File Nos. 333-21821, 811-08055
As filed with the Securities and Exchange Commission on March 27, 1998
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under the Securities Act of 1933 [X]
Pre-Effective Amendment No.__ [_]
Post-Effective Amendment No. 2 [X]
and
Registration Statement Under the Investment Company Act of 1940 [X]
Amendment No. 4 [X]
(Check appropriate box or boxes.)
-----------------------------------
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
It is proposed that this filing will become effective (check appropriate box):
[_] Immediately upon filing pursuant to [X] On April 1, 1998 pursuant
paragraph (b) to paragraph (b)
[_] 60 days after filing pursuant to [_] On (date) pursuant to
paragraph (a)(1) paragraph (a)(1)
[_] 75 days after filing pursuant to [_] On (date) pursuant to
paragraph (a)(2) paragraph (a)(2) of rule 485
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
--------------------------------------------
Title of Securities Being Registered: shares of an open-end management
investment company.
<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
-------------------------------------------------------------------------
Caption(s) in Caption(s) in the Statement
Item of Form N-1A 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
Registrant Mutual Funds
5. Management of the Management of
Fund TCMF and
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
Being Offered Shares
8. Redemption or How to Redeem
Repurchase Shares
9. Pending Legal General Matters
Proceedings - Legal
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 Caption(s) in the Statement
Item of Form N-1A the Prospectus of Additional Information
----------------- -------------- -------------------------
13. Investment Objectives Investment Objectives,
and Policies 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
and Other Services Other 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
Performance Data Data
23. Financial Statements Financial Statements
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 April 1, 1998
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 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 , 1998. You can get a copy of the SAI by calling 800 223-1200 or writing
us c/o State Street Bank, P.O. Box 9081, Boston, MA 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....................................................
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.................................................
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Dividends and Distributions.............................................
Taxes...................................................................
General Matters.........................................................
Voting Rights.....................................................
Year 2000 Issues..................................................
Distributors......................................................
Administration....................................................
Custodial Services................................................
Legal Proceedings.................................................
Householding......................................................
This prospectus outlines the terms under which an investment in the TIAA-CREF
Mutual Funds is available. It doesn't constitute an offering in any jurisdiction
where such an offering can't lawfully be made. No dealer, salesman, or anyone
else is authorized to give any information or to make any representation in
connection with this offering other than those contained in this prospectus. If
anyone does provide you such information or make such 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)
<TABLE>
<CAPTION>
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 annualized amounts incurred for the
fiscal period ended December 31, 1997.
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(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 Five Ten
Year Years Years Years
The International Equity $5 $16 $27 $62
Fund
The Growth Equity Fund $5 $14 $25 $57
The Growth & Income Fund $4 $14 $24 $54
The Managed Allocation $0 $ 0 $ 0 $ 0
Fund
The Bond Plus Fund $3 $10 $17 $38
The Money Market Fund $3 $ 9 $16 $37
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.
Financial Highlights
The Financial Highlights presented below for the period ending December
31, 1997 have been audited by Ernst & Young LLP, independent auditors. Their
report appears in TIAA-CREF Mutual Funds' Annual Report, which is incorporated
by reference into the SAI. The Annual Report contains additional information
about the funds. It is available without charge upon request.
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<TABLE>
<CAPTION>
TIAA-CREF MUTUAL FUNDS FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD JULY 17, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
MONEY BOND GROWTH & GROWTH INTERNATIONAL MANAGED
MARKET PLUS INCOME EQUITY EQUITY ALLOCATION
FUND FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period $1.00 $10.00 $10.00 $10.00 $10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Gain (loss) from investment operations:
Net investment income 0.02 0.27 0.07 0.06 0.07 0.23
Net realized and unrealized gains (losses)
on investments 0.00 0.20 0.32 0.28 (1.07) 0.01
- ---------------------------------------------------------------------------------------------------------------------------
Total gain (loss) from investment
operations 0.02 0.47 0.39 0.34 (1.00) 0.24
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.02) (0.27) (0.07) (0.06) (0.07) (0.23)
In excess of net investment income -- -- -- -- (0.01) --
Net realized gains -- (0.11) -- (0.16) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.02) (0.38) (0.07) (0.22) (0.08) (0.23)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $10.09 $10.32 $10.12 $ 8.92 $10.01
===========================================================================================================================
TOTAL RETURN 2.51% 4.79% 3.96% 3.44% (10.09)% 2.44%
RATIOS AND SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $63,605 $58,403 $61,822 $64,487 $47,758 $59,087
Ratio of expenses to average net assets
before expense waiver 0.36% 0.37% 0.43% 0.44% 0.46% 0.00%
Ratio of expenses to average net assets
after expense waiver 0.13% 0.14% 0.20% 0.21% 0.23% 0.00%
Ratio of net investment income to average
net assets 2.49% 2.72% 0.76% 0.68% 0.56% 2.46%
Portfolio turnover rate n/a 143.61% 1.46% 29.44% 4.56% 0.00%
Average brokerage commissions paid per share n/a n/a $0.0509 $0.0210 $0.0522 n/a
The percentages shown above are not annualized.
