File Nos. 333-21821, 811-08055
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 2000
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. 5 [X]
and
Registration Statement Under the Investment Company Act of 1940 [X]
Amendment No. 7 [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
75 Pennsylvania Avenue, N.W.
Washington, D. C. 20004- 2415
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 [ ] On (date) pursuant to paragraph (b)
paragraph (b)
[ ] 60 days after filing pursuant to [X] On April 1, 2000 pursuant
paragraph (a)(1) to paragraph (a)(1)
[ ] 75 days after filing pursuant to [ ] On (date) pursuant to paragraph
paragraph (a)(2) (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.
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PROSPECTUS, DATED , 2000
TIAA-CREF Mutual Funds
International Equity Fund
Growth Equity Fund
Growth & Income Fund
Equity Index Fund
Social Choice Equity Fund
Managed Allocation Fund
Bond Plus Fund
Short-Term Bond Fund
High-Yield Bond Fund
Tax-Exempt Bond Fund
Money Market Fund
The Securities and Exchange Commission has not approved or disapproved these
funds' shares or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
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TABLE OF CONTENTS
Summary Information
Investment Objectives, Strategies and Risks...........................
The Dual Investment Management Strategy......................
Past Performance......................................................
Fees and Expenses.....................................................
More Information About the Funds...............................................
General Investment Risks..............................................
The Equity Funds......................................................
The Dual Investment Management Strategy......................
The International Equity Fund................................
The Growth Equity Fund.......................................
The Growth & Income Fund.....................................
The Equity Index Fund........................................
The Social Choice Equity Fund................................
Additional Investment Strategies for the Equity Funds........
The Managed Allocation Fund...........................................
The Fixed Income Funds................................................
The Bond PLUS Fund...........................................
The Short-Term Bond Fund.....................................
The High-Yield Bond Fund.....................................
The Tax-Exempt Bond Fund.....................................
Additional Investment Strategies for the Bond Funds..........
The Money Market Fund........................................
TIAA-CREF Mutual Funds' Management.............................................
Personal Trading Policy...............................................
Calculating Share Price........................................................
Dividends and Distributions....................................................
Taxes .........................................................................
Your Account: Buying, Selling or Exchanging Shares.............................
Types of Accounts.....................................................
How to Open an Account and Make Subsequent Investments................
How to Redeem Shares..................................................
How to Exchange Shares................................................
Other Investor Information............................................
Electronic Prospectuses........................................................
Financial Highlights...........................................................
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SUMMARY INFORMATION
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
TIAA-CREF Mutual Funds has 11 investment portfolios. An investor can
lose money in any of these funds, or the funds could underperform other
investments. The funds are subject to the following general risks:
o Market Risk - Stock prices in general can decline over short or
extended periods as a result of political or economic events.
o Company Risk - A company's current earnings can fall or its overall
financial soundness may decline. As a result, the price of its stock
may go down, or it may not be able to pay principal and interest on its
bonds when due. The inability to pay principal and interest on bonds
when due is also referred to as Credit Risk.
o Interest Rate Risk - Bond prices may fall as interest rates rise.
o Current Income Risk - For income funds, this is the risk that falling
interest rates will cause the fund's income to decline.
o Foreign Investment Risk - Investing in securities traded on foreign
exchanges or in foreign markets can involve special risks. For example,
changes in currency exchange rates, the possible imposition of market
controls, currency exchange controls or foreign taxes, lower liquidity
and higher volatility in some foreign markets and/or political, social
or diplomatic events could reduce the value of a fund's investments.
Investments in the funds are not deposits of the TIAA-CREF Trust
Company FSB and aren't insured or guaranteed by the Federal Deposit Insurance
Corporation (FDIC) or any other government agency.
Special risks associated with particular funds are discussed in the
following summaries of each fund's objectives, strategies and policies.
THE DUAL INVESTMENT MANAGEMENT STRATEGY
Three of the equity funds, the Growth Equity, Growth & Income, and
International Equity Funds, use TIAA-CREF's Dual Investment Management Strategy.
Each fund has a "Stock Selection" and an "Enhanced Index" subportfolio. The
Stock Selection subportfolio holds a relatively small number of stocks that we
believe offer superior returns. These stocks are chosen using fundamental
analysis. The rest of the fund is invested in the Enhanced Index subportfolio,
which seeks to outperform each fund's benchmark index, while limiting the
possibility of underperforming the benchmark. Using the Dual Investment
Strategy, we have the flexibility to allocate amounts between the Stock
Selection subportfolio and the Enhanced Index subportfolio, based upon
investment opportunities that we determine to be available at any particular
time. This approach enables the funds to stay invested even when we cannot find
sufficient investment opportunities for the Stock Selection portfolio.
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INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE The fund seeks favorable long-term
returns, mainly through capital
appreciation.
PRINCIPAL INVESTMENT
STRATEGIES The fund invests in a broadly diversified
portfolio of primarily foreign equity
investments, using the Dual Investment
Management Strategy. For the Stock Selection
subportfolio, the fund selects individual
stocks, and lets the fund's country and
regional asset allocation evolve from its
stock selection. The fund looks for
companies of all sizes that meet a number of
criteria including sustainable growth,
consistent cash flow and attractive stock
prices based on current earnings, assets and
long-term growth prospects. The benchmark
index for the fund is the Morgan Stanley
Capital International EAFE(R)(Europe,
Australasia, Far East) Index.
SPECIAL INVESTMENT
RISK Foreign investment risk is the most
important risk of investing in this fund.
Changes in currency exchange rates, the
possible imposition of market controls ,
currency exchange controls or foreign taxes,
lower liquidity and higher volatility in
some foreign markets and/or political,
social or diplomatic events could reduce the
value of the fund's investments. These risks
may be even more pronounced for the fund's
investments in emerging market countries.
WHO MAY WANT TO INVEST The fund may be appropriate for investors
who seek above-average long-term returns,
understand the advantages of diversification
across international markets and are willing
to tolerate the greater risks of
international investing. The risk of
investing in the fund relative to the
potential rewards is moderate to high.
4
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GROWTH EQUITY FUND
INVESTMENT OBJECTIVE The 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.
PRINCIPAL INVESTMENT
STRATEGIES The fund invests in stocks of companies in
new and emerging areas of the economy and
companies with distinctive products or
promising market conditions, using the Dual
Investment Management Strategy. For its
Stock Selection subportfolio, the fund looks
for companies that 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. It can invest in companies to
benefit from prospective acquisitions,
reorganizations, or corporate restructurings
or other special situations. Foreign
investments can be up to 40 percent of the
portfolio. The benchmark index for the fund
is the Russell 3000(R) Growth Index (Russell
3000 is a trademark and a service mark of
the Frank Russell Company).
SPECIAL INVESTMENT
RISKS The fund may sometimes hold a significant
amount of stocks of smaller, lesser-known
companies whose stock prices may fluctuate
more than those of larger companies. Also,
stocks of companies involved in
reorganizations and other special situations
can often involve more risk than ordinary
securities. This means the fund will
probably be more volatile than the overall
stock market.
WHO MAY WANT TO INVEST The fund may be appropriate for investors
who are looking for long-term capital
appreciation and a hedge against inflation,
but are willing to tolerate fluctuations in
value. The risk of investing in the fund
relative to the potential rewards is
moderate to high.
5
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GROWTH & INCOME FUND
INVESTMENT OBJECTIVE The fund seeks a favorable long-term return
through capital appreciation and investment
income.
PRINCIPAL INVESTMENT
STRATEGIES The fund invests in a broadly diversified
portfolio of common stocks selected for
their investment potential, using the Dual
Investment Management Strategy. For its
Stock Selection subportfolio, the fund looks
primarily for stocks of larger,
well-established, mature growth companies
which we believe are attractively priced,
show the potential to grow faster than the
rest of the market, and offer a growing
stream of dividend income. 80 percent of the
fund's assets are in income-producing equity
securities. The fund may also invest in a
few rapidly growing smaller companies and
may have up to 20 percent of assets in
foreign securities. The benchmark index for
the fund is the S&P 500 Composite Stock
Index.
SPECIAL INVESTMENT
RISKS Stocks paying relatively high dividends may
significantly underperform other stocks
during periods of rapid market appreciation.
WHO MAY WANT TO INVEST The fund may be appropriate for investors
who want capital appreciation and current
income but also can accept the risk of
market fluctuations. The risk of investing
in the fund relative to its potential
rewards is moderate.
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EQUITY INDEX FUND
INVESTMENT OBJECTIVE The fund seeks a favorable long-term rate of
return from a diversified portfolio selected
to track the overall market for common
stocks publicly traded in the U.S., as
represented by a broad stock market index.
PRINCIPAL INVESTMENT
STRATEGIES The fund is designed to track U.S. equity
markets as a whole and invest in stocks in
the Russell 3000(R) Index. The fund uses a
sampling approach to create a portfolio that
closely matches the overall investment
characteristics (for example, yield and
industry weight) of the index without
actually investing in all 3,000 stocks in
the index.
SPECIAL INVESTMENT RISKS While the fund attempts to closely track the
Russell 3000(R) Index, it does not invest in
all 3,000 stocks in the index. Thus there is
no guarantee that the performance of the
fund will match that of the index.
WHO MAY WANT TO INVEST The fund may be appropriate for investors
who seek a fund that tracks the return of a
broad U.S. equity market index. The risk of
investing in the fund relative to its
potential rewards is moderate.
7
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SOCIAL CHOICE EQUITY FUND
INVESTMENT OBJECTIVE The fund seeks a favorable long-term rate of
return that tracks the investment
performance of the U.S. stock market while
giving special consideration to certain
social criteria.
PRINCIPAL INVESTMENT
STRATEGIES The fund invests primarily in a diversified
set of common stocks. The fund attempts to
track the return of the U.S. stock market as
represented by the S&P 500 Index, while
investing only in companies whose activities
are consistent with the fund's social
criteria. It does this primarily by
investing in S&P 500 companies that are not
excluded by the fund's social criteria, so
that the fund's portfolio approaches the
overall investment characteristics (E.G.,
yield and industry weight) of the S&P 500.
SPECIAL INVESTMENT RISKS Because its social criteria exclude some
investments, this fund may not be able to
take advantage of the same opportunities or
market trends as do the funds that don't use
such criteria.
WHO MAY WANT TO INVEST The fund may be appropriate for investors
who seek an equity investment that is
generally broad-based but excludes companies
that engage in certain activities. The risk
of investing in the fund relative to its
potential rewards is moderate.
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MANAGED ALLOCATION FUND
INVESTMENT OBJECTIVE The fund seeks a return that reflects the
broad investment performance of the
financial markets through capital
appreciation and investment income.
PRINCIPAL INVESTMENT
STRATEGIES The fund invests in the TIAA-CREF Mutual
Funds' other investment funds. Usually, the
fund will invest approximately 60 percent of
its assets in the Growth & Income,
International Equity and Growth Equity and
approximately 40 percent in the Bond PLUS,
Short Term Bond or High-Yield Bond Funds. As
a result, the fund holds a mix of domestic
stocks of companies of all sizes, foreign
stocks, and bonds of varying maturities and
credit qualities. When changes in financial
and economic conditions affect the relative
attractiveness of the markets in which those
underlying funds are invested, we will
adjust these percentages up and down by up
to 15 percent. For example, we would
increase the fund's fixed income holdings
whenever we believe the equity markets will
decline, or reduce the fund's holdings in
the International Equity Fund when we
believe foreign markets are unusually
volatile.
SPECIAL INVESTMENT
RISKS The fund shares the risks of the funds it
invests in. For its investments in the
International Equity Fund, it is subject to
the special risks of foreign investing. The
fund's investments in the Growth Equity Fund
are subject to the risk that stocks of
smaller, lesser-known companies whose stock
prices may fluctuate more than those of
larger companies. Investments in the Growth
& Income Fund are subject to the risk that
stocks paying relatively high dividends may
significantly underperform other stocks
during periods of rapid market appreciation.
For the fund's investments in the Bond PLUS
and High-Yield Bond Funds, it is subject to
the risks of investments in non-investment
grade securities (also called "high-yield"
or "junk" bonds) and in mortgage-backed
securities. Because the Managed Allocation
Fund invests in the securities of a limited
number of other mutual funds, it is
considered "nondiversified" for purposes of
the 1940 Act. However, the funds in which
the Managed Allocation Fund invests are
themselves considered diversified investment
companies.
WHO MAY WANT TO INVEST The fund may be appropriate for investors
who prefer to have their asset allocation
decisions made by professional money
managers. The fund is suitable for investors
with medium to long-term time horizons and
who seek broad diversification. The risk of
investing in the fund relative to its
potential rewards is moderate.
9
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BOND PLUS FUND
INVESTMENT OBJECTIVE The fund seeks a favorable long-term return,
primarily through high current income
consistent with preserving capital.
PRINCIPAL INVESTMENT
STRATEGIES The fund's portfolio is divided into two
segments. The first segment, which makes up
at least 75 percent of the fund, is invested
primarily in a broad range of the debt
securities in the Lehman Brothers Aggregate
Bond Index. The majority of this segment is
invested in U.S. Treasury and Agency
securities, corporate bonds and
mortgage-backed securities. The fund is
managed to track the duration of the Lehman
Index. (Duration is a measure of the change
in the value of a bond portfolio in response
to a change in interest rates.) The fund
holds mainly investment grade securities
rated in the top four credit categories by
Moody's or Standard & Poor's. The fund will
overweight or underweight individual
securities or sectors as compared to their
weight in the Lehman Index depending on
where we find undervalued, overlooked or
misunderstood issues that we believe offer
the potential for superior returns. The
fund's second segment seeks enhanced returns
through investments in illiquid securities
(such as "Rule 144A" private placements) or
non-investment grade securities, but
investments in illiquid securities won't be
more than 15 percent of the fund's assets.
SPECIAL INVESTMENT
RISKS The fund is subject to general interest rate
risk, credit risk and current income risk
for fixed income securities. Interest rate
risk is the possibility that prices of bonds
held by the fund may decline if interest
rates rise. For example, if interest rates
rise by 1 percent, the market value of a
portfolio with a duration of 5 years would
decline by approximately 5 percent.
Investments in mortgage-backed securities
are subject to extension and prepayment
risk. Extension risk is the risk that an
unexpected rise in prevailing interest rates
will extend the life of an outstanding
mortgage-backed security by reducing the
expected number of mortgage prepayments,
typically reducing the security's value.
Prepayment risk is the possibility that a
decline in interest rates causes the holders
of the underlying mortgages to pay off their
mortgage loans sooner than expected. If that
happened, the fund would have to reinvest
the amounts that had been invested in the
mortgage-backed securities, possibly at a
lower rate of return.
Non-investment grade securities (also called
"high-yield" or "junk" bonds) involve higher
risks than investment grade bonds. Their
issuers may be less creditworthy and/or have
a higher risk of becoming insolvent. The
fund's investments in illiquid securities
may be difficult to sell for their fair
market value.
WHO MAY WANT TO INVEST The fund may be appropriate for more
conservative investors who want to invest in
a general bond fund that has the potential
for a higher yield and a slightly higher
level of risk than a traditional bond fund.
The risk of investing in the fund relative
to its potential rewards is low to moderate.
10
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SHORT-TERM BOND FUND
INVESTMENT OBJECTIVE The fund seeks high current income
consistent with preservation of capital.
PRINCIPAL INVESTMENT
STRATEGIES The fund invests primarily in a broad range
of debt securities that make up the Lehman
Brothers Mutual Fund Short (1-5 year)
Government/Corporate Index. These are
primarily U.S. Treasury and Agency
securities and corporate bonds with 1-5 year
maturities. The fund can also hold foreign
corporate bonds, debentures and notes,
mortgage-backed securities, asset-backed
securities, convertible securities and
preferred stocks. The fund is managed to
track the duration of the Lehman Index.
(Duration is a measure of the change in the
value of a bond portfolio in response to a
change in interest rates.) The fund may
overweight or underweight individual
securities or sectors as compared to their
weight in the Lehman Index, or hold
securities not in the index, depending on
where we find undervalued, overlooked or
misunderstood issues that we believe offer
the potential for superior returns.
SPECIAL INVESTMENT RISKS The fund is subject to general interest rate
risk, credit risk and current income risk
for fixed income securities. Interest rate
risk is the possibility that prices of bonds
held by the fund may decline if interest
rates rise. For example, if interest rates
rise by 1 percent, the market value of a
portfolio with a duration of 2.5 years would
decline by approximately 2.5 percent.
Current income risk, the risk that income
from the fund's investments will decline if
prevailing interest rates decline, is
particularly significant for this fund. The
fund's investments in mortgage-backed
securities are subject to extension and
prepayment risk. Extension risk is the risk
that an unexpected rise in prevailing
interest rates will extend the life of an
outstanding mortgage-backed security by
reducing the expected number of mortgage
prepayments, typically reducing the
security's value. Prepayment risk is the
possibility that a decline in interest rates
causes the holders of the underlying
mortgages to pay off their mortgage loans
sooner than expected. If that happened, the
fund would have to reinvest the amounts that
had been invested in the mortgage-backed
securities, possibly at a lower rate of
return.
WHO MAY WANT TO INVEST The fund may be appropriate for more
conservative investors who seek to minimize
volatility of changes in principal value.
The risk of investing in the fund relative
to its potential rewards is low.
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HIGH-YIELD BOND FUND
INVESTMENT OBJECTIVE The fund seeks high current income and, when
consistent with its primary objective,
capital appreciation.
PRINCIPAL INVESTMENT
STRATEGIES The fund invests primarily in lower-rated,
higher-yielding income bearing debt
securities, such as domestic and foreign
corporate bonds, debentures, loans and
notes, as well as convertible securities and
preferred stocks. Under normal market
conditions, the fund invests at least 80
percent of its assets in securities rated
lower than investment grade (and their
unrated equivalents) or other high-yielding
securities. These are often called "junk
bonds". Most of these investments will be
rated in the BB or B categories. The fund
may invest up to 20 percent of its assets in
the following other types of instruments:
payment in kind or deferred interest
obligations, defaulted securities,
asset-backed securities, securities rated
below B- and illiquid securities. The fund
can also hold U.S. treasury and agency
securities whenever suitable corporate
securities aren't available or we want to
increase the fund's liquidity. Up to 15
percent of the fund's assets can be invested
in securities of foreign issuers.
Investments in illiquid securities will
never be more than 15 percent of the fund's
assets. The securities the fund owns will
usually have maturities of ten years or
less.
SPECIAL INVESTMENT RISKS The fund is subject to above-average
interest rate risk and credit risk.
Investors should expect greater fluctuations
in share price, yield and total return
compared to mutual funds holding bonds and
other income bearing securities with higher
credit ratings and/or shorter maturities.
These fluctuations, whether positive or
negative, may be sharp and unanticipated.
During the periods when the market for
high-yield securities is volatile, it may be
difficult for the fund to buy or sell its
securities. This fund entails a
significantly higher level of risk of loss
of invested funds than bond funds that don't
invest primarily in lower-rated debt
securities.
Issuers of "junk" bonds are typically in
weak financial or operational health and
their ability to pay interest and principal
is uncertain. Compared to issuers of
investment grade securities, they are more
likely to encounter financial difficulties
and to be materially affected by these
difficulties when they do encounter them.
"Junk" bond markets may react strongly to
adverse news about an issuer or the economy,
or to the perception or expectation of
adverse news.
