GLOBAL TREASURY MANAGEMENT Annual Report. Stable Value Fund

Transcription

1 GLOBAL TREASURY MANAGEMENT 2010 Annual Report

2 To Our Fund Participants: We are pleased to present the 2010 Annual Report of the ( Fund ). The Fund is a collective investment fund sponsored by Union Bank, N.A. This report reflects the Fund s performance for the 2010 calendar year and financial position as of : The Bank has retained HighMark Capital Management, Inc., ( HighMark ) an SEC-registered investment adviser and a wholly owned subsidiary of Union Bank, N.A, to provide investment advice with respect to the Fund. HighMark and its predecessors have been providing investment management services since 1919 and, as of, had over $16.7 billion in assets under management. HighMark has a disciplined approach to investment management and is dedicated to providing competitive performance while helping clients meet their long-term investment objectives. UnionBanCal Corporation is the second largest commercial bank holding company headquartered in California based on assets at, and a proud member of the Mitsubishi UFJ Financial Group (MUFG, NYSE:MTU), one of the world s largest financial organizations. As of, UnionBanCal, had assets of $79.1 billion. The Bank, the banking subsidiary of UnionBanCal, is among the 25 largest commercial banks in the United States based on assets. The Bank provides an array of personal and commercial financial products and services to individuals, small businesses, middle market companies, major corporations, government agencies, and not-for-profit organizations. The Bank s retirement plan services group, which is part of the Institutional Services Division, offers retirement plan services for qualified and non-qualified retirement plans. As of December 31, 2010, the Division had $ billion in trust and custody assets under administration. If you have any questions regarding the Funds, please contact your Trust Officer. Sincerely, Greg Kirland Senior Vice President Union Bank, N.A.

3 Table of Contents Page(s) Independent Auditors Report...1 Financial Statements Statement of Assets and Liabilities...2 Statement of Operations...2 Statement of Changes in Net Assets...3 Financial Highlights Statement of Investments Notes to Financial Statements Supplementary Information Summary Schedule of Investments Purchased...21 Summary Schedule of Investments Matured or Sold...21

4 INDEPENDENT AUDITORS REPORT To the Trustee and Unit Holders of The of Union Bank, N.A.: We have audited the accompanying statement of assets and liabilities of the of Union Bank, N.A. (the Fund ), including the statement of investments, as of, and the related statements of operations, changes in net assets, and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the of Union Bank, N.A. as of, the results of its operations, changes in its net assets, and financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States of America. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental summary schedules of investments purchased and investments matured or sold for the year ended, are presented for the purpose of additional analysis and are not a required part of the basic 2010 financial statements, but are supplementary information required by Regulation 9 of the Comptroller of the Currency. These schedules are the responsibility of the Fund s management. Such information has been subjected to the auditing procedures applied in our audit of the basic 2010 financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. April 15, 2011

5 Statement of Assets and Liabilities Assets Investments, at fair value $726,710,618 Interest and dividends receivable 958 Other assets 3,699 Total assets 726,715,275 Liabilities Distributions due to participants 1,637,053 Sub-advisory fees 32,015 Accrued expenses payable 53,949 Total liabilities 1,723,017 Net assets reflecting all investments at fair value 724,992,258 Adjustments from fair value to contract value for fully benefit-responsive investment contracts (22,423,458) Net assets at contract value $702,568,800 Net asset value per unit Class A (based upon net assets of $124,545,570 and 124,545,571 units outstanding) $ 1.00 Class B (based upon net assets of $216,099,521 and 216,099,532 units outstanding) $ 1.00 Class C (based upon net assets of $361,923,709 and 361,923,697 units outstanding) $ 1.00 Statement of Operations Year Ended Investment income Dividends $ 23,076 Interest 22,998,436 Total investment income 23,021,512 Expenses Management fees - Class A 719,229 Management fees - Class B 1,061,228 Management fees - Class C 703,480 Sub-advisory fees 393,631 Custodian fees 182,845 Audit fees 50,600 Consulting fees 16,467 Professional fees 1,230 Total expenses 3,128,710 Net investment income $ 19,892,802 Unrealized income on investment Change in unrealized income on collective investment trust (Note 2) 491,477 Unrealized income from investment 491,477 Net increase in net assets from operations $ 20,384,279 The accompanying notes are an integral part of these financial statements. 2

6 Statement of Changes in Net Assets Year Ended Operations Net investment income $ 19,892,802 Change in unrealized income on collective investment trust 491,477 Net increase in net assets from operations 20,384,279 Distributions to participants from Net investment income - Class A (3,688,124) Net investment income - Class B (6,148,260) Net investment income - Class C (10,056,418) Total distributions from net investment income (19,892,802) Unrealized income from collective investment trust - Class A (Note 2) (89,080) Unrealized income from collective investment trust - Class B (Note 2) (150,121) Unrealized income from collective investment trust - Class C (Note 2) (252,276) Total distributions from unrealized income from collective investment trust (491,477) Net decrease in net assets from distributions to participants (20,384,279) Unit transactions Proceeds from sale of units 197,874,153 Dividends reinvested 20,702,628 Cost of units redeemed (333,015,379) Net decrease in net assets from unit transactions (114,438,598) Total decrease in net assets (114,438,598) Net assets Beginning of year 817,007,398 End of year $ 702,568,800 Number of fund units Issued 197,874,154 Reinvested 20,702,628 Redeemed (333,015,379) Net decrease in units outstanding (114,438,597) Units outstanding Beginning of year 817,007,397 End of year 702,568,800 The accompanying notes are an integral part of these financial statements. 3

