socially responsible investing at tiaa-cref

Socially ReSponSible inveSting at tiaa-cReF Integrated strategIes for InfluencIng posItIve change

2008 update

socIallY responsIBle InvestIng at tIaa-cref

SeeKing a “DoUble bottoM line” oF coMpetitive RetURnS anD Social beneFitS

TIAA-CREF has a long-standing commitment to socially responsible investing (SRI) that is consistent with our nonprofit heritage and unwavering mission to serve those who serve the greater good.

Our SRI program combines three distinct yet complementary strategies: socially screened investment options that enable investors to align their portfolios with their values; shareholder advocacy through the global promotion of sound corporate governance practices; and community investing to help meet specific local needs. We believe this integrated approach to SRI can produce positive investment results over the long term, helping us pursue a “double bottom line” of both competitive returns and social benefits.

This update provides an overview of TIAA-CREF’s SRI strategies, along with highlights of our SRI accomplishments and milestones over the past year. As demand for socially responsible investing grows, expanding our SRI capabilities represents one way we help meet our participants’ evolving financial needs.

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coMMUnity inveSting

Social ScReening

SHaReHolDeR aDvocacy

oUR SRi pRogRaM coMpRiSeS tHRee Key StRategieS:

Social ScReening

TIAA-CREF offers comprehensively screened investment portfolios, which seek to provide competitive return potential aligned with investors’ values by giving special consideration to companies’ environmental, social and governance (ESG) records. Our socially screened investment products include the CREF Social Choice Account, a variable annuity account, and the TIAA-CREF Social Choice Equity Fund, a mutual fund.

SHaReHolDeR aDvocacy anD coRpoRate engageMent

TIAA-CREF exercises its shareholder rights by seeking to influence the ESG policies of the companies in which we invest. We employ this strategy across TIAA-CREF’s entire portfolio, not just in our socially screened offerings.

coMMUnity anD pRoactive Social inveSting

TIAA-CREF seeks to generate competitive returns for our participants by specializing in focused, high social-impact investment programs across a wide variety of assets. Our combined community investing programs represented more than $696 million in commitments and investments as of April 30, 2008, of which $572 million is held in the Corporate Social Real Estate portfolio. These programs are currently funded through the TIAA General Account1 and through targeted investments in the fixed-income portion of the CREF Social Choice Account.

1 the tIaa general account is not an insurance or investment offering to the public.

2 socIallY responsIBle InvestIng at tIaa-cref

coMpetitive RetURn potential aligneD witH inveStoRS’ valUeS

Reflecting strong investor demand, socially screened assets under management at TIAA-CREF grew to $9.7 billion in 2007, from about $1.6 billion in 1996. Our first socially screened portfolio, the CREF Social Choice Account, was launched in 1990 with participant input and reached $8.7 billion in assets as of March 31, 2008. It is the largest comprehensively screened investment vehicle for individual investors in the United States.2

In addition to the CREF Social Choice Account, which includes both equity and fixed-income segments, we offer socially screened equity-only portfolios through mutual funds and other investments available to individuals and institutions.

Financial return is a top priority for our participants,3 and through our social screening process, we are able to offer them the opportunity to align their social values with competitive long-term investment returns. For performance information about the CREF Social Choice Account and other TIAA-CREF investments, visit www.tiaa-cref.org/performance.

$0

$1200

$2400

$3600

$4800

$6000

$7200

$8400

$9600

$10800

$12000

200720062005200420032002200120001999199819971996

Socially Screened Assets (as a % of assets under management)Socially Screened Assets (in $ millions)

$ M

illio

ns

0.50%

0.70%

0.90%

1.10%

1.30%

1.50%

1.70%

1.90%

2.10%

2.30%

2.50%

data as of december 31, 2007. socially screened assets include cref social choice account, tIaa-cref social choice equity fund and tIaa-cref life social choice equity fund.

2 source: social Investment forum, 2007 Report on Socially Responsible Investing Trends in the United States. Based on assets under management among mutual funds and variable annuities that screen across multiple environmental, social and governance criteria (versus those that apply only product-specific screens such as alcohol and tobacco; among all mutual funds and variable annuity accounts categorized as "socially and environmentally screened," cref social choice was the third largest).

