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Floating Rate Fund

Summary

Summary

What is the Floating Rate Fund?

The Fund seeks to deliver a high level of current income by investing primarily in a variety of below investment grade loans.

HISTORY OF CREDIT RESEARCH

Brings a 40+ year heritage of high-yield credit investing, focused on fundamental, bottom-up credit research.

ATTRACTIVE INCOME & LOW EXPENSES

Has provided high income and lower expenses relative to its Morningstar peer group category average.

ATTRACTIVE RETURN FOR RISK

Has offered a track record of strong performance versus peers in up and down markets, demonstrating the strength of this active approach as a core bank loan holding over a full market cycle.

Yield

Dividend Yield 1 as of 07/22/2016  

  Subsidized3 Un-Subsidized4
w/o sales charge - 4.70%
w/ sales charge - 4.59%

30-Day Standardized Yield 2 as of 06/30/2016  

4.46%

Expense Ratioas of 06/30/2016

Fund Basicsas of 06/30/2016

Total Net Assets
$6.47 B
Inception Date
12/31/2007
Dividend Frequency
Monthly (Daily Accrual)
Number of Holdings
461
CUSIP
543916191
Minimum Initial Investment
$1,500+

Fund Expense Ratio :

0.80%

YTD 1-YR 3-YR 5-YR 10-YR Since Inception 12/31/2007
w/o sales charge 4.53% 2.11% 2.90% 4.15% - 4.13%
Lipper Category Avg. Loan Participation Funds 3.99% 0.30% 2.07% 3.24% - -
CS Leveraged Loan Index 4.23% 0.93% 3.04% 4.00% - 4.24%
w/ sales charge 2.21% -0.17% 2.11% 3.68% - 3.85%

Fund Expense Ratio :

0.80%

Fund Expense Ratio :

0.80%

YTD 1-YR 3-YR 5-YR 10-YR Since Inception 12/31/2007
w/o sales charge 4.53% 2.11% 2.90% 4.15% - 4.13%
Lipper Category Avg. Loan Participation Funds 3.99% 0.30% 2.07% 3.24% - -
CS Leveraged Loan Index 4.23% 0.93% 3.04% 4.00% - 4.24%
w/ sales charge 2.21% -0.17% 2.11% 3.68% - 3.85%

Fund Expense Ratio :

0.80%

RELATED CONTENT

The Primary Reasons to Choose Bank Loans
February 29, 2016

The asset class offers attractive income, and loan prices and yield spreads may signal the potential for capital appreciation.

Leveraged Loans: Much More Than an Interest-Rate Call
November 30, 2015

Most investors focus on the asset class' performance when rates rise, but they could also consider its attractive long-term returns.

In a Rough Market, Bank Loans Have Been Buoyant
October 12, 2015

Attractive yields, diversification benefits, and historical performance when rates rise add to the appeal.

Type Assets
Bank Loans
High Yield Bonds
Investment Grade Bonds
Cash
Maturity Assets
Less than 1 year
1-2.99 years
3-4.99 years
5-6.99 years
7-9.99 years
Greater than 10 years

Credit Quality Distribution as of 06/30/2016 View Portfolio

Rating Assets
BBB
BB
B
<B
Not Rated

Investment Team

Jeffrey D. Lapin
Jeffrey D. Lapin, J.D.

Portfolio Manager

19 Years of Industry Experience

Steven F. Rocco
Steven F. Rocco, CFA

Partner & Portfolio Manager

15 Years of Industry Experience

Robert A. Lee
Robert A. Lee

Partner & Chief Investment Officer

25 Years of Industry Experience

Supported By 54 Investment Professionals and 13 Years Avg. Industry Experience

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Performance

Performance

Dividend Yield 1 as of 07/22/2016  

  Subsidized3 Un-Subsidized4
w/o sales charge - 4.70%
w/ sales charge - 4.59%

30-Day Standardized Yield 2 as of 06/30/2016  

 
w/o sales charge 4.46%

Fund Expense Ratio :

0.80%

YTD 1-YR 3-YR 5-YR 10-YR Since Inception 12/31/2007
w/o sales charge 4.53% 2.11% 2.90% 4.15% - 4.13%
Lipper Category Avg. Loan Participation Funds 3.99% 0.30% 2.07% 3.24% - -
CS Leveraged Loan Index 4.23% 0.93% 3.04% 4.00% - 4.24%
w/ sales charge 2.21% -0.17% 2.11% 3.68% - 3.85%

Fund Expense Ratio :

0.80%

Fund Expense Ratio :

0.80%

YTD 1-YR 3-YR 5-YR 10-YR Since Inception 12/31/2007
w/o sales charge 4.53% 2.11% 2.90% 4.15% - 4.13%
Lipper Category Avg. Loan Participation Funds 3.99% 0.30% 2.07% 3.24% - -
CS Leveraged Loan Index 4.23% 0.93% 3.04% 4.00% - 4.24%
w/ sales charge 2.21% -0.17% 2.11% 3.68% - 3.85%

