TIAA-CREF Funds Fixed-Income Funds

Transcription

1 2016 Semiannual Report September 30, 2016 TIAA-CREF Funds Fixed-Income Funds Contents Understanding your report from TIAA-CREF Funds 2 Information for investors 2 TIAA-CREF Market Monitor 3 About the funds benchmarks 4 Important information about expenses 5 Fund performance Bond Fund 6 Bond Index Fund 8 Bond Plus Fund 10 High-Yield Fund 12 Inflation-Linked Bond Fund 14 Short-Term Bond Fund 16 Short-Term Bond Index Fund 18 Social Choice Bond Fund 20 Tax-Exempt Bond Fund 22 Money Market Fund 24 Summary portfolios of investments 26 Financial statements (unaudited) Statements of assets and liabilities 48 Statements of operations 50 Statements of changes in net assets 52 Financial highlights 56 Notes to financial statements 66 How to reach us Inside back cover

2 Understanding your report from TIAA-CREF Funds For the purposes of this report TIAA-CREF Funds refers to the TIAA-CREF Fixed-Income Funds on the cover of this report. This semiannual report contains information about the TIAA-CREF Funds and describes their results for the six months ended September 30, The report contains three main sections: The fund performance section compares each fund s investment returns with those of its benchmark index. The summary portfolios of investments list the issuers, industries and types of securities in which each fund had investments as of September 30, The financial statements provide detailed information about the operations and financial condition of each fund. The views and opinions expressed in this report are through the end of the period, as stated on the cover of this report. They are subject to change at any time based on a variety of factors. As such, they are not guarantees of future performance or investment results and should not be taken as investment advice. The risks of investing in the TIAA-CREF Funds vary from fund to fund; to see the risks of investing in an individual fund, please refer to that fund s latest prospectus. As always, you should carefully consider the investment objectives, risks, charges and expenses of any fund before investing. For a prospectus that contains this and other important information, please visit our website at TIAA.org, or call for the Institutional, Advisor, Premier and Retirement classes or for the Retail Class. We urge you to read the prospectus carefully before investing. Information for investors Portfolio holdings Securities and Exchange Commission (SEC) rules allow investment companies to list the top holdings of each fund in their annual and semiannual reports, instead of providing complete portfolio listings. The TIAA-CREF Funds also file complete portfolio listings with the SEC, and they are available to the public. You can obtain a complete list of the TIAA-CREF Funds portfolio holdings (Schedules of Investments) as of the most recently completed fiscal quarter in the following ways: By visiting our website at TIAA.org; or By calling us at to request a copy, which will be provided free of charge. You can also obtain a complete list of the TIAA-CREF Funds portfolio holdings as of the most recently completed fiscal quarter, and for prior quarter-ends, from our SEC Form N-CSR and Form N-Q filings. Form N-CSR filings are as of March 31 or September 30; Form N-Q filings are as of December 31 or June 30. Copies of these forms are available: Through the Electronic Data Gathering and Retrieval System (EDGAR) on the SEC s website at or From the SEC s Office of Investor Education and Advocacy. (Call for more information.) Proxy voting In certain market conditions, the investment portfolio of a fixed-income fund may include shares of common or preferred stock. If that should occur, a TIAA-CREF Fund s ownership of stock would give it the right to vote on proxy issues of companies in which it invests. A description of our proxy voting policies and procedures can be found on our website at TIAA.org or on the SEC s website at You can also call us at to request a free copy. A report of how the funds voted during the most recently completed twelve-month period ended June 30 can be found on our website or on Form N-PX at Contacting TIAA There are three easy ways to contact us: by , using the Contact Us link at the top of our home page; by mail at TIAA, 730 Third Avenue, New York, NY ; or by phone at Fund management The TIAA-CREF Funds are managed by the portfolio management teams of Teachers Advisors, LLC (formerly known as Teachers Advisors, Inc.). The members of these teams are responsible for the day- to-day investment management of the funds Semiannual Report TIAA-CREF Funds: Fixed-Income Funds

