File Nos. 333-21821, 811-08055
As filed with the Securities and Exchange Commission on August ^ 25, 1997
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under the Securities Act of 1933 [ ]
Pre-Effective Amendment No. ^ 2 [X]
Post-Effective Amendment No. [ ]
and
Registration Statement Under the Investment Company Act of 1940 [ ]
Amendment No. ^ 2 [X]
(Check appropriate box or boxes.)
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TIAA-CREF Mutual Funds
730 Third Avenue
New York, New York 10017
(800) 842-2733
(Registrant's Exact Name, Address and Telephone Number)
Peter C. Clapman, Esq.
TIAA-CREF Mutual Funds
730 Third Avenue
New York, New York 10017
(Name and Address of Agent for Service)
Copy to:
Steven B. Boehm, Esq.
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D. C. 20004-2404
Approximate Date of Proposed Public Offering:
As soon as practicable after effectiveness of the Registration Statement.
--------------------------------------------
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant declares that an indefinite amount of securities
is being registered under the Securities Act of 1933.
-------------------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), shall determine.
<PAGE>
Cross Reference Sheet
Pursuant to Rule 481(a) under the Securities Act of 1933
Showing Location of Information Required by Form N-1A
in Part A (Prospectus) and Part B (Statement of
Additional Information) of the Registration Statement
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<CAPTION>
<S> <C> <C>
Caption(s) in the Statement
Item of Form N-1A Caption(s) in the Prospectus of Additional Information
----------------- ---------------------------- -------------------------
Part A: Information Required in a Prospectus
1. Cover Page Cover page
2. Synopsis Expense Information
3. Condensed Financial N/A
Information
4. General Description of The TIAA-CREF Mutual Funds
Registrant
5. Management of the Management of TCMF and
Fund Investment Advisory
Arrangements
5A. Management's N/A
Discussion of Fund
Performance
6. Capital Stock and About TCMF and the Shares
Other Securities
7. Purchase of Securities How to Buy Shares
Being Offered
8. Redemption or How to Redeem Shares
Repurchase
9. Pending Legal General Matters - Legal
Proceedings Proceedings
Part B: Information Required in a Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information N/A
and History
<PAGE>
Caption(s) in the Statement
Item of Form N-1A Caption(s) in the Prospectus of Additional Information
----------------- ---------------------------- -------------------------
13. Investment Objectives Investment Objectives, Policies,
and Policies and Restrictions
14. Management of the Management of the Fund
Fund
15. Control Persons and Control Persons
Principal Holders of
Securities
16. Investment Advisory Investment Advisory and Other
and Other Services Services
17. Brokerage Allocation Management of TCMF and
and Other Practices Investment Advisory Arrangements
- Brokerage Allocation
18. Capital Stock and About TCMF and the Shares
Other Securities
19. Purchase, Redemption Purchase, Redemption and
and Pricing of Pricing of Shares
Securities Being
Offered
20. Tax Status Tax Status
21. Underwriters Underwriters
22. Calculation of Calculation of Performance Data
Performance Data
23. Financial Statements Financial Statements
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Part C: Other Information
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this registration statement.
<PAGE>
PROSPECTUS
Dated September 2, 1997
TIAA-CREF Mutual Funds
This prospectus contains information that you should consider before investing
in the TIAA-CREF Mutual Funds. Read it carefully before investing, and keep it
for future reference.
If you have any questions about the TIAA-CREF Mutual Funds or your account,
please call us at 1 800 223-1200.
This prospectus describes the six investment portfolios (the funds) listed
below, each of which is a separate series of the TIAA-CREF Mutual Funds.
The International Equity Fund seeks a favorable long-term return,
mainly through capital appreciation from a broadly diversified
portfolio that consists primarily of foreign equity investments.
The Growth Equity Fund seeks a favorable long-term return, mainly
through capital appreciation, primarily from a diversified portfolio of
common stocks that present the opportunity for exceptional growth.
The Growth & Income Fund seeks a favorable long-term return through
capital appreciation and investment income, primarily from a broadly
diversified portfolio of common stocks.
The Managed Allocation Fund seeks favorable returns that reflect the
broad investment performance of the financial markets through capital
appreciation and investment income.
The Bond Plus Fund seeks a favorable long-term return, primarily
through high current income consistent with preserving capital. In
addition, we will use our expertise to invest in some securities which
are less liquid and/or non-investment grade in order to attempt to
improve our total return.
The Money Market Fund seeks high current income to the extent
consistent with maintaining liquidity and preserving capital. An
investment in the Money Market Fund is neither insured nor guaranteed
by the U.S. Government. We will attempt to maintain a stable net asset
value of $1.00 per share for this fund, but we can't guarantee you that
we will be able to do so.
<PAGE>
More information is on file with the Securities and Exchange Commission ("SEC")
in the Statement of Additional Information ("SAI") for TIAA-CREF Mutual Funds
dated September 2, 1997. You can get a copy of the SAI by calling 1 800 223-1200
or writing us c/o State Street Bank, P.O. Box 9081, Boston, Massachusetts 02266.
The SAI, as supplemented from time to time, is "incorporated by reference" into
this prospectus; that means it's legally part of this prospectus. The SAI, other
material incorporated by reference, and other information about registrants that
file Registration Statements electronically with the SEC are available through
the SEC's website at http://www.sec.gov.
LIKE ALL MUTUAL FUND SHARES, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Table of Contents
Expense Information..........................................................
The TIAA-CREF Mutual Funds...................................................
The Equity Funds....................................................
The International Equity Fund.......................................
The Growth Equity Fund.....................................
The Growth & Income Fund...................................
Other Investments and Investment Techniques--Equity Funds ..........
The Managed Allocation Fund.........................................
The Bond Plus Fund..................................................
The Money Market Fund...............................................
Investment Practices and Risk Considerations.................................
Foreign Investments.................................................
Currency Transactions...............................................
Illiquid Securities.................................................
Non-Investment Grade Bonds..........................................
Repurchase Agreements...............................................
Firm Commitment Agreements..........................................
Investment Companies................................................
Lending Securities .................................................
Borrowing...........................................................
Mortgage-Backed Securities..........................................
Net Asset Value..............................................................
Shareholder Services.........................................................
Who can Open an Account.............................................
Types of Accounts...................................................
How to Buy Shares...................................................
How to Redeem Shares................................................
How to Exchange Shares..............................................
Other Investor Information..........................................
TIAA-CREF Mutual Funds' Management...........................................
The Board...........................................................
Teachers Advisors...................................................
Fund Managers.......................................................
Performance Information......................................................
Dividends and Distributions..................................................
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Taxes........................................................................
General Matters..............................................................
Voting Rights.......................................................
Distributors........................................................
Administration......................................................
Custodial Services..................................................
Legal Proceedings...................................................
This prospectus outlines the terms under which an investment in the TIAA-CREF
Mutual Funds are 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.
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Expense Information
Shareholder Transaction Expenses (applicable to each investment fund)
Maximum sales load imposed on purchases
(as a percentage of offering price)........................ 0%
Maximum sales load imposed on reinvested dividends
(as a percentage of offering price)........................ 0%
Deferred sales load
(as a percentage of original purchase price or
redemption proceeds, as applicable)........................ 0%
Redemption fee
(as a percentage of amount redeemed, if applicable)........ 0%
Exchange fee
(as a percentage of average net assets).................... 0%
Annual Fund Operating Expenses
(as a percentage of average net assets)
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Management Fees Total Fund Operating Expenses
(after fee waiver) Other Expenses (after fee waiver)
(1) (2) (1)
<S> <C> <C> <C>
The International Equity Fund 0.49% 0 0.49%
The Growth Equity Fund 0.45% 0 0.45%
The Growth & Income Fund 0.43% 0 0.43%
The Managed Allocation 0.00% 0 0.00%
Fund (3)
The Bond Plus Fund 0.30% 0 0.30%
The Money Market Fund 0.29% 0 0.29%
</TABLE>
(1) Teachers Advisors, Inc. ("Advisors"), the investment advisor for
the funds, has agreed to waive a portion of its fee for managing each fund
(other than the Managed Allocation Fund, which doesn't pay a management fee).
Without the waiver, management fees and total operating expenses for the
International Equity Fund, the Growth Equity Fund, the Growth and Income Fund,
the Bond Plus Fund and the Money Market Fund would have been 0.99%, 0.95%,
0.93%, 0.80% and 0.79% of each fund's average daily net assets, respectively.
This waiver shall remain in effect until July 1, 2000.
(2) These figures are based upon estimated amounts for the current
fiscal year. TIAA-CREF Mutual Funds expects that any expenses incurred for each
fund will be less than .01% of that
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Fund's net assets.
(3) Teachers Advisors does not receive a management fee for its
services to the Managed Allocation Fund. However, shareholders in the Managed
Allocation Fund will indirectly bear their pro rata share of the fees and
expenses incurred by the funds in which the Managed Allocation Fund invests.
Example
You would pay the following expenses on a $1,000 investment, assuming a
5% annual return, regardless of whether you redeem shares at the end of each
time period.
One Three
Year Years
The International Equity $5 $16
Fund
The Growth Equity Fund $5 $14
The Growth & Income Fund $4 $14
The Managed Allocation $0 $ 0
Fund
The Bond Plus Fund $3 $10
The Money Market Fund $3 $ 9
The purpose of this table is to help you understand the various expenses you
would bear directly or indirectly. Remember that these expenses don't represent
actual past or future expenses or investment performance. Actual expenses may be
higher or lower.
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Throughout this prospectus, "we" and "our" refer to the TIAA-CREF Mutual Funds.
"You" and "your" mean any shareholder or any prospective shareholder.
The TIAA-CREF Mutual Funds
The TIAA-CREF Mutual Funds is a Delaware business trust that was
organized on January 15, 1997, and is registered with the U.S. Securities and
Exchange Commission (SEC) as an "open-end" management investment company. Each
of the individual investment portfolios described below is a separate series of
the TIAA-CREF Mutual Funds, with its own distinct investment objective. (This
prospectus will refer to these portfolios as the funds or the investment funds.)
The TIAA-CREF Mutual Funds are part of the TIAA-CREF family of companies.
Teachers Insurance and Annuity Association of America (TIAA), founded in 1918,
is a non-profit stock life insurance company. Its companion organization, the
College Retirement Equities Fund (CREF), founded in 1952, is a non-profit
corporation registered with the SEC as an investment company. Together, through
the issuance of fixed and variable annuity contracts, TIAA and CREF form the
principal retirement system for the nation's education and research communities
and the largest retirement system in the United States based on assets under
management. TIAA and CREF managed a total of $199.4 billion in assets as of June
30, 1997, with TIAA managing approximately $89 billion and CREF managing
approximately $110.4 billion.
The following section describes each fund's investment objective and
the investment policies and techniques each fund uses to accomplish its
objective. Of course, there's no guarantee that any fund will meet its
investment objective. We cannot change the policies we call "fundamental" for a
particular fund without a vote of that fund's shareholders. All other policies,
including each fund's investment objective, are not fundamental. This means we
can change them without a shareholder vote, although we'll notify you of any
changes if they are material. For a complete listing of the funds' policies and
restrictions, see the SAI.
The funds are subject to several types of risks. One is market risk --
price volatility due to changing conditions in the financial markets. Another is
interest rate risk, the risk that a debt instrument's value will decline if
interest rates change. A rise in interest rates usually causes the market value
of fixed-rate securities to go down, while a rate decline usually results in an
increase in the market values of those securities. Another kind of risk is
financial risk. For stocks or other equity securities, it comes from the
possibility that current earnings will fall or that overall financial soundness
will
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decline, reducing the security's value. For bonds and other debt securities,
financial risk comes from the possibility the issuer won't be able to pay
principal and interest when due. Finally, current income volatility means how
much and how quickly overall interest rate changes affect current income from an
investment. Also, the funds have only recently commenced operations, and
therefore have a limited operating history. These and other risks associated
with an investment are discussed below and in the SAI.
The Equity Funds
The International Equity Fund seeks a favorable long-term return,
mainly through capital appreciation from a broadly diversified portfolio that
consists primarily of foreign equity investments.
The fund intends at all times to have at least 80% of its assets
invested in securities of issuers located in at least three different countries,
none of which will be the U.S. The fund allocates investments to particular
countries or regions based on our evaluation of various factors, such as the
relative attractiveness of particular markets. Foreign securities often have
risks that differ from those of domestic securities. For more information about
the risks of foreign investments, see page .
The Growth Equity Fund seeks a favorable long-term return, mainly
through capital appreciation, primarily from a diversified portfolio of common
stocks that present the opportunity for exceptional growth.
The fund, under normal conditions, will invest at least 80% of its
total assets in the equity securities of companies that have the potential for
capital appreciation. The fund can invest in companies of all sizes, including
companies in new and emerging areas of the economy and companies with
distinctive products or promising market conditions. We choose individual
investments based on a company's prospects under current or forecasted economic,
financial and market conditions, looking for companies we believe have the
potential for strong earnings or sales growth, or that appear to be undervalued
based on current earnings, assets or growth prospects.
The Growth Equity Fund can also invest in large, well-known,
established companies, particularly when we believe they have new or innovative
products, services, or processes that enhance future earnings prospects. The
fund can also invest in companies in order to benefit from prospective
acquisitions,
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reorganizations or corporate restructurings or other special situations.
The Growth Equity Fund can buy foreign securities and other instruments
if we believe they have superior investment potential. Depending on investment
opportunities, the fund may have as little as none of its assets in foreign
securities or as much as 40 percent. (The authorized level may change from time
to time.) The securities will be those traded on foreign exchanges or in other
foreign markets and may be denominated in foreign currencies or other units of
account. For more information about the risks of foreign investments, see
page .
Special Risk Considerations. The Growth Equity Fund may involve special
risks not present with our other funds. The fund may at times hold a significant
amount of stocks of smaller, lesser-known companies. Their stock prices may
fluctuate more than those of larger companies because smaller companies may
depend on narrow product lines, have limited track records, lack depth of
management, or have thinly-traded securities. Also, stocks of companies involved
in reorganizations and other special situations can often involve more risk than
ordinary securities. Accordingly, the Growth Equity Fund will probably be more
volatile than the overall stock market, and it could significantly outperform or
underperform the stock market during any particular period.
The Growth & Income Fund seeks a favorable long-term return through
capital appreciation and investment income, primarily from a broadly diversified
portfolio of common stocks.
Normally, the fund will invest at least 80% of its total assets in
income-producing equity securities selected for their investment potential. The
fund may invest in foreign securities.
Other Investments and Investment Techniques -- Equity Funds
The equity funds will usually use fundamental analysis to select
individual stocks or sectors for investment. To diversify and control
volatility, any of the equity funds may seek to track the U.S., foreign, or
small company equity markets as a whole by investing a portion of its assets in
the stocks that make up a widely used index of that market's performance, such
as the S&P 500 Composite Stock Index, the Morgan Stanley Europe Asia Far East
Index, the Russell 3000(R) (The Russell 3000 is a trademark and a service mark
of the Frank Russell Company) or other appropriate indices.
The equity funds can, in addition to stocks, hold other types of
securities with equity characteristics, such as
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convertible bonds, preferred stock, warrants and depository receipts or rights.
Pending more permanent investments or to use cash balances effectively, these
funds can hold the same types of money market instruments the Money Market Fund
invests in (see page ), as well as other short-term instruments. These other
instruments are the same type of instruments the Money Market Fund holds, but
they have longer maturities than the instruments allowed in the Money Market
Fund, or else don't meet the requirements for "First Tier Securities" (see page
).
The equity funds can also hold debt securities that they acquire
because of mergers, recapitalizations or otherwise. When market conditions
warrant, the funds can also invest in debt securities. These investments will be
similar to those authorized for the first segment of the Bond Plus Fund
(investment-grade debt securities).
The equity funds can buy and sell options ("puts" and "calls"), futures
contracts and options on futures to the extent permitted by 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.
We trade options or futures only as permitted by applicable regulatory
authorities. To manage currency risk, the equity funds can enter into forward
currency contracts; buy or sell options and futures on foreign currencies, and
buy securities indexed to foreign currencies. For more, see "Investment
Practices and Risk Considerations -- Currency Transactions," page .
The equity funds 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 a fund's investment objectives and
restrictions. (See the SAI.)
The Managed Allocation Fund
The Managed Allocation Fund seeks favorable returns that reflect the
broad investment performance of the financial markets through capital
appreciation and investment income. The Managed Allocation Fund will pursue this
goal primarily through investments in TIAA-CREF Mutual Funds' other investment
funds.
Under normal conditions, approximately 60% of the Managed Allocation
Fund's assets will be in shares of the Growth and Income, International Equity
and Growth Equity Funds, and approximately 40% will be in shares of the Bond
Plus Fund. We expect these percentages normally to fluctuate up and down by up
to 15%, depending on our analysis of market, economic and
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financial conditions. The Managed Allocation Fund may occasionally be even more
heavily weighted toward equities or fixed income, if we believe market
conditions warrant such a balance.
For flexibility in meeting redemptions, expenses, and the timing of new
investments, and as a short-term defense during periods of unusual volatility,
the fund can also invest in government securities, as defined in the Investment
Company Act of 1940 (the "1940 Act"), short-term paper, or shares of the Money
Market Fund. For temporary defensive purposes, the Managed Allocation Fund may
invest without limitation in such securities.
The Managed Allocation Fund shares the risks associated with the
investment funds in which it invests.
The Managed Allocation Fund is considered "nondiversified" for purposes
of the 1940 Act because it invests in the securities of a limited number of
mutual funds. However, the underlying funds themselves are considered
diversified investment companies.
The Bond Plus Fund
The Bond Plus Fund seeks a favorable long-term return, primarily
through high current income consistent with preserving capital. In addition, we
will use our expertise to invest a portion of the fund's assets in securities
with special features in an effort to improve the fund's total return.
