SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
THE CHRYSLER BUILDING WASHINGTON, DC OFFICE
405 LEXINGTON AVENUE THE WASHINGTON HARBOUR
NEW YORK, NY 10174 3000 K STREET, NW, SUITE 300
TELEPHONE (212) 973-0111 WASHINGTON, DC 20007
FAX (212) 758-9526 (202) 424-7500 FAX (202) 424-7647
WWW.SWIDLAW.COM
January 30, 2001
Prudential Government Income Fund, Inc.
Gateway Center Three
Newark, New Jersey 07102
Prudential Government Securities Trust
Short-Intermediate Term Series Fund, Inc.
Gateway Center Three
Newark, New Jersey 07102
Dear Sirs:
We are acting as counsel to Prudential Government Income Fund, Inc., a
Maryland corporation ("Government Income Fund") and Prudential Government
Securities Trust, a Massachusetts business trust ("Government Securities Trust")
in connection with the proposed transfer of the assets of the Short-Intermediate
Term Series ("Series") of the Government Securities Trust to the Government
Income Fund, in exchange solely for Class A and Class Z shares of the Government
Income Fund, (the "Shares"), and the assumption by Government Income Fund, of
Series' liabilities, if any, pursuant to an Agreement and Plan of
Reorganization (the "Agreement"). The transactions contemplated by the
Agreement are collectively referred to herein as the "Merger."
We have participated in the preparation of the Government Income Fund's
Registration Statement on Form N-14 (the "Registration Statement") relating,
among other things, to the Shares of Government Income Fund to be offered in
exchange for the assets and the assumption of the liabilities of the Series, and
containing the Prospectus and Proxy Statement relating to the Merger
(collectively, the "Prospectus"), filed with the Securities and Exchange
Commission (the "Commission") pursuant to the provisions of the Securities Act
of 1933, as amended (the "Securities Act"), and the rules and regulations of the
Commission thereunder. In addition, in
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Prudential Government Securities Trust
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connection with rendering the opinions expressed herein, we have examined
originals or copies, certified or otherwise identified to our satisfaction, of
such other documents, records and instruments as we have deemed necessary or
appropriate for the purpose of rendering this opinion, including the form of the
Agreement included as Attachment A to the Proxy Statement.
In our examination of the foregoing documents we have assumed the
genuineness of all signatures, the authority of each signatory, the due
execution and delivery of all documents by all parties, the authenticity of all
agreements, documents, certificates and instruments submitted to us as
originals, the conformity of the Agreement as executed and delivered by the
parties with the form of the Agreement contained in the Proxy Statement, and the
conformity with originals of all agreements, documents, certificates and
instruments submitted to us as copies.
In rendering the opinions expressed herein, we have assumed that the
transactions contemplated by the Agreement will be consummated in accordance
therewith and as described in the Prospectus. As to other questions of fact
material to this opinion, we have assumed, with your approval and without
independent investigation or verification, that the following facts will be
accurate and complete as of the consummation of the Merger (the "Closing Date").
1. The fair market value of the Shares to be received by each Series
shareholder will be equal to the fair market value of the shares of
beneficial interest of Series surrendered in exchange therefor upon the
termination of Series.
2. There will be no plan or intention by Series to redeem its shares
prior or incident to and as part of the Merger. For purposes of this
assumption, shares of Series required to be redeemed by Series prior to
the Merger and not as part of the Merger but in the ordinary course of
its business as an open-end investment company pursuant to Section 22(e)
of the Investment Company Act of 1940, as amended (the "ICA"), shall not
be taken into account.
3. Pursuant to the Agreement, Government Securities Trust will distribute
in complete termination of Series, the Shares of Government Income Fund
received by Series in the Merger.
4. The liabilities of Series assumed by Government Income Fund pursuant
to the Merger, plus the liabilities, if any, to which assets transferred
pursuant to the Merger will be subject, constitute less than 20% of the
total consideration for the Merger, all such liabilities will have been
incurred by Series in the ordinary course of its business, and Government
Income Fund will pay no other consideration, except for the Shares, in
connection with the Merger.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Page 3
5. All expenses incurred by Series with respect to the Merger will be
borne by Series. Each shareholder of Series will pay its respective share
of the expenses, if any, incurred in connection with the Merger.
Government Income Fund will pay the expenses, if any, incurred by it in
connection with the Merger.
6. No intercorporate indebtedness will exist between Government Income
Fund and Series that was issued, acquired, or will be settled at a
discount.
7. Series will not own, directly or indirectly, nor will it have owned
during the five years preceding the Closing Date, directly or indirectly,
any stock of Government Income Fund.
8. The assets of Series transferred to Government Income Fund will
include all assets owned by Series at fair market value on the Closing
Date subject to all known liabilities of Series at such time.
9. In accordance with the terms of the Agreement, Series will transfer
all of its business and will transfer assets to Government Income Fund
representing at least 90% of the fair market value of the net assets, and
at least 70% of the fair market value of the gross assets, held by Series
immediately prior to the Merger. For purposes of this assumption, amounts
paid by Series to shareholders who receive cash or other property,
amounts paid to dissenters, amounts used by Series to pay its
reorganization expenses and all redemptions and distributions (other than
regular, normal redemptions and dividends) made by Series immediately
preceding the Merger will be included as assets of Series held
immediately prior to the Merger.
