Document/Exhibit Description Pages Size
1: 485BPOS Post-Effective Amendment 113 536K
2: EX-99.11 Miscellaneous Exhibit 3 10K
3: EX-99.12(A) Miscellaneous Exhibit 1 7K
4: EX-99.12(B) Miscellaneous Exhibit 1 7K
5: EX-99.13(A) Miscellaneous Exhibit 1 6K
6: EX-99.16 Computation Schedules 9 25K
As filed with the Securities and Exchange Commission on April 29, 2002
Registration File No. 33-480 and File No. 811-4415
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. 34 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 40 [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:
Lisa Snow, Esquire Steven B. Boehm, Esquire
College Retirement and Equities Fund Sutherland Asbill & Brennan LLP
730 Third Avenue 1275 Pennsylvania Avenue, N.W.
New York, New York 10017-3206 Washington, D. C. 20004-2404
Securities to be Registered: Interests in an open-end management investment
company for individual and group flexible payment deferred variable annuity
contracts
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, 2002 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.
CROSS REFERENCE TO ITEMS REQUIRED BY PART A OF FORM N-3
N-3 ITEM PROSPECTUS HEADING
1. Cover ............................. Cover Page
2. Definitions ....................... Special Terms
3. Synopsis .......................... About CREF
4. Condensed Financial Information ... Condensed Financial Information
5. General Description of
Registrant and Insurance Company .. About CREF
6. Management ........................ Investment Management
7. Deductions and Expenses ........... About Expenses
8. General Description ............... The Annuity Certificates
9. Annuity Period .................... When You Are Ready to Receive Your
Annuity Income
10. Death Benefit ..................... Death Benefits
11. Purchase and Contract Value ....... Starting Out; Determining The Value of
Your Account--Accumulation Units
12. Redemptions ....................... How to Transfer and Withdraw Your Money
13. Taxes ............................. Taxes
14. Legal Proceedings ................. Not Applicable
15. Table of Contents for the
Statement of Additional
Information ....................... Table of Contents for the Statement of
Additional Information
May 1, 2002
COLLEGE RETIREMENT EQUITIES FUND
PROSPECTUS
INDIVIDUAL, GROUP, AND
TAX-DEFERRED VARIABLE ANNUITIES
THIS PROSPECTUS DESCRIBES THE INDIVIDUAL AND GROUP VARIABLE ANNUITIES CREF
OFFERS. IT CONTAINS INFORMATION YOU SHOULD KNOW BEFORE PURCHASING A CREF
VARIABLE ANNUITY AND SELECTING YOUR INVESTMENT OPTIONS. PLEASE READ IT CAREFULLY
BEFORE INVESTING AND KEEP IT FOR FUTURE REFERENCE.
Investment in a CREF variable annuity certificate is subject to risk and
you could lose money. CREF does not guarantee the investment performance of its
accounts, and you bear the entire investment risk.
CREF provides variable annuities for retirement and tax-deferred savings
plans for employees of colleges, universities, and other educational and
research organizations. Our main purpose is to invest funds for your retirement
and pay you income based on your choice of eight investment accounts:
o Stock
o Bond Market
o Global Equities
o Inflation-Linked Bond
o Growth
o Social Choice
o Equity Index
o Money Market
You can purchase a CREF variable annuity certificate in connection with
certain types of retirement plans. CREF offers the following certificates:
o RA (Retirement Annuity)
o GRA (Group Retirement Annuity)
o SRA (Supplemental Retirement Annuity)
o GSRA (Group Supplemental Retirement Annuity)
o GA (Group Annuity) and Institutionally Owned GSRAs
o Classic IRA (Individual Retirement Annuity)
o Roth IRA (Roth Individual Retirement Annuity)
o Keogh (Subject to regulatory approval in Pennsylvania and Oregon)
More information about CREF is in our Statement of Additional Information
(SAI) dated May 1, 2002, which is incorporated by reference into this
prospectus. It is on file with the Securities and Exchange Commission (SEC). For
a free copy, write to us at 730 Third Avenue, New York, NY 10017-3206, Attn:
Central Services, or call 800-842-2733, Ext. 5509. The SAI's table of contents
is on the last page of this prospectus. The SEC's Website (http://www.sec.gov)
contains this prospectus, SAI, material incorporated by reference, and other
information about CREF.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE CREF ACCOUNTS ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
College Retirement Equities Fund PROSPECTUS 1
TABLE OF CONTENTS
2 About CREF
2 Special Terms
3 About Expenses
4 Condensed Financial Information
8 Your Investment Options
13 Additional Investment Tools and Risks
14 Performance Information
14 Investment Management
14 Allocations Among Affiliated Accounts
14 Adding, Closing, or Substituting Accounts
15 The Annuity Certificates
15 Starting Out
16 How to Transfer and Withdraw Your Money
17 When You Are Ready to Receive Your Annuity Income
18 Death Benefits
19 Timing of Payments
19 Taxes
20 Additional Information
20 Table of Contents for the Statement of Additional Information
This prospectus outlines the terms under which the CREF accounts are offered.
The accounts are offered only in those jurisdictions where it is legal to do so.
No one is permitted to make any representation to you or give you any
information that is not in the prospectus. If anyone attempts to do so, you
should not rely on it.
ABOUT CREF
Founded in 1952, CREF is a nonprofit membership corporation established in New
York State. Its home office is at 730 Third Avenue, New York, NY 10017. There
are also regional offices across the United States including Atlanta, Boston,
Chicago, Dallas, Denver, Detroit, New York, Philadelphia, San Francisco and
Washington, D.C. as well as service centers in New York, Denver and Charlotte.
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 and offers
traditional annuities. It also offers variable annuities including 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 is one of the largest retirement
systems in the world based on assets under management. TIAA-CREF serves
approximately 2.4 million people at over 12,000 institutions. As of December 31,
2001, CREF's net assets were approximately $139.7 billion and the combined net
assets for CREF and TIAA totaled approximately $266.7 billion.
SPECIAL TERMS
We have defined certain terms so that you'll have a clearer understanding of
this prospectus and your investment.
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 UNIT A share of participation in a CREF account for someone in the
accumulation period. Each account has its own accumulation unit value, which
changes daily.
ANNUITY UNIT A measure used to calculate the amount of annuity payments. Each
account has a separate 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 the end of any guaranteed period.
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.
COMMUTED VALUE The present value of annuity payments due under an income option
or method of payment not based on life contingencies.
ELIGIBLE INSTITUTION A nonprofit institution, including any governmental
institution, organized in the United States.
INCOME CHANGE METHOD How you choose to have your annuity payments revalued.
Under the annual income change method, your payments are revalued once each
year. Under the monthly income change method, your payments are revalued every
month.
INCOME OPTION How you receive your CREF retirement income.
PARTICIPANT Any person who owns a CREF certificate. Sometimes an employer can be
a participant.
VALUATION DAY Any business day plus 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 end at 4 p.m. Eastern Time.
2 College Retirement Equities Fund PROSPECTUS
ABOUT EXPENSES
CREF deducts expenses from the net assets of each account each valuation day for
investment management, administration, and distribution. Because nonprofit
subsidiaries of TIAA perform these services for CREF at cost, the deductions for
expenses are generally lower than comparable annuity contracts offered by other
companies. Investment management expenses cover portfolio advice and management,
portfolio accounting, and custodial services. Administrative expenses include
administration and operations. CREF has also adopted a plan authorizing payment
of 12b-1, or distribution fees. These fees are for telling you about the
certificates, how you can invest, and helping employers install and manage
retirement plans. CREF also deducts a mortality and expense risk charge to
guarantee that CREF participants transferring funds to TIAA for the immediate
purchase of lifetime payout annuities will not be charged more than the rate
stipulated in the CREF certificate.
After the end of every quarter, CREF reconciles the expenses we deducted
with the expenses each account actually incurred. If there is a difference, we
add it or deduct it from the account in equal daily installments over the
remaining days in the quarter. Since our at-cost deductions are based on
projections of overall expenses and the assets of each CREF account, the size of
any adjusting payments will be directly affected by how different our
projections are from an account's actual assets or expenses. While our
projections of an account's asset size (and resulting expense fees) are based on
our best estimates, the size of an account's assets can be affected by a number
of factors, including premium growth, participant transfers into or out of an
account, and market performance affecting the value of an account's portfolio
securities. Historically, the adjusting payments have generally been small and
have resulted in both upward and downward adjustments to CREF's expense
deductions for the following quarter.
We revise our expense rates from time to time to keep deductions as close
as possible to actual expenses. Expense rate changes are determined by the CREF
Board of Trustees. The annual distribution expense charge will not be more than
.25% of an account's average daily net assets.
ANNUAL EXPENSE DEDUCTIONS
The following table shows the direct and indirect expense deductions for each of
the CREF accounts.
[Enlarge/Download Table]
INFLATION-
GLOBAL EQUITY BOND LINKED SOCIAL MONEY
STOCK EQUITIES GROWTH INDEX MARKET BOND CHOICE MARKET
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PARTICIPANT TRANSACTION EXPENSES
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Deductions from Premiums
(as a percentage of premiums) None None None None None None None None
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CHARGES FOR TRANSFERS AND CASH WITHDRAWALS
(AS A PERCENTAGE OF TRANSACTION AMOUNT)
------------------------------------------------------------------------------------------------------------------------------------
Transfers Between CREF Accounts None None None None None None None None
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Transfers to TIAA None None None None None None None None
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Transfers to Other Companies None None None None None None None None
------------------------------------------------------------------------------------------------------------------------------------
Cash Withdrawals None None None None None None None None
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ANNUAL EXPENSE DEDUCTIONS FROM NET ASSETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
------------------------------------------------------------------------------------------------------------------------------------
Investment Advisory Expenses 0.120% 0.170% 0.140% 0.080% 0.110% 0.100% 0.100% 0.050%
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Administrative Expenses 0.245% 0.245% 0.245% 0.245% 0.245% 0.245% 0.245% 0.245%
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Distribution Expenses 0.040% 0.040% 0.040% 0.040% 0.040% 0.040% 0.040% 0.040%
------------------------------------------------------------------------------------------------------------------------------------
Mortality and Expense Risk Charges 0.005% 0.005% 0.005% 0.005% 0.005% 0.005% 0.005% 0.005%
====================================================================================================================================
Total Annual Expense Deductions 0.410% 0.460% 0.430% 0.370% 0.400% 0.390% 0.390% 0.340%
===== ===== ===== ===== ===== ===== ===== =====
The following table shows you an example of the expenses you would incur on a hypothetical investment of $1,000 in each CREF account
over several periods. The table assumes a 5% annual return on assets. Remember that these figures don't represent actual expenses or
investment performance, which may differ.
INFLATION-
GLOBAL EQUITY BOND LINKED SOCIAL MONEY
STOCK EQUITIES GROWTH INDEX MARKET BOND CHOICE MARKET
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1 Year $4 $5 $4 $4 $4 $4 $4 $3
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3 Years $13 $15 $14 $12 $13 $13 $13 $11
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5 Years $23 $26 $24 $21 $22 $22 $22 $19
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10 Years $52 $58 $54 $47 $51 $49 $49 $43
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College Retirement Equities Fund PROSPECTUS 3
CONDENSED FINANCIAL INFORMATION
Below you'll find condensed, audited financial information for the CREF accounts
for each of the periods indicated.
[Enlarge/Download Table]
STOCK ACCOUNT
FOR THE YEARS ENDED DECEMBER 31,
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2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
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PER ACCUMULATION UNIT DATA:
Investment income $2.432 $2.472 $2.567 $2.381 $2.317 $2.114 $1.885 $1.699 $1.606 $1.523
Expenses .693 .626 .607 .521 .387 .304 .271 .223 .210 .181
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Investment income-net 1.739(a) 1.846 1.960 1.860 1.930 1.810 1.614 1.476 1.396 1.342
Net realized and
unrealized gain (loss)
on total investments (27.951)(a) (19.231) 34.478 29.795 26.864 15.953 19.984 (1.557) 7.139 2.294
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in
Accumulation Unit Value (26.212) (17.385) 36.438 31.655 28.794 17.763 21.598 (.081) 8.535 3.636
Accumulation Unit Value:
Beginning of year 188.725 206.110 169.672 138.017 109.223 91.460 69.862 69.943 61.408 57.772
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
End of year $162.513 $188.725 $206.110 $169.672 $138.017 $109.223 $91.460 $69.862 $69.943 $61.408
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return (13.89)% (8.43)% 21.48% 22.94% 26.36% 19.42% 30.92% (0.12)% 13.90% 6.29%
Ratios to Average Net Assets:
Expenses 0.41% 0.31% 0.33% 0.34% 0.31% 0.31% 0.34% 0.32% 0.32% 0.31%
Investment income-net 1.03%(a) 0.91% 1.07% 1.23% 1.55% 1.82% 2.00% 2.11% 2.14% 2.32%
Portfolio Turnover Rate 29.41% 32.65% 29.26% 34.63% 23.25% 19.57% 16.25% 18.77% 22.93% 16.29%
Thousands of Accumulation
Units outstanding at
end of year 508,889 525,111 543,589 565,999 597,531 620,498 632,803 637,435 642,528 645,564
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(a) AS REQUIRED, EFFECTIVE JANUARY 1, 2001, THE ACCOUNTS HAVE ADOPTED THE
PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES
AND BEGAN AMORTIZING PREMIUMS AND DISCOUNTS ON ALL DEBT SECURITIES. FOR THE
STOCK ACCOUNT, THE EFFECT OF THIS CHANGE FOR THE YEAR ENDED DECEMBER 31,
2001 WAS TO INCREASE INVESTMENT INCOME-NET PER ACCUMULATION UNIT BY $.006,
AND INCREASE NET REALIZED AND UNREALIZED LOSS PER ACCUMULATION UNIT BY
$.006. FOR THE RATIO OF AVERAGE NET ASSETS TO INVESTMENT INCOME-NET, THERE
WAS NO EFFECT FOR THE STOCK ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2001.
PER ACCUMULATION UNIT AMOUNTS AND RATIOS FOR PERIODS PRIOR TO JANUARY 1,
2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN PRESENTATION.
GLOBAL EQUITIES ACCOUNT
[Enlarge/Download Table]
APRIL 1 (DATE
ESTABLISHED) TO
FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31,
------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994 1993 1992(a)
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PER ACCUMULATION UNIT DATA:
Investment income $.985 $.946 $.959 $.902 $.848 $.751 $.727 $.687 $.487 $.569
Expenses .320 .325 .300 .268 .205 .167 .157 .134 .103 .121
------- ------- ------- ------- ------- ------- ------- -------- -------- --------
Investment income-net .665(b) .621 .659 .634 .643 .584 .570 .553 .384 .448
Net realized and
unrealized gain (loss)
on total investments (16.493)(b) (16.281) 24.976 10.508 8.650 7.138 6.618 (.719) 9.021 1.083
------- ------- ------- ------- ------- ------- ------- -------- -------- --------
Net increase (decrease)
in Accumulation Unit Value (15.828) (15.660) 25.635 11.142 9.293 7.722 7.188 (.166) 9.405 1.531
Accumulation Unit Value:
Beginning of period 81.090 96.750 71.115 59.973 50.680 42.958 35.770 35.936 26.531 25.000
------- ------- ------- ------- ------- ------- ------- -------- -------- --------
End of period $65.292 $81.090 $96.750 $71.115 $59.973 $50.680 $42.958 $35.770 $35.936 $26.531
======= ======= ======= ======= ======= ======= ======= ======== ======== ========
Total Return (19.52)% (16.19)% 36.05% 18.58% 18.34% 17.98% 20.09% (0.46)% 35.45% 6.12%
Ratios to Average Net Assets:
Expenses 0.46% 0.35% 0.39% 0.41% 0.38% 0.37% 0.40% 0.41% 0.45% 0.40%
Investment income-net 0.95%(b) 0.68% 0.85% 0.97% 1.19% 1.28% 1.47% 1.71% 1.67% 1.47%
Portfolio Turnover Rate 111.91% 98.06% 81.30% 103.31% 98.70% 88.84% 67.50% 51.63% 16.75% 12.50%
Thousands of Accumulation
Units outstanding at
end of period 99,558 99,622 89,492 81,825 84,645 80,016 70,163 70,700 36,796 8,277
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(a) PERCENTAGES SHOWN FOR THIS PERIOD ARE NOT ANNUALIZED.
(b) AS REQUIRED, EFFECTIVE JANUARY 1, 2001, THE ACCOUNTS HAVE ADOPTED THE
PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES
AND BEGAN AMORTIZING PREMIUMS AND DISCOUNTS ON ALL DEBT SECURITIES. FOR THE
GLOBAL EQUITIES ACCOUNT, THE EFFECT OF THIS CHANGE FOR THE YEAR ENDED
DECEMBER 31, 2001 WAS TO INCREASE INVESTMENT INCOME-NET PER ACCUMULATION
UNIT BY $.001, AND INCREASE NET REALIZED AND UNREALIZED LOSS PER
ACCUMULATION UNIT BY $.001. FOR THE RATIO OF AVERAGE NET ASSETS TO
INVESTMENT INCOME-NET, THERE WAS NO EFFECT FOR THE GLOBAL EQUITIES ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 2001. PER ACCUMULATION UNIT AMOUNTS AND
RATIOS FOR PERIODS PRIOR TO JANUARY 1, 2001 HAVE NOT BEEN RESTATED TO
REFLECT THIS CHANGE IN PRESENTATION.
4 College Retirement Equities Fund PROSPECTUS
[Enlarge/Download Table]
GROWTH ACCOUNT
APRIL 4 (DATE
ESTABLISHED) TO
FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31,
------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994(a)
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PER ACCUMULATION UNIT DATA:
Investment income $.387 $.509 $.592 $.482 $.527 $.484 $.417 $.398
Expenses .278 .320 .278 .244 .155 .119 .114 .084
------- ------- -------- ------- ------- ------- ------- -------
Investment income-net .109(b) .189 .314 .238 .372 .365 .303 .314
Net realized and unrealized
gain (loss) on total investments (18.345)(b) (20.788) 24.276 18.475 12.219 8.638 8.891 .802
------- ------- -------- ------- ------- ------- ------- -------
Net increase (decrease) in
Accumulation Unit Value (18.236) (20.599) 24.590 18.713 12.591 9.003 9.194 1.116
Accumulation Unit Value:
Beginning of period 79.608 100.207 75.617 56.904 44.313 35.310 26.116 25.000
------- ------- -------- ------- ------- ------- ------- -------
End of period $61.372 $79.608 $100.207 $75.617 $56.904 $44.313 $35.310 $26.116
======= ======= ======== ======= ======= ======= ======= =======
Total Return (22.91)% (20.56)% 32.52% 32.89% 28.41% 25.50% 35.20% 4.46%
Ratios to Average Net Assets:
Expenses 0.43% 0.31% 0.34% 0.38% 0.34% 0.35% 0.43% 0.33%
Investment income-net 0.17%(b) 0.18% 0.38% 0.37% 0.82% 1.07% 1.13% 1.21%
Portfolio Turnover Rate 44.40% 37.18% 69.26% 97.57% 53.27% 38.51% 24.42% 12.29%
Thousands of Accumulation Units
outstanding at end of period 171,149 166,751 131,646 98,862 80,370 53,201 32,375 10,446
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(a) PERCENTAGES SHOWN FOR THIS PERIOD ARE NOT ANNUALIZED.
(b) AS REQUIRED, EFFECTIVE JANUARY 1, 2001, THE ACCOUNTS HAVE ADOPTED THE
PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES
AND BEGAN AMORTIZING PREMIUMS AND DISCOUNTS ON ALL DEBT SECURITIES. FOR THE
GROWTH ACCOUNT, THE EFFECT OF THIS CHANGE FOR THE YEAR ENDED DECEMBER 31,
2001 WAS TO DECREASE INVESTMENT INCOME-NET PER ACCUMULATION UNIT BY $.002,
AND DECREASE NET REALIZED AND UNREALIZED LOSS PER ACCUMULATION UNIT BY
$.002. FOR THE RATIO OF AVERAGE NET ASSETS TO INVESTMENT INCOME-NET, THERE
WAS NO EFFECT FOR THE GROWTH ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2001.
PER ACCUMULATION UNIT AMOUNTS AND RATIOS FOR PERIODS PRIOR TO JANUARY 1,
2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN PRESENTATION.
[Enlarge/Download Table]
EQUITY INDEX ACCOUNT
APRIL 4 (DATE
ESTABLISHED) TO
FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31,
------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994(a)
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PER ACCUMULATION UNIT DATA:
Investment income $.973 $1.055 $1.012 $.953 $.826 $.773 $.755 $.552
Expenses .258 .233 .225 .190 .141 .106 .100 .072
------- ------- -------- ------- ------- ------- ------- -------
Investment income-net .715(b) .822 .787 .763 .685 .667 .655 .480
Net realized and unrealized
gain (loss) on total investments (9.849)(b) (7.216) 13.733 12.789 12.672 6.936 8.703 .393
------- ------- -------- ------- ------- ------- ------- -------
Net increase (decrease) in
Accumulation Unit Value (9.134) (6.394) 14.520 13.552 13.357 7.603 9.358 0.873
Accumulation Unit Value:
Beginning of period 77.869 84.263 69.743 56.191 42.834 35.231 25.873 25.000
------- ------- -------- ------- ------- ------- ------- -------
End of period $68.735 $77.869 $84.263 $69.743 $56.191 $42.834 $35.231 $25.873
======= ======= ======== ======= ======= ======= ======= =======
Total Return (11.73)% (7.59)% 20.82% 24.12% 31.18% 21.58% 36.17% 3.49%
Ratios to Average Net Assets:
Expenses 0.37% 0.28% 0.30% 0.31% 0.30% 0.30% 0.34% 0.27%
Investment income-net 1.02%(b) 0.98% 1.05% 1.24% 1.47% 1.87% 2.22% 1.83%
Portfolio Turnover Rate 6.14% 9.42% 4.89% 3.98% 3.50% 7.85% 8.31% 1.33%
Thousands of Accumulation Units
outstanding at end of period 75,254 62,018 57,249 47,997 35,368 20,725 10,911 2,716
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(a) PERCENTAGES SHOWN FOR THIS PERIOD ARE NOT ANNUALIZED.
(b) AS REQUIRED, EFFECTIVE JANUARY 1, 2001, THE ACCOUNTS HAVE ADOPTED THE
PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES
AND BEGAN AMORTIZING PREMIUMS AND DISCOUNTS ON ALL DEBT SECURITIES. FOR THE
EQUITY INDEX ACCOUNT THE CHANGE HAD NO EFFECT ON THE CONDENSED FINANCIAL
INFORMATION. PER ACCUMULATION UNIT AMOUNTS AND RATIOS FOR PERIODS PRIOR TO
JANUARY 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN
PRESENTATION.
College Retirement Equities Fund PROSPECTUS 5
[Enlarge/Download Table]
BOND MARKET ACCOUNT
FOR THE YEARS ENDED DECEMBER 31,
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2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
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PER ACCUMULATION UNIT DATA:
Investment income $3.258 $3.636 $3.289 $3.156 $3.081 $3.039 $2.863 $2.502 $2.348 $2.287
Expenses .242 .174 .166 .158 .134 .126 .123 .108 .103 .093
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Investment income-net 3.016(a) 3.462 3.123 2.998 2.947 2.913 2.740 2.394 2.245 2.194
Net realized and unrealized gain
(loss) on total investments 1.571(a) 2.621 (3.711) 1.150 1.266 (1.600) 3.722 (3.897) 1.606 .056
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in
Accumulation Unit Value 4.587 6.083 (.588) 4.148 4.213 1.313 6.462 (1.503) 3.851 2.250
Accumulation Unit Value:
Beginning of year 57.858 51.775 52.363 48.215 44.002 42.689 36.227 37.730 33.879 31.629
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
End of year $62.445 $57.858 $51.775 $52.363 $48.215 $44.002 $42.689 $36.227 $37.730 $33.879
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return 7.93% 11.75% (1.12)% 8.60% 9.57% 3.08% 17.84% (3.98)% 11.37% 7.12%
Ratios to Average Net Assets:
Expenses 0.43% 0.33% 0.32% 0.32% 0.29% 0.30% 0.31% 0.29% 0.28% 0.29%
Investment income-net 5.36%(a) 6.50% 6.03% 5.98% 6.44% 6.86% 6.93% 6.54% 6.18% 6.78%
Portfolio Turnover Rate 257.02% 377.44%(b) 656.58% 525.32% 398.77% 145.27% 185.11% 161.46% 139.55% 217.89%
Thousands of Accumulation Units
outstanding at end of Year 71,368 54,745 54,918 57,481 31,654 22,611 19,522 14,939 14,698 13,583
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(a) AS REQUIRED, EFFECTIVE JANUARY 1, 2001, THE ACCOUNTS HAVE ADOPTED THE
PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES
AND BEGAN AMORTIZING PREMIUMS AND DISCOUNTS ON ALL DEBT SECURITIES. FOR THE
BOND MARKET ACCOUNT, THE EFFECT OF THIS CHANGE FOR THE YEAR ENDED DECEMBER
31, 2001 WAS TO DECREASE INVESTMENT INCOME-NET PER ACCUMULATION UNIT BY
$.067, INCREASE NET REALIZED AND UNREALIZED GAIN PER ACCUMULATION UNIT BY
$.067 AND DECREASE THE RATIO OF INVESTMENT INCOME-NET TO AVERAGE NET ASSETS
BY .12%. PER ACCUMULATION UNIT AMOUNTS AND RATIOS FOR PERIODS PRIOR TO
JANUARY 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN
PRESENTATION.
