Certified Semi-annual Shareholder Report for Management Investment Companies (n-csrs)

Emerging Markets Opportunities Fund

 

Portfolio composition by country		Portfolio composition by sector
(as a % of long-term investments)		(as a % of long-term investments)

 

Investment comparison

Value of $10,000

 

 

Total returns as of January 31, 2014										Since
		NASDAQ		Six		One		Three		inception
At NAV		symbol		months		year		years*		(12/31/2010)*
Class A		HEMAX		0.82	%	-6.14	%	-3.74	%	-4.17	%
Class C		HEMCX		0.36		-6.98		-4.51		-4.91
Class I		HEMIX		0.94		-6.03		-3.56		-3.96
With sales charge
Class A				-4.99	%	-11.57	%	-5.63	%	-5.99	%
Class C				-0.64		-6.98		-4.51		-4.91
Index
MSCI Emerging Markets Index				-0.21	%	-9.85	%	-3.03	%	-3.80	%

 

* Average annual return.

 

Performance data quoted represents past performance and is no guarantee of future results. Due to the Fund’s relatively small asset base, performance may be impacted by IPOs to a greater degree than it may be in the future. IPO investments are not an integral component of the Fund’s investment process and may not be utilized to the same extent in the future. Performance results with sales charges reflect the deduction of the maximum front-end sales charge 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 C shares are subject to a CDSC of up to 1% on certain redemptions made within 12 months of purchase. Performance presented at Net Asset Value (NAV), which does not include a sales charge, would be lower if this charge were reflected. NAV is the value of one share of the Fund excluding any sales charges. 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. As stated in the current prospectus, the Fund’s annual operating expense ratios (gross) for Class A, C and I shares are 2.16%, 2.88% and 1.81%, respectively. However, the Fund’s adviser has agreed to contractually waive a portion of its fees and/or reimburse other expenses such that total ordinary operating expenses, less distribution and service fees, do not exceed 1.79%, 2.54% and 1.54% for Class A, C and I shares, respectively, which is in effect until July 31, 2015. For the most recent month-end performance, please call 1.866.443.6337 or visit the Funds’ website at www.henderson.com.

 

Performance results also reflect expense subsidies and waivers in effect during periods shown. Absent these waivers, results would have been less favorable. All results assume the reinvestment of dividends and capital gains.

 

The investment comparison graph above reflects the change in value of a $10,000 hypothetical investment since the Fund’s inception, including reinvested dividends and distributions, compared to a broad based securities market index. The MSCI Emerging Markets Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of emerging markets. The Fund is professionally managed while the Index is unmanaged and not available for investment and does not include fees, expenses or other costs. Results in the table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Commentary

 

European Focus Fund

 

Improving global economic data underpinned the rally in equities over the majority of the period, with Europe (ex-UK) markets delivering the best returns, further boosted as investors continued to increase their weighting to the region. The European Central Bank (ECB) cut interest rates to 0.25% which was encouraging in light of the intent shown not to let deflation in European economies become established. Toward the end of the year the US Federal Reserve (Fed) decided to start ‘tapering’ the amount of open market bond purchases; in contrast to the initial market reaction in May, investors took the decision as good news choosing to focus on the Fed’s flexible rhetoric and the strength of the global economy rather than the withdrawal of liquidity. However, a number of developments shook market confidence in January and caused a notable swing in sentiment with a broad impact across asset classes and regions – primarily the impact of tapering on Emerging Markets. In addition, concerns over Europe slipping into a deflation trap grew.

 

For the reporting period ended January 31, 2014, the Fund returned 16.83% (class A at NAV) versus the benchmark, MSCI Europe Index, which posted a return of 9.83%. The overweight exposures to industrials, financials and consumer discretionary drove performance. The investment focus over the period was on increasing exposure to European focused companies which we believed were set to

 

 

benefit from European recovery. The increase in exposure to financials was the biggest shift in positioning and a significant contributor to performance. CaixaBank, Commerzbank, Direct Line, BBVA and HSBC were among the leading positions for the Fund. Highlights from the holdings in industrials and consumer discretionary included KION Group, forklift operator; AP Moller-Maersk, shipping conglomerate; Continental, auto parts manufacturer; RTL Group, multi-media and Accor, hotel chain.

 

Notable purchases included BBVA and HSBC as both had features not fully recognized by investors –namely a stabilizing Spain and sensitivity to steepening yield curves, respectively. Other additions to financials included Commerzbank, a recovery play and Erste Bank Group following a fund raise. Additions in other areas included semiconductor machinery manufacturer ASML Holding, mobile company Nokia, Spanish infrastructure company Tecnicas Reunidas and industrial inspection firm SGS. Market conditions and sector aversion created attractive entry points into resource plays including Lundin Mining Corp and Glencore Xstrata. Recent volatility in Emerging Markets has created selective opportunities in Turkey where the central bank has recently enacted policy action to ensure price stability and currency support. We made small investments in Halk Bankasi and the airline Turk Hava Yollari.

