Corporate America has held back from new capital investments, inventory building and new hiring. Near-term prospects for commercial real estate markets remain uncertain given the cautious stance of Corporate America.
The Account’s total net return was 4.22% for the six months ended June 30, 2004 and 3.12% for the six months ended June 30, 2003. This increase in the Account’s total return was to due to the strong total return on the Account’s real estate holdings. In addition, the strong performance of the Account’s REIT holdings in the six months ended June 30, 2004 further enhanced its total return for the period.
The Account’s net investment income after deduction of all expenses was 28% higher for the six months ended June 30, 2004 compared to the same period in 2003. This increase was primarily due to a 39% increase in total net assets, as well as a 29% increase in the Account’s real estate holdings at the end of the same periods.
The Account’s real estate holdings, including unconsolidated joint venture investments, generated approximately 91% and 95% of the Account’s total investment income (before deducting Account level expenses) during the six months ended June 30, 2004 and 2003, respectively. The remaining portion of the Account’s total investment income was generated by marketable securities investments.
Gross real estate rental income increased approximately 30% in the six months ended June 30, 2004, as compared to the same period in 2003. This increase was due to the increased number of properties owned by the Account as of June 30, 2004 as compared with June 30, 2003. Income from unconsolidated joint ventures was $7,520,560 as compared to $10,152,046 for the same period in 2003. The decrease in unconsolidated joint venture income was due to the increase in leverage on one of the regional malls. Interest income on the Account’s marketable securities investments increased to $4,856,242 for the six months ended June 30, 2004 from $2,305,947 for the six months ended June 30, 2003 due to the increase in the amount of non-real estate assets held by the Account. Dividend income on the Account’s REIT investments increased from $4,117,888 for the six months ended June 30, 2003 to $9,595,439 for the six months ended June 30, 2004. The increase was due to the timing of dividend payment dates on the Account’s REIT holdings.
Total property level expenses for the six months ended June 30, 2004 and 2003 were $99,674,133 and $72,165,543, respectively. The 38% increase in property level expenses from the six months ended June 30, 2003 to the same period in 2004 reflected the increased investment in real estate by the Account (76 properties as of June 30, 2003 compared to 90 properties as of June 30, 2004). Additionally, during the six months ended June 30, 2004 the Account incurred interest expense of $1,367,606 related to a mortgage placed on a portfolio of storage facilities at the end of the first quarter, in which the account has a 75% joint venture interest.
The Account also incurred expenses for the six months ended June 30, 2004 and 2003 of $5,903,085 and $5,735,231, respectively, for investment advisory services, $7,213,819 and $7,407,105, respectively, for administrative and distribution services and $2,612,048 and $1,842,017, respectively, for the mortality, expense risk and liquidity guarantee charges. While the administrative and distribution service expenses decreased by 3% due to a decrease in company-wide expenses at TIAA, which are charged to the Account on a cost basis, the 5% increase in the total expenses is primarily a result of the larger net asset base of the Account and the increased costs associated with managing and administering the Account.
Including net gains and losses realized by the Account for properties sold (see details under “Results from Discontinued Operations”), the Account had an 82% increase in net assets resulting from operations ($217,956,328 as of June 30, 2004 as compared to $119,545,619 as of June 30, 2003). The increase is due primarily to substantial net (realized and unrealized) gains on the Account’s real estate and unconsolidated joint venture holdings.
The Account had net realized and unrealized gains on investments of $84,627,421 for the six months ended June 30, 2004, as compared to net realized and unrealized losses on investments of $5,622,071 for the six months ended June 30, 2003. The increase in net realized and unrealized gains is primarily due to the substantial net unrealized gain on the Account’s real estate properties of $23,802,687 for the six months ended June 30, 2004 as compared to net unrealized losses for the six months ended June 30, 2003 of $20,994,042. In addition, the Account had an unrealized gain on its unconsolidated joint venture holdings of $51,299,063 for the six months ended June 30, 2004 as compared to a gain of $5,794,838 for the six months ended June 30, 2003. The substantial net gain in the six month period ending June 30, 2004 is due to the increase in market value of several real estate properties, including the value of three regional malls in which the Account owns an unconsolidated joint venture interest. The Account’s marketable securities for the six months ended June 30, 2004 had net realized and unrealized gains totaling $9,525,671, as compared with net realized and unrealized gains of $9,577,133, for the six months ended June 30, 2003.
