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Inflation Focused Fund

Summary

Summary

What is the Inflation Focused Fund?

The Fund seeks to deliver total returns that exceed the rate of inflation in the U.S. over a full inflation cycle and current income by combining investments in inflation-linked derivatives with a portfolio of fixed income securities.

EXPERIENCED INVESTMENT TEAM

The strategy is managed through a collaboration among 40+ investment professionals in portfolio management, credit research, and trading.

HIGHER INCOME POTENTIAL WITH LOWER DURATION

The strategy has provided the highest income stream in the Morningstar category and offers inflation protection with one-third the duration of the average TIPS-based portfolio.

TRUE INFLATION PROTECTION

The Fund has historically demonstrated negative correlation with Treasuries, providing diversification benefits to clients' portfolios.

Yield

Dividend Yield 1 as of 07/01/2016  

  Subsidized3 Un-Subsidized4
w/o sales charge 4.67% 4.46%
w/ sales charge 4.56% 4.36%

30-Day Standardized Yield 2 as of 05/31/2016  

  Subsidized5 Un-Subsidized6
w/o sales charge 2.57% 2.43%

Expense Ratioas of 05/31/2016

Fund Basicsas of 05/31/2016

Total Net Assets
$510.75 M
Inception Date
04/29/2011
Dividend Frequency
Monthly (Daily Accrual)
Number of Holdings
992
CUSIP
54400U205
Minimum Initial Investment
$1,500+

Fund Expense Ratio :

Gross 0.96%

Net 0.75%

YTD 1-YR 3-YR 5-YR 10-YR Since Inception 04/29/2011
w/o sales charge -1.54% -5.18% -2.53% -1.09% - -0.97%
Lipper Category Avg. Inflation Protected Bond Funds - - - - - -
w/ sales charge -3.76% -7.34% -3.27% -1.55% - -1.41%

Fund Expense Ratio :

Gross 0.96%

Net 0.75%

Fund Expense Ratio :

Gross 0.96%

Net 0.75%

YTD 1-YR 3-YR 5-YR 10-YR Since Inception 04/29/2011
w/o sales charge -1.54% -5.18% -2.53% -1.09% - -0.97%
Lipper Category Avg. Inflation Protected Bond Funds - - - - - -
w/ sales charge -3.76% -7.34% -3.27% -1.55% - -1.41%

Fund Expense Ratio :

Gross 0.96%

Net 0.75%

RELATED CONTENT

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How could developments in currencies, oil prices, and the U.S. labor market affect inflation? Here’s a look.

Type Assets
Investment Grade Corporate
CMBS
ABS
High Yield Corporate
Bank Loans
MBS
U.S. Government Related
Sovereign
Other
Cash
Maturity Assets
Less than 1 year
1-2.99 years
3-4.99 years
5-6.99 years
7-9.99 years

Credit Quality Distribution as of 05/31/2016 View Portfolio

Rating Assets
U.S. Treasury
Agency
AAA
AA
A
BBB
<BBB
Not Rated

Investment Team

Kewjin Yuoh
Kewjin Yuoh

Partner & Portfolio Manager

22 Years of Industry Experience

Robert A. Lee
Robert A. Lee

Partner & Chief Investment Officer

25 Years of Industry Experience

Andrew H. O'Brien
Andrew H. O'Brien, CFA

Partner & Portfolio Manager

18 Years of Industry Experience

Steven F. Rocco
Steven F. Rocco, CFA

Partner & Portfolio Manager

15 Years of Industry Experience

Leah G. Traub
Leah G. Traub, Ph.D.

