Use the financial statements attached to answer (short answers) the following questions (for the city of Richmond, VA) 1. How does the audit opinion given to this city by its independent auditors differ from the audit opinion rendered on the financial statements for a for-profit business? 2. A reconciliation should be presented to explain the difference between the net changes in fund balances for the governmental funds (fund-based financial statements) and the change in net assets for the governmental activities (government- wide financial statements). What were several of the largest reasons for the difference? 3. What were the city?s largest sources of general revenues? 4. What was the total amount of expenditures recorded by the General Fund during the period? How were those expenditures classified? 5. What assets are reported for the General Fund? 6. Review the notes to the financial statements and then determine the number of days the government uses to define the end-of-year financial resources that are viewed as currently available. 7. Did the size of the General Fund balance increase or decrease during the most recent year and by how much? 8. In addition, read the Management?s Discussion and Analysis (MD&A) that should be located near the beginning of the annual report. Write a memo to explain four or five of the most interesting pieces of information that the Management?s Discussion and Analysis provides.

Richmond, Virginia Comprehensive Annual Financial Report of the Virginia Resources Authority - A Component Unit of the Commonwealth of Virginia Year Ended June 30, 2011 VIRGINIA RESOURCES AUTHORITY Financial Statements for the Year Ended June 30, 2011 TABLE OF CONTENTS Page INTRODUCTORY SECTION Letter of Transmittal ............................................................................................................................. 1 Organizational Structure ....................................................................................................................... 5 Directory of Principal Officials ............................................................................................................ 6 Certificate of Achievement for Excellence in Financial Reporting ...................................................... 7 FINANCIAL SECTION Independent Auditors' Report .............................................................................................................. 9 Management's Discussion and Analysis ............................................................................................ 11 Basic Financial Statements Statement of Net Assets ............................................................................................................... 16 Statement of Revenues, Expenses and Changes in Net Assets .................................................... 17 Statement of Cash Flows.............................................................................................................. 18 Notes to Financial Statements ...................................................................................................... 20 Required Supplementary Information Schedule of Funding Progress ...................................................................................................... 46 Supplementary Information Combining Schedule of Net Assets.............................................................................................. 47 Combining Schedule of Revenues, Expenses and Changes in Net Assets .................................. 48 Combining Schedule of Cash Flows ............................................................................................ 49 Combining Schedule of Net Assets - Virginia Revolving Loan Fund Accounts - Water Facilities ........................................................................................... 51 Combining Schedule of Revenues, Expenses and Changes in Net Assets - Virginia Revolving Loan Fund Accounts - Water Facilities ................................................. 51 Combining Schedule of Cash Flows - Virginia Revolving Loan Fund Accounts - Water Facilities .................................................................................................... 53 Combining Schedule of Net Assets - Virginia Revolving Loan Fund Accounts - Water Supply........................................................................................................ 55 Combining Schedule of Revenues, Expenses, and Changes in Net Assets Virginia Revolving Loan Fund Accounts - Water Supply ................................................... 56 Combining Schedule of Cash Flows - Virginia Revolving Loan Fund Accounts - Water Supply....................................................................................................... 57 VIRGINIA RESOURCES AUTHORITY Financial Statements for the Year Ended June 30, 2011 TABLE OF CONTENTS STATISTICAL SECTION Table 1 Net assets by component ................................................................................................. 59 Table 2 Changes in net assets....................................................................................................... 60 Table 3 Operating revenues by source ......................................................................................... 61 Table 4 Operating expenses ......................................................................................................... 61 Table 5 Schedule of Outstanding Loans Receivable .................................................................... 63 Table 6 Schedule of Outstanding Debt ........................................................................................ 64 Table 7 Virginia Principal Employers.......................................................................................... 65 Table 8 Virginia Demographic and Economic Statistics ............................................................. 66 Table 9 Operating Indicators ........................................................................................................ 67 Table 10 Full-Time Employees by Identifiable Activity ............................................................. 68 COMPLIANCE SECTION Independent Auditors' 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 ........................................... 70 Independent Auditors' Report on Compliance with Requirements Applicable to each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A -133 ..................................................................................................... 72 Schedule of Expenses of Federal Awards .................................................................................... 74 Notes to Schedule of Expenses of Federal Awards...................................................................... 75 Schedule of Findings and Questioned Costs ................................................................................ 76 Prepared by the Virginia Resources Authority, Accounting Department INTRODUCTORY SECTION September 1, 2011 Board of Directors Virginia Resources Authority 1111 East Main Street, Suite 1920 Richmond, VA 23219 Dear Board Member: I am pleased to present the Virginia Resources Authority (VRA, Authority) FY2011 Financial Statements. Section 62.1-222 of the Code of Virginia, as amended, requires that the Authority publish, at the close of each fiscal year, a complete set of financial statements presented in conformance with accounting principles generally accepted in the United States of America (GAAP) and audited in accordance with Governmental Accounting Auditing Standards. Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of material misstatements. In FY2011, the Authority was audited by Clifton Gunderson, LLP, a licensed certified public accounting firm. As a result of an audit of the Authority's financial records and transaction of all funds, Clifton Gunderson has issued an unqualified opinion on the Authority's financial statements for the year ended June 30, 2011. GAAP requires management to provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. VRA Profile VRA was established in 1984 as a public body corporate and as a political subdivision of the Commonwealth of Virginia pursuant to the Virginia Resources Authority Act (Chapter 21 of Title 62.1 of the Code of Virginia, as amended). VRA is governed by an eleven member Board of Directors, appointed by the Governor. Members include state agency representatives whose agencies, along with VRA, co-manage specific loan funds with VRA. VRA's Executive Director, also appointed by the Governor, administers, manages, and directs the affairs of VRA, subject to the policies, control and direction of the VRA Board of Directors. VRA was established to provide an additional source of funding for local infrastructure projects. Initially providing financing for local water and wastewater projects, VRA's eligible projects areas have expanded to include 18 distinct and varied project areas. These project areas reflect the capital improvement priorities of local governments and the State Legislature's intent to assist communities with cost-effective and low-cost financing. 1 VRA Programs VRA's Virginia Pooled Financing Program (VPFP) is available for localities requiring financing for any one of the 18 designated project areas eligible for VRA financing. They include water, sewer, transportation, public safety, energy, local government buildings, parks and recreational facilities, administrative systems, and a variety of other capital improvement projects. VPFP borrowers realize savings from VRA's unique state credit enhancements based in part on the Commonwealth's moral obligation, the sharing of expenses, and a straightforward and customer-friendly process. VRA's high credit rating, natural \"AAA\" for the senior bonds and \"AA\" for the subordinate bonds, result in favorable access to the capital markets, without the need for additional credit enhancements. In addition to the VPFP, the Authority currently serves as co-manager of four capitalized loan/grant funds: the Virginia Water Facilities Revolving Fund (VWFRF), the Virginia Water Supply Revolving Fund (VWSRF), the Virginia Airports Revolving Fund (VARF) and the Virginia Dam Safety and Flood Prevention Fund (VDSFPF). Two funds, the VWFRF and the VWSRF, receive capitalization grants each year from the U.S. Environmental Protection Agency and a state match from the Commonwealth. The VARF and the VDSFPF are solely funded by the Commonwealth. In all four revolving funds, the initial grant monies are invested and, along with the investment earnings and loan repayments, are then loaned to local governments for eligible projects. VRA's Equipment and Term Financing Program (ETF) was authorized in July 2007 to enhance financing options for terms under fifteen years. Ideally suited for equipment purchases, the program currently has nine loans outstanding. The program was funded with a banking partner selected through a rigorous procurement process, however the credit facility has since expired. VRA is continually looking for other short-term financing options. Economic Information General conditions for the Commonwealth of Virginia, which is served by the Authority's operation, include: Average unemployment rate for Virginia in June 2011 (projected) was 6.0%, a 1.0% increase from June 2010 as reported by the U.S. Department of Labor, Bureau of Labor Statistics. Virginia's rate compares favorably to the national rate of 9.2%. Virginia's 2010 (projected) per capita personal income of $44,762 is ranked 7th among the states, as reported by the U.S. Department of Commerce Bureau of Economic Analysis. This compares favorably to the $40,584 per capita for the United States. FY2011 Accomplishments The Virginia Resources Authority had a very productive and exciting year. By any measure, the Authority performed extraordinarily well and met its goal of providing cost-effective financing for local infrastructure projects. In a changing and volatile market environment, VRA is committed to continually improving its programs and operations to meet the needs of our existing and future customers in a fiscally prudent manner. FY2011 accomplishments of the Authority support the Strategic Goals and Key Initiatives adopted by the Board of Directors and outlined in the Authority's FY2011 Budget. In addition, the Authority's accomplishments align well with priorities and objectives of the Governor and the State Legislature. A few of the accomplishments are listed below: 2 Closed over $373 million in loans (all programs) for 66 capital improvement projects 18 loans in the Clean Water Revolving Loan Fund 16 Drinking Water Revolving Loan Fund loans 1 Virginia Airports Revolving Fund loan 1 Dam Safety grant 30 Virginia Pooled Financing Program loans Financings during the year included 15 new VRA borrowers Strengthened the credit quality of use and support agreements and other local obligations or guarantees used to secure VRA financing Extended state aid intercept to all VRA political subdivisions where local governments make a general obligation or moral obligation pledge Reduced risk to State's moral obligation pledge Better conformed Virginia Resources Authority Act toVirginia Public Finance Act Increased flexibility in subject-to-appropriation borrowing Tapped by Governor and Legislature to manage Virginia Transportation Infrastructure Bank Designated VRA as manager, administrator, and trustee of the VTIB Assigned task of credit analysis of government and private-sector borrowers Tasked with processing and servicing VTIB grants and loans While these accomplishments more than demonstrate the Authority's success in meeting its program objectives and in meeting the program objectives of its state agency partners, other achievements point to the efforts made by the Authority to sustain its ability to meet the needs of local governments for cost-effective infrastructure financing. Toward this end the following accomplishments in the areas within the administrative and financial services were realized: Increased organizational efficiency and capacity through continued process improvement Completed the Comprehensive Financial Annual Report in house and was awarded the Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting for the third consecutive year Automated financial reporting function to enhance efficiency of financial statement preparation Enhanced loan monitoring and credit review process Developed comprehensive risk management system Continued active oversight by Portfolio Risk Management Committee Developed Beta Loan Monitoring & Compliance Database that tracks all borrowers and all loans in all programs All borrowers and all loans in all programs reviewed annually Refined loan agreements to provide greater security for local obligations Updated VRA's underwriting practices to adhere to industry best management practices Explored opportunities to integrate systems Developed Portfolio Risk Management Technology Plan Phase 1 implementation planned in FY2011 (primary focus is replacing VRA's loan servicing system) 3 4 Virginia Resources Authority Organizational