Current income risk can also be significant
for this fund. The fund's investments in
illiquid securities may be difficult to sell
for their fair market value.
WHO MAY WANT TO INVEST The fund may be appropriate for less
conservative investors who want to invest in
an income fund that has a potential for a
significantly higher yield than funds
investing primarily in investment grade
securities and who are willing to accept a
significantly higher level of risk. The fund
may also be appropriate for investors who
seek additional diversification for their
portfolios, since in the past the returns
for high-yield bonds have not correlated
closely with the returns from other types of
assets. The risk of investing in the fund
relative to its potential rewards is
moderate.
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TAX-EXEMPT BOND FUND
INVESTMENT OBJECTIVE The fund seeks a high level of current
income that is exempt from regular federal
income tax, consistent with preservation of
capital.
PRINCIPAL INVESTMENT
STRATEGIES The fund invests primarily in investment
grade municipal securities, the interest on
which is exempt from regular federal income
tax (I.E., excludable from gross income for
individuals for federal income tax
purposes). Under normal market conditions,
the fund invests almost all of its assets in
municipal securities. It can invest up to 20
percent of its assets in private activity
bonds. The interest from private activity
bonds and the fund's distribution of that
interest may be a preference item for
purposes of the federal alternative minimum
tax. The fund invests in intermediate and
long-term securities with remaining
maturities at the time of purchase from
three to thirty years. We expect the fund to
maintain an average duration of
approximately 7 years. (Duration is a
measure of the change in the value of a bond
portfolio in response to a change in
interest rates.) The fund may invest up to
20 percent of its assets in non-investment
grade securities such as "junk" bonds or in
nonrated securities.
SPECIAL INVESTMENT RISKS The fund is subject to interest rate risk --
that is, prices of bonds held by the fund
may decline if interest rates rise. For
example, if interest rates rise by 1
percent, the market value of a portfolio
with a duration of 5 years would decline by
approximately 5 percent. Because of their
tax-exempt status, the yields and market
values of municipal securities may be hurt
more by changes in tax rates and policies
than similar taxable income bearing
securities. Non-investment grade securities
involve higher risks than investment grade
bonds. Their issuers may be less
creditworthy and/or have a higher risk of
becoming insolvent.
The fund's investments in mortgage-backed
securities are subject to extension and
prepayment risk. Extension risk is the risk
that an unexpected rise in prevailing
interest rates will extend the life of an
outstanding mortgage-backed security by
reducing the expected number of mortgage
prepayments, typically reducing the
security's value. Prepayment risk is the
possibility that a decline in interest rates
may cause the holders of the underlying
mortgages to pay off their mortgage loans
sooner than expected. If that happened, the
fund would have to reinvest the amounts that
had been invested in the mortgage-backed
securities, possibly at a lower rate of
return.
WHO MAY WANT TO INVEST The fund may be appropriate for investors
who seek tax-free income and some capital
appreciation and can assume a slightly
higher level of risk than traditional income
funds. The risk of investing in the fund
relative to its potential rewards is low to
moderate.
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MONEY MARKET FUND
INVESTMENT OBJECTIVE The fund seeks high current income
consistent with maintaining liquidity and
preserving capital.
PRINCIPAL INVESTMENT
STRATEGIES The fund invests primarily in high quality
short-term money market instruments. It
limits its investments to securities that
present minimal credit risk and are rated in
the highest rating categories for short-term
instruments.
SPECIAL INVESTMENT RISKS The fund is subject to current income
volatility - that is, the income received by
the fund may decrease as a result of a
decline in interest rates.
WHO MAY WANT TO INVEST The fund may be suitable for conservative
investors who are looking for a high degree
of principal stability and liquidity and are
willing to accept returns that are lower
than those offered by longer-term
investments. The risk of investing in the
fund relative to the potential rewards is
very low.
AN INVESTMENT IN THE MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH
THE MONEY MARKET FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
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PAST PERFORMANCE
THE BAR CHARTS AND PERFORMANCE TABLE HELP ILLUSTRATE SOME OF THE RISKS
OF INVESTING IN THE FUNDS, AND HOW INVESTMENT PERFORMANCE VARIES. (WE HAVE NOT
PROVIDED ANY INFORMATION FOR THE NEW FUNDS, WHICH DON'T YET HAVE A PERFORMANCE
HISTORY.) THE BAR CHARTS SHOW EACH FUND'S PERFORMANCE IN 1998 AND 1999, AND
BELOW THE CHART WE NOTE EACH FUND'S BEST AND WORST RETURNS FOR A CALENDAR
QUARTER SINCE THE FUNDS' INCEPTION ON SEPTEMBER 2, 1997. THE PERFORMANCE TABLE
SHOWS EACH FUND'S RETURNS OVER THE 1999 CALENDAR YEAR AND SINCE INCEPTION, AND
HOW THOSE RETURNS COMPARE TO THOSE OF BROAD-BASED SECURITIES MARKET INDEXES. HOW
THE FUNDS HAVE PERFORMED IN THE PAST IS NOT NECESSARILY AN INDICATION OF HOW
THEY WILL PERFORM IN THE FUTURE.
INTERNATIONAL EQUITY FUND.
[bar charts]
% %
1998 1999
Since the fund's registration, the highest return for a quarter was %,
for the quarter ended , and the lowest return for a quarter was %,
for the quarter ended .
GROWTH EQUITY FUND.
[bar charts]
% %
1998 1999
Since the fund's registration, the highest return for a quarter was %, for the
quarter ended , and the lowest return for a quarter was %, for the quarter
ended.
GROWTH & INCOME FUND.
[bar charts]
% %
1998 1999
Since the fund's registration, the highest return for a quarter was %, for
the quarter ended , and the lowest return for a quarter was % , for
the quarter ended .
MANAGED ALLOCATION FUND.
[bar charts]
% %
1998 1999
Since the fund's registration, the highest return for a quarter was % ,
for the quarter ended , and the lowest return for a quarter was %,
for the quarter ended.
BOND PLUS FUND.
[bar charts]
% %
1998 1999
Since the fund's registration, the highest return for a quarter was %,
for the quarter ended , and the lowest return for a quarter was %,
for the quarter ended.
MONEY MARKET FUND.
[bar charts]
% %
1998 1999
Since the fund's registration, the highest return for a quarter was % ,
for the quarter ended , and the lowest return for a quarter was % , for
the quarter ended.
15
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Since inception
One year (September 2, 1997 to
(January 1, 1999 to December 31, December 31, 1999)
1999)
<S> <C> <C>
International Equity Fund % %
Morgan Stanley Capital International EAFE (Europe, % %
Australia and Far East) Index
Growth Equity Fund % %
Russell 3000(R)Growth Index % %
Growth & Income Fund % %
S&P 500 Stock Index % %
Managed Allocation Fund % %
Morgan Stanley Capital International EAFE Index % %
S&P 500 Stock Index % %
Lehman Brothers Aggregate Bond Index % %
Composite Index (12% Morgan Stanley EAFE, 48%
S&P 500 Stock Index and 40% Lehman Brothers
Aggregate Bond Index) % %
Bond PLUS Fund % %
Lehman Brothers Aggregate Bond Index % %
Money Market Fund % %
IBC Money Fund Report - All Taxable Average % %
</TABLE>
For the Money Market Fund's most current 7-day yield, please call us at 800
223-1200.
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<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you pay if you buy and
hold shares of the funds.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ........................0%
Maximum Deferred Sales Charge........................................0%
Maximum Sales Charge Imposed on
Reinvested Dividends........................................0%
Redemption Fee .....................................................0%
Exchange Fee ........................................................0%
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
Management Other Total Fund Fee Net
Fee Expenses Operating Waiver Current
Expenses (1) Fees
<S> <C> <C> <C> <C> <C>
International Equity 0.99% 0 0.99% 0.50% 0.49%
Fund
Growth Equity Fund 0.95% 0 0.95% 0.50% 0.45%
Growth & Income 0.93% 0 0.93% 0.50% 0.43%
Fund
Equity Index Fund 0
Social Choice Equity 0
Fund
Managed Allocation 0.89% 0 0.89% 0.50% 0.39%
Fund(2)
Bond PLUS Fund 0.80% 0 0.80% 0.50% 0.30%
Short-Term Bond 0
Fund
High-Yield Bond Fund 0
Tax-Exempt Bond
Fund
Money Market Fund 0.79% 0 0.79% 0.50% 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).
This waiver is contractual and will remain in effect until July 1, 2003.
(2) 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. The
expenses in the table are based on a typical asset mix for the Managed
Allocation Fund: 24 percent Growth Equity Fund, 24 percent Growth & Income Fund,
12 percent International Equity Fund and 40 percent Bond PLUS Fund.
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<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in
the TIAA-CREF Mutual Funds with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in a fund for the time periods
indicated beginning on [THE DATE OF THIS PROSPECTUS] and then redeem all of your
shares at the end of those periods. The example also assumes that your
investment has a 5 percent return each year and that the funds' operating
expenses remain the same. A portion of the investment management fee has been
waived through July 1, 2003. The example reflects the expiration of the waiver
at that time. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 3 5 10
Year Years Years Years
International Equity Fund $ $ $ $
Growth Equity Fund $ $ $ $
Growth & Income Fund $ $ $ $
Equity Index Fund $ $ $ $
Social Choice Equity Fund $ $ $ $
Managed Allocation Fund (1) $ $ $ $
Bond PLUS Fund $ $ $ $
Short-Term Bond Fund $ $ $ $
High-Yield Bond Fund $ $ $ $
Tax-Exempt Bond Fund $ $ $ $
Money Market Fund $ $ $ $
(1) The Managed Allocation Fund itself has no expense charges. 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. The expenses in the table are based on a typical asset
mix for the Managed Allocation Fund: 24 percent Growth Equity Fund, 24 percent
Growth & Income Fund, 12 percent International Equity Fund and 40 percent Bond
PLUS Fund.
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<PAGE>
MORE INFORMATION ABOUT THE FUNDS
Each fund is a separate series of the TIAA-CREF Mutual Funds, with its
own distinct investment objective. The following section provides more
information about the investment objectives, the principal investment strategies
and techniques each fund uses to accomplish its objective, the principal types
of securities each fund plans to purchase, and the risks involved in an
investment in a fund. These policies and techniques are not fundamental and may
be changed by the Board of Trustees without shareholder approval. However, we'll
notify you of any significant changes. For more details about the funds'
policies and restrictions, see the Statement of Additional Information (SAI).
There's no guarantee that any fund will meet its investment objective.
GENERAL INVESTMENT RISKS
To varying degrees, the funds are all subject to several general types
of risks.
o One is market risk -- volatility in the prices of securities due to
changing conditions in the financial markets.
o Another is interest rate risk, which is 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.
o Income funds are subject to current income risk, which is the
possibility that falling interest rates will cause the fund's income
to decline.
o Another kind of risk is company risk. For stocks or other equity
securities, it comes from the possibility that current earnings will
fall or that overall financial soundness will decline, reducing the
security's value. For bonds and other income-producing securities,
company risk (also called credit risk) comes from the possibility
the issuer won't be able to pay principal and interest when due.
o Another risk is foreign investment risk. Investing in securities
traded on foreign exchanges or in foreign markets can involve risks
beyond those of domestic investing. These include: 1) changes in
currency exchange rates; 2) possible imposition of market controls
or currency exchange controls; 3) possible imposition of withholding
taxes on dividends and interest; 4) possible seizure, expropriation,
or nationalization of assets; 5) more limited foreign financial
information or difficulty in interpreting it because of foreign
regulations and accounting standards; 6) the lower liquidity and
higher volatility in some foreign markets; 7) the impact of
political, social, or diplomatic events; 8) the difficulty of
evaluating some foreign economic trends; or 9) the possibility that
a foreign government could restrict an issuer from paying principal
and interest to investors outside the country. Brokerage commissions
and transaction costs are often higher for foreign investments, and
it may be harder to use foreign laws and courts to enforce financial
or legal obligations.
THE EQUITY FUNDS
THE DUAL INVESTMENT MANAGEMENT STRATEGYsm
The International Equity Fund, Growth Equity Fund and Growth & Income
Fund use TIAA-CREF's Dual Investment Management Strategy. The Dual Investment
Management Strategy works like this:
We divide a fund into two separate subportfolios called the "Stock
Selection" subportfolio and the "Enhanced Index" subportfolio. The relative
sizes of these two segments vary as we shift money between them in response to
investment opportunities.
The Stock Selection subportfolio holds a relatively small number of
stocks that we believe offer superior returns. We will usually use fundamental
analysis to select individual stocks or sectors for investment in the Stock
Selection subportfolio. Each fund's stock selection subportfolio is described
further below.
Money that is not invested in a fund's Stock Selection subportfolio
goes to its Enhanced Index segment. Here the goal is two-fold: 1) to outperform
each fund's benchmark index and (2) to limit the possibility of significantly
underperforming that benchmark. The funds' managers attempt to outperform the
benchmark indexes by over- or under-weighting many stocks in the index by small
amounts, based on proprietary stock scoring models. In other words, a fund will
hold more or less of some stocks than its benchmark index. The managers attempt
to control the risk of underperforming the benchmarks by maintaining the same
overall financial characteristics (such as volatility, dividend yield and
industry weights) as the benchmarks.
The Dual Investment Strategy enables the funds to stay invested even
when we cannot find sufficient investment opportunities for the Stock Selection
portfolio.
The benchmarks for each fund's Enhanced Index subportfolio currently
are as follows:
Growth & Income S&P 500 Composite Stock Index
International Equity Morgan Stanley EAFE(R)(Europe, Australasia, Far East)
Index
Growth Equity Russell 3000(R) Growth Index
19
<PAGE>
Using these indexes is not a fundamental policy of the TIAA-CREF Mutual Funds,
so we can substitute other indexes without shareholder approval. We'll notify
you before we make such a change.
THE INTERNATIONAL EQUITY FUND
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 to always
have at least 80 percent of its assets in equity securities of companies located
in at least three different countries, other than the United States.
For the Stock Selection subportfolio, we select individual stocks and
let the fund's country and regional asset allocation evolve from that stock
selection. We do, however, regularly monitor the fund's sector and country
exposure in order to control risk.
The fund looks for companies of all sizes with
o sustainable growth
o focused management with successful track records
o unique and easy to understand franchises (brands)
o undervalued stock prices based on current earnings, assets, and
long-term growth prospects
o consistent generation of free cash flow
SPECIAL INVESTMENT RISKS. The fund is subject to the general investment
risks described on page . Foreign investment risk is the most significant risk
for this fund. The risks associated with foreign investment often increase in
countries with emerging markets. For example, these 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. The fund's exposure
to emerging markets is currently limited to those investments that the Enhanced
Index subportfolio uses to track the performance of the emerging markets segment
of the Morgan Stanley EAFE(R) Index.
THE GROWTH EQUITY FUND
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. Normally, the fund
will have at least 80 percent of total assets in equity securities that have the
potential for capital appreciation.
The fund uses the Dual Investment Management Strategy. The fund's Stock
Selection subportfolio 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 fund can also invest in large, well-known, established companies,
particularly when we
20
<PAGE>
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, 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 from 0 to 40 percent of its assets in foreign
securities. 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.
SPECIAL INVESTMENT RISKS. The fund is subject to the general investment
risks described on page . There are also special risks to investing in growth
stocks. 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
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, at least 80 percent of the fund's
portfolio will be in income-producing equity securities selected for their
investment potential.
The fund invests in a broadly diversified portfolio of common stocks.
The fund's Stock Selection subportfolio concentrates on individual companies
rather than sectors or industries. The fund looks for stocks of larger,
well-established, mature growth companies, which we believe are fairly priced,
show the potential to grow faster than the rest of the market, and offer a
growing stream of dividend income. In particular, we look for companies that are
leaders in their industries, with premium product lines. We also look for
companies with shareholder-oriented managements dedicated to creating
shareholder value. The fund may also invest in rapidly growing smaller
companies. It can have up to 20 percent of assets in foreign securities.
SPECIAL INVESTMENT RISKS. The fund is subject to the general investment
risks described on page . In addition, there are special risks associated with
investments in stocks paying relatively high dividends. These stocks may
significantly underperform other stocks during periods of rapid market
appreciation.
21
<PAGE>
THE EQUITY INDEX FUND
The EQUITY INDEX FUND seeks a favorable long-term rate of return from a
diversified portfolio selected to track the overall market for common stocks
publicly traded in the U.S., as represented by the Russell 3000(R), a broad
market index.
Although the fund invests in stocks in the Russell 3000 Index, it
doesn't invest in all 3,000 stocks in the index. Rather, we use a sampling
approach to create a portfolio that closely matches the overall investment
characteristics (for example, yield and industry weight) of the index. This
means that a company can remain in the fund even if it performs poorly, unless
the company is removed from the Russell 3000.
Using the Russell 3000 Index isn't fundamental to the fund's investment
objective and policies. We can change the index used in this fund at any time
and will notify you if we do so.
The fund can also invest in securities and other instruments, such as
futures, whose return depends on stock market prices. We select these
instruments to attempt to match the total return of the Russell 3000 but may not
always do so.
The Russell 3000 Index is an unmanaged index of stocks of the 3,000
largest publicly traded U.S. companies, based on market capitalization. Russell
3000 companies represent about 98 percent of the total market capitalization of
the publicly traded U.S. equity market. The market capitalization of the
individual companies in the index ranged from $__ million to $___ billion with
an average of $___ billion as of December 31, 1999. The Frank Russell Company
determines the composition of the index based only on market capitalization and
can change its composition at any time. The Russell 3000 Index is not a mutual
fund and you cannot invest directly in the index.
SPECIAL INVESTMENT RISKS: The fund is subject to the general investment
risks described on page . In addition, there are special risks associated with
indexed investing. The fund attempts to closely track the Russell 3000 Index and
changes are made to its holdings to reflect changes in the index. However, the
fund doesn't invest in all 3,000 stocks in the index, so we can't guarantee that
the performance of the fund will match that of the index. Also, the fund's
returns, unlike those of the index, are reduced by investment and other
operating expenses. The stock prices of smaller, lesser-known companies, which
make up a small part of the index, 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.
THE SOCIAL CHOICE EQUITY FUND
The SOCIAL CHOICE EQUITY FUND seeks a favorable long-term rate of
return that reflects the investment performance of the U.S. stock market while
giving special consideration to certain social criteria. Normally, at least 80
percent of the fund's assets will be invested in common stocks.
The fund attempts to track the return of the U.S. stock market as
represented by the Standard & Poor's 500 Index. It does this primarily by
investing in S&P 500 companies that are not excluded by the fund's social
criteria, so that the fund's portfolio approaches the overall investment
characteristics (E.G., yield and industry weight) of the S&P 500.
22
<PAGE>
The fund's social criteria are non-fundamental investment policies.
Advisors can change them without the approval of the fund's shareholders.
Currently, the fund invests only in companies that do not:
o engage in activities that result or are likely to result in
significant damage to the natural environment;
o have a significant portion of their business in weapons
manufacturing;
o produce and market alcoholic beverages or tobacco products;
o produce nuclear energy; or
o have operations in Northern Ireland and have not adopted the
MacBride Principles (a fair employment code for U.S. firms operating
in Northern Ireland) or have not operated consistently with such
principals and in compliance with the Fair Employment Act of 1989
(Northern Ireland).
For the first three criteria, we assess the issuer to decide whether the
activity is a "significant" part of its business -- basing our decision on, for
example, how large a part of a company's operation the activity involves or how
much revenue it brings in. In determining whether a particular actitivity is
significant to a company, we do not rely on strict objective criteria, but
rather make judgments based on the facts and circumstances pertaining to the
company.