Normally, at least 80% of the Fund's total assets will be invested in
bonds. We divide the fund's portfolio into two segments. The first segment,
which makes up at least 75% of the fund's assets, will be invested primarily in
a broad range of domestic and foreign investment-grade debt securities, such as
bonds, notes, mortgage-backed securities, and money market instruments. The
second segment, comprising the Plus feature, will be invested primarily in (i)
securities or other instruments that provide a spread over the yield curve (such
as private placements) that may be considered illiquid or (ii) non-investment
grade securities (those rated Ba1 or lower by Moody's or BB+ or lower by
Standard & Poor's). We may use up to 25% of the fund's assets for investments in
this second segment -- although investments in illiquid securities will not
comprise more than 15% of the fund's assets.
The fund may buy and sell options and futures, preferred stock and
other instruments consistent with its investment objective.
The Money Market Fund
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The Money Market Fund seeks high current income to the extent
consistent with maintaining liquidity and preserving capital.
We seek to maintain a stable net asset value of $1.00 per share of the
Money Market Fund by investing in assets that present minimal credit risk,
maintaining an average weighted maturity of 90 days or less, and investing all
of the fund's assets in securities or other instruments maturing in 397 days or
less. We can't assure you that we will be able to maintain a stable net asset
value of $1.00 per share for this fund. We value securities held by the fund on
an amortized cost basis (see the SAI).
The fund will invest primarily in:
(1) Commercial paper (short-term "IOUs" issued by corporations and
others) or variable-rate, floating-rate, or variable-amount
securities of domestic or foreign companies;
(2) Obligations of commercial banks, savings banks, savings and loan
associations, and foreign banks whose latest annual financial
statements show more than $1 billion in assets. These obligations
include certificates of deposit, time deposits, bankers'
acceptances, and other short-term debt;
(3) Securities issued by or whose principal and interest are
guaranteed by the U.S. government or one of its agencies or
instrumentalities;
(4) Other debt obligations with a remaining maturity of 397 days or
less issued by domestic or foreign companies;
(5) Repurchase agreements involving securities issued or guaranteed
by the U.S. government or one of its agencies or
instrumentalities, or involving certificates of deposit,
commercial paper, or bankers' acceptances;
(6) Participation interests in loans banks have made to the issuers
of (1) and (4) above (these may be considered illiquid);
(7) Asset-backed securities issued by domestic corporations or
trusts;
(8) Obligations issued or guaranteed by foreign governments or their
political subdivisions, agencies, or instrumentalities; and
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(9) Obligations of international organizations (and related
government agencies) designated or supported by the U.S. or
foreign government agencies to promote economic development or
international banking.
The Money Market Fund will only purchase money market instruments that
at the time of purchase are "First Tier Securities", that is rated within the
highest category by at least two nationally recognized statistical rating
organizations (NRSROs), or rated within the highest category by one NRSRO if it
is the only NRSRO to have issued a rating with respect to the security, or
unrated securities of comparable quality. The fund can also invest up to 30% of
its assets in money-market and debt instruments of foreign issuers denominated
in U.S. dollars.
The above list of investments is not exclusive and the fund may make
other investments consistent with its investment objective and policies.
To the extent the law allows, the Money Market Fund can invest in
options and futures contracts. For a more detailed description of types of money
market instruments, see the SAI.
Investment Practices and Risk Considerations
The following is a brief description of the investment practices and
risk considerations of the funds. For more information, see the SAI.
Foreign Investments
Investing in securities traded on foreign exchanges or in foreign
markets can involve risks not ordinarily part of domestic investing. These
include: 1) changes in currency exchange rates; 2) possible imposition of market
controls or currency exchange controls; 3) possible imposition of withholding
taxes on dividends and interest; 4) possible seizure, expropriation, or
nationalization of assets; 5) more limited foreign financial information or
difficulty in interpreting it because of foreign regulations and accounting
standards; 6) the lower liquidity and higher volatility in some foreign markets;
7) the impact of political, social, or diplomatic events; 8) the difficulty of
evaluating some foreign economic trends; or 9) the possibility that a foreign
government could restrict an issuer from paying principal and interest to
investors outside the country. Brokerage commissions and transaction costs are
often higher for foreign investments, and it may be harder to use foreign laws
and courts to enforce financial or legal obligations.
The risks noted above often increase in emerging countries.
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For example, emerging countries may have more unstable governments than
developed countries, and their economies may be based on only a few industries.
Because their securities markets may be very small, share prices may be
volatile. In addition, foreign investors are subject to a variety of special
restrictions in many emerging countries.
Currency Transactions
When investing in foreign securities, the equity funds can use currency
transactions to protect themselves against future exchange rate uncertainties
and to take advantage of exchange rate disparities between countries. The equity
funds can enter into forward currency contracts; buy or sell options and futures
on foreign currencies; and buy securities indexed to foreign currencies. These
transactions are either on a spot (i.e., cash) basis at prevailing rates, or
else through forward contracts to buy or sell currencies at a set price on a
stipulated date in the future. Forward currency contracts are usually with large
commercial banks that participate in the interbank market. The equity funds can
also use currency financial futures and options and can hold part of their
assets in bank deposits denominated in foreign currency. If foreign currency
assets are converted to U.S. dollars, changes in exchange rates and exchange
control regulations may increase or reduce their value.
Foreign currency transactions seek to reduce a fund's exposure to a
decline in the value of investments denominated in foreign currencies; they may
also let us "lock in" exchange rates when buying or selling foreign securities.
These transactions involve special risks. For example, they may limit potential
gains from increases in a currency's value. We don't intend to speculate in
foreign currency exchange transactions or forward currency contracts.
Illiquid Securities
Each fund can invest up to 15 percent of its net assets (10 percent for
the Money Market Fund) in investments that may not be readily marketable. It may
be difficult to sell these investments for their fair market value.
Non-Investment Grade Bonds
The Bond Plus Fund can also buy and sell lower-rated (non-investment
grade) securities. These are usually called "high-yield" or "junk" bonds.
Lower-rated bonds offer higher returns but also entail higher risks. Their
issuers may be less
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creditworthy or have a higher risk of becoming insolvent. Small changes in the
issuer's creditworthiness can have more impact on the price of lower-rated bonds
than comparable changes would for investment grade bonds. Lower-rated bonds can
also be harder to value or sell, and their prices can be more volatile than the
prices of higher-quality securities.
Bear in mind that all these risks can also apply to the lower levels of
"investment grade" securities, for example, Moody's Baa and S&P's BBB. Moreover,
securities originally rated "investment grade" are sometimes downgraded later
on, should a ratings service believe the issuer's business outlook or
creditworthiness has deteriorated. If that happens to a security in a fund, it
may or may not be sold, depending on our analysis of the issuer's prospects.
However, a fund won't purchase below-investment-grade securities if that would
increase their representation in a fund's portfolio above our current investment
target. We don't rely exclusively on credit ratings when making investment
decisions because they may not alone be an accurate measure of the risk of
lower-rated bonds. Instead, we also do our own credit analysis, paying
particular attention to interest rate trends and other market events (see the
SAI).
Repurchase Agreements
Repurchase agreements are one of several short-term vehicles the funds
can use to manage cash balances effectively. In a repurchase agreement, we buy
an underlying debt instrument on condition that the seller agrees to buy it back
at a fixed time (usually a relatively short period) and price. The period from
purchase to repurchase is usually no more than a week and never more than a
year. Repurchase agreements may involve special risks.
Firm Commitment Agreements
The funds can enter into "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.
Investment Companies
Each fund other than the Managed Allocation Fund can invest up to 5% of
its assets in any single investment company and up to 10% of its assets in all
other investment companies in the aggregate. However, no fund other than the
Managed Allocation Fund can hold more than 3% of the total outstanding voting
stock of any single investment company. The Managed Allocation Fund, however,
can invest all of its assets in the securities of other investment companies
that are part of the TIAA-CREF Mutual Funds.
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Lending Securities
Subject to certain restrictions, the funds can seek additional income
by lending securities to brokers, dealers, and other financial institutions. All
loans will be fully collateralized. If we lend a security, we can call in the
loan at any time.
Borrowing
The funds can borrow money from banks (no more than 33-1/3 percent of
the market value of such fund's assets at the time of borrowing). The funds 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).
If a fund borrows money, it could leverage its portfolio by keeping
securities it might otherwise have had to sell. Leveraging exposes a fund to
special risks, including greater fluctuations in net asset value in response to
market changes.
Mortgage-Backed Securities
The Bond Plus Fund can invest in mortgage-backed securities sold by
private, governmental and government-related organizations in the form of
collateralized mortgage obligations ("CMOs"), mortgage-backed bonds or
pass-through securities. CMOs are obligations fully collateralized directly or
indirectly by a pool of mortgages on which payments of principal and interest
are dedicated to payment of principal and interest on the CMOs. Mortgage-backed
bonds are general obligations of the issuer fully collateralized directly or
indirectly by a pool of mortgages. Mortgage pass-through securities are formed
when mortgages are pooled together and interests in the pool are sold to
investors. The cash flow from the underlying mortgages is "passed through" to
investors in periodic principal and interest payments. Fluctuating interest
rates and other factors may affect prepayment schedules and the ultimate return
from these investments and expose the fund to a lower rate of return upon
reinvestment of the principal. (See the SAI.)
Net Asset Value
We determine the net asset value (NAV) per share (share price) of each
fund when regular trading closes on the New York Stock Exchange (usually 4 p.m.)
on each day the Exchange is open. We compute each fund's NAV by dividing the
value of a fund's assets, less its liabilities, by the number of outstanding
shares of that fund.
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Except as noted below, we use market quotations or independent pricing
services to value securities and other instruments. Debt securities maturing in
60 days or less are valued at amortized cost.
If market quotations or independent pricing services aren't readily
available, we'll use fair value, as determined in good faith by or under the
direction of the TIAA-CREF Mutual Funds Board of Trustees.
To calculate the Money Market Fund's net asset value per share, we
value its portfolio securities at their amortized cost. This valuation method
does not take into account unrealized gains or losses on the Fund's portfolio
securities. Amortized cost valuation involves first valuing a security at cost,
and thereafter assuming an amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the security's market
value. While this method provides certainty in valuation, there may be times
when the value of a security, as determined by amortized cost, may be higher or
lower than the price the Money Market Fund would receive if it sold the
security.
The NAV per share of the Managed Allocation Fund will be based on the
NAV per share of each of the underlying funds in which it invests. Therefore,
although we will determine the net asset value per share of the Managed
Allocation Fund as described above, we cannot price the Managed Allocation
Fund's shares until we determine net asset value per share of the underlying
fund or funds.
Shareholder Services
Who Can Open An Account?
Current or retired employees of eligible institutions, and eligible
institutions themselves, can open a TIAA-CREF Mutual Funds account. An eligible
institution is a private or public institution in the United States that is
nonproprietary and nonprofit. (Eligible institutions can open accounts only to
fund deferred compensation plans.) A private institution has to be tax-exempt
under Section 501(c)(3) of the Internal Revenue Code of 1986 (IRC) or earlier
versions of the section and cannot be a "private foundation," as that term is
used in the IRC. The main purpose of any eligible institution must be to offer
instruction; conduct research; serve and support education or research; or
perform ancillary functions for such institutions. Spouses of eligible employees
can also open an account. We reserve the right to change these eligibility
requirements at any time. If
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you aren't sure if you're eligible, please call us at 1 800 223-1200.
Types of Accounts
With the TIAA-CREF Mutual Funds, you can establish the types of
accounts listed below, so long as the account owners meet the eligibility
requirements explained above.
o Individual accounts (for one person) or joint accounts (more than
one person).
o Trust accounts (you must send a copy of the trust with your
application.) The person establishing the trust must meet our
eligibility requirements. We can't accept foreign trust accounts.
o Accounts for a minor child under the Uniform Gift to Minors Act
(UGMA) or Uniform Transfer to Minors Act (UTMA). The person
establishing the account must meet our eligibility requirements.
How To Buy Shares
To open an account you must complete an application and send it to us
with your initial investment. If you want an application, or if you have any
questions or need help completing the application, call one of our Counselors at
1 800 223-1200. You can also download and print the application from our
website, which is located at www.tiaa-cref.org.
The minimum initial investment is $250 per fund (or $25 if you
establish an Automatic Investment Plan). Subsequent investments must be for at
least $25. All purchases must be in U.S. dollars and checks must be drawn on
U.S. banks.
We consider all requests for purchases, checks, and other forms of
payments to be received when they are received in good order. (See "Other
Investor Information -- Good Order," page .) We will accept third party checks
for purchases of $10,000 or less.
Please send your check and/or application to the following addresses:
First Class Mail: The TIAA-CREF Mutual Funds
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c/o State Street Bank
P.O. Box 8009
Boston, MA 02266-8009
Overnight Mail: The TIAA-CREF Mutual Funds
c/o State Street Bank
Two Heritage Drive
Quincy, MA 02171-2119
You can purchase additional shares in any of the following ways:
By Mail Send a check with an investment coupon from a previous
confirmation statement. If you don't have an investment coupon, use a separate
piece of paper to give us your name, address, fund account number, and the fund
or funds you want to invest in and the amount to be invested in each fund.
Make your check payable to TIAA-CREF Mutual Funds.
By Automatic Investment Plan You can make subsequent investments
automatically by electing this service on your initial application or later upon
request.
By electing this option you authorize us to take regular, automatic
withdrawals from your bank. To begin this service, send us a voided check or
investment slip from the bank account you want us to make withdrawals from. You
can make automatic investments semi-monthly (on the 1st and 15th of each month
or on the next following business day if those days are not business days),
monthly or quarterly (on the 1st or 15th of the month). Investments must be for
at least $25 per account.
You can change the date or amount of your investment, or terminate the
Automatic Investment Plan, at any time by letter or (with prior authorization)
by telephone. The change will take effect approximately 5 business days after we
receive your request.
By Telephone This service allows you to make electronic withdrawals
from your designated bank account to buy additional TIAA-CREF Mutual Funds
shares over the telephone. There is a $100,000 limit on these purchases.
We take reasonable precautions to make sure that telephone instructions
are genuine. Precautions include requiring you to positively identify yourself,
tape recording the telephone instructions, and providing written confirmations.
We accept all telephone instructions we reasonably believe to be accurate and
genuine. Any losses arising from communication errors are your
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responsibility. If reasonable procedures are not used to confirm that
instructions communicated by telephone are genuine, we may be liable for any
losses due to unauthorized or fraudulent transactions.
All shareholders automatically have the right to buy shares by
telephone. If you don't want the telephone purchase option, you can indicate
this on the application or call us at 1 800 223-1200 any time after opening
your account.
By Wire You may make initial or subsequent investments by wire. Be
aware that your bank may charge you a fee to wire funds. Here's what you need
to do:
1. send us your application, then call us to confirm that
your account has been established (initial investment only);
2. instruct your bank to wire money to:
State Street Bank
ABA Number 011000028
DDA Number 9905-2771
3. specify on the wire:
o The TIAA-CREF Mutual Funds
o Account registration (names of registered owners), address and
Social Security Number(s) or Taxpayer Identification Number
o Indicate if this is for a new or existing account (provide
fund account number if existing)
o The fund or funds in which you want to invest, and amount per
fund to be invested
Points to remember for all purchases:
o Your investment must be for a specified dollar amount. We can't accept
purchase requests specifying a certain price, date, or number of shares;
we'll return these investments.
o We reserve the right to reject any application or investment. There may be
circumstances when we will not accept new investments in one or more of the
funds.
o If you have a securities dealer, bank, or other financial institution handle
your transactions, they may charge you a fee.
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How to Redeem Shares
You may redeem (sell) your shares at any time. We will make redemptions
at the Net Asset Value (share price) next calculated after your request is
received in good order (See "Other Investor Information -- Good Order,"
page ). Redemptions must be for at least $250 or the balance of your
investment in a fund, if less.
Usually, we send your redemption proceeds to you on the second business
day after we receive your request, but not later than seven days afterwards,
assuming the request is in good order. When a redemption occurs shortly after a
recent check purchase, we may hold the redemption proceeds for more than seven
days. However, we'll hold the proceeds only until the purchase check clears,
which can take up to 15 days.
We will send redemption proceeds to the shareholder of record at
his/her address or bank of record. If proceeds are to be sent to someone else, a
different address, or a different bank, we will require a letter of instruction
with signature guarantee (see page ).
We can postpone payment if (a) the New York Stock Exchange is closed
for other than usual weekends or holidays, or trading on the New York Stock
Exchange is restricted; (b) an emergency exists as defined by the SEC, or the
SEC requires that trading be restricted; or (c) the SEC permits a delay for the
protection of investors.
You can redeem shares in any of the following ways:
By Mail or FAX Written redemption requests must include: account
number, transaction amount (in dollars or shares), signatures of all owners
exactly as registered on the account, signature guarantees (if required), and
any other required supporting legal documentation. Once mailed to us, your
redemption request is irrevocable and cannot be modified or canceled.
Redemptions for $50,000 or more must be in writing, and cannot be sent
to us by fax.
By Telephone You can redeem shares (for less than $50,000) by
telephone by calling us at 1 800 223-1200. Once made, your telephone request
cannot be modified or canceled.
We take reasonable precautions to make sure that your telephone
instructions are genuine (see page ). All
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shareholders have the telephone redemption option automatically. If you do not
want to be able to redeem by telephone, indicate this on your application or
call us at 1 800 223-1200 any time after opening your account.
We can send your redemption proceeds in several different ways: by
check to the address of record; by electronic transfer to your bank; or by wire
transfer (minimum of $5,000). If you call us before the close of the New York
Stock Exchange, usually 4:00 pm Eastern Standard Time, you will receive the
share price determined as of the close of that business day. See "Net Asset
Value," page . Before calling, read "Shareholder Services -- Points to
Remember When Redeeming," page .
By Check If you've elected the Money Market Fund's checkwriting
privilege, you can make redemptions from the Money Market Fund by check. All
registered account owners must sign a signature card before the privilege can be
exercised. You can establish checkwriting on your account when you apply or
later upon request.