Structure June 30, 2011 5 Virginia Resources Authority Directory of Principal Officials June 30, 2011 Board of Directors William G. O'Brien, Chairman James H. Spencer, III, Vice Chairman Barbara McCarthy Donnellan David Branscome Dena Firth Moore Thomas L. Hasty, III J. Barry Purcell, III Ex-Officio Board Members Randall P Burdette Director of the Department of Aviation David K. Paylor Director of the Department of Environmental Quality Manju Ganeriwala Treasurer of Virginia Karen Remley, M.D. State Health Commissioner Administrative Officials Stephanie L. Hamlett; Executive Director Jean Bass; Director of Policy and Intergovernmental Relations Peter D'Alema; Director of Program Management Shawn Crumlish; Director of Debt Management Michael Cooper; Director of Administration Jon McCubbin; Controller 6 Certificate of Achievement for Excellence in Financial Reporting Presented to Text38: Virginia Resources Authority Text53: For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2010 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. President Executive Director 7 FINANCIAL SECTION 8 A1 Independent Auditor's Report To the Honorable Board Members Virginia Resources Authority Richmond, Virginia We have audited the accompanying basic financial statements of Virginia Resources Authority (the Authority), a component unit of the Commonwealth of Virginia as of and for the year ended June 30, 2011, which collectively comprise the Authority's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Authority's management. 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. 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 Authority as of June 30, 2011, and the changes in financial position and cash flows 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 September 1, 2011 on our consideration of the Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management's discussion and analysis and budgetary comparison information on pages 12 through 16 and the required supplementary information on page 47 are not a required part of the basic financial statements but are supplementary information required by the Government Accounting Standards Board and we did not audit and do not express an opinion on such 9 h information. However, we have applied certain limited procedures, which consist primarily of inquiries with management regarding the methods of measurement and presentation of the required supplemental information. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Authority's basic financial statements. The accompanying supplementary information listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The introductory and statistical tables listed in the table of contents have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. A1 Richmond, Virginia September 1, 2011 10 Virginia Resources Authority Management's Discussion and Analysis Year Ended June 30, 2011 The management of the Virginia Resources Authority (Authority) provides readers of the Authority's financial statements this narrative overview and analysis of the financial activities for the fiscal year ended June 30, 2011. We encourage readers to consider the information presented here in conjunction with the preceding transmittal letter and the Authority's basic financial statements, which immediately follow this section. FINANCIAL HIGHLIGHTS The Authority's assets exceeded the liabilities at the close of the fiscal year by $1.309 billion (net assets), an increase of 3.3%. Total assets of $4.1 billion increased by $200 million or 5.1% (See FINANCIAL ANALYSIS Table 1 summary). Total liabilities of $2.8 billion increased by $159 million or 6%. (See FINANCIAL ANALYSIS Table 1 summary). Change in net assets of $41.5 million, decreased by $2.6 million or 5.8%. (See FINANCIAL ANALYSIS Table 2 summary). OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of this annual report consists of management's discussion and analysis (this section), the basic financial statements, the notes to the financial statements, and other supplementary information. The Authority is reported in the Commonwealth of Virginia's Comprehensive Annual Financial Report as a discretely presented component unit. This discussion and analysis is intended to serve as an introduction to the Authority's basic financial statements. The financial statements provide both long-term and short-term information about the Authority's overall financial status. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to proprietary funds of government units. The Statement of Net Assets provides information about the nature and amounts of the Authority's cash, investments, and receivables (assets), and its obligations to creditors (liabilities). Net assets the difference between assets and liabilities is one way to measure the Authority's financial health or position. The current fiscal year revenues and expenses of the Authority are accounted for in the Statement of Revenues, Expenses and Changes in Net Assets. This statement measures whether the Authority successfully recovered its costs through interest on loans, investment earnings, fees, and contributions from other governments. The Statement of Cash Flows provides information on the Authority's cash receipts, payments, and net changes in cash. It also provides insight on the source, use, and change in cash for the reporting period. Notes to the financial statements provide additional information that is essential to understanding data in the financial statements. This report also includes other information, in addition to the basic financial statements and accompanying Notes to the financial statements. Required supplementary information concerning the Authority's progress in funding its obligation to provide pension benefits to employees is separately presented. Other supplementary information that further explains and supports information in the basic financial statements immediately follows the notes. Combining schedules provide information for the separate Authority programs. The Schedule of Expenses of Federal Awards provides detail of Federal Assistance, followed by explanatory notes. The compliance section is required under provisions of the Single Audit Act and the U.S. Office of Management and Budget Circular A-133, 11 Audits of State, Local Governments, and Non-profit Organizations; and includes auditors' reports on compliance and internal controls. FINANCIAL ANALYSIS The Virginia Resources Authority's (Authority) lending programs significantly reduce the cost of financing local infrastructure projects. The Authority provides low-cost, custom tailored financing through its bond issuing program and the revolving loan programs. As noted earlier, net assets may serve as a useful indicator of the Authority's financial position. At the close of the most recent year, the Authority's assets exceeded the liabilities by $1.309 billion (net assets). The largest portion of net assets is restricted net assets (98.9%) which are restricted primarily for the purpose of making loans under the various programs the Authority administers. Restricted net assets also include a $7.4 million operating reserve fund described further in note 7. See Table 1. Total assets of $4.1 billion increased by $200 million or 5.1%, the increase in assets is primarily the result of increased lending in the Clean Water Revolving Loan Fund (CWRLF), and the Virginia Pooled Financing Program (VPFP), net of payments, payoffs, and refundings. Assets primarily consist of loans receivable (82.7%) from participating localities and other governmental entities in the