DC College Savings Plan Annual Report 2010
Too young for college. Never too young for college savings. Fiscal Year 2010 Annual Report
www.DCCollegeSavings.com
Message from the D.C. Treasurer and Deputy Chief Financial Officer lasana k. mack D.C. Treasurer and Deputy Chief Financial Officer Government of the District of Columbia
The D.C. College Savings Plan benefited from the continued recovery of the financial markets in fiscal year 2010. Assets grew to $146.0 million as of September 30, 2010 from $117.9 million at the end of the prior fiscal year. This represents a year-to-year increase of 23.8%. At fiscal year end, the Plan had 11,121 accounts with an average account balance of $13,130. During fiscal year 2010 the Calvert Equity Fund rose 11.26%; the Calvert Small Cap Value Fund returned 9.76% and the State Street Equity Index Fund earned 9.67%. For comparison, the S&P 500 index was up 10.16%. The Plan offers twelve investment options, including five age-based investment portfolios. The Office of Finance and Treasury regularly reviews the performance of the funds with the Advisory Board and our independent consulting firms, Winston Lowe, LLC and Capital Cities. We added 1,614 accounts during the fiscal year 2010, aided by a strong marketing and direct mail campaign along with our continued community outreach efforts. This was an increase of 17% over the prior fiscal year.
New contributions increased 16% to $27 million and on-line enrollments were up 24.8%. This year’s marketing plan will maintain a strong and visible awareness in the D.C. market, focus on asset growth in existing accounts and extend our acquisition efforts outside of the District. The marketing strategies to achieve these objectives include the use of targeted media inside the District, direct mail messages to existing customers and working with financial advisors nationwide. The operations of the Plan and its assets are examined each year by an independent accounting firm. For the eighth consecutive year, the Plan received an unqualified (clean) opinion from the auditors. The audit is included in this report as an appendix. In fiscal year 2011, we will continue to manage the Plan diligently for our participants. Sincerely,
Table of contents 1 Plan Highlights
16 Message from the Advisory Board Chairman
2 Sowing Seeds in the District
17 Important Information
4 Description of Investment Strategies
19 Appendix: Financial Statements, Notes, Report of Independent Certified Public Accountants
6 Description of Investment Options 10 Performance Summary of Investment Options 12 Financial Summary 14 Monthly Contributions Year Over Year Comparison 14 Monthly Distributions Year Over Year Comparison 15 Sponsor Profile: Office of Finance and Treasury 15 Program Manager Profile: Calvert Asset Management Company, Inc. (CAMCO)
Sponsored by The Government of the District of Columbia Office of the Chief Financial Officer Natwar M. Gandhi, Chief Financial Officer Lasana K. Mack, D.C. Treasurer and Deputy Chief Financial Officer © 2010 Government of the District of Columbia
Plan Highlights The close of fiscal year 2010 marks a strong year of growth for the DC College Savings Plan. Fiscal year 2010 saw robust increases in assets, contributions and enrollment over fiscal year 2009, with asset growth beating the national average in Section-529 plans.
ASSETS Assets under management in the DC College Savings Plan reached $146.0 million in the fiscal year that ended September 30, 2010, a growth rate of 23.8% over fiscal year 2009. This growth rate exceeds the national average of 14.7% in 529 plan assets.
11,121. D.C. residents represent 73% of this enrollment base. The number of non-residents has been growing at a solid pace due to targeted marketing, high ratings awarded to the plan from independent industry leader savingforcollege.com, and an effective mix of investment options, including socially responsible (sustainable) investments.
CONTRIBUTIONS Contributions to current and new participant accounts in 2010 totaled $26.8 million. The strong increase in contributions is attributed to effective marketing and community outreach efforts within the District of Columbia, excellent results from our direct mail campaign, and growing consumer confidence in an economic recovery.
ENROLLMENT The total number of District of Columbia residents and non-residents enrolled in the Plan grew by 10.2% to
Assets
For Years Ending September 30
$150
In Millions
In Millions
$120
$60 $30 $0
2008
2009
2010
The DC College Savings Plan’s marketing and community outreach efforts continue to focus awareness on the affordability of higher education for anyone, regardless of socioeconomic background. This message is being heard by District residents. Ward 8, the ward with the lowest per capita income in the city, had the highest percentage of growth in assets during the fiscal year ending September 30, 2010. The value of DC College Savings Plan assets held by Ward 8 residents increased 31% in 2010 compared to a 19% increase in FY 2009, while the number of participants increased by 20%.
contributions
For Years Ending September 30
$90
ACCESS
enrollment
For Years Ending September 30
$30
12,000
$25
10,000
$20
8,000
$15
6,000
$10
4,000
$5
2,000
$0
2008
2009
2010
0
2008
2009
2010
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Sowing Seeds in the District Community outreach always has been an essential element of the DC College Savings Plan. During the past four years, Laurent Ross, the Plan’s Program Manager, has worked with parents and educators at the Washington Jesuit Academy, discussing the importance of saving and the ways in which the Plan can increase the affordability of higher education for D.C. families. Washington Jesuit Academy (WJA) is a special place. It is a tuition-free, Catholic middle school that provides academicallytalented adolescent boys from low-income families of any denomination with a disciplined, rigorous learning environment. Students attend school 12 hours a day, 11 months of the year. They adhere to a highly-structured schedule that allows time for academics, recreational and sports activities, and homework. The school also provides breakfast, lunch, and dinner. During its first 10 years in operation, the Academy’s success has been impressive. One hundred percent of its alumni have graduated from high school; 80% currently attend college.
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At the Academy, parents, educators, and partners, like Mr. Ross, develop powerful relationships that support the current and future success of WJA’s students. Mr. Ross was introduced to the Academy by Merry Cavanaugh, the school’s Director of Development. The two met through Kids2College, a program that paired sixth grade students from low-income families with representatives from local colleges, to foster interest in attending college. Mr. Ross partnered with Kids2College to raise awareness of the Plan, its benefits, and the importance of higher education. Recognizing the value of the information he provided, and its relevance for parents of Academy students, Ms. Cavanaugh introduced Mr. Ross to Valentine Davies, Washington Jesuit Academy’s Graduate Support Director. “Our program is an ideal incubator for the DC College Savings Plan,” observes Mr. Davies, “Every year presents a new opportunity to educate a group of eager and anxious parents and students on effective strategies for
success in high school and beyond. Through his presentations, Laurent [Ross] has provided learning guideposts that students and parents use to become better prepared financially for post-secondary opportunities. Our community is aware of the sacrifices that must be made to lessen the financial burden of paying for college.”
Tilling fertile ground: Empowering parents and students Laurent Ross teaches a class on personal finance at the school’s Saturday Leadership Academy, which is attended by both parents and students. “The goal of the Saturday class is to give people a new way to think about the realities of goal setting and problem solving,” says Mr. Ross. During class, he introduces the idea of SMART goals. SMART stands for Specific, Measurable, Attainable, Realistic, and Timely. Mr. Ross emphasizes that SMART goals are more likely to be accomplished than general goals. Theresa Okon, a single mother and Academy parent, says, “Laurent gives us a reality check… I may think twelfth grade is far away, but it’s knocking at the door. When the time comes, I don’t want to be saying: shoulda, coulda, woulda.” Mr. Ross also speaks at parent meetings several times each year. These meetings provide an opportunity to discuss planning and saving for college, and to address concerns about affordability and timing. “I emphasize that there is a lot of aid available for DC children,” said Mr. Ross. “And explain that parents should save for college, not just because college is expensive, but also because it gives children the message that their parents
believe in them. Even if they don’t save a large amount, it changes a child’s mindset and focuses them on college.” At the meetings, Mr. Ross emphasizes that it is never too late to start saving, because every dollar put away can help make college more affordable. He also describes the tax breaks parents receive each year that they save in the DC College Savings Plan, including the years when their children are in college.
Shedding light on additional college financing resources While educating parents about the benefits of the DC College Savings Plan, Mr. Ross describes other resources and funding mechanisms that are available to help D.C. residents pay for college. These include the DC Tuition Assistance Grant Program (DCTAG) which provides grants to residents who attend public or private colleges and universities outside of the District. When qualifying students attend a state school, the program pays the difference between in-state and out-of-state tuition. It also will pay $2,500 a year toward tuition at private, historically-black colleges and universities nationwide, or at private colleges and universities in the D.C. metropolitan area. The information that Mr. Ross and the Academy provide about vehicles for funding college is invaluable, according to Diane Powell, whose son is in his first year of college. She comments, “I encourage all parents to start saving. The cost of college is such a shock. Websites show the cost of tuition, but add housing, food, parking, lab fees, and books… It’s incredibly expensive.” Ms. Powell encourages parents to go into financial aid offices and
“Parents should save for college, not just because college is expensive, but because it gives children the message that their parents believe in them.” – Laurent Ross ask about the types of assistance that may be available. “Even if parents don’t think they’ll qualify for a grant or loan, they should ask,” she said. “I was amazed at how much scholarship money was available.”
BUILDING a BRIGHT future “Anyone in the education field, especially in the K-12 sector, knows the importance of sowing the seed,” notes Mr. Davies. “You don’t see the fruits of your labor while the students are with you, but our job is vital for the future success of our students and families.” Through its community outreach efforts, the DC College Savings Plan supports the work of educators and students throughout the District as they seek to build a bright future. If you would like to learn more about the DC College Savings Plan, visit our Web site at www. dccollegesavings.com. Learn more about the Academy at www.wjacademy.org. n
For more information on the DC College Savings Plan, please call Calvert at 800.368.2750. An investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. The District of Columbia College Savings Trust Program Disclosure Booklet contains this and other information. Read it carefully before you invest or send money. An investor should also consider, before investing, whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s 529 college savings plan. The Government of the District of Columbia does not guarantee investments in the program. Investment involves risk, including possible loss of principal. The DC College Savings Plan is underwritten and distributed by Calvert Distributors, Inc., member FINRA/SIPC, a subsidiary of Calvert Group, Ltd.
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Description of investment strategies The DC College Savings Plan Program is designed to offer various alternatives to meet the risk tolerance and investment objective of most investors. You may choose one or any combination of the following three types of investment strategies: 1. the Age-Based Portfolio Strategy, which adjusts the relative risk of the investments to the Beneficiary’s age; 2. the Single-Fund Investment Strategy, in which each Investment Option invests in a single underlying mutual fund; or 3. the Stability of Principal Strategy, which provides for a guarantee of principal and a minimum contractual annual interest rate of 3.0% to the DC College Savings Program Trust. Within the Age-Based Portfolio Strategy there are five age bands available for those who wish the asset allocation of their investment to change as the Beneficiary ages, from greater stock exposure in the early years to mostly fixed-income and a funding agreement in the later years. In the Single-Fund Investment Strategy, there are six Single-Fund Investment Options for those who wish to choose from one or more Single-Fund Investment Options. The Stability of Principal Strategy provides an option for those whose primary investment objective is the protection of the principal they invest.
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1. Age-Based Portfolio Strategy The five age bands within the Age-Based Portfolio adjust the relative risk of the investments to the Beneficiary’s time horizon to attend an Eligible Institution. The age band will automatically change as the Beneficiary approaches college age. Using this strategy enables you to have greater equity exposure early on and less equity exposure as the Beneficiary nears college. In this regard, the strategy allows exposure to the growth opportunities (and volatility) of stocks when the Beneficiary is younger, while concentrating more on conserving principal as the Beneficiary approaches college age. (In general, stocks offer a potentially greater reward than other investments, but they also carry greater risk and volatility.) Each age band seeks to achieve its investment objective by investing in a
combination of mutual funds and a funding agreement (See “Stability of Principal Investment Strategy” below for a description of the funding agreement). Each of the five age bands primarily seeks total return with capital appreciation or income, consistent with the dates of birth of the Beneficiaries for which they were designed. Of course, you may choose any of these age bands as you deem appropriate, regardless of the Beneficiary’s age. (However, if you choose to invest in an age band that is lower than the Beneficiary’s actual age, no automatic movement to a different age band will occur as the Beneficiary’s age changes.) For each of the five age bands, the Program allocates each age band’s assets among mutual funds and a funding agreement according to a target asset allocation strategy that becomes increasingly conservative over time. The target asset allocation for each of the five age bands is designed to provide an approach to asset allocation that is neither overly aggressive nor overly conservative, changing from greater stock exposure in the early years to mostly fixed-income and a funding agreement in the later years as the Beneficiary’s time horizon to attend an Eligible Institution shortens. Thus, the Beneficiary is better able to protect capital and reduce market risk before making withdrawals for college expenses. In general, each of these five age bands is managed according to its target asset allocation strategy, and does not intend to trade actively among the investment products or attempt to capture short-term market opportunities. The ability of each of the age bands to meet its investment objective is directly related to its target asset allocation among the investment products and the ability of those investment products to in turn meet their own investment objectives. The Age-Based Portfolio Strategy entails investment in a mix of equity funds, fixed-income funds, and cash (a funding agreement through investment in Acacia Principal Plus). The portfolios adjust over time so that the closer the Beneficiary is to school age, the more conservative (less risky) the investment allocation becomes. This strategy
aims to create growth potential in the early years and to diminish fluctuations in the account as college approaches. Thus, the DC College Savings 0 – 5 age band, the most aggressive age band, is for an age group where the Beneficiary is more willing to accept higher risk in order to obtain the potential for a higher return, while the DC College Savings 17 & Up age band, the most conservative age band, is for an age group where the Beneficiary is more willing to sacrifice the potential
for larger returns in exchange for less risk and greater stability of principal — the three age bands in between have risk/reward trade-offs in between these two age bands, with risk and volatility (and potential reward) decreasing as the Beneficiary approaches school age. The Underlying Investments and the respective allocations in the age bands of the Age-Based Portfolio Strategy are shown in the table on the below.
Age-Based Portfolio Strategy Underlying Investments CAsh beneficiary’s age
U.S. Large Cap Equity
U.S. MIDCap Equity
U.S. small cap equity
NON-U.S. equity
BONDS
(Funding Agreement)
DC College Savings 0 – 5
50%
6%
9%
25%
10%
0%
DC College Savings 6 – 10
45%
5%
6%
25%
19%
0%
DC College Savings 11 – 13
39%
5%
4%
17%
35%
0%
DC College Savings 14 – 16
18%
4%
0%
8%
40%
30%
DC College Savings 17 & up
7%
0%
0%
6%
31%
56%
US Large Cap Equity: Calvert Social Index Fund — Class A
US Small Cap Equity: Calvert Small Cap Value Fund — Class A
US Mid Cap Equity: Calvert Capital Accumulation Fund — Class A
Non-US Equity: Calvert World Values International Equity Fund — Class A
Bonds: Calvert Social Investment Fund (“CSIF”) Bond Portfolio — Class A Cash (Funding Agreement): Acacia Principal Plus
2. Single-Fund Investment Strategy* There are six Single-Fund Investment Options, each of which invests in a single underlying mutual fund that focuses on a single investment strategy or asset class. Depending on its investment objective, the Underlying Investment may strive to maximize capital appreciation or to generate income and preserve principal. In general, stocks offer a potentially greater reward than
other investments, but they also carry greater risk and volatility. Hence, an appropriate allocation of the six different Single-Fund Investment Options will depend on the investment goals and risk tolerance of the Account Owner and the time horizon of the Beneficiary to attend an Eligible Institution.
Asset Class
Investment Option
Underlying Investment
Bonds
Calvert Income Fund — DC 529
Calvert Income Fund — Class A
Balanced
Calvert Balanced Portfolio — DC 529
CSIF Balanced Portfolio — Class A
US Large Cap Equity
Calvert Equity Fund — DC 529 State Street Equity 500 Index Fund — DC 529
CSIF Equity Portfolio — Class A State Street Equity 500 Index Fund— Service Class
US Small Cap Equity
Calvert Small Cap Value Fund — DC 529
Calvert Small Cap Value Fund —Class A
Non-US Equity
Calvert World Values International Equity Fund — DC 529 Calvert World Values International Equity Fund — Class A
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3. stability of principal investment Strategy (Funding Agreement through Acacia Principal Plus) This option focuses on protecting the principal you invest. It is the most conservative Investment Option and provides for a guarantee of principal and a minimum contractual interest rate of 3.0% to the Trust. The DC College Savings Plan allocates your contributions under this Investment Option to a funding agreement (“Funding Agreement”) issued by Acacia Life Insurance Company (“Acacia Life”). The Funding Agreement is a contract that provides the Trust with a guaranteed return of principal and an annualized minimum rate of return of 3%, minus any premium tax, if applicable, and
the opportunity for additional interest. On a quarterly basis Acacia Life will declare the rate it will pay under the Funding Agreement for the subsequent quarter, including any return in excess of the minimum annual guarantee of 3% to the Trust. Acacia Life will establish the quarterly rate using the experience of a reference portfolio within its general account. The reference portfolio shall primarily consist of investment grade fixed-income securities having a shortto-intermediate duration. See the DC College Savings Plan Program Disclosure Booklet for additional information.
