Market Sector Update

• The quarter had plenty of news flow, although less volatility than the gyrations of the first quarter of 2018:
• The Trump administration continued to ratchet up trade tensions with China and moved the issue to a more worrisome stage. The U.S. dollar and various global markets seemed to take their cue primarily from this macro factor.
• The Italian election led to a loosely linked coalition. The power-sharing structure of the prime minister and president protected markets from serious damage in the form of concerning appointments and threatening anti-Euro rhetoric.
• Economic data from China continued to fade a bit as the government continued to work on the historically difficult task of paring down corporate and municipal debt while preserving economic growth and investment.
• Developed market equities generally performed well in local currency terms, but not as well in dollar terms. Emerging market equity returns overall were negative for the quarter and underperformed developed market equities.
• While 10-year Treasury yields rose, the 2-year increased more on the back of another U.S. Federal Reserve (Fed) interest rate hike. That led to further flattening in the popular 2-year/10-year measure of the yield curve.
• The U.S. dollar strengthened substantially following first-quarter weakness, with the key DXY dollar index rising 5%. Emerging market currencies felt pressure, with Argentina (-44%), Brazil (-17%) and Turkey (-16%) falling most of those we follow closely.

Portfolio Strategy

• The Portfolio had a slightly positive return for the quarter that was greater than the positive return of its all-equity global benchmark index. Equities made up about 73% of assets during the quarter and drove the majority of performance.
• The fixed-income sleeve had a small negative return during the quarter. The loan and high yield exposure performed well, but exposure to emerging markets and Europe was a detractor.
• Gold performed poorly during the quarter and declined roughly in-line with developed market currencies relative to the U.S. dollar.
• Energy shares performed well during the quarter. The Portfolio's overweight helped more than stock selection, with the oil services sector underperforming. We continued to trim some of the energy positions on the strength of relative performance, but remain overweight energy.
• The technology sector added the most to performance, given its Portfolo weighting, and several long-term holdings continued to perform well. Those included Intuit, Inc., Adobe Systems, Inc., Visa, Inc. and Microsoft Corp. Baidu, Inc., which we purchased during the quarter, detracted from performance but we feel it is setting up well for the rest of the year. We continued trimming positions in some of the better-performing technology positions.
• The financial sector was the largest detractor. Despite some relative bright spots in Asia, several holdings in the U.S., Japan, China and Europe dropped steeply, mainly related to the U.S. yield curve and global trade.
• We trimmed the Portfolio's equity exposure somewhat, partially based on shifting exposure from equities to what we considered attractive areas within fixed income markets.

Outlook

• Our chief concerns remain global trade disruption and Chinese policy. We believe some of the U.S. position may be posturing, but it is clear that China may not bend all the way and both need a way to save face. We think the trade dispute may last for a while.
• China will continue to wrestle with the issue of deleveraging versus driving economic growth, which we think is key to Chinese investment and the associated effects to global trade and demand for materials.
• While European growth moderated in the first half, expectations have come down and we are looking for modest improvement in the second half.
• The U.S. remains a bright spot in economic data, thanks in part to fiscal stimulus. We believe the effects eventually will fade, and perhaps become a headwind given debt accumulation, but for now we focus on the positive.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through June 30, 2018, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Top 10 Equity Holdings as a percent of net assets as of 06/30/2018: Microsoft Corp., 2.98%; AIA Group Ltd., 2.52%; Airbus SE, 2.07%; Amazon.com, Inc., 2.02%; Pfizer, Inc., 2.01%; Home Depot (The), 1.93%; Adobe Systems, Inc., 1.89%; Intuit, Inc., 1.89%; Visa Inc., Class A, 1.83%; Coca-Cola Co. (The), 1.67%.

W. Jeffery Surles, CFA, became a co-portfolio manager on the Portfolio on Feb. 5, 2018. Co-Portfolio Manager Cynthia Prince-Fox retired from the firm on April 30, 2018.

Risk factors: The value of the Portfolio's shares will change, and you could lose money on your investment. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Portfolio may allocate from 0 to 100% of its assets between stocks, bonds and short-term instruments of issuers around the globe, as well as investments in precious metals and investments with exposure to various foreign securities. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Fixed-income securities are subject to interest-rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. The Portfolio may focus its investments in certain regions or industries, thereby increasing its potential vulnerability to market volatility. The Portfolio may seek to hedge market risk on various securities, increase exposure to various markets, manage exposure to various foreign currencies, precious metals and various markets, and seek to hedge certain event risks on positions held by the Portfolio via the use of derivative instruments. Such investments involve additional risks, as the fluctuations in the values of the derivatives may not correlate perfectly with the overall securities markets or with the underlying asset from which the derivative’s value is derived. Investing in commodities is generally considered speculative because of the significant potential for investment loss due to cyclical economic conditions, sudden political events, and adverse international monetary policies. Markets for commodities are likely to be volatile and the Portfolio may pay more to store and accurately value its commodity holdings than it does with the Portfolio’s other holdings. These and other risks are more fully described in the Portfolio's prospectus.

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