EXHIBIT 12
FORM OF TAX OPINION OF COUNSEL
SUTHERLAND DRAFT
NOVEMBER 12, 2004
February __, 2005
Board of Trustees
The Travelers Series Trust
One Cityplace
Hartford, Connecticut 06103
Ladies and Gentlemen:
This letter responds to your request for our opinion concerning the federal
income tax consequences of (i) a transfer of all the assets of the MFS Emerging
Growth Portfolio (the "Target Portfolio) of The Travelers Series Trust (the
"Trust") to the MFS Mid Cap Growth Portfolio (the "Acquiring Portfolio") of the
Trust in exchange for shares of the Acquiring Portfolio and the assumption by
the Acquiring Portfolio of the liabilities of the Target Portfolio and (ii) the
liquidation of the Target Portfolio (the "Reorganization"). In rendering our
opinion, we have relied solely on the representations set forth below and on the
facts, summarized below, contained in the following documents: (a) the Agreement
and Plan of Reorganization adopted by the Trust on behalf of the Target
Portfolio and the Acquiring Portfolio (the "Plan of Reorganization") and (b) the
Proxy Statement/Prospectus (the "Prospectus") of the Trust.
SUMMARY OF RELEVANT FACTS
The Trust is a Massachusetts business trust registered as a diversified
open-end management investment company under the Investment Company Act of 1940,
as amended (the "1940 Act"). The Trust comprises several separate investment
portfolios and issues separate classes of shares of beneficial interests
representing ownership interests in each of those portfolios. Among the
portfolios of the Trust are the Acquiring Portfolio and the Target Portfolio.
Shares of the Acquiring Portfolio and the Target Portfolio are not available for
purchase by members of the general public, but are available for purchase only
by insurance companies and their separate accounts as the underlying investment
medium for owners (the "Contractholders") of variable annuity contracts and
variable life insurance policies (collectively, the "Contracts"). All shares of
the Fund are held by separate accounts (or subaccounts thereof) (the "Separate
Accounts") of The Travelers Insurance Company, The Travelers Life and Annuity
Company, Citicorp Life Insurance Company, and First Citicorp Life Insurance
Company (collectively, the "Life Insurance Companies").
Travelers Asset Management International Company LLC ("TAMIC") is the
investment adviser for both portfolios. Currently, Massachusetts Financial
Services ("MFS") provides subadvisory services to both Portfolios. After the
Reorganization, the same portfolio management team that currently is responsible
for the Acquiring Portfolio, each member of which is also part of management
team responsible for the Target Portfolio, will continue to make the day-to-day
investment decisions for Acquiring Portfolio.
The Target Portfolio and Acquiring Portfolio each has a similar investment
objective of seeking long-term growth of capital. The Target Portfolio seeks
long-term growth of capital by investing at least 65% of net assets in common
stock and related securities such as preferred stock, convertible securities,
and depositary receipts of "emerging growth companies." Emerging growth
companies are those that MFS believes are either early in their life cycle but
have the potential to become major enterprises, or are major enterprises whose
rates of earnings growth are expected to accelerate. The Acquiring Portfolio
seeks long-term growth of capital by investing at least 80% of net assets in
securities of medium-sized companies.
For valid business reasons set forth in the Prospectus, the Board of
Trustees of the Trust (the "Board"), the Board determined that it would be in
the best interests of the shareholders of both the Acquiring Portfolio and the
Target Portfolio for those two portfolios to be combined and operated as a
single portfolio. Accordingly, the following Agreement and Plan of
Reorganization has been approved by the Board:
(i) on or as soon as practible after the closing date for the
Reorganization (the "Closing Date"), the Target Portfolio will, if
applicable, declare and pay to its shareholders one or more dividends or
distributions, which together with all previous dividends will have the
effect of distributing to Target Portfolio shareholders all the Target
Portfolio's previously undistributed investment company taxable income, if
any, for fiscal or taxable periods ending on or prior to the Closing Date
(computed without regard to any deduction for dividends paid), its net
exempt-interest income for fiscal or taxable periods ending on or prior to
the Closing Date, and all its previously undistributed net capital gain
realized in fiscal or taxable periods ending on or prior to the Closing
Date (after reduction for any capital loss carried forward);
(ii) on the Closing Date, all the assets of the Target Portfolio will
be transferred to the Acquiring Portfolio in exchange for shares of the
Acquiring Portfolio and the assumption by the Acquiring Portfolio of the
liabilities of the Target Portfolio. The aggregate value of the Acquiring
Portfolio shares to be issued in this exchange will be equal to the value
of the net assets transferred (computed using the valuation procedures set
forth in the Trust's then-current prospectus and statement of additional
information);
(iii) as soon as conveniently practicable after the Closing Date, the
Target Portfolio will distribute the Acquiring Portfolio shares received by
it pursuant to the Plan of Reorganization to its shareholders PRO RATA in
proportion to their respective interests;(1) and
(iv) the Target Portfolio will be completely liquidated.