The Corporate Governance and Social Responsibility Committee of our
Board of Trustees provides guidance in deciding whether investments meet the
social criteria. It uses information from independent organizations such as the
Investor Responsibility Research Center, Inc. We'll do our best to make sure the
fund's investments meet the social criteria, but we can't guarantee that every
holding will always do so. Even if an investment is not excluded by the social
criteria, we have the option of excluding it if we decide it is not suitable.
The fund isn't restricted from investing in any securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities. The fund
can also invest in securities issued by other countries or their agencies and
instrumentalities as approved by the Committee on Corporate Governance and
Social Responsibility. The fund can also invest up to 15 percent of its assets
in foreign securities.
SPECIAL INVESTMENT RISKS: Because its social criteria exclude some
investments, this fund may not be able to take advantage of the same
opportunities or market trends as do the funds that don't use such criteria.
ADDITIONAL INVESTMENT STRATEGIES FOR THE EQUITY FUNDS
Each equity fund may also buy and sell options, futures contracts, and
options on futures. We intend to use options and futures primarily for hedging
or for cash management. To manage currency risk, the equity funds can also enter
into forward currency contracts, and buy or sell options and futures on foreign
currencies.
The equity funds can also invest in newly developed financial
instruments, such as equity
23
<PAGE>
swaps (including arrangements where the return is linked to a stock market
index) and equity-linked fixed-income securities, so long as these are
consistent with a fund's investment objective and restrictions.
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, each of which is described in this prospectus.
Normally, about 60 percent of the Managed Allocation Fund's assets will
be in shares of the Growth & Income, International Equity and Growth Equity
Funds, and about 40 percent will be in shares of the Bond PLUS, Short-Term Bond
and High Yield Bond Funds. As a result, the fund's returns reflect investments
in a mix of domestic stocks of companies of all sizes, foreign equities, and a
variety of fixed income instruments of varying maturities and credit qualities.
To maintain an appropriate allocation among the underlying funds, we monitor the
foreign and domestic equity and fixed-incomed markets, as well as overall
financial and economic conditions. If the relative attractiveness of the markets
in which the underlying funds are invested changes, we can adjust the percentage
investments in the underlying funds up and down by up to 15 percent.
The composition of the fund's fixed income portion will vary depending
on the shape of the yield curve. This means that when there is not much
difference between the yields on short term and longer term bonds, the fund will
increase its investments in the Short-Term Bond Fund. The fund will have less
than 5% of assets in the High-Yield Bond Fund.
The fund might sometimes be even more heavily weighted toward equities
or fixed income, if we believe market conditions warrant it. For example, we
would increase the fund's holdings in the fixed income funds in periods where we
believe the equity markets will decline, or reduce the fund's holdings in the
International Equity Fund when we believe foreign markets are unusually
volatile.
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. We can't guarantee that this
strategy will be successful.
INVESTMENT RISKS. The Managed Allocation Fund shares the risks of the
funds it invests in. For more about these risks, see the "Investment Risks"
sections of the International Equity, Growth Equity and Bond PLUS Funds, as well
as general investment risks described on page .
Because the Managed Allocation Fund invests in the securities of a
limited number of other mutual funds, it is considered "nondiversified" for
purposes of the 1940 Act. Sometimes nondiversified funds have special risks.
However, the funds in which the Managed Allocation Fund invests are themselves
considered diversified investment companies.
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). That could create a conflict of interest between the Managed
Allocation Fund and its underlying funds, in which case it could be difficult
for the TIAA-CREF Mutual Funds Board of Trustees and officers to fulfill their
fiduciary duties to each fund. The Board believes it has structured each fund to
avoid these
24
<PAGE>
concerns. However, it is still possible that sometimes proper action for the
Managed Allocation Fund could hurt the interests of any underlying fund, or vice
versa. If that happens, Teachers Advisors and the Board and officers of
TIAA-CREF Mutual Funds will carefully analyze the situation and take all steps
they believe reasonable to minimize and, where possible, eliminate the potential
conflict. Teachers Advisors and the TIAA-CREF Mutual Funds' Board and officers
will in any case closely and continuously monitor each fund's investments to
avoid these concerns as much as possible.
THE FIXED INCOME FUNDS
THE BOND PLUS FUND
The BOND PLUS FUND seeks a favorable long-term return, primarily
through high current income consistent with preserving capital. Normally, at
least 80 percent of the fund's assets will be invested in bonds.
The fund is managed to track the duration of the Lehman Brothers
Aggregate Bond Index. Duration is a measurement of the change in the value of a
bond portfolio in response to a change in interest rates. As of December 31,
1999, the duration of the index was 4.92 years. By keeping the fund's duration
close to the Lehman Index's duration, the fund's returns due to changes in
interest rates should be similar to the index's returns due to changes in
interest rates.
The fund's portfolio is divided into two segments. The first segment,
which makes up at least 75 percent of the fund, is invested primarily in a broad
range of the debt securities in the Lehman Index. The majority of this segment
is invested in U.S. Treasury and Agency securities, corporate bonds and
mortgage-backed securities. The fund's holdings are mainly high-quality
securities rated in the top four credit categories by Moody's or Standard &
Poor's, or that we determine are of comparable quality. The fund will overweight
or underweight individual securities or sectors as compared to their weight in
the Lehman Index depending on where we find undervalued, overlooked or
misunderstood issues that we believe offer the potential for superior returns
compared to the Lehman index. This segment can make foreign investments, but we
don't expect them to exceed 15 percent of the fund's assets. The fund can also
invest in money market instruments.
The other segment of the fund is invested in securities with special
features, in an effort to improve the fund's total return. This segment
primarily will be invested in illiquid securities (such as "Rule 144A" private
placements) or non-investment grade securities (those rated Ba1 or lower by
Moody's or BB+ or lower by Standard & Poor's). Currently this part of the fund
has less than 5 percent of the fund's assets, but if market conditions warrant
it could grow as large as 25 percent. However, investments in illiquid
securities will never be more than 15 percent of the fund's assets.
SPECIAL INVESTMENT RISKS. Non-investment grade securities 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
would
25
<PAGE>
comparable changes 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. Also,
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 the Bond
PLUS Fund, it may or may not be sold, depending on our analysis of the issuer's
prospects. However, the fund won't purchase below-investment-grade securities if
that would increase their amount in the 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 economic trends and other market events.
The fund can hold illiquid securities. The risk of investing in
illiquid securities is that they may be difficult to sell for their fair market
value.
The fund's investments in mortgage-backed securities are subject to
prepayment and extension risk. Prepayment risk is the possibility that a change
in interest rates causes the holders of the underlying mortgages to pay off
their mortgage loans sooner than expected. If that happened, the fund would have
to reinvest the amounts that had been invested in the mortgage-backed
securities, possibly at a lower rate of return. Extension risk is the risk that
an unexpected rise in prevailing interest rates will extend the life of an
outstanding mortgage-backed security by reducing the expected number of mortgage
prepayments, typically reducing the security's value.
THE SHORT-TERM BOND FUND
The SHORT-TERM BOND FUND seeks high current income consistent with
preservation of capital. The fund invests primarily in a broad range of debt
securities comprising the Lehman Brothers Mutual Fund Short (1-5 year)
Government/Corporate Index. These are primarily U.S. Treasury and equity
securities, and corporate bonds with maturities from 1 to 5 years. It can also
hold other fixed-income securities. These include foreign corporate bonds,
debentures and notes, mortgage-backed securities, asset-backed securities,
convertible securities, and preferred stocks. The fund may overweight or
underweight individual securities or sectors as compared to their weight in the
index where we find undervalued, overlooked or misunderstood issues that we
believe offer the potential for superior returns. The fund may also invest in
securities that aren't in the index because we believe they offer the potential
for superior returns.
The fund generally seeks to maintain an average duration equal to that
of its benchmark, plus or minus 6 months. Duration is a measurement of the
change in the value of a bond portfolio in response to a change in interest
rates. By keeping the duration of the fund close to the index's duration, the
fund's returns due to changes in interest rates should be similar to the index's
returns due to changes in interest rates. As of December 31, 1999, the duration
of the index was 2.37 years.
26
<PAGE>
The fund also may invest up to 15 percent of its assets in the
securities of foreign issuers. The Short-Term Bond Fund may invest in
mortgage-backed securities including pass-through certificates and
collateralized mortgage obligations (CMOs). The Short-Term Bond Fund may also
invest in principal-only and interest-only mortgage-backed securities and engage
in mortgage rolls.
SPECIAL INVESTMENT RISKS: The fund is subject to general interest rate
risk and credit risk for debt and other fixed income securities.
Mortgage-backed securities in which the fund may invest are subject to
extension risk and prepayment risk. Extension risk is the risk that an
unexpected rise in prevailing interest rates will extend the life of an
outstanding mortgage-backed security by reducing the expected number of mortgage
prepayments, typically reducing the security's value. Prepayment risk is the
possibility that a change in interest rates causes the holders of the underlying
mortgages to pay off their mortgage loans sooner than expected. If that
happened, the fund would have to reinvest the amounts that had been invested in
the mortgage-backed securities, possibly at a lower rate of return.
THE HIGH-YIELD BOND FUND
The HIGH-YIELD BOND FUND primarily seeks high current income and, when
consistent with its primary objective, capital appreciation. The fund invests
primarily in lower-rated, higher-yielding fixed income securities, such as
domestic and foreign corporate bonds, debentures, and notes, as well as
convertible securities and preferred stocks. Under normal market conditions, the
fund invests at least 80 percent of its assets in debt and other fixed income
securities rated lower than investment grade (and their unrated equivalents) or
other high-yielding securities. (These are often called "junk" bonds). Most of
these will be securities rated in the BB or B categories. The fund may invest up
to 20 percent of its assets in the following other types of instruments: payment
in kind or deferred interest obligations, defaulted securities, asset-backed
securities, securities rated lower than B- or B3, and securities having limited
liquidity.
The fund can make foreign investments, but we don't expect them to be
over 20 percent of the fund's assets. The fund can have up to 15 percent of its
assets in illiquid securities. The fund can also invest in U.S. Treasury and
agency securities when other suitable investment opportunities aren't available,
or when we want to build the portfolio liquidity.
The premise of the High-Yield Bond Fund is that over long periods of
time, a broadly diversified portfolio of lower-rated, higher-yielding securities
should, net of capital losses, provide a higher net return than a similarly
diversified portfolio of higher-rated, lower-yielding securities of similar
duration. We attempt to minimize the risks of investing in lower-rated
securities by:
o Doing our own credit analysis (independent of the rating agencies). We
will buy securities of issuers with a balance of operational and
financial risks that we believe make it likely that they will be able
to meet their financial obligations
o Constructing a portfolio of securities diversified by industry,
geography, maturity, duration and credit quality
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o Buying or selling particular securities to take advantage of
anticipated changes and trends in the economy and financial markets
Our judgment of the value of any particular security is a function of
our experience with lower-rated securities, evaluation of general economic and
securities market conditions and the financial condition of the security's
issuer. Under some market conditions, the fund may sacrifice potential yield in
order to adopt a defensive posture designed to preserve capital.
Teachers Advisors, the fund's investment advisor, may from time to time
share investment research and ideas about high-yield securities with its
affiliate, Teachers Insurance & Annuity Association (TIAA). While the fund
believes that sharing of information provides benefits to the fund and its
shareholders, the fund may at times be prevented from buying or selling certain
securities or may need to sell certain securities before it might otherwise do
so, in order to comply with the federal securities laws.
SPECIAL INVESTMENT RISKS. The fund is subject to above-average interest rate
risk and credit risk. Investors should expect greater fluctuations in share
price, yield and total return compared to mutual funds holding bonds and other
income bearing securities with higher credit ratings and/or shorter maturities.
These fluctuations, whether positive or negative, may be sharp and
unanticipated. During the periods when the market for high-yield securities is
volatile, it may be difficult for the fund to buy or sell its securities. An
investment in this fund is much riskier than an investment in bond funds that
don't invest primarily in lower-rated debt securities.
Issuers of "junk" bonds are typically in weak financial health and
their ability to pay interest and principal is uncertain. Compared to issuers of
investment grade securities, they are more likely to encounter financial
difficulties and to be materially affected by these difficulties when they do
encounter them. "Junk" bond markets may react strongly to adverse news about an
issuer or the economy, or to the perception or expectation of adverse news.
The fund can hold illiquid securities. Illiquid securities may be
difficult to sell for their fair market value.
Current income risk can also be significant for this fund.
THE TAX-EXEMPT BOND FUND
The TAX-EXEMPT BOND FUND seeks a high level of current income that is
exempt from regular federal income tax, consistent with preservation of capital.
Under normal market conditions, the fund invests 100 percent of its assets in
municipal securities. Municipal securities include bonds, notes, commercial
paper and other instruments (including participation interests in such
securities) issued by or on behalf of the states, territories and possessions of
the United States (including the District of Columbia) and their political
subdivisions, agencies and instrumentalities, the interest on which, in the
opinion of bond counsel for the issuers, is exempt from regular federal income
tax (I.E., excludable from gross income for individuals for federal income tax
purposes but not necessarily exempt from state or local taxes).
We pursue superior returns using yield spread and credit analysis to
identify and invest in undervalued market sectors and individual securities. We
usually sell investments that we believe are overvalued. We generally seek to
maintain an average duration in the fund equal to that of its benchmark, the
Lehman Brothers 10 Year Municipal Bond Index, of approximately 7 years. Duration
is a measure of the change in the value of a bond portfolio in response to a
change in interest rates.
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Municipal securities are often issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as bridges, highways, housing, hospitals, mass transportation facilities,
schools, streets and public utilities such as water and sewer works. Municipal
securities include private activity bonds, municipal leases, certificates of
participation, municipal obligation components and municipal custody receipts.
The fund can invest up to 20 percent of its assets in private activity
bonds. Private activity bonds are tax-exempt bonds whose proceeds are used to
fund private, for-profit organizations. The interest on these securities
(including the fund's distribution of that interest) may be a preference item
for purposes of the federal alternative minimum tax (AMT). The AMT is a special
tax system that ensures that individuals and certain corporations pay at least
some federal taxes. Income from securities that are a preference item is
included in the computation of the AMT.
All of the fund's assets are dollar-denominated securities. The fund
may invest up to 15 percent of assets in unrated instruments and in lower-rated,
higher-yielding securities, such as "junk" bonds.
SPECIAL INVESTMENT RISKS. The fund is subject to general interest rate risk and
credit risk for debt and other fixed income securities. The fund also is subject
to current income volatility and the related risk that falling interest rates
will cause the fund's income to fall as it invests assets at progressively lower
rates. As with most income funds, the fund is subject to "call" risk arising
from the possibility that during periods of declining interest rates, an issuer
of a municipal obligation may call (I.E., retire) a high yielding obligation
before its maturity date. This often creates an unanticipated capital gain
liability for shareholders and requires the fund to reinvest the proceeds at the
lower prevailing interest rate.
Because of their tax-exempt status, the yields and market values of
municipal securities may be hurt more by changes in tax rates and policies than
similar taxable income bearing securities.
Obligations of the issuer to pay the principal and interest on a
municipal obligation are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest or imposing other
constraints on the enforcement of those obligations. There is also the
possibility that litigation or other conditions may materially affect the power
or ability of the issuer to pay the principal or interest on a municipal
obligation when due. Municipal lease obligations and certificates of
participation are subject to the added risk that a government lessee will fail
to appropriate funds to enable it to make lease payments.
This may not be an appropriate investment in connection with
tax-favored arrangements like IRAs, or if you are in a low tax-bracket.
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ADDITIONAL INVESTMENT STRATEGIES FOR THE BOND FUNDS
The bond funds can invest in mortgage-backed securities. These can
include pass-through securities sold by private, governmental and
government-related organizations and collateralized mortgage obligations (CMOs).
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. 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.
The bond funds may use a trading technique called "mortgage rolls", in
which we "roll over" an investment in a mortgage-backed security before its
settlement date in exchange for a similar security with a later settlement date.
The fund may also engage in duration-neutral relative value trading, a technique
in which we buy and sell government bonds of identical credit quality but
different maturity dates in an attempt to take advantage of spread differentials
along the yield curve. These techniques are designed to enhance the fund's
returns, but they do increase the fund's portfolio turnover rate. However, we
don't expect these techniques to significantly raise the fund's capital gains.
There are no commissions on purchases and sales of fixed income securities, so
increased trading will not raise the fund's expenses.
The bond funds can invest in interest-only and principal-only
mortgage-backed securities. These instruments have unique characteristics, and
interest-only mortgage-backed securities are particularly sensitive to
prepayment risk, which may also include actual loss of invested funds.
Prepayment risk is described below in the Investment Risks section.
Each bond fund may also buy and sell options, futures contracts, and
options on futures. We intend to use options and futures primarily for hedging
or for cash management. To manage currency risk, the fixed income funds can also
enter into forward currency contracts, and buy or sell options and futures on
foreign currencies.
The bond funds can also invest in recently developed financial
instruments, such as swaps and options on swaps ("swaptions"), so long as these
are consistent with a fund's investment objective and restrictions.
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.
The fund will invest primarily in:
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(1) Commercial paper (short-term "IOUs" issued by corporations and others)
or variable-rate, floating-rate, or variable-amount securities of
domestic or dollar-denominated 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 include
certificates of deposit, time deposits, bankers' acceptances, and
other short-term debt;
(3) Securities issued by or whose principal and interest are guaranteed by
the U.S. government or one of its agencies or instrumentalities;
(4) Other debt obligations with a remaining maturity of 397 days or less
issued by domestic or foreign companies;
(5) Repurchase agreements involving securities issued or guaranteed by the
U.S. government or one of its agencies or instrumentalities, or
involving certificates of deposit, commercial paper, or bankers'
acceptances;
(6) Participation interests in loans banks have made to the issuers of (1)
and (4) above (these may be considered illiquid);
(7) Asset-backed securities issued by domestic corporations or trusts;
(8) Obligations issued or guaranteed by foreign governments or their
political subdivisions, agencies, or instrumentalities; and
(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 percent 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.
SPECIAL INVESTMENT RISKS. The principal risk of investing in the Money
Market Fund is current income risk - that is, the income the fund receives may
fall as a result of a decline in interest rates. To a lesser extent, the fund is
also subject to the general risks described above on page .
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TIAA-CREF MUTUAL FUNDS' MANAGEMENT
Teachers Advisors manages the assets of the TIAA-CREF Mutual Funds,
under the supervision of the Funds' Board of Trustees (the Board). Teachers
Advisors is a wholly-owned indirect subsidiary of Teachers Insurance and Annuity
Association of America (TIAA). It is registered as an investment adviser with
the Securities and Exchange Commission under the Investment Advisers Act of
1940. Teachers Advisors also manages the investments of TIAA-CREF Institutional
Mutual Funds, TIAA Separate Account VA-1, the TIAA-CREF Life Funds and the
investment portfolio of New York State's College Choice Tuition Savings Plan.
Through an affiliated investment adviser, TIAA-CREF Investment Management, LLC,
the personnel of Teachers Advisors also manage the investment accounts of the
College Retirement Equities Fund. Teachers Advisors is located at 730 Third
Avenue, New York, NY 10017.
Teachers Advisors' duties include conducting research, recommending
investments, and placing orders to buy and sell securities. Teachers Advisors is
also responsible for providing, or obtaining at its own expense, the services
needed for the day-to-day 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.
