In Volatility, There Is Often Opportunity

Words of wisdom in a volatile market: Stay, Stay, Stay. In many ways, the one certainty of investing is volatility. And volatility can trigger emotional responses that cause investors to make irrational decisions, raising the chances of losing money. Wise investors stay the course with the understanding that investment success is not just a matter of how well you do in up markets but also how well you weather the downside. Inside are three points to remember when the market is experiencing volatility: stay calm, stay in, stay the course.

This material is provided for general and educational purposes only, is not intended to provide legal, tax, or investment advice, and does not account for individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon, and risk tolerance. Consult with your financial advisor before making any investment decisions. NOT FDIC INSURED–NO BANK GUARANTEE–MAY LOSE VALUE

Stay calm. Truth is, the market doesn’t deliver returns in a straight line. Market ups and downs are normal, and it takes a lot of them to balance out to the average. During any period of market volatility, when peaks and valleys are evident, investors must evaluate their circumstances and risk tolerance. While investors can enjoy the benefits of gains in their portfolios, they also must understand that they can suffer losses when the market goes the other way. To capture the average, which historically has been over 11%, you have to be in the market for the long haul. In fact, the market produced gains in 61 out of the last 85 years—more than twice as often as it produced losses. THE MARKET RARELY MOVES IN A STRAIGHT LINE Market fluctuations and market extremes are a fact of life. The one certainty of investing is that your portfolio will experience volatility. Calendar-Year Total Returns for Large Company Stocks 1—1926–2010 60% 40% 20% 0% -20% -40% POSITIVE RETURNS

-60%

1926

1936

1946

1956

1966

1976

1986

NEGATIVE RETURNS

1996

2010

Source: © 2011 Morningstar, Inc.

INVESTMENTS DON’T DELIVER THE AVERAGE RETURN YEAR AFTER YEAR Market ups and downs are normal, and it takes a lot of them to balance out to the historical average. Calendar-Year Total Returns for Large Company Stocks 1—1926–2010 POSITIVE RETURNS: 72% (61 YEARS)

NEGATIVE RETURNS: 28% (24 YEARS)

-20% or More 1930 1937 1931 1974

2002 2008

6 years

-20% to -10% 1941 1966 1957 1973

2001

5 years

-10% to 0% 1929 1932 1934 1939 1940

1946 1981 1953 1990 1962 2000 1969 1977

12 years 1947 1948 1956 1960

1970 1978 1984 1987

1992 1994 2005 2007

0% to 8%

12 years 5 years 1926 1968 1959 1993

2004

8% to 12%

1944 1949 1952 1964

1965 1971 1972 1979

1986 1988 2006 2010

12% to 20%

32 years 1927 1928 1933 1935 1936 1938 1942 1943 1945 1950 1951

1954 1955 1958 1961 1963 1967 1975 1976 1980 1982 1983

1985 1989 1991 1995 1996 1997 1998 1999 2003 2009

20% or More

13 years Source: © 2011 Morningstar, Inc. All rights reserved. The information contained: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Large company stocks represented by S&P 500 Index. The S&P 500 Index is widely regarded as the standard for measuring large cap U.S. stock market performance, and includes a representative sample of leading companies in leading industries. The index is unmanaged and is not available for direct investment.

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Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund, and are not indicative of any specific investment. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted.

Stay in. Successful investing requires the ability to endure market corrections, both short and long. Surges can come on suddenly, and often the biggest rallies come on the heels of a correction. Leaving when the market’s down means you’ll forfeit the great returns that typically have followed a downturn. In fact, the market has historically posted a 49% return, on average, in the 12 months following a correction of 20% or more. Another important concept to grasp is the importance of managing downside risk, or years of large negative returns. Along with the help of your financial advisor, you should carefully consider what level of exposure to stocks is appropriate given your risk tolerance, time horizon, and needs. Market Corrections of 20% or More—1926–2010 Historically, the market has posted double-digit returns in the 12 months following a correction of 20% or more. Value of $100,000 invested at each market bottom and the performance of the S&P 500 Index $100,000 Invested at Each Market Bottom Date

