[Federal Register Volume 63, Number 10 (Thursday, January 15, 1998)]
[Notices]
[Pages 2428-2435]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1040]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22995; File No. 812-10794]


Goldman, Sachs & Co. et al.; Notice of Application

January 8, 1998.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order under Section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') granting relief from the 
provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the Act and 
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.

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SUMMARY OF APPLICATION: Applicants seek exemptive relief to the extent 
necessary to permit life insurance company separate accounts supporting 
variable life insurance contracts (and their insurance company 
depositors) to invest in shares of the Goldman Sachs Variable Insurance 
Trust or a ``future trust,'' as defined below (together, the 
``Trust''), when the following other types of investors also hold 
shares of the Trust: (1) A variable life insurance (``VLI'') account of 
a life insurance company that is not an affiliated person of the 
insurance company depositor of any VLI account, (2) the Trust's 
investment adviser (representing seed money investments in the Trust), 
(3) a life insurance company separate account supporting variable 
annuity contracts (a ``VA account''), and/or (4) a qualified pension or 
retirement plan. As used herein, a ``future trust'' is any investment 
company (or investment portfolio or series thereof), other than the 
Goldman Sachs Variable Insurance Trust, designed to be sold to VLI 
accounts and to which Applicants or their affiliates may in the future 
serve as investment advisers, investment sub-advisers, investment 
managers, administrators, principal underwriters or sponsors.

APPLICANTS: Goldman, Sachs & Co. (``Goldman Sachs''), on behalf of 
itself and its operating division Goldman Sachs Asset Management 
(``GSAM''), Goldman Sachs Variable Insurance Trust, and Goldman Sachs 
Asset Management International (``GSAMI'').

FILING DATE: The application was filed on September 23, 1997 and 
amended on December 18, 1997.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing on this application by writing to the 
Secretary of the SEC and serving Applicants with a copy of the request, 
in person or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on January 30, 1998, and must be accompanied by 
proof of service on the Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the requester's interest, the reason for the request and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Secretary of the SEC.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549. Applicants, c/o Michael J. 
Richman, Goldman, Sachs & Co., 85 Broad Street, New York, New York 
10004.

FOR FURTHER INFORMATION CONTACT:
Keith E. Carpenter, Senior Counsel, or Kevin M. Kirchoff, Branch Chief, 
Office of Insurance Products, Division of Investment Management, at 
(202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application; the complete application is available for a fee from the 
SEC's Public Reference Branch, 450 5th Street, N.W., Washington, D.C. 
20549 (tel. (202) 942-8090).

Applicants' Representations

    1. Goldman Sachs Variable Insurance Trust is a business trust 
organized under the laws of Delaware on September 16, 1997. It is 
registered under the Act as an open-end management investment company 
and is a series investment company as defined by Rule 18f-2 under the 
Act. It is currently comprised of nine investment portfolios. It issues 
a separate series of shares of beneficial

[[Page 2429]]