7 Financial Highlights Year Ended Class A Per unit data (for a unit outstanding throughout the period) Operations Net investment income $ 0.03 Unrealized income from collective investment trust* Distributions to participants from Net investment income (0.03) Unrealized income from collective investment trust* Net asset value Beginning of year 1.00 End of year $ 1.00 Total return 2.66% Ratio of expenses to average net assets 0.59% Net investment income as a percentage of average net assets 2.56% Class B Per unit data (for a unit outstanding throughout the period) Operations Net investment income $ 0.03 Unrealized income from collective investment trust* Distributions to participants from Net investment income (0.03) Unrealized income from collective investment trust* Net asset value Beginning of year 1.00 End of year $ 1.00 Total return 2.71% Ratio of expenses to average net assets 0.54% Net investment income as a percentage of average net assets 2.61% * Amounts round to less than $0.01 per share. The accompanying notes are an integral part of these financial statements. 4

8 Financial Highlights Year Ended Class C Per unit data (for a unit outstanding throughout the period) Operations Net investment income $ 0.03 Unrealized income from collective investment trust* Distributions to participants from Net investment income (0.03) Unrealized income from collective investment trust* Net asset value Beginning of year 1.00 End of year $ 1.00 Total return 2.97% Ratio of expenses to average net assets 0.29% Net investment income as a percentage of average net assets 2.86% * Amounts round to less than $0.01 per share. The accompanying notes are an integral part of these financial statements. 5

9 Statement of Investments Fair Wrapper Contractual Rule Value of Contracts Adjustment Security Coupon Maturity 144A Underlying at Fair to Contract Contract Description Rate Date See Investments Value Value Value Alternative Investment Contracts 84.9% AIG Multi Asset Wrap, # % CMBS BSCMS, Series 2003-TOP10, Class A % 03/13/40 $ 2,530,705 Corporate Obligation John Hancock Global Funding 6.500% 03/01/11 144A 9,375,499 U.S Government Agency MBS FHLMC (gold), Pool #J % 09/01/20 9,502,597 U.S Government Agency MBS FHLMC (gold), Pool #J % 07/01/21 3,650,796 U.S Government Agency MBS GNMA, Pool # % 01/15/17 766,304 U.S Government Agency MBS GNMA, Pool # % 02/15/17 320,553 U.S Government Agency MBS GNMA, Pool # % 12/15/16 373,742 U.S Government Agency MBS GNMA, Pool # % 01/15/17 183,291 U.S Government Agency MBS GNMA, Pool # % 01/15/17 323,809 U.S Government Agency MBS GNMA, Pool # % 01/15/17 488,229 Total AIG 27,515,525 $ 541 $ (655,937) $ 26,860,129 Bank of America Multi Asset Wrap, # % Corporate Obligation Seariver Maritime, Inc % 09/01/12 7,934,652 Rate Reduction Bond ABS PEGTF, Series , Class A % 03/15/13 359,558 Rate Reduction Bond ABS PEGTF, Series , Class A % 12/15/15 11,005,226 Rate Reduction Bond ABS PERF, Series , Class A % 03/25/14 4,262,608 U.S. Government Agency U.S. Dept of Housing and Urban Development 5.030% 08/01/12 3,253,751 U.S. Government Agency MBS FHLMC (gold), Pool #E % 06/01/18 4,177,187 U.S. Government Agency MBS FHLMC (gold), Pool #E % 10/01/17 1,551,349 U.S. Government Agency MBS FHLMC (gold), Pool #E % 10/01/12 751,741 U.S. Government Agency MBS FHLMC (gold), Pool #G % 12/01/19 5,839,654 U.S. Government Agency MBS FNMA, Pool # % 10/01/17 991,139 U.S. Government Agency MBS FNMA, Pool # % 03/01/18 5,422,492 U.S. Government Agency MBS FNMA, Pool # % 06/01/20 7,464,819 U.S. Government Agency MBS FNMA, Pool # % 04/01/21 4,385,523 U.S. Government Agency MBS FNMA, Pool # % 04/01/22 6,261,608 U.S. Government Agency MBS FNMA, Pool #AA % 06/01/23 14,068,792 U.S. Treasury U.S. Treasury 2.625% 06/30/14 15,698,342 U.S. Treasury U.S. Treasury 2.625% 12/31/14 10,428,065 Total Bank of America 103,856,506 (5,150,690) 98,705,816 JP Morgan Multi Asset Wrap, #MORLEY % Corporate Obligation Shell International Finance 4.950% 03/22/12 15,960,503 Rate Reduction Bond ABS BECO, Series , Class A % 09/15/13 5,193,938 U.S. Government Agency MBS FHLMC (gold), Pool #E % 07/01/18 4,300,539 U.S. Government Agency MBS FHLMC (gold), Pool #E % 08/01/18 3,994,444 U.S. Government Agency MBS FHLMC (gold), Pool #G % 11/01/21 5,752,255 U.S. Government Agency MBS FNMA, Pool # % 06/01/18 4,643,244 U.S. Government Agency MBS FNMA, Pool # % 06/01/18 1,479,319 Total JP Morgan 41,324,242 1,105 (1,763,977) 39,561,370 Monumental Life Multi Asset Wrap, #MDA-00737TR 13.0% CASH Fidelity Institutional Money Market Government Portfolio - Class I 0.114% 2,602,672 Corporate Obligation Atlantic Richfield Company 8.500% 04/01/12 8,812,256 Corporate Obligation Pepsico, Inc % 05/15/12 8,508,940 Corporate Obligation Principal Life Income Fundings Trust % 09/30/11 10,372,301 Rate Reduction Bond ABS AEPTC, Series 2006-A, Class A % 07/01/15 8,890,258 U.S. Government Agency MBS FHLMC (gold), Pool #E % 11/01/17 2,470,319 U.S. Government Agency MBS FHLMC (gold), Pool #G % 04/01/20 5,774,744 The accompanying notes are an integral part of these financial statements. 6

