Portfolio Commentary

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2Q18 Portfolio Commentary

Concentrated Growth Composite Investment Environment • U.S. stocks delivered gains during the quarter as a result of solid corporate earnings and increased merger-and-acquisition activity. • However, investors also had to contend with bouts of market volatility, as rising trade tensions threatened to weigh on business confidence and the formation of a populist government in Italy created uncertainty in Europe. • On a sector basis, energy was a top performer, benefiting from rising crude prices. Technology and consumer discretionary stocks also delivered strong returns. Sectors that detracted included industrials and financials.

Doug Rao Portfolio Manager

Performance Discussion The Fund outperformed its benchmark, the Russell 1000® Growth Index, during the quarter. As part of our investment strategy, we seek companies that have built clear, sustainable competitive moats around their businesses, which should help them grow market share within their respective industries over time. Important competitive advantages could include a strong brand, network effects from a product or service that would be hard for a competitor to replicate, a lower cost structure than competitors in the industry, a distribution advantage or patent protection over valuable intellectual property. We think emphasizing these sustainable competitive advantages can be a meaningful driver of outperformance over longer time horizons because the market often underestimates the duration of growth for these companies. This quarter many of the companies in our portfolio continued to put up impressive results and validated our view that they are well positioned to grow in excess of the market. Amazon was our top contributor. The stock was up after the company’s quarterly results topped consensus revenue and earnings estimates. Accelerating revenue for its nascent advertising business was particularly impressive. Amazon is a longtime holding in our portfolio and our views on the company remain the same: The company’s scale and distribution advantage have entrenched it as the dominant e-commerce platform, which should allow it to continue gaining consumer wallet share as shopping gravitates to online and mobile purchases. Meanwhile, Amazon Web Services is revolutionizing the way companies utilize IT services, using its scale to offer a disruptive pricing model to businesses seeking IT functions in the cloud. Salesforce was another stock that contributed meaningfully to performance. Another quarter of strong revenue growth and continued appreciation for its business model drove the stock higher. We continue to like Salesforce’s position as a leader in cloud-based enterprise software, and

Highlights • U.S. stocks delivered gains during the quarter as a result of solid corporate earnings and increased merger and acquisition activity. • The Portfolio outperformed its benchmark. • We like how our portfolio is positioned, and believe many of our holdings underpin the most powerful secular growth themes in today’s economy. Page 1 of 4

Nick Schommer, CFA Portfolio Manager

2Q18 Portfolio Commentary believe it will benefit as marketing and sales departments move more functions from on-premises software to the cloud, and as the company moves into new adjacencies beyond sales and marketing verticals. Mastercard was another top contributor. The company has strung together several quarters of strong revenue and earnings growth, validating its longterm potential. Mastercard is a longtime holding in the portfolio, and similar to some of our other top contributors this quarter, the secular tailwinds and competitive advantages underpinning our investment thesis remain unchallenged. Our long-term view is that there are network effects buttressing established payments businesses such as Mastercard, and that the company is 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. While pleased with the performance of most companies in our portfolio, we also held stocks that detracted from performance. Nektar Therapeutics

was our largest detractor. Shares of the biotech company fell after a clinical trial update on the company’s experimental immuno-oncology treatment, NKTR-214, showed melanoma patients did not react as well to the drug as in earlier samples. While the results were a setback, we continue to hold the stock. Goldman Sachs also detracted. The company announced plans to expand more heavily into consumer finance, which disappointed the market. Goldman also has less exposure to equity markets than some of its investment banking peers, which may have affected the stock this quarter. We believe the relationships Goldman has built with corporate clients and investors around the world give it a competitive advantage, and it can use that information to drive growth. However, we are not seeing the type of share gains we would have expected, and are reviewing the stock. Starbucks also detracted. The stock was down after the coffee company revised down its fiscal year 2018 guidance, due in large part to slowing growth in China. While the company will likely begin returning more cash to shareholders, its future growth has been called into question and we are reviewing the stock.

For detailed performance information, please contact a Janus Henderson Institutional team representative.

Outlook We are encouraged by the strength of the U.S. economy. While the expansion period has been long, the recovery has been muted and annual growth over the past decade has been near historical lows, leading us to believe we are still in the middle innings of expansion. While a trade war would be a headwind for growth, we still think that outcome is far from certain. Further, we believe other tailwinds such as deregulation and tax cuts could still buttress economic growth. Valuations, however, look more full, and against that backdrop, companies will need to demonstrate earnings growth to drive further stock price

appreciation. We believe our portfolio is well positioned for this environment. Many of our holdings underpin some of the most powerful secular growth themes in today’s economy: the shift from traditional brick and mortar shopping to online spending, the switch of enterprise software from on-premises to the cloud, a proliferation of connected devices in the home and business, the shift in autos from the combustible engine to electronic vehicles and a growing global middle class, to name a few. While these themes may be well known, they are still nascent in their development. We remain confident in our companies’ ability to grow earnings as these themes progress, and welcome an environment where earnings growth is a key determinant of stock performance.

Representative Account Top Contributors and Detractors for the Quarter Ended 6/30/18 Top Contributors

Ending Weight (%)

Ending Weight (%)

Contribution (%)

Amazon.com Inc

6.22

0.97

Nektar Therapeutics

0.37

-0.46

Salesforce.com Inc

5.09

0.81

Starbucks Corp

1.97

-0.40

Mastercard Inc

6.24

0.78

Goldman Sachs Group Inc

0.50

-0.24

Facebook Inc

3.75

0.62

Celgene Corp

1.44

-0.23

Boston Scientific Corp

2.73

0.47

TE Connectivity Ltd

1.64

-0.18

Contribution (%) Top Detractors

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 recently available disclosure period contact a Janus Henderson institutional team representative.

