AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22,
1997
Registration File Nos. 33-480 and 811-4415
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
--
Post-Effective Amendment No. 27 [X]
--
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 33 [X]
--
(CHECK APPROPRIATE BOX OR BOXES.)
COLLEGE RETIREMENT EQUITIES FUND
(EXACT NAME OF REGISTRANT)
(NOT APPLICABLE)
(NAME OF INSURANCE COMPANY)
730 Third Avenue
NEW YORK, NEW YORK 10017-3206
(ADDRESS OF INSURANCE COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
INSURANCE COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-490-9000
NAME AND ADDRESS OF AGENT FOR SERVICE: COPY TO:
Peter C. Clapman, Esquire Paul J. Mason, Esquire
College Retirement Equities Fund Sutherland, Asbill & Brennan, L.L.P.
730 Third Avenue 1275 Pennsylvania Avenue, N.W.
New York, New York 10017-3206 Washington, D.C. 20004-2404
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after effectiveness of the Registration Statement
It is proposed that this filing will become effective (CHECK APPROPRIATE BOX)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (DATE) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (DATE) pursuant to paragraph (a)(2) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for the Registrant's fiscal year ended December
31, 1996, was filed on February 13, 1997.
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED BY PART A OF FORM N-3
N-3 ITEM PROSPECTUS HEADING
-------- ------------------
1. Cover Page ..................................... Cover Page
2. Definitions .................................... Definitions
3. Synopsis ....................................... Summary
4. Condensed Financial
Information .................................. Condensed Financial
Information
5. General Description of
Registrant and Insurance
Company ...................................... The College Retirement
Equities Fund
6. Management ..................................... Management and
Investment Advisory
Arrangements
7. Deductions and Expenses ........................ Expense Deductions
8. General Description of Variable Annuity
Contracts ................................. Summary; The Annuity
Certificates; General
Matters; Voting Rights
9. Annuity Period ................................. Summary; The Annuity
Period
10. Death Benefit .................................. Death Benefits
11. Purchases and Contract
Value ..................................... The Annuity
Certificates;
Valuation of Assets
12. Redemptions .................................... Summary; The Annuity
Certificates
13. Taxes .......................................... Federal Income Taxes
14. Legal Proceedings .............................. Legal Proceedings
15. Table of Contents for the
Statement of Additional
Information ............................... Inside Back Cover
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
PROSPECTUS
Dated May 1, 1997
Individual, Group, and Tax-Deferred Variable Annuities
Issued By
College Retirement Equities Fund
This prospectus tells you about the College Retirement Equities Fund (CREF) and
its accounts. Read it carefully before investing, and keep it for future
reference.
CREF provides variable individual and group annuities for retirement and
tax-deferred savings plans at tax-exempt or publicly supported colleges,
universities, and other educational and research organizations. Our main purpose
is to accumulate, invest, and then disburse funds for your retirement, in the
form of lifetime income or other payment options. At present CREF has eight
investment portfolios, which we call "accounts": the Stock, Global Equities,
Growth, Equity Index, Bond Market, Inflation-Linked Bond, Social Choice, and
Money Market Accounts. For the investment objective of each, see pages 13--28.
As with all variable annuities, your CREF accumulation and retirement income can
increase or decrease, depending on how well the underlying investments do over
time. CREF doesn't guarantee the investment performance of the accounts, and you
bear the entire investment risk. AN INVESTMENT IN THE CREF MONEY MARKET ACCOUNT
IS NEITHER INSURED NOR GUARANTEED BY THE U.S., STATE, OR ANY OTHER UNIT OF
GOVERNMENT.
More information about CREF is on file with the Securities and Exchange
Commission (SEC) in a "Statement of Additional Information" (SAI) dated May 1,
1997. You can get it by writing us at 730 Third Avenue, New York, New York
10017-3206 (attention: Central Services), or by calling 1 800 842-2733,
extension 5509. The SAI, as supplemented from time to time, is "incorporated by
reference" into the prospectus, which means it's legally part of this
prospectus. The SAI's table of contents is on the last page of this prospectus.
The SEC maintains a Website (http://www.sec.gov) that contains the SAI, material
incorporated by reference, and other information regarding CREF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is May 1, 1997.
[LOGO]
<PAGE>
TABLE OF CONTENTS
PAGE
----
DEFINITIONS 2
SUMMARY 4
CONDENSED FINANCIAL
INFORMATION 7
THE COLLEGE RETIREMENT
EQUITIES FUND 11
History 11
Operation 11
ADDING, CLOSING, OR
SUBSTITUTING ACCOUNTS;
SUSPENDING PREMIUMS 12
INVESTMENT PRACTICES AND
RISK CONSIDERATIONS OF
THE ACCOUNTS 12
The Stock Account 13
The Global Equities Account 15
The Growth Account 17
The Equity Index Account 18
The Bond Market Account 20
The Inflation-Linked Bond
Account 22
The Social Choice Account 26
The Money Market Account 28
Other Investment Issues and
Risk Considerations 29
PERFORMANCE
INFORMATION 33
VALUATION OF ASSETS 33
MANAGEMENT AND
INVESTMENT ADVISORY
ARRANGEMENTS 34
THE ANNUITY
CERTIFICATES 34
RA and GRA Certificates 35
SRA and GSRA Certificates 36
TABLE OF CONTENTS
PAGE
----
Rollover IRA Certificates 36
IRA Certificates 36
Keogh Certificates 36
Remitting Premiums 37
Accumulation Units 38
Transfers Between CREF
Accounts and Between
CREF and TIAA 38
Transfers to Other Companies
and Cash Withdrawals 39
Transfers to CREF from
Other Plans 40
General Considerations for
All Cash Withdrawals and
Transfers 40
Repurchase of Retirement
Annuities (RAs) 41
Tax Issues 41
Texas ORP Restrictions 42
Spousal Rights 42
Portability of Benefits 42
Expense Deductions 42
The Annuity Period 44
Income Options 46
Death Benefits 48
Timing of Payments 50
FEDERAL INCOME TAXES 51
VOTING RIGHTS 54
GENERAL MATTERS 54
DISTRIBUTION OF THE
CERTIFICATES 56
LEGAL PROCEEDINGS 56
APPENDIX 57
TABLE OF CONTENTS FOR
STATEMENT OF ADDITIONAL
INFORMATION 58
<PAGE>
This prospectus outlines the terms under which the CREF accounts are available
for your retirement investments. It does not constitute an offering in any
jurisdiction where such an offering may not lawfully be made. No dealer,
salesman, or other person is authorized to give any information or to make any
representation in connection with this offering other than those contained in
this prospectus. If given or made, such information or representations must not
be relied upon.
<PAGE>
DEFINITIONS
Throughout the prospectus, "CREF," "we," and "our" refer to the College
Retirement Equities Fund. "You" and "your" mean anyone reading the prospectus,
regardless of whether the reader actually has a CREF annuity.
The terms and phrases below are defined so you'll know precisely how we're using
them. To understand some definitions, you may have
to refer to other defined terms.
Account Any of CREF's investment funds. Each account is a separate portfolio
with its own investment objective.
Accumulation The total value of your accumulation units.
Accumulation Fund The assets in each account not dedicated to current
retirement benefits or other liabilities.
Accumulation Period The period that begins with your first premium and continues
until the entire accumulation has been converted to annuity income, transferred
from CREF, or paid to you or a beneficiary.
Accumulation Unit A share of participation in a CREF account for someone in the
accumulation period. Each account has its own accumulation unit value, used to
calculate the total value of your accumulation.
Annuity Fund The assets in an account that fund current retirement benefits. We
plan to offer (in the first half of 1998, subject to regulatory approval) an
additional payment method under which annuity income will be revalued each
month. To provide this option, a separate annuity fund will be created in each
account the Monthly Revalued Annuity Fund to fund the monthly revalued
retirement benefits. At that time, the existing Annuity Fund in each account
will become the Annually Revalued Annuity Fund. The investment experience of the
entire account will be used to calculate changes in income for benefits being
revalued annually and monthly.
Annuity Partner Anyone you name under a CREF survivor income option to receive
lifetime annuity income if you die. Your annuity partner can be your spouse,
child, or anyone else eligible under current CREF practices.
Annuity Payments Payments under any CREF income option or method of payment.
Annuity Unit A measure used to calculate the amount of annuity payments due a
participant. Each account uses its own annuity unit value.
Beneficiary Any person or institution named to receive benefits if you die
during the accumulation period or if you (and your annuity partner, if you have
one) die before any guaranteed period of your annuity ends. You don't have to
name the same beneficiary for each of these two situations.
2
<PAGE>
Business Day Any day the New York Stock Exchange (NYSE) is open for trading. A
business day ends at 4 p.m. Eastern Time, or when trading closes on the NYSE, if
earlier.
Calendar Day Any day of the year. Calendar days end at the same time as business
days.
Cash Withdrawal Taking some or all of an accumulation as a single payment.
Certificate The document that sets forth the terms of your CREF annuity. There
are separate certificates for the accumulation period and the income-paying
period for each annuity.
Commuted Value The present value of annuity payments due under an income option
or method of payment not based on life contingencies. Present value is
calculated using the then-current value of the annuity unit for the appropriate
account(s), adjusted for investment gains or losses since annuity unit value was
last calculated.
CREF The College Retirement Equities Fund.
Eligible Institution A public or private institution in the United States that
is non-proprietary and non-profit. Private institutions in the U.S. have to be
ruled tax-exempt under IRC section 501(c)(3) or earlier versions of the section.
The main purpose of any eligible institution must be to offer instruction;
conduct research; serve and support education or research; or perform ancillary
functions for such institutions.
Employer An eligible institution that maintains an employee retirement or
tax-deferred annuity plan.
Income Option Any of the ways you can receive CREF retirement income.
Internal Revenue Code (IRC) The Internal Revenue Code of 1986, as amended.
Method of Payment Any type of CREF death benefit available to a beneficiary.
Participant Any person who owns a CREF certificate. Under certain arrangements
an employer can be the participant.
Plan An employer's retirement, profit-sharing or tax-deferred annuity program.
Premium The amount you and/or your employer send to CREF to purchase retirement
benefits.
Survivor Income Option An option that continues lifetime annuity payments to
your annuity partner after you die.
Termination of Employment Any conclusion of employment, including retirement;
however, termination of employment doesn't include vacations, sabbaticals,
leaves of absence (with or without pay), changes in the name or affiliation of
your employer, or dissolution or modification of your employer's plan.
3
<PAGE>
TIAA Teachers Insurance and Annuity Association of America, CREF's companion
organization.
Valuation Day Any day the NYSE is open for trading, as well as the last
calendar day of each month. Valuation days end as of the close of all U.S.
national exchanges where securities or other investments of CREF are principally
traded. Valuation days that aren't business days will end at 4 p.m. Eastern
Time.
Valuation Period The time from the end of one valuation day to the end of the
next.
SUMMARY
Read this summary together with the detailed information you'll find in the rest
of the prospectus.
CREF issues certificates for five kinds of variable annuities: a Retirement
Annuity (RA); a Group Retirement Annuity (GRA); a Supplemental Retirement
Annuity (SRA); a Group Supplemental Retirement Annuity (GSRA); and a Rollover
Individual Retirement Annuity (Rollover IRA). Subject to regulatory approval,
CREF also expects to offer a new individual retirement annuity that will accept
both rollovers and direct contributions (New IRA) and a Keogh Plan Annuity
(Keogh). We refer to the Rollover IRA and the New IRA collectively as IRAs. RAs,
SRAs, IRAs and Keoghs are issued to you directly. GRAs and GSRAs are issued
under the terms of a group contract.
CREF ACCOUNTS
The accounts are subject to the risks inherent in professional investment
management, including those resulting from general economic conditions. The
value of your accumulation in any account can fluctuate, and you bear the entire
risk. For the investment objective of each CREF account, see pages 13-28. CREF's
past investment experience shouldn't be taken as a prediction of future
performance.
Subject to your employer's retirement plan, you can allocate RA, GRA, or GSRA
premiums to the Stock, Global Equities, Growth, Equity Index, Bond Market,
Inflation-Linked Bond, Social Choice, and Money Market Accounts. Any allocations
you make to an SRA, IRA or Keogh won't be subject to your employer's plan.
4
<PAGE>
EXPENSE DEDUCTIONS
The following table summarizes the direct and indirect expense deductions for
each CREF account.
<TABLE>
<CAPTION>
INFLATION-
GLOBAL EQUITY BOND LINKED SOCIAL MONEY
STOCK EQUITIES GROWTH INDEX MARKET BOND CHOICE MARKET
----- -------- ------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PARTICIPANT TRANSACTION EXPENSES
Deductions from Premiums
(as a percentage of Premiums) None None None None None None None None
CHARGES FOR TRANSFERS AND CASH
WITHDRAWALS (AS A PERCENTAGE
OF TRANSACTION AMOUNT)
Transfers Between CREF Accounts None None None None None None None None
Transfers to TIAA None None None None None None None None
Transfers to other companies None None None None None None None None
Cash Withdrawals None None None None None None None None
ANNUAL EXPENSE DEDUCTIONS FROM
NET ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Mortality and Expense Risk Charges None None None None None None None None
Investment Advisory Expenses 0.08% 0.15% 0.13% 0.07% 0.06% 0.08% 0.07% 0.06%
Administrative Expenses 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Distribution Expenses 0.03% 0.03% 0.03% 0.03% 0.03% 0.03% 0.03% 0.03%
---- ---- ---- ---- ---- ---- ---- ----
Total Annual Expense Deductions 0.31% 0.38% 0.36% 0.30% 0.29% 0.31% 0.30% 0.29%
==== ==== ==== ==== ==== ==== ==== ----
</TABLE>
The next table gives an example of the expenses you'd incur on a hypothetical
investment of $1,000 over several periods. The table assumes a 5 percent annual
return on assets. See the SAI for the past performance of the CREF accounts.
Annual Expense Deductions From Net Assets
-----------------------------------------
Inflation-
Global Equity Bond Linked Social Money
Stock Equities Growth Index Market Bond Choice Market
-------------- ------ ----- ------ ---- -------------
1 Year $ 3 $ 4 $ 4 $ 3 $ 3 $ 3 $ 3 $ 3
3 Years $10 $12 $12 $10 $ 9 $10 $10 $ 9
5 Years $17 $21 $20 $17 $16 $17 $16
10 Years $39 $48 $46 $38 $37 $38 $37
The purpose of these tables is to help you understand the various expenses you
would bear directly or indirectly as a participant in CREF. REMEMBER THAT THESE
DON'T REPRESENT ACTUAL PAST OR FUTURE EXPENSES OR INVESTMENT PERFORMANCE. ACTUAL
EXPENSES MAY BE HIGHER OR LOWER. Some commissions paid by CREF to broker-dealers
who buy and sell securities for the CREF accounts have been used in the past to
reduce account expenses; however, this practice, which CREF no longer uses,
didn't affect the amount of brokerage commissions paid.
For more information, see "Expense Deductions," page 42.
5
<PAGE>
RIGHT TO CANCEL CREF CERTIFICATES
You can cancel a CREF RA, SRA, IRA or Keogh certificate up to thirty days after
you receive it, unless it's one under which annuity payments have begun. If
asked to cancel the certificate, CREF will do so as of its date of issue, then
send the entire current accumulation, including premiums, investment gains or
losses, and deductions (if any) back to the premium remitter (see page 35).
RESTRICTIONS ON TRANSFERS AND CASH WITHDRAWALS
Cash withdrawals are available from RA and GRA certificates at any time your
employer's retirement plan permits. For more information, see page 40.
FEDERAL TAX LAW RESTRICTS YOUR RIGHT TO MAKE WITHDRAWALS FROM SALARY REDUCTION
CONTRIBUTIONS (AND EARNINGS, IF ANY) CREDITED TO YOUR CREF ACCUMULATION. IF YOUR
SALARY REDUCTION CONTRIBUTIONS ARE MADE TO A 403(B) ANNUITY, THESE WITHDRAWAL
RESTRICTIONS APPLY ONLY TO AMOUNTS (AND EARNINGS, IF ANY) CREDITED AFTER
DECEMBER 31, 1988. IF THEY ARE MADE UNDER A 401(K) PLAN, THESE WITHDRAWAL
RESTRICTIONS APPLY TO ALL SUCH SALARY REDUCTION AMOUNTS (AND EARNINGS, IF ANY).
You may also have to pay a tax penalty if you want to begin annuity income or
take a cash withdrawal before age 59 1/2. Federal tax law may also require you
to start receiving annuity income by a particular date. For more, see "Income
Options," page 46. Your employer's retirement plan may also restrict your right
to make transfers or take a cash withdrawal.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION
Below you'll find condensed, audited financial information for the CREF
accounts. The Stock Account figures are for the ten-year period ended December
31, 1996. The figures for the Global Equities Account, which was made available
July 1, 1992, are for the four-year and eight-month period from May 1, 1992,
when the account was registered with the SEC, to December 31, 1996. The figures
for the Growth and Equity Index Accounts, both of which were made available July
1, 1994, are for the period from April 29, 1994, when the accounts were
registered with the SEC, to December 31, 1996. The Bond Market and Social Choice
Account figures are for the six-year and ten-month period ended December 31,
1996. The Money Market Account figures are for the eight-year and nine-month
period ended December 31, 1996. We have not included condensed financial
information for the Inflation-Linked Bond Account, since it had not commenced
operations as of December 31, 1996.
<TABLE>
<CAPTION>
STOCK ACCOUNT
----------------------------------------------------------------------------------------
FOR THE
YEARS ENDED
DECEMBER 31
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Accumulation Unit Data:
Investment income $ 2.114 $ 1.885 $ 1.699 $ 1.606 $ 1.523 $ 1.552 $ 1.549 $ 1.367 $ 1.195 $ 1.040
Expenses* .304 .271 .223 .210 .181 .184 .148 .140 .113 .084
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Investment income net 1.810 1.614 1.476 1.396 1.342 1.368 1.401 1.227 1.082 .956
Net realized and
unrealized gain (loss)
on total investments 15.953 19.984 (1.557) 7.139 2.294 11.994 (4.007) 9.051 4.380 .569
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in
Accumulation Unit Value 17.763 21.598 (.081) 8.535 3.636 13.362 (2.606) 10.278 5.462 1.525
Accumulation Unit Value:
Beginning of period 91.460 69.862 69.943 61.408 57.772 44.410 47.016 36.738 31.276 29.751
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
End of Period 109.223 $91.460 $69.862 $69.943 $61.408 $57.772 $44.410 $47.016 $36.738 $31.276
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratios to Average
Net Assets:
Expenses .31% 0.34% 0.32% 0.32% 0.31% 0.36% 0.33% 0.33% 0.33% 0.24%
Investment income net 1.82% 2.00% 2.11% 2.14% 2.32% 2.65% 3.12% 2.87% 3.15% 2.65%
Portfolio turnover rate 19.57% 16.25% 18.77% 22.93% 16.29% 22.47% 20.94% 24.14% 24.68% 20.59%
Thousands of Accumulation
Units outstanding at
end of period 620,498 632,803 637,435 642,528 645,564 640,298 637,886 655,091 680,442 717,885
</TABLE>
GLOBAL EQUITIES ACCOUNT
--------------------------------------
MAY 1
FOR THE (DATE OF SEC
YEARS ENDED REGISTRATION) TO
DECEMBER 31 DECEMBER 31
------------------------ --------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Per Accumulation Unit Data:
Investment income $ .751 $ .727 $ .687 $ .487 $ .493
Expenses* .167 .157 .134 .103 .109
------- ------- ------- ------- -------
Investment income net .584 .570 .553 .384 .384
Net realized and
unrealized gain (loss)
on total investments 7.138 6.618 (.719) 9.021 .274
------- ------- ------- ------- -------
Net increase (decrease) in
Accumulation Unit Value 7.722 7.188 (.166) 9.405 .658
Accumulation Unit Value:
Beginning of period 42.958 35.770 35.936 26.531 25.873
------- ------- ------- ------- -------
End of Period $50.680 $42.958 $35.770 $35.936 $26.531
======= ======= ======= ======= =======
Ratios to Average
Net Assets:
Expenses 0.37% 0.40% 0.41% 0.45% 0.37%
Investment income net 1.28% 1.47% 1.71% 1.67% 1.31%
Portfolio turnover rate 88.84% 67.50% 51.63% 16.75% 11.71%
Thousands of Accumulation
Units outstanding at
end of period 80,016 70,163 70,700 36,796 8,277
*Includes all expenses charged as a deduction from investment income. As noted
above on page 5, some brokerage commissions paid by CREF have been used to
reduce expenses.
7
<PAGE>
<TABLE>
<CAPTION>
GROWTH ACCOUNT EQUITY INDEX ACCOUNT
---------------------------- -------------------------
APRIL 29 APRIL 29
FOR THE (DATE OF SEC FOR THE (DATE OF SEC
YEARS ENDED REGISTRATION) TO YEARS ENDED REGISTRATION)
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1996 1995 1994
------ ------- ------- ------- ------- -------
Per Accumulation Unit Data:
Investment income $ .484 $ .417 $ .356 $ .773 $ .755 $ .504
Expenses* .119 .114 .077 .106 .100 .070
------ ------- ------- ------- ------- -------
Investment income-net .365 .303 .279 .667 .655 .434
Net realized and
unrealized gain (loss)
on total investments 8.638 8.891 .886 6.936 8.703 .401
------ ------- ------- ------- ------- -------
Net increase (decrease) in
Accumulation Unit Value 9.003 9.194 1.165 7.603 9.358 .835
Accumulation Unit Value:
Beginning of period 35.310 26.116 24.951 35.231 25.873 25.038
------ ------- ------- ------- ------- -------
End of Period 44.313 $35.310 $26.116 $42.834 $35.231 $25.873
====== ======= ======= ======= ======= =======
Ratios to Average
Net Assets:
Expenses 0.35% 0.43% 0.30% 0.30% 0.34% 0.26%
Investment income-net 1.07% 1.13% 1.09% 1.87% 2.22% 1.65%
Portfolio turnover rate 38.51% 24.42% 11.51% 7.85% 8.31% 1.30%
Thousands of Accumulation
Units outstanding at
end of period 53,201 32,375 10,446 20,725 10,911 2,716
</TABLE>
<TABLE>
<CAPTION>
BOND MARKET ACCOUNT
------------------------------------------------------------
MARCH 1
FOR THE (DATE OF SEC
YEARS ENDED INCEPTION) TO
DECEMBER 31 DECEMBER 31
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
Per Accumulation Unit Data:
Investment income $ 3.039 $ 2.863 $ 2.502 $ 2.348 $ 2.287 $ 2.270 $ 1.844
Expenses* .126 .123 .108 .103 .093 .096 .084
------- ------- ------- ------- ------- ------- -------
Investment income-net 2.913 2,740 2.394 2.245 2.194 2.174 1.760
Net realized and
unrealized gain (loss)
on total investments (1.600) 3.722 (3.897) 1.606 .056 2.247 .448
------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in
Accumulation Unit Value 1.313 6.462 (1.503) 3.851 2.250 4.421 2.208
Accumulation Unit Value:
Beginning of period 42.689 36,227 37,730 33.879 31.629 27.208 25.000
------- ------- ------- ------- ------- ------- -------
End of Period $44.002 $42.689 $36.227 $37.730 $33.879 $31.629 $27.208
======= ======= ======= ======= ======= ======= =======
Ratios to Average
Net Assets:
Expenses 0.30% 0.31% 0.29% 0.28% 0.29% 0.34% 0.33%
Investment income-net 6.86% 6.93% 6.54% 6.18% 6.78% 7.61% 7.05%
Portfolio turnover rate 145.27% 185.11% 161.46% 139.55% 217.89% 124.62% 50.64%
Thousands of Accumulation
Units outstanding at
end of period 22,611 19,522 14,939 14,698 13,583 10,658 4,395
</TABLE>
*Includes all expenses charged as a deduction from investment income. As noted
above on page 5, some brokerage commissions paid by CREF have been used to
reduce expenses.
8
<PAGE>
<TABLE>
<CAPTION>
SOCIAL CHOICE ACCOUNT
MARCH 1
FOR THE (DATE OF
YEARS ENDED INCEPTION) TO
DECEMBER 31 DECEMBER 31
------------------------------------------------------------------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
Per Accumulation Unit Data:
Investment income $ 2.068 $ 1.832 $ 1.621 $ 1.452 $ 1.363 $ 1.432 $ 1.224
Expenses* .158 .144 .125 .117 .105 .102 .097
------- ------- ------- ------- ------- ------- -------
Investment income-net 1.910 1.688 1.496 1.335 1.258 1.330 1.127
Net realized and
unrealized gain (loss)
on total investments 5.968 9.863 (2.015) 2.082 2.367 5.237 (.056)
------- ------- ------- ------- ------- ------- -------
Net increase (decrease)
in Accumulation Unit Value: 7.878 11.551 (.519) 3.417 3.625 6.567 1.071
Accumulation Unit Value:
Beginning of period 50.712 39.161 39.680 36.263 32.638 26.071 25.000
------- ------- ------- ------- ------- ------- -------
End of period $58.590 $50.712 $39.161 $39.680 $36.263 $32.638 $26.071
======= ======= ======= ======= ======= ======= =======
Ratios to Average Net Assets:
Expenses 0.30% 0.32% 0.32% 0.31% 0.33% 0.36% 0.38%
Investment income-net 3.58% 3.75% 3.80% 3.52% 3.88% 4.69% 4.39%
Portfolio turnover rate 40.93% 52.65% 49.06% 39.85% 77.48% 46.41% 22.83%
Thousands of Accumulation
Units outstanding at
end of period 25,841 22,196 18,302 16,790 9,224 4,929 2,311
</TABLE>
*Includes all expenses charged as a deduction from investment income.
As noted above on page 5, some brokerage commissions paid by
CREF have been used to reduce expenses.
9
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET ACCOUNT
----------------------------------------------------------------------------------------------------
APRIL 1
FOR THE (DATE OF
YEARS ENDED INCEPTION) TO
DECEMBER 31 DECEMBER 31
------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------- -------
Per Accumulation Unit Data:
Investment income $.880 $.910 $.631 $.464 $.539 $.808 $.994 $1.022 $.595
Expenses* .049 .048 .041 .039 .036 .039 .037 .032 .021
------- ------- ------- ------- ------- ------- ------- ------- -------
Investment income-net .831 .862 .590 .425 .503 .769 .957 .990 .574
Net realized and
unrealized gain (loss)
on total investments (.003) .009 (.012) (.002) (.009) .013 (.003) - -
------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in
Accumulation Unit Value: .828 .871 .578 .423 .494 .782 .954 .990 .574
Accumulation Unit Value:
Beginning of period 15.666 14.795 14.217 13.794 13.300 12.518 11.564 10.574 10.000
------- ------- ------- ------- ------- ------- ------- ------- -------
End of Period $16.494 $15.666 $14.795 $14.217 $13.794 $13.300 $12.518 $11.564 $10.574
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratios to Average
Net Assets:
Expenses 0.30% 0.32% 0.28% 0.27% 0.26% 0.30% 0.30% 0.30% 0.23%
Investment income-net 5.16% 5.64% 4.03% 3.02% 3.70% 5.95% 7.92% 8.90% 5.94%
Portfolio turnover rate n/a n/a n/a n/a n/a n/a n/a n/a n/a
Thousands of Accumulation
Units outstanding at
end of period 218,292 193,181 183,135 174,073 184,768 207,368 230,184 163,314 85,355
</TABLE>
*Includes all expenses charged as a deduction from investment income. As noted
above on page 5, some brokerage commissions paid by CREF have been used to
reduce expenses.
10
<PAGE>
THE COLLEGE RETIREMENT EQUITIES FUND
HISTORY
CREF is a nonprofit membership corporation established in New York State on
March 18, 1952. Its headquarters are at 730 Third Avenue, New York, New York
10017; there are also regional offices in Atlanta, Boston, Chicago, Dallas,
Denver, Detroit, New York, Philadelphia, San Francisco, and Washington, D.C.,
and a telephone service center in Denver. CREF, the first company in the United
States to issue a variable annuity, is the companion organization of Teachers
Insurance and Annuity Association of America (TIAA). TIAA was founded in 1918 by
the Carnegie Foundation for the Advancement of Teaching. It offers traditional
annuities, which guarantee principal and a specified interest rate while
providing the opportunity for additional dividends. It also offers a variable
annuity funded by a separate account that invests in real estate (the Real
Estate Account). Together, CREF and TIAA form the principal retirement system
for the nation's education and research communities and the largest retirement
system in both the U.S. and the world, based on assets under management.
TIAA-CREF serves approximately 1.8 million people at about 6,100 institutions.
These include approximately 5,800 institutions and 449,000 individuals with
SRAs, GSRAs or IRAs and approximately 277,000 people currently receiving annuity
income. As of December 31, 1996, CREF's assets were approximately $99 billion;
the combined assets for CREF and TIAA totalled approximately $185 billion.
CREF offers certificates for a number of different variable annuities: a
Retirement Annuity (RA), a Group Retirement Annuity (GRA), a Supplemental
Retirement Annuity (SRA), a Group Supplemental Retirement Annuity (GSRA), and a
Rollover Individual Retirement Annuity (Rollover IRA). We also plan to offer,
subject to regulatory approval, a new Individual Retirement Annuity that accepts
both rollovers and direct contributions (New IRA) and a Keogh Plan Annuity
(Keogh). (For more on each, see page 34, "The Annuity Certificates.") However,
CREF is in some ways unlike most other companies that offer variable annuities.
Usually variable annuities are issued by insurance companies through segregated
asset accounts called "separate accounts." The insurance company performs
administration and other services for the separate account and, for a fee,
assumes certain mortality and expense risks. In contrast, CREF is legally
independent from TIAA. Even though virtually all employers use both CREF and
TIAA to fund their retirement plans, TIAA assumes no mortality and expense risks
for CREF. Investment advisory, distribution, and administrative services are
provided for CREF under agreements with two nonprofit subsidiaries of TIAA. A
separate account of TIAA also issues a variable annuity that accepts after-tax
dollars.
OPERATION
As an "open-end," diversified management investment company, CREF has no limit
on how many units of participation it can issue. We issue variable annuity
11
<PAGE>
certificates to residents of all fifty states, the District of Columbia, Puerto
Rico, U.S. territories, and foreign countries. CREF is registered with the SEC
under the Investment Company Act of 1940, as amended (the 1940 Act), though
registration doesn't entail SEC supervision of our management and investment
practices. CREF is also subject to the Not-For-Profit Corporation Law of New
York State and to regulation of the New York State Insurance Department and
insurance departments in several other jurisdictions (see SAI).
CREF is governed by its Board of Trustees and, to the limited extent explained
on page 34, by a Board of Overseers.
CREF currently has eight different investment accounts. All assets of the
accounts belong to CREF. Each account's income, investment gains, and investment
losses are credited to or charged against that account alone, not to any of the
other accounts.
ADDING, CLOSING, OR SUBSTITUTING ACCOUNTS; SUSPENDING PREMIUMS
Subject to applicable laws, CREF can add or close accounts; substitute one
account for another; combine accounts; discontinue an account as a vehicle for
paying annuity income; suspend the acceptance of premiums and/or transfers into
an account (e.g., we may stop accepting premiums and/or transfers into the
Inflation-Linked Bond Account when there is an insufficient supply of
inflation-indexed bonds available in the market); or restrict whether and how
CREF offers any account under an employer's retirement plan. CREF can also make
any changes required by the Internal Revenue Code or the 1940 Act. CREF can make
some changes at its discretion, subject to SEC approval as required. Unless
required under the 1940 Act or by the IRC, CREF won't close, substitute for, or
stop accepting premiums and/or transfers into the Stock and Money Market
Accounts.
If an account is closed or discontinued for premiums or annuity income or we
stop accepting premiums into an account, we'll notify affected participants and
request that they transfer their accumulations or annuity income and/or
reallocate their premiums (as applicable). If you're notified of such a change
and don't respond with reallocation or transfer instructions within the
requested time period, we'll place any premiums, accumulations or annuity income
affected in the CREF Money Market Account.
INVESTMENT PRACTICES AND RISK CONSIDERATIONS OF THE ACCOUNTS
Each CREF account has its own investment objective and policies. The accounts
won't have the same investment results or market and financial risks. For more,
see the SAI at pages B-8 through B-19.
12
<PAGE>
The accounts are subject to several types of risks. One is market risk-price
volatility due to changing conditions in the financial markets and, particularly
for bonds and other debt securities, changes in overall interest rates. Another
kind of risk is financial risk. For stocks or other equity securities, it comes
from the possibility that current earnings will fall or that overall financial
soundness will decline, which means that the security can lose its value. For
bonds and other debt securities, financial risk comes from the possibility the
issuer won't be able to pay principal and interest when due. Finally, current
income volatility means how much and how quickly overall interest rate changes
affect current income from an investment. No account's investment objective can
be changed without approval by a majority of its outstanding voting securities
(see page 54). CREF can change investment policies (that is, the methods used to
pursue the objectives) without such approval. Of course, there is no guarantee
that any CREF account will meet its investment objective.
Because our main goal is to provide retirement benefits, CREF's general
perspective is long-term, and we avoid both extreme conservatism and high risk
in investing. The managers of the CREF accounts may also manage the assets of
TIAA Separate Account VA-1, on behalf of another affiliated investment advisor
that is also a subsidiary of TIAA. The managers of the CREF accounts may also
manage the assets of other investment companies. Investment decisions for the
CREF accounts, TIAA Separate Account VA-1 or any another investment company
whose assets the managers of the CREF accounts may manage are made
independently. Sometimes, however, managers for more than one CREF account, for
TIAA Separate Account VA-1 or for any other affiliated investment company may
decide either to buy or sell a particular security at the same time. If so,
investment opportunities are allocated equitably-a procedure that can have an
adverse effect on the size of the position each CREF account buys or sells, as
well as the price paid or received for it.
Expense deductions are at cost and we expect they'll be relatively low.
THE STOCK ACCOUNT
The Stock Account's investment objective is a favorable long-term rate of return
through capital appreciation and investment income by investing primarily in a
broadly diversified portfolio of common stocks.
INVESTMENT MIX
Domestic Stocks. The Stock Account divides its portfolio into segments-one of
which is designed to track U.S. equity markets as a whole. To diversify and
control volatility, the Stock Account invests this segment in the stocks that
make up the Russell 3000(R) index.The Russell 3000 is an index of the stocks of
the 3000 largest U.S. companies traded on the New York Stock Exchange, other
U.S. exchanges, and over-the-counter (i.e., stocks such as those listed on the
NASDAQ system). Each stock in the index is weighted by its relative market
value. The Stock Account doesn't attempt to match the Russell 3000 precisely by
holding all 3000 stocks. Rather, we use a sampling approach to ensure that this
segment of the account closely matches the overall investment characteristics
(for example, yield and industry weight) of the index. This means that a company
can remain in this segment of the Stock Account even if it performs poorly,
unless the company is removed from the Russell 3000.
13
<PAGE>
A subset of this segment employs proprietary quantitative valuation and trading
techniques to attempt to slightly outperform U.S. equity markets as measured by
the Russell 3000 index. At year's end 1996, the Russell 3000 segment of the
Stock Account made up 62.67% of the portfolio.
The Russell 3000 is a trademark and a service mark of the Frank Russell Company.
No CREF account is promoted, sponsored, endorsed or sold by or affiliated with
the Frank Russell Company. A stock's presence in the Russell 3000 doesn't mean
that Frank Russell Company believes that it's an attractive investment. The
Frank Russell Company isn't responsible for any literature about any CREF
account, and makes no representations or warranties about its content.
Another segment of the account contains stocks selected individually for their
investment potential. At year's end 1996, this segment was 17.24% of the
portfolio.
Foreign securities. The account invests in foreign stocks and other equity
securities, fixed-income securities, and money-market instruments traded on
foreign exchanges, in other foreign securities markets, or privately placed. At
year's end 1996, this segment was 14.65% of the portfolio. The authorized level
may change from time to time. Foreign securities often entail different types
and levels of risk than a strictly domestic portfolio. For more information, see
page 29.
Other investments. The Stock Account can hold other types of securities with
equity characteristics, such as convertible bonds, preferred stock and warrants.
