SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
[ ] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
----------
TIAA CREFF Institutional Mutual Funds
(Name of Registrant as Specified in its Charter)
----------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
TIAA-CREF Tuition Financing, Inc. Response to:
----------------------------------------------
ScholarShare Investment Board Questions on TIAA-CREF's Preliminary Proxy
------------------------------------------------------------------------
Statement Filed June 17, 2005
-----------------------------
1. How and when would approving this proposal affect the SIB and ScholarShare
participants?
Under the current contract between TFI and the SIB, there would be no impact on
the fees or services provided to SIB or ScholarShare participants. As you know,
the contract provides for a unitary fee of 0.70%. Therefore, any increase in the
cost of the TIAA-CREF Institutional Mutual Funds that serve as underlying
investments for ScholarShare would not affect the amount of fees charged.
2. If approved, does TIAA-CREF expect an increase in ScholarShare's current
rate of 70 basis points? If so, when?
As noted above in the answer to #1, even if the TIAA-CREF Institutional Mutual
Funds that serve as underlying investments for ScholarShare increase their fees,
there will be no impact on ScholarShare's fees under the current contract.
3. ScholarShare believes that a change in the current rate of 70 basis points
would require a contract amendment, as would an increase in administrative
or 12b-1 fees. Do you agree? If so, is TIAA-CREF planning to ask for
contract amendment?
TFI has no intention to renegotiate or amend its current contract with the SIB
in light of the repricing of the TIAA-CREF Institutional Mutual Funds.
ScholarShare will continue to pay TFI a unitary fee of 70 basis points for the
term of the current agreement for all services provided to ScholarShare.
4. If the fees currently stay at 70 basis points, and the underlying mutual
fund fees go up, does this mean that marketing/administration will receive
less relative to the mutual fund related investment functions/operations?
TFI can assure you that the repricing of the TIAA-CREF Institutional Mutual
Funds will in no way reduce or otherwise affect the amount of resources
dedicated to ScholarShare's non-investment functions, such as marketing or
administration under the current contract.
5. Would SIB vote on the addition of 12b-1 fees? If not, why are they included
in the [preliminary] proxy statement? How would the 12b-1 fees directly or
indirectly affect SIB and ScholarShare participants?
The Funds' investment advisor, Teachers Advisors, has clarified that the
proposal to implement a 12b-1 fee relates only to Retail Class shares.
Therefore, SIB will not have the right to vote on this proposal because
ScholarShare owns only Institutional Class shares of the Funds. SIB will receive
a version of the proxy statement that does not include the proposal to implement
a 12b-1 fee. The approval of 12b-1 fees by Retail Class shareholders would have
no direct effect on SIB or ScholarShare participants.
6. The [preliminary] proxy statement indicates that participants would benefit
from 12b-1 fees because they would increase the number of shareholders and
assets, which would potentially reduce fees. The proposed 12b-1 fees are as
much as 25 basis points, but potential fee decreases only appear to be a
few basis points. Please explain how this would potentially decrease and
not increase fees.
As noted in our answer to #5 above, the implementation of 12b-1 fees does not
apply to SIB and ScholarShare participants because they do not hold Retail Class
shares on which such 12b-1 fees would be charged.
7. What are "other expenses" listed on page 28? Why would expenses on passive
funds also increase?
TFI has been advised by Teachers Advisors that the Funds' "other expenses"
include the non-investment management costs and services paid directly by the
Funds, such as audit and legal fees, blue sky fees, and custody and transfer
agency expenses. These "other expenses" are the actual direct costs of the Funds
and tend not to vary widely based on the investment strategy of the Funds.
8. When would the $25 administrative fee go into effect? When would this
change affect SIB or ScholarShare participants?
As with the proposed 12b-1 fees, Teachers Advisors has clarified to TFI that the
small account balance fee would affect only Retail Class share accounts, so the
SIB and ScholarShare participants would not be subject to such new fees.
9. Would any of the fee increases (referred to in above questions) have any
affect on GSP?
None of the proposals contemplated by the TIAA-CREF Institutional Mutual Funds
would affect the GSP because the GSP is entirely invested in a different product
- -- a funding agreement issued by the TIAA-CREF Life Insurance Company.
10. On page 23 the [preliminary] proxy statement says that the proposed fee
increases are the result of "expenses that the Advisor has incurred and
continues to incur." If fees are increased, will participants be paying for
past losses?
TFI has been advised by Teachers Advisors that while past and anticipated losses
were some of the major reasons for proposing fee increases for the Funds, any
increased fees received by Teachers Advisors will be used solely to compensate
it for the current management of the Funds, and not to recoup any prior losses.
