Appendix B
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization (Agreement) made as of the day of
November, 1998, by and between Prudential Municipal Bond Fund (Municipal Bond
Fund)--Intermediate Series and Prudential National Municipals Fund, Inc.
(National Municipals Fund) (collectively, with Intermediate Series and Municipal
Bond Fund, the Funds and each individually, a Fund). Municipal Bond Fund is a
business trust organized under the laws of the Commonwealth of Massachusetts and
the National Municipals Fund is a corporation organized under the laws of the
State of Maryland. Each Fund maintains its principal place of business at
Gateway Center Three, Newark, New Jersey 07102. Shares of National Municipals
Fund and Intermediate Series are divided into four classes, designated Class A,
Class B, Class C and Class Z. Municipal Bond Fund consists of three series, one
of which is Intermediate Series.
This Agreement is intended to be, and is adopted as, a plan of
reorganization pursuant to Section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended (Internal Revenue Code). Upon receipt of such representations
from each of the Funds as Swidler Berlin Shereff Friedman, LLP may require,
Swidler Berlin Shereff Friedman, LLP will deliver the opinion referenced in
paragraph 8.6 herein. The reorganization will comprise the transfer of the
assets of Intermediate Series in exchange for shares of common stock of National
Municipals Fund, and National Municipals Fund's assumption of such Series'
liabilities, if any, and the constructive distribution, after the Closing Date
hereinafter referred to, of such shares of National Municipals Fund to the
shareholders of Intermediate Series, and the termination of Intermediate Series
as provided herein, all upon the terms and conditions as hereinafter set forth.
In consideration of the premises and of the covenants and agreements set
forth herein, the parties covenant and agree as follows:
1. TRANSFER OF ASSETS OF INTERMEDIATE SERIES IN EXCHANGE FOR SHARES OF NATIONAL
MUNICIPALS FUND AND ASSUMPTION OF LIABILITIES, IF ANY, AND TERMINATION OF
INTERMEDIATE SERIES
1.1 Subject to the terms and conditions herein set forth and on the basis of
the representations and warranties contained herein, Municipal Bond Fund on
behalf of Intermediate Series agrees to sell, assign, transfer and deliver the
assets of Intermediate Series, as set forth in paragraph 1.2, to National
Municipals Fund, and National Municipals Fund agrees (a) to issue and deliver to
Intermediate Series in exchange therefor the number of shares of Class A, Class
B, Class C and Class Z shares of Common Stock in National Municipals Fund
determined by dividing the net asset value of the Intermediate Series allocable
to Class A, Class B, Class C and Class Z shares of beneficial interest (computed
in the manner and as of the time and date set forth in paragraph 2.1) by the net
asset value allocable to a share of National Municipals Fund Class A, Class B,
Class C and Class Z shares of Common Stock (computed in the manner and as of the
time and date set forth in paragraph 2.2); and (b) to assume all of Intermediate
Series' liabilities, if any, as set forth in paragraph 1.3. Such transactions
shall take place at the closing provided for in paragraph 3 (Closing).
1.2 The assets of Intermediate Series to be acquired by National Municipals
Fund shall include without limitation all cash, cash equivalents, securities,
receivables (including interest and dividends receivable) and other property of
any kind owned by such Series and any deferred or prepaid expenses shown as
assets on the
B-1(A)
books of such Series on the closing date provided in paragraph 3 (Closing Date).
National Municipals Fund has no plan or intent to sell or otherwise dispose of
any assets of Intermediate Series, other than in the ordinary course of
business.
1.3 Except as otherwise provided herein, National Municipals Fund will assume
all debts, liabilities, obligations and duties of Intermediate Series of
whatever kind or nature, whether absolute, accrued, contingent or otherwise,
whether or not determinable as of the Closing Date and whether or not
specifically referred to in this Agreement; provided, however, that Intermediate
Series agrees to utilize its best efforts to cause such Series to discharge all
of the known debts, liabilities, obligations and duties of such Series prior to
the Closing Date.
1.4 On or immediately prior to the Closing Date, Intermediate Series will
declare and pay to its shareholders of record dividends and/or other
distributions so that it will have distributed substantially all (and in any
event not less than ninety-eight percent) of each of such Series' investment
company taxable income (computed without regard to any deduction for dividends
paid), net tax-exempt interest income, if any, and realized net capital gains,
if any, for all taxable years through its termination.
1.5 On a date (Termination Date), as soon after the Closing Date as is
conveniently practicable, but in any event within 30 days of the Closing Date,
Intermediate Series will distribute PRO RATA to its Class A, Class B, Class C
and Class Z shareholders of record, determined as of the close of business on
the Closing Date, the Class A, Class B, Class C and Class Z shares of National
Municipals Fund received by Intermediate Series pursuant to paragraph 1.1 in
exchange for their interest in such Series, and Municipal Bond Fund will file
with the Secretary of State of The Commonwealth of Massachusetts a Certificate
of Termination terminating Intermediate Series. Such distribution will be
accomplished by opening accounts on the books of National Municipals Fund in the
names of Intermediate Series' shareholders and transferring thereto the shares
credited to the account of Intermediate Series on the books of National
Municipals Fund. Each account opened shall be credited with the respective PRO
RATA number of National Municipals Fund Class A, Class B, Class C and Class Z
shares due such Series' Class A, Class B, Class C and Class Z shareholders,
respectively. Fractional shares of National Municipals Fund shall be rounded to
the third decimal place.
1.6 National Municipals Fund shall not issue certificates representing its
shares in connection with such exchange. With respect to any Intermediate Series
shareholder holding Intermediate Series receipts for shares of beneficial
interest as of the Closing Date, until National Municipals Fund is notified by
Municipal Bond Fund's transfer agent that such shareholder has surrendered his
or her outstanding Series receipts for shares of beneficial interest or, in the
event of lost, stolen or destroyed receipts for shares of beneficial interest,
posted adequate bond or submitted a lost certificate form, as the case may be,
National Municipals Fund will not permit such shareholder to (1) receive
dividends or other distributions on National Municipals Fund shares in cash
(although such dividends and distributions shall be credited to the account of
such shareholder established on National Municipals Fund's books pursuant to
paragraph 1.5, as provided in the next sentence), (2) exchange National
Municipals Fund shares credited to such shareholder's account for shares of
other Prudential Mutual Funds, or (3) pledge or redeem such shares. In the event
that a shareholder is not permitted to receive dividends or other distributions
on National Municipals Fund shares in cash as provided in the preceding
sentence, National Municipals Fund shall pay such dividends or other
distributions in additional National Municipals Fund shares, notwithstanding any
election such shareholder shall have made previously with respect to the payment
of dividends or other distributions on shares of Intermediate Series.
Intermediate Series will, at its expense, request its shareholders to surrender
their outstanding Intermediate Series receipts for shares of beneficial
interest, post adequate bond or submit a lost certificate form, as the case may
be.
B-2(A)
1.7 Ownership of National Municipals Fund shares will be shown on the books of
the National Municipals Fund's transfer agent. Shares of National Municipals
Fund will be issued in the manner described in National Municipals Fund's
then-current prospectus and statement of additional information.
1.8 Any transfer taxes payable upon issuance of shares of National Municipals
Fund in exchange for shares of Intermediate Series in a name other than that of
the registered holder of the shares being exchanged on the books of Intermediate
Series as of that time shall be paid by the person to whom such shares are to be
issued as a condition to the registration of such transfer.
1.9 Any reporting responsibility with the Securities and Exchange Commission
(SEC) or any state securities commission of Municipal Bond Fund with respect to
Intermediate Series is and shall remain the responsibility of Intermediate
Series up to and including the Termination Date.
1.10 All books and records of Intermediate Series, including all books and
records required to be maintained under the Investment Company Act of 1940
(Investment Company Act) and the rules and regulations thereunder, shall be
available to National Municipals Fund from and after the Closing Date and shall
be turned over to National Municipals Fund on or prior to the Termination Date.
2. VALUATION
2.1 The value of Intermediate Series' assets and liabilities to be acquired and
assumed, respectively, by National Municipals Fund shall be the net asset value
computed as of 4:15 p.m., New York time, on the Closing Date (such time and date
being hereinafter called the Valuation Time), using the valuation procedures set
forth in Intermediate Series' then-current prospectus and Municipal Bond Fund's
statement of additional information.
2.2 The net asset value of a share of National Municipals Fund shall be the net
asset value per such share computed on a class-by-class basis as of the
Valuation Time, using the valuation procedures set forth in National Municipals
Fund's then-current prospectus and statement of additional information.
2.3 The number of National Municipals Fund shares to be issued (including
fractional shares, if any) in exchange for Intermediate Series' net assets shall
be calculated as set forth in paragraph 1.1.
2.4 All computations of net asset value shall be made by or under the direction
of Prudential Investments Fund Management LLC (PIFM) in accordance with its
regular practice as manager of the Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 18, 1998 or such later date as the
parties may agree in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be at the office of National
Municipals Fund or at such other place as the parties may agree.
3.2 State Street Bank and Trust Company (State Street), as custodian for
Intermediate Series, shall deliver to National Municipals Fund at the Closing a
certificate of an authorized officer of State Street stating that (a)
Intermediate Series' portfolio securities, cash and any other assets have been
transferred in proper form to National Municipals Fund on the Closing Date and
(b) all necessary taxes, if any, have been paid, or provision for payment has
been made, in conjunction with the transfer of portfolio securities.