interest in connection with each investment portfolio (each, a 
``Fund''). It may offer each series of its shares to VLI accounts and 
VA accounts of various life insurance companies (``participating 
insurance companies'') and to pension and retirement plans qualified 
under Section 401(a) of the Internal Revenue Code of 1986, as amended 
(the ``Code'') (``plans'').
    2. Each VLI account and VA account will be established as a 
segregated asset account by a participating insurance company pursuant 
to the insurance law of the insurance company's state of domicile. As 
such, the assets of each will be the property of the participating 
insurance company and that portion of the assets of such an account 
equal to the reserves and other contract liabilities with respect to 
the account will not be chargeable with liabilities arising out of any 
other business that the insurance company may conduct. The income, 
gains and losses, realized or unrealized from such an account's assets 
will be credited to or charged against the account without regard to 
other income, gains or losses of the insurance company. If a VLI 
account or VA account is registered as an investment company, it will 
be a ``separate account'' as defined by Rule 0-1(e) (or any successor 
rule) under the Act and will be registered as a unit investment trust. 
For purposes of the Act, the life insurance company that establishes 
such a registered VLI account or VA account is the depositor and 
sponsor of the account as those terms have been interpreted by the 
Commission with respect to variable life insurance and variable annuity 
separate accounts.
    3. The plans will be pension or retirement plans intended to 
qualify under Sections 401(a) and 501(a) of the Code. Many of the plans 
will include a cash or deferred arrangement (permitting salary 
reduction contributions) intended to qualify under Section 401(k) of 
the Code. The plans will also be subject to, and will be designed to 
comply with, the provisions of the Employee Retirement Income Security 
Act of 1974 (``ERISA'') applicable to either defined benefit or to 
defined contribution profit-sharing plans.
    4. Goldman Sachs is registered as a broker-dealer under the 
Securities Exchange Act of 1934 and is a member of the National 
Association of Securities Dealers, Inc. Goldman Sachs has been 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (the ``Advisers Act'') since 1981 and conducts its investment 
management activities through its operating division, GSAM, and through 
several investment management affiliates, including GSAMI. Through 
GSAM, Goldman Sachs serves as investment adviser to Goldman Sachs 
Variable Insurance Trust's High Yield Fund, Growth and Income Fund, 
CORE U.S. Equity Fund, CORE Large Cap Growth Fund, CORE Small Cap 
Equity Fund, Capital Growth Fund and Mid Cap Equity Fund. GSAMI is an 
affiliate of Goldman Sachs and serves as the investment adviser to 
Goldman Sachs Variable Insurance Trust's Global Income Fund and 
International Equity Fund. GSAMI has been registered as an investment 
adviser under the Advisers Act since 1991.
    5. The Applicants propose that the Trust offer and sell its shares 
to VLI accounts and VA accounts of various participating insurance 
companies to serve as an investment medium to support viable life 
insurance contracts (``VLI contracts'') and variable annuity contracts 
(``VA contracts'') (together, ``variable contracts'') issued through 
such accounts. As described more fully below, the Trust will only sell 
its shares to registered VLI accounts and registered VA accounts if 
each participating insurance company sponsoring such a VLI account or 
VA account enters into a participation agreement with the Trust. The 
participation agreements will define the relationship between the trust 
and each participating insurance company and will memorialize, among 
other matters, the fact that, except where the agreement specifically 
provides otherwise, the participating insurance company will remain 
responsible for establishing and maintaining any VLI account or VA 
account covered by the agreement and for complying with all applicable 
requirements of state and federal law pertaining to such accounts and 
to the sale and distribution of variable contracts issued through such 
accounts.
    6. The use of a common management investment company (or investment 
portfolio thereof) as an investment medium for both VLI accounts and VA 
accounts of the same insurance company, or of two or more insurance 
companies that are affiliated persons of each other, is referred to 
herein as ``mixed funding.'' The use of a common management investment 
company (or investment portfolio thereof) as an investment medium for 
VLI accounts and/or VA accounts of two or more insurance companies that 
are not affiliated persons of each other, is referred to herein as 
``shared funding.''
    7. The Trust may sell its shares directly to the plans. Changes in 
the federal tax law several years ago created the opportunity for 
investment companies such as the Trust to increase their net assets by 
selling shares to qualified pension and retirement plans such as the 
plans. Section 817(h) of the Code imposes certain diversification 
standards on the assets underlying variable contracts, such as those in 
each Fund of the Trust. The Code provides that variable contracts will 
not be treated as annuity contracts or life insurance contracts, as the 
case may be, for any period (or any subsequent period) for which the 
underlying assets are not, in accordance with regulations issued by the 
Treasury Department, adequately diversified. On March 2, 1989, the 
Treasury Department issued regulations (Treas. Reg. 1.817-5) which 
established specific diversification requirements for investment 
portfolios underlying variable contracts. The regulations generally 
provide that, in order to meet these diversification requirements, all 
of the beneficial interests in the investment company must be held by 
the segregated asset accounts of one or more life insurance companies. 
Notwithstanding this, the regulations also contain an exception to this 
requirement that permits trustees of a qualified pension or retirement 
plan to hold shares of an investment company, the shares of which are 
also held by insurance company segregated asset accounts, without 
adversely affecting the status of the investment company as an 
adequately diversified underlying investment for variable contracts 
issued through such segregated asset accounts (Treas. Reg. 1.817-
5(f)(3)(iii)).
    8. As a result of this exception to the general diversification 
requirement, qualified pension and retirement plans, such as the plans, 
may hold Trust shares and select a Fund of the Trust as an investment 
option without endangering the tax status of variable contracts as life 
insurance or annuities, respectively. Trust shares sold to the plans 
would be held by the trustees of the plans as required by Section 
403(a) of ERISA. The trustees or other fiduciaries of the plans may 
vote Trust shares held by their plans in their own discretion or, if 
the applicable plan so provides, vote such shares in accordance with 
instructions from participants in such plans. The use of a common 
management investment company (or investment portfolio thereof) as an 
investment medium for VLI accounts, VA accounts and plans, is referred 
to as ``extended mixed funding.''

Applicants' Legal Analysis

    9. Rule 6e-2(b)(15) under the Act provides partial exemptions from

[[Page 2430]]