3 Based on participant surveys and internal data.

gRowtH in tiaa-cReF Socially ScReeneD aSSetS (1996 – 2007)

Social ScReening

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4 Investments in foreign securities are subject to special risks, including currency fluctuation and political and economic instability. these investment risks may be magnified in emerging markets. diversification cannot eliminate the risk of fluctuating prices, uncertain returns and investment losses.

cReF Social cHoice accoUnt goeS global in 2008

In February 2008, TIAA-CREF added an international stock component to the CREF Social Choice Account, which previously invested only in domestic securities.

The account maintains its overall balance of 60% equity and 40% fixed income, but the equity portion is now allocated among domestic stocks (approximately 47% of the total portfolio) and foreign developed-market stocks (about 13%). In tandem with this change, the MSCI EAFE® + Canada Index, which measures stock performance in 22 developed markets outside the United States, has been added to the account’s composite benchmark.

Including international companies that meet the account’s social screens is an important step in the evolution of the account, helping to make it a more complete investment choice for socially conscious investors. From a long-term investment perspective, international diversification offers the potential to achieve an attractive balance of risk and return over time, in keeping with TIAA-CREF’s investment philosophy of seeking to deliver consistent growth for investors, year after year.4

cReF Social cHoice accoUnt aDDS pRoactive Social inveStMentS

In July 2007, TIAA-CREF announced a 2% target allocation to proactive social investments within the fixed-income portion of the CREF Social Choice Account. Under this target allocation, the account seeks opportunities to invest in publicly traded fixed-income securities related to affordable housing, alternative energy and economic development programs in the United States and abroad.

oUR Social ScReening pRoceSS

In choosing stocks and corporate bonds for our socially screened portfolios, we use screening criteria implemented by Kld research & analytics, Inc. (Kld), an independent provider of social research specializing in environmental, social and governmental (esg) assessments. We consider those companies among Kld’s Broad Market social Index (BMsI) and global sustainability Index (gsI) ex-us that meet or exceed the screening criteria for our social choice products.

this screening process favors corporations that are strong stewards of the environment; serve local communities and society overall; commit to high labor standards for their own employees and those in their supply chains; produce high-quality and safe products; and manage their companies in an exemplary and ethical manner.

although the Kld BMsI and gsI ex-us are essential to identifying companies that are potentially eligible for our screened portfolios, tIaa-cref does not attempt to replicate these indexes. Instead, we seek to optimize a broad-market “mainstream” index, such as the russell 3000® Index, using the Kld-implemented criteria and our proprietary statistical techniques.


pRoMoting SoUnD goveRnance anD ReSponSible coRpoRate beHavioR

TIAA-CREF views shareholder advocacy and corporate governance as essential parts of our fiduciary duty. Our Corporate Governance Department, along with the trustees of TIAA and CREF, works to advance high standards of corporate governance, strengthen shareholder rights and influence the ESG policies of the companies in which we invest.

TIAA-CREF’s Policy Statement on Corporate Governance details our proxy voting guidelines and provides our perspective on best practices in corporate governance, including social and environmental issues. A copy of the statement is available at http://www.tiaa-cref.org//about/press/about_us/releases/pressrelease202.html.

coRpoRate engageMent: pRoMoting cHange tHRoUgH conStRUctive DialogUe

TIAA-CREF engages with companies on issues that may pose economic risks or impact long-term shareholder value. Topics of engagement include shareholder rights, governance practices, and social and environmental issues.

Where necessary, we file shareholder resolutions or employ other methods to promote constructive dialogue. In our view, engaging with companies in this way is more effective in changing corporate behavior than public confrontation or divestment of our shares.

Over the past year, we met with dozens of companies to address such areas of concern as executive compensation, board accountability, transparency, human rights, global climate change and other issues.

SHaReHolDeR aDvocacy anD coRpoRate engageMent

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aDvocating FoR cHange in SUDan

The humanitarian crisis in the Darfur region of Sudan has become a central focus for many socially conscious investors. A key issue of discussion has been how the investment community should respond to the crisis.