(b) DURING 2000, THE BOND MARKET ACCOUNT BEGAN STRUCTURING DOLLAR ROLLS AS
FINANCING TRANSACTIONS. DOLLARS ROLLS OCCUR WHEN AN ACCOUNT SELLS
SECURITIES FOR DELIVERY IN THE CURRENT MONTH AND SIMULTANEOUSLY CONTRACTS
TO REPURCHASE SUBSTANTIALLY SIMILAR SECURITIES ON A SPECIFIED FUTURE DATE.
HAD THESE TRANSACTIONS BEEN TREATED FOR THE ENTIRE YEAR AS PURCHASES AND
SALES, RATHER THAN AS FINANCING TRANSACTIONS, THE PORTFOLIO TURNOVER RATE
FOR THE YEAR ENDED DECEMBER 31, 2000 WOULD HAVE BEEN 552.94%.
[Enlarge/Download Table]
INFLATION-LINKED BOND ACCOUNT
JANUARY 13 (DATE
ESTABLISHED) TO
FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31,
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2001 2000 1999 1998 1997(a)
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PER ACCUMULATION UNIT DATA:
Investment income $1.816 $2.113 $1.730 $1.256 $1.031
Expenses .122 .083 .099 .086 .067
------- ------- ------- ------- -------
Investment income-net 1.694(b) 2.030 1.631 1.170 .964
Net realized and unrealized gain (loss)
on total investments .692(b) 1.491 (1.062) (.260) .154
------- ------- ------- ------- -------
Net increase in Accumulation Unit Value 2.386 3.521 .569 .910 1.118
Accumulation Unit Value:
Beginning of period 31.118 27.597 27.028 26.118 25.000
------- ------- ------- ------- -------
End of period $33.504 $31.118 $27.597 $27.028 $26.118
======= ======= ======= ======= =======
Total Return 7.67% 12.76% 2.10% 3.48% 4.47%
Ratios to Average Net Assets:
Expenses 0.36% 0.29% 0.36% 0.33% 0.25%
Investment income-net 4.93%(b) 6.97% 5.99% 4.50% 3.60%
Portfolio Turnover Rate 42.16% 17.17% 54.35% 40.98% 63.56%
Thousands of Accumulation Units
outstanding at end of period 35,274 15,188 4,757 5,112 3,626
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(a) PERCENTAGES SHOWN FOR THIS PERIOD ARE NOT ANNUALIZED.
(b) AS REQUIRED, EFFECTIVE JANUARY 1, 2001, THE ACCOUNTS HAVE ADOPTED THE
PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES
AND BEGAN AMORTIZING PREMIUMS AND DISCOUNTS ON ALL DEBT SECURITIES. FOR THE
INFLATION-LINKED BOND ACCOUNT, THE EFFECT OF THIS CHANGE FOR THE YEAR ENDED
DECEMBER 31, 2001 WAS TO DECREASE INVESTMENT INCOME-NET PER ACCUMULATION
UNIT BY $.031, INCREASE NET REALIZED AND UNREALIZED GAIN PER ACCUMULATION
UNIT BY $.031 AND DECREASE THE RATIO OF INVESTMENT INCOME-NET TO AVERAGE
NET ASSETS BY .11%. PER ACCUMULATION UNIT AMOUNTS AND RATIOS FOR PERIODS
PRIOR TO JANUARY 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN
PRESENTATION.
6 College Retirement Equities Fund PROSPECTUS
[Enlarge/Download Table]
SOCIAL CHOICE ACCOUNT
FOR THE YEARS ENDED DECEMBER 31,
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2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
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PER ACCUMULATION UNIT DATA:
Investment income $2.766 $3.188 $2.898 $2.679 $2.396 $2.068 $1.832 $1.621 $1.452 $1.363
Expenses .352 .282 .293 .249 .193 .158 .144 .125 .117 .105
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Investment income-net 2.414(a) 2.906 2.605 2.430 2.203 1.910 1.688 1.496 1.335 1.258
Net realized and unrealized
gain (loss) on total
investments (7.003)(a) (2.582) 6.752 11.159 12.223 5.968 9.863 (2.015) 2.082 2.367
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in
Accumulation Unit Value (4.589) 0.324 9.357 13.589 14.426 7.878 11.551 (.519) 3.417 3.625
Accumulation Unit Value:
Beginning of year 96.286 95.962 86.605 73.016 58.590 50.712 39.161 39.680 36.263 32.638
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
End of year $91.697 $96.286 $95.962 $86.605 $73.016 $58.590 $50.712 $39.161 $39.680 $36.263
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return (4.77)% 0.34% 10.80% 18.61% 24.62% 15.53% 29.49% (1.31)% 9.42% 11.11%
Ratios to Average Net Assets:
Expenses 0.40% 0.30% 0.32% 0.31% 0.30% 0.30% 0.32% 0.32% 0.31% 0.33%
Investment income-net 2.77%(a) 3.04% 2.88% 3.07% 3.37% 3.58% 3.75% 3.80% 3.52% 3.88%
Portfolio Turnover Rate 68.64% 117.10%(b) 206.44% 147.90% 91.87% 40.93% 52.65% 49.06% 39.85% 77.48%
Thousands of Accumulation
Units outstanding at
end of Year 46,290 42,550 41,355 37,211 30,554 25,841 22,196 18,302 16,790 9,224
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(a) AS REQUIRED, EFFECTIVE JANUARY 1, 2001, THE ACCOUNTS HAVE ADOPTED THE
PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES
AND BEGAN AMORTIZING PREMIUMS AND DISCOUNTS ON ALL DEBT SECURITIES. FOR THE
SOCIAL CHOICE ACCOUNT, THE EFFECT OF THIS CHANGE FOR THE YEAR ENDED
DECEMBER 31, 2001 WAS TO DECREASE INVESTMENT INCOME-NET PER ACCUMULATION
UNIT BY $.019, DECREASE NET REALIZED AND UNREALIZED LOSS PER ACCUMULATION
UNIT BY $.019 AND DECREASE THE RATIO OF INVESTMENT INCOME-NET TO AVERAGE
NET ASSETS BY .02%. PER ACCUMULATION UNIT AMOUNTS AND RATIOS FOR PERIODS
PRIOR TO JANUARY 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN
PRESENTATION.
(b) DURING 2000, THE SOCIAL CHOICE ACCOUNT BEGAN STRUCTURING DOLLAR ROLLS AS
FINANCING TRANSACTIONS. DOLLARS ROLLS OCCUR WHEN AN ACCOUNT SELLS
SECURITIES FOR DELIVERY IN THE CURRENT MONTH AND SIMULTANEOUSLY CONTRACTS
TO REPURCHASE SUBSTANTIALLY SIMILAR SECURITIES ON A SPECIFIED FUTURE DATE.
HAD THESE TRANSACTIONS BEEN TREATED FOR THE ENTIRE YEAR AS PURCHASES AND
SALES, RATHER THAN AS FINANCING TRANSACTIONS, THE PORTFOLIO TURNOVER RATE
FOR THE YEAR ENDED DECEMBER 31, 2000 WOULD HAVE BEEN 196.05%.
[Enlarge/Download Table]
MONEY MARKET ACCOUNT
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
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PER ACCUMULATION UNIT DATA:
Investment income $.888 $1.273 $.976 $.998 $.953 $.880 $.910 $.631 $.464 $.539
Expenses .069 .055 .057 .054 .046 .049 .048 .041 .039 .036
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Investment income-net .819(a) 1.218 .919 .944 .907 .831 .862 .590 .425 .503
Net realized and unrealized
gain (loss) on total
investments .009(a) .007 (.005) .005 .001 (.003) .009 (.012) (.002) (.009)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase in Accumulation
Unit Value .828 1.225 .914 .949 .908 .828 .871 .578 .423 .494
Accumulation Unit Value:
Beginning of year 20.490 19.265 18.351 17.402 16.494 15.666 14.795 14.217 13.794 13.300
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
End of year $21.318 $20.490 $19.265 $18.351 $17.402 $16.494 $15.666 $14.795 $14.217 $13.794
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return 4.04% 6.36% 4.98% 5.45% 5.51% 5.28% 5.88% 4.07% 3.07% 3.71%
Ratios to Average Net Assets:
Expenses 0.33% 0.28% 0.30% 0.30% 0.27% 0.30% 0.32% 0.28% 0.27% 0.26%
Investment income-net 3.88%(a) 6.12% 4.90% 5.27% 5.35% 5.16% 5.64% 4.03% 3.02% 3.70%
Portfolio Turnover Rate n/a 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 year 338,791 315,206 354,754 312,358 233,116 218,292 193,181 183,135 174,073 184,768
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(a) AS REQUIRED, EFFECTIVE JANUARY 1, 2001, THE ACCOUNTS HAVE ADOPTED THE
PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT COMPANIES
AND BEGAN AMORTIZING PREMIUMS AND DISCOUNTS ON ALL DEBT SECURITIES. FOR THE
MONEY MARKET ACCOUNT THE CHANGE HAD NO EFFECT ON THE CONDENSED FINANCIAL
INFORMATION. PER ACCUMULATION UNIT AMOUNTS AND RATIOS FOR PERIODS PRIOR TO
JANUARY 1, 2001 HAVE NOT BEEN RESTATED TO REFLECT THIS CHANGE IN
PRESENTATION.
College Retirement Equities Fund PROSPECTUS 7
YOUR INVESTMENT OPTIONS
CREF's goal is to provide retirement benefits. We have a long-term investment
perspective and the CREF accounts, as a whole, avoid high risk and extreme
conservatism when investing. Each account has its own investment objective,
policies, and special risks. Investment objectives cannot be changed without the
approval of a majority of account participants. CREF can change investment
policies without such approval. There is no guarantee that any CREF account will
meet its investment objective.
Each of the Stock, 2, Equity Index, Bond Market,
Inflation-Linked Bond and Money Market Accounts has a policy of investing, under
normal circumstances, at least 80% of their respective assets in the particular
type of securities implied by the account's name. Each of these accounts will
provide its participants with at least 60 days prior notice before making
changes to this policy.
GENERAL INVESTMENT RISKS
To varying degrees, the CREF accounts are all subject to several general types
of risks. One is market risk -- stock price volatility due to changing
conditions in the financial markets. Another is interest rate risk -- the risk
that a debt instrument's value will decline if interest rates change. A rise in
interest rates usually causes the market value of fixed-rate securities to go
down, while a rate decline usually results in an increase in the market values
of those securities. Another kind of risk is company risk. For stocks or other
equity securities, it comes from the possibility that current earnings will fall
or that overall financial soundness will decline, reducing the security's value.
For bonds and other income-producing securities, company (credit) risk comes
from the possibility the issuer won't be able to pay principal and interest when
due. Finally, investments can be subject to current income volatility, which is
how much and how quickly overall interest rate changes affect current income
from an investment.
All of the CREF accounts can invest in securities traded on foreign
exchanges or in foreign markets. These investments involve risks beyond those of
domestic investing. Please see page 13 for risks of foreign investing.
THE EQUITY ACCOUNTS
CREF'S DUAL INVESTMENT MANAGEMENT STRATEGY(sm)
The Stock, Global Equities and Growth Accounts use CREF's Dual Investment
Management Strategy. The Dual Investment Management Strategy works like this:
Each account that uses the strategy has two separate subportfolios: "Stock
Selection" and "Enhanced Index". The relative sizes of these two subportfolios
vary depending on how we shift money between them in response to investment
opportunities and how we manage risk in an account relative to its benchmark.
The Stock Selection subportfolio holds a relatively small number of stocks
that we believe offer the potential for superior returns. We use fundamental
analysis to select individual stocks or sectors for investment in the Stock
Selection subportfolio. Each of the accounts' Stock Selection subportfolios is
described further below.
Money that is not invested in an account's Stock Selection subportfolio
goes to its Enhanced Index subportfolio. Here the goal is two-fold: (1) to
outperform each account's benchmark index and (2) to limit the possibility of
significantly underperforming that benchmark. The accounts attempt to outperform
their benchmark indices by over- or under-weighting many stocks in the index by
small amounts, based on proprietary stock scoring models. In other words, an
account will hold more or less of some stocks than does its benchmark index. We
attempt to control the risk of underperforming the benchmarks by maintaining the
same overall financial characteristics (such as volatility, dividend yield and
industry weights) as the benchmarks.
The accounts' Enhanced Index subportfolios may not purchase all of the
stocks in their respective benchmark indices. If not, we may use a sampling
approach to create a portfolio that closely matches the overall investment
characteristics of the index. This means that a company can remain in an account
even if it performs poorly, unless the company is removed from its index.
The Dual Investment Management Strategy enables the accounts to stay fully
invested even when we cannot find sufficient investment opportunities for the
Stock Selection subportfolio.
The benchmarks for each of the following accounts as well as their
respective Stock Selection and Enhanced Index subportfolios are as follows:
Stock Russell 3000(R) Index(1), Morgan Stanley Capital International
(MSCI) EAFE and Canada Index
Global Equities MSCI World Index
Growth Russell 3000(R) Growth Index
Using these indices is not a fundamental policy of the accounts, so we can
substitute other indexes without participant approval. We'll notify you when we
make such a change.
STOCK ACCOUNT
INVESTMENT OBJECTIVE: 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 STRATEGY: Under normal circumstances, the Stock Account invests
at least 80% of its assets in a broadly diversified portfolio of common stocks.
The account uses the Dual Investment Management Strategy. The account's Stock
Selection subportfolio concentrates on individual companies rather than sectors
or industries. We look for stocks that we believe are attractively priced based
on our analysis of the company's prospects for growth in earnings, cash flow,
revenues or other relevant measures. We also look for companies whose assets
appear undervalued in the market. In general, we focus on companies with
shareholder-oriented managements dedicated to creating shareholder value. The
account may invest in companies of any size.
The account invests in foreign stocks and other equity securities in both
its Stock Selection and Enhanced Index subportfolios. The account also may
invest in fixed-income securities and money market instruments traded on foreign
exchanges, in other foreign securities markets, or privately placed. As of
December 31, 2001, foreign securities were 19.07% of the account. Foreign
securities have different types and levels of risk than a strictly domestic
portfolio. Please see page 13 for additional risks related to foreign investing.
SPECIAL INVESTMENT RISKS: The account is subject to the general investment
risks described above. In addition, for the account's Enhanced Index
subportfolio, there are special risks associated with indexed investing. The
subportfolio attempts to closely track the Russell 3000 Index and the MSCI EAFE
and Canada Index and changes are made to its holdings to reflect changes in the
indices. However, it doesn't invest in all the stocks in the indices, so we
can't guarantee that the performance of this subportfolio will match that of the
indices.
The Stock Selection subportfolio may include smaller, lesser-known
companies. The stock prices of such companies may fluctuate more than those of
larger companies because smaller companies may depend on narrow product lines,
have limited track records, lack depth of management, or have thinly traded
securities.
In addition, the account is the world's largest singly managed equity fund
based on assets under management. Because of its size, it may be buying or
selling blocks of stock that are large compared to the stock's trading volume,
----------
(1) THE RUSSELL 3000 INDEX IS A TRADEMARK/SERVICE MARK OF THE FRANK RUSSELL
COMPANY (FRC). THE USE OF THE RUSSELL 3000 INDEX IN NO WAY SUGGESTS OR
IMPLIES AN OPINION BY FRC AS TO THE ATTRACTIVENESS OF THE INVESTMENT IN ANY
OR ALL OF THE SECURITIES UPON WHICH THE RUSSELL 3000 INDEX IS BASED.
8 College Retirement Equities Fund PROSPECTUS
making it difficult to reach the positions called for by our investment
decisions, and/or affecting the stock's price. As a result, we may not be able
to adjust the portfolio as quickly as we would like.
INVESTOR PROFILE: The Stock Account may be best for individuals who have a
longer time horizon, think stocks will perform well over time and want to invest
in a broadly diversified stock portfolio. The potential risk of investing in the
account is moderate. You can lose money by investing in the account.
GLOBAL EQUITIES ACCOUNT
INVESTMENT OBJECTIVE: A favorable long-term rate of return through capital
appreciation and income from a broadly diversified portfolio that consists
primarily of foreign and domestic common stocks.
INVESTMENT STRATEGY: Under normal circumstances, the Global Equities
Account invests at least 80% of its assets in equity securities of foreign and
domestic companies. Typically, at least 40% of the account is invested in
foreign securities and at least 25% in domestic securities, as we deem
appropriate. The remaining 35% is distributed between foreign and domestic
securities. These percentages may vary according to market conditions.
The account uses the Dual Investment Management Strategy. For the Stock
Selection subportfolio, we select individual stocks, and let the account's
country and regional asset allocation evolve from that stock selection. We do,
however, regularly monitor the account's sector and country exposure in order to
control risk. Normally, the account will be invested in at least three different
countries, one of which will be the U.S., although the account will usually be
more diversified.
The account can invest in companies of any size, including small companies.
Investing in smaller companies entails more risk. See "Special Investment Risks"
for the Growth Account below.
SPECIAL INVESTMENT RISKS: The account is subject to the general investment
risks described on page 8. For the account's Enhanced Index subportfolio, there
are special risks related to indexed investing. We attempt to closely track the
MSCI World Index but don't invest in all of the stocks in the index. Therefore,
we can't guarantee that the performance of this subportfolio will match that of
the index. In addition, investing in securities traded in foreign exchanges or
foreign markets involves risks beyond those of domestic investing. These include
political or social instability, changes in currency rates and the possible
imposition of market controls or currency exchange controls. See page 13 for
more information on risks of foreign investing.
INVESTOR PROFILE: The Global Equities Account may be best for individuals
who have a longer time horizon, think stocks will perform well over time and
want to take advantage of the potential of foreign markets. The potential risk
of investing in the account is moderate. You can lose money by investing in the
account.
GROWTH ACCOUNT
INVESTMENT OBJECTIVE: A favorable long-term rate of return, mainly through
capital appreciation, primarily from a diversified portfolio of common stocks
that present the opportunity for exceptional growth.
INVESTMENT STRATEGY: The Growth Account will invest at least 80% of its
assets in common stocks and other equity securities. The account uses the Dual
Investment Management Strategy. We choose individual investments based on a
company's prospects under current or forecasted economic, financial and market
conditions, looking for companies we believe have the potential for strong
earnings or sales growth, or that appear to be undervalued based on current
earnings, assets, or growth prospects.
The account's Stock Selection subportfolio can invest in companies of all
sizes. It can 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. It can also invest in smaller, less
seasoned companies with growth potential as well as companies in new and
emerging areas of the economy. The account can also invest in companies in order
to benefit from prospective acquisitions, reorganizations, corporate
restructurings or other special situations.
The account can buy foreign securities and other instruments if we believe
they have superior investment potential. Depending on investment opportunities,
the account may have up to 60% of its assets in foreign securities. The
securities will be those traded on foreign exchanges or in other foreign markets
and may be denominated in foreign currencies or other units of account.
SPECIAL INVESTMENT RISKS: The account is subject to the general investment
risks described on page 8 and foreign risks described on page 13. For the
account's Enhanced Index subportfolio, there are special risks related to
indexed investing. We attempt to closely track the Russell 3000 Growth Index but
don't invest in all of the stocks in the index. Therefore, we can't guarantee
that the performance of this subportfolio will match that of the index. In
addition, there are special risks to investing in growth stocks. The account may
hold a significant amount of stocks of smaller, lesser-known companies. Their
stock prices may fluctuate more than those of larger companies because smaller
companies may depend on narrow product lines, have limited track records, lack
depth of management, or have thinly traded securities. Also, stocks of companies
involved in reorganizations and other special situations can often involve more
risk than ordinary securities. Accordingly, the account will probably be more
volatile than the overall stock market.
INVESTOR PROFILE: The Growth Account may be best for individuals who have a
longer time horizon, think stocks will perform well over time and are willing to
assume more risk for the opportunity for greater growth. The potential risk of
investing in the account is moderate to high. You can lose money by investing in
the account.
EQUITY INDEX ACCOUNT
INVESTMENT OBJECTIVE: A favorable long-term rate of return from a
diversified portfolio selected to track the overall market for common stocks
publicly traded in the U.S., as represented by a broad stock market index.
INVESTMENT STRATEGY: The Equity Index Account is designed to track the U.S.
stock market as a whole and invests in stocks in the Russell 3000 Index.
Although the account invests in stocks in the Russell 3000 Index, it may not
invest in all 3,000 stocks in the index. If so, we may use a sampling approach
to create a portfolio that closely matches the overall investment
characteristics of the index. This means that a company can remain in the
account even if it performs poorly, unless the company is removed from the
Russell 3000. Using the Russell 3000 Index is not fundamental to the account's
investment objective and policies. We can change the index used in this account
at any time and will notify you if we do so. The account does not use the Dual
Investment Management Strategy.
The Russell 3000 is an unmanaged index of stocks of the 3,000 largest
publicly traded U.S. companies, based on market capitalization. Russell 3000
companies represent about 98% of the total market capitalization of the publicly
traded U.S. equity market. The market capitalization of the individual companies
in the index ranged from $4.11 million to $398.10 billion with an average of
$4.36 billion as of December 31, 2001. The Frank Russell Company determines the
composition of the index based only on market capitalization and can change its
composition at any time.
The account can also invest in securities and other instruments, such as
futures, whose return depends on stock market prices. We select these
instruments to attempt to match the total return of the Russell 3000 but may not
always do so.
SPECIAL INVESTMENT RISKS: The account is subject to the general investment
risks described on page 8. In addition, there are special risks associated
College Retirement Equities Fund PROSPECTUS 9
with indexed investing. The account attempts to closely track the Russell 3000
Index and changes are made to its holdings to reflect changes in the index.
However, the account doesn't invest in all 3,000 stocks in the index, so we
can't guarantee that the performance of the account will match that of the
index. Also, the account's returns, unlike those of the index, are reduced by
investment and other operating expenses.
INVESTOR PROFILE: The Equity Index Account may be best for individuals who
have a longer time horizon, think U.S. stocks will perform well over time and
want to invest in the aggregate U.S. market. The potential risk of investing in
the account is moderate. You can lose money by investing in the account.
OTHER INVESTMENTS IN EQUITY ACCOUNTS
In addition to stocks, the CREF equity accounts can hold other types of
securities with equity characteristics, such as convertible bonds, preferred
stock, warrants, and depository receipts. Pending more permanent investments or
to use cash balances effectively, the accounts can also hold the same types of
money market instruments the Money Market Account invests in, as well as other
short-term instruments.
The equity accounts can also hold fixed-income securities that they acquire
through mergers, recapitalizations or other situations. When market conditions
are favorable, the accounts can also invest in bonds or other debt instruments
similar to those investments made by the Bond Market Account. The equity
accounts can also invest in debt securities whose prices or interest rates are
linked to the return of a stock market index.
The equity accounts may buy and sell options, futures contracts and options
on futures. They can also buy and sell stock index futures contracts. We intend
to use options and futures primarily as hedging techniques or for cash
management, not for speculation, but they involve special consideration and
risks nonetheless.
To help manage currency risk, the equity accounts can enter into forward
currency contracts, buy or sell options and futures on foreign currencies, and
buy securities indexed to foreign currencies.
Although the equity accounts may use options, futures or currency contracts
at times to hedge certain risks, it is not the intent of the accounts to hedge
all equity or currency risks at any particular time.
The equity accounts can also invest in newly developed financial
instruments, such as equity swaps (including arrangements where the return is
linked to a stock market index) and equity-linked fixed-income securities. These
securities and instruments pose special risks, such as lack of liquidity or
credit risks of the issuer or counterparty.
BOND MARKET AND INFLATION-LINKED BOND ACCOUNTS
BOND MARKET ACCOUNT
INVESTMENT OBJECTIVE: A favorable long-term rate of return, primarily
through high current income consistent with preserving capital.
INVESTMENT STRATEGY: Under normal circumstances, the Bond Market Account
invests at least 80% of its assets in a broad range of debt securities. The
majority of the account's assets is invested in U.S. Treasury and Agency
securities, corporate bonds and mortgage-backed or other asset-backed
securities. The account's holdings are mainly investment grade securities rated
in the top four credit categories by Moody's Investors Service or Standard &
Poor's, or that we determine are of comparable quality. The account will
overweight or underweight individual securities or sectors as compared to their
weight in the Lehman Brothers Aggregate Bond Index depending on where we find
undervalued, overlooked or misunderstood issues that we believe offer the
potential for superior returns compared to the Lehman Index. The account can
also invest in non-investment grade securities rated Ba1 or lower by Moody's or
BB+ and lower by Standard & Poor's as well as unrated securities of a similar
quality or junk bonds. However, we don't intend to invest more than 20% of the
account's assets in such securities. The account can also make foreign
investments, but we don't expect them to exceed 15% of the account's assets.