10 Statement of Investments Fair Wrapper Contractual Rule Value of Contracts Adjustment Security Coupon Maturity 144A Underlying at Fair to Contract Contract Description Rate Date See Investments Value Value Value Monumental Life Multi Asset Wrap, #MDA-00737TR Continued U.S. Government Agency MBS FHLMC (gold), Pool #G % 02/01/20 $ 5,920,359 U.S. Government Agency MBS FHLMC (gold), Pool #J % 12/01/21 3,382,619 U.S. Government Agency MBS FNMA, Pool # % 11/01/17 2,474,464 U.S. Government Agency MBS FNMA, Pool # % 11/01/13 431,409 U.S. Government Agency MBS FNMA, Pool # % 11/01/16 897,146 U.S. Government Agency MBS FNMA, Pool # % 01/01/18 4,177,103 U.S. Government Agency MBS FNMA, Pool # % 03/01/21 3,952,735 U.S. Government Agency MBS FNMA, Pool # % 09/01/20 2,381,372 U.S. Government Agency MBS GNMA, Pool # % 06/15/19 8,870,204 U.S. Treasury U.S. Treasury 1.875% 06/30/15 15,060,533 Total Monumental Life 94,979,434 $ $ (3,548,290) $ 91,431,144 Principal Life Wrap, GA % CASH Fidelity Institutional Money Market Government Portfolio - Class I 0.047% 104,750 Auto ABS Honda Auto Receivables Owners Trust, Series 2008-A, Class A % 09/18/12 378,615 Auto ABS Honda Auto Receivables Owners Trust, Series , Class A % 06/18/13 370,368 Auto ABS Honda Auto Receivables Owners Trust, Series , Class A % 11/21/13 369,238 Auto ABS Mercedes Benz Auto Receivables Trust, Series 2009, Class A % 01/15/14 257,730 Auto ABS Nissan Auto Receivables Owner Trust, Series 2008-B, Class A % 11/15/14 377,977 Auto ABS Nissan Auto Receivables Owner Trust, Series 2009, Class A % 08/17/15 345,111 Auto ABS USAA Auto Owner Trust, Series 2009, Class A % 10/15/12 327,572 Auto ABS USAA Auto Owner Trust, Series 2010, Class A % 06/16/14 377,598 Auto ABS VALET, Series 2010, Class A % 01/20/14 201,139 Corporate Obligations Bank of America 3.125% 06/15/12 1,011,177 Corporate Obligations Bank of New York Mellon 4.300% 05/15/14 659,581 Corporate Obligations Berkshire Hathaway 4.625% 10/15/13 602,633 Corporate Obligations Brown Forman 2.500% 01/15/16 99,141 Corporate Obligations Chevron Corp % 03/03/14 239,873 Corporate Obligations Citigroup, Inc % 04/30/12 1,023,895 Corporate Obligations ConocoPhillips Co % 04/15/13 365,681 Corporate Obligations Du Pont de Nemours & Co % 04/30/14 296,276 Corporate Obligations Emerson Electric Co % 04/15/15 215,422 Corporate Obligations General Dynamics Corp % 02/01/14 190,908 Corporate Obligations General Electric Capital Corp., Series MTN 2.250% 03/12/12 1,027,973 Corporate Obligations General Electric Co % 02/01/13 392,330 Corporate Obligations Hewlett-Packard Co % 03/01/13 374,449 Corporate Obligations Honeywell International 3.875% 02/15/14 188,402 Corporate Obligations John Deere & Co % 12/17/12 270,135 Corporate Obligations JPMorgan Chase & Co % 01/20/15 678,176 Corporate Obligations JPMorgan Chase & Co % 06/15/12 1,024,023 Corporate Obligations Oracle Corp % 04/15/13 373,950 Corporate Obligations Pepsico, Inc % 03/01/14 369,423 Corporate Obligations Pfizer, Inc % 02/15/14 375,386 Corporate Obligations Praxair, Inc % 11/15/14 157,039 Corporate Obligations Procter & Gamble Co % 12/15/15 363,138 The accompanying notes are an integral part of these financial statements. 7

