EXHIBIT 12
Sutherland Draft
2/13/06
May ___, 2006
Board of Directors
The Travelers Insurance Company
One Cityplace
Hartford, Connecticut 06103
Boards of Managers
The Travelers Money Market Account For Variable Annuities
The Travelers Quality Bond Account For Variable Annuities
Tactical Growth And Income Stock Account For Variable Annuities
Tactical Aggressive Stock Account For Variable Annuities
Tactical Short-Term Bond Account For Variable Annuities
One Cityplace
Hartford, Connecticut 06103
Board of Directors
Metropolitan Series Fund, Inc.
501 Boylston Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
This letter responds to your request for our opinion on the federal
income tax consequences of: (1) a transfer of all the assets of each of The
Travelers Money Market Account For Variable Annuities, The Travelers Quality
Bond Account For Variable Annuities, Tactical Growth And Income Stock Account
For Variable Annuities, Tactical Aggressive Stock Account For Variable
Annuities, and Tactical Short-Term Bond Account For Variable Annuities (each a
"Target Fund," and collectively, the "Target Funds") to the BlackRock Money
Market Portfolio, BlackRock Bond Income Portfolio, MetLife Stock Index
Portfolio, MetLife Mid Cap Stock Index Portfolio, and BlackRock Money Market
Portfolio(1) (each an "Acquiring Fund," and collectively, the "Acquiring
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(1) The BlackRock Money Market Portfolio is the corresponding Acquiring Fund for
The Travelers Money Market Account for Variable Annuities and the Tactical
Short-Term Bond Account for Variable Annuities; the BlackRock Bond Income
Portfolio is the corresponding Acquiring Portfolio for The Travelers Quality
Bond Account For Variable Annuities; the MetLife Stock Index Portfolio is the
corresponding Acquiring Portfolio for the Tactical Growth And Income Stock
Account For Variable Annuities; and the MetLife Mid Cap Stock Index Portfolio is
the corresponding Acquiring Portfolio for the Tactical Aggressive Stock Account
For Variable Annuities.
Funds,"), each of which is an existing series of the Metropolitan Series Fund,
Inc. (the "Corporation"), in exchange for shares of the corresponding Acquiring
Fund and the assumption by each of the Acquiring Funds of the liabilities of the
corresponding Target Fund (other than liabilities associated with insurance
obligations) and (2) the restructuring of the Target Funds as new sub-accounts
(each a "New Sub-Account," and collectively, the "New Sub-Accounts") of The
Travelers Fund U for Variable Annuities (the "Successor Account"), a unit
investment trust registered under the Investment Company Act of 1940 (the "1940
Act"). (Each of the foregoing transactions will be referred to as a
"Reorganization," and collectively, as the "Reorganizations.")
In rendering our opinion, we have relied solely on the representations
and assumptions set forth below and on the facts, summarized below, contained in
the following documents with respect to each of the Reorganizations: (1) the
Agreement and Plan of Reorganization (the "Plan of Reorganization") adopted by
and among The Travelers Insurance Company ("Travelers"), the Target Funds, and
the Corporation, and (2) the Proxy Statement/Prospectus of the Target Funds and
the Acquiring Funds (the "Proxy Statement").
We are furnishing this opinion letter solely for the benefit of the
board of directors of Travelers, the boards of managers of the Target Funds, and
the board of directors of the Corporation. 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 discussed herein, and we express no opinion regarding any matter
not discussed herein, including any state, local, foreign or other tax or nontax
consequences. Absent your written request, we will not revise or update this
letter to reflect subsequent changes in law after the closing date for the
Reorganizations (the "Closing Date").
Summary of Relevant Facts
Each of the Target Funds is organized under Connecticut law as a
segregated asset account of Travelers and is registered as an open-end
management investment company under the 1940 Act. The Corporation is a Maryland
corporation registered as an open-end management investment company under the
1940 Act. The Corporation is a series corporation authorized to create several
separate series and to issue separate classes of shares of stock representing
ownership interests in each of those series. Each of the Acquiring Funds is an
existing series of the Corporation.
Neither beneficial interests in the Target Funds nor shares of the
Acquiring Funds are available for purchase by members of the general public.