Description of investment options
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Set forth below are descriptions of each of the Underlying Investments. Prospectuses for the Calvert funds are available upon request by visiting www. calvert.com or calling Calvert at 800.368.2745. The AgeBased Portfolios are not registered under the Investment Company Act of 1940. To obtain a prospectus for the State Street Equity 500 Index Fund, call 800.647.7327 or visit www.ssga.com. More information is also available at www.dccollegesavings.com.
investment approach in order to seek profit from changing market conditions.
Calvert Income Fund
Calvert Social Investment Fund Bond Portfolio
Advisor: Calvert Asset Management Company, Inc. (CAMCO)
The Fund typically invests at least 65% of its assets in investment-grade debt securities (rated BBB or above). The Fund may invest up to 35% of its net assets in below-investment-grade bonds. These securities are subject to greater credit risk than investmentgrade bonds.
Advisor: Calvert Asset Management Company, Inc. Calvert Income Fund seeks to maximize income, to the extent consistent with prudent investment management and preservation of capital, through investment in bonds and other income-producing securities. The benchmark for this Fund is the Barclays Capital U.S. Credit Index. The Fund uses an active strategy, seeking relative value to earn incremental income. CAMCO conducts in-depth credit analysis to identify bonds with attractive priceappreciation potential and specializes in uncovering issues with complex and unusual structures. The relative-value approach is used for the core, longer-term holdings as well as the more actively traded non-core positions. The investment team maintains a flexible
The Fund seeks to provide as high a level of current income as is consistent with prudent investment risk and preservation of capital through investment in bonds and other debt securities while meeting the Fund’s investment and social criteria. The benchmark for this Fund is the Barclays Capital U.S. Credit Index. The Fund uses an active strategy, seeking relative value to earn incremental income. Under normal circumstances, the Fund invests at least 80% of its net assets (including borrowings for investment purposes) in fixed income securities. At least 65% of the Fund’s net assets will be invested in investment grade debt securities rated A or above. A debt security is investment
grade when assigned a credit quality rating of BBB or higher by Standard & Poor’s (“S&P”) or an equivalent rating by a nationally recognized statistical rating organization (‘‘NRSRO”), including Moody’s Investors Service or Fitch Ratings, or if unrated, considered to be of comparable credit quality by the Fund’s Advisor. The Fund may invest up to 35% of its net assets in below-investment grade, high-yield debt securities (commonly known as “junk bonds”), including bonds rated in default. A debt security is below investment grade when assigned a credit quality rating below BBB by Standard & Poor’s or an equivalent rating by an NRSRO, or if unrated, considered to be of comparable credit quality by the Fund’s Advisor. The Fund seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges. Calvert believes that there are long-term benefits in an investment philosophy that attaches material weight to the environment, workplace relations, human rights, indigenous peoples’ rights, community relations, product safety and impact, and corporate governance and business ethics. Calvert also believes that managing risks and opportunities related to these issues can contribute positively to company as well as investment performance.
Calvert Social Investment Fund Balanced Portfolio Advisor: Calvert Asset Management Company, Inc. Sub-Advisor: New Amsterdam Partners, LLC
stock in large-cap companies, while the fixed-income investments are primarily a wide variety of investment grade securities, including corporate debt securities, mortgage-backed securities and asset-backed securities. The Fund invests in a combination of stocks, bonds and money market instruments in an attempt to provide a complete investment portfolio in a single product. The Advisor rebalances the portfolio quarterly to adjust for changes in market value. The Fund seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges. Calvert believes that there are long-term benefits in an investment philosophy that attaches material weight to the environment, workplace relations, human rights, indigenous peoples’ rights, community relations, product safety and impact, and corporate governance and business ethics. Calvert also believes that managing risks and opportunities related to these issues can contribute positively to company as well as investment performance.
Calvert Social Index Fund Advisor: Calvert Asset Management Company, Inc. Sub-Advisor: World Asset Management, Inc. Calvert Social Index Fund seeks to match the performance of the Calvert Social Index®, which measures the investment return of large- and mid-capitalization stocks.
The Fund seeks to achieve a competitive total return through an actively managed portfolio of stocks, bonds, and money market instruments which offer income and capital growth opportunity and which satisfy the investment and social criteria. The benchmark for this Fund is the Balanced Composite Index, which is composed of 60% Russell 1000 Index and 40% Barclays Capital U.S. Credit Index.
The Fund employs a passive management strategy designed to track, as closely as possible, the performance of the Calvert Social Index. The Fund uses a replication index method, investing in the common stock of each company in the Index in about the same proportion as represented in the Index itself. Under normal circumstances, the Fund will invest at least 95% of its net assets (including borrowings for investment purposes) in securities contained in the Index.
The Fund typically invests about 60% of its net assets in stocks and 40% in bonds or other fixed-income investments. Stock investments are primarily common
The Calvert Social Index measures the performance of those companies that meet the social investment criteria selected from the universe of approximately
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the 1,000 largest U.S. companies, based on total market capitalization, included in the Dow Jones Total Market Index (the “Dow Jones TMI”). The Dow Jones TMI represents the top 95% of U.S. companies based on float-adjusted market capitalization, excluding the very smallest and least-liquid stocks. The Index is reconstituted once a year based on an updated list of the 1,000 largest U.S. companies. The Index is also reviewed quarterly to adjust for social criteria and other factors.
State Street Equity 500 Index Fund Advisor: SSgA Funds Management, Inc. State Street Equity 500 Index Fund seeks to match as closely as possible, before expenses, the performance of the S&P 500 Index. The S&P 500 Index is a well-known stock market index that includes common stocks of 500 companies from several industrial sectors representing a significant portion of the market value of all stocks publicly traded in the United States. The Advisor seeks a correlation of 0.95 or better between the Fund’s performance and the performance of the Index (1.00 would represent perfect correlation).
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The Fund intends to invest in all 500 stocks that compose the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practical to purchase all 500 stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by the Advisor to match generally the performance of the S&P 500 Index as a whole. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the S&P 500 Index, in anticipation of their removal from or addition to the Index. In addition, the Fund may at times purchase or sell futures contracts in the S&P 500 Index or options on those futures in lieu of investments directly in stocks making up the S&P 500 Index.
Calvert Social Investment Fund Equity Portfolio Advisor: Calvert Asset Management Company, Inc. Sub-Advisor: Atlanta Capital Management Company, LLC CSIF Equity Portfolio seeks growth of capital through investment in stocks of issuers in industries believed to offer opportunities for potential capital appreciation and which meet the Fund’s investment and social criteria. The benchmark for this Fund is the S&P 500. The Fund invests primarily in the common stocks of U.S. large cap companies, although it may have other investments, including foreign stocks and mid-cap stocks. Under normal circumstances, the Fund seeks to have a weighted average market capitalization of at least $20 billion. Investment returns will be mostly from changes in the price of the Fund’s holdings (capital appreciation). The Sub-Advisor looks for growing companies with a history of steady earnings growth. Companies are selected based on the Sub-Advisor’s opinion that the company has the ability to sustain growth through growing profitability and that the stock is favorably priced with respect to those growth expectations. The Fund seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges. Investments for the Fund are first selected for financial soundness and then evaluated according to the Fund’s social criteria.
Calvert Capital Accumulation Fund Advisor: Calvert Asset Management Company, Inc. Sub-Advisor: New Amsterdam Partners, LLC The Calvert Capital Accumulation Fund seeks to provide long-term capital appreciation by investing primarily in mid-cap stocks that meet the Fund’s investment and social criteria. The benchmark for this Fund is the Russell Midcap Growth Index.
Investments are primarily in the common stocks of midsize U.S. companies. Returns in the Fund will be mostly from the changes in the price of the Fund’s holdings (capital appreciation). The Fund currently defines mid-cap companies as those whose market capitalization falls within the range of the Russell Midcap Growth Index. Stocks chosen for the Fund combine growth and value characteristics or offer the opportunity to buy growth at a reasonable price. The Subadvisor favors companies which have an above market average prospective growth rate, but sell at below market average valuations. The Fund seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges. Calvert believes that there are long-term benefits in an investment philosophy that attaches material weight to the environment, workplace relations, human rights, indigenous peoples’ rights, community relations, product safety and impact, and corporate governance and business ethics. Calvert also believes that managing risks and opportunities related to these issues can contribute positively to company as well as investment performance.
Calvert Small Cap Value Fund Advisor: Calvert Asset Management Company Inc. Calvert Small Cap Value seeks to provide long-term capital appreciation primarily through investment in small company U.S. common stocks that are trading at prices below what are believed to be their intrinsic value. The Fund will offer opportunities for long-term capital appreciation with a moderate degree of risk through a mix of smaller company stocks that meet the Fund’s investment and social criteria. Under normal circumstances, at least 80% of the Fund’s net assets will be invested in the common stocks of small companies. Calvert quantifies small companies as having a market capitalization of $3 billion or less at the time of initial purchase.
The Fund seeks to identify the common stocks of undervalued companies with long-term growth potential. Returns in the Fund will mostly be from the changes in the price of the Fund’s holdings (capital appreciation). Generally, the Advisor sells when a stock’s target price is reached, when the issuer or industry suffers negative changes, or when there is a change in the investment criteria that prompted the initial purchase. The Fund seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges. Investments for the Fund are first selected for financial soundness and then evaluated according to the Fund’s social criteria. The Fund uses the Russell 2000 Value Index as a benchmark for measuring its performance.
Calvert World Values International Equity Fund Advisor: Calvert Asset Management Company, Inc. Sub-Advisor: Martin Currie, Inc. and Thornburg Investment Management Calvert World Values International Equity Fund seeks to provide a high total return consistent with reasonable risk by investing primarily in a diversified portfolio of stocks that meet the Fund’s investment and social criteria. Using a core investment approach, the Fund invests primarily in common and preferred stocks of non-U.S. large-cap companies. The Fund will generally hold stocks of companies from the constituent countries of the MSCI EAFE Global Investable Markets Index (IMI), but may opportunistically invest in other countries, including emerging market stocks. The Advisor and the Subadvisors focus on deriving returns from individual stock selection. The Advisor and the Subadvisors utilize fundamental insights arrived at through qualitative and quantitative analysis of a broad range of non-U.S. securities to identify stocks expected to continued on page 18 >>>
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performance summary of investment options* (as of 9/30/10)
30-Day Si Asset Class/Fund Name Yield◆ YTD 1-Yr 3-YR 5-YR Stability of Principal strategy Acacia Principal Plus (No Sales Charge) Merrill Lynch 90-Day U.S. Treasury plus 100 basis points** average five year u.s. government treasury
3.41% N/A 1.43%
2.53% 0.94%
3.40% 1.24%
3.85% 2.24%
3.84% 3.69%
DC College savings 0 – 5 (4.75% Sales Charge) Benchmark 1***
4.19% 4.58%
7.80% 9.12%
-5.84% -5.72%
0.92% 1.87%
DC College savings 6 – 10 (4.75% Sales Charge) Benchmark 2***
4.36% 4.71%
7.58% 8.77%
-5.28% -4.53%
1.04% 2.32%
DC College savings 11 – 13 (4.75% Sales Charge) Benchmark 3***
4.97% 5.45%
8.01% 8.90%
-2.50% -2.10%
2.18% 3.04%
DC College savings 14 – 16 (3.75% Sales Charge) Benchmark 4***
5.02% 4.71%
6.95% 6.49%
0.74% 1.47%
3.24% 4.01%
DC College savings 17 & Up (2.75% Sales Charge) Benchmark 5***
4.13% 3.35%
5.22% 4.16%
2.00% 2.51%
3.40% 4.18%
6.70% 7.94%
7.92% 8.16%
3.49% 7.42%
3.80% 6.20%
5.18% 5.51%
9.02% n/a n/a 9.36% n/a n/a
Age-Based portfolio strategy
single-fund investment strategy Fixed Income Calvert Income Fund — DC 529 (3.75% Sales Charge) barclays capital Aggregate Bond Index TR*** Balanced calvert social balanced — DC 529 (4.75% Sales Charge) 60% S&P 500 IX Dividend Reinvested, 40% Lehman Aggregate Bond IX TR*** PAGE 10
Equity State Street Equity 500 Index fund — DC 529 (4.75% Sales Charge) S&P 500 Index Dividend Reinvested***
3.56% 3.89%
9.67% 10.16%
-7.48% -7.16%
0.24% 0.64%
calvert equity fund — DC 529 (4.75% Sales Charge) S&P 500 Index Dividend Reinvested***
6.54% 3.89%
11.26% 10.16%
-3.02% -7.16%
2.25% 0.64%
Calvert small cap value fund — DC 529 (4.75% Sales Charge) Russell 2000 value Index***
7.09% 7.92%
9.76% 11.84%
-6.53% -4.99%
-0.96% 0.73%
Calvert world values international equity — DC 529 (4.75% Sales Charge) MSCI EAFE Index***
2.27% 1.46%
0.91% n/a n/a 3.71% n/a n/a
The performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance data quoted. Visit www.dccollegesavings.com to obtain performance data current to the most recent month-end. Performance numbers are revised monthly.
Since Inception†
Inception Date
Annualized
3.81% 3.32%
10/31/02
Performance data does not reflect the deduction of the maximum sales charge; if reflected, the sales charge would reduce the performance quoted. *An account owner who is a resident of the District of Columbia who purchases shares directly from Calvert, or an account owner who contributes through payroll deduction from a company with 300 or more employees, pays no sales charge. An account owner who purchases shares with the assistance of a financial professional, or a non-D.C. resident who purchases directly from Calvert, pays a sales charge. A D.C. resident must pay an annual account maintenance fee of $15, while a non-D.C. resident pays an annual account maintenance fee of $30. **The Merrill Lynch 3-Month U.S. Treasury Bill Index is composed of a single 90-Day Treasury bill issue, or potentially a seasoned 6-month or 1-year Treasury bill issue, that is replaced on a monthly basis. To provide an appropriate benchmark for the Acacia Principal Plus, 100 basis points per annum have been added to the return of the Index.
5.18% 7.07%
10/31/02
5.12% 6.93%
10/31/02
5.42% 6.51%
10/31/02
5.42% 5.32%
10/31/02
4.45% 4.52%
10/31/02
***It is not possible to invest directly in an index. † Average annual return since inception ◆ The yield stated for Acacia Principal Plus DC 529 investment account is an effective yield and assumes reinvestment of all income earned on principal distributions. The Acacia Principal Plus Account provides important guarantees of principal and interest. All contributions invested under this option are guaranteed to the Trust against principal loss as long as they remain invested in the Account. The guarantees are supported by the general account of Acacia Life Insurance Company. It is not anticipated that investors in the option will experience a loss of principal while invested in this Account, but the return from income is expected to fluctuate with longer-term, fixed-income securities.