Commonwealth of Virginia. The Authority's source for providing loans is a combination of bond issues and contributions from the State and Federal governments. See note 4 for additional information for loans receivable. Total liabilities of $2.8 billion increased by $159 million or 6%, mostly from three new bond issuances. Liabilities primarily consist of bonds payable (98.7%). See Note 6 for additional information on bonds payable. See Table 2. Operating revenue of $128.3 million decreased by $11 million or 7.9%. Operating expenses of $185.9 million increased by $20.6 million or 12.5%. Operating loss of $57.6 million decreased by $31.6 or 122.1% . At the end of fiscal year 2011, net assets increased $41.5 million or 3.3% to $1.309 billion. Operating revenues of $128.3 million decreased $11 million (-7.9%). This change was mostly driven by a decrease in investment earnings due to a low interest rate environment and gains from early extinguish of loan payoffs by local borrowers ($13.6 million). The decrease was offset by an increase in loan interest income earned ($2.7 million) from the increased lending through the Revolving Loan Funds and Virginia Pooled Financing Programs. Operating expenses of $185.9 million increased $20.6 million (12.5%). This increase was mostly the result of the Principal Forgiveness loans to local governments of $59.4 million from the completion of construction projects related to the funding provided under the American Recovery and Reinvestment Act (ARRA). The Operating Loss this year of $57.6 million is due to the presentation of the ARRA pass-through funding to localities in the form of principal forgiveness loans under Operating expenses, with the corresponding revenue reflected as part of Nonoperating revenue. This approach is consistent with the way the Authority has reported transactions similar in nature in the past. Operating income decreased by $31.6 million compared with that of the prior fiscal year. Aside from the impact of the ARRA presentation mentioned previously, the decrease resulted from the decline in investment income of $6.3 million. The decline in investment income was mostly due to a $108 million reduction in investments to fund construction draws for Clean Water Revolving Loan Fund projects combined with low earnings yields as a result of a waning confidence in the economy, slow GDP growth, and an increased allocation to U.S. government securities by investors. Nonoperating revenue increased $29.1 million to $99.1 million (42%). This change was primarily due to increased ARRA and EPA Cap Grant funding. 12 Table 1 Virginia Resources Authority Statement of Net Assets (In thousands of dollars) $ June 30, 2011 Assets Current assets: Cash Cash equivalents Investments Loans receivable - current portion (Note 4) Receivables: Investment interest Loan interest Loan administrative fees Federal funds Other Deferred charges Other Total current assets $ $ 10,446 225,972 154,624 147,081 $ Change 2011 - 2010 11,806 22,555 (84,708) 22,875 113.0% 10.0% -54.8% 15.6% 2,670 28,660 1,103 1,214 12 5,402 6 549,718 304,366 2,959,076 44,781 (23,189) 254,752 259 -7.6% 8.6% 0.6% 18 3,308,241 3,889,775 111 231,933 200,117 616.7% 7.0% 5.1% 1,557 102,469 22,967 262 175 914 128,344 7 5,332 1,606 3,193 2 (454) 9,686 4,100 2,636,602 2,205 131 2,643,038 2,781,068 5,668 2,483,087 2,028 3,366 2,494,149 2,622,493 (1,568) 153,515 177 (3,235) 148,889 158,575 129 $ -9.4% 4.8% 9.3% -81.8% -68.4% 0.2% -57.1% -5.5% 1,564 107,801 24,573 3,455 177 460 138,030 Noncurrent liabilities: Loans payable - less current - net Bonds payable - less current - net (Note 6) Deferred revenue Arbitrage rebate liability Total noncurrent liabilities Total liabilities (278) 1,314 94 (5,451) (26) 11 (8) (31,816) 129 3,540,174 4,089,892 Liabilities Current liabilities: Loans payable - current portion Bonds payable - current portion (Note 6) Accrued interest on bonds payable Arbitrage rebate liability Deferred revenue Accounts payable and other liabilities Total current liabilities 2,948 27,346 1,009 6,665 38 5,391 14 581,534 281,177 3,213,828 45,040 Noncurrent assets: Investments Loans receivable - less current - net (Note 4) Deferred charges Furniture and fixtures - at cost less accumulated depreciation Total noncurrent assets Total assets Net assets Invested in capital assets Restricted (Note 7): Loan Programs Operating Reserve Unrestricted Total net assets 22,252 248,527 69,916 169,956 % Change 2011 - 2010 June 30, 2010 18 111 616.7% 1,294,066 7,373 7,257 1,308,825 1,253,671 7,248 6,345 1,267,282 40,395 125 912 41,543 3.2% 1.7% 14.4% 3.3% $ 13 $ 0.4% 5.2% 7.0% 1218.7% 1.1% -49.7% 7.5% -27.7% 6.2% 8.7% -96.1% 6.0% 6.0% Table 2 Virginia Resources Authority Combining Schedule of Revenues, Expenses, and Changes in Net Assets (In thousands of dollars) Year Ended June 30, 2011 Operating revenues Interest on loans Investment income Bond administration fees Loan administration fees Administrative reimbursement Administrative reimbursement - ARRA Gain on early extinguishment of loans Other Income Total operating revenues Operating expenses Interest on bonds and loans Grants to local governments Principal Forgiveness loans to local governments Loss on early extinguishment of bonds Personnel services General operating Contractual services Total operating expenses $ $ 112,019 12,292 2,017 1,538 289 20 76 51 128,302 $ 109,315 18,570 2,255 1,186 189 176 7,400 266 139,357 $ % Change 2011 - 2010 June 30, 2010 Change 2011 - 2010 2,704 (6,278) (238) 352 100 (156) (7,324) (215) (11,055) 2.5% -33.8% -10.6% 29.7% 52.9% -88.6% -99.0% -80.8% -7.9% 116,916 6,971 59,394 99 1,448 513 527 185,868 116,611 6,505 31,907 7,305 1,200 746 1,006 165,280 305 466 27,487 (7,206) 248 (233) (479) 20,588 0.3% 7.2% 86.1% -98.6% 20.7% -31.2% -47.6% 12.5% (57,566) (25,923) (31,643) 122.1% Nonoperating revenue Contributions from other governments Contributions from other governments - ARRA Interest subsidy - Build America Bonds 38,006 61,042 2,250 35,878 34,128 792 2,128 26,914 1,458 5.9% 78.9% 184.1% Nonoperating expense Interest subsidy passthrough - Build America (2,189) (1,415) 182.8% Change in net assets 41,543 44,101 (2,558) -5.8% Total net assets - beginning 1,267,282 1,223,181 44,101 3.6% Total net assets - ending 1,308,825 1,267,282 41,543 3.3% Operating income (loss) 14 (774) DEBT ADMINISTRATION As a financing entity, the Authority's purpose and objective is to issue and administer debt on behalf of other entities. The Authority issues bonds to finance infrastructure projects approved by the local governing bodies of counties, cities, towns, and service authorities of the Commonwealth of Virginia. Depending upon the program, all of the Authority's bonds are secured by either: (a) a pledge of the full faith and credit of the municipality, (b) a pledge of certain revenues of the municipality and funds and accounts established under the applicable bond resolution or indenture, and/or (c) the lease. The Authority obtains bond ratings from one or more of the following: Moody's Investor Service (Moody's), Standard & Poor's (S&P), and Fitch Ratings (Fitch). The Authority to date has achieved an investment grade of "AA" or better on all bond issues. In all Clean Water State Revolving Fund leveraged issues VRA has obtained a AAA rating from all three agencies. Under the senior/subordinate structure in the Virginia Pooled Financing Program, the senior portion of the structure (70%) has been rated "AAA" and the subordinate portion (30%) has been rated "AA." These ratings were affirmed on subsequent issues. In addition, Moody's maintains its "Aa2" rating on the Authority's outstanding VARF bonds and Fitch maintains a \"AA\" rating. During the fiscal year ended June 30, 2011 the Authority issued three bond series for the VPFP, Series 2010B, Series 2010C, and Series 2011A for cumulative par amounts of $289,435,000. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the Authority's finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Controller, Virginia Resources Authority, 1111 E. Main Street, Suite 1920, Richmond, VA 23219, or telephone (804) 644-3100, or visit the Authority's website at www.virginiaresources.org. 15 Virginia Resources Authority Statement of Net Assets June 30, 2011 Assets Current assets: Cash Cash equivalents Investments Loans receivable - current portion (Note 4) Receivables: Investment interest Loan interest Loan administrative fees Federal funds Other Deferred charges - current portion Other Total current assets $ 22,252,363 248,527,398 69,915,931 169,956,344 2,669,986 28,659,727 1,103,211 1,213,897 12,120 5,401,797 5,926 549,718,700 Noncurrent assets: Investments Loans receivable - less current - net (Note 4) Deferred charges - less current - net Furniture and fixtures - at cost less accumulated depreciation of $46,021 (Note 5) Total noncurrent assets Total assets 281,177,189 3,213,828,299 45,039,636 128,757 3,540,173,881 4,089,892,581 Liabilities Current liabilities: Loans payable - current portion Bonds payable - current portion (Note 6) Accrued interest on bonds payable Arbitrage rebate liability Deferred revenue - current portion Accounts payable and other liabilities Total current liabilities 1,563,814 107,800,805 24,573,044 3,455,351 176,653 460,217 138,029,884 Noncurrent liabilities: Loans payable - less current - net Bonds payable - less current - net (Note 6) Deferred revenue - less current - net Arbitrage rebate liability Total noncurrent liabilities Total liabilities 4,100,078 2,636,601,885 2,204,995 131,352 2,643,038,310 2,781,068,194 Net assets Invested in capital assets Restricted (Note 7): Loan Programs Operating Reserve Unrestricted Total net assets 128,757 $ The accompanying notes to the financial statements are an integral part of this financial statement. 16 1,294,065,576 7,372,612 7,257,442 1,308,824,387 Virginia Resources Authority Statement of Revenues, Expenses, and Changes in Net Assets Year Ended June 30, 2011 Operating revenues Interest on loans Investment income Bond administrative fees Loan administrative fees Administrative reimbursement Administrative reimbursement - ARRA Gain on early extinguishment of loans Other income Total operating revenues $ 112,018,532 12,291,706 2,017,221 1,538,438 288,892 20,494 76,261 51,017 128,302,561 Operating expenses Interest on bonds and loans Grants to local governments Principal forgiveness loans Loss on early extinguishment of bonds Personnel services General operating Contractual services Total operating expenses 116,916,498 6,971,034 59,394,358 98,553 1,448,242 513,357 527,403 185,869,445 Operating loss (57,566,884) Nonoperating revenues Contributions from other governments (Note 9) C t ib ti f th t (N t Contributions from other governments - ARRA (Note 9) Interest subsidy - Build America Bonds 38,006,087 61 042 257 61,042,257 2,250,211 Nonoperating expense Interest subsidy passthrough - Build America Bonds (2,188,923) Change in net assets 41,542,748 Total net assets - beginning 1,267,281,639 Total net assets - ending $ The accompanying notes to the financial statements are an integral part of this financial statement. 17 1,308,824,387 Virginia Resources Authority Statement of Cash Flows Year Ended June 30, 2011 Cash flows from operating activities Cash payments to localities for loans Principal repayments from localities on loans Interest received on loans Bond administrative fees received Loan administrative fees received Federal administrative reimbursement funds received Federal administrative reimbursement funds received - ARRA Cash received from other income Cash payments for salaries and related benefits Cash payments for contractual services Cash payments for general operating expenses Cash payments for operating grants Cash payments for principal forgiveness loans Interest paid on loans Interest paid on bonds Net cash used in operating activities $ Cash flows from noncapital financing activities Proceeds from sale of bonds Bond issuance costs Principal paid on loans Principal paid on bonds Arbitrage rebate Proceeds from interest subsidy - Build America Bonds Cash payments to localities for interest subsidy Contributions from other governments Contributions from other governments - ARRA Net cash provided by noncapital financing activities (489,975,117) 210,479,070 111,241,355 1,781,120 1,500,938 137,044 103,977 76,427 (1,503,732) (654,248) (517,920) (6,971,033) (59,394,358) (184,302) (118,238,699) (352,119,478) 312,246,987 (2,825,090) (1,561,273) (146,238,450) (228,382) 1,984,501 (1,932,221) 43,715,083 60,781,975 265,943,130 Cash flows from capital and financing related activities Purchase of office equipment Net cash used in noncapital financing activities (114,833) (114,833) Cash flows from investing activities Purchase of investments Proceeds from sales or maturities of investments Interest received on investments - net Net cash provided by investing activities (87,291,388) 194,987,498 12,957,376 120,653,486 Net increase in cash and cash equivalents 34,362,305 Cash and cash equivalents Beginning of year 236,417,456 End of year $ The accompanying notes to the financial statements are an integral part of this financial statement. 18 270,779,761 Virginia Resources Authority Statement of Cash Flows (Continued) Year Ended June 30, 2011 Reconciliation of operating income to net cash used in operating activities Operating loss Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation Interest on investments Gain on early extinguishment of loans Loss on early extinguishment of bonds Interest on loans Interest on bonds, amortization and accretion - net Effect of changes in operating assets and liabilities: Loans receivables Loan interest receivable Loan administrative fee receivable Other receivables Deferred charges Other current assets Accounts payable and other liabilities Deferred revenue Total adjustments $ (57,566,884) 3,554 (12,291,706) (76,261) 98,553 (12,446) (6,957,271) (279,496,046) (777,176) (93,867) (42,958) 5,463,211 8,431 (198,877) (179,735) (294,552,594) Net cash used in operating activities $ The accompanying notes to the financial statements are an integral part of this financial statement. 