Janus Sample Line One Janus Line Two JanusSample International Equity Fund Portfolio Commentary | 4Q12 Portfolio Commentary | 1Q14 Investment Environment Japan weighed on lackluster developed market returns during the quarter, largely over disappointment that Prime Minister Shinzo Abe’s administration was having difficulty pushing forward its structural reform program, which was seen as crucial to its long-term economic growth strategy. Additionally, hopes for significant buying of Japanese equities following the launch of tax-free investment accounts for individuals failed to meet expectations of institutional investors who had moved into the market earlier. A stronger yen further pressured Japanese stocks. Europe performed relatively better than Asia, reflecting a number of positive signs that indicated the region’s recovery is underway. Notably, property prices appeared to have bottomed in most of the peripheral countries and started to rise in others. Credit markets also signaled improvement. Greece, which was at the center of Europe’s sovereign debt crisis, completed a debt issuance with much tighter spreads than its current debt. Finally, unemployment rates began ticking down in many countries, even Spain, which has had the highest rates. Portfolio Manager: Carmel Wellso Portfolio Manager: Julian McManus Emerging markets continued to lag developed markets, reflecting ongoing worries over China’s slowing economic growth rate and its shadow banking system as well as new geopolitical concerns resulting from Russia’s annexation of Crimea from Ukraine. Performance Discussion The Fund underperformed its primary benchmark, the MSCI EAFE Index, and its secondary benchmark, the MSCI All Country World ex-U.S. Index. Our Fund focuses on companies we believe have sustainable competitive advantages, high or improving returns on capital and strong long-term growth opportunities. Competitors with a zero weighting in emerging markets and a focus on European companies perceived as defensive likely performed better in the largely risk-off investment environment; however, we believe our approach of modest exposure in emerging markets and companies in Europe that we consider better levered to a European recovery will provide superior riskadjusted performance longer term. On a sector basis, our usual lack of exposure in utilities and overweighting in consumer discretionary, the second-worst-performing sector within the primary benchmark, were among detractors. Our consumer discretionary holdings, which were easily our top contributors in 2013, also underperformed, reflecting in part muted hopes for consumer spending in China and Japan. Our Japanese holdings in homebuilder Iida Group Holdings and e-commerce leader Rakuten were among our consumer discretionary holdings that weighed on performance. Real estate developer Mitsubishi Estate, our top detractor, added to the weak relative performance of our Japanese holdings overall. All reflected the downturn in the Japan’s equity market generally, but particularly Mitsubishi Estate, given its stock price has historically been more volatile than the wider Japanese market due to its large foreign ownership. Mitsubishi Estate was additionally impacted by concerns over a broader rising interest rate environment. As a prime landowner in central Tokyo, the company remains well positioned to benefit from the government’s reflationary monetary policy, in our view. Page 1 of 5 Portfolio Manager: Guy Scott, CFA Executive Summary • Japan weighed on developed markets due to lack of progress in implementing economic reforms. • Japanese and consumer discretionary holdings weighed the most on relative performance. • Although our outlook for Japan has diminished, we see Europe’s recovery continuing and believe market concerns on China are overdone. Janus International Equity Fund Portfolio Commentary | 1Q14 Iida Group, which reflects the merger of six small- to mid-size homebuilders in 2013, also suffered following the end of a deadline for people to build homes before an increase in Japan’s consumption tax. Residential orders, which rose leading up to the deadline, subsequently declined. Additionally, the group’s founder died, leading to less confidence the companies will be able integrate successfully. We believe the merger will move forward, while the stocks’ valuation at period end more than compensated for the company’s leadership uncertainty. Rakuten, the Fund’s top contributor in 2013, gave back some of its gains. The positive effects of the stock being added to the Tokyo Stock Exchange Price Index (TOPIX) in January were offset by the company’s acquisition of Viber Internet messaging and calling service later in the period. While the price paid appeared high, it was low relative to what Facebook paid for a similar company in the U.S. We feel the market will better appreciate