11 Statement of Investments Fair Wrapper Contractual Rule Value of Contracts Adjustment Security Coupon Maturity 144A Underlying at Fair to Contract Contract Description Rate Date See Investments Value Value Value Principal Life Wrap, GA Continued Corporate Obligations Sysco Corp % 02/12/13 $ 42,128 Corporate Obligations U.S. Bancorp 1.375% 09/13/13 562,038 Corporate Obligations United Technologies Corp % 05/01/15 183,997 Corporate Obligations Walt Disney Co. (The) 6.200% 06/20/14 68,652 Corporate Obligations Wells Fargo & Co % 01/31/13 570,599 Corporate Obligations XTO Energy, Inc % 02/01/14 376,561 Credit Card ABS American Express Credit Account Master, Series , Class A 0.325% 09/15/16 238,102 Credit Card ABS CHAIT, Series 2007, Class A % 10/15/14 295,971 Equipment ABS John Deere & Co., Series 2009, Class B 1.570% 10/15/13 382,771 Equipment ABS John Deere Owners Trust, Series 2010-A, Class A % 10/17/16 382,918 Rate Reduction Bond ABS CNP, Series 2008, Class A % 02/01/20 292,920 Rate Reduction Bond ABS CPL, Series , Class A % 07/15/15 388,317 Rate Reduction Bond ABS PSE&G Transition Funding, LLC, Series , Class A % 06/15/15 522,096 Rate Reduction Bond ABS TXU, Series , Class A % 11/17/14 313,439 U.S. Government Agency Federal Farm Credit Bank 2.625% 04/17/14 1,861,534 U.S. Government Agency Federal Home Loan Bank 1.625% 03/20/13 2,045,252 U.S. Government Agency Federal Home Loan Mortgage Corporation 3.000% 07/28/14 2,024,315 U.S. Government Agency Federal National Mortgage Association 2.625% 11/20/14 2,003,947 U.S. Government Agency MBS FHLMC, Pool #G % 10/01/25 709,319 U.S. Government Agency MBS FHLMC, Series 3728, Class EA 3.500% 09/15/20 680,086 U.S. Government Agency MBS FHLMC, Pool #G % 07/01/20 354,345 U.S. Government Agency MBS FHLMC, Pool #J % 04/01/25 590,776 U.S. Government Agency MBS FHLMC, Series 3501, Class AC 4.000% 08/15/23 572,527 U.S. Government Agency MBS FHLMC, Series 3501, Class JA 4.000% 04/15/37 694,580 U.S. Government Agency MBS FHLMC, Series 3609, Class LE 3.000% 12/15/24 349,868 U.S. Government Agency MBS FHLMC, Series 3718, Class BC 2.000% 02/15/25 359,884 U.S. Government Agency MBS FHLMC, Series 3728, Class CA 1.500% 11/15/18 415,843 U.S. Government Agency MBS FHLMC, Series 3735, Class KH 2.500% 10/15/25 352,911 U.S. Government Agency MBS FNMA, Pool #AA % 06/01/24 680,588 U.S. Government Agency MBS FNMA, Series 2010, Class AD 3.000% 01/25/24 362,814 U.S. Government Agency MBS FNMA, Pool # % 01/01/21 363,144 U.S. Government Agency MBS FNMA, Pool #AD % 09/01/25 343,863 U.S. Government Agency MBS FNMA, Pool # % 08/01/18 528,832 U.S. Government Agency MBS FNMA, Pool # % 05/01/18 527,240 U.S. Government Agency MBS FNMA, Pool # % 03/01/25 500,062 U.S. Government Agency MBS FNMA, Pool #AD % 02/01/24 544,129 U.S. Government Agency MBS FNMA, Pool #AE % 10/01/25 545,391 U.S. Government Agency MBS FNMA, Series , Class AQ 3.000% 08/25/24 400,009 U.S. Treasury U.S. Treasury 1.750% 01/31/14 2,920,262 U.S. Treasury U.S. Treasury 1.750% 07/31/15 2,932,040 U.S. Treasury U.S. Treasury 0.750% 09/15/13 6,508,710 U.S. Treasury U.S. Treasury 0.375% 08/31/12 26,501,137 Total Principal Life 74,703,026 $ $ 445,781 $ 75,148,807 Rabobank Muti Asset Wrap, #UBC % CMBS BSCMS, Series 2002-TOP8, Class A % 08/15/38 1,587,770 CMBS MSDWC, Series 2003-TOP9, Class A % 11/13/36 204,248 Rate Reduction Bond ABS CPL, Series , Class A % 01/15/17 20,169,776 U.S. Government Agency MBS FNMA, Pool # % 11/01/12 851,446 U.S. Government Agency MBS FNMA, Pool # % 09/01/18 6,310,711 U.S. Government Agency MBS FNMA, Pool # % 01/01/17 2,168,362 The accompanying notes are an integral part of these financial statements. 8