Rather, the Target Funds exclusively support interests under variable annuity
contracts (the "TIC Contracts") issued by Travelers. Similarly, shares of the
Acquiring Funds are available and following the Reorganizations will continue to
be available for purchase only by segregated asset accounts (or subaccounts
thereof) of insurance companies as the underlying investment medium for owners
of variable annuity contracts or variable life insurance contracts. Following
the transfer of their assets to the Acquiring Funds, the Target Funds will be
restructured as the New Sub-Accounts. Each of the New Sub-Accounts will be a
passive investment vehicle that will hold exclusively shares of the
corresponding Acquiring Fund. Contract value currently allocated to the Target
Funds will be allocated to the New Sub-Accounts following the Reorganizations.
Each Acquiring Fund has similar principal investment objectives to the
corresponding Target Fund. There are, however, certain differences in the
investment objectives and policies of each Acquiring Fund as compared to its
corresponding Target Fund, and each Acquiring Fund and its corresponding Target
Fund are managed on a day-to-day basis by unrelated entities.
Travelers or its affiliates will assume all costs and expenses
associated with effecting the Reorganizations, and none of the Target Funds,
Acquiring Funds, or New Sub-Accounts will bear any such costs and expenses. The
current level of operating expenses for the Acquiring Funds is higher than the
level of operating expenses (excluding the mortality and expense risk charge and
other insurance contract-related charges) for the Target Funds. However, if the
Reorganizations are approved as described below, Travelers has agreed to waive
indefinitely the mortality and expense risk charges for the New Sub-Accounts so
that the contract owners of the TIC Contracts (the "Contract Owners") do not
incur post-Reorganization expenses that are higher than pre-Reorganization
expenses for the Target Funds (based on expenses for the fiscal year ended
December 31, 2005).
For valid business reasons set forth in the Plan of Reorganization and
the Proxy Statement with respect to each Reorganization, the boards of managers
of the Target Funds have recommended to Contract Owners that they approve the
Reorganizations. The Plan of Reorganization, as approved by the board of
directors of Travelers, the boards of managers of the Target Funds, and the
board of directors of the Corporation, provides, in substance, as follows:
(1) As of the effective time of the Reorganization (the "Effective
Time") on the closing date (the "Closing Date"), Travelers, on behalf
of the Target Funds, will transfer all cash (except, if required,
minimal amounts needed to keep bank accounts open), all securities and
other investments held or in transit, all accounts receivable for sold
investments, and all dividends and interest receivables (collectively,
the "Portfolio Assets") of the Target Funds to be held as property of
the corresponding Acquiring Fund;
(2) Each of the Target Funds will be restructured as a New Sub-Account
of the Successor Account;
(3) In exchange for the Portfolio Assets of a Target Fund, each
corresponding Acquiring Fund will issue to Travelers shares of the
Acquiring Fund for allocation to the corresponding New Sub-Account, and
the Acquiring Fund will assume any unsatisfied liability incurred by
the corresponding Target Fund before the Effective Time (other than
liabilities associated with insurance obligations that will be assumed
by the New Sub-Accounts). With respect to each New Sub-Account, the
number of shares of the corresponding Acquiring Fund to be issued in
the exchange will be determined by dividing the value of the net assets
of the Target Fund to be transferred, as of the close of trading on the
Closing Date, by the net asset value per share or initial value per
share assigned of the corresponding Acquiring Fund shares;
(4) As of the Effective Time, Travelers will cause the shares of the
Acquiring Funds it receives pursuant to step (3) above to be duly and
validly recorded and held on its records as assets of the appropriate
New Sub-Account, such that the Contract Owners' interests in each New
Sub-Account after the Closing Date will then be equivalent to their
former interests in the Target Funds.(2)
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(2) The shares of the Acquiring Funds will be issued in open account form by
book entry without the issuance of certificates.
