SEWARD & KISSEL LLP
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004
April 25, 2008
AllianceBernstein Variable Products Series Fund, Inc.--
AllianceBernstein High Yield Portfolio
AllianceBernstein Global Bond Portfolio
AllianceBernstein Americas Government Income Portfolio
AllianceBernstein Global Dollar Government Portfolio
AllianceBernstein U.S. Government/High Grade Securities Portfolio
1345 Avenue of the Americas
New York, New York 10105
Re: Acquisition of the Assets and Assumption of the Liabilities of
certain series of AllianceBernstein Variable Products Series
Fund, Inc. by AllianceBernstein U.S. Government/High Grade
Securities Portfolio, a series of AllianceBernstein Variable
Products Series Fund, Inc.
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Ladies and Gentlemen:
I. Introduction
We have acted as counsel to AllianceBernstein High Yield Portfolio
("High Yield"), AllianceBernstein Global Bond Portfolio ("Global Bond"),
AllianceBernstein Americas Government Income Portfolio ("AGI"), and
AllianceBernstein Global Dollar Government Portfolio ("Global Dollar"), each of
which is a series AllianceBernstein Variable Products Series Fund, Inc., a
Maryland corporation (collectively, the "Targets"), and to AllianceBernstein
U.S. Government/High Grade Securities Portfolio, a series of AllianceBernstein
Variable Products Series Fund, Inc. (the "Acquirer"), in connection with the
Acquisition provided for in the Plan of Acquisition and Liquidation with respect
to Targets and Acquirer, dated as of February 7, 2008 (the "Plan"). Pursuant to
Section 5(b) of the Plan, the Targets and the Acquirer have each requested our
opinion as to certain of the federal income tax consequences to each Target, the
Acquirer and the stockholders of the Targets (collectively, the "Target
Stockholders") in connection with the Acquisition. Each capitalized term not
defined herein has the meaning ascribed to that term in the Plan.
II. Relevant Facts
Each of the Targets and Acquirer is registered as a series of an
open-end management investment company under the Investment Company Act of 1940,
as amended (the "Act").
The Plan and the Acquisition have been approved by the Board of
Directors of each of the Targets (collectively, the "Target Boards") and the
Board of Directors of the Acquirer (the "Acquirer Board"). The terms and
conditions of the Acquisition are set forth in the Plan.
Pursuant to the Plan, each Target will transfer all of its Assets to
the Acquirer solely in exchange for shares (including fractional shares) of the
stock of the Acquirer (the "Acquirer Shares") and the assumption by the Acquirer
of all the Liabilities of Target existing on or after the Effective Time of the
Acquisition. At the Closing Date, each Target will liquidate and distribute all
of the Acquirer Shares that it received in connection with the Acquisition to
former Target Stockholders in exchange for all of the then outstanding shares of
the stock of such Target (the "Target Shares"). Upon completion of the
Acquisition, each such former Target Stockholder will be the owner of full and
fractional Acquirer Shares equal in net asset value as of the Closing Date to
the net asset value of the Target Shares such Target Stockholder held prior to
the Acquisition. Pursuant to the Plan, each Target and the Acquirer will bear
any expenses incurred in connection with the Acquisition on a pro rata basis in
accordance with their respective net asset values as of the Effective Time of
the Acquisition.
The investment objective of the Acquirer and each Target is as
follows:
Fund Investment Objective
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Acquirer To generate income and price appreciation without
assuming undue risk. Invests at least 80% of
assets in fixed-income securities.
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High Yield To earn the highest level of current income
available without assuming undue risk by investing
principally in high-yielding fixed income
securities. Invests at least 80% of its assets in
high-yield fixed-income securities.
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Global Bond To achieve a high level of return through a
combination of current income and capital
appreciation by investing in a globally
diversified portfolio of high-qualify debt
securities. Invests at least 80% of its assets in
bonds and other fixed-income securities.
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AGI To maximize current income, consistent with
prudent investment risk, by investing in debt
securities issued or guaranteed by the governments
of the United States, Canada or Mexico and their
political subdivisions (excluding U.S. states),
agencies, instrumentalities or authorities.
Invests at least 80% of its assets in securities
issued by issuers located in North, South or
Central America. Invests at least 80% of its
assets in government securities.
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Global Dollar To seek a high level of current income and,
secondarily, capital appreciation. Invests at
least 80% of its assets in government securities.
