The Board of Trustees of the Company, including all of the Trustees who are not interested persons of the Company or Lord, Abbett & Co. LLC (“Lord Abbett”), annually considers whether to approve the continuation of the existing management agreement between each Fund and Lord Abbett. In connection with its most recent approval, the Board reviewed materials relating specifically to the management agreement, as well as numerous materials received throughout the course of the year, including information about the Fund’s investment performance compared to the performance of its benchmark. Before making its decision as to each Fund, the Board had the opportunity to ask questions and request further information, taking into account its familiarity with Lord Abbett gained through meetings and discussions. These meetings and discussions included the examination of the portfolio management teams conducted by members of the Contract Committee, the deliberations of the Contract Committee, and discussions between the Contract Committee and Lord Abbett’s management.
The materials received by the Board as to each Fund included, but were not limited to: (1) information provided by Lipper Inc. (“Lipper”) regarding the investment performance of a group of funds within the same investment classification/objective (the “performance universe”) and to the investment performance of an appropriate benchmark; (2) information on the expense ratios, contractual and effective management fee rates, and other expense components for the Fund and one or more groups of funds with similar objectives and of similar size (the “peer group”); (3) information provided by Lord Abbett on the projected expense ratios, management fee rates, and other expense components for the Fund; (4) sales and redemption information for the Fund; (5) information regarding Lord Abbett’s financial condition; (6) an analysis of the relative profitability of the management agreement to Lord Abbett; (7) information provided by Lord Abbett regarding the investment management fees Lord Abbett receives from its other advisory clients maintaining accounts with a similar investment strategy as the Fund; (8) information regarding the distribution arrangements of the Fund; and (9) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
As to Alpha Strategy Fund, the Board observed that the investment approach of the Fund was uncommon. It considered the performance of the Fund in comparison to a performance universe consisting of small-cap core funds. The Board observed that the investment performance of the Class A shares of the Fund was in the fourth quintile of the performance universe for the eight-month period, the third quintile for the one-year period, the second quintile for the three-year and ten-year periods, and the first quintile for the five-year period. The Board also observed that the performance was lower than that of the Lipper Small-Cap Core Index for the eight-month and one-year periods and higher than that of the Index for the three-year, five-year and ten-year periods.
Approval of Advisory Contract (continued)
As to Lord Abbett Fundamental Equity Fund, the Board observed that the investment performance of the Class A shares of the Fund was in the fourth quintile of the eight-month period, the third quintile in the one-year period, and the first quintile for the three-year, five-year and ten-year periods. The Board observed that the investment performance was higher than that of the Lipper Multi-Cap Core Index for the three-year, five-year, and ten-year periods.
As to International Core Equity Fund, the Board observed that the investment performance of the Class A shares of the Fund was in the second quintile of its performance universe for the eight-month and one-year periods, the first quintile for the three-year period, the second quintile for the five-year period, and higher than that of the Lipper International Large-Cap Core Index for each of those periods.
As to International Dividend Income Fund, the Board observed that the investment performance of the Class A shares of the Fund was in the first quintile of its performance universe for the eight-month and one-year periods, and the second quintile for the three-year period. The Board observed that the investment performance was higher than that of the Lipper International Multi-Cap Value Index for the eight-month, one-year, and three-year periods.
As to International Opportunities Fund, the Board observed that the investment performance of the Class A shares of the Fund was in the fourth quintile of its performance universe for the eight-month and one-year periods, the third quintile for the three-year period, and the fifth quintile for the five-year and ten-year periods. The Board also observed that the investment performance was higher than that of the Lipper International Small-/Mid-Cap Growth Index for the three-year period and lower than that of the Index for the eight-month, one-year, five-year, and ten-year periods.
As to Large Cap Value Fund, the Board observed that the investment performance of the Class A shares of the Fund was in the fifth quintile of the performance universe for the eight-month, one-year, and three-year periods, and the fourth quintile for the five-year period. The Board also observed that the performance was lower than that of the Lipper Large-Cap Value Index for each of those periods.
As to Value Opportunities Fund, the Board considered the investment performance of the Fund in relation to two different performance universes, the first consisting of mid-cap core funds and the second consisting of mid-cap value funds. The Board observed that the investment performance of the Class A shares of the Fund was in the fourth quintile of the first performance universe for the eight-month and one-year periods, and the first quintile for the three-year and five-year periods. The Board observed that the investment performance was higher than the Lipper Mid-Cap Core Index for the three-year and five-year periods and lower than that of the Index for the eight-month and one-year periods. The Board observed that the investment performance was in the fourth quintile of the second performance universe for the eight-month period, the third quintile for the one-year period, and the first quintile for the three-year and five-year periods. The Board observed that the investment performance was higher than that of the Lipper Mid-Cap Value Index for the one-year, three-year, and five-year periods, and lower than that of the Index for the eight-month period.
Lord Abbett’s Personnel and Methods. The Board considered the qualifications of the personnel providing investment management services to each Fund, in light of its investment objective and discipline. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s investment management staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining investment management personnel. The Board also noted that Lord Abbett had changed the portfolio manager
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Approval of Advisory Contract (continued)
for Large Cap Value Fund in 2009, naming Mr. Frascarelli to be the portfolio manager. The Board determined that Lord Abbett had the expertise and resources to manage each Fund effectively.
Nature and Quality of Other Services. The Board considered the nature, quality, costs, and extent of compliance, administrative, and other services performed by Lord Abbett and Lord Abbett Distributor LLC (“Distributor”) and the nature and extent of Lord Abbett’s supervision of third party service providers, including each Fund’s transfer agent and custodian.
Expenses. The Board considered the expense level of each class of shares of each Fund and the expense levels of one or more corresponding peer groups. The Board considered the fiscal periods on which the peer group comparison or comparisons were based, and noted that the fiscal years of many funds in each Fund’s peer group did not coincide with the Fund’s fiscal year. It also considered the projected expense levels of each Fund. It also considered the amount and nature of the fees paid by shareholders.
As to Alpha Strategy Fund, the Board considered the management fee and the total expenses of the Fund in comparison to two peer groups, the first consisting of passively managed affiliated small-cap core and multi-cap core funds of funds and the second consisting of small-cap core funds that are not funds of funds. As to the first peer group, the Board observed that for the fiscal year ended October 31, 2010 the contractual management fee, when calculated as a percentage of a hypothetical common asset level that approximated the Fund’s average net assets, was approximately four basis points lower than the median of the peer group and the actual management fee, also calculated as a percentage of a hypothetical common asset level that approximated the Fund’s average net assets, was three basis points lower than the median of the peer group. As to the second peer group, the Board observed that for the fiscal year ended October 31, 2010 the contractual management and actual management fees were approximately seventy-five basis points below the median of the peer group. The Board observed that, like other funds in the first peer group, the Fund indirectly pays the management fees and other expenses of the underlying funds in which it invests. The Board also observed that, taking into account these indirect expenses, for the fiscal year ended October 31, 2010, the total expense ratio of Class A was approximately twenty basis points above the median of the first peer group, the total expense ratios of Class B and Class C were approximately the same as the median of the first peer group, the total expense ratio of Class F was approximately five basis points above the median of the first peer group, the total expense ratio of Class I was approximately ten basis points above the median of the first peer group, the total expense ratio of Class R2 was approximately twenty basis points above the median of the first peer group, and the total expense ratio of Class R3 was approximately ten basis points above the median of the first peer group. The Board also observed that, taking into account the indirect expenses, for the fiscal year ended October 31, 2010, the total expense ratio of Class A was approximately seven basis points above the median of the second peer group, the total expense ratios of Class B and Class C were approximately the same as the median of the second peer group, the total expense ratio of Class F was approximately seven basis points above the median of the second peer group, the total expense ratio of Class I was approximately fifteen basis points above the median of the second peer group, the total expense ratio of Class R2 was approximately twenty-two basis points above the median of the second peer group, and the total expense ratio of Class R3 was approximately twelve basis points above the median of the second peer group. The Board also noted that the Class A expense ratio did not reflect a recent reduction in the Rule 12b-1 fee rate. The Board noted that effective March 1, 2011 the Fund and Lord Abbett had entered into a management fee waiver agreement under which Lord
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Approval of Advisory Contract (continued)
Abbett waived five basis points of its management fee and that Lord Abbett proposed to enter into a new management fee waiver agreement through February 28, 2013, under which it would continue to waive five basis points of its management fee. The Board also noted that Lord Abbett was voluntarily waiving an additional five basis points of its management fee, thereby effectively waiving its entire fee, but that Lord Abbett could cease this voluntary waiver at any time. The Board considered the projected expense ratio of each class and how those ratios would relate to those of the peer groups.
As to Fundamental Equity Fund, the Board observed that for the fiscal year ended October 31, 2010 the contractual management and administrative services fees, when calculated as a percentage of a hypothetical common asset level that approximated the Fund’s average net assets, were nine basis points below the median of the peer group and the actual management and administrative services fees were seven basis points below the median of the peer group. The Board also observed that for the fiscal year ended October 31, 2010 the total expense ratio of Class A was approximately three basis points below the median of the peer group, the total expense ratios of Class B, and Class C were approximately sixteen basis points below the median of the peer group, the total expense ratio of Class F was approximately three basis points below the median of the peer group, the total expense ratio of Class I was approximately four basis points below the median of the peer group, the total expense ratio of Class P was approximately eight basis points below the median of the peer group, the total expense ratio of Class R2 was approximately six basis points above the median of the peer group, and the total expense ratio of Class R3 was approximately four basis points below the median of the peer group. The Board also considered the projected expense ratio of each class and how those ratios would relate to those of the peer groups.
As to International Core Equity Fund, the Board observed that for the fiscal year ended October 31, 2010 the contractual management and administrative services fees, when calculated as a percentage of a hypothetical common asset level that approximated the Fund’s average net assets, were approximately ten basis points below the median of the peer group and the actual management and administrative services fees were approximately twenty-eight basis points below the median of the peer group. The Board observed that for the fiscal year ended October 31, 2010 the total expense ratio of Class A was approximately twenty-seven basis points below the median of the peer group, the total expense ratios of Class B and Class C were approximately forty-one basis points below the median of the peer group, the total expense ratio of Class F was approximately twenty-two basis points below the median of the peer group, the total expense ratio of Class I was approximately twelve basis points below the median of the peer group, the total expense ratio of Class P was approximately six basis points below the median of the peer group, the total expense ratio of Class R2 was approximately three basis points above the median of the peer group, and the total expense ratio of Class R3 was approximately seven basis points below the median of the peer group. The Board also observed that the Rule 12b-1 plan had not been operational for a portion of the fiscal year for Class R2 and that had it been operational the expense ratio of Class R2 would have been approximately two basis points higher. The Board noted that for the period from March 1, 2011 through February 29, 2012, Lord Abbett had contractually agreed to waive all or a portion of its management fee and, if necessary, reimburse the Fund’s other expenses to the extent necessary so that the total net annual operating expenses for each class, excluding 12b-1 fees, do not exceed an annual rate of 0.77%. The Board also noted that Lord Abbett proposed to renew the agreement through February 28, 2013. The Board considered the projected expense ratio of each class and how those expense ratios would relate to those of the peer group.
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Approval of Advisory Contract (continued)
As to International Dividend Income Fund, the Board observed that for the fiscal year ended October 31, 2010 the contractual management and administrative services fees, when calculated as a percentage of a hypothetical common asset level that approximated the Fund’s average net assets, were approximately twenty-three basis points below the median of the peer group and the actual management and administrative services fees were approximately twenty-nine basis points below the median of the peer group. The Board observed that for the fiscal year ended October 31, 2010 the total expense ratio of Class A was approximately thirty-two basis points below the median of the peer group, the total expense ratio of Class C was approximately forty-two basis points below the median of the peer group, the total expense ratio of Class F was approximately forty basis points below the median of the peer group, the total expense ratio of Class I was approximately twenty-seven basis points below the median of the peer group, and the total expense ratio of Class R2 was approximately sixty-eight basis points below the median of the peer group. The Board also observed that the Rule 12b-1 plan had not been operational for a portion of the fiscal year for Class R2 and R3 and that had it been operational the expense ratios of Class R2 and Class R3 would have been approximately fifty-five and three basis points higher, respectively. The Board noted that for the period from March 1, 2011 through February 29, 2012, Lord Abbett had contractually agreed to waive all or a portion of its management fee and, if necessary, reimburse the Fund’s other expenses to the extent necessary so that the total net annual operating expenses for each class, excluding 12b-1 fees, do not exceed an annual rate of 0.77%. The Board also noted that Lord Abbett proposed to renew the agreement through February 28, 2013. The Board considered the projected expense ratio of each class and how those expense ratios would relate to those of the peer group.
