CUIT Fund Performance

The past year was a difficult one for most of our active managers, as market forces overwhelmed the investment fundamentals on which they base portfolio selection decisions. Small-cap results suffered less than those of other styles due to the avoidance of some of the largest market decliners during the year. Equity volatility reached extreme levels and numerous stocks, particularly in the financials area, saw price declines of 85% or more as their exposure to distressed assets became apparent and insolvency questions arose. Indexed portfolios benefited from their inherently broad diversification, which minimized exposure to the weakest names relative to many comparable actively managed programs.

The CUIT Balanced Fund returned -27.11% versus -22.06% for the blended benchmark. The equity portfolio lagged its S&P 500 benchmark by roughly 500 basis points, with the majority of the shortfall attributable to stock selection in the financial sector (-66.6% versus -55.3%). Industry leaders Wachovia (-84.7%) and AIG (-97.3%) were among the worst performers. The bulk of the remaining shortfall was due to stock selection in telecom services (-61.2% versus -30.5%) and an overweight and weak stock selection in consumer discretionary. Within the bond portfolio, non-government exposure (particularly to corporates and commercial mortgage-backed issues) negatively impacted results as spreads reached all-time highs. Specific credits in the retailing and bank sectors, as well as auto finance issues, added to the shortfall, as did a modestly shorter duration exposure during the first quarter of 2008 as Treasury rates fell.

The CUIT Market Neutral Fund posted a -1.74% return compared to a 2.06% return for the Merrill Lynch 91-Day Treasury Bill. As noted above, the benchmark was particularly strong due to aggressive Fed interest rate cuts and investors’ flight to safety. After a strong first half, the fundamental factors used by the three sub-advisers were overwhelmed by forced liquidations and deleveraging in the year’s second half. While the year’s absolute results were weak, the Fund’s conservative market neutral approach fared better than did many diversified and leveraged absolute return strategies in 2008; this is demonstrated by the Fund’s above-median ranking among peer market neutral managers. The Fund has completed three years since inception, achieving a slight positive annualized net return of 0.63%, trailing bond results but providing a hedge on weak stock returns. Under current difficult market conditions of high volatility and deteriorating economic strength globally, it should continue to serve as a hedge on market risk.

The CUIT Value Equity Fund ended the year down 38.73% (Class B, -38.50%) versus the Russell 1000 Value Index’s -36.85% return. This mirrored weak equity market performance across the board, with the S&P 500 returning -37.0% and the Russell 1000 Growth Index -38.4%. Within the financial sector, underweights in Bank of America, Citigroup and JPMorgan Chase were among the leading contributors to relative return for the period, as each posted returns between -25% and -76%. An underweight and relatively effective stock selection in industrials, coupled with an overweight and stock selection in consumer discretionary, also supported relative results. On the downside, weak stock selection in energy (-34.3% versus -26.7%), one of the better-performing index sectors, produced the largest drag on relative performance. Weak stock selection in telecom services (-46.5% versus -31.6%) and utilities (-29.6% versus -23.8%) also impacted relative return. Principled Purchasing exclusions were beneficial due mostly to modified exposures relative to the benchmark in the aerospace and defense and pharmaceutical industries.

The CUIT Core Equity Index Fund returned -37.21% (Class B, -37.11%) in 2008, in line with the S&P 500’s -37.00% return. Sector exposure was additive while reweighting among unrestricted holdings produced a slight drag on relative results. The Fund’s exposure to information technology and consumer staples led relative gains against the benchmark. The sectors most impacted by Principled Purchasing — healthcare and industrials — detracted from relative performance. At the industry level, exclusions in drugs and medicine accounted for most of this as the Fund remained underweight despite reweighting to permissible holdings within the group. The absence of tobacco exposure was also detrimental. The Fund maintains a policy of zero exposure to the group, whose return for the year (-18.6%) exceeded that of the Index.

The CUIT Growth Fund returned -46.29% (Class B, -46.12%) in 2008, trailing the -38.44% return of the Russell 1000 Growth Index. The year ranked as the worst for the benchmark since its inception. The single largest negative contributor to the portfolio’s relative return for the year was an underweight position in consumer staples (2.8% versus 12.2% for the benchmark). Stock selection was weak in virtually all sectors as quality growth names were punished severely. During the second half of the year, a number of major holdings in the portfolio, including Google, Apple, Schlumberger, National Oilwell Varco and Visa, were among top hedge fund holdings and were subject to volatile price swings. Forced liquidations and deleveraging continued through year-end, further depressing prices. Principled Purchasing had a negative impact of nearly 150 basis points for the year. While growth returns in 2008 were startlingly negative, our sub-advisers believe that they have assembled a portfolio of strong business franchises with secure finances and the ability to post three- to five-year earnings growth in excess of 15% versus an expected 12% for the R1000 Growth benchmark. When investors’ fear is replaced by a focus on these strong fundamentals, we believe that patient Growth Fund investors will be rewarded.

The CUIT Small-Capitalization Equity Index Fund closely tracked the benchmark Russell 2000 Index’s -33.79% performance, returning -33.30% on a gross-of-fee basis and -33.78% net of fees (Class B, -33.71%). Restrictions in drugs and medicine provided the largest contribution to relative return, while reweighting into allowable names such as Valeant Pharmaceuticals (+91%) and Thoratec Corp. (+78%) was also additive. Aerospace contributed positively as two of three restricted names substantially underperformed peers, declining 69% and 49%, respectively. The tobacco industry trailed the benchmark return as well. Typically a drag on performance, transactional cash in this negative market environment was a positive contributor. Limiting factors included strong performance of restricted names in business services and chemicals.

Through the end of the second quarter of 2008, the CUIT International Equity Fund had a 124 basis point (Class B, 143 basis point) return advantage versus the benchmark but ended the year returning -45.87% (Class B, -45.66%), trailing the benchmark by 281 basis points (Class B, 260 basis points). Negative contributions came from stock selection in industrials, energy and utilities, while an underweight in the best-performing sector, healthcare (-18.5%), also detracted. Stock selection was additive in consumer discretionary and materials, while the Fund’s underweight in financials and overweight in telecom services were each positive contributors to relative return. The Fund’s modest exposure to emerging markets was beneficial in 2008, and it avoids the risks of capital flight, commodity price weakness and falling global trade which we believe will impact developing countries over coming quarters.