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U.S. equity markets advanced during the third quarter of 2013 amid indications of continued economic expansion. The market saw some choppiness during the quarter as investors anticipated that the U.S. Federal Reserve (the "Fed") would begin to withdraw monetary accommodation via reduced bond purchases, though the Fed held off on such a move at its policy meeting on September 18. The U.S. gains came against a generally positive global backdrop: the eurozone economy moved out of recession; Japan's stimulus program spurred renewed optimism that the country will see stronger growth; and China's economy recovered from a June 2013 credit squeeze.
The Fed noted that "national economic activity continued to expand at a modest to moderate pace" between early July and late August, based on reports from the 12 Fed districts. The Fed said manufacturing activity expanded modestly. Consumer spending rose in most Fed districts, reflecting, in part, strong demand for automobiles and housing-related goods.1 The third estimate for the second quarter of 2013 showed that the economy grew by an annualized rate of 2.5%, in line with the previous estimate. First-quarter 2013 growth was 1.1%.2
The S&P 500® Index3 rose 5.2% during the quarter, reaching an all-time closing high on September 18. Gains occurred in all of the 10 major sectors. The materials, industrial, consumer discretionary, health care, and information technology 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). Small cap stocks (as represented by the Russell 2000® Index6) outperformed large caps (as represented by the Russell 1000® Index7).
The Fund returned 5.31%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the quarter ended September 30, 2013, compared to the S&P 900 10-Year Dividend Growth Index,8 which returned 5.40% for the same period. (Please note: Effective September 27, 2012, the Lord Abbett Capital Structure Fund underwent an investment strategy change and became the Lord Abbett Calibrated Dividend Growth Fund. Therefore, the performance of the Fund for periods prior to September 27, 2012, is not representative of the Fund's current strategy.) 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 September 30, 2013, are: one year: 11.31%; five years: 9.27%; and 10 years: 7.56%. Expense ratio, gross: 1.13% and net: 0.85%.
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 Fund's overweight position in Kimberly-Clark Corp., a leading global provider of diapers and tissues, detracted from relative performance after the firm reported disappointing organic sales growth within developed markets. The Fund's relative performance was also negatively affected by an overweight position in McDonalds Corp., the largest quick-service restaurant company in the world, as shares of the firm declined after reporting weak sales within the United States. Although the firm continues to gain market share within the fast food category, the competitive environment has limited the firm's ability to raise prices. Another detractor was International Business Machines, a leading provider of technology solutions to enterprise clients, whose shares declined during the quarter after the firm reported revenue that was below expectations. The firm has faced competitive pressure in the storage and server markets.
The Fund's overweight position in Family Dollar Stores, Inc., an operator of retail discount stores, contributed to relative performance after the firm reported stronger-than-expected sales growth, particularly within the consumables segment. The Fund's relative performance was also positively affected by an overweight position in Emerson Electric Co., a provider of technology and engineering services for industrial and commercial applications. The firm's shares rose after the firm reported an increase in process management orders, particularly from shale-gas related work in North America. Shares of United Technologies Corp., a diversified industrial firm, rose after the firm reported demand growth for elevators and escalators in China. The firm's Pratt & Whitney division, which makes engines for commercial airplanes, also posted better-than-expected results.
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.