REPRESENTATIONS
Our opinion is conditioned upon the accuracy of the following
representations as of the Closing Date, which representations have been
certified to us by an authorized officer of the Trust, MFS, or [the Life
Insurance Companies]:
(a) The Trust is registered with the Securities and Exchange Commission
under the 1940 Act as an open-end management investment company, and each of the
Target Portfolio and the Acquiring Portfolio (1) operates as a separate open-end
management investment company and (2) is taxable as a separate corporation for
federal income tax purposes by reason of section 851(g).2
(b) Each of the Target Portfolio and the Acquiring Portfolio qualified for
treatment as a regulated investment company under section 851 (a "RIC") for its
most recent taxable year and will qualify as such for its current taxable year
(including the Target Portfolio's last short taxable period ending on the
Closing Date). Following completion of the Reorganization, the Acquiring
Portfolio will qualify as a RIC within the meaning of section 851 for all
subsequent taxable years.
(c) The fair market value of the shares of the Acquiring Portfolio stock to
be received by each shareholder of the Target Portfolio will be approximately
equal to the fair market value of the shares of the Target Portfolio surrendered
in exchange therefor.
(d) The Acquiring Portfolio will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market value
of the gross assets held by the Target Portfolio immediately prior to the
Reorganization. For purposes of this representation, amounts used by the Target
Portfolio to pay its reorganization expenses and all redemptions and
distributions (except for (1) redemptions in the ordinary course of the Target
Portfolio's business as an open-end investment company as required by section
22(e) of the 1940 Act pursuant to a demand of a shareholder and (2) regular,
normal dividends) made by the Target Portfolio immediately prior to the transfer
will be included as assets of the Target Portfolio held immediately prior to the
Reorganization.
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1 The distribution will be accomplished by establishing new accounts on the
shareholder records of the Acquiring Portfolio in the name of each Target
Portfolio shareholder, with each new account being credited with the
respective PRO RATA number of Acquiring Portfolio shares due the
shareholder based on the relative net asset values per share as of the
Closing Date. All shares of Target Portfolio stock will be
redeemed/canceled.
2 Unless otherwise indicated, all section references are to the Internal
Revenue Code of 1986, as amended (the "Code").
(e) There will be no Target Portfolio shareholders entitled to appraisal
rights as a result of the Reorganization, no cash will be paid to the
shareholders of the Target Portfolio in lieu of fractional shares, and no cash
or property other than the Acquiring Portfolio shares will be received by or
distributed to the shareholders of the Target Portfolio in the Reorganization.
(f) Neither the Acquiring Portfolio nor any person related to the Acquiring
Portfolio has any plan or intention to redeem (or acquire) any of the Acquiring
Portfolio stock issued in the Reorganization except under its legal obligations
under section 22(e) of the 1940 Act.
(g) Following the Reorganization, the Acquiring Portfolio may sell up to 66
2/3 percent of the assets of the Target Portfolio acquired in the
Reorganization. Otherwise, the Acquiring Portfolio has no plan or intention to
sell or otherwise dispose of any of the assets of the Target Portfolio acquired
in the Reorganization. The Acquiring Portfolio will reinvest the proceeds from
the sale of any assets of the Target Portfolio acquired in the Reorganization
consistent with its investment objectives and policies.
(h) The Target Portfolio's liabilities to be assumed by the Acquiring
Portfolio (if any) were incurred by the Target Portfolio in the ordinary course
of its business and are associated with the assets to be transferred.
(i) The Acquiring Portfolio, the Target Portfolio, and the shareholders of
the Target Portfolio will pay their respective transaction expenses.
(j) There is no intercorporate indebtedness between the Acquiring Portfolio
and the Target Portfolio.
(k) The fair market value of the assets of the Target Portfolio to be
transferred in the Reorganization to the Acquiring Portfolio will exceed the sum
of the liabilities to be assumed by the Acquiring Portfolio (if any).
