Frequently Asked Questions TIAA-CREF Lifecycle Funds Addition of Direct Real Estate

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1 AUGUST 2016 Frequently Asked Questions TIAA-CREF Lifecycle Funds Addition of Direct Real Estate Please note: The following information concerning the TIAA-CREF Real Property Fund LP (the Real Property Fund or RPF ) is for informational purposes related to its use as an underlying investment allocation by the TIAA-CREF Lifecycle Funds and should not be construed as investment advice. This shall not constitute an offer to sell or the solicitation of an offer to buy the interests in the Real Property Fund. The Real Property Fund is not available for sale to any investor other than the TIAA-CREF Lifecycle Funds. Overview The TIAA-CREF Real Property Fund LP is a new, unregistered investment offering designed specifically to provide the activelymanaged TIAA-CREF Lifecycle Funds with exposure to directly-held real estate investments. The Lifecycle Funds are the only investors in the RPF, and the RPF is not open for sale to other investors. The RPF follows a core investment style which focuses on investments in institutional-quality commercial real estate (primarily office, industrial, retail and multi-family residential properties) that seek to generate returns primarily from rental income and secondarily from asset appreciation. We expect adding the RPF to the underlying investment allocation will be beneficial to the Lifecycle Funds from a beta perspective (i.e., a broadening of the investment universe), and given the risk profile of real estate, should provide substantial diversification benefits. Historically, direct real estate has exhibited low performance correlations to equities and fixed income, and has provided relatively stable and high cash yields (stemming from the cash flows generated by long-term leases) and attractive risk-adjusted returns (i.e., attractive absolute returns, with much lower volatility relative to equities). The RPF is considered to be an illiquid investment (as defined by the Investment Company Act of 1940 Act ( 1940 Act )) for the Lifecycle Funds, but calculates a net asset value (NAV) every business day. Each Lifecycle Fund will have a strategic target percentage allocation to the RPF in the middle single digits (i.e., as a percent of total net assets). Each of the Lifecycle Funds will have an identical target allocation to the RPF (the target allocation to the RPF will remain constant throughout the Lifecycle Funds glidepath). It is anticipated that it will take approximately 2 to 3 years (once investment is initiated in the RPF) for each Lifecycle Fund to reach its targeted strategic allocation to the RPF. 1. What is the investment strategy of the RPF? 2. By when will the RPF be required to adhere to its guidelines/limits regarding how much can be invested in a single asset and single geographic market, and also the leverage maximum? 3. What is the RPF s benchmark and objective? 4. Why was exemptive relief needed from the Securities & Exchange Commission (SEC) prior to the Lifecycle Funds initiating investment in the RPF? 5. Why did we choose to create a new real estate fund (i.e., the RPF), rather than use an existing real estate fund? 6. What will be the target allocation of each Lifecycle Fund to the RPF, and how long will it take each Lifecycle Fund to establish this target allocation? 7. How is the addition of the RPF expected to improve investment outcomes for the Lifecycle Funds shareholders? 8. Will the illiquidity of the RPF impact the ability of the Lifecycle Funds to meet redemption requests? 9. What is the net expense ratio of the RPF, and how will the addition of the RPF impact the net expense ratios of the Lifecycle Funds? 10. What is effect of the RPF allocation on the Lifecycle Funds Composite Benchmark Index? 11. What is the difference between investing in directly-held real estate and investing in a Real Estate Investment Trust (REIT) mutual fund?

