Market Sector Update

• Mid-cap growth stocks gained 2.17% in the first quarter of 2018. The Russell Mid Cap Growth Index, the Portfolio’s benchmark, hasn’t posted a quarterly decline since the third quarter of 2015.
• Performance within the index came from the technology, utilities, health care, financials and consumer staples sectors – a narrowing of relative performance across sectors versus fourth quarter 2017 – and many sectors posted negative performance, unlike in fourth quarter 2017 when all sectors posted positive returns.
• The materials, telecommunications, energy, real estate, consumer discretionary and industrials sectors all underperformed, and of those, only industrials posted a positive return for the quarter.

Portfolio Strategy

• The Portfolio outperformed its benchmark for the period ended March 31, 2018. The technology and health care sectors drove much of the outperformance. Financials and industrials also performed well. Our lack of exposure to the real estate sector was a nice positive to performance, as was our underweight position in the weak materials group.
• Our technology names made the strongest contribution to the Portfolio’s relative performance in the quarter. This continued the sector’s string of strong positive relative performance over the past five quarters. We were underweight this underperforming sector in fourth quarter 2017, but stock picking drove performance this period, and our names turned in a return of 16% that was more than twice as strong as the sector within the index. GrubHub, Inc., the online restaurant food ordering and delivery service; ServiceNow, Inc., a software-as-a-service company that automates workflows within enterprises; and Square, Inc., which provides credit card payment processing to small- and mediumsized businesses and is a relatively recent addition to the Portfolio, all turned in strong performances and made solid positive contributions to the relative return.
• Our health care stocks posted strong performance in the quarter, almost doubling the performance of the sector within the index. We were overweight this outperforming sector. Strength in Abiomed, which makes the Impella heart pump, and Edwards Lifescienes, which makes heart valves, led the outperformance. Zoetis, Inc., which is focused on animal health, and Intuitive Surgical, Inc., the innovator behind the DaVinci surgical robot, also delivered strong returns. We saw weakness in a few names, including Biomarin Pharmaceutical and Dentsply Sirona, which distributes dental equipment and consumable products.
• Our industrials exposure made a strong contribution to relative performance. We were overweight this underperforming group, so stock picking was key. Names of note included CoStar Group, the commercial real estate and apartment rental online database; and Harris Corporation, a defense and commercial technology company.
• Our financials sector made a positive contribution to relative returns in the first quarter, after having struggled in the third and fourth quarters of 2017. We were overweight this outperforming group, and with respect to stock selection, our bank holdings recovered somewhat as interest rates began to move higher. These holdings had been weak for several quarters. CME Group, Inc., which provides futures and options on many securities, was the star of the sector, with strong performance related to increasing demand for its products as market volatility moved higher.
• Having no exposure to the underperforming real estate sector was a positive for relative performance in the first quarter, as was our underexposure to the materials sector.
• Our consumer staples, consumer discretionary and energy sectors all underperformed the index in the quarter and were negative to relative returns. Our consumer discretionary names made the greatest negative contribution to performance, followed closely by consumer staples. Our consumer discretionary names only slightly underperformed the group within the index, but we were overweight this underperforming group, which accounted for much of the negative relative contribution to returns. Tractor Supply Company accounted for all of the negative relative performance in consumer discretionary. Investors are wary of margin pressures related to investments the company is making in its business related to distribution and e-commerce.
• In consumer staples, ongoing weakness in Hain Celestial Group accounted for most of the underperformance. A buyout offer for Blue Buffalo Pet Products by General Mills was a nice performance offset to weakness elsewhere within the group.
• Our energy exposure also contributed negatively to relative performance. We were underweight this underperforming group, and both of our names, Cabot Oil & Gas and Cimarex Energy, underperformed both the overall index and the energy sector within the index.

Outlook

• Our portfolio continues to express a more economically constructive and optimistic view, with a more assertive progrowth, less defensive stance – although slightly less so than in 2017.
• The Portfolio is currently overweight consumer discretionary, financials, health care and industrials. We still have a healthy exposure to technology, but have moved to an underweight position, having seen valuations increase dramatically in this sector, and enjoyed significant appreciation in our names. Technology valuations are more reasonable post the recent stock market down draft, so we have renewed interest in adding exposure to that sector. The Portfolio is also underweight the consumer staples sector, having sold our position in Blue Buffalo Pet Products, and reducing the weighting in Hain Celestial Group. The Portfolio is underweight materials, and we have no exposure to the telecommunications, real estate, utilities and energy sectors, which represent a combined 5.7% of the index. We have recently added energy to the “no exposure” list, as the secular trends for growth and efficient capital deployment in that sector are challenged, and we think we can invest more productively elsewhere.
• While the portfolio represents an economically constructive point of view, our approach is essentially balanced based on stock selection as opposed to overt sector allocations. From a broader macroeconomic factor perspective, we expect a stable-to-rising interest rate environment to be generally positive for our approach, related to our focus on profitable business models and sound capital structures. The time of quantitative easing was a challenge to our returns, as lower interest rates played to the benefit of the stocks of companies with lesser quality business models and/or capital structures. We expect the change in trend to favor our investment style.

The opinions expressed are those of the Portfolio’s managers 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.

The Russell Midcap Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index.

Top 10 holdings (%) as of 03/31/2018: GrubHub, Inc. 3.5, Zoetis, Inc. 3.3, Intuitive Surgical, Inc. 3.2, CoStar Group 3.2, Fastenal Co. 3.0, Electronic Arts, Inc. 2.6, Polaris Industries, Inc. 2.6, MercadoLibre, Inc. 2.6, Edwards Lifesciences Corp. 2.4 and Tractor Supply Co. 2.4.

Risk factors: The value of the Portfolio’s shares will change, and you could lose money on your investment. Investing in mid-cap growth stocks may carry more risk than investing in stocks of larger more wellestablished companies. 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. Not all funds or fund classes may be offered at all broker/dealers. 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.