European Focus Fund (HFEAX, HFEBX, HFECX, HFEWX)

Fund pricing and performance

Relative performance as of 6/30/10

	YTD	1 year	5 years	Since inception
European Focus Fund Class A at NAV	-11.67%	18.37%	7.84%	17.24%
European Focus Fund Class A w/ sales charge	-16.75%	11.59%	6.58%	16.46%
MSCI Europe Index	-16.30%	6.33%	0.85%	4.13%
Lipper European Region Funds average	-14.03%	6.68%	0.58%	4.79%
Lipper European Region Funds ranking	31/92	5/88	1/70	1/59

Inception date 8/31/01, inception of Class W shares 3/31/09.

Lipper, Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns. Lipper returns do not take into account sales charges. Rankings are for Class A shares only: other share classes may vary. Rankings shown exclude Exchange Traded Funds (ETFs) which are securities that track an index, a commodity or a basket of assets like an index fund. Unlike mutual funds, ETFs trade like a stock on an exchange, thus experiencing price changes throughout the day. For the period ended 7/31/10, there were 23 ETFs excluded from the European Region Funds rankings. If the rankings provided did not exclude ETFs from the respective categories, the rankings for the Henderson European Focus Fund may be lower.

Expense ratios are guaranteed numbers and may fluctuate. The gross and net expense ratios are presented as a percentage of average net assets. The gross expense ratio is stated in the current prospectus and is based on the Fund's then most recent previous fiscal year. The net expense ratio is unaudited and is based on annualized fiscal year-to-date results from 8/01/09 to 6/30/10. The ratio may differ from that presented in the Fund's prospectus.

The performance for Class W shares for the period prior to 3/31/09 is based on the performance of Class A shares. Performance for Class W shares would be similar because the shares are invested in the same portfolio of securities and have the same portfolio management. Class W 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. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Performance results with sales charges reflect the deduction of the maximum front end sales charge and/or the deduction of the applicable contingent deferred sales charge (CDSC). Class A shares are subject to a maximum front end sales charge of 5.75%. Class B shares are subject to a CDSC, which declines from 5% the first year to 0% at the beginning of the seventh year. Class C shares may be subject to a CDSC of up to 1% on certain redemptions made within 12 months of purchase. Performance presented at NAV which does not include these sales charges would be lower if these charges were reflected. The Fund’s annual operating expenses will likely vary from year to year. It is important for you to understand that a decline in the Fund’s average net assets during the current fiscal year due to recent market volatility or other factors could cause the Fund’s expense ratios for the Fund’s current fiscal year to be higher than the expense information presented. Returns greater than one year are annualized. Index returns provided by Lipper, Inc. Net Asset Value (NAV) is the value of one share of the Fund excluding any sales charge.

The recent growth rate in the stock market has helped to produce short term returns for some asset classes that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short term changes.

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

Forward 12-month P/E ratio is calculated using the closing price of portfolio holdings divided by the sum of the 12-month forward earnings per share. P/B ratio is calculated using the closing price of portfolio holdings divided by the most recent fiscal year end book value. Both calculations take into account the respective weightings of portfolio holdings. Beta is a quantitative measure of the volatility of a given stock, mutual fund, or portfolio, relative to the overall market. The MSCI 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.

Fund overview

The Fund seeks to achieve long-term capital appreciation primarily through investment in equities of European companies. Fund performance will be primarily derived from stock selection. Stock selection is based on an opportunistic approach with a flexible methodology on stock capitalization and growth/value orientation. The Portfolio Manager follows a ‘growth at a reasonable price’ philosophy, with a focus on investment opportunities which seek to maximize absolute returns irrespective of style. Country and sector allocation decisions are driven by the stock selection process. The Fund is managed by Stephen Peak.

Quarterly update

Volatility within European markets continued over the second quarter, driven by concerns over the Greek fiscal crisis and increasing fears of contagion to broader European markets, which also put downward pressure on the Euro. A joint rescue package of €750 billion involving the International Monetary Fund (IMF), European Union (EU) and Euro member states was agreed and equity markets rebounded sharply after the German parliament approved a law to contribute to the Eurozone loan package and the European Central Bank said it would buy government and private bonds. In addition, the announcement of austerity measures by the Spanish government to cut their budget deficit provided further relief and in the UK, the election produced a coalition government whose top priority is to reduce the budget deficit highlighting that sovereign debt is not just restricted to peripheral Europe.

Fund performance

The Fund (A shares at NAV) outperformed the MSCI Europe Index. Our overweight position in Materials was the main driver of outperformance led by Centamin Egypt. Exposure to Energy was a drag on performance with recent purchase BP being the greatest detractor, however another new addition Essar Energy was the leading positive performer. Alstom the power generation and transport company was another new purchase that performed well.

Investment activity

We sold our positions in Virgin Media and Capita following strong performance of both stocks. In addition, we sold our holding in VT Group prior to the completion of the takeover by Babcock.

We bought a stake in Essar Energy as the company gives the Fund exposure to the fast-growing Indian power-generation market and looks undervalued given a strong competitive position and good growth prospects. Alstom was initiated as the stock looks materially undervalued compared to its history. We bought a stake in BP as we believe there is significant value on offer. The negative story has been well aired and has caused an aggressive fall in its share price. As a result there is a very large discount to the company’s underlying asset base. We expect this discount to narrow. National Grid was purchased as it represents an attractive entry point into a regulated business over its equity yield. We purchased stakes in Alcatel-Lucent the telecommunications provider, Bank of Ireland, FirstGroup, the passenger transport company and Gulf Keystone Petroleum, the oil explorer with highly prospective exposure to Kurdistan.

We trimmed our position in Cairn Energy which has performed strongly since the start of 2009. The share price now discounts a level of exploratory success in Greenland that we feel less comfortable with. Fresenius and ICAP were also trimmed on the back of strong performance. Lloyds Banking Group sold off sharply in response to increased worries over the implications of greater fiscal austerity in the UK and we trimmed our position in the stock, however we still believe that the company remains undervalued and well positioned in the UK.

Outlook

Equity markets remain volatile and investors appear to be overly driven by emotion rather than fundamentals. Sovereign debt related issues are certainly a concern and China does show some signs of slowing, but we feel that these worries are more than discounted. With the second quarter earnings season fast approaching, we feel that equity markets should start to better reflect the improving corporate environment. On this basis we remain confident on the outlook for European equity markets.

 

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European Focus Fund