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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 S&P 500® Index1 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 Index2) outperformed value stocks (as represented by the Russell 3000® Value Index3). Small cap stocks (as represented by the Russell 2000® Index4) outperformed large caps (as represented by the Russell 1000® Index5).
The Lord Abbett Diversified Equity Strategy Fund returned 9.22%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the three-month period ended September 30, 2013, compared to its benchmark, the 85% Russell 3000® Index6/15% MSCI EAFE Index with Gross Dividends,7 which returned 7.13%. The Fund's 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: 18.36%; five years: 8.93%; and since inception (June 30, 2006): 5.76%. Expense ratio, gross: 1.44%, and net: 1.07%.
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.
Within the domestic segment of the portfolio, the Fund's weighting in growth equities contributed to relative performance, as growth stocks outperformed value stocks during the quarter. The Fund's weighting in large cap value stocks detracted from performance, as large cap value stocks underperformed.
The Fund's exposure to domestic multi-cap growth equities contributed to relative performance, as this investment strategy outperformed its index. Both an overweight and security selection within the information technology sector contributed to this strategy's performance relative to its index. Facebook, Inc., operator of the world's largest online social network, saw its shares rise considerably during the quarter. The company's second quarter 2013 earnings report highlighted a 21% year-over-year increase in active users and a 53% year-over-year increase in advertising revenue. Security selection within the consumer discretionary sector also contributed to the strategy's performance relative to its index. Shares of Ctrip.com, a travel service provider for hotel accommodations and airline tickets in China, rose during the quarter as the firm continued to benefit from growth in the Chinese travel industry.
The Fund's exposure to international large cap core equities detracted from relative performance, as this investment strategy underperformed its benchmark. Stock selection, particularly within the information technology and financials sectors, contributed to this strategy's overall underperformance. Within the information technology sector, Murata Manufacturing Co. Ltd., a Japan-based provider of parts to many of the world's most popular smartphone manufacturers, saw depressed share prices during the period as investors evaluated the decelerating growth of global smartphone sales. The strategy's position in Bangkok Bank PCL, a Thailand-based commercial bank, detracted from performance relative to the strategy's benchmark, as near-term growth remains slow for Thai banks as they await disbursement of public funds promised in a government infrastructure investment plan.
Please refer to www.lordabbett.com under the "Portfolio" tab for a complete list of holdings of the Fund, including the securities discussed above.
The Fund invests all of its net assets directly in the underlying funds. The percentages shown are based on individual securities owned in one or more of the underlying funds. The Fund's portfolio is actively managed and therefore, its percentage allocations may change from time to time. Holdings are for informational purposes only and are not a recommendation to buy, sell, or hold any security.
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.