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Fund Description
The Fund seeks high current income and capital appreciation to produce a high total return by investing in high-yield/lower-rated debt securities. Under normal circumstances, the Fund will invest at least 65% of its total assets in high-yield/lower-rated debt.
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Fund Advantages
- A disciplined investment process with an emphasis on asset rich companies and credible management teams will help enhance returns while reducing risk.
- Rigorous credit analysis and understanding of changing industry conditions are critical to proper valuation of high yield securities.
- A well diversified portfolio of high yield bonds can generate high levels of income and opportunity for capital appreciation.
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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
|
5
Year
|
10 Years
or Life
of Fund
|
|
A
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NAV
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-0.92
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3.96
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25.90
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5.96
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6.47
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6.54
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| |
Inception date: December 31, 1998
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B
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NAV
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-1.13
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3.56
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24.80
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5.23
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5.75
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6.02
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| |
Inception date: December 31, 1998
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C
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NAV
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-1.00
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3.69
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24.79
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5.24
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5.75
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5.85
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| |
Inception date: December 31, 1998
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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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19.92
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5.44
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6.02
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Inception date: December 31, 1998
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B
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SEC (B)
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20.80
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5.60
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6.02
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|
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Inception date: December 31, 1998
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C
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SEC (C)
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24.79
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5.75
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5.85
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Inception date: December 31, 1998
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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
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Percentage of Portfolio
|
The Fund's portfolio is actively managed and may change significantly over time.
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INVESTMENT GRADE STRAIGHT DEBT
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4.90
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CONVERTIBLE BONDS, COMMON AND PREFERRED STOCK
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1.80
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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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9.41
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Average Yield To Maturity
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10.76
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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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08-01-2010
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08-31-2010
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08-31-2010
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08-31-2010
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7.50
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.05214
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B
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08-01-2010
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08-31-2010
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08-31-2010
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08-31-2010
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7.47
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.04702
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B2
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08-01-2010
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08-31-2010
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08-31-2010
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08-31-2010
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7.54
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.05009
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B3
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08-01-2010
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08-31-2010
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08-31-2010
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08-31-2010
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7.54
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.05071
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BF
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08-01-2010
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08-31-2010
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08-31-2010
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08-31-2010
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7.49
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.05259
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C
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08-01-2010
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08-31-2010
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08-31-2010
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08-31-2010
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7.47
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.04674
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F
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08-01-2010
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08-31-2010
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08-31-2010
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08-31-2010
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7.49
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.05259
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I
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08-01-2010
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08-31-2010
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08-31-2010
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08-31-2010
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7.53
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.05382
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R2
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08-01-2010
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08-31-2010
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08-31-2010
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08-31-2010
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7.54
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.05009
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R3
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08-01-2010
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08-31-2010
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08-31-2010
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08-31-2010
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7.54
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.05071
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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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227
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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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December 31, 1998
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LHYAX
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54400N102
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44,495,710
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B
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December 31, 1998
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LHYBX
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54400N201
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3,467,139
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C
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December 31, 1998
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LHYCX
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54400N300
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14,086,969
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F
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September 28, 2007
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LHYFX
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54400N508
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8,220,540
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I
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May 03, 1999
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LAHYX
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54400N409
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57,282,896
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R2
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September 28, 2007
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LHYQX
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54400N607
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173,031
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R3
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September 28, 2007
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LHYRX
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54400N706
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593,895
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Investment Team
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Porfolio Commentary
As of June 30, 2010
Market Review
Concerns about European sovereign debt, slowing growth in China, and the strength of the U.S. economic recovery played a significant role in fixed-income markets during the quarter. Both domestic and international investors shifted away from risky assets and toward assets perceived as less risky, such as U.S. Treasuries.1 This led to a widening of spreads in many segments of the market.
After the economy expanded in the first quarter, the expansion showed signs of moderating. Consumer spending, for example, remained flat in April after six consecutive months of improvement, and in May, retail sales fell 1.7%. Inflation remained subdued, and the economy continued to add jobs in the second quarter, but unemployment remained between 9.5% and 10.0%. The Federal Reserve kept the fed funds target rate between 0% and 0.25%, and indicated that conditions were likely to warrant low rates for an "extended period."
In the investment-grade corporate sector, yields began to rise late in the quarter as investors reacted to downgrades of debt issued by Greece, Spain, and Portugal. In the high-yield sector, an improving economy and declining defaults had attracted a significant flow of investor funds, but a flight to quality led high-yield spreads to widen late in the quarter. In the municipal bond market, states continued to cut spending and raise taxes in order to balance their budgets by the June fiscal year-end.