For joint accounts, we require only the signature of any one owner on a
check. You can write as many checks as you want, as long as each check is for at
least $250. We reserve the right to charge a $10 fee if you write a check for
less than $250; if there are insufficient Money Market Fund shares in your
account to cover the amount of the check; or if you write more than 24 checks a
year.
You can't write a check to close your TIAA-CREF Money Market Fund
account because the value of the fund changes daily as dividends are accrued.
By Systematic Redemption Plan You can elect this feature only if the
balance in the investment fund from which you're redeeming is at least $5000.
We'll automatically redeem enough shares in a particular fund each month or
quarter (on the 1st or 15th of the month or on the following business day if
those days are not business days) to provide you with a check or electronic
transfer to your bank. You must specify the dollar amount (minimum $250) of the
redemption and from which fund you want to redeem shares.
If you want to set up a systematic redemption plan, contact us and
we'll send you the necessary forms. All owners of an account must sign the
systematic redemption plan request. Similarly, all owners must sign any request
to increase the amount or frequency of the systematic redemptions or a request
for payments to be sent to an address other than the address of record. A
signature guarantee is required for this address change.
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We can terminate the systematic redemption plan option at any time,
although we will notify you if we do. You can terminate the plan or reduce the
amount or frequency of the redemptions by writing or calling us. Requests to
establish, terminate, or change the amount or frequency of redemptions will
become effective within 5 days after we receive your instructions.
Points To Remember When Redeeming
o We can't accept redemption requests specifying a certain price or date; these
requests will be returned.
o If you request a redemption by telephone within 30 days of changing your
address, or if you would like the proceeds sent to someone else, you must
send us your request in writing with a signature guarantee.
o For redemptions for more than $250,000, we reserve the right to give you
marketable securities instead of cash. For more information, see the SAI.
How To Exchange Shares
You can exchange shares in a fund for shares of any other fund at any
time. An exchange is a sale of shares from one fund and a purchase of shares in
another fund. Exchanges are taxable events. See "Taxes," page .
The minimum investment amounts that apply to purchases also apply to
exchanges. In other words, for any account, an exchange to a fund in which you
already own shares must be at least $25, and an exchange to a new fund must be
at least $250.
Exchanges between accounts can be made only if the accounts are
registered in the same name(s), address and Social Security or Tax
Identification Number.
You can make exchanges in any of the following ways:
By Mail or FAX Send us a letter of instruction with the following
information: your name, address, and the funds and/or accounts you want to
exchange between.
We require requests for exchanges of $50,000 or greater to be in
writing.
By Telephone You may exchange shares by telephone by calling us at 1
800 223-1200. Once made, your telephone request
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cannot be modified or canceled. TIAA-CREF takes reasonable precautions to make
sure that telephone instructions are genuine (see page ).
By Systematic Exchange You can elect this feature only if the balance
of the fund from which you are transferring shares is at least $5000. We
automatically redeem shares from a specified fund and purchase shares in another
fund each month or quarter (on the 1st or 15th of the month or on the following
business day if those days are not business days). You must specify the dollar
amount and the funds involved in the exchange. An exchange to a fund in which
you already own shares must be for at least $25, and an exchange to a new fund
must be for at least $250.
If you want to set up systematic exchanges, you can contact us and we
will send you the necessary form. Each owner of the account must sign a
systematic exchange request. Similarly, all account owners must sign any request
to increase the amount or frequency of systematic exchanges. You can terminate
the plan or change the amount or frequency of the exchanges by writing or
calling us. Requests to establish, terminate, or change the amount or frequency
of exchanges will become effective within 5 days after we receive your
instructions.
Points To Remember When Exchanging
o Make sure you understand the investment objective of the fund you exchange
shares into. (See "The TIAA-CREF Mutual Funds," page .) The exchange option
is not designed to allow you to time the market. It gives you a convenient
way to adjust the balance of your account so that it more closely matches
your overall investment objectives and risk tolerance level.
o To maintain low expense ratios and avoid disrupting the management of each
fund's portfolio, we reserve the right to suspend the exchange privilege if
you have made more than 12 exchanges within a 12-month period. We also
reserve the right to reject any exchange request and to modify or terminate
the exchange option at any time.
o An exchange is considered a sale of securities, and therefore may be subject
to taxation.
Other Investor Information
Good Order Your initial application and later requests for
transactions will not be processed until they are received in
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good order by our transfer agent, Boston Financial Data Services. Good order
means that we have verified that you are an eligible investor, your application
is properly completed or your transaction request includes your fund account
number, the amount of the transaction (in dollars or shares), signatures of all
owners exactly as registered on the account, and any other supporting legal
documentation that may be required. The share price we use will be the NAV per
share next calculated after State Street Bank receives your application or
request in good order. If this occurs before 4:00 pm, Eastern Standard Time your
price will be the NAV per share for that day. If it's after 4:00 pm, Eastern
Standard Time the transaction will be effective on, and your price will be the
NAV per share for, the next business day.
Tax Identification Number You must give us your taxpayer
identification number (which, for most individuals, is your social security
number) and tell us whether or not you are subject to back-up withholding for
prior under-reporting. If you don't furnish your taxpayer identification number,
redemptions or exchanges of shares, as well as dividends and capital gains
distributions, will be subject to federal (and in a few cases state) tax
withholding.
Changing Your Address To change the address on your account, please
call us or send us a written notification signed by all registered owners of
your account.
Signature Guarantee For some transaction requests (for example, when
you're redeeming shares within 30 days of changing your address, bank or bank
account or adding certain new services, such as checkwriting, to an existing
account), we require a signature guarantee of each owner of record of an
account. This requirement is designed to protect you and the TIAA-CREF Mutual
Funds from fraud, and to comply with rules on stock transfers. You can get a
signature guarantee from a bank or trust company, savings bank, savings and loan
association, or a member of a national stock exchange. A notary public can't
provide a signature guarantee. For more information about when a signature
guarantee is required, please contact us.
Transferring Shares You can transfer ownership of your account to
another person or organization or change the name on your account by sending us
written instructions. All registered owners of the account must sign the request
and provide signature guarantees. When you change the name on an account, shares
in that account are transferred to a new account.
Transfer On Death If you live in certain states, you can designate
one or more persons (beneficiaries) to whom your TIAA-CREF Mutual Funds shares
can be transferred upon death. You can
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set up your account with a Transfer On Death (TOD) registration upon request.
(Call us to get the necessary forms.) A TOD registration avoids probate if the
beneficiary(ies) survives all shareowners. You maintain total control over your
account during your lifetime.
We only offer this option in states where it is permitted which
currently include the following: Alaska, Arizona, Arkansas, California,
Colorado, Delaware, Florida, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine,
Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New
Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Dakota,
Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, and
Wyoming.
Statements and Reports We will send you a variety of statements to
help you monitor activity in your account and prepare income tax returns. If you
send us a written request, we'll send copies of your statements to individuals
you designate. We send you
Confirmation Statements each time you purchase, redeem, or exchange
shares. The statement will show the date and amount of each
transaction. However, if you're using an automatic investment plan or a
systematic redemption or exchange plan, you'll receive a statement
confirming those transactions immediately following the end of each
calendar quarter.
Quarterly Reports immediately following the end of each calendar
quarter. They report the value of your account at the close of the
preceding quarter, and show all distributions, purchases, exchanges,
and redemptions during the quarter. The fourth quarter statement
provides a year-to-date summary of activity.
Tax Forms each January summarizing the previous year's dividend and
capital gains distributions and proceeds from the sale of shares. We
mail these forms to shareholders outside the U.S. no later than March
15, as required by law.
Average Cost Statements each February reporting the average cost of
shares you sold in the previous year, using the average cost single
category method.
Money Market Checking Statements each month, if you elected the
checkwriting privilege and if you wrote checks during the preceding
month. To reduce costs, we won't return canceled checks to you, but
microfilmed copies of checks are available upon request.
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We will also send you audited annual financial statements and
semi-annual financial reports on the TIAA-CREF Mutual Funds' operations and
performance, and a new prospectus each year. The SAI will be revised each year
but we'll send it only on request.
Automated Telephone Service
All shareholders can check fund performance, their account balances or
initiate purchases or exchanges automatically by telephone, using our automated
telephone service ("ATS"). Each fund is liable for losses from unauthorized
transactions only if we do not follow reasonable procedures designed to verify
the identity of the person effecting the transaction. TIAA-CREF Mutual Funds
therefore require the use of personal identification numbers, codes, and other
procedures designed to reasonably confirm that instructions given by telephone
are genuine. However, you should verify the accuracy of your confirmation
statements immediately after you receive them.
If you do not want to be able to effect transactions over the
telephone, call us for instructions.
Contacting TIAA-CREF Mutual Funds
You can contact us in any of the following ways:
By telephone: Call 1 800 223-1200
In writing: TIAA-CREF Mutual Funds
c/o State Street Bank
P.O. Box 8009
Boston, Massachusetts 02266-8009
Electronic Prospectuses
If you received this prospectus electronically and would like a paper
copy, please contact us and we will send one to you. All applications are also
accompanied by a paper prospectus.
TIAA-CREF Mutual Funds' Management
The Board
A Board of Trustees (the Board) oversees TIAA-CREF Mutual Funds'
business affairs and is responsible for major decisions about each fund's
investment objective and policies. The Board delegates the day-to-day management
of each of the funds to
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Teachers Advisors, Inc., (Teachers Advisors) and its officers (see below). The
Board meets throughout the year to review TIAA-CREF Mutual Funds' activities,
contractual arrangements with companies that provide services to TIAA-CREF
Mutual Funds, and the performance of each individual investment fund.
It is possible that the interests of the Managed Allocation Fund could
diverge from the interests of one or more of the funds in which it invests
(underlying funds). If those interests did diverge, a conflict of interest could
arise between the Managed Allocation Fund and its underlying funds. This
conflict could affect how the Board and TIAA-CREF Mutual Funds' officers fulfill
their fiduciary duties to each fund. The Board believes it has structured each
fund to avoid these concerns. However, a situation could occur where proper
action for the Managed Allocation Fund could hurt the interests of any
underlying fund, or vice versa. If that happens, Teachers Advisors and the Board
and officers of TIAA-CREF Mutual Funds will carefully analyze the situation and
take all steps they believe reasonable to minimize and, where possible,
eliminate the potential conflict. Teachers Advisors and the Board and officers
will in any case closely and continuously monitor each fund's investments to
avoid, insofar as possible, these concerns.
Teachers Advisors
Teachers Advisors manages each Fund's assets, subject to the
supervision of the Board. A wholly-owned indirect subsidiary of TIAA, Teachers
Advisors is registered with the SEC under the Investment Advisers Act of 1940.
Its duties include conducting research, recommending investments, and placing
orders to buy and sell securities. Teachers Advisors and its personnel act
consistently with the investment objectives, policies, and restrictions of each
of the individual investment funds. The personnel of Teachers Advisors who
manage the TIAA-CREF Mutual Funds also manage the investments of the CREF
accounts through an affiliated investment adviser, TIAA-CREF Investment
Management, Inc. ("Investment Management"). Teachers Advisors also manages the
assets of TIAA Separate Account VA-1, a segregated investment account of TIAA
that funds a variable annuity.
Under the terms of an Investment Management Agreement between TIAA-CREF
Mutual Funds and Teachers Advisors, Teachers Advisors is entitled to an annual
fee of 0.99%, 0.95%, 0.93%, 0.80% and 0.79% of the average daily net assets of
the International Equity Fund, the Growth Equity Fund, the Growth and Income
Fund, the Bond Plus Fund and the Money Market Fund. It receives no fee for
managing the Managed Allocation Fund. Teachers Advisors currently has
voluntarily waived its right to receive that portion of its fee equal to 0.50%
of the average daily net assets of each fund (other than the Managed Allocation
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Fund). This waiver is guaranteed to remain in effect until July 1, 2000.
Under the Investment Management Agreement, Teachers Advisors is also
responsible for providing, or obtaining at its own expense, the services
reasonably necessary for the ordinary operation of each fund. These include
distribution, custodial, administrative, transfer agency, portfolio accounting,
dividend disbursing, auditing, and ordinary legal services. Teachers Advisors
also acts as liaison among the various service providers to the funds, including
custodians, portfolio accounting agents, portfolio managers, and transfer
agents.
This arrangement makes the TIAA-CREF Mutual Funds distinctive because
their expense structure is simpler and more predictable than most other mutual
funds. Teachers Advisors pays many of the funds' ordinary expenses, whereas most
mutual funds pay for these expenses directly from their own assets. The
TIAA-CREF Mutual Funds pay the funds' brokerage fees or other transactional
expenses for securities or other assets, taxes (if any), interest on borrowing,
or extraordinary expenses, such as litigation or indemnification expenses.
Teachers Advisors has agreed not to be paid a management fee for
managing the Managed Allocation Fund. However, Teachers Advisors will receive
management fees for managing the funds in which the Managed Allocation Fund
invests.
Fund Managers
The International Equity Fund is managed by Chris Semenuk,
Director-Global Portfolio Management, Teachers Advisors. Mr. Semenuk joined
TIAA-CREF in 1995. He is also responsible for company research and analysis for
the CREF Global Equities Account.
The Growth Equity Fund is managed by Scott C. Evans, Managing Director,
Teachers Advisors. Mr. Evans joined TIAA-CREF in 1985. Mr. Evans is also
responsible for managing the investments of the CREF Growth Account.
The Growth & Income Fund is managed by Carlton N. Martin, Managing
Director-Global Research of Teachers Advisors. Mr. Martin joined TIAA-CREF in
1980. He is also responsible for investments in the chemical, paper and forest
products as well as the environmental, engineering and construction industries
for certain CREF Accounts.
The Managed Allocation Fund is managed by James G. Fleischmann and
Michael T. O'Kane. Mr. Fleischmann, Senior Managing Director-Global Research,
Teachers Advisors, joined
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TIAA-CREF in 1994 and is also responsible for global equity research for the
CREF Accounts. Prior to joining TIAA-CREF, Mr. Fleischmann was a Director of
Salomon Brothers, Inc., and co-portfolio manager of Salomon Brothers Hybrid
Convertible Fund, Salomon Brothers Investors Fund and Salomon Brothers Fund. Mr.
O'Kane, Senior Managing Director-Securities, Teachers Advisors, joined TIAA-CREF
in 1986. Mr. O'Kane also has supervisory responsibility over investments in
CREF's Bond Market and Money Market Accounts.
The Bond Plus Fund is managed by Elizabeth D. Black, Director,
Portfolio Management, Teachers Advisors. Ms. Black is also responsible for
managing the investments in CREF's Bond Market Account.
Performance Information
This section would normally show how each fund has performed over time.
Because the funds were new when this prospectus was printed, their performance
is not included. At least twice a year, you will receive a report detailing each
fund's recent strategies, performance, and holdings. Contact us for current
performance or a free annual report. Fund performance can also be obtained by
calling our automated telephone service ("ATS").
"Total return" is the change in value of an investment in a fund over a
given period, assuming reinvestment of any dividends and capital gains. A
"cumulative total return" reflects actual performance over a stated period of
time. An "average annual total return" is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Average annual total returns covering periods of less than
one year assume that performance will remain constant for the rest of the year.
"Yield" refers to the income generated by an investment in a fund over
a given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all stock and bond
funds. Because this differs from other accounting methods, the quoted yield may
not equal the income actually paid to shareholders. This difference may be
significant for a fund with investments denominated in foreign currencies. Money
Market Fund yields are calculated according to a standard that is required for
all money market funds.
Total returns and yields are based on past results and are not an
indication of future performance.
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For more complete information on the calculation of performance data,
see the SAI.
Prior Performance of CREF Growth Account
The following table contains information about the historical
performance of the CREF Growth Account since the date indicated. The CREF Growth
Account is not a mutual fund; rather it funds a variable annuity contract. It
has an investment objective, policies, strategies and risks substantially
similar to those of the TIAA-CREF Mutual Funds' Growth Equity Fund. The data are
provided to illustrate the experience of Teachers Advisors' personnel (in their
capacities with Investment Management) in managing a substantially similar
investment portfolio. It does not represent the performance of the Growth Equity
Fund.
These investment results are unaudited. They aren't intended to predict
or suggest the returns that the Growth Equity Fund or an investor in that fund
might experience. The results are net of investment management and other
operating expenses for CREF. The results would be lower if the Growth Equity
Fund's actual operating expense charges were deducted.
CREF Growth Account Average Annual Rates Cumulative Rates
of Total Return of Total Return
1 year 32.03% 32.03%
(7/1/96 - 6/30/97)
3 years 28.56% 112.49%
(7/1/94 - 6/30/97)
Since inception 26.37% 109.43%
(4/29/94-6/30/97)
Dividends and Distributions
Each fund expects to declare and distribute to shareholders
substantially all of its net investment income and net realized capital gains,
if any. The amount distributed will vary according to the income received from
securities held by the fund and capital gains realized from the sale of
securities. The following table shows how often we pay dividends on each fund:
Fund Dividend Paid
- ---- -------------
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The International Equity Fund Annually
The Growth Equity Fund Annually
The Growth & Income Fund Quarterly
The Managed Allocation Fund Quarterly
The Bond Plus Fund Monthly
The Money Market Fund Monthly
Although we pay dividends monthly from the Money Market Fund, these
dividends are calculated and declared daily.
Capital gains from all funds will be paid once a year.
You can elect from among the following distribution options:
1. Reinvestment Option, Same Fund. We'll automatically reinvest your dividend
and capital gain distributions in additional shares of the fund. Unless you
elect otherwise, this will be your distribution option.
2. Reinvestment Option, Different Fund. We'll automatically reinvest your
dividend and capital gain distributions in additional shares of another fund in
which you already hold shares.
3. Income-Earned Option. We'll automatically reinvest your capital gain
distributions, but you will be sent a check for each dividend distribution.