Rakuten’s acquisition in time. Meantime, the company’s core e-commerce business continued to be strong, with growing market share. UK-based global advertising agency WPP, another detractor, declined due to its exposure to emerging markets. The company has enjoyed a higher growth rate than peers because of its emphasis on emerging markets and on the digitalization of advertising. We continue to appreciate the company’s growth strategy. Among contributors, Italian bank UniCredit led the list. UniCredit is among European banks that have been aggressive in building provisions and writing down risk-weighted assets ahead of the European Central Bank’s stress tests and asset quality reviews (AQRs), which are designed to assess the asset quality of the region’s banking sector. The bank’s extremely proactive measures to align with European banking standards removed investor concerns on its stock. Denmark’s Novo-Nordisk, the world’s largest insulin maker, led the relative outperformance of our health care holdings. During the quarter, a competing Type 2 diabetes drug failed to demonstrate superiority to Novo-Nordisk’s existing drug. The news eased a major investor concern on the stock. We continue to appreciate Novo-Nordisk’s market position and increasing demand for insulin globally. Staying in Denmark, transportation and energy conglomerate AP Moeller-Maersk also aided performance. The Fund’s largest position benefited late in the period after the U.S. Federal Maritime Commission approved an alliance between the world’s top three container shipping firms, including Maersk’s shipping division. The alliance will pool the companies’ ultra-large vessels in an effort to reduce costs in an environment of industry overcapacity. Rather than running only partly full ships, the firms would be able to run larger ships, which are more efficient, fully loaded. Provided Chinese and European regulators approve the arrangement, the alliance will control a high percentage of the world’s ultra-large vessels. We believe the cost savings to Maersk could be more significant than the market believes. Early in the period, Maersk also announced it would sell its noncore grocery business, which is consistent with the firm’s restructuring efforts. In materials, chemical company LyondellBasell Industries was also among contributors. The stock rose after the company reported better-than-expected full-year results, raised its dividend and announced it expects to complete a significant share buyback plan by May. We appreciate that management is return-on-capital driven and disciplined on investing in its business. Lyondell also continues to enjoy a cost advantage, driven by relatively low prices for is main primary input, natural gas. For detailed performance information, please visit www.janus.com/funds Outlook Japan has become less attractive to us on a macroeconomic basis. In the absence of substantial progress on structural reforms, which form the “third arrow” in Mr. Abe’s economic growth strategy, it is difficult to see Japan outperforming other markets. The wild card remains the Bank of Japan’s monetary policy and its impact on weakening the yen. We reduced our weighting in the country, but still remain modestly overweight based on the growth opportunities we still see for individual Japanese companies. An example is a new investment we made in an exploration and production company that is developing a large, promising liquid natural gas (LNG) project offshore of Australia. In China, we believe concerns of slowing growth and fears over its shadow banking system are overdone. We think the government will be able to manage down nonregulated lending, although it will take time and the market will likely remain skeptical until there are tangible results. One sign of progress were defaults in some wealth management products, which although negative-sounding demonstrated China is willing to manage its financial problems more openly than in the past and thus will allow poor investments to fail. In industrials, recent data has shown that the capital spending cycle has peaked, which implies a potential recovery in profit margins. We have started to see the market better differentiate between those companies that are showing margin improvement and those that are not. Page 2 of 5 Janus International Equity Fund Portfolio Commentary | 1Q14 Therefore, we think stock selection among Chinese industrials will be a more important factor going forward, rather than macroeconomic concerns as has been the case more recently. As for Europe, we anticipate the improving macroeconomic data points to continue, particularly with interest rates remaining low. We think the peripheral countries are at the beginning of a slow recovery, and we expect the recovery in the bigger markets, such as Germany, and healthier economies, such as the UK, to continue but likely not