Ohio National Fund, Inc. Annual Report December 31, 2017

Transcription

1 Annual Report 2017

2 TABLE OF CONTENTS President s Message... 1 The following pages contain Performance, Comments from Adviser/Sub-Adviser, Change in Value of $10,000 Investment, Portfolio Composition, Top Holdings (all of which are unaudited), and Schedule of Investments (audited) for each of the Fund s Portfolios: Equity Portfolio Bond Portfolio... 6 Omni Portfolio Capital Appreciation Portfolio ON International Equity Portfolio (formerly the International Portfolio) ON Foreign Portfolio (formerly the International Small-Mid Company Portfolio) Aggressive Growth Portfolio Small Cap Growth Portfolio Mid Cap Opportunity Portfolio S&P500 Index Portfolio Strategic Value Portfolio High Income Bond Portfolio ClearBridge Small Cap Portfolio Nasdaq-100 Index Portfolio Bristol Portfolio Bryton Growth Portfolio Balanced Portfolio S&P MidCap 400 Index Portfolio Bristol Growth Portfolio Risk Managed Balanced Portfolio ON Conservative Model Portfolio ON Moderately Conservative Model Portfolio ON Balanced Model Portfolio ON Moderate Growth Model Portfolio ON Growth Model Portfolio Statements of Assets and Liabilities Statements of Operations Statements of Changes in Net Assets Financial Highlights Notes to Financial Statements Report of Independent Registered Public Accounting Firm Additional Information (Unaudited) Information about Directors and Officers (Unaudited)

3 President s Message Dear Investor, The year 2017 ended as it began, strong. The market, fueled by a perfect trifecta of low inflation, global economic expansion and favorable monetary policies, set the stage for double-digit gains across both domestic and international equity indices. For U.S. equities, the bull market run continued throughout the year. Consistency was the story, as equities had positive returns in every month of Globally, international markets were boosted by a strengthening Eurozone, investor enthusiasm for technology stocks and China holding strong. Low inflation was the key driver for bonds, which also posted overall positive returns. Despite natural disasters and a volatile political landscape to start the year, the U.S. economygrew at a solid pace throughout the second half of Third quarter Gross Domestic Product (GDP) came in at a healthy rate of 3.2% following 3.1% growth in the second quarter. December saw a weaker than expected jobs report, but overall unemployment posted a 17-year low at 4.1%. Interest rates are showing signs of upward movement, but they remain low by historical standards, and inflation remains low with the Consumer Price Index (CPI) at 2.1%. Equity Markets The U.S. equity markets saw a strong first half, driven by speculation that a Trump administration would deliver policy changes to fuel the economy. Despite some anticipated policies not coming to fruition, strong earnings growth provided support for growing investor confidence and rising domestic markets throughout the year. The S&P 500 Index returned a robust 21.8%, with significant differences between sectors. The Russell 1000 Growth Index, which measures domestic large cap growth stocks, returned an impressive 30.2% for the year. In contrast, the Russell 2000 Value Index, which measures domestic small cap value stocks, returned 7.8% in The international markets were not to be outdone. Similar to the U.S. markets, consistency was the theme, with all major regions posting positive returns. Emerging markets were poised for growth coming off momentum in the latter part of With technology and financial stocks leading the way, the MSCI Emerging Market Index soared to 37.2% for the year. The re-emergence of Europe and Japan helped drive strong performance from developing markets as the MSCI EAFE Index returned a robust 25%. FixedIncome Markets A strong global economy, which is often accompanied by inflation, can prove difficult for fixed income markets. However, 2017 was not a typical market and, with the support of low inflation, fixed income posted gains. High yield was the darling of fixed income, with the Bloomberg Barclays US Corporate High Yield Bond Index returning 7.5%, while the Bloomberg Barclays US Aggregate Bond Index returned 3.54%. Global bonds were also a standout, with the Bloomberg Barclays Global Aggregate Unhedged Index returning 7.4%. In the U.S., with continued expectations for normalization of monetary policies, we saw a flattening of the yield curve, characterized by higher short-term rates and lower long-term rates. As anticipated, the Federal Reserve (Fed) raised rates at the March and June Federal Open Market Committee (FOMC) meetings and increased rates for a 1

4 third time at the December meeting. Over the year, the upper bound to the Fed Funds target rate rose from 0.75% to 1.50%. The median forecast is for three more Fed rate hikes of 0.25% each in As leadership changes with a new Federal Reserve Chair, there will be close scrutiny of the Fed s actions to glean policy implications and, in turn, the effect on markets and interest rates. Looking Ahead As we begin 2018, the market fundamentals appear positive with continued global economic expansion, healthy corporate profits and supportive monetary policies. That said, it would seem unusual for the markets to repeat the stellar returns of As history suggests, the more mature the expansion, the greater the risk of retraction. Headwinds such as geopolitical risks, further tightening from the Federal Reserve Board and a rise in inflation could disrupt the markets. With a cautiously optimistic outlook for 2018, it will be important for investors to have a disciplined approach and understand the trade-off between risk and reward. Thank you for entrusting your assets to the Ohio National Fund, Inc. We look forward to continuing to serve your financial needs. Sincerely, Michael J. DeWeirdt, CFA, FRM President 2