Sections 9(a), 13(a), 15(a), and 15(b) of the Act to VLI accounts 
supporting scheduled premium VLI contracts and to their life insurance 
company depositors. The exemptions granted by the Rule are available, 
however, only where the Trust offers its shares exclusively to VLI 
accounts of the same participati ng insurance company and/or of 
participating insurance companies that are affiliated persons of the 
same participating insurance company and then, only where scheduled 
premium VLI contracts are issued through such VLI accounts. Therefore, 
VLI accounts, their depositors and their principal underwriters could 
not rely on the exemptions provided by Rule 6e-2(b)(15) if shares of 
the Trust are held by a VLI account through which flexible premium VLI 
contracts are issued, a VLI account of an unaffiliated participating 
insurance company, any VA account or a plan. In other words, Rule 6e-
2(b)(15) does not permit a scheduled premium VLI account to invest in 
shares of a management investment company that serves as a vehicle for 
mixed funding, extended mixed funding or shared funding.
    10. Rule 6e-3(T)(b)(15) under the Act provides partial exemptions 
from Sections 9(a), 13(a), and 15(b) of the Act to VLI accounts 
supporting flexible premium variable life insurance contracts and their 
life insurance company depositors. The exemptions granted by the Rule 
are available, however, only where the Trust offers its shares 
exclusvely to VLI accounts (through which either scheduled premium or 
flexible premium contracts are issued) of the same participating 
insurance company and/or of participating insurance companies that are 
affiliated persons of the same participating insurance company, VA 
accounts of the same participating insurance company or of affiliated 
participating insurance companies, or the general account of the same 
participating insurance company or of affiliated participating 
insurance companies. Therefore, VLI accounts, their depositors and 
their principal underwriters could not rely on the exemptions provided 
by Rule 6e-3(T)(b)(15) if shares of the Trust are held by a VLI account 
of an unaffiliated participating insurance company, a VA account of an 
unaffiliated participating insurance company, the general account of an 
unaffiliated participating insurance company or a plan. In other words, 
Rule 6e-3(T)(b)(15) permits VLI accounts supporting flexible premium 
VLI contracts to invest in shares of a management investment company 
that serves as a vehicle for mixed funding but does not permit such a 
VLI account to invest in shares of a management investment company that 
serves as a vehicle for extended mixed funding or shared funding.
    11. In general, Section 9(a) of the Act disqualifies any person 
convicted of certain offenses, and any company affiliated with that 
person, from acting or serving in various capacities with respect to a 
registered investment company. More specifically, paragraph (3) of 
Section 9(a) provides that it is unlawful for any company to serve as 
investment adviser or principal underwriter for any registered open-end 
investment company if an affiliated person of that company is subject 
to a disqualification enumerated in Sections 9(a) (1), or (2).
    12. Subject to the limitations described above, Rule 6e-2(b)(15)(i) 
and (ii) and Rule 6e-3(T)(b)(15) (i) and (ii) provide exemptions from 
Section 9(a) to VLI accounts and their affiliates under certain 
circumstances and subject to certain conditions that would limit the 
application of the eligibility restrictions to affiliated individuals 
or companies that directly participate in the management of the Trust. 
The relief provided by Rule 6e-2(b)(15)(i) and Rule 6e-(T)(b)(15)(i) 
permits a person disqualified under Section 9(a) to serve as an 
officer, director, or employee of a participating insurance company, or 
any of the insurance company's affiliates, as long as that person does 
not participate directly in the management or administration of the 
Trust. The relief provided by Rule 6e-2(b)(15)(ii) and Rule 6e-
3(T)(b)(15)(ii) permits a participating insurance company to serve as 
the Trust's investment adviser or principal underwriter, provided that 
none of its personnel who are ineligible pursuant to Section 9(a) of 
the Act are participating in the management or administration of the 
Trust.
    13. The partial relief provided by Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) limits, in effect, the amount of monitoring of personnel 
that a participating insurance company and its affiliates would 
otherwise have to conduct to ensure compliance with Section 9 to that 
which is appropriate in light of the policy and purposes of Section 9. 
These Rules recognize that it is not necessary for the protection of 
investors or the purposes fairly intended by the policy and provisions 
of the Act to apply the provisions of Section 9(a) to the many hundreds 
of individuals in a large insurance company complex, most of whom 
typically have no involvement in matters pertaining to investment 
companies affiliated with such an organization. These Rules also 
recognize that, in connection with the Trust, there exists no necessity 
to apply Section 9(a) to individuals in various participating insurance 
companies who would have no relationship to the Trust other than that 
their employer utilizes the Trust to support variable contracts. 
Applicants assert that no regulatory purpose would be served in 
extending the Section 9(a) monitoring requirements because of mixed 
funding, extended mixed funding or shared funding. Participating 
insurance companies and plans are not expected to play any significant 
role in the management of the Trust. Those individuals at Goldman 
Sachs, GSAM and GSAMI who would participate in the management of the 
Trust will do so regardless of which VLI accounts, VA accounts and 
plans invest in the Trust. The increased expense of extending the 
Section 9(a) monitoring requirements to participating insurance 
companies or plans could reduce the net return realized by investors in 
VLI accounts, VA accounts or plans and would not provide any material 
benefit to such investors.
    14. Rule 6e-2(b)(15)(iii) and Rule 6e-3(T)(b)(15)(iii) provide 
partial exemptions from Sections 13(a), 15(a) and 15(b) of the Act to 
the extent that those Sections have been deemed by the Commission to 
require ``pass-through'' voting with respect to management investment 
company shares held by an insurance company separate account, in order 
to permit the insurance company to disregard the voting instructions of 
its VLI contract owners (``VLI owners'') in certain limited 
circumstances. Because the Commission has deemed Sections 13(a), 15(a) 
and 15(b) to require a participating insurance company to vote all 
shares of the Trust held by a VLI account in accordance with 
instructions from VLI owners, the partial exemptions from these 
sections provided by subparagraph (b)(15)(iii)(A) of Rule 6e-2 and 
subparagraph (b)(15)(iii)(A)(1) of Rule 6e-3(T) would permit a 
participating insurance company to disregard the voting instructions of 
such VLI owners when required to do so by any insurance regulatory 
authority (subject to the provisions of paragraphs (b)(5)(i) and 
(b)(7)(ii)(A) of Rules 6e-2 and 6e-3(T)), if following such 
instructions would cause the insurance company to: (a) Make (or refrain 
from making) certain investments that would result in changes in the 
subclassification or investment objectives of the Trust; or (b) approve 
or disapprove any contract between the Trust and GSAM or GSAMI

[[Page 2431]]

