Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Notices 65707

14See supra note 9.

15 15 U.S.C. 78s(b)(2) (1988).

16 17 CFR 200.30–3(a)(12) (1994).

approach used to adjust outstanding

options on stocks that have undergone

a two-for-one stock split.

The Commission believes that

doubling the Index’s divisor will not

have an adverse market impact or make

trading in XOC options susceptible to

manipulation. After the split, the Index

will continue to be comprised of the

same stocks with the same weightings

and will be calculated in the same

manner (except for the change in the

divisor). The Phlx’s surveillance

procedures will also remain the same.

Lastly, for the reasons discussed

below, the Commission also believes

that the commenter’s criticisms of the

rule proposal have been adequately

addressed by the Phlx’s response. First,

issues regarding the appropriate value of

an index are business decisions

typically left to the discretion of an

exchange, particularly in the absence of

Commission concerns regarding

potential manipulation, investor

confusion, or other regulatory concerns.

Second, the Commission believes that

the Exchange’s proposal to adjust the

Index in a manner similar to a two-forone stock split provides a simple,

orderly, and efficient means to effect the

adjustment. Third, the Commission

believes that the Phlx will be able to

provide adequate notice to market

participants regarding to change to the

Index value prior to its implementation.

As noted above,14 the Phlx has already

indicated its intent, subject to

Commission approval, to adjust the

Index value after the December

expiration.

V. Conclusion

For the foregoing reasons, the

Commission finds that the Phlx’s

proposal to reduce the value of the

Index to one-half of its present value is

consistent with the requirements of the

Act and the rules and regulations

thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,15 that the

proposed rule change (SR–Phlx–95–61)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Jonathan G. Katz,

Secretary.

[FR Doc. 95–30855 Filed 12–19–95; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–21600; File No. 812–9526]

Connecticut General Life Insurance

Company, et al.

December 13, 1995.

AGENCY: Securities and Exchange

Commission (the ‘‘SEC’’ or the

‘‘Commission’’).

ACTION: Notice of Application for

Exemption under the Investment

Company Act of 1940 (the ‘‘1940 Act’’).

APPLICANTS: Connecticut General Life

Insurance Company (‘‘CG Life’’), CG

Variable Life Insurance Separate

Account II (the ‘‘Account’’), and CIGNA

Financial Advisors, Inc. (‘‘CIGNA’’).

RELEVANT 1940 ACT SECTIONS: Order

requested under Section 6(c) of the 1940

Act for exemptions from Section

27(c)(2) of the 1940 Act and Rule 6e–

3(T)(c)(4)(v) thereunder.

SUMMARY OF APPLICATION: Applciants

seek an order to permit them to deduct

a charge that is reasonable in relation to

CG Life’s increased federal income tax

burden resulting from the receipt by CG

Life of premiums in connection with

certain flexible premium variable life

insurance contracts issued by CG Life,

the Account and any other separate

account established in the future by CG

Life (the ‘‘Other Accounts,’’ collectively,

with the Account, the ‘‘Accounts’’).

FILING DATE: The application was filed

on March 13, 1995 and amended and

restated on August 1, 1995 and

December 1, 1995.

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,

personally or by mail. Hearing requests

must be received by the Commission by

5:30 p.m. on January 8, 1996 and should

be accompanied by proof of service on

Applicants in the form of an affidavit or,

for lawyers, a certificate of service.

Hearing requests should state the nature

of the interest, the reason for the

request, and the issues contested.

Persons may request notification of a

hearing by writing to the Secretary of

the SEC.

ADDRESSES: Secretary, Securities and

Exchange Commission, 450 Fifth Street,

N.W., Washington, D.C. 20549.

Applicants, Robert A. Picarello, Esq.,

Connecticut General Life Insurance

Company, 900 Cottage Grove Road,

Hartford, Connecticut 06152.

FOR FURTHER INFORMATION CONTACT:

Joseph G. Mari, Senior Special Counsel,

or Wendy Friedlander, Deputy Chief,

both at (202) 942–0670, Office of

Insurance Products, Division of

Investment Management.

SUPPLEMENTARY INFORMATION: Following

is a summary of the application. The

complete application is available for a

fee from the Commission’s Public

Reference Branch.

