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Fund Description
The Fund seeks to provide income exempt from federal income taxes but consistent with reasonable risk through investment in high-quality municipal bonds that typically have an intermediate- to long-term maturity.
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Fund Advantages
- Active management can achieve significant incremental return over passive portfolio strategies.
- A diversified, fully invested portfolio of high quality municipal bonds offers optimal risk/reward characteristics.
- Within a disciplined approach based in fundamental research, attractive investment returns can be achieved through an investment strategy that is adaptable to changing market conditions.
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Fund Returns
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As of August 31, 2010
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All returns in percentages
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| Class |
Last
Quarter
06/30/2010
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Year
to Date
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1
Year
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3
Year
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5
Year
|
10 Years
or Life
of Fund
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|
A
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NAV
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1.57
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3.86
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14.01
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2.58
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2.53
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4.52
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Inception date: April 02, 1984
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B
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NAV
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1.37
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3.44
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13.07
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1.76
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1.77
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3.96
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| |
Inception date: August 01, 1996
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C
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NAV
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1.39
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3.49
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13.14
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1.91
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1.86
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3.85
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Inception date: July 15, 1996
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Past performance is no guarantee of future results. Investment returns and principal will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. All returns assume the reinvestment of all distributions.
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SEC Returns
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As of June 30, 2010
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All returns in percentages
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Class
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1
Year
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5
Year
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10 Years
or Life
of Fund
|
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A
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SEC (A)
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10.26
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1.86
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4.17
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Inception date: April 02, 1984
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B
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SEC (B)
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9.07
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1.60
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3.96
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Inception date: August 01, 1996
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C
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SEC (C)
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13.14
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1.86
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3.85
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Inception date: July 15, 1996
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(A) SEC Returns reflect performance at the maximum 2.25% sales charge applicable to Class A share investments as of 06/30/2010.
(B) A maximum Contingent Deferred Sales Charge (CDSC) of 5% is applied to shares sold prior to the 6th anniversary of purchase. There are also ongoing 12b-1 service and distribution fees. Class B shares automatically convert to class A shares after 8 years.
(C) Class C shares are subject to ongoing 12b-1 service and distribution fees as well as a maximum Contingent Deferred Sales Charge (CDSC) of 1% if you redeem your shares before the first anniversary of your original purchase.
Past performance is no guarantee of future results. Investment returns and principal will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. All returns assume the reinvestment of all distributions.
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Rank
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Fund
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Percentage of Portfolio
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The Fund's portfolio is actively managed and may change significantly over time.
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Sector
(Sector groups include many industries)
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Percentage of Portfolio
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The Fund's portfolio is actively managed and may change significantly over time.
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Average Current Yield
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5.77
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Average Yield To Maturity
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5.79
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Fund Status
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Open to New Investors
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Dividend Frequency
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Monthly
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Number of Issues
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446
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Class
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Inception
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Quotron
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CUSIP
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Outstanding
Shares
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A
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April 02, 1984
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LANSX
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543902100
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89,834,684
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B
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August 01, 1996
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LANBX
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543902878
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1,538,305
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C
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July 15, 1996
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LTNSX
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543902860
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15,676,854
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F
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September 28, 2007
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LANFX
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543902761
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5,247,561
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I
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July 27, 2010
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LTNIX
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543902829
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944
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Investment Team
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Porfolio Commentary
As of June 30, 2010
Market Review
In the second quarter of 2010, although strong demand continued to support the municipal market, inflows into mutual funds considerably slowed when compared with last year's record inflows. Total municipal supply is up 2.0% year to date versus the year-ago period. Tax-exempt supply, however, has been down year to date. The issuance of Build America Bonds (BABs), which began in April 2009, has diverted supply that otherwise would have occurred in the long end of the tax-exempt bond market. BABs allow municipalities to offer investors higher, taxable yields (as opposed to traditionally lower, tax-exempt yields) with the help of a 35% federal government subsidy to the issuer. The House recently passed a bill to extend the program, and the proposal is awaiting Senate approval. The proposed legislation reduces the federal subsidy to 32% in 2011 and to 30% by 2012, while also permitting refundings of previously issued BABs.