As to International Opportunities Fund, the Board observed that for the fiscal year ended October 31, 2010 the contractual management and administrative services fees, when calculated as a percentage of a hypothetical common asset level that approximated the Fund’s average net assets, were approximately eleven basis points below the median of the peer group and the actual management and administrative services fees were approximately eleven basis points below the median of the peer group. The Board observed that for the fiscal year ended October 31, 2010 the total expense ratio of Class A was approximately the same as the median of the peer group, the total expense ratios of Class B and Class C were approximately twelve basis points below the median of the peer group, the total expense ratio of Class F was approximately the same as the median of the peer group, the total expense ratio of Class I was approximately nine basis points above the median of the peer group, the total expense ratio of Class P was approximately three basis points below the median of the peer group, the total expense ratio of Class R2 was approximately twelve basis points above the median of the peer group, and the total expense ratio of Class R3 was approximately the same as the median of the peer group. The Board noted that effective March 1, 2011 it and Lord Abbett had entered into an expense limitation agreement that had the effect of limiting the total expense ratio of Class A to not more than 1.70%, the total expense ratios of Class B and Class C to not more than 2.35%, the total expense ratio of Class F to not more than 1.45%, the total expense ratio of Class I to 1.35%, the total expense ratio of Class R2 to not more than 1.95%, and the total expense ratio of Class R3 to not more than 1.85%. The Board also noted that Lord Abbett proposed not to renew the expense limitation agreement. The Board considered the projected expense ratio of each class and how those expense ratios would relate to those of the peer group.
As to Large Cap Value Fund, the Board observed that for the fiscal year ended October 31, 2010 the contractual management and administrative services fees, when calculated as a percentage of a hypothetical common asset level that approximated the Fund’s average net assets, were approximately thirty-two basis points below the median of the peer group and the actual
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Approval of Advisory Contract (continued)
management and administrative service fees were approximately twenty-six basis points below the median of the peer group. The Board observed that for the fiscal year ended October 31, 2010 the total expense ratio of Class A was approximately eighteen basis points below the median of the peer group, the total expense ratio of Class B was approximately eighteen basis points below the median of the peer group, the total expense ratio of Class C was approximately eighteen basis points below the median of the peer group, the total expense ratio of Class F was approximately fifteen basis points below the median of the peer group, the total expense ratio of Class I was approximately thirteen basis points below the median of the peer group, the total expense ratio of Class P was approximately three basis points above the median of the peer group, the total expense ratio of Class R2 was approximately forty-three basis points below the median of the peer group and the total expense ratio of Class R3 was approximately eight basis points above the median of the peer group. The Board also considered the projected expense ratio of each class and how those ratios would relate to those of the peer groups.
As to Value Opportunities Fund, the Board considered the management fees and the total expenses of the Fund in comparison to two peer groups, the first consisting of mid-cap core funds and the second consisting of mid-cap value funds. As to the first peer group, the Board observed that for the fiscal year ended October 31, 2010 the contractual management and administrative services fees, when calculated as a percentage of a hypothetical common asset level that approximated the Fund’s average net assets, were approximately two basis points above the median of the peer group and the actual management and administrative service fees were approximately four basis points above the median of the peer group. The Board observed that for the fiscal year ended October 31, 2010 the total expense ratio of Class A was approximately ten basis points above the median of the peer group, the total expense ratios of Class B and Class C were approximately the same as the median of the peer group, the total expense ratio of Class F was approximately two basis points above the median of the peer group, the total expense ratio of Class I was eleven basis points above the median of the peer group, the total expense ratio of Class P was approximately the same as the median of the peer group, the total expense ratio of Class R2 was approximately sixteen basis points above the median of the peer group, and the total expense ratio of Class R3 was approximately five basis points above the median of the peer group. As to the second peer group, the Board observed that for the fiscal year ended October 31, 2010 the contractual management and administrative services fees were approximately two basis points above the median of the peer group and the actual management and administrative services fees were approximately seven basis points above the median of the peer group. The Board observed that for the fiscal year ended October 31, 2010 the total expense ratio of Class A was approximately twelve basis points above the median of the peer group, the total expense ratios of Class B and Class C were approximately the same as the median of the peer group, the total expense ratio of Class F was approximately five basis points below the median of the peer group, the total expense ratio of Class I was approximately four basis points below the median of the peer group, the total expense ratio of Class P was approximately five basis points below the median of the peer group, the total expense ratio of Class R2 was approximately ten basis points above the median of the peer group, and the total expense ratio of Class R3 was approximately the same as the median of the peer group. The Board considered the projected expense ratio of each class and how those ratios would relate to those of the peer groups.
Profitability. As to each Fund, the Board considered the level of Lord Abbett’s profits in managing the Fund, including a review of Lord Abbett’s methodology for allocating its costs to its management of the Fund. The Board concluded that the allocation methodology had a reasonable
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Approval of Advisory Contract (continued)
basis and was appropriate. It considered any profits realized by Lord Abbett in connection with the operation of each Fund, including the fee Lord Abbett receives from the Fund for providing administrative services to the Fund, and whether the amount of profit was fair for the management of the Fund. The Board also considered the profits realized from other business segments of Lord Abbett, which may benefit from or be related to each Fund’s business. The Board considered Lord Abbett’s profit margins in comparison with available industry data, both accounting for and ignoring marketing and distribution expenses, and how those profit margins could affect Lord Abbett’s ability to recruit and retain investment personnel. The Board recognized that Lord Abbett’s profitability was a factor in enabling it to attract and retain qualified investment management personnel to provide services to each Fund. The Board noted that Lord Abbett’s overall profitability had increased in its 2011 fiscal year. The Board concluded that Lord Abbett’s profitability overall and as to each Fund was not excessive.
Economies of Scale. As to each Fund, the Board considered whether there had been any economies of scale in managing the Fund, whether the Fund had appropriately benefited from any such economies of scale, and whether there was potential for realization of any further economies of scale. The Board concluded that each existing management fee schedule, which for each Fund other than Alpha Strategy Fund had breakpoint(s) in the level of the management fee, adequately addressed any economies of scale in managing the applicable Fund.
Other Benefits to Lord Abbett. As to each Fund, the Board considered the character and amount of fees paid by the Fund and the Fund’s shareholders to Lord Abbett and Distributor for services other than investment advisory services. The Board also considered the revenues and profitability of Lord Abbett’s investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees from the Funds, and receives a portion of the sales charges on sales and redemptions of some classes of shares. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectuses of the Funds, has entered into revenue sharing arrangements with certain entities that distribute shares of the Funds. The Board also took into consideration the investment research that Lord Abbett receives as a result of Fund brokerage transactions.
Alternative Arrangements. As to each Fund, the Board considered whether, instead of approving the continuation of the management agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms.
After considering all of the relevant factors, the Board unanimously found that continuation of the existing management agreements was in the best interests of each Fund and its shareholders and voted unanimously to approve the continuation. In considering whether to approve the continuation of the management agreements, the Board did not identify any single factor as paramount or controlling. This summary does not discuss in detail all matters considered.
Growth Leaders Fund
At the initial organizational meeting for the Fund, the Board, including all of the Trustees who are not interested persons of the Fund or Lord Abbett, considered whether to approve the proposed
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Approval of Advisory Contract (continued)
management agreement between the Fund and Lord Abbett. The Board received materials relating to the management agreement before and at the meeting and had the opportunity to ask questions and request further information in connection with its consideration. The Board also took into account its familiarity with Lord Abbett gained through its previous meetings and discussions.
The materials received by the Board as to the Fund included, but were not limited to, (1) information provided by Lipper regarding the effective management fee rates and expense ratios for a group of funds with similar objectives (the “peer expense group”), (2) information regarding the distribution arrangements of the Fund, and (3) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
Investment Management Services Generally. The Board considered the investment management services to be provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading, and Lord Abbett’s commitment to compliance with all relevant legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest resulting from being engaged in other lines of business.
Investment Performance. Because the Fund had not yet begun operations, the Board was not able to review the Fund’s investment performance and compliance.
Lord Abbett’s Personnel and Methods. The Board considered the qualifications of the personnel who would provide investment management services to the Fund, in light of its investment objective and discipline. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s investment management staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining investment management personnel. The Board determined that Lord Abbett had the expertise and resources to manage the Fund effectively.
Nature and Quality of Other Services. The Board considered the nature, quality, costs, and extent of compliance, administrative, and other services to be performed by Lord Abbett and Distributor and the nature and extent of Lord Abbett’s supervision of third party service providers, including the Fund’s transfer agent and custodian.
Expenses. The Board considered the expected expense levels of the Fund and the expense levels of the peer expense group. It also considered the amount and nature of the fees to be paid by shareholders. The Board noted that Lord Abbett had proposed to enter into an agreement providing that Lord Abbett would waive all or a portion of its management fee and, if necessary, reimburse the Fund’s other expenses to the extent necessary so that the total net annual operating expenses for each class, excluding 12b-1 fees, would not exceed an annual rate of 0.50%.
Profitability. Because the Fund had not yet begun operations, the Board was not able to consider the level of Lord Abbett’s profits in managing the Fund. The Board took into account Lord Abbett’s overall profit margins in comparison with available industry data, both accounting for and ignoring marketing and distribution expenses, and how those profit margins could affect Lord Abbett’s ability to recruit and retain investment personnel. The Board recognized that Lord Abbett’s profitability was a factor in enabling it to attract and retain qualified investment management personnel to provide services to each Fund.
Economies of Scale. The Board considered whether there might be economies of scale in managing the Fund and whether the Fund would benefit appropriately from any such economies of
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Approval of Advisory Contract (concluded)
scale. The Board concluded that the proposed management fee schedule, with its breakpoints in the level of the management fee, adequately addressed any economies of scale in managing the Fund.
Other Benefits to Lord Abbett. The Board considered the character and amount of fees to be paid by the Fund and the Fund’s shareholders to Lord Abbett and Distributor for services other than investment advisory services. The Board also considered the revenues and profitability of Lord Abbett’s investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees from the Funds, and receives a portion of the sales charges on sales and redemptions of some classes of shares. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that that business also benefits the Funds. The Board also noted that Lord Abbett, as was to be disclosed in the prospectus of the Fund, had entered into revenue sharing arrangements with certain entities that were expected to distribute shares of the Fund. The Board also took into consideration the investment research that Lord Abbett was expected to receive as a result of Fund brokerage transactions.
After considering all of the relevant factors, the Board unanimously found that approval of the proposed management agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve it. In considering whether to approve the management agreement, the Board did not identify any single factor as paramount or controlling. This summary does not discuss in detail all matters considered.
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Householding
The Trust has adopted a policy that allows them to send only one copy of each Fund’s prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same “household.” This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.
Proxy Voting Policies, Procedures and Records
A description of the policies and procedures that Lord Abbett uses to vote proxies related to each Fund’s portfolio securities, and information on how Lord Abbett voted each Fund’s proxies during the 12-month period ended June 30 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett’s Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission’s (“SEC”) Website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Funds are required to file their complete schedule of portfolio holdings with the SEC for their first and third fiscal quarters on Form N-Q. Copies of the filings are available without charge, upon request on the SEC’s Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388. You can also obtain copies of Form N-Q by (i) visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330).
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This report, when not used for the general information of shareholders of the Fund, is to be distributed only if preceded or accompanied by a current fund prospectus.
Lord Abbett Mutual Fund shares are distributed by LORD ABBETT DISTRIBUTOR LLC.
| | Lord Abbett Securities Trust
Lord Abbett Alpha Strategy Fund
Lord Abbett Fundamental Equity Fund
Lord Abbett Growth Leaders Fund
Lord Abbett International Core Equity Fund
Lord Abbett International Dividend Income Fund
Lord Abbett International Opportunities Fund
Lord Abbett Large-Cap Value Fund
Lord Abbett Value Opportunities Fund | | LST-3-0412
(06/12) |
2 0 1 2
L O R D A B B E T T
S E M I A N N U A L
R E P O R T
Lord Abbett
Micro Cap Growth Fund
Micro Cap Value Fund
For the six-month period ended April 30, 2012
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Lord Abbett Securities Trust |
Lord Abbett Micro Cap Growth Fund and Lord Abbett |
Micro Cap Value Fund Semiannual Report |
For the six-month period ended April 30, 2012 |
From left to right: Robert S. Dow, Director and Chairman of the Lord Abbett Funds; E. Thayer Bigelow, Independent Lead Director of the Lord Abbett Funds; and Daria L. Foster, Director and President of the Lord Abbett Funds.
Dear Shareholders: We are pleased to provide you with this semiannual report for the Funds for the six-month period ended April 30, 2012. For additional information about the Funds, please visit our Website at www.lordabbett.com, where you also can access the quarterly commentaries by the Funds’ portfolio managers. General information about Lord Abbett mutual funds, as well as in-depth discussions of market trends and investment strategies, is also provided in Lord Abbett Insights, a quarterly newsletter available on our Website.
Thank you for investing in Lord Abbett mutual funds. We value the trust that you place in us and look forward to serving your investment needs in the years to come.
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Best regards, |
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Robert S. Dow |
Chairman |
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1
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments (these charges vary among the share classes); and (2) ongoing costs, including management fees; distribution and service (12b-1) fees (these charges vary among the share classes); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (November 1, 2011 through April 30, 2012).