 

We suspect that the recent pullback is a healthy correction and on deflation, continental Europe is only just showing signs of better economic news. The ECB could develop further policies to stimulate demand and avert deflation if the need arises (they have been vocal in their recognition of the risks). We maintain our view that Europe is under-appreciated and there remains valuation upside, particularly versus the US, and we suspect positive earnings surprises as recovery takes hold. There will undoubtedly be some difficult phases but we believe the overall case remains a good one and offers upside for the portfolio.

 

* For further detail about these holdings, please refer to the section entitled “Portfolios of Investments.” Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security.

 

 

* Average annual return.

 

** Class I (formerly Class W) shares commenced operations on March 31, 2009. The performance for Class I shares for the period prior to March 31, 2009 is based on the performance of Class A shares. Performance for Class I shares would be similar because the shares are invested in the same portfolio of securities and have the same portfolio management. Class I shares are not subject to a front-end sales charge or a distribution fee.

 

Performance data quoted represents past performance and is no guarantee of future results. Performance results with sales charges reflect the deduction of the maximum front-end sales charge 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 1st year to 0% at the beginning of the 7th year. Class C shares are subject to a CDSC of up to 1% on certain redemptions made within 12 months of purchase. Performance presented at Net Asset Value (NAV), which does not include a sales charge, would be lower if this charge were reflected. NAV is the value of one share of the Fund excluding any sales charges. 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. As stated in the current prospectus, the Fund’s annual operating expense ratios (gross) for Class A, B, C and I shares are 1.51%, 2.33%, 2.28% and 1.21% respectively. As stated in the Statement of Additional Information (SAI), the Fund’s adviser has agreed to contractually waive a portion of its fees and/or reimburse other expenses such that total ordinary operating expenses, less distribution and service fees, do not exceed 2.00%, 2.75%, 2.75% and 1.75% for Class A, B, C and I shares, respectively, which is in effect until July 31, 2020. For the most recent month-end performance, please call 1.866.443.6337 or visit the Funds’ website at www.henderson.com.

 

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

 

The investment comparison graph above reflects the change in value of a $10,000 hypothetical investment since the Fund’s inception, including reinvested dividends and distributions, compared to a broad based securities market index. The MSCI Europe Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe. The Fund is professionally managed while the Index is unmanaged and not available for investment and does not include fees, expenses or other costs. Results in the table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Commentary

 

Global Equity Income Fund

 

Global equity markets rose during the second half of 2013, led by the US as economic data proved resilient through a federal government shutdown and the decision by the Federal Reserve (Fed) in December to begin scaling back quantitative easing. Emerging Market equities underperformed, as the beginnings of monetary tightening from the US led to worries of foreign capital outflows and subsequent currency pressure. Investors became nervous in January and equities fell largely as a result of the potential domino effects of contagion from the Emerging Markets. Economic data in the developed markets however continued to strengthen, particularly in the UK and Japan.

 

For the reporting period ended January 31, 2014, the Fund returned 4.52% (Class A at NAV) versus the benchmark, MSCI World Index, which posted a return of 7.10%. The Fund continued to meet its high income objectives over the period. The Fund’s low weighting in lower yielding areas such as the US led to relative underperformance versus the broader market’s rally. One of the best performers at the stock level was telecommunications company Vodafone following news that they would be selling their 45% Verizon Wireless stake. Also amongst the top performers was Dow Chemical, which is taking steps to reduce its commodity chemicals exposure.

 

Top 10 long-term holdings*
(at January 31, 2014)
	As a percentage
Security	of net assets
Vodafone Group plc			3.3	%
Novartis AG			3.0
Royal Dutch Shell plc, A Shares			2.5
National Grid plc			2.4
British Sky Broadcasting Group plc			2.1
Smiths Group plc			2.1
Westfield Retail Trust			2.1
Siemens AG			2.0
Deutsche Post AG			1.9
GlaxoSmithKline plc			1.9

 

We believe that over time this will increase the predictability of earnings and may result in a higher earnings multiple for the shares.

 

Toward the end of the period the Fund reduced its US weighting. While we believe the US will continue to perform well, we are finding more value in shares internationally. The Fund increased its weighting in Japan, where dividends are slowly rising and prospects for economic growth are improving. The Fund remained overweight Europe where we see a large valuation gap as a result of the difficulty the region has endured. Many high quality international companies listed in Europe have been trading at significant discounts. Forecasts for economic growth in Europe are stabilizing, and we think the valuation gap can continue to close.

