Portfolio Commentary

---

2Q18 Portfolio Commentary

Small-Mid Cap Growth Composite Investment Environment • Small-cap growth stocks were up significantly during the period, despite volatility due to fears about protectionist trade policies. • The market was led by a narrow subset of consumer Internet, medical technology and Softwareas-a-Service companies. Many of these stocks trade at extremely high valuations or are yet to produce earnings.

Jonathan D. Coleman, CFA Portfolio Manager

Performance Discussion The Portfolio underperformed its primary benchmark, the Russell 2500™ Growth Index, and secondary benchmark, the Russell 2000® Growth Index, during the quarter. Throughout most of the period, our Portfolio lagged the benchmark due to market dynamics that did not favor our focus on long-duration growth companies that we believe have more durable growth profiles. However, companies with steadier growth profiles performed better in the last two weeks of June as volatility returned to markets. While we still underperformed our benchmark for the quarter, we made up ground on the index when volatility returned. This is in line with our expectations for the Portfolio, as we expect our focus on companies with steadier earnings growth to help us outperform the benchmark in volatile periods and during market downturns. One factor working against us was a large flow into small-cap ETFs during the quarter. Concern over the impact of a potential trade war, which would impact larger companies more than domestically oriented small ones, led to inflows into such products. The indiscriminate rush of capital into those products had an outsized positive effect on smaller companies with less liquidity and also those stocks with lower earnings power. We typically favor companies with more defined competitive advantages and a proven history of high returns on invested capital and margin expansion. This leads to a natural bias toward larger, profitable companies, which hurt this quarter. Our relative performance was also hurt by not owning some of the consumer Internet, medical technology and Software-as-a-Service stocks that led the index. As we discuss in more detail in our outlook section, we own some stocks within those industries, but are concerned about excessive valuations for many of these stocks. We are comfortable with our positioning and believe valuation discipline will be rewarded over the long term. While we underperformed the benchmark during the quarter, there were also bright spots within the Portfolio. Stock selection within the industrial sector was a large contributor to relative performance. Axon Enterprise was our largest contributor within the sector. The company makes

Highlights • Small-cap growth stocks were up significantly during the period, despite volatility due to fears about protectionist trade policies. • The Portfolio underperformed its benchmark. • As we head into the back half of the year we are concerned about signs of market froth, particularly within the small-cap universe. Page 1 of 4

Scott Stutzman, CFA Portfolio Manager

2Q18 Portfolio Commentary Taser brand weapons and body cameras for police officers. The stock has appreciated as the market has come to appreciate both secular tailwinds favoring Axon’s products and changes to its business model that we believe make its earnings profile more stable. In our view, societal trends favoring the use of nonlethal weapons and police activity surveillance favor the company. The company is also transitioning sales of its technology and equipment to a subscription-based model, a change that creates a steadier, recurring revenue stream. The subscription-based model also makes it easier for police departments, which can pay for the equipment out of their operating budget, rather than a large, one-time capital expenditure.

company. We liked Avexis for its spinal muscular atrophy treatment, and weren’t surprised to see a larger company offer a high premium to acquire it. We sold the position on gains after the announcement. ServiceMaster Global also contributed meaningfully to performance. Better-than-expected earnings growth, surprising margin expansion and improvements in customer satisfaction have validated new management’s strategy for reinvigorating growth of its Terminix brand. We like that the pest control business, and some of ServiceMaster’s other business lines, are not economically sensitive, and continue to believe the company trades at a reasonable valuation for a non-economically sensitive business with high margins.

Avexis was another top contributor. Stock of the gene therapy specialist was up significantly after Novartis announced it would acquire the For detailed performance information, please contact a Janus Henderson Institutional team representative.

