1933 Act File No. 333-85751
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.
Post-Effective Amendment No. 83 [X]
(Check appropriate box or boxes)
LORD ABBETT AFFILIATED FUND, INC.
(Exact Name of Registrant as Specified in Charter)
(212) 848-1800
(Area Code and Telephone Number)
767 FIFTH AVENUE
NEW YORK, NY 10153
(Address of Principal Executive Offices
Number, Street, City, State, Zip Code)
LAWRENCE H. KAPLAN, VICE PRESIDENT
767 FIFTH AVENUE
NEW YORK, NY 10153
(Name and Address of Agent for Service,
Number, Street, City, State, Zip Code)
Approximate Date of Proposed Public Offering: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE
UNDER THE SECURITIES ACT OF 1933.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
TITLE OF THE SECURITIES BEING REGISTERED: SHARES OF BENEFICIAL INTEREST WITH PAR
VALUE OF $0.001. NO FILING FEE IS REQUIRED BECAUSE AN INDEFINITE NUMBER OF
SHARES HAVE PREVIOUSLY BEEN REGISTERED PURSUANT TO RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. A RULE 24F-2 NOTICE FOR THE REGISTRANT'S FISCAL
YEAR ENDED OCTOBER 31, 1998 WAS FILED ON JANUARY 29, 1999.
THIS FILING WILL BECOME EFFECTIVE ON OCTOBER 21, 1999, PURSUANT TO RULE 485(B).
LORD ABBETT AFFILIATED FUND, INC.
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<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
(Pursuant to Rule 481(a) under the Securities Act of 1933)
N-14 ITEM NO. AND CAPTION LOCATION IN PROSPECTUS
<S> <C>
PART A
1. Beginning of Registration Statement and Facing Page of Registration Statement; Front
Outside Front Cover Page of Prospectus Cover Page of Prospectus
2. Beginning and Outside Back Cover Page Table of Contents
of Prospectus
3. Synopsis Information and Risk Factors Summary; Comparisons of Some Important Features
4. Information About the Transaction Summary; Reasons for the Merger; Information
About the Merger
5. Information About the Registrant Prospectus Cover Page; Summary; Comparisons of
Some Important Features; Comparison of
Investment Goals and Policies; Information
About Affiliated Fund; Information About Real
Silk
6. Information About the Company Being Prospectus Cover Page; Summary; Comparisons of
Acquired Some Important Features; Comparison of
Investment Goals and Policies; Information
About Affiliated Fund; Information About Real
Silk
7. Voting Information Prospectus Cover Page; Notice of Special
Shareholders Meeting; Voting Information;
Principal Holders of Shares
8. Interest of Certain Persons and Experts None
9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
PART B
10. Cover Page Cover Page of Statement of Additional
Information
11. Table of Contents Not Applicable
12. Additional Information About the Incorporation of Documents by Reference in the
Registrant Statement of Additional Information
<PAGE>
13. Additional Information About the Incorporation of Documents by Reference in the
Company Being Acquired Statement of Additional Information
14. Financial Information Incorporation of Documents by Reference in the
Statement of Additional Information
</TABLE>
PART C -- OTHER INFORMATION
Part C contains the information required by Items 15-17 as set forth in the
form.
<PAGE>
[REAL SILK INVESTMENTS, INCORPORATED LETTERHEAD]
_____________, 1999
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Real Silk Investments, Incorporated ("Real Silk"), to be held at the offices
of Leagre Chandler & Millard LLP located at 1400 First Indiana Plaza, 135 North
Pennsylvania Street, Indianapolis, Indiana, on ______________, 1999, at ______
__.m., Indianapolis Time.
The purpose of the meeting is to consider and vote upon adoption of the
Agreement and Plan of Merger under which Real Silk will merge into Lord Abbett
Affiliated Fund, Inc. ("Affiliated Fund"). If the proposed merger is
consummated, each share of Real Silk Common Stock (other than any dissenting
shares) will be converted into that number of Affiliated Fund Class A Shares
determined by dividing the net asset value per share of Real Silk Common Stock
by the net asset value per share of Affiliated Fund Class A Shares as of the
close of business on the effective date of the merger, all as described in the
accompanying Prospectus/Proxy Statement.
Your Board of Directors believes that the proposed merger between Real
Silk and Affiliated Fund is in the best interests of Real Silk and its
shareholders. The Board has unanimously approved the proposed merger. Enclosed
with this letter are (i) a Notice of Special Meeting of Shareholders, (ii) a
Prospectus/Proxy Statement, (iii) a proxy card for you to complete, sign, date
and return, and (iv) a postage pre-paid envelope. We encourage you to read the
enclosed materials carefully and in their entirety.
Whether or not you attend the Special Meeting, your Board of Directors
requests that you complete, sign and date the enclosed proxy card and return it
in the enclosed postage pre-paid envelope at your earliest convenience before
the Special Meeting. If you desire, you may cancel your proxy at any time before
it is voted at the Special Meeting.
The Board of Directors recommends that you vote for approval of the
proposed merger by promptly executing and returning the enclosed proxy card.
Very truly yours,
Daniel R. Efroymson,
President
<PAGE>
REAL SILK INVESTMENTS, INCORPORATED
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD _______________, 1999
To the Shareholders of Real Silk Investments, Incorporated:
Notice is hereby given that a Special Meeting of Shareholders of Real
Silk Investments, Incorporated ("Real Silk") has been called by the Board of
Directors to be held on ______________, ______________, 1999, at _____ __.m.,
Indianapolis time, at the offices of Leagre Chandler & Millard LLP located at
1400 First Indiana Plaza, 135 North Pennsylvania Street, Indianapolis, Indiana,
for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan
of Merger, dated July 8, 1999, between Real Silk and Lord Abbett
Affiliated Fund, Inc. (the "Agreement"), and to approve the
transactions contemplated by the Agreement, including the merger of
Real Silk with and into Lord Abbett Affiliated Fund, Inc. and to
appoint certain officers of Real Silk as your attorney-in-fact for the
sole purpose of executing an escrow agreement as required by the
Merger Agreement.
2. To transact such other business as may properly come before the
meeting or any adjournments.
Shareholders of record as of the close of business on _____________,
1999, are entitled to notice of and to vote at the Special Meeting or any
adjournments of the Special Meeting.
The merger and related matters are described in the attached
Prospectus/Proxy Statement. A copy of the Agreement is attached as Exhibit A to
the Prospectus/Proxy Statement.
The accompanying Prospectus/Proxy Statement also describes the rights
of and procedures for shareholders under Indiana law to dissent and demand
payment in cash for the fair value of their shares if the merger is approved and
consummated.
Shareholders are requested to execute and return promptly in the
enclosed envelope the accompanying proxy card, which is being solicited by the
Real Silk Board of Directors. This is important to ensure a quorum at the
Special Meeting. Proxies may be revoked at any time before they are exercised by
submitting to Real
<PAGE>
Silk a written notice of revocation or a subsequently executed proxy or by
attending the Special Meeting and voting in person.
By Order of the Board
of Directors:
------------------------------
INDIANAPOLIS, INDIANA
____________________, 1999
<PAGE>
PRELIMINARY COPY
PROSPECTUS AND PROXY STATEMENT
DATED OCTOBER , 1999
MERGER OF REAL SILK INVESTMENTS, INCORPORATED
INTO
LORD ABBETT AFFILIATED FUND, INC.
This Prospectus/Proxy Statement solicits proxies to be voted at a
Special Shareholders' Meeting (the "Meeting") of Real Silk Investments,
Incorporated ("Real Silk") to approve or disapprove an Agreement and Plan of
Merger (the "Agreement"). If shareholders vote to approve the Agreement, Real
Silk will be merged into Lord Abbett Affiliated Fund, Inc. ("Affiliated Fund")
and shareholders of Real Silk will receive Affiliated Fund Class A Shares.
The Meeting will be held at the offices of Leagre Chandler & Millard
LLP located at 1400 First Indiana Plaza, 135 North Pennsylvania Street,
Indianapolis, Indiana, on [give date] at [give time] Indianapolis time. The
Board of Directors of Real Silk is soliciting these proxies. This
Prospectus/Proxy Statement will first be sent to shareholders on or about [give
date].
If the shareholders vote to approve the Agreement, you will receive
Class A Shares of Affiliated Fund with a net asset value equal to the net asset
value of your shares of Real Silk and Real Silk will cease to exist.
Affiliated Fund's primary investment goal is long-term growth of
capital without excessive fluctuations in market value.
Real Silk's investment goal is long-term growth of capital through
investment in value-oriented equity securities. From January 1, 1989 through
December 31, 1998, Real Silk's investment goals and portfolio management were
influenced by the "built in gains tax."The built in gains tax would have applied
to any long-term capital gains realized by Real Silk as a result of the sale of
any portfolio securities that it held on January 1, 1989, the first date on
which Real Silk qualified as a regulated investment company, and would have
resulted in Real Silk paying additional taxes on such gains.
This Prospectus/Proxy Statement gives information about the proposed
merger (the "Merger") and Class A Shares of Affiliated Fund that you should know
before voting. You should retain it for future reference. You can find
additional information about Affiliated Fund and the Merger in the following
documents:
<PAGE>
The Prospectus of Affiliated Fund dated March 1, 1999 (the "Affiliated
Fund Prospectus") is attached to and considered a part of this Prospectus/Proxy
Statement.
The Semi-Annual Report to Shareholders of Affiliated Fund dated April
30, 1999 contains financial and performance information for Affiliated Fund and
is attached to and considered a part of this Prospectus/Proxy Statement.
A Statement of Additional Information dated October , 1999 relating
to this Prospectus/Proxy Statement has been filed with the SEC and is
incorporated by reference into this Prospectus/Proxy Statement.
Real Silk's Annual Report to Shareholders dated January 22, 1999 and
Six Months Report to shareholders dated August 26, 1999 are on file with the SEC
(File No. 811-01788) and are incorporated by reference herein.
You may request a free copy of the Statement of Additional Information
relating to this Prospectus/Proxy Statement or any of the documents referred to
above without charge by calling 800-426-1130 or writing Affiliated Fund at 767
Fifth Avenue, New York, NY 10153 for documents relating to Affiliated Fund or by
writing to Real Silk at 445 N. Pennsylvania Street, Suite 500, Indianapolis, IN
46204, for documents relating to Real Silk.
The SEC has not approved or disapproved these securities or passed upon
the adequacy of this Prospectus/Proxy statement. Any representation to the
contrary is a criminal offense.
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other U.S. Government
agency. Mutual fund shares involve investment risks, including the possible risk
of principal.
2
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Table of Contents
Cover Page
SUMMARY........................................................................5
On What Proposal Am I Being Asked to Vote?............................5
How Will the Shareholder Voting Be Handled?...........................6
What Are the General Tax Consequences of the Merger?..................6
PRINCIPAL RISKS OF AFFILIATED FUND.............................................7
COMPARISONS OF SOME IMPORTANT FEATURES.........................................8
Who Manages the Funds?................................................8
What Are the Fees and Expenses of Each Fund and What Might
They Be After the Merger? ......................................9
Where Can I Find More Financial Information About the Funds?.........10
Transfer Agency and Custody Services.................................13
Distribution Services................................................13
Rule 12b-1 Plans.....................................................13
Purchases and Redemptions............................................14
Dividends and Distributions..........................................15
REASONS FOR THE MERGER........................................................16
INFORMATION ABOUT THE MERGER..................................................17
How Will the Merger Be Carried Out?..................................17
Who Will Pay the Expenses of the Merger?.............................17
What Are the Tax Consequences of the Merger?.........................18
What Should I Know about the Shares of Affiliated Fund and
Real Silk?..................................................19
COMPARISON OF INVESTMENT GOALS AND POLICIES...................................20
VOTING INFORMATION............................................................24
Who is Entitled to Vote?.............................................24
How Many Votes are Necessary to Approve the Agreement?...............24
How do I Ensure that My Vote is Accurately Recorded?.................24
Can I Revoke my Proxy?...............................................24
Are there Dissenters' Rights?........................................25
What Other Solicitations will be Made?...............................26
What Other Matters will be Voted Upon at the Meeting? ...............26
3
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF...............................26
INFORMATION ABOUT AFFILIATED FUND.............................................28
INFORMATION ABOUT REAL SILK...................................................29
4
<PAGE>
SUMMARY
This is only a summary of certain information contained in this
Prospectus/Proxy Statement. You should read the more complete information in the
rest of this Prospectus/Proxy Statement, including the Agreement (attached as
Exhibit A), the Prospectus of Affiliated Fund (attached as Exhibit B) and the
Annual Report to Shareholders of Affiliated Fund (attached as Exhibit C).
ON WHAT PROPOSAL AM I BEING ASKED TO VOTE?
At a meeting held on [insert date], the Board of Directors of Real Silk
approved the Agreement and recommended that shareholders of Real Silk vote to
approve the Agreement. If shareholders of Real Silk vote to approve the
Agreement, it will result in the merger of Real Silk into Affiliated Fund.
Shareholders of Real Silk will then receive Class A Shares of Affiliated Fund
and Real Silk will cease to exist. As a result of the Merger, you will cease to
be a shareholder of Real Silk and will become a shareholder of Affiliated Fund.
This exchange will occur on the closing date of the Merger, which is the
specific date on which the Merger takes place.
Immediately after the closing date of the Merger, Peoples Bank & Trust
Company (the "Exchange Agent") will mail a letter to each Real Silk shareholder
of record with instructions on how to surrender Real Silk shares and receive
Affiliated Fund shares. Upon receipt of Real Silk shares, the Exchange Agent
will deliver to (i) the Real Silk shareholder a certificate or statement
representing the number of Class A Shares of Affiliated Fund that the
shareholder is entitled to have immediately and (ii) an escrow agent a
certificate or statement, in the name of the escrow agent on behalf of the Real
Silk shareholder, representing the number of shares subject to an escrow
agreement. The escrow agreement is described below in the "Purchases and
Redemptions" section. This means that you will receive Class A Shares of
Affiliated Fund with a net asset value equal to the net asset value of the
shares of Real Silk which you owned and surrendered to the Exchange Agent.
For the reasons set forth in the "Reasons for the Merger" Section, the
Board of Directors of Real Silk has determined that the Merger is in the best
interest of the shareholders of Real Silk.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE THE AGREEMENT.
HOW WILL THE SHAREHOLDER VOTING BE HANDLED?
Shareholders who own shares of Real Silk at the close of business on
[insert date] will be entitled to vote at the Meeting, and will be entitled to
one vote for each share that
5
<PAGE>
they hold. To approve the Merger, a majority of the outstanding shares of Real
Silk must be voted in favor of the Agreement.
Please vote by proxy as soon as you receive this Prospectus/Proxy
Statement. You may place your vote by completing and signing the enclosed proxy
card. If you return your signed proxy card(s), your vote will be officially cast
at the Meeting by the persons appointed as proxies.
You can revoke your proxy or change your voting instructions at any
time until the vote is taken at the Meeting. For more details about shareholder
voting, see the "Voting Information" section of this Prospectus/ Proxy
Statement.
WHAT ARE THE GENERAL TAX CONSEQUENCES OF THE MERGER?
It is expected that shareholders of Real Silk will not recognize any
gain or loss for federal income tax purposes on their receipt of Class A Shares
of Affiliated Fund in exchange for shares of Real Silk as a result of the
Merger. You should, however, consult your tax adviser regarding the effect, if
any, of the Merger in light of your individual circumstances. You also should
consult your tax adviser about state and local tax consequences. For more
information about the tax consequences of the Merger, please see "Information
about the Merger -- What are the Tax Consequences of the Merger?"
HOW DO THE INVESTMENT GOALS AND POLICIES OF THE FUNDS COMPARE?
The investment goals of Real Silk and Affiliated Fund are similar, but
differ somewhat. Affiliated Fund's investment objective is long-term growth of
capital and income without excessive fluctuation in market value. Real Silk's
investment goal is long-term growth of capital through investment in
value-oriented equity securities. From January 1, 1989 through December 31,
1998, Real Silk's investment goals and portfolio management were influenced by
the built in gains tax that would have applied to any long-term capital
gains realized by Real Silk as a result of the sale of any portfolio securities
that it held on January 1, 1989, the first date on which Real Silk qualified as
a regulated investment company. Accordingly, Real Silk historically has had very
little portfolio turnover. Affiliated Fund has had somewhat greater portfolio
turnover. Affiliated Fund's higher turnover rate means that it may recognize
capital gains more frequently than Real Silk has.
In addition, closed-end investment companies such as Real Silk
generally have greater freedom in managing their portfolios than do open-end
funds like Affiliated Fund. Because closed-end investment companies are not
subject to forced sales of portfolio securities at undesirable times or prices
to meet redemption requests, they have more freedom to invest in illiquid
securities and may keep a larger percentage of their assets fully
6
<PAGE>
invested in equity or debt securities, rather than in cash. In addition,
closed-end investment companies have greater flexibility to leverage their
portfolios by borrowing. Despite having greater flexibility in portfolio
management, Real Silk generally has not invested in illiquid securities or
engaged in leveraging.
For more information about the investment goals and policies of the
funds, please see "Comparison of Investment Goals and Policies."
HOW DO THE SALES AND REDEMPTION POLICIES AND PROCEDURES OF THE FUNDS COMPARE?
Real Silk is a closed-end investment company. Real Silk does not offer
its shares to the public and its shares are not redeemable. Although Real Silk
shares may be sold in the over-the-counter market, historically they have traded
at a discount from net asset value per share.In addition, trading in Real Silk
shares has been very limited.
In contrast, Affiliated Fund is an open-end investment company. It offers
its shares to the public continuously and its shares are redeemable, although,
as described below, sixty-five percent (65%) of the Affiliated Fund shares
received by Real Silk shareholders in the Merger will be subject to an escrow
agreement.
7
<PAGE>
PRINCIPAL RISKS OF AFFILIATED FUND
While stocks have historically been a leading choice of long-term
investors, they fluctuate in price. The value of your investment in Affiliated
Fund will go up and down, which means that you could lose money.
Affiliated Fund's performance may sometimes be lower or higher than
that of other types of funds (such as those emphasizing small-company stocks or
growth stocks) because different types of stocks tend to shift in and out of
favor depending on market and economic conditions. While there is the risk that
an investment may never reach what Affiliated Fund thinks is its full value, or
may go down in value, Affiliated Fund's emphasis on large, seasoned-company
bargain stocks could limit its downside risk. This is because bargain stocks in
theory are already underpriced and large, seasoned-company stocks tend to be
less volatile than small company stocks. In the long run, Affiliated Fund may
produce more modest gains than riskier stock funds as a trade-off for this
potentially lower risk.
Because Real Silk generally has invested in securities similar to those
in which Affiliated Fund has invested, the two funds have similar investment
risks. In addition to the risks described for Affiliated Fund, an investment in
Real Silk is also subject to a risk of lack of liquidity and variation in the
amount of discount between the market price per share for Real Silk shares and
the net asset value per share.
8
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COMPARISONS OF SOME IMPORTANT FEATURES
WHO MANAGES THE FUNDS?
The management of the business and affairs of each fund is the
responsibility of each fund's respective board of directors. Real Silk is a
registered, closed-end, management investment company. It was organized in
Illinois on September 20, 1923 and reincorporated as an Indiana corporation on
July 23, 1968. Affiliated Fund is a registered open-end, management investment
company, commonly known as a "mutual fund." Affiliated Fund was organized in
1932 and reincorporated as a Maryland corporation on November 26, 1975.
The officers of Real Silk manage the assets of Real Silk and make its
investment decisions.
Affiliated Fund's investment adviser is Lord, Abbett & Co., 767 Fifth
Avenue, New York, NY 10153-0203. Founded in 1929, Lord Abbett manages one of the
nation's oldest mutual fund complexes, with approximately $32 billion in more
than 40 mutual fund portfolios and other advisory accounts. For more information
about the services Lord Abbett provides to Affiliated Fund, see the Statement of
Additional Information.
Affiliated Fund pays Lord Abbett a monthly fee for investment
management based on average daily net assets for each month. For the fiscal year
ended October 31, 1998, the fee paid to Lord Abbett was at an annual rate of .31
of 1%. In addition, Affiliated Fund pays all expenses not expressly assumed by
Lord Abbett.
Lord Abbett uses a team of portfolio managers and analysts acting
together to manage Affiliated Fund's investments. Thomas Hudson Jr., Partner of
Lord Abbett, heads the team, the senior members of which include Robert Morris,
Partner of Lord Abbett, and Eli Salzman, Portfolio Manager. Messrs. Hudson and
Morris have been with Lord Abbett since 1982 and 1991, respectively. Mr. Salzman
joined Lord Abbett in 1997 and previously was a Vice President with Mutual of
America Capital Corp. from 1996 to 1997 and a Vice President with Mitchell
Hutchins Asset Management, Inc. from 1986 to 1996.
9
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WHAT ARE THE FEES AND EXPENSES OF EACH FUND AND WHAT MIGHT THEY BE AFTER THE
MERGER?
FEES AND EXPENSES
AFFILIATED FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy
and hold Class A Shares of Affiliated Fund.
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<CAPTION>
<S> <C>
SHAREHOLDER FEES (Fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a % of offering price) 5.75%/1/
Maximum Deferred Sales Charge (See "Purchases") None/2/
ANNUAL FUND OPERATING EXPENSES (Expenses deducted from fund assets)
(as a % of average net assets)/3/
Management Fees (See "Management") 0.31%
Distribution and Service (12b-1) Fees/4/ 0.35%
Other Expenses (See "Management") 0.09%
Total Operating Expenses 0.75%
- - - ---------------------------------
</TABLE>
1. No sales charge will be imposed in connection with the issuance of Class A
Shares in the Merger.
2. A contingent deferred sales charge of 1.00% may be assessed on certain
redemptions of Class A shares made within 24 months following any purchases
made without a sales charge.
3. The annual operating expenses have been restated from fiscal year amounts
to reflect current fees.
4. Because 12b-1 distribution and service fees are paid out on an ongoing
basis, over time they will increase the cost of your investment.
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AFFILIATED FUND EXPENSE EXAMPLE
This example, like that in other funds' prospectuses, assumes a $10,000
initial investment at maximum sales charge, if any, 5% total return each year
and no changes in expenses./1/ You pay the following expenses over the course of
each period shown, although your actual cost may be higher or lower.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$647 $801 $968 $1,454
/1/The example assumes payment of the maximum sales charge. No sales
charge will be imposed in connection with the issuance of Class A Shares in the
Merger. Assuming a $10,000 initial investment, 5% total return each year and no
changes in expenses, you would pay after one year $72, after three years $226,
after five years $393, and after ten years $879.
REAL SILK EXPENSES
This table describes the fees and expenses that you may pay if you buy
and hold shares of Real Silk Common Stock.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price) None/1/
Dividend Reinvestment and Cash Purchase Plan Fees None
ANNUAL FUND OPERATING EXPENSES
Management Fees None/2/
Other Expenses
0.78%/3/
Total Operating Expenses 0.78%
1 Real Silk does not offer its shares to the public. If you purchase
Real Silk shares in the over-the-counter market, you may pay a brokerage
commission.
2 Real Silk does not have an external investment adviser and therefore
has no management fees comparable to those of Affiliated Fund. All investment
management and other functions are performed by Real Silk management and other
employees and it its therefore difficult, if not impossible, to segregate the
management fees and other expenses in a manner similar to that shown for
Affiliated Fund
3 Based on estimated amounts for the current fiscal year.
REAL SILK EXPENSE EXAMPLE
This example, like that in other funds' prospectuses, assumes a $10,000
initial investment, including a 5% total return each year and no changes in
expenses. It does not include the costs of the brokerage commission that would
be paid on the purchase of Real Silk shares in the over-the-counter market. You
pay the following expenses over the course of each period shown, although your
actual cost may be higher or lower.
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
$78 $246 $431 $981
This example is for comparison and is not a representation of Real Silk's actual
expenses or returns, either past or present.
WHERE CAN I FIND MORE FINANCIAL INFORMATION ABOUT THE FUNDS?
For Affiliated Fund, per-share income information for the past five
fiscal years is shown immediately below under the heading "Financial
Highlights." Also, the current Semi-Annual Report to Shareholders of Affiliated
Fund, which is attached, includes a discussion of Affiliated Fund's performance
during the six months ended April 30, 1999.
Real Silk's Annual Report and Six Months Report contain more financial
information. These documents are available free of charge upon request (see
"Information about Real Silk").
FINANCIAL HIGHLIGHTS
The following table describes Affiliated Fund's performance for the
fiscal periods indicated. "Total return" shows how much your investment in
Affiliated Fund would have increased (or decreased) during each period, assuming
you had reinvested all dividends and distributions. These Financial Highlights
have been audited by Deloitte & Touche LLP, Affiliated Fund's independent
auditors, in conjunction with their annual audit of Affiliated Fund's financial
statements. Financial statements for the fiscal year ended October 31, 1998 and
the Independent Auditors' Report thereon appear in the Annual Report to
Shareholders for the fiscal year ended October 31, 1998 and are incorporated by
reference into the Statement of Additional Information, which is available upon
request. Certain information reflects financial results for a single fund share.
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<TABLE>
<CAPTION>
- - - ------------------------------ ------------ ---------------------------------------------------------------
Six CLASS A SHARES
Months Year Ended October 31,
ended
April 30,
- - - ------------------------------ ------------ ---------------------------------------------------------------
Per Share Operating 1999 1998 1997 1996 1995 1994
Performance:
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING $14.56 $14.84 $13.02 $11.98 $11.03 $11.26
OF YEAR
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
INCOME FROM INVESTMENT
OPERATIONS
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
Net investment income .10 .24 .30 .30 .32 .31
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
Net realized and 2.67 1.14 2.85 2.23 1.70 .38
unrealized gain on
investments
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
Total from investment 2.77 1.38 3.15 2.53 2.02 .69
operations
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
DISTRIBUTIONS
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
Dividends from net (.12) (.27) (.30) (.30) (.30) (.32)
investment income
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
Distributions from net (.95) (1.39) (1.03) (1.19) (.77) (.60)
realized gain
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
NET ASSET VALUE, END OF YEAR $16.26 $14.56 $14.84 $13.02 $11.98 $11.03
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
TOTAL RETURN (a) 20.11% 10.27% 25.80% 23.23% 20.46% 6.66%
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
RATIOS TO AVERAGE NET ASSETS:
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
Expenses (b) 0.34% 0.63% 0.65% 0.66% 0.63% 0.63%
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
Net investment income 0.69% 1.64% 2.15% 2.61% 2.90% 2.91%
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
- - - ------------------------------ ------------ ---------------------------------------------------------------
Six Months Year Ended October 31,
ended
April 30,
- - - ------------------------------ ------------ ---------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL 1999 1998 1997 1996 1995 1994
CLASSES:
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
NET ASSETS, END OF YEAR (000) $10,023,367 $8,520,603 $7,697,754 $6,100,665 $4,964,525 $4,229,586
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
PORTFOLIO TURNOVER RATE 38.38% 56.49% 46.41% 47.06% 53.84% 51.48%
- - - ------------------------------ ------------ ----------- ------------ ------------- ------------ -----------
</TABLE>
(a) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(b) The ratios for 1998 and 1997 include expenses paid through an expense
offset arrangement.
TRANSFER AGENCY AND CUSTODY SERVICES. DST Systems, Inc. is the transfer
agent for Affiliated Fund. Registrar and Transfer Company is the transfer agent
for Real Silk.
13
<PAGE>
The Bank of New York acts as the custodian of the securities and other
assets of Affiliated Fund. The main office of The Bank of New York is 90
Washington Street, New York, NY 10286. Bank One Trust Company, N.A. is the
custodian of the securities and other assets of Real Silk. The main office of
Bank One Trust Company, N.A. is 100 East Broad Street, Columbus, OH 43271-0152.
DISTRIBUTION SERVICES. Under an underwriting agreement with Affiliated
Fund, Lord Abbett Distributor LLC acts as principal underwriter in a continuous
public offering of Affiliated Fund's shares. Lord Abbett Distributor LLC pays
the expenses of the distribution of Affiliated Fund shares, including
advertising expenses and costs of printing sales materials and prospectuses used
to offer shares to the public.
Real Silk does not offer its shares to the public and has no
underwriter.
RULE 12B-1 PLANS. Class A shares of Affiliated Fund are subject to a
plan of distribution under SEC Rule 12b-1. Under the 12b-1 Plan, Class A shares
currently bear fees for distribution of up to 0.10% annually and fees for
services of up to 0.25% annually. The distribution fees may be used to pay
authorized institutions to finance any activity that is primarily intended to
result in the sale of shares. Lord Abbett Distributor LLC uses its portion of
the distribution fees for activities that are primarily intended to result in
the sale of shares. For example, it uses its portion for activities such as
printing prospectuses, statements of additional information and reports for
other than existing shareholders; preparing and distributing advertising and
sales material; organizing and conducting sales seminars; paying additional
concessions to authorized institutions; and paying the costs necessary to
provide distribution-related services or personnel, travel, office expenses,
equipment and other allocable overhead. The service fees are paid to authorized
institutions for any activity that is primarily intended to result in personal
service and/or the maintenance of shareholder accounts. A portion of the service
fees paid to Lord Abbett Distributor LLC will be used to service and maintain
shareholder accounts.
Real Silk does not have a plan of distribution under SEC Rule 12b-1.
The Agreement and Plan of Merger provides that Real Silk shareholders will be
permitted to designate a broker/dealer licensed with the SEC to receive the Rule
12b-1 service fees related to the Affiliated Fund shares. The broker/dealer must
be a party to a selling agreement with Lord Abbett Distributor LLC. If you want
to designate the recipient of the service fees, please have your broker/dealer
contact Lord Abbett Distributor LLC. There is no additional charge to you
whether or not you designate a broker/dealer to receive the service fees.
PURCHASES AND REDEMPTIONS. The maximum front-end sales charge for Class
A shares of Affiliated Fund is 5.75% with reduced charges for purchases of
$50,000 or more
14
<PAGE>
and no front-end sales charges for purchases of $1 million or more. You will be
permitted to reinvest capital gains distributions and income distributions from
your Affiliated Fund shares in additional shares, without the imposition of a
sales charge. Affiliated Fund requires a minimum initial investment of $250. No
sales charge will be imposed on shares issued in the Merger.
You will be permitted to reinvest capital gains distributions and
income distributions from your Affiliated Fund shares in additional shares,
without the imposition of a sales charge.
Future purchases of Affiliated Fund shares from sources other than the
Merger and the reinvestment of capital gains distributions and income
distributions will be subject to a sales charge determined as stated in the
Affiliated Fund Prospectus. Real Silk shareholders will be entitled to aggregate
the Affiliated Fund shares received in the Merger with any future purchases to
determine the applicable sales charge. The percentage of sales charge imposed
generally decreases as the amount of investment in Affiliated Fund increases.
Please review the Affiliated Fund Prospectus for additional information
concerning sales charges on future purchases.
You may sell (or redeem) your shares at any time, except that
sixty-five percent (65%) of the Affiliated Fund shares received by you in the
Merger will be subject to an escrow agreement. In order to assure that all
shareholders are treated equally, and to assist in the qualification of the
Merger as a "reorganization" (and therefore not be subject to taxation at this
time) you are being asked to vote on a one-year escrow agreement. By voting in
favor of the Merger, you will also be: (i) voting in favor of the escrow
agreement, (ii) agreeing to have sixty-five percent (65%) of the Affiliated Fund
shares that you receive placed in escrow for a period of one (1) year and (iii)
appointing certain officers of Real Silk as your attorney-in-fact for the sole
purpose of executing the Escrow Agreement on behalf of Real Silk stockholders.
The thirty-five percent (35%) of the shares that are not subject to the escrow
may be sold (or redeemed) at any time. However, in order to assure that the
Merger will qualify as a "reorganization" for federal income tax purposes (see
"Information About the Merger -- What are the Tax Consequences of the Merger"),
certain Real Silk shareholders will be asked to sign representation letters that
they have no "plan or intention" to redeem Affiliated Fund shares that they
receive in the Merger.
Peoples Bank & Trust Company, an Indianapolis-based commercial bank,
has agreed to act as the escrow agent. The escrow agent will receive the
Affiliated Fund shares at the closing date and will hold them for a period of
one year from the date the Merger becomes effective. On the one-year anniversary
of the closing date, the escrow agent will mail the shares to you and you may
sell (or redeem) them at any time. Subject to the escrow agreement, shares of
Affiliated Fund also may be exchanged for shares of other Lord Abbett Funds,
subject to certain limitations, as provided in the prospectus of the
15
<PAGE>
respective Lord Abbett Fund. Because it is a sale and a purchase of shares, an
exchange is a taxable transaction.
Shares of Affiliated Fund may be redeemed at their net asset value per
share. However, redemptions of Class A shares of Affiliated Fund that were
purchased in amounts of $1 million or more generally are subject to a contingent
deferred sales charge. Affiliated Fund shares acquired by Real Silk shareholders
as a result of the Merger are not subject to a contingent deferred sales charge.
Additional information and specific instructions explaining how to buy, sell,
and exchange shares of Affiliated Fund are outlined in the current Prospectus
under the heading "Opening Your Account."
Real Silk shares are not redeemable; however, the shares may be sold in
the over-the-counter market. Historically, Real Silk shares have traded at a
discount from net asset value per share. In addition, due to the limited number
of shareholders and various other factors, trading in Real Silk shares has been
very limited.
DIVIDENDS AND DISTRIBUTIONS. Affiliated Fund pays its shareholders
dividends from its net investment income, and distributes any net capital gains
that it has realized. Affiliated Fund expects that its dividends from investment
income will be paid quarterly. If a capital gain distribution is declared, it
will be paid annually. Your distributions will be reinvested in Affiliated Fund
unless you instruct the fund to pay them to you in cash. There are no sales
charges on reinvestments.
