Exhibit 12
Internal Revenue Service Department of the Treasury
Index Number: 368.00-00 Washington, DC 20224
Donald C. Burke Person to contact:
Vice President and Treasurer Michael N. Kaibni, ID #50-11953
Merrill Lynch Corporate Bond Fund, Inc. Telephone Number:
800 Scudders Mill Road (202) 622-7550
Plainsboro, NJ 08536 Refer Reply To:
CC:CORP:B05 PLR-115274-00
Date:
November 9, 2000
Legend:
Acquiring = Investment Grade Portfolio of the Merrill Lynch Corporate
Bond Fund, Inc.,
a Maryland Corporation
EIN: 22-2758219
Target = Quality Bond Portfolio of The Asset Program, Inc.,
a Maryland Corporation
EIN: 22-3336321
State X = Maryland
Dear Mr. Burke:
This letter responds to your representative's August 2, 2000 request for
rulings under ss.368(a)(1)(C) of the Internal Revenue Code on behalf of the
above-captioned taxpayers. The information submitted for consideration is
summarized below.
Acquiring is organized under the laws of State X and registered under the
Investment Company Act of 1940 (the "1940 Act") as a diversified, open-end
management investment company. Acquiring has elected to be taxed as a
regulated investment company ("RIC") under ss.ss.851-855 of the Internal
Revenue Code (the "Code"). Acquiring's investment objectives are to seek a
high level of current income and secondarily, capital appreciation. Acquiring
invests primarily in investment grade fixed-income securities consisting of
U.S. government debt securities, corporate debt securities, asset-backed
securities, mortgage-backed securities, preferred stock (some of which is
convertible into common) and money market securities. Acquiring has
outstanding four classes of shares with identical rights and fees.
Target is organized under the laws of State X and registered under the
Investment Company Act of 1940 (the "1940 Act") as a diversified, open-end
management investment company. Target has elected to be taxed as a RIC under
ss.ss.851-855 Code. Like Acquiring, Target's investment objectives are to seek
a high level of current income and secondarily, capital appreciation. Target
seeks to achieve its investment objectives by investing primarily in U.S.
government obligations, corporate debt securities, convertible and
non-convertible debt securities and preferred stock, money market securities
and mortgage-backed securities. Target also has four classes of stock that are
identical in all respects to Acquiring's four classes of stock.
Acquiring and Target have entered into an agreement and plan of reorganization
for what are represented to be valid business reasons. Pursuant to the
agreement, the transaction consists of the following steps:
1. Target will transfer all of its assets and liabilities to Acquiring in
exchange for an equal value of newly issued Acquiring voting stock.
2. Target will distribute to its shareholders all of the Acquiring stock
received in the exchange. Target shareholders will receive Acquiring shares
with the same class designation as the Target shares held immediately prior to
the transaction. Fractional shares will be issued by Acquiring in the
transaction.
3. Target will liquidate and dissolve in accordance with the laws of State X,
and terminate its registration under the 1940 Act.
After the transaction, Acquiring may sell up to 66 percent of the assets
received in the transaction to unrelated parties, and will reinvest the
proceeds consistent with its investment objectives and policies.
The following representations have been made in connection with the proposed
transaction:
(A) The fair market value of the Acquiring stock received by each Target
shareholder will be approximately equal to the fair market value of the Target
stock surrendered in the exchange.
(B) There is no plan or intention by the Target shareholders who own five
percent or more of the Target stock, and to the best of the knowledge of the
management of Target, there is no plan or intention on the part of any other
shareholders of Target, to sell, exchange, or otherwise dispose of Acquiring
shares received in the reorganization that would reduce Target shareholders'
ownership of Acquiring to a number of shares having a value, as of the date of
the transaction, of less than 50 percent of the value of all of the formerly
outstanding stock of Target as of the same date. For purposes of this
representation, shares of Target stock exchanged for cash or other property,
or surrendered by dissenters will be treated as outstanding Target stock on
the date of the reorganization. Moreover, shares of Target stock and shares of
Acquiring stock held by Target shareholders and otherwise sold, redeemed, or
disposed of prior or subsequent to the transaction will be considered in
making this representation (except for shares which are required to be
redeemed at the demand of shareholders by Target or Acquiring in the ordinary
course of their business as open-end investment companies pursuant to ss.22(e)
of the 1940 Act).
(C) Acquiring 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 Target immediately prior to the transaction. For purposes of
this representation, amounts paid by Target to pay its reorganization
expenses, amounts paid by Target to shareholders who receive cash or other
property, and all redemptions and distributions (except for redemptions in the
ordinary course of Target's business as an open-end investment company as
required by ss.22(e) of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends) made by Target immediately preceding the transfer
will be included as assets of Target held immediately prior to the
transaction.
(D) Acquiring has no plan or intention to reacquire any of its stock issued in
the transaction except in connection with its legal obligations under ss.22(e)
of the 1940 Act.
(E) After the transaction, Acquiring will use the assets acquired from Target
in its business, except that a portion of these assets may be sold or
otherwise disposed of in the ordinary course of Acquiring's business. Any
proceeds will be invested in accordance with Acquiring's investment
objectives. Otherwise, Acquiring has no plan or intention to sell or otherwise
dispose of any of the assets of Target acquired in the transaction except for
dispositions made in the ordinary course of business.
(F) Target will distribute to its shareholders the stock of Acquiring received
pursuant to the plan of reorganization.
(G) The liabilities of Target assumed by Acquiring and any liabilities to
which the transferred assets of Target are subject were incurred by Target in
the ordinary course of its business.
(H) Following the reorganization, Acquiring will continue the historic
business of Target or use a significant portion of Target's historic business
assets in the continuing business.
