Jorden Burt LLPOctober 11, 2002 Filed Electronically Securities and Exchange Commission
Washington, D.C. 20549-0609 Re: File No. S7-33-02; Certification of Management Investment Company Shareholder Reports and Designation of Certified Shareholder Reports as Exchange Act Periodic Reporting Forms Ladies and Gentlemen: We represent the AIG American General domestic life insurance companies, Allmerica Financial Corporation, Great-West Life & Annuity Insurance Company, Hartford Life Insurance Company, Jackson National Life Insurance Company, and Jefferson-Pilot Corporation, which jointly submit this letter on behalf of their various separate accounts and the separate accounts of their respective subsidiaries and affiliates that are life insurance companies (together, the "Insurance Companies")1 which separate accounts are issuers of variable annuity contracts and variable life insurance policies ("variable products" or "contracts"). In connection therewith, the Insurance Companies are the sponsors of insurance company separate accounts that are registered with the Commission as unit investment trusts ("UITs") pursuant to the Investment Company Act of 1940, as amended (the "1940 Act."). The Insurance Companies, on behalf of their separate account UITs, are pleased to have this opportunity to comment upon the Commission's proposals implementing Section 302 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") with respect to investment companies, including UITs. The Insurance Companies generally are supportive of the Commission's efforts to implement appropriate regulations regarding certification of financial information disseminated to investment company shareholders, including the proposed adoption of Form N-CSR. However, our comments herein are limited to matters regarding the application of Section 302 of Sarbanes-Oxley, and the Commission's rules thereunder, to insurance company separate accounts that are registered with the Commission as UITs, such as those sponsored by the Insurance Companies. The Commission's Request for Comment The Commission has proposed adoption of new Form N-CSR, which would be used by registered management investment companies to certify their annual and semi-annual reports to shareholders. The Commission also has proposed adoption of new rule 30d-1 under the 1940 Act, which would designate reports on Form N-SAR filed by management investment companies and UITs, as well as the certified shareholder reports on Form N-CSR that management investment companies would be required to file under rule 30b2-1(a), as periodic reports under Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The primary effect of proposed new rule 30d-1 would be to require a certification of each principal executive officer and financial officer of a management investment company to be included both in its annual and semi-annual reports to shareholders on Form N-CSR, and in its annual and semi-annual reports to the Commission on Form N-SAR. UITs would not be subject to the certification requirement under proposed Form N-CSR, as they are not required to provide reports to shareholders of the type required to be certified on the proposed new form. However, UITs would remain subject to a certification requirement with respect to Form N-SAR, which is filed annually with the Commission by UIT registrants. In connection with proposed new Form N-CSR and proposed new rule 30d-1, the Commission has requested comment regarding whether Form N-SAR should be designated as exclusively a 1940 Act filing, and the certification requirement removed from that form. The Commission's request for comment on this question further notes that, if the certification requirement is removed from Form N-SAR, UITs will have no certification requirement, and requests comment on: (i) whether this result would be appropriate, or whether UITs should continue to certify Form N-SAR; and (ii) whether Form N-SAR should continue to be a reporting form under the Exchange Act for UITs, even if the Commission determines Form N-SAR should be a 1940 Act-only form for other types of investment companies. Summary The Insurance Companies, on behalf of their separate account UITs, respectfully suggest, for the reasons described in greater detail below, Form N-SAR should be designated as exclusively a 1940 Act filing for investment companies of all types, including UITs, and the certification requirement should be removed from that form. This would mean UITs would have no certification requirement pursuant to Section 302 of Sarbanes-Oxley, and the Commission's rules thereunder. The Insurance Companies further suggest this would be an appropriate result, given the unique nature of insurance company separate account UITs, consistent both with the apparent intent of Sarbanes-Oxley and with the protection of investors. Insurance company separate account UITs do not report to the Commission on Form N-SAR any financial information regarding the UIT registrant that is of relevance or interest to the holders of their variable product securities. Accordingly, the certification of Form N-SAR by insurance company separate account UITs cannot reasonably be said to further the intent of Section 302 of Sarbanes-Oxley, which the Commission has characterized as being "to improve the quality of disclosure that a company provides about its financial condition in its periodic reports to investors," nor does such certification appear related to the protection of investors. Insurance company separate account UITs, which invest substantially all their assets