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 Fund returned -0.12%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the quarter ended March 31, 2015, compared to its benchmark, the S&P 900 10-Year Dividend Growth Index,8 which returned 0.26% for the same period. (Please note: Effective September 27, 2012, the Lord Abbett Capital Structure Fund underwent an investment strategy change and became the Lord Abbett Calibrated Dividend Growth Fund. Therefore, the performance of the Fund for periods prior to September 27, 2012, is not representative of the Fund’s current strategy.) 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 March 31, 2015, are: one year: 3.46%; five years: 10.68%; and 10 years: 6.80%. Expense ratio, gross: 1.07%, and net: 0.85%.

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 performance of select individual overweight positions led to underperformance during the three-month period. The Fund's overweight position in AbbVie Inc., a global pharmaceutical company, detracted from relative performance.  Shares of the firm declined following disappointing guidance surrounding a hepatitis C drug, which was expected to be a driver of future growth.  The Fund’s overweight position in Monsanto Co., a provider of agricultural products, also detracted from relative performance.  Shares of Monsanto endured a downdraft in the past quarter amid short-term industry headwinds. Finally, the Fund’s underweight position in Target Corp., an operator of merchandise discount stores, detracted from relative performance. Target’s share price experienced positive momentum during the quarter, driven by improving consumer health and company fundamentals.

The Fund’s overweight in Hasbro Inc., a provider of leisure time products and services, contributed to relative performance. Shares of Hasbro rose last quarter after the company reported earnings per share that exceeded consensus estimates. Strong operating and free-cash flow generation during the year allowed Hasbro to raise its dividend and authorize a planned stock buyback, which further supported the stock price. Also contributing to relative performance was the Fund’s overweight to Lowe’s Companies Inc., a home improvement retailer. Shares of the firm continued to benefit from a strong home improvement environment, which contributed to better than expected earnings. Last, an overweight position in Cardinal Health Inc., a health care services company, contributed to relative performance. Cardinal took advantage of increased merger and acquisition activity within the healthcare industry to acquire Cordis Corp., Johnson & Johnson’s cardiac device business. This acquisition improved Cardinal’s footprint in faster-growing market segments.

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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