Partner & Portfolio Manager

15 Years of Industry Experience

Hyun Lee
Hyun Lee, CFA

Portfolio Manager

15 Years of Industry Experience

Supported By 45 Investment Professionals and 13 Years Avg. Industry Experience

Contact a Representative

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Performance

Performance

Dividend Yield 1 as of 07/01/2016  

  Subsidized3 Un-Subsidized4
w/o sales charge 4.67% 4.46%
w/ sales charge 4.56% 4.36%

30-Day Standardized Yield 2 as of 05/31/2016  

  Subsidized5 Un-Subsidized6
w/o sales charge 2.57% 2.43%

Fund Expense Ratio :

Gross 0.96%

Net 0.75%

YTD 1-YR 3-YR 5-YR 10-YR Since Inception 04/29/2011
w/o sales charge -1.54% -5.18% -2.53% -1.09% - -0.97%
Lipper Category Avg. Inflation Protected Bond Funds - - - - - -
w/ sales charge -3.76% -7.34% -3.27% -1.55% - -1.41%

Fund Expense Ratio :

Gross 0.96%

Net 0.75%

Fund Expense Ratio :

Gross 0.96%

Net 0.75%

YTD 1-YR 3-YR 5-YR 10-YR Since Inception 04/29/2011
w/o sales charge -1.54% -5.18% -2.53% -1.09% - -0.97%
Lipper Category Avg. Inflation Protected Bond Funds - - - - - -
w/ sales charge -3.76% -7.34% -3.27% -1.55% - -1.41%

Fund Expense Ratio :

Gross 0.96%

Net 0.75%

Best returns

Durations Fund Returns Blended Index
3-Mo 5.4 1.48
1-Yr 9.95 3.08

Worst returns

Durations Fund Returns Blended Index
3-Mo -5.92 -0.26
1-Yr -5.63 -0.42
Year Fund Returns
2015 -2.22%
2014 -5.20%
2013 -1.76%
2012 9.87%
2011 -3.48%
Year Q1 Q2 Q3 Q4 Yearly Returns
2016 -0.90% -0.65% - - -1.28%
2015 -0.17% 1.72% -4.68% 1.03% -2.22%
2014 0.02% 2.20% -2.74% -4.66% -5.20%
2013 0.51% -3.67% 1.32% 0.15% -1.76%
2012 5.40% -0.99% 3.16% 2.05% 9.87%
2011 - - -5.92% 2.13% -3.48%

NAV Historical Prices

Date Net Asset Value

Portfolio

Portfolio

Rating Assets
Investment Grade Corporate
CMBS
ABS
High Yield Corporate
Bank Loans
MBS
U.S. Government Related
Sovereign
Other
Cash
Rating Assets
Less than 1 year
1-2.99 years
3-4.99 years
5-6.99 years
7-9.99 years

Credit Quality Distribution as of 05/31/2016

Rating Assets
U.S. Treasury
Agency
AAA
AA
A
BBB
<BBB
Not Rated

Portfolio Positioning as of 03/31/2016

  • The portfolio combines a short-term bond strategy with an overlay of Consumer Price Index (CPI) swaps in order to hedge against inflation over a full market cycle. CPI swaps detracted from portfolio performance, as inflation expectations decelerated during the first quarter.
  • The portfolio maintains its diversified exposure to various credit-sensitive sectors of the market.  Consistent with the past several years, the portfolio maintained only minor exposures to U.S. Treasury and agency securities over the quarter, primarily holding positions in these sectors for liquidity-management purposes.
  • Although we broadly maintained the portfolio’s up-in-quality bias, we believe the heightened levels of volatility provided opportunities to invest tactically during the period. Generally, we emphasized risk sectors early in the period, when spreads widened significantly, then de-risked the portfolio in the second half of first quarter 2016, as spreads tightened and valuations became less attractive.
  • As spreads widened through the first half of the period, we increased the portfolio’s allocation to credit-sensitive sectors, particularly investment grade corporates. As risk assets rallied in late February and March, we reduced this allocation to realize profits. We continue to favor ‘BBB’ rated corporate debt, as we believe this portion of the corporate sector continues to provide attractive risk-adjusted value.  
  • We maintained the portfolio’s overweight allocation to asset-backed securities (ABS).  We continue to uncover attractive risk-adjusted yield in various sectors of the ABS market and use the sector as a source of liquidity.

