Market Review as of 09/30/2015

The U.S. equity market (as represented by the S&P 500® Index1) declined during the third quarter of 2015 amid a bout of substantial volatility in August and September. The impact of slowing Chinese growth on the global economy and ongoing uncertainty surrounding the timing and magnitude of the Federal Reserve’s (Fed) first rate hike contributed to investor concerns. On the positive side of the ledger, expanding U.S. real gross domestic product (GDP) provided support for U.S. equities during the period. GDP in the second quarter increased by 3.9% (according to the third estimate by the U.S. Bureau of Economic Analysis2), with a rise in exports and state and local government spending among the primary contributors. 

The Fed noted that U.S. economic activity, as a whole, continued to expand around the country between July and mid-August, with most districts reporting modest to moderate growth in labor demand and advancement in consumer activity. Additionally, most districts reported positive developments in their residential and commercial real estate markets. Existing home sales and residential leasing showed wide improvements, commercial construction rose in most districts, and commercial leasing increased across the board. Manufacturing activity during the period was mostly positive, although four of the 12 districts reported a mixed picture, and two cited declines.3

International equity markets also experienced notable volatility during the quarter, primarily as a result of weakness in the Chinese economy. The People’s Bank of China (PBoC) devalued the yuan following disappointing Chinese economic data, leading to increased investor concern across global markets. Commodities also experienced sharp moves during the period, with concerns once again tied to the transition in China from an export-based economy to one that relies more on domestic consumption. Ultimately, this broader uncertainty hurt global equities unilaterally.

The S&P 500 declined -6.44% during the three-month period. Of the 10 major sectors, only the utilities sector managed a positive return for the quarter. Despite posting losses, the consumer staples, consumer discretionary, financials, and information technology sectors outperformed the broader market. Value stocks (as represented by the Russell 3000® Value Index4) underperformed growth stocks (as represented by the Russell 3000® Growth Index5), while large cap stocks (as represented by the Russell 1000® Index6) outperformed small cap stocks (as represented by the Russell 2000® Index7). 

Fund Review as of 09/30/2015

The Fund returned -7.57%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the period ended September 30, 2015, compared to its benchmark, the Russell 1000® Value Index,8 which returned -8.39%.  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 September 30, 2015, are: one year: -8.90%; five years: 9.15%; and 10 years: 3.87%. 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

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 outperformance, relative to its benchmark, the Russell 1000® Value Index, during the three-month period. The Fund’s underweight position in energy company Exxon Mobil Corp. contributed to relative performance during the quarter.  Shares of Exxon Mobil declined, as a “lower for longer” oil price scenario continued to linger. The Fund’s overweight position in Altria Group, Inc., a tobacco company, was also a contributor to relative performance.  Shares of the firm advanced after Anheuser-Busch InBev approached SABMiller plc about a potential combination. Due to Altria’s approximately 27% ownership stake in SABMiller, the firm is positioned to benefit should a merger develop.  Last, the Fund's overweight position in tobacco company Reynolds American Inc. (RAI) contributed to relative performance.  RAI sold its Natural American Spirit (NAS) International Business to Japan Tobacco Group in an all-cash deal for $5 billion. This sale was seen as a smart and strategic move by RAI, monetizing a valuable asset while retaining its crown jewel. Based on the multiple Japan Tobacco Inc. paid for the international business, we believe RAI’s U.S.-based NAS business will likely increase in value. Expectations are for RAI to use the proceeds from the sale to delever its balance sheet and increase its dividend.

The Fund’s overweight position in Chevron Corp., an integrated energy company, detracted from relative performance. The company’s share price continues to be battered by the decline in energy prices. Another detractor from relative performance was the Fund’s overweight position in Huntsman Corp., a global manufacturer of chemical products.  Shares of Huntsman continue to face pressure from falling oil prices and slowing growth in China. Last, the Fund’s investment in International Paper Co., a paper and packaging company, detracted from relative performance. Shares of International Paper are facing challenges brought about by slowing global growth, particularly in China and Brazil.

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

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