Notes to Financial Statements (unaudited)
Lord Abbett Global Fund, Inc. (the “Company”)
is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment
company and was incorporated under Maryland law on February 23, 1988. The Company currently consists of three funds. This report
covers the following two funds (each, a “Fund” and collectively, the “Funds”) and their respective classes:
Lord Abbett Emerging Markets Currency Fund (“Emerging Markets Currency Fund”), Class A, B, C, F, I, P, R2 and R3 shares;
and Lord Abbett Global Allocation Fund (“Global Allocation Fund”), Class A, B, C, F, I, P, R2 and R3 shares. Global
Allocation Fund is diversified as defined in the Act and Emerging Markets Currency Fund is non-diversified as defined in the Act.
Emerging Markets Currency Fund’s
investment objective is to seek high total return. Global Allocation Fund’s investment objective is total return. Global
Allocation Fund invests principally in other mutual funds (“Underlying Funds”) managed by Lord, Abbett & Co. LLC
(“Lord Abbett”).
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. There
is no front-end sales charge in the case of Class B, C, F, I, P, R2 and R3 shares, although there may be a contingent deferred
sales charge (“CDSC”) in certain cases as follows: 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 B shares redeemed before the sixth anniversary of purchase; and Class C shares redeemed
before the first anniversary of purchase. Class B shares will automatically convert to Class A shares on the 25th day of the month
(or, if the 25th 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. The Funds no longer issue Class B shares for purchase. Emerging Markets Currency Fund’s
Class P shares are closed to substantially all new investors, with certain exceptions as set forth in the Funds’ prospectus.
As of the date of this report, Global Allocation Fund has not issued Class P shares.
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.
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2.
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SIGNIFICANT ACCOUNTING POLICIES
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(a)
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Investment
Valuation
–
Under procedures approved by the Funds’ Board of Directors (the “Board”),
Lord Abbett, the Funds’ investment manager, has formed a Pricing Committee to administer the pricing and valuation of
portfolio investments and to ensure that prices utilized reasonably reflect fair value. Among other things, these procedures
allow the Funds to utilize independent pricing services, quotations from securities and financial instrument dealers and other
market sources to determine fair value.
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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 reflect their fair value as of the close of regular trading on the New York Stock Exchange LLC. Each Fund may
rely
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48
Notes to Financial Statements (unaudited)(continued)
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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. Fixed income securities are valued at the mean between the bid
and asked prices on the basis of prices supplied by independent pricing services, which reflect broker/dealer supplied valuations
and the independent pricing services’ own electronic data processing techniques. Exchange-traded options and futures
contracts are valued at the last sale price in the market where they are principally traded. If no sale has occurred, the
mean between the most recently quoted bid and asked prices is used. Forward foreign currency exchange contracts are valued
using daily forward exchange rates. Swaps are valued daily using independent pricing services or quotations from broker/dealer
to the extent available. Investments in the Underlying Funds are valued at their NAV each business day at the close of regular
trading on the New York Stock Exchange LLC, normally 4:00 p.m. Eastern time.
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Securities for which prices are not readily available are valued at fair value as determined
by the Pricing Committee and approved by the Board. The Pricing Committee considers a number of factors, including observable
and unobservable inputs, when arriving at fair value. The Pricing Committee may use observable inputs such as yield curves,
broker quotes, observable trading activity, option adjusted spread models and other relevant information to determine fair
value of portfolio investments. The Board or a designated committee thereof regularly reviews fair value determinations made
by the Pricing Committee and employs techniques such as reviewing related market activity, reviewing inputs and assumptions,
and retrospectively comparing prices of subsequent purchases and sales transactions to fair value determinations made by the
Pricing Committee.
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Short-term securities with 60 days or less remaining to maturity are valued using the amortized
cost method, which approximates fair value.
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(b)
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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.
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(c)
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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 and other 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. Withholding taxes on foreign dividends have been provided
for in accordance with the applicable country’s tax rules and rates.
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(d)
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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.
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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’ filed U.S. federal tax returns remains open
for the fiscal years ended December 31, 2009 through December 31, 2012. The statutes of limitations on the Company’s
state and local tax returns may remain open for an additional year depending upon the jurisdiction.
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49
Notes to Financial Statements (unaudited)(continued)
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(e)
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Expenses
–
Expenses
incurred by the Company that do not specifically relate to an individual fund are generally allocated to the Funds within
the Company on a pro rata basis by relative net assets. Expenses, 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, B, C, F, P, R2 and
R3 shares bear their class-specific share of all expenses and fees relating to the Funds’ 12b-1 Distribution Plan.
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(f)
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Foreign
Transactions
–
The books and records of Emerging Markets Currency Fund are maintained in U.S. dollars
and transactions denominated in foreign currencies are recorded in the Fund’s records at the rate prevailing when earned
or recorded. Asset and liability accounts that are denominated in foreign currencies are adjusted daily to reflect current
exchange rates and any unrealized gain (loss) is included in Net change in unrealized appreciation/depreciation on investments,
futures contracts, swaps and translation of assets and liabilities denominated in foreign currencies on the Fund’s Statement
of Operations. The resultant exchange gains and losses upon settlement of such transactions are included in Net realized gain
(loss) on investments, futures contracts, swaps and foreign currency related transactions on the Fund’s Statement of
Operations. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign
exchange rates from the changes in market prices of the securities.
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The Fund uses foreign currency exchange contracts to facilitate transactions in foreign denominated
securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties
do not perform under the contracts’ terms.
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(g)
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Forward
Foreign Currency Exchange Contracts
–
Emerging Markets Currency Fund may enter into forward foreign
currency exchange contracts in order to reduce its exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings or gain or reduce exposure to foreign currency for investment purposes. A forward foreign currency exchange contract
is a commitment to purchase or sell a foreign currency at a future date at a negotiated rate. The contracts are valued daily
at forward exchange rates and any unrealized gain (loss) is included in Net change in unrealized appreciation/depreciation
on investments, futures contracts, swaps and translation of assets and liabilities denominated in foreign currencies on the
Fund’s Statement of Operations. The gain (loss) arising from the difference between the U.S. dollar cost of the original
contract and the value of the foreign currency in U.S. dollars upon closing of such contracts is included in Net realized
gain (loss) on investments, futures contracts, swaps and foreign currency related transactions on the Fund’s Statement
of Operations.
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(h)
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Futures
Contracts
–
Emerging Markets Currency Fund may purchase and sell futures contracts to enhance returns,
to attempt to hedge some of its investment risk, or as a substitute position for holding the underlying asset on which the
instrument is based. At the time of entering into a futures transaction, an investor is required to deposit and maintain a
specified amount of cash or eligible securities called “initial margin.” Subsequent payments made or received
by the Fund called “variation margin” are made on a daily basis as the market price of the futures contract fluctuates.