in management investment companies, are required under existing regulation2 to provide to their investors the annual and semi-annual reports of those management investment companies. It is those reports of management investment companies that the Commission now proposes be certified on Form N-CSR. Accordingly, if the Commission adopts Form N-CSR substantially as proposed, the periodic reports by insurance company separate account UITs to their investors, which consist exclusively of the annual and semi-annual reports of the management investment companies in which they invest substantially all their assets, will be certified in the manner required by Section 302 of Sarbanes-Oxley and consistent with the protection of investors in such UITs. UITs are not required by federal securities laws or the Commission's rules thereunder to provide to their investors any other periodic reports. Should the Commission nevertheless determine to continue to designate Form N-SAR as a reporting form under the Exchange Act requiring certification by UIT registrants, the Insurance Companies respectfully request the Commission provide guidance to insurance company separate account UIT registrants, in the form of an interpretive or "Q&A" release, regarding the application of the certification requirement in the unique context of insurance company separate account UITs. Background On June 14, 2002, the Commission proposed rules that would have required the principal executive and financial officers of a public company to certify the contents of the company's quarterly and annual reports, as well as to maintain and evaluate internal procedures and controls regarding the collection and appropriate disclosure of information required to be included in those reports (the "June Proposal").3 While the June Proposal indicated it was applicable to "every company subject to the reporting requirements of Section 13(a) or Section 15(d)" of the Exchange Act, it did not appear the Commission intended it to be applicable to 1940 Act registrants, including UITs or other types of investment companies, as the forms affected by the June Proposal included only 10-K, 10-KSB, 10-Q and 10-QSB. None of those forms are filed by UITs, or by most other types of 1940 Act registrants.4 The application of certification requirements to UITs or other 1940 Act registrants was not referred to at all in the June Proposal. Prior to the Commission taking any final action with respect to the June Proposal, Congress enacted, and President Bush signed into law, Sarbanes-Oxley. On August 2, 2002, the Commission supplemented the June Proposal in light of the enactment of Sarbanes-Oxley.5 In that supplement, the Commission noted that Section 302 of Sarbanes-Oxley required it to adopt final rules, to be effective by August 29, 2002, regarding specific certifications by principal executive and financial officers, which certifications differed in some respects from those of the June Proposal. The Commission also indicated in the supplement that it was considering the manner of application of Section 302 of Sarbanes-Oxley to registered investment companies, and requested comment on a number of matters related thereto, including how its rules to be adopted under Section 302 of Sarbanes-Oxley should apply to different types of investment companies--e.g., management investment companies, and UITs--in apparent recognition that, given the differences between public operating companies and investment companies, as well as among different types of 1940 Act registrants, it might not be appropriate to attempt to apply the same rules to all companies. On August 27, 2002, the Commission adopted, and published on August 28, final rules pursuant to the requirement of Section 302 of Sarbanes-Oxley, including new rule 30a-2 under the 1940 Act.6 In general, rule 30a-2 requires investment companies to certify their reports filed with the Commission on Form N-SAR, and to maintain and evaluate certain "disclosure controls." As applicable to UITs, rule 30a-2 does not require certification as to the content of financial statements, as the Commission recognized Form N-SAR does not require UITs to report financial information based on their financial statements and, accordingly, there is no financial information in Form N-SAR that could form the basis for such a certification by a UIT registrant. UIT registrants, including insurance company separate accounts, nevertheless are required pursuant to rule 30a-2 to maintain and evaluate disclosure controls, and to make certifications with respect to such disclosure controls and related matters. As we discuss below, the manner in which the certification requirements are applicable to insurance company separate account UITs, in various respects, is unclear. On August 30, 2002, the Commission published the release proposing new Form N-CSR and rule 30d-1, and requested comment on various matters relating thereto, to which this letter responds. Variable Product UITs and "Underlying Funds" Nearly all variable products offered today utilize a "two-tier" investment company structure.7 Under this structure, the insurance company separate account that is the issuer of the variable product is registered with the Commission as a UIT. Unlike other "traditional" UIT registrants that invest their assets in unmanaged portfolios of individual securities, an insurance company separate account UIT invests substantially all of its assets in shares of "underlying funds," which commonly are open-end management investment companies registered as such