Duration (months)

% Decline

09/06/1929–06/01/1932

33

-86%

$262,876

163%

$444,744

35%

09/07/1932–02/27/1933

5

-41%

$198,735

99%

$254,576

07/07/1933–03/15/1935

20

-31%

$183,831

84%

$184,883

03/05/1937–03/31/1938

12

-54%

$135,180

35%

11/11/1938–04/28/1942

41

-45%

$161,241

05/29/1946–06/13/1949

37

-30%

08/02/1956–10/22/1957

14

-22%

1 year*

5 years*

10 years* $325,885

13%

21%

$334,674

13%

13%

$279,977

11%

$184,518

13%

$307,101

12%

61%

$244,886

20%

$547,201

19%

$134,416

34%

$285,172

23%

$694,502

21%

$130,042

30%

$163,081

10%

$318,326

12%

12/12/1961–06/26/1962

6

-28%

$131,157

31%

$194,837

14%

$271,130

10%

02/09/1966–10/07/1966

8

-22%

$121,017

21%

$138,763

7%

$182,368

6%

11/29/1968–05/26/1970

18

-36%

$134,749

35%

$142,210

7%

$220,677

8%

01/11/1973–10/03/1974

21

-48%

$126,048

26%

$174,331

12%

$366,343

14%

11/28/1980–08/12/1982

21

-27%

$143,876

44%

$338,589

28%

$503,793

18%

08/25/1987–12/24/1987

4

-34%

$116,809

17%

$209,046

16%

$525,445

18%

07/16/1990–10/11/1990

3

-20%

$133,514

34%

$221,374

17%

$590,446

19%

03/24/2000–10/09/2002

31

-49%

$120,809

21%

$191,480

14%

N/A

N/A

10/09/2007–03/09/2009

17

-57%

$149,747

50%

N/A

N/A

N/A

N/A

18

-39%

$149,003

49%

$224,833

17%

$390,562

14%

AVERAGES

Source: Registered Rep. magazine and Morningstar. *The $100,000 investment was made on the first day of the month following the market bottom with all distributions reinvested and no taxes applied. Had the effect of taxes been applied, returns would have been significantly lower. The 1-, 5-, and 10-year performance is based on annualized total returns of the S&P 500 Index with dividends reinvested, and percentage declines are based on cumulative price returns.

the best and worst over the long term The longer you stay in the market, the greater the potential for a positive outcome. 1-, 5-, 10-, and 20-Year Holding Periods for Large Company Stocks 1—1926–2010 80%

53.99% 28.55%

40%

20.06%

0% -40% -80%

-12.47%

17.87%

-43.34%

1-YEAR PERIODS GENERATED POSITIVE RETURNS: 2 61 OUT OF 85

BEST RETURN 5-YEAR PERIODS 70 OUT OF 81

3.11%

-1.38%

10-YEAR PERIODS 72 OUT OF 76

Source: Morningstar, Inc. Maximum and minimum values of returns for 1-, 5-, 10-, and 20-year holding periods for large company stocks as represented by the S&P 500 Index. 2 Positive returns out of overlapping 5-, 10-, and 20-year periods.

WORST RETURN

20-YEAR PERIODS 66 OUT OF 66

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Keep in mind that an investment cannot be made directly in an index. The historical data above are for illustrative purposes only and do not represent the performance of any Lord Abbett mutual fund or any particular investment vehicle. Performance data quoted above are historical. Past performance is no guarantee of future results.

Stay the course. As a long-term investor, you should know that within any 20-year period, both bull and bear markets are likely. Market volatility often causes investors to make hasty emotional decisions that can have a negative impact on their portfolios’ returns. During the past 20 years,1 the S&P 500 Index realized an average annual return of 9.14%. However, to have benefited from such performance, an investor would have had to stay the course through periods of significant volatility. For example, an investor who missed just 10 of the best-performing days2 in the past 20 years would have lost out on more than one-third of the gains. From January 1, 1991, through December 31, 2010 .