3 TIAA-CREF Market Monitor Bond markets post gains as Fed holds steady on rates U.S. fixed-income performance was broadly positive for the six-month period, as uncertainty over global economic growth, the upcoming U.S. elections and volatility in the equity markets led many investors to the perceived safety of fixed-income assets. Yields on 10-year Treasuries ended the period lower declining from 1.79% on April 1, 2016, to 1.60% on September 30, 2016 as investors sought their relative safety, and non-u.s. developed market government yields remained at historically low levels (bond yields move in the opposite direction of prices). Global bond prices were driven temporarily higher in late June by Britain s surprise vote to leave the European Union, but prices subsequently receded to previous levels as markets stabilized. All fixed-income sectors in the United States posted positive returns during the period. Continued U.S. economic growth, coupled with steady labor markets, growing consumer confidence and measured restraint by the Federal Reserve, helped support fixed-income securities. The fixed-rate investmentgrade bond market, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, returned 2.7% over the six months. The U.S. securitized credit sector including mortgage-backed securities, commercial mortgage-backed securities and assetbacked securities also posted solid, positive results. Corporate bonds lead fixed-income performance The mostly favorable domestic economic backdrop, spurred on by investors ongoing appetite for higher-yielding income streams, helped corporate credit securities, including lower-rated high-yield bonds, outperform U.S. government debt. The high-yield sector, with its significant exposure In a positive period for bonds, higher-yielding lower-quality sectors outperformed Performance for the six months ended September 30, % 10% 8% 6% 4% 2% 0% 2.7% U.S. investment grade 0.7% Short term 2.4% Municipals 5.0% Corporate investment grade 9.9% Corporate high yield Source: U.S. investment grade: Bloomberg Barclays U.S. Aggregate Bond Index; Short term: Bloomberg Barclays U.S. 1 3 Year Government/Credit Index; Municipals: Bloomberg Barclays 10-Year Municipal Bond Index; Corporate investment grade: Bloomberg Barclays U.S. Corporate Bond Index; Corporate high yield: BofA Merrill Lynch BB-B U.S. Cash Pay. As of September 30, to energy, also benefited from the rise in oil prices during the period. Overall, longer-term bonds outperformed their short-term counterparts. Among high-quality sectors, investment-grade corporate bonds, as measured by the Bloomberg Barclays U.S. Corporate Bond Index, had the strongest performance, gaining 5.0% as they benefited from continued economic growth, steady demand from international investors and a reduced aversion to risk among investors seeking higher income in the lowrate environment. Municipal bonds, as represented by the Bloomberg Barclays 10-Year Municipal Bond Index, returned 2.4% for the period. Inflation-linked Treasuries, as measured by the Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) 1 10 Year Index, registered a 1.9% gain, while the Bloomberg Barclays U.S. 1 3 Year Government Credit Index returned 0.7%. At the riskier end of the fixed-income spectrum, U.S. highyield corporate bonds, as represented by the BofA Merrill Lynch BB-B U.S. Cash Pay High Yield Constrained Index, put up a strong 9.9% return, as their higher income stimulated investor demand. Equities, though volatile, also performed well, with the broad U.S. stock market, as measured by the Russell 3000 Index, gaining 7.1% over the course of the six-month period. U.S. economy picks up in the third quarter Domestic economic growth continued during the reporting period. Second-quarter gross domestic product (GDP) was revised upward to 1.4%, while the U.S. government s preliminary estimate for third-quarter GDP jumped to 2.9%. GDP measures the value of all goods and services produced in the nation, and its rise during the period reflected positive contributions from personal consumption expenditures and non-residential fixed investment. Labor markets were steady during the period, with modest job creation mirroring the current pace of economic growth. Meanwhile, consumer confidence rose to its highest level since the recession, and growing demand for energy, along with an improvement in supply and demand dynamics, resulted in a 37% increase in oil prices. Fed keeps short-term rates unchanged Erring on the side of caution, the U.S. Federal Reserve left its fed funds target rate a key short-term interest rate measure unchanged at a range of 0.25% 0.50%. To a large extent, U.S. interest rates also remained at low levels due to the easy monetary policies in place in Europe, Japan and elsewhere. However, Fed Chair Janet Yellen suggested in her September post-meeting remarks that a rate hike was possible by the end of TIAA-CREF Funds: Fixed-Income Funds 2016 Semiannual Report 3

4 About the funds benchmarks The Bloomberg Barclays* U.S. Aggregate Bond Index measures the performance of the domestic investmentgrade fixed-rate bond market, including government and corporate securities, agency mortgage pass-through securities, asset-backed securities and commercial mortgage-backed securities. The Bloomberg Barclays U.S. 1 3 Year Government/Credit Bond Index measures the performance of U.S. Treasury and agency securities and corporate bonds with 1- to 3-year maturities. The BofA Merrill Lynch BB-B U.S. Cash Pay High Yield Constrained Index measures the performance of bond securities that pay interest in cash and have a credit rating of BB or B. BofA Merrill Lynch uses a composite of Fitch Ratings, Moody s and Standard & Poor s credit ratings in selecting bonds for this index. These ratings measure the risk that the bond issuer will fail to pay interest or to repay principal in full. The index is market weighted, so that larger bond issues have a greater effect on the index s return. However, the representation of any single bond issuer is restricted to a maximum of 2% of the total index. The Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L) measures the performance of fixed-income securities with fixed-rate coupon payments that are adjusted for inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U). The Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) 1 10 Year Index measures the performance of fixed-income securities with maturities between 1 and 10 years that are adjusted for inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U). BofA Merrill Lynch is used with permission. BofA MerrILL LYnCh IS LICenSInG the BofA MerrILL LYnCh IndICeS AS IS, MAkeS no warranties regarding SAMe, does not GUArAntee the SUItABILItY, quality, ACCUrACY, timeliness, And/or CoMPLeteneSS of the BofA MerrILL LYnCh IndICeS or AnY data InCLUded In, related to, or derived therefrom, ASSUMeS no LIABILItY In ConneCtIon with their USe, And does not SPonSor, endorse, or recommend tiaa or AnY of ItS ProdUCtS or ServICeS. You cannot invest directly in any index. Index returns do not include a deduction for fees or expenses. * during the reporting period, Bloomberg L.P. acquired Barclays risk Analytics and Index Solutions Ltd. As a result of this acquisition, the names of a majority of Barclays indexes were changed to Bloomberg Barclays. The Bloomberg Barclays 10-Year Municipal Bond Index measures the performance of intermediate- and longerterm tax-exempt bonds. Bonds in the index must be rated investment-grade (Baa3/BBB- or higher), have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million Semiannual Report TIAA-CREF Funds: Fixed-Income Funds