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 Travelers or the Corporation, as
appropriate:
(a) Each of the Target Funds is organized as a segregated asset account of
Travelers under Connecticut law and is registered with the Securities and
Exchange Commission under the 1940 Act as an open-end management investment
company. Each of the Target Funds is administered and accounted for as part of
the general business of Travelers, but its assets are not chargeable with
liabilities arising from the business of any other separate account or any other
business that Travelers may conduct. Each of the Target Funds at all times
during its existence has held only assets pursuant to variable contracts
described in section 817(d)(3) or assets of Travelers that are held in
connection with the creation or management of a Target Fund and at all times
during its existence has satisfied the diversification requirements of section
817(h ) and section 1.817-5(b) of the Income Tax Regulations. Each of the Target
Funds is properly taxed as part of the operations of Travelers and is not a
separate taxable entity for federal income tax purposes.
(b) The Corporation is registered with the Securities and Exchange Commission
under the 1940 Act as an open-end management investment company, and each
Acquiring Fund (1) has operated as and will continue to operate as a separate
open-end management investment company, and (2) has been and will continue to be
taxable as a separate corporation for federal income tax purposes by reason of
section 851(g).
(c) Each Acquiring Fund 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 and all subsequent taxable years.
(d) The fair market value of the shares of stock in an Acquiring Fund to be
received by Travelers for allocation to the corresponding New Sub-Account will
be approximately equal to the net fair market value of the assets transferred by
the corresponding Target Fund in exchange therefor.
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(3) Unless otherwise indicated, all section references are to the Internal
Revenue Code of 1986, as amended (the "Code").
(e) The transfer of assets by the Target Funds to the Acquiring Funds is not the
result of the solicitation by a promoter, broker, or investment house.
(f) Neither the Target Funds nor Travelers will retain any rights in the assets
transferred to the Acquiring Funds.
(g) Immediately following the Reorganizations, the shares of each Acquiring Fund
held by Travelers (including all shares owned by its segregated asset accounts
(or subaccounts thereof)) will represent less than 80% of the total combined
voting power of all classes of shares of such Acquiring Fund entitled to vote.
(h) No person other than Travelers is transferring assets to the Acquiring Funds
as part of the Reorganizations (or as part of a series of transactions related
to the Reorganizations).
(i) Travelers will not transfer substantially all of its assets to any of the
Acquiring Funds within the meaning of sections 368(a)(1)(C) or 354(b)(1)(A).
(j) Travelers will not distribute to its shareholders or Contract Owners the
shares of the Acquiring Funds received in the Reorganizations and will not be
liquidated as part of the Reorganizations.
(k) Except for expenses related solely and directly to the Reorganizations, each
of the Contract Owners, the Target Funds, the Acquiring Funds, the New
Sub-Accounts, and Travelers will pay its respective expenses (if any)
attributable to the transaction. Travelers or an affiliate will pay all
transaction expenses that are solely and directly related to the
Reorganizations.
(l) Travelers (including the Target Funds) and the Acquiring Funds are each
engaging in the Reorganizations for valid business reasons.
(m) The Successor Account is (and following the Reorganizations will continue to
be) registered with the Securities and Exchange Commission as a unit investment
trust under the 1940 Act and is also (and following the Reorganizations will
continue to be) a segregated asset account under applicable state insurance
laws. The Successor Account is administered and accounted for as part of the
general business of Travelers, but its assets are not chargeable with
liabilities arising from the business of any other segregated asset account or
any other business that Travelers may conduct. The Successor Account (or
subaccounts thereof, as the case may be (including the New Sub-Accounts, where
applicable)) has held at all times during its existence, and following the
Reorganizations will continue to hold, only assets pursuant to variable
contracts described in section 817(d) or assets of Travelers that are held in
connection with the creation or management of a Target Fund and has satisfied at
all times during its existence, and following the Reorganizations will continue
to satisfy, the diversification requirements of section 817(h) and section
1.817-5(b) of the Income Tax Regulations. The Successor Account (and each of its
subaccounts, including the New Sub-Accounts) is (and following the
Reorganizations will continue to be) properly taxed as part of the operations of
Travelers and is not (and following the Reorganizations will not be) a separate
taxable entity for federal income tax purposes.
(n) Each of the Acquiring Funds has been (and following the Reorganizations will
continue to be) managed 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.
(o) Each of the TIC Contracts qualifies as both an annuity contract and a
variable contract for federal income tax purposes.
