Seward & Kissel LLP
One Battery Park Plaza
New York, New York 10004
Telephone: (212) 574-1200
Facsimile: (212) 480-8421
www.sewkis.com
September 26, 2008
AllianceBernstein Variable Products Series Fund, Inc. --
AllianceBernstein Balanced Shares Portfolio
1345 Avenue of the Americas
New York, New York 10105
AllianceBernstein Variable Products Series Fund, Inc. --
AllianceBernstein Balanced Wealth Strategy Portfolio
1345 Avenue of the Americas
New York, New York 10105
Re: Acquisition of the Assets and Assumption of the Liabilities of
AllianceBernstein Variable Products Series Fund, Inc. --
AllianceBernstein Balanced Shares Portfolio by
AllianceBernstein Variable Products Series Fund, Inc. --
AllianceBernstein Balanced Wealth Strategy Portfolio
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Ladies and Gentlemen:
I. Introduction
We have acted as counsel to AllianceBernstein Balanced Shares
Portfolio ("Target"), and AllianceBernstein Balanced Wealth Strategy Portfolio
("Acquirer"), each of which is a series of AllianceBernstein Variable Products
Series Fund, Inc., in connection with the Acquisition provided for in the Plan
of Acquisition and Liquidation with respect to Target and Acquirer, dated as of
June 11, 2008 (the "Plan"). Pursuant to Section 5(b) of the Plan, Target and
Acquirer have each requested our opinion as to certain of the federal income tax
consequences to Target, Acquirer and the stockholders of Target ("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 Target 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 Target and Acquirer offer and sell their shares only to
separate accounts of certain life insurance companies for the purpose of funding
variable annuity contracts and variable life insurance policies.
The Plan and the Acquisition have been approved by the Board of
Directors of Target (the "Target Board") and the Board of Directors of Acquirer
(the "Acquirer Board"). The terms and conditions of the Acquisition are set
forth in the Plan.
Pursuant to the Plan, Target will transfer all of its Assets to
Acquirer solely in exchange for shares (including fractional shares) of the
stock of Acquirer ("Acquirer Shares") and the assumption by Acquirer of all the
Liabilities of Target existing on or after the Effective Time of the
Acquisition. At the Closing Date, 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 Target ("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, Target and 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 Target is total return consistent with
reasonable risk, through a combination of income and long-term growth of
capital. Target invests in a diversified portfolio of equity and fixed-income
securities. The percentage of Target's assets invested in each type of security
will vary. Normally, Target's investments will consist of about 60% in stocks,
but stocks may comprise up to 75% of its investments. Target will not purchase a
security if as a result less than 25% of its net assets will be in fixed-income
securities. Target may invest up to 20% of its assets in high yield debt
securities. The investment objective of Acquirer is to maximize total return
consistent with reasonable risk. Acquirer targets a weighting of 60% equity
securities and 40% debt securities with a goal of providing moderate upside
potential without excessive volatility.
According to the Form N-CSR filed by Target with the United States
Securities and Exchange Commission (the "SEC") on August 25, 2008 for the period
ended June 30, 2008, approximately 73% of Target's assets are invested in common
stocks, approximately 11% of Target's assets are invested in investment-grade
corporate bonds and approximately 5.9% of Target's assets are invested in
mortgage-backed securities. The remainder of Target's Assets are invested in
commercial mortgage-backed securities, government bonds, preferred stock,
non-investment grade corporate bonds, asset-backed securities and various other
debt instruments. According to the Form N-CSR filed by Acquirer with the SEC on
August 25, 2008 for the period ended June 30, 2008, approximately 62% of
Acquirer's assets are invested in common stocks, approximately 8% of Acquirer's
assets are invested in investment-grade corporate bonds, approximately 7% of
Acquirer's assets are invested in U.S. Treasury bills and approximately 7% of
Acquirer's assets are invested in mortgage pass-thru certificates. The remainder
of Acquirer's assets are invested in commercial mortgage-backed securities,
government bonds, preferred stock, non-investment grade corporate bonds,
asset-backed securities and various other debt instruments.
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 Target:
(1) The Plan has been duly approved by both the Target Board and the
Acquirer Board.
(2) Each of Target and 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) Except as provided below, the Adviser will operate the business of
Target 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, 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) Following the Acquisition, Acquirer (a) has no plan or intention
to sell or otherwise dispose of any of the securities acquired from 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.
(5) The Target Stockholders will receive no consideration pursuant to
the Acquisition other than Acquirer Shares.
(6) The Target Stockholders will pay any expenses incurred by them in
connection with the Acquisition.
(7) The Liabilities of Target to be assumed by Acquirer in the
Acquisition have been incurred in the ordinary course of business of Target or
were incurred by Target solely and directly in connection with the Acquisition.
(8) During the five-year period ending at the Effective Time, (a)
neither Target nor any person "related" (within the meaning of Section
1.368-1(e)(3) of the Treasury Regulations) to 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 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
Target Shares, other than normal, regular dividend distributions made pursuant
to 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) 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
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 Target transferred to
Acquirer will equal or exceed the sum of (a) the amount of Liabilities of 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 Target, other than any disclosed and reflected
in the net asset value of Target.
(15) There are no unasserted claims or assessments against Target that
are probable of assertion.
(16) There is no plan or intention for 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, 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
Target held immediately before the Acquisition. For purposes of the foregoing,
any amounts 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 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 Target to be assumed by Acquirer in the
Acquisition will not exceed 20% of the fair market value of the assets of 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)
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(1) Code ss. 361.
(2) Code ss. 354.
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 Target to Acquirer, each of which is a corporation, in exchange solely for
stock of Acquirer, 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."
Since each of Acquirer and Target 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)
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(3) Treas. Reg. ss. 1.368-1(b).
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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(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 stock of Acquirer 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 IRS 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 Target's
historic business assets, and (ii) those assets will be used in a business after
the Acquisition by the Acquirer. In our view, the use of one-third of the
historic assets of Target by Acquirer will constitute the use of a "significant"
portion of Target's historic assets. Acquirer has represented that it will
retain these historic assets of Target which it acquires in the Acquisition and
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 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.
Alternatively, we believe that the Acquisition will satisfy the
"historic business test." Acquirer and Target are each currently engaged in the
business of investing in a balanced portfolio of assets in order to maximize
total return consistent with reasonable risk. Each of Target and Acquirer
invests approximately 60% of its assets in common stocks with the remainder
invested in a variety of primarily investment-grade debt instruments. Based upon
the above, we believe that Acquirer will continue to operate Target's "historic
business" of investing in a balanced portfolio of assets in order to maximize
total return consistent with reasonable risk. Therefore, in our view, the
Acquisition will satisfy the "historic business test" of the COBE requirement
for a "reorganization."
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 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) Neither Target nor Acquirer will recognize any gain or loss upon
the transfer by 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 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