5 Objective/Strategy The Equity Portfolio seeks long-term growth of capital by investing, under normal circumstances, at least 80% of its assets in equity securities. Performance as of 2017 Average Annual returns One year 14.66% Five years 14.35% Ten years 4.01% Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price and reinvestment of dividends and capital gains. The investment return and principal value will fluctuate so that an investor s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information up to the most recent month end, call toll-free The Portfolio is not open to direct retail investment. Beneficial interest in shares is obtained solely by purchase of variable life insurance policies and variable annuity contracts. Actual performance results for variable annuity and variable universal life contracts will be lower due to contract charges. Consult your contract for applicable charges. Total expense ratio is 0.82% per the Fund s prospectus dated May 1, Additional information pertaining to the Portfolio s expense ratio as of 2017 can be found in the Portfolio s Financial Highlights. Comments from Sub-Adviser Q. How did the Portfolio perform in comparison to its benchmark during the reporting period? A. For the year ended 2017, the Equity Portfolio returned 14.66% versus 21.83% for its benchmark, the S&P 500 Index. Q. Were there specific market conditions, investment strategies, or techniques that materially affected the Portfolio s benchmark-relative performance during the reporting period? A. Our valuation-driven process is focused on buying stocks when prices are below business value, and subsequent convergence of price and value is inherently a longer-term strategy. As a result, our investment discipline is not optimal for momentum-driven markets propelled by shorter-term factors. Specifically, 2017 relative performance suffered from underweighting mega-cap stocks, primarily the so-called FAANG stocks (Facebook, Inc., Amazon.com, Inc., Apple, Inc., Netflix, Inc., and Alphabet, Inc.), which powered the rally at the benchmark level. We were also overweight Health Care stocks that we believe represent good long-term value, but those stocks suffered from continued pricing pressure and some specific pipeline disappointments. (1) From a macro perspective, the performance dominance of momentum and growth as a style over value is being supported by continued low interest rates, despite faster global growth. If interest rates had continued to normalize, we believe the market would have been more balanced in favor of valuation-driven strategies like ours. Q. How did sector allocation and security selection each impact the Portfolio s performance relative to its benchmark? For sector allocation, were there any factors that impacted the benchmark s performance more significantly than the Portfolio s performance? For stock selection, was there anything specific regarding the Portfolio s strategy that caused deviation from the benchmark? performance. The Portfolio s underweight to the Information Technology sector also detracted from returns. Meanwhile, stock selection in the Consumer Discretionary sector contributed to relative performance, as did underweight allocations to the Consumer Staples and Telecommunication Services sectors. (1) Q. Which holdings contributed the most to, and detracted the most from, the Portfolio s benchmark-relative performance? A. Alphabet, Inc. Class C ( Alphabet ) was a top contributor to Portfolio performance in 2017, as the stock enjoyed continued robust growth in its core search business. Alphabet is also seen as a leader in artificial intelligence, machine learning and cloud computing, which are viewed as key long-term growth drivers that were fully embraced by investors in (1) PulteGroup, Inc. was another top contributor, and one of the best-performing stocks in the S&P 500 Index. PulteGroup, Inc. s performance was driven by a continued recovery in the housing sector, where home price appreciation has driven up profit margins and cash flows, which the company s management used to buy back stock. (1) Apache Corp. was a top detractor from performance, as the Energy sector was the worst-performing sector, despite higher energy prices. The specific concern of Apache Corp. is that early production in its new oil and gas field, the Alpine High, is leaning more heavily toward a gas mix, which investors value less than oil. (1) Allergan PLC was another top detractor, as its second-largest product, Restasis, faced a patent challenge that lowered 2018 earnings expectations. In addition, investors reduced their confidence in the value of Allergan PLC s long-term pipeline after setbacks at other companies. (1) (1) The Portfolio s composition is subject to change. Holdings and weightings are as of Change in Value of $10,000 Investment $25,000 20,000 15,000 10,000 5, /31/07 6/08 12/08 6/09 12/09 Equity Portfolio S&P 500 Index Equity Portfolio (Unaudited) 6/10 12/10 6/11 12/11 6/12 12/12 6/13 12/13 6/14 12/14 6/15 12/15 6/16 12/16 6/17 12/17 $22,603 $14,822 Hypothetical illustration based on past performance. Future performance will vary. The Portfolio s returns reflect reinvested dividends. The Portfolio s holdings may differ significantly from the securities in the index. The index is unmanaged and therefore does not reflect the cost of portfolio management and accounting. The S&P 500 Index is a capitalization-weighted index designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index presented includes the effects of reinvested dividends. A. Stock selection was the primary detractor from the Portfolio s benchmark-relative performance. Stock selection in the Health Care, Industrials, and Energy sectors detracted the most from relative 3 (continued)

6 Portfolio Composition as of 2017 (1) % of Net Assets Common Stocks (4) 98.2 Money Market Funds and Other Net Assets Equity Portfolio (Unaudited)(Continued) (1) (2) (3) Top 10 Portfolio Holdings as of 2017 % of Net Assets 1. Alphabet, Inc. Class C Synchrony Financial Microsoft Corp Wells Fargo &Co Oracle Corp Allergan PLC Cisco Systems, Inc Mylan N.V AutoZone, Inc Kinder Morgan, Inc. 2.6 (1) (2) (3) (4) Composition of Portfolio subject to change. Short-term investments have been excluded from the list of Top 10 Portfolio Holdings. Top 10 Portfolio Holdings is presented at an individual security level. Total investment exposure by issuer may be higher. Sectors (Common Stocks): % of Net Assets Financials 19.8 Information Technology 17.3 Consumer Discretionary 13.6 Health Care 12.9 Industrials 12.1 Energy 9.8 Utilities 4.2 Real Estate 3.8 Consumer Staples 3.0 Materials

