Market Review as of 12/31/2014

The U.S. equity market (as represented by the S&P 500® Index1) advanced during the fourth quarter of 2014, bolstered by reports indicating growing strength in the U.S. economy. But the market became more volatile as well, with falling oil prices and global economic weakness raising concerns. U.S. real gross domestic product (GDP) in the third quarter expanded 5.0%, (according to the third estimate by the U.S Bureau of Economic Analysis), exceeding Wall Street expectations.2  Business investment and consumer spending, particularly on durable goods, were among the primary contributors. 

The Federal Reserve (the “Fed”) noted that U.S. economic activity expanded around the country, with most districts reporting gains in employment and advances in consumer spending. Manufacturing, construction, and real estate activity also expanded, while lower oil prices presented concerns in two districts.3

Elsewhere, the eurozone narrowly avoided slipping back into recession, and falling prices led to concerns about deflationary pressures.  In Japan, economic activity contracted, making it likely that this year’s planned tax hike will be delayed. In China, the economy appeared to decelerate to its slowest pace in nearly 25 years, prompting the central bank to cut its official interest rate for the first time in two years.

The S&P 500 Index rose 4.9% during the quarter, but remained below new highs set earlier in the quarter. Gains occurred in seven of 10 major sectors. The energy, materials, and telecom sectors underperformed the broader market. Value stocks (as represented by the Russell 3000® Value Index4) edged out growth stocks (as represented by the Russell 3000® Growth Index5). Large cap stocks (as represented by the Russell 1000® Index6) underperformed small caps (as represented by the Russell 2000® Index7). 

Fund Review as of 12/31/2014

The Fund returned 6.50%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the quarter ended December 31, 2014, compared to its benchmark, the S&P 900 10-Year Dividend Growth Index,8 which returned 6.79% 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 December 31, 2014, are: one year: 5.15%; five years: 11.75%; and 10 years: 6.70%. Expense ratio, gross: 1.10%, 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 Helmerich & Payne Inc., a contract drilling company, detracted from relative performance.  Shares of the firm declined amid a tempered outlook given continued weakness in commodity prices.  The Fund’s overweight position in IBM Corp., an information technology company, also detracted from relative performance.  Shares of IBM underperformed following the firm’s third quarter revenue miss on lower-than-expected software sales. Finally, the Fund’s overweight position in Chevron Corp., an integrated energy company, detracted from relative performance.  Although earnings exceeded expectations for the quarter, shares of the firm declined due to continued downward pressure on oil prices.

The Fund’s overweight in Lowe’s Companies Inc., a home improvement retailer, contributed to relative performance. Shares of Lowe’s rose during the last quarter, the result of a strong home improvement environment, and better than expected earnings. Also contributing to relative performance was the Fund’s overweight to Walgreens Boots Alliance Inc., a retail drugstore chain.  Shares of the firm continued to rise after the company announced a record year for fiscal sales. Walgreen’s pharmacy business has expanded as more people in an aging population join Medicare, the U.S. insurance program for the elderly and disabled. Investor optimism remained elevated during the quarter, in light of potential cost savings, stemming from a planned merger with U.K.-based health and beauty chain Alliance Boots. Last, an underweight position in EOG Resources, an exploration and production company contributed to relative performance.  EOG’s share price weakened during the quarter as oil rigs have been left idle and production slowed following oil’s substantial price decline.

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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