Results from Discontinued Operations
During the six months ended June 30, 2004, the Account sold no properties but moved one property to the held for sale category. During the six months ended June 30, 2003, the Account sold one property and had one property in the held for sale category. The investment income and unrealized loss for the six months ended June 30, 2004 related to the property held for sale, as well as the investment income and unrealized and realized loss for the properties sold and held for sale during 2003, was removed from continuing operations in the accompanying consolidated financial statements and was classified as discontinued operations. The income for the six months ended June 30, 2004 from the property held for sale during 2004, consisted of rental income of $506,835 less operating expenses and real estate taxes of $759,818, resulting in a net investment loss of $252,983. The income for the six months ended June 30, 2003 from the property sold during 2003 and the properties held for sale during 2003, consisted of rental income of $12,528,442 less operating expenses and real estate taxes of $3,589,131, resulting in net investment income of $8,939,311. At the time of sale, the property sold during the six months ended June 30, 2003 had a cost of $6,247,473 and the proceeds of sale were $5,475,000, resulting in a net realized loss of $772,473.
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Three Months Ended June 30, 2004 compared to
Three Months Ended June 30, 2003
Results from Continuing Operations
Performance
For the three months ended June 30, 2004, the Account’s total net return was 2.17%. This was 45 basis points higher than the return for the three months ended June 30, 2003 (1.72%). The returns were higher in the 2004 period as compared to the same time 2003 primarily due to the strong performance of the Account’s real estate holdings. The Account’s net investment income, after deduction of all expenses, was $79,822,613 for the three months ended June 30, 2004 and $60,956,299 for the three months ended June 30, 2003, a 31% increase.
The Account’s real estate holdings including unconsolidated joint ventures generated approximately 90% and 95% of the Account’s total investment income (before deducting Account level expenses) during the three months ended June 30, 2004 and 2003, respectively. The remaining portion of the Account’s total investment income was generated by investments in marketable securities.
Gross real estate rental income increased 31% in the three months ended June 30, 2004 over the same period in 2003. The higher real estate income for the three months ended June 30, 2004 was due primarily to the increase in the number of properties owned by the Account. Income from unconsolidated joint ventures was $2,992,927 and $4,918,980 in the three months ended June 30, 2004 and June 30, 2003, respectively. The decrease in joint venture income was due to the increase in leverage on one of the regional malls. Interest income on the Account’s marketable securities investments for the three months ended June 30, 2004 and 2003 totaled $3,083,439 and $1,450,803, respectively. This increase was due to the increase in the amount of non-real estate assets held by the Account. Dividend income on the Account’s investments in REITs increased from $1,965,507 for the three months ended June 30, 2003 to $5,641,403, for the three months ended June 30, 2004. The increase was due to the timing of dividend payment dates on the Account’s REIT holdings.
Total property level expenses for the three months ended June 30, 2004 and 2003 were $49,888,679 and $36,143,762, respectively. The increase in property level expenses during the three months ended June 30, 2004 reflected the increased number of properties held in the Account and the interest expense of $1,367,606 for a mortgage placed on a portfolio of storage facilities at the end of the first quarter, in which it has a 75% joint venture interest.
The Account also incurred expenses for the three months ended June 30, 2004 and 2003 of $2,748,599 and $2,939,495, respectively, for investment advisory services, $3,186,726 and $3,705,697, respectively, for administrative and distribution services and $1,373,388 and $994,982, respectively, for the mortality, expense risk and liquidity guarantee charges. The mortality, expense risk and liquidity charges increased as a result of the larger net asset base of the Account, but the investment advisory charges and the administrative and distribution charges decreased due to a decrease in company-wide expenses at TIAA which are charged to the Account on a cost basis.
The Account had net realized and unrealized gains of $51,916,953 and $3,297,855 for the three months ended June 30, 2004 and 2003, respectively. The difference was primarily due to a substantial increase in the aggregate market value of the Account’s real estate holdings in the three-months ended June 30, 2004 as compared to declines in market values in the same period in 2003. The Account posted net unrealized gains of $32,802,036 and losses of $3,043,045 on its real estate investments for the three months ended June 30, 2004 and 2003, respectively. Due to the volatility of the REIT market, the Account posted net realized and unrealized losses on its marketable securities of $15,959,042 during the second quarter of 2004, as compared to net realized and unrealized gains on its marketable securities of $10,920,157 during the second quarter of 2003.