During the quarter, lower-rated bonds continued to outperform higher-quality bonds. Along the maturity spectrum, the long portion of the curve (25 years and longer) performed best, as the market for longer-dated securities has benefited from low supply and reduced inflation fears due to the high unemployment rate and the difficulties in Europe. Treasury yields have been more volatile when compared to municipal yields, as global credit concerns increased demand for U.S. Treasury debt. However, both yield curves remain steep due to the Federal Reserve's policy of maintaining its funds rate near 0%.
In April, Moody's adjusted its municipal debt ratings for a range of sectors into a global rating system. This is the agency'‘s beginning attempt to assess municipal debt on a scale comparable with corporate securities, taking into account the low historical default rate of municipal bonds. The agency's actions have resulted in the assignment of higher ratings for some sectors, along with creating the potential to open doors to a broader range of prospective buyers for some lower-rated states that have been upgraded. It also could improve liquidity for some issuers who were previously in the lower investment-grade range.
Fund Review
The Fund returned 1.57%, reflecting performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the three-month period ended June 30, 2010. The Fund's benchmark, the Barclays Capital Municipal Bond Index,1 returned 2.03% in the same period. The Fund's average annual total returns, which reflect performance at the maximum 3.25% sales charge applicable to Class A share investments and includes the reinvestment of all distributions, as of June 30, 2010, are: 1 year 10.26%, 5 years: 1.86%, and 10 years: 4.17%. Expense ratio, gross: 0.92%, and net: 0.77%.
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. You can obtain performance data current to the most recent month-end by calling Lord Abbett at 888-522-2388 or visiting us at www.lordabbett.com.
The Fund underperformed its benchmark during the quarter. The Fund utilizes Treasury futures in combination with long maturity municipal bonds to manage a portion of its targeted duration. The widening of the yield differential between Treasuries and municipal bonds during the quarter as a result of global credit concerns caused the returns of municipal bonds to lag those of Treasuries resulting in a negative impact on the Fund's relative performance. This strategy has benefited the Fund over longer time periods since it enables the Fund to own longer-maturity municipal bonds which generate higher income due to the steepness of the municipal bond yield curve while at the same time keeping the overall duration of the Fund within a targeted range.
During the quarter, the portfolio selectively increased its exposure to bonds rated 'BBB' and below. Although lower-quality bonds have outperformed over the past year, credits spreads still remain wide, providing potentially attractive opportunities. The portfolio's overweight in 'BBB' rated and high-yield credits, versus the benchmark, contributed positively to performance.
In terms of the portfolio's yield curve positioning, the portfolio maintained its overweight to bonds with maturities longer than 20 years. The portfolio's overweight to longer maturities added to performance. Due to the steepness of the yield curve, particularly out to 25 years, this positioning is targeted toward overweighting the maturities with the best relative value.
In terms of sector exposure, the portfolio's healthcare holdings were the Fund's largest positive contributors to return. The industrial development/corporate-backed sector also performed well, providing the second highest contribution to return. The portfolio's weighting in the tobacco sector, although neutral to its benchmark, was a detractor to performance.
Outlook
We expect municipal market demand to remain strong, and we view the relative value of the yields compared to Treasuries and the spreads for credit risk to be attractive compared with historical levels. The low recent volatility and the continuation of attractive tax-equivalent yields should lead to continued inflows into the asset class. Regarding supply, we expect new issuance to remain high due to the financial needs of the issuers, with Build America Bonds (BABs) continuing to account for a significant portion. This should continue to lead to lower tax-exempt municipal bond issuance as borrowers find more attractive rates in the taxable market. Also, the anticipation of higher tax rates in the future as the Bush income tax cuts expire should make tax-equivalent yields become even more attractive.
The role of bond insurers in the market continues to diminish, as less than 10% of new bond issuance consists of insured securities. Also, now that Moody's has moved to its global rating scale, there should be even less demand for insurance. The market will likely continue to place no value on the insurance provided by downgraded insurers as secondary market trades occur. Due to the reduction in bond insurance, new municipal bond issuance will continue to be most heavily composed of 'AA' and 'A' rated bonds.
State budget gaps remain a concern; however, states are maintaining their credit quality, and default risk is extremely low. Our research group will continue to actively monitor the trends in state tax receipts, which will be an important indicator regarding how state budgets will need to adjust to the economy.
