Exhibit 12
SIDLEY AUSTIN BROWN & WOOD LLP
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WRITER'S DIRECT NUMBER WRITER'S E-MAIL ADDRESS
July 29, 2002
Merrill Lynch Large Cap Series Funds, Inc., on behalf of
Merrill Lynch Large Cap Core Fund
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mercury Funds, Inc., on behalf of
Mercury U.S. Large Cap Fund
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Master Large Cap Series Trust, on behalf of
Master Large Cap Core Portfolio
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mercury Master Trust, on behalf of
Mercury Master U.S. Large Cap Portfolio
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Re: Reorganization of Merrill Lynch Large Cap Core Fund and
Mercury U.S. Large Cap Fund
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Ladies and Gentlemen:
You have requested our opinion as to certain Federal income tax
consequences of a reorganization which will result in the acquisition of the
assets and assumption of the liabilities of Mercury U.S. Large Cap Fund
("Target Fund"), a series of Mercury Funds, Inc., by Merrill Lynch Large Cap
Core Fund ("Acquiring Fund"), a series of Merrill Lynch Large Cap Series
Funds, Inc., and the issuance of Acquiring Fund common stock to Target Fund
for distribution to Target Fund stockholders ("Reorganization"). Acquiring
Fund and Target Fund are organized in master/feeder structures as "feeder"
funds that invest all of their respective assets in a
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corresponding master portfolio ("Target Master" or "Acquiring Master", as the
context requires) which has an investment objective identical to the feeder
fund. The Reorganization will comprise (i) the acquisition of the assets and
assumption of the liabilities of Target Master by Target Fund in exchange for
all of the beneficial interests in Target Master owned by Target Fund, (ii)
the acquisition of the assets and assumption of the liabilities of Target Fund
by Acquiring Master solely in exchange for an equal aggregate value of
beneficial interests in Acquiring Master, (iii) the acquisition of the assets
and assumption of the liabilities of Target Fund (consisting of beneficial
interests in Acquiring Master) by Acquiring Fund in exchange for Acquiring
Fund shares, and (iv) the subsequent distribution by Target Fund of Acquiring
Fund shares to its stockholders in liquidation. After the Reorganization,
Target Master and Target Fund will cease operations, will have no assets
remaining and will have final Federal and state (if any) tax returns filed on
their behalf. Mercury Funds, Inc. will terminate Target Fund as a series of
Mercury Funds under Maryland law, and Target Master, likewise, will take
action to terminate itself as a series of Mercury Master Trust under Delaware
law.
This opinion letter is furnished pursuant to (i) the sections entitled
"The Reorganization--Terms of the Agreement and Plan of Reorganization--
Amendments and Conditions" in the Joint Proxy Statement and Prospectus, dated
March 22, 2002 and (ii) Sections 10(f) and 11(g) of the Agreement and Plan of
Reorganization dated as of March 21, 2002, by and among Merrill Lynch Large
Cap Series Funds, Inc., on behalf of Merrill Lynch Large Cap Core Fund, Master
Large Cap Series Trust, on behalf of Master Large Cap Core Portfolio, Mercury
Funds, Inc., on behalf of Mercury U.S. Large Cap Fund and Mercury Master Trust,
on behalf of Mercury Master U.S. Large Cap Portfolio (the "Plan") as a
condition of closing. All terms used herein, unless otherwise defined, are
used as defined in the Plan.
In rendering our opinion, we have reviewed and relied upon (a) the Plan,
(b) the Registration Statement on Form N-14 (File No. 333-83092) under the
Securities Act of 1933, as amended (the "1933 Act"), and the Investment
Company Act of 1940, as amended, and a copy of the Joint Proxy Statement and
Prospectus and the Statement of Additional Information as filed under Rule 488
under the 1933 Act and supplemented under Rule 497 under the 1933 Act
(collectively, the "N-14 Registration Statement") by Merrill Lynch Large Cap
Series Funds, Inc. with the Securities and Exchange Commission, and (c)
certain representations concerning the Reorganization made by Target Fund,
Acquiring Fund, Target Master and Acquiring Master in letters dated July 29,
2002 (the "Representations").
Based upon current law, including cases and administrative
interpretations thereof and on the reviewed materials listed above, it is our
opinion that:
1. Pursuant to Treasury Regulation section 301.7701-3(b)(1), the existence
of Target Master as an entity independent of Target Fund is disregarded
for Federal income tax purposes and, therefore, the transfer of Target
Master assets and liabilities to Target Fund in exchange for all of its
Target Master beneficial interests will have no Federal income tax
consequences.