5 Important information about expenses All shareholders of the TIAA-CREF Funds incur ongoing costs, including management fees and other fund expenses. They may also incur transactional costs for redemptions or account maintenance fees. The expense examples that appear on the performance pages are intended to help you understand your ongoing costs only (in U.S. dollars) and do not reflect transactional costs or the costs incurred by the fund for buying and selling securities. The examples are designed to help you compare these ongoing costs with the ongoing costs of investing in other mutual funds. The expenses shown do not include account maintenance fees, which may or may not be applicable, as described in the prospectus. If such fees were included, your total costs for investing in the funds would be higher. Note also that shareholders of the TIAA-CREF Funds do not incur a sales charge for purchases, reinvested dividends or other distributions. The examples are based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (April 1, 2016 September 30, 2016). Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading Expenses paid during period to estimate the expenses you paid during the six-month period. Some funds have a contractual fee reimbursement. Had these not been in effect, fund expenses would have been higher. Hypothetical example for comparison purposes The second line in each share class s entry shows hypothetical account values and expenses based on the share class s actual expense ratio for the six-month period and an assumed 5% per year rate of return before expenses. This was not the share class s actual return. This hypothetical example cannot be used to estimate the actual expenses you paid for the period but rather allows you to compare the ongoing costs of investing in the fund with the costs of other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other mutual funds. Actual expenses The first section of each table uses the fund s actual expenses and its actual rate of return. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the six- month period. TIAA-CREF Funds: Fixed-Income Funds 2016 Semiannual Report 5

6 Bond Fund Portfolio composition % of net assets as of 9/30/2016 Corporate bonds 27.9 Mortgage-backed securities* 18.1 Commercial mortgage-backed securities & other mortgage-backed securities 15.1 foreign government & corporate bonds denominated in U.S. dollars 14.9 U.S. treasury securities 8.8 Asset-backed securities 6.0 Municipal bonds 5.2 Bank loan obligations 1.3 U.S. agency securities 0.4 Short-term investments, other assets & liabilities, net 2.3 total * Includes mortgage pass-through securities and collateralized mortgage obligations Holdings by maturity % of fixed-income investments (excluding short-term investments) as of 9/30/2016 Less than 1 year years years years 32.9 over 10 years 17.6 Performance for the six months ended September 30, 2016 The Bond Fund returned 3.73% for the Institutional Class, compared with the 2.68% return of its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index. For the one-year period ended September 30, 2016, the fund rose 6.49%, versus 5.19% for the index. The table below shows returns for all share classes of the fund. Bonds post gains as Fed holds steady on rates During the six-month period, U.S. economic growth continued, labor markets held steady and consumer confidence remained high. Oil prices rose 37% from $35 a barrel on April 1, 2016, to nearly $48 a barrel on September 30, A mostly positive view of domestic economic conditions prompted the Federal Reserve to leave short-term interest rates unchanged. To a large extent, U.S. interest rates have also remained at low levels due to the easy monetary policies in place in Europe, Japan and elsewhere. However, Fed Chair Janet Yellen suggested in her September post-meeting remarks that a rate hike was possible by the end of Bond prices fluctuated during the period, driven temporarily higher in late June by Britain s surprise vote to leave the European Union, but prices subsequently receded to previous levels as markets stabilized. U.S. fixed-income performance was broadly positive for the six-month period. Yields on 10-year Treasuries ended the period lower declining from 1.79% on April 1, 2016, to 1.60% on September 30, 2016 as investors remained attracted to the relative safety offered by this sector (bond yields move in the opposite direction of prices). The generally favorable domestic economic picture, along with investors demand for income streams and improved energy prices, helped the corporate credit sector, including lower-rated high-yield bonds, outperform U.S. government debt. Overall, longer-term bonds outperformed their short-term counterparts. total Holdings by credit quality % of fixed-income investments (excluding short-term investments) as of 9/30/2016 Aaa/AAA 32.8 Aa/AA 9.0 A/A 14.6 Baa/BBB 29.9 Ba/BB 4.7 B/B 5.1 Below B/B 2.6 non-rated 1.3 total Credit quality ratings are based on the Bloomberg Barclays methodology, which uses the median rating of those compiled by the Moody s, Standard & Poor s and fitch ratings agencies. If ratings are available from only two of these agencies, the lower rating is used. when only one rating is available, that one is used. these ratings are subject to change without notice. Performance as of September 30, 2016 Average annual Total return total return Bond Fund Inception date 6 months 1 year 5 years 10 years Institutional Class 7/1/ % 6.49% 4.27% 5.01% Advisor Class 12/4/ Premier Class 9/30/ Retirement Class 3/31/ Retail Class 3/31/ Bloomberg Barclays U.S. Aggregate Bond Index The returns in this report show past performance, which is no guarantee of future results. The returns do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares. Returns and the principal value of your investment will fluctuate. Current performance may be higher or lower than that shown, and you may have a gain or a loss when you redeem your shares. For current performance information, including performance to the most recent month-end, please visit TIAA.org. Performance may reflect waivers or reimbursements of certain expenses. Absent these waivers or reimbursement arrangements, performance may be lower. You cannot invest directly in any index. Index returns do not include a deduction for fees or expenses. the performance shown for the Advisor and Premier Classes that is prior to their respective inception dates is based on the performance of the fund s Institutional Class. the performance for these periods has not been restated to reflect the higher expenses of the Advisor and Premier Classes. If those higher expenses had been reflected, the performance of these two classes shown for these periods would have been lower Semiannual Report TIAA-CREF Funds: Fixed-Income Funds

