quarterly statement - TIAA-CREF

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STATEMENT AS OF SEPTEMBER 30, 2011 OF THE TEACHERS INSURANCE and ANNUITY ASSOCIATION of AMERICA NOTES TO FINANCIAL STATEMENTS B. The Company writes (sells) credit default swaps providing default protection to the buyer as part of a replication strategy. Additionally, the Company pays a premium to counterparties for default protection to hedge the risk of a negative credit event on selective investments in the Company’s portfolio. These swap contracts are entered into as fair value hedges. C. The carrying value of credit default swaps represents the premium received for selling the default protection amortized into investment income over the life of the swap. When the Company purchases credit default swap protection, the premium payment to the counterparty is expensed. Credit default swaps for which hedge accounting is not applied are carried at fair value. The changes in the carrying value of such credit default swap contracts are recognized at the end of the period as unrealized gains or losses. D. For the nine months ended September 30, 2011, the net unrealized gain from credit default swap contracts that do not qualify for hedge accounting treatment was $59,688,793 9. Federal Income Tax No Material Change. 10. Information Concerning Parent, Subsidiaries and Affiliates D. As of September 30, 2011 and December 31, 2010, the net amount due from subsidiaries and affiliates was $18,663,970 and $30,990,390, respectively. The net amounts due are generally settled on a daily basis except for TIAA Realty, Inc., ND Properties, Inc., Teachers Advisors, Inc. (“Advisors”), TIAA-CREF Tuition Financing, Inc. (“TFI”), Teachers Personal Investors Services, Inc. (“TPIS”), TIAA-CREF Individual and Institutional Services, LLC (“Services”), and TIAA-CREF Enterprises, Inc. which are settled quarterly. J. For the nine months ended September 30, 2011, the Company recognized $62,603,013 in OTTI for investments in subsidiary, controlled and affiliated companies. These impairments relate to a decline in the equity value and the impairment of the goodwill of subsidiaries for which the carrying value is not expected to recover. L. The Company holds investments in downstream non-insurance holding companies, which are valued by the Company utilizing the look-through approach. The financial statements for the downstream non-insurance holding companies listed in the table below are not audited and TIAA has limited the value of its investment in these non-insurance holding companies to the value contained in the financial statements of the underlying investments, which will be audited. All liabilities, commitments, contingencies, guarantees or obligations of these subsidiaries, which are required to be recorded as liabilities, commitments, contingencies, guarantees or obligations under applicable accounting guidance, are reflected in TIAA’s determination of the carrying value of the investment in these subsidiaries, if not already recorded in the subsidiaries’ financial statements. The following table summarizes the Company’s carrying value in each unaudited downstream non-insurance holding company as of: 11. Debt 9/30/2011 12/31/2010 Subsidiary Carrying Value Carrying Value Mansilla Participacoes LTDA.......................... $ 391,929,850 $ 433,135,952 Dionysus Properties, LLC .............................. 270,387,444 --- T-C Montgomery Mall, LLC ............................ 229,305,908 --- Infra Alpha, LLC .......................................... 208,778,157 --- Occator Agricultural Properties, LLC ................ 142,672,057 37,546,867 T-C 685 Third Avenue Member, LLC................ 96,421,878 192,021,942 TIAA Global Ag HoldCo, LLC ......................... 78,090,908 --- TIAA-CREF Enterprises, Inc........................... 48,743,004 37,422,940 TIAA European Funding Trust ........................ 39,260,725 40,555,438 T-C SMA II, LLC.......................................... 26,283,203 17,853,459 TIAA SynGas, LLC....................................... 23,765,000 --- TIAA Union Place Phase I, LLC ...................... 19,286,038 19,867,763 Almond Processors, LLC............................... 16,184,001 --- TIAA The Reserve II Member, LLC.................. 4,030,002 4,023,409 TIAA Stonepeak Fund II, LLC......................... 2,000,000 --- 730 Texas Forest Holdings, Inc....................... 866,833 865,532 TIAA Diamond Investor, LLC.......................... 499,861 --- Demeter Agricultural Properties, LLC ............... 391,897 433,136 T-C SMA I, LLC........................................... 254,164 275,060 TIAA Stonepeak Fund I, LLC.......................... 188,949 --- Total ..................................................... $ 1,599,339,879 $ 784,001,498 The Company has not issued any debt during 2011. 7.4