(or another investment adviser or subadviser),
    15. Subparagraph (b)(15)(iii)(B) of Rule 6e-2 and subparagraph 
(b)(15)(iii)(A)(2) of Rule 6e-3(T) would permit a participating 
insurance company to disregard the voting instructions of such VLI 
owners if the owners initiate any change in the Trust's investment 
policies, principal underwriter, or investment adviser (provided that 
disregarding such voting instructions is reasonable and subject to the 
other provisions of paragraphs (b)(5)(ii), (b)(7)(ii)(B) and 
(b)(7)(ii)(C) of Rules 6e-2 and 6e-3(T)).
    16. Because the Commission has deemed Sections 13(a), 15(a) and 
15(b) to require any participating insurance company to vote all shares 
of the Trust held by the insurer's VLI accounts in accordance with 
instructions from owners of variable life insurance contracts issued 
through such account, the partial exemption from these sections 
provided by subparagraph (b)(15)(iii) of Rule 6e-2 and subparagraph 
(b)(15)(iii)(A)(1) of Rule 6e-3(T) is one that almost all VLI accounts 
and their participating insurance companies may need to rely on.
    17. Both Rule 6e-2 and Rule 6e-3(T) generally recognize that a 
variable life insurance contract is primarily a life insurance contract 
containing many important elements unique to life insurance contracts 
and subject to extensive state insurance regulation. Applicants assert 
that in adopting subparagraph (b)(15)(iii) of these Rules, the 
Commission implicitly recognized that state insurance regulators have 
authority, pursuant to state insurance laws or regulations, to 
disapprove or require changes in investment policies, investment 
advisers, or principal underwriters.
    18. If the Trust serves as an investment vehicle for mixed funding, 
extended mixed funding or shared funding, the exemptions otherwise 
provided by Rule 6e-2(b)(15) would not be available to VLI accounts and 
their participating insurance company depositors and principal 
underwriters. Likewise, if the Trust serves as an investment vehicle 
for extended mixed funding or shared funding, the exemptions otherwise 
provided by Rule 6e-3(T)(b)(15) would not be available to VLI accounts 
and their participating insurance companies and principal underwriters.
    19. Applicants maintain that VLI owners and VA owners, as investors 
in the Trust, would have substantially identical interests. Likewise, 
owners of scheduled premium VLI contracts and flexible premium VLI 
contracts would, as investors in the Trust, have virtually identical 
interests.
    20. Each Fund of the Trust will be managed to attempt to achieve 
the investment objective or objectives of such Fund, and not to favor 
or disfavor any particular participating insurance company or type of 
variable contract. Applicants assert that there is no reason to believe 
that the different features of various types of variable contracts, 
including any ``minimum death benefit'' guarantee under certain VLI 
contracts, will lead to different investment policies for different 
types of variable contracts. To the extent that the degree of risk may 
differ between VLI contracts and VA contracts, the different insurance 
charges imposed, in effect, adjust any such differences and equalize 
the insurers' exposure to risk in either case.
    21. Furthermore, no single investment strategy can be identified as 
appropriate to one particular type of variable contract but not 
another. Each pool of VLI owners and VA owners is composed of 
individual of diverse financial status, age, and insurance and 
investment goals. A Fund of the Trust supporting one type of variable 
contract must accommodate these diverse factors in order to attract and 
retain owners of other types of variable contracts. Permitting mixed 
funding will facilitate the success of each Fund and will broaden the 
base of VLI owners and VA owners and encourage the Trust to add 
additional Funds.
    22. Applicants maintain that qualified retirement plan investors in 
the Trust would have substantially the same interests as do VLI owners 
and VA owners. Like VLI and VA owners, qualified retirement plan 
investors are long-term investors. Therefore, most can be expected not 
to withdraw their assets from the plans.
    23. In additional, neither VLI and VA owners on the one hand nor 
plan investors on the other would be taxed on the investment return of 
their respective investments in the Trust. Therefore, they would share 
a strong interest in the Trust operating in a manner that preserves 
this tax status. For example, material conflicts between these two 
groups of investors regarding capital transactions would be unlikely to 
occur. In this regard, ERISA imposes general diversification 
requirements on qualified pension or retirement plan investments that 
are wholly consistent with those required of each Fund of the Trust 
under Section 817(h) of the Code.
    24. VLI accounts. VA accounts and the plans are governed in similar 
ways. Plan committees (and other plan fiduciaries) have a fiduciary 
duty to participants that is similar to the obligations that a 
participating insurance company has to look after the interests of its 
VLI owners and VA owners. In this respect, Applicants note that 
participating insurance companies and their VLI accounts would not 
require any exemptions from the Act other than those necessary for 
mixed funding and shared funding if participants in certain qualified 
pension and retirement plans invest indirectly in the Trust when their 
plan purchases a variable annuity contract offered by a participating 
insurance company in the qualified plan market. The various plans may 
or may not offer an annuity option.
    25. In light of the fact that plan investors would have beneficial 
interest in the Trust very similar to those of VLI owners and VA 
owners, Applicants assert that, provided that they (and VLI accounts 
and participating insurance companies) comply with the conditions 
explained below, the addition of the plans as shareholders of the Trust 
and the addition of participants as persons having beneficial interests 
in the Trust should not increase the risk of material irreconcilable 
conflicts among and between investors. Applicants further assert that 
even if a material irreconcilable conflict involving the plans, or 
participants arose, the trustees (or other fiduciaries) of the plans, 
unlike participating insurance companies, can, if their fiduciary duty 
to the participants requires if, redeem the shares of the Trust held by 
the plans and make alternative investments without obtaining prior 
regulatory approval. Similarly, most, if not all, of the plans, unlike 
the VLI accounts or the VA accounts, may hold cash or other liquid 
asserts pending their reinvestment in a suitable alternative 
investment.
    26. Applicants maintain that VLI owners and VA owners would benefit 
from the expected increase in net assets of the Funds of the Trust 
occasioned by participant investments. Not only should such additional 
investments not increase the likelihood of material irreconcilable 
conflicts of interest between or among different types of investors, 
but such additional investments should reduce some of the costs of 
investing for variable contract owners. In particular, additional 
investments would promote economies of scale, permit increased safety 
through greater portfolio diversification, provide each Fund's 
investment adviser with greater flexibility due to a larger portfolio 
and make the addition of future new Funds more feasible.
    27. When the Commission last revised Rule 6e-3(T) in 1987, the 
Treasury