The tax status of distributions is the same for all shareholders
regardless of how long they have been in the fund or whether distributions are
reinvested or paid in cash. In general, distributions are taxable as follows:
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------
Federal Taxability Of Distributions
- - - -----------------------------------------------------------------------------------------------------------
Type of distribution Tax rate for taxpayer Tax rate for taxpayer subject to
subject to 15% bracket 28% bracket or above
- - - --------------------------------------- ------------------------------ ------------------------------------
<S> <C> <C>
INCOME DIVIDENDS 15% Ordinary Income Rate
- - - --------------------------------------- ------------------------------ ------------------------------------
SHORT-TERM CAPITAL GAINS 15% Ordinary Income Rate
- - - --------------------------------------- ------------------------------ ------------------------------------
LONG-TERM CAPITAL GAINS 10% 20%
- - - --------------------------------------- ------------------------------ ------------------------------------
</TABLE>
Except in tax-advantaged accounts, any sale or exchange of fund shares
may be a taxable event. The chart above also can provide a "rule of thumb" guide
for your potential U.S. federal income tax liability when selling or exchanging
fund shares. The second row,
16
<PAGE>
"Short-term capital gains," applies to fund shares sold within 12 months of
purchase. The third row, "Long-term capital gains," applies to shares held for
more than 12 months.
Information concerning the tax treatment of dividends and other
distributions will be mailed to Affiliated Fund shareholders each year.
Affiliated Fund will also provide information annually to its shareholders
regarding the source of dividends and distributions of capital gains. Because
everyone's tax situation is unique, you should consult your tax adviser
regarding the treatment of those distributions under the federal, state and
local tax rules that apply to you as well as the tax consequences of gains or
losses from the redemption or exchange of your shares.
Real Silk's policies regarding distributions of income and capital
gains are somewhat different from those of Affiliated Fund. Like Affiliated
Fund, Real Silk has followed the policy of distributing all of its net
investment income, and has made its distributions quarterly, with the year-end
distribution varying in amounts to assure that Real Silk distributed
substantially all of its net investment income and therefore satisfied the
requirements of the Internal Revenue Code in order to be treated as an
investment company. Unlike Affiliated Fund, Real Silk has not distributed
capital gains, but paid the corporate level tax on those gains and declared a
deemed distribution to its shareholders. The shareholders are then entitled to a
tax credit to the extent of the proportional share of the tax paid. This
practice has the general effect of having capital gains distributions reinvested
by Real Silk shareholders and has assisted in the growth of Real Silk.
Real Silk has been an investment company for many years. As part of the
long term planning by Real Silk management, it determined that it was in the
best interests of Real Silk and its shareholders to elect to be treated as a
regulated investment company ("RIC") for federal income tax purposes. That
election permitted Real Silk to use pass-- through taxation and avoid any issues
relating to personal holding company taxation. The election to be treated as a
RIC subjected Real Silk to what is known as "built in gains" tax. The built in
gains tax is a tax on any appreciation in the value of an asset as of the date
of a conversion to a RIC to the extent such gain is realized (i.e. the asset is
sold) within 10 years of the date of the conversion to a RIC. The built in gains
tax is a tax which must be paid on the sale of any assets that were held at the
time of election to be treated as RIC and that are sold within ten years of the
election. The built in gains tax expires ten years after the election to become
a pass through entity.
17
<PAGE>
Real Silk made the election to be treated as a RIC effective January 1,
1989; accordingly, the ten year holding period expired on December 31, 1998.
While the Internal Revenue Service (the "Service") had indicated it would
propose and ultimately adopt regulations to implement the built in gains tax, it
has now been more than twelve years since the Service indicated it would propose
the regulations and none have been proposed.
REASONS FOR THE MERGER
In early 1998, Real Silk announced that it was undertaking a review of
the potential options available for the future of Real Silk and intended to
consider all alternatives. The Real Silk Board of Directors indicated that the
review was precipitated by a variety of reasons, including primarily the
expiration on December 31, 1998 of the built in gains tax, the size of Real
Silk, opportunities that may be available for Real Silk and health problems of
Real Silk=s president.
As a result of the review of alternatives, the Board of Directors
determined that it was in the best interests of shareholders for Real Silk to
enter into a merger that would be tax-free to shareholders.
In addition, Real Silk management has long been concerned with the
limited liquidity which Real Silk shareholders had for their shares. This
concern had also been expressed by certain Real Silk shareholders from time to
time, especially in light of the substantial discount to net asset value at
which Real Silk shares have historically traded. Real Silk management considered
the possibility of converting Real Silk to an open-end investment company.
However, Real Silk's relatively small size, the added cost daily pricing, the
need to initiate continuing sales of additional shares and incur
distribution-related expenses, the anticipated increase in expense ratios, the
probable need to restructure the portfolio to provide liquidity to satisfy
redemptions, and the likely substantial tax effect on shareholders combined to
make that alternative significantly less attractive than a merger. The Merger
will provide Real Silk shareholders with the liquidity of an open-end investment
company, without incurring the increased cost and expenses which would be
incurred if Real Silk were to remain independent and merely convert to an
open-end format.
Real Silk management also considered the possibility of liquidation as
an alternative to the Merger. A comparative analysis of the net after tax
proceeds to Real Silk shareholders of the two alternatives indicated that
shareholders would realize a greater percentage of net asset value per share
under the Merger. In addition, many of the Real Shareholders have held their
shares for years and may not wish to be forced to pay taxes on realized capital
gains, as would be the case with a liquidation. By pursuing the merger, each
18
<PAGE>
Real Silk shareholder will be able to make his or her own decision as to when to
sell his or her investment and thereby incur the tax liability.
The Real Silk Board of Directors also reviewed the investment style and
philosophy of Affiliated Fund and found them to be very similar to those of Real
Silk. The Board reviewed the past investment performance of Affiliated Fund, its
expenses and related costs and determined that they were similar to those of
Real Silk. The Board noted that no sales charge would be imposed on the
Affiliated Fund shares issued to Real Silk shareholders in connection with the
merger and that Real Silk shareholders also would be able to reinvest both
dividend and capital gains distributions from Affiliated Fund at net asset value
per share.
Taking all of those factors into account, the Board of Directors
determined that the merger was in the best interest of the Real Silk
shareholders and was preferable to any of the other options available.
INFORMATION ABOUT THE MERGER
This is only a summary of the Agreement. You should read the actual
Agreement. It is attached as Exhibit A.
HOW WILL THE MERGER BE CARRIED OUT?
If the shareholders of Real Silk approve the Agreement, the Merger will
take place after various conditions are satisfied by Real Silk and Affiliated
Fund, including the delivery of certain documents. Real Silk and Affiliated Fund
will agree on a specific date for the actual Merger to take place. This is
called the closing date. If the shareholders of Real Silk do not approve the
Agreement, the Merger will not take place.
If shareholders of Real Silk do approve the Agreement on [insert date],
after the close of business on the closing date, transfers of shares of Real
Silk will no longer be allowed.
To the extent permitted by law, Real Silk and Affiliated Fund may agree
to amend the Agreement without shareholder approval. They may also agree to
terminate and abandon the Merger any time before or, to the extent permitted by
law, after the approval of Real Silk shareholders.
19
<PAGE>
Before the Merger, Real Silk will sell a sufficient amount of its
portfolio securities to realize approximately $20 million in long-term capital
gains.
WHO WILL PAY THE EXPENSES OF THE MERGER?
Affiliated Fund and Real Silk each will pay its own expenses in
connection with the Merger, except that Real Silk is paying a portion of certain
filing fees incurred by Affiliated Fund. Real Silk's expenses include fees of up
to $1,000,000 that it will pay its investment banker, U.S. Bancorp Piper Jaffray
Inc. In addition, if the Agreement is terminated by Real Silk for certain
reasons, Real Silk will pay Affiliated Fund's expenses, including legal fees, up
to $100,000.
WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
The following is a discussion of the material federal income tax
consequences of the Merger under existing federal income tax law, which is
subject to change, possibly retroactively. This discussion assumes that Real
Silk shareholders hold their shares as a capital asset as of the effective date
of the Merger. This discussion does not discuss all aspects of federal income
taxation that may be relevant to particular Real Silk shareholders in light of
their personal circumstances, such as Real Silk shareholders whose stock was
acquired pursuant to the exercise of an employee stock option or otherwise as
compensation or Real Silk shareholders who are subject to special treatment
under the federal income tax laws (for example, financial institutions,
insurance companies, tax-exempt organizations, broker-dealers and foreign
persons). This discussion also does not address any aspects of state, local or
foreign tax law. No rulings have been or will be sought from the Internal
Revenue Service with respect to any tax matters relating to the Merger. EACH
REAL SILK SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISORS AS TO
THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE
MERGER.
The obligation of Real Silk to consummate the Merger is conditioned
upon the receipt by Real Silk of an opinion from the law firm of Ropes & Gray
substantially to the effect that, on the basis of certain facts, representations
by management of the companies and assumptions set forth in such opinions, the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and Real Silk shareholders who
receive solely Class A Shares of Affiliated Fund pursuant to the Merger will not
recognize gain or loss for federal income tax purposes as a result of the
consummation of the Merger. The obligation of Affiliated Fund to consummate the
Merger is conditioned upon a number of events, including the receipt by
Affiliated Fund of an opinion from the law firm of Debevoise & Plimpton
substantially to the effect that, on the same basis as described above, the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code.
20
<PAGE>
Assuming that the Merger does qualify for such treatment, the federal
income tax consequences to Real Silk shareholders will be as follows:
(i) In connection with Real Silk's sale of portfolio securities in
anticipation of the Merger (see "How Will the Merger Be Carried
Out?"), all Real Silk shareholders will (a) be deemed to have
received a distribution from Real Silk in an amount equal to
their pro rata share of the resulting realized long-term capital
gains, which amount will be includible in income by Real Silk
shareholders as long-term capital gains, (b) receive a tax credit
equal to their pro rata share of the tax paid by Real Silk on
such gains (which tax will be computed at the highest corporate
rate) and (c) increase their tax basis in their Real Silk shares
by the excess of the amount of the deemed distribution described
in clause (a) over the amount of the tax credit described in
clause (b). Each Real Silk shareholder will receive an IRS
information report indicating the shareholder's share of the
amount deemed distributed as capital gains and of the tax
credited. Those reports will also be provided to the IRS as
required by law.
(ii) A Real Silk shareholder who receives solely Class A Shares of
Affiliated Fund in exchange for Real Silk shares will not
recognize gain or loss upon such exchange. Accordingly, (a) the
aggregate tax basis of the Class A Shares of Affiliated Fund
received by the Real Silk shareholder will be the same as the
aggregate tax basis of the Real Silk shares surrendered in
exchange therefor pursuant to the Merger and (b) the holding
period of the Class A Shares of Affiliated Fund will include the
holding period of the Real Silk shares surrendered in exchange
therefor pursuant to the Merger.
(iii) A Real Silk shareholder who exercises dissenters' rights under
the Indiana Business Corporations Law (see "Voting Information --
Are There Dissenters' Rights?") and receives cash in exchange for
his or her Real Silk shares will recognize capital gains or loss
in an amount equal to the difference between the amount of cash
received and the aggregate tax basis of the Real Silk shares
surrendered. Gain or loss must be calculated separately for each
block of Real Silk shares held by a Real Silk shareholder.
EACH REAL SILK SHAREHOLDER IS STRONGLY ADVISED TO CONSULT HIS OR HER
OWN TAX ADVISOR AS TO PARTICULAR FACTS AND CIRCUMSTANCES THAT MAY BE UNIQUE TO
SUCH SHAREHOLDER AND ALSO AS TO ANY ESTATE, GIFT, STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES ARISING OUT OF THE MERGER.
21
<PAGE>
WHAT SHOULD I KNOW ABOUT THE SHARES OF AFFILIATED FUND AND REAL SILK?
Class A shares of Affiliated Fund will be distributed to Real Silk
shareholders. Each share will be fully paid and nonassessable when issued with
no personal liability attaching to the ownership thereof, will have no
preemptive or conversion rights and will be transferable upon the books of
Affiliated Fund, subject to the escrow agreement.
Affiliated Fund does not routinely hold annual meetings of
shareholders.
Real Silk has one class of shares. Real Silk shares have no preemptive
or conversion rights and are transferable on the books of Real Silk without
restriction.
Real Silk routinely holds annual meetings of shareholders, but does not
normally solicit proxies from its shareholders. Real Silk normally provides each
shareholder of record a notice of annual meeting and an information statement
required by the Securities Exchange Act of 1934 and the Investment Company Act
of 1940.
Real Silk shares are traded over-the-counter, although the shares have
historically traded at a significant discount to their net asset value.
It is not expected that Affiliated Fund's capitalization will be
materially affected by the Merger.
AFFILIATED FUND CLASS A CAPITALIZATION AS OF AUGUST 31, 1999 AND AFTER THE
MERGER.
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------------------------
AFFILIATED FUND REAL SILK AFFILIATED FUND
CLASS A (unaudited) (unaudited) CLASS A AFTER
ACQUISITION
(pro-forma-unaudited)
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Assets $9,167,872,872 $146,840,492 $9,314,713,364
- - - ----------------------------------------------------------------------------------------------------------------
Net Asset Value per Share $15.92 $891.66 $15.92
- - - ----------------------------------------------------------------------------------------------------------------
Shares outstanding 575,755,084 164,683 584,978,733
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
COMPARISON OF INVESTMENT GOALS AND POLICIES
This section describes key investment policies of Affiliated Fund and
Real Silk. For a complete description of Affiliated Fund's investment policies
and risks, you should read the Affiliated Fund Prospectus, which is attached to
this Prospectus/Proxy Statement as Exhibit B.
Affiliated Fund's investment objective is long-term growth of capital
and income without excessive fluctuations in market value. Typically, in
choosing stocks, the fund looks for companies using a three-step process.
o Quantitative research is performed on a universe of large, seasoned
U.S. and multinational companies to identify those whose stocks appear
to represent the best bargains.
o Fundamental research is conducted to assess a company's operating
environment, resources and strategic plans and to determine its
prospects for exceeding the earnings expectations reflected in its
stock price.
o Business cycle analysis is used to assess the economic and
interest-rate sensitivity of our portfolio. This analysis helps assess
how adding or deleting stocks changes the portfolio's overall
sensitivity to economic activity and interest rates.
Affiliated Fund believes that investors purchase and redeem its shares
to meet long-term financial objectives rather than to try to take advantage of
short-term price fluctuations. If so, their needs are best served by an
investment seeking capital appreciation with less fluctuations in market value
than the Standard & Poor's Composite Index of 500 stocks. For this reason, Lord
Abbett tries to keep Affiliated Fund's assets invested in securities that are
selling at reasonable prices and, therefore, is willing to forego some
opportunities for gains when, in its judgment, they are too risky.
Affiliated Fund generally sells a stock when it appears to no longer be
a bargain, appears less likely to benefit from the current market and economic
environment, shows deteriorating fundamentals or falls short of expectations.
While typically fully invested, at times Affiliated Fund may take a
temporary defensive position by investing some of its assets in short-term debt
securities. This could have the effect of reducing the benefit from any upswing
in the market and prevent the fund from realizing its investment objective.
23
<PAGE>
Affiliated Fund also uses some investment techniques that are not used
by Real Silk, such as investing in foreign securities, high yield securities,
and illiquid securities, and lending of portfolio securities. These techniques
involve certain risks that are discussed below.
Real Silk's investment goal is long-term growth of capital through
investment in value-oriented equity securities. From January 1, 1989 through
December 31, 1998, Real Silk's investment goals and portfolio management were
influenced by the built in gains tax that would have been applicable to
any long-term capital gains realized by Real Silk as a result of the sale of any
portfolio securities that it held on January 1, 1989, the first date on which
Real Silk qualified as a regulated investment company. The tax is limited to
the lesser of the gain as realized or the gain at the time of conversion to a
regulated investment company.
Real Silk has generally followed the practice of using fundamental
research to identify small, medium and large capitalization U.S. and
multinational corporations that are substantially undervalued by the market.
Real Silk's investment philosophy can best be described as "buying the
business." That is, "Would we want to own this company?" Primary factors
considered are: (1) Is the company in an industry that is growing? (2) Does the
company have a niche position in that industry? and (3) Are there significant
barriers to entry into the industry? In addition, Real Silk evaluates the
financial soundness of the company and the quality of its management before
making any investment decision.
Real Silk has then acquired those stocks that it believed represented
the greatest value with the best opportunity for long-term appreciation.
Finally, Real Silk has generally followed the practice of purchasing securities
and holding them for an extended period.
Since Real Silk generally believes its shareholders are interested in
long-term growth of capital, with only a secondary interest in current income,
it has concentrated its portfolio investments in equity securities, with a much
smaller position in debt instruments.
In addition, closed-end investment companies such as Real Silk
generally have greater freedom in managing their portfolios than do open-end
funds like Affiliated Fund. Because closed-end investment companies are not
subject to forced sales of portfolio securities at undesirable times or prices
to meet redemption requests, they have more freedom to invest in illiquid
securities and may keep a larger percentage of their assets fully invested in
equity or debt securities, rather than in cash. In addition, closed-end
investment companies have greater flexibility to leverage their portfolios by
borrowing.
24
<PAGE>
Despite having greater flexibility in portfolio management, Real Silk
generally has not invested in illiquid securities or engaged in leveraging.
Finally, Real Silk has no policy limiting the kind or form of security
in which it invests or the proportion of assets which may be invested in any
type or classification of security. Nevertheless, Real Silk generally has
followed the investment practices described above.
WHAT ARE THE RISK FACTORS ASSOCIATED WITH INVESTMENTS IN THE FUNDS?
While stocks have historically been a leading choice of long-term
investors, they fluctuate in price. The value of your investment in Affiliated
Fund will go up and down, which means that you could lose money.
Affiliated Fund's performance may sometimes be lower or higher than
that of other types of funds (such as those emphasizing small-company stocks or
growth stocks) because different types of stocks tend to shift in and out of
favor depending on market and economic conditions. While there is the risk that
an investment may never reach what Affiliated Fund thinks is its full value, or
may go down in value, Affiliated Fund's emphasis on large seasoned company
bargain stocks could limit its downside risk because bargain stocks in theory
are already underpriced and large seasoned company stocks tend to be less
volatile than small company stocks. In the long run, Affiliated Fund may produce
more modest gains than riskier stock funds as a trade-off for this potentially
lower risk.
Also, Affiliated Fund engages in certain investment techniques, which
may involve additional risks, including investing in foreign securities,
illiquid securities and high yield debt securities and lending its securities to
broker-dealers.
Foreign securities are not subject to the same degree of regulation and
may be more volatile and less liquid than securities traded in major U.S.
markets. Foreign portfolio securities may trade on days when Affiliated Fund
does not value them. Fund share prices could be affected on days an investor
cannot purchase or sell shares. Other risks include less information on public
companies, banks and governments; political and social instability;
expropriations; higher transaction costs; currency fluctuations; nondeductable
withholding taxes and different accounting and settlement practices Affiliated
Fund will not invest more than 10% of its net assets measured at the time of
investment in foreign securities.
Illiquid securities are securities not traded on the open market.
Certain securities may be difficult or impossible to sell at the time and price
Affiliated Fund would like. Affiliate Fund may invest up to 15% of its assets in
illiquid securities. Securities determined
25
<PAGE>
by the Board of Directors of Affiliated Fund to be liquid are not subject to
this limitation, such as those purchased under Securities and Exchange
Commission Rule 144A.
High yield debt securities or "junk bonds" are rated BB/Ba or lower and
typically pay a higher yield than investment grade debt securities. These bonds
have a higher risk of default than investment grade bonds and their prices can
be much more volatile. Affiliated Fund will not invest more than 5% of its
assets measured at the time of investment in high yield debt securities.
Affiliated Fund may lend securities to broker-dealers and financial
institutions, as a means of earning income. This practice could result in a loss
or delay in recovering Affiliated Fund's securities, if the borrower defaults.
Affiliated Fund will limit its securities loans to 30% of its total assets.
An investment in Affiliated Fund is not a bank deposit. It is not
FDIC-insured or government-endorsed. It is not a complete investment program.
You could lose money in this fund, but you also have the potential to make
money.
In addition to the risks described for Affiliated Fund, an investment
in Real Silk is also subject to a risk of lack of liquidity and variation in the
amount of discount between the market price per share for Real Silk shares and
the net asset value per share.
Real Silk shares are traded in the over-the-counter market. There has
historically been very limited trading in Real Silk shares. While market makers
normally offer to purchase Real Silk shares at a specific price, that bid
generally is only good for 100 shares. Therefore, if a shareholder desired to
liquidate his or her investment in Real Silk, it would be difficult, if not
impossible, to liquidate a substantial position in a relatively short time
without a substantial discount from even the quoted market price.
Like many closed-end funds, Real Silk shares have historically traded
at a substantial discount from Real Silk=s net asset value per share. By way of
example, Real Silk recently had a net asset value per share of approximately
$957 and the bid price received from the market makers was only $650. In
addition, one market maker had suspended its bid pending outcome of the Merger
that you are being asked to consider.
26
<PAGE>
VOTING INFORMATION
WHO IS ENTITLED TO VOTE?
Shareholders as of the close of business on _____________, 1999 (the
"Record Date"), are entitled to vote at the Special Meeting. Each shareholder is
entitled to one vote for each share of Real Silk Common Stock held on the Record
Date. A total of 164,683 shares were issued and outstanding as of the Record
Date.
HOW MANY VOTES ARE NECESSARY TO APPROVE THE AGREEMENT?
The affirmative vote of a majority of outstanding Real Silk shares
entitled to vote as of the Record Date is required to approve the Agreement and
the Merger. Abstentions and broker non-votes will have the same effect as a vote
against the Agreement and Merger.
A quorum is necessary for the transaction of business at the Special
Meeting. A majority of the outstanding shares, present or represented by proxy,
will constitute a quorum. Properly executed and returned proxies, regardless of
the vote indicated, will be considered to be present for the purpose of
determining the existence of a quorum.
Daniel R. Efroymson, the President of Real Silk, Mary Ann Stein, a
Director of Real Silk and Mr. Efroymson's sister, other members of their
families, and the Moriah Fund, Inc., for which Ms. Stein serves as President,
own in the aggregate 141,706 shares, representing approximately 86.05% of the
outstanding shares. Each of these shareholders is expected to vote in favor of
the Agreement and the Merger.
HOW DO I ENSURE THAT MY VOTE IS ACCURATELY RECORDED?
Sign and date the enclosed proxy and return it in the prepaid envelope.
If you return your signed proxy but do not indicate how you wish to vote, your
shares will be voted FOR the Agreement and the Merger.
CAN I REVOKE MY PROXY?
You have the right to revoke your proxy at any time before the meeting
by (1) submitting a written notice of revocation to the Real Silk President or
Secretary or (2) submitting a later-dated proxy. You also may revoke your proxy
by voting in person at the Special Meeting.
27
<PAGE>
ARE THERE DISSENTERS' RIGHTS?
Real Silk shareholders have dissenters' rights pursuant to Chapter 44
of the Indiana Business Corporation Law. Chapter 44 provides that Real Silk
shareholders have the right to demand payment in cash for the fair value of
their shares immediately before the effectiveness of the Merger, excluding any
appreciation or depreciation in value in anticipation of the Merger unless a
court determines that such exclusion would be inequitable. To claim this right,
a Real Silk shareholder must:
(1) before the vote is taken, deliver to Real Silk written notice of the
shareholder's intent to demand payment for the shares if the Merger is
effectuated, and
(2) not vote in favor of the Merger in person or by proxy at the Real Silk
Special Meeting.
If the Merger is approved by the Real Silk shareholders, Real Silk will
send a notice of dissenters' rights to those Real Silk shareholders satisfying
the above conditions. The notice will be sent within ten days after shareholder
approval of the Agreement and Merger and will be accompanied by a copy of
Chapter 44. The notice will state the procedures any dissenting Real Silk
shareholders must follow to perfect the exercise of their dissenters' rights in
accordance with Chapter 44.
THE RIGHT OF A REAL SILK SHAREHOLDER TO DISSENTERS' RIGHTS IS
CONTINGENT UPON THE SHAREHOLDER'S STRICT COMPLIANCE WITH THE REQUIREMENTS OF
CHAPTER 44. TO PERFECT DISSENTERS' RIGHTS, A REAL SILK SHAREHOLDER MUST DELIVER
A WRITTEN DEMAND FOR PAYMENT IN ACCORDANCE WITH THE REQUIREMENTS OF CHAPTER 44
AND MUST NOT VOTE IN FAVOR OF THE MERGER.
Real Silk shareholders who execute and return the enclosed proxy but do
not indicate how they are voting on the Agreement and Merger will be deemed to
have voted in favor of the Agreement and Merger and, accordingly, to have waived
their dissenters' rights, unless they revoke the proxy before its being voted.
Upon consummation of the Merger, Real Silk will pay any dissenting Real
Silk shareholder who has complied with all requirements of Chapter 44 Real
Silk's estimate of the fair value of the shares immediately before the Merger,
excluding any appreciation in value in anticipation of the Merger. Management
believes that the fact that Real Silk shares traditionally have traded at a
substantial discount to net asset value is likely to be considered in
determining its estimate of fair value of shares held by any dissenting
shareholders. For a discussion of the federal income tax consequences for
dissenting Real Silk shareholders, see "Information About the Merger -- What Are
the Tax Consequences of the Merger?"
28
<PAGE>
Dissenting shareholders can object to the fair value established by
Real Silk by stating their estimate of the fair value and demanding payment of
the additional amount claimed as the fair value within 30 days after Real Silk
makes or offers payments for the dissenters' shares. Real Silk can elect to
agree to the dissenters' fair value demand or can commence an action in the
Circuit or Superior Court of Marion County, Indiana, within 60 days after
receiving the demand for payment for a judicial determination of the fair value.
The Court can appoint appraisers to determine the fair value. The costs of the
proceeding, including compensation and expenses of the appraisers, counsel for
the parties, and experts, will be assessed against all parties to the action in
such amounts as the Court finds equitable. Each dissenter made a party to the
action will be entitled to receive the amount, if any, by which the Court finds
the fair value of the dissenters' shares, plus interest, exceeds the amount
previously paid by Real Silk to the dissenters.
WHAT OTHER SOLICITATIONS WILL BE MADE?
It is anticipated that solicitations of proxies will be made primarily
by mail, but officers of Real Silk also may solicit proxies by telephone or
personal interview.
WHAT OTHER MATTERS WILL BE VOTED UPON AT THE MEETING?
Approval of the Agreement and the Merger are the only items currently
scheduled to be voted upon at the Special Meeting. Real Silk does not anticipate
any other items being submitted to a shareholder vote at the meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
There are issued and outstanding 164,683 shares of $5 Par Value Common
Stock, the only class of voting securities of Real Silk.
29
<PAGE>
The following table sets forth certain information with regard to
persons known to the management of Real Silk to have beneficial ownership of
more than 5% of Real Silk=s stock:
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent
Title of of Beneficial of Beneficial of
Class Owner Ownership Class (1)
- - - ----- ----- --------- ----------
<S> <C> <C> <C>
$5 Par Value Daniel R. Efroymson 36,530 (2) 22.2
Common Indianapolis, Indiana
$5 Par Value Mary Ann Stein 95,129 (3) 57.8
Common Moriah Fund, Inc.
Washington, D.C.
$5 Par Value Bank One Corporation 48,862 (4) 29.6
Common Chicago, Illinois
$5 Par Value The Northern Trust Corporation 25,645 (5) 15.5
Common Chicago, Illinois
</TABLE>
Note (1): Some of the shares reported in footnotes 2, 3, 4 and 5
are held in accounts of which more than one reporting person
has beneficial ownership. These shares are reported as
beneficially owned by each such reporting person under the
"shared" categories resulting in the total shares reported in
those categories exceeding the actual number of shares
involved.
Note (2): Management is advised that Daniel R. Efroymson has sole
dispositive and voting power with respect to 5,233 shares and
shared voting and dispositive power with respect to 31,297
shares, according to a Schedule 13-G dated February 16, 1999.
Note (3): Management is advised that Moriah Fund, Inc. and Mary Ann
Stein exercise sole voting power with respect to 77,000 shares
and 6,905 shares, respectively; Moriah Fund, Inc. and Mary Ann
Stein exercise sole dispositive power with respect to 51,333
shares and 6,905 shares, respectively; and that Mary Ann Stein
exercises shared voting and dispositive power with respect to
11,224 shares, according to a Schedule 13-G dated February 16,
1999.
Note (4): Management is advised that Bank One Corporation exercises
sole voting and dispositive power with respect to 7,188 shares
and shared voting and dispositive power with respect to 41,674
shares, according to a Schedule 13-G dated February 1, 1999.
Note (5): Management is advised that The Northern Trust Corporation
exercises shared voting and dispositive power with respect to
25,645 shares, according to a Schedule 13-G dated July 6,
1999.
30
<PAGE>
The following table sets forth certain information as of April 6, 1998,
with respect to the beneficial ownership of the outstanding common stock of Real
Silk Investments, Incorporated, by persons named therein who are Directors, and
by all Directors and Executive Officers as a group as reported by each person.
<TABLE>
<CAPTION>
Percent
Title of Name of Amount and Nature of
Class Beneficial Owner of Beneficial Ownership Class
- - - ----- ---------------- ----------------------- -----
$5 Par Value
<S> <C> <C> <C>
Common Stock Daniel R. Efroymson 36,530 (1) 22.2
Loralei M. Efroymson 5,068 3.l
Herbert D. Falender l,488 .9
Mary Ann Stein 6,905 4.2
Norman C. Kleifgen, Jr. - -
Terry W. Bowmaster - -
Samuel L. Odle - -
Jeremy D. Efroymson 1,715 1.0
Gideon J. Stein 1,440 .9
Directors and Executive Officers
as a Group (13 in number) 55,973 34.0
</TABLE>
Note (1): The 36,530 shares reported by Daniel R. Efroymson
includes 5,068 shares owned by his spouse, Loralei M.
Efroymson, and 1,715 shares owned by his adult son, Jeremy D.
Efroymson. Of the 36,530 shares reported, Daniel R. Efroymson
has sole voting and investment power with respect to 5,233
shares and shared voting and investment power with respect to
31,297 shares.
The following table sets forth certain information as to persons known
to the management of Affiliated Fund to have beneficial ownership or ownership
of record of more than five percent of Affiliated Fund's common stock as of
August 17, 1999.
Class A: Edward Jones & Co. - 13.96%
201 Progress Pkwy
Maryland Hts, MO 63043
The amount of shares of Affiliated Fund owned by its officers and
directors, as a group, is less than one percent of the common shares.
INFORMATION ABOUT AFFILIATED FUND
Information about Affiliated Fund is included in the Affiliated Fund
Prospectus, which is attached to and considered a part of this Prospectus/Proxy
Statement. Additional information about Affiliated Fund is included in its
Statement of Additional Information, which has been filed with the SEC and is
incorporated by reference into the Statement of Additional Information relating
to this Prospectus/Proxy Statement. You may request a free copy of Affiliated
Fund's Statement of Additional Information by
31
<PAGE>
calling 800-426-1130 or by writing to Affiliated Fund at 767 Fifth Avenue, New
York, NY 10153. Affiliated Fund's Semi-Annual Report to Shareholders for the six
months ended April 30, 1999 is attached to and considered a part of this
Prospectus/Proxy Statement.
Affiliated Fund files proxy materials, reports and other information
with the SEC in accordance with the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940. These materials can
be inspected and copied at the SEC's Public Reference Room at 450 Fifth Street,
NW, Washington, DC 20549, and at the Regional Offices of the SEC located in New
York City at 7 World Trade Center, Suite 1300, New York, NY 10048 and in Chicago
at 500 West Madison Street, Suite 1400, Chicago, IL 60661. Also, copies of such
material can be obtained from the SEC's Public Reference Section, Washington, DC
20549-6009, at prescribed rates, or from the SEC's Internet site at
http://www.sec.gov.
INFORMATION ABOUT REAL SILK
Real Silk was incorporated under the laws of the state of Illinois in
1923 under the name Real Silk Hosiery Mills, Incorporated. For several years it
was generally engaged in the business of manufacture and sale of silk hosiery.
Following the invention of nylon, the nature of Real Silk's business changed and
a substantial portion of its assets were sold. In 1968 Real Silk Hosiery Mills
Incorporated was redomesticated as an Indiana corporation through a merger into
an Indiana corporation with the same name. In December 1968, Real Silk Hosiery
Mills Incorporated registered with the Commission as an investment company under
the 1940 Act. In 1989, Real Silk elected to be treated as a regulated investment
company under the Internal Revenue Code and subsequently amended its Articles of
Incorporation to change its name to the present Real Silk Investments,
Incorporated.
Additional information about Real Silk is included in its Annual Report
to Shareholders dated January 22, 1999 and the Six Months Report to shareholders
dated August __, 1999. These reports have been filed with the SEC. You may
request free copies of these reports and other information relating to Real Silk
by writing to Real Silk at 445 N. Pennsylvania Street, Suite 500, Indianapolis,
IN 46204. Reports and other information filed by Real Silk can be inspected and
copied at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington,
DC 20549, and at the Regional Offices of the SEC located in New York City at 7
World Trade Center, Suite 1300, New York, NY 10048 and in Chicago at 500 West
Madison Street, Suite 1400, Chicago, IL 60661. Also, copies of such material can
be obtained from the SEC's Public Reference Section, Washington, DC 20549-6009,
at prescribed rates, or from the SEC's Internet site at http://www.sec.gov.
32
<PAGE>
EXHIBITS TO PROSPECTUS/PROXY STATEMENT
Exhibit
A Form of Agreement and Plan of Merger between Real Silk
Investments, Incorporated and Lord Abbett Affiliated Fund,
Inc.
B Prospectus of Lord Abbett Affiliated Fund, Inc. dated March
1, 1999.
C Semi-Annual Report to Shareholders of Lord Abbett Affiliated
Fund, Inc. dated April 30, 1999.
33
<PAGE>
LORD ABBETT AFFILIATED FUND, INC.