7 Equity Portfolio Schedule of Investments 2017 Common Stocks 98.2% Shares Value CONSUMER DISCRETIONARY 13.6% Adient PLC (Auto Components) ,652 $ 11,148,012 AutoZone, Inc. (Specialty Retail).... (a) 21,430 15,244,659 CBS Corp. Class B (Media) ,721 6,178,539 Hanesbrands, Inc. (Textiles, Apparel & Luxury Goods) ,416 5,403,479 Lowe s Cos., Inc. (Specialty Retail) ,500 12,593,370 O Reilly Automotive, Inc. (Specialty Retail)... (a) 24,825 5,971,406 PulteGroup, Inc. (Household Durables) ,521 8,030,573 ServiceMaster Global Holdings, Inc. (Diversified Consumer Svs.).... (a) 136,432 6,994,869 Signet Jewelers Ltd. (Specialty Retail) ,093 6,791,259 78,356,166 CONSUMER STAPLES 3.0% Molson Coors Brewing Co. Class B (Beverages). 85,890 7,048,992 Mondelez International, Inc. Class A (Food Products) ,676 10,258,133 17,307,125 ENERGY 9.8% Apache Corp. (Oil, Gas & Consumable Fuels) ,921 10,340,565 Devon Energy Corp. (Oil, Gas & Consumable Fuels) ,760 8,973,864 Kinder Morgan, Inc. (Oil, Gas & Consumable Fuels) ,470 15,042,733 Pioneer Natural Resources Co. (Oil, Gas & Consumable Fuels) ,857 13,630,432 Plains GP Holdings LP Class A (Oil, Gas & Consumable Fuels) ,460 7,955,997 55,943,591 FINANCIALS 19.8% Brighthouse Financial, Inc. (Insurance)... (a) 95,009 5,571,328 Citigroup, Inc. (Banks) ,954 14,283,297 Hartford Financial Services Group, Inc. / The (Insurance) ,450 5,765,886 Intercontinental Exchange, Inc. (Capital Markets) ,812 13,393,135 MetLife, Inc. (Insurance) ,429 7,302,330 Synchrony Financial (Consumer Finance) ,690 25,084,531 Voya Financial, Inc. (Diversified Financial Svs.).. 213,399 10,556,849 Wells Fargo & Co. (Banks) ,220 22,036,557 XL Group Ltd. (Insurance) ,614 9,971, ,965,781 HEALTH CARE 12.9% Alexion Pharmaceuticals, Inc. (Biotechnology).. (a) 104,231 12,464,985 Allergan PLC (Pharmaceuticals) ,430 18,882,040 Bristol-Myers Squibb Co. (Pharmaceuticals)... 91,280 5,593,638 Celgene Corp. (Biotechnology)... (a) 139,424 14,550,289 Mylan N.V. (Pharmaceuticals) (a) 365,449 15,462,147 Universal Health Services, Inc. Class B (Health Care Providers & Svs.)... 64,166 7,273,216 74,226,315 Common Stocks (Continued) Shares Value INDUSTRIALS 12.1% AECOM (Construction & Engineering)... (a) 224,850 $ 8,353,178 C.H. Robinson Worldwide, Inc. (Air Freight & Logistics) ,380 11,526,464 Delta Air Lines, Inc. (Airlines) ,024 13,049,344 Fluor Corp. (Construction & Engineering) ,131 7,599,316 Johnson Controls International PLC (Building Products) ,620 9,779,788 Stericycle, Inc. (Commercial Svs. & Supplies).. (a) 140,810 9,573,672 TransDigm Group, Inc. (Aerospace & Defense).. 35,220 9,672,116 69,553,878 INFORMATIONTECHNOLOGY 17.3% Alphabet, Inc. Class C (Internet Software & Svs.).... (a) 28,184 29,491,737 Cisco Systems, Inc. (Communications Equip.) ,836 16,003,119 Microsoft Corp. (Software) ,220 24,654,339 Oracle Corp. (Software) ,559 21,349,709 QUALCOMM, Inc. (Semiconductors & Equip.).. 119,932 7,678,047 99,176,951 MATERIALS 1.7% Royal Gold, Inc. (Metals & Mining) ,763 9,834,938 REAL ESTATE 3.8% American Homes 4 Rent Class A (Equity REIT).. 402,931 8,800,013 Realogy Holdings Corp. (Real Estate Mgmt. & Development) ,851 13,193,051 21,993,064 UTILITIES 4.2% AES Corp. (Ind. Power & Renewable Elec.) ,115 9,358,365 Exelon Corp. (Electric Utilities) ,870 14,813,037 24,171,402 Total Common Stocks (Cost $489,974,972)... $564,529,211 Money Market Funds 1.6% Shares Value State Street Institutional Liquid Reserves Fund Institutional Class... 9,363,408 $ 9,362,472 Total Money Market Funds (Cost $9,363,736)... $ 9,362,472 Total Investments 99.8% (Cost $499,338,708)... (b) $573,891,683 Other Assets in Excess of Liabilities 0.2% ,214 Net Assets 100.0% $574,879,897 Percentages are stated as a percent of net assets. Footnotes: (a) Non-income producing security. (b) Represents cost for financial reporting purposes, which may differ from cost basis for federal income tax purposes. See also Note 7 of the Notes to Financial Statements. The accompanying notes are an integral part of these financial statements. 5

8 Objective/Strategy The Bond Portfolio seeks to obtain a high level of income and opportunity for capital appreciation consistent with the preservation of capital by investing, under normal circumstances, at least 80% of its assets in corporate debt securities. Performance as of 2017 Average Annual returns One year 6.17% Five years 3.11% Ten years 4.38% Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price and reinvestment of dividends and capital gains. The investment return and principal value will fluctuate so that an investor s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information up to the most recent month end, call toll-free The Portfolio is not open to direct retail investment. Beneficial interest in shares is obtained solely by purchase of variable life insurance policies and variable annuity contracts. Actual performance results for variable annuity and variable universal life contracts will be lower due to contract charges. Consult your contract for applicable charges. Total expense ratio is 0.65% per the Fund s prospectus dated May 1, Additional information pertaining to the Portfolio s expense ratio as of 2017 can be found in the Portfolio s Financial Highlights. Comments from Adviser Q. How did the Portfolio perform in comparison to its benchmark during the reporting period? A. For the year ended 2017, the Bond Portfolio returned 6.17% versus 6.47% for its benchmark, the BofA Merrill Lynch U.S. Corporate Master Index. Q. Were there specific market conditions, investment strategies, or techniques that materially affected the Portfolio s benchmark-relative performance during the reporting period? A. The yield curve flattened in 2017, as the Federal Reserve increased short term rates. The 2-year Treasury rate increased 70 basis points, while the 30-year Treasury rate decreased 33 basis points. In this environment, longer duration bonds outperformed shorter duration bonds, in general. In addition, corporate bond credit spreads tightened during the year. Lower quality rated bonds outperformed higher quality rated bonds during the year. From an investment strategy perspective, the Portfolio was positioned with a slightly lower duration and slightly lower credit quality than the benchmark. (1) detracted the most from performance versus the benchmark. In each case, security selection within the sector accounted for the majority of the sector performance versus the benchmark, rather than the sector weighting. (1) Q. Which holdings contributed the most to, and detracted the most from, the Portfolio s benchmark-relative performance? A. The top three contributors to the Portfolio s performance relative to the benchmark were Marathon Petroleum Corp % due 09/15/2044, Williams Partners LP 5.400% due 03/04/2044, and Shell International Finance BV 4.000% due 05/10/2046. These bonds are longer duration bonds in the Energy sector, which performed well with the decline in longer term interest rates and experienced spread tightening during the period. The top three detractors to the Portfolio s performance relative to the benchmark were Noble Holding International Ltd % due 04/01/2025, Lloyds Banking Group PLC 3.750% due 01/11/2027, and Bank of Montreal 3.803% due 12/15/2032. Noble Corp PLC and Lloyds Banking Group PLC experienced spread widening during the period they were held in the Portfolio.The decline in Bank ofmontreal bonds was due toa rise in interest rates during the time it was held in the Portfolio. (1) (1) The Portfolio s composition is subject to change. Holdings and weightings are as of Change in Value of $10,000 Investment $18,000 16,000 14,000 12,000 10,000 8,000 12/31/07 6/08 12/08 6/09 12/09 6/10 12/10 6/11 12/11 6/12 12/12 6/13 12/13 6/14 12/14 6/15 12/15 6/16 12/16 6/17 Bond Portfolio BofA Merrill Lynch U.S. Corporate Master Index Bond Portfolio (Unaudited) 12/17 $17,226 $15,350 Hypothetical illustration based on past performance. Future performance will vary. The Portfolio s returns reflect reinvested dividends. The Portfolio s holdings may differ significantly from the securities in the index. The index is unmanaged and therefore does not reflect the cost of portfolio management and accounting. The BofA Merrill Lynch U.S. Corporate Master Index tracks the performance of all U.S. dollar-denominated, investment grade corporate public debt issued in the U.S. domestic bond market. Qualifying bonds must have an investment grade rating (based on an average of Moody s, S&P, and Fitch). In addition, qualifying securities must have at least one year remaining term to maturity,afixed coupon schedule, and a minimum amount outstanding of $250 million. Q. How did sector allocation and security selection each impact the Portfolio s performance relative to its benchmark? For sector allocation, were there any factors that impacted the benchmark s performance more significantly than the Portfolio s performance? For stock selection, was there anything specific regarding the Fund s strategy that caused deviationfromthebenchmark? A. The Portfolio was overweight the Energy sector versus the benchmark for most of the year, and underweight the Consumer Staples sector. Other sector weightings, versus the benchmark, were not significant. In terms of performance attribution, no sector added or detracted from performance by more than 0.30% compared to the benchmark. The Portfolio s Energy and Financial sectors contributed the most to positive performance compared to the benchmark. The Portfolio s Utilities sector 6 (continued)