Pending more permanent investments or to use cash balances effectively, the
account can hold the same types of money market instruments the Money Market
Account invests in, as well as other short-term instruments. In addition, the
Stock Account can hold fixed-income securities that it acquires because of
mergers, recapitalizations or otherwise. The account can buy and sell options
("puts" and "calls"), futures contracts, and options on futures. Investing in
options and futures carries special risks. See page 31 and the SAI. We trade
options or futures only as permitted by applicable regulatory authorities. To
manage currency risk, the account can enter into forward currency contracts, buy
or sell options and futures on foreign currencies, and buy securities indexed to
foreign currencies. For more, see "The Global Equities Account-Managing Currency
Risk," page 16.
14
<PAGE>
As of December 31, 1996, net assets of the Stock Account were over $81.3
billion, and the portfolio was invested as follows:
TYPE OF SECURITIES AND PERCENTAGE OF
TOTAL MARKET VALUE OF THE STOCK ACCOUNT'S PORTFOLIO
- --------------------------------------------------------------------------------
SECURITIES
SECURITIES SELECTED FOR SHORT-TERM
REPRESENTATIVE OF THE THEIR INVESTMENT FOREIGN (DOMESTIC
U.S. EQUITY MARKET POTENTIAL SECURITIES AND FOREIGN)
--------------------- ---------------- ---------- ------------
62.67% 17.24% 14.25% 5.84%
Investment percentages can vary considerably among portfolio categories. The
chart doesn't show assets held as collateral from stock lending in money market
and other short-term instruments.
Because it's so large, the Stock Account entails both special opportunities and
special risks. The blocks of a given security that we're buying may be very
large compared to its trading volume, so we may find it difficult to quickly
establish the positions called for by our investment decisions. For the same
reason, we may find that attempting to sell large blocks of a particular
security can lower its price. As a result, we may not be able to adjust the
Stock Account portfolio profiles as quickly as we might desire.
On the other hand, the size of the Stock Account lets us keep up relationships
with many brokers, taking advantage of competition among them to get good
transaction terms. We often pursue economies of scale, buying or selling large
amounts of securities in single transactions. As a result, the Stock Account can
benefit from reduced brokerage commissions and better purchase or sales prices
than smaller investors usually get.
THE GLOBAL EQUITIES ACCOUNT
The account's investment objective is favorable long-term return through capital
appreciation and income from a broadly diversified portfolio that consists
primarily of foreign and domestic common stocks.
INVESTMENT MIX
The account will invest at least 65 percent of its assets in equity securities
of foreign and domestic companies.
The account will usually have at least 40 percent of its assets invested in
foreign securities and at least 25 percent in domestic securities, with the
balance of its assets being distributed between foreign and domestic as we deem
appropriate. However, this is not a fundamental investment policy, and these
percentages may vary from time to time depending on market conditions. The
account allocates investments to particular countries or regions based on our
evaluation of various factors, such as the relative attractiveness of particular
markets at specific times, and the size of a country's or region's equity
markets as compared to the value of the global equity markets as a whole.
Consistent with industry practice for global accounts, this account will be
invested in at least three different countries, one of which will be the U.S. We
expect, however, that under normal conditions the account will be more broadly
diversified.
15
<PAGE>
The account can invest in companies of any size, although investing in smaller
less established ones ordinarily involves more risk. The account's portfolio may
be divided into segments-some designed to track foreign or domestic markets,
others containing stocks selected individually for their investment potential.
In addition to common stocks, the account can also hold other types of equity
securities-for example, bonds convertible into common stock, warrants, preferred
stock, and depository receipts. For liquidity, the account can also invest in
the same kind of money market instruments as the CREF Money Market Account, as
well as other short-term instruments, including those denominated in foreign
currencies. When market conditions warrant, the account can also invest in
fixed-income securities on a short-or long-term basis. Investments by the
account in bonds or other debt instruments will be similar to those authorized
for the CREF Bond Market Account. The Global Equities Account can also invest in
fixed-income securities of foreign issuers, including corporations, banks, or
governments, and these may be denominated in foreign currencies or other units
of account.
Subject to any necessary regulatory approvals, the account can buy and sell
options (puts and calls), futures contracts, and options on futures.
MANAGING CURRENCY RISK
Changing exchange rates can increase or decrease the value of securities
denominated in foreign currencies, and this may affect the account's
performance. To reduce the risk, the Global Equities Account (as well as the
other CREF accounts) can enter into forward currency contracts; buy or sell
options and futures on foreign currencies; and buy securities indexed to foreign
currencies. These transactions seek to reduce the account's exposure to a
decline in the value of investments denominated in foreign currencies; they may
also let us "lock in" exchange rates when buying or selling foreign securities.
However, these transactions can also limit gains if the value of the foreign
currency increases. The account will enter into forward currency contracts and
buy or sell options and futures on foreign currencies only to hedge currency
risk, not to speculate. For more details, see "Currency Transactions," page 31,
and the SAI.
SPECIAL RISKS OF FOREIGN INVESTMENTS
Foreign investments have other special risks besides changing exchange rates.
They include the possibility of political and social instability in some
countries, and foreign government regulation and market conditions that differ
from those in the U.S. For more information on this and other aspects of CREF's
foreign investments, see "Foreign Investments," page 29 and the SAI.
16
<PAGE>
THE GROWTH ACCOUNT
The Growth Account's investment objective is favorable long-term return, mainly
through capital appreciation, primarily from a diversified portfolio of common
stocks that present the opportunity for exceptional growth.
INVESTMENT MIX
The Growth Account invests in companies that we believe have the potential for
significant capital appreciation. The account invests in companies of all sizes
including companies in new and emerging areas of the economy and companies with
distinctive products or promising market conditions. The account is intended for
people who can tolerate greater risk and fluctuation in the value of their funds
in exchange for the potential of higher returns over time.
Ordinarily, the account will keep at least 80 percent of its assets in
common stocks and other securities with equity characteristics. The account's
portfolio may be divided into segments some containing stocks selected
individually for their investment potential, and others designed to track the
growth sector of the market generally. We choose individual investments based on
a company's prospects under current or forecasted economic, financial, and
market conditions. We look for companies we believe have the potential for
strong earnings or sales growth, or that appear to be undervalued based on
current earnings, assets or growth prospects. The Growth Account can also invest
in large, well-known, established companies, particularly when we believe they
have new or innovative products, services, or processes that enhance future
earnings prospects. We also look for companies in new and emerging areas of the
economy, and for smaller, less-seasoned companies with above-average growth
potential. The account can also invest in companies in order to benefit from
prospective acquisitions, reorganizations or corporate restructurings or other
special situations.
The Growth Account can buy foreign securities and other instruments if we
believe they have superior investment potential. Depending on investment
opportunities, the account may have as little as none of its assets in foreign
securities or as much as 40 percent. (The authorized level may change from time
to time.) The securities will be those traded on foreign exchanges or in other
foreign markets and may be denominated in foreign currencies or other units of
account. Foreign securities often have risks that differ from those of domestic
securities. For more information about the risks of foreign investments, see
page 29.
17
<PAGE>
SPECIAL RISK CONSIDERATIONS
The Growth Account may involve special risks not present in other CREF accounts.
For example, the Growth Account may at times have a significant exposure to
stocks of smaller, lesser-known companies, which often depend on narrow product
lines, may have limited track records, may lack depth of management, and may
have thinly-traded securities. As a result, prices of small company stocks may
fluctuate more than larger company stocks. In addition, stocks of companies
involved in reorganizations and other special situations can often involve more
risk than ordinary securities. Accordingly, the Growth Account will probably be
more volatile than the overall stock market, and it could significantly
outperform or underperform the stock market during any particular period.
OTHER INVESTMENTS
In addition to common stocks, the account can also hold other types of
securities with equity characteristics--for example, bonds convertible into
common stocks, warrants, preferred stock, and depository receipts for such
securities. For liquidity, the account can hold the same types of instruments as
the Money Market Account, as well as other short-term instruments. When market
conditions warrant, the Growth Account can also invest in bonds or other debt
instruments similar to those authorized for the Bond Market Account.
Subject to any necessary regulatory approvals, the account can buy and sell
options (puts and calls), futures contracts, and options on futures. All of
these Investments involve special risks; see page 31 and the SAI.
THE EQUITY INDEX ACCOUNT
The Equity Index Account's investment objective is favorable long-term 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.
INVESTMENT MIX
The Equity Index Account attempts to track the U.S. stock market as a whole by
investing substantially all of its assets in stocks included in the Russell
3000(R) Index. The Equity Index Account doesn't try to match the Russell 3000
precisely by holding all 3,000 stocks. Rather, we use a sampling to try to
emulate the index's overall investment characteristics. The portfolio won't be
managed in the traditional sense of picking individual securities based on
economic, financial, and market analysis. This means that a company can remain
in the Equity Index Account even if it performs poorly, unless the company is
removed from the Russell 3000.
We expect that in periods when the overall U.S. stock market is rising, the
account's unit value will also rise, while in periods of market decline, the
account's unit value will likewise decline. We don't expect the account's
performance to match the performance of the Index precisely. However, we expect
the account to closely track the Index. Since the Index's returns aren't reduced
by operating or investment expenses, the account's ability to match the Index
will be adversely affected by the costs of buying and selling stocks and other
expenses. However, we expect expenses to be low compared to an actively managed
stock account.
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<PAGE>
Using the Russell 3000 as the measure of the U.S. equity market isn't
fundamental to the account's objective or investment policies, and other indices
can be substituted by CREF's Board of Trustees without participant approval.
We'll notify you before making any change in the account's target index.
THE RUSSELL 3000 INDEX
The Russell 3000 is an index of the 3,000 largest publicly traded U.S.
corporations, as determined by the value of their outstanding stock. According
to the Frank Russell Company, Russell 3000 companies represent about 98% of the
total market capitalization of the publicly-traded U.S. equity market. The
market capitalization of individual companies in the Russell 3000 ranged from
$20.0 million to $163.27 billion with an average of $2.56 billion as of December
31, 1996.
Frank Russell Company chooses the stocks to be included in the Index solely on a
statistical basis, using their market capitalization. The stocks are weighted in
the Index by relative market value. Frank Russell Company can change stocks and
their weightings in the Index from time to time. We'll adjust the Equity Index
Account's portfolio to reflect these changes as appropriate. We can also adjust
the account's portfolio because of mergers and similar events.
Frank Russell Company is not a sponsor of the Equity Index Account and is not
affiliated with us in any way. For more about the Frank Russell Company, see
page 13.
OTHER INVESTMENTS
The account can also hold other instruments whose return depends on stock market
prices. These include stock index futures contracts, options (puts and calls) on
futures contracts, and debt securities whose prices or interest rates are linked
to the return of a recognized stock market index. The account can also make swap
arrangements where the return is linked to a recognized stock market index. The
account would make such investments in order to seek to match the total return
of the Russell 3000. However, those instruments may not track the return of the
Russell 3000 in all cases and can involve additional credit risks. Investing in
options or futures contracts and entering into equity swaps involve special
risks; see page 31 and the SAI. Investment by the account in these types of
instruments is subject to any necessary regulatory approvals.
19
<PAGE>
The Equity Index Account can hold other types of securities with equity
characteristics, such as bonds convertible into common stock, warrants,
preferred stock, and depository receipts for such securities. In addition, the
account can hold fixed-income securities that it acquires because of mergers,
recapitalizations, or otherwise. For liquidity, the account can also invest in
the same types of money market instruments as the Money Market Account, as well
as other short-term instruments, including those denominated in foreign
currencies.
THE BOND MARKET ACCOUNT
The Bond Market Account's investment objective is a favorable long-term rate of
return, primarily through high current income consistent with preserving
capital. The account invests primarily in a broad range of investment-grade,
fixed-income securities, such as bonds, notes, and money-market instruments.
Ordinarily fixed-income securities are interest-rate-sensitive, except those
with floating or variable rates. That means their market value will tend to rise
when interest rates fall, and fall when interest rates rise. The market price of
securities with longer maturities tends to be more volatile.
INVESTMENT MIX
The account's assets are primarily (at least 85%) in bonds and other
fixed-income instruments. Investments include securities issued or guaranteed by
the U.S. government or its agencies and instrumentalities, as well as publicly
traded investment-grade corporate securities (those rated Baa3 or better by
Moody's Investors Service, Inc. or BB- or better by Standard & Poor's). The
account also invests in mortgage-backed securities including (i) obligations of
the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC), Federal National Mortgage Association (FNMA), and similar
federal agencies or government-sponsored enterprises; and (ii) other
high-quality mortgage-related or asset-backed securities rated Baa3 or better
(Moody's) or BBB- or better by S&P, or if not rated, determined to be of
equivalent investment quality. See the appendix, page 57, and the SAI for an
explanation of what the bond ratings mean. The investments in mortgage-related
securities may be subject to the risk of early repayment of principal (see SAI).
The Bond Market Account can also buy and sell other asset-backed securities
unrelated to mortgages if they meet investment criteria and offer attractive
potential.
The Bond Market Account can buy and sell the same kind of money-market and other
short-term instruments and debt securities our Money Market Account invests in,
as well as other kinds of short-term instruments. These help us assure
liquidity, use cash balances effectively, and take advantage of attractive
investment opportunities.
20
<PAGE>
The account can invest up to 15 percent of its assets in bonds, notes,
commercial paper, and other debt securities issued by foreign governments,
agencies, corporations, and banks. (The authorized level may change from time to
time.) These may expose the account to risks different from the risks of
domestic securities (see page 29).
The Bond Market Account can also buy and sell lower-rated securities, by which
we mean those rated Ba1 or lower (Moody's) and BB+ and lower (S&P), as well as
unrated securities of similar quality. These are usually called "high-yield" or
"junk" bonds. Currently we don't intend to invest more than 20 percent of the
account's assets in such holdings. At the end of 1996, these securities were
1.64 percent of the account's portfolio.
In general, lower-rated bonds offer higher returns but also entail higher risks.
The issuer of lower-rated bonds may be less creditworthy or have a higher risk
of insolvency, especially during economic downturns. Small changes in the
issuer's creditworthiness can have more impact on the price of its lower-rated
bonds than comparable changes would for investment-grade bonds. In addition,
lower-rated bonds may be harder to trade, hence to value or dispose of, which
could disrupt the market for lower-rated bonds. Rising interest rates could
lower the securities' value, and the prices of lower-rated bonds can be more
volatile than those of higher-quality securities.
Bear in mind that all these risks can also apply to the lower levels of
"investment grade" securities, too for example, Moody's Baa and S&P's BBB.
Moreover, securities originally rated "investment grade" are sometimes
downgraded later if a ratings service believes the issuer's business outlook or
creditworthiness has deteriorated. If that happens to a security in the Bond
Market Account portfolio, it may or may not be sold, depending on our analysis
of the issuer's prospects. However, the account won't purchase
below-investment-grade securities if that would increase their representation in
the portfolio to more than 20 percent. We don't rely exclusively on credit
ratings when making investment decisions because they may not alone be an
accurate measure of the risk of lower-rated bonds. Instead, we also do our own
credit analysis, paying particular attention to interest rate trends and other
market events (see SAI).
The Bond Market Account can also buy and sell options (puts and calls), futures
contracts, and options on futures. These have some special risks. The account
won't pursue any investment not permitted by any applicable regulatory authority
(see page 31 and the SAI).
The account can also invest in preferred stock. It won't invest in common stock,
but as a result of conversion of bonds, exercise of warrants, and extraordinary
business events, it can have up to 5 percent of its assets in stocks for a
reasonable period. (The authorized level can change from time to time.)
Besides the investments already discussed, the Bond Market Account can hold any
other instruments consistent with its investment objective and policies. The
account has no formal policy on portfolio turnover and can engage in short-term
trading or sell securities before they mature whenever consistent with its
investment objective. Market conditions and the account's liquidity needs will
determine the portfolio's turnover rate.
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<PAGE>
THE INFLATION-LINKED BOND ACCOUNT
The Inflation-Linked Bond Account's investment objective is a long-term rate of
return that outpaces inflation, primarily through investment in
inflation-indexed bonds--fixed-income securities whose returns are specifically
designed to track a specified inflation index over the life of the bond.
Like conventional bonds, inflation-indexed bonds generally pay interest at fixed
intervals and return the principal at maturity. Unlike conventional bonds, an
inflation-indexed bond's principal or interest is adjusted periodically to
reflect changes in a specified inflation index. Inflation can diminish the
future purchasing power of amounts invested in a conventional bond.
Inflation-indexed bonds are designed to preserve purchasing power over the life
of the bond while paying a "real" rate of interest (i.e., a return over and
above the inflation rate). These bonds are generally issued at a fixed interest
rate which is lower than conventional bonds of comparable maturity and quality,
but are expected to retain their value against inflation over time.
INVESTMENT MIX
The Inflation-Linked Bond Account will invest primarily in inflation-indexed
bonds issued or guaranteed by the U.S. government, or its agencies and
instrumentalities, and in other inflation-indexed securities issued by
corporations and foreign governments, as well as money market instruments and
other short-term securities.
Initially, we anticipate that the account's portfolio will consist mostly of the
recently-introduced inflation indexed securities issued by the United States
Department of the Treasury (see below), and money market instruments. In order
to provide the account with the opportunity for additional returns, and in the
event there is a limited supply of the new Treasury securities in the market at
any given time, the account will seek investments in other inflation-indexed
securities or other instruments, consistent with the account's overall goal of
inflation protection and as opportunities become available.
U.S. TREASURY INFLATION-INDEXED SECURITIES (TIIS)
In January 1997, the United States Department of the Treasury issued for the
first time a new type of bond designed to provide returns linked to the
inflation rate--Treasury Inflation-Indexed Securities (TIIS). The Treasury has
committed initially to issuing ten-year notes quarterly, and has indicated that
it intends to introduce other maturities of TIIS during 1997.
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The principal amount of a TIIS bond is periodically adjusted for inflation using
the non-seasonally adjusted Consumer Price Index for All Urban Consumers
(CPI-U), and interest is paid twice a year in amounts equal to a fixed
percentage of the inflation-adjusted principal. In other words, the interest
rate is fixed, but the amount of each interest payment varies as the principal
is adjusted for inflation. To use a simplified example, if an investor purchased
a $1,000 TIIS bond with a fixed annual interest of 3% (payable 1.5%
semi-annually), and inflation over the first six months of the bond were 1%, the
bond's principal at mid-year would be adjusted to $1,010 and the first
semi-annual interest payment would be $15.15 ($1,010 x 1.5%). If inflation
during the second half of the year reached 3% for the year, the principal at the
end of the year would be $1,030 and the second semi-annual interest payment
would be $15.45 ($1,030 x 1.5%). (Note that the actual calculation used to
determine the inflation-adjusted principal is somewhat more complex than the
example illustrates.)
The principal amount of a TIIS investment can go down in times of negative
inflation; however, the U.S. Treasury guarantees that the final principal
payment at maturity will not be less than the original principal amount of the
bond when issued. (While this guarantee applies to TIIS, other inflation-indexed
securities may not provide a similar guarantee.) The inflation-adjusted
principal value of TIIS will be calculated using CPI-U data that is
approximately three months old.
TIIS are eligible to be stripped. This means that the interest and principal
components of the bonds may be sold separately. The account can buy or sell
either component of a stripped security.
OTHER INFLATION-INDEXED SECURITIES
The account may invest in inflation-indexed bonds issued or guaranteed by
foreign governments, or their agencies and instrumentalities, as well as other
foreign (non-governmental) issuers, to the extent consistent with the account's
investment objective. These investments may be denominated in U.S. dollars,
foreign currencies or other units of account. Inflation-indexed bonds have been
available in the United Kingdom (Indexed Gilts) since 1981 and in Canada
(Real-Return Bonds) since 1991. They are also available in other countries
including Argentina, Australia, Brazil, Israel, Mexico, and Sweden. These bonds,
which are varied in structure, generally are designed to track the inflation
rate in the issuing country. Since the inflation rate in the issuing country may
be higher or lower than the rate in the United States, and may affect the value
of the country's foreign currency relative to the U.S. dollar, we will only
invest in these foreign issues when we believe they provide the potential for
additional returns without diluting the account's overall inflation protection
feature. We currently don't expect the account's investments in foreign
inflation-indexed bonds to exceed 25% of the account's assets, although the
authorized level may change from time to time. Foreign investments may expose
the account to risks that are in addition to and different from the risks of
domestic securities (see page 29).
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The account may also invest in inflation-indexed bonds issued or guaranteed by
agencies or instrumentalities of the U.S. government and in corporate
(non-governmental) or other inflation-indexed securities of U.S.-domiciled
issuers, as the market for these investments develops. Currently, there are few
existing inflation-indexed securities issues on the domestic market, although we
expect a market to develop in the future. Because these types of investments are
new, we can't predict when or if they will be widely available for purchase, nor
whether there will be an active secondary market for these securities.
OTHER INVESTMENTS
The Inflation-Linked Bond Account can also buy and sell the same kind of
fixed-income securities the Bond Market Account invests in. These securities
will usually be investment grade (those rated Baa3 or better by Moody's
Investors Service, Inc. or BBB- or better by Standard & Poor's or non-rated
issues of similar quality). The account doesn't intend to invest more than 5% of
its assets in fixed-income instruments that are rated below investment grade at
the time of investment, or in unrated securities of similar quality.
The account can also buy and sell the same kind of money market and other
short-term instruments and debt securities as the Money Market Account, as well
as other kinds of short-term instruments. These help us assure liquidity, use
cash balances effectively, and take advantage of investment opportunities. From
time to time, particularly during the account's first year, a significant
percentage of the account may be invested in these liquid assets pending the
availability of a sufficient supply of suitable inflation-linked securities on
the market. The account also can temporarily increase the percentage of its
portfolio in money market or other short-term instruments under particular
circumstances. These include the rapid influx of participants' funds, lack of
suitable inflation-indexed investments, and/or a need for greater liquidity.
To manage currency risk, the Inflation-Linked Bond Account can enter into
forward currency contracts, buy or sell options and futures on foreign
currencies, and buy securities indexed to foreign currencies. For more, see "The
Global Equities Account--Managing Currency Risk," page 16. The account can also,
on a limited basis, buy and sell options (puts and calls), futures contracts,
and options on futures. These have some special risks. The account won't pursue
any investment not permitted by any applicable regulatory authority (see page 31
and the SAI).
Besides the investments already discussed, the Inflation-Linked Bond Account can
hold any other instruments consistent with its investment objective and
policies. The account has no formal policy on portfolio turnover and can engage
in short-term trading or sell securities before they mature whenever consistent
with its investment objective. Market conditions and the account's liquidity
needs will determine the portfolio's turnover rate.
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SPECIAL CONSIDERATIONS
Inflation-indexed securities have just recently been introduced in the United
States, and therefore it's uncertain how these types of investments will
actually perform. For example, although the U.S. Treasury has committed to
issuing an adequate supply of TIIS to support market demand, there's no
guarantee that they will do so, or that other inflation-indexed bonds will be
available on a continuing basis. In addition, there's no guarantee that an
active secondary market will develop for inflation-indexed securities. If the
liquidity of these securities is limited, the price the account pays or receives
when buying or selling them prior to maturity could be adversely affected. The
account may also be compelled to invest a large portion of its assets in money
market instruments and conventional bonds if there isn't a sufficient supply of
inflation-indexed securities available for purchase.
Another factor that you should consider is that the investments in the account,
like those in all CREF accounts other than the Money Market Account, are
"marked-to-market"--that is, the value of the account is adjusted every business
day to reflect the daily market value of the account's investments. Because
market values of inflation-indexed securities will fluctuate, the account could
lose money on its investments and its total return may not actually track
inflation in each and every year. Market values of inflation-indexed securities
can go up or down due to changes in the market's underlying inflation
expectations or in real rates of interest (i.e., the component of interest rates
not attributable to anticipated inflation rates), or as a result of supply and
demand shifts in the marketplace. For example, if inflation were to rise at a
faster pace than reflected in conventional bond interest rates (nominal interest
rates), real rates might decline, leading to an increase in market value of
inflation-indexed bonds. In contrast, if nominal rates increase at a faster rate
than inflation, real interest rates might increase, leading to a decrease in
inflation-indexed bond values. We can't predict with certainty how volatile
market values of inflation-linked securities will be, although we anticipate
that they'll be less volatile over the long-term than conventional bonds and
equities.
Note also that it has recently been suggested that the CPI-U does not accurately
reflect the true rate of inflation in the price of a representative basket of
goods and services purchased by the typical urban consumer, and that therefore
the index should be changed or an entirely new index devised. It's unclear
whether the U.S. Treasury would adopt any revised or new index for TIIS
investments. If the market perceives that the adjustment index used by TIIS does
not accurately reflect real inflation, the market value of those bonds could be
adversely affected.
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Participants choosing to receive annuity income through this account should also
be aware that their annuity income benefits may not precisely keep pace with
inflation, particularly if the stated interest rate on the inflation-indexed
bonds in the account is below the 4% assumed interest rate we use to calculate
initial annuity benefits for new retirees. (See page B--39 of the SAI for the
specific formula used to calculate initial annuity benefits.)
THE SOCIAL CHOICE ACCOUNT
The Social Choice Account's investment objective is a return that reflects the
broad investment performance of the financial markets while giving special
consideration to certain social criteria. The portfolio is a diversified set of
stocks and other equity securities; bonds and other fixed-income securities; and
money market instruments and other short-term debt securities. The account seeks
to invest only in companies which are suitable from a financial perspective and
whose activities are consistent with the account's social criteria.
CURRENT SOCIAL CRITERIA
The social criteria the account takes into consideration are non-fundamental
investment policies. They can change from time to time without the approval of
the account's participants.
At present, the Social Choice Account won't invest if the issuer:
(1) Engages in activities that result or are likely to result in significant
damage to the natural environment;
(2) Has a significant portion of its business in weapons manufacturing;
(3) Produces and markets alcoholic beverages or tobacco products;
(4) Produces nuclear energy; or
(5) Has operations in Northern Ireland and has not (a) adopted the MacBride
Principles (a fair employment code for U.S. firms operating in Northern
Ireland and concerned with preventing religious discrimination in
employment); or (b) operated consistently with such principles and in
compliance with the Fair Employment (Northern Ireland) Act of 1989.
For the second and third 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 an operation the activity involves or how much revenue it
brings in.
The CREF Finance Committee and Committee on Corporate Governance and Social
Responsibility of the Board provide overall guidance in deciding whether
investments meet the social criteria. To do that, the committees can use
information from independent monitoring organizations such as the Investor
Responsibility Research Center, Inc. We'll do our best to make sure the
account's investments meet the criteria in effect, but we can't guarantee that
every holding will always do so. The Social Choice Account isn't restricted from
investing in any securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities. Even if a given investment is not excluded by
current social criteria, we can decide at any time that it nevertheless isn't
suitable for the account. If we decide to sell an investment because it would be
excluded by the criteria because it or the criteria have changed, we'll try to
do it in an orderly way that limits the account's risk.
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INVESTMENT MIX
The Social Choice Account is a balanced fund, with assets divided between stocks
and other equity securities (currently about 60 percent of the portfolio) and
bonds and other fixed-income securities, including money-market instruments
(about 40 percent). When market conditions or transaction needs require, the
equity portion can go as high as 70 percent or as low as 50 percent, with
corresponding changes in the fixed-income portion. Moreover, we can change the
balancing profile even further if we think it's appropriate. If so, the
account's assets could be even more heavily weighted toward either equity or
fixed-income securities.
The equities portion of the Social Choice Account will ordinarily consist of the
same kinds of securities and other investments as the CREF Stock Account (see
page 13). Its goal will be to perform consistently with the U.S. stock markets
as represented by the Standard & Poor's 500 index. If market conditions and
other factors warrant, however, the account can invest up to 15 percent of its
assets in foreign securities. (The authorized level can change from time to
time.)
The fixed-income portion of the Social Choice Account will invest in the same
kinds of securities authorized for the CREF Bond Market Account (see page 20).
Money-market instruments and short-term debt securities will be of the same type
as our Money Market Account's. The Social Choice Account can also hold other
kinds of short-term instruments. These help us assure liquidity, use cash
balances effectively, and take advantage of attractive investment opportunities.
Subject to any necessary regulatory approval, the Social Choice Account can buy
and sell options (puts and calls), futures contracts, and options on futures.
SPECIAL CONSIDERATIONS
Because its social criteria preclude some investments, the Social Choice Account
may not be able to take the same advantage of specific opportunities or market
trends as portfolios that don't use such criteria. Only part of the account's
assets are in stocks and other equity securities, so overall returns may not
parallel the U.S. stock market as a whole. However, we expect the account will
have less risk than a portfolio made up exclusively of common stocks.
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THE MONEY MARKET ACCOUNT
The Money Market Account's investment objective is high current income
consistent with maintaining liquidity and preserving capital. Substantially all
assets will be in securities or other instruments maturing in 397 days or less,
though some U.S. government securities may have maturities of up to 762 days.
However, the dollar-weighted average maturity won't be more than 90 days. The
account will be subject to very little financial and market risk but may have
relatively high current income volatility--that is, its yield will vary.
INVESTMENT MIX
The account will invest primarily in:
(1) Commercial paper (short-term "IOUs" issued by corporations and others) or
variable-rate, floating-rate, or variable-amount securities of domesti
or foreign companies;
(2) Obligations of commercial banks, savings banks, savings and loan associa-
tions, and foreign banks whose latest annual financial statements show
more than $1 billion in assets. These obligations include certificates
of deposit, time deposits, bankers' acceptances, and other short-term
debt;
(3) Securities issued by or whose principal and interest are guaranteed
by the U.S. government or one of its agencies or instrumentalities;
(4) Other debt obligations with a remaining maturity of 397 days or less
issued by domestic or foreign companies;
(5) Repurchase agreements involving securities issued or guaranteed by
the U.S. government or one of its agencies or instrumentalities,
or involving certificates of deposit, commercial paper, or bankers'
acceptances (see page 31 and SAI);
(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 poli-
tical 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 order of the preceding list doesn't indicate the priority of the investment
types or their weight in the Money Market Account, which will vary according to
market conditions.
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The account will invest at least 95% of its assets in money market instruments
that at the time of purchase are "first tier" securities--that is, securities
rated within the highest category by at least two nationally recognized
statistical rating organizations ("NRSROs") (or one NRSRO if it's the only one
that has rated the security). The account can purchase unrated securities in
this segment so long as we consider them to be of comparable quality to other
first tier securities. The account also can invest up to 5% of its assets in
"second tier" securities--that is, securities rated within the two highest
categories by at least two NRSROs (or one, if it's the only one that has rated
the security). The account can also purchase unrated securities in this segment
so long as we consider them to be of comparable quality to other second tier
securities.
The account can invest up to 30 percent of its assets in foreign money-market
and debt instruments denominated in U.S. dollars, including obligations of
foreign banks, foreign governments, their agencies and instrumentalities,
domestic branches of foreign banks, and foreign branches and subsidiaries of
U.S. banks. (The authorized level can vary from time to time.) These foreign
investments must meet the eligibility standards described above. The risks of
foreign investments may differ from those of portfolios made up exclusively of
U.S. holdings. For more on such risks, see below.
The above list of Money Market Account investments is not exclusive and the
account may make other investments consistent with its investment objective and
policies.
To the extent that law allows, the Money Market Account can invest in options
and futures contracts. For a more detailed description of types of money market
instruments, see the SAI.
The account can try to increase returns by buying and selling securities and
other investments to take advantage of short-term changes in the market. There's
no formal policy on portfolio turnover. Turnover will depend on market
conditions and the account's liquidity needs.
OTHER INVESTMENT ISSUES AND RISK CONSIDERATIONS
Unless noted otherwise, the following information is generally pertinent to all
CREF accounts.
FOREIGN INVESTMENTS
CREF has extensive experience managing foreign investments, including those not
registered or traded in the United States. When we began investing in Japanese
issues in 1972, for example, we became one of the first institutional investors
to hold foreign stocks and other equity securities not traded on U.S. exchanges.
In 1979, we expanded our holdings to include a wide range of foreign issues. An
account's foreign portfolio may be divided into segments--some designed to track
foreign markets as a whole, others with stocks selected individually for their
investment potential. On December 31, 1996, foreign investments (including
securities held as collateral for stock lending) represented the following
fractions of total market value for each CREF account: Stock Account--14.65
percent; Global Equities Account--48.16 percent; Growth Account--0 percent;
Equity Index Account--0 percent; Bond Market Account--4.92 percent; Social
Choice Account--0 percent; and Money Market Account--16.15 percent. The
percentages change daily with fluctuations of both foreign and domestic
financial markets and the values of foreign currencies. To meet an account's
investment objective (and subject to the limits in CREF's charter; see SAI), the
Finance Committee can from time to time change the percentage of the portfolio
devoted to foreign investments.
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We invest only in foreign securities and other instruments that meet the
investment objectives of the respective CREF accounts. We think the diversity of
our foreign holdings is desirable because it reduces the risks and increases the
opportunity for returns. On December 31, 1996, for example, the Stock Account
held almost 2,568 issues representing investments in 39 foreign countries and
the Global Equities Account held almost 1,620 issues representing investments in
23 foreign countries.
Investing in foreign securities, especially those not issued by governments, can
involve risks not ordinarily part of domestic investing. These include: 1)
changes in currency exchange rates; 2) possible imposition of market controls or
currency exchange controls; 3) possible imposition of withholding taxes on
dividends and interest; 4) possible seizure, expropriation, or nationalization
of assets; 5) more limited foreign financial information or difficulty in
interpreting it because of foreign regulations and accounting standards; 6) the
lower liquidity and higher volatility in some foreign markets; 7) the impact of
political, social, or diplomatic events; 8) the difficulty of evaluating some
foreign economic trends; or 9) the possibility that a foreign government could
restrict an issuer from paying principal and interest to investors outside the
country. Brokerage commissions and transaction costs are often higher for
foreign investments, and it may be harder to use foreign laws and courts to
enforce financial or legal obligations.
The accounts can invest in developing or "emerging" countries. The risks noted
above often increase in emerging countries. For example, emerging countries may
have more unstable governments than developed countries, and their economies may
be based on only a few industries. Because their securities markets may be very
small, share prices may be volatile. In addition, foreign investors are subject
to a variety of special restrictions in many emerging countries.
Even considering the risks, foreign investing offers the chance to improve an
account's diversification and long-term performance. Foreign investments let
CREF take part in the growth of other countries' economies and financial
markets, which sometimes offer better prospects than in the U.S. Moreover,
periods of rising or falling values often come at different times in foreign
markets than in U.S. markets, and price trends can move in different directions.
When this happens, foreign investments can reduce an account's volatility,
compared to the U.S. market as a whole, and perhaps enhance long-term returns.
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CURRENCY TRANSACTIONS
When investing in foreign securities, the CREF accounts can use currency
transactions to protect themselves against future exchange rate uncertainties
and to take advantage of exchange rate disparities between countries. We'll
conduct transactions either on a spot (i.e., cash) basis at prevailing rates, or
else through forward contracts to buy or sell currencies at a set price on a
stipulated date in the future. Forward currency contracts are usually entered
into with large commercial banks that participate in the interbank market. The
CREF accounts can also use currency financial futures and options and can hold
part of their assets in bank deposits denominated in foreign currency. If
foreign-currency assets are converted to dollars, changes in exchange rates and
exchange control regulations may increase or reduce their value.
Foreign currency transactions involve special risks. For example, they may limit
potential gains from increases in a currency's value. For more information, see
the SAI. We don't intend to speculate in foreign currency exchange transactions
or forward currency contracts.
OPTIONS, FUTURES, AND OTHER INVESTMENTS
The CREF accounts can buy and sell options (puts and calls) and futures to the
extent permitted by the New York State Insurance Department, the SEC, and the
Commodity Futures Trading Commission. We intend to use options and futures
primarily as hedging techniques or for cash management, not for speculation, but
they involve special considerations and risks nonetheless. For more information,
see the SAI.
The accounts can also invest in newly developed financial instruments, such as
equity swaps and debt securities whose returns are linked to equity market
performance, so long as these are consistent with each account's investment
objective and policies and with regulatory requirements. For more information,
see the SAI.