12 Statement of Investments Fair Wrapper Contractual Rule Value of Contracts Adjustment Security Coupon Maturity 144A Underlying at Fair to Contract Contract Description Rate Date See Investments Value Value Value Rabobank Muti Asset Wrap, #UBC Continued U.S. Government Agency MBS FNMA, Pool # % 10/01/17 $ 1,311,673 U.S. Government Agency MBS FNMA, Pool # % 11/01/17 2,420,376 U.S. Government Agency MBS FNMA, Pool # % 11/01/17 1,463,103 U.S. Government Agency MBS FNMA, Pool # % 07/01/19 7,268,966 Total Rabobank Life 43,756,431 $ 5,568 $ (3,002,062) $ 40,759,937 State Street Bank Multi Asset Wrap, # % Corporate Obligation Atlantic Richfield Company 8.500% 04/01/12 14,870,682 Corporate Obligation Seariver Maritime, Inc % 09/01/12 14,426,640 Corporate Obligation Toyota Motor Credit Corporation 5.450% 05/18/11 10,259,787 Credit Card ABS CCCIT, Series 2006-A4, Class A % 05/10/13 5,126,104 Rate Reduction Bond ABS CNP, Series 2005-A, Class A % 08/01/15 12,211,412 Rate Reduction Bond ABS PEGTF, Series , Class A % 03/15/13 1,472,462 Rate Reduction Bond ABS AEPTC, Series 2006-A, Class A % 07/01/15 5,577,748 U.S. Government Agency MBS FHLMC (gold), Pool #B % 04/01/20 10,309,383 U.S. Government Agency MBS FHLMC (gold), Pool #J % 02/01/21 11,694,239 U.S. Government Agency MBS FNMA, Pool # % 05/01/13 1,807,510 U.S. Government Agency MBS FNMA, Pool # % 04/01/18 5,606,446 Total State Street Bank 93,362,413 1,192 (4,322,057) 89,041,548 UBS Multi Asset Wrap, # % CMBS BSCMS, Series 2007-T26, Class A % 01/12/45 12,439,388 CMBS MSC, Series 2005-IQ10, Class AAB 5.178% 09/15/42 10,339,578 Rate Reduction Bond ABS CNP, Series , Class A % 09/15/15 16,795,760 Rate Reduction Bond ABS AEPTC, Series 2006-A, Class A % 07/01/15 9,535,691 U.S. Government Agency MBS FHLMC (gold), Pool #E % 02/01/17 1,921,315 U.S. Government Agency MBS FHLMC (gold), Pool #E % 09/01/17 1,845,401 U.S. Government Agency MBS FHLMC (gold), Pool #E % 11/01/12 231,539 U.S. Government Agency MBS FNMA, Pool # % 02/01/18 4,259,147 U.S. Government Agency MBS FNMA, Pool # % 02/01/21 5,111,688 Total UBS 62,479,507 1,219 (2,970,890) 59,509,836 Union Bond & Trust Company * 10.7% 76,956,438 Total Union Bond & Trust Company 76,956,438 97,684 (1,562,645) 75,491,477 Total alternative investment contracts 618,933, ,309 (22,530,767) 596,510,064 Repurchase Agreements 8.5% CSFB 0.150%, 1/03/ ,000,000 60,000,000 Money Market Funds 6.8% Dreyfus Government Cash Management 47,777,096 47,777,096 Total investments 100.2% $726,710,618 $ 107,309 $(22,530,767) 704,287,160 Liabilities in excess of other assets (0.2)% (1,718,360) Net assets 100.0% $702,568,800 * Union Bond & Trust Company is a collective investment fund listed above under Alternative Investment Contracts to properly display its Fair Value, Contract Value and Adjustment to Contract Value. The accompanying notes are an integral part of these financial statements. 9

13 Statement of Investments The Wrap Issuer s Credit Ratings S&P Moody s AIG Financial Products Corp A- A3 Bank of America, N.A. A+ Aa3 JP Morgan Chase Bank AA- Aa1 Monumental Life Insurance Co. AA- A1 Principal Life AA- Aa3 Rabobank Nederland AAA Aaa State Street Bank & Trust AA- Aa2 UBS AG (Union Bank of Switzerland) A+ A1 Descriptions for sector abbreviations are presented below: ABS Asset-Backed Securities MBS Mortgage-Backed Securities CMBS Commercial Mortgage-Backed Securities Descriptions for investment abbreviations are presented below: AEPTC AEP Texas Central Transition Funding AIG American International Group, Inc. BECO Massachusetts Rate Reduction Bond Special Purpose Trust BSCMS Bear Stearns Commercial Mortgage Securities CCCIT Citibank Credit Card Inssuance Trust CHAIT Chase Issuance Trust CNP Centerpoint Energy Transition Bond Co. LLC CPL Central Power and Light Company Transition Funding LLC CSFB Credit Suisse First Boston FHLMC (gold) Freddie Mac Gold or Federal Home Loan Mortgage Corporation Gold FNMA Federal National Mortgage Association GNMA Government National Mortgage Association MSC Morgan Stanley Capital I Trust MSDWC Morgan Stanley Dean Witter Capital I Trust PEGTF Public Service Electric and Gas Company Transition Funding II LLC PERF PG&E Energy Recovery Funding LLC PSE&G Public Service Electric & Gas Co. TXU TXU Electric Delivery Transition Bond Co. LLC VALET Volkswagen Auto Loan Enhanced Trust 144A Restricted Security The accompanying notes are an integral part of these financial statements. 10

14 Notes to Financial Statements 1. Fund Organization and Investment Objective The Union Bank, N.A. (the Fund ) was established June 11, 1986, and is governed by the Plan of the Pooled Investment Funds of Union Bank, N.A. (as amended and restated effective July 21, 2010) as amended from time to time (the Plan ). Union Bank, N.A. (the Trustee ), formerly known as Union Bank of California, N.A. - is the sponsor, Trustee, and Investment Manager of the Fund. The Trustee is a national banking association that provides fiduciary services, including trustee and investment management agency services funds and custodial services for institutional trust clients. HighMark Capital Management, Inc., a wholly owned subsidiary of Union Bank, N.A., acts as investment adviser to the Trustee which maintains the Fund. Morley Financial Services, Inc. ( Investment Sub-Adviser ) an unaffiliated investment adviser, provides investment advisory services to the Trustee. The Trustee may negotiate Benefit Responsive Wrap Contracts for the Fund with various providers, including but not limited to affiliates of the Trustee, and affiliates of the Trustee s sub-advisors, including without limitation Principal Life Insurance Company, an affiliate of Principal Financial Group. For any such Benefit Responsive Wrap Contracts provided through Principal Life Insurance Company, the Trustee will retain Morley Capital Management, Inc. to manage the assets held in the Fund s segregated account wrapped by the Principal contract, and such manager shall receive compensation from the Fund for such advisory services as disclosed on Schedule A of the Fund s Disclosure Statement. The Trustee may from time to time invest in other collective investment funds maintained by Trustee, or other s, including without limitation in the Union Bond and Trust Company (the UBT SVF ), which is managed by Morley Capital Management, Inc. Morley, as the Fund s sub-advisor, will waive its advisory fee from the Fund with respect to any Fund assets invested in the UBT SVF, and will be compensated for such services solely from the UBT SVF. Investments in collective investment vehicles, including without limitation collective investment funds, mutual funds and insurance company bundled products may include investment in vehicles advised by the Investment Advisor or Sub-Advisor or for which the Trustee or an Investment Advisor, Sub-Advisor, or affiliates thereof provide other services for a fee. The primary investment objective of the Fund is to provide dependable current income and safety of principal by making direct investments in stable value instruments, and in certain other fixed income or money market obligations or in a variety of collective investment vehicles which invest in such obligations. A stable value instrument is a fixed income obligation, the rate of return of which is guaranteed by the issuing insurance company, bank, savings and loan or other financial institution; or a debt instrument or portfolio of debt instruments owned by the Fund combined with a 100% benefit responsive contract (wrapper) issued by an insurance company, bank, savings and loan or other financial institution. At approximately 61% of the Fund s outstanding units were held by 5 unit holders. Two of those 5 unit holders were the Union Bank, N.A. 401(k) Plan and the Bank of Tokyo-Mitsubishi UFJ, Ltd. 401(k) Savings and Investment Plan, whose holdings together comprised 30% of the outstanding units of the Fund. 11

