Portfolio Commentary

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3Q17 Portfolio Commentary

Research Fund Investment Environment

Portfolio Management

During the quarter, U.S. stocks overcame geopolitical concerns to end the period in positive territory. Tensions between North Korea and the U.S. caused benchmarks to pull back in August, as President Trump vowed to hit North Korea with “fire and fury” if the Asian country threatened the U.S. A terrorist attack in Barcelona, Spain, also weighed on equities, as did worries over Hurricanes Harvey and Irma. However, positive corporate earnings and strong economic data helped stocks to rally. Indeed, during the period, the Commerce Department reported that the U.S. economy expanded by 3% from April to June, with economists expecting a similar pace of growth for the third quarter. Crude prices rose on production cuts and strong demand, and the Federal Reserve (Fed) left its benchmark rate unchanged, while announcing it would start to unwind its balance sheet in October. Stocks received another boost late in the period as the market welcomed the Trump administration’s tax-reform proposal.

Performance Discussion The Fund underperformed its primary benchmark, the Russell 1000 Growth Index, and its secondary benchmark, the S&P 500 Index. Our goal is to provide consistent outperformance over the long term by focusing on what we consider our strengths: picking stocks and avoiding macroeconomic risks. Stocks are selected by our six sector teams, which employ a bottom-up, fundamental approach to identify what we consider the best opportunities. In shorter periods, our portfolio may lag the benchmark as it did this quarter. Our holdings in the health care and technology sectors detracted the most from relative results. United Continental was one of our largest detractors. The company’s management team has said it will lower prices to challenge competitors that add capacity in their hub markets. While renewed worries about a price war negatively affected the stock, we agree with United’s near-term approach. In our view, United has a stronger financial position than its competitors and can withstand a price war to defend its market share in key cities. Once low-cost carriers back out of those markets, we expect United to remain disciplined with capacity and pricing. We also believe the backdrop for United remains constructive as U.S. vacation and business travel demand remains high and Chinese travel – which is a larger market for United than other major airlines – remains strong. Dexcom was another detractor. The company manufactures and distributes continuous glucose monitoring (CGM) systems for diabetes management. The stock was down after news that the FDA approved a competitor’s CGM system. We feel that Dexcom’s systems include

Highlights • U.S. stocks gained during the quarter, overcoming geopolitical concerns to end the period in positive territory. • The Fund underperformed its benchmark. • We think equity markets can rise, but we expect a broader dispersion of stock performance than we have seen in recent years because we believe there will be a broader range of earning outcomes. Page 1 of 4

Team Managed

3Q17 Portfolio Commentary differentiated product features, however, and continue to own the stock. Equifax also detracted. The stock fell significantly, following news that a data breach exposed sensitive information for millions of consumers. The company’s chairman and CEO departed soon after. While the breach is serious and will continue to garner negative media attention, we continue to hold the stock. Much of the cost of remediating the data breach will be covered by cyber insurance, and while the data breach is a reputational black eye, credit scores are an integral part of the U.S. financial plumbing system and Equifax remains an integral part of that ecosystem. The company also remains a valuable partner to underwriters. While those stocks detracted from our performance, we were pleased by the results of many other companies in our portfolio. Facebook was a top contributor to performance. Better-than-expected earnings and revenue growth drove the stock this quarter. The company also reported healthy user growth and engagement in its most recent quarterly report. We continue to like the stock and believe the company is poised to benefit from the secular tailwind of advertising spending shifting to mobile and online video platforms.

Microsoft was another contributor. The company produced another quarter of solid earnings growth, and the stock has continued to rise as the market appreciates the transition of its business model from an on-premises software company to an enterprise cloud business. Transitioning to a subscription-based model for its software and services has benefited the company, but we trimmed the stock during the quarter as it approached our valuation target. Mastercard also contributed. The stock was up after the company raised guidance and issued an upbeat outlook at its investor day. We were particularly encouraged to see the company is expanding its addressable market, moving more into business-to-business and business-to-consumer payments. Mastercard is a longtime holding that we have discussed in previous commentaries, and our reasons for owning the company remain the same. Over the long term, we believe payments companies such as Mastercard are poised to benefit as consumers and businesses switch from cash and check to plastic and electronic payments. Mastercard is particularly well positioned to benefit from this shift because a majority of its revenues are generated outside the U.S., where many markets have a lower penetration of card and electronic payments and are experiencing significantly faster electronic purchase volume growth.

