EXHIBIT 12
April 27, 2001
Mercury HW Variable Trust Merrill Lynch Variable Series Funds, Inc.
Mercury HW International Merrill Lynch International
Value VIP Portfolio Equity Focus Fund
725 S. Figueroa Street 800 Scudders Mill Road
Suite 4000 Plainsboro, New Jersey 08536
Los Angeles, California 90017-5400
Re: Reorganization of Mercury HW Variable Trust (Mercury HW International
Value VIP Portfolio) and Merrill Lynch Variable Series Funds, Inc.
(Merrill Lynch International Equity Focus Fund)
Ladies and Gentlemen:
We are outside counsel to Mercury HW Variable Trust, a Massachusetts
business trust (the "Trust"), of which Mercury HW International Value VIP
Portfolio ("Acquiring Fund") is a series. An Agreement and Plan of
Reorganization (the "Agreement") by and between the Trust, on behalf of
Acquiring Fund, and Merrill Lynch Variable Series Funds, Inc., a Maryland
corporation (the "Company"), on behalf of one of its series, Merrill Lynch
International Equity Focus Fund ("Acquired Fund"), has been approved by the
Boards of each of the Trust and the Company pursuant to which Acquired Fund will
transfer to Acquiring Fund substantially all of the assets of Acquired Fund in
exchange solely for voting shares of Acquiring Fund and the assumption by
Acquiring Fund of substantially all of the liabilities, if any, of Acquired
Fund. Acquired Fund will then distribute the shares of Acquiring Fund acquired
in the exchange to its shareholders and Acquired Fund will liquidate pursuant to
the Agreement (the "Reorganization").
You have requested our opinion as to certain federal income tax
consequences of the Reorganization. The opinion that follows is based on the
Internal Revenue Code of 1986, as amended through the date hereof (the "Code"),
judicial decisions, administrative rulings and regulations, and such other
sources of legal authority as we deemed necessary to consult in rendering this
opinion. The opinion is also based on (i) factual representations, including
those set forth on Exhibits A and B hereto, (ii) the representations made by the
parties in the Agreement, and (iii) our understanding that the Reorganization
will take place substantially as set out in the Agreement and as described in
the Prospectus/Proxy Statement (the "Proxy Statement") included in Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-14 filed by the Trust
with the Securities and Exchange Commission on March 16, 2001 (File No.
333-54884) in connection with the meeting of shareholders of Acquired Fund held
on April 26, 2001.
Mercury HW Variable Trust
Merrill Lynch Variable Series Funds, Inc.
April 27, 2001
Page 2
SUMMARY OF THE TRANSACTION
In the Reorganization, Acquired Fund will transfer substantially all of
its assets and liabilities to Acquiring Fund in exchange for an equal value of
shares of Acquiring Fund. Acquired Fund will then distribute to its shareholders
as a liquidating distribution all of such shares of Acquiring Fund in exchange
for and in cancellation of each respective outstanding share of Acquired Fund,
and Acquired Fund will be terminated as a series of the Company and will
liquidate pursuant to the Agreement.
BUSINESS PURPOSE
Our opinion is based in part upon our understanding that the primary
business purpose of this transaction is to achieve certain cost savings by
combining the assets of Acquired Fund and Acquiring Fund as is represented on
Exhibits A and B hereto. A description of the business purposes of the
Reorganization is set out in the Proxy Statement.
REPRESENTATIONS
In rendering our opinion, we are, with your permission, assuming that the
transaction will occur substantially as described in the Agreement and the Proxy
Statement. We are also relying upon the additional representations which have
been certified to us by Acquired Fund and Acquiring Fund, as set forth on
Exhibits A and B hereto.
OPINION
Based upon the foregoing, the representations contained in Exhibits A and
B hereto, and our review of the relevant legal authorities, it is our opinion
that:
1. The acquisition by Acquiring Fund of substantially all of the assets of
Acquired Fund in exchange solely for voting shares of Acquiring Fund and the
assumption by Acquiring Fund of Acquired Fund's liabilities, if any, followed by
Acquired Fund's distribution to its shareholders, pro rata, of Acquiring Fund's
shares in complete liquidation of Acquired Fund pursuant to the Agreement and
constructively in exchange for the shareholders' Acquired Fund shares, will
constitute a reorganization within the meaning of Section 368(a)(1) of the Code,
and Acquired Fund and Acquiring Fund each will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by Acquired Fund upon the transfer
of substantially all of its assets to Acquiring Fund in exchange solely for
voting shares of Acquiring Fund and the assumption by Acquiring Fund of Acquired
Fund's liabilities, if any. Code ss.ss. 361(a) and 357(a). In addition, no gain
or loss will be recognized by Acquired Fund on the distribution of such shares
to the Acquired Fund shareholders in liquidation of Acquired Fund. Code ss.
