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Risks to Consider:
The value of an investment in fixed-income securities will change as interest rates fluctuate and in response to market movements. As interest rates fall, the prices of debt securities tend to rise. As rates rise, prices tend to fall. High-yield securities, sometimes called junk bonds, carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Moreover, the specific collateral used to secure a loan may decline in value or become illiquid, which would adversely affect the loan's value. The income derived from a municipal bond may be subject to the alternative minimum tax. Federal, state, and local taxes may apply. There is a risk that a bond issued as tax-exempt may be reclassified by the IRS as taxable, creating taxable rather than tax-free income. In addition, bonds may be subject to other types of risk such as call, credit, liquidity, interest-rate, and general market risks. Mortgage-backed securities may be subject to pre-payment risk. The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. 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 convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. Investing in international securities generally poses greater risk than investing in domestic securities, including greater price fluctuations and higher transaction costs. Special risks are inherent to international investing, including those related to currency fluctuations and foreign, political, and economic events. These risks can be greater in the case of emerging country securities. No investing strategy can overcome all market volatility or guarantee future results.
Portfolio data quoted is as of 02/28/2014. The portfolio is actively managed and may change significantly over time.
The credit quality of the securities in a portfolio are assigned by a national recognized statistical rating organization (NRSRO) such as; Standard & Poor's, Moody's or Fitch, as an indication of an issuer's creditworthiness. Ratings range from AAA (highest) to D (lowest). Bonds rated BBB or above are considered investment grade. Credit ratings BB and below are lower rated securities ("junk bonds"). High yielding, non-investment grade bonds ("junk bonds") involve higher risks than investment grade bonds. Adverse conditions may affect the issuer's ability to pay interest and principal on these securities.
There is no guarantee the high-yield market will perform in the same manner under similar conditions in the future.
The source for leverage moving lower to three-and-a-half times as of 03/31/2014 is CSI Market Company.
The source for high yield spread quotes is the Option Adjusted Spread for the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index as of 02/25/2014.
The source for the low default rate is the J.P. Morgan High-Yield Market Monitor report as of 02/28/2014.
The source for high yield issuance is the J.P. Morgan High-Yield Market Monitor as of 02/28/2014.
All references to "QE" refer to Quantitative Easing. Quantitative Easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital, in an effort to promote increased lending and liquidity.
Coupon is the interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. This is also referred to as the "coupon rate" or "coupon percent rate."
Credit Cycle is a cycle involving the access to credit by borrowers. Credit cycles first go through periods in which funds are easy to borrow; these periods are characterized by lower interest rates, lowered lending requirements and an increase in the amount of available credit. These periods are followed by a contraction in the availability of funds. During the contraction period, interest rates climb and lending rules become more strict, meaning that less people can borrow. The contraction period continues until risks are reduced for the lending institutions, at which point the cycle starts again.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA): Net income with interest, taxes, depreciation, and amortization added back to it, and can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.
Payment-in-Kind is a financial instrument that pays interest or dividends to investors of bonds, notes or preferred stock with additional debt or equity instead of cash. Payment-in-kind securities are attractive to companies who would prefer not to make cash outlays. They are often used in leveraged buyouts. Payment-in-kind securities are a type of mezzanine financing, where they have characteristics indicative of debt and equities. They tend to pay a relatively high rate of interest but are considered risky. Investors who can afford to take above-average risks, such as private equity investors and hedge funds, are most likely to invest in payment-in-kind securities.
Covenant is a promise in an indenture, or any other formal debt agreement, that certain activities will or will not be carried out. Covenants in finance most often relate to terms in a financial contracting, such as loan documentation stating the limits at which the borrower can further lend or other such stipulations. Covenants are put in place by lenders to protect themselves from borrowers defaulting on their obligations due to financial actions detrimental to themselves or the business.
Covenant-Lite Loan is a type of loan whereby financing is given with limited restrictions on the debt-service capabilities of the borrower. The issuance of covenant-lite loans means that debt is being issued to borrowers with less restrictions on collateral, payment terms, and level of income.
Leveraged Loans are loans extended to companies or individuals that already have considerable amounts of debt. Lenders consider leveraged loans to carry a higher risk of default and, as a result, a leveraged loan is more costly to the borrower.
Leverage is measured by Leverage Ratio, which is a Company's Total Liabilities ÷ Shareholder Equity.
Commercial Mortgage Backed Security (CMBS) is a type of mortgage-backed security that is secured by the loan on a commercial property. A CMBS can provide liquidity to real estate investors and to commercial lenders. As with other types of MBS, the increased use of CMBS can be attributable to the rapid rise in real estate prices over the years.
Option-Adjusted Spread (OAS) is a type of spread that considers changes in the term structure and alternative estimates of the volatility of interest rates. It is spread after adjusting for embedded options.
Basis Point is a financial unit of measurement that is 1/100th of 1%.
This broadcast serves as reference material for information purposes only; does not constitute an offer to acquire, solicitation for an offer to acquire, an offer to sell or solicitation for an offer to buy, any securities, nor is intended to be relied upon as a forecast, research, or investment advice on any securities, and cannot be used for any of the foregoing.
The views and opinions expressed by the Lord Abbett speaker are those of the speaker as of the date of the broadcast, and do not necessarily represent the views of the firm as a whole. Any such views are subject to change at any time based upon market or other conditions and Lord Abbett disclaims any responsibility to update such views. Neither Lord Abbett nor the Lord Abbett speaker can be responsible for any direct or incidental loss incurred by applying any of the information offered.
The value of investments and any income from them is not guaranteed and may fall as well as rise, and an investor may not get back the amount originally invested. Please consult your investment professional for additional information concerning your specific situation.
This broadcast is the copyright © 2014 of Lord, Abbett & Co. LLC. All Rights Reserved. This recording may not be reproduced in whole or in part or any form without the permission of Lord Abbett. Lord Abbett mutual funds are distributed by Lord Abbett Distributor LLC.
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