ILLIQUID SECURITIES
Each account can invest up to 10 percent of its assets in investments that may
not be readily marketable. It may be difficult to sell these investments for
their fair market value.
REPURCHASE AGREEMENTS
Repurchase agreements are one of several short-term vehicles the CREF accounts
can use to manage cash balances. In a repurchase agreement, we buy an underlying
debt instrument on condition that the seller commits to buy it back at a fixed
time (which is usually a relatively short period) and price. The period from
purchase to repurchase is usually no more than a week and never more than a
year. Repurchase agreements may involve special risks; for more details, see the
SAI.
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FIRM COMMITMENT AGREEMENTS AND"WHEN-ISSUED" SECURITIES
The CREF accounts can enter "firm commitment" agreements to buy securities at a
fixed price or yield on a specified future date. Accordingly, if we expect a
decline in future yields on a given issuer's bonds, we might believe it to our
advantage to commit to buy now with a later issue or delivery date. For example,
an account might purchase new bonds on a "when issued" basis, with principal
payments and interest rates set at the time of the transaction. See SAI.
INVESTMENT COMPANIES
Each account can invest up to 10 percent of its assets in other investment
companies.
SECURITIES LENDING
Subject to certain restrictions, all CREF accounts can seek additional income by
lending securities to brokers, dealers, and other financial institutions.
Brokers and dealers must be registered with the SEC and be members of the NASD;
any recipient must be unaffiliated with CREF. All loans will be fully
collateralized. If we lend a security, we can call in the loan at any time. See
SAI.
BORROWING
As a temporary measure for extraordinary or emergency purposes, the Stock
Account, Global Equities Account, Bond Market Account, Social Choice Account,
and Money Market Account can borrow money from banks (no more than 10 percent of
the market value of the account's assets at the time of borrowing). No more than
5 percent of the value of their assets can be borrowed to purchase securities.
Each account can pledge, mortgage, or otherwise encumber as much as 10 percent
of its assets (at the time of borrowing) as collateral for borrowing, but only
for permitted purposes.
The Growth Account, the Equity Index Account, and the Inflation-Linked Bond
Account can borrow money from banks (no more than 33 1/3 percent of the market
value of the account's assets at the time of borrowing). The Growth Account, the
Equity Index Account, and the Inflation-Linked Bond Account also can borrow
money from other sources temporarily (no more than 5 percent of the total market
value of the account's assets at the time of borrowing). See SAI.
If an account borrows money, it could leverage its portfolio by retaining
securities it might otherwise have sold had it not engaged in borrowing. Risks
of leverage include a greater exposure to changes in an account's net asset
value due to market fluctuations than would otherwise be the case.
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PERFORMANCE INFORMATION
From time to time CREF advertises the total return and average annual total
return for each of our accounts. For the Bond Market, Inflation-Linked Bond, and
Money Market Accounts, we also advertise yield. We can also advertise how
compounding, tax deferral and different expense charges can affect total return
over time. For more, see the SAI.
TOTAL RETURNS
"Total return" means the cumulative percentage increase or decrease in the value
of an investment over standard one-, five-, and ten-year periods (and
occasionally other periods as well). The average annual total return means the
annually compounded rate that would result in the same cumulative total return
over the stated period.
MONEY MARKET ACCOUNT YIELDS
For the Money Market Account, "yield" or "current yield" means the income
generated by an investment over a seven-day period, after expenses. This is then
annualized--that is, we assume the account will generate income at the same rate
for each week for 52 weeks, then show the total income as a percentage of the
original investment. We can also advertise "effective yield" for the account. We
calculate this similarly, but when annualizing we assume the income is
reinvested. Because of compounding, effective yield will be slightly higher than
current yield.
BOND MARKET AND INFLATION-LINKED BOND ACCOUNT YIELDS
For the Bond Market and Inflation-Linked Bond Accounts, "thirty-day yield" means
the income generated by an investment over a thirty-day period, after expenses.
We then assume that the net investment income rate for the thirty-day period as
a percentage of average net assets is compounded monthly for six months, then
annualized.
All performance figures are based on past investment results. They aren't a
guarantee that an account will perform equally or similarly in the future. Write
or call us for current performance figures for all accounts (see "Contacting
CREF," page 55).
VALUATION OF ASSETS
We calculate the value of the assets in each CREF account as of the close of
every valuation day. Except as noted below, we generally use market quotations
or independent pricing services to value securities and other instruments. We
set the value of short-term money-market instruments with a remaining maturity
of sixty days or less held in the Money Market Account based on amortized cost,
if that isn't materially different from the actual market value. If market
quotations or independent pricing services aren't readily available, we'll use
fair value, as decided in good faith under the direction of the Finance
Committee and in accord with the responsibilities of the CREF Board as a whole.
For more information, see the SAI.
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MANAGEMENT AND INVESTMENT ADVISORY ARRANGEMENTS
The CREF Board of Overseers is responsible for appointing certain committees,
approving amendments to CREF's charter, constitution, and bylaws, and
considering any other matters presented to them. The seven overseers also
constitute the TIAA Board of Overseers, a New York membership corporation that
owns all stock of CREF's companion organization, TIAA.
The principal responsibility for governing CREF rests with its Board of
Trustees. The trustees of each class are elected by participants for four-year
terms. The Board directs CREF's administration and investments, meeting
throughout the year to oversee CREF's activities, review contractual
arrangements with companies that provide services to CREF, and review each
account's performance.
TIAA-CREF Investment Management, Inc. ("Investment Management") manages the
assets in each CREF account. A nonprofit subsidiary of TIAA, Investment
Management is registered under the Investment Advisers Act of 1940. Its duties
include conducting research, recommending investments, and placing orders to buy
and sell securities. It also performs all portfolio accounting, custodial, and
related services for each account. All services are provided by Investment
Management at cost, and its personnel act consistently with the investment
objectives, policies, and restrictions of each account.
CREF restricts the ability of those personnel of Investment Management who have
direct responsibility and authority for making investment decisions for CREF to
trade in securities for their own accounts. The restriction also applies to
members of their households, i.e. spouses, domestic partners and relatives
sharing the same home. Transactions in securities by those individuals are
subject to preclearance procedures and reporting requirements, including a
requirement that they send duplicate confirmation statements and other brokerage
account reports to a special compliance unit.
THE ANNUITY CERTIFICATES
CREF issues certificates for five kinds of variable annuities: a Retirement
Annuity (RA); a Group Retirement Annuity (GRA); a Supplemental Retirement
Annuity (SRA); a Group Supplemental Retirement Annuity (GSRA); and a Rollover
Individual Retirement Annuity (Rollover IRA). Subject to regulatory approval, we
plan to offer an Individual Retirement Annuity that accepts both direct
contributions and rollovers (the New IRA) and a Keogh Plan Annuity (Keogh). (We
refer to the Rollover IRA and New IRA collectively as the IRAs.)
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RAs, SRAs, IRAs and Keoghs are issued to you directly. GRAs and GSRAs are issued
under the terms of a group contract. The CREF accounts are available under some
unallocated group annuity contracts issued to employers. Neither you nor your
beneficiaries can assign your ownership of a CREF certificate to anyone else,
except as a result of a qualified domestic relations order as defined by the
IRC. Currently CREF makes no deductions from your premiums, but we reserve the
right to do so in the future. You can cancel any RA, SRA, IRA or Keogh
certificate up to thirty days after you receive it, unless it's one under which
annuity payments have begun. To cancel a CREF certificate, mail or deliver it
and a signed Notice of Cancellation to our home office. If asked to cancel the
certificate, CREF will do so as of its date of issue, then send the entire
current accumulation, including premiums, investment gains or losses, and
deductions (if any) back to the premium remitter. If you're considering
canceling a CREF certificate, consult your employer.
RA AND GRA CERTIFICATES
RA and GRA certificates are used mainly for employee retirement plans set up
under sections 401(a), 403(a), and 403(b) of the IRC (and, in limited cases,
other types of employer-sponsored plans). Occasionally we issue RA or GRA
certificates to employers to meet deferred-compensation obligations or where the
certificate will eventually be transferred to an employee who has met
delayed-vesting requirements.
Depending on the terms of your plan, RA premiums can be paid by your employer,
you, or both. If you're paying some or all of the periodic premium, your
contributions can be in either pre-tax dollars, by salary reduction1; or
after-tax dollars, by payroll deduction--in either case, subject to your
employer's plan and the relevant tax laws. You can also transfer accumulations
from another investment choice under your employer's retirement plan to your RA
certificate (see page 40). For RAs only, you can make single, non-recurring
contributions in any amount directly to CREF.
GRA premiums can also include contributions from your employer or both you and
your employer. Like an RA, the GRA lets you make pre-tax contributions by salary
reduction and after-tax contributions by payroll deduction--again subject to
your employer's plan and relevant tax laws. You can't make payments directly;
your employer has to send them for you. As with RAs, you can transfer
accumulations from another investment choice under your employer's retirement
plan to your GRA certificate (see page 40). Some employer plans may require that
GRA certificates be redeemed if you terminate employment and your accumulation
is below a minimum amount specified in your contract. Contact your employer for
more information.
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1 In salary reduction, your employer periodically reduces your taxable
compensation by a specified sum (up to a maximum set by federal law), then
sends an equal amount to CREF.
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SRA AND GSRA CERTIFICATES
SRA and GSRA certificates are used mainly for voluntary tax-deferred annuity
(TDA) plans set up under section 403(b) of the IRC. The SRA certificate is
issued directly to you, while the GSRA certificate is issued through an
agreement between CREF and your employer. For both SRAs and GSRAs, you pay all
premiums in pre-tax dollars via salary reduction. You can't pay premiums
directly, though you can transfer amounts from another TDA plan (see below).
ROLLOVER IRA CERTIFICATES
The Rollover Individual Retirement Annuity is issued under IRC section 408(b).
You currently can use it only for tax-deferred funds previously held in an
eligible institution's retirement plan or in individual retirement accounts that
were themselves set up with amounts originally in an eligible
institution-sponsored plan. Subject to regulatory approval, we expect to expand
eligibility, so that you or your spouse can also set up a Rollover IRA with
funds rolled over from any retirement plan or individual retirement account, so
long as such a rollover is permitted by the IRC and as long as you are currently
employed by or retired from an eligible institution.
IRA CERTIFICATES
We plan to issue, subject to regulatory approval, an IRA certificate that
accepts the same type of funds that the Rollover IRA currently accepts, the
funds it would accept under the expanded eligibility just described, as well as
other types of funds. These are:
(1) Direct payments from anyone employed by an eligible institution or married
to an employee. The IRC limits the amount you can contribute, usually to
$2,000. See "Federal Income Taxes," page 51.
(2) Contributions to a Simplified Employee Pension (SEP) plan. You can use the
IRA to fund your SEP plan if you have income from self-employment and
you're currently employed by or retired from an eligible institution. If
you open your IRA when you are retired, or if you have a SEP plan, your
contribution must be from qualified income. Qualified income is income from
work related to your primary academic or research career. You can also use
the IRA to accept contributions from an eligible institution's SEP plan.
For more information, please contact CREF.
KEOGH CERTIFICATES
Subject to regulatory approval, we expect to offer Keogh certificates. They will
be issued under IRC sections 401(a) and 403(a). If you own an unincorporated
business, you can use them to fund your Keogh plan if you are currently employed
by or retired from an eligible institution. The IRC limits the amount you can
contribute each year, and contributions must be from qualified income (see
above). See "Federal Income Taxes," page 51.
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REMITTING PREMIUMS
We'll issue you a CREF certificate as soon as we receive your completed
application or enrollment form, even if you don't initially allocate any
premiums to CREF. Premiums will be credited as of the business day we receive
them.
If we receive premiums from your employer before your application or enrollment
form, we'll credit the premiums to the Money Market Account until we receive the
application or enrollment form. Then we'll transfer the appropriate amounts to
any other accounts you've specified, crediting the transfer as of the business
day we received the application or enrollment form. After that we'll follow your
most recent allocation instructions.
If the allocation instructions on your application or enrollment form are
incomplete, violate plan restrictions or don't total 100 percent, we'll credit
your premiums to the Money Market Account until we do receive complete
instructions. Any amounts that we credited to the Money Market Account before we
received correct instructions will be transferred to another account only on
request, and will be credited as of the business day we receive that request.
CREF doesn't restrict the amount or frequency of premiums to your RA, GRA, or
IRA certificates, although we reserve the right to impose restrictions in the
future. Your employer's retirement plan may limit your premium amounts, while
the IRC limits the total annual premiums to plans qualified for favorable tax
treatment (see page 51).
In most cases, CREF will accept premiums to a certificate at any time before
your accumulation period ends. Once your first premium has been paid, your CREF
certificate can't lapse or be forfeited for nonpayment of premiums. However,
CREF can stop accepting future payments to both the GRA and GSRA certificates at
any time.
Employees or retirees of eligible institutions can also purchase at any time a
certificate to begin receiving annuity income starting the first day of the
following month.
PAYMENT OF PREMIUMS DIRECTLY BY A PARTICIPANT
If you make one or more direct RA, IRA or Keogh contributions, the amounts and
any earnings based on them won't be subject to the provisions of your
institution's retirement plan. For such funds, the only restrictions on
allocating premiums, transferring accumulations, making cash withdrawals,
exercising repurchase rights, and choosing income options are those stipulated
under the certificate itself. If you like, you can give us different allocation
instructions for each direct premium. Direct RA premiums must be paid in
after-tax dollars; they won't reduce your current taxable income (see "Federal
Income Taxes").
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ALLOCATION OF PREMIUMS
You can allocate all or part (whole percentages) of your premiums to any or all
CREF accounts, unless your retirement plan precludes that. With RAs, GRAs, or
GSRAs your employer's plan can prohibit your using the Global Equities, Growth,
Equity Index, Bond Market, Inflation-Linked Bond, and/or Social Choice Accounts,
but not the Stock and Money Market Accounts.
You can change your allocation for future premiums at any time by writing to our
home office or calling 1 800 842-2252; however, we reserve the right to suspend
or terminate your right to change your allocation by telephone.
ACCUMULATION UNITS
Your premiums purchase accumulation units. We calculate how many accumulation
units to credit by dividing the amount allocated to each account by its
accumulation unit value for the business day when we received your premium. To
determine how many accumulation units to subtract for transfers and cash
withdrawals we use the unit value for the business day when we receive your
completed transaction request and all required information and documents (unless
you ask for a later date). For amounts applied to begin CREF annuity income or
death benefits, unless you ask for a different date, the accumulation unit value
will be the one for the valuation period that ends on the last day of the month
that contains the business day when we receive all required information and
documentation. See "The Annuity Period," page 44, and "Death Benefits," page 48.
For each account, the value of the accumulation units will depend mainly on
investment experience, though unit values also reflect expense deductions
against assets (see page 42). We calculate the accumulation unit values at the
end of each valuation day. For more information, see the SAI.
TRANSFERS BETWEEN CREF ACCOUNTS AND BETWEEN CREF AND TIAA
Subject to the conditions below, you can transfer some (generally at least
$1,000 per account at a time) or all of your accumulation from one CREF account
to another, or to TIAA's traditional annuity or the TIAA Real Estate Account.
Under RA, GSRA, and GRA certificates, you can transfer between the CREF Stock
and Money Market Accounts without employer restriction; you can also transfer
without restriction from CREF to TIAA's traditional annuity. Your employer's
retirement plan may restrict your right to transfer accumulations to the CREF
Global Equities, Growth, Equity Index, Bond Market, Inflation-Linked Bond, and
Social Choice Accounts or the TIAA Real Estate Account. You can transfer from
the TIAA traditional annuity and TIAA Real Estate Account RA and GRA contracts
to CREF certificates or, if your employer's plan permits, to other retirement
plans. Transfers from the TIAA traditional annuity take place in roughly equal
installments over a ten-year period via a TIAA transfer payout annuity. There
are no restrictions on transfers from the TIAA traditional annuity to CREF
certificates under SRA and GSRA certificates. However, transfers from the TIAA
Real Estate Account to CREF certificates are limited to once a calendar month.
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If you don't already have a CREF certificate when you ask for a transfer from
TIAA to CREF, we execute your transfer on the day we receive your completed
application for a CREF certificate, not the day you requested the transfer. If
you want to transfer amounts attributable to more than one employer, we'll do so
on a pro-rata basis, although this may change in the future. (For more
information, contact CREF.)
Under SRA, IRA and Keogh certificates, you can transfer funds without employer
restrictions among the CREF accounts and to TIAA (traditional or Real Estate).
If your institution offers a GSRA plan, you can also transfer CREF (and TIAA)
funds between SRA and GSRA certificates.
Currently, you can authorize a transfer at any time during your accumulation
period, although we reserve the right to limit transfer frequency in the future.
You can also transfer on a limited basis during the annuity period (see page
44). Currently, we don't charge you for transfers between accounts or to TIAA.
TRANSFERS TO OTHER COMPANIES AND CASH WITHDRAWALS
If you have a CREF RA, GRA or GSRA certificate, your ability to move funds to
any company other than TIAA will depend upon the terms of your employer's
retirement plan. If the plan permits, you can move some or all of your
accumulation to any company approved by your employer. Transfers usually must be
for at least $1,000 per account (or the entire part of your accumulation
permitted to be transferred, if less).
If some of your RA accumulation is attributable to a previous employer, that
employer may restrict your ability to transfer those funds to another company.
For more information, contact CREF or your employer.
Again depending on the terms of your employer's plan, you may also be able to
withdraw some or all of your RA and/or GRA accumulation as cash. Subject to
certain restrictions (see below) you can withdraw some or all of your SRA, GSRA,
IRA or Keogh accumulation, or transfer it to another company at any time during
the accumulation period. Cash withdrawals must also be for at least $1,000 per
account (or your entire accumulation, if less). You can withdraw the entire
amount of your SRA or GSRA accumulation attributable to salary reduction
contributions (and earnings, if any) prior to 1989, even if it's less than
$1,000. For more information, see "Federal Income Taxes."
Currently, CREF does not charge you for transfers to other companies or for cash
withdrawals.
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SPECIAL TRANSFER SERVICES
If your employer participates in our Special Transfer Services program, you can
arrange for us to make automatic monthly transfers from your RA or GRA
certificate to another company. The requirement that transfers be for at least
$1,000 per account doesn't apply to these automatic transfers--they can be for
any amount.
SYSTEMATIC WITHDRAWALS AND TRANSFERS
Any participant can arrange to have CREF execute withdrawals and transfers
automatically. At your request, we will withdraw from your accumulation as cash,
or transfer to another CREF account, TIAA (traditional or Real Estate) or
another company, any fixed number of accumulation units, dollar amount, or
percentage of your accumulation that you specify until you tell us to stop or
until your accumulation is exhausted. Currently the initial amount must be at
least $100 per account. The availability of the service is subject to any
restrictions in your employer's retirement plan.
TRANSFERS TO CREF FROM OTHER PLANS
Ordinarily you can make single-sum transfers from another 403(b) retirement plan
to a CREF certificate. Likewise, if your retirement plan is a 401(a) or 403(a)
arrangement, you can make single-sum transfers to it from other 401(a) or 403(a)
plans if your CREF funded plan and the other 401(a) or 403(a) plan so provide.
Amounts transferred from another company to CREF may still be subject to
provisions of the original retirement plan. Under current federal tax law, you
can also transfer funds from some 401(a), 403(a), and 403(b) plans, or from an
IRA containing funds originally contributed to such plans, to a CREF IRA.
GENERAL CONSIDERATIONS FOR ALL CASH WITHDRAWALS AND TRANSFERS
Current federal tax law restricts the availability of cash withdrawals from any
part of your accumulation under salary reduction agreements (including earnings,
if any). If your salary reduction contributions are made to a 403(b) annuity,
these withdrawal restrictions apply only to amounts (and earnings, if any)
credited after December 31, 1988. If they are made under a 401(k) plan, these
withdrawal restrictions apply to all such salary reduction amounts (and
earnings, if any). Such withdrawals are generally available only if you reach
age 591/2, leave your job, become disabled, or die. Withdrawals of elective
deferral amounts may also be permitted if your employer's plan is a 401(k) plan
and your employer terminates the plan. If your employer's plan permits, you may
also be able to take a cash withdrawal if you encounter hardship, as defined by
the IRS, but hardship withdrawals can be from contributions only, not investment
earnings. These restrictions don't apply to withdrawals from an IRA. For more
about tax consequences, see page 51.
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Ordinarily, you can't transfer or withdraw any part of an accumulation from
which you've already begun receiving annuity income.
Transfers and cash withdrawals are effective at the end of the business day we
receive your request (and any required information and documentation). You can
instead choose to have transfers and withdrawals take effect at the close of any
future business day or the last calendar day of the current or any future month,
even if it's not a business day. You can request a transfer between CREF
accounts or from CREF to TIAA by telephone. If you do that at any time other
than during a business day, it will be effective at the close of the next
business day. Transfers to the TIAA traditional annuity begin participating on
the next day.
To request a transfer, write to our home office or call us at 1 800 842-2252. We
reserve the right to suspend or terminate your right to make transfers by
telephone. For more about telephone transfers, see page 55.
REPURCHASE OF RETIREMENT ANNUITIES (RAs)
If you leave your employer with a relatively small accumulation (usually under
$4,000 for both TIAA and CREF), your plan may allow you to have CREF
"repurchase" (i.e., cash out in a single sum) some or all of your Retirement
Annuity.
Your employer can impose certain other conditions on your right to have your RA
repurchased. If you're eligible for repurchase, it's ordinarily your option to
do so or to retain your CREF accumulation until you (or your beneficiary) are
ready to begin annuity (or survivor) benefits. You can also continue to pay
additional premiums directly to CREF, subject to limits based on federal tax
considerations (see page 51).
CREF reserves the right at any time to change the conditions governing your RA
repurchase rights or to curtail repurchase for future participants. Contact us
for the most current information about repurchases.
TAX ISSUES
Make sure you understand the possible federal and other income tax consequences
of transfers and cash distributions, including repurchase. Transfers between
retirement plans set up under the same section of the Internal Revenue Code
aren't ordinarily considered taxable distributions; nor are transfers between
IRAs funded at other companies or from 401(a), 403(a), and 403(b) plans to a
CREF IRA. Cash withdrawals are usually taxed at the rates for ordinary income.
They may also subject you to early-distribution and/or excess-distribution taxes
as well, although excess distribution taxes do not apply in 1997, 1998 and 1999
pursuant to recently enacted legislation. (Note that different rules may apply
to residents of Puerto Rico.) For details, see "Federal Income Taxes."
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TEXAS ORP RESTRICTIONS
If you're in the Texas Optional Retirement Program, section 36.105 of the Texas
Education Code says you (or your beneficiary) can redeem some or all of your
accumulation only if you retire, die, or leave your job in the state's public
institutions of higher education. You're also subject to other distribution
restrictions outlined elsewhere in this prospectus.
SPOUSAL RIGHTS
If you're married, the Retirement Equity Act of 1984 (REACT) and your employer's
plan may require you to get advance written consent from your spouse before
making certain transactions. They include (1) a cash withdrawal (except from
most IRAs); (2) a payment of a retirement transition benefit (see page 47); (3)
a transfer to a retirement plan not covered by the Employee Retirement Income
Security Act of 1974 (ERISA); (4) a rollover directly from a plan to another
plan or an IRA (you don't receive a check); and (5) a repurchase. In addition,
if you're married at your annuity starting date, REACT may require that you
choose an income option that provides survivor annuity income to your spouse,
unless he or she waives that right in writing (see "The Annuity Period" page
44). There are limited exceptions to the waiver requirement--contact us for more
information. For more on spousal rights, see "Death Benefits," page 53.
PORTABILITY OF BENEFITS
Once you're fully vested under your employer's RA or GRA plan, you can't lose
the benefits you've earned. Length-of-service and other rules vary considerably
from plan to plan, so check with your employer to find out your vesting status.
Benefits under SRAs, GSRAs, and IRAs are immediately vested and can't be
forfeited under any circumstances.
If you go back to a prior employer, you may be able to resume participation
under your original CREF certificate(s) if the plan allows it. Under RA
certificates, you may also be able to continue paying premiums on your own,
subject to federal income tax limits (see page 51).
EXPENSE DEDUCTIONS
CREF deducts expenses from its accounts' assets for investment management,
administration, and distribution services. Services are performed for CREF at
cost by two nonprofit subsidiaries of TIAA: TIAA-CREF Investment Management,
Inc., and TIAA-CREF Individual & Institutional Services, Inc. Deductions are
from the net assets of each account, including the accumulation and annuity
funds. Because the deductions are at cost, they'll usually be lower than for
comparable annuity contracts offered by for-profit companies. Deductions take
place each valuation day.
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INVESTMENT ADVISORY EXPENSE DEDUCTION
Charges are for investment advice, portfolio accounting, custodial and similar
services. For the Stock Account, the current daily deduction is equivalent to
.08 percent of net assets annually. For the Global Equities Account, .15
percent. For the Growth Account, .13 percent. For the Equity Index Account, .07
percent. For the Bond Market Account, .06 percent. For the Inflation-Linked Bond
Account, .08 percent. For the Social Choice Account, .07 percent. For the Money
Market Account, .06 percent.
ADMINISTRATIVE EXPENSE DEDUCTION
Charges are for administration and operations, such as allocating premiums and
paying annuity income. For each account, the current daily deduction is
equivalent to .20 percent of net assets annually.
DISTRIBUTION EXPENSE DEDUCTION
Charges are for distributing the certificates--that is, telling you what they
are and how you can invest in them, and helping employers install and manage
retirement plans.
For each CREF account, the current daily deduction is equivalent to .03 percent
of net assets annually.
Normally within thirty days after the end of every quarter, CREF reconciles how
much we deducted with the expenses each account actually incurred. If there's a
difference, we add it to or deduct it from the account in equal daily
installments over the remaining days in the quarter. We revise the deduction
rates from time to time to keep deductions as close as possible to actual
expenses. Whether to change the deduction rates will be decided by members of
the CREF board who are not "interested persons" within the meaning of the
Investment Company Act of 1940. However, the annual distribution expense charge
won't be more than .25 percent of an account's average daily net assets.
IMPACT OF MORTALITY EXPERIENCE ON ANNUITY PAYMENTS
How much you or your beneficiary receive in annuity payments from any account
will depend in part on the mortality experience of the annuity fund (annually
revalued or monthly revalued) from which the payments are made. For example, if
the people receiving income from an account's annually revalued annuity fund
live longer, as a group, than expected, the amount payable to each will be less
than if they as a group die sooner than expected. So the "mortality risk" of
each CREF account's annuity fund falls on those who receive income from it. See
"The Annuity Period," below, and the SAI.
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NO DEDUCTIONS FROM PREMIUMS
Currently there are no expense deductions from your premiums.
NO PREMIUM TAXES
Currently no taxes are assessed against your premiums.
BROKERAGE FEES AND RELATED TRANSACTION EXPENSES
Brokers' commissions, transfer taxes, and other portfolio fees are charged to
the account that incurs them (see SAI).
THE ANNUITY PERIOD
You can receive income from any account and from all or just a part (but not
less than $10,000) of your accumulation. You can also pick a different income
option for different portions of your accumulation, but once you've started
payments you can't change your income option (except if you picked the minimum
distribution annuity) or annuity partner (if you named one) for that payment
stream. If you buy an annuity to begin income on the first day of the next
month, you can take any of CREF's available income options (see below).
Current federal tax law restricts the availability of annuity payments from any
part of your accumulation under salary reduction agreements (including earnings,
if any). If your salary reduction contributions are made to a 403(b) annuity,
these restrictions apply only to amounts (and earnings, if any) credited after
December 31, 1988. If they are made under a 401(k) plan, these withdrawal
restrictions apply to all such salary reduction amounts (and earnings, if any).
For more about this, see "Federal Income Taxes," page 51.
Usually, income payments are monthly. You can choose quarterly, semi-annual, and
annual payments as well, but CREF has the right to not make payments at any
interval that would cause the initial payment to be less than $25 (or any
smaller amount if specified in the annuity certificate).
Payments are calculated based on the accumulation on the last valuation day
before the annuity starting date. After the initial payment, payments change
according to the revaluation method you choose. There are two revaluation
methods for annuity payments: annual and monthly. The annual revaluation method
is the method used for all annuity payments as of May 1, 1997. Monthly
revaluation is scheduled to be introduced in the first half of 1998 (subject to
regulatory approval).
Under the annual revaluation method, payments from any account from which you
are receiving income will change on each May 1. Payments will vary based on the
net investment results, mortality experience, and expenses for that account for
the previous fiscal year (April 1 through March 31). The payment amount will be
determined on March 31--the "payment valuation date" for the annual revaluation
method.
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Under the monthly revaluation method, payments from any account from which you
are receiving income will change every month. Payments will vary based on the
net investment results during the previous month. The payment amount will be
determined on the 20th day of the month preceding the payment due date. However,
if the 20th is not a business day, the valuation day will be the preceding
business day. Once a year, the payment change will also include the mortality
experience and expenses of the monthly revalued account. For the formulas used
to calculate the amount of CREF annuity payments, see the SAI. The total value
of your annuity payments may be more or less than your total premiums.
We'll send your payments by mail to your home address or (on your request) by
mail or electronic fund transfer to your bank. Annuity Starting Date
Generally you pick an annuity starting date when you first apply for a CREF
certificate. If you don't, we'll tentatively assume your annuity starting date
will be the first day of the month after your sixty-fifth birthday. You can
change your annuity starting date at any time prior to the day before that
annuity starting date (see page 54). The latest annuity starting date for your
accumulation is April 1 of the calendar year after whichever comes later: (1)
the calendar year when you reach 70 1/2, or (2) the calendar year when you're no
longer working for the eligible employer. For IRAs, a pay-out that meets the
minimum distribution rules must begin by April 1 of the calendar year following
the calendar year you reach age 70 1/2. ou also can't begin an income option
that is contingent on your life after you reach age 90.
Ordinarily, annuity payments begin when your annuity starting date arrives;
however, the terms of your employer's plan can restrict when you can begin
retirement income. For payments to begin, we must have received all premiums due
under your retirement plan, as well as all information and documentation
necessary for the income option you've picked. (For more information, contact
CREF--see page 55). If we haven't received all your premiums and the necessary
information, we may defer your annuity starting date until the first day of the
month after the premiums and information have reached us. Your first annuity
check may be delayed while we process your choice of income options and
calculate the amount of your initial payment.
Starting in the second half of 1997, subject to regulatory approval, we may
begin annuity payments on the date you have chosen (assuming we've received all
applicable information and documentation), even if we haven't received all
premiums due under your retirement plan. Any premiums received within seventy
days after payments begin will be used to provide additional annuity income.
Premiums received after seventy days will remain in your accumulating annuity
certificate until you give us further instructions.
ALLOCATION AND TRANSFER FOR ANNUITY PAYMENTS
Before starting payments from your accumulation, you can transfer (at least
$1,000 per account or the entire accumulation, if less) between CREF accounts
(subject to the terms of your retirement plan), or to TIAA to purchase a
traditional annuity or interests in the TIAA Real Estate Account on either an
accumulating or income-paying basis. Under the RA, GSRA and GRA certificates,
you can transfer to investment vehicles offered by other companies approved for
your employer's retirement plan. Under SRA and IRA certificates, there are no
restrictions on transfers to other companies, but be sure to consider the
federal and other income tax consequences of the transaction.
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TRANSFERS DURING THE ANNUITY PERIOD
Once a year, you can transfer income payable from one CREF account into a
comparable annuity payable from (a) another CREF account, (b) the TIAA
traditional annuity or (c) the TIAA Real Estate Account. (Comparable annuities
are those which are payable under the same income option, and have the same
first and second annuitant, if any, and remaining guaranteed period, if any.)
All transfers take place on March 31. We must receive your transfer request
before the end of the last business day in March of the year you want the
transfer to occur. We plan to allow (in the first half of 1998, subject to
regulatory approval) one transfer each calendar quarter on any business day.
We'll process your transfer on the business day we receive your request. You can
also choose to have a transfer take effect at the close of any future business
day or the last calendar day of the current or any future month, even if it's
not a business day. Under the annual revaluation method, if you transfer from
any CREF Account to another CREF Account or the TIAA Real Estate Account your
payments will not change until the May 1 following the transfer (or the May 1 of
the subsequent calendar year for transfers made in April). Under the monthly
revaluation method and for all transfers from a CREF Account to the TIAA
traditional annuity, your payments will change with the payment due after the
first payment valuation date following the transfer date. Transfers between the
monthly and annual revaluation methods will be effective on March 31 only.
INCOME OPTIONS
Both the number of annuity units you own and the amount of your income payments
will depend on which income option(s) you pick. Your employer's retirement plan,
the IRC and ERISA may limit which CREF income options you can use to receive
income from an RA or GRA. Ordinarily you'll choose your income option(s) just
before you want payments to begin; however, you can make or change your
choice(s) at any time before your annuity starting date. Once annuity payments
start, you can't change the income option (except in the case of the minimum
distribution annuity--see below) for the accumulation or fraction of
accumulation on which they're based.
If you haven't picked an income option when the annuity starting date arrives
for your RA, GRA, SRA, or GSRA certificate, CREF may assume you want the
single-life annuity with 10-year guaranteed period if you're unmarried. If
you're married, we may assume for you a survivor annuity with half-benefit to
annuity partner and a 10-year guaranteed period, with your spouse as your
annuity partner. See below and page 42, "Spousal Rights."
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If you haven't picked an income option when the annuity starting date arrives
for an IRA, we may assume you want the minimum distribution annuity.
All CREF income options are variable, and the amount of income you receive will
depend in part on the number and value of your accumulation units being
converted. The current options are:
Single Life Annuity. Payout for your lifetime. It's possible to receive
only one payment if you die less than a month after payments start.
Life Annuity with 10, 15 or 20 year guaranteed period. Payout for as
long as your lifetime but no less than the guaranteed period.
Annuity for a Fixed Period. Payout for any period you choose from 5 to
30 years (2 to 30 for RAs, GRAs and SRAs).
Survivor Annuities. Payout for as long as you or the person you choose
to be your annuity partner lives. There are three types of survivor
annuities, all available with or without a guaranteed payout period--
full benefit to survivor; two-thirds benefit to survivor; half benefit
to annuity partner.
CREF also offers a minimum distribution annuity, which is available only if you
must begin annuity payments under the IRC minimum distribution requirements (see
page 49). Some employer plans allow you to elect this option earlier--contact us
for more information. The option pays an amount designed to fulfill the
distribution requirements under federal tax law. You must apply your entire
accumulation under a certificate if you want to use the minimum distribution
option.
Under the minimum distribution annuity, it's possible you won't receive income
for life. Up to age 90, you can apply any remaining part of an accumulation
applied to the minimum distribution annuity to any other CREF income option for
which you're eligible. Using the option won't affect your right to take a cash
withdrawal of any remaining CREF accumulation not yet distributed.
Current federal law says that your guaranteed or fixed period can't exceed the
joint life expectancy of you and your beneficiary or you and your annuity
partner, if you have one.
Other CREF income options may become available in the future, subject to the
terms of your retirement plan and relevant federal laws.
Retirement Transition Benefit. Under CREF's current practice, you may be able to
get a "transition benefit" of up to 10 percent of the value of any part of an RA
or GRA accumulation being converted to annuity income. The benefit is paid in a
single sum on the annuity starting date. Of course, if your employer allows cash
withdrawals, you can take a larger amount (up to 100 percent) of your CREF
accumulation as a cash payment (see page 39).
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Keep in mind that the retirement transition benefit will be subject to current
federal income tax requirements and possible early-distribution penalties. See
page 51, "Federal Income Taxes," as well as page 42, "Spousal Rights."
For more information about any annuity option, please contact us.
DEATH BENEFITS
You can add, remove, or change a beneficiary at any time before you die,
although under certain circumstances you may need your spouse's written consent.
Under a survivor annuity, your annuity partner can change the beneficiary after
you die, unless you've stipulated otherwise.
You can choose in advance the method by which death benefits should be paid, or
you can leave it up to your beneficiaries. You can later change the method of
payment you've chosen, and you can stipulate that your beneficiary not change
the method you've specified in advance. (To choose, change, or restrict the
method by which death benefits are to be paid, you or your beneficiary has to
notify us in writing.) We can require that any death benefit be paid under a
method that provides an initial monthly payment of at least $25. (We'll
calculate the actual amount using formulas you can find in the SAI.) You or your
beneficiary can use more than one method of payment, but each has to meet the
same $25 minimum payment requirement. Once death benefits start under a lifetime
annuity (see above), the method of payment can't be changed.
