Worldwide Income Fund (HFAAX, HFABX, HFACX)

Performance

Relative performance as of 6/30/10

	YTD	1 year	5 years	Since inception
Worldwide Income Fund Class A at NAV	2.29%	22.98%	1.98%	4.53%
Worldwide Income Fund Class A w/ sales charge	-2.56%	17.15%	1.00%	3.78%
50% ML Global HY / 50% ML Global Corp Index (USD-hedged)	5.03%	21.38%	6.33%	6.73%
Lipper Global Income Funds average	2.23%	10.83%	4.40%	5.17%
Lipper Global Income Funds ranking	88/182	4/172	81/90	61/84

Inception date 9/30/03.

Lipper Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns. Lipper returns do not take into effect sales charges. Rankings are for Class A shares only: other share classes may vary.

Expense ratios are not guaranteed numbers and may fluctuate. Gross and net expense ratios are presented as a percentage of average net assets. The gross expense ratio is stated in the current prospectus and is based on the Fund's then most recent previous fiscal year. The net expense ratio is unaudited and is based on annualized fiscal year-to-date results from 8/01/09 to 6/30/10. The ratio may differ from that presented in the Fund's prospectus.

Credit quality ratings are primarily sourced from Standard & Poor's (the "S&P") but in the event that the S&P has not assigned a rating the Fund will use Moody's or Fitch. If these ratings are in conflict the most conservative rating will be used. If none of the major rating agencies have assigned a rating the Fund will asign a rating of NR (non-rated security). The ratings represent their (S&P, Moody's, Fitch) opinions as to the quality of securities they rate. Ratings are relative and subjective and are not absolute standards of quality.

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Performance results with sales charges reflect the deduction of the maximum front end sales charge and/or the deduction of the applicable contingent deferred sales charge (CDSC). Class A shares are subject to a maximum front end sales charge of 4.75%. Class B shares are subject to a CDSC, which declines from 5% the first year to 0% at the beginning of the seventh year. Class C shares may be subject to a CDSC of up to 1% on certain redemptions made within 12 months of purchase. Performance presented at NAV which does not include these sales charges would be lower if these charges were reflected. The Fund’s annual operating expenses will likely vary from year to year. It is important for you to understand that a decline in the Fund’s average net assets during the current fiscal year due to recent market volatility or other factors could cause the Fund’s expense ratios for the Fund’s current fiscal year to be higher than the expense information presented. Returns greater than one year are annualized. Index returns provided by Lipper, Inc. Net Asset Value (NAV) is the value of one share of the Fund excluding any sales charge.

The recent growth rate in the stock market has helped to produce short term returns for some asset classes that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short term changes.

Returns included the reinvestment of dividends and capital gains. Performance results reflect expense subsidies and waivers in effect during the periods shown. Absent these waivers, results would have been less favorable for certain periods.

As of 3/31/10, the Fund changed its benchmark from the Barclays Capital Global Aggregate Bond (ex US MBS) Index to the Bank of America Merrill Lynch Global High Yield Index (50%) and the bank of America Merrill Lynch Global Corporate Index (50%) (USD-hedged).  The Fund believes the newly blended index more accurately reflects its investment strategy and holdings and is now more appropriate for the Fund.

The Bank of America Merrill Lynch Global High Yield Index (USD-hedged) tracks the performance in US dollars on a hedged basis of Canadian Dollar, British sterling, US dollar and euro denominated developed market below investment grade corporate debt publicly issued in the major US or eurobond markets. The Bank of America Merrill Lynch Global Corporate Index (USD-hedged) tracks the performance in US dollars on a hedged basis of developed market investment grade corporate debt publicly issued in the major US and eurobond markets.

Fund overview

This Fund seeks total return through current income and capital appreciation. The Fund invests in securities across a variety of fixed income sectors including international investment grade corporate and government debt, international high yield debt, emerging market debt, US government and corporate debt. The Fund may also invest in dividend-paying international equities. The Fund is managed by John Pattullo and Jenna Barnard. 

Quarterly update

Government bonds in countries with healthy balance sheets, or those that have committed to fixing their balance sheets continued to rally over the quarter. Against this economic and corporate news flow remained positive. The market was remarkably volatile, staggering around different focal points. Bond markets have begun to discount a double dip recession while equities are more dismissive.

Towards the end of the period, the announcement of the impending publication of European bank stress tests and pragmatic US banking reform leant hope to the optimists. At times it seemed that the market has been fearful of fear itself.

Fund performance

The Fund underperformed its benchmark, the 50% ML Global High Yield Index/50% ML Global Broad Market Corp Index (USD-hedged) over the period. Treasuries rallied as did investment grade. High yield held up reasonably well while equities weakened. The overweight to subordinated bonds, high yield and short gilts led to this relative underperformance. Going forward, we believe this remains the correct positioning though we expect continued volatility in bond markets.

Investment activity

The Fund’s positioning remains broadly unchanged – long credit risk and short sovereign risk. We have reduced some of our gilt short given the deflation fears (even though inflation persists domestically and some Bank of England members have been less dovish of late).

We added to specific industrial high yield bonds such as HeidelbergCement and Ardagh Glass.

Given where some equities yield compare to their respective bonds we have decided to add up to 5% (of total Fund net asset value) in high yielding equity income stocks to the Fund. So far we have purchased Vodafone, National Grid, British American Tobacco and GlaxoSmithKline.

We remain overweight subordinated financial institutions and high yield bonds. Given continued poor liquidity in the market we have continued to run some cash. This will be invested into high yield bonds into any weakness.

Outlook

Markets seem intent on worrying about a double dip recession – we do accept, however, that the market is beginning to discount this in valuations. We believe the chance of double dip is very low and would need significant policy error for it to occur. Short term we anticipate risk asset markets to trend lower, but valuations could prevail and form a base.

We accept global industrial production has peaked but expect it to continue to grow, albeit less fast. The European bank stress tests due July 23rd could be a catalyst for shoring up confidence in the Euro area, as they proved to be in the US. We also await the US Q2 earnings season. The current wobble feels more like a mid cycle correction rather than something more sinister. Consequently we remain long spread duration (interest rate sensitivity), short (but less so) of sovereign duration.

 

Worldwide Income Fund