361(c)(1).
3. No gain or loss will be recognized by Acquiring Fund upon the
acquisition of Acquired Fund's assets in exchange solely for voting shares of
Acquiring Fund and the assumption of Acquired Fund's liabilities, if any. Code
ss. 1032(a).
Mercury HW Variable Trust
Merrill Lynch Variable Series Funds, Inc.
April 27, 2001
Page 3
4. Acquired Fund's shareholders will recognize no gain or loss upon the
receipt of voting shares of Acquiring Fund solely in exchange for and in
cancellation of Acquired Fund shares of common stock, as described above and in
the Agreement. Code ss. 354(a)(1).
5. Acquiring Fund's basis in the assets acquired from Acquired Fund will
be the same as the basis of such assets in the hands of Acquired Fund
immediately before the Reorganization, and the holding period of such assets
acquired by Acquiring Fund will include the holding period thereof when held by
Acquired Fund immediately before the Reorganization. Code ss.ss. 362(b) and
1223(2).
6. Acquired Fund shareholders' basis in the shares of Acquiring Fund to be
received by them pursuant to the Reorganization will be the same as their
respective basis in the shares of Acquired Fund to be constructively surrendered
in exchange therefor. Code ss. 358(a)(1).
7. The holding period of Acquiring Fund shares to be received by Acquired
Fund shareholders will include the period during which Acquired Fund shares to
be constructively surrendered in exchange therefor were held, provided such
Acquired Fund shares were held as capital assets by those shareholders on the
effective date of the Reorganization. Code ss. 1223(1).
8. The taxable year of Acquired Fund will end on the effective date of the
Reorganization, and Acquiring Fund will succeed to and take into account the
items described in Section 381(c) of the Code, subject to the provisions and
limitations specified in Sections 381 through 384 of the Code.
You should be aware that this opinion is not binding on the Internal
Revenue Service or the courts. However, a ruling of the Internal Revenue Service
has been requested regarding these matters. No opinion is expressed concerning
the state, local or foreign tax consequences of the Reorganization.
This opinion is being delivered to you pursuant to paragraphs 8(f) and
9(h) of the Agreement.
We hereby give you our consent to your inclusion of this opinion as an
exhibit to Post-Effective Amendment No. 1 to the Registration Statement on Form
N-14 filed by Acquiring Fund with the Securities and Exchange Commission and to
the references to our firm contained in the Proxy Statement. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the Rules and Regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Gardner Carton & Douglas
Exhibit A
LETTERHEAD OF MERCURY HW VARIABLE TRUST
April 27, 2001
Gardner, Carton & Douglas
321 North Clark Street
Chicago, Illinois 60610
Re: Reorganization of Mercury HW Variable Trust (Mercury HW International
Value VIP Portfolio) and Merrill Lynch Variable Series Funds, Inc.
(Merrill Lynch International Equity Focus Fund)
Ladies and Gentlemen:
An Agreement and Plan of Reorganization (the "Agreement") has been entered
into pursuant to which Merrill Lynch International Equity Focus Fund ("Acquired
Fund"), a series of Merrill Lynch Variable Series Funds, Inc., a Maryland
corporation (the "Company"), will transfer to Mercury HW International Value VIP
Portfolio ("Acquiring Fund"), a series of Mercury HW Variable Trust, a
Massachusetts business trust, substantially all of the assets of Acquired Fund
in exchange solely for voting shares of Acquiring Fund and the assumption by
Acquiring Fund of the liabilities, if any, of Acquired Fund. Within thirty (30)
days of such exchange, the shares of Acquiring Fund so received will be
distributed to the Acquired Fund shareholders in liquidation of Acquired Fund,
and Acquired Fund will be terminated as a series of the Company (the
"Reorganization"). We have asked you to render an opinion regarding certain
federal income tax consequences of the Reorganization. You have advised us that
your opinion depends in part on particular facts relating to those parties
involved. The purpose of this letter is to set forth relevant facts to
facilitate your rendering an opinion. We understand that your opinion will be
dependent on the facts presented in this letter and in a similar letter from the
Company, as well as on your understanding that the Reorganization will take
place substantially as set out in the Agreement and as described in the
Prospectus/Proxy Statement (the "Proxy Statement") included in Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-14 filed by us with the
Securities and Exchange Commission (File No. 333-54884). We further understand
that any inaccuracy or change in the following prior to the closing may change
your opinion on the federal income tax consequences of the Reorganization and
that our reliance on your opinion is therefore predicated on the accuracy of the
following statements of fact. We undertake to inform you of any change in
circumstances which would cause any of the following statements to be inaccurate
as of the date of closing. We understand that you have not attempted, and we
have not asked you to attempt, to verify any of the following representations
through independent investigation.