Many TIAA-CREF funds and variable annuity accounts, including our socially screened portfolios, have no exposure to Sudan. Among our other portfolios, the shares that TIAA-CREF owns in multinational companies that have appeared on lists of firms doing business in Sudan make up less than two percent of the combined $420 billion in assets TIAA-CREF manages (as of 3/31/08).

For these shares, our strategy is to “own and change” by engaging privately with portfolio companies when we perceive shortcomings in their approach to social issues. Engagement preserves our voice among a company’s ownership and provides the opportunity to speak out.

Over the past year and a half, TIAA-CREF has engaged with 22 portfolio companies identified as having operations in Sudan. To date, nine companies — 40 percent of those on our list—have either discontinued or committed to discontinue their operations in Sudan or have undertaken humanitarian steps. We have framed our engagement with those companies in economic terms and have discussed with them the financial implications of doing business in Sudan with respect to risk, reputation, and shareholder value.

A complete discussion of TIAA-CREF’s policy on investment in companies with ties to Sudan is available on our website at http://www.tiaa-cref.org/about/press/about_us/releases/pressrelease229.html.


pRoxy voting: a RigHt anD a ReSponSibility

As an equity investor in publicly traded companies, we exercise our rights as shareholders by voting on proxy proposals brought before portfolio companies. We make independent voting decisions on a case-by-case basis, in keeping with policies approved by the TIAA and CREF Committees on Corporate Governance and Social Responsibility.

In addition, we exceed regulatory requirements and standard industry practice for disclosing proxy voting records. We post our proxy votes on the TIAA-CREF website on an ongoing basis throughout the year—typically within a few weeks after each shareholder meeting in which we vote—not just once per year in a summary filing. To view TIAA-CREF’s proxy voting records, visit http://www.tiaa-cref.org/about/governance/.

pRoxy voting caSe StUDy: exxonMobil

While our screening process excludes ExxonMobil from the CREF Social Choice Account and other screened investment portfolios, TIAA-CREF owns shares of the company in other, non-screened portfolios. At ExxonMobil’s 2008 annual meeting, TIAA-CREF supported three shareholder proposals that addressed the company’s environmental performance and one that focused on including more independent leadership of the board. These four proposals sought to persuade ExxonMobil to:

Adopt greenhouse gas emissions goals for its products and operationsnn

Require an independent board chairmannn

Report on climate change leadershipnn

Report on alternative energy technology development nn

Our votes were in keeping with our proxy voting policies and reflected our concern that ExxonMobil’s management may not be conducting the strategic analysis necessary to address the short- and long-term impacts of the company’s operations and products on local and global environments.

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tiaa-cReF RecognizeD FoR leaDeRSHip on pRoxy voting

An independent report5 published in February 2008 lauded TIAA-CREF’s proxy voting guidelines in general and voting record on product toxicity issues in particular. The report recommended that the mutual fund industry adopt proxy voting guidelines similar to TIAA-CREF’s and also urged fund companies to “follow TIAA-CREF’s lead and survey their participants’ opinions on responsible investing, including shareholder activism.”

5 published by the Investor environmental health network (Iehn) and the rose foundation for communities and the environment. the full report is available at http://iehn.org/publications.reports.mutualfunds.php.

HigHligHtS: Key pRoxy iSSUeS anD Recent voting tRenDS

In 2007, TIAA-CREF introduced and/or voted for shareholder resolutions related to these and other key environmental, social and governance issues. In total, we voted on more than 700 resolutions at over 7,000 shareholder meetings.

HUMan RigHtS Began supporting shareholder resolutions requesting a human rights policy, following the revision of tIaa-cref's policy statement on corporate governance in 2006. In 2007, we supported 50% of resolutions calling for a human rights code of conduct; we supported all resolutions if the company had no such policy and voted on a case-by-case basis otherwise.

cliMate cHange voted for 100% of proposals requesting that companies publish a climate change report.