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 percent, 0.95 percent, 0.93 percent, percent, percent, 0.80 percent,
percent, percent, percent and 0.79 percent of the average daily net assets of
the International Equity Fund, the Growth Equity Fund, the Growth & Income Fund,
the Equity Index Fund, the Social Choice Equity Fund, the Bond PLUS Fund, the
Short-Term Bond Fund, the High-Yield Bond Fund, the Tax-Exempt Bond 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 percent 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, 2003.
Each fund is managed by a team of fund managers, whose members are
jointly responsible for the day-to-day management of the fund, with expertise in
the area(s) applicable to the fund's investments.
PERSONAL TRADING POLICY
Personnel of Teachers Advisors and members of their households are
limited in trading for their own accounts. Some transactions they make must be
reported and approved, and they must send duplicates of all confirmation
statements and other account reports to a special compliance unit for review.
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CALCULATING SHARE PRICE
We determine the net asset value (NAV) per share , or share price, of a
fund on each day the New York Stock Exchange is open for business. We do this
when trading closes on all U.S. national exchanges where securities or other
investments of a fund are principally traded. We will not price fund shares on
days that the New York Stock Exchange is closed. We compute a fund's NAV by
dividing the value of the fund's assets, less its liabilities, by the number of
outstanding shares of that fund.
We usually use market quotations or independent pricing services to
value securities and other instruments. 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 may also use fair value if events that have a
significant effect on the value of an investment (as determined in our sole
discretion) occur between the time when its price is determined and the time a
fund's net asset value is calculated.
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
funds.
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DIVIDENDS AND DISTRIBUTIONS
Each fund expects to declare and distribute to shareholders
substantially all of its net investment income and net realized capital gains,
if any. The amount distributed will vary according to the income received from
securities held by the fund and capital gains realized from the sale of
securities. The following table shows how often we pay dividends on each fund:
FUND DIVIDEND PAID
The International Equity Fund Annually
The Growth Equity Fund Annually
The Growth & Income Fund Quarterly
The Managed Allocation Fund Quarterly
The Equity Index Fund Annually
The Social Choice Equity Fund Annually
The Bond PLUS Fund Monthly
The High-Yield Bond Fund Monthly
The Short-Term Bond Fund Monthly
The Municipal Bond Fund Monthly
The Money Market Fund Monthly
Although we pay dividends monthly from the Money Market Fund, these
dividends are calculated and declared daily.
We intend to pay net capital gains from all funds that have them 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 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.
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TAXES
As with any investment, you should consider how your investment in any
fund will be taxed. However, the information about taxes in this prospectus is
general. It won't apply to you if you are investing through a tax-deferred
account such as an IRA. Consult your tax advisor if you need more information.
TAXES ON DISTRIBUTIONS. Unless you are tax-exempt or hold fund shares
in a tax-deferred account, you must pay federal income tax, and possibly also
state or local taxes, on 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 distributi
ons 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 from each fund. Long-term capital gain distributions are taxed at
a maximum rate of 20 percent to all individual investors. Individuals in the 15
percent tax bracket pay 10 percent tax on their long-term capital gains.
SPECIAL CONSIDERATIONS FOR TAX-EXEMPT BOND FUND SHAREHOLDERS. The
Tax-Exempt Bond Fund expects to distribute "exempt-interest dividends." These
dividends will be exempt income for regular federal income tax purposes.
However, any distributions derived from the fund's net long-term capital gains
will ordinarily be taxable to shareholders as long-term capital gains. Any
distributions derived from taxable interest income, net short-term capital gains
and certain net realized foreign exchange gains will be taxable to shareholders
as ordinary income.
If you borrow money to purchase or hold Tax-Exempt Bond Fund shares,
the interest on the money you borrow usually will not be deductible for federal
income tax purposes.
Some of the exempt-interest dividends that the Tax-Exempt Bond Fund
pays come from its investments in private activity bonds. These dividends may be
an item of tax preference in determining your federal alternative minimum tax
liability. Exempt-interest dividends will also be considered along with other
elements of adjusted gross income in determining whether or not any Social
Security or railroad retirement payments you may receive are subject to federal
income taxes.
If you hold shares in the Tax-Exempt Bond Fund for six months or less,
and you sell or exchange them for a loss, you can't claim the full amount of
that loss for federal income tax purposes if you have received an exempt
interest dividend from the fund. The dividend amount must be deducted from the
loss you claim.
TAXES ON SALES OR REDEMPTIONS. When you sell shares in a fund
(including exchanges to other funds) you will usually have a capital gain or
loss equal to the difference between the your adjusted cost basis in the shares
and the cash (or fair market value of other property) you receive from the sale.
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.
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BACKUP WITHHOLDING. If you provide us with the wrong taxpayer
identification number, or fail to certify that the number is correct, we are
required to withhold 31percent of the taxable distributions and redemption
proceeds from your account. We also may be required to begin backup withholding,
if the IRS instructs us to do so.
"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 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 or deduction 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 was 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.
SPECIAL CONSIDERATIONS FOR CORPORATE/INSTITUTIONAL ACCOUNTS. If you are
a corporate investor, some of the dividends from net investment income paid by
the Growth Equity Fund, Growth & Income Fund, Equity Index Fund and Social
Choice Equity Fund usually will qualify for the corporate dividends-received
deduction. How much of those dividends qualifies depends on how much qualifying
dividend income each fund receives from U.S. sources. Corporate investors
seeking to claim this deduction may have to satisfy certain holding period and
debt financing restrictions. We expect that little or none of the distributions
paid by the other TIAA-CREF Mutual Funds portfolios will qualify for the
corporate dividends-received deduction.
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YOUR ACCOUNT: BUYING, SELLING OR EXCHANGING SHARES
TYPES OF ACCOUNTS
o Individual accounts (for one person) or joint accounts (more than one
person)
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 Traditional IRAs and Roth IRAs. These accounts let you shelter
investment income from federal income tax while saving for
retirement.
o Education IRAs. This account lets you shelter investment income from
federal income tax while saving to pay qualified higher education
expenses of a designated beneficiary.
o Corporate/institutional accounts.
For more information about opening an IRA or corporate/institutional account,
please call us.
HOW TO OPEN AN ACCOUNT AND MAKE SUBSEQUENT INVESTMENTS
To open an account, send us a completed application 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 consultants at 800 223-1200.
You can also download and print the application from our website,
www.tiaa-cref.org/mfunds.
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 page __.)
We won't accept third party checks for over $10,000.
TO OPEN AN ACCOUNT BY MAIL Send your check, MADE PAYABLE TO TIAA-CREF
MUTUAL FUNDS, and/or application to:
First Class Mail: The TIAA-CREF Mutual Funds
c/o State Street Bank
P.O. Box 8009
Boston, MA 02266-8009
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Overnight Mail: The TIAA-CREF Mutual Funds
c/o State Street Bank
66 Brooks Drive
Braintree, MA 02184-3839
TO OPEN AN ACCOUNT BY WIRE Send us your application by mail, then call
us to confirm that your account has been established. Instruct your bank to wire
money to
State Street Bank
ABA Number 011000028
DDA Number 99052771
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
You can purchase additional shares in any of the following ways:
BY MAIL Send a check to either of the addresses listed above 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.
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
savings account investment slip. It will take us about 10 days from the time we
receive it 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 by telephone. The change
will take effect approximately 5 business days after we receive your request.
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BY TELEPHONE Call 800 223-1200. You can 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 canceled.
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 personally selected
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. If you don't have a personally selected
PIN, call us to get one.
BY WIRE To buy additional shares by wire, follow the instructions above
for opening an account by wire. (You do not have to send us an application
again.)
POINTS TO REMEMBER FOR ALL PURCHASES:
o Your investment must be for a specified dollar amount. We can't accept
purchase requests specifying a certain price, date, or number of
shares; we'll return these investments.
o We reserve the right to reject any application or investment. There may
be circumstances when we will not accept new investments in one or more
of the funds.
o If you have a securities dealer (including a mutual fund
"supermarket"), bank, or other financial institution handle your
transactions, they may charge you a fee. Contact them to find out if
they impose any other conditions, such as a higher minimum investment
requirement, on your transaction.
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
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You can redeem (sell) your shares at any time. 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 (see page __). If you request a redemption
of shares shortly after you have purchased those shares by check or automatic
investment plan, we will process your redemption but will hold the proceeds for
up to 10 calendar days to allow the check or automatic investment to clear.
We 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 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). Before calling,
read "Points to Remember When Redeeming," below.
We can postpone payment if (a) the New York Stock Exchange is closed
for other than usual weekends or holidays, or trading on the New York Stock
Exchange is restricted; (b) an emergency exists as defined by the SEC, or the
SEC requires that trading be restricted; or (c) the SEC permits a delay for the
protection of investors.
You can redeem shares in any of the following ways:
BY MAIL Send your written request to either of the addresses listed in
the "How to Open an Account and Make Subsequent Investments" section. 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.
BY TELEPHONE Call 800 223-1200 to redeem shares in amounts under
$50,000. Once made, your telephone request cannot be modified or canceled.
Telephone redemptions are not available for IRA accounts.
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 any time after opening your account.
BY CHECK If you've elected the Money Market Fund's check writing
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 check writing 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
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have already written 24 checks in one year.
You can't write a check to close your TIAA-CREF Money Market Fund
account because the value of the fund changes daily as dividends are accrued.
You also cannot write a check to redeem shares from the Money Market Fund for 10
days after you have sent us a check or automatic investment plan payment to
purchase Money Market Fund shares if 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 from
funds with balances of 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 of more than $250,000, we reserve the right to give you
marketable securities instead of cash.
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.
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
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$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 Send a letter of instruction to either of the addresses in the
"How to Open an Account and Make Subsequent Investments" section. The letter
must include your name, address, and the funds and/or accounts you want to
exchange between.
BY TELEPHONE Call 800 223-1200. Once made, your telephone request
cannot be modified or canceled.
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 canceled.
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 a systematic exchange, you can contact us and we
will send you the necessary forms. All owners of an account must sign the
systematic exchange request. Similarly, all account owners must sign any request
to increase the amount or frequency of systematic exchanges. You can terminate
the plan or change the amount or frequency of the exchanges by writing or
calling us. Requests to establish, terminate, or change the amount or frequency
of exchanges will become effective within 5 days after we receive your
instructions.
Points To Remember When Exchanging
o Make sure you understand the investment objective of the fund you
exchange shares into. 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 from any fund except the International Equity Fund and the
High-Yield Bond Fund. For those funds we reserve the right to suspend
the exchange privilege if you make more than 6 exchanges in 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 is
taxable.
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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 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.
SHARE PRICE If you buy shares from us directly, the share price we use
will be the NAV per share next calculated after Boston Financial Data Services
receives your application or request in good order. If you buy shares through an
intermediary, such as a securities dealer (including a mutual fund
"supermarket"), bank or investment adviser, the share price we use will be the
NAV per share next calculated after the intermediary accepts the order. If this
occurs before the New York Stock Exchange closes (usually 4:00 p.m., Eastern
Time) your price will be the NAV per share for that day. If it's after the New
York Stock Exchange closes, your price will be the NAV per share for the next
business day. An intermediary could require you to place an order before 4:00
p.m. to get the NAV per share for that day.
MINIMUM ACCOUNT SIZE Due to the relatively high cost of maintaining
smaller accounts, we reserve the right to redeem shares in any account if, as
the result of redemptions, the value of that account drops below $100. You will
be allowed at least 60 days, after written notice, to make an additional
investment to bring your account value up to at least the specified minimum
before the redemption is processed.
TAX IDENTIFICATION NUMBER You must give us your taxpayer identification
number (which, for most individuals, is your social security number) and tell us
whether or not you are subject to back-up withholding for prior under-reporting.
If you don't furnish your taxpayer identification number, redemptions or
exchanges of shares, as well as dividends and capital gains distributions, will
be subject to federal (and in a few cases state) tax withholding.
CHANGING YOUR ADDRESS To change the address on your account, please
call us or send us a written notification signed by all registered owners of
your account.
SIGNATURE GUARANTEE For some transaction requests (for example, when
you're redeeming shares within 30 days of changing your address, bank or bank
account or adding certain new services, such as check writing, 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 shareholders.
You maintain total control over your account during your lifetime. Currently,
all states except Louisiana, New York and North Carolina allow transfer on
death. Transfer on death is also currently unavailable in the District of
Columbia.
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TELEPHONE AND INTER/ACT TRANSACTIONS. The funds aren't liable for
losses from unauthorized telephone and Inter/ACT transactions so long as we
follow reasonable procedures designed to verify the identity of the person
effecting the transaction. We therefore take the following precautions to ensure
your instructions are genuine: we 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. We also tape
record telephone instructions and provide written confirmations. We accept all
telephone instructions we reasonably believe are genuine and accurate. 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.
ADVICE ABOUT YOUR ACCOUNT. Teachers Personal Investors Services, Inc.
(TPIS) may be considered the principal underwriter for the funds. TPIS is a
subsidiary of Teachers Insurance and Annuity Association of America (TIAA). TIAA
employees may recommend that you buy fund shares, but usually won't recommend
that you buy securities of companies that aren't affiliated with TIAA. These
employees receive no commission for recommending our funds. See page ___ for
complete information about the funds' expense charges.
ELECTRONIC PROSPECTUSES
If you received this prospectus electronically and would like a paper
copy, please contact us and we will send one to you.
FINANCIAL HIGHLIGHTS
The Financial Highlights table is intended to help you understand the
funds' financial performance since they were registered on September 2, 1997.
Certain information reflects financial results for a single share of a fund. The
total returns in the table show the rates that an investor would have earned on
an investment in a fund (assuming reinvestment of all dividends and
distributions). The information has been audited by Ernst & Young, LLP,
independent auditors. Their report appears in TIAA-CREF Mutual Funds' Annual
Report, which contains additional information about the funds. It is available
without charge upon request.
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[to come]
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[BACK COVER]
FOR MORE INFORMATION ABOUT TIAA-CREF MUTUAL FUNDS
The following documents contain more information about the funds and
are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI contains more information
about all aspects of the funds. A current SAI has been filed with the Securities
and Exchange Commission and is incorporated in this prospectus by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. The funds' annual and semi-annual reports
provide additional information about the funds' investments. The annual report
for the fiscal year ended December 31, 1998 contains a discussion of the market
conditions and investment strategies that significantly affected each fund's
performance during the last fiscal year.
REQUESTING DOCUMENTS. You can request a copy of the SAI or these reports, or
contact us for
any other purpose, 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/MFUNDS.
Information about TIAA-CREF Mutual Funds (including the SAI) can be reviewed and
copied at the Securities and Exchange Commission's (SEC) public reference room
(800 SEC-0339) in Washington, D.C. The information is also available through the
SEC's internet website at WWW.SEC.GOV. Copies of the information can also be
obtained, upon payment of a duplicating fee, by writing the SEC's Public
Reference Section, Washington, D.C. 20549-6009.
To lower costs and eliminate duplicate documents sent to your home, we may 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.
811-08055
<PAGE>
January 10, 2000 p.m. DRAFT
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 ,
2000 (the Prospectus), which may be obtained by writing us at TIAA-CREF Mutual
Funds, c/o State Street Bank, P.O. 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 , 2000.
<PAGE>
TABLE OF CONTENTS
Investment Objectives, Policies, and Restrictions.............................
Fundamental Restrictions.............................................
Investment Policies and Risk Considerations..........................
Management of the TIAA-CREF Mutual Funds......................................
Trustees and Officers of the TIAA-CREF Mutual Funds..................
Trustee Compensation.................................................
Principal Holders of Securities..............................................
Investment Advisory and Other Services........................................
About the TIAA-CREF Mutual Funds and the Shares...............................
Indemnification of Shareholders......................................
Indemnification of Trustees..........................................
Limitation of Fund Liability........................................
Shareholder Meetings and Voting Rights...............................
Additional Portfolios................................................
Dividends and Distributions..........................................
Pricing of Shares.............................................................
Investments for Which Market Quotations Are Readily Available........
Foreign Investments..................................................
Debt Securities......................................................
Special Valuation Procedures for the Money Market Fund...............
Options and Futures..................................................
Investments for Which Market Quotations Are Not Readily Available....
Tax Status....................................................................
Other States.........................................................
Brokerage Allocation..........................................................
Underwriters..................................................................
Calculation of Performance Data...............................................
Total Return Calculations............................................
Yield Calculations...................................................
All Funds Other Than The Money Market Fund...........................
Yield Information For The Money Market Fund..........................
Total Return.........................................................
Performance Comparisons..............................................
Illustrating Compounding.............................................
Net Asset Value......................................................
Moving Averages......................................................
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Voting Rights.................................................................
Legal Matters.................................................................
Experts.......................................................................
Additional Considerations.....................................................
Financial Statements..........................................................
<PAGE>
INVESTMENT OBJECTIVES, POLICIES, AND RESTRICTIONS
The following information is intended to supplement the descriptions of
the investment objective of each of the eleven investment funds in the TIAA-CREF
Mutual Funds' Prospectus. Under the Investment Company Act of 1940 (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. However, the funds' investment objectives, policies and strategies
described in the prospectus, as well as the 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. Each investment fund
other than the Managed Allocation Fund will operate as a "diversified company"
within the meaning of the 1940 Act.
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 percent 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 percent 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 purchase any security on margin except that the
fund may obtain such short-term credit as may be necessary for
the clearance of purchases and sales of portfolio securities.
The following restriction is a fundamental policy of each fund other
than the Equity Index Fund, the Social Choice Equity Fund, the Short-Term Bond
Fund, the High-Yield Bond Fund and the Tax-Exempt Bond Fund (the "2000 Funds"):
7. The fund will not make loans, except: (a) that a fund may make
loans of portfolio securities not exceeding 33 1/3 percent 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 percent 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.
The following restriction is a fundamental policy of the 2000 Funds:
8. The Fund will not lend any security or make any other loan if, as
a result, more than 33 1/3 percent of its total assets would be
lent to other parties, but this limit does not apply to
repurchase agreements.
The following restriction is a fundamental policy of each fund other
than the Managed Allocation Fund:
9. The fund will not, with respect to at least 75 percent of the
value of its total assets, invest more than 5 percent 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 percent
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.
10. 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 percent of its total assets.
The following restriction is a fundamental policy of the Money Market
Fund:
11. The fund may invest more than 25 percent 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 percent of its
total assets.
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The following restrictions are fundamental policies of the Managed
Allocation Fund:
12. The Managed Allocation Fund will not invest in securities other
than securities of other registered investment companies or
registered unit investment trusts that are part of the TIAA-CREF
Mutual Funds, government securities, or short-term securities.
13. The Managed Allocation Fund will concentrate in the mutual fund
industry. Accordingly, it may invest up to 100 percent of its
assets in securities issued by mutual funds and other investment
companies.
The following restriction is a fundamental policy of the Tax-Exempt
Bond Fund:
14. The fund may invest more than 25 percent of its assets in
tax-exempt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or by a state or
local government or a political subdivision of any of the
foregoing; 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 percent of its total assets.
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 percent of its assets in the securities of any
single investment company or more than 10 percent of its assets
in the securities of other investment companies in the aggregate;
or
2. Hold more than 3 percent of the total outstanding voting stock of
any single investment company.