11. Also, on page 23 it states, "In 2002 the Advisor decreased its fees, even
as costs were rising, resulting in increased losses to the Advisor." On
page 19, the 2002 fee decreases were described as substantial. Why were
these fees lowered and by how much? This seems to be a major change in cost
strategy in a short period of time. Please explain.
In 2002, in keeping with TIAA-CREF's commitment to low cost and transparency to
shareholders, management made a decision to eliminate the existing waivers on
Fund advisory fees and simultaneously reduce the level of advisory fees down to
the actual fees then being charged to the Funds. While this reduced pricing
flexibility, management determined that it was important for the organization to
stand behind its low stated fees, and to assure shareholders that any increases
in advisory fees would not be implemented without the approval of shareholders.
Despite these good intentions, it has since become clear that Teachers Advisors
cannot continue to operate the Funds at these low fee levels, due to increasing
overall costs and the need to make enhancements. For this reason, management is
now asking Fund shareholders to approve advisory fee increases.
12. Why is the Social Choice Fund classified as an active fund?
The Social Choice Equity Fund is classified as a "specialty" fund, by
prospectus. Teachers Advisors has informed us that the Social Choice Equity Fund
is a passively managed fund that invests in securities included in the Fund's
benchmark (the Russell 3000 Index). However, the portfolio securities must also
meet the criteria of certain social screens maintained by KLD Research &
Analytics, Inc. The social screening process results in a Fund with a higher
level of expected tracking error when compared to a pure index fund. Due to the
additional social screen overlay, Teachers Advisors deemed it appropriate to
categorize the Social Choice Equity Fund as an actively managed fund.
Notwithstanding this categorization as an actively managed fund, Teachers
Advisors has informed us that due to the unique nature of the Social Choice
Equity Fund, its proposed advisory fee rate is lower than the proposed advisory
fee rates for the other actively managed funds, but also higher than the
advisory fee rates for the pure passively managed (index) funds.
13. Why is the retirement class chart on page 29 included? The number
corresponding to the Growth & Income Fund is 4.22. Is this number correct?
If not, what is the correct value?
Teachers Advisors has confirmed to TFI that the numbers in the chart are
correct. As SIB and ScholarShare participants do not hold Retirement Class
shares, they will not be subject to this level of expenses. However, the chart
has been included because the proxy statement will also be sent to Retirement
Class shareholders, for whom this is important and required disclosure.
14. The [preliminary] proxy statement says that most of the funds would only
make a modest profit. Does this mean that some funds will make more than a
modest profit? If so what will be done with that profit? Will a portion of
it go to offset the costs of not raising the underlying fees of the
underperforming funds until 2007?
Teachers Advisors has clarified to TFI that individual Funds do not make
profits; instead, Teachers Advisors may make a profit on its management and
operation of the Funds as a whole. As noted in the proxy statement, the Board of
Trustees, on behalf of Fund shareholders, reviewed Teachers Advisors'
prospective profitability on both a Fund-by-Fund and aggregate basis before
recommending the new fee structure. In their cover letter to the proxy
statement, the Fund Trustees state that in approving the new fees, they
determined that "the proposed increase in fees would not unduly benefit the
advisor at the expense of Fund shareholders." The Trustees have also committed
to providing ongoing oversight of the Funds by annually monitoring the level of
fees and Teachers Advisors' profits to ensure that they are reasonable.
15. Why are the funds that earned a modest profit (i.e., Large Cap Value) also
increasing their fees? Please identify which funds are expected to make
more or less than a modest profit?
As noted in the answer to #14, Teachers Advisors has clarified to TFI that
individual Funds do not make profits; instead, Teachers Advisors may make a
profit on its management and operation of the Funds as a whole. In making its
fee recommendations to the Board, Teachers Advisors assessed many factors beyond
the absolute level of fees, such as creating rationalized and consistent pricing
across similar funds, anticipating increased regulatory and other costs and
providing for pricing flexibility.
16. Please provide more detailed information about the peer groups referred to
in the proxy statement. Identify the median peer for each category.
The peers referred to in the proxy statement are those funds identified by
Lipper, Inc. ("Lipper"), an independent provider of investment company data, as
appropriate peers for purposes of analyzing expenses for the subject fund. For
purposes of approving the new investment management agreement, the Board of
Trustees examined data compiled by Lipper for each subject fund, showing
comparative expenses as compared with both a
small peer group, as well as compared to the Lipper universe of funds. The small
comparative peer groups were selected by Lipper using its standard methodology,
which takes into account fund type, investment classification/objective, load
type and similar 12b-1/non-12b-1 service fees, asset (size) comparability and
expense components and attributes. The Lipper universe of funds includes the
subject fund and all other institutional funds within the Lipper investment
classification/objective with similar load types, excluding outliers identified
by Lipper (those funds that lie on the outer extremes of the data). Note that
the median total expense ratio table in the proxy statement is based on the
Lipper universe. Below is a chart identifying the Lipper
classification/objective for each subject fund, and the total number of funds in
the Lipper comparative peer group and peer universe.