[[Page 2432]]

Department had not issued the current regulations (Treas. Reg. 1.817-5) 
which make it possible for the Trust to sell shares to qualified 
pension or retirement plans without adversely affecting the tax status 
of VLI contracts and VA contracts. Applicants submit that, although 
proposed regulations had been published, the Commission did not 
envision this possibility when it last examined paragraph (b)(15) of 
the Rule and might well have broadened the exclusivity provision of 
that paragraph at that time to include plans such as those covered by 
this application had this possibility been apparent. In this regard, 
the Commission has recently issued several orders under Section 6(c) 
granting the same exemptions requested herein to other Applicants in 
very similar circumstances.
    28. In light of the fact that the proposed plan investments in the 
Trust should not increase the likelihood of material irreconcilable 
conflicts and would otherwise benefit VA owners and VLI owners and in 
light of the recent supporting precedent, Applicants believe that the 
Commission should grant the requested exemptions.
    29. Applicants do not believe that plan investments in the Trust 
would increase the potential for material irreconcilable conflicts of 
interest between or among different types of investors. Section 403(a) 
of ERISA provides that the trustee(s) of a plan must have exclusive 
authority and discretion to manage and control the plan with two 
exceptions: (a) When the plan expressly provides that the trustee(s) is 
subject to the direction of a named fiduciary who is not a trustee in 
which event the trustee(s) is subject to proper directions made in 
accordance with the terms of the plan and not contrary to ERISA; and 
(b) when the authority to manage, acquire or dispose of assets of the 
plan is delegated to one or more investment advisers pursuant to 
Section 402(c)(3) of ERISA. Absent one of these exceptions, the 
trustee(s) of the plan would have the exclusive authority and 
responsibility for exercising voting rights attributable to their 
plan's investment securities. Where a named fiduciary appoints an 
investment adviser, the adviser has the authority and responsibility to 
exercise such voting rights unless the authority and responsibility is 
reserved to the trustee(s) or a non-trustee fiduciary.
    30. Applicants generally expect many of the plans to have their 
trustees or other fiduciaries exercise voting rights attributable to 
investment securities held by the plan in their discretion. Some of the 
plan, however, may provide for the trustee(s), an investment adviser 
(or advisers) or another named fiduciary to exercise voting rights in 
accordance with instructions from participants.
    31. Where plans provide participants with the right to give voting 
instructions, Applicants see no reason to believe that participants in 
the plans generally or those in a particular plan, either as a single 
group or in combination with participants in other plans, would vote in 
a manner that would disadvantage VLI owners or VA owners. The purchase 
of Trust shares by the plans that provide voting rights does not 
present any complications not otherwise occasioned by mixed funding or 
by shared funding.
    32. Section 817(h) of the Code is the codification of certain 
aspects of a series of published and unpublished rulings issued by the 
Internal Revenue Service directed at the control of investments 
supporting VLI contracts and VA contracts. In light of Treasury 
Regulation 1.817-5(f)(3)(iii) which specifically permits ``qualified 
pension or retirement plans'' and separate accounts to share the same 
underlying management investment company, Applicants have concluded 
that neither the Code, nor other Treasury Regulations or revenue 
rulings thereunder, would create any inherent conflicts of interest 
between or among plan investors, VLI owners and VA owners.
    33. Although there are differences in the manner in which 
distributions from the plans and distributions from VLI and VA 
contracts are taxed, Applicants maintain that these differences will 
have no impact on the Trust. VLI accounts, VA accounts, participating 
insurance companies and the plans each will redeem Trust shares in the 
same manner and using the same procedures. Each will purchase and 
redeem such shares at net asset value in conformity with Rule 22c-1 
under the Act.
    34. Applicants do not see any greater potential for material 
irreconcilable conflicts arising between the interests of plan 
investors and over Trust investors from possible future changes in the 
federal tax laws than that which already exists with regard to such 
conflicts arising between VLI owners and VA owners.
    35. Applicants assert that the holding of Trust shares by separate 
accounts of unaffiliated insurance companies would not entail greater 
potential for material irreconcilable conflicts arising between or 
among the interests of VLI owners and VA owners than would mixed 
funding. Likewise, the holding of Trust shares by separate accounts of 
unaffiliated insurance companies would not entail greater potential for 
material irreconcilable conflicts arising between or among the 
interests of VLI owners, VA owners and plan investors than would 
extended mixed funding where only separate accounts of affiliated 
participating insurance companies held such shares.
    36. A particular state insurance regulator could require action of 
an insurer domiciled or licensed in its jurisdiction that conflicts 
with or is inconsistent with the regulatory requirements of or actions 
required by the regulator of another state where the insurer is 
domiciled or licensed. The fact that different insurance companies are 
domiciled in different states does not enlarge or create significantly 
different issues in connection with conflicting state regulatory 
requirements. Affiliation among or between such insurance companies 
does not diminish the potential for such issues to arise nor, in light 
of the source of such issues, does it dramatically increase the 
likelihood of their being resolved.
    37. Concern also has existed that material irreconcilable conflicts 
between or among the interests of VLI owners and/or VA owners of 
unaffiliated insurance companies were more likely to arise in the event 
that such companies exercised their limited right to disregard VLI 
owner voting instructions than would be the case between or among 
affiliated companies. Applicants assert, however, that the right of an 
insurance company to disregard VLI owner voting instructions does not 
raise any issues different from those raised by the authority of 
different state insurance regulators over separate accounts. Similarly, 
affiliation between or among insurance companies does not diminish or 
eliminate the potential for divergent judgments by such companies as to 
the advisability or legality of a change in investment policies, 
principal underwriter or investment adviser of a mutual fund in which 
their separate account invests. Applicants believe that the potential 
for disagreement between or among insurance companies is limited by 
requirements in Rule 6e-2 and Rule 6e-3(T) that a company's disregard 
of voting instructions be reasonable and based on specific good faith 
determinations. Moreover, in the event that a decision by a 
participating life insurance company to disregard VLI owners' voting 
instructions represents a minority position or would preclude a 
majority vote at a Trust shareholders meeting, the company could be 
required by the Trust's board of trustees to withdraw from the Trust.
    38. Various factors have discouraged a number of life insurance 
companies

