Exhibit 12
Form of Tax Opinion of Counsel
June ___, 2005
Board of Directors
Travelers Series Fund Inc.
125 Broad Street
New York, New York 10004
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) the transfer of all the assets of the Strategic
Equity Portfolio, AIM Capital Appreciation Portfolio, Van Kampen Enterprise
Portfolio, MFS Total Return Portfolio, Salomon Brothers Strategic Total Return
Bond Portfolio, Travelers Managed Income Portfolio, and Pioneer Strategic Income
Portfolio (each a "Target Portfolio," and collectively, the "Target
Portfolios"), each a separate portfolio of Travelers Series Fund Inc. (the
"Corporation"), to newly created, identically named, and corresponding
portfolios (each an "Acquiring Portfolio," and collectively, the "Acquiring
Portfolios") of The Travelers Series Trust (the "Trust") in exchange for shares
of the corresponding Acquiring Portfolio and the assumption by the corresponding
Acquiring Portfolio of the liabilities of the respective Target Portfolio and
(ii) the accompanying liquidation of the Target Portfolios (each a
"Reorganization," and collectively, the "Reorganizations"). 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 Company on behalf of the Target
Portfolios and the Trust on behalf of the Acquiring Portfolio (the "Plan of
Reorganization") and (b) the Combined Proxy Statement/Prospectus (the
"Prospectus") of the Corporation and the Trust.
Summary of Relevant Facts
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The Corporation is a Maryland corporation registered as a diversified
open-end management investment company under the Investment Company Act of 1940,
as amended (the "1940 Act"). The Corporation comprises several separate
investment portfolios and issues separate classes of shares of stock
representing ownership interests in each of those portfolios. Among the
portfolios of the Corporation are the Target Portfolios. 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. Shares of the
Target Portfolios are not, and shares of the Acquiring Portfolios will not be,
available for purchase by members of the general public, but are or will be
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 Target Portfolios 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"). Following the Reorganizations, all the shares of
the Acquiring Portfolios will be held by the Separate Accounts. [Discuss seeding
for purpose of establishing new portfolios.]
Each of the Life Insurance Companies is currently a indirect, wholly owned
subsidiary of Citigroup Inc. ("Citigroup"). Citigroup has reached an agreement
with MetLife, Inc. ("MetLife") to sell the Life Insurance Companies to MetLife.
As part of that transaction, Travelers Investment Adviser Inc. ("TIA"), the
investment adviser to all but one of the Portfolios, and Travelers Asset
Management International Company LLC ("TAMIC"), the investment adviser to the
Travelers Managed Income Portfolio, which are both currently indirect, wholly
owned subsidiaries of Citigroup, will become indirect, wholly owned subsidiaries
of MetLife. Other investment portfolios of the Corporation are advised by
entities that are and will continue to be affiliates of Citigroup.
Consequently, without the Reorganization, the Corporation would include
portfolios that are advised by Citigroup affiliates and portfolios that are
advised by MetLife affiliates, which would give rise to ongoing management,
operational, administrative, and legal difficulties. To alleviate these issues,
the board of directors of the Corporation (the "Board of Directors") and the
board of trustees of the Trust (the "Board of Trustees") have determined that it
would be in the best interests of the Target Portfolios and their shareholders
(as well as Contractholders that have allocated contract value to the Separate
Accounts that hold shares in the Target Portfolios) to undertake the
Reorganizations.
Following the Reorganizations, each of the Acquiring Portfolios will be
substantially identical to the corresponding Target Portfolio in terms of its
investment objectives, policies and restrictions, its fees and expenses, and its
investment advisers, subadvisers and other entities providing services to the
Target Portfolios.1 The Acquiring Portfolios would, however, be subject to the
oversight of the Board of Trustees, which is composed of different persons than
the Board of Directors.
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(1) Although either TIA and TAMIC (depending on which entity is the current
investment adviser to the Target Portfolios) will be the investment adviser to
the Acquiring Portfolios following the Reorganization, it is likely that such
entities will have new personnel directing their operations following the
acquisition of such entities by MetLife. In addition, although TAMIC will remain
the investment adviser to the Travelers Managed Income Portfolio following the
Reorganization, a new subadviser will be hired to manage the investments of such
portfolio.
