ANNUAL SHORT REPORT

AN

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For the year ended 30 June 2015

Henderson Institutional Long Dated Credit Fund

2 Henderson Institutional Long Dated Credit Fund

Henderson Institutional Long Dated Credit Fund

Short ReportFor the year ended 30 June 2015

Fund Manager

Philip Payne

Investment objective and policy

To provide a return by investing primarily in long dated sterling denominated investment grade corporate bonds. In line with the scheme’s benchmark index the term corporate bond will include debt instruments issued by any entity other than a Government or local authority. The fund may also invest in other transferable securities, money market instruments, derivatives and forward transactions, deposits and units in collective investment schemes.

Risk and reward profile

The fund currently has 7 types of share class in issue; A income, I accumulation, I income, A income gross, I accumulation gross, I income gross and Z accumulation gross.

Each share class has the same risk and reward profile which is as follows:

Typically Lower potential risk/reward

Typically Higher potential risk/reward

Lower Risk Higher Risk

1 2 3 4 5 6 7

The Synthetic Risk and Reward Indicator (SRRI) is calculated based on historical volatility over a rolling 5 year period, it is reviewed monthly and updated if volatility has changed materially to cause a movement in the SRRI level. The SRRI is an indicator and may not accurately reflect future volatility and market conditions.

The value of an investment in the fund can go up or down. When you sell your shares they may be worth less than you paid for them.

The risk/reward rating above is based on medium-term volatility. In the future, the fund’s actual volatility could be higher or lower and its rated risk/reward level could change.

The lowest category does not mean risk free.

The fund’s risk level reflects the following:

• As a category bonds are, in general, less volatile than shares.

• Fluctuations in exchange rates may cause the value of your investment to rise or fall.

The rating does not reflect the possible effects of unusual market conditions or large unpredictable events. Under normal market conditions the following risks may apply:

Counterparty risk The fund could lose money if a counterparty with which it transacts becomes unwilling or unable to meet its obligations to the fund.

Default risk The issuers of certain bonds could become unable to make payments on their bonds. The risk of default may be higher where the fund invests in sub-investment grade bonds.

Derivatives risk Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative instrument.

Focus risk The fund’s value may fall where it has concentrated exposure to an issuer or type of security that is heavily affected by an adverse event.

Geographic risk The fund’s value may fall where it has concentrated exposure to a particular country or region that is heavily affected by an adverse event.

Liquidity risk Certain securities could become hard to value or sell at a desired time and price.

Management risk Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.

The full list of the fund’s risks are contained in the “Risk Warnings” section of the fund’s prospectus.

There have been no changes to the risk rating in the year.

The SRRI conforms to the ESMA guidelines for the calculation of the SRRI.

Henderson Institutional Long Dated Credit Fund 3

Fund Manager’s commentary

Returns on long-dated corporate bonds have been strong over the year, but this has been driven by declining government bond yields (yields move inversely to prices). Corporate bonds have underperformed government bonds, with the spread on the iBoxx sterling Non-Gilts 15+ years index widening 21 basis points (bp), ending the year at the annual wide. The ‘spread’ is the yield differential between government bonds and non-government – often corporate – bonds with a similar redemption date. The year under review has seen considerable uncertainty and volatility in the markets. Some themes and events, which the markets have had to digest included: deflationary concerns in the eurozone; uncertainty as to when the US Federal Reserve and the Bank of England will first hike interest rates; a closer-than-anticipated Sottish independence referendum; a China slowdown and weaker emerging markets (particularly Russia); declining commodity prices led by oil; the UK general election, and, most recently, the ongoing Greek crisis and question marks around whether Greece will stay in the single currency. Longer maturity corporate bonds have also suffered as demand has fallen due to their lower yields (driven by the fall in government bond yields) and regulatory changes, which have reduced the appetite of annuity and insurance funds; this was the major driver of returns during the second half of 2014.

January and February 2015 saw spreads tighten, which reversed the weakness seen during the second half of 2014, as appetite for longer maturity bonds returned. This was driven by declining inflation and further stimulus by central banks, including the European Central Bank (ECB), which expanded its asset purchase programme. This drove government bond yields down to record lows. Long-dated 30-year government bond yields declined 72bp to 2.7%. The 30-year bonds had, however, declined by 140bp, but yields rose sharply and credit spreads widened from February to June due to improving economic outlook and an increase in global supply of investment grade corporate bonds. The ongoing uncertainty regarding Greece after they failed to reach an agreement with their creditors also had a negative impact on sentiment at the end of the year.

The fund added to a small position in Tesco in October, which had underperformed the market following a series of profit warnings and an accounting issue after they overstated their profit guidance. In January, Tesco was downgraded by both Moody’s and Standard & Poor’s (S&P) rating agencies to ‘high yield’ following their strategic review, which did not result in any major disposals at the firm, as had been expected in order

to protect the ratings. The downgrade actually saw a pick up in demand for Tesco bonds and has led to strong performance since. The fund has maintained an exposure to Tesco due to attractive valuations and their focus on balance sheet strengthening. Tesco has contributed positively to performance over the year.