(I) Target, Acquiring and the shareholders of Target will pay their respective
expenses, if any, incurred in connection with the transaction.
(J) There is no intercorporate indebtedness existing between Target and
Acquiring that was issued, acquired, or will be settled at a discount.
(K) Target and Acquiring each meets the requirements of a regulated investment
company as defined in ss.368(a)(2)(F) of the Code.
(L) The fair market value of the assets of Target transferred to Acquiring
will equal or exceed the sum of the liabilities assumed by Acquiring, plus the
amount of liabilities, if any, to which the transferred assets are subject.
(M) Acquiring does not own, directly or indirectly, nor has it owned during
the past five years, directly or indirectly, any stock of Target.
(N) Target is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of ss.368(a)(3)(A).
(O) Target and Acquiring have elected to be taxed as RICs under ss.851, and
for all of their taxable periods (including the last short taxable period
ending on the date of the transaction, for Target), have qualified for the
special tax treatment afforded RICs under the Code. After the transaction,
Acquiring intends to continue to so qualify.
(P) There is no plan or intention for Acquiring (the issuing corporation as
defined in ss.1.368-(b)) or any person related (as defined in
ss.1.368-1(e)(3)) to Acquiring to acquire, during the five year period
beginning on the date of the proposed transaction, with consideration other
than Acquiring stock, stock furnished in exchange for a proprietary interest
in Target in the transaction, either directly or through any transaction,
agreement, or arrangement with any other person, other than redemptions in the
ordinary course of Acquiring's business as an open-end investment company as
required under ss.22(e) of the 1940 Act.
(Q) During the five-year period ending on the date of the proposed
transaction: i) neither Acquiring, nor any person related (as defined in
ss.1.368(e)(3)) to Acquiring, will have acquired Target stock with
consideration other than Acquiring stock; ii) neither Target, nor any person
related (as defined in ss.1.368-1(e)(3) without regard to
ss.1.368-1(e)(3)(i)(A)) to Target, will have acquired such Target stock with
consideration other than Acquiring stock or Target stock except for stock
redeemed in the ordinary course of Target's business as an open-end investment
company as required by ss.22(e) of the 1940 Act; and iii) no distributions
will have been made with respect to Target's stock (other than ordinary,
normal, regular, dividend distributions made pursuant to Target's historic
dividend paying practice), either directly or through any transaction,
agreement, or arrangement with any other person, except for a) cash paid to
dissenters and b) distributions described in ss.ss.852 and 4982 of the Code.
(R) The aggregate value of the acquisitions, redemptions, and distributions
discussed in paragraphs (p) and (q), above, will not exceed 50 percent of the
value (without giving effect to the acquisitions, redemptions and
distributions) of the proprietary interest in Target on the effective date of
the proposed transaction.
Based solely upon the information and representations set forth above, we hold
as follows:
(i) The acquisition by Acquiring of substantially all of the assets of
Target, as described above, will qualify as a reorganization within the
meaning of ss.368(a)(1)(C) of the Code. Acquiring and Target will be
deemed "a party to a reorganization" within the meaning of ss.368(b).
(ii) No gain or loss will be recognized by Target upon the transfer of
substantially all of its assets to Acquiring solely in exchange for
Acquiring voting stock or on the distribution of the Acquiring stock to
Target shareholders (ss.361).
(iii) Acquiring will not recognize any gain or loss on the receipt of the
assets from Target in exchange for voting shares of Acquiring
(ss.1032(a)).
(iv) The basis of Target assets in the hands of Acquiring will be the
same as the basis of those assets in the hands of Target immediately
prior to the reorganization (ss.362(b)).
(v) Acquiring's holding period for Target assets acquired will include
the period during which such assets were held by Target (ss.1223(2)).
(vi) The shareholders of Target will not recognize any gain or loss on
their respective receipt of stock of Acquiring (including fractional
share interests to which they may be entitled) solely in exchange for
their Target shares (ss.354(a)(1)).
(vii) The basis of the Acquiring shares (including fractional share
interests to which they may be entitled) received by Target shareholders
will be the same as the basis of the Target shares surrendered in
exchange, therefor (ss.358(a)(1)).
(viii) The holding period of the Acquiring shares (including fractional
share interests to which they may be entitled) received by Target
shareholders in exchange for their Target shares will include the period
during which the exchanged Target shares were held, provided that the
Target shares are held as a capital asset in the hands of the Target
shareholders on the date of the exchange (ss.1223(1)).
(ix) Pursuant to ss.381(b) of the Code and ss.1.381(a)-1 of the Income
Tax Regulations, Target's tax year will end on the effective date of the
reorganization.
(x) Acquiring will succeed to and take into account the items of Target
described in ss.381(c) of the Code, subject to the provisions and
limitations specified in ss.ss.381, 382, 383 and 384 of the Code and the
regulations thereunder.
No opinion is expressed about the federal income tax treatment of the proposed
transaction under other provisions of the Code and regulations or about the
tax treatment of any conditions existing at the time of, or effects resulting
from, the proposed transaction that are not specifically covered by the above
rulings.
Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item
discussed or referenced in this letter. Specifically, no opinion was
requested, and none is expressed, about whether Acquiring or each Target Fund
qualify as RICs that are taxable under Subchapter M, Part I of the Code.
This ruling is directed only to the taxpayer(s) requesting it. Section
6110(k)(3) of the Code provides that it may not be used or cited as precedent.
In accordance with the Power of Attorney on file with this office, a copy of
this letter is being sent to your authorized representative.
A copy of this letter must be attached to any income tax return to which it is
relevant.
Sincerely yours,
Assistant Chief Counsel (Corporate)
By: /s/ CHARLES WHEDBEE
---------------------------------------
Charles Whedbee
Senior Technical Reviewer
Branch 5