Ordinarily a beneficiary has to request that death benefits begin within a year
of your death. Otherwise we'll start them automatically on the first day of the
month in which the first anniversary of your death occurs, using the
annuity-for-a-fixed-period and making payments annually over five years.
If you're married at the time of your death: Even if you name a beneficiary who
isn't your spouse, federal law generally requires that your spouse receive an
amount actuarially equivalent to one-half the value of any part of your
accumulation subject to REACT. There are exceptions to this requirement--for
more on spousal beneficiary rights, contact us or your employer's benefits
office.
If you die before converting your entire accumulation to annuity income and
without naming a beneficiary, your surviving spouse (if any) will receive a
death benefit, available under any method of payment (see below), actuarially
equivalent to half the value of your accumulation. The other half will go to
your estate in a single sum. If there is no surviving spouse, the entire death
benefit will go in one sum to your estate.
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If you and your annuity partner, if any, die with payments still due under a
fixed period annuity or a lifetime annuity with a guaranteed period, your
beneficiary(ies) can take the remaining payments as scheduled or as a single-sum
payment equal to their commuted value. If you name an estate as your
beneficiary, if you haven't named a beneficiary, or if your beneficiary has
died, CREF will pay the commuted value of your payments to your estate in a
single sum. Under a survivor annuity, such benefits go to the estate of you or
your annuity partner, whoever lives longer. If your beneficiary dies before
receiving all payments due, we'll pay the commuted value of the remaining
payments to anyone else named to receive it. If no one has been named, the
commuted value will be paid to the estate of the last person to receive
payments.
Single-sum payments are effective at the end of the business day when CREF has
received all the required information and documentation from your
beneficiary--or if he or she chooses, at the end of the last calendar day of the
current or any future month. Death benefits under any other method of payment
will be calculated on the last day of the calendar month when we receive all
required information and documentation--or if your beneficiary prefers, the last
day of a future month. Payments will actually begin on the first day of the
month after they've been calculated. (Your first check could be delayed while we
process your choice of method of payment.)
METHODS OF PAYMENT
Death benefits are available from all CREF accounts. CREF limits the methods of
payment for death benefits to those suitable under federal income tax law for
annuity contracts. (For more information, see page 52, "Taxation of Annuity
Benefits.") With methods offering periodic payments, benefits are usually
monthly, but your beneficiary can request to receive them quarterly,
semi-annually, or annually instead. Federal law may restrict the availability of
certain methods to your beneficiary. At present, the available methods of
payment for death benefits are single-sum payment; single-life annuity; life
annuity with 10-, 15-, or 20-year guaranteed period; annuity for a fixed period
of 2 to 30 years or, for IRAs and GSRAs, 5 to 30 years; unit deposit; or minimum
distribution annuity. Except for the unit deposit method, these payment methods
are comparable to the annuity income options described on page 47, except that
the lifetime over which payments are made is your beneficiary's lifetime.
Unit deposit. Unit deposit pays a lump-sum to your beneficiary at the end of a
2- to 5-year period during which the accumulation units participate in the
experience of the relevant CREF accounts. To use the unit deposit method, the
value of the death benefit must be at least $5,000 at the time it takes effect,
unless your CREF certificate specifies a lower minimum. Special rules apply if
your spouse is the beneficiary. Contact us for more information about this
option and other methods of payment.
Minimum distribution annuity. The minimum distribution annuity is available only
to beneficiaries who must receive income under the IRC's minimum distribution
requirements. The minimum distribution death benefit is governed generally by
the same rules and calculated in the same way as CREF's minimum distribution
annuity (see page 47), but there are additional restrictions under federal
income tax law. Under the minimum distribution annuity death benefit, it's
possible that your beneficiary won't receive income for life.
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<PAGE>
Transfers by a Beneficiary. At the time death benefits begin, or during the
unit-deposit period, your beneficiary has the right to transfer some (at least
$1,000, or the entire accumulation if less) or all of the assets in a CREF
account to another CREF account or the TIAA traditional annuity or TIAA Real
Estate Account for certain purposes. Contact us for more information about these
transfer rights.
The beneficiary of an employee at an eligible institution who used another
company for his retirement plan savings may transfer death benefits from the
other company to CREF for payout under any of the available methods of payment
for CREF death benefits.
Transfers are effective on the last calendar day of the month when we receive
all required information and documentation; however, your beneficiary can have
us make the transfer effective on the last day of any future month instead.
(With the unit deposit method, it can be any day of the month.) For a transfer
to begin annuity income from either CREF or TIAA, enough units have to be
involved to provide an initial monthly payment of at least $25, unless your
certificate specifies a smaller amount. The minimum transfer to the CREF unit
deposit method or to a TIAA contract that provides periodic interest is $5,000.
Currently beneficiaries can make transfers at no charge. We also reserve the
right to limit how often a beneficiary can transfer CREF units and to decline
any transfer that would reduce the value of the units still on deposit to less
than $5,000.
For tax issues concerning death benefits, especially those paid as single sums,
see page 52,"Taxation of Annuity Benefits."
TIMING OF PAYMENTS
Ordinarily we'll make the following kinds of payments within seven calendar days
after we've received the information we need to process a request:
(1) Cash withdrawals
(2) Transfers to TIAA or to other companies
(3) RA repurchases
(4) Payments under a fixed-period annuity
(5) Death benefits
We can extend the seven-day period only if (1) the New York Stock Exchange is
closed (or trading restricted as determined by the Securities and Exchange
Commission) on a day that isn't a weekend or holiday; (2) an SEC-recognized
emergency makes it impractical for us to sell securities or determine the value
of assets in a CREF account; or (3) the SEC says by order that we can or must
postpone payments to protect you and other CREF participants.
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FEDERAL INCOME TAXES
With limited exceptions, the CREF certificates are designed as annuity contracts
under sections 72 and 403 of the Internal Revenue
Code.
As a nonprofit institution, CREF is exempt from federal income tax under section
501(c)(3) of the IRC. Investment income and gains from our pension business are
tax-free unless they are unrelated business income, and we conduct our
operations to avoid realizing such unrelated business income. If necessary to
maintain our tax-exempt status, we can limit the size of premiums to CREF and
the circumstances in which they're paid. Any federal or other tax CREF does
incur will affect the value of your accumulation and/or annuity units.
403(b) PLANS
CREF certificates are tailored for retirement plans set up under section 403(b)
of the IRC, under which total annual contributions to section 403(b) annuities
can't exceed certain limits. The annual limit for all of your contributions and
your employer's contributions on your behalf is the lesser of (a) $30,000; (b)
25% of your compensation; or (c) your "maximum exclusion allowance". Your
maximum exclusion allowance is generally 20% of your compensation multiplied by
your years of service, less certain prior tax deferred retirement plan
contributions. You usually can exclude salary reduction contributions of up to
$9,500 from your gross taxable income. There are exceptions to this--contact
your tax advisor for more information.
401(a) AND 403(a) PLANS
CREF RA and GRA certificates are also available for 401(a) and 403(a) retirement
plans. Employer contributions to all current defined contribution plans of the
employer meeting the requirements of IRC section 401(a) and 403(a) can't exceed
an annual contribution limit of $30,000 or 25% of compensation, whichever is
less.
INDIVIDUAL RETIREMENT ANNUITIES
IRC section 408 permits eligible people to contribute on their own to a
retirement program called an Individual Retirement Annuity or Account (IRA). The
amount you can contribute annually is usually limited to $2,000. CREF's New IRA
will be designed for these contributions. IRC section 408 also allows money from
certain qualified plans to be "rolled-ove" to an IRA without losing its
tax-deferred status. CREF's current Rollover IRA is designed for these
rollovers. (The New IRA will also accept them.) The IRC doesn't limit the amount
you can roll over to a CREF Rollover IRA. You can revoke an IRA up to 7 days
after you establish it.
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TAXATION OF ANNUITY BENEFITS
Once you take a cash withdrawal or begin annuity payments, the amount you
receive is usually included in your gross income for the year and taxed at the
rate for ordinary income. You can exclude from your gross income any part of
your payment(s) that represents the return of premiums paid in after-tax
dollars, but not the part that comes from the tax-deferred earnings of after-tax
premiums.
WITHHOLDING ON DISTRIBUTIONS
We must withhold federal tax at the rate of 20 percent from the taxable part of
most plan distributions paid directly to you. If, however, you tell us to roll
over the distribution directly to an IRA or similar employer plan (i.e., we send
a check directly to the other investment company and not to you), we will not
withhold any federal tax. The required 20 percent withholding doesn't apply to
payments from IRAs, lifetime annuity payments, substantially equal periodic
payments over your life expectancy or over ten or more years, or minimum
distribution payments ("noneligible payments").
For the taxable part of noneligible payments, we usually will withhold federal
taxes unless you tell us not to. Usually, you have the right to tell us not to
withhold federal taxes from your noneligible payments. However, if you tell us
not to withhold but we don't have your taxpayer identification number on file,
we still have to deduct taxes. Nonresident aliens who pay U.S. taxes are subject
to different withholding rules. Contact CREF for more information.
EARLY DISTRIBUTIONS
If you want to withdraw funds or begin income from any 401(a), 403(a) or, 403(b)
retirement plan or an IRA before you reach age 59 1/2, you may have to pay an
extra 10 percent "early distribution" tax on the taxable amount. However, you
won't have to pay an early distribution tax on any part of a withdrawal if:
(1) the distribution is because you are disabled;
(2) you separated from your job at or after age 55 and take your withdrawal
after that (not applicable for IRAs);
(3) you begin annuity income after you leave your job (termination isn't
required for IRAs), as long as your annuity income consists of a series
of regular substantially equal payments (at least annually) over your
lifetime or life expectancy or the joint lives or life expectancies of
you and your beneficiary;
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(4) you have medical expenses in excess of 7 1/2 percent of your adjuste
gross income and the withdrawal is less than or equal to your expenses;
(5) you are required to make a payment to someone besides yourself under a
Qualified Domestic Relations Order (e.g., a divorce settlement) (not
applicable for IRAs); or
(6) for IRAs only, you are unemployed (as defined in the IRC) and you use the
distribution to pay certain health insurance premiums for yourself, your
spouse or your dependents.
If you die before age 59 1/2, your beneficiary(ies) won't have to pay the early
distribution penalty.
Current federal tax law restricts the availability of cash withdrawals and
annuity payments from any part of your accumulation under salary reduction
agreements (including earnings, if any). If your salary reduction contributions
are made to a 403(b) annuity, these restrictions apply only to amounts (and
earnings, if any) credited after December 31, 1988. If they are made under a
401(k) plan, these withdrawal restrictions apply to all such salary reduction
amounts (and earnings, if any). These withdrawals and annuity payments are
available only if you reach age 59 1/2, leave your job, become disabled, or die.
If your employer's plan permits, you may also be able to take a cash withdrawal
if you encounter hardship, as defined by the IRS, but hardship withdrawals can
be from contributions only, not investment earnings. In addition, certain 401(k)
plans permit distributions of elective deferral amounts upon termination of the
plan provided the employer does not establish or maintain another defined
contribution plan. These restrictions don't apply to withdrawals from an IRA.
Any part of your accumulation that has been transferred from a custodial account
under section 403(b)(7) will be subject to additional restrictions.
"EXCESS" DISTRIBUTIONS
In 1996, if your combined withdrawals or payments from 401(a), 403(a), and
403(b) retirement plans, IRA, and other tax-deferred savings programs were more
than $155,000 in one year, you would have to pay an "excess distribution" tax of
15 percent of the amount over $155,000. For tax years 1997, 1998 and 1999, the
excess distribution tax has been suspended.
DEATH BENEFITS
Ordinarily, death benefits are subject to federal estate tax (see below, "Tax
Advice"). Under some retirement programs, an additional 15 percent estate tax
may be imposed on the portion of your accumulation above a certain amount at the
time of your death.
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MINIMUM DISTRIBUTION REQUIREMENTS AND TAXES
In most cases, payments have to begin from 401(a), 403(a) and 403(b) plans by
April 1 of the calendar year after the calendar year when you reach age 7 1/2 or
if later, retirement. Payments from an IRA must begin by April 1 of the calendar
year after the calendar year you reach age 70 1/2. Under the terms of certain
retirement plans, the plan administrator may direct us to make the minimum
distributions required by law to you even if you do not elect to receive them.
In addition, if you don't begin distributions on time, you'll be subject to a 50
percent excise tax on the amount you should have received but didn't. (See page
49.)
DEFERRED COMPENSATION PLANS
RA certificates are also available for deferred compensation plans. RAs issued
under these plans are owned by your employer and subject to the claims of its
general creditors. Special tax rules may apply to these plans.
TAX ADVICE
What we tell you here about federal and other taxes isn't comprehensive and is
for general information only. It doesn't cover every situation. Taxation varies
depending on the circumstances, and state and local taxes may also be involved.
For complete information on your personal tax situation, check with a qualified
tax adviser.
VOTING RIGHTS
As a participant, you generally can vote (1) to elect CREF trustees; (2) to
ratify CREF's selection of an independent auditor; (3) on any change in
fundamental investment policies; and (4) on any other matter that requires a
vote by participants. For more information on how many votes you can cast and
how they are counted, see the SAI.
GENERAL MATTERS
CHOICES AND CHANGES
As long as your CREF certificate permits, you (or your annuity partner,
beneficiary, or any other payee) can choose or change any of the following: (1)
an annuity starting date; (2) an income option; (3) a transfer; (4) a method of
payment for death benefits; (5) a date when the commuted value of an annuity
becomes payable; (6) an annuity partner, beneficiary, or other person named to
receive payments; (7) a cash withdrawal or other distribution; and (8) a
repurchase.
You have to make your choices or changes via a written notice satisfactory to us
and received at our home office (see below). Transfers between CREF accounts or
to TIAA can currently be made by telephone. You can change the terms of a
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<PAGE>
transfer, cash withdrawal, repurchase, or other cash distribution only before
they're scheduled to take place. When we receive a notice of a change in
beneficiary or other person named to receive payments, we'll execute the change
as of the date it was signed, even if the signer dies in the meantime. We
execute all other changes as of the date received. As already mentioned, we will
delay the effective date of some transactions until we receive additional
documentation (see page 45).
TELEPHONE AND INTERNET TRANSACTIONS
You can use our Automated Telephone Service (ATS) or our Inter/ACT System over
the Internet (Inter/ACT System) to check your account balances, transfer between
accounts or to TIAA, and/or allocate future premiums among TIAA and the CREF
accounts. You will be asked to enter your Personal Identification Number (PIN)
and social security number for the ATS and the Inter/ACT System. Both the ATS
and the Inter/ACT System will lead you through the transaction process and will
use reasonable procedures to confirm that instructions given are genuine. All
transactions made over the ATS and Inter/ACT System are electronically recorded.
To use the ATS, you need a touch tone phone. The toll free number for the ATS is
1 800 842-2252. The Inter/ACT System may be accessed through the TIAA-CREF
Internet home page at www.tiaa-cref.org.
DISSOLVED INSTITUTIONS
If your present or past employer dissolves or ceases operations, special rules
will apply to your accumulation. For more information, contact us directly (see
below).
CONTACTING CREF
We won't consider any notice, form, request, or payment to have been received by
CREF until it reaches our home office: College Retirement Equities Fund, 730
Third Avenue, New York, New York 10017. You can ask questions by calling
toll-free 1 800 842-2776.
ELECTRONIC PROSPECTUSES
If you received this prospectus electronically and would like a paper copy,
please call 1 800 842-2733, extension 5509, and we will send it to you.
SIGNATURE REQUIREMENTS
For some transactions, we may require your signature to be notarized or
guaranteed by a commercial bank.
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Overpayment of Premiums
If your employer mistakenly sends more premiums on your behalf than you're
entitled to under your retirement plan or the IRC, we'll refund them to your
employer as long as we're requested to do so (in writing) before you start
receiving annuity income. Any time there's a question about premium refunds,
CREF will rely on information from your employer. If you've withdrawn or
transferred the amounts involved from your accumulation, we won't refund them.
DISTRIBUTION OF THE CERTIFICATES
CREF certificates are offered continuously by the personnel of TIAA-CREF
Individual & Institutional Services, Inc. ("Services"), which is registered with
the SEC as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc. ("NASD"). Services may be considered the "principal
underwriter" for the certificates. Teachers Personal Investors Services, Inc.
("TPIS"), which is also registered with the SEC and a member of the NASD, may
also participate in the distribution of CREF certificates on a limited basis.
Services and TPIS are direct or indirect subsidiaries of TIAA. As already noted,
distribution costs are covered by a deduction from the assets of the accounts;
no commissions are paid for distribution. Anyone distributing CREF certificates
must be a registered representative of Services or TPIS, whose main offices are
both at 730 Third Avenue, New York, New York 10017.
LEGAL PROCEEDINGS
CREF isn't a party to any legal actions we consider material.
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APPENDIX A
SUMMARY OF BOND RATINGS
RATING SERVICES
--------------------------------------
MOODY'S INVESTORS STANDARD & POOR'S
SERVICE, INC. RATINGS GROUP
------------------- -----------------
Investment Grade
Highest quality Aaa AAA
High quality Aa AA
Upper medium A A
Medium, speculative features Baa BBB
Lower Quality
Moderately speculative Ba BB
Speculative B B
Very speculative Caa CCC
Very high risk Ca CC
Highest risk C C
No interest being paid -- CI
In arrears or default -- D
For more detailed information on bond ratings, including gradations within each
category of quality, see the SAI.
57
<PAGE>
Table of Contents for Statement of Additional Information
PAGE IN THE
STATEMENT OF
ADDITIONAL
ITEM INFORMATION
---- -----------
Investment
Restrictions ............... B-3
Description of Corporate
Bond Ratings ............... B-5
Description of
Fixed-Income
Instruments ................ B-7
Investment Policies and
Risk Considerations ........ B-8
Options and Futures ........ B-8
Firm Commitment
Agreements and
Purchase of "When
Issued" Securities ....... B-12
Pass-Through Securities .... B-13
Lending of Securities ...... B-13
Repurchase Agreements ...... B-14
Currency Transactions ...... B-14
Swap Transactions .......... B-16
Segregated Accounts ........ B-17
Special Considerations
Affecting Foreign
Investments ............. B-17
Other Investment
Techniques and
Opportunities ........... B-19
Portfolio Turnover ............ B-19
Valuation of Assets ........... B-20
Management .................... B-23
CREF Overseers,
Trustees and Officers ... B-23
Compensation of CREF
Trustees ................ B-27
Investment Advisory and
Related Services ........... B-29
Custody of Portfolio ....... B-30
Auditors ................... B-30
Brokerage Allocation .......... B-31
Performance Information ....... B-34
Total Return Information
for the Accounts ........ B-34
Yield Information for
the Bond Market
and Inflation-Linked
Bond Accounts ........... B-34
Yield Information for the
Money Market Account .... B-35
Inflation-Adjusted Return
and Yield Information for
the Inflation-Linked Bond
Account ................. B-35
Performance Comparisons .... B-38
Illustrating Compounding,
Tax Deferral and
Expense Deductions ...... B-39
Accumulation Unit Values ...... B-39
Annuity Payments .............. B-39
Periodic Reports .............. B-43
Voting Rights ................. B-44
General Matters ............... B-44
State Regulation .............. B-45
Legal Matters ................. B-45
Experts ....................... B-45
Considerations Concerning
CREF's New Accounts
and Options ................ B-46
Additional Information ........ B-49
Financial Statements .......... B-49
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PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
INDIVIDUAL, GROUP, AND TAX-DEFERRED
VARIABLE ANNUITIES
ISSUED BY
COLLEGE RETIREMENT EQUITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
This Statement of Additional Information is not a prospectus and should be read
in connection with the current prospectus dated May 1, 1997 (the "Prospectus")
with respect to the Variable Annuity Certificates, which is available without
charge upon written or oral request to: College Retirement Equities Fund, 730
Third Avenue, New York, New York 10017, Attention: Central Services; telephone 1
800 842-2733, extension 5509. Terms used in the Prospectus are incorporated in
this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CERTIFICATES.
[LOGO]
<PAGE>
TABLE OF CONTENTS
LOCATION OF
PAGE IN THE ADDITIONAL
STATEMENT OF INFORMATION IN
ADDITIONAL PROSPECTUS, IF
ITEM INFORMATION APPLICABLE
---- ---------- -----------
Investment
Restrictions....................... B-3 29-33
Description of Corporate
Bond Ratings....................... B-5 20-22, 57
Description of
Fixed-Income
Instruments........................ B-7 20-26, 28-29
Investment Policies and
Risk Considerations................ B-8 12-33
Options and Futures................ B-8
Firm Commitment
Agreements and
Purchase of "When
Issued" Securities............... B-12
Pass-Through Securities............ B-13
Lending of Securities.............. B-13
Repurchase Agreements.............. B-14
Currency Transactions.............. B-14
Swap Transactions.................. B-16
Segregated Accounts................ B-17
Special Considerations
Affecting Foreign
Investments...................... B-17
Other Investment
Techniques and
Opportunities.................... B-19
Portfolio Turnover................... B-19 7-10
Valuation of Assets.................. B-20 33-34
Management........................... B-23 34
CREF Overseers,
Trustees and Officers............ B-23
Compensation of CREF
Trustees......................... B-27
Investment Advisory and
Related Services................... B-29 34
Custody of Portfolio............... B-30
Auditors........................... B-30
Brokerage Allocation................. B-31 7-10
Performance Information.............. B-34 33
Total Return Information
for the Accounts................. B-34
Yield Information for
the Bond Market
and Inflation-Linked
Bond Accounts.................... B-34
Yield Information for the
Money Market Account............. B-35
Inflation-Adjusted Return
and Yield Information for
the Inflation-Linked Bond
Account.......................... B-35
Performance Comparisons............ B-38
Illustrating Compounding,
Tax Deferral and
Expense Deductions............... B-39
Accumulation Unit Values............. B-39 38
Annuity Payments..................... B-39 44-46
Periodic Reports..................... B-43
Voting Rights........................ B-44
General Matters...................... B-44
State Regulation..................... B-45 11-12, 31
Legal Matters........................ B-45 56
Experts.............................. B-45
Considerations Concerning
CREF's New Accounts
and Options........................ B-46
Additional Information............... B-49
Financial Statements................. B-49 7-10
B-2
<PAGE>
INVESTMENT RESTRICTIONS
Pursuant to CREF's Charter, none of the Accounts will invest in any common
stocks or shares of any corporation, joint stock association, or business trust
an amount in excess of such percentage, not to exceed 10% (except with the
approval of the New York State Insurance Department), of voting shares of such
institution which would cause any such institution to be controlled by, or
become a subsidiary of, CREF, as defined in the Insurance Law, although this
restriction will not apply to investment in an entity formed or acquired by CREF
for a lawful business purpose. This restriction cannot be changed without an
amendment to the Charter. (The Charter may be amended only by the action of
CREF's Overseers and only if the New York State Superintendent of Insurance
certifies the amendment as lawful and equitable.)
The following restrictions, not set forth in CREF's Charter, are fundamental
policies with respect to the Accounts and may not be changed without the
approval of a majority of the outstanding voting securities, as that term is
defined under the 1940 Act, in the affected Account:
1. None of the Accounts will issue senior securities (the issuance and
sales of options and futures not being considered the issuance of senior
securities);
2. Neither the Stock nor the Money Market Account will make short sales,
except when the Account has, by reason of ownership of other securities,
the right to obtain securities of equivalent kind and amount that will be
held so long as the Account is in a short position;
3. The Stock, Global Equities, Bond Market, Social Choice, and Money
Market Accounts, will not borrow money, except: (a) they may purchase
securities on margin, as described in restriction 12 below; and (b) from
banks as a temporary measure for extraordinary or emergency purposes, and
then only in amounts not in excess of 10% of the value of the Account's
total assets, taken at market value at the time of borrowing.
The Growth, Equity Index, and Inflation-Linked Bond Accounts will not
borrow money, except: (a) they may purchase securities on margin, as
described in restriction 12 below; and (b) (i) from banks only in amounts
not in excess of 331/3% of the Account's total assets taken at market
value at the time of borrowing, or (ii) for temporary purposes in an
amount not exceeding 5% of the Account'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 an Account; nevertheless, any bank borrowings by an
Account may, depending on market conditions, affect investment returns;
4. None of the Accounts will underwrite the securities of other
companies, except as it may be deemed to do so in a sale of restricted
portfolio securities;
5. None of the Accounts will, with respect to at least 75% of the value
of its total assets, invest more than 5% of its total assets in the
securities of any one issuer (including repurchase agreements with any
one primary dealer) other than securities issued or guaranteed by the
United States Government, or its agencies or instrumentalities;
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6. None of the Accounts will, with respect to at least 75% of the value
of its total assets, purchase more than 10% of the outstanding voting
securities of an issuer, except that such restriction shall not apply to
securities issued or guaranteed by the United States Government, its
agencies or instrumentalities;
7. None of the Accounts will make an investment in an industry if after
giving effect to that investment the Account's holding in that industry
would exceed 25% of the Account's total assets--this restriction,
however, does not apply to investments in obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities, and, with respect to the Money Market Account, to
certificates of deposit, or securities issued or guaranteed by domestic
banks and branches of domestic banks and savings and loan associations
and savings banks; utilities will be divided according to their services
(so that, for example, gas distribution and transmission, electric, and
telephone each will be considered a separate industry);
8. Neither the Stock, the Global Equities, the Growth, the Equity Index,
nor the Money Market Accounts will purchase real estate or mortgages
directly, although the Bond Market, Inflation-Linked Bond and Social
Choice Accounts may purchase or hold real estate or mortgages directly,
subject to investment restriction 14 on page B-5 (relating to illiquid
investments); the Stock, Global Equities, Growth and Social Choice
Accounts may, however, buy shares of real estate investment trusts listed
on stock exchanges or reported on the NASDAQ system, and the Accounts may
buy pass-through mortgage securities and securities collateralized by
mortgages;
9. None of the Accounts will purchase commodities or commodities
contracts, except to the extent futures are purchased as described
herein;
10. None of the Accounts will invest more than 5% of its total assets in
the securities of any one investment company; an Account may not own more
than 3% of an investment company's outstanding voting securities, and
total holdings of investment company securities may not exceed 10% of the
value of an Account's total assets (the SEC staff takes the position that
although certain issuers of collateralized mortgage obligations may be
investment companies, an Account's ability to acquire collateralized
mortgage obligations of such issuers would not be subject to these
restrictions);
11. None of the Accounts will make loans, except: (a) that the Stock and
Money Market Accounts may make loans of portfolio securities (not
exceeding 20% of the value of their total assets), and the Global
Equities, Growth, Equity Index, Bond Market, Inflation-Linked Bond, and
Social Choice Accounts may make loans of portfolio securities not
exceeding 33 1/3% of the value of their total assets, which are
collateralized by either cash, United States Government securities, or
other means permitted by applicable law, equal to at least 102% of the
market value of the loaned securities, or such lesser percentage as may
be permitted by the New York State Insurance Department (not to fall
below 100% of the market value of the loaned securities), as reviewed
daily; (b) loans through entry into repurchase agreements (the purchase
of publicly-traded debt obligations not being considered the making of a
loan); (c) to the extent authorized under the certificates, loans to
Participants in amounts not greater than the value of their
accumulations, to the extent permitted by law; (d) privately-placed debt
securities may be purchased; or (e) participation interests in loans, and
similar investments, may be purchased;
12. None of the Accounts will purchase any security on margin (except
that an Account may obtain such short-term credit as may be necessary for
the clearance of purchases and sales of portfolio securities);
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13. Neither the Stock nor the Money Market Account will purchase or sell
options or futures except those listed on a domestic or foreign
securities, options or commodities exchange; however, the Global
Equities, Growth, Equity Index, Bond Market, Inflation-Linked Bond and
Social Choice Accounts may purchase or sell options or futures which are
not listed on an exchange; or
14. None of the Accounts will invest more than 10% of its total assets in
repurchase agreements maturing in more than seven days, and other
illiquid investments, except that the Global Equities, Growth, Equity
Index, Bond Market, Inflation-Linked Bond, or Social Choice Accounts may
invest to a greater extent in such investments if, and to the extent,
permitted by law.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change of values in portfolio securities will not be considered a violation.
DESCRIPTION OF CORPORATE BOND RATINGS
DESCRIPTION OF CORPORATE BOND RATINGS OF MOODY'S INVESTORS SERVICE, INC.:
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
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CA--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF CORPORATE BOND RATINGS OF STANDARD & POOR'S RATINGS GROUP:
AAA--Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is very strong.
AA--Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated 'A' has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--B--CCC--CC--C--Debt rated 'BB', 'B', 'CCC', 'CC', and 'C' is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation and
'C' the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB--Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B--Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The `B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC--Debt rated 'CCC' has currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.
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CC--The rating 'CC' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.
C--The rating 'C' typically is applied to debt subordinated to senior debt which
is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI--The rating 'CI' is reserved for income bonds on which no interest is being
paid.
D--Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (--): The ratings from 'AA' to 'CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Generally, investment-grade debt securities are those rated 'Baa3' or higher by
Moody's or 'BBB--' or higher by Standard & Poor's.
DESCRIPTION OF FIXED-INCOME INSTRUMENTS
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed as to principal and
interest by the United States Government include a variety of Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Treasury bills have a maturity of one year or less; Treasury notes
have maturities of one to ten years; and Treasury bonds can be issued with any
maturity period but generally have a maturity of greater than ten years.
Agencies of the United States Government which issue or guarantee obligations
include, among others, the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Government National Mortgage
Association, Maritime Administration, Small Business Administration and The
Tennessee Valley Authority. Obligations of instrumentalities of the United
States Government include securities issued or guaranteed by, among others,
banks of the Farm Credit System, the Federal National Mortgage Association,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Student Loan
Marketing Association, Federal Intermediate Credit Banks, Federal Land Banks,
Banks for Cooperatives, and the U.S. Postal Service. Some of these securities
are supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury, while still
others are supported only by the credit of the instrumentality.
CERTIFICATES OF DEPOSIT. Certificates of deposit are generally short-term,
interest-bearing negotiable certificates issued by banks or savings and loan
associations and savings banks against funds deposited in the issuing
institution.
TIME DEPOSITS. Time deposits are deposits in a bank or other financial
institution for a specified period of time at a fixed interest rate for which a
negotiable certificate is not received. Certain time deposits may be considered
illiquid.
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BANKERS' ACCEPTANCES. A bankers' acceptance is a draft drawn on a commercial
bank by a borrower usually in connection with an international commercial
transaction (to finance the import, export, transfer or storage of goods). The
borrower is liable for payment as well as the bank, which unconditionally
guarantees to pay the draft at its face amount on the maturity date. Most
acceptances have maturities of six months or less and are traded in secondary
markets prior to maturity.
COMMERCIAL PAPER. Commercial paper refers to short-term, unsecured promissory
notes issued by corporations to finance short-term credit needs. Commercial
paper is usually sold on a discount basis and has a maturity at the time of
issuance not exceeding 270 days.
VARIABLE RATE, FLOATING RATE, OR VARIABLE AMOUNT SECURITIES. Variable rate,
floating rate, or variable amount securities are short-term unsecured promissory
notes issued by corporations to finance short-term credit needs. These are
interest-bearing notes on which the interest rate generally fluctuates on a
scheduled basis.
CORPORATE DEBT SECURITIES. Debt issued by a corporation that pays interest and
principal to the holders at specified times.
ASSET-BACKED SECURITIES. Asset-backed securities are securities which represent
an undivided fractional interest in a trust whose assets generally consist of
mortgages, motor vehicle retail installment sales contracts, or other
consumer-based loans.
PARTICIPATION INTERESTS IN LOANS. A participation interest in a loan entitles
the purchaser to receive a portion of principal and interest payments due on a
commercial loan extended by a bank to a specified company. The purchaser of such
an interest has no recourse against the bank if payments of principal and
interest are not made by the borrower and generally relies on the bank to
administer and enforce the loan's terms.
INTERNATIONAL ORGANIZATION OBLIGATIONS. International organization obligations
include obligations of those organizations designated or supported by U.S. or
foreign government agencies to promote economic reconstruction and development
or international banking, and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank, and the
InterAmerican Development Bank.
INFLATION-INDEXED SECURITIES. Fixed-income instruments of varying structures and
maturities whose returns are designed to track a specified inflation index over
the life of the instrument, by periodically adjusting the principal and/or
interest paid on the instrument to reflect changes in the specified inflation
index.
INVESTMENT POLICIES AND RISK CONSIDERATIONS
OPTIONS AND FUTURES
The Accounts may engage in options and futures strategies to the extent
permitted by the New York State Insurance Department and subject to SEC and
Commodity Futures Trading Commission ("CFTC") requirements. It is not the
intention of the Accounts to use options and futures strategies in a speculative
manner but rather to use them primarily as hedging techniques or for cash
management purposes.
OPTIONS. Option-related activities could include (1) the sale of covered call
option contracts, and the purchase of call option contracts for the purpose of a
closing purchase transaction; (2) the buying of covered put option contracts,
and the selling of put option contracts to close out a position acquired through
the purchase of such options; and (3) the selling of call option contracts or
the buying of put option contracts on groups of securities and on futures on
groups of securities and the buying of similar call option contracts or the
selling of 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 an Account may engage in other types of options transactions
consistent with its investment objective and policies and applicable law.
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A call option is a short-term contract (generally having a duration of nine
months or less) which gives the purchaser of the option the right to purchase
the underlying security at a fixed exercise price at any time prior to the
expiration of the option regardless of the market price of the security during
the option period. As consideration for the call option, the purchaser pays the
seller a premium, which the seller retains whether or not the option is
exercised. As the seller of a call option, an Account 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. The selling of a call
option benefits an Account 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 Account risks an "opportunity loss" of
profits if the underlying security appreciates above the aggregate value of the
exercise price and the premium.
An Account 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 which it had previously sold on that
security. Depending on the premium for the call option purchased by the Account,
the Account will realize a profit or loss on the transaction. A put option is a
similar short-term contract that gives the purchaser of the option the right to
sell the underlying security at a fixed exercise price at any time prior to the
expiration of the option regardless of the market price of the security during
the option period. As consideration for the put option an Account, as 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 an Account, to purchase the underlying security at the exercise
price at any time during the option period. The buying of a covered put contract
limits the downside exposure for the investment in the underlying security to
the combination of the exercise price less the premium paid. The risk of
purchasing a put is that the market price of the underlying stock prevailing on
the expiration date may be above the option's exercise price. In that case the
option would expire worthless and the entire premium would be lost.
An Account 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 Account, the
Account 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 the
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 such calls can
be used in anticipation of, or in, a general market or market sector decline
that may adversely affect the market value of an Account's portfolio of
securities. To the extent that an Account'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 the futures on groups of securities, is a possible lack of liquidity.
This will be a major consideration before an Account deals in any option.
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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.
FUTURES. To the extent permitted by applicable regulatory authorities, an
Account 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 an Account against adverse changes in the market value of
securities or instruments in its portfolio, and to obtain better returns on
future investments than actually may be available at the future time. Since
these are hedging techniques, the gains or losses on the futures contract
normally will be offset by losses or gains respectively on the hedged
investment. Futures contracts also may be offset prior to the future date by
executing an opposite futures contract transaction.
A futures contract on an investment is a binding contractual commitment which,
if held to maturity, will result in an obligation to make or accept delivery,
during a particular future month, of the securities or instrument underlying the
contract. By purchasing a futures contract--assuming a "long" position--an
Account 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 an Account usually will be
liquidated in this manner, an Account may instead make or take delivery of the
underlying securities or instruments whenever it appears economically
advantageous to the Account 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 simply 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 the Stock,
Global Equities, Growth, Equity Index, or Social Choice Accounts 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, the Stock,
Global Equities, Growth, Equity Index or Social Choice Account 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, these Accounts 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, these
Accounts 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 an
Account upon the purchase or sale of a futures contract. Initially, the Account
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% 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 Account 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 the Stock Account
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
Account will receive from the broker a variation margin payment equal to that
increase in value. Conversely, where the Stock Account 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 Stock Account would be required to
make a variation margin payment to the broker. At any time prior to expiration
of the futures contract, the Account may elect to close the position by taking
an opposite position which will operate to terminate the Account'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 Stock Account, and
the Account realizes a loss or a gain. All margin payments will be made to a
custodian in the broker's name.