 

The Fund has broad sector exposure but our favored area right now is financials, such as banks and insurers, where we are finding relatively attractive valuations and dividend yields. In banks, capital ratios have risen and prospects for earnings and dividend growth are improving. The Fund placed a small currency hedge on the Australian dollar. While we are positive on share prices and valuations in Australia we are less keen on the currency. The Fund also has a significant exposure to the pharmaceuticals sector where fundamentals and value still appeal.

 

As quantitative easing from the Fed is gradually withdrawn during 2014, there will likely be continued short-term volatility in equity markets. However, the reduction of monetary loosening as a result of economic recovery can be a positive for developed market equities as companies have greater potential for sales and earnings growth. In the context of strong corporate balance sheets and improving domestic economies in areas such as the US and UK, we remain comfortable with our positioning in the Fund.

 

* For further detail about these holdings, please refer to the section entitled “Portfolios of Investments.” Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security.

 

Performance summary

 

 

* Average annual return

 

** Class I (formerly Class W) shares commenced operations on March 31, 2009. The performance for Class I shares for the period prior to March 31, 2009 is based on the performance of Class A shares. Performance for Class I shares would be similar because the shares are invested in the same portfolio of securities and have the same portfolio management. Class I shares are not subject to a front-end sales charge or a distribution fee.

 

Performance data quoted represents past performance and is no guarantee of future results. Performance results with sales charges reflect the deduction of the maximum front-end sales charge 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 C shares are subject to a CDSC of up to 1% on certain redemptions made within 12 months of purchase. Performance presented at Net Asset Value (NAV), which does not include a sales charge, would be lower if this charge were reflected. NAV is the value of one share of the Fund excluding any sales charges. 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. As stated in the current prospectus, the Fund’s annual operating expense ratios (gross) for Class A, C and I shares are 1.23%, 1.99% and 0.96%, respectively. As stated in the Statement of Additional Information (SAI), the Fund’s adviser has agreed to contractually waive a portion of its fees and/or reimburse other expenses such that total ordinary operating expenses, less distribution and service fees, do not exceed 1.40%, 2.15% and 1.15% for Class A, C and I shares, respectively, which is in effect until July 31, 2020. For the most recent month-end performance, please call 1.866.443.6337 or visit the Funds’ website at www.henderson.com.

 

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

 

The investment comparison graph above reflects the change in value of a $10,000 hypothetical investment since the Fund’s inception, including reinvested dividends and distributions, compared to a broad based securities market index. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World High Dividend Yield Index aims to objectively reflect the high dividend yield opportunity set within select MSCI World Index. The Fund is professionally managed while the Indices are unmanaged and not available for investment and do not include fees, expenses or other costs. Results in the table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Commentary

 

Global Technology Fund

 

The reporting period was positive for the technology sector as improving economic data underpinned the rally in global equity markets. The Eurozone emerged from its longest ever recession, and economic news from China exceeded expectations; however, Emerging Markets underperformed given rising US yields and equity outflows. Much of the period was dominated by the prospect of the US Federal Reserve (Fed) tapering its quantitative easing program - the decision earlier in the reporting period to delay tapering triggered a rally in equities. However, renewed tapering concerns as well as volatility in Emerging Markets, which had a broad impact across asset classes and regions, caused a sharp pullback to global markets in January.

 

For the reporting period ended January 31, 2014, the Fund returned 12.96% (Class A at NAV) versus the benchmark, MSCI AC World IT Index, which posted a return of 13.50%. At the sector level, IT services and internet & catalog retail contributed most to the Fund’s performance; however gains were held back by our exposure to software as Citrix, Symantec, Nuance and Cadence Design all underperformed. Google was the largest detractor to performance on

 

Top 10 long-term holdings*
(at January 31, 2014)
	As a percentage
Security	of net assets
QUALCOMM, Inc.			3.2	%
Apple, Inc.			3.0
Google, Inc., Class A			2.8
Western Digital Corp.			2.8
Facebook, Inc., Class A			2.2
FleetCor Technologies, Inc.			2.2
Rightmove plc			2.1
Pandora Media, Inc.			2.1
Time Warner Cable, Inc.			2.1
NetEase.com, Inc., ADR			2.1

 

a relative basis over the period. Pandora, an internet media company, was the leading performer for the Fund and Cognizant reported strong revenues driven by growth in its healthcare and continental European division. Priceline.com, the largest US online travel agent by market value, performed well after reporting strong quarterly sales and Western Digital, the data storage manufacturer, continued to benefit from less competition in the storage market.

 

A position in Baidu, a Chinese internet company, was re-established as we began to see evidence of an inflection in its mobile offering. Web.com was added to the portfolio; the web services company has a strong potential market opportunity emanating from increased online consumer spending and an increased shift of marketing spend to online and mobile. Cisco was trimmed on the back of Emerging Market concerns and Netapp was reduced as we became less confident in the stock due to the impact of cloud computing and competition from EMC.