with the Commission, and which would be required, if the Commission's current proposals are adopted, to certify their annual and semi-annual shareholder reports on Form N-CSR.8 Variable product contract owners generally are permitted, under the terms of their contracts, to instruct the insurance company separate account UIT to allocate, and periodically to reallocate, portions of the variable product contract value among the available divisions9 of the separate account selected by the contract owner that, in turn, invest in corresponding underlying funds. Insurance company separate account UITs are a unique type of investment company under the 1940 Act, differing not only from management investment companies and face amount certificate companies, but differing even from traditional UITs. Recognizing these differences, the Commission has adopted special forms for registration of insurance company separate account UITs,10 as well as different periodic reporting requirements under Section 30 of the 1940 Act for UITs that invest substantially all their assets in shares of management investment companies, as do insurance company separate account UITs.11 Form N-SAR and Rule 30a-2 Management investment companies are required to file with the Commission, pursuant to rule 30b-1 under the 1940 Act, annual and semi-annual reports on Form N-SAR within 60 days following the close of their fiscal years and second fiscal quarters. In contrast, UITs are required, pursuant to rule 30a-1 under the 1940 Act, to file Form N-SAR with the Commission only annually, within 60 days after the close of each calendar year, without regard to the fiscal year of the UIT registrant. The difference in the requirements as to both the frequency and the timing of the filing of Form N-SAR by management investment companies, on the one hand, and UITs, on the other hand, would appear to reflect the Commission's recognition of the very limited nature and utility of the financial and other information contained in Form N-SARs filed by UITs.12 As filed by an insurance company separate account UIT registrant, Form N-SAR contains only identifying information regarding the registrant, its sponsor, underwriter and auditor, several "yes or no" responses indicating the types of variable products offered by the registrant, a statement of the total amount of sales loads collected and total expenses incurred during the period, and a statement of the total value of the UIT's investments in underlying funds (without any description even of the nature of those underlying funds), and "yes or no" responses to several additional questions. Form N-SAR, as filed by an insurance company separate account UIT, does not contain any information regarding contract owner accumulation unit value, the investment results of the underlying funds in which the UIT invests, contract fees and charges, or other financial information which could be of interest or relevance to contract owners. Nor could Form N-SAR be modified to include any such financial information of interest or relevance to contract owners, as such information will vary among contract owners depending upon the underlying funds and the various optional contract features or insurance benefits selected by each particular contract owner.13 Unlike shareholders in a management investment company, or even shareholders of traditional UITs, where each shareholder directly and proportionately is affected by the investment results, and the fees and expenses, of the investment company as a whole, owners of variable products issued by an insurance company separate account UIT are not affected proportionately by the overall investment results, or the aggregate fees and expenses, of the UIT as a whole. Because of this lack of commonality of interest among contract owners in an insurance company separate account UIT, financial information regarding the financial results of the UIT as a whole is little more than an aggregation of the contract value of each individual contract owner, reflecting in large part each such contract owner's individual choices with respect to the underlying fund investment vehicles, as well as the fees and charges associated with the contract owner's choice of optional insurance features and benefits under his or her contract. Accordingly, information for the UIT as a whole regarding aggregate investment results, or aggregate fees and expenses, is not of primary relevance or interest to contract owners, as it bears no relationship to their individual contract values.14 In contrast, Form N-SAR as filed semi-annually by a management investment company does include a significant amount of financial information that, although presented in summary fashion in Form N-SAR, is derived from the financial statements that are included in the management investment company's annual and semi-annual reports to shareholders. And, the financial summary information that is included in a management investment company's filings on Form N-SAR, and the financial statements upon which that summary information is based, do have meaning and relevance to the shareholders of such registrants, as those shareholders participate directly and proportionately in the management investment company's financial results. The Commission took appropriate note of this distinction, at least in part, in adopting the certification requirement with respect to Form N-SAR and rule 30a-2, recognizing that it was not appropriate to require that UITs certify that the financial information reported in Form N-SAR, and the financial