Statement regarding limited exposure to European securities in TIAA-CREF portfolios


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February 17, 2012

Background

With concerns about the European sovereign debt crisis dominating the headlines, it’s important to understand the nature of the crisis and why it matters to investors. Sovereign debt, which refers to bonds issued by a national government, historically has represented a major component of global bond markets and remains an essential cornerstone of fixed-income investing, offering a range of opportunities for investors seeking yield, total return, and diversification benefits. As with any fixed-income sector, however, the credit quality of specific issuers and securities may vary.

Some, but not all, nations in the European Union (EU) have seen their sovereign debt come under pressure amid deteriorating economic and fiscal conditions. In some countries, this has increased the risk of a government default and the need for a potential bailout. Countries such as Greece and Italy have adopted budget austerity measures in an attempt to hit fiscal targets that would help them avoid such an outcome. Financial markets, however, have remained largely skeptical of these efforts, and of actions taken by EU leaders to prevent the debt crisis from spreading. Adding to the uncertainty is recent data showing that the stagnant European economy may have fallen into recession, which would make it even more difficult for the region to address its debt situation.

Given the fragile state of the region’s financial health, we are closely monitoring exposures to Europe within our investment portfolios. Overall, TIAA-CREF has very limited exposure to fixed-income securities originating in eurozone nations. In particular, our exposure to sovereign debt issued by the region’s weaker nations, including Greece, Italy, Ireland, Portugal, and Spain (GIIPS) is minimal.

Fund and annuity account holdings as of December 31, 2011

  • As of December 31, 2011, TIAA-CREF held no sovereign debt issued by Greece, Spain, or Ireland in any of our mutual fund or variable annuity portfolios. Our sovereign debt exposure to Italy ranged from 0% to 0.14% of the assets of any single fund or annuity. This is equivalent to no more than 14 cents of every $100 invested. Our sovereign debt exposure to Portugal ranged from 0% to 0.06%, or no more than 6 cents of every $100 invested, a negligible amount.
  • Taking into account all debt, including sovereign and corporate, originating in the GIIPS countries, our exposure ranged from 0% to 1.19% of the assets of any single fund or annuity account. Note that corporate debt issued in these countries may include more highly rated securities that are less susceptible to credit and other risks associated with the sovereign bonds of these countries.
  • Exposure to sovereign debt issued by all eurozone nations (which include GIIPS as well as AAA rated countries such as Germany, France and the Netherlands, among others) ranged from 0% to 0.26% of the assets of any single fund or annuity.
  • Exposure to all debt, including sovereign and corporate, originating in all eurozone nations ranged from 0.18% to 3.10% of the assets of any single fund or annuity account.
  • Exposure to all debt, including sovereign and corporate, of all EU countries (including those that are EU members but do not use the euro as their currency, such as the United Kingdom, Switzerland and Norway, among others) ranged from 0.18% to 3.80% of the assets of any single fund or annuity account.
  • Exposure to all debt, including sovereign and corporate, of all European nations (both EU members and nonmembers), ranged from 0.18% to 5.06% of the assets of any single fund or annuity account.

TIAA General Account holdings as of December 31, 2011
The TIAA Traditional Annuity is a fixed annuity that provides a guarantee of principal and a minimum guaranteed rate of interest. The TIAA Traditional Annuity’s guarantees and claims-paying ability are supported by assets held in the TIAA General Account.