The prospect of accelerating inflation is a risk to the performance of the municipal market, but those fears have been mitigated considerably due to the European economic situation and concern about its future impact on the United States. Any incipient inflationary pressures could have a negative impact upon the performance of longer-maturity bonds and, subsequently, flow through to shorter maturities when the Fed eventually decides to raise short rates. However, the expectation of higher income tax rates and reduced credit risk in an improving economy should provide some cushion for the municipal market to counter those inflationary concerns. In our opinion, based upon recent economic statistics, inflation does not appear to be a near-term concern, but it will be important to monitor.
1The Barclays Capital Municipal Bond Index is a broad measure of the municipal bond market that includes bonds with maturities of at least one year. To be included in this index, bonds must have a minimum credit rating of at least Baa, an outstanding par value of at least $3 million, and be issued as part of a transaction of at least $50 million. This includes both zero coupon bonds and bonds subject to the alternative minimum tax.
An index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment.
Instances of high double-digit returns were achieved primarily during favorable market conditions and may not be sustainable over time.
The credit quality of the securities in the portfolio is generally calculated by a national rating organization, such as Standard & Poor's, Moody's, or Fitch. Credit ratings of 'A' or better are considered to be high credit quality; credit ratings of 'BBB' are good credit quality and the lowest category of investment grade; credit ratings 'BB' and below are lower-rated securities (junk bonds). High-yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment-grade bonds. Adverse conditions may affect the issuer's ability to pay interest and principal on these securities. The credit quality of the investment in the portfolio does not apply to the stability or safety of the portfolio.
The yield spread is the difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument. The spread can be measured between debt instruments of differing maturities, credit ratings and risk.
The Fund's portfolio is actively managed and, therefore, its holdings and the weightings of a particular issuer or particular sector as a percentage of portfolio assets may change significantly over time. Sectors may include many industries. The mention of specific portfolio holdings is for information only. It does not constitute a recommendation or an offer for a particular security or fund, nor should it be taken as a solicitation or recommendation to buy or sell securities or other investments.
Note: Class A shares purchased subject to a front-end sales charge have no contingent deferred sales charge (CDSC). However, certain purchases of Class A shares made without a front-end sales charge may be subject to a CDSC of 1% if the shares are redeemed before the first day of the month in which the one-year anniversary of the purchase falls. The CDSC is not reflected in the average annual returns. If these charges were included, performance would be lower. Please refer to the prospectus for more information on redemptions that may be subject to a CDSC.
The net expense ratio takes into account deductions for certain interest and related expenses from certain of the Fund's investments. Under accounting rules, the Fund recognized additional income in an amount that directly offsets these interest and related expenses. Therefore, the Fund's total returns and net asset value were not affected by such interest and related expenses.
A Note about Risk: The value of an investment in the Fund will change as interest rates fluctuate in response to market movements. When interest rates rise, the prices of debt securities are likely to decline and when interest rates fall, the prices of debt securities tend to rise. A portion of the income derived from the Fund's portfolio may be subject to the alternative minimum tax. Any capital gains realized may be subject to taxation, federal, state and local taxes may apply. Shareholders should consult with their tax advisors for more specific information on taxation.
Municipal bonds may be subject to other types of risk, such as call, credit, liquidity, interest rate, and general market risks.
High-yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds. Adverse conditions may affect the issuer's ability to pay interest and principal on these securities.
U.S. Treasuries are backed by the full faith and credit of the U.S. government. The rate of return of a mutual fund investment, however, is not guaranteed and will fluctuate with changes in market conditions; therefore, there is a greater risk to your investment capital.
The views and information discussed in this commentary are as of June 30, 2010, are subject to change, and may not reflect the views of the firm as a whole. The views expressed in market commentaries are at a specific point in time, are opinions only and should not be relied upon as a forecast, research, or investment advice regarding a particular investment or the markets in general. Information discussed should not be considered a recommendation to purchase or sell securities.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Lord Abbett Funds. This and other important information is contained in the Fund's summary prospectus and/or prospectus. To obtain a prospectus or summary prospectus on any Lord Abbett mutual fund, contact your investment professional, Lord Abbett Distributor LLC at (888) 522-2388 or visit us at www.lordabbett.com. Read the prospectus carefully before you invest.
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Prospectus
You agree to receive the following
prospectus electronically and to read and agree to its terms before investing or sending money. It contains detailed information about the fund's investment policies, risks, charges and expenses. If you would like a reprinted copy of the prospectus, please contact your local Edward Jones investment representative.
The following prospectus is not an offer to sell, or a solicitation of an offer to buy shares in the fund nor shall any such shares be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.
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