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
October __, 1999
This Statement of Additional Information contains material that may be of
interest to investors but that is not included in the Prospectus/Proxy Statement
(the "Prospectus/Proxy Statement") of Lord Abbett Affiliated Fund, Inc.
("Affiliated Fund") dated October __, 1999 relating to the merger of Real Silk
Investments, Inc. ("Real Silk") into Affiliated Fund. Affiliated Fund's
Statement of Additional Information dated March 1, 1999 has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. This
Statement is not a Prospectus/Proxy Statement and is authorized for distribution
only when it accompanies or follows delivery of the Prospectus/Proxy Statement.
This Statement should be read in conjunction with the Prospectus/Proxy
Statement. Investors may obtain a free copy of the Prospectus/Proxy Statement or
Affiliated Fund's Statement of Additional Information by writing Affiliated
Fund, 767 Fifth Avenue, New York, NY 10153 or by calling 800-426-1130.
Independent Accountants and Financial Statements
Deloitte & Touche LLP are the independent accountants for the Affiliated Fund,
providing audit services in connection with the review of various Securities and
Exchange Commission filings for the Affiliated Fund. KPMG LLP are the
independent accountants for Real Silk, providing audit services in connection
with the review of various Securities and Exchange Commission filings for Real
Silk. The following documents are incorporated by reference into this Statement
of Additional Information: (1) the Report of Independent Accountants and
financial statements included in the Affiliated Fund's Semi-Annual Report for
six months ended April 30, 1999 filed electronically on July 12, 1999 (File No.
811-3), and (ii) the Report of Independent Accountants and financial statements
included in Real Silk's Annual Report for the fiscal year ended December 31,
1998, filed electronically on January 22, 1999 (File No. 811-01788). The audited
financial statements for the Affiliated Fund incorporated by reference into the
Prospectus/Proxy Statement and this Statement of Additional Information have
been so included and incorporated in reliance upon the reports of Deloitte &
Touche LLP, given on their authority as experts in auditing and accounting. The
audited financial statements for Real Silk incorporated by reference into the
Prospectus/Proxy Statement and this Statement of Additional Information have
been so included and incorporated in reliance upon the reports of KPMG LLP given
on their authority as experts in auditing and accounting.
Table of Contents
Page
----
Independent Accountants and Financial Statements 1
General Information and History 2
<PAGE>
Investment Objective and Policies. 2
Management 3
Investment Advisory and Other Services 6
Brokerage Allocation and other Practices 6
Tax Status 7
General Information and History
Real Silk has been an investment company registered with the SEC and
has engaged in no other business activities in the last five years. Real Silk
has not changed its name in the last five years.
Investment Objective and Policies
The investment objectives and policies of Real Silk are discussed in
the Prospectus/Proxy Statement under the section entitled "Comparison of
Investment Goals and Policies." The fundamental investment policies of Real Silk
are very general and provide a great deal of latitude to management in making
investment decisions. Real Silk's policies do not restrict its ability to issue
senior securities; make short sales, purchases on margin, and write put and call
options; borrow money; underwrite securities of other issuers; concentrate its
investments in a particular industry or group of industries; buy or sell real
estate and real estate mortgage loans; buy or sell commodities or commodities
contracts, including futures contracts; or make loans. Nevertheless, Real Silk
has limited its investments in the manner discussed in the section of the
Prospectus/Proxy Statement entitled "Comparison of Investment Goals and
Policies." Real Silk does have an available line of credit upon which it can
draw if a cash short fall should ever occur. Real Silk does not use the line of
credit for investment purposes and has not drawn against the line in ____ years.
<PAGE>
Management
The following table sets forth the name, age, position with Real Silk
and principal occupation during the most recent five years for each of the
members of the Board of Directors and the executive officers of Real Silk.
Robert L. Beal, 57, Director since 1998
Partner, The Beal Companies, LLP, a real estate developer and appraiser
(1976 to present).
Terry W. Bowmaster, 53, Director since 1993
Controller, Yavapay College, Prescott, Arizona (1998 to present);
Independent investor (1997 to 1998); Managing Associate, Oxford Financial
Advisors Corporation (1997); Senior Vice President for Finance and
Administration, Butler University (1992 to 1997).
William A. Carter, 67, Director since 1998
Self-employed business consultant (1991 to present); Retired Partner of
Ernst & Young.
Daniel R. Efroymson*, 57, Director since 1983
President and Treasurer of Company (1989 to present); First Vice President
of Moriah Fund, Inc. (1993 to 1998); Vice President of Moriah Fund, Inc.
(1986 to 1993); Secretary and Treasurer of Moriah Fund, Inc. (1985 to
1998); Managing partner, SEE Investors; Director of Lincoln National
Corporation; and Director of NBD Bank, N.A. Indiana and its predecessor,
Indiana National Bank (1985 to 1998).
Loralei M. Efroymson*, 57, Director since 1989
Vice President of Company (1989 to present); Second Vice President of
Moriah Fund, Inc. (1993 to 1998); Assistant Vice President of Moriah Fund,
Inc. (1989 to 1993); Partner, SEE Investors.
Herbert D. Falender*, 83, Director since 1969
Retired, President of Falender Iron & Metal Corporation.
Peter Z. Grossman, Ph.D., 51, Director since 1998
Clarence Efroymson Chair and Associate Professor of Economics, Butler
University (1994 to present); Visiting Assistant Professor of Economics,
Washington University, St. Louis, Missouri (1993 to 1994).
Norman C. Kleifgen, Jr., 62, Director since 1987
Senior Vice President Indiana Capital Management (1999 to Present); First
Vice president, NBD Bank, N.A. (1994 to 1999); First Vice President and
Trust Officer of NBD Bank, N.A.
<PAGE>
(1994); Vice president and Trust Officer of NBD Bank, N.A. and its
predecessor, Indiana National Bank (1982 to 1994);.
Samuel J. Odle, 50, Director since 1995
Chief Operating Officer - Clinical Services - Clarian Health Partners, Inc.
(1997 to present); Senior Vice President/Chief Operating Officer -
Methodist/IU/Riley Hospitals (1996 to 1997); Chief Operating Officer -
Clinical Services, Methodist Hospital of Indiana, Inc. (1994 to 1996);
Senior Vice President, Hospital Operations, Methodist Hospital of Indiana,
Inc. (1986 to 1994).
Eli J. Segal, 56, Director since 1998
President and Chief Executive Officer, The Welfare to Work Partnership
(1997 to present); Director of Federal National Mortgage Association;
Director of Tower Air; Assistant to the President of the United States
(1993 to 1996); Director and Chief Executive Officer, Corporation for
National Service (1993 to 19954); Chief Financial Officer of Presidential
Transition (1992); Chief of Staff, Clinton for President (1992); President,
B & P Publishing Co. (1991 to 1993); President, Bits & Pieces, Inc. (1984
to 1993).
Gideon J. Stein*, 22, Director since 1998
Partner, Monkey Rock Interactive, LLC (1997 to present); Executive Vice
President, Movie Magazine, LLC (1997 to present); Partner, I.F. Holdings,
LLC (1997 to present); Chief Executive Officer and Partner, Axxis Magazine,
Inc. (1994 to 1997).
Mary Ann Stein*, 54, Director since 1994
President of Moriah Fund, Inc. (1989 to present).
The following are Executive Officers of Real Silk:
Daniel R. Efroymson*
President, Treasurer and Director
Loralei M. Efroymson*
Vice President and Director
Jeremy D. Efroymson*, 38
Vice President of Company (1997 to present); Attorney, Arthur and
Efroymson, Attorneys at Law (1997 to present); President and Secretary,
Blue Diamond Computers, Inc. (1997); Law Clerk, Ortiz and Associates
(1996); Law Clerk, William A. Karnezis and Associates (1994 to 1995);
Associate, Prudential Insurance (1995).
<PAGE>
- - - ---------------------
* Daniel R. Efroymson, Loralei M. Efroymson, Mary Ann Stein, Gideon J. Stein,
and Jeremy D. Efroymson are "interested persons" because they are
directors, officers or family members of directors or officers of Real
Silk, and Mary Ann Stein is also the president and a director of, Moriah
Fund, Inc., which holds more than 5% of the outstanding shares of the
Company.
Loralei M. Efroymson is the spouse of Daniel R. Efroymson. Mary Ann Stein
is the sister of Daniel R. Efroymson. Herbert D. Falender is the uncle of
Daniel R. Efroymson and Mary Ann Stein. Gideon J. Stein is the son of Mary
Ann Stein, the nephew of Daniel R. Efroymson and Loralei M. Efroymson, and
the cousin of Jeremy D. Efroymson. Jeremy D. Efroymson is the son of Daniel
Efroymson and Loralei M. Efroymson, the nephew of Mary Ann Stein, and the
cousin of Gideon J. Stein.
The following table sets forth the compensation for each of the
directors of Real Silk and for each executive officer of Real Silk with
compensation in excess of $60,000 for the year ended December 31, 1998.
<TABLE>
<CAPTION>
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Name of Person Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Benefits Compensation
from Benefits Accrued Upon Retirement From
Real Silk as Part of Fund (3) Real Silk
Expenses (2)
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Robert L Beal
Director $1,400 N/A N/A $1,400
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Terry W. Bowmaster
Director $3,700 N/A N/A $3,700
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
William A. Carter
Director $2,300 N/A N/A $2,300
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Daniel R. Efroymson (4)
President, Treasurer and Director $60,001 $3,000 See Note 3 $63,001
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Loralei M. Efroymson (4)
Vice President and Director See Note 1 $1,250 See Note 3 See Note 1
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Jeremy D. Efroymson
Vice President See Note 1 N/A N/A See Note 1
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Herbert D. Falender
Director $4,000 N/A N/A $4,000
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Peter Z. Grossman
Director $2,000 N/A N/A $2,000
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Norman C. Kleifgen, Jr.
Director $4,000 N/A N/A $4,000
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Samuel L. Odle
Director $3,400 N/A N/A $3,400
<PAGE>
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Eli J. Segal
Director $1,400 N/A N/A $1,400
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Gideon J. Stein
Director $2,600 N/A N/A $2,600
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Mary Ann Stein
Director $3,700 N/A N/A $3,700
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
All Directors and Executive Officers
(13 persons) $130,766 $4,250 See Note 3 $135,106
- - - ---------------------------------------- ------------------ ------------------- ------------------ ------------------
</TABLE>
<PAGE>
Note (1): The officer of Real Silk does not receive compensation in excess
of $60,000 per year; accordingly, the officer's compensation is
therefore not separately disclosed.
Note (2): Pursuant to Real Silk's Defined Contribution Retirement Plan, an
aggregate total of $4,250 was paid to the Trustee of the Plan for
the calendar year 1998, on behalf of all Executive Officers. That
sum is not included in the Aggregate Compensation from Real Silk
column but is included in the Total Compensation From Real Silk
column for all Directors and Executive Officers. Directors who
are not officers are not eligible for the Plan.
Note (3): As a defined contribution plan, estimated annual benefits are not
readily calculable.
Note (4): Director of Real Silk who is also an officer and therefore does
not receive compensation in capacity of a director.
Investment Advisory and Other Services
Real Silk does not have an external investment advisor. All investment
and related decisions are made by the officers, directors and employees of Real
Silk. No services are supplied by or performed by an outside investment advisor.
Bank One Trust Company, N.A., 100 East Broad Street, Columbus, OH.,
43271-0152 is the sole custodian for Real Silk. Bank One Trust Company, N.A.
maintains custody of Real Silk's portfolio securities and provides no other
services to Real Silk.
KPMG, 135 N. Pennsylvania Street, Indianapolis, IN., 46204 is the
independent accountants to Real Silk. KPMG provides normal auditing and
accounting services and assists in the preparation and filing of applicable tax
returns and other required tax related documents. KPMG provides no other
services to Real Silk.
Brokerage Allocation and other Practices
Purchases and sales of securities are effected through broker-dealers,
all of which are independent of, and not affiliated with, Real Silk. Commissions
are negotiated on the basis of information available regarding prevailing
applicable commissions rates. The aggregate amount of commissions paid for the
years ended December 31, 1998,1997 and 1996 are $1,400, $2,800 and $1,980
respectively.
In selecting broker-dealers to effectuate trades, Real Silk considers a
number of factors, including primarily the accuracy, timeliness and
effectiveness of execution of trades and the reasonableness of commission rates
and mark-ups in light of information available concerning applicable commission
rates from other broker-dealers. Real Silk also uses a variety of broker-dealers
in executing trades. Other than execution of trades, the only service received
from broker-dealers is the receipt of research reports and recommendations. The
research reports and recommendation are of the type which are generally
available to the broker/dealer's clients. In the event Real Silk determines to
purchase or sell securities which were recommended by, or the subject of
research from, a particular broker/dealer, Real Silk will seek to execute the
trade through that broker/dealer, so long as applicable commission rates are
competitive with those available elsewhere. Real Silk receives no additional
services, information or advice from broker-dealers and no one has authority to
pay commissions in excess of that which another broker might charge other than
as described above. Real Silk has no agreement or understanding
<PAGE>
with respect to allocation of brokerage transactions or commissions and has
acquired no securities of brokerage firms or their parent corporations during
the most recent fiscal year.
Tax Status
Real Silk is qualified as a regulated investment company and is
qualified under Subchapter M of the Internal Revenue of 1986, as amended.
<PAGE>
PART C. OTHER INFORMATION
Item 15. Indemnification
Registrant is incorporated under the laws of the State of
Maryland and is subject to Section 2-418 of the Corporations
and Associations Article of the Annotated Code of the State of
Maryland controlling the indemnification of the directors and
officers. Since Registrant has its executive offices in the
State of New York, and is qualified as a foreign corporation
doing business in such State, the persons covered by the
foregoing statute may also be entitled to and subject to the
limitations of the indemnification provisions of Section
721-726 of the New York Business Corporation Law.
The general effect of these statutes is to protect officers,
directors and employees of Registrant against legal liability
and expenses incurred by reason of their positions with the
Registrant. The statutes provide for indemnification for
liability for proceedings not brought on behalf of the
corporation and for those brought on behalf of the
corporation, and in each case place conditions under which
indemnification will be permitted, including requirements that
the officer, director or employee acted in good faith. Under
certain conditions, payment of expenses in advance of final
disposition may be permitted. The By-laws of Registrant,
without limiting the authority of Registrant to indemnify any
of its officers, employees or agents to the extent consistent
with applicable law, make the indemnification of its directors
mandatory subject only to the conditions and limitations
imposed by the above- mentioned Section 2-418 of Maryland law
and by the provisions of Section 17(h) of the Investment
Company Act of 1940 as interpreted and required to be
implemented by SEC Release No. IC-11330 of September 4, 1980.
In referring in its By-laws to, and making indemnification of
directors subject to the conditions and limitations of, both
Section 2-418 of the Maryland law and Section 17(h) of the
Investment Company Act of 1940, Registrant intends that
conditions and limitations on the extent of the
indemnification of directors imposed by the provisions of
either Section 2-418 or Section 17(h) shall apply and that any
inconsistency between the two will be resolved by applying the
provisions of said Section 17(h) if the condition or
limitation imposed by Section 17(h) is the more stringent. In
referring in its By-laws to SEC Release No. IC-11330 as the
source for interpretation and implementation of said Section
17(h), Registrant understands that it would be required under
its By-laws to use reasonable and fair means in determining
whether indemnification of a director should be made and
undertakes to use either (1) a final decision on the merits by
a court or other body before whom the proceeding was brought
that the person to be indemnified ("indemnitee") was not
liable to Registrant or to its security holders by reason of
willful malfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office
("disabling conduct") or (2) in the absence of such a
decision, a reasonable determination, based upon a review of
the facts, that the indemnitee was not liable by reason of
such disabling conduct, by (a) the vote of a majority of a
quorum of directors who are neither "interested persons" (as
defined in the 1940 Act) of Registrant nor parties to the
proceeding, or (b) an independent legal counsel in a written
opinion. Also, Registrant will make advances of attorneys'
fees or other expenses incurred by a director in his defense
only if (in addition to his undertaking to repay the advance
if he is not ultimately entitled to indemnification) (1) the
indemnitee provides a security for his undertaking, (2)
Registrant shall be insured against losses arising by reason
of any lawful advances, or (3) a majority of a quorum of the
non-interested, non-party directors of Registrant, or an
independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts, that
there is reason to believe that the indemnitee ultimately will
be found entitled to indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities
<PAGE>
(other than the payment by the Registrant of expense incurred
or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
In addition, Registrant maintains a directors' and officers'
errors and omissions liability insurance policy protecting
directors and officers against liability for breach of duty,
negligent act, error or omission committed in their capacity
as directors or officers. The policy contains certain
exclusions, among which is exclusion from coverage for active
or deliberate dishonest or fraudulent acts and exclusion for
fines or penalties imposed by law or other matters deemed
uninsurable.
Item 16. Exhibits
(1) Articles of Incorporation, Articles Supplementary.
Incorporated by reference to Post-Effective Amendment
No. 73 to the Registration Statement on Form N-1A filed
on March 2, 1998.
(2) By-Laws. Incorporated by reference to Post-Effective
Amendment No. 76 to the Registration Statement on Form
N-1A filed on December 18, 1998.
(3) Voting Trust Agreement affecting more than 5 percent of
any class of the registrant. Not applicable.
(4) Agreement of Acquisition, Reorganization, or Merger.
Filed herewith.
(5) Specimens of security being registered. Filed herewith.
(6) Investment Advisory Contracts, Management Agreement.
Incorporated by reference to Post-Effective Amendment
No. 8 to the Registration Statement on Form N-1A of Lord
Abbett Equity Fund, Inc. (File No. 811-6033).
(7) Underwriting Contracts. Incorporated by reference.
(8) Bonus or Profit Sharing Contracts. Incorporated by
reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A of Lord Abbett
Securities Trust (File No. 811-7538).
(9) Custodian Agreements. Incorporated by reference.
(10) Rule 12b-1 Plan. Incorporated by reference to
Post-Effective Amendment No. 40 to the Registration
Statement on Form N-1A of Lord Abbett Bond-Debenture
Fund, Inc. (File No. 811-2145).
(11) Consent to Legal Opinion. To Be Filed.
(12) Consent of Independent Auditors. Incorporated by
reference to Post-Effective Amendment No. 81 to the
Registration Statement on Form N-1A filed on April 30,
1999.
(13) Other Contracts. Not applicable.
(14) Other Opinions. Not applicable.
(15) Omitted Financial Statements. Incorporated by reference.
(16) Power of Attorney. Incorporated by reference to
Post-Effective Amendment No. 79 to the Registration
Statement on Form N-1A filed on April 30, 1999.
OTHER EXHIBITS:
---------------
(17) Financial Data Schedule. Incorporated by reference to
Post-Effective Amendment No. 81 to the Registration
Statement on Form N-1A filed on April 30, 1999.
(18) Rule 18f-3 Plan. Incorporated by reference to
Post-Effective Amendment No. 40 to the Registration
Statement on Form N-1A of Lord Abbett Bond-Debenture
Fund, Inc. (File No. 811-2145).
1
<PAGE>
Item 17. Undertakings
(1) The undersigned registrant agrees that prior to any
public reoffering of the securities registered through
the use of a prospectus which is a part of this
registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule
145(C) of the Securities Act, the reoffering prospectus
will contain the information called for by the
applicable registration form for the reofferings by
persons who may be deemed underwriters, in addition to
the information called for by the other items of the
applicable form.
(2) The undersigned registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as
a part of an amendment to the registration statement and
will not be used until the amendment is effective, and
that, in determining any liability under the 1933 Act,
each post-effective amendment shall be deemed to be a
new registration statement for the securities offered
therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of
them.
2
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act, the Fund certifies that
it meets all of the requirements for effectiveness of this
registration statement under rule 485(b) under the Securities
Act and has duly caused this registration statement to be
signed on behalf of the registrant, in the City of New York,
and State of New York, on the 19th day of October, 1999.
LORD ABBETT AFFILIATED FUND, INC.
---------------------------------
Registrant
BY: /s/ Lawrence H. Kaplan
Lawrence H. Kaplan
Vice President
<PAGE>
As required by the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signatures Title Date
- - - ---------- ----- ----
Chairman, President
/s/Robert S. Dow* and Director/Trustee October 19, 1999
- - - ---------------------------- ----------------------- -------------------
Robert S. Dow
/s/ E. Thayer Bigelow* Director/Trustee October 19, 1999
- - - ---------------------------- ----------------------- -------------------
E. Thayer Bigelow
/s/William H. T. Bush* Director/Trustee October 19, 1999
- - - ---------------------------- ---------------------- -------------------
William H. T. Bush
/s/Robert B. Calhoun, Jr*. Director/Trustee October 19, 1999
- - - ---------------------------- ---------------------- -------------------
Robert B. Calhoun, Jr.
/s/Stewart S. Dixon* Director/Trustee October 19, 1999
- - - ---------------------------- ----------------------- -------------------
Stewart S. Dixon
/s/John C. Jansing* Director/Trustee October 19, 1999
- - - ---------------------------- ----------------------- -------------------
John C. Jansing
/s/C. Alan MacDonald* Director/Trustee October 19, 1999
- - - ---------------------------- ------------------------ -------------------
C. Alan MacDonald
/s/Hansel B. Millican, Jr*. Director/Trustee October 19, 1999
- - - ---------------------------- ------------------------ -------------------
Hansel B. Millican, Jr.
/s/Thomas J. Neff* Director/Trustee October 19, 1999
- - - ---------------------------- ------------------------ -------------------
Thomas J. Neff
*BY: /s/ Lawrence H. Kaplan
-------------------------
Lawrence H. Kaplan
Attorney-in-Fact
4
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
REAL SILK INVESTMENTS, INCORPORATED
AND
LORD ABBETT AFFILIATED FUND, INC.
JULY 8, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE 1 - DEFINITIONS..................................................................................2
Section 1.1 - Affiliated Fund Comfort Letter or Buyer Comfort Letter...................2
Section 1.2 - Affiliated Fund Disclosure Schedule......................................2
Section 1.3 - Affiliated Fund Public Report............................................2
Section 1.4 - Affiliated Fund Shares or Buyer Shares...................................2
Section 1.5 - Affiliated Person........................................................2
Section 1.6 - Buyer....................................................................2
Section 1.7 - Buyer-owned Share........................................................2
Section 1.8 - Certificate of Merger....................................................2
Section 1.9 - Closing..................................................................2
Section 1.10 - Closing Date............................................................2
Section 1.11 - Code....................................................................2
Section 1.12 - Confidential Information................................................2
Section 1.13 - Conversion Ratio........................................................2
Section 1.14 - Definitive Real Silk Proxy Materials....................................3
Section 1.15 - Disinterested Director..................................................3
Section 1.16 - Dissenting Share........................................................3
Section 1.17 - Effective Time..........................................................3
Section 1.18 - Escrow Account..........................................................3
Section 1.19 - Escrow Agent............................................................3
Section 1.20 - Escrow Agreement........................................................3
Section 1.21 - Escrowed Affiliated Fund Shares.........................................3
Section 1.22 - Exchange Agent..........................................................3
Section 1.23 - Fairness Opinion........................................................3
Section 1.24 - GAAP....................................................................3
Section 1.25 - Hart-Scott-Rodino Act...................................................3
Section 1.26 - Indiana Business Corporation Law or BCL.................................3
Section 1.27 - IRS.....................................................................3
Section 1.28 - Joint Disclosure Document...............................................3
Section 1.29 - Knowledge...............................................................3
Section 1.30 - Merger..................................................................3
Section 1.31 - Merger Consideration....................................................4
Section 1.32 - Most Recent Semi-Annual Statement.......................................4
Section 1.33 - Most Recent Annual Statement............................................4
Section 1.34 - 1940 Act................................................................4
Section 1.35 - Ordinary Course of Business.............................................4
Section 1.36 - Party...................................................................4
Section 1.37 - Person..................................................................4
Section 1.38 - Prospectus..............................................................4
Section 1.39 - Real Silk or Target.....................................................4
-i-
<PAGE>
Section 1.40 - Real Silk Comfort Letter................................................4
Section 1.41 - Real Silk Disclosure Schedule...........................................4
Section 1.42 - Real Silk Public Report.................................................4
Section 1.43 - Real Silk Share or Target Share.........................................4
Section 1.44 - Real Silk Stockholder or Target Stockholder.............................4
Section 1.45 - Real Silk Third Party Acquisition Event.................................4
Section 1.46 - Registration Statement..................................................5
Section 1.47 - Requisite Real Silk Stockholder Approval................................5
Section 1.48 - Rule 12b-1..............................................................5
Section 1.49 - SEC.....................................................................5
Section 1.50 - Securities Act..........................................................5
Section 1.51 - Securities Exchange Act.................................................5
Section 1.52 - Security Interest.......................................................5
Section 1.53 - Special Real Silk Meeting or Special Target Meeting.....................5
Section 1.54 - Subsidiary..............................................................5
Section 1.55 - Superior Company Acquisition Transaction................................5
Section 1.56 - Surviving Corporation...................................................5
Section 1.57 - Takeover Proposal.......................................................5
Section 1.58 - Tax or Taxes............................................................5
Section 1.59 - Tax Returns.............................................................6
ARTICLE 2 - BASIC TRANSACTION............................................................................6
Section 2.1 - The Merger..............................................................6
Section 2.2 - The Closing.............................................................6
Section 2.3 - Actions at the Closing..................................................6
Section 2.4 - Effect of Merger........................................................6
Section 2.5 - Real Silk Stockholders' Escrow Agreement................................8
Section 2.6 - Escrow Account Expenses.................................................9
Section 2.7 - Procedure for Payment...................................................9
Section 2.8 - Closing of Transfer Records............................................10
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF REAL SILK.................................................10
Section 3.1 - Organization, Qualification, and Corporate Power.......................10
Section 3.2 - Articles of Incorporation, By-laws, etc................................10
Section 3.3 - Capitalization.........................................................10
Section 3.4 - Authorization of Transaction...........................................11
Section 3.5 - Noncontravention.......................................................11
Section 3.6 - Filings with the SEC...................................................11
Section 3.7 - IRS Forms Provided to Stockholders.....................................12
Section 3.8 - Financial Statements...................................................12
Section 3.9 - Events Subsequent to Most Recent Annual Statement......................12
Section 3.10 - Undisclosed Liabilities................................................12
Section 3.11 - Brokers' Fees.........................................................12
Section 3.12 - Regulated Investment Company Status...................................12
Section 3.13 - Acquired Asset Basis..................................................12
-ii-
<PAGE>
Section 3.14 - Continuity of Business Enterprise.....................................12
Section 3.15 - Taxes.................................................................13
Section 3.16 - Disclosure............................................................13
Section 3.17 - No Litigation.........................................................13
Section 3.18 - Liquidation Basis of Accounting.......................................13
Section 3.19 - Entry Into Escrow Agreement............................................14
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF AFFILIATED FUND...........................................14
Section 4.1 - Organization...........................................................14
Section 4.2 - Capitalization.........................................................14
Section 4.3 - Authorization of Transaction...........................................14
Section 4.4 - Noncontravention.......................................................14
Section 4.5 - Filings with the SEC...................................................15
Section 4.6 - Brokers' Fees..........................................................15
Section 4.7 - Regulated Investment Company Status....................................15
Section 4.8 - Continuity of Business Enterprise......................................15
Section 4.9 - Disclosure.............................................................15
ARTICLE 5 - COVENANTS...................................................................................16
Section 5.1 - General................................................................16
Section 5.2 - Notices and Consents...................................................16
Section 5.3 - Regulatory Matters and Approvals.......................................16
Section 5.4 - Fairness Opinion and Comfort Letters...................................17
Section 5.5 - Operation of Business..................................................17
Section 5.6 - Full Access............................................................20
Section 5.7 - Notice of Developments.................................................20
Section 5.8 - Exclusivity............................................................20
Section 5.9 - Right of First Refusal.................................................21
Section 5.10 - Certain Fees..........................................................21
Section 5.11 - Insurance and Indemnification.........................................22
Section 5.12 - Tax Matters...........................................................22
ARTICLE 6 - CONDITIONS TO OBLIGATION OF AFFILIATED FUND AND REAL SILK TO CLOSE..........................23
Section 6.1 - Obligations of Affiliated Fund.........................................23
Section 6.2 - Conditions to Obligation of Real Silk..................................25
ARTICLE 7 - TERMINATION.................................................................................26
Section 7.1 - Termination of Agreement...............................................26
Section 7.2 - Effect of Termination..................................................27
ARTICLE 8 - EVENTS FOLLOWING THE CLOSING................................................................27
ARTICLE 9 - MISCELLANEOUS...............................................................................28
Section 9.1 - Survival...............................................................28
Section 9.2 - Transfer Taxes.........................................................28
-iii-
<PAGE>
Section 9.3 - Press Releases and Public Announcements................................28
Section 9.4 - No Third Party Beneficiaries...........................................28
Section 9.5 - Entire Agreement.......................................................28
Section 9.6 - Succession and Assignment..............................................28
Section 9.7 - Counterparts...........................................................28
Section 9.8 - Headings...............................................................29
Section 9.9 - Notices................................................................29
Section 9.10 - Governing Law.........................................................30
Section 9.11 - Jurisdiction, Venue...................................................30
Section 9.12 - Waiver of Jury Trial..................................................30
Section 9.13 - Amendments and Waivers................................................30
Section 9.14 - Severability..........................................................30
Section 9.15 - Expenses..............................................................30
Section 9.16 - Construction..........................................................30
Section 9.17 - Incorporation of Exhibits and Schedules...............................31
SCHEDULES
Schedule 3 - Final Real Silk Disclosure Schedule
Schedule 3.10 - Undisclosed Liabilities
Schedule 4 - Final Affiliated Fund Disclosure Schedule
Schedule 5.5.13 - Schedule Of Securities To Be Sold
</TABLE>
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into on July
8, 1999, by and between Lord Abbett Affiliated Fund, Inc., a Maryland
corporation ("Affiliated Fund" or "Buyer"), and Real Silk Investments,
Incorporated, an Indiana corporation ("Real Silk" or "Target"). Affiliated Fund
and Real Silk are referred to collectively herein as the "Parties".
This Agreement is intended to be and is adopted as a "plan of
reorganization," pursuant to which Real Silk will merge with and into Affiliated
Fund in a transaction intended to qualify as a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"). Real Silk Stockholders, other than those who dissent from the merger
and demand dissenters' rights as described in Section 2.4.7 of this Agreement,
will receive shares of Class A common stock of Affiliated Fund in exchange for
their shares of common stock of Real Silk, all upon the terms and conditions
hereinafter set forth in this Agreement.
Whereas, Real Silk is registered under the Investment Company Act of 1940,
as amended (the "1940 Act") as a closed-end, diversified, management investment
company and Affiliated Fund is registered under the 1940 Act as an open-end
diversified, management investment company and Real Silk and Affiliated Fund
each own securities which generally are of the same type and would be permitted
investments of either Party;
Whereas, Affiliated Fund is authorized to issue additional shares of Class
A common stock, including those intended to be issued pursuant to this
Agreement;
Whereas, the Board of Directors of Affiliated Fund, including a majority of
the Disinterested Directors, has determined that the merger of Real Silk with
and into Affiliated Fund in exchange for Affiliated Fund Shares is in the best
interests of Affiliated Fund shareholders and that the interests of Affiliated
Fund Stockholders would not be diluted as a result of this transaction;
Whereas, the Board of Directors of Real Silk, including a majority of the
Disinterested Directors, has determined that the merger of Real Silk with and
into Affiliated Fund in exchange for Affiliated Fund Shares is in the best
interests of Real Silk Stockholders, that the interests of Real Silk
Stockholders would not be diluted as a result of this transaction, and that,
subsequent to the consummation of the transaction contemplated by this
Agreement, Real Silk would cease to exist.
Now Therefore, for and in consideration of the mutual covenants and
agreement hereinafter set forth, the Parties agree as follows:
AGREEMENT AND PLAN OF MERGER PAGE 1
<PAGE>
ARTICLE 1 - DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings set forth
in this Article, unless otherwise defined.
Section 1.1 - "Affiliated Fund Comfort Letter or Buyer Comfort Letter" has
the meaning set forth in Section 5.4 below.
Section 1.2 - "Affiliated Fund Disclosure Schedule" has the meaning set
forth in the preamble to Article 4 below.
Section 1.3 - "Affiliated Fund Public Report" has the meaning set forth in
Section 4.5 below.
Section 1.4 - "Affiliated Fund Shares or Buyer Shares" means any share of
the Class A common stock, $.001 par value per share, of Affiliated Fund.
Section 1.5 - "Affiliated Person" has the meaning set forth in Section
2(a)(3) of the 1940 Act.
Section 1.6 - "Buyer" has the meaning set forth in the preface above.
Section 1.7 - "Buyer-owned Share" means any Real Silk Share that Affiliated
Fund owns beneficially.
Section 1.8 - "Certificate of Merger" has the meaning set forth in Section
2.3 below.
Section 1.9 - "Closing" has the meaning set forth in Section 2.2 below.
Section 1.10 - "Closing Date" has the meaning set forth in Section 2.2
below.
Section 1.11 - "Code" has the meaning set forth in the preface above.
Section 1.12 - "Confidential Information" means any information concerning
the businesses and affairs of Real Silk. The term "Confidential Information"
shall not include information which: (i) is already generally available to the
public at the time of disclosure or subsequent to the time of disclosure and
through no fault of Affiliated Fund, becomes generally available to the public,
or (ii) becomes available from a third party not known by Affiliated Fund to be
bound by a confidentiality undertaking, or (iii) is required to be disclosed by
applicable law.
Section 1.13 - "Conversion Ratio" has the meaning set forth in Section
2.4.5 below.
Section 1.14 - "Definitive Real Silk Proxy Materials" means the definitive
proxy materials or information statement relating to the Special Real Silk
Meeting.
AGREEMENT AND PLAN OF MERGER PAGE 2
<PAGE>
Section 1.15 - "Disinterested Director" means a director who is not an
interested person as defined in Section 2(a)(19) of the 1940 Act and the rules
adopted thereunder by the SEC.
