RD428 - Virginia College Savings Plan Annual Report for the Period Ending June 30, 2008 and Actuarial Valuation of the Virginia Prepaid Education Program as of June 30, 2008


Executive Summary:
This report was replaced in its entirety by Virginia College Savings Plan on February 4, 2009.

The Virginia College Savings Plan's (Plan) annual report for the year ended June 30, 2008 contains the required financial statements and notes thereto prepared in accordance with generally accepted accounting principles, and the management discussion and analysis, which is required supplemental information under the Governmental Accounting Standards Board reporting model. The financial statements should be read in their entirety.

The Plan operates the Commonwealth's Internal Revenue Code (IRC) Section 529 qualified tuition program, which offers four options, the Virginia Prepaid Education Program (VPEP), the Virginia Education Savings Trust (VEST), CollegeAmerica and CollegeWealth. VPEP is considered a defined benefit program which offers contracts, at actuarially determined prices, that provide full future tuition and mandatory fee payments at the Commonwealth's public higher education institutions and differing payouts at private or out-of-state institutions. Annually, the Plan's actuary determines the actuarial soundness of VPEP. As of June 30, 2008, VPEP was 97.3% funded according to the actuarial report. Key factors used in the soundness analysis include anticipated tuition increases (both short- and long-term) as well as anticipated investment performance.

VEST is a defined contribution program, which allows participants to make contributions into their selected investment portfolio(s). VEST accounts are subject to market investment risk, including the possible loss of principal. CollegeAmerica is also a defined contribution program, which offers 22 different American Funds mutual fund products as investment options. CollegeAmerica participants also bear all market risk for their investment, including the potential loss of principal. The American Funds acts as program manager for CollegeAmerica and provides all back office and operational services for the program. CollegeWealth is also a defined contribution program under which participants invest in savings products offered through participating banks. These bank products may also carry FDIC insurance.

The Plan holds, invests and distributes monies held in trust for program participants. The Plan invests its funds pursuant to statute and Investment Guidelines under the direction of its Investment Advisory Committee in a mix of equity and fixed income investments. During the year ended June 30, 2008, both the equity and fixed income markets experienced tremendous volatility and the equity markets ended the year down from the prior year. This contributed to unrealized investment losses in the VPEP, VEST and CollegeAmerica investment portfolios in 2008.

• Total VPEP cash, cash equivalents, and investments held in trust for program participants decreased by $13.35 million, or about 1 percent from fiscal year-end 2007, due to unrealized investment losses despite new participation in the program of approximately $169.8 million.

• VPEP's total net assets decreased by $174.0 million to an actuarially determined deficit of $51.8 million compared to a positive reserve of $122.2 million in the prior year, which was primarily due to unrealized losses in the investment portfolio.

• VPEP's actuarially determined tuition benefits payable liability increased by $160.9 million, or approximately 9.3 percent, which was primarily due to the additional obligation of over 3,900 new contracts opened during the 2007 - 2008 enrollment period and a change in the tuition assumption.

• VEST net assets held in trust for program participants increased by $94 million or about 9 percent, which was due to strong investor participation offsetting unfavorable market conditions.

• CollegeAmerica net assets held in trust for program participants increased by approximately 8 percent over the previous year to $24.8 billion, due to the continued popularity of the program that again offset unfavorable market conditions.

• CollegeWealth was a new program in 2008 and net assets held in trust for program participants totaled $884,890 at year-end.