Gardner, Carton & Douglas
April 27, 2001
Page 2
SUMMARY OF THE TRANSACTION
In the Reorganization, Acquired Fund will transfer substantially all of
its assets and liabilities to Acquiring Fund in exchange for an equal value of
shares of Acquiring Fund. Acquired Fund will then distribute to its shareholders
as a liquidating distribution all of such shares of Acquiring Fund in exchange
for and in cancellation of each respective outstanding share of Acquired Fund,
and Acquired Fund will be terminated as a series of the Company and will
liquidate pursuant to the Agreement.
BUSINESS PURPOSE
Your opinion is based in part upon your understanding that the primary
business purpose of this transaction is to achieve certain cost savings by
combining the assets of Acquired Fund and Acquiring Fund as is represented
below. A description of the business purposes of the Reorganization is set out
in the Proxy Statement.
REPRESENTATIONS
The undersigned on behalf of Acquiring Fund hereby certifies as follows:
1. The primary business purpose of this transaction is to achieve certain
cost savings by combining the assets of Acquired Fund and Acquiring Fund.
Acquired Fund and Acquiring Fund have similar investment objectives and
investment policies, and the combination would result in increased economies of
scale.
2. The fair market value of the shares of Acquiring Fund received by each
Acquired Fund shareholder will be approximately equal to the fair market value
of the respective shares of Acquired Fund surrendered in exchange therefor.
3. Each share of Acquiring Fund received by the Acquired Fund shareholders
in the Reorganization will carry with it the right to vote for the Board of
Trustees of Acquiring Fund.
4. No cash or property, other than shares of Acquiring Fund, will be
transferred to Acquired Fund or distributed to Acquired Fund shareholders
pursuant to the Reorganization.
5. Acquiring Fund 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 Acquired Fund immediately prior to the Reorganization,
including, but not limited to, the historic business assets described in
paragraph 9 below. For purposes of this representation, amounts used by Acquired
Fund to pay its Reorganization expenses, amounts paid by Acquired Fund to
shareholders who receive cash or other property, and all redemptions and
distributions (except for redemptions and distributions occurring in the
ordinary course of Acquired Fund's business as an open-end investment company
pursuant to section 22(e) of the Investment Company Act of 1940 (the "Act"))
made by Acquired Fund immediately preceding the transfer will be included as
assets of
Gardner, Carton & Douglas
April 27, 2001
Page 3
Acquired Fund held immediately prior to the Reorganization. There will be no
payments to dissenters, as shareholders may redeem their shares at any time.
6. There is no plan or intention by Acquiring Fund or any person related
to Acquiring Fund (as defined in section 1.368-1(e)(3) of the Income Tax
Regulations1 (the "Regulations")) to acquire or redeem any shares of Acquiring
Fund issued in the Reorganization, either directly or through any transaction,
agreement, or arrangement with any other person, other than redemptions in the
ordinary course of Acquiring Fund's business as an open-end investment company
as required by section 22(e) of the Act.
7. To the best of Acquiring Fund's knowledge, during the five-year period
ending on the date of the Reorganization, neither Acquired Fund nor any person
related to Acquired Fund (as defined in section 1.368-1(e)(3) of the Regulations
without regard to section 1.368-1(e)(3)(i)(A) of the Regulations2) will have
directly or through any transaction, agreement, or arrangement with any other
person, (i) acquired stock of Acquired Fund with consideration other than shares
of Acquiring Fund or Acquired Fund, except for stock redeemed in the ordinary
course of Acquired Fund's business as an open-end investment company as required
by section 22(e) of the Act, or (ii) made distributions with respect to Acquired
Fund stock, except for (a) distributions described in sections 852 and 4982 of
the Internal Revenue Code of 1986, as amended (the "Code"), and (b) additional
distributions (including distributions in liquidation of a shareholder's
interest), to the extent such distributions do not exceed 50 percent of the
value (without giving effect to such distributions) of the proprietary interest
in Acquired Fund on the effective date of the Reorganization.