19 (352,119,478) Virginia Resources Authority Notes to Financial Statements June 30, 2011 1. Organization and Nature of Activities The Virginia Resources Authority (Authority) was created in 1984 by an Act of the General Assembly of the Commonwealth of Virginia. The Authority encourages the investment of both public and private funds and is authorized to make loans and grants available to local governments to finance such projects as: water, sewer, storm drainage, solid waste disposal, federal facilities, public safety, aviation, brownfields remediation, transportation, Chesapeake Bay cleanup, dam safety, land conservation and preservation, local government buildings, energy, parks and recreation facilities, and broadband. General Assembly legislation added projects for administrative and operations systems and site acquisition & development for economic & community development. The Authority's enabling legislation states that the bonds issued by the Authority do not constitute a debt or pledge of the full faith and credit of the Commonwealth of Virginia (Commonwealth) or any political subdivision thereof, other than the Authority. The bonds are payable solely from the revenue, money, or property of the Authority pledged thereon. The Authority is, however, empowered to issue bonds secured by the moral obligation of the Commonwealth, of which a maximum of $1.5 billion may be outstanding at any time. The Authority is governed by a Board of Directors consisting of eleven members. Seven members are appointed to four year terms by the Governor, subject to confirmation by the General Assembly. Other members consist of the State Treasurer, the State Health Commissioner, the Director of the Department of Environmental Quality or his designee, and the Director of the Department of Aviation or his designee. The Governor appoints the Chairman of the Board. The Governor also appoints the Executive Director of the Authority, who reports to, but is not a member of the Board of Directors. The Executive Director serves as the ex officio secretary of the Board of Directors and administers, manages and directs the affairs and activities of the Authority in accordance with the policies and under the control and direction of the Board of Directors. For financial reporting purposes, the Authority is a component unit of the Commonwealth. The accounts of the Authority, along with other similar types of funds, are included as a discretely presented component unit of the Commonwealth. The financial statements of the Authority include the activities of the Virginia Water Facilities Revolving Fund (VWFRF), the Virginia Water Supply Revolving Fund (VWSRF), the Virginia Airports Revolving Fund (VARF), the Virginia Dam Safety and Flood Prevention Fund (VDSFPF), and the Equipment and Term Financing program (ETF) which are described in more detail below. The VWFRF was created in 1986 and received its first state appropriation on July 1, 1987. The VWFRF's purpose is to make discounted interest rate loans to municipalities under the Environmental Protection Agency's (EPA) Capitalization Grants for State Revolving Funds. The VWFRF's enabling legislation provides that the program is jointly administered by the Authority and the Commonwealth's Department of Environmental Quality (DEQ). The accounts of the VWFRF are in these financial statements, except for certain administrative expenses incurred by the DEQ for the VWFRF and the associated reimbursement of the federal share of these expenses is included in the financial statements of the DEQ. Until 1999, the sole source of financial assistance to localities for wastewater projects under the VWFRF was the Direct Loan program. The available resources for the Direct Loan program, however, were determined to be insufficient to meet the demand for financial assistance from municipalities. In response, the Authority and DEQ, with the concurrence of the EPA, decided to leverage the VWFRF through the issuance of bonds. The Authority is authorized to transfer assets of the VWFRF to funds and accounts pledged to collateralize bonds issued by the Authority. Such assets consist of federal capitalization grants, Commonwealth Matching Share funds, and any other monies appropriated or otherwise deposited by the Commonwealth to the VWFRF, including amounts repaid by municipalities to the VWFRF from loans represented by the local bonds, and earnings on the investment of any of the foregoing. The Authority and DEQ still make Direct Loans from the VWFRF, but by leveraging the VWFRF, the Authority can provide financing for more projects than before. 20 Virginia Resources Authority Notes to Financial Statements June 30, 2011 During 1999, the General Assembly expanded the scope of the VWFRF allowing the State Water Control Board to loan money for the construction of facilities or structures supporting environmental goals of agricultural best management practices. The program attempts to reduce agricultural nonpoint source pollution of Virginia waters. To date, $15 million has been set aside from the VWFRF to fund the program. The accounts of this program are combined with those of the VWFRF in the Authority's financial statements and are commonly referred to as Agriculture Best Management Practices (AgBMP) loans. The VWSRF was created in 1987 and received its first state appropriation on July 1, 1988. In 1997, the VWSRF was brought into compliance with the Safe Drinking Water Act Amendments of 1996, which allowed the establishment of a drinking water state revolving loan fund. The VWSRF's purpose is to make discounted interest rate loans to local governments to finance water supply facilities and certain nonconstruction activities under the EPA's Capitalization Grants for State Revolving Funds. The VWSRF's enabling legislation provides that the program will be jointly administered by the Authority and the Commonwealth of Virginia Department of Health (VDH). The accounts of the VWSRF are in these financial statements, except for certain administrative expenses incurred by the VDH for the VWSRF and the associated reimbursement of these expenses, which are included in the financial statements of the VDH. In 2000, the VARF was funded with $25 million. The VARF finances local government-owned aviation projects at discounted rates for general aviation, reliever, and commercial airports across Virginia. In February 2001, the first bonds were issued by the Authority, which leveraged the VARF to provide funds for loans to three of Virginia's airports. In June 2002, $2 million was returned to the Commonwealth to be used for other purposes. The VARF can also make direct loans out of current balances, released bond proceeds, and newly appropriated funds. The Authority's VDSFPF was created in 2006 and received its first appropriation from existing State funds on July 1, 2006. The VDSFPF's purpose is to make grants or loans to local governments for the development and implementation of flood prevention or protection projects, or for flood prevention or protection studies. In addition, the VDSFPF can be used to make grants or loans to local governments owning dams and to make loans to private entities for the design, repair and the safety modifications of qualifying dams, and to make grants for the mapping and digitization of dam break inundation zones. The VDSFPF's enabling legislation provides that the program will be jointly administered by the Authority and the Virginia Department of Conservation and Recreation (VDCR). The Equipment and Term Financing Program (ETF) was authorized beginning July 2007 to enhance financing options for terms up to fifteen years. Ideally suited for equipment purchases, any eligible Authority project area can be funded in this program. Several local governments already have used the loan program to meet their public safety and solid waste operation needs. The program is funded with a banking partner selected through a rigorous procurement process. The Authority offers the banking partner its unique credit enhancement to obtain the most competitive rates for the Authority's borrowers. 