Applicants’ Representations

1. CG Life, a stock life insurance

company domiciled in Connecticut, is a

wholly owned subsidiary of CIGNA

Holdings, Inc., which is, in turn, wholly

owned by CIGNA Corporation. The

Account, established by CG Life on July

6, 1994 pursuant to Connecticut law, is

registered with the Commission as a

unit investment trust. The assets of the

Account are divided among

subaccounts, each of which will invest

in shares of one of five registered

investment companies (the ‘‘Funds’’).

The funds currently offer sixteen

portfolios for investment. Each of the

Funds is an open-end diversified

management investment company

under the 1940 Act. The Other Accounts

will be organized as unit investment

trusts and will file registration

statements under the 1940 Act and the

Securities Act of 1933.

2. CIGNA will serve as the distributor

and the principal underwriter of the

Existing Contracts, described below.

Applicants state that they expect CIGNA

also to serve as the distributor and the

principal underwriter of the Future

Contracts, described below. CIGNA is a

wholly owned subsidiary of Connecticut

General Corporation, CIGNA, which is,

in turn, a wholly owned subsidary of

CIGNA Corporation. CIGNA a member

of the National Association of Securities

Dealers, Inc., is registered with the

Commission as a broker-dealer under

the Securities Exchange Act of 1934,

and as an investment adviser under the

Investment Advisers Act of 1940.

3. The Existing Contracts are flexible

premium variable life insurance

policies, and will be issued on a group

or individual basis. The Future

Contracts will be substantially similar in

all material respects to the Existing

Contracts (the Future Contracts,

collectively, with the Existing Contracts,

the ‘‘Contracts’’). The Contracts will be

issued in reliance on Rule 6e–

3(T)(b)(13)(i)(A) under the 1940 Act.

Applicants state that CG Life will

deduct 1.15% of each premium

payment made under the Contracts to

cover CG Life’s estimated cost for the

federal income tax treatment of deferred

acquisition costs.

4. In the Omnibus Budget

Reconciliation Act of 1990, Congress

amended the Internal Revenue Code of

1986 (the ‘‘Code’’) by, among other

things, enacting Section 848 thereof.
65708 Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Notices

Section 848 changed how a life

insurance company must compute its

itemized deductions from gross income

for federal income tax purposes. Section

848 requires an insurance company to

capitalize and amortize over a period of

ten years part of the company’s general

expenses for the current year. Under

prior law, these general expenses were

deductible in full from the current

year’s gross income.

5. The amount of expenses that must

be capitalized and amortized over ten

years rather than deducted in the year

incurred is based solely upon ‘‘net

premiums’’ received in connection with

certain types of insurance contracts.

Section 848 of the Code defines ‘‘net

premium’’ for a type of contract as gross

premiums received by the insurance

company on the contracts minus return

premiums and premiums paid by the

insurance company for reinsurance of

its obligations under such contracts.

Applicants state that the effect of

Section 848 is to accelerate the

realization of income from insurance

contracts covered by that Section, and,

accordingly, the payment of taxes on the

income generated by those contracts.

6. The amount of general expenses

that must be capitalized depends upon

the type of contract to which the

premiums received relate and varies

according to a schedule set forth in

Section 848. Applicants state that the

Contracts are ‘‘specified insurance

contracts’’ that fall into the category of

life insurance contracts, and under

Section 848, 7.7% of the year’s net

premiums received must be capitalized

and amortized.

7. Applicants state that CG Life’s

increased tax burden resulting from

section 848 may be quantified as

follows. For each $10,000 of net

premiums received by CG Life under the

Contracts in a given year, section 848

requires CG Life to capitalize $770

(7.7% of $10,000), and $38.50 (one-half

year’s portion of the ten year

amortization) of this $770 may be

deducted in the current year. This

leaves $731.50 ($770 minus $38.50)

subject to taxation at the corporate tax

rate of 35%, and results in an increase

in tax for the current year of $256.03

(.35×$731.50). This increase will be

partially offset by deductions that will

be allowed during the next ten years as

a result of amortizing the remainder of

the $770 ($77 in each of the following

nine years and $38.50 in the tenth year).

8. In the business judgment of CG

Life, a discount rate of 10% is

appropriate for use in calculating the

present value of CG Life’s future tax

deductions resulting from the

amortization described above.

Applicants state that CG Life seeks an

after tax rate of return on the investment

of its capital in excess of 10%. To the

extent that capital must be used by CG

Life to meet its increased federal tax

burden under section 848 resulting from

the receipt of premiums, such capital is

not available to CG Life for investment.