 

Equity markets rallied strongly driven by better macroeconomic data and very strong inflows despite lackluster sales and overall earnings growth. At some stage, earnings will need to start surprising on the upside in order to sustain upward momentum. US and European demand does seem to be getting better while events in January highlight that Emerging Market economies continue to be the major risk in failing to keep the party going.

 

We believe our overall bias towards companies with strong barriers to entry should cushion the portfolio from macroeconomic volatility. Our valuation-aware process focuses on underappreciated areas of secular growth that offer strong returns over the long-term. The Fund remains biased to our preferred themes of E-Commerce, Online Advertising, Rational Commodities, Connectivity and Paperless Payment.

 

* For further detail about these holdings, please refer to the section entitled “Portfolios of Investments.” Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security.

 

Performance summary

 

 

* Average annual return.

 

** Class I (formerly Class W) shares commenced operations on March 31, 2009. The performance for Class I shares for the period prior to March 31, 2009 is based on the performance of Class A shares. Performance for Class I shares would be similar because the shares are invested in the same portfolio of securities and have the same portfolio management. Class I shares are not subject to a front-end sales charge or a distribution fee.

 

Performance data quoted represents past performance and is no guarantee of future results. Performance results with sales charges reflect the deduction of the maximum front-end sales charge 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 1st year to 0% at the beginning of the 7th year. Class C shares are subject to a CDSC of up to 1% on certain redemptions made within 12 months of purchase. Performance presented at Net Asset Value (NAV), which does not include a sales charge, would be lower if this charge were reflected. NAV is the value of one share of the Fund excluding any sales charges. 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. As stated in the current prospectus, the Fund’s annual operating expense ratios (gross) for Class A, B, C and I shares are 1.50%, 2.32%, 2.27% and 1.23%, respectively. As stated in the Statement of Additional Information (SAI), the Fund’s adviser has agreed to contractually waive a portion of its fees and/or reimburse other expenses such that total ordinary operating expenses, less distribution and service fees, do not exceed 2.00%, 2.75%, 2.75% and 1.75% for Class A, B, C and I shares, respectively, which is in effect until July 31, 2020. For the most recent month-end performance, please call 1.866.443.6337 or visit the Funds’ website at www.henderson.com.

 

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

 

The investment comparison graph above reflects the change in value of a $10,000 hypothetical investment since the Fund’s inception, including reinvested dividends and distributions, compared to a broad based securities market index and an industry focused index. The MSCI AC World IT Index is a free float adjusted market capitalization weighted index designed to measure the equity market performance of the Information Technology stocks within the MSCI AC World Index. The S&P 500 Index is a broad based measurement of changes in stock market conditions based on the average of 500 widely held common stocks. The Fund is professionally managed while the Indices are unmanaged and not available for investment and do not include fees, expenses or other costs. Results in the table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Commentary

 

High Yield Opportunities Fund

 

The high yield market posted a strong return over the period and outperformed most other segments of fixed income including leveraged loans, investment grade corporate bonds, US Treasuries and Emerging Markets corporate and sovereign bonds. Due to the sharp rally in risk assets prevalent throughout most of the period, save for the January pullback, high yield bonds underperformed equities as well as credit default swap indices. The prevailing environment for high yield bonds is favorable by many measures including valuation. New issuance was $33 billion following $25 billion in December and $25 billion in November. For the full year of 2013, new issuance of $398 billion broke the previous record set in 2012 of $368 billion.

 

For the reporting period ended January 31, 2014, the Fund returned 6.57% (class A at NAV) versus the benchmark, Bank of America Merrill Lynch US

 

 

High Yield Master II Constrained Index, which posted a return of 4.65%. Credit selection drove the alpha and was boosted by positive sector allocation, low levels of cash and the absence of bank loans. The Fund’s positioning along the credit ratings curve aided relative performance due to the overweight position in triple-C and single-B rated bonds and underweight in double-B rated bonds. The best performers were Calumet (refining), Swift Energy (oil and gas), Ally Financial (banking), Garda World Security (services) and Pittsburgh Glassworks (auto parts). The worst performers were Claire’s Stores (retail), Advanced Micro Devices (technology) and Emerson (technology).

 

The only major change to the sector weightings in the Fund was a continued relative reduction in our exploration and production (energy) holdings due to relative valuation. We have maintained our overweight exposure to lower quality single-B and higher quality triple-C sectors which has been beneficial to performance versus the benchmark and peer group.

 

Credit fundamentals remain positive and most of the companies that we follow have taken advantage of the easy new issuance market to address any lingering liquidity concerns. As a result, we estimate that default rates will remain low, yet secondary market liquidity will remain challenging. Our main focus during 2014 will be scrutinizing new issues as we are starting to see a reversion to deteriorating credit trends in the new issue calendar as it relates to use of proceeds, covenants, leverage and valuation.

