Portfolio Commentary

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4Q18 Portfolio Commentary

Opportunistic Growth Composite Investment Environment A sense of nervousness prevailed during the period as investors navigated myriad economic and political concerns. Slowing global economic growth – particularly in China – presented a worrisome backdrop. Comments by the Federal Reserve (Fed) also caused volatility, as market participants expressed concern over the possibility of the Fed continuing to raise interest rates despite escalating economic and market weakness. Developments in Washington further rattled markets after a shift in control of the House of Representatives led to political gridlock and a partial U.S. government shutdown. Oil prices also made headlines as the West Texas Intermediate (WTI) price per barrel tumbled more than 40% intra-quarter. Despite modest gains at period end, major equity indices ended the period with steep losses. Energy and information technology stocks led the Russell 1000® Growth Index lower. All sectors generated negative returns, but real estate and consumer staples performed relatively well.

Performance Discussion The Portfolio underperformed its benchmark, the Russell 1000 Growth Index, during the period. Our Portfolio represents a concentrated, opportunistic portfolio that seeks the most compelling investment opportunities across the market-cap spectrum. If we are correct in identifying the growth opportunities that we believe lie ahead for most of these companies, we expect the highly concentrated nature of the Portfolio to create a meaningful opportunity to add risk-adjusted outperformance over the long term. Amazon was our largest detractor. The stock fell due to the broader technology-related sell-off rather than any company-specific news. We continue to have a favorable opinion of Amazon, given the company’s strong fundamentals, particularly in its Amazon Web Services (AWS) segment. We also have a positive outlook for its advertising business, which is a fast-growing piece of overall earnings. Further, the company continues to expand its Prime services and grow its membership base. Activision Blizzard also detracted from performance. We sold this position during the quarter, as competition from online video game Fortnite as well as senior management turnover caused us to lower our conviction in the stock. Mastercard was another detractor. This is one of our larger positions, and it was caught up in the general market sell-off. Concerns about China, the slowing global economy and the potential impact on global travel also weighed on the stock. We still like the company and our long-term

Highlights • Slowing global economic growth, continued trade tensions between the U.S. and China, and concerns of a policy misstep by the Fed drove stocks lower. • The Portfolio underperformed its benchmark as stock selection weighed on results. • We believe heightened market volatility will continue to present attractive opportunities, but an uncomfortable macroeconomic backdrop and the numerous downside risks in play are top of mind. Page 1 of 3

Marc Pinto, CFA Portfolio Manager

4Q18 Portfolio Commentary investment thesis continues to play out. Payments companies such as Mastercard continue to benefit as consumers and businesses switch from cash and check to plastic and electronic payments. Mastercard is particularly well positioned to benefit from this shift because a majority of its revenues are generated outside the U.S., where many markets have a lower penetration of card and electronic payments and are experiencing significantly faster electronic purchase volume growth.

Merck & Co. was another top performer. The company benefited from a generally strong quarter for pharmaceutical companies due in part to relatively less rhetoric around pricing regulation. Sales of Keytruda, its cancer-fighting immunotherapy, continue to be strong and the drug continues to take market share from its largest rival. We believe the immunotherapy still has significant growth potential, particularly in overseas markets and in cases of lung cancer treatment.

While the aforementioned stocks detracted during the quarter, we were pleased with the results from many of our holdings.

Six Flags also contributed to results. Despite adverse weather conditions proving to be a drag on attendance earlier in the year, Six Flags reported strong third quarter earnings and solid growth in its membership base. The company’s primarily U.S.-based business was also relatively less affected by global trade tensions during the quarter. We appreciate Six Flags’ continued investment in its amusement parks and its membership offerings which creates greater customer loyalty and a more stable revenue stream. The stock also pays a high dividend, which was in favor during the flight to quality that took place during the quarter.

Starbucks was our largest contributor. U.S. sales accelerated during the quarter after some new product launches. Modest improvement in the company’s China business segment, including expanded delivery service, further benefited earnings. However, we reduced our position during the quarter due to concerns around the strength of the Chinese economy and management turnover within the company.

For detailed performance information, please contact a Janus Henderson Institutional team representative.

Outlook Concerns around the U.S. government shutdown, slowing growth in China, trade tensions and overall global economic weakness present an uncomfortable macroeconomic backdrop. While mindful of the various downside risks, a generally healthy U.S. economy and positive indicators such as healthy wage inflation, strong employment and a robust holiday shopping season highlight the strength of the consumer. If progress is

made around trade policy or the U.S. budget, a strong rebound in the equity markets is not unfeasible. We are favoring companies with more of a U.S. footprint and are seeking to mitigate exposure to companies that may be impacted by trade rhetoric and slowing global growth. We will continue to focus on companies with strong growth prospects and on those making investments that should drive value over time. We believe heightened market volatility will continue to present opportunities to exit stocks in which we have relatively lower conviction and redeploy the proceeds into higher-conviction names.

Representative Account Top Contributors and Detractors for the Quarter Ended 12/31/18 Top Contributors

Ending Weight (%)

Contribution (%) Top Detractors

Ending Weight (%)

Contribution (%)

Starbucks Corporation

1.29

0.25

Amazon.com, Inc.

8.01

-2.27

Merck & Co., Inc.

3.02

0.20

Activision Blizzard, Inc.