3.3 In the event that immediately prior to the Valuation Time (a) the New York
Stock Exchange (NYSE) or other primary exchange is closed to trading or trading
thereon is restricted or (b) trading or the reporting of trading on the NYSE or
other primary exchange or elsewhere is disrupted so that accurate appraisal of
the
B-3(A)
value of the net assets of Intermediate Series and of the net asset value per
share of National Municipals Fund is impracticable, the Closing Date shall be
postponed until the first business day after the date when such trading shall
have been fully resumed and such reporting shall have been restored.
3.4 Municipal Bond Fund shall deliver to National Municipals Fund on or prior
to the Termination Date the names and addresses of each of the shareholders of
Intermediate Series and the number of outstanding shares owned by each such
shareholder, all as of the close of business on the Closing Date, certified by
the Secretary or Assistant Secretary of Municipal Bond Fund. National Municipals
Fund shall issue and deliver to Municipal Bond Fund at the Closing a
confirmation or other evidence satisfactory to Municipal Bond Fund that shares
of National Municipals Fund have been or will be credited to Intermediate
Series' account on the books of National Municipals Fund. At the Closing each
party shall deliver to the other such bills of sale, checks, assignments, share
certificates, receipts and other documents as such other party or its counsel
may reasonably request to effect the transactions contemplated by this
Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 Municipal Bond Fund represents and warrants as follows:
4.1.1 Municipal Bond Fund is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts and
Intermediate Series has been duly established in accordance with the terms
of Series Fund's Declaration of Trust as a separate series of Municipal Bond
Fund;
4.1.2 Municipal Bond Fund is an open-end, management investment company
duly registered under the Investment Company Act, and such registration is
in full force and effect;
4.1.3 Municipal Bond Fund is not, and the execution, delivery and
performance of this Agreement will not, result in violation of any provision
of the Declaration of Trust or By-Laws of Municipal Bond Fund or of any
material agreement, indenture, instrument, contract, lease or other
undertaking to which Intermediate Series is a party or by which Intermediate
Series is bound;
4.1.4 All material contracts or other commitments to which Intermediate
Series, or the properties or assets of Intermediate Series, is subject, or
by which Intermediate Series is bound except this Agreement will be
terminated on or prior to the Closing Date without Intermediate Series or
National Municipals Fund incurring any liability or penalty with respect
thereto;
4.1.5 No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against Series Fund or any of the properties or assets
of Intermediate Series. Municipal Bond Fund knows of no facts that might
form the basis for the institution of such proceedings, and, with respect to
Intermediate Series, Municipal Bond Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
4.1.6 The Portfolio of Investments, Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets, and Financial
Highlights of Intermediate Series at April 30, 1998 and for the year then
ended (copies of which have been furnished to National Municipals Fund) have
been audited by PricewaterhouseCoopers LLP, independent accountants, in
accordance with generally accepted auditing standards. Such financial
statements are prepared in accordance with generally accepted accounting
principles and present fairly, in all material respects, the financial
condition,
B-4(A)
results of operations, changes in net assets and financial highlights of
Intermediate Series as of and for the period ended on such date, and there
are no material known liabilities of Intermediate Series (contingent or
otherwise) not disclosed therein;
4.1.7 Since April 30, 1998, there has not been any material adverse change
in Intermediate Series' financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by Intermediate Series of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by National Municipals Fund. For the purposes of
this paragraph 4.1.7, a decline in net assets or change in the number of
shares outstanding shall not constitute a material adverse change;
4.1.8 At the date hereof and at the Closing Date, all federal and other tax
returns and reports of Intermediate Series required by law to have been
filed on or before such dates shall have been timely filed, and all federal
and other taxes shown as due on said returns and reports shall have been
paid insofar as due, or provision shall have been made for the payment
thereof, and, to the best of Municipal Bond Fund's knowledge, all federal or
other taxes required to be shown on any such return or report have been
shown on such return or report, no such return is currently under audit and
no assessment has been asserted with respect to such returns;
4.1.9 For each past taxable year since it commenced operations,
Intermediate Series has met the requirements of Subchapter M of the Internal
Revenue Code for qualification and treatment as a regulated investment
company and Municipal Bond Fund intends to cause such Series to meet those
requirements for the current taxable year; and, for each past calendar year
since it commenced operations, Intermediate Series has made such
distributions as are necessary to avoid the imposition of federal excise tax
or has paid or provided for the payment of any excise tax imposed;
4.1.10 All issued and outstanding shares of Intermediate Series are, and at
the Closing Date will be, duly and validly authorized, issued and
outstanding, fully paid and non-assessable. All issued and outstanding
shares of Intermediate Series will, at the time of the Closing, be held in
the name of the persons and in the amounts set forth in the list of
shareholders submitted to National Municipals Fund in accordance with the
provisions of paragraph 3.4. Intermediate Series does not have outstanding
any options, warrants or other rights to subscribe for or purchase any
shares, nor is there outstanding any security convertible into any of its
shares of Intermediate Series, except for the Class B shares of Intermediate
Series which have the conversion feature described in Intermediate Series'
Prospectus dated July 1, 1998;
4.1.11 At the Closing Date, the Municipal Bond Fund will have good and
marketable title to the assets of Intermediate Series to be transferred to
National Municipals Fund pursuant to paragraph 1.1, and full right, power
and authority to sell, assign, transfer and deliver such assets hereunder
free of any liens, claims, charges or other encumbrances, and, upon delivery
and payment for such assets, National Municipals Fund will acquire good and
marketable title thereto;
4.1.12 The execution, delivery and performance of this Agreement has been
duly authorized by the Trustees of the Municipal Bond Fund and by all
necessary action, other than shareholder approval, on the part of
Intermediate Series, and this Agreement constitutes a valid and binding
obligation of Municipal Bond Fund and, subject to shareholder approval, of
Intermediate Series;
4.1.13 The information furnished and to be furnished by Municipal Bond Fund
for use in applications for orders, registration statements, proxy materials
and other documents that may be necessary in
B-5(A)
connection with the transactions contemplated hereby is and shall be
accurate and complete in all material respects and is in compliance and
shall comply in all material respects with applicable federal securities and
other laws and regulations; and
4.1.14 On the effective date of the registration statement filed with the
SEC by National Municipals Fund on Form N-14 relating to the shares of
National Municipals Fund issuable hereunder, and any supplement or amendment
thereto (Registration Statement), at the time of the meeting of the
shareholders of Intermediate Series and on the Closing Date, the Proxy
Statement of Intermediate Series, the Prospectus of National Municipals
Fund, and the Statement of Additional Information of National Municipals
Fund to be included in the Registration Statement (collectively, Proxy
Statement) (i) will comply in all material respects with the provisions and
regulations of the Securities Act of 1933 (1933 Act), the Securities
Exchange Act of 1934 (1934 Act) and the Investment Company Act, and the
rules and regulations under such Acts and (ii) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein in light of the circumstances under which they were made or
necessary to make the statements therein not misleading; provided, however,
that the representations and warranties in this paragraph 4.1.14 shall not
apply to statements in or omissions from the Proxy Statement and
Registration Statement made in reliance upon and in conformity with
information furnished by National Municipals Fund for use therein.
4.2 National Municipals Fund represents and warrants as follows:
4.2.1 National Municipals Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland;
4.2.2 National Municipals Fund is an open-end, management investment
company duly registered under the Investment Company Act, and such
registration is in full force and effect;
4.2.3 National Municipals Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any provision
of the Articles of Incorporation or By-Laws of National Municipals Fund or
of any material agreement, indenture, instrument, contract, lease or other
undertaking to which National Municipals Fund is a party or by which
National Municipals Fund is bound;
4.2.4 No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or
threatened against National Municipals Fund or any of its properties or
assets, except as previously disclosed in writing to the Municipal Bond
Fund. Except as previously disclosed in writing to Municipal Bond Fund,
National Municipals Fund knows of no facts that might form the basis for the
institution of such proceedings, and National Municipals Fund is not a party
to or subject to the provisions of any order, decree or judgment of any
court or governmental body that materially and adversely affects its
business or its ability to consummate the transactions herein contemplated;
4.2.5 The Portfolio of Investments, Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets, and Financial
Highlights of National Municipals Fund at December 31, 1997 and for the
fiscal year then ended (copies of which have been furnished to Series Fund)
have been audited by PricewaterhouseCoopers LLP, independent accountants, in
accordance with generally accepted auditing standards. Such financial
statements are prepared in accordance with generally accepted accounting
principles and present fairly, in all material respects, the financial
B-6(A)
condition, results of operations, changes in net assets and financial
highlights of National Municipals Fund as of and for the period ended on
such date, and there are no material known liabilities of National
Municipals Fund (contingent or otherwise) not disclosed therein;
4.2.6 Since December 31, 1997, there has not been any material adverse
change in National Municipals Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary course
of business, or any incurrence by National Municipals Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred,
except as otherwise disclosed to and accepted by Municipal Bond Fund. For
the purposes of this paragraph 4.2.6, a decline in net asset value per share
or a decrease in the number of shares outstanding shall not constitute a
material adverse change;
4.2.7 At the date hereof and at the Closing Date, all federal and other tax
returns and reports of National Municipals Fund required by law to have been
filed on or before such dates shall have been filed, and all federal and
other taxes shown as due on said returns and reports shall have been paid
insofar as due, or provision shall have been made for the payment thereof,
and, to the best of National Municipals Fund's knowledge, all federal or
other taxes required to be shown on any such return or report are shown on
such return or report, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
4.2.8 For each past taxable year since it commenced operations, National
Municipals Fund has met the requirements of Subchapter M of the Internal
Revenue Code for qualification and treatment as a regulated investment
company and intends to meet those requirements for the current taxable year;
and, for each past calendar year since it commenced operations, National
Municipals Fund has made such distributions as are necessary to avoid the
imposition of federal excise tax or has paid or provided for the payment of
any excise tax imposed;
4.2.9 All issued and outstanding shares of National Municipals Fund are,
and at the Closing Date will be, duly and validly authorized, issued and
outstanding, fully paid and non-assessable. Except as contemplated by this
Agreement, National Municipals Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of its shares nor
is there outstanding any security convertible into any of its shares, except
for the Class B shares which have the conversion feature described in
National Municipals Fund's Prospectus dated November 23, 1998;
4.2.10 The execution, delivery and performance of this Agreement has been
duly authorized by the Board of Directors of National Municipals Fund and by
all necessary corporate action on the part of National Municipals Fund, and
this Agreement constitutes a valid and binding obligation of National
Municipals Fund;
4.2.11 The shares of National Municipals Fund to be issued and delivered to
Municipal Bond Fund for and on behalf of Intermediate Series pursuant to
this Agreement will, at the Closing Date, have been duly authorized and,
when issued and delivered as provided in this Agreement, will be duly and
validly issued and outstanding shares of National Municipals Fund, fully
paid and non-assessable;
4.2.12 The information furnished and to be furnished by National Municipals
Fund for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby is and shall be accurate and complete in
all material respects and is and shall comply in all material respects with
applicable federal securities and other laws and regulations; and
B-7(A)
4.2.13 On the effective date of the Registration Statement, at the time of
the meeting of the shareholders of Intermediate Series and on the Closing
Date, the Proxy Statement and the Registration Statement (i) will comply in
all material respects with the provisions of the 1933 Act, the 1934 Act and
the Investment Company Act and the rules and regulations under such Acts,
(ii) will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) with respect to the Registration
Statement, at the time it becomes effective, it will not contain an untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein in the light of the circumstances under which
they were made, not misleading; provided, however, that the representations
and warranties in this paragraph 4.2.13 shall not apply to statements in or
omissions from the Proxy Statement and the Registration Statement made in
reliance upon and in conformity with information furnished by Intermediate
Series for use therein.