SUStainability anD coMMUnity iMpact

voted for 95% of proposals requesting companies to file a sustainability report and for 85% of proposals requesting that companies report on the community impact of their operations or potential operations.

execUtive coMpenSation

filed shareholder resolutions seeking a non-binding advisory vote on executive compensation with a group of targeted portfolio companies.

SUbpRiMe cReDit cRiSiS

Withheld votes from audit or risk committee directors at a number of companies because of their failure to effectively oversee risk management of investments in subprime mortgages.

eqUal eMployMent oppoRtUnity

voted for 100% of proposals asking the company to include sexual orientation in its equal employment opportunity policy.



SeRving local neeDS globally tHRoUgH SpecializeD pRogRaMS

Community and proactive social investing is a growing part of TIAA-CREF’s comprehensive approach to SRI. TIAA-CREF focuses on opportunities where we have specialized expertise, as well as the ability to invest effectively and with the greatest possible impact from both a financial and social perspective. In doing so, we often collaborate with like-minded investors, foundations and development banks to seek market-based approaches and sound business models that address critical social and environmental needs.

Under the direction of our Global Social and Community Investment Department, TIAA-CREF expanded or enhanced several community investing initiatives over the past year, funded through the TIAA General Account.

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global MicRoFinance inveStMent pRogRaM

In February 2008, TIAA-CREF made a $10 million investment in Catalyst Microfinance Investors (CMI), a private equity investment fund focused on microfinance opportunities in Asia and Africa. This investment is part of our $100 million, four-year Global Microfinance Investment Program that began in September 2006 with a $43 million private equity placement in ProCredit Holding AG, a leading microfinance company. Microfinance investments enable clients to seek competitive returns through investments that promote human rights and economic development.

coMMUnity banK DepoSit pRogRaM

Through this program, launched in January 2007, TIAA-CREF makes sizable investments in FDIC-insured certificates of deposit at local community development banks that help underserved communities. The first investment was for $22 million with subsidiaries of ShoreBank Corp., America's largest community development bank. We have rolled these initial deposits into 2008 and are in the process of identifying additional banks through which we can expand our overall investment in this program.

coRpoRate Social Real eState pRogRaM

This program focuses on investments in affordable housing, workforce housing, urban and transit-oriented commercial development, and sustainable (“green”) development. As of March 2008, TIAA-CREF had an aggregate committed amount of approximately $572 million representing multiple investments in areas earmarked as Economic Development Areas and/or Lower to Moderate Income census tracts. Examples of recent investments include the following:

A $30 million commitment in the Community Reinvestment Partners II Fund, nn

a private equity fund established to acquire, renovate and reposition retail real estate properties (all meeting the criteria of qualified investments under the Community Reinvestment Act) in major metropolitan areas throughout the southeastern United States.

A $25 million commitment in the Phoenix Realty Group Metropolitan Workforce nn

Housing Fund, a private equity fund investing in “smart growth” urban and infill development, including projects expected to generate significant revenue and job creation.

A $30 million commitment in the Thomas Properties Group High Performance nn

Green Fund, an example of specialized real estate investing that supports TIAA-CREF’s commitment to environmental stewardship. (See “TIAA-CREF: Tackling Global Climate Change,” page 10.)

Finally, TIAA-CREF continues in its commitment to finance affordable housing nationwide though its revolving loan and hybrid debt investments with Impact Community Capital on the West Coast, and with Community Preservation Corporation in the northeastern United States.

All of these investments collectively serve the objectives of our Corporate Social Real Estate Program by combining outstanding sponsorship, high social impact and attractive return potential.


global cliMate cHange in tHe SRi SpotligHt

applying oUR integRateD appRoacH FoR MaxiMUM iMpact

For some socially conscious investors, global climate change is among the most pressing issues of our time. Investing in a way that promotes environmental responsibility while offering competitive return potential requires expertise, resources, commitment, and the ability to influence change in companies and markets.

