Real Silk Investments, Inc.
445 N. Pennsylvania St.; Suite 500
Indianapolis, IN 46204
(317) 632-7359
For Immediate Release
July 9, 1999
Indianapolis, Indiana
Real Silk Investments, Incorporated announced that it has executed a
definitive agreement regarding the previously announced merger with
and into Lord Abbett Affiliated Fund, Inc., an open-end mutual fund
with approximately $10 billion in assets. The merger is subject to
Real Silk shareholder approval.
Daniel R. Efroymson, president of Real Silk, indicated that the
negotiation of the definitive merger agreement had gone very
smoothly. He also issued a letter to Real Silk shareholders highlighting
the major terms of the merger agreement and providing them additional
information.
Attachments: Letter to Real Silk Shareholders Dated July 9, 1999.
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Real Silk Investments, Inc.
445 N. Pennsylvania St.; Suite 500
Indianapolis, IN 46204
(317) 632-7359
July 9, 1999
Dear Shareholder:
The purpose of this letter is to provide additional information
concerning the recent announcement that Real Silk Investments, Incorporated
("Real Silk") will merge into and become a part of Lord Abbett Affiliated
Fund, Inc. ("Affiliated Fund"), a member of the Lord Abbett family
of funds.
The Agreement and Plan of Merger (the "Agreement") between
Real Silk and Affiliated Fund was entered into on July 8, 1999, but
is still subject to certain conditions, including shareholder approval.
It is very difficult to estimate when the transaction will close and the
merger will become effective, but we are advised that the process of
dealing with the Securities and Exchange Commission, the Federal Trade
Commission, the Department of Justice and complying with all necessary
Indiana corporate law matters may take upwards of three months. It is for
that reason we determined to provide our shareholders this letter outlining
the primary terms of the Agreement.
Affiliated Fund is an "open-end" mutual fund, which means it
continually sells its shares and always stands ready to redeem its shares
from its shareholders at the net asset value per share. By contrast,
Real Silk is a "closed-end" mutual fund, which, among other things, means
its shares are traded in the over-the-counter market on a supply and demand
basis. Real Silk's shares, like the shares of many closed-end mutual funds,
have frequently traded at a discount from their net asset value. The merger
will have the effect of eliminating the discount from net asset value per
share at which Real Silk shares have traditionally traded.
You will be receiving a very detailed document before the time of
the special shareholders meeting which will provide greater detail than this
letter. However, the most significant terms of the Agreement are:
Before the merger Real Silk will sell a sufficient amount of
portfolio securities to realize approximately $20 million in long term
capital gains. Real Silk will retain the proceeds (which are deemed
distributed to shareholders) and will pay a tax at the highest corporate rate
on these retained gains. The shareholders will include these gains, as long
term capital gains, in their individual income tax returns and receive a
credit against their individual tax liability (including any liability
attributable to Real Silk's capital gains) equal to their share of the taxes
paid by Real Silk. The difference between the gains realized by Real Silk
and the taxes paid by Real Silk on behalf of the shareholders will be
added by the shareholders to their tax basis in their stock. You will
receive IRS information reports indicating your share of the gain and the tax
paid. Those reports will also be provided to the IRS as required by law.
Immediately before the effective date of the merger, Real Silk
will declare and pay a taxable dividend to its shareholders by which it
will pay out all of its interest and dividend income for its tax year ending
on the closing date of the merger.
Real Silk and Affiliated Fund will determine their respective
net asset values per share and Real Silk shareholders will receive Affiliated
Fund shares with a value equal to the net asset value of their Real Silk
shares.
The merger of Real Silk into Affiliated Fund is structured to
qualify as a "reorganization" under the Internal Revenue Code of 1986, as
amended (the "Code"). In order to assure that the merger will qualify as a
reorganization, it is necessary for shareholders of Real Silk to have a
"continuity of interest" in Affiliated Fund following the merger. In
connection with this requirement, certain Real Silk shareholders will be
asked to sign representation letters indicating that they have no "plan or
intention" to redeem Affiliated Fund shares they receive in the merger.
Additional information regarding these representation letters will be
provided to those shareholders. In addition, 65% of the Affiliated Fund
shares received by each Real Silk shareholder will be placed in an escrow
for a period of one year. Following that one year holding period, the
escrow agent will forward the Affiliated Fund shares to the owner. Any
dividends or capital gains distributions paid on the Affiliated Fund shares
subject to the escrow will be paid directly to the shareholder, and will
not be placed in the escrow.
Assuming that the merger does qualify as a reorganization
under the Code, Real Silk shareholders will not recognize income, gain or
loss for tax purposes as a result of their exchange of Real Silk shares for
Lord Abbett shares under the Agreement. In that event, each Real Silk
shareholder will have a "carryover" tax basis in the Affiliated Fund shares
received in the merger, equal to their basis in the Real Silk shares
immediately prior to the merger. You will be provided additional information
as to the manner and amount of any adjustment to the basis of your Real
Silk shares resulting from the deemed distribution described above, but you
are strongly urged to get individual advice from your tax advisor as to your
individual situation. It is a condition to closing that Real Silk and Lord
Abbett receive legal opinions from their special tax counsel, based on the
representation letters received from certain shareholders and other
representations that will be made by Real Silk and Affiliated Fund, that the
merger will qualify as a reorganization under the Code.
The Affiliated Fund shares not subject to the escrow (35% of
the total shares) will be forwarded to the Real Silk shareholder upon
surrender of the shareholders' Real Silk shares. These shares may be sold
at any time. The redemption of those shares will result in tax liability
to the holder. You should consult with your personal tax advisor before
making any decision as to the redemption of Affiliated Fund shares.
Real Silk shareholders will be able to purchase additional
shares of Affiliated Fund through reinvestment of dividends or capital gains
distributions without paying a sales charge of any kind.
Real Silk shareholders will also be able to purchase
additional shares of Affiliated Fund with personal funds and will have the
sales charge for those shares determined in accordance with the Affiliated
Fund prospectus. The sales charge calculation will aggregate the Affiliated
Fund shares received by the shareholder in connection with the merger
with the new shares being purchased to determine the level of sales charge
imposed on the purchases.
The Agreement is subject to Real Silk shareholder approval,
which will require the approval of a majority of the Real Silk shares
entitled to vote on the merger.
Real Silk shareholders will also have the right to dissent
from the merger as provided by Indiana law and receive the "fair value" of
their Real Silk shares. Dissenting is a rather technical process and must be
done exactly as specified in the Indiana law. There will be a full
explanation of how to dissent in the materials provided to you before the
shareholders meeting. You should read them carefully.
You will also receive certain tax reports and notices after
the merger which should assist you in obtaining the tax credit discussed
above and the tax treatment of distributions which you receive or will be
deemed to receive from Real Silk before the merger.
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Following the merger, you will be an Affiliated Fund shareholder
and will receive notifications from it in the same manner as any other
Affiliated Fund shareholder.
The above summary of the transaction is designed to give you a brief
outline of the terms of the Agreement which is a very long document. You
should not rely exclusively on this summary. You should read thoroughly
the materials that are sent to you before the special shareholders meeting.
Those materials will contain a significant amount of information about
both the merger and about Affiliated Fund. This will be very important
information and you should read it very carefully.
The Board of Directors of Real Silk believes this is an excellent
opportunity for Real Silk shareholders and will keep you advised as progress
is made toward the merger and the calling of the special shareholders meeting.
Sincerely,
Daniel R. Efroymson, President