5. COVENANTS OF NATIONAL MUNICIPALS FUND AND MUNICIPAL BOND FUND
5.1 Municipal Bond Fund, with respect to Intermediate Series, and National
Municipals Fund each covenants to operate its respective business in the
ordinary course between the date hereof and the Closing Date, it being
understood that the ordinary course of business will include declaring and
paying customary dividends and other distributions and such changes in
operations as are contemplated by the normal operations of the Funds, except as
may otherwise be required by paragraph 1.4 hereof.
5.2 Municipal Bond Fund covenants to call a meeting of the shareholders of
Intermediate Series to consider and act upon this Agreement and to take all
other action necessary to obtain approval of the transactions contemplated
hereby (including the determinations of its Trustees as set forth in Rule
17a-8(a) under the Investment Company Act).
5.3 Municipal Bond Fund covenants that National Municipals Fund shares to be
received for and on behalf of Intermediate Series in accordance herewith are not
being acquired for the purpose of making any distribution thereof other than in
accordance with the terms of this Agreement.
5.4 Municipal Bond Fund covenants that it will assist National Municipals Fund
in obtaining such information as National Municipals Fund reasonably requests
concerning the beneficial ownership of Intermediate Series' shares.
5.5 Subject to the provisions of this Agreement, each Fund will take, or cause
to be taken, all action, and will do, or cause to be done, all things,
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
5.6 Municipal Bond Fund covenants to prepare the Proxy Statement in compliance
with the 1934 Act, the Investment Company Act and the rules and regulations
under each Act.
5.7 Municipal Bond Fund covenants that it will, from time to time, as and when
requested by National Municipals Fund, execute and deliver or cause to be
executed and delivered all such assignments and other instruments, and will take
or cause to be taken such further action, as National Municipals Fund may deem
necessary or desirable in order to vest in and confirm to National Municipals
Fund title to and possession of all the assets of Intermediate Series to be
sold, assigned, transferred and delivered hereunder and otherwise to carry out
the intent and purpose of this Agreement.
B-8(A)
5.8 National Municipals Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the Investment
Company Act (including the determinations of its Board of Directors as set forth
in Rule 17a-8(a) thereunder) and such of the state Blue Sky or securities laws
as it may deem appropriate in order to continue its operations after the Closing
Date.
5.9 National Municipals Fund covenants that it will, from time to time, as and
when requested by Municipal Bond Fund, execute and deliver or cause to be
executed and delivered all such assignments and other instruments, and will take
and cause to be taken such further action, as Municipal Series Fund may deem
necessary or desirable in order to (i) vest in and confirm to the Municipal Bond
Fund title to and possession of all the shares of National Municipals Fund to be
transferred to the shareholders of Intermediate Series pursuant to this
Agreement and (ii) assume all of the liabilities of Intermediate Series in
accordance with this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF MUNICIPAL BOND FUND
The obligations of Municipal Bond Fund to consummate the transactions
provided for herein shall be subject to the performance by National Municipals
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and the following further conditions:
6.1 All representations and warranties of National Municipals Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transaction contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 National Municipals Fund shall have delivered to Municipal Bond Fund on the
Closing Date a certificate executed in its name by the President or a Vice
President of National Municipals Fund, in form and substance satisfactory to
Municipal Bond Fund and dated as of the Closing Date, to the effect that the
representations and warranties of National Municipals Fund in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transaction contemplated by this Agreement, and as to such other matters
as Municipal Bond Fund shall reasonably request.
6.3 Municipal Bond Fund shall have received on the Closing Date a favorable
opinion from Swidler Berlin Shereff Friedman, LLP, counsel to National
Municipals Fund, dated as of the Closing Date, to the effect that:
6.3.1 National Municipals Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland with power under its
Articles of Incorporation to own all of its properties and assets and, to
the knowledge of such counsel, to carry on its business as presently
conducted;
6.3.2 This Agreement has been duly authorized, executed and delivered by
National Municipals Fund and, assuming due authorization, execution and
delivery of the Agreement by Municipal Bond Fund on behalf of Intermediate
Series, is a valid and binding obligation of National Municipals Fund
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles;
6.3.3 The shares of National Municipals Fund to be distributed to the
shareholders of Intermediate Series under this Agreement, assuming their due
authorization, execution and delivery as contemplated
B-9(A)
by this Agreement, will be validly issued and outstanding and fully paid and
non-assessable, and no shareholder of National Municipals Fund has any
pre-emptive right to subscribe therefor or purchase such shares;
6.3.4 The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, (i) conflict
with National Municipals Fund's Articles of Incorporation or By-Laws or (ii)
result in a default or a breach of (a) the Management Agreement dated May 2,
1988 between National Municipals Fund and Prudential Investments Fund
Management LLC, as successor to Prudential Mutual Fund Management, Inc., (b)
the Custodian Contract dated July 26, 1990 between National Municipals Fund
and State Street Bank and Trust Company, (c) the Distribution Agreement
dated November 9, 1998 between National Municipals Fund and Prudential
Investment Management Services LLC and (d) the Transfer Agency and Service
Agreement dated January 1, 1988 between National Municipals Fund and
Prudential Mutual Fund Services LLC, as successor to Prudential Mutual Fund
Services, Inc.; provided, however, that such counsel may state that they
express no opinion as to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles;
6.3.5 To the knowledge of such counsel, no consent, approval,
authorization, filing or order of any court or governmental authority is
required for the consummation by National Municipals Fund of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the Investment Company Act and such as may be
required under state Blue Sky or securities laws;
6.3.6 National Municipals Fund has been registered with the SEC as an
investment company, and, to the knowledge of such counsel, no order has been
issued or proceeding instituted to suspend such registration; and
6.3.7 Such counsel knows of no litigation or government proceeding
instituted or threatened against National Municipals Fund that could be
required to be disclosed in its registration statement on Form N-1A and is
not so disclosed.
Such opinion may rely on an opinion of Maryland Counsel to the extent it
addresses Maryland law.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF NATIONAL MUNICIPALS FUND
The obligations of National Municipals Fund to complete the transactions
provided for herein shall be subject to the performance by Municipal Bond Fund
of all the obligations to be performed by it hereunder on or before the Closing
Date and the following further conditions:
7.1 All representations and warranties of Municipal Bond Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transaction contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2 Series Fund shall have delivered to National Municipals Fund on the Closing
Date a statement of the assets and liabilities of Intermediate Series, which
shall be prepared in accordance with generally accepted accounting principles
consistently applied, together with a list of the portfolio securities of
Intermediate Series showing the adjusted tax base of such securities by lot, as
of the Closing Date, certified by the Treasurer of Municipal Bond Fund.
7.3 Municipal Bond Fund shall have delivered to National Municipals Fund on the
Closing Date a certificate executed in its name by its President or one of its
Vice Presidents, in form and substance
B-10(A)
satisfactory to National Municipals Fund and dated as of the Closing Date, to
the effect that the representations and warranties of Municipal Bond Fund made
in this Agreement are true and correct at and as of the Closing Date except as
they may be affected by the transaction contemplated by this Agreement, and as
to such other matters as National Municipals Fund shall reasonably request.
7.4 On or immediately prior to the Closing Date, Municipal Bond Fund shall have
declared and paid to the shareholders of record of Intermediate Series one or
more dividends and/or other distributions so that it will have distributed
substantially all (and in any event not less than ninety-eight percent) of such
Series' investment company taxable income (computed without regard to any
deduction for dividends paid), net tax-exempt interest income, if any, and
realized net capital gain, if any, of Intermediate Series for all completed
taxable years from the inception of such Series through April 30, 1998, and for
the period from and after April 30, 1998 through the Closing Date.