===========================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS 3
</TABLE>
<PAGE>
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. It 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 $231.5 billion in assets as of
December 31, 1997, with TIAA managing approximately $93.8 billion and CREF
managing approximately $119.7 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 up to 20% of its total assets 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 __).
When market conditions warrant, the funds can invest directly in debt
securities. The equity funds can also hold debt securities that they acquire
because of mergers, recapitalizations or otherwise. 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 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 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. We don't expect
foreign investments to exceed 15% of the fund's assets.
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.
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The Money Market Fund
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;
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(8) Obligations issued or guaranteed by foreign governments or their
political subdivisions, agencies, or instrumentalities; and
(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 for 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 funds' investment practices
and risk considerations. 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
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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. 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. For more about the risks of investing in these countries,
see the SAI.
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
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The Bond Plus Fund can 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 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
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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.
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 in the form of
collateralized mortgage obligations ("CMOs"), mortgage-backed bonds or
pass-through securities sold by private, governmental and government-related
organizations. 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.)
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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.
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 a security's "fair value", as determined in good faith by
or under the direction of the TIAA-CREF Mutual Funds Board of Trustees. We also
may use fair value in certain other circumstances. For more, see the SAI.
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
Types of Accounts
o Individual accounts (for one person) or joint accounts (more than
one person)
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o Trust accounts (other than foreign trust accounts).
o Accounts for a minor child under the Uniform Gift to Minors Act
(UGMA) or Uniform Transfer to Minors Act (UTMA).
o Accounts to fund an Education IRA under Section 530 of the IRC.
(These will be made available beginning around May 1, 1998.)
Earnings from an Education IRA accumulate tax-free. No taxes are due
on withdrawal as long as the money is used to pay the qualified
higher education expenses of a designated beneficiary. Contributions
from all sources can't exceed $500 per beneficiary per year, and
must stop when the beneficiary reaches are 18. The IRC allows
contributions from single filers with annual adjusted gross income
up to $110,000, and joint filers with adjusted gross income up to
$160,000. For more information, call us.
o Corporate/institutional accounts. Please call us for more
information about opening this type of account.
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
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
c/o State Street Bank
P.O. Box 8009
Boston, MA 02266-8009
Overnight Mail: The TIAA-CREF Mutual Funds
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c/o State Street Bank
66 Brooks Drive
Braintree, MA 02184-3839
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. It
will take us about 10 days from the time we receive this information to set up
your automatic investment plan. 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. Telephone
requests can't be modified or cancelled.
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 responsibility.
If reasonable procedures are not used to confirm that instructions communicated
by telephone are genuine, we may
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be liable for any losses due to unauthorized or fraudulent transactions.
All shareholders automatically have the right to buy shares by telephone
(except for Education IRA accounts). If you don't want the telephone purchase
option, you can indicate this on the application or call us at 800 223-1200 any
time after opening your account.
Over the Internet With TIAA-CREF's Inter/ACT system, you can make
electronic withdrawals from your designated bank account to buy additional
shares over the Internet. There is a $100,000 limit on these purchases.
Inter/ACT can be accessed through TIAA-CREF's homepage at www.tiaa-cref.org.
Before you can use Inter/ACT, you must enter your Personal Identification
Number (PIN) and social security number. Inter/ACT will lead you through the
transaction process, and we will use reasonable procedures to confirm that the
instructions given are genuine. All transactions over Inter/ACT are recorded
electronically.
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:
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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.
o If your purchase check does not clear or payment on it is stopped, or if
we do not receive good funds through electronic funds transfer, we will
treat this as a redemption of the shares purchased when your check or
electronic funds were received. You will be responsible for any resulting
loss incurred by any of the funds or Teachers Advisors. If you are already
a shareholder, we can redeem shares from any of your account(s) as
reimbursement for all losses. We also reserve the right to restrict you
from making future purchases in any of the funds. There is a $15 fee for
all returned items, including checks and electronic funds transfers.
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 or automatic investment plan purchase, we may hold the redemption
proceeds for more than seven days. However, we'll hold the proceeds only until
your payment 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
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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 800 223-1200. Once made, your telephone request cannot be modified
or canceled. (Telephone redemptions are not available for Education IRA
accounts.)
We take reasonable precautions to make sure that your telephone
instructions are genuine (see page ). All 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 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 p.m. 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 "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 for each check you write if you
have already written 24 checks in one year.
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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. If you
write a check to redeem shares from the Money Market Fund shortly after you have
sent us a check to purchase Money Market Fund shares, we may refuse payment on
your redemption check if your purchase check has not yet cleared and your Money
Market Fund Account does not otherwise have a sufficient balance to support the
redemption check.
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 $5,000.
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.
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.
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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.
By Telephone You may exchange shares by telephone by calling us at 800
223-1200. Once made, your telephone request cannot be modified or canceled.