4. Capital Gains Option. We'll automatically reinvest your dividend
distributions, but you will be sent a check for each capital gains distribution.
5. Cash Option. We'll send a check for your dividend and each capital gain
distribution.
We make distributions for each fund on a per share basis to the
shareholders of record on the fund's distribution date. We do this regardless of
how long the shares have been held. That means if you buy shares just before or
on a record date, you will pay the full price for the shares and then you may
receive a portion of the price back as a taxable distribution. Cash distribution
checks will be mailed within seven days.
Taxes
As with any investment, you should consider how your
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investment in any fund will be taxed.
Taxes on distributions. You must pay federal income tax, and possibly
also state or local taxes, on distributions. If you live outside the United
States, the country in which you reside could also tax distributions. Your
distributions are taxable when they are paid, whether you take them in cash or
reinvest them. However, distributions declared in October, November or December
and paid in January are taxable as if they were paid on December 31.
For federal tax purposes, income and short-term capital gain
distributions from a fund are taxed as ordinary income; long-term capital gain
distributions are taxed as long-term capital gains. Every January, we will send
you and the IRS a statement showing the taxable distributions paid to you in the
previous year.
Recent tax law changes. The Taxpayer Relief Act of 1997 (the "Relief
Act") was enacted on August 5, 1997. The Relief Act reduces the maximum
long-term capital gains tax rate for individuals to 20% (or 10% if you're in the
15% tax bracket). The reduction applies to long-term capital gains incurred by a
fund from the sale, exchange or other disposition of securities held by the fund
for more than 18 months and distributed to shareholders as long-term capital
gains. This change is effective May 7, 1997. The Relief Act did not change the
28% (or 15% if you're in the 15% tax bracket) long-term capital gains tax rate
for long term capital gains incurred by the fund from the sale, exchange or
other disposition of securities held by the fund for between 12 and 18 months
and distributed to shareholders as long-term capital gains. We expect to
designate each year the portions of the TIAA-CREF Mutual Funds' capital gain
distributions that are taxable at these different rates.
Taxes on transactions. Redemptions -- including exchanges to other
funds -- are subject to capital gains tax. A capital gain or loss is the
difference between the cost of your shares and the price you receive when you
sell them. (Non-resident aliens will receive these statements later.)
Whenever you sell shares of a fund, we will send you a confirmation
statement showing how many shares you sold and at what price. However, you or
your tax preparer must determine whether this sale resulted in a capital gain or
loss and the amount of tax to be paid on any gain. Be sure to keep your regular
account statements; the information they contain will be essential in
calculating the amount of your capital gains or losses. For more about how
capital gains are taxed, see "Recent Tax Law Changes", above.
"Buying a dividend." If you buy shares just before a fund
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deducts a distribution from its net asset value, you will pay the full price for
the shares and then receive a portion of the price back in the form of a taxable
distribution. This is referred to as "buying a dividend." For example, assume
you bought shares of a fund for $10.00 per share the day before the fund paid a
$0.25 dividend. After the dividend was paid, each share would be worth $9.75,
and you would have to include the $0.25 dividend in your gross income for tax
purposes.
Effect of foreign taxes. Foreign governments may impose taxes on a fund
and its investments and these taxes generally will reduce such fund's
distributions. If a fund qualifies to pass through a credit for such taxes paid,
an offsetting tax credit or deduction may be available to you. If so, your tax
statement will show more taxable income than were actually distributed by the
fund, but will also show the amount of the available offsetting credit or
deduction.
There are tax requirements that all mutual funds must follow in order
to avoid federal taxation. In its effort to adhere to these requirements, a fund
may have to limit its investment in some types of instruments.
General Matters
Voting Rights
We don't plan to hold annual shareholder meetings. However, we may hold
special meetings to elect trustees, change fundamental policies, approve a
management agreement, or for other purposes. We will mail proxy materials to
shareholders for these meetings, and we encourage shareholders who can't attend
to vote by proxy. The number of votes you have on any matter submitted to
shareholders depends on the dollar value of your investment in the funds.
Distributors
Shares of each fund are offered continuously with no sales load by
Teachers Personal Investors Services, Inc. (TPIS). TPIS is registered with the
SEC as a broker-dealer and is a member of the NASD. TPIS may be considered the
"principal underwriter" for the TIAA-CREF Mutual Funds. Anyone distributing
shares of the TIAA-CREF Mutual Funds must be a registered representative of
TPIS. TPIS' main office is at 730 Third Avenue, New York, New York 10017-3206.
TPIS may enter into selling agreements with one or more broker-dealers which may
or may not be affiliated with TPIS to provide distribution related services to
the TIAA-CREF Mutual Funds.
Administration
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Teachers Advisors has retained State Street Bank & Trust Company
("State Street") to provide the funds with certain administrative services,
including preparation of each fund's federal, state and local tax returns,
preparation of each fund's financial information, and various other
administrative services. State Street also acts as the transfer and dividend
paying agent for the funds. Teachers Advisors, not the TIAA-CREF Mutual Funds,
has agreed to pay State Street a fee for such services. State Street is located
at 225 Franklin Street, Boston, Massachusetts 02209.
Custodial Services
State Street also provides custodial services for the funds under a
separate agreement with Teachers Advisors. Teachers Advisors has agreed to pay
State Street for these services.
Legal Proceedings
There are no material legal proceedings to which the TIAA-CREF Mutual
Funds are subject, or to which Teachers Advisors or TPIS are subject which are
likely to have a material adverse effect on their ability to perform their
obligations to the TIAA-CREF Mutual Funds, or on the TIAA-CREF Mutual Funds
itself.
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Statement of Additional Information
Dated September 2, 1997
TIAA-CREF Mutual Funds
This Statement of Additional Information (SAI) tells you about
investing in the TIAA-CREF Mutual Funds and contains information that you should
consider before investing. It is not a prospectus, although it should be read
carefully in conjunction with the TIAA-CREF Mutual Funds' prospectus dated
September 2, 1997 (the Prospectus), which may be obtained by writing us at
TIAA-CREF Mutual Funds, c/o State Street Bank, PO Box 9081, Boston,
Massachusetts 02266 or by calling 1 800 223-1200. Terms used in the Prospectus
are incorporated in this SAI.
The date of this SAI is September 2, 1997.
<PAGE>
Table of Contents
Investment Objectives, Policies, and Restrictions............................
Fundamental Restrictions............................................
Investment Policies and Risk Considerations.........................
Portfolio Turnover..................................................
Management of the TIAA-CREF Mutual Funds.....................................
Trustees and Officers of the TIAA-CREF Mutual Funds.................
Trustee and Officer Compensation....................................
Control Persons..............................................................
Investment Advisory and Other Services.......................................
About the TIAA-CREF Mutual Funds and the Shares..............................
Indemnification of Shareholders.....................................
Indemnification of Trustees.........................................
Limitation of TIAA-CREF Mutual Funds Liability......................
Shareholder Meetings and Voting Rights..............................
Additional Portfolios...............................................
Dividends and Distributions.........................................
Pricing of Shares............................................................
Investments for Which Market Quotations Are Readily
Available...........................................................
Foreign Investments.................................................
Debt Securities.....................................................
Special Valuation Procedures for the Money Market Fund..............
Options and Futures.................................................
Investments for Which Market Quotations Are Not Readily
Available...........................................................
Tax Status...................................................................
Brokerage Allocation.........................................................
Calculation of Performance Data..............................................
Total Return Calculations...........................................
Yield Calculations..................................................
Performance Comparisons.............................................
Illustrating Compounding............................................
Net Asset Value.....................................................
Moving Averages.....................................................
Financial Statements.........................................................
(i)
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Investment Objectives, Policies, and Restrictions
The following information is intended to supplement the descriptions of
the investment objective of each of the six investment funds in the TIAA-CREF
Mutual Funds' Prospectus. Under the Investment Company Act of 1940, as amended
(the 1940 Act), any fundamental policy of a fund may not be changed without the
vote of a majority of the outstanding voting securities (as defined in the 1940
Act) of that fund. Each investment fund other than the Managed Allocation Fund
will operate as a "diversified company" within the meaning of the 1940 Act. The
non-fundamental investment restrictions contained in "Investment Policies and
Risk Considerations," page , may be changed by the TIAA-CREF Mutual
Funds' Board of Trustees at any time.
Unless stated otherwise, each of the following investment policies and
risk considerations apply to each fund.
Fundamental Policies
The following restrictions are fundamental policies of each fund:
1. The fund will not issue senior securities except as SEC
regulations permit;
2. The fund will not borrow money, except: (a) each fund may purchase
securities on margin, as described in restriction 7 below; and (b)
from banks (only in amounts not in excess of 33 1/3% of the market
value of that fund's assets at the time of borrowing), and, from
other sources, for temporary purposes (only in amounts not
exceeding 5% of that fund'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 a
fund;
3. The fund 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 fund will not purchase real estate or mortgages directly;
5. The fund will not purchase commodities or commodities contracts,
except to the extent futures are purchased as described herein;
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6. The fund will not make loans, except: (a) that a fund 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 100% of the market value of the
loaned securities, as reviewed daily; (b) loans through entry into
repurchase agreements; (c) privately-placed debt securities may be
purchased; or (d) participation interests in loans, and similar
investments, may be purchased;
7. The fund will not purchase any security on margin except that the
fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities).
The following restriction is a fundamental policy of each fund other
than the Managed Allocation Fund:
8. The fund 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, or hold more than 10% of the outstanding voting
securities of any one issuer.
The following restriction is a fundamental policy of each fund other
than the Managed Allocation Fund and the Money Market Fund.
9. The fund will not invest in an industry if after giving effect to
that investment that fund's holding in that industry would exceed
25% of its total assets.
The following restriction is a fundamental policy of the Money Market
Fund:
10. The fund may invest more than 25% of its assets in obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities; the fund will not otherwise invest in an
industry if after giving effect to that investment the fund's
holding in that industry would exceed 25% of its total assets.
The following restrictions are fundamental policies of the Managed
Allocation Fund:
11. The Managed Allocation Fund will not invest in securities other
than securities of other
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registered investment companies or registered unit investment
trusts that are part of the TIAA-CREF Mutual Funds, government
securities, or short-term securities.
12. The Managed Allocation Fund will concentrate in the mutual fund
industry. Accordingly, it may invest up to 100% of its assets in
securities issued by mutual funds and other investment companies.
The following restrictions are non-fundamental policies of the funds.
These restrictions may be changed without the approval of the shareholders in
the affected fund. No fund other than the Managed Allocation Fund will:
1. Invest more than 5% of its assets in the securities of any single
investment company or more than 10% of its assets in the
securities of other investment companies in the aggregate; or
2. Hold more than 3% of the total outstanding voting stock of any
single investment company.
Investment Policies and Risk Considerations
Options and Futures. Each of the funds may engage in options and
futures strategies to the extent permitted by the SEC and Commodity Futures
Trading Commission ("CFTC"). We do not intend for any fund to use options and
futures strategies in a speculative manner but rather we would use them
primarily as hedging techniques or for cash management purposes.
Although the Managed Allocation Fund cannot directly invest in options
and futures, it may, through investments in other funds, indirectly make such
investments.
Option-related activities could include: (1) selling covered call
option contracts, and the purchase of call option contracts for the purpose of a
closing purchase transaction; (2) buying covered put option contracts, and
selling put option contracts to close out a position acquired through the
purchase of such options; and (3) selling call option contracts or buying put
option contracts on groups of securities and on futures on groups of securities
and buying similar call option contracts or selling 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 each fund may
engage in other types of options transactions consistent with its investment
objective and policies and applicable law.
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A call option is a short-term contract (generally for 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. The seller of a call option 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. Selling a call option would benefit
the seller 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 seller risks an "opportunity loss" of profits if the
underlying security appreciates above the aggregate value of the exercise price
and the premium.
A fund 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 that it had previously sold on that security.
Depending on the premium for the call option purchased by the fund, the fund
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 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 purchaser, 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.
A fund may close out a position acquired through buying a put option by
selling a put option on the same security with the same exercise price and
expiration date as the put option which it had previously bought on the
security. Depending on the premium of the put option sold by the fund, the fund
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
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as the Standard & Poor's 100 Index traded on the Chicago Board Options Exchange.
There are also options on 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 calls can be used in anticipation of, or in, a general market or
market sector decline that may adversely affect the market value of a fund's
portfolio of securities. To the extent that a fund'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 futures on groups of securities, is a possible lack of
liquidity. This will be a major consideration before a fund 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.
To the extent permitted by applicable regulatory authorities, each fund
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 -- a fund legally will obligate itself to accept the future delivery of
the underlying security or instrument and pay the agreed
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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 a fund usually
will be liquidated in this manner, a fund may instead make or take delivery of
the underlying securities or instruments whenever it appears economically
advantageous to the fund 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.
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 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 each
fund 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, a fund 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, a fund 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, a fund 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 a fund upon the purchase or sale of a futures contract. Initially, the fund
will be required to deposit in a
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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
fund 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 a fund 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 fund will receive from the broker a variation margin
payment equal to that increase in value. Conversely, where a fund 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 fund would be required to
make a variation margin payment to the broker. At any time prior to expiration
of the futures contract, the fund may elect to close the position by taking an
opposite position which will operate to terminate the fund'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 fund, and the fund
realizes a loss or a gain.
There are several risks in connection with the use 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.
Each fund will attempt to reduce this risk by engaging in futures transactions,
to the extent possible, where, in our judgment, there is a significant
correlation between changes in the prices of the futures contracts and the
prices of each fund's portfolio securities or instruments sought to be hedged.
Successful use of futures contracts 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 a fund 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 fund's portfolio may decline. If this occurred, the fund would lose money
on the futures and also experience a decline in value in its portfolio
investments.
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However, we believe that over time the value of a fund'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 a fund has hedged against the
possibility of the decline in the market adversely affecting stocks held in its
portfolio and stock prices increased instead, the fund 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 fund 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 fund 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 Teachers Advisors, Inc. ("Advisors"), the investment
advisor for TIAA-CREF Mutual Funds, still may not result in a successful hedging
transaction over a very short time period.
Each fund may also use futures contracts and options on futures
contracts to manage its cash flow more effectively. To the extent that a fund
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 fund'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
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amount of an option that is in-the-money when purchased may be excluded in
computing such 5%).
Options and futures transactions may increase a fund's transaction
costs and portfolio turnover rate and will be initiated only when consistent
with its investment objectives.
Firm Commitment Agreements and Purchase of "When-Issued" Securities.
Each fund can enter into firm commitment agreements for the purchase of
securities on a specified future date. When a fund enters into a firm commitment
agreement, liability for the purchase price -- and the rights and risks of
ownership of the securities -- accrues to the fund 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 fund to purchase the security
at a price above the current market price on the date of delivery and payment.
During the time the fund is obligated to purchase such securities, it will be
required to segregate assets. See "Segregated Accounts," page .
Pass-Through Securities. The funds may invest in mortgage pass-through
securities such as GNMA certificates or FNMA and FHLMC mortgage-backed
obligations, or modified pass-through securities such as collateralized mortgage
obligations issued by various financial institutions. In connection with these
investments, early repayment of principal arising from prepayments of principal
on the underlying mortgage loans due to the sale of the underlying property, the
refinancing of the loan, or foreclosure may expose a fund to a lower rate of
return upon reinvestment of the principal. Prepayment rates vary widely and may
be affected by changes in market interest rates. In periods of falling interest
rates, the rate of prepayment tends to increase, thereby shortening the actual
average life of the mortgage-related security. Conversely, when interest rates
are rising, the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the mortgage-related security. Accordingly, it is not
possible to accurately predict the average life of a particular pool.
Reinvestment of prepayments may occur at higher or lower rates than the original
yield on the certificates. Therefore, the actual maturity and realized yield on
pass-through or modified pass-through mortgage-related securities will vary
based upon the prepayment experience of the underlying pool of mortgages. For
purposes of calculating the average life of the assets of the relevant fund, the
maturity of each of these securities will be the average life of such securities
based on the most recent or estimated annual prepayment rate.
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Lending of Securities. Subject to investment restriction 6(a) on page
(relating to loans of portfolio securities), each fund 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, a fund 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 Securities and Exchange Commission (SEC)
(not to fall below 100% of the market value of the loaned securities), as
reviewed daily. By lending its securities, a fund 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 fund by the
borrower of the securities. Such loans will be terminable by the fund at any
time and will not be made to affiliates of TIAA. The fund 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 fund may pay reasonable fees to persons
unaffiliated with the fund 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, 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 fund entering into the
agreement 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 fund's seller
to deposit with the fund 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. Each fund will enter into
repurchase
10
<PAGE>
agreements only with member banks of the Federal Reserve System, and with
primary dealers in United States Government securities or their wholly-owned
subsidiaries whose creditworthiness has been reviewed and found satisfactory by
Advisors and who have, therefore, been determined to present minimal credit
risk.
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 fund entering into the agreement may otherwise
invest.
If a seller of a repurchase agreement defaults and does not repurchase
the security subject to the agreement, the fund entering into the agreement
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 fund; in such event the fund
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. Each fund may, to the extent permitted by 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 a swap transaction, a fund may be able to protect the
value of a portion of its portfolio against declines in market value. Each fund
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. A fund 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 fund. However, there can be
no assurance that the return a fund receives from the counterparty to the swap
transaction will exceed the return it swaps to that party.
While a fund 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
11
<PAGE>
under the swap agreement. If the other party to the swap transaction defaults on
its obligations, the fund entering into the agreement would be limited to the
agreement's contractual remedies. There can be no assurance that a fund will
succeed when pursuing its contractual remedies. To minimize a fund's exposure in
the event of default, it 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 a fund enters into swap
transactions on a net basis, the net amount of the excess, if any, of the fund'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
fund's custodian. To the extent a fund enters into swap transactions other than
on a net basis, the amount segregated will be the full amount of the fund's
obligations, if any, with respect to each such swap agreement, accrued on a
daily basis. See "Segregated Accounts," below.
