Virginia Education Savings Trust (VEST)

The Alleghany Portfolio is an Age-based Evolving Portfolio which is designed to take into account the beneficiary’s current age and the account owner’s investing time horizon or the number of years before the beneficiary is expected to need funds from the account for higher education expenses. The targeted asset allocation is 80% stocks and 20% fixed income until December 31, 2008. This allocation will become increasingly weighted in fixed-income investments over time. The allocation strategy will change approximately every third year until it reaches the target allocation of the Piedmont Portfolio (a stable value fund with a lower risk of principal loss). The following represents the targeted asset allocations as well as the diversification of the investment managers of the underlying funds and investments that comprise this Portfolio: 5% stable value managed by INVESCO; 15% fixed income managed by Western Asset; 40% large-cap equity managed by Vanguard; 10% non-U.S. equity managed by Franklin Templeton; 10% non-U.S. equity managed by American Funds; 15% small- to mid-cap equity managed by Rothschild; and 5% small-cap equity managed by Vanguard.

The Blue Ridge Portfolio is an Age-based Evolving Portfolio which is designed to take into account the beneficiary’s current age and the account owner’s investing time horizon or the number of years before the beneficiary is expected to need funds from the account for higher education expenses. The targeted asset allocation is 25% stocks and 75% fixed income, until December 31, 2012. This allocation will become increasingly weighted in fixed-income investments over time. The allocation strategy will change approximately every third year until it reaches the target allocation of the Piedmont Portfolio (a stable value fund with a lower risk of principal loss). The following represents the targeted asset allocations as well as the diversification of the investment managers of the underlying funds and investments that comprise this Portfolio: 30% stable value managed by INVESCO; 45% fixed income managed by Western Asset; 15% large-cap equity managed by Vanguard; 5% non-U.S. equity managed by Franklin Templeton; 2.5% non-U.S. equity managed by American Funds; 2.5% small- to mid-cap equity managed by Rothschild; and 5% small-cap equity managed by Vanguard.

The Chesapeake Portfolio is an Age-based Evolving Portfolio which is designed to take into account the beneficiary’s current age and the account owner’s investing time horizon or the number of years before the beneficiary is expected to need funds from the account for higher education expenses. The targeted asset allocation is 70% stocks and 30% fixed income. This allocation will become increasingly weighted in fixed-income investments over time. The allocation strategy will change approximately every third year until it reaches the target allocation of the Piedmont Portfolio (a stable value fund with a lower risk of principal loss). The following represents the targeted asset allocations as well as the diversification of the investment managers of the underlying funds and investments that comprise this Portfolio: 10% stable value managed by INVESCO; 30% fixed income managed by Western Asset; 30% large-cap equity managed by Vanguard; 10% non-U.S. equity managed by Franklin Templeton; 5% non-U.S. equity managed by American Funds; 10% small- to mid-cap equity managed by Rothschild; and 5% small-cap equity managed by Vanguard.

The Alleghany Portfolio is an Age-based Evolving Portfolio which is designed to take into account the beneficiary’s current age and the account owner’s investing time horizon or the number of years before the beneficiary is expected to need funds from the account for higher education expenses. The targeted asset allocation is 80% stocks and 20% fixed income. This allocation will become increasingly weighted in fixed-income investments over time. The allocation strategy will change approximately every third year until it reaches the target allocation of the Piedmont Portfolio (a stable value fund with a lower risk of principal loss). The following represents the targeted asset allocations as well as the diversification of the investment managers of the underlying funds and investments that comprise this Portfolio: 5% stable value managed by INVESCO; 15% fixed income managed by Western Asset; 40% large-cap equity managed by Vanguard; 10% non-U.S. equity managed by Franklin Templeton; 10% non-U.S. equity managed by American Funds; 15% small- to mid-cap equity managed by Rothschild; and 5% small-cap equity managed by Vanguard.

The Highlands Portfolio is closed to new participants as its asset allocation is identical to that of the Piedmont Portfolio, which is 100% Stable Value (fixed income). The Portfolio invests in an account managed by INVESCO and seeks to preserve principal and deliver stable investment returns.