7 Corporate bond outperformance drives benchmark returns All of the sectors in the Bloomberg Barclays U.S. Aggregate Bond Index posted positive returns for the six-month period. Corporate bonds, making up onequarter of the index, were the most significant driver of performance, gaining 5.0% for the period. Corporates benefited from an improving economy, steady earnings and a higher risk appetite in exchange for higher yields among investors. Government credit securities and commercial mortgage-backed securities (CMBS) also outperformed, gaining 3.3% and 2.8%, respectively. U.S. Treasuries, the largest sector with a weighting of 36.4%, gained 1.8%, while mortgage-backed securities (MBS), with a weighting of 27.3%, rose 1.7%. The largest gain came from one of the smallest sectors in the index, municipal bonds, which rose 5.5% but accounted for less than 1.0% of the index s total capitalization at period-end. Fund s allocation to corporate bonds helps it outperform For the six months, the fund outperformed its benchmark primarily due to its overweight position in the strong-performing corporate bond sector. Security selection in the CMBS sector, as well as favorable asset allocation decisions in government credit and government agency issues, also contributed to the fund s outperformance versus the benchmark. Conversely, the fund was held back by yield curve positioning in the U.S. Treasury sector amid fluctuation in interest rates during the period. Expense example Six months ended September 30, 2016 expenses paid Beginning ending during account account period* Bond Fund value value (4/1/16 (4/1/16) (9/30/16) 9/30/16) Actual return Institutional Class $1, $1, $1.58 Advisor Class 1, , Premier Class 1, , retirement Class 1, , retail Class 1, , % annual hypothetical return Institutional Class 1, , Advisor Class 1, , Premier Class 1, , retirement Class 1, , retail Class 1, , * expenses paid during period is based on the fund s actual expense ratio for the most recent fiscal halfyear, multiplied by the average account value over the six-month period, multiplied by 183/365. there were 183 days in the six months ended September 30, the fund s annualized six-month expense ratio for that period was 0.31% for the Institutional Class, 0.32% for the Advisor Class, 0.46% for the Premier Class, 0.56% for the retirement Class and 0.61% for the retail Class. the expense charges of one or more of the fund s share classes may at times reflect a reimbursement. Please see the prospectus for an explanation, including the date on which this reimbursement is scheduled to end. without any such reimbursement, the expenses of the affected share classes would be higher and the fund s performance lower. for more information about this expense example, please see page 5. TIAA-CREF Funds: Fixed-Income Funds 2016 Semiannual Report 7

8 Bond Index Fund Portfolio composition % of net assets as of 9/30/2016 U.S. treasury securities 35.1 Mortgage-backed securities* 27.7 Corporate bonds 21.4 foreign government & corporate bonds denominated in U.S. dollars 9.4 U.S. agency securities 2.5 Commercial mortgage-backed securities & other mortgage-backed securities 1.4 Municipal bonds 1.0 Asset-backed securities 0.8 Short-term investments, other assets & liabilities, net 0.7 total * Includes mortgage pass-through securities and collateralized mortgage obligations Holdings by maturity % of fixed-income investments (excluding short-term investments) as of 9/30/2016 Less than 1 year years years years 23.4 over 10 years 15.4 total Performance for the six months ended September 30, 2016 The Bond Index Fund returned 2.60% for the Institutional Class, compared with the 2.68% return of its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index. For the one-year period ended September 30, 2016, the fund rose 5.11%, versus 5.19% for the index. The table below shows returns for all share classes of the fund. Bonds post gains as Fed holds steady on rates During the six-month period, U.S. economic growth continued, labor markets held steady and consumer confidence remained high. Oil prices rose 37% from $35 a barrel on April 1, 2016, to nearly $48 a barrel on September 30, A mostly positive view of domestic economic conditions prompted the Federal Reserve to leave short-term interest rates unchanged. To a large extent, U.S. interest rates have also remained at low levels due to the easy monetary policies in place in Europe, Japan and elsewhere. However, Fed Chair Janet Yellen suggested in her September post-meeting remarks that a rate hike was possible by the end of Bond prices fluctuated during the period, driven temporarily higher in late June by Britain s surprise vote to leave the European Union, but prices subsequently receded to previous levels as markets stabilized. U.S. fixed-income performance was broadly positive for the six-month period. Yields on 10-year Treasuries ended the period lower declining from 1.79% on April 1, 2016, to 1.60% on September 30, 2016 as investors remained attracted to the relative safety offered by this sector (bond yields move in the opposite direction of prices). The generally favorable domestic economic picture, along with investors demand for income streams and improved energy prices, helped the corporate credit sector, including lower-rated high-yield bonds, outperform U.S. government debt. Overall, longer-term bonds outperformed their short-term counterparts. Holdings by credit quality % of fixed-income investments (excluding short-term investments) as of 9/30/2016 Aaa/AAA 69.8 Aa/AA 5.4 A/A 11.1 Baa/BBB 13.7 total Credit quality ratings are based on the Bloomberg Barclays methodology, which uses the median rating of those compiled by the Moody s, Standard & Poor s and fitch ratings agencies. If ratings are available from only two of these agencies, the lower rating is used. when only one rating is available, that one is used. these ratings are subject to change without notice. Performance as of September 30, 2016 Average annual Total return total return since fund Bond Index Fund Inception date 6 months 1 year 5 years inception Institutional Class 9/14/ % 5.11% 2.96% 3.98% Advisor Class 12/4/ Premier Class 9/30/ Retirement Class 9/14/ Retail Class 9/14/ Bloomberg Barclays U.S. Aggregate Bond Index The returns in this report show past performance, which is no guarantee of future results. The returns do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares. Returns and the principal value of your investment will fluctuate. Current performance may be higher or lower than that shown, and you may have a gain or a loss when you redeem your shares. For current performance information, including performance to the most recent month-end, please visit TIAA.org. Performance may reflect waivers or reimbursements of certain expenses. Absent these waivers or reimbursement arrangements, performance may be lower. You cannot invest directly in any index. Index returns do not include a deduction for fees or expenses. the performance shown for the Advisor and Premier Classes that is prior to their respective inception dates is based on the performance of the fund s Institutional Class. the performance for this period has not been restated to reflect the higher expenses of the Advisor and Premier Classes. If those higher expenses had been reflected, the performance of these two classes shown for these periods would have been lower. Performance is calculated from the inception date of the Institutional Class Semiannual Report TIAA-CREF Funds: Fixed-Income Funds

