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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 3.23%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the period ended September 30, 2013, compared to its benchmark, the Russell 1000® Value Index,8 which returned 3.94% for the same period. 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 September 30, 2013, are: one year: 14.53%; and since inception (December 29, 2011): 19.23%. Expense ratio: gross, 1.12%; net: 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 Fund's overweight position in Kellogg Co., the world's leading breakfast cereal manufacturer and the owner of several snack brands, was the largest detractor from relative performance. The environment has been challenging for the cereal category, as consumers have increasingly chosen yogurt and other breakfast options. The Fund's relative performance was also negatively affected by an overweight position in PG&E Corp., a utility company operating primarily in California. Shares of the firm declined amid ongoing investor concerns about litigation over the 2010 explosion of a pipeline in San Bruno, California. The litigation is expected to result in fines that will require the firm to raise additional capital. The Fund's position in Broadcom Corp., a producer of semiconductor chips used in smartphones, networking equipment, cable set-top boxes, and cable modems, also detracted from relative performance amid slowing smartphone sales growth and concerns about the firm's ability to gain incremental design wins in the smartphone market.
The Fund's overweight in Apple, Inc., producer of the iPhone, iPad, and other personal computing devices, contributed to relative performance as investors anticipated the September release of the iPhone 5s and other new products in the coming months. The Fund's relative performance was also positively affected by an overweight position in Mylan, Inc., a producer of generic and branded drugs. Shares of the firm rose after the likelihood of approval increased for Mylan's generic Advair, which primarily is used to treat asthma. Shares of CF Industries Holdings, Inc., a manufacturer and distributor of nitrogen and phosphate fertilizers, rose after an activist investor called for a dividend increase. The likelihood of a dividend increase rose later in the quarter after the firm announced the retirement of CEO Steve Wilson.
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.