2 12. What other direct real estate products are available for use with defined contribution plans? 13. How is a daily net asset value (NAV) calculated for the RPF? 14. What performance information will be made available? 1. What is the investment strategy of the RPF? The RPF s strategy is to seek a favorable long-term total return by investing in a diversified portfolio of U.S. commercial core real estate assets that are well-located in select targeted cities/markets. Core real estate assets are typically well-occupied with highquality tenants and are typically located in high barrier-to-entry markets (e.g., New York, Washington D.C., San Francisco). The strategy is designed to operate within the risk controlled framework of the Lifecycle Funds. The strategy provides for a minimum of 95% of the RPF s assets to be invested directly in real estate investments, which are either wholly-owned or held in joint ventures (the RPF must maintain the majority position in any joint ventures or real estate partnerships). Up to 5% of the RPF s assets are intended to be held in cash to satisfy working capital requirements. In order to stay within the risk appetite of the Lifecycle Funds, the strategy intends to use a minimal amount of leverage. The strategy will provide for the use of leverage at the property level as appropriate, but not to exceed 10% of the RPF s aggregate gross value at the portfolio level except during initial portfolio construction. See #2 below for comments about initial portfolio construction. The RPF s portfolio will provide broad diversification by real estate property type (primarily office, industrial, retail and multifamily/apartment) and geographic region. The RPF s core real estate investment guidelines generally are as follows: U.S. domestic investments only Maximum exposure to a single geographic market is 20% of gross assets (except during initial portfolio construction) Maximum exposure to a single investment is 5% of gross assets (except during initial portfolio construction) Leverage maximum at the portfolio level is 10% of gross assets (except during initial portfolio construction) Property types will be apartments, industrial, office, mixed use, and retail Initial occupancy will be not less than 85% The majority of the total return will be projected to come from current income Office, industrial and retail properties will have projected durable income (i.e., expected to be well-occupied by tenants with the size/financial strength to able to pay rent even in economic downturns) Annual tenant turnover will be projected to average 20% or less (except for apartments), at acquisition over a 10-year holding period Building improvement capital expenditures as a percentage of property net income will be projected to average no more than 15% per annum over the initial underwriting hold period. For the most current quarterly fact sheet, click here. 2. By when will the RPF be required to adhere to its guidelines/limits regarding how much can be invested in a single asset and single geographic market, and also the leverage maximum? As the RPF portfolio grows, the portfolio manager of the RPF will manage the fund to achieve diversification as soon as possible. However, due to the RPF s smaller size during initial portfolio construction, some of the limits will be difficult to comply with initially. For example, single properties are expected initially to be in the $30 million - $100 million range (varies depending on property sector). As a result, the RPF may exceed its portfolio maximum exposure in regard to the leverage limit, a single market and a 2

3 single investment. The RPF portfolio manager intends to manage as close to these limits as possible (which becomes easier as assets grow), but during the initial portfolio construction will likely exceed them. Note that during initial portfolio construction, the RPF portfolio manager will be able to acquire assets with existing debt that may raise leverage at the portfolio level beyond the 10% limitation; however, this is not to exceed 25% of the gross assets of the RPF, at the time of acquisition. The RPF portfolio manager is expected to comply with the leverage limits at the point the RPF reaches $3 billion in net assets or 5 years from inception, whichever comes first. The RPF portfolio manager is expected to comply with the maximum exposures to single markets and investments once the net assets reach $5 billion. It is important to note that the RPF will be considered diversified prior to these asset levels. The limitations are designed to govern the RPF when it is much larger and could be engaged in larger property transactions. Once the RPF reaches $1.5 billion in net assets, the portfolio manager will begin to consider larger, attractive properties in excess of $100 million in value. 