9 Portfolio Composition as of 2017 (1) % of Net Assets Corporate Bonds (4) 90.8 U.S. Treasury Obligations 2.9 Asset-Backed Securities (4) 2.5 MoneyMarket Fundsand Other Net Assets (1) (2) (3) Top 10 Portfolio Holdings as of American Tower Corp %, 06/15/ J.M. Smucker Co. / The 3.375%, 12/15/ Westpac Banking Corp. QL + 57, 01/11/ Vornado Realty LP 3.500%, 01/15/ Deutsche Bank AG 2.700%, 07/13/ U.S. Treasury Note 2.000%, 11/15/ Federal Realty Investment Trust 3.250%, 07/15/ Baker Hughes, a GE Co. LLC / Baker Hughes Co-Obligor, Inc %, 12/15/ Aircastle Ltd %, 05/01/ Andeavor 3.800%, 04/01/2028 Bond Portfolio (Unaudited)(Continued) % of Net Assets (1) (2) (3) (4) Composition of Portfolio subject to change. Short-term investments have been excluded from the list of Top 10 Portfolio Holdings. Top 10 Portfolio Holdings ispresented at an individual security level. Total investment exposure by issuer may be higher. Sectors (Corporate Bonds, Asset-Backed Securities): % of Net Assets Financials 24.5 Energy 11.7 Real Estate 10.5 Industrials 9.2 Materials 7.8 Utilities 7.6 Consumer Discretionary 7.5 Consumer Staples 4.6 Health Care 4.2 Information Technology 4.1 Telecommunication Services

