Portfolio Commentary

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3Q17 Portfolio Commentary

Balanced Fund VIT Balanced Portfolio Co-Portfolio Managers

Investment Environment During the quarter, U.S. stocks overcame geopolitical concerns to end the period in positive territory. Tensions between North Korea and the U.S. caused benchmarks to pull back in August, as President Trump vowed to hit North Korea with “fire and fury” if the Asian country threatened the U.S. A terrorist attack in Barcelona, Spain, also weighed on equities, as did worries over Hurricanes Harvey and Irma. However, positive corporate earnings and strong economic data helped stocks to rally. Indeed, during the period, the Commerce Department reported that the U.S. economy expanded by 3% from April to June, with economists expecting a similar pace of growth for the third quarter. The Federal Reserve (Fed) left its benchmark rate unchanged, but indicated it is prepared to hike again this year. The central bank also announced it would start to unwind its balance sheet in October. Stocks received a boost late in the period as the market welcomed the Trump administration’s tax-reform proposal. Within the S&P 500 Index, consumer staples and consumer discretionary stocks were among the weakest performers. Information technology and energy enjoyed the strongest returns. Energy benefited as crude prices rose on production cuts and strong demand. The bond market, as represented by the Bloomberg Barclays U.S. Aggregate Bond Index, gained 0.85% in the third quarter. Investment-grade corporate credit was the strongest-performing asset class in the index. Despite August’s sell-off in risk assets, spreads ultimately tightened by eight basis points. Gains were more prominent in high yield which was aided, in part, by the steady rise in oil prices. Yields on U.S. Treasury securities declined for much of the quarter, and early in September, the yield on the 10-year note hit a year-to-date low of 2.04%. From there, rates sold off as investors began accepting the possibility of a December rate hike and excitement grew over the potential for U.S. tax reform. The yield on the 10-year note finished September at 2.33%, near where it began in June at 2.30%.

Performance Discussion The Fund, which seeks to provide more consistent returns over time by allocating across the spectrum of fixed income and equity securities, outperformed the Balanced Index, a blended benchmark of the S&P 500 Index (55%) and the Bloomberg Barclays U.S. Aggregate Bond Index (45%). The Fund underperformed its primary benchmark, the S&P 500 Index, and outperformed its secondary benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index. Compared to the Balanced Index, the Fund remains overweight equities, with a 65% allocation to stocks, approximately 34% in fixed income and a small portion in cash. Our quarter-end allocation

Highlights • The Fund outperformed the Balanced Index during the third quarter of 2017. • Stock selection in industrials drove outperformance in the equity sleeve. Within the fixed income sleeve, our corporate credit positioning was a strong contributor to relative results. • With the benign rate environment, decent global growth and the potential for U.S. tax reform, we believe equities continue to present more attractive risk-adjusted opportunities relative to fixed income. Page 1 of 5

