College savings plan fund loses $85 million

State officials are investigating the management of a fund in Illinois' college savings program that lost $85 million last year.

State Treasurer Alexi Giannoulias told investors Wednesday that he's working with Attorney General Lisa Madigan's office to look into how the Core Plus fund was managed.

Giannoulias intends to take "some kind of legal action" in the matter, said spokesman Scott Burnham. As of Dec. 4, all new contributions to the Core Plus fund have been diverted to short-term U.S. Treasuries.

In his letter to investors, Giannoulias said the fund "severely underperformed" last year and some account holders experience "significant losses."

The fund plummeted 38 percent and had a net asset value at the end of 2008 of about $271 million, Burnham said. Giannoulias is hoping to recover some of the lost money, he said.

Oppenheimer Funds, which managed Core Plus, intends to cooperate with any investigation, Giannoulias said.

Oppenheimer Funds' chief economist and former head of fixed income, Jerry Webman, said the losses occurred partly because the market didn't perform as expected.

"The fund was overwhelmingly invested in government bonds and top rated debt securities. In that regard we did just exactly what we were supposed to do. ... But there was unprecedented volatility in these markets, and the securities we owned did not behave according to any historic precedent," Webman said.

Burnham said college savings plans in Texas, Maine, New Mexico and Oregon have the same fund. The fund has had losses in those states.