Swap agreements may be considered illiquid by the SEC staff and subject
to the limitations on illiquid investments. See the Prospectus for more
information.
To the extent that there is an imperfect correlation between the return
a fund is obligated to swap and the securities or instruments representing such
return, the value of the swap transaction may be adversely affected. No fund
therefore will 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 any fund 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 fund.
Segregated Accounts. In connection with when-issued securities, firm
commitment agreements, and certain other transactions in which a fund incurs an
obligation to make payments in the future, a fund may be required to segregate
assets with its custodian bank in amounts sufficient to settle the transaction.
To the extent required, such segregated assets can consist of liquid assets,
including equity or other securities, or other instruments such as cash, United
States Government securities or other obligations as may be permitted by law.
Currency Transactions. The value of a fund's assets as measured in
United States dollars may be affected favorably or unfavorably by changes in
foreign currency exchange rates and
12
<PAGE>
exchange control regulations, and the fund may incur costs in connection with
conversions between various currencies. To minimize the impact of such factors
on net asset values, the fund may engage in foreign currency transactions in
connection with their investments in foreign securities. The funds will not
speculate in foreign currency exchange, and will enter into foreign currency
transactions only to "hedge" the currency risk associated with investing in
foreign securities. Although such transactions tend to minimize the risk of loss
due to a decline in the value of the hedged currency, they also may limit any
potential gain which might result should the value of such currency increase.
The funds will conduct their currency exchange transactions either on a
spot (i.e., cash) basis at the rate prevailing in the currency exchange market,
or through forward contracts to purchase or sell foreign currencies. A forward
currency contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are entered into with large commercial banks or other currency
traders who are participants in the interbank market.
By entering into a forward contract for the purchase or sale of foreign
currency involved in underlying security transactions, a fund is able to protect
itself against possible loss between trade and settlement dates for that
purchase or sale resulting from an adverse change in the relationship between
the U.S. dollar and such foreign currency. This practice is sometimes referred
to as "transaction hedging." In addition, when it appears that a particular
foreign currency may suffer a substantial decline against the U.S. dollar, a
fund may enter into a forward contract to sell an amount of foreign currency
approximating the value of some or all of its portfolio securities denominated
in such foreign currency. This practice is sometimes referred to as "portfolio
hedging". Similarly, when it appears that the U.S. dollar may suffer a
substantial decline against a foreign currency, a fund may enter into a forward
contract to buy that foreign currency for a fixed dollar amount.
The funds may also hedge their foreign currency exchange rate risk by
engaging in currency financial futures, options and "cross-hedge" transactions.
In "cross-hedge" transactions, a fund holding securities denominated in one
foreign currency will enter into a forward currency contract to buy or sell a
different foreign currency (one that generally tracks the currency being hedged
with regard to price movements). Such cross-hedges are expected to help protect
a fund against an increase or decrease in the value of the U.S. dollar against
certain foreign currencies.
13
<PAGE>
The funds may hold a portion of their respective assets in bank
deposits denominated in foreign currencies, so as to facilitate investment in
foreign securities as well as protect against currency fluctuations and the need
to convert such assets into U.S. dollars (thereby also reducing transaction
costs). To the extent these monies are converted back into U.S. dollars, the
value of the assets so maintained will be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations.
The forecasting of short-term currency market movement is extremely
difficult and whether a short-term hedging strategy will be successful is highly
uncertain. Moreover, it is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a foreign currency
forward contract. Accordingly, a fund may be required to buy or sell additional
currency on the spot market (and bear the expense of such transaction) if its
predictions regarding the movement of foreign currency or securities markets
prove inaccurate. In addition, the use of cross-hedging transactions may involve
special risks, and may leave a fund in a less advantageous position than if such
a hedge had not been established. Because foreign currency forward contracts are
privately negotiated transactions, there can be no assurance that a fund will
have flexibility to roll-over the foreign currency forward contract upon its
expiration if it desires to do so. Additionally, there can be no assurance that
the other party to the contract will perform its obligations thereunder.
There is no express limitation on the percentage of a fund's assets
that may be committed to foreign currency exchange contracts. A fund will not
enter into foreign currency forward contracts or maintain a net exposure in such
contracts where that fund would be obligated to deliver an amount of foreign
currency in excess of the value of that fund's portfolio securities or other
assets denominated in that currency or, in the case of a cross-hedge
transaction, denominated in a currency or currencies that fund's investment
adviser believes will correlate closely to the currency's price movements. The
funds generally will not enter into forward contracts with terms longer than one
year.
Foreign Investments As described more fully in the Prospectus, certain funds
may invest in foreign securities, including those in emerging markets. In
addition to the general risk factors discussed in "Foreign Investments" on
page of the Prospectus, there are a number of country-or region-specific
risks and other considerations that may affect these investments.
Investment in Europe The total European market (consisting of the European
Union, the European Free Trade Association and Eastern European countries)
contains over 507 million consumers,
14
<PAGE>
which makes it much larger than either the United States or Japanese market.
European businesses compete both nationally and internationally in a wide range
of industries, and recent political and economic changes throughout Europe are
likely to further expand the role of Europe in the global economy. As a result,
a great deal of interest and activity has been generated in the "new" Europe
that may result. However, many of the anticipated changes involve synthesizing
or changing a wide array of economic and political systems, and there can be no
guarantee that such changes will occur as anticipated or will have results that
investors would regard as favorable.
The European Union The European Union ("EU") consists of Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden and the United Kingdom (the "EU Nations"),
with a total population exceeding 374 million. The EU Nations have undertaken to
establish, among themselves, a single market that is largely free of internal
barriers and hindrances to the free movement of goods, persons, services and
capital. Although it is difficult to predict when this goal will be fully
realized, it is expected that such an achievement will increase efficiency and
the ability of the EU Nations to compete globally by simplifying product
distribution networks, promoting economies of scale, and increasing labor
mobility, among other effects. In addition, efforts to achieve monetary union
("EMU") have effected a rather dramatic decline in interest rates for some
prospective members which is expected to have important positive consequences
for these economies and their financial markets. Uncertainties with regard to
the achievement of these goals, and their extensive ramifications represent
important risk considerations for investors in these countries.
European Free Trade Association The European Free Trade Association ("EFTA")
consists of Iceland, Liechtenstein, Norway and Switzerland. These entities have
also worked to expand trade through the lowering or abolition of tariffs between
member countries. A major goal of the EFTA countries has been a more structured
partnership with the EU and the formation of a European Economic Area, with the
aim of developing such a partnership to coincide with the establishment of the
EU's unified market.
Eastern Europe A number of Eastern European nations and former republics of
the U.S.S.R. are currently implementing or considering reforms directed at
political and economic liberalization, including efforts to foster multi-party
political systems and to move away from centrally planned, socialist economies
towards free market economies. However, these changes will invariably take time
and may result in a high degree of social, economic, or political
unpredictability or instability
15
<PAGE>
over the short- or long-term. Thus, although unique investment opportunities may
be presented, they may entail a high degree of risk.
The Pacific Basin The economies of the Pacific Basin vary widely in their
stages of economic development. Some (such as Japan, Australia, Singapore, and
Hong Kong) are considered advanced by Western standards; others (such as
Thailand, Indonesia, and Malaysia, are considered "emerging" -- rapidly shifting
from natural resource and agriculture based systems to more technologically
advanced systems oriented toward manufacturing. The major reform of China's
economy and politics continues to be an important stimulus to economic growth
internally, and, through trade, across the region. Intra-regional trade has
become increasingly important to a number of these economies. Japan, the second
largest economy in the world, is the dominant economy in the Pacific Basin, with
one of the highest per capita incomes in the world. Its extensive trade
relationships also contribute to regional and global economic growth. Economic
growth has historically been relatively strong in the region, but potential
policy miscalculations or other events could pose important risks to equity
investors in any of these economies.
Canada Canada, a country rich in natural resources and a leading industrial
country of the world, is an important trading partner of the United States. The
U.S. and Canada have entered into the U.S.-Canada Free Trade Agreement which,
over a 10-year period from 1989, will remove trade barriers affecting all
important sectors of each country's economy. In addition, the U.S., Canada, and
Mexico have established the North American Free Trade Agreement ("NAFTA"), which
is expected to significantly benefit the economies of both countries.
Uncertainty regarding the longer-run political structure of Canada is an added
risk to investors.
Latin America Latin America (including Mexico, Central and South America and
the Caribbean) has a population of approximately 489 million people and is rich
in natural resources. Important gains in the manufacturing sector have developed
in several of the major countries in the region. A number of countries in the
region have taken steps to reduce impediments to trade, most notably through the
NAFTA agreement, between the U.S., Canada and Mexico and the Mercosur agreement
between Argentina, Brazil, Paraguay and Uraguay, with Chile as an associate
member. Political turmoil, high inflation, restrictions on international capital
flows, intermittent problems with capital flight, and some difficulties in the
repayment of external debt, however, remain important concerns in the region --
exacerbating the risks in these equity markets. As a result Latin American
equity markets have been extremely volatile. Efforts to stimulate these
economies through privatization, and fiscal and monetary reform
16
<PAGE>
have been met with some success with gains in output growth, and slowing rates
of inflation. These efforts may result in attractive investment opportunities.
However, there can be no assurance that these or other changes will bring about
results investors would regard as favorable.
Other Regions There are developments in other regions and countries around the
world which could lead to additional investment opportunities. We will monitor
these developments and may invest when appropriate.
Depository Receipts. The equity funds can invest in American, European
and Global Depository Receipts (ADRs, EDRs and GDRs). They are alternatives to
the purchase of the underlying securities in their national markets and
currencies. Although their prices are quoted in U.S. dollars, they don't
eliminate all the risks of foreign investing.
ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a foreign correspondent bank. To the extent that
a fund acquires ADRs through banks which do not have a contractual relationship
with the foreign issuer of the security underlying the ADR to issue and service
such ADRs, there may be an increased possibility that the fund would not become
aware of and be able to respond to corporate actions such as stock splits or
rights offerings involving the foreign issuer in a timely manner. In addition,
the lack of information may result in inefficiencies in the valuation of such
instruments. However, by investing in ADRs rather than directly in the stock of
foreign issuers, a Fund will avoid currency risks during the settlement period
for either purchases or sales. In general, there is a large, liquid market in
the U.S. for ADRs quoted on a national securities exchange or the NASD's
national market system. The information available for ADRs is subject to the
accounting, auditing and financial reporting standards of the domestic market or
exchange on which they are traded, which standards are more uniform and more
exacting than those to which many foreign issuers may be subject.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S.
bank similar to that for ADRs and are designed for use in non-U.S. securities
markets. EDRs and GDRs are not necessarily quoted in the same currency as the
underlying security.
Other Investment Techniques and Opportunities. Each fund 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, regardless of how these actions may
17
<PAGE>
affect the weight of the particular securities in the fund's portfolio.
Industry Concentrations. Because of its investment objective and
policies, the Managed Allocation Fund will concentrate more than 25% of its
assets in the mutual fund industry. However, none of the funds in which the
Managed Allocation Fund can invest will concentrate more than 25% of its total
assets in any one industry.
Portfolio Turnover
The transactions a fund engages in are reflected in its 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 fund'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 fund and ultimately by
the fund's shareholders. 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.
None of the funds has a fixed policy on portfolio turnover although,
because a higher portfolio turnover rate will increase brokerage costs, Advisors
will carefully weigh the added costs of short term investment against the gains
anticipated from such transactions.
The Managed Allocation Fund's portfolio turnover is expected to be low.
The Managed Allocation Fund will purchase or sell securities to: (i) accommodate
purchases and sales of its shares; (ii) change the percentages of its assets
invested in each of the underlying fund in response to market conditions; and
(iii) maintain or modify the allocation of its assets among the underlying fund
within the percentage limits described in the Prospectus.
Management of the TIAA-CREF Mutual Funds
Trustees and Officers of the TIAA-CREF Mutual Funds
18
<PAGE>
<TABLE>
<CAPTION>
Trustees Age Principal Occupations During Past 5
- -------- --- -----------------------------------
Years
-----
<S> <C> <C>
Robert H. Atwell (1) 66 President Emeritus, American Council on
American Council on Education Education and consultant for A.T.
Suite 800 Kearney since November 1996.
One Dupont Circle Previously, president, American Council
Washington, D.C. 20036 on Education.
Elizabeth E. Bailey 58 John C. Hower Professor of Public Policy
The Wharton School and Management, The Wharton School of
University of Pennsylvania the University of Pennsylvania, since July
Suite 3100 1991. Formerly, Professor, Carnegie
Steinberg Dietrich Hall Mellon University and Dean, Graduate
Philadelphia, Pennsylvania 19104-6372 School of Industrial Administration,
Carnegie Mellon University.
John H. Biggs(3) 61 Chairman and Chief Executive Officer,
TIAA-CREF CREF and TIAA, since 1993. Formerly,
730 Third Avenue President and Chief Operating Officer,
New York, NY 10017 CREF and TIAA.
Gary P. Brinson (3) 53 Chief Investment Officer, Swiss Bank
Brinson Partners, Inc. Corporation, since 1996. Member, Group
209 South LaSalle Street Executive Board, Swiss Bank Corporation,
Chicago, Illinois 60604-1295 since 1995. President and Managing
Partner, Brinson Partners, Inc.
Joyce A. Fecske (1) 50 Vice President Emerita, DePaul
4800 South Karlov Avenue University since 1994. Formerly, Vice
Chicago, Illinois 60632 President for Human Resources, DePaul
University.
Edes P. Gilbert 65 Head, The Spence School.
The Spence School
22 East 91st Street
New York, New York 10128
Stuart Tse Kong Ho (3) 61 Chairman and President, Capital
Capital Investment of Hawaii, Inc. Investment of Hawaii, Inc.; Chairman,
Suite 1700 Gannett Pacific Corporation.
733 Bishop Street
Honolulu, Hawaii 96813
Nancy L. Jacob (2) 54 President and Managing Partner,
Suite 450, The River Forum Windermere Investment Associates, since
4380 S.W. Macadam Avenue January 1997. Previously, Chairman and
Portland, Oregon 97201 Chief Executive Officer, CTC Consulting,
Inc. and Managing director, Capital Trust
Company.
19
<PAGE>
Trustees Age Principal Occupations During Past 5
- -------- --- -----------------------------------
Years
-----
Marjorie Fine Knowles 58 Professor of Law, Georgia State
College of Law University College of Law.
Georgia State University
University Plaza
Atlanta, Georgia 30303-3092
Martin L. Leibowitz(2) 61 Vice Chairman and Chief Investment
TIAA-CREF Officer, CREF and TIAA, since 1995.
730 Third Avenue President, TIAA-CREF Investment
New York, NY 10017 Management, Inc. ("Investment
Management"), and President, Teachers
Advisors, Inc. ("Advisors"). Executive
Vice President, CREF and TIAA from
June 1995 to November 1995. Formerly,
managing director-director of research
and a member of the executive
committee, Salomon Brothers, Inc.
Jay O. Light (2) 55 Professor of Business Administration,
Harvard Business School Harvard University Graduate School of
Morgan Hall 489 Business Administration.
Soldiers Field
Boston, Massachusetts 02163
Bevis Longstreth (2) 63 Partner, Debevoise & Plimpton. Adjunct
Debevoise & Plimpton Professor of Law, Columbia University.
875 Third Avenue
New York, New York 10022
Robert M. Lovell, Jr. (2) 67 Founding Partner, First Quadrant L.P.
First Quadrant Corp. Formerly, Chairman and Chief Executive
100 Campus Drive Officer, First Quadrant Corp. (Investment
P.O. Box 939 Management Firm).
Florham Park, New Jersey 07932
Stephen A. Ross (3) 53 Sterling Professor of Economics and
School of Organization and Management Finance, School of Organization and
Yale University Management, Yale University. Co-
52 Hillhouse Avenue Chairman, Roll & Ross Asset
New Haven, Connecticut 06520 Management Corp.
Eugene C. Sit (3) 59 Chairman and Chief Executive
Sit Investment Associates, Inc. Officer, Sit Investment Associates, Inc.
4600 Norwest Center Sit/Kim International Investment
90 South Seven Street Associates, Inc.
Minneapolis, Minnesota 55402
20
<PAGE>
Trustees Age Principal Occupations During Past 5
- -------- --- -----------------------------------
Years
-----
Maceo K. Sloan (2) 47 Chairman, President, and Chief Executive
NCM Capital Management Group, Inc. Officer, Sloan Financial Group, Inc., and
Suite 400 NCM Capital Management Group, Inc.
103 West Main Street
Durham, North Carolina 27701-3638
Harry K. Spindler 68 Retired since 1993. Formerly, Senior
80 Brightonwood Road Vice Chancellor, Division of
Glenmont, New York 12077 Administrative Affairs, State University
of New York System.
David K. Storrs (2) 53 President and Chief Executive Officer,
Alternative Investment Group Alternative Investment Group, L.L.C.,
65 South Gate Lane since August 1996. Adviser to the
Southport, Connecticut 06490 President, The Common Fund, from January 1996
to October 1996. Formerly, President and
Chief Executive Officer, The Common
Fund, from 1993 to January 1996.
Formerly Executive Vice President of The
Common Fund.
Robert W. Vishny (2) 38 Eric J. Gleacher Professor of Finance,
1601 Washington University of Chicago Graduate School of
Wilmette, Illinois 60091 Business, since 1993. Founding Partner,
LSV Asset Management.
</TABLE>
Messrs. Biggs, Leibowitz and Longstreth are deemed "interested persons" of
TIAA-CREF Mutual Funds within the meaning of the Investment Company Act of 1940.
- ----------
(1) Member of Executive Committee
(2) Member of Finance Committee
(3) Member of Executive and Finance Committees
<TABLE>
<CAPTION>
Position with Principal Occupation(s) During
Officers* Age Registrant Past 5 Years
- --------- --- ---------- ------------------------------
21
<PAGE>
<S> <C> <C> <C>
Thomas G. Walsh 55 President Executive Vice President, TIAA and
CREF, and President, Teachers
Personal Investors Services, Inc.