15 Notes to Financial Statements 2. Summary of Significant Accounting Policies The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ( GAAP ), and provisions of the Plan. Use of Estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results may differ from those estimates. Investment Valuation The Fund values investments in accordance with the Financial Accounting Standards Board ( FASB ) Staff Position, FSP AAG INV-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Audit Guide and Defined- Contribution Health and Welfare and Pension Plans (the FSP ). The FSP permits the use of contract value accounting for benefit-responsive investment contracts owned by certain investment companies, and provides guidance with respect to financial statement presentation and disclosure of fully benefitresponsive investment contracts. As described by the FSP, investments held by an investment company are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets of an investment company attributable to fully benefit responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the underlying defined contribution plans. As required by the FSP, the accompanying schedule of investments reflects both the fair value as well as the adjustment to contract value for each investment contract deemed fully benefit responsive. The statement of assets and liabilities presents the fair value of the investment contracts as well as the adjustment of the fully benefit responsive investment contracts from fair value to contract value. The statement of operations and changes in net assets was prepared on a contract value basis. The investment contracts are nontransferable but provide for benefit-responsive withdrawals and participant transfers to non-competing options by plan participants at contract value. In determining fair value, the Trustee considers such factors as the benefit responsiveness of the contracts, the ability of the parties to the contracts to perform in accordance with the terms of the contracts and the likelihood of default by the issuer of an investment security. Individual assets of the synthetic investment contract are generally valued at representative quoted market prices. Short term securities, if any, are stated at amortized cost, which approximates market value. Debt securities are valued on the basis of valuations furnished by a pricing service approved by the Trustee, which determines valuations using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Securities for which market quotes are not readily available, or have quotes which management believes are not appropriate, are valued at fair value as determined in good faith by the Trustee. Accrued interest, if any, on the underlying investments is added to the fair value of the investments for presentation purposes. The fair value of the wrap contracts is determined using a discounting methodology which incorporates the difference between current market level rates for contract level wrap fees and the 12

16 Notes to Financial Statements wrap fee being charged. The difference is calculated as a dollar value and discounted by the prevailing interpolated yield curve as of year end. At, the fair value of wrap contracts as separately presented in the Statement of Investments was $107,309. Financial Accounting Standards Board Accounting Standards Codification ( FASB ASC ) 820, (formerly FASB Statement No. 157, Fair Value Measurements) establishes a single authoritative definition of fair value, sets a framework for measuring fair value and requires additional disclosures about fair value measurements. FASB ASC 820 applies to fair value measurements already required or permitted by existing standards. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, the Fund utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs reflect market-derived or market-based information obtained from independent sources, while unobservable inputs reflect the Fund s estimate about market data. Based on the observability of the inputs used in the valuation techniques, the Fund classifies its financial assets and liabilities measured and disclosed at fair value in accordance with the three-level hierarchy established under ASC 820. This hierarchy ranks the quality and reliability of the information used to determine fair values. Various inputs are used in determining the value of the Fund s investments. These inputs are summarized in the three broad levels listed below: Level 1 Quoted prices in active markets for identical securities. Valuations are based on quoted prices in active markets for identical assets or liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Level 2 Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations for which all significant assumptions are observable or can be corroborated by observable market data. Financial assets classified as Level 2 include fixed income securities, repurchase agreements and money market funds. Level 3 Significant unobservable inputs (including the Fund s own assumptions in determining the fair value of investments). Valuations are based on unobservable inputs supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Values are determined using pricing models, discounted cash flow models, management judgment and an estimation which may be significant. Financial assets classified as Level 3 include the wrap contracts. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. 13