Age-Based Portfolios Benchmark Descriptions 1. 50% S&P 500 IX Div Rein., 6% Russell MidCap Growth IX, 9% Russell 2000 IX, 25% MSCI EAFE IX, 10% Barclays Capital Aggregate Bond IX 2. 45% S&P 500 IX Div Rein., 5% Russell MidCap Growth IX, 6% Russell 2000 IX, 25% MSCI EAFE IX, 19% Barclays Capital Aggregate Bond IX
5.61% 5.47%
10/31/02
3. 39% S&P 500 IX Div Rein., 5% Russell MidCap Growth IX, 4% Russell 2000 IX, 17% MSCI EAFE IX, 35% Barclays Capital Aggregate Bond IX 4. 18% S&P 500 IX Div Rein., 4% Russell MidCap Growth, 8% MSCI EAFE IX, 40% Barclays Capital Aggregate Bond IX, 30% Merrill Lynch 90 Day U.S. Treasury Index plus 100 basis points
4.23% 9/30/08 4.50%
3.63% 4.07%
7/31/03
5.43% 5.33%
10/31/02
-1.20% 0.16%
7/31/05
-2.92% 3.75%
9/30/08
5. 7% S&P 500 IX Div Rein., 6% MSCI EAFE IX, 31% Barclays Capital Aggregate Bond IX, 56% Merrill Lynch 90 Day U.S. Treasury Index plus 100 basis points Prior to August 2005, the small-cap component of the Age-Based Portfolio’s benchmark was allocated entirely to the Russell 2000 Index, equaling 10%, 7% and 6% of the 0-5, 6-10, and 11-13 Age-Based Portfolios, respectively. Beginning August 1, 2005, the small-cap allocation for the Age-Based Portfolios benchmark was split evenly between the Russell 2000 Index and the Russell 2000 Value Index, as indicated below: Benchmark Russell 2000 Index Age-Based Portfolio 0 – 5 5.0% Age-Based Portfolio 6 – 10 3.5% Age-Based Portfolio 11 – 13 3.0%
Russell 2000 Value 5.0% 3.5% 3.0%
PAGE 11
financial summary (Plan Assets as of 9/30/10)
31-oct-09
30-nov-09
31-Dec-09
31-Jan-10
9,500,608
9,668,350
10,593,886
11,058,841
0-5 Age-Based
18,895,138
18,971,334
21,027,805
21,056,108
6-10 Age-Based
22,011,246
23,323,381
24,475,308
24,137,906
11-13 Age-Based
10,690,164
10,878,915
11,464,169
11,411,628
14-16 Age-Based
9,277,594
9,504,674
9,794,813
9,934,139
17+ Age-Based
7,896,900
8,741,442
8,654,109
8,502,917
68,771,042
71,419,746
75,416,204
75,042,698
3,754,127
3,782,428
3,877,133
4,101,472
4,791,082
4,941,255
4,821,901
4,670,594
stability of principal strategy Acacia Principal Plus Age-Based portfolio strategy
Subtotal Age-Based single-fund investment strategy Fixed Income Calvert Income — DC 529 Balanced Calvert Balanced — DC 529 Equity SSgA 500 Index Equity — DC 529
16,798,055
17,885,574
19,201,360
18,992,615
CSIF Equity — DC 529
10,815,236
11,364,752
11,779,134
11,595,208
2,595,962
2,635,296
2,855,787
2,852,606
223,409
285,359
368,917
392,164
Calvert Small Cap Value — DC 529 Calvert World Values International Equity — DC 529 Total Program Assets
PAGE 12
$117,249,521 $121,982,760 $128,914,322 $128,706,198
total assets by year and month ($ millions) FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 October
15.4
32.7
51.9
75.6
104.7
88.7
117.2
November
0.4
-
16.3
34.8
54.4
77.9
102.3
84.7
122.0
December
3.6
20.2
39.9
58.2
81.7
106.5
90.5
128.9
January
6.5
23.2
41.7
63.0
86.9
104.1
87.7
128.7
February
7.0
24.4
44.0
64.1
87.7
103.9
83.1
132.7
March
7.9
25.9
44.7
66.0
89.6
104.7
89.0
139.7
April
8.9
26.5
44.7
67.8
92.9
109.4
97.1
143.6
May
10.2
27.7
46.8
66.9
96.0
112.2
101.6
137.1
June
11.5
29.3
48.1
68.2
96.6
108.1
103.6
134.2
July
12.2
29.0
50.2
68.5
95.2
107.4
109.8
140.6
August
13.1
30.1
50.5
70.6
97.3
108.6
113.1
136.2
September
13.8
31.2
51.5
72.5
101.2
101.8
117.9
146.0
28-Feb-10
31-Mar-10
30-Apr-10
31-May-10
30-Jun-10
31-Jul-10
31-Aug-10
30-Sep-10
11,294,905
11,477,391
11,876,257
11,954,295
12,328,819
12,251,047
12,311,706
12,628,624
20,381,707
22,040,702
22,783,058
20,073,797
19,664,230
21,229,389
19,073,574
21,075,520
25,549,946
27,087,027
27,686,152
26,482,812
25,659,244
27,262,926
26,772,939
29,082,984
11,943,534
12,686,808
13,002,527
12,341,088
12,065,471
12,636,026
12,339,542
13,330,501
10,012,922
10,309,174
10,580,349
11,042,928
11,074,843
11,356,735
11,379,280
11,782,188
9,400,158
9,455,870
9,533,833
10,008,509
9,955,515
9,780,600
9,995,877
10,011,629
77,288,267
81,579,581
83,585,919
79,949,134
78,419,303
82,265,676
79,561,212
85,282,822
4,123,451
4,163,493
4,266,262
4,304,285
4,350,653
4,408,333
4,500,555
4,516,336
4,831,512
5,037,333
5,149,141
5,028,499
4,907,586
5,047,183
4,894,300
5,191,911
19,644,950
20,927,406
21,568,738
19,945,120
19,130,517
20,494,330
19,639,056
21,453,680
12,025,550
12,810,298
13,229,433
12,264,904
11,616,071
12,347,288
11,826,512
13,145,256
3,068,780
3,299,245
3,497,428
3,218,950
3,004,018
3,215,957
2,932,601
3,245,202
407,201
440,273
459,249
441,603
470,779
532,445
521,748
577,999
$132,684,616 $139,735,020 $143,632,427 $137,106,790 $134,227,746 $140,562,259 $136,187,690 $146,041,830
PAGE 13 $146.0 $117.9
$136.2 $101.8
$113.1
$108.6
$140.6 $109.8
$107.4
$108.1
$103.6
$134.2
$137.1 $101.6
$112.2
$143.6 $97.1
$139.7 $109.4
$104.7
$89.0
$132.7 $83.1
$128.7
$80
$103.9
$87.7
$128.9
$106.5
$90.5
$122.0
$102.3
$84.7
$100
$117.2
$120
$88.7
$140
$104.7
$160
$104.1
monthly total Assets Year-over-Year Comparison ($ millions)
$60 $40 $20 $0
Oct.
Nov.
Dec.
Jan.
Feb.
2008 Monthly Total Assets
Mar.
Apr.
2009 Monthly Total Assets
May
June
July
2010 Monthly Total Assets
Aug.
Sep.
Monthly Contributions* Year-over-Year Comparison ($ millions as of 9/30/10)
$6.3
*Contributions are net of commissions, loads paid by Plan participants, and exchanges from one fund within the Plan to another.
$5.3 $5.1
$6
$3.5 $3.4 $3.7
$5 $4
$1 $0
Dec.
Jan.
Fiscal Year 2008 Monthly Contributions
Apr.
May
June
Fiscal Year 2009 Monthly Contributions
July
$1.6 $1.6 $1.6
$1.0 $1.3 $1.3
$1.5 $1.4 $1.3
$2.0 $1.5 $1.5
$1.2 $1.4 $1.8
Mar.
$2.2
Feb.
$1.3 $1.3
Nov.
$1.6 $1.2 $1.8
Oct.
$1.6 $1.3 $1.7
$1.6 $1.6 $1.8
$2
$1.7 $1.6 $1.5
$3
Aug.
Sep.
Fiscal Year 2010 Monthly Contributions
Monthly Distributions* Year-over-Year Comparison ($ thousands as of 9/30/10)
$0
Oct.
Nov.
Dec.
Jan.
Fiscal Year 2008 Monthly Distributions
May
Fiscal Year 2009 Monthly Distributions
June
July
$523.2 $447.6 $472.0
$716.4
$208.3 $396.5 $377.2
$488.8 $367.8
$181.3
$381.6
Apr.
$1,041.2
$1,041.9 $1,123.3
Mar.
$424.9
$539.7
$749.7
Feb.
$156.9
$200
$222.7 $207.9
$400
$202.7
$600
$410.8 $260.5
$800
$397.7 $375.5 $539.0
$1,000
$296.7 $436.4 $406.6
$1,200
$741.1 $938.7
$1,400
$774.8 $613.6 $932.4
$1,401.1
$1,600
PAGE 14
$1,536.3
*Distributions are net of exchanges from one fund within the Plan to another.
Aug.
Fiscal Year 2010 Monthly Distributions
Sep.
sponsor profile: Office of Finance and Treasury The D.C. Chief Financial Officer (CFO) is responsible for the implementation and administration of the D.C. College Savings Act of 2002, D.C. Law 13-212, approved March 31, 2001, as amended by the College Savings Program Act of 2002, D.C. Law 14-307, approved June 5, 2003. Pursuant to D.C. Regulations, 49 DCR 9859, November 1, 2002, made final at D.C. Mun. Regs, tit. 9, sec. 155 (2004), the CFO entered into a Declaration of Trust, establishing the DC College Savings Program Trust, an instrumentality of the District of Columbia. In addition, pursuant thereto, the CFO or the Treasurer, as designated by the CFO, shall serve as the fiduciary and Trustee of the District of Columbia College Savings Program Trust.
The CFO or the Treasurer, as designee of the CFO, is responsible for selecting a qualified financial institution as the program manager to administer the Program. In addition, the CFO or the Treasurer, as designee of the CFO, is responsible for approving the selection of the Underlying Investments in the Trust. The CFO or the Treasurer of the District of Columbia, as designee of the CFO, is responsible for the administration of the Program. The CFO or the Treasurer of the District of Columbia, as designee of the CFO, shall receive advice regarding the Program from the DC College Savings Plan Advisory Board, which shall meet periodically and at least once annually.
program manager Profile: Calvert Asset Management Company, Inc. (CAMCO) Through its extensive operations and customer service resources, Calvert has established an administrative structure for offering, administering, and marketing the Plan. Calvert’s sophisticated systems enable the provision of prompt, efficient customer service and accuracy in maintaining accounts and processing contributions and distributions.
Group Ltd., a UNIFI Company. Calvert sponsors a family of registered mutual funds with more than $14 billion in assets under management as of December 31, 2010. Calvert’s address is 4550 Montgomery Avenue, Bethesda, MD 20814.
RECORDKEEPER FOR THE PLAN CALVERT’S ROLE Calvert Asset Management Company, Inc. is the Program Manager for the Plan. As Program Manager, it is responsible for the Plan’s administration and investment operations. Calvert is subject to supervision by the Trustee, the Government of the District of Columbia. Calvert Distributors, Inc. serves as the distributor of interests in the Plan and is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority (FINRA). Calvert Asset Management Company, Inc. and Calvert Distributors, Inc. are subsidiaries of Calvert
Calvert has chosen Boston Financial Data Services, a subsidiary of State Street Bank and Trust Company, to provide recordkeeping and related services to the Plan.
TENURE AS PROGRAM MANAGER In July 2008 Calvert was selected by the Trustee as Program Manager for a new five-year contract through July 30, 2013. After that time the agreement between the Trustee and Calvert may be continued or terminated (in which case a different program manager may be retained).
PAGE 15
A Message From the advisory board chairman Curtis large Chairman of Advisory Board
What a difference a year makes. While Fiscal Year 2009 began with an unprecedented financial crisis, Fiscal Year 2010 continued the solid growth that the DC College Savings Plan had begun to see at the end of last year. Plan participant contributions of $27 million broke our record for contributions during a fiscal year. These contributions helped us outpace the national average in asset growth. DC College Savings Plan assets rose to $146 million, a 24% increase from the end of Fiscal Year 2009. Nationally, 529 assets grew at a 14% rate during the same period. The number of new participants in the Plan increased by nearly 17%.
Fiscal Year 2010. However, as the economy continues to recover, we expect growth to continue in new accounts as well as participant assets and contributions. The DC College Savings Plan Advisory Board played an active role in designing the new quarterly statements. The new statements are clearer and easier to read, and provide participants with lots of new and useful information. The role of the Advisory Board is to represent the interests of you, the Plan participants. In that role, we review the lineup of funds in the Plan as well as the efforts of the Program managers to market it, both here and out of state. Please let us know if we can be of assistance to you.
Markets were volatile at the end of the fiscal year, so we did see some drop off in the growth rate in new accounts and contributions in the last three months of
Advisory Board Curtis E. Large, Chairman PAGE 16
Virgil C. McDonald, Secretary Dr. Kerri Briggs, D.C. State Superintendent of Education Jack Evans, Chairman, D.C. Council’s Committee on Finance and Revenue Natalie C. Greene Gregory L. Jefferson Pamela Johnson Stacey R. Long, Esq. Dr. Allen L. Sessoms, President, University of the District of Columbia
important information For more information on the DC College Savings Plan, please visit www.dccollegesavings.com, call 800.987.4859 (800.368.2745 for non-District residents), or contact your financial advisor. An investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. The District of Columbia College Savings Trust Program Disclosure Booklet contains this and other information. Read it carefully before you invest or send money. An investor should also consider, before investing, whether the investor’s or designated beneficiary’s home
state offers any state tax or other benefits that are only available for investments in such state’s 529 college savings plan. The Government of the District of Columbia does not guarantee investments in the program. Investment involves risk, including possible loss of principal. The DC College Savings Plan is underwritten and distributed by Calvert Distributors, Inc., member FINRA/ SIPC, a subsidiary of Calvert Group, Ltd.
PAGE 17
DESCRIPTION OF INVESTMENT OPTIONS Continued from page 9 provide returns superior to that of the benchmark. The Advisor attempts to control the portfolio’s risk level and maximize the Fund’s return potential relative to the MSCI EAFE IMI benchmark by balancing the risks and opportunities from each of the Advisor’s or Subadvisor’s portfolios. No more than 5% of the Fund’s net assets will be invested in U.S. companies. The Fund seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges. Investments for the Fund are first selected for financial soundness and then evaluated according to the Fund’s social criteria.
Acacia Principal Plus Advisor: Acacia Life Insurance Company
PAGE 18
The Plan allocates your contributions under this Investment Option to the Funding Agreement issued by Acacia Life Insurance Company (“Acacia Life”). The Funding Agreement is a contract that provides the Trust with a guaranteed return of principal and an annualized minimum rate of return of 3%, minus any premium tax, if applicable, and the opportunity for additional interest. On a quarterly basis, Acacia Life will declare the rate it will pay under the Funding Agreement for the subsequent quarter, including any return in excess of the minimum annual guarantee of 3% to the Trust. The rate
is declared in advance for a period of three months but is not guaranteed for future periods. Neither the Trust nor Acacia Life can predict the amount of any such additional returns under the Funding Agreement. Acacia Life will establish the quarterly rate using the experience of a reference portfolio within its general account. The reference portfolio shall primarily consist of investment-grade fixed-income securities having a short to intermediate duration. Similar to the overall general account of Acacia Life, a majority of these investments are expected to be made in securities such as U.S. Treasuries, mortgage-backed securities, corporate bonds, private placement bonds, and commercial mortgage loans. Acacia Life Insurance Company is a regulated life insurance company domiciled in the District of Columbia. Acacia Life is an affiliate of Calvert. The Funding Agreement is a general obligation of Acacia Life to the Trust. As such, the Funding Agreement provides the guarantee described herein to the Trust for the benefit of the participants who have selected the Stability of Principal Investment Option, but the guarantee is not made directly to the Participants or Beneficiaries. This guarantee to the Trust forms the basis of returns that are credited to Accounts invested in the Stability of Principal Investment Option. In addition, neither the Stability of Principal Investment Option nor any account invested in this Investment Option is guaranteed by the District of Columbia, the Trustee, the Program Manager, or any other person or entity. The Funding Agreement is issued to the Trust and is not guaranteed or insured by any person other than Acacia Life.