8. Prior to or in the transaction, neither Acquiring Fund nor any person
related to Acquiring Fund (as defined in section 1.368-1(e)(3) of the
Regulations and summarized in the footnote to paragraph 6 above) will have
acquired directly or indirectly or through any transaction, agreement, or
arrangement with any other person, any shares of Acquired Fund with
consideration other than shares of Acquiring Fund.
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1 In general, under section 1.368-1(e)(3) of the Regulations, a corporation is
related to Acquiring Fund if (i) it is a member of the same affiliated group as
Acquiring Fund or (ii) (a) at least 50 percent of the voting power of all
classes of stock entitled to vote or at least 50 percent of the total value of
shares of all classes of stock of Acquiring Fund and (b) at least 50 percent of
the voting power of all classes of stock entitled to vote or at least 50 percent
of the total value of shares of all classes of stock of such other corporation
are under common ownership, taking into account attribution of ownership from
related parties. In general, an affiliated group is a chain of corporations
connected through stock ownership with a common parent corporation where (i) the
common parent directly owns at least 80 percent of the total voting power and 80
percent of the total value of the stock of at least one of the corporations, and
(ii) one or more of the corporations (other than the common parent corporation)
owns at least 80 percent of the total voting power and 80 percent of the total
value of the stock of at least one of the other corporations.
2 For purposes of this representation, a corporation is related to Acquired Fund
if (a) at least 50 percent of the voting power of all classes of stock entitled
to vote or at least 50 percent of the total value of shares of all classes of
stock of Acquiring Fund and (b) at least 50 percent of the voting power of all
classes of stock entitled to vote or at least 50 percent of the total value of
shares of all classes of stock of such other corporation are under common
ownership, taking into account attribution of ownership from related parties.
Gardner, Carton & Douglas
April 27, 2001
Page 4
9. Acquiring Fund may dispose of a portion of the assets acquired in the
Reorganization and will reinvest the proceeds consistent with its investment
objectives and policies, but will retain at least 33 1/3 percent of Acquired
Fund's historic business assets (such retained historic business assets to be
other than liquidity positions) and will use such assets in its business.
Historic business assets are those assets of Acquired Fund acquired by it in the
ordinary course of its business as an investment company and not in
contemplation of or as part of the Reorganization. Otherwise, Acquiring Fund has
no plan or intention to sell or otherwise dispose of any of the assets of
Acquired Fund acquired in the transaction, except for dispositions made in the
ordinary course of Acquiring Fund's business as an investment company (i.e.,
dispositions resulting from investment decisions made on the basis of investment
considerations arising after and independent of the Reorganization) and will
reinvest the proceeds consistent with its investment objectives and policies.
10. Following the Reorganization, Acquiring Fund will continue the
historic business of Acquired Fund.
11. After the Reorganization, the shareholders of Acquired Fund will be in
control of Acquiring Fund within the meaning of section 368(a)(2)(H) of the
Code.
12. At the time of the Reorganization, Acquiring Fund will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares of Acquiring Fund that,
if exercised or converted, would affect the Acquired Fund's shareholders'
acquisition or retention of control (as defined in section 368(a)(2)(H) of the
Code) of Acquiring Fund.
13. All expenses incurred in connection with the Reorganization will be
borne equally by Acquired Fund and Acquiring Fund.
14. There is no intercorporate indebtedness existing between Acquiring
Fund and Acquired Fund that was issued, acquired, or will be settled at a
discount.
15. Acquiring Fund meets the requirements of a regulated investment
company as referred to in section 368(a)(2)(F) of the Code. In general, a
regulated investment company meets the requirements of section 368(a)(2)(F) of
the Code if not more than 25 percent of the value of its total assets is
invested in the stock and securities of any one issuer and not more than 50
percent of the value of its total assets is invested in the stock and securities
of five or fewer issuers. Acquiring Fund has elected to be taxed as a regulated
investment company under section 851 of the Code and for all its taxable periods
has qualified for the special tax treatment afforded regulated investment
companies under the Code. Following the Reorganization, Acquiring Fund intends
to continue to so qualify.