21 Virginia Resources Authority Notes to Financial Statements June 30, 2011 2. Summary of Significant Accounting Policies Basis of Accounting The Authority utilizes the economic resources measurement focus and the accrual basis of accounting in preparing its financial statements where revenues are recognized when earned and expenses are recognized when incurred. The Authority has adopted Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting. The Authority has elected not to apply Financial Accounting Standards Board pronouncements issued after November 30, 1989, as allowed by GASB Statement No. 20. Basis of Presentation The accounts of the Authority are organized on the basis of programs and activities, each of which is considered a separate accounting entity. The operations of each program are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, net assets, operating revenues, operating expenses and other nonoperating revenue and expenses. All of the authorities programs and activities are reported as a single reporting entity conforming to accounting principles generally applicable to the transactions of similar entities that use Proprietary Fund accounting. Use of Estimates The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management of the Authority to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosures of contingencies at the date of the financial statements and revenues and expenses recognized during the reporting period. Actual results could differ from those estimates. Risk Management The Authority carries commercial insurance for various risks of loss including property, workers' compensation, theft, general liability, errors and omissions, employee health and accident, and public officials' liability. There have been no claims which have exceeded the amount insured resulting from these risks during the current year and there was no reduction in insurance coverage during fiscal year 2011. Cash Equivalents For purposes of the statement of cash flows, cash equivalents are restricted to investments with original remaining maturities when purchased of three months or less, or investments purchased as short-term securities and not expected to be held to maturity. Investments Investments, principally U.S. government obligations, corporate obligations and municipal bonds, are carried at fair value with the change in fair value recognized as a component of interest on investments. Fair values of investments are based on quoted market prices at year-end. The Authority also participates in the Commonwealth of Virginia Local Government Investment Pool (LGIP); a non-SEC registered external pool, rated AAAm by Standard and Poor's. The LGIP is managed consistent with Securities and Exchange Commission Rule 2a-7 money market fund requirements. Pursuant to Sec. 2.1-234.7 Code of Virginia, the Treasury Board of the Commonwealth of Virginia sponsors the LGIP and has delegated certain functions to the State Treasurer. The LGIP reports to the Treasury Board at their regularly scheduled meetings and the fair value of the position in the LGIP is the same as the value of the pool shares. 22 Virginia Resources Authority Notes to Financial Statements June 30, 2011 Loans Receivable Loans receivable are reported at the unpaid principal balances. The Authority receives fees relating to the origination of loans. Certain of these fees are received at the origination of a loan and other fees are received over the life of the related loans. The fees received at the origination of a loan are recorded as deferred revenue and amortized as a yield adjustment using the effective interest method over the lives of the related loans. Loan origination costs incurred by the Authority are not deferred as they are deemed immaterial with certain costs being reimbursed. Allowance for Loan Losses The Authority performs an annual review of all borrowers in VRA's loan portfolio. The review includes performing various liquidity ratios and reviewing rate covenant calculations on existing loans to identify any potential issues with loan repayments. As of June 30, 2011, all loan payments were current and there were no loans in default. In addition, there were no loans that were determined to have payment issues based on the annual review, therefore no allowance for loan losses was considered necessary. In the event management determines a material loss is anticipated, a provision for the loss will then be provided. Capital Assets Capital assets are defined by the Authority as assets with an initial, individual cost of more than $5,000 and an estimated useful life greater than 3 years. Such assets are recorded at historical cost and are depreciated over the useful life of the asset using the straight-line method. The Authority follows the Commonwealth's Accounting Policies and Procedures Manual (CAPP) for assigning estimated useful lives to its capital assets. The CAPP assigns an estimated useful life of 5 years to office equipment. Bond Discounts, Premiums, Bond Issuance Expenses and Loss on Refinancing Bond discounts, premiums, and bond issuance expenses are amortized over the lives of the related issues using the effective interest method. Loss on refinancing is amortized over the original remaining life of the old debt or life of the new debt, whichever is less. The unamortized discounts are shown on the accompanying statement of net assets as a reduction of the bonds payable, and the amortization is included in the statement of revenues, expenses, and changes in net assets as interest expense. The unamortized issuance expenses and loss of refinancing are shown on the accompanying statement of net assets as deferred charges and the amortization is included in the statement of revenues, expenses, and changes in net assets as a component of interest expense. The unamortized premiums are shown on the accompanying statement of net assets as an addition to the bonds payable and the amortization is included in the statement of revenues, expenses and changes in net assets as interest revenue. Arbitrage Rebate Liability The U.S. Treasury has issued regulations on calculating the rebate due to the Federal government on arbitrage profits and determining compliance with the arbitrage rebate provisions of the Tax Reform Act of 1986. Arbitrage profits arise when the Authority temporarily invests the proceeds of tax exempt debt in securities with higher yields. The authority treats the estimated rebate payable as a reduction of available sources in the program that earned the arbitrage profit. Accordingly, interest earnings are reduced by the amount with a corresponding arbitrage rebate liability separately reported. 23 Virginia Resources Authority Notes to Financial Statements June 30, 2011 Net Assets Components of net assets include the following: Invested in capital assets amounts are those associated with non-liquid, capital assets, less any associated outstanding debt. As of June 30, 2011, none of the authority's capital assets had related debt outstanding. Restricted amounts are assets less related liabilities reported in the statement of net assets that are subject to constraints on their use by creditors, grantors, contributors, or legislation. Unrestricted amounts are those currently available at the discretion of the Authority's Board for use in the Authority's operations. Pass Through Grants The Authority accounts for grants or other financial assistance that is transferred to a secondary recipient as revenues and expenses. Operating Revenues and Expenses The Authority's policy is to report all revenues and expenses, including interest revenues from loans and investments as well as interest expense on bonds payable, as operating revenues and expenses. This conclusion was reached because such revenues and expenses are integral to the operations of the Authority. All cash flows related to bond issuance and administration are included in cash flows from non-capital financing activities on the statement of cash flows. All cash flows related to investment activity are included in cash flows from investing activities on the statement of cash flows. 