Appendix: Financial Statements, Notes, and Report of Independent Certified Public Accountants
GOVERNMENT OF THE DISTRICT OF COLUMBIA OFFICE OF THE CHIEF FINANCIAL OFFICER OFFICE OF FINANCE AND TREASURY REPORT ON FINANCIAL STATEMENT AUDIT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST PARTICIPANT AND ADMINISTRATIVE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2010
PAGE 19
MANAGEMENT CONSULTANTS & CERTIFIED PUBLIC ACCOUNTANTS
TABLE OF CONTENTS
Management’s Discussion and Analysis ............................................................................................1 Independent Auditors’ Report ............................................................................................................3 Statement of Fiduciary Net Assets Participant Fund..........................................................................4 Statement of Changes in Fiduciary Net Assets Participant Fund .......................................................5 Statement of Fiduciary Net Assets Administrative Fund ...................................................................6 Statement of Changes in Fiduciary Net Assets Administrative Fund ................................................7 Notes to Financial Statements ............................................................................................................8 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters...........................................................................................................12
PAGE 20
GOVERNMENT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2010 The following presents our discussion and analysis of the financial performance of the Government of the District of Columbia’s (the District) College Savings Program (Program) for the fiscal year ended September 30, 2010. This discussion and analysis should be read in conjunction with the financial statements and note disclosures. Basic Financial Statements The Program is accounted for as a private purpose trust fund of the District. The District has an overall fiduciary responsibility to program participants to administer the operations of the Program. In accordance with GASB 34, the Program’s basic financial statements, which are reported on an accrual basis of accounting, are: (a) Statement of Fiduciary Net Assets and (b) Statement of Changes in Fiduciary Net Assets. Statement of Fiduciary Net Assets presents the assets, liabilities, and net assets of the Program. Statement of Changes in Fiduciary Net Assets presents the additions and deductions to the Program’s net assets. Financial Highlights • • • •
Investment increased by $28,122,157 or 23.85% Participant Contributions increased by $4,099,100 or 17.89% Net Investment earnings increased by $9,777,884 or 10721% Distributions to participants increased by $1,847,304 or 28.26%
Financial Analysis Table 1-Statement of Fiduciary Net Assets 2010
2009
Assets Receivables Investments Total Assets
30,188 146,025,571 $ 146,055,759
$
287,519 117,903,414 118,190,933
Liabilities Total Liabilities
$
$
264,305
Net Assets Net assets held in trust for program participants
$ 146,018,079
$
37,680
1
$ 117,926,628
Variance $
% variance
(257,331) 28,122,157 $ 27,864,826
-89.50% 23.85% 23.58%
$
-85.74%
(226,625)
$ 28,091,451
23.82%
PAGE 21
The Program’s primary asset was investments, which totaled $146,025,571. Investments increased by 23.85% from 2009 due to a net increase in participant contributions and the positive performance returns for all of the funds and portfolios. The top three Program investments were: Calvert Social Index Fund $32,062,464, State Street Equity 500 Index Fund-Class B $21,455,455, and Acacia Principal Plus $21,608,247. A significant portion of the Program’s liabilities represents amounts owed to portfolio management firms for investment activities during the fiscal year. As of year ended September 30, 2010, the payables totaled $37,680. Table 2-Statement of Changes in Fiduciary Net Assets Additions Contributions Net Investment (Loss) Income Total Additions Deductions Distribution to participants Other Expenses Total Deductions Net Increase
2010
2009
$ 27,012,298 9,869,085 $ 36,881,383
$ 22,913,198 91,201 $ 23,004,399
$
$
$
$
8,384,218 405,714 8,789,932
$ 28,091,451
$
6,536,914 337,327 6,874,241
$ 16,130,158
Variance
% variance
4,099,100 9,777,884 $ 13,876,984
17.89% 10721% 60.32%
$
1,847,304 68,387 1,915,691
28.26% 20.27% 27.87%
$ 11,961,293
74.15%
$
The Program’s contributions increased by $4,099,100 or 17.89%. The Program had an increase in participants from 10,092 in 2009 to 11,121 in 2010. The Program had a net investment income of $9,869,085 in 2010, which is a 10721% increase from 2009. The increase is attributed to the net additions to the Program’s investments and the positive rates of returns experienced by those investments in 2010. Distributions to participants in 2010 were $8,384,218, a 28.26% increase from 2009. PAGE 22
2
MANAGEMENT CONSULTANTS & CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS’ REPORT To the Trustee of The District of Columbia College Savings Program We have audited the accompanying Statements of Fiduciary Net Assets of the District of Columbia College Savings and Investment Program (the Program) Participant and Administrative Funds as of September 30, 2010, and the related Statements of Changes in Fiduciary Net Assets for the year then ended. These financial statements are the responsibility of the Program’s management, (Government of the District of Columbia, Office of Finance and Treasury). Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of September 30, 2010 by correspondence with the transfer agent of the underlying mutual funds. An audit also includes 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, the financial statements referred to above present fairly, in all material respects, the financial position of the District of Columbia College Savings and Investment Program Participant and Administrative Funds as of September 30, 2010, and the changes in the Program’s Participant and Administrative Funds financial position and changes in net assets of Participant and Administrative Funds for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated December 17, 2010, on our consideration of the District of Columbia College Savings and Investment Program’s participant and administrative funds internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, and contracts. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The Management’s Discussion and Analysis on pages 1 and 2 is not a required part of the financial statements, but supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.
Regis & Associates, PC Washington, DC December 17, 2010 1400 Eye Street, NW, Suite 425, Washington, D.C. 20005 Tel 202-296-7101 Fax 202-296-7284
PAGE 23
GOVERNMENT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST PARTICIPANT FUND STATEMENT OF FIDUCIARY NET ASSETS SEPTEMBER 30, 2010
ASSETS Receivables Accrued Interest and Dividends Receivable Receivables for Fund Shares Sold Total Receivables Investments Equity Fixed Income Total Investments
$ $
$
Total Assets
2,036 28,152 30,188
$
100,397,909 45,627,662 146,025,571
$
146,055,759
$
LIABILITIES Accounts payable for net investments purchased Accrued Expenses Due to D.C Government-Administrative Fund Total Liabilities
$
28,152 3,673 5,855 37,680
Net assets held in trust for Program participants
$
146,018,079
PAGE 24
The accompanying notes are an integral part of these financial statements.
4
GOVERNMENT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST PARTICIPANT FUND STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2010
ADDITIONS Contributions Investment Income Net Apreciation in fair value of investments Interest and Dividends Less Investment Expenses Net Investment Income Total additions
$
27,012,298
$
$
9,159,840 2,090,938 (1,381,693) 9,869,085
$
36,881,383
$
DEDUCTIONS Deductions Distributions to participants Administrative Expenses Maintenance Expenses Total Deductions
$
8,384,218 200,523 205,191 8,789,932
Net Increase
$
28,091,451
Net assets held in trust for Program participants Beginning of year End of year
$ $
117,926,628 146,018,079
PAGE 25
The accompanying notes are an integral part of these financial statements.
5
GOVERNMENT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST ADMINISTRATIVE FUND STATEMENT OF FIDUCIARY NET ASSETS SEPTEMBER 30, 2010
ASSETS Cash Due from Program Manager Due from Participant Fund Total Assets
$
$
153,185 220 5,855 159,260
Net assets held in trust for administrative expenses
$
159,260
PAGE 26
The accompanying notes are an integral part of these financial statements.
6
GOVERNMENT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST ADMINISTRATIVE FUND STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2010
ADDITIONS Administrative Fees Maintenance Fees Net Investment Income Total additions
$
$
66,841 54,505 5,664 127,010
DEDUCTIONS Professional Fees
$
76,378
Net Increase
$
50,632
Net assets held in trust for administrative expense Beginning of year End of year
$ $
108,628 159,260
PAGE 27
The accompanying notes are an integral part of these financial statements.
7
GOVERNMENT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2010 NOTE 1:
ORGANIZATION AND PURPOSE
The District of Columbia College Savings Program (the Program) was created by D.C. Law 47-4501 et seq., as amended and pursuant to D.C. Regulations, 49 DCR 9859, November 1, 2002 made final at D.C. Mun. Regs, title 9 sec. 155 (2004), as a Trust of the District of Columbia government (District). The Program enables participants to save for qualified higher education expenses. The Chief Financial Officer of the District of Columbia or his/her designee is the Trustee of the Plan. The current designee is the D.C Treasurer. The Trustee is responsible for entering into contracts for program management services, adopting program administration rules and regulations, and establishing investment policies. In Fiscal Year 2005, the District of Columbia College Savings Program Advisory Board was established to advise the Trustee on various topics including public outreach, implementing regulations, investment policy, and procedures governing applications, account management, and the disbursement of funds. Since the Program’s inception, the Trustee contracted Calvert Assets Management Company (Calvert) to perform recordkeeping, administrative and custodial services, investment management, marketing, and customer services. Calvert subcontracted the responsibility of the recordkeeping and related services of the Program to National Financial Data Services, a subsidiary of State Street Bank and Trust Company. The Program is available to both District of Columbia and non-District of Columbia residents. It is a qualified tuition program that allows participants to make contributions into twelve different investment options. The account balance limit is $260,000 per beneficiary. Accounts are subject to market investment risk, except for those that are invested in the Acacia Principal Plus product, which focuses on protecting the invested principal. As of September 30, 2010, the Plan had 11,121 participants with a net asset value of approximately $146,018,079. Fees and expenses of the program are paid by each account owner and vary according to the Fund. NOTE 2:
PAGE 28
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as prescribed by the Government Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB). Reporting Entity The accompanying financial statements report the fiduciary assets and the changes in fiduciary net assets of and for the fiscal year ended September 30, 2010. For financial reporting purposes, the Program includes all funds over which the Program exercises or has the ability to exercise oversight authority. Measurement Focus, Basis of Accounting and Financial Statement Presentation The Program reports the activity of the District of Columbia College Savings Program as a privatepurpose trust fund, which is a type of fiduciary fund. Private-purpose trust funds account for transactions of trust arrangements in which the principal and income benefit individuals, private organizations, or governments. The financial statements of the fiduciary funds are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recognized when a liability is incurred.
8
Portfolio investments in the Underlying Funds are valued at the closing net asset value per share (unit) of each Underlying Fund on the day of valuation. The Stability of Principal Portfolio is valued in accordance with the terms of the funding agreement, inclusive of accrued interest. Security transactions, normally in shares of the Underlying Funds, are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Income and capital gains distributions, if any, from investments in the Underlying Funds are recorded on the ex-dividend date. Expenses included in the accompanying financial statements reflect the expenses of each Portfolio and do not include any expenses associated with the Underlying Funds. Units represent the beneficial interest of each participant in the net assets of a Portfolio. Contributions to and distributions from the Portfolios are subject to terms and limitations defined in the Participation Agreement between the participant and the Trust. Contributions and distributions are recorded upon receipt of the participant’s instructions in good order, based on the next determined net asset value per unit. Net investment income and net realized gains accumulate in the net asset value of each Portfolio (with the exception of Acacia Principal Plus product) are not separately distributed to participants. To maintain a stable value, dividends from net investment income are accrued daily and paid monthly by Acacia Principal Plus product. Income Tax Status The Program is exempt from federal taxes in accordance with Section 529 of the Internal Revenue Code. D.C. resident participants are exempt from state and local taxes when used for qualified expenses. NonD.C. residents may be subject to state and local taxes in their jurisdiction. NOTE 3: INVESTMENTS At September 30, 2010, the Program held the following aggregate investments which are stated at aggregate fair value based on quoted market prices: Aggregate Cost Domestic Stock Funds Calvert Social Investment Fund Calvert Social Index Fund State Street Equity 500 Index FundCalvert Capital Accumulation Fund Calvert Small Cap Value Fund Calvert Social Investment Balanced Fund
$
12,768,887 25,975,031 22,390,371 2,999,841 6,405,758 4,342,371
Aggregate Fair Value
$
13,148,190 32,062,464 21,455,455 3,986,562 7,459,625 5,192,569
Unrealized Appreciation/ (Depreciation)
$
379,303 6,087,433 (934,916) 986,721 1,053,867 850,198
International Stock Funds Calvert World Values International Equity Fund
16,932,434
17,093,044
160,610
Bond Funds Calvert Income Fund Calvert Social Investment Bond Fund
4,434,744 17,949,265
4,516,543 19,502,872
81,799 1,553,607
Cash (Funding Agreement) Acacia Principal Plus $
21,608,247 135,806,949
9
$
21,608,247 146,025,571
$
10,218,622
PAGE 29
The net appreciation in the fair value of the investments consists of the following at September 30, 2010: Net Unrealized Gain Net Realized Loss Total
$9,306,746 (146,906) $9,159,840
The Program’s investments, which are uninsured and unregistered and are held by a counterparty in the Program’s name, are also subject to certain credit, interest rate, and foreign currency risks. Credit Risk is the risk that an issuer to an investment will not fulfill its obligations. The Program does not invest in debt securities that have an overall quality which is less than the BBB as rated by Moody’s or Standard & Poor. The primary credit ratings of the Program’s debt securities are as follows: Fund Calvert Social Investment Bond Fund Calvert Income Fund Calvert Social Balanced Fund Acacia Principle Plus
Credit Ratings AAA/A, A, BBB A/A/A, BBB/Baa/BB A/A/A, BBB/Baa/BB AAA, AA, A, BBB
Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Program does not invest in any investment account that has an average maturity exceeding ten years for its Bond Mutual Funds. The interest rate sensitivity, defined as duration, for each fund is as follows: Fund Calvert Social Investment Bond Fund Calvert Income Fund Calvert Social Balanced Fund Acacia Principle Plus
Average Duration 3.19 years 3.22 years 3.15 years 7.12 years
Calvert Income Fund actively manages duration so that it will differ from the benchmark. The Acacia product’s duration is typically tied to the projected long-term duration of the Program. However, the respective Fund’s prospectus provides greater detail about the investment strategies and practices of the fund, in compliance with federal regulations and specifically, the Form N-1A of the Investment Company Act of 1940, which focuses on disclosure to the investing public of information about the fund and its investment objectives, as well as on investment company structure and operations. PAGE 30
Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment in a foreign financial institution. The Program does not have a formal policy for limiting its exposure to changes in exchange rates. The investment fund that invests primarily in foreign financial institutions is the Calvert World Values International Equity Fund. The Fund has various currency denominations. The primary currency denominations are Euro, Yen, and British pound. NOTE 4:
ADMINISTRATIVE AND MAINTENANCE FEES
Account owners are charged certain fees that are used to pay reasonable and necessary operating and maintenance expenses incurred by the Program. The fees collected are still considered assets of the Program. The Program Manager remits a portion of the fees collected to the District who maintains the fees in a separate administrative fund account. In Fiscal Year 2010, total administrative fees assessed to account owners were $200,523. The District’s portion of the fees was $66,841. As of September 30, 2010, the total amount not remitted to the District was $5,855.
10
The Program also assesses an annual maintenance fee and a separate enrollment fee to new account owners. The maintenance fee is $15 for District residents and $30 for non-residents. The enrollment fee is $25 for non District residents. The District receives $5 per account for each assessed fee. During the fiscal year, the maintenance and enrollment fees totaled $200,311 and $4,880, respectively. The District’s portion of the fees was $53,160 and $1,345, respectively. The Program Manager remitted all the funds to the District, except for $220. The District did incur administrative expenses in 2010 of $76,378. The expenses were for the compilation and audit of the Program’s financial statements. At year-end, the Program had an administrative net asset balance of $159,260. NOTE 5:
INVESTMENT EXPENSES
Investment expenses represent the operating expenses and load fees paid to the broker dealers. The fees charged by the investment funds for operating expenses and load fees are reflected in the net appreciation in fair value of investments amount in the statement of changes in fiduciary net assets. Operating expenses ratios ranged from 0.15% to 2.02% of the fund’s average daily net asset value. NOTE 6:
RELATED PARTY TRANSACTIONS
All of the Program’s investments are invested in funds or portfolios that are managed either by the Program Manager, the Program Manager’s parent company Acacia Life, or State Street. The market value of those funds totaled $146,025,571. NOTE 7:
RISKS AND UNCERTAINITIES
The Plan invests in investment securities that are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible, that changes in the values of the investment securities will occur in the near term and, that such changes could materially affect participants’ account balances and the amounts reported in the Statement of Net Assets available for benefits.
PAGE 31
11
MANAGEMENT CONSULTANTS & CERTIFIED PUBLIC ACCOUNTANTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Trustee of The District of Columbia College Savings Program We have audited the financial statements of the District of Columbia College Savings and Investment program (the Program) participant and administrative funds as of and for the year ended September 30, 2010, and have issued our report thereon dated December 17, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the District of Columbia College Savings and Investment Program’s participant and administrative funds internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District of Columbia College Savings and Investment Program’s Participant and administrative funds internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the program's participant and administrative funds internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.
PAGE 32
Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District of Columbia College Savings and Investment Program’s participant and administrative funds financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, and contracts, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
1400 Eye Street, NW, Suite 425, Washington, D.C. 20005 Tel 202-296-7101 Fax 202-296-7284
This report is intended solely for the information and use of management of the District of Columbia College Savings and Investment Program and is not intended to be and should not be used by anyone other than the specified party.
Regis & Associates, PC Washington, DC December 17, 2010
PAGE 33
13
The text pages for this report are printed on paper containing 100% post-consumer content.
P.O. Box 11466 Washington, D.C. 20008 800.987.4859 D.C. residents 800.368.2745 www.DCCollegeSavings.com
D.C. Office of Finance and Treasury 1101 4th Street, SW Suite 800, West Building Washington, D.C. 20024 202.727.6055 Lasana K. Mack, D.C. Treasurer and Deputy Chief Financial Officer Jeffrey Barnette, Associate Treasurer Brenda P. Mathis, Program Director Edward Obaza, Financial Analyst Tilithea Ransome, Financial Analyst
Calvert 4550 Montgomery Avenue Suite 1000 North Bethesda, MD 20814 800.987.4859 Barbara J. Krumsiek, President and Chief Executive Officer Ronald Wolfsheimer, Chief Financial and Administrative Officer Laurent Ross, DC College Savings Plan Program Manager
For more information on the DC College Savings Plan, please visit www.dccollegesavings.com, call 800.987.4859 (800.368.2745 for non-District residents) or contact your financial advisor. An investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. The District of Columbia College Savings Trust Program Disclosure Booklet contains this and other information. Read it carefully before you invest or send money. An investor should also consider, before investing, whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for
www.DCCollegeSavings.com
investments in such state’s 529 college savings plan. An investment in another state’s 529 college savings plan may not offer comparable benefits. The Government of the District of Columbia does not guarantee investments in the program. Investment involves risk, including possible loss of principal. The DC College Savings Plan is underwritten and distributed by Calvert Distributors, Inc., member FINRA/SIPC and subsidiary of Calvert Group, Ltd. BR10050-201012
www.DCCollegeSavings.com
Message from the D.C. Treasurer and Deputy Chief Financial Officer lasana k. mack D.C. Treasurer and Deputy Chief Financial Officer Government of the District of Columbia
The D.C. College Savings Plan benefited from the continued recovery of the financial markets in fiscal year 2010. Assets grew to $146.0 million as of September 30, 2010 from $117.9 million at the end of the prior fiscal year. This represents a year-to-year increase of 23.8%. At fiscal year end, the Plan had 11,121 accounts with an average account balance of $13,130. During fiscal year 2010 the Calvert Equity Fund rose 11.26%; the Calvert Small Cap Value Fund returned 9.76% and the State Street Equity Index Fund earned 9.67%. For comparison, the S&P 500 index was up 10.16%. The Plan offers twelve investment options, including five age-based investment portfolios. The Office of Finance and Treasury regularly reviews the performance of the funds with the Advisory Board and our independent consulting firms, Winston Lowe, LLC and Capital Cities. We added 1,614 accounts during the fiscal year 2010, aided by a strong marketing and direct mail campaign along with our continued community outreach efforts. This was an increase of 17% over the prior fiscal year.
