CUIT Fund Performance

All of the CUIT active equity managers matched or beat their respective benchmarks during 2010.

The CUIT Balanced Fund returned 12.03% in 2010, in line with the blended benchmark’s 12.13% return. Both the bond and equity portfolios generated positive relative performance, measured before fees. Strong relative value was produced by the bond portfolio’s credit sector overweight, including an allocation to issues rated BBB and lower, as non-Treasury sector spreads tightened, especially for intermediate-term issues. The Fund increased corporate exposure during the year, at the expense of mortgages, and thereby sidestepped some of the increased volatility that plagued the mortgage market later in the year due to Agency actions and foreclosure-related uncertainties. The bond portfolio’s effective duration was shorter than the benchmark’s for most of the year, creating a slight drag on its otherwise strong absolute performance.

Within the Fund’s equity portfolio, relative strength in the first and fourth quarters was sufficient to overcome relative weakness in the second and third. At the sector level, positives for the year included an overweight and good stock selection in consumer discretionary, an underweight and superior stock selection in energy, and an overweight along with good stock selection in information technology. Notable individual contributors in the portfolio included Schlumberger (+30.0%), Comcast (+33.1%), Time Warner Cable (+66.4%) and Baker Hughes (+43.1%). Principled Purchasing restrictions were beneficial for the year, with the Fund’s results running slightly ahead of those of the sub-advisers’ discretionary portfolios.

The CUIT Value Equity Fund returned 15.44% for the trailing 12 months (Class B, 15.83%), roughly in line with the Russell 1000 Value Index’s 15.51% return. As in the fourth quarter, relative strength was evident in stock selection and sector weighting, especially in the second half of the year. The contribution from stock selection and sector weighting was particularly strong in consumer discretionary, energy and financials. Individual stocks that contributed meaningfully to total return included Comcast (+33.1%), Chevron (+22.9%), Wells Fargo (+15.6%), Schlumberger (+30.0%) and Time Warner Cable (+64.4%). On the other hand, the Fund’s exposures in consumer staples, information technology and utilities produced a 43 basis point drag on relative results. Individual stocks that detracted from total return included Hewlett Packard (-17.7%), Exxon Mobil (10.1%), wholesale electricity generator Mirant Corp. (-31.9%), Goldman Sachs (0.54%) and medical device manufacturer Boston Scientific (-15.9%). Principled Purchasing restrictions proved beneficial for the year, as Fund results outpaced that of the sub-advisers’ fully discretionary portfolio composites by approximately 170 basis points.

The CUIT Core Equity Index Fund returned 14.78% (Class B, 15.01%), closely tracking the benchmark S&P 500 Index’s 15.07% return. Taken as a group, companies restricted under Principled Purchasing lagged the Index’s return due to the weak performance of healthcare names, which represent the highest percentage of restricted companies. This positive impact on the Fund’s relative performance was tempered by the strong performance of restricted tobacco names, which gained 27%, and restricted defense names, which appreciated approximately 20%. Additional positive factors that limited the negative impact of transactional cash (12 basis points) and fund fees included the performance of reweighted names such as Genzyme Corp. (+45%), Biogen Idec (+25%), Waters Corp. (25%) and UnitedHealth Group (+20%) in healthcare, as well as Emerson Electric (+37.9%), Deere (+56.3%), Eaton (+64%) and Danaher (+25.7%) in the industrials sector.

The CUIT Growth Fund returned 18.29% (Class B, 18.66%), surpassing the Russell 1000 Growth Index benchmark’s 16.71% return by 158 basis points (Class B, 195 basis points). Stock selection was most additive in industrials, as the Fund’s sector holdings returned 43.6% versus the benchmark sector’s 28.5%. Notable contributors here included Caterpillar (+68%), Cummins Engine (+142%) and Joy Global (+70%). Stock selection was also strong in information technology (Altera Corp, +58.5%; Riverbed Technology, +206%; and NetApp, +59%) and in energy (Smith International, +41%; Anadarko Petroleum, +71%; and Concho Resources, +47%). Sector weights that positively contributed included a below-benchmark exposure to both healthcare and consumer staples and an overweight in consumer discretionary. Issue selection was negative in only two of 10 sectors during the period. These were financials, where Morgan Stanley (-15.4%) and Itaú Unibanco (-14.8%) were weak performers, and consumer staples, where Walgreens (-27%) and Archer Daniels Midland (-12.8%) declined. An overweight exposure in information technology and an underweight in consumer staples each detracted somewhat from the year’s results. We are encouraged to see that the Fund’s performance has substantially improved over the past two years, and that the volatility of absolute and excess return has declined since the addition of Los Angeles Capital to the Fund in early April 2009. The Fund’s focus on fundamental stock selection proved valuable during the volatile market conditions that followed the financial crisis in 2008.

The CUIT Small-Capitalization Equity Index Fund returned 26.34% (Class B, 26.91%), closely tracking the Russell 2000 Index’s 26.86% return. All benchmark sectors produced double-digit returns. The strongest were information technology (+34.4%), materials (+33.9) and energy (+33.3%). Weaker sectors included telecom services (+11.5%), healthcare (+17%) and utilities (+17.5%). Positive factors that impacted relative return included the marginally weaker performance of restricted companies in tobacco, defense and healthcare, along with the positive benefit of incrementally reweighting select unrestricted names with the capital created by the restrictions. These factors largely mitigated the negative impact of the Fund’s modest cash balance, which averaged below 0.4% but created a negative impact of approximately 13 basis points, as well as fees. Notable contributors among reweighted names included Ladish (+222%), InterMune (+179%), HEICO (+44%), Esterline Technologies (+68%), MGIC Investment Corp. (+76%), Buckeye Technologies (+116%) and Applied Signal Technology (+101%).

The CUIT International Equity Fund returned 13.60% (Class B, 14.05%), considerably exceeding the benchmark MSCI EAFE Index’s 8.21% return. Both sub-advisers contributed to the value added. Stock selection was the primary driver, although sector weighting also contributed significantly. Stock selection was particularly strong in energy (Aker Solutions, +34%), financials (Sony Financial Holdings, +57% and Skandinaviska Enskilda, +37%), healthcare (Virbac, +56% and Takeda Pharmaceutical, +25%) and materials (Fuchs Petrolub, +63% and Rio Tinto, +30.7%). Principled Purchasing restrictions were additive, particularly within healthcare. The solid contribution from sector exposures included overweight positions in materials and industrials and underweights in financials and healthcare. Limiting factors included stock selection in information technology, consumer discretionary and telecom services, and an underweight exposure in consumer staples. As noted in our discussion of first quarter 2010 performance, we believed that equities became more rationally valued during 2010 than they were in much of 2008 and 2009, playing to the strengths inherent in the sub-advisers’ fundamental, bottom-up approach to stock selection. The Fund’s 2010 performance — a product of the managers’ adherence to their respective disciplines — seems to bear out that observation.