(l) The total adjusted basis of the Target Portfolio assets transferred to
the Acquiring Portfolio will equal or exceed the sum of the liabilities (if any)
to be assumed by the Acquiring Portfolio pursuant to the Reorganization.
(m) The Target Portfolio will distribute to its shareholders the shares of
the Acquiring Portfolio it receives pursuant to the Reorganization.
(n) As of the Closing Date, the Target Portfolio will cease to be a going
concern except for completion of the transactions contemplated pursuant to the
Plan of Reorganization. Following the final liquidating distribution, the Target
Portfolio will not retain any assets and will be dissolved.
(o) In contemplation of the Reorganization, the Target Portfolio has not
disposed, and will not dispose, of any assets other than (1) pursuant to sales
occurring in the ordinary course of its business as a RIC and (2) the transfer
of its assets to the Acquiring Portfolio pursuant to the Reorganization.
(p) Prior to the adoption of the Plan of Reorganization, neither the Target
Portfolio nor any person related to the Target Portfolio has redeemed (or
acquired) any shares of Target Portfolio stock except under its legal
obligations under section 22(e) of the 1940 Act.
(q) The Acquiring Portfolio does not own, directly or indirectly, nor has
it owned during the past five years, directly or indirectly, any shares of the
Target Portfolio.
(r) All shares issued by the Acquiring Portfolio in the Reorganization,
regardless of class designation, will be voting shares.
(s) During the five-year period ending on the date of the Reorganization,
the Target Portfolio has not made (and will not have made) any distributions
with respect to the Target Portfolio shares (other than regular and normal
dividend distributions made pursuant to the Target Portfolio's historic dividend
paying practice), either directly or through any transaction, agreement, or
arrangement with any other person, except for distributions described in
sections 852 and 4982.
(t) The Acquiring Portfolio and the Target Portfolio are each engaging in
the Reorganization for valid business reasons.
(u) [Each of the Separate Accounts that hold shares in a Target Portfolio
is registered with the Securities and Exchange Commission as a unit investment
trust under the 1940 Act and is also a segregated asset account under applicable
state insurance laws. Each of the Separate Accounts is administered and
accounted for as part of the general business of the insurance company that owns
such Separate Account, but its assets are not chargeable with liabilities
arising from the business of any other separate account or any other business
that such insurance company may conduct. Each of the Separate Accounts (and/or
any subaccounts thereof, as the case may be) has held at all times during its
existence, and following the Reorganization will continue to hold, only assets
pursuant to variable contracts described in section 817(d) and has satisfied at
all times during its existence, and following the Reorganization will continue
to satisfy, the diversification requirements of section 817(h) and section
1.817-5(b) of the Income Tax Regulations. Each of the Separate Accounts is
properly taxed as part of the operations of the insurance company that owns such
Separate Account and is not a separate taxable entity for federal income tax
purposes.]
(v) [Each of the Target Portfolio and the Acquiring Portfolio has been
managed at all times during its existence in such a manner as to satisfy the
diversification requirements of section 817(h) and section 1.817-5(b) of the
Income Tax Regulations, and the Acquiring Portfolio will continue to be managed
in such a manner following completion of the Reorganization.]
(w) [Each of the Contracts qualifies (and will qualify as of the Closing
Date) as a life insurance contract or annuity contract, as applicable, for
federal income tax purposes.]
(x) [The Contracts: (1) permit the exchange of shares of the Acquiring
Portfolio for shares of the Target Portfolio pursuant to the terms of the
Reorganization, (2) will not be materially changed as a result of the
Reorganization, (3) other than the right for Contractholders to allocate
premiums among one or more investment companies meeting the requirements of
section 817(h) and section 1.817-5 of the Income Tax Regulations, do not permit
any Contractholder to direct or require (nor is there a pre-arranged plan for)
the Life Insurance Companies, the Separate Accounts (or the applicable
subaccounts thereof), or any investment company in which the Separate Accounts
(or the applicable subaccounts thereof) may invest, to acquire any particular
asset or investment (or adopt any particular investment strategy), and (4) do
not permit Contractholders to communicate directly or indirectly with any
investment officer of the Life Insurance Companies (or their affiliates) or with
the investment advisor for any investment company in which the Separate Accounts
(or the applicable subaccounts thereof) may invest, regarding the selection,
quality, or rate of return of any specific investment or group of investments
held in a Separate Account (or applicable subaccount thereof) or any investment
company in which the Separate Accounts (or the applicable subaccounts thereof)
may invest.]
(y) [Each of the Target Portfolio and the Acquiring Portfolio pursues, and
at all times during its existence has pursued, a broad investment strategy.
