Market Review as of 12/31/2015

The U.S. equity market1 advanced during the fourth quarter of 2015, rebounding from the correction experienced in the previous quarter. Markets were supported during the period by a reasonably positive earnings season in which 74% of the companies in the S&P 500 beat consensus earnings estimates. In December, the U.S. Federal Reserve (Fed) raised interest rates for the first time since 2006, as economic data during the quarter continued to suggest a strengthening domestic economy. Specifically, U.S. real gross domestic product (GDP) in the third quarter expanded by 2.0%2, with a rise in personal consumption expenditures and state and local government spending among the primary contributors. 

The Fed noted that U.S. economic activity, as a whole, continued to increase at a modest pace around the country between October and December. Most districts reported improving growth in consumer activity, and positive developments in their residential and commercial real estate markets. Conversely, manufacturing activity struggled in a number of regions3.

International equities4 also rebounded in the fourth quarter, as generally accommodative monetary policies around the globe helped lift equity markets. In Europe, markets were bolstered by the European Central Bank’s announcement that it would be willing to increase the size of its quantitative easing program. In Japan, expectations of further quantitative easing by the Bank of Japan increased, while an upward revision to third quarter GDP growth showed that the country narrowly avoided a technical recession. Finally, the People’s Bank of China cut interest rates for the sixth time in a year, as it sought to support economic growth in its economy.

The S&P 500 returned 7.04% during the fourth quarter. Of the 10 major sectors, the materials, consumer staples, healthcare, industrials, and information technology sectors outperformed the broader market. Value stocks5 underperformed growth stocks6, while large cap stocks7 outperformed small cap stocks8

 

Fund Review as of 12/31/2015

The Fund returned 4.57%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the period ended December 31, 2015, compared to its benchmark, the Russell 1000® Value Index,9 which returned 5.64%.  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 December 31, 2015, are: one year: -9.70%; five years: 7.38%; and 10 years: 4.09%. Expense ratio: 0.74%.

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.

Consistent with our Calibrated investment approach that seeks to achieve excess returns through a focus on security selection, individual stock positions drove relative performance during the quarter. The performance of select individual positions led to the Fund’s underperformance, relative to its benchmark, the Russell 1000® Value Index, during the three-month period. A main detractor from relative performance was the Fund’s initial underweight position in General Electric Co., a globally diversified technology and financial services company. The company’s share price advanced during the period following an announcement that activist investor Trian Partners had taken a significant stake in GE. The company’s continued transformation into the world’s leading base infrastructure company, and the sale of GE Capital Assets also benefited the company’s share price. The Fund’s underweight position in Microsoft Corp., a developer of software and hardware, was another detractor from relative performance.  Shares of the firm advanced behind revenue growth driven by strength in the company’s new segment called Intelligent Cloud, which includes a range of server services, Azure cloud services, and Enterprise-focused offerings. Last, the Fund's overweight position in energy transportation company Kinder Morgan, Inc. detracted from relative performance.  Shares of Kinder Morgan declined during the period following a significant reduction in the company’s quarterly dividend.  The move was intended to strengthen Kinder Morgan’s balance sheet via gradual deleveraging and to reduce the company’s reliance on external sources of financing.

The Fund’s overweight position in Intel Corp., a manufacturer of computer components, contributed to relative performance. Management noted signs that the personal computer (PC) market is beginning to stabilize, driven by PC gaming demand and continued growth in cloud and networking products. Also contributing to relative performance was the Fund’s overweight position in energy companies Chevron Corp. and Valero Energy Corp. Chevron’s and Valero’s focus on responsible capital spending, shareholder-friendly payout policies, and low-cost assets benefited its share prices during the period, especially as oil prices remained volatile.

Please refer to www.lordabbett.com under the “Portfolio” tab for a complete list of holdings of the Fund, including the securities discussed above.

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