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Results from Discontinued Operations
At June 30, 2004, the Account had one real estate property in the held for sale category. At June 30, 2003, the Account also had one property in the held for sale category. The investment income and realized and unrealized gains for the three months ended June 30, 2004 and 2003 relating to the properties moved to the held for sale category was removed from continuing operations and classified as discontinued operations. The income from the properties during the second quarter of 2004 consisted of rental income of $177,720 less operating expenses and real estate taxes of $428,054 resulting in a loss of net investment income in the amount of $250,334. The income from these properties during the second quarter of 2003 consisted of rental income of $6,081,325 less operating expenses and real estate taxes of $1,802,381 resulting in net investment income of $4,278,944.
Liquidity and Capital Resources
At June 30, 2004 and 2003, the Account’s liquid assets (i.e., its REITs, CMBSs, commercial paper, government securities and cash) had a value of $1,463,977,860 and $685,992,594, respectively. The increase in the Account’s liquid assets was primarily due to the increase in net inflow of transfers and premiums into the Account plus the large increase in the value of the REIT holdings.
During the six months ended June 30, 2004, the Account received $337,227,547 in premiums and $433,368,683 in net participant transfers from TIAA, the CREF Accounts and affiliated mutual funds, while for the same period in 2003, the Account received $240,926,745 in premiums and $111,345,314 in net participant transfers. The Account’s liquid assets, exclusive of the REITs, will continue to be available to purchase additional suitable real estate properties and to meet expense needs and redemption requests (i.e., cash withdrawals or transfers). In the unlikely event that the Account’s liquid assets and its cash flow from operating activities and participant transactions are not sufficient to meet its cash needs, including redemption requests, TIAA’s general account will purchase liquidity units in accordance with TIAA’s liquidity guarantee to the Account.
The Account, under certain conditions more fully described in the Account’s prospectus, may borrow money and assume or obtain a mortgage on a property — i.e., to make leveraged real estate investments. Also, to meet any short-term cash needs, the Account may obtain a line of credit whose terms may require that the Account secure a loan with one or more of its properties. The Account’s total borrowings may not exceed 20% of the Account’s total net asset value.
Effects of Inflation and Increasing Operating Expenses
Inflation, along with increased insurance and security costs, may increase property operating expenses in the future. We anticipate that these increases in operating expenses will generally be billed to tenants either through contractual lease provisions in office, industrial, and retail properties or through rent increases in apartment complexes. However, depending on how long any vacant space in a property remains unleased, the Account may not be able to recover the full amount of such increases in operating expenses.
Critical Accounting Policies
The consolidated financial statements of the Account are prepared in conformity with accounting principles generally accepted in the United States.
In preparing the Account’s consolidated financial statements, management is required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances—the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
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Management believes that the following policies related to the valuation of the Account’s assets reflected in the Account’s consolidated financial statements affect the significant judgments, estimates and assumptions used in preparing its financial statements:
Valuation of Real Estate Properties: Investments in real estate properties are stated at fair value, as determined in accordance with procedures approved by the Investment Committee of the TIAA Board of Trustees. Fair value for real estate properties is defined as the most probable price for which a property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair value involves subjective judgment because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. The Account’s properties are initially valued at their respective purchase prices (including acquisition costs). Subsequently, independent appraisers value each real estate property at least once a year. TIAA’s appraisal staff performs a valuation of each real estate property on a quarterly basis and updates the property value if it believes that the value of the property has changed since the previous valuation or appraisal. The appraisals are performed in accordance with Uniform Standards of Professional Appraisal Practices (USPAP), the real estate appraisal industry standards created by The Appraisal Foundation. Real estate appraisals are estimates of property values based on a professional’s opinion.
Valuation of Unconsolidated Joint Ventures: Real estate joint ventures are stated at the Account’s equity in the net assets of the underlying joint venture entities, which value their real estate holdings at fair value.
Valuation of Marketable Securities: Equity securities listed or traded on any United States national securities exchange are valued at the last sale 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. Debt securities, other than money market instruments, are valued at the most recent bid price or the equivalent quoted yield for such securities (or those of comparable maturity, quality and type). Money market instruments, with maturities of one year or less, are valued in the same manner as debt securities or derived from a pricing matrix that has various types of money market instruments along one axis and various maturities along the other. Portfolio securities and limited partnership interests for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Investment Committee of the Board of Trustees and in accordance with the responsibilities of the Board as a whole.
Forward-Looking Statements
Some statements in this report which are not historical facts may be “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations, beliefs, intentions or strategies for the future, and the assumptions underlying these forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or management’s present expectations.