7.5 National Municipals Fund shall have received on the Closing Date a
favorable opinion from Swidler Berlin Shereff Friedman, LLP, special counsel to
Series Fund, dated as of the Closing Date, to the effect that:
7.5.1 Municipal Bond Fund is duly organized and validly existing under the
laws of the Commonwealth of Massachusetts with power under its Declaration
of Trust to own all of its properties and assets and, to the knowledge of
such counsel, to carry on its business as presently conducted and
Intermediate Series has been duly established in accordance with the terms
of the Municipal Bond Fund's Declaration of Trust as a separate series of
Municipal Bond Fund;
7.5.2 This Agreement has been duly authorized, executed and delivered by
Municipal Bond Fund and constitutes a valid and legally binding obligation
of Municipal Bond Fund enforceable against the assets of Intermediate Series
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles;
7.5.3 The execution and delivery of the Agreement did not, and the
performance by Municipal Bond Fund of its obligations hereunder will not,
(i) violate Municipal Bond Fund's Declaration of Trust or By-Laws or (ii)
result in a default or a breach of (a) the Management Agreement, dated June
1, 1995, between Municipal Bond Fund and Prudential Investments Fund
Management LLC, as successor to Prudential Mutual Fund Management, Inc., (b)
the Custodian Contract, dated August 25, 1987, between Municipal Bond Fund
and State Street Bank and Trust Company, (c) the Distribution Agreement
dated June 1, 1998, between Municipal Bond Fund and Prudential Investment
Management Services LLC and the Transfer Agency and Service Agreement, dated
January 1, 1988, between Municipal Bond Fund and Prudential Mutual Fund
Services LLC, as successor to Prudential Mutual Fund Services, Inc.;
provided, however, that such counsel may state that insofar as performance
by Municipal Bond Fund of its obligations under this Agreement is concerned
they express no opinion as to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles;
7.5.4 All regulatory consents, authorizations and approvals required to be
obtained by Municipal Bond Fund under the federal laws of the United States
and the laws of The Commonwealth of Massachusetts for the consummation of
the transactions contemplated by this Agreement have been obtained;
B-11(A)
7.5.5 Such counsel knows of no litigation or any governmental proceeding
instituted or threatened against Series Fund, involving Intermediate Series,
that would be required to be disclosed in its Registration Statement on Form
N-1A and is not so disclosed; and
7.5.6 Municipal Bond Fund has been registered with the SEC as an investment
company, and, to the knowledge of such counsel, no order has been issued or
proceeding instituted to suspend such registration.
Such opinion may rely on an opinion of Massachusetts counsel to the extent
it addresses Massachusetts law, and may assume for purposes of the opinion given
pursuant to paragraph 7.5.2 that New York law is the same as Illinois law.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF NATIONAL MUNICIPALS FUND AND
MUNICIPAL BOND FUND
The obligations of National Municipals Fund and Municipal Bond Fund
hereunder are subject to the further conditions that on or before the Closing
Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of (a) the Trustees of Municipal Bond Fund and
the Board of Directors of National Municipals Fund, as to the determinations set
forth in Rule 17a-8(a) under the Investment Company Act, (b) the Board of
Directors of National Municipals Fund as to the assumption by the National
Municipals Fund of the liabilities of Intermediate Series and (c) the holders of
the outstanding shares of Intermediate Series in accordance with the provisions
of the Municipal Bond Fund's Declaration of Trust and By-Laws, and certified
copies of the resolutions evidencing such approvals shall have been delivered to
National Municipals Fund.
8.2 Any proposed change to National Municipals Fund's operations that may be
approved by the Board of Directors of National Municipals Fund subsequent to the
date of this Agreement but in connection with and as a condition to implementing
the transactions contemplated by this Agreement, for which the approval of
National Municipals Fund shareholders is required pursuant to the Investment
Company Act or otherwise, shall have been approved by the requisite vote of the
holders of the outstanding shares of National Municipals Fund in accordance with
the Investment Company Act and the provisions of the General Corporation Law of
the State of Maryland, and certified copies of the resolution evidencing such
approval shall have been delivered to Municipal Bond Fund.
8.3 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein.
8.4 All consents of other parties and all consents, orders and permits of
federal, state and local regulatory authorities (including those of the SEC and
of state Blue Sky or securities authorities, including "no-action" positions of
such authorities) deemed necessary by National Municipals Fund or Municipal Bond
Fund to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order or permit would not involve a risk of a material adverse
effect on the assets or properties of National Municipals Fund or Intermediate
Series, provided, that either party hereto may for itself waive any part of this
condition.
B-12(A)
8.5 The Registration Statement shall have become effective under the 1933 Act,
and no stop orders suspending the effectiveness thereof shall have been issued,
and to the best knowledge of the parties hereto, no investigation or proceeding
under the 1933 Act for that purpose shall have been instituted or be pending,
threatened or contemplated.
8.6 The Funds shall have received on or before the Closing Date opinions of
Swidler Berlin Shereff Friedman, LLP or a ruling from the Internal Revenue
Service with respect to Intermediate Series satisfactory to each of them,
substantially to the effect that for federal income tax purposes:
8.6.1 The acquisition by National Municipals Fund of the assets of
Intermediate Series solely in exchange for voting shares of National
Municipals Fund and the assumption by National Municipals Fund of
Intermediate Series' liabilities, if any, followed by the distribution of
National Municipals Fund's voting shares pro rata to Intermediate Series'
shareholders, pursuant to its termination and constructively in exchange for
Intermediate Series' shares, will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Internal Revenue Code, and each Fund
will be "a party to a reorganization" within the meaning of Section 368(b)
of the Internal Revenue Code;
8.6.2 Intermediate Series' shareholders will recognize no gain or loss upon
the constructive exchange of all of their shares of Intermediate Series
solely for shares of National Municipals Fund in complete termination of
such Series;
8.6.3 No gain or loss will be recognized to Intermediate Series upon the
transfer of its assets to National Municipals Fund solely in exchange for
shares of National Municipals Fund and the assumption by National Municipals
Fund of Intermediate Series' liabilities, if any, and the subsequent
distribution of those shares to Intermediate Series' shareholders in
complete termination of Intermediate Series;
8.6.4 No gain or loss will be recognized to National Municipals Fund upon
the acquisition of Intermediate Series' assets solely in exchange for shares
of National Municipals Fund and the assumption of Intermediate Series'
liabilities, if any;
8.6.5 National Municipals Fund's basis for the assets of Intermediate
Series acquired in the Reorganization will be the same as the basis thereof
when held by Intermediate Series immediately before the transfer, and the
holding period of such assets acquired by National Municipals Fund will
include the holding period thereof when held by Intermediate Series;
8.6.6 Intermediate Series shareholders' basis for the shares of National
Municipals Fund to be received by them pursuant to the reorganization will
be the same as their basis for the shares of Intermediate Series to be
constructively surrendered in exchange therefor; and
8.6.7 The holding period of National Municipals Fund shares to be received
by Intermediate Series' shareholders will include the period during which
the shares of Intermediate Series to be constructively surrendered in
exchange therefor were held; provided that the Intermediate Series shares
surrendered were held as capital assets by those shareholders on the date of
the exchange.
9. FINDER'S FEES AND EXPENSES
9.1 Each Fund represents and warrants to the other that there are no finder's
fees payable in connection with the transactions provided for herein.
B-13(A)
9.2 The expenses incurred in connection with the entering into and carrying out
of the provisions of this Agreement shall be allocated to National Municipals
Fund and Intermediate Series pro rata in a fair and equitable manner in
proportion to its assets.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the Funds.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
National Municipals Fund or Municipal Bond Fund as to Intermediate Series
may at its option terminate this Agreement at or prior to the Closing Date
because of:
11.1 A material breach by the other of any representation, warranty or covenant
contained herein to be performed at or prior to the Closing Date; or
11.2 A condition herein expressed to be precedent to the obligations of either
party not having been met and it reasonably appearing that it will not or cannot
be met; or
11.3 A mutual written agreement of Municipal Bond Fund and National Municipals
Fund.
In the event of any such termination, there shall be no liability for
damages on the part of either Fund (other than the liability of the Funds to pay
their allocated expenses pursuant to paragraph 9.2) or any Director or officer
of National Municipals Fund or any Trustee or officer of Municipal Bond Fund.
12. AMENDMENT
This Agreement may be amended, modified or supplemented only in writing by
the parties; provided, however, that following the shareholders' meeting called
by Municipal Bond Fund pursuant to paragraph 5.2, no such amendment may have the
effect of changing the provisions for determining the number of shares of
National Municipals Fund to be distributed to Intermediate Series' shareholders
under this Agreement to the detriment of such shareholders without their further
approval.
13. NOTICES
Any notice, report, demand or other communication required or permitted by
any provision of this Agreement shall be in writing and shall be given by hand
delivery, or prepaid certified mail or overnight service addressed to Prudential
Investments Fund Management LLC, Gateway Center Three, Newark, New Jersey 07102,
Attention: S. Jane Rose.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which will be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
B-14(A)
14.4 This Agreement shall bind and inure to the benefit of the parties and
their respective successors and assigns, and no assignment or transfer hereof or
of any rights or obligations hereunder shall be made by either party without the
written consent of the other party. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person, firm or
corporation other than the parties and their respective successors and assigns
any rights or remedies under or by reason of this Agreement.
15. NO LIABILITY OF SHAREHOLDERS OR TRUSTEES OF MUNICIPAL BOND FUND; AGREEMENT
AN OBLIGATION ONLY OF INTERMEDIATE SERIES, AND ENFORCEABLE ONLY AGAINST ASSETS
OF INTERMEDIATE SERIES.