statements upon such information is based "fairly present, in all material respects, the financial condition, results of operations, changes in net assets and cash flows" of the registrant. This reflected the Commission's recognition that UITs do not prepare or file as part of Form N-SAR any financial information upon which such a certification properly could be based. Nevertheless, the Commission determined to require UIT registrants to include, pursuant to rule 30a-2, a certification of Form N-SAR with respect to the other matters described in that rule. However, as we discuss below, the meaning of the required certification, and the meaning of the term "disclosure controls and procedures" as defined in that rule, in the case of an insurance company separate account UIT are at best unclear, given the extremely limited nature of the financial and other information that is "recorded, processed, summarized and reported" on Form N-SAR by, and the unique structure of, insurance company separate account UITs. The Commission's rule requiring certification regarding such matters on Form N-SAR by UIT registrants does not appear related to the intent of the Sarbanes-Oxley certification requirement, as UIT registrants do not provide financial statement information in periodic reports to their investors. In its adoption of rule 30a-2, the Commission appears initially to have seized upon Form N-SAR as the vehicle for certification by investment companies under Section 302 of Sarbanes-Oxley because that form is the only filing by most investment company registrants that arguably constitutes a "periodic report" under Section 13(a) or 15(d) of the Exchange Act, and which thus could be made subject to a certification requirement. The annual and semi-annual reports to shareholders of management investment companies that, unlike Form N-SAR, do contain comprehensive financial information, currently are not designated as periodic reports pursuant to the Exchange Act, and thus are not subject to certification pursuant to Section 302 of Sarbanes-Oxley. Recognizing this difficulty, the Commission now proposes to designate these annual and semi-annual reports of management investment companies as periodic reports pursuant to the Exchange Act, and to adopt Form N-CSR to provide a means for certification of such reports. We support the Commission's efforts in this regard, which we believe will bring the Commission's rules implementing Section 302 more closely in line with the intent of the certification requirement. As the Commission has noted in its release proposing the adoption of Form N-CSR, the intent of the certification requirement of Section 302 of Sarbanes-Oxley is
We concur with the Commission's observations in this regard. This intent is clear and unambiguous, both from the legislative history and from the very language of the statute itself. In sharp contrast to the legislative intent, certification of Form N-SAR, whether filed by a management investment company or a UIT, does not improve the quality of disclosure that an investment company provides about its financial condition in periodic reports to investors, as Form N-SAR is not disseminated to investors. We respectfully suggest that, accordingly, the certification of Form N-SAR pursuant to Section 302 of Sarbanes-Oxley cannot reasonably be said to further the intent of the statutory certification requirement. We further suggest that, while this is true as to Form N-SAR generally, it is especially true with respect to the form as filed by insurance company separate account UITs. As filed by an insurance company separate account UIT, Form N-SAR does not contain even summary financial information that is of substance, relevance or use to investors, or that is based upon more detailed financial information that is disseminated to investors in other periodic reports. Accordingly, we respectfully suggest that, coincident with the adoption of Form N-CSR and the designation of annual and semi-annual reports of management investment companies to their shareholders as periodic reports pursuant to the Exchange Act, the certification requirement be removed from Form N-SAR. Rule 30e-2 Rule 30e-1 under the 1940 Act requires a management investment company to transmit to each shareholder at least semi-annually a report containing the information required to be included in such reports by the company's registration statement form under the 1940 Act. For an open-end management investment company that registers with the Commission on Form N-1A, this includes audited (or, in the case of semi-annual reports, unaudited) financial statements for the fiscal period required pursuant to Regulation S-X, condensed financial information, and various other items. Rule 30e-2 under the 1940 Act requires a UIT, substantially all the assets of which consist of securities issued by a management investment company, to transmit to its shareholders at least semi-annually a report containing all the applicable information and financial statements, or their equivalent, required by rule 30e-1 to be included in reports of the management investment company for the fiscal period. This information, which discloses to insurance company separate account UIT investors the financial condition, results of operation and changes in net assets of each underlying fund, is both useful and relevant to variable product contract owners. In practice, nearly all insurance company separate account UITs transmit to contract owners exact copies of the annual and semi-annual reports of each underlying