TIAA-CREF takes reasonable precautions to make sure that telephone instructions
are genuine (see page ).
Over the Internet. You can exchange shares using TIAA-CREF's Inter/ACT
system, which can be accessed through TIAA-CREF's homepage at
www.tiaa-cref.org. Once made, your Inter/ACT transaction cannot be modified or
cancelled. TIAA-CREF takes reasonable precautions to make sure that Inter/ACT
transactions are genuine. For more about Inter/ACT, 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
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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 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 the New York Stock Exchange closes (usually 4:00 p.m.,
Eastern Standard Time) your price will be the NAV per share for that day. If
it's after the New York Stock Exchange closes, 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
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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 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:
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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.
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.
We reserve the right to correct mistakes made in any report, form or
statement we send you.
Automated Telephone and Internet Services
All shareholders can check fund performance, their account balances or
initiate purchases or exchanges automatically by telephone, using our automated
telephone service ("ATS") or over the Internet, using our Inter/ACT system. 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 or through Inter/ACT are
genuine.
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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 800 223-1200
In writing: TIAA-CREF Mutual Funds
c/o State Street Bank
P.O. Box 8009
Boston, MA 02266-8009
Over the Internet: www.tiaa-cref.org.
Electronic Prospectuses
If you received this prospectus electronically and would like a paper
copy, please contact us and we will send one to you.
TIAA-CREF Mutual Fund's 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 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,
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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, LLC ("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, respectively. 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
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
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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.
Anyone at Teachers Advisors who has direct responsibility and authority
for making investment decisions for TIAA-CREF Mutual Funds is restricted from
trading for his or her own account. The restriction also applies to members of
their households. They must send duplicate confirmation statements and other
brokerage account reports to a special compliance unit, and their transactions
must be approved.
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 Jeffrey Siegel, Managing Director,
Teachers Advisors. Mr. Siegel joined TIAA-CREF in 1988. Mr. Siegel is also
responsible for managing the investments of the CREF Growth Account and the CREF
Global Equities 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 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
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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 joined TIAA-CREF in 1987. Ms. Black is
also responsible for managing the investments in CREF's Bond Market Account.
Performance Information
From time to time, we may advertise total return and/or yield for the
funds. 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.
For more complete information about the Funds' past performance and how we
calculate performance data, see the SAI.
Dividends and Distributions
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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
- ---- -------------
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 gain 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
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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 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 of the prior year.
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. Capital gains may be taxed at one of several different rates. We expect to
designate each year the portions of the TIAA-CREF Mutual Funds' capital gain
distributions that are taxable at these different rates. (Non-resident aliens
will receive these statements later.)
Taxes on transactions. Redemptions -- including exchanges to other funds
- -- are also 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.
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.
"Buying a dividend." If you buy shares just before a fund 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
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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.
Year 2000 Issues
Like other mutual funds, financial and business organizations, and
individuals around the world, TIAA-CREF Mutual Funds could be adversely affected
if the computer systems used by Teachers Advisors and other service providers
(see below) do not properly process and calculate information and data involving
dates from and after January 1, 2000. Teachers Advisors and the Fund are taking
steps that we believe are reasonably designed to address issues involving the
Year 2000 for the computer systems we use. We are also seeking reasonable
assurances that our service providers are taking comparable steps. However,
currently we can't assure you that these steps will be sufficient to avoid any
adverse impact on the Funds.
Distributors
Shares of each fund are offered continuously with no sales load by
Teachers Personal Investors Services, Inc. (TPIS), a wholly-owned indirect
subsidiary of TIAA. TPIS is registered
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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. TPIS'
main office is at 730 Third Avenue, New York, NY 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
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, MA 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.
Householding
To lower costs and eliminate duplicate documents sent to your home, we may,
if the SEC allows, begin mailing only one copy of the TIAA-CREF Mutual Funds
prospectus, prospectus supplements, annual and semi-annual reports, or any other
required documents, to your household, even if more than one shareholder lives
there. If you would prefer to continue receiving your own copy of any of these
documents, you may call us toll-free at 800 223-1200 or write us.
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Statement of Additional Information
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 April 1, 1998
(the Prospectus), which may be obtained by writing us at TIAA-CREF Mutual Funds,
c/o State Street Bank, PO Box 9081, Boston, MA 02266 or by calling 800 223-1200.
Terms used in the Prospectus are incorporated in this Statement.
The date of this SAI is April 1, 1998.
TIAA MUTUAL FUNDS
CREF Ensuring the future for those who shape it.SM
[LOGO]
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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...............
Compensation of Trustees..........................................
Trustee and Officer Compensation..................................
Compensation Table................................................
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...................................................
Options and Futures...............................................
Investments for Which Market Quotations Are Not Readily
Available...................................................
Special Valuation Procedures for the Money Market Fund............
Tax Status..............................................................
Brokerage Allocation....................................................
Calculation of Performance Data.........................................
Total Return Calculations.........................................
Yield Calculations................................................
