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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 4.67%, 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 the Russell Midcap® Value Index,8 which returned 5.89% 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: 19.65%; and since inception (December 29, 2011): 19.29%. Expense ratio: gross: 1.13%; 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 Community Health Systems, Inc., an operator of hospitals, detracted from relative performance during the three-month period after the firm reported a decline in admissions. The Fund's relative performance was also negatively affected by an overweight position in Entergy Corp., a utility company distributing electricity across four states and generating electricity with six nuclear power plants. Shares of the firm declined after it announced that it would consider selling or shutting down nuclear facilities because of persistently low wholesale power prices. Shares of Ventas, Inc., a real estate investment trust that acquires, manages, and invests in senior housing communities, medical office buildings, and hospitals, declined during the quarter as investors evaluated the impact that higher interest rates will have on the firm's earnings.
The Fund's overweight position in Allegheny Technologies, Inc., a manufacturer of steel and specialty metals, contributed to relative performance after the firm announced the divestiture of its tungsten materials business. The sale should enable the firm to strengthen its balance sheet and focus on its core businesses in high-performance metals and flat-rolled products. The Fund's relative performance was also positively affected by an overweight position in CF Industries Holdings, Inc., a manufacturer and distributor of nitrogen and phosphate fertilizers. Shares of the firm 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. Shares of Flour Corp., an engineering and construction company, also rose after the company reported an increase in bookings within the oil and gas and power 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.
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.