 75
26,000 EMERSON ELECTRIC CO.................. 1,467
2,500 STEWART & STEVENSON SERVICES, INC.... 64
8,875 * THERMO ELECTRON CORP................. 395
2,500 * UCAR INTERNATIONAL, INC.............. 100
2,000 * VICOR CORP........................... 54
1,000 * ZOLTEK COS, INC...................... 28
--------
2,364
--------
ELECTRICAL WORK--0.00%
1,200 * MEMC ELECTRONIC MATERIALS, INC....... 18
--------
ELECTRONIC COMPONENTS AND
ACCESSORIES--2.47%
4,000 * ACTEL CORP........................... 51
6,800 * ADAPTEC, INC......................... 252
1,300 * ADVANCED ENERGY INDUSTRIES, INC...... 19
8,100 * ADVANCED MICRO DEVICES, INC.......... 145
4,900 * ALTERA CORP.......................... 162
12,900 AMP, INC............................. 542
1,100 * ANADIGICS, INC....................... 33
9,666 * ANALOG DEVICES, INC.................. 268
5,700 * ATMEL CORP........................... 106
1,500 AVX CORP............................. 28
2,400 * BERG ELECTRICS CORP.................. 55
1,400 * BLACK BOX CORP....................... 50
2,300 BMC INDUSTRIES, INC.................. 37
1,200 * CHIPS & TECHNOLOGIES, INC............ 17
800 * COHERENT, INC........................ 28
1,700 * COMPUTER PRODUCTS, INC............... 38
5,200 * CYPRESS SEMICONDUCTOR CORP........... 44
2,000 DALLAS SEMICONDUCTOR CORP............ 82
1,600 * DII GROUP, INC....................... 44
1,900 * ESS TECHNOLOGY....................... 14
3,725 * GENERAL SEMICONDUCTOR, INC........... 43
600 * HADCO CORP........................... 27
1,335 HARMAN INTERNATIONAL INDUSTRIES,
INC................................. 57
4,300 * INTEGRATED DEVICE TECHNOLOGY, INC.... 41
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
ELECTRONIC COMPONENTS AND
ACCESSORIES--(continued)
101,100 INTEL CORP........................... $ 7,102
3,100 * INTERNATIONAL RECTIFIER CORP......... 37
800 * JABIL CIRCUIT, INC................... 32
2,300 * KEMET CORP........................... 45
1,400 * LATTICE SEMICONDUCTOR CORP........... 66
1,650 * LEVEL ONE COMMUNICATIONS, INC........ 47
4,500 LINEAR TECHNOLOGY CO................. 259
8,400 * LSI LOGIC CORP....................... 166
7,000 * MAXIM INTEGRATED PRODUCTS............ 242
2,100 METHODE ELECTRONICS, INC (CLASS A)... 34
800 * MICREL, INC.......................... 22
9,800 * MICRON TECHNOLOGY, INC............... 255
5,337 MOLEX, INC........................... 171
1,400 * MRV COMMUNICATIONS, INC.............. 33
8,702 * NATIONAL SEMICONDUCTOR CORP.......... 226
1,600 * OBJECTIVE SYSTEMS INTEGRATORS, INC... 13
1,800 * PMC-SIERRA, INC...................... 56
500 * RAMBUS, INC.......................... 23
3,100 * READ RITE CORP....................... 49
3,200 * S3, INC.............................. 16
1,000 * SANDISK CORP......................... 20
1,200 * SANMINA CORP......................... 81
700 * SAWTEK, INC.......................... 18
3,700 * SCI SYSTEMS, INC..................... 161
2,300 * SILICON VALLEY GROUP, INC............ 52
1,600 * SMART MODULAR TECHNOLOGIES, INC...... 37
800 * SPEEDFAM INTERNATIONAL, INC.......... 21
10,200 * TELLABS, INC......................... 539
23,500 TEXAS INSTRUMENTS, INC............... 1,058
1,600 * UNITRODE CORP........................ 34
3,018 * VISHAY INTERTECHNOLOGY, INC.......... 71
2,300 * VITESSE SEMICONDUCTOR CORP........... 87
2,400 * VLSI TECHNOLOGY, INC................. 57
3,700 * XILINX, INC.......................... 130
--------
13,443
--------
ENGINEERING AND ARCHITECTURAL
SERVICES--0.01%
1,600 * JACOBS ENGINEERING GROUP, INC........ 41
--------
</TABLE>
See notes to financial statements.
B-44
<PAGE> 85
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
ENGINES AND TURBINES--0.14%
6,400 BRUNSWICK CORP....................... $ 194
2,000 CUMMINS ENGINE CO, INC............... 118
1,400 * DETROIT DIESEL CORP.................. 33
10,200 DRESSER INDUSTRIES, INC.............. 428
--------
773
--------
FABRICATED RUBBER PRODUCTS, NEC--0.06%
2,200 CARLISLE COS, INC.................... 94
4,900 * FOAMEX INTERNATIONAL, INC............ 53
1,900 GENCORP, INC......................... 48
4,800 STANDARD PRODUCTS CO................. 123
--------
318
--------
FABRICATED STRUCTURAL METAL
PRODUCTS--0.04%
3,150 * MILLER INDUSTRIES, INC............... 34
4,300 TRANSPRO, INC........................ 39
2,900 TRINITY INDUSTRIES, INC.............. 129
--------
202
--------
FAMILY CLOTHING STORES--0.19%
19,050 GAP, INC............................. 675
3,000 NORDSTROM, INC....................... 181
4,300 * SAKS HOLDINGS, INC................... 89
2,000 * STAGE STORES, INC.................... 75
800 * STEIN MART, INC...................... 21
--------
1,041
--------
FARM AND GARDEN MACHINERY--0.23%
3,800 AGCO CORP............................ 111
4,500 CASE CORP............................ 272
15,300 DEERE & CO........................... 892
--------
1,275
--------
FARM-PRODUCT RAW MATERIALS--0.03%
2,900 DIMON, INC........................... 76
2,600 UNIVERSAL CORP....................... 107
--------
183
--------
FEDERAL AND FEDERALLY-SPONSORED CREDIT
AGENCIES--1.06%
63,700 FEDERAL NATIONAL MORTGAGE
ASSOCIATION......................... 3,635
41,600 FREDDIE MAC.......................... 1,745
2,900 SLM HOLDING CORP..................... 403
--------
5,783
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
FIRE, MARINE, AND CASUALTY
INSURANCE--0.93%
2,700 ALLIED GROUP, INC.................... $ 77
23,578 ALLSTATE CORP........................ 2,143
2,000 AMERICAN FINANCIAL GROUP, INC........ 81
2,000 ARGONAUT GROUP, INC.................. 68
1,600 CITIZENS CORP........................ 46
1,700 COMMERCE GROUP, INC.................. 55
2,000 FRONTIER INSURANCE GROUP, INC........ 46
6,400 HARTFORD FINANCIAL SERVICES GROUP,
INC................................. 599
2,000 HCC INSURANCE HOLDINGS, INC.......... 43
2,800 HORACE MANN EDUCATORS CORP........... 80
1,100 HSB GROUP, INC....................... 61
300 * MARKEL CORP.......................... 47
2,000 MERCURY GENERAL CORP................. 111
1,500 NAC RE CORP.......................... 73
3,000 PROGRESSIVE CORP..................... 360
7,800 SAFECO CORP.......................... 380
4,700 ST. PAUL COS, INC.................... 386
3,300 TIG HOLDINGS, INC.................... 110
1,200 TRANSATLANTIC HOLDINGS, INC.......... 86
6,600 USF&G CORP........................... 146
1,100 VESTA INSURANCE GROUP, INC........... 65
--------
5,063
--------
FLAT GLASS--0.11%
10,400 PPG INDUSTRIES, INC.................. 594
--------
FOOTWEAR EXCEPT, RUBBER--0.03%
3,165 * FOOTSTAR, INC........................ 85
1,800 * NINE WEST GROUP, INC................. 47
3,500 STRIDE RITE CORP..................... 42
--------
174
--------
FREIGHT TRANSPORTATION
ARRANGEMENT--0.03%
1,400 AIRBORNE FREIGHT CORP................ 87
1,600 EXPEDITORS INTERNATIONAL OF
WASHINGTON.......................... 62
900 * FRITZ COS, INC....................... 13
--------
162
--------
</TABLE>
See notes to financial statements.
B-45
<PAGE> 86
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
FUNERAL SERVICE AND CREMATORIES--0.14%
2,600 * EQUITY CORP INTERNATIONAL............ $ 60
14,800 SERVICE CORP INTERNATIONAL........... 547
2,900 STEWART ENTERPRISES, INC (CLASS A)... 135
--------
742
--------
FURNITURE AND HOME FURNISHINGS
STORES--0.08%
2,400 * BED BATH & BEYOND, INC............... 92
2,000 ETHAN ALLEN INTERIORS, INC........... 77
3,800 HEILIG MEYERS CO..................... 46
1,800 * LINENS N THINGS, INC................. 79
4,200 PIER 1 IMPORTS, INC.................. 95
1,200 * WILLIAMS-SONOMA, INC................. 50
--------
439
--------
GAS PRODUCTION AND DISTRIBUTION--0.56%
4,300 AGL RESOURCES, INC................... 88
2,424 ATMOS ENERGY CORP.................... 73
5,600 COASTAL CORP......................... 347
3,251 EL PASO NATURAL GAS CO............... 216
2,200 EQUITABLE RESOURCES, INC............. 78
2,500 INDIANA ENERGY, INC.................. 82
2,600 KEYSPAN ENERGY CORP.................. 96
1,900 KN ENERGY, INC....................... 103
4,800 MCN ENERGY GROUP, INC................ 194
2,000 MDU RESOURCES GROUP, INC............. 63
2,000 NATIONAL FUEL GAS CO................. 97
7,100 NGC CORP............................. 124
2,700 NICOR, INC........................... 114
2,850 NORTHWEST NATURAL GAS CO............. 88
1,580 ONEOK, INC........................... 64
2,000 PEOPLES ENERGY CORP.................. 79
3,264 PIEDMONT NATURAL GAS CO, INC......... 117
1,500 * PRIMARK CORP......................... 61
4,900 SONAT, INC........................... 224
5,900 SOUTHWEST GAS CORP................... 110
2,700 WASHINGTON GAS LIGHT CO.............. 84
1,700 WESTERN GAS RESOURCES, INC........... 38
18,106 WILLIAMS COS, INC.................... 514
--------
3,054
--------
GENERAL INDUSTRIAL MACHINERY--0.31%
3,500 * COLTEC INDUSTRIES, INC............... 81
1,400 DONALDSON CO, INC.................... 63
2,200 FEDERAL-MOGUL CORP................... 89
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
GENERAL INDUSTRIAL
MACHINERY--(continued)
2,800 FLOWSERVE CORP....................... $ 78
2,900 GENERAL SIGNAL CORP.................. 122
2,200 GRACO, INC........................... 82
2,850 IDEX CORP............................ 99
9,750 INGERSOLL-RAND CO.................... 395
2,600 KAYDON CORP.......................... 85
1,300 NORDSON CORP......................... 60
7,400 PALL CORP............................ 153
2,600 ROPER INDUSTRIES, INC................ 73
3,800 SUNDSTRAND CORP...................... 191
3,529 TIMKEN CO............................ 121
--------
1,692
--------
GLASS AND GLASSWARE, PRESSED OR
BLOWN--0.20%
13,600 CORNING, INC......................... 505
500 * DUPONT PHOTOMASKS, INC............... 17
1,300 LANCASTER COLONY CORP................ 73
2,400 LIBBEY, INC.......................... 91
2,700 OWENS CORNING CO..................... 92
7,300 * OWENS ILLINOIS, INC.................. 277
1,700 * SOLA INTERNATIONAL, INC.............. 55
--------
1,110
--------
GOLD AND SILVER ORES--0.12%
3,800 * AMAX GOLD, INC....................... 9
12,800 BATTLE MOUNTAIN GOLD CO.............. 75
3,000 * COEUR DALENE MINES CORP.............. 27
3,900 FREEPORT MCMORAN COPPER & GOLD, INC
(CLASS A)........................... 60
5,463 FREEPORT MCMORAN COPPER & GOLD, INC
(CLASS B)........................... 86
2,200 * GETCHELL GOLD CORP................... 53
7,800 HOMESTAKE MINING CO.................. 69
600 NEWMONT GOLD CO...................... 18
8,496 NEWMONT MINING CORP.................. 250
--------
647
--------
GRAIN MILL PRODUCTS--0.74%
32,357 ARCHER DANIELS MIDLAND CO............ 702
8,300 CPC INTERNATIONAL, INC............... 896
9,407 GENERAL MILLS, INC................... 674
13,600 KELLOGG CO........................... 675
8,500 QUAKER OATS CO....................... 448
2,500 * RALCORP HOLDINGS, INC................ 42
6,200 RALSTON PURINA CO.................... 576
--------
4,013
--------
</TABLE>
See notes to financial statements.
B-46
<PAGE> 87
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
GREETING CARDS--0.03%
4,000 AMERICAN GREETINGS CORP (CLASS A).... $ 157
--------
GROCERIES AND RELATED PRODUCTS--0.24%
1,608 EARTHGRAINS CO....................... 76
2,717 FLEMING COS, INC..................... 37
5,550 FLOWERS INDUSTRIES, INC.............. 114
4,900 * GENERAL NUTRITION COS, INC........... 167
3,160 * JP FOODSERVICE, INC.................. 117
3,450 RICHFOOD HOLDINGS, INC............... 97
1,200 * SUIZA FOODS CORP..................... 71
3,900 SUPERVALU, INC....................... 163
10,300 SYSCO CORP........................... 469
--------
1,311
--------
GROCERY STORES--0.57%
12,700 ALBERTSONS, INC...................... 602
13,600 AMERICAN STORES CO................... 280
39 * BRUNOS, INC.......................... 0
21,300 FOOD LION, INC (CLASS B)............. 176
3,800 GIANT FOOD, INC (CLASS A)............ 128
1,200 GREAT ATLANTIC & PACIFIC TEA CO,
INC................................. 36
2,300 HANNAFORD BROTHERS, INC.............. 100
13,200 * KROGER CO............................ 488
700 * QUALITY FOOD CENTERS, INC............ 47
14,052 * SAFEWAY, INC......................... 889
9,100 * SOUTHLAND CORP....................... 19
1,100 WEIS MARKETS, INC.................... 39
1,400 * WHOLE FOODS MARKET, INC.............. 72
5,500 WINN DIXIE STORES, INC............... 240
--------
3,116
--------
GUIDED MISSILES, SPACE VEHICLES AND
PARTS--0.27%
10,096 LOCKHEED MARTIN CORP................. 994
3,000 * ORBITAL SCIENCES CORP................ 89
7,200 TRW, INC............................. 384
--------
1,467
--------
HARDWARE, PLUMBING AND HEATING
EQUIPMENT--0.01%
1,800 FASTENAL CO.......................... 69
--------
HEALTH AND ALLIED SERVICES, NEC--0.32%
1,500 * ACCESS HEALTH, INC................... 44
1,800 * BUCKEYE TECHNOLOGIES, INC............ 83
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
HEALTH AND ALLIED SERVICES,
NEC--(continued)
23,098 * HEALTHSOUTH CORP..................... $ 641
1,700 * LINCARE HOLDINGS, INC................ 97
2,200 * MID ATLANTIC MEDICAL SERVICES, INC... 28
3,500 * NOVACARE, INC........................ 46
4,800 OMNICARE, INC........................ 149
4,049 * PHARMERICA, INC...................... 42
1,500 * RENAL CARE GROUP, INC................ 48
1,800 * RENAL TREATMENT CENTERS, INC......... 65
10,300 UNITED HEALTHCARE CORP............... 512
--------
1,755
--------
HEAVY CONSTRUCTION, EXCEPT
HIGHWAY--0.05%
4,600 FLUOR CORP........................... 172
5,000 * GLOBAL INDUSTRIES LTD................ 85
--------
257
--------
HOLDING OFFICES--0.22%
3,800 AMBAC FINANCIAL GROUP, INC........... 175
3,000 EVEREST REINSURANCE HOLDINGS, INC.... 124
8,344 HIBERNIA CORP (CLASS A).............. 157
900 * SEACOR SMIT, INC..................... 54
5,900 SIGMA ALDRICH CORP................... 235
10,300 TENNECO, INC......................... 407
2,500 UST CORP............................. 69
--------
1,221
--------
HOME HEALTH CARE SERVICES--0.01%
3,800 * APRIA HEALTHCARE GROUP, INC.......... 51
2,100 * MAXICARE HEALTH PLANS, INC........... 23
--------
74
--------
HORTICULTURAL SPECIALTIES--0.08%
4,100 PIONEER-HI-BRED INTERNATIONAL, INC... 440
--------
HOSPITALS--0.43%
38,038 COLUMBIA/HCA HEALTHCARE CORP......... 1,127
8,400 * HEALTH MANAGEMENT ASSOCIATES, INC
(CLASS A)........................... 212
8,900 * HUMANA, INC.......................... 185
800 * PEDIATRIX MEDICAL GROUP, INC......... 34
</TABLE>
See notes to financial statements.