The Fund will record an unrealized gain (loss) based on the amount of variation margin. When a contract is closed, a realized
gain (loss) is recorded equal to the difference between the opening and closing value of the contract.
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(i)
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When-Issued,
Forward Transactions or To-Be-Announced (“TBA”) Transactions
–
Emerging Markets Currency
Fund may purchase portfolio securities on a when-issued or forward basis. When-issued, forward transactions or TBA transactions
involve a commitment by
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50
Notes to Financial Statements (unaudited)(continued)
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a Fund to purchase securities, with payment and delivery (“settlement”)
to take place in the future, in order to secure what is considered to be an advantageous price or yield at the time of entering
into the transaction. During the period between purchase and settlement, the fair value of the securities will fluctuate and
assets consisting of cash and/or marketable securities (normally short-term U.S. Government or U.S. Government sponsored enterprise
securities) marked to market daily in an amount sufficient to make payment at settlement will be segregated at the Fund’s
custodian in order to pay for the commitment. At the time each Fund makes the commitment to purchase a security on a when-issued
basis, it will record the transaction and reflect the liability for the purchase and fair value of the security in determining
its NAV. The Fund, generally, has the ability to close out a purchase obligation on or before the settlement date rather than
take delivery of the security. Under no circumstances will settlement for such securities take place more than 120 days after
the purchase date.
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(j)
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Mortgage
Dollar Rolls
–
Emerging Markets Currency Fund may enter into mortgage dollar rolls in which a Fund sells
mortgage-backed securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase
similar (same type, coupon and maturity) but not identical securities on a specified future date. During the roll period,
the Fund loses the right to receive principal (including prepayments of principal) and interest paid on the securities sold.
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(k)
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Commercial
Paper
–
Each Fund may purchase commercial paper. Commercial paper consists of unsecured promissory notes
issued by corporations to finance short-term credit needs. Commercial paper is issued in bearer form with maturities generally not exceeding nine months.
Commercial paper obligations may include variable amount master demand notes.
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(l)
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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.
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(m)
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Interest
Rate Swaps
–
Emerging Markets Currency Fund may invest in interest rate swaps in order to enhance returns
or hedge against interest rate risk. Interest rate swaps are agreements in which one party pays a stream of interest payments,
either fixed or floating, for another party’s stream of interest payments, either fixed or floating, on the same notional
amount for a specified period of time. The interest rate swap agreement will normally be entered into on a zero coupon basis,
meaning that the floating rate will be based on the cumulative of the variable rate, and the fixed rate will compound until
the swap’s maturity date, at which point the payments would be netted. The swaps are valued daily and any unrealized
gain (loss) is included in the Net change in unrealized appreciation/depreciation on investments, futures contracts, swaps
and translation of assets and liabilities denominated in foreign currencies on the Fund’s Statement of Operations. A
liquidation payment received or made at the termination or maturity of the swap is recorded in realized gain (loss) and is
included in Net realized gain (loss) on investments, futures contracts, swaps and foreign currency related transactions on
the Fund’s Statement of Operations.
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51
Notes to Financial Statements (unaudited)(continued)
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(n)
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Credit
Default Swaps
–
Emerging Markets Currency Fund may enter into credit default swap contracts. As a seller
of a credit default swap contract (“seller of protection”), the Fund is required to pay the notional amount or
other agreed-upon value of a referenced debt obligation to the counterparty in the event of a default by or other credit event
involving the referenced issuer, obligation or index. In return, the Fund receives from the counterparty a periodic stream
of payments over the term of the contract. As a purchaser of a credit default swap contract (“buyer of protection”),
the Fund would receive the notional amount or other agreed upon value of a referenced debt obligation from the counterparty
in the event of default by or other credit event involving the referenced issuer, obligation or index. In return, the Fund
would make periodic payments to the counterparty over the term of the contracts, provided no event of default has occurred.
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These credit default swaps may have as a reference obligation corporate or sovereign issuers
or credit indices. These credit indices are comprised of a basket of securities representing a particular sector of the market.
During the period, Emerging Markets Currency Fund entered into credit default swaps based on CMBX indices, which are comprised
of commercial mortgage-backed securities.
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Credit default swaps are fair valued based upon quotations from counterparties, brokers or
market-makers and the change in value, if any, is recorded as an unrealized appreciation or depreciation. For a credit default
swap sold by the Fund, payment of the agreed-upon amount made by the Fund in the event of default of the referenced debt obligation
is recorded as the cost of the referenced debt obligation purchased/received. For a credit default swap purchased by the Fund,
the agreed-upon amount received by the Fund in the event of default of the referenced debt obligation is recorded as proceeds
from sale/delivery of the referenced debt obligation and the resulting gain or loss realized on the referenced debt obligation
is recorded as such by the Fund.
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Any upfront payments made or received upon entering a credit default swap contract would be
amortized or accreted over the life of the swap and recorded as realized gains or losses. Collateral, in the form of cash
or securities, may be required to be held in segregated accounts with the custodian bank or broker in accordance with the
swap agreement. The value and credit rating of each credit default swap where the Fund is the seller of protection, are both
measures of the current payment/performance risk of the swap. As the value of the swap changes as a positive or negative percentage
of the total notional amount, the payment/performance risk may decrease or increase, respectively. The maximum potential amount
of future payments (undiscounted) that a Fund as a seller of protection could be required to make under a credit default swap
agreement would be an amount equal to the notional amount of the agreement. These potential amounts would be partially offset
by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement,
or net amounts received from the settlement of buy protection credit default swap agreements entered into by the Fund for
the same referenced entity or entities.
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Entering into credit default swaps involves credit and market risk. Such risks involve the
possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default
on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may
be unfavorable changes in interest rates, and that Lord Abbett does not correctly predict the creditworthiness of the issuers
of the reference obligation on which the credit default swap is based.
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52
Notes to Financial Statements (unaudited)(continued)
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(o)
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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:
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·
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Level 1 –
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unadjusted quoted prices in active markets for identical investments;
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·
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Level 2 –
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other significant observable inputs (including quoted prices for similar investments, interest
rates, prepayment speeds, credit risk, etc.); and
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·
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Level 3 –
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significant unobservable inputs (including each Fund’s own assumptions in determining
the fair value of investments).
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A summary of inputs used in valuing each Fund’s investments as of June 30,
2013, and, if applicable, Level 1/Level 2 transfers and Level 3 rollforwards for the six months then ended is included in
each Fund’s Schedule of Investments.
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Changes in valuation techniques may result in transfers into or out of an assigned
level within the three-tier hierarchy. All transfers between different levels within the three-tier hierarchy are deemed to
have occurred as of the beginning of the reporting period. The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities.
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3.