("TPIS").
Virgil Cumming 52 Executive Executive Vice President, TIAA and
Vice President CREF since May 1996. Previously
Senior Vice President and Director,
Global Active Management, TIAA
and CREF from February 1993 to
May 1996. Previously, Senior Vice
President and Director, International
Investments, TIAA and CREF.
Executive Vice President, Advisors
and Investment Management.
Richard L. Gibbs 50 Executive Executive Vice President, TIAA and
Vice President CREF, since March 1993.
Formerly, Vice President, Finance,
TIAA and CREF. Executive Vice
President, Advisors, Investment
Management, TPIS and TIAA-CREF
Individual & Institutional Services,
Inc. ("Services").
Lisa Snow 41 Secretary Vice President and Chief Counsel,
Corporate, TIAA and CREF since
March 1997. Previously, Chief
Counsel, TIAA and CREF. Chief
Counsel and Assistant Secretary,
Investment Management and
Advisors. Chief Counsel and
Secretary, TPIS and Services.
Richard J. Adamski 54 Vice President Vice President and Treasurer, TIAA
and Treasurer and CREF, Investment Management,
Advisors, TPIS and Services.
</TABLE>
- ----------
* The address for all Officers of the TIAA-CREF Mutual Funds is 730 Third
Avenue, New York, New York 10017.
Trustee and Officer Compensation
The following table discloses the expected aggregate compensation to be
received from the TIAA-CREF family of companies for each non-officer Trustee for
the year ended
22
<PAGE>
December 31, 1997. We have estimated future payments. The fund does not
compensate its officers. Neither trustees nor officers receive retirement
benefits from TIAA-CREF Mutual Funds.
Total Compensation from
-----------------------
Aggregate Compensation from the TIAA-CREF complex*
------------------------------- ------------------
Name Fund
- ---- ----
Atwell $52 $36,000
Bailey $61 $43,000
Brinson $50 $26,000
Fecske $38 $28,000
Gilbert $38 $29,000
Ho $50 $28,000
Jacob $67 $31,000
Knowles $46 $30,500
Light $50 $26,000
Longstreth $59 $31,000
Lovell $59 $30,000
Ross $50 $29,000
Sit $59 $32,000
Sloan $59 $35,000
Spindler $38 $32,000
Storrs $50 $32,000
Vishny $50 $27,000
*The TIAA-CREF complex consists of three investment companies:
College Retirement Equities Fund, TIAA Separate Account VA-1 and TIAA-CREF
Mutual Funds.
Control Persons
TIAA, as the contributor of the initial capital for each of the funds,
owned 100 percent of the shares of each fund as of August 25, 1997.
Investment Advisory and Other Services
As explained in the Prospectus, investment advisory services and
related services for each of the funds are provided by personnel of Teachers
Advisors, Inc. (Advisors). Advisors manages the investment and reinvestment of
the assets of each fund, subject to the direction and control of the Finance
Committee of the Board of Trustees (the Board).
The custodian for the assets of the TIAA-CREF Mutual Funds is State
Street Bank, 225 Franklin Street, Boston, Massachusetts 02209. As described in
the Prospectus, State Street Bank also
23
<PAGE>
provides other administrative services for the TIAA-CREF Mutual Funds.
Ernst & Young LLP, 787 7th Avenue, New York, New York 10019, has been
selected as independent auditors of the TIAA-CREF Mutual Funds.
Teachers Insurance and Annuity Association of America (TIAA) holds all
of the shares of TIAA Holdings, Inc., which in turn holds all the shares of
Advisors and of Teachers Personal Investors Services, Inc., the principal
underwriter for the TIAA-CREF Mutual Funds. TIAA also holds all the shares of
TIAA-CREF Individual & Institutional Services, Inc. ("Services") and TIAA-CREF
Investment Management, Inc. ("Investment Management"). Services acts as the
principal underwriter, and Investment Management provides investment advisory
services, to the College Retirement Equities Fund, a companion organization to
TIAA. All of the foregoing are affiliates of the TIAA-CREF Mutual Funds and
Advisors.
About the TIAA-CREF Mutual Funds and the Shares
As a Delaware business trust, the TIAA-CREF Mutual Funds' operations
are governed by its Declaration of Trust dated January 13, 1997, as amended (the
Declaration). A copy of the TIAA-CREF Mutual Funds' Certificate of Trust, dated
January 15, 1997, as amended, is on file with the Office of the Secretary of
State of the State of Delaware. Upon the initial purchase of shares of
beneficial interest in the TIAA-CREF Mutual Funds each shareholder agrees to be
bound by the Declaration, as amended from time to time.
Indemnification of Shareholders
Generally, Delaware business trust shareholders are not personally
liable for obligations of the Delaware business trust under Delaware law. The
Delaware Business Trust Act (DBTA) provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of liability extended to
shareholders of private for-profit corporations. The TIAA-CREF Mutual Funds'
Declaration expressly provides that the TIAA-CREF Mutual Funds has been
organized under the DBTA and that the Declaration is to be governed by and
interpreted in accordance with Delaware law. It is nevertheless possible that a
Delaware business trust, such as the TIAA-CREF Mutual Funds, might become a
party to an action in another state whose courts refuse to apply Delaware law,
in which case the TIAA-CREF Mutual Funds' shareholders could possibly be subject
to personal liability.
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To guard against this risk, the Declaration (i) contains an express
disclaimer of shareholder liability for acts or obligations of the TIAA-CREF
Mutual Funds and provides that notice of such disclaimer may be given in each
agreement, obligation and instrument entered into or executed by the TIAA-CREF
Mutual Funds or its Trustees, (ii) provides for the indemnification out of Trust
property of any shareholders held personally liable for any obligations of the
TIAA-CREF Mutual Funds or any series of the TIAA-CREF Mutual Funds, and (iii)
provides that the TIAA-CREF Mutual Funds shall, upon request, assume the defense
of any claim made against any shareholder for any act or obligation of the
TIAA-CREF Mutual Funds and satisfy any judgment thereon. Thus, the risk of a
Trust shareholder incurring financial loss beyond his or her investment because
of shareholder liability is limited to circumstances in which all of the
following factors are present: (1) a court refuses to apply Delaware law; (2)
the liability arose under tort law or, if not, no contractual limitation of
liability was in effect; and (3) the TIAA-CREF Mutual Funds itself would be
unable to meet its obligations. In the light of DBTA, the nature of the
TIAA-CREF Mutual Funds' business, and the nature of its assets, the risk of
personal liability to a TIAA-CREF Mutual Funds shareholder is remote.
Indemnification of Trustees
The Declaration further provides that the TIAA-CREF Mutual Funds shall
indemnify each of its Trustees and officers against liabilities and expenses
reasonably incurred by them, in connection with, or arising out of, any action,
suit or proceeding, threatened against or otherwise involving such Trustee or
officer, directly or indirectly, by reason of being or having been a Trustee or
officer of the TIAA-CREF Mutual Funds. The Declaration does not authorize the
TIAA-CREF Mutual Funds to indemnify any Trustee or officer against any liability
to which he or she would otherwise be subject by reason of or for willful
misfeasance, bad faith, gross negligence or reckless disregard of such person's
duties.
Limitation of Fund Liability
All persons dealing with an investment fund must look solely to the
property of that particular fund for the enforcement of any claims against that
fund, as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of a fund or the
TIAA-CREF Mutual Fund. No investment fund is liable for the obligations of any
other investment fund. Since the funds use a combined Prospectus, however, it is
possible that one fund might become liable for a misstatement or omission in the
Prospectus regarding
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another fund with which its disclosure is combined. The Trustees have considered
this factor in approving the use of the combined Prospectus.
Shareholder Meetings and Voting Rights
Under the Declaration, the TIAA-CREF Mutual Funds are not required to
hold annual meetings to elect Trustees or for other purposes. It is not
anticipated that the TIAA-CREF Mutual Funds will hold shareholders' meetings
unless required by law or the Declaration. The TIAA-CREF Mutual Funds will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the TIAA-CREF Mutual Funds.
Shares of the TIAA-CREF Mutual Funds do not entitle their holders to
cumulative voting rights, so that the holders of more than 50% of the net asset
value represented by the outstanding shares of the TIAA-CREF Mutual Funds may
elect all of the Trustees, in which case the holders of the remaining shares
would not be able to elect any Trustees. As determined by the Trustees,
shareholders are entitled to one vote for each dollar of net asset value (number
of shares held times the net asset value of the applicable fund).
Additional Portfolios
Pursuant to the Declaration, the Trustees may establish additional
investment portfolios (technically "series" of shares) in the TIAA-CREF Mutual
Funds. The establishment of additional investment funds would not affect the
interests of current shareholders in the existing six funds. As of the date of
this SAI, the Trustees do not have any plan to establish another fund.
Dividends and Distributions
Each share of a fund is entitled to such dividends and distributions
out of the income earned on the assets belonging to that fund as are declared in
the discretion of the Trustees. In the event of the liquidation or dissolution
of the TIAA-CREF Mutual Funds as a whole or any individual investment fund,
shares of the affected fund are entitled to receive their proportionate share of
the assets which are attributable to such shares and which are available for
distribution as the Trustees in their sole discretion may determine.
Shareholders are not entitled to any preemptive, conversion, or subscription
rights. All shares, when issued, will be fully paid and non-assessable.
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Pricing of Shares
The assets of the funds are valued as of the close of each valuation
day in the following manner:
Investments for Which Market Quotations Are Readily Available
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 a national market or exchange are
valued based on their sale price on such market or exchange at the close of
business (usually 4:00 p.m.) on the date of valuation, or at the mean of the
closing bid and asked prices if no sale is reported.
Foreign Investments
Investments traded on a foreign exchange or in foreign markets are
valued at the closing values of such securities as of the date of valuation
under the generally accepted valuation method in the country where traded,
converted to U.S. dollars at the prevailing rates of exchange on the date of
valuation. Since the trading of investments on a foreign exchange or in foreign
markets is normally completed before the end of a valuation day, such valuation
does not take place contemporaneously with the determination of the valuation of
certain other investments held by the fund. If events materially affecting the
value of foreign investments occur between the time their share price is
determined and the time when a fund's net asset value is calculated, such
investments will be valued at fair value as determined in good faith by the
Finance Committee of the Board and in accordance with the responsibilities of
the Board as a whole.
Debt Securities
Debt securities (including 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 (other than
those in the Money Market Fund) with maturities of one year or less will be
obtained from either one or more of the major market makers or derived from a
pricing matrix that has various types of money market instruments along one axis
and maturities, ranging from overnight to one year, along the other. This
information is
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derived from one or more financial information services. For securities with
maturities longer than one year, these values will be derived utilizing an
independent pricing service when such prices are believed to reflect the fair
value of these securities. We use an independent pricing service to value
securities with maturities longer than one year, except when we believe prices
don't accurately reflect the security's fair value.
Special Valuation Procedures for the Money Market Fund
For the Money Market Fund, all of its assets are valued on the basis of
amortized cost in an effort to maintain a constant net asset value per share of
$1.00. The Board has determined that such valuation is in the best interests of
the fund and its shareholders. Under the amortized cost method of valuation,
securities are valued at cost on the date of their acquisition, and thereafter a
constant accretion of any discount or amortization of any premium to maturity is
assumed, regardless of the impact of fluctuating interest rates on the market
value of the security. While this method provides certainty in valuation, it may
result in periods in which value as determined by amortized cost is higher or
lower than the price the fund would receive if it sold the security. During such
periods, the quoted yield to investors may differ somewhat from that obtained by
a similar fund which uses available market quotations to value all of its
securities.
The Board has established procedures reasonably designed, taking into
account current market conditions and the Money Market Funds' investment
objective, to stabilize the net asset value per share for purposes of sales and
redemptions at $1.00. These procedures include review by the Board, at such
intervals as it deems appropriate, to determine the extent, if any, to which the
net asset value per share calculated by using available market quotations
deviates by more than 1/2 of 1% from $1.00 per share. In the event such
deviation should exceed 1/2 of 1%, the Board will promptly consider initiating
corrective action. If the Board believes that the extent of any deviation from a
$1.00 amortized cost price per share may result in material dilution or other
unfair results to new or existing shareholders, it will take such steps as it
considers appropriate to eliminate or reduce these consequences to the extent
reasonably practicable. Such steps may include: (1) selling securities prior to
maturity; (2) shortening the average maturity of the fund; (3) withholding or
reducing dividends; or (4) utilizing a net asset value per share determined from
available market quotations. Even if these steps were taken, the Money Market
Fund's net asset value might still decline.
Options and Futures
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Portfolio investments underlying options are valued as described above.
Stock options written by a fund 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
a fund's net assets will be increased or decreased by the difference between the
premiums received on written options and the costs of liquidating such positions
measured by the closing price of the options on the date of valuation.
For example, when a fund writes a call option, the amount of the
premium is included in the fund'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 fund 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 fund 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 a fund's
assets and an equal amount will be included as an investment and subsequently
adjusted to the current market value of the put. For example, if the current
market value of the put exceeds the premium paid, the excess would be unrealized
appreciation; conversely, if the premium exceeds the current market value, such
excess would be unrealized depreciation.
Stock and bond index futures, and options thereon, which are traded on
commodities exchanges, are valued at their last sale prices as of the close of
such commodities exchanges.
Investments for Which Market Quotations Are Not Readily Available
Portfolio securities or other assets for which market quotations are
not readily available will be valued at fair value, as determined in good faith
under the direction of the Trustees.
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Tax Status
Although the TIAA-CREF Mutual Funds is organized as a Delaware business
trust, neither the TIAA-CREF Mutual Funds nor the funds will be subject to any
corporate excise or franchise tax in the State of Delaware, nor will they be
liable for Delaware income taxes provided that each fund qualifies as a
regulated investment company for federal income tax purposes and satisfies
certain income source requirements of Delaware law. If each fund so qualifies
and distributes all of its income and capital gains, it will also be exempt from
applicable New York State taxes and the New York City general corporation tax,
except for small minimum taxes.
Each fund intends to qualify as a "regulated investment company"
("RIC") under Subchapter M of the Code. In general, to qualify as a RIC: (a) at
least 90% of the gross income of a fund for the taxable year must be derived
from dividends, interest, payments with respect to loans of securities, gains
from the sale or other disposition of securities, or other income derived with
respect to its business of investing in securities; (b) until December 31, 1997,
less than 30% of a fund's gross income for the taxable year can be attributable
to gains (without deductions for losses) from the sale or other disposition of
securities held for less than three months; (c) a fund must distribute to its
shareholders 90% of its ordinary income and net short-term capital gains.
Moreover, undistributed net income may be subject to tax at the RIC level; and
(d) a fund must diversify its assets so that, at the close of each quarter of
its taxable year, (i) at least 50% of the fair market value of its total (gross)
assets is comprised of cash, cash items, U.S. Government securities, securities
of other regulated investment companies and other securities limited in respect
of any one issuer to no more than 5% of the fair market value of the fund's
total assets and 10% of the outstanding voting securities of such issuer and
(ii) no more than 25% of the fair market value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies) or of two or more issuers
controlled by the fund and engaged in the same, similar, or related trades or
businesses.
If, in any taxable year, a fund should not qualify as a RIC under the
Code: (1) that fund would be taxed at normal corporate rates on the entire
amount of its taxable income without deduction for dividends or other
distributions to its shareholders, and (2) that fund's distributions to the
extent made out of that fund's current or accumulated earnings and profits would
be taxable to its shareholders (other than shareholders in tax deferred
accounts) as ordinary dividends (regardless of whether they would otherwise have
been considered
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capital gains dividends), and may qualify for the deduction for dividends
received by corporations.
Each fund must declare and distribute dividends equal to at least 98%
of its ordinary income (as of the twelve months ended December 31) and
distributions of at least 98% of its net capital gains (as of the twelve months
ended October 31), in order to avoid a federal excise tax. Each fund intends to
make the required distributions, but they cannot guarantee that they will do so.
Dividends attributable to a fund's ordinary income and capital gains
distributions are taxable as such to shareholders in the year in which they are
received except dividends declared in October, November or December and paid in
January. Dividends in the latter category are treated as paid on December 31.
A distribution of net capital gains reflects a fund's excess of net
long-term gains over its net short-term losses. Each fund must designate income
dividends and distributions of net capital gains and must notify shareholders of
these designations within sixty days after the close of the fund's taxable year.
Foreign currency gains and losses are taxable as ordinary income. If
the net effect of these transactions is a gain, the dividend paid by the fund
will be increased; if the result is a loss, the income dividend paid by the fund
will be decreased. Adjustments, to reflect these gains and losses will be made
throughout each fund's taxable year.
At the time of purchase, each fund's net asset value may reflect
undistributed income or net capital gains. A subsequent distribution to
shareholders of such amounts, although constituting a return of their
investment, would be taxable either as dividends or capital gain distributions.
For federal income tax purposes, each fund is permitted to carry forward its net
realized capital losses, if any, for eight years, and realize net capital gains
up to the amount of such losses without being required to pay taxes on, or
distribute such gains. If a shareholder held shares for six months or less and
during that period received a distribution taxable to such shareholder as a long
term capital gain, any loss realized on the sale of such shares during the six
month period would be a long term loss to the extent of such distribution.
Income received by each fund from sources within various foreign
countries may be subject to foreign income taxes withheld at the source. Under
the Code, if more than 50% of the value of a fund's total assets at the close of
its taxable year comprises securities issued by foreign corporations, the fund
may file an election with the Internal Revenue Service to "pass through" to the
fund's shareholders the amount of any foreign income taxes paid by the fund.
Pursuant to this election, shareholders will
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be required to: (i) include in gross income, even though not actually received,
their respective pro rata share of foreign taxes paid by the fund; (ii) treat
their pro rata share of foreign taxes as paid by them; and (iii) either deduct
their pro rata share of foreign taxes in computing their taxable income, or use
it as a foreign tax credit against U.S. income taxes (but not both). No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions.