3. What is the RPF s benchmark and objective? The RPF will be benchmarked against the NCREIF Property Index -Open End Funds (NPI-OE), which is a subset of the larger NCREIF Property Index (NPI), and is limited to properties held by unregistered, open-end direct real estate funds. The NPI and NPI-OE are made available by the National Council of Real Estate Investment Fiduciaries (NCREIF). The NPI-OE was chosen as the RPF s benchmark index given the NPI-OE s focus on properties owned by open-end funds (the RPF is an openend fund), as well as the RPF s core real estate investment strategy (open-end funds tend to emphasize core real estate investment strategies). The broader NPI measures the time-weighted total rate of rate return for a very large pool of U.S. commercial and residential real estate properties held by institutional investors, removing the effects of any leverage (i.e., mortgage debt attached to the properties). The NPI is a property-only index (it is not a fund index). The returns are market-weighted based on the value of the properties. These properties are held within various types of vehicles, namely: open-end funds, closed-end funds and separate accounts. The NPI s returns are based on changes in property values, as well as net income earned by the constituent properties. The returns are calculated gross of fund/portfolio level management fees and expenses, but inclusive of property level management fees and expenses. Property level management fees and expenses include operating expenses such as utilities, maintenance, taxes, property management and insurance. Returns are calculated and made available on a quarterly basis. The NPI-OE, which is limited to properties held by open-end real estate funds and excludes properties held by other types of funds/vehicles, focuses on a subset of properties from the broader NPI and follows the same returns methodology as described above. The RPF s performance objective will be to match or outperform the NPI-OE. The RPF will use a proprietary top down/bottom up portfolio construction technique that will be based on the overall investment characteristics of the NPI-OE, including asset type and geographic diversification. The portfolio construction technique of the RPF will use the investment composition of the NPI-OE as guidelines for making determinations in regard to the allocations to the various asset types (i.e., office, industrial, retail and multifamily) and broader geographic markets (i.e., East, West, Midwest and South). Within the broader geographic markets, the RPF s portfolio manager will target submarkets based on the research of the Global Real Estate research team. 3

4 4. Why was exemptive relief needed from the Securities & Exchange Commission (SEC) prior to the Lifecycle Funds initiating investment in the RPF? Certain provisions and rules of the 1940 Act prohibit transactions between mutual funds and affiliated entities. Specifically, under Section 17(a) of the 1940 Act, a mutual fund cannot engage in principal transactions in securities (i.e., buying and selling securities or other property) with affiliated persons/entities. The RPF may be deemed an affiliate of the Lifecycle Funds given that both the RPF and the Lifecycle Funds would be advised by the same investment manager, Teachers Advisors, Inc. (TAI). Also, the RPF may be considered an affiliated person of a Lifecycle Fund if such Lifecycle Fund owns 5% or more of the interests in the RPF. Additionally, under Section 17(d) of the 1940 Act, and Rule 17d-1 thereunder, an affiliate of a mutual fund is generally prohibited from participating in, or effecting any transaction in connection with, a joint enterprise/arrangement in which the mutual fund is a participant without obtaining an SEC order permitting the arrangement. The proposal to have the Lifecycle Funds invest in the RPF arguably could be deemed to be engaging in a joint enterprise/arrangement. Note that there are exemptions to these provisions and rules, but having the Lifecycle Funds invest in an affiliated, private vehicle did not fall into one of the existing exemptions. For these reasons, a request for exemptive relief was submitted to the SEC, and the exemptive relief was eventually granted by the SEC. The Lifecycle Funds will be the first 1940 Act-registered target-date fund series to offer direct real estate exposure 1. The Lifecycle Funds are now able to capitalize on TIAA s deep expertise in direct real estate investing. TIAA Global Real Estate is the 3 rd largest manager of worldwide real estate investments, investing since the 1940s with $96 billion in assets under management (as of 3/31/16). This deep and broad experience makes us well-positioned to introduce this asset class into the Lifecycle Funds. 5. Why did we choose to create a new real estate fund (i.e., the RPF), rather than use an existing real estate fund? Creating a new fund gave us the ability to structure a fund to meet the needs of the Lifecycle Funds, as well as provide maximum flexibility to structure the fund to meet any potential SEC requirements. Using an existing real estate fund, with its existing investors, with features that potentially did not meet the requirements of the SEC, and an investment strategy that is not best suited to fit within the risk framework of the Lifecycle Funds, would have added considerable complexity and in the end may not have served the best interests of all investors in an existing fund. 6. What will be the target allocation of each Lifecycle Fund to the RPF, and how long will it take each Lifecycle Fund to establish this target allocation? Each Lifecycle Fund will target a percentage allocation to