16. Acquiring Fund does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of Acquired Fund.
Gardner, Carton & Douglas
April 27, 2001
Page 5
17. The liabilities of Acquired Fund assumed by Acquiring Fund in the
Reorganization, if any, and the liabilities to which the transferred assets are
subject, if any, were incurred by Acquired Fund in the ordinary course of its
business and are associated with the assets to be transferred.
18. Each of the fair market value and the adjusted basis of Acquired
Fund's assets transferred to Acquiring Fund will equal or exceed the sum of the
liabilities, if any, assumed by Acquiring Fund plus the liabilities, if any, to
which the transferred assets are subject.
19. The amount of cash, if any, retained by Acquired Fund to meet
expenses, plus liabilities, if any, of Acquired Fund to be assumed by Acquiring
Fund in the Reorganization, plus the liabilities, if any, to which the
transferred assets are subject, will not equal or exceed 20 percent of the fair
market value of all property held by Acquired Fund immediately prior to the
Reorganization.
20. The undersigned is properly authorized to make these representations
on behalf of Acquiring Fund.
I hereby certify that the above statements are true and accurate.
MERCURY HW VARIABLE TRUST, on behalf of
MERCURY HW INTERNATIONAL VALUE VIP PORTFOLIO
By: s/b Donald Burke
--------------------------------
Title: Treasurer
Exhibit B
LETTERHEAD OF MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
April 27, 2001
Gardner, Carton & Douglas
321 North Clark Street
Chicago, Illinois 60610
Re: Reorganization of Mercury HW Variable Trust (Mercury HW International
Value VIP Portfolio) and Merrill Lynch Variable Series Funds, Inc.
(Merrill Lynch International Equity Focus Fund)
Ladies and Gentlemen:
An Agreement and Plan of Reorganization (the "Agreement") has been entered
into pursuant to which Merrill Lynch International Equity Focus Fund ("Acquired
Fund"), a series of Merrill Lynch Variable Series Funds, Inc., a Maryland
corporation (the "Company"), will transfer to Mercury HW International Value VIP
Portfolio ("Acquiring Fund"), a series of Mercury HW Variable Trust, a
Massachusetts business trust (the "Trust"), substantially all of the assets of
Acquired Fund in exchange solely for voting shares of Acquiring Fund and the
assumption by Acquiring Fund of the liabilities, if any, of Acquired Fund.
Within thirty (30) days of such exchange, the shares of Acquiring Fund so
received will be distributed to the Acquired Fund shareholders in liquidation of
Acquired Fund, and Acquired Fund will be terminated as a series of the Company
(the "Reorganization"). You have been asked to render an opinion regarding
certain federal income tax consequences of the Reorganization. You have advised
us that your opinion depends in part on particular facts relating to those
parties involved. The purpose of this letter is to set forth relevant facts to
facilitate your rendering an opinion. We understand that your opinion will be
dependent on the facts presented in this letter and in a similar letter from the
Trust, as well as on your understanding that the Reorganization will take place
substantially as set out in the Agreement and as described in the
Prospectus/Proxy Statement (the "Proxy Statement") included in Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-14 filed by Acquiring
Fund with the Securities and Exchange Commission (File No. 333-54884). We
further understand that any inaccuracy or change in the following prior to the
closing may change your opinion on the federal income tax consequences of the
Reorganization and that our reliance on your opinion is therefore predicated on
the accuracy of the following statements of fact. We undertake to inform you of
any change in circumstances which would cause any of the following statements to
be inaccurate as of the date of closing. We understand that you have not
attempted, and we have not asked you to attempt, to verify any of the following
representations through independent investigation.
Gardner, Carton & Douglas
April 27, 2001
Page 2
SUMMARY OF THE TRANSACTION
In the Reorganization, Acquired Fund will transfer substantially all of
its assets and liabilities to Acquiring Fund in exchange for an equal value of
shares of Acquiring Fund. Acquired Fund will then distribute to its shareholders
as a liquidating distribution all of such shares of Acquiring Fund in exchange
for and in cancellation of each respective outstanding share of Acquired Fund,
and Acquired Fund will be terminated as a series of the Company and will
liquidate pursuant to the Agreement.
BUSINESS PURPOSE
Your opinion is based in part upon your understanding that the primary
business purpose of this transaction is to achieve certain cost savings by
combining the assets of Acquired Fund and Acquiring Fund as is represented
below. A description of the business purposes of the Reorganization is set out
in the Proxy Statement.