as fast as in 2013. At the company level, we are avoiding European companies that have benefited from infrastructure or fixed asset spending in China and emerging markets more broadly, since those areas are less robust. Instead, we appreciate “self-help” restructuring companies, such as an express shipping company that is exiting underperforming contracts, reducing fixed costs and positioning itself to capture greater operational leverage in a European recovery. We also added two real estate companies, which we think will benefit from rising property prices in Europe generally, and the UK in particular. Top Contributors and Detractors for the Quarter Ended 3/31/14 Ending Weight (%) Contribution (%) Ending Weight (%) Contribution (%) UniCredit SpA 2.11 0.36 Mitsubishi Estate Co., Ltd. 1.52 -0.41 Novo Nordisk A/S - Class B 1.45 0.31 Iida Group Holdings Co., Ltd. 0.75 -0.32 A.P. Moeller - Maersk A/S - Class B 2.91 0.30 WPP PLC 2.04 -0.22 LyondellBasell Industries N.V. - Class A 2.15 0.25 Rakuten, Inc. 1.74 -0.21 Petrofac, Ltd. 1.35 0.21 Japan Exchange Group, Inc. 0.00 -0.19 Top Contributors Top Detractors The holdings identified in this table, in compliance with Janus 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 877.33JANUS (52687) or visit janus.com/advisor/mutual-funds. Top Contributors Top Detractors UniCredit: Italy’s largest bank by assets, UniCredit offers consumer credit, mortgages, life insurance, business loans, investment banking, asset management and other services. We believe management’s proactive measures to meet European banking standards by increasing provisions will position it well for growth going forward. We also appreciate the bank’s exposure to Italy, one of Europe’s large manufacturing countries, and emerging markets in Central and Eastern Europe. Mitsubishi Estate: An investor in real estate properties in Japan, the company leases, manages and develops commercial buildings in central Tokyo. Mitsubishi Estate also develops and sells residential properties and parking lots and manages recreational facilities including golf courses and tennis clubs. As a prime landowner in central Tokyo, the company is well positioned to benefit from the government’s reflationary monetary policy, in our view. We’re also seeing indications of higher rents in Tokyo. Novo-Nordisk: The Denmark-based pharmaceutical company focuses on diabetes care and offers insulin delivery systems and other diabetes products. We appreciate the company’s position in a market with limited competition, rationale pricing and long-term growth prospects, given the growing prevalence of diabetes. Iida Group Holdings: Established by the merger between Hajime Construction, Iida Home Max, Touei Housing, Tact Home, Arnest One and ID Home in 2013, the holding company’s subsidiaries design, construct and sell singlefamily houses and condominiums. We believe the merger of these small- to mid-size homebuilders into a single entity will enable them to better compete against industry leaders. We think Iida’s valuation could rise in line with the industry leaders. We also expect to see some benefit from these smaller companies no longer competing against each other and as they integrate some of their functions to reduce costs. AP Moeller-Maersk: The conglomerate involved in the transportation and energy sectors is transitioning from a family-run business to a public company with greater transparency into its operations and focus on returns on invested capital. We appreciate that new management is Page 3 of 5 Janus International Equity Fund Portfolio Commentary | 1Q14 Top Contributors (continued) Top Detractors (continued) focused on the company’s four core divisions, which generate the company’s highest returns, and that the company has sold noncore assets and reinvested proceeds into its higher growth divisions. One of the key divisions, Maersk Oil, in particular we feel has been undervalued by the market due to lack of transparency. We think if this oil and gas exploration and production division reaches its production targets, it could be valued significantly higher. WPP: A global advertising and communications company based in the UK, WPP operates under some of the most well-known brands in the industry: Ogilvy, JWT and 24/7 Media. We believe the key structural drivers are the company’s rising penetration rates in emerging markets and growing demand for digital advertising. We anticipate further upside from new client wins and a cyclical recovery will lead to improving cash flows and margins. LyondellBasell Industries: The large chemical producer, which converts liquid and gaseous hydrocarbon feedstock into plastic resins and other chemicals, has a cost advantage since the primary input to its production process is natural gas, a commodity that has experienced considerable price pressure due to excess supply. We also like