B-47
<PAGE> 88
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
HOSPITALS--(continued)
17,925 * TENET HEALTHCARE CORP................ $ 594
2,500 * UNIVERSAL HEALTH SERVICES, INC....... 126
3,241 * VENCOR, INC.......................... 79
--------
2,357
--------
HOTELS AND MOTELS--0.71%
6,600 * AZTAR CORP........................... 41
2,000 * BRISTOL HOTEL CO..................... 58
1,900 * CAPSTAR HOTEL CO..................... 65
47,138 * CENDANT CORP......................... 1,620
3,600 * CHOICE HOTELS INTERNATIONAL, INC..... 58
4,300 * EXTENDED STAY AMERICA, INC........... 53
2,200 * GRAND CASINOS, INC................... 30
6,100 * HARRAHS ENTERTAINMENT, INC........... 115
11,000 HILTON HOTELS CORP................... 327
10,400 * HOST MARRIOTT CORP................... 204
2,760 * HOST MARRIOTT SERVICES CORP.......... 41
1,800 * INTERSTATE HOTELS CO................. 63
3,675 LA QUINTA INNS, INC.................. 71
6,100 MARRIOTT INTERNATIONAL, INC.......... 422
1,200 * MGM GRAND, INC....................... 43
1,200 * PRIMADONNA RESORTS, INC.............. 20
3,200 * PRIME HOSPITALITY CORP............... 65
5,468 * PROMUS HOTEL CORP.................... 230
2,500 * RED ROOF INNS, INC................... 38
1,500 SHOWBOAT, INC........................ 44
1,500 * SIGNATURE RESORTS, INC............... 33
1,900 * STATION CASINOS, INC................. 19
1,200 * SUNBURST HOSPITALITY CORP............ 12
2,800 * TRUMP HOTEL & CASINO RESORT, INC..... 19
2,300 * VAIL RESORTS, INC.................... 60
2,125 * WHG RESORTS & CASINO, INC............ 47
1,000 * WYNDHAM HOTEL CORP................... 40
--------
3,838
--------
HOUSEHOLD APPLIANCE STORES--0.03%
3,900 SUNBEAM CORP......................... 164
--------
HOUSEHOLD APPLIANCES--2.75%
198,300 GENERAL ELECTRIC CO.................. 14,550
5,600 MAYTAG CO............................ 209
3,800 WHIRLPOOL CORP....................... 209
--------
14,968
--------
HOUSEHOLD AUDIO AND VIDEO
EQUIPMENT--0.00%
1,300 * ZENITH ELECTRONICS CORP.............. 7
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
HOUSEHOLD FURNITURE--0.08%
1,700 BASSETT FURNITURE INDUSTRIES, INC.... $ 51
4,200 * FURNITURE BRANDS INTERNATIONAL, INC.. 86
1,200 LA-Z-BOY, INC........................ 52
5,800 LEGGETT & PLATT, INC................. 243
--------
432
--------
INDUSTRIAL INORGANIC CHEMICALS--0.45%
5,900 AIR PRODUCTS & CHEMICALS, INC........ 485
3,000 * AIRGAS, INC.......................... 42
2,300 ALBEMARLE CORP....................... 55
8,300 CALGON CARBON CORP................... 89
6,150 ENGELHARD CORP....................... 107
2,300 GEORGIA GULF CORP.................... 70
4,200 GRACE (W.R.) & CO.................... 338
3,300 GREAT LAKES CHEMICAL CORP............ 148
1,900 * KAISER ALUMINUM CORP................. 17
5,200 MILLENNIUM CHEMICAL, INC............. 123
1,800 MINERALS TECHNOLOGIES, INC........... 82
1,600 * NL INDUSTRIES, INC................... 22
3,200 OLIN CORP............................ 150
9,000 PRAXAIR, INC......................... 405
6,800 UNION CARBIDE CORP................... 292
--------
2,425
--------
INDUSTRIAL MACHINERY, NEC--0.02%
1,200 APPLIED POWER, INC (CLASS A)......... 83
2,300 * UNOVA, INC........................... 38
--------
121
--------
INDUSTRIAL ORGANIC CHEMICALS--0.12%
700 ARCO CHEMICAL CO..................... 33
4,500 CROMPTON & KNOWLES CORP.............. 119
7,200 ETHYL CORP........................... 55
3,700 LUBRIZOL CORP........................ 136
1,900 OM GROUP, INC........................ 70
2,300 ROHM & HAAS CO....................... 220
--------
633
--------
INSURANCE AGENTS, BROKERS, AND
SERVICE--0.29%
4,206 ALLMERICA FINANCIAL CORP............. 210
8,550 AON CORP............................. 501
</TABLE>
See notes to financial statements.
B-48
<PAGE> 89
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
INSURANCE AGENTS, BROKERS, AND
SERVICE--(continued)
1,350 BERKLEY (W.R.) CORP.................. $ 59
2,200 GALLAGHER (ARTHUR J.) & CO........... 76
8,400 MARSH & MCLENNAN COS, INC............ 626
3,400 SELECTIVE INSURANCE GROUP, INC....... 92
--------
1,564
--------
INSURANCE CARRIERS, NEC--0.08%
4,800 MBIA, INC............................ 321
4,500 WESTERN NATIONAL CORP................ 133
--------
454
--------
IRON ORES--0.01%
1,300 CLEVELAND CLIFFS, INC................ 60
--------
JEWELRY, SILVERWARE, AND PLATED
WARE--0.02%
2,400 JOSTENS, INC......................... 55
2,100 TIFFANY & CO......................... 76
--------
131
--------
KNITTING MILLS--0.03%
2,500 GUILFORD MILLS, INC.................. 68
1,800 ST. JOHN KNITS, INC.................. 72
--------
140
--------
LANDSCAPE AND HORTICULTURAL
SERVICES--0.01%
2,000 ROLLINS, INC......................... 41
--------
LAUNDRY, CLEANING, AND GARMENT
SERVICES--0.07%
3,800 CINTAS CORP.......................... 148
1,800 G & K SERVICES, INC (CLASS A)........ 76
2,900 NATIONAL SERVICE INDUSTRIES, INC..... 144
--------
368
--------
LEAD AND ZINC ORES--0.00%
5,000 * HECLA MINING CO...................... 25
--------
LEATHER TANNING AND FINISHING--0.02%
3,625 WOLVERINE WORLD WIDE, INC............ 82
--------
LEGAL SERVICES--0.01%
1,900 * PREPAID LEGAL SERVICES, INC.......... 65
--------
LIFE INSURANCE--3.27%
2,700 20TH CENTURY INDUSTRIES.............. 70
8,467 AETNA, INC........................... 597
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
LIFE INSURANCE--(continued)
2,600 AMERICAN BANKERS INSURANCE GROUP,
INC................................. $ 119
14,377 AMERICAN GENERAL CORP................ 777
36,250 AMERICAN INTERNATIONAL GROUP, INC.... 3,942
1,000 AMERUS LIFE HOLDINGS, INC (CLASS
A).................................. 37
10,000 CHUBB CORP........................... 756
4,300 CIGNA CORP........................... 744
3,296 CINCINNATI FINANCIAL CORP............ 464
10,932 CONSECO, INC......................... 497
2,400 * DELPHI FINANCIAL GROUP, INC.......... 108
5,200 EQUITABLE COS, INC................... 259
1,650 FREMONT GENERAL CORP................. 90
4,700 GENERAL REINSURANCE CORP............. 996
2,100 HARTFORD LIFE, INC (CLASS A)......... 95
2,820 * HIGHLANDS INSURANCE GROUP, INC....... 80
4,300 JEFFERSON-PILOT CORP................. 335
1,700 JOHN ALDEN FINANCIAL CORP............ 41
1,100 LIBERTY CORP......................... 51
1,400 LIBERTY FINANCIAL COS, INC........... 53
900 LIFE RE CORP......................... 59
6,000 LINCOLN NATIONAL CORP................ 469
4,100 LOEWS CORP........................... 435
800 NATIONWIDE FINANCIAL SERVICES, INC
(CLASS A)........................... 29
1,700 OHIO CASUALTY CORP................... 76
5,400 OLD REPUBLIC INTERNATIONAL CORP...... 201
2,000 ORION CAPITAL CORP................... 93
5,800 PENNCORP FINANCIAL GROUP, INC........ 207
3,800 PRESIDENTIAL LIFE CORP............... 77
1,800 PROTECTIVE LIFE CORP................. 108
4,200 * PROVIDENT COS, INC................... 162
4,900 PROVIDIAN FINANCIAL CORP............. 221
3,050 REINSURANCE GROUP OF AMERICA, INC.... 130
3,400 RELIANCE GROUP HOLDINGS, INC......... 48
5,525 RELIASTAR FINANCIAL CORP............. 228
11,250 SUNAMERICA, INC...................... 481
8,300 TORCHMARK CORP....................... 349
69,898 TRAVELERS GROUP, INC................. 3,766
2,400 * UICI................................. 84
8,000 UNUM CORP............................ 435
--------
17,769
--------
LOGGING--0.01%
2,142 DELTIC TIMBER CORP................... 59
--------
</TABLE>
See notes to financial statements.
B-49
<PAGE> 90
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
LUGGAGE--0.01%
1,400 * SAMSONITE CORP....................... $ 44
--------
LUMBER AND CONSTRUCTION
MATERIALS--0.08%
5,300 GEORGIA PACIFIC CORP (PACKAGING
GROUP).............................. 322
5,300 * GEORGIA-PACIFIC CORP (TIMBER
GROUP).............................. 120
--------
442
--------
LUMBER AND OTHER BUILDING
MATERIALS--0.56%
1,500 * EAGLE HARDWARE & GARDEN, INC......... 29
44,400 HOME DEPOT, INC...................... 2,614
8,700 LOWES COS, INC....................... 415
--------
3,058
--------
MACHINERY, EQUIPMENT, AND
SUPPLIES--0.01%
1,200 AAR CORP............................. 47
--------
MAILING, REPRODUCTION AND STENOGRAPHIC
SERVICES--0.02%
3,600 * ADVO, INC............................ 70
1,100 * AMERICAN BUSINESS INFORMATION, INC
(CLASS A)........................... 12
1,100 * AMERICAN BUSINESS INFORMATION, INC
(CLASS B)........................... 11
--------
93
--------
MANAGEMENT AND PUBLIC RELATIONS--0.10%
2,100 * ABR INFORMATION SERVICES, INC........ 50
5,200 * CORRECTIONS CORP OF AMERICA.......... 193
2,600 * GARTNER GROUP, INC (CLASS A)......... 97
5,200 * MEDAPHIS CORP........................ 34
1,200 * WACKENHUT CORRECTIONS CORP........... 32
4,200 WHEELABRATOR TECHNOLOGIES, INC....... 67
1,700 * WHITTMAN HART, INC................... 58
--------
531
--------
MANIFOLD BUSINESS FORMS--0.02%
1,200 STANDARD REGISTER, INC............... 42
2,400 WALLACE COMPUTER SERVICES, INC....... 93
--------
135
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
MEASURING AND CONTROLLING
DEVICES--0.47%
1,600 * ALLEN TELECOM, INC................... $ 30
1,800 BECKMAN INSTRUMENTS, INC............. 72
1,500 * BURR BROWN CORP...................... 48
2,300 * C-CUBE MICROSYSTEMS, INC............. 38
1,900 * COGNEX CORP.......................... 52
1,500 * CREDENCE SYSTEMS CORP................ 44
2,000 * CYMER, INC........................... 30
1,400 * DIONEX CORP.......................... 70
2,900 EG & G, INC.......................... 60
2,500 * ELECTROGLAS, INC..................... 39
1,500 FISHER SCIENTIFIC INTERNATIONAL,
INC................................. 72
1,700 * GENRAD, INC.......................... 51
1,500 * HAEMONETICS CORP..................... 21
7,600 HONEYWELL, INC....................... 521
2,300 * INPUT/OUTPUT, INC.................... 68
5,000 JOHNSON CONTROLS, INC................ 239
5,200 * KLA-TENCOR CORP...................... 201
1,400 LIFE TECHNOLOGIES, INC............... 47
2,600 MILLIPORE CORP....................... 88
2,600 PERKIN-ELMER CORP.................... 185
3,150 TEKTRONIX, INC....................... 125
4,900 * TERADYNE, INC........................ 157
1,125 * THERMO INSTRUMENT SYSTEMS, INC....... 39
1,100 * THERMOQUEST CORP..................... 20
2,000 * UNIPHASE CORP........................ 83
1,800 * WATERS CORP.......................... 68
5,900 X RITE, INC.......................... 108
--------
2,576
--------
MEAT PRODUCTS--0.24%
3,400 BOB EVANS FARMS, INC................. 75
2,800 CHIQUITA BRANDS INTERNATIONAL, INC... 46
28,900 CONAGRA, INC......................... 948
6,100 IBP, INC............................. 128
2,600 * SMITHFIELD FOODS, INC................ 86
--------
1,283
--------
MEDICAL AND DENTAL LABORATORIES--0.01%
2,962 * QUEST DIAGNOSTICS, INC............... 50
--------
MEDICAL INSTRUMENTS AND
SUPPLIES--1.89%
1,400 * ACUSON CORP.......................... 23
5,200 * ALZA CORP............................ 165
1,400 ARROW INTERNATIONAL, INC............. 52
</TABLE>
See notes to financial statements.
B-50
<PAGE> 91
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
MEDICAL INSTRUMENTS AND
SUPPLIES--(continued)
2,100 * ARTERIAL VASCULAR ENGINEERING, INC... $ 137
2,500 * ATL ULTRASOUND, INC.................. 115
2,400 BALLARD MEDICAL PRODUCTS CO.......... 58
3,500 BARD (C.R.), INC..................... 110
6,800 BECTON DICKINSON & CO................ 340
5,900 BIOMET, INC.......................... 151
7,442 * BOSTON SCIENTIFIC CORP............... 341
1,900 * CYTYC CORP........................... 47
2,400 DENTSPLY INTERNATIONAL, INC.......... 73
1,400 DEPUY, INC........................... 40
8,912 GUIDANT CORP......................... 555
2,200 INVACARE CORP........................ 48
81,602 JOHNSON & JOHNSON CO................. 5,376
28,300 MEDTRONIC, INC....................... 1,480
1,500 MENTOR CORP.......................... 55
1,300 * SAFESKIN CORP........................ 74
1,500 * SOFAMOR DANEK GROUP, INC............. 98
5,350 * ST. JUDE MEDICAL, INC................ 163
2,100 * STERIS CORP.......................... 101
4,700 STRYKER CORP......................... 175
3,850 * SUMMIT TECHNOLOGY, INC............... 17
4,400 * SUNRISE MEDICAL, INC................. 68
3,100 * SYBRON INTERNATIONAL CORP............ 146
1,900 * THERMEDICS, INC...................... 31
4,500 U.S. SURGICAL CORP................... 132
2,000 VARIAN ASSOCIATES, INC............... 101
2,200 * VIVUS, INC........................... 23
--------
10,295
--------
MEDICAL SERVICE AND HEALTH
INSURANCE--0.26%
7,950 AFLAC, INC........................... 406
500 * CNA FINANCIAL CORP................... 64
2,500 * CONCENTRA MANAGED CARE, INC.......... 84
2,800 * COVENTRY CORP........................ 43
6,500 * FOUNDATION HEALTH SYSTEMS (CLASS A).. 145
1,400 * FPA MEDICAL MANAGEMENT, INC.......... 26
4,500 * OXFORD HEALTH PLANS, INC............. 70
512 * PACIFICARE HEALTH SYSTEMS, INC
(CLASS A)........................... 26
1,952 * PACIFICARE HEALTH SYSTEMS, INC
(CLASS B)........................... 102
2,700 * PHYMATRIX CORP....................... 43
4,950 * QUORUM HEALTH GROUP, INC............. 129
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
MEDICAL SERVICE AND HEALTH
INSURANCE--(continued)
3,900 TRAVELERS PROPERTY CASUALTY CORP..... $ 172
3,100 * TRIGON HEALTHCARE, INC............... 81
900 UNITED WISCONSIN SERVICES, INC....... 23
567 * WELLPOINT HEALTH NETWORKS, INC....... 24
--------
1,438
--------
MEN'S AND BOYS' CLOTHING STORES--0.01%
900 * MENS WAREHOUSE, INC.................. 31
--------
MEN'S AND BOYS' FURNISHINGS--0.11%
1,800 AUTHENTIC FITNESS CORP............... 33
4,100 * FRUIT OF THE LOOM, INC (CLASS A)..... 105
2,500 RUSSELL CORP......................... 66
6,400 VF CORP.............................. 294
3,800 WARNACO GROUP, INC (CLASS A)......... 119
--------
617
--------
MEN'S AND BOYS' SUITS AND COATS--0.01%
2,500 KELLWOOD CO.......................... 75
--------
METAL CANS AND SHIPPING
CONTAINERS--0.08%
2,076 BALL CORP............................ 73
7,100 CROWN CORK & SEAL CO, INC............ 356
--------
429
--------
METAL FORGINGS AND STAMPINGS--0.13%
2,100 * HEXCEL CORP.......................... 52
2,100 MASCOTECH, INC....................... 39
9,600 ROCKWELL INTERNATIONAL CORP.......... 502
1,300 * TOWER AUTOMOTIVE, INC................ 55
1,900 * WYMAN-GORDON CO...................... 37
--------
685
--------
METALS AND MINERALS, EXCEPT
PETROLEUM--0.02%
3,100 COMMERCIAL METALS CO................. 98
20 WESCO FINANCIAL CORP................. 6
--------
104
--------
</TABLE>
See notes to financial statements.
B-51
<PAGE> 92
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
METALWORKING MACHINERY--0.07%
5,000 BLACK & DECKER CORP.................. $ 195
2,400 CINCINNATI MILACRON, INC............. 62
1,848 KENNAMETAL, INC...................... 96
2,100 * MOHAWK INDUSTRIES, INC............... 46
6,100 x* MOLTEN METAL TECHNOLOGY, INC......... 1
--------
400
--------
MISCELLANEOUS AMUSEMENT, RECREATION
SERVICES--0.09%
600 * ANCHOR GAMING CO..................... 33
3,000 * BOYD GAMING CORP..................... 20
600 CARNIVAL CORP (CLASS A).............. 33
5,300 * CIRCUS CIRCUS ENTERPRISES, INC....... 109
10,100 * MIRAGE RESORT, INC................... 230
1,000 * PREMIER PARKS, INC................... 41
1,100 * SPEEDWAY MOTORSPORTS, INC............ 27
--------
493
--------
MISCELLANEOUS APPAREL AND ACCESSORY
STORES--0.06%
10,000 TJX COS, INC......................... 344
--------
MISCELLANEOUS APPAREL AND
ACCESSORIES--0.01%
2,700 * NAUTICA ENTERPRISES, INC............. 63
--------
MISCELLANEOUS BUSINESS SERVICES--0.23%
1,000 * APAC TELESERVICES, INC............... 14
1,000 * CARIBINER INTERNATIONAL, INC......... 45
3,300 * CHECKFREE CORP....................... 89
9,100 EQUIFAX, INC......................... 322
900 FAIR ISSAC & CO, INC................. 30
2,000 * HEALTHCARE COMPARE CO................ 102
1,500 * INTERMEDIA COMMUNICATIONS, INC....... 91
2,700 * METROMEDIA INTERNATIONAL GROUP, INC.. 26
1,200 * NOVA CORP............................ 30
6,400 * PAGING NETWORK, INC.................. 69
1,200 * PAYMENTECH, INC...................... 18
2,400 PITTSTON BRINKS GROUP CO............. 97
8,150 * PLAYERS INTERNATIONAL, INC........... 26
4,700 * SITEL CORP........................... 43
3,300 SOTHEBYS HOLDINGS, INC (CLASS A)..... 61
700 * SPS TRANSACTION SERVICES, INC........ 16
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
MISCELLANEOUS BUSINESS
SERVICES--(continued)
1,300 * SYLVAN LEARNING SYSTEMS, INC......... $ 51
2,000 * TELETECH HOLDINGS, INC............... 23
6,300 VIAD CORP............................ 122
--------
1,275
--------
MISCELLANEOUS CHEMICAL PRODUCTS--0.22%
1,700 BETZDEARBORN, INC.................... 104
4,200 CABOT CORP........................... 116
3,000 * CYTEC INDUSTRIES, INC................ 141
807 FULLER (H.B.) CO..................... 40
8,000 MORTON INTERNATIONAL, INC............ 275
4,000 NALCO CHEMICAL CORP.................. 158
1,600 * SCHERER (R.P.) CORP.................. 98
2,300 * SMITH INTERNATIONAL, INC............. 141
1,300 THIOKOL CORP......................... 106
--------
1,179
--------
MISCELLANEOUS CONVERTED PAPER
PRODUCTS--0.51%
2,700 * AMERICAN PAD & PAPER CO.............. 26
6,100 AVERY DENNISON CORP.................. 273
3,200 BEMIS, INC........................... 141
4,960 * CROWN VANTAGE, INC................... 35
2,500 FIRST BRANDS CORP.................... 67
7,325 FORT JAMES CORP...................... 280
33,200 KIMBERLY-CLARK CORP.................. 1,637
1,500 * MAIL-WELL, INC....................... 61
3,375 * PAXAR CORP........................... 50
4,500 * PLAYTEX PRODUCTS, INC................ 46
4,865 SONOCO PRODUCTS CO................... 169
--------
2,785
--------
MISCELLANEOUS DURABLE GOODS--0.12%
13,000 * COSTCO COS, INC...................... 580
2,600 * HA-LO INDUSTRIES, INC................ 68
--------
648
--------
MISCELLANEOUS ELECTRICAL EQUIPMENT AND
SUPPLIES--0.04%
1,500 * APPLIED MAGNETICS CORP............... 17
1,900 EXIDE CORP........................... 49
1,200 * HUTCHINSON TECHNOLOGY, INC........... 26
2,700 * KOMAG, INC........................... 40
2,100 KUHLMAN CORP......................... 82
--------
214
--------
</TABLE>
See notes to financial statements.