INVESTMENT POLICIES AND RISK CONSIDERATIONS
NON-EQUITY INVESTMENTS OF THE EQUITY FUNDS. The equity funds can, in
addition to stocks, hold other types of securities with equity characteristics,
such as convertible bonds, preferred stock, warrants and depository receipts or
rights. These investments will be similar to those in the first segment of the
Bond PLUS Fund. 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 Prospectus, 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 Prospectus, page ).
When market conditions warrant, the equity funds can invest directly in
debt securities similar to those in the first segment of the Bond PLUS Fund (see
Prospectus page ). The equity funds can also hold debt securities that they
acquire because of mergers, recapitalizations or otherwise.
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.
FEDERALLY TAXABLE SECURITIES. Under normal conditions, the Tax-Exempt
Bond Fund intends to invest only in federally tax-exempt securities. However, we
may invest in securities that are federally taxable on a temporary basis. In
that case, the investments would be limited to securities that we determine to
be high quality, such as those issued or guaranteed by the U.S. Government.
ILLIQUID SECURITIES. Each fund can invest up to 15 percent of its
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.
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LOWER-QUALITY MUNICIPAL SECURITIES. Because the market for certain
municipal securities is thin, we may encounter difficulties in disposing of
lower-quality securities. At our option, we may pursue litigation or other
remedies in order to protect the fund's interests.
MUNICIPAL MARKET DISRUPTION RISK. The value of municipal securities may
be adversely affected by legal uncertainties regarding legislative proposals
involving the taxation of municipal securities or rights of securities holders
in the event of bankruptcy. From time to time, these uncertainties may affect
the municipal securities market or certain parts thereof, having a significant
impact on the prices of securities in the Tax-Exempt Bond Fund.
PREFERRED STOCK. The funds can invest in preferred stock consistent
with their investment objectives.
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.
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.
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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 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.
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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 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.
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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 custodial account an amount of cash, United
States Treasury securities, or other permissible assets equal to approximately 5
percent 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. 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 possi bility 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.
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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 percent 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 amount of an option that is in-the-money when
purchased may be excluded in computing such 5 percent).
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.
INVESTMENT COMPANIES. Each fund other than the Managed Allocation Fund
can invest up to 5 percent of its assets in any single investment company and up
to 10 percent 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
percent of the total outstanding voting stock of any single investment company.
The Managed Allocation Fund, however, can invest all of its assets in the
securities of the other funds that are part of the TIAA-CREF Mutual Funds.
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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 below, "Segregated Accounts."
LENDING OF SECURITIES. Subject to investment restrictions 7(a) and 8 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 appli cable law, which at all
times while the loan is outstanding will be maintained in amounts equal to at
least 102 percent 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 percent 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 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.
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For the Tax-Exempt Bond Fund, income earned during the term of a
repurchase agreement may not be tax-exempt.
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 under the
swap agreement. If the other party to the swap transaction defaults on its
obligations, the fund entering into the agreement would be limited to the
agreement's contractual remedies. There can be no assurance that a fund will
succeed when pursuing its contractual remedies. To minimize a fund's exposure in
the event of default, it will usually enter into swap transactions on a net
basis (i.e., the parties to the transaction will net the payments payable to
each other before such payments are made). When a fund enters into swap
transactions on a net basis, the net amount of the excess, if any, of the fund's
obligations over its entitlements with respect to each such swap agreement will
be accrued on a daily basis and an amount of liquid assets having an aggregate
market value at least equal to the accrued excess will be segregated by the
fund's custodian. To the extent a fund enters into swap transactions other than
on a net basis, the amount segregated will be the full amount of the fund's
obligations, if any, with respect to each such swap agreement, accrued on a
daily basis. See "Segregated Accounts," below.
Swap agreements may be considered illiquid by the SEC staff and subject
to the limitations on illiquid investments. See the Prospectus for more
information.
To the extent that there is an imperfect correlation between the return
a fund is obligated to swap and the securities or instruments representing such
return, the value of the swap transaction may be adversely affected. No fund
therefore will enter into a swap transaction unless it owns or has the right to
acquire the securities or instruments representative of the return it is
obligated to swap with the counterparty to the swap transaction. It is not the
intention of any fund to engage in swap transactions in a speculative manner but
rather primarily to hedge or manage the risks associated with assets held in, or
to facilitate the implementation of portfolio strategies of purchasing and
selling assets for, the fund.
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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.
DEBT INSTRUMENTS GENERALLY
A debt instrument held by a fund will be affected by general changes in
interest rates that will in turn result in increases or decreases in the market
value of the instrument. The market value of non-convertible debt instruments in
a fund's portfolio can be expected to vary inversely to changes in prevailing
interest rates. In periods of declining interest rates, the yield of a fund
holding a significant amount of debt instruments will tend to be somewhat higher
than prevailing market rates, and in periods of rising interest rates, the
fund's yield will tend to be somewhat lower. In addition, when interest rates
are falling, money received by such a fund from the continuous sale of its
shares will likely be invested in portfolio instruments producing lower yields
than the balance of its portfolio, thereby reducing the fund's current yield. In
periods of rising interest rates, the opposite result can be expected to occur.
RATINGS AS INVESTMENT CRITERIA. Nationally recognized statistical
rating organization (NRSRO) ratings represent the opinions of those
organizations as to the quality of securities that they rate. Although these
ratings, which are relative and subjective and are not absolute standards of
quality, are used by Advisors as initial criteria for the selection of portfolio
securities on behalf of the funds, Advisors also relies upon its own analysis to
evaluate potential investments.
Subsequent to its purchase by a fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the fund. Although neither event will require the sale of the securities by a
fund, other than the Money Market Fund, Advisors will consider the event in its
determination of whether the fund should continue to hold the securities. In the
event the rating of a security held by the Money Market Fund falls below the
minimum acceptable rating or the issuer of the security defaults, the Money
Market Fund will dispose of the security as soon as practicable, unless the
Board of Trustees determines that disposal of the security would not be in the
best interests of the Money Market Fund. To the extent that a NRSRO's ratings
change as a result of a change in the NRSRO or its rating system, the funds will
attempt to use comparable ratings as standards for their investments in
accordance with their investment objectives and policies.
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CERTAIN INVESTMENT GRADE DEBT SECURITIES. Although securities rated BB
by Standard & Poor's Corporation ("S&P" or "Standard & Poor's") or Baa by
Moody's Investors Service, Inc. ("Moody's") are considered investment grade,
they may be viewed as being subject to greater risks than other investment grade
obligations. Obligations rated BB by S&P are regarded as having only an adequate
capacity to pay principal and interest and those rated Baa by Moody's are
considered medium-grade obligations that have speculative characteristics .
U.S. GOVERNMENT DEBT SECURITIES. Each of the funds may invest in U.S.
Government securities. These include debt obligations of varying maturities
issued by the U.S. Treasury or issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Import-Export Bank of the United
States, Small Business Administration, Government National Mortgage Association
("GNMA"), General Services Administration, Central Bank for Cooperatives,
Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Federal
National Mortgage Association, Federal Deposit Insurance Corporation, Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board,
Student Loan Marketing Association, and Resolution Trust Corporation. Direct
obligations of the U.S. Treasury include a variety of securities that differ in
their interest rates, maturities and issue dates. Certain of the foregoing U.S.
Government securities are supported by the full faith and credit of the United
States, whereas others are supported by the right of the agency or
instrumentality to borrow an amount limited to a specific line of credit from
the U.S. Treasury or by the discretionary authority of the U.S. Government or
GNMA to purchase financial obligations of the agency or instrumentality. In
contrast, certain of the foregoing U.S. Government securities are only supported
by the credit of the issuing agency or instrumentality. Because the U.S.
Government is not obligated by law to support an agency or instrumentality that
it sponsors, a Fund only invests in U.S. Government securities when Advisors
determines that the credit risk associated with the obligation is suitable for
the fund.
CUSTODY RECEIPTS. Each of the funds may also acquire U.S. Government
securities in the form of custody receipts. Such receipts evidence ownership of
future interest payments, principal payments or both on certain U.S. Government
securities. For certain securities law purposes, custody receipts are not
considered U.S. Government securities.
LOWER-RATED, LOWER QUALITY DEBT INSTRUMENTS. Up to 100% of the assets
of the High-Yield Bond Fund; 15% of the assets of the Short-Term Bond Fund and
the Tax-Exempt Bond Fund; 25% of the assets of the Bond PLUS Fund; and 5% of the
assets of the International Equity Fund, Growth Equity Fund, Social Choice
Equity Fund, and the Equity Index Fund may be invested in debt instruments that
are unrated or are rated lower than the four highest rating categories assigned
by Moody's or Standard & Poor's . Up to 10% of the total assets of the
High-Yield Bond Fund may be invested in debt instruments that are rated Ca or
lower. Furthermore, debt instruments that are rated in the four highest
categories assigned by Moody's or Standard & Poor's (i.e., investment grade debt
instruments), and especially those which are unrated or are
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rated lower than the four highest categories by such rating organizations may,
after purchase by a fund, have their ratings lowered due to the deterioration of
the issuer's financial position. Advisors may determine that an unrated security
is of comparable quality to securities with a particular rating. Such unrated
securities are treated as if they carried the rating of securities with which
Advisors compares them.
RISKS OF LOWER-RATED, LOWER QUALITY DEBT INSTRUMENTS. Lower-rated debt
securities (I.E., those rated Ba or lower by Moody's or BB or lower by Standard
& Poor's) are considered, on balance, predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation and will generally involve more credit risk than securities in the
higher rated categories. Reliance on credit ratings entails greater risks with
regard to lower-rated securities than it does with regard to higher-rated
securities and Advisors' success is more dependent upon its own credit analysis
with regard to lower-rated securities than is the case with regard to
higher-rated securities. The market values of such securities tend to reflect
individual corporate developments to a greater extent than do higher-rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such lower-rated securities also tend to be more sensitive to
economic conditions than are higher-rated securities. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, regarding
lower-rated bonds may depress prices and liquidity for such securities. To the
extent a fund invests in these securities, factors adversely affecting the
market value of lower-rated securities will adversely affect the fund's net
asset value. In addition, a fund may incur additional expenses to the extent it
is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings. Although some risk is inherent in all
securities ownership, holders of debt securities have a claim on the assets of
the issuer prior to the holders of common stock. Therefore, an investment in
debt securities generally entails less risk than an investment in common stock
of the same issuer.
Lower-rated securities may be issued by corporations in the growth
stage of their development. They may also be issued in connection with a
corporate reorganization or as a part of a corporate takeover. Companies that
issue such lower-rated securities are often highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risk
associated with acquiring the securities of such issuers generally is greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, highly leveraged
issuers of lower-rated securities may experience financial stress. During such
periods, such issuers may not have sufficient revenues to meet their interest
payment obligations. The issuer's ability to service its debt obligations may
also be adversely affected by specific corporate developments , the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of lower-rated securities because such
securities are generally unsecured and are often subordinated to other creditors
of the issuer.
Lower-rated securities frequently have call or buy-back features that
would permit an issuer to call or repurchase the security from a fund. If a call
were exercised by the issuer during
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a period of declining interest rates, the fund would likely have to replace such
called security with a lower yielding security, thus decreasing the net
investment income to the fund.
A fund may have difficulty disposing of certain lower-rated securities
for which there is a thin trading market. Because not all dealers maintain
markets in a lower-rated securities, there is no established retail secondary
market for many of these securities, and TIAA-CREF Mutual Funds anticipates that
they could be sold only to a limited number of dealers or institutional
investors. To the extent there is a secondary trading market for lower-rated
securities, it is generally not as liquid as that for higher-rated securities.
The lack of a liquid secondary market for certain securities may make it more
difficult for TIAA-CREF Mutual Funds to obtain accurate market quotations for
purposes of valuing a fund's assets. Market quotations are generally available
on many lower-rated issues only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales. When
market quotations are not readily available, lower-rated securities must be
valued by (or under the direction of) TIAA-CREF Mutual Fund's Board of Trustees.
This valuation is more difficult and judgment plays a greater role in such
valuation when there is less reliable objective data available.
The market for lower-rated securities has not weathered a major
economic recession, and it is not known how one might affect that market. It is
likely, however, that any such recession could severely affect the market for
and the values of such securities, as well as the ability of the issuers of such
securities to repay principal and pay interest thereon.
The Funds, other than the Money Market Fund, may acquire lower-rated
securities that are sold without registration under the federal securities laws
and therefore carry restrictions on resale. These funds may incur special costs
in disposing of such securities, but will generally incur no costs when the
issuer is responsible for registering the securities. These funds also may
acquire lower-rated securities during an initial underwriting. Such securities
involve special risks because they are new issues. TIAA-CREF Mutual Funds has no
arrangement with any person concerning the acquisition of such securities, and
Advisors will carefully review the credit and other characteristics pertinent to
such new issues.
ZERO COUPON BONDS. The funds may invest in zero coupon bonds. Zero
coupon bonds generally pay no cash interest (or dividends in the case of
preferred stock) to their holders prior to maturity. Accordingly, such
securities usually are issued and traded at a deep discount from their face or
par value and generally are subject to greater fluctuations of market value in
response to changing interest rates than securities of comparable maturities and
credit quality that pay cash interest (or dividends in the case of preferred
stock) on a current basis. Although each of these funds will receive no payments
on its zero coupon bonds prior to their maturity or disposition, it will be
required for federal income tax purposes generally to include in its dividends
each year an amount equal to the annual income that accrues on its zero coupon
securities. Such dividends will be paid from the cash assets of the fund, from
borrowings or by liquidation of portfolio securities, if necessary, at a time
that the fund otherwise would not have
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done so. To the extent the funds are required to liquidate thinly traded
securities, they may be able to sell such securities only at prices lower than
if such securities were more widely traded. The risks associated with holding
securities that are not readily marketable may be accentuated at such time. To
the extent the proceeds from any such dispositions are used by the funds to pay
distributions, each of the funds will not be able to purchase additional
income-producing securities with such proceeds, and as a result its current
income ultimately may be reduced.
FLOATING AND VARIABLE RATE INSTRUMENTS. The funds may invest in
floating and variable rate instruments. Income securities may provide for
floating or variable rate interest or dividend payments. The floating or
variable rate may be determined by reference to a known lending rate, such as a
bank's prime rate, a certificate of deposit rate or the London InterBank Offered
Rate (LIBOR). Alternatively, the rate may be determined through an auction or
remarketing process. The rate also may be indexed to changes in the values of
interest rate or securities indexes, currency exchange rate or other
commodities. Variable and floating rate securities tend to be less sensitive
than fixed rate securities to interest rate changes and to have higher yields
when interest rates increase. However, during periods of rising interest rates,
changes in the interest rate of an adjustable rate security may lag changes in
market rates. The amount by which the rates paid on an income security may
increase or decrease may be subject to periodic or lifetime caps. Fluctuations
in interest rates above these caps could cause adjustable rate securities to
behave more like fixed rate securities in response to extreme movements in
interest rates.
Floating and variable rate income securities include securities whose
rates vary inversely with changes in market rates of interest. Such securities
may also pay a rate of interest determined by applying a multiple to the
variable rate. The extent of increases and decreases in the value of securities
whose rates vary inversely with changes in market rates of interest generally
will be larger than comparable changes in the value of an equal principal amount
of a fixed-rate security having similar credit quality, redemption provisions
and maturity.
STRUCTURED OR INDEXED SECURITIES. The Bond PLUS Fund, Short-Term Bond
Fund, High-Yield Bond Fund, and Tax-Exempt Bond Fund (collectively, the "Bond
Funds") may invest in structured or indexed securities. The value of the
principal of and/or interest on such securities is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indices or other financial indicators (the "Reference") or the relative change
in two or more References. The interest rate or the principal amount payable
upon maturity or redemption may be increased or decreased depending upon changes
in the applicable Reference. The terms of the structured or indexed securities
may provide that in certain circumstances no principal is due at maturity and,
therefore, may result in a loss of the fund's investment. Structured or indexed
securities may be positively or negatively indexed, so that appreciation of the
Reference may produce an increase or a decrease in the interest rate or value of
the security at maturity. In addition, changes in interest rates or the value of
the security at maturity may be some multiple of the change in the value of the
Reference. Consequently, structured or indexed securities may entail a greater
degree of market risk than other types of debt securities because a fund bears
the risk of the Reference. Structured or indexed securities
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may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES GENERALLY. The funds may
invest in mortgage-backed and asset-backed securities, which represent direct or
indirect participation in, or are collateralized by and payable from, mortgage
loans secured by real property or instruments derived from such loans.
Mortgage-backed securities include various types of mortgage-related securities
such as government stripped mortgage-related securities, adjustable rate
mortgage-related securities and collateralized mortgage obligations. These are
described below. These Funds may also invest in asset-backed securities, which
represent participation in, or are secured by and payable from, assets such as
motor vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property, receivables from revolving credit
(I.E., credit card) agreements and other categories of receivables. Such assets
are securitized through the use of trusts and special purpose corporations.
Payments or distributions of principal and interest may be guaranteed up to
certain amounts and for certain time periods by letters of credit or pool
insurance policies issued by a financial institution unaffiliated with the trust
or corporation. Other credit enhancements also may exist.
Mortgage-related securities represent pools of mortgage loans assembled
for sale to investors by various governmental agencies, such as GNMA, by
government-related organizations, such as FNMA and FHLMC, as well as by private
issuers, such as commercial banks, savings and loan institutions and mortgage
bankers .
The average maturity of pass-through pools of mortgage-related
securities in which certain of the funds may invest varies with the maturities
of the underlying mortgage instruments. In addition, a pool's stated maturity
may be shortened by unscheduled payments on the underlying mortgages. Factors
affecting mortgage prepayments include the level of interest rates, general
economic and social conditions, the location of the mortgaged property and age
of the mortgage. Because prepayment rates of individual mortgage pools vary
widely, the average life of a particular pool cannot be predicted accurately.
Mortgage-related securities may be classified as private, government or
government-related, depending on the issuer or guarantor. Private
mortgage-related securities represent pass-through pools consisting principally
of conventional residential mortgage loans created by non-government issuers,
such as commercial banks and savings and loan associations and private mortgage
insurance companies. Government mortgage-related securities are backed by the
full faith and credit of the United States. GNMA, the principal U.S. guarantor
of these securities, is a wholly-owned U.S. government corporation within the
Department of Housing and Urban Development. Government-related mortgage-related
securities are not backed by the full faith and credit of the United States.
Issuers include FNMA and FHLMC. FNMA is a government-sponsored corporation owned
entirely by private stockholders, which is
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subject to general regulation by the Secretary of Housing and Urban Development.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA. FHLMC is a corporate instrumentality of the
United States, the stock of which is owned by the Federal Home Loan Banks.
Participation certificates representing interests in mortgages from FHLMC's
national portfolio are guaranteed as to the timely payment of interest and
ultimate collection of principal by FHLMC.
Private, government or government-related entities may create mortgage
loan pools offering pass-through investments in addition to those described
above. The mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may be shorter than previously customary.
Advisors assesses new types of mortgage-related securities as they are developed
and offered to determine their appropriateness for investment by the relevant
Fund.
Mortgage-backed and asset-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result of
the pass-through of prepayments of principal on the underlying loans.