 

* For further detail about these holdings, please refer to the section entitled “Portfolios of Investments.” Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security.

 

Performance summary

 

 

Performance data quoted represents past performance and is no guarantee of future results. Due to the Fund’s relatively small asset base, performance may be impacted by portfolio turnover to a greater degree than it may be in the future. The Fund’s portfolio turnover rate may not be as high in the future. Performance results with sales charges reflect the deduction of the maximum front-end sales charge 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 C shares are subject to a CDSC of up to 1% on certain redemptions made within 12 months of purchase. Performance presented at Net Asset Value (NAV), which does not include a sales charge, would be lower if this charge were reflected. NAV is the value of one share of the Fund excluding any sales charges. 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. As stated in the current prospectus, the Fund’s annual operating expense ratios (gross) for Class A, C and I shares are 2.83%, 3.64% and 1.83%, respectively. However, the Fund’s adviser has agreed to contractually waive a portion of its fees and/or reimburse other expenses such that total ordinary operating expenses, less distribution and service fees, do not exceed 1.10%, 1.85% and 0.85% for Class A, C and I shares, respectively, which is in effect until July 31, 2020. For the most recent month-end performance, please call 1.866.443.6337 or visit the Funds’ website at www.henderson.com.

 

Performance results also reflect expense subsidies and waivers in effect during periods shown. Absent these waivers, results would have been less favorable. All results assume the reinvestment of dividends and capital gains.

 

The investment comparison graph above reflects the change in value of a $10,000 hypothetical investment since the Fund’s inception, including reinvested dividends and distributions, compared to a broad based securities market index. The Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. The Fund is professionally managed while the Index is unmanaged and not available for investment and does not include fees, expenses or other costs. Results in the table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Commentary

 

International Opportunities Fund

 

As a result of encouraging economic data, global equity markets rose for the majority of the reporting period. Investor confidence within Europe continued as investors increased their weighting to the region and the European Central Bank (ECB) cut interest rates to 0.25%. The two main reasons behind the ECB’s decision was the recent appreciation of the Euro and a significant decline in the inflation rate. In Japan, confidence grew that the policies brought in by Prime Minister Abe will lead to a sustained period of economic growth. Toward the end of the year, the Federal Reserve (Fed) decided to start tapering the amount of open market bond purchases; in contrast to the initial market reaction in May, investors took the decision as good news, choosing to focus on the Fed’s flexible rhetoric and the strength of the global economy rather than the withdrawal of liquidity. However, renewed tapering concerns coincided with a return of volatility in Emerging Markets (which had a broad impact across asset classes and regions) and caused a sharp pullback to global markets in January. Asia and Emerging Markets were the key areas affected by China and the Fed’s decision to taper.

 

For the reporting period ended January 31, 2014, the Fund returned 9.92% (class A at NAV) versus the MSCI EAFE Index, which posted a return of 7.60%, with only the Latin American sub-portfolio

 

Top 10 long-term holdings*
(at January 31, 2014)
	As a percentage
Security	of net assets
Continental AG			3.1	%
Fresenius SE & Co., KGaA			3.0
UBS AG			2.9
Roche Holding AG			2.7
Standard Life plc			2.7
Koninklijke Philips N.V.			2.7
Sodexo			2.6
ASML Holding N.V.			2.6
Amadeus IT Holding S.A., A Shares			2.6
Deutsche Post AG			2.6

 

underperforming in the 6-month period in absolute terms. Returns from the Pan-European sub-portfolio drove performance as industrial and consumer discretionary stocks particularly benefitted from the recovery rally in Europe. International Consolidated Airlines Group, Continental, A.P. Moller-Maersk and Deutsche Post were among the leading performers for the Fund.

 

The Fund made a small allocation shift from the Pan-European sub-portfolio to the Japan sub-portfolio, which moved the Japan weight close to 20% of the Fund. Although this weighting is a bit light versus the index weighting of around 21%, we feel the huge political will and reform agenda in Japan makes the region the biggest area of potential during 2014 and we increased our allocation accordingly. Notable purchases in the Japan sub-portfolio included construction firm Sekisui house and automotive manufacturer Toyota Motors. Electronic payment solutions company Cielo was added to the Latin America sub-portfolio and the Pan-European sub-portfolio bought a stake in Richemont, the manufacturer and retailer of luxury goods.

 

Whether the current correction in equity markets proves to be just a pause before prices head higher, or the anticipated tapering in the US heralds more challenging times ahead for equities is unclear. However, stock prices retreated by a meaningful amount in January so the market correction is already well underway. Japan has an advantage in that the authorities’ efforts to rejuvenate activity are relatively young and are predominantly focused on reviving the domestic economy. Global economic data has been improving and business and consumer sentiment indicators are also upbeat. As such, while political and macroeconomic factors are continuing to drive markets and investor sentiment, there are many stock specific opportunities for “bottom-up” fund managers, such as ourselves, to add value.