fund. These reports regarding the underlying funds, which include financial statements of those underlying funds, are the only periodic reports to investors required to be disseminated by an insurance company separate account UIT under federal securities laws. It is these annual and semi-annual reports of management investment companies, which include the underlying funds of insurance company separate account UITs, the Commission now proposes to require be certified by the principal executive and financial officers of each management investment company, on Form N-CSR. Accordingly, if the Commission adopts Form N-CSR and designates the annual and semi-annual reports of management investment companies to their shareholders as periodic reports pursuant to the Exchange Act, the reports that an insurance company separate account UIT provides to its investors pursuant to rule 30e-2 will be subject to certification pursuant to Section 302 of Sarbanes-Oxley, consistent both with the intent of the statutory certification requirement and with the protection of investors. An insurance company separate account UIT does not provide to its investors any other periodic report under federal securities laws that appropriately could be the subject of certification pursuant to the statute. Conclusion We respectfully urge that, coincident with the adoption of proposed Form N-CSR, pursuant to which the appropriate executive and financial officers of management investment companies would certify the annual and semi-annual reports to shareholders of such companies, the Commission designate Form N-SAR as a "1940 Act only" filing, rather than as a filing pursuant to the periodic reporting requirements of Section 13(a) or 15(d) of the Exchange Act. This would mean that insurance company separate account UITs would have no certification requirement pursuant to Section 302 of Sarbanes-Oxley and the Commission's rules thereunder. We respectfully suggest this would be an appropriate result, because insurance company separate account UITs do not file with the Commission on Form N-SAR, nor disseminate to their investors any periodic reports of the UITs containing, financial information that could properly be the subject of, or form the basis for, certification pursuant to Section 302 of Sarbanes-Oxley. The periodic reports to investors of insurance company separate account UITs consist exclusively of the annual and semi-annual reports of their underlying funds, which are provided to the UIT's investors pursuant to rule 30e-2. Under the Commission's present proposal, those periodic shareholder reports of the underlying funds would be made subject to certification by the appropriate executive and financial officers of the underlying funds. Therefore, the periodic reports to investors in insurance company separate account UITs would be certified pursuant to Section 302 of Sarbanes-Oxley, consistent with the intent of that statute and consistent also with the Commission's goal of investor protection. In contrast, the certification of Form N-SAR by insurance company separate account UIT registrants does not serve either goal, and should be dispensed with. Request for Interpretive Guidance We believe the foregoing discussion of the lack of any reasonable relationship between certification of Form N-SAR by insurance company separate account UIT registrants, and the intent of Section 302 of Sarbanes-Oxley, as well as the lack of any investor protection benefit resulting from such certification, should be found persuasive. However, should the Commission nevertheless determine to continue to designate Form N-SAR as a reporting form under the Exchange Act requiring certification by UIT registrants, the Insurance Companies respectfully request the Commission provide guidance to insurance company separate account UIT registrants, in the form of an interpretive or "Q&A" release, regarding the application of the certification requirement in the unique context of insurance company separate account UITs. Interpretive guidance is necessary with respect to at least three main issues: the identification of the appropriate certifying "officers" of the UIT registrant; the identification of the "audit committee" of the board of directors of the UIT to which certain reports and disclosures must be made pursuant to rule 30a-2(b)(5); and, the scope of "disclosure controls and procedures" as applied to insurance company separate account UITs. We respectfully suggest that the difficulties faced by insurance company separate account UITs in attempting to resolve these issues, and that also must be faced by the Commission and its staff in providing the needed interpretive guidance, are but further evidence that the certification of Form N-SAR by insurance company separate account UIT registrants pursuant to rule 30a-2 is not related to the intent of Section 302 of Sarbanes-Oxley. 