Emphasizes investments in emerging market debt
obligations.
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The portfolio holdings of the Acquirer and each of the Targets is as
follows:
Fund Portfolio Holdings Source
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Acquirer Approximately 38% of its assets Annual Report for
consist of investment-grade period ending
corporate debt, approximately 26% December 31, 2007.
consist of mortgage-pass thru
certificates, approximately 14%
consist of Commercial
Mortgage-Backed Securities, and
approximately 8% consist of U.S.
Treasury securities. The remaining
assets consist of asset backed
securities, other government
related securities,
inflation-linked securities,
mortgage CMOs, short-term
investments and non-investment
grade corporate debt.
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High Yield Approximately 79% of its Annual Report for
assets consist of period ending
non-investment grade corporate December 31, 2007.
bonds, approximately 11%
consists of structured
non-corporate notes, and
approximately 6% consists of
investment-grade corporate
bonds. The remaining assets
are short-term investments,
preferred stock and
non-investment grade emerging
market debt.
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Global Bond Approximately 44% of its Form N-Q (Quarterly
assets consist of sovereign report )for period
debt obligations, ending September 30,
approximately 17% consist of 2007.
short-term investments,
approximately 13% consists of
U.S. Treasury securities,
approximately 11% consists of
government agency obligations,
and approximately 6% consists
of investment-grade corporate
obligations.
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AGI Substantially all of its Annual Report for
assets consist of securities period ending
issued by the governments of December 31, 2007.
the United States, Canada or
Mexico. 40.5% of its assets
consist of U.S. Treasury
securities, 29% of its assets
consist of securities of other
sovereigns, 29.6% consists of
agency debentures (such as
FannieMae securities).
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Global Approximately 83% of its Form N-Q (Quarterly
Dollar assets consist of sovereign report) for period
debt securities and ending September 30,
approximately 13% of its 2007.
assets consist of corporate
debt securities, in each case
primarily in emerging markets.
Largest geographic exposures
are to Russia, Brazil, Mexico
and the Philippines.
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In rendering the opinions set forth below, we have examined the
Registration Statement on Form N-14 of Acquirer relating to the Acquisition and
such other documents and materials as we have deemed relevant. For purposes of
rendering our opinions, we have relied exclusively, as to factual matters, upon
the statements made in that Registration Statement and, with your approval, upon
the following assumptions the correctness of each of which have been verified
(or appropriately represented) to us by officers of Acquirer and the Targets:
(1) The Plan has been duly approved by each of the Target Boards and
the Acquirer Board.
(2) Each of the Targets and the Acquirer: (a) is a "fund" (as defined
in Section 851(g)(2) of the United States Internal Revenue Code of 1986, as
amended (the "Code")); (b) has qualified for treatment as a regulated investment
company under Part I of Subchapter M of Subtitle A, Chapter 1, of the Code (a
"RIC") for each taxable year since the commencement of its operations and
qualifies for treatment as a RIC during its current taxable year which includes
the Effective Time; (c) will invest its assets at all times through the
Effective Time in a manner that ensures compliance with the foregoing; and (d)
has no earnings and profits accumulated in any taxable year in which it did not
qualify as a RIC.
(3) The Adviser will operate the business of the Targets in the
ordinary course between the date of the Plan and the Effective Time, including
the declaration and payment of customary dividends and other distributions and
any other distributions deemed advisable in anticipation of the Acquisition.
From the date it commenced operations through the Effective Time, each Target
will conduct its "historic business" (within the meaning of Section
1.368-1(d)(2) of the Treasury Regulations) in a substantially unchanged manner.
Before the Effective Time, Target will not (a) dispose of and/or acquire any
assets (i) for the purpose of satisfying Acquirer's investment objective or
policies, or (ii) for any other reason except in the ordinary course of its
business as a RIC, or (b) otherwise change its historic investment policies.
(4) Except as provided below, following the Acquisition, the Acquirer
(a) has no plan or intention to sell or otherwise dispose of any of the
securities acquired from each Target, except for dispositions made in the
ordinary course of its business and dispositions necessary to maintain its
status as a RIC, and (b) will operate its business in accordance with its stated
investment objectives and will invest its assets in accordance with its stated
investment objectives. The Acquirer intends to reposition the portfolios of each
of the Targets except AGI to more closely match the investment objective of
Acquirer. Pursuant to this repositioning, the Acquirer intends to sell up to
one-half of the assets of each Target (other than AGI) shortly after the
Acquisition.