9 Corporate bond outperformance drives benchmark returns All of the sectors in the Bloomberg Barclays U.S. Aggregate Bond Index posted positive returns for the six-month period. Corporate bonds, making up onequarter of the index, were the most significant driver of performance, gaining 5.0% for the period. Corporates benefited from an improving economy, steady earnings and a higher risk appetite in exchange for higher yields among investors. Government credit securities and commercial mortgage-backed securities (CMBS) also outperformed, gaining 3.3% and 2.8%, respectively. U.S. Treasuries, the largest sector with a weighting of 36.4%, gained 1.8%, while mortgage-backed securities (MBS), with a weighting of 27.3%, rose 1.7%. The largest gain came from one of the smallest sectors in the index, municipal bonds, which rose 5.5% but accounted for less than 1.0% of the index s total capitalization at period-end. The fund slightly trails its benchmark index For the six months, the fund s performance slightly trailed that of its benchmark. The fund s return includes a deduction for expenses, while the benchmark s does not. Since its inception on September 14, 2009, the fund has sought to maintain the overall characteristics of its benchmark. The fund s managers invest in the same sectors that are included in the benchmark and closely match the weightings and maturities. During the period, this portfolio had similar sector returns to its benchmark, enabling it to resemble the index s performance. Throughout the period, the fund s managers kept the fund s duration a measure of its sensitivity to interest rate changes close to that of its benchmark. This strategy helped the fund s risk and reward characteristics to more closely resemble those of its benchmark. Expense example Six months ended September 30, 2016 expenses paid Beginning ending during account account period* Bond Index value value (4/1/16 Fund (4/1/16) (9/30/16) 9/30/16) Actual return Institutional Class $1, $1, $0.61 Advisor Class 1, , Premier Class 1, , retirement Class 1, , retail Class 1, , % annual hypothetical return Institutional Class 1, , Advisor Class 1, , Premier Class 1, , retirement Class 1, , retail Class 1, , * expenses paid during period is based on the fund s actual expense ratio for the most recent fiscal halfyear, multiplied by the average account value over the six-month period, multiplied by 183/365. there were 183 days in the six months ended September 30, the fund s annualized six-month expense ratio for that period was 0.12% for the Institutional Class, 0.12% for the Advisor Class, 0.27% for the Premier Class, 0.37% for the retirement Class and 0.43% for the retail Class. the expense charges of one or more of the fund s share classes may at times reflect a reimbursement. Please see the prospectus for an explanation, including the date on which this reimbursement is scheduled to end. without any such reimbursement, the expenses of the affected share classes would be higher and the fund s perfor mance lower. for more information about this expense example, please see page 5. TIAA-CREF Funds: Fixed-Income Funds 2016 Semiannual Report 9

