Statement regarding TIAA's credit exposure

In response to current conditions in the credit markets, we want to address the issue of TIAA's credit exposures, particularly in the area of subprime mortgages, and the degree of relative safety provided by the TIAA Traditional Annuity.

Key points

• Given our commitment to pursuing consistent, long-term growth, the TIAA General Account seeks to balance the need to grow capital with the need to preserve it.
  
• We have been investing in the subprime mortgage-backed securities market since the mid-1990s. We foresaw the possibility of problems among securities linked to subprime mortgages in 2003 and immediately began to be more selective in our investments in that area.
  
• Our current holdings in the subprime area represent less than 3% of the General Account and are generally of high quality.
  
• TIAA continues to be one of only a handful of insurance companies with the highest (AAA) rating from the four independent rating agencies.
  
• The TIAA Traditional Annuity remains an alternative for those seeking guaranteed returns.

Background

Please note that no investor can invest in the TIAA General Account.  The TIAA Traditional Annuity is an insurance product that provides a guaranteed minimum rate of return plus the opportunity for additional amounts as declared by the TIAA Board of Trustees*. These additional amounts, when declared, remain in effect for the "declaration year" which begins each March 1. The guarantees are supported by the TIAA General Account, which has a well-diversified portfolio made up of a variety of fixed income securities, mortgage obligations, directly held real estate, and other investments. The strength of these guarantees is reflected in the AAA ratings TIAA has received from all four major insurance rating agencies.**

Given our commitment to pursuing consistent, long-term growth, the TIAA General Account seeks to balance the need to grow capital with the need to preserve it. In choosing investments for the TIAA General Account, we closely evaluate the risks of each investment and its correlation with the risks of other portfolio components. TIAA's "AAA" rating does not mean that the account's investments are restricted to securities that have an average "AAA" rating. Rather, the investment quality of the portfolio is examined against the other characteristics of our business and against TIAA's capital reserves. In effect, the rating process aims to ensure that investment risk is balanced against both the capital we have available to absorb investment volatility and the ongoing profitability that helps to grow capital.

TIAA has been investing in the subprime mortgage-backed securities market since the mid-1990s. Our approach to investing relies on deep fundamental analysis of the securities in which we invest, as well as close monitoring of market conditions. In 2003, as part of the management of the General Account, we began to shift our existing assets and concentrate newer purchases in higher quality tranches that would have greater ability to withstand the stresses that would become apparent in the market with the passage of time. This investment strategy turned out to be prescient as the "subprime crisis" unfolded.

As a result, our current holdings in the sub-prime area are generally of high quality (largely AAA and AA rated) and represent a very small percentage (approximately 2%-3%) of the General Account's holdings. More importantly, the General Account has extremely limited exposure to ABS CDOs (asset-backed securities' collateralized debt obligations – an investment vehicle that has been the center of focus in the unfolding sub-prime lending crisis). This consists of only two positions, and they are not meaningful given the size of the General Account.

We also have one position in a SIV-issued security that is not meaningful in terms of the overall account and has been written down to zero.  A SIV (structured investment vehicle) is a type of debt program that issues short-term, asset-backed commercial paper and uses the capital the buy raises to buy  to short- and medium-term floating rate debt holdings. These have a variable interest rate that is tied to a money-market index such as Treasury bill rates.

During this and other periods of market volatility, the TIAA Traditional Annuity remains an alternative for those seeking guaranteed returns.

TIAA is monitoring market conditions closely, with a particular focus on the direct and indirect effects that may result from problems in subprime mortgage markets.  We will continue to seek to provide highly competitive crediting rates within the TIAA General Account, while closely managing and evaluating potential risk exposures.