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Monday, April 24, 2006

TIAA-CREF Plans Fund Reorganization

by: Armie Margaret Lee

TIAA-CREF is seeking shareholder approval of a plan to reorganize its funds as part of efforts to consolidate its operations.

The plan, contained in a preliminary proxy statement filed by the New York-based firm with the Securities and Exchange last week, calls for the merger of 11 retail funds into TIAA-CREF institutional mutual funds. The proposed restructuring was approved by board of trustees on February 14 and will be placed before shareholders at a meeting on August 8.

Teachers Advisors Inc., the investment adviser to both the retail and institutional funds, has been incurring "substantial losses" on its mutual fund business since the retail funds were rolled out in 1997, according to the statement. The losses, TIAA-CREF said, are partly due to the fact that the fees charged by the adviser did not cover the actual expenses it incurred to manage and operate the retail funds.

The reorganization is intended to "maintain overall fees at a level that keeps the combined funds competitive with the lower-priced offerings in the industry, while reflecting the costs associated with operating the funds and maintaining a high level of service to fund shareholders," TIAA-CREF said. The plan is likewise aimed at reducing potential confusion through the merger of funds with similar names and investment objectives.

The institutional funds possess an unbundled fee and expense structure, giving rise to higher total operating expenses. In addition, the retail class shares of the funds are subject to a 12b-1 distribution plan.

The planned mergers are as follows:

  • International Equity Fund into Institutional International Equity Fund
  • Growth Equity Fund into Institutional Large-Cap Growth Fund
  • Growth & Income Fund into Institutional Growth & Income Fund
  • Equity Index Fund into Institutional Equity Index Fund
  • Social Choice Equity Fund into Institutional Social Choice Equity Fund
  • Managed Allocation Fund into Institutional Managed Allocation Fund II
  • Bond Plus Fund into Institutional Bond Plus Fund II
  • Short-Term Bond Fund into Institutional Short-Term Bond Fund II
  • High-Yield Bond Fund into Institutional High-Yield Fund II
  • Tax-Exempt Bond Fund into Institutional Tax-Exempt Bond Fund II
  • Money Market Fund into Institutional Money Market Fund

    TIAA-CREF plans to fold the Growth Equity Fund into the Institutional Large-Cap Growth Fund and not the Institutional Growth Equity Fund, because shareholders of the Institutional Growth Equity Fund did not approve an amendment to the fund's investment management agreement. The two institutional funds share the same investment objective and strategies, according to the statement.

    If greenlighted by shareholders, the mergers are expected to be completed by the end of the third quarter.  

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