1. Identification of Certifying "Officers" In adopting rule 30a-2, the Commission noted that UITs "have no corporate management structure and hence will not have a principal executive officer or principal financial officer." The adopting release therefore suggests the required certification should be signed by personnel of the sponsor or depositor "who perform functions similar to those of a principal executive officer and principal financial officer on behalf of the trust." In a footnote to the statement just quoted, the Commission then suggested that signing officers "could include, for example, the officers of the depositor required to sign a registration statement on Form N-4 or N-6."15 In the case of an insurance company separate account UIT, the identification of persons "who perform functions similar to those of a principal executive officer and principal financial officer" on behalf of the UIT is not without considerable difficulty. As the Commission recognizes, UITs have no corporate management structure. However, the Commission's release does not appear to recognize that the reason UITs have no corporate management structure is because, given their unique nature as passive, unmanaged entities, there are few, if any, executive or managerial functions of substance that need to be performed, or are performed, that would appear to be "similar to those of a principal executive officer or principal financial officer." The operation of an insurance company separate account UIT largely is an administrative task, although the level of the personnel responsible for the UIT's administration within the insurance company's organization structure can and does vary considerably depending upon the scale and internal organization structure of the sponsoring insurance company. The Commission's suggestion that the certifying "officers" of the UIT could include the officers of the depositor required to sign a registration statement on Form N-4 or N-6 appears to disregard the important distinction regarding the capacity in which such a person signs the registration statement. A registration statement on Form N-4 or N-6 is signed by an officer of the insurance company, in the insurance company's capacity as depositor. The executive authority that makes such a person the appropriate signatory on behalf of the sponsoring insurance company as depositor does not necessarily imply such person has any responsibility or authority for functions "similar to those of a principal executive officer or principal financial officer" of the UIT entity. The Commission has long recognized that, while pursuant to state laws governing insurance companies, an insurance company separate account is not regarded as an entity separate or distinct from the insurance company itself, but only a statutory device for creating a segregated pool of assets for the benefit of contract owners, which assets are protected from the claims of the insurance company's general creditors, upon registration as a UIT under the 1940 Act an insurance company separate account is deemed to become an entity separate and distinct from the insurance company that is the UIT's "depositor."16 This recognition of the insurance company separate account UIT as an entity that is separate and distinct from the sponsoring insurance company is an essential element of the Commission's determination to regulate variable products as investment company securities pursuant to the 1940 Act, for without such a distinction, variable products and their issuers could not be fit within the statutory framework.17 Accordingly, the Insurance Companies respectfully request interpretive guidance regarding the identification of the persons who appropriately would sign the certification with respect to Form N-SAR required pursuant to rule 30a-2. In particular, the Insurance Companies request guidance regarding the identification of the functions performed on behalf of an insurance company separate account UIT that are "similar to those of a principal executive officer or principal financial officer." 2. Identification of "Audit Committee" Just as a UIT has no "officers," a UIT also has no board of directors and, accordingly, no audit committee of a board of directors to which the report described in subparagraph (b)(5) of rule 30a-2 can be made. A UIT has no board of directors because, being a passive and unmanaged entity, there is no need for a board to supervise management's stewardship of a UIT. The identification of "persons fulfilling the equivalent function" of an audit committee of a board of directors of an insurance company separate account UIT, as rule 30a-2 requires, poses many of the same difficulties as the identification of the appropriate "officers" who could make the required certification of Form N-SAR. Section 205(a) of Sarbanes-Oxley amended Section 3(a) of the Exchange Act to add a definition of the term "audit committee." Under that provision of the statute, an "audit committee" is defined as
This definition provides no useful guidance to insurance company separate account UIT issuers. An insurance company separate account UIT has no board of directors at all and, accordingly, no body of persons "established by or amongst" the board of directors, nor any other body of persons who otherwise could be fit within the statutory definition. As noted above, the Commission has long recognized that an insurance company separate account UIT is an entity separate and distinct from the sponsoring insurance company. The sponsoring insurance company is not the "issuer" of the investment company securities of the separate account UIT for purposes of the federal securities laws generally, nor more particularly as that term is defined in Sarbanes-Oxley.18 Accordingly, there is no basis pursuant to the statutory definition of "audit committee" in Sarbanes-Oxley to look to the board of directors of the UIT's insurance company sponsor as "persons fulfilling the equivalent function" of an audit committee with respect to the UIT. Further, even if, despite the statutory definition of "audit committee," and despite also the fact the insurance company is not the issuer of the separate account UIT's securities, it were thought appropriate to look