Strategy And Objective

The Municipal Bond Portfolio seeks a high level of interest income that is excluded from federal income taxation to the extent consistent with prudent investment management and the preservation of capital. The Portfolio is a fund of funds. The Portfolio s main investment strategy is to invest in unaffiliated registered investment companies and exchange-traded funds ( ETFs ) (the Underlying Funds ). As a matter of fundamental policy, the Portfolio will normally invest at least 80% of its total assets in securities that pay interest exempt from federal income taxes. The Manager generally invests the Portfolio s assets in Underlying Funds that invest in municipal obligations. There are no maturity limitations on the securities held by the Underlying Funds. Municipal obligations are bonds, notes or short-term commercial paper issued by state governments, local governments and their respective agencies. In pursuing the Portfolio s investment objective, the Manager has considerable leeway in deciding which Underlying Funds it buys, holds or sells on a day-to-day basis. The Underlying Fund s adviser will invest primarily in municipal bonds rated within the four highest grades by Moody s Investors Service, Inc. ( Moody s ), Standard & Poor s Corporation ( S&P ) or Fitch Inc. ( Fitch ) or, if not rated, of comparable quality in the opinion of an Underlying Fund s adviser. An Underlying Fund may invest without limit in municipal obligations such as private activity bonds that pay interest income subject to the alternative minimum tax, although the Portfolio does not currently expect to invest more than 20% of its total assets in such instruments. Some shareholders may have to pay tax on distributions of this income from the Portfolio. Municipal bonds, notes and commercial paper are commonly classified as either general obligation or revenue . General obligation bonds, notes and commercial paper are secured by the issuer s faith and credit, as well as its taxing power, for payment of principal and interest. Revenue bonds, notes and commercial paper, however, are generally payable from a specific source of income. They are issued to fund a wide variety of public and private projects in sectors such as transportation, education and industrial development. Included within the revenue category are participations in lease obligations. An Underlying Fund s municipal obligation investments may include zero coupon securities, which are purchased at a discount and make no interest payments until maturity.