Marc Pinto, CFA Darrell Watters Jeremiah Buckley, CFA Mayur Saigal

3Q17 Portfolio Commentary continues to reflect our view that on a risk-adjusted basis, equities present more attractive opportunities relative to fixed income. The equity weighting may vary based on market conditions. The Fund’s equity sleeve outperformed its benchmark, the S&P 500 Index. At the sector level, stock selection in industrials drove the bulk of outperformance. This was due in large part to our position in Boeing. Stock selection in the information technology and materials sectors also proved beneficial. Aerospace company Boeing was the Fund’s top individual contributor, benefiting from robust global air traffic and better-than-expected demand for its wide-body 777 and 787 planes. The company has decreased production costs for its 787 and increased the plane’s production rate, initiatives that were welcomed by investors. Boeing’s defense business, which accounts for approximately 30% to 40% of the overall business, also performed well. Additionally, confidence has increased around the company’s growing services business after Boeing announced the integration of its defense and commercial airplane servicing facilities and defined the new areas of the services market it intends to target. Boeing continues to exceed expectations on free cash flow, and as a result was able to increase its dividend and stock buyback program during the quarter. Mastercard was another leading contributor after raising guidance during the quarter. Our investment thesis for Mastercard continues to play out, as the company has benefited from consumers and businesses switching from cash and check to plastic and electronic payments. The company continues to take market share, particularly outside of the U.S. where many markets have a lower penetration of electronic payments and are experiencing significantly faster growth in electronic purchase volume. 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. Chemical company LyondellBasell Industries also aided results. Given the stock’s correlation to energy prices, September’s rebound in oil prices aided its performance. The ethylene supply/demand dynamic recently became more favorable, which also boosted the stock. China introduced restrictions on the allowable amount of recycled plastic imports, which created greater demand for new production of plastics. Additionally, Hurricane Harvey’s U.S. landfall delayed an impending increase in ethylene supply from the company’s competitors. The uptick in supply is expected to be more balanced going forward. LyondellBasell continues to generate strong free cash flow and we like management’s commitment to growing its dividend and buying back stock. Our holdings in both consumer discretionary and consumer staples detracted on a relative basis. Stock selection in the health care sector also weighed on results. Altria Group was the leading detractor. Negative sentiment surrounded the company, and tobacco-related stocks in general, after the U.S. Food and Drug Administration (FDA) announced a proposal to lower the nicotine levels in cigarettes to non-addictive levels. This marked a change in FDA rhetoric around lower-risk products and how they intend to regulate the industry going forward. In our view, it will be challenging to regulate nicotine levels and we anticipate implementation of the proposed regulation to be prolonged. We continue to like Altria and we are optimistic for the company’s partnership with Philip Morris in reducedharm products, such as electronic cigarettes, which should continue to gain market share. Allergan also weighed on performance. The stock declined as a result of a complicated patent dispute concerning Restasis, the firm’s blockbuster

medicine for dry eye. Several generic drug makers are challenging Allergan’s patent in federal courts, as well as through inter partes review (IPR). Native American tribes are protected from the IPR process, so when Allergan transferred its patent to the Saint Regis Mohawk Tribe, the move was criticized by lawmakers. The decision may have cast a negative light on Allergan, but we believe the company is pursuing a valid line of defense, just as the generic drug makers are using legal tactics to try to invalidate Allergan’s intellectual property. We will monitor the situation, but continue to like Allergan for its popular products, such as wrinkle treatments Botox and Juvéderm. Additionally, we think the company gets little credit for its pipeline, though that could change over the next 12 to 24 months, with several meaningful data results expected in that time frame. Nike also detracted. While the company has successfully increased its direct-to-consumer business, continued weakness in the U.S. retail environment weighed on recent performance. The slowdown in retail traffic has led to an increase in the company’s inventory and led to more markdowns, which in turn has weighed on profitability. The competitive landscape in the U.S. athletic apparel space has also intensified, with other sportswear manufacturers taking market share. Additionally, sales in the company’s basketball segment have been soft and a number of Nike’s signature products have struggled, although part of this is driven by cyclical fashion trends. We continue to like Nike, believing the company is well positioned for growth outside the U.S. Further, Nike’s recent weakness in the U.S. is likely a short-term headwind, and the company’s innovative products should ultimately help regain market share. The Fund’s fixed income sleeve outperformed its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index. Strong fundamentals, solid earnings and synchronous global growth bode well for corporate credit. We believe these factors, coupled with investors’ reach for yield, should continue to support modest spread tightening. With this in mind, we opportunistically added to corporate credit, and leveraged the intraquarter volatility to capitalize on attractive securities experiencing price dislocations. Specifically, we took advantage of the merger and acquisition (M&A) concerns and increased supply disrupting the telecommunications sector to add to our allocation in the sector. However, we remain wary of valuations that are at the expensive end of their range and of corporate behavior symptomatic of the late stages of the credit cycle. As such, we continued to incrementally de-risk the Fund. We sought opportunities in higher-quality credit and in issuers with defensive business models. We continued to reduce exposure to sectors, such as energy, that we believe are exhibiting poor fundamentals. We also reduced exposure to companies that, in our view, are likely to engage in M&A activity. As the Fed looks to normalize both the neutral rate and its balance sheet, we maintain a cautious stance on rates. We reduced duration over the quarter, ending September at 96% of the benchmark. Our exposure to U.S. Treasury securities remained near the low end of our historical range. Our Treasury positioning was a leading relative contributor to Fund performance. As investors moved into safe havens mid-quarter and longerdated Treasury yields declined, our bias toward 10- and 30-year Treasury securities proved beneficial. Our large underweight also aided results when rates sold off in September. With corporate credit rebounding late in the quarter, our out-of-index exposure to high yield and our overweight allocation to investment grade further supported performance. Spread carry, a measure of excess income generated by the Fund’s corporate credit holdings, also contributed on a relative basis. While no credit sectors had an outsized impact on relative returns, banking was among relative contributors and integrated energy was among relative detractors. Late in the period, positive sentiment surrounded the banking