EMOTIONAL DECISIONS CAN DERAIL INVESTMENT STRATEGIES Investment inflows, historically, have increased during up markets and decreased in down markets. This behavior—typically driven by exuberance or panic—can sabotage an investment strategy by missing potential upside opportunities. Total Net Equity Flows and S&P 500® Index Performance for the 20-Year Period Ended December 31, 2010 $800,000

$125.0

$700,000

$100.0

$600,000

$75.0

$500,000

$50.0

$400,000

$25.0

$300,000

$0

$200,000

$(25.0)

$100,000

$(50.0)

$0

19 9

1

19 9

2

19 9

3

19 9

4

19 9

5

19 9

6

19 9

7

19 9

8

19 9

9

GROWTH OF $100,000* IN THE S&P 500 INDEX

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

2 01

0

$(75.0)

ALL DOMESTIC EQUITY FLOWS**

Source: Standard & Poor’s and Strategic Insight. * This illustration is based on the growth of a $100,000 investment over the 20-year period ended December 31, 2010. Results are hypothetical and for illustrative purposes only. ** Cash flows associated with the buying and selling of fixed assets.

STAY IN, OR LOSE OUT Missing the best-performing days 2 of the market can have a significant impact on your portfolio. FOR THE 20-YEAR PERIOD 01/01/1991–12/31/2010

ANNUALIZED RETURN 3

All days during period

9.14%

$100,000 Invested*** $575,110

Missed: 10 best days

5.42%

$287,006

Missed: 20 best days

2.99%

$179,939

Missed: 30 best days

0.92%

$120,098

WHAT WERE THE 10 BEST-PERFORMING DAYS? † 10/13/2008

11.58%

03/10/2009

6.37%

10/28/2008

10.79%

11/21/2008

6.35%

03/23/2009

7.10%

07/24/2002

5.73%

11/13/2008

6.93%

09/30/2008

5.42%

11/24/2008

6.47%

07/29/2002

5.42%

Source: Standard & Poor’s. Past performance is no guarantee of future results. Volumes represent percentage gain in the market on the days specified. 2 The “best” days to be invested are defined as the days on which the S&P 500 Index delivered its highest returns for the given periods based on historical data. 3 Returns are measured based on the S&P 500 Index. ***This illustration depicts the value of a hypothetical $100,000 investment in the S&P 500 Index from January 1, 1991, through December 31, 2010, assuming the reinvestment of all distributions and without the application of any taxes. Had the effect of taxes been applied, returns would be significantly lower. S&P 500 Index: Widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries. The index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment. †

Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Please keep in mind that the hypothetical investment values throughout this brochure do not reflect the fees and charges associated with specific investment products. If included, the results depicted would have been significantly lower. The returns reflected in the charts do not represent any Lord Abbett fund, or any particular investment performance. Investors will not experience similar results.

NET FLOWS ($ IN BILLIONS)

GROWTH OF $100,000

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Generations of Stewardship As one of the oldest money management firms in the United States, Lord Abbett has consistently served the investment needs of generations of investors, financial advisors, and institutions, and continues to serve as a trusted steward of more than $109 billion* in client assets today. We would consider it a privilege to partner with you. * As of December 31, 2010. Includes $3.3 billion for which Lord Abbett provides investment models to managed account sponsors.

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For more information on the stewardship Lord Abbett provides, c a l l 8 8 8 - 5 2 2 - 23 88 o r go to www.l o rd a b b ett.co m .

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Investors should carefully consider the investment objectives, risks, charges, and expenses of the Lord Abbett funds. This and other important information is contained in each fund’s summary prospectus and/or prospectus. To obtain a prospectus or summary prospectus on any Lord Abbett mutual fund, contact your investment professional or Lord Abbett Distributor LLC at 888-522-2388 or visit us at www.lordabbett.com. Read the prospectus carefully before you invest.

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