Accordingly, the following Agreement and Plan of Reorganization has been
approved by the Board of Directors and the Board of Trustees:
(i) on or as soon as practicable prior the closing date for the
Reorganization (the "Closing Date"), each Target Portfolio will, if
applicable, declare and pay to its shareholders one or more dividends
or distributions so that it will have distributed substantially all
its investment company taxable income (computed without regard to any
deduction for dividends paid) and realized net capital gain, if any,
for the current taxable year through the Closing Date;
(ii) on the Closing Date, all the assets of each Target Portfolio
(other than assets used to pay the distributions referred to in (i)
above) will be transferred to the corresponding Acquiring Portfolio in
exchange for shares of the corresponding Acquiring Portfolio and the
assumption by such Acquiring Portfolio of the liabilities (if any) of
the corresponding Target Portfolio. The aggregate value of an
Acquiring Portfolio's 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) to such Acquiring Portfolio
by the corresponding Target Portfolio;
(iii) as soon as conveniently practicable after the Closing Date,
each Target Portfolio will distribute the corresponding Acquiring
Portfolio shares received by it pursuant to the Plan of Reorganization
to its shareholders pro rata in proportion to their respective
interests;2 and
(iv) each Target Portfolio will be completely liquidated.
Representations
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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 appropriate authorized officer of the Corporation, the
Trust, or the Life Insurance Companies:
(a) The Corporation is registered with the Securities and Exchange
Commission under the 1940 Act as an open-end management investment company, and
each Target 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).3 The Trust is registered with the
Securities and Exchange Commission under the 1940 Act as an open-end management
investment company, and each Acquiring Portfolio (1) will operate as a separate
open-end management investment company and (2) will be taxable as a separate
corporation for federal income tax purposes by reason of section 851(g).
(b) Each Target Portfolio qualified for treatment as a regulated investment
company under section 851 (a "RIC") for its most recent taxable year and intends
to and will qualify as such for its current taxable year. Following completion
of the Reorganizations, each Acquiring Portfolio intends to and will qualify as
a RIC within the meaning of section 851 for the current and all subsequent
taxable years.
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(2) The distribution will be accomplished by establishing new accounts on the
shareholder records of an Acquiring Portfolio in the name of each shareholder of
a corresponding Target Portfolio, 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. 3 Unless otherwise
indicated, all section references are to the Internal Revenue Code of 1986, as
amended (the "Code").
(c) The fair market value of the shares of an Acquiring Portfolio to be
received by each shareholder of the corresponding Target Portfolio will be
approximately equal to the fair market value of the shares of the Target
Portfolio surrendered in exchange therefor.
(d) Immediately following the Reorganizations, the shareholders of each
Target Portfolio will own all the outstanding shares of the corresponding
Acquiring Portfolio, and will own such shares solely by reason of their
ownership of shares of the Target Portfolio immediately prior to the
Reorganizations.
(e) Immediately following the Reorganizations, each Acquiring Portfolio
will possess the same assets and liabilities (except for assets used to pay
expenses incurred in the Reorganizations) as possessed by the corresponding
Target Portfolio immediately prior to the Reorganizations.
(f) There will be no shareholders of any Target Portfolio entitled to
appraisal rights as a result of the Reorganizations, no cash will be paid to the
shareholders of any Target Portfolio in lieu of fractional shares, and no cash
or property other than shares of the corresponding Acquiring Portfolio will be
received by or distributed to the shareholders of any Target Portfolio in the
Reorganizations.
(g) The liabilities (if any) of a Target Portfolio to be assumed by the
corresponding Acquiring Portfolio were incurred by the Target Portfolio in the
ordinary course of its business and are associated with the assets to be
transferred.
(h) Other than expenses solely and directly related to the Reorganizations,
which will be paid by affiliates of MetLife and Citigroup, each Acquiring
Portfolio, each Target Portfolio, and the shareholders of each Target Portfolio
will pay their respective transaction expenses (if any).
(i) There is no intercorporate indebtedness between any Target Portfolio
and its corresponding Acquiring Portfolio.
