Janus Global Unconstrained Bond strategy's absolute-return objective and broad global opportunity set grants the portfolio manager flexibility to express his investment insights that are not constrained by traditional fixed income benchmarks. This flexibility transcends the breadth of the global opportunity set to include cash bonds and structural alphas. Structural alpha strategies include volatility sales, relative value strategies, and directional trades, in addition to the judicial use of notional leverage. Janus Global Unconstrained Bond's investment process is decidedly top-down in approach. The portfolio manager formulates his strategic and opportunistic views across different countries, currencies and sectors, translates those views into portfolio exposures that represent highest conviction ideas, and implements them through cash or derivative instruments.

Investment Approach

1 World-Renowned Investor: Bill Gross is one of the world's foremost thought leaders on fixed income. His unconstrained, macro style of investing offers investors an exceptional approach to navigating today's markets, which are deeply affected by central banks and macroeconomics.
2 Investment Flexibility: The portfolio invests broadly across global fixed income markets and is not constrained by benchmark-specific guidelines. This latitude allows us to fully express our high-conviction active views and potentially avoid benchmark biases.
3 Uncorrelated Sources of Return: This bond portfolio seeks to provide positive long-term returns through the employment of derivatives and option-based strategies. This allows access to sources of returns that are intended to be uncorrelated to traditional risk assets.

Performance

Past performance cannot guarantee future results. Investing involves risk, including the possible loss of principal and fluctuation of value. Returns greater than one year are annualized. Returns are expressed in U.S. dollars. Composite returns are net of transaction costs and gross of non-reclaimable withholding taxes, if any, and reflect the reinvestment of dividends and other earnings.

The gross performance results presented do not reflect the deduction of investment advisory fees and returns will be reduced by such advisory fees and other contractual expenses as described in the individual contract and Form ADV Part 2A.

Net performance results do not reflect the deduction of investment advisory fees actually charged to the accounts in the composite but they do reflect the deduction of model investment advisory fees based on the maximum fixed fee rate in effect for the respective time period. Actual advisory fees may vary among clients invested in the strategy shown and may be higher or lower than model advisory fees. Composites may include accounts with performance-based fees. Returns for each client will be reduced by such fees and expenses as negotiated in any client contract as discussed in Form ADV Part 2A.

For a complete list of holdings as of the most recently available disclosure period, contact us.

Manager Comments (For the quarter ended 12/31/2016)

The Portfolio outperformed its benchmark, the 3-month USD (LIBOR). The strategy seeks to provide long-term positive returns and preserve capital through various market environments by managing portfolio duration, credit risk and volatility. The Portfolio seeks to limit potential downside and avoid areas of the market where we see disproportionate risk.

The core of the portfolio is comprised of shorter duration, cash-based fixed income securities. We believe that higher yielding corporate credits with durations under three years represent an attractive source of income that is often overlooked by the market. Given the tightening of credit spreads, especially in high yield, during the period, our positioning in corporate bonds contributed to performance.

Complementing the Portfolio's cash-based core, we employ a series of strategies we refer to as Structural Alpha, which are designed to generate excess returns by judiciously utilizing instruments, including options, futures, swaps and other derivatives. Many of these same instruments are also employed with the aim of lowering volatility's impact across a range of asset classes. During the period, the Portfolio sold interest rate volatility using options strategies, with the expectation that rates would stay within a particular range. In the wake of the post-election risk-on environment, our positioning against falling rates generated positive returns. However, the Portfolio's positioning against rising rates resulted in a loss, given the aggressive sell-off that occurred during the latter part of the period.

Another method through which we seek to harvest excess returns is by capitalizing on potential merger arbitrage opportunities within equities markets. Given the wave of consolidation occurring globally, the Portfolio was able to generate positive returns by gaining exposure to multiple announced transactions.

Certain positions detracted from performance during the quarter. The Portfolio often hedges segments of its core bond allocation using derivatives. As high-yield credit spreads significantly narrowed during the period, these hedges ultimately resulted in a loss.

Not all risky assets benefited from improving market sentiment. While investors rallied around the possibility of improving growth prospects in the U.S., they recognized that a strengthening dollar, along with much of the incoming administration's rhetoric, could be headwinds for emerging markets. Consequently our exposure to Mexican rates detracted from performance as those assets sold off considerably in the wake of Mr. Trump's election.

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