Actual Expenses
For each class of each Fund, the first line of the tables on the following pages provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled “Expenses Paid During Period 11/1/11 – 4/30/12” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
For each class of each Fund, the second line of the tables on the following pages provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in each Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
2
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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| Beginning
Account
Value | | Ending
Account
Value | | Expenses
Paid During
Period† |
| | | | | |
| 11/1/11 | | 4/30/12 | | 11/1/11 -
4/30/12 |
| | | | | |
Class A | | | | | |
Actual | $1,000.00 | | $1,152.40 | | $11.08 |
Hypothetical (5% Return Before Expenses) | $1,000.00 | | $1,014.55 | | $10.37 |
Class I | | | | | |
Actual | $1,000.00 | | $1,153.60 | | $ 9.75 |
Hypothetical (5% Return Before Expenses) | $1,000.00 | | $1,015.79 | | $ 9.12 |
| |
† | For each class of the Fund, net expenses are equal to the annualized expense ratio for such class (2.07% for Class A and 1.82% for Class I) multiplied by the average account value over the period, multiplied by 182/366 (to reflect one-half year period). |
| |
| |
Portfolio Holdings Presented by Sector |
April 30, 2012 |
| | | | |
Sector* | | | %** | |
Consumer Discretionary | | | 17.51 | % |
Consumer Staples | | | 0.25 | % |
Energy | | | 2.26 | % |
Financials | | | 6.73 | % |
Health Care | | | 22.03 | % |
Industrials | | | 11.97 | % |
Information Technology | | | 35.07 | % |
Materials | | | 1.84 | % |
Short-Term Investment | | | 2.34 | % |
Total | | | 100.00 | % |
| |
* | A sector may comprise several industries. |
** | Represents percent of total investments. |
3
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| | | | | |
| Beginning
Account
Value | | Ending
Account
Value | | Expenses
Paid During
Period† |
| | | | | |
| 11/1/11 | | 4/30/12 | | 11/1/11 -
4/30/12 |
| | | | | |
Class A | | | | | |
Actual | $1,000.00 | | $1,135.50 | | $10.88 |
Hypothetical (5% Return Before Expenses) | $1,000.00 | | $1,014.69 | | $10.27 |
Class I | | | | | |
Actual | $1,000.00 | | $1,136.50 | | $ 9.56 |
Hypothetical (5% Return Before Expenses) | $1,000.00 | | $1,015.93 | | $ 9.02 |
| |
† | For each class of the Fund, net expenses are equal to the annualized expense ratio for such class (2.05% for Class A and 1.80% for Class I) multiplied by the average account value over the period, multiplied by 182/366 (to reflect one year period). |
| |
| |
Portfolio Holdings Presented by Sector |
April 30, 2012 |
| | | | |
Sector * | | | %** | |
Consumer Discretionary | | | 11.20 | % |
Consumer Staples | | | 4.95 | % |
Energy | | | 1.23 | % |
Financials | | | 18.79 | % |
Health Care | | | 7.61 | % |
Industrials | | | 33.31 | % |
Information Technology | | | 10.09 | % |
Materials | | | 9.37 | % |
Utilities | | | 2.00 | % |
Short-Term Investment | | | 1.45 | % |
Total | | | 100.00 | % |
| |
* | A sector may comprise several industries. |
** | Represents percent of total investments. |
4
|
Schedule of Investments (unaudited) |
MICRO CAP GROWTH FUND April 30, 2012 |
| | | | | | | |
Investments | | Shares | | Fair
Value
(000) | |
| | | | | | |
LONG-TERM INVESTMENTS 97.65% | | | | | | | |
| | | | | | | |
COMMON STOCKS 97.65% | | | | | | | |
| | | | | | | |
Air Freight & Logistics 0.86% | | | | | | | |
Echo Global Logistics, Inc.* | | | 56,611 | | $ | 964 | |
| | | | | | | |
| | | | | | | |
Auto Components 1.34% | | | | | | | |
Fuel Systems Solutions, Inc.* | | | 64,034 | | | 1,502 | |
| | | | | | | |
|
Biotechnology 3.64% | | | | | | | |
Amarin Corp. plc ADR* | | | 67,096 | | | 819 | |
Dynavax Technologies
Corp.* | | | 366,838 | | | 1,838 | |
Genomic Health, Inc.* | | | 49,085 | | | 1,407 | |
| | | | | | | |
Total | | | | | | 4,064 | |
| | | | | | | |
|
Capital Markets 2.43% | | | | | | | |
Financial Engines, Inc.* | | | 44,121 | | | 1,008 | |
WisdomTree Investments,
Inc.* | | | 199,700 | | | 1,707 | |
| | | | | | | |
Total | | | | | | 2,715 | |
| | | | | | | |
|
Chemicals 1.04% | | | | | | | |
Koppers Holdings, Inc. | | | 29,759 | | | 1,157 | |
| | | | | | | |
| | | | | | | |
|
Commercial Banks 3.02% | | | | | | | |
Home BancShares, Inc. | | | 59,092 | | | 1,722 | |
Western Alliance Bancorp* | | | 188,297 | | | 1,653 | |
| | | | | | | |
Total | | | | | | 3,375 | |
| | | | | | | |
| | | | | | | |
Communications Equipment 0.98% | | | | | | | |
Oplink Communications, Inc.* | | | 69,030 | | | 1,093 | |
| | | | | | | |
|
Construction & Engineering 0.95% | | | | | | | |
MYR Group, Inc.* | | | 63,667 | | | 1,065 | |
| | | | | | | |
|
Diversified Financial Services 0.77% | | | | | | | |
MarketAxess Holdings, Inc. | | | 25,114 | | | 862 | |
| | | | | | | |
|
Electrical Equipment 3.52% | | | | | | | |
Capstone Turbine Corp.* | | | 1,272,327 | | | 1,387 | |
Thermon Group Holdings,
Inc.* | | | 114,360 | | | 2,541 | |
| | | | | | | |
Total | | | | | | 3,928 | |
| | | | | | | |
|
Electronic Equipment, Instruments &
Components 2.14% | | | | | | | |
FARO Technologies, Inc.* | | | 30,764 | | | 1,722 | |
Maxwell Technologies, Inc.* | | | 70,797 | | | 673 | |
| | | | | | | |
Total | | | | | | 2,395 | |
| | | | | | | |
| | | | | | | |
Energy Equipment & Services 1.55% | | | | | | | |
Global Geophysical | | | | | | | |
Services, Inc.* | | | 150,146 | | | 1,437 | |
RigNet, Inc.* | | | 17,091 | | | 292 | |
| | | | | | | |
Total | | | | | | 1,729 | |
| | | | | | | |
| | | | | | | |
Food Products 0.25% | | | | | | | |
Annie’s, Inc.* | | | 7,139 | | | 284 | |
| | | | | | | |
|
Health Care Equipment & Supplies 8.15% | | | | | | | |
Conceptus, Inc.* | | | 82,295 | | | 1,546 | |
DexCom, Inc.* | | | 98,349 | | | 963 | |
Endologix, Inc.* | | | 139,060 | | | 2,083 | |
Insulet Corp.* | | | 30,077 | | | 537 | |
NxStage Medical, Inc.* | | | 41,325 | | | 703 | |
OraSure Technologies, Inc.* | | | 175,945 | | | 2,018 | |
STAAR Surgical Co.* | | | 114,800 | | | 1,259 | |
| | | | | | | |
Total | | | | | | 9,109 | |
| | | | | | | |
| | | | | | | |
Health Care Providers & Services 1.21% | | | | | | | |
Epocrates, Inc.* | | | 53,317 | | | 434 | |
MWI Veterinary Supply, Inc.* | | | 9,734 | | | 919 | |
| | | | | | | |
Total | | | | | | 1,353 | |
| | | | | | | |
| | | | | | | |
Health Care Technology 3.94% | | | | | | | |
Greenway Medical | | | | | | | |
Technologies* | | | 127,956 | | | 1,970 | |
HealthStream, Inc.* | | | 57,666 | | | 1,322 | |
Vocera Communications,
Inc.* | | | 50,060 | | | 1,109 | |
| | | | | | | |
Total | | | | | | 4,401 | |
| | | | | | | |
| | |
| See Notes to Financial Statements. | 5 |
|
Schedule of Investments (unaudited)(continued) |
MICRO CAP GROWTH FUND April 30, 2012 |
| | | | | | | |
Investments | | Shares | | Fair
Value
(000) | |
| | | | | | |
Hotels, Restaurants & Leisure 3.20% | | | | | | | |
Caribou Coffee Co., Inc.* | | | 105,847 | | $ | 1,737 | |
Peet’s Coffee & Tea, Inc.* | | | 23,894 | | | 1,836 | |
| | | | | | | |
Total | | | | | | 3,573 | |
| | | | | | | |
| | | | | | | |
Information Technology Services 3.93% | | | | | | | |
EPAM Systems, Inc.* | | | 118,779 | | | 2,452 | |
hiSoft Technology | | | | | | | |
International Ltd. ADR* | | | 89,409 | | | 1,271 | |
ServiceSource International, | | | | | | | |
Inc.* | | | 40,211 | | | 667 | |
| | | | | | | |
Total | | | | | | 4,390 | |
| | | | | | | |
| | | | | | | |
Internet Software & Services 12.18% | | | | | | | |
Active Network, Inc. (The)* | | | 112,185 | | | 1,885 | |
Angie’s List, Inc.* | | | 70,846 | | | 988 | |
Bazaarvoice, Inc.* | | | 16,221 | | | 321 | |
Carbonite, Inc.* | | | 72,700 | | | 581 | |
comScore, Inc.* | | | 84,235 | | | 1,678 | |
Constant Contact, Inc.* | | | 44,804 | | | 1,083 | |
Cornerstone OnDemand,
Inc.* | | | 95,934 | | | 1,993 | |
Demandware, Inc.* | | | 34,233 | | | 933 | |
Liquidity Services, Inc.* | | | 12,014 | | | 641 | |
LivePerson, Inc.* | | | 107,346 | | | 1,705 | |
Responsys, Inc.* | | | 140,722 | | | 1,798 | |
| | | | | | | |
Total | | | | | | 13,606 | |
| | | | | | | |
|
Leisure Equipment & Products 1.49% | | | | | | | |
Shuffle Master, Inc.* | | | 93,946 | | | 1,660 | |
| | | | | | | |
|
Life Sciences Tools & Services 1.65% | | | | | | | |
Fluidigm Corp.* | | | 118,092 | | | 1,843 | |
| | | | | | | |
|
Machinery 4.79% | | | | | | | |
Allot Communications Ltd.
(Israel)*(a) | | | 89,856 | | | 2,205 | |
Dynamic Materials Corp. | | | 50,918 | | | 931 | |
Proto Labs, Inc.* | | | 16,655 | | | 618 | |
RBC Bearings, Inc.* | | | 34,200 | | | 1,603 | |
| | | | | | | |
Total | | | | | | 5,357 | |
| | | | | | | |
|
Metals & Mining 0.80% | | | | | | | |
Materion Corp. | | | 36,249 | | | 896 | |
| | | | | | | |
|
Oil, Gas & Consumable Fuels 0.71% | | | | | | | |
Magnum Hunter Resources
Corp.* | | | 127,731 | | | 793 | |
| | | | | | | |
|
Pharmaceuticals 3.44% | | | | | | | |
Akorn, Inc.* | | | 133,929 | | | 1,624 | |
Optimer Pharmaceuticals,
Inc.* | | | 104,845 | | | 1,552 | |
Sagent Pharmaceuticals,
Inc.* | | | 36,958 | | | 665 | |
| | | | | | | |
Total | | | | | | 3,841 | |
| | | | | | | |
| | | | | | | |
Road & Rail 0.71% | | | | | | | |
Zipcar, Inc.* | | | 65,399 | | | 788 | |
| | | | | | | |
|
Semiconductors & Semiconductor
Equipment 6.77% | | | | | | | |
Inphi Corp.* | | | 111,657 | | | 1,133 | |
MaxLinear, Inc. Class A* | | | 72,502 | | | 352 | |
Monolithic Power Systems,
Inc.* | | | 57,471 | | | 1,191 | |
RDA Microelectronics, Inc. | | | | | | | |
ADR* | | | 171,311 | | | 2,205 | |
Volterra Semiconductor
Corp.* | | | 81,434 | | | 2,678 | |
| | | | | | | |
Total | | | | | | 7,559 | |
| | | | | | | |
| | | | | | | |
Software 9.07% | | | | | | | |
Envivio, Inc.* | | | 94,600 | | | 875 | |
Imperva, Inc.* | | | 36,492 | | | 1,269 | |
NQ Mobile, Inc. ADR* | | | 113,966 | | | 1,325 | |
Proofpoint, Inc.* | | | 105,300 | | | 1,380 | |
Sourcefire, Inc.* | | | 27,128 | | | 1,383 | |
Synchronoss Technologies, | | | | | | | |
Inc.* | | | 23,369 | | | 732 | |
Tangoe, Inc.* | | | 57,365 | | | 1,175 | |
Velti plc (Ireland)*(a) | | | 167,394 | | | 2,000 | |
| | | | | | | |
Total | | | | | | 10,139 | |
| | | | | | | |
| | |
6 | See Notes to Financial Statements. | |
Schedule of Investments (unaudited)(concluded)
MICRO CAP GROWTH FUND April 30, 2012
| | | | | | | |
Investments | | Shares | | Fair
Value
(000) | |
| | | | | | |
Specialty Retail 11.48% | | | | | | | |
America’s Car-Mart, Inc.* | | | 35,598 | | $ | 1,635 | |
Body Central Corp.* | | | 98,965 | | | 3,006 | |
Francesca’s Holdings Corp.* | | | 58,312 | | | 1,828 | |
Hibbett Sports, Inc.* | | | 18,719 | | | 1,118 | |
Lumber Liquidators
Holdings, Inc.* | | | 69,854 | | | 2,021 | |
rue21, Inc.* | | | 26,352 | | | 800 | |
Zumiez, Inc.* | | | 65,960 | | | 2,418 | |
| | | | | | | |
Total | | | | | | 12,826 | |
| | | | | | | |
Thrifts & Mortgage Finance 0.51% | | | | | | | |
First PacTrust Bancorp, Inc. | | | 51,400 | | | 565 | |
| | | | | | | |
Trading Companies & Distributors 1.13% | | | | | | | |
Rush Enterprises, Inc. | | | | | | | |
Class A* | | | 69,988 | | | 1,265 | |
| | | | | | | |
| | | | | | | |
Total Common Stocks | | | | | | | |
(cost $89,363,419) | | | | | | 109,097 | |
| | | | | | | |
|
WARRANT 0.00% | | | | | | | |
| | | | | | | |
Oil, Gas & Consumable Fuels | | | | | | | |
Magnum Hunter Resources
Corp.*(b) | | | | | | | |
(cost $0) | | | 13,683 | | | — | (c) |
| | | | | | | |
Total Long-Term Investments | | | | | | | |
(cost $89,363,419) | | | | | | 109,097 | |
| | | | | | | |
| | | | | | | |
Investments | | Principal
Amount
(000) | | Fair
Value
(000) | |
| | | | | | |
SHORT-TERM INVESTMENT 2.34% | | | | | | | |
| | | | | | | |
Repurchase Agreement | | | | | | | |
Repurchase Agreement
dated 4/30/2012,
0.01% due 5/1/2012
with Fixed Income
Clearing Corp.