10 Bond Plus Fund Portfolio composition % of net assets as of 9/30/2016 Corporate bonds 25.9 Mortgage-backed securities* 16.9 foreign government & corporate bonds denominated in U.S. dollars 13.8 U.S. treasury securities 13.1 Commercial mortgage-backed securities & other mortgage-backed securities 10.1 Asset-backed securities 6.6 Bank loan obligations 4.8 Municipal bonds 4.7 U.S. agency securities 0.1 Short-term investments, other assets & liabilities, net 4.0 total * Includes mortgage pass-through securities and collateralized mortgage obligations Holdings by maturity % of fixed-income investments (excluding short-term investments) as of 9/30/2016 Less than 1 year years years years 39.3 over 10 years 16.2 Performance for the six months ended September 30, 2016 The Bond Plus Fund returned 4.09% for the Institutional Class, compared with the 2.68% return of its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index. For the one-year period ended September 30, 2016, the fund rose 6.59%, versus 5.19% for the index. The table below shows returns for all share classes of the fund. Bonds post gains as Fed holds steady on rates During the six-month period, U.S. economic growth continued, labor markets held steady and consumer confidence remained high. Oil prices rose 37% from $35 a barrel on April 1, 2016, to nearly $48 a barrel on September 30, A mostly positive view of domestic economic conditions prompted the Federal Reserve to leave short-term interest rates unchanged. To a large extent, U.S. interest rates have also remained at low levels due to the easy monetary policies in place in Europe, Japan and elsewhere. However, Fed Chair Janet Yellen suggested in her September post-meeting remarks that a rate hike was possible by the end of Bond prices fluctuated during the period, driven temporarily higher in late June by Britain s surprise vote to leave the European Union, but prices subsequently receded to previous levels as markets stabilized. U.S. fixed-income performance was broadly positive for the six-month period. Yields on 10-year Treasuries ended the period lower declining from 1.79% on April 1, 2016, to 1.60% on September 30, 2016 as investors remained attracted to the relative safety offered by this sector (bond yields move in the opposite direction of prices). The generally favorable domestic economic picture, along with investors demand for income streams and improved energy prices, helped the corporate credit sector, including lower-rated high-yield bonds, outperform U.S. government debt. Overall, longer-term bonds outperformed their short-term counterparts. total Holdings by credit quality % of fixed-income investments (excluding short-term investments) as of 9/30/2016 Aaa/AAA 34.3 Aa/AA 5.3 A/A 11.9 Baa/BBB 24.4 Ba/BB 8.0 B/B 9.8 Below B/B 5.0 non-rated 1.3 total Credit quality ratings are based on the Bloomberg Barclays methodology, which uses the median rating of those compiled by the Moody s, Standard & Poor s and fitch ratings agencies. If ratings are available from only two of these agencies, the lower rating is used. when only one rating is available, that one is used. these ratings are subject to change without notice. Performance as of September 30, 2016 Average annual Total return total return Bond Plus Fund Inception date 6 months 1 year 5 years 10 years Institutional Class 3/31/ % 6.59% 4.71% 5.00% Advisor Class 12/4/ Premier Class 9/30/ Retirement Class 3/31/ Retail Class 3/31/ Bloomberg Barclays U.S. Aggregate Bond Index The returns in this report show past performance, which is no guarantee of future results. The returns do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares. Returns and the principal value of your investment will fluctuate. Current performance may be higher or lower than that shown, and you may have a gain or a loss when you redeem your shares. For current performance information, including performance to the most recent month-end, please visit TIAA.org. Performance may reflect waivers or reimbursements of certain expenses. Absent these waivers or reimbursement arrangements, performance may be lower. You cannot invest directly in any index. Index returns do not include a deduction for fees or expenses. the performance shown for the Advisor and Premier Classes that is prior to their respective inception dates is based on the performance of the fund s Institutional Class. the performance for these periods has not been restated to reflect the higher expenses of the Advisor and Premier Classes. If those higher expenses had been reflected, the performance of these two classes shown for these periods would have been lower Semiannual Report TIAA-CREF Funds: Fixed-Income Funds

11 Corporate bond outperformance drives benchmark returns All of the sectors in the Bloomberg Barclays U.S. Aggregate Bond Index posted positive returns for the six-month period. Corporate bonds, making up onequarter of the index, were the most significant driver of performance, gaining 5.0% for the period. Corporates benefited from an improving economy, steady earnings and a higher risk appetite in exchange for higher yields among investors. Government credit securities and commercial mortgage-backed securities (CMBS) also outperformed, gaining 3.3% and 2.8%, respectively. U.S. Treasuries, the largest sector with a weighting of 36.4%, gained 1.8%, while mortgage-backed securities (MBS), with a weighting of 27.3%, rose 1.7%. The largest gain came from one of the smallest sectors in the index, municipal bonds, which rose 5.5% but accounted for less than 1.0% of the index s total capitalization at period-end. Fund s allocation to corporate bonds helps it outperform For the six months, the fund outperformed its benchmark primarily due to its overweight position in the strong-performing corporate bond sector. Security selection in CMBS and an overweight position in asset-backed securities also contributed to the fund s outperformance versus the benchmark. Conversely, the fund was held back by yield curve positioning in the U.S. Treasury sector amid fluctuation in interest rates during the period. Expense example Six months ended September 30, 2016 expenses paid Beginning ending during account account period* Bond Plus value value (4/1/16 Fund (4/1/16) (9/30/16) 9/30/16) Actual return Institutional Class $1, $1, $1.59 Advisor Class 1, , Premier Class 1, , retirement Class 1, , retail Class 1, , % annual hypothetical return Institutional Class 1, , Advisor Class 1, , Premier Class 1, , retirement Class 1, , retail Class 1, , * expenses paid during period is based on the fund s actual expense ratio for the most recent fiscal halfyear, multiplied by the average account value over the six-month period, multiplied by 183/365. there were 183 days in the six months ended September 30, the fund s annualized six-month expense ratio for that period was 0.31% for the Institutional Class, 0.32% for the Advisor Class, 0.46% for the Premier Class, 0.56% for the retirement Class and 0.64% for the retail Class. the expense charges of one or more of the fund s share classes may at times reflect a reimbursement. Please see the prospectus for an explanation, including the date on which this reimbursement is scheduled to end. without any such reimbursement, the expenses of the affected share classes would be higher and the fund s performance lower. for more information about this expense example, please see page 5. TIAA-CREF Funds: Fixed-Income Funds 2016 Semiannual Report 11

