Market Sector Update

• A combination of robust economic data and the passage of a domestic corporate tax cut plan fueled a surge in equity markets during the final quarter of 2017. Global economic data continued to point to a broad improvement in the pace of growth over the past few months. The breadth of the expansion appears to have made investors comfortable to the point that even if one area or region were to decelerate, the overall growth rate would remain reasonably robust.
• Europe and Japan, regions that were laggards in the current decade-long expansion, showed signs of life during the quarter, giving investors hope that the current economic expansion can persist for longer than previously anticipated.
• Finally, investors seem to have developed an increasing comfort –or potentially over-confidence– with the view that the economic expansion will progress in such a way that wage growth will be at a sufficient level to drive improving levels of consumption, but will not accelerate to a point where margin pressure or increases in interest rates put pressure on corporate earnings or valuation.

Portfolio Strategy

• The Portfolio posted a positive return for the quarter, but underperformed the benchmark.
• The Portfolio’s underweight position in consumer discretionary and information technology sectors were a drag on relative performance, while our underweight positions in health care and telecommunication services aided performance.
• Sectors that were the largest contributors relative to performance were real estate and utilities. Additionally, strong performing individual holdings for the quarter included JPMorgan Chase & Co., Wells Fargo Home Depot, Microsoft and United Technologies.
• Conversely, not owning or being underweight shares in Apple, Amazon, Bank of America and Intel were the largest detractors on performance. The Portfolio’s ownership in Nokia was also negative for the period.
• As a reminder, several of these companies are not in the Portfolio’s investible universe due to their non-dividend paying or low yields profiles.

Outlook

• Our outlook on economic expansion and corporate earnings remains positive. Global growth remains favorable with the U.S. economy generating solid growth and overseas economies showing continued signs of expansion.
• The recently passed tax overhaul law should provide a one-time lift in the level of earnings, which we believe is now mostly reflected in stock prices. We are already seeing companies announce wage increases and “bonus” payments to employees, as well as corporate investments as a result from their reduced tax burden. We believe the tax overhaul could effectively act as a stimulus package for many working Americans, whose increased wages will drive consumption and help economics growth.
• Additionally, the lower corporate tax rate improves the after-tax returns of many projects and investments, which could allow for additional capital expenditures by businesses. Equally important, this boost of optimism has the potential to spur the virtuous cycle of increased investment, which in turn leads to greater confidence, thereby fueling even more investment.
• We do not believe this would have a substantial impact on growth in any given period, but could serve to extend the duration of the expansion to the extent investors are willing to attach a higher multiple to current earnings, thus pushing up appreciation from current levels.

The opinions expressed are those of the Portfolio’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through December 31, 2017, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Top 10 holdings (%) as of 12/31/2017: Wells Fargo Company, 5.3, Pfizer, Inc. 4.9, Chevron Corp. 4.3, Microsoft 4.1, JPMorgan Chase & Co. 4.0, Exelon Corp. 3.8, Suncor Energy Inc. 3.8, United Technologies Corp. 3.7, Home Depot, Inc. 3.7, DowDuPont Inc. 3.6.

The Russell 1000 Value Index is an unmanaged index comprised of securities that represent the large cap sector of the stock market. It is not possible to invest directly in an index.

Risk factors: The value of the Portfolio will change, and you could lose money on your investment. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Portfolio’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform non-dividend paying stocks and the market as a whole over any period of time. In addition, there is no guarantee that the companies in which the Portfolio invests will declare dividends in the future or that dividends, if declared, will remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. In addition, the value of dividend-paying common stocks can decline when interest rates rise as fixed-income investments become more attractive to investors. This risk may be greater due to the current period of historically low interest rates. The Portfolio typically holds a limited number of stocks (generally 40 to 60). As a result, the appreciation or depreciation of any one security held by the Portfolio will have a greater impact on the Portfolio’s net asset value than it would if the Portfolio invested in a large number of securities. These and other risks are more fully described in the Portfolio’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.

Annuities are long-term financial products designed for retirement purposes. Annuity and life insurance guarantees are based on the financial strength and claims-paying ability of the issuing insurance company. The guarantees have no bearing on the performance of a variable investment option. Variable investment options are subject to market risk, including loss of principal. There are charges and expenses associated with annuities and variable life insurance products, including mortality and expense risk charges, management fees, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals. Withdrawals before age 59 1/2 may be subject to a 10% IRS tax penalty and surrender charges may apply.