[[Page 2433]]

from offering variable contracts. These factors include the cost of 
organizing and operating a funding medium (such as the Trust), the lack 
of expertise with respect to investment management (principally with 
respect to equity investments and derivative instruments) and the lack 
of name recognition by the public of many such insurers as investment 
professionals with whom an investor can feel comfortable entrusting 
their investment dollars. For example, a number of smaller life 
insurance companies do not find it economically feasible, or within 
their investment or administrative expertise, to enter the variable 
contract business on their own. Use of the Funds of the Trust as a 
mixed funding and shared funding vehicle for variable contracts would 
reduce or eliminate such concerns for small life insurance companies.
    39. Permitting the Trust to serve as a mixed funding and shared 
funding vehicle also should provide several benefits to variable 
contract owners by eliminating a significant portion of the costs of 
establishing and administering separate mutual funds. Participating 
insurance companies would benefit not only from the investment and 
administrative expertise of GSAM and GSAMI, but also from the cost 
efficiencies and investment flexibility afforded by a large pool of 
assets. Permitting the Trust to serve as a mixed and shared funding 
vehicle also should make a greater amount of assets available for 
investment by each Fund than would otherwise be the case and, thereby, 
promote economies of scale, increase the safety of a Fund by increasing 
diversification of investments, and/or make the addition of new Funds 
more feasible. Therefore, making the Trust available to serve as a 
vehicle for mixed funding and shared funding could encourage more life 
insurance companies to offer variable contracts and thereby increase 
competition in the variable contracts market. Such competition, in 
turn, can be expected to result in more contract variation and in lower 
fees and charges. Applicants also assert that permitting the Trust to 
serve as a vehicle for extended mixed funding will result in increased 
assets for the Funds. This also will benefit owners of variable 
contracts by promoting economies of scale, increasing the safety of 
Funds by increasing diversification of investments, and/or make the 
addition of new Funds more feasible.
    40. Applicants submit that regardless of the types of investors in 
the Trust, they each will be contractually and otherwise obligated to 
manage each Fund solely and exclusively in accordance with its 
investment objective(s), policies and restrictions as well as any 
additional guidelines established by trustees of the Trust. GSAM and 
GSAMI manage client accounts, and would manage each Fund of the Trust, 
without regard to the identity of the investors in such accounts. Thus, 
each Fund will be managed in the same manner as any other open-end 
management investment company.
    41. Applicants see no legal impediment to permitting the Trust to 
serve as a vehicle for mixed funding, extended mixed funding and shared 
funding. The Commission has issued numerous orders permitting mixed 
funding, extended mixed funding and shared funding. Therefore, granting 
the exemptions requested herein is in the public interest and will not 
compromise the regulatory purpose of Section 9(a), 13(a), 15(a) or 
15(b) of the Act or of Rules 6e-2 and 6e-3(T) thereunder.
    42. Section 6(c) of the Act authorizes the Commission to exempt any 
person, security, or transaction or any class of persons, securities, 
or transactions from any provision or provisions of the Act and/or any 
rule under it if, and to the extent that, such exemption is necessary 
or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act. Applicants request an order of the 
Commission that would exempt VLI accounts and their participating 
insurance companies and principal underwriters as a class from the 
provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the Act and Rule 
6e-2 or Rule 6e-3(T)(b)(15) thereunder. The exemption of these classes 
of parties is appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act because all of the potential members 
of the class could obtain the foregoing exemptions for themselves on 
the same basis as the Applicants, but only at a cost to each of them 
that is not justified by any public policy purpose. As discussed below, 
the requested exemptions would only extend to VLI accounts whose 
participating insurance companies enter into participation agreements 
with the Trust, which agreements would subject such VLI accounts to the 
conditions discussed below. The Commission staff also would have the 
opportunity to review compliance with these conditions by participating 
insurance companies when it reviews the registration statements under 
the Securities Act of 1933 filed by each VLI account and VA account 
before the account could issue any variable contracts. The Commission 
has previously granted exemptions to classes of similarly situated 
parties in various contexts and from a wide variety of circumstances, 
including class exemptions in the context of mixed funding, extended 
mixed funding and shared funding.

