Diversified Assets Portfolio
Fund Commentary
as of June 30, 2010
During the second quarter, the Federal Reserve's statements were surprising only in the lack of new rhetoric on the future path of interest rates and monetary policy. The Federal Reserve kept rates unchanged and remained committed to keeping rates low for an extended period. In its most recent statement, the central bank acknowledged that “financial conditions have become less supportive of economic growth on balance, reflecting developments abroad.” Renewed concerns surrounding the eurozone region created a dramatic flight to quality into U.S. Treasuries while also causing LIBOR rates to rise. After consumer confidence reached a high for the cycle in May, the outlook began to worsen as investors observed little improvement in credit availability and an unstable housing market. The primary focus for policymakers has been the high unemployment rate. Uncertainties surrounding the European sovereign debt crisis, financial regulation reform and the disastrous oil spill in the Gulf put additional downward pressure on the prospects for recovery.

For the quarter, the Diversified Assets Portfolio provided a total return of 0.00%. Short-term interest rates remained at incredibly low absolute rates, creating a challenging investment environment. We continued to position the Portfolio conservatively and maintained a long duration relative to our benchmark by focusing the Portfolio's term investments in U.S. government and U.S. agency debt.

We remain very selective in our purchases and focused on maintaining a high credit quality profile. In addition, we are maintaining a strong liquidity profile by allocating a large percentage of the Portfolio to overnight maturity investments.

 
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Not FDIC insured | May lose value | No bank guarantee

*Reinvestment date of June 30. The amount shown represents dividends paid from fund net investment income and excludes distributions from capital gain income.

Moody's Investors Service money market ratings incorporate an assessment of a fund's published investment objectives and policies and the creditworthiness of the assets held by the fund, as well as the management characteristics of the fund. The ratings are not intended to consider the prospective performance of a fund with respect to appreciation, volatility of net asset value or yield. This fund is on the National Association of Insurance Commissioners approved list of Class 1 money market mutual funds.

Credit ratings are subject to change at any time. Money market funds rated Aaa by Moody’s are judged to be of an investment quality similar to Aaa-rated fixed income obligations, that is, they are judged to be of the best quality. Ratings are based on an evaluation of several factors including credit quality, diversification and maturity of assets in the portfolio as well as management strength and operational capabilities. This fund is on the National Association of Insurance Commissioners list of Class 1 money market mutual funds. Inclusion on the NAIC list is the result of an accounting measure involving the fund’s underlying investments, and does not constitute an assessment of quality. The NAIC listing does not represent an endorsement or recommendation of the overall fund.
An investment in the Portfolio is not insured or guaranteed by the FDIC or any other government agency. Although the Portfolio seeks to maintain a value of $1.00 per share, it is possible to lose money.
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