10. The fair market value of the assets of Series transferred to
Government Income Fund will equal or exceed the sum of liabilities
assumed by Government Income Fund, plus the amount of liabilities, if
any, to which the transferred assets will be subject.
11. Series will not be under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
12. No cash will be paid to the shareholders of Series in lieu of
fractional Shares.
13. For federal income tax purposes, Series will qualify as a "regulated
investment company" (as defined in Code Section 851) and will have so
qualified since its formation. The provisions of Code Sections 851
through 855 apply to Series and will continue to apply through the
Closing Date.
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14. As of the Closing Date, Series will have declared to its shareholders
of record a dividend or dividends payable prior to closing, which
together with all previous such dividends will have the effect of
distributing all of Series' investment company taxable income plus the
excess of its interest income, if any, excludable from gross income under
Code Section 103(a) (including by virtue of prior Code Section
853(b)(5)(C)) over its deductions disallowed under Code Sections 265 and
171(a)(2) for the taxable year of Series ending on the Closing Date and
all its net capital gain realized in such taxable year.
15. Neither Government Income Fund nor any person related thereto within
the meaning of Treasury Regulation Section 1.368-1(e) will have any plan
or intention to reacquire any of the Shares of Government Income Fund
issued in the Merger. For purposes of this assumption, Shares of
Government Income Fund required to be redeemed by Government Income Fund
not as part of the Merger but in the ordinary course of its business as
an open-end investment company pursuant to Section 22(e) of the ICA shall
not be taken into account.
16. Following the Merger, Government Income Fund will continue the
historic business of Series or use a significant portion of Series'
historic business assets in its business.
17. National Municipals Fund will not own, directly or indirectly, nor
will it have owned during the five years preceding the Closing Date,
directly or indirectly, any shares of beneficial interest of Series.
18. Government Income Fund will not be under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Code Section
368(a)(3)(A).
19. For federal income tax purposes, Government Income Fund will qualify
as a "regulated investment company" (as defined in Code Section 851) and
will have so qualified since its formation. The provisions of Code
Sections 851 through 855 apply to Government Income Fund prior to the
Merger and will continue to apply after the Closing Date.
20. No compensation received by any shareholder-employee of Series will be
separate consideration for the Merger; none of the Shares of Government
Income Fund received by any shareholder-employee will be separate
consideration for, or allocable to, any employment agreement; and any
compensation paid to any shareholder-employee will be for services
actually rendered and will be commensurate with amounts paid to other
parties bargaining at arm's length for similar services.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
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We note that our opinion is expressly limited to the federal laws of the
United States.
Based on the foregoing and subject to the assumptions and limitations set
forth above and such examination of law as we have deemed necessary, we are of
the opinion that:
1. The acquisition by Government Income Fund of the assets of Series
in exchange solely for voting shares of Government Income Fund and
the assumption by Government Income Fund of such Series'
liabilities, if any, followed by the distribution of Government
Income Fund's voting shares received by Series pro rata to such
Series' shareholders, pursuant to its termination and
constructively in exchange for such Series' shares, will
constitute a "reorganization" within the meaning of Code Section
368(a)(1)(C), and each of Government Income Fund and Series will
be "a party to a reorganization" within the meaning of Code
Section 368(b);
2. Series' shareholders will not recognize gain or loss upon the
constructive exchange of all of their shares of Series solely for
shares of Government Income Fund in complete termination of
Series, as described above and in the Agreement;
3. No gain or loss will be recognized by Series upon the transfer of
its assets to Government Income Fund in exchange solely for the
Shares and the assumption by Government Income Fund of Series'
liabilities, if any, and the subsequent distribution of the Shares
to Series' shareholders in complete termination of Series;
4. No gain or loss will be recognized by Government Income Fund upon
the acquisition of Series' assets in exchange solely for the
Shares and the assumption of Series' liabilities, if any;
5. Government Income Fund's basis for the assets of Series acquired
in the Merger will be the same as the basis of these assets when
held by Series immediately before the transfer, and the holding
period of such assets acquired by Government Income Fund will
include the holding period of these assets when held by Series;
6. The Series shareholders' basis for the Shares to be received by
them pursuant to the Merger will be the same as their basis for
the shares of Series to be constructively surrendered in exchange
therefor; and
7. The holding period of the Shares to be received by Series'
shareholders will
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include the period during which the shares of Series to be
constructively surrendered in exchange therefor were held;
provided that Series' shares surrendered were held as capital
assets by those shareholders as defined in Code Section 1221, on
the date of the exchange.
The opinions expressed herein are based upon currently applicable
statutes and regulations and existing judicial and administrative
interpretations. We can provide no assurance that such statutes or regulations,
or existing judicial or administrative interpretations thereof, will not be
amended, revoked or modified (possibly prior to the Closing Date) in a manner
which would affect any of our conclusions. Finally, we note that this opinion is
solely for the benefit of the addressees hereof in connection with the
transaction described herein and, except as otherwise provided herein, should
not be referred to, used, relied upon or quoted (with or without specific
reference to our firm) in any documents, reports, financial statements or
otherwise, without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and reference to our firm in
the Registration Statement or in the Prospectus constituting part thereof. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Swidler Berlin Shereff Friedman, LLP
Swidler Berlin Shereff Friedman, LLP
SBSF:JHN:MKN:RDB:CSB