Section 1.16 - "Dissenting Share" means any Real Silk Share which any
stockholder who or which has exercised dissenter's rights under the Indiana
Business Corporation Law holds of record.
Section 1.17 - "Effective Time" has the meaning set forth in Section 2.4.1
below.
Section 1.18 - "Escrow Account" has the meaning set forth in Section 2.5
below.
Section 1.19 - "Escrow Agent" has the meaning set forth in Section 2.5
below.
Section 1.20 - "Escrow Agreement" has the meaning set forth in Section 2.5
below.
Section 1.21 - "Escrowed Affiliated Fund Shares" has the meaning set forth
in Section 2.5 below.
Section 1.22 - "Exchange Agent" has the meaning set forth in Section 2.7.1
below.
Section 1.23 - "Fairness Opinion" has the meaning set forth in Section 5.4
below.
Section 1.24 - "GAAP" means United States generally accepted accounting
principles as in effect from time to time.
Section 1.25 - "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Section 1.26 - "Indiana Business Corporation Law" or "BCL" means the
Business Corporation Law of the State of Indiana, as amended.
Section 1.27 - "IRS" means the Internal Revenue Service.
Section 1.28 - "Joint Disclosure Document" means the disclosure document
combining the Prospectus, the Definitive Real Silk Proxy Materials, including
all information filed with the SEC on Form N-14.
Section 1.29 - "Knowledge" means actual knowledge.
Section 1.30 - "Merger" has the meaning set forth in Section 2.1 below.
Section 1.31 - "Merger Consideration" has the meaning set forth in Section
2.4.5.
Section 1.32 - "Most Recent Semi-Annual Statement" has the meaning set
forth in Section 3.8 below.
AGREEMENT AND PLAN OF MERGER PAGE 3
<PAGE>
Section 1.33 - "Most Recent Annual Statement" has the meaning set forth in
Section 3.8 below
Section 1.34 - "1940 Act" has the meaning set forth in the preface above.
Section 1.35 - "Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
Section 1.36 - "Party" has the meaning set forth in the preface above.
Section 1.37 - "Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
Section 1.38 - "Prospectus" means Part A of the effective registration on
Form N-14 of the Affiliated Fund Shares filed with the SEC under the Securities
Act.
Section 1.39 - "Real Silk or Target" has the meaning set forth in the
preface above.
Section 1.40 - "Real Silk Comfort Letter" has the meaning set forth in
Section 5.4 below.
Section 1.41 - "Real Silk Disclosure Schedule" has the meaning set forth in
the preamble to Article 3 below.
Section 1.42 - "Real Silk Public Report" has the meaning set forth in
Section 3.6 below.
Section 1.43 - "Real Silk Share or Target Share" means any share of the
Common Stock, $5.00 par value per share, of Real Silk.
Section 1.44 - "Real Silk Stockholder or Target Stockholder" means any
Person who or which holds any Real Silk Shares.
Section 1.45 - "Real Silk Third Party Acquisition Event" has the meaning
set forth in Section 5.10 below.
Section 1.46 - "Registration Statement" means the registration statement on
Form N-14 filed with the SEC by Affiliated Fund under the Securities Act and the
1940 Act in connection with the Merger. 1.47 - "Requisite Real Silk Stockholder
Approval" means the affirmative vote of the holders of a majority of the Real
Silk Shares in favor of this Agreement and the Merger.
Section 1.48 - "Rule 12b-1" means Rule 12b-1 promulgated under the 1940 Act
by the SEC.
AGREEMENT AND PLAN OF MERGER PAGE 4
<PAGE>
Section 1.49 - "SEC" means the United States Securities and Exchange
Commission.
Section 1.50 - "Securities Act" means the Securities Act of 1933, as
amended.
Section 1.51 - "Securities Exchange Act" means the Securities Exchange Act
of 1934, as amended.
Section 1.52 - "Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for taxes not yet due and payable or
for taxes that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments under
capital lease arrangements, and (d) other liens arising in the Ordinary Course
of Business and not incurred in connection with the borrowing of money.
Section 1.53 - "Special Real Silk Meeting or Special Target Meeting" has
the meaning set forth in Section 5.3.2 below.
Section 1.54 - "Subsidiary" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
Section 1.55 - "Superior Company Acquisition Transaction" has the meaning
set forth in Section 5.10.
Section 1.56 - "Surviving Corporation" has the meaning set forth in Section
2.1 below.
Section 1.57 - "Takeover Proposal" has the meaning set forth in Section 5.8
below.
Section 1.58 - "Tax or Taxes" means all federal, state, local and foreign
taxes and other government assessments of a similar nature (whether imposed
directly or through withholding), including excise taxes and any interest,
additions to tax or penalties applicable to taxes.
Section 1.59 - "Tax Returns" means all federal, state, local and foreign
tax returns, declarations, statements, reports, schedules, forms and information
returns relating to taxes, and any amendment to any of the foregoing.
ARTICLE 2 - BASIC TRANSACTION
Section 2.1 - The Merger. On and subject to the terms and conditions of
this Agreement, Real Silk shall merge with and into Affiliated Fund (the
"Merger") at the Effective Time. Affiliated Fund shall be the corporation
surviving the Merger (the "Surviving Corporation") and the separate existence of
Real Silk shall cease.
AGREEMENT AND PLAN OF MERGER PAGE 5
<PAGE>
Section 2.2 - The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place in Jersey City, New Jersey at a
location to be determined, commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing) or such other date as the Parties may mutually determine (the
"Closing Date").
Section 2.3 - Actions at the Closing. At the Closing, (i) Real Silk shall
deliver to Affiliated Fund the various certificates, instruments, and documents
referred to in Section 6.1 below, (ii) Affiliated Fund shall deliver to Real
Silk the various certificates, instruments, and documents referred to in Section
6.2 below, (iii) Affiliated Fund and Real Silk shall file with the Secretary of
State of the State of Maryland a Certificate of Merger in form and substance
sufficient to comply with the provisions of applicable Maryland law (the
"Maryland Certificate of Merger"), (iv) Real Silk and Affiliated Fund shall file
with the Secretary of State of the State of Indiana a Certificate of Merger in
form and substance sufficient to comply with the provisions of applicable
Indiana law (the "Indiana Certificate of Merger") and (v) the Buyer shall
deliver to the Exchange Agent in the manner provided below in Section 2.7 the
certificates evidencing the Affiliated Fund Shares issued in the Merger.
Section 2.4 - Effect of Merger.
Section 2.4.1 The Merger shall become effective at the time (the
"Effective Time") the Buyer and the Target file the Certificate of Merger
with the Secretary of State of the State of Maryland. The Merger shall have
the effect set forth in the Maryland General Corporation Law. The Surviving
Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf
of either the Buyer or the Target in order to carry out and effectuate the
transactions contemplated by this Agreement.
Section 2.4.2 The Certificate of Incorporation of the Buyer in effect
at and as of the Effective Time shall remain the Certificate of
Incorporation of the Surviving Corporation immediately after the Effective
Time without any modification or amendment in the Merger.
Section 2.4.3 The By-laws of the Buyer in effect at and as of the
Effective Time shall remain the By-laws of the Surviving Corporation
immediately after the Effective Time without any modification or amendment
in the Merger.
Section 2.4.4 The directors and officers of the Buyer in office at and
as of the Effective Time shall remain the directors and officers of the
Surviving Corporation (retaining their respective positions and terms of
office) immediately after the Effective Time, each to hold office in
accordance with the Certificate of Incorporation and the By-laws of
Affiliated Fund.
Section 2.4.5 At and as of the Effective Time, each Real Silk Share
(other than any Dissenting Share) shall be converted into the right to
receive the number of whole
AGREEMENT AND PLAN OF MERGER PAGE 6
<PAGE>
and fractional Affiliated Fund Shares determined by the net asset value per
share of each Real Silk Share divided by the net asset value per share of
each Affiliated Fund Share as of the close of business immediately
following the Effective Time. The ratio so determined shall be referred to
herein as the "Conversion Ratio" and the number of Affiliated Fund Shares
received by the Real Silk Stockholders shall be referred to herein as the
"Merger Consideration." Each Dissenting Share shall be converted into the
right to receive payment from the Surviving Corporation with respect
thereto in accordance with the provisions of the Indiana Business
Corporation Law. The Conversion Ratio shall be subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock
split, or other change in the number of Real Silk Shares outstanding. No
Real Silk Share shall be deemed to be outstanding or to have any rights
after the Effective Time other than those set forth in this Section 2.4.5.
Section 2.4.6 The net asset value per share for both the Affiliated
Fund Shares and the Real Silk Shares shall be determined in accordance with
the provisions of the 1940 Act and the rules and regulations adopted
thereunder by the SEC and shall be determined in accordance with its normal
valuation policies and procedures as utilized in its Ordinary Course of
Business and, in the case of Affiliated Fund, as set forth in its
Prospectus.
Section 2.4.7 If any holders of Real Silk Shares dissent from the
Merger and demand dissenters' rights under the BCL, any issued and
outstanding shares of Real Silk held by such dissenting holders shall not
be converted as described in Section 2.4.5 but shall from and after the
Effective Time represent only the right to receive such consideration as
may be determined to be due to such dissenting holders pursuant to the BCL;
provided, however, that each Real Silk Share outstanding immediately prior
to the Effective Time and held by a dissenting holder who shall, after the
Effective Time, withdraw his demand for dissenters' rights or lose his
right to exercise dissenters' rights shall have only such rights as
provided under the BCL. Real Silk shall give prompt notice to Affiliated
Fund of any dissent by Real Silk Stockholders that satisfies the
requirements of the BCL to dissent from the Merger and grants to Affiliated
Fund the right to negotiate with the dissenting stockholders. Real Silk
further agrees it shall not enter into a settlement agreement with the
dissenting stockholders without the advance written agreement of Affiliated
Fund.
Section 2.4.8 No formula or other adjustment shall be used to adjust
the net asset value of the Real Silk Shares or the Affiliated Fund Shares
to take into account differences in realized and unrealized gain and
losses; provided, however, that Real Silk shall follow a liquidation
accounting basis, including proper liquidation basis of accounting for all
accruals, assets, liabilities and business liquidation costs.
Section 2.4.9 The issuance of the Affiliated Fund Shares as the Merger
Consideration shall not be subject to any front-end sales charges,
contingent or otherwise, and shall be issued at net asset value per share.
The Real Silk Stockholders receiving the Affiliated Fund Shares shall be
entitled to designate a broker/dealer licensed with the SEC to receive the
Rule 12b-1 service fees applicable to the Affiliated Fund Shares; provided
that, the broker must have or become a party to, a selling agreement with
Lord Abbett Distributor,
AGREEMENT AND PLAN OF MERGER PAGE 7
<PAGE>
LLC. In the event a Real Silk Stockholder fails to designate a broker to
receive the Rule 12b-1 service fees, the fees shall be treated in a manner
identical to any other Affiliated Fund shareholder failing to designate a
broker. In addition to the Affiliated Fund Shares acquired by the Real Silk
Stockholders in connection with the Merger as Merger Consideration, Real
Silk Stockholders shall be entitled to purchase additional Affiliated Fund
Shares after the Closing Date at the sales charge determined in accordance
with the terms of the current Prospectus for Affiliated Fund. Real Silk
Stockholders shall be entitled to have capital gains distributions and
income distributions reinvested at net asset value per share and without
imposition of a deferred sales charge or redemption fee of any type, under
the terms and conditions generally applicable to holders of Affiliated Fund
Shares, in accordance with the current Prospectus for Affiliated Fund.
Section 2.5 - Real Silk Stockholders' Escrow Agreement. At the Effective
Time, in order to assist in the qualification of the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code, the Real Silk
Stockholders will have determined to have placed into an escrow account (the
"Escrow Account") an aggregate of sixty-five percent (65%) of the total number
of Affiliated Fund Shares issued as the Merger Consideration (the "Escrowed
Affiliated Fund Shares"). The Escrow Account shall be with either a federal or
state chartered commercial bank, which shall serve as the escrow agent (the
"Escrow Agent") pursuant to a written escrow agreement (the "Escrow Agreement").
The Escrowed Affiliated Fund Shares shall be held in the Escrow Account for a
period of one year from the Closing Date and shall not be subject to sale,
transfer or redemption prior to the expiration of such period. The number of
Escrowed Affiliated Fund Shares, both whole and fractional, shall be determined
on a pro rata basis for each Real Silk Stockholder. The Escrowed Affiliated Fund
Shares shall be the property of, and issued in the name of, the Real Silk
Stockholders, who shall be entitled to dividends and other distributions in
respect of those shares and shall be entitled to vote the Escrowed Affiliated
Fund Shares on the same terms and conditions that other Affiliated Fund
stockholders vote their shares as set forth in Affiliated Fund's Articles of
Incorporation, as amended. The Escrow Agreement shall provide that the escrow
will terminate on the first anniversary of the Closing and the Escrow Agent
shall deliver to the Real Silk Stockholders the Escrowed Affiliated Fund Shares
as promptly as possible following the termination of the Escrow Agreement. All
distributions, of whatever kind, with respect to the Escrowed Affiliated Fund
Shares, whether paid in cash or reinvested in additional shares, shall not be
subject to the Escrow Agreement and shall be paid directly to the Real Silk
Stockholders or appropriately reflected on the records of Affiliated Fund and
the applicable shareholder statements.
Section 2.6 - Escrow Account Expenses. Real Silk shall pay all charges and
expenses of the Escrow Agent or, to the extent such charges and expenses remain
unpaid as of the Closing Date, such charges and expenses shall be taken into
account as a liability for purposes of computing the net asset value of the Real
Silk Shares pursuant to Section 2.4.6 of this Agreement.
Section 2.7 - Procedure for Payment.
Section 2.7.1 Immediately after the Effective Time, (A) the Buyer
shall furnish to Peoples Bank & Trust Company, a commercial bank organized
under the laws of the State of Indiana (the "Exchange Agent") stock
certificates which in the aggregate represent that
AGREEMENT AND PLAN OF MERGER PAGE 8
<PAGE>
number of Buyer Shares equal to the product of (i) the Conversion Ratio
times (ii) the number of outstanding Target Shares (other than any
Dissenting Shares and Buyer-owned Shares) and (B) the Buyer shall cause the
Exchange Agent to mail a letter of transmittal (with instructions for its
use) in form and substance mutually agreeable to the Parties to this
Agreement, to each record holder of outstanding Target Shares for the
holder to use in surrendering the certificates which represented his, her
or its Target Shares. Upon delivery to the Exchange Agent of the Target
Shares in accordance with the terms in the letter of transmittal, the
Target Shares shall be exchanged for: (i) a certificate representing the
number of Buyer Shares to which Real Silk Stockholder is entitled to have
immediate possession, which the Exchange Agent shall deliver to the Real
Silk Stockholder, and (ii) a certificate, in the name of the Real Silk
Stockholder representing the number of Buyer Shares subject to the Escrow
Agreement, which the Exchange Agent shall deliver to the Escrow Agent.
Section 2.7.2 The Buyer shall not pay any dividend or make any
distribution on Buyer Shares (with a record date at or after the Effective
Time) to any record holder of outstanding Target Shares until the holder
surrenders for exchange the certificates which represented Target Shares.
The Buyer instead shall pay the dividend or make the distribution to the
Exchange Agent in trust for the benefit of the holder pending surrender and
exchange. The Buyer may cause the Exchange Agent to invest any cash the
Exchange Agent receives from the Buyer as a dividend or distribution in one
or more of the permitted investments set forth in the agreement between the
Buyer and the Exchange Agent; provided, however, that the terms and
conditions of the investments shall be such as to permit the Exchange Agent
to make prompt payments of cash to the holders of outstanding Target Shares
as necessary.
Section 2.7.3 The Buyer may cause the Exchange Agent to return any
Buyer Shares and dividends and distributions thereon remaining unclaimed
180 days after the Effective Time, and thereafter each remaining record
holder of outstanding Target Shares shall be entitled to look to the Buyer
(subject to abandoned property, escheat, and other similar laws) as a
general creditor thereof with respect to the Buyer Shares and dividends and
distributions thereon to which he, she or it is entitled upon surrender of
his, her or its certificates.
Section 2.7.4 The Buyer shall pay all charges and expenses of the
Exchange Agent.
Section 2.8 - Closing of Transfer Records. After the close of business on
the Closing Date, transfers of Real Silk Shares outstanding prior to the
Effective Time shall not be made on the stock transfer books of Real Silk, and
Real Silk Shares shall be deemed to be shares of Affiliated Fund. No Real Silk
employee shall be authorized to effect any transfer of Real Silk Shares after
the Effective Time.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF REAL SILK
Real Silk represents and warrants to Affiliated Fund that the
statements contained in this Article 3 are correct and complete as of the date
of this Agreement and shall be, in all material respects, correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 3), except as
AGREEMENT AND PLAN OF MERGER PAGE 9
<PAGE>
set forth in the disclosure schedule attached as Schedule 3 to this Agreement
(the "Real Silk Disclosure Schedule"). The Real Silk Disclosure Schedule shall
be arranged in paragraphs corresponding to the numbered sections contained in
this Article 3.
Section 3.1 - Organization, Qualification, and Corporate Power. Real Silk
is a corporation duly organized and existing under the laws of the State of
Indiana. Real Silk is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a material
adverse effect on the financial condition of Real Silk taken as a whole or on
the ability of the Parties to consummate the transactions contemplated by this
Agreement. Real Silk has full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. Real Silk is not required to file Tax Returns in jurisdictions other
than its jurisdiction of incorporation.
Section 3.2 - Articles of Incorporation, By-laws, etc. Real Silk has
provided true, correct and complete copies of its Articles of Incorporation,
By-laws, corporate minutes and stock transfer book to Affiliated Fund.
Section 3.3 - Capitalization. The entire authorized capital stock of Real
Silk consists of 300,000 shares of common stock with a par value of $5.00 per
share, of which 164,683 shares are issued and outstanding and 135,317 shares are
authorized and unissued. All of the issued and outstanding Target Shares have
been duly authorized and are validly issued, fully paid, and nonassessable.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require Real Silk to issue, sell, or otherwise cause to
become outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Target.
Section 3.4 - Authorization of Transaction. Real Silk has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder; provided, however, that
Real Silk shall not consummate the Merger unless and until it receives the
Requisite Target Stockholder Approval and certain regulatory approval or passage
or early termination of applicable waiting periods in accordance with Section
3.5 of this Agreement. This Agreement constitutes the valid and legally binding
obligation of Real Silk, enforceable in accordance with its terms and
conditions.
Section 3.5 - Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
shall (i) violate any statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which Real Silk is subject or any provision of the Articles
of Incorporation or By-laws of Real Silk, or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to which Real Silk is a party or by which it is bound or to which
any of its assets are subject (or result in the imposition of any Security
Interest upon any of its
AGREEMENT AND PLAN OF MERGER PAGE 10
<PAGE>
assets), except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a material adverse effect on the financial condition of
Real Silk taken as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. Other than in connection with the
provisions of the Hart-Scott-Rodino Act, the Indiana Business Corporation Law,
the Securities Exchange Act, the Securities Act, the 1940 Act, the Code and the
Treasury Regulations thereunder, and the state securities laws, Real Silk does
not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
Section 3.6 - Filings with the SEC. Real Silk has made, for the most recent
three (3) years, all filings with the SEC that it has been required to make
under the Securities Act, the Securities Exchange Act and the 1940 Act
(collectively the "Real Silk Public Reports"). Each of the Real Silk Public
Reports complies with the Securities Act, the Securities Exchange Act and the
1940 Act in all material respects. None of the Real Silk Public Reports, as of
their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. Real Silk has delivered to the Buyer a correct and complete copy of
each Real Silk Public Report (together with all exhibits and schedules thereto
and as amended to date).
Section 3.7 - IRS Forms Provided to Stockholders. Real Silk has provided to
its stockholders, for each of the three most recent years, all Tax Returns
required to be so provided by applicable law.
Section 3.8 - Financial Statements. Real Silk has filed Semi-Annual Reports
on Form NSAR for the period ended June 30, 1998 (the "Most Recent Semi-Annual
Statement"), and an Annual Report on Form NSAR for the fiscal year ended
December 31, 1998 (the "Most Recent Annual Statement"). The financial statements
included in or incorporated by reference into these Public Reports (including
the related notes and schedules) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, and
present fairly the financial condition of Real Silk as of the indicated dates
and the results of operations of Real Silk, for the indicated periods, and are
correct and complete in all respects, and are consistent with the books and
records of Real Silk.
Section 3.9 - Events Subsequent to Most Recent Annual Statement. Since the
Most Recent Annual Statement, there has not been any material adverse change in
the financial condition, business or affairs of Real Silk, taken as a whole.
Section 3.10 - Undisclosed Liabilities. Other than as specified in Schedule
3.10 attached to this Agreement, Real Silk has no liability (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether due or to
become due), including any liability for Taxes, except for (i) liabilities set
forth on the face of the balance sheet dated as of the Most Recent Annual
Statement (including the notes attached thereto) and (ii) liabilities which have
arisen after the Most Recent Annual Statement in the Ordinary Course of Business
(none of which results from, arises out of,
AGREEMENT AND PLAN OF MERGER PAGE 11
<PAGE>
relates to, is in the nature of, or was caused by any breach of contract, breach
of warranty, tort, infringement, or violation of law).
Section 3.11 - Brokers' Fees. Real Silk has no liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement other than U.S. Bancorp Piper
Jaffray, Inc.
Section 3.12 - Regulated Investment Company Status. Real Silk qualified and
has elected to be treated as a regulated investment company, within the meaning
of Section 851 of the Code, as of January 1, 1989, and since that time Real Silk
has continuously qualified as a regulated investment company and shall continue
to do so until the Closing Date.
Section 3.13 - Acquired Asset Basis. Real Silk does not hold, and will not
hold as of the Closing Date, any asset formerly held by a "C Corporation" that
would, if sold, be subject to a corporate-level tax as provided in IRS Notice
88-19.
Section 3.14 - Continuity of Business Enterprise. Real Silk owns, and as of
the Closing Date, will own (after taking into account the sale of portfolio
securities required by Section 5.5.13 of this Agreement) at least fifty percent
(50%) of its historic business assets. Specifically, as of the Effective Time,
Real Silk will continue to hold portfolio securities that it owned on April 30,
1999, equal in value to at least fifty percent (50%) of the value of the total
amount of portfolio securities that it held on April 30, 1999. For purposes of
the preceding sentence, the term "value" shall mean fair market value as of
April 30, 1999. Real Silk operates, and as of the Closing Date will operate, its
historic business as an investment company which seeks long-term growth of
capital and income, without excessive fluctuations in market value, through
investments, including securities of large companies.
Section 3.15 - Taxes. Real Silk has filed with the appropriate governmental
authorities all income Tax Returns and all other Tax Returns required to be
filed by it and paid in full all Taxes required to be paid by it for all periods
or portions thereof. No federal, state, local or foreign audits or other
administrative proceedings or judicial proceedings are presently pending with
regard to any Taxes or Tax Returns of Real Silk. No Tax deficiencies have been
asserted or threatened against Real Silk by any taxing authority that have not
been resolved and fully paid. The Real Silk Disclosure Schedule list all states,
cities or other jurisdictions in which Real Silk (i) is currently subject to any
obligation to file Tax Returns or (ii) has filed a Tax Return within the last
three (3) years. Real Silk has no Knowledge of any investigation pending,
threatened or likely to be commenced by any taxing authority for any
jurisdiction where Real Silk does not file Tax Returns that may lead to an
assertion by such taxing authority that Real Silk is or may be subject to Tax in
such jurisdiction. The applicable statue of limitations for the assessment of
federal income taxes has expired for all periods through and including the year
ended December 31, 1994.
Section 3.16 - Disclosure. The Definitive Real Silk Proxy Materials shall
comply with the Securities Exchange Act and the 1940 Act in all material
respects. The Definitive Real Silk Proxy Materials shall not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made therein, in the light of the circumstances under
AGREEMENT AND PLAN OF MERGER PAGE 12
<PAGE>
which they shall be made, not misleading; provided, however, that Real Silk
makes no representation or warranty with respect to any information that
Affiliated Fund shall supply specifically for use in the Definitive Real Silk
Proxy Materials. None of the information that Real Silk shall supply
specifically for use in the Registration Statement, the Prospectus, or the
Definitive Real Silk Proxy Materials will contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they will
be made, not misleading.
Section 3.17 - No Litigation. No litigation, injunction or governmental
proceedings are threatened or pending which, if determined adversely to Real
Silk, would affect the validity of the Merger or materially affect the net asset
value of Real Silk.
Section 3.18 - Liquidation Basis of Accounting. In preparing the balance
sheet required for the Closing, Real Silk has applied the liquidation basis of
accounting with respect to all assets, accruals and other liabilities necessary
to liquidate its business.
Section 3.19 - Entry Into Escrow Agreement. At or prior to the Closing of
the Merger, Real Silk shall have negotiated and entered into an Escrow Agreement
to establish the Escrow Account as specified in Section 2.5 of this Agreement.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF AFFILIATED FUND
Affiliated Fund represents and warrants to Real Silk that the statements
contained in this Article 4 are correct and complete as of the date of this
Agreement and shall be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article 4), except as set forth in the disclosure
schedule attached as Schedule 4 to this Agreement (the "Affiliated Fund
Disclosure Schedule"). The Affiliated Fund Disclosure Schedule shall be arranged
in paragraphs corresponding to the numbered sections contained in this Article
4.
Section 4.1 - Organization. Affiliated Fund is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland.
Section 4.2 - Capitalization. The entire authorized capital stock of
Affiliated Fund consists of 1,500,000,000 shares of which 1,150,000,000 are
designated as Class A shares. As of date of this Agreement, Affiliated Fund has,
and as of the Effective Time shall have, sufficient authorized but unissued
Class A shares to consummate the Merger. All of the Affiliated Fund Shares to be
issued in the Merger have been duly authorized and, upon consummation of the
Merger, shall be validly issued, fully and nonassessable.
Section 4.3 - Authorization of Transaction. Affiliated Fund has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder, provided,
however, that Affiliated Fund shall not consummate the Merger unless and until
it receives certain regulatory approval or passage or early termination of
applicable waiting periods in accordance with Section 4.4 of this Agreement.
This Agreement constitutes the
AGREEMENT AND PLAN OF MERGER PAGE 13
<PAGE>
valid and legally binding obligation of the Buyer, enforceable in accordance
with its terms and conditions.
Section 4.4 - Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
shall (i) violate any, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which the Buyer is subject or any provision of the charter
or By-laws of Affiliated Fund, or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which the Buyer is a party or by which it is bound or to which any of its
assets is subject, except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give notice
would not have a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement. Other than in
connection with the provisions of the Hart-Scott-Rodino Act, the Maryland
General Corporation Law, the Securities Exchange Act, the Securities Act, the
1940 Act, the Code and the Treasury Regulations thereunder, and the state
securities laws, Affiliated Fund does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement, except where the failure to give notice, to
file, or to obtain any authorization, consent, or approval would not have a
material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
Section 4.5 - Filings with the SEC. Affiliated Fund has made, for the most
recent three (3) years, all filings with the SEC that it has been required to
make under the Securities Act, the Securities Exchange Act and the 1940 Act
(collectively the "Affiliated Fund Public Reports"). Each of the Affiliated Fund
Public Reports complies with the Securities Act, the Securities Exchange Act and
the 1940 Act in all material respects. None of the Affiliated Fund Public
Reports, as of their respective dates, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Affiliated Fund has delivered to Real Silk a correct and
complete copy of each Affiliated Fund Public Report which Real Silk has
requested (together with all exhibits and schedules thereto and as amended to
date).
Section 4.6 - Brokers' Fees. Affiliated Fund does not have any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which Real Silk
could become liable or obligated.
Section 4.7 - Regulated Investment Company Status. Affiliated Fund
qualified and elected to be treated as a regulated investment company, within
the meaning of Section 851 of the Code, as of a date prior to January 1, 1989,
and since such election, has continuously qualified as a regulated investment
company and shall continue to do so until the Closing Date.
Section 4.8 - Continuity of Business Enterprise. Affiliated Fund intends to
use at least fifty percent (50%) of the historic business assets of Real Silk in
its business. Specifically, Affiliated
AGREEMENT AND PLAN OF MERGER PAGE 14
<PAGE>
Fund plans to hold indefinitely portfolio securities that Real Silk owned on
April 30, 1999, equal in value to at least fifty percent (50%) of the value of
the total amount of portfolio securities that Real Silk held on April 30, 1999.
For purposes of the preceding sentence, the term "value" shall mea market value
as of April 30, 1999. Following the Merger, Affiliated Fund will continue the
historic business of Real Silk as an investment company which seeks long-term
growth of capital and income, without excessive fluctuations in market value,
through investments, including securities of large companies.
Section 4.9 - Disclosure. The Registration Statement, the Prospectus, and
the Definitive Real Silk Proxy Materials shall comply with the Securities Act,
the Securities Exchange Act and the 1940 Act in all material respects. The
Registration Statement, the Prospectus, and the Definitive Real Silk Proxy
Materials shall not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they will be made, not misleading;
provided, however, that Affiliated Fund makes no representation or warranty with
respect to any information that Real Silk shall supply specifically for use in
the Registration Statement, the Prospectus, and the Definitive Real Silk Proxy
Materials. None of the information that Affiliated Fund shall supply
specifically for use in the Definitive Real Silk Proxy Materials will contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading.
ARTICLE 5 - COVENANTS
The Parties agree as follows with respect to the period from and after
the execution of this Agreement.
Section 5.1 - General. Each of the Parties shall use its best efforts to
take all actions and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Article 6
below).
Section 5.2 - Notices and Consents. Real Silk shall give any notices to
third parties, and shall use its best efforts to obtain any third party
consents, that Affiliated Fund reasonably may request in connection with the
matters referred to in Section 3.5 above.
Section 5.3 - Regulatory Matters and Approvals. Each of the Parties shall
give any notices to, make any filings with, and use its best efforts to obtain
any authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 3.5 and Section
4.4 above. Without limiting the generality of the foregoing:
Section 5.3.1 Affiliated Fund shall file with the SEC a Registration
Statement on Form N-14 (the "Registration Statement") under the Securities
Act, the Securities Exchange Act and the 1940 Act in connection with the
Affiliated Fund Shares to be issued as the Merger Consideration and for use
in connection with the Special Real Silk Meeting. Real Silk shall cooperate
with Affiliated Fund in connection with the preparation of the
AGREEMENT AND PLAN OF MERGER PAGE 15
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Registration Statement and shall furnish to Affiliated Fund the information
relating to Real Silk required by applicable law to be set forth in the
Registration Statement. The Registration Statement and Real Silk Proxy
Materials are hereinafter collectively referred to as the Joint Disclosure
Document. The Parties shall each use their best efforts to respond to the
comments of the SEC thereon and shall make any further filings (including
amendments and supplements) in connection therewith that may be necessary,
proper, or advisable. The Parties shall cooperate to the fullest extent
possible and Affiliated Fund shall provide Real Silk, and Real Silk shall
provide Affiliated Fund, whatever additional information and assistance in
connection with the foregoing filings that the filing Party may request.
Affiliated Fund shall take all actions that may be necessary under state
securities laws in connection with the offering and issuance of the
Affiliated Fund Shares.
Section 5.3.2 Real Silk shall call a special meeting of its
stockholders (the "Special Real Silk Meeting") as soon as reasonably
practicable in order that the Real Silk Stockholders may consider and vote
upon the adoption of this Agreement and the approval of the Merger in
accordance with the Indiana Business Corporation Law. Real Silk shall mail
the Joint Disclosure Document on Form N-14 to the Real Silk Stockholders as
soon as reasonably practicable. The Joint Disclosure Document shall contain
the affirmative recommendations of the respective boards of directors of
the Parties in favor of the adoption of this Agreement and the approval of
the Merger; provided, however, that no director or officer of either Party
shall be required to violate any fiduciary duty or other requirement
imposed by law in connection therewith.
Section 5.3.3 Each of the Parties shall file any notification and
report forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act, shall use its best
efforts to obtain an early termination of the applicable waiting period,
and shall make any further filings pursuant thereto that may be necessary.
Section 5.4 - Fairness Opinion and Comfort Letters. Real Silk shall deliver
to Affiliated Fund on or before the date the Joint Disclosure Document on Form
N-14 is mailed to the Real Silk Stockholders (i) an opinion of U.S. Bancorp
Piper Jaffray, Inc. as to the fairness of the Merger to the Real Silk
Stockholders from a financial point of view (the "Fairness Opinion") and (ii) a
letter of KPMG Peat Marwick stating their conclusions as to the accuracy of
certain information derived from the financial records of Real Silk and
contained in the Joint Disclosure Document (the "Real Silk Comfort Letter"). The
Real Silk Comfort Letter shall be reasonably satisfactory to Affiliated Fund in
form and substance. Affiliated Fund shall deliver to Real Silk, on or before the
date the Joint Disclosure Document is mailed to the Real Silk Stockholders, a
letter of Deloitte & Touche LLP stating their conclusions as to the accuracy of
certain information derived from the financial records of Affiliated Fund
contained in the Joint Disclosure Document (the "Affiliated Fund Comfort
Letter"). The Affiliated Fund Comfort Letter shall be reasonably satisfactory to
Real Silk in form and substance.