Each shareholder will be notified within 60 days after the close of
each taxable year of a fund, if that fund will "pass through" foreign taxes paid
for that year, and, if so, the amount of each shareholder's pro rata share (by
country) of (i) the foreign taxes paid, and (ii) the fund's gross income from
foreign sources. Of course, shareholders who are not liable for federal income
taxes, such as retirement plans qualified under Section 401 of the Code, will
not be affected by any such "pass through" of foreign tax credits.
Each fund is required by federal law to withhold 31% of reportable
payments (which may include income dividends, capital gains distributions, and
share redemption proceeds) paid to shareholders who have not complied with IRS
regulations. In order to avoid this back-up withholding requirement, a
shareholder must certify to the fund on the application form or on a separate
Internal Revenue Service W-9 Form, that the shareholder's social security number
or tax payer identification number is correct and that the shareholder is not
currently subject to back-up withholding or is exempt from back-up withholding.
The foregoing discussion does not address the special tax rules
applicable to certain classes of investors. For example, each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the funds, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on fund distributions treated
as ordinary dividends.
This discussion of the tax treatment of the funds and their
distributions is based on the federal, Delaware and New York tax laws in effect
as of the date of this SAI. For a discussion of recent changes in the tax law,
see the prospectus. Shareholders should consult their tax advisers to determine
the tax treatment of an investment by him or her in any fund.
Brokerage Allocation
Advisors is responsible for decisions to buy and sell securities for
the funds as well as for selecting brokers and, where applicable negotiating the
amount of the commission rate
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paid. It is the intention of Advisors to place brokerage orders with the
objective of obtaining the best execution, which includes such factors as best
price, research and available data. When purchasing or selling securities traded
on the over-the-counter market, Advisors generally will execute the transactions
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 a fund,
its personnel may, consistent with their fiduciary obligations, decide either to
buy or to sell a particular security for the fund at the same time as for a TIAA
investment account that it may be managing, or CREF account that it may also be
managing on behalf of TIAA-CREF Investment Management, Inc. ("Investment
Management"), another investment adviser also affiliated with TIAA. 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 portfolio.
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 Board for the placing of orders with the brokers providing such services.
Research or services obtained for the TIAA-CREF Mutual Funds may be
used by personnel of Advisors in managing other investment company accounts, 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 TIAA-CREF Mutual Funds.
Calculation of Performance Data
We may quote a fund's performance in various ways. All performance
information in advertising is historical and is not intended to indicate future
returns. A fund's share price, yield, and total return fluctuate in response to
market
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conditions and other factors, and the value of fund shares when redeemed may be
more or less than their original cost.
Total Return Calculations
Total returns quoted in advertising reflect all aspects of a fund's
returns, including the effect of reinvesting dividends and capital gain
distributions, and any change in the fund's NAV over a stated period. Average
annual returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in a fund over a stated period, and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period according to the following formula:
P (1 + T)(n) = ERV
where: P = the hypothetical initial payment
T = average annual total return
n = number of years in the period
ERV = ending redeemable value of the
hypothetical payment made at the
beginning of the one-, five-, or
10-year period at the end of the
one-, five-, or 10-year period (or
fractional portion
thereof).
For example, a cumulative return of 100% over ten years would produce an average
annual return of 7.18%, which is the steady annual rate that would equal 100%
growth on a compounded basis in ten years. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that a fund's performance is not constant over time, but changes from year to
year, and that average annual returns represent averaged figures as opposed to
the actual year-to-year performance of the fund.
In addition to average annual returns, we may quote a fund's unaveraged
or cumulative total returns reflecting the actual change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted on a before or after tax basis. Total
returns, yields, and other performance information
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may be quoted numerically or in a table, graph, or similar illustration.
Yield Calculations
All Funds other than the Money Market Fund. Yields are computed by
dividing the fund's net investment income for a given 30-day or one month
period, by the average number of fund shares, dividing this figure by the fund's
NAV at the end of the period, and annualizing the result (assuming compounding
of income) in order to arrive at an annual percentage rate. Income is calculated
for purposes of yield quotations in accordance with standardized methods
applicable to all stock and bond funds. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by subtracting a
portion of the premium from income on a daily basis, and is increased with
respect to bonds trading at a discount by adding a portion of the discount to
daily income. For a fund's investments denominated in foreign currencies, income
and expenses are calculated first in their respective currencies, and are then
converted to U.S. dollars, either when they are actually converted or at the end
of the 30-day or one month period, whichever is earlier. Income is adjusted to
reflect gains and losses from principal repayments received by the fund with
respect to mortgage-related securities and other asset-backed securities. Other
capital gains and losses generally are excluded from the calculation as are
gains and losses currently from exchange rate fluctuations.
Income calculated for the purposes of calculating a fund's yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding of income
assumed in yield calculations, a fund's yield may not equal its distribution
rate, the income paid to your account, or the income reported in a fund's
financial statements.
Yield information may be useful in reviewing a fund's performance and
in providing a basis for comparison with other investment alternatives. However,
a fund's yield fluctuates, unlike investments that pay a fixed interest rate
over a stated period of time. When comparing investment alternatives, investors
should also note the quality and maturity of the portfolio securities of
respective investment companies they have chosen to consider. Investors should
also recognize that in periods of declining interest rates a fund's yield will
tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates a fund's yield will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to a fund from the
continuous sale of its shares will likely be invested in instruments producing
lower yields than the balance of the fund's holdings, thereby reducing the
fund's
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current yield. In periods of rising interest rates, the opposite can be expected
to occur.
Yield Information for the Money Market Fund Yield quotations for the Money
Market Fund, including yield quotations based upon the seven-day period ended on
the date of calculation, may also be made available. These yield quotations are
based on a hypothetical pre-existing account with a balance of one share. In
arriving at any such yield quotations, the net change during the period in the
value of that hypothetical account is first determined. Such net change includes
net investment income attributable to portfolio securities but excludes realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation (which are included in the calculation of Net Asset Value). For
this purpose, net investment income includes accrued interest on portfolio
securities, plus or minus amortized premiums or purchase discount (including
original issue discount), less all accrued expenses. Such net change is then
divided by the value of that hypothetical account at the beginning of the period
to obtain the base period return, and then the base period return is multiplied
by 365/7 to annualize the current yield figure which is carried to at least the
nearest hundredth of one percent.
The effective yield of the Money Market Fund for the same seven-day period may
also be disclosed. The effective yield is obtained by adjusting the current
yield to give effect to the compounding nature of the Fund's investments, and is
calculated by the use of the following formula:
Effective Yield = (Base Period Return+1)(365/7) -1
The Money Market Fund's yield fluctuates, unlike many bank deposits or other
investments which pay a fixed yield for a stated period of time. The
annualization of one period's income is not necessarily indicative of future
actual yields. Actual yields will depend on such variables as portfolio quality,
average portfolio maturity, the type of instruments held in the portfolio,
changes in interest rates on money market instruments, portfolio expenses, and
other factors.
Performance Comparisons
Performance information for the funds, may be compared in
advertisements, sales literature, and reports to Shareholders, 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
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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 Associates indices,
(10) Frank Russell Co. Inc. indices, (11) the Consumer Price Index, published by
the U.S. Bureau of Labor Statistics (measurement of inflation), (12)
Morningstar, Inc., and (13) the Global Market indicies created by Morgan
Stanley, Inc., including the Europe, Asia, Far East (EAFE) Index, the
EAFE+Canada Index and the International Perspective Index. 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 each of the funds also may be compared to other
indices or averages that measure performance of a pertinent group of securities.
Shareholders should keep in mind that the composition of the investments in the
reported averages will not be identical to that of the fund and that certain
formula calculations (e.g., yield) may differ from index to index. In addition,
there can be no assurance that any of the funds will continue its performance as
compared to such indices.
We may also advertise ratings or rankings the funds receive from
various rating services and organizations, including but not limited to any
organization listed above.
Illustrating Compounding
We may illustrate in advertisements, sales literature and reports to
shareholders the effects of compounding of earnings on an investment in a fund.
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 a
different rate of return, varies depending on when the investment was made.
Net Asset Value
Charts and graphs using a fund's NAVs, adjusted NAVs, and benchmark
indices may be used to exhibit performance. An adjusted NAV includes any
distributions paid by the fund and reflects all elements of its return. Unless
otherwise indicated, a fund's adjusted NAVs are not adjusted for sales charges,
if any.
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Moving Averages
We may illustrate a fund's performance using moving averages. A
long-term moving average is the average of each week's adjusted closing NAV for
a specified period. A short-term moving average is the average of each day's
adjusted closing NAV for a specified period. "Moving Average Activity
Indicators" combine adjusted closing NAVs from the last business day of each
week with moving averages for a specified period to produce indicators showing
when an NAV has crossed, stayed above, or stayed below its moving average.
Legal Matters
All matters of applicable state law pertaining to the Funds have been
passed upon by Charles H. Stamm, Executive Vice President and General Counsel of
TIAA and CREF. Legal matters relating to the federal securities laws have been
passed upon by Sutherland, Asbill & Brennan, L.L.P., Washington, D.C.
Experts
The financial statements included in this Statement of Additional
Information have been audited by Ernst & Young LLP, independent auditors, as
stated in their report appearing herein and have been so included in reliance
upon the report of such firm given upon its authority as experts in accounting
and auditing.
Additional Considerations
Prospective investors in TIAA-CREF Mutual Funds who have accumulations
in TIAA and CREF retirement annuities (RAs) and supplemental retirement
annuities (SRAs), or in the Teachers Personal Annuity (PA) should carefully
consider how TIAA-CREF Mutual Funds fit into their investment portfolio. The
tax treatment is considerably different from the RA, SRA and PA. For example,
RAs and SRAs accept before-tax contributions, and any earnings from them are not
taxed until withdrawn or taken as income. RAs, SRAs, and the PA all have
restrictions on withdrawals before age 59-1/2, including tax penalties.
TIAA-CREF Mutual Funds don't have such restrictions, which means they can be
used to invest for a wide variety of goals in addition to retirement. However,
annuities offer the option of lifetime income on retirement, which mutual funds
do not.
Investors should also consider the TIAA-CREF Mutual Funds' expense
charges as compared to the expenses of other mutual
38
<PAGE>
funds. The TIAA-CREF Mutual Funds' expense charges are currently among the
lowest in the industry, according to Morningstar Principia, which tracks mutual
fund expense charges.
Financial Statements
The audited financial statements of TIAA-CREF Mutual Funds follow.
39
<PAGE>
Report of Independent Auditors
Shareholder and Board of Trustees
TIAA-CREF Mutual Funds
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of TIAA-CREF Mutual Funds (comprising,
respectively, the International Equity Fund, the Growth Equity Fund, the Growth
& Income Fund, the Managed Allocation Fund, the Bond Plus Fund and the Money
Market Fund) as of July 17, 1997. These financial statements are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 as of July 17, 1997 by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TIAA-CREF Mutual Funds as of
July 17, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
July 31, 1997
40
<PAGE>
TIAA-CREF MUTUAL FUNDS
Statements of Investments
July 17, 1997
Par
Description Value Value
----------- ----- -----
INTERNATIONAL EQUITY FUND
Mortgage Backed Securities - 100.0%
Federal Home Loan Mortgage Corp.
5.40%, 07/18/97 (cost $44,000,000) $44,000,000 $44,000,000
===========
GROWTH EQUITY FUND
Mortgage Backed Securities - 100.0%
Federal Home Loan Mortgage Corp.
5.40%, 07/18/97 (cost $38,000,000) $38,000,000 $38,000,000
===========
GROWTH & INCOME FUND
Mortgage Backed Securities - 100.0%
Federal Home Loan Mortgage Corp.
5.40%, 07/18/97 (cost $38,000,000) $38,000,000 $38,000,000
===========
MANAGED ALLOCATION FUND
Mortgage Backed Securities - 100.0%
Federal Home Loan Mortgage Corp.
5.40%, 07/18/97 (cost $50,000,000) $50,000,000 $50,000,000
===========
BOND PLUS FUND
Mortgage Backed Securities - 100.0%
Federal Home Loan Mortgage Corp.
5.40%, 07/18/97 (cost $32,000,000) $32,000,000 $32,000,000
===========
See notes to financial statements.
41
<PAGE>
TIAA-CREF MUTUAL FUNDS
Statements of Investments (Concluded)
July 17, 1997
Par
Description Value Value
----------- ----- -----
MONEY MARKET FUND
Bankers Acceptance - 4.1%
Chase Manhattan Bank 5.51%, 08/06/97 $ 2,000,000 $ 1,994,184
-----------
Commercial Paper - 56.5%
Banc One Corp. 5.50%, 09/04/97 2,400,000 2,382,400
Ciesco Inc. 5.50%, 08/13/97 2,134,000 2,125,523
Commercial Credit Corp. 5.50%, 09/03/97 2,400,000 2,382,767
Dillard Investment Co. 5.50%, 08/15/97 2,400,000 2,389,733
Massachusetts Electric Co. 5.50%, 2,400,000 2,398,534
07/22/97
McGraw Hill Inc. 5.51%, 10/21/97 2,100,000 2,069,466
Merrill Lynch & Co. Inc. 5.54%, 12/17/97 2,400,000 2,343,861
Morgan Stanley Group Inc. 5.50%, 08/19/97 2,400,000 2,388,267
National Rural Utilities Cooperative
Finance 5.50%, 08/05/97 1,500,000 1,495,875
Pacific Gas and Electric Co. 5.50%, 2,400,000 2,374,333
09/26/97
Southern California Gas Co. 5.50%, 2,400,000 2,362,233
10/29/97
UBS Finance Delaware Inc. 5.50%, 2,400,000 2,388,633
08/18/97 -----------
27,101,625
Yankee Certificate of Deposit - 5.0% -----------
Westdeutcshe Landesbank Giroz 5.55%, 2,400,000 2,400,000
09/02/97 -----------
Mortgage Backed Securities - 34.4%
Federal Home Loan Mortgage Corp.
5.40%, 07/18/97 16,511,000 16,511,000
-----------
TOTAL INVESTMENTS (cost $48,006,809) - 100.0% $48,006,809
===========
See notes to financial statements.
42
<PAGE>
TIAA-CREF MUTUAL FUNDS
Statements of Assets and Liabilities
July 17, 1997
<TABLE>
<CAPTION>
International Growth Growth & Managed Bond Money
Equity Equity Income Allocation Plus Market
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments $44,000,000 $38,000,000 $38,000,000 $50,000,000 $32,000,000 $48,006,809
Cash 6,600 5,700 5,700 7,500 4,800 153
Interest receivable 370
----------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS 44,006,600 38,005,700 38,005,700 50,007,500 48,007,332
----------- ----------- ----------- ----------- -----------
32,004,800
-----------
LIABILITIES
Accrued expenses 592 470 449 264 383
Income distribution payable 6,949
----------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES 592 470 449 264 7,332
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS $44,006,008 $38,005,230 $38,005,251 $50,007,500 $48,000,000
=========== =========== =========== =========== ===========
$32,004,536
===========
Net assets consist of:
Paid-in-capital 44,000,000 38,000,000 38,000,000 50,000,000 32,000,000 48,000,000
Undistributed net
invested income 6,008 5,230 5,251 7,500 4,536
----------- ----------- ----------- ----------- -----------
NET ASSETS $44,006,008 $38,005,230 $38,005,251 $50,007,500 $32,004,536
=========== =========== =========== =========== ===========
$48,000,000
===========
Outstanding shares of
beneficial interest,
unlimited shares
authorized
(.001 par value) 4,400,000 3,800,000 3,800,000 5,000,000 3,200,000 48,000,000
========== ========== ========== ========== ========== ===========
Net asset value, offering
and redemption price
per share $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
====== ====== ====== ====== ====== ======
</TABLE>
See notes to financial statements.
43
<PAGE>
TIAA-CREF MUTUAL FUNDS
Notes to Financial Statements
July 17, 1997
Note 1. Organization.
TIAA-CREF Mutual Funds ("the Funds") is a Delaware business trust that was
organized on January 13, 1997 and is registered with the Securities and Exchange
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 with an investment by Teachers
Insurance and Annuity Association of America ("TIAA") on July 17, 1997. TIAA
invested $44,000,000 in the International Equity Fund; $38,000,000 in the Growth
Equity Fund; $38,000,000 in the Growth & Income Fund; $50,000,000 in the Managed
Allocation Fund; $32,000,000 in the Bond Plus Fund and $48,000,000 in the Money
Market Fund. The Funds intend to offer their shares, without a sales load,
through their distributor, Teachers Personal Investors Services, Inc., which is
a wholly-owned, indirect subsidiary of TIAA.
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 Funds, which are in conformity with generally accepted
accounting principles.
Valuation of Investments: Short-term money market instruments maturing within 60
days are valued by each Fund, except the Money Market Fund, at amortized cost or
original cost plus accrued interest, either of which approximates fair value.
The Money Market Fund values all of its securities using the amortized cost
method. The amortized cost method initially values securities at original cost
and assumes a constant amortization to maturity of any discount or premium.
Accounting for Investments: Securities transactions are accounted for as of the
date the securities are purchased or sold (trade date). Realized gains and
losses are based upon the specific identification method for both financial
statement and federal income tax purposes. Interest income is recognized on the
accrual basis, and discounts on securities purchased are amortized using the
effective yield method.
Dividends to Shareholders: Dividends from net investment income, if any, for the
International Equity and Growth Equity Funds are declared and paid annually; for
the Growth & Income and Managed Allocation Funds are declared and paid
quarterly; for the Bond Plus Fund are declared and paid monthly; and for the
Money Market Fund are declared daily and paid monthly. Distributions from
realized gains, if any, are declared and paid annually for each of the Funds.