The name "Prudential Municipal Bond Fund" is the designation of the Trustees
from time to time acting under an Amended and Restated Declaration of Trust
dated August 17, 1994, as the same may be from time to time amended, and the
name "Intermediate Series" is the designation of a portfolio of the assets of
Municipal Bond Fund. National Municipals Fund acknowledges that it must look,
and agrees that it shall look, solely to the assets of Intermediate Series for
the enforcement of any claims arising out of or based on the obligations of
Municipal Bond Fund hereunder, and with respect to obligations relating to
Intermediate Series, only to the assets of Intermediate Series, and in
particular that (i) neither the Trustees, officers, agents or shareholders of
Series Fund assume or shall have any personal liability for obligations of
Municipal Bond Fund hereunder, and (ii) none of the assets of Municipal Bond
Fund other than the portfolio assets of Intermediate Series may be resorted to
for the enforcement of any claim based on the obligations of Municipal Bond Fund
hereunder.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by the President or Vice President of each Fund.
Prudential Municipal Bond Fund
By /s/ Brian M. Storms
----------------------
PRESIDENT
Prudential National Municipals Fund, Inc.
By /s/ Brian M. Storms
----------------------
PRESIDENT
B-15(A)
Appendix B
AGREEMENT AND PLAN OF REORGANIZATIONS
Agreement and Plan of Reorganizations (Agreement) made as of the day of
November, 1998, by and between Prudential Municipal Series Fund (Series
Fund)--Maryland Series and Michigan Series and Prudential National Municipals
Fund, Inc. (National Municipals Fund and, collectively with Series Fund, the
Funds and each individually, a Fund). The Series Fund is a business trust
organized under the laws of the Commonwealth of Massachusetts and the National
Municipals Fund is a corporation organized under the laws of the State of
Maryland. Each Fund maintains its principal place of business at Gateway Center
Three, Newark, New Jersey 07102. Shares of National Municipals Fund are divided
into four classes, designated Class A, Class B, Class C and Class Z. Shares of
Maryland Series and Michigan Series are divided into three classes, designated
Class A, Class B and Class C. Series Fund consists of thirteen series, two of
which are the Maryland Series and Michigan Series (collectively, the Series and
each individually, a Series).
This Agreement is intended to be, and is adopted as, a plan of
reorganizations pursuant to Section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended (Internal Revenue Code). The reorganizations will comprise the
transfer of the assets of the Maryland Series and Michigan Series, respectively,
in exchange for shares of common stock of National Municipals Fund, and National
Municipals Fund's assumption of such Series' liabilities, if any, and the
constructive distribution, after the Closing Date hereinafter referred to, of
such shares of National Municipals Fund to the shareholders of the respective
Series, and the termination of the Series as provided herein, all upon the terms
and conditions as hereinafter set forth.
In consideration of the premises and of the covenants and agreements set
forth herein, the parties covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE SERIES IN EXCHANGE FOR SHARES OF NATIONAL
MUNICIPALS FUND AND ASSUMPTION OF LIABILITIES, IF ANY, AND TERMINATION OF
THE SERIES
1.1 Subject to the terms and conditions herein set forth and on the basis of
the representations and warranties contained herein, Series Fund on behalf of
Maryland and Michigan Series agrees to sell, assign, transfer and deliver the
assets of each Series, as set forth in paragraph 1.2, to National Municipals
Fund, and National Municipals Fund agrees (a) to issue and deliver to each
Series in exchange therefor the number of shares of Class A Common Stock in
National Municipals Fund determined by dividing the net asset value of the
respective Series allocable to Class A, Class B and Class C shares of beneficial
interest (computed in the manner and as of the time and date set forth in
paragraph 2.1) by the net asset value allocable to a share of National
Municipals Fund Class A Common Stock (computed in the manner and as of the time
and date set forth in paragraph 2.2) and (b) to assume all of each Series'
liabilities, if any, as set forth in paragraph 1.3. Such transactions shall take
place at the closing provided for in paragraph 3 (Closing).
1.2 The assets of each Series to be acquired by National Municipals Fund shall
include without limitation all cash, cash equivalents, securities, receivables
(including interest and dividends receivable) and other property of any kind
owned by such Series and any deferred or prepaid expenses shown as assets on the
books of such Series on the closing date provided in paragraph 3 (Closing Date).
National Municipals Fund has no plan or intent to sell or otherwise dispose of
any assets of the Series, other than in the ordinary course of business.
B-1(B)
1.3 Except as otherwise provided herein, National Municipals Fund will assume
all debts, liabilities, obligations and duties of each Series of whatever kind
or nature, whether absolute, accrued, contingent or otherwise, whether or not
determinable as of the Closing Date and whether or not specifically referred to
in this Agreement; provided, however, that each Series agrees to utilize its
best efforts to cause such Series to discharge all of the known debts,
liabilities, obligations and duties of such Series prior to the Closing Date.
1.4 On or immediately prior to the Closing Date, each Series will declare and
pay to its shareholders of record dividends and/or other distributions so that
it will have distributed substantially all (and in any event not less than
ninety-eight percent) of each of such Series' investment company taxable income
(computed without regard to any deduction for dividends paid), net tax-exempt
interest income, if any, and realized net capital gains, if any, for all taxable
years through its termination.
1.5 On a date (Termination Date), as soon after the Closing Date as is
conveniently practicable, but in any event within 30 days of the Closing Date,
each Series will distribute PRO RATA to its Class A, Class B and Class C
shareholders of record, determined as of the close of business on the Closing
Date, the Class A shares of National Municipals Fund received by the Series
pursuant to paragraph 1.1 in exchange for their interest in such Series, and
Municipal Series Fund will file with the Secretary of State of The Commonwealth
of Massachusetts a Certificate of Termination terminating each Series. Such
distribution will be accomplished by opening accounts on the books of National
Municipals Fund in the names of each Series' shareholders and transferring
thereto the shares credited to the account of the respective Series on the books
of National Municipals Fund. Each account opened shall be credited with the
respective PRO RATA number of National Municipals Fund Class A shares due such
Series' Class A, Class B and Class C shareholders, respectively. Fractional
shares of National Municipals Fund shall be rounded to the third decimal place.
1.6 National Municipals Fund shall not issue certificates representing its
shares in connection with such exchange. With respect to any Series shareholder
holding Series receipts for shares of beneficial interest as of the Closing
Date, until National Municipals Fund is notified by Series Fund's transfer agent
that such shareholder has surrendered his or her outstanding Series receipts for
shares of beneficial interest or, in the event of lost, stolen or destroyed
receipts for shares of beneficial interest, posted adequate bond or submitted a
lost certificate form, as the case may be, National Municipals Fund will not
permit such shareholder to (1) receive dividends or other distributions on
National Municipals Fund shares in cash (although such dividends and
distributions shall be credited to the account of such shareholder established
on National Municipals Fund's books pursuant to paragraph 1.5, as provided in
the next sentence), (2) exchange National Municipals Fund shares credited to
such shareholder's account for shares of other Prudential Mutual Funds, or (3)
pledge or redeem such shares. In the event that a shareholder is not permitted
to receive dividends or other distributions on National Municipals Fund shares
in cash as provided in the preceding sentence, National Municipals Fund shall
pay such dividends or other distributions in additional National Municipals Fund
shares, notwithstanding any election such shareholder shall have made previously
with respect to the payment of dividends or other distributions on shares of the
Series. Each Series will, at its expense, request its shareholders to surrender
their outstanding Series receipts for shares of beneficial interest, post
adequate bond or submit a lost certificate form, as the case may be.
1.7 Ownership of National Municipals Fund shares will be shown on the books of
the National Municipals Fund's transfer agent. Shares of National Municipals
Fund will be issued in the manner described in National Municipals Fund's
then-current prospectus and statement of additional information.
B-2(B)
1.8 Any transfer taxes payable upon issuance of shares of National Municipals
Fund in exchange for shares of the Series in a name other than that of the
registered holder of the shares being exchanged on the books of that Series as
of that time shall be paid by the person to whom such shares are to be issued as
a condition to the registration of such transfer.
1.9 Any reporting responsibility with the Securities and Exchange Commission
(SEC) or any state securities commission of Series Fund with respect to a Series
is and shall remain the responsibility of the Series up to and including the
Termination Date.
1.10 All books and records of Series Fund, including all books and records
required to be maintained under the Investment Company Act of 1940, as amended
(Investment Company Act) and the rules and regulations thereunder, shall be
available to National Municipals Fund from and after the Closing Date and shall
be turned over to National Municipals Fund on or prior to the Termination Date.
2. VALUATION
2.1 The value of each Series' assets and liabilities to be acquired and
assumed, respectively, by National Municipals Fund shall be the net asset value
computed as of 4:15 p.m., New York time, on the Closing Date (such time and date
being hereinafter called the Valuation Time), using the valuation procedures set
forth in such Series' then-current prospectus and Series Fund's statement of
additional information.
2.2 The net asset value of a share of National Municipals Fund shall be the net
asset value per such share computed on a class-by-class basis as of the
Valuation Time, using the valuation procedures set forth in National Municipals
Fund's then-current prospectus and statement of additional information.
2.3 The number of National Municipals Fund shares to be issued (including
fractional shares, if any) in exchange for the Series' net assets shall be
calculated as set forth in paragraph 1.1.
2.4 All computations of net asset value shall be made by or under the direction
of Prudential Investments Fund Management LLC (PIFM) in accordance with its
regular practice as manager of the Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 18, 1998 or such later date as the
parties may agree in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be at the office of National
Municipals Fund or at such other place as the parties may agree.