collateralized by
$2,670,000 of Federal
Home Loan Bank at
0.24% due 7/25/2013;
value: $2,669,324;
proceeds: $2,614,115
(cost $2,614,114) | | $ | 2,614 | | $ | 2,614 | |
| | | | | | | |
| | | | | | | |
Total Investments in
Securities 99.99% | | | | | | | |
(cost $91,977,533) | | | | | | 111,711 | |
| | | | | | | |
Other Assets in Excess
of Liabilities 0.01% | | | | | | 10 | |
| | | | | | | |
Net Assets 100.00% | | | | | $ | 111,721 | |
| | | | | | | |
| |
ADR | American Depositary Receipt. |
* | Non-income producing security. |
(a) | Foreign security traded in U.S. dollars. |
(b) | Exercise price of $10.50 and expiration date of 10/14/2013. |
(c) | Valued at zero as of April 30, 2012. |
| | |
| See Notes to Financial Statements. | 7 |
|
Schedule of Investments (unaudited) |
MICRO CAP VALUE FUND April 30, 2012 |
| | | | | | | |
Investments | | Shares | | Fair
Value
(000) | |
| | | | | | |
COMMON STOCKS 98.60% | | | | | | | |
| | | | | | | |
Aerospace & Defense 0.87% | | | | | | | |
CPI Aerostructures, Inc.* | | | 70,900 | | $ | 1,148 | |
| | | | | | | |
| | | | | | | |
Auto Components 3.33% | | | | | | | |
Dorman Products, Inc.* | | | 47,500 | | | 2,270 | |
Drew Industries, Inc.* | | | 71,575 | | | 2,131 | |
| | | | | | | |
Total | | | | | | 4,401 | |
| | | | | | | |
| | | | | | | |
Chemicals 6.60% | | | | | | | |
Balchem Corp. | | | 44,500 | | | 1,286 | |
KMG Chemicals, Inc. | | | 109,448 | | | 1,887 | |
LSB Industries, Inc.* | | | 56,300 | | | 1,910 | |
Quaker Chemical Corp. | | | 41,500 | | | 1,801 | |
TPC Group, Inc.* | | | 43,600 | | | 1,830 | |
| | | | | | | |
Total | | | | | | 8,714 | |
| | | | | | | |
| | | | | | | |
Commercial Banks 10.94% | | | | | | | |
Bank of Marin Bancorp | | | 35,000 | | | 1,297 | |
Bryn Mawr Bank Corp. | | | 66,682 | | | 1,433 | |
MidSouth Bancorp, Inc. | | | 128,800 | | | 1,816 | |
Northrim BanCorp, Inc. | | | 68,074 | | | 1,493 | |
Sandy Spring Bancorp, Inc. | | | 101,700 | | | 1,832 | |
SCBT Financial Corp. | | | 46,260 | | | 1,591 | |
Southern National Bancorp
of Virginia, Inc. | | | 119,700 | | | 826 | |
Sterling Bancorp | | | 212,900 | | | 2,025 | |
Washington Banking Co. | | | 153,701 | | | 2,143 | |
| | | | | | | |
Total | | | | | | 14,456 | |
| | | | | | | |
| | | | | | | |
Commercial Services & Supplies 9.26% | | | | | | | |
McGrath RentCorp | | | 85,300 | | | 2,510 | |
Mobile Mini, Inc.* | | | 117,100 | | | 2,208 | |
Multi-Color Corp. | | | 146,086 | | | 3,115 | |
Team, Inc.* | | | 74,800 | | | 2,216 | |
TMS International Corp.
Class A* | | | 180,800 | | | 2,184 | |
| | | | | | | |
Total | | | | | | 12,233 | |
| | | | | | | |
| | | | | | | |
Communications Equipment 1.30% | | | | | | | |
Bel Fuse, Inc. Class B | | | 96,400 | | | 1,715 | |
| | | | | | | |
| | | | | | | |
Computers & Peripherals 0.88% | | | | | | | |
Electronics for Imaging, Inc.* | | | 65,459 | | | 1,168 | |
| | | | | | | |
| | | | | | | |
Construction & Engineering 1.13% | | | | | | | |
MYR Group, Inc.* | | | 88,900 | | | 1,486 | |
| | | | | | | |
| | | | | | | |
Diversified Financial Services 1.52% | | | | | | | |
Marlin Business Services | | | | | | | |
Corp. | | | 136,968 | | | 2,011 | |
| | | | | | | |
| | | | | | | |
Electrical Equipment 2.90% | | | | | | | |
AZZ, Inc. | | | 17,800 | | | 920 | |
Powell Industries, Inc.* | | | 28,600 | | | 933 | |
Thermon Group Holdings,
Inc.* | | | 89,200 | | | 1,982 | |
| | | | | | | |
Total | | | | | | 3,835 | |
| | | | | | | |
| | | | | | | |
Electronic Equipment, Instruments &
Components 3.97% | | | | | | | |
CTS Corp. | | | 221,525 | | | 2,377 | |
Measurement Specialties,
Inc.* | | | 40,221 | | | 1,437 | |
Methode Electronics, Inc. | | | 169,100 | | | 1,429 | |
| | | | | | | |
Total | | | | | | 5,243 | |
| | | | | | | |
| | | | | | | |
Energy Equipment & Services 1.23% | | | | | | | |
Tesco Corp.* | | | 99,800 | | | 1,630 | |
| | | | | | | |
| | | | | | | |
Food & Staples Retailing 2.93% | | | | | | | |
Chefs’ Warehouse, Inc.
(The)* | | | 98,713 | | | 2,387 | |
Nash Finch Co. | | | 59,300 | | | 1,488 | |
| | | | | | | |
Total | | | | | | 3,875 | |
| | | | | | | |
| | | | | | | |
Food Products 2.02% | | | | | | | |
Overhill Farms, Inc.* | | | 587,957 | | | 2,669 | |
| | | | | | | |
| | | | | | | |
Gas Utilities 0.94% | | | | | | | |
Chesapeake Utilities Corp. | | | 29,600 | | | 1,244 | |
| | | | | | | |
| | |
8 | See Notes to Financial Statements. | |
|
Schedule of Investments (unaudited)(continued) |
MICRO CAP VALUE FUND April 30, 2012 |
| | | | | | | |
Investments | | Shares | | Fair
Value
(000) | |
| | | | | | |
Health Care Equipment & Supplies 3.52% | | | | | | | |
ICU Medical, Inc.* | | | 55,100 | | $ | 2,892 | |
Merit Medical Systems, Inc.* | | | 99,725 | | | 1,318 | |
SurModics, Inc.* | | | 29,315 | | | 434 | |
| | | | | | | |
Total | | | | | | 4,644 | |
| | | | | | | |
| | | | | | | |
Health Care Providers & Services 4.09% | | | | | | | |
CorVel Corp.* | | | 26,520 | | | 1,153 | |
Gentiva Health Services,
Inc.* | | | 105,600 | | | 875 | |
Metropolitan Health
Networks, Inc.* | | | 191,200 | | | 1,430 | |
U.S. Physical Therapy, Inc. | | | 79,845 | | | 1,947 | |
| | | | | | | |
Total | | | | | | 5,405 | |
| | | | | | | |
| | | | | | | |
Hotels, Restaurants & Leisure 0.85% | | | | | | | |
Marcus Corp. (The) | | | 90,232 | | | 1,129 | |
| | | | | | | |
| | | | | | | |
Insurance 2.39% | | | | | | | |
Donegal Group, Inc. Class A | | | 122,908 | | | 1,674 | |
Homeowners Choice, Inc. | | | 105,400 | | | 1,477 | |
| | | | | | | |
Total | | | | | | 3,151 | |
| | | | | | | |
| | | | | | | |
Machinery 3.80% | | | | | | | |
Commercial Vehicle Group,
Inc.* | | | 146,828 | | | 1,562 | |
Dynamic Materials Corp. | | | 89,200 | | | 1,631 | |
Kadant, Inc.* | | | 28,509 | | | 737 | |
RBC Bearings, Inc.* | | | 23,120 | | | 1,084 | |
| | | | | | | |
Total | | | | | | 5,014 | |
| | | | | | | |
| | | | | | | |
Metals & Mining 1.68% | | | | | | | |
Universal Stainless & Alloy
Products, Inc.* | | | 47,831 | | | 2,219 | |
| | | | | | | |
| | | | | | | |
Paper & Forest Products 1.10% | | | | | | | |
Neenah Paper, Inc. | | | 50,875 | | | 1,453 | |
| | | | | | | |
| | | | | | | |
Professional Services 3.14% | | | | | | | |
CDI Corp. | | | 49,871 | | | 885 | |
CRA International, Inc.* | | | 83,500 | | | 1,707 | |
Exponent, Inc.* | | | 32,439 | | | 1,551 | |
| | | | | | | |
Total | | | | | | 4,143 | |
| | | | | | | |
| | | | | | | |
Road & Rail 4.55% | | | | | | | |
Celadon Group, Inc. | | | 136,700 | | | 2,136 | |
Marten Transport Ltd. | | | 97,003 | | | 2,044 | |
Roadrunner Transportation
Systems, Inc.* | | | 105,300 | | | 1,827 | |
| | | | | | | |
Total | | | | | | 6,007 | |
| | | | | | | |
| | | | | | | |
Semiconductors & Semiconductor
Equipment 3.94% | | | | | | | |
AXT, Inc.* | | | 290,819 | | | 1,480 | |
Lattice Semiconductor
Corp.* | | | 271,500 | | | 1,483 | |
Pericom Semiconductor
Corp.* | | | 184,627 | | | 1,451 | |
Ultra Clean Holdings, Inc.* | | | 114,900 | | | 787 | |
| | | | | | | |
Total | | | | | | 5,201 | |
| | | | | | | |
| | | | | | | |
Specialty Retail 7.02% | | | | | | | |
America’s Car-Mart, Inc.* | | | 41,450 | | | 1,904 | |
Asbury Automotive Group,
Inc.* | | | 82,100 | | | 2,293 | |
Lithia Motors, Inc. Class A | | | 85,800 | | | 2,302 | |
Pier 1 Imports, Inc. | | | 44,755 | | | 769 | |
Shoe Carnival, Inc.* | | | 103,200 | | | 2,006 | |
| | | | | | | |
Total | | | | | | 9,274 | |
| | | | | | | |
| | | | | | | |
Thrifts & Mortgage Finance 3.95% | | | | | | | |
Brookline Bancorp, Inc. | | | 145,000 | | | 1,302 | |
First PacTrust Bancorp, Inc. | | | 157,517 | | | 1,731 | |
Territorial Bancorp, Inc. | | | 100,500 | | | 2,183 | |
| | | | | | | |
Total | | | | | | 5,216 | |
| | | | | | | |
| | |
| See Notes to Financial Statements. | 9 |
|
Schedule of Investments (unaudited)(concluded) |
MICRO CAP VALUE FUND April 30, 2012 |
| | | | | | | |
Investments | | Shares | | Fair
Value
(000) | |
| | | | | | |
Trading Companies & Distributors 7.69% | | | | | | | |
CAI International, Inc.* | | | 105,100 | | $ | 2,171 | |
Essex Rental Corp.* | | | 366,584 | | | 1,441 | |
H&E Equipment Services,
Inc.* | | | 103,700 | | | 2,001 | |
Rush Enterprises, Inc.