TIAA-CREF addresses the issue of climate change in every facet of our SRI program: social screening; shareholder advocacy and corporate engagement; and community and proactive social investing. The table below highlights examples of our efforts in each of these areas.

tiaa-cReF: tacKling global cliMate cHange

Social ScReening SHaReHolDeR aDvocacy anD coRpoRate engageMent


Within the cref social choice account and other socially screened portfolios

across all tIaa-cref portfolios Within the tIaa general account or cref social choice account (fixed-income portion)

enviRonMental cRiteRia

Key indicators for different industry sectors are used to evaluate a company’s environmental performance relative to that of sector peers.

companies that produce large amounts nn

of greenhouse gases during regular operations or through the use of their products score poorly.

companies in industries with the largest nn

footprints face particular challenges in meeting the minimum screening criteria:

oil and gasn—

chemicalsn—

Mining n—

transportationn—

In all sectors, companies with nn

exemplary initiatives will generally score higher:

alternative energy n—

clean technologies n—

pollution prevention n—

recycling n—

environmental management n—

systems

pRoxy voting on cliMate cHange iSSUeS

supported nine shareholder resolutions on climate change in 2007, a trend that has continued in 2008.

caRbon DiScloSURe pRoject

In January 2008, we renewed our position for a third year as a signatory to the carbon disclosure project (cdp), an investor initiative to increase voluntary corporate reporting on critical topics such as greenhouse gas emissions and commercial risks.

for the second year in a row, tIaa-cref sent letters encouraging more than 150 s&p 500 portfolio companies that did not previously participate to complete the cdp survey. the previous year, more than 30 companies we contacted completed the survey.

tHoMaS pRopeRtieS gRoUp HigH peRFoRMance gReen FUnD

a $30 million commitment in a private equity fund investing in commercial properties that seek substantial reductions in energy use, water consumption, carbon impact and waste output, potentially leading to a leed (leadership in energy and environmental design) rating from the u.s. green Building council.

SHoRebanK paciFic

ten percent of tIaa-cref’s community Bank deposits are in shoreBank pacific, a commercial bank committed to sustainable development and the principle that “long-term community prosperity goes hand in hand with a healthy environment.”

ll&p winD eneRgy

a $4.2 million investment in ll&p Wind energy, Inc. to fund the purchase of wind-generated electricity that has been contracted to four rural utility providers in the pacific northwest, allowing them to diversify their generating portfolio and increase their use of renewable alternatives.

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“tIaa-cref’s actions serve as a model for the entire financial services industry.”

— u.s. environmental protection agency, March 2008

going gReen in Real eState

tiaa-cReF taRgetS 10% eneRgy ReDUction in Real eState poRtFolio

In addition to our SRI strategies, TIAA-CREF has developed other innovative ways to address global climate change, including a program that seeks a 10% reduction in energy use among the properties in our real estate portfolio.

As the owner of 43 million square feet of office buildings, as well as a large portfolio of other commercial and multi-family real estate assets, TIAA-CREF is one of America’s largest institutional real estate investors. By the end of March 2008, the buildings in our office portfolio had already cut energy use by an amount equivalent to 36 million pounds of carbon dioxide emissions.

epa awaRDS “eneRgy StaR” paRtneR oF tHe yeaR awaRD to tiaa-cReF

In recognition of the strategic energy management of our real estate assets and reductions in greenhouse gas emissions, in March 2008 the U.S. Environmental Protection Agency (EPA) named TIAA-CREF a 2008 ENERGY STAR Partner of the Year.

“TIAA-CREF’s improvements in energy efficiency are reducing the carbon footprint and increasing the value of their real estate assets to the benefit of their clients,” the EPA said in announcing the award. “TIAA-CREF’s actions serve as a model for the entire financial services industry.”


TIAA-CREF’s Global Social and Community Investing team, part of TIAA-CREF Asset Management, oversees our social screening and community/proactive social investing strategies. The Corporate Governance Department, part of our Law and Compliance group, manages the shareholder advocacy and corporate engagement programs.

In addition to the TIAA-CREF professionals who are fully dedicated to SRI, further in-house expertise is provided by the investment teams who manage TIAA-CREF’s socially screened portfolios, with essential support from many other functional areas of the company. The trustees of TIAA and CREF oversee the balance between social responsibility and the organization’s fiduciary obligations. Valued input from our participants helps shape the direction and priorities of our SRI program as well.