3.2 State Street Bank and Trust Company (State Street), as custodian for each
Series, shall deliver to National Municipals Fund at the Closing a certificate
of an authorized officer of State Street stating that (a) the applicable Series'
portfolio securities, cash and any other assets have been transferred in proper
form to National Municipals Fund on the Closing Date and (b) all necessary
taxes, if any, have been paid, or provision for payment has been made, in
conjunction with the transfer of portfolio securities.
3.3 In the event that immediately prior to the Valuation Time (a) the New York
Stock Exchange (NYSE) or other primary exchange is closed to trading or trading
thereon is restricted or (b) trading or the reporting of trading on the NYSE or
other primary exchange or elsewhere is disrupted so that accurate appraisal of
the value of the net assets of the Series and of the net asset value per share
of National Municipals Fund is impracticable, the Closing Date shall be
postponed until the first business day after the date when such trading shall
have been fully resumed and such reporting shall have been restored.
B-3(B)
3.4 Series Fund shall deliver to National Municipals Fund on or prior to the
Termination Date the names and addresses of each of the shareholders of each
Series and the number of outstanding shares owned by each such shareholder, all
as of the close of business on the Closing Date, certified by the Secretary or
Assistant Secretary of Series Fund. National Municipals Fund shall issue and
deliver to Series Fund at the Closing a confirmation or other evidence
satisfactory to Series Fund that shares of National Municipals Fund have been or
will be credited to each Series' account on the books of National Municipals
Fund. At the Closing each party shall deliver to the other such bills of sale,
checks, assignments, share certificates, receipts and other documents as such
other party or its counsel may reasonably request to effect the transactions
contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 Series Fund represents and warrants as follows:
4.1.1 Series Fund is a business trust duly organized and validly existing under
the laws of The Commonwealth of Massachusetts and each of the Series has been
duly established in accordance with the terms of Series Fund's Declaration of
Trust as a separate series of Series Fund;
4.1.2 Series Fund is an open-end, management investment company duly registered
under the Investment Company Act, and such registration is in full force and
effect;
4.1.3 Series Fund is not, and the execution, delivery and performance of this
Agreement will not, result in violation of any provision of the Declaration of
Trust or By-Laws of Series Fund or of any material agreement, indenture,
instrument, contract, lease or other undertaking to which any Series is a party
or by which any Series is bound;
4.1.4 All material contracts or other commitments to which any Series, or the
properties or assets of any Series, is subject, or by which any Series is bound
except this Agreement will be terminated on or prior to the Closing Date without
such Series or National Municipals Fund incurring any liability or penalty with
respect thereto;
4.1.5 No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or to its
knowledge threatened against Series Fund or any of the properties or assets of
any Series. Series Fund knows of no facts that might form the basis for the
institution of such proceedings, and, with respect to each Series, Series Fund
is not a party to or subject to the provisions of any order, decree or judgment
of any court or governmental body that materially and adversely affects its
business or its ability to consummate the transactions herein contemplated;
4.1.6 The Portfolio of Investments, Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets, and Financial
Highlights of each Series at August 31, 1998 and for the year then ended (copies
of which have been furnished to National Municipals Fund) have been audited by
PricewaterhouseCoopers LLP, independent accountants, in accordance with
generally accepted auditing standards. Such financial statements are prepared in
accordance with generally accepted accounting principles and present fairly, in
all material respects, the financial condition, results of operations, changes
in net assets and financial highlights of such Series as of and for the period
ended on such date, and there are no material known liabilities of each such
Series (contingent or otherwise) not disclosed therein;
4.1.7 Since August 31, 1998, there has not been any material adverse change in
any Series' financial condition, assets, liabilities or business other than
changes occurring in the ordinary course of business, or any incurrence by any
Series of indebtedness maturing more than one year from the date such
indebtedness
B-4(B)
was incurred, except as otherwise disclosed to and accepted by National
Municipals Fund. For the purposes of this paragraph 4.1.7, a decline in net
assets or change in the number of shares outstanding shall not constitute a
material adverse change;
4.1.8 At the date hereof and at the Closing Date, all federal and other tax
returns and reports of each Series required by law to have been filed on or
before such dates shall have been timely filed, and all federal and other taxes
shown as due on said returns and reports shall have been paid insofar as due, or
provision shall have been made for the payment thereof, and, to the best of
Series Fund's knowledge, all federal or other taxes required to be shown on any
such return or report have been shown on such return or report, no such return
is currently under audit and no assessment has been asserted with respect to
such returns;
4.1.9 For each past taxable year since it commenced operations, each Series has
met the requirements of Subchapter M of the Internal Revenue Code for
qualification and treatment as a regulated investment company and Series Fund
intends to cause such Series to meet those requirements for the current taxable
year; and, for each past calendar year since it commenced operations, each
Series has made such distributions as are necessary to avoid the imposition of
federal excise tax or has paid or provided for the payment of any excise tax
imposed;
4.1.10 All issued and outstanding shares of the Series are, and at the Closing
Date will be, duly and validly authorized, issued and outstanding, fully paid
and non-assessable. All issued and outstanding shares of each Series will, at
the time of the Closing, be held in the name of the persons and in the amounts
set forth in the list of shareholders submitted to National Municipals Fund in
accordance with the provisions of paragraph 3.4. No Series has outstanding any
options, warrants or other rights to subscribe for or purchase any shares, nor
is there outstanding any security convertible into any of its shares of Series
Fund, except for the Class B shares of each Series which have the conversion
feature described in Series Fund's Prospectuses dated November 2, 1998;
4.1.11 At the Closing Date, the Series Fund will have good and marketable title
to the assets of each Series to be transferred to National Municipals Fund
pursuant to paragraph 1.1, and full right, power and authority to sell, assign,
transfer and deliver such assets hereunder free of any liens, claims, charges or
other encumbrances, and, upon delivery and payment for such assets, National
Municipals Fund will acquire good and marketable title thereto;
4.1.12 The execution, delivery and performance of this Agreement has been duly
authorized by the Trustees of the Series Fund and by all necessary action, other
than shareholder approval, on the part of each Series, and this Agreement
constitutes a valid and binding obligation of Series Fund and, subject to
shareholder approval, of each Series;
4.1.13 The information furnished and to be furnished by Series Fund for use in
applications for orders, registration statements, proxy materials and other
documents that may be necessary in connection with the transactions contemplated
hereby is and shall be accurate and complete in all material respects and is in
compliance and shall comply in all material respects with applicable federal
securities and other laws and regulations; and
4.1.14 On the effective date of the registration statement filed with the SEC
by National Municipals Fund on Form N-14 relating to the shares of National
Municipals Fund issuable hereunder, and any supplement or amendment thereto
(Registration Statement), at the time of the meeting of the shareholders of such
Series and on the Closing Date, the Proxy Statement of such Series, the
Prospectus of National Municipals Fund, and the Statement of Additional
Information of National Municipals Fund to be included in the Registration
B-5(B)
Statement (collectively, Proxy Statement) (i) will comply in all material
respects with the provisions and regulations of the Securities Act of 1933 (1933
Act), the Securities Exchange Act of 1934 (1934 Act) and the Investment Company
Act, and the rules and regulations under such Acts and (ii) will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein in light of the circumstances under which they were made or
necessary to make the statements therein not misleading; provided, however, that
the representations and warranties in this paragraph 4.1.14 shall not apply to
statements in or omissions from the Proxy Statement and Registration Statement
made in reliance upon and in conformity with information furnished by National
Municipals Fund for use therein.
4.2 National Municipals Fund represents and warrants as follows:
4.2.1 National Municipals Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland;
4.2.2 National Municipals Fund is an open-end, management investment company
duly registered under the Investment Company Act, and such registration is in
full force and effect;
4.2.3 National Municipals Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any provision of
the Articles of Incorporation or By-Laws of National Municipals Fund or of any
material agreement, indenture, instrument, contract, lease or other undertaking
to which National Municipals Fund is a party or by which National Municipals
Fund is bound;
4.2.4 No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or threatened
against National Municipals Fund or any of its properties or assets, except as
previously disclosed in writing to the Series Fund. Except as previously
disclosed in writing to Series Fund, National Municipals Fund knows of no facts
that might form the basis for the institution of such proceedings, and National
Municipals Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated;
4.2.5 The Portfolio of Investments, Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets, and Financial
Highlights of National Municipals Fund at December 31, 1997 and for the fiscal
year then ended (copies of which have been furnished to Series Fund) have been
audited by PricewaterhouseCoopers LLP, independent accountants, in accordance
with generally accepted auditing standards. Such financial statements are
prepared in accordance with generally accepted accounting principles and present
fairly, in all material respects, the financial condition, results of
operations, changes in net assets and financial highlights of National
Municipals Fund as of and for the period ended on such date, and there are no
material known liabilities of National Municipals Fund (contingent or otherwise)
not disclosed therein;
4.2.6 Since December 31, 1997, there has not been any material adverse change
in National Municipal Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by National Municipals Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise disclosed
to and accepted by Series Fund. For the purposes of this paragraph 4.2.6, a
decline in net asset value per share or a decrease in the number of shares
outstanding shall not constitute a material adverse change;
4.2.7 At the date hereof and at the Closing Date, all federal and other tax
returns and reports of National Municipals Fund required by law to have been
filed on or before such dates shall have been filed, and all federal and other
taxes shown as due on said returns and reports shall have been paid insofar as
due, or
B-6(B)
provision shall have been made for the payment thereof, and, to the best of
National Municipals Fund's knowledge, all federal or other taxes required to be
shown on any such return or report are shown on such return or report, no such
return is currently under audit and no assessment has been asserted with respect
to such returns;
4.2.8 For each past taxable year since it commenced operations, National
Municipals Fund has met the requirements of Subchapter M of the Internal Revenue
Code for qualification and treatment as a regulated investment company and
intends to meet those requirements for the current taxable year; and, for each
past calendar year since it commenced operations, National Municipals Fund has
made such distributions as are necessary to avoid the imposition of federal
excise tax or has paid or provided for the payment of any excise tax imposed;
4.2.9 All issued and outstanding shares of National Municipals Fund are, and at
the Closing Date will be, duly and validly authorized, issued and outstanding,
fully paid and non-assessable. Except as contemplated by this Agreement,
National Municipals Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any of its shares nor is there
outstanding any security convertible into any of its shares, except for the
Class B shares which have the conversion feature described in National
Municipals Fund's Prospectus dated November 23, 1998;
4.2.10 The execution, delivery and performance of this Agreement has been duly
authorized by the Board of Directors of National Municipals Fund and by all
necessary corporate action on the part of National Municipals Fund, and this
Agreement constitutes a valid and binding obligation of National Municipals
Fund;
4.2.11 The shares of National Municipals Fund to be issued and delivered to
Series Fund for and on behalf of each Series pursuant to this Agreement will, at
the Closing Date, have been duly authorized and, when issued and delivered as
provided in this Agreement, will be duly and validly issued and outstanding
shares of National Municipals Fund, fully paid and non-assessable;
4.2.12 The information furnished and to be furnished by National Municipals
Fund for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby is and shall be accurate and complete in all
material respects and is and shall comply in all material respects with
applicable federal securities and other laws and regulations; and
4.2.13 On the effective date of the Registration Statement, at the time of the
meeting of the shareholders of each Series and on the Closing Date, the Proxy
Statement and the Registration Statement (i) will comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the Investment
Company Act and the rules and regulations under such Acts, (ii) will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (iii) with respect to the Registration Statement, at the time it
becomes effective, it will not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein in the
light of the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this paragraph 4.2.13 shall
not apply to statements in or omissions from the Proxy Statement and the
Registration Statement made in reliance upon and in conformity with information
furnished by the Series for use therein.
