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 Lord Abbett Diversified Equity Strategy Fund returned 3.33%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the three-month period ended December 31, 2014, compared to its benchmark, the 85% Russell 3000® Index8/15% MSCI EAFE Index with Gross Dividends9, which returned 3.90%. The Fund’s 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: -0.78%; five years: 10.53%; and since inception (June 30, 2006): 6.56%. Expense ratio, gross: 1.36%, and net: 1.01%.

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-end. 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 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 three-month period, both the Fund’s strategic allocation and the performance of underlying investment strategies detracted from relative performance.  The Fund’s allocation to international equities detracted from relative performance, as international stocks underperformed the Fund’s benchmark. The Fund’s weighting in domestic large cap value contributed to performance, as large cap value stocks outperformed the Fund’s benchmark.

An international core equity strategy underperformed its underlying benchmark, thereby detracting from the Fund’s relative performance. Stock selection, most notably in the financials sector, detracted from relative performance. Within the financials sector, Norway’s largest bank, DNB, faced significant headwinds during the period, given the substantial drop in oil prices. The current operating environment continues to present hurdles for DNB. In addition, Spain-based Banco Bilbao Vizcaya Argentaria, S.A. detracted from the portfolio’s relative performance. Shares of the bank slid lower as growth expectations in Europe and Latin America weakened. 

A domestic large cap strategy outperformed its underlying benchmark, thereby contributing to the Fund’s relative performance. The performance of select overweight positions led to outperformance. Shares of Whirlpool Corp., a manufacturer and marketer of home appliances, rose steadily during the quarter. The company benefited from positive cyclical trends in developed markets as well as an acceleration of growth in emerging markets. Another contributor to relative performance was the Fund’s overweight position in pharmaceutical company Bristol-Myers Squibb Co. The firm’s shares moved higher after reporting a strong third quarter in which sales and gross margins exceeded analyst expectations. Lastly, the Fund’s out of benchmark investment 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.

Note: The Fund invests all of its net assets directly in the underlying funds. The percentages are based on individual securities owned in one or more of the underlying funds. The Fund’s portfolio is actively managed and, therefore, its holdings and the weightings of a particular issuer or a particular sector as a percentage of portfolio assets may change significantly over time. Sectors may include many industries.  The mention of specific portfolio holdings is for information only.  It does not constitute a recommendation or an offer for a particular security or fund, nor should it be taken as a solicitation or recommendation to buy or sell securities or other investments.

Note: Class A shares purchased with a front-end sales charge have no contingent deferred sales charge (CDSC). However, certain purchases of Class A shares made without a front-end sales charge may be subject to a CDSC of 1% if the shares are redeemed before the first day of the month in which the one-year anniversary of the purchase falls.  Please see the prospectus for more information on redemptions that may be subject to a CDSC.  The CDSC is not reflected in the average annual total returns.  If the CDSC had been included, returns would have been lower.  Please refer to the prospectus for more information on redemptions that may be subject to CDSC.

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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