Section 5.5 - Operation of Business. Real Silk shall not engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business other than such actions
AGREEMENT AND PLAN OF MERGER PAGE 16
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as are necessary and contemplated by the terms of this Agreement. Without
limiting the generality of the foregoing:
Section 5.5.1 Real Silk shall not authorize or effect any change in
its Articles of Incorporation or By-laws;
Section 5.5.2 Real Silk shall not grant any options, warrants, or
other rights to purchase or obtain any of its shares or issue, sell, or
otherwise dispose of any of Real Silk Shares;
Section 5.5.3 Real Silk shall not declare, set aside, or pay any
dividend or distribution with respect to its capital stock (whether in cash
or in kind), or redeem, repurchase, or otherwise acquire any of its capital
stock other than as specified in Sections 5.5.12 through and including
Section 5.5.16 of this Agreement;
Section 5.5.4 Real Silk shall not issue any note, bond, or other debt
security or create, incur, assume, or guarantee any indebtedness for
borrowed money or capitalized lease obligation outside the Ordinary Course
of Business;
Section 5.5.5 Real Silk shall not impose any Security Interest upon
any of its assets;
Section 5.5.6 Real Silk shall not make any capital investment in, make
any loan to, or acquire the securities or assets of any other Person
without the prior written consent of Affiliated Fund;
Section 5.5.7 Real Silk shall not make any change in employment terms
for any of its directors, officers, and employees other than in accordance
with the terms of this Agreement;
Section 5.5.8 Real Silk will not amend any Tax Returns previously
filed or settle any audit or other proceeding with respect to Taxes,
without the prior written consent of Affiliated Fund, which consent shall
not be unreasonably withheld;
Section 5.5.9 Real Silk shall not commit to take any of the actions
restricted in Section 5.5.1 through and including Section 5.5.8;
Section 5.5.10 Except with respect to any contingent liability for
indemnification as specified in Schedule 3.10 to this Agreement, at or
prior to the Effective Time, Real Silk shall have terminated, and satisfied
in full, either by payment in full or by creation of an appropriate
reserve, all obligations under any lease, agreement or contract of any form
whatsoever, to which it is a party;
Section 5.5.11 At or prior to the Effective Time, Real Silk shall have
disposed of all of its assets, other than portfolio securities or other
assets specified in writing by Affiliated
AGREEMENT AND PLAN OF MERGER PAGE 17
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Fund and shall have satisfied or appropriately reserved for all liabilities
associated therewith;
Section 5.5.12 On or before the Closing, Real Silk shall have declared
and paid a dividend or dividends which, together with all previous
dividends or distributions, shall have the effect of distributing to its
stockholders all of its undistributed personal holding company income,
within the meaning of Section 541 of the Code, for the taxable year
beginning on January 1, 1999 and ending on the Closing Date;
Section 5.5.13 On or before the Closing, Real Silk shall have sold the
portfolio securities specified in Schedule 5.5.13, or such other portfolio
securities as are mutually agreeable to the Parties. It is intended by the
Parties, that as a result of such sales, Real Silk will recognize net long
term capital gains for Federal income tax purposes therefrom in the sum of
approximately twenty million dollars ($20,000,000). The Parties hereby
agree that if all of the portfolio securities specified in Schedule 5.5.13
are sold, and Real Silk has recognized net long term capital gains of at
least nineteen million dollars ($19,000,000), no additional sales shall be
necessary. The Parties further agree that if Real Silk shall have sold
fewer than all of the portfolio securities specified in Schedule 5.5.13 and
shall have recognized net long term capital gains in excess of twenty-one
million dollars ($21,000,000) no additional sales shall be necessary.
Section 5.5.14 Real Silk shall pay to the appropriate taxing
authority, on or before the Closing Date, all Taxes required to be paid by
Real Silk with respect to the sale of portfolio securities pursuant to
Section 5.5.13, or adequate provision for the payment of all such Taxes
shall have been made on the books and records of Real Silk as of the
Closing Date (and the amount of all such Taxes not yet paid shall be taken
into account as a liability for purposes of computing the net asset value
of the Real Silk Shares for purposes of Section 2.4.6 of this Agreement).
In addition, Real Silk shall be responsible for and shall have, prior to
the time of the Closing, made provision for, the distribution of all Tax
information reports and designations required by law to be provided to Real
Silk Stockholders relating to the dividends (if any) and distributions (if
any), paid by Real Silk prior to the Closing, including any amount deemed
to be distributed to Real Silk Stockholders pursuant to Section
852(b)(3)(D) of the Code with respect to the sale of portfolio securities
pursuant to Section 5.5.13 of this Agreement, all in accordance with past
practice of Real Silk. Further, Real Silk shall be responsible for and
shall have, prior to the time of the Closing, made provision for,
preparation and filing of all Tax Returns required to be filed by or with
respect to Real Silk for all tax periods ending on or before the Closing
Date, including but not limited to, Form 1120- RIC, Form 1099, and Form
2438, required to be filed with the IRS and applicable state tax filings,
if any. All such Tax Returns shall be prepared in a manner consistent with
past practice of Real Silk, shall be subject to pre-filing review by
Affiliated Fund and shall be reasonably acceptable, in form and substance,
to Affiliated Fund.
Section 5.5.15 Real Silk will declare to Real Silk Stockholders of
record on or prior to the Closing Date a distribution which, together with
all previous distributions or amounts deemed distributed pursuant to
Section 852(b)(3)(D) of the Code, shall have the effect of
AGREEMENT AND PLAN OF MERGER PAGE 18
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distributing all of Real Silk's net realized capital gain (after reduction
for any capital loss carryover) for the taxable year ending December 31,
1998. In addition, Real Silk shall take all steps necessary to cause all of
Real Silk's net realized capital gain (after reduction for any capital loss
carryover) for the short taxable year beginning on January 1, 1999 and
ending on the Closing Date, including any amounts referred to in Section
5.5.13, to have been deemed distributed to Real Silk Stockholders of record
on the Closing Date pursuant to Section 852(b)(3)(D) of the Code, including
designation of such amount in a written notice mailed to such Real Silk
Stockholders before the 60th day after the Closing Date.
Section 5.5.16 Real Silk will declare to Real Silk Stockholders of
record on or prior to the Closing Date a dividend or dividends which
together with all previous such dividends shall have the effect of
distributing (a) all of the excess of (i) Real Silk's investment income
excludable from gross income under Section 103(a) of the Code over (ii)
Real Silk's deductions disallowed under Sections 265 and 171(a)(2) of the
Code and (b) all of Real Silk's investment company taxable income (as
defined in Code Section 852) (computed in each case without regard to any
deduction for dividends paid), in each case for both the taxable year
ending December 31, 1998 and the short taxable year beginning on January 1,
1999 and ending on the Closing Date. Such dividends will be made to ensure
continued qualification of Real Silk as a regulated investment company for
tax purposes and, together with the steps taken in Section 5.5.15, to
eliminate fund-level tax.
Section 5.6 - Full Access. Real Silk shall permit representatives of
Affiliated Fund to have full access at all reasonable times, and in a manner so
as not to interfere with the normal business operations of Real Silk, to all
premises, properties, personnel, books, records (including tax records),
contracts, and documents of or pertaining to Real Silk. Affiliated Fund shall
treat and hold as such any Confidential Information it receives from Real Silk
in the course of the reviews contemplated by this Section 5.6, shall not use any
of the Confidential Information except in connection with this Agreement, and,
if this Agreement is terminated for any reason whatsoever, agrees to return to
Real Silk all tangible embodiments (and all copies) thereof which are in its
possession.
Section 5.7 - Notice of Developments. Each Party shall give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties in Article 3 and Article 4 above. No
disclosure by any Party pursuant to this Section 5.7, however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
Section 5.8 - Exclusivity. From and after the date hereof, Real Silk shall
not, and shall use its best efforts to cause its officers, directors, employees,
attorneys, financial advisors, agents or other representatives not to, directly
or indirectly, solicit, initiate or encourage (including by way of furnishing
information) any takeover proposal or offer from any person, or engage in or
continue discussions or negotiations relating thereto; provided, however, that
Real Silk may furnish information concerning itself and its business, properties
or assets to any third party which makes a Takeover Proposal (as hereinafter
defined) if the Board of Directors of Real Silk concludes in good faith on the
basis of the written advice of its outside counsel that the failure to take such
action would violate the fiduciary obligations of the Board to Real Silk
Stockholders under applicable law.
AGREEMENT AND PLAN OF MERGER PAGE 19
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Real Silk shall promptly (but in no case later than 24 hours of its receipt)
notify Affiliated Fund of any Takeover Proposal, including the material terms
and conditions thereof (provided that it need not disclose the identity of the
person or group making such Takeover Proposal).
As used in this Agreement, "Takeover Proposal" shall mean any unsolicited
proposal or offer, or any unsolicited expression of interest by any third
party relating to Real Silk's willingness or ability to receive or discuss
a proposal or offer for a tender or exchange offer, a merger, consolidation
or other business combination or other extraordinary transaction involving
Real Silk or any unsolicited proposal to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of
Real Silk.
Section 5.9 - Right of First Refusal. Affiliated Fund shall have the right,
but not the obligation, for a period of five (5) business days following notice
to Affiliated Fund by Real Silk of the receipt of a bona fide Takeover Proposal,
to revise the terms of its offer contained in this Agreement in such a manner as
to be equal, or superior, to the Takeover Proposal. In the event that Affiliated
Fund's revised offer is equal or superior to the Takeover Proposal, Affiliated
Fund shall be given preference in selection as the party with which Real Silk
will consummate a transaction.
Section 5.10 - Certain Fees. Without prejudice to any other rights
Affiliated Fund may have, Real Silk shall pay Affiliated Fund a fee equal to
Affiliated Fund's expenses, including attorney's fees, in an amount not to
exceed an aggregate total of $100,000, in cash, by certified check or wire
transfer within two business days of any of the following events:
(a) this Agreement is terminated by Real Silk and within twelve months
after such a termination a Superior Company Acquisition Transaction (as
hereinafter defined) occurs;
(b) this Agreement is terminated by Affiliated Fund following the
occurrence of a Real Silk Third Party Acquisition Event (as hereinafter
defined) and the Board of Directors of Real Silk: (i) shall have
recommended to Real Silk Stockholders any Takeover Proposal or shall have
resolved to do so; or (ii) a tender offer or exchange offer for 30% or more
of the outstanding shares of common stock of Real Silk is commenced, and,
after ten (10) business days, the Board of Directors of Real Silk fails to
recommend against acceptance of such tender offer or exchange offer by Real
Silk Stockholders (including by taking no position with respect to the
acceptance of such tender offer or exchange offer).
A "Real Silk Third Party Acquisition Event" means any of the following
events: (A) any Person other than Affiliated Fund or its Affiliates,
acquires or becomes the beneficial owner of 30% or more of the outstanding
Real Silk Shares; (B) any new group is formed which, at the time of
formation, beneficially owns 30% or more of the outstanding Real Silk
Shares (other than a group which includes or may reasonably be deemed to
include Affiliated Fund or any of its Affiliates); (C) Real Silk enters
into, or announces that it proposes to enter into, an agreement, including,
without limitation, an agreement in principle, providing for a merger or
other business combination involving Real Silk or the acquisition of a
substantial interest in, or a substantial portion of the assets, business
or operations of, Real Silk (other than the transactions contemplated by
this Agreement); (D) any Person (other than Affiliated
AGREEMENT AND PLAN OF MERGER PAGE 20
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Fund or its Affiliates) is granted any option or right, conditional or
otherwise, to acquire or otherwise become the beneficial owner of Real Silk
Shares which, together with all shares beneficially owned by such Person,
results or would result in such Person being the beneficial owner of 30% or
more of the outstanding Real Silk Shares; or (E) there is a public
announcement with respect to a plan or intention by Real Silk and any
Person, other than Affiliated Fund, to effect any of the foregoing
transactions. For purposes of this Section, the terms "group" and "
beneficial owner" shall be defined by reference to Section 13(d) of the
Exchange Act.
A "Superior Company Acquisition Transaction" means the event referred to in
clause (C) of Real Silk Third Party Acquisition Event provided that the
financial and other terms of the transaction referred to therein are, when
considered in the aggregate, more favorable to Real Silk"s Stockholders
than the financial and other terms of the transactions contemplated by this
Agreement.
Section 5.11 - Insurance and Indemnification.
Section 5.11.1 Real Silk currently has in place and shall continue to
provide, at its cost, to each individual who served as a director or
officer of Real Silk at any time prior to the Effective Time with liability
insurance for a period of thirty-six (36) months after the Effective Time,
no less favorable in coverage and amount than any applicable insurance in
effect immediately prior to the Effective Time. Following the Effective
Time, Buyer shall not and shall not attempt to, in any manner, reduce or
terminate the coverage and amount of liability insurance under the Real
Silk directors and officers policy.
Section 5.11.2 Affiliated Fund, as the Surviving Corporation in the Merger,
will observe any indemnification provisions now existing in the Articles of
Incorporation or By-laws of Real Silk for the benefit of any individual who
served as a director or officer of Real Silk at any time prior to the Effective
Time, but only to the extent that there is any recovery which exceeds the
recovery under the Real Silk directors and officer insurance policy.
Section 5.12 - Tax Matters. Real Silk and Affiliated Fund shall each
reasonably cooperate in connection with obtaining the opinions of tax counsel
described in Sections 6.1.11 and 6.2.8 including, without limitation, providing
to counsel such representations as are reasonably required by counsel to enable
them to render such opinions. Real Silk shall deliver to Affiliated Fund and
such counsel prior to the Closing Date representations and warranties, in form
and substance acceptable to Affiliated Fund and its counsel, signed by
beneficial owners of, in the aggregate, at least seventy-five percent (75%) of
the issued and outstanding Real Silk Shares, dated as of the Closing Date,
stating that such beneficial owners, individually and on behalf of the entities
which they control, have no plan or intention to cause Affiliated Fund to redeem
or repurchase the Affiliated Fund Shares issued to them as Merger Consideration.
Such representations and warranties may acknowledge that such beneficial owners
retain the right to cause Affiliated Fund to redeem or repurchase such
Affiliated Fund Shares subject (with respect to the Escrowed Affiliated Fund
Shares) to the restrictions described in Section 2.5, but must represent that
any such redemption or
AGREEMENT AND PLAN OF MERGER PAGE 21
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repurchase will be based upon the stockholder"s personal circumstances or market
conditions at the time of the redemption or repurchase and will not be
precipitated by the Merger.
Section 5.12.1 Affiliated Fund and Real Silk intend the Merger to
qualify as a reorganization under Section 368(a)(1)(A) of the Code; each
party and its affiliates shall use all reasonable efforts to cause the
Merger to so qualify; neither party nor any affiliate shall take any action
that would reasonably be expected to cause the Merger not to so qualify;
and the Parties will take the position for all purposes that the Merger so
qualifies.
ARTICLE 6 - CONDITIONS TO OBLIGATION OF AFFILIATED FUND AND REAL SILK TO CLOSE
Section 6.1 - Obligations of Affiliated Fund. The obligation of Affiliated
Fund to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
Section 6.1.1 This Agreement and the Merger shall have received the
Requisite Real Silk Stockholder Approval;
Section 6.1.2 Real Silk shall have procured all of the third party
consents specified in Section 5.3 above;
Section 6.1.3 The representations and warranties set forth in Article
3 above shall be true and correct in all material respects at and as of the
Closing Date and no event shall have occurred which has had, or is
reasonably likely to have, a material adverse affect on Real Silk.
Section 6.1.4 Real Silk shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
Section 6.1.5 No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Surviving Corporation to own the former
assets, and to operate the former businesses of, Real Silk;
Section 6.1.6 The Registration Statement/Proxy Materials on Form N-14
shall have become effective under the Securities Act;
Section 6.1.7 Affiliated Fund shall have received from Real Silk a
balance sheet, prepared in accordance with GAAP and in accordance with
liquidation accounting, and audited by independent auditors to Real Silk,
dated as of a date as close to the Closing Date as is reasonably
practicable;
AGREEMENT AND PLAN OF MERGER PAGE 22
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Section 6.1.8 Affiliated Fund, or the independent auditors to
Affiliated Fund, shall have the opportunity to confirm, or shall have
confirmed, ownership of all portfolio securities listed by Real Silk in its
specification of portfolio securities owned, and such verification shall
include all portfolio securities, including all liabilities related
thereto, utilized by Real Silk in the calculation of its net asset value
for determination of the Conversion Ratio; Section
6.1.9 All applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the Parties shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred
to in Section 3.5 and Section 4.4 above;
Section 6.1.10 Real Silk shall have delivered to Affiliated Fund (for
payment to Lord Abbett & Co., its investment adviser) the sum of Fifteen
Thousand and 00/100 Dollars ($15,000) in readily available funds. Such
payment shall be contingent on the occurrence of the Closing and is in
partial reimbursement of the filing fee required to be paid in connection
with the Hart-Scott-Rodino Act filing.
Section 6.1.11 Affiliated Fund shall have received from Leagre
Chandler & Millard LLP, counsel to Real Silk, an opinion of counsel,
addressed to Affiliated Fund and dated as of the Closing Date, in form and
substance acceptable to Affiliated Fund, expressing such opinions and
subject to such conditions and qualifications as are ordinary and customary
in transactions similar to those anticipated by this Agreement;
Section 6.1.12 Affiliated Fund shall have received from Debevoise &
Plimpton, counsel to Affiliated Fund, an opinion of counsel, addressed to
Affiliated Fund and dated as of the Closing Date, in form and substance
acceptable to Affiliated Fund, to the effect that the Merger will
constitute a reorganization pursuant to Code ss. 368(a)(1)(A), subject to
such conditions and qualifications as are ordinary and customary in such
opinions of counsel;
Section 6.1.13 Affiliated Fund shall have received the resignations,
effective as of the Closing, of each director, officer and employee of Real
Silk, or Real Silk shall have terminated each employee, other than those
whom Affiliated Fund shall have specified in writing at least five (5)
business days prior to the Closing, and Real Silk shall have satisfied or
appropriately reserved for all liabilities relating thereto; and
Section 6.1.14 All actions to be taken by Real Silk in connection with
the consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby shall be reasonably satisfactory in
form and substance to Affiliated Fund.
Section 6.1.15 Real Silk shall have delivered to Affiliated Fund an
officer's certificate to the effect that each of the conditions specified
above in Sections 6.1.1 through and including Section 6.1.5 is satisfied in
all material respects;
AGREEMENT AND PLAN OF MERGER PAGE 23
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Section 6.1.16 Real Silk shall have delivered to Affiliated Fund an
officer's certificate stating the true and correct number of shares of
capital stock of Real Silk outstanding as of the Effective Time.
Section 6.1.17 Real Silk shall have delivered to Affiliated Fund a
fully executed and effective Escrow Agreement in accordance with the
provisions of Section 2.5 of this Agreement.
Affiliated Fund may waive any condition specified in this Section 6.1
if it executes a writing so stating at or prior to the Closing.
Section 6.2 - Conditions to Obligation of Real Silk. The obligation of Real
Silk to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
Section 6.2.1 The Registration Statement/Proxy Materials on Form N-14
shall have become effective under the Securities Act;
Section 6.2.2 The representations and warranties set forth in Article
4 above shall be true and correct in all material respects at and as of the
Closing Date;
Section 6.2.3 Affiliated Fund shall have performed and complied with
all of its covenants hereunder in all material respects through the
Closing;
Section 6.2.4 No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Surviving Corporation to own the former
assets, and to operate the former businesses of Real Silk;
Section 6.2.5 This Agreement and the Merger shall have received the
Requisite Real Silk Stockholder Approval;
Section 6.2.6 All applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise
been terminated and the Parties shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3.5 and Section 4.4 above;
Section 6.2.7 Real Silk shall have received from Debevoise & Plimpton,
counsel to Affiliated Fund, an opinion of counsel, addressed to Real Silk
and dated as of the Closing Date, in form and substance acceptable to Real
Silk, expressing such opinions and subject
AGREEMENT AND PLAN OF MERGER PAGE 24
<PAGE>
to such conditions and qualifications as are ordinary and customary in
transactions similar to those anticipated by this Agreement;
Section 6.2.8 Real Silk shall have received from Ropes & Gray, tax
counsel to Real Silk, an opinion in form and substance acceptable to Real
Silk, and addressed to Real Silk, and dated as of the Closing Date, to the
effect that the Merger will constitute a reorganization pursuant to Code
ss.368(a)(1)(A) and that Real Silk Stockholders who receive solely
Affiliated Fund Shares pursuant to the Merger will not recognize income or
gain for federal income tax purposes as a result of the consummation of the
Merger;
Section 6.2.9 All actions to be taken by Affiliated Fund in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby shall be reasonably satisfactory in
form and substance to Real Silk;
Section 6.2.10 Affiliated Fund shall have delivered to Real Silk a
certificate to the effect that each of the conditions specified above in
Sections 6.2.2 through and including Section 6.2.4 is satisfied in all
material respects.
Real Silk may waive any condition specified in this Section 6.2 if it
executes a writing so stating at or prior to the Closing.
ARTICLE 7 - TERMINATION
Section 7.1 - Termination of Agreement. Either of the Parties may terminate
this Agreement with the prior authorization of its board of directors (whether
before or after shareholder approval) as provided below:
Section 7.1.1 The Parties may terminate this Agreement by mutual
written consent at any time prior to the Effective Time;
Section 7.1.2 Affiliated Fund may terminate this Agreement by giving
written notice to Real Silk at any time prior to the Effective Time (A) in
the event Real Silk has breached any representation, warranty, or covenant
contained in this Agreement in any material respect, Affiliated Fund has
notified Real Silk of the breach, and the breach has continued without cure
for a period of 30 days after the notice of breach or (B) if the Closing
shall not have occurred on or before December 31, 1999, by reason of the
failure of any condition precedent under Section 6.1 hereof (unless the
failure results primarily from Affiliated Fund breaching any
representation, warranty, or covenant contained in this Agreement);
Section 7.1.3 Real Silk may terminate this Agreement by giving written
notice to Affiliated Fund at any time prior to the Effective Time (A) in
the event Affiliated Fund has breached any representation, warranty, or
covenant contained in this Agreement in any material respect, Real Silk has
notified Affiliated Fund of the breach, and the breach has continued
without cure for a period of 30 days after the notice of breach or (B) if
the Closing
AGREEMENT AND PLAN OF MERGER PAGE 25
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shall not have occurred on or before December 31,1999, by reason of the
failure of any condition precedent under Section 6.2 hereof (unless the
failure results primarily from Real Silk breaching any representation,
warranty, or covenant contained in this Agreement);
Section 7.1.4 Any Party may terminate this Agreement by giving written
notice to the other Party at any time prior to the Effective Time in the
event the Fairness Opinion is withdrawn;
Section 7.1.5 Any Party may terminate this Agreement by giving written
notice to the other Party at any time after the Special Real Silk Meeting
in the event this Agreement and the Merger fail to receive the Requisite
Real Silk Stockholders Approval;
Section 7.1.6 Any Party may terminate this Agreement by giving written
notice to the other Party at any time prior to the Effective Time in the
event a court of competent jurisdiction issues an order restraining,
enjoining or otherwise prohibiting the Merger and (i) such order is a final
order not subject to appeal; or (ii) the Party that is not terminating this
Agreement (the "Non-Terminating Party") has provided written notice to the
terminating Party that the Non-Terminating Party does not intend to appeal
the order restraining, enjoining or otherwise prohibiting the Merger.
Section 7.2 - Effect of Termination. If any Party terminates this Agreement
pursuant to Section 7.1 above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, that
the confidentiality provisions contained in Section 5.6 above shall survive any
such termination.
ARTICLE 8 - EVENTS FOLLOWING THE CLOSING
Following the Effective Time, Real Silk shall make all required regulatory
filings, including but not limited to, an application for an order pursuant to
Section 8(f) of the 1940 Act requesting an order stating that it has ceased to
be an investment company. Real Silk shall have contracted for, or made
arrangements to bear the cost of, any and all such filings.
ARTICLE 9 - MISCELLANEOUS
Section 9.1 - Survival. None of the representations, warranties, and
covenants of the Parties (other than the provisions in Section 2 above
concerning issuance of Affiliated Fund Shares, the provisions in Section 5.11.1
and 5.11.2 above concerning insurance and indemnification, and the provisions in
Section 4.8 above concerning certain requirements for a tax-free reorganization)
shall survive the Effective Time.
Section 9.2 - Transfer Taxes. Any transfer taxes imposed in connection with
the Merger shall be borne by Real Silk and, to the extent such transfer taxes
remain unpaid as of the Closing Date, shall be taken into account as a liability
for purposes of computing the net asset value of the Real Silk Shares pursuant
to Section 2.4.6 of this Agreement.
AGREEMENT AND PLAN OF MERGER PAGE 26
<PAGE>
Section 9.3 - Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior written approval of the other Party;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities, in which case the disclosing Party
shall use its best efforts to advise other Party prior to making the disclosure.
Section 9.4 - No Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; provided, however, that (i) the
provisions in Section 2 above concerning issuance of Affiliated Fund Shares and
the provisions in Section 5.12 above concerning certain requirements for a
tax-free reorganization are intended for the benefit of the Real Silk
Stockholders and (ii) the provisions in Section 5 and Section 5.11.2 above
concerning insurance and indemnification are intended for the benefit of the
individuals specified therein and their respective legal representatives.
Section 9.5 - Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they related in any way to
the subject matter hereof.
Section 9.6 - Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Party.
Section 9.7 - Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
Section 9.8 - Headings. The section headings contained in this Agreement
are for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.9 - Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given two business
days after it is sent if it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to Real Silk: Real Silk Investments Incorporated
Attn: Daniel R. Efroymson, President
Suite 500
445 N. Pennsylvania Street
Indianapolis, IN 46204
Telecopy: (317) 632-5104
AGREEMENT AND PLAN OF MERGER PAGE 27
<PAGE>
Copy to: Jeffrey B. Bailey
Leagre Chandler & Millard LLP
1400 1st Indiana Building
135 N. Pennsylvania Street
Indianapolis, IN 46204
Telecopy: (317) 808-3100
If to the Buyer: Lord Abbett Affiliated Fund, Inc.
Attn: Paul A. Hilstad, Vice President and Secretary
767 Fifth Avenue
New York, NY 10153-0203
Telecopy: (212) 935-9233
Copy to: Matthew A. Chambers
Debevoise & Plimpton
555 13th Street N.W.
Washington, D.C. 20004
Telecopy: (202) 383-8118
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
Section 9.10 - Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Indiana without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Indiana or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Indiana.
Section 9.11 - Jurisdiction, Venue. The Parties hereby irrevocably consent
to the jurisdiction of the courts of the State of Indiana and the Federal courts
in the Southern District of Indiana in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to
herein, and in respect of the transaction contemplated hereby and thereby. The
Parties further agree that the exclusive venue for the initiation of any action
in respect of this Agreement be in the state or Federal courts located in Marion
County in the City of Indianapolis, Indiana.
Section 9.12 - Waiver of Jury Trial. The Parties hereby irrevocably and
unconditionally waive any right to a trial by jury in respect of any litigation
directly or indirectly arising out of, or relating to, this Agreement or the
transactions contemplated hereby.
AGREEMENT AND PLAN OF MERGER PAGE 28
<PAGE>
Section 9.13 - Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to shareholder approval shall be subject
to the restrictions contained in the Indiana Business Corporation Law. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both Parties. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way, or waive any rights arising by virtue of any prior or
subsequent such occurrence.
Section 9.14 - Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
Section 9.15 - Expenses. Each of the Parties shall bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby except as provided in Section
5.10 and Section 6.1.10 of this Agreement.
Section 9.16 - Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
Section 9.17 - Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
LORD ABBETT AFFILIATED FUND, INC. REAL SILK INVESTMENTS, INCORPORATED
By: By:
------------------------------------ ------------------------------
Robert S. Dow Daniel R. Efroymson
Chairman of the Board of Directors President
AGREEMENT AND PLAN OF MERGER PAGE 29
<PAGE>
Lord
Abbett
Affiliated Fund
Prospectus
March 1, 1999
[LOGO] LORD, ABBETT & CO.
Investment Management
FPO
A Tradition of Performance Through Disciplined Investing
As with all mutual funds, the Securities and Exchange Commission
does not guarantee that the information in this prospectus is
accurate or complete, and it has not judged this fund for its
investment merit. It is a criminal offense to state otherwise.
<PAGE>
Table of Contents
The Fund Page
What you should know about the fund
Goal/Approach 2
Main Risks 2
Past Performance 3
Fees and Expenses 3
Your Investment
Information for managing your fund account
Purchases 4
Opening Your Account 6
Redemptions 7
Distributions and Taxes 7
Services For Fund Investors 8
Sales Charges and Service Fees 9
Management 9
For More Information
How to learn more about the fund
Other Investment Techniques 10
Glossary of Shaded Terms 10
Recent Performance 12
Financial Information
Financial Highlights 13
Broker Compensation 15
How to learn more about the fund and other Lord Abbett funds
Back Cover
<PAGE>
The Fund
GOAL/APPROACH
The fund's investment objective is long-term growth of capital and income
without excessive fluctuations in market value. Typically, in choosing
stocks, we look for companies using a three-step process.
o Quantitative research is performed on a universe of large, seasoned
U.S. and multinational companies to identify those whose stocks we
believe represent the best bargains.
o Fundamental research is conducted to assess a company's operating
environment, resources and strategic plans and to determine its
prospects for exceeding the earnings expectations reflected in its
stock price.
o Business cycle analysis is used to assess the economic and
interest-rate sensitivity of our portfolio. This analysis helps us
assess how adding or deleting stocks changes our portfolio's overall
sensitivity to economic activity and interest rates.
We believe that investors purchase and redeem our shares to meet long-term
financial objectives rather than to try to take advantage of short-term
price fluctuations. If so, their needs are best served by an investment
seeking capital appreciation with less fluctuations in market value than
the Standard & Poor's Composite Index of 500 stocks ("S&P 500(R)"). For
this reason, we try to keep our assets invested in securities which are
selling at reasonable prices and, therefore, we are willing to forego some
opportunities for gains when, in our judgment, they are too risky.
We generally sell a stock when we think it is no longer a bargain, appears
less likely to benefit from the current market and economic environment,
shows deteriorating fundamentals or falls short of our expectations.
While typically fully invested, at times we may take a temporary defensive
position by investing some of our assets in short-term debt securities.
This could have the effect of reducing the benefit from any upswing in the
market and prevent the fund from realizing its investment objective.
MAIN RISKS
While stocks have historically been a leading choice of long-term
investors, they fluctuate in price. The value of your investment in the
fund will go up and down, which means that you could lose money.
Our performance may sometimes be lower or higher than that of other types
of funds (such as those emphasizing small-company stocks or growth stocks)
because different types of stocks tend to shift in and out of favor
depending on market and economic conditions. While there is the risk that
an investment may never reach what we think is its full value, or may go
down in value, our emphasis on large seasoned company bargain stocks could
limit our downside risk because bargain stocks in theory are already
underpriced and large seasoned company stocks tend to be less volatile
than small company stocks. In the long run, we may produce more modest
gains than riskier stock funds as a trade-off for this potentially lower
risk.
An investment in the fund is not a bank deposit. It is not FDIC-insured or
government-endorsed. It is not a complete investment program. You could
lose money in this fund, but you also have the potential to make money.
We or the fund refers to Lord Abbett Affiliated Fund, Inc. (the "company") which
operates under the supervision of its Board with the advice of Lord, Abbett &
Co. ("Lord Abbett"), its investment manager.
About the fund. This fund is a professionally managed portfolio primarily
holding securities purchased with the pooled money of investors. It strives to
reach its stated goal, although as with all funds, it cannot guarantee results.
Large companies are established companies that are considered "known
quantities." Large companies often have the resources to weather economic
shifts, though they can be slower to innovate than small companies.
Seasoned companies are usually established companies whose securities have
gained a reputation for quality with the investing public and enjoy liquidity in
the market.
Bargain stocks are stocks of companies that appear under-priced according to
certain financial measurements of their intrinsic worth or business prospects.
Small-Company Stocks are stocks of smaller companies which often are new and
less established, with a tendency to be faster-growing but more volatile than
large company stocks.
Growth Stocks are stocks which exhibit faster-than-average gains in earnings and
are expected to continue profit growth at a high level, but also tend to be more
volatile than bargain stocks.
You should read this entire prospectus, including "Other Investment Techniques,"
which concisely describes the other investment strategies used by the fund and
their risks.
2 / The Fund
<PAGE>
------------------------
Symbols: Class A - LAFFX
Class B - LAFBX
Class C - LAFCX
PAST PERFORMANCE
The information below provides some indication of the risks of investing
in the fund, by showing changes in the fund's performance from calendar
year to calendar year and by showing how the fund's average annual returns
compare with those of a broad measure of market performance.
[The following table was depicted as a bar chart in the printed material.]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.8% 23.5% -5.2% 22.0% 12.4% 13.2% 4.1% 31.7% 20.1% 25.2% 14.4%
Best Quarter: 17.10% Worst Quarter -12.57%
=====================================================================================
</TABLE>
The table below shows a comparison of the fund's class A, B, C and P average
annual total return to that of the S&P 500(R) Index. Fund returns assume
reinvestment of dividends and distributions and payment of the maximum
applicable front-end or deferred sales charge. All periods end on December 31,
1998.
Class 1 Year 5 Years 10 Years Inception(i) S&P 500(R)
A 7.90% 17.30% 14.97% 12.67% --
- - - --------------------------------------------------------------------------------
B 9.09% -- -- 20.94% 33.33(iii)
- - - --------------------------------------------------------------------------------
C 13.55% -- -- 22.48% 33.33(iii)
- - - --------------------------------------------------------------------------------
P 14.00% -- -- 11.35% 28.94(iv)
- - - --------------------------------------------------------------------------------
S&P 500(R)Index(ii) 28.74% 24.08% 19.20% -- --
- - - --------------------------------------------------------------------------------
Past performance is not a prediction of future results.
- - - --------------------------------------------------------------------------------
(i) The dates of inception for each class are: A - 1/1/50; B -8/1/96; C
-8/1/96; and P -12/8/97.
(ii) Performance for the unmanaged S&P 500(R) Index does not reflect
transaction costs or management fees.
(iii) Represents total return for the period 7/31/96 - 12/31/98, to correspond
with class B and C inception dates.