17 Notes to Financial Statements The following table presents the fair value hierarchy of the Fund s financial assets as of : Significant Quoted Prices in Other Significant Active Markets Observable Unobservable For Identical Inputs Inputs Assets (Level 1) (Level 2) (Level 3) Total Alternative investment contracts $ $618,933,522 $ 107,309 $619,040,831 Repurchase agreement 60,000,000 60,000,000 Money market fund 47,777,096 47,777,096 Total $ $726,710,618 $ 107,309 $726,817,927 There were no significant transfers between levels for the period ended. Level 3 Reconciliation Disclosure Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value: Balance as of December 31, 2009 $ 23,521 Accrued discounts/(premiums) Realized gain/(loss) Change in unrealized appreciation/(depreciation) (13,896) Net purchases/(sales) (97,684) Transfers in and/or (out) of Level 3 Balance as of $ 107,309 In accordance with ASU No , the Fund expanded its disclosures to include the category, fair value, redemption frequency, and redemption notice period for those assets whose fair value is estimated using the net asset value per share as of. The following table for, sets forth a summary of the Fund s investment with a reported NAV: Fair Value Estimated Using Net Asset Value per Share Other Redemption Redemption Redemption Fair Value* Frequency Restrictions Notice Period Union Bond & Trust Company Stable Value Fund (a) $76,956,438 Continuous See Below 12 months *The fair values of the investments have been estimated using the net asset value of the investment. (a) Union Bond & Trust Company strategies seek to invest in high-quality, fixed income investments. 14

18 Notes to Financial Statements Nature of Investment Contracts, How They Operate, and the Methodology for Calculating the Interest Crediting Rate Alternative investment contracts are comprised of both investment and contractual components. The investment component consists of securities or shares or units of a pooled portfolio of fixed-income securities, referred to as the underlying investments. Underlying investments may include, but are not limited to: Asset-backed securities Corporate bonds Mortgage-backed securities Securities issued or backed by U.S. government agencies, government sponsored enterprises or similar U.S. government entities or instrumentalities Shares of mutual funds primarily invested in the above Units of collective investment vehicles primarily invested in the above mentioned securities Money market instruments The investment component is wrapped by contracts issued by third-party financial institutions. Generally, these wrap contracts provide for qualified benefit withdrawals and qualified investment exchanges at the full contract value of the alternative investment contracts (i.e., principal plus accrued interest) notwithstanding the actual market value of the underlying investments (i.e., fair value of security plus accrued interest). In this manner, wrap contracts are designed to smooth out the impact of normal market value fluctuations associated with the performance of the underlying investments. Wrap contracts currently held by the Fund are participating. Under the terms of participating wrap contracts the contract holder participates in gains or losses that result from the sale of underlying investments to accommodate withdrawals. Gains and losses owned by the contract holder are amortized through future crediting rate re-sets. The wrap contracts in the Fund predominately re-set on a monthly basis with a one-month look back for the portfolio statistics. The wrap contract issuer guarantees a minimum 0% crediting rate. The gross crediting rate formula is negotiated in the wrap contract and is typically represented as: CR = (MV/CV)^(1/D)*(1+YTM)-1 where: MV = market value of portfolio CV = contract value of portfolio D = weighted average duration of portfolio YTM = annualized dollar or duration weighted yield to maturity of the portfolio The net crediting rate is equal to the gross crediting rate minus the wrap fee due the contract issuer. Crediting rates reflect the amortization of realized and unrealized gains and losses in the underlying portfolio over the duration of the portfolio and, in consequence, may not reflect the actual returns achieved in the portfolio. From time to time the crediting rate may be significantly greater or less than current market interest rates. There are a number of factors that can influence future crediting rates. Such factors may include but are not limited to: portfolio cash flows, underlying portfolio performance, current market interest rates for reinvestment, duration of the underlying investments within the contracts, credit downgrades, the unexpected receipt of principal and interest payments, extraordinary contributions or withdrawals, and certain wrap contract terms. 15

19 Notes to Financial Statements Some of the investments underlying the alternative investment contracts have expected average lives. That is, they have a target maturity date that is subject to change depending on market conditions. Should the expected average life of the investments shorten or extend, the crediting rate on the contract is normally reset to reflect the investments new yield to maturity. If the underlying investments prepay prior to their expected maturity, the cash flows from the investments are typically reinvested in new investments. Average Yield The average yield earned by the entire Fund for the year ended was 3.007%. The average yield earned by the entire Fund with an adjustment to reflect the actual interest rate credited to participants in the Fund for the year ended was 2.999%. Sensitivity Analysis The following tables are intended to show the hypothetical impacts to the Fund s crediting rate over the next four quarterly periods as a result of changes in yields on the underlying investments, and changes in yields on underlying investments combined with the effect of (1) no contributions and withdrawals (Participant cash flows: 0%) or (2) an immediate, one time 10% decrease in the net assets of the Fund due to participant transfers (Participant cash flows: -10%). Assumptions Portfolio Gross Crediting Rate: 3.222% Current Market Interest Rate: 1.520% Portfolio Duration: 1.77 % Market Rate Change per Interval: 25% Participant Cash Flows: -10% % of Market Rate Change: -50% -25% No Change +25% +50% 12/31/ % 3.222% 3.222% 3.222% 3.222% 3/31/ % 2.908% 2.909% 2.906% 2.900% Participant Cash 6/30/ % 2.657% 2.712% 2.764% 2.812% Flows: 0% 9/30/ % 2.440% 2.541% 2.640% 2.736% 12/31/ % 2.254% 2.395% 2.535% 2.671% % of Market Rate Change: -50% -25% No Change +25% +50% 12/31/ % 3.222% 3.222% 3.222% 3.222% 3/31/ % 3.136% 3.095% 3.050% 3.002% Participant Cash 6/30/ % 2.853% 2.872% 2.888% 2.900% Flows: -10% 9/30/ % 2.607% 2.678% 2.746% 2.811% 12/31/ % 2.397% 2.513% 2.625% 2.735% The above is illustrative only and based on the assumptions given below. The crediting rate on the portfolio and total returns actually achieved by investors in the future may vary significantly from the above illustration due to market, plan and cash flow events. 16