The account is managed to track the duration of the Lehman Brothers
Aggregate Bond Index. Duration is a measurement of the change in the value of a
bond portfolio in response to a change in interest rates. As of December 31,
2001, the duration of the Lehman Index was 4.53 years. By keeping the account's
duration close to the Lehman Index's duration, the account's returns due to
changes in interest rates should be similar to the Index's returns due to
changes in interest rates.
The account can also invest in mortgage-backed securities. These can
include pass-through securities sold by private, governmental and
government-related organizations and collateralized mortgage obligations (CMOs).
Mortgage pass-through securities are formed when mortgages are pooled together
and interests in the pool are sold to investors. The cash flow from the
underlying mortgages is "passed through" to investors in periodic principal and
interest payments. CMOs are obligations fully collateralized directly or
indirectly by a pool of mortgages on which payments of principal and interest
are dedicated to payment of principal and interest.
The account may make certain other investments, but not as principal
strategies. For example, the account may invest in interest-only and
principal-only mortgage-backed securities. These instruments have unique
characteristics and are more sensitive to prepayment and extension risks than
traditional mortgage-backed securities.
The account may also use a trading technique called "mortgage rolls," in
which we "roll over" an investment in a mortgage-backed security before its
settlement date in exchange for a similar security with a later settlement date.
The account may also engage in duration-neutral relative value trading, a
technique in which we buy and sell government bonds of identical credit quality
but different maturity dates in an attempt to take advantage of spread
differentials along the yield curve. While these techniques are both designed to
enhance the account's returns, we don't expect these techniques to significantly
raise the account's capital gains or losses. There are no commissions on
purchases and sales of fixed income securities, so increased trading will not
raise the account's expenses.
SPECIAL INVESTMENT RISKS: The account is subject to interest rate risk --
that is, prices of portfolio securities held by the account may decline if
interest rates rise. For example, if interest rates rise by 1%, the market value
of a portfolio with a duration of 5 years will decline by approximately 5%.
Non-investment grade securities are usually called "high-yield" or "junk"
bonds. Lower-rated bonds offer higher returns but also entail higher risks.
Their issuers may be less creditworthy or have a higher risk of becoming
insolvent. Small changes in the issuer's creditworthiness can have more impact
on the price of lower-rated bonds than would comparable changes for investment
grade bonds. Lower-rated bonds can also be harder to value or sell, and their
prices can be more volatile than the prices of higher-quality securities.
Bear in mind that all these risks can also apply to the lower levels of
"investment grade" securities, for example, Moody's Baa and S&P's BBB. Also,
securities originally rated "investment grade" are sometimes downgraded later,
should a ratings service believe the issuer's business outlook or
creditworthiness has deteriorated. If that happens to a security in the account,
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 amount in the portfolio above our current investment
target. We don't rely exclusively on credit ratings when making investment
decisions because they may not alone be an accurate measure of the risk of
lower-rated bonds. Instead, we also do our own credit analysis, paying
particular attention to economic trends and other market events.
10 College Retirement Equities Fund PROSPECTUS
The account can hold illiquid securities. The risk of investing in illiquid
securities is that they may be difficult to sell for their fair market value.
The account's investments in mortgage-backed securities are subject to
prepayment or extension risk. This is the possibility that a change in interest
rates would cause the underlying mortgages to pay off their mortgage loans
sooner or later than expected. If that happened, the account would have to
reinvest the amounts that had been invested in the mortgage-backed securities,
possibly at a lower rate of return. If unanticipated extensions occur as a
result of a rising interest rate environment, the account may not receive cash
flows from its investments as early as expected.
See the SAI for an explanation of bond ratings.
INVESTOR PROFILE: The Bond Market Account may be best for individuals who
have a longer time horizon, think bonds will do well over time and want to
balance other holdings invested in stocks. The potential risk of investing in
the account is low to moderate. You can lose money by investing in the account.
INFLATION-LINKED BOND ACCOUNT
INVESTMENT OBJECTIVE: A long-term rate of return that outpaces inflation,
primarily through investment in inflation-indexed bonds -- fixed-income
securities whose returns are designed to track a specified inflation index over
the life of the bond.
INVESTMENT STRATEGY: Under normal circumstances, the Inflation-Linked Bond
Account invests at least 80% of its assets in U.S. Treasury Inflation-Indexed
Securities (TIIS). It can also invest in other inflation-indexed bonds issued or
guaranteed by the U.S. government or its agencies, by corporations and other
U.S. domiciled issuers as well as foreign governments. It can also invest in
money market instruments or other short-term securities.
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-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 that is lower than
that of conventional bonds of comparable maturity and quality, but they are
expected to retain their value against inflation over time.
The principal amount of a TIIS bond is adjusted periodically for inflation
using the Consumer Price Index for All Urban Consumers (CPI-U). Interest is paid
twice a year. The interest rate is fixed, but the amount of each interest
payment varies as the principal is adjusted for inflation.
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.
The interest and principal components of the bonds may be "stripped" or
sold separately. The account can buy or sell either component.
The account may also invest in inflation-indexed bonds issued or guaranteed
by foreign governments and their agencies, as well as other foreign issuers.
These investments are usually designed to track the inflation rate in the
issuing country. We don't expect the account's investments in foreign
inflation-indexed bonds to be more than 25% of assets, although this level may
change.
The account can also hold the same kind of fixed-income securities as the
Bond Market Account. These securities will usually be investment grade. However,
the account can invest up to 5% of its assets in fixed-income instruments that
are rated below investment grade, or in unrated securities of similar quality.
SPECIAL INVESTMENT RISKS: Because the investments in the account are
"marked-to-market" daily and because market values will fluctuate, the account
could lose money on its investments. As a result, its total return may not
actually track the selected inflation index every year.
Market values of inflation-indexed bonds can be affected by changes in the
market's inflation expectations or changes in real rates of interest.
Also, the CPI-U may not accurately reflect the true rate of inflation. If
the market perceives that the index used by TIIS does not accurately reflect
inflation, the market value of those bonds could be adversely affected. In
addition, participants who choose to receive annuity income through this account
should be aware that their income might not keep pace with inflation precisely,
if the average stated interest rate on the account's inflation-indexed bonds is
below about 4%.
INVESTOR PROFILE: The Inflation-Linked Bond Account may be best for
individuals who are especially concerned about high inflation, seek a modest
"real" rate of return (i.e., greater than the inflation rate) and want to
balance holdings in stocks, conventional bonds, and other investments. The
potential risk of investing in the account is low to moderate. You can lose
money by investing in the account.
OTHER INVESTMENTS IN BOND MARKET AND
INFLATION-LINKED BOND ACCOUNTS
The Bond Market and Inflation-Linked Bond Accounts can hold 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. The Bond
Market Account can also hold preferred stock and common stock through conversion
of bonds or exercise of warrants.
To help manage currency risk, the accounts can also buy and sell options,
futures contracts and options on futures (including options and futures on
foreign currencies). They can also enter into forward currency contracts and buy
and sell securities indexed to foreign securities.
The Bond Market and Inflation-Linked Bond Accounts can also buy and sell
swaps and options on swaps. The accounts will use these instruments as hedging
techniques or for cash management and not for speculation. These instruments do,
however, involve special risks. The accounts are not required to hedge
investments.
SOCIAL CHOICE ACCOUNT
INVESTMENT OBJECTIVE: A favorable long-term rate of return that reflects
the investment performance of the financial markets while giving special
consideration to certain social criteria.
INVESTMENT STRATEGY: The Social Choice Account invests in a diversified set
of stocks and other equity securities, bonds and other fixed-income securities,
as well as money-market instruments and other short-term debt instruments. The
account invests only in companies that are suitable from a financial perspective
and whose activities are consistent with the account's social criteria.
The account is balanced, with assets divided between stocks and other
equity securities (currently about 60%) and bonds and other fixed-income
securities, including money-market instruments (about 40%). When market
conditions or transaction needs require, the equity portion can go as high as
70% or as low as 50%, with corresponding changes in the fixed-income portion. We
can change the percentages even further if we think it's appropriate.
CURRENT SOCIAL CRITERIA: The social criteria the account takes into
consideration and any universe of investments that the account utilizes are
nonfundamental investment policies. They can change without the approval of the
account's participants. Currently the account invests only in companies that do
not:
o have a significant portion of their business in weapons manufacturing;
o produce and market alcoholic beverages or tobacco products;
o have a significant portion of their business in gaming or gambling operations;
College Retirement Equities Fund PROSPECTUS 11
o engage in activities that result or are likely to result in significant damage
to the environment;
o produce nuclear energy; or
o have operations in Northern Ireland and have not adopted the MacBride
Principles (a fair employment code for U.S. firms operating in Northern
Ireland) or have not operated consistently with such principles and in
compliance with the Fair Employment Act of 1989 (Northern Ireland).
For the first three criteria, we assess the issuer to decide whether the
activity is a "significant" part of its business -- basing our decision on, for
example, how large a part of a company's operation the activity involves or how
much revenue it brings in. In determining whether a particular activity is
significant to a company, we do not rely on strict objective criteria, but
rather make judgments based on the facts and circumstances pertaining to the
company.
The Corporate Governance and Social Responsibility Committee of our Board
of Trustees provides guidance in deciding whether investments meet the social
criteria. It uses information from independent organizations such as the
Investor Responsibility Research Center. We'll do our best to make sure the
account's investments meet the social criteria, but we can't guarantee that
every holding will always do so. Even if an investment is not excluded by the
social criteria, we have the option of excluding it if we decide it is not
suitable.
The equities portion of the account attempts to track the return of the
U.S. stock market as represented by the Standard & Poor's 500 Index. It does
this primarily by investing in S&P 500 companies that are not excluded by the
account's social criteria so that this portion of the account approaches the
overall characteristics (e.g., yield and weight) of the S&P 500.
The account is not restricted from investing in any securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities. The
account can also invest in securities issued by other countries or their
agencies and instrumentalities as approved by the Committee on Corporate
Governance and Social Responsibility. The account can also invest up to 15% of
its assets in foreign securities.
The fixed-income portion of the account will invest in the same kinds of
securities as the Bond Market Account. This portion may also use a trading
technique called "mortgage rolls" which is described on page 10. Use of this
technique by the account will have the same benefits and risks described on page
10.
Money-market instruments and short-term debt securities will be of the same
type as those held by the Money Market Account. The account can also hold other
kinds of short-term instruments. These help us maintain liquidity, use cash
balances effectively, and take advantage of attractive investment opportunities.
The account may also buy and sell options, swaps, options on swaps, futures
contracts and options on futures. The account will use these instruments as
hedging techniques or for cash management and not for speculation. These
instruments do, however, involve special risks. The account is not required to
hedge its investments.
As of July 1, 2002, the account will seek to track the return of the
Russell 3000 Index. It will do this by primarily investing in companies included
in the Kinder, Lydenberg, Domini & Co., Inc.'s ("KLD") Broad Market Social Index
(the "BMSI")(2) which is a socially screened subset of companies in the Russell
3000 so that the account's portfolio approaches the overall investment
characteristics of the Russell 3000.
Companies that are currently excluded from the BMSI include:
o Companies that derive any revenues from the manufacture of alcohol or tobacco
products;
o Companies that derive any revenues from gambling;
o Companies that derive significant revenues from the production of military
weapons; or
o Electric utilities that own interests in nuclear power plants or derive
electricity from nuclear power plants in which they have any interest.
The remaining companies will then be evaluated for their records in certain
qualitative areas. Concerns in one area will not automatically eliminate the
company from the BMSI. The following are some of the principal social criteria
that KLD currently considers when selecting companies for inclusion in the BMSI:
o Safe and useful products, including a company's record with respect to
product safety, marketing practices, commitment to quality and research
and development;
o Employee relations, including a company's record with respect to labor
matters, workplace safety, equal employment opportunities, employee benefit
programs, non-U.S. operations, and a meaningful participation in company
profits either through stock purchase or profit sharing plans;
o Corporate citizenship, including a company's record with respect to
philanthropic activities and community relations;
o Environmental performance, including a company's record with respect to fines
or penalties, waste disposal, toxic emissions, efforts in waste reduction and
emissions reduction, recycling, and environmentally beneficial fuels, products
and services; and
o Diversity, including a company's record with respect to appointment of women
and minorities to its board of directors and senior management positions.
The BMSI is reconstituted once a year based on an updated list of the
companies comprising the Russell 3000 Index. As of January 2002, the BMSI
comprised approximately 2,346 companies in the Russell 3000 that passed certain
exclusionary and qualitative screens.
SPECIAL INVESTMENT RISKS: Because its social criteria exclude some
investments, the account may not be able to take advantage of opportunities or
market trends as do the accounts that don't use such criteria. Because only part
of the account's assets is in stocks and other equity securities, overall
returns may not parallel the U.S. stock market as a whole. However, we expect
that the account will have less risk than a portfolio made up exclusively of
common stocks.
INVESTOR PROFILE: The Social Choice Account may be best for individuals who
want to avoid investing in companies that do not meet certain social criteria
screens, want an account balanced among stocks, bonds and the money market and
want an account that may be less volatile than a stock account.
----------
(2) THE SOCIAL CHOICE ACCOUNT IS NOT PROMOTED, SPONSORED OR ENDORSED BY, NOR IN
ANY WAY AFFILIATED WITH KLD RESEARCH & ANALYTICS, INC.; KLD RESEARCH &
ANALYTICS, INC. IS NOT RESPONSIBLE FOR AND HAS NOT REVIEWED THE ACCOUNT,
NOR ANY ASSOCIATED LITERATURE OR PUBLICATIONS AND IT MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THEIR ACCURACY, OR
COMPLETENESS, OR OTHERWISE.
KLD RESEARCH & ANALYTICS, INC.'S PUBLICATION OF THE KLD INDEXES IN NO WAY
SUGGESTS OR IMPLIES AN OPINION BY IT AS TO THE ATTRACTIVENESS OR
APPROPRIATENESS OF INVESTMENT IN ANY OR ALL SECURITIES UPON WHICH THE KLD
INDEXES ARE BASED. KLD RESEARCH & ANALYTICS, INC. MAKES NO EXPRESS OR
IMPLIED WARRANTY, AND EXPRESSLY DISCLAIMS ANY WARRANTY, OF ANY KIND,
INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE WITH RESPECT TO THE KLD INDEXES OR ANY DATA OR ANY
SECURITY (OR COMBINATION THEREOF) INCLUDED THEREIN.
KLD BROAD MARKET SOCIAL INDEX(SM) IS DERIVED FROM THE CONSTITUENTS OF THE
RUSSELL 3000 INDEX. THE RUSSELL 3000 INDEX IS A TRADEMARK/SERVICE MARK OF
THE FRANK RUSSELL COMPANY (FRC). THE USE OF THE RUSSELL 3000 INDEX AS THE
UNIVERSE FOR THE KLD BROAD MARKET SOCIAL INDEX IN NO WAY SUGGESTS OR
IMPLIES AN OPINION BY FRC AS TO THE ATTRACTIVENESS OF THE KLD BROAD MARKET
SOCIAL INDEX OR OF THE INVESTMENT IN ANY OR ALL OF THE SECURITIES UPON
WHICH THE RUSSELL INDEXES OR KLD INDEXES ARE BASED.
12 College Retirement Equities Fund PROSPECTUS
The potential risk of investing in the account is low to moderate. You can lose
money by investing in the account.
MONEY MARKET ACCOUNT
INVESTMENT OBJECTIVE: High current income consistent with maintaining
liquidity and preserving capital.
INVESTMENT STRATEGY: Substantially all the Money Market Account's assets
will be invested 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 of the account won't be more
than 90 days.
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 domestic or
dollar-denominated foreign companies;
(2) Obligations of commercial banks, savings banks, savings and loan
associations, and foreign banks whose latest annual financial statements
show more than $1 billion in assets. These include certificates of deposit,
time deposits, banker's acceptances, and other short-term debt;
(3) Securities issued by or whose principal and interest are guaranteed by the
U.S. government or one of its agencies or instrumentalities;
(4) Other debt obligations with a remaining maturity of 397 days or less issued
by domestic or foreign companies;
(5) Repurchase agreements involving securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, or involving
certificates of deposit, commercial paper, or bankers' acceptances;
(6) Participation interests in loans banks have made to the issuers of (1) and
(4) above (these may be considered illiquid);
(7) Asset-backed securities issued by domestic corporations or trusts;
(8) Obligations issued or guaranteed by foreign governments or their political
subdivisions, agencies, or instrumentalities; and
(9) Obligations of international organizations (and related government
agencies) designated or supported by the U.S. or foreign government
agencies to promote economic development or international banking.
The 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,
rated within the highest category by at least two nationally recognized
statistical rating organizations (NRSROs), or rated within the highest category
by one NRSRO if it is the only NRSRO to have issued a rating for the security,
or unrated securities of comparable quality. Up to 5% of the account's assets
may be invested in "second tier" securities -- securities rated within the two
highest categories by at least two NRSROs or in unrated securities of comparable
quality. The account can also invest up to 30% of its assets in money-market and
debt instruments of foreign issuers denominated in U.S. dollars.
The above list of investments is not exclusive and the account may make
other investments consistent with its investment objective and policies.
SPECIAL INVESTMENT RISKS: The account is subject to the risk of current
income volatility -- that is, the income the account receives may fall as a
result of a decline in interest rates. To a lesser extent, the account is also
subject to the general risks described on page 8.
INVESTOR PROFILE: The Money Market Account may be best for individuals who
have a shorter time horizon, want to keep up with inflation but aren't looking
for high "real" returns over inflation and are risk averse. The potential risk
of investing in the account is very low. You may, however, lose money by
investing in this account. An investment in the Money Market Account is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
ADDITIONAL INVESTMENT TOOLS AND RISKS
At times, the CREF accounts may use certain investment tools to enhance returns
or hedge risk. This section summarizes these tools and their risks. For more
information on the tools described and their risks, please see the SAI.
FOREIGN INVESTMENTS
CREF has extensive experience managing foreign investments, including those not
registered or traded in the United States. An account's foreign portfolio may be
divided into segments -- some designed to track foreign markets as a whole, and
others with stocks selected individually for their investment potential. We
invest in a wide range of foreign securities in an effort to reduce the risks
and increase the opportunity for returns. The percentages of foreign assets in
each account change daily as a result of new transactions, market value
fluctuations and changes in foreign currency exchange rates.
Investing in foreign securities, especially those not issued by foreign
governments, involves special risks. These include:
o Changes in currency exchange rates;
o Possible market controls or currency exchange controls;
o Possible withholding of taxes on dividends and interest;
o Possible seizure, expropriation, or nationalization of assets;
o More limited foreign financial information or difficulty in interpretation due
to foreign regulations and accounting standards;
o Lower liquidity and higher volatility in some foreign markets;
o The impact of political, social, or diplomatic events;
o The difficulty of evaluating some foreign economic trends;
o The possibility that a foreign government could restrict an issuer from paying
principal and interest to investors outside the country; and
o Difficulty in using foreign legal systems to enforce financial or legal
obligations.
Also, brokerage commissions and transaction costs are often higher for
foreign investments.
The accounts can also invest in countries with emerging markets. The risks
just listed often increase in emerging markets. For example, these countries may
have more unstable governments than developed countries, and their economies may
be based on only a few industries. Because their securities markets may be very
small, prices may be volatile. In addition, foreign investors are subject to a
variety of special restrictions in many emerging countries.
The accounts may use currency transactions to help protect against future
exchange rate uncertainties and to take advantage of differences in exchange
rates. Changes in exchange rates and exchange control regulations may increase
or reduce the value of a security. Currency transactions involve special risks
and may limit potential gains due to increases in a currency's value. We do not
intend to speculate in foreign currency exchange transactions or forward
currency contracts.
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 with that of the U.S. market as a whole, and may enhance long-term
returns.
The establishment of the eleven country European Monetary Union, a subset
of the European Union countries, with its own central bank, the European Central
Bank; its own currency, the euro; and a single interest rate
College Retirement Equities Fund PROSPECTUS 13
structure represents a new economic entity; the euro-area. While authority for
monetary policy thus shifts from national hands to an independent supranational
body, sovereignty elsewhere remains largely at the national level. Uncertainties
with regard to balancing of monetary policy against national fiscal and other
political issues and their extensive ramifications represent important risk
considerations for investors in these countries.
OPTIONS, FUTURES AND OTHER DERIVATIVES
The CREF accounts can buy and sell options, futures, and other derivatives. We
intend to use these securities for cash management purposes or as hedging
techniques, although we are not obligated to hedge any investments. Generally,
investing in these instruments draws upon special skills and experience that may
be different from skills needed to choose other types of securities for the
accounts. Special risks of these instruments include the possibility that the
prices of certain derivatives may not correlate perfectly with the prices of the
securities, currencies, or interest rates being hedged. In addition, a liquid
secondary market for over-the-counter options may not be available at a
particular time.
ILLIQUID SECURITIES
Each account can invest up to 10% of its assets in investments that may not be
readily marketable, making it difficult to sell the securities quickly at fair
market value.
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 date. We would do this if we expect a
decline in interest rates, believing it may be better to commit now with a later
issue or delivery date. We may also purchase securities on a "when issued"
basis, with the exact terms set at the time of the transaction.
SECURITIES LENDING
The CREF accounts can seek extra income by lending securities to brokers,
dealers, and other financial institutions, subject to certain restrictions. If
we lend a security, we can call in the loan at any time. Although all loans are
fully collateralized, if a borrower defaults, an account could lose money.
BORROWING
As a temporary measure for extraordinary or emergency purposes, the Stock,
Global Equities, Bond Market, Social Choice, and Money Market Accounts can
borrow money from banks, not exceeding 10% of any of the accounts' market value
at the time of borrowing. These accounts can also borrow up to 5% of their
assets' value to buy securities. Each account can pledge or otherwise encumber
up to 10% of its assets at the time of borrowing as collateral.
The Growth, Equity Index, and Inflation-Linked Bond Accounts can also
borrow money from banks, not exceeding 33 1/3% of each of the accounts' market
value at the time of borrowing. These accounts can borrow from other sources
temporarily, but no more than 5% of their assets' value.
If an account borrows money, it could leverage its portfolio by keeping
securities that it might otherwise have sold had it not borrowed money. The
risks of leverage include a greater possibility that an account's net asset
value may change during market fluctuations.
INVESTMENT COMPANIES
Each account can invest up to 10% of its assets in other investment companies,
including mutual funds. When an account invests in another investment company,
it bears a proportionate share of expenses charged by the investment company in
which it invests.
REPURCHASE AGREEMENTS
The CREF accounts can use repurchase agreements to help manage
cash balances.
PERFORMANCE INFORMATION
From time to time, CREF advertises total return and average annual total return
for each of its accounts. For the Bond Market and Money Market Accounts, we also
advertise yield.
TOTAL RETURNS
"Total return" is the cumulative percentage increase or decrease in the value of
an investment over standard one-, five- and ten-year periods. "Average annual
total return" is the annually compounded rate that would result in the same
cumulative total return over the specified period.
MONEY MARKET ACCOUNT YIELDS
For the Money Market Account, we calculate a "yield" or "current yield." This
yield is the income generated by an investment over a seven-day period (after
expenses). We then annualize this yield by assuming the account will earn the
same rate each week for 52 weeks, then show the total income as a percentage of
the original investment. "Effective yield" may also be advertised. We calculate
this in a similar way, but we assume that the income is reinvested in the
account. The effective yield will be higher than the current yield because of
compounding.
BOND MARKET ACCOUNT YIELDS
For the Bond Market Account, we calculate a thirty-day yield. This yield is
the income generated by an investment over a thirty-day period (after expenses).
We then assume this yield is compounded monthly for six months, then annualized.
INVESTMENT MANAGEMENT
A Board of Trustees governs CREF. The Board oversees CREF's administration and
investments, reviews service contracts, and evaluates each account's
performance. TIAA-CREF Investment Management, LLC, a nonprofit subsidiary of
TIAA, manages the assets in each CREF account and is registered under the
Investment Advisers Act of 1940. TIAA-CREF Investment Management also conducts
research, recommends investments, and places buy and sell orders for the CREF
accounts. It also performs portfolio accounting and related services for each
account. All services are at cost.
ALLOCATIONS AMONG AFFILIATED ACCOUNTS
The managers of the CREF accounts may manage the assets of certain affiliated
accounts. Investment decisions for the CREF accounts and any affiliated account
will be made independently. Sometimes, however, managers may decide either to
buy or sell a security at the same time for more than one CREF account or
affiliated account. If so, investment opportunities are allocated equitably.
This can have an adverse effect on the size of the position each CREF account
buys or sells, as well as the price received or paid for it.