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MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
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Management
Fee
The Company has a management agreement
with 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 the following annual rates:
Emerging Markets Currency Fund
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First $1 billion
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.50
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%
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Over $1 billion
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.45
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%
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Global Allocation Fund
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.25
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%
(1)
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(1)
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For the period from May 1, 2013 through April 30, 2014,
Lord Abbett has contractually agreed to waive .18% of its annual management fee for Global Allocation Fund. This agreement
may be terminated only upon approval of the Board. During the period January 1, 2013 through April 30, 2013, Lord Abbett had
contractually agreed to waive .20% of its annual management fee for the Fund.
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53
Notes to Financial Statements (unaudited)(continued)
For the six months ended June 30, 2013,
the effective management fee, net of waivers, was at an annualized rate of .50% and .06% of average daily net assets for Emerging
Markets Currency Fund and Global Allocation Fund, respectively.
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 Emerging Markets Currency Fund’s average daily net assets. Global Allocation Fund does not pay such fee.
Global Allocation Fund has entered into
a Servicing Arrangement with the Underlying Funds in which it invests (Lord Abbett Equity Trust – Lord Abbett Calibrated
Large Cap Value Fund and Lord Abbett Calibrated Mid Cap Value Fund; Lord Abbett Global Fund, Inc. – Lord Abbett Emerging
Markets Currency Fund; Lord Abbett Investment Trust – Lord Abbett High Yield Fund and Lord Abbett Short Duration Income
Fund; Lord Abbett Mid Cap Stock Fund, Inc. and Lord Abbett Securities Trust – Lord Abbett International Dividend Income
Fund), pursuant to which each Underlying Fund will pay a portion of the expenses (excluding management fees and distribution and
service fees) of Global Allocation Fund in proportion to the average daily value of total Underlying Fund shares owned by Global
Allocation Fund. The expenses assumed by the Underlying Funds are reflected in Expenses assumed by Underlying Funds in Global
Allocation Fund’s Statement of Operations and Receivables from affiliates on Global Allocation Fund’s Statement of
Assets and Liabilities. Amounts paid pursuant to the Servicing Arrangement are included in Subsidy expense on Emerging Markets
Currency Fund’s Statement of Operations and Payable to affiliates on Emerging Markets Currency Fund’s Statement of
Assets and Liabilities.
As of June 30, 2013, the percentages of
Emerging Markets Currency Fund’s outstanding shares owned by Lord Abbett Balanced Strategy Fund, Lord Abbett Diversified
Income Strategy Fund and Lord Abbett Global Allocation Fund were 33.25%, 17.55% and 8.33%, respectively.
12b-1
Distribution Plan
Each Fund has adopted a distribution plan
with respect to Class A, B, C, F, P, R2 and R3 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 following annual rates have been approved by the Board pursuant to the plan:
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Emerging Markets Currency Fund
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Fees*
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Class A
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Class B
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Class C
(1)
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Class F
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Class P
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Class R2
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Class R3
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Service
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.15
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%
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.25%
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.25%
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—
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.25%
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.25%
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.25%
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Distribution
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.05
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%
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.75%
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.75%
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.10
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%
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.20%
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.35%
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.25%
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Global Allocation Fund
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Fees*
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Class A
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Class B
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Class C
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Class F
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Class P
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Class R2
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Class R3
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Service
|
|
.25
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%
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.25%
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.25%
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—
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.25%
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.25%
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.25%
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Distribution
|
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—
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.75%
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.75%
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.10
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%
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.20%
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.35%
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.25%
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*
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The Fund may designate a portion of the aggregate fee
as attributable to service activities for purposes of calculating Financial Industry Regulatory Authority, Inc. (“FINRA”)
sales charge limitations.
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(1)
|
The Class C 12b-1 fee is a blended rate calculated based on 1.00%
of the Fund’s average daily net assets attributable to Class C shares held for less than one year and .80% (.25% service,
.55% distribution) of the Fund’s average daily net assets attributable to Class C shares held for one year or more.
All Class C shareholders of the Fund will bear Rule 12b-1 fees at the same rate.
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Class I shares do not have a distribution plan.
54
Notes to Financial Statements (unaudited)(continued)
Commissions
Distributor received the following commissions
on sales of shares of the Funds, after concessions were paid to authorized dealers, for the six months ended June 30, 2013:
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Distributor
Commissions
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Dealers’
Concessions
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Emerging Markets Currency Fund
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$
|
4,081
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$
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28,649
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Global Allocation Fund
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47,291
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260,118
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Distributor received the following amount of CDSCs for the six
months ended June 30, 2013:
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Class A
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Class C
|
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Emerging Markets Currency Fund
|
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$
|
778
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$
|
1,067
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Global Allocation Fund
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1,394
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2,059
|
|
A Director and certain of the Company’s officers have
an interest in Lord Abbett.
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4.
|
DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS
|
Dividends from net investment income, if
any, are declared daily and paid monthly for Emerging Markets Currency Fund and declared and paid quarterly for Global Allocation
Fund. 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 June 30, 2013 and the fiscal year ended December 31, 2012 was as follows:
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|
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Emerging Markets
Currency Fund
|
|
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Global Allocation Fund
|
|
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|
|
Six Months
Ended
6/30/2013
(unaudited)
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|
|
Year Ended
12/31/2012
|
|
|
Six Months
Ended
6/30/2013
(unaudited)
|
|
|
Year Ended
12/31/2012
|
|
|
Distributions paid from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
6,079,011
|
|
|
$
|
9,800,565
|
|
|
$
|
2,829,406
|
|
|
$
|
5,927,793
|
|
|
Return of capital
|
|
|
—
|
|
|
|
1,503,690
|
|
|
|
—
|
|
|
|
99,560
|
|
|
Total distributions paid
|
|
$
|
6,079,011
|
|
|
$
|
11,304,255
|
|
|
$
|
2,829,406
|
|
|
$
|
6,027,353
|
|
55
Notes to Financial Statements (unaudited)(continued)
As of December 31, 2012, the capital loss
carryforwards, along with the related expiration dates, were as follows:
|
|
|
2017
|
|
|
2018
|
|
|
Indefinite
|
|
|
Total
|
|
|
Emerging Markets Currency Fund
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,789,379
|
|
|
$
|
3,789,379
|
|
|
Global Allocation Fund
|
|
|
1,471,601
|
|
|
|
8,248
|
|
|
|
—
|
|
|
|
1,479,849
|
|
In accordance with the Regulated Investment
Company Modernization Act of 2010, the Funds 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 June 30, 2013, the aggregate unrealized security gains
and losses based on cost for U.S. federal income tax purposes were as follows:
|
|
|
Emerging Markets
Currency Fund
|
|
|
Global
Allocation Fund
|
|
|
Tax cost
|
|
$
|
400,874,829
|
|
|
$
|
181,312,133
|
|
|
Gross unrealized gain
|
|
|
1,460,492
|
|
|
|
7,865,218
|
|
|
Gross unrealized loss
|
|
|
(7,052,059
|
)
|
|
|
(2,658,682
|
)
|
|
Net unrealized security gain
(loss)
|
|
$
|
(5,591,567
|
)
|
|
$
|
5,206,536
|
|
The difference between book-basis and tax-basis unrealized gains
(losses) is attributable to the tax treatment of certain distributions received, wash sales and amortization of premium.
|
5.
|
PORTFOLIO SECURITIES TRANSACTIONS
|
Purchases and sales of investment securities
(excluding short-term investments) for the six months ended June 30, 2013 were as follows:
|
|
|
U.S.