Total Return......................................................
Performance Comparisons...........................................
Illustrating Compounding..........................................
Net Asset Value...................................................
Moving Averages...................................................
Financial Statements....................................................
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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" below, 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); and
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 registered
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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 of 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 (American style) or at a set time
(European style) 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
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 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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<PAGE>
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
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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
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<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 funds 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," page .
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 securities 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
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<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.
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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 450 million consumers,
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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 370 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
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 further liberalize their economies. However, these changes will
invariably take time and may result in a high degree of social, economic, or
political uncertainty or instability over the short- or long-term. Thus,
although unique investment
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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" -- shifting from natural
resource and agriculture based systems to more technologically advanced systems
oriented toward manufacturing. The major reform of China's economy and polity
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, maintaining extensive trade relationships
throughout the region and globally. Beginning in the latter half of 1997,
currency crises in several countries in the region have resulted in massive
depreciations of the local currency against the U.S. dollar reducing the value
of investments in those countries when translated into dollar terms. The
consequences of such events often involve significantly slower rates of economic
growth and higher inflation rates than previously expected, with associated
adverse behavior in equity markets. Among those countries, Thailand, Indonesia
and South Korea have invited the International Monetary Fund to provide advice
and financial assistance in an effort to stabilize and re-structure these
economies in order to rationalize their financial structures and re-establish
satisfactory rates of economic growth. There can be no assurance that any such
program will be successful. Nor can there be any assurance that the difficulties
experienced by any of these countries will not affect in varying degrees other
countries in the region, or elsewhere in the world. Potential policy
miscalculations could pose important additional 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 by far the most 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
all three 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 55
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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 Uruguay, with Chile as an associate member. Political uncertainty,
relatively high inflation, restrictions on international capital flows,
restrictions in international capital flows and intermittent problems with
capital flight, 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 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
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<PAGE>
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
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
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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
Trustees who are "interested persons" within the definition set forth in
the Investment Company Act of 1940, as amended, are indicated by an asterisk
(*).
Trustees Age Principal Occupations During Past 5
- -------- --- -----------------------------------
Years
-----
Robert H. Atwell 67 President Emeritus, American Counsel
American Council on Education on Education and senior consultant for
Suite 800 A.T. Kearney since November 1996.
One Dupont Circle Previously, president, American
Washington, DC 20036 Counsel on Education.
Elizabeth E. Bailey 59 John C. Hower Professor of Public
The Wharton School Policy and Management, The Wharton
University of Pennsylvania School of the University of
Suite 3100 Pennsylvania.
Steinberg-Dietrich Hall
Philadelphia, PA 19104-6372
John H. Biggs (1) 61 Chairman and Chief Executive Officer,
TIAA-CREF CREF and TIAA, since 1993. President,
730 Third Avenue CREF and TIAA, since 1997.
New York, NY 10017
Gary P. Brinson (1) 54 Member, Group Executive Board, Swiss
Brinson Partners, Inc. Bank Corporation, since 1995. Chief
209 South LaSalle Street Investment Officer, Swiss Bank
Chicago, IL 60604-1295 Corporation, since 1996. President
and Chief Investment Officer, Brinson
Partners, Inc.
Joyce A. Fecske 51 Vice President Emerita, DePaul
4800 South Karlov Avenue University since 1994. Formerly, Vice
Chicago, IL 60632 President for Human Resources, DePaul
University.
Edes P. Gilbert 66 Head, The Spence School.
The Spence School
22 East 91st Street
New York, NY 10128
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Trustees Age Principal Occupations During Past 5
- -------- --- -----------------------------------
Years
-----
Stuart Tse Kong Ho (1) 62 Chairman and President, Capital
Capital Investment of Hawaii, Inc. Investment of Hawaii, Inc.; Chairman,
Suite 1700 Gannett Pacific Corporation.
733 Bishop Street
Honolulu, HI 96813
Nancy L. Jacob (1) 55 President and Managing Partner,
Suite 450, The River Forum Windermere Investment Associates,
4380 S.W. Macadam Avenue since January 1997. Previously,
Portland, OR 97201 Chairman and Chief Executive Officer,
CTC Consulting, Inc. and Managing
Director, Capital Trust Company.
Marjorie Fine Knowles (1) 58 Professor of Law, Georgia State
College of Law University College of Law.
Georgia State University
University Plaza
Atlanta, GA 30303-3092
Martin L. Leibowitz (1) 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 (1) 56 Professor of Business Administration,
Harvard Business School Harvard University Graduate School of
Morgan Hall 489 Business Administration.
Soldiers Field
Boston, MA 02163
Bevis Longstreth (1) 64 Of Counsel, Debevoise & Plimpton,
Debevoise & Plimpton since 1998, Formerly Partner,
875 Third Avenue Debevoise & Plimpton, Adjunct
New York, NY 10022 Professor of Law, Columbia University.
Robert M. Lovell, Jr. (1) 67 Founding Partner, First Quadrant L.P.