Caution should be taken not to place undue reliance on management’s forward-looking statements, which represent management’s views only as of the date this report is filed. Neither management nor the Account undertake any obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of June 30, 2004, 24.16% of the Account’s investments were in market risk sensitive instruments, comprised entirely of marketable securities. These include real estate investment trusts (REITs), commercial mortgage-backed securities (CMBSs), and high-quality short-term debt instruments (i.e., commercial paper). The Consolidated Statement of Investments for the Account sets forth the terms of these instruments, along with their fair value, as determined in accordance with procedures described in Note 1 to the
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Account’s financial statements. Note that the Account does not currently invest in derivative financial instruments.
The Account’s investments in marketable securities are subject to the following general risks:
| • | | financial risk—for debt securities, the possibility that the issuer won’t be able to pay principal and interest when due, and for common or preferred stock, the possibility that the issuer’s current earnings will fall or that its overall financial soundness will decline, reducing the security’s value. | |
| | | | |
| • | | market risk—price volatility due to changing conditions in the financial markets and, particularly for debt securities, changes in overall interest rates. | |
| | | | |
| • | | interest rate volatility, which may affect current income from an investment. | |
In addition, mortgage-backed securities are subject to prepayment risk—i.e., the risk that borrowers will repay the loans early. If the underlying mortgage assets experience greater than anticipated payments of principal, the Account could fail to recoup some or all of its initial investment in these securities. The market value of these securities is also highly sensitive to changes in interest rates. Note that the potential for appreciation, which could otherwise be expected to result from a decline in interest rates, may be limited by any increased prepayments.
In addition to these risks, REITs and mortgage-backed securities are subject to many of the same general risks inherent in real estate investing, making mortgage loans and investing in debt securities. For more information on the risks associated with all of the Account’s investments, see the Account’s most recent prospectus.
Item 4. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures. An evaluation was performed as of June 30, 2004, under the supervision of the registrant’s management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures. Based on that evaluation, the registrant’s management, including the principal executive officer and principal financial officer, concluded that the registrant’s disclosure controls and procedures were effective for this quarterly reporting period.
(b) Changes in internal controls over financial reporting. There have been no significant changes in the registrant’s internal controls over financial reporting that occurred during the registrant’s last fiscal quarter that materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
There are no material current or pending legal proceedings that the Account is a party to, or to which the Account’s assets are subject.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
Item 5. OTHER INFORMATION.
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
| (a) | EXHIBITS |
| | (3) | (A) | Charter of TIAA (as amended)1 |
| | | (B) | Bylaws of TIAA (as amended)* |
| | (4) | (A) | Forms of RA, GRA, GSRA, SRA, IRA Real Estate Account Endorsements2, Keogh Contract3 and Retirement Select and Retirement Select Plus Contracts and Endorsements1 |
| | | (B) | Forms of Income-Paying Contracts2 |
| | (10) | (A) | Independent Fiduciary Agreement by and among TIAA, the Registrant, and The Townsend Group3, as amended5 |
| | | (B) | Custodial Services Agreement by and between TIAA and Morgan Guaranty Trust Company of New York with respect to the Real Estate Account (Agreement assigned to Bank of New York, January 1996)2 |
| | | (C) | Distribution and Administrative Services Agreement by and between TIAA and TIAA-CREF Individual & Institutional Services, Inc. (as amended) (filed previously as Exhibit (1))1 |
| | (31) | Rule 13a-15(e)/15d-15(e) Certifications |
| | (32) | Section 1350 Certifications |
| |
1 | | Previously filed and incorporated herein by reference to the Account’s Pre-Effective Amendment No. 1 to the Registration statement on Form S-1 filed April 29, 2004 (File No. 333-113602). | |
| | | | |
| 2 | | Previously filed and incorporated herein by reference to Post-Effective Amendment No. 2 to the Account’s Registration Statement on Form S-1 filed April 30, 1996 (File No. 33-92990). | |
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| 3 | | Previously filed and incorporated herein by reference to Post-Effective Amendment No. 6 to the Account’s Registration Statement on Form S-1 filed April 26, 2000 (File No. 333-22809). | |
| | | | |
| 4 | | Previously filed and incorporated herein by reference to the Account’s Post-Effective Amendment No. 2 to the Registration statement on Form S-1 filed April 29, 2002 (File No. 333-83964). | |
| | | | |
| 5 | | Previously filed and incorporated herein by reference to the Account’s Post-Effective Amendment No. 2 to the Registration statement on Form S-1 filed April 29, 2003 (File No. 333-83964). | |
| | | | |
| * | | Filed herewith. | |
| | | | |
| | | (b) REPORTS ON 8-K. The Account did not file any reports on Form 8-K during the period. | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DATE: July 29, 2004 | | TIAA REAL ESTATE ACCOUNT |
| | By: | TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA |
| | | |
| | By: | /s/ Herbert M. Allison, Jr.
