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U.S. Equity markets climbed during the first quarter of 2013, as investors focused on solid growth in corporate earnings and continued monetary accommodation from the Federal Reserve. The gains came against a backdrop of continued uncertainty regarding the European sovereign debt crisis, and signs of improved economic growth in China and other key emerging markets.
The Fed noted that the U.S. economy "generally expanded at a modest to moderate pace" in January and early February, based on reports from the 12 Fed districts. The Fed said most districts reported expansion in consumer spending, although retail sales slowed in several districts. The manufacturing and service sectors showed improvement.1 The third estimate for the fourth quarter of 2012 showed that the economy grew by an annualized rate of 0.4%, versus the previous estimate of an increase of 0.1%. Third-quarter 2012 growth was 3.1%.2
The S&P 500® Index3 rose 10.6% during the quarter, reaching an all-time closing high on March 28. Gains occurred in all of the 10 major sectors. The consumer discretionary, consumer staples, financials, health care, industrials, and utilities sectors outperformed the broader market. Value stocks (as represented by the Russell 3000® Value Index4) outperformed growth stocks (as measured by the Russell 3000® Growth Index5). Small cap stocks (as represented by the Russell 2000® Index6) outperformed large caps (as represented by the Russell 1000® Index7).
The Fund returned 10.47%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the period ended March 31, 2013, compared to the Standard & Poors 900 10 year Dividend Growth Index8 which returned 11.48% 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. Average 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 March 31, 2013, are: one year: 6.13%; five years: 5.75%; and 10 years: 8.40%. Expense ratio, gross: 1.23% 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.
Consistent with the strategy's design, stock selection (-0.75%) was the primary driver of the performance variance relative to the index during the quarter. Unfortunately, stock selection was negative for the three month period and the Fund underperformed its index by -1.01%.
Detracting from relative performance was stock selection within the industrials and consumer staples sectors. Within the industrials sector, stock selection in the machinery industry detracted the most. Shares of Caterpillar, Inc., the largest manufacturer and marketer of construction equipment worldwide, declined as investors were concerned about global growth prospects and the implication on demand for Caterpillar’s products. Shares of Lincoln Electric Holdings, Inc., leading producer of welding and cutting products, decreased as the company experienced a negative currency effect created by the devaluation of the Venezuelan bolivar, where the company has a welding operation within its South American segment. Within the consumer staples sector, shares of Bunge Limited, a global agribusiness and food company, declined upon weaker than expected fourth quarter results, most notably in the agribusiness and sugar divisions.
Stock selection within the financials sector contributed to relative performance. Within the financials sector, shares of diversified asset managers, Franklin Resources, Inc. and Eaton Vance Corp., outperformed due to market strength and growth in assets under management. Although we underperformed within the materials sector, our stock selection in the chemicals industry was strong. Shares of Monsanto Co., an agricultural biotechnology company, rose as an announcement of a favorable settlement was reached regarding a patent-infringement lawsuit. Shares of International Flavors & Fragrances Inc., leading global creator of flavors and fragrances used in a variety of consumer products, appreciated as the company’s new business wins continued to be strong in the fine fragrance segment.
Please refer to www.lordabbett.com under the "Portfolio" tab for a complete list of holdings of the Fund, including the securities discussed above.
Consistent with the central tenets of the investment strategy, the portfolio continues to be invested principally in stocks of large cap companies that have a history of increasing dividends.
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 affect of fee waivers or expense limitation arrangements.