Performance was negatively impacted by the holding in Time Warner Cable (TWC) as their proposed merger with Comcast was terminated after concerns were raised by both the US Department of Justice and the Federal Communications Commission. TWC bond spreads widened significantly following the news, and they have now agreed to be acquired by Charter Communications, who have a lower credit rating. Exposure to TWC has been reduced. The holding in US dollar bonds issued by Verizon (telecoms) also detracted from the fund’s performance. This was because of the underperformance of US dollar corporate bonds compared to sterling bonds over the year due to the increase in supply in the US dollar market.

The fall in commodity prices (particularly oil) caused widespread weakness across emerging markets and energy related sectors. The fund had only a limited exposure to these areas, which benefited performance as both Petrobras (Brazil) and Russian Rail were downgraded to ‘junk’ and exited the investment grade indices.

The holdings in Heathrow and Gatwick airports performed well, as did the holdings in UK utilities such as PPL, National Grid, Northumbria Water and Thames Water, but exposure to continental European utilities RWE and EDF detracted from performance. A new position was established in Health Care REIT, which focuses on senior housing and healthcare real estate, following a new 17-year deal, which was launched in November 2014. The bonds were attractively priced and have performed well since launch. A new position has also been established in the AA-rated University of Liverpool.

The fund continues to retain an above benchmark exposure to subordinated insurance bonds, driven by attractive valuations and good fundamentals. Holdings in Legal & General and Prudential have performed well, offsetting the fund’s exposure to banks, which has detracted from performance. Holdings in HSBC and Standard Chartered underperformed due to increased concerns regarding emerging markets, and the fund’s exposure to the latter has been reduced.

During the year, the fund’s underweight benchmark exposure to sub-sovereign and agency related debt detracted, as despite relatively expensive valuations,


Summary of fund performance

Share class

Net asset value 2015

p

*

Net asset value 2014 p

*

Net asset value % change

Class A income 170.41 163.18 4.43

Class I accumulation 304.99 280.43 8.76

Class I income 174.75 166.62 4.88

Class A income gross 171.71 164.43 4.43

Class I accumulation gross 335.12 309.04 8.44

Class I income gross 170.79 165.11 3.44

Class Z accumulation gross 186.30 171.01 8.94

* The net asset value is calculated as at close of business on the last business day of the accounting period. The investments are valued at fair value which is generally deemed to be the bid market price.

Performance summary

30 Jun 14- 30 Jun 15

%

30 Jun 13- 30 Jun 14

%

30 Jun 12- 30 Jun 13

%

30 Jun 11- 30 Jun 12

%

30 Jun 10- 30 Jun 11

%Henderson Institutional Long Dated Credit Fund 6.9 7.4 2.8 14.9 3.7

iBoxx GBP Non-Gilt +15 Years Index 8.9 9.3 4.4 15.5 4.3

Source: Morningstar, bid to bid and net of fees, as at valuation point, based on performance of Class A income.Benchmark values are as at close of business.

Please remember that past performance is not a guide to future performance. The value of an investment and the revenue from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested.

these assets benefited from a ‘flight to quality’ and anticipated demand related to the ECB’s asset purchase programme. The sector was also boosted (in relative terms) by the European Investment Bank (EIB), which tendered for a number of its longer dated issues. Réseau Ferré de France, EIB, Transport for London and KFW were some of the largest detractors.

Despite the improvement in valuations over recent months, we are maintaining a cautious outlook in the near term due to the ongoing uncertainty surrounding Greece and the prospect for a pick up in new issuance, which may put further pressure on existing valuations. This should provide an attractive opportunity to selectively add exposure over the summer months.


Fund facts

Accounting dates Payment dates

30 June , 31 December 31 August, 30 November, Last day of February, 31 May

Ongoing charge figure

2015 %

2014 %

Class A 1.16 1.16

Class I 0.54 0.54

Class Z 0.03 0.03

The annualised ongoing charge figure (OCF) of the fund is calculated as the ratio of the total outgoing charges to the average net asset value for twelve months. The OCF is calculated in accordance with guidelines issued by the European Securities and Markets Authority (ESMA).

Net revenue distribution

Share class

2015 p

2014p

Class A income 4.38 4.49

Class I accumulation 8.88 8.89

Class I income 5.18 5.35

Class A income gross 5.54 5.67

Class I accumulation gross 12.68 12.25

Class I income gross 6.61 6.65

Class Z accumulation gross 7.99 7.62

Total interest distributions for the year ended 30 June 2015, comparison is for the same period last year.