the RPF in the middle single digits (i.e., as a percent of total net assets of each fund). Each of the Lifecycle Funds will have an identical target allocation to the RPF (the target allocation to the RPF will remain constant throughout the Lifecycle Funds glidepath). Once each Lifecycle Fund has established its strategic target allocation, the Lifecycle portfolio management team, working closely with the RPF portfolio management team, will strive to ensure each Lifecycle Fund allocation is managed within a close range (each allocation to the RPF will be allowed to float within a limited range). The allocation to the RPF has been targeted taking into account the practical trading issues associated with holding an illiquid position. The Lifecycle Funds generally do not plan to rely on the RPF to generate liquidity for monthly rebalancings or to meet redemption requests, thus the targeted allocation has been set in order for it to remain manageable in the event it drifts upwards or 4

5 downwards due to market activity that results in a swift and steep decline or increase in the values of equity and fixed income holdings and/or the loss of our largest plan sponsors/clients. In addition, it is important to note that a target allocation to the RPF in the middle single digits is of sufficient size to produce significant short-term performance impacts on the Lifecycle Funds. As per historical back testing dating back to 2000, a hypothetical 5% allocation to direct real estate within the Lifecycle Funds produced noticeable short-term differences in cumulative return (comparing the Lifecycle Funds with and without direct real estate). The most significant differences in cumulative return for a Lifecycle Fund at 45 years to retirement, and a Lifecycle Fund at 10 years after retirement, are shown below: Lifecycle Fund at 45 years from retirement -3.1% from July 2008 to February 2010 (this period is marked by a steady decline in cumulative returns for direct real estate due to the onset of the Credit Crisis) +2.2% from February 2010 to December 2015 (this period is marked by a steady increase in cumulative returns for direct real estate once real estate values began to recover from the Credit Crisis) Lifecycle Fund at 10 years after retirement +3.5% from March 2000 to September 2002 (this period is marked by a substantial drop in equity values due to the bursting of the Internet bubble) -4.3% from February 2009 to April 2010 (this period is marked by generally increasing equity returns, while real estate returns lagged and were slower to recover from the Credit Crisis) The strategic allocation to the RPF will be sourced from various existing market sectors, depending upon the target date of each Lifecycle Fund. Specifically, the target strategic allocation to direct real estate will be sourced from the Fixed-Income market sector for the longest-dated Lifecycle Funds (i.e., the Lifecycle 2060, Lifecycle 2055, Lifecycle 2050 and Lifecycle 2045 Funds), from the U.S. Equity, International Equity and Fixed-Income market sectors for the middle-dated Lifecycle Funds (i.e., the Lifecycle 2040, Lifecycle 2035, Lifecycle 2030, Lifecycle 2025 and Lifecycle 2020 Funds), and from the U.S. Equity and International Equity market sectors for the shortest-dated Lifecycle Funds (i.e., the Lifecycle 2015, Lifecycle 2010 and Lifecycle Retirement Income Funds). It is anticipated that it will take approximately 2 to 3 years (once investment is initiated in the RPF, which occurred in July 2016) for each Lifecycle Fund to establish its target strategic allocation to the RPF. It is important to note that, depending on conditions in the market for core real estate properties and the relative attractiveness of such properties to other investment opportunities in equities and fixed income, the pace at which the target strategic allocation to the RPF is established could be accelerated or slowed. The Asset Allocation Committee that oversees the strategic and tactical asset allocations of the Lifecycle Funds will help determine this pace. 7. How is the addition of the RPF expected to improve investment outcomes for the Lifecycle Funds shareholders? An allocation to the RPF provides the Lifecycle Funds with additional beta exposure/diversification (a broadening of the investment universe) and further alpha diversification (i.e., the alpha risk budget of each of the Lifecycle Funds is further diversified). Alpha in this context refers to the portion of an underlying fund s return attributable to the manager s skill rather than the movement of a benchmark index). 5