Outlook As we head into the back half of the year we are concerned about signs of market froth, particularly within the small-cap universe. We believe that in many cases, valuations of stocks tied to secular growth themes such as biotech innovation, the Internet of Things or Software-as-a-Service have become unhinged from intrinsic values. For perspective, many of these stocks trade on multiples of revenue which are higher than historical multiples of earnings for the small-cap index. We have small positions in select companies tied to these industries — in cases where we believe the growth potential justifies the valuation — but we refuse to chase these stocks indiscriminately. That hurt performance this quarter as a halo effect lifted nearly every stock tied to these secular

themes, but we believe it will benefit in the long run as valuations begin to reflect reality. Given the run-up in valuations, we’ve made a few marginal changes to the portfolio, trimming position sizes of a few biotech and technology companies. We’ve also modestly increased our exposure to a few industrial stocks that trade at extraordinarily cheap valuations. We believe the market overly punished these companies for having either perceived economic cyclicality within their businesses or for having exposure to China, where trade tensions ramped up during the quarter. In these cases, we believe the stability of the business has been overlooked or the international exposure misunderstood. The changes within the portfolio are small, but seemed prudent in the current environment. Going forward, we will continue to take a disciplined approach to valuation.

Representative Account Top Contributors and Detractors for the Quarter Ended 6/30/18 Top Contributors

Ending Weight (%)

Contribution (%) Top Detractors

Ending Weight (%)

Contribution (%)

Axon Enterprise Inc

0.91

0.40

Nektar Therapeutics

0.33

-0.46

Avexis Inc

0.00

0.39

LendingTree Inc

0.34

-0.16

Etsy Inc

0.90

0.33

Belden Inc

1.14

-0.16

ServiceMaster Global Holdings Inc

2.11

0.33

Thor Industries Inc

0.81

-0.15

Financial Engines Inc

1.21

0.29

ON Semiconductor Corp

1.49

-0.14

The holdings identified in this table, in compliance with Janus Henderson policy, do not represent all of the securities purchased, held or sold during the period. To obtain a list showing every holding as a percentage of the portfolio at the end of the most recently available disclosure period contact a Janus Henderson institutional team representative.

Top Contributors

Top Detractors

Axon Enterprise: Axon Enterprise develops technology and weapons products for the law enforcement market, including its Taser brand, a line of electroshock weapons. We believe trends favoring the use of nonlethal weapons and police activity surveillance favor the company, and also believe there is potential for a new CFO to improve the company’s focus on growth and profitability.

Nektar Therapeutics: The drug delivery company has a range of products either recently approved or in development for indications such as immuno-oncology, pain and auto-immune diseases. We trimmed the position during the period to pursue other stocks that offered more attractive opportunities. LendingTree: LendingTree is an online lending exchange that connects consumers with multiple lenders, banks and credit partners who compete for business. We like the company’s position as an

Page 2 of 4

2Q18 Portfolio Commentary Top Contributors (continued)

Top Detractors (continued)

Avexis: We liked the company for its therapy addressing spinal muscular atrophy, but exited the position after significant gains following an announcement that Novartis would acquire the company.

intermediary bringing a fragmented group of suppliers of credit to the consumers who seek it. We also believe the platform enjoys strong consumer awareness. Finally, we like the way the company is diversifying its revenue sources so that it is less dependent on mortgage originations. We also see potential for the company to leverage its consumer data into other revenue opportunities.

Etsy: Etsy is the largest marketplace for handmade and vintage items globally, catering toward artists and buyers looking for unique items ranging from clothing to furniture to jewelry and art. We like the network effects associated with Etsy’s business model, and also believe management is taking positive steps to improve profitability. ServiceMaster Global: The company owns a number of brands dedicated to providing residential and commercial services, including pest control, home warranties, disaster restoration, residential cleaning and furniture repair, among others. We like that many of the company’s businesses are non-cyclical, and offer a predictable, stable revenue stream. Financial Engines: The company provides employers with workplace solutions to help their employees with personalized financial guidance. We like the company’s growth potential as it partners with more 401(k) plan sponsors; the company has historically shown steady growth rates of participants using its platform once an employer adopts it. We also believe a recent acquisition complements some of Financial Engines’ online advice with a human touch.

