quarterly statement - TIAA-CREF

STATEMENT AS OF SEPTEMBER 30, 2011 OF THE TEACHERS INSURANCE and ANNUITY ASSOCIATION of AMERICA
Level 1 financial instruments
NOTES TO FINANCIAL STATEMENTS
Unadjusted quoted prices for these securities are provided to the Company by independent pricing services.
Common stock and separate account assets in Level 1 primarily include mutual fund investments valued by the
respective mutual fund companies and exchange listed equities.
Level 2 financial instruments
Common stocks and preferred stocks included in Level 2 include those which are traded in an inactive market or
for which prices for identical securities are not available.
Derivative assets and liabilities classified in Level 2 represent over-the-counter instruments that include, but are
not limited to, fair value hedges using foreign currency swaps, foreign currency forwards, interest rate swaps and
credit default swaps. Fair values for these instruments are determined internally using market observable inputs
that include, but are not limited to, forward currency rates, interest rates, credit default rates and published
observable market indices.
Separate account assets in Level 2 consist principally of short term government agency notes and commercial
paper. Preferred stocks in Level 2 are those carried on a lower of cost or market basis using daily trade prices
based on prices for similar securities observable in the market.
Fair values and changes in the fair value of separate account assets generally accrue directly to the policyholders,
except for the accumulation units purchased by TIAA and thus there is no net impact to the Company’s revenues
and expenses or surplus.
Level 3 financial instruments
Bonds classified as Level 3 include asset-backed securities that were manually priced.
Typical inputs to models used by independent pricing services include but are not limited to benchmark yields,
reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers, reference data, and
industry and economic events. Because most bonds and preferred stocks do not trade daily, independent pricing
services regularly derive fair values using recent trades of securities with similar features. When recent trades are
not available, pricing models are used to estimate the fair values of securities by discounting future cash flows at
estimated market interest rates.
If an independent pricing service is unable to provide the fair value for a security due to insufficient market
information, such as for a private placement transaction, the Company will determine the fair value internally using
a matrix pricing model. This model estimates fair value using discounted cash flows at a market yield considering
the appropriate treasury rate plus a spread. The spread is derived by reference to similar securities, and may be
adjusted based on specific characteristics of the security, including inputs that are not readily observable in the
market. The Company assesses the significance of unobservable inputs for each security priced internally and
classifies that security in Level 3 as a result of the significance of unobservable inputs.
Separate account assets classified as Level 3 primarily include directly owned real estate properties, real estate
joint ventures and real estate limited partnerships. Directly owned real estate properties are valued on a quarterly
basis based on independent third party appraisals. Real estate joint venture interests are valued based on the fair
value of the underlying real estate, any related mortgage loans payable and other factors such as ownership
percentage, ownership rights, buy/sell agreements, distribution provisions and capital call obligations. Real estate
limited partnership interests are valued based on the most recent net asset value of the partnership.
(2) Transfers between Levels 1 and 2 assets and liabilities measured and reported at fair value:
The following table shows transfers between Levels 1 and 2 for the period ended September 30, 2011:
Transfers in
Transfers out
Level 1
Common Stock...................... $ 47,921,535 (b) $ (28,191,100) (a)
Level 2
Common Stock.........................$ 28,191,100 (a) $ (47,921,535 ) (b)
(a) The Company’s policy is to recognize transfers between levels at the end of the reporting period. The Company transferred these
holdings from Level 1 to Level 2 due to the lack of availability of quoted prices for identical assets in active markets as of June 30,
2011.
(b) The Company transferred these holdings from Level 2 to Level 1 due to the availability of quoted prices for identical assets in active
markets as of March 31, 2011.
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