New contributions increased 16% to $27 million and on-line enrollments were up 24.8%. This year’s marketing plan will maintain a strong and visible awareness in the D.C. market, focus on asset growth in existing accounts and extend our acquisition efforts outside of the District. The marketing strategies to achieve these objectives include the use of targeted media inside the District, direct mail messages to existing customers and working with financial advisors nationwide. The operations of the Plan and its assets are examined each year by an independent accounting firm. For the eighth consecutive year, the Plan received an unqualified (clean) opinion from the auditors. The audit is included in this report as an appendix. In fiscal year 2011, we will continue to manage the Plan diligently for our participants. Sincerely,
Table of contents 1 Plan Highlights
16 Message from the Advisory Board Chairman
2 Sowing Seeds in the District
17 Important Information
4 Description of Investment Strategies
19 Appendix: Financial Statements, Notes, Report of Independent Certified Public Accountants
6 Description of Investment Options 10 Performance Summary of Investment Options 12 Financial Summary 14 Monthly Contributions Year Over Year Comparison 14 Monthly Distributions Year Over Year Comparison 15 Sponsor Profile: Office of Finance and Treasury 15 Program Manager Profile: Calvert Asset Management Company, Inc. (CAMCO)
Sponsored by The Government of the District of Columbia Office of the Chief Financial Officer Natwar M. Gandhi, Chief Financial Officer Lasana K. Mack, D.C. Treasurer and Deputy Chief Financial Officer © 2010 Government of the District of Columbia
Plan Highlights The close of fiscal year 2010 marks a strong year of growth for the DC College Savings Plan. Fiscal year 2010 saw robust increases in assets, contributions and enrollment over fiscal year 2009, with asset growth beating the national average in Section-529 plans.
ASSETS Assets under management in the DC College Savings Plan reached $146.0 million in the fiscal year that ended September 30, 2010, a growth rate of 23.8% over fiscal year 2009. This growth rate exceeds the national average of 14.7% in 529 plan assets.
11,121. D.C. residents represent 73% of this enrollment base. The number of non-residents has been growing at a solid pace due to targeted marketing, high ratings awarded to the plan from independent industry leader savingforcollege.com, and an effective mix of investment options, including socially responsible (sustainable) investments.
CONTRIBUTIONS Contributions to current and new participant accounts in 2010 totaled $26.8 million. The strong increase in contributions is attributed to effective marketing and community outreach efforts within the District of Columbia, excellent results from our direct mail campaign, and growing consumer confidence in an economic recovery.
ENROLLMENT The total number of District of Columbia residents and non-residents enrolled in the Plan grew by 10.2% to
Assets
For Years Ending September 30
$150
In Millions
In Millions
$120
$60 $30 $0
2008
2009
2010
The DC College Savings Plan’s marketing and community outreach efforts continue to focus awareness on the affordability of higher education for anyone, regardless of socioeconomic background. This message is being heard by District residents. Ward 8, the ward with the lowest per capita income in the city, had the highest percentage of growth in assets during the fiscal year ending September 30, 2010. The value of DC College Savings Plan assets held by Ward 8 residents increased 31% in 2010 compared to a 19% increase in FY 2009, while the number of participants increased by 20%.
contributions
For Years Ending September 30
$90
ACCESS
enrollment
For Years Ending September 30
$30
12,000
$25
10,000
$20
8,000
$15
6,000
$10
4,000
$5
2,000
$0
2008
2009
2010
0
2008
2009
2010
PAGE 1
Sowing Seeds in the District Community outreach always has been an essential element of the DC College Savings Plan. During the past four years, Laurent Ross, the Plan’s Program Manager, has worked with parents and educators at the Washington Jesuit Academy, discussing the importance of saving and the ways in which the Plan can increase the affordability of higher education for D.C. families. Washington Jesuit Academy (WJA) is a special place. It is a tuition-free, Catholic middle school that provides academicallytalented adolescent boys from low-income families of any denomination with a disciplined, rigorous learning environment. Students attend school 12 hours a day, 11 months of the year. They adhere to a highly-structured schedule that allows time for academics, recreational and sports activities, and homework. The school also provides breakfast, lunch, and dinner. During its first 10 years in operation, the Academy’s success has been impressive. One hundred percent of its alumni have graduated from high school; 80% currently attend college.
PAGE 2
At the Academy, parents, educators, and partners, like Mr. Ross, develop powerful relationships that support the current and future success of WJA’s students. Mr. Ross was introduced to the Academy by Merry Cavanaugh, the school’s Director of Development. The two met through Kids2College, a program that paired sixth grade students from low-income families with representatives from local colleges, to foster interest in attending college. Mr. Ross partnered with Kids2College to raise awareness of the Plan, its benefits, and the importance of higher education. Recognizing the value of the information he provided, and its relevance for parents of Academy students, Ms. Cavanaugh introduced Mr. Ross to Valentine Davies, Washington Jesuit Academy’s Graduate Support Director. “Our program is an ideal incubator for the DC College Savings Plan,” observes Mr. Davies, “Every year presents a new opportunity to educate a group of eager and anxious parents and students on effective strategies for
success in high school and beyond. Through his presentations, Laurent [Ross] has provided learning guideposts that students and parents use to become better prepared financially for post-secondary opportunities. Our community is aware of the sacrifices that must be made to lessen the financial burden of paying for college.”
Tilling fertile ground: Empowering parents and students Laurent Ross teaches a class on personal finance at the school’s Saturday Leadership Academy, which is attended by both parents and students. “The goal of the Saturday class is to give people a new way to think about the realities of goal setting and problem solving,” says Mr. Ross. During class, he introduces the idea of SMART goals. SMART stands for Specific, Measurable, Attainable, Realistic, and Timely. Mr. Ross emphasizes that SMART goals are more likely to be accomplished than general goals. Theresa Okon, a single mother and Academy parent, says, “Laurent gives us a reality check… I may think twelfth grade is far away, but it’s knocking at the door. When the time comes, I don’t want to be saying: shoulda, coulda, woulda.” Mr. Ross also speaks at parent meetings several times each year. These meetings provide an opportunity to discuss planning and saving for college, and to address concerns about affordability and timing. “I emphasize that there is a lot of aid available for DC children,” said Mr. Ross. “And explain that parents should save for college, not just because college is expensive, but also because it gives children the message that their parents
believe in them. Even if they don’t save a large amount, it changes a child’s mindset and focuses them on college.” At the meetings, Mr. Ross emphasizes that it is never too late to start saving, because every dollar put away can help make college more affordable. He also describes the tax breaks parents receive each year that they save in the DC College Savings Plan, including the years when their children are in college.
Shedding light on additional college financing resources While educating parents about the benefits of the DC College Savings Plan, Mr. Ross describes other resources and funding mechanisms that are available to help D.C. residents pay for college. These include the DC Tuition Assistance Grant Program (DCTAG) which provides grants to residents who attend public or private colleges and universities outside of the District. When qualifying students attend a state school, the program pays the difference between in-state and out-of-state tuition. It also will pay $2,500 a year toward tuition at private, historically-black colleges and universities nationwide, or at private colleges and universities in the D.C. metropolitan area. The information that Mr. Ross and the Academy provide about vehicles for funding college is invaluable, according to Diane Powell, whose son is in his first year of college. She comments, “I encourage all parents to start saving. The cost of college is such a shock. Websites show the cost of tuition, but add housing, food, parking, lab fees, and books… It’s incredibly expensive.” Ms. Powell encourages parents to go into financial aid offices and
“Parents should save for college, not just because college is expensive, but because it gives children the message that their parents believe in them.” – Laurent Ross ask about the types of assistance that may be available. “Even if parents don’t think they’ll qualify for a grant or loan, they should ask,” she said. “I was amazed at how much scholarship money was available.”
BUILDING a BRIGHT future “Anyone in the education field, especially in the K-12 sector, knows the importance of sowing the seed,” notes Mr. Davies. “You don’t see the fruits of your labor while the students are with you, but our job is vital for the future success of our students and families.” Through its community outreach efforts, the DC College Savings Plan supports the work of educators and students throughout the District as they seek to build a bright future. If you would like to learn more about the DC College Savings Plan, visit our Web site at www. dccollegesavings.com. Learn more about the Academy at www.wjacademy.org. n
For more information on the DC College Savings Plan, please call Calvert at 800.368.2750. An investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. The District of Columbia College Savings Trust Program Disclosure Booklet contains this and other information. Read it carefully before you invest or send money. An investor should also consider, before investing, whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s 529 college savings plan. The Government of the District of Columbia does not guarantee investments in the program. Investment involves risk, including possible loss of principal. The DC College Savings Plan is underwritten and distributed by Calvert Distributors, Inc., member FINRA/SIPC, a subsidiary of Calvert Group, Ltd.
PAGE 3
Description of investment strategies The DC College Savings Plan Program is designed to offer various alternatives to meet the risk tolerance and investment objective of most investors. You may choose one or any combination of the following three types of investment strategies: 1. the Age-Based Portfolio Strategy, which adjusts the relative risk of the investments to the Beneficiary’s age; 2. the Single-Fund Investment Strategy, in which each Investment Option invests in a single underlying mutual fund; or 3. the Stability of Principal Strategy, which provides for a guarantee of principal and a minimum contractual annual interest rate of 3.0% to the DC College Savings Program Trust. Within the Age-Based Portfolio Strategy there are five age bands available for those who wish the asset allocation of their investment to change as the Beneficiary ages, from greater stock exposure in the early years to mostly fixed-income and a funding agreement in the later years. In the Single-Fund Investment Strategy, there are six Single-Fund Investment Options for those who wish to choose from one or more Single-Fund Investment Options. The Stability of Principal Strategy provides an option for those whose primary investment objective is the protection of the principal they invest.
PAGE 4
1. Age-Based Portfolio Strategy The five age bands within the Age-Based Portfolio adjust the relative risk of the investments to the Beneficiary’s time horizon to attend an Eligible Institution. The age band will automatically change as the Beneficiary approaches college age. Using this strategy enables you to have greater equity exposure early on and less equity exposure as the Beneficiary nears college. In this regard, the strategy allows exposure to the growth opportunities (and volatility) of stocks when the Beneficiary is younger, while concentrating more on conserving principal as the Beneficiary approaches college age. (In general, stocks offer a potentially greater reward than other investments, but they also carry greater risk and volatility.) Each age band seeks to achieve its investment objective by investing in a
combination of mutual funds and a funding agreement (See “Stability of Principal Investment Strategy” below for a description of the funding agreement). Each of the five age bands primarily seeks total return with capital appreciation or income, consistent with the dates of birth of the Beneficiaries for which they were designed. Of course, you may choose any of these age bands as you deem appropriate, regardless of the Beneficiary’s age. (However, if you choose to invest in an age band that is lower than the Beneficiary’s actual age, no automatic movement to a different age band will occur as the Beneficiary’s age changes.) For each of the five age bands, the Program allocates each age band’s assets among mutual funds and a funding agreement according to a target asset allocation strategy that becomes increasingly conservative over time. The target asset allocation for each of the five age bands is designed to provide an approach to asset allocation that is neither overly aggressive nor overly conservative, changing from greater stock exposure in the early years to mostly fixed-income and a funding agreement in the later years as the Beneficiary’s time horizon to attend an Eligible Institution shortens. Thus, the Beneficiary is better able to protect capital and reduce market risk before making withdrawals for college expenses. In general, each of these five age bands is managed according to its target asset allocation strategy, and does not intend to trade actively among the investment products or attempt to capture short-term market opportunities. The ability of each of the age bands to meet its investment objective is directly related to its target asset allocation among the investment products and the ability of those investment products to in turn meet their own investment objectives. The Age-Based Portfolio Strategy entails investment in a mix of equity funds, fixed-income funds, and cash (a funding agreement through investment in Acacia Principal Plus). The portfolios adjust over time so that the closer the Beneficiary is to school age, the more conservative (less risky) the investment allocation becomes. This strategy
aims to create growth potential in the early years and to diminish fluctuations in the account as college approaches. Thus, the DC College Savings 0 – 5 age band, the most aggressive age band, is for an age group where the Beneficiary is more willing to accept higher risk in order to obtain the potential for a higher return, while the DC College Savings 17 & Up age band, the most conservative age band, is for an age group where the Beneficiary is more willing to sacrifice the potential
for larger returns in exchange for less risk and greater stability of principal — the three age bands in between have risk/reward trade-offs in between these two age bands, with risk and volatility (and potential reward) decreasing as the Beneficiary approaches school age. The Underlying Investments and the respective allocations in the age bands of the Age-Based Portfolio Strategy are shown in the table on the below.
Age-Based Portfolio Strategy Underlying Investments CAsh beneficiary’s age
U.S. Large Cap Equity
U.S. MIDCap Equity
U.S. small cap equity
NON-U.S. equity
BONDS
(Funding Agreement)
DC College Savings 0 – 5
50%
6%
9%
25%
10%
0%
DC College Savings 6 – 10
45%
5%
6%
25%
19%
0%
DC College Savings 11 – 13
39%
5%
4%
17%
35%
0%
DC College Savings 14 – 16
18%
4%
0%
8%
40%
30%
DC College Savings 17 & up
7%
0%
0%
6%
31%
56%
US Large Cap Equity: Calvert Social Index Fund — Class A
US Small Cap Equity: Calvert Small Cap Value Fund — Class A
US Mid Cap Equity: Calvert Capital Accumulation Fund — Class A
Non-US Equity: Calvert World Values International Equity Fund — Class A
Bonds: Calvert Social Investment Fund (“CSIF”) Bond Portfolio — Class A Cash (Funding Agreement): Acacia Principal Plus
2. Single-Fund Investment Strategy* There are six Single-Fund Investment Options, each of which invests in a single underlying mutual fund that focuses on a single investment strategy or asset class. Depending on its investment objective, the Underlying Investment may strive to maximize capital appreciation or to generate income and preserve principal. In general, stocks offer a potentially greater reward than
other investments, but they also carry greater risk and volatility. Hence, an appropriate allocation of the six different Single-Fund Investment Options will depend on the investment goals and risk tolerance of the Account Owner and the time horizon of the Beneficiary to attend an Eligible Institution.
Asset Class
Investment Option
Underlying Investment
Bonds
Calvert Income Fund — DC 529
Calvert Income Fund — Class A
Balanced
Calvert Balanced Portfolio — DC 529
CSIF Balanced Portfolio — Class A
US Large Cap Equity
Calvert Equity Fund — DC 529 State Street Equity 500 Index Fund — DC 529
CSIF Equity Portfolio — Class A State Street Equity 500 Index Fund— Service Class
US Small Cap Equity
Calvert Small Cap Value Fund — DC 529
Calvert Small Cap Value Fund —Class A
Non-US Equity
Calvert World Values International Equity Fund — DC 529 Calvert World Values International Equity Fund — Class A
PAGE 5
3. stability of principal investment Strategy (Funding Agreement through Acacia Principal Plus) This option focuses on protecting the principal you invest. It is the most conservative Investment Option and provides for a guarantee of principal and a minimum contractual interest rate of 3.0% to the Trust. The DC College Savings Plan allocates your contributions under this Investment Option to a funding agreement (“Funding Agreement”) issued by Acacia Life Insurance Company (“Acacia Life”). The Funding Agreement is a contract that provides the Trust with a guaranteed return of principal and an annualized minimum rate of return of 3%, minus any premium tax, if applicable, and
the opportunity for additional interest. On a quarterly basis Acacia Life will declare the rate it will pay under the Funding Agreement for the subsequent quarter, including any return in excess of the minimum annual guarantee of 3% to the Trust. Acacia Life will establish the quarterly rate using the experience of a reference portfolio within its general account. The reference portfolio shall primarily consist of investment grade fixed-income securities having a shortto-intermediate duration. See the DC College Savings Plan Program Disclosure Booklet for additional information.
