Prime Obligations Portfolio
Fund Commentary
as of June 30, 2010
During the quarter, equity markets sold off while credit markets were enveloped in contagion concerns from the sovereign debt crisis in the eurozone. Growing fears of economic instability in the eurozone caused LIBOR rates to drift higher and U.S. Treasury yields to rally lower. Uncertainty lingered from financial regulation reform and the devastation from the BP oil well explosion. While manufacturing data has continued to exhibit positive signs, the economic outlook remains clouded by a fragile housing market, high unemployment and fickle consumer spending. Credit availability also continues to contract, impeding a sustainable economic recovery. Meanwhile, the Federal Reserve left its benchmark overnight rate unchanged and maintained rhetoric suggesting that near-zero rates would continue for an "extended period of time."

For the quarter, the Prime Obligations Portfolio provided a total return of 0.04%. We continued to position the Portfolio conservatively, remaining very selective in our purchases and focusing on maintaining a high credit quality profile. We have targeted a long duration relative to the benchmark, overweighting term purchases in U.S. Treasury and U.S. agency debt to opportunistically take advantage of any increases in yields.

Principal and liquidity preservation remain our primary objectives. We are maintaining a strong liquidity profile by committing an ample percentage of the Portfolio to overnight maturities to accommodate any unexpected redemptions. In May, SEC amendments to Rule 2a-7 designed to strengthen the money market fund industry took effect. The modifications outlined new requirements for liquidity, credit quality, portfolio maturity, operations and disclosures.

 
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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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