REPRESENTATIONS
The undersigned on behalf of Acquired Fund hereby certifies as follows:
1. The primary business purpose of this transaction is to achieve certain
cost savings by combining the assets of Acquired Fund and Acquiring Fund.
Acquired Fund and Acquiring Fund have similar investment objectives and
investment policies, and the combination would result in increased economies of
scale.
2. The fair market value of the shares of Acquiring Fund received by each
Acquired Fund shareholder will be approximately equal to the fair market value
of the respective shares of Acquired Fund surrendered in exchange therefor.
3. Each share of Acquiring Fund received by the Acquired Fund shareholders
in the Reorganization will carry with it the right to vote for the Board of
Trustees of Acquiring Fund.
4. After the Reorganization, the shareholders of Acquired Fund will be in
control of Acquiring Fund within the meaning of section 368(a)(2)(H) of the
Internal Revenue Code of 1986, as amended (the "Code").
5. No cash or property, other than the shares of Acquiring Fund, will be
transferred to Acquired Fund or distributed to Acquired Fund shareholders
pursuant to the Reorganization.
6. Acquiring Fund 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 Acquired Fund immediately prior to the Reorganization,
including, but not limited to, the historic business assets described in
paragraph 11 below. For purposes of this representation, amounts used by
Acquired Fund to pay its Reorganization expenses, amounts paid by Acquired Fund
to shareholders who receive cash or other property, and all redemptions and
Gardner, Carton & Douglas
April 27, 2001
Page 3
distributions (except for redemptions and distributions occurring in the
ordinary course of Acquired Fund's business as an open-end investment company
pursuant to section 22(e) of the Investment Company Act of 1940 (the "Act"))
made by Acquired Fund immediately preceding the transfer will be included as
assets of Acquired Fund held immediately prior to the Reorganization. There will
be no payments to dissenters, as shareholders may redeem their shares at any
time.
7. To the best of Acquired Fund's knowledge, there is no plan or intention
by Acquiring Fund or any person related to Acquiring Fund (as defined in section
1.368-1(e)(3) of the Income Tax Regulations1 (the "Regulations")) to acquire or
redeem any shares of Acquiring Fund issued in the Reorganization, either
directly or through any transaction, agreement, or arrangement with any other
person, other than redemptions in the ordinary course of Acquiring Fund's
business as an open-end investment company as required by section 22(e) of the
Act.
8. During the five-year period ending on the date of the Reorganization,
neither Acquired Fund nor any person related to Acquired Fund (as defined in
section 1.368-1(e)(3) of the Regulations without regard to section
1.368-1(e)(3)(i)(A) of the Regulations2) will have directly or through any
transaction, agreement, or arrangement with any other person, (i) acquired stock
of Acquired Fund with consideration other than shares of Acquiring Fund or
Acquired Fund, except for stock redeemed in the ordinary course of Acquired
Fund's business as an open-end investment company as required by section 22(e)
of the Act, or (ii) made distributions with respect to Acquired Fund stock,
except for (a) distributions described in sections 852 and 4982 of the Code, and
(b) additional distributions (including distributions in liquidation of a
shareholder's interest), to the extent such distributions do not exceed 50
percent of the value (without giving effect to such distributions) of the
proprietary interest in Acquired Fund on the effective date of the
Reorganization.
9. To the best of Acquired Fund's knowledge, prior to or in the
transaction, neither Acquiring Fund nor any person related to Acquiring Fund (as
defined in section 1.368-1(e)(3) of the Regulations and summarized in the
footnote to paragraph 7 above) will have acquired
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1 In general, under section 1.368-1(e)(3) of the Regulations, a corporation is
related to Acquiring Fund if (i) it is a member of the same affiliated group as
Acquiring Fund or (ii) (a) at least 50 percent of the voting power of all
classes of stock entitled to vote or at least 50 percent of the total value of
shares of all classes of stock of Acquiring Fund and (b) at least 50 percent of
the voting power of all classes of stock entitled to vote or at least 50 percent
of the total value of shares of all classes of stock of such other corporation
are under common ownership, taking into account attribution of ownership from
related parties. In general, an affiliated group is a chain of corporations
connected through stock ownership with a common parent corporation where (i) the
common parent directly owns at least 80 percent of the total voting power and 80
percent of the total value of the stock of at least one of the corporations, and
(ii) one or more of the corporations (other than the common parent corporation)
owns at least 80 percent of the total voting power and 80 percent of the total
value of the stock of at least one of the other corporations.