(5) The Target Stockholders will receive no consideration pursuant to
the Acquisition other than the Acquirer Shares.
(6) The Target Stockholders will pay any expenses incurred by them in
connection with the Acquisition.
(7) The Liabilities of each Target to be assumed by Acquirer in the
Acquisition have been incurred in the ordinary course of business of the Target
or were incurred by the Target solely and directly in connection with the
Acquisition.
(8) During the five-year period ending at the Effective Time, (a) none
of the Targets nor any person "related" (within the meaning of Section
1.368-1(e)(3) of the Treasury Regulations) to a Target will have acquired Target
Shares, either directly or through any transaction, agreement, or arrangement
with any other person, with consideration other than Acquirer Shares or Target
Shares, except for Target Shares redeemed in the ordinary course of each
Target's business as a series of an open-end investment company as required by
Section 22(e) of the Act, and (b) no distributions will have been made with
respect to any Target Shares, other than normal, regular dividend distributions
made pursuant to such Target's historic dividend-paying practice and other
distributions that qualify for the deduction for dividends paid (within the
meaning of Section 561 of the Code) referred to in Sections 852(a)(1) and
4982(c)(1)(A) of the Code.
(9) The Acquirer has no plan or intention to issue additional Acquirer
Shares following the Acquisition except for Acquirer Shares issued in the
ordinary course of its business as an open-end investment company; nor does
Acquirer, or any person "related" (within the meaning of Section 1.368-1(e)(3)
of the Treasury Regulations) to Acquirer, have any plan or intention to acquire,
during the five-year period beginning at the Effective Time, either directly or
through any transaction, agreement, or arrangement with any other person, any
Acquirer Shares issued to Target Stockholders pursuant to the Acquisition,
except for redemptions in the ordinary course of such business as required by
Section 22(e) of the Act.
(10) During the five-year period ending at the Effective Time, neither
the Acquirer nor any person "related" (within the meaning of Section
1.368-1(e)(3) of the Treasury Regulations) to Acquirer will have acquired Target
Shares with consideration other than Acquirer Shares.
(11) Without limiting the effect of paragraphs 8, 9, and 10 above, the
aggregate value of the acquisitions, redemptions and distributions referenced in
such paragraphs will not exceed 50% of the value (without giving effect to such
acquisitions, redemptions, and distributions) of the Target Shares at the
Effective Time.
(12) (a) There is no plan or intention of the Target Stockholders to
redeem, sell or otherwise dispose of (i) any portion of their Target Shares
before the Acquisition to any person "related" (within the meaning of Section
1.368-1(e)(3) of the Treasury Regulations) to either Target or Acquirer or (ii)
any portion of the Acquirer Shares they receive in the Acquisition to any person
"related" (within such meaning) to Acquirer. (b) It is not anticipated that
dispositions of those Acquirer Shares at the time of, or immediately after, the
Acquisition will exceed the usual rate and frequency of dispositions of Target
Shares as a series of an open-end investment company. (c) It is expected that
the percentage of Target Shares, if any, that will be disposed of as a result
of, or at the time, of the Acquisition will be de minimis, and that there will
be no extraordinary redemptions of Target Shares immediately following the
Acquisition.
(13) The fair market value of the assets of each Target transferred to
Acquirer will equal or exceed the sum of (a) the amount of Liabilities of the
Target assumed by Acquirer, and (b) the amount of Liabilities, if any, to which
the transferred assets are subject.
(14) There are no pending or threatened claims or assessments that
have been asserted by or against any Target, other than any disclosed and
reflected in the net asset value of such Target.
(15) There are no unasserted claims or assessments against any Target
that are probable of assertion.
(16) There is no plan or intention for the Acquirer to be dissolved or
merged into another business trust or a corporation or any "fund" thereof (as
defined in Section 851(g)(2) of the Code) following the Acquisition.
(17) At no time during the five-year period ending at the Effective
Time, has the Acquirer directly or indirectly owned any Target Shares.
(18) The fair market value of the Acquirer Shares each Target
Stockholder receives in connection with the Acquisition will be approximately
equal to the fair market value of the Target Shares it surrenders in exchange
therefor.