0.00

-1.81

Six Flags Entertainment Corporation

1.99

0.08

Mastercard Incorporated

7.53

-1.10

The Estee Lauder Companies Inc.

2.24

0.01

Alphabet Inc.

7.64

-0.91

Crown Castle International Corp.

1.18

-0.01

Microsoft Corporation

7.71

-0.80

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

Starbucks Corporation: The coffee retailer, which also offers other beverages and a variety of fresh food items through company-operated and licensed stores, is well positioned to continue gaining share in the coffee industry. We also believe Starbucks’ expansion into Asia will continue to add meaningfully to sales and profits given that region’s higher operating margin and Starbucks’ underpenetrated market positioning. We also believe that Starbucks has a unique long-term strategy to increase its penetration in the consumer packaged food channel by leveraging its brand name into new non-coffee products.

Amazon.com, Inc.: The online retailer offers a wide range of products, including books, electronics, apparel, home goods and numerous others. Amazon also offers personalized shopping services, web-based credit card payment and direct shipping to customers. We believe the company’s competitive advantages of a low-overhead cost structure – allowing for an aggressive pricing structure and faster shipping – should continue to cause consumers to shift an increasing amount of their general merchandise spending toward Amazon. Given that more than 90% of retail sales are still sold offline, Amazon has significant

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4Q18 Portfolio Commentary Top Contributors (continued)

Top Detractors (continued)

Finally, we appreciate the company’s multiple levers to drive traffic into its stores and company-wide focus on growing comparable store sales.

opportunities ahead, particularly as they expand into new business lines and geographies.

Merck & Co., Inc.: The pharmaceutical company is benefiting from the rapid sales growth of Keytruda, a leading checkpoint inhibitor for the treatment of certain cancers, including melanoma and non-small cell lung cancer. We believe Merck is well positioned to expand Keytruda for other indications in the near future. We also like the management team, which has executed clinical trials well.

Activision Blizzard, Inc.: We exited the position during the period.

Six Flags Entertainment Corporation: The amusement park operator continues to invest in its parks and is benefiting from increased membership growth and customer loyalty. The vast majority of its parks are based in the U.S., therefore being relatively less affected by geopolitical turmoil. The stock also provides a dividend yield. The Estée Lauder Companies Inc.: We think the maker of skin care, makeup, fragrance and hair care products is well positioned and making the right investments to capitalize on high growth in prestige beauty spending globally, both in developed and emerging markets. Estée Lauder is also benefiting from a productivity program that we feel will continue to enhance profit margins. Crown Castle International Corp.: This owner of wireless communication towers maintains a predictable, long-term and contractdriven revenue base. The firm has benefited from growing numbers of tenants on its towers. We think this could continue as wireless service providers work to upgrade their networks to meet the growing demand for data transmission.

Mastercard Incorporated: The global card payment network connects consumers, financial institutions, merchants, governments and businesses, enabling them to use electronic forms of payment instead of cash and checks. We like Mastercard for its high return on invested capital business and growth potential as well as its strong balance sheet and quality management team. A majority of its revenues are generated outside the U.S., where many markets have a lower penetration of cards/electronic payments and are experiencing significantly faster electronic purchase volume growth. Alphabet Inc.: Long term, we believe Alphabet’s core search business is one of the most attractive growth assets in the world, and are increasingly confident that Alphabet’s autonomous driving subsidiary can one day become a large company in its own right. Further, we believe the network effects associated with Alphabet’s advertising business and Android operating system entrench the company as a leading beneficiary of the transition of advertising spending from offline channels to mobile and online video channels. Microsoft Corporation: Microsoft, the legacy software giant, has reinvented itself to become the second-largest provider of cloud-based IT services. We believe the transformation has been a smart one, as more companies move workloads from physical servers to the cloud. We are also impressed by Microsoft’s transition to a subscription-based model for its popular Office suite, and the company’s continued focus on cutting costs, buying back shares and raising its dividend. While the stock has risen significantly, we still see upside for Microsoft’s cloud business, as only a small fraction of business workloads currently operate in the cloud.

For more information, please visit janushenderson.com. Past performance is no guarantee of future results. Discussion is based on performance gross of fees. 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 12/31/18 the top five portfolio holdings of the Representative Account are: Amazon.com, Inc. (8.02%), Microsoft Corporation (7.71%), Alphabet Inc. (7.64%), Mastercard Incorporated (7.53%) and Adobe Inc (4.04%). 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 12/31/18 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. 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 C-1218-21622 04-30-19

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. Opportunistic Growth portfolios, benchmarked to the Russell 1000® Growth Index, pursue strong growth opportunities in companies of any size, wherever they may exist. Under normal market conditions, the portfolios hold less than 80 equity securities. Effective January 1, 2005 the composite definition was changed to include sub-advised pooled funds as well as separately managed institutional accounts. A minimum asset size requirement of $1 million for composite participation was used prior to January 1, 2006. The composite was created in January 1995. Janus Henderson provides investment advisory services in the U.S. through Janus Capital Management LLC, together with its participating affiliates. Janus Henderson is a trademark of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc. FOR INSTITUTIONAL INVESTOR USE ONLY / NOT FOR PUBLIC VIEWING OR DISTRIBUTION 388-42-22465 01/19

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