Performance record

Calendar year

Net revenue (pence per share)

Highest price (pence per share)

Lowest price (pence per share)

Class A income

2010 4.88 152.00 134.90

2011 4.73 155.10 137.60

2012 4.39 169.30 151.00

2013 4.40 174.40 155.30

2014 4.52 181.90 157.70

2015 3.25* 195.30+ 171.30+

Class I accumulation

2010 5.85 230.30 199.80

2011 7.04 247.00 211.90

2012 8.34 277.30 241.40

2013 8.70 290.20 260.60

2014 8.91 318.30 268.80

2015 6.66* 343.90+ 304.70+

Class I income

2010 3.95 154.10 135.50

2011 4.63 158.40 140.20

2012 5.31 173.00 154.30

2013 5.36 178.20 158.70

2014 5.31 186.20 161.00

2015 3.87* 199.80+ 175.90+

Class X income

2010^ 1.03 141.20 139.80

Class A income gross

2010 6.15 152.80 136.20

2011 5.97 156.40 138.80

2012 5.52 170.70 152.40

2013 5.55 175.90 156.70

2014 5.71 183.60 158.90

2015 4.10* 197.00+ 172.90+


Past performance is not a guide to future performance

Performance record

Calendar year

Net revenue (pence per share)

Highest price (pence per share)

Lowest price (pence per share)

Class I accumulation gross

2010 10.92 243.20 210.40

2011 11.27 263.00 225.20

2012 11.18 299.20 259.00

2013 11.77 314.30 283.10

2014 12.47 349.10 292.80

2015 9.48* 377.80+ 334.80+

Class I income gross

2010 6.98 152.70 135.50

2011 6.87 155.60 138.10

2012 6.51 169.90 151.60

2013 6.58 175.00 156.00

2014 6.69 182.80 158.10

2015 4.92* 196.00+ 172.20+

Class Z accumulation gross

2010 6.51 131.90 113.80

2011 3.38 143.48 122.80

2012 6.90 164.10 141.60

2013 7.31 172.85 155.90

2014 7.75 193.50 161.60

2015 5.98* 209.70+ 186.10+

* to 28 August + to 30 June ^ Class X income merged with Class A income on 11 January 2010


Major holdings Major holdings

as at 2015 % as at 2014 %

European Investment Bank 5.625% 07/06/2032 1.87 European Investment Bank 5.625% 07/06/2032 1.75

Network Rail Infrastructure Finance 4.75% 29/11/2035 1.58 Enel Finance International 5.75% 14/09/2040 1.62

UK Treasury 4.5% 07/12/2042 1.51 Network Rail Infrastructure Finance 4.75% 29/11/2035 1.45

European Investment Bank 4.5% 07/03/2044 1.42 Scottish Widows 7% Perpetual 1.33

Enel Finance International 5.75% 14/09/2040 1.36 Pfizer 6.5% 03/06/2038 1.31

GlaxoSmithKline Capital 5.25% 10/04/2042 1.30 European Investment Bank 4.5% 07/03/2044 1.28

Électricité de France 6% 23/01/2114 1.19 Lloyds TSB Bank 6.5% 17/09/2040 1.25

HSBC Holdings 6% 29/03/2040 1.13 GlaxoSmithKline Capital 5.25% 10/04/2042 1.23

Scottish Widows 7% Perpetual 1.13 Western Power Distribution 5.75% 16/04/2032 1.20

European Investment Bank 3.875% 08/06/2037 1.11 Électricité de France 6% 23/01/2114 1.14

Asset allocation Asset allocation

as at 2015 % as at 2014 %

United Kingdom 52.15 United Kingdom 48.22

United States 17.25 United States 19.82

France 9.16 France 9.08

Supranational 5.82 Germany 4.54

Germany 5.30 Supranational 4.00

Italy 1.95 Netherlands 2.33

Mexico 1.63 Italy 2.20

Netherlands 1.10 Mexico 1.60

Denmark 0.97 Denmark 1.20

Australia 0.91 Sweden 1.04

Sweden 0.64 Europe 1.00

Hong Kong 0.52 Australia 0.88

Norway 0.26 Norway 0.82

Brazil 0.11 Spain 0.33

Derivatives 0.05 Hong Kong 0.27

Other net assets 2.18 Brazil 0.26

Total net assets 100.00 Singapore 0.13

Derivatives 0.09

Other net assets 2.19

Total net assets 100.00


Report and accountsThis document is a short report of the Henderson Institutional Long Dated Credit Fund for the year ended 30 June 2015.

Copies of the annual and half yearly long form reports of this fund are available on our website www.henderson.com or contact client services on the telephone number provided.

Other informationThe information in this report is designed to enable you to make an informed judgement on the activities of the fund during the year it covers and the results of those activities at the end of the year.

Risk warningPlease remember that past performance is not a guide to future performance. The value of an investment and the revenue from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested.

Issued by:Henderson Investment Funds LimitedRegistered office: 201 Bishopsgate London EC2M 3AEMember of The Investment Association (formerly Investment Management Association) and authorised and regulated by the Financial Conduct Authority. Registered in England No 2678531

Shareholder AdministratorInternational Financial Data Services (UK) LimitedIFDS HouseSt Nicholas LaneBasildonEssexSS15 5FS

Depositary National Westminster Bank Plc135 BishopsgateLondon EC2M 3UR

AuditorPricewaterhouseCoopers LLP141 Bothwell StreetGlasgowG2 7EQ

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