Government
Purchases*
|
|
Non-U.S.
Government
Purchases
|
|
U.S.
Government
Sales*
|
|
Non-U.S.
Government
Sales
|
|
Emerging Markets Currency Fund
|
|
$71,774,262
|
|
$144,727,398
|
|
$66,314,280
|
|
$180,061,022
|
|
Global Allocation Fund
|
|
—
|
|
22,897,596
|
|
—
|
|
17,299,400
|
|
*
|
Includes U.S. Government sponsored enterprises
securities.
|
|
6.
|
DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
|
Emerging Markets Currency Fund entered
into forward foreign currency exchange contracts for the six months ended June 30, 2013 (as described in note 2(g)). A forward
foreign currency exchange contract reduces the Fund’s exposure to changes in the value of the currency it will deliver (or
settle in cash) and increases its exposure to changes in the value of the currency it will receive (or settle in cash) for the
duration of the contract. The Fund’s use of forward foreign currency exchange contracts involves the risk that Lord Abbett
will not accurately predict currency movements, and the Fund’s returns could be reduced as a result. Forward foreign currency
exchange contracts are subject to the risk that those currencies will decline in value relative to the U.S. dollar, or, in the
case of hedged positions, that the U.S. dollar will decline relative to the currency being hedged. Currency rates in foreign countries
may fluctuate significantly over short periods of time. The Fund’s risk of loss from counterparty credit risk is the unrealized
appreciation on foreign currency exchange contracts and deposits as collateral.
56
Notes to Financial Statements (unaudited)(continued)
Emerging Markets Currency Fund entered
into U.S. Treasury futures contracts for the six months ended June 30, 2013 (as described in note 2(h)) to hedge against changes
in interest rates. The Fund bears the risk of interest rates moving unexpectedly, in which case the Fund may not achieve the anticipated
benefits of the futures contracts and realize a loss. There is minimal counterparty credit risk to the Fund since futures are
exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees futures against
default.
Emerging Markets Currency Fund entered
into credit default swaps for the six months ended June 30, 2013 (as described in note 2(n)) for investment purposes to hedge
credit risk or for speculative purposes. Credit default swaps involve the exchange of a fixed rate premium for protection against
the loss in value of an underlying security in the event of a defined credit event, such as payment default or bankruptcy. Under
a credit default swap one party acts as a guarantor by receiving the fixed periodic payment in exchange for the commitment to
purchase the underlying security at par if the defined credit event occurs. Upon the occurrence of a defined credit event, the
difference between the value of the reference obligation and the swap’s notional amount is recorded as realized gain or
loss on swap transactions in the Statements of Operations. The Fund’s maximum risk of loss from counterparty risk, either
as the protection seller or as the protection buyer, is the fair value of the contract.
Emerging Markets Currency Fund entered
into interest rate swaps for the six months ended June 30, 2013 (as described in note 2(m)) to hedge against interest rate risk.
The Fund’s use of interest rate swaps involves the risk that Lord Abbett will not accurately predict expectations of interest
rates, and the Fund’s returns could be reduced as a result. The Fund’s risk of loss from counterparty credit risk
is the discounted net value of the cash flows to be received from the counterparty over the life of the contract, to the extent
that amount is positive.
As of June 30, 2013, Emerging Markets Currency
Fund had the following derivatives, grouped into appropriate risk categories that illustrate how and why the Fund uses derivative
instruments:
|
Asset Derivatives
|
|
Interest Rate
Contracts
|
|
|
Forward Foreign
Currency Exchange
Contracts
|
|
|
Credit
Contracts
|
|
|
Fair Value
|
|
|
Credit Default Swaps
(1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33,827
|
|
|
$
|
33,827
|
|
|
Forward Foreign Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Contracts
(2)
|
|
|
—
|
|
|
|
3,276,535
|
|
|
|
—
|
|
|
|
3,276,535
|
|
|
Futures Contracts
(3)
|
|
|
898,173
|
|
|
|
—
|
|
|
|
—
|
|
|
|
898,173
|
|
|
Total
|
|
$
|
898,173
|
|
|
$
|
3,276,535
|
|
|
$
|
33,827
|
|
|
$
|
4,208,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Default Swaps
(4)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,253
|
|
|
$
|
7,253
|
|
|
Forward Foreign Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Contracts
(5)
|
|
|
—
|
|
|
|
17,390,456
|
|
|
|
—
|
|
|
|
17,390,456
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
17,390,456
|
|
|
$
|
7,253
|
|
|
$
|
17,397,709
|
|
|
(1)
|
Statements of Assets and Liabilities location: Unrealized
appreciation on credit default swaps.
|
|
(2)
|
Statements of Assets and Liabilities location: Unrealized appreciation
on forward foreign currency exchange contracts.
|
|
(3)
|
Statements of Assets and Liabilities location: Represents cumulative
unrealized appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Only current day’s
variation margin is reported within the Statements of Assets and Liabilities.
|
|
(4)
|
Statements of Assets and Liabilities location: Unrealized depreciation
on credit default swaps.
|
|
(5)
|
Statements of Assets and Liabilities location: Unrealized depreciation
on forward foreign currency exchange contracts.
|
57
Notes to Financial Statements (unaudited)(continued)
Transactions in derivative instruments for the six months ended
June 30, 2013, were as follows:
|
|
|
Interest Rate
Contracts
|
|
|
Forward Foreign
Currency Exchange
Contracts
|
|
|
Credit
Contracts
|
|
|
Total
|
|
|
Net Realized Gain (Loss)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Default Swaps
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
153,397
|
|
|
$
|
153,397
|
|
|
Forward Foreign Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Contracts
|
|
|
—
|
|
|
|
4,115,429
|
|
|
|
—
|
|
|
|
4,115,429
|
|
|
Futures Contracts
|
|
|
716,172
|
|
|
|
—
|
|
|
|
—
|
|
|
|
716,172
|
|
|
Interest Rate Swaps
|
|
|
(23,585
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(23,585
|
)
|
Net Change in Unrealized
Appreciation/Depreciation
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Default Swaps
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(111,579
|
)
|
|
$
|
(111,579
|
)
|
|
Forward Foreign Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Contracts
|
|
|
—
|
|
|
|
(19,008,089
|
)
|
|
|
—
|
|
|
|
(19,008,089
|
)
|
|
Futures Contracts
|
|
|
779,710
|
|
|
|
—
|
|
|
|
—
|
|
|
|
779,710
|
|
|
Interest Rate Swaps
|
|
|
31,814
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,814
|
|
Average Number of Contracts/
Notional
Amounts*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Default Swaps
(3)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,785,714
|
|
|
$
|
4,785,714
|
|
|
Forward Foreign Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Contracts
(3)
|
|
|
—
|
|
|
|
690,300,541
|
|
|
|
—
|
|
|
|
690,300,541
|
|
|
Futures Contracts
(4)
|
|
|
964
|
|
|
|
—
|
|
|
|
—
|
|
|
|
964
|
|
|
Interest Rate Swaps
(3)
|
|
$
|
5,142,857
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,142,857
|
|
|
*
|
Calculated based on the number of contracts or notional
amounts for the six months ended June 30, 2013.
