How have the TIAA-CREF accounts performed during the recent turbulence in the financial markets?

With the close of the year's third quarter, we want to provide an overview of the TIAA-CREF retirement accounts' performance during this difficult period in the financial markets.

Credit crisis takes its toll on stocks

Amid volatile market conditions fueled by a deepening credit crisis and signs of a weakening economy, U.S. stocks fell sharply in the third quarter of 2008. The Russell 3000® Index, which measures the broad U.S. stock market, declined 8.73%.

Mid-cap stocks fared worst, dropping 12.91%, while large caps fell 9.35%. Small caps held up much better, dipping just 1.11%. Value stocks were down 5.26% but weathered the quarter somewhat better than growth stocks, which declined 11.93%. Across all categories of U.S. stocks, small-cap value-up 4.96%-was the only positive performer for the quarter. (All capitalization-size and investment-style stock returns are based on Russell indexes.) As of September 30, 2008, the Russell 3000 Index was down 18.81% year-to-date.

Foreign stocks also posted poor results in the third quarter. The MSCI EAFE® Index, which measures stock performance in 21 developed nations outside North America, fell 13.02% in terms of local currencies. For U.S. investors, this loss was magnified by a steep decline in the value of the EAFE's currencies versus the dollar; in dollar terms, the EAFE tumbled 20.56%. Year-to-date through the end of September, the EAFE was down 29.26% in dollars.

Bonds decline slightly, cushioned by the solid gains of U.S. Treasuries

The worsening credit crisis and the upheaval among financial service companies led the broad U.S. bond market lower in the third quarter. The Lehman Brothers U.S. Aggregate Index, which measures the performance of the domestic investment-grade, fixed-rate bond market, was down 0.49% for the three-month period.

Investors fled to the quality of U.S. Treasuries, pushing down yields and raising bond prices. The Treasury sector of the Lehman index rose 2.30%. At the same time, investors demanded higher yields from corporate bonds because of concerns about risk. That pushed corporate bond prices lower, and the corporate sector of the Lehman index fell 7.80%.

The yield on 10-year Treasury notes-a benchmark for many long-term interest rates-dropped slightly to 3.85% at the end of the third quarter, from 3.99% at the end of the second quarter. Year-to-date through September 30, the Lehman aggregate index returned 0.63%.

Results of the TIAA-CREF accounts reflect market turbulence

The performance data quoted represents past performance, and is no guarantee of future results. Your returns and the principal value of your investment will fluctuate so that your accumulation units or shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted above.

View standardized performance information current to the most recent quarter-end.

During the third quarter of 2008, the TIAA Traditional Annuity continued to pay both its minimum rate of interest and an additional amount, as declared by the TIAA Board of Trustees.¹

TIAA Traditional Annuity had a crediting rate for newly remitted funds during the third quarter of 2008 of 6.00% for Retirement Annuities and Group Retirement Annuities and 5.25% for Supplement Retirement Annuities, IRAs and Keoghs. For the twelve months ended September 30, 2008, the two rates of return for newly remitted funds were 5.25% and 4.50% respectively.

The returns of the nine TIAA-CREF investment accounts varied during the quarter and year-to-date according to the asset classes in which each account invests.

TIAA Real Estate Account returned -2.07% for the quarter and -1.12% year-to-date through September 30, 2008. Valuations of commercial real estate declined during both periods, but these losses were partly offset by solid rental income. The account seeks to invest between 75% and 85% of its assets directly in commercial real estate or real estate-related securities.

CREF Stock returned -12.16% for the quarter, compared with the -12.03% return of its composite benchmark. Year-to-date through September 30, the account declined 21.75%, in line with the 21.51% loss of its benchmark. Results during the first nine months of 2008 were largely driven by losses in the financial, technology and "other energy" sectors, which together, at the start of the third quarter, made up more than one-third of the Russell 3000 Index, the largest component of the account's composite benchmark.

CREF Global Equities fell 15.77% for the quarter, versus the 15.25% drop of its benchmark, the MSCI World Index^SM. Year-to-date, the account declined 25.04% through September 30, versus the 24.21% loss posted by its benchmark. Results in both the account and the benchmark were caused by stock market declines in all three regions in which the account invests: Europe, Asia and North America.

CREF Growth returned -13.54% for the quarter, compared with the -12.33% return of its benchmark, the Russell 1000® Growth Index. Through September 30, the account dropped 21.90% this year, versus the 20.27% decline of its benchmark. Losses among large-cap growth stocks during the first nine months of 2008 have been caused largely by outsized reversals in the technology, materials and processing and producer durables sectors.

CREF Equity Index declined 8.78% for the quarter, versus the 8.73% drop of its benchmark, the Russell 3000 Index. Through September 30, the account was down 19.05% this year, in line with the 18.81% loss posted by its benchmark. Year-to-date returns of the Russell 3000 Index, which the account seeks to track, were driven largely by losses in the financial, technology and "other energy" sectors.

CREF Bond Market posted a return of -1.54% for the quarter, versus the -0.49% return of its benchmark, the Lehman Brothers U.S. Aggregate Index. Through September 30, the account declined 1.18%, versus the 0.63% gain of its benchmark. Both the account and the benchmark saw year-to-date returns depressed by the drop in the prices of corporate bonds.

CREF Inflation-Linked Bond returned -3.50% for the quarter, in line with the -3.54% return of its benchmark, the Lehman Brothers U.S. Treasury Inflation-Protected Index. Through September 30, the account returned 1.06% year-to-date, versus the 1.17% return of its benchmark. Prices for these securities have fallen because inflation expectations were reduced by the slowing economy.

CREF Social Choice returned -6.09% for the quarter, versus the -6.75% return of its composite benchmark. Through September 30, the account declined 11.63%, somewhat less than the 12.31% loss posted by its composite benchmark. The account's decline during both periods was caused primarily by its investment in U.S. stocks; these losses were partly offset by better returns from the account's fixed-income segment.

CREF Money Market returned 0.47% for the quarter and 1.81% year-to-date, through September 30. Yields rose during the third-quarter because of credit concerns in the short-term securities market. The account's current 7-day, annualized yield, as of October 2, is 2.11%. The current yield reflects the account's current earnings more closely than do the total returns for the quarter or the year-to-date period.

For more information about each account's holdings and performance through June 30, 2008, please see the quarterly fact sheets, which can be found at the link labeled 'Fund Facts' to the right of each account's webpage (click on the account name on the performance page).

For more detailed commentary about the performance of the investment accounts, please see the 2008 CREF Semiannual Report (PDF) or the TIAA Real Estate Form 10-Q (PDF).

An investment in the CREF Money Market Account is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or by any other government agency. It is possible to lose money in this account. The current yield reflects the account's current earnings more closely than do the total returns for the quarter or the year-to-date period.