 

* For further detail about these holdings, please refer to the section entitled “Portfolios of Investments.” Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security.

 

Performance summary

 

 

* Average annual return.

 

** Class R shares commenced operations on September 30, 2005. The performance for Class R shares for the period prior to September 30, 2005 is based on the performance of Class A shares, adjusted for the higher expenses applicable to R shares. Class R shares are not subject to a front-end sales charge but are subject to a distribution fee of 0.50%.

 

*** Class I (formerly Class W) shares commenced operations on March 31, 2009. The performance for Class I shares for the period prior to March 31, 2009 is based on the performance of Class A shares. Performance for Class I shares would be similar because the shares are invested in the same portfolio of securities and have the same portfolio management. Class I shares are not subject to a front-end sales charge or a distribution fee.

 

Performance data quoted represents past performance and is no guarantee of future results. Performance results with sales charges reflect the deduction of the maximum front-end sales charge 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 1st year to 0% at the beginning of the 7th year. Class C shares are subject to a CDSC of up to 1% on certain redemptions made within 12 months of purchase. Class R shares have no front-end sales charge or CDSC. Performance presented at Net Asset Value (NAV), which does not include a sales charge, would be lower if this charge were reflected. NAV is the value of one share of the Fund excluding any sales charges. 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. As stated in the current prospectus, the Fund’s annual operating expense ratios (gross) for Class A, B, C, R and I shares are 1.47%, 2.30%, 2.27%, 1.77% and 1.17% respectively. As stated in the Statement of Additional Information (SAI), the Fund’s adviser has agreed to contractually waive a portion of its fees and/or reimburse other expenses such that total ordinary operating expenses, less distribution and service fees, do not exceed 2.00%, 2.75%, 2.75%, 2.25% and 1.75% for Class A, B, C, R and I shares, respectively, which is in effect until July 31, 2020. For the most recent month-end performance, please call 1.866.443.6337 or visit the Funds’ website at www.henderson.com.

 

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

 

The investment comparison graph above reflects the change in value of a $10,000 hypothetical investment since the Fund’s inception, including reinvested dividends and distributions, compared to a broad based securities market index. The MSCI EAFE Index 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. The Fund is professionally managed while the Index is unmanaged and not available for investment and does not include fees, expenses or other costs. Results in the table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Commentary

 

Strategic Income Fund

 

The reporting period was characterized by credit risk outperforming interest rate risk; high yield outperformed investment grade which in turn outperformed Treasuries. Two pivotal events happened in September: first, Larry Summers, a perceived monetary hawk, withdrew his candidacy for head of the US Federal Open Market Committee (FOMC); the market had sold off in anticipation as he was the front runner. Consequently, all risk assets, including sovereign bonds, rallied as the markets anticipated the more dovish Janet Yellen being appointed. Second, the outgoing Federal Reserve chairman, Ben Bernanke, performed an about-face on the summer tapering discussion which somewhat wrong-footed markets. The Fund was well-positioned for this result. The ‘no tapering’ decision was justified by the tightening in financial conditions in the US, which took place after the initial summer tapering talks. Markets rallied on this dovish turn of events; sovereign bonds however were weak into year-end as credit and equity markets rallied on.

 

January saw a significant reversal test for a lazy consensus view which had assumed that risk assets would continue rallying and government bonds would continue to sell-off. Despite the weakness in equities and Emerging Market assets, credit markets proved remarkably resilient reflecting a view that the news flow from Turkey and Argentina did not

 

Top 10 long-term holdings*
(at January 31, 2014)
	As a percentage
Security	of net assets
AA Bond Co., Ltd.			3.2	%
Virgin Media Finance plc			3.2
Daily Mail & General Trust			2.9
Standard Chartered plc			2.9
Telenet Finance Luxembourg SCA			2.9
Levi Strauss & Co.			2.8
Lloyds Banking Group plc			2.7
BAA Funding, Ltd.			2.7
Iron Mountain, Inc.			2.5
William Hill plc			2.3

 

represent systemic risk, but rather were contained issues. This seems a fair assessment given that correlations even within the weakest Emerging Market countries were low.

 

For the reporting period ended January 31, 2014, the Fund returned 4.42% (Class A at NAV) versus the benchmark, 50% Merrill Lynch Global High Yield Index (USD hedged) / 50% Merrill Lynch Global Corporate Index (USD hedged), which posted a return of 0.97%.

 

Interest rate sensitivity (duration) was generally run at the low end, but the Fund managed to catch a late third quarter-end rally in sovereign bonds by using interest rate futures. Duration was extended as it appeared US economic data would continue to be moderate, even though investors seemed to be positioned short of the market. This position was then subsequently successfully closed. This worked well as sovereigns were weak late in the calendar year.