(iv) Represents total return for the period 12/31/97 - 12/31/98, to correspond
with class P inception date.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
================================================================================
Fee table
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C Class P
<S> <C> <C> <C> <C>
Shareholder Fees (Fees paid directly from your investment)
- - - ---------------------------------------------------------------------------------------------------------------
Maximum Sales Charge on Purchases
- - - ---------------------------------------------------------------------------------------------------------------
(as a % of offering price) 5.75% none none none
- - - ---------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (See "Purchases") none 5.00%(2)(5) 1.00%(3) none
- - - ---------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (Expenses deducted from fund assets) (as a % of average net assets)(1)
- - - ---------------------------------------------------------------------------------------------------------------
Management Fees (See "Management") 0.31% 0.31% 0.31% 0.31%
- - - ---------------------------------------------------------------------------------------------------------------
Distribution and Service (12b-1 Fees)(4) 0.35% 1.00% 1.00% 0.45%
- - - ---------------------------------------------------------------------------------------------------------------
Other Expenses (See "Management") 0.09% 0.09% 0.09% 0.09%
- - - ---------------------------------------------------------------------------------------------------------------
Total Operating Expenses 0.75% 1.40% 1.40% 0.85%
- - - ---------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
Expense example
- - - --------------------------------------------------------------------------------
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment at maximum sales charge, if any, 5% total return each year and no
changes in expenses. You pay the following expenses over the course of each
period shown if you sell your shares at the end of the period, although your
actual cost may be higher or lower. The expenses include any applicable
contingent deferred sales charges.
Share class 1 Year 3 Years 5 Years 10 Years
Class A shares $647 $801 $968 $1,454
- - - --------------------------------------------------------------------------------
Class B shares(5) $642 $743 $966 $1,499
- - - --------------------------------------------------------------------------------
Class C shares $242 $443 $766 $1,682
- - - --------------------------------------------------------------------------------
Class P shares $87 $271 $471 $1,051
- - - --------------------------------------------------------------------------------
You would pay the following expenses on the same investment, assuming you kept
your shares.
Class A shares $647 $801 $968 $1,454
- - - --------------------------------------------------------------------------------
Class B shares(5) $142 $443 $766 $1,499
- - - --------------------------------------------------------------------------------
Class C shares $142 $443 $766 $1,682
- - - --------------------------------------------------------------------------------
Class P shares $87 $271 $471 $1,051
- - - --------------------------------------------------------------------------------
This example is for comparison and is not a representation of the fund's actual
expenses or returns, either past or present.
Management fees are payable to Lord Abbett for the fund's investment management.
12b-1 fees refer to fees incurred for activities that are primarily intended to
result in the sale of fund shares and service fees for shareholder account
service and maintenance.
Other expenses include fees paid for miscellaneous items such as transfer
agency, legal and share registration fees.
- - - --------------------------------------------------------------------------------
(1) The annual operating expenses have been restated from fiscal year amounts
to reflect current fees.
(2) 5.00% if shares are redeemed before 1st anniversary of purchase, declining
to 1.00% before 6th anniversary and eliminated on and after 6th
anniversary.
(3) 1.00% if shares are redeemed before 1st anniversary of purchase.
(4) Because 12b-1 distribution fees (up to: 0.10%- class A; 0.75%- classes B
and C; and 0.25%- class P) are paid out on an on-going basis, over time
they will increase the cost of your investment and may cost you more than
paying other types of sales charges. Service fees under each class's 12b-1
Plan equal up to 0.25%, execpt 0.20%- class P.
(5) Class B shares will convert to class A shares on the eighth anniversary of
your original purchase of class B shares.
The Fund / 3
<PAGE>
Your Investment
PURCHASES
This prospectus offers four classes of shares, class A, B, C and P.
Although a fund may have more than one class of shares, these different
classes of shares represent investments in the same portfolio of
securities but are subject to different expenses. Our shares are
continuously offered. The offering price is based on the Net Asset Value
("NAV") per share next determined after we receive your purchase order
submitted in proper form. A front-end sales charge is added to the NAV, in
the case of the class A shares. There is no front-end sales charge,
although there is a CDSC in the case of the class B and C shares, as
described below.
You should read this section carefully to determine which class of shares
represents the best investment option for your particular situation. It
may not be suitable for you to place a purchase order for class B shares
of $500,000 or more, or a purchase order for class C shares of $1,000,000
or more. You should discuss pricing options with your investment
professional.
For more information, see "Alternative Sales Arrangements" in the
Statement of Additional Information.
We reserve the right to withdraw all or any part of the offering made by
this prospectus or to reject any purchase order. We also reserve the right
to waive or change minimum investment requirements. All purchase orders
are subject to our acceptance and are not binding until confirmed or
accepted in writing.
NAV per share for each class of fund shares is calculated each business day at
the close of regular trading on the New York Stock Exchange ("NYSE"). The fund
is open on those business days when the NYSE is open. Purchases and sales of
fund shares are executed at the NAV next determined after the fund receives your
order. In calculating NAV, securities for which market quotations are available
are valued at those quotations. Securities for which such quotations are not
available are valued at fair value under procedures approved by the Board.
================================================================================
Front-End Sales Charges - Class A Shares
- - - --------------------------------------------------------------------------------
To Compute
As a % of As a % of Offering Price
Your Investment Offering Price Your Investment Divide NAV by
- - - --------------------------------------------------------------------------------
Less than $50,000 5.75% 6.10% .9425
- - - --------------------------------------------------------------------------------
$50,000 to $99,999 4.75% 4.99% .9525
- - - --------------------------------------------------------------------------------
$100,000 to $249,999 3.75% 3.90% .9625
- - - --------------------------------------------------------------------------------
$250,000 to $499,999 2.75% 2.83% .9725
- - - --------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% .9800
- - - --------------------------------------------------------------------------------
$1,000,000 and over No Sales Charge 1.0000
- - - --------------------------------------------------------------------------------
Reducing Your Class A Front-End Sales Charges. Class A shares may be
purchased at a discount if you qualify under either of the following:
o Rights of Accumulation -- A Purchaser can apply the value (at public
offering price) of the shares you already own to a new purchase of
class A shares of any Eligible Fund in order to reduce the sales
charge.
o Statement of Intention -- A Purchaser of class A shares can purchase
additional shares of any Eligible Fund over a 13-month period and
receive the same sales charge as if you had purchased all shares at
once. Shares purchased through reinvestment of dividends or
distributions are not included. A statement of intention can be
backdated 90 days. Current holdings under rights of accumulation can
be included in a statement of intention.
For more information on eligibility for these privileges, read the
applicable sections in the attached application.
Share classes
Class A
o normally offered with a front-end sales charge
Class B
o no front-end sales charge, however, a contingent deferred sales charge is
applied to shares sold prior to the sixth anniversary of purchase
o higher annual expenses than class A shares
o automatically convert to class A shares after eight years
Class C
o no front-end sales charge
o higher annual expenses than class A shares
o a contingent deferred sales charge is applied to shares sold prior to the
first anniversary of purchase
Class P
o available to certain pension or retirement plans and pursuant to a Mutual
Fund Advisory Program
4 / Your Investment
<PAGE>
Class A Share Purchases Without A Front-End Sales Charge. Class A shares
may be purchased without a front-end sales charge under any of the
following:
o purchases of $1 million or more *
o purchases by Retirement Plans with at least 100 eligible employees *
o purchases under a Special Retirement Wrap Program *
o purchases made with dividends and distributions on class A shares of
another Eligible Fund
o purchases representing repayment under the loan feature of the Lord
Abbett-sponsored prototype 403(b) Plan for class A shares
o purchases by employees of any consenting securities dealer having a
sales agreement with Lord Abbett Distributor
o purchases under a Mutual Fund Advisory Program
o purchases by trustees or custodians of any pension or profit sharing
plan, or payroll deduction IRA for employees of any consenting
securities dealer having a sales agreement with Lord Abbett
Distributor
See the Statement of Additional Information for a listing of other
categories of purchasers who qualify for class A share purchases without a
front-end sales charge.
* These categories may be subject to a Contingent Deferred Sales Charge
("CDSC").
Class A Share CDSC. If you buy class A shares under one of the starred (*)
categories listed above and you redeem any of them within 24 months after
the month in which you initially purchased them, the fund normally will
collect a CDSC of 1%.
The class A share CDSC generally will be waived for the following:
o benefit payments such as Retirement Plan loans, hardship
withdrawals, death, disability, retirement, separation from service
or any excess distribution under Retirement Plans (documentation may
be required)
o redemptions continuing as investments in another fund participating
in a Special Retirement Wrap Program
Class B Share CDSC. The CDSC for class B shares normally applies if you
redeem your shares before the sixth anniversary of their initial purchase.
The CDSC declines the longer you own your shares, according to the
following schedule:
================================================================================
Contingent Deferred Sales Charges - Class B Shares
- - - --------------------------------------------------------------------------------
Anniversary(1) of Contingent Deferred Sales Charge
the day on which the on redemption (as % of amount
purchase order was accepted subject to charge)
On Before
- - - --------------------------------------------------------------------------------
1st 5.0%
- - - --------------------------------------------------------------------------------
1st 2nd 4.0%
- - - --------------------------------------------------------------------------------
2nd 3rd 3.0%
- - - --------------------------------------------------------------------------------
3rd 4th 3.0%
- - - --------------------------------------------------------------------------------
4th 5th 2.0%
- - - --------------------------------------------------------------------------------
5th 6th 1.0%
- - - --------------------------------------------------------------------------------
on or after the 6th(2) None
- - - --------------------------------------------------------------------------------
(1) Anniversary is the 365th day subsequent to a purchase or a prior
anniversary.
(2) Class B shares will automatically convert to class A shares on the eighth
anniversary of the purchase of class B shares.
CDSC regardless of class, is not charged on shares acquired through reinvestment
of dividends or capital gains distributions and is charged on the original
purchase cost or the current market value of the shares at the time they are
being sold, whichever is lower. In addition, repayment of loans under Retirement
Plans and 403(b) Plans will constitute new sales for purposes of assessing the
CDSC.
To determine if a CDSC applies to a redemption, the fund redeems shares in the
following order:
1. shares acquired by reinvestment of dividends and capital gains
2. shares held for six years or more (class B) or two years or more after the
month of purchase (class A) or one year or more (class C)
3. shares held the longest before the sixth anniversary of their purchase
(class B) or before the second anniversary after the month of purchase
(class A) or before the first anniversary of their purchase (class C)
Retirement Plans include employer-sponsored retirement plans under the Internal
Revenue Code, excluding Individual Retirement Accounts.
Lord Abbett Distributor LLC ("Lord Abbett Distributor") acts as agent for the
funds to work with investment professionals that buy and/or sell shares of the
funds on behalf of their clients. Generally, Lord Abbett Distributor does not
sell fund shares directly to investors.
Benefit Payment Documentation.
(Class A only)
o under $50,000 - no documentation necessary
o over $50,000 - reason for benefit payment must be received in writing. Use
the address indicated under "Opening Your Account."
Your Investment / 5
<PAGE>
The class B share CDSC generally will be waived under any one of the
following:
o benefit payments such as Retirement Plan loans, hardship
withdrawals, death, disability, retirement, separation from service
or any excess contribution or distribution under Retirement Plans
(documentation may be required)
o Eligible Mandatory Distributions under 403(b) Plans and individual
retirement accounts
o death of the shareholder (natural person)
o redemptions of shares in connection with Div-Move and Systematic
Withdrawal Plans (up to 12% per year)
See "Systematic Withdrawal Plan" under "Services For Fund Investors" below
for more information on CDSCs with respect to class B shares.
Class C Share CDSC. The 1% CDSC for class C shares normally applies if you
redeem your shares before the first anniversary of your original purchase.
Class P Shares. Class P shares have lower annual expenses than class B and
class C shares, no front-end sales charge, and no CDSC. Class P shares are
currently sold and redeemed at NAV (a) pursuant to a Mutual Fund Advisory
Program, or (b) to the trustees of, or employer-sponsors with respect to,
pension or retirement plans with at least 100 eligible employees (such as
a plan under Section 401(a), 401(k) or 457(b) of the Internal Revenue
Code) which engage an investment professional providing or participating
in an agreement to provide, certain recordkeeping, administrative and/or
sub-transfer agency services to the fund on behalf of the class P
shareholders.
Important Information. You may be subject to a $50 penalty under the Internal
Revenue Code if you do not provide a correct taxpayer identification number
(Social Security Number for individuals) or make certain required
certifications. In addition, we may be required to withhold from your account
and pay to the U.S. Treasury 31% of any redemption proceeds and any dividend or
distribution from your account.
OPENING YOUR ACCOUNT
Minimum initial investment
o Regular account $250
o Individual Retirement Accounts and
403(b) Plans under the Internal
Revenue Code $250
o Uniform Gift to Minor Account $250
For Retirement Plans and Mutual Fund Advisory Programs, no minimum
investment is required, regardless of share class.
You may purchase shares through any independent securities dealer who has
a sales agreement with Lord Abbett Distributor or you can fill out the
attached application and send it to the fund you select at the address
stated below. You should carefully read the paragraph below entitled
"Proper Form" before placing your order to assure your order will be
accepted.
Name of Fund
P.O. Box 419100
Kansas City, MO 64141
Proper Form. An order submitted directly to the fund must contain: (1) a
completed application, and (2) payment by check. For more information
regarding proper form of a purchase order, call the fund at 800-821-5129.
Payment must be credited in U.S. dollars to our custodian bank's account.
By Exchange. Telephone the fund at 800-821-5129 to request an exchange
from any eligible Lord Abbett-sponsored fund.
6 / Your Investment
<PAGE>
REDEMPTIONS
By Broker. Call your investment professional for directions on how to
redeem your shares.
By Telephone. To obtain the proceeds of a redemption of $50,000 or less
from your account, you or your representative can call the fund at
800-821-5129.
By Mail. Submit a written redemption request indicating, the name(s) in
which the account is registered, the fund's name, the class of shares,
your account number, and the dollar value or number of shares you wish to
sell.
Include all necessary signatures. If the signer has any Legal Capacity,
the signature and capacity must be guaranteed by an Eligible Guarantor.
Certain other legal documentation may be required. For more information
regarding proper documentation call 800-821-5129.
Normally a check will be mailed to the name and address in which the
account is registered (or otherwise according to your instruction) within
three business days after receipt of your redemption request. Your account
balance must be sufficient to cover the amount being redeemed or your
redemption order will not be processed. Redemption requests for shares
initially purchased by check will not be honored for up to 15 days, unless
we are assured that the check has cleared earlier.
To determine if a CDSC applies to a redemption, see "Class A share CDSC,"
"Class B share CDSC" or "Class C share CDSC."
Eligible Guarantor is any broker or bank that is a member of the Medallion Stamp
Program. Most major securities firms and banks are members of this program. A
notary public is not an eligible guarantor.
DISTRIBUTIONS AND TAXES
The fund pays its shareholders dividends from its net investment income,
and distributes any net capital gains that it has realized. The fund
expects that its dividends from investment income will be paid quarterly.
If a capital gain distribution is declared, it will be paid annually. Your
distributions will be reinvested in the fund unless you instruct the fund
to pay them to you in cash. There are no sales charges on reinvestments.
The tax status of distributions is the same for all shareholders
regardless of how long they have been in the fund or whether distributions
are reinvested or paid in cash. In general, distributions are taxable as
follows:
================================================================================
Federal Taxability Of Distributions
Type of Tax rate for taxpayer Tax rate for taxpayer subject
distribution subject to 15% bracket to 28% bracket or above
- - - --------------------------------------------------------------------------------
Income Ordinary
dividends 15% income rate
- - - --------------------------------------------------------------------------------
Short-term Ordinary
capital gains 15% income rate
- - - --------------------------------------------------------------------------------
Long-term
capital gains 10% 20%
- - - --------------------------------------------------------------------------------
Except in tax-advantaged accounts, any sale or exchange of fund shares may
be a taxable event.
Annual Information. Information concerning the tax treatment of dividends
and other distributions will be mailed to shareholders each year. The fund
will also provide annually to its shareholders information regarding the
source of dividends and distributions of capital gains by the fund.
Because everyone's tax situation is unique, you should consult your tax
adviser regarding the treatment of those distributions under the federal,
state and local tax rules that apply to you as well as the tax
consequences of gains or losses from the redemption or exchange of your
shares.
Small Accounts. Our Board may authorize closing any account in which there are
fewer than 25 shares if it is in the fund's best interest to do so.
Taxes on Transactions. The chart at left also can provide a "rule of thumb"
guide for your potential U.S. federal income tax liability when selling or
exchanging fund shares. The second row, "Short-term capital gains," applies to
fund shares sold within 12 months of purchase. The third row, "Long-term capital
gains," applies to shares held for more than 12 months.
Starting January 1, 2001, sales of securities held for more than five years will
be taxed at special lower rates.
Your Investment / 7
<PAGE>
SERVICES FOR FUND INVESTORS
AUTOMATIC SERVICES
Buying or selling shares automatically is easy with the services described
below. With each service, you select a schedule and amount, subject to
certain restrictions. You can set up most of these services when filling
out your application or by calling 800-821-5129.
================================================================================
For investing
Invest-A-Matic You can make fixed, periodic investments ($50 minimum)
(Dollar-cost into your fund account by means of automatic money
averaging) transfers from your bank checking account. See the
attached application for instructions.
Div-Move You can automatically reinvest the dividends and
distributions from your account into another account in
any Eligible Fund ($50 minimum).
For selling shares
Systematic You can make regular withdrawals from most Lord Abbett
Withdrawal funds. Automatic cash withdrawals can be paid to you
Plan ("SWP") from your account in fixed or variable amounts. To
establish a plan, the value of your shares must be at
least $10,000, except for Retirement Plans for which
there is no minimum. Your shares must be in
non-certificate form.
Class B shares The CDSC will be waived on redemptions of up to 12% of
the current net asset value of your account at the time
of your SWP request. For class B share redemptions over
12% per year, the CDSC will apply to the entire
redemption. Please contact the fund for assistance in
minimizing the CDSC in this situation.
Class B and Redemption proceeds due to a SWP for class B and
C shares class C shares will be redeemed in the order described
under "Contingent Deferred Sales Charges" under
"Purchases."
================================================================================
Lord Abbett offers a variety of Retirement Plans. Call 800-253-7299 for
information about:
o Traditional, Rollover, Roth and Education IRAs
o Simple IRAs, SEP-IRAs, 401(k) and 403(b) accounts
o Defined Contribution Plans
OTHER SERVICES
Telephone Investing. After we have received the attached application
(selecting "yes" under Section 7C and completing Section 7), you can
instruct us by phone to have money transferred from your bank account to
purchase shares of the fund for an existing account. The fund will
purchase the requested shares when it receives the money from your bank.
Telephone Exchanges. You or your investment professional, with proper
identification, can instruct your fund by telephone to exchange shares of
any class for shares of the same class of any Eligible Fund by calling
800-821-5129. The fund must receive instructions for the exchange before
the close of the NYSE on the day of your call. If you meet this
requirement, you will get the NAV per share of the Eligible Fund
determined on that day. Exchanges will be treated as a sale for federal
tax purposes. Be sure to read the current prospectus for any fund into
which you are exchanging.
Reinvestment Privilege. If you sell shares of the fund, you have a one
time right to reinvest some or all of the proceeds in the same class of
any Eligible Fund within 60 days without a sales charge. If you paid a
CDSC when you sold your shares, you will be credited with the amount of
the CDSC. All accounts involved must have the same registration.
Account Statements. Every Lord Abbett investor automatically receives
quarterly account statements.
Householding. Shareholders with the same last name and address will
receive a single copy of a prospectus and an annual or semi-annual report,
unless additional reports are specifically requested in writing to the
fund.
Account Changes. For any changes you need to make to your account, consult
your investment professional or call the fund at 800-821-5129.
Systematic Exchange. You or your investment professional can establish a
schedule of exchanges between the same classes of any Eligible Fund.
Telephone Transactions. You have this privilege unless you refuse it in writing.
For your security, telephone transaction requests are recorded. We will take
measures to verify the identity of the caller, such as asking for your name,
account number, social security or taxpayer identification number and other
relevant information. The fund will not be liable for following instructions
communicated by telephone that it reasonably believes to be genuine.
Transactions by telephone may be difficult to implement in times of drastic
economic or market change.
Exchanges by telephone should not be used to take advantage of short-term swings
in the market. The fund reserves the right to limit or terminate this privilege
for any shareholder making frequent exchanges or abusing the privilege and may
revoke the privilege for all shareholders upon 60 days' written notice.
8 / Your Investment
<PAGE>
SALES CHARGES AND SERVICE FEES
Sales and Service Compensation. As part of its plan for distributing
shares, the fund and Lord Abbett Distributor pay sales and service
compensation to Authorized Institutions that sell the fund's shares and
service its shareholder accounts.
Sales compensation originates from two sources: sales charges and 12b-1
distribution fees that are paid out of the fund's assets. Service
compensation originates from 12b-1 service fees. The 12b-1 fee rates vary
by share class, according to the Rule 12b-1 plan adopted by the fund. The
sales charges and 12b-1 fees paid by investors are shown in the
class-by-class information under "Fees and Expenses" and "Purchases." The
portion of these expenses that is paid as sales and service compensation
to Authorized Institutions, such as your dealer, is shown in the chart at
the end of this prospectus. The portion of such sales and service
compensation paid to Lord Abbett Distributor is discussed under "Sales
Activities" and "Service Activities." Sometimes we do not pay sales and
service compensation where tracking data is not available for certain
accounts or where the Authorized Institution waives part of the
compensation.
We may pay Additional Concessions to Authorized Institutions from time to
time.
Sales Activities. We may use 12b-1 distribution fees to pay Authorized
Institutions to finance any activity which is primarily intended to result
in the sale of shares. Lord Abbett Distributor uses its portion of the
distribution fees attributable to the fund's class A and class C shares
for activities which are primarily intended to result in the sale of such
class A and class C shares, respectively. These activities include, but
are not limited to, printing of prospectuses and statements of additional
information and reports for other than existing shareholders, preparation
and distribution of advertising and sales material, expenses of organizing
and conducting sales seminars, Additional Concessions to Authorized
Institutions, the cost necessary to provide distribution-related services
or personnel, travel, office expenses, equipment and other allocable
overhead.
Service Activities. We may pay Rule 12b-1 service fees to Authorized
Institutions for any activity which is primarily intended to result in
personal service and/or the maintenance of shareholder accounts. Any
portion of the service fees paid to Lord Abbett Distributor will be used
to service and maintain shareholder accounts.
12b-1 fees are payable regardless of expenses. The amounts payable by a fund
need not be directly related to expenses. If Lord Abbett Distributor's actual
expenses exceed the fee payable to it, a fund will not have to pay more than
that fee. If Lord Abbett Distributor's expenses are less than the fee it
receives, Lord Abbett Distributor will keep the full amount of the fee.
MANAGEMENT
The fund's investment adviser is Lord, Abbett & Co., 767 Fifth Avenue, New
York, NY 10153-0203. Founded in 1929, Lord Abbett manages one of the
nation's oldest mutual fund complexes, with approximately $28 billion in
more than 35 mutual fund portfolios and other advisory accounts. For more
information about the services Lord Abbett provides to the fund, see the
Statement of Additional Information.
The fund pays Lord Abbett a monthly fee based on average daily net assets
for each month. For the fiscal year ended October 31, 1998, the fee paid
to Lord Abbett was at an annual rate of .31 of 1%. In addition, the fund
pays all expenses not expressly assumed by Lord Abbett.
Lord Abbett uses a team of portfolio managers and analysts acting together
to manage the company's investments. Thomas Hudson Jr., Partner of Lord
Abbett, heads the team, the senior members of which include Robert Morris,
Partner of Lord Abbett, and Eli Salzman, Portfolio Manager. Messrs. Hudson
and Morris each have been with Lord Abbett since 1982 and 1991,
respectively. Mr Salzman joined Lord Abbett in 1997 and previously was a
Vice President with Mutual of America Capital Corp. since 1997 and a Vice
President with Mitchell Hutchins Asset Management, Inc. from 1986 to 1997.
Your Investment / 9
<PAGE>
For More Information
OTHER INVESTMENT TECHNIQUES
This section describes some of the investment techniques that might be
used by the fund and its risks.
Foreign Securities. These securities are not subject to the same degree of
regulation and may be more volatile and less liquid than securities traded
in major U.S. markets. This affects block trading. Foreign portfolio
securities may trade on days when the fund does not value them. Fund share
prices could be affected on days an investor cannot purchase or sell
shares. Other risks include less information on public companies, banks
and governments; political and social instability; expropriations; higher
transaction costs; currency fluctuations; nondeductable withholding taxes
and different accounting and settlement practices. The fund will not
invest more than 10% of its net assets measured at the time of investment
in foreign securities.
High Yield Debt Securities. High yield debt securities or "junk bonds" are
rated BB/Ba or lower and typically pay a higher yield than investment
grade debt securities. These bonds have a higher risk of default than
investment grade bonds and their prices can be much more volatile. The
fund will not invest more than 5% of its assets measured at the time of
investment in high yield debt securities.
Illiquid Securities. Securities not traded on the open market. Certain
securities may be difficult or impossible to sell at the time and price
the seller would like.The fund may invest up to 15% of its assets in
illiquid securities. Securities determined by the Board to be liquid are
not subject to this limitation, such as those purchased under Securities
and Exchange Commission Rule 144A.
Portfolio Securities Lending. The fund may lend securities to
broker-dealers and financial institutions, as a means of earning income.
This practice could result in a loss or delay in recovering a fund's
securities, if the borrower defaults. The fund will limit its securities
loans to 30% of its total assets.
Selling Covered Call Options. A covered call option on stock gives the
buyer of the option, upon payment of a premium to the seller (writer) of
the option, the right to call upon the writer to deliver a specified
number of shares of a stock owned by the writer on or before a fixed date
at a predetermined price. The fund receives income based on receipt of the
premium, it gives up participation in the appreciation of the stock above
the predetermined price if it is called away by the buyer. The fund will
limit covered call options on securities having an aggregate market value
not to exceed 10% of the fund's gross assets.
GLOSSARY OF SHADED TERMS
Additional Concessions. Lord Abbett Distributor may, for specified
periods, allow dealers to retain the full sales charge for sales of shares
or may pay an additional concession to a dealer who sells a minimum dollar
amount of our shares and/or shares of other Lord Abbett-sponsored funds.
In some instances, such additional concessions will be offered only to
certain dealers expected to sell significant amounts of shares. Additional
payments may be paid from Lord Abbett Distributor's own resources or from
distribution fees received from the fund and will be made in the form of
cash or, if permitted, non-
10 / For More Information
<PAGE>
cash payments. The non-cash payments will include business seminars at
Lord Abbett's headquarters or other locations, including meals and
entertainment, or the receipt of merchandise. The cash payments may
include payment of various business expenses of the dealer.
In selecting dealers to execute portfolio transactions for the fund's
portfolio, if two or more dealers are considered capable of obtaining best
execution, we may prefer the dealer who has sold our shares and/or shares
of other Lord Abbett-sponsored funds.
Authorized Institutions. Institutions and persons permitted by law to
receive service and/or distribution fees under a Rule 12b-1 plan are
"authorized institutions." Lord Abbett Distributor is an Authorized
Institution.
Eligible Fund. An Eligible Fund is any Lord Abbett-sponsored fund except
for certain tax-free, single-state series where the exchanging shareholder
is a resident of a state in which such series is not offered for sale;
Lord Abbett Equity Fund; Lord Abbett Series Fund; Lord Abbett U.S.
Government Securities Money Market Fund ("GSMMF") (except for holdings in
GSMMF which are attributable to any shares exchanged from the Lord Abbett
family of funds). An Eligible Fund also is any Authorized Institution's
affiliated money market fund satisfying Lord Abbett Distributor as to
certain omnibus account and other criteria.
Eligible Mandatory Distributions. If class B shares represent a part of an
individual's total IRA or 403(b) investment, the CDSC will be waived only
for that part of a mandatory distribution which bears the same relation to
the entire mandatory distribution as the B share investment bears to the
total investment.
Legal Capacity. With respect to a redemption request, if (for example) the
request is on behalf of the estate of a deceased shareholder, John W. Doe,
by a person (Robert A. Doe) who has the legal capacity to act for the
estate of the deceased shareholder because he is the executor of the
estate, then the request must be executed as follows: Robert A. Doe,
Executor of the Estate of John W. Doe. That signature using that capacity
must be guaranteed by an Eligible Guarantor.
Similarly, if (for example) the redemption request is on behalf of the ABC
Corporation by a person (Mary B. Doe) that has the legal capacity to act
on behalf of this corporation, because she is the President of the
corporation, then the request must be executed as follows: ABC Corporation
by Mary B. Doe, President. That signature using that capacity must be
guaranteed by an Eligible Guarantor.
Mutual Fund Advisory Program. Certain unaffiliated authorized brokers,
dealers, registered investment advisers or other financial institutions
who either (a) have an arrangement with Lord Abbett Distributor in
accordance with certain standards approved by Lord Abbett Distributor,
providing specifically for the use of our shares (and sometimes providing
for acceptance of orders for such shares on our behalf) in particular
investment products made available for a fee to clients of such brokers,
dealers, registered investment advisers and other financial institutions,
or (b) charge an advisory, consulting or other fee for their services and
buy shares for their own accounts or the accounts of their clients.
Purchaser. The term "purchaser" includes: (i) an individual, (ii) an
individual and his or her spouse and children under the age of 21 and
(iii) a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account (including a pension, profit-sharing,
or other employee benefit trust qualified under Section 401 of the
Internal Revenue Code - more than one qualified employee benefit trust of
a single employer,
Guaranteed signature. An acceptable form of guarantee would be as follows:
o In the case of the estate -
Robert A. Doe
Executor of the Estate of
John W. Doe
[Date]
SIGNATURE GUARANTEED
MEDALLION GUARANTEED
NAME OF GUARANTOR
/s/ [ILLEGIBLE]
------------------------------------------------
AUTHORIZED SIGNATURE
(960) X9003470
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM(TM)
SR
o In the case of the corporation - ABC Corporation
Mary B. Doe
By Mary B. Doe, President
[Date]
SIGNATURE GUARANTEED
MEDALLION GUARANTEED
NAME OF GUARANTOR
/s/ [ILLEGIBLE]
------------------------------------------------
AUTHORIZED SIGNATURE
(960) X9003470
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM(TM)
SR
For More Information / 11
<PAGE>
including its consolidated subsidiaries, may be considered a single trust,
as may qualified plans of multiple employers registered in the name of a
single bank trustee as one account), although more than one beneficiary is
involved.
Special Retirement Wrap Program. A program sponsored by an authorized
institution showing one or more characteristics distinguishing it, in the
opinion of Lord Abbett Distributor from a Mutual Fund Advisory Program.
Such characteristics include, among other things, the fact that an
authorized institution does not charge its clients any fee of a consulting
or advisory nature that is economically equivalent to the distribution fee
under the class A 12b-1 Plan and the fact that the program relates to
participant-directed Retirement Plans.
RECENT PERFORMANCE
During the past fiscal year, the stock market and the fund enjoyed returns
above historical averages due to an environment of solid economic growth,
low inflation and strong corporate profit gains. Throughout most of the
period, the portfolio has been evenly diversified, but with a moderate
overweighting in financial stocks. Furthermore, we have shifted our focus
within this group of stocks towards insurance companies, which are
benefiting from industry-wide consolidation and cost-cutting efforts.
Year 2000 issues. The fund could be adversely affected if the computers used by
the fund and their service providers do not properly process and calculate
date-related information from and after January 1, 2000.
While year 2000-related computer problems could have a negative effect on the
fund, Lord Abbett is working to avoid such problems and has assurances from the
fund's service providers that they are taking similar steps. However, because
the problem is unprecedented, we don't know whether these efforts will be
successful. Accordingly, the fund may be adversely affected.
12 / For More Information
<PAGE>
For More Information
FINANCIAL HIGHLIGHTS
This table describes the fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in the fund would
have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These Financial Highlights
have been audited by Deloitte & Touche LLP, the fund's independent
auditors, in conjunction with their annual audit of the fund's financial
statements. Financial statements for the fiscal year ended October 31,
1998 and the Independent Auditors' Report thereon appear in the Annual
Report to Shareholders for the fiscal year ended October 31, 1998 and are
incorporated by reference into the Statement of Additional Information,
which is available upon request. Certain information reflects financial
results for a single fund share.
<TABLE>
<CAPTION>
===================================================================================================================================
Class A Shares
-----------------------------------------------------------------------
Year Ended October 31,
Per Share Operating Performance: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $14.84 $13.02 $11.98 $11.03 $11.26
- - - -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net investment income .24 .30 .30 .32 .31
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1.14 2.85 2.23 1.70 .38
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.38 3.15 2.53 2.02 .69
- - - -----------------------------------------------------------------------------------------------------------------------------------
Distributions
- - - -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (.27) (.30) (.30) (.30) (.32)
- - - -----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain (1.39) (1.03) (1.19) (.77) (.60)
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $14.56 $14.84 $13.02 $11.98 $11.03
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 10.27% 25.80% 23.23% 20.46% 6.66%
- - - -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- - - -----------------------------------------------------------------------------------------------------------------------------------
Expenses(d) 0.63% 0.65% 0.66% 0.63% 0.63%
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.64% 2.15% 2.61% 2.90% 2.91%
===================================================================================================================================
<CAPTION>
Class B Shares Class C Shares Class P Shares
------------------------------- ------------------------------ --------------
Year Ended October 31,
--------------------------------------------------------------------------------
Per Share Operating Performance: 1998 1997 1996(b) 1998 1997 1996(b) 1998(b)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.84 $13.03 $11.88 $14.84 $13.02 $11.88 $14.24
- - - -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net investment income .14 .20 .060 .14 .22 .062 .18
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on securities 1.12 2.84 1.142 1.12 2.83 1.130 .27
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.26 3.04 1.202 1.26 3.05 1.192 .45
- - - -----------------------------------------------------------------------------------------------------------------------------------
Distributions
- - - -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (.15) (.20) (.052) (.15) (.20) (.052) (.16)
- - - -----------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain (1.39) (1.03) -- (1.39) (1.03) -- --
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $14.56 $14.84 $13.03 $14.56 $14.84 $13.02 $14.53
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 9.41% 24.78% 10.15%(c) 9.41% 24.88% 10.07%(c) 3.21%
- - - -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- - - -----------------------------------------------------------------------------------------------------------------------------------
Expenses(d) 1.38% 1.42% 0.34%(c) 0.40% 1.34% 0.33%(c) 0.76%
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.87% 1.19% 0.27%(c) 0.85% 1.28% 0.25%(c) 1.21%
===================================================================================================================================
<CAPTION>
Year Ended October 31,
-----------------------------------------------------------------------------------------
Supplemental Data For All Classes: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, end of year (000) $8,520,603 $7,697,754 $6,100,665 $4,964,525 $4,229,586
- - - -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 56.49% 46.41% 47.06% 53.84% 51.48%
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(b) From commencement of operations for each class of shares: August 1, 1996
(class B and C) and December 8, 1997 (class P).