10 Bond Portfolio Schedule of Investments 2017 Corporate Bonds 90.8% Rate Maturity Face Amount Value CONSUMER DISCRETIONARY 7.5% 21st Century Fox America, Inc. (Media) % 02/15/2021 $1,250,000 $ 1,321,034 Amazon.com, Inc. (Internet & Direct Marketing Retail)... (a) 3.875% 08/22/ , ,265 Comcast Corp. (Media) % 01/15/ , ,962 Cox Communications, Inc. (Media).... (a) 3.350% 09/15/ , ,278 Discovery Communications, LLC (Media) % 06/15/2021 1,000,000 1,046,088 Discovery Communications, LLC (Media) % 03/20/ , ,916 Expedia, Inc. (Internet & Direct Marketing Retail) % 02/15/2026 3,000,000 3,206,300 General Motors Co. (Automobiles) % 04/01/ , ,141 Hasbro, Inc. (Leisure Products) % 09/15/2027 2,000,000 1,954,009 Kohl s Corp. (Multiline Retail) % 11/01/ , ,423 Lear Corp. (Auto Components) % 09/15/2027 3,000,000 3,001,689 Magna International, Inc. (Auto Components) % 06/15/2024 1,000,000 1,033,782 Newell Brands, Inc. (Household Durables) % 04/01/ , ,986 Priceline Group, Inc. / The (Internet & Direct Marketing Retail) % 03/15/2028 3,000,000 2,970,750 Sirius XM Radio, Inc. (Media)... (a) 5.375% 04/15/2025 1,000,000 1,041,250 Time Warner Cable, LLC (Media) % 05/01/ , ,018 Wyndham Worldwide Corp. (Hotels, Restaurants & Leisure) % 04/01/ , ,032 23,837,923 CONSUMER STAPLES 4.6% Anheuser-Busch InBev Finance, Inc. (Beverages) % 02/01/2036 2,000,000 2,242,908 Anheuser-Busch InBev Finance, Inc. (Beverages) % 02/01/2046 1,000,000 1,157,958 B.A.T. Capital Corp. (Tobacco).... (a) 4.390% 08/15/2037 3,000,000 3,136,272 Costco Wholesale Corp. (Food & Staples Retailing) % 05/18/ , ,047 J.M. Smucker Co. / The (Food Products) % 12/15/2027 5,000,000 5,005,120 Mead Johnson Nutrition Co. (Food Products) % 11/15/ , ,413 Philip Morris International, Inc. (Tobacco) % 05/17/2021 1,250,000 1,312,395 14,669,113 ENERGY 11.7% Andeavor (Oil, Gas & Consumable Fuels) % 04/01/2028 4,000,000 4,008,345 Andeavor (Oil, Gas & Consumable Fuels) % 04/01/2048 2,000,000 2,020,820 Baker Hughes, a GE Co. LLC / Baker Hughes Co-Obligor, Inc. (Energy Equip. & Svs.)... (a) 4.080% 12/15/2047 4,000,000 4,064,376 BP Capital Markets PLC (Oil, Gas & Consumable Fuels) % 01/16/ , ,694 Buckeye Partners LP (Oil, Gas & Consumable Fuels) % 02/01/2021 1,000,000 1,051,716 Canadian Natural Resources Ltd. (Oil, Gas & Consumable Fuels) % 06/01/2047 3,000,000 3,354,409 Chevron Corp. (Oil, Gas & Consumable Fuels) % 03/03/ , ,807 Columbia Pipeline Group, Inc. (Oil, Gas & Consumable Fuels) % 06/01/ , ,051 Exxon Mobil Corp. (Oil, Gas & Consumable Fuels) % 03/01/ ,000 1,004,370 Halliburton Co. (Energy Equip. & Svs.) % 11/15/ ,000 1,008,981 Kinder Morgan Energy Partners LP (Oil, Gas & Consumable Fuels) % 02/01/2019 1,400,000 1,402,416 Kinder Morgan Energy Partners LP (Oil, Gas & Consumable Fuels) % 03/01/2022 1,000,000 1,037,909 Kinder Morgan, Inc. (Oil, Gas & Consumable Fuels) % 12/01/2034 1,000,000 1,066,106 Marathon Oil Corp. (Oil, Gas & Consumable Fuels) % 06/01/ , ,042 Marathon Petroleum Corp. (Oil, Gas & Consumable Fuels) % 09/15/2044 1,000,000 1,043,947 Murphy Oil Corp. (Oil, Gas & Consumable Fuels) % 12/01/2022 1,400,000 1,405,250 Noble Holding International Ltd. (Energy Equip. & Svs.) % 03/16/ , ,250 Noble Holding International Ltd. (Energy Equip. & Svs.) % 04/01/2025 1,000, ,000 ONEOK, Inc. (Oil, Gas & Consumable Fuels) % 06/15/2035 1,000,000 1,142,630 Shell International Finance BV (Oil, Gas & Consumable Fuels) % 05/10/ , ,625 Spectra Energy Capital, LLC (Oil, Gas & Consumable Fuels) % 03/15/2023 1,425,000 1,421,614 TransCanada PipeLines Ltd. (Oil, Gas & Consumable Fuels) % 08/01/2022 1,425,000 1,415,756 Transocean, Inc. (Energy Equip. & Svs.).... (a) 9.000% 07/15/2023 1,000,000 1,081,250 Williams Partners LP (Oil, Gas & Consumable Fuels) % 08/15/2022 1,000,000 1,010,099 Williams Partners LP (Oil, Gas & Consumable Fuels) % 06/15/2027 1,000,000 1,001,794 Williams Partners LP (Oil, Gas & Consumable Fuels) % 03/04/2044 1,000,000 1,121,467 36,985,724 FINANCIALS 24.5% Aflac, Inc. (Insurance) % 06/15/2023 1,425,000 1,479,586 American Express Co. (Consumer Finance) % 12/02/2022 2,000,000 1,985,807 American International Group, Inc. (Insurance) % 01/15/2035 2,400,000 2,407,425 Banco Santander Chile (Banks)... (a) 2.500% 12/15/2020 2,000,000 1,996,000 Bank of America Corp. (Banks)... (b) 2.369% 07/21/2021 1,000, ,182 Bank of America Corp. (Banks) % 08/01/ , ,388 Bank of America Corp. (Banks)... (b) 4.244% 04/24/2038 1,000,000 1,083,722 Bank of Montreal (Banks)... (b) 3.803% 12/15/2032 2,800,000 2,768,164 Bank of New York Mellon Corp. / The (Capital Markets) % 08/23/2029 3,000,000 2,989,477 Berkshire Hathaway, Inc. (Diversified Financial Svs.) % 03/15/ , ,946 Branch Banking & Trust Co. (Banks)... (b) QL /01/2020 3,000,000 2,992,275 8 (continued)

