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Fund Description
The Fund seeks to produce a total rate of return that is superior to high yield debt instruments and competitive with the S&P 500 Index over a full market cycle, with reduced market risk.
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Fund Advantages
- Successful investment in undervalued securities should maximize total return and reduce downside risk.
- Our disciplined investment process can identify valuation and pricing inefficiencies driven by macroeconomic factors and company specific events and applies this to convertible securities across the market capitalizations.
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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
|
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
|
|
A
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NAV
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-7.29
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-4.28
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14.28
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-3.13
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2.07
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3.82
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| |
Inception date: June 30, 2003
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B
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NAV
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-7.39
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-4.52
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13.70
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-3.75
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1.42
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3.15
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| |
Inception date: June 30, 2003
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|
C
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NAV
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-7.48
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-4.61
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13.62
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-3.77
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1.40
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3.14
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| |
Inception date: June 30, 2003
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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
|
|
1
Year
|
5
Year
|
10 Years
or Life
of Fund
|
|
A
|
SEC (A)
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8.88
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1.08
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3.10
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|
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Inception date: June 30, 2003
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B
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SEC (B)
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9.70
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1.26
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3.15
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|
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Inception date: June 30, 2003
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C
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SEC (C)
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13.62
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1.40
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3.14
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Inception date: June 30, 2003
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(A) SEC Returns reflect performance at the maximum 4.75% 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
|
Percentage of Portfolio
|
The Fund's portfolio is actively managed and may change significantly over time.
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Average Current Yield
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3.9
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Average Yield To Maturity
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5.52
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|
Class
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Record
Date
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Ex Div
Date
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Invest
Date
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Payable
Date
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Reinvest
Price
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Dividend
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|
A
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06-29-2010
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06-30-2010
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06-30-2010
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06-30-2010
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9.90
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.09380
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B
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06-29-2010
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06-30-2010
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06-30-2010
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06-30-2010
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9.88
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.07600
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B2
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06-29-2010
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06-30-2010
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06-30-2010
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06-30-2010
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10.00
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.08730
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B3
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06-29-2010
|
06-30-2010
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06-30-2010
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06-30-2010
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9.88
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.09040
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BF
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06-29-2010
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06-30-2010
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06-30-2010
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06-30-2010
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9.90
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.10030
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C
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06-29-2010
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06-30-2010
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06-30-2010
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06-30-2010
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9.86
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.07660
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F
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06-29-2010
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06-30-2010
|
06-30-2010
|
06-30-2010
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9.90
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.10030
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|
I
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06-29-2010
|
06-30-2010
|
06-30-2010
|
06-30-2010
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9.93
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.10300
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R2
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06-29-2010
|
06-30-2010
|
06-30-2010
|
06-30-2010
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10.00
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.08730
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R3
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06-29-2010
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06-30-2010
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06-30-2010
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06-30-2010
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9.88
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.09040
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Fund Status
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Open to New Investors
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Dividend Frequency
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Quarterly
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Number of Issues
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118
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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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June 30, 2003
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LACFX
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543916753
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7,311,018
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B
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June 30, 2003
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LBCFX
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543916746
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904,847
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C
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June 30, 2003
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LACCX
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543916738
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4,968,367
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F
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September 28, 2007
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LBFFX
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543916498
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2,183,929
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I
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June 30, 2003
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LCFYX
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543916712
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9,495,296
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R2
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September 28, 2007
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LBCQX
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543916480
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1,746
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R3
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September 28, 2007
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LCFRX
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543916472
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69,065
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Investment Team
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Porfolio Commentary
As of June 30, 2010
Market Review
After expanding in the first quarter, the U.S. economy appeared to falter in the second quarter. Consumer spending, for example, remained flat in April after six straight months of improvement, and in May, retail sales fell 1.7%. The European debt crisis, combined with disappointing economic and employment data, led investors to question the strength of the U.S. recovery. This contributed to a flight to quality, which benefited U.S. Treasuries and agencies. As investors shifted to these safer assets, spreads widened in many sectors of the fixed-income market, including convertible bonds. Citing the tentative nature of the recovery, the Federal Reserve stated that low inflation and low rates of resource utilization were likely to warrant low rates for an "extended period."
The convertible market generally performed as expected versus equity markets during the second quarter of 2010. In this highly volatile period, convertible bonds generally outperformed the S&P 500® Index1 during market pullbacks and underperformed during rallies. By quarter-end, the BofA Merrill Lynch All Convertible Index2 had fallen about 5.8% during the quarter, while the S&P 500 was off 11.4%, representing about a 50% downside capture. New convertible issuance has remained lackluster—particularly so among investment-grade issuers—as issuance of low-cost straight debt has been the preferred method of financing for U.S. corporations.