(19) Pursuant to the Acquisition, each Target will transfer to
Acquirer, and Acquirer will acquire, at least 90% of the fair market value of
the net assets, and at least 70% of the fair market value of the gross assets,
that such Target held immediately before the Acquisition. For purposes of the
foregoing, any amounts that a Target uses to pay its Acquisition expenses and to
make redemptions and distributions immediately before the Acquisition (except
(a) redemptions in the ordinary course of its business required by Section 22(e)
of the Act, and (b) regular, normal dividend distributions made to conform to
its policy of distributing all or substantially all of its income and gains to
avoid the obligation to pay federal income tax and/or the excise tax under
Section 4982 of the Code) will be included as assets held thereby immediately
before the Acquisition.
(20) There is no intercompany indebtedness between Acquirer and any
Target that was issued or acquired, or will be settled, at a discount.
(21) The sum of (a) the expenses incurred by the Adviser pursuant to
the Plan and (b) the liabilities of each Target to be assumed by Acquirer in the
Acquisition will not exceed 20% of the fair market value of the assets of a
Target transferred to Acquirer pursuant to the Acquisition.
III. Relevant Law
A corporation which is a "party to a reorganization" will not
recognize gain or loss if it exchanges property pursuant to a plan of
reorganization solely for stock or securities of another corporation which is a
party to the reorganization.(1) Likewise, the shareholders of a corporation
which is a party to a reorganization will not recognize gain or loss if they
exchange stock or securities of such corporation solely for stock or securities
in such corporation or another corporation which is a party to the
reorganization in pursuant of the plan of reorganization.(2)
In order to be a treated as a "reorganization," a transaction must
satisfy certain statutory requirements contained in Code Section 368 as well as
certain regulatory requirements contained in the Treasury Regulations
thereunder.
Code Section 368(a)(1)(C) provides that a "reorganization" includes
the acquisition by one corporation in exchange solely for all or a part of its
voting stock of substantially all of the properties of another corporation. Code
Section 368(a)(2)(F) provides that two or more investment companies may engage
in a "reorganization" only if each of them is either a RIC, a real estate
investment trust or they each meet certain diversification requirements.
The Acquisition will be a transfer of substantially all of the assets
of each Target to Acquirer, all of which are corporations, in exchange solely
for Acquirer Shares, which will then be distributed to the Target Stockholders.
Therefore, the Acquisition will satisfy the statutory language of Section
368(a)(1)(C) to be treated as a "reorganization."
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(1) Code ss. 361.
(2) Code ss. 354.
Since Acquirer and each of the Targets is a RIC, the Acquisition will
satisfy the statutory language of Section 368(a)(2)(F) to be treated as a
"reorganization."
In addition to the statutory language of Code Section 368, there are
two significant non-statutory requirements for a reorganization, the continuity
of interest ("COI") requirement and the continuity of business enterprise
("COBE") requirement. (3)
In order to satisfy the COI requirement, "a substantial part of the
value of the proprietary interests in the target corporation must be
preserved."(4) This is accomplished "if, in a potential reorganization, the
proprietary interest in the target corporation is exchanged for a proprietary
interest in the issuing corporation..."(5) For this purpose, a proprietary
interest in the target corporation is not preserved if persons related to the
acquiring corporation acquire stock of the target corporation for consideration
other than stock of the acquiring corporation.(6)
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(3) Treas. Reg. ss. 1.368-1(b).
(4) Treas. Reg. ss. 1.368-1(e)(1)(i).
(5) Id.
(6) Treas. Reg. ss. 1.368-1(e)(3).
Based upon the representations made above with respect to acquisitions
of Target Shares by persons "related" to Acquirer, each Target Stockholder will
receive solely Acquirer Shares as a result of the Acquisition. Therefore, the
Acquisition will satisfy the COI requirement.
In order to satisfy the COBE requirement, a reorganization may satisfy
either the "historic business test" or the "historic asset test."
Under the "historic business test," a taxpayer can establish COBE if
it either (i) continues the target's "historic business," or (ii) continues any
significant historic line of business of the target if the target has more than
one line of business. For this purpose, a line of business entered into as part
of the plan of reorganization is not a historic business.