——————————————————————
Herbert M. Allison, Jr.
Chairman of the Board, President
and Chief Executive Officer |
| | | |
| DATE: July 29, 2004 | By: | /s/ Elizabeth A. Monrad
——————————————————————
Elizabeth A. Monrad
Executive Vice President and
Chief Financial Officer |
| | | |
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EXHIBIT 3(B)
BYLAWS
OF
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
As Amended June 25, 2004
ARTICLE ONE
Stockholders
Section 1. Annual Meeting. The annual meeting of stockholders for the election of trustees and for the transaction of such other business as may properly come before the meeting shall be held on the second Tuesday in June of each year, if not a legal holiday, or, if a legal holiday, then on the next preceding business day, at the office of the Association in the City of New York, and at an hour specified by notice mailed at least thirty days in advance. If the chief executive officer or the nominating and governance committee shall so determine, the annual meeting may be held at a different date, time and place, as shall be specified in the notice of meeting. The notice shall be in writing and shall be signed by the chairman, or the president, or a vice president, or the secretary. Special meetings of the stockholders may be held at the said office of the Association whenever called by the chairman, or by the president, or by order of the board of trustees, or by the holders of at least one third of the outstanding shares of stock of the Association, or may be held subject to the provisions of the emergency bylaws of the Association.
Section 2. Notice. It shall be the duty of the secretary not less than ten nor more than forty days prior to the date of each meeting of the stockholders to cause a notice of the meeting to be mailed to each
stockholder.
Section 3. Voting. At all meetings of stockholders each stockholder shall be entitled to one vote upon each share of stock owned by him of record on the books of the Association ten days before the meeting. Stockholders may vote in person or by proxy appointed in writing.
Section 4. Quorum. The presence in person or by proxy of the holders of a majority of the shares in the Association shall be necessary to constitute a quorum at any meeting of stockholders.
Section 5. Telephonic Participation. At all meetings of stockholders or any committee thereof, stockholders may participate by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.
ARTICLE TWO
Trustees
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. The board of trustees shall consist of no less than thirteen trustees or the minimum number of trustees required by law, whichever is less, and no more than twenty-four trustees, and the number of trustees shall be fixed by a vote of the majority of the board of trustees. All trustees shall be elected to a term of one year. The term of office of each trustee so elected shall commence at the beginning of the annual meeting of the board of trustees next succeeding such election, and shall continue until the beginning of the next annual meeting of the board of
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trustees and a successor shall take office. A trustee need not be a stockholder. At least one third of such trustees must satisfy the independence requirements of Section 1202(b)(2) of the New York Insurance Law or any successor provision. At least one such person must be included in the quorum for the transaction of business at any meeting of the trustees.
Section 2. Quorum. One third of the trustees shall constitute a quorum at all meetings of the board. If less than a quorum shall be present at any meeting, a majority of those present may adjourn the meeting from time to time until a quorum shall attend. In case of a vacancy among the trustees of any class through death, resignation or other cause, a successor to hold office for the unexpired portion of the term may be elected at any meeting of the board at which a quorum shall be present. Such successors shall not take office nor exercise the duties thereof until ten days after written notice of their election shall have been filed in the office of the Superintendent of Insurance of the State of New York.
Section 3. Annual Meeting. There shall be a meeting of the board of trustees on the third Wednesday in June each year, if not a legal holiday, or, if a legal holiday, then on the next preceding business day, at a time and place specified in a notice mailed at least ten days and not more than twenty days in advance. This shall be known as the annual meeting of the board of trustees. At this meeting the board shall elect officers, appoint committees and transact such other business as shall properly come before the meeting. If the chief executive officer or the nominating and governance committee shall so determine, the annual meeting may be held at a different date, time and place, as shall be specified in the notice of meeting.
Section 4. Other Meetings. Stated meetings of the board of trustees shall be held on such dates as the board by standing resolution may fix. No notice of such stated meetings need be given. Special meetings of the board may be called by order of the chairman or the presiding trustee by notice mailed at least one week prior to the date of such meeting, and any business may be transacted at the meeting.