Applicants' Conditions

    1. Applicants represent and agree that if the exemptions requested 
herein are granted, the Trust will only sell shares to VLI accounts if 
the following conditions are met:
    a. A majority of the board of trustees of the Trust shall consist 
of persons who are not interested persons of the Trust or interested 
persons of such persons. For this purpose, interested persons means 
``interested persons'' as defined by Section 2(a)(19) of the Act, and 
rules thereunder, and as modified by any applicable Commission orders, 
except that if this condition is not met by reason of the death, 
disqualification, or bona fide resignation of any trustee or trustees, 
then the operation of this condition shall be suspended for: (1) A 
period of 45 days if the vacancy or vacancies may be filled by the 
remaining trustees, (2) a period of 60 days if a vote of shareholders 
is required to fill the vacancy or vacancies, or (3) such longer period 
as the Commission may prescribe by order upon application.
    b. The board of trustees of the Trust shall monitor the Trust for 
the existence of any material irreconcilable conflicts between or among 
the interests of VLI owners, VA owners and plan investors and determine 
what action, if any, should be taken in response to those conflicts. A 
material irreconcilable conflict may arise for a variety of reasons, 
including: (1) An action by any state insurance regulatory authority, 
(2) a change in applicable federal or state insurance, tax, or 
securities laws or regulations, or a public ruling, private letter 
ruling, no-action or interpretive letter, or any similar action by 
insurance, tax, or securities regulatory authorities, (3) an 
administrative or judicial decision in any relevant proceeding, (4) the 
manner in which the investments of any Fund are being managed, (5) a 
difference in voting instructions given by VLI owners, VA owners and 
plan investors, (6) a decision by a participating insurance company to 
disregard VLI or VA contract owner voting instructions, and (7) a 
decision by a plan trustee (or other plan fiduciary) to disregard 
voting instructions of plan participants.

[[Page 2434]]

    c. The Trust's prospectus shall disclose that: (1) Its shares are 
offered in connection with mixed funding, extended mixed funding and 
shared funding, (2) mixed funding, extended mixed funding and shared 
funding may present certain conflicts of interest between VA owners, 
VLI owners and plan investors, and (3) the Trust's board of trustees 
will monitor the Trust for the existence of any material irreconcilable 
conflict of interest and determine what action, if any, should be taken 
in response to such a conflict. The Trust shall also notify the plan 
trustees and participating insurance companies that similar prospectus 
disclosure may be appropriate in separate account prospectuses or any 
plan prospectuses or other plan disclosure documents.
    d. The Trust will comply with all of the provisions of the Act 
relating to security holder (i.e., persons such as VLI owners and VA 
owners or participants in plans that provide participants with voting 
rights) voting including Section 16(a), 16(b) (when applicable) and 
16(c) (even though the Trust is not a trust of the type described 
therein).
    e. GSAM and GSAMI will report any material irreconcilable conflicts 
or any potential material irreconcilable conflicts between or among the 
interests of VLI owners, VA owners and plan investors to the Trust's 
board of trustees and will assist the board in carrying out the board's 
responsibilities under these conditions. Such assistance will include, 
but not be limited to, providing the board, at least annually, with all 
information reasonably necessary for the board to consider any issues 
raised by such existing or potential conflicts.
    f. All reports sent by participating insurance companies or plans 
to the board of trustees of the Trust or notices sent by the board to 
participating insurance companies or plans notifying the recipient of 
the existence of or potential for a material irreconcilable conflict 
between the interests of VA owners, VLI owners and plan investors as 
well as board deliberations regarding such conflicts or such potential 
conflicts shall be recorded in the board meeting minutes of the Trust 
or other appropriate records, and such minutes or other records shall 
be made available to the Commission upon request.
    2. In addition to the foregoing conditions, Applicants consent to 
the following conditions and represent and agree that if the exemptions 
requested herein are granted, the Trust will not sell shares to any VLI 
account unless the account's participating insurance company enters 
into a participation agreement with the Trust containing provisions 
that require the following:
    a. A majority vote of the disinterested trustees of the Trust shall 
represent a conclusive determination as to the existence of a material 
irreconcilable conflict between or among the interests of VLI owners, 
VA owners and plan investors. For the purpose of subparagraph e below, 
a majority vote of the disinterested trustees of the Trust shall 
represent a conclusive determination as to whether any proposed action 
adequately remedies any material irreconcilable conflict between or 
among the interests of VLI owners, VA owners and plan investors. The 
Trust shall notify each participating insurance company and plan in 
writing of any determination of the foregoing type.
    b. Each participating insurance company will monitor its operations 
and those of the Trust for the purpose of identifying any material 
irreconcilable conflicts or potential material irreconcilable conflicts 
between or among the interests of plan investors, VA owners and VLI 
owners.
    c. Each participating insurance company will report any such 
conflicts or potential conflicts to the Trust's board of trustees and 
will provide the board, at least annually, with all information 
reasonably necessary for the board to consider any issues raised by 
such existing or potential conflicts or by these conditions. Each 
participating insurance company will also assist the board in carrying 
out its responsibilities under these conditions including, but not 
limited to: (1) Informing the board whenever it disregards VLI owner or 
VA owner voting instructions, and (2) providing, at least annually, 
such other information and reports as the board may reasonably request. 
Each participating insurance company will carry out these obligations 
with a view only to the interests of owners of its VLI contracts and VA 
contracts.
    d. Each participating insurance company will provide ``pass-
through'' voting privileges to owners of registered VA contracts and 
registered VLI contracts as long as the Act requires such privileges in 
such cases. Accordingly, such participating insurance companies, where 
applicable, will vote Trust shares held in their separate accounts in a 
manner consistent with voting instructions timely received from owners 
of such VLI and VA contracts. Each participating insurance company will 
vote Trust shares owned by itself (i.e., that are not attributable to 
VA contract or VLI contract reserves) in the same proportion as 
instructions received in a timely fashion from VA owners and VLI owners 
and shall be responsible for ensuring that it and other participating 
insurance companies calculate ``pass-through'' votes for VLI accounts 
and VA accounts in a consistent manner. Each participating insurance 
company also will vote Trust shares held in any registered VLI account 
or registered VA account for which it has not received timely voting 
instructions in the same proportion as instructions received in a 
timely fashion from VA owners and VLI owners.
    e. In the event that a material irreconcilable conflict of interest 
arises between VA owners or VLI owners and plan investors, each 
participating insurance company will, at its own expense, take whatever 
action is necessary to remedy such conflict as it adversely affects 
owners of its VA contracts or VLI contracts up to and including: (1) 
Establishing a new registered management investment company, and (2) 
withdrawing assets attributable to reserves for the VA contracts or VLI 
contracts subject to the conflict from the Trust and reinvesting such 
assets in a different investment medium (including another Fund of the 
Trust) or submitting the question of whether such withdrawal should be 
implemented to a vote of all affected VA owners or VLI owners, and, as 
appropriate, segregating the assets supporting the contracts of any 
group of such owners that votes in favor of such withdrawal, or 
offering to such owners the option of making such a change. Each 
participating insurance company will carry out the responsibility to 
take the foregoing action with a view only to the interests of owners 
of its VA contracts and VLI contracts. Notwithstanding the foregoing, 
each participating insurance company will not be obligated to establish 
a new funding medium for any group of VA contracts or VLI contracts if 
an offer to do so has been declined by a vote of a majority of the VA 
owners or VLI owners adversely affected by the conflict.
    f. If a material irreconcilable conflict arises because of a 
participating insurance company's decision to disregard the voting 
instructions of VLI owners or VA owners and that decision represents a 
minority position or would preclude a majority vote at any Fund 
shareholder meeting, then, at the request of the Trust's board of 
trustees, the participating insurance company will redeem the shares of 
the Trust to which the disregarded voting instructions relate. No 
charge or penalty, however, will be imposed in connection with such a 
redemption.
    g. Each participating insurance company and VLI account will 
continue

