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 Growth Leaders Fund returned 4.71%, reflecting the performance at the net asset value (NAV) of Class A shares, with all distributions reinvested for the quarter ended March 31, 2015.  The Fund outperformed its benchmark, the Russell 1000® Growth Index,8 which returned 3.84% for the same period. 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: 6.49%; three years: 14.97%; and since inception (June 30, 2011): 13.48%. Expense ratio, gross: 1.02%, 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.

Security selection within the information technology sector was the largest contributor to relative performance during the quarter. Within the sector, our holdings of Avago Technologies Ltd., a designer and developer of semiconductor devices, contributed most. The firm reported strong quarterly revenue in late February, beating consensus estimates, and offered forward revenue guidance that also was above expectations. In addition, Avago announced an acquisition that investors believed would be immediately accretive, and these two factors led to increased forward-earnings expectations and helped send Avago’s share price higher. The largest overall contributor during the period was our position in health care company Biomarin Pharmaceutical, Inc., a pharmaceutical company focused on the development and commercialization of treatments of genetic and metabolic diseases. Shares of Biomarin rose in late February after the company reported a strong quarter, which saw nearly its entire product line exceed consensus estimates, and highlighted a strong pipeline of future treatments in either phase II or phase III clinical trials that further encouraged investors.

Stock selection in the financials sector was the most significant detractor from relative performance during the quarter. Within this sector, our holdings of Charles Schwab Corp., a savings and loan holding company, detracted most. Shares of the company declined during the first half of the quarter, as earnings that met consensus estimates were overshadowed by investor concerns that interest rates may not rise as soon as expected. Investors believed this would be detrimental to near-term earnings for the company, as it generally benefits from higher interest-rate levels. The largest overall detractor during the period was an underweight position in Amazon.com, Inc., an e-commerce company. Amazon reported its earnings from the fourth quarter in early January, and saw its shares surge as a result of strong sales from the holiday season, along with profit margins that exceeded consensus estimates.  

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 U.S. economy continues to show signs of self-sustainability, although economic and earnings growth may be dampened somewhat by the strengthening U.S. dollar. In our view, the chief risk in domestic equity markets is over-aggressiveness from the Fed; however, we believe that low inflation and minimal wage growth will keep monetary policy accommodative for the time being. Overall, we continue to believe that the United States is in the middle of a steady recovery, and as a result, we continue to position the portfolio to be balanced among secular and cyclical growth stocks, which tend to perform best in slow growth environments. 

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