 

The largest bond deal ever came in 2013 from Verizon Telecom at $49 billion. This was a great opportunity and the participation benefitted the Fund. Further, generic credit risk was taken through the use of the highly liquid iTraxx Crossover Credit Derivative Index, which boosted returns in the final months of the year. This reflected a tactical decision to boost the credit beta (market sensitivity) of the Fund over this time period.

 

We continue to think that income will be the primary driver of returns going forward with little opportunity for capital appreciation opportunities in the bond market. With the expectation that defaults will remain at a historically low level, lower rated areas of the credit market continue to provide the most attractive potential returns in the fixed income universe. This has largely been the positioning of the Fund for a number of years now but there are, as yet, no signs that the animal spirits required to cause a significant deterioration in the quality of high yield bonds in issue have yet returned.

 

* For further detail about these holdings, please refer to the section entitled “Portfolios of Investments.” Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security.

 

Performance summary

 

 

Investment comparison

Value of $10,000

 

 

Total returns as of January 31, 2014†
		NASDAQ		Six		One		Three		Five		Ten		inception
At NAV		symbol		months		year		years*		years*		years*		(9/30/2003)*
Class A		HFAAX		4.42	%	5.05	%	5.69	%	14.47	%	4.50	%	5.46	%
Class B		HFABX		3.98		4.20		4.86		13.64		3.91		4.87
Class C		HFACX		4.03		4.27		4.87		13.57		3.67		4.64
Class I**		HFAIX		4.48		5.25		5.88		14.60		4.55		5.52
With sales charge
Class A				-0.59	%	0.08	%	4.00	%	13.36	%	3.99	%	4.97	%
Class B				-1.02		0.20		3.94		13.52		3.91		4.87
Class C				3.03		4.27		4.87		13.57		3.67		4.64
Index
50% ML Global High Yield / 50% ML Global Corporate Index (USD hedged)				0.97	%	4.79	%	7.79	%	13.68	%	7.13	%	7.33	%
Barclays Capital Global Aggregate Bond (ex US MBS) Index				2.12		-0.83		0.94		4.96		4.49		6.06
Barclays Global Agg Credit USD Hedged				2.44		1.83		5.41		7.44		4.91		4.84

 

* Average annual return.

 

** Class I shares commenced operations on April 29, 2011. The performance for Class I shares for the period prior to April 29, 2011 is based on the performance of Class A shares. Performance for Class I shares would be similar because the shares are invested in the same portfolio of securities and have the same portfolio management. Class I shares are not subject to a front-end sales charge or a distribution fee.

 

† The Strategic Income Fund changed its fiscal year end from December 31 to July 31 effective July 31, 2013.

 

Performance data quoted represents past performance and is no guarantee of future results. Performance results with sales charges reflect the deduction of the maximum front-end sales charge 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 1st year to 0% at the beginning of the 7th year. Class C shares are subject to a CDSC of up to 1% on certain redemptions made within 12 months of purchase. Performance presented at Net Asset Value (NAV), which does not include a sales charge, would be lower if this charge were reflected. NAV is the value of one share of the Fund excluding any sales charges. 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. As stated in the current prospectus, the Fund’s annual operating expense ratios (gross) for Class A, B, C and I shares are 1.45%, 2.22%, 2.21% and 1.17%, respectively. However, the Fund’s adviser has agreed to contractually waive a portion of its fees and/or reimburse other expenses such that the total ordinary operating expenses, less distribution and service fees, do not exceed 1.10%, 1.85%, 1.85% and 0.85% for Class A, B, C and I shares, respectively, which will remain in effect until July 31, 2020. For the most recent month-end performance, please call 1.866.443.6337 or visit the Funds’ website at www.henderson.com.

 

Performance results also reflect expense subsidies and waivers in effect during the periods shown. Absent these waivers, results would have been less favorable. All results assume the reinvestment of dividends and capital gains.

 

The investment comparison graph above reflects the change in value of a $10,000 hypothetical investment since the Fund’s inception, including reinvested dividends and distributions, compared to a broad based securities market index. The Bank of America Merrill Lynch (“ML”) Global Corporate Index (USD-hedged) tracks the performance of developed market investment grade corporate debt publicly issued in the major US and Eurobond markets. The Bank of America Merrill Lynch (“ML”) Global High Yield Index tracks the performance of US dollar, Canadian Dollar, British sterling and euro denominated developed market below investment grade corporate debt publicly issued in the major US or Eurobond markets. The Barclays Capital Global Aggregate Bond (ex US MBS) Index is a broad-based measure of the global investment-grade fixed-rate debt markets, excluding US Mortgage Bonds. The Barclays Capital Global Aggregate Credit (USD hedged) Index is a broad-based measure of the global investment-grade and high yield fixed-rate markets. The Fund is professionally managed while the Indices are unmanaged and not available for investment and do not include fees, expenses or other costs. Results in the table and graphs do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Commentary