Class A* | | | 119,139 | | | 2,154 | |
SeaCube Container
Leasing Ltd. | | | 128,824 | | | 2,390 | |
| | | | | | | |
Total | | | | | | 10,157 | |
| | | | | | | |
| | | | | | | |
Water Utilities 1.06% | | | | | | | |
Connecticut Water Service,
Inc. | | | 50,600 | | | 1,404 | |
| | | | | | | |
Total Common Stocks
(cost $108,559,919) | | | | | | 130,245 | |
| | | | | | | |
| | | | | | | |
Investments | | Principal
Amount
(000) | | Fair
Value
(000) | |
| | | | | | |
SHORT-TERM INVESTMENT 1.45% | | | | | | | |
| | | | | | | |
Repurchase Agreement | | | | | | | |
Repurchase Agreement
dated 4/30/2012, 0.01%
due 5/1/2012 with Fixed
Income Clearing Corp.
collateralized by
$1,930,000 of U.S.
Treasury Note at
1.00% due 7/15/2013;
value: $1,953,563;
proceeds: $1,915,071
(cost $1,915,070) | | $ | 1,915 | | $ | 1,915 | |
| | | | | | | |
Total Investments in
Securities 100.05%
(cost $110,474,989) | | | | | | 132,160 | |
| | | | | | | |
Liabilities in Excess of
Other Assets (0.05)% | | | | | | (62 | ) |
| | | | | | | |
Net Assets 100.00% | | | | | $ | 132,098 | |
| | | | | | | |
| |
* | Non-income producing security. |
| | |
10 | See Notes to Financial Statements. | |
Statements of Assets and Liabilities (unaudited)
April 30, 2012
| | | | | | | |
| | Micro Cap
Growth Fund | | Micro Cap
Value Fund | |
ASSETS: | | | | | | | |
Investments in securities, at cost | | $ | 91,977,533 | | $ | 110,474,989 | |
| | | | | | | | |
Investments in securities, at fair value | | $ | 111,710,752 | | $ | 132,160,340 | |
Receivables: | | | | | | | |
Dividends | | | — | | | 43,468 | |
Investment securities sold | | | 3,014,841 | | | 924,944 | |
Capital shares sold | | | 18,009 | | | 29,429 | |
Prepaid expenses | | | 4,291 | | | 12,337 | |
| | | | | | | | |
Total assets | | | 114,747,893 | | | 133,170,518 | |
| | | | | | | | |
LIABILITIES: | | | | | | | |
Payables: | | | | | | | |
Investment securities purchased | | | 2,690,406 | | | 808,562 | |
Capital shares reacquired | | | 140,410 | | | 32,929 | |
Management fee | | | 137,145 | | | 162,119 | |
12b-1 distribution fees | | | 2,798 | | | 6,515 | |
Fund administration | | | 3,657 | | | 4,323 | |
Trustees’ fees | | | 6,145 | | | 8,126 | |
To affiliate (See Note 3) | | | 14,931 | | | 14,877 | |
Accrued expenses | | | 31,154 | | | 35,169 | |
| | | | | | | | |
Total liabilities | | | 3,026,646 | | | 1,072,620 | |
| | | | | | | | |
NET ASSETS | | $ | 111,721,247 | | $ | 132,097,898 | |
| | | | | | | | |
COMPOSITION OF NET ASSETS: | | | | | | | |
Paid-in capital | | $ | 90,641,111 | | $ | 116,703,294 | |
Accumulated net investment loss | | | (1,006,783 | ) | | (477,943 | ) |
Accumulated net realized gain (loss) on investments | | | 2,353,700 | | | (5,812,804 | ) |
Net unrealized appreciation on investments | | | 19,733,219 | | | 21,685,351 | |
| | | | | | | | |
Net Assets | | $ | 111,721,247 | | $ | 132,097,898 | |
| | | | | | | | |
Net assets by class: | | | | | | | |
Class A Shares | | $ | 13,111,975 | | $ | 30,206,993 | |
Class I Shares | | $ | 98,609,272 | | $ | 101,890,905 | |
Outstanding shares by class (unlimited number of
authorized shares of beneficial interest): | | | | | | | |
Class A Shares | | | 849,972 | | | 1,162,845 | |
Class I Shares | | | 6,133,249 | | | 3,812,933 | |
Net asset value, offering and redemption price per share
(Net assets divided by outstanding shares): | | | | | | | |
Class A Shares-Net asset value | | | $15.43 | | | $25.98 | |
Class A Shares-Maximum offering price
(Net asset value plus sales charge of 5.75%) | | | $16.37 | | | $27.56 | |
Class I Shares-Net asset value | | | $16.08 | | | $26.72 | |
| | | | | | | | |
| | |
| See Notes to Financial Statements. | 11 |
Statements of Operations (unaudited)
For the Six Months Ended April 30, 2012
| | | | | | | |
| | Micro Cap
Growth Fund | | Micro Cap
Value Fund | |
Investment income: | | | | | | | |
Dividends | | $ | 99,492 | | $ | 707,288 | |
Interest | | | 101 | | | 116 | |
| | | | | | | | |
Total investment income | | | 99,593 | | | 707,404 | |
| | | | | | | | |
Expenses: | | | | | | | |
Management fee | | | 821,222 | | | 953,332 | |
12b-1 distribution plan-Class A | | | 16,344 | | | 35,298 | |
Shareholder servicing | | | 8,618 | | | 13,670 | |
Professional | | | 20,624 | | | 20,658 | |
Reports to shareholders | | | 3,937 | | | 4,176 | |
Fund administration | | | 21,899 | | | 25,422 | |
Custody | | | 6,089 | | | 4,726 | |
Trustees’ fees | | | 1,585 | | | 1,802 | |
Registration | | | 14,385 | | | 14,257 | |
Subsidy (See Note 3) | | | 100,403 | | | 102,654 | |
Other | | | 1,690 | | | 1,919 | |
| | | | | | | | |
Gross expenses | | | 1,016,796 | | | 1,177,914 | |
Expense reductions (See Note 7) | | | (7 | ) | | (13 | ) |
| | | | | | | | |
Net expenses | | | 1,016,789 | | | 1,177,901 | |
| | | | | | | | |
Net investment loss | | | (917,196 | ) | | (470,497 | ) |
| | | | | | | | |
Net realized and unrealized gain: | | | | | | | |
Net realized gain on investments | | | 3,107,485 | | | 2,096,632 | |
Net change in unrealized appreciation/depreciation on investments | | | 13,554,942 | | | 14,730,399 | |
| | | | | | | | |
Net realized and unrealized gain | | | 16,662,427 | | | 16,827,031 | |
| | | | | | | | |
Net Increase in Net Assets Resulting From Operations | | $ | 15,745,231 | | $ | 16,356,534 | |
| | | | | | | | |
| | |
12 | See Notes to Financial Statements. | |
Statements of Changes in Net Assets
| | | | | | | |
| | Micro Cap Growth Fund | |
| | | |
INCREASE IN NET ASSETS | | For the Six Months
Ended April 30, 2012
(unaudited) | | For the Year Ended
October 31, 2011 | |
Operations: | | | | | | | |
Net investment loss | | $ | (917,196 | ) | $ | (2,070,238 | ) |
Net realized gain on investments | | | 3,107,485 | | | 24,812,106 | |
Net change in unrealized appreciation/depreciation on
investments | | | 13,554,942 | | | (19,800,201 | ) |
| | | | | | | | |
Net increase in net assets resulting from operations | | | 15,745,231 | | | 2,941,667 | |
| | | | | | | | |
Distributions to shareholders from: | | | | | | | |
Net realized gain | | | | | | | |
Class A | | | (2,348,826 | ) | | — | |
Class I | | | (13,998,254 | ) | | — | |
| | | | | | | | |
Total distributions to shareholders | | | (16,347,080 | ) | | — | |
| | | | | | | | |
Capital share transactions (See Note 11): | | | | | | | |
Net proceeds from sales of shares | | | 2,879,494 | | | 14,332,083 | |
Reinvestment of distributions | | | 14,787,271 | | | — | |
Cost of shares reacquired | | | (14,548,743 | ) | | (11,880,855 | ) |
| | | | | | | | |
Net increase in net assets resulting from
capital share transactions | | | 3,118,022 | | | 2,451,228 | |
| | | | | | | | |
Net increase in net assets | | | 2,516,173 | | | 5,392,895 | |
| | | | | | | | |
NET ASSETS: | | | | | | | |
Beginning of period | | $ | 109,205,074 | | $ | 103,812,179 | |
| | | | | | | | |
End of period | | $ | 111,721,247 | | $ | 109,205,074 | |
| | | | | | | | |
Accumulated net investment loss | | $ | (1,006,783 | ) | $ | (89,587 | ) |
| | | | | | | | |
| | |
| See Notes to Financial Statements. | 13 |
Statements of Changes in Net Assets (concluded)
| | | | | | | |
| | Micro Cap Value Fund | |
| | | |
INCREASE IN NET ASSETS | | For the Six Months
Ended April 30, 2012
(unaudited) | | For the Year Ended
October 31, 2011 | |
Operations: | | | | | | | |
Net investment loss | | $ | (470,497 | ) | $ | (1,339,550 | ) |
Net realized gain on investments | | | 2,096,632 | | | 7,571,775 | |
Net change in unrealized appreciation/depreciation
on investments | | | 14,730,399 | | | (9,989,094 | ) |
| | | | | | | | |
Net increase (decrease) in net assets resulting
from operations | | | 16,356,534 | | | (3,756,869 | ) |
| | | | | | | | |
Capital share transactions (See Note 11): | | | | | | | |
Net proceeds from sales of shares | | | 1,427,395 | | | 29,570,017 | |
Cost of shares reacquired | | | (6,720,718 | ) | | (20,785,659 | ) |
| | | | | | | | |
Net increase (decrease) in net assets resulting from
capital share transactions | | | (5,293,323 | ) | | 8,784,358 | |
| | | | | | | | |
Net increase in net assets | | | 11,063,211 | | | 5,027,489 | |
| | | | | | | | |
NET ASSETS: | | | | | | | |
Beginning of period | | $ | 121,034,687 | | $ | 116,007,198 | |
| | | | | | | | |
End of period | | $ | 132,097,898 | | $ | 121,034,687 | |
| | | | | | | | |
Accumulated net investment loss | | $ | (477,943 | ) | $ | (7,446 | ) |
| | | | | | | | |
| | |
14 | See Notes to Financial Statements. | |
|
Financial Highlights |
MICRO CAP GROWTH FUND |
| | | | | | | | | | | | | | | | | | | | | |
| | Class A Shares | |
| | | |
| | Six Months
Ended
4/30/2012
(unaudited) | | | | | | | | | | | |
| | | | |
| | | Year Ended 10/31 | |
| | | | |
| | | 2011 | | 2010 | | 2009 | | 2008 | | 2007 | |
Per Share Operating Performance | | | | | | | | | | | | | | | | | | | | | |
Net asset value,
beginning of period | | | | $15.98 | | | | $15.47 | | | $11.32 | | | $9.07 | | | $17.36 | | | $14.18 | |
| | | | | | | | | | | | | | | | | | | | | |
Investment operations: | | | | | | | | | | | | | | | | | | | | | |
Net investment loss(a) | | | | (.14 | ) | | | (.33 | ) | | (.27 | ) | | (.19 | ) | | (.24 | ) | | (.26 | ) |
Net increase from payment
by an affiliate for net
loss realized on disposal
of investments
purchased/sold in error | | | | — | | | | — | | | — | | | — | | | — | | | — | (b) |
Net realized and
unrealized gain (loss) | | | | 2.05 | | | | .84 | | | 4.42 | | | 2.44 | | | (7.71 | ) | | 5.83 | |
| | | | | | | | | | | | | | | | | | | | | |
Total from investment
operations | | | | 1.91 | | | | .51 | | | 4.15 | | | 2.25 | | | (7.95 | ) | | 5.57 | |
| | | | | | | | | | | | | | | | | | | | | |
Distributions to
shareholders from: | | | | | | | | | | | | | | | | | | | | | |
Net realized gain | | | | (2.46 | ) | | | — | | | — | | | — | | | (.34 | ) | | (2.39 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Net asset value,
end of period | | | | $15.43 | | | | $15.98 | | | $15.47 | | | $11.32 | | | $9.07 | | | $17.36 | |
| | | | | | | | | | | | | | | | | | | | | |
Total Return(c) | | | | 15.24 | %(d) | | | 3.30 | % | | 36.66 | % | | 24.81 | % | | (46.57 | )% | | 45.19 | %(e) |
Ratios to Average Net Assets: | | | | | | | | | | | | | | | | | | | | | |
Expenses, excluding
expense reductions and
including management
fee waived and
expenses reimbursed | | | | 1.03 | %(d) | | | 2.07 | % | | 2.10 | % | | 2.09 | % | | 2.09 | % | | 2.10 | % |
Expenses, including
expense reductions,
management fee waived
and expenses reimbursed | | | | 1.03 | %(d) | | | 2.07 | % | | 2.10 | % | | 2.09 | % | | 2.09 | % | | 2.09 | % |
Expenses, excluding