Thus, Applicants contend, the cost of

capital used to satisfy CG Life’s

increased federal income tax burden

under section 848 is, in essence, CG

Life’s after tax rate of return on capital;

and, accordingly, the rate of return on

capital is appropriate for use in this

present value calculation.

9. Applicants submit that, to the

extent that the 10% discount rate is

lower than CG Life’s actual targeted rate

of return, a measure of comfort is

provided that the calculation of CG

Life’s increased tax burden attributable

to the receipt of premiums will continue

to be reasonable over time, even if the

corporate tax or the targeted after tax

rate of return applicable to CG Life is

reduced. CG Life undertakes to monitor

the tax burden imposed on it and to

reduce the charge to the extent of any

significant decrease in the tax burden.

10. In determining the after tax rate of

return used in arriving at the 10%

discount rate, Applicants state that CG

Life considered several factors,

including: historical capital costs;

market interest rates; CG Life’s

anticipated long term growth rate; the

risk level for this type of business; and

inflation. CG Life represents that such

factors are appropriate factors to

consider in determining CG Life’s cost

of capital. Applicants state that CG Life

projects its future growth rate based on

its sales projections, the current interest

rates, the inflation rate, and the amount

of capital that CG Life can provide to

support such growth. CG Life then uses

the anticipated growth rate and the

other factors enumerated above to set a

rate of return on capital that equals or

exceeds this rate of growth. Applicants

state the CG Life seeks to maintain a

ratio of capital to assets that is

established based on CG Life’s judgment

of the risk represented by various

components of CG Life’s assets and

liabilities. Applicants state that

maintaining the ratio of capital to assets

is critical to offering competitively

prices products and, as to CG Life, to

maintaining a competitive rating from

various rating agencies. Consequently,

Applicants state that CG Life’s capital

should grow at least at the same rate as

do CG Life’s assets.

11. Applying the 10% discount rate,

and assuming a 35% corporate income

tax rate, the present value of the tax

effect of the increased deductions

allowable in the following ten years

amounts to a federal income tax savings

of $160.40. Thus, the present value of

the increased tax burden resulting from

the effect of section 848 on each $10,000

of net premiums received under the

Contracts is $95.63, i.e., $256.03 minus

$160.40 or 1.47%.

12. State premium taxes are

deductible in computing federal income

taxes. Thus, CG Life does not incur

incremental federal income tax when it

passes on state premium taxes to owners

of the Contracts. Conversely, federal

income taxes are not deductible in

computing CG Life’s federal income

taxes. To compensate CG Life fully for

the impact of section 848, therefore, it

would be necessary to allow CG Life to

impose in additional charge that would

make CG Life whole not only for the

$95.63 additional federal income tax

burden attributable to section 848 but

also for the federal income tax on the

additional $95.63 itself. This federal

income tax can be determined by

dividing $95.63 by the complement of

the 35% federal corporate income tax

rate, i.e., 65%, resulting in an additional

charge of $147.12 for each $10,000 of

net premiums, or 1.46%.

13. Based on prior experience, CG Life

expects that all of its current and future

deductions will be fully taken. It is the

judgment of CG Life that a charge of

1.15% would reimburse CG Life for the

impact of section 848 on CG Life’s

federal income tax liabilities.

Applicants represent that the charge to

be deducted by CG Life pursuant to the

relief requested is reasonably related to

the increased federal income tax burden

under section 848, taking into account

that benefit to CG Life of the

amortization permitted by section 848,

and the use by CG Life of a discount rate

of 10% in computing the future

deductions resulting from such

amortization, such rate being the

equivalent of CG Life’s cost of capital.

14. CG Life asserts that although a

charge of 1.15% of premium payments

would reimburse CG Life’s for the

impact of section 848 (as currently

written) on CG Life’s federal income tax

liabilities, it will have to increase this

charge if any future change in, or

interpretation of section 848, or any

successor provision, results in an

increased federal income tax burden

due to the receipt of premiums. Such an

increase could result from a change in

the corporate federal income tax rate, a

change in the 7.7% figure, or a change

in the amortization period.