ADDING, CLOSING, OR SUBSTITUTING ACCOUNTS
CREF can add or close accounts, substitute one account for another, combine
accounts, discontinue accounts, and suspend the acceptance of premiums and/or
transfers into an account. Depending on the terms of an employer's retirement
plan, CREF can also restrict whether and how we offer an account. If an account
is closed or we stop accepting premiums into that account, we'll notify
participants and request that they allocate premiums and/or transfer
accumulations to another account. If you're notified of such a change and don't
respond, we'll place any premiums, accumulations, or annuity income affected by
the change in the Money Market Account. Unless required by law, CREF will not
close, substitute for, or stop accepting premiums and transfers to the Stock and
Money Market Accounts.
14 College Retirement Equities Fund PROSPECTUS
THE ANNUITY CERTIFICATES
CREF offers certificates for the following types of variable annuities:
RA (RETIREMENT ANNUITY) AND GRA (GROUP RETIREMENT ANNUITY): RA and GRA
certificates are used mainly for employee retirement plans.
Depending on the terms of your employer's plan, RA premiums can be paid by
your employer, you, or both. If you're paying some or all of the entire periodic
premium, your contributions can be in either pre-tax dollars by salary
reduction, or after-tax dollars by payroll deduction. You can also transfer
accumulations from another investment choice under your employer's plan to your
RA certificate. For RAs only, you can make contributions directly to CREF.
GRA premiums can come from your employer only or both you and your
employer. Your GRA premiums can be from pre-tax or after-tax contributions. You
can't pay GRA premiums directly to CREF; your employer must send them for you.
As with RAs, you can transfer accumulations from another investment choice under
your employer's plan to your GRA certificate.
SRA (SUPPLEMENTAL RETIREMENT ANNUITY) AND GSRA (GROUP SUPPLEMENTAL
RETIREMENT ANNUITY): These are for voluntary tax-deferred annuity (TDA) plans.
SRA certificates are issued directly to you; GSRA certificates are issued
through an agreement between your employer and CREF. Your employer pays premiums
in pre-tax dollars through salary reduction. Although you can't pay premiums
directly, you can transfer amounts from other TDA plans.
GA (GROUP ANNUITY) AND INSTITUTIONALLY-OWNED GSRA: These are used
exclusively for employer retirement plans and are issued directly to your
employer or your plan's trustee. Your employer pays premiums directly to CREF.
Your employer or the plan's trustee may control the allocation of contributions
and transfers to and from these certificates. If a GA or GSRA certificate is
issued pursuant to your plan, the rules relating to transferring and withdrawing
your money, receiving any annuity income or death benefits, and the timing of
payments are determined by your plan. Ask your employer or plan administrator
for more information.
CLASSIC IRA: You and your spouse can each open a Classic IRA with an annual
contribution of up to $3,000 each or by rolling over funds from another IRA or
an eligible retirement plan, if you meet our eligibility requirements. If you
are age 50 or older, you may contribute up to $3,500. The combined limit for
your contribution to a Classic IRA and a Roth IRA for a single year is $3,000,
or $3,500 if you are age 50 or older, excluding rollovers.
ROTH IRA: You or your spouse can each open a Roth IRA with an annual
contribution of up to $3,000 or with a rollover from another IRA or a Classic
IRA issued by CREF, if you meet our eligibility requirements. If you are age 50
or older, you may contribute up to $3,500. The combined limit for your
contributions to a Classic IRA and a Roth IRA for a single year is $3,000, or
$3,500 if you are age 50 or older, excluding rollovers.
Both Classic and Roth IRAs are issued directly to you. Joint accounts are
not permissible. Classic and Roth IRAs may together be referred to as "IRAs" in
this prospectus.
KEOGH CERTIFICATES: CREF also offers certificates under Keogh plans. A
self-employed individual who owns an unincorporated business can use our Keogh
certificates for a Keogh plan, and cover common law employees, subject to our
eligibility requirements.
ELIGIBILITY FOR IRAS AND KEOGH CERTIFICATES: You and your spouse can open a
Classic or Roth IRA or use our Keogh certificates if you are a current or
retired employee or a trustee of an eligible institution, or if you own a TIAA
or CREF annuity contract or a TIAA individual insurance contract. To be
considered a retired employee for this purpose, an individual must be at least
55 years old and have completed at least 3 years of service at an eligible
institution. In the case of partnerships, at least half the partners must be
eligible individuals and the partnership itself must be primarily engaged in
education or research.
STARTING OUT
Generally, we'll issue you a CREF certificate when we receive your completed
application or enrollment form. If we receive premiums from your employer before
your application or enrollment form, we'll generally invest the money in the
Money Market Account until we receive your form. When the completed form
arrives, we'll transfer the appropriate amounts to the accounts you've
specified, crediting them as of the end of the business day we receive the form.
Some employer plans may, however, require that we send such premiums back to the
employer.
If your application or enrollment form is incomplete, allocations violate
employer plan restrictions, or total more than 100%, we'll invest your premiums
in the Money Market Account. If your allocation instructions total less than
100%, we'll credit the percentage that is not allocated to a specific account to
the Money Market Account. The balance will be invested as you instructed. After
we receive a complete and correct application, we'll follow your allocation
instructions for future premiums. However, in this situation, you must request
that we transfer any premiums invested in the Money Market Account to your
account choices. Such transfers will be made as of the end of the business day
we receive your request.
CREF currently doesn't restrict the amount or frequency of premiums to your
RA, GRA, or IRA certificates, although we reserve the right to impose
restrictions. Your employer's retirement plan may limit your premium amounts. In
addition, the Internal Revenue Code limits the total annual premiums to plans
qualified for favorable tax treatment.
If you pay premiums directly to an RA or IRA, the premiums and any earnings
are not subject to your employer's retirement plan. The only restrictions
relating to these premiums are in the certificate itself.
In most cases, CREF accepts premiums to a certificate during your
accumulation period. Once your first premium has been paid, your CREF
certificate can't lapse or be forfeited for nonpayment of premiums. CREF can
stop accepting premiums to GRA, GSRA, GA, Keogh and Institutional GSRA
certificates at any time.
CHOOSING AN ACCOUNT
After you receive your certificate, you can allocate your premiums among the
CREF accounts unless your employer's plan blocks some accounts. With RAs, GRAs,
GSRAs, or Keoghs, your employer cannot block the Stock or Money Market Accounts.
Allocations you make to an SRA or IRA are not subject to your employer's plan.
You can change your allocation for future premiums by:
o writing to our home office;
o using the TIAA-CREF Web Center's account access feature at
www.tiaa-cref.org; or
o calling our Automated Telephone Service (24 hours a day) at 800-842-2252.
DETERMINING THE VALUE OF YOUR CERTIFICATE -- ACCUMULATION UNITS
To determine the amount of money in your account, we use a measure called an
accumulation unit. Each payment to your certificate, which is credited at the
end of the business day in which we receive it, buys a number of accumulation
units. The accumulation unit value for each account depends on the account's
investment performance and its expenses. We calculate accumulation unit values
at the end of each valuation day. The number of accumulation units you own
equals your accumulation in an account divided by the accumulation unit value
for that account. To determine accumulation unit values for transfers and cash
withdrawals, we use the unit values calculated at the end of the business day on
which we receive your completed request and required documents.
College Retirement Equities Fund PROSPECTUS 15
IF YOU NEED TO CANCEL
You may cancel any RA, SRA, GSRA, Classic IRA, Roth IRA or Keogh certificate up
to 30 days after you receive it unless we have begun making annuity payments
from it. To cancel, mail or deliver the certificate with a signed Notice of
Cancellation (available by contacting CREF) to our home office. We'll cancel the
certificate, then send the entire current accumulation to whomever sent the
premiums. You bear the investment risk during this period.
HOW WE VALUE ASSETS
We calculate the value of the assets in each account as of the close of every
valuation day. We use market quotations or independent pricing services to value
securities and other instruments. If these aren't available, we'll value the
securities using "fair value," as determined by the CREF Board of Trustees. We
may also use "fair value" in certain other circumstances. In the Money Market
Account, we value short-term money market instruments with a remaining maturity
of 60 days or less based on their amortized cost. See the SAI for more
information.
HOW TO TRANSFER AND WITHDRAW YOUR MONEY
Generally, CREF allows you to move your money to and from the CREF accounts in
the following manner:
o Among the CREF accounts;
o From the CREF accounts to the TIAA Real Estate Account or the TIAA traditional
annuity;
o To the CREF accounts from the TIAA Real Estate Account or the TIAA traditional
annuity (transfers from TIAA RA or GRA contracts to CREF are subject to
restrictions under the terms of those contracts);
o From the CREF accounts to other companies;
o To the CREF accounts from other companies/plans;
o By withdrawing cash; or
o By setting up a program of systematic withdrawals and transfers.
These options may be limited by the terms of your employer's plan or by
current tax law. Transfers and cash withdrawals from a CREF account must be at
least $1,000 or your entire accumulation, if less. Transfers from the TIAA Real
Estate Account to CREF are limited to once per calendar quarter. Transfers and
cash withdrawals are currently free. CREF can place restrictions on transfers or
charge fees for transfers and withdrawals in the future.
Transfers and cash withdrawals are effective at the end of the business day
we receive your request and all required documentation. You can also choose to
have transfers and withdrawals take effect at the end 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. If you request a transfer at any time other than during a business
day, it will be effective at the close of the next business day.
SYSTEMATIC WITHDRAWALS AND TRANSFERS
If your employer's plan allows, you can set up a program to make cash
withdrawals or transfers automatically by specifying that we withdraw or
transfer from an account accumulation any fixed number of accumulation units,
dollar amount or percentage of accumulation until you tell us to stop or until
your accumulation is exhausted. Currently, the program must be set up so that at
least $100 is automatically withdrawn or transferred at a time.
TRANSFERS TO AND FROM OTHER TIAA-CREF ACCOUNTS
Subject to the conditions below, you can transfer some or all of your
accumulation from one CREF account to another, to TIAA's traditional annuity or
the TIAA Real Estate Account or to mutual funds offered under the terms of your
plan. You can also transfer from the TIAA traditional annuity and TIAA Real
Estate Account to CREF certificates.
Under RA, GSRA, GRA and Keogh certificates, your employer's plan may
restrict transfers to any CREF account except the Stock and Money Market
Accounts. Under SRA and IRA certificates, you can transfer funds without
employer restrictions among the CREF accounts and to TIAA. If your institution
offers a GSRA plan, you can also transfer CREF funds between SRA and GSRA
certificates.
TRANSFERS FROM OTHER COMPANIES/PLANS
Subject to your employer's plan, you can usually transfer or roll over money
from another 403(b) or 401(a)/403(a) and governmental 457(b) retirement plan to
your CREF certificate. You may also roll over before tax amounts in a Classic
IRA to 403(b) plans, 401(a)/403(a) plans or eligible governmental 457(b) plans,
provided such employer plans agree to accept the rollover. Similarly, you can
transfer money to CREF from other 401(a) and 403(a) plans. Amounts transferred
to CREF may be subject to the provisions of your original employer's plan.
Similarly, subject to your employer's plan, you may be able to roll over funds
from 401(a), 403(a), and 403(b) and governmental 457(b) plans to a CREF Classic
IRA, or subject to applicable income limits, from an IRA containing funds
originally contributed to such plans, to either a CREF Classic or Roth IRA.
Funds in a private 457(b) plan can be transferred to another private 457(b) plan
only. Accumulations in private 457(b) plans may not be rolled over to a
qualified plan (e.g., a 401(a) plan), a 403(b) plan, a governmental 457(b) plan
or an IRA.
TRANSFERS TO OTHER COMPANIES
If you have an RA, GRA, GSRA or Keogh certificate, your right to transfer your
money to a company other than CREF may depend on your employer's retirement
plan. If your employer participates in our special transfer services program, we
can make automatic monthly transfers from your RA or GRA certificate to another
company. You may also be able to transfer accumulations in SRA, GSRA, IRA or
Keogh certificates to another company subject to certain tax restrictions.
WITHDRAWALS
You can withdraw some or all of your RA, GRA, GSRA or Keogh accumulations
subject to your employer's plan and certain tax restrictions. You can also
withdraw some or all of your SRA or IRA accumulations subject to certain tax
restrictions. You can't withdraw money from a certificate if you are already
receiving lifetime annuity income from that certificate.
If you have a small account value (under $4,000) when you leave your
employer or retire, your employer's plan may allow you to have CREF cash out
some or all of your RA.
Under current federal tax law, you can't withdraw money from salary
reduction agreements under your retirement plan that are held in your CREF
certificates unless you are age 59 1/2, leave your job, become disabled, or die.
If the money is in a 403(b) annuity, these restrictions apply to premiums and
earnings credited after December 31, 1988. The restrictions apply to all salary
reduction amounts under a 401(k) plan and funds transferred to CREF from a
403(b)(7) custodial account. If your employer's plan permits, you may also be
able to withdraw money for certain hardships as defined under the Internal
Revenue Code, but in that case you can withdraw only premiums, not earnings.
Under current federal tax law, withdrawals from 457(b) plans are not
permitted earlier than the calendar year in which you reach age 70 1/2, leave
your job or are faced with an unforeseeable emergency (as defined by law). In
addition, there are generally no early withdrawal tax penalties (i.e., no 10%
excise tax on distributions prior to age 59 1/2).
If you're married, you may be required by law or by your employer's plan to
show us advance written consent from your spouse before we make certain
transactions on your behalf.
Special rules and restrictions apply to IRAs.
16 College Retirement Equities Fund PROSPECTUS
WITHDRAWALS TO PAY ADVISORY FEES
You can set up a program to have monies withdrawn directly from your retirement
plan or IRA accumulations to pay your financial advisor, if your employer's plan
allows. CREF reserves the right to determine the eligibility of financial
advisors for this type of fee reimbursement. You will be required to complete
and return certain forms to effect these withdrawals, including how and from
which accounts you want these monies to be withdrawn. Before you set up this
program, make sure you understand the possible tax consequences of these
withdrawals. See the discussion under "Taxes" below.
HOW TO MAKE TRANSFERS OR WITHDRAWALS
To request a transfer or withdrawal, you can do one of the following:
o write to CREF's home office;
o call us at our Automated Telephone Service at 800-842-2252; or
o for internal transfers, using the TIAA-CREF Web Center's account access
feature at www.tiaa-cref.org.
You may be required to complete and return certain forms to effect these
transactions. We can suspend or terminate your ability to transact by telephone,
fax or over the Internet at any time, for any reason.
There may be tax law restrictions on certain transfers. Before you transfer
or withdraw cash, make sure you also understand the possible federal and other
income tax consequences.
MARKET TIMING POLICY
There are participants who may try to profit from transferring money back and
forth among the CREF accounts, the TIAA Real Estate Account and mutual funds
available under the terms of your plan, in an effort to "time" the market. As
money is shifted in and out of these accounts, we incur transaction costs,
including, among other things, expenses for buying and selling securities. These
costs are borne by all participants, including long-term investors who do not
generate the costs. To discourage this market-timing activity, participants who
make more than three transfers out of any account (other than the Money Market
Account) in a calendar month will be advised that if this transfer frequency
continues, we will suspend their ability to make telephone, fax and internet
transfers. We have the right to modify our policy at any time without advance
notice.
WHEN YOU ARE READY TO RECEIVE YOUR ANNUITY INCOME
THE ANNUITY PERIOD IN GENERAL
You can receive an income stream from all or part of an accumulation in any CREF
account. Generally you must be at least age 59 1/2 to begin receiving annuity
income other than from a lifetime annuity. Otherwise, you may have to pay a 10%
penalty tax on the taxable amount, except under certain circumstances. In
addition, you cannot begin receiving income later than permitted under the
minimum distribution rules of the Internal Revenue Code. Your employer's plan
may restrict when you can begin income payments. Also, you cannot begin a life
annuity after age 90 or a joint life annuity after either you or your annuity
partner reaches age 90.
Your income payments may be paid out from the CREF accounts through a
variety of income options. You can pick a different income option for different
portions of your accumulation, but once you've started payments you usually
can't change your income option or annuity partner for that payment stream.
Usually income payments are monthly. You can choose quarterly, semiannual,
and annual payments as well. (CREF has the right to not make payments at any
interval that would cause the initial payment to be less than $100.) We'll send
your payments by mail to your home address or, on your request, by mail or
electronic funds transfer to your bank.
Your initial income payments are based on the value of your accumulation on
the last valuation day before the annuity starting date. We calculate initial
income based on:
o the amount of money you have accumulated in an account;
o the income option or options you choose; and
o an assumed annual investment return of 4%, and for life annuities, mortality
assumptions for you and your annuity partner, if you have one.
Your payments change after the initial payment primarily based on net
investment results and expenses for an account and the mortality experience for
the income change method in that account.
There are two income change methods for annuity payments: annual and
monthly. Under the annual income change method, payments change each May 1,
based on the net investment results of an account during the prior year (April 1
through March 31). Under the monthly income change method, payments change every
month, based on the net investment results during the previous month. The total
value of your annuity payments may be more or less than your total premiums.
ANNUITY STARTING DATE
Generally, you pick an annuity starting date when you first apply for a CREF
certificate but you can change this date at any time prior to the day before
that annuity starting date. Ordinarily, annuity payments begin on your annuity
starting date, provided we have received all documentation necessary for the
income option you've picked. If something's missing, we'll defer your annuity
starting date until we receive it. Your first annuity check may be delayed while
we process your choice of income options and calculate the amount of your
initial payment.
Any premiums received within 70 days after payments begin may be used to
provide additional annuity income. Premiums received after 70 days will remain
in your accumulating annuity contract until you give us further instructions.
Ordinarily, your first annuity payment can be made on any business day between
the first and twentieth of any month.
ANNUITY INCOME OPTIONS
Both the number of annuity units you purchase and the amount of your income
payments will depend on which income option you pick. Your employer's plan, tax
law, and ERISA may limit which income options you can use to receive income from
an RA, GRA, GSRA or Keogh. Ordinarily you'll choose your income options shortly
before you want payments to begin but you can make or change your choice any
time before your annuity starting date.
All CREF income options provide variable payments, and the amount of income
you receive depends in part on the investment experience of your chosen
accounts. The current options are:
o ONE-LIFE ANNUITY: Pays income for as long as you live. It's possible for you
to receive only one payment if you die less than a month after payments start.
o ANNUITY WITH 10-, 15- OR 20-YEAR GUARANTEED PERIOD: Pays income for as long as
you live but no less than the guaranteed period.
o ANNUITY FOR A FIXED PERIOD: Pays income for any period you choose from 5 to 30
years (2 to 30 years for RAs, GRAs and SRAs).
o TWO-LIFE ANNUITIES: Pays income to you as long as you live, then continues at
either the same or a reduced level for the life of your annuity partner. There
are three types of two-life annuity options, all available with or without a
guaranteed period -- full benefit to survivor, two-thirds benefit to survivor,
and a half-benefit to annuity partner. Under the two-thirds benefit to
survivor annuity, payments to you will be reduced upon the death of your
annuity partner.
College Retirement Equities Fund PROSPECTUS 17
o MINIMUM DISTRIBUTION OPTION ("MDO") ANNUITY: Generally available only if you
must begin annuity payments under the Internal Revenue Code's minimum
distribution requirements. (Some employer plans allow you to elect this option
earlier -- contact CREF for more information.) The option pays an amount
designed to fulfill distribution requirements under federal tax law. You must
apply your entire accumulation under a certificate if you want to use the MDO
annuity. It is possible that income under the MDO annuity will cease during
your lifetime. Prior to age 90, you can apply any remaining part of an
accumulation applied to the MDO annuity to any other income option for which
you're eligible. Using an MDO won't affect your right to take a cash
withdrawal of any accumulation not yet distributed.
For any of the income options described above, under current federal tax
law, your guaranteed period can't exceed the joint life expectancy of you and
your beneficiary or annuity partner. If you are married at your annuity start
date, you may be required by law to choose an income option that provides
survivor annuity income to your spouse, unless your spouse waives that right.
Other income options may become available in the future, subject to the
terms of your retirement plan and relevant federal and state laws. For more
information about any annuity option, please contact us.
RECEIVING LUMP SUM PAYMENTS (RETIREMENT TRANSITION BENEFIT): If your
employer's plan allows, you may be able to receive a single sum payment of up to
10% of the value of any part of an RA or GRA accumulation being converted to
annuity income on the annuity starting date. Of course, if your employer's plan
allows cash withdrawals, you can take a larger amount (up to 100%) of your
accumulation in any CREF account as a cash payment. The retirement transition
benefit will be subject to current federal income tax requirements and possible
early distribution penalties.
If you haven't picked an income option when the annuity starting date
arrives for your RA, GRA, SRA or GSRA certificate, CREF usually will assume you
want the one-life annuity with 10-year guaranteed period if you're unmarried. If
you're married, we may assume for you a two-life annuity with half-benefit to
annuity partner with a 10-year guaranteed period, with your spouse as your
annuity partner. If you haven't picked an income option when the annuity
starting date arrives for your IRA, we may assume you want the minimum
distribution annuity.
TRANSFERS DURING THE ANNUITY PERIOD
Once each calendar quarter, you can transfer income payable from one CREF
account to a comparable annuity from another CREF account, the TIAA traditional
annuity, or the TIAA Real Estate Account. A comparable annuity is an annuity
that is payable under the same income option and has the same annuitant(s) and
remaining guaranteed period, if any.
Annuitants receiving income from TIAA lifetime annuities may transfer some
or all of their income to comparable lifetime annuities funded through the
Stock, Global Equities, Growth, Equity Index or Social Choice Accounts. Such
transfers are limited to 20% of annuity income in any year. A program
transferring all income in installments annually over a five year period may
also be chosen. Once income has been transferred from TIAA, subsequent transfers
may be made only among the Stock, Global Equities, Growth, Equity Index and
Social Choice Accounts. Transfers to other CREF accounts or back to TIAA will
not be permitted. We'll process the transfer on the business day we receive your
request unless you've asked that the transfer take effect on another future
business day or the last day of a calendar month.
Transfers under the annual income payment method will affect your annuity
payments beginning on the May 1 following the March 31 that is on or after the
effective date of the transfer. Transfers under the monthly income payment
method and all transfers into TIAA's traditional annuity will affect your
annuity payments beginning with the first payment due after the monthly payment
valuation day that is on or after the transfer date. Under this method, we value
annuity units on the 20th of each month or on the preceding business day if the
20th is not a business day. You can switch between the annual and monthly income
change methods, and the switch will go into effect on the following March 31.
DEATH BENEFITS
CHOOSING BENEFICIARIES
Death benefits under CREF annuity certificates are payable to the beneficiaries
you name. When you purchase your annuity certificate, you name one or more
beneficiaries to receive the death benefit if you die. You can generally change
your beneficiaries anytime before you die, and, unless you instruct otherwise,
your annuity partner can do the same after your death.
YOUR SPOUSE'S RIGHTS
Your choice of beneficiary for death benefits may, in some cases, be subject to
the consent of your spouse. Similarly, if you are married at the time of your
death, federal law may require a portion of the death benefit be paid to your
spouse even if you have named someone else as beneficiary. If you die without
having named any beneficiary, any portion of your death benefit not payable to
your spouse will go to your estate.
AMOUNT OF DEATH BENEFIT
If you die during the accumulation period, the death benefit is the amount of
your accumulation. If you and your annuity partner die during the annuity period
while payments are still due under a fixed-period annuity or for the remainder
of a guaranteed period, the death benefit is the value of the remaining
guaranteed payments.
METHODS OF PAYMENT OF DEATH BENEFITS
Generally, you can choose for your beneficiary the method we'll use to pay the
death benefit, but few participants do this. If you choose a payment method, you
can also block your beneficiaries from changing it. Most people leave the choice
to their beneficiaries. We can block any choice if its initial payment is less
than $25. Beginning in late 2002, if death occurs while the annuity contract is
in the accumulation stage, in most cases we'll pay the death benefit using the
TIAA-CREF Savings and Investment Plan. We won't do this if you preselected
another option or if the beneficiary elects another option. Some beneficiaries
such as estates, charities and certain trusts, aren't eligible for the Savings
and Investment Plan. If your beneficiary isn't eligible and doesn't specifically
tell us to start paying death benefits within a year of your death, we can start
making payments to them over five years using the fixed-period annuity method of
payment.
PAYMENTS DURING ACCUMULATION PERIOD
Currently, the available methods of payment for death benefits from funds in the
accumulation period are:
o SINGLE-SUM PAYMENT, in which the entire death benefit is paid to your
beneficiary at once;
o ONE-LIFE ANNUITY WITH OR WITHOUT GUARANTEED PERIOD, in which the death benefit
is paid for the life of the beneficiary or through the guaranteed period;
o ANNUITY FOR A FIXED PERIOD OF 2 TO 30 YEARS, in which the death benefit is
paid for a fixed period;
o ACCUMULATION-UNIT DEPOSIT OPTION, which pays a lump sum at the end of a fixed
period, ordinarily two to five years, during which period the accumulation
units deposited participate in the experience of the relevant CREF accounts
(generally $5,000 minimum death benefit value); and
o THE MINIMUM DISTRIBUTION OPTION (ALSO CALLED THE TIAA-CREF SAVINGS AND
INVESTMENT PLAN), which automatically pays income according to the
18 College Retirement Equities Fund PROSPECTUS
Internal Revenue Code's minimum distribution requirements. It operates in much
the same way as the minimum distribution annuity income option. It's possible,
under this method, that your beneficiary won't receive income for life.