Portfolio Details as of 05/31/2016

Total Net Assets
$510.75 M
Number of Issues
992
Average Coupon
4.26%
Average Life
2.3 Years
Average Effective Duration
1.99 Years

Dividends & Cap Gains

Dividends & Cap Gains

Dividend Payments

Dividend Payments

For
YTD Dividends Paidas of07/01/2016
$0.263
Dividend Frequency
Monthly (Daily Accrual)
Record Date Ex-Dividend Date Reinvest & Payable Date Dividend Reinvest Price
Daily Daily 06/30/2016 $0.04561 $11.69
Daily Daily 05/31/2016 $0.04101 $11.87
Daily Daily 04/30/2016 $0.04764 $12.00
Daily Daily 03/31/2016 $0.04185 $11.90
Daily Daily 02/29/2016 $0.04193 $11.65
Daily Daily 01/31/2016 $0.04552 $11.79

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

Fees & Expenses

Fees & Expenses

Sales Charge Schedule as of 07/01/2016

  Sales Charge Dealer's Concession Prices at Breakpoint
Less than $100,000 2.25% 2.00% $11.99
$100,000 to $249,999 1.75% 1.50% $11.93
$250,000 to $499,999 1.25% 1.00% $11.87
$500,000 to $999,999 0.00% 1.00% $11.72
$1,000,000 to $5,000,000 0.00% 1.00% $11.72

Expense Ratioas of 05/31/2016

Fund Review

Fund Review

Market Review as of 03/31/2016

Although major sectors of U.S. fixed income securities posted positive returns in the first quarter of 2016, the period saw a sharp increase in volatility. Securities markets in January continued their sell-off from the end of 2015, as investors continued to grapple with a strengthening U.S. dollar, a slowdown in Chinese economic growth, and a renewed slump in commodity prices. However, early February marked a reversal in U.S. dollar strength and commodity prices began a sharp rebound. A dovish tone coming from the U.S. Federal Reserve (Fed), combined with the European Central Bank’s unexpected interest rate cut in March, further eased investor concerns, sparking a significant rally for risk assets through the second half of the quarter. Speculation still remains, however, regarding the future pace of interest rate hikes and the quality and persistence of the recent rally. 

Following its policy meeting on March 15–16, the Fed released a statement suggesting that U.S. economic growth has continued to expand at a moderate pace, noting that the labor market continues to improve, though business investment and net exports have been soft. The Fed again noted that inflation continues to run below policymakers’ longer-run objective of 2%. During the March meeting, the Fed decided to maintain the targeted fed 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 remains at 1.4% for the end of 2016.2

U.S. Treasuries (as represented by the BofA Merrill Lynch U.S. Treasury Index3) posted a return of 3.35% for the three-month period ended March 31, 2016.  The high yield bond market (as represented by the BofA Merrill Lynch U.S. High Yield Constrained Index4) posted a positive return of 3.25% for the quarter after beginning 2016 down over 5% through early February. The floating rate loan market (as represented by the Credit Suisse Leveraged Loan Index5) returned 1.33%, which trailed the returns of the high yield bond market, although with less volatility for the period.  The convertible bond market (as represented by the BofA Merrill Lynch All Convertibles, All Qualities Index6) returned ‑1.56%, lagging other fixed income assets due to the underperformance of the underlying equities.

Among higher credit quality securities, investment grade corporate debt (as represented by the Barclays U.S. Corporate Bond Index7) posted a return of 3.97%. Agency mortgage-backed securities (as represented by the Barclays MBS Index8) returned 1.98%. Commercial MBS (CMBS) (as represented by the Barclays U.S. CMBS Investment Grade Index9) returned 3.56%.