Following the Reorganization, the Acquiring Portfolio will continue to pursue a
broad investment strategy. Contractholders have not had any involvement with
respect to the choice of investment advisers that manage the Target Portfolio or
the Acquiring Portfolio. All investment decisions concerning the Target
Portfolio and the Acquiring Portfolio have been made by its investment advisers,
and all investment decisions concerning the Acquiring Portfolio will continue to
be made by the investment advisers for the Acquiring Portfolio following the
Reorganization. SEE Rev. Rul. 2003-91, 2003-33 I.R.B. 347 (August 18, 2003).]
(z) [Other than in the case of investors permitted under section
1.817-5(f)(3) of the Income Tax Regulations: (1) all the shares of the Target
Portfolio and the Acquiring Portfolio are held (and all the shares of the
Acquiring Portfolio will be held ) by separate accounts of one or more life
insurance companies, and (2) public access to the Target Portfolio and the
Acquring Portfolio is and has been available (and public access to the Acquiring
Portfolio will continue to be available) exclusively through the purchase of a
variable life insurance or variable annuity contract.]
OPINION
Based on our analysis of the Code, the Income Tax Regulations promulgated
under the Code, case law, published and private rulings of the Internal Revenue
Service, and other relevant legal authority, and in view of the facts summarized
above and the representations set forth above, it is our opinion that the
following federal income tax consequences will result from the Reorganization:
1. The Reorganization will constitute a "reorganization" within the meaning
of section 368(a), and the Target Portfolio and the Acquiring Portfolio each
will be a "party to a reorganization" within the meaning of section 368(b).
2. No gain or loss will be recognized by the Target Portfolio (i) on the
transfer of its assets to the Acquiring Portfolio in exchange solely for shares
of the Acquiring Portfolio and the Acquiring Portfolio's assumption of the
liabilities of the Target Portfolio and (ii) the subsequent distribution by the
Target Portfolio of those shares to the shareholders of the Target Portfolio.
Section 361.
3. No gain or loss will be recognized by the Acquiring Portfolio on receipt
of the assets transferred to it by the Target Portfolio in exchange for shares
of the Acquiring Portfolio and the assumption of the liabilities of the Target
Portfolio. Section 1032.
4. The Acquiring Portfolio's basis in the assets received from the Target
Portfolio will be the same as the Target Portfolio's basis in those assets
immediately prior to the Reorganization. Section 362(b).
5. The Acquiring Portfolio's holding period for the transferred assets will
include the Target Portfolio's holding period therefor. Section 1223(2).
6. No gain or loss will be recognized by the shareholders of the Target
Portfolio on the exchange of their shares of the Target Portfolio solely for
shares of the Acquiring Portfolio. Section 354.
7. A Target Portfolio shareholder's basis in the shares of the Acquiring
Portfolio received in the Reorganization will be the same as the adjusted basis
of the shares of the Target Portfolio surrendered in exchange therefor. Section
358.
8. A Target Portfolio shareholder's holding period in the shares of the
Acquiring Portfolio received in the Reorganization will include the
shareholder's holding period for the shares of the Target Portfolio surrendered
in exchange therefor, provided such Target Portfolio shares were held as capital
assets on the Closing Date. Section 1223(l).
9. The Acquiring Portfolio will succeed to and take into account the items
of the Target Portfolio described in section 381(c), including any earnings and
profits, or deficit therein, of the Target Portfolio as of the date of the
Closing Date, subject to the conditions and limitations specified in sections
381, 382, 383, and 384.
10. [No gain or loss will be recognized by the Policyowners as a result of
the Reorganization. SEE sections 72, 817(h), and 7702; SEE ALSO Rev. Rul.
2003-91, 2003-33 I.R.B. 347 (August 18, 2003).]
* * *
We are furnishing this opinion letter solely for the benefit of the Trust,
including the Target Portfolio and the Acquiring Portfolio thereof, the board of
trustees of the Trust, and the shareholders of each of those two Portfolios, and
this letter is not to be used, circulated, or quoted for any other purpose
without our written consent. Our opinion reflects our interpretation of the
provisions of the Code as in effect as of the date hereof.
Our opinion is limited to the federal income tax consequences of the
Reorganization, and we express no opinion regarding any state, local, foreign or
other tax or nontax consequences. Absent your written request, we will revise or
update this letter to reflect subsequent changes in law only through the Closing
Date.
Sincerely yours,
SUTHERLAND ASBILL & BRENNAN LLP