Fund Review
The Fund returned -7.29%, reflecting performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the quarter ended June 30, 2010. The Fund's benchmark, the BofA Merrill Lynch All Convertibles Index, returned -5.80% in the same period. Average annual total returns, which reflect performance at the maximum 4.75% sales charge applicable to Class A share investments and include the reinvestment of all distributions, as of June 30, 2010, are: 1 year: 8.88%, 5 years: 1.08%, and since inception (June 30, 2003): 3.10%. Expense ratio: 1.23%.
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.
Detracting from relative performance this quarter were the energy and health care sectors. Within the energy sector, Evergreen Energy, Inc. (0.4% of portfolio weighting) and NorthernStar Natural Gas, LLC (0.0% of portfolio weighting) hurt performance, as both ran into liquidity and legal issues. Within health care, Human Genome Sciences, Inc. (1.5% of portfolio weighting) sold off on the possibility of new entrance to the market; however, we continue to maintain a positive outlook on this security.
Contributing to relative performance were the consumer discretionary and industrials sectors. Within consumer discretionary, StanleyWorks/Black & Decker (3.4% of portfolio weighting), in particular, gained on reports of pricing power and increasing strength in end markets. Within the industrials sector, conglomerates and aerospace and defense were key contributors
Elsewhere within the portfolio, there was a clear bifurcation in performance between names perceived as risky and those considered to be defensive. This split was especially apparent in the materials sector. Gold producer Newmont Mining (1.1% of portfolio weighting) was a top contributor during the quarter, as the "safe haven" status of gold appealed to risk-averse investors. On the other hand, economically sensitive industrial metals producers weakened on concerns of a slowdown in global growth. United States Steel Corp. (0.5% of portfolio weighting) and Alcoa, Inc. (0.2% of portfolio weighting) were detractors from performance during the quarter.
Outlook
Despite volatility in the market, we continue to see slow but steady improvement in the financial pictures of most corporations. First quarter earnings reports were generally quite strong, and we saw frequent positive surprises on both the top line (revenues) and the bottom line (earnings). We expect this trend to continue as second quarter numbers are reported. The risk will be to profit outlooks and growth rate estimates, which could be more conservative given softer gross domestic product (GDP) forecasts. However, it seems like much of this conservatism has already been discounted in the equity markets, likely mitigating the risk.
We continue to view a global "shortage of yield" as an important and long-lasting market condition. With global government rates expected to stay lower longer, and with risk spreads narrow, we expect investors to compete for yield and, therefore, keep interest rates low. This should provide corporations with access to capital and to help offset any economic downturn. This scenario also should help support convertible bonds, which benefit from their yield (income), their bond floor (with the defensiveness of short-dated puts), and their equity sensitivity (capital gains opportunity).
We have made no major changes to the portfolio's position over the past quarter. We continue to anticipate cyclical economic improvement, and have maintained the above-average delta (i.e., equity sensitivity) of the portfolio. We have taken advantage of the sell-off in equities and the widening of credit spreads by adding opportunistically to certain of our core holdings.
We continue to be overweight in consumer discretionary, with an emphasis on auto parts and consumer durables. Our most significant underweight is to financials, most particularly real estate investment trusts (REITs).
1The S&P 500® Index is widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries.
2The Merrill Lynch All Convertibles Index contains issues that have an aggregate market value of greater than $50 million. The issues are U.S. dollar-denominated, sold into the U.S. market, and are publicly traded in the United States.
Treasuries are debt securities issued by the U.S. government and secured by its full faith and credit. Income from Treasury securities is exempt from state and local taxes. Although U.S. government securities are guaranteed as to payments of interest and principal, their market prices are not guaranteed and will fluctuate in response to market movements.
Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are 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 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. Please refer to the prospectus for more information on redemptions that may be subject to a CDSC. The CDSC is not reflected in the average annual total returns. If these charges were included performance would be lower.
A Note about Risk: Convertible securities have both equity and fixed-income risk characteristics. Like all fixed-income securities, the value of convertible securities is susceptible to the risk of market losses attributable to changes in interest rates. Generally, the market value of fixed-income securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. When the market price of the common stock underlying a convertible security approaches or exceeds the conversion price of the convertible security, the price of the convertible security tends to reflect the higher market price of the underlying common stock. In such a case, a convertible security may lose much or all the higher price if the value of the underlying common stock then falls below the conversion price of the security. Convertible securities tend to offer lower interest than nonconvertible bonds of similar quality and less potential for gains or capital appreciation in a rising stock market than equity securities. They tend to be more volatile than other fixed-income securities, and their markets may be less liquid than markets for common stocks or bonds.
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 opinions only, should not be relied upon as a forecast, or 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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