6 We analyzed the range of potential outcomes on the date of retirement utilizing Monte Carlo simulations. This analysis finds that adding direct real estate to the Lifecycle Funds improves the median outcome on the date of retirement, as well as the tail risk (the risk that equity markets do not perform well leading up to retirement), with a modest decrease in outcomes if equity markets significantly outperform. Similar analysis shows that the worst 12-month return experience is improved (less negative) at the date of retirement and 10 years after retirement, and adding direct real estate to the glidepath maintains or increases the probability of income for lifetime in retirement (for those that seek to make systematic withdrawals from their Lifecycle Fund in retirement). 8. Will the illiquidity of the RPF impact the ability of the Lifecycle Funds to meet redemption requests? The Lifecycle Funds will be able to purchase and redeem shares in the RPF on a daily basis at the next determined NAV per share. However, daily liquidity for the RPF will not be guaranteed and the Lifecycle Funds will treat their investment in the RPF as illiquid for purposes of assessing whether they are staying within the 15% illiquid investment ceiling imposed on mutual funds by SEC guidance. The Lifecycle and RPF portfolio management teams will work closely together to ensure that each Lifecycle Fund s RPF allocation is managed close to the strategic allocation. The Lifecycle Funds will generally not rely on the RPF to generate liquidity in regard to monthly rebalancings or to satisfy redemption requests. This is possible due to the relatively smaller targeted allocation by each Lifecycle Fund to the RPF. In general, it is anticipated that net redemptions of the RPF by the Lifecycle Funds will be infrequent. It is also important to note that though the RPF is considered illiquid in regards to the 1940 Act, direct real estate, while not as liquid as the public markets, does provide liquidity. In order to maximize liquidity to the greatest degree possible, the RPF will invest primarily in major metropolitan areas that have historically experienced the greatest liquidity of commercial real estate property due to strong institutional investor interest, the size and diversity of the local economy, favorable economic and demographic trends, and higher barriers to entry for new development. While the RPF anticipates owning properties over a medium- or long-term horizon so as to maximize potential returns and diversification attributes that commercial real estate can bring to investment portfolios, should the Lifecycle Funds, as investors, require a sizable redemption, due to the nature of the markets in which the RPF invests, this could be accommodated. Note that the Lifecycle Portfolio Management team conducted a stress test under a worst case scenario. The test consisted of analyzing what would have occurred (1) at the nadir of the 2008 Credit Crisis and (2) if the Lifecycle Funds lost the top 10 plan sponsors/clients. The test showed that while the RPF s allocation increases quite a bit within each Lifecycle Fund, the position would still be manageable (still well within the 15% illiquid ceiling imposed by current regulation), and we would have the ability to bring the allocation back towards normal parameters fairly quickly (within months, if not weeks). This would be done via the Lifecycle Funds monthly rebalancing process, which emphasizes the use of net cash flows from shareholders to bring each Lifecycle Fund s holdings back towards the targeted allocations. Trades in the other underlying funds could also be utilized if sufficient rebalancing cannot be achieved by solely relying on cash flows. Therefore, even extraordinary events in the markets and/or the loss of several large clients within a short period of time should not cause shareholders selling their interests in the Lifecycle Funds to experience or notice any illiquidity. The Lifecycle Portfolio Management team and the RPF portfolio managers intend to coordinate to ensure that purchases and redemptions of shares of the RPF are communicated, and planned for, as far in advance as is practicable. The RPF being an affiliated fund, and the Lifecycle Funds being the only investors in the RPF, allows for this planning and coordination with respect to 6

7 transactions to occur in the most efficient manner. Communications between the respective portfolio management teams will be governed by guidelines designed to avoid the sharing of material non-public information across the public/private divide. 9. What is the net expense ratio of the RPF, and how will the addition of the RPF impact the net expense ratios of the Lifecycle Funds? The pricing of the RPF is as follows: TIAA-CREF Real Property Fund LP Investment Management Fees 0.60% Administrative/Operating Expenses 0.14% Total Annual Fund operating Expenses 0.74% Waivers and Expense Reimbursements -0.04% Total Net Annual Fund Operating Expenses 0.70% This pricing makes the RPF the least expensive fund that offers retirement investors access to direct real estate investing. The expense waiver is expected to be necessary only in the RPF s first year, and administrative/operating expenses in the following years are expected to decline from 0.10%. Although it cannot be guaranteed in advance, it is unlikely that the administrative/operating expenses will exceed 0.10% of net assets. We expect the administrative/operating expenses on a basis points basis to decline over the years as the RPF gets larger. Note that we are committed to maintaining the highly competitive pricing of the TIAA-CREF Lifecycle Fund series and seek to avoid any increases to the fund series total operating expenses due to the addition of the RPF. 10. What is effect of the RPF allocation on the Lifecycle Funds Composite Benchmark Index? The Lifecycle Funds added a new separate and distinct Direct Real Estate market sector to the Funds glidepath into which the RPF has been placed. The distinctive nature of the real estate asset class and its generally uncorrelated performance behavior relative to other asset classes would make it an unnatural fit if placed into one of the other market sectors (i.e., U.S. Equity, International Equity, Fixed-Income, Short-Term Fixed-Income and Inflation-Protected Assets). However, the component indexes of the Lifecycle Funds composite benchmarks will not change. The composite benchmarks will remain as if we did not add a Direct Real Estate market sector, i.e., the weightings of the composite benchmarks will continue as they were prior to the addition of Direct Real Estate. 7