First Quadrant L.P. Formerly, Chairman and Chief Executive
100 Campus Drive Officer, First Quadrant Corp.
P.O. Box 939 (Investment Management Firm).
Florham Park, NJ 07932
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Trustees Age Principal Occupations During Past 5
- -------- --- -----------------------------------
Years
-----
Stephen A. Ross (1) 54 Sterling Professor of Economics and
School of Organization Finance, School of Organization and
and Management Management, Yale University, Co-
Yale University Chairman, Roll & Ross Asset
52 Hillhouse Avenue Management Corp.
New Haven, CT 06520
Eugene C. Sit (1) 59 Chairman and Chief Investment
Sit Investment Associates, Inc. Executive Officer, Sit Investment
4600 Norwest Center Associates, Inc. Sit/Kim International
90 South Seven Street Investment Associates, Inc.
Minneapolis, MN 55402
Maceo K. Sloan (1) 48 Chairman, President, and Chief
NCM Capital Management Group, Inc. Executive Officer, Sloan Financial
Suite 400 Group, Inc., and NCM Capital
103 West Main Street Management Group, Inc.
Durham, NC 27701-3638
David K. Storrs (1) 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, CT 06490 President, The Common Fund, since
January 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 (1) 38 Eric J. Gleacher Professor of Finance,
1601 Washington University of Chicago Graduate School
Wilmette, IL 60091 of Business, since 1993. Founding
Partner, LSV Asset Management.
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 the Finance Committee. The Finance Committee oversees the
investments of the TIAA-CREF Mutual Funds.
Officers* Age Position with Principal Occupation(s) During Past
- --------- --- Registrant 5 Years
------------- -----------------------------------
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Thomas G. Walsh 55 President Executive Vice President, TIAA and
CREF, and President, Teachers
Personal Investors Services, Inc.
("TPIS").
Scott C. Evans 38 Executive Executive Vice President, TIAA and
Vice President CREF, Advisors and Investment
Management since
September 1997.
Previously, Managing
Director, TIAA, CREF,
Advisors and Investment
Management from March
1997 to September 1997.
Previously, Second Vice
President, TIAA and CREF,
Advisors and Investment
Management.
Richard L. Gibbs 51 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").
Albert J. Wilson Secretary Vice President and Chief Counsel,
Corporate Secretary, TIAA and
CREF.
Richard J. Adamski 56 Vice President Vice President and Treasurer, TIAA
and Treasurer and CREF, Investment Management,
Advisors, TPIS and Services.
- ----------
* The address for all Officers of the TIAA-CREF Mutual Funds is 730 Third
Avenue, New York, NY 10017-3206.
Trustee and Officer Compensation
The following table shows the compensation received from the Funds and the
TIAA-CREF fund complex for each non-officer Trustee for the year ended December
31, 1997. The Funds' officers receive no compensation from any fund in the
TIAA-CREF Fund complex. Neither trustees nor officers received any retirement
benefits or other deferred compensation for their service to the Funds in 1997.
The TIAA-CREF complex consists of three investment companies: College Retirement
Equities Fund, TIAA Separate Account VA-1 and TIAA-CREF Mutual Funds.
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<PAGE>
Aggregate Compensation Total Compensation
Name from the Fund from TIAA-CREF complex
- ---- ------------- ----------------------
Atwell $ 48.09 $ 43,000
Bailey $ 46.08 $ 47,000
Brinson $ 25.05 $ 24,000
Fecske $ 33.93 $ 31,000
Gilbert $ 38.08 $ 34,000
Ho $ 33.81 $ 29,000
Jacob $ 36.30 $ 30,000
Knowles $ 39.21 $ 36,000
Light $ 35.81 $ 29,000
Longstreth $ 29.67 $ 30,000
Lovell $ 40.44 $ 33,000
Ross $ 29.55 $ 28,000
Sit $ 42.57 $ 36,000
Sloan $ 49.18 $ 41,000
Spindler $ 41.34 $127,000
Storrs $ 46.68 $ 38,000
Vishny $ 40.31 $ 31,000
Control Persons
TIAA, as the contributor of the initial capital for each of the funds,
owned the following percentages of the shares of each fund as of March 16, 1998:
International Equity 74.8%
Growth Equity 45.7%
Growth & Income 48.0%
Bond Plus 43.5%
Money Market 60.6%
Managed Allocation 69.2%
Investment Advisory and Other Services
As explained in the Prospectus, investment advisory 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
23
<PAGE>
Board of Trustees. As the prospectus describes, Advisors has agreed to waive a
portion of its fee for managing each fund.