Fund Expense Ratio :

0.80%

Best returns

Durations Fund Returns Blended Index
3-Mo 11.57 18.59
1-Yr 32.26 44.87

Worst returns

Durations Fund Returns Blended Index
3-Mo -20.81 -23.84
1-Yr -21.31 -28.75
Year Fund Returns CS Leveraged Loan Index
2015 0.35% -0.38%
2014 0.93% 2.06%
2013 5.89% 6.15%
2012 10.12% 9.43%
2011 1.44% 1.82%
2010 8.18% 9.97%
2009 32.26% 44.87%
2008 -21.31% -28.74%
2007 0.01% 1.87%
Year Q1 Q2 Q3 Q4 Yearly Returns
2016 1.72% 2.77% - - 5.87%
2015 2.05% 0.66% -1.09% -1.24% 0.35%
2014 1.05% 1.08% -0.58% -0.61% 0.93%
2013 2.52% 0.35% 1.21% 1.69% 5.89%
2012 4.06% 0.57% 3.39% 1.78% 10.12%
2011 1.85% 0.34% -3.95% 3.35% 1.44%
2010 3.07% -0.89% 3.23% 2.59% 8.18%
2009 8.97% 11.57% 6.33% 2.31% 32.26%
2008 -3.34% 4.10% -5.05% -17.64% -21.31%
2007 - - - - 0.01%

Growth of $10,000 as of 04/30/2016

NAV Historical Prices

Date Net Asset Value

Portfolio

Portfolio

Rating Assets
Bank Loans
High Yield Bonds
Investment Grade Bonds
Cash
Rating Assets
Less than 1 year
1-2.99 years
3-4.99 years
5-6.99 years
7-9.99 years
Greater than 10 years

Credit Quality Distribution as of 06/30/2016

Rating Assets
BBB
BB
B
<B
Not Rated

Portfolio Positioning as of 03/31/2016

  • Volatility in the credit markets experienced in the second half of 2015 continued into 2016, as markets digested the U.S. Federal Reserve’s interest rate increase. We believe volatility may continue as markets assess further potential rate increases, economic data from China, and supply/demand fundamentals in the commodities space.
  • The portfolio has overweight positions, relative to its benchmark, the Credit Suisse Leveraged Loan Index, in consumer-oriented sectors, including food and drug, retail, and gaming/leisure. We targeted these sectors, and certain companies within them, as beneficiaries of increased consumer spending resulting from savings derived from the decline in energy prices.
  • The portfolio currently is underweight ‘B’ rated credits relative to its benchmark, although this underweight position narrowed during the quarter, as we rotated out of ‘BB’ rated credits into ‘B’ names to capitalize on valuations. Given attractive valuations, we may look to continue transitioning some ‘BB’ exposure into ‘B’ names going forward.
  • Spreads on the leveraged-loan index are still above long-term averages, and the average dollar price remains at a discount. Thus, we believe there remains the opportunity for both current income and some capital appreciation in the loan market in 2016.

Portfolio Details as of 06/30/2016

Total Net Assets
$6.47 B
Number of Issues
461
Average Loan Size
$1.51 B
Average Spread
3.8311

Dividends & Cap Gains

Dividends & Cap Gains

Dividend Payments

For
YTD Dividends Paidas of 07/22/2016
$0.203
Dividend Frequency
Monthly (Daily Accrual)
Record Date Ex-Dividend Date Reinvest & Payable Date Dividend Reinvest Price
Daily Daily 06/30/2016 $0.03555 $8.99
Daily Daily 05/31/2016 $0.03528 $9.02
Daily Daily 04/30/2016 $0.03366 $8.98
Daily Daily 03/31/2016 $0.03399 $8.85
Daily Daily 02/29/2016 $0.03254 $8.67
Daily Daily 01/31/2016 $0.03293 $8.72

Upcoming Dividend Payment Dates

Record Date Ex-Dividend Date Reinvest & Payable Date
Daily Daily 07/31/2016
Daily Daily 08/31/2016
Daily Daily 09/30/2016
Daily Daily 10/31/2016
Daily Daily 11/30/2016
Daily Daily 12/31/2016

Capital Gains Distributions

For
Record Date Reinvest & Payable Date Long-term Short-term * Total Reinvest Price
12/17/2013 12/18/2013 - $0.0160 $0.0160 $9.50

Upcoming Capital Gain Distribution

Record Date Ex-Dividend Date
12/15/2016 12/16/2016

Fees & Expenses

Fees & Expenses

Sales Charge Schedule as of 07/22/2016

  Sales Charge Dealer's Concession Prices at Breakpoint
Less than $100,000 2.25% 2.00% $9.29
$100,000 to $249,999 1.75% 1.50% $9.24
$250,000 to $499,999 1.25% 1.00% $9.19
$500,000 to $999,999 0.00% 1.00% $9.08
$1,000,000 to $5,000,000 0.00% 1.00% $9.08

