Government Select Portfolio
Fund Commentary
as of June 30, 2010
On an almost anti-climactic note, the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to de-list their common and preferred stock from the New York Stock Exchange. Once considered "good as gold" by the financial industry, the agencies are now 80% owned by U.S. taxpayers. While the Office of Management and Budget estimates that as little as $160 billion in additional aid to Fannie and Freddie will be needed if the economy strengthens, some analysts are predicting a worst-case scenario of $1 trillion in aid. The fate of the agencies depends on the direction of home prices, interest rates and unemployment. Houses in foreclosure accounted for 31% of residential sales in the first quarter of 2010.

For the quarter, the Government Select Portfolio provided a total return of 0.01%. We utilized a barbell strategy during the period with the goal of enhancing yield while preserving liquidity. The Portfolio's overall duration is being maintained long relative to the benchmark.

The House of Representatives has given its approval for an unprecedented reform of financial regulations. Overall, reform will tighten regulations on financial firms and ultimately reduce their profits. Specific reforms will increase consumer protection while curtailing risky trading and investing activities for banks. In addition, a new government process will be implemented for liquidating financial firms in trouble.

 
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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.

Credit ratings are subject to change at any time. AAA rating by Standard & Poor’s is obtained after S&P evaluates a number of factors, including credit quality, market price, exposure and management. 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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