Advisory fees are payable monthly to Teachers Advisors. They are
calculated as a percentage of the average value of the net assets each day for
each Fund, and are accrued daily proportionately at 1/365th (1/366th in a leap
year) of the rates set forth in the prospectus. During 1997, the total dollar
amount of expenses for each Fund, before and after the waiver, attributable to
advisory fees were as follows (there are no investment advisory fees payable for
the Managed Allocation Account):
Gross Waived Net
----- ------ ---
International Equity Fund $215,768 $108,974 $106,794
Growth Equity Fund $229,041 $120,548 $108,493
Growth & Income Fund $222,604 $119,679 $102,925
Bond Plus Fund $190,656 $119,160 $ 71,496
Money Market Fund $191,153 $120,983 $ 70,170
The custodian for the assets of the TIAA-CREF Mutual Funds is State Street
Bank, 225 Franklin Street, Boston, MA 02209. As described in the Prospectus,
State Street Bank also provides other administrative services for the TIAA-CREF
Mutual Funds.
Ernst & Young, LLP, 787 7th Avenue, New York, NY 10019, serve 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, LLC ("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
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<PAGE>
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.
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
25
<PAGE>
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 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
26
<PAGE>
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.
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. Such an equity security may
also be valued at fair value as determined in good faith by the Finance
Committee of the Board of Trustees if events materially affecting its value
occur between the time its price is determined and the time a Fund's net asset
value is calculated.
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
27
<PAGE>
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 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.
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<PAGE>
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
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.
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<PAGE>
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.
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 qualifies 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) a fund must distribute to its
shareholders 90% of its ordinary income and net short-term capital gains
(undistributed net income may be subject to tax at the level); and (c) 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
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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 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, which dividends are treated as paid on the prior 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
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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 consists of 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 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
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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 laws, 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 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
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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.
The aggregate amount of brokerage commissions paid by the Funds during
1997 was as follows:
Fund Commissions
---- -----------
Growth & Income $ 8,614
International Equity $229,055
Growth Equity $ 13,817
During 1997, certain of the Funds acquired securities of certain of the
regular brokers or dealers or their parents. These entities and the value of a
Fund's aggregate holdings in the securities of those entities are set forth
below:
1. Regular Broker or Dealer Based on Brokerage Commissions Paid
Account Broker Parent Holdings (US$)
------- ------ ------ --------------
Growth & Income Merrill Lynch, Pierce, Merrill Lynch & Co., Inc. 167,756.25
Fenner Smith
International Societe Generale S.A. Societe Generale S.A. 149,936.93
Equity UBS Securities Inc. Union Bank of Switzerland 289,602.51
Growth Equity Merrill Lynch, Pierce, Merrill Lynch & Co., Inc. 131,287.50
Fenner Smith
Morgan Stanley & Morgan Stanley, Dean 47,300.00
Co., Inc. Witter, Discover
2. Regular Broker or Dealer Based on Entities Acting as Principal
Account Broker Parent Holdings (US$)
------- ------ ------ --------------
Growth & Income Morgan (J.P.) Morgan (J.P.) & Co., Inc. 146,737.50
Securities Corp.
Morgan Stanley Morgan Stanley, Dean 230,587.50
& Co., Inc. Witter, Discover
International Credit Suisse Credit Suisse Group 294,401.79
Equity First Boston
Growth Equity Merrill Lynch, Pierce, Merrill Lynch & Co., Inc. 131,287.50
Fenner & Smith
Morgan Stanley & Morgan Stanley, Dean 47,300.00
Co., Inc. Witter, Discover
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 conditions and other factors, and the value of fund shares when redeemed
may be more or less than their original cost.
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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 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
35
<PAGE>
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 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-
36
<PAGE>
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.
Total Return
Set forth below is total return information for the Funds, which reflects all
expense deductions from Fund assets, applied to a hypothetical investment of
$1,000 in each Fund:
International Equity Fund
Period Cumulative Total Return
- ------ -----------------------
October 1, 1997 to -7.56%
December 31, 1997
Since inception -2.30%
(September 2, 1997 to
December 31, 1997)
37
<PAGE>
Growth Equity Fund
Period Cumulative Total Return
- ------ -----------------------
October 1, 1997 to 2.70%
December 31, 1997
Since inception 8.19%
(September 2, 1997 to
December 31, 1997)
Growth & Income Fund
Period Cumulative Total Return
- ------ -----------------------
October 1, 1997 to 2.80%
December 31, 1997
Since inception 8.38%
(September 2, 1997 to
December 31, 1997)
Managed Allocation Fund
Period Cumulative Total Return
- ------ -----------------------
October 1, 1997 to 1.57%
December 31, 1997
Since inception 5.39%
(September 2, 1997 to
December 31, 1997)
Bond Plus Fund
Period Cumulative Total Return
- ------ -----------------------
October 1, 1997 to 3.03%
December 31, 1997
Since inception 4.51%
(September 2, 1997 to
December 31, 1997)
38
<PAGE>
Money Market Fund
Period Cumulative Total Return
- ------ -----------------------
October 1, 1997 to 1.38%
December 31, 1997
Since inception 1.85%
(September 2, 1997 to
December 31, 1997)
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 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 indices 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.
39
<PAGE>
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. Currently there are no sales charges.
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 LLP, Washington, DC.