44
<PAGE>
Note 3. Management Agreement
Under the terms of an Investment Management Agreement, each Fund pays Teachers
Advisors Inc. ("Advisors"), a wholly-owned, indirect subsidiary of TIAA, a
monthly fee for the management and administration of the Funds, based on the
average daily net assets of each Fund. Advisors has currently waived its right
to receive a portion of its fee from each Fund. As a result, during such waiver
period, Advisors will receive the following percentages of each Fund's average
daily net assets:
Management Fee
Management Fee Waiver After Waiver
-------------- ------ ------------
International Equity Fund 0.99% 0.50% 0.49%
Growth Equity Fund 0.95% 0.50% 0.45%
Growth & Income Fund 0.93% 0.50% 0.43%
Managed Allocation Fund 0.00% 0.00% 0.00%
Bond Plus Fund 0.80% 0.50% 0.30%
Money Market Fund 0.79% 0.50% 0.29%
Advisors will not receive a management fee for its services to the Managed
Allocation Fund. However, shareholders in the Managed Allocation Fund will
indirectly bear their pro rata share of the fees and expenses incurred by the
Funds in which the Managed Allocation Fund invests.
45
<PAGE>
PART C
- ------
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (for each Fund)
(1) Statement of Assets and Liabilities as of July 17, 1997.
(2) Report of Ernst & Young LLP, Independent Auditors, dated July 31,
1997
(b) Exhibits
(1) Declaration of Trust, as amended*
(2) Bylaws*
(3) N/A
(4) N/A
(5) Investment Management Agreement between Registrant and Teachers
Advisors, Inc.*
(6) (a) Distribution agreement between Registrant and Teachers
Personal Investors Services, Inc.*
(b) Selling agreement, as amended, between TPIS and TIAA-CREF
Individual & Institutional Services, Inc.*
(7) N/A
(8) Custodian Agreement between the Registrant, Teachers Advisors and
State Street Bank and Trust*
(9) (a) Administration Agreement between State Street Bank and Trust
and Teachers Advisors*
(b) Transfer Agency Agreement between State Street Bank and Trust
and Teachers Advisors*
(10) Opinion and Consent of Charles Stamm, Esq.
46
<PAGE>
(11) (a) Consent of Sutherland, Asbill & Brennan, L.L.P.
(b) Consent of Ernst & Young LLP
(12) N/A
(13) Seed Money Agreement between TIAA and TIAA-CREF Mutual Funds*
(14) N/A
(15) N/A
(16) N/A
(17) Financial Data Schedule
(18) N/A
- ----------
*Previously filed.
Item 25. Persons Controlled by or Under Common Control With Registrant
The following companies are subsidiaries of TIAA and are
included in the consolidated financial statements of TIAA:
Teachers Insurance and Annuity Association
College Retirement Equities Fund
AIC Properties, Inc. JV Minnesota One, Inc.
BT Properties, Inc. JV Missouri One, Inc.
Chesapeake Investors, Inc. JV North Carolina One, Inc.
College Credit Trust JV Virginia One, Inc.
Country Commons Doylestown Trust JV Virginia Two, Inc.
Country Commons Joint Venture Trust JV Virginia Three, Inc.
DAN Properties, Inc. JWL Properties, Inc.
Florida Teachers Properties, Inc. Liberty Place Retail, Inc.
HSD Properties, Inc. Macallister Holdings, Inc.
Illinois Teachers Properties, Inc. Mass. Norwood Properties, Inc.
JV California Two, Inc. MAV Properties, Inc.
JV California Three, Inc. McCandless Joint Venture, Inc.
JV District of Columbia One, Inc. Minnesota Teachers Realty Corp.
JV Florida One, Inc. MN Properties, Inc.
JV Florida Three, Inc. M.O.A. Enterprises, Inc.
JV Florida Four, Inc. MRC Properties, Inc.
JV Georgia One, Inc. ND Properties, Inc.
JV Indiana Three, Inc. New Jersey Teachers Properties, Inc.
JV Maryland One, Inc. NMA II Properties, Inc.
JV Michigan One, Inc. NMA Properties, Inc.
JV Michigan Two, Inc. One Liberty Place Land, Inc.
JV Michigan Three, Inc. One Liberty Place Tower, Inc.
2
<PAGE>
Reserve Management, Inc.
Rouse-Teachers Properties, Inc.
Savannah Teachers Properties, Inc.
T-Investment Properties, Inc.
T-Land Corp.
T-Las Colinas Towers Corp.
Teachers Advisors, Inc.
Teachers Boca Properties, Inc.
Teachers Pennsylvania Realty, Inc.
Teachers Personal Investors Services,
Inc.
Teachers Properties, Inc.
Teachers REA, Inc.
Teachers Realty Corporation
Tethys Slu, Inc.
TIAA-CREF Individual & Institutional
Services, Inc.
TIAA-CREF Investment Management, Inc.
TIAA FUND EQUITIES, INC.
TIAA Holdings, Inc.
TIAA Life Insurance Company
TPI Housing, Inc.
Washington Teachers Properties I, Inc.
Washington Teachers Properties II,
Inc.
Windermere Place Joint Venture Trust
Windermere Goshen Trust
WRC Properties, Inc.
730 Properties, Inc.
730 Cal Hotel Properties I, Inc.
730 Cal Hotel Properties II, Inc.
730 Georgia Hotel Properties I, Inc.
730 Mass. Holding I, Inc.
730 Mass. Hotel Properties I, Inc.
730 Minn. Holding I, Inc.
730 Minn. Hotel Properties I, Inc.
730 MO Hotel Properties I, Inc.
730 Penn. Hotel Properties I, Inc.
(1) All subsidiaries are Delaware corporations except as follows:
A) Pennsylvania non-stock, non-profit corporations:
One Liberty Place Land, Inc.
One Liberty Place Tower, Inc.
Liberty Place Retail, Inc.
McCandless Joint Venture, Inc.
Teachers Realty Corporation
B) Minnesota Teachers Realty Corporation is a Minnesota corporation.
C) All Trusts are Pennsylvania business trusts.
(2) All subsidiaries are 100%-owned directly by TIAA, except as
follows:
A) M.O.A. Enterprises, Inc., Teachers Properties, Inc., 730 Properties,
Inc., T-Investment Properties Corp. and T-Land Corp. are 100% owned by
Macallister Holdings, Inc.
3
<PAGE>
B) Chesapeake Investors, Inc. is 95%-owned by Teachers Properties, Inc.
and 5%-owned by The Rouse Company. Rouse-Teachers Properties, Inc. is
100%-owned by Chesapeake Investors, Inc.
C) TPI Housing, Inc. is 100%-owned by Teachers Properties, Inc.
D) MaCallister Holdings, Inc., Teachers Personal Investors Services,
Inc., Teachers Advisors, Inc. and TIAA Life Insurance Company are
100%-owned by TIAA Holdings, Inc.
E) 730 Cal Hotel Properties I, Inc., 730 Cal Hotel Properties II, Inc.,
730 Georgia Hotel Properties I, Inc., 730 Mass Holding I, Inc., 730
Minn. Holding I, Inc., 730 MO Hotel Properties I, Inc., 730 Penn Hotel
Properties I, Inc. and 730 Mass. Hotel Properties I, Inc. and 730
Minn. Hotel Properties I, Inc. are directly and directly owned by 730
Properties, Inc.
(3) All subsidiaries have as their sole purpose the ownership of
investments which could, pursuant to New York State Insurance Law, be owned by
TIAA itself, except the following:
A) Teachers Advisors, Inc., which provides investment advice for the
Registrant.
B) Teachers Personal Investors Services, Inc., which provides broker-
dealer services for the Registrant and TIAA Separate Account VA-1.
C) TIAA-CREF Investment Management, Inc., which provides investment
advice for College Retirement Equities Fund.
D) TIAA-CREF Individual & Institutional Services, Inc., which provides
broker-dealer and administrative services for College Retirement
Equities Fund.
E) Reserve Management, Inc., which is intended to be used by TIAA as a
vehicle for short-term borrowing.
Item 26. Number of Holders of Securities
Title of Class Number of Record Holders
-------------- ------------------------
Shares of Beneficial Interest 1
Item 27. Indemnification
As a Delaware business trust, Registrant's operations are governed by its
Declaration of Trust dated January 15, 1997 (the Declaration of Trust).
Generally, Delaware business trust shareholders are not personally liable for
obligations of the Delaware business trust under Delaware law. The Delaware
Business Trust Act (the DBTA) provides that a shareholder of a trust shall be
entitled to the same limitation of liability extended to shareholders of private
for-profit Delaware corporations. Registrant's
4
<PAGE>
Declaration of Trust expressly provides that it has been organized under the
DBTA and that the Declaration of Trust is to be governed by Delaware law. It is
nevertheless possible that a Delaware business trust, such as Registrant, might
become a party to an action in another state whose courts refuse to apply
Delaware law, in which case Registrant's shareholders could be subject to
personal liability.
To protect Registrant's shareholders against the risk of personal
liability, the Declaration of Trust: (I) contains an express disclaimer of
shareholder liability for acts or obligations of Registrant and provides that
notice of such disclaimer may be given in each agreement, obligation and
instrument entered into or executed by Registrant or its Trustees; (ii) provides
for the indemnification out of Trust property of any shareholders held
personally liable for any obligations of Registrant or any series of Registrant;
and (iii) provides that Registrant shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of Registrant
and satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss beyond his or her investment because of shareholder liability is
limited to circumstances in which all of the following factors are present: (I)
a court refuses to apply Delaware law; (ii) the liability arose under tort law
or, if not, no contractual limitation of liability was in effect; and (iii)
Registrant itself would be unable to meet its obligations. In the light of
Delaware law, the nature of Registrant's business and the nature of its assets,
the risk of personal liability to a shareholder is remote.
The Declaration of Trust further provides that Registrant shall indemnify
each of its Trustees and officers against liabilities and expenses reasonably
incurred by them, in connection with, or arising out of, any action, suit or
proceeding, threatened against or otherwise involving such Trustee or officer,
directly or indirectly, by reason of being or having been a Trustee or officer
of Registrant. The Declaration of Trust does not authorize Registrant to
indemnify any Trustee or officer against any liability to which he or she would
otherwise be subject by reason of or for willful misfeasance, bad faith, gross
negligence or reckless disregard of such person's duties.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons, or
otherwise, Registrant has been advised that in the opinion of the Commission
such indemnification may be against public policy as expressed in the Act and
may be, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as
5
<PAGE>
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of Investment Adviser
Teachers Advisors, Inc. (Advisors) also provides investment management
service to TIAA Separate Account VA-1. All officers of Advisors are also
officers of TIAA-CREF Investment Management, Inc. (Investment Management) and
are employees of TIAA. John Biggs is also a trustee of TIAA, CREF, TIAA-CREF
Individual & Institutional Services, Inc. ("Services") and Investment
Management, and a director of Teachers Personal Investor Services, Inc.
("TPIS"). He is Chief Executive Officer of TIAA and CREF. Martin L. Leibowitz
is a trustee of TIAA, CREF and Investment Management. He is Vice Chairman and
Chief Investment Officer of CREF and TIAA. Charles Stamm is a trustee of
Investment Management and Services, and a director of TPIS. He is General
Counsel of CREF and TIAA. Richard Adamski is also Treasurer of TPIS and
Services. Richard Gibbs is also Executive Vice President of TPIS and Services.
The principal business address of Investment Management, Services and TPIS is
730 Third Avenue, New York, NY 10017.
Mr. Biggs is also a director of Ralston Purina Company, Checkerboard Square, St.
Louis, Missouri 63164; and The Boeing Company, 7755 East Marginal Way South,
Seattle, Washington 98108.
Item 29. Principal Underwriters
Teachers Personal Investors Services, Inc. ("TPIS") may be considered
the principal underwriter for the Registrant. The officers of TPIS and
their positions and offices with TPIS and the Registrant are listed in
Schedule A of Form BD as currently on file with the Commission (File No. 8-
47051), the text of which is hereby incorporated by reference.
Item 30. Location of TIAA-CREF Mutual Funds Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder will be
maintained at the Registrant's home office, 730 Third Avenue, New York New York
10017, at other offices of the Registrant located at 750 Third Avenue and 485
Lexington Avenue, both in New York, New York 10017, and at the offices of the
Registrant's custodian, State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110. In addition, certain duplicated records are
maintained at Pierce Leahy Archives, 64 Leone Lane, Chester, New York 10918.
Item 31. Management Services
State Street Bank and Trust Company, a Massachusetts trust company ("State
Street") will provide certain management-related services to the Registrant
pursuant to a Custodian Contract between the Registrant,
6
<PAGE>
State Street and Teachers Advisors, Inc. ("Advisors"), the investment
advisor to the Registrant. Under the Custodian Contract, State Street will,
among other things, act as custodian of the assets of the portfolios of the
Registrant, keep the Registrant's books of account and compute the net
asset value per share of the outstanding shares of each of the Registrant's
portfolios. These services will be rendered pursuant to instructions
received by State Street from Advisors or the Registrant in the ordinary
course of business.
Item 32. Undertakings
Registrant undertakes the following:
(a) Not Applicable;
(b) To file a post-effective amendment, using financial statements which
need not be certified, within four to six months from the effective date of this
registration statement;
(c) Not Applicable.
7
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant, TIAA-CREF Mutual Funds, has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of New York, and state of New
York, on the 22nd day of August, 1997.
TIAA-CREF MUTUAL FUNDS
By: /s/ Lisa Snow
--------------------------------
Name: Lisa Snow
Title: Vice President and Secretary
Pursuant to the Securities Act of 1933, this registration statement has
been signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ Thomas G. Walsh
- ------------------------- President 8/22/97
Thomas G. Walsh (Principal Executive Officer)
/s/ Virgil H. Cumming
- ------------------------- Executive Vice President 8/22/97
Virgil H. Cumming (Principal Financial Officer)
/s/ Richard L. Gibbs
- ------------------------- Executive Vice President 8/22/97
Richard L. Gibbs (Principal Accounting Officer)
8
<PAGE>
SIGNATURE OF TRUSTEE DATE SIGNATURE OF TRUSTEE DATE
- -------------------- ---- -------------------- ----
/s/ Robert H. Atwell 8/22/97 /s/ Bevis Longstreth 8/22/97
- ------------------------- -------------------------
Robert H. Atwell Bevis Longstreth
/s/ Elizabeth E. Bailey 8/22/97 /s/ Robert M. Lovell, Jr. 8/22/97
- ------------------------- -------------------------
Elizabeth E. Bailey Robert M. Lovell, Jr.
/s/ Stephen A. Ross 8/22/97
- ------------------------- -------------------------
Gary P. Brinson Stephen A. Ross
/s/ Joyce A. Fescke 8/22/97
- ------------------------- -------------------------
Joyce A. Fescke Eugene C. Sit
/s/ Edes P. Gilbert 8/22/97 /s/ Maceo K. Sloan 8/22/97
- ------------------------- -------------------------
Edes P. Gilbert Maceo K. Sloan
/s/ Stuart Tse Kong Ho 8/22/97 /s/ Harry K. Spindler 8/22/97
- ------------------------- -------------------------
Stuart Tse Kong Ho Harry K. Spindler
/s/ David K. Storrs 8/22/97
- ------------------------- -------------------------
Nancy L. Jacob David K. Storrs
/s/ Marjorie Fine Knowles 8/22/97 /s/ Robert W. Vishny 8/22/97
- ------------------------- -------------------------
Marjorie Fine Knowles Robert W. Vishny
/s/ Jay O. Light 8/22/97
- -------------------------
Jay O. Light
9
<PAGE>
Exhibit Index
(1) Opinion and Consent of Charles H. Stamm, Esq.
(2) Consent of Sutherland, Asbill & Brennan, L.L.P.
(3) Consent of Ernst & Young LLP
(4) Financial Data Schedules
10
[TIAA-CREF LOGO]
Teachers Insurance and Annuity Association
College Retirement Equities Fund
730 Third Avenue
New York, New York 10017-3206
Charles H. Stamm
Executive Vice President and
General Counsel
(212) 916-6218
August 20, 1997
The Board of Trustees
TIAA-CREF Mutual Funds
730 Third Avenue
New York, New York 10017-3206
Ladies and Gentlemen:
This opinion is furnished in connection with the filing of
pre-effective amendment No. 2 to the Registration Statement (File Nos. 333-21821
and 811-08055) on Form N-1A for the TIAA- CREF Mutual Funds. The Registration
Statement covers an indefinite amount of securities in the form of shares of
beneficial interest in the TIAA-CREF Mutual Funds (the "Shares").
I have examined the Declaration of Trust, By-laws and other corporate
records of the TIAA-CREF Mutual Funds, and the relevant statutes and regulations
of the State of Delaware. On the basis of such examination, it is my opinion
that:
1. The TIAA-CREF Mutual Funds is a business trust duly organized and
validly existing under the laws of the State of Delaware.
2. The Shares have been duly authorized and, when issued as
contemplated by the Registration Statement, will be validly issued, fully-paid
and non-assessable.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement, and to the reference tomy name under the heading "Legal
Matters" in the Statement of Additional Information.
Sincerely,
/s/ Charles H. Stamm
Charles H. Stamm
Executive Vice President
and General Counsel
SUTHERLAND, ASBILL & BRENNAN LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
Tel: (202) 383-0100 Steven B. Boehm
Fax: (202) 637-3593 Direct Line: (202) 383-0176
August 25, 1997
The Board of Trustees
TIAA-CREF Mutual Funds
730 Third Avenue
New York, New York 10017-3206
Re: Registration Statement on Form N-1A
(Registration Nos. 333-21821 and 811-8055)
------------------------------------------
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 an
part of Post-Effective Amendment No. 2 to the above-captioned registration
statement on Form N-1A. 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
-------------------
Steven B. Boehm
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Invetment Advisory
and Other Services" and to the use of our report dated July 31,m 1997, in this
Registration Statement (File numbers 333-21821, 811-08055) of TIAA-CREF Mutual
Funds.
ERNST & YOUNG LLP
New York, New York
August 21, 1997
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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