The municipal bond market (as represented by the BofA Merrill Lynch U.S. Municipal Securities Index10), posted a 1.64% return. Given the favorable tax treatment of many municipal bonds, the after-tax returns were comparable with other fixed income asset classes during the period, although municipals exhibited much less volatility. 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, 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 Index11) returned 3.89%, outperforming most U.S.-centric, fixed-income asset classes.                                                        

U.S. inflation continued to struggle to reach the Fed’s 2% inflation target, as overall Consumer Price Index (CPI)12 increased just 1.0% over the 12-month period ended February 2016. The CPI (excluding food and energy prices), however, increased 2.3% over the same 12-month period.13 Increases in prices in February were offset due to a decline in the energy index. The CPI for all items (excluding food and energy) increased 0.3 % in February, the same increase as in January.

The U.S. labor market continued to strengthen in the fourth quarter of 2015, albeit at a slower pace. The U.S. Bureau of Labor Statistics reported that non-farm payrolls increased by 215,000 in March, above the trailing three-month average monthly gain of 209,000, while the unemployment rate held steady 5.0%.14

According to J.P. Morgan Securities, high yield new issue volume reached a 10-month high in March, totaling $28.2 billion in March alone. High yield issuance totaled $51.2 billion for first quarter 2016, which was a 46% decrease from the year-ago quarter, but a 21% improvement from fourth quarter 2015. Institutional loan issuance, however, decreased 41% in first quarter 2016 from fourth quarter 2015, posting a modest $35.2 billion in new issuance. Default activity notably increased over the period, with the majority of defaults expectedly coming from the energy and metals and mining sectors. During the first quarter of 2016, $24.1 billion par value of high yield bonds and $7.2 billion of par value loans defaulted for a total of $31.4 billion of defaults.  This compares to a trailing five-year quarterly average of $8.5 billion of par value defaults, according to J.P. Morgan Securities.

Fund Review as of 03/31/2016

The Fund returned -0.90%, 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 Barclays U.S. 1-5 Year TIPS Index,15 returned 2.15%, while the BofA Merrill Lynch 1-3 Year U.S. Corporate Index16 returned 1.22% in 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: -5.08%; three years: -4.25%; and since inception (April 29, 2011): -1.35%. Expense ratio: gross: 0.96%; and net: 0.75%.

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 combines a short-term bond strategy with an overlay of Consumer Price Index (CPI) swaps in an effort to effectively track the rate of inflation. As commodity prices fell in the first half of the period, inflation expectations also declined sharply during the first half of first quarter 2016. Although Inflation expectations rebounded in the second half of the period, CPI swaps were the primary detractor from performance.

Investment grade corporate spreads widened significantly in the first half of the quarter, led wider by steep price declines in ‘BBB’ rated credits in the energy sector, before rallying sharply in the second half of the quarter. The portfolio’s allocation to short duration investment-grade corporate bonds was a detractor to relative performance in the quarter. Although investment grade corporate bonds generated positive returns for the full quarter, shorter duration corporates underperformed the Barclays U.S. 1-5 Year TIPS Index.

The Fund’s relative overweight allocation to high yield corporates was a contributor to relative performance. In January, the team tactically increased its high yield corporate allocation, as spreads widened significantly. In early February, the team continued to increase the Fund’s exposure to the sector, as we believed that valuations were not supported by the underlying fundamentals. As commodity markets rallied in late February and all of March, high yield corporates materially outperformed other fixed-income sectors, led by energy-related issuers.

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 monitor closely 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.

We continue to maintain a generally up-in-quality bias across portfolios, emphasizing liquidity and flexibility, but will rotate sectors based on relative-value opportunities, while conducting fundamental research to find undervalued securities. 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 that it is unclear how improved domestic economic indicators will affect risk assets. We view recent underperformance in CMBS and ABS space as an opportunity to add to our positions in these sectors. We think valuations at their current levels may justify taking advantage of the relative attractiveness of higher-quality assets on a spread-adjusted basis.

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Summary Prospectus
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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).

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