The risks inherent in the purchase or sale of stock index futures are, in a
general sense, similar to the risks inherent in the purchase or sale of bond
index futures. A bond index assigns relative values to the bonds included in the
index. The index fluctuates with changes in the market values of those bonds
included, and the parties to the bond index futures contract agree to take or
make delivery of an amount of cash equal to a specified dollar amount times the
difference between the index value at the close of the last trading day of the
contract and the price at which the index future was originally written. No
physical delivery of the underlying bonds in the index is made.
There are several risks in connection with the use by an Account 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.
CREF will attempt to reduce this risk by engaging in futures transactions, to
the extent possible, where, in its judgment, there is a significant correlation
between changes in the prices of the futures contracts and the prices of an
Account's portfolio securities or instruments sought to be hedged.
Successful use of futures contracts by an Account 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 an Account 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 Account's portfolio may decline. If this occurred, the Account would lose
money on the futures and also experience a decline in value in its portfolio
investments. However, CREF believes that over time the value of the Account'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 the
Account has hedged against the possibility of the decline in the market
adversely affecting stocks held in its portfolio and stock prices increased
instead, the Account 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 Account 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 Account 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 Investment
Management still may not result in a successful hedging transaction over a very
short time period.
The Accounts may also use futures contracts and options on futures contracts to
manage their cash flow more effectively. To the extent that an Account 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 five percent of the
liquidation value of each Account'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 five percent).
Options and futures transactions may increase an Account's transaction costs and
portfolio turnover rate and will be initiated only when consistent with its
investment objectives.
FIRM COMMITMENT AGREEMENTS AND PURCHASE OF "WHEN ISSUED" SECURITIES
The Accounts may enter into firm commitment agreements for the purchase of
securities on a specified future date. Thus, the Accounts may purchase, for
example, new issues of fixed-income instruments on a "when issued" basis,
whereby the payment obligation, or yield to maturity, or coupon rate on the
instruments may not be fixed at the time of the transaction. In addition, the
Accounts may invest in asset-backed securities on a delayed delivery basis. This
reduces the Accounts' risk of early repayment of principal, but exposes the
Accounts to some additional risk that the transaction will not be consummated.
B-12
<PAGE>
When the Accounts enter into firm commitment agreements, liability for the
purchase price and the rights and risks of ownership of the securities accrue to
the Accounts at the time they become 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 Accounts to purchase the security at a price above the current
market price on the date of delivery and payment. During the time the Accounts
are obligated to purchase such securities they will be required to segregate
assets (see "Segregated Accounts," page B-17). An Account will not purchase
securities on a "when issued" basis if, as a result, more than 15% of the
Account's net assets would be so invested.
PASS-THROUGH SECURITIES
The Accounts may invest in mortgage pass-through securities such as GNMA
certificates or FNMA and FHLMC mortgage-backed obligations, or modified
pass-through securities such as collateralized mortgage obligations issued by
various financial institutions. In connection with these investments, early
repayment of principal arising from prepayments of principal on the underlying
mortgage loans due to the sale of the underlying property, the refinancing of
the loan, or foreclosure may expose the Account to a lower rate of return upon
reinvestment of the principal. Prepayment rates vary widely and may be affected
by changes in market interest rates. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of the mortgage-related security. Conversely, when interest rates are rising,
the rate of prepayment tends to decrease, thereby lengthening the actual average
life of the mortgage-related security. Accordingly, it is not possible to
accurately predict the average life of a particular pool. Reinvestment of
prepayments may occur at higher or lower rates than the original yield on the
certificates. Therefore, the actual maturity and realized yield on pass-through
or modified pass-through mortgage-related securities will vary based upon the
prepayment experience of the underlying pool of mortgages. For purposes of
calculating the average life of the assets of the relevant Account, the maturity
of each of these securities will be the average life of such securities based on
the most recent or estimated annual prepayment rate.
LENDING OF SECURITIES
Subject to investment restriction 11(a) on page B-4 (relating to loans of
portfolio securities), an Account may lend its securities to brokers and dealers
that are not affiliated with CREF, are registered with the Commission 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,
an Account will receive as collateral cash, securities issued or guaranteed by
the United States Government (i.e., Treasury securities), or other collateral
permitted by applicable law, which at all times while the loan is outstanding
will be maintained in amounts equal to at least 102% of the current market value
of the loaned securities, or such lesser percentage as may be permitted by the
New York State Insurance Department (not to fall below 100% of the market value
of the loaned securities), as reviewed daily. The Account lending its securities
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 Account by the borrower of the securities. Such loans will
be terminable by the Account at any time and will not be made to affiliates of
CREF. CREF 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. An Account may pay reasonable fees to persons unaffiliated with the
Account 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.
B-13
<PAGE>
REPURCHASE AGREEMENTS
Repurchase agreements have the characteristics of loans by an Account, 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 Account 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 Account's seller to deposit with the Account 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. The Accounts 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 CREF 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 Account may otherwise invest.
If a seller of a repurchase agreement defaults and does not repurchase the
security subject to the agreement, the Account 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 Account; in such event the Account 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.
CURRENCY TRANSACTIONS
The value of the Accounts' 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 Accounts may incur costs in connection
with conversions between various currencies. To minimize the impact of such
factors on net asset values, the Accounts may engage in foreign currency
transactions in connection with their investments in foreign securities. The
Accounts 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.
B-14
<PAGE>
The Accounts 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 an underlying security transaction, the Account 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, an
Account may enter into a forward contract to sell an amount of foreign currency
approximating the value of some or all of its portfolio securities denominated
in such foreign currency. This practice is sometimes referred to as "portfolio
hedging". Similarly, when it appears that the U.S. dollar may suffer a
substantial decline against a foreign currency, an Account may enter into a
forward contract to buy that foreign currency for a fixed dollar amount.
The Accounts may also hedge their foreign currency exchange rate risk by
engaging in currency financial futures, options and "cross-hedge" transactions.
In "cross-hedge" transactions, an Account 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
an Account against an increase or decrease in the value of the U.S. dollar
against certain foreign currencies.
The Accounts 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, an Account 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 an Account 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 CREF will have flexibility to roll-over the foreign
currency forward contract upon its expiration if it desires to do so.
Additionally, there can be no assurance that the other party to the contract
will perform its obligations thereunder. There is no express limitation on the
percentage of an Account's assets that may be committed to foreign currency
exchange contracts. The Accounts will not enter into foreign currency forward
contracts or maintain a net exposure in such contracts where the Account would
be obligated to deliver an amount of foreign currency in excess of the value of
the Account'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 the Account's investment adviser believes will correlate closely
to the currency's price movements. The Accounts generally will not enter into
forward contracts with terms longer than one year.
B-15
<PAGE>
SWAP TRANSACTIONS
The Accounts may, to the extent permitted by the New York State Insurance
Department and 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 swap transactions, an Account may be able to protect the value
of a portion of its portfolio against declines in market value. An Account 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. An Account 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 Account. However,
there can be no assurance that the return an Account receives from the
counterparty to the swap transaction will exceed the return it swaps to that
party.
While an Account 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, CREF would be limited to contractual remedies under the swap
agreement. There can be no assurance that CREF will succeed when pursuing its
contractual remedies. To minimize an Account's exposure in the event of default,
the Accounts 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 an Account enters into swap transactions on a net
basis, the net amount of the excess, if any, of the Account'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 Account's custodian.
To the extent an Account enters into swap transactions other than on a net
basis, the amount segregated will be the full amount of the Account's
obligations, if any, with respect to each such swap agreement, accrued on a
daily basis. (See "Segregated Accounts" below.)
Swap agreements are considered to be illiquid by the SEC staff and will be
subject to the limitations on illiquid investments described above (see page
B-5).
To the extent that there is an imperfect correlation between the return an
Account is obligated to swap and the securities or instruments representing such
return, the value of the swap transaction may be adversely affected. An Account
therefore will not 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 the Accounts 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, an Account's portfolio.
B-16
<PAGE>
SEGREGATED ACCOUNTS
In connection with when-issued securities, firm commitment agreements, forward
purchases of foreign currencies and certain other transactions in which CREF
incurs an obligation to make payments in the future, CREF may be required to
segregate assets with its custodian bank in amounts sufficient to settle the
transaction. To the extent required, such segregated assets will consist of
liquid assets such as cash, United States Government securities or other
appropriate high grade debt obligations as may be permitted by law.
SPECIAL CONSIDERATIONS AFFECTING FOREIGN INVESTMENTS
As described more fully in the Prospectus, certain CREF Accounts may invest in
foreign securities including those in emerging markets. In addition to the
general risk factors discussed in "Foreign Investments" on page 29 of the
Prospectus, there are a number of country- or region-specific risks and other
considerations that may affect these investments.
INVESTMENT IN EUROPE
The total European market (consisting of the European Union, the European Free
Trade Association and Eastern European countries) contains over 507 million
consumers, which makes it much larger than either the United States or Japanese
market. European businesses compete both nationally and internationally in a
wide range of industries, and recent political and economic changes throughout
Europe are likely to further expand the role of Europe in the global economy. As
a result, a great deal of interest and activity has been generated in the "new"
Europe that may result. However, many of the anticipated changes involve
synthesizing or changing a wide array of economic and political systems, and
there can be no guarantee that such changes will occur as anticipated or will
have results that investors would regard as favorable.
THE EUROPEAN UNION. The European Union ("EU") consists of Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden, and the United Kingdom (the "EU Nations"),
with a total population exceeding 374 million. The EU Nations have undertaken to
establish, among themselves, a single market that is largely free of internal
barriers and hindrances to the free movement of goods, persons, services and
capital. Although it is difficult to predict when this goal will be fully
realized, it is expected that such achievement will increase efficiency and the
ability of the EU Nations to compete globally by simplifying product
distribution networks, promoting economies of scale, and increasing labor
mobility, among other effects. In addition, efforts to achieve monetary union
have effected a dramatic decline in interest rates for some prospective members
which is expected to have important positive consequences for these economies
and their financial markets. Uncertainties with regard to the achievement of
these goals and their extensive ramifications represent important risk
considerations for investors in these countries.
EUROPEAN FREE TRADE ASSOCIATION. The European Free Trade Association ("EFTA")
consists of Iceland, Liechtenstein, Norway and Switzerland. These entities have
also worked to expand trade through the lowering or abolition of tariffs between
member countries. A major goal of the EFTA countries has been a more structured
partnership with the EU and the formation of a European Economic Area, with the
aim of developing such a partnership to coincide with the establishment of the
EU's unified market.
B-17
<PAGE>
EASTERN EUROPE. A number of Eastern European nations and former republics of the
U.S.S.R. are currently implementing or considering reforms directed at political
and economic liberalization, including efforts to foster multi-party political
systems and to move away from centrally planned, socialist economies towards
free market economies. However, these changes will invariably take time and may
result in a high degree of social, economic, or political unpredictability or
instability over the short- or long-term. Thus, although unique investment
opportunities may be presented, they may entail a high degree of risk.
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. The major reform of China's economy and polity continues
to be an important stimulus to economic growth internally, and, through trade,
across the region. Intra-regional trade has become increasingly important to a
number of these economies. Japan, the second largest economy in the world, is
the dominant economy in the Pacific Basin, with one of the highest per capita
incomes in the world. Its extensive trade relationships also contribute to
regional and global economic growth. Economic growth has historically been
relatively strong in the region, but potential policy miscalculations or other
events could pose important risks to equity investors in any of these economies.
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. and Canada have entered into the U.S. - Canada Free Trade Agreement
which, over a 10-year period from 1989, will remove trade barriers affecting all
important sectors of each country's economy. In addition, the U.S., Canada, and
Mexico have established the North American Free Trade Agreement ("NAFTA"), which
is expected to significantly benefit the economies of all three countries.
Uncertainty regarding the longer - run political structure of Canada is an added
risk to investors.
INVESTMENT IN LATIN AMERICA
Latin America (including Mexico, Central and South America and the Caribbean)
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 Uraguay, with Chile as an associate member.
Political turmoil, high inflation, restrictions on international capital flows,
intermittment problems with capital flight, and some difficulties in the
repayment of external debt, however, remain important concerns in the region --
exacerbating the risks in these equity markets. As a result Latin America equity
markets have been extremely volatile. Efforts to stimulate these economies
through privatization, and fiscal and monetary reform have been met with some
success with gains in output growth, and slowing rates of inflation. These
efforts may result in attractive investment opportunities. However, there can be
no assurance that these or other changes will bring about results investors
would regard as favorable.
B-18
<PAGE>
OTHER REGIONS
There are developments in other regions and countries around the world which
could lead to additional investment opportunities. CREF will monitor these
developments and may invest when appropriate. The Stock Account already invests
in other regions.
OTHER INVESTMENT TECHNIQUES AND OPPORTUNITIES
CREF has been an industry leader in devising investment strategies for
retirement investing, including developing sophisticated research methods and
dividing a portfolio into segments, some designed to track the U.S. markets as a
whole and others that are actively managed and selected for their investment
potential.
The Accounts 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,
irrespective of how these actions may affect the weight of the particular
securities in an Account's portfolio.
PORTFOLIO TURNOVER
The transactions engaged in by the Accounts are reflected in the Accounts'
portfolio turnover rates. The rate of portfolio turnover for each Account is
calculated by dividing the lesser of the amount of purchases or sales of
portfolio securities during the fiscal year by the monthly average of the value
of the Account's portfolio securities (excluding from the computation all
securities, including options, with maturities at the time of acquisition of one
year or less). A high rate of portfolio turnover generally involves
correspondingly greater brokerage commission expenses, which must be borne
directly by the Account and ultimately by the Account's Participants. However,
because portfolio turnover is not a limiting factor in determining whether or
not to sell portfolio securities, a particular investment may be sold at any
time if investment judgment or account operations make a sale advisable.
The Stock Account has no fixed policy with respect to portfolio turnover. In
general, however, this Account historically has maintained a portfolio turnover
rate that is low in comparison to most equity mutual funds. However, to the
extent that investment experience, changing economic conditions, or the
availability of transferability and cash distributions so require, this Account
may, consistent with its stated investment objective and policies, experience a
higher portfolio turnover rate. The Stock Account's portfolio turnover rates for
1996 and 1995 were 19.57% and 16.25%, respectively.
The Global Equities Account has no fixed policy on portfolio turnover. The
portfolio turnover rates for that Account for 1996 and 1995 were 88.84% and
67.50%, respectively.
The Growth Account has no fixed policy on portfolio turnover. The portfolio
turnover rates for that Account for 1996 and 1995 were 38.51% and 24.42%,
respectively.
The Equity Index Account has no fixed policy on portfolio turnover. The
portfolio turnover rates for that Account for 1996 and 1995 were 7.85% and
8.31%, respectively.
The Bond Market Account is expected to experience a higher portfolio turnover
rate when interest rates are volatile and CREF restructures the portfolio to
conserve capital or to secure higher returns. Turnover level could be relatively
low during periods when interest rates are stable. The portfolio turnover rates
for the Bond Market Account in 1996 and 1995 were 145.27% and 185.11%,
respectively. These rates result in part from using a technique called "mortgage
rolls," which involves the purchase and sale of delayed-delivery mortgage
securities.
B-19
<PAGE>
The Inflation-Linked Bond Account has no fixed policy on portfolio turnover.
The Social Choice Account has no fixed policy on portfolio turnover. The
portfolio turnover rates for that Account in 1996 and 1995 were 40.93% and
52.65%, respectively.
No portfolio turnover rate is calculated for the Money Market Account due to the
short maturities of the instruments purchased.
Because a higher portfolio turnover rate will increase brokerage costs to the
Accounts, each Account will carefully weigh the added costs of short-term
investment against the gains anticipated from such transactions.
VALUATION OF ASSETS
The assets of each Account are valued as of the close of each valuation day.
THE STOCK ACCOUNT
Investments for which market quotations are readily available are valued at the
market value of such investments, which is determined as follows:
Equity securities listed or traded on the New York Stock Exchange or the
American Stock Exchange are valued based on their last sale price on such
exchange on the date of valuation, or at the mean of the closing bid and
asked prices if no sale is reported. Equity securities which are listed
or traded on any other exchange are valued in a comparable manner on the
principal exchange where traded.
Equity securities traded in the United States over-the-counter market are
valued based on the last sale price on the date of valuation for NASDAQ
National Market System securities, or at the mean of the closing bid and
asked prices if no sale is reported. Other U.S. over-the-counter equity
securities are valued at the mean of the closing bid and asked prices.
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
these Accounts. If events materially affecting the value of foreign
investments occur between the time when their price is determined and the
time when the Account'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.
To the extent the Stock Account owns debt instruments (including money market
instruments), they will be valued in accordance with the procedures set forth
for such instruments for the Bond Market Account (described below).
B-20
<PAGE>
THE GLOBAL EQUITIES, GROWTH AND EQUITY INDEX ACCOUNTS
For the Global Equities, Growth, and Equity Index Accounts, 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. Equity securities are valued in accordance with the procedures followed
by the Stock Account for those securities. To the extent the Global Equities,
Growth and Equity Index Accounts own debt instruments (including money market
instruments), they will be valued in accordance with the procedures set forth
for such instruments for the Bond Market Account (described below).
THE BOND MARKET ACCOUNT
For the Bond Market Account, fixed-income 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 with maturities of one year or less will be obtained from either one
or more of the major market makers or from one or more of the financial
information services for the securities to be valued. 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. To the extent the Bond Market Account owns any equity
or foreign securities, they will be valued in accordance with the procedures
followed by the Stock Account for those securities, as described on page B-20.
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.
THE INFLATION-LINKED BOND ACCOUNT
For the Inflation-Linked Bond Account, debt instruments (including money market
instruments) are valued in accordance with the procedures set forth for the Bond
Market Account (described above). To the extent the Inflation-Linked Bond
Account owns any equity or foreign securities, they will be valued in accordance
with the procedures followed by the Stock Account for those securities, as
described on page B-20. 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.
THE SOCIAL CHOICE ACCOUNT
For the Social Choice Account, equity securities are valued in accordance with
the procedures followed by the Stock Account for those securities. Those
procedures are described on page B-20. Debt instruments (including money market
instruments) are valued in accordance with the procedures set forth for the Bond
Market Account (described above).
THE MONEY MARKET ACCOUNT
Except as set forth above, 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) obtained from either one or more of the major market-makers
or from one or more of the financial information services for the securities to
be valued. Short-term money market instruments with a remaining maturity of 60
days or less are valued on an amortized cost basis; provided, however, that if
the valuation determined using the amortized cost method for such securities is
materially different from the actual market value, then such short-term money
market instruments will be valued at market value. Under the amortized cost
method of valuation, the security is initially valued at cost on the date of
purchase (or, in the case of securities purchased with more than 60 days
remaining to maturity, the market value on the 61st day prior to maturity), and
thereafter a constant proportionate amortization in value until maturity of the
discount or premium is assumed.
B-21
<PAGE>
For valuation purposes: (1) the maturity date of a variable rate instrument, the
principal amount of which is due in 397 days or less, is deemed to be the next
interest readjustment date; (2) the maturity date of a variable rate instrument
with a put feature is deemed to be the later of the next interest readjustment
date or the put date; and (3) the maturity date of a floating rate instrument
with a put feature will be deemed to be the put date.
OPTIONS
Portfolio investments underlying options are valued as described above. Stock
options written by the Stock, Global Equities, Growth, Equity Index, and Social
Choice Accounts 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 the Stock, Global
Equities, Growth, Equity Index, and Social Choice Accounts' net assets will be
increased or decreased by the difference between the premiums received on
writing options and the costs of liquidating such positions measured by the
closing price of the options on the date of valuation.
For example, when an Account writes a call option, the amount of the premium is
included in the Account'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 Account 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 Account
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 an Account'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 Finance Committee of the Board and in accordance with the
responsibilities of the Board as a whole (see "Management," below).
B-22
<PAGE>
MANAGEMENT
CREF OVERSEERS, TRUSTEES AND OFFICERS
The names of the Overseers, Trustees and certain officers of CREF and
information about their positions with CREF and their principal occupations
during the past five years are shown below.
<TABLE>
<CAPTION>
CREF BOARD OF OVERSEERS* AGE PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ----------------------- ---- -----------------------------------------
<S> <C> <C>
Lucius J. Barker 68 William Bennett Munro Professor of Political Science,
Department of Political Science Stanford University. Chairperson, Department of Political
Stanford University Science, Stanford University, from 1993 to 1996
Stanford, California 94305
William G. Bowen 63 President, The Andrew W. Mellon Foundation
The Andrew W. Mellon Foundation
140 East 62nd Street
New York, New York 10021
Gertrude G. Michelson 71 Retired since 1992. Formerly, Senior Vice President,
R.H. Macy & Co., Inc. R.H. Macy & Co., Inc.
151 West 34th Street
New York, New York 10001-2124
Jack W. Peltason 73 President Emeritus, University of California, since 1995.
18 Whistler Court Formerly, President, University of California and
Irvine, California 92715 Chancellor, University of California, Irvine
Clifton R. Wharton, Jr. 70 Formerly, Chairman and Chief Executive Officer
TIAA-CREF of TIAA and CREF. Former U.S. Deputy Secretary
730 Third Avenue of State
New York, New York 10017-3206
John C. Whitehead 75 Chairman, AEA Investors Inc.
Park Avenue Tower
65 East 55th Street
New York, New York 10022
- ------------
*Also members of TIAA Board of Overseers.
</TABLE>
B-23
<PAGE>
<TABLE>
TRUSTEES OF CREF AGE PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- --------------------------------------
<S> <C> <C>
Robert H. Atwell (1) 66 President Emeritus, American Council on Education.
601 Yardarm Lane Formerly, President, American Council on Education.
Longboat Key, Florida 34228
Elizabeth E. Bailey 57 John C. Hower Professor of Public Policy and Management,
The Wharton School The Wharton School of the University of Pennsylvania.
University of Pennsylvania Formerly, Professor, Carnegie Mellon University and Dean,
Suite 3100 Graduate School of Industrial Administration,
Steinberg Dietrich Hall Carnegie Mellon University
Philadelphia, Pennsylvania
19104-6372
Gary P. Brinson (3) 52 Member, Group Executive Board, Swiss Bank Corporation,
Brinson Partners, Inc. since 1995. Chief Investment Officer and Member, Group
209 South LaSalle Street Executive Committee, Swiss Bank Corporation, since 1996.
Chicago, Illinois 60604-1295 President and Managing Partner, Brinson Partners, Inc.
Joyce A. Fecske (1) 50 Vice President Emerita, DePaul University since 1994.
4800 South Karlov Avenue Formerly, Vice President for Human Resources,
Chicago, Illinois 60632 DePaul University
Edes P. Gilbert 65 Head, The Spence School
The Spence School
22 East 91st Street
New York, New York 10128
Stuart Tse Kong Ho (3) 60 Chairman and President, Capital Investment
Capital Investment of Hawaii, Inc. of Hawaii, Inc. Chairman, Gannett Pacific Corporation
Suite 1700
733 Bishop Street
Honolulu, Hawaii 96813
Nancy L. Jacob (2) 54 President and Managing Director, Windermere Investment
Windermere Investment Associates Associates, since January 1997. Formerly, Chairman and
Suite 925 Chief Executive Officer, CTC Consulting, Inc. and
121 S.W. Morrison Street Executive Vice President, U.S. Trust of the Pacific
Portland, Oregon 97204 Northwest.
- ------------
(1) Member of Executive Committee
(2) Member of Finance Committee
(3) Member of Executive and Finance Committees
</TABLE>
B-24
<PAGE>
<TABLE>
TRUSTEES OF CREF AGE PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- ---- -----------------------------------------
<S> <C> <C>
Marjorie Fine Knowles 57 Professor of Law, Georgia State University College
College of Law of Law
Georgia State University
University Plaza
Atlanta, Georgia 30303-3092
Jay O. Light (2) 55 Professor of Business Administration, Harvard University
Harvard Business School Graduate School of Business Administration
Morgan Hall 489
Soldiers Field
Boston, Massachusetts 02163
Bevis Longstreth (2) 63 Partner, Debevoise & Plimpton. Adjunct Professor,
Debevoise & Plimpton Columbia University School of Law
875 Third Avenue
New York, New York 10022
Robert M. Lovell, Jr. (2) 66 Founding Partner, First Quadrant L.P. Formerly,
First Quadrant Corp. Chairman and Chief Executive Officer, First
100 Campus Drive Quadrant Corp.
P.O. Box 939
Florham Park, New Jersey 07932
Stephen A. Ross (3) 53 Sterling Professor of Economics and Finance, School
School of Management of Management, Yale University. Co-Chairman,
Yale University Roll & Ross Asset Management Corp.
52 Hillhouse Avenue
New Haven, Connecticut 06520
Eugene C. Sit (3) 58 Chairman, Chief Executive and Chief Investment Officer,
Sit Investment Associates, Inc. Sit Investment Associates, Inc. and Chairman and
4600 Norwest Center Chief Executive Officer, Sit-Kim International Investment
90 South Seventh Street Associates, Inc.
Minneapolis, Minnesota 55402
Maceo K. Sloan (2) 46 Chairman, President, and Chief Executive Officer,
NCM Capital Management Group, Inc. Sloan Financial Group, Inc. and NCM Capital
Suite 400 Management Group, Inc.
103 West Main Street
Durham, North Carolina 27701-3638
- ------------
(1) Member of Executive Committee
(2) Member of Finance Committee
(3) Member of Executive and Finance Committees
</TABLE>
B-25
<PAGE>
<TABLE>
TRUSTEES OF CREF AGE PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- -----------------------------------------
<S> <C> <C>
Harry K. Spindler 67 Retired since 1993. Formerly, Senior Vice Chancellor,
80 Brightonwood Road Division of Administrative Affairs, State University
Glenmont, New York 12077 of New York System
David K. Storrs (2) 52 President and Chief Executive Officer, Alternative
Alternative Investment Investment Group, L.L.C., since August 1996.
Group, L.L.C. Adviser to the President, The Common Fund, from
65 South Gate Lane January 1996 to October 1996. President and Chief
Southport, Connecticut 06490 Executive Officer, The Common Fund, from 1993 to 1996.
Formerly, Executive Vice President, The Common Fund
Robert W. Vishny (2) 38 Eric J. Gleacher Professor of Finance, University of
University of Chicago Chicago, since 1993. Founding Partner, LSV Asset Management
Graduate School of Business
1101 East 58th Street
Chicago, Illinois 60637
OVERSEER-OFFICER-TRUSTEE**
- -------------------------
John H. Biggs (3) 60 Chairman and Chief Executive Officer, CREF and TIAA, since
1993. Formerly, President and Chief Operating Officer,
CREF and TIAA
OFFICER-TRUSTEE**
- ----------------
Thomas W. Jones (3) 47 Vice Chairman, CREF and TIAA, since 1995. President
and Chief Operating Officer, CREF and TIAA, since 1993.
Formerly, Executive Vice President, Finance and Planning,
CREF and TIAA
Martin L. Leibowitz (2) 60 Vice Chairman and Chief Investment Officer, CREF
and TIAA, since 1995. Trustee and President, TIAA-CREF
Investment Management, Inc. ("Investment Management"),
Director and President, Teachers Advisors, Inc. ("Advisors")
and Executive Vice President, TIAA Separate Account
VA-1, since 1995. 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.
Messrs. Biggs, Jones, Leibowitz and Longstreth are deemed "interested persons"
of CREF within the meaning of the Investment Company Act of 1940.
- ------------
** The address for all CREF Officers is 730 Third Avenue, New York, New York
10017.
(1) Member of Executive Committee
(2) Member of Finance Committee
(3) Member of Executive and Finance Committees
</TABLE>
B-26
<PAGE>
<TABLE>
<CAPTION>
OTHER OFFICERS** AGE PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- -----------------------------------------
<S> <C> <C>
Richard J. Adamski 54 Vice President and Treasurer, CREF and TIAA, since 1991 and
Vice President and Treasurer, Investment Management,
TIAA-CREF Individual & Institutional Services, Inc.
("Services"), since 1992 and Teachers Personal Investors
Services, Inc. ("TPIS") and Advisors, since 1994
Richard L. Gibbs 50 Executive Vice President, CREF, TIAA, Investment
Management and Services, since 1993, and Advisors, since
1994, Vice President, Investment Management and Services,
from 1992 to 1993. Formerly, Vice President, Finance,
CREF and TIAA
Albert J. Wilson 64 Vice President and Chief Counsel, Corporate Secretary,
CREF and TIAA
- ------------
** The address for all CREF Officers is 730 Third Avenue, New York, New York
10017
</TABLE>
COMPENSATION OF CREF TRUSTEES
In 1996, the basic annual stipend for trustees who are not officers of CREF
("non-officer Trustees") was $15,000; non-officer Trustees were also paid $1,000
for each board and committee meeting attended. In addition, non-officer trustees
who serve as chairpersons of committees receive an additional annual stipend of
$3,000. Trustees who are active officers of CREF or TIAA do not receive any
additional compensation for their services as trustees.
CREF has adopted a deferred compensation plan for non-officer Trustees. Under
that plan, a Trustee who has served at least five years will be paid a lump-sum
deferred compensation benefit after leaving the CREF Board. The amount of the
lump-sum benefit will be calculated by multiplying the amount of the stipend in
effect at the time of his or her termination from the Board by 50 percent, and
multiplying that amount by the individual's number of years of service as a CREF
Trustee, up to a maximum of twenty years. Trustees receive no other retirement
or pension benefits.
B-27
<PAGE>
The following table discloses the aggregate compensation received from CREF and
the amount of the lump-sum deferred compensation benefit accrued as part of
CREF's expenses for each non-officer Trustee for the year ended December 31,
1996. No non-officer Trustee receives compensation from any entity that could be
deemed part of a fund complex with CREF.
AGGREGATE LUMP SUM DEFERRED
COMPENSATION FROM COMPENSATION BENEFIT ACCRUED
NAME CREF AS PART OF CREF EXPENSES1
- --------------------------------------------------------------------------------
Robert H. Atwell $ 40,000 $13,095
- --------------------------------------------------------------------------------
Elizabeth E. Bailey $ 45,000 $ 8,159
- --------------------------------------------------------------------------------
Andrew F. Brimmer $117,000 2 $15,655
- --------------------------------------------------------------------------------
Gary P. Brinson $ 23,000 $ 2,380
- --------------------------------------------------------------------------------
Joyce A. Fecske $ 27,000 $ 2,268
- --------------------------------------------------------------------------------
Edes P. Gilbert $ 33,000 $10,481
- --------------------------------------------------------------------------------
Stuart Tse Kong Ho $ 28,000 $ 7,668
- --------------------------------------------------------------------------------
Nancy L. Jacob $ 29,000 $ 8,021
- --------------------------------------------------------------------------------
Marjorie Fine Knowles $ 37,000 3 $ 8,994
- --------------------------------------------------------------------------------
Jay O. Light $ 25,000 $ 6,065
- --------------------------------------------------------------------------------
Bevis Longstreth5 $ 2,000 $ 4,052
- --------------------------------------------------------------------------------
Robert M. Lovell, Jr. $ 32,000 3 $23,730
- --------------------------------------------------------------------------------
Robert C. Merton $ 81,000 2 $10,437
- --------------------------------------------------------------------------------
Stephen A. Ross $ 31,000 3 $ 6,774
- --------------------------------------------------------------------------------
Eugene C. Sit $ 28,000 $ 5,568
- --------------------------------------------------------------------------------
Maceo K. Sloan $ 34,000 $ 2,425
- --------------------------------------------------------------------------------
Harry K. Spindler $ 40,000 4 $17,346
- --------------------------------------------------------------------------------
David K. Storrs $ 40,000 $ 2,530
- --------------------------------------------------------------------------------
Robert W. Vishny5 $ 3,000 $ 592
- --------------------------------------------------------------------------------
1 Assumes service through age 70.
2 Includes $90,000 deferred compensation benefit paid to Mr. Brimmer and $60,000
deferred compensation benefit paid to Mr. Merton in accordance with plan
provisions.
3 This compensation was not actually paid based on prior election of Trustee to
defer receipt of payment in accordance with the provisions of a CREF deferred
compensation plan for non-officer Trustees. This plan was terminated as to
future participation effective August 1986. In addition, $594,590, $509,477
and $532,963 has been deferred for prior years service through year-end 1995
for Ms. Knowles, Mr. Lovell and Mr. Ross, respectively. (These amounts include
interest.)
4 Mr. Spindler discontinued his deferred compensation agreement as of December
31, 1993. A total of $425,805 had been deferred for his prior years' service.
(This amount includes interest.)
5 Mr. Longstreth and Mr. Vishny were elected to the CREF Board of Trustees in
November 1996.
B-28
<PAGE>
The following table shows the estimated lump-sum deferred compensation benefit
payable to each non-officer Trustee when he or she leaves the Board and the
years of service used in estimating that benefit.
ESTIMATED LUMP-SUM
DEFERRED YEARS OF YEARS OF
NAME COMPENSATION BENEFIT SERVICE
- --------------------------------------------------------------------------------
Robert H. Atwell $105,000 14
- --------------------------------------------------------------------------------
Elizabeth E. Bailey $150,000 20
- --------------------------------------------------------------------------------
Andrew F. Brimmer $ 90,000 2 12
- --------------------------------------------------------------------------------
Gary P. Brinson $135,000 18
- --------------------------------------------------------------------------------
Joyce A. Fecske $150,000 20
- --------------------------------------------------------------------------------
Edes P. Gilbert $ 97,500 13
- --------------------------------------------------------------------------------
Stuart Tse Kong Ho $112,500 15
- --------------------------------------------------------------------------------
Nancy L. Jacob $150,000 20
- --------------------------------------------------------------------------------
Marjorie Fine Knowles $150,000 20
- --------------------------------------------------------------------------------
Jay O. Light $150,000 20
- --------------------------------------------------------------------------------
Bevis Longstreth $ 60,000 8
- --------------------------------------------------------------------------------
Robert M. Lovell, Jr. $150,000 20
- --------------------------------------------------------------------------------
Robert C. Merton $ 60,000 2 8
- --------------------------------------------------------------------------------
Stephen A. Ross $150,000 20
- --------------------------------------------------------------------------------
Eugene C. Sit $127,500 17
- --------------------------------------------------------------------------------
Maceo K. Sloan $150,000 20
- --------------------------------------------------------------------------------
Harry K. Spindler $105,000 14
- --------------------------------------------------------------------------------
David K. Storrs $150,000 20
- --------------------------------------------------------------------------------
Robert W. Vishny $150,000 20
- --------------------------------------------------------------------------------
1 Assumes Trustee leaves the Board at age 70.
2 Deferred compensation benefit paid in accordance with plan provisions.
INVESTMENT ADVISORY AND RELATED SERVICES
Investment advisory services and related services for the Accounts are provided
on an at-cost basis by personnel of TIAA-CREF Investment Management, Inc.
("Investment Management"). Investment Management is a nonprofit subsidiary of
TIAA, CREF's companion organization, and is registered as an investment adviser
under the Investment Advisers Act of 1940. Investment Management manages the
investment and reinvestment of the assets of each Account, subject to the
direction and control of the Finance Committee of the Board of Trustees and in
accordance with the responsibilities of the Board as a whole. The advisory
personnel of Investment Management perform all research, make recommendations,
and place orders for the purchase and sale of securities. Investment Management
also provides for all portfolio accounting, custodial and related services for
the assets of each Account.
As described in the Prospectus, a daily deduction from the net assets of each
Account is made at an annual rate of .08% for the Stock Account, .15% for the
Global Equities Account, .13% for the Growth Account, .07% for the Equity Index
B-29
<PAGE>
Account, .06% for the Bond Market Account, .08% for the Inflation-Linked Bond
Account, .07% for the Social Choice Account, and .06% for the Money Market
Account, for expenses related to the management of the assets of the Accounts.