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3Q17 Portfolio Commentary sector, which should benefit from rising interest rates, and our overweight allocation proved beneficial. The integrated energy sector gained with the rise in oil prices, and our underweight allocation caused that sector to weigh on results. Our emphasis on prudent position sizes and maintaining a well-diversified portfolio resulted in minimal performance impact from individual corporate issuers.

specified pools with lower prepayment risk and higher coupons, lagged the positions in the index as rates rallied for much of the period. The Fund’s lack of exposure to government-related issuers, specifically two emerging market issuers that performed well, also detracted from performance. Government-related securities include government agency debt as well as debt issued by state-owned firms.

At the asset class level, our allocation to mortgage-backed securities (MBS) weighed on relative performance. Our holdings, which emphasize For detailed performance information, please visit janushenderson.com/performance.

Outlook Barring a shock to the market such as a rapid rise in interest rates or a geopolitical event, we expect the equity market to continue grinding higher in the months ahead. While we anticipate the Fed will raise rates in December, the gradual pace of tightening should continue to foster a benign rate environment, and that bodes well for stocks. Modest economic growth in the U.S. and improvement in the global growth picture adds to the favorable environment for equities. Additionally, should personal tax cuts and corporate tax reform come to pass in the U.S., stocks should continue to capture investors’ interest, particularly versus fixed income. There is no question that equities are trading at historically high multiples. However, unlike other market peaks, we are not concerned about bubblelike symptoms. We continue to believe that stocks are reasonably valued, and we are still identifying attractive investment opportunities, particularly in health care and financials. We remain focused on companies with strong growth prospects and those that are innovating through the use of technology to improve the efficiency and quality of product offerings. Within the fixed income sleeve, we see potential tailwinds for inflation and a higher Fed funds rate. While the inflation pickup is unlikely to be

sustainable, we believe these pops could jolt the bond market. We agree that the Fed’s tightening cycle will remain gradual, but we expect the number of forthcoming hikes to fall between Fed and market expectations. In the months ahead, we expect range-bound Treasury yields, although they will likely bump up against the higher end of that range. We are actively managing yield curve positioning with a focus on capital preservation. We are cautiously optimistic for corporate credit, as both fundamentals and technicals remain supportive of the asset class. Earnings have been decent, companies are adequately covering their interest expense and investors continue to reach for yield. Still, valuations are stretched and we remain in the later stages of the credit cycle. We expect a continued sideways grind, or modest spread tightening, in credit. We see few catalysts outside of tax reform that will drive spreads significantly tighter. As such, we remain focused on higher quality credit, companies with less cyclicality and issuers with cash flow stability. We are actively seeking strong risk-adjusted opportunities in sectors that may benefit from U.S. tax reform. We are avoiding those issuers we expect to engage in M&A activity. Our goal is to participate in spread tightening, but our priority is to provide capital preservation and strong risk-adjusted returns for our clients.