Top Contributors

Top Detractors

Amazon: The online retailer offers a wide range of products, including books, music, computers, electronics, home and garden, and numerous other products. Amazon offers personalized shopping services, webbased credit card payment and direct shipping to customers. We believe the company’s competitive advantages of a low overhead cost structure,

Nektar Therapeutics: We like the drug delivery technology company for its proven technology that allows it to generate royalties and a pipeline of interesting products. Nektar’s PEGylation technology increases the durability of drugs and potentially improves their properties in the body. The company has a range of products either recently

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2Q18 Portfolio Commentary Top Contributors (continued)

Top Detractors (continued)

allowing an aggressive pricing structure, and faster shipping will cause consumers to shift an increasing amount of their general merchandise spending toward it. Given that roughly 90% of retail sales are still sold offline, we believe Amazon has significant opportunities ahead, particularly as they expand into new business lines and geographies.

approved or in development for indications such as immuno-oncology, pain and auto-immune diseases.

Salesforce: Salesforce is a global cloud computing company best known for its customer relationship management (CRM) solutions. We believe the flexibility and low-cost nature of the company’s cloud-based offerings give it a competitive advantage over on-premises legacy solutions. 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 return on invested capital 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 cards/electronic payments and are experiencing significantly faster electronic purchase volume growth. Facebook: The social networking website facilitates the sharing of information, photographs, website links and videos among family, friends and coworkers. We believe the company is a large beneficiary as advertising dollars shift to mobile channels. However, we trimmed the position in recent months and are slightly underweight the benchmark due to concerns about the regulatory implications around its user data and also due to concerns about growing capital spending from the company. Boston Scientific: The medical device maker offers a range of products in applications including cardiovascular, pulmonary, digestive, urological and women’s health. We are encouraged by management’s initiatives to boost its product pipeline, operating margins and revenue growth. New product launches, especially in the cardiovascular field, have been encouraging. We view the company as a beneficiary of consolidation, either as a potential target or as an acquirer of smaller companies that management identifies as synergistic to existing operations.

Starbucks Corp.: We are reviewing the position due to slowing growth for the coffee retailer. While the company has matured faster than the market anticipated, we still see potential for Starbucks to return significant capital to shareholders. Goldman Sachs: Goldman Sachs is a multinational financial services company engaged in global investment banking, investment management, securities and other financial services, primarily with institutional clients. We think there are powerful network effects around Goldman’s business. The company’s relationships with corporations, mutual funds, hedge funds, sovereign wealth funds and other institutional clients give it valuable information about markets it can leverage to build new relationships. We also like that the company has demonstrated an ability to profitably navigate both cyclical and secular challenges to its business, and has continued to invest in technology, which it is using to displace old ways of doing business in many financial industries. Celgene: This global biotechnology company seeks to deliver innovative drugs for the treatment of cancer and other severe immune, inflammatory conditions. We are monitoring the position, but at this valuation after some disappointing results, we do not feel the market is giving Celgene enough credit for the cash flow generation potential of its blood cancer treatment, Revlimid, or the potential of other products in its pipeline. TE Connectivity: TE Connectivity designs and manufactures products that connect and protect the flow of power and data inside a number of products used by consumers and industries. The company holds a leading position in electronic connectors, an attractive industry, in our view. TE Connectivity has historically generated high free cash flow and it has improved its operating leverage as a result of a restructuring effort during the 2008-2009 recession. We also appreciate the company’s healthy dividend and stock buyback program.

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2Q18 Portfolio Commentary

For more information, please visit janushenderson.com. Past performance is no guarantee of future results. Discussion is based on performance gross of fees. Information relating to portfolio holdings is based on the representative account in the composite and may vary for other accounts in the strategy due to asset size, client guidelines and other factors. The representative account is believed to most closely reflect the current portfolio management style. As of 6/30/18 the top five portfolio holdings of the Representative Account are: Mastercard Inc (6.23%), Amazon.com Inc (6.22%), Microsoft Corp (5.71%), Alphabet Inc (5.70%) and Salesforce.com Inc (5.09%). There are no assurances that any portfolio currently holds these securities or other securities mentioned. Portfolio holdings are as of the date indicated, and are subject to change. This material should not be construed as a recommendation to buy or sell any security. The opinions are as of 6/30/18 and are subject to change without notice. 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 securities, such as private placements and some share classes of equity securities, are excluded. C-0618-18334 10-30-18

Investing involves risk, including the possible loss of principal and fluctuation of value. Concentrated Growth portfolios, benchmarked to the Russell 1000® Growth Index, take concentrated positions in larger well-established companies along with smaller, more aggressive positions selected for their growth potential. A typical portfolio concentrates its investments in 30 to 40 equity securities. Effective January 1, 2005 the composite definition was changed to include sub-advised pooled funds as well as separately managed institutional accounts. Effective January 1, 2009 the composite definition was expanded to also include proprietary mutual funds. Prior to 2006 the composite was known as the Concentrated Aggressive Growth composite. A minimum asset size requirement of $5 million for composite participation was used prior to January 1, 2006. The composite was created in January 2005. 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. Janus Capital Management LLC serves as investment adviser. FOR INSTITUTIONAL INVESTOR USE ONLY / NOT FOR PUBLIC VIEWING OR DISTRIBUTION

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