(c) Not annualized.
(d) The ratios for 1998 and 1997 includes expenses paid through an expense
offset arrangement.
See Notes to Financial Statements.
Financial Information / 13
<PAGE>
LINE GRAPH COMPARISON
Immediately below is a comparison of a $10,000 investment in class A
shares to the same investment in the S&P 500(R) Index, assuming
reinvestment of all dividends and distributions.
[GRAPHIC OMITTED]
================================================================================
Average Annual Total Return At Maximum Applicable
Sales Charge For The Periods Ending October 31, 1998
1 Year 5 Years 10 Years (or Life)
- - - --------------------------------------------------------------------------------
Class A(3) 3.90% 15.65% 14.15%
- - - --------------------------------------------------------------------------------
Class B(4) 5.03% -- 18.27%
- - - --------------------------------------------------------------------------------
Class C(5) 9.41% -- 19.88%
- - - --------------------------------------------------------------------------------
Class P(5) -- -- 3.21%
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
(1) Reflects the deduction of the maximum initial sales charge of 5.75%.
(2) Performance for the unmanaged S&P 500(R) Index does not reflect
transaction costs, management fees or sales charges.
(3) This shows total return which is the percent change in value, after
deduction of the maximum initial sales charge of 5.75% applicable to class
A shares, with all dividends and distributions reinvested for the periods
shown ending October 31, 1998 using the SEC-required uniform method to
compute such return. The inception date for class A shares is 1/1/50.
(4) The class B shares were first offered on 8/1/96. Performance reflects the
deduction of a CDSC of 4% (for 1 year) and 3% (for life of the class).
(5) The class C and P shares were first offered on 8/1/96 and 12/8/97,
respectively. Performance is at net asset value.
14 / Financial Information
<PAGE>
COMPENSATION FOR YOUR DEALER
<TABLE>
<CAPTION>
====================================================================================================================================
FIRST YEAR COMPENSATION
Front-end Total
sales charge Dealer's compensation(2)
paid by investors concession Service fee(1) (% of offering
Class A investments (% of offering price) (% of offering price) (% of net investment) price)
====================================================================================================================================
<S> <C> <C> <C> <C>
Less than $50,000 5.75% 5.00% 0.25% 5.24%
- - - ------------------------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.75% 4.00% 0.25% 4.24%
- - - ------------------------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 3.75% 3.25% 0.25% 3.49%
- - - ------------------------------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.75% 2.25% 0.25% 2.49%
- - - ------------------------------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 1.75% 0.25% 2.00%
- - - ------------------------------------------------------------------------------------------------------------------------------------
$1 million or more(3) or Retirement
Plan - 100 or more eligible employees(3)
or Special Retirement Wrap Program(3)
- - - ------------------------------------------------------------------------------------------------------------------------------------
First $5 million no front-end sales charge 1.00% 0.25% 1.25%
- - - ------------------------------------------------------------------------------------------------------------------------------------
Next $5 million above that no front-end sales charge 0.55% 0.25% 0.80%
- - - ------------------------------------------------------------------------------------------------------------------------------------
Next $40 million above that no front-end sales charge 0.50% 0.25% 0.75%
- - - ------------------------------------------------------------------------------------------------------------------------------------
Over $50 million no front-end sales charge 0.25% 0.25% 0.50%
====================================================================================================================================
Class B investments Paid at time of sale (% of net asset value)
- - - ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 3.75% 0.25% 4.00%
====================================================================================================================================
Class C investments
- - - ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.75% 0.25% 1.00%
====================================================================================================================================
Class P investments Percentage of average net assets
- - - ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.25% 0.20% 0.45%
====================================================================================================================================
ANNUAL COMPENSATION AFTER FIRST YEAR
Class A investments
- - - ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge none 0.25% 0.25%
====================================================================================================================================
Class B investments Percentage of average net assets(4)
- - - ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge none 0.25% 0.25%
====================================================================================================================================
Class C investments
- - - ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.75% 0.25% 1.00%
====================================================================================================================================
Class P investments
- - - ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.25% 0.20% 0.45%
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The service fee for class A and P shares is paid quarterly and for class A
shares may not exceed 0.15% for shares sold prior to June 1, 1990. The
first year's service fee on class B and C shares is paid at the time of
sale.
(2) Reallowance/concession percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition. Additional
Concessions may be paid to Authorized Institutions, such as your dealer,
from time to time.
(3) Concessions are paid at the time of sale on all class A shares sold during
any 12-month period starting from the day of the first net asset value
sale. With respect to (a) class A share purchases at $1 million or more,
sales qualifying at such level under rights of accumulation and statement
of intention privileges are included and (b) for Special Retirement Wrap
Programs, only new sales are eligible and exchanges into the fund are
excluded.
(4) With respect to class B, C and P shares, 0.25%, 1.00% and 0.45%,
respectively, of the average annual net asset value of such shares
outstanding during the quarter (including distribution reinvestment shares
after the first anniversary of their issuance) is paid to Authorized
Institutions, such as your dealer. These fees are paid quarterly in
arrears. Financial Information
Financial Information / 15
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
More information on this fund is available free upon request, including
the following:
ANNUAL/SEMI-ANNUAL REPORT
Describes the fund, lists portfolio holdings and contains a letter from
the fund's manager discussing recent market conditions and the fund's
investment strategies.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
Provides more details about the fund and its policies. A current SAI is on
file with the Securities and Exchange Commission ("SEC") and is
incorporated by reference (is legally considered part of this prospectus).
To obtain information:
By telephone. Call the funds at 800-426-1130
By mail. Write to the funds at:
The Lord Abbett Family of Funds
767 Fifth Avenue
New York, NY 10153-0203
Via the Internet. Text only versions of fund documents can be viewed online or
downloaded from:
Lord, Abbett & Co.
http://www.lordabbett.com
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 800-SEC-0330) or by sending your request and a duplicating
fee to the SEC's Public Reference Section, Washington, DC 20549-6009.
Affiliated Fund LAA-1-399
(3/99)
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
SEC file number: 811-5
<PAGE>
<PAGE>
Lord Abbett Affiliated Fund
SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED APRIL 30, 1999
[GRAPHIC OMITTED]
Helping you prepare
for tomorrow, today
[LOGO](R)
<PAGE>
Lord Abbett Affiliated Fund Building Investor Confidence Since 1934
A Tradition of
Value
Investing
[GRAPHIC OMITTED]
Affiliated's history highlights the concept of value
investing: buying quality companies when they are "on
sale" and selling them when they reach their potential.
Through the years, this discipline has helped Affiliated
Fund achieve returns competitive to the S&P 500 Index,
with relatively moderate fluctuations in price.(1)
- - - --------------------------------------------------------------------------------
Competitive Total Average Annual Rates of Total Return as of 4/30/99
Returns, Consistently
-----------------------------------------
For the past 40 years +12.2% per year
-----------------------------------------
------------------------------------------
For the past 30 years +12.7% per year
------------------------------------------
------------------------------------------------------
For the past 20 years +16.3% per year
------------------------------------------------------
---------------------------------------------------
For the past 10 years +15.9% per year
---------------------------------------------------
----------------------------------------------
For the past year +14.0%
----------------------------------------------
--------------------------------------------------------
0 5 10 15 20%
- - - --------------------------------------------------------------------------------
Consistency The Fund has increased in value 33 out of the last 40
fiscal years.
- - - --------------------------------------------------------------------------------
Large and Growing Shareholders taking dividends in cash saw an increase in
Dividends their dividend checks 34 out of the last 40 fiscal
years.(2)
- - - --------------------------------------------------------------------------------
Shareholder Lord Abbett Affiliated Fund's history demonstrates its
Satisfaction ability to help shareholders realize their financial
objectives. That's probably why, on average, Affiliated
Fund shareholders have owned the Fund for over 15
years.(3)
- - - --------------------------------------------------------------------------------
The Fund: Something "Lord Abbett Affiliated Fund has been a good citizen by
to Talk About staying out of trouble.... The fund's respectable
performance in 1998 is typical of its performance during
choppy markets. Its sell discipline keeps it out of the
category's trouble spots, so during challenging markets
like in 1994 and in 1998, returns have consistently been
above average."
Source: Morningstar Mutual Funds, December 1998
- - - --------------------------------------------------------------------------------
SEC Average Annual SEC average annual rates of total return, at the Class A
Total Returns share maximum sales charge of 5.75%, for the periods
ended 3/31/99 were:
---------
1 years 0.00%
---------
--------- ---------------------------
5 years +18.77%
--------- ---------------------------
--------- ----------------------
10 years +14.85%
--------- ----------------------
------------------------------------------------
-10 -5 0 5 10 15 20%
The Fund's SEC yield for the 30 days ended 4/30/99 for
Class A shares was 0.83%.
This past performance is no indication of future
results. The investment return and principal value of an
investment in the Fund will fluctuate so that shares, on
any given day or when redeemed, may be worth more or
less than their original cost.
The Fund's fiscal year-end is 10/31. Results quoted
above (unless stated otherwise) are for periods ending
4/30/99 and reflect Class A share performance at net
asset value with all distributions reinvested.
(1) The S&P 500 Index consists of 500 stocks chosen for
market size, liquidity and industry group representation
and is widely regarded as the standard for measuring
U.S. stock market performance. Indices are unmanaged and
not available for direct investment.
(2) Capital gains were reinvested. Period ends 10/31/98.
(3) Based on a survey of Lord Abbett Affiliated Fund
shareholders conducted by Lord, Abbett & Co. in 1998.
See Important Information on page 8.
<PAGE>
Report to Shareholders
For the Period Ended April 30, 1999
[PHOTO OMITTED]
/s/ Robert S. Dow
- - - -----------------
ROBERT S. DOW
CHAIRMAN
MAY 5, 1999
"... during the first half of the Fund's fiscal year, positions we established
or strengthened in telecommunications, technology and select financial services
companies performed well."
Lord Abbett Affiliated Fund completed the first half of its fiscal year on April
30, 1999. Below is an overview of some class-specific financial information for
the close of the period.
Six Months Ended April 30, 1999
-------------------------------
Class A Class B Class C Class P Class Y
------------------------------------------------------------
Net asset value $ 16.26 $ 16.27 $ 16.27 $ 16.23 $ 16.29
Dividends $ 0.12 $ 0.06 $ 0.06 $ 0.10 $ 0.14
Capital gains $ 0.95 $ 0.95 $ 0.95 $ 0.95 $ 0.95
Total return* 20.11%** 19.68%** 19.68%** 20.00%** 20.37%**
During the period under review, a favorable environment emerged for U.S. stocks
as investors' concerns regarding diminished corporate earnings eased somewhat
and low inflation and strong economic growth continued in the U.S. In the early
months of 1999, investor sentiment improved considerably as Asian countries,
which had been hit hard by currency problems and fallout from a faltering
Japanese economy, began to recover. Japan's efforts to clean up its flagging
banking system, and to stimulate spending in recent months, have generated hope
that the financial crises in that country may be nearing an end.
The downturn in the market that occurred in October and November of 1998 created
an opportunity for the Fund to initiate and add to positions in stocks that, in
our opinion, became undervalued due to investor sentiment rather than
deteriorating company fundamentals. Indeed, during the first half of the Fund's
fiscal year, positions we established or strengthened in telecommunications,
technology and select financial services companies performed well. A slight
increase in long-term interest rates, brought on by a rise in commodity prices,
resulted in markdowns on our electric utility holdings. The Fund returned 20.1%
during the period.
We anticipate that the domestic economy will continue to grow in 1999, fueled in
part by strong consumer spending. If recovery in Asia also continues, a global
economic expansion seems likely for 2000. In any event, we expect to remain
watchful of global inflationary pressures (brought on by rising commodity prices
and a tightening U.S. labor market), interest rates and high valuations and
volatility in the U.S. equity market. Presently, we do not expect inflation to
exceed our earlier forecast of approximately 2-2 1/2% in 1999. We will continue
to seek out large-company stocks at attractive prices, and expect that some of
these values may be found in energy companies and in the cyclical commodities
sector, which includes aluminum and paper companies and selected manufacturing
companies.
Thank you for your continued confidence in Lord Abbett Affiliated Fund. We look
forward to helping you achieve your financial goals in the years ahead.
* Total return is the percent change in net asset value, assuming the
reinvestment of all distributions.
** Not annualized.
1
<PAGE>
The Income Perspective
By reinvesting
capital gains,
Affiliated share-
holders were
able to realize a
consistently
growing
dividend stream.
This contrasts
sharply with the
fluctuating
income from
guaranteed CDs.
Income Generated from $100,000 Investments: 10/31/72-4/30/99
Year
Ended Six-Month CD Affiliated Fund
Oct. 31 Interest(1) Dividends(2)
- - - ---------------------------------------------------------------
1972 $ 0 $ 0
1973 8,040 4,173
1974 10,420 4,560
1975 7,480 3,726
1976 6,060 4,793
1977 5,750 5,361
1978 8,180 5,935
1979 11,570 6,804
1980 13,280 8,175
1981 17,570 10,029
1982 14,020 10,711
1983 9,520 10,596
1984 11,270 11,184
1985 8,770 12,796
1986 7,040 13,801
1987 6,920 14,113
1988 7,910 15,159
1989 9,610 15,849
1990 8,560 15,059
1991 6,610 14,793
1992 4,000 15,046
1993 3,380 13,949 -----------
1994 4,520 13,523 If capital
1995 6,310 13,613 gains and
1996 5,630 14,970 dividends
1997 5,820 16,260 had been
1998 5,710 15,721 reinvested,
the Fund's
4/30/99 (6 months) $ 2,510 $ 7,558 total value
Interest/Dividend Total $ 216,460 $ 298,257 would have
- - - ---------------------------------========== ========== been
Over 26 Years Later < $3,447,183
Initial $100,000 -----------
Investment plus Growth $ 100,000 $1,057,226
- - - ---------------------------------========== ==========
Total Value $ 316,460 $1,355,483
- - - ---------------------------------========== ==========
The Real Cost of the
CD Guarantee $1,039,023
===============================================================
Unlike the Fund, a CD is insured, and its rate and principal are guaranteed if
held until maturity. The FDIC insures CDs up to $100,000. The CD rate is subject
to change when the CD is renewed. Although CDs may offer safety on the downside,
they sacrifice capital growth on the upside.
(1) Average of six-month CD rates available each period. Source: Lipper, Inc.
(2) Reflects the deduction of the 3.75% sales charge for Class A share
investments of $100,000. Dividends were taken in cash; capital gains were
reinvested.
See Important Information on page 8.
2
<PAGE>
Affiliated's Growth Record
<TABLE>
<CAPTION>
Results Based on Fiscal Year-End October 31(1)
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 4/30/99
(6 months only)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth of Capital(2) +12.8% -12.0% +23.1% + 6.3% +14.3% +3.7% +17.6% +20.5% +23.3% + 8.4% +19.2%
Dividend Return(3) + 5.2% + 4.4% + 4.9% + 4.1% + 3.5% +3.0% + 2.9% + 2.7% + 2.5% + 1.9% + 0.85%
- - - ---------------------------------------------------------------------------------------------------------------------
Total Return(4) +18.0 - 7.6 +28.0 +10.4 +17.8 +6.7 +20.5 +23.2 +25.8 +10.3 +20.1%
- - - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class A share performance.
(2) Growth of capital reflects the reinvestment of capital gains
distributions.
(3) Dividend return reflects the reinvestment of dividends.
(4) Total return is the percent change in value with both dividends and
capital gains distributions reinvested. These results are at net asset
value. Net asset value purchases are available for class a share
investments of $1 million or more. For performance at the Class A share
maximum sales charge, as well as other information, please turn to the
inside front cover and pages 4 and 8.
Affiliated's Growth Helped Protect Your Purchasing Power
In our illustration, the prices noted for April 1989 and 1998 are actual
costs--then and now. "Affiliated 1999" is what the April 1989 amount would have
grown to had it been invested in the Fund.
Investments in Affiliated Fund (up 336.24%) surpassed increases in the cost of
living, which was up 35.01% in these 10 years. Protection against the erosion
caused by inflation is one important way to maintain--and enhance--your
lifestyle.
<TABLE>
<CAPTION>
[GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED]
One-Year Private One-Family House(6) First-Class Stamp Income per Capita(7)
College Tuition(5)
<S> <C> <C> <C> <C>
4/89 $11,189 $ 89,500 $.25 $18,175
1998 $18,745 $131,400 $.33 $26,365
- - - --------------------------------------------------------------------------------------------------------------
Affiliated 1999 $48,811 $390,345 $.78 $79,287
- - - --------------------------------------------------------------------------------------------------------------
</TABLE>
Affiliated's results reflect Class A share total return at net asset
value, with all distributions reinvested for the 10 years ended 4/30/99.
See Important Information on page 8.
(5) Based on Consumer Price Index.
(6) National average.
(7) National average. 1999 figure is based on January-March figures.
Sources: U.S. Department of Education, Statistics Bureau Section, College
Board Annual Survey of Colleges; National Association of Realtors,
Research Division; U.S. Postal Service; Department of Commerce, Bureau of
Economic Analysis Statistics.
3
<PAGE>
The Total Return Perspective
The chart below illustrates the growth of a $10,000 investment made in
Affiliated Fund on 10/31/72. Even when investing right before a major stock
market downturn long-term investors in Affiliated Fund did well. (Please see the
chart on page 5.) The Fund's average shareholder ownership of over 15 years
reflects the appeal of long-term investing.
Past performance is no indication of future results.
Growth of a $10,000 Fund Investment: 10/31/72-4/30/99(1)
A History of
Consistent
Performance
Value of Cumulative Value Cumulative How
Year Shares of Capital Gains Value of $10,000
Ended Initially Distributions Reinvested Grew
Oct. 31 Acquired Taken in Shares Dividends Total Value
- - - -------------------------------------------------------------------------------
1972 $ 9,417 $ 0 $ 0 $ 9,417
1973 9,550 267 432 10,249
1974 7,258 394 762 8,414
1975 8,993 545 1,394 10,932
1976 10,742 886 2,249 13,877
1977 9,695 1,149 2,624 13,468
1978 9,430 1,382 3,261 14,073
1979 10,570 2,257 4,606 17,433
1980 12,066 3,732 6,519 22,317
1981 10,742 4,887 7,186 22,815
1982 11,364 6,730 9,571 27,665
1983 13,325 9,187 13,197 35,709
1984 12,212 11,251 14,173 37,636
1985 12,993 14,172 17,623 44,788
1986 15,510 21,514 24,060 61,084
1987 13,828 24,951 24,040 62,819
1988 12,768 31,932 25,778 70,478
1989 13,815 37,558 31,817 83,190
1990 11,801 34,617 30,474 76,892
1991 13,629 45,458 39,336 98,423
1992 13,974 50,142 44,501 108,617
1993 14,914 61,407 51,590 127,911
1994 14,609 67,326 54,497 136,432
1995 15,868 84,828 63,654 164,350
1996 17,245 111,153 74,118 202,516
1997 19,656 145,178 89,919 254,753
1998 19,285 168,327 93,307 $280,919
4/30/99 $ 21,536 $208,969 $106,907 $337,412
The dollar amounts of dividends and capital gains distributions reinvested
in shares were $67,353 and $140,769, respectively. The initial investment
plus all distributions reinvested amounted to $218,122. If dividends and
capital gains distributions had been withdrawn in cash, the amounts of
these payments would have been $14,393 and $21,114, respectively.
(1) Reflects the deduction of the Class A share maximum 5.75% sales charge for
investments under $50,000. All distributions were reinvested.
See Important Information on page 8.
4
<PAGE>
The Total Return Perspective
We've lived through several periods of economic, political and stock market
turmoil since 1972. By focusing on value investing, Affiliated Fund reduced
downside volatility in periods of stock market weakness and produced returns
that outpaced the S&P 500 (an unmanaged index), while outpacing guaranteed CDs
and inflation.
Using the Value Method of Investing, Affiliated Fund Reduced Volatility and
Produced Rewarding Gains
<TABLE>
<CAPTION>
- - - --------- --------- --------- ---------
1972-1974 1980-1982 1986-1991 1997-1998
- - - --------- --------- --------- ---------
<S> <C> <C> <C>
The last protracted Interest rates rose Two corrections jolted Difficulties in Russian
bear market; dramatically; the stock marekt; and Asian markets
S&P 500 declined Prime Rate hit 20%; war and recession spurred a bear-level
28.8%. Affiliated the economy suffered followed a year later. correction in world
Fund held the a recession. During Affilitated rose 61.1% markets. Affiliated
decline to 10.7%. these two years, over this period. rose 10.3% during
Affiliated rose 24.0%. this time of trial.
</TABLE>
Average Annual
Total Returns
Over 26 Years(1)
Affiliated: 14.2%
S&P 500: 14.0%
CDs: 8.1%
Inflation: 5.3%
[PLOT POINTS TO COME]
An investor cannot invest directly in an index, such as the S&P 500. For
more information on CDs, see page 2.
(1) Average annual total return at the Class A share maximum 5.75% offering
price from 10/31/72 through 4/30/99.
(2) Average of six-month CD rates available each period. Source: Lipper, Inc.
See Important Information on page 8.
5
<PAGE>
The Impact of a Disciplined Investment Plan
Perfectly timing the market is impossible because, often, opportunity can only
be identified after it has already passed.
For long-term investors in Lord Abbett Affiliated Fund, the key to one
successful strategy has focused on following a disciplined investment plan--not
timing the market. Let's compare two hypothetical investments made over the last
20 calendar years ending December 31, 1998, where $5,000 was invested in the
Fund every year. For Investment A, shares were purchased (with the benefit of
hindsight) when the Dow Jones Industrial Average was at the low for each given
year. Shares were purchased for Investment B on the first business day of every
year.
Here's What Happened...
Your financial
adviser can help
you discipline
your investing
and set up a
systematic plan
you are comfort-
able with
- - - ------------
Investment A Timing
- - - ------------
Account
Date of Cumulative Value
Investments Investments at Year-End
- - - ------------------------------------------------------------------------------
11/7/79 5,000 11,302
4/21/80 10,000 20,433
9/25/81 15,000 25,607
8/12/82 20,000 38,140
1/3/83 25,000 53,875
7/24/84 30,000 63,163
1/4/85 35,000 86,226
1/22/86 40,000 111,938
10/19/87 45,000 120,725
1/20/88 50,000 141,591
1/3/89 55,000 180,773
10/11/90 60,000 176,573
1/9/91 65,000 221,415
10/9/92 70,000 253,973
1/20/93 75,000 292,892
4/4/94 80,000 309,923
1/30/95 85,000 414,350
1/10/96 90,000 503,215
4/11/97 95,000 635,689
8/31/98 100,000 733,142
Account Value on 12/31/98 $733,142
- - - ----------------------------------------------------------------------========
Average Annual Total Return 17.2%
==============================================================================
- - - ------------
Investment B Systematic Investing
- - - ------------
Account
Date of Cumulative Value
Investments Investments at Year-End
- - - ------------------------------------------------------------------------------
1/2/79 5,000 10,984
1/2/80 10,000 18,365
1/2/81 15,000 23,049
1/4/82 20,000 33,373
1/3/83 25,000 46,576
1/2/84 30,000 54,655
1/2/85 35,000 74,285
1/2/86 40,000 95,915
1/2/87 45,000 103,971
1/4/88 50,000 122,109
1/2/89 55,000 155,643
1/2/90 60,000 152,326
1/2/91 65,000 190,889
1/2/92 70,000 219,364
1/4/93 75,000 253,158
1/3/94 80,000 268,295
1/2/95 85,000 358,126
1/2/96 90,000 434,563
1/2/97 95,000 548,574
1/2/98 100,000 632,511
Account Value on 12/31/98 $632,511
- - - ----------------------------------------------------------------------========
Average Annual Total Return 15.6%
==============================================================================
The disciplined investment plan (B) provided an average annual total return
almost the same as the "perfect" investment scenario (A). Since determining the
"perfect" time to invest without the benefit of hindsight is impossible, why not
sit down with your financial adviser and set up a disciplined investment plan
today?
The above illustrations assume the reinvestment of all dividends and
distributions. All investments were made at the applicable Class A share maximum
sales charge of 5.75% for account values up to $50,000 and at the applicable
reduced sales charges thereafter under rights of accumulation. Periodic
investment plans do not always return a profit and do not protect against losses
in a declining market. In addition, since periodic investment plans involve
continuous investment in securities regardless of fluctuating price levels,
investors should consider their financial ability to continue their purchases
through periods of low price levels. If held until 4/30/99 (with no additional
investments made), Investment A and Investment B would have been worth $810,410
and $699,174, respectively.
For performance at the Class A share maximum sales charge, please turn to the
inside front cover.
6
<PAGE>
Who Owns the Fund?
Investor Profile of Lord Abbett Affiliated Fund
- - - --------------------------------------------------------------------------------
Fiduciaries Custodians for Minors 19,436
Pension, Profit-Sharing and 401(k) Retirement Plans 21,441
Trusts 11,009
457 Retirement and 403(b) Plans 4,660
Estates 460
- - - --------------------------------------------------------------------------------
Institutions Broker-held Accounts 49,077
Banks, Credit Unions and Other Financial Institutions 395
Corporations 483
Religious, Charitable and welfare organizations 381
Clubs and Fraternal Organizations 103
Cemeteries 66
Nursing homes and hospitals 32
Colleges and universities 36
Government Agencies 29
- - - --------------------------------------------------------------------------------
Individuals Single and Joint accounts 76,645
IRAs 58,688
Total Accounts in Affiliated Fund 242,941
================================================================================
A Note About Year 2000 Matters
As you may know, there has been extensive media coverage about possible problems
that may arise as a result of uncertainties about the ability of computers to
"understand" dates using the year 2000. Potentially, these problems could
disrupt the services and systems that the Fund relies on in its daily
operations.
As a general matter, we believe the financial industry has taken a leadership
role addressing year 2000 (Y2K) issues and this should help to inspire
confidence among concerned investors. More specifically, Lord Abbett, Lord
Abbett Distributor llc and the Fund's transfer agent, custodian and other
providers of services critical to the Fund have been actively working on
reviewing and replacing or updating computer systems and computer-to-computer
interfaces, as needed. Each has completed or is in the process of testing new or
revised systems and interfaces and generally expects that their systems, as well
as those of their key external service providers, will be ready to handle Y2K
without significant problems. Furthermore, the Fund has been routinely taking
companies' Y2K preparations into account when considering or reviewing
investments.
In summary, while the Y2K problem is unprecedented and we cannot eliminate
altogether the possibility that the Fund could be affected in some way, we are
confident that all parties involved are taking appropriate steps to resolve Y2K
concerns.
7
<PAGE>
Important Information
Bonds purchased by the Fund are subject to market fluctuations upward and
downward inversely to the rise and fall of interest rates. Common stocks are
also subject to market fluctuations, providing the potential for gains and the
risk of loss. Performance results quoted herein reflect past performance,
current sales charges (where applicable) and appropriate Rule 12b-1 Plan
expenses from commencement of the Plan. Past performance is no indication of
future results. Tax consequences are not reflected. The investment return and
principal value of an investment will fluctuate so that shares, on any given day
or when redeemed, may be worth more or less than their original cost. The Fund's
sales charge structure has changed in the past. The Fund issues additional
classes of shares, with distinct pricing options. For a full discussion of the
differences in pricing alternatives, please refer to the Fund's current
prospectus. If used as sales material after 6/30/99, this report must be
accompanied by Lord Abbett's Performance Quarterly for the most recently
completed calendar quarter.
Statement of Net Assets
April 30, 1999
<TABLE>
<CAPTION>
Shares or
Principal
Investments Amount Value
======================================================================================================
Investments in Securities 96.37%
======================================================================================================
Common Stocks and Convertible Securities 96.37%
======================================================================================================
<S> <C> <C> <C>
Aerospace 1.03% Rockwell International
Corp. 2,000,000 $ 103,250,000
- - - ---------------------------------------------------------------------------------------===============
Aluminum 1.55% Alcoa Inc. 2,500,000 155,625,000
- - - ---------------------------------------------------------------------------------------===============
Apparel 1.03% VF Corp. 2,003,300 103,169,950
- - - ---------------------------------------------------------------------------------------===============
Automobiles 2.45% Ford Motor Co. 1,750,000 111,890,625
General Motors Corp. 1,500,000 133,406,250
Total 245,296,875
- - - ---------------------------------------------------------------------------------------===============
Banks: Money
Center 1.90% Chase Manhattan Corp. 2,300,000 190,325,000
- - - ---------------------------------------------------------------------------------------===============
Banks: Regional BankAmerica Corp. 1,400,000 100,800,000
6.92%
Bank One Corp. 3,200,000 188,800,000
First Union Corp. 3,600,000 199,350,000
Fleet Financial
Group, Inc. 2,250,000 96,890,625
Wells Fargo Co. 2,500,000 107,968,750
Total 693,809,375
- - - ---------------------------------------------------------------------------------------===============
Broadcasting 1.59% CBS Corp.+ 3,500,000 159,468,750
- - - ---------------------------------------------------------------------------------------===============
Brokers 1.29% Morgan Stanley,
Dean Witter,
Discover & Co. 1,300,000 128,943,750
- - - ---------------------------------------------------------------------------------------===============
Chemicals 1.12% Rohm & Haas Co.+ 2,500,000 112,031,250
- - - ---------------------------------------------------------------------------------------===============
Communication Comcast Corp.
Services 1.92% Conv. 3.35% 5/15/29 700,000 52,937,500
Qualcomm Inc.+* 700,000 140,000,000
Total 192,937,500
- - - ---------------------------------------------------------------------------------------===============
Computer: EMC Corp.
Hardware 5.28% Conv. 31/4% 3/15/02** $ 14,000,000 65,452,184
International Business
Machines Corp. 1,300,000 271,943,750
Sun Microsystems Inc.+* 3,200,000 191,400,000
Total 528,795,934
-------------------------------------------------------===============
<CAPTION>
Investments Shares Value
======================================================================================================
<S> <C> <C> <C>
Computer: First Data Corp. 2,500,000 $ 106,093,750
Services 1.60% Unisys Corp.
$3.75 Conv. Pfd. 1,000,000 54,687,500
Total 160,781,250
- - - ---------------------------------------------------------------------------------------===============
Containers .81% Owens-Illinois Inc.
Conv. Pfd. 4.750% 2,000,000 81,500,000
- - - ---------------------------------------------------------------------------------------===============
Drugs/Health-Care American Home
Products 3.97% Products Corp. 3,400,000 207,400,000
Pharmacia & Upjohn Inc. 3,400,000 190,400,000
Total 397,800,000
- - - ---------------------------------------------------------------------------------------===============
Electric Power Allegheny Energy Inc. 3,000,000 102,187,500
6.90%
Carolina Power &
Light Co. 3,500,000 141,093,750
Duke Energy Corp. 3,500,000 196,000,000
Florida Progress Corp. 3,500,000 134,750,000
Houston Industries Inc.
$3.22 Conv. Pfd. into
Time Warner, Inc. 1,000,000 118,000,000
Total 692,031,250
- - - ---------------------------------------------------------------------------------------===============
Electrical Equipment
1.61% Emerson Electric Co.+ 2,500,000 161,250,000
- - - ---------------------------------------------------------------------------------------===============
Electronics:
Semiconductors
1.73% Texas Instruments, Inc. 1,700,000 173,612,500
- - - ---------------------------------------------------------------------------------------===============
Food 3.40% ConAgra Inc.+ 2,500,000 62,187,500
Heinz H.J. Co. 4,000,000 186,750,000
Ralston Purina Co. 3,000,000 91,500,000
Total 340,437,500
- - - ---------------------------------------------------------------------------------------===============
Health-Care
Products 1.63% Baxter International Inc. 2,600,000 163,800,000
- - - ---------------------------------------------------------------------------------------===============
Health-Care Aetna Inc. 1,250,000 109,609,375
Services 3.11%
Aetna Inc.