|
|
(1)
|
Statements of Operations location: Net realized gain (loss) on investments,
futures contracts, swaps and foreign currency related transactions.
|
|
(2)
|
Statements of Operations location: Net change in unrealized appreciation/depreciation
on investments, futures contracts, swaps and translation of assets and liabilities denominated in foreign currencies.
|
|
(3)
|
Amount represents notional amount in U.S. dollars.
|
|
(4)
|
Amount represents number of contracts.
|
|
7.
|
DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES
|
The Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update No. 2011–11 “Disclosures about Offsetting Assets and Liabilities”
(“ASU 2011–11”). These disclosure requirements are intended to help better assess the effect or potential effect
of offsetting arrangements on a fund’s financial position. In addition, FASB issued Accounting Standards Update No. 2013–01
“Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013–01”), specifying
which transactions are subject to disclosures about offsetting.
The following tables illustrate Emerging
Markets Currency Fund’s gross and net information about recognized assets and liabilities eligible for offset in the Statement
of Assets and Liabilities; and disclose such amounts subject to an enforceable master netting agreement or similar agreement,
by counterparty. A master netting agreement is an agreement between two counterparties who have multiple contracts with each other
that provides for the net settlement of all contracts, as well as cash collateral, through single payment in the event of default
on or termination of any one contract:
58
Notes to Financial Statements (unaudited)(continued)
|
Description
|
|
Gross
Amounts of
Recognized
Assets
|
|
|
Gross Amounts
Offset in the
Statements of Assets
and Liabilities
|
|
|
Net Amounts of
Assets Presented
in the Statements of
Assets and Liabilities
|
|
|
Forward Foreign Currency Exchange
Contracts
|
|
$
|
3,276,535
|
|
|
$
|
—
|
|
|
$
|
3,276,535
|
|
|
Swaps
|
|
|
33,827
|
|
|
|
—
|
|
|
|
33,827
|
|
|
Total
|
|
$
|
3,310,362
|
|
|
$
|
—
|
|
|
$
|
3,310,362
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
|
|
Counterparty
|
|
Net Amounts of
Assets Presented
in the Statements of
Assets and Liabilities
|
|
|
Financial
Instruments
|
|
|
Cash Collateral
Received
(a)
|
|
|
Net Amount
(b)
|
|
|
Barclays Bank plc
|
|
$
|
513,898
|
|
|
$
|
(513,898
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Credit Suisse
|
|
|
6,001
|
|
|
|
(6,001
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Deutsche Bank
|
|
|
786,472
|
|
|
|
(786,472
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Goldman Sachs
|
|
|
261,613
|
|
|
|
(261,613
|
)
|
|
|
—
|
|
|
|
—
|
|
|
J.P. Morgan
|
|
|
824,883
|
|
|
|
(824,883
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Morgan Stanley
|
|
|
49,395
|
|
|
|
(49,395
|
)
|
|
|
—
|
|
|
|
—
|
|
|
UBS AG
|
|
|
868,100
|
|
|
|
(868,100
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
3,310,362
|
|
|
$
|
(3,310,362
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Description
|
|
Gross
Amounts of
Recognized
Liabilities
|
|
|
Gross Amounts
Offset in the
Statements of Assets
and Liabilities
|
|
|
Net Amounts of
Liabilities Presented
in the Statements of
Assets and Liabilities
|
|
|
Forward Foreign Currency Exchange
Contracts
|
|
$
|
17,390,456
|
|
|
$
|
—
|
|
|
$
|
17,390,456
|
|
|
Swaps
|
|
|
7,253
|
|
|
|
—
|
|
|
|
7,253
|
|
|
Total
|
|
$
|
17,397,709
|
|
|
$
|
—
|
|
|
$
|
17,397,709
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the
Statement of Assets and Liabilities
|
|
|
|
|
|
Counterparty
|
|
Net Amounts of
Liabilities Presented
in the Statements of
Assets and Liabilities
|
|
|
Financial
Instruments
|
|
|
Cash Collateral
Pledged
(a)
|
|
|
Net Amount
(c)
|
|
|
Barclays Bank plc
|
|
$
|
3,451,072
|
|
|
$
|
(513,898
|
)
|
|
$
|
(2,937,174
|
)
|
|
$
|
—
|
|
|
Credit Suisse
|
|
|
1,160,661
|
|
|
|
(6,001
|
)
|
|
|
(1,154,660
|
)
|
|
|
—
|
|
|
Deutsche Bank
|
|
|
2,094,131
|
|
|
|
(786,472
|
)
|
|
|
(1,307,659
|
)
|
|
|
—
|
|
|
Goldman Sachs
|
|
|
1,224,073
|
|
|
|
(261,613
|
)
|
|
|
(962,460
|
)
|
|
|
—
|
|
|
J.P. Morgan
|
|
|
5,743,587
|
|
|
|
(824,883
|
)
|
|
|
(4,918,704
|
)
|
|
|
—
|
|
|
Morgan Stanley
|
|
|
2,476,850
|
|
|
|
(49,395
|
)
|
|
|
(2,410,000
|
)
|
|
|
17,455
|
|
|
UBS AG
|
|
|
1,247,335
|
|
|
|
(868,100
|
)
|
|
|
(379,235
|
)
|
|
|
—
|
|
|
Total
|
|
$
|
17,397,709
|
|
|
$
|
(3,310,362
|
)
|
|
$
|
(14,069,892
|
)
|
|
$
|
17,455
|
|
|
(a)
|
Collateral received (or pledged) is limited to an amount
not to exceed 100% of the net amount of assets (or liabilities) in the tables presented above, for each respective counterparty.
|
|
(b)
|
Net Amount represents the amount that is subject to loss in the event
of a counterparty failure as of June 30, 2013.
|
|
(c)
|
Net Amount represents amounts under collateralized by
the Fund to each counterparty as of June 30, 2013.
|
59
Notes to Financial Statements (unaudited)(continued)
|
8.
|
DIRECTORS’ REMUNERATION
|
The Company’s officers and a Director,
who are associated with Lord Abbett, do not receive any compensation from the Company for serving in such capacities. Independent
Directors’ 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 Directors under which Independent Directors must defer receipt of a portion of, and may elect
to defer receipt of an additional portion of, Directors’ 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 Directors’ fees on the
Statements of Operations and in Directors’ 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 Company 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, Emerging Markets Currency
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 Board considers annual
renewal of the Facility 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.