For detailed performance information, please visit janushenderson.com/performance.

Outlook We think equities remain attractive and earnings growth should continue to drive returns. It does not mean a pure growth rally. Stocks with low multiples based on earnings and book value, such as financials and some cyclical industrials, could rally. Economic recovery or rising rates have the potential to release pent-up earnings growth in some of these firms. We don’t think defensive stocks, among them, consumer staples or higherdividend-yielding companies, will fare as well. These stocks are more often found in value indices. We still like health care and technology because the

right companies in these sectors have tremendous growth and compelling business models. The wrong companies in these sectors, by the way, face pressure from a lack of innovation and an eroding competitive position. That importance between winning and growing companies and the challenged laggards is a compelling story of the market today. We think equity markets can rise, but we expect a broader dispersion of stock performance than we have seen in recent years because there will be a broader range of earning outcomes. This dynamic underpins the case for active investing.

Top Contributors and Detractors for the Quarter Ended 9/30/17 Top Contributors

Ending Weight (%)

Contribution (%) Top Detractors

Ending Weight (%)

Contribution (%)

Facebook Inc

3.43

0.41

Altria Group Inc

1.39

-0.31

Microsoft Corp

3.69

0.37

United Continental Holdings Inc

0.95

-0.23

Alphabet Inc

5.69

0.31

Dexcom Inc

0.76

-0.22

Mastercard Inc

1.92

0.28

Envision Healthcare Corp

0.49

-0.19

Apple Inc

3.81

0.28

Equifax Inc

0.51

-0.16

The holdings identified in this table, in compliance with Janus Henderson policy, do not represent all of the securities purchased, held or sold during the period. To obtain a list showing every holding as a percentage of the portfolio at the end of the most recent publicly available disclosure period, contact 800.668.0434 or visit janushenderson.com/info.

Top Contributors

Top Detractors

Facebook: The social networking website facilitates the sharing of information, photographs, website links and videos among family, friends and coworkers. We believe the company will be among the few mobile platform operators that disproportionately benefit from meaningful new

Altria Group: The tobacco company remains an attractive holding given its historical ability to generate significant levels of cash, a high percentage of which is returned to shareholders via dividends and share buybacks. We think despite declining cigarette volumes in the U.S.,

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3Q17 Portfolio Commentary Top Contributors (continued)

Top Detractors (continued)

developments in advertising/marketing models, which we expect will develop over the next several years. In particular, we think we are in the early phase of advertising dollars shifting to mobile, where Facebook is gaining traction with app developers, direct response advertisers, brand advertisers and small- to medium-size businesses.

Altria’s cash flows will grow moderately over time as the company continues to improve margins and grow the non-cigarette business. We also believe the company will benefit from an industry shift toward heatnot-burn products that significantly reduce health risks and could stem volume declines.

Microsoft: The company develops, manufactures, licenses, sells and supports software products. We like the growth potential of its enterprise cloud platform, and also believe it will benefit as it continues to transition its software programs from a perpetual license model to a subscription based service. However, we trimmed the position this quarter as the stock approached our valuation target.

United Continental Holdings: United Continental is one of the world’s largest airline carriers. The company has upside potential, in our view. Returns on invested capital are rising and likely to improve due to scale advantages after United’s merger with Continental. Moreover, the airline industry has pricing power for the first time in years due to capacity reductions in the industry.

Alphabet: We believe the Internet search engine leader, which was formerly known as Google, is well positioned with a resilient core search business and optionality around YouTube, cloud computing, and hardware. The company is benefiting from the secular shift toward mobile, video, programmatic, and cross-device advertising.