Experts
The financial statements incorporated by reference in this Statement of
Additional Information have been audited by Ernst & Young LLP, independent
auditors, as stated in their report appearing therein and have been so
incorporated by reference in reliance upon the report of such firm given upon
its authority as experts in accounting and auditing.
40
<PAGE>
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 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 the TIAA-CREF Mutual Funds are
incorporated herein by reference to the Funds' Annual Report for the year ended
December 31, 1997, which has been filed with the Securities and Exchange
Commission and provided to all shareholders. We will furnish you, without
charge, another copy of the Annual Report on request.
41
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements (for each Fund)
The audited financial statements and statements of investments of the
TIAA-CREF Mutual Funds for the year ended December 31, 1997 are
incorporated into Part B of this Registration Statement by reference to
pages 16 through 57 of the Funds' Annual Report to Shareholders, filed
with the Securities and Exchange Commission on Form N-30D pursuant to
Rule 30d-1 under the Investment Company Act of 1940 on February 25,
1998.
(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.**
(11) (a) Consent of Sutherland, Asbill & Brennan LLP**
(b) Consent of Ernst & Young LLP**
(12) N/A
(13) Seed Money Agreement between TIAA and TIAA-CREF Mutual
Funds*
(14) N/A
<PAGE>
(15) N/A
(16) Schedule of Computation of Total Return Information**
(17) Financial Data Schedules**
(18) N/A
- ----------
* Previously filed as an exhibit to Pre-Effective Amendment No. 1 to the
Funds' Registration Statement, filed on August 5, 1997 (File No. 333-21821).
** Filed herewith.
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.
BT Properties, Inc.
Chesapeake Investors, Inc.
College Credit Trust
Country Commons Doylestown Trust
Country Commons Joint Venture Trust
DAN Properties, Inc.
Florida Teachers Properties, Inc.
Illinois Teachers Properties, Inc.
JV California Two, Inc.
JV California Three, Inc.
JV Florida One, Inc.
JV Florida Four, Inc.
JV Georgia One, Inc.
JV Indiana Three, Inc.
JV Maryland One, Inc.
JV Michigan One, Inc.
JV Michigan Two, Inc.
JV Michigan Three, Inc.
JV Minnesota One, Inc.
JV Missouri One, Inc.
JV North Carolina One, Inc.
JV Virginia One, Inc.
JV Virginia Two, Inc.
JV Virginia Three, Inc.
JWL Properties, Inc.
Liberty Place Retail, Inc.
Macallister Holdings, Inc.
Mass. Norwood Properties, Inc.
Minnesota Teachers Realty Corp.
MN Properties, Inc.
M.O.A. Enterprises, Inc.
MRC Properties, Inc.
ND Properties, Inc.
New Jersey Teachers Properties, Inc.
Reserve Management, Inc.
Rouse-Teachers Properties, Inc.
Savannah Teachers Properties, Inc.
T-Investment Properties Corp.
T-Land Corp.
T-Las Colinas Towers Corp.
TCT Holdings, Inc.
Teachers Advisors, Inc.
Teachers Boca Properties II, Inc.
Teachers Pennsylvania Realty, Inc.
Teachers Personal Investors Services,
Inc.
Teachers Properties, Inc.
Teachers REA, Inc.
Teachers REA II, Inc.
Teachers Realty Corporation
Tethys Slu, Inc.
TIAA-CREF Individual & Institutional
Services, Inc.
TIAA-CREF Investment Management, LLC
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.
485 Properties, LLC
TED-NP, LLC
<PAGE>
(1) All subsidiaries are Delaware corporations except as
follows:
A) Pennsylvania non-stock, non-profit corporations:
Liberty Place Retail, Inc.
Teachers Pennsylvania Realty, Inc.
Teachers Realty Corporation
B) Minnesota Teachers Realty Corporation is a Minnesota
corporation.
C) All Trusts are Pennsylvania business trusts, except College
Credit Trust, a New York Trust.
(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.
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 indirectly 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.
<PAGE>
C) TIAA-CREF Investment Management, LLC, 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.
F) TCT Holdings, Inc.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest 34,653
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 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
<PAGE>
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 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, LLC (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
<PAGE>
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 10017-3206.
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, WA 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 NY
10017-3206, at other offices of the Registrant located at 750 Third Avenue and
485 Lexington Avenue, both in New York, NY 10017-3206, and at the offices of the
Registrant's custodian, State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02110. In addition, certain duplicated records are maintained
at Pierce Leahy Archives, 64 Leone Lane, Chester, NY 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, 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
<PAGE>
Registrant undertakes the following:
(a) Not Applicable;
(b) Not Applicable;
(c) To furnish each person to whom a prospectus is delivered a copy of the
Funds' latest annual report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant, TIAA-CREF Mutual Funds, certifies
that it meets the requirements of Securities Act Rule 485(b) for effectiveness
of this registration statement and 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 20th day of March, 1998.