 

Unconstrained Bond Fund

 

The Fund was successfully launched on December 20, 2013. During December, the Fund was invested to reach the target asset allocation. We remain constructive on credit markets and have allocated approximately 25% to high yield issuers, 20% to investment grade corporates and 12% to asset backed securities. We are more cautious on fixed interest government bonds although we have a meaningful allocation to inflation-linked bonds in the US and UK as well as short-dated Australian and long-dated Mexican government bond exposure. Emerging Market exposure has been focused on countries with strong fundamentals and in shorter maturity bonds from Russia and South Africa (currency hedged) where we do not expect the level of interest rate hikes priced in to be delivered as growth slows. We believe that duration (interest rate risk) will be a bigger headwind to market performance than credit defaults and the portfolio has been positioned accordingly with a low (but positive) duration.

 

For the reporting period (since inception) ended January 31, 2014, the Fund returned 0.20% (Class A at NAV) versus the benchmark, 3-month LIBOR USD, which posted a return of 0.03%. In January, with the exception of Emerging Market debt, total returns for fixed income were positive. However, asset allocation has not made a material

 

 

impact over the period as positive contributions from high yield as well as investment-grade corporates and inflation-linked government bonds were offset by holdings in Emerging Market sovereigns and interest rate hedges (used to reduce the interest rate sensitivity of the portfolio).

 

Derivatives were used for a number of purposes. Futures were primarily employed to manage Fund duration and forward currency contracts were used to hedge currency risk. By quantity, swaps were the largest category of derivative instruments applied to the portfolio and were used primarily to take active positions in interest rate markets. In this regard, the main positive contributor over the period was our positioning for a flatter yield curve in the US and a steeper yield curve in Europe. Options were also used to take active views on government bond and currency markets, including an expectation that the US dollar would appreciate versus the Australian Dollar and Swiss Franc.

 

Despite recent weak economic data (affected by poor weather), the US Federal Reserve seems willing to maintain the current pace of tapering unless there is a sustained downturn in the outlook for growth or inflation. This would mean US quantitative easing would be finished by the end of the year. As a result, the Fund continues to maintain a low interest rate sensitivity (duration), and focuses on credit markets for yield. Demand for credit remains strong (despite an uninspiring earnings season) and most of the companies that we follow have taken advantage of the new issuance market to address refinancing needs. While valuations are less compelling than before, default rates are expected to remain low and demand for yield should continue as short-term interest rates remain anchored. Emerging Markets will likely remain volatile and we continue to monitor investor flows closely. Our base case is that this is a period of re-pricing which will likely transition into a period of weaker growth in countries with fragile fundamentals and present opportunities in markets with less onerous external funding needs.

 

* For further detail about these holdings, please refer to the section entitled “Portfolios of Investments.” Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security.

 

Performance summary

 

 

Performance data quoted represents past performance and is no guarantee of future results. Performance results with sales charges reflect the deduction of the maximum front-end sales charge 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 C shares are subject to a CDSC of up to 1% on certain redemptions made within 12 months of purchase. Performance presented at Net Asset Value (NAV), which does not include a sales charge, would be lower if this charge were reflected. NAV is the value of one share of the Fund excluding any sales charges. 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. As stated in the current prospectus, the Fund’s annual operating expense ratios (gross) for Class A, C and I shares are estimated to be 1.97%, 2.72% and 1.72%, respectively, for the Fund’s first full fiscal year. However, the Fund’s adviser has agreed to contractually waive a portion of its fees and/or reimburse other expenses such that total ordinary operating expenses, less distribution and services fees, do not exceed 1.15%, 1.90% and 0.90% for Class A, C and I shares, respectively, which is in effect until July 31, 2020. For the most recent month-end performance, please call 1.866.443.6337 or visit the Funds’ website at www.henderson.com.

 

Performance results also reflect expense subsidies and waivers in effect during periods shown. Absent these waivers, results would have been less favorable. All results assume the reinvestment of dividends and capital gains.

 

The investment comparison graph above reflects the change in value of a $10,000 hypothetical investment since the Fund’s inception, including reinvested dividends and distributions, compared to a broad based securities market index. The Barclays Multiverse Index is a broad-based measure of the global fixed-income bond market. The index captures investment grade and high yield securities in all eligible currencies. 3-Month LIBOR (London Interbank Offered Rate) USD is the interest rate participating banks offer to other banks for loans on the London market. The Fund is professionally managed while the Indices are unmanaged and not available for investment and do not include fees, expenses or other costs. Results in the table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Portfolio of investments (unaudited)