8 Given the significant challenges/complications associated with using a real estate index such as the NPI-OE (returns for real estate indices are only available on a quarterly basis, and only after a significant lag after a quarter-end), and also given the lack of a daily valued index for another asset class that could serve as an adequate proxy for a real estate index, the decision has been made to not incorporate an index representing the new Direct Real Estate market sector within the Lifecycle Funds composite benchmarks. The Lifecycle Funds composite benchmarks will continue to be comprised of the five component indices which represent the five market sectors that have been in use prior to the addition of Direct Real Estate (i.e., U.S. Equity, International Equity, Fixed-Income, Short-Term Fixed-Income and Inflation-Protected Assets). This approach means that the strategic allocations to the now six market sectors (including the new Direct Real Estate market sector) that will comprise the glidepath will no longer directly correlate to the weights assigned to the five component indices (representing the five market sectors excluding Direct Real Estate) that comprise the composite benchmarks. As noted above, the composite benchmark weights are reflective of what the Lifecycle Funds glidepath would look like absent the investment in direct real estate. 11. What is the difference between investing in directly-held real estate and investing in a Real Estate Investment Trust (REIT) mutual fund? An investment in a fund like the RPF offers direct exposure to bricks-and-mortar commercial real estate properties. When you invest in a REIT mutual fund, you invest in a fund that buys stocks/securities of publicly traded companies that own and manage direct real estate investments. Public market REIT stocks offer indirect exposure to commercial real estate. Because there are active, liquid markets for REIT securities, there are typically no limitations on transfers in and out of REIT mutual funds. An investment in stock issued by a publicly traded REIT is similar to investment in the stock of a small cap company in that, historically, REIT stock returns have been noticeably positively correlated with small cap stock returns. REITs can trade at substantial premiums or discounts to the underlying real estate values based on non-real estate and broader stock market sentiments. Consequently, publicly traded REIT investments have a different return profile and provide less effective asset class diversification than direct investments in real estate when included within a broader portfolio of equity and fixed income investments. Overall, the performance of publicly traded REITs has a higher correlation to the performance of the equity markets (relative to direct real estate). 12. What other direct real estate products are available for use with defined contribution plans? The number of direct real estate products offered to retirement savers within defined contribution plans is limited. There are a handful of daily valued third-party products offered to target-date collective investment trust (CIT) series. These products are offered by JP Morgan, Prudential, UBS and Principal, and are structured as funds-of-funds often employing a top level CIT that invests in a number of underlying institutional, unregistered real estate funds, as well as other underlying funds that invest in liquid assets (the liquid assets are primarily publicly traded REITs and cash). These products typically allocate up to 25% of their holdings to liquid assets in order to provide daily liquidity (this liquidity is subject to limitations). However, the price of these offerings can be quite high. The annual fees/expenses for these third-party offerings can range from 1.15% to 1.50%. Note that direct real estate exposure within target-date CIT series has been largely concentrated among JP Morgan s and Prudential s CIT target-date series, as well as in custom series implemented by the larger 401(k) retirement plans, whose sponsors have the resources to devote to a customized, open-architecture approach to target-date investing. In addition, there are only two direct real estate products currently offered as stand-alone investment options to defined contribution plan participants. These products are the TIAA Real Estate Account (REA) and the Principal U.S. Property Account. Up to 25% of 8

