November 18-19, 2004
ITEM 125-106-R1104 Montana Family Education Savings Program; Changes in Investment Options
THAT: The Board of Regents of Higher Education approves the following changes to the investment options offered under the Montana Family Education Savings Program:
(1) Add Lazard Mid-Cap Value fund on 12/31/2004.
(2) Add Van Kampen Real Estate fund on 12/31/2004.
(3) Close the INVESCO Technology and INVESCO Health Sciences funds on 12/31/2004.
(4) Automatically transfer the assets from the INVESCO Technology and INVESCO Health Sciences funds to the Pacific Life Money Market Fund when the INVESCO funds are closed.
The Montana Family Education Savings Program (“MFESP”) was established pursuant to the “Family Education Savings Act,” Ch. 540, L. 1997 (the “Act”) and amended in 2001, Ch. 468, L. 2001. The MFESP was designed to comply with section 529 of the Internal Revenue Code in order to offer participants favorable tax treatment.
The Act authorizes the Board of Regents of Higher Education (“BOR”) to implement the program and creates an Oversight Committee under the authority of the BOR to assist in the implementation and administration of the program. In 1998, the BOR contracted with College Savings Bank (“CSB”) to serve as account depository and program manager of the Montana Family Education Savings Program. As part of its role as manager, a CSB subsidiary, College Savings Trust, Helena, Montana, holds all accounts in trust for the benefit of the account owner and the state of Montana.
In 2002 and 2004 the board authorized the expansion of investment choice in the program through the addition of “best of class” mutual funds available through Pacific Funds along with the addition of five Portfolio Optimization Funds.
These changes are recommended because:
(1) The INVESCO funds have not effectively gathered assets within the program.
(2) The INVESCO funds are not included in the Portfolio Optimization Funds.
(3) As of September 2004, 73% of 529 Plan sales are invested in the Portfolio Optimization Funds.
(4) The INVESO funds do not fit into the Portfolio Optimization Funds, while the two new funds would be added when the funds are rebalanced in January, 2005.
(5) According to Ibbotson Associates, the Mid-Cap Value and Real Estate asset classes will provide the greatest improvement and benefit the majority of clients.
(6) The asset transfer from the INVESO funds to the Money Market Fund is recommended to be automatic so that account owners will not lose their one allowable investment change per calendar year and will prevent a nonqualified withdrawal.
These changes have been reviewed and are unanimously recommended by the Montana Family Education Savings Program Oversight Committee.