Prepayments of principal by mortgagors or mortgage foreclosures shorten the term
of the mortgage pool underlying the mortgage security. The occurrence of
mortgage prepayments is a function of several factors including the level of
interest rates, general economic conditions, the location and age of the
mortgage and other social and demographic conditions. A fund's ability to
maintain positions in such securities is affected by the reductions in the
principal amount of such securities resulting from prepayments, and its ability
to reinvest prepayments of principal at comparable yield is subject to generally
prevailing interest rates at that time. The values of mortgage-backed or
asset-backed securities varies with changes in market interest rates generally
and the differentials in yields among various kinds of U.S. Government
securities and other mortgage-backed and asset-backed securities. In periods of
rising interest rates, the rate of prepayment tends to decrease, thereby
lengthening the average life of a pool of mortgages supporting a mortgage-backed
security. Conversely, in periods of falling interest rates, the rate of
prepayment tends to increase thereby shortening the average life of such a pool.
Because prepayments of principal generally occur when interest rates are
declining, an investor, such as a fund, generally has to reinvest the proceeds
of such prepayments at lower interest rates than those at which its assets were
previously invested. Therefore, mortgage-backed securities have less potential
for capital appreciation in periods of falling interest rates than other
income-bearing securities of comparable maturity, although such other
income-bearing securities may have a comparable risk of capital depreciation
during periods of rising interest rates.
Because asset-backed securities generally do not have the benefit of a
security interest in collateral that is comparable to mortgage assets,
asset-backed securities present certain additional risks that are not present
with mortgage-backed securities. Revolving credit receivables are generally
unsecured and the debtors on such receivables are entitled to the protection of
a number of state and federal consumer credit laws, many of which give debtors
the
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right to set-off certain amounts owed, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than by
real property. Most issuers of automobile receivables permit the loan servicers
to retain possession of the underlying obligations. If the servicer sells these
obligations to another party, there is the risk that the purchaser could acquire
an interest superior to that of holders of the asset-backed securities. In
addition, because of the large number of vehicles involved in a typical issue of
asset-backed securities and technical requirements under state law, the trustee
for the holders of the automobile receivables may not have a proper security
interest in the automobiles. Therefore, there is the possibility that recoveries
on repossessed collateral may not be available to support payments on these
securities.
GOVERNMENT STRIPPED MORTGAGE-RELATED SECURITIES. The Funds may invest
in government stripped mortgage-related securities. These securities represent
beneficial ownership interests in either period principal distributions
("principal-only") or interest distributions ("interest-only") on
mortgage-backed certificates issued by the Government National Mortgage
Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), or
the Federal National Mortgage Association ("FNMA"). The certificates underlying
the government stripped mortgage-related securities represent all or part of the
beneficial interest in pools of mortgage loans.
Investing in government stripped mortgage-related securities involves
all of the risks of investing in mortgage-backed securities and U.S. Government
securities generally. In addition, the yields on these instruments are extremely
sensitive to the prepayment experience of the mortgage loans making up the pool
underlying the certificates. If a decline in the level of prevailing current
interest rates results in a rate of principal prepayments that is higher than
anticipated when the certificate was created, then distributions of principal
will accelerate thereby reducing the yield to maturity of interest-only
securities from that certificate and increasing the yield to maturity of
principal-only securities from that certificate. Sufficiently high prepayment
rates could result in a fund not recovering its investment in interest-only
securities. Where a certificate represents only a part of the beneficial
interest in a pool, the sensitivity of an interest-only security of that
certificate to interest rate fluctuations, may be greater than of other
interest-only securities derived from other certificates supported by the same
underlying pool because of the particular character of the principal portion of
the pool that the certificate represents.
Government stripped mortgage-related securities are currently traded
over the counter in a market maintained by several investment banking firms. No
one can be certain that a fund will be able to purchase or sell a government
stripped mortgage-related security at any time in the future. The funds only
purchase such securities if a secondary market exists for the securities at the
time of purchase.
ADJUSTABLE RATE MORTGAGE-RELATED SECURITIES. The Funds may invest in
adjustable rate mortgage-related securities. Adjustable rate mortgage-related
securities ("ARMs") have interest
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rates that reset at periodic intervals. Acquiring ARMs permits a fund to
participate in increases in prevailing current interest rates through periodic
adjustments in the coupons of mortgages underlying the pool on which
certificates are based. Such certificates generally have higher current yield
and lower price fluctuations than is the case with more traditional fixed-income
debt securities of comparable rating and maturity. In addition, when prepayments
of principal are made on the underlying mortgages during periods of rising
interest rates, a fund can reinvest the proceeds of such prepayments at rates
higher than that at which they were previously invested. Mortgages underlying
most ARMs, however, have limits on the allowable annual or lifetime increases
that can be made in the interest rate that the mortgagor pays. Therefore, if
current interest rates rise above such limits over the period of the limitation,
a fund holding an ARM does not benefit from further increases in interest rates.
Moreover, when interest rates are in excess of coupon rates (I.E., the rates
being paid by mortgagors) of the mortgages, ARMs behave more like fixed-income
securities and less like adjustable rate securities. In addition, during periods
of rising interest rates, increases in the coupon rate of adjustable rate
mortgages generally lag current market interest rates slightly, thereby creating
the potential for capital depreciation on such securities.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Funds may invest in
collateralized mortgage obligations ("CMOs"). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-backed securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over other classes with respect to the receipt of
prepayments on the mortgages. Therefore, depending upon the type of CMO in which
a fund invests, the investment is subject to a greater or lesser risk of
prepayment than other types of mortgage-backed securities.
ASSET-BACKED AND RECEIVABLE-BACKED SECURITIES. The Bond Funds may
invest in asset-backed and receivable-backed securities. To date, several types
of asset-backed and receivable-backed securities have been offered to investors
including those backed by home equity loans, manufacturing loans, credit card
receivables and Certificates for Automobile Receivables ("CARs(sm)"). Consistent
with each of these Funds' investment objective and policies , these Funds may
also invest in other types of asset-backed and receivable-backed securities.
MORTGAGE ROLLS. The Bond Funds may enter into mortgage "rolls" in which
the fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The fund
loses the right to receive principal and interest paid on the securities sold.
However, the fund would benefit to the extent of any price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage repayments that would have been realized on the
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securities sold as part of the mortgage roll, the use of this technique will
diminish the investment performance of the fund compared with what such
performance would have been without the use of mortgage rolls. The fund will
hold and maintain in a segregated account until the settlement date cash or
liquid assets in an amount equal to the forward purchase price. The benefits
derived from the use of mortgage rolls may depend upon Advisors' ability to
predict correctly mortgage prepayments and interest rates. There is no assurance
that mortgage rolls can be successfully employed.
For financial reporting and tax purposes, each of these funds proposes
to treat mortgage rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The funds do not
currently intend to enter into mortgage rolls that are accounted for as a
financing.
RESTRICTED SECURITIES AND ILLIQUID INVESTMENTS
Advisors is responsible for determining the value and liquidity of
investments held by each fund. Investments may be illiquid because of the
absence of a trading market, making it difficult to value them or dispose of
them promptly at an acceptable price. The Money Market Fund will not purchase or
otherwise acquire any investment, if as a result, more than 10% of its net
assets (taken at current value) would be invested in illiquid investments. The
other Funds will each not purchase or otherwise acquire any investment, if as a
result, more than 15% of their net assets (taken at current value) would be
invested in illiquid investments.
Illiquid investments include most repurchase agreements maturing in
more than seven days, currency swaps, time deposits with a notice or demand
period of more than seven days, certain over-the-counter option contracts (and
segregated assets used to cover such options), participation interests in loans,
and certain restricted securities. A restricted security is one that has a
contractual restriction on resale or cannot be resold publicly until it is
registered under the Securities Act of 1933 (the "1933 Act") or is exempt from
registration under the 1933 Act.
The Funds may invest in restricted securities. Restricted securities
are not, however, considered illiquid if they are eligible for sale to qualified
institutional purchasers in reliance upon Rule 144A under the 1933 Act and that
are determined to be liquid by the TIAA-CREF's Board of Trustees, or by Advisors
under board-approved procedures. Such guidelines would take into account trading
activity for such securities and the availability of reliable pricing
information, among other factors. To the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities,
a fund's holdings of those securities may become illiquid. Purchases by these
funds of securities of foreign issuers offered and sold outside the United
States in reliance upon the exemption from registration provided by Regulation S
under the 1933 Act also may be liquid even though they are restricted for sale
in the United States.
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MUNICIPAL SECURITIES. The Tax-Exempt Bond Fund invests in "municipal
securities". The term "municipal securities" as used in the Prospectus and this
SAI means debt obligations issued by, or on behalf of, states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities or multi state agencies
or authorities, the interest from which debt obligations is, in the opinion of
the issuer's counsel, excluded from gross income for federal income tax purposes
(but not necessarily exempt from federal alternative minimum tax or from state
or local taxes). Municipal securities generally are understood to include debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities, refunding of outstanding
obligations, payment of general operating expenses and extensions of loans to
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance privately operated facilities are
considered to be municipal securities if, in the opinion of the issuer's
counsel, the interest paid on them qualifies as excluded from gross income (but
not necessarily from alternative minimum taxable income) for federal income tax
purposes. Interest on certain "private activity" bonds is subject to the federal
alternative minimum tax. Interest from private activity bonds will be considered
tax-exempt for purposes of the Tax-Exempt Bond Fund's policy of investing so
that at least 80% of its income distributions is exempt from federal income tax.
Interest from private activity bonds is a tax preference item for the purposes
of determining whether a taxpayer is subject to the AMT and the amount of AMT to
be paid, if any. Opinions relating to the validity of municipal securities and
to the exemption of interest on them from federal income taxes are rendered by
bond counsel for each issuer at the time of issue. These opinions are generally
based on covenants by the issuers or others regarding continuing compliance with
the federal tax laws. In the event that the issuer fails to comply, the interest
distributions to shareholders may retroactively become federally taxable.
Neither TIAA-CREF Mutual Funds nor Advisors will review the proceedings relating
to the issuance of municipal securities or the basis for opinions of issuer's
counsel.
Municipal securities may be issued to finance life care facilities,
which are an alternative form of long-term housing for the elderly that offer
residents the independence of a condominium life-style and, if needed, the
comprehensive care of nursing home services. Bonds to finance these facilities
have been issued by various state industrial development authorities. Because
the bonds are secured only by the revenues of each facility and not by state or
local government tax payments, they are subject to a wide variety of risks,
including a drop in occupancy levels, the difficulty of maintaining adequate
financial reserves to secure estimated actuarial liabilities, the possibility of
regulatory cost restrictions applied to health care delivery and competition
from alternative health care or conventional housing facilities.
Even though municipal securities are interest-bearing investments that
promise a stable flow of income, their prices are inversely affected by changes
in interest rates and, therefore, are subject to the risk of market price
fluctuations. The values of municipal securities with longer remaining
maturities typically fluctuate more than those of similarly rated municipal
securities with shorter remaining maturities. The values of fixed income
securities also may be affected by changes in the credit rating or financial
condition of the issuing entities.
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Tax legislation in recent years has included several provisions that
may affect the supply of, and the demand for, municipal securities, as well as
the tax-exempt nature of interest paid on those securities. Neither TIAA-CREF
Mutual Funds nor Advisors can predict with certainty the effect of recent tax
law changes upon the municipal obligation market, including the availability of
instruments for investment by a Fund. In addition, neither TIAA-CREF Mutual
Funds nor Advisors can predict whether additional legislation adversely
affecting the municipal obligation market will be enacted in the future.
Advisors monitors legislative developments and considers whether changes in the
objective or policies of a fund need to be made in response to those
developments. If any laws are enacted that would reduce the availability of
municipal securities for investment by the Tax-Exempt Bond Fund so as to affect
the fund's shareholders adversely, TIAA-CREF Mutual Funds will reevaluate the
fund's investment objective and policies and might submit possible changes in
the fund's structure to the fund's shareholders for their consideration. If
legislation were enacted that would treat a type of municipal obligation as
taxable for federal income tax purposes, TIAA-CREF Mutual Funds would treat the
security as a permissible taxable money market instrument for the fund within
the applicable limits set forth in the Prospectus.
MUNICIPAL INSURANCE. The Tax-Exempt Bond Fund may invest its assets in
municipal bonds whose principal and interest payments are guaranteed by a
private insurance company. This insurance may be (1) purchased by the bond
issuer at the time of issuance; (2) purchased by TIAA-CREF to guarantee specific
bonds only while held by the fund; or (3) purchased by an investor after the
bond has been issued to guarantee the bond until its maturity date.
MUNICIPAL LEASES. Municipal leases are municipal securities that may
take the form of a lease or an installment purchase contract issued by state and
local governmental authorities to obtain funds to acquire a wide variety of
equipment and facilities such as fire and sanitation vehicles, computer
equipment and other capital assets. Interest payments on qualifying municipal
leases are exempt from federal income taxes and state income taxes within the
state of issuance. Although municipal lease obligations do not normally
constitute general obligations of the municipality, a lease obligation is
ordinarily backed by the municipality's agreement to make the payments due under
the lease obligation. These obligations have evolved to make it possible for
state and local government authorities to acquire property and equipment without
meeting constitutional and statutory requirements for the issuance of debt.
Thus, municipal leases have special risks not normally associated with municipal
securities. These securities frequently contain "non-appropriation" clauses that
provide that the governmental issuer of the obligation has no obligation to make
future payments under the lease or contract unless money is appropriated for
those purposes by the legislative body on a yearly or other periodic basis. In
addition to the non-appropriation risk, municipal leases represent a type of
financing that has not yet developed the depth of marketability associated with
other municipal securities. Some municipal lease obligations may be, and could
become, illiquid. Moreover, although municipal leases will be secured by the
leased equipment, the disposition of the equipment in the event of foreclosure
might prove to be difficult.
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Municipal lease obligations may be deemed to be illiquid as determined
by or in accordance with methods adopted by the Board of Trustees. In
determining the liquidity and appropriate valuation of a municipal lease
obligation, the following factors relating to the security are considered, among
others: (1) the frequency of trades and quotes; (2) the number of dealers
willing to purchase or sell the security; (3) the willingness of dealers to
undertake to make a market; (4) the nature of the marketplace trades; and (5)
the likelihood that the obligation will remain marketable based on the credit
quality of the municipality or relevant obligor.
Municipal leases will be considered illiquid securities unless the
Board of Trustees determines on an ongoing basis that the leases are readily
marketable. An unrated municipal lease with a non-appropriation risk that is
backed by an irrevocable bank letter of credit or an insurance policy issued by
a bank or insurer deemed by Advisors to be of high quality and minimal credit
risk, will not be deemed to be illiquid solely because the underlying municipal
lease is unrated, if Advisors determines that the lease is readily marketable
because it is backed by the letter of credit or insurance policy.
Municipal leases can be both rated and unrated. Rated leases that may
be held by a fund include those rated investment grade at the time of investment
or those issued by issuers whose senior debt is rated investment grade at the
time of investment. A fund may acquire unrated issues that Advisors deems to be
comparable in quality to rated issues in which a fund is authorized to invest. A
determination that an unrated lease obligation is comparable in quality to a
rated lease obligation and that there is a reasonable likelihood that the lease
will not be canceled will be subject to oversight and approval by the Board of
Trustees.
To limit the risks associated with municipal leases, the Tax-Exempt
Bond Fund will invest no more than 15 percent of its assets in such leases. In
addition, a fund will purchase lease obligations that contain non-appropriation
clauses when the lease payments will commence amortization of principal at an
early date resulting in an average life of five years or less for the lease
obligation.
FLOATING AND VARIABLE RATE DEMAND INSTRUMENTS. Floating and variable
rate demand bonds and notes are municipal securities ordinarily having stated
maturities in excess of one year but which permit their holder to demand payment
of principal at any time or at specified intervals. Variable rate demand notes
include master demand notes, which are securities that permit a fund to invest
fluctuating amounts, which may change daily without penalty, pursuant to direct
arrangements between the fund, as lender, and the borrower. These securities
have interest rates that fluctuate from time to time and frequently are secured
by letters of credit or other credit support arrangements provided by banks. Use
of letters of credit or other credit support arrangements generally will not
adversely affect the tax-exempt status of variable rate demand notes. Because
they are direct lending arrangements between the lender and borrower, variable
rate demand notes generally will not be traded and no established secondary
market generally exists for them, although they are redeemable at face value. If
variable rate demand notes are not secured by letters of credit or other credit
support arrangements, the right to
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demand payment on them will be dependent on the ability of the borrower to pay
principal and interest on demand. Each obligation purchased by a fund will meet
the quality criteria established by Advisors for the purchase of municipal
securities. Advisors considers on an ongoing basis the creditworthiness of the
issuers of the floating and variable rate demand securities in the relevant
fund's portfolio.
PARTICIPATION INTERESTS. A participation interest in a municipal
security gives the purchaser an undivided interest in the municipal obligation
in the proportion that the fund's participation interest bears to the total
principal amount of the municipal obligation. These instruments may have fixed,
floating or variable rates of interest. If the participation interest is
unrated, or has been given a rating below one that is otherwise permissible for
purchase by a fund, the participation interest will be backed by an irrevocable
letter of credit or guarantee of a bank that the Board of Trustees has
determined meets certain quality standards, or the payment obligation otherwise
will be collateralized by Government Securities. The Tax-Exempt Bond Fund will
have the right, with respect to certain participation interests, to demand
payment, on a specified number of days' notice, for all or any part of the
fund's participation interest in the municipal obligation, plus accrued
interest. The fund intends to exercise its right to demand payment only upon a
default under the terms of the municipal obligation, or to maintain or improve
the quality of its investment portfolio. The Tax-Exempt Bond Fund will invest no
more than 5 percent of the value of its assets in participation interests.
MUNICIPAL OBLIGATION COMPONENTS. The interest payments on municipal
securities can be divided into two different and variable components, which
together result in a fixed interest rate. Typically, the first of the components
(the "Auction Component") pays an interest rate that is reset periodically
through an auction process, whereas the second of the components (the "Residual
Component") pays a residual interest rate based on the difference between the
total interest paid by the issuer on the municipal obligation and the auction
rate paid on the Auction Component. The components can be purchased separately.
Because the interest rate paid to holders of Residual Components is generally
determined by subtracting the interest rate paid to the holders of Auction
Components from a fixed amount, the interest rate paid to Residual Component
holders will decrease as the Auction Component's rate increases and increase as
the Auction Component's rate decreases. Moreover, the extent of the increases
and decreases in market value of Residual Components may be larger than
comparable changes in the market value of an equal principal amount of a fixed
rate municipal obligation having similar credit quality, redemption provisions
and maturity.
MUNICIPAL CUSTODY RECEIPTS. The Tax-Exempt Bond Fund also may acquire
custodial receipts or certificates underwritten by securities dealers or banks
that evidence ownership of future interest payments, principal payments, or
both, on certain municipal securities. The underwriter of these certificates or
receipts typically purchases municipal securities and deposits the securities in
an irrevocable trust or custody account with a custodian bank, which then issues
receipts or certificates that evidence ownership of the periodic unmatured
coupon payments and the final principal payment on the securities. Custody
receipts evidencing
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specific coupon or principal payments have the same general attributes as zero
coupon municipal securities described above. Although under the terms of a
custody receipt a fund would be typically authorized to assert its rights
directly against the issuer of the underlying obligation, the fund could be
required to assert through the custodian bank those rights as may exist against
the underlying issuers. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, a fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if the fund
had purchased a direct obligation of the issuer. In addition, in the event that
the trust or custody account in which the underlying security has been deposited
is determined to be an association taxable as a corporation, instead of a
non-taxable entity, the yield on the underlying security would be reduced in
recognition of any taxes paid.