Belden: The supplier of cables, connectors and networking equipment serves industrial, broadcast and enterprise information technology end markets. We believe management will continue to focus its product portfolio toward its higher-quality connector and networking products, and away from its legacy cable products, which have less pricing power. We also expect management will create value through acquisitions to improve its product portfolio and will drive productivity improvements to boost margins and returns on invested capital. Finally, we appreciate that Belden serves large and growing markets and should benefit longer term from the Internet of Things (IoT), or the increasing connectivity of electronic devices. Thor Industries: Thor owns a number of subsidiaries that make it one of the world’s largest recreational vehicle (RV) manufacturers. We believe Thor’s recent acquisition of Jayco, another RV manufacturer, gives it leverage with suppliers and RV dealers. We also believe Thor can improve margins for the Jayco business. Finally, we believe the growing number of millennials adopting RV lifestyles is a favorable trend for the industry. ON Semiconductor: ON Semiconductor is a broad-based semiconductor supplier. Its portfolio of power and signal management, logic, discrete and custom devices helps customers solve their design challenges in automotive, communications, computing, consumer, industrial, light-emitting diode (LED) lighting, medical, military/aerospace, smart grid and power applications. The company has one of the broadest portfolio offerings as well as one of the lowest cost models in the business. Due to multi-decade relationships with many of its customers, the company is able to spend less on marketing and research while developing unique products for customers. We think the company can continue to generate attractive levels of profit and free cash flows in its competitive markets. We also believe ON’s acquisition of competitor Fairchild will enable significant margin expansion and free cash flow generation for the combined company.

Page 3 of 4

2Q18 Portfolio Commentary

For more information, please visit janushenderson.com. Past performance is no guarantee of future results. Discussion is based on performance gross of fees. Closed to certain new investors. Information relating to portfolio holdings is based on the representative account in the composite and may vary for other accounts in the strategy due to asset size, client guidelines and other factors. The representative account is believed to most closely reflect the current portfolio management style. As of 6/30/18 the top ten portfolio holdings of the Representative Account are: Broadridge Financial Solutions Inc (2.44%), SS&C Technologies Holdings Inc (2.17%), ServiceMaster Global Holdings Inc (2.11%), HEICO Corp (2.04%), Blackbaud Inc (1.83%), STERIS PLC (1.75%), Catalent Inc (1.68%), LPL Financial Holdings Inc (1.58%), Cadence Design Systems Inc (1.56%) and ON Semiconductor Corp (1.49%). There are no assurances that any portfolio currently holds these securities or other securities mentioned. Portfolio holdings are as of the date indicated, and are subject to change. This material should not be construed as a recommendation to buy or sell any security. The opinions are as of 6/30/18 and are subject to change without notice. Janus Henderson may have a business relationship with certain entities discussed. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. C-0618-18354 10-30-18

Security contribution to performance is measured by using an algorithm that multiplies the daily performance of each security with the previous day’s ending weight in the portfolio and is gross of advisory fees. Fixed income securities and certain equity securities, such as private placements and some share classes of equity securities, are excluded. Investing involves risk, including the possible loss of principal and fluctuation of value. Small-Mid Cap Growth portfolios, benchmarked to the Russell 2500™ Growth Index, and secondarily to the Russell 2000® Growth Index, invest primarily in small-sized and medium-sized companies selected for their growth potential. Small- and medium-sized companies have market capitalizations less than $10 billion. Effective January 1, 2009 the composite definition was expanded to also include sub-advised pooled funds and separately managed institutional accounts. The composite was created in March 2005. Janus Henderson is a trademark of Janus Henderson Investors. © Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarl and Janus International Holding LLC. Janus Capital Management LLC serves as investment adviser. FOR INSTITUTIONAL INVESTOR USE ONLY / NOT FOR PUBLIC VIEWING OR DISTRIBUTION

388-42-22553 07/18

Page 4 of 4