B-7(B)
5. COVENANTS OF NATIONAL MUNICIPALS FUND AND MUNICIPAL SERIES FUND
5.1 Series Fund, with respect to each Series, and National Municipals Fund each
covenants to operate its respective business in the ordinary course between the
date hereof and the Closing Date, it being understood that the ordinary course
of business will include declaring and paying customary dividends and other
distributions and such changes in operations as are contemplated by the normal
operations of the Funds, except as may otherwise be required by paragraph 1.4
hereof.
5.2 Series Fund covenants to call a meeting of the shareholders of each Series
to consider and act upon this Agreement and to take all other action necessary
to obtain approval of the transactions contemplated hereby (including the
determinations of its Trustees as set forth in Rule 17a-8(a) under the
Investment Company Act).
5.3 Series Fund covenants that National Municipals Fund shares to be received
for and on behalf of each Series in accordance herewith are not being acquired
for the purpose of making any distribution thereof other than in accordance with
the terms of this Agreement.
5.4 Series Fund covenants that it will assist National Municipals Fund in
obtaining such information as National Municipals Fund reasonably requests
concerning the beneficial ownership of each Series' shares.
5.5 Subject to the provisions of this Agreement, each Fund will take, or cause
to be taken, all action, and will do, or cause to be done, all things,
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
5.6 Series Fund covenants to prepare the Proxy Statement in compliance with the
1934 Act, the Investment Company Act and the rules and regulations under each
Act.
5.7 Series Fund covenants that it will, from time to time, as and when
requested by National Municipals Fund, execute and deliver or cause to be
executed and delivered all such assignments and other instruments, and will take
or cause to be taken such further action, as National Municipals Fund may deem
necessary or desirable in order to vest in and confirm to National Municipals
Fund title to and possession of all the assets of each Series to be sold,
assigned, transferred and delivered hereunder and otherwise to carry out the
intent and purpose of this Agreement.
5.8 National Municipals Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the Investment
Company Act (including the determinations of its Board of Directors as set forth
in Rule 17a-8(a) thereunder) and such of the state Blue Sky or securities laws
as it may deem appropriate in order to continue its operations after the Closing
Date.
5.9 National Municipals Fund covenants that it will, from time to time, as and
when requested by Series Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take and cause to
be taken such further action, as Municipal Series Fund may deem necessary or
desirable in order to (i) vest in and confirm to the Series Fund title to and
possession of all the shares of National Municipals Fund to be transferred to
the shareholders of each Series pursuant to this Agreement and (ii) assume all
of the liabilities of each Series in accordance with this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF SERIES FUND
The obligations of Series Fund to consummate the transactions provided for
herein shall be subject to the performance by National Municipals Fund of all
the obligations to be performed by it hereunder on or before the Closing Date
and the following further conditions:
B-8(B)
6.1 All representations and warranties of National Municipals Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transaction contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 National Municipals Fund shall have delivered to Series Fund on the Closing
Date a certificate executed in its name by the President or a Vice President of
National Municipals Fund, in form and substance satisfactory to Series Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of National Municipals Fund in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the transaction
contemplated by this Agreement, and as to such other matters as Series Fund
shall reasonably request.
6.3 Series Fund shall have received on the Closing Date a favorable opinion
from Swidler Berlin Shereff Friedman, LLP, counsel to National Municipals Fund,
dated as of the Closing Date, to the effect that:
6.3.1 National Municipals Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland with power under its
Articles of Incorporation to own all of its properties and assets and, to
the knowledge of such counsel, to carry on its business as presently
conducted;
6.3.2 This Agreement has been duly authorized, executed and delivered by
National Municipals Fund and, assuming due authorization, execution and
delivery of the Agreement by Municipal Series Fund on behalf of each Series,
is a valid and binding obligation of National Municipals Fund enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles;
6.3.3 The shares of National Municipals Fund to be distributed to the
shareholders of each Series under this Agreement, assuming their due
authorization, execution and delivery as contemplated by this Agreement,
will be validly issued and outstanding and fully paid and non-assessable,
and no shareholder of National Municipals Fund has any pre-emptive right to
subscribe therefor or purchase such shares;
6.3.4 The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, (i) conflict
with National Municipals Fund's Articles of Incorporation or By-Laws or (ii)
result in a default or a breach of (a) the Management Agreement dated
January 22, 1990 between National Municipals Fund and Prudential Investments
Fund Management LLC, as successor to Prudential Mutual Fund Management,
Inc., (b) the Custodian Contract dated July 26, 1990 between National
Municipals Fund and State Street Bank and Trust Company, (c) the
Distribution Agreement dated November 9, 1998 between National Municipals
Fund and Prudential Investment Management Services LLC and (d) the Transfer
Agency and Service Agreement dated January 1, 1990 between National
Municipals Fund and Prudential Mutual Fund Services LLC, as successor to
Prudential Mutual Fund Services, Inc.; provided, however, that such counsel
may state that they express no opinion as to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles;
6.3.5 To the knowledge of such counsel, no consent, approval,
authorization, filing or order of any court or governmental authority is
required for the consummation by National Municipals Fund of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the Investment Company Act and such as may be
required under state Blue Sky or securities laws;
B-9(B)
6.3.6 National Municipals Fund has been registered with the SEC as an
investment company, and, to the knowledge of such counsel, no order has been
issued or proceeding instituted to suspend such registration; and
6.3.7 Such counsel knows of no litigation or government proceeding
instituted or threatened against National Municipals Fund that could be
required to be disclosed in its registration statement on Form N-1A and is
not so disclosed.
Such opinion may rely on an opinion of Maryland Counsel to the extent it
addresses Maryland law.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF NATIONAL MUNICIPALS FUND
The obligations of National Municipals Fund to complete the transactions
provided for herein shall be subject to the performance by Series Fund of all
the obligations to be performed by it hereunder on or before the Closing Date
and the following further conditions:
7.1 All representations and warranties of Series Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transaction contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2 Series Fund shall have delivered to National Municipals Fund on the Closing
Date a statement of the assets and liabilities of each Series, which shall be
prepared in accordance with generally accepted accounting principles
consistently applied, together with a list of the portfolio securities of each
Series showing the adjusted tax base of such securities by lot, as of the
Closing Date, certified by the Treasurer of Series Fund.
7.3 Series Fund shall have delivered to National Municipals Fund on the Closing
Date a certificate executed in its name by its President or one of its Vice
Presidents, in form and substance satisfactory to National Municipals Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of Series Fund made in this Agreement are true and correct at and as
of the Closing Date except as they may be affected by the transaction
contemplated by this Agreement, and as to such other matters as National
Municipals Fund shall reasonably request.
7.4 On or immediately prior to the Closing Date, Series Fund shall have
declared and paid to the shareholders of record of each Series one or more
dividends and/or other distributions so that it will have distributed
substantially all (and in any event not less than ninety-eight percent) of such
Series' investment company taxable income (computed without regard to any
deduction for dividends paid), net tax-exempt interest income, if any, and
realized net capital gain, if any, of such Series for all completed taxable
years from the inception of such Series through August 31, 1998, and for the
period from and after August 31, 1998 through the Closing Date.