CURRENCY TRANSACTIONS AND FOREIGN INVESTMENTS
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 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
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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.
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 securities 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 the Prospectus, there are a
number of country-or region-specific risks and other considerations that may
affect these investments.
26
<PAGE>
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, a market larger than either the United
States or Japan. European business compete both intra-regionally and globally in
a wide range of industries, and recent political and economic changes throughout
Europe are likely further to expand the role of Europe in the global economy. As
a result, a great deal of interest and activity has been generated aimed at
understanding and benefitting from the "new" Europe that may result. The
incipient aspects of major developments in Europe as well as other
considerations means that there can be no guarantee that outcomes will be 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, macro and micro-economic adjustments already in train are indicative
of significant increases in 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. The
establishment of the eleven country European Monetary Union, a subset of the
European Union countries, with its own central bank, the European Central Bank;
and its own currency, the Euro; and a single interest rate structure represents
a new economic entity, the Euro-area. While authority for monetary policy thus
shifts from national hands to an independent supranational body, sovereignty
elsewhere remains largely at the national level. Uncertainties with regard to
balancing of monetary policy against national fiscal and other political issues
and their extensive ramifications represent important risk considerations for
investors in these countries.
INVESTMENT IN THE PACIFIC BASIN. The economies of the Pacific Basin vary widely
in their stages of economic development. Some (such as Japan, Australia,
Singapore, and Hong Kong) are considered advanced by Western standards; others
(such as Thailand, Indonesia, and Malaysia are considered "emerging" -- rapidly
shifting from natural resource and agriculture based systems to more
technologically advanced systems oriented toward manufacturing and services. The
major reform of China's economy and polity continues to be an important
influence on economic growth internally, and, through trade, across the region.
Intra-regional trade has become increasingly important to a number of these
economies. Japan, the second largest economy in the world, is the dominant
economy in the Pacific Basin, with one of the highest per capita incomes in the
world. Its extensive trade relationships also contribute to expectations for
regional and global economic growth. Economic growth has historically been
relatively strong in the region, but recent economic turmoil among the emerging
economies, and unmitigated recessionary impulses in Japan in the recent past
have raised important questions with regard to
27
<PAGE>
prospective longer-term outcomes. Potential policy miscalculations or other
events could pose important risks to equity investors in any of these economies.
INVESTMENT IN 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., Canada, and Mexico have established the North
American Free Trade Agreement ("NAFTA"), which is expected to significantly
benefit the economies of each of the countries through the more rational
allocation of resources and production over the region. Uncertainty regarding
the longer - run political structure of Canada is an added risk to investors,
along with highly volatile commodity prices.
INVESTMENT IN LATIN AMERICA. Latin America (including Mexico and Central
America) has a population of approximately 455 million 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. Restrictions on international capital flows, intermittent problems with
capital flight, and some potential difficulties in the repayment of external
debt, however, remain important concerns in the region -- exacerbating the risks
in these equity markets. As a result Latin American equity markets have been
extremely volatile. Efforts to restructure these economies through
privatization, and fiscal and monetary reform have met with some success with
gains in output growth, and slowing rates of inflation. These efforts may result
in attractive investment opportunities. However, recent events have shown that
large shifts in sentiment in markets elsewhere on the globe may very quickly
reverberate among these markets, adding greater risk to already volatile
markets. There can be no assurance that attempted reforms will ultimately be
successful or 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
28
<PAGE>
offerings involving the foreign issuer in a timely manner. In addition, the lack
of information may result in inefficiencies in the valuation of such
instruments. However, by investing in ADRs rather than directly in the stock of
foreign issuers, a Fund will avoid currency risks during the settlement period
for either purchases or sales. In general, there is a large, liquid market in
the U.S. for ADRs quoted on a national securities exchange or the NASD's
national market system. The information available for ADRs is subject to the
accounting, auditing and financial reporting standards of the domestic market or
exchange on which they are traded, which standards are more uniform and more
exacting than those to which many foreign issuers may be subject.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S.
bank similar to that for ADRs and are designed for use in non-U.S. securities
markets. EDRs and GDRs are not necessarily quoted in the same currency as the
underlying security.
OTHER INVESTMENT TECHNIQUES AND OPPORTUNITIES
CORPORATE ACTIONS. 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 percent 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 percent of its
total assets in any one industry.
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
(*).
29
<PAGE>
<TABLE>
<CAPTION>
TRUSTEES AGE PRINCIPAL OCCUPATIONS DURING PAST 5
- -------- --- -----------------------------------
YEARS
-----
<S> <C> <C>
Robert H. Atwell 69 President Emeritus, American Counsel on
447 Bird Key Drive Education and senior consultant for A.T.
Sarasota, FL 34236 Kearney, since November 1996.
Previously, President, American Counsel
on Education.
Elizabeth E. Bailey 61 John C. Hower Professor of Public Policy
The Wharton School and Management, The Wharton School of
University of Pennsylvania the University of Pennsylvania.
Suite 3100
Steinberg-Dietrich Hall
Philadelphia, PA 19104-6372
John H. Biggs* 63 Chairman, Chief Executive Officer, and
TIAA-CREF President, CREF and TIAA, since 1997.
730 Third Avenue Previously, Chairman and Chief Executive
New York, NY 10017 Officer, CREF and TIAA.
Joyce A. Fecske 53 Vice President Emerita, DePaul University,
4800 South Karlov Avenue since 1994.
Chicago, IL 60632
Edes P. Gilbert 68 Consultant, Independent Education
Independent Education Services Services, since 1998. Formerly, Head, The
49 East 78th Street Spence School.
New York, NY 10021
Stuart Tse Kong Ho 64 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 57 President and Managing Partner,
Windermere Investment Associates Windermere Investment Associates, since
121 S.W. Morrison Street January 1997. Previously, Chairman and
Portland, OR 97204 Chief Executive Officer, CTC Consulting,
Inc. and Managing Director, Capital Trust
Company.
Marjorie Fine Knowles 60 Professor of Law, Georgia State University
College of Law College of Law.
Georgia State University
University Plaza
Atlanta, GA 30303-3092
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
TRUSTEES AGE PRINCIPAL OCCUPATIONS DURING PAST 5
- -------- --- -----------------------------------
YEARS
-----
<S> <C> <C>
Martin L. Leibowitz* 63 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.
Bevis Longstreth* 66 Of Counsel, Debevoise & Plimpton, since
Debevoise & Plimpton 1998. Formerly, Partner, Debevoise &
875 Third Avenue Plimpton. Adjunct Professor of Law,
New York, NY 10022 Columbia University.
Robert M. Lovell, Jr. 69 Founding Partner, First Quadrant L.P.
First Quadrant L.P. Formerly, Chairman and Chief Executive
100 Campus Drive Officer, First Quadrant Corp. (Investment
P.O. Box 939 Management Firm).
Florham Park, NJ 07932
Stephen A. Ross 56 Franco Modigliani Professor of Finance
Sloan School of Management and Management, Sloan School of
Massachusetts Institute of Technology Management, Massachusetts Institute of
77 Massachusetts Avenue Technology, since 1998. Co-Chairman,
Cambridge, MA 02139 Roll & Ross Asset Management Corp.
Eugene C. Sit 61 Chairman, Chief Executive and Chief
Sit Investment Associates, Inc. Investment Executive Officer, Sit
4600 Norwest Center Investment Associates, Inc. and Sit/Kim
90 South Seventh Street International Investment Associates, Inc.
Minneapolis, MN 55402
Maceo K. Sloan 50 Chairman, President, and Chief Executive
NCM Capital Management Group, Inc. Officer, Sloan Financial Group, Inc., and
Suite 400 NCM Capital Management Group, Inc.
103 West Main Street
Durham, NC 27701-3638
David K. Storrs 54 President and Chief Executive Officer,
Alternative Investment Group, LLC 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.
Robert W. Vishny 40 Eric J. Gleacher Professor of Finance,
Graduate School of Business University of Chicago Graduate School of
University of Chicago Business. Founding Partner, LSV Asset
1101 East 58th Street Management.
Chicago, IL 60637
</TABLE>
- --------
(1) Member of the Executive Committee. The Executive Committee has authority to
act during intervals between Board meetings.
(2) Member of the Finance Committee. The Finance Committee oversees the
investments of the TIAA-CREF Mutual Funds.
(3) Member of the Executive and Finance Committees.
31
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION(S) DURING PAST
OFFICERS* AGE REGISTRANT 5 YEARS
- --------- ---
<S> <C> <C> <C>
Thomas G. Walsh 55 President Executive Vice President, TIAA and
CREF, and President , Teachers
Personal Investors Services, Inc.
("TPIS")
Scott C. Evans 40 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 53 Executive Executive Vice President, TIAA and
Vice President CREF, since March 1993. Executive
Vice President, Advisors, Investment
Management, TPIS and TIAA-CREF
Individual & Institutional Services,
Inc. ("Services").
E. Laverne Jones 51 Secretary Vice President and Corporate
Secretary, TIAA and CREF, since
August 1998. Previously, Senior
Counsel, TIAA and CREF.
Richard J. Adamski 58 Vice President Vice President and Treasurer, TIAA
and Treasurer and CREF, Investment Management,
Advisors, TPIS and Services.
</TABLE>
- -----------
* The address for all Officers of the TIAA-CREF Mutual Funds is 730 Third
Avenue, New York, NY 10017-3206.
32
<PAGE>
TRUSTEE 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, 1999. The Funds' officers receive no compensation from any fund in
the TIAA-CREF Fund complex. The TIAA-CREF complex consists of: College
Retirement Equities Fund, ("CREF"), TIAA Separate Account VA-1, the TIAA-CREF
Life Funds, TIAA-CREF Institutional Mutual Funds and TIAA-CREF Mutual Funds,
each a registered investment company.
TIAA-CREF Mutual Funds has a long-term performance deferred
compensation plan for non-employee trustees. Under this unfunded plan, annual
contributions equal to half the amount of the basic annual trustee stipend are
allocated to notional CREF and TIAA annuity accounts chosen by the individual
trustee. Benefits will be paid after the trustee leaves the board in a lump sum
or in annual installments over 5 to 20 years, as requested by the trustee.
Pursuant to a separate deferred compensation plan, non-employee trustees also
have the option to defer payment of their basic stipend, additional stipends,
and/or meeting fees and allocate these amounts to notional TIAA and CREF
accounts chosen by the individual trustee. Benefits under that plan are also
paid in a lump sum or annual installments over 5 to 20 years, as requested by
the trustee, after the trustee leaves the board.
<TABLE>
<CAPTION>
LONG TERM PERFORMANCE
AGGREGATE DEFERRED COMPENSATION TOTAL COMPENSATION
COMPENSATION CONTRIBUTION FROM TIAA-CREF
NAME FROM THE FUND AS PART OF EXPENSES(1) COMPLEX
- ---- ------------- ---------------------- ------------------
<S> <C> <C> <C>
Robert H. Atwell $ $ $
Elizabeth E. Bailey $ $ $
Gary P. Brinson $ $ $
Joyce A. Fecske $ $ $
Edes P. Gilbert $ $ $
Stuart Tse Kong Ho $ $ $
Nancy L. Jacob $ $ $
Marjorie Fine Knowles $ $ $
Jay O. Light $ $ $
Bevis Longstreth $ $ $
Robert M. Lovell, Jr. $ $ $
Stephen A. Ross $ $ $
Eugene C. Sit $ $ $
Maceo K. Sloan $ $ $
David K. Storrs $ $ $
Robert W. Vishny $ $ $
============================= ============================ ============================== ===========================
</TABLE>
- --------------
(1) This compensation, or a portion of it, was not actually paid based on the
trustee's election to defer receipt of payment in accordance with the
provisions of a deferred compensation plan for non-officer trustees.
PRINCIPAL HOLDERS OF SECURITIES
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 , 2000:
International Equity % Tax-Exempt Bond %
Growth Equity % Managed Allocation %
Growth & Income % Money Market %
Bond PLUS % Equity Index %
Short -Term Bond % Social Choice %
High-Yield Bond %
33
<PAGE>
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 Board of Trustees. As the prospectus describes, Advisors has agreed to waive
a portion of its fee for managing each fund.
Personal Trading Policy. 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.
Advisory fees are payable monthly to 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 1998 and 1999, 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):
<TABLE>
<CAPTION>
GROSS WAIVED NET
----- ------ ---
1998 1999 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C> <C>
International Equity Fund $ $ $ $ $ $
Growth Equity Fund $ $ $ $ $ $
Growth & Income Fund $ $ $ $ $ $
Bond Plus Fund $ $ $ $ $ $
Money Market Fund $ $ $ $ $ $
</TABLE>
Pursuant to the terms of a contract with Advisors, State Street Bank,
225 Franklin Street, Boston, MA 02209 acts as custodian for the TIAA-CREF Mutual
Funds. Advisors has agreed to pay State Street for these services.
Ernst & Young, LLP, 787 7th Avenue, New York, NY 10019, serves as
independent auditors of the TIAA-CREF Mutual Funds.
Advisors has retained State Street Bank & Trust Company ("State
Street") to provide the funds with certain administrative services, including
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. 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.
34
<PAGE>
Teachers Insurance and Annuity Association of America (TIAA), an
insurance company, holds all of the shares of TIAA -CREF Enterprises, 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 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.
35
<PAGE>
INDEMNIFICATION OF TRUSTEES
The Declaration further provides that the TIAA-CREF Mutual Funds shall
indemnify each of its Trustees and officers against liabilities and expenses
reasonably incurred by them, in connection with, or arising out of, any action,
suit or proceeding, threatened against or otherwise involving such Trustee or
officer, directly or indirectly, by reason of being or having been a Trustee or
officer of the TIAA-CREF Mutual Funds. The Declaration does not authorize the
TIAA-CREF Mutual Funds to indemnify any Trustee or officer against any liability
to which he or she would otherwise be subject by reason of or for willful
misfeasance, bad faith, gross negligence or reckless disregard of such person's
duties.
LIMITATION OF FUND LIABILITY
All persons dealing with an investment fund must look solely to the
property of that particular fund for the enforcement of any claims against that
fund, as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of a fund or the
TIAA-CREF Mutual Fund. No investment fund is liable for the obligations of any
other investment fund. Since the funds use a combined Prospectus, however, it is
possible that one fund might become liable for a misstatement or omission in the
Prospectus regarding 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 percent 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).
36
<PAGE>
ADDITIONAL PORTFOLIOS
Pursuant to the Declaration, the Trustees may establish additional
investment portfolios (technically "series" of shares) in the TIAA-CREF Mutual
Funds. As authorized, the Trustees have established five additional investment
portfolios: the Equity Index Fund, the Social Choice Equity Fund, the Short-Term
Bond Fund, the High-Yield Bond Fund and the Tax-Exempt Bond Fund. Furthermore,
the Trustees may establish additional funds in the future. The establishment of
additional investment funds would not affect the interests of current
shareholders in the existing eleven funds.
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,
shareholders of the affected fund are entitled to receive their proportionate
share of the assets which are attributable to their 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 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
37
<PAGE>
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. While this method provides certainty in valuation, it may result in
periods in which value as determined by amortized cost is higher or lower than
the price the fund would receive if it sold the security. During such periods,
the quoted yield to investors may differ somewhat from that obtained by a
similar fund which uses available market quotations to value all of its
securities.
The Board has established procedures reasonably designed, taking into
account current market conditions and the Money Market Funds' investment
objective, to stabilize the net asset value per share for purposes of sales and
redemptions at $1.00. These procedures include review by the Board, at such
intervals as it deems appropriate, to determine the extent, if any, to which the
net asset value per share calculated by using available market quotations
deviates by more than 1/2 of 1 percent from $1.00 per share. In the event such
deviation should exceed 1/2 of 1 percent, 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
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the premiums received on written options and the costs of liquidating such
positions measured by the closing price of the options on the date of valuation.
For example, when a fund writes a call option, the amount of the
premium is included in the fund's assets and an equal amount is included in its
liabilities. The liability thereafter is adjusted to the current market value of
the call. Thus, if the current market value of the call exceeds the premium
received, the excess would be unrealized depreciation; conversely, if the
premium exceeds the current market value, such excess would be unrealized
appreciation. If a call expires or if the fund enters into a closing purchase
transaction it realizes a gain (or a loss if the cost of the transaction exceeds
the premium received when the call was written) without regard to any unrealized
appreciation or depreciation in the underlying securities, and the liability
related to such call is extinguished. If a call is exercised, the fund realizes
a gain or loss from the sale of the underlying securities and the proceeds of
the sale increased by the premium originally received.
A premium paid on the purchase of a put will be deducted from a fund's
assets and an equal amount will be included as an investment and subsequently
adjusted to the current market value of the put. For example, if the current
market value of the put exceeds the premium paid, the excess would be unrealized
appreciation; conversely, if the premium exceeds the current market value, such
excess would be unrealized depreciation.
Stock and bond index futures, and options thereon, which are traded on
commodities exchanges, are valued at their last sale prices as of the close of
such commodities exchanges.
INVESTMENTS FOR WHICH MARKET QUOTATIONS ARE NOT READILY AVAILABLE
Portfolio securities or other assets for which market quotations are
not readily available will be valued at fair value, as determined in good faith
under the direction of the Trustees.
TAX STATUS
The following is a brief summary of some of the principal U.S. federal
income, and certain state and local, tax considerations pertaining to
investments in the funds. This summary does not address special tax rules
applicable to certain classes of investors, such as tax exempt entities. Each
prospective shareholder is urged to consult his or her own tax adviser with
respect to specific federal, state, local and foreign tax consequences of
investing in the funds. This summary is based on the laws in effect on the date
of this SAI, which are subject to change.
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
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<PAGE>
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
percent 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 foreign currencies, or other
income derived with respect to its business of investing in securities; (b) a
fund must distribute to its shareholders 90 percent of its ordinary income and
net short-term capital gains (undistributed net income may be subject to tax at
the fund 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 percent 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 percent
of the fair market value of the fund's total assets and 10 percent of the
outstanding voting securities of such issuer and (ii) no more than 25 percent 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 tax-exempt shareholders and
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
percent of its ordinary income (as of the twelve months ending December 31) and
at least 98 percent of its capital gain net income (as of the twelve months
ending 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 capital gains over its net short-term capital losses. Each fund will
designate income dividends and
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distributions of net capital gains and must notify shareholders of these
designations within sixty days after the close of the fund's taxable year.
Foreign currency gains and losses are taxable as ordinary income. If
the net effect of these transactions is a gain, the dividend paid by the fund
will be increased; if the result is a loss, the income dividend paid by the fund
will be decreased. Adjustments to reflect these gains and losses will be made
throughout each fund's taxable year.
At the time of purchase, each fund's net asset value may reflect
undistributed income or net capital gains. A subsequent distribution to
shareholders of such amounts, although constituting a return of their
investment, would be taxable either as dividends or capital gain distributions.
For federal income tax purposes, each fund is permitted to carry forward its net
realized capital losses, if any, for eight years, and realize net capital gains
up to the amount of such losses without being required to pay taxes on, or
distribute such gains. If a shareholder held shares for six months or less and
during that period received a distribution taxable to such shareholder as a
long-term capital gain, any loss realized on the sale of such shares during the
six-month period would be a long term loss to the extent of such distribution.
Additionally, any loss realized on a sale or redemption of shares of any fund
may be disallowed under the "wash sale" rules to the extent the shares sold or
redeemed are replaced with other shares of the same fund within a period of 61
days beginning 30 days before and ending 30 days after the shares are sold or
redeemed.