Death benefits are usually paid monthly (unless you chose a single-sum
method of payment), but your beneficiary can switch them to quarterly,
semiannual, or annual payments.
PAYMENTS DURING ANNUITY PERIOD
If you and your annuity partner die during the annuity period, your beneficiary
can choose to receive any remaining guaranteed periodic payments due under your
certificate. Alternatively, your beneficiary can choose to receive the commuted
value of those payments in a single sum unless you have indicated otherwise. The
amount of the commuted value will be different from the total of the periodic
payments that would otherwise be paid.
Ordinarily, death benefits are subject to federal tax. If taken as a lump
sum, death benefits would be taxed like complete withdrawals. If taken as
annuity benefits, the death benefit would be taxed like annuity payments. For
more information, see the discussion under "Taxes" below, and the SAI.
TIMING OF PAYMENTS
In general, we will make the following types of payments within seven calendar
days after we've received the information we need to process a request:
o cash withdrawals;
o transfers to TIAA or to other companies;
o payments under a fixed-period annuity; and
o death benefits.
The seven-day period may be extended in certain circumstances, such as an
SEC-recognized emergency.
TAXES
This section offers general information concerning federal taxes. It does not
cover every situation. Check with your tax adviser for more information.
During the accumulation period, premiums paid in before-tax dollars,
employer contributions and earnings attributable to these amounts are not taxed
until they're withdrawn. Annuity payments, single-sum withdrawals, systematic
withdrawals, and death benefits are usually taxed as ordinary income. Premiums
paid in after-tax dollars aren't taxable when withdrawn, but earnings
attributable to these amounts are taxable. Death benefits are usually also
subject to federal estate and state estate or inheritance taxation. Generally,
transfers between qualified retirement plans and between 403(b) plans are not
taxed. Transfers among the CREF accounts also aren't taxed.
Generally, contributions you can make under an employer's plan are limited
by federal tax law. Employee voluntary salary reduction contributions to 403(b)
and 401(k) plans are limited to $11,000 per year ($12,000 per year if you are
age 50 or older). Certain long-term employees may be able to defer up to $14,000
per year in a 403(b) plan ($15,000 per year if you are age 50 or older).
Contributions to Classic IRAs and Roth IRAs, other than rollover contributions,
cannot generally exceed $3,000 per year ($3,500 per year if you are age 50 or
older).
The maximum contribution limit to a 457(b) non-qualified deferred
compensation plan for employees of state and local governments for 2002 is the
lesser of $11,000 ($12,000 if you are age 50 or older) or 100% of "includable
compensation" (as defined by law). New catch up rules allow participants age 50
or older to contribute the lesser of $1,000 or 100% of compensation reduced by
the amount of other elective deferrals that the participant made for that year.
EARLY DISTRIBUTIONS: If you want to withdraw funds or begin receiving
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 additional 10% early distribution tax
on the taxable amount. Distributions from a Roth IRA generally are not taxed,
except that, once aggregate distributions exceed contributions to the Roth IRA,
income tax and a 10% penalty tax may apply to distributions made (1) before age
59 1/2 (subject to certain exceptions) or (2) during the five taxable years
starting with the year in which the first contribution is made to any Roth IRA.
A 10% penalty tax may apply to amounts attributable to a conversion from an IRA
if they are distributed during the five taxable years beginning with the year in
which the conversion was made. You won't have to pay this tax in certain
circumstances. Early distributions from 457(b) plans are not subject to a 10%
penalty tax unless, in the case of a governmental 457(b) plan, the distribution
includes amounts rolled over to the plan from an IRA, 401(a)/403(a), or 403(b)
plan. Consult your tax advisor for more information.
MINIMUM DISTRIBUTION REQUIREMENTS: In most cases, payments must begin by
April 1 of the year after the year you reach age 70 1/2, or if later,
retirement. For CREF Classic IRAs, and with respect to 5% or more owners of the
business covered by a Keogh plan, payments must begin by April 1 of the year
after 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 even if you do not elect to receive them. In addition, if you don't begin
distributions on time, you may be subject to a 50% excise tax on the amount you
should have received but did not. Roth IRAs are generally not subject to these
rules.
WITHHOLDING ON DISTRIBUTIONS: If we send an "eligible rollover"
distribution directly to you, federal law requires us to withhold 20% from the
taxable portion. If we roll over such a distribution directly to an IRA or
employer plan, we do not withhold any federal income tax. The 20% withholding
also does not apply to certain "non-eligible" rollover distributions such as
payments from IRAs, lifetime annuity payments, or minimum distribution payments.
For the taxable portion of non-eligible rollover distributions, we will
usually withhold federal income taxes unless you tell us not to and you are
eligible to avoid withholding. However, if you tell us not to withhold but we
don't have your taxpayer identification number on file, we still are required to
deduct taxes. These rules also apply to distributions from governmental 457(b)
plans. In general, all amounts received under a private 457(b) plan are taxable
and are subject to federal income tax withholding as wages. Nonresident aliens
who pay U.S. taxes are subject to different withholding rules.
SPECIAL RULES FOR WITHDRAWALS TO PAY ADVISORY FEES: If you have arranged
for us to pay advisory fees to your financial advisor from your accumulations,
those partial withdrawals will not be treated as taxable distributions as long
as:
o the payment is for expenses that are ordinary and necessary;
o the payment is made from a Section 401 or 403 retirement plan or an IRA, and
with respect to payments from retirement plans (not IRAs);
o your financial advisor's payment is only made from the accumulations in your
retirement plan, and not directly by you or anyone else, under the agreement
with your financial advisor; and
o once advisory fees begin to be paid from your retirement plan, you continue
to pay those fees solely from your plan and not from any other source.
TAX CONSEQUENCES OF ALLOCATING TO THE CREF INFLATION-LINKED BOND ACCOUNT
UNDER A CREF ANNUITY FOR SELF-REMITTED NON-QUALIFIED FUNDS: If you have a CREF
certificate which was set up only to receive self-remitted non-qualified funds
(i.e., money that is not part of a pension plan that you remit to us directly)
and you allocate any such funds to the CREF Inflation-Linked Bond Account, then
earnings, if any, on your total accumulation under the certificate are not
eligible for tax deferral. You may therefore be required to pay taxes on such
earnings when you allocate funds under the certificate to the Inflation-Linked
Bond Account.
College Retirement Equities Fund PROSPECTUS 19
ADDITIONAL INFORMATION
CHOICES AND CHANGES: You have to make your choices or changes through a written
notice that is satisfactory to us and received at our home office or at some
other location that we have specifically designated for that purpose. When we
receive a notice of a change in beneficiary or other person named to receive
payments, we'll make the change as of the date it was signed, even if the signer
has died in the meantime. We make all other changes as of the date received.
TELEPHONE AND INTERNET TRANSACTIONS: You can use our Automated Telephone
Service (ATS) or the TIAA-CREF Web Center's account access feature to check your
account balances, transfer between accounts or to TIAA, and 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 both
systems. (You can establish a PIN by calling us.) Both will lead you through the
transaction process and we will use reasonable procedures to confirm that
instructions given are genuine. If we use such procedures, we are not
responsible for incorrect or fraudulent transactions. All transactions made over
the ATS and Internet are electronically recorded.
To use the ATS, you need a touch-tone telephone. The toll free number for
the ATS is 800-842-2252. To use the Internet, go to the account access feature
of the TIAA-CREF Web Center at www.tiaa-cref.org.
We can suspend or terminate your ability to transact by Internet or
telephone at any time, for any reason.
YOUR VOTING RIGHTS: As a participant in CREF accounts, you can generally
vote to elect CREF trustees, on any change in investment objective and
fundamental investment policies, and on any other matter requiring a participant
vote.
ELECTRONIC PROSPECTUSES: If you received this prospectus electronically and
would like a paper copy, please call us at 800-842-2733 and we will send it to
you.
ASSIGNING YOUR CONTRACT: Generally, neither you nor your beneficiaries can
assign ownership of a CREF certificate to someone else.
ERRORS OR OMISSIONS: We reserve the right to correct any errors or
omissions on any form, report, or statement that we send you.
GA (GROUP ANNUITY) CONTRACTS: If a GA contract is issued pursuant to your
plan, the rules relating to transferring and withdrawing your money, receiving
any annuity income or death benefits, and the timing of payments may be
different, and are determined by your plan. Contact your employer or plan
administrator for more information.
TEXAS OPTIONAL RETIREMENT PROGRAM PARTICIPANTS: If you're in the Texas
Optional Retirement Program, 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.
HOUSEHOLDING: To lower expenses and eliminate duplicate documents sent to
your home, we may mail only one copy of the CREF prospectus and other required
documents to your household, even if more than one participant lives there. If
you would prefer to continue to receive your own copy of any document, write or
call us at 800-842-2733.
DISTRIBUTOR: The distributor of CREF certificates is TIAA-CREF Individual &
Institutional Services, Inc. (Services). Services is registered with the SEC and
is a member of the National Association of Securities Dealers, Inc. (NASD).
Teachers Personal Investors Services, Inc. (TPIS), also registered with the SEC
and a member of the NASD, may also distribute CREF certificates on a limited
basis. Services and TPIS are subsidiaries of TIAA. Anyone distributing CREF
certificates must be a registered representative of Services or TPIS. Their
address is 730 Third Avenue, New York, NY 10017. No commissions are paid for
distribution of CREF certificates.
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
B-3 CREF and its Operations
B-3 Investment Restrictions
B-5 Description of Corporate Bond Ratings
B-7 Description of Fixed-Income Instruments
B-9 Investment Policies and Risk Considerations
B-9 Options and Futures
B-13 Firm Commitment Agreements and Purchase of "When Issued' Securities
B-13 Pass-Through Securities
B-14 Lending of Securities
B-14 Repurchase Agreements
B-15 Currency Transactions
B-16 Swap Transactions
B-17 Segregated Accounts
B-17 Special Considerations Affecting Foreign Investments
B-19 Other Investment Techniques and Opportunities
B-19 Portfolio Turnover
B-20 Valuation of Assets
B-23 Management
B-23 CREF Trustees and Officers
B-30 Compensation of CREF Trustees
B-32 Investment Advisory and Related Services
B-33 Personal Trading Policy
B-33 Custody of Portfolio
B-34 Independent Auditors
B-34 Brokerage Allocation
B-39 Performance Information
B-39 Total Return Information for the Accounts
B-40 Yield Information for the Bond Market and Inflation Linked Bond Accounts
B-40 Yield Information for the Money Market Account
B-41 Inflation-Adjusted Return and Yield Information for the Inflation-Linked
Bond Account
B-44 Performance Comparisons
B-45 Illustrating Compounding, Tax Deferral and Expense Deductions
B-45 Accumulation Unit Values
B-45 Annuity Payments
B-49 Periodic Reports
B-50 Voting Rights
B-50 General Matters
B-52 State Regulation
B-52 Legal Matters
B-52 Experts
B-52 Considerations Concerning CREF's Accounts and Options
B-62 Additional Information
B-62 Financial Statements
20 College Retirement Equities Fund PROSPECTUS
[TIAA CREF LOGO] 730 Third Avenue
New York, New York 10017-3206
--------------------------------------------------------------------------------
HOW TO REACH US
--------------------------------------------------------------------------------
OUR ADDRESS
TIAA-CREF
730 THIRD AVENUE
NEW YORK, NEW YORK 10017-3206
Send all notices, forms, or requests to this address.
Internet
www.tiaa-cref.org
24 HOURS A DAY/SEVEN DAYS A WEEK
Obtain general information about TIAA-CREF, view personal account information,
reallocate premiums, and transfer funds among TIAA and CREF investments options.
AUTOMATED TELEPHONE SERVICE
800 842-2252
24 HOURS A DAY/SEVEN DAYS A WEEK
Change your allocation, transfer accumulations, get your accumulation unit
values, get TIAA and CREF performance, and confirm last premium paid.
TELEPHONE COUNSELING CENTER
800 842-2776
8 A.M. TO 11 P.M. ET MONDAY-FRIDAY
Speak to a consultant about retirement savings and planning, quarterly and
annuity benefits reports, receiving annuity payments, annuity income options and
tax reports.
IRA ENROLLMENT HOTLINE
800 842-2888
Speak with a service representative about our IRA products.
We can suspend or terminate your ability to transact by Internet or telephone at
any time, for any reason.
[RECYCLE LOGO] Printed on recycled paper CREF Pro-5/02
********
STATEMENT OF
ADDITIONAL INFORMATION
================================================================================
May 1, 2002
Individual, Group, and Tax-Deferred Variable Annuities
Issued By
COLLEGE RETIREMENT
EQUITIES FUND
==========
The current prospectus dated May 1, 2002 ("the Prospectus") with respect to the
Variable Annuity Certificates 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 DATED MAY 1, 2002.
[TIAA CREF LOGO]
TABLE OF CONTENTS
PAGE IN THE LOCATION OF
STATEMENT ADDITIONAL
OF INFORMATION
ADDITIONAL IN PROSPECTUS,
ITEM INFORMATION IF APPLICABLE
---- ----------- --------------
CREF and its Operations ............ B-3
Investment Restrictions ............ B-3
Description of Corporate
Bond Ratings ................... B-5
Description of
Fixed-Income
Instruments .................... B-7
Investment Policies and
Risk Considerations ............ B-9 8
Options and Futures ............ B-9
Firm Commitment
Agreements and
Purchase of "When
Issued" Securities ........... B-13
Pass-Through
Securities ................... B-13
Lending of Securities .......... B-14
Repurchase
Agreements ................... B-14
Currency Transactions .......... B-15
Swap Transactions .............. B-16
Segregated Accounts ............ B-17
Special Considerations
Affecting Foreign
Investments .................. B-17 13
Other Investment
Techniques and
Opportunities ................ B-19
Portfolio Turnover ................. B-19
Valuation of Assets ................ B-20
Management ......................... B-23 14
CREF Trustees
and Officers ................. B-23
Compensation of CREF
Trustees ..................... B-30
Investment Advisory and
Related Services ............... B-32
Personal Trading Policy ........ B-33
Custody of Portfolio ........... B-33
Independent Auditors ........... B-34
Brokerage Allocation ............... B-34
Performance Information ............ B-39 14
Total Return Information
for the Accounts ............. B-39 14
Yield Information for the
Bond Market and
Inflation-Linked Bond
Accounts ..................... B-40 14
Yield Information for the
Money Market
Account ...................... B-40 14
Inflation-Adjusted Return
and Yield Information
for the Inflation-Linked
Bond Account ................. B-41
Performance
Comparisons .................. B-44
Illustrating Compounding,
Tax Deferral and
Expense Deductions ........... B-45
Accumulation Unit
Values ......................... B-45 2
Annuity Payments ................... B-45 17
Periodic Reports ................... B-49
Voting Rights ...................... B-50 20
General Matters .................... B-50
State Regulation ................... B-52
Legal Matters ...................... B-52
Experts ............................ B-52
Considerations
Concerning CREF's
Accounts and Options ........... B-52
Additional Information ............. B-62
Financial Statements ............... B-62
B-2
CREF AND ITS OPERATIONS
CREF is 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. 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.
CREF is an "open-end" diversified management investment company that issues
variable annuity 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), although 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.
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 that 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.
B-3
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 33 1/3% 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;
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. The Stock, Global Equities, Growth, Equity Index, and Money Market
Accounts will not 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 below (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
B-4
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);
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 that 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 that 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 that 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
B-5
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A--Bonds that 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 that
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds that 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 that 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 that 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 that 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.
Ca--Bonds that are rated Ca represent obligations that are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C--Bonds that 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.
B-6
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 that 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.
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 that
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
B-7
of greater than ten years. Agencies of the United States Government that 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.
BANKER'S ACCEPTANCES. A banker's 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 that 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
B-8
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. None of the Accounts is required to hedge any investments.
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.
A call option is a short-term contract (generally having a duration of nine
months or less) that gives the purchaser of the option the right but not the
obligation 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. 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 that 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
B-9
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. The buying
of a covered put contract limits the downside exposure for the investment in the
underlying security to 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 an identical put option on the same security with the same exercise
price and expiration date as the put option that it had previously bought on the
security. Depending on the premiums of the put options bought and sold, 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.
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 indices 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
investments than available in the cash market. 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 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 that, 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.
B-10
Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions that 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.
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 that will operate to terminate the Account's position in
the futures contract. A final determination of
B-11
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 that 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 that 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 that reflect the rising market. The Account may have to sell
securities or instruments at a time when it may be disadvantageous to do so.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the futures contracts and the portion
of the portfolio being hedged, the prices of futures contracts may not correlate
perfectly with movements in the underlying security or instrument due to certain
market distortions. First, all transactions in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions that 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.
B-12
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 5% 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 5%).
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.
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).
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.
B-13
LENDING OF SECURITIES
Subject to investment restriction 11(a) on page B-5 (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.
REPURCHASE AGREEMENTS
The CREF accounts can use repurchase agreements to manage cash balances. In a
repurchase agreement, we would buy an underlying debt instrument on condition
that the seller commits to buy it back at a fixed time 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.
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, primary dealers in United
States Government securities, or other domestic or foreign broker-dealers 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, banker's acceptances, or obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities,
in which the Account may otherwise invest.
B-14
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. These
transactions may also let us "lock in" exchange rates when buying or selling
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 that might result
should the value of such currency increase.
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
B-15
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.
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 that 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
B-16
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 on 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.
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 securities 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 the Prospectus, there are a number of country-
or region-specific risks and other considerations that may affect these
investments.
On December 31, 2001, foreign investments (including securities held as
collateral for stock lending) represented the following percentages of market
value for each CREF account:
INFLATION-
GLOBAL EQUITY BOND LINKED SOCIAL MONEY
STOCK EQUITIES GROWTH INDEX MARKET BOND CHOICE MARKET
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
-------- -------- -------- -------- -------- -------- -------- --------
20.06% 41.00% 3.17% 0.04% 2.00% 0% 2.17% 7.71%
To meet an account's investment objective, the Finance Committee can change the
percentage of the portfolio devoted to foreign investments, subject to the
limits in CREF's charter.
INVESTMENT IN EUROPE
The total European market, including Eastern European countries, contains over
490 million consumers, a market larger than either the United States or Japan.
European business compete both intra-regionally and globally in a wide range of
industries, and recent political and economic changes throughout Europe are
likely further to expand the role of Europe in the global economy. As a result,
a great deal of interest and activity has been generated aimed at understanding
and benefiting from the "new" Europe that may result. The incipient
B-17
aspects of major developments in Europe as well as other considerations means
that there can be no guarantee that outcomes will be as anticipated or will have
results that investors would regard as favorable.
THE EUROPEAN UNION. The European Union ("EU") consists of Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden, and the United Kingdom (the "EU Nations"),
with a total population exceeding 375 million. The EU Nations have undertaken to
establish, among themselves, a single market that is largely free of internal
barriers and hindrances to the free movement of goods, persons, services and
capital. Although it is difficult to predict when this goal will be fully
realized, macro- and micro-economic adjustments already underway are indicative
of significant increases in efficiency and the ability of the EU Nations to
compete globally by simplifying product distribution networks, promoting
economies of scale, and increasing labor mobility, among other effects. The
twelve country European Monetary Union, a subset of the European Union
countries, with its own central bank, the European Central Bank, and its own
currency, the Euro, and a single interest rate structure represents a relatively
new and evolving economic entity, the euro-area. While authority for monetary
policy thus shifts from national hands to an independent supranational body,
sovereignty elsewhere remains largely at the national level. Uncertainties with
regard to balancing of monetary policy against national fiscal and other
political issues and their extensive ramifications represent important risk
considerations for investors in these countries.
INVESTMENT IN THE PACIFIC BASIN
The economies of the Pacific Basin vary widely in their stages of economic
development. Some (such as Japan, Australia, Singapore, and Hong Kong) are
considered advanced by Western standards; others (such as Thailand, Indonesia,
and Malaysia) are considered "emerging" --rapidly shifting from natural resource
and agriculture based systems to more technologically advanced systems oriented
toward manufacturing and services. The major reform of China's economy and
polity continues to be an important influence on economic growth internally,
and, through trade, across the region. Intra-regional trade has become
increasingly important to a number of these economies. Japan, the second largest
economy in the world, is the dominant economy in the Pacific Basin, with one of
the highest per capita incomes in the world. Its extensive trade relationships
also influence expectations for regional and global economic growth. Economic
growth has historically been relatively strong in the region, but recent
economic turmoil among the emerging economies, and unmitigated recessionary
impulses in Japan in the recent past have raised important questions with regard
to prospective longer-term outcomes. Potential policy miscalculations or other
events could pose important risks to equity investors in any of these economies.
INVESTMENT IN CANADA
Canada, a country rich in natural resources and a leading industrial country of
the world, is by far the most important trading partner of the United States.
The U.S., Canada, and Mexico have established the North American Free Trade
Agreement ("NAFTA"), which is expected to significantly benefit the economies of
each of the countries through the more rational allocation of resources and
production over the region. Uncertainty regarding the longer-run political
structure of Canada is an added risk to investors, along with highly volatile
commodity prices.
INVESTMENT IN LATIN AMERICA
Latin America (including Mexico and Central America) has a population of
approximately 435 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,
B-18
most notably through the NAFTA agreement, among the U.S., Canada and Mexico and
the Mercosur grouping of Argentina, Brazil, Bolivia, Chile, Paraguay and
Uruguay. Restrictions on international capital flows, intermittent problems with
capital flight, and some potential difficulties in the repayment of external
debt, however, remain important concerns in the region--exacerbating the risks
in these equity markets. As a result, Latin American equity markets have been
extremely volatile. Efforts to restructure these economies through
privatization, and fiscal and monetary reform have met with some success with
gains in output growth, and slowing rates of inflation. These efforts may result
in attractive investment opportunities. However, recent events have shown that
large shifts in sentiment in markets elsewhere on the globe may very quickly
reverberate among these markets, adding greater risk to already volatile
markets. There can be no assurance that attempted reforms will ultimately be
successful or will bring about results investors would regard as favorable.
OTHER REGIONS
There are developments in other regions and countries around the world that
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
2001 and 2000 were 29.41% and 32.65%, respectively.
B-19
The Global Equities Account has no fixed policy on portfolio turnover. The
portfolio turnover rates for that Account for 2001 and 2000 were 111.91% and
98.06%, respectively.
The Growth Account has no fixed policy on portfolio turnover. The portfolio
turnover rates for that Account for 2001 and 2000 were 44.40% and 37.18%,
respectively. The decrease in turnover rates was due in part to the portfolio
manager's current views of economic conditions and prospects of the account's
investments.
The Equity Index Account has no fixed policy on portfolio turnover. The
portfolio turnover rates for that Account for 2001 and 2000 were 6.14% and
9.42%, 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 2001 and 2000 were 257.02% and 377.44%,
respectively. During 2000, the Bond Market Account began accounting for dollar
roll transactions as financing transactions. This had the effect of
significantly lowering the portfolio turnover rate of the account for the year
ended December 31, 2000 to 377.44% as compared to the account's portfolio
turnover rate for the year ended December 31, 1999 of 656.58%.
The Social Choice Account has no fixed policy on portfolio turnover. The
portfolio turnover rates for that Account in 2001 and 2000 were 68.64% and
117.10%, respectively. During 2000, the Social Choice Account began accounting
for dollar roll transactions as financing transactions. This had the effect of
significantly lowering the portfolio turnover rate of the account for the year
ended December 31, 2000 to 117.10% as compared to the account's portfolio
turnover rate for the year ended December 31, 1999 of 206.44%.
The Inflation-Linked Bond Account has no fixed policy on portfolio turnover. The
portfolio turnover rates for the Account in 2001 and 2000 were 42.16% and
17.17%, 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.
Investments for which market quotations are readily available are valued at the
market value of such investments, determined as follows:
EQUITY SECURITIES
Equity securities listed or traded on a national market or exchange are valued
based on their sale price on such market or exchange at the close of business
(usually 4:00 p.m. Eastern Time) on the date of valuation, or at the mean of the
closing bid and asked prices if no sale is reported.
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
B-20
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.
Such an equity security may also be valued at fair value as determined in good
faith by the Finance Committee of the Board of Trustees if events materially
affecting its value occur between the time its price is determined and the time
an Account's net asset value is calculated.
FOREIGN INVESTMENTS
Investments traded on a foreign exchange or in foreign markets are valued at the
closing values of such securities as of the date of valuation under the
generally accepted valuation method in the country where traded, converted to
U.S. dollars at the prevailing rates of exchange on the date of valuation. Since
the trading of investments on a foreign exchange or in foreign markets is
normally completed before the end of a valuation day, such valuation does not
take place contemporaneously with the determination of the valuation of certain
other investments held by the Accounts. If events materially affecting the value
of foreign investments occur between the time their share price is determined
and the time when an 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.