Applicant’s Legal Analysis

1. Applicants request an order of the

Commission pursuant to Section 6(c)
Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Notices 65709

exempting them from the provisions of

Section 27(c)(2) of the 1940 Act and

Rule 6e–3(T)(c)(4)(v) thereunder to the

extent necessary to permit deductions to

be made from premium payments

received in connection with the

Contracts. The deductions would be in

an amount that is reasonable in relation

to CG Life’s increased federal income

tax burden related to the receipt by such

premiums. Applicants further request

an exemption from Rule 6e–3(T)(c)(4)(v)

under the 1940 Act to permit the

proposed deductions to be treated as

other than ‘‘sales load’’ for the purposes

of Section 27 of the 1940 Act and the

exemptions from various provisions of

that Section found in Rule 6e–

3(T)(b)(13).

2. Section 6(c) of the 1940 Act

provides, in pertinent part, that the

Commission may, by order upon

application, conditionally or

unconditionally exempt any person,

security or transaction from any

provision of the 1940 Act 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 the

provisions of the 1940 Act.

3. Section 27(c)(2) of the 1940 Act

prohibits the sale of periodic payment

plan certificates unless the proceeds of

all payments (except such amounts as

are deducted for sales load) are held

under an indenture or agreement

containing in substance the provisions

required by Sections 26(a)(2) and

26(a)(3) of the 1940 Act. Certain

provisions of Rule 6e–3(T) provide a

range of exemptive relief for the offering

of flexible premium variable life

insurance policies such as the Contracts.

Rule 6e–3(T)(b)(13)(iii) provides, subject

to certain conditions, exemptions from

Section 27(c)(2) that include permitting

a payment of certain administrative fees

and expenses, the deduction of a charge

for certain mortality and expense risks,

and the ‘‘deduction of premium taxes

imposed by any state or other

governmental entity.’’

4. Rule 6e–3(T)(c)(4) defines ‘‘sales

load’’ charged during a contract period

as the excess of any payments made

during the period over the sum of

certain specified charges and

adjustments, including ‘‘a deduction for

and approximately equal to state

premium taxes.’’

5. Applicants submit that the

deduction for federal income tax

charges, proposed to be deducted in

connection with the Contracts, is akin to

a state premium tax charge in that it is

an appropriate charge related to CG

Life’s tax burden attributable to

premiums received. Thus, Applicants

submit that the proposed deduction be

treated as other than sales load, as is a

state premium tax charge, for purposes

of the 1940 Act.

6. Applicants contend that the

requested exemptions from Rule 6e–

3(T)(c)(4) are necessary in connection

with Applicant’s reliance on certain

provisions of Rule 6e–3(T)(b)(13), and

particularly on subparagraph (b)(13)(i)

of the Rule, which provides exemptions

from Sections 27(a)(1) and 27(h)(1) of

the 1940 Act. Issuers and their affiliates

may rely on Rule 6e–3(T)(b)(13)(i) only

if they meet the Rule’s alternative

limitations on sales load as defined in

Rule 6e–3(T)(c)(4). Applicants state that,

depending upon the load structure of a

particular Contract, these alternative

limitations may not be met if the

deduction for the increase in an issuer’s

federal tax burden is included in sales

load. Although a deduction for an

insurance company’s increased federal

tax burden does not fall squarely within

any of the specified charges or

adjustments which are excluded from

the definition of ‘‘sales load’’ in Rule

6e–3(T)(c)(4), Applicants state that they

have found no public policy reason for

including these deductions in ‘‘sales

load.’’

7. The public policy that underlies

Rule 6e–3(T)(b)(13)(i), like that which

underlies Sections 27(a)(1) and 27(h)(1)

of the 1940 Act, is to prevent excessive

sales loads from being charged in

connection with the sale of periodic

payment plan certificates. Applicants

submit that the treatment of a federal

income tax charge attributable to

premium payments as sales load would

not in any way further this legislative

purpose because such a deduction has

no relation to the payment of sales

commissions or other distribution

expenses. Applicants state that the

Commission has concurred with this

conclusion by excluding deductions for

state premium taxes from the definition

of ‘‘sales load’’ in Rule 6e–3(T)(c)(4).

8. Applicants assert that the source for

the definition of ‘‘sales load’’ found in

the Rule supports this analysis.

