Market Sector Update

• The quarter started off strong, with global growth intact and expectations of a synchronized global recovery. However, early market strength reversed in February on inflation fears in the U.S. and the growing trade war rhetoric/concerns. President Trump enacted steel and aluminum tariffs in March, triggering an unsettling back-andforth trade discussion with China.
• Global equity markets ended down approximately 1% for the quarter, with growth outperforming value throughout most of the period. Despite the negative return for the period, risk, momentum, smaller capitalization and growth outperformed. For the most part, the market tended to favor companies with positive earnings revisions. In developed markets, Japan and the U.S. outperformed, while Europe underperformed on slowing economic data. Emerging-market countries generally performed well, including China, Brazil and Russia.
• On a sector basis, the information technology and consumer discretionary sectors both performed well, while energy, consumer staples, materials and telecommunication services all underperformed.

Portfolio Strategy

• During the quarter, the Portfolio outperformed the benchmark (before the effects of sales charges) driven by strong stock selection and sector allocation. Most notably, an overweight allocation to the strong-performing information technology sector accompanied by strong stock selection in that sector aided relative performance. In addition, selection in financials and industrials benefited performance.
• Top individual contributors to relative performance included MasterCard Inc., Class A, Airbus SE, Adobe Systems, Inc. and Amazon.com, Inc.
• We continue to maintain the Portfolio’s overweight allocation in information technology stocks, but have been trimming some strong performers in the sector that we believe may face slowing earnings growth. We have modestly added to our exposure in health care as we see attractive relative value opportunities in the sector. Geographically, the Portfolio remains overweight China and India, and we have modestly increased exposure to the U.S. on expectations for relative earnings strength.

Outlook

• Generally, economic growth remains relatively solid, particularly in the U.S. which is benefiting from tax cuts and likely improving domestic consumption as a result. Japan remains stable, with increasing hopes of healthy inflation, while European growth has modestly slowed.
• In our view, an area of concern is the increasing probability of trade skirmishes that could add volatility and uncertainty to markets as well as negatively impact multinationals. Raw material sourcing for many industries is on a global scale, and even companies with largely domestic end-markets could experience cost escalation and other disruptions on increasing trade disputes. While we are hopeful the issue will remain contained, we continue to closely monitor the possible impact on holdings. We continue to believe sustainable growth stocks with strong barriers to entry can outperform in the current environment of stable global economic growth.

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 March 31, 2018, 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 a percent of net assets include: MasterCard, Inc., Class A 4.9%, Airbus SE 4.9%, Microsoft Corp. 4.3%, Visa, Inc., Class A 3.6%, Amazon.com, Inc. 3.6%, Adobe Systems, Inc. 3.1%, Ping An Insurance (Group) Co. of China Ltd., H Shares 3.1%, Alibaba Group Holding Ltd. ADR 3.0%, Facebook, Inc., Class A 2.8% and Prudential plc 2.7%.

Risk factors: The value of the Portfolio’s shares will change, and you could lose money on your investment. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. These and other risks are more fully described in the Portfolio’s prospectus.

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.