11 Bond Portfolio (Continued) Schedule of Investments 2017 Corporate Bonds (Continued) Rate Maturity Face Amount Value FINANCIALS (continued) Branch Banking & Trust Co. (Banks) % 09/16/2025 $1,180,000 $ 1,222,980 Capital One Financial Corp. (Consumer Finance) % 04/24/2019 3,000,000 3,006,770 Charles Schwab Corp. / The (Capital Markets) % 01/25/2028 4,000,000 4,005,049 Citigroup, Inc. (Banks) % 08/09/2020 1,100,000 1,179,709 Citigroup, Inc. (Banks) % 06/10/2025 2,000,000 2,110,576 Citigroup, Inc. (Banks) % 01/12/2026 1,000,000 1,029,247 Deutsche Bank AG (Capital Markets) % 07/13/2020 5,000,000 4,975,185 E*TRADE Financial Corp. (Capital Markets) % 08/24/2022 1,800,000 1,784,570 Ford Motor Credit Co., LLC (Consumer Finance) % 01/08/ , ,212 Ford Motor Credit Co., LLC (Consumer Finance) % 08/04/2020 1,400,000 1,417,003 General Motors Financial Co., Inc. (Consumer Finance) % 07/06/ , ,695 General Motors Financial Co., Inc. (Consumer Finance) % 01/17/2027 1,000,000 1,039,769 Goldman Sachs Group, Inc. / The (Capital Markets) % 05/22/2025 1,400,000 1,442,021 Intercontinental Exchange, Inc. (Capital Markets) % 12/01/ , ,595 Intercontinental Exchange, Inc. (Capital Markets) % 12/01/2025 1,000,000 1,049,309 Jefferies Group LLC / Jefferies Group Capital Finance, Inc. (Diversified Financial Svs.) % 01/15/2027 1,800,000 1,913,131 JPMorgan Chase & Co. (Banks) % 07/15/2025 2,023,000 2,120,304 JPMorgan Chase & Co. (Banks) % 12/01/2027 1,800,000 1,818,854 Marsh & McLennan Cos., Inc. (Insurance) % 06/03/2024 1,400,000 1,446,230 Morgan Stanley (Capital Markets) % 02/25/2023 1,250,000 1,295,266 Morgan Stanley (Capital Markets)... (b) QL /24/2023 1,260,000 1,295,844 Morgan Stanley (Capital Markets) % 04/23/2027 1,000,000 1,015,191 Nasdaq, Inc. (Capital Markets) % 06/30/2026 2,000,000 2,053,071 Northern Trust Corp. (Capital Markets) % 11/04/2020 1,000,000 1,029,713 Progressive Corp. / The (Insurance) % 01/15/ , ,259 Santander Holdings U.S.A., Inc. (Banks).... (a) 3.400% 01/18/2023 3,000,000 2,987,890 Synchrony Financial (Consumer Finance) % 01/15/2019 2,000,000 2,003,663 Synchrony Financial (Consumer Finance) % 08/15/ , ,980 Teachers Insurance & Annuity Association of America (Insurance)... (a) 4.270% 05/15/ , ,893 Wells Fargo & Co. (Banks) % 04/22/ , ,753 Wells Fargo & Co. (Banks) % 11/04/2044 1,000,000 1,089,537 Westpac Banking Corp. (Banks)... (b) QL /11/2023 5,000,000 4,996,500 Westpac Banking Corp. (Banks)... (b) 4.322% 11/23/2031 1,800,000 1,854,061 77,650,802 HEALTH CARE 4.2% AbbVie, Inc. (Biotechnology) % 11/06/2022 2,850,000 2,855,417 Amgen, Inc. (Biotechnology) % 06/15/2021 1,000,000 1,044,441 Baxalta, Inc. (Biotechnology) % 06/23/2025 1,400,000 1,446,676 Celgene Corp. (Biotechnology) % 08/15/2025 1,350,000 1,397,039 Humana, Inc. (Health Care Providers & Svs.) % 12/15/2020 2,000,000 1,998,314 Humana, Inc. (Health Care Providers & Svs.) % 12/15/2022 2,000,000 1,996,406 Pfizer, Inc. (Pharmaceuticals) % 12/15/ , ,164 Teva Pharmaceutical Finance Netherlands III BV (Pharmaceuticals) % 07/19/2019 1,800,000 1,748,704 13,392,161 INDUSTRIALS 6.7% Aircastle Ltd. (Trading Companies & Distributors) % 05/01/2024 4,000,000 4,060,000 Burlington Northern Santa Fe, LLC (Road & Rail) % 09/01/ ,000 1,029,536 Canadian National Railway Co. (Road & Rail) % 08/02/2046 3,800,000 3,679,008 FedEx Corp. (Air Freight & Logistics) % 01/15/2034 1,425,000 1,614,293 Illinois Tool Works, Inc. (Machinery) % 09/15/ , ,384 Lockheed Martin Corp. (Aerospace & Defense) % 09/15/2021 1,000,000 1,028,022 Lockheed Martin Corp. (Aerospace & Defense) % 03/01/2035 1,000,000 1,007,357 Norfolk Southern Corp. (Road & Rail) % 04/01/ , ,465 Northrop Grumman Corp. (Aerospace & Defense) % 01/15/2025 3,900,000 3,875,894 Parker-Hannifin Corp. (Machinery) % 11/21/2034 1,400,000 1,527,057 Raytheon Co. (Aerospace & Defense) % 02/15/2020 1,250,000 1,306,308 Union Pacific Corp. (Road & Rail) % 08/15/2025 1,000,000 1,026,489 21,275,813 INFORMATIONTECHNOLOGY 4.1% Alibaba Group Holding Ltd. (Internet Software & Svs.) % 12/06/2027 2,000,000 1,998,881 Alibaba Group Holding Ltd. (Internet Software & Svs.) % 12/06/2047 1,000,000 1,040,197 Apple, Inc. (Tech. Hardware, Storage & Periph.) % 02/09/2025 1,000, ,801 Apple, Inc. (Tech. Hardware, Storage & Periph.) % 02/09/ , ,678 Hewlett Packard Enterprise Co. (Tech. Hardware, Storage & Periph.) % 10/15/ , ,169 Intel Corp. (Semiconductors & Equip.) % 12/15/2032 1,500,000 1,649,905 KLA-Tencor Corp. (Semiconductors & Equip.) % 11/01/ , ,739 Microsoft Corp. (Software) % 02/06/ ,000 1,004,113 9 (continued)