Description of investment options
PAGE 6
Set forth below are descriptions of each of the Underlying Investments. Prospectuses for the Calvert funds are available upon request by visiting www. calvert.com or calling Calvert at 800.368.2745. The AgeBased Portfolios are not registered under the Investment Company Act of 1940. To obtain a prospectus for the State Street Equity 500 Index Fund, call 800.647.7327 or visit www.ssga.com. More information is also available at www.dccollegesavings.com.
investment approach in order to seek profit from changing market conditions.
Calvert Income Fund
Calvert Social Investment Fund Bond Portfolio
Advisor: Calvert Asset Management Company, Inc. (CAMCO)
The Fund typically invests at least 65% of its assets in investment-grade debt securities (rated BBB or above). The Fund may invest up to 35% of its net assets in below-investment-grade bonds. These securities are subject to greater credit risk than investmentgrade bonds.
Advisor: Calvert Asset Management Company, Inc. Calvert Income Fund seeks to maximize income, to the extent consistent with prudent investment management and preservation of capital, through investment in bonds and other income-producing securities. The benchmark for this Fund is the Barclays Capital U.S. Credit Index. The Fund uses an active strategy, seeking relative value to earn incremental income. CAMCO conducts in-depth credit analysis to identify bonds with attractive priceappreciation potential and specializes in uncovering issues with complex and unusual structures. The relative-value approach is used for the core, longer-term holdings as well as the more actively traded non-core positions. The investment team maintains a flexible
The Fund seeks to provide as high a level of current income as is consistent with prudent investment risk and preservation of capital through investment in bonds and other debt securities while meeting the Fund’s investment and social criteria. The benchmark for this Fund is the Barclays Capital U.S. Credit Index. The Fund uses an active strategy, seeking relative value to earn incremental income. Under normal circumstances, the Fund invests at least 80% of its net assets (including borrowings for investment purposes) in fixed income securities. At least 65% of the Fund’s net assets will be invested in investment grade debt securities rated A or above. A debt security is investment
grade when assigned a credit quality rating of BBB or higher by Standard & Poor’s (“S&P”) or an equivalent rating by a nationally recognized statistical rating organization (‘‘NRSRO”), including Moody’s Investors Service or Fitch Ratings, or if unrated, considered to be of comparable credit quality by the Fund’s Advisor. The Fund may invest up to 35% of its net assets in below-investment grade, high-yield debt securities (commonly known as “junk bonds”), including bonds rated in default. A debt security is below investment grade when assigned a credit quality rating below BBB by Standard & Poor’s or an equivalent rating by an NRSRO, or if unrated, considered to be of comparable credit quality by the Fund’s Advisor. The Fund seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges. Calvert believes that there are long-term benefits in an investment philosophy that attaches material weight to the environment, workplace relations, human rights, indigenous peoples’ rights, community relations, product safety and impact, and corporate governance and business ethics. Calvert also believes that managing risks and opportunities related to these issues can contribute positively to company as well as investment performance.
Calvert Social Investment Fund Balanced Portfolio Advisor: Calvert Asset Management Company, Inc. Sub-Advisor: New Amsterdam Partners, LLC
stock in large-cap companies, while the fixed-income investments are primarily a wide variety of investment grade securities, including corporate debt securities, mortgage-backed securities and asset-backed securities. The Fund invests in a combination of stocks, bonds and money market instruments in an attempt to provide a complete investment portfolio in a single product. The Advisor rebalances the portfolio quarterly to adjust for changes in market value. The Fund seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges. Calvert believes that there are long-term benefits in an investment philosophy that attaches material weight to the environment, workplace relations, human rights, indigenous peoples’ rights, community relations, product safety and impact, and corporate governance and business ethics. Calvert also believes that managing risks and opportunities related to these issues can contribute positively to company as well as investment performance.
Calvert Social Index Fund Advisor: Calvert Asset Management Company, Inc. Sub-Advisor: World Asset Management, Inc. Calvert Social Index Fund seeks to match the performance of the Calvert Social Index®, which measures the investment return of large- and mid-capitalization stocks.
The Fund seeks to achieve a competitive total return through an actively managed portfolio of stocks, bonds, and money market instruments which offer income and capital growth opportunity and which satisfy the investment and social criteria. The benchmark for this Fund is the Balanced Composite Index, which is composed of 60% Russell 1000 Index and 40% Barclays Capital U.S. Credit Index.
The Fund employs a passive management strategy designed to track, as closely as possible, the performance of the Calvert Social Index. The Fund uses a replication index method, investing in the common stock of each company in the Index in about the same proportion as represented in the Index itself. Under normal circumstances, the Fund will invest at least 95% of its net assets (including borrowings for investment purposes) in securities contained in the Index.
The Fund typically invests about 60% of its net assets in stocks and 40% in bonds or other fixed-income investments. Stock investments are primarily common
The Calvert Social Index measures the performance of those companies that meet the social investment criteria selected from the universe of approximately
PAGE 7
the 1,000 largest U.S. companies, based on total market capitalization, included in the Dow Jones Total Market Index (the “Dow Jones TMI”). The Dow Jones TMI represents the top 95% of U.S. companies based on float-adjusted market capitalization, excluding the very smallest and least-liquid stocks. The Index is reconstituted once a year based on an updated list of the 1,000 largest U.S. companies. The Index is also reviewed quarterly to adjust for social criteria and other factors.
State Street Equity 500 Index Fund Advisor: SSgA Funds Management, Inc. State Street Equity 500 Index Fund seeks to match as closely as possible, before expenses, the performance of the S&P 500 Index. The S&P 500 Index is a well-known stock market index that includes common stocks of 500 companies from several industrial sectors representing a significant portion of the market value of all stocks publicly traded in the United States. The Advisor seeks a correlation of 0.95 or better between the Fund’s performance and the performance of the Index (1.00 would represent perfect correlation).
PAGE 8
The Fund intends to invest in all 500 stocks that compose the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practical to purchase all 500 stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by the Advisor to match generally the performance of the S&P 500 Index as a whole. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the S&P 500 Index, in anticipation of their removal from or addition to the Index. In addition, the Fund may at times purchase or sell futures contracts in the S&P 500 Index or options on those futures in lieu of investments directly in stocks making up the S&P 500 Index.
Calvert Social Investment Fund Equity Portfolio Advisor: Calvert Asset Management Company, Inc. Sub-Advisor: Atlanta Capital Management Company, LLC CSIF Equity Portfolio seeks growth of capital through investment in stocks of issuers in industries believed to offer opportunities for potential capital appreciation and which meet the Fund’s investment and social criteria. The benchmark for this Fund is the S&P 500. The Fund invests primarily in the common stocks of U.S. large cap companies, although it may have other investments, including foreign stocks and mid-cap stocks. Under normal circumstances, the Fund seeks to have a weighted average market capitalization of at least $20 billion. Investment returns will be mostly from changes in the price of the Fund’s holdings (capital appreciation). The Sub-Advisor looks for growing companies with a history of steady earnings growth. Companies are selected based on the Sub-Advisor’s opinion that the company has the ability to sustain growth through growing profitability and that the stock is favorably priced with respect to those growth expectations. The Fund seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges. Investments for the Fund are first selected for financial soundness and then evaluated according to the Fund’s social criteria.
Calvert Capital Accumulation Fund Advisor: Calvert Asset Management Company, Inc. Sub-Advisor: New Amsterdam Partners, LLC The Calvert Capital Accumulation Fund seeks to provide long-term capital appreciation by investing primarily in mid-cap stocks that meet the Fund’s investment and social criteria. The benchmark for this Fund is the Russell Midcap Growth Index.
Investments are primarily in the common stocks of midsize U.S. companies. Returns in the Fund will be mostly from the changes in the price of the Fund’s holdings (capital appreciation). The Fund currently defines mid-cap companies as those whose market capitalization falls within the range of the Russell Midcap Growth Index. Stocks chosen for the Fund combine growth and value characteristics or offer the opportunity to buy growth at a reasonable price. The Subadvisor favors companies which have an above market average prospective growth rate, but sell at below market average valuations. The Fund seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges. Calvert believes that there are long-term benefits in an investment philosophy that attaches material weight to the environment, workplace relations, human rights, indigenous peoples’ rights, community relations, product safety and impact, and corporate governance and business ethics. Calvert also believes that managing risks and opportunities related to these issues can contribute positively to company as well as investment performance.
Calvert Small Cap Value Fund Advisor: Calvert Asset Management Company Inc. Calvert Small Cap Value seeks to provide long-term capital appreciation primarily through investment in small company U.S. common stocks that are trading at prices below what are believed to be their intrinsic value. The Fund will offer opportunities for long-term capital appreciation with a moderate degree of risk through a mix of smaller company stocks that meet the Fund’s investment and social criteria. Under normal circumstances, at least 80% of the Fund’s net assets will be invested in the common stocks of small companies. Calvert quantifies small companies as having a market capitalization of $3 billion or less at the time of initial purchase.
The Fund seeks to identify the common stocks of undervalued companies with long-term growth potential. Returns in the Fund will mostly be from the changes in the price of the Fund’s holdings (capital appreciation). Generally, the Advisor sells when a stock’s target price is reached, when the issuer or industry suffers negative changes, or when there is a change in the investment criteria that prompted the initial purchase. The Fund seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges. Investments for the Fund are first selected for financial soundness and then evaluated according to the Fund’s social criteria. The Fund uses the Russell 2000 Value Index as a benchmark for measuring its performance.
Calvert World Values International Equity Fund Advisor: Calvert Asset Management Company, Inc. Sub-Advisor: Martin Currie, Inc. and Thornburg Investment Management Calvert World Values International Equity Fund seeks to provide a high total return consistent with reasonable risk by investing primarily in a diversified portfolio of stocks that meet the Fund’s investment and social criteria. Using a core investment approach, the Fund invests primarily in common and preferred stocks of non-U.S. large-cap companies. The Fund will generally hold stocks of companies from the constituent countries of the MSCI EAFE Global Investable Markets Index (IMI), but may opportunistically invest in other countries, including emerging market stocks. The Advisor and the Subadvisors focus on deriving returns from individual stock selection. The Advisor and the Subadvisors utilize fundamental insights arrived at through qualitative and quantitative analysis of a broad range of non-U.S. securities to identify stocks expected to continued on page 18 >>>
PAGE 9
performance summary of investment options* (as of 9/30/10)
30-Day Si Asset Class/Fund Name Yield◆ YTD 1-Yr 3-YR 5-YR Stability of Principal strategy Acacia Principal Plus (No Sales Charge) Merrill Lynch 90-Day U.S. Treasury plus 100 basis points** average five year u.s. government treasury
3.41% N/A 1.43%
2.53% 0.94%
3.40% 1.24%
3.85% 2.24%
3.84% 3.69%
DC College savings 0 – 5 (4.75% Sales Charge) Benchmark 1***
4.19% 4.58%
7.80% 9.12%
-5.84% -5.72%
0.92% 1.87%
DC College savings 6 – 10 (4.75% Sales Charge) Benchmark 2***
4.36% 4.71%
7.58% 8.77%
-5.28% -4.53%
1.04% 2.32%
DC College savings 11 – 13 (4.75% Sales Charge) Benchmark 3***
4.97% 5.45%
8.01% 8.90%
-2.50% -2.10%
2.18% 3.04%
DC College savings 14 – 16 (3.75% Sales Charge) Benchmark 4***
5.02% 4.71%
6.95% 6.49%
0.74% 1.47%
3.24% 4.01%
DC College savings 17 & Up (2.75% Sales Charge) Benchmark 5***
4.13% 3.35%
5.22% 4.16%
2.00% 2.51%
3.40% 4.18%
6.70% 7.94%
7.92% 8.16%
3.49% 7.42%
3.80% 6.20%
5.18% 5.51%
9.02% n/a n/a 9.36% n/a n/a
Age-Based portfolio strategy
single-fund investment strategy Fixed Income Calvert Income Fund — DC 529 (3.75% Sales Charge) barclays capital Aggregate Bond Index TR*** Balanced calvert social balanced — DC 529 (4.75% Sales Charge) 60% S&P 500 IX Dividend Reinvested, 40% Lehman Aggregate Bond IX TR*** PAGE 10
Equity State Street Equity 500 Index fund — DC 529 (4.75% Sales Charge) S&P 500 Index Dividend Reinvested***
3.56% 3.89%
9.67% 10.16%
-7.48% -7.16%
0.24% 0.64%
calvert equity fund — DC 529 (4.75% Sales Charge) S&P 500 Index Dividend Reinvested***
6.54% 3.89%
11.26% 10.16%
-3.02% -7.16%
2.25% 0.64%
Calvert small cap value fund — DC 529 (4.75% Sales Charge) Russell 2000 value Index***
7.09% 7.92%
9.76% 11.84%
-6.53% -4.99%
-0.96% 0.73%
Calvert world values international equity — DC 529 (4.75% Sales Charge) MSCI EAFE Index***
2.27% 1.46%
0.91% n/a n/a 3.71% n/a n/a
The performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance data quoted. Visit www.dccollegesavings.com to obtain performance data current to the most recent month-end. Performance numbers are revised monthly.
Since Inception†
Inception Date
Annualized
3.81% 3.32%
10/31/02
Performance data does not reflect the deduction of the maximum sales charge; if reflected, the sales charge would reduce the performance quoted. *An account owner who is a resident of the District of Columbia who purchases shares directly from Calvert, or an account owner who contributes through payroll deduction from a company with 300 or more employees, pays no sales charge. An account owner who purchases shares with the assistance of a financial professional, or a non-D.C. resident who purchases directly from Calvert, pays a sales charge. A D.C. resident must pay an annual account maintenance fee of $15, while a non-D.C. resident pays an annual account maintenance fee of $30. **The Merrill Lynch 3-Month U.S. Treasury Bill Index is composed of a single 90-Day Treasury bill issue, or potentially a seasoned 6-month or 1-year Treasury bill issue, that is replaced on a monthly basis. To provide an appropriate benchmark for the Acacia Principal Plus, 100 basis points per annum have been added to the return of the Index.
5.18% 7.07%
10/31/02
5.12% 6.93%
10/31/02
5.42% 6.51%
10/31/02
5.42% 5.32%
10/31/02
4.45% 4.52%
10/31/02
***It is not possible to invest directly in an index. † Average annual return since inception ◆ The yield stated for Acacia Principal Plus DC 529 investment account is an effective yield and assumes reinvestment of all income earned on principal distributions. The Acacia Principal Plus Account provides important guarantees of principal and interest. All contributions invested under this option are guaranteed to the Trust against principal loss as long as they remain invested in the Account. The guarantees are supported by the general account of Acacia Life Insurance Company. It is not anticipated that investors in the option will experience a loss of principal while invested in this Account, but the return from income is expected to fluctuate with longer-term, fixed-income securities.
