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U.S. equity markets advanced during the fourth quarter of 2013 amid indications of an acceleration of economic growth. Investors appeared to be comfortable with the prospect that the U.S. Federal Reserve would begin to withdraw monetary accommodation via reduced monthly bond purchases. Indeed, the Fed announced on December 18 that it would start "tapering" at a modest pace during 2014. The outlook for other major global economies was decidedly mixed: the eurozone remained sluggish; Japan's growth rate decelerated despite an enormous stimulus program; and China's growth pace quickened amid government efforts to restructure the economy.
The Fed noted that "the economy continued to expand at a modest to moderate pace" between early October and mid-November, based on reports from the 12 Fed districts. The Fed said manufacturing activity expanded in most districts, with gains noted in the motor-vehicle and high-technology industries. Reports on retail spending were positive, though retailers reported being "hopeful, but cautious" ahead of the holiday season.1 The second estimate for the third quarter of 2013 showed that the economy grew by an annualized rate of 3.6%, above the previous estimate of 2.8%. Second-quarter 2013 growth was 2.5%.2
The S&P 500® Index3 rose 11% during the quarter, reaching an all-time closing high on December 31. Gains occurred in all of the 10 major sectors. The information technology and industrials sectors outperformed the broader market. Growth stocks (as represented by the Russell 3000® Growth Index4) outperformed value stocks (as represented by the Russell 3000® Value Index5). Large cap stocks (as represented by the Russell 1000® Index6) outperformed small caps (as represented by the Russell 2000® Index7).
The Fund returned 9.84%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the period ended December 31, 2013, compared to the benchmark, the Russell 1000® Value Index,8 which returned 10.01%. Average annual total returns, which reflect performance at the maximum 5.75% sales charge applicable to Class A share investments and include the reinvestment of all distributions, as of December 31, 2013, are: one year: 24.59%; five years: 12.66%; and 10 years: 4.93%. Expense ratio: 0.75%.
Performance data quoted represent past performance, which does not guarantee future results. Current performance may be higher or lower than the performance data quoted. 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. To obtain performance data current to the most recent month-end, call Lord Abbett at 1-888-522-2388 or visit us at www.lordabbett.com.
The performance of select individual overweight positions led to modest underperformance during the three-month period. The Fund's position in Philip Morris International, Inc., which sells cigarettes and other tobacco products in markets outside of the United States, detracted from relative performance. Shares declined after the firm released lower-than-expected earnings guidance due to weakness in global demand for cigarettes and elevated costs associated with planned investments in next-generation tobacco products.
Shares of McDonald's Corp., the largest quick-service restaurant company in the world, also underperformed during the three-month period. Quick-serve competitors began to regain some market share during the second half of 2013 following several years of market share gains for McDonald's. Reports released during the fourth quarter showed declining restaurant traffic in the United States, as the introduction of a buffalo chicken wing product and changes to the dollar menu have not yet attracted incremental customers. The Fund's overweight position in Occidental Petroleum Corp., an oil and gas exploration and production company, also detracted from relative performance during the period. Although the firm posted results that were modestly better than expectations, investor enthusiasm remained muted as shareholders awaited the results of an ongoing strategic business review that was announced earlier in the year.
Contributing to relative performance was the Fund's overweight position in Valero Energy Corp., an oil refiner with a large presence on the Gulf Coast of the United States, as the firm's share price reached its highest level in over five years. Because Valero sources most of its input—crude oil—from within the United States and sells its output—refined products—at prices that are linked to global crude oil prices, the firm benefits when U.S. crude oil trades at a discount to global oil prices. Shares of the firm increased in value during the quarter as this spread widened and the firm continued to exploit its cost advantage over other domestic refiners.
The Fund's overweight position in Hewlett-Packard Co., a technology firm providing businesses and consumers with a diverse assortment of products and services, also contributed to relative performance. Although long-term weakness in global demand for personal computers has challenged Hewlett-Packard's business model over the last several years, the firm's cost-cutting and turnaround efforts showed signs of progress during 2013 and the share price nearly doubled during the calendar year. During the fourth quarter, the firm reported stronger-than-expected sales of personal computers and enterprise hardware, while continuing to cut costs and return cash to shareholders through dividends and share repurchases. Shares of Apple, Inc., producer of the iPhone, iPad, and other personal computing devices, contributed to relative performance as data showed that the newly launched iPad and iPhone products were in strong demand.
Please refer to www.lordabbett.com under the "Portfolio" tab for a complete list of holdings of the Fund, including the securities discussed above.
Performance data quoted is historical. Past performance is not indicative of future results. Current performance may be higher or lower than the performance quoted. 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. To obtain performance data current to the most recent quarter-end, go to quarter ending performance on our Website or call Lord Abbett at (888) 522-2388.
1 The Fund’s dividend yield is shown without sales charges (at NAV) and with maximum sales charges (at MOP). The Fund’s dividend yield takes into account any fee waiver or expense limitation arrangements, if any. Without such fee waivers or expense limitation arrangements, the Fund’s dividend yield would have been lower. Information regarding any fee waivers or expense limitation arrangements applicable to the Fund is provided with the Fund’s expense ratio information.
2 The Fund’s unsubsidized dividend yield is shown without sales charges (at NAV) and with maximum sales charges (at MOP). The Fund’s unsubsidized dividend yield reflects what the yield would have been without the effect of fee waivers or expense limitation arrangements.