The Tax-Exempt Bond Fund expects to qualify to pay "exempt-interest
dividends" which may be treated by shareholders as items of interest that is
exempt from regular federal income tax. (Distributions derived from net
long-term capital gains of the Tax-Exempt Bond Fund will ordinarily be taxable
to shareholders as long-term capital gains and any distributions derived from
taxable interest income, net short-term capital gains, and certain net realized
foreign exchange gains will be taxable to shareholders as ordinary income.) The
recipient of exempt-interest dividends is required to report such income on his
or her federal income tax return and interest on indebtedness incurred or
continued to purchase or carry shares of the Tax-Exempt Bond Fund is not
deductible. In addition, exempt-interest dividends will be taken into account in
determining the extent to which a shareholder's Social Security or certain
railroad retirement benefits are taxable. Any losses realized by shareholders
who dispose of shares of the Tax-Exempt Bond Fund with a tax holding period of
six months or less are disallowed to the extent of any exempt-interest dividends
received with respect to such shares.
The Tax-Exempt Bond Fund may invest a portion of its assets in private
activity bonds, the interest from which (including the Fund's distributions
attributable to such interest) may be a preference item for purposes of the
federal alternative minimum tax (AMT), both individual and corporate. Income
from securities that are a preference item is included in the computation of the
AMT and, in the case of corporations, all exempt-interest income, whether or not
attributable to private activity bond interest, may increase a corporate
shareholder's liability, if any, for AMT. Shareholders who have not held shares
of the Tax-Exempt Bond Fund for such fund's full taxable
41
<PAGE>
year may have designated as tax-exempt interest or as a tax preference item a
percentage of distributions which is not equal to the actual amount of
tax-exempt income or tax preference income earned by the fund during the period
of their investment.
For corporate investors, a portion of the dividends from net investment
income paid by the Growth Equity Fund, Growth & Income Fund, Equity Index Fund
and Social Choice Equity Fund will ordinarily qualify for the corporate
dividends-received deduction. Eligible dividends are limited to those a fund
receives from U.S. domestic corporations and, accordingly, it is not expected
that a substantial portion of distributions made by other funds will qualify for
the dividends-received deduction. Corporations seeking to claim the dividends
received deduction must satisfy certain holding period requirements and debt
financing restrictions. Capital gain dividends are not eligible for the
dividends-received deduction for corporations.
Income received by any 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 percent 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 benefit from any such "pass through" of foreign tax deductions or credits.
Each fund is required by federal law to withhold 31 percent 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 taxpayer identification number is correct and that the
shareholder is not currently subject to back-up withholding or is exempt from
back-up withholding.
The foregoing discussion does not address the special tax rules
applicable to certain classes of investors. For example, each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the funds, including the possibility
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<PAGE>
that such a shareholder may be subject to a U.S. withholding tax at a rate of 30
percent (or at a lower rate under an applicable income tax treaty) on fund
distributions treated as ordinary dividends. Shareholders who are not U.S.
persons should consult their tax advisers regarding the U.S. and non-U.S. tax
consequences of ownership of shares of and receipt of distributions from the
funds.
IRA accounts are subject to special tax treatment. Federal income tax
earnings is deferred, and there are restrictions on the amounts that can be
contributed each year. Investors in these accounts may also have to pay a
penalty for withdrawals prior to age 59 1/2. Shareholders should consult their
tax advisers for more information.
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,
including state and local taxes.
OTHER STATES. A portion of the dividends from the Tax-Exempt Bond Fund
may be exempt from other state and local taxes. Income from investments in your
state of residence are generally tax-exempt to you. Therefore, we will direct
the Transfer Agent to send you a breakdown of income from each state in order to
aid you in preparing your tax return.
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 other funds it may be managing, or that may be
managed by its affiliate, TIAA-CREF Investment Management, Inc. ("Investment
Management"), another investment adviser subsidiary of 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,
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consideration is given by Advisors to the quality of execution provided and to
the use and value of the data. The valuation of such data may be judged with
reference to a particular order or, alternatively, may be judged in terms of its
value to the overall management of the portfolio.
Advisors will place orders with brokers providing useful research and
statistical data services if reasonable commissions can be negotiated for the
total services furnished even though lower commissions may be available from
brokers not providing such services. Advisors follows guidelines established by
the Board for the placing of orders with the brokers providing such services. In
1999, the aggregate amount of brokerage commissions paid by the International
Equity, Growth Equity and Growth & Income Funds as a result of such allocations
was $ , $ , and $ , respectively
Research or service obtained for one Fund may be used by Advisors in
managing the other Funds. In such circumstances, the expenses incurred will be
allocated equitably consistent with Advisors' fiduciary duty to the other Funds.
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
- --------------------------------------------------------------------------------
The aggregate amount of brokerage commissions paid by the Funds during 1998 was
as follows:
- --------------------------------------------------------------------------------
FUND COMMISSIONS
Growth & Income $203,003
International Equity $179,866
Growth Equity $191,941
- --------------------------------------------------------------------------------
The aggregate amount of brokerage commissions paid by the Funds during
1999 was as follows:
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- --------------------------------------------------------------------------------
FUND COMMISSIONS
Growth & Income $
International Equity $
Growth Equity $
- --------------------------------------------------------------------------------
During 1999, 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:
Regular Broker or Dealer Based on Brokerage Commissions Paid:
FUND BROKER PARENT HOLDINGS (US$)
------ ------ ------ -------------
$
$
Regular Broker or Dealer based on entities acting as principal:
FUND BROKER PARENT HOLDINGS (US$)
------ ------ ------ -------------
UNDERWRITERS
Teachers Personal Investors Services, Inc. (TPIS) may be considered the
"principal underwriter" for the TIAA-CREF Mutual Funds. Shares of the TIAA-CREF
Mutual Funds are offered on a continuous basis with no sales load. Pursuant to a
Distribution Agreement with the TIAA-CREF Mutual Funds, TPIS has the right to
distribute shares of the TIAA-CREF Mutual Funds for the two-year period
beginning July 1, 1997, and thereafter from year to year subject to approval by
the Funds' Board of Trustees. Under a Distribution Compensation Agreement
between TPIS and Advisors, Advisors has agreed to pay TPIS monthly for
distribution of Fund shares an amount equal to .40 percent of the aggregate
amount of purchase payments for shares of the Funds during each month. TPIS was
paid $ for services to the Funds in 1999. TPIS receives no other compensation
for its activities as distributor of TIAA-CREF Mutual Fund shares. 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. Currently, TPIS has entered into a Selling Agreement
with TIAA-CREF Individual & Institutional
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<PAGE>
Services ("Services") that permits Services to distribute the shares of the
Mutual Funds on a limited basis.
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.
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 percent over ten years would produce an
average annual return of 7.18 percent, which is the steady annual rate that
would equal 100 percent 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
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<PAGE>
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 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-existing
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<PAGE>
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 and income other than
investment income (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 AVERAGE ANNUAL RETURN
- ------ ---------------------
1 Year (January 1, 1999 to %
December 31, 1999)
Since inception %
(September 2, 1997 to
December 31, 1999)
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Growth Equity Fund
PERIOD AVERAGE ANNUAL RETURN
- ------ ---------------------
1 Year (January 1, 1999 to %
December 31, 1999)
Since inception %
(September 2, 1997 to
December 31, 1999)
Growth & Income Fund
PERIOD AVERAGE ANNUAL RETURN
- ------ ---------------------
1 Year (January 1, 1999 to %
December 31, 1999)
Since inception %
(September 2, 1997 to
December 31, 1999)
Managed Allocation Fund
PERIOD AVERAGE ANNUAL RETURN
- ------ ---------------------
1 Year (January 1, 1999 to %
December 31, 1999)
Since inception %
(September 2, 1997 to
December 31, 1999)
Bond PLUS Fund
PERIOD AVERAGE ANNUAL RETURN
- ------ ---------------------
1 Year (January 1, 1999 to %
December 31, 1999)
Since inception %
(September 2, 1997 to
December 31, 1999)
Money Market Fund
PERIOD AVERAGE ANNUAL RETURN
- ------ ---------------------
1 Year (January 1, 1999 to %
December 31, 1999)
Since inception %
(September 2, 1997 to
December 31, 1999)
49
<PAGE>
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., (13) Lehman Brothers indices and (14) the Global Market
indices created by Morgan Stanley, Inc., including the Europe, Australia, Far
East (EAFE) Index, the EAFE+Canada Index and the International Perspective
Index. We may also discuss ratings or rankings received from these entities,
accompanied in some cases by an explanation of those ratings or rankings, when
applicable. In addition, advertisements may discuss the performance of the
indices listed above.
The performance of each of the funds also may be compared to other
indices or averages that measure performance of a pertinent group of securities.
Shareholders should keep in mind that the composition of the investments in the
reported averages will not be identical to that of the fund and that certain
formula calculations (e.g., yield) may differ from index to index. In addition,
there can be no assurance that any of the funds will continue its performance as
compared to such indices.
We may also advertise ratings or rankings the funds receive from
various rating services and organizations, including but not limited to any
organization listed above.
ILLUSTRATING COMPOUNDING
We may illustrate in advertisements, sales literature and reports to
shareholders the effects of compounding of earnings on an investment in a fund.
We may do this using a hypothetical investment earning a specified rate of
return. To illustrate the effects of compounding, we would show how the total
return from an investment of the same dollar amount, earning the same or a
different rate of return, varies depending on when the investment was made.
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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.
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.
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
the TIAA-CREF Mutual Funds (and 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 herein and have been so included
in reliance upon the report of such firm given upon its authority as experts in
accounting and auditing.
51
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ADDITIONAL CONSIDERATIONS
The TIAA-CREF Mutual Funds are part of the TIAA-CREF family of companies. TIAA
founded in 1918, is a non-profit stock life insurance company. Its companion
organization, CREF, founded in 1952, is a non-profit corporation registered with
the Securities and Exchange Commission 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.
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) or the Teachers
Personal Annuity Select (PA Select) should carefully consider how TIAA-CREF
Mutual Funds fit into their investment portfolio. The tax treatment is
considerably different from the RA, SRA, PA and PA Select. 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 PAs 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 (unless they are being used to
Fund an IRA account). 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.
When deciding how to invest in mutual funds, it's important for
investors to determine their investment goals so they can choose the mutual
fund(s) whose objective closely matches it. They should also determine their
time horizon, I.E., the period of time they plan to keep money invested in the
fund. Time horizon affects how much risk an investor may be willing to take.
Risk tolerance in turn affects asset allocation decisions. For example, an
aggressive investor who is willing to accept a high level of risk in return for
potentially greater returns over the long term, probably would invest more
heavily in equity funds. To preserve the current value of an investment and
avoid losses of principal, an investor might invest more heavily in non-equity
funds.
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,
1999, 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.
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PART C
OTHER INFORMATION
ITEM 22. FINANCIAL STATEMENTS
a) Financial Statements (for each Fund)**
ITEM 23. EXHIBITS
(a) Declaration of Trust, as amended*
(b) Bylaws*
(c) N/A
(d) Investment Management Agreement between Registrant and
Teachers Advisors, Inc.*
(e) (1) Distribution agreement between Registrant and
Teachers Personal Investors Services, Inc.*
(2) Selling agreement, as amended, between TPIS and
TIAA-CREF Individual & Institutional Services,
Inc.*
(f) N/A
(g) Custodian Agreement between the Registrant, Teachers
Advisors and State Street Bank and Trust*
(h) (1) Administration Agreement between State Street Bank
and Trust and Teachers Advisors*
(2) Transfer Agency Agreement between State Street
Bank and Trust and Teachers Advisors*
(i) Opinion and Consent of Charles Stamm, Esq.**
(j) (1) Consent of Sutherland, Asbill & Brennan, L.L.P.**
(2) Consent of Ernst & Young LLP**
(k) N/A
(l) Seed Money Agreement between TIAA and TIAA-CREF Mutual
Funds*
(m) N/A
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(n) Financial Data Schedules**
(o) 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).
**To be filed by amendment.
ITEM 24. 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. MN Properties, Inc.
BT Properties, Inc. M.O.A. Enterprises, Inc.
College Credit Trust ND Properties, Inc.
DAN Properties, Inc. OWP Hawaii, LLC
ETC Repackaging, Inc. Savannah Teachers Properties,
Illinois Teachers Properties, Inc.
LLC T114 Properties, Inc.
JV California Two, Inc. T-Investment Properties Corp.
JV California Three, Inc. T-Land Corp.
JV Florida One, Inc. T-Las Colinas Towers Corp.
JV Florida Four, Inc. TCT Holdings, Inc.
JV Georgia One, Inc. Teachers Advisors, Inc.
JV Maryland One, Inc. Teachers Boca Properties II,
JV Michigan One, Inc. Inc.
JV Michigan Two, Inc. Teachers Pennsylvania Realty,
JV Michigan Three, Inc. Inc.
JV Minnesota One, Inc. Teachers Personal Investors
JV North Carolina One, Inc. Services, Inc.
JWL Properties, Inc. Teachers Properties, Inc.
Liberty Place Retail, Inc. Teachers REA, LLC
Macallister Holdings, Inc. Teachers REA II, Inc.
Minnesota Teachers Realty Corp. Teachers REA II, LLC
<PAGE>
Teachers REA III, LLC TIAA-CREF Trust Company, FSB
Teachers Realty Corporation TIAA-Fund Equities, Inc.
TEO-NP, LLC TPI Housing, Inc.
Tethys Slu, Inc. Washington Teachers Properties
TIAA Realty, Inc. II, Inc.
TIAA Timberlands I, LLC WRC Properties, Inc.
TIAA-CREF Enterprises, Inc. 730 Properties, Inc.
TIAA-CREF Individual & 730 Cal Hotel Properties I, In
Institutional Services, Inc. 730 Cal Hotel Properties II,
TIAA-CREF Investment Management, Inc.
LLC 730 Penn. Hotel Properties I,
TIAA-CREF Life Insurance Company Inc.
TIAA-CREF Tuition Financing, 485 Properties, LLC
Inc.
Subsidiaries of Teachers Properties, Inc.:
Rouse-Teachers Holding Company
Rouse-Teachers Land Holdings, Inc.
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) College Credit Trust, a New York Trust
2) All subsidiaries are 100% owned directly by TIAA, except as
follows:
A) TIAA-CREF Enterprises, Inc. owns 100% of the stock of
Teachers Advisors, Inc., Teachers Personal Investors
Services, Inc., TIAA-CREF Life Insurance Company,
TIAA-CREF Tuition Financing, Inc. and TCT Holdings,
Inc.
B) TIAA-CREF Trust Company, FSB is 100% owned by TCT Holdings,
Inc.
C) T-Investment Properties Corp. and T-Land Corp. are
100% owned by Macallister Holdings, Inc.
D) TPI Housing, Inc. is 100% owned by Teachers
Properties, Inc.
<PAGE>
E) 730 Properties, Inc. owns 100% of the stock of 730 Cal
Hotel Properties I, Inc., 730 Cal Hotel Properties II,
Inc. and 730 Penn. Hotel Properties I, 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) TIAA-CREF Life Insurance Company is a New York State insurance
subsidiary of TIAA, whose stock is owned by TIAA Holdings,
Inc.
B) TIAA Realty, Inc. is an investment subsidiary with
minority stockholders and owns commercial real estate.
C) TIAA-CREF Trust Company, FSB is a federally chartered savings
bank.
D) Teachers Advisors, Inc. provides investment advice for
the Registrant.
E) Teachers Personal Investors Services, Inc. provides
broker-dealer services for the Registrant and TIAA
Separate Account VA-1.
F) TIAA-CREF Investment Management, LLC, provides investment
advice for College Retirement Equities Fund.
G) TIAA-CREF Individual & Institutional Services, Inc.,
which provides broker-dealer and administrative
services for College Retirement Equities Fund.
H) TCT Holdings, Inc., holds the stock of TIAA-CREF Trust
Company, FSB.
ITEM 25. 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
<PAGE>
disclaimer may be given in each agreement, obligation and instrument entered
into or executed by Registrant or its Trustees; (ii) provides for the
indemnification out of Trust property of any shareholders held personally liable
for any obligations of Registrant or any series of Registrant; and (iii)
provides that Registrant shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of Registrant and satisfy
any judgment thereon. Thus, the risk of a shareholder incurring financial loss
beyond his or her investment because of shareholder liability is limited to
circumstances in which all of the following factors are present: (I) a court
refuses to apply Delaware law; (ii) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (iii) Registrant
itself would be unable to meet its obligations. In the light of Delaware law,
the nature of Registrant's business and the nature of its assets, the risk of
personal liability to a shareholder is remote.
The Declaration of Trust further provides that Registrant shall
indemnify each of its Trustees and officers against liabilities and expenses
reasonably incurred by them, in connection with, or arising out of, any action,
suit or proceeding, threatened against or otherwise involving such Trustee or
officer, directly or indirectly, by reason of being or having been a Trustee or
officer of Registrant. The Declaration of Trust does not authorize Registrant to
indemnify any Trustee or officer against any liability to which he or she would
otherwise be subject by reason of or for willful misfeasance, bad faith, gross
negligence or reckless disregard of such person's duties.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons, or
otherwise, Registrant has been advised that in the opinion of the Commission
such indemnification may be against public policy as expressed in the Act and
may be, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
ITEM 26. 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 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 27. 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 28. 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 29. 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant, TIAA-CREF Mutual Funds, has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of New York, and state of New
York, on the day of January __, 2000.
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
- --------------------
Thomas G. Walsh (Principal Executive Officer) 1/14/00
/S/ SCOTT C. EVANS Executive Vice President
- ---------------------
Scott C. Evans (Principal Financial Officer) 1/14/00
/S/ RICHARD L. GIBBS Executive Vice President
- --------------------
Richard L. Gibbs (Principal Accounting Officer) 1/14/00
<PAGE>
SIGNATURE OF TRUSTEE DATE SIGNATURE OF TRUSTEE DATE
- -------------------- ---- -------------------- ----
/S/ ROBERT H. ATWELL /S/ BEVIS LONGSTRETH
- ------------------------- --------------------
Robert H. Atwell 1/14/00 Bevis Longstreth 1/14/00
/S/ ELIZABETH E. BAILEY /S/ ROBERT M. LOVELL, JR.
- ------------------------- -------------------------
Elizabeth E. Bailey 1/14/00 Robert M. Lovell, Jr. 1/14/00
/S/ JOYCE A. FESCKE /S/ STEPHEN A. ROSS
- ------------------- --------------------
Joyce A. Fescke 1/14/00 Stephen A. Ross 1/14/00
/S/ EDES P. GILBERT /S/ EUGENE C. SIT
- ------------------------- -----------------
Edes P. Gilbert 1/14/00 Eugene C. Sit 1/14/00
/S/ STUART TSE KONG HO /S/ MACEO K. SLOAN
- ------------------------- ------------------
Stuart Tse Kong Ho 1/14/00 Maceo K. Sloan 1/14/00
/S/ NANCY L. JACOB /S/ DAVID K. STORRS
- ------------------------- -------------------
Nancy L. Jacob 1/14/00 David K. Storrs 1/14/00
/S/ MARJORIE FINE KNOWLES /S/ ROBERT W. VISHNY
- ------------------------- --------------------
Marjorie Fine Knowles 1/14/00 Robert W. Vishny 1/14/00
/S/ JAY O. LIGHT
--------------------
Jay O. Light 1/14/00