(j) The fair market value of the assets of each Target Portfolio to be
transferred in the Reorganizations to the corresponding Acquiring Portfolio will
exceed the sum of the liabilities (if any) to be assumed by such Acquiring
Portfolio.
(k) At the time of the Reorganizations, no Target Portfolio will have
outstanding any warrants, option, convertible securities, or any other type of
right pursuant to which any person could acquires shares in a Target Portfolio.
(l) Each Target Portfolio will distribute to its shareholders the shares of
the corresponding Acquiring Portfolio it receives pursuant to the
Reorganizations.
(m) As of the Closing Date, each Target Portfolio will cease to be a going
concern except for completion of the transactions contemplated pursuant to the
Plan of Reorganization. Following its final liquidating distribution, each
Target Portfolio will not retain any assets and will be dissolved.
(n) The Acquiring Portfolios and the Target Portfolios are each engaging in
the Reorganizations for valid business reasons.
(o) Each of the Separate Accounts that holds 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 Reorganizations 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 Reorganizations 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.
(p) Each of the Target Portfolios 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. Following
the Reorganizations, each of the Acquiring Portfolios will be managed in a
manner as to satisfy the diversification requirements of section 817(h) and
section 1.817-5(b) of the Income Tax Regulations.
(q) Each of the Contracts qualifies (and will qualify as of the Closing
Date) as a variable life insurance contract or variable annuity contract, as
applicable, for federal income tax purposes.
(r) The Contracts: (1) permit the exchange of shares of an Acquiring
Portfolio for shares of the corresponding Target Portfolio pursuant to the terms
of the Reorganizations, (2) will not be materially changed as a result of the
Reorganizations, (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.
(s) Each of the Target Portfolios pursues, and at all times during its
existence has pursued, a broad investment strategy. Following the
Reorganizations, each of the Acquiring Portfolios will pursue a broad investment
strategy. Contractholders have not had any involvement with respect to the
choice of investment advisers that manage the Target Portfolios and will not
have any involvement with respect to the choice of the investment advisers that
will manage the Acquiring Portfolios following the Reorganizations. All
investment decisions concerning a Target Portfolio have been made by its
investment advisers, and all investment decisions concerning an Acquiring
Portfolio will be made by its investment advisers following the Reorganizations.
See Rev. Rul. 2003-91, 2003-2 C.B. 347.
(t) 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 each Target
Portfolio are held (and all the shares of each Acquiring Portfolio will be held
) by separate accounts of one or more life insurance companies, and (2) public
access to each Target Portfolio is and has been available (and public access to
each Acquiring Portfolio will be available) exclusively through the purchase of
a variable life insurance or variable annuity contract.
Opinion
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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. The Reorganization will constitute a "reorganization" within the meaning
of section 368(a)(1)(F), 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 (if any) 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 (if any) 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. For purposes of section 381 of the Code, the Acquiring Portfolio will be
treated as if there had been no reorganization. Accordingly, the taxable year of
the Target Portfolio will not end on the effective date of the Reorganization,
and the tax attributes of the Target Portfolio enumerated in section 381(c) will
be taken into account as if there had been no reorganization.
The part of the taxable year of the Target Portfolio before the Reorganization
and the part of the taxable year of the Acquiring Portfolio after the
Reorganization will constitute a single taxable year of the Acquiring Portfolio.
Therefore, the Target Portfolio will not be required to file a federal income
tax return or distribute information returns to its shareholders for any portion
of such taxable year. The Acquiring Portfolio will assume the Target Portfolio's
taxpayer identification number and will not be required to file for a new
identification number. See Treas. Reg. ss. 1.381(b)-1(a)(2); Rev. Rul. 57-276,
1957-1 C.B. 126; Rev. Rul. 73-526, 1973-2 C.B. 404.
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, 2003-2 C.B. 347.
* * *
We are furnishing this opinion letter solely for the benefit of the
Corporation (including the Target Portfolios), the Trust (including the
Acquiring Portfolios), the Board of Directors, the Board of Trustees, and the
shareholders of each of the Target 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 Reorganizations, 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