The Piedmont Portfolio seeks to preserve principal and deliver stable investment returns (the “Stable Value Fund”). All assets of the Portfolio are invested in this stable value account managed by INVESCO. The investment contracts utilized provide for minimal fluctuation in principal values but the Stable Value Fund is not guaranteed by INVESCO or any other entity. Please see the VEST Program Description for detailed information.

The Potomac Portfolio is an Age-based Evolving Portfolio which is designed to take into account the beneficiary’s current age and the account owner’s investing time horizon or the number of years before the beneficiary is expected to need funds from the account for higher education expenses. The targeted asset allocation is 50% stocks and 50% fixed income (through January 2012). This allocation will become increasingly weighted in fixed-income investments over time. The allocation strategy will change approximately every third year until it reaches the target allocation of the Piedmont Portfolio (a stable value fund with a lower risk of principal loss). The following represents the targeted asset allocations as well as the diversification of the investment managers of the underlying funds and investments that comprise this Portfolio: 15% stable value managed by INVESCO; 35% fixed income managed by Western Asset; 25% large-cap equity managed by Vanguard; 7.5% non-U.S. equity managed by Franklin Templeton; 7.5% non-U.S. equity managed by American Funds; 10% small- to mid-cap equity managed by Rothschild; and 5% small-cap equity managed by Vanguard.

The Shenandoah Portfolio is closed to new participants as its asset allocation is identical to that of the Piedmont Portfolio, which is 100% Stable Value (fixed income). The Portfolio invests in an account managed by INVESCO and seeks to preserve principal and deliver stable investment returns.

The Southside Portfolio is an Age-based Evolving Portfolio which is designed to take into account the beneficiary’s current age and the account owner’s investing time horizon or the number of years before the beneficiary is expected to need funds from the account for higher education expenses. The targeted asset allocation is 40% stocks and 60% fixed income (through December 31, 2012). This allocation will become increasingly weighted in fixed-income investments over time. The allocation strategy will change approximately every third year until it reaches the target allocation of the Piedmont Portfolio (a stable value fund with a lower risk of principal loss). The following represents the targeted asset allocations as well as the diversification of the investment managers of the underlying funds and investments that comprise this Portfolio: 15% stable value managed by INVESCO; 35% fixed income managed by Western Asset; 25% large-cap equity managed by Vanguard; 7.5% non-U.S. equity managed by Franklin Templeton; 7.5% non-U.S. equity managed by American Funds; 5% small- to mid-cap equity managed by Rothschild; and 5% small-cap equity managed by Vanguard.

The Tidewater Portfolio is closed to new participants as its asset allocation is identical to that of the Piedmont Portfolio, which is 100% Stable Value (fixed income). The Portfolio invests in an account managed by INVESCO and seeks to preserve principal and deliver stable investment returns.

The Aggressive Portfolio invests in the Vanguard® LifeStrategy® Growth Fund (the “Growth Fund”), which is designed for longer-term or more risk-tolerant investors. The Fund invests in other Vanguard mutual funds according to a fixed formula that over time should reflect an allocation of approximately 80% of the Growth Fund’s assets to common stocks and 20% to bonds. The percentages of the Growth Fund’s assets allocated to other underlying funds are as follows: 50% Total Stock Market Index Fund, 25% Asset Allocation Fund, 15% Total International Stock Index Fund and 10% Total Bond Market Index Fund.

The Conservative Portfolio invests entirely in the Vanguard® LifeStrategy® Income Fund (the “Income Fund”), which is designed for more risk-adverse investors. The Income Fund invests in other Vanguard mutual funds according to a fixed formula that over time should reflect an allocation of approximately 60% of its assets to bonds, 20% to short-term fixed-income investments, and 20% to common stock. The percentages of the Fund’s assets allocated to other underlying funds are as follows: 5% Total Stock Market Index Fund, 25% Asset Allocation Fund, 50% Total Bond Market Index Fund and 20% Short-Term Investment Grade Fund.

The Moderate Portfolio invests in the Vanguard® LifeStrategy® Moderate Growth Fund (the “Moderate Fund”), which is designed for mid-range investors with respect to their investment horizon and risk tolerance. The Moderate Growth Fund invests in other Vanguard mutual funds according to a fixed formula that over time should reflect an allocation of approximately 60% of its assets to common stocks and 40% to bonds. The percentages of the Moderate Fund’s assets allocated to other underlying funds are as follows: 35% Total Stock Market Index Fund, 25% Asset Allocation Fund, 10% Total International Stock Index Fund and 30% Total Bond Market Index Fund.

