Notes to
Financial Statements (unaudited)(continued)
Commissions
Distributor received the following commissions on sales of shares of the
Fund, after concessions were paid to authorized dealers, for the six months
ended January 31, 2013:
|
|
|
|
|
|
|
|
|
Distributor
Commissions
|
|
|
Dealers’
Concessions
|
|
|
|
|
|
|
|
|
|
|
$8,838
|
|
|
$48,919
|
|
Distributor received CDSCs of $1,421 and $1,300 for Class A and Class C
shares, respectively, for the six months ended January 31, 2013.
During the six months ended January 31, 2013, two Trustees and certain
of the Fund’s officers had 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
January 31, 2013 and the fiscal year ended July 31, 2012 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
1/31/2013
(unaudited)
|
|
Year Ended
7/31/2012
|
|
|
|
|
|
|
|
|
|
Distributions paid from:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
716,326
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions paid
|
|
$
|
716,326
|
|
$
|
—
|
|
|
|
|
|
|
|
|
As of July 31, 2012, the Fund had a capital loss carryforward of
$69,332,969 set to expire in 2018.
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 also retain their character as either short-term or
long-term and be utilized before any pre-enactment losses.
As of January 31, 2013, the aggregate unrealized security gains and
losses based on cost for U.S. federal income tax purposes were as follows:
|
|
|
|
|
|
|
Tax cost
|
|
$
|
637,991,037
|
|
|
|
|
|
|
|
|
Gross unrealized gain
|
|
|
95,103,721
|
|
|
Gross unrealized loss
|
|
|
(20,574,270
|
)
|
|
|
|
|
|
|
|
Net unrealized security gain
|
|
$
|
74,529,451
|
|
|
|
|
|
|
|
23
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 January 31, 2013 were as follows:
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
$463,641,292
|
|
|
$651,757,906
|
|
There were no purchases or sales of U.S. Government securities for the
six months ended January 31, 2013.
|
|
|
|
|
6.
|
TRUSTEES’
REMUNERATION
|
|
During the six months ended January 31, 2013, the Trust’s officers and
the two Trustees who were associated with Lord Abbett did 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 Statement of Operations and in
Trustees’ fees payable on the Statement of Assets and Liabilities and are not
deductible for U.S. federal income tax purposes until such amounts are paid.
The Fund 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 the Fund’s expenses.
On April 2, 2012, the Fund and certain other funds managed by Lord
Abbett (the “participating funds”) entered into an unsecured revolving credit
facility (“Facility”) with 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 Fund’s Statement of Operations. Any
borrowings under this Facility will bear interest at current market rates as
set forth in the credit agreement. As of January 31, 2013, there were no loans
outstanding pursuant to this Facility nor was the Facility utilized at any time
during the six months ended January 31, 2013.
For the period February 3, 2011 through April 1, 2012, the Fund 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.
24
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 the Fund’s NAV.
The Fund is subject to the general risks and considerations associated
with equity investing, as well as the particular risks associated with growth
and value stocks. The value of an investment in the Fund will fluctuate in
response to movements in the equity securities markets in general and to the
changing prospects of individual companies in which the Fund invests. Different
types of stocks tend to shift in and out of favor depending on market and
economic conditions. Growth stocks may be more volatile than other stocks. The
market may fail to recognize the intrinsic value of particular value stocks for
a long time. In addition, if the Fund’s assessment of market conditions or
companies is wrong, it could suffer losses or produce poor performance relative
to other funds, even in a rising market. The Fund invests primarily in small
company stocks, which tend to be more volatile and can be less liquid than
large company stocks. Small companies may also have more limited product lines,
markets or financial resources, and typically experience a higher risk of
failure than large companies.
Due to the Fund’s exposure to foreign companies and American Depositary
Receipts, the Fund may experience increased market, liquidity, currency,
political, information, and other risks.