Age-Based Portfolios Benchmark Descriptions 1. 50% S&P 500 IX Div Rein., 6% Russell MidCap Growth IX, 9% Russell 2000 IX, 25% MSCI EAFE IX, 10% Barclays Capital Aggregate Bond IX 2. 45% S&P 500 IX Div Rein., 5% Russell MidCap Growth IX, 6% Russell 2000 IX, 25% MSCI EAFE IX, 19% Barclays Capital Aggregate Bond IX
5.61% 5.47%
10/31/02
3. 39% S&P 500 IX Div Rein., 5% Russell MidCap Growth IX, 4% Russell 2000 IX, 17% MSCI EAFE IX, 35% Barclays Capital Aggregate Bond IX 4. 18% S&P 500 IX Div Rein., 4% Russell MidCap Growth, 8% MSCI EAFE IX, 40% Barclays Capital Aggregate Bond IX, 30% Merrill Lynch 90 Day U.S. Treasury Index plus 100 basis points
4.23% 9/30/08 4.50%
3.63% 4.07%
7/31/03
5.43% 5.33%
10/31/02
-1.20% 0.16%
7/31/05
-2.92% 3.75%
9/30/08
5. 7% S&P 500 IX Div Rein., 6% MSCI EAFE IX, 31% Barclays Capital Aggregate Bond IX, 56% Merrill Lynch 90 Day U.S. Treasury Index plus 100 basis points Prior to August 2005, the small-cap component of the Age-Based Portfolio’s benchmark was allocated entirely to the Russell 2000 Index, equaling 10%, 7% and 6% of the 0-5, 6-10, and 11-13 Age-Based Portfolios, respectively. Beginning August 1, 2005, the small-cap allocation for the Age-Based Portfolios benchmark was split evenly between the Russell 2000 Index and the Russell 2000 Value Index, as indicated below: Benchmark Russell 2000 Index Age-Based Portfolio 0 – 5 5.0% Age-Based Portfolio 6 – 10 3.5% Age-Based Portfolio 11 – 13 3.0%
Russell 2000 Value 5.0% 3.5% 3.0%
PAGE 11
financial summary (Plan Assets as of 9/30/10)
31-oct-09
30-nov-09
31-Dec-09
31-Jan-10
9,500,608
9,668,350
10,593,886
11,058,841
0-5 Age-Based
18,895,138
18,971,334
21,027,805
21,056,108
6-10 Age-Based
22,011,246
23,323,381
24,475,308
24,137,906
11-13 Age-Based
10,690,164
10,878,915
11,464,169
11,411,628
14-16 Age-Based
9,277,594
9,504,674
9,794,813
9,934,139
17+ Age-Based
7,896,900
8,741,442
8,654,109
8,502,917
68,771,042
71,419,746
75,416,204
75,042,698
3,754,127
3,782,428
3,877,133
4,101,472
4,791,082
4,941,255
4,821,901
4,670,594
stability of principal strategy Acacia Principal Plus Age-Based portfolio strategy
Subtotal Age-Based single-fund investment strategy Fixed Income Calvert Income — DC 529 Balanced Calvert Balanced — DC 529 Equity SSgA 500 Index Equity — DC 529
16,798,055
17,885,574
19,201,360
18,992,615
CSIF Equity — DC 529
10,815,236
11,364,752
11,779,134
11,595,208
2,595,962
2,635,296
2,855,787
2,852,606
223,409
285,359
368,917
392,164
Calvert Small Cap Value — DC 529 Calvert World Values International Equity — DC 529 Total Program Assets
PAGE 12
$117,249,521 $121,982,760 $128,914,322 $128,706,198
total assets by year and month ($ millions) FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 October
15.4
32.7
51.9
75.6
104.7
88.7
117.2
November
0.4
-
16.3
34.8
54.4
77.9
102.3
84.7
122.0
December
3.6
20.2
39.9
58.2
81.7
106.5
90.5
128.9
January
6.5
23.2
41.7
63.0
86.9
104.1
87.7
128.7
February
7.0
24.4
44.0
64.1
87.7
103.9
83.1
132.7
March
7.9
25.9
44.7
66.0
89.6
104.7
89.0
139.7
April
8.9
26.5
44.7
67.8
92.9
109.4
97.1
143.6
May
10.2
27.7
46.8
66.9
96.0
112.2
101.6
137.1
June
11.5
29.3
48.1
68.2
96.6
108.1
103.6
134.2
July
12.2
29.0
50.2
68.5
95.2
107.4
109.8
140.6
August
13.1
30.1
50.5
70.6
97.3
108.6
113.1
136.2
September
13.8
31.2
51.5
72.5
101.2
101.8
117.9
146.0
28-Feb-10
31-Mar-10
30-Apr-10
31-May-10
30-Jun-10
31-Jul-10
31-Aug-10
30-Sep-10
11,294,905
11,477,391
11,876,257
11,954,295
12,328,819
12,251,047
12,311,706
12,628,624
20,381,707
22,040,702
22,783,058
20,073,797
19,664,230
21,229,389
19,073,574
21,075,520
25,549,946
27,087,027
27,686,152
26,482,812
25,659,244
27,262,926
26,772,939
29,082,984
11,943,534
12,686,808
13,002,527
12,341,088
12,065,471
12,636,026
12,339,542
13,330,501
10,012,922
10,309,174
10,580,349
11,042,928
11,074,843
11,356,735
11,379,280
11,782,188
9,400,158
9,455,870
9,533,833
10,008,509
9,955,515
9,780,600
9,995,877
10,011,629
77,288,267
81,579,581
83,585,919
79,949,134
78,419,303
82,265,676
79,561,212
85,282,822
4,123,451
4,163,493
4,266,262
4,304,285
4,350,653
4,408,333
4,500,555
4,516,336
4,831,512
5,037,333
5,149,141
5,028,499
4,907,586
5,047,183
4,894,300
5,191,911
19,644,950
20,927,406
21,568,738
19,945,120
19,130,517
20,494,330
19,639,056
21,453,680
12,025,550
12,810,298
13,229,433
12,264,904
11,616,071
12,347,288
11,826,512
13,145,256
3,068,780
3,299,245
3,497,428
3,218,950
3,004,018
3,215,957
2,932,601
3,245,202
407,201
440,273
459,249
441,603
470,779
532,445
521,748
577,999
$132,684,616 $139,735,020 $143,632,427 $137,106,790 $134,227,746 $140,562,259 $136,187,690 $146,041,830
PAGE 13 $146.0 $117.9
$136.2 $101.8
$113.1
$108.6
$140.6 $109.8
$107.4
$108.1
$103.6
$134.2
$137.1 $101.6
$112.2
$143.6 $97.1
$139.7 $109.4
$104.7
$89.0
$132.7 $83.1
$128.7
$80
$103.9
$87.7
$128.9
$106.5
$90.5
$122.0
$102.3
$84.7
$100
$117.2
$120
$88.7
$140
$104.7
$160
$104.1
monthly total Assets Year-over-Year Comparison ($ millions)
$60 $40 $20 $0
Oct.
Nov.
Dec.
Jan.
Feb.
2008 Monthly Total Assets
Mar.
Apr.
2009 Monthly Total Assets
May
June
July
2010 Monthly Total Assets
Aug.
Sep.
Monthly Contributions* Year-over-Year Comparison ($ millions as of 9/30/10)
$6.3
*Contributions are net of commissions, loads paid by Plan participants, and exchanges from one fund within the Plan to another.
$5.3 $5.1
$6
$3.5 $3.4 $3.7
$5 $4
$1 $0
Dec.
Jan.
Fiscal Year 2008 Monthly Contributions
Apr.
May
June
Fiscal Year 2009 Monthly Contributions
July
$1.6 $1.6 $1.6
$1.0 $1.3 $1.3
$1.5 $1.4 $1.3
$2.0 $1.5 $1.5
$1.2 $1.4 $1.8
Mar.
$2.2
Feb.
$1.3 $1.3
Nov.
$1.6 $1.2 $1.8
Oct.
$1.6 $1.3 $1.7
$1.6 $1.6 $1.8
$2
$1.7 $1.6 $1.5
$3
Aug.
Sep.
Fiscal Year 2010 Monthly Contributions
Monthly Distributions* Year-over-Year Comparison ($ thousands as of 9/30/10)
$0
Oct.
Nov.
Dec.
Jan.
Fiscal Year 2008 Monthly Distributions
May
Fiscal Year 2009 Monthly Distributions
June
July
$523.2 $447.6 $472.0
$716.4
$208.3 $396.5 $377.2
$488.8 $367.8
$181.3
$381.6
Apr.
$1,041.2
$1,041.9 $1,123.3
Mar.
$424.9
$539.7
$749.7
Feb.
$156.9
$200
$222.7 $207.9
$400
$202.7
$600
$410.8 $260.5
$800
$397.7 $375.5 $539.0
$1,000
$296.7 $436.4 $406.6
$1,200
$741.1 $938.7
$1,400
$774.8 $613.6 $932.4
$1,401.1
$1,600
PAGE 14
$1,536.3
*Distributions are net of exchanges from one fund within the Plan to another.
Aug.
Fiscal Year 2010 Monthly Distributions
Sep.
sponsor profile: Office of Finance and Treasury The D.C. Chief Financial Officer (CFO) is responsible for the implementation and administration of the D.C. College Savings Act of 2002, D.C. Law 13-212, approved March 31, 2001, as amended by the College Savings Program Act of 2002, D.C. Law 14-307, approved June 5, 2003. Pursuant to D.C. Regulations, 49 DCR 9859, November 1, 2002, made final at D.C. Mun. Regs, tit. 9, sec. 155 (2004), the CFO entered into a Declaration of Trust, establishing the DC College Savings Program Trust, an instrumentality of the District of Columbia. In addition, pursuant thereto, the CFO or the Treasurer, as designated by the CFO, shall serve as the fiduciary and Trustee of the District of Columbia College Savings Program Trust.
The CFO or the Treasurer, as designee of the CFO, is responsible for selecting a qualified financial institution as the program manager to administer the Program. In addition, the CFO or the Treasurer, as designee of the CFO, is responsible for approving the selection of the Underlying Investments in the Trust. The CFO or the Treasurer of the District of Columbia, as designee of the CFO, is responsible for the administration of the Program. The CFO or the Treasurer of the District of Columbia, as designee of the CFO, shall receive advice regarding the Program from the DC College Savings Plan Advisory Board, which shall meet periodically and at least once annually.
program manager Profile: Calvert Asset Management Company, Inc. (CAMCO) Through its extensive operations and customer service resources, Calvert has established an administrative structure for offering, administering, and marketing the Plan. Calvert’s sophisticated systems enable the provision of prompt, efficient customer service and accuracy in maintaining accounts and processing contributions and distributions.
Group Ltd., a UNIFI Company. Calvert sponsors a family of registered mutual funds with more than $14 billion in assets under management as of December 31, 2010. Calvert’s address is 4550 Montgomery Avenue, Bethesda, MD 20814.
RECORDKEEPER FOR THE PLAN CALVERT’S ROLE Calvert Asset Management Company, Inc. is the Program Manager for the Plan. As Program Manager, it is responsible for the Plan’s administration and investment operations. Calvert is subject to supervision by the Trustee, the Government of the District of Columbia. Calvert Distributors, Inc. serves as the distributor of interests in the Plan and is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority (FINRA). Calvert Asset Management Company, Inc. and Calvert Distributors, Inc. are subsidiaries of Calvert
Calvert has chosen Boston Financial Data Services, a subsidiary of State Street Bank and Trust Company, to provide recordkeeping and related services to the Plan.
TENURE AS PROGRAM MANAGER In July 2008 Calvert was selected by the Trustee as Program Manager for a new five-year contract through July 30, 2013. After that time the agreement between the Trustee and Calvert may be continued or terminated (in which case a different program manager may be retained).
PAGE 15
A Message From the advisory board chairman Curtis large Chairman of Advisory Board
What a difference a year makes. While Fiscal Year 2009 began with an unprecedented financial crisis, Fiscal Year 2010 continued the solid growth that the DC College Savings Plan had begun to see at the end of last year. Plan participant contributions of $27 million broke our record for contributions during a fiscal year. These contributions helped us outpace the national average in asset growth. DC College Savings Plan assets rose to $146 million, a 24% increase from the end of Fiscal Year 2009. Nationally, 529 assets grew at a 14% rate during the same period. The number of new participants in the Plan increased by nearly 17%.
Fiscal Year 2010. However, as the economy continues to recover, we expect growth to continue in new accounts as well as participant assets and contributions. The DC College Savings Plan Advisory Board played an active role in designing the new quarterly statements. The new statements are clearer and easier to read, and provide participants with lots of new and useful information. The role of the Advisory Board is to represent the interests of you, the Plan participants. In that role, we review the lineup of funds in the Plan as well as the efforts of the Program managers to market it, both here and out of state. Please let us know if we can be of assistance to you.
Markets were volatile at the end of the fiscal year, so we did see some drop off in the growth rate in new accounts and contributions in the last three months of
Advisory Board Curtis E. Large, Chairman PAGE 16
Virgil C. McDonald, Secretary Dr. Kerri Briggs, D.C. State Superintendent of Education Jack Evans, Chairman, D.C. Council’s Committee on Finance and Revenue Natalie C. Greene Gregory L. Jefferson Pamela Johnson Stacey R. Long, Esq. Dr. Allen L. Sessoms, President, University of the District of Columbia
important information For more information on the DC College Savings Plan, please visit www.dccollegesavings.com, call 800.987.4859 (800.368.2745 for non-District residents), or contact your financial advisor. An investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. The District of Columbia College Savings Trust Program Disclosure Booklet contains this and other information. Read it carefully before you invest or send money. An investor should also consider, before investing, whether the investor’s or designated beneficiary’s home
state offers any state tax or other benefits that are only available for investments in such state’s 529 college savings plan. The Government of the District of Columbia does not guarantee investments in the program. Investment involves risk, including possible loss of principal. The DC College Savings Plan is underwritten and distributed by Calvert Distributors, Inc., member FINRA/ SIPC, a subsidiary of Calvert Group, Ltd.
PAGE 17
DESCRIPTION OF INVESTMENT OPTIONS Continued from page 9 provide returns superior to that of the benchmark. The Advisor attempts to control the portfolio’s risk level and maximize the Fund’s return potential relative to the MSCI EAFE IMI benchmark by balancing the risks and opportunities from each of the Advisor’s or Subadvisor’s portfolios. No more than 5% of the Fund’s net assets will be invested in U.S. companies. The Fund seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges. Investments for the Fund are first selected for financial soundness and then evaluated according to the Fund’s social criteria.
Acacia Principal Plus Advisor: Acacia Life Insurance Company
PAGE 18
The Plan allocates your contributions under this Investment Option to the Funding Agreement issued by Acacia Life Insurance Company (“Acacia Life”). The Funding Agreement is a contract that provides the Trust with a guaranteed return of principal and an annualized minimum rate of return of 3%, minus any premium tax, if applicable, and the opportunity for additional interest. On a quarterly basis, Acacia Life will declare the rate it will pay under the Funding Agreement for the subsequent quarter, including any return in excess of the minimum annual guarantee of 3% to the Trust. The rate
is declared in advance for a period of three months but is not guaranteed for future periods. Neither the Trust nor Acacia Life can predict the amount of any such additional returns under the Funding Agreement. Acacia Life will establish the quarterly rate using the experience of a reference portfolio within its general account. The reference portfolio shall primarily consist of investment-grade fixed-income securities having a short to intermediate duration. Similar to the overall general account of Acacia Life, a majority of these investments are expected to be made in securities such as U.S. Treasuries, mortgage-backed securities, corporate bonds, private placement bonds, and commercial mortgage loans. Acacia Life Insurance Company is a regulated life insurance company domiciled in the District of Columbia. Acacia Life is an affiliate of Calvert. The Funding Agreement is a general obligation of Acacia Life to the Trust. As such, the Funding Agreement provides the guarantee described herein to the Trust for the benefit of the participants who have selected the Stability of Principal Investment Option, but the guarantee is not made directly to the Participants or Beneficiaries. This guarantee to the Trust forms the basis of returns that are credited to Accounts invested in the Stability of Principal Investment Option. In addition, neither the Stability of Principal Investment Option nor any account invested in this Investment Option is guaranteed by the District of Columbia, the Trustee, the Program Manager, or any other person or entity. The Funding Agreement is issued to the Trust and is not guaranteed or insured by any person other than Acacia Life.