2. Under Section 721 of the Internal Revenue Code of 1986, as amended (the
"Code"), neither Acquiring Master, Acquiring Fund, nor Target Fund will
recognize gain or loss on the transfer by Target Fund of Target Master
assets to Acquiring Master.
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3. Under Section 722 of the Code, Target Fund's tax basis in the Acquiring
Master beneficial interests received in exchange for the contributed
Target Master assets will equal its basis in the assets transferred.
4. Under Section 723 of the Code, the tax basis of the contributed Target
Master assets in the hands of Acquiring Master will be the same as their
tax basis in the hands of Target Fund.
5. In accordance with Section 1223 of the Code, Target Fund's holding period
in the Acquiring Master beneficial interests received in exchange for the
contributed Target Master assets will include its holding period for the
assets transferred.
6. In accordance with Section 1223 of the Code, Acquiring Master's holding
period for the Target Master assets received from Target Fund will
include Target Fund's holding period for such assets.
7. The transfer of substantially all of the assets of Target Fund to
Acquiring Master in exchange for Acquiring Master beneficial interests,
the simultaneous transfer of all of the assets of Target Fund (consisting
of beneficial interests of Acquiring Master) to Acquiring Fund in
exchange for shares of common stock of Acquiring Fund, and the
distribution of Acquiring Fund shares of common stock to Target Fund
stockholders in exchange for their Target Fund shares will constitute a
reorganization within the meaning of Section 368(a)(1)(C) of the Code,
and Acquiring Fund and Target Fund each will be a "party" to a
reorganization within the meaning of Section 368(b) of the Code.
8. In accordance with Section 361 of the Code, Target Fund will not
recognize gain or loss either on the transfer of substantially all of its
assets (consisting of Acquiring Master beneficial interests) to Acquiring
Fund in exchange solely for voting shares of Acquiring Fund or on the
distribution of the Acquiring Fund shares received to its stockholders.
9. Under Section 1032 of the Code, Acquiring Fund will recognize no gain or
loss on the receipt of Target Fund assets (consisting of beneficial
interests of Acquiring Master) in exchange for its shares.
10. In accordance with Section 354(a)(1) of the Code, Target Fund
stockholders will not recognize gain or loss on the exchange of their
Target Fund shares for shares of Acquiring Fund.
11. The basis of the Target Fund assets (consisting of beneficial interests
of Acquiring Master) received by Acquiring Fund will be the same as the
basis of such assets to Target Fund immediately before the Reorganization
under Section 362(b) of the Code.
12. Under Section 358 of the Code, the basis of the Acquiring Fund shares
received by Target Fund stockholders (including fractional shares to
which they may be entitled) will be the same as the basis of the Target
Fund shares exchanged pursuant to the Reorganization.
13. Under Section 1223 of the Code, the holding period of the Acquiring Fund
shares received by Target Fund stockholders in the Reorganization
(including fractional shares to which they may be entitled) will include
the holding period of the Target Fund shares exchanged
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therefor, provided that such shares were held as a capital asset on the
date of the Reorganization.
14. The holding period of the assets received by Acquiring Fund from Target
Fund (consisting of beneficial interests of Acquiring Master) will
include the period during which such assets were held by Target Fund
under Section 1223 of the Code.
15. Pursuant to Section 381(a) of the Code and Section 1.381(a)-1 of the
Income Tax Regulations, Acquiring Fund will succeed to and take into
account the items of Target Fund described in Section 381(c) of the Code,
subject to the provisions and limitations specified in Sections 381, 382,
383 and 384 of the Code and the regulations thereunder. Under Section
381(b), the tax year of Target Fund will end on the date of the
Reorganization.
Our opinion represents our best legal judgment as to the proper Federal
income tax treatment of the Reorganization, based on the facts contained in
the Plan, the N-14 Registration Statement and the Representations. Our opinion
assumes the accuracy of the facts as described in the Plan, the N-14
Registration Statement and the Representations and could be affected if any of
the facts as so described are inaccurate.
We are furnishing this opinion letter to the addressees hereof, solely
for the benefit of such addressees in connection with the Reorganization. This
opinion letter is not to be used, circulated, quoted or otherwise referred to
for any other purpose.
Very truly yours,
/s/ Sidley Austin Brown & Wood LLP
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