B-52
<PAGE> 93
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
MISCELLANEOUS EQUIPMENT RENTAL AND
LEASING--0.01%
2,800 * ANIXTER INTERNATIONAL, INC........... $ 46
800 * US RENTALS, INC...................... 19
--------
65
--------
MISCELLANEOUS FABRICATED METAL
PRODUCTS--0.13%
1,900 AEROQUIP-VICKERS, INC................ 93
2,500 CRANE CO............................. 108
3,100 HARSCO CORP.......................... 134
6,650 PARKER-HANNIFIN CORP................. 305
2,500 POLARIS INDUSTRIES, INC.............. 76
--------
716
--------
MISCELLANEOUS FOOD AND KINDRED
PRODUCTS--0.04%
4,000 MCCORMICK & CO, INC (NON-VOTE)....... 112
1,900 UNIVERSAL FOODS CORP................. 80
--------
192
--------
MISCELLANEOUS FOOD STORES--0.05%
3,800 NATURES SUNSHINE PRODUCTS, INC....... 99
4,400 * STARBUCKS CORP....................... 169
--------
268
--------
MISCELLANEOUS GENERAL MERCHANDISE
STORES--0.05%
2,700 CASEYS GENERAL STORES, INC........... 69
5,597 DOLLAR GENERAL CORP.................. 203
--------
272
--------
MISCELLANEOUS INVESTING--1.26%
3,300 APARTMENT INVESTMENT & MANAGEMENT
CO.................................. 121
3,400 ARDEN REALTY GROUP, INC.............. 105
3,900 AVALON PROPERTIES, INC............... 121
3,500 BAY APARTMENT COMMUNITIES, INC....... 137
3,600 BRE PROPERTIES, INC (CLASS A)........ 101
3,600 CAMDEN PROPERTY TRUST................ 112
3,666 CAPSTEAD MORTGAGE CORP............... 73
4,100 CARRAMERICA REALTY CORP.............. 130
3,900 CHATEAU PROPERTIES, INC.............. 123
4,000 * CORNERSTONE PROPERTIES, INC.......... 77
3,400 COUSINS PROPERTIES, INC.............. 100
6,300 CRESCENT REAL ESTATE EQUITIES, INC... 248
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
MISCELLANEOUS INVESTING--(continued)
400 * CRESECENT OPERATING, INC............. $ 10
3,000 DEVELOPERS DIVERSIFIED REALTY CORP... 115
5,349 DUKE REALTY INVESTMENTS, INC......... 130
4,779 DYNEX CAPITAL, INC................... 64
3,440 * ECHELON INTERNATIONAL CORP........... 77
4,950 * EQUITY OFFICE PROPERTIES TRUST....... 156
5,250 EQUITY RESIDENTIAL PROPERTIES TRUST
CO.................................. 265
3,100 FEDERAL REALTY INVESTMENT TRUST...... 80
2,800 FELCOR SUITE HOTELS, INC............. 99
3,300 FIRST INDUSTRIAL REALTY TRUST, INC... 119
3,100 GENERAL GROWTH PROPERTIES, INC....... 112
3,300 * GLENBOROUGH REALTY TRUST, INC........ 98
7,600 HEALTH AND RETIREMENT PROPERTY
TRUST............................... 152
3,700 HEALTH CARE PROPERTY INVESTORS,
INC................................. 140
3,100 HIGHWOODS PROPERTIES, INC............ 115
3,166 * HOMESTEAD VILLAGE, INC............... 48
3,000 HOSPITALITY PROPERTIES TRUST......... 99
4,153 INMC MORTGAGE HOLDINGS, INC.......... 97
2,500 KILROY REALTY CORP................... 72
2,800 KIMCO REALTY CORP.................... 99
4,600 LIBERTY PROPERTY TRUST CO............ 131
2,200 LNR PROPERTY CORP.................... 52
900 MACERICH CO.......................... 26
3,300 MACK-CALI REALTY CORP................ 135
2,767 * MEDITRUST CORP PAIRED................ 101
4,694 MERRY LAND & INVESTMENT CO, INC...... 107
2,600 NATIONAL HEALTH INVESTORS, INC....... 109
3,800 NATIONWIDE HEALTH PROPERTIES, INC.... 97
5,748 NEW PLAN REALTY TRUST................ 147
4,300 OMEGA HEALTHCARE INVESTORS, INC...... 166
2,498 PATRIOT AMERICAN HOSPITALITY, INC.... 72
2,500 POST PROPERTIES, INC................. 102
3,200 PRENTISS PROPERTIES TRUST............ 89
4,800 PUBLIC STORAGE, INC.................. 141
</TABLE>
See notes to financial statements.
B-53
<PAGE> 94
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
MISCELLANEOUS INVESTING--(continued)
3,400 REALTY INCOME CORP................... $ 86
4,000 RECKSON ASSOCIATES REALTY CORP....... 102
1,800 REDWOOD TRUST, INC................... 37
2,187 SECURITY CAPITAL ATLANTIC, INC....... 46
355 * SECURITY CAPITAL GROUP, INC
WTS 09/18/98........................ 2
4,790 SECURITY CAPITAL INDUSTRIAL TRUST.... 119
3,685 SECURITY CAPITAL PACIFIC TRUST....... 89
4,000 SHURGARD STORAGE CENTERS, INC........ 116
7,264 SIMON DEBARTOLO GROUP, INC........... 237
3,300 SPIEKER PROPERTIES, INC.............. 141
3,600 STORAGE USA, INC..................... 144
7,400 TAUBMAN CENTERS, INC................. 96
2,800 TRINET CORPORATE REALTY TRUST, INC... 108
9,147 UNITED DOMINION REALTY TRUST, INC.... 127
4,200 VORNADO REALTY TRUST................. 197
5,200 WASHINGTON REAL ESTATE INVESTMENT
TRUST............................... 87
2,500 * WELLSFORD REAL PROPERTIES, INC....... 39
1,000 WESTFIELD AMERICA, INC............... 17
--------
6,860
--------
MISCELLANEOUS MANUFACTURES--0.10%
2,500 ARMSTRONG WORLD INDUSTRIES, INC...... 187
1,950 * BLYTH INDUSTRIES, INC................ 58
1,900 BRADY (W.H.) CO (CLASS A)............ 59
6,400 INTERNATIONAL GAME TECHNOLOGY CO..... 162
200 NACCO INDUSTRIES, INC (CLASS A)...... 21
1,600 * SODAK GAMING, INC.................... 10
1,300 * WMS INDUSTRIES, INC.................. 27
--------
524
--------
MISCELLANEOUS METAL ORES--0.01%
1,800 * STILLWATER MINING CO................. 30
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
MISCELLANEOUS NONDURABLE GOODS--0.02%
1,700 * DEPARTMENT 56, INC................... $ 49
1,500 RUSS BERRIE & CO, INC................ 39
2,600 TERRA INDUSTRIES, INC................ 34
--------
122
--------
MISCELLANEOUS NONMETALLIC MINERAL
PRODUCTS--0.38%
25,100 MINNESOTA MINING & MANUFACTURING
CO.................................. 2,060
--------
MISCELLANEOUS NONMETALLIC
MINERALS--0.00%
2,600 JOHNS MANVILLE CORP.................. 26
--------
MISCELLANEOUS PERSONAL SERVICES--0.05%
6,000 BLOCK (H&R), INC..................... 269
1,200 * THERMOLASE CORP...................... 13
--------
282
--------
MISCELLANEOUS PETROLEUM AND COAL
PRODUCTS--0.40%
5,000 AMERADA HESS CORP.................... 274
32,116 * TEXACO, INC.......................... 1,746
3,800 WITCO CORP........................... 155
--------
2,175
--------
MISCELLANEOUS PLASTICS PRODUCTS,
NEC--0.76%
1,600 APTARGROUP, INC...................... 89
13,800 DOW CHEMICAL CO...................... 1,401
36,000 MONSANTO CO.......................... 1,512
3,600 PREMARK INTERNATIONAL, INC........... 104
5,400 RAYCHEM CORP......................... 233
9,100 RUBBERMAID, INC...................... 228
2,100 SCHULMAN (A.), INC................... 53
2,900 * SEALED AIR CORP...................... 179
6,560 SOLUTIA, INC......................... 175
1,500 * SYNETIC, INC......................... 55
700 TREDEGAR INDUSTRIES, INC............. 46
2,400 TUPPERWARE CORP...................... 67
--------
4,142
--------
MISCELLANEOUS SHOPPING GOOD
STORES--0.23%
500 * AMAZON.COM, INC...................... 30
3,000 * BARNES & NOBLE, INC.................. 100
4,500 * BORDERS GROUP, INC................... 141
</TABLE>
See notes to financial statements.
B-54
<PAGE> 95
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
MISCELLANEOUS SHOPPING GOOD
STORES--(continued)
1,500 * MICHAELS STORES, INC................. $ 44
9,100 * OFFICE DEPOT, INC.................... 218
7,050 * OFFICEMAX, INC....................... 100
2,250 * THE SPORTS AUTHORITY, INC............ 33
16,787 * TOYS R US, INC....................... 528
3,200 * ZALE CORP............................ 74
--------
1,268
--------
MISCELLANEOUS TRANSPORTATION
EQUIPMENT--0.02%
4,200 ARCTIC CAT, INC...................... 41
1,600 FLEETWOOD ENTERPRISES, INC........... 68
--------
109
--------
MOBILE HOME DEALERS--0.02%
2,800 OAKWOOD HOMES CORP................... 93
--------
MORTGAGE BANKERS AND BROKERS--0.50%
1,500 AAMES FINANCIAL CORP................. 19
2,100 * CITYSCAPE FINANCIAL CORP............. 1
300 * CONTIFINANCIAL CORP.................. 8
6,304 COUNTRYWIDE CREDIT INDUSTRIES, INC... 270
34,551 FIRST UNION CORP..................... 1,771
7,500 GREEN TREE FINANCIAL CORP............ 196
2,200 * HOMESIDE, INC........................ 61
2,100 * IMPERIAL CREDIT INDUSTRIES, INC...... 43
1,400 PMI GROUP, INC....................... 101
1,600 PULTE CORP........................... 67
900 SIRROM CAPITAL CORP.................. 47
2,200 UNITED COS FINANCIAL CORP............ 34
1,900 UNITRIN, INC......................... 123
--------
2,741
--------
MOTION PICTURE PRODUCTION AND
SERVICES--0.87%
41,478 DISNEY (WALT) CO..................... 4,109
1,700 KING WORLD PRODUCTIONS, INC.......... 98
13,612 * LIBERTY MEDIA GROUP (CLASS A)........ 493
1,100 * PIXAR, INC........................... 24
2,700 * SPELLING ENTERTAINMENT GROUP, INC.... 19
--------
4,743
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
MOTION PICTURE THEATERS--0.04%
3,100 HARCOURT GENERAL, INC................ $ 170
1,900 * REGAL CINEMAS, INC................... 53
--------
223
--------
MOTOR VEHICLES AND EQUIPMENT--1.93%
1,300 ARVIN INDUSTRIES, INC................ 43
5,884 AUTOLIV, INC......................... 193
35,000 CHRYSLER CORP........................ 1,232
6,300 DANA CORP............................ 299
2,100 DANAHER CORP......................... 133
4,700 EATON CORP........................... 419
3,900 ECHLIN, INC.......................... 141
68,400 FORD MOTOR CO........................ 3,330
42,926 GENERAL MOTORS CORP.................. 2,602
6,100 GENERAL MOTORS CORP (CLASS H)........ 225
2,440 * HAYES LEMMERZ INTERNATIONAL, INC..... 68
12,000 ILLINOIS TOOL WORKS, INC............. 722
4,300 * LEAR CORP............................ 204
3,066 MERITOR AUTOMOTIVE, INC.............. 65
2,200 MODINE MANUFACTURING CO.............. 75
4,600 * NAVISTAR INTERNATIONAL CORP.......... 114
4,200 PACCAR, INC.......................... 221
2,700 REGAL-BELOIT CORP.................... 80
1,400 SMITH (A.O.) CORP.................... 59
900 SPX CORP............................. 62
1,400 SUPERIOR INDUSTRIES INTERNATIONAL,
INC................................. 38
2,800 TELEFLEX, INC........................ 106
1,400 WABASH NATIONAL CORP................. 40
--------
10,471
--------
MOTOR VEHICLES, PARTS, AND
SUPPLIES--0.07%
10,150 GENUINE PARTS CO..................... 344
1,300 * INSURANCE AUTO AUCTIONS, INC......... 15
--------
359
--------
MOTORCYCLES, BICYCLES, AND
PARTS--0.05%
9,100 HARLEY DAVIDSON, INC................. 249
--------
NATURAL GAS LIQUIDS--0.07%
3,000 COLUMBIA GAS SYSTEMS, INC............ 236
2,100 NEW JERSEY RESOURCES CORP............ 84
1,200 * TEJAS GAS CORP....................... 74
--------
394
--------
</TABLE>
See notes to financial statements.
B-55
<PAGE> 96
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
NEW AND USED CAR DEALERS--0.05%
9,000 * AUTOZONE, INC........................ $ 261
--------
NEWSPAPERS--0.61%
2,400 BELO (A.H.) CORP SERIES A............ 135
900 CENTRAL NEWSPAPERS, INC (CLASS A).... 67
3,200 DOW JONES & CO, INC.................. 172
16,600 GANNETT CO, INC...................... 1,026
2,200 HARTE-HANKS COMMUNICATIONS, INC...... 82
2,500 HOLLINGER INTERNATIONAL, INC......... 35
3,800 * JOURNAL REGISTER CO.................. 80
5,100 KNIGHT-RIDDER, INC................... 265
2,900 LEE ENTERPRISES, INC................. 86
800 MEDIA GENERAL, INC (CLASS A)......... 33
5,400 NEW YORK TIMES CO (CLASS A).......... 357
7,482 NEWS CORP LTD ADR (LTD-VOTE)......... 149
2,800 SCRIPPS (E.W.) CO (CLASS A).......... 136
4,400 TIMES MIRROR CO SERIES A............. 271
6,000 TRIBUNE CO........................... 374
100 WASHINGTON POST CO (CLASS B)......... 49
--------
3,317
--------
NONFERROUS FOUNDRIES (CASTINGS)--0.02%
2,800 STANDEX INTERNATIONAL CORP........... 99
--------
NONFERROUS ROLLING AND DRAWING--0.09%
1,800 BELDEN, INC.......................... 63
1,300 * CABLE DESIGN TECHNOLOGIES CO......... 51
2,300 * COMMSCOPE, INC....................... 31
1,000 * ESSEX INTERNATIONAL, INC............. 30
1,700 * GENERAL CABLE CORP................... 62
1,300 * MUELLER INDUSTRIES, INC.............. 77
2,100 * OREGON METALLURGICAL CORP............ 70
2,000 * RMI TITANIUM CO...................... 40
1,500 * WOLVERINE TUBE, INC.................. 47
--------
471
--------
NONSTORE RETAILERS--0.26%
600 * BRYLANE, INC......................... 30
400 * CDW COMPUTER CENTERS, INC............ 21
2,900 FINGERHUT COS, INC................... 62
1,000 * GLOBAL DIRECTMAIL CORP............... 17
1,100 * LANDS END, INC....................... 39
2,800 * MICRO WAREHOUSE, INC................. 39
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
NONSTORE RETAILERS--(continued)
1,400 * MSC INDUSTRIAL DIRECT CO (CLASS A)... $ 59
22,000 SEARS ROEBUCK & CO................... 996
11,800 * SERVICE MERCHANDISE, INC............. 25
1,600 STANHOME, INC........................ 41
5,100 * VIKING OFFICE PRODUCTS, INC.......... 111
--------
1,440
--------
NURSING AND PERSONAL CARE
FACILITIES--0.09%
100 * ALTERNATIVE LIVING SERVICES, INC..... 3
5,600 * BEVERLY ENTERPRISES, INC............. 73
2,200 * GENESIS HEALTH VENTURES, INC......... 58
2,750 * HEALTH CARE & RETIREMENT CORP........ 111
2,457 * LCA-VISION, INC...................... 3
2,900 MANOR CARE, INC...................... 102
2,600 * MARINER HEALTH GROUP, INC............ 42
2,130 * PARAGON HEALTH NETWORK, INC.......... 42
800 * SUNRISE ASSISTED LIVING, INC......... 35
--------
469
--------
OFFICE FURNITURE--0.09%
1,200 HON INDUSTRIES, INC.................. 71
2,600 KIMBALL INTERNATIONAL, INC (CLASS
B).................................. 48
1,200 * KNOLL, INC........................... 39
3,000 MILLER (HERMAN), INC................. 164
5,250 U.S. INDUSTRIES, INC................. 158
--------
480
--------
OFFICES AND CLINICS OF MEDICAL
DOCTORS--0.07%
2,200 * MAGELLAN HEALTH SERVICES, INC........ 47
3,800 * PHYCOR, INC.......................... 103
3,200 * PHYSICIAN SALES & SERVICE, INC....... 69
4,100 * PHYSICIANS RESOURCE GROUP, INC....... 18
1,900 * SIERRA HEALTH SERVICES, INC.......... 64
3,166 * TOTAL RENAL CARE HOLDINGS, INC....... 87
--------
388
--------
OFFICES AND CLINICS OF DENTISTS--0.01%
2,000 * ORTHODONTIC CENTERS OF AMERICA, INC.. 33
--------
</TABLE>
See notes to financial statements.