  • As of December 31, 2011, the TIAA General Account had no exposure to sovereign debt issued by Greece, Ireland or Spain, while sovereign debt exposure to Italy and Portugal comprised 0.01% and 0.06%, respectively, of the General Account’s total assets. These exposures, plus holdings issued by Germany, France and Luxembourg, resulted in combined eurozone sovereign debt exposure representing 0.26% of the General Account’s total assets.
  • Exposure to all debt, including corporate, originating in the GIIPS countries, made up 0.31% of the General Account’s total assets. Note that corporate debt issued in these countries may include more highly rated securities that are less susceptible to credit and other risks associated with the sovereign bonds of these countries.
  • Exposure to all debt, including corporate, originating in all eurozone nations (which include GIIPS as well as AAA rated countries such as Germany, France and the Netherlands, among others) comprised 1.47% of the General Account’s total assets.
  • Exposure to all debt, including sovereign and corporate, of all European Union countries represented 3.61% of the General Account’s total assets.
  • Exposure to all debt, including sovereign and corporate, of all European nations (both EU members and nonmembers), made up 4.14% of the General Account’s total assets.
  • Holdings of non-bond assets originating in Europe, such as commercial real estate and equity-based assets, comprised 1.54% of General Account assets as of December 31, 2011.
  • The TIAA General Account uses various forms of derivatives to hedge its foreign currency and credit-related exposures. European-related derivatives and counterparty exposures are not expected to have a material impact on the General Account.

Please note that the percentages cited above include direct exposures only. Indirect sources of exposure to European debt (such as domestic banks that hold foreign bonds) are present to varying degrees throughout the potential investment universe but are more difficult to assess. In the event of a continued deepening of the crisis in Europe, indirect exposures could have a negative effect on a range of foreign and domestic companies and possibly on U.S. and global economic growth.

Summary tables of European debt holdings as of December 31, 2011
As shown in Table 1 below, as of December 31, 2011, TIAA-CREF portfolios had negligible exposure to the sovereign debt of the “GIIPS” countries at the heart of the European crisis (Greece, Ireland, Italy, Portugal and Spain), and small exposure to the sovereign debt of all eurozone nations collectively. Table 2 summarizes our varying degrees of low to modest exposure to all types of debt, including sovereign and corporate, originating in these nations and in Europe more broadly.


  Table 1. European Sovereign Debt Exposure (as % of portfolio assets)

 

  Greece Ireland Italy Portugal Spain All Eurozone (1)
             

TIAA-CREF Funds and CREF Variable Annuity Accounts

0% 0% 0% - 0.14% 0% 0% 0% - 0.14%
             

TIAA General Account

0% 0% 0.01% 0.06% 0% 0.26%

 


  Table 2. European Total Debt Exposure, Including Sovereign and Corporate (as % of portfolio assets)

  All GIIPS All Eurozone (1) All EU (2) All Europe (3)
         

TIAA-CREF Funds and CREF Variable Annuity Accounts

0% - 1.19% 0.18% - 3.10% 0.18% - 3.80% 0.18% - 5.06%
         

TIAA General Account

0.31% 1.47% 3.61% 4.14%
 
* In addition, holdings of non-bond assets originating in Europe, such as commercial mortgages, commercial real estate, and equity-based assets, comprised 1.70% of General Account assets as of December 31, 2011
 
 
 
 
(1) The Eurozone consists of 17 European Union (EU) member nations that use the euro as their currency: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece. Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia,Slovenia, and Spain.
 
 
(2) The European Union (EU) consists of 27 member nations, 17 of which use the euro as their currency (see footnote 1) and 10 that do not. The 10 non-euro EU members are Bulgaria, Czech Republic, Denmark, Latvia, Lithuania, Hungary, Poland, Romania, Sweden, and United Kingdom.
 
 
(3) In addition to the 27 EU member nations (see footnotes 1 and 2) , Europe has up to 23 nonmember nations (depending on varying definitions and criteria of geographic and/or political inclusion), including Norway, Switzerland, Iceland, and others.

The holdings information provided above is as of the date indicated, and may not reflect the current holdings of the respective funds and annuities.

All TIAA-CREF investment products are subject to market risk and other risk factors.

The TIAA General Account is an insurance company account, does not present an investment return, and is not available to investors.

Annuity account options are available through contracts issued by TIAA or CREF. These contracts are designed for retirement or other long-term goals, and offer a variety of income options, including lifetime income. Payments from the variable annuity accounts [and mutual funds] are not guaranteed and will rise or fall based on investment performance. Mutual funds do not offer the range of income options available through annuities.

TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products.

You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call 877 518-9161, or go to www.tiaa-cref.org for a current prospectus that contains this and other information. Please read the prospectus carefully before investing.

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