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 Diversified Equity Strategy Fund returned 3.61%, 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 its benchmark, the 85% Russell 3000® Index8/15% MSCI EAFE Index with Gross Dividends9, which returned 2.28%. 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 March 31, 2015, are: one year: 1.38%; five years: 10.09%; and since inception (June 30, 2006): 6.80%. Expense ratio, gross: 1.34%, and net: 1.00%.

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

A domestic mid-cap growth equity strategy outperformed its underlying benchmark, thereby contributing to the Fund’s relative performance. The largest contributor to relative performance during the quarter was security selection within the information technology sector. Specifically, the strategy identified attractive value in semiconductors relative to other industries within the sector. Companies such as Avago Technologies Ltd., a designer and developer of semiconductor devices, and Analog Devices, Inc., a designer and manufacturer of high-performance analog, mixed-signal, and digital signal-processing integrated circuits, were notable contributors within this industry. Avago, the largest individual contributor to performance during the period, announced an acquisition that investors believed would be immediately accretive, while Analog Devices reported earnings during the quarter that beat consensus estimates and saw management raise forward earnings guidance as well.

An international core equity strategy underperformed its underlying benchmark, thereby detracting from relative performance.  Stock selection within the information technology and health care sectors detracted from the strategy’s relative performance during the first quarter of 2015. Within the information technology sector, shares of Chinese web services company Baidu.com, Inc. declined, as earnings missed analyst expectations and investors were concerned that management had lowered its outlook for the current quarter. In addition, Japan-based Hitachi Limited had a difficult quarter and also missed earnings expectations, while the company forecasted revenues and net income would fall slightly over the year.

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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