B-56
<PAGE> 97
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
OFFICES OF OTHER HEALTH
PRACTITIONERS--0.00%
1,800 * PHYSICIAN RELIANCE NETWORK, INC...... $ 19
--------
OIL AND GAS EXTRACTION--3.76%
29,600 AMOCO CORP........................... 2,520
3,400 ANADARKO PETROLEUM CORP.............. 206
5,200 APACHE CORP.......................... 182
3,800 ASHLAND, INC......................... 204
2,000 * BARNETT RESOURCES CORP............... 61
900 * BELCO OIL & GAS CORP................. 17
2,600 * BROWN (TOM), INC..................... 50
10,045 BURLINGTON RESOURCES, INC............ 450
3,000 CABOT OIL & GAS CORP (CLASS A)....... 58
2,900 CHESAPEAKE ENERGY CORP............... 22
5,200 CONSOLIDATED NATURAL GAS CO.......... 315
2,350 CROSS TIMBERS OIL CO................. 59
1,500 DEVON ENERGY CORP.................... 58
7,347 * EEX CORP............................. 67
3,400 ENRON OIL & GAS CO................... 72
150,000 EXXON CORP........................... 9,178
1,400 * FORCENERGY GAS EXPLORATION, INC...... 37
3,200 * FOREST OIL CORP...................... 53
7,000 * GREY WOLF, INC....................... 38
1,500 HELMERICH & PAYNE, INC............... 102
2,000 KCS ENERGY, INC...................... 42
2,800 KERR-MCGEE CORP...................... 177
1,600 * LOUIS DREYFUS NATURAL GAS CORP....... 30
3,900 MITCHELL ENERGY & DEVELOPMENT CORP
(CLASS A)........................... 115
47,700 MOBIL CORP........................... 3,443
2,800 * NEWFIELD EXPLORATION CO.............. 65
3,200 NOBLE AFFILIATES, INC................ 113
1,400 * NUEVO ENERGY CO...................... 57
20,400 OCCIDENTAL PETROLEUM CORP............ 598
6,900 * ORYX ENERGY CO....................... 176
12,700 PHILLIPS PETROLEUM CO................ 618
4,200 * PIONEER NATURAL RESOURCES CO......... 122
1,900 POGO PRODUCING CO.................... 56
2,100 QUESTAR CORP......................... 94
1,500 * RUTHERFORD-MORAN OIL CORP............ 27
6,400 * SANTA FE ENERGY RESOURCES, INC....... 72
3,400 * SEAGULL ENERGY CORP.................. 70
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
OIL AND GAS EXTRACTION--(continued)
3,500 SNYDER OIL CORP...................... $ 64
2,830 * SWIFT ENERGY CO...................... 60
2,300 * TRANSTEXAS GAS CORP.................. 34
14,714 UNION PACIFIC RESOURCES GROUP, INC... 357
4,700 UNION TEXAS PETROLEUM HOLDINGS,
INC................................. 98
1,000 VASTAR RESOURCES, INC................ 36
2,600 VINTAGE PETROLEUM, INC............... 49
2,500 WICOR, INC........................... 116
--------
20,438
--------
OIL AND GAS FIELD SERVICES--0.76%
1,200 * ATWOOD OCEANICS, INC................. 57
1,900 * BENTON OIL & GAS CO.................. 25
2,200 * BJ SERVICES CO....................... 158
1,000 * CLIFFS DRILLING CO................... 50
4,200 DIAMOND OFFSHORE DRILLING, INC....... 202
8,400 ENSCO INTERNATIONAL, INC............. 281
4,800 * FALCON DRILLING CO, INC.............. 168
8,700 * GLOBAL MARINE, INC................... 213
15,932 HALLIBURTON CO....................... 827
3,100 * MARINE DRILLING CO, INC.............. 64
5,900 * NABORS INDUSTRIES, INC............... 185
6,000 * NEWPARK RESOURCES, INC............... 105
7,200 * NOBLE DRILLING CORP.................. 221
900 * OCEAN ENERGY, INC.................... 44
4,800 PACIFIC ENTERPRISES, INC............. 181
4,500 * PARKER DRILLING CO................... 55
700 * PATTERSON ENERGY, INC................ 27
3,300 * POOL ENERGY SERVICES CO.............. 73
3,300 * PRIDE INTERNATIONAL, INC............. 83
4,100 * READING & BATES CORP................. 172
4,400 * ROWAN COS, INC....................... 134
5,800 TRANSOCEAN OFFSHORE, INC............. 279
3,200 * TUBOSCOPE, INC....................... 77
2,200 * UNITED MERIDIAN CORP................. 62
1,300 * VERITAS DGC, INC..................... 51
3,400 * WEATHERFORD ENTERRA, INC............. 149
2,300 * WESTERN ATLAS, INC................... 170
--------
4,113
--------
</TABLE>
See notes to financial statements.
B-57
<PAGE> 98
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
OPERATIVE BUILDERS--0.06%
1,700 CENTEX CORP.......................... $ 107
1,600 * FAIRFIELD COMMUNITIES, INC........... 71
2,400 HILLENBRAND INDUSTRIES, INC.......... 123
2,200 LENNAR CORP.......................... 47
--------
348
--------
OPHTHALMIC GOODS--0.03%
2,900 BAUSCH & LOMB, INC................... 115
1,900 * COLE NATIONAL CORP (CLASS A)......... 57
--------
172
--------
ORDNANCE AND ACCESSORIES, NEC--0.02%
1,000 * ALLIANT TECHSYSTEMS, INC............. 56
1,600 * COLEMAN CO, INC...................... 26
1,700 STRUM, RUGER & CO, INC............... 31
--------
113
--------
PAINT, GLASS, AND WALLPAPER
STORES--0.01%
2,600 APOGEE ENTERPRISES, INC.............. 31
--------
PAINTS AND ALLIED PRODUCTS--0.10%
1,500 DEXTER CORP.......................... 65
2,250 FERRO CORP........................... 55
6,531 RPM, INC............................. 100
8,900 SHERWIN-WILLIAMS CO.................. 247
2,400 VALSPAR CORP......................... 77
--------
544
--------
PAPER AND PAPER PRODUCTS--0.16%
700 * BOISE CASCADE OFFICE PRODUCTS CORP... 10
7,300 * CORPORATE EXPRESS, INC............... 94
8,300 IKON OFFICE SOLUTIONS, INC........... 233
9,650 * STAPLES, INC......................... 268
6,450 * U.S. OFFICE PRODUCTS CO.............. 127
5,050 UNISOURCE WORLDWIDE, INC............. 72
1,200 * UNITED STATIONERS, INC............... 58
--------
862
--------
PAPER MILLS--0.25%
2,300 BOWATER, INC......................... 102
5,600 CHAMPION INTERNATIONAL CORP.......... 254
1,200 CONSOLIDATED PAPERS, INC............. 64
2,000 GLATFELTER (P.H.) CO................. 37
3,400 LONGVIEW FIBRE CO.................... 52
5,700 MEAD CORP............................ 160
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
PAPER MILLS--(continued)
2,800 PENTAIR, INC......................... $ 101
1,500 POTLATCH CORP........................ 65
2,240 SCHWEITZER-MAUDUIT INTERNATIONAL,
INC................................. 83
4,000 UNION CAMP CORP...................... 215
2,000 WAUSAU-MOSINEE PAPER CORP............ 40
5,350 WESTVACO CORP........................ 168
--------
1,341
--------
PAPERBOARD CONTAINERS AND BOXES--0.02%
1,500 * ACX TECHNOLOGIES, INC................ 37
5,600 * STONE CONTAINER CORP................. 58
--------
95
--------
PAPERBOARD MILLS--0.17%
1,800 CARAUSTAR INDUSTRIES, INC............ 62
1,400 CHESAPEAKE CORP...................... 48
17,514 INTERNATIONAL PAPER CO............... 755
1,400 * JEFFERSON SMURFIT CORP............... 20
600 ST. JOE CORP......................... 54
--------
939
--------
PASSENGER TRANSPORTATION
ARRANGEMENT--0.48%
28,700 AMERICAN EXPRESS CO.................. 2,561
2,100 * SABRE GROUP HOLDINGS, INC............ 61
--------
2,622
--------
PENSION, HEALTH, AND WELFARE
FUNDS--0.01%
1,500 AMERICAN ANNUITY GROUP, INC.......... 33
--------
PERIODICALS--0.38%
2,900 x* MARVEL ENTERTAINMENT GROUP, INC...... 1
2,800 MEREDITH CORP........................ 100
8,600 * PRIMEDIA, INC........................ 109
4,500 READER'S DIGEST ASSOCIATION, INC
(CLASS A) (NON-VOTE)................ 106
27,031 TIME WARNER, INC..................... 1,676
3,200 * WORLD COLOR PRESS, INC............... 85
--------
2,077
--------
PERSONAL CREDIT INSTITUTIONS--0.26%
2,400 ADVANTA CORP (CLASS A)............... 63
2,200 * AMERICREDIT CORP..................... 61
2,900 BENEFICIAL CORP...................... 241
</TABLE>
See notes to financial statements.
B-58
<PAGE> 99
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
PERSONAL CREDIT
INSTITUTIONS--(continued)
1,600 * CREDIT ACCEPTANCE CORP............... $ 12
1,500 * FIRSTPLUS FINANCIAL GROUP, INC....... 58
6,403 HOUSEHOLD INTERNATIONAL, INC......... 817
2,300 LEUCADIA NATIONAL CORP............... 79
6,450 * MERCURY FINANCE CO................... 4
500 METRIS COS, INC...................... 17
2,600 THE MONEY STORE, INC................. 55
--------
1,407
--------
PERSONNEL SUPPLY SERVICES--0.24%
4,983 * ACCUSTAFF, INC....................... 115
1,200 * ALTERNATIVE RESOURCES CORP........... 28
1,200 * CDI CORP............................. 55
6,000 * EMPLOYEE SOLUTIONS, INC.............. 26
3,400 * INTERIM SERVICES, INC................ 88
2,300 KELLY SERVICES, INC (CLASS A)........ 69
4,400 MANPOWER, INC........................ 155
9,300 NEWELL COS, INC...................... 395
1,100 NORRELL CORP......................... 22
4,114 OLSTEN CORP.......................... 62
1,100 * REGISTRY, INC........................ 50
5,400 * ROBERT HALF INTERNATIONAL, INC....... 216
900 * VOLT INFORMATION SCIENCES, INC....... 48
--------
1,329
--------
PETROLEUM AND PETROLEUM
PRODUCTS--0.18%
17,461 ENRON CORP........................... 726
8,600 * HARKEN ENERGY CORP................... 60
2,500 LYONDELL PETROCHEMICAL CO............ 66
2,800 * NATIONAL-OILWELL, INC................ 96
2,800 QUAKER STATE OIL REFINING CORP....... 40
--------
988
--------
PETROLEUM REFINING--1.16%
19,000 ATLANTIC RICHFIELD CO................ 1,522
39,600 CHEVRON CORP......................... 3,049
600 FINA, INC (CLASS A).................. 38
2,600 MURPHY OIL CORP...................... 141
2,700 PENNZOIL CO.......................... 180
4,200 SUN CO, INC.......................... 177
9,748 TOSCO CORP........................... 369
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
PETROLEUM REFINING--(continued)
5,326 ULTRAMAR DIAMOND SHAMROCK CORP....... $ 170
14,689 UNOCAL CORP.......................... 570
2,400 VALERO ENERGY CORP................... 75
--------
6,291
--------
PHOTOGRAPHIC EQUIPMENT AND
SUPPLIES--0.51%
19,500 EASTMAN KODAK CO..................... 1,186
2,400 POLAROID CORP........................ 117
19,700 XEROX CORP........................... 1,454
--------
2,757
--------
PIPELINES, EXCEPT NATURAL GAS--0.03%
3,800 MAPCO, INC........................... 176
--------
PLASTICS MATERIALS AND
SYNTHETICS--0.89%
69,300 DU PONT (E.I.) DE NEMOURS & CO....... 4,162
4,400 EASTMAN CHEMICAL CO.................. 262
2,850 HANNA (M.A.) CO...................... 72
5,700 HERCULES, INC........................ 285
2,600 LAWTER INTERNATIONAL, INC............ 28
2,000 WELLMAN, INC......................... 39
--------
4,848
--------
PLUMBING AND HEATING, EXCEPT
ELECTRIC--0.10%
9,800 MASCO CORP........................... 499
8,100 ROHN INDUSTRIES, INC................. 42
--------
541
--------
POULTRY AND EGGS--0.04%
9,600 TYSON FOODS, INC..................... 197
--------
PRESERVED FRUITS AND VEGETABLES--0.89%
15,600 CAMPBELL SOUP CO..................... 907
3,866 * CASTLE & COOKE, INC.................. 65
2,800 DOLE FOOD, INC....................... 128
22,200 HEINZ (H.J.) CO...................... 1,128
2,700 HORMEL FOODS CORP.................... 88
18,601 RJR NABISCO HOLDINGS CORP............ 698
</TABLE>
See notes to financial statements.
B-59
<PAGE> 100
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
PRESERVED FRUITS AND
VEGETABLES--(continued)
29,200 SARA LEE CORP........................ $ 1,644
6,800 WHITMAN CORP......................... 177
--------
4,835
--------
PRIMARY NONFERROUS METALS--0.26%
3,100 * ALUMAX, INC.......................... 105
9,400 ALUMINUM CO OF AMERICA............... 662
2,600 ASARCO, INC.......................... 58
3,400 PHELPS DODGE CORP.................... 212
1,500 PRECISION CAST PARTS CORP............ 90
4,200 REYNOLDS METALS CO................... 252
1,500 * TITANIUM METALS CORP................. 43
--------
1,422
--------
PRODUCERS, ORCHESTRAS,
ENTERTAINERS--0.02%
2,300 * WESTWOOD ONE, INC.................... 85
--------
PRODUCTS OF PURCHASED GLASS--0.03%
3,300 * GENTEX CORP.......................... 89
1,300 * MEDIMMUNE, INC....................... 56
--------
145
--------
PROFESSIONAL AND COMMERCIAL
EQUIPMENT--0.09%
1,900 * CHS ELECTRONICS, INC................. 33
1,600 * GULF SOUTH MEDICAL SUPPLY, INC....... 60
2,900 * INGRAM MICRO, INC (CLASS A).......... 84
4,400 OWENS & MINOR, INC................... 64
1,900 * PATTERSON DENTAL CO.................. 86
1,600 * SPINE-TECH, INC...................... 82
2,500 * TECH DATA CORP....................... 97
--------
506
--------
RADIO AND TELEVISION
BROADCASTING--0.37%
1,300 * AMERICAN RADIO SYSTEMS CORP.......... 69
900 BHC COMMUNICATIONS, INC (CLASS A).... 117
3,550 * CHANCELLOR MEDIA CORP (CLASS A)...... 265
1,503 * CHRIS CRAFT INDUSTRIES, INC.......... 79
3,400 * CLEAR CHANNEL COMMUNICATIONS, INC.... 270
2,354 GAYLORD ENTERTAINMENT CO............. 75
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
RADIO AND TELEVISION
BROADCASTING--(continued)
1,100 * HEFTEL BROADCASTING CORP (CLASS A)... $ 51
2,500 * JACOR COMMUNICATIONS, INC............ 133
1,400 * JACOR COMMUNICATIONS, INC WTS
9/18/01............................. 9
1,200 * LIN TELEVISION CORP.................. 65
600 UNITED TELEVISION, INC............... 62
500 * UNIVISION COMMUNICATIONS, INC........ 35
4,300 * VIACOM, INC (CLASS A)................ 176
14,400 * VIACOM, INC (CLASS B)................ 597
--------
2,003
--------
RADIO, TELEVISION, AND COMPUTER
STORES--0.14%
2,100 * BEST BUY, INC........................ 77
5,800 CIRCUIT CITY STORES-CIRCUIT CITY
GROUP............................... 206
5,400 * COMPUSA, INC......................... 167
9,500 * INFORMIX CORP........................ 45
3,000 * MUSICLAND STORES CORP................ 22
6,400 TANDY CORP........................... 247
--------
764
--------
RAILROADS--0.66%
9,240 BURLINGTON NORTHERN SANTA FE CORP.... 859
12,900 CSX CORP............................. 697
100 FLORIDA EAST COAST INDUSTRIES, INC... 10
2,500 IES INDUSTRIES, INC.................. 92
4,500 ILLINOIS CENTRAL CORP SERIES A....... 153
6,600 KANSAS CITY SOUTHERN INDUSTRIES,
INC................................. 210
22,600 NORFOLK SOUTHERN CORP................ 696
13,082 UNION PACIFIC CORP................... 817
3,500 * WISCONSIN CENTRAL TRANSIT CORP....... 82
--------
3,616
--------
REAL ESTATE OPERATORS AND
LESSORS--0.05%
4,000 ROUSE CO............................. 131
2,800 WEINGARTEN REALTY INVESTORS, INC..... 125
--------
256
--------
</TABLE>
See notes to financial statements.
B-60
<PAGE> 101
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
REFRIGERATION AND SERVICE
MACHINERY--0.12%
4,600 * AMERICAN STANDARD COS, INC........... $ 176
1,952 * CULLIGAN WATER TECHNOLOGIES, INC..... 98
1,400 EASTERN ENTERPRISES CO............... 63
2,000 TECUMSEH PRODUCTS CO (CLASS A)....... 98
4,350 * U.S. FILTER CORP..................... 130
2,600 YORK INTERNATIONAL CORP.............. 103
--------
668
--------
RENTAL OF RAILROAD CARS--0.02%
1,600 GATX CORP............................ 116
--------
RESEARCH AND TESTING SERVICES--0.12%
2,400 * ADVANCED TISSUE SCIENCE CO........... 30
2,200 * AGOURON PHARMACEUTICALS, INC......... 65
2,600 * CEPHALON, INC........................ 30
4,550 * CLINTRIALS, INC...................... 36
2,100 * COLUMBIA LABORATORIES, INC........... 33
2,000 * HUMAN GENOME SCIENCES, INC........... 80
2,500 * ICOS CORP............................ 46
1,100 * IDEC PHARMACEUTICALS CORP............ 38
1,200 * INCYTE PHARMACEUTICALS, INC.......... 54
3,600 * ISIS PHARMACEUTICALS, INC............ 44
6,252 * LABORATORY CORP OF AMERICA HOLDINGS.. 11
260 * LABORATORY CORP OF AMERICA HOLDINGS
WTS 4/28/00......................... 0
2,500 * LIPOSOME CO, INC..................... 12
8,500 * NEUROMEDICAL SYSTEMS, INC............ 24
1,300 * THERMO CARDIOSYSTEMS, INC............ 35
800 * THERMOTREX CORP...................... 18
2,000 * TRANSKARYOTIC THERAPIES, INC......... 70
--------
626
--------
RESIDENTIAL BUILDING
CONSTRUCTION--0.07%
5,206 CLAYTON HOMES, INC................... 94
3,900 HORTON (D.R.), INC................... 68
2,700 KAUFMAN & BROAD HOME CORP............ 61
2,400 * TOLL BROTHERS, INC................... 64
3,900 * WALTER INDUSTRIES, INC............... 80
--------
367
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
RETAIL STORES, NEC--0.02%
2,500 * PETCO ANIMAL SUPPLIES, INC........... $ 60
6,400 * PETSMART, INC........................ 46
3,400 * SUNGLASS HUT INTERNATIONAL, INC...... 21
--------
127
--------
SAND AND GRAVEL--0.02%
3,400 CALMAT CO............................ 95
--------
SANITARY SERVICES--0.42%
6,000 * ALLIED WASTE INDUSTRIES, INC......... 140
12,100 BROWNING FERRIS INDUSTRIES, INC...... 448
7,000 * LAIDLAW ENVIRONMENTAL SERVICES, INC.. 34
3,700 OGDEN CORP........................... 104
18,800 * REPUBLIC INDUSTRIES, INC............. 438
10,297 * U.S.A. WASTE SERVICES, INC........... 404
26,670 WASTE MANAGEMENT, INC................ 733
--------
2,301
--------
SAVINGS INSTITUTIONS--0.76%
3,500 ALBANK FINANCIAL CORP................ 180
2,500 ASTORIA FINANCIAL CORP............... 139
2,300 BANK UNITED CORP (CLASS A)........... 113
900 CFX CORP............................. 27
4,249 CHARTER ONE FINANCIAL, INC........... 268
3,200 CHEMFIRST, INC....................... 90
1,300 * COAST SAVINGS FINANCIAL, INC......... 89
2,550 COMMERCIAL FEDERAL CORP.............. 91
6,100 DIME BANCORP, INC.................... 185
500 DOWNEY FINANCIAL CORP................ 14
3,400 * GOLDEN STATE BANCORP, INC............ 127
2,800 GOLDEN WEST FINANCIAL CORP........... 274
5,800 H.F. AHMANSON & CO................... 388
2,300 LONG ISLAND BANCORP, INC............. 114
2,850 MAF BANCORP, INC..................... 101
2,100 NEW YORK BANCORP, INC................ 83
2,400 * OCWEN FINANCIAL CORP................. 61
2,300 PEOPLES BANK OF BRIDGEPORT CO........ 87
4,000 ROSLYN BANCORP, INC.................. 93
7,450 SOVEREIGN BANCORP, INC............... 155
4,875 ST. PAUL BANCORP, INC................ 128
4,800 TCF FINANCIAL CORP................... 163
3,267 WASHINGTON FEDERAL, INC.............. 103
15,059 WASHINGTON MUTUAL, INC............... 961
1,700 WEBSTER FINANCIAL CORP............... 113
--------
4,147
--------
</TABLE>
See notes to financial statements.
