Teachers Insurance and Annuity Association
College Retirement Equities Fund
730 Third Avenue/New York, NY 10017-3206
212 490-9000

Peter C. Clapman
Senior Vice President and Chief Counsel, Corporate Governance
Tel: 212 916-4232
Fax: 212 916-5813

January 13, 2003

Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609

Re: Proposed Rules on Auditor Independence (File No. S7-49-02)

Dear Mr. Katz:

The College Retirement Equities Fund ("CREF"), with its companion organization Teachers Insurance and Annuity Association of America (together, "TIAA-CREF"), are pleased to submit comments on the SEC's proposed rule, "Strengthening the Commission's Requirements Regarding Auditor Independence."

We support the proposals and commend the SEC for its efforts to enhance the independence of auditors and clarify the critical role played by audit committees in the financial reporting process. Earlier last year, we supported passage of the Sarbanes-Oxley Act of 2002, which sought to address, among other items, concerns about the lack of auditor independence in some recent corporate failures. It also is vitally important that the Public Company Accounting Oversight Board become fully operational in a timely manner. The many issues facing the newly established Board are critically important to the financial reporting process and affect investor confidence in the U.S. public markets.

TIAA-CREF has long believed that the external audit firm must be completely independent of management. Both in our own processes and in our active corporate governance efforts, we have supported practices that enhance the independence of the external auditor, and we acknowledge that the appearance of independence is as important as de facto independence. At our portfolio companies, we have been concerned about "embedded" auditor relationships, in which there has been a very long-term relationship with the auditor, significant nonaudit services, and key financial managers who formerly worked at the external audit firm.

We agree with the proposals regarding rotation of audit firm personnel, restrictions on nonaudit services, and improved proxy disclosures. We have had strict policies in place for many years with regard to audit firm rotation and nonaudit services.

Rotation of TIAA-CREF's external audit firm is formally considered between the fifth and tenth years of service, a policy in place for over 30 years. In practice, we have not engaged the same external auditor for more than ten years, and our last change was after seven years, a period that seems reasonable to us. Firm rotation dramatically reduces the financial incentive that arises from a kind of perpetual annuity of audit fees. With firm rotation, there is an inherent detailed "peer review" process at every firm change, confirming management and audit firm positions regularly. The practice of firm rotation also addresses the concerns about former audit firm personnel in key financial positions. We look forward to seeing the Comptroller General's study of mandatory rotation of public accounting firms, as required by the Sarbanes-Oxley Act.

Additionally, it is TIAA-CREF's policy that management advisory or consulting services will be obtained from a firm other than the external financial audit firm. The policy means that the external audit firm shall perform only audit, audit-related (including a minimal amount of audit-related tax compliance work), and attest services. Our external audit firm is barred from providing tax consulting and tax planning work, which goes farther than the SEC's proposals. We believe that both of these policies have served our participants well.

It has been suggested that increased costs will result from more restrictive audit firm policies and we agree that the possibility exists. We believe that audit committees can manage the costs; more importantly, we believe that shareholders of public companies would be willing to accept some increase in auditing costs in exchange for greater certainty about the independence of the auditing firm.

We would be pleased to discuss our thoughts on these issues with the SEC or its staff at your convenience.

Very truly yours,

/s/ Peter C. Clapman