expense reductions,
management fee waived
and expenses reimbursed | | | | 1.03 | %(d) | | | 2.07 | % | | 2.11 | % | | 2.30 | % | | 2.23 | % | | 2.48 | % |
Net investment loss | | | | (.94 | )%(d) | | | (1.98 | )% | | (2.03 | )% | | (1.99 | )% | | (1.88 | )% | | (1.76 | )% |
|
Supplemental Data: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net assets,
end of period (000) | | | | $13,112 | | | | $15,271 | | | $13,779 | | | $10,421 | | | $5,264 | | | $9,882 | |
Portfolio turnover rate | | | | 43.07 | %(d) | | | 120.62 | % | | 115.89 | % | | 147.34 | % | | 173.93 | % | | 205.25 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| |
(a) | Calculated using average shares outstanding during the period. |
(b) | Amount is less than $.01. |
(c) | Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions. |
(d) | Not annualized. |
(e) | The effect of payment by an affiliate for violation of an investment restriction on total return is less than .01%. |
| | |
| See Notes to Financial Statements. | 15 |
|
Financial Highlights (concluded) |
MICRO CAP GROWTH FUND |
| | | | | | | | | | | | | | | | | | | | | |
| | Class I Shares | |
| | | |
| | Six Months
Ended
4/30/2012
(unaudited) | | | | | | | | | | | |
| | | | |
| | | Year Ended 10/31 | |
| | | | |
| | | 2011 | | 2010 | | 2009 | | 2008 | | 2007 | |
Per Share Operating Performance | | | | | | | | | | | | | | | | | | | | | |
Net asset value,
beginning of period | | | | $16.52 | | | | $15.96 | | | $11.65 | | | $9.31 | | | $17.76 | | | $14.43 | |
| | | | | | | | | | | | | | | | | | | | | |
Investment operations: | | | | | | | | | | | | | | | | | | | | | |
Net investment loss(a) | | | | (.13 | ) | | | (.30 | ) | | (.24 | ) | | (.17 | ) | | (.22 | ) | | (.24 | ) |
Net increase from payment
by an affiliate for net
loss realized on disposal
of investments
purchased/sold in error | | | | — | | | | — | | | — | | | — | | | — | | | — | (b) |
Net realized and
unrealized gain (loss) | | | | 2.15 | | | | .86 | | | 4.55 | | | 2.51 | | | (7.89 | ) | | 5.96 | |
| | | | | | | | | | | | | | | | | | | | | |
Total from investment
operations | | | | 2.02 | | | | .56 | | | 4.31 | | | 2.34 | | | (8.11 | ) | | 5.72 | |
| | | | | | | | | | | | | | | | | | | | | |
Distributions to
shareholders from: | | | | | | | | | | | | | | | | | | | | | |
Net realized gain | | | | (2.46 | ) | | | — | | | — | | | — | | | (.34 | ) | | (2.39 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Net asset value,
end of period | | | | $16.08 | | | | $16.52 | | | $15.96 | | | $11.65 | | | $9.31 | | | $17.76 | |
| | | | | | | | | | | | | | | | | | | | | |
Total Return(c) | | | | 15.36 | %(d) | | | 3.57 | % | | 37.00 | % | | 25.13 | % | | (46.41 | )% | | 45.49 | %(e) |
Ratios to Average Net Assets: | | | | | | | | | | | | | | | | | | | | | |
Expenses, excluding
expense reductions and
including management
fee waived and
expenses reimbursed | | | | .91 | %(d) | | | 1.82 | % | | 1.85 | % | | 1.85 | % | | 1.84 | % | | 1.85 | % |
Expenses, including
expense reductions,
management fee waived
and expenses reimbursed | | | | .91 | %(d) | | | 1.82 | % | | 1.85 | % | | 1.85 | % | | 1.84 | % | | 1.84 | % |
Expenses, excluding
expense reductions,
management fee waived
and expenses reimbursed | | | | .91 | %(d) | | | 1.82 | % | | 1.86 | % | | 2.05 | % | | 1.98 | % | | 2.04 | % |
Net investment loss | | | | (.82 | )%(d) | | | (1.73 | )% | | (1.78 | )% | | (1.75 | )% | | (1.64 | )% | | (1.52 | )% |
|
Supplemental Data: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net assets,
end of period (000) | | | | $98,609 | | | | $93,934 | | | $90,033 | | | $53,973 | | | $44,336 | | | $56,463 | |
Portfolio turnover rate | | | | 43.07 | %(d) | | | 120.62 | % | | 115.89 | % | | 147.34 | % | | 173.93 | % | | 205.25 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| |
(a) | Calculated using average shares outstanding during the period. |
(b) | Amount is less than $.01. |
(c) | Total return assumes the reinvestment of all distributions. |
(d) | Not annualized. |
(e) | The effect of payment by an affiliate for violation of an investment restriction on total return is less than .01%. |
| | |
16 | See Notes to Financial Statements. | |
|
Financial Highlights |
MICRO CAP VALUE FUND |
| | | | | | | | | | | | | | | | | | | | | |
| | Class A Shares | |
| | | |
| | Six Months
Ended
4/30/2012
(unaudited) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Year Ended 10/31 | |
| | | | |
| | | 2011 | | 2010 | | 2009 | | 2008 | | 2007 | |
Per Share Operating Performance | | | | | | | | | | | | | | | | | | | | | |
Net asset value,
beginning of period | | | | $22.88 | | | | $23.33 | | | $18.57 | | | $16.94 | | | $28.90 | | | $28.67 | |
| | | | | | | | | | | | | | | | | | | | | |
Investment operations: | | | | | | | | | | | | | | | | | | | | | |
Net investment loss(a) | | | | (.11 | ) | | | (.29 | ) | | (.31 | ) | | (.19 | ) | | (.22 | ) | | (.28 | ) |
Net realized and
unrealized gain (loss) | | | | 3.21 | | | | (.16 | ) | | 5.07 | | | 1.82 | | | (9.79 | ) | | 4.89 | |
| | | | | | | | | | | | | | | | | | | | | |
Total from investment
operations | | | | 3.10 | | | | (.45 | ) | | 4.76 | | | 1.63 | | | (10.01 | ) | | 4.61 | |
| | | | | | | | | | | | | | | | | | | | | |
Distributions to
shareholders from: | | | | | | | | | | | | | | | | | | | | | |
Net realized gain | | | | — | | | | — | | | — | | | — | | | (1.95 | ) | | (4.38 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Net asset value,
end of period | | | | $25.98 | | | | $22.88 | | | $23.33 | | | $18.57 | | | $16.94 | | | $28.90 | |
| | | | | | | | | | | | | | | | | | | | | |
Total Return(b) | | | | 13.55 | %(c) | | | (1.93 | )% | | 25.63 | % | | 9.62 | % | | (36.82 | )% | | 18.84 | % |
Ratios to Average Net Assets: | | | | | | | | | | | | | | | | | | | | | |
Expenses, excluding
expense reductions and
including management
fee waived and
expenses reimbursed | | | | 1.02 | %(c) | | | 2.04 | % | | 2.06 | % | | 2.10 | % | | 2.09 | % | | 2.09 | % |
Expenses, including
expense reductions,
management fee waived
and expenses reimbursed | | | | 1.02 | %(c) | | | 2.04 | % | | 2.06 | % | | 2.10 | % | | 2.08 | % | | 2.09 | % |
Expenses, excluding
expense reductions,
management fee waived
and expenses reimbursed | | | | 1.02 | %(c) | | | 2.04 | % | | 2.06 | % | | 2.22 | % | | 2.14 | % | | 2.20 | % |
Net investment loss | | | | (.47 | )%(c) | | | (1.17 | )% | | (1.48 | )% | | (1.14 | )% | | (.95 | )% | | (1.05 | )% |
| | | | | | | | | | | | | | | | | | | | | |
Supplemental Data: | | | | | | | | | | | | | | | | | | | | | |
| | |
Net assets,
end of period (000) | | | $30,207 | | | $26,239 | | $30,139 | | $22,730 | | $17,522 | | $25,561 | |
Portfolio turnover rate | | | | 15.21 | %(c) | | | 56.97 | % | | 48.03 | % | | 42.27 | % | | 56.70 | % | | 37.11 | % |
| | |
| |
(a) | Calculated using average shares outstanding during the period. |
(b) | Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions. |
(c) | Not annualized. |
| | |
| See Notes to Financial Statements. | 17 |
Financial Highlights (concluded)
MICRO CAP VALUE FUND
| | | | | | | | | | | | | | | | | | | | | |
| | Class I Shares | |
| | | |
| | Six Months
Ended
4/30/2012
(unaudited) | | | | | | | | | | | | | | | | |
| | | Year Ended 10/31 | |
| | | | |
| | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
Per Share Operating Performance | | | | | | | | | | | | | | | | | | | | | |
Net asset value,
beginning of period | | | | $23.50 | | | | $23.91 | | | $18.98 | | | $17.27 | | | $29.36 | | | $28.99 | |
| | | | | | | | | | | | | | | | | | | | | |
Investment operations: | | | | | | | | | | | | | | | | | | | | | |
Net investment loss(a) | | | | (.09 | ) | | | (.24 | ) | | (.27 | ) | | (.15 | ) | | (.16 | ) | | (.20 | ) |
Net realized and
unrealized gain (loss) | | | | 3.31 | | | | (.17 | ) | | 5.20 | | | 1.86 | | | (9.98 | ) | | 4.95 | |
| | | | | | | | | | | | | | | | | | | | | |
Total from investment
operations | | | | 3.22 | | | | (.41 | ) | | 4.93 | | | 1.71 | | | (10.14 | ) | | 4.75 | |
| | | | | | | | | | | | | | | | | | | | | |
Distributions to
shareholders from: | | | | | | | | | | | | | | | | | | | | | |
Net realized gain | | | | — | | | | — | | | — | | | — | | | (1.95 | ) | | (4.38 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Net asset value,
end of period | | | | $26.72 | | | | $23.50 | | | $23.91 | | | $18.98 | | | $17.27 | | | $29.36 | |
| | | | | | | | | | | | | | | | | | | | | |
Total Return(b) | | | | 13.65 | %(c) | | | (1.67 | )% | | 25.97 | % | | 9.90 | % | | (36.68 | )% | | 19.16 | % |
Ratios to Average Net Assets: | | | | | | | | | | | | | | | | | | | | | |
Expenses, excluding
expense reductions and
including management
fee waived and
expenses reimbursed | | | | .89 | %(c) | | | 1.79 | % | | 1.81 | % | | 1.85 | % | | 1.84 | % | | 1.83 | % |
Expenses, including
expense reductions,
management fee waived
and expenses reimbursed | | | | .89 | %(c) | | | 1.79 | % | | 1.81 | % | | 1.85 | % | | 1.83 | % | | 1.83 | % |
Expenses, excluding
expense reductions,
management fee waived
and expenses reimbursed | | | | .89 | %(c) | | | 1.79 | % | | 1.81 | % | | 1.97 | % | | 1.89 | % | | 1.93 | % |
Net investment loss | | | | (.34 | )%(c) | | | (.92 | )% | | (1.23 | )% | | (.90 | )% | | (.70 | )% | | (.71 | )% |
| | | | | | | | | | | | | | | | | | | | | |
Supplemental Data: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net assets,
end of period (000) | | | | $101,891 | | | | $94,796 | | | $85,868 | | | $57,977 | | | $47,883 | | | $57,664 | |
Portfolio turnover rate | | | | 15.21 | %(c) | | | 56.97 | % | | 48.03 | % | | 42.27 | % | | 56.70 | % | | 37.11 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| |
(a) | Calculated using average shares outstanding during the period. |
(b) | Total return assumes the reinvestment of all distributions. |
(c) | Not annualized. |
| | |
18 | See Notes to Financial Statements. | |
Notes to Financial Statements (unaudited)
Lord Abbett Securities Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified, open-end management investment company and was organized as a Delaware statutory trust on February 26, 1993. The Trust currently consists of ten funds. This report covers the following two funds (separately, a “Fund” and collectively, the “Funds”) and their respective classes: Lord Abbett Micro-Cap Growth Fund (“Micro Cap Growth Fund”), Class A and I shares and Lord Abbett Micro-Cap Value Fund (“Micro Cap Value Fund”), Class A and I shares. The investment objective of both Micro Cap Growth Fund and Micro Cap Value Fund is long-term capital appreciation.