Expense Ratioas of 06/30/2016

Fund Review

Fund Review

Market Review as of 06/30/2016

Major categories of U.S. fixed income securities posted positive returns for the second quarter of 2016, with high yield credit outperforming investment grade bonds, driven by the recovery in commodity prices and the continued search for yield. Volatility increased towards the end of the quarter, capped off by the United Kingdom’s decision to exit the European Union. After side-stepping for the most part the landmine that was “Brexit,” securities markets grinded higher into the end of the quarter, buoyed by accommodative central banks.

Following its policy meeting on June 14–15, the U.S. Federal Reserve (Fed) released a statement indicating that the pace of improvement in the labor market had slowed, noting that job gains had diminished despite the lower unemployment rate. On the other side, growth in economic activity appeared to have picked up, driven by growth in household spending. The Fed again noted that inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but is expected to rise to 2% over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. During the June meeting, the Fed decided to maintain its target for the Federal Funds Rate  in the range of 0.25–0.50%, and declared “the stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2% inflation.”1 Fed policymakers’ median projected estimate for the fed funds fell to 0.9% for the end of 2016.2

U.S. inflation continued to struggle in reaching the Fed’s 2% inflation target, as the overall Consumer Price Index (CPI)3 increased just 1.0% over the 12-month period ended May 2016. CPI (excluding food and energy prices) increased 2.2% over the same 12-month period.4

The U.S. Bureau of Labor Statistics reported that non-farm payrolls increased by just 38,000 in May, below the trailing three-month average monthly gain of 116,000. The change in total nonfarm payroll employment for March and April were also revised lower, resulting in employment gains that were 59,000 less than had been previously reported over these two months. Despite the slowing pace of job growth, the unemployment rate declined from 5.0 to 4.7%.5

U.S. Treasuries (as represented by the BofA Merrill Lynch U.S. Treasury Index6) posted a return of 2.24% for the three-month period ended June 30, 2016.  The high yield bond market (as represented by the BofA Merrill Lynch U.S. High Yield Constrained Index7) posted a positive return of 5.88% for the quarter, and is now positive 9.32% year to date. The floating rate loan market (as represented by the Credit Suisse Leveraged Loan Index8) returned 2.86%, outperforming the broad Barclays U.S. Aggregate Bond Index9, with performance driven by lower rated loans. The convertible bond market (as represented by the BofA Merrill Lynch All Convertibles, All Qualities Index10) returned 3.63%, also benefitting from a rally in risk assets.

Among higher credit quality securities, investment grade corporate debt (as represented by the Barclays U.S. Corporate Bond Index11) posted a return of 3.57%. Corporate bond spreads continued to tighten during the quarter from the wide levels reached in early February, a period of extreme risk aversion. Agency mortgage-backed securities (as represented by the Barclays MBS Index12) returned 1.11%. Commercial MBS (CMBS) (as represented by the Barclays U.S. CMBS Investment Grade Index13) returned 2.22%.

The municipal bond market (as represented by the BofA Merrill Lynch U.S. Municipal Securities Index14) posted a 2.72% return, outperforming the BofA Merrill Lynch U.S. Treasury Index, even before accounting for the tax exempt status of municipal bonds. Overall creditworthiness in the municipal bond market continues to improve, as most states’ finances experienced rising revenues, while maintaining balanced budgets.

Within emerging markets, the major drivers of strong performance included a dovish Fed, a weaker U.S. dollar, and a strong rally in commodity prices. Thus, U.S. dollar-denominated emerging markets corporate debt (as measured by the JP Morgan Corporate Emerging Markets Bond Index Broad Diversified Index15) returned 3.33%, underperforming most U.S.-centric, fixed income asset classes.                                        

According to J.P. Morgan Securities, high yield new issue volume tapered somewhat in June with the Brexit vote serving as an overhang. High yield issuance totaled $104.1 billion for second quarter 2016, which was a 19% decrease from the year-ago quarter, but a 103% improvement from the first quarter of 2016. June’s institutional loan issuance was the heaviest in more than three years, reaching $73.0 billion, a by-product of a big increase in re-pricing and refinancing activity.  Institutional loan volume has climbed, to $161.0 billion year to date, compared with $207.5 billion a year ago. Default activity fell in June, to a year-to-date-low, as two companies defaulted, totaling $1.4 billion. This marked the lowest number of defaults since October 2015, and is the third consecutive month-over-month decline. Year to date, 37 companies have defaulted, with debt totaling $43.8 billion ($35.2 billion in bonds and $8.6 billion in loans), which is already 16% higher than full-year 2015’s $37.7 billion of total default volume. It should be noted that default activity has been driven by companies in the energy and metals/mining sectors, with over 80% of this year’s default volume coming from commodity-related names, according to J.P. Morgan Securities.