The total dollar amounts of expenses for the Stock Account attributable to these
services during 1996, 1995, and 1994 were $61,960,030, $56,809,391, and
$48,763,621, respectively. During 1996, 1995 and 1994, the total dollar amounts
of expenses for the Global Equities Account were $5,168,905, $4,510,927 and
$3,978,783, respectively. During 1996, 1995, and 1994 (April 1 to December 31),
the total dollar amounts of expenses for the Growth Account were $2,134,334,
$1,264,250, and $230,820, respectively. During 1996, 1995 and 1994 (April 1 to
December 31), the total dollar amounts of expenses for the Equity Index Account
were $495,305, $173,653, and $97,761, respectively. During 1996, 1995 and 1994,
the total dollar amounts of expenses for the Bond Market Account were $656,539,
$459,373, and $354,378, respectively. During 1996, 1995 and 1994, the total
dollar amounts of expenses for the Social Choice Account were $976,893, $713,335
and $633,369, respectively. The total dollar amounts of expenses for the Money
Market Account attributable to these services during 1996, 1995, and 1994 were
$2,597,014, $2,272,804 and $1,461,774, respectively.
CUSTODY OF PORTFOLIO
The custodians for the assets of the Accounts are as follows:
STOCK, GLOBAL EQUITIES, GROWTH, AND EQUITY INDEX ACCOUNTS. Bankers Trust
Company, 16 Wall Street, New York, New York 10015, acts as the custodian for all
of these accounts' domestic assets. It also acts as custodian for certain
Japanese securities through subcustodial arrangements. The Chase Manhattan Bank,
4 Chase MetroTech Center, Brooklyn, New York 11245 is responsible for the
custody of all foreign securities and other foreign assets, other than those
held by Bankers Trust. These securities are held in foreign branches of The
Chase Manhattan Bank or in the sub-custody of either foreign banks or trust
companies that are members of The Chase Manhattan Bank's global custody network
or foreign depositories used by such members.
In addition, certain of CREF's assets are held by Canada Trust Company, 320 Bay
at Adelaide, Toronto, Ontario M5H 2P6, Canada, pursuant to an indenture
agreement with CREF.
BOND MARKET ACCOUNT. Bank of New York, One Wall Street, New York, New York 10286
acts as the custodian for all assets of the Bond Market Account.
INFLATION-LINKED BOND ACCOUNT. Bank of New York, One Wall Street, New York, New
York 10286 acts as the custodian for all assets of the Inflation-Linked Bond
Account.
SOCIAL CHOICE ACCOUNT. Bank of New York, One Wall Street, New York, New York
10286 acts as the custodian for the bonds and money market instruments held by
the Social Choice Account. Bankers Trust Company, 16 Wall Street, New York, New
York 10015, acts as the custodian for the equities held by the Social Choice
Account.
MONEY MARKET ACCOUNT. Bank of New York, One Wall Street, New York, New York
10286 acts as the custodian for all assets of the Money Market Account.
AUDITORS
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281,
serves as CREF's independent auditors and, in that regard, provides general
auditing services for CREF.
B-30
<PAGE>
BROKERAGE ALLOCATION
Investment Management is responsible for decisions to buy and sell securities
for the Accounts as well as for selecting brokers and, where applicable,
negotiating the amount of the commission rate paid. It is Investment
Management's intention to place brokerage orders with the objective of obtaining
the best price, execution and available data. When purchasing or selling
securities traded on the over-the-counter market, Investment Management
generally will execute the transaction with a broker engaged in making a market
for such securities. When Investment Management deems the purchase or sale of a
security to be in the best interests of more than one Account, it may,
consistent with its fiduciary obligations, aggregate the securities to be sold
or purchased. When Investment Management deems the purchase or sale of a
security to be in the best interests of an account, its personnel also may,
consistent with their fiduciary obligations, decide to buy or sell a security
for that account at the same time as for (i) an account of TIAA Separate Account
VA-1 that they may also be managing on behalf of Teachers Advisors, Inc., an
investment adviser also affiliated with TIAA, or (ii) any other investment
company whose assets Investment Management may be managing. In those events,
allocation of the securities purchased or sold, as well as the expenses incurred
in the transaction, will be made in an equitable manner.
Domestic brokerage commissions are negotiated, as there are no standard rates.
All brokerage firms provide the service of execution of the order made; some
brokerage firms also provide research and statistical data, and research reports
on particular companies and industries are customarily provided by brokerage
firms to large investors. In negotiating commissions, consideration is given by
Investment Management 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 Accounts. Currently, some foreign brokerage
commissions are fixed under the local law and practice. There is, however, an
ongoing trend to adopt a new system of negotiated commissions in many countries.
Transactions in fixed-income instruments with dealers generally involve spreads
rather than commissions. That is, the dealer generally functions as a principal,
generating income from the spread between the dealer's purchase and sales
prices, rather than as a broker, charging a proportional or fixed fee.
Investment Management 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. Investment Management follows guidelines
established by CREF for the placing of orders with brokers providing such
services.
In 1996, the aggregate amount of brokerage commissions paid by the Stock
Account, the Global Equities Account, and the Growth Account to such brokers as
a result of such allocations was $31,441,043, $4,837,532, and $870,661
respectively. Research or services obtained for one Account may be used by
Investment Management in managing the other Accounts. In such circumstances, the
expenses incurred will be allocated in an equitable manner consistent with
Investment Management's fiduciary obligations to the other Accounts.
Research or services obtained for TIAA Separate Account VA-1 may be used by
personnel of Teachers Advisors, Inc. who also manage 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 Teachers Advisors, Inc. to TIAA Separate Account VA-1.
B-31
<PAGE>
The aggregate amount of brokerage commissions paid by the Stock Account during
1996, 1995, and 1994 was $40.9 million, $38.0 million and $36.5 million,
respectively. The aggregate amount of brokerage commissions paid by the Global
Equities Account in 1996, 1995 and 1994 was $7.9 million, $5.2 million and $7.4
million, respectively. The aggregate amount of brokerage commissions paid by the
Growth Account in 1996, 1995 and 1994 (April 1 to December 31) was $1,353,985,
$770,000 and $261,700, respectively. The aggregate amount of brokerage
commissions paid by the Equity Index Account in 1996, 1995, and 1994 (April 1 to
December 31) was $172,127, $145,800, and $38,200, respectively. The aggregate
amount of brokerage commissions paid by the Social Choice Account in 1996, 1995
and 1994 was $61,844, $.05 million and $.10 million, respectively. No brokerage
commissions were paid by the Money Market Account or by the Bond Market Account
during 1996, 1995 or 1994.
During 1996, the CREF Accounts acquired securities of certain of their regular
brokers or dealers or their parents, where the parent derives more than 15% of
its total income from securities related activities. These entities and the
securities held by the Accounts as of December 31, 1996, are set forth below:
<TABLE>
<CAPTION>
STOCK ACCOUNT
<S> <C>
A. REGULAR BROKER OR DEALER BASED ON BROKERAGE COMMISSIONS PAID
Morgan Stanley & Co. Inc. (Parent--Morgan Stanley Group, Inc.) $ 51,024,050
Merrill Lynch, Pierce, Fenner & Smith, Inc. (Parent--Merrill Lynch & Co., Inc.) $135,110,374
BZW Securities Ltd. (Parent--Barclays PLC) $ 46,464,480
SBC Warburg Inc. (Parent--Swiss Bank Corp.) $ 18,409,987
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING AS PRINCIPAL
American Express Credit Corp. (Parent--American Express Co.) $215,338,393
Credit Suisse First Boston (Parent--Credit Suisse) $ 23,843,997
Lehman Commercial Paper Inc. (Parent--Lehman Brothers Holdings, Inc.) $ 28,656,105
Merrill Lynch Money Market Inc. (Parent--Merrill Lynch & Co., Inc.) $135,110,374
Morgan (J.P.) Securities Corp. (Parent--Morgan (J.P.) & Co., Inc.) $147,857,260
Morgan Stanley & Co., Inc. (Parent--Morgan Stanley Group, Inc.) $ 51,024,050
GLOBAL EQUITIES ACCOUNT
A. REGULAR BROKER OR DEALER BASED ON BROKERAGE COMMISSIONS PAID
Merrill Lynch, Pierce, Fenner & Smith, Inc. (Parent--Merrill Lynch & Co., Inc.) $ 3,586,000
SBC Warburg Inc. (Parent--Swiss Bank Corp.) $ 2,488,722
Salomon Brothers, Inc. (Parent--Salomon, Inc.) $ 1,036,750
BZW Securities Ltd. (Parent-Barclays PLC) $ 5,613,337
UBS Securities Inc. $ 3,694,236
</TABLE>
B-32
<PAGE>
<TABLE>
<S> <C>
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING AS PRINCIPAL
Credit Suisse First Boston (Parent--Credit Suisse) $ 2,994,835
Morgan (J.P.) Securities Corp. (Parent--Morgan (J.P.) & Co., Inc.) $ 3,878,641
GROWTH ACCOUNT
A. REGULAR BROKER OR DEALER BASED ON COMMISSIONS PAID
Smith Barney, Inc. (Parent--Travelers Group, Inc.) $ 526,250
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING AS PRINCIPAL
NONE
EQUITY INDEX ACCOUNT
A. REGULAR BROKER OR DEALER BASED ON COMMISSIONS PAID
Bear, Stearns & Co. Inc. (Parent--Bear Stearns Cos. Inc.) $ 472,314
PaineWebber Inc. (Parent--PaineWebber Group, Inc.) $ 295,314
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING AS PRINCIPAL
Lehman Commercial Paper Inc. (Parent--Lehman Brothers Holdings, Inc.) $ 508,902
Morgan (J.P.) Securities Corp. (Parent--Morgan (J.P.) & Co., Inc.) $2,635,875
BOND MARKET ACCOUNT
A. REGULAR BROKER OR DEALER BASED ON BROKERAGE COMMISSIONS PAID
NONE
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING AS PRINCIPAL
NONE
SOCIAL CHOICE ACCOUNT
A. REGULAR BROKER OR DEALER BASED ON BROKERAGE COMMISSIONS PAID
NONE
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING AS PRINCIPAL
Merrill Lynch Money Market Inc. (Parent--Merrill Lynch & Co., Inc.) $6,691,150
Morgan (J.P.) Securities Corp. (Parent--Morgan (J.P.) & Co., Inc.) $7,565,937
Morgan Stanley & Co., Inc. (Parent--Morgan Stanley Group, Inc.) $4,924,175
Smith Barney, Harris Upham & Co., Inc. (Parent--Travelers Group, Inc.) $6,710,418
</TABLE>
B-33
<PAGE>
MONEY MARKET ACCOUNT
A. REGULAR BROKER OR DEALER BASED ON BROKERAGE COMMISSIONS PAID
NONE
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING AS PRINCIPAL
NONE
PERFORMANCE INFORMATION
TOTAL RETURN INFORMATION FOR THE ACCOUNTS
Total return quotations for the Accounts may be advertised. Total return
quotations will reflect all aspects of an Account's return. Average annual total
returns are determined by finding the average annual compounded rates of return
over the 1, 5, and 10 year periods that reflect the growth (or decline) in value
of a hypothetical $1,000 investment made at the beginning of the 1, 5, or 10
year period through the end of that period, according to the following formula:
P(1 + T)n = EV
where: P = hypothetical initial payment of $1,000
T = average annual total return
n = number of years in the period
EV = ending value of the hypothetical
investment at the end of the 1, 5, or 10
year period.
To derive the total return quotations from this formula, the percentage net
change in the value of the $1,000 investment from the beginning of the 1, 5, or
10 year period to the end of such period ("cumulative total return") is
determined. Cumulative total returns simply reflect the change in value of an
investment over a stated period. Since the accumulation unit value is a "total
return" unit value that reflects the investment experience of the Account and
all expense deductions made against the assets of the Account, the ending value,
or EV, of the $1,000 hypothetical investment is determined by applying the
percentage change in the accumulation unit value over the period to the
hypothetical initial payment of $1,000 less the current deductions from premiums
(0%). CREF then solves the equation for T to derive the average annual
compounded rate of return for the Accounts over the span of 1, 5, or 10 years,
and the resulting "total return" quotation is carried out to the nearest
hundredth of one percent.
YIELD INFORMATION FOR THE BOND MARKET AND INFLATION-LINKED BOND ACCOUNTS
Yield quotations for the Bond Market and Inflation-Linked Bond Accounts may be
made available, including yield quotations based upon the thirty day (or one
month) period ended on the date of calculation, computed by dividing the net
investment income attributable to the accumulation fund for the Account by the
value of a hypothetical accumulation on the last day of the period, according to
the following formula:
YIELD = 2[( a-b +1)6 -1]
---
cd
B-34
<PAGE>
where: a = interest and dividends attributable to
the Accumulation Fund earned during the
period
b = expense deductions incurred during the
period
c = average daily number of Accumulation
Units outstanding during the period
d = Accumulation Unit value on the last
day of the period
Any yield quoted should not be considered a representation of the yield of the
Bond Market or Inflation-Linked Bond Account in the future.
YIELD INFORMATION FOR THE MONEY MARKET ACCOUNT
Yield quotations for the Money Market Account, including yield quotations based
upon the seven-day period ended on the date of calculation, may also be made
available. These yield quotations are based on a hypothetical pre-existing
account with a balance of one accumulation unit. In arriving at any such yield
quotations, the net change during the period in the value of that hypothetical
account is first determined. Such net change includes net investment income
attributable to portfolio securities but excludes realized gains and losses from
the sale of securities and unrealized appreciation and depreciation (which are
included in the calculation of accumulation and annuity unit values). 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 Account 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 Account's investments, and
is calculated by the use of the following formula:
Effective Yield = (Base Period Return + 1)365/7 -1
The Money Market Account'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. In addition, the values of accumulation and annuity units will
fluctuate.
INFLATION-ADJUSTED RETURN AND YIELD INFORMATION FOR THE INFLATION-LINKED BOND
ACCOUNT
In addition to making available the "nominal" return and yield information
described above for the Inflation-Linked Bond Account, we may also make
available inflation-adjusted or "real" return and yield information for the
Account. This inflation-adjusted or "real" return and yield information will
help Participants track the performance of the Account vis a vis inflation by
separating out the return or yield for the Account over and above the inflation
rate. For example, if you buy a bond paying a 7% nominal rate and inflation over
the next year is 5%, your "real" rate of return would be 2%. We would calculate
B-35
<PAGE>
the "real" yield for the Account by using the 30-day yield formula that we use
for the Bond Market Account set forth on page B-34 and adapting it as follows:
a-b 6
YIELD real = 2[((real) / cd + 1) -1]
where: a (real) = the sum of the total nominal cash flows for
all bonds, discounted for inflation over a
thirty day period in accordance with the
following formula:
a (real) = a - a (delta U.S. CPI - U)
where: U.S. CPI - U = percentage change in the U.S. inflation
rate over a thirty day period as measured
by the change in the Consumer Price Index
For Urban Consumers during that period.
We would calculate "real" return information for the Account by using the
formula that we currently use to calculate total return for the CREF accounts
set forth on page B-34. In order to calculate real return, however, we would
need to calculate the accumulation unit value in real terms by discounting the
nominal accumulation unit value (AUV) by the change in the U.S. inflation rate
during the applicable period. To do this, we would use the following formula:
delta AUV (real) = delta AUV - delta U.S. CPI - U
where: U.S. CPI - U = percentage change in the U.S. inflation
rate over a thirty day period as measured
by the change in the Consumer Price Index
for Urban Consumers during that period.
Set forth below is total return information for the Accounts, which reflects all
deductions made from the assets in the Accounts, applied to a hypothetical
investment of $1,000 in each of the Accounts:
<TABLE>
<CAPTION>
STOCK ACCOUNT
-------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
- ------ -------------- --------------
<C> <C> <C>
1 year 19.42% 19.42%
(from January 1, 1996 to December 31, 1996)
5 years 13.58% 89.06%
(from January 1, 1992 to December 31, 1996)
10 years 13.89% 267.12%
(from January 1, 1987 to December 31, 1996)
</TABLE>
<TABLE>
<CAPTION>
GLOBAL EQUITIES ACCOUNT
-----------------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
- ------ -------------- --------------
<CAPTION>
<C> <C>
1 year 17.98% 17.98%
(from January 1, 1996 to December 31, 1996)
4 years and 8 months 15.50% 95.88%
(from May 1, 1992 date of SEC registration to
December 31, 1996)
</TABLE>
B-36
<PAGE>
<TABLE>
<CAPTION>
GROWTH ACCOUNT
--------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
- ------ -------------- --------------
<C> <C> <C>
1 year 25.50% 25.50%
(from January 1, 1996 to December 31, 1996)
2 years and 8 months 23.98% 77.80%
(from April 29, 1994 date of SEC registration to
December 31, 1996)
EQUITY INDEX ACCOUNT
--------------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
- ------ -------------- --------------
1 year 21.58% 21.58%
(from January 1, 1996 to December 31, 1996)
2 years and 8 months 25.25% 71.08%
(from April 29, 1994 date of SEC registration to
December 31, 1996)
BOND MARKET ACCOUNT
-------------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
- ------ -------------- --------------
1 year 3.08% 3.08%
(from January 1, 1996 to December 31, 1996)
5 years 6.83% 39.12%
(from January 1, 1992 to December 31, 1996)
6 years and 10 months 8.63% 76.01%
(from March 1, 1990 commencement of
operations to December 31, 1996)
SOCIAL CHOICE ACCOUNT
---------------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
- ------ -------------- --------------
1 year 15.53% 15.53%
(from January 1, 1996 to December 31, 1996)
5 years 12.41% 79.51%
(from January 1, 1992 to December 31, 1996)
6 years and 10 months 13.27% 134.36%
(from March 1, 1990 commencement of
operations to December 31, 1996)
</TABLE>
B-37
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET ACCOUNT
--------------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
- ------ -------------- ---------------
<C> <C> <C>
1 year 5.28% 5.28%
(from January 1, 1996 to December 31, 1996)
5 years 4.40% 24.01%
(from January 1, 1992 to December 31, 1996)
8 years and 9 months 5.89% 64.94%
(from April 1, 1988 commencement of
operations to December 31, 1996)
</TABLE>
PERFORMANCE COMPARISONS
Performance information for any of the Accounts may be compared, in
advertisements, sales literature, and reports to Participants and employers, 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 5000 Equity Index,
(10) Russell 1000, 2000, and 3000 indices, (11) the Donoghue's Money Fund
Averages, (12) Salomon Brothers Broad Investment Grade Index, (13) Merrill Lynch
Corporate Government Master Index, (14) Lehman Brothers Government/Corporate
Bond Index, (15) Lehman Brothers Aggregate Bond Index, (16) the Consumer Price
Index, published by the U.S. Bureau of Labor Statistics (measurement of
inflation), (17) a Composite Index, comprised of the Standard & Poor's 500 Stock
Index (60%) and the Lehman Brothers Aggregate Bond Index (40%), which measures
the investment performance of a balanced portfolio of stocks and bonds, (18) the
Morgan Stanley Capital International World Index, (19) the Morgan Stanley EAFE
Index, (20) VARDS, and (21) Morningstar, Inc. We may also include the
performance of these indices in advertisements, and discuss their comments about
us. The Accounts' expenses may also be compared with those of other investments.
We may also advertise ratings that CREF receives from various rating services
and organizations, including but not limited to any organization listed above.
We may also advertise ratings received by TIAA. The performance of the Accounts
also may be compared to other indices or averages that measure performance of a
pertinent group of securities. Participants should keep in mind that the
composition of the investments in the reported averages will not be identical to
that of the Accounts and that certain formula calculations (i.e., yield) may
differ from index to index. In addition, there can be no assurance that the
Accounts will continue their performance as compared to such indices.
The Stock Account and the Equity Index Account are not promoted, sponsored,
endorsed or sold by, nor affiliated with Frank Russell Company. Frank Russell
Company is not responsible for and has not reviewed the Stock Account or Equity
Index Account literature or publications and makes no representation or
warranty, express or implied, as to their accuracy, completeness, or otherwise.
Frank Russell Company reserves the right, at any time and without notice, to
change or terminate the Russell 3000 index. Frank Russell Company has no
obligation to take the needs of the Stock Account or its Participants into
consideration in determining the index. Frank Russell Company's publication of
B-38
<PAGE>
the Russell 3000 index in no way suggests or implies an opinion by Frank Russell
Company as to the attractiveness or appropriateness of investment in any or all
of the securities upon which the index is based. Frank Russell Company makes no
representation, warranty, or guarantee as to the accuracy, completeness or
reliability of the index or any data included in the index. Frank Russell
Company makes no representation or warranty regarding the use, or the results of
use, of the index or any securities comprising the index. FRANK RUSSELL MAKES NO
EXPRESS OR IMPLIED WARRANTIES OF ANY KIND OR NATURE, INCLUDING WITHOUT
LIMITATION, WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO THE INDEX OR ANY DATA OR SECURITIES INCLUDED THEREIN.
ILLUSTRATING COMPOUNDING, TAX DEFERRAL AND EXPENSE DEDUCTIONS
CREF may illustrate in advertisements, sales literature and reports to
Participants the effects of tax deferral and/or compounding of earnings on an
investment in CREF. 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 different interest rate, vary depending on when the investment was
made. To illustrate the effects of tax deferral, we will show how the total
return from an investment of the same dollar amount, earning the same or
different interest rates, for individuals in the same tax bracket, would vary
between tax-deferred and taxable investments.
CREF may also illustrate in advertisements, sales literature and reports to
Participants the effect of an investment fund's expenses on total return over
time. We may do this using a hypothetical investment earning a specified rate of
return. We would show how the total return, net of expenses, from an investment
of the same dollar amount in funds with the same investment results but
different expense deductions varies increasingly over time.
ACCUMULATION UNIT VALUES
For each CREF Account, accumulation unit values are calculated at the end of
each valuation day by multiplying the previous day's values by the unit change
factor for each Account. The unit change factor is calculated as A divided by B,
where A and B are defined as:
A. The value of the Account's net assets at the close of the current
valuation period, less premiums received during the current period.
B. The value of the Account's net assets at the end of the previous
valuation period, plus the net effect of transactions made by the start
of the current period.
ANNUITY PAYMENTS
The amount of the annuity payments to be paid to a Participant or beneficiary
("annuitant") will depend upon the number and the value of the annuity units
payable. The number of annuity units is first determined on the annuity starting
date. The amount of the annuity payments will change according to the
revaluation method chosen. Separate annuity units will be maintained in each
annuity fund for payments being made under each of the two revaluation methods.
B-39
<PAGE>
Under the annual revaluation method (which is the method used for all annuity
payments as of May 1, 1997), the value of an annuity unit is redetermined on
March 31 of each year--the payment valuation date. Annuity payments change
beginning May 1. The change reflects the net investment experience of the chosen
Account(s) as well as the past and anticipated mortality experience of those
individuals receiving annuity payments from the Accounts' annually revalued
annuity funds. (The net investment and mortality experience for the twelve
months following the annual revaluation of an Account's annuity unit value will
be reflected in the following year's value.)
All Accounts provide annuity payments.
Under the monthly revaluation method (expected to be available, subject to
regulatory approval, in the first half of 1998), the value of an annuity unit is
redetermined daily. The daily changes in the value of an annuity unit reflect
the net investment experience of the chosen Account(s). The value of the annuity
unit is also redetermined on March 31 of each year, to include the past and
anticipated mortality experience of those individuals receiving annuity payments
from the Accounts' monthly revalued annuity funds. Annuitants can be said to
bear the mortality risk under the certificate.
The formulas for calculating the number and value of annuity units payable are
set forth below.
CALCULATION OF THE NUMBER OF ANNUITY UNITS PAYABLE
When a Participant or a beneficiary converts the value of all or a portion of
his or her accumulation into an income option or method of payment, the number
of annuity units payable from an Account is determined by dividing the value of
the accumulation in the Account to be applied to provide the annuity payments by
the product of the annuity unit value and an annuity factor. The annuity factor
is the value as of the annuity starting date of an annuity in the amount of
$1.00 per month beginning on the first day such annuity units are payable and
continuing for as long as such annuity units are payable.
When the chosen income option or method of payment involves life contingencies,
the annuity factor will reflect the mortality assumptions for the person(s) on
whose life (lives) the annuity payments will be based. In these instances,
mortality will be assumed according to a unisex version of the current (1983)
mortality table for individual annuitants published by the Society of Actuaries,
at the person's then current age, set back two months for each complete year
that has elapsed since March 31, 1986 (to account for expected gains in
longevity in the future), and with interest assumed at the effective annual rate
of 4%. CREF reserves the right to change the mortality assumptions from time to
time to conform with changes in the mortality experience of CREF annuitants.
When the income option or method of payment does not involve life contingencies,
the annuity factor is calculated with interest assumed at the effective annual
rate of 4%.
VALUE OF ANNUITY UNITS
The value of an annuity unit is defined in terms of a "basic annuity unit" which
is established each year, as of March 31, for each revaluation method in each
Account then providing annuity payments.
The value of the basic annuity unit is determined for each revaluation method in
each Account as A divided by B, where A and B are defined as follows for the
annual (or monthly) revaluation methods:
B-40
<PAGE>
A. The Account's annually (or monthly) revalued annuity fund as of March
31, reduced by the dollar amount of benefits payable under the annual
(or monthly) revaluation method on April 1 under pay-out certificates
in the Account as of March 31.
B. The actuarial present value, expressed in units, of all future payments
due on or after the next following May 1 under the annual (or monthly)
revaluation method under pay-out certificates in the Account as of
March 31. This liability is calculated on the basis of interest at an
effective annual rate of 4% and a mortality table designed to
approximate the current mortality rates of CREF annuitants.
For Participants beginning annuity income, the initial value of the annuity unit
is the interim annuity unit value as of the annuity starting date. An interim
annuity unit value is calculated separately for each annuity fund in each
Account as of each valuation day. The interim annuity unit value reflects the
actual investment and payment experience of the annuity fund to the current
date, relative to the 4% assumed investment return. The interim annuity unit
value also includes any changes expected to occur in the future because payments
are revalued once a year or once a month, assuming the annuity fund earns the 4%
assumed investment return in the future.
For Participants under the annual revaluation method, the value of the annuity
unit will remain the same until the following May 1. For those who have already
begun receiving annuity income as of March 31, the value of the annuity unit for
payments due on and after the next succeeding May 1 is equal to the basic
annuity unit value determined as of such March 31. For Participants under the
monthly revaluation method, the value of the annuity unit changes on the payment
valuation date for the payment due on the first of the following month.
When a Participant or beneficiary receiving annuity income transfers annuity
units from one CREF Account to another, the number of annuity units added to the
CREF Accounts to which units are being transferred will be determined by
multiplying the number of annuity units to be transferred by the interim annuity
unit value (determined on the transfer date) for the Account from which the
annuity units are being transferred, and dividing by the interim annuity unit
value (determined on the transfer date) for the Account to which the annuity
units are being transferred. Currently transfers are effective on March 31 only,
although we expect to make transfers available more frequently in the first half
of 1998, subject to regulatory approval. Under the annual payment revaluation
method, the amount of annuity payments will not change following a transfer,
until the basic annuity unit values are redetermined on the following March 31.
Under the monthly revaluation method and for all transfers to the TIAA
traditional annuity, your payments will change with the payment due after the
first payment valuation date following the transfer date. Transfers between the
monthly and the annual revaluation methods will be effective only on March 31.
The value of annuity units transferred from a CREF Account under the annual
revaluation method to TIAA is equal to A plus B, where A and B are defined as
follows:
A. The present value of the payments due after the first payment valuation
date following the transfer date continuing to the following April 1,
but not longer than such annuity units are payable.
B. The present value of one interim annuity unit multiplied by the number
of annuity units, payable beginning on the following May 1 (or the May
1 of the following calendar year if the transfer is effective in April)
continuing for as long as such annuity units are payable.
B-41
<PAGE>
The present values will be calculated assuming interest at an effective annual
rate of 4%, and the same mortality assumptions then in use for Participants or
beneficiaries converting an accumulation to an income option or method of
payment at the age(s) as of the transfer date of the person(s) on whose life
(lives) the annuity payments are based.
Currently such transfers are effective on March 31 only. Subject to regulatory
approval, beginning in the first half of 1998, we plan to allow transfers on a
more frequent basis. At that time we also plan to make the monthly revaluation
method available. The value of annuity units transferred from a CREF Account
under the monthly revaluation method to TIAA will be equal to the number of
annuity units multiplied by the current value of one interim annuity unit
multiplied by an annuity factor. The annuity factor is the value of an annuity
in the amount of $1.00 per month beginning with the payment due after the first
payment valuation date following the transfer date continuing for as long as
such annuity units are payable.
MODIFICATION
CREF reserves the right, subject to approval by the Board of Trustees, to modify
the manner in which the number and/or value of annuity units is calculated in
the future. Any such modification, however, must be approved by the New York
State Superintendent of Insurance.
INFORMATION ON CHANGES IN THE VALUE OF ANNUITY UNITS
Information with respect to the percentage changes in the value of a basic
annuity unit over stated periods for each Account providing annuity payments may
be provided. This information provides the average annual percentage changes and
cumulative percentage changes in the basic annuity unit value of an Account over
1, 5 and 10 year periods commencing on May 1. For Participants who have already
begun receiving annuity income as of the March 31 immediately preceding the
start of each period, this reflects the growth (or decline) in the value of the
basic annuity unit from May 1 as of the start of the stated period to May 1 as
of the end of the stated period. The average annual percentage change in the
basic annuity unit value is determined according to the following formula:
A(1+K)n =B
where: A = Basic Annuity Unit value determined as of March 31 for
payments due during the twelve month period commencing
on May 1 at the start of the period
K = average annual percentage change
n = number of years in the period
B = Basic Annuity Unit value determined as
of March 31 for payments due during the
twelve month period commencing on May 1
at the end of the period.
The equation is then solved for K to derive the average annual percentage change
in the Basic Annuity Unit value over the span of 1, 5 or 10 years. The
cumulative percentage change simply reflects the percentage change in the Basic
Annuity Unit value, B divided by A minus 1, over such period.
B-42
<PAGE>
Information on changes in the value of a Basic Annuity Unit is set forth below:
<TABLE>
<CAPTION>
AVERAGE ANNUAL CHANGES IN BASIC ANNUITY UNIT VALUE*
---------------------------------------------------
GLOBAL EQUITY BOND SOCIAL MONEY
STOCK EQUITIES GROWTH INDEX MARKET CHOICE MARKET
------- -------- -------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended May 1, 1997 9.74% 7.97% 14.16% 11.15% -0.50% 9.43% 0.81%
5 Years ended May 1, 1997 9.96% 8.63% -0.09%
10 Years ended May 1, 1997 7.42%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE CHANGE IN BASIC ANNUITY UNIT VALUE*
-----------------------------------------------
GLOBAL EQUITY BOND SOCIAL MONEY
STOCK EQUITIES GROWTH INDEX MARKET CHOICE MARKET
------- -------- -------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended May 1, 1997 9.74% 7.97% 14.16% 11.51% -0.50% 9.43% 0.81%
5 Years ended May 1, 1997 60.74% 51.27% -0.44%
10 Years ended May 1, 1997 104.63%
</TABLE>
*The Bond Market Account became available for paying out retirement income as of
April 1, 1996.
- -------
The average annual and cumulative changes in the basic annuity unit value of the
Global Equities Account since inception in 1992 were 10.00% and 59.80%,
respectively. The average annual and cumulative changes in the basic annuity
unit value for the Growth and Equity Index Accounts since inception in 1994 were
17.18% and the 58.80%, and 15.57% and 52.50%, respectively. The average annual
and cumulative changes in the basic annuity unit value of the Bond Market
Account since it became a pay-out option on April 1, 1996 were -0.50% and
- -0.50%, respectively. The average annual and cumulative changes in the basic
annuity unit value of the Social Choice Account since inception in 1991 were
8.17% and 60.20%, respectively. The average annual and cumulative changes in the
basic annuity unit value of the Money Market Account since inception in 1988
were 1.27% and 12.00%, respectively.
It is assumed in calculating the annuity unit values that the assets in the
annuity fund will increase at a 4% rate of return. Therefore, the above figures
reflect the difference between CREF's net earnings rate and the assumed 4% rate.
The above figures also reflect all deductions made from the assets of the
relevant Account, as well as the annuity fund's mortality experience. CREF's
past experience should not be considered a prediction of future changes in
annuity unit values. The basic annuity unit value for each annuity fund in each
Account is determined as of March 31 of each year, and changes every year on May
1. For current annuity unit values, please contact CREF.
PERIODIC REPORTS
Prior to the time an entire accumulation has been applied to provide annuity
payments, a Participant will be sent a statement each quarter which sets forth
the following:
(1) Premiums paid during the quarter; (2) the number and dollar value of
accumulation units credited to the Participant during the quarter and in total
in each Account; (3) cash withdrawals from each Account during the quarter; (4)
any repurchase or transfer to a funding vehicle other than TIAA or CREF during
the quarter, if an amount remains in the Participant's accumulation after those
transactions; (5) any transfers between Accounts or between CREF and TIAA during
the quarter; and (6) the amount from each Account applied to begin annuity
payments during the quarter.
B-43
<PAGE>
CREF also will transmit to Participants, at least semi-annually, reports showing
the financial condition of CREF, and a schedule of investments held in each
Account in which they have accumulations.
VOTING RIGHTS
How many votes a Participant can cast on matters that require a vote of
Participants will be determined separately for each CREF Account. On the record
date, you'll have one vote per dollar of your assets in each Account's
accumulation fund, and/or one vote per dollar of the assets underlying your
annuity in each Account's annuity fund.
Issues that affect all the CREF Accounts in substantially the same way will be
voted on by all Participants, without regard to the individual CREF Accounts.
Issues that don't affect an Account won't be voted on by the Account. Issues
that affect all Accounts, but in which their interests aren't substantially the
same, will be voted on separately by each Account.
When we use the phrase "majority of outstanding voting securities" in the
Prospectus and in this Statement of Additional Information, we mean the lesser
of (a) 67 percent of the voting securities present, as long as the holders of at
least half the voting securities are present or represented by proxy; or (b) 50
percent of the outstanding voting securities. Depending on what's being decided,
the percentages may apply to CREF as a whole or to any Account(s). If a majority
of outstanding voting securities isn't required to decide a question, we'll
generally require a quorum of 10 percent of those securities, with a simple
majority required to decide the issue. If laws, regulations, or legal
interpretations make it unnecessary to submit any issue to a vote, or otherwise
restrict Participant voting rights, we reserve the right to act as permitted.
GENERAL MATTERS
NO ASSIGNMENT OF CERTIFICATES
No assignment, pledge, or transfer of a certificate, or of any of the rights or
benefits conferred thereunder, may be made and any such action will be void and
of no effect, except that spousal transfers on separation or divorce, and the
transfer of rights and benefits under an RA certificate to a Participant by an
employer under a delayed vesting arrangement, may be permitted.
PAYMENT TO AN ESTATE, GUARDIAN, TRUSTEE, ETC.
CREF reserves the right to pay in one sum the commuted value of any benefits due
an estate, corporation, partnership, trustee or other entity not a natural
person. CREF will not be responsible for the conduct of any executor, trustee,
guardian, or other third party to whom payment is made.
CLAIMS OF CREDITORS
Pursuant to CREF's Charter, as enacted by the New York State Legislature, the
rights and benefits accruing to Participants or other persons under the
certificates generally are exempt from the claims of creditors, subject to any
contrary requirements of law.
B-44
<PAGE>
BENEFITS BASED ON INCORRECT INFORMATION
If the amounts of benefits provided under a certificate were based on
information that is incorrect, benefits will be recalculated on the basis of the
correct data. If any overpayments or underpayments have been made by CREF,
appropriate adjustments will be made.
PROOF OF SURVIVAL
CREF reserves the right to require satisfactory proof that anyone named to
receive benefits under a certificate is living on the date payment is due. If
this proof is not received after a request in writing, CREF will have the right
to make reduced payments or to withhold payments entirely until such proof is
received. CREF maintains audit procedures designed to assure that annuity
benefits will be paid to living persons entitled to receive those benefits. If,
however, under a survivor annuity option (see page 47 of the Prospectus) CREF
has overpaid benefits because of a death of which it was not notified,
subsequent payments will be reduced or withheld until the overpayment has been
recovered. CREF reserves the right to pursue any other remedies available to it.
