Market Review as of 03/31/2015

The U.S. equity market (as represented by the S&P 500® Index1) barely edged up during the first quarter of 2015, amid a moderating economy and the prospect of a hike in interest rates. Hindered by harsh weather, a strong dollar, and slow global growth, U.S. real gross domestic product (GDP) expanded by 2.2% in the fourth quarter (according to the third estimate by the U.S. Bureau of Economic Analysis), down from 5.0% in the previous quarter.2 Exports, spending by state and local governments, and personal consumption expenditures bolstered growth, though spending on durable goods weakened.  

The Federal Reserve (the “Fed”) noted that U.S. economic activity expanded around the country, with most districts reporting increased home sales and improvement in employment, though wage pressures remained moderate. Manufacturing, construction, and real estate activity was mixed, while banking conditions were mostly positive.3

Elsewhere, the eurozone showed improvement, primarily as a result of strengthening in Germany. In Japan, fourth-quarter 2014 economic activity bounced back from a contraction in the third quarter. In China, the economy continued to slow, prompting the People’s Bank of China to cut its official interest rate in February, the second reduction in three months.  

The S&P 500 rose 0.95% during the quarter, with gains occurring in six of 10 major sectors. The consumer staples, consumer discretionary, telecom services, and healthcare sectors outperformed the broader market. Growth stocks (as represented by the Russell 3000® Growth Index4) outperformed value stocks (as represented by the Russell 3000® Value Index5). Small caps (as represented by the Russell 2000® Index6) outperformed large cap stocks (as represented by the Russell 1000® Index7). 

Fund Review
as of 03/31/2015

The Lord Abbett Alpha Strategy Fund returned 5.64%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the three-month period ended March 31, 2015, compared to the benchmark, the 85% Russell 2000® Index6/15% S&P Developed Ex-U.S. SmallCap Index8, which returned 4.34%.  The Fund’s average annual total returns, which reflect performance at the maximum 5.75% sales charge applicable for Class A share investments and include the reinvestment of all distributions, as of March 31, 2015, are: one year: -0.16%; five years: 12.62%; and 10 years: 10.30%. Expense ratio, gross: 1.63%, and net: 1.35%.

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.  Most recent performance is published online at each month’s end.  To obtain performance data current to the most recent month-end, call Lord Abbett at 888-522-2388 or visit us at

The Fund seeks to outperform its benchmark over time as a result of two broad sources of performance variance.  First, the Fund’s strategic allocation is designed to enhance return opportunities, while using diversification to control risk. Second, the Fund’s actively managed underlying strategies can increase return opportunities by outperforming relative to their respective indexes. 

During the quarter, both the Fund’s strategic allocation and the performance of underlying investment strategies contributed to relative performance.  The Fund’s allocation to domestic small-cap growth equities contributed to relative performance, as small-cap growth stocks outperformed the Fund’s benchmark.  The Fund’s weighting in domestic micro-cap value equities detracted from relative performance, as this category underperformed the Fund’s benchmark.

The Fund’s international equities strategy outperformed its underlying benchmark during the period, thereby contributing to relative performance.  The financials and industrials sectors contributed to the strategy’s relative performance during the first quarter of 2015. Flows into European equities are expected to rise, given the prevailing low interest-rate environment that has been accentuated since the introduction of the European Central Bank’s quantitative easing program. Italian asset manager Anima Holding SpA has so far been one of the beneficiaries of this and was one of the strategy’s strongest performing stocks last quarter. Another Italian financial company, Banca Popolare di Milano, has benefited from this improved sentiment and the expected residual impact on the consumer.

The Fund’s smid cap value strategy underperformed relative to its underlying benchmark, thereby detracting from relative performance.  Security selection, particularly within the health care sector, was a key detractor from the strategy’s performance. Shares of Team Health Holdings, Inc., a provider of outsourced physician staffing and administrative services, detracted from relative performance, as issues surrounding the Affordable Care Act have prevented the company’s shares from moving higher. In addition, shares of ExamWorks Group Inc., a provider of independent medical examinations and medical-related services, struggled, as currency headwinds have detracted from the company’s performance. 

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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