These factors can affect the Fund’s performance.
|
|
|
|
|
11.
|
SUMMARY OF CAPITAL TRANSACTIONS
|
|
Transactions in shares of beneficial interest were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
January 31, 2013
(unaudited)
|
|
Year Ended
July 31, 2012
|
|
|
|
|
|
|
|
|
|
Class A Shares
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
622,635
|
|
$
|
10,165,217
|
|
|
2,517,201
|
|
$
|
38,089,548
|
|
|
Converted from Class B*
|
|
|
162,497
|
|
|
2,645,017
|
|
|
291,758
|
|
|
4,434,964
|
|
|
Shares reacquired
|
|
|
(3,121,706
|
)
|
|
(50,735,853
|
)
|
|
(9,314,573
|
)
|
|
(140,235,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
|
|
|
(2,336,574
|
)
|
$
|
(37,925,619
|
)
|
|
(6,505,614
|
)
|
$
|
(97,710,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
9,587
|
|
$
|
143,576
|
|
|
15,435
|
|
$
|
231,056
|
|
|
Shares reacquired
|
|
|
(178,008
|
)
|
|
(2,651,881
|
)
|
|
(392,221
|
)
|
|
(5,480,572
|
)
|
|
Converted to Class A*
|
|
|
(175,792
|
)
|
|
(2,645,017
|
)
|
|
(314,138
|
)
|
|
(4,434,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
|
|
|
(344,213
|
)
|
$
|
(5,153,322
|
)
|
|
(690,924
|
)
|
$
|
(9,684,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
92,772
|
|
$
|
1,390,319
|
|
|
236,091
|
|
$
|
3,324,570
|
|
|
Shares reacquired
|
|
|
(845,756
|
)
|
|
(12,637,844
|
)
|
|
(1,753,625
|
)
|
|
(24,578,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
|
|
|
(752,984
|
)
|
$
|
(11,247,525
|
)
|
|
(1,517,534
|
)
|
$
|
(21,254,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Notes to
Financial Statements (unaudited)(concluded)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
January 31, 2013
(unaudited)
|
|
Year Ended
July 31, 2012
|
|
|
|
|
|
|
|
|
|
Class F Shares
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
66,516
|
|
$
|
1,098,309
|
|
|
122,166
|
|
$
|
1,826,603
|
|
|
Reinvestment of distributions
|
|
|
532
|
|
|
8,785
|
|
|
—
|
|
|
—
|
|
|
Shares reacquired
|
|
|
(144,114
|
)
|
|
(2,370,633
|
)
|
|
(235,964
|
)
|
|
(3,616,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
|
|
|
(77,066
|
)
|
$
|
(1,263,539
|
)
|
|
(113,798
|
)
|
$
|
(1,790,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class I Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
1,013,579
|
|
$
|
17,300,586
|
|
|
4,258,957
|
|
$
|
65,223,291
|
|
|
Reinvestment of distributions
|
|
|
37,955
|
|
|
643,339
|
|
|
—
|
|
|
—
|
|
|
Shares reacquired
|
|
|
(6,531,047
|
)
|
|
(113,195,814
|
)
|
|
(10,757,304
|
)
|
|
(166,532,948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
|
|
|
(5,479,513
|
)
|
$
|
(95,251,889
|
)
|
|
(6,498,347
|
)
|
$
|
(101,309,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class P Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
175,395
|
|
$
|
2,841,412
|
|
|
656,102
|
|
$
|
9,884,765
|
|
|
Shares reacquired
|
|
|
(1,450,397
|
)
|
|
(23,471,317
|
)
|
|
(2,273,590
|
)
|
|
(34,217,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
|
|
|
(1,275,002
|
)
|
$
|
(20,629,905
|
)
|
|
(1,617,488
|
)
|
$
|
(24,332,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class R2 Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
7,520
|
|
$
|
117,839
|
|
|
11,252
|
|
$
|
173,032
|
|
|
Shares reacquired
|
|
|
(4,032
|
)
|
|
(64,497
|
)
|
|
(25,919
|
)
|
|
(378,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
|
|
|
3,488
|
|
$
|
53,342
|
|
|
(14,667
|
)
|
$
|
(205,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class R3 Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
202,468
|
|
$
|
3,245,780
|
|
|
406,798
|
|
$
|
6,159,911
|
|
|
Shares reacquired
|
|
|
(268,369
|
)
|
|
(4,335,409
|
)
|
|
(537,950
|
)
|
|
(8,105,437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
|
|
|
(65,901
|
)
|
$
|
(1,089,629
|
)
|
|
(131,152
|
)
|
$
|
(1,945,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Automatic
conversion of Class B shares occurs on the 25
th
day of the month
(or, if the 25
th
day is not a business day, the next business day
thereafter) following the eighth anniversary of the day on which the purchase
order was accepted.