TIAA-CREF MUTUAL FUNDS
By:/s/ Peter C. Clapman
-------------------------,
Name: Peter C. Clapman
Title: Senior Vice President
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 3/20/98
- ------------------- (Principal Executive Officer)
Thomas G. Walsh
/s/ Scott C. Evans Executive Vice President 3/20/98
- ------------------ (Principal Financial Officer)
Scott C. Evans
/s/ Richard L. Gibbs Executive Vice President 3/20/98
- -------------------- (Principal Accounting Officer)
Richard L. Gibbs
<PAGE>
SIGNATURE OF TRUSTEE DATE SIGNATURE OF TRUSTEE DATE
- -------------------- ---- -------------------- ----
/S/ ROBERT H. ATWELL 3/20/98 /S/ BEVIS LONGSTRETH 3/20/98
- -------------------- --------------------
Robert H. Atwell Bevis Longstreth
/S/ ELIZABETH E. BAILEY 3/20/98 /S/ ROBERT M. LOVELL, JR. 3/20/98
- ----------------------- -------------------------
Elizabeth E. Bailey Robert M. Lovell, Jr.
- -------------------- --------------------
Gary P. Brinson Stephen A. Ross
/S/ JOYCE A. FESCKE 3/20/98 /S/ EUGENE C. SIT 3/20/98
- -------------------- --------------------
Joyce A. Fescke Eugene C. Sit
/S/ EDES P. GILBERT 3/20/98 /S/ MACEO K. SLOAN 3/20/98
- -------------------- --------------------
Edes P. Gilbert Maceo K. Sloan
/S/ STUART TSE KONG HO 3/20/98 /S/ DAVID K. STORRS 3/20/98
- ---------------------- --------------------
Stuart Tse Kong Ho David K. Storrs
/S/ NANCY L. JACOB 3/20/98 /S/ ROBERT W. VISHNY 3/20/98
- -------------------- --------------------
Nancy L. Jacob Robert W. Vishny
/S/ MARJORIE FINE KNOWLES 3/20/98 /S/ JAY O. LIGHT 3/20/98
- ------------------------- --------------------
Marjorie Fine Knowles Jay O. Light
TIAA Teachers Insurance and Annuity Association Charles H. Stamm
CREF College Retirement Equities Fund Executive Vice
[LOGO] 730 Third Avenue President and
New York, NY 10017-3206 General Counsel
(212) 916-4700
March 20, 1998
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 post-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 to my 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. 20004-2415
Tel: (202) 383-0100 Steven B. Boehm
Fax: (202) 637-3593 Direct Line: (202) 383-0176
March 17, 1998
Via EDGAR Transmission
The Board of Trustees
TIAA-CREF Mutual Funds
730 Third Avenue
New York, NY 10017-3206
RE: TIAA-CREF Mutual Funds
(File Nos. 333-22809 and 811-08055)
-----------------------------------
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the statement of additional information filed as a part of the
above-referenced registration statement on Form N-1A for the TIAA-CREF Mutual
Funds. 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
Enclosure
cc: Laura Bramson, Esq./TIAA-CREF
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Investment Advisory and Other Services" and to the use of our
report dated February 6, 1998, which is incorporated by reference in this
Registration Statement (Form N-1A 333-21821) of TIAA-CREF Mutual Funds.
ERNST & YOUNG LLP
New York, New York
March 23, 1998
TIAA-CREF MUTUAL FUNDS
Schedule of Computation of
Total Return Information
10/1/97 - 12/31/97 9/2/97 - 12/31/97
INTERNATIONAL FUND
P = Hypothetical initial payment $1,000.00 $1,000.00
ERV = Ending redeemable value 924.35 977.00
n = Number of years N/A N/A
T = Average total return -7.56% -2.30%
(T = (ERV-P)/P)
GROWTH EQUITY
P = Hypothetical initial payment $1,000.00 $1,000.00
ERV = Ending redeemable value 1,026.97 1,081.93
n = Number of years N/A N/A
T = Average total return 2.70% 8.19%
(T = (ERV-P)/P)
GROWTH & INCOME
P = Hypothetical initial payment $1,000.00 $1,000.00
ERV = Ending redeemable value 1,028.04 1,083.76
n = Number of years N/A N/A
T = Average total return 2.80% 8.38%
(T = (ERV-P)/P)
MANAGED ALLOCATION
P = Hypothetical initial payment $1,000.00 $1,000.00
ERV = Ending redeemable value 1,015.75 1,053.85
n = Number of years N/A N/A
T = Average total return 1.57% 5.39%
(T = (ERV-P)/P)
BOND PLUS
P = Hypothetical initial payment $1,000.00 $1,000.00
ERV = Ending redeemable value 1,030.32 1,045.05
n = Number of years N/A N/A
T = Average total return 3.03% 4.51%
(T = (ERV-P)/P)
MONEY MARKET
P = Hypothetical initial payment $1,000.00 $1,000.00
ERV = Ending redeemable value 1,013.76 1,018.52
n = Number of years N/A N/A
T = Average total return 1.38% 1.85%
(T = (ERV-P)/P)
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