Top Equity Sleeve Contributors and Detractors for the Quarter Ended 9/30/17 Top Contributors

Ending Weight (%)

Contribution (%) Top Detractors

Ending Weight (%)

Contribution (%)

Boeing Co

4.16

1.33

Altria Group Inc

3.17

-0.54

Mastercard Inc

4.80

0.71

Allergan PLC

1.72

-0.33

LyondellBasell Industries NV

2.73

0.45

NIKE Inc

1.86

-0.28

Microsoft Corp

5.39

0.45

Medtronic PLC

2.11

-0.27

Lam Research Corp

1.41

0.34

Mattel Inc

0.40

-0.16

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 recent publicly available disclosure period, contact 800.668.0434 or visit janushenderson.com/info.

Top Contributors

Top Detractors

Boeing: The Boeing Company is the largest manufacturer of commercial jet aircraft in the world. The company also builds military aircraft and provides support services to both commercial airlines and the U.S. military. We believe Boeing could have the opportunity to grow its domestic and foreign defense businesses, particularly if the new U.S. administration is willing to increase defense spending. Growth in

Altria Group: The tobacco company remains an attractive holding given its historical ability to generate significant levels of cash, a high percentage of which is returned to shareholders via dividends and share buybacks. We think despite declining cigarette volumes in the U.S., Altria’s cash flows will grow moderately over time as the company continues to improve margins and grow the non-cigarette business. We

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3Q17 Portfolio Commentary Top Contributors (continued)

Top Detractors (continued)

commercial air travel globally should lead to strong demand for its commercial airplanes, as will the increasingly efficient and reliable planes being produced through Boeing’s innovation pipeline. Boeing also continues to make progress on lowering the production costs of the 787 Dreamliner aircraft. The cost reductions have led to higher free cash flow, which enabled the company to increase its dividend and repurchase shares.

also believe the company will benefit from an industry shift toward heatnot-burn products that significantly reduce health risks and could stem volume declines.

Mastercard: 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. LyondellBasell Industries: The large chemical producer, which converts liquid and gaseous hydrocarbon feedstock into plastic resins and other chemicals, has had a cost advantage since the primary input to its production process is natural gas – a commodity that has experienced considerable price pressure due to excess supply. We also like the global supply/demand dynamics for ethylene, one of the company’s primary products. Finally, we think management is committed to improving shareholder value by materially growing their dividend, buying back stock and selectively investing in historically high return on invested capital projects. Microsoft: 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. Lam Research: Lam Research engages in the manufacture and service of wafer processing semiconductor manufacturing equipment. The company has benefited from the continued shift to the "Internet of Things." We expect that the market for semiconductors should continue to be strong as we don’t see this trend abating, and therefore Lam’s cutting-edge equipment should remain in high demand.

Allergan Plc: Allergan is a Dublin, Ireland-based pharmaceuticals business with leading therapies in eye care, medical aesthetics and dermatology. In our opinion, the market undervalues Allergan’s durable growth franchises, such as the popular wrinkle treatments Botox and Juvéderm. We also like that an increasing percentage of Allergan’s business is based on cash payments, rather than reimbursement, and that the company has a strong pipeline. Nike: We believe the footwear and apparel maker can benefit from the growing relevance of sport in global culture. In particular, we like Nike for its significant emerging-markets exposure and its ability to expand into new markets based on its brand strength. Operationally, Nike continues to innovate in both its supply chain and manufacturing capabilities, which will help the company lower total product costs and improve margins. We also are confident that Nike’s investments in an omnichannel retail experience, including a fast-growing collection of websites, will help the company to grow despite a challenging environment for brick-and-mortar retailers. Medtronic: Medtronic makes and sells medical devices throughout the world. We appreciate the company’s diversified business, which is enjoying a number of new, high-quality product cycles in cardiovascular disease, diabetes, minimally invasive technologies and restorative therapies. As such, we expect Medtronic to grow revenues by midsingle digits for the next several years. We also believe Medtronic’s innovative pipeline and progress on streamlining both its manufacturing and sourcing footprints will lead to continued attractive profit growth and a growing amount of cash returned to shareholders. In addition, the company is attractively valued compared with peers, creating potential upside for the stock. Mattel: Mattel is a leader in the design, manufacture and marketing of toys and family products. The company appointed a new CEO, formerly an executive at Google, in early 2017. We believe increased focus on innovation in products and marketing will lead to improving market share, and that Mattel’s lineup of brands still has many opportunities in international markets.