12 Bond Portfolio (Continued) Schedule of Investments 2017 Corporate Bonds (Continued) Rate Maturity Face Amount Value INFORMATION TECHNOLOGY (continued) Microsoft Corp. (Software) % 11/03/2045 $ 900,000 $ 1,053,907 Oracle Corp. (Software) % 07/08/2034 1,500,000 1,665,927 Seagate HDD Cayman (Tech. Hardware, Storage & Periph.).... (a) 4.875% 03/01/ , ,827 13,026,144 MATERIALS 7.8% Anglo American Capital PLC (Metals & Mining).... (a) 3.750% 04/10/2022 1,000,000 1,016,160 Anglo American Capital PLC (Metals & Mining).... (a) 4.750% 04/10/2027 1,000,000 1,046,333 Anglo American Capital PLC (Metals & Mining).... (a) 4.000% 09/11/ , ,726 CF Industries, Inc. (Chemicals)... (a) 3.400% 12/01/ , ,134 Dow Chemical Co. / The (Chemicals) % 10/01/2034 1,900,000 1,995,675 FMC Corp. (Chemicals) % 02/01/2022 1,000,000 1,012,445 Martin Marietta Materials, Inc. (Construction Materials) % 12/15/2027 4,000,000 3,968,930 Martin Marietta Materials, Inc. (Construction Materials) % 12/15/2047 1,000, ,546 Mosaic Co. / The (Chemicals) % 11/15/2022 3,000,000 2,973,350 Packaging Corp. of America (Containers & Packaging) % 12/15/2020 2,000,000 2,002,664 Packaging Corp. of America (Containers & Packaging) % 12/15/2027 2,000,000 2,004,378 RPM International, Inc. (Chemicals) % 01/15/2048 3,000,000 2,979,718 Yamana Gold, Inc. (Metals & Mining)... (a) 4.625% 12/15/2027 2,800,000 2,813,793 24,604,852 REAL ESTATE 10.5% Alexandria Real Estate Equities, Inc. (Equity REIT) % 01/15/ , ,720 American Tower Corp.(Equity REIT) % 06/15/2023 6,000,000 5,983,372 Boston Properties LP (Equity REIT) % 09/01/ , ,142 Camden Property Trust (Equity REIT) % 01/15/ , ,916 Crown Castle International Corp.(Equity REIT) % 03/01/2027 1,800,000 1,839,863 DDR Corp. (Equity REIT) % 02/01/2025 2,000,000 1,966,833 Federal Realty Investment Trust (Equity REIT) % 08/01/2022 1,425,000 1,437,791 Federal Realty Investment Trust (Equity REIT) % 07/15/2027 4,800,000 4,759,271 HCP, Inc. (Equity REIT) % 06/01/2025 1,500,000 1,543,698 Healthcare Realty Trust, Inc. (Equity REIT) % 05/01/2025 1,400,000 1,418,178 Healthcare Realty Trust, Inc. (Equity REIT) % 01/15/2028 1,000, ,056 Hospitality Properties Trust (Equity REIT) % 02/15/2021 1,000,000 1,034,114 Kilroy Realty LP (Equity REIT) % 12/15/2024 1,000, ,902 Public Storage(Equity REIT) % 09/15/ , ,932 Simon Property Group LP (Equity REIT) % 02/01/2024 1,475,000 1,534,767 Vornado Realty LP (Equity REIT) % 01/15/2025 5,000,000 4,986,471 Welltower, Inc. (Equity REIT) % 04/01/2026 1,000,000 1,046,617 33,227,643 TELECOMMUNICATION SERVICES 1.6% AT&T, Inc. (Diversified Telecom. Svs.) % 05/15/ , ,626 AT&T, Inc. (Diversified Telecom. Svs.) % 08/14/ , ,754 AT&T, Inc. (Diversified Telecom. Svs.) % 08/14/2037 1,000,000 1,013,978 Rogers Communications, Inc. (Wireless Telecom. Svs.) % 03/15/ , ,661 Verizon Communications, Inc. (Diversified Telecom. Svs.) % 04/01/2021 1,250,000 1,329,697 Verizon Communications, Inc. (Diversified Telecom. Svs.) % 11/01/ , ,107 5,216,823 UTILITIES 7.6% AEP Transmission Co., LLC (Electric Utilities) % 12/01/ , ,306 American Water Capital Corp. (Water Utilities) % 12/01/2042 1,400,000 1,543,149 Appalachian Power Co. (Electric Utilities) % 03/30/2021 1,000,000 1,059,168 Commonwealth Edison Co. (Electric Utilities) % 11/15/ ,000 1,008,680 DTE Electric Co. (Electric Utilities) % 03/01/2025 1,000,000 1,025,705 Duke Energy Corp. (Electric Utilities) % 09/01/ , ,158 Duke Energy Florida LLC (Electric Utilities) % 12/15/2019 2,000,000 1,998,244 Duke Energy Florida, LLC (Electric Utilities) % 04/01/ , ,574 ITC Holdings Corp. (Electric Utilities) % 06/15/ , ,825 LG&E & KU Energy, LLC (Electric Utilities) % 10/01/2021 1,000,000 1,056,712 New England Power Co. (Multi-Utilities)... (a) 3.800% 12/05/2047 1,000,000 1,021,360 NextEra Energy Capital Holdings, Inc. (Electric Utilities) % 09/01/ , ,394 NextEra Energy Capital Holdings, Inc. (Electric Utilities) % 01/15/2023 3,000,000 2,998,462 Public Service Electric & Gas Co. (Multi-Utilities) % 12/01/2047 3,000,000 3,068,695 South Carolina Electric & Gas Co. (Electric Utilities) % 02/01/2042 1,000,000 1,043,821 Southern Co. Gas Capital Corp. (Gas Utilities) % 08/15/2019 1,000,000 1,039,849 Southwest Gas Corp. (Gas Utilities) % 04/01/2022 1,250,000 1,276, (continued)

13 Bond Portfolio (Continued) Schedule of Investments 2017 Corporate Bonds (Continued) Rate Maturity Face Amount Value UTILITIES (continued) Virginia Electric & Power Co. (Electric Utilities) % 02/15/2024 $1,255,000 $ 1,295,605 Xcel Energy, Inc. (Electric Utilities) % 05/15/2020 1,000,000 1,042,428 24,254,207 Total Corporate Bonds (Cost $282,583,309)... $288,141,205 U.S. Treasury Obligations 2.9% Rate Maturity Face Amount Value U.S. Treasury Note % 08/15/2020 $3,000,000 $ 2,966,527 U.S. Treasury Note % 06/30/2022 1,500,000 1,472,724 U.S. Treasury Note % 11/15/2026 5,000,000 4,837,435 Total U.S. Treasury Obligations (Cost $9,293,381)... $ 9,276,686 Asset-Backed Securities 2.5% Rate Maturity Face Amount Value INDUSTRIALS 2.5% Air Canada Class B Pass Through Trust.... (a) 3.700% 01/15/2026 $2,500,000 $ 2,523,407 American Airlines Class B Pass Through Trust % 05/01/2023 3,666,153 3,656,988 United Airlines Class B Pass Through Trust % 01/07/2026 1,800,000 1,793,389 Total Asset-Backed Securities (Cost $7,970,423)... $ 7,973,784 MoneyMarket Funds 2.8% Shares Value State Street Institutional Liquid Reserves Fund Institutional Class... 8,757,671 $ 8,756,795 Total Money Market Funds (Cost $8,757,671)... $ 8,756,795 Total Investments 99.0% (Cost $308,604,784).... (c) $314,148,470 Other Assets in Excess of Liabilities 1.0%... 3,172,881 Net Assets 100.0% $317,321,351 Percentages are stated as a percent of net assets. Abbreviations: QL: Quarterly U.S. LIBOR Rate, 1.694% on 12/31/2017 Footnotes: (a) Security exempt from registration under Regulation D of the Securities Act of These securities may be resold in transactions exempt from registration, normally to qualified buyers under Rule 144A. At 2017, the value of these securities totaled $28,220,214, or 8.9% of the Portfolio s net assets. Unless also noted as illiquid, these securities were deemed liquid pursuant to procedures approved by the Board of Directors. (b) Security is a variable rate instrument in which the coupon or dividend rate is fixed until a later specified date, then is adjusted periodically. Rates stated are those in effect at (c) Represents cost for financial reporting purposes, which may differ from cost basis for federal income tax purposes. See also Note 7 of the Notes to Financial Statements. The accompanying notes are an integral part of these financial statements. 11