DeDicateD ReSoURceS,a StRategic appRoacH

we invite yoU to leaRn MoRe

TIAA-CREF’s philosophy, experience and specialized expertise in socially responsible investing make us a leader in this increasingly important area of asset management. Our integrated approach offers distinct advantages to individual and institutional investors seeking to integrate SRI into their long-term financial goals. To learn more about TIAA-CREF, including our commitment to socially responsible investing and strong corporate governance, please visit our website at www.tiaa-cref.org.

TIAA-CREF is a national financial services organization and the leading provider of retirement services in the academic, research, medical and cultural fields, with $420 billion in combined assets under management as of March 31, 2008.

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inDUStRy leaDeRSHip anD collaboRation

In addition to our internal SRI capabilities, TIAA-CREF meets regularly with non-governmental organizations, labor unions, pension fund managers, public officials and other stakeholders on issues that comprise the focus of our SRI program.

We also collaborate with leading industry groups and with external business partners who provide independent, specialized expertise in key aspects of SRI. Through membership in several organizations dedicated to SRI in general or to specific environmental, social or governance topics, TIAA-CREF is part of a broader SRI network that works to inform, educate and advocate across a range of key issues.

Among those we partner with in the SRI arena are the Social Investment Forum (SIF), the International Association of Microfinance Investors (IAMFI), the International Corporate Governance Network (ICGN) and the Asian Corporate Governance Association (ACGA).

Social inveStMent FoRUM

sIf is the only national membership organization dedicated to advancing the concept, practice and growth of srI in the united states. tIaa-cref is represented on the sIf board of directors and supports the work of the forum in many ways. for example, tIaa-cref was the benefactor sponsor of the 2007 edition of the report on socially responsible Investing trends in the united states, a biennial, comprehensive study on the state of srI.

inteRnational aSSociation oF MicRoFinance inveStoRS

tIaa-cref is a founding member of IaMfI, which was created in february 2008 to improve the global environment for microfinance investing. IaMfI provides independent, comprehensive information and support to commercially oriented microfinance investors, who help ensure that underserved clients, including low-income households and enterprises, have access to capital and other financial services.

inteRnational coRpoRate goveRnance netwoRK

Icgn is an investor-led network focused on exchanging views and information on international corporate governance issues and on developing corporate governance standards and guidelines. our involvement with Icgn strengthens our ability to develop governance strategies and practices that aim to protect and grow our investments, mitigate risk and contribute to sustainable economic development.

aSian coRpoRate goveRnance aSSociation

acga is an independent, nonprofit membership organization that works with investors, companies and regulators to implement effective corporate governance practices throughout asia. acga was founded in 1999 on the belief that corporate governance is fundamental to the long-term development of asian economies and capital markets.

tiaa-cReF MeMbeRSHip in SRi anD goveRnance oRganizationS

asian corporate governance nn

association

association for sustainable and nn

responsible Investment in asia

carbon disclosure projectnn

center on corporate citizenship nn

at Boston college

council of Institutional Investorsnn

european corporate nn

governance Institute

Interfaith center on corporate nn

responsibility (affiliate member)

International association of nn

Microfinance Investors

International corporate nn

governance network

Investor network on climate risknn

social Investment forumnn

the initiatives described in this material involve risks that could result in loss of principal.

because social screening criteria exclude some investments, the variable annuity accounts and funds referenced in this report may not be able to take advantage of some market opportunities or trends available to accounts and funds that do not use these criteria. in addition, the accounts and funds are subject to other risks, which are described in their respective prospectuses.

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.

tIaa-cref Individual & Institutional services, llc, and teachers personal Investors services, Inc., members fInra, distribute securities products.

annuity products are issued by tIaa (teachers Insurance and annuity association), new York, nY.

© 2008 teachers Insurance and annuity association-college retirement equities fund (tIaa-cref), new York, nY 10017.

printed on 100% recycled post-consumer fiber.

c41745 a11650 (06/08)

socially responsible investing at tiaa-cref

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