the global supply/demand dynamics for ethylene, one of the company’s primary products. Finally, we think management is committed to improving shareholder value by paying out onetime special dividends, buying back stock and selectively investing in high ROIC projects. Rakuten: We consider Rakuten the Amazon.com of Japan since it dominates online shopping in the country. We feel this business has strong long-term potential given that online shopping still represents only a small percentage of total sales. As online shopping increases in Japan to levels closer to rates in the U.S. and UK, Rakuten is well positioned to benefit, in our view. Also strengthening its competitive position are its credit card and travel businesses as well as a bank that we feel when combined have the potential to create a network effort that creates loyalty from customers. Petrofac: We believe the UK oilfield engineering and construction firm can grow earnings from its integrated energy services division. We think national oil companies will outsource production from their mature fields to this new division in order to improve oil recovery and stimulate production growth. We also appreciate the company’s strong market position in the Middle East, and we believe it should continue to capture significant incremental growth and capacity from that region. Japan Exchange Group: We sold our position in the Japanese stock and futures exchange operator, which benefited from strong trading volumes in 2013, based on the stock approaching our price target and due to the lack of a catalyst to drive its market volumes higher. Page 4 of 5 Janus International Equity Fund Portfolio Commentary | 1Q14 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 at 877.33JANUS (52687) or download the file from janus.com/info. Read it carefully before you invest or send money. Past performance is no guarantee of future results. Call 877.33JANUS (52687) or visit janus.com/advisor/mutual-funds for current month-end performance. Discussion is based on performance of the Fund's initial share class. As of 3/31/14 the top ten portfolio holdings of Janus International Equity Fund are: A.P. Moeller - Maersk A/S - Class B (2.85%), AIA Group, Ltd. (2.39%), Japan Tobacco, Inc. (2.39%), Ericsson (2.31%), Samsonite International S.A. (2.19%), Shire PLC (2.18%), LyondellBasell Industries N.V. - Class A (2.11%), Taiwan Semiconductor Manufacturing Co., Ltd. (2.10%), Seven Bank, Ltd. (2.10%) and UniCredit SpA (2.07%). There are no assurances that any Janus portfolio currently holds these securities or other securities mentioned in this commentary. The opinions are those of the authors as of 3/31/14 and are subject to change at any time due to changes in market or economic conditions. 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. A Fund’s performance may be affected by risks that include those associated with nondiversification, non-investment grade debt securities, highyield/high-risk securities, undervalued or overlooked companies, investments in specific industries or countries and potential conflicts of interest. Additional risks to a Fund may also include, but are not limited to, those associated with investing in foreign securities, emerging markets, initial public offerings, real estate investment trusts (REITs), derivatives, short sales, commodity-linked investments and companies with relatively small market capitalizations. Each Fund has different risks. Please see a Janus prospectus for more information about risks, Fund holdings and other details. Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility and differing financial and information reporting standards, all of which are magnified in emerging markets. MSCI EAFE® (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization weighted index designed to measure developed market equity performance. The MSCI EAFE® Index is composed of companies representative of the market structure of developed market countries. The index includes reinvestment of dividends, net of foreign withholding taxes. MSCI All Country World ex-U.S. IndexSM is an unmanaged, free float-adjusted, market capitalization weighted index composed of stocks of companies located in countries throughout the world, excluding the United States. It is designed to measure equity market performance in global developed and emerging markets outside the United States. The index includes reinvestment of dividends, net of foreign withholding taxes. A Fund’s portfolio may differ significantly from the securities held in an index. An index is unmanaged and not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio. Janus Capital Singapore Pte. Limited is an indirect subsidiary of Janus Capital Group Inc. and serves as the sub-adviser on certain products. Funds distributed by Janus Distributors LLC C-0314-59529 07-15-14 188-15-16691 04/14 Page 5 of 5