Under the "historic asset test," a taxpayer can establish asset
continuity if it uses a "significant" portion of the target's historic business
assets in a business. Treas. Reg. ss. 1.368-1(d)(3) provides that there is no
bright-line percentage test for determining when a "significant" portion of the
target's assets are used after the transaction. Rather, the determination is
made based upon the relative importance of the assets to the operation of the
business. However, the courts and the Internal Revenue Service have held that
the "historic asset test" will be satisfied if one-third of a RIC's historic
assets are retained by the Acquirer after a reorganization and the remaining
assets are disposed of for cash.(7) "Historic business assets" may include
stock, securities, or intangible operating assets if they are used in the
target's historic business.(8)
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(7) See, e.g., PLR 200540001 (Oct. 7, 2005). See also Laure v. Commissioner,
653 F.2d 253 (6th Cir. 1981) (holding that 27% was significant).
(8) Treas. Reg. ss. 1.368-1(d)(1)-(3).
In interpreting the "historic business test" in the case of a
reorganization involving a RIC, the Internal Revenue Service has held that a
corporation engaged in the business of investing in a portfolio of corporate
stocks and bonds was not in the same business as a diversified open-end RIC
investing in high-grade municipal bonds.(9)
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(9) Rev. Rul. 87-76, 1987-2 C.B. 84.
The Acquisition will satisfy the "historic asset" test if (i) the
assets to be acquired by Acquirer constitute a "significant" portion of a
Target's historic business assets, and (ii) those assets will be used by the
Acquirer in a business after the Acquisition. In our view, the use of one-third
of the historic assets of a Target by Acquirer will constitute the use of a
"significant" portion of Target's historic assets. Acquirer has represented that
it will retain at least one-half of the historic assets of each Target which it
acquires in the Acquisition. Other than the respositioning, Acquirer has no plan
or intention to sell or otherwise dispose of these securities, except for
dispositions made in the ordinary course of that business and dispositions
necessary to maintain its status as a RIC. Therefore, Acquirer will use the
historic securities acquired from each Target in its business of investing in
debt obligations. As a result, Acquirer will satisfy the "historic asset test"
of the COBE requirement and thus will satisfy the COBE requirement.
This opinion does not address whether the Acquisition will satisfy the
"historic business test."
IV. Opinions
Based upon the foregoing and upon our review of the Code, the Treasury
Regulations promulgated under the Code, published Revenue Rulings, Revenue
Procedures and other published pronouncements of the Internal Revenue Service,
the published opinions of the United States Tax Court and other United States
federal courts, and such other authorities as we consider relevant, each as they
exist as of the date hereof, we are of the opinion that, for federal income tax
purposes:
(1) The Acquisition will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and each Target and Acquirer will each be
a "party to a reorganization" within the meaning of Section 368(b) of the Code.
(2) Each Target Stockholder will recognize no gain or loss on such
stockholder's receipt of Acquirer Shares (including any fractional Acquirer
Share to which the stockholder may be entitled) in exchange for the
stockholder's Target Shares in connection with the Acquisition.
(3) No gain or loss will be recognized by any Target or the Acquirer
upon the transfer by a Target of all of the Assets to Acquirer solely in
exchange for Acquirer Shares and the assumption by Acquirer of the Liabilities
pursuant to the Plan or upon the distribution of Acquirer Shares to Target
Stockholders in exchange for their respective Target Shares.
(4) The holding period and tax basis of the Assets acquired by
Acquirer will be the same as the holding period and tax basis that Target had in
the Assets immediately prior to the Acquisition.
(5) The aggregate tax basis of Acquirer Shares received in connection
with the Acquisition by each Target Stockholder (including any fractional
Acquirer Share to which the stockholder may be entitled) will be the same as the
aggregate tax basis of the Target Shares surrendered in exchange therefor.
(6) The holding period of Acquirer Shares received in connection with
the Acquisition by each Target Stockholder (including any fractional Acquirer
Share to which the stockholder may be entitled) will include the holding period
of the Target Shares surrendered in exchange therefor, provided that such Target
Shares constitute capital assets in the hands of the stockholder as of the
Closing Date.
(7) Acquirer will succeed to the capital loss carryovers of each
Target, if any, under Section 381 of the Code, but the use by Acquirer of any
such capital loss carryovers (and of any capital loss carryovers of Acquirer)
may be subject to limitation under Section 383 of the Code.
Because our opinion is based upon current law, no assurance can be
given that existing United States federal income tax laws will not be changed by
future legislative or administrative or judicial interpretation, any of which
could affect the opinion expressed above. This opinion is provided to you in
connection with the Acquisition. This opinion may not be quoted or relied upon
by any other person or entity, or for any other purpose, without our prior
written consent.
Very truly yours,
/s/ Seward & Kissel LLP