Fund Review as of 03/31/2016

The Fund returned 1.72%, reflecting performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the quarter ended March 31, 2016. The Fund’s benchmark, the Credit Suisse Leveraged Loan Index,5 returned 1.33%, for the same period. Average annual total returns, which reflect performance at the maximum 2.25% sales charge applicable to Class A share investments and include the reinvestment of all distributions, as of March 31, 2016, are: one year: -2.20%; five years: 3.17%; and since inception (December 31, 2007): 3.62%. Expense ratio: 0.80%.

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 Fund has overweight positions, relative to its benchmark, in consumer-oriented sectors, including food and drug, retail, and gaming/leisure. We targeted these sectors, and certain companies within them, as beneficiaries of increased consumer spending resulting from savings due to the decline in energy prices. The Fund has underweight positions in the service and healthcare sectors. Concerns relating to the pharmaceutical industry and a loss of earnings momentum in hospitals drove the Fund’s underweight in health care during the quarter. A lack of attractive opportunities underlies our underweight to the service sector. The Fund currently is underweight in ‘B’ rated credits relative to its benchmark, although this underweight position narrowed during the quarter, as we rotated out of ‘BB’ rated credits into ‘B’ names to capitalize on valuations. Given attractive valuations, we may look to continue transitioning some ‘BB’ exposure into ‘B’ names going forward.

The metals/minerals and service sectors were among those that contributed the most to performance on a relative basis. Security selection within both sectors contributed to relative performance. The healthcare and chemicals sectors detracted from relative performance during the quarter. Security selection within both sectors detracted from relative performance. The Fund’s allocation to high yield bonds also likely contributed to relative performance, as the high yield bond market outperformed the floating rate loan market.

Please refer to www.lordabbett.com under the “Portfolio” tab for a complete list of holdings of the Fund, including the securities discussed above.

Outlook

The Fed remained a driving force within fixed income markets in the first quarter of 2016. While the Fed’s liftoff provided some clarity at the end of 2015, it was followed by mostly dovish statements by Fed officials, which eventually proved to be beneficial for risk assets this quarter. We think there still remains much uncertainty regarding the pace at which the Federal Open Market Committee, the Fed’s policy setting arm, will continue to raise rates. Most market participants expect a slow and gradual rise, as has been indicated by Fed statements.  However, the effectiveness of the tools at the Fed’s disposal, coupled with increased instability in the global financial markets, China in particular, remain a cause for concern, as Fed officials seek to normalize policy after unprecedented levels of quantitative easing in recent years. 

Despite the initial overall positive market reaction to the Fed’s decision to raise rates in December 2015, investor sentiment soon turned negative, as worries about China’s sluggish growth and continued uncertainty regarding deflation in the eurozone resurfaced at the beginning of the year. The subsequent sell-off in risk assets raised doubts about the pace of the monetary policy normalization plan as laid out by the Fed late in 2015. As sentiment improved toward the end of the quarter, investors likely will continue to closely monitor key economic data, with a particular focus on inflation, for an indication that the Fed might have sufficient justification to accelerate its interest rate tightening cycle. Similarly, investors will be looking for reassurance that if U.S. growth stagnates, the Fed will slow its progression in order to support the economy. Finally, although fears have abated about China’s economic slowdown, and a consequent “hard landing,” the economic situation there remains an area of concern, as the country has the ability to disrupt global markets, including U.S.-centric fixed income and equity markets.

Broadly speaking, we remain generally optimistic that the U.S. economy will continue to grow at a steady, albeit subpar, pace. We think that the risk of recession has faded significantly, but we remain cautious, as global economic growth remains fragile and it is unclear how improved domestic economic indicators will affect risk assets. 

Fund Documents

Fund Documents

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Summary Prospectus
Publish Date:11/03/2015
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Statutory Prospectus
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Prospectus (XBRL)
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SAI
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Annual Report
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Semi-Annual Report
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Fact Sheet
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Class A  Except as noted below, returns with sales charges reflect a maximum sales charge of 5.75% for equity funds, 2.25% for all tax-free income funds, fixed income funds and multi-asset class funds. There are also ongoing 12b-1 service fees (and, in certain cases, distribution fees).

Class A Shares purchased subject to 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. The CDSC is not reflected in the performance with maximum sales charge.

The Credit Suisse Leveraged Loan Index is designed to mirror the investable universe of the U.S. dollar-denominated leveraged loan market. The CS Leveraged Loan Index is an unmanaged, trader-priced index that tracks leveraged loans. The CS Leveraged Loan Index, which includes reinvested dividends, has been taken from published sources.

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