Effective April 1, 2013, Emerging Markets
Currency Fund and the participating funds entered into a short term extension of the Facility through June 30, 2013. Effective
July 1, 2013, the Emerging Markets Currency Fund and the participating funds renewed the Facility through June 30, 2014 under
the same terms as described above.
During the six months ended June 30, 2013,
a participating fund utilized the Facility and fully repaid its borrowings on June 13, 2013. As of June 30, 2013, there were no
loans outstanding pursuant to this Facility.
|
11.
|
CUSTODIAN AND ACCOUNTING AGENT
|
SSB is the Company’s custodian and
accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating
each Fund’s NAV.
|
12.
|
TRANSACTIONS WITH AFFILIATED ISSUERS
|
An affiliated issuer is one in which a
Fund has ownership of at least 5% of the outstanding voting securities of the underlying issuer at any point during the fiscal
year or any company which is under common ownership or control. Global Allocation Fund had the following transactions with affiliated
issuers (i.e. the Underlying Funds) for the six months ended June 30, 2013:
60
Notes to Financial Statements (unaudited)(continued)
|
Affiliated Issuer
|
|
Balance of
Shares Held at
12/31/2012
|
|
|
Gross
Additions
|
|
|
Gross
Sales
|
|
|
Balance of
Shares Held at
6/30/2013
|
|
|
Fair
Value at
6/30/2013
|
|
|
Net Realized
Gain (Loss)
1/1/2013 to
6/30/2013
|
|
|
Dividend
Income
1/1/2013 to
6/30/2013
|
|
Lord Abbett Affiliated
Fund, Inc. –
Class I
|
|
|
142,096
|
|
|
|
90,623
|
|
|
|
(232,719
|
)
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
236,687
|
|
|
$
|
9,230
|
|
Lord Abbett
Equity
Trust – Calibrated Large Cap
Value Fund – Class I
|
|
|
50,689
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50,689
|
|
|
|
1,037,598
|
|
|
|
—
|
|
|
|
—
|
|
Lord Abbett Equity
Trust – Calibrated
Mid Cap
Value
Fund – Class I
|
|
|
666,452
|
|
|
|
47,493
|
|
|
|
—
|
|
|
|
713,945
|
|
|
|
14,400,270
|
|
|
|
—
|
|
|
|
—
|
|
Lord Abbett Global
Fund, Inc. – Emerging
Markets
Currency
Fund – Class I
|
|
|
5,082,070
|
|
|
|
820,893
|
|
|
|
(311,071
|
)
|
|
|
5,591,892
|
|
|
|
35,061,163
|
|
|
|
(22,504
|
)
|
|
|
496,911
|
|
Lord Abbett Investment
Trust – High Yield
Fund
– Class I
|
|
|
2,406,133
|
|
|
|
452,782
|
|
|
|
(68,371
|
)
|
|
|
2,790,544
|
|
|
|
21,905,770
|
|
|
|
78,523
|
|
|
|
697,622
|
|
Lord Abbett Securities
Trust – International
Dividend Income
Fund – Class I
|
|
|
9,353,041
|
|
|
|
620,519
|
|
|
|
(973,009
|
)
|
|
|
9,000,551
|
|
|
|
72,094,416
|
|
|
|
(866,168
|
)
|
|
|
2,006,007
|
|
Lord Abbett Mid Cap
Stock Fund, Inc. –
Class
I
|
|
|
1,907,046
|
|
|
|
47,806
|
|
|
|
(109,368
|
)
|
|
|
1,845,484
|
|
|
|
37,629,417
|
|
|
|
240,869
|
|
|
|
—
|
|
Lord
Abbett Investment
Trust – Short
Duration Income Fund – Class I
|
|
|
—
|
|
|
|
1,189,020
|
|
|
|
(226,293
|
)
|
|
|
962,727
|
|
|
|
4,390,035
|
|
|
|
—
|
|
|
|
33,609
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
186,518,669
|
|
|
$
|
(332,593
|
)
|
|
$
|
3,243,379
|
|
Each Fund is subject to the risks of investing
in securities that are issued by non-U.S. entities, the risks of investing in derivatives, liquidity risk, and the risks from
leverage.
Foreign securities may pose greater risks
than domestic securities, including greater price fluctuations, less government regulation, and higher transaction costs. These
risks generally are greater for emerging markets securities. Foreign investments also may be affected by changes in currency rates
or currency controls.
Derivatives are subject to risks such as
liquidity risk, leveraging risk, interest rate risk, market risk, and credit risk. Derivatives also involve the risk of mispricing
or improper valuation and the risk that changes in the value of the derivative may not correlate perfectly with the value of the
underlying asset, rate, or index. Whether a Fund’s use of derivatives is successful will depend on, among other things,
the Fund’s ability to correctly forecast market movements, changes in foreign exchange and interest rates, and other factors.
If a Fund incorrectly forecasts these and other factors, its performance could suffer. A Fund’s use of derivatives could
result in a loss exceeding the amount of the Fund’s investment in these instruments.
Emerging Markets Currency Fund is non-diversified,
which means that it may invest a greater portion of its assets in a single issuer than a diversified fund. Thus, it may be exposed
to greater risk.
61
Notes to Financial Statements (unaudited)(continued)
Each Fund may invest in swap contracts.
Swap contracts are bilateral agreements between a fund and its counterparty. Each party is exposed to the risk of default by the
other. In addition, swap contracts may involve a small investment of cash compared to the risk assumed, with the result that small
changes may produce disproportionate and substantial gains or losses to a Fund.
Each Fund may invest in credit default swap
contracts. Such contracts are subject to the risk that there will be no liquid market for these agreements, that the counterparty
to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements,
and that there may be unfavorable changes in interest rates, and that Lord Abbett does not correctly predict the creditworthiness
of the issuers of the reference obligation on which the credit default swap is based.
Illiquid securities may lower a Fund’s
returns since the Fund may be unable to sell these securities at its desired time or price.
Leverage, including borrowing, may increase
volatility in a Fund by magnifying the effect of changes in the value of the Fund’s holdings. The use of leverage may cause
investors in a Fund to lose more money in adverse environments than would be the case in the absence of leverage.
Each Fund is subject to the general risks
and considerations associated with investing in debt securities, including interest rate risk. When interest rates rise, the prices
of debt securities and an investment in a Fund are likely to decline. In times of economic uncertainty, high-yield debt securities
(or “junk bonds”) may decline in price, even when interest rates are falling. There is also the risk that an issuer
of a debt security will fail to make timely payments of principal or interest to a Fund, a risk that is greater with junk bonds.