7.5 National Municipals Fund shall have received on the Closing Date a
favorable opinion from Swidler Berlin Shereff Friedman, LLP, special counsel to
Series Fund, dated as of the Closing Date, to the effect that:
7.5.1 Series Fund is duly organized and validly existing under the laws of
the Commonwealth of Massachusetts with power under its Declaration of Trust
to own all of its properties and assets and, to the knowledge of such
counsel, to carry on its business as presently conducted and each Series has
been duly established in accordance with the terms of the Series Fund's
Declaration of Trust as a separate series of Series Fund;
B-10(B)
7.5.2 This Agreement has been duly authorized, executed and delivered by
Series Fund and constitutes a valid and legally binding obligation of Series
Fund enforceable against the assets of each Series in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles;
7.5.3 The execution and delivery of the Agreement did not, and the
performance by Series Fund of its obligations hereunder will not, (i)
violate Series Fund's Declaration of Trust or By-Laws or (ii) result in a
default or a breach of (a) the Management Agreement, dated December 30,
1988, between Series Fund and Prudential Investments Fund Management LLC, as
successor to Prudential Mutual Fund Management, Inc., (b) the Custodian
Contract, dated August 1, 1990, between Series Fund and State Street Bank
and Trust Company, (c) the Distribution Agreement dated June 1, 1998,
between Series Fund and Prudential Investment Management Services LLC and
the Transfer Agency and Service Agreement, dated January 1, 1988, between
Series Fund and Prudential Mutual Fund Services LLC, as successor to
Prudential Mutual Fund Services, Inc.; provided, however, that such counsel
may state that insofar as performance by Series Fund of its obligations
under this Agreement is concerned they express no opinion as to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights and to
general equity principles;
7.5.4 All regulatory consents, authorizations and approvals required to be
obtained by Series Fund under the federal laws of the United States and the
laws of The Commonwealth of Massachusetts for the consummation of the
transactions contemplated by this Agreement have been obtained;
7.5.5 Such counsel knows of no litigation or any governmental proceeding
instituted or threatened against Series Fund, involving any Series, that
would be required to be disclosed in its Registration Statement on Form N-1A
and is not so disclosed; and
7.5.6 Series Fund has been registered with the SEC as an investment
company, and, to the knowledge of such counsel, no order has been issued or
proceeding instituted to suspend such registration.
Such opinion may rely on an opinion of Massachusetts counsel to the extent
it addresses Massachusetts law, and may assume for purposes of the opinion given
pursuant to paragraph 7.5.2 that New York law is the same as Illinois law.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF NATIONAL MUNICIPALS FUND AND
SERIES FUND
The obligations of National Municipals Fund and Series Fund hereunder are
subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of (a) the Trustees of Series Fund and the Board
of Directors of National Municipals Fund, as to the determinations set forth in
Rule 17a-8(a) under the Investment Company Act, (b) the Board of Directors of
National Municipals Fund as to the assumption by the National Municipals Fund of
the liabilities of each Series and (c) the holders of the outstanding shares of
each Series in accordance with the provisions of the Series Fund's Declaration
of Trust and By-Laws, and certified copies of the resolutions evidencing such
approvals shall have been delivered to National Municipals Fund.
8.2 Any proposed change to National Municipals Fund's operations that may be
approved by the Board of Directors of National Municipals Fund subsequent to the
date of this Agreement but in connection with and as a condition to implementing
the transactions contemplated by this Agreement, for which the approval of
B-11(B)
National Municipals Fund shareholders is required pursuant to the Investment
Company Act or otherwise, shall have been approved by the requisite vote of the
holders of the outstanding shares of National Municipals Fund in accordance with
the Investment Company Act and the provisions of the General Corporation Law of
the State of Maryland, and certified copies of the resolution evidencing such
approval shall have been delivered to Series Fund.
8.3 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein.
8.4 All consents of other parties and all consents, orders and permits of
federal, state and local regulatory authorities (including those of the SEC and
of state Blue Sky or securities authorities, including "no-action" positions of
such authorities) deemed necessary by National Municipals Fund or Series Fund to
permit consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of National Municipals Fund or any Series, provided,
that either party hereto may for itself waive any part of this condition.
8.5 The Registration Statement shall have become effective under the 1933 Act,
and no stop orders suspending the effectiveness thereof shall have been issued,
and to the best knowledge of the parties hereto, no investigation or proceeding
under the 1933 Act for that purpose shall have been instituted or be pending,
threatened or contemplated.
8.6 The Funds shall have received on or before the Closing Date opinions of
Swidler Berlin Shereff Friedman, LLP or a ruling from the Internal Revenue
Service with respect to each Series satisfactory to each of them, substantially
to the effect that for federal income tax purposes:
8.6.1 The acquisition by National Municipals Fund of the assets of a Series
solely in exchange for voting shares of National Municipals Fund and the
assumption by National Municipals Fund of such Series' liabilities, if any,
followed by the distribution of National Municipals Fund's voting shares 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 Section 368(a)(1)(C) of the Internal
Revenue Code, and each Fund will be "a party to a reorganization" within the
meaning of Section 368(b) of the Internal Revenue Code;
8.6.2 Each Series' shareholders will recognize no gain or loss upon the
constructive exchange of all of their shares of such Series solely for
shares of National Municipals Fund in complete termination of such Series;
8.6.3 No gain or loss will be recognized to any Series upon the transfer of
its assets to National Municipals Fund solely in exchange for shares of
National Municipals Fund and the assumption by National Municipals Fund of
such Series' liabilities, if any, and the subsequent distribution of those
shares to such Series' shareholders in complete termination of such Series;
8.6.4 No gain or loss will be recognized to National Municipals Fund upon
the acquisition of any Series' assets solely in exchange for shares of
National Municipals Fund and the assumption of such Series' liabilities, if
any;
B-12(B)
8.6.5 National Municipals Fund's basis for the assets of each Series
acquired in the reorganizations will be the same as the basis thereof when
held by the respective Series immediately before the transfer, and the
holding period of such assets acquired by National Municipals Fund will
include the holding period thereof when held by such Series;
8.6.6 The Series shareholders' bases for the shares of National Municipals
Fund to be received by them pursuant to the reorganizations will be the same
as their basis for the shares of the respective Series to be constructively
surrendered in exchange therefor; and
8.6.7 The holding period of National Municipals Fund shares to be received
by each Series' shareholders will include the period during which the shares
of such Series to be constructively surrendered in exchange therefor were
held; provided that such Series' shares surrendered were held as capital
assets by those shareholders on the date of the exchange.
9. FINDER'S FEES AND EXPENSES
9.1 Each Fund represents and warrants to the other that there are no finder's
fees payable in connection with the transactions provided for herein.
9.2 The expenses incurred in connection with the entering into and carrying out
of the provisions of this Agreement shall be allocated to National Municipals
Fund and each Series pro rata in a fair and equitable manner in proportion to
its assets.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the Funds.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
National Municipals Fund or Series Fund as to any Series may at its option
terminate this Agreement at or prior to the Closing Date because of:
11.1 A material breach by the other of any representation, warranty or covenant
contained herein to be performed at or prior to the Closing Date; or
11.2 A condition herein expressed to be precedent to the obligations of either
party not having been met and it reasonably appearing that it will not or cannot
be met; or
11.3 A mutual written agreement of Series Fund and National Municipals Fund.
In the event of any such termination, there shall be no liability for
damages on the part of either Fund (other than the liability of the Funds to pay
their allocated expenses pursuant to paragraph 9.2) or any Director or officer
of National Municipals Fund or any Trustee or officer of Series Fund.
12. AMENDMENT
This Agreement may be amended, modified or supplemented only in writing by
the parties; provided, however, that following the shareholders' meeting called
by Series Fund pursuant to paragraph 5.2, no such amendment may have the effect
of changing the provisions for determining the number of shares of National
Municipals Fund to be distributed to any Series' shareholders under this
Agreement to the detriment of such shareholders without their further approval.
B-13(B)
13. NOTICES
Any notice, report, demand or other communication required or permitted by
any provision of this Agreement shall be in writing and shall be given by hand
delivery, or prepaid certified mail or overnight service addressed to Prudential
Investments Fund Management LLC, Gateway Center Three, Newark, New Jersey 07102,
Attention: S. Jane Rose.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which will be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
14.4 This Agreement shall bind and inure to the benefit of the parties and
their respective successors and assigns, and no assignment or transfer hereof or
of any rights or obligations hereunder shall be made by either party without the
written consent of the other party. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person, firm or
corporation other than the parties and their respective successors and assigns
any rights or remedies under or by reason of this Agreement.
14.5 The terms of this Agreement shall apply separately with respect to each of
Maryland and Michigan Series. Nothing herein expressed or implied is intended or
shall be construed to imply that the approval or implementation of the
reorganization with respect to either Series is subject to or contingent upon
approval or implementation of the reorganization with respect to the other
Series.
15. NO LIABILITY OF SHAREHOLDERS OR TRUSTEES OF MUNICIPAL SERIES FUND;
AGREEMENT AN OBLIGATION ONLY OF THE RESPECTIVE SERIES, AND ENFORCEABLE ONLY
AGAINST ASSETS OF THE RESPECTIVE SERIES.
The name "Prudential Municipal Series Fund" is the designation of the
Trustees from time to time acting under an Amended and Restated Declaration of
Trust dated August 17, 1994, as the same may be from time to time amended, and
the name "Maryland Series" and "Michigan Series" is the designation of a
portfolio of the assets of Series Fund. National Municipals Fund acknowledges
that it must look, and agrees that it shall look, solely to the assets of each
Series for the enforcement of any claims arising out of or based on the
obligations of Series Fund hereunder, and with respect to obligations relating
to any Series, only to the assets of such Series, and in particular that (i)
neither the Trustees, officers, agents or shareholders of Series Fund assume or
shall have any personal liability for obligations of Series Fund hereunder, and
(ii) none of the assets of Series Fund other than the portfolio assets of the
Series may be resorted to for the enforcement of any claim based on the
obligations of Series Fund hereunder.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by the President of each Fund.
Prudential Municipal Bond Fund
By /s/ Brian M. Storms
----------------------
PRESIDENT
Prudential National Municipals Fund, Inc.
By /s/ Brian M. Storms
----------------------
PRESIDENT
B-14(B)