$4.758 Conv. Pfd.+ 1,500,000 115,968,750
Columbia/HCA
Healthcare Corp. 3,500,000 86,406,250
Total 311,984,375
-------------------------------------------------------===============
</TABLE>
8
<PAGE>
Statement of Net Assets
April 30, 1999
<TABLE>
<CAPTION>
Investments Shares Value
======================================================================================================
<S> <C> <C> <C>
Insurance: American General Corp. 3,100,000 $ 229,400,000
Life 4.59%
Jefferson-Pilot Corp. 1,300,000 87,587,500
Transamerica Corp. 2,003,100 142,720,875
Total 459,708,375
- - - ---------------------------------------------------------------------------------------===============
Insurance: Chubb Corp.+ 2,000,000 118,500,000
Property and Casualty
3.35% CIGNA Corp. 1,500,000 130,781,250
St. Paul Companies Inc.+ 3,000,000 86,062,500
Total 335,343,750
- - - ---------------------------------------------------------------------------------------===============
Machinery:
Diversified 1.72% Deere & Co.+ 4,000,000 172,000,000
- - - ---------------------------------------------------------------------------------------===============
Miscellaneous .74% Textron, Inc. 800,000 73,700,000
- - - ---------------------------------------------------------------------------------------===============
Natural Gas: Consolidated
Pipelines 1.65% Natural Gas Co. 1,500,000 89,250,000
The Coastal Corp. 2,000,000 76,500,000
Total 165,750,000
- - - ---------------------------------------------------------------------------------------===============
Oil Well Equipment/
Service .76% Schlumberger Ltd. 1,200,000 76,650,000
- - - ---------------------------------------------------------------------------------------===============
Oil: International
Integrated 10.73% BP Amoco plc ADR+ 2,000,000 226,375,000
Chevron Corp. 1,000,000 99,750,000
Exxon Corp. 1,300,000 107,981,250
Mobil Corp. 3,000,000 314,250,000
Texaco Inc. 2,500,000 156,875,000
Total S.A. ADR+ 2,500,000 170,000,000
Total 1,075,231,250
- - - ---------------------------------------------------------------------------------------===============
Paper and Forest Bowater Inc.+ 2,000,000 107,250,000
Products 3.10%
Champion
International Corp. 2,300,000 125,781,250
Georgia Pacific
Timber Group 3,000,000 77,250,000
Total 310,281,250
- - - ---------------------------------------------------------------------------------------===============
Photographic/ Eastman Kodak Co. 1,500,000 111,937,500
Imaging 2.14%
Xerox Corp. 1,750,000 102,812,500
Total 214,750,000
- - - ---------------------------------------------------------------------------------------===============
Pollution Control
2.48% Waste Management Inc. 4,400,000 248,600,000
- - - ---------------------------------------------------------------------------------------===============
Printing and
Publishing 1.36% Dow Jones & Co. Inc. 2,500,000 136,250,000
- - - ---------------------------------------------------------------------------------------===============
Retail: Department May Department
and Merchandise Stores Co. 2,250,000 89,578,125
1.81%
Wal-Mart Stores Inc.+ 2,000,000 92,000,000
Total 181,578,125
- - - ---------------------------------------------------------------------------------------===============
Telecom and Data AT&T Corp. 6,000,000 303,000,000
Services 4.66%
MCI WorldCom Inc.* 2,000,000 164,375,000
Total 467,375,000
- - - ---------------------------------------------------------------------------------------===============
Telephone: Regional Alltel Corp.+ 2,500,000 168,593,750
5.65%
Bell Atlantic Corp. 3,500,000 201,687,500
SBC Communications Inc. 3,500,000 196,000,000
Total 566,281,250
-------------------------------------------------------===============
<CAPTION>
Shares or
Principal
Investments Amount Value
======================================================================================================
<S> <C> <C> <C>
Tobacco .79% Gallaher Group
plc ADR 3,500,000 $ 79,187,500
-------------------------------------------------------===============
Total Investments in
Common Stocks and
Convertible Securities
(Cost $6,836,711,469) 9,659,536,759
======================================================================================================
Other Assets, Less Liabilities 3.63%
======================================================================================================
Short-term American General
Investments Finance Corp.
4.92% due 5/3/1999 $ 6,500,000 6,500,000
Dow Chemical Co.
4.90% due 5/3/1999 126,252,000 126,217,627
Koch Industries, Inc.
4.91% due 5/3/1999 74,576,000 74,555,655
Federal Home
Loan Bank
4.80% due 5/3/1999 9,970,000 9,967,341
Freddie Mac
4.82% due 5/3/1999 77,302,000 77,281,297
Total 294,521,920
-------------------------------------------------------===============
Other (See Note 5) 385,651,020
-------------------------------------------------------===============
Total Short-term Investments
(Cost $680,172,940) 680,172,940
- - - ---------------------------------------------------------------------------------------===============
Cash and Receivables, Net of Liabilities (316,342,510)
- - - ------------------------------------------------------------------------------------------------------
Total Other Assets, Less Liabilities 363,830,430
======================================================================================================
Net Assets 100.00% $10,023,367,189
======================================================================================================
Class A Shares-Net asset value
($9,374,005,843 / 576,369,055
shares outstanding) $16.26
Maximum offering price
(net asset value plus sales charge
of 5.75% of the offering price) $17.25
Class B Shares-Net asset value
($441,612,749 / 27,137,897
shares outstanding) $16.27
Class C Shares-Net asset value
($160,277,268 / 9,850,606
shares outstanding) $16.27
Class P Shares-Net asset value
($2,186,537 / 134,731
shares outstanding) $16.23
Class Y Shares-Net asset value
($45,284,792 / 2,779,063
shares outstanding) $16.29
</TABLE>
+ Securities (or a portion of securities) on loan. See Note 5.
* Non-income producing security.
** Restricted security under Rule 144A.
ADR American Depositary Receipt.
See Notes to Financial Statements.
9
<PAGE>
Portfolio Changes (unaudited)
Issues added to or eliminated from the portfolio (exclusive of U.S. Government
obligations and short-term investments) during the six months ended April 30,
1999.
Additions
Aetna Inc.
Alcoa Inc.
Cadence Design Systems
The Coastal Corp.
Columbia/HCA Healthcare CP
Comcast Corp. Conv. Pfd. 3.35%
First Data Corp.
Fleet Financial Group, Inc.
Qualcomm Inc.
Rockwell International Corp.
Rohm & Haas Co.
St. Paul Companies, Inc.
Schlumberger Ltd.
Texaco, Inc.
Unisys Corp. $3.75 Conv. Pfd.
Wells Fargo Co.
Xerox Corp.
- - - --------------------------------------------------------------------------------
Eliminations
Baltimore Gas & Electric Co.
Best Foods
Browning-Ferris Industries Inc.
Cadence Design Systems
Citigroup
Comerica Inc.
Dow Chemical Co.
DuPont (E.I.) DeNemours Co.
EMC Corp.
Fort James Corp.
Fortune Brands Inc.
FPL Group
Hewlett-Packard Co.
Lucent Technologies Inc.
Mellon Bank Corp.
Occidental Petroleum Corp.
Phillip Morris Companies Inc.
Pioneer Hi-Bred International, Inc.
Progressive Corp.
Providian Financial Corp.
Sara Lee Corp.
Seagate Technology Inc.
SmithKline Beecham plc ADR
Time Warner Inc.
Warner Lambert Co.
Washington Mutual Inc.
10
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Investment Income Six Months Ended April 30, 1999
===========================================================================================
<S> <C> <C> <C>
Income Dividends $84,662,125
Interest 10,028,001
Total income $ 94,690,126
-----------------------------------------------------------------------------
Expenses Management fee 14,303,355
12b-1 distribution plan-Class A 11,495,559
12b-1 distribution plan-Class B 1,847,517
12b-1 distribution plan-Class C 683,036
12b-1 distribution plan-Class P 4,355
Shareholder servicing 4,438,566
Reports to shareholders 287,988
Registration 177,690
Professional 169,291
Directors' fees 118,289
Other 60,112
-----------
Total expenses before reductions 33,585,758
Expense reductions (496,196)
----------------------------
Total expenses after reductions 33,089,562
-----------------------------------------------------------------------------
Net investment income 61,600,564
-----------------------------------------------------------------------------
Realized and Unrealized Gain on Investments
===========================================================================================
Net realized gain from investment transactions 966,182,036
- - - -------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 665,433,176
- - - -------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1,631,615,212
- - - -------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $1,693,215,776
===========================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets 1999 1998
=================================================================================================================================
<S> <C> <C> <C>
Operations Net investment income $ 61,600,564 $ 135,559,651
Net realized gain from investment transactions 966,182,036 556,373,895
Net change in unrealized appreciation of investments 665,433,176 78,452,439
-------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,693,215,776 770,385,985
-------------------------------------------------------------------------------------------------------------------
Undistributed net investment income included in price of share transactions -- 40,491
- - - ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (68,019,568) (143,194,800)
Class B (1,400,131) (2,266,183)
Class C (525,610) (863,613)
Class P (12,947) (19,753)
Class Y (317,601) (172,653)
-------------------------------------------------------------------------------------------------------------------
Total (70,275,857) (146,517,002)
-------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain from investment transactions:
Class A (524,633,949) (701,757,786)
Class B (20,854,111) (14,611,561)
Class C (7,962,532) (5,544,532)
Class P (117,804) --
Class Y (2,155,299) --
-------------------------------------------------------------------------------------------------------------------
Total (555,723,695) (721,913,879)
-------------------------------------------------------------------------------------------------------------------
Total distributions (625,999,552) (868,430,881)
-------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sale of shares 427,850,406 930,460,852
Net asset value of shares issued in reinvestment of dividends and distributions 522,156,164 704,773,197
-------------------------------------------------------------------------------------------------------------------
Total 950,006,570 1,635,234,049
-------------------------------------------------------------------------------------------------------------------
Cost of shares reacquired (514,458,819) (714,380,526)
-------------------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions 435,547,751 920,853,523
-------------------------------------------------------------------------------------------------------------------
Increase in net assets 1,502,763,975 822,849,118
- - - ---------------------------------------------------------------------------------------------------------------------------------
Net Assets
Beginning of period 8,520,603,214 7,697,754,096
-------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $19,354,164
and $28,029,457, respectively) $10,023,367,189 $8,520,603,214
===================================================================================================================
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares
----------------------------------------------------------------------------
Six Months Ended
April 30, Year Ended October 31,
Per Share Operating Performance: 1999 1998 1997 1996 1995 1994
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $14.56 $14.84 $13.02 $11.98 $11.03 $11.26
- - - ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .10(e) .24 .30 .30 .32 .31
Net realized and unrealized gain on investments 2.67 1.14 2.85 2.23 1.70 .38
Total from investment operations 2.77 1.38 3.15 2.53 2.02 .69
----------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.12) (.27) (.30) (.30) (.30) (.32)
Distributions from net realized gain (.95) (1.39) (1.03) (1.19) (.77) (.60)
Total distributions (1.07) (1.66) (1.33) (1.49) (1.07) (.92)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.26 $14.56 $14.84 $13.02 $11.98 $11.03
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 20.11%(d) 10.27%(d) 25.80% 23.23% 20.46% 6.66%
==================================================================================================================================
Ratios to Average Net Assets:
Expenses(b) 0.34%(d) 0.63%(d) 0.65%(b) 0.66% 0.63% 0.63%
Net investment income 0.69%(d) 1.64% 2.15%(b) 2.61% 2.90% 2.91%
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares(c)
----------------------------------------------------------------
Six Months Ended Year Ended 8/1/1996(c)
April 30, October 31, to
Per Share Operating Performance: 1999 1998 1997 10/31/96
==============================================================================================================
<S> <C> <C> <C> <C>
Net asset value, beginning of period $14.56 $14.84 $13.03 $11.88
- - - --------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .05(e) .14 .20 .060
Net realized and unrealized gain
on investments 2.67 1.12 2.84 1.142
Total from investment operations 2.72 1.26 3.04 1.202
--------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.06) (.15) (.20) (.052)
Distributions from net realized gain (.95) (1.39) (1.03) --
Total distributions (1.01) (1.54) (1.23) (.052)
--------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.27 $14.56 $14.84 $13.03
- - - --------------------------------------------------------------------------------------------------------------
Total Return(a) 19.68%(d) 9.41%(d) 24.78% 10.15%(d)
==============================================================================================================
Ratios to Average Net Assets:
Expenses(b) 0.70%(d) 1.38% 1.42% 0.34%(d)
Net investment income 0.32%(d) 0.87% 1.19% 0.27%(d)
========================================================================================================
<CAPTION>
Class C Shares
----------------------------------------------------------------
Six Months Ended Year Ended 8/1/96(c)
April 30, October 31, to
Per Share Operating Performance: 1999 1998 1997 10/31/96
==============================================================================================================
<S> <C> <C> <C> <C>
Net asset value, beginning of period $14.56 $14.84 $13.02 $11.88
- - - --------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .05(e) .14 .22 .062
Net realized and unrealized gain
on investments 2.67 1.12 2.83 1.130
Total from investment operations 2.72 1.26 3.05 1.192
--------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.06) (.15) (.20) (.052)
Distributions from net realized gain (.95) (1.39) (1.03) --
Total distributions (1.01) (1.54) (1.23) (.052)
--------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.27 $14.56 $14.84 $13.02
- - - --------------------------------------------------------------------------------------------------------------
Total Return(a) 19.68%(d) 9.41%(d) 24.88% 10.07%(d)
==============================================================================================================
Ratios to Average Net Assets:
Expenses(b) 0.70%(d) 1.40% 1.34% 0.33%(d)
Net investment income 0.32%(d) 0.85% 1.28% 0.25%(d)
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class P Shares(c) Class Y Shares
------------------------------------- -------------------------------------
Six Months Ended 12/8/97(c) Six Months Ended 3/27/98(c)
Per Share Operating Performance: 4/30/99 to 10/31/98 4/30/99 to 10/31/98
================================================================================================================================
<S> <C> <C> <C> <C>
Net asset value, beginning of period $14.53 $14.24 $14.57 $15.44
- - - --------------------------------------------------------------------------------------- -------------------------------------
Income from investment operations
Net investment income .09(e) .18 .13(e) .15
Net realized and unrealized gain (loss)
on investments 2.66 .27 2.68 (.89)
Total from investment operations 2.75 .45 2.81 (.74)
--------------------------------------------------------------------------------- -------------------------------------
Distributions
Dividends from net investment income (.10) (.16) (.14) (.13)
Distributions from net realized gain (.95) -- (.95) --
Total distributions (1.05) (.16) (1.09) (.13)
--------------------------------------------------------------------------------- -------------------------------------
Net asset value, end of period $16.23 $14.53 $16.29 $14.57
- - - --------------------------------------------------------------------------------------------------------------------------------
Total Return(a)(d) 20.00% 3.21% 20.37% (4.77)%
================================================================================================================================
Ratios to Average Net Assets:
Expenses(b) (d) 0.43% 0.76%(d) 0.21% 0.24%
Net investment income(d) 0.60% 1.21%(d) 0.82% 1.03%
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
April 30, Year Ended October 31,
Supplemental Data for All Classes: 1999 1998 1997 1996 1995 1994
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net assets, end of period (000) $10,023,367 $8,520,603 $7,697,754 $6,100,665 $4,964,525 $4,229,586
Portfolio turnover rate 38.38% 56.49% 46.41% 47.06% 53.84% 51.48%
=====================================================================================================================
</TABLE>
(a) Total return does not consider the effects of sales loads and
assumes the reinvestment of all distributions.
(b) The ratios for 1997, 1998 and 1999 include expenses paid through an
expense offset arrangement.
(c) Commencement of offering respective class shares.
(d) Not annualized.
(e) Calculated using average shares outstanding during the period.
See Notes to Financial Statements.
13
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Lord Abbett Affiliated Fund, Inc. (the "Company") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial statements. The
following is a summary of significant accounting policies consistently followed
by the Company:
(a) Security valuation is determined as follows: Portfolio securities listed or
admitted to trading privileges on any national securities exchange are valued at
the last sales price on the principal securities exchange on which such
securities are traded, or, if there is no sale, at the mean between the last bid
and asked prices on such exchange, or, in the case of bonds, in the
over-the-counter market if, in the judgment of the Company's officers, that
market more accurately reflects the market value of the bonds. Securities traded
only in the over-the-counter market are valued at the mean between the last bid
and asked prices, except that securities admitted to trading on the NASDAQ
National Market System are valued at the last sales price if it is determined
that such price more accurately reflects the value of such securities.
Short-term securities are valued at amortized cost (which approximates market
value) if the maturity is 60 days or less at the time of purchase, or market
value if the maturity is greater than 60 days. Securities for which market
quotations are not available are valued at fair value under procedures approved
by the Board of Directors.
(b) It is the policy of the Company to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income. Therefore, no federal income tax provision is required.
(c) Security transactions are accounted for on the date that the securities are
purchased or sold (trade date). Realized gains and losses from investment
transactions are calculated on the identified cost basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. Net investment income (other than
distribution and service fees) and realized and unrealized gains or losses are
allocated to each class of shares based upon the relative proportion of net
assets at the beginning of the day.
(d) Prior to November 1, 1998, the Fund followed the accounting practice of
equalization whereby a portion of the proceeds from the sales and costs of
repurchases of capital shares was allocated to undistributed net investment
income. Effective November 1, 1998, the Fund discontinued the use of
equalization. Discontinuing the use of equalization will result in a simpler and
more meaningful financial statement presentation.
2. Management Fee and Other Transactions with Affiliates
The Company has a management agreement with Lord, Abbett &Co. ("Lord Abbett")
pursuant to which Lord Abbett supplies the Company with investment management
services and executive and other personnel, pays the remuneration of officers,
provides office space and pays for ordinary and necessary office and clerical
expenses relating to research, statistical work and the supervision of the
Company's investment portfolio. The management fee is based on average daily net
assets at the following annual rates: 1/2 of 1% on the first $200 million; 2/5
of 1% on the next $300 million; 3/8 of 1% on the next $200 million; 7/20 of 1%
on the next $200 million and 3/10 of 1% on the excess over $900 million.
The Company has Rule 12b-1 plans and agreements (the "Class A, Class B, Class C
and Class P Plans") with Lord Abbett Distributor LLC ("Distributor"), an
affiliate of Lord Abbett. The Company makes payments to Distributor which uses
or passes on such payments to authorized institutions. Pursuant to the Class A
Plan, the Company pays Distributor (1) an annual service fee of 0.15% of the
average daily net asset value of shares sold prior to June 1, 1990 and 0.25% of
the average daily net asset value of shares sold on or after that date, (2) a
one-time distribution fee of up to 1% on certain qualifying purchases and (3) an
annual distribution fee of 0.10% of the average daily net asset value of the
Class A shares. Pursuant to the Class B Plan, the Company pays Distributor an
annual service and distribution fee of 0.25% and 0.75%, respectively, of the
average daily net asset value of the Class B shares. Pursuant to the Class C
Plan, the Company pays Distributor (1) a service fee and a distribution fee, at
the time such shares are sold, not to exceed 0.25% and 0.75%, respectively, of
the net asset value of such shares sold and (2) at each quarter-end after the
first anniversary of the sale of such shares, a service fee and a distribution
fee at an annual rate not to exceed 0.25% and 0.75%, respectively, of the
average annual net asset value of such shares outstanding. Pursuant to the Class
P Plan, the Company pays Distributor an annual service and distribution fee of
0.20% and 0.25%, respectively, of the average daily net asset value of the Class
P shares. Class Y does not have a Plan.
Distributor received $1,243,295 representing payment of commissions on sales of
Class A shares after deducting $7,671,421 allowed to authorized distributors as
concessions. Certain of the Company's officers and directors have an interest in
Lord Abbett.
3. Distributions
Dividends from net investment income are declared quarterly. Net realized gain
from investment transactions is distributed to shareholders annually.
Accumulated undistributed net realized gain as of April 30, 1999 for financial
reporting purposes aggregated $964,095,050.
Income and capital gains distributions are determined in accordance with income
tax regulations which may differ from methods used to determine the
corresponding income and capital gains amounts in accordance with generally
accepted accounting principles.
Distributions declared on May 19, 1999 and payable on May 27, 1999 to
shareholders of record as of May 19, 1999 were as follows:
Rate Per Aggregate
Net Investment Income Share Amount
- - - --------------------------------------------------------------------------------
Class A $0.060 $34,522,091
Class B 0.033 915,239
Class C 0.033 333,109
Class P 0.055 7,506
Class Y 0.073 207,894
- - - --------------------------------------------------------------------------------
4. Capital
The Company has authorized 1,500 million shares of $.001 par value capital stock
designated as follows: 1,150 million shares Class A, 100 million shares Class B,
100 million shares Class C, 75 million shares Class P and 75 million shares
Class Y. Paid in capital amounted to $6,217,092,685 as of April 30, 1999.
Transactions in shares of capital stock were as follows:
14
<PAGE>
Notes to Financial Statements
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1999 October 31, 1998
-----------------------------------------------------------------
Class A Shares Amount Shares Amount
- - - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales of shares 19,980,227 $ 299,413,540 44,496,423 $ 647,321,212
Shares issued to
shareholders in
reinvestment of
dividends and
distributions 34,466,591 490,186,444 50,482,142 682,391,630
Total 54,446,818 789,599,984 94,978,565 1,329,712,842
- - - -----------------------------------------------------------------------------------------
Shares reacquired (31,185,017) (467,925,129) (46,371,906) (672,172,411)
Increase 23,261,801 $ 321,674,855 48,606,659 $ 657,540,431
- - - -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1999 October 31, 1998
-------------------------------------------------------------
Class B Shares Amount Shares Amount
- - - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales of shares 5,624,228 $ 84,693,740 12,095,054 $176,522,488
Shares issued to
shareholders in
reinvestment of
dividends and
distributions 1,494,816 21,291,445 1,191,014 16,111,114
Total 7,119,044 105,985,185 13,286,068 192,633,602
- - - -----------------------------------------------------------------------------------------
Shares reacquired (1,665,816) (25,047,201) (1,852,596) (26,707,944)
Increase 5,453,228 $ 80,937,984 11,433,472 $165,925,658
- - - -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1999 October 31, 1998
-------------------------------------------------------------
Class C Shares Amount Shares Amount
- - - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales of shares 2,117,504 $ 31,966,596 4,987,808 $ 72,979,231
Shares issued to
shareholders in
reinvestment of
dividends and
distributions 566,871 8,074,097 449,243 6,084,002
Total 2,684,375 40,040,693 5,437,051 79,063,233
- - - -----------------------------------------------------------------------------------------
Shares reacquired (1,106,577) (16,698,369) (1,074,218) (15,311,549)
Increase 1,577,798 $ 23,342,324 4,362,833 $ 63,751,684
- - - -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 8, 1997
(Commencement
of Offering
Six Months Ended Class P Shares) to
April 30, 1999 October 31, 1998
-----------------------------------------------------
Class P Shares Amount Shares Amount
- - - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales of shares 18,198 $ 272,958 136,502 $1,953,673
Shares issued to
shareholders in
reinvestment of
dividends and
distributions 9,245 131,282 1,376 19,466
Total 27,443 404,240 137,878 1,973,139
- - - -----------------------------------------------------------------------------------------
Shares reacquired (17,363) (263,380) (13,227) (188,622)
Increase 10,080 $ 140,860 124,651 $1,784,517
- - - -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
March 27, 1998
(Commencement
of Offering
Six Months Ended Class Y Shares) to
April 30, 1999 October 31, 1998
---------------------------------------------------------
Class Y Shares Amount Shares Amount
- - - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales of shares 767,847 $11,503,572 2,136,585 $31,684,248
Shares issued to
shareholders in
reinvestment of
dividends and
distributions 173,682 2,472,896 11,916 166,985
Total 941,529 13,976,468 2,148,501 31,851,233
- - - -----------------------------------------------------------------------------------------
Shares reacquired (310,967) (4,524,740) -- --
Increase 630,562 $ 9,451,728 2,148,501 $31,851,233
- - - -----------------------------------------------------------------------------------------
</TABLE>
5. Portfolio Securities
The Company may lend its securities to member banks of the Federal Reserve
System and to registered broker-dealers approved by the Company. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an amount
at least equal to the market value of the securities loaned.
As of April 30, 1999, the value of securities loaned was $379,236,333. These
loans were collateralized by cash of $386,775,060. Income from securities
lending of $227,889 is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned is
accounted for in the same manner as other dividend and interest income.
Purchases and sales of investment securities (other than short-term securities)
aggregated $3,462,448,376 and $3,755,192,540, respectively.
As of April 30, 1999, unrealized appreciation based on cost for federal income
tax purposes aggregated $2,822,825,290, of which $2,874,321,913 related to
appreciated securities and $51,496,623 related to depreciated securities. The
cost of investments for federal income tax purposes is substantially the same as
that used for financial reporting purposes.
6. Directors' Remuneration
The Directors of the Company associated with Lord Abbett and all officers of the
Company receive no compensation from the Company for acting as such. Outside
Directors' fees and retirement costs are allocated among all funds in the Lord
Abbett group based on the net assets of each fund. Directors' fees payable on
April 30, 1999 were $2,690,374.
7. Expense Reduction
The Company has entered into an arrangement with its transfer agent whereby
credits realized as a result of uninvested cash balances were used to reduce a
portion of the Company's expenses.
8. Line of Credit
The Company, along with certain other funds managed by Lord Abbett, has a
$200,000,000 unsecured revolving credit facility ("Facility"), from a consortium
of banks, to be used for temporary or emergency purposes as an additional source
of liquidity to fund redemptions of investor shares. Any borrowings under this
Facility will bear interest at current market rates as defined in the agreement.
The fee for this Facility is 0.06% per annum. There were no loans outstanding
pursuant to this Facility as of April 30, 1999, nor was the Facility utilized at
any time during the year.
15
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders,
Lord Abbett Affiliated Fund, Inc.:
We have audited the accompanying statement of net assets of Lord Abbett
Affiliated Fund, Inc. as of April 30, 1999, the related statements of operations
and of changes in net assets and the financial highlights for each of the
periods presented. These financial statements and the financial highlights are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at April
30, 1999 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Lord Abbett
Affiliated Fund, Inc. at April 30, 1999, the results of its operations, the
changes in its net assets and its financial highlights for the respective
periods, presented in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
June 4, 1999
Our Management
Board of Directors
Robert S. Dow
E. Thayer Bigelow*
William H.T. Bush*+
Robert B. Calhoun, Jr.*
Stewart S. Dixon*+
John C. Jansing*+
C. Alan MacDonald*+
Hansel B. Millican, Jr.*
Thomas J. Neff*+
* Outside Director
+ Audit Committee
Officers
Robert S. Dow, Chairman and President
W. Thomas Hudson, Jr., Executive Vice
President and Portfolio Manager
Paul A. Hilstad, Vice President
and Secretary
Daniel E. Carper, Vice President
Robert G. Morris, Vice President
John J. Walsh, Vice President
Lawrence H. Kaplan, Vice President
and Assistant Secretary
A. Edward Oberhaus III, Vice President
Keith F. O'Connor, Vice President
Eli M. Salzmann, Vice President
Donna McManus, Treasurer
Joseph Van Dyke, Assistant Treasurer
Lydia Guzman, Assistant Secretary
Robert M. Hickey, Assistant Secretary
Investment Manager and
Underwriter
Lord, Abbett & Co. and
Lord Abbett Distributor LLC
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
212-848-1800
Custodian
The Bank of New York
New York, NY
Transfer Agent
United Missouri Bank of
Kansas City, N.A.
Shareholder Servicing Agent
DST Systems, Inc.
P.O. Box 419100
Kansas City, MO 64141
800-821-5129
Auditors
Deloitte & Touche LLP
New York, NY
Counsel
Debevoise & Plimpton
New York, NY
Copyright (C) 1999 by Lord Abbett Affiliated Fund, Inc., 767 Fifth Avenue, New
York, NY 10153-0203
This publication, when not used for the general information of shareholders of
Lord Abbett Affiliated Fund, Inc., is to be distributed only if preceded or
accompanied by a current prospectus which includes information concerning the
Fund's investment objective and policies, sales charges and other matters. There
is no guarantee that the forecasts contained within this publication will come
to pass.
All rights reserved. Printed in the U.S.A.
16
<PAGE>
Lord, Abbett & Co.
Portfolio
Manager
Profile
[PHOTO OMITTED]
W. Thomas Hudson, Jr.
Partner and Portfolio Manager
Lord Abbett Affiliated Fund
W. Thomas Hudson, Jr., Partner and Portfolio Manager of Lord Abbett Affiliated
Fund, joined the Firm in 1982, and has over 32 years of professional experience
in the financial services industry. During his tenure with Lord Abbett, Mr.
Hudson has served as Director of Research, Portfolio Manager of the COVA
Variable Annuity Growth and Income Portfolio and Portfolio Manager of the
American Skandia Lord Abbett Growth and Income Portfolio.
Mr. Hudson holds a B.S. in Finance and Accounting from St. Mary`s College in
California.
About Your Fund's
Board of
Directors
The Securities and Exchange Commission (SEC) views the role of the independent
Board of Directors as one of the most important components in overseeing a
mutual fund. The Board of Directors watches over your Fund's general operations
and represents your interests. Board members review and approve every contract
between your Fund and Lord, Abbett & Co. (the Fund's investment manager) and
Lord Abbett Distributor LLC (the Fund's underwriter). They meet regularly to
review a wide variety of information and issues regarding your Fund. Every
member of the Board possesses extensive business experience. Lord Abbett
Affiliated Fund's shareholders are indeed fortunate to have a group of
independent directors with diverse backgrounds to provide a variety of
viewpoints in the oversight of their Fund. Below, we feature one of our
independent directors, William Bush.
William Bush
Director--Lord Abbett
Affiliated Fund
[PHOTO OMITTED]
Mr. Bush received his B.A. degree from Yale University in 1960. He co-founded
the financial advisory firm of Bush-O'Donnell & Company which provides
investment management and financial advisory services to corporations and
individuals throughout the United States and abroad.
Mr. Bush serves as a member of the Board of Directors of Right Choice Managed
Care Inc., Maritz Inc., Mississippi Valley Bancshares, Inc. and INTRAV, Inc.,
all of St. Louis, and DT Industries Inc. of Springfield, Missouri. He was named
an independent director for all of Lord Abbett's funds in 1998.
<PAGE>
Investing in the
Lord Abbett
Family of Funds
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------------------------------
GROWTH
- - - ------------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------------
INCOME
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Funds Growth & Balanced Fund Income Funds Tax-Free Money
Growth Fund Income Funds Income Funds Market Fund
Research Fund - Balanced Series** World Bond-
Developing Small-Cap Value Research Fund - Debenture Series o National U.S. Government
Growth Fund Series Large-Cap o California Securities Money
Series Global Fund - o Connecticut Market Fund+++
Alpha Series* Income Series o Florida
Growth & o Georgia
International Income Series High Yield Fund o Hawaii
Series o Michigan
Affiliated Fund Bond-Debenture o Minnesota
Mid-Cap Fund o Missouri
Value Fund o New Jersey
Limited Duration o New York
Growth U.S. Government o Pennsylvania
Opportunities Securities Series+ o Texas
Fund o Washington
U.S. Government
Global Fund - Securities Series+
Equity Series
</TABLE>
Finding the right mutual fund can be confusing. At Lord, Abbett & Co., we
believe your investment professional provides value in helping you identify and
understand your investment objectives and, ultimately, offering fund
recommendations suitable for your individual needs.
This publication, when used as sales literature, is to be distributed only if
preceded or accompanied by a current prospectus for Lord Abbett Affiliated Fund.
For more complete information about any Lord Abbett fund, including risks,
charges and ongoing expenses, call your investment professional or Lord Abbett
Distributor LLC at 800-874-3733 for a prospectus. Read it carefully before
investing.
The Lord Abbett Family of Funds lets you access more than 30 portfolios designed
to meet a variety of investment needs.
Diversification. You and your investment professional can diversify your
investments between equity and income funds.
Flexibility. As your investment goals change, your investment professional can
help you reallocate your portfolio.
You may reallocate assets among our funds at any time. Speak with your
investment professional to help you customize your investment plan.
Numbers to Keep Handy
For Shareholder Account or Statement Inquiries: 800-821-5129
For Literature Only: 800-874-3733
24-Hour Automated Shareholder Service Line: 800-865-7582
Visit Our Web Site: http://www.lordabbett.com
* Lord Abbett Securities Trust - Alpha Series is a fund of funds investing in
shares of Lord Abbett Developing Growth Fund, Lord Abbett Research Fund -
Small-Cap Value Series and Lord Abbett Securities Trust - International
Series.
** Lord Abbett Balanced Series is a fund of funds investing in shares of certain
other Lord Abbett funds.
+ An investment in this Fund is neither insured nor guaranteed by the U.S.
Government.
++ An investment in this Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
Fund seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund. This Fund is managed to
maintain, and has maintained its stable $1.00 price per share.
[LOGO](R) LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
Lord Abbett mutual fund shares are distributed by:
LORD ABBETT DISTRIBUTOR LLC
- - - ------------------------------------------------------------ LAA-3-499
The GM Building o 767 Fifth Avenue o New York, NY 10153-0203 (6/99)
<PAGE>
PROXY REAL SILK INVESTMENTS, INCORPORATED
445 N. Pennsylvania Street, Indianapolis, Indiana
Special Meeting of Shareholders - October , 1999
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Daniel R. Efroymson, Loralei M
Efroymson, and Jeremy Efroymson or any of them, with powers of substitution, as
proxies to represent and vote all shares of stock which the undersigned would be
entitled to vote at the Special Meeting of Shareholders of Real Silk
Investments, Incorporated to be held on November , 1999, and at any adjournment
thereof, with all of the powers the undersigned would possess if personally
present in accordance with the direction below. In the event the undersigned has
instructed the proxies to vote "FOR" the Agreement and Plan of Merger, the
undersigned also hereby appoints Daniel R. Efroymson, Loralei M Efroymson, and
Jeremy Efroymson or any of them, with powers of substitution, as the
undersigned's attorney-in-fact for the sole purpose of entry into and execution
of the Escrow Agreement as described in the Prospectus and Proxy Statement dated
October , 1999, which accompanied this form of proxy.
1. ADOPTION AND APPROVAL OF THE AGREEMENT AND PLAN OF MERGER
|_| FOR |_| AGAINST |_| ABSTAIN
2. In their discretion, on such other matters as may properly come before
the meeting.
This proxy will be voted as directed, or if no direction is indicated,
will be voted FOR Proposal Number 1.
Dated: Please sign exactly as your name appears
Address correction requested. hereon
(Signature of Shareholder)
(Signature of Shareholder)
PLEASE SIGN AND RETURN THIS
PROXY PROMPTLY. Joint
owners should each sign
personally. Administrators,
trustees, guardians,
attorneys or others signing
in a representative
capacity should indicate
the capacity in which they
sign.