The mortgage-related securities in which
a Fund may invest may be particularly sensitive to changes in prevailing interest rates, economic conditions, including delinquencies
and/or defaults. These changes can affect the value, income and/or liquidity of such positions. When interest rates are declining,
the value of these securities with prepayment features may not increase as much as other fixed income securities. Early principal
repayment may deprive a Fund of income payments above current market rates. Alternatively, rising interest rates may cause payments
to occur at a slower-than-expected rate, extending the duration of a security and typically reducing its value. The payment rate
will thus affect the price and volatility of a mortgage-related security.
Foreign currency exchange rates may fluctuate
significantly over short periods of time. Emerging Markets Currency Fund’s use of currency-related transactions involves
the risk that Lord Abbett will not accurately predict currency movements, and the Fund’s returns could be reduced as a result.
A decline in the value of foreign currencies relative to the U.S. dollar will reduce the value of securities held by Emerging Markets
Currency Fund that are denominated in those currencies.
The securities markets of developing or
emerging countries tend to be less liquid, are especially subject to greater price volatility, have a smaller market capitalization,
have less government regulation and may not be subject to as extensive and frequent accounting, financial, and other reporting
requirements as securities issued in more developed countries.
Emerging Markets Currency Fund believes
that its investment strategies with respect to foreign currencies will generate qualifying income under current U.S. federal income
tax law. However, there can be no assurance that the U.S. Treasury Department will not issue regulations in the future (possibly
with retroactive effect) that would treat some or all of the Fund’s foreign currency gains as nonqualifying income.
62
Notes to Financial Statements (unaudited)(continued)
The value of Global Allocation Fund’s investments will
fluctuate in response to various factors related to domestic and foreign equity and fixed income markets, as well as the financial
condition and prospects of issuers in which the Fund invests through its Underlying Funds. Because equity and fixed income investments
can move in different directions or to different degrees, fixed income investments may counteract some of the volatility experienced
by equity holdings, but the diminished risk that may accompany this investment approach also may result in lower returns.
These factors can affect each Fund’s performance.
|
14.
|
SUMMARY OF CAPITAL TRANSACTIONS
|
Transactions in shares of capital stock were as follows:
|
Emerging Markets Currency Fund
|
|
Six Months Ended
June 30, 2013
(unaudited)
|
|
|
Year Ended
December 31, 2012
|
|
|
Class A Shares
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares sold
|
|
|
2,432,283
|
|
|
$
|
16,149,875
|
|
|
|
3,757,643
|
|
|
$
|
24,345,954
|
|
|
Converted from Class B*
|
|
|
17,635
|
|
|
|
115,782
|
|
|
|
24,737
|
|
|
|
159,490
|
|
|
Reinvestment of distributions
|
|
|
135,625
|
|
|
|
887,577
|
|
|
|
289,200
|
|
|
|
1,872,926
|
|
|
Shares reacquired
|
|
|
(2,706,071
|
)
|
|
|
(17,759,746
|
)
|
|
|
(5,926,704
|
)
|
|
|
(38,303,761
|
)
|
|
Decrease
|
|
|
(120,528
|
)
|
|
$
|
(606,512
|
)
|
|
|
(1,855,124
|
)
|
|
$
|
(11,925,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
1,467
|
|
|
$
|
9,819
|
|
|
|
10,818
|
|
|
$
|
68,868
|
|
|
Reinvestment of distributions
|
|
|
1,366
|
|
|
|
8,995
|
|
|
|
3,704
|
|
|
|
24,089
|
|
|
Shares reacquired
|
|
|
(25,435
|
)
|
|
|
(168,039
|
)
|
|
|
(77,789
|
)
|
|
|
(499,593
|
)
|
|
Converted to Class A*
|
|
|
(17,555
|
)
|
|
|
(115,782
|
)
|
|
|
(24,626
|
)
|
|
|
(159,490
|
)
|
|
Decrease
|
|
|
(40,157
|
)
|
|
$
|
(265,007
|
)
|
|
|
(87,893
|
)
|
|
$
|
(566,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
440,684
|
|
|
$
|
2,941,324
|
|
|
|
785,246
|
|
|
$
|
5,102,670
|
|
|
Reinvestment of distributions
|
|
|
25,822
|
|
|
|
170,042
|
|
|
|
62,054
|
|
|
|
404,207
|
|
|
Shares reacquired
|
|
|
(780,842
|
)
|
|
|
(5,164,256
|
)
|
|
|
(2,474,000
|
)
|
|
|
(16,060,369
|
)
|
|
Decrease
|
|
|
(314,336
|
)
|
|
$
|
(2,052,890
|
)
|
|
|
(1,626,700
|
)
|
|
$
|
(10,553,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class F Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
3,456,144
|
|
|
$
|
22,793,872
|
|
|
|
4,840,724
|
|
|
$
|
31,183,175
|
|
|
Reinvestment of distributions
|
|
|
90,458
|
|
|
|
591,720
|
|
|
|
219,054
|
|
|
|
1,417,322
|
|
|
Shares reacquired
|
|
|
(4,684,009
|
)
|
|
|
(30,693,388
|
)
|
|
|
(6,740,611
|
)
|
|
|
(43,176,965
|
)
|
|
Decrease
|
|
|
(1,137,407
|
)
|
|
$
|
(7,307,796
|
)
|
|
|
(1,680,833
|
)
|
|
$
|
(10,576,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class I Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
7,307,747
|
|
|
$
|
48,138,070
|
|
|
|
23,966,025
|
|
|
$
|
155,303,285
|
|
|
Reinvestment of distributions
|
|
|
590,673
|
|
|
|
3,855,424
|
|
|
|
994,229
|
|
|
|
6,428,608
|
|
|
Shares reacquired
|
|
|
(6,810,282
|
)
|
|
|
(44,597,342
|
)
|
|
|
(3,315,979
|
)
|
|
|
(21,233,561
|
)
|
|
Increase
|
|
|
1,088,138
|
|
|
$
|
7,396,152
|
|
|
|
21,644,275
|
|
|
$
|
140,498,332
|
|
63
Notes to Financial Statements (unaudited)(continued)
|
Emerging Markets Currency Fund
|
|
Six Months Ended
June 30, 2013
(unaudited)
|
|
|
Year Ended
December 31, 2012
|
|
|
Class P Shares
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Reinvestment of distributions
|
|
|
19
|
|
|
$
|
120
|
|
|
|
35
|
|
|
$
|
233
|
|
|
Shares reacquired
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
—
|
(a)
|
|
|
(3
|
)
|
|
Increase
|
|
|
18
|
|
|
$
|
114
|
|
|
|
35
|
|
|
$
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class R2 Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
7,782
|
|
|
$
|
51,348
|
|
|
|
51,280
|
|
|
$
|
325,886
|
|
|
Reinvestment of distributions
|
|
|
13
|
|
|
|
89
|
|
|
|
32
|
|
|
|
206
|
|
|
Shares reacquired
|
|
|
(15,726
|
)
|
|
|
(104,770
|
)
|
|
|
(41,598
|
)
|
|
|
(271,613
|
)
|
|
Increase (decrease)
|
|
|
(7,931
|
)
|
|
$
|
(53,333
|
)
|
|
|
9,714
|
|
|
$
|
54,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class R3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
29,918
|
|
|
$
|
197,492
|
|
|
|
62,494
|
|
|
$
|
404,137
|
|
|
Reinvestment of distributions
|
|
|
899
|
|
|
|
5,874
|
|
|
|
1,771
|
|
|
|
11,450
|
|
|
Shares reacquired
|
|
|
(48,170
|
)
|
|
|
(318,853
|
)
|
|
|
(38,015
|
)
|
|
|
(246,426
|
)
|
|
Increase (decrease)
|
|
|
(17,353
|
)
|
|
$
|
(115,487
|
)
|
|
|
26,250
|
|
|
$
|
169,161
|
|
|
*
|
Automatic conversion of Class B shares occurs on the 25th day of the month (or, if the 25th 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.