Section 5. Telephonic Participation. At all meetings of the board of trustees or any committee thereof, trustees may participate by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.
Section 6. Action Without a Meeting. Where time is of the essence, but not in lieu of a regularly scheduled meeting of the board of trustees or committee thereof, any action required or permitted to be taken by the board, or any committee thereof, may be taken without a meeting if all members of the board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the board or committee shall be filed with the minutes of the proceedings of the board or committee.
Section 7. Trustees’ Compensation and Expenses. A trustee may be paid an annual stipend and fees and such other compensation or emolument in any amount first authorized by the board in accordance with Section 1 of Article Five hereof, including, but not limited to, a deferred compensation benefit, for meetings of the board that he/she attends and for services that he/she renders on or for committees or subcommittees of the board; and each trustee shall be reimbursed for transportation and other expenses incurred by him/her in serving the Association.
Section 8. Chairman. The chairman shall preside at all meetings of the board.
Section 9. Presiding Trustee. The board of trustees may elect a presiding trustee, who shall preside over executive sessions of the board and, in the absence of the chairman, preside over meetings of the stockholders and of the board. The presiding trustee also shall perform such functions as are delegated by the board.
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ARTICLE THREE
Officers
Section 1. Election. The board of trustees shall annually elect the executive officers of the corporation. Each such executive officer shall hold office until the next annual election or, if earlier, until retirement, death, resignation or removal. The board may appoint other officers and agents, assign titles to them and determine their duties; such officers and agents shall hold office during the pleasure of the board of trustees. It may appoint persons to act temporarily in place of any officers of the Association who may be absent, incapacitated, or for any other reason unable to act or may delegate such authority to the chief executive officer.
Section 2. Removal of Officers. Any officer elected by the board of trustees may be removed by the affirmative votes of a majority of all the trustees holding office. Any other officer may be removed by the affirmative votes of a majority of all members of the executive committee holding office.
Section 3. Removal of Other Employees. All other agents and employees shall hold their positions at the pleasure of the executive committee or of such executive officer as the executive committee may clothe with the powers of engaging and dismissing.
Section 4. Qualifications. The chief executive officer shall be a member of the board of trustees, but none of the other officers need be a trustee. One person may hold more than one office, except that no person shall be both president and secretary.
Section 5. Chief Executive Officer. The board of trustees shall designate either the chairman or the president as chief executive officer. Subject to the control of the board of trustees and the provisions of these bylaws, the chief executive officer shall be charged with the management of the affairs of the Association, and shall perform such duties as are not specifically delegated to other officers of the Association. The chief executive officer shall report from time to time to the board of trustees on the affairs of the Association.
Section 6. Chairman. Except as otherwise provided by the board of trustees, the chairman, when present, shall preside at all meetings of the stockholders and of the board. He shall be ex officio chairman of the executive committee.
Section 7. President. If the president is not the chief executive officer, he shall assist the chief executive officer in his duties and shall perform such functions as are delegated by the chief executive officer.
Section 8. Absence or Disability of Chief Executive Officer. In the absence or disability of the chief executive officer, the president, if he is not the chief executive officer, or the chairman, if he is not the chief executive officer, or if neither is available, a vice president so designated by the executive committee or so designated by the chief executive officer shall perform the duties of the chief executive officer, unless the board of trustees otherwise provides and subject to the provisions of the emergency bylaws of the Association.
Section 9. Secretary. The secretary shall give all required notices of meetings of the board of trustees, and shall attend and act as secretary at all meetings of the board and of the executive committee and keep the records thereof. The secretary shall keep the seal of the corporation, and shall perform all duties incident to the office of secretary and such other duties as from time to time may be assigned by the board of trustees, the executive committee, or the chief executive officer.
Section 10. Other Officers. The chief executive officer shall determine the duties of all officers other than the president and secretary and may assign titles to and determine the duties of non-officers.
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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 governance committee, a human resources committee, an audit committee, and a corporate governance and social responsibility committee, each member of which shall hold such position until the beginning 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. The board of trustees 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 satisfy the independence requirements of Section 1202(b)(1) of the New York Insurance Law or any successor provision, except for the nominating and governance committee, the human resources committee, the audit committee, and the corporate governance and social responsibility 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. The board may appoint trustees to fill vacancies on trustee committees.