STATE REGULATION
CREF is subject to regulation by the New York State Superintendent of Insurance
("Superintendent") as well as by the insurance regulatory authorities of certain
other states and jurisdictions.
CREF must file with the Superintendent both quarterly and annual statements on
forms promulgated by the New York State Insurance Department. CREF's books and
assets are subject to review and examination by the Superintendent and the
Superintendent's agents at all times, and a full examination into the affairs of
CREF is made at least every five years. In addition, a full examination of
CREF's operations is usually conducted periodically by some other states.
CREF is also subject to the requirements of the New York State Not-For-Profit
Corporation Law.
LEGAL MATTERS
All matters of applicable state law pertaining to the certificates, including
CREF's right to issue the certificates thereunder, have been passed upon by
Charles H. Stamm, Executive Vice President and General Counsel. Legal matters
relating to the federal securities laws have been passed upon by Sutherland,
Asbill & Brennan, L.L.P., Washington, D.C.
EXPERTS
The financial statements of CREF included or incorporated by reference in this
Statement of Additional Information have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are included or
incorporated by reference herein, and have been so included or incorporated in
reliance upon the reports of such firm, given upon their authority as experts in
accounting and auditing.
B-45
<PAGE>
CONSIDERATIONS CONCERNING CREF'S NEW ACCOUNTS AND OPTIONS
CONSIDERATIONS FOR EMPLOYERS
Over the past several years CREF has added many new Accounts and options that
employers should consider adding to their plans. In doing so, employers should
keep in mind that the overwhelming majority of Participants and employers view
TIAA-CREF very favorably. Ninety-six percent of the Participants who responded
to a survey conducted in 1995 by an independent organization expressed overall
satisfaction with TIAA-CREF and said that they would recommend TIAA-CREF to a
colleague. Ninety-four percent of these Participants said that given the choice
between TIAA-CREF and other companies, they would choose TIAA-CREF again (63%
would definitely choose TIAA-CREF and 31% would probably do so.) Employer
satisfaction is evidenced by the fact that, based on the best available data, a
majority of the employers with TIAA-CREF retirement plans had not found it
necessary to add other funding vehicles to their plans as of January 1, 1997.
The new demands placed on administrators by CREF's new options make the support
and services received by administrators from the company funding their plans
essential. Along with the new options, CREF offers employers the pension
expertise and high level of services they have come to rely on, and to find new
ways to help plan administrators do their jobs in an increasingly complex
environment. Services currently provided by TIAA-CREF Individual & Institutional
Services, Inc. include: (1) counseling on retirement plans and planning
including recommendations regarding allocation of assets (for administrators,
Participants and retirees) by professional counselors rather than by
commissioned salespeople; (2) services for Participants such as annual Annuity
Benefit Reports, quarterly transaction reports, newsletters and other
publications about retirement planning, pre-retirement seminars, individual
counseling, a Participant Information Center, and 24-hour toll-free numbers for
Participant transactions and inquiries; and (3) services for plan administrators
such as assistance in plan design and operation, branch offices throughout the
country, publications, staff meetings, videos, tax-deferred annuity software to
help administrators calculate the maximum amount of salary a Participant may
tax-defer, and non-discrimination software to help administrators evaluate their
plans.
CONSIDERATIONS FOR PARTICIPANTS
Variety of Investment Accounts. The growing family of CREF Accounts is designed
to provide additional investment options for Participants who want to diversify
their accumulations. Most experts recommend diversification as a good strategy
for retirement investing, both because a diversified portfolio offers a degree
of safety from the volatility of specific markets, and because it allows the
investor to benefit from the potential for growth in several different types of
investments. Since the Bond Market, Inflation-Linked Bond, and Social Choice
Accounts invest at least some of their portfolios in fixed-income securities,
Participants should be aware that statistics compiled by Ibbotson Associates,
Inc. confirm that historically bonds have experienced less volatility than
common stocks and greater returns than money market instruments. However, these
relationships may differ, based on market conditions or other factors, over the
short-term or even over the long-term. Fluctuations in interest rates can have a
significant effect on the Bond Market and Inflation-Linked Bond Accounts'
performance. Furthermore, although past performance is no guarantee of future
results, stocks have outperformed bonds over the long-term. Many experts
recommend taking a long-term view with retirement investments.
B-46
<PAGE>
The Stock Account may be appropriate for people who have a longer time until
retirement and think that stocks will perform well over time. The Stock Account
can also be a good choice for anyone who wants to complement other holdings in
guaranteed products. Many Participants choose only the Stock Account for their
equity investments.
The Global Equities Account may be appropriate for Participants who are
interested in the opportunities offered by overseas markets and the potential
growth of foreign economies. We recommend that those who already have
substantial allocations to the Stock Account consider putting some of their
accumulations in the Global Equities Account to diversify and enhance growth
potential. Over the long-term, the international component of the Stock Account
has added additional diversification, helped reduce volatility and helped the
Account generate high long-term returns. (Past performance is no guarantee of
future results.)
Studies by Morgan Stanley Capital International show that during recent years,
many of the top performing equity markets were overseas. During the period from
1984 to 1995, the non-U.S. share of the world's total equity market
capitalization has risen significantly. Many people feel that a great deal of
the world's economic expansion over the next several decades will be
overseas-particularly as less developed nations come into their own. The Global
Equities Account will be especially attractive to those who agree, and who plan
to hold investments in the Account for long periods.
Foreign capital markets have grown rapidly in the past two decades, with Japan,
Germany and others increasing their share of the world's equity investments.
Emerging markets can also provide important investment opportunities. However,
many overseas markets have only recently begun to attract international
investment, so less is known about their long-term patterns than about domestic
markets.
Like the other Accounts, the Global Equities Account offers the advantages of
diversification. In particular, since domestic and foreign markets sometimes
move in different cycles, overseas investments can help offset declines in
American markets, and vice versa. In addition, because the Global Equities
Account's investments are spread throughout the world, the Account is less
dependent on the economic situation in any single country than the Stock Account
is.
The Global Equities Account may interest investors who are willing to assume
more risk to seek faster growth, since generally the Account will have a larger
percentage of its portfolio actively managed than the Stock Account does. Some
may believe that the Global Equities Account can help them keep pace with or
exceed inflation. Although the Account may invest in bonds and money market
instruments, we expect that the percentage of debt securities generally will be
low.
The Global Equities Account is managed by the same people that manage the Stock
Account--TIAA-CREF Investment Management, Inc. They have acquired expertise in
international investment through careful research and cultivating local
contacts. The Account's investment staff are experts in analyzing economic
trends and evaluating corporate performance. They are fully conversant with the
policies and practices of many nations, including their investor demographics
and risk tolerance. There are extra costs to doing business overseas, which are
reflected in the Global Equities Account's expense charges.
B-47
<PAGE>
The Growth Account might be appropriate for people who believe that there are
significant value or growth opportunities in the stock market over the long-term
if one is willing to take some additional risk. People who have a longer time
until retirement, or want to balance a portfolio of more conservative
investments, should consider this Account.
The Equity Index Account might be attractive to Participants who believe that
the U.S. stock market overall will perform as well as or better over time than
active selection of stocks or a combination of U.S. and foreign stocks (like the
Stock or Global Equities Account) with less variability and risk.
The Bond Market Account may be appropriate for Participants who want to
diversify their retirement savings beyond stock and money market instruments,
and for those who think that bonds and other fixed-income securities are a good
investment for the accumulation of retirement savings. It is expected that the
Bond Market Account's total return will be relatively stable when interest rates
are stable and will experience variability when interest rates rise or fall.
The Inflation-Linked Bond Account may be appropriate for Participants who want
their retirement investments to keep pace with inflation and are less concerned
with earning a high real rate of return over and above the rate of inflation.
Anyone who wants to invest conservatively and preserve his or her capital,
perhaps because he or she is close to retirement age or in the pay-out phase of
retirement investing, should consider this Account. During the accumulation
phase, the Account can serve as a useful tool for diversifying assets, since the
performance of the Account's underlying investments most likely will not
directly correlate with movements in stocks and will not highly correlate with
movements in conventional bonds. Inflation-linked bonds may also be an
appropriate complement to a portfolio consisting of both stocks and conventional
bonds in certain economic conditions such as when movements in stocks and
conventional bonds are correlated. Since individual inflation-linked bonds pay a
predictable interest rate over the Consumer Price Index, moreover, they may also
track inflation more directly year by year than investments in real estate.
The Account may also serve as an effective annuity pay-out vehicle, by helping
annuitants preserve the spending power of their income under a variety of
economic conditions. Ideally, this Account should be viewed as another
relatively stable component in a diversified retirement portfolio that includes
both stock and other investments that can help combat the effects of inflation
and provide growth in assets. It should be noted, however, that the price of
inflation-indexed bonds are influenced by competition from other investment
opportunities available at any given time and that inflation-linked bonds would
have underperformed stocks by a wide margin over the last twenty years.
The threat of inflation is of particular concern to retirees who may have
limited sources of income, leaving them particularly vulnerable if the cost of
living rises sharply. For example, a person retiring at the end of 1978 would
have experienced an almost 40% decline in the dollar's purchasing power over the
next three years (based on changes in the Consumer Price Index). Although we
haven't experienced periods of high inflation recently, we could again. And even
low to moderate inflation over long periods will affect the value of one's
accumulation or pay-out amounts.
U.S. Treasury Inflation-Indexed Securities (TIIS) were modeled after
inflation-indexed securities issued by the Canadian Government in 1991. TIIS are
generally more immediately responsive to inflation than most foreign
inflation-linked bonds since typically the indexation lag period is longer
(e.g., eight months) for foreign bonds than it is for TIIS (e.g., three months).
B-48
<PAGE>
Participants who want to invest in an Account with socially conscious investment
criteria could consider the Social Choice Account. This Account could also be
suitable for people who want an Account that is balanced among stocks, bonds and
money market investments, and which might be less volatile than a bond or stock
account alone.
The Money Market Account may be appropriate for Participants who want to keep up
with inflation but are not looking for a high real rate of return (i.e., returns
greater than inflation). The Money Market Account may also help diversify stock
and bond portfolios. Anyone who is averse to market risk, perhaps because he or
she is close to retirement age, should consider this Account.
In its advertisements CREF may use charts to illustrate possible allocations of
investments among the CREF Accounts for Participants in different financial
situations.
EMPLOYER PLANS. Participants should take into account the particular terms of
the retirement plan at their employing institution. Our advertisements and other
sales materials may provide information about these plans.
INDEPENDENT SURVEYS. Customer service may be an important consideration for
Participants. In its advertisements CREF may report the results of surveys
conducted by independent agencies regarding customer service.
MARKET TIMING. Participants should be aware of the risk which arises whenever
Participants engage in market timing. Market timing is an investment technique
whereby amounts are transferred from one category of investment to another based
upon a perception of how each of those categories of investments will perform
relative to the others at a particular time. Participants who engage in market
timing either between CREF Accounts or between an Account and another company
run the risk that they may transfer out of a type of investment with a rising
market value or transfer into a type of investment with a falling market value.
CREF does not endorse the practice of market timing in general or any particular
provider of such services.
TAXES AND ECONOMIC TRENDS. Participants should consider the effects of changes
in federal income tax rates on their investment decisions. Investments with
tax-deferred earnings, or that accept pre-tax contributions, might be more
attractive when tax rates rise. Overall economic trends can also affect an
investment decision; for example, when interest rates are low, Participants may
prefer investments in equities that offer greater growth potential.
ADDITIONAL INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the 1933 Act, with respect to the certificates discussed in
the Prospectus and in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the Prospectus or this Statement of Additional
Information. Statements contained herein concerning the contents of the
certificates and other legal instruments are intended to be summaries. For a
complete statement of the terms of these documents, reference should be made to
the instruments filed with the Commission.
FINANCIAL STATEMENTS
The audited financial statements for the Inflation-Linked Bond Account follow.
The audited financial statements for all of the other CREF accounts are
incorporated by reference from the Annual Reports to Participants. CREF will
furnish you, without charge, another copy of the reports on request. Write to
College Retirement Equities Fund, 730 Third Avenue, New York, N.Y. 10017,
Attention: Central Services, or call 1 800 842-2733, extension 5509.
B-49
<PAGE>
COLLEGE RETIREMENT EQUITIES FUND
INFLATION-LINKED BOND ACCOUNT
INDEX TO AUDITED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
PAGE
Report of Management Responsibility.........................................B-51
Report of Independent Auditors..............................................B-52
AUDITED FINANCIAL STATEMENTS
Statement of Assets and Liabilities.......................................B-53
Statement of Operations...................................................B-54
Statement of Changes in Net Assets........................................B-55
Notes to Financial Statements.............................................B-56
Statement of Investments..................................................B-59
B-50
<PAGE>
REPORT OF MANAGEMENT RESPONSIBILITY
To the Participants of
College Retirement Equities Fund:
The accompanying financial statements of the Inflation-Linked Bond Account of
College Retirement Equities Fund ("CREF") are the responsibility of management.
They have been prepared in accordance with generally accepted accounting
principles and have been presented fairly and objectively in accordance with
such principles.
CREF has established and maintains a strong system of internal controls designed
to provide reasonable assurance that assets are properly safeguarded and
transactions are properly executed in accordance with management's
authorization, and to carry out the ongoing responsibilities of management for
reliable financial statements. In addition, CREF's internal audit personnel
provide a continuing review of the internal controls and operations of the CREF
Accounts and the internal Auditor regularly reports to the Audit Committee of
the CREF Board of Trustees.
The accompanying financial statements have been audited by the independent
auditing firm of Deloitte & Touche LLP. The independent auditors' report, which
appears on the following page, expresses an independent opinion on the fairness
of presentation of these financial statements.
The Audit Committee of the CREF Board of Trustees, consisting of trustees who
are not officers of CREF, meets regularly with management, representatives of
Deloitte & Touche LLP and internal auditing personnel to review matters relating
to financial reporting, internal controls and auditing. In addition to the
annual audit of the financial statements of all CREF Accounts, the New York
State Insurance Department, other state insurance departments and the Securities
and Exchange Commission regularly examine the financial statements of the CREF
Accounts as part of their periodic corporate examinations.
/s/John H. Biggs
----------------------------
Chairman and
Chief Executive Officer
/s/Thomas W. Jones
----------------------------
Vice Chairman, President and
Chief Operating Officer
/s/Richard L. Gibbs
----------------------------
Executive Vice President and
Principal Accounting Officer
B-51
<PAGE>
DELOITTE & TOUCHE LLP
- ---------------------
-------------------------------------------------------
Two World Financial Center Telephone: (212) 436-2000
New York, New York 10281-1414 Facsimile: (212) 436-5000
REPORT OF INDEPENDENT AUDITORS
To the Participants and Board of Trustees of
College Retirement Equities Fund:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of the Inflation-Linked Bond Account of College
Retirement Equities Fund ("CREF") as of February 28, 1997, and the related
statements of operations and changes in net assets for the period January 13,
1997 (date established) to February 28, 1997. These financial statements are the
responsibility of CREF's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at February 28, 1997, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Inflation-Linked Bond Account at
February 28, 1997, the results of its operations and the changes in its net
assets for the above-stated period, in conformity with generally accepted
accounting principles.
/s/Deloitte & Touche LLP
March 28, 1997
B-52
<PAGE>
COLLEGE RETIREMENT EQUITIES FUND
INFLATION-LINKED BOND ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997
ASSETS
Portfolio investments, at cost................................... $50,300,301
Net unrealized appreciation of portfolio investments............. 35,151
-----------
Portfolio investments, at value.................................. 50,335,452
Cash............................................................. 17,490
Dividends and interest receivable................................ 20,999
Receivable from securities transactions.......................... 2,500,000
-----------
TOTAL ASSETS 52,873,941
-----------
LIABILITIES
Payable for securities transactions............................. 2,495,691
-----------
TOTAL LIABILITIES 2,495,691
-----------
NET ASSETS - Accumulation Fund...................................... $50,378,250
===========
NUMBER OF ACCUMULATION UNITS OUTSTANDING-Notes 5 and 6.............. 2,000,000
=========
NET ASSET VALUE, PER ACCUMULATION UNIT-Note 5 ...................... $25.19
======
See notes to financial statements.
B-53
<PAGE>
COLLEGE RETIREMENT EQUITIES FUND
INFLATION-LINKED BOND ACCOUNT
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 13, 1997 (DATE ESTABLISHED) TO FEBRUARY 28, 1997
INVESTMENT INCOME
Income:
Interest........................................................... $332,343
--------
TOTAL INCOME 332,343
--------
Expenses--Note 3:
Investment....................................................... 5,694
--------
TOTAL EXPENSES 5,694
--------
INVESTMENT INCOME--NET 326,649
--------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS--Note 4
Net realized gain on portfolio investments....................... 16,450
Net change in unrealized appreciation on portfolio investments... 35,151
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 51,601
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $378,250
========
See notes to financial statements.
B-54
<PAGE>
COLLEGE RETIREMENT EQUITIES FUND
INFLATION-LINKED BOND ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JANUARY 13, 1997 (DATE ESTABLISHED) TO FEBRUARY 28, 1997
FROM OPERATIONS
Investment income--net............................................ $ 326,649
Net realized gain on investments................................... 16,450
Net change in unrealized appreciation
on total investments............................................. 35,151
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 378,250
-----------
FROM PARTICIPANT TRANSACTIONS
Seed money investment by TIAA--Note 1.............................. 50,000,000
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS 50,000,000
-----------
NET INCREASE IN NET ASSETS 50,378,250
NET ASSETS
Beginning of period................................................ -
-----------
End of period......................................................$50,378,250
===========
See notes to financial statements.
B-55
<PAGE>
COLLEGE RETIREMENT EQUITIES FUND
INFLATION-LINKED BOND ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
College Retirement Equities Fund ("CREF") was formed to aid and strengthen
nonprofit educational and research organizations by providing their employees
with variable retirement benefits.
CREF is registered with the Securities and Exchange Commission ("Commission")
under the Investment Company Act of 1940 as an open-end, diversified management
investment company. It consists of eight investment portfolios. The accompanying
financial statements are those of the Inflation-Linked Bond Account ("Account"),
which will invest primarily in inflation-indexed bonds. The seven other
investment portfolios of CREF, which are not included in these financial
statements, include a Stock Account which invests primarily in equity
securities; a Money Market Account, which invests in money market instruments; a
Bond Market Account, which invests in a broad range of fixed-income securities;
a Social Choice Account, which invests in a diversified portfolio of equity and
fixed-income securities while giving special consideration to certain social
criteria; a Global Equities Account, which invests in equity securities of
foreign and domestic companies; a Growth Account, which invests in a diversified
portfolio of equity securities that present opportunities for growth; and an
Equity Index Account, which invests in a diversified portfolio of equity
securities selected to track the overall United States stock market.
The Account was established on January 13, 1997 with a $50,000,000 investment by
Teachers Insurance and Annuity Association of America ("TIAA"), a companion
organization, which purchased 2,000,000 Accumulation Units at the established
$25.00 initial Accumulation Unit Value. At February 28, 1997, TIAA remained the
sole participant in the Account.
TIAA-CREF Investment Management, Inc. ("Investment Management"), a subsidiary of
TIAA, is registered with the Commission as an investment adviser and provides
investment advisory services for the CREF Accounts pursuant to an Investment
Management Services Agreement with CREF.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consistently
followed by the Account, which are in conformity with generally accepted
accounting principles.
VALUATION OF INVESTMENTS: Securities listed or traded on any United States
national securities exchange are valued at the last sales price as of the close
of the principal securities exchange on which such securities are traded or, if
there is no sale, at the mean of the last bid and asked prices on such exchange.
Securities traded only in the over-the-counter market and quoted in the NASDAQ
National Market System are valued at the last sales price, or at the mean of the
last bid and asked prices if no sale is reported. All other over-the-counter
securities are valued at the mean of the last bid and asked prices, except for
bonds which are valued at the most recent bid price or the equivalent quoted
yield of such bonds. Short-term money market instruments are stated at market
value. Portfolio securities for which market quotations are not readily
available are valued at fair value as determined in good faith under the
direction of the Finance Committee of the Board of Trustees and in accordance
with the responsibilities of the Board as a whole.
B-56
<PAGE>
ACCOUNTING FOR INVESTMENTS: Securities transactions are accounted for as of the
date the securities are purchased or sold (trade date). Interest income is
recorded as earned and, for short-term money market instruments, includes
accrual of discount and amortization of premium. Realized gains and losses on
security transactions are accounted for on the average cost basis.
SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS: The Account may
purchase securities on a when-issued or delayed delivery basis. In addition to
the normal market risks, this exposes the Account to the risk that the
transaction may not be consummated.
FEDERAL INCOME TAXES: CREF is a nonprofit educational organization exempt from
federal income taxation under the Internal Revenue Code ("Code"). Accordingly,
CREF is not a "Regulated Investment Company" under Subchapter M of the Code and
the net investment income and net realized capital gains of CREF's Accounts are
not taxable income to the organization. Any nonpension related income is subject
to federal income taxation as unrelated business income; however, for the period
covered by these financial statements there was no such income.
NOTE 3--MANAGEMENT AGREEMENT
Investment advisory services for the Account are provided, at cost, by
Investment Management. Such services are provided in accordance with an
Investment Management Services Agreement between CREF and Investment Management.
Investment Management receives management fee payments from the Account on a
daily basis according to a formula established with the objective of keeping the
management fees as close as possible to the Account's actual expenses. Any
differences between actual expenses and the management fees are adjusted
quarterly.
NOTE 4--INVESTMENTS
At February 28, 1997, net unrealized appreciation of portfolio investments was
$35,151, consisting of gross unrealized appreciation of $45,147 and gross
unrealized depreciation of $9,996.
Purchases and sales of portfolio securities, other than short-term money market
instruments, for the period January 13, 1997 (date established) to February 28,
1997, were $7,747,118 and $2,516,450, respectively.
B-57
<PAGE>
NOTE 5--CONDENSED FINANCIAL INFORMATION
Selected condensed financial information for an Accumulation Unit of the Account
is presented below.
FOR THE
PERIOD
JANUARY 13, 1997
(DATE ESTABLISHED)
TO
FEBRUARY 28, 1997
-----------------
Per Accumulation Unit Data:
Investment income.............................................. $ 0.166
Expenses....................................................... 0.003
-------
Investment income--net.......................................... 0.163
Net realized and unrealized gain on investments................ 0.026
-------
Net increase in Accumulation Unit Value........................ 0.189
Accumulation Unit Value:
Beginning of period............................................ 25.000
-------
End of period.................................................. $25.189
=======
Total return..................................................... 0.76%
Ratios to Average Net Assets:
Expenses....................................................... 0.01%
Investment income--net.......................................... 0.65%
Portfolio turnover rate.......................................... 50.14%
Thousands of Accumulation Units
outstanding at end of period................................... 2,000
NOTE 6--ACCUMULATION UNITS
Changes in the number of Accumulation Units outstanding were as follows:
FOR THE PERIOD
JANUARY 13, 1997
(DATE ESTABLISHED)
TO
FEBRUARY 28,1997
-----------------
Accumulation Units:
Credited for seed money investment ........................ 2,000,000
Outstanding:
Beginning of period...................................... -
---------
End of period............................................ 2,000,000
=========
B-58
<PAGE>
COLLEGE RETIREMENT EQUITIES FUND
INFLATION-LINKED BOND ACCOUNT
STATEMENT OF INVESTMENTS
FEBRUARY 28, 1997
SUMMARY
-------
VALUE %
---------- ------
BONDS
GOVERNMENT BONDS
U.S. TREASURY SECURITIES $ 5,019,264 9.96%
----------- ------
TOTAL GOVERNMENT BONDS (COST $4,974,118) 5,019,264 9.96
----------- ------
TOTAL BONDS (COST $4,974,118) 5,019,264 9.96
----------- ------
SHORT TERM INVESTMENTS
COMMERCIAL PAPER 37,546,608 74.53
U.S. GOVERNMENTS & AGENCIES 7,769,580 15.42
----------- ------
TOTAL SHORT TERM INVESTMENTS (COST $45,326,183) 45,316,188 89.95
----------- ------
TOTAL PORTFOLIO (COST $50,300,301) 50,335,452 99.91
----------- ------
OTHER ASSETS & LIABILITIES, NET 42,798 0.09
----------- ------
NET ASSETS $50,378,250 100.00%
=========== ======
B-59
<PAGE>
COLLEGE RETIREMENT EQUITIES FUND
INFLATION-LINKED BOND ACCOUNT
STATEMENT OF INVESTMENTS
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR MATURITY
VALUE RATE DATE VALUE
- ----- ---- -------- -----
<C> <C> <C> <C>
GOVERNMENT BONDS - 9.96%
U.S. TREASURY SECURITIES - 9.96%
$5,005,200 U.S. TREASURY INFLATION INDEXED SECURITY 3.375 01/15/07 $ 5,019,264
-----------
TOTAL GOVERNMENT BONDS (COST $4,974,118) 5,019,264
-----------
TOTAL BONDS (COST $4,974,118) 5,019,264
-----------
SHORT TERM INVESTMENTS - 89.95%
COMMERCIAL PAPER - 74.53%
2,500,000 AIRTOUCH COMMUNICATIONS, INC. 5.420 03/06/97 2,497,704
2,050,000 ARIZONA PUBLIC SERVICE CO 5.370 03/07/97 2,047,803
2,500,000 ASSET SECURITIZATION COOPERATIVE CORP 5.330 04/14/97 2,482,968
2,500,000 BARCLAYS U.S. FUNDING CORP 5.320 03/10/97 2,496,215
2,000,000 GENERAL MOTORS ACCEPTANCE CORP 5.270 03/31/97 1,990,613
2,500,000 GENERAL SIGNAL CORP 5.320 03/12/97 2,495,400
1,130,000 GTE CORP 5.280 03/19/97 1,126,719
2,500,000 IBM CREDIT CORP 5.310 03/31/97 2,488,267
2,500,000 MORGAN & CO (J.P.) 5.210 03/14/97 2,494,701
2,500,000 LOCKHEED MARTIN CORP 5.470 04/02/97 2,487,281
2,500,000 MORGAN STANLEY GROUP, INC. 5.340 04/15/97 2,482,526
2,500,000 NATIONSBANK CORP 5.310 03/04/97 2,498,510
2,500,000 PUBLIC SERVICE CO OF COLORADO 5.380 03/14/97 2,494,584
2,500,000 SEARS ROEBUCK ACCEPTANCE CORP 5.280 04/29/97 2,477,208
2,500,000 TEXTRON, INC 5.430 03/11/97 2,495,745
2,500,000 UNION OIL CO OF CALIFORNIA 5.430 03/25/97 2,490,364
-----------
37,546,608
===========
7,800,000 U.S. GOVERNMENTS & AGENCIES - 15.42%
FEDERAL HOME LOAN MORTGAGE CORP 5.260 03/27/97 7,769,580
-----------
TOTAL SHORT TERM INVESTMENTS (COST $45,326,183) 45,316,188
-----------
TOTAL PORTFOLIO (COST $50,300,301) $50,335,452
-----------
</TABLE>
B-60
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
PART C - OTHER INFORMATION
Item 28. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
The following Financial Statements for the Stock Account of the College
Retirement Equities Fund ("CREF") are incorporated into Part B of this
Registration Statement by reference from pages 2 through 49 of the Annual Report
to Participants in the Stock Account dated December 31, 1996, as filed with the
Commission pursuant to Rule 30b2-1 under the Investment Company Act of 1940 on
February 27, 1997 (Accession No. 0000930413-97-000095):
Page
Report of Management Reponsibility............................................2
Report of Independent Auditors................................................3
Audited Financial Statements:
Statement of Assets and Liabilities..................................4
Statement of Operations..............................................5
Statement of Changes in Net Assets...................................6
Notes to Financial Statements........................................7
Statement of Investments............................................12
The following Financial Statements for the Money Market, Bond Market,
Social Choice, Global Equities, Growth, and Equity Index Accounts of CREF are
incorporated into Part B of this Registration Statement by reference from pages
2 through 64 of the Annual Report to Participants in the Money Market, Bond
Market, Social Choice, Global Equities, Growth, and Equity Index Accounts dated
December 31, 1996, as filed with the Commission pursuant to Rule 30b2-1 under
the Investment Company Act of 1940 on February 27, 1997 (Accession No.
0000930413-97-000095):
Page
Report of Management Responsibility...........................................2
Report of Independent Auditors............................................... 3
C-1
<PAGE>
Audited Financial Statements:
Statements of Assets and Liabilities.................................4
Statements of Operations.............................................5
Statements of Changes in Net Assets..................................6
Notes to Financial Statements........................................8
Statements of Investments--
Money Market Account.......................................15
Bond Market Account........................................18
Social Choice Account......................................22
Global Equities Account....................................29
Growth Account.............................................44
Equity Index Account.......................................56
The following Financial Statements for the Inflation-Linked Bond Account of CREF
are incorporated into Part B of this Registration Statement:
Report of Management Responsibility .............................B-51
Report of Independent Auditors ..................................B-52
Audited Financial Statements
Statement of Assets and Liabilities ....................B-53
Statement of Operations.................................B-54
Statement of Changes in Net Assets......................B-55
Notes to Financial Statements ...................................B-56
Statement of Investments ........................................B-59
(b) EXHIBITS
(1) Not Applicable
(2) (a) Charter of CREF (as amended) 7
(b) Constitution of CREF (as amended) 7
(c) Bylaws of CREF (as amended) 8
(3) (a) Custodial Services Agreement with
The Chase Manhattan Bank, N.A. 2
(b) Custodian Services Agreement with
Bankers Trust Company (as amended) 7
(c) Indenture Agreement Between CREF and
Canada Permanent Trust Company 2
(d) Custodial Services Agreement
Between CREF and Morgan Guaranty Trust
Company (as assigned to Bank of New
York) 2
(e) Custodial Services Agreement
Between CREF and Morgan Guaranty Trust
Company (as assigned to Bank of New
York) (Bond Market Account) 1
(f) Custodial Services Agreement
Between CREF and Morgan Guaranty Trust
Company (as assigned to Bank of New
York) (Social Choice Account) 7
(g) Custodial Services Agreement Between
CREF and Bank of New York (Inflation-
C-2
<PAGE>
Linked Bond Account) 8
(4) Not applicable
(5) Principal Underwriting and Administrative
Services Agreement Between CREF and TIAA-CREF
Individual & Institutional Services, Inc. (as
amended) *
(6) (a) Retirement Unit-Annuity Certificate 1
(b) Supplemental Retirement Unit-Annuity
Certificate 1
(c) (i) Group Supplemental Retirement Unit-
Annuity Contract 6
(ii) Group Supplemental Retirement Unit-
Annuity Certificate 6
(d) (i) Group Retirement Annuity Contract
(including Specimen of Group
Retirement Unit-Annuity Certificate
and Agreement with Trustee) 4
(ii) Form of Election Agreement between
CREF and Employer (for Group
Retirement Annuity Contract) 4
(iii) Group Retirement Unit-Annuity
Contract (for use in Oregon) 6
(iv) Group Retirement Unit-Annuity
Certificate (for use in Oregon) 6
(e) Rollover Individual Retirement Unit-
Annuity Certificate 5
(f) The Following Certificates representing
CREF Income Options:
(i) Life Unit-Annuity 1
(ii) Life Unit-Annuity with Minimum
Guaranteed Period 1
(iii) Last Survivor Life Unit-Annuity 1
(iv) Joint and Survivor Life Unit-
Annuity 1
(v) Last Survivor Life Unit-Annuity
with Minimum Guaranteed Period 1
(vi) Joint and Survivor Life Unit-
Annuity with Minimum Guaranteed
Period 1
(vii) Unit-Annuity Certain 1
(viii) Minimum Distribution Option 5
(g) Accumulation-Unit Deposit Certificate
(payable as a death benefit only) 1
(h) (i) Endorsement to in-force
Supplemental Retirement Unit-
Annuity Certificates (reflecting
addition of Global Equities Account
and IRC Withdrawal Restrictions) 3
(ii) Endorsement to in-force
C-3
<PAGE>
Supplemental Retirement Unit-
Annuity Certificates (reflecting
addition of Minimum Distribution
Annuity) 6
(iii) Endorsement to new issues of the
Supplemental Retirement Unit-
Annuity Certificate (reflecting
addition of Money Market, Bond
Market, Social Choice, and Global
Equities Accounts, Deletion of a
CREF Account or Unit-Annuity,
transfers to CREF or TIAA, addition
of Minimum Distribution Annuity,
addition of Spouse's Rights to
Benefits, and IRC Withdrawal
Restrictions) 6
(i) (i) Endorsement to in-force Retirement
Unit-Annuity Certificates
(reflecting addition of Global
Equities Account and IRC Withdrawal
Restrictions) 3
(ii) Endorsement to in-force Retirement
Unit-Annuity Certificates
(reflecting addition of Minimum
Distribution Annuity and
availability of Unit-Annuity for a
Fixed Period) 6
(iii) Endorsement to new issues of the
Retirement Unit-Annuity Certificate
(reflecting addition of Money
Market, Bond Market, Social Choice
and Global Equities Accounts,
deletion of CREF Account or Unit-
Annuity, availability of transfers
to Approved Funding Vehicles, Cash
Withdrawals, availability of Unit-
Annuity for a Fixed Period, Right
to Split Certificate, addition of
Minimum Distribution Annuity,
addition of Spouse's Rights to
Benefits, and IRC Withdrawal
Restrictions) 6
(j) (i) Endorsement to in-force Group
Supplemental Retirement Unit-
Annuity Certificates (reflecting
addition of the Global Equities
Account) 3
(ii) Endorsement to in-force and some
new issues of the Group
Supplemental Retirement Unit-
C-4
<PAGE>
Annuity Certificate (reflecting
addition of Minimum Distribution
Annuity) 6
(iii) Endorsement to new issues of the
Group Supplemental Retirement Unit-
Annuity Certificate (reflecting
addition of the Global Equities
Account, and deletion of a CREF
Account or Unit-Annuity and
addition of the Minimum
Distribution Annuity) 6
(iv) Endorsement to Group
Supplemental Retirement
Unit-Annuity certificates
for 401(k) retirement plans
(reflecting annuity
starting date, availability
of lump-sum benefits and
IRC Withdrawal
Restrictions) 6
(k) (i) Endorsement to in-force Group
Retirement Unit-Annuity
Certificates Issued on or
After 3/1/91 (reflecting
addition of the Global
Equities Account) 3
(ii) Endorsement to in-force Group
Retirement Unit-Annuity
Certificates Issued Before 3/1/91
(reflecting addition of the Global
Equities Account and IRC Withdrawal
Restrictions) 6
(iii) Endorsement to in-force
Group Retirement
Unit-Annuity Certificate
(reflecting addition of
Minimum Distribution
Annuity and availability of
Annuity for a Fixed Period) 6
(iv) Endorsement to in-force
Group Retirement
Unit-Annuity Certificate
(reflecting addition of
Minimum Distribution
Annuity, availability of
Annuity for a Fixed Period
and IRC Withdrawal
Restrictions) 6
(l) Endorsement to new issues of Retirement
Unit-Annuity Certificates and
Supplemental Retirement Unit-Annuity
Certificates (reflecting restatement of
accumulation unit value on 12/21/86 and
inclusion of net dividend income in
value of accumulation unit beginning
1/1/87) 6
(m) Endorsement to new and in-force issues
C-5
<PAGE>
of CREF Retirement Unit-Annuity
Certificates, Supplemental
Retirement Unit-Annuity
Certificates, Group Retirement
Unit-Annuity Certificates, Group
Supplemental Retirement Unit-
Annuity Certificates, Rollover IRA
Certificates, Minimum Distribution
Annuity Certificates and
Accumulation- Unit Deposit
Certificates (reflecting addition of
the Growth Account and the Equity
Index Account) 7
(n) Endorsement to Group Retirement Unit-
Annuity Certificates (reflecting
addition of Social Choice Account payout
option) 4
(o) Endorsement to CREF Certificates
(reflecting yearly transfer to Minimum
Distribution Annuity Certificate) 5
(p) Endorsement to CREF Certificates
(reflecting allocation and transfer
options, CREF's right to split
certificate, and CREF's right to
delete Bond Market or Social Choice
Account or to stop providing
Unit-Annuities thereunder) 5
(q) (i) Endorsement to in-force Minimum
Distribution Annuity Certificates
(non-cashable) (reflecting addition
of the Global Equities Account) 3
(ii) Endorsement to new issues of the
Minimum Distribution Annuity
Certificate (non-cashable)
(reflecting addition of the Global
Equities Account, definition of
Annuity Unit, and deletion of a
CREF account or Unit-Annuity) 3
(r) (i) Endorsement to in-force Minimum
Distribution Annuity Certificates
(cashable) (reflecting addition of
the Global Equities Account) 3
(ii) Endorsement of new issues of
Minimum Distribution Annuity
Certificates (cashable)(reflecting
addition of the Global Equities
Account, definition of Annuity
Unit, and deletion of a CREF
Account or Unit-Annuity) 3
(s) Endorsement to new issues of Unit-
Annuity Certificates (reflecting
addition of the Global Equities Account
C-6
<PAGE>
and deletion of a Unity-Annuity) 3
(t) (i) Endorsement to Retirement Unit-
Annuity Certificate (reflecting
addition of the Inflation-Linked
Bond Account and Right to a Tax-
Free Rollover) 8
(ii) Endorsement to Supplemental
Retirement Unit-Annuity Certificate
(reflecting addition of the
Inflation-Linked Bond Account and
Right to a Tax-Free Rollover) 8
(iii) Endorsement to Rollover Individual
Retirement Unit-Annuity Certificate
(reflecting addition of the
Inflation-Linked Bond Account and
Right to a Tax-Free Rollover) 8
(iv) Endorsement to Group Retirement
Unit-Annuity Certificate
(reflecting addition of the
Inflation-Linked Bond Account and
Right to a Tax-Free Rollover) 8
(v) Endorsement to Group Supplemental
Retirement Unit-Annuity Certificate
(reflecting addition of the
Inflation-Linked Bond Account and
Right to a Tax-Free Rollover) 8
(vi) Endorsement to Minimum Distribution
Annuity Certificate (reflecting
addition of the Inflation-Linked
Bond Account) 8
(vii) Endorsement to CREF Unit-Annuity
Certificates (reflecting addition
of the Inflation-Linked Bond
Account) 8
(viii) Endorsement to CREF Accumulation-
Unit Deposit Certificate
(reflecting addition of the
Inflation-Linked Bond Account) 8
(ix) Endorsement to Group Supplemental
Retirement Annuity Certificate (for
participants in the Alternative
Plan to Social Security) 8
(7) (a) (i) Application for Retirement Unit-
Annuity Contracts 3
(ii) Application for Retirement Unit-
Annuity Contracts (for retirement
plans not covered by ERISA) 3
(b) (i) Application for Supplemental
Retirement Annuity Contracts 3
(ii) Application for Supplemental
C-7
<PAGE>
Retirement Annuity Contracts (for
retirement plans not covered by
ERISA) 3
(c) (i) Application for Institutionally
Owned Retirement Annuity
Contracts 1
(ii) Applications for Institutionally
Owned Retirement Annuity Contracts
with Delayed Vesting 6
(iii) Application for Institutionally
Owned Retirement Annuity Contracts
with Delayed Vesting (for
retirement plans not covered by
ERISA) 6
(iv) Application for Group Retirement
Unit-Annuity Contract in Oregon 6
(d) (i) Enrollment Form for Group
Retirement Annuity Certificates 3
(ii) Enrollment Form for Group
Retirement Annuity Certificates
(for retirement plans not covered
by ERISA) 3
(e) Application for Rollover Individual
Retirement Annuity Contracts 3
(f) Application for Retirement Annuity
Contracts Under a Registered Pension
Plan (RPP) 3
(ii) Application for Retirement Annuity
Contracts under a Registered
Retirement Savings Plan (RRSP) in
Canada 3
(g) Applications for Annuity Benefits 1
(h) (i) Enrollment Form for Group
Supplemental Retirement Annuity
Certificates 3
(ii) Enrollment Form for Group
Supplemental Retirement Annuity
Certificates (for retirement plans
not covered by ERISA) 3
(i) (i) Enrollment Form for Institutionally
Owned Group Retirement Annuity
Certificates with Delayed Vesting 3
(ii) Enrollment Form for
Institutionally Owned Group
Retirement Annuity
Certificates with Delayed
Vesting (for retirement
plans not covered by ERISA) 3
(j) (i) Enrollment Form for Two Sets of
Group Retirement Annuity
Certificates -- One Set Providing
C-8
<PAGE>
for Delayed Vesting 3
(ii) Enrollment Form for Two Sets of
Group Retirement Annuity
Certificates -- One Set
Providing for Delayed
Vesting (for retirement
plans not covered by ERISA)
3
(k) (i) Enrollment Form for Two Sets of
Group Retirement Annuity
Certificates 3
(ii) Enrollment Form for Two Sets of
Group Retirement Annuity
Certificates (for retirement plans
not covered by ERISA) 3
(8) Not Applicable
(9) None
(10) (a) CREF Deferred Compensation Plan for Non-
Officer Trustees 1
(b) TIAA-CREF Non-Employee Trustee and
Member Deferred Compensation Plan 2
(11) Investment Management Services Agreement
Between CREF and TIAA-CREF Investment
Management, Inc. (as amended) *
(12) (a) Consent of Charles H. Stamm, Esquire *
(b) Consent of Sutherland, Asbill &
Brennan, L.L.P. *
(13) Consent of Deloitte & Touche LLP *
(14) None
(15) (a) Contribution Agreement between CREF and
TIAA (for Money Market Account) 1
(b) Seed Money Agreement between CREF and
TIAA (for Global Equities Account) 2
(c) Seed Money Agreement between CREF and
TIAA (for Equity Index and Growth
Accounts) 6
(d) Seed Money Agreement between CREF and
TIAA (for Inflation-Linked Bond
Account) 8
(16) Schedules for Computation of Performance
Quotations *
(17) Financial Data Schedules *
- -----------------------------------------
* Filed herewith.