|
|
(a)
|
Value is less than 1 share.
|
|
Global Allocation Fund
|
|
|
Six Months Ended
June 30, 2013
(unaudited)
|
|
|
Year
Ended
December 31, 2012
|
|
|
Class A Shares
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
Shares sold
|
|
|
1,294,436
|
|
|
$
|
15,488,544
|
|
|
|
1,552,196
|
|
|
$
|
17,000,236
|
|
|
Converted from Class B*
|
|
|
42,184
|
|
|
|
505,609
|
|
|
|
93,200
|
|
|
|
1,029,990
|
|
|
Reinvestment of distributions
|
|
|
152,967
|
|
|
|
1,791,816
|
|
|
|
345,422
|
|
|
|
3,800,383
|
|
|
Shares reacquired
|
|
|
(955,811
|
)
|
|
|
(11,443,968
|
)
|
|
|
(2,800,046
|
)
|
|
|
(30,588,025
|
)
|
|
Increase (decrease)
|
|
|
533,776
|
|
|
$
|
6,342,001
|
|
|
|
(809,228
|
)
|
|
$
|
(8,757,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
18,803
|
|
|
$
|
206,561
|
|
|
|
40,503
|
|
|
$
|
411,873
|
|
|
Reinvestment of distributions
|
|
|
7,585
|
|
|
|
81,647
|
|
|
|
21,945
|
|
|
|
222,539
|
|
|
Shares reacquired
|
|
|
(46,139
|
)
|
|
|
(510,307
|
)
|
|
|
(172,488
|
)
|
|
|
(1,738,387
|
)
|
|
Converted to Class A*
|
|
|
(45,828
|
)
|
|
|
(505,609
|
)
|
|
|
(101,001
|
)
|
|
|
(1,029,990
|
)
|
|
Decrease
|
|
|
(65,579
|
)
|
|
$
|
(727,708
|
)
|
|
|
(211,041
|
)
|
|
$
|
(2,133,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
468,463
|
|
|
$
|
5,170,589
|
|
|
|
800,084
|
|
|
$
|
8,165,734
|
|
|
Reinvestment of distributions
|
|
|
33,802
|
|
|
|
364,242
|
|
|
|
80,450
|
|
|
|
818,422
|
|
|
Shares reacquired
|
|
|
(549,536
|
)
|
|
|
(6,035,605
|
)
|
|
|
(814,477
|
)
|
|
|
(8,174,226
|
)
|
|
Increase (decrease)
|
|
|
(47,271
|
)
|
|
$
|
(500,774
|
)
|
|
|
66,057
|
|
|
$
|
809,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class F Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
100,398
|
|
|
$
|
1,198,814
|
|
|
|
73,178
|
|
|
$
|
805,841
|
|
|
Reinvestment of distributions
|
|
|
2,878
|
|
|
|
33,717
|
|
|
|
6,196
|
|
|
|
68,285
|
|
|
Shares reacquired
|
|
|
(45,694
|
)
|
|
|
(543,050
|
)
|
|
|
(174,083
|
)
|
|
|
(1,860,127
|
)
|
|
Increase (decrease)
|
|
|
57,582
|
|
|
$
|
689,481
|
|
|
|
(94,709
|
)
|
|
$
|
(986,001
|
)
|
64
Notes to Financial Statements (unaudited)(concluded)
|
Global Allocation Fund
|
|
|
Six Months Ended
June 30, 2013
(unaudited)
|
|
|
|
Year Ended
December 31, 2012
|
|
|
Class I Shares
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
Shares sold
|
|
|
5,571
|
|
|
$
|
67,048
|
|
|
|
575,905
|
|
|
$
|
6,222,060
|
|
|
Reinvestment of distributions
|
|
|
28,201
|
|
|
|
332,274
|
|
|
|
55,529
|
|
|
|
616,411
|
|
|
Shares reacquired
|
|
|
(16,924
|
)
|
|
|
(201,045
|
)
|
|
|
(53,055
|
)
|
|
|
(584,559
|
)
|
|
Increase
|
|
|
16,848
|
|
|
$
|
198,277
|
|
|
|
578,379
|
|
|
$
|
6,253,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class R2 Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
996
|
|
|
$
|
11,905
|
|
|
|
1,137
|
|
|
$
|
12,711
|
|
|
Reinvestment of distributions
|
|
|
119
|
|
|
|
1,408
|
|
|
|
289
|
|
|
|
3,236
|
|
|
Shares reacquired
|
|
|
(1,310
|
)
|
|
|
(15,934
|
)
|
|
|
(705
|
)
|
|
|
(7,402
|
)
|
|
Increase (decrease)
|
|
|
(195
|
)
|
|
$
|
(2,621
|
)
|
|
|
721
|
|
|
$
|
8,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class R3 Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
86,532
|
|
|
$
|
1,039,775
|
|
|
|
184,157
|
|
|
$
|
2,009,518
|
|
|
Reinvestment of distributions
|
|
|
6,518
|
|
|
|
76,661
|
|
|
|
13,808
|
|
|
|
152,882
|
|
|
Shares reacquired
|
|
|
(88,131
|
)
|
|
|
(1,054,605
|
)
|
|
|
(61,723
|
)
|
|
|
(674,244
|
)
|
|
Increase
|
|
|
4,919
|
|
|
$
|
61,831
|
|
|
|
136,242
|
|
|
$
|
1,488,156
|
|
|
*
|
Automatic conversion of Class B shares occurs on the 25th day of the month (or, if the 25th 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.
|
65