B-61
<PAGE> 102
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
SAWMILLS AND PLANING MILLS--0.22%
2,600 BOISE CASCADE CORP................... $ 79
5,800 LOUISIANA PACIFIC CORP............... 110
2,000 RAYONIER, INC........................ 85
3,400 TEMPLE-INLAND, INC................... 178
11,400 WEYERHAEUSER CO...................... 559
6,200 WILLAMETTE INDUSTRIES, INC........... 200
--------
1,211
--------
SCHOOLS AND EDUCATIONAL SERVICES,
NEC--0.02%
2,200 * APOLLO GROUP, INC (CLASS A).......... 104
--------
SCREW MACHINE PRODUCTS, BOLTS,
ETC.--0.05%
4,260 HUBBELL, INC (CLASS B)............... 210
1,900 TRIMAS CORP.......................... 65
--------
275
--------
SEARCH AND NAVIGATION EQUIPMENT--0.23%
1,400 PRIMEX TECHNOLOGIES, INC............. 47
6,228 RAYTHEON CO (CLASS A)................ 307
14,100 RAYTHEON CO (CLASS B)................ 712
4,200 SENSORMATIC ELECTRONICS CORP......... 69
1,600 * TRACOR, INC.......................... 49
3,900 * TRIMBLE NAVIGATION LTD............... 85
--------
1,269
--------
SECURITY AND COMMODITY SERVICES--0.31%
2,800 * AMRESCO, INC......................... 85
3,100 FINANCIAL SECURITY ASSURANCE HOLDINGS
LTD................................. 150
5,050 FRANKLIN RESOURCES, INC.............. 439
4,422 FULTON FINANCIAL CORP................ 144
3,400 PIONEER GROUP, INC................... 96
3,100 PRICE (T. ROWE) ASSOCIATES, INC...... 195
700 SEI INVESTMENT CO.................... 29
3,700 TRANSAMERICA CORP.................... 394
4,700 UNITED ASSET MANAGEMENT CORP......... 115
--------
1,647
--------
SECURITY BROKERS AND DEALERS--0.97%
9,024 BEAR STEARNS COS, INC................ 429
800 DONALDSON, LUFKIN, & JENRETTE, INC... 64
5,750 EDWARDS (A.G.), INC.................. 229
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
SECURITY BROKERS AND
DEALERS--(continued)
1,300 * HAMBRECHT & QUIST GROUP.............. $ 47
600 * JEFFERIES GROUP, INC................. 25
1,733 * LEGG MASON, INC...................... 97
7,800 LEHMAN BROTHERS HOLDINGS, INC........ 398
20,400 MERRILL LYNCH & CO, INC.............. 1,488
1,300 MORGAN KEEGAN, INC................... 33
27,155 MORGAN STANLEY, DEAN WITTER,
DISCOVER............................ 1,606
6,900 PAINE WEBBER GROUP, INC.............. 238
1,800 QUICK & REILLY GROUP, INC............ 77
1,900 RAYMOND JAMES FINANCIAL, CORP........ 75
11,100 SCHWAB (CHARLES) CORP................ 466
--------
5,272
--------
SHIP AND BOAT BUILDING AND
REPAIRING--0.08%
3,500 GENERAL DYNAMICS CORP................ 303
1,252 * HALTER MARINE GROUP, INC............. 36
2,900 NEWPORT NEWS SHIPBUILDING, INC....... 74
--------
413
--------
SHOE STORES--0.04%
2,050 * JUST FOR FEET, INC................... 27
2,624 * PAYLESS SHOESOURCE, INC.............. 176
--------
203
--------
SOAP, CLEANERS, AND TOILET
GOODS--1.79%
1,800 ALBERTO CULVER CO (CLASS B).......... 58
7,400 AVON PRODUCTS, INC................... 454
2,700 CHURCH & DWIGHT CO, INC.............. 76
4,400 CLOROX CO............................ 348
17,400 COLGATE PALMOLIVE CO................. 1,279
7,000 DIAL CORP............................ 146
3,500 ECOLAB, INC.......................... 194
6,100 INTERNATIONAL FLAVORS & FRAGRANCES,
INC................................. 314
2,200 LAUDER (ESTEE) CO (CLASS A).......... 113
82,800 PROCTER & GAMBLE CO.................. 6,608
800 * REVLON, INC (CLASS A)................ 28
4,500 SAFETY-KLEEN CORP.................... 123
600 * USA DETERGENTS, INC.................. 5
--------
9,746
--------
</TABLE>
See notes to financial statements.
B-62
<PAGE> 103
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
SOCIAL SERVICES, NEC--0.03%
2,977 INTEGRATED HEALTH SERVICES, INC...... $ 93
3,300 * SUN HEALTHCARE GROUP, INC............ 64
--------
157
--------
SPECIAL INDUSTRY MACHINERY--0.28%
22,200 * APPLIED MATERIALS, INC............... 669
3,542 * COOPER CAMERON CORP.................. 216
1,200 * ETEC SYSTEMS, INC.................... 56
2,500 FOSTER WHEELER CORP.................. 68
1,400 * IONICS, INC.......................... 55
2,100 * KULICHE & SOFFA INDUSTRIES, INC...... 39
1,800 * LAM RESEARCH CORP.................... 53
2,000 * NOVELLUS SYSTEMS, INC................ 65
1,600 * OAKLEY, INC.......................... 15
2,700 * PHOTRONICS, INC...................... 65
2,000 * PRESSTEK, INC........................ 52
1,000 * PRI AUTOMATION, INC.................. 29
1,200 * THERMO FIBERTEK, INC................. 15
2,400 * ULTRATECH STEPPER, INC............... 48
1,700 * ZEBRA TECHNOLOGY CORP................ 51
--------
1,496
--------
STRUCTURAL CLAY PRODUCTS--0.01%
3,900 * DAL-TILE INTERNATIONAL, INC.......... 48
--------
SUBDIVIDERS AND DEVELOPERS--0.02%
4,800 * CATELLUS DEVELOPMENT CORP............ 96
--------
SUGAR AND CONFECTIONERY
PRODUCTS--0.17%
5,700 HERSHEY FOODS CORP................... 353
1,100 TOOTSIE ROLL INDUSTRIES, INC......... 69
6,000 WRIGLEY (WM) JR CO................... 477
--------
899
--------
SURETY INSURANCE--0.15%
2,100 * AMERIN CORP.......................... 59
900 CAPITAL RE CORP...................... 56
1,800 CAPMAC HOLDINGS, INC................. 63
1,800 CMAC INVESTMENT CORP................. 109
1,600 ENHANCE FINANCIAL SERVICES GROUP,
INC................................. 95
6,900 MGIC INVESTMENT CORP................. 459
--------
841
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
TELEPHONE COMMUNICATIONS--6.96%
7,766 * 360 COMMUNICATIONS CO................ $ 157
1,150 * ACC CORP............................. 58
30,600 * AIRTOUCH COMMUNICATIONS, INC......... 1,272
11,200 ALLTEL CORP.......................... 460
33,000 AMERITECH CORP....................... 2,657
5,800 * ARCH COMMUNICATIONS GROUP, INC....... 30
98,700 AT & T CORP.......................... 6,045
47,255 BELL ATLANTIC CORP................... 4,300
60,100 BELLSOUTH CORP....................... 3,384
3,750 * BRIGHTPOINT, INC..................... 52
2,700 * BROOKS FIBER PROPERTIES, INC......... 149
3,500 CENTURY TELEPHONE ENTERPRISES, INC... 174
8,000 CINCINNATI BELL, INC................. 248
1,300 * COMMONWEALTH TELEPHONE ENTERPRISES... 34
9,200 FRONTIER CORP........................ 221
57,500 GTE CORP............................. 3,004
2,200 * HIGHWAYMASTER COMMUNICATIONS, INC.... 13
2,000 * IXC COMMUNICATIONS, INC.............. 63
7,224 * LCI INTERNATIONAL, INC............... 222
39,591 LUCENT TECHNOLOGIES, INC............. 3,162
36,100 MCI COMMUNICATIONS CORP.............. 1,546
3,900 * MOBILE TELECOMMUNICATIONS
TECHNOLOGIES CORP................... 86
13,400 * NEXTEL COMMUNICATIONS, INC
(CLASS A)........................... 348
2,100 * NTL, INC............................. 59
2,300 * OMNIPOINT CORP....................... 53
900 * PACIFIC GATEWAY EXCHANGE, INC........ 48
2,600 * POWERTEL, INC........................ 44
1,100 * PREMIERE TECHNOLOGIES, INC........... 30
1,200 * RCN CORP............................. 41
55,909 SBC COMMUNICATIONS, INC.............. 4,095
3,600 SOUTHERN NEW ENGLAND
TELECOMMUNICATIONS CORP............. 181
26,000 SPRINT CORP.......................... 1,524
2,800 * TEL-SAVE HOLDINGS, INC............... 56
3,460 TELEPHONE & DATA SYSTEMS, INC........ 161
2,000 * TELEPORT COMMUNICATIONS GROUP, INC
(CLASS A)........................... 110
2,100 * U.S. CELLULAR CORP................... 65
</TABLE>
See notes to financial statements.
B-63
<PAGE> 104
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
TELEPHONE COMMUNICATIONS--(continued)
28,600 U.S. WEST COMMUNICATIONS GROUP,
INC................................. $ 1,291
36,700 * U.S. WEST MEDIA GROUP, INC........... 1,060
2,700 * VANGUARD CELLULAR SYSTEMS, INC....... 34
2,500 * WEST TELESERVICES CORP............... 30
2,400 * WINSTAR COMMUNICATIONS, INC.......... 60
40,492 * WORLDCOM, INC........................ 1,198
--------
37,825
--------
TIRES AND INNER TUBES--0.18%
1,800 BANDAG, INC.......................... 96
4,600 COOPER TIRE & RUBBER CO.............. 112
4,550 GOODRICH (B.F.) CO................... 189
9,000 GOODYEAR TIRE & RUBBER CO............ 573
--------
970
--------
TITLE INSURANCE--0.03%
200 * ALLEGHANY CORP (DELAWARE)............ 57
1,300 FIRST AMERICAN FINANCIAL CORP........ 96
--------
153
--------
TOYS AND SPORTING GOODS--0.19%
4,600 CALLAWAY GOLF CO..................... 131
1,100 * GALOOB TOYS, INC..................... 11
6,800 HASBRO, INC.......................... 214
2,300 K2, INC.............................. 52
17,393 MATTEL, INC.......................... 621
--------
1,029
--------
TRUCKING AND COURIER SERVICES, EXCEPT
AIR--0.11%
2,500 * AMERICAN FREIGHTWAYS CORP............ 25
1,400 CALIBER SYSTEM, INC.................. 68
2,900 CNF TRANSPORTATION, INC.............. 111
5,750 * CONSOLIDATED FREIGHTWAYS CORP........ 78
500 * HEARTLAND EXPRESS, INC............... 13
1,800 HUNT (J.B.) TRANSPORT SERVICES,
INC................................. 34
2,200 ROADWAY EXPRESS, INC................. 49
1,500 * SWIFT TRANSPORTATION CO, INC......... 49
2,100 US FREIGHTWAYS CORP.................. 68
2,600 WERNER ENTERPRISES, INC.............. 53
1,500 * YELLOW CORP.......................... 38
--------
586
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
VARIETY STORES--0.21%
2,800 * BJS WHOLESALE CLUB, INC.............. $ 88
5,393 * CONSOLIDATED STORES CORP............. 237
1,800 * DOLLAR TREE STORES, INC.............. 74
3,800 FAMILY DOLLAR STORES, INC............ 111
1,900 * HOMEBASE, INC........................ 15
29,000 * K MART CORP.......................... 335
1,400 * MAC FRUGALS BARGAINS CLOSE-
OUTS, INC........................... 58
2,900 * SHOPKO STORES, INC................... 63
7,100 * WOOLWORTH CORP....................... 145
--------
1,126
--------
VIDEO TAPE RENTAL--0.00%
2,100 * HOLLYWOOD ENTERTAINMENT CORP......... 22
--------
VOCATIONAL SCHOOLS--0.02%
2,300 * DEVRY, INC........................... 73
800 * LEARNING TREE INTERNATIONAL, INC..... 23
--------
96
--------
WATER SUPPLY--0.03%
4,400 AMERICAN WATER WORKS CO, INC......... 120
3,500 UNITED WATER RESOURCES, INC.......... 68
--------
188
--------
WATER TRANSPORTATION OF FREIGHT,
NEC--0.01%
1,800 * KIRBY CORP........................... 35
--------
WATER TRANSPORTATION SERVICES--0.03%
3,200 TIDEWATER, INC....................... 176
--------
WOMEN'S ACCESSORY AND SPECIALTY
STORES--0.08%
3,350 CLAIRES STORES, INC.................. 65
1,000 * GOODYS FAMILY CLOTHING, INC.......... 27
12,846 LIMITED, INC......................... 328
--------
420
--------
WOMEN'S AND MISSES' OUTERWEAR--0.05%
2,100 * JONES APPAREL GROUP, INC............. 90
4,300 LIZ CLAIBORNE, INC................... 180
--------
270
--------
</TABLE>
See notes to financial statements.
B-64
<PAGE> 105
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
WOMEN'S CLOTHING STORES--0.03%
1,600 * ANN TAYLOR STORES CORP............... $ 21
7,400 * CHARMING SHOPPES, INC................ 35
4,400 INTIMATE BRANDS, INC (CLASS A)....... 106
900 TALBOTS, INC......................... 16
--------
178
--------
WOOD BUILDINGS AND MOBILE HOMES--0.01%
3,500 * CHAMPION ENTERPRISES, INC............ 72
--------
YARN AND THREAD MILLS--0.04%
3,000 RUDDICK CORP......................... 52
3,700 UNIFI, INC........................... 151
--------
203
--------
TOTAL COMMON STOCK
(Cost $397,604)...................... 542,473
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------ --------
<C> <S> <C>
SHORT TERM INVESTMENTS--0.33%
U.S. GOVERNMENT & AGENCIES--0.33%
$1,800,000 FEDERAL HOME LOAN BANK
4.900 1/7/98..................... 1,798
--------
TOTAL SHORT TERM INVESTMENTS
(Cost $1,799)........................ 1,798
--------
TOTAL PORTFOLIO
(Cost $399,428)...................... $544,299
========
</TABLE>
- ---------------
* Non-income producing
x In bankruptcy
See notes to financial statements.
B-65
<PAGE> 106
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 statutory-basis
financial statements of Teachers Insurance and Annuity Association of America
("TIAA") for the year-ended December 31, 1997. 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 regarding TIAA's statutory financial statements from the
independent auditing firm of Ernst & Young LLP. These statements have been
prepared consistently in accordance with statutory accounting practices, a
comprehensive basis of accounting comprised of accounting practices prescribed
or permitted by the New York State Insurance Department ("Department").
There is also a reference in the auditors' report to generally accepted
accounting principles ("GAAP"). GAAP is an overall accounting methodology that,
while similar in many respects to statutory accounting practices, is a separate
basis of accounting. Statutory accounting is generally more conservative than
GAAP, and these statutory-basis financial statements are not intended to be in
conformity with GAAP. Even though we have not changed the way in which we
prepare our financial statements, this reference to GAAP is required by the
auditors' professional standards.
Statutory accounting is the only basis of accounting recognized by the
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 another separate set 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.
J.H. Signature
----------------------------------
Chairman, President and
Chief Executive Officer
B-66
<PAGE> 107
LOGO
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT RESPONSIBILITY
To the Policyholders of
Teachers Insurance and Annuity
Association of America:
The accompanying statutory-basis 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 practices 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 statutory-basis financial statements of TIAA have been audited
by the independent auditing firm of Ernst & Young LLP. The independent auditors'
report, which appears on the following page, expresses an independent opinion on
the fairness of presentation of these statutory 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
Ernst & Young 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.
Biggs Signature
----------------------------------
Chairman, President and
Chief Executive Officer
Richards Signature
----------------------------------
Executive Vice President and
Principal Accounting Officer
B-67
<PAGE> 108
LOGO LOGO
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of Teachers Insurance
and Annuity Association of America:
We have audited the accompanying statutory-basis balance sheet of Teachers
Insurance and Annuity Association of America ("TIAA") as of December 31, 1997,
and the related statutory-basis statements of operations, changes in contingency
reserves, and cash flows for the year then ended. These financial statements are
the responsibility of TIAA's management. Our responsibility is to express an
opinion on these financial statements based on our audit. TIAA's financial
statements as of December 31, 1996 and for the two years then ended were audited
by other auditors whose report dated March 11, 1997, expressed an adverse
opinion as to their conformity with generally accepted accounting principles,
because the financial statements were presented in accordance with statutory
accounting practices prescribed or permitted by the New York State Insurance
Department, and an unqualified opinion as to their conformity with such
statutory accounting practices.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
As described in Note 2 to the financial statements, TIAA prepares its financial
statements in conformity with statutory accounting practices, which practices
differ from generally accepted accounting principles. The differences between
such statutory accounting practices and generally accepted accounting principles
and the effects on the accompanying financial statements are described in Note
2.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the 1997 statutory-basis financial statements referred to above do
not present fairly, in conformity with generally accepted accounting principles,
the financial position of TIAA at December 31, 1997 or the results of its
operations or its cash flows for the year then ended.
However, in our opinion, the 1997 statutory-basis financial statements referred
to above present fairly, in all material respects, the financial position of
TIAA at December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with statutory accounting practices
prescribed or permitted by the New York State Insurance Department.
LOGO
March 10, 1998
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
B-68
<PAGE> 109
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY-BASIS BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Bonds....................................................... $63,469,596 $56,092,131
Mortgages................................................... 18,901,926 20,074,002
Real estate................................................. 6,434,359 6,704,889
Stocks...................................................... 965,295 355,093
Other long-term investments................................. 1,018,052 500,351
Cash and short-term investments............................. 178,852 615,082
Investment income due and accrued........................... 1,230,046 1,140,956
Separate Account assets..................................... 1,340,154 663,458
Other assets................................................ 257,038 211,516
----------- -----------
TOTAL ASSETS $93,795,318 $86,357,478
=========== ===========
LIABILITIES, CAPITAL AND CONTINGENCY RESERVES
Policy and contract reserves................................ $81,149,016 $75,909,906
Dividends declared for the following year................... 1,778,732 1,636,738
Asset Valuation Reserve..................................... 2,338,643 2,134,921
Interest Maintenance Reserve................................ 781,272 729,090
Separate Account liabilities................................ 1,265,447 559,754
Other liabilities........................................... 705,633 636,364
----------- -----------
Total Liabilities 88,018,743 81,606,773
Capital: 2,500 shares of $1,000 par value common stock
issued and outstanding.................................... 2,500 2,500
----------- -----------
Contingency reserves:
For group life insurance.................................. 9,846 8,739
For investment losses, annuity and insurance mortality,
and other risks........................................ 5,764,229 4,739,466
----------- -----------
Total Contingency Reserves................................ 5,774,075 4,748,205
----------- -----------
Total Capital and Contingency Reserves.................... 5,776,575 4,750,705
----------- -----------
TOTAL LIABILITIES, CAPITAL AND CONTINGENCY RESERVES $93,795,318 $86,357,478
=========== ===========
</TABLE>
See notes to statutory-basis financial statements.
