Fund Commentary
as of June 30, 2010
The second quarter proved to be a challenging investment environment for the municipal market. Disappointing economic releases and reports of municipal budgetary pressures caused investors to become more selective when purchasing municipal notes. During the quarter, we saw municipal issuers with favorable credit profiles enjoy strong demand for their offerings, while weaker issues were required to provide higher yields. We were careful to purchase only top-tier notes with strong cash flows in order to satisfy our rigorous risk and credit criteria.

The Tax-Exempt Portfolio offers institutional investors tax-exempt return and stable value. Throughout the quarter, we focused our efforts on maintaining the Portfolio's strong liquidity position and top-tier credit profile. During the period, the Portfolio was fully invested in municipal tax-exempt securities that are not subject to the alternative minimum tax. The Portfolio returned 0.01% for the three-month period.

In addition to fixed-rate notes, the Portfolio held a large position in variable rate demand notes, or VRDNs. These securities offer a strong credit profile, as most carry credit enhancement. Additionally, VRDNs are "putable" in one to five business days, helping to provide the Portfolio with ample liquidity. At quarter end, approximately 14% of Portfolio assets were in securities that mature on a daily basis, and 70% in securities that mature in one week.

 
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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.

**The tax-equivalent 7-day yield is based on an assumed tax rate of 35.0%.
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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