Fund Review
The Fund returned -0.92%, 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 High Yield Master II Constrained Index,2 returned -0.03% for 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: 19.92%, 5 years: 5.44%, and 10 years: 6.02%. Expense ratio: gross, 1.24%, and net, 0.98%.
Performance data quoted represent past performance, which is no guarantee of 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 888-522-2388 or visit us at www.lordabbett.com.
The Fund underperformed the benchmark for the quarter. Among the industries detracting the most from performance were telecommunications equipment, multi-line insurance, and software/services. Within the telecommunications equipment industry, bonds of Sorenson Communications (0% of portfolio weighting at quarter-end; 0.7% at the beginning of the quarter) suffered from news that the proposed reimbursement rates set by the National Exchange Carrier Association would decline more than the market anticipated. The company is the leading provider of Video Relay Service telecommunication technology and interpreting services to the deaf and hard of hearing in the United States. The Fund has since sold out of the position. Within multi-line insurance, declines were broad-based, with American International Group, Inc.'s 6.25% notes due 2036 declining close to 7% over the quarter (0.4% of portfolio weighting). Within software services, bonds of First Data Corp. (0.3% of portfolio weighting) declined on earnings results that were below expectations.
Among the industries contributing the most to performance were health services, airlines, and gaming. Sun Healthcare Group, Inc. (0.4% of portfolio weighting), a top performer within health services, reported good earnings results. Airline names have benefited from signs of improvement in cash flow and profitability, as well as the fact that management teams at most U.S. airlines remain focused on balance sheet improvement. In the gaming sector, Indian tribal gaming credit Snoqualmie Entertainment Authority (0.4% of portfolio weighting) advanced on another quarter of good earnings results.
Outlook
We are cautiously optimistic regarding the high-yield market. The U.S. economy has hit a soft patch, but we feel this is an expected, temporary setback. We are aware of the risks surrounding European sovereign risks, strained fiscal finances, financial regulatory reform, and a slowing economic recovery. Although recent economic data point to a slowdown in the pace of the recovery, indicators still reflect growth. We now forecast gross domestic product (GDP) growth at or slightly below trend in the second half of 2010. Since companies have effectively cut costs, they still stand to benefit from growth in this environment. The Fed will likely remain on hold and accommodative. Inflation readings are benign, and we do not see any significant pressure on interest rates over the remainder of the year.
This environment, which is good for credit, has created a shortage of yield, leading to increased interest in the high-yield asset class as investors seek alternatives. The fundamental and technical underpinnings in the high-yield market remain favorable. We continue to see healthy earnings, default rates remain low, and the market is experiencing inflows. Spreads, however, are apt to remain elevated in the face of heightened volatility, and we do not see a meaningful amount of spread compression.
Our strategy for the portfolio is to look for opportunities to continue to enjoy yield advantage. We will invest in certain cyclical industries, and continue to emphasize middle and lower-rated credits as good earnings results continue and the shortage of yield compels investors to seek lower-rated, higher-yielding names. We also will add balance to the portfolio, concentrating on certain 'BB' rated names. Meanwhile, we will manage the tail risk of the portfolio for the possible scenario of a double-dip recession or the scenario that conditions quickly normalize (two extremes). We expect a wide dispersion of returns; therefore, we will continue to emphasize our best ideas, becoming more concentrated and building on those names we like best.
1Treasuries 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.
2The Merrill Lynch High Yield Master II Constrained Index tracks the performance of below investment-grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market, including 144a issues. Qualifying bonds must have at least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of $100 million. Bonds must be rated below investment grade based on a composite of Moody's and Standard & Poor's. Qualifying bonds are capitalization-weighted provided the total allocation to an individual issuer (defined by Bloomberg tickers) does not exceed 2%. Issuers that exceed the limit are reduced to 2% and the face value of each of their bonds is adjusted on a pro-rata basis. Similarly, the face value of bonds of all other issuers that fall below the 2% cap are increased on a pro-rata basis.
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.
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 net expense ratio takes into account a contractual management fee waiver/expense reimbursement agreement that currently is scheduled to remain in place through March 31, 2011, without which performance would have been lower.
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.
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 Fund.
A Note about Risk: The Fund invests primarily in high-yield securities, sometimes called junk bonds. These securities carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. These factors can affect Fund performance.
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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