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INTERNAL REVENUE SERVICE — REVENUE RULING
REV. RUL. 82-54, 1982-1 C.B. 11
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SUBJECT: Investor Control — Multi-Fund Portfolios & Allocation Authority.

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ISSUE:
Whether policyholders under variable annuity contracts possess impermissible investor 
control if they have the power to allocate premium payments among three different 
sub-accounts (stock fund, bond fund, money market fund) managed by the insurer.

FACTS:
An insurance company issues variable annuity contracts funding three segregated asset 
accounts: a Common Stock Fund, a Bond Fund, and a Money Market Fund. Shares of the 
funds are NOT available to the general public and are sold exclusively to insurance 
company separate accounts. The policyholder may allocate initial premiums among the 
three funds and reallocate account values among the funds at any time.

HOLDING & LEGAL ANALYSIS:
1. Permissible Asset Allocation: The IRS held that the policyholder's ability to 
   choose among broad investment strategies (stocks vs. bonds vs. money market) 
   does NOT constitute impermissible investor control, provided the underlying 
   funds are NOT publicly available.

2. Insurer Discretion: The insurance company retains sole investment discretion 
   over the selection of individual stocks, bonds, and securities within each fund.

3. Tax Treatment: The insurance company—not the policyholder—is the owner of the 
   underlying separate account assets. Inside buildup compounds tax-deferred.

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SIGNIFICANCE TO PPLI:
Rev. Rul. 82-54 established that policyholders MAY choose among broad asset 
class sub-accounts without violating the Investor Control Doctrine, so long as 
they do not direct individual security selection.
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