(p) Each of the TIC Contracts: (1) permits Travelers to substitute shares of the
Acquiring Funds for the Portfolio Assets held by the Target Funds and to
restructure the Target Funds as the New Sub-Accounts, (2) will not be materially
modified, amended, or materially changed under applicable law as a result of the
Reorganizations, (3) does not permit any Contract Owner to direct or require
(nor is there a pre-arranged plan for) Travelers, the Target Funds, the New
Sub-Accounts, or the Acquiring Funds to acquire any particular asset or
investment (or adopt any particular investment strategy) (other than the right
for Contract Owners to allocate premiums among one or more managed separate
accounts (before the Reorganizations) or investment companies (on or after the
Reorganizations) meeting the requirements of section 817(h) and section 1.817-5
of the Income Tax Regulations), (4) does not permit Contract Owners to
communicate directly or indirectly with any investment officer of Travelers (or
its affiliates) or with the investment adviser or sub-adviser for the Target
Funds or the Acquiring Funds regarding the selection, quality, or rate of return
of any specific investment or group of investments held in the Target Funds, the
New Sub-Accounts, or the Acquiring Funds, and (5) has at all times complied with
the safe harbor set forth in Rev. Rul. 2003-91, 2003-2 C.B. 347.
(q) Each of the Target Funds and the Acquiring Funds pursues, and at all times
during its existence has pursued, a broad investment strategy. Following the
Reorganizations, each of the Acquiring Funds will continue to pursue a broad
investment strategy. Except for shareholder approvals required by law, Contract
Owners have not had (and will not have) any involvement with respect to the
choice of investment advisers that manage the Target Funds or the Acquiring
Funds, or that will manage the Acquiring Funds following the Reorganizations.
All investment decisions concerning the Target Funds have been made by the
investment advisers for such funds in a manner consistent with Rev. Rul.
2003-91, and all investment decisions concerning the Acquiring Funds have been
(and following the Reorganizations, will continue to be) made by the investment
advisers for such funds in a manner consistent with Rev. Rul. 2003-91. Without
limiting the foregoing, each of the Target Funds and Acquiring Funds and their
respective officers, employees, and agents at all times during the existence of
such funds have complied (and after the Reorganization, each of the Acquiring
Funds and their respective officers, employees, and agents will continue to
comply) with the safe harbor in Rev. Rul. 2003-91.
(r) 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 Acquiring Funds have been
and will be held by segregated asset accounts of one or more life insurance
companies, and (2) public access to the Acquiring Funds has been at all times
during their existence and will continue to be available exclusively through the
purchase of a life insurance or annuity contract that qualifies as a variable
contract under section 817(d).
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 each
of the Reorganizations:
(1) Travelers will recognize gain or loss (if any) on the transfer of
the assets of each of the Target Funds to the Acquiring Funds as if it had
disposed of those assets for an amount of cash equal to the sum of (a) the value
of the Acquiring Fund shares received in the exchange and (b) the amount of
Target Fund liabilities assumed by the Acquiring Funds.
(2) No tax attributes of Travelers or the Target Fund will carry over
to the Acquiring Fund.
(3) No gain or loss will be recognized by the Contract Owners solely as
a result of the Reorganization. See sections 72, 817(h), and 7702; see also Rev.
Rul. 2003-91, supra.
* * * * *
Circular 230 Disclosure
IN ORDER TO COMPLY WITH RECENT TREASURY DEPARTMENT REGULATIONS, WE
ADVISE YOU THAT (I) THIS OPINION LETTER WAS NOT INTENDED OR WRITTEN BY US TO BE
USED, AND CANNOT BE USED BY ANY TAXPAYER, FOR THE PURPOSE OF AVOIDING PENALTIES
THAT MAY BE IMPOSED ON THE TAXPAYER; (II) THIS OPINION IS PROVIDED TO SUPPORT
THE PROMOTION OR MARKETING OF THE TRANSACTION OR MATTERS DISCUSSED HEREIN; AND
(III) READERS OF THIS OPINION LETTER OTHER THAN THE NAMED ADDRESSEES SHOULD SEEK
ADVICE REGARDING THE REORGANIZATIONS BASED ON HIS, HER, OR ITS OWN PARTICULAR
CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISER.
Sincerely yours,
SUTHERLAND ASBILL & BRENNAN LLP