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 Mid Cap Stock Fund returned 3.52%, reflecting the performance at the net asset value (NAV) of Class A shares with all distributions reinvested for the quarter ended March 31, 2015, compared to its benchmarks, the Russell Midcap® Value Index,8 which returned 2.42%, and the S&P MidCap 400® Value Index,9 which returned 2.83%.  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: 5.56%; five years: 12.79%; and 10 years: 6.28%. Expense ratio: 1.01%.

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 and health care sectors were the primary drivers behind the Fund’s relative outperformance. Information technology holding NXP Semiconductors NV, a global semiconductor company, experienced a steady increase in its share price during the quarter, highlighted by its acquisition of Freescale Semiconductor Inc. in early March 2015. This deal makes NXP the fourth-largest semiconductor company by revenue, and likely will result in large-scale cost-saving and business synergies. Another notable contributor from the information technology sector was Fidelity National Information Services Inc., a payment services provider. Fidelity National’s stock price appreciated during the quarter, despite the company announcing fourth-quarter earnings slightly below forecast. Fidelity National continues to expand globally, providing financial institutions the necessary infrastructure to expand its mobile banking divisions.

In addition, health care holding Mallinckrodt plc contributed to the Fund’s performance. The specialty pharmaceutical company continues to benefit from good performance in its base pharmaceutical business as well as acquisitions completed in 2014.  In addition, during the quarter, the company announced an attractive acquisition that expands its footprint in products aimed at the hospital market.

Conversely, security selection within the materials and consumer discretionary sectors detracted from the Fund’s relative performance. In particular, shares of materials holding Albemarle Corp., a producer of specialty and fine chemicals, fell during the quarter after providing a disappointing outlook for 2015 earnings. Another materials holding, Allegheny Technologies Inc., a producer of specialty materials, also has seen its share price negatively affected by the weakness in global commodity prices and increased volatility amid currencies.

Within the consumer discretionary sector, PVH Corp., an apparel and footwear company, experienced a slump in its share price during the quarter, caused by currency headwinds. Despite this obstacle, we remain optimistic about PVH’s 2015 outlook, as organic growth and underlying product demand remains healthy.

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

We believe that the economic outlook for the United States remains relatively favorable among most global economies, yet we expect continued market volatility due to the uncertain macroeconomic and geopolitical backdrop. We continue to closely monitor risks to the economy, including central bank policy decisions, commodity price instability, and currency/interest rate volatility.

The health care sector, in particular pharmaceuticals, is one of the Fund’s largest overweight positions relative to its benchmark, the Russell Midcap® Value Index. The industry continues to benefit from the Affordable Care Act and merger and acquisition activity, as companies seek to increase scale and improve productivity, while positioning themselves for a more integrated and consumer-oriented U.S. healthcare system. The Fund remains overweight the energy sector relative to its benchmark, with an emphasis on exploration and production companies. Within this industry, our focus is on companies with high-quality assets and strong balance sheets. The Fund is underweight the consumer staples sector relative to its benchmark, as rich valuations and a lack of strong fundamental drivers led us to seek value elsewhere. The utilities sector remains the Fund’s largest underweight because of concerns regarding rising interest rates, expensive valuations, and the potential ramifications of the rise of distributed generation.

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