DEBT SECURITIES
Debt securities (excluding 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). These values will be derived utilizing an independent pricing
service, except when we believe the prices don't accurately reflect the
security's fair value.
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.
All debt securities may also be valued at fair value as determined in good faith
by the Finance Committee of the Board of Trustees.
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
OPTIONS AND FUTURES
Portfolio investments underlying options are valued as described above. Stock
options written by any of the 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 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.
B-22
MANAGEMENT
CREF TRUSTEES AND OFFICERS
The following tables include certain information about CREF trustees and
officers including positions held with CREF, length of office and time served
and principal occupations in the last five years. The tables also include the
number of portfolios in the fund complex overseen by each trustee and certain
directorships held by each of them. The first table includes information about
CREF's disinterested trustees and the second table includes information about
CREF's interested trustees and officers.
DISINTERESTED TRUSTEES
[Enlarge/Download Table]
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING PAST OVERSEEN HELD BY
AND AGE WITH CREF TIME SERVED 5 YEARS BY TRUSTEE TRUSTEE
-------------- --------------- --------------- ------------- --------------- -------------
ROBERT H. ATWELL Trustee Term expires 2002. President Emeritus, 32 Director,
447 Bird Key Drive Trustee since 1989. American Council on Education
Sarasota, FL 34236 Education, and Management Corp.
Age: 70 Senior Consultant to and Collegis, Inc.
A.T. Kearney, Inc.
ELIZABETH E. BAILEY Trustee Term expires 2002. John C. Hower 32 Director, CSX
The Wharton School Trustee since 1986. Professor of Public Corporation and
University of Policy and Philip Morris
Pennsylvania Management, The Companies Inc.
Suite 3100 Wharton School,
Steinberg-Dietrich Hall University of
Philadelphia, PA Pennsylvania
19104-6372
Age: 63
JOYCE A. FECSKE Trustee Term expires 2005. Vice President 32 None
11603 Briarwood Trustee since 1993. Emeritia, DePaul
Lane University.
Burr Ridge, Illinois Formerly, Vice
60525-5173 President for Human
Age: 54 Resources, DePaul
University
EDES P. GILBERT Trustee Term expires 2005. Acting President, 32 None
Independent Trustee since 1989. Independent
Educational Services Educational
49 East 78th Street, Services. Formerly,
Suite 4A Consultant,
New York, NY Independent
10021 Educational
Age: 70 Services, and Head,
The Spence School
MARTIN J. GRUBER Trustee Term expires 2004. Nomura Professor of 32 Director, Deutsche
New York Trustee since 2000. Finance, New York Asset Management
University University, Stern B.T. Funds, Japan
Stern School of School of Business. Equity Fund, Inc.,
Business Formerly, Chairman, Singapore Equity
Henry Kaufman Department of Fund, Inc. and the
Management Finance, New York Thai Equity Fund,
Education Center University, Stern Inc.
44 West 4th Street, School of Business,
Suite 988 and Trustee of TIAA
New York, NY
10012
Age: 64
B-23
[Enlarge/Download Table]
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING PAST OVERSEEN HELD BY
AND AGE WITH CREF TIME SERVED 5 YEARS BY TRUSTEE TRUSTEE
-------------- --------------- --------------- ------------- --------------- -------------
NANCY L. JACOB Trustee Term expires 2003. President and 32 None
Windermere Trustee since 1979. Managing Principal,
Investment Windermere
Associates Investment
121 S.W. Morrison Associates.
Street, Formerly, Chairman
Suite 925 and Chief Executive
Portland, OR 97204 Officer, CTC
Age: 59 Consulting, Inc.,
and Executive Vice
President, U.S.
Trust of the Pacific
Northwest
MARJORIE FINE Trustee Term expires 2004. Professor of Law, 32 None
KNOWLES Trustee since 1983. Georgia State
College of Law University College
Georgia State of Law
University
P.O. Box 4037
Atlanta, GA 30302-
4037
Age: 62
STEPHEN A. ROSS Trustee Terms expires 2005. Franco Modigliani 32 Director, Freddie
Sloan School of Trustee since 1981. Professor of Finance Mac and Co-
Management and Economics, Sloan Chairman, Roll &
Massachusetts School of Ross Asset
Institute of Management, Management Corp.
Technology Massachusetts
77 Massachusetts Institute of
Avenue Technology. Co-
Cambridge, MA chairman, Roll &
02139 Ross Asset
Age: 58 Management Corp.
Formerly, Sterling
Professor of
Economics and
Finance, Yale School
of Management, Yale
University
NESTOR V. SANTIAGO Trustee Term expires 2002. Vice President and 32 Director,
Howard Hughes Trustee since 2000. Chief Investment Bank-Fund Credit
Medical Institute Officer, Howard Union and Emerging
4000 Jones Bridge Hughes Medical Markets Growth
Road Institute. Formerly, Fund, Inc.
Chevy Chase, MD Investment
20815 Advisor/Head of
Age: 53 Investment Office,
International
Monetary Fund
EUGENE C. SIT Trustee Term expires 2003. Chairman, Chief 32 Chairman and
Sit Investment Trustee since 1991. Executive Officer, Director of
Associates, Inc. and Chief Investment registered
4600 Norwest Center Officer, Sit investment
90 South Seventh Investment companies
Street Associates, Inc. and managed
Minneapolis, MN Sit/Kim by Sit Investment
55402-4130 International Associates, Inc.
Age: 63 Investment
Associates, Inc.
B-24
[Enlarge/Download Table]
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING PAST OVERSEEN HELD BY
AND AGE WITH CREF TIME SERVED 5 YEARS BY TRUSTEE TRUSTEE
-------------- --------------- --------------- ------------- --------------- -------------
MACEO K. SLOAN Trustee Term expires 2005. Chairman and Chief 32 Director, SCANA
NCM Capital Trustee since 1991. Executive Officer, Corporation and
Management Group, Sloan Financial Mechanics and
Inc. Group, Inc. and NCM Farmers Bancorp,
103 West Main Capital Management Inc.
Street, Suite 400 Group, Inc.
Durham, NC 27701-
3638
Age: 52
DAVID K. STORRS Trustee Term expires 2002. President and Chief 32 Director of
Alternative Trustee since 1994. Executive Officer, thirteen money
funds Alternative market funds
Investment Group, Investment Group, sponsored by
LLC L.L.C. Alliance Capital
65 South Gate Lane Management
Southport, CT 06490
Age: 57
ROBERT W. VISHNY Trustee Term expires 2004. Eric J. Gleacher 32 None
University of Trustee since 1996. Distinguished
Chicago Service Professor of
Graduate School of Finance, University
Business of Chicago, Graduate
1101 East 58th Street School of Business.
Chicago, IL 60637 Founding Partner,
Age: 43 LSV Asset Management
INTERESTED TRUSTEES AND OFFICERS
JOHN H. BIGGS(1) Chairman of Board, Term as Trustee Chairman, President 32 Director, The
TIAA-CREF President and Chief expires 2004. and Chief Executive Boeing
730 Third Avenue Executive Officer Trustee since 1983. Officer of TIAA, Company and
New York, NY Chairman and Chief CREF, TIAA-CREF Ralston Purina
10017-3206 Executive Officer Mutual Funds, TIAA- Company
Age: 65 since 1993. President CREF Institutional
since 1997. Mutual Funds,
Indefinite term as TIAA-CREF Life Funds
officer. and Chairman of the
Management
Committee, President
and Chief Executive
Officer of TIAA
Separate Account
VA-1. Trustee of
TIAA-CREF Individual
& Institutional
Services, Inc.
(Services). Member
of Board of Managers
of TIAA-CREF
Investment
Management LLC
(Investment
Management).
Director of Teachers
Personal Investors
Services, Inc.
(TPIS), Teachers
Advisors, Inc.
(Advisors) and TIAA-
CREF Trust Company,
FSB (TIAA-CREF Trust
Company)
B-25
[Enlarge/Download Table]
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING PAST OVERSEEN HELD BY
AND AGE WITH CREF TIME SERVED 5 YEARS BY TRUSTEE TRUSTEE
-------------- --------------- --------------- ------------- --------------- -------------
MARTIN L. LEIBOWITZ(1) Vice Chairman and Term as Trustee Vice Chairman and 32 None
TIAA-CREF Chief Investment expires 2003. Chief Investment
730 Third Avenue Officer Trustee since 1995. Officer of CREF,
New York, NY Vice Chairman and TIAA-CREF Mutual
10017-3206 Chief Investment Funds, TIAA- CREF
Age: 65 Officer since 1995. Institutional Mutual
Indefinite term as Funds, TIAA-CREF
officer. Life Funds and Vice
Chairman of the
Management Committee
and Chief Investment
Officer of TIAA
Separate Account
VA-1 (these funds
are collectively
referred to as the
TIAA-CREF Funds).
Vice Chairman and
Chief Investment
Officer of TIAA.
Member of Board of
Managers and
President of
Investment
Management. Director
and President of
Advisors. Director
of TIAA-CREF Life
Insurance Company
(TIAA-CREF Life)
BEVIS LONGSTRETH(2) Trustee Term expires 2003. Of Counsel to 32 Member of the
Debevoise & Trustee since 1996. Debevoise & Board of Directors
Plimpton Plimpton. Formerly, of AMVESCAP,
919 Third Avenue Partner of Debevoise PLC and Chairman
New York, NY & Plimpton, Adjunct of the Finance
10022-6225 Professor at Committee of the
Age: 67 Columbia University Rockefeller Family
School of Law and Fund
Commissioner of the
Securities and
Exchange Commission
RICHARD J. ADAMSKI(1) Vice President and Indefinite term. Vice Vice President and N/A N/A
TIAA-CREF Treasurer President and Treasurer of the
730 Third Avenue Treasurer since TIAA- CREF Funds and
New York, NY 1991 TIAA. Vice President
10017-3206 and Treasurer of
Age: 60 Investment
Management,
Services, TPIS,
Advisors, TIAA- CREF
Life, and TIAA- CREF
Tuition Financing,
Inc. (Tuition
Financing)
C. VICTORIA APTER(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since TIAA-CREF Funds and
New York, NY January 2000. TIAA. Formerly, Vice
10017-3206 President of
Age: 59 Retirement Services,
CREF and TIAA
SCOTT C. EVANS(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since 1997. TIAA-CREF Funds and
New York, NY TIAA. Executive Vice
10017-3206 President of
Age: 42 Investment
Management and
Advisors and
Director of TIAA-
CREF Life
B-26
[Enlarge/Download Table]
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING PAST OVERSEEN HELD BY
AND AGE WITH CREF TIME SERVED 5 YEARS BY TRUSTEE TRUSTEE
-------------- --------------- --------------- ------------- --------------- -------------
MARTIN E. GALT, III(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since 2000. TIAA-CREF Funds and
New York, NY TIAA and President,
10017-3206 TIAA-CREF Investment
Age: 59 Products. Formerly,
Executive Vice
President and
President,
Institutional
Investments, Bank of
America, and
Principal Investment
Officer,
NationsBank.
Director and
President of Tuition
Financing and TPIS
and Director of
TIAA-CREF Life and
TIAA-CREF Trust
Company
RICHARD L. GIBBS(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since 1993. TIAA-CREF Funds and
New York, NY TIAA. Executive Vice
10017-3206 President of
Age: 54 Investment
Management, Advisors
and Tuition
Financing and
Director of
TIAA-CREF Life and
Tuition Financing
DON W. HARRELL(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since 1992. TIAA-CREF Funds and
New York, NY TIAA. Director of
10017-3206 TIAA-CREF Life
Age: 63
IRA J. HOCH(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since 2000. TIAA-CREF Funds and
New York, NY TIAA. Formerly, Vice
10017-3206 President,
Age: 51 Retirement Services,
CREF and TIAA
MATINA S. HORNER(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since1989. TIAA-CREF Funds and
New York, NY TIAA. Director of
10017-3206 TIAA-CREF Life
Age: 62
E. LAVERNE JONES(1) Vice President and Indefinite term. Vice Vice President and N/A N/A
TIAA-CREF Corporate Secretary President and Corporate Secretary
730 Third Avenue Corporate Secretary of the TIAA-CREF
New York, NY since 1998. Funds and TIAA
10017-3206
Age: 52
B-27
[Enlarge/Download Table]
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING PAST OVERSEEN HELD BY
AND AGE WITH CREF TIME SERVED 5 YEARS BY TRUSTEE TRUSTEE
-------------- --------------- --------------- ------------- --------------- -------------
HARRY I. KLARISTENFELD(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President and Chief Executive Vice President and Chief
730 Third Avenue Actuary President and Chief Actuary of the
New York, NY Actuary since 2000. TIAA-CREF Funds and
10017-3206 TIAA. Formerly, Vice
Age: 51 President and Chief
Actuary, Retirement
Services, CREF and
TIAA. Executive Vice
President and Chief
Actuary of Services
FRANCES NOLAN(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since 2000. TIAA-CREF Funds and
New York, NY TIAA. Formerly, Vice
10017-3206 President,
Age: 44 Retirement Services,
CREF and TIAA
BERTRAM L. SCOTT(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since 2000. TIAA-CREF Funds and
New York, NY TIAA and Chairman of
10017-3206 the Board, President
Age: 50 and Chief Executive
Officer of TIAA-CREF
Life. Formerly,
President and Chief
Executive Officer,
Horizon Mercy
DEANNE J. SHALLCROSS(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since 1998. TIAA-CREF Funds and
New York, NY TIAA. Formerly, Vice
10017-3206 President,
Age: 52 Marketing, CREF and
TIAA. Executive Vice
President of
Services
DAVID A. SHUNK(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since 1998. TIAA-CREF Funds and
New York, NY TIAA. Formerly, Vice
10017-3206 President,
Age: 55 Institutional &
Individual
Consulting Services,
CREF and TIAA.
President and Chief
Executive Officer of
Services and
Director of
TIAA-CREF Trust
Company
JOHN A. SOMERS(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since 1996. TIAA-CREF Funds and
New York, NY TIAA. Executive Vice
10017-3206 President of
Age: 57 Investment
Management and
Advisors and
Director of TIAA-
CREF Life
B-28
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NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING PAST OVERSEEN HELD BY
AND AGE WITH CREF TIME SERVED 5 YEARS BY TRUSTEE TRUSTEE
-------------- --------------- --------------- ------------- --------------- -------------
CHARLES H. STAMM(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President and
730 Third Avenue President since 1988. General Counsel of
New York, NY the TIAA-CREF Funds
10017-3206 and TIAA. Trustee of
Age: 63 Services. Director
of TPIS, Advisors,
TIAA-CREF Trust
Company, Tuition
Financing and TIAA-
CREF Life. Member of
Board of Managers of
Investment
Management
MARY ANN WERNER(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since 2000. TIAA-CREF Funds and
New York, NY TIAA and President,
10017-3206 TIAA Shared
Age: 56 Services. Formerly,
Vice President, CREF
and TIAA. Executive
Vice President of
Services and
Director of
TIAA-CREF Life
JAMES A. WOLF(1) Executive Vice Indefinite term. Executive Vice N/A N/A
TIAA-CREF President Executive Vice President of the
730 Third Avenue President since 2000. TIAA-CREF Funds and
New York, NY TIAA and President,
10017-3206 TIAA Retirement
Age: 56 Services. Formerly,
Vice President,
Retirement Services,
CREF and TIAA.
Trustee of Services
and Director of
TIAA-CREF Life
----------
1 The following individuals are "interested persons" under the Investment
Company Act (the "Act") because they are officers of CREF: Mses. Apter,
Horner, Jones, Nolan, Shallcross and Werner; and Messrs. Adamski, Biggs,
Evans, Galt, Gibbs, Harrell, Hoch, Klaristenfeld, Leibowitz, Scott, Shunk,
Somers, Stamm and Wolf.
2 Mr. Longstreth may be considered an "interested person" under the Act
because he is associated with a law firm that has acted as counsel to CREF
or its affiliates.
EQUITY OWNERSHIP OF CREF TRUSTEES
The following chart includes information relating to equity securities
benefically owned by CREF Trustees in CREF and in all registered investment
companies in the same "family of investment companies" as CREF.1 CREF's family
of investment companies includes CREF, TIAA-CREF Mutual Funds, TIAA-CREF
Institutional Mutual Funds, TIAA-CREF Life Funds and TIAA Separate Account VA-1.
----------
1 Beneficial ownership information is as of December 31, 2001.
B-29
DISINTERESTED TRUSTEES
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AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN
DOLLAR RANGE OF EQUITY ALL REGISTERED INVESTMENT COMPANIES OVERSEEN
NAME OF TRUSTEE SECURITIES IN CREF BY TRUSTEE IN FAMILY OF INVESTMENT COMPANIES
--------------------- -------------------------------------------- ----------------------------------------------
Robert H. Atwell Stock Account - $50,001 - $100,000 Over $100,000
Global Equities Account - $1 - $10,000
Elizabeth E. Bailey Stock Account - Over $100,000 Over $100,000
Global Equities Account - $50,001 - $100,000
Growth Account - Over $100,000
Equity Index Account - Over $100,000
Joyce A. Fecske Stock Account - Over $100,000 Over $100,000
Edes P. Gilbert Stock Account - $50,001 - $100,000 $50,001 - $100,000
Martin J. Gruber Stock Account - Over $100,000 Over $100,000
Nancy L. Jacob Stock Account - Over $100,000 Over $100,000
Marjorie Fine Knowles Stock Account - Over $100,000 Over $100,000
Social Choice Account - Over $100,000
Bond Market Account - Over $100,000
Global Equities Account - Over $100,000
Stephen A. Ross Stock Account - Over $100,000 Over $100,000
Global Equities Account - Over $100,000
Money Market Account - Over $100,000
Nestor V. Santiago Global Equities Account - $50,001 - $100,000 $50,001 - $100,000
Eugene C. Sit Stock Account - $50,001 - $100,000 $50,001 - $100,000
Maceo K. Sloan Stock Account - $50,001 - $100,000 $50,001 - $100,000
David K. Storrs Stock Account - Over $100,000 Over $100,000
Global Equities Account - Over $100,000
Robert W. Vishny Stock Account - $10,001 - $50,000 $10,001 - $50,000
INTERESTED TRUSTEES
John H. Biggs Global Equities Account - Over $100,000 Over $100,000
Growth Account - Over $100,000
Martin L. Leibowitz Stock Account - Over $100,000 Over $100,000
Global Equities Account - Over $100,000
Growth Account - $50,001 - $100,000
Money Market Account - Over $100,000
Bevis Longstreth Stock Account - $10,001 - $50,000 Over $100,000
Global Equities Account - $10,001 - $50,000
Growth Account - Over $100,000
COMPENSATION OF CREF TRUSTEES
In 2001, the basic annual stipend for trustees who are not officers of CREF
("non-officer trustees") was $25,000; non-officer trustees were also paid $1,500
for each board and committee meeting attended. In addition, non-officer trustees
who served as chairpersons of committees received 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.
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CREF has a long-term performance deferred compensation plan for non-employee
trustees. Under this unfunded plan, annual contributions equal to half the
amount of the basic annual trustee stipend are allocated to notional CREF and
TIAA accounts, as elected by the non-employee trustee. Benefits will normally be
paid in a lump sum after the trustee leaves the board. Pursuant to a separate
deferred compensation plan, non-employee trustees also have the option to defer
payment of their compensation and allocate it to notional TIAA and CREF accounts
chosen by the individual trustee. Benefits under that plan are also normally
paid in a lump sum after the trustee leaves the board.
The following table discloses the aggregate compensation received from CREF and
the TIAA-CREF fund complex for each non-officer trustee for the year ended
December 31, 2001. The TIAA-CREF fund complex consists of five investment
companies: CREF, TIAA Separate Account VA-1, TIAA-CREF Life Funds, TIAA-CREF
Mutual Funds and TIAA-CREF Institutional Mutual Funds.
DISINTERESTED TRUSTEES
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AGGREGATE LONG-TERM PERFORMANCE TOTAL COMPENSATION
COMPENSATION FROM DEFERRED COMPENSATION CONTRIBUTION FROM TIAA-CREF
NAME CREF AS PART OF CREFEXPENSES FUND COMPLEX(1)
-------------------------------------------------------------------------------------------------------------
Robert H. Atwell $61,078 $12,211 $62,500
-------------------------------------------------------------------------------------------------------------
Elizabeth E. Bailey $59,597 $12,211 $61,000
-------------------------------------------------------------------------------------------------------------
Joyce A. Fecske $52,276 $12,211 $53,500
-------------------------------------------------------------------------------------------------------------
Edes P. Gilbert $56,668 $12,211 $58,000
-------------------------------------------------------------------------------------------------------------
Martin J. Gruber $52,272 $12,211 $53,500
-------------------------------------------------------------------------------------------------------------
Nancy L. Jacob $46,409 $12,211 $47,500
-------------------------------------------------------------------------------------------------------------
Marjorie Fine Knowles(2) $42,010 $12,211 $43,000
-------------------------------------------------------------------------------------------------------------
Stephen A. Ross(2) $50,802 $12,211 $52,000
-------------------------------------------------------------------------------------------------------------
Nestor V. Santiago $52,269 $12,211 $53,500
-------------------------------------------------------------------------------------------------------------
Eugene C. Sit $49,335 $12,211 $50,500
-------------------------------------------------------------------------------------------------------------
Maceo K. Sloan $53,735 $12,211 $55,000
-------------------------------------------------------------------------------------------------------------
David K. Storrs $58,128 $12,211 $59,500
-------------------------------------------------------------------------------------------------------------
Robert W. Vishny $46,407 $12,211 $47,500
-------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
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AGGREGATE LONG-TERM PERFORMANCE TOTAL COMPENSATION
COMPENSATION FROM DEFERRED COMPENSATION CONTRIBUTION FROM TIAA-CREF
NAME CREF AS PART OF CREF EXPENSES FUND COMPLEX(1)
-------------------------------------------------------------------------------------------------------------
Bevis Longstreth(2) $52,275 $12,211 $53.500
-------------------------------------------------------------------------------------------------------------
(1) Includes portion of fees attributed to service on the TIAA-CREF Mutual
Funds Board and/or TIAA-CREF Institutional Mutual Funds Board.
(2) This compensation, or a portion of it, was not actually paid based on prior
election of trustee to defer receipt of payment in accordance with the
provisions of deferred compensation plans for non-officer trustees.
Excluding this year's deferrals, a total of $3,298,202.51 earned across the
fund complex has been deferred for prior years' service, including interest
through-year-end 2000, for all current trustees who had elected to defer
their compensation.
B-31
BOARD COMMITTEES
Every year the board appoints certain committees with specific responsibilities
for aspects of CREF's operations. Included among these are:
(1) An Audit Committee, consisting solely of independent trustees who are not
officers of CREF, which audits and examines the records and affairs of CREF
as it deems necessary, using independent auditors or others. The Audit
Committee has adopted a formal written charter which is available upon
request. During 2001, the Audit Committee held six meetings. The current
members of the Audit Committee are Mr. Sloan (chair), Dr. Gruber, Mr.
Santiago, and Mr. Storrs.
(2) A Finance Committee, which oversees the management of CREF investments
subject to appropriate oversight by the full board. During 2001, the
Finance Committee held four meetings. The current members of the Finance
Committee are Mr. Biggs (chair), Dr. Gruber, Dr. Jacob, Ms. Knowles, Mr.
Leibowitz, Mr. Longstreth, Dr. Ross, Mr. Santiago, Mr. Sit, Mr. Sloan, Mr.
Storrs, and Dr. Vishny.
(3) A Corporate Governance and Social Responsibility Committee, consisting
solely of independent trustees who are not officers of CREF, which
addresses all corporate social responsibility and corporate governance
issues including the voting of CREF shares and the initiation of
appropriate shareholder resolutions. During 2001, the committee held five
meetings. The current members of the Corporate Governance and Social
Responsibility Committee are Ms. Knowles (chair), Dr. Bailey, Ms. Fecske,
Ms. Gilbert, Mr. Longstreth, and Mr. Storrs.
(4) An Executive Committee, which generally is vested with full board powers
between board meetings on matters not specifically addressed by the full
board. During 2001, the committee held six meetings. The current members of
the Executive Committee are Mr. Biggs (chair), Dr. Bailey, Ms. Fecske, Dr.
Gruber, Ms. Knowles, Mr. Leibowitz, and Mr. Longstreth.
(5) A Nominating and Personnel Committee, consisting solely of independent
trustees who are not officers of CREF, which nominates certain CREF
officers and the standing committees of the board, and recommends
candidates for election as trustees. During 2001, the committee held five
meetings. The current members of the Nominating and Personnel Committee are
Dr. Ross (chair), Ms. Gilbert, Dr. Jacob, Mr. Sit, and Dr. Vishny.