Applicants state that the Commission’s

intent in adopting such provisions was

to tailor the general terms of Section

2(a)(35) of the 1940 Act to variable life

insurance contracts. Just as the

percentage limits of Sections 27(a)(1)

and 27(h)(1) depend on the definition of

‘‘sales load’’ in Section 2(a)(35) for their

efficacy, the percentage limits in Rule

6e–3(T)(b)(13)(i) depend on Rule 6e–

3(T)(c)(4), which does not depart, in

principle, from Section 2(a)(35).

9. Section 2(a)(35) excludes

deductions from premiums for ‘‘issue

taxes’’ from the definition of ‘‘sales

load’’ under the 1940 Act. Applicants

submit that this suggests that it is

consistent with the policies of the 1940

Act to exclude from the definition of

‘‘sales load’’ in Rule 6e–3(T) deductions

made to pay an insurance company’s

costs attributable to its tax obligations.

Section 2(a)(35) also excludes

administrative expenses or fees that are

‘‘not properly chargeable to sales or

promotional activities.’’ Applicants

contend that this suggests that the only

deductions intended to fall within the

definition of ‘‘sales load’’ are those that

are properly chargeable to such

activities. Because the proposed

deductions will be used to compensate

CG Life for its increased federal income

tax burden attributable to the receipt of

premiums, and are not properly

chargeable to sales or promotional

activities, this language in Section

2(a)(35) is another indication that not

treating such deductions as ‘‘sales load’’

is consistent with the policies of the

1940 Act.

10. Applicants assert that the terms of

the relief requested with respect to

Contracts to be issued through the

Accounts are consistent with the

standards enumerated in Section 6(c) of

the 1940 Act. Without the requested

relief, CG Life would have to request

and obtain exemptive relief for each

Contract to be issued through one of the

Accounts. Applicants state that such

additional requests for exemptive relief

would present no issues under the 1940

Act not already addressed in this

request for exemptive relief.

11. Applicants assert that the

requested relief is appropriate in the

public interest because it would

promote competitiveness in the variable

life insurance market by eliminating the

need for CG Life and Other Accounts to

file redundant exemptive applications,

thereby reducing administrative

expenses and maximizing efficient use

of resources. The delay and expense

involved in having to seek repeated

exemptive relief would impair the

ability of CG Life and the Accounts to

take advantage fully of business

opportunities as those opportunities

arise. Additionally, Applicants state that

the requested relief is consistent with

the purposes of the 1940 Act and the

protection of investors for the same

reasons. If CG Life and the Other

Accounts were required to seek

exemptive relief repeatedly with respect

to the same issues addressed in this

application, investors would not receive

any benefit or additional protection

thereby and might be disadvantaged as

a result of increased overhead expenses

for CG Life and the Accounts.
65710 Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Notices

1Applicants represent that they will amend the

application during the Notice period to include this

condition as set forth herein.

Conditions for Relief

1. Applicants represent that CG Life

will monitor the reasonableness of the

charge to be deducted by CG Life

pursuant to the requested exemptive

relief.

2. Applicants represent that the

registration statement for each Contract

under which the charge referenced in

paragraph one of this section is

deducted will: (i) disclose the charge;

(ii) explain the purpose of the charge;

and (iii) state that the charge is

reasonable in relation to CG Life’s

increased federal income tax burden

under Section 848 resulting from the

receipt of premiums.

3. Applicants represent that the

registration statement for each Contract

under which the charge referenced in

paragraph one of this section is

deducted will contain as an exhibit an

actuarial opinion as to: (i) the

reasonableness of the charge in relation

to CG Life’s increased federal income

tax burden under Section 848 resulting

from the receipt of premiums; 1 (ii) the

reasonableness of the after tax rate of

return that is used in calculating such

charge and the relationship that such

charge has to CG Life’s cost of capital;

and (iii) the appropriateness of the

factors taken into account by CG Life in

determining the after tax rate of return.

Conclusion

Applicants submit that, for the

reasons and upon the facts set forth

above, the requested exemptions from

Section 27(c)(2) of the 1940 Act and

Rule 6e–3(T)(c)(4)(v) thereunder, to

permit CG Life to deduct 1.15% of

premium payments under the Contracts,

meet the standards set forth in Section

6(c) of the 1940 Act. In this regard,

Applicants assert that granting the relief

requested in the application would be

appropriate in the public interest and

consistent with the protection of

investors and the purposes fairly

intended by the policy and provisions of

the 1940 Act.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Jonathan G. Katz,

Secretary.

