International All Cap Equity Fund (HFNAX, HFNCX, HIEIX)

The Fund seeks to achieve long-term capital appreciation primarily through investment in equities of non-US companies. In choosing investments, the manager applies a fundamental, bottom-up approach. The managers generally seek companies which they believe can offer above average growth sustainably, or those whose growth has been underestimated by the market. Normally, the Fund’s investments will be divided among Continental Europe, the United Kingdom, Japan and the markets of the Pacific Basin. However, selective investments may also be made in Latin America and in other parts of the world. The Fund may invest in emerging markets and may invest in new companies, both through initial public offerings and private placements. The Fund is managed by Brian O'Neill and Yu-Jen Shih.

• Quarterly Factsheet

 

Why invest in this fund?

• Invests in international equities, with selective investments in Latin America and emerging markets
• A fundamental bottom-up approach to stock selection, with a growth at a reasonable price investment style
• A global perspective with regional market expertise, enhanced by a supporting economic and strategic framework

   

Fund facts (as of 3/31/12)

Inception date:	12/31/10
Minimum initial investment:	$500
Benchmark:	MSCI EAFE Index
Median market cap ($billions):	16.2
Total number of holdings:	72
Forward 12-month P/E ratio:	12.4
P/B ratio:	1.8
Beta:	1.1
% of holdings in top 10:	25.3
Class A expense ratio1:	1.40
Morningstar rating (as of 4/30/12)2

¹ This ratio is not a guaranteed number and may fluctuate. The expense ratio is presented as a percentage of average net assets. The expense ratio is unaudited and is based on annualized fiscal year-to-date results from 1/01/12 to 3/31/12. The ratio may differ from that presented in the Fund’s prospectus that is based on the Fund’s then most recent previous fiscal year.

² Morningstar category: Foreign Large Growth, Number of funds in category: 214. The overall Morningstar Rating in the Fund is derived from a weighted average of the risk-adjusted performance figure associated with its 3- year Morningstar Rating metrics.

 

Portfolio management

Brian O'Neill
Senior Investment Manager 

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Yu-Jen Shih
Portfolio Manager, Investment Equities

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Top ten holdings %
(as of 4/30/12)

Standard Chartered (UK)	3.2
WPP (UK)	2.7
BG Group (UK)	2.6
SGS (Switzerland)	2.5
Syngenta (Switzerland)	2.5
Sanofi (France)	2.4
Xstrata (UK)	2.3
Saipem (Italy)	2.3
Tokio Marine (Japan)	2.2
ASML Holdings (Korea)	2.2

A comany's country classification is based on multiple factors including legal domicile and underlying exposure of its business.

• Full holdings list

Performance

Relative performance as of 3/31/12

I-share inception date 1/31/08, Inception date of Class A and C shares 12/31/10. For periods prior to the inception of Class A and C rates of return are based on Class I NAVs adjusted for the higher expenses associated with Class A and C shares.

Lipper rankings are based on total return and do not reflect a sales charge. 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 1/01/12 to 3/31/12. This ratio may differ from that presented in the Fund's prospectus.

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 5.75%. 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.

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.

Forward 12-month P/E ratio is calculated using the closing price of portfolio holdings divided by the sum of the 12-month forward earnings per share. P/B ratio is calculated using the closing price of portfolio holdings divided by the most recent fiscal year end book value. Both calculations take into account the respective weightings of portfolio holdings. Beta is a quantitative measure of the volatility of a given stock, mutual fund, or portfolio, relative to the overall market. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets, excluding the US and Canada. The Fund may invest in emerging markets while the index only consists of companies in developed markets. It is not possible to invest directly in any index or average.

Fund overview

The Fund seeks to achieve long-term capital appreciation primarily through investment in equities of non-US companies. Stock selection is based on a fundamental bottom-up all cap approach, with a growth at a reasonable price investment style. By combinging a global perspective with regional market expertise, the Fund is enhanced by a supporting economic and strategic framework. The Portfolio Manager follows an all capitalization strategy focusing primarily on the developed markets of Europe, Australia and the Far East (EAFE) with selective investments also made in emerging markets to a maximum of 20%. The Fund is managed by Brian O'Neill and Yu-Jen Shih.

Quarterly update

2012 began with one of the strongest starts to a calendar year since 1998 as risk assets found favor after a volatile end to 2011. Growth sensitive sectors such as consumer discretionary, materials, industrials and information technology delivered some of the strongest returns. Financials also participated in the rally buoyed by the increased liquidity from the European Central Bank and positive earnings and banking stress test results in the US. Emerging markets generally outperformed developed markets, despite China being a laggard, and international small-cap companies outperformed large-cap.

Fund performance

During the quarter the Fund outperformed the MSCI EAFE Index. Stock selection in Asia-Pacific ex-Japan and Europe, including the UK, added the most value as consumer discretionary and cyclical exposure benefited from the increase in investor risk appetite and stocks recovered from a volatile Q4 2011. Within the consumer discretionary sector positions in Hong Kong listed, luxury retailer Prada and UK media and advertising company WPP were the most positive. Within the industrial sector, Keppel Corporation and Spectris benefited from rising demand for oil rigs and improving efficiency trends respectively. Financials was the only significant underperformer during the quarter. Actions by the ECB to improve liquidity and a positive settlement to the latest Greek crisis underpinned a recovery in European banks where the fund remains cautious and underweight. However, this was somewhat offset by positive performance from positions in Singaporean bank DBS Group and investment bank Credit Suisse. Within Japan, on-line retailer Rakuten underperformed after reporting slower than expect growth; however, the stock recovered strongly later in the quarter. Additionally, holdings in the more defensive Shire Pharmaceutical and Unilever detracted from returns.

Investment activity

During the quarter we added selectively to reduce the Fund’s underweight in financials by adding French Insurer Axa and Japanese insurer Tokio Marine, both of which have attractive growth profiles, solid balance sheets and un-demanding multiples. We also added consumer technology exposure through new positions in Hon Hai, which manufactures Apple’s products and Samsung Electronics, funded through sales of Ericsson and Softbank. We also sold out of Macau casino and resorts operator Sands China and hearing aid manufacturer William Demant as they had reached our price targets.

Outlook

The equity market has benefited from a reduction in tail risks around the Eurozone debt crisis; however to make further progress we need to see global macroeconomic data continue to support the economic expansion and for companies to continue to report better than expected earnings; this may not be a smooth journey as China shifts from an investment led to consumption led economy. At the company level, earnings have generally been better than quite downbeat expectations; however managements have maintained their cautious stance on forward looking statements. In this environment we continue to invest in companies which we believe can grow their earnings in the current market conditions, and that these companies’ stock prices will attract a premium.

Prospectus/SAI

International All Cap Equity Fund