Participants can recommend nominees by writing to the Secretary of CREF, 730
Third Avenue, New York, New York 10017-3206. Participants can also recommend
nominees when casting votes for CREF's annual meeting by writing in the name of
the individual in the space provided on the CREF proxy card or, if voting
through the internet, noting their recommended nominee in the "comments"
section.
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, LLC
("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
B-32
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.
The total dollar amounts of expenses for the Stock Account attributable to
investment advisory services during 2001, 2000, and 1999 were $112,453,158,
$113,527,821, and $117,350,000, respectively. During 2001, 2000, and 1999, the
total dollar amounts of investment advisory expenses for the Global Equities
Account were $11,012,305, $12,497,815, and $10,059,530, respectively. During
2001, 2000, and 1999, the total dollar amounts of investment advisory expenses
for the Growth Account were $13,544,283, $14,730,413, and $10,523,736,
respectively. During 2001, 2000, and 1999, the total dollar amounts of
investment advisory expenses for the Equity Index Account were $3,675,007,
$2,920,897, and $2,748,226, respectively. During 2001, 2000, and 1999, the total
dollar amounts of investment advisory expenses for the Bond Market Account were
$4,241,400, $2,980,161, and $2,558,717, respectively. During 2001, 2000, and
1999, the total dollar amounts of investment advisory expenses for the
Inflation-Linked Bond Account were $926,181, $195,872, and $172,410,
respectively. During 2001, 2000, and 1999, the total dollar amounts of
investment advisory expenses for the Social Choice Account were $4,001,392,
$3,044,173, and $3,287,360, respectively. During 2001, 2000, and 1999, the total
dollar amounts of investment advisory expenses for the Money Market Account were
$2,961,904, $3,778,772, and $4,111,341, respectively.
PERSONAL TRADING POLICY
CREF has adopted a personal trading policy (the "Policy") under Rule 17j-1 of
the Investment Company Act of 1940. Under the Policy, personnel of Investment
Management and members of their households are limited in trading for their own
accounts. The Policy generally requires these individuals to preclear and report
all their securities transactions including transactions in securities that are
held or purchased by CREF.
The Policy can be reviewed and copied at SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling the SEC at 1-202-942-8090. The Policy is also available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of the Policy may be obtained, after paying a duplication fee, by electronic
request at the following E-mail address: publicinfo@sec.gov, or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102.
CUSTODY OF PORTFOLIO
The custodians for the assets of the Accounts are as follows:
STOCK, GLOBAL EQUITIES, GROWTH, AND EQUITY INDEX ACCOUNTS. Deutsche Bank Trust
Company Americas, 130 Liberty Street, New York, New York 10006, acts as the
custodian for all of these accounts' domestic assets. It also acts as custodian
for certain Japanese securities through subcustodial arrangements. JPMorgan
Chase 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 Deutsche Bank Trust Company Americas. These securities are held in
foreign branches of JPMorgan Chase Bank or in the subcustody of either foreign
banks or trust companies that are members of JPMorgan Chase Bank's global
custody network or foreign depositories used by such members.
B-33
BOND MARKET ACCOUNT. The 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. The 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. The 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. Deutsche Bank Trust Company Americas, 130 Liberty
Street, New York, New York 10006, acts as the custodian for the equities held by
the Social Choice Account.
MONEY MARKET ACCOUNT. The Bank of New York, One Wall Street, New York, New York
10286, acts as the custodian for all assets of the Money Market Account.
INDEPENDENT AUDITORS
Ernst & Young LLP, 5 Times Square, New York, New York 10036, serves as CREF's
independent auditors and, in that regard, provides general auditing services for
CREF.
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-research and other 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) TIAA Separate
Account VA-1, TIAA-CREF Life Funds, TIAA-CREF Mutual Funds or TIAA-CREF
Institutional Mutual Funds, which 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
B-34
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 sale prices,
rather than as a broker, charging a proportional or fixed fee.
Investment Management may place orders with brokers providing research and
statistical data services even if lower commissions may be available from
brokers not providing such services. When doing so, Investment Management will
determine in good faith that the commissions negotiated are reasonable in
relation to the value of the brokerage and research provided by the broker
viewed in terms of either that particular transaction or of the overall
responsibilities of Investment Management to the CREF Accounts or other clients.
In reaching this determination, Investment Management will not necessarily place
a specific dollar value on the brokerage or research services provided nor
determine what portion of the broker's compensation should be related to those
services.
The following table shows the aggregate amount of brokerage commissions paid to
firms that provided research services in 2001. Note that the provision of
research services was not necessarily a factor in the placement of all this
business with these firms.
AGGREGATE $ AMOUNT OF COMMISSIONS
PAID TO FIRMS THAT PROVIDED
ACCOUNT RESEARCH SERVICES
-------- ---------------------------------
Stock Account $62,833,697
Global Equities Account $16,565,029
Growth Account $ 5,046,832
Equity Index Account $ 19,984
Research or services obtained for one CREF Account may be used by Investment
Management in managing another CREF Account or in managing other investment
company accounts or funds. The research or services obtained may also be used by
Advisors in managing its investment company clients. Under each such
circumstance, the expenses incurred will be allocated in an equitable manner
consistent with Investment Management's fiduciary duty to CREF.
The aggregate amount of brokerage commissions paid by the Stock Account during
2001, 2000, and 1999 was $71.7 million, $78.4 million, and $54.2 million,
respectively. The aggregate amount of brokerage commissions paid by the Global
Equities Account in 2001, 2000 and 1999 was $19.5 million, $28.9 million, and
$15.5 million, respectively. The aggregate amount of brokerage commissions paid
by the Growth Account in 2001, 2000 and 1999 was $5.9 million, $6.9 million, and
$9.0 million, respectively. The aggregate amount of brokerage commissions paid
by the Equity Index Account in 2001, 2000 and 1999 was $331,006, $332,008, and
$210,685, respectively. The aggregate amount of brokerage commissions paid by
the Social Choice Account in 2001, 2000 and 1999 was $176,293, $117,998, and
$78,159, respectively. No brokerage commissions were paid by the Money Market
Account, the Bond Market Account, or the Inflation-Linked Bond Account during
2001, 2000, or 1999.
B-35
During 2001 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, 2001 are set forth below:
STOCK ACCOUNT
A. REGULAR BROKER OR DEALER BASED ON BROKERAGE COMMISSIONS
PAID
Salomon Smith Barney, Inc. (Parent-Citigroup, Inc.) $1,906,094,916
Morgan (J.P.) Securities, Inc. (Parent-J.P. Morgan Chase) $ 453,150,659
Morgan Stanley Dean Witter & Co. $ 356,567,657
Merrill Lynch, Pierce, Fenner & Smith $ 234,667,746
Lehman Brothers, Inc. $ 202,868,060
CS First Boston (Parent-Credit Suisse Group) $ 172,732,899
UBS Warburg LLC (Parent-UBS AG) $ 144,092,495
Goldman Sachs & Co. $ 106,988,238
Spear, Leeds & Kellogg LP (Parent-Goldman Sachs & Co.) $ 106,988,238
Deutsche Bank Securities (Parent-Deutsche Bank AG) $ 41,057,982
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING AS
PRINCIPAL
Citigroup, Inc. $1,906,094,916
Bank of America Securities, LLC (Parent-Bank of America
Corp.) $ 830,342,290
Morgan (J.P.) Securities, Inc. (Parent-J.P. Morgan Chase) $ 453,150,659
Morgan Stanley Dean Witter & Co. $ 356,567,657
Merrill Lynch Money Market (Parent-Merrill Lynch, Pierce,
Fenner & Smith) $ 234,667,746
Lehman Commercial Paper (Parent-Lehman Brothers, Inc.) $ 202,868,060
CS First Boston (Parent-Credit Suisse Group) $ 172,732,899
UBS Warburg LLC $ 144,092,495
Goldman Sachs & Co. $ 106,988,238
Spear, Leeds & Kellogg LP (Parent-Goldman Sachs & Co.) $ 106,988,238
B-36
GLOBAL EQUITIES ACCOUNT
A. REGULAR BROKER OR DEALER BASED ON BROKERAGE COMMISSIONS
PAID
Salomon Smith Barney, Inc. (Parent-Citigroup, Inc.) $ 127,925,305
Lehman Brothers, Inc. $ 35,781,487
UBS Warburg LLC (Parent-UBS AG) $ 27,328,451
CS First Boston (Parent-Credit Suisse Group) $ 22,457,157
Deutsche Bank Securities (Parent-Deutsche Bank AG) $ 17,303,090
ABN AMRO Inc. (Parent-ABN AMRO Holdings N.V.) $ 10,658,321
Morgan Stanley Dean Witter & Co. $ 9,139,589
Merrill Lynch, Pierce, Fenner & Smith $ 7,929,641
Goldman Sachs & Co. $ 1,059,669
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING AS
PRINCIPAL
Lehman Brothers, Inc. $ 35,781,487
UBS Warburg LLC $ 27,328,451
CS First Boston (Parent-Credit Suisse Group) $ 22,457,157
BT Alex Brown (Parent-Deutsche Bank AG) $ 17,303,090
J.P. Morgan Chase & Co. $ 10,067,750
Morgan Stanley Dean Witter & Co. $ 9,139,589
Merrill Lynch, Pierce, Fenner & Smith $ 7,929,641
Goldman Sachs & Co. $ 1,059,669
Spear, Leeds & Kellogg LP (Parent-Goldman Sachs & Co.) $ 1,059,669
GROWTH ACCOUNT
A. REGULAR BROKER OR DEALER BASED ON BROKERAGE COMMISSIONS
PAID
Salomon Smith Barney, Inc. (Parent-Citigroup, Inc.) $ 128,908,101
Lehman Brothers, Inc. $ 16,720,040
B. REGULAR BROKER OR DEALER BASED ON BROKERAGE ENTITIES
ACTING AS PRINCIPAL
Citigroup, Inc. $ 128,908,101
Lehman Brothers, Inc. $ 16,720,040
B-37
EQUITY INDEX ACCOUNT
A. REGULAR BROKER OR DEALER BASED ON COMMISSIONS PAID
Salomon Smith Barney, Inc. (Parent-Citigroup, Inc.) $ 119,813,927
Goldman Sachs & Co. $ 9,242,630
Spear, Leeds & Kellogg LP (Parent-Goldman Sachs & Co.) $ 9,242,630
Jefferies & Co., Inc. (Parent-Jefferies Group, Inc.) $ 452,929
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING AS
PRINCIPAL
J.P. Morgan Chase & Co. $ 33,325,971
Morgan Stanley Dean Witter & Co. $ 28,315,597
Goldman Sachs & Co. $ 9,242,630
Spear, Leeds & Kellogg LP (Parent-Goldman Sachs & Co.) $ 9,242,630
Lehman Brother, Inc. $ 7,351,073
First Tennessee Capital $ 2,114,321
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
INFLATION-LINKED BOND ACCOUNT
A. REGULAR BROKER OR DEALER BASED ON BROKERAGE COMMISSIONS PAID
NONE
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING AS PRINCIPAL
NONE
B-38
SOCIAL CHOICE ACCOUNT
A. REGULAR BROKER OR DEALER BASED ON BROKERAGE COMMISSIONS
PAID
Spear, Leeds & Kellogg LP (Parent-Goldman Sachs & Co.) $ 908,950
B. REGULAR BROKER OR DEALER BASED ON ENTITIES ACTING AS
PRINCIPAL
Citigroup, Inc. $ 79,565,264
J.P. Morgan Chase & Co. $ 24,991,134
Morgan Stanley Dean Witter & Co. $ 18,778,834
Merrill Lynch Money Market (Parent-Merrill Lynch,
Pierce, Fenner & Smith) $ 13,092,544
Lehman Commercial Paper (Parent-Lehman Brothers, Inc.) $ 2,271,200
Goldman Sachs & Co. $ 908,950
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)[power of 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,
B-39
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)/cd + 1)[power of 6] - 1]
where: a = interest and dividends attributable to the
accumulation fund earned during the period
b = expense deductions incurred during the priod
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 preexisting
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 and income
other than investment income (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)[power of 365/7] - 1
B-40
The Money Market Account's yield fluctuates, unlike many bank deposits or other
investments that 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
the "real" yield for the Account by using the 30-day yield formula that we use
for the Bond Market Account and adapting it as follows:
YIELD(real) = 2 [((a-b)(real)/cd + 1)[power of 6] - 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-39. 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.
B-41
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:
STOCK ACCOUNT
-------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
------ --------------- ---------------
1 year
(January 1, 2001 to December 31, 2001) (13.89)% (13.89)%
5 years
(January 1, 1997 to December 31, 2001) 8.27% 48.79%
10 years
(January 1, 1992 to December 31, 2001) 10.90% 181.30%
GLOBAL EQUITIES ACCOUNT
-----------------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
------ --------------- ---------------
1 year
(from January 1, 2001 to December 31, 2001) (19.52)% (19.52)%
5 years
(from January 1, 1997 to December 31, 2001) 5.19% 28.77%
GROWTH ACCOUNT
--------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
------ --------------- ---------------
1 year
(from January 1, 2001 to December 31, 2001) (22.91)% (22.91)%
5 years
(from January 1, 1997 to December 31, 2001) 6.73% 38.50%
EQUITY INDEX ACCOUNT
--------------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
------ --------------- ---------------
1 year
(from January 1, 2001 to December 31, 2001) (11.73)% (11.73)%
5 years
(from January 1, 1997 to December 31, 2001) 9.92% 60.47%
B-42
BOND MARKET ACCOUNT
-------------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
------ --------------- ---------------
1 year
(from January 1, 2001 to December 31, 2001) 7.93% 7.93%
5 years
(from January 1, 1997 to December 31, 2001) 7.25% 41.92%
10 years
(from January 1, 1992 to December 31, 2001) 7.04% 97.43%
INFLATION-LINKED BOND ACCOUNT
-----------------------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
------ --------------- ---------------
1 year
(from January 1, 2001 to December 31, 2001) 7.67% 7.67%
4 years and 8 months
(from May 1, 1997 date of SEC registration
to December 31, 2001) 6.05% 31.59%
SOCIAL CHOICE ACCOUNT
---------------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
------ --------------- ---------------
1 year
(from January 1, 2001 to December 31, 2001) (4.77)% (4.77)%
5 years
(from January 1, 1997 to December 31, 2001) 9.37% 56.51%
10 years
(from January 1, 1992 to December 31, 2001) 10.88% 180.95%
MONEY MARKET ACCOUNT
--------------------
AVERAGE ANNUAL
COMPOUND RATES CUMULATIVE RATES
PERIOD OF TOTAL RETURN OF TOTAL RETURN
------ --------------- ---------------
1 year
(from January 1, 2001 to December 31, 2001) 4.04% 4.04%
5 years
(from January 1, 1997 to December 31, 2001) 5.27% 29.25%
10 years
(from January 1, 1992 to December 31, 2001) 4.83% 60.28%
B-43
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) iMoneyNet Money Fund Report
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, composed 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, (21) Salomon Brothers Inflation-Linked Securities Index, and
(22) Morningstar, Inc. We may also include the performance of these indices in
advertisements, and discuss their sponsors' 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.
None of the CREF Accounts are promoted, sponsored, endorsed or sold by, nor
affiliated with, Frank Russell Company. Frank Russell Company is not responsible
for and has not reviewed any CREF 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 any CREF Accounts or
their Participants into consideration in determining the index. Frank Russell
Company's publication of 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.
B-44
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 income
change method chosen. Separate annuity units will be maintained in each annuity
fund for payments being made under each of the two income change methods.
Under the annual income change method, the value of an annuity unit for payments
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 fund. (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.
B-45
Under the monthly income change method, the value of an annuity unit for
payments is redetermined on the 20th of each month or on the preceding business
day if the 20th is not a business day. Annuity payments change on the following
payment due date. This monthly change reflects the net investment experience of
the chosen Account(s). The value of the annuity unit is also redetermined at the
end of each calendar quarter to reflect the past and anticipated mortality
experience of those individuals receiving annuity payments from the Accounts'
monthly revalued annuity fund.
Annuitants can be said to bear the mortality risk under the certificate. How
much you or your beneficiary receive in annuity payments from any account
depends partly on the mortality experience of the annuity fund from which the
payments are made. For example, if the people receiving income from an account's
annually revalued annuity fund, as a group, live longer than expected, the
amount payable to each will be less than if, as a group, they die sooner than
expected. So the "mortality risk" of each CREF account's annuity funds falls on
those who receive income from it.
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, in accordance
with his or her TIAA traditional payout annuity contract, a participant (or
beneficiary) transfers the value of annuity payments under that contract to an
income option or method of payment payable from CREF, the number of annuity
units payable from the account to which the transfer is made is determined in
the same manner.
When the chosen income option or method of payment involves life contingencies,
the annuity factor will reflect interest assumed at the effective annual rate of
4% and mortality assumptions for the person(s) on whose life (lives) the annuity
payments will be based. In these instances, mortality will be based on the then
current CREF settlement mortality schedules. 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 income change method in each
Account then providing annuity payments.
The value of the basic annuity unit is determined for each income change method
in each Account as A divided by B, where A and B are defined as follows:
B-46
A. The Account's annuity fund for the income change method as of March 31,
reduced by the dollar amount of benefits payable under the income change
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 income change 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. A separate
interim annuity unit value is calculated daily 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. At the end of each calendar quarter,
the interim annuity unit value is also adjusted for mortality experience during
the prior quarter.
For Participants under the annual income change 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 income change method, the value of the annuity unit is redetermined each
month 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 under a particular income change method from one CREF Account to another,
the number of annuity units added to the CREF Account(s) 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 for that income change
method for the Account from which the annuity units are being transferred, and
dividing by the interim annuity unit value for that income change method for the
Account to which the annuity units are being transferred. For transfers on days
other than March 31, under the annual payment income change 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 income change method and for all transfers to or from the TIAA
traditional annuity, your payments will change with the payment due after the
first payment valuation date following the transfer date. Switches between the
monthly and the annual income change methods will be effective only on March 31.
The value of annuity units transferred from a CREF Account under the annual
income change 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 under the annual income
change method 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-47
The value of annuity units transferred from a CREF Account under the monthly
income change method to TIAA will be equal to the number of annuity units
multiplied by the present value of one interim annuity unit under the monthly
income change method payable 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.
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.
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)[power of n] = B
where: A = basic annuity unit value determined as of March 31
for payments due during the 12-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 12-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-48
Information on changes in the value of a basic annuity unit is set forth below:
[Enlarge/Download Table]
AVERAGE ANNUAL CHANGES IN BASIC ANNUITY UNIT VALUE
--------------------------------------------------
GLOBAL EQUITY BOND INFLATION- SOCIAL MONEY
STOCK EQUITIES GROWTH INDEX MARKET LINKED BOND CHOICE MARKET
------ -------- ------ ------ ------ ----------- ------ ------
Year Ended May 1, 2002 (5.01)% (10.70)% (8.69)% (2.90)% 0.80% (0.55)% (2.33)% (1.40)%
5 Years ended May 1, 2002 4.31% 0.51% 1.08% 5.49% 3.01% -- 4.52% 0.86%
10 Years ended May 1, 2002 7.10% -- -- -- -- -- 6.56% 0.38%
[Enlarge/Download Table]
CUMULATIVE CHANGE IN BASIC ANNUITY UNIT VALUE
---------------------------------------------
GLOBAL EQUITY BOND INFLATION- SOCIAL MONEY
STOCK EQUITIES GROWTH INDEX MARKET LINKED BOND CHOICE MARKET
------ -------- ------ ------ ------ ----------- ------ ------
Year Ended May 1, 2002 (5.01)% (10.70)% (8.69)% (2.90)% 0.80% (0.55)% (2.33)% (1.40)%
5 Years ended May 1, 2002 23.48% 2.58% 5.50% 30.62% 15.40% -- 24.76% 4.36%
10 Years ended May 1, 2002 98.47% -- -- -- -- -- 88.72% 3.89%
The average annual and cumulative changes in the basic annuity unit value of the
Stock Account since inception in 1952 were 6.30% and 1993.70%, respectively. The
average annual and cumulative changes in the basic annuity unit value of the
Global Equities Account since inception in 1992 were 5.11% and 63.92%,
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
6.74% and 67.54%, and 9.09% and 99.19%, 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 2.42% and 15.40%,
respectively. The average annual and cumulative changes in the basic annuity
unit value of the Inflation-Linked Bond Account since May 1, 1997 were 2.81% and
14.57%, respectively. The average annual and cumulative changes in the basic
annuity unit value of the Social Choice Account since inception in 1991 were
6.50% and 99.86%, respectively.
It is assumed in calculating the annuity unit values that the assets in the
annuity funds 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 that 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 transfer to a funding vehicle other than TIAA or CREF during the quarter, if
an
B-49
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.
CREF also will transmit to Participants, at least semiannually, 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% 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% 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% 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.
B-50
DISSOLVED INSTITUTIONS
If your present or past employer dissolves or ceases operation, 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 Monday through Friday, 8 a.m. through 11 p.m. ET.
SIGNATURE REQUIREMENTS
For some transactions, we may require your signature to be notarized or
guaranteed by a commercial bank.
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.
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.
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 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.
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LEGAL PROCEEDINGS
CREF is not a party to any legal actions we consider material.
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 LLP, Washington, D.C.
EXPERTS
The financial statements for the year ended December 31, 2001 of CREF
incorporated in this Statement of Additional Information by reference have been
audited by Ernst & Young LLP, independent auditors, as stated in their reports,
which are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm, given upon their authority as experts in
accounting and auditing.
CONSIDERATIONS CONCERNING CREF'S 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 October 2000 by an independent organization expressed
overall satisfaction with TIAA-CREF and said that they would recommend TIAA-CREF
to a colleague. Ninety-five
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percent of these Participants said that given the choice between TIAA-CREF and
other companies, they would choose TIAA-CREF again (61% would definitely choose
TIAA-CREF and 34% 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, 1999.
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
retirement planners, 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 the Web Center section for administrators and 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 nondiscrimination
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.
STOCK ACCOUNT
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 Account is the largest singly managed stock account in
the world based on assets under management.
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GLOBAL EQUITIES ACCOUNT
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. During the past twenty years, adding international
investments to a domestic portfolio has typically reduced the overall risk of
the portfolio, leading to returns that were often less volatile than a purely
domestic portfolio. During certain periods (e.g., overall in the 1980's),
international investments returns were less than the domestic market while in
other periods (e.g., overall in the 1990's) adding international investments
were less than those in the domestic market.
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 is the Stock
Account.
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, LLC. 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.
GROWTH ACCOUNT
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 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.
EQUITY INDEX 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. We expect that
when the overall U.S. Stock Market is rising, the account's unit value will
rise, while in periods of market decline, the account's unit value will decline.
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The account will not be managed in the traditional sense of picking individual
securities based on economic, financial and market analysis.
SOCIAL CHOICE ACCOUNT
The Social Choice Account is a diversified balanced account that invests only in
companies that are suitable from a financial perspective and whose activities
are consistent with the account's social criteria.
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. The account can also invest in securities issued by other
countries or their agencies and instrumentalities as approved by the Committee
on Corporate Governance and Social Responsibility. Even if an 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.
BOND MARKET ACCOUNT
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.
INFLATION-LINKED BOND ACCOUNT
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
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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).
However, the inflation-adjusted principal value of TIIS will be calculated using
CPI-U data that is about three months old.
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, are designed to
track the inflation rate in the issuing country. Since that inflation rate may
be higher or lower than the U.S. rate and may affect the value of the country's
foreign currency relative to the U.S. dollar, we will invest in these foreign
issues only when we believe they provide the potential for additional returns
without diluting the account's overall inflation protection feature.
The principal amount of a TIIS bond is periodically adjusted for inflation using
the CPI-U and interest is paid twice a year. To use a simplified example, if an
investor purchased a $1,000 TIIS bond with a fixed annual interest of 3%
(payable 1.5% semiannually), 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 semiannual interest payment would be $15.15 ($1,010 x 1.5%). If inflation
during the second half of the year reached 3%, the principal at the end of the
year would be $1,030 and the second semiannual interest payment would be $15.45
($1,030 x 1.5%). The method we use to determine the inflation-adjusted principal
is somewhat more complex than the example illustrates.
Market values of inflation-indexed securities can go up or down due to changes
in the market's inflation expectations or in real rates of interest (i.e., the
component of interest rates not attributable to anticipated inflation rates).
For example, supply and demand shifts in the marketplace could affect the value
of inflation-linked securities. If inflation were to rise faster than reflected
in conventional bond interest rates, real rates might decline. This would make
the market value of inflation-indexed bonds go up. In contrast, if nominal rates
increase faster than inflation, real interest rates might increase, leading to a
decrease in inflation-indexed bond values. We can't predict how volatile market
values of inflation-linked securities will be. However, we believe they'll be
less volatile over the long term than conventional bonds and equities.
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 might be less volatile than a bond or stock
account alone.
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MONEY MARKET ACCOUNT
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.