Each class of shares has different expenses and dividends. A front-end sales charge is normally added to the net asset value (“NAV”) for Class A shares. A contingent deferred sales charge (“CDSC”) may apply to certain redemptions of Class A shares purchased without a sales charge and redeemed before the first day of the month in which the one-year anniversary of the purchase falls (subject to certain exceptions as set forth in each Fund’s prospectus). Class I shares are not subject to any sales charges.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
| | |
2. | SIGNIFICANT ACCOUNTING POLICIES | |
| |
(a) | Investment Valuation–Securities actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the close of regular trading on the New York Stock Exchange LLC. Each Fund may rely on an independent fair valuation service in adjusting the valuations of foreign securities. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices. Securities for which market quotations are not readily available are valued at fair value as determined by management and approved in good faith by the Board of Trustees. Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates fair value. |
| |
(b) | Security Transactions–Security transactions are recorded as of the date that the securities are purchased or sold (trade date). Realized gains and losses on sales of portfolio securities are calculated using the identified-cost method. Realized and unrealized gains (losses) are allocated to each class of shares based upon the relative proportion of net assets at the beginning of the day. |
| |
(c) | Investment Income–Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis as earned. Discounts are accreted and premiums are amortized using the effective interest method and are included in Interest income on the Statements of Operations. Investment income is allocated to each class of shares based upon the relative proportion of net assets at the beginning of the day. |
19
Notes to Financial Statements (unaudited)(continued)
| |
(d) | Income Taxes–It is the policy of each Fund to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income and capital gains to its shareholders. Therefore, no income tax provision is required. |
| |
| Each Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Funds’ U.S. federal tax returns filed remains open for the fiscal years ended October 31, 2008 through October 31, 2011. The statutes of limitations on the Trust’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. |
| |
(e) | Expenses–Expenses incurred by the Trust that do not specifically relate to an individual fund are generally allocated to the Funds within the Trust on a pro rata basis by relative net assets. Expenses incurred by the Funds, excluding class-specific expenses, are allocated to each class of shares based upon the relative proportion of net assets at the beginning of the day. Class A shares bear class-specific expenses and fees relating to the Funds’ 12b-1 Distribution Plan. |
| |
(f) | Repurchase Agreements–Each Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which a Fund acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. Each Fund requires at all times that the repurchase agreement be collateralized by cash, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). If the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the fair value of these securities has declined, a Fund may incur a loss upon disposition of the securities. |
| |
(g) | Fair Value Measurements–Fair value is defined as the price that each Fund would receive upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk - for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below: |
| | | |
| • | Level 1 – | unadjusted quoted prices in active markets for identical investments; |
| | | |
| • | Level 2 – | other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and |
| | | |
| • | Level 3 – | significant unobservable inputs (including each Fund’s own assumptions in determining the fair value of investments). |
20
Notes to Financial Statements (unaudited)(continued)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of April 30, 2012 in valuing each Fund’s investments carried at fair value:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Micro Cap Growth Fund | | | Micro Cap Value Fund | |
| | | | | | | |
Investment Type* | | Level 1
(000) | | Level 2
(000) | | Level 3
(000) | | Total
(000) | | | Level 1
(000) | | Level 2
(000) | | Level 3
(000) | | Total
(000) | |
| | | | | | | | | | | | | | | | | | | |
Common Stocks | | $ | 109,097 | | $ | — | | $ | — | | $ | 109,097 | | | $ | 130,245 | | $ | — | | $ | — | | $ | 130,245 | |
Warrant | | | — | | | — | | | — | (1) | | — | | | | — | | | — | | | — | | | — | |
Repurchase Agreement | | | — | | | 2,614 | | | — | | | 2,614 | | | | — | | | 1,915 | | | — | | | 1,915 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 109,097 | | $ | 2,614 | | $ | — | | $ | 111,711 | | | $ | 130,245 | | $ | 1,915 | | $ | — | | $ | 132,160 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
* | See Schedule of Investments for fair values in each industry. |
(1) | Fair valued at zero as of April 30, 2012. Total assets were zero at the beginning and end of the period. |
| | |
3. | MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES | |
|
Management Fee |
The Trust has a management agreement with Lord, Abbett & Co. LLC (“Lord Abbett”), pursuant to which Lord Abbett supplies each Fund with investment management services and executive and other personnel, provides office space and pays for ordinary and necessary office and clerical expenses relating to research and statistical work and supervision of each Fund’s investment portfolio. |
The management fee is based on each Fund’s average daily net assets at an annual rate of 1.50%, which was the Funds’ annualized effective management fee rate for the six months ended April 30, 2012.
In addition, Lord Abbett provides certain administrative services to each Fund pursuant to an Administrative Services Agreement in return for a fee at an annual rate of .04% of each Fund’s average daily net assets.
For the period ended April 30, 2012 and continuing through February 28, 2013, Lord Abbett contractually agreed to waive all or a portion of its management fee for each Fund and, if necessary, reimburse each Fund’s other expenses to the extent necessary so that each class’ total net annual operating expenses, excluding 12b-1 fees, do not exceed an annualized rate of 1.85%. This agreement may be terminated with respect to each Fund only upon the approval of the Funds’ Board of Trustees.
The Funds, along with certain other funds managed by Lord Abbett (collectively, the “Underlying Funds”), have entered into a Servicing Arrangement with Lord Abbett Alpha Strategy Fund (the “Alpha Strategy Fund”) of the Trust, pursuant to which each Underlying Fund pays a portion of the expenses (excluding management fees and distribution and service fees) of Alpha Strategy Fund in proportion to the average daily value of the Underlying Fund shares owned by Alpha Strategy Fund. Amounts paid pursuant to the Servicing Arrangement are included in Subsidy expense on each Fund’s Statement of Operations and Payable to affiliate on each Fund’s Statement of Assets and Liabilities.
As of April 30, 2012, the percentages of the Micro Cap Growth Fund’s and Micro Cap Value Fund’s outstanding shares owned by Alpha Strategy Fund were 82.34% and 70.26%, respectively.
21
Notes to Financial Statements (unaudited)(continued)
|
12b-1 Distribution Plan |
Each Fund has adopted a distribution plan with respect to Class A shares pursuant to Rule 12b-1 under the Act, which provides for the payment of ongoing distribution and service fees to Lord Abbett Distributor LLC (the “Distributor”), an affiliate of Lord Abbett. The fees are accrued daily at an annual rate of .25% based upon each Fund’s average daily net assets attributable to Class A shares. |
Class I shares do not have a distribution plan.
Two Trustees and certain of the Trust’s officers have an interest in Lord Abbett.
| | |
4. | DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS | |
Dividends from net investment income, if any, are declared and paid at least annually. Taxable net realized gains from investment transactions, reduced by allowable capital loss carryforwards, if any, are declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, is available to offset future net capital gains. Dividends and distributions to shareholders are recorded on the ex-dividend date. The amounts of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions, which exceed earnings and profits for tax purposes, are reported as a tax return of capital.
The tax character of distributions paid during the six months ended April 30, 2012 and the fiscal year ended October 31, 2011 was as follows:
| | | | | | | |
| | Micro Cap Growth Fund | |
| | | | |
| | Six Months Ended
4/30/2012
(unaudited) | | Year Ended
10/31/2011 | |
| | | | | | |
Distributions paid from: | | | | | | | |
Net long-term capital gains | | $ | 16,347,080 | | $ | — | |
| | | | | | | | |
Total distributions paid | | $ | 16,347,080 | | $ | — | |
| | | | | | | | |
As of October 31, 2011, the Micro Cap Value Fund had a capital loss carryforward of $7,823,026, set to expire in 2017.
In accordance with the Regulated Investment Company Modernization Act of 2010, the Fund will carryforward capital losses incurred in taxable years beginning after December 22, 2010 (“post-enactment losses”) indefinitely. Post-enactment losses will retain their character as either short-term or long-term and be utilized before any pre-enactment losses.
As of April 30, 2012, the aggregate unrealized security gains and losses based on cost for U.S. federal income tax purposes were as follows:
| | | | | | | |
| | Micro Cap
Growth Fund | | Micro Cap
Value Fund | |
| | | | | | |
Tax cost | | $ | 92,815,202 | | $ | 110,561,399 | |
| | | | | | | | |
Gross unrealized gain | | | 23,514,340 | | | 25,474,096 | |
Gross unrealized loss | | | (4,618,790 | ) | | (3,875,155 | ) |
| | | | | | | | |
Net unrealized security gain | | $ | 18,895,550 | | $ | 21,598,941 | |
| | | | | | | | |
22
Notes to Financial Statements (unaudited)(continued)
The difference between book-basis and tax-basis unrealized gains (losses) is attributable to the tax treatment of certain securities and wash sales.
| | |
5. | PORTFOLIO SECURITIES TRANSACTIONS | |
Purchases and sales of investment securities (excluding short-term investments) for the six months ended April 30, 2012 were as follows:
| | | | | | | |
| | Purchases | | Sales | |
| | | | | | |
Micro Cap Growth Fund | | $ | 46,758,531 | | $ | 60,026,942 | |
Micro Cap Value Fund | | | 19,087,451 | | | 23,382,441 | |
There were no purchases or sales of U.S. Government securities for the six months ended April 30, 2012.
The Trust’s officers and the two Trustees who are associated with Lord Abbett do not receive any compensation from the Trust for serving in such capacities. Independent Trustees’ fees are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all Independent Trustees under which Independent Trustees must defer receipt of a portion of, and may elect to defer receipt of an additional portion of Trustees’ fees. The deferred amounts are treated as though equivalent dollar amounts had been invested in the funds. Such amounts and earnings accrued thereon are included in Trustees’ fees on the Statements of Operations and in Trustees’ fees payable on the Statements of Assets and Liabilities and are not deductible for U.S. federal income tax purposes until such amounts are paid.
The Trust has entered into an arrangement with its transfer agent and custodian, whereby credits realized as a result of uninvested cash balances are used to reduce a portion of each Fund’s expenses.
On April 2, 2012, the Funds and certain other funds managed by Lord Abbett entered into an unsecured revolving credit facility (“Facility”) from State Street Bank and Trust Company (“SSB”), to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Facility is renewed annually under terms that depend on market conditions at the time of the renewal. The amounts available under the Facility are (i) the lesser of either $250,000,000 or 33.33% of total assets per participating fund and (ii) $350,000,000 in the aggregate for all participating funds. The annual fee to maintain the Facility is .09% of the amount available under the Facility. Each participating fund pays its pro rata share based on the net assets of each participating fund. This amount is included in Other expenses on the Funds’ Statements of Operations. Any borrowings under this Facility will bear interest at current market rates as set forth in the credit agreement. As of April 30, 2012, there were no loans outstanding pursuant to this Facility.
For the period February 3, 2011 through April 1, 2012, the Funds and certain other funds managed by Lord Abbett had an amount of $200,000,000 available under a Facility from SSB with an annual fee to maintain the Facility of .125% of the amount available under the Facility.
23
Notes to Financial Statements (unaudited)(continued)
| | |
9. | CUSTODIAN AND ACCOUNTING AGENT | |
SSB is the Trust’s custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating each Fund’s NAV.
Each Fund is subject to the general risks and considerations associated with equity investing, as well as the particular risks associated with micro-cap and growth or value stocks. The value of an investment in each Fund will fluctuate in response to movements in the equity securities market in general and to the changing prospects of individual companies in which the Funds invest. Micro-cap companies may be subject to greater risks and may be more sensitive to changes in economic conditions than larger, more established companies. There may be less liquidity in micro-cap company stocks, subjecting them to greater price fluctuations than larger company stocks. In the case of Micro Cap Growth Fund, the growth stocks in which it generally invests may add to the Fund’s volatility. In the case of the Micro Cap Value Fund, the prices of value stocks in which it generally invests may lag the stock market for long periods of time if the market fails to recognize the company’s intrinsic worth.
These factors can affect each Fund’s performance.
| | |
11. | SUMMARY OF CAPITAL TRANSACTIONS | |
Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | |
Micro Cap Growth Fund | | Six Months Ended
April 30, 2012
(unaudited) | | Year Ended
October 31, 2011 | |
| | | | | |
Class A Shares | | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | |
Shares sold | | | 71,916 | | $ | 1,071,003 | | | 67,906 | | $ | 1,138,505 | |
Reinvestment of distributions | | | 125,804 | | | 1,593,934 | | | — | | | — | |
Shares reacquired | | | (303,505 | ) | | (4,084,675 | ) | | (2,966 | ) | | (45,750 | ) |
| | | | | | | | | | | | | | |
Increase (decrease) | | | (105,785 | ) | $ | (1,419,738 | ) | | 64,940 | | $ | 1,092,755 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Class I Shares | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Shares sold | | | 126,027 | | $ | 1,808,491 | | | 730,124 | | $ | 13,193,578 | |
Reinvestment of distributions | | | 1,000,253 | | | 13,193,337 | | | — | | | — | |
Shares reacquired | | | (677,528 | ) | | (10,464,068 | ) | | (687,583 | ) | | (11,835,105 | ) |
| | | | | | | | | | | | | | |
Increase | | | 448,752 | | $ | 4,537,760 | | | 42,541 | | $ | 1,358,473 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Micro Cap Value Fund | | Six Months Ended
April 30, 2012
(unaudited) | | Year Ended
October 31, 2011 | |
| | | | | | |
Class A Shares | �� | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | |
Shares sold | | | 23,400 | | $ | 596,004 | | | 117,157 | | $ | 2,875,802 | |
Shares reacquired | | | (7,477 | ) | | (184,353 | ) | | (262,120 | ) | | (5,733,339 | ) |
| | | | | | | | | | | | | | |
Increase (decrease) | | | 15,923 | | $ | 411,651 | | | (144,963 | ) | $ | (2,857,537 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Class I Shares | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Shares sold | | | 33,822 | | $ | 831,391 | | | 998,515 | | $ | 26,694,215 | |
Shares reacquired | | | (253,925 | ) | | (6,536,365 | ) | | (557,135 | ) | | (15,052,320 | ) |
| | | | | | | | | | | | | | |
Increase (decrease) | | | (220,103 | ) | $ | (5,704,974 | ) | | 441,380 | | $ | 11,641,895 | |
| | | | | | | | | | | | | | |
24
Notes to Financial Statements (unaudited)(concluded)
| | |
12. | RECENT ACCOUNTING STANDARD | |
The Financial Accounting Standards Board issued amended guidance to improve disclosure of fair value measurements. Fair value measurements categorized as Level 3 will require quantitative information with respect to unobservable inputs and assumptions used, a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs, and enhanced disclosure of valuation policies and procedures. In addition, quantitative and qualitative disclosure will be required for all transfers in and out of Level 1 and Level 2. The amended guidance is effective for the first reporting period beginning after December 15, 2011. Management is evaluating the impact of this guidance on the Fund’s financial statements and disclosures.