Appendix: Financial Statements, Notes, and Report of Independent Certified Public Accountants
GOVERNMENT OF THE DISTRICT OF COLUMBIA OFFICE OF THE CHIEF FINANCIAL OFFICER OFFICE OF FINANCE AND TREASURY REPORT ON FINANCIAL STATEMENT AUDIT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST PARTICIPANT AND ADMINISTRATIVE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2010
PAGE 19
MANAGEMENT CONSULTANTS & CERTIFIED PUBLIC ACCOUNTANTS
TABLE OF CONTENTS
Management’s Discussion and Analysis ............................................................................................1 Independent Auditors’ Report ............................................................................................................3 Statement of Fiduciary Net Assets Participant Fund..........................................................................4 Statement of Changes in Fiduciary Net Assets Participant Fund .......................................................5 Statement of Fiduciary Net Assets Administrative Fund ...................................................................6 Statement of Changes in Fiduciary Net Assets Administrative Fund ................................................7 Notes to Financial Statements ............................................................................................................8 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters...........................................................................................................12
PAGE 20
GOVERNMENT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2010 The following presents our discussion and analysis of the financial performance of the Government of the District of Columbia’s (the District) College Savings Program (Program) for the fiscal year ended September 30, 2010. This discussion and analysis should be read in conjunction with the financial statements and note disclosures. Basic Financial Statements The Program is accounted for as a private purpose trust fund of the District. The District has an overall fiduciary responsibility to program participants to administer the operations of the Program. In accordance with GASB 34, the Program’s basic financial statements, which are reported on an accrual basis of accounting, are: (a) Statement of Fiduciary Net Assets and (b) Statement of Changes in Fiduciary Net Assets. Statement of Fiduciary Net Assets presents the assets, liabilities, and net assets of the Program. Statement of Changes in Fiduciary Net Assets presents the additions and deductions to the Program’s net assets. Financial Highlights • • • •
Investment increased by $28,122,157 or 23.85% Participant Contributions increased by $4,099,100 or 17.89% Net Investment earnings increased by $9,777,884 or 10721% Distributions to participants increased by $1,847,304 or 28.26%
Financial Analysis Table 1-Statement of Fiduciary Net Assets 2010
2009
Assets Receivables Investments Total Assets
30,188 146,025,571 $ 146,055,759
$
287,519 117,903,414 118,190,933
Liabilities Total Liabilities
$
$
264,305
Net Assets Net assets held in trust for program participants
$ 146,018,079
$
37,680
1
$ 117,926,628
Variance $
% variance
(257,331) 28,122,157 $ 27,864,826
-89.50% 23.85% 23.58%
$
-85.74%
(226,625)
$ 28,091,451
23.82%
PAGE 21
The Program’s primary asset was investments, which totaled $146,025,571. Investments increased by 23.85% from 2009 due to a net increase in participant contributions and the positive performance returns for all of the funds and portfolios. The top three Program investments were: Calvert Social Index Fund $32,062,464, State Street Equity 500 Index Fund-Class B $21,455,455, and Acacia Principal Plus $21,608,247. A significant portion of the Program’s liabilities represents amounts owed to portfolio management firms for investment activities during the fiscal year. As of year ended September 30, 2010, the payables totaled $37,680. Table 2-Statement of Changes in Fiduciary Net Assets Additions Contributions Net Investment (Loss) Income Total Additions Deductions Distribution to participants Other Expenses Total Deductions Net Increase
2010
2009
$ 27,012,298 9,869,085 $ 36,881,383
$ 22,913,198 91,201 $ 23,004,399
$
$
$
$
8,384,218 405,714 8,789,932
$ 28,091,451
$
6,536,914 337,327 6,874,241
$ 16,130,158
Variance
% variance
4,099,100 9,777,884 $ 13,876,984
17.89% 10721% 60.32%
$
1,847,304 68,387 1,915,691
28.26% 20.27% 27.87%
$ 11,961,293
74.15%
$
The Program’s contributions increased by $4,099,100 or 17.89%. The Program had an increase in participants from 10,092 in 2009 to 11,121 in 2010. The Program had a net investment income of $9,869,085 in 2010, which is a 10721% increase from 2009. The increase is attributed to the net additions to the Program’s investments and the positive rates of returns experienced by those investments in 2010. Distributions to participants in 2010 were $8,384,218, a 28.26% increase from 2009. PAGE 22
2
MANAGEMENT CONSULTANTS & CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS’ REPORT To the Trustee of The District of Columbia College Savings Program We have audited the accompanying Statements of Fiduciary Net Assets of the District of Columbia College Savings and Investment Program (the Program) Participant and Administrative Funds as of September 30, 2010, and the related Statements of Changes in Fiduciary Net Assets for the year then ended. These financial statements are the responsibility of the Program’s management, (Government of the District of Columbia, Office of Finance and Treasury). Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of September 30, 2010 by correspondence with the transfer agent of the underlying mutual funds. An audit also includes 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, the financial statements referred to above present fairly, in all material respects, the financial position of the District of Columbia College Savings and Investment Program Participant and Administrative Funds as of September 30, 2010, and the changes in the Program’s Participant and Administrative Funds financial position and changes in net assets of Participant and Administrative Funds for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated December 17, 2010, on our consideration of the District of Columbia College Savings and Investment Program’s participant and administrative funds internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, and contracts. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The Management’s Discussion and Analysis on pages 1 and 2 is not a required part of the financial statements, but supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.
Regis & Associates, PC Washington, DC December 17, 2010 1400 Eye Street, NW, Suite 425, Washington, D.C. 20005 Tel 202-296-7101 Fax 202-296-7284
PAGE 23
GOVERNMENT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST PARTICIPANT FUND STATEMENT OF FIDUCIARY NET ASSETS SEPTEMBER 30, 2010
ASSETS Receivables Accrued Interest and Dividends Receivable Receivables for Fund Shares Sold Total Receivables Investments Equity Fixed Income Total Investments
$ $
$
Total Assets
2,036 28,152 30,188
$
100,397,909 45,627,662 146,025,571
$
146,055,759
$
LIABILITIES Accounts payable for net investments purchased Accrued Expenses Due to D.C Government-Administrative Fund Total Liabilities
$
28,152 3,673 5,855 37,680
Net assets held in trust for Program participants
$
146,018,079
PAGE 24
The accompanying notes are an integral part of these financial statements.
4
GOVERNMENT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST PARTICIPANT FUND STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2010
ADDITIONS Contributions Investment Income Net Apreciation in fair value of investments Interest and Dividends Less Investment Expenses Net Investment Income Total additions
$
27,012,298
$
$
9,159,840 2,090,938 (1,381,693) 9,869,085
$
36,881,383
$
DEDUCTIONS Deductions Distributions to participants Administrative Expenses Maintenance Expenses Total Deductions
$
8,384,218 200,523 205,191 8,789,932
Net Increase
$
28,091,451
Net assets held in trust for Program participants Beginning of year End of year
$ $
117,926,628 146,018,079
PAGE 25
The accompanying notes are an integral part of these financial statements.
5
GOVERNMENT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST ADMINISTRATIVE FUND STATEMENT OF FIDUCIARY NET ASSETS SEPTEMBER 30, 2010
ASSETS Cash Due from Program Manager Due from Participant Fund Total Assets
$
$
153,185 220 5,855 159,260
Net assets held in trust for administrative expenses
$
159,260
PAGE 26
The accompanying notes are an integral part of these financial statements.
6
GOVERNMENT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST ADMINISTRATIVE FUND STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2010
ADDITIONS Administrative Fees Maintenance Fees Net Investment Income Total additions
$
$
66,841 54,505 5,664 127,010
DEDUCTIONS Professional Fees
$
76,378
Net Increase
$
50,632
Net assets held in trust for administrative expense Beginning of year End of year
$ $
108,628 159,260
PAGE 27
The accompanying notes are an integral part of these financial statements.
7
GOVERNMENT OF THE DISTRICT OF COLUMBIA COLLEGE SAVINGS PROGRAM TRUST NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2010 NOTE 1:
ORGANIZATION AND PURPOSE
The District of Columbia College Savings Program (the Program) was created by D.C. Law 47-4501 et seq., as amended and pursuant to D.C. Regulations, 49 DCR 9859, November 1, 2002 made final at D.C. Mun. Regs, title 9 sec. 155 (2004), as a Trust of the District of Columbia government (District). The Program enables participants to save for qualified higher education expenses. The Chief Financial Officer of the District of Columbia or his/her designee is the Trustee of the Plan. The current designee is the D.C Treasurer. The Trustee is responsible for entering into contracts for program management services, adopting program administration rules and regulations, and establishing investment policies. In Fiscal Year 2005, the District of Columbia College Savings Program Advisory Board was established to advise the Trustee on various topics including public outreach, implementing regulations, investment policy, and procedures governing applications, account management, and the disbursement of funds. Since the Program’s inception, the Trustee contracted Calvert Assets Management Company (Calvert) to perform recordkeeping, administrative and custodial services, investment management, marketing, and customer services. Calvert subcontracted the responsibility of the recordkeeping and related services of the Program to National Financial Data Services, a subsidiary of State Street Bank and Trust Company. The Program is available to both District of Columbia and non-District of Columbia residents. It is a qualified tuition program that allows participants to make contributions into twelve different investment options. The account balance limit is $260,000 per beneficiary. Accounts are subject to market investment risk, except for those that are invested in the Acacia Principal Plus product, which focuses on protecting the invested principal. As of September 30, 2010, the Plan had 11,121 participants with a net asset value of approximately $146,018,079. Fees and expenses of the program are paid by each account owner and vary according to the Fund. NOTE 2:
PAGE 28
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as prescribed by the Government Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB). Reporting Entity The accompanying financial statements report the fiduciary assets and the changes in fiduciary net assets of and for the fiscal year ended September 30, 2010. For financial reporting purposes, the Program includes all funds over which the Program exercises or has the ability to exercise oversight authority. Measurement Focus, Basis of Accounting and Financial Statement Presentation The Program reports the activity of the District of Columbia College Savings Program as a privatepurpose trust fund, which is a type of fiduciary fund. Private-purpose trust funds account for transactions of trust arrangements in which the principal and income benefit individuals, private organizations, or governments. The financial statements of the fiduciary funds are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recognized when a liability is incurred.
8
Portfolio investments in the Underlying Funds are valued at the closing net asset value per share (unit) of each Underlying Fund on the day of valuation. The Stability of Principal Portfolio is valued in accordance with the terms of the funding agreement, inclusive of accrued interest. Security transactions, normally in shares of the Underlying Funds, are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Income and capital gains distributions, if any, from investments in the Underlying Funds are recorded on the ex-dividend date. Expenses included in the accompanying financial statements reflect the expenses of each Portfolio and do not include any expenses associated with the Underlying Funds. Units represent the beneficial interest of each participant in the net assets of a Portfolio. Contributions to and distributions from the Portfolios are subject to terms and limitations defined in the Participation Agreement between the participant and the Trust. Contributions and distributions are recorded upon receipt of the participant’s instructions in good order, based on the next determined net asset value per unit. Net investment income and net realized gains accumulate in the net asset value of each Portfolio (with the exception of Acacia Principal Plus product) are not separately distributed to participants. To maintain a stable value, dividends from net investment income are accrued daily and paid monthly by Acacia Principal Plus product. Income Tax Status The Program is exempt from federal taxes in accordance with Section 529 of the Internal Revenue Code. D.C. resident participants are exempt from state and local taxes when used for qualified expenses. NonD.C. residents may be subject to state and local taxes in their jurisdiction. NOTE 3: INVESTMENTS At September 30, 2010, the Program held the following aggregate investments which are stated at aggregate fair value based on quoted market prices: Aggregate Cost Domestic Stock Funds Calvert Social Investment Fund Calvert Social Index Fund State Street Equity 500 Index FundCalvert Capital Accumulation Fund Calvert Small Cap Value Fund Calvert Social Investment Balanced Fund
$
12,768,887 25,975,031 22,390,371 2,999,841 6,405,758 4,342,371
Aggregate Fair Value
$
13,148,190 32,062,464 21,455,455 3,986,562 7,459,625 5,192,569
Unrealized Appreciation/ (Depreciation)
$
379,303 6,087,433 (934,916) 986,721 1,053,867 850,198
International Stock Funds Calvert World Values International Equity Fund
16,932,434
17,093,044
160,610
Bond Funds Calvert Income Fund Calvert Social Investment Bond Fund
4,434,744 17,949,265
4,516,543 19,502,872
81,799 1,553,607
Cash (Funding Agreement) Acacia Principal Plus $
21,608,247 135,806,949
9
$
21,608,247 146,025,571
$
10,218,622
PAGE 29
The net appreciation in the fair value of the investments consists of the following at September 30, 2010: Net Unrealized Gain Net Realized Loss Total
$9,306,746 (146,906) $9,159,840
The Program’s investments, which are uninsured and unregistered and are held by a counterparty in the Program’s name, are also subject to certain credit, interest rate, and foreign currency risks. Credit Risk is the risk that an issuer to an investment will not fulfill its obligations. The Program does not invest in debt securities that have an overall quality which is less than the BBB as rated by Moody’s or Standard & Poor. The primary credit ratings of the Program’s debt securities are as follows: Fund Calvert Social Investment Bond Fund Calvert Income Fund Calvert Social Balanced Fund Acacia Principle Plus
Credit Ratings AAA/A, A, BBB A/A/A, BBB/Baa/BB A/A/A, BBB/Baa/BB AAA, AA, A, BBB
Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Program does not invest in any investment account that has an average maturity exceeding ten years for its Bond Mutual Funds. The interest rate sensitivity, defined as duration, for each fund is as follows: Fund Calvert Social Investment Bond Fund Calvert Income Fund Calvert Social Balanced Fund Acacia Principle Plus
Average Duration 3.19 years 3.22 years 3.15 years 7.12 years
Calvert Income Fund actively manages duration so that it will differ from the benchmark. The Acacia product’s duration is typically tied to the projected long-term duration of the Program. However, the respective Fund’s prospectus provides greater detail about the investment strategies and practices of the fund, in compliance with federal regulations and specifically, the Form N-1A of the Investment Company Act of 1940, which focuses on disclosure to the investing public of information about the fund and its investment objectives, as well as on investment company structure and operations. PAGE 30
Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment in a foreign financial institution. The Program does not have a formal policy for limiting its exposure to changes in exchange rates. The investment fund that invests primarily in foreign financial institutions is the Calvert World Values International Equity Fund. The Fund has various currency denominations. The primary currency denominations are Euro, Yen, and British pound. NOTE 4:
ADMINISTRATIVE AND MAINTENANCE FEES
Account owners are charged certain fees that are used to pay reasonable and necessary operating and maintenance expenses incurred by the Program. The fees collected are still considered assets of the Program. The Program Manager remits a portion of the fees collected to the District who maintains the fees in a separate administrative fund account. In Fiscal Year 2010, total administrative fees assessed to account owners were $200,523. The District’s portion of the fees was $66,841. As of September 30, 2010, the total amount not remitted to the District was $5,855.
10
The Program also assesses an annual maintenance fee and a separate enrollment fee to new account owners. The maintenance fee is $15 for District residents and $30 for non-residents. The enrollment fee is $25 for non District residents. The District receives $5 per account for each assessed fee. During the fiscal year, the maintenance and enrollment fees totaled $200,311 and $4,880, respectively. The District’s portion of the fees was $53,160 and $1,345, respectively. The Program Manager remitted all the funds to the District, except for $220. The District did incur administrative expenses in 2010 of $76,378. The expenses were for the compilation and audit of the Program’s financial statements. At year-end, the Program had an administrative net asset balance of $159,260. NOTE 5:
INVESTMENT EXPENSES
Investment expenses represent the operating expenses and load fees paid to the broker dealers. The fees charged by the investment funds for operating expenses and load fees are reflected in the net appreciation in fair value of investments amount in the statement of changes in fiduciary net assets. Operating expenses ratios ranged from 0.15% to 2.02% of the fund’s average daily net asset value. NOTE 6:
RELATED PARTY TRANSACTIONS
All of the Program’s investments are invested in funds or portfolios that are managed either by the Program Manager, the Program Manager’s parent company Acacia Life, or State Street. The market value of those funds totaled $146,025,571. NOTE 7:
RISKS AND UNCERTAINITIES
The Plan invests in investment securities that are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible, that changes in the values of the investment securities will occur in the near term and, that such changes could materially affect participants’ account balances and the amounts reported in the Statement of Net Assets available for benefits.
PAGE 31
11
MANAGEMENT CONSULTANTS & CERTIFIED PUBLIC ACCOUNTANTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Trustee of The District of Columbia College Savings Program We have audited the financial statements of the District of Columbia College Savings and Investment program (the Program) participant and administrative funds as of and for the year ended September 30, 2010, and have issued our report thereon dated December 17, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the District of Columbia College Savings and Investment Program’s participant and administrative funds internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District of Columbia College Savings and Investment Program’s Participant and administrative funds internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the program's participant and administrative funds internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.
PAGE 32
Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District of Columbia College Savings and Investment Program’s participant and administrative funds financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, and contracts, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
1400 Eye Street, NW, Suite 425, Washington, D.C. 20005 Tel 202-296-7101 Fax 202-296-7284
This report is intended solely for the information and use of management of the District of Columbia College Savings and Investment Program and is not intended to be and should not be used by anyone other than the specified party.
Regis & Associates, PC Washington, DC December 17, 2010
PAGE 33
13
The text pages for this report are printed on paper containing 100% post-consumer content.
P.O. Box 11466 Washington, D.C. 20008 800.987.4859 D.C. residents 800.368.2745 www.DCCollegeSavings.com
D.C. Office of Finance and Treasury 1101 4th Street, SW Suite 800, West Building Washington, D.C. 20024 202.727.6055 Lasana K. Mack, D.C. Treasurer and Deputy Chief Financial Officer Jeffrey Barnette, Associate Treasurer Brenda P. Mathis, Program Director Edward Obaza, Financial Analyst Tilithea Ransome, Financial Analyst
Calvert 4550 Montgomery Avenue Suite 1000 North Bethesda, MD 20814 800.987.4859 Barbara J. Krumsiek, President and Chief Executive Officer Ronald Wolfsheimer, Chief Financial and Administrative Officer Laurent Ross, DC College Savings Plan Program Manager
For more information on the DC College Savings Plan, please visit www.dccollegesavings.com, call 800.987.4859 (800.368.2745 for non-District residents) or contact your financial advisor. An investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. The District of Columbia College Savings Trust Program Disclosure Booklet contains this and other information. Read it carefully before you invest or send money. An investor should also consider, before investing, whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for
www.DCCollegeSavings.com
investments in such state’s 529 college savings plan. An investment in another state’s 529 college savings plan may not offer comparable benefits. The Government of the District of Columbia does not guarantee investments in the program. Investment involves risk, including possible loss of principal. The DC College Savings Plan is underwritten and distributed by Calvert Distributors, Inc., member FINRA/SIPC and subsidiary of Calvert Group, Ltd. BR10050-201012