9 the REA s assets are maintained in cash and other liquid investments from which redemption requests are satisfied. REA offers daily valuation and liquidity, is offered on an at-cost basis and is an annuity product. Its current annual net expense ratio is 0.89%. The Principal U.S. Property Account is offered via group annuity contracts and maintains a lower allocation to liquid assets relative to the REA (approximately 5% of net assets). It offers daily valuation and liquidity, relying primarily on cash holdings, cash flow from its properties and a line of credit to satisfy redemption requests. Its current annual net expense ratio is 1.15%. 13. How is a daily net asset value (NAV) calculated for the RPF? The RPF will calculate a NAV every business day that will be transmitted directly to the Lifecycle Funds to be utilized in generating their respective NAVs. The RPF will employ the same elements of the REA s robust methodology for valuing its real estate holdings, which will be used for purposes of calculating the net asset value per share of the RPF on a daily basis. The methods used by the REA are considered to produce fair values, as that term is defined in Fair Value Measurements (Topic 820) of the Financial Accounting Standards Board (formerly, statement of Financial Accounting Standards No. 157), that represent a good faith estimate of what a buyer in an arm s length transaction would pay to purchase an asset. The RPF s properties will be fair-valued (i.e., receive an appraisal from an independent source) at least once each quarter. This process allows for interim adjustments to incorporate into the daily NAV calculation any significant event/material changes in the market (e.g., a major tenant occupying a property files for bankruptcy). The calculation of the net asset value per share of the RPF generally will include the following major components: Each property (and any debt on a property) receives an updated appraisal/valuation on a quarterly basis (a third of the properties are valued each month). The appraisals/valuations are spread out evenly throughout the quarter. Once these appraisals are completed a valuation adjustment is recorded. An estimate of daily net income attributable to the properties is accrued each day (based on the budgeted income & expenses for a month). After month-end, when the actual net income is known, a true-up adjustment is made. The fund level expenses for the RPF are calculated (based on net assets) and impact the daily share value calculation. Activity related to the cash and any liquid/marketable securities held by the RPF is incorporated. Investor activity (i.e., purchases and sales of shares in the RPF from the Lifecycle Funds) is also taken into account regarding the daily share value calculation. Payment of distributions by the RPF (which will take place on a quarterly basis, or more frequently in the event of a property sale or financing transaction). 14. What performance information will be made available? Note that the performance of all of the underlying funds, including the RPF, is evaluated and monitored in order to determine their impact on the performance of the Lifecycle Funds. 9

10 The Lifecycle Funds portfolio managers will have a supplemental performance attribution of the Lifecycle Funds on a quarterly basis (as of each calendar quarter-end), which details the relative contribution of each underlying fund (including the RPF relative to its benchmark, i.e., the NPI-OE). The supplemental performance attribution will show year-to-date information and will be made available approximately 60 days after each calendar quarter-end in order to incorporate the returns of the NPI-OE (the NPI-OE s returns are only available quarterly, and only after a significant lag after a calendar quarter-end). This performance attribution will also detail the impact on the performance of the Lifecycle Funds due to tactical asset allocation, any other differences relative to the strategic allocations, as well as fees, and the information detailed here can be shared with institutional audiences (e.g., plan sponsors, consultants, Morningstar). Thus, the performance contribution of the RPF is measured through: a) the quarterly supplemental relative performance attribution, and b) the overall absolute performance of the Lifecycle Funds (which includes the RPF) relative to their composite benchmarks (which do not include commercial real estate). 1 Based on an internal survey of U.S. target-date mutual funds as described in publicly available prospectuses. Please note, the target date for a Lifecycle Fund is the approximate date when investors plan to start withdrawing their money. The principal value of the fund(s) is not guaranteed at any time, including at the target date. You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call or log on to for product and fund prospectuses that contain this and other information. Please read the prospectuses carefully before investing. TIAA Global Asset Management provides investment advice and portfolio management services through TIAA and over a dozen affiliated registered investment advisers. Nuveen is an operating division of TIAA Global Asset Management. TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products Teachers Insurance and Annuity Association College Retirement Equities Fund, New York, NY C