A Message from TIAA-CREF CEO Roger Ferguson

The economic downturn continues to challenge investors. Whether you are currently receiving annuity income or are years away from retirement, you may wonder about the economy's long-term prospects and the implications for your financial plan.

I am writing to share my views and to remind you that TIAA-CREF is here to help you keep your financial plan on track.

Recession to Linger

It is likely that effects of the recession will be with us for much of the year. Equity markets will remain volatile, residential housing markets will continue to struggle, and unemployment will rise through 2009 and into 2010.

Many economists, including our own, estimate that U.S. Gross Domestic Product (GDP) will decline this year. We believe that even with considerable fiscal stimulus, GDP could fall 3% or more in 2009. Others will obviously have different views regarding the degree of contraction, but all readily acknowledge the difficulties we face in the U.S. and around the world.

While a sustained rally is unlikely in the near term, markets will eventually recover. Here are some signs of recovery that we hope to see: corporate earnings growth; rising consumption; stable housing prices; fully liquid credit markets offering an environment in which AAA-rated companies are able to borrow at normal rates; and renewed investor confidence.

What Can You Do in the Interim?

More than you might realize.

If you are still years from retirement, I encourage you to take this opportunity to review your long-term plan and ensure that your portfolio is positioned to take advantage of the recovery. If your holdings have fallen in value, try not to make those "paper losses" permanent by selling when the market is down. Consider your risk tolerance, desired cash balance, ability to invest using the dollar-cost averaging method, and other factors before you sell. Remember, too, that market declines may present opportunities to purchase quality assets now at prices that may represent excellent value in years to come. That is another reason why contributing regularly to an employer-sponsored plan is such an important aspect of a secure financial future.

If you have already retired, you too may be able to take steps to enhance your financial security. For example, you may wish to review your allocation to ensure that your portfolio is properly diversified, and consider rebalancing in order to maintain a prudent mix of investments consistent with your goals and appetite for risk.

TIAA-CREF specialists are here to help.  They will take the necessary time to answer questions you may have, and to help you make sure that your plans remain on track – one reason, perhaps, why 245,000 people moved their money to TIAA-CREF last year. Please call our Telephone Counseling Center toll-free at 1 800 842-2776 to speak with a consultant or schedule an appointment, or call your TIAA-CREF advisor directly. If you prefer, we are also happy to work with your independent financial advisor to help meet your needs.

I also encourage you to keep visiting our website, www.tiaa-cref.org, where you will find information on market volatility, highlights of TIAA-CREF's financial strength, and resources that could help you strengthen your portfolio.

Performance for the Long Run

You may wonder how TIAA-CREF is weathering these challenging times. As a major institutional investor, we are not immune from the general downturn in prevailing interest rates or the overall decline in the markets. However I am pleased to tell you that the company remains financially strong and stable, thanks to sober risk management and a long-term investment philosophy.

We ended 2008 with $363 billion in assets under management. While this represents a decrease of about 17% from the prior year, many other financial companies experienced much steeper declines.

The CREF Accounts, which are fully invested in the markets, experienced the greatest impact from volatility, declining 34.4% during 2008, based on total assets under management for the combined accounts.ⁱ This corresponds to the major declines in the markets; for example, the S&P 500 Index decreased 38.5% last year.

TIAA-CREF's variable annuity accounts and mutual funds have performed very well relative to peers, according to Morningstar. More than three-quarters (76%) of TIAA-CREF's variable annuities and mutual funds exceeded their category median over the three-year period ended December 31, 2008.ⁱⁱ

In addition, data from Morningstar shows that 99% of TIAA-CREF's variable annuity accounts and mutual funds had an overall rating of three, four or five stars across all asset classes (as of December 31, 2008). Morningstar ratings are based on risk-adjusted returns.ⁱⁱⁱ

Our investment approach and risk management practices have also served us well on the fixed income side, enabling us to avoid exposure to the types of highly leveraged securities that have produced large losses for some financial companies. Unlike other firms, we have not had to avail ourselves of federal government funding. And although we are a market participant, and therefore susceptible to the illiquidity and dramatic pricing moves that sometimes affect fixed income products, our capital base is strong. The crediting rate for TIAA Traditional has remained highly competitive, despite recent reductions that reflect a generally lower interest-rate environment. The TIAA Traditional crediting rate has been higher than the average 10-year Treasury yield and the general rate of inflation for most of the past 28 years. We continue to maintain a strong capital position to support our contractual obligations, income guarantees^iv, and long-term commitment to you.

In Closing

The economic crisis is providing an opportunity for Americans to think anew about retirement security. It is also highlighting the advantages of TIAA-CREF. Dr. William Greenough, who developed the variable annuity – the foundation of CREF – and who chaired our organization for many years, once said:

"We should try to design a retirement plan to work well in times of peace and war, inflation and deflation, depression and prosperity, and all of the other words used to describe and explain the volatile nature of the American economy…"

Dr. Greenough said that in 1954.

We know how challenging this economy can be. I can assure you that we will continue to uphold our mission, managing prudently, maintaining our long-term perspective, and building on our financial strength so that we may continue to serve you.

Sincerely,

Roger W. Ferguson, Jr.
President and Chief Executive Officer