1 Previously filed in Post-Effective Amendment No. 10 To Form
N-3 dated August 23, 1991 (File No. 33-480) and incorporated
C-9
<PAGE>
herein by reference.
2 Previously filed in Post-Effective Amendment No. 13 to Form
N-3 dated April 23, 1992 (File No. 33-480) and incorporated
herein by reference.
3 Previously filed in Post-Effective Amendment No. 16 to Form
N-3 dated March 19, 1993 (File No. 33-480) and incorporated
herein by reference.
4 Previously filed in Post-Effective Amendment No. 10 to Form
N-3 dated August 23, 1991 (File No. 33-20480) and
incorporated herein by reference.
5 Previously filed in Post-Effective Amendment No. 11 to Form
N-3 dated January 31, 1992 (File No. 33-480) and
incorporated herein by reference.
6 Previously filed in Post-Effective Amendment No. 19 to Form
N-3 dated April 18, 1994 (File No. 33-480) and incorporated
herein by reference.
7 Previously filed in Post-Effective Amendment No. 22 to Form
N-3 dated March 10, 1995 (File No. 33-480) and incorporated
herein by reference.
8 Previously filed in Post-Effective Amendment No. 26 to Form
N-3 dated February 11, 1997 (File No. 33-480) and
incorporated herein by reference.
Item 29. DIRECTORS AND OFFICERS OF THE INSURANCE COMPANY
Not Applicable.
Item 30. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
INSURANCE COMPANY OR REGISTRANT
Not Applicable.
Item 31. NUMBER OF CONTRACTOWNERS
As noted above, CREF is a membership corporation, consisting
of seven members (known as CREF's Board of Overseers). As of December 31, 1996,
there were approximately 1,615,230 individuals and institutions holding CREF
certificates, including approximately 146,115 individuals receiving annuity
benefits.
Item 32. INDEMNIFICATION
Overseers, trustees, officers and employees of CREF may be
indemnified against liabilities and expenses incurred in such
C-10
<PAGE>
capacity pursuant to Article Five of CREF's bylaws (see Exhibit (2)(b)). Article
Five provides that, to the extent permitted by laws, CREF will indemnify any
person made or threatened to be made a party to any action, suit or proceeding
by reason of the fact that such person is or was an overseer, trustee, officer
or employee of CREF or, while an overseer, trustee, officer or employee of CREF,
served any other organization in any capacity at CREF's request. Article Five
also provides, however, that no person shall be indemnified for any liabilities
or expenses arising by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of
office. In addition, it provides that no person shall be indemnified unless such
person acted in good faith and in the reasonable belief that such action was in
the best interests of CREF and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe the conduct was
unlawful. Article Five provides reasonable and fair means for determining
whether any person is entitled to indemnification. If certain conditions are
met, CREF may pay liabilities or expenses in advance of the final disposition of
the action, suit or proceeding. No indemnification payment may be made unless a
notice concerning the payment has been filed with the New York State
Superintendent of Insurance. CREF has in effect an insurance policy that will
indemnify its overseers, trustees, officers and employees for liabilities
arising from certain forms of conduct.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to overseers, trustees, and officers of
CREF, pursuant to the foregoing provision or otherwise, CREF has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in that Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment of expenses incurred or paid by an
overseer, trustee, or officer in the successful defense of any action, suit or
proceeding) is asserted by an overseer, trustee, or officer in connection with
the securities being registered, CREF 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 that Act and will be governed by the final
adjudication of such issue.
Item 33. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Investment advisory services for CREF's investment accounts
are provided by TIAA-CREF Investment Management, Inc. ("Investment Management").
In this connection, Investment Management is registered as an investment adviser
under the
C-11
<PAGE>
Investment Advisers Act of 1940.
The business and other connections of Investment Management's
officers are listed in Schedules A and D of Form ADV as currently on file with
the Commission (File No. 801-38029), the text of which is hereby incorporated by
reference.
Item 34. PRINCIPAL UNDERWRITER
(a) Not Applicable.
(b) TIAA-CREF Individual & Institutional Services,
Inc. ("Services") may be considered the principal underwriter for
the CREF Accounts. The officers of Services and their positions
and offices with Services and the Registrant are listed in
Schedule A of Form BD as currently on file with the Commission
(File No. 8-44454), text of which is hereby incorporated by
reference.
Item 35. LOCATION OF 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 CREF's home office, 730 Third Avenue, New York, New York
10017, and at other CREF offices located at 750 Third Avenue and 485 Lexington
Avenue, both in New York, New York 10017. In addition, certain duplicated
records are maintained at Pierce Leahy Archives, 64 Leone Lane, Chester, New
York 10918.
Item 36. MANAGEMENT SERVICES
Not Applicable.
Item 37. UNDERTAKING
(a) CREF undertakes that it will file a post-effective
amendment to this Registration Statement as frequently as is necessary to ensure
that the audited financial statements in the Registration Statement are never
more than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) CREF undertakes that it will include either (1) as part of
any application to purchase a contract offered by the Prospectus, a space that
an applicant can check to request a Statement of Additional Information, or (2)
a postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
C-12
<PAGE>
(c) CREF undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
Form N-3 promptly upon written or oral request.
REPRESENTATION UNDER RULE 6C-7
The undersigned registrant hereby represents that Rule 6c-7
under the Investment Company Act of 1940 is being relied on and that the
provisions of paragraphs (a)-(d) of Rule 6c-7 are being complied with.
Representation Concerning
NO-ACTION LETTER ISSUED TO ACLI
CREF represents that the No-Action Letter issued by the Staff
of the Division of Investment Management on November 28, 1988 to the American
Council of Life Insurance is being relied upon, and that the requirements for
entities relying on that no- action position, itemized (1) through (4) in that
Letter have been complied with.
C-13
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment
Company Act of 1940, College Retirement Equities Fund certifies that it meets
the requirements of Securities Act Rule 485(b) for effectiveness of this
Registration Statement and has caused this Registration Statement to be signed
on its behalf, in the City of New York and State of New York on the 14th day of
April, 1997.
COLLEGE RETIREMENT EQUITIES FUND
By:/S/ PETER C. CLAPMAN
-----------------------------
Peter C. Clapman
Senior Vice President and
Chief Counsel, Investments
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/S/ JOHN H. BIGGS 4/14/97
- --------------------- Chairman of the Board
John H. Biggs and Chief Executive Officer
(Principal Executive Officer)
/S/ THOMAS W. JONES 4/14/97
- --------------------- Vice Chairman, President,
Thomas W. Jones Chief Operating Officer, and
Trustee (Principal Financial
Officer)
/S/ MARTIN L. LEIBOWITZ 4/14/97
- --------------------- Vice Chairman, Chief Investment
Martin L. Leibowitz Officer, and Trustee (Principal
Investment Officer)
/S/ RICHARD L. GIBBS
- --------------------- Executive Vice President 4/14/97
Richard L. Gibbs (Principal Accounting Officer)
<PAGE>
SIGNATURE OF TRUSTEE DATE SIGNATURE OF TRUSTEE DATE
/S/ ROBERT H. ATWELL 4/14/97 /S/ BEVIS LONGSTRETH 4/14/97
- --------------------------------------------------------------------------------
Robert H. Atwell Bevis Longstreth
/S/ ELIZABETH E. BAILEY 4/14/97 /S/ ROBERT M. LOVELL, JR. 4/14/97
- --------------------------------------------------------------------------------
Elizabeth E. Bailey Robert M. Lovell, Jr.
/S/ GARY P. BRINSON 4/14/97 /S/ STEPHEN A. ROSS 4/14/97
- --------------------------------------------------------------------------------
Gary P. Brinson Stephen A. Ross
/S/ JOYCE A. FECSKE 4/14/97 /S/ EUGENE C. SIT 4/14/97
- --------------------------------------------------------------------------------
Joyce A. Fecske Eugene C. Sit
/S/ EDES P. GILBERT 4/14/97 /S/ MACEO K. SLOAN 4/14/97
- --------------------------------------------------------------------------------
Edes P. Gilbert Maceo K. Sloan
/S/ STUART TSE KONG HO 4/14/97
- --------------------------------------------------------------------------------
Stuart Tse Kong Ho Harry K. Spindler
/S/ DAVID K. STORRS 4/14/97
- --------------------------------------------------------------------------------
Nancy L. Jacob David K. Storrs
- --------------------------------------------------------------------------------
Marjorie Fine Knowles Robert W. Vishny
- --------------------------------------------------------------------------------
Jay O. Light
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NO.
- ------ ---------------------- -----
5 Principal Underwriting and Administrative Services Agreement
(as amended)
11 Investment Management Services Agreement (as amended)
12(a) Consent of Charles H. Stamm, Esquire
12(b) Consent of Sutherland, Asbill & Brennan, L.L.P.
13 Consent of Deloitte & Touche LLP
16 Schedules for Computation of Performance Quotations
17 Financial Data Schedules
AMENDMENT TO THE PRINCIPAL UNDERWRITING AND
ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to Paragraph 11 of the Principal Underwriting and Administrative
Services Agreement (the "Agreement") by and between TIAA- CREF Individual &
Institutional Services, Inc. ("Services") and the College Retirement Equities
Fund ("CREF"), dated December 17, 1991, as thereafter amended, and pursuant to
resolution of a majority of the Trustees of CREF, including a majority of
Trustees who are not parties to the Agreement or "interested persons" (as that
term is defined in the Investment Company Act of 1940) of any such party to the
Agreement and have no direct or indirect financial interest in the operation of
CREF's distribution financing arrangement ("Plan") or in any agreements related
to the Plan, the parties to the Agreement mutually agree that the Agreement
shall be amended as set forth below, and approve the Agreement as so amended
effective upon execution of this amendment by each party to the Agreement.
1. The second "Whereas" clause of the Agreement is amended to read as
follows:
WHEREAS, CREF is registered as an open-end management investment company
under the Investment Company Act of 1940 ("1940 Act"), and currently consists of
eight investment portfolios (the "Accounts"): the Stock Account, the Money
Market Account, the Bond Market Account, the Social Choice Account, the Global
Equities Account, the Equity Index Account, the Growth Account and the
Inflation-Linked Bond Account, and may consist of additional investment
portfolios in the future.
IN WITNESS WHEREOF, CREF and Services have caused this Amendment to the
Agreement to be executed in their names and on their behalf and under their
trust and corporate seals as of this 15th day of April, 1997 by and through
their duly authorized officers effective as provided above.
(SEAL) COLLEGE RETIREMENT EQUITIES FUND
ATTEST:
STEWART P. GREENE By:/S/ PETER C. CLAPMAN
- -------------------------------- ---------------------------------------
Title: Senior Vice President
and Chief Counsel,
Investments
(SEAL) TIAA-CREF INDIVIDUAL &
ATTEST: INSTITUTIONAL SERVICES, INC.
STEWART P. GREENE By:/S/ LISA SNOW
- ------------------------------- ---------------------------------------
Title: Secretary
AMENDMENT TO THE INVESTMENT MANAGEMENT
SERVICES AGREEMENT
Pursuant to Paragraph 11 of the Investment Management Services Agreement
(the "Agreement") by and between TIAA-CREF Investment Management, Inc.
("Management") and the College Retirement Equities Fund ("CREF"), dated December
17, 1991, as thereafter amended, and pursuant to resolution of a majority of the
Trustees of CREF, including a majority of Trustees who are not certain parties
to the Agreement or "interested persons" (as that term is defined in the
Investment Company Act of 1940) of any such party to the Agreement, the parties
to the Agreement mutually agree that the Agreement shall be amended as set forth
below:
1. The second "Whereas" clause of the Agreement is amended to read as
follows:
WHEREAS, CREF is registered as an open-end management investment company
under the Investment Company Act of 1940 ("1940 Act"), and currently consists of
eight investment portfolios (the "Accounts"): the Stock Account, the Money
Market Account, the Bond Market Account, the Social Choice Account, the Global
Equities Account, the Equity Index Account, the Growth Account and the
Inflation-Linked Bond Account, and may consist of additional investment
portfolios in the future; and
2. Paragraph 7 of the Agreement is amended to read as follows:
7. REIMBURSEMENT
For the services to be rendered and the expenses assumed by Management as
provided herein, CREF shall reimburse Management for the cost of such services
and the amount of such expenses through daily payments (as described below)
based on an annual rate agreed upon from time to time between CREF and
Management reflecting estimates of the cost of such services and expenses with
the objective of keeping the payments as close as possible to actual expenses.
As soon as is practicable after the end of each quarter (usually within 30
days), the amount necessary to correct any differences between the payments and
the expenses actually incurred will be determined. This amount will be paid by
or credited to Management, as the case may be, in equal daily installments over
the remaining days in the quarter.
<PAGE>
For the services rendered and expenses incurred by Management as provided
herein, the amount currently payable from the net assets of each Account each
Valuation Day for each Calendar Day of the Valuation Period ending on that
Valuation Day will be as follows:
Stock Account:
.0005479% (corresponding to an annual rate of 0.08%
of its average daily net assets)
Money Market Account:
.0001644% (corresponding to an annual rate of 0.06%
of its average daily net assets)
Bond Market Account:
.0001644% (corresponding to an annual rate of 0.06%
of its average daily net assets)
Social Choice Account:
.0001918% (corresponding to an annual rate of 0.07%
of its average daily net assets)
Global Equities Account:
.0004110% (corresponding to an annual rate of 0.15%
of its average daily net assets)
Growth Account:
.0003562% (corresponding to an annual rate of 0.13%
of its average daily net assets)
Equity Index Account:
.0001918% (corresponding to an annual rate of 0.07%
of its average daily net assets)
Inflation-Linked Bond Account:
.0002192% (corresponding to an annual rate of 0.08%
of its average daily net assets)
For purposes of this Agreement, "Valuation Day," "Calendar Day," and
"Valuation Period" shall be defined as specified in CREF's current Registration
Statement.
2
<PAGE>
IN WITNESS WHEREOF, CREF and Management have caused this Agreement to be
executed in their names and on their behalf and under their trust and corporate
seals as of this 15th day of April, 1997 by and through their duly authorized
officers.
COLLEGE RETIREMENT EQUITIES FUND
ATTEST:
STEWART P. GREENE By: /S/ PETER C. CLAPMAN
- ---------------------------------- --------------------------------------
Title: Senior Vice President
and Chief Counsel,
Investments
TIAA-CREF INVESTMENT MANAGEMENT, INC.
ATTEST:
STEWART P. GREENE By: /S/ LISA SNOW
- ---------------------------------- --------------------------------------
Title: Assistant Secretary
3
CONSENT OF CHARLES H. STAMM
College Retirement Charles H. Stamm
Equities Fund Executive Vice President
730 Third Avenue and General Counsel
New York, New York 10017-3206 (212) 916-4700
April 14, 1997
College Retirement Equities Fund
730 Third Avenue
New York, New York 10017
Gentlemen:
I hereby consent to the reference to my name under the heading "Legal
Matters" in the Statement of Additional Information filed by the College
Retirement Equities Fund ("CREF") as part of Post- Effective Amendment No. 27 to
the Registration Statement (File Nos. 33-480 and 811-4415) on Form N-3 under the
Securities Act of 1933 for certain individual, group, and tax-deferred variable
annuity certificates offered and funded by CREF.
Sincerely,
/S/ CHARLES H. STAMM
----------------------
Charles H. Stamm
Executive Vice President
and General Counsel
CONSENT OF SUTHERLAND, ASBILL & BRENNAN, L.L.P.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
Tel: (202) 383-0100 Steven B. Boehm
Fax: (202) 637-3593 Direct Line: (202) 383-0176
April 14, 1997
College Retirement Equities Fund
730 Third Avenue
New York, New York 10017-3206
Re: Registration of Individual, Group and Tax-
Deferred Variable Annuity Certificates
(REGISTRATION NOS. 33-480 AND 811-4415)
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as a part of
Post-Effective Amendment No. 27 to the above captioned registration statement on
Form N-3. In giving this consent, we do not admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By:/S/ STEVEN B. BOEHM
-------------------------------------
Steven B. Boehm
CONSENT OF DELOITTE & TOUCHE
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 27 to Registration
Statement No. 33-480 and Amendment No. 33 to Registration Statement No. 811-4415
of College Retirement Equities Fund ("CREF") on Form N-3 of our reports dated
February 6, 1997 on the financial statements of the Stock, Money Market, Bond
Market, Social Choice, Global Equities, Growth and Equity Index Accounts of CREF
incorporated by reference in the Statement of Additional Information, which is a
part of this Registration Statement.
We also consent to the use in such Amendments to such Registration Statements of
our report dated March 28, 1997 on the financial statements of the
Inflation-Linked Bond Account of CREF included in the Statement of Additional
Information.
We also consent to the reference to us under the heading "Experts" in such
Statement of Additional Information.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
April 18, 1997
<TABLE>
<CAPTION>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
TOTAL RETURN INFORMATION FOR THE CREF STOCK ACCOUNT
JANUARY 1, 1996 JANUARY 1, 1992 JANUARY 1, 1987
TO TO TO
DECEMBER 31, 1996 DECEMBER 31,1996 DECEMBER 31, 1996
----------------- ---------------- -----------------
<S> <C> <C> <C>
Hypothetical initial
payment of $1,000 (P) $1,000 $1,000 $1,000
Accumulation unit value:
At start of period (A) $91.4603 $57.7715 $29.7514
At end of period (B) $109.2232 $109.2232 $109.2232
Ending value of
hypothetical investment
(Ev) = P x (B/A) $1,194.21 $1,890.61 $3,671.20
Cumulative rate of total
return = {(EV/P) - 1} x 100 19.42% 89.06% 267.12%
Number of years
in period (n) 1 5 10
Net change factor (1 + T)
= EV/P 1.1942 1.8906 3.6712
Average annual compound
rate of total return (T) 19.42% 13.58% 13.89%
</TABLE>
<PAGE>
TOTAL RETURN INFORMATION FOR THE CREF GLOBAL EQUITIES ACCOUNT
<TABLE>
<CAPTION>
JANUARY 1, 1996 56 MONTHS (FROM MAY 1, 1992
TO COMMENCEMENT OF OPERATIONS
DECEMBER 31, 1996 TO DECEMBER 31, 1996)
----------------- ---------------------------
<S> <C> <C>
Hypothetical initial
payment of $1,000 (P) $1,000 $1,000
Accumulation unit value:
At start of period (A) $42.9576 $25.8725
At end of period (B) $50.6797 $50.6797
Ending value of
hypothetical investment
(Ev) = P x (B/A) $1,179.76 $1,958.83
Cumulative rate of total
return = {(EV/P) - 1} x 100 17.98% 95.88%
Number of years
in period (n) 1 4.67
Net change factor (1 + T)
= EV/P 1.1798 1.9588
Average annual compound
rate of total return (T) 17.98% 15.50%
</TABLE>
2
<PAGE>
TOTAL RETURN INFORMATION FOR THE CREF GROWTH ACCOUNT
<TABLE>
<CAPTION>
JANUARY 1, 1996 32 MONTHS (FROM APRIL 29, 1994
TO COMMENCEMENT OF OPERATIONS
DECEMBER 31, 1996 TO DECEMBER 31, 1996)
----------------- ------------------------------
<S> <C> <C>
Hypothetical initial
payment of $1,000 (P) $1,000 $1,000
Accumulation unit value:
At start of period (A) $35.3095 $24.9508
At end of period (B) $44.3128 $44.3128
Ending value of
hypothetical investment
(Ev) = P x (B/A) $1,254.98 $1,776.01
Cumulative rate of total
return = {(EV/P) - 1} x 100 25.50% 77.80%
Number of years
in period (n) 1 2.68
Net change factor (1 + T)
= EV/P 1.2550 1.7760
Average annual compound
rate of total return (T) 25.50% 23.98%
</TABLE>
3
<PAGE>
TOTAL RETURN INFORMATION FOR THE CREF EQUITY INDEX ACCOUNT
<TABLE>
<CAPTION>
JANUARY 1, 1996 32 MONTHS (FROM APRIL 29, 1994
TO COMMENCEMENT OF OPERATIONS
DECEMBER 31, 1996 TO DECEMBER 31, 1996)
----------------- ------------------------------
<S> <C> <C>
Hypothetical initial
payment of $1,000 (P) $1,000 $1,000
Accumulation unit value:
At start of period (A) $35.2308 $25.0380
At end of period (B) $42.8338 $42.8338
Ending value of
hypothetical investment
(Ev) = P x (B/A) $1,215.81 $1,710.75
Cumulative rate of total
return = {(EV/P) - 1} x 100 21.58% 71.08%
Number of years
in period (n) 1 2.68
Net change factor (1 + T)
= EV/P 1.2158 1.7108
Average annual compound
rate of total return (T) 21.58% 25.25%
</TABLE>
4
<PAGE>
TOTAL RETURN INFORMATION FOR THE CREF BOND MARKET ACCOUNT
<TABLE>
<CAPTION>
JANUARY 1, 1996 JANUARY 1,1992 82 MONTHS (FROM MARCH 1, 1990
TO TO COMMENCEMENT OF OPERATIONS
DECEMBER 31, 1996 DECEMBER 31,1996 TO DECEMBER 31, 1996)
----------------- ---------------- -----------------------------
<S> <C> <C> <C>
Hypothetical initial
payment of $1,000 (P) $1,000 $1,000 $1,000
Accumulation unit value:
At start of period (A) $42.6885 $31.6288 $25.0000
At end of period (B) $44.0015 $44.0015 $44.0015
Ending value of
hypothetical investment
(Ev) = P x (B/A) $1,030.76 $1,391.18 $1,760.06
Cumulative rate of total
return = {(EV/P) - 1} x 100 3.08% 39.12% 76.01%
Number of years
in period (n) 1 5 6.83
Net change factor (1 + T)
= EV/P 1.0308 1.3912 1.7601
Average annual compound
rate of total return (T) 3.08% 6.83% 8.63%
</TABLE>
5
<PAGE>
THIRTY-DAY YIELD FOR THE CREF BOND MARKET ACCOUNT
THIRTY-DAY PERIOD
ENDED
TO DECEMBER 31, 1996
--------------------
Total interest income earned during the period (A) $5,468,416.58
Total expense incurred during the period (B) $248,360.41
Average daily number of units outstanding during
the period (C) 22,515,384.55 units
Unit value at end of period (D) 44.0015
6
Thirty-day yield = (A-B) + 1 -1 *2 6.41%
-----
(c*d)
6
<PAGE>
TOTAL RETURN INFORMATION FOR THE CREF SOCIAL CHOICE ACCOUNT
<TABLE>
<CAPTION>
JANUARY 1, 1996 JANUARY 1, 1992 82 MONTHS (FROM MARCH 1, 1990
TO TO COMMENCEMENT OF OPERATIONS
DECEMBER 31, 1996 DECEMBER 31,1996 TO DECEMBER 31, 1996)
----------------- ---------------- -----------------------------
<S> <C> <C> <C>
Hypothetical initial
payment of $1,000 (P) $1,000 $1,000 $1,000
Accumulation unit value:
At start of period (A) $50.7117 $32.6384 $25.0000
At end of period (B) $58.589 $58.5895 $58.5895
Ending value of
hypothetical investment
(EV) = P x (B/A) $1,155.34 $1,795.11 $2,343.58
Cumulative rate of total
return = {(EV/P) - 1} x 100 15.53% 79.51% 134.36%
Number of years
in period (n) 1 5 6.83
Net change factor (1 + T)
= EV/P 1.15534 1.79511 2.34358
Average annual compound
rate of total return (T) 15.53% 12.41% 13.27%
</TABLE>
7
<PAGE>
TOTAL RETURN INFORMATION FOR THE CREF MONEY MARKET ACCOUNT
<TABLE>
<CAPTION>
JANUARY 1, 1996 JANUARY 1, 1992 105 MONTHS (FROM APRIL 1, 1988
TO TO COMMENCEMENT OF OPERATIONS
DECEMBER 31, 1996 DECEMBER 31,1996 TO DECEMBER 31, 1996)
----------------- ---------------- ------------------------------
<S> <C> <C> <C>
Hypothetical initial
payment of $1,000 (P) $1,000 $1,000 $1,000
Accumulation unit value:
At start of period (A) $15.6661 $13.3002 $10.0000
At end of period (B) $16.4936 $16.4936 $16.4936
Ending value of
hypothetical investment
(Ev) = P x (B/A) $1,052.82 $1,240.10 $1,649.36
Cumulative rate of total
return = {(EV/P) - 1} x 100 5.28% 24.01% 64.94%
Number of years
in period (n) 1 5 8.75
Net change factor (1 + T)
= EV/P 1.05282 1.24010 1.64936
Average annual compound
rate of total return (T) 5.28% 4.40% 5.89%
</TABLE>
8
<PAGE>
SEVEN-DAY YIELD FOR THE CREF MONEY MARKET ACCOUNT
SEVEN-DAY PERIOD
ENDED
DECEMBER 31, 1996
-----------------
Initial value of a hypothetical pre-existing
account with a balance of one Accumulation
Unit at the beginning of period (A) $16.4773138632
Value of same account (excluding capital
gains and losses) at end of the seven-day
period (B) $16.4609753872
--------------
Net change in account value (C) = B-A .0163384760
-----------
Base period Return: Net change in account
value divided by the beginning account
value = C/A .000991574
Net Annualized Current Yield ={C/A x (365/7) x 100} 5.17%
-----
365/7
Net Annualized Effective Yield = (1 + C/A) -1 *100 5.30%
-----
9
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Exhibit 17
FINANCIAL DATA SCHEDULES
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL
REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000777535
<NAME> COLLEGE RETIREMENT EQUITIES FUND
<SERIES>
<NUMBER> 1
<NAME> STOCK ACCOUNT
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 52,068,002,137
<INVESTMENTS-AT-VALUE> 83,533,120,282
<RECEIVABLES> 926,900,951
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,525,264
<TOTAL-ASSETS> 84,489,546,497
<PAYABLE-FOR-SECURITIES> 715,635,449
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,427,465,734
<TOTAL-LIABILITIES> 3,143,101,183
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 620,498,335
<SHARES-COMMON-PRIOR> 632,802,980
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 81,346,445,314
<DIVIDEND-INCOME> 1,487,760,929
<INTEREST-INCOME> 106,224,449
<OTHER-INCOME> 0
<EXPENSES-NET> (229,583,345)
<NET-INVESTMENT-INCOME> 1,364,402,033
<REALIZED-GAINS-CURRENT> 6,232,549,023
<APPREC-INCREASE-CURRENT> 5,768,437,860
<NET-CHANGE-FROM-OPS> 13,365,388,916
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,089,810
<NUMBER-OF-SHARES-REDEEMED> (36,394,455)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 11,976,161,429
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 61,960,030
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 229,583,345
<AVERAGE-NET-ASSETS> 74,935,131,283
<PER-SHARE-NAV-BEGIN> 91.460
<PER-SHARE-NII> 1.810
<PER-SHARE-GAIN-APPREC> 15.953
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 109.223
<EXPENSE-RATIO> .310
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000777535
<NAME> COLLEGE RETIREMENT EQUITIES FUND
<SERIES>
<NUMBER> 5
<NAME> GLOBAL EQUITIES ACCOUNT
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 3,872,499,528
<INVESTMENTS-AT-VALUE> 4,413,716,220
<RECEIVABLES> 190,906,169
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 55,763,443
<TOTAL-ASSETS> 4,660,385,832
<PAYABLE-FOR-SECURITIES> 182,261,387
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 284,947,527
<TOTAL-LIABILITIES> 467,208,914
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 80,015,913
<SHARES-COMMON-PRIOR> 70,162,908
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,193,176,918
<DIVIDEND-INCOME> 50,569,749
<INTEREST-INCOME> 9,432,801
<OTHER-INCOME> 0
<EXPENSES-NET> (13,316,884)
<NET-INVESTMENT-INCOME> 46,685,666
<REALIZED-GAINS-CURRENT> 357,715,738
<APPREC-INCREASE-CURRENT> 207,389,762
<NET-CHANGE-FROM-OPS> 611,791,166
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,853,005
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,094,381,819
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,168,905
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,316,884
<AVERAGE-NET-ASSETS> 3,637,097,781
<PER-SHARE-NAV-BEGIN> 42.958
<PER-SHARE-NII> .584
<PER-SHARE-GAIN-APPREC> 7.138
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 50.680
<EXPENSE-RATIO> .370
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000777535
<NAME> COLLEGE RETIREMENT EQUITIES FUND
<SERIES>
<NUMBER> 6
<NAME> GROWTH ACCOUNT
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,010,889,220
<INVESTMENTS-AT-VALUE> 2,426,839,754
<RECEIVABLES> 17,809,542
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,354,922
<TOTAL-ASSETS> 2,448,004,218
<PAYABLE-FOR-SECURITIES> 27,109,072
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 27,109,072
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 53,200,553
<SHARES-COMMON-PRIOR> 32,375,238
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,420,895,146
<DIVIDEND-INCOME> 20,419,790
<INTEREST-INCOME> 4,288,343
<OTHER-INCOME> 0
<EXPENSES-NET> (6,043,974)
<NET-INVESTMENT-INCOME> 18,664,159
<REALIZED-GAINS-CURRENT> 111,570,297
<APPREC-INCREASE-CURRENT> 261,921,473
<NET-CHANGE-FROM-OPS> 392,155,929
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,825,315
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,264,465,519
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,134,334
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,043,974
<AVERAGE-NET-ASSETS> 1,742,219,151
<PER-SHARE-NAV-BEGIN> 35.310
<PER-SHARE-NII> .365
<PER-SHARE-GAIN-APPREC> 8.638
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 44.313
<EXPENSE-RATIO> .350
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000777535
<NAME> COLLEGE RETIREMENT EQUITIES FUND
<SERIES>
<NUMBER> 7
<NAME> EQUITY INDEX ACCOUNT
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 781,764,884
<INVESTMENTS-AT-VALUE> 933,285,693
<RECEIVABLES> 10,907,443
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4,313,376
<TOTAL-ASSETS> 948,506,512
<PAYABLE-FOR-SECURITIES> 26,581,427
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 26,581,427
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 20,724,711
<SHARES-COMMON-PRIOR> 10,910,656
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 921,925,085
<DIVIDEND-INCOME> 13,856,832
<INTEREST-INCOME> 575,292
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