2 For purposes of this representation, a corporation is related to Acquired Fund
if (i) at least 50 percent of the voting power of all classes of stock entitled
to vote or at least 50 percent of the total value of shares of all classes of
stock of Acquiring Fund and (ii) at least 50 percent of the voting power of all
classes of stock entitled to vote or at least 50 percent of the total value of
shares of all classes of stock of such other corporation are under common
ownership, taking into account attribution of ownership from related parties.
Gardner, Carton & Douglas
April 27, 2001
Page 4
directly or indirectly or through any transaction, agreement, or arrangement
with any other person, any shares of Acquired Fund with consideration other than
shares of Acquiring Fund.
10. In accordance with and pursuant to the Plan, Acquired Fund will
distribute the shares it receives in the Reorganization to its shareholders as
soon as practicable after the closing date, and in any event within 30 days
thereafter. As soon as practicable after the closing date, and in any event
within 12 months thereafter, Acquired Fund will be liquidated for federal income
tax purposes. Acquired Fund will have no assets to distribute other than the
shares of Acquiring Fund received in the Reorganization.
11. In conjunction with the transfer of substantially all of its assets to
Acquiring Fund, Acquired Fund will transfer at least 33 1/3% of its historic
business assets (such transferred historic business assets to be other than
liquidity positions) to Acquiring Fund at the closing date of the
Reorganization. Historic business assets are those assets of Acquired Fund
acquired by it in the ordinary course of its business and not in contemplation
of or as part of the Reorganization.
12. All expenses incurred in connection with the Reorganization will be
borne equally by Acquired Fund and Acquiring Fund.
13. There is no intercorporate indebtedness existing between Acquiring
Fund and Acquired Fund that was issued, acquired, or will be settled at a
discount.
14. Acquired Fund meets the requirements of a regulated investment company
as referred to in section 368(a)(2)(F) of the Code. In general, a regulated
investment company meets the requirements of section 368(a)(2)(F) of the Code if
not more than 25 percent of the value of its total assets is invested in the
stock and securities of any one issuer and not more than 50 percent of the value
of its total assets is invested in the stock and securities of five or fewer
issuers. Acquired Fund has elected to be taxed as a regulated investment company
under section 851 of the Code and for all its taxable periods (including the
last short taxable period ending on the date of the Reorganization) has
qualified for the special tax treatment afforded regulated investment companies
under the Code.
15. Acquiring Fund does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any shares of Acquired Fund.
16. The liabilities of Acquired Fund assumed by Acquiring Fund in the
Reorganization, if any, and the liabilities to which the transferred assets are
subject, if any, were incurred by Acquired Fund in the ordinary course of its
business and are associated with the assets to be transferred.
17. Each of the fair market value and the adjusted basis of Acquired
Fund's assets transferred to Acquiring Fund will equal or exceed the sum of the
liabilities, if any, assumed by Acquiring Fund plus the liabilities, if any, to
which the transferred assets are subject.
Gardner, Carton & Douglas
April 27, 2001
Page 5
18. The amount of cash, if any, retained by Acquired Fund to meet
expenses, plus liabilities, if any, of Acquired Fund to be assumed by Acquiring
Fund in the Reorganization, plus the liabilities, if any, to which the
transferred assets are subject, will not equal or exceed 20 percent of the fair
market value of all property held by Acquired Fund immediately prior to the
Reorganization.
19. Acquired Fund is not under the jurisdiction of a court in a title 11
or similar case within the meaning of section 368(a)(3)(A) of the Code.
20. In connection with the Reorganization, Acquired Fund has not and will
not distribute to its creditors any shares of Acquired Fund, any shares of
Acquiring Fund to be received, or rights to acquire any shares of either
Acquired Fund or Acquiring Fund.
21. It is anticipated that there will be no amount remaining in the hands
of Acquired Fund after the payment of the liabilities of Acquired Fund.
22. The undersigned is properly authorized to make these representations
on behalf of Acquired Fund.
I hereby certify that the above statements are true and accurate.
MERRILL LYNCH VARIABLE SERIES FUNDS, INC., on behalf of
Merrill LYNCH INTERNATIONAL EQUITY FOCUS FUND
By: s/b Donald Burke
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Title: Treasurer