July 19, 2006

Nancy M. Morris
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090

Re: File Number SR-NASD-2004-183, Amendment Number 2

Dear Ms. Morris:

Great American Advisors®, Inc. (“GAA”) is submitting this letter in response to a request for comments by the Securities and Exchange Commission (“SEC”) on a rule recently proposed by the National Association of Securities Dealers, Inc. (“NASD”). We appreciate the opportunity to respond to the SEC’s request for comments.

GAA is concerned that NASD believes it is necessary to go far beyond the suitability criteria contained in its general suitability rule (Rule 2310) to establish a product specific suitability rule directed only at variable annuities. The proposed rule, which would be established as NASD Conduct Rule 2821, will place additional hardships and limitations on our firm directly impacting our business structure and our ability to provide a robust product offering to our customers. We believe that the establishment of a new suitability rule exclusively for variable annuities is unwarranted. If Rule 2310 provides satisfactory suitability standards for all other products except the volatile, high-risk products such as options, warrants, and futures, it should be appropriate for determining the suitability of variable annuities.

In addition, GAA has a number of specific concerns about the specific suitability criteria outlined in the Proposed Rule. We are concerned that certain product specific criteria listed by the NASD are either unclear or irrelevant to a suitability determination. Without clarification to these criteria, certain customers who may otherwise benefit from the purchase of a variable annuity may be excluded from purchasing such products. GAA has the following specific concerns about the suitability criteria delineated by the rule:

Investment Experience – The required use of “investment experience” as a suitability determinant should be clarified. It should be made clear whether the investment experience refers to the variable annuity, its sub-accounts or both. Also, it is not clear whether NASD believes that lack of investment experience renders a product unsuitable for a potential investor.

Intended Use of the Deferred Variable Annuity – GAA is concerned about the use of the term “intended use of the variable annuity.” Intended use would appear to be similar to investment objective. GAA would ask that the NASD further clarify the meaning of this term or remove it completely from the rule.

Existing Investment and Life Insurance Holdings – Similarly, GAA is concerned about the Proposed Rule’s requirement that members make reasonable efforts to obtain information about the customers “existing investment and life insurance holdings.” How does the NASD expect "existing investment and life insurance holdings" to affect the suitability determination? Why does ownership of additional life insurance products affect the suitability of the variable annuity?

GAA also has concerns about the Proposed Rule’s requirement that members inform customers of the material features of variable annuity products. It is already required that customers receive a copy of the most current version of the prospectus for any variable annuity product purchased. All material features of the variable annuity should be included within such prospectus. GAA believes that disclosure of any additional information should be required within the prospectus so that it is done in a uniform fashion for all variable annuity products.

The Proposed Rule requires a Registered Principal to review each variable annuity purchase or exchange within two business days of the date the member transmits the customer’s application to the issuing insurance company. GAA feels that this timeframe is too limited based on the possibility that events such as failures to properly complete required paperwork, slow mail delivery, the vacations and business travel of the customer, financial advisor, OSJ Manager or other supervisor, and other routine occurrences could easily result in the failure to meet the Proposed Rule’s timeframe for review. GAA would propose that the Proposed Rule be revised to require the completion of principal review within a reasonable time-period (not to exceed the expiration of the free look period) following the date the member transmits the variable annuity purchase or exchange to the issuing insurance company. In addition to the foregoing, GAA has the following concerns about the review and approval process:

Undue Concentration – The inclusion of undue concentration as a requirement for supervisory review is also in need of clarification. The very nature of this product -- the variety of features, sub-accounts, the combination of insurance and investment features -- easily apply to significant proportions of an investor's assets.

Deferred Variable Annuity Exchange – The Proposed Rule requires a registered principal to consider the extent to which “the customer’s account has had another deferred variable annuity exchange within the preceding 36 months.” GAA objects to this requirement because the information may be unavailable to us due to a client’s reluctance to share such information or privacy policy concerns of the prior broker-dealer or insurance company. As a result, the NASD should clarify this point by stating that it is the registered principal’s obligation to consider prior variable annuity exchange information if it is available to him at the time of his review.

GAA is concerned with the Proposed Rules requirement that member firms develop training policies and programs reasonably designed to “ensure” that financial advisors and registered principals involved in the sale and supervision of variable annuity products comply with the requirements of the Proposed Rule and understand the material features of variable annuities. Unfortunately, even the best training policies and materials will not "ensure" such understanding. Further, there is no need for an additional training requirement for member firms. Currently GAA structures firm element continuing education and annual compliance meeting topics around needs analysis results in accordance with provisions of NASD Rule 1120. Such topics have consistently included the general material features of variable annuity as well as suitability requirements and supervisory issues that surround variable annuity products.

We are pleased to have the opportunity to provide these comments and hope that they can assist the NASD and SEC in developing rules that are fair, sensible, and appropriate for all members and clients.


Shawn M. Mihal
Chief Compliance Officer
Great American Advisors, Inc.
(800) 216-3354 Extension 11531
Facsimile: (513) 412-5109
Email: smihal@gaadvisors.com

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