Section 2. Executive Committee. The executive committee shall consist of at least three trustees including the chairman. A majority shall constitute a quorum. The executive committee shall meet in regular meeting as it may from time to time determine, and in special meeting whenever called by the chairman, and, to the maximum extent permitted by law, shall be vested with full powers of the board of trustees during intervals between the meetings of the board in all cases in which specific instructions shall not have been given by the board of trustees. The committee shall, in the event of an acute emergency, as defined by Article Seven-A—Insurance, of the New York State Defense Emergency Act (Section 9177, Unconsolidated Laws of New York) and any amendments thereof, be responsible for the emergency management of the Association as provided in the emergency bylaws of the Association.
Section 3. Investment Committee. The investment committee shall consist of at least three trustees, including the chief executive officer, and such additional trustees, if any, as the board of trustees or the executive committee may appoint. A majority of the members shall constitute a quorum.
(a) Subject to review by the board of trustees the investment committee shall determine the investment policies of the Association.
(b) The investment committee shall supervise the investment of the funds of the Association. No loan or investment other than policy loans shall be made or disposed of without authorization or approval by the investment committee.
Section 4. Nominating and Governance Committee. The nominating and governance committee shall consist of at least three trustees, each of whom satisfies the independence requirements of Section 1202(b)(2) of the New York Insurance Law or any successor provision. A majority shall constitute a quorum. The committee shall nominate trustees to fill interim vacancies and shall nominate trustee candidates for election at the annual meeting of stockholders; provided that prior to nominating or making any recommendations with respect to trustee candidates for election at the annual meeting of stockholders, the committee shall consult fully with the board of trustees of TIAA Board of Overseers regarding each such trustee candidate and shall give diligent consideration to any suggestions of the board of trustees of TIAA Board of Overseers with respect to trustee candidates. In addition, the committee shall recommend to the board of trustees governance policies for the Association that are consistent with sound governance principles and applicable legal and regulatory requirements.
Section 5. Audit Committee. The audit committee shall consist of at least three trustees, each of whom satisfies the independence requirements of Section 1202(b)(2) of the New York Insurance Law or any successor provision. A majority of the members shall constitute a quorum. The committee shall itself, or through public accountants or otherwise, make such audits and examinations of the records and affairs of
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the Association as it may deem necessary. The committee shall review the reimbursement agreements among TIAA and CREF, TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and TIAA-CREF Investment Management, LLC, and make recommendations regarding them to the board of trustees.
Section 6. Human Resources Committee. The human resources committee shall consist of at least three trustees, each of whom satisfies the independence requirements of Section 1202(b)(2) of the New York Insurance Law or any successor provision. A majority shall constitute a quorum. The committee shall nominate executive officers, shall designate the principal officers of the Association, and shall recommend to the board of trustees the annual compensation of the principal officers and of any salaried employee if the level of compensation to be paid to such employee is equal to, or greater than, the compensation received or to be received by any principal officer. In addition, the committee shall approve the titles and base salaries of all appointed officers and the base salaries of executive officers, other than those designated as principal officers or those officers to be paid on an equal or greater level of compensation with principal officers, shall recommend the provisions of any incentive salary compensation program(s) and determine the amounts of any incentive salary payments for those officers included in any incentive salary plan, shall provide oversight of all of the Association’s compensation, incentive, pension, welfare and other benefits programs, and shall produce an annual report on executive compensation for distribution to policyholders.
Section 7. Corporate Governance and Social Responsibility Committee. The corporate governance and social responsibility committee shall consist of at least three trustees, each of whom satisfies the independence requirements of Section 1202(b)(2) of the New York Insurance Law or any successor provision. A majority shall constitute a quorum. The committee is responsible for addressing all corporate social responsibility and corporate governance issues, including the voting of TIAA shares and the initiation of appropriate shareholder resolutions. In addition, the committee shall develop and recommend specific corporate policy in these areas for consideration by the TIAA board of trustees.
Section 8. Reports. Within a reasonable time after their meetings, all such committees and subcommittees shall report their transactions to each trustee.
ARTICLE FIVE
Salaries, Compensation and Pensions
to Trustees, Officers and Employees
Section 1. Salaries and Pensions. The Association shall not pay any salary, compensation or emolument in any amount to any officer, deemed by a committee or committees of the board to be a principal officer pursuant to subsection (b) of Section 1202 of the Insurance Law of the State of New York, or to any salaried employee of the Association if the level of compensation to be paid to such employee is equal to, or greater than, the compensation received by any of its principal officers, or to any trustee thereof, unless such payment be first authorized by a vote of the board of trustees of the Association.