B-69
<PAGE> 110
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY-BASIS STATEMENTS OF OPERATIONS
(amounts in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INCOME
Insurance and annuity premiums and deposits..... $ 2,844,792 $ 2,781,827 $ 2,854,600
Transfers from CREF, net........................ 686,373 366,920 351,869
Annuity dividend additions...................... 2,284,029 2,131,890 1,943,614
Net investment income........................... 6,902,123 6,525,529 6,108,497
Supplementary contract considerations........... 227,936 203,770 150,976
----------- ----------- -----------
TOTAL INCOME $12,945,253 $12,009,936 $11,409,556
=========== =========== ===========
DISTRIBUTION OF INCOME
Policy and contract benefits.................... $ 2,138,424 $ 1,916,597 $ 1,718,597
Dividends....................................... 3,617,551 3,399,581 3,098,931
Increase in policy and contract reserves........ 5,234,590 5,097,213 5,329,040
Operating expenses.............................. 272,584 249,000 241,795
Transfers to Separate Accounts, net............. 543,891 395,686 92,995
Federal income taxes............................ 24,194 13,154 9,488
Other, net...................................... 307 1,112 (4,380)
Increase in contingency reserves from
operations.................................... 1,113,712 937,593 923,090
----------- ----------- -----------
TOTAL DISTRIBUTION OF INCOME $12,945,253 $12,009,936 $11,409,556
=========== =========== ===========
</TABLE>
See notes to statutory-basis financial statements.
B-70
<PAGE> 111
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY-BASIS STATEMENTS OF CHANGES IN CONTINGENCY RESERVES
(amounts in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CHANGES IN CONTINGENCY RESERVES:
From operations.................................... $1,113,712 $ 937,593 $ 923,090
Net realized capital gain (loss) on investments.... 249,412 163,950 (56,265)
Net unrealized capital gain (loss) on
investments...................................... (2,482) 30,452 52,706
Transfer to the Interest Maintenance Reserve....... (136,512) (167,086) (114,840)
Transfers from (to) the Asset Valuation Reserve:
Required formula contribution.................... (205,450) (246,181) (302,388)
Net capital (gains) losses absorbed.............. (117,961) (27,872) 106,215
Adjustment down to maximum....................... 119,690 -- --
Decrease (increase) in non-admitted assets other
than investments................................. 1,200 (4,764) (803)
Change in valuation basis of policy reserves....... (4,657) -- --
Other, net......................................... 8,918 8,433 10,641
---------- ---------- ----------
NET CHANGE IN CONTINGENCY RESERVES 1,025,870 694,525 618,356
CONTINGENCY RESERVES AT BEGINNING OF YEAR 4,748,205 4,053,680 3,435,324
---------- ---------- ----------
CONTINGENCY RESERVES AT END OF YEAR $5,774,075 $4,748,205 $4,053,680
========== ========== ==========
</TABLE>
See notes to statutory-basis financial statements.
B-71
<PAGE> 112
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED
By operating activities:
Insurance and annuity premiums, deposits and
considerations............................. $ 3,053,452 $ 2,973,899 $ 2,999,426
Transfers from CREF, net...................... 686,373 366,920 351,869
Annuity dividend additions.................... 2,284,029 2,131,890 1,943,614
Investment income, net........................ 6,777,023 6,485,403 5,998,016
----------- ----------- -----------
Total Receipts 12,800,877 11,958,112 11,292,925
----------- ----------- -----------
Policy and contract benefits.................. 2,143,927 2,084,122 1,715,727
Dividends..................................... 3,475,557 3,251,329 2,987,867
Operating expenses............................ 269,041 247,251 240,323
Federal income taxes.......................... 27,277 14,985 8,511
Transfers to Separate Accounts, net........... 543,933 396,239 92,270
Separate Account seed money investment
contributed (withdrawn), net............... (37,915) (7,387) 66,748
Other, net.................................... (46,076) 48,215 6,824
----------- ----------- -----------
Total Disbursements 6,375,744 6,034,754 5,118,270
----------- ----------- -----------
Cash Provided by Operating Activities 6,425,133 5,923,358 6,174,655
----------- ----------- -----------
By investing activities:
Sales and redemptions of bonds and stocks..... 4,716,915 4,480,206 3,863,413
Repayment of mortgage principal............... 3,773,723 3,481,965 1,166,625
Sales of real estate.......................... 1,030,385 834,010 1,084,223
Other, net.................................... 258,489 276,394 135,661
----------- ----------- -----------
Cash Provided by Investing Activities 9,779,512 9,072,575 6,249,922
----------- ----------- -----------
TOTAL CASH PROVIDED 16,204,645 14,995,933 12,424,577
----------- ----------- -----------
DISBURSEMENTS FOR NEW INVESTMENTS
Investments acquired:
Bonds and stocks.............................. 12,711,227 11,577,235 8,696,169
Mortgages..................................... 3,152,563 2,761,897 2,352,232
Real estate................................... 310,159 488,543 866,389
Other, net.................................... 466,926 266,227 228,182
----------- ----------- -----------
TOTAL DISBURSEMENTS FOR
NEW INVESTMENTS 16,640,875 15,093,902 12,142,972
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (436,230) (97,969) 281,605
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF YEAR 615,082 713,051 431,446
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENTS
AT END OF YEAR $ 178,852 $ 615,082 $ 713,051
=========== =========== ===========
</TABLE>
See notes to statutory-basis financial statements.
B-72
<PAGE> 113
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS 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 statutory-basis financial statements have been prepared on the basis of
statutory accounting practices prescribed or permitted by the New York State
Insurance Department ("Department"), a comprehensive basis of accounting that
differs from generally accepted accounting principles ("GAAP"). (Refer to the
separate sections, entitled "Generally Accepted Accounting Principles" and
"Permitted Statutory Accounting Practices", 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.
For loan-backed bonds and structured securities, amortized cost is determined
using actual and anticipated cash flows under the prospective method for
interest-only securities and under the retrospective method for all other
securities. 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 admitted assets of the
underlying entities. Policy loans are stated at outstanding principal amounts.
Seed money investments in the TIAA-CREF Mutual Funds and in new accounts
established by College Retirement Equities Fund ("CREF"), a companion
organization, are stated at market value. 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.
B-73
<PAGE> 114
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 2--Significant Accounting Policies--(Continued)
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.
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 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
B-74
<PAGE> 115
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 2--Significant Accounting Policies--(Continued)
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 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
and monitors that risk, 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 interest sensitive 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. 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 and monitors that risk, 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. 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. Such
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 from
the date of purchase of the cap to the maturity of the hedged item or program.
Upon expiration of the cap, any unamortized premium will be treated as a loss
subject to the Interest Maintenance Reserve ("IMR"). TIAA would be subject to
counterparty credit risk if the index exceeds the predetermined strike rate,
causing a
B-75
<PAGE> 116
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 2--Significant Accounting Policies--(Continued)
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.
INVESTMENT INCOME DUE AND ACCRUED: Investment income due and accrued excludes
non-admitted amounts of approximately $251,063,000 and $291,742,000 at December
31, 1997 and 1996, 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 $178,181,000 at December 31, 1997 and $179,363,000 at
December 31, 1996. Changes in such non-admitted assets are charged or credited
directly to contingency reserves.
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 generally
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, and insurance companies may also make voluntary
contributions to any component; however, the resulting ending balance can not
exceed the computed maximum reserve for that component. Any computed excess
amounts are eliminated through transfers to other components or adjustments down
to the
B-76
<PAGE> 117
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 2--Significant Accounting Policies--(Continued)
maximum reserve amounts. At December 31, 1997, each component of TIAA's AVR was
at the maximum reserve level. Contributions and adjustments to the AVR are
reported as transfers to or from contingency reserves.
INTEREST MAINTENANCE RESERVE: The 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 and, through
December 31, 1997, was exempt from federal income taxation under the Internal
Revenue Code. However, any non-pension related income was 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. Effective January 1, 1998, as
a result of recent legislation, TIAA will no longer be exempt from federal
income taxation and will be taxed as a stock life insurance company.
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 clarified
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 the
enterprise does not have the transaction, event, or circumstance addressed in
the pronouncement. The Interpretation, as amended, was effective for financial
statements issued for fiscal years beginning after December 15, 1995. The effect
of the Interpretation is that, TIAA (and mutual life insurance and other
enterprises) can not refer to financial statements prepared in accordance with
statutory accounting practices as having been prepared in accordance 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:
- - 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;
B-77
<PAGE> 118
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 2--Significant Accounting Policies--(Continued)
- - 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;
- - 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;
- - The "non-admitted" asset designation is not utilized;
- - Policy acquisition costs are deferred and amortized over the lives of the
policies issued rather than being charged to operations as incurred;
- - Policy and contract reserves are based on estimates of expected mortality and
interest rather than being based on statutory mortality and interest
requirements;
- - 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;
- - 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 would increase TIAA's total capital if GAAP were implemented.
PERMITTED STATUTORY ACCOUNTING PRACTICES: Statutory accounting practices
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 practices 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 practices
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; recognition of permanent impairments; and netting
of securities lending collateral against the "Cash and short-term investments"
caption.
RECLASSIFICATIONS: Certain amounts in the 1996 financial statements have been
reclassified to conform with the 1997 presentation.
B-78
<PAGE> 119
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 3--Investments
SECURITIES INVESTMENTS: At December 31, 1997 and 1996, 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, 1997 VALUE GAINS LOSSES MARKET VALUE
----------------- --------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations..... $ 765,179,973 $ 187,633,872 $ 952,813,845
Debt securities issued by
foreign governments........... 1,591,333,014 258,518,816 $ 23,329,983 1,826,521,847
Corporate securities............ 31,671,902,704 2,564,486,392 78,849,935 34,157,539,161
Mortgage-backed securities...... 19,667,177,051 1,069,124,042 107,193,640 20,629,107,453
Asset-backed securities......... 9,774,003,292 350,882,825 50,168,914 10,074,717,203
--------------- -------------- ------------ ---------------
Total................. $63,469,596,034 $4,430,645,947 $259,542,472 $67,640,699,509
=============== ============== ============ ===============
DECEMBER 31, 1996
- --------------------------------
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
=============== ============== ============ ===============
</TABLE>
At December 31, 1997 and 1996, approximately 94.6% and 95.4%, respectively, of
the long-term bond portfolio was comprised of investment grade securities. At
December 31, 1997, outstanding forward commitments for future long-term bond and
equity investments approximated $2,666,747,000. Of this, $2,383,654,000 is
scheduled for disbursement in 1998, $131,688,000 in 1999, and $151,405,000 in
later years. The funding of bond commitments is contingent upon the continued
favorable financial performance of the potential borrowers. Debt securities
amounting to approximately $2,749,000 and $2,610,000 at December 31, 1997 and
1996, respectively, were on deposit with governmental authorities or trustees as
required by law.
B-79
<PAGE> 120
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 3--Investments--(Continued)
The carrying values and estimated market values of long-term bond investments at
December 31, 1997, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE MARKET VALUE
--------------- ---------------
<S> <C> <C>
Due in one year or less..................................... $ 326,227,149 $ 330,395,581
Due after one year through five years....................... 5,139,896,348 5,457,592,151
Due after five years through ten years...................... 11,544,053,978 12,106,979,418
Due after ten years......................................... 17,018,238,216 19,041,907,703
--------------- ---------------
Subtotal.......................................... 34,028,415,691 36,936,874,853
Mortgage-backed securities.................................. 19,667,177,051 20,629,107,453
Asset-backed securities..................................... 9,774,003,292 10,074,717,203
--------------- ---------------
Total............................................. $63,469,596,034 $67,640,699,509
=============== ===============
</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, 1997 and 1996, the carrying values of long-term bond investments
were diversified by industry classification as follows:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Mortgage-backed securities.................................. 31.0% 31.8%
Asset-backed securities..................................... 15.4 11.4
Manufacturing............................................... 11.9 13.0
Public utilities............................................ 11.1 12.9
Finance and financial services.............................. 9.0 8.3
Government.................................................. 4.3 4.8
Retail and wholesale trade.................................. 3.8 4.3
Communications.............................................. 3.8 3.7
Oil and gas................................................. 3.4 4.0
Other....................................................... 6.3 5.8
----- -----
Total............................................. 100.0% 100.0%
===== =====
</TABLE>
B-80
<PAGE> 121
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS 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, 1997.............................. $1,634,267,000 $1,742,556,000 $1,790,560,000
December 31, 1996.............................. $1,625,029,000 $1,678,166,000 $1,746,346,000
</TABLE>
At December 31, 1997 and 1996, TIAA had interest rate swap contracts outstanding
with a total notional value of $267,755,000 and $187,355,000, respectively.
At December 31, 1997 and 1996, TIAA had foreign currency swap contracts
outstanding with a total notional value of approximately $485,274,000 and
$337,404,000, respectively. The unrealized gains (losses) on foreign currency
swap contracts outstanding at year-end was approximately $25,864,000,
$1,367,000, and $(1,099,000) at December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, TIAA had foreign currency forward contracts
outstanding with a total notional value of approximately $2,274,000 and
$12,522,000, respectively, and the unamortized value of the premiums was
approximately $29,000 and $188,000, respectively. The unrealized gains on the
forward contracts outstanding at year-end were approximately $65,000 and $28,000
at December 31, 1997 and 1996, respectively.
At December 31, 1997 and 1996, TIAA had swap options outstanding with a total
notional value of $170,700,000 and $58,000,000, respectively, and the
unamortized value of the premiums was approximately $677,000 and $434,000,
respectively. The interest rate swap contracts created from the exercise of swap
options are reflected in the aggregate totals for the interest rate swap
contracts disclosed in the related paragraph above.
At December 31, 1997 and 1996, TIAA had interest rate cap contracts outstanding
with a total notional value of $5,978,970,000 and $32,520,000, respectively, and
the unamortized value of the premiums was approximately $37,758,000 and
$507,000, respectively. Interest rate cap contracts with a notional value of
$5,860,000,000 and representing $36,586,000 of the unamortized premiums at
December 31, 1997 expired in January 1998.
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 the effects of current and
expected market conditions and other factors on the
B-81
<PAGE> 122
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 3--Investments--(Continued)
collectability of mortgage loans and the realizability of real estate
investments. This system is utilized to identify and quantify any permanent
impairments in value.
At December 31, 1997 and 1996, the carrying values of mortgage loan investments
were diversified by property type and geographic region as follows:
<TABLE>
<CAPTION>
PROPERTY TYPE 1997 1996
------------- ----- -----
<S> <C> <C>
Office buildings............................................ 40.0% 41.3%
Shopping centers............................................ 30.7 29.4
Mixed-use projects.......................................... 10.2 10.7
Apartments.................................................. 6.9 7.3
Industrial buildings........................................ 5.6 5.4
Hotels...................................................... 4.3 4.2
Other....................................................... 2.3 1.7
----- -----
Total............................................. 100.0% 100.0%
===== =====
GEOGRAPHIC REGION
- ------------------------------------------------------------
West........................................................ 26.7% 28.1%
Northeast................................................... 22.3 22.5
Southeast................................................... 20.0 18.6
Midwest..................................................... 18.1 20.5
Southwest/Plains............................................ 12.9 10.3
----- -----
Total............................................. 100.0% 100.0%
===== =====
</TABLE>
At December 31, 1997 and 1996, approximately 20% and 22%, respectively, of the
mortgage portfolio was invested in California and is included in the West region
shown above.
At December 31, 1997, the contractual maturity schedule of mortgage loans is
shown below:
<TABLE>
<CAPTION>
CARRYING VALUE
---------------
<S> <C>
Due in one year or less..................................... $ 1,195,809,221
Due after one year through five years....................... 2,980,445,752
Due after five years through ten years...................... 9,523,895,421
Due after ten years......................................... 5,201,775,611
---------------
Total............................................. $18,901,926,005
===============
</TABLE>
Actual maturities may differ from contractual maturities because borrowers may
have the right to prepay mortgage loans, although prepayment premiums may be
applicable.
B-82
<PAGE> 123
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 3--Investments--(Continued)
At December 31, 1997, outstanding forward commitments for future mortgage loan
investments approximated $1,066,014,000, including commitments under litigation.
Of this, $811,086,000 is scheduled for disbursement in 1998, $105,504,000 in
1999 and $149,424,000 in later years. The funding of mortgage loan commitments
is contingent upon the underlying properties meeting specified construction,
leasing, occupancy and other requirements.
At December 31, 1997, 1996 and 1995, the aggregate carrying values of mortgages
with restructured or modified terms, as defined by generally accepted accounting
principles, were approximately $552,070,000, $621,056,000 and $872,377,000,
respectively. For the years ended December 31, 1997, 1996 and 1995, the
investment income earned on such mortgages was approximately $39,945,000,
$43,408,000 and $57,142,000, respectively, which would have been approximately
$56,034,000, $68,371,000 and $96,625,000, 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, 1997 and 1996, the carrying values of real estate investments
were diversified by property type and geographic region as follows:
<TABLE>
<CAPTION>
PROPERTY TYPE 1997 1996
------------- ----- -----
<S> <C> <C>
Office buildings............................................ 61.6% 63.2%
Shopping centers............................................ 17.8 16.3
Mixed-use projects.......................................... 7.9 7.3
Income-producing land underlying improved real estate....... 3.3 3.5
Industrial buildings........................................ 3.0 3.5
Land held for future development............................ 1.9 1.8
Apartments.................................................. 0.3 0.4
Other....................................................... 4.2 4.0
----- -----
Total............................................. 100.0% 100.0%
===== =====
GEOGRAPHIC REGION
- ------------------------------------------------------------
Midwest..................................................... 32.1% 34.6%
Southeast................................................... 27.2 26.0
West........................................................ 14.6 14.4
Northeast................................................... 13.4 14.5
Southwest/Plains............................................ 10.2 10.5
Other....................................................... 2.5 0.0
----- -----
Total............................................. 100.0% 100.0%
===== =====
</TABLE>
B-83
<PAGE> 124
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 3 -- Investments--(Concluded)
At December 31, 1997 and 1996, approximately 11% and 12%, respectively, of the
real estate portfolio was invested in Minnesota and included in the Midwest
region shown above. At December 31, 1997 and 1996, approximately 11% and 10%,
respectively, of the real estate portfolio was also invested in California and
included in the West region shown above.
At December 31, 1997, outstanding forward commitments for future real estate
investments approximated $203,974,000. Under these commitments, it is estimated
that $185,802,000 will be disbursed in 1998 and $18,172,000 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,
1997, 1996 and 1995, was approximately $147,494,000, $135,982,000 and
$98,198,000, respectively; the amount of accumulated depreciation at December
31, 1997 was approximately $440,659,000.