[[Page 2435]]

to rely on Rule 6e-2(b)(15) and/or Rule 6e-3(T)(b)(15), as appropriate, 
and to comply with all of the appropriate Rule's conditions. In the 
event that 6e-2 and/or Rule 6e-3(T) is amended, or any successor rule 
is adopted, each participating insurance company and VLI account will 
instead comply with such amended or successor rule.
    3. In addition to the foregoing conditions, Applicants consent to 
the following conditions and represent and agree that if the exemptions 
requested herein are granted, the Trust will not sell shares of any 
Fund to a plan if such sale would result in the plan owning 10% more of 
that Fund's outstanding shares unless the plan first enters into a 
participation agreement with the Trust containing provisions that 
require the following:
    a. The trustees or plan committees of the plan will: (1) Monitor 
the plan's operations and those of the Trust for the purpose of 
identifying any material irreconcilable conflicts or potential material 
irreconcilable conflicts between or among the interests of plan 
investors, VA owners and VLI owners, (2) report any such conflicts or 
potential conflicts to the Trust's board of trustees, (3) provide the 
board, at least annually, with all information reasonably necessary for 
the board to consider any issues raised by such existing or potential 
conflicts and any other information and reports that the board may 
reasonably request, (4) inform the board whenever it (or another 
fiduciary) disregards the voting instructions of plan participants (of 
a plan that provides voting rights to its participants), and (5) ensure 
that the plan votes Trust shares as required by applicable law and 
governing plan documents. The trustees or plan committees of the plan 
will carry out these obligations with a view only to the interests of 
plan investors in its plan.
    b. In the event that a conflict of interest arises between plan 
investors and VA owners, VLI owners or other investors in the Trust, 
each plan will, at its own expense, take whatever action is necessary 
to remedy such conflict as it adversely affects that plan or 
participants in that plan up to and including: (1) Establishing a new 
registered management investment company, and (2) withdrawing plan 
assets subject to the conflict from the Trust and reinvesting such 
assets in a different investment medium (including another Fund of the 
Trust) or submitting the question of whether such withdrawal should be 
implemented to a vote of all affected plan investors and, as 
appropriate, segregating the assets of any group of such participants 
that votes in favor of such withdrawal, or offering to such 
participants the option of making such a change. Each plan will carry 
out the responsibility to take the foregoing action with a view only to 
the interests of plan investor in its plan. Notwithstanding the 
foregoing, no plan will be obligated to establish a new funding medium 
for any group of participants or plan investors if an offer to do so 
has been declined by a vote of a majority of the plan's participants or 
plan investors adversely affected by the conflict.
    c. If a material irreconcilable conflict arises because of a plan 
trustee's (or other fiduciary's) decision to disregard the voting 
instructions of plan participants (of a plan that provides voting 
rights to its participants) and that decision represents a minority 
position or would preclude a majority vote at any shareholder meeting, 
then, at the request of the Trust's board of trustees, the plan will 
redeem the shares of the Trust to which the disregarded voting 
instructions relate. No charge or penalty, however, will be imposed in 
connection with such a redemption.
    4. Applicants also represent and agree that if the exemptions 
requested herein are granted, the Trust will not sell shares of any 
Fund to a plan until the plan executes an application containing an 
acknowledgement of the condition that the Trust cannot sell shares of 
any Fund if such sale would result in that plan owning 10% or more of 
the Fund's outstanding shares unless that plan first enters into a 
participation agreement as described above.

Conclusion

    For the reasons summarized above, Applicants assert that the 
requested exemptions are appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-1040 Filed 1-14-98; 8:45 am]
BILLING CODE 8010-01-M