The Money Market Portfolio invests entirely in the Vanguard® Prime Money Market Fund (the “Money Market Fund”), which is designed to provide a stable
return for account owners with a very low risk tolerance level or beneficiaries who are matriculating or near matriculation. The Money Market Fund invests in high-quality, short-term money market instruments, including certificates of deposit, banker’s acceptances, commercial paper, and other money market securities. The Money Market Fund will invest more than 25% of its assets in securities issued by companies in the financial services industry, and it will maintain a dollar-weighted average maturity of 90 days or less.

The REIT Index Portfolio invests entirely in the Vanguard® REIT Index Fund (the “REIT Fund”), which normally invests approximately 98% of its assets in stocks issued by equity REITs in an attempt to parallel the investment performance of the MSCI U.S. REIT Index. The REIT Fund invests in the stocks that make up the index; the remaining assets are allocated to cash investments.

The Socially Targeted Portfolio invests entirely in the Parnassus Equity Income Fund. In general, Parnassus Investments will choose to invest in companies that it believes will have a positive environmental, social and governance (ESG) impact. The Parnassus Fund invests primarily in large-cap equity securities, which include common and preferred stock as well as securities that are convertible into these instruments. At least 75% of the funds total assets will normally invested in equity securities that pay a divident. The remaining 25% may be invested in non-dividend paying equity securities or money-market instruments. The Parnassus Fund seeks to invest in equity securities that pay dividends above the yield of the S&P 500 Index.

The Total International Stock Index Portfolio invests entirely in the Vanguard® Total International Stock Index Fund (the “International Stock Index Fund”), which employs a “passive management” – or indexing – investment approach. The International Stock Index Fund seeks to track the performance of the Total International Composite Index by investing in three other Vanguard funds – Vanguard European Stock Index Fund, Vanguard Pacific Stock Index Fund, and Vanguard Emerging Markets Stock Index Fund.
These other funds seek to track the MSCI Europe Index, the MSCI Pacific Index, and the Select Emerging Markets Index, which together make up the Total International Composite Index. MSCI administers the Select Emerging Markets Index exclusively for Vanguard. The Fund allocates all, or substantially all, of its assets among the European Stock Index Fund, the Pacific Stock Index Fund and the Emerging Markets Stock Index Fund, based on the market capitalizations of European, Pacific, and emerging markets stocks in the Total International Composite Index.

The Total Stock Market Index Portfolio invests in the Vanguard® Total Stock Market Index (the “Stock Market Index Fund”), which employs a “passive management” – or indexing – investment approach designed to track the performance of the MSCI® U.S. Broad Market Index. The Stock Market Index Fund consists of all the U.S. common stocks regularly traded on the New York and American Stock Exchanges and the NASDAQ over-the-counter market. The Stock Market Index Fund typically invests all, or substantially all, of its assets in the 1,300 largest stocks in its target index (covering nearly 95% of the Index’s total market capitalization) and in a representative sample of the remainder. The Stock Market Index Fund holds a range of securities that, in the aggregate, approximate the full Index in terms of key characteristics. These key characteristics include industry weightings and market capitalization, as well as certain financial measures, such as price/earnings ratio and dividend yield.

The Inflation-Protected Securities Portfolio invests in the Vanguard® Inflation-Protected Securities Fund (the “IPS Fund”), which invests at least 80% of its assets in inflation-indexed bonds issued by the U.S. government, its agencies and instrumentalities, and corporations. The IPS Fund may invest in bonds of any maturity; however, its dollar-weighted average maturity is expected to be in a range of 7 to 20 years. All bonds purchased by the IPS Fund will be rated investment grade.

The Total Bond Market Index Portfolio invests in the Vanguard® Total Bond Market Index Fund (the “Bond Market Index Fund”), which employs a “passive management” – or indexing – investment strategy designed to track the performance of the Barclay's Capital Aggregate Bond Index. This Index measures a wide spectrum of public, investment-grade, taxable, fixed-income securities in the United States – including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year. At least 80% of the Fund’s assets will be invested in bonds held in the Index. The Fund maintains a dollar-weighted average maturity consistent with that of the Index, which currently ranges between 5 and 10 years.