RD404 - Virginia College Savings Plan (Virginia529) Annual Report for the Period Ended June 30, 2013


Executive Summary:
The Virginia529’s (VA529) annual report for the year ended June 30, 2013 contains the required financial statements and notes thereto prepared in accordance with generally accepted accounting principles, and management’s discussion and analysis, which is required supplementary information under the Governmental Accounting Standards Board reporting model. The financial statements and notes should be read in their entirety.

VA529 operates the Commonwealth’s Internal Revenue Code (IRC) Section 529 qualified tuition plan, which offers four programs, the Virginia529 prePAIDSM (prePAID), Virginia529 inVESTSM (inVEST), CollegeAmerica® and CollegeWealth®. prePAID is a defined benefit program which offers contracts, at actuarially determined prices, that provide the future payment of undergraduate tuition for the normal full-time course load for students enrolled in a general course of study at any Virginia public higher educational institution and all mandatory fees required as a condition of enrollment of all students and differing payouts at private or out-of-state institutions. Annually, VA529’s actuary determines the actuarial soundness of prePAID. As of June 30, 2013, prePAID was 110% funded according to the actuarial report. inVEST is a defined contribution savings program, which allows participants to make contributions into their selected investment portfolio(s). inVEST accounts are subject to market investment risks, including the possible loss of principal.

CollegeAmerica and CollegeWealth are also defined contribution savings programs. CollegeAmerica, a broker-sold program, offers 38 different American Funds mutual fund products as investment options. CollegeAmerica participants bear all market risk for their investment, including the potential loss of principal. The American Funds acts as program manager for CollegeAmerica. CollegeWealth participants invest in FDIC-insured savings products offered through two participating banks BB&T and Union First Market Bank.

VA529 holds, invests and distributes monies held in trust for program participants. VA529 invests its funds pursuant to statute and Investment Policies and Guidelines under the direction of its Board and Investment Advisory Committee in a mix of equity, fixed income and alternative investments. During the fiscal year ended June 30, 2013, market movements, in aggregate, had an overall net positive effect on the performance of the prePAID, inVEST and CollegeAmerica portfolios. prePAID’s actual return on investments for the fiscal year ended June 30, 2013 was 8.4 percent on a time-weighted basis.

VA529 continued to experience positive growth in accounts, particularly in inVEST and CollegeWealth, with approximately 13 percent and 41 percent gross account growth, respectively during 2013. CollegeAmerica also experienced positive account growth in 2013 at 3.2 percent.

VA529 continues to remain optimistic that its asset allocation and investment strategies will result in VA529’s prePAID portfolio meeting or exceeding performance expectations over the long-term. VA529 has assumed a long-term rate of return of 6.75 percent on the prePAID investments. As of June 30, 2013, the total return since inception was about 6.4 percent net of fees and reflected prePAID’s 8.4 percent performance during fiscal 2013.

In assessing prePAID’s financial condition and in pricing prePAID contracts, VA529 has projected that tuition and fee increases at Virginia’s public higher education institutions will increase annually by approximately 7.5 percent for four-year and two-year institutions for fiscal years 2015 and thereafter. Tuition increases above VA529’s projections would have an immediate, detrimental impact on VA529’s outstanding long-term prePAID obligations. However, with the statutory requirement that institutions provide updated, long-term tuition projections, VA529 remains in a favorable position to prepare for future tuition and fee increases.