Market Reviewas 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 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 Fund returned -3.89%, reflecting performance at the net asset value (NAV) of Class A shares, with all distributions reinvested, for the quarter ended December 31, 2014, compared to its benchmark, the MSCI All Country World Ex-U.S. Value Index with Gross Dividends,3 which returned -5.38%, and the MSCI All Country World Ex-U.S. Value Index with Net Dividends,3 which returned -5.44%.  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: -8.65%; five years: 2.75%; and since inception (June 30, 2008): 0.88%. Expense ratio, gross:  1.24%, and net:  1.12%.

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.

Stock selection within the industrials sector contributed to the Fund’s relative performance during the fourth quarter of 2014. Within the sector, shares of Air New Zealand Ltd., an international and domestic airline company, steadily rose, as the company benefited from favorable domestic operating conditions, increased passenger loads, and lower fuel prices. In addition, shares of bpost SA de Droit Public, a Belgium-based provider of postal services, increased following strong third quarter earnings and declining gas prices.

Stock selection within the consumer discretionary sector also contributed to the Fund’s relative performance. Within the sector, shares of Berkeley Group Holdings plc, a property development company, increased as the company continues to efficiently acquire new plots and U.K. real estate prices stayed firm.

The Fund also benefited from an underweight position in the materials sector. Among the worst performers in the index, the materials sector struggled due to increased clarity on the slowdown in governmental stimulus and overall investment related spending in China, which generally decreased most commodity prices.

Conversely, stock selection within the healthcare sector detracted from the Fund’s relative performance. Shares of Sanofi, a globally diversified healthcare company, fell after weak third quarter results due to lower revenues and contracting margins. In addition, shares of Switzerland-based Roche Holding Ltd., a pharmaceuticals and diagnostics company, struggled following negative news on its product pipeline.

Stock selection within the consumer staples sector also detracted from the Fund’s relative performance. Within the sector, shares of Asaleo Care Limited, a personal care and hygiene company, declined as additional competitors entered their product markets.

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

Peering into 2015, global asset markets continue to be driven by macroeconomic and political factors. Growth expectations for Europe and China continue to be reduced, and the potential for another political crisis in Europe has increased, with the call for a snap election in Greece on January 25. The Greek polls are currently led by the far-left Syriza party, whose policies are likely to cause a clash with the European leadership.

Central bank policy is another area of uncertainty for 2015.  While the U.S. Federal Reserve has signaled an eventual increase in interest rates, Japan is moving in the opposite direction.  The European Central Bank remains officially undecided, but has made unofficial statements about the need for quantitative easing in the eurozone.  China also recently announced a number of easier monetary policy changes.  Expectations of divergent central bank policies have created a strong U.S. environment; this may continue through 2015.  A stronger U.S. dollar historically has been difficult for commodity prices and commodity-producing countries, many of which are developing nations.

Despite the top-down turbulence, 2014 was a solid year for corporate profits growth across most of the developed world.  A stronger U.S. dollar is positive for earnings across the United Kingdom, Europe, and Japan, as many companies have a high percentage of overseas sales.  Non-U.S. equity valuations appear attractive, relative to historical and current bond yields.  

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