3. Cash, Cash Equivalents and Investments Cash is maintained in accounts insured by the Federal Deposit Insurance Corporation or are collateralized under provisions of the Commonwealth of Virginia Security for Public Deposits Act, Sec. 2.2-4400 et. seq. of the Code of Virginia. There were no amounts that were uninsured or uncollateralized at June 30, 2011. Investment Policy In accordance with the Code of Virginia (1950), as amended, and other applicable laws and regulations, the Authority's investment policy (Policy) permits investments in U.S. Government or Agency obligations, obligations of the Commonwealth of Virginia or political subdivisions thereof, negotiable certificates of deposit, negotiable bank deposit notes, repurchase agreements, bankers' acceptances, prime quality commercial paper, corporate notes of domestic corporations, mortgage or asset-backed securities, money market funds, guaranteed investment contracts (GICs), and the State Treasurer's Local Government Investment Pool. 24 Virginia Resources Authority Notes to Financial Statements June 30, 2011 As of June 30, 2011, the Authority had the following cash equivalents and investments and maturities: Investment Type Commercial Paper Corporate Bonds and Notes Guaranteed Investment Contracts Local Government Investment Pool Money Market Funds Money Market Funds-Gov't Securities Certificates of Deposit U.S. Agency Securities U.S. Treasury Securities Totals Investment Maturities (in Years) Less than 1 1-5 6-10 Fair Value $ 111,774,935 $ 957,347 97,058,221 121,458,754 20,769 13,023,582 2,844,746 52,683,934 199,798,230 $ 599,620,518 111,774,935 $ 795,177 1,855,000 121,458,754 20,769 13,023,582 2,844,746 49,418,650 17,251,716 $ 318,443,329 More than 10 - $ - $ 162,170 40,000 485,000 94,678,221 3,196,622 54,251 14,411 9,623,314 13,794,415 159,128,785 $ 13,022,106 $ 14,333,666 $ 253,821,417 Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The Authority places emphasis on securities of high credit quality and marketability. The Policy requires that bankers' acceptances, negotiable certificates of deposit, and negotiable bank notes, all maturing within one year, have a rating of no less than \"P-1\" by Moody's Investors Service (Moody's) and \"A-1\" by Standard & Poor's Ratings Group (S&P). Commercial paper must have a short-term debt rating of no less than \"A-1\" (or its equivalent) from at least two nationally recognized rating agencies, one of which must be Moody's or S&P. Corporate notes and bonds, negotiable certificates of deposit, and negotiable bank notes maturing in less than five years must have no less than a \"Aa\" rating by Moody's or an \"AA\" by S&P. Asset-backed securities maturing in less than five years must have no less than a \"AAA\" rating by at least two nationally recognized rating agencies, one of which must be Moody's or S&P. GICs must be held with financial institutions with long-term credit ratings of at least \"Aa\" by Moody's or \"AA\" by S&P. The various bond indentures require that bond fund investments, or any collateralizing securities, have no less than a \"AA\" rating by at least one nationally recognized rating agency. Although state statute does not impose credit standards on repurchase agreements or money market mutual funds, the Authority has established stringent credit standards for these investments to minimize portfolio risk. 25 Virginia Resources Authority Notes to Financial Statements June 30, 2011 At June 30, 2011, the Authority had the following cash equivalents and investments and ratings: Standard & Percent Investment Fair Value Poor's Rating of Portfolio Prime Quality Commercial Paper 111,774,935 A-1+ 18.64% Corporate Bonds and Notes - AA+ 65,922 AA+ 0.01% Corporate Bonds and Notes - AA 75,663 AA 0.01% Corporate Bonds and Notes - AAA 815,762 AAA 0.14% Guaranteed Investment Contracts 97,058,221 See below 16.19% Local Government Investment Pool 121,458,754 AAAm 20.26% Money Market Funds 20,769 AAAm 0.00% Money Market Funds - Government Securities 13,023,582 AAAm 2.17% Negotiable Certificate of Deposit * 2,844,746 AAA 0.47% U.S. Agency Securities 52,683,934 AAA 8.79% U.S. Treasury Securities 199,798,230 AAA 33.33% Totals $ 599,620,518 100.01% * Negotiable Certificate of Deposits are fully collateralized with US Government Securities. The Guaranteed Investment Contracts (GICs) that comprise 16.19% of the investment portfolio were entered into based upon the credit rating of the GIC provider. The Moody's ratings of the GIC providers are as follows: Provider Trinity Plus Salomon Smith Barney (Citigroup) FNMA FSA / Assured Guaranty Fair Value $ 23,157,504 5,055,641 1,515,000 67,330,076 Totals $ 97,058,221 Moody's Rating Aa2 A3** Aaa Aa3 Percent of Portfolio 3.86% 0.85% 0.25% 11.23% 16.19% ** Rating fell below approved level (Aa) and was collateralized with US Treasury and Agency securities in accordance with the Credit Risk Policy. Concentration of Credit Risk Concentration of credit risk is related to the risk of loss that may be attributed to the magnitude of a government's investment in a single source. The Policy establishes limitations on portfolio composition in order to control concentration of credit risk. For policy monitoring the US Treasury Security category includes Money Market Funds limited to that investment type ($10,485,696 for Disbursement Funds, $2,199,156 for General Funds, and $338,730 for Bond Funds). The maximum percentage of the portfolio permitted in each security (by fund type) is as follows: 26 Virginia Resources Authority Notes to Financial Statements June 30, 2011 Disbursement Funds Investment Type Agency Mortgage-Backed issued by U.S. Government or Federal Agencies Asset Backed Securities of authorized corporations or Federal Agencies Bankers' Acceptance Prime Quality Commercial Paper Corporate Bonds and Notes Local Government Investment Pool Money Market Funds Negotiable Certificates of Deposit U.S. Agency Securities U.S. Treasury Securities Fair Value $ 0% 25% 5,062 108,022,801 50,403,307 10,485,696 0% 0% 0% 0% 64% 0% 0% 30% 6% 25% 25% 25% 25% 100% 10% 10% 100% 100% $ 168,916,866 Totals - Percent of Portfolio Maximum 100% Appropriated Funds Investment Type Agency Mortgage-Backed issued by U.S. Government or Federal Agencies Asset Backed Securities of authorized corporations or Federal Agencies Bankers' Acceptance Prime Quality Commercial Paper Corporate Bonds and Notes Local Government Investment Pool Money Market Funds Negotiable Certificates of Deposit U.S. Agency Securities U.S. Treasury Securities Fair Value $ $ 27 0% 25% 13,426,163 - Totals - Percent of Portfolio Maximum 0% 0% 0% 0% 100% 0% 0% 0% 0% 25% 25% 25% 25% 100% 10% 10% 100% 100% 13,426,163 100% Virginia Resources Authority Notes to Financial Statements June 30, 2011 General Fund Investment Type Agency Mortgage-Backed issued by U.S. Government or Federal Agencies Asset Backed Securities of authorized corporations or Federal Agencies Banker's Acceptance Prime Quality Commercial Paper Corporate Bonds and Notes Local Government Investment Pool Money Market Funds Negotiable Certificates of Deposit U.S. Agency Securities U.S. Treasury Securities Percent of Portfolio Maximum Fair Value $ 0% 25% 2,097,153 957,347 9,790 2,280,627 6,395,349 0% 0% 18% 8% 0% 0% 0% 19% 55% 25% 25% 25% 25% 100% 10% 10% 100% 100% $ 11,740,266 Totals - 100% Further, the combined amount of mortgage pass-through securities and asset-backed securities in the General Fund may not exceed 50% of the total book value of the portfolio. As of June 30, 2011, bond fund investments totaled $405,537,223. The Policy does not establish limitations on the portfolio