The Katzenbach Report

1. The Dl0 Questionnaires

In January 2004, the CREF and TIAA questionnaire for directors, overseers, and executive officers ("Dl0 Questionnaire") asked the following question: "Within the past five years, were you, or an immediate family member, affiliated with or employed by a present, former or proposed internal or external auditor of any TIAA-CREF Affiliate?" In response to this question, neither R--- nor W------ reported their involvement in CVI or CVI's relationship with E&Y.

W------ states that at the time he completed the Dl0 Questionnaire. it did not occur to him that his involvement in CVI could be relevant or responsive. He states that he was not familiar with the concept of auditor independence, other than what he had learned from various director/officer questionnaires. Nor, he states, had he ever been briefed on problems of independence.

E. The June 15, 2004 Buffet Line Incident

On June 15, 2004, the TIAA and CREF Boards held Board and Committee meetings in Charlotte, North Carolina. E&Y partner J--- M----- and TIAA-CREF CFO E-------- M----- were standing on a buffet line at a dinner for directors and officers to which M----- had been invited, when they were approached by S------ R---. R--- recalls that he introduced himself as the head of CVI, and indicated that CVI had a relationship with E&Y's valuation group. M----- recalls that R--- commented that he was working with people in E&Y's valuation group and named his colleagues at E&Y. M------ recalls that R--- made a vague comment about working with E&Y in some capacity outside the scope of his service as a CREF trustee.

At the time, neither M----- nor M----- asked R--- to clarify. Both state that R--- had made his comment only in passing and soon walked away. M----- and M----- recall being puzzled by R---' comment. M----- states that he recognized there might be an independence problem, but did not feel he had enough information to assess the situation. M----- and M----- recall that M----- said he would investigate further, and that they agreed that if M----- learned anything significant, he would inform M-----.

K. September 16: Informing I--------

On September 16, M------ and A------ telephoned S------ I---------, President of the Board of Overseers. A------ and M------ briefed I-------- on the independence issue, providing a detailed chronology of events. I-------- recalls that he was incredulous that this could have happened without R--- or W------ recognizing the potential problem that their CVI relationship posed. Still, he states that he felt the violation was technical rather than substantive, especially because neither R--- nor W------ was on an Audit Committee, and because CVI was involved only with E&Y's non-audit business. Therefore, I-------- was hopeful that the 2003 and 2004 audits had not been substantively compromised. In sum, he believed the infraction was serious, but not dire. I-------- states that, in forming this view, he had been advised by A------ and M----- that E&Y expected the SEC to require the CVI alliance to be unwound, and perhaps to require TIAA-CREF to take steps to prevent such an independence violation in the future. However, E&Y had advised that it would almost certainly not be necessary for the company to have its 2003 and 2004 financial statements reaudited.

There is no indication that TIAA-CREF or E&Y heard from, or tried to contact, the SEC in the two weeks that followed this conversation. [Not a reference to the blue box above] There are differing recollections in this respect; M------ recalls hearing that Z--- was in frequent phone contact with the SEC during this time, while Z--- states that he had no contact with the SEC between October 1 and October 18.

2. Reactions to the SEC's Statements

As a result of the November 12 phone call with the SEC, M------, W---, and Z--- began to discuss the possibility that R--- and W------ might need to resign. On November 13, A------ emailed M------ with his reaction:

"Re E&Y, I still believe that the SEC is overreacting, although I understand that persuading them is probably impossible. A few weeks ago I asked you to check the definitions of 'affiliate' in registration statements, because I believe that it entails partial ownership. Have we checked? As we discussed weeks ago, if S---- steps down, then we're contradicting our assertion and belief that S---- misinterpreted the meanings of 'affiliate' and 'employed'. We'd also have to fire E&Y to be consistent.

If we must have S---- step down and replace E&Y, might we do so by privately committing to the SEC that S---- won't be a candidate for re-election in July and that we'll replace E&Y after we issue audited financials for '04? And might we thereby avoid disclosure? It seems to me that disclosure means admitting that S----'s contract compromised E&Y's independence, with all the serious ramifications that entails."

As a result of her investigation of the facts in November, K--- learned the following information, which to that point had been previously unknown to the TIAA and CREF trustees (other than R--- and W------):

• The agreement between E&Y and CVI in fact had not been completely unwound until November 17, because there remained an outstanding issue of how to allocate fees. However, the parties to the agreement felt that their termination agreement was sufficient.

• On August 14, J--- M-----, E&Y's lead audit partner, had attended a meeting regarding the wind-up of the CVI relationship. W----- was present at the same August 14 meeting.

• During the meeting, R--- had asked E&Y for a termination fee to pay expenses relating to the business. W------ had spoken in favor of such a fee at the meeting.

• In May 2004, D-- C----, a partner of the E&Y audit team. had attended a business development meeting with S------ R--- in his capacity as CEO of CVI.