Exhibit 12
SIDLEY AUSTIN BROWN & WOOD LLP
CHICAGO 787 SEVENTH AVENUE BEIJING
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DALLAS TELEPHONE 212 839 5300 GENEVA
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LOS ANGELES www.sidley.com HONG KONG
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SAN FRANCISCO FOUNDED 1866 LONDON
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WASHINGTON, D.C. SHANGHAI
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SINGAPORE
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TOKYO
October 21, 2002
Merrill Lynch U.S. Government Mortgage Fund
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mercury U.S. Government Securities Fund, a
series of The Asset Program, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Re: Reorganization of Merrill Lynch U.S. Government
Mortgage Fund and Mercury U.S. Government Securities
Fund, a series of The Asset Program, Inc.
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Ladies and Gentlemen:
You have requested our opinion as to certain Federal income tax
consequences of the acquisition by Merrill Lynch U.S. Government Mortgage Fund
("ML Fund") of substantially all of the assets and the assumption by ML Fund
of substantially all of the liabilities of Mercury U.S. Government Securities
Fund, a series of The Asset Program, Inc. ("Mercury Fund") and the
simultaneous distribution of newly-issued ML Fund shares to Mercury Fund
stockholders (the "Reorganization"). After the Reorganization, Mercury Fund
will cease operations, will have no assets remaining, will have final Federal
and state (if any) tax returns filed on its behalf and will have all of its
shares cancelled under Maryland law.
This opinion letter is furnished pursuant to (i) the sections entitled
"The Reorganization--Terms of the Agreement and Plan--Amendments and
Conditions" in the Joint Proxy Statement and Prospectus, dated September 3,
2002 and (ii) Sections 8(g) and 9(g) of the Agreement and Plan of
Reorganization dated August 30, 2002, by and between Mercury Fund and ML Fund
(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- 97055)(the "N-14
Registration Statement") filed under the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, by ML Fund with the Securities and
Exchange Commission, and (c) certain representations concerning the
Reorganization made by ML Fund and Mercury Fund in letters dated October 21,
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. The acquisition by ML Fund of substantially all of the assets of
Mercury Fund, as described in the Plan, will constitute a reorganization
within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended (the "Code"), and ML Fund and Mercury Fund each will be a
"party" to a reorganization within the meaning of Section 368(b) of the Code.
2. In accordance with Section 361(a) of the Code, Mercury Fund will not
recognize any gain or loss either on the transfer of substantially all of its
assets to ML Fund in exchange solely for voting shares of ML Fund or on the
distribution of the ML Fund shares received to its stockholders.
3. Under Section 1032 of the Code, ML Fund will recognize no gain or loss
as a result of the Reorganization.
4. In accordance with Section 354(a)(1) of the Code, stockholders of
Mercury Fund will not recognize gain or loss on the exchange of their shares
for shares of ML Fund.
5. The basis of the assets of Mercury Fund received by ML Fund will be
the same as the basis of such assets to Mercury Fund immediately before the
Reorganization under Section 362(b) of the Code.
6. Under Section 358 of the Code, the basis of the ML Fund shares
received by Mercury Fund stockholders (including fractional shares to which
they may be entitled) will be the same as the basis of the shares exchanged
pursuant to the Reorganization.
7. Under Section 1223 of the Code, the holding period of the ML Fund
shares received by Mercury Fund stockholders in the Reorganization (including
fractional shares to which they may be entitled) will include the holding
period of the Mercury Fund shares exchanged therefor, provided that such
shares were held as a capital asset on the date of the Reorganization.
8. The holding period of the assets acquired by ML Fund from Mercury Fund
will include the period during which such assets were held by Mercury Fund
under Section 1223 of the Code.
9. Pursuant to Section 381(a) of the Code and Section 1.381(a)-1 of the
Income Tax Regulations, ML Fund will succeed to and take into account the
items of Mercury 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 Mercury 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