CLASSIC IRAS
Since 1976, IRAs have helped millions of people save for retirement on a
tax-deferred basis. They are best for people who are eligible to make
tax-deductible contributions, and those who expect that they will be in a lower
tax bracket during retirement. Tax-deductible IRA contributions may be limited
or may not be available to an individual who is an active participant in an
employer-sponsored retirement plan, unless his or her modified adjusted gross
income falls below certain levels. An individual who is not an active
participant may still not be eligible to make a deductible contribution if his
or her spouse is an active participant. An individual can make after-tax
contributions of up to $3,000 per year, or $3,500 for taxpayers age 50 or older,
to the Classic IRA regardless of income or retirement plan participation.
The Classic IRA enables you to roll over funds from almost any kind of
retirement plan and consolidate your long-term savings with TIAA-CREF, without
having to pay taxes on the move. Once you've consolidated your funds with
TIAA-CREF, we can help you set up a coordinated program for your retirement
resources.
ROTH IRAS
Roth IRAs were introduced on January 1, 1998. Subject to income limitations, you
can roll over, or convert, funds from a Classic IRA directly to a Roth IRA.
Subject to income limits, you can also roll over funds from an eligible
tax-deferred retirement plan, but the funds must first be rolled over to a
Classic IRA, and subsequently rolled over again, or converted, to a Roth IRA. To
roll money into a Roth IRA, you must pay taxes on the amount rolled-over, other
than on after-tax contributions that were made to a qualified plan or on
non-deductible annual IRA contributions. Such a move may be beneficial to
individuals seeking Federal tax-free investment earnings and/or freedom from
minimum distribution requirements, but the decision hinges on your tax
situation, investment orientation and other factors. We can provide information
to help you decide whether this is the best course of action, and in general, to
help you select the investment and savings products best suited to your goals.
You are only eligible to roll over amounts from a Classic IRA to a Roth IRA if,
for the year of the rollover, your adjusted gross income is $100,000 or less.
The same limit applies to married individuals filing jointly and to single
taxpayers, and the limit is not indexed to cost-of-living adjustments. You may
not roll over amounts from a Classic IRA to a Roth IRA if you are a married
taxpayer filing separately. Other restrictions may apply as well.
In its advertisements, CREF may compare the Classic and Roth IRAs and discuss
which individuals can best benefit from each product. It may also discuss the
advantages and disadvantages of converting to Roth IRAs from a traditional IRA.
CREF may also use charts to illustrate possible allocations of investments among
the CREF Accounts for Participants in different financial situations. We may
also use certain testimonials and list participating institutions.
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DECISION MAKING SUPPORT. TIAA-CREF offers online Decision Making Support tools
via the TIAA-CREF Web Center (www.tiaa-cref.org) to assist participants with
planning for retirement. The tools, including asset allocation and product
selection calculators, provide personalized solutions to individual savings and
investment needs. The tools request information about financial goals and
savings amounts available. Products and investment portfolios will be suggested,
based on this information. Because these tools also utilize information from the
participant's own account records, the participant must log in using his/her
user ID and password for online account access on the TIAA-CREF Web Center.
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 and discuss the
specific terms of an institution's plan. 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. CREF may also include in its advertisements information on the
size of CREF and its share of the 403(b) market and how we rate among
competitors in that market.
ACCOUNT PERFORMANCE. We may also discuss in our sales materials factors that
impacted the performance of the CREF accounts as well as each accounts' specific
holdings.
MARKET TIMING. Participants should be aware of the risk that 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.
ECONOMIC CONDITIONS. We may also discuss in advertisements and sales literature
general economic and/or market conditions that may impact investments in
variable annuities, including the potential benefits of diversification during
volatile markets and for those nearing or in retirement.
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.
PARTICIPANT PROFILES. We will from time to time feature profiles of participants
in our retirement plans in our sales literature. They may discuss their
financial planning and personal goals.
FEDERAL INCOME TAXES
403(B) PLANS
CREF certificates may be used as funding vehicles for retirement plans set up
under section 403(b) of the IRC, under which total annual contributions to
section 403(b) annuities for 2002 can't exceed the lesser of (a) $40,000; or (b)
100% of your compensation. Your maximum exclusion allowance is generally 20% of
your compensation
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multiplied by your years of service with your employer, less certain prior
tax-deferred retirement plan contributions. For 2002, you usually can exclude
salary reduction contributions of up to $11,000 from your gross taxable income
and certain employees may exclude up to $14,000. Contact your tax adviser for
more information.
401(a), 403(a), and 401(k) PLANS
CREF RA and GRA certificates and contracts are also used as funding vehicles for
401(a) (including Keogh plans) and 403(a) retirement plans. CREF GRA and GSRA
certificates are available for 401(k) plans. Employer contributions for 2001 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
$40,000 or 100% of compensation, whichever is less.
457(b) PLANS
The maximum contribution limit to a 457(b) non-qualified deferred compensation
plan for employees of state and local governments for 2002 is the lesser of
$11,000 or 100% of "includable compensation" (as defined by law). New catch up
rules allow participants age 50 or older to contribute the lesser of $1,000 or
100% of compensation reduced by the amount of other elective deferrals that the
participant made for that year. For non-governmental employers, all investments
in a 457(b) plan are owned by and are subject to the claims of the general
creditors of the sponsoring employer.
INDIVIDUAL RETIREMENT ANNUITIES
IRC sections 408 and 408A permit eligible individuals to make direct
contributions to Classic and Roth IRAs, respectively. The amount you can
contribute to an IRA (other than an Education IRA) is currently limited to
$3,000 or $3,500 for taxpayers age 50 or older per year. If you contribute to
both a Classic IRA and a Roth IRA in the same year, your aggregate limit is
$3,000 or $3,500 for taxpayers age 50 or older for the year. The IRC doesn't
limit the amount you can roll over to the Classic or the Roth IRA.
IRC section 408 permits funds from certain qualified retirement plans or IRAs to
be rolled over to the Classic IRA without losing their tax-deferred status. IRC
section 408A, however, only permits rollovers to a Roth IRA from another IRA.
This means that in order to move funds held in a retirement plan to a Roth IRA,
they must first be rolled over to an IRA, and then to a Roth IRA. Although funds
rolled over to a Roth IRA from another IRA are subject to taxation, they may
grow on a federal tax favored basis. CREF IRAs can accept only cash transfers.
All noncash assets must therefore be liquidated prior to being transferred to
us.
You also must meet certain income level requirements to make contributions to
the Roth IRA or, if you or your spouse is an active participant in an employer
sponsored retirement plan, to make tax-deductible contributions to the Classic
IRA. If you are married and file a joint tax return with your spouse and make a
combined adjusted gross income of $150,000 or less a year, you can make annual
contributions of up to $3,000 or $3,500 for taxpayers age 50 or older to a Roth
IRA. If you are single and make an adjusted gross income of $95,000 or less a
year, you are also eligible to make contributions of up to $3,000 or $3,500 for
taxpayers age 50 or older to a Roth IRA. You can contribute a lower amount if
you are married and file jointly and your combined adjusted gross income is
between $150,000 and $160,000 a year, or if you are single and your adjusted
gross income is between $95,000 and $110,000 a year. If you are married filing
separately, you cannot make a Roth IRA contribution if your adjusted gross
income exceeds $10,000 per
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year, and the maximum contribution is reduced if your adjusted gross income is
between $0 and $10,000. You can convert an existing IRA to a Roth IRA if your
adjusted gross income is $100,000 or less. However, you may not rollover amounts
from an IRA to a Roth IRA if you are a married taxpayer filing separately.
For 2002, if you are married and file a joint tax return with your spouse and
make a combined adjusted gross income of $53,000 or less a year, or you are
single and make an adjusted gross income of $33,000 or less a year, you can make
tax-deductible contributions of up to $3,000 or $3,500 for taxpayers age 50 or
older a year to a Classic IRA. You can contribute a lesser amount if your
adjusted gross income is between $54,000 and $64,000 if you are married and file
jointly or if your adjusted gross income is between $34,000 and $44,000 if you
are single. For the Year 2003 and later, the limits on a taxpayer's adjusted
gross income for purposes of making a deductible contribution to a Classic IRA
are different from those currently in effect. Different income-based eligibility
rules apply if you are not an active participant in an employer-sponsored
retirement plan but you have a spouse who is an active participant in an
employer-sponsored retirement plan.
You can revoke an IRA up to 7 days after you establish it. Contact your tax
adviser for more tax information on IRAs.
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 that were 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% 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% withholding doesn't apply to payments
from IRAs, hardship withdrawals, lifetime annuity payments, substantially equal
periodic payments over your life expectancy or over 10 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% "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 to IRAs);
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(3) you begin annuity income consisting of a series of regular substantially
equal payments (at least annually) over your lifetime or life expectancy or
the joint lives or joint life expectancies of you and your beneficiary;
(4) you have medical expenses in excess of 7 1/2 percent of your adjusted 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 (not applicable to IRAs);
(6) the distribution is made on account of an IRS levy on the retirement plan;
(7) for IRAs only, you are unemployed and receive unemployment compensation (as
set forth in the IRC) and you use the distribution to pay certain health
insurance premiums for yourself, your spouse, or your dependents;
(8) for IRAs only, distributions that do not exceed certain qualified higher
education expenses of the individual, the individual's spouse, or the child
or grandchild of the individual or individual's spouse; or
(9) for IRAs only, distributions to an individual (up to a lifetime maximum of
$10,000) for qualified first-time purchases of a principal residence.
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). These restrictions apply with respect
to 403(b)(1) annuities only to amounts (and earnings, if any) credited after
December 31, 1988. They apply to all amounts under salary reduction agreements
to 403(b)(7) and 401(k) plans. These withdrawals and annuity payments are
generally 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 a hardship, as defined by Treasury
Regulations, but hardship withdrawals can be from contributions only, generally
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 a successor defined contribution plan and in
other limited circumstances permitted by law. 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) to a 403(b) annuity will be
subject to these restrictions.
MINIMUM DISTRIBUTION REQUIREMENTS AND TAXES
In most cases, payments must 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 70 1/2 or, if
later, by retirement. Payments from an IRA (other than a Roth IRA) must begin by
April 1 of the calendar year after 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% excise tax on the amount you should have received but didn't.
Special distribution and tax rules may apply to 457(b) plans.
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DEFERRED COMPENSATION PLANS
RA and GSRA certificates are also available for deferred compensation plans.
Special tax rules apply.
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.
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 all of the CREF accounts are incorporated
by reference from the Annual Report to Participants. CREF will furnish you,
without charge, another copy of the report 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-62
PART C - OTHER INFORMATION
Item 28. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
The following Financial Statements for the Stock, Global Equities
and Growth Accounts of the College Retirement Equities Fund ("CREF") are
incorporated into Part B of this Registration Statement by reference to the
Annual Report to Participants dated December 31, 2001, as filed with the
Commission pursuant to Rule 30b2-1 under the Investment Company Act of 1940 on
February 27, 2002 (Accession No. 0000930413-02-000519):
Page
Report of Management Responsibility ....................................... 76
Report of the Audit Committee ............................................. 76
Audited Financial Statements:
Statements of Assets and Liabilities ............................. 77
Statements of Operations ......................................... 77
Statements of Changes in Net Assets .............................. 78
Notes to Financial Statements .................................... 79
Report of Independent Auditors ................................... 83
Statement of Investments ......................................... 10
The following Financial Statements for the Money Market, Bond
Market, Inflation-Linked Bond, Social Choice and Equity Index Accounts of CREF
are incorporated into Part B of this Registration Statement by reference to the
Annual Report to Participants dated December 31, 2001, as filed with the
Commission pursuant to Rule 30b2-1 under the Investment Company Act of 1940 on
February 27, 2002 (Accession No. 0000930413-02-000519):
Page
Report of Management Responsibility ....................................... 50
Report of Audit Committee ................................................. 50
Audited Financial Statements:
Statements of Assets and Liabilities ............................. 51
Statements of Operations ......................................... 51
Statements of Changes in Net Assets .............................. 53
Notes to Financial Statements .................................... 53
Report of Independent Auditors ................................... 58
Statements of Investments:
Money Market Account ........................................ 11
Inflation-Linked Bond Market Account ........................ 14
Bond Market Account.......................................... 14
Social Choice Account........................................ 20
Equity Index Account......................................... 26
(b) EXHIBITS
(1) Not Applicable
(2) (a) Charter of CREF (as amended)
(b) Constitution of CREF (as amended)
(c) Bylaws of CREF (as amended)
(3) (a) Custodial Services Agreement with The Chase Manhattan Bank,
N.A.
(b) Custodian Services Agreement with Bankers Trust Company (as
amended)
(c) Indenture Agreement Between CREF and Canada Permanent Trust
Company
(d) Custodial Services Agreement Between CREF and Morgan
Guaranty Trust Company (as assigned to Bank of New York)
(e) Custodial Services Agreement Between CREF and Morgan
Guaranty Trust Company (as assigned to Bank of New York)
(Bond Market Account)
(f) Custodial Services Agreement Between CREF and Morgan
Guaranty Trust Company (as assigned to Bank of New York)
(Social Choice Account)
(g) Custodial Services Agreement Between CREF and Bank of New
York (Inflation-Linked Bond Account)
(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
(b) Supplemental Retirement Unit-Annuity Certificate
(c) (i) Group Supplemental Retirement Unit-Annuity Contract
(ii) Group Supplemental Retirement Unit-Annuity
Certificate
(d) (i) Group Retirement Annuity Contract (including
Specimen of Group Retirement Unit-Annuity
Certificate and Agreement with Trustee)
(ii) Form of Election Agreement between CREF and
Employer (for Group Retirement Annuity Contract)
(iii) Group Retirement Unit-Annuity Contract (for use in
Oregon)
(iv) Group Retirement Unit-Annuity Certificate (for use
in Oregon)
(e) Rollover Individual Retirement Unit-Annuity Certificate
(f) The Following Certificates representing CREF Income
Options:
(i) Life Unit-Annuity
(ii) Life Unit-Annuity with Minimum Guaranteed Period
(iii) Last Survivor Life Unit-Annuity
(iv) Joint and Survivor Life Unit-Annuity
(v) Last Survivor Life Unit-Annuity with Minimum
Guaranteed Period
(vi) Joint and Survivor Life Unit-Annuity with Minimum
Guaranteed Period
(vii) Unit-Annuity Certain
(viii) Minimum Distribution Option
(g) Accumulation-Unit Deposit Certificate (payable as a death
benefit only)
(h) (i) Endorsement to in-force Supplemental Retirement
Unit-Annuity Certificates (reflecting addition of
Global Equities Account and IRC Withdrawal
Restrictions)
(ii) Endorsement to in-force Supplemental Retirement
Unit-Annuity Certificates (reflecting addition of
Minimum Distribution Annuity)
(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)
(i) (i) Endorsement to in-force Retirement Unit-Annuity
Certificates (reflecting addition of Global
Equities Account and IRC Withdrawal Restrictions)
(ii) Endorsement to in-force Retirement
Unit-Annuity Certificates (reflecting addition of
Minimum Distribution Annuity and availability of
Unit-Annuity for a Fixed Period)
(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)
(j) (i) Endorsement to in-force Group Supplemental
Retirement Unit-Annuity Certificates (reflecting
addition of the Global Equities Account)
(ii) Endorsement to in-force and some new issues of the
Group
Supplemental Retirement Unit-Annuity Certificate
(reflecting addition of Minimum Distribution
Annuity)
(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)
(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)
(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)
(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)
(iii) Endorsement to in-force Group Retirement
Unit-Annuity Certificate (reflecting addition of
Minimum Distribution Annuity and availability of
Annuity for a Fixed Period)
(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)
(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)
(m) Endorsement to new and in-force issues 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)
(n) Endorsement to Group Retirement Unit-Annuity Certificates
(reflecting addition of Social Choice Account payout
option)
(o) Endorsement to CREF Certificates (reflecting yearly
transfer to Minimum Distribution Annuity Certificate)
(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)
(q) (i) Endorsement to in-force Minimum Distribution
Annuity
Certificates (non-cashable) (reflecting addition of
the Global Equities Account)
(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)
(r) (i) Endorsement to in-force Minimum Distribution
Annuity Certificates (cashable) (reflecting
addition of the Global Equities Account)
(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)
(s) Endorsement to new issues of Unit-Annuity Certificates
(reflecting addition of the Global Equities Account and
deletion of a Unity-Annuity)
(t) (i) Endorsement to Retirement Unit-Annuity Certificate
(reflecting addition of the Inflation-Linked Bond
Account and Right to a Tax-Free Rollover)
(ii) Endorsement to Supplemental Retirement Unit-Annuity
Certificate (reflecting addition of the
Inflation-Linked Bond Account and Right to a
Tax-Free Rollover)
(iii) Endorsement to Rollover Individual Retirement
Unit-Annuity Certificate (reflecting addition of
the Inflation-Linked Bond Account and Right to a
Tax-Free Rollover)
(iv) Endorsement to Group Retirement Unit-Annuity
Certificate (reflecting addition of the
Inflation-Linked Bond Account and Right to a
Tax-Free Rollover)
(v) Endorsement to Group Supplemental Retirement
Unit-Annuity Certificate (reflecting addition of
the Inflation-Linked Bond Account and Right to a
Tax-Free Rollover)
(vi) Endorsement to Minimum Distribution Annuity
Certificate (reflecting addition of the
Inflation-Linked Bond Account)
(vii) Endorsement to CREF Unit-Annuity Certificates
(reflecting addition of the Inflation-Linked Bond
Account)
(viii) Endorsement to CREF Accumulation-Unit Deposit
Certificate (reflecting addition of the
Inflation-Linked Bond Account)
(ix) Endorsement to Group Supplemental Retirement
Annuity Certificate (for participants in the
Alternative Plan to Social Security)
(7) (a) (i) Application for Retirement Unit-Annuity Contracts
(ii) Application for Retirement Unit-Annuity Contracts
(for retirement plans not covered by ERISA)
(b) (i) Application for Supplemental Retirement Annuity
Contracts
(ii) Application for Supplemental Retirement Annuity
Contracts (for retirement plans not covered by
ERISA)
(c) (i) Application for Institutionally Owned Retirement
Annuity Contracts
(ii) Applications for Institutionally Owned Retirement
Annuity Contracts with Delayed Vesting
(iii) Application for Institutionally Owned Retirement
Annuity Contracts with Delayed Vesting (for
retirement plans not covered by ERISA)
(iv) Application for Group Retirement Unit-Annuity
Contract in Oregon
(d) (i) Enrollment Form for Group Retirement Annuity
Certificates
(ii) Enrollment Form for Group Retirement Annuity
Certificates (for retirement plans not covered by
ERISA)
(e) Application for Rollover Individual Retirement Annuity
Contracts
(f) (i) Application for Retirement Annuity Contracts Under
a Registered Pension Plan (RPP)
(ii) Application for Retirement Annuity Contracts under
a Registered Retirement Savings Plan (RRSP) in
Canada
(g) Applications for Annuity Benefits
(h) (i) Enrollment Form for Group Supplemental Retirement
Annuity Certificates
(ii) Enrollment Form for Group Supplemental Retirement
Annuity Certificates (for retirement plans not
covered by ERISA)
(i) (i) Enrollment Form for Institutionally Owned Group
Retirement Annuity Certificates with Delayed
Vesting
(ii) Enrollment Form for Institutionally Owned Group
Retirement Annuity Certificates with Delayed
Vesting (for retirement plans not covered by ERISA)
(j) (i) Enrollment Form for Two Sets of Group Retirement
Annuity Certificates -- One Set Providing for
Delayed Vesting
(ii) Enrollment Form for Two Sets of Group Retirement
Annuity Certificates -- One Set Providing for
Delayed Vesting (for retirement plans not covered
by ERISA)
(k) (i) Enrollment Form for Two Sets of Group Retirement
Annuity Certificates
(ii) Enrollment Form for Two Sets of Group Retirement
Annuity Certificates (for retirement plans not
covered by ERISA)
(l) CREF Keogh Certificate
(8) Not Applicable
(9) None
(10) (a) CREF Deferred Compensation Plan for Non-Officer Trustees
(b) TIAA-CREF Non-Employee Trustee and Member Deferred
Compensation Plan
(11) Investment Management Services Agreement Between CREF and
TIAA-CREF Investment Management, LLC (as amended) *
(12) (a) Consent of Charles H. Stamm, Esquire *
(b) Consent of Sutherland Asbill & Brennan LLP *
(13) (a) Consent of Ernst & Young LLP *
(14) None
(15) (a) Contribution Agreement between CREF and TIAA (for Money
Market Account)
(b) Seed Money Agreement between CREF and TIAA (for Global
Equities Account)
(c) Seed Money Agreement between CREF and TIAA (for Equity
Index and Growth Accounts)
(d) Seed Money Agreement between CREF and TIAA (for
Inflation-Linked Bond Account)
(16) Schedules for Computation of Performance Quotations *
(17) Registrant's Policy Statement on Personal Trading
------------------
* Filed herewith.
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, 2001, there
were approximately 2.4 million individuals and 12,835 institutions holding CREF
certificates, including approximately 303,198 individuals receiving annuity
benefits.
Item 32. INDEMNIFICATION
Overseers, trustees, officers and employees of CREF may be indemnified
against liabilities and expenses incurred in such 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, LLC ("Investment Management"). In
this connection, Investment Management is registered as an investment adviser
under the 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) 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.
Representation regarding reasonableness of fees CREF represents that
the fees and charges deducted under the Certificates, in the aggregate, are
reasonable in relation to the services rendered the expenses expected to be
incurred, and the risks assumed by CREF.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, College Retirement Equities Fund certifies that it meets all of the
requirements for effectiveness of this registration statement under Rule 485(b)
under the Securities Act and has duly caused this Registration Statement to be
signed on its behalf, in the City of New York and State of New York on the 26th
day of April, 2002.
COLLEGE RETIREMENT EQUITIES FUND
By: /s/ LISA SNOW
----------------------------------
Name: Lisa Snow
Title: Vice President and Chief Counsel,
Corporate Law
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 Chairman of the Board, President, and 4/26/02
-------------------------- Chief Executive Officer (Principal
John H. Biggs Executive Officer) and Trustee
/s/ MARTIN L. LEIBOWITZ Vice Chairman, Chief Investment Officer, 4/26/02
-------------------------- and Trustee (Principal Investment
Martin L. Leibowitz Officer) and Trustee
/s/ RICHARD L. GIBBS Executive Vice President (Principal 4/26/02
-------------------------- Financial and Accounting Officer)
Richard L. Gibbs
SIGNATURE OF TRUSTEE DATE SIGNATURE OF TRUSTEE DATE
-------------------- ---- -------------------- ----
/s/ ELIZABETH E. BAILEY 4/26/02 /s/ STEPHEN A. ROSS 4/26/02
----------------------------- ----------------------
Elizabeth E. Bailey Stephen A. Ross
/s/ JOYCE A. FECSKE 4/26/02 /s/ NESTOR V. SANTIAGO 4/26/02
----------------------------- ----------------------
Joyce A. Fecske Nestor V. Santiago
/s/ EDES P. GILBERT 4/26/02 /s/ EUGENE C. SIT 4/26/02
----------------------------- ----------------------
Edes P. Gilbert Eugene C. Sit
/s/ MARTIN J. GRUBER 4/26/02 /s/ MACEO K. SLOAN 4/26/02
--------------------------- ----------------------
Martin J. Gruber Maceo K. Sloan
/s/ NANCY L. JACOB 4/26/02 /s/ DAVID K. STORRS 4/26/02
----------------------------- ----------------------
Nancy L. Jacob David K. Storrs
/s/ MAJORIE FINE KNOWLES 4/26/02 /s/ ROBERT W. VISHNY 4/26/02
----------------------------- ----------------------
Marjorie Fine Knowles Robert W. Vishny
/s/ BEVIS LONGSTRETH 4/26/02
-----------------------------
Bevis Longstreth
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
11 Investment Management Services Agreement between CREF and
TIAA-CREF Investment Management, LLC (as amended)
12(a) Consent of Charles H. Stamm, Esquire
12(b) Consent of Sutherland Asbill & Brennan LLP
13(a) Consent of Ernst & Young LLP
16 Schedules for Computation of Performance Quotations
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘485BPOS’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 7/1/02 | | 20 |
| | 5/1/02 | | 1 | | 87 |
| Filed on / Effective on: | | 4/29/02 | | 1 |
| | 2/27/02 | | 101 | | | | | N-30D |
| | 12/31/01 | | 4 | | 108 | | | 13F-NT, 24F-2NT, N-30D, NSAR-B |
| | 1/1/01 | | 7 | | 81 |
| | 12/31/00 | | 10 | | 58 | | | 13F-NT, 24F-2NT, N-30D, NSAR-B, NSAR-B/A |
| | 12/31/99 | | 58 | | | | | 13F-NT, 24F-2NT, N-30D, NSAR-B, NSAR-B/A |
| | 1/1/99 | | 91 |
| | 1/1/98 | | 95 |
| | 5/1/97 | | 81 | | 87 | | | 485BPOS, 497 |
| | 1/1/97 | | 80 | | 81 |
| | 4/1/96 | | 87 |
| | 1/1/92 | | 80 | | 81 |
| List all Filings |
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