ASSET VALUATION RESERVES: The AVR balances at December 31, 1997 and 1996 were
comprised of the following asset-specific reserves:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Bonds and preferred stock................................... $ 545,863,951 $ 692,863,748
Mortgages................................................... 975,041,395 647,666,546
Real estate................................................. 756,720,622 707,054,921
Common stock................................................ 27,266,124 53,869,704
Other invested assets....................................... 33,750,538 33,466,350
-------------- --------------
Total............................................. $2,338,642,630 $2,134,921,269
============== ==============
</TABLE>
B-84
<PAGE> 125
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 4--Investment Income and Capital Gains and Losses
NET INVESTMENT INCOME: For the years ended December 31, 1997, 1996 and 1995,
the components of net investment income were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Gross Investment Income:
Bonds........................................ $4,919,147,802 $4,397,330,653 $4,113,077,743
Mortgages.................................... 1,561,650,688 1,704,612,536 1,688,836,730
Real estate (net of property expenses, taxes
and depreciation)......................... 282,710,437 349,550,153 279,016,562
Stocks....................................... 45,018,729 14,512,747 24,460,434
Other long-term investments.................. 49,877,245 16,299,166 16,706,459
Cash and short-term investments.............. 81,908,105 64,600,106 52,050,980
Other........................................ 1,863,273 30,748,262 8,500,640
-------------- -------------- --------------
Total................................ 6,942,176,279 6,577,653,623 6,182,649,548
Less investment expenses....................... (124,382,062) (111,487,052) (112,287,010)
-------------- -------------- --------------
Net investment income before amortization of
net IMR gains................................ 6,817,794,217 6,466,166,571 6,070,362,538
Plus amortization of net IMR gains............. 84,329,279 59,362,364 38,134,446
-------------- -------------- --------------
Net investment income.......................... $6,902,123,496 $6,525,528,935 $6,108,496,984
============== ============== ==============
</TABLE>
Participation income received on securities, mortgages and real estate included
in the above table was approximately $20,894,000, $21,121,000 and $28,088,000 in
1997, 1996 and 1995, 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 7.99%, 8.17% and 8.29% in 1997, 1996 and 1995,
respectively.
Future rental income expected to be received during the next five years under
existing real estate leases in effect as of December 31, 1997 is approximately
$529,413,000 in 1998, $479,110,000 in 1999, $414,668,000 in 2000, $354,387,000
in 2001 and $252,531,000 in 2002.
B-85
<PAGE> 126
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 4--Investment Income and Capital Gains and Losses--(Concluded)
REALIZED CAPITAL GAINS AND LOSSES: For the years ended December 31, 1997, 1996
and 1995, the net realized capital gains (losses) on sales, redemptions and
writedowns of investments computed under the specific identification method were
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
Bonds............................................. $ 99,205,212 $ 83,521,853 $ 32,698,203
Mortgages......................................... (18,206,968) (120,569,347) (204,033,034)
Real estate....................................... 172,463,239 62,836,567 99,207,556
Stocks............................................ 651,273 123,374,256 9,808,562
Other long-term investments....................... (2,552,791) 27,068,040 7,885,199
Cash and short-term investments................... (121,752) (13,797,036) (758,274)
Other............................................. -- 14,400 1,360,695
------------ ------------- -------------
Total realized gains (losses) before capital gains
tax............................................. 251,438,213 162,448,733 (53,831,093)
Capital gains (tax) benefit....................... (2,026,003) 1,501,742 (2,433,800)
------------ ------------- -------------
Total................................... $249,412,210 $ 163,950,475 $ (56,264,893)
============ ============= =============
</TABLE>
Proceeds from sales and redemptions of long-term bond investments during 1997,
1996 and 1995 were approximately $4,652,635,000, $4,329,771,000 and
$3,822,394,000, respectively. Gross gains of approximately $111,635,000,
$133,807,000 and $122,093,000 and gross losses of approximately $10,931,000,
$45,397,000 and $49,736,000 were realized on these sales and redemptions during
1997, 1996 and 1995, respectively.
UNREALIZED CAPITAL GAINS AND LOSSES: For the years ended December 31, 1997,
1996 and 1995, 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>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Bonds................................................ $(68,528,047) $ 3,982,108 $ 51,534,565
Mortgages............................................ 1,232,724 2,393,812 (1,807,561)
Real estate.......................................... 4,315,196 20,766,890 (42,391,326)
Stocks............................................... 30,350,946 (26,004,886) 26,290,762
Other long-term investments.......................... 20,169,489 10,306,026 22,455,069
Cash and short-term investments...................... (21,987) 8,605 --
Other................................................ -- 18,999,590 (3,375,400)
------------ ------------ ------------
Total...................................... $ (2,481,679) $ 30,452,145 $ 52,706,109
============ ============ ============
</TABLE>
B-86
<PAGE> 127
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS 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, 1997 and 1996 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, 1997 VALUE VALUE FAIR VALUE
----------------- -------------- --------------- ---------------
<S> <C> <C> <C>
Assets
Bonds...................................... $63,469,596,034 $67,640,699,509
Mortgages.................................. 18,901,926,005 20,197,917,668
Common stocks.............................. 81,903,321 81,903,321
Preferred stocks........................... 883,392,062 912,783,530
Cash and short-term investments............ 178,851,723 178,851,723
Policy loans............................... 245,941,298
Seed money investments..................... 304,563,735 304,563,735
Liabilities
Teachers Personal Annuity--Fixed Account... 867,671,667 867,671,667
Other financial instruments
Foreign currency swap contracts............ $ 485,274,391 25,012,137 8,717,339
Foreign currency forward contracts......... 2,273,584 94,430 89,302
Interest rate swap contracts............... 267,755,000 -- 13,599,458
Swap options............................... 170,700,000 (676,870) (839,432)
Interest rate cap contracts................ 5,978,970,000 37,757,743 642,577
Stock warrants............................. -- 5,795,468
</TABLE>
B-87
<PAGE> 128
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 5--Disclosures About Fair Value of Financial Instruments--(Continued)
<TABLE>
<CAPTION>
NOTIONAL CARRYING ESTIMATED
DECEMBER 31, 1997 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
Common stocks.............................. 82,887,418 82,887,418
Preferred stocks........................... 272,205,960 268,493,100
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............................. -- --
</TABLE>
BONDS: The fair values for publicly traded long-term bond investments are
determined using quoted market prices. For privately placed long-term bond
investments without a readily ascertainable market value, such values are
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, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ---------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE FAIR VALUE VALUE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Publicly traded bonds....... $37,479,723,007 $40,216,394,144 $33,088,013,741 $34,773,725,991
Privately placed bonds...... 25,989,873,027 27,424,305,365 23,004,117,086 24,515,182,934
--------------- --------------- --------------- ---------------
Total............. $63,469,596,034 $67,640,699,509 $56,092,130,827 $59,288,908,925
=============== =============== =============== ===============
</TABLE>
MORTGAGES: The fair values of mortgages are 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.
COMMON STOCKS, CASH AND SHORT-TERM INVESTMENTS, POLICY LOANS, AND SEED MONEY
INVESTMENTS: The carrying values are reasonable estimates of fair values.
B-88
<PAGE> 129
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 5--Disclosures About Fair Value of Financial Instruments--(Continued)
<TABLE>
<S> <C> <C> <C> <C>
NOTIONAL CARRYING ESTIMATED
DECEMBER 31, 1996 VALUE VALUE FAIR VALUE
- ---------------------------- --------------- --------------- ---------------
</TABLE>
PREFERRED STOCKS: The fair values of preferred stocks are determined using
quoted market prices or valuations from the NAIC.
TEACHERS PERSONAL ANNUITY--FIXED ACCOUNT: The carrying values of the
liabilities are reasonable estimates of fair values.
FOREIGN CURRENCY SWAP CONTRACTS: The fair values of foreign currency swap
contracts, which are used for hedging purposes, are the estimated net gains or
(losses) that TIAA would record if the foreign currency swaps were liquidated at
year-end. The fair values of foreign currency swap contracts are estimated
internally based on future cash flows and anticipated exchange relationships,
and such values are reviewed for reasonableness with values from external
parties, including TIAA's counterparties.
FOREIGN CURRENCY FORWARD CONTRACTS: The fair values of foreign currency forward
contracts, which are used for hedging purposes, are the estimated net gains or
(losses) that TIAA would record if the foreign currency forward contracts were
liquidated at year-end. The fair values of the foreign currency forward
contracts are estimated internally based on future cash flows and anticipated
exchange relationships, and such values are reviewed for reasonableness with
estimates from external parties, including TIAA's counterparties.
INTEREST RATE SWAP CONTRACTS: The fair values of interest rate swap contracts,
which are used for hedging purposes, are the estimated net gains or (losses)
that TIAA would record if the interest rate swaps were liquidated at year-end.
The swap agreements have no carrying value. The fair values of interest rate
swap contracts are estimated internally based on anticipated interest rates and
estimated future cash flows, and such values are reviewed for reasonableness
with estimates from external parties, including TIAA's counterparties.
SWAP OPTIONS: The fair values of swap options, which are used for hedging
purposes, are the estimated amounts that TIAA would receive or (pay) if the swap
options were liquidated at year-end. The fair values of the swap options are
estimated by external parties, including TIAA's counterparties, and such values
are reviewed internally for reasonableness based on anticipated interest rates
and estimated future cash flows.
INTEREST RATE CAP CONTRACTS: The fair values of interest rate cap contracts,
which are used for hedging purposes, are the estimated amounts that TIAA would
receive or (pay) if the interest rate cap contracts were liquidated at year-end.
The fair values of the interest rate cap contracts are estimated by external
parties, including TIAA's counterparties, and such values are reviewed
internally for reasonableness based on anticipated interest rates and estimated
future cash flows.
B-89
<PAGE> 130
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
STOCK WARRANTS: The fair values of stock warrants represent the excess, if any,
of the market values of the related stocks over the exercise prices associated
with the stock warrants. 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 CREF are provided, at cost, by two
subsidiaries of TIAA, TIAA-CREF Investment Management, LLC ("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 $340,898,000, $274,447,000 and
$226,645,000 in 1997, 1996 and 1995, respectively, are not included in the
statements of operations and had no effect on TIAA's operations.
All services necessary for the operation of the TIAA Real Estate Account ("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 Holdings, Inc.
("THI"), which is itself a wholly-owned subsidiary of TIAA, provides investment
advisory services for the TIAA Separate Account
B-90
<PAGE> 131
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 6--Management Agreements--(Concluded)
VA-1 ("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 THI, 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 $20,862,000, $20,808,000 and $19,467,000 in
1997, 1996 and 1995, 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 $3,398,000, $3,022,000
and $2,273,000 for 1997, 1996 and 1995, respectively. TIAA also maintains a
deferred compensation plan for non-employee trustees and members of the TIAA
Board of Overseers. Prior to January 2, 1998, this plan provided each eligible
trustee or member with a single-sum payment upon leaving the board equal to 50%
of the annual stipend then in effect multiplied by years of service, up to a
maximum of 20 years. Effective January 2, 1998, the plan provides a total award
each year equal to 50% of the basic annual stipend. Each award is invested in
company-owned annuity contracts. Payout of accumulations in the company-owned
contracts is normally made as a lump sum following the trustee's or member's
separation from the Board.
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, 1997 and 1996, the carrying values of TIAA's
investments in real estate subsidiaries and other affiliates were approximately
$3,423,910,000 and $4,234,818,000, respectively. Subsidiary total assets,
liabilities and gross rental income
B-91
<PAGE> 132
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 8--Unconsolidated Subsidiaries and Other Affiliates--(Concluded)
of real estate subsidiaries, as of and for the years ended December 31, 1997 and
1996, were approximately as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Assets................................................. $4,387,482,000 $5,149,487,000
Liabilities............................................ 792,142,000 933,678,000
Gross rental income.................................... 688,963,000 760,704,000
</TABLE>
Earnings of approximately $156,648,000, $238,313,000 and $164,676,000 in 1997,
1996 and 1995, 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, 1997 and 1996, the carrying values of TIAA real estate
subsidiaries that are partners in joint ventures were approximately
$1,382,378,000 and $2,242,791,000. Joint venture total assets, liabilities and
gross rental income, as of and for the years ended December 31, 1997 and 1996,
were approximately as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Assets................................................. $2,075,352,000 $3,099,467,000
Liabilities............................................ 997,969,000 1,116,222,000
Gross rental income.................................... 377,919,000 484,657,000
</TABLE>
The subsidiaries' equity share in these total assets, liabilities and gross
rental income were approximately as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Assets................................................. $1,960,400,000 $2,981,156,000
Liabilities............................................ 577,826,000 778,312,000
Gross rental income.................................... 349,770,000 455,196,000
</TABLE>
Net income earned by the subsidiaries from joint venture investments was
approximately $56,362,000, $130,887,000 and $60,689,000 in 1997, 1996 and 1995,
respectively. Some of the real estate joint ventures have loans from TIAA. At
December 31, 1997 and 1996, the unpaid principal of such loans was approximately
$437,932,000 and 491,817,000 respectively.
B-92
<PAGE> 133
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 9--Annuity Reserves
At December 31, 1997, TIAA's general account annuity reserves are summarized as
follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
--------------- -------
<S> <C> <C>
Subject to discretionary withdrawal:
At book value without adjustment.......................... $ 7,856,442,214 9.8%
At market value........................................... -- --
Not subject to discretionary withdrawal................... 72,437,186,123 90.2%
--------------- -----
Total annuity reserves............................ 80,293,628,337 100.0%
--------------- -----
Reconciliation to total policy and contract reserves shown
on the balance sheet:
Reserves on other life policies and contracts............. 348,411,715
Reserves on accident and health policies.................. 506,976,271
---------------
Total policy and contract reserves................ $81,149,016,323
===============
</TABLE>
Note 10--Separate Accounts
TIAA currently has two separate accounts.
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. TIAA redeemed all of its SIA units by the end of 1996.
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. 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
B-93
<PAGE> 134
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
Note 10--Separate Accounts--(Concluded)
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, 1997 and 1996, the
number of units retained by TIAA in REA were 610,864 and 933,333, respectively,
with a total value of approximately $74,706,520 and $103,704,000, respectively.
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. Annuities offered through VA-1 include a nominal guaranteed minimum
death benefit. For the REA, TIAA guarantees that actual mortality experience
will not reduce payments after they have started. TIAA makes no further
guarantees to policyholders on any of its separate accounts. Both accounts offer
full or partial withdrawal at market value with no surrender charge.
Note 11--Mutual Funds
On July 17, 1997, TIAA made a $250,000,000 seed money investment to launch the
TIAA-CREF Mutual Funds ("the Funds"), a Delaware business trust that was
organized on January 13, 1997 and is registered with the Commission under the
Investment Company Act of 1940 as an open-end management investment company. The
Funds consist of six series (each referred to as a "Fund"), each of which
commenced operations on July 17, 1997. TIAA invested $48,000,000 in the Money
Market Fund; $32,000,000 in the Bond Plus Fund; $38,000,000 in the Growth &
Income Fund; $38,000,000 in the Growth Equity Fund; $44,000,000 in the
International Equity Fund; and $50,000,000 in the Managed Allocation Fund.
Shortly after being seeded, the Managed Allocation Fund invested its seed money
and its earnings to date in the other Funds. On September 2, 1997, the Funds
began to publicly offer their shares, without a sales load, through their
distributor, TPIS. Advisors provides investment management services for the
Funds and is also responsible for providing, or obtaining at its own expense,
the services reasonably necessary for the ordinary operation of the Funds. At
December 31, 1997, TIAA's investment in the Funds totaled approximately
$252,327,000 and such amount is reflected in the "Other long-term investments"
caption in the accompanying balance sheet.
Note 12--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
B-94
<PAGE> 135
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Concluded)
Note 12--Termination of Business in Canada--(Concluded)
financial results. TIAA has no continuing material obligation associated with
its withdrawal from the Canadian insurance market.
Note 13--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.
B-95
<PAGE> 136
Part C - OTHER INFORMATION
ITEM 28. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following Financial Statements for TIAA Separate Account
VA-1 are included with Part A (Prospectus) of this Registration Statement:
Page
----
Condensed Financial Information 6
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:
<TABLE>
<CAPTION>
Page
----
(1) The Registrant--Stock Index Account
<S> <C>
Report of Management Responsibility . . . . . . . . . . . . . . . B-22
Report of Independent Auditors . . . . . . . . . . . . . . . . . B-23
Audited Financial Statements:
Statement of Assets and Liabilities . . . . . . . . . . . . . . B-24
Statement of Operations . . . . . . . . . . . . . . . . . . . . B-25
Statements of Changes in Net Assets . . . . . . . . . . . . . . B-26
Notes to Financial Statements . . . . . . . . . . . . . . . . . . B-27
Statement of Investments . . . . . . . . . . . . . . . . . . . . B-30
(2) TIAA
Chairman's Letter . . . . . . . . . . . . . . . . . . . . . . . . B-66
Report of Management Responsibility . . . . . . . . . . . . . . . B-67
Report of Independent Auditors . . . . . . . . . . . . . . . . . B-68
Audited Financial Statements:
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . B-69
Statements of Operations . . . . . . . . . . . . . . . . . . . B-70
Statements of Changes in Contingency Reserves . . . . . . . . . B-71
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . B-72
Notes to Financial Statements . . . . . . . . . . . . . . . . . . B-73
</TABLE>
(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 amended *
(6) (A) Form of Teachers Personal Annuity Contract
(effective November 1, 1994) 2/
C-1
<PAGE> 137
(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, as amended*
(B) Bylaws of TIAA, as amended*
(9) None
(10) Not Applicable
(11) Administrative Services Agreement by and between TIAA
and the Registrant, as amended4
(12) (A) Consent of Charles H. Stamm, Esquire*
(B) Consent of Sutherland, Asbill & Brennan LLP*
(13) (A) Consent of Ernst & Young LLP*
(B) 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> 138
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>
David Alexander Trustee
President Emeritus
Pomona College
Summer Hall, 330 College Way
Claremont, California 91711-6305
Marcus Alexis Trustee
Board of Trustees 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, Chairman, President
TIAA-CREF and Chief Executive Officer
730 Third Avenue
New York, New York 10017-3206
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
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
Martin J. Gruber Trustee
Nomura Professor of Finance
Leonard N. Stern School of Business
New York University
Management Education Center
44 West 4th Street, Suite 9-190
New York, New York 10012-1126
</TABLE>
C-3
<PAGE> 139
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name and Principal Business Address Insurance Company Registrant
- ----------------------------------- ----------------- -------------
<S> <C> <C>
Ruth Simms Hamilton Trustee
Professor of Sociology and Director of
African Diaspora Research Project
Michigan State University
W142 Owen Graduate Hall
East Lansing, Michigan 48824
Dorothy Ann Kelly, O.S.U. Trustee
Chancellor
Office of the Chancellor
College of New Rochelle
New Rochelle, New York 10805
Martin L. Leibowitz Trustee, Vice Chairman and
TIAA-CREF Chief Investment Officer
730 Third Avenue
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 22911-8691
Leonard S. Simon Trustee
Vice Chairman
Charter One 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, P.O. Box 488
Bowling Green, Ohio 43402
Paul R. Tregurtha Trustee
Chairman and Chief Executive
Mormac Marine Group, Inc.