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3Q17 Portfolio Commentary Top Fixed Income Sleeve Relative Contributors and Detractors Held for the Quarter Ended 9/30/17 Top Contributors

Average Weight (%)

Relative Top Detractors Contribution (%)

Average Weight (%)

Relative Contribution (%)

U.S. Treasury Notes/Bonds

11.88

0.10

Government National Mortgage Assn

3.25

-0.03

Charter Communications (CCO Holdings, LLC)

1.26

0.01

Federal Home Loan Mortgage Corp

3.44

-0.01

1011778 BC ULC/New Red Finance Inc

0.62

0.01

Federal National Mortgage Assn

16.77

-0.01

Verizon Communications Inc

0.84

0.01

Seagate Technology

0.24

-0.01

Iron Mountain Inc

0.08

0.01

STACR 2014-DN1 M3

0.37

0.00

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 recent publicly available disclosure period, contact 800.668.0434 or visit janushenderson.com/info. Relative contribution is the difference between the contribution by ticker to the portfolio's performance versus that ticker's contribution to the benchmark's performance. It reflects how the portfolio's holdings impacted return relative to the benchmark. Cash and tickers not held in the portfolio are excluded.

For more information, please visit janushenderson.com. Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus Henderson at 800.668.0434 or download the file from janushenderson.com/info. Read it carefully before you invest or send money. Past performance is no guarantee of future results. Call 800.668.0434 or visit janushenderson.com/performance for current month-end performance. Discussion is based on the performance of Class I Shares. The discussion and data quoted are based upon the results, holdings and characteristics of the similarly managed Janus Henderson mutual fund. Such data may vary for the Janus Henderson VIT portfolio due to asset size, investment guidelines and other factors. We believe the mutual fund most closely reflects the portfolio management style for this strategy. As of 9/30/17 the top ten portfolio holdings of Janus Henderson Balanced Fund are: Microsoft Corp (3.50%), Mastercard Inc (3.11%), Boeing Co (2.70%), Alphabet Inc (2.32%), Altria Group Inc (2.05%), CME Group Inc (2.01%), Amgen Inc (1.99%), Apple Inc (1.80%), US Bancorp (1.77%) and LyondellBasell Industries NV (1.76%). There are no assurances that any portfolio currently holds these securities or other securities mentioned. The opinions are as of 9/30/17 and are subject to change at any time due to changes in market or economic conditions. 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 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. For fixed income portfolios, relative contribution is calculated by rolling up securities by C-0917-12744 01-15-18

ticker and comparing the daily returns for securities in the portfolio relative to those in the index. Relative contribution is based on returns gross of advisory fees, and may differ from actual performance. Performance may be affected by risks that include those associated with nondiversification, portfolio turnover, short sales, potential conflicts of interest, foreign and emerging markets, initial public offerings (IPOs), high-yield and highrisk securities, undervalued, overlooked and smaller capitalization companies, real estate related securities including Real Estate Investment Trusts (REITs), derivatives, and commodity-linked investments. Each product has different risks. Please see the prospectus for more information about risks, holdings and other details. Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens. S&P 500® Index reflects U.S. large-cap equity performance and represents broad U.S. equity market performance. Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based measure of the investment grade, US dollar-denominated, fixed-rate taxable bond market. Balanced Index is an internally-calculated, hypothetical combination of total returns from the S&P 500® Index (55%) and the Bloomberg Barclays U.S. Aggregate Bond Index (45%). Index performance does not reflect the expenses of managing a portfolio as an index is unmanaged and not available for direct investment. 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. Funds distributed by Janus Henderson Distributors

188-42-29102 10/17

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