The Association shall not make any agreement with any of its officers or salaried employees whereby it agrees that for any services rendered or to be rendered he shall receive any salary, compensation or emolument that will extend beyond a period of thirty-six months from the date of such agreement, except as specifically permitted by the Insurance Law of the State of New York. No principal officer or employee of the class described in the first sentence of this section, who is paid a salary for his services, shall receive any other compensation, bonus or emolument from the Association, directly or indirectly, except in accordance with a plan recommended by a committee of the board pursuant to subsection (b) of Section 1202 of the Insurance Law of the State of New York and approved by the board of trustees. The Association shall not grant any pension to any officer or trustee, or to any member of his family after his death, except that the Association may pursuant to the terms of a retirement plan and other appropriate staff benefit plans adopted by the board provide for any person who is or has been a salaried officer or employee, a pension payable at the time of retirement by reason of age or disability and also life insurance, health insurance and disability benefits.
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Section 2. Prohibitions. No trustee or officer of the Association shall receive, in addition to fixed salary or compensation, any money or valuable thing, either directly or indirectly, or through any substantial interest in any other corporation or business unit, for negotiating, procuring, recommending or aiding in any purchase or sale of property, or loan, made by the Association or any affiliate or subsidiary thereof, nor be pecuniarily interested either as principal, coprincipal, agent or beneficiary, either directly or indirectly, or through any substantial interest in any other corporation or business unit, in any such purchase, sale or loan; provided that nothing herein contained shall prevent the Association from making a loan upon a policy held therein by the borrower not in excess of the net reserve value thereof.
ARTICLE SIX
Indemnification of Trustees, Officers and Employees
The Association shall indemnify, in the manner and to the full extent permitted by law, each person made or threatened to be made a party to any action, suit or proceeding, whether or not by or in the right of the Association, and whether civil, criminal, administrative, investigative or otherwise, by reason of the fact that he or his testator or intestate is or was a trustee, officer or employee of the Association or, while a trustee, officer or employee of the Association, served any other corporation or organization of any type or kind, domestic or foreign, in any capacity at the request of the Association. To the full extent permitted by law such indemnification shall include judgments, fines, amounts paid in settlement, and expenses, including attorneys’ fees. No payment of indemnification, advance or allowance under the foregoing provisions shall be made unless a notice shall have been filed with the Superintendent of Insurance of the State of New York not less than thirty days prior to such payment specifying the persons to be paid, the amounts to be paid, the manner in which payment is authorized and the nature and status, at the time of such notice, of the litigation or threatened litigation.
ARTICLE SEVEN
Execution of Instruments
The board of trustees or the executive committee shall designate who is authorized to execute certificates of stock, proxies, powers of attorney, deeds, leases, releases of mortgages, satisfaction pieces, checks, drafts, contracts for insurance or annuity and instruments relating thereto, and all other contracts and instruments in writing necessary for the Association in the management of its affairs, and to attach the Association’s seal thereto; and may further authorize the extent to which such execution may be done by facsimile signature.
ARTICLE EIGHT
Disbursements
No disbursements of $100 or more shall be made unless the same be evidenced by a voucher signed by or on behalf of the person, firm or corporation receiving the money and correctly describing the consideration for the payment, and if the same be for services and disbursements, setting forth the services rendered and an itemized statement of the disbursements made, and if it be in connection with any matter pending before any legislative or public body, or before any department or officer of any government, correctly describing in addition the nature of the matter and the interest of such corporation therein, or if such voucher cannot be obtained, by an affidavit stating the reasons therefor and setting forth the particulars above mentioned.
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ARTICLE NINE
Corporate Seal
The seal of the Association shall be circular in form and shall contain the words “Teachers Insurance and Annuity Association of America, New York, Corporate Seal, 1918,” which seal shall be kept in the custody of the secretary of the Association and be affixed to all instruments requiring such corporate seal.
ARTICLE TEN
Amendments
Article One of these bylaws can be amended or repealed only by the affirmative vote of the holders of a majority of the outstanding shares of the capital stock of the Association, such vote being cast at a meeting held upon notice stating that such meeting is to vote upon a proposed amendment or repeal of such bylaw.
Any other bylaw may be amended or repealed at any meeting of the board of trustees provided notice of the proposed amendment or repeal shall have been mailed to each trustee at least one week and not more than two weeks prior to the date of such meeting.
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