to the audit committee of the board of directors of the sponsoring insurance company pursuant to rule 30a-2, an insurance company separate account UIT's depositor also is unlikely to have an audit committee of its board of directors. Most insurance companies are not publicly traded entities, although some may have a parent company (often several layers removed in the corporate structure) that is a publicly traded entity with a board of directors having an audit committee. More typically, an insurance company that is a sponsor of a separate account UIT will have a board of directors consisting only of a small number of executive personnel appointed by its parent company. While an insurance company's ultimate parent may have a board of directors, including an audit committee, that board likely is far removed from the administration of the separate account UIT. Further, it may place an inappropriate burden upon the members of such an audit committee, as a matter of good corporate governance, to make them the recipient of reports or disclosures regarding matters that may have no material effect upon the financial reports or operations of the parent company on whose board of directors they serve. Because an insurance company separate account UIT has no board of directors, its insurance company depositor is not the issuer of the separate account UIT's securities, and the insurance company depositor may have a board of directors consisting only of interested persons, the Insurance Companies respectfully request interpretive guidance regarding the identification of "persons fulfilling the equivalent function" of an audit committee of a board of directors with respect to an insurance company separate account UIT. 3. Scope of "Disclosure Controls and Procedures" Rule 30a-2(c) defines the term "disclosure controls and procedures" in relation to information that is required to be disclosed by the investment company in the reports it files or submits under the Exchange Act. As applied to UITs and, in particular, insurance company separate account UITs, given the limited nature of the information they report on Form N-SAR, this definition would appear to describe a requirement of only very limited and rudimentary controls and procedures. However, the Commission now proposes to adopt new rule 30a-3, and a conforming amendment to Rule 30a-2(c), which would expand the scope of the required "disclosure controls and procedures" to include information required in filings under the Securities Act of 1933, as amended (the "Securities Act") and the 1940 Act, as well as the Exchange Act, including prospectuses and prospectus amendments. The Insurance Companies agree with the Commission's assertion that it is important that all investment companies maintain appropriate controls and procedures with respect to information required in investment company prospectuses and prospectus amendments, as well as information required to be filed pursuant to the Exchange Act, and note that such information is subject to registration statement and prospectus liability under the 1940 Act and the Securities Act. However, as applied to insurance company separate account UITs, the expansion of the scope of the required disclosure controls and procedures to include all information in required filings under the Securities Act and the 1940 Act might be deemed to include matters relating to the operation of insurance features and benefits of variable products that are separate and apart from their characteristics as investment securities. This proposed expansion of the scope of the required disclosure controls and procedures also would further complicate the identification of the appropriate certifying "officers" of an insurance company separate account UIT, as to which we have requested interpretive guidance above. This is because the insurance company personnel who have executive authority and responsibility regarding the design of variable contract insurance features and benefits, and who would be responsible for the prospectus disclosure relating thereto, in most cases are quite distinct from the persons who are responsible for the administration of the insurance company separate account UIT, including the preparation and filing of Form N-SAR. Accordingly, the Insurance Companies respectfully request interpretive guidance regarding the scope of the disclosure controls and procedures required of insurance company separate account UITs pursuant to rule 30a-2, including such scope as it would be expanded by rule 30a-3 if the Commission should determine to adopt that rule substantially as proposed. ======================= We again express the appreciation of the Insurance Companies for the opportunity to present these comments, on behalf of their separate account UITs, regarding the Commission's proposals appropriately to implement the intent of Section 302 of Sarbanes-Oxley with respect to 1940 Act registrants, including insurance company separate account UITs. We would be pleased to discuss these or related matters with the members of the Commission or the Commission's staff, should you require additional information. Please contact Joan E. Boros at (202) 965-8150, jeb@jordenusa.com, or Keith J. Rudolf at (202) 965-8156, kjr@jordenusa.com. Very truly yours, JORDEN BURT LLP copies to: Mr. Paul F. Roye, Director
Ms. Susan Nash, Associate Director
Steven A. Glover, Esq.
John J. Danello, Esq.
Beverly A. Byrne, Esq.
Marianne O'Doherty, Esq.
Susan S. Rhee, Esq.
John D. Hopkins, Esq.
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