12 High-Yield Fund Portfolio composition % of net assets as of 9/30/2016 Corporate bonds 73.1 foreign government & corporate bonds denominated in U.S. dollars 12.7 Bank loan obligations 8.9 Short-term investments, other assets & liabilities, net 5.3 total Holdings by maturity % of fixed-income investments (excluding short-term investments) as of 9/30/ years years years 68.2 over 10 years 5.9 total Holdings by credit quality* % of fixed-income investments (excluding short-term investments) as of 9/30/2016 Baa/BBB 1.4 Ba/BB 44.2 B/B 44.8 Below B/B 9.6 total * Credit quality ratings are based on the BofA Merrill Lynch Index composite ratings methodology, which is a simple average of ratings from Moody s, Standard & Poor s and fitch. If only two of the designated agencies rate a bond, the composite rating is based on an average of the two. Likewise, if only one of the designated agencies rates a bond, the composite rating is based on that one rating. Performance for the six months ended September 30, 2016 The High-Yield Fund returned 10.47% for the Institutional Class, compared with the 9.85% return of its benchmark, the BofA Merrill Lynch BB-B U.S. Cash Pay High Yield Constrained Index. For the one-year period ended September 30, 2016, the fund returned 11.44% versus 12.04% for the index. The table below shows returns for all share classes of the fund. High-yield bond prices soar amid rising energy prices and low interest rates During the six-month period, U.S. economic growth continued, labor markets held steady and consumer confidence remained high. Oil prices rose 37% from $35 a barrel on April 1, 2016, to nearly $48 a barrel on September 30, Assets offering risk premiums benefited from spread tightening (contraction of the yield gap between U.S. high-yield and Treasury securities) as U.S. economic growth persisted and oil prices rose. The movement of oil prices can be influential due to the large representation of energy companies in the high-yield sector. For the six months, high-yield bonds substantially outpaced the 2.68% return of the broad U.S. investment-grade fixed-rate bond market, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index. Similarly, for the ten years ended September 30, 2016, the BofA Merrill Lynch BB-B U.S. Cash Pay High Yield Constrained Index rose 7.20% on an average annual basis, outperforming the 4.79% return of the broad domestic bond market for the same period. High-yield bond issuance rises New issuance in the high-yield bond market rose in April, lightened throughout May, June and July, and then rebounded in August and September. Demand strengthened during the period, as investors gravitated toward riskier asset classes rather than the perceived safety of U.S. Treasuries and other higher- Performance as of September 30, 2016 Average annual Total return total return High-Yield Fund Inception date 6 months 1 year 5 years 10 years Institutional Class 3/31/ % 11.44% 7.79% 7.30% Advisor Class 12/4/ Premier Class 9/30/ Retirement Class 3/31/ Retail Class 3/31/ BofA Merrill Lynch BB-B U.S. Cash Pay High Yield Constrained Index The returns in this report show past performance, which is no guarantee of future results. The returns do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares. Returns and the principal value of your investment will fluctuate. Current performance may be higher or lower than that shown, and you may have a gain or a loss when you redeem your shares. For current performance information, including performance to the most recent month-end, please visit TIAA.org. Performance may reflect waivers or reimbursements of certain expenses. Absent these waivers or reimbursement arrangements, performance may be lower. You cannot invest directly in any index. Index returns do not include a deduction for fees or expenses. the performance shown for the Advisor and Premier Classes that is prior to their respective inception dates is based on the performance of the fund s Institutional Class. the performance for these periods has not been restated to reflect the higher expenses of the Advisor and Premier Classes. If those higher expenses had been reflected, the performance of these two classes shown for these periods would have been lower Semiannual Report TIAA-CREF Funds: Fixed-Income Funds