FR Doc. 95–30858 Filed 12–19–95; 8:45 am]

BILLING CODE 8010–01–M

[Investment Company Act Release No.

21597; 812–9476]

The Diversified Investors Funds

Group, et al.; Notice of Application

December 13, 1995.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of Application for an

Order Under the Investment Company

Act of 1940 (the ‘‘Act’’).

APPLICANTS: The Diversified Investors

Funds Group (‘‘Diversified Fund’’);

Diversified Investors Portfolios

(‘‘Diversified Portfolios’’); Diversified

Investment Advisors, Inc.

(‘‘Diversified’’), on behalf of itself and

each open-end management investment

company or series thereof organized in

the future (the ‘‘Future Funds’’) which

is a member of the same ‘‘group of

investment companies’’ as defined in

rule 11a–3 under the Act; and

Diversified Investors Securities Corp.

(the ‘‘Distributor’’).

RELEVANT ACT SECTIONS: Order of

exemption requested pursuant to

section 6(c) of the Act from section

12(d)(1) of the Act, pursuant to sections

6(c) and 17(b) of the Act from section

17(a) of the Act, and pursuant to rule

17d–1 under the Act permitting certain

joint transactions in accordance with

section 17(d) of the Act and rule 17d–

1 thereunder.

SUMMARY OF APPLICATION: The requested

order would permit applicants to create

a ‘‘fund of funds’’ that initially will have

three portfolios. Each portfolio would

allocate substantially all of its assets

among the series of Diversified Fund or

of the Future Funds (each such series

and Future Fund is referred to

individually as an ‘‘Underlying Spoke,’’

and all such series and Future Funds,

collectively, as the ‘‘Underlying

Spokes’’) without regard to the

percentage limitations of section

12(d)(1). The Underlying Spokes, in

turn, will invest in a corresponding

series of Diversified Portfolios or of a

Future Fund (each such series and

Future Fund is referred to individually

as an ‘‘Underlying Hub,’’ and all such

series and Future Funds, collectively, as

the ‘‘Underlying Hubs’’). The requested

order also would permit certain

affiliated joint transactions in

accordance with section 17(d) of the Act

and rule 17d–1.

FILING DATES: The application was filed

on February 6, 1995, and amended and

restated on June 2, 1995, July 12, 1995,

and December 12, 1995.

HEARING OR NOTIFICATION OF HEARINGS:

An order granting the application will

be issued unless the SEC orders a

hearing. Interested persons may request

a hearing by writing to the SEC’s

Secretary and serving applicants with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

January 8, 1996, and should be

accompanied by proof of service on

applicants, in the form of an affidavit,

or, for lawyers, a certificate of service.

Hearing requests should state the nature

of the writer’s interest, the reason for the

request, and the issues contested.

Persons may request notification of a

hearing by writing to the SEC’s

Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, N.W., Washington, D.C. 20549.

Applicants, 4 Manhattanville Road,

Purchase, New York 10577.

FOR FURTHER INFORMATION CONTACT:

Mary Kay Frech, Senior Attorney, at

(202) 942–0579, or C. David Messman,

Branch Chief, at (202) 942–0564

(Division of Investment Management,

Office of Investment Company

Regulation).

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application

may be obtained for a fee from the SEC’s

Public Reference Branch.

Applicants’ Representations

1. Diversified Fund is organized as a

Massachusetts business trust.

Diversified Portfolios is organized as a

trust under the laws of the State of New

York. Each of Diversified Fund and

Diversified Portfolios is registered as an

open–end management investment

company under the Act. Diversified

Fund currently consists of eight separate

series and Diversified Portfolios

currently consists of nine separate

series.

2. Diversified is a registered

investment adviser under the

Investment Advisers Act of 1940.

Diversified is an indirect, wholly-owned

subsidiary of AEGON USA, Inc., a

financial services holding company

whose primary emphasis is life and

health insurance and annuity and

investment products. AEGON USA, Inc.

is an indirect, wholly-owned subsidiary

of AEGON nv, a Netherlands

corporation which is a publicly traded

international insurance group.

Diversified currently is the investment

manager for Diversified Portfolios and

acts as administrator and transfer agent

for Diversified Fund. Each Underlying

Spoke organized in the future will be

administered by Diversified, and each

Underlying Hub organizer in the future

will be advised by Diversified.

Diversified Investors Securities Corp.