20 Notes to Financial Statements Basis for current market interest rate is the actual yield to maturity of underlying assets. The above represents an estimate based on current crediting rate calculation conventions. The illustrative credit rate calculations are gross of wrap fees which typically average 8 basis points. Assumptions used in crediting rate calculation: MV/BV ratio = %, initial gross crediting rate = 3.193%, duration = 1.77 years Participant cash flow example will reflect the manager s methodology in paying benefits and managing overall portfolio allocations. Immediate, one-time, hypothetical 10% decrease in net assets due to participant transfers occur after the interest rate change. One quarter increase of current yield equals the current yield multiplied by 1.25 Effect on crediting rate as of the date of the last statement and at the end of the next four quarters assumes the portfolio rate resets quarterly. Reset rate based on interest rate impact on the portfolio market value and underlying investments yield to maturity. Assume market value grows by interest earnings over next reset periods. At, all investment contracts held by the Fund were deemed fully benefit responsive within the meaning of the FSP. The change in the difference between the fair value and contract value of the Fund s fully benefit-responsive investment contracts during 2010 is reflected below: Investments Investments at at fair value contract value As of December 31, 2009 $ 842,471,590 $ 819,005,832 Changes in fair/contract values for the current year (115,760,972) (114,718,672) As of $ 726,710,618 $ 704,287,160 Increase due to changes in the fully benefit-responsive status for the year ended $ As of the fair value to contract value ratio of the Fund was %. Market value events may limit the ability of the Fund to transact at contract value with the issuer. Market value events are events or conditions the occurrence of which are outside of the normal operation of the Fund and leads to any Fund disbursements which have or will have a material adverse affect on the operations of the Fund and a financial effect on the investment contract or wrap issuer s interest hereunder. Such events may include but are not limited to: fund administration is amended or changed, merger or consolidation of investors, group terminations or layoffs, implementation of an early retirement program, termination or partial termination of the Fund, failure to meet certain tax qualifications, participant communication that is designed to influence participants not to invest in the Fund, transfers to competing options without meeting the equity wash provisions of the Fund, and plan sponsor withdrawals without the appropriate notice to the Fund and/or issuer. At, the Fund s management does not believe that the occurrence of any such market value event limiting the Fund s ability to transact at contract value with participants is probable. 17

21 Notes to Financial Statements An issuer can terminate an investment contract upon the event of default by the contract holder, Investment Adviser or Trustee if the issuer determines in its reasonable discretion, such event has had, or is likely to have a material adverse effect on the issuer s interest with respect to the contract. Such events may include but are not limited to: management of the portfolio not in accordance with investment guidelines, breach of any material obligation under the wrap agreement, any representation or warranty made by the contract holder becomes untrue in any material way, replacement of the Investment Adviser without prior consent or the issuer, Fund is terminated or ceases to qualify as a group trust or plans cease to meet the appropriate tax qualifications, or the wrap becomes a prohibited transaction within the meaning of Section 406 of ERISA. Collective Investment Trust Funds The Fund invests in the Union Bond & Trust Company ( UBT SVF ) managed by Morley Financial Services Inc. The objective of the UBT SVF is to provide a low-risk, moderate yield investment. The UBT SVF is managed to earn a consistent level of return, while providing for, preservation of capital, high credit quality and liquidity. The UBT SVF consists of a diversified portfolio of high quality stable value alternative investment contracts issued by life insurance companies, banks and other financial institutions. Unlike mutual funds, the UBT SVF does not declare or payout dividends; income earned on the assets is accrued daily and reinvested into the UBT SVF This accrual of income and payment of expenses incurred are reflected in the UBT SVF net asset value ( NAV, also know as the unit price), which is priced daily and is not held constant. The Fund values its investment in the UBT SVF using the daily UBT SVF NAV or unit price. The unrealized appreciation on this investment is distributed to shareholders of the Fund on a daily basis. The UBT SVF is fully benefit responsive in the event the Fund requires a redemption to meet participant withdrawals for qualified purposes as defined in the Union Bank N.A. Disclosure Statement. In the event the Fund initiates a Non-Qualified Withdrawal from the UBT SVF (for non-benefit reasons such as a transfer to competing investment options or termination of the UBT SVF as an investment option of the Fund) these withdrawals are made one year after notification is received from the Fund s Trustee Union Bank. The Union Bond & Trust Company as trustee of the UBT SVF, reserves the right to grant a withdrawal earlier than that mentioned above if there are sufficient cash assets to satisfy the withdrawal and it is not detrimental to the best interest of the UBT SVF. Money Market Investments The Fund invests excess cash in Institutional Money Market portfolios (Dreyfus Government Cash Management & Fidelity Institutional Money Market Government Portfolio). Dreyfus Government Cash Management seeks as high a level of current income as is consistent with the preservation of capital and maintenance of liquidity. Dreyfus invests in securities issued or guaranteed as to principal and interest by the U.S. government or its agencies or instrumentalities, and repurchase agreements (including tri-party repurchase agreements). Fidelity Seeks to obtain as high a level of current income as is consistent with the preservation of principal and liquidity within the limitations prescribed for the fund. Fidelity normally invests at least 80% of assets in U.S. Government securities and repurchase agreements for those securities. Repurchase Agreements The Fund may enter into repurchase agreements with financial institutions. Repurchase agreements are secured by U.S. government obligations or by other securities and are subject to the counterparty s 18