13 quality investment-grade issues. Overall, new high-yield debt issuance totaled more than $145 billion over the six months, up from nearly $130 billion over the same period in Investors favored more speculative higher-yielding securities over higher-rated bonds, resulting in advances across high-yield issues. Bonds rated BB and B rose 8.6% and 11.4%, respectively. Lowerquality bonds (those rated CCC and below) gained the most at 24.7%. U.S. default rates have also increased. The U.S. issuer-weighted speculative-grade default rate increased to 5.4% on September 30, 2016, from 2.7% a year earlier, according to Moody s Investor Service. The fund tops its benchmark as energy prices climb higher For the six months, the fund surpassed its benchmark mostly due to favorable sector allocation and security selection. Security selection in the energy exploration & production sector was the largest contributor to relative returns versus the index, helped by higher oil prices. Next in line were overweight positions in chemicals, software & services and support services, all of which performed well. These positive effects were partially offset by an allocation to cash, which was a drag on performance in the positive market environment, as well as holdings in gas distribution companies and food & drug retailers. Among individual security allocations, the biggest contribution to relative performance came from an out-of-benchmark position in specialty chemical company Hexion, which performed well. Next in line were an overweight position in oil and natural gas producer California Resources and an out-of-benchmark holding in Peabody Energy. Owning WPX Energy and Arch Coal also benefited relative returns. In contrast, not owning positively performing natural resources company Freeport-McMoRan and Chesapeake Energy were the largest detractors from relative returns, respectively. An underweight position in Sprint and an overweight position in food retailer The Fresh Market also hurt the fund s relative performance. Expense example Six months ended September 30, 2016 expenses paid Beginning ending during account account period* High-Yield value value (4/1/16 Fund (4/1/16) (9/30/16) 9/30/16) Actual return Institutional Class $1, $1, $1.90 Advisor Class 1, , Premier Class 1, , retirement Class 1, , retail Class 1, , % annual hypothetical return Institutional Class 1, , Advisor Class 1, , Premier Class 1, , retirement Class 1, , retail Class 1, , * expenses paid during period is based on the fund s actual expense ratio for the most recent fiscal halfyear, multiplied by the average account value over the six-month period, multiplied by 183/365. there were 183 days in the six months ended September 30, the fund s annualized six-month expense ratio for that period was 0.36% for the Institutional Class, 0.39% for the Advisor Class, 0.51% for the Premier Class, 0.61% for the retirement Class and 0.63% for the retail Class. the expense charges of one or more of the fund s share classes may at times reflect a reimbursement. Please see the prospectus for an explanation, including the date on which this reimbursement is scheduled to end. without any such reimbursement, the expenses of the affected share classes would be higher and the fund s performance lower. for more information about this expense example, please see page 5. TIAA-CREF Funds: Fixed-Income Funds 2016 Semiannual Report 13

14 Inflation-Linked Bond Fund Portfolio composition % of net assets as of 9/30/2016 U.S. Treasury securities 95.8 U.S. agency securities 1.7 Mortgage-backed securities* 0.3 Short-term investments, other assets & liabilities, net 2.2 Total * Includes mortgage pass-through securities and collateralized mortgage obligations. Holdings by maturity % of fixed-income investments (excluding short-term investments) as of 9/30/2016 Less than 1 year years years years 39.2 Over 10 years 10.9 Total Performance for the six months ended September 30, 2016 The Inflation-Linked Bond Fund returned 1.82% for the Institutional Class, compared with the 1.90% return of its benchmark, the Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) 1 10 Year Index. For the one-year period ended September 30, 2016, the fund returned 4.51%, versus 4.83% for the benchmark. The table below shows returns for all share classes of the fund. U.S. economy continues to grow with modest inflation During the six-month period, U.S. economic growth continued, labor markets held steady and consumer confidence remained high. The nation s gross domestic product (GDP) expanded at an annual rate of 1.4% in the second quarter of 2016 after 0.8% annualized growth in the first quarter. The preliminary estimate for GDP in the third quarter was 2.9% on an annualized basis. Since 2013, the U.S. economy has had average annual growth of less than 2.5%, with only one quarterly contraction in early This slow and steady growth, combined with slowing global economic expansion, has kept the U.S. Federal Reserve in neutral mode, with only a 0.25 percentage point increase in its short-term rate last December. In this environment, inflation has remained muted, though it is showing some signs of picking up. The Consumer Price Index, a key measure of inflation, rose 1.5% in September year-over-year its largest twelve-month gain since October 2014 according to the U.S. Bureau of Labor Statistics. Crude oil prices, which influence current inflationary pressures, rose 37% from $35 a barrel on April 1, 2016, to nearly $48 a barrel on September 30, However, oil prices remain well below the $91 per barrel level of two years ago Semiannual Report TIAA-CREF Funds: Fixed-Income Funds Performance as of September 30, 2016 Average annual Total return total return Inflation-Linked Bond Fund Inception date 6 months 1 year 5 years 10 years Institutional Class 10/1/ % 4.51% 1.34% 4.01% Advisor Class 12/4/ Premier Class 9/30/ Retirement Class 3/31/ Retail Class 10/1/ Bloomberg Barclays U.S. Treasury Inflation Protected Securities 1 10 Years Index Bloomberg Barclays U.S. Treasury Inflation Protected Securities Index (Series-L) The returns in this report show past performance, which is no guarantee of future results. The returns do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares. Returns and the principal value of your investment will fluctuate. Current performance may be higher or lower than that shown, and you may have a gain or a loss when you redeem your shares. For current performance information, including performance to the most recent month-end, please visit TIAA.org. Performance may reflect waivers or reimbursements of certain expenses. Absent these waivers or reimbursement arrangements, performance may be lower. You cannot invest directly in any index. Index returns do not include a deduction for fees or expenses. The performance shown for the Advisor and Premier Classes that is prior to their respective inception dates is based on the performance of the fund s Institutional Class. The performance for these periods has not been restated to reflect the higher expenses of the Advisor and Premier Classes. If those higher expenses had been reflected, the performance of these two classes shown for these periods would have been lower. On January 1, 2016, the Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) 1 10 Year Index replaced the Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L) as the fund s benchmark.