25
Approval of Advisory Contracts
Micro-Cap Growth Fund and Micro-Cap Value Fund
The Board of Trustees of the Company, including all of the Trustees who are not interested persons of the Company or Lord, Abbett & Co. LLC (“Lord Abbett”), annually considers whether to approve the continuation of the existing management agreement between each Fund and Lord Abbett. In connection with its most recent approval, the Board reviewed materials relating specifically to the management agreement, as well as numerous materials received throughout the course of the year, including information about the Fund’s investment performance compared to the performance of its benchmark. Before making its decision as to each Fund, the Board had the opportunity to ask questions and request further information, taking into account its familiarity with Lord Abbett gained through meetings and discussions. These meetings and discussions included the examination of the portfolio management teams conducted by members of the Contract Committee, the deliberations of the Contract Committee, and discussions between the Contract Committee and Lord Abbett’s management.
The materials received by the Board as to each Fund included, but were not limited to: (1) information provided by Lipper Inc. regarding the investment performance of a group of funds within the same investment classification/objective (the “performance universe”) and to the investment performance of an appropriate benchmark; (2) information on the expense ratios, contractual and effective management fee rates, and other expense components for the Fund and one or more groups of funds with similar objectives and of similar size (the “peer group”); (3) information provided by Lord Abbett on the projected expense ratios, management fee rates, and other expense components for the Fund; (4) sales and redemption information for the Fund; (5) information regarding Lord Abbett’s financial condition; (6) an analysis of the relative profitability of the management agreement to Lord Abbett; (7) information provided by Lord Abbett regarding the investment management fees Lord Abbett receives from its other advisory clients maintaining accounts with a similar investment strategy as the Fund; (8) information regarding the distribution arrangements of the Fund; and (9) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
Investment Management Services Generally. The Board considered the investment management services provided by Lord Abbett to each Fund, including investment research, portfolio management, and trading, and Lord Abbett’s commitment to compliance with all relevant legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest resulting from being engaged in other lines of business. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to each of the Funds and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other.
Investment Performance. The Board reviewed each Fund’s investment performance in relation to that of the relevant performance universes, in each case as of various periods ended August 31, 2011.
As to Micro-Cap Growth Fund, the Board observed the difficulty of comparing the Fund to an appropriate performance universe and peer expense group, given the limited number of registered investment companies having a similar investment strategy, and considered the investment performance of the Fund in comparison to a performance universe of small-cap growth funds. The Board observed that the investment performance of the Class A shares of the Fund was in the fifth
26
Approval of Advisory Contracts (continued)
quintile for the eight-month period, the fourth quintile for the one-year period, and the first quintile for the three-year, five-year, and ten-year periods. The Board also observed that the investment performance was higher than that of the Lipper Small-Cap Growth Index for the three-year, five-year, and ten-year periods, and lower than that of the Index for the eight month and one-year periods.
As to Micro-Cap Value Fund, the Board noted the difficulty of comparing the Fund to an appropriate performance universe, given the limited number of registered investment companies having a similar investment strategy, and considered the investment performance of the Fund in relation to a performance universe consisting of small-cap value funds. The Board observed that the investment performance of the Class A shares of the Fund was in the fifth quintile of the performance universe for the eight-month period, the fourth quintile for the one-year period, the fifth quintile for the three-year period, the third quintile for the five-year period, and the first quintile for the ten-year period. The Board also observed that the investment performance was lower than that of the Lipper Small-Cap Value Index for the eight-month, one-year, three-year, and five-year periods and higher than that of the Index for the ten-year period.
Lord Abbett’s Personnel and Methods. The Board considered the qualifications of the personnel providing investment management services to each Fund, in light of its investment objective and discipline. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s investment management staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining investment management personnel. The Board determined that Lord Abbett had the expertise and resources to manage each Fund effectively.
Nature and Quality of Other Services. The Board considered the nature, quality, costs, and extent of compliance, administrative, and other services performed by Lord Abbett and Lord Abbett Distributor LLC (“Distributor”) and the nature and extent of Lord Abbett’s supervision of third party service providers, including each Fund’s transfer agent and custodian.
Expenses. The Board considered the expense level of each class of shares of each Fund and the expense levels of one or more corresponding peer groups. The Board considered the fiscal periods on which the peer group comparison or comparisons were based, and noted that the fiscal years of many funds in each Fund’s peer group did not coincide with the Fund’s fiscal year. It also considered the projected expense levels of each Fund. It also considered the amount and nature of the fees paid by shareholders.
As to Micro-Cap Growth Fund, the Board noted the difficulty in finding an appropriate universe of funds for purposes of expense comparisons, given the limited number of registered investment companies having a similar investment strategy, and instead considered the relationship of the Fund’s expenses to those of a group of small-cap core, small-cap value, and small-cap growth funds, but recognized that the comparison was of limited utility, given the inherent differences between micro-cap equity funds and small-cap equity funds. The Board observed that for the fiscal year ended October 31, 2010 the contractual management and administrative services fees, when calculated as a percentage of a hypothetical common asset level that approximated the Fund’s average net assets, were approximately forty-seven basis points above the median of the peer group and the actual management and administrative services fees were approximately fifty-six basis points above the median of the peer group. The Board observed that for the fiscal year ended October 31, 2010 the total expense ratio of Class A was approximately thirty-six basis points above the median of the peer
27
Approval of Advisory Contracts (continued)
group and the total expense ratio of Class I was approximately twenty-eight basis points above the median of the peer group. The Board noted that for the period from March 1, 2011 through February 29, 2012, Lord Abbett had contractually agreed to waive all or a portion of its management fee and, if necessary, reimburse the Fund’s other expenses to the extent necessary so that the total net annual operating expenses for each class, excluding 12b-1 fees, do not exceed an annual rate of 1.85%. The Board also noted that Lord Abbett proposed to renew the agreement through February 28, 2013. The Board considered the projected expense ratios of each class and how those expense ratios would relate to those of the peer group. The Board also observed that the Fund was offered only to institutional investors, employees of Lord Abbett, and Alpha Strategy Fund.
As to Micro-Cap Value Fund, the Board noted the difficulty in finding an appropriate universe of funds for purposes of expense comparisons, given the limited number of the registered investment companies having a similar investment strategy, and instead considered the relationship of the Fund’s expenses to those of a group of small-cap core, small-cap value, and small-cap growth funds, but recognized that the comparison was of limited utility, given the inherent differences between micro-cap equity funds and small-cap equity funds. The Board observed that for the fiscal year ended October 31, 2010 the contractual management and administrative services fees, when calculated as a percentage of a hypothetical common asset level that approximated the Fund’s average net assets, were approximately forty-seven basis points above the median of the peer group and the actual management and administrative services fees were approximately fifty-seven basis points above the median of the peer group. The Board observed that for the fiscal year ended October 31, 2010 the total expense ratio of Class A was approximately thirty-three basis points above the median of the peer group, and the total expense ratio of Class I was approximately twenty-five basis points above the median of the peer group. The Board noted that for the period from March 1, 2011 through February 29, 2012, Lord Abbett had contractually agreed to waive all or a portion of its management fee and, if necessary, reimburse the Fund’s other expenses to the extent necessary so that the total net annual operating expenses for each class, excluding 12b-1 fees, do not exceed an annual rate of 1.85%. The Board also noted that Lord Abbett proposed to renew the agreement through February 28, 2013. The Board considered the projected expense ratios of each class and how those expense ratios would relate to those of the peer group. The Board also observed that the Fund was offered only to institutional investors, employees of Lord Abbett, and Alpha Strategy Fund.
Profitability. As to each Fund, the Board considered the level of Lord Abbett’s profits in managing the Fund, including a review of Lord Abbett’s methodology for allocating its costs to its management of the Fund. The Board concluded that the allocation methodology had a reasonable basis and was appropriate. It considered any profits realized by Lord Abbett in connection with the operation of each Fund, including the fee Lord Abbett receives from the Fund for providing administrative services to the Fund, and whether the amount of profit was fair for the management of the Fund. The Board also considered the profits realized from other business segments of Lord Abbett, which may benefit from or be related to each Fund’s business. The Board considered Lord Abbett’s profit margins in comparison with available industry data, both accounting for and ignoring marketing and distribution expenses, and how those profit margins could affect Lord Abbett’s ability to recruit and retain investment personnel. The Board recognized that Lord Abbett’s profitability was a factor in enabling it to attract and retain qualified investment management personnel to provide services to each Fund. The Board noted that Lord Abbett’s overall profitability had increased in its 2011 fiscal year. The Board concluded that Lord Abbett’s profitability overall and as to each Fund was not excessive.
28
Approval of Advisory Contracts (concluded)
Economies of Scale. As to each Fund, the Board considered whether there had been any economies of scale in managing the Fund, whether the Fund had benefited from any such economies of scale, and whether there was potential for realization of any economies of scale. The Board concluded that each existing management fee schedule adequately addressed any economies of scale in managing the applicable Fund.
Other Benefits to Lord Abbett. As to each Fund, the Board considered the character and amount of fees paid by the Fund and the Fund’s shareholders to Lord Abbett and Distributor for services other than investment advisory services. The Board also considered the revenues and profitability of Lord Abbett’s investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees from the Funds, and receives a portion of the sales charges on sales and redemptions of some classes of shares. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectuses of the Funds, has entered into revenue sharing arrangements with certain entities that distribute shares of the Funds. The Board also took into consideration the investment research that Lord Abbett receives as a result of Fund brokerage transactions.
Alternative Arrangements. As to each Fund, the Board considered whether, instead of approving the continuation of the management agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms.
After considering all of the relevant factors, the Board unanimously found that continuation of the existing management agreements was in the best interests of each Fund and its shareholders and voted unanimously to approve the continuation. In considering whether to approve the continuation of the management agreements, the Board did not identify any single factor as paramount or controlling. This summary does not discuss in detail all matters considered.
29
Householding
The Trust has adopted a policy that allows it to send only one copy of each Fund’s prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same “household.” This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.
Proxy Voting Policies, Procedures and Records
A description of the policies and procedures that Lord Abbett uses to vote proxies related to each Fund’s portfolio securities, and information on how Lord Abbett voted each Fund’s proxies during the 12-month period ended June 30 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett’s Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission’s (“SEC”) Website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Funds are required to file their complete schedule of portfolio holdings with the SEC for their first and third fiscal quarters on Form N-Q. Copies of the filings are available without charge, upon request on the SEC’s Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388. You can also obtain copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330).
30
| | | | |
This report, when not used for the general information of shareholders of the Fund, is to be distributed only if preceded or accompanied by a current fund prospectus.
| | Lord Abbett Securities Trust
| | |
Lord Abbett mutual fund shares are distributed by | | Lord Abbett Micro-Cap Growth Fund | | |
LORD ABBETT DISTRIBUTOR LLC. | | Lord Abbett Micro-Cap Value Fund | | LAMCVF-3-0412
(06/12) |
| |
Item 2: | Code of Ethics. |
| Not applicable. |
| |
Item 3: | Audit Committee Financial Expert. |
| Not applicable. |
| |
Item 4: | Principal Accountant Fees and Services. |
| Not applicable. |
| |
Item 5: | Audit Committee of Listed Registrants. |
| Not applicable. |
| |
Item 6: | Investments. |
| Not applicable. |
| |
Item 7: | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
| Not applicable. |
| |
Item 8: | Portfolio Managers of Closed-End Management Investment Companies. |
| Not applicable. |
| |
Item 9: | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
| Not applicable. |
| |
Item 10: | Submission of Matters to a Vote of Security Holders. |
| Not applicable. |
| |
Item 11: | Controls and Procedures. |
| | |
| (a) | Based on their evaluation of the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) as of a date within 90 days prior to the filing date of this report, the Chief Executive Officer and Chief Financial Officer of the Registrant have concluded that such disclosure controls and procedures are reasonably designed and effective to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to them by others within those entities. |
| | |
| (b) | There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
| | |
| (a)(1) | Amendments to Code of Ethics – Not applicable. |
| | |
| (a)(2) | Certification of each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2 under the Investment Company Act of 1940 is attached hereto as a part of EX-99.CERT. |
| | |
| (a)(3) | Not applicable. |
| | |
| (b) | Certification of each principal executive officer and principal financial officer of the Registrant as required by Section 906 of the Sarbanes-Oxley Act of 2002 is provided as a part of EX-99.906CERT. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| | LORD ABBETT SECURITIES TRUST |
| |
| By: | /s/ Robert S. Dow |
| | Robert S. Dow |
| | Chief Executive Officer and Chairman |
Date: June 18, 2012
| | |
| By: | /s/ Joan A. Binstock |
| | Joan A. Binstock |
| | Chief Financial Officer and Vice President |
Date: June 18, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | |
| By: | /s/ Robert S. Dow |
| | Robert S. Dow |
| | Chief Executive Officer and Chairman |
Date: June 18, 2012
| | |
| By: | /s/ Joan A. Binstock |
| | Joan A. Binstock |
| | Chief Financial Officer and Vice President |
Date: June 18, 2012