Three Landmark Square
Stamford, Connecticut 06901
William H. Waltrip Trustee
Chairman
Bausch & Lomb Incorporated
20th Floor
One Bausch & Lomb Place
Rochester, New York 14604-2701
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
</TABLE>
C-4
<PAGE> 140
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name and Principal Business Address Insurance Company Registrant
- ----------------------------------- ----------------- -------------
<S> <C> <C>
Jonah J. Applebaum Senior Counsel
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
Diane M. Axelrod Senior Managing Director Senior Managing
TIAA-CREF 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 Counsel
New York, New York 10017-3206
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
Madeleine d'Ambrosio Vice President
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
Douglas Dial Senior Managing Director Senior Managing Director
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
Scott Evans Executive Vice President Executive Vice President
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
Eric E. Fisher Senior Managing Director Senior Managing Director
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
Dennis D. Foley Vice President, Research Vice President, Research and
TIAA-CREF and Development Development
730 Third Avenue
New York, New York 10017-3206
</TABLE>
C-5
<PAGE> 141
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name and Principal Business Address Insurance Company Registrant
- ----------------------------------- ----------------- -------------
<S> <C>
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 Payment Accounting and Payment
New York, New York 10017-3206 Services Services
Don Harrell Executive Executive Vice President
TIAA-CREF Vice President
730 Third Avenue
New York, New York 10017-3206
Matina Horner Executive Executive Vice President
TIAA-CREF Vice President
730 Third Avenue
New York, New York 10017-3206
Roseanne Lipman Klein Vice President and Chief
TIAA-CREF Counsel, Tax
730 Third Avenue
New York, New York 10017-3206
Kirk Kozero Officer, Marketing Manager
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
Seema Luthra Director, Insurance Planning
TIAA-CREF and Service Center
730 Third Avenue
New York, New York 10017-3206
Henry Liedtka Second Vice President
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
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
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 and Chief Vice President and Chief
TIAA-CREF Accountant, Accountant,
730 Third Avenue Investment Investment
New York, New York 10017-3206 Accounting Accounting
and Reporting and Reporting
John J. McGovern Second Vice
TIAA-CREF President
730 Third Avenue
New York, New York 10017-3206
</TABLE>
C-6
<PAGE> 142
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name and Principal Business Address Insurance Company Registrant
- ----------------------------------- ----------------- -------------
<S> <C> <C>
Ronald P. McPhee Senior Vice President Senior Vice President
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
Maureen Milet Second Vice President and Second Vice President and
TIAA-CREF Director Director
730 Third Avenue
New York, New York 10017-3206
Carolyn C. Mitchell Second Vice President
TIAA-CREF
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 Chief
TIAA-CREF Counsel, Insurance
730 Third Avenue
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
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
John Somers Executive Vice President Executive Vice President
TIAA-CREF
730 Third Avenue
New York, New York 10017-3206
</TABLE>
C-7
<PAGE> 143
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name and Principal Business Address Insurance Company Registrant
- ----------------------------------- ----------------- -------------
<S> <C> <C>
Lisa Snow Vice President, Chief Vice President, Chief
TIAA-CREF Counsel and Assistant Counsel and Assistant
730 Third Avenue Secretary, Secretary,
New York, New York 10017-3206 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 Second Vice President Second 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
Kathleen D. VanNoy Director, Insurance Services
TIAA-CREF Compliance
730 Third Avenue
New York, New York 10017-3206
Bruce Wallach Vice President and Vice President and Corporate
TIAA-CREF Corporate Actuary Actuary
730 Third Avenue
New York, New York 10017-3206
Thomas G. Walsh Executive Chairman of the
TIAA-CREF Vice President Management
730 Third Avenue Committee and
New York, New York 10017-3206 President
Steven Weisbart Vice President, Vice President,
TIAA-CREF Corporate Publications Corporate Publications
730 Third Avenue
New York, New York 10017-3206
John Wesley Product Manager, Research
TIAA-CREF and Development Officer
730 Third Avenue
New York, New York 10017-3206
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 Chief and Chief Actuary
730 Third Avenue Actuary
New York, New York 10017-3206
</TABLE>
C-8
<PAGE> 144
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:
<TABLE>
<S> <C>
AIC Properties, Inc. Washington Teachers Properties I, Inc.
BT Properties, Inc. Washington Teachers Properties II, Inc.
Chesapeake Investors, Inc. Windermere Goshen Trust
College Credit Trust Windermere Place Joint Venture Trust
Country Commons Doylestown Trust WRC Properties, Inc.
Country Commons Joint Venture Trust 730 Properties, Inc.
DAN Properties, Inc. 730 Cal Hotel Properties I, Inc.
Florida Teachers Properties, Inc. 730 Cal Hotel Properties II, Inc.
Illinois Teachers Properties, Inc. 730 Georgia Hotel Properties I, Inc.
JV California Two, Inc. 730 Mass. Holding I, Inc.
JV California Three, Inc. 730 Mass. Hotel Properties I, Inc.
JV Florida One, Inc. 730 Minn. Holding I, Inc.
JV Florida Four, Inc. 730 Minn. Hotel Properties I, Inc.
JV Georgia One, Inc. 730 MO Hotel Properties I, Inc.
JV Indiana Three, Inc. 730 Penn. Hotel Properties I, Inc.
JV Maryland One, Inc. TEO-NP, LLC
JV Michigan One, Inc. TIAA-CREF Investment Management, LLC
JV Michigan Two, Inc. 485 Properties, LLC
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.
Minnesota Teachers Realty Corp.
MN Properties, Inc.
M.O.A. Enterprises, Inc.
MRC Properties, Inc.
ND Properties, Inc.
New Jersey Teachers Properties, Inc.
Reserve Management, Inc.
Rouse-Teachers Properties, Inc.
Savannah Teachers Properties, Inc.
T-Investment Properties Corp.
T-Land Corp.
T-Las Colinas Towers Corp.
TCT Holdings, Inc.
Teachers Advisors, Inc.
Teachers Boca Properties II, Inc.
Teachers Pennsylvania Realty, Inc.
Teachers Personal Investors Services, Inc.
Teachers Properties, Inc.
Teachers REA, Inc.
Teachers REA II, Inc.
Teachers Realty Corporation
Tethys Slu, Inc.
TIAA-CREF Individual & Institutional Services, Inc.
TIAA-Fund Equities, Inc.
TIAA Holdings, Inc.
TIAA Life Insurance Company
TPI Housing, Inc.
</TABLE>
C-9
<PAGE> 145
(1) All subsidiaries are Delaware corporations except as follows:
A) Teachers Realty Corporation and Liberty Place Retail, Inc. are Pennsylvania
corporations.
B) Minnesota Teachers Realty Corporation is a Minnesota corporation.
C) All Trusts are Pennsylvania business trusts.
D) TIAA Life Insurance Company is a New York Corporation.
(2) All subsidiaries are 100%-owned directly by TIAA, except as follows:
A) Teachers Personal Investors Services, Inc., Teachers Advisors, Inc.,
MaCallister Holdings, Inc. and TIAA Life Insurance Company are 100%-owned
by TIAA Holdings, Inc.
B) 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.
C) 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.
D) TPI Housing, Inc. is 100%-owned by Teachers Properties, 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.
F) 730 Minn. Hotel Properties I, Inc. is 100% owned by 730 Minn. Holding I,
Inc.
G) 730 Mass. Hotel Properties I, Inc. is 100% owned by 730 Mass. Holding I,
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, LLC, which provides investment advice for
College Retirement Equities Fund.
C-10
<PAGE> 146
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.
F) TCT Holdings, Inc., which is a unitary thrift holding company, was formed
for the sole purpose of holding stock of a federal chartered savings bank.
G) TIAA Life Insurance Company, which is a subsidiary life insurance company
of TIAA, is licensed under the State of New York to market certain life
insurance products not currently offered by TIAA.
ITEM 31. NUMBER OF CONTRACTOWNERS
As of February 2, 1998, 17,731 contractowners have allocated premiums to
the Separate Account (Stock Index Account).
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
C-11
<PAGE> 147
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.
ITEM 34. PRINCIPAL UNDERWRITERS
(a) Teachers Personal Investors Service, Inc. ("TPIS"), acts as principal
underwriter for TIAA-CREF Mutual Funds.
(b) 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 are
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
C-12
<PAGE> 148
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.
(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-13
<PAGE> 149
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
Twenty-Seventh day of March, 1998.
TIAA SEPARATE ACCOUNT VA-1
By: /s/ Thomas G. Walsh
-------------------------
Thomas G. Walsh
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Thomas G. Walsh Chairman of the Management 3/27/98
- ----------------------- Committee and President
Thomas G. Walsh (Principal Executive and
Financial Officer)
/s/ Richard L. Gibbs Executive Vice President 3/27/98
- ----------------------- (Principal Accounting Officer)
Richard L. Gibbs
</TABLE>
<PAGE> 150
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Laurence W. Franz Manager 3/27/98
- -----------------------
Laurence W. Franz
/s/ Jeanmarie C. Grisi Manager 3/27/98
- ----------------------
Jeanmarie C. Grisi
/s/ Richard M. Norman Manager 3/27/98
- -----------------------
Richard M. Norman
</TABLE>
<PAGE> 151
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
Twenty-Seventh day of March, 1998.
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John H. Biggs Chairman of the Board, 3/27/98
- --------------------------- President, and Chief
John H. Biggs Executive Officer (Principal Executive
and Financial Officer)
/s/ Martin L. Leibowitz Vice Chairman, Chief Investment Officer, and 3/27/98
- -------------------------- Trustee (Principal Investment Officer)
Martin L. Leibowitz
/s/ Richard L. Gibbs Executive Vice President (Principal Accounting 3/27/98
- -------------------------- Officer)
Richard L. Gibbs
</TABLE>
<PAGE> 152
<TABLE>
<CAPTION>
Signature of Trustee Date Signature of Trustee Date
- -------------------- ---- -------------------- ----
<S> <C> <C>
/s/ David Alexander 3/27/98 /s/ Dorothy Ann Kelly 3/27/98
- ------------------------- -----------------------
David Alexander Dorothy Ann Kelly, O.S.U.
/s/ Marcus Alexis 3/27/98 /s/ Robert M. O'Neil 3/27/98
- ------------------------- -----------------------
Marcus Alexis Robert M. O'Neil
/s/ Willard T. Carleton 3/27/98 /s/ Leonard S. Simon 3/27/98
- ------------------------- -----------------------
Willard T. Carleton Leonard S. Simon
/s/ Robert C. Clark 3/27/98
- ------------------------- -----------------------
Robert C. Clark Ronald L. Thompson
/s/ Estelle A. Fishbein 3/27/98
- ------------------------- -----------------------
Estelle A. Fishbein Paul R. Tregurtha
/s/ Frederick R. Ford 3/27/98 /s/ William H. Waltrip 3/27/98
- ------------------------- -----------------------
Frederick R. Ford William H. Waltrip
/s/ Martin J. Gruber 3/27/98 /s/ Rosalie J. Wolf 3/27/98
- ------------------------- ----------------------
Martin J. Gruber Rosalie J. Wolf
/s/ Ruth Simms Hamilton 3/27/98
- -------------------------
Ruth Simms Hamilton
</TABLE>
<PAGE> 153
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
(5) Distribution Agreement by and among TIAA, the Registrant, and
Teachers Personal Investors Services, Inc. (as amended)
8(A) Charter of TIAA (as amended)
8(B) Bylaws of TIAA (as amended)
12(A) Opinion and Consent of Charles H. Stamm, Esquire
12(B) Consent of Sutherland, Asbill & Brennan LLP
13(A) Consent of Ernst & Young LLP
13(B) Consent of Deloitte & Touche LLP
16 Schedules for Computation of Performance Quotations
17 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit (5)--Distribution Agreement by and among TIAA, the Registrant, and
Teachers Personal Investors Services, Inc., (as amended)
EXHIBIT (5)
AMENDMENT TO THE DISTRIBUTION AGREEMENT
FOR THE
CONTRACTS FUNDED BY TIAA SEPARATE ACCOUNT VA-1
Amendment, dated November 3, 1997, to the Distribution Agreement for
TIAA Separate Account VA-1 by and among Teachers Insurance and Annuity
Association ("TIAA"), TIAA Separate Account VA-1 (the "Separate Account") and
Teachers Personal Investors Services, Inc. ("TPIS") dated September 15, 1994
(the "Agreement"). The parties to the Agreement mutually agree that:
Schedule A to the Agreement is hereby revised to read as follows:
The amount payable monthly by TIAA and TPIS in consideration of the
services performed by TPIS under this Agreement is 40 hundredths of one percent
(0.40%) of the premiums (as that term is used in paragraph 5(a) of the
Agreement) received by TIAA and allocated to the Separate Account under the
Contracts during each month.
IN WITNESS WHEREOF, TIAA, the Separate Account and TPIS have caused
this amendment to be executed in their names and on their behalf and under
their trust and corporate seals by and through their duly authorized officers
on the day and year first above written.
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
By: /s/ Peter Clapman Attest: /s/ Laura Bramson
------------------------ -----------------------
Title: Senior Vice President Title: Senior Counsel
and Chief Counsel, -----------------------
Investments
---------------------
TIAA SEPARATE ACCOUNT VA-1
By: /s/ Thomas G. Walsh Attest: /s/ Laura Bramson
------------------------ -----------------------
Title: President Title: Assistant Secretary
--------------------- -----------------------
TEACHERS PERSONAL INVESTORS SERVICES, INC.
By: /s/ Lisa Snow Attest: /s/ Laura Bramson
------------------------ -----------------------
Title: Secretary Title: Assistant Secretary
--------------------- -----------------------
<PAGE> 1
Exhibit 8(A)--Charter of TIAA (as amended)
EXHIBIT 8(A)
TIAA CHARTER
ARTICLE FIVE
TIAA Board of Trustees, July 15, 1997
Section 1. The board of trustees shall consist of four
classes of trustees, each class to consist of four trustees, and the trustees
of one class shall be elected at the annual election in each year, each to
serve for a term of four years. The term of office of each trustee so elected
shall commence at the close of the meeting of the board of trustees next
succeeding such election, and shall continue until a successor shall take
office. A majority of trustees shall be citizens and residents of the United
States, and not less than three trustees shall be residents of the State of New
York. A trustee need not be a stockholder. The number of trustees shall in no
case be less than the minimum number of incorporators required to organize a
life insurance corporation.
<PAGE> 1
Exhibit 8(B)--Bylaws of TIAA (as amended)
EXHIBIT 8(B)
TIAA Bylaws
ARTICLE TWO
Trustees
TIAA Board of Trustees, February 19, 1997
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 be persons who are not 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.
At least one such person must be included in the quorum for the transaction of
business at any meeting of the trustees.
ARTICLE FOUR
Committees
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. Not less than one third of the members of each trustee committee shall
be persons who are not officers or employees of the Association or of 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, except for the nominating and personnel
committee and the audit committee, each of which will be comprised solely of
such persons. Further, at least one such person must be included in the quorum
for the transaction of business at any meeting of any of the committees.
<PAGE> 2
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. A majority, but not less than three, of the 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 5. Audit Committee. The audit committee shall
consist of five trustees. 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. A majority, but not less
than three, of the members shall constitute a quorum.
C-22
<PAGE> 1
Exhibit 12(A)--Opinion and Consent of Charles H. Stamm
EXHIBIT 12(A)
[Letterhead of Teachers Insurance and Annuity Association
and Charles H. Stamm]
March 25, 1998
The Management Committee
TIAA Separate Account VA-1
730 Third Avenue
New York, New York 10017-3206
Dear Committee Members:
This opinion is furnished in connection with the filing by
TIAA Separate Account VA-1 (the "Separate Account") of Post-Effective Amendment
No. 4 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> 2
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
<PAGE> 1
Exhibit 12(B)--Consent of Sutherland, et al.
EXHIBIT 12(B)
March 27, 1998
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. 4 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 LLP
By:/s/ Steven B. Boehm
------------------------------
<PAGE> 1
Exhibit 13(A)--Consent of Ernst & Young LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Condensed Financial
Information" and "Experts" and to the use of our report dated February 6, 1998
on TIAA Separate Account VA-1 included in this Registration Statement on Form
N-3 (No. 811-8520) of TIAA Separate Account VA-1.
We also consent to the use of our report on Teachers Insurance and Annuity
Association of America ("TIAA") dated March 10, 1998 included in this
Registration Statement. Such report expresses our opinion that TIAA's 1997
statutory-basis financial statements present fairly, in all material respects,
the financial position of TIAA at December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
statutory accounting practices prescribed or permitted by the New York State
Insurance Department and not in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
March 23, 1998
<PAGE> 1
Exhibit 13(B)--Consent of Deloitte & Touche LLP
EXHIBIT 13(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 4 to Registration
Statement No. 33-79124 and Amendment No. 7 to Registration Statement No.
811-8520 of TIAA Separate Account VA-1 ("VA-1") of Teachers Insurance and
Annuity Association of America ("TIAA") 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 Statements.
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
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 described in Note 2 of those financial
statements, and not in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
March 27, 1998
<PAGE> 1
Exhibit 16--Schedules for Computation
EXHIBIT 16
Schedule of Computation
Total Return Information for the TIAA Separate Account VA-1
Stock Index Account
<TABLE>
<CAPTION>
January 1, 1997 38 months (From November 1, 1994
to Commencement of operations to
December 31, 1997 December 31, 1997)
----------------- ------------------
<S> <C> <C>
Hypothetical initial
payment of $1,000 (P) $1,000 $1,000
Accumulation unit value:
At start of period (A) $41.8230 $25.8318
At end of period (B) $54.9165 $54.9165
Ending value of
hypothetical investment
(Ev) = P x (B/A) $1,313.07 $2,125.93
Cumulative rate of total
return = {(EV/P) - 1} x 100 31.31% 112.59%
Number of years
in period (n) 1 3.17
Net change factor (1 + T)
= EV/P 1.3131 2.1259
Average annual compound
rate of total return (T) 31.31% 26.89%
</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. ALL AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.
</LEGEND>
<CIK> 0000923524
<NAME> TIAA SEPARATE ACCOUNT VA-1
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 399,428
<INVESTMENTS-AT-VALUE> 544,299
<RECEIVABLES> 750
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 140
<TOTAL-ASSETS> 545,189
<PAYABLE-FOR-SECURITIES> 1,112
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 346
<TOTAL-LIABILITIES> 1,458
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 9,901
<SHARES-COMMON-PRIOR> 6,768
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 543,731
<DIVIDEND-INCOME> 7,116
<INTEREST-INCOME> 133
<OTHER-INCOME> 0
<EXPENSES-NET> (1,554)
<NET-INVESTMENT-INCOME> 5,695
<REALIZED-GAINS-CURRENT> 7,108
<APPREC-INCREASE-CURRENT> 96,189
<NET-CHANGE-FROM-OPS> 108,992
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,195
<NUMBER-OF-SHARES-REDEEMED> (62)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 260,686
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,259
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,519
<AVERAGE-NET-ASSETS> 420,228
<PER-SHARE-NAV-BEGIN> 41.823
<PER-SHARE-NII> .665
<PER-SHARE-GAIN-APPREC> 12.429
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 54.917
<EXPENSE-RATIO> .370
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