STATEMENT AS OF SEPTEMBER 30, 2011 OF THE TEACHERS INSURANCE and ANNUITY ASSOCIATION of AMERICA NOTES TO FINANCIAL STATEMENTS 12. Retirement Plans, Deferred Compensation, Post Employment Benefits and Compensated Absences and Other Post Retirement Benefit Plans No Material Change. 13. Capital and Surplus, Shareholders’ Dividend Restrictions and Quasi-Reorganization The following table provides information related to the Company’s outstanding surplus notes as of September 30, 2011: Date Issued Interest Rate Par Value (Face Amount of Notes) Carrying Value of Note Interest Paid Year to Date Total Principal and / or Interest Paid Date of Maturity 12/16/2009 6.85% $ 2,000,000,000 $ 2,000,000,000 $ 68,500,000 $ 205,500,000 12/16/2039 14. Contingencies A. Contingent Commitments 15. Leases At September 30, 2011, outstanding commitments for future real estate investments were $1,843,282. Of this, $1,191,619 is scheduled for disbursement in 2011 and $651,663 in later years. The funding of real estate investment obligations is contingent upon the properties meeting specified requirements, including construction, leasing and occupancy. At September 30, 2011, outstanding commitments for equity investments were $5,497,524,070. Of this, $1,493,393,954 is scheduled for disbursement in 2011 and $4,004,130,116 in later years. Equity investments represent fund investments and stocks. No Material Change. 16. Information About Financial Instruments With Off-Balance Sheet Risk And Financial Instruments With Concentrations of Credit Risk (A) The table below summarizes the notional amount of the Company’s derivative financial instruments with off balance sheet risk: Assets Liabilities 9/30/2011 12/31/2010 9/30/2011 12/31/2010 Swaps .......... $ 8,147,606,202 $ 7,604,582,169 $ 2,979,706,962 $ 3,969,808,005 Forwards....... 101,183,259 96,259,518 60,227,980 26,065,476 Total ............ $ 8,248,789,461 $ 7,700,841,687 $ 3,039,934,942 $ 3,995,873,481 (B) Interest Rate Swaps: The Company enters into interest rate swap contracts to hedge against the effect of interest rate fluctuations on certain variable interest rate bonds. These contracts are designed as cash flow hedges and allow the Company to lock in a fixed interest rate and to transfer the risk of higher or lower interest rates. This type of derivative is traded over-the-counter, and the Company is exposed to both market and counterparty risk. The Company also enters into interest rate swaps to exchange the cash flows on certain fixed interest rate bonds into variable interest rate cash flows. These contracts are entered into as a fair value hedge in connection with certain interest sensitive products. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one counterparty at each due date. Net payments received and net payments made under interest rate swap contracts are reflected in net investment income. Derivative instruments used in hedging transactions that do not meet or no longer meet the hedge accounting criteria are accounted for at fair value. Foreign Currency Swap Contracts: The Company enters into foreign currency swap contracts to exchange fixed and variable amounts of foreign currency at specified dates and at specified rates (in U.S. dollars) as a hedge against currency fluctuations on investments denominated in foreign currencies. This type of derivative is traded over-the-counter, and the Company is exposed to both market and counterparty risk. For foreign currency swap contracts that are designated as cash flow hedges, 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. Derivative instruments used in hedging transactions that do not meet or no longer meet the hedge accounting criteria are accounted for at fair value. Foreign Currency Forward Contracts: The Company enters into foreign currency forward contracts to exchange foreign currency at specified future dates and at specified rates (in U.S. dollars) as a cash flow hedge for investments denominated in foreign currencies. This type of derivative is traded over-the-counter, and the Company is exposed to both market and counterparty risk. For foreign currency forward contracts designated as cash flow hedges, changes in the value of the contracts related to foreign currency exchange rates are recorded at the end of the period as unrealized gains and losses. A foreign exchange premium (discount) is recorded at the time the contract is opened. This premium (discount) is calculated based on the 7.5
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quarterly statement - TIAA-CREF

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