Dexcom: Dexcom manufactures and distributes continuous glucose monitoring (CGM) systems for diabetes management. We expect more rapid adoption of CGMs as the FDA moves more quickly to approve newer-generation technologies such as Dexcom’s G6. Eventually, we believe that CGM will largely replace finger sticks, not only for persons with Type 1 diabetes, but all insulin-using diabetics. We believe Dexcom has the industry’s most accurate sensor and strongest pipeline, and expect the company to benefit from this transition.

Mastercard: The global card payment network connects consumers, financial institutions, merchants, governments and businesses, enabling them to use electronic forms of payment instead of cash and checks. We like Mastercard for its high returning business and growth potential as well as its strong balance sheet and quality management team. A majority of its revenues are generated outside the U.S., where many markets have a lower penetration of card/electronic payments and are experiencing significantly faster electronic purchase volume growth. Apple: We have some exposure to Apple but are underweight the stock relative to our index because we’re less optimistic about its long-term earnings potential after the iPhone 8 and iPhone X product cycle.

Envision Healthcare: Envision Healthcare provides physician outsourcing services to hospitals and owns outpatient surgery centers. We believe changes to reimbursement and regulatory requirements will increasingly cause hospitals to accelerate the outsourcing of the hiring, management and coordination of physicians, which could be a long-term tailwind for Envision. We also believe the company’s recent merger with AMSURG creates a more robust offering to hospitals and health systems, and will also provide opportunity for margin expansion due to economies of scale. Equifax: Equifax is one of the three largest credit reporting agencies in the U.S. Its primary business is collecting data on consumer credit behavior and selling credit scores. Lately, the company has been diversifying the business, launching new products that address health care eligibility, labor compliance analytics, debt collection optimization and changes in mortgage underwriting guidelines. We believe these products will add meaningfully to revenue growth for the next few years.

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3Q17 Portfolio Commentary

For more information, please visit janushenderson.com. Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus Henderson at 800.668.0434 or download the file from janushenderson.com/info. Read it carefully before you invest or send money. Past performance is no guarantee of future results. Call 800.668.0434 or visit janushenderson.com/performance for current month-end performance. Discussion is based on the performance of Class I Shares. As of 9/30/17 the top ten portfolio holdings of Janus Henderson Research Fund are: Alphabet Inc (5.62%), Apple Inc (3.76%), Microsoft Corp (3.64%), Amazon.com Inc (3.43%), Facebook Inc (3.38%), Visa Inc (2.30%), Adobe Systems Inc (2.20%), Mastercard Inc (1.89%), Coca-Cola Co (1.82%) and Eli Lilly & Co (1.82%). There are no assurances that any portfolio currently holds these securities or other securities mentioned. The opinions are as of 9/30/17 and are subject to change at any time due to changes in market or economic conditions. Janus Henderson may have a business relationship with certain entities discussed. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. Security contribution to performance is measured by using an algorithm that multiplies the daily performance of each security with the previous day’s ending weight in the portfolio and is gross of advisory fees. Fixed income securities and certain equity C-0917-13304 01-15-18

securities, such as private placements and some share classes of equity securities, are excluded. Performance may be affected by risks that include those associated with nondiversification, portfolio turnover, short sales, potential conflicts of interest, foreign and emerging markets, initial public offerings (IPOs), high-yield and highrisk securities, undervalued, overlooked and smaller capitalization companies, real estate related securities including Real Estate Investment Trusts (REITs), derivatives, and commodity-linked investments. Each product has different risks. Please see the prospectus for more information about risks, holdings and other details. Russell 1000® Growth Index reflects the performance of U.S. large-cap equities with higher price-to-book ratios and higher forecasted growth values. S&P 500® Index reflects U.S. large-cap equity performance and represents broad U.S. equity market performance. Index performance does not reflect the expenses of managing a portfolio as an index is unmanaged and not available for direct investment. Janus Henderson is a trademark of Janus Henderson Investors. © Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarl and Janus International Holding LLC. Funds distributed by Janus Henderson Distributors

188-42-16670 10/17

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