------------------------------------------------------
Lipper Classification # of Funds in:
---------------------------------
Group Universe
------------------------------------------------------------------------------
Growth Equity Large-Cap Growth 15 146
------------------------------------------------------------------------------
Growth & Income Large-Cap Core 15 176
------------------------------------------------------------------------------
Large-Cap Value Multi-Cap Value 15 96
------------------------------------------------------------------------------
Mid-Cap Growth Mid-Cap Growth 15 100
------------------------------------------------------------------------------
Mid-Cap Value Mid-Cap Value 15 50
------------------------------------------------------------------------------
Small-Cap Equity Small-Cap Core 15 114
------------------------------------------------------------------------------
Social Choice Equity Multi-Cap Core 15 93
------------------------------------------------------------------------------
Real Estate Securities Real Estate 15 40
------------------------------------------------------------------------------
International Equity Int'l Multi-Cap 15 154
Core, Int'l
Multi-Cap Value,
Int'l Large-Cap Core
------------------------------------------------------------------------------
Inflation-Linked Bond TIPS Funds, short 9 10
U.S. Treasury Funds
------------------------------------------------------------------------------
Bond Intermediate 15 121
Investment Grade Debt
------------------------------------------------------------------------------
Money Market Institutional Money 15 249
Market
------------------------------------------------------------------------------
17. TIAA-CREF's reorganization, to this point, has involved cost cutting
measures. What accounts for the change towards increasing the capacity of
the investment staff? What specific personnel changes are planned as a
result of these fee increases?
While TIAA-CREF's reorganization has involved cost cutting measures, much of the
reorganization has focused on the redeployment of business assets and personnel
to new or other existing operations within the organization. With respect to the
investment staff, Teachers Advisors has advised us that they have conducted an
internal analysis, which
concluded that they need additional capacity to continue to provide appropriate
research coverage and portfolio management for their current number of
investment mandates. Therefore, its investment research area intends to add
analysts so that it can provide additional coverage for individual companies and
industry sectors on a global scale, as well as adding portfolio managers to help
manage the mutual funds and other accounts. We have been informed by Teachers
Advisors that it has already begun implementing these additions to staff.
18. If the Retail Funds vote not to merge with the Institutional Funds, what is
expected to happen? Is there expected to be a time period between when the
Institutional Mutual Fund fees go up (if they do) and the Retail Mutual
Funds go up (if they do)?
Teachers Advisors has advised TFI that, in consultation with both Funds' Boards,
it has been working on a proposal to merge the Retail Funds into the
Institutional Funds. However, the merger proposal has not yet been approved by
either Board. As part of its proposal, Teachers Advisors is expected to present
to the Retail Fund Board a range of preferred alternatives if the mergers are
not approved, which may include closing or liquidating the Retail Funds. Also,
Teachers Advisors has informed TFI that the implementation of repricing is not
scheduled to coincide with the effective date of the mergers.
19. The [preliminary] proxy statement refers to the termination of transfer
agent services. Does this refer to the relationship with State Street Bank
and/or BFDS? Would this termination affect SIB or ScholarShare
participants? If so, how?
Teachers Advisors has informed TFI that there is no current intention to
terminate or materially change the Funds' transfer agency services.
20. If the proposal is not approved, what does it mean that the advisor will
not be able to continue in its role? Does this indicate that CREF intends
to move away from active management and/or its 529 business?
Teachers Advisors has advised TFI that it would be forced to recommend to the
Funds' Board of Trustees other courses of action if the repricing proposal is
not approved, because Teachers Advisors cannot continue to sustain losses in the
operation of the Funds. Such alternative courses of action could include closing
some or all of the Funds to new investments or liquidating them entirely. At
this time, TIAA-CREF does not intend to move away from active management or the
529 business.
21. Are the proposed fee increases part of a long-term plan to change
TIAA-CREF's non-profit status? Does TIAA-CREF expect or plan to go public?
Teachers Advisors has informed TFI that the repricing proposal is not part of a
long-term plan to change TIAA-CREF's non-profit status. Additionally, there is
no current intention, expectation or plan for TIAA-CREF to become a public
company.