|
On February 28, 2013, the Fund’s Board approved a proposal to reorganize
the Fund into Lord Abbett Securities Trust – Lord Abbett Value Opportunities
Fund to create a single larger fund. The reorganization requires the approval
of the Fund’s shareholders at a future shareholder meeting.
26
Approval of Advisory Contract
The Board of Trustees of the
Fund, including all of the Trustees who are not interested persons of the Fund
or Lord, Abbett & Co. LLC (“Lord Abbett”), annually considers whether to
approve the continuation of the existing management agreement between the 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 the Fund, the Board had the
opportunity to ask questions and request further information, taking into
account its familiarity with Lord Abbett gained through its meetings and
discussions. These meetings and discussions included the examination of the
portfolio management team 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 included, but were not limited to: (1) information provided by Lipper
Inc. regarding the investment performance of the Fund compared to the
investment performance of a group of funds within the same investment
classification/objective (the “performance universe”) and the investment
performance of an appropriate benchmark; (2) information provided by Lipper
Inc. regarding 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)
detailed performance attribution analysis; (4) information provided by Lord Abbett
on the projected expense ratios, management fee rates, and other expense
components for the Fund; (5) sales and redemption information for the Fund; (6)
information regarding Lord Abbett’s financial condition; (7) an analysis of the
relative profitability of the management agreement to Lord Abbett; (8)
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; (9) information regarding the
distribution arrangements of the Fund; and (10) 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 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.
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 the Fund and other Lord Abbett Funds, on the
one hand, and the services provided to other clients, on the other.
Investment
Performance.
The Board
reviewed the Fund’s investment performance in relation to that of the
performance universe as of various periods ended September 30, 2012. The Board
observed that the investment performance of the Class A shares was below the
median of the performance universe for each of the periods.
Lord Abbett’s
Personnel and Methods.
The Board considered the qualifications of the personnel providing 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
27
personnel. The Board also
considered the steps Lord Abbett had taken or was taking to improve investment
performance of the Fund.
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 the Fund’s transfer
agent and custodian.
Expenses.
The Board considered the expense level of each class of
shares of the Fund and the expense levels of the peer group. The Board
considered the fiscal periods on which the peer group comparisons were based,
and noted that the fiscal years of many funds in the peer group did not
coincide with the Fund’s fiscal year. It also considered the projected expense
levels and how those levels would relate to those of the peer group and the
amount and nature of the fees paid by shareholders. The Board observed that the
expense ratios generally were near the medians of the peer group.
Profitability.
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 the Fund, including the fee that 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 the 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 the Fund. The Board concluded that Lord Abbett’s profitability as
to the Fund was not excessive.
Economies of
Scale.
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 the existing 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 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 prospectus of
the Fund, has entered into revenue sharing arrangements with certain entities
that distribute shares of the Fund. The Board also took into consideration the
investment research that Lord Abbett receives as a result of Fund brokerage
transactions.
28
Alternative Arrangements.
The Board considered
whether, instead of approving 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 agreement was in the best interests of
the Fund and its shareholders and voted unanimously to approve the continuation
of the management agreement. In considering whether to approve the continuation
of 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.
29
Householding
The Trust has adopted a policy
that allows it to send only one copy of the 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 the Fund’s
portfolio securities, and information on how Lord Abbett voted the 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 Fund is required to file its
complete schedule of portfolio holdings with the SEC for its 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
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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.
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Lord Abbett Equity Trust
Lord Abbett Small-Cap Blend Fund
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LASCB-3-0113
(03/13)
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