14 Objective/Strategy The Omni Portfolio seeks a high level of long-term total return consistent with preservation of capital by investing in stocks, bonds, and money marketinstruments. Performance as of 2017 Average Annual returns One year 21.05% Five years 14.81% Ten years 8.27% Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price and reinvestment of dividends and capital gains. The investment return and principal value will fluctuate so that an investor s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information up to the most recent month end, call toll-free The Portfolio is not open to direct retail investment. Beneficial interest in shares is obtained solely by purchase of variable life insurance policies and variable annuity contracts. Actual performance results for variable annuity and variable universal life contracts will be lower due to contract charges. Consult your contract for applicable charges. Total expense ratio is 0.80% per the Fund s prospectus dated May 1, Additional information pertaining to the Portfolio s expense ratio as of 2017 can be found in the Portfolio s Financial Highlights. Comments from Sub-Adviser/Adviser Q. How did the Portfolio perform in comparison to its benchmark during the reporting period? A. For the year ended 2017, the Omni Portfolio returned 21.05% versus 17.04% for its benchmark, which is comprised of 70% S&P 500 Index and 30% BofA Merrill Lynch U.S. Corporate Master Index. Q. Were there specific market conditions, investment strategies, or techniques that materially affected the Portfolio s benchmark-relative performance during the reporting period? Industrials, Energy and Financials sectors contributed the most to positive performance compared to the benchmark. The Portfolio s U.S. Treasury Obligations holdings, Consumer Staples and Materials sectors detracted the most from performance versus the benchmark. (1) Q. Which holdings contributed the most to, and detracted the most from, the Portfolio s benchmark-relative performance? A. Top contributors included Amazon.com, Inc., which continued strong trends in Amazon Prime subscriber additions, as well as market share gains from traditional brick and mortar retail. Apple, Inc. contributed, as it had new product introductions at higher prices and higher margins, driving upside to earnings expectations. DXC Technology Co. continued successful integration of the Hewlett Packard Enterprise acquisition, driving significant upside to previous earningsexpectations. (1) The key detractor was IMAX Corp., due to its weak box office numbers combined with market share loss to traditional movie screens. Additionally, a slower growth of new theaters internationally caused a revenue miss. Devon Energy Corp. detracted with weak energy prices earlier in the year, and fear that shale growth and general oversupply would keep prices depressed for a prolonged period of time. Envision Healthcare Corp. declined due to a weak earnings report on lower volumes, lower margins and concerns about overbilling customers. (1) As it relates to the fixed income portion of the Portfolio, the top three contributors to the Portfolio s performance relative to the benchmark were Williams Partners LP 5.400% due 03/04/2044, Shell International Finance 4.000% due 05/10/2046, and Microsoft Corp 4.450% due 11/03/2045. These bonds are longer duration bonds, which performed well with the decline in longer term interest rates and experienced spread tightening during the period. The top three detractors to the Portfolio s performance relative to the benchmark were Lloyds Banking Group PLC 3.750% due 01/11/2027, Bank of Montreal 3.803% due 12/15/2032, and the U.S. Treasury Note 1.500% bond due 05/15/2020. (1) (1) Omni Portfolio (Unaudited) The Portfolio s composition is subject to change. Holdings and weightings are as of A. The Portfolio maintained a higher allocation to common stocks than the benchmark during Since stocks materially outperformed bonds during the year, this provided positive relative performance compared to the benchmark. With the Infrastructure Plan up next in the Federal government queue, we expect the market to continue to grind higher, and we remain optimistic that our focus on company and industry specific fundamentals will continue to drive outperformance going forward. (1) Q. How did sector allocation and security selection each impact the Portfolio s performance relative to its benchmark? For sector allocation, were there any factors that impacted the benchmark s performance more significantly than the Portfolio s performance? For stock selection, was there anything specific regarding the Portfolio s strategy that caused deviation from the benchmark? A. Leading the Portfolio s outperformance were positive stock selections in Industrials and Consumer Discretionary. An overweight to Information Technology also heavily contributed. Top detractors were stock selections within Consumer Staples and Health Care, as well as an underweight to Telecommunication Services. (1) The fixed income portion of the Portfolio was overweight the Energy sector and U.S. Treasury Obligations versus the benchmark for most of the year, and underweight the Consumer Staples sector. In terms of performance attribution, no sector added or detracted from performance by more than 0.10% compared to the benchmark. The Portfolio s 12 (continued)

15 Change in Value of $10,000 Investment $25,000 20,000 15,000 10,000 5,000 12/31/07 6/08 12/08 6/09 12/09 6/10 12/10 6/11 12/11 6/12 12/12 6/13 12/13 6/14 12/14 6/15 12/15 6/16 12/16 6/17 12/17 $22,603 (S&P) $22,140 (Portfolio) $21,271 (Blended Benchmark) Omni Portfolio 70% S&P 500 Index/30% BofA Merrill Lynch U.S. Corporate Master Index (Blended Benchmark) S&P 500 Index (S&P) Hypothetical illustration based on past performance. Future performance will vary. The Portfolio s returns reflect reinvested dividends. The Portfolio s holdings may differ significantly from the securities in the index. The index is unmanaged and therefore does not reflect the cost of portfolio management and accounting. The S&P 500 Index is a capitalization-weighted index designed to measure performance of the broad domestic market through changes in the aggregate market value of 500 stocks representing all major industries. The index presented includes the effects of reinvested dividends. Omni Portfolio (Unaudited)(Continued) Portfolio Composition as of 2017 (1) % of Net Assets Common Stocks (4) 79.1 Corporate Bonds (4) 19.3 U.S. Treasury Obligations 0.7 Asset-Backed Securities (4) 0.5 Other Net Assets (1) (2) (3) Top 10 Portfolio Holdings as of 2017 % of Net Assets 1. Apple, Inc Amazon.com, Inc Microsoft Corp Alphabet, Inc. Class C Bank of America Corp FedEx Corp Goldman Sachs Group, Inc. / The DXC Technology Co Facebook, Inc. Class A JPMorgan Chase &Co. 1.7 The BofA Merrill Lynch U.S. Corporate Master Index tracks the performance of all U.S. dollar-denominated, investment grade corporate public debt issued in the U.S. domestic bond market. Qualifying bonds must have an investment grade rating (based on an average of Moody s, S&P, and Fitch). In addition, qualifying securities must have at least one year remaining term to maturity,afixed coupon schedule, and a minimum amount outstanding of $250 million. (1) (2) (3) (4) Composition of Portfolio subject to change. Short-term investments have been excluded from the list of Top 10 Portfolio Holdings. Top 10 Portfolio Holdings ispresented at an individual security level. Total investment exposure by issuer may be higher. Sectors (Common Stocks, Corporate Bonds, Asset-Backed Securities): % of Net Assets Information Technology 22.3 Financials 19.4 Industrials 19.1 Consumer Discretionary 14.7 Health Care 8.6 Consumer Staples 5.4 Energy 4.3 RealEstate 1.7 Telecommunication Services 1.3 Utilities 1.1 Materials