Florida Prepaid College Board ANNUAL REPORT

Transcription

1 Florida Prepaid College Board 2012 ANNUAL REPORT

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3 TABLE OF CONTENTS Page 1 Page 3 Page 5 Page 7 Page 13 Page 17 Page 51 Page 57 Chairman s Message Paving the Way for the Future Florida Prepaid College Board Florida Prepaid College Plans Florida 529 Savings Plan Financial Statements Actuarial Report Board Members In 2006, the program was renamed The Stanley G. Tate Florida Prepaid College Program in recognition of the outstanding dedication and service of the founding chairman. The Florida Prepaid College Plan is financially guaranteed by the state of Florida. Section (7), Florida Statutes. Unlike the Florida Prepaid College Plan, investments in the Florida 529 Savings Plan are not insured or guaranteed and you could lose all or a portion of your investment. Nothing in this publication should be construed as financial, investment, legal or tax advice. Consult your own advisors before investing. The Florida Prepaid College Board is the source of all information included in this Annual Report unless otherwise noted.

4 CHAIRMAN S MESSAGE It is my honor to present the 2012 Florida Prepaid College Board Annual Report. For the past 24 years, the Florida Prepaid College Board has offered Florida families peace of mind by providing a secure and taxfree method to financially prepare for their children s future higher education costs. While the nation s economic conditions have begun to improve, saving for higher education is still difficult for many Florida families. Tuition continues to climb at alarming rates, causing many to question the value of a college education. And 2012 marked the first time that student loan debt, which has reached the trilliondollar mark, exceeded credit card debt in America. Still, the fact remains that a college degree is an important element in helping individuals achieve all that they desire in life. Florida families have recognized the value of a higher education and the importance of saving for their child s education early with nearly one out of 10 Florida children from newborns to high school students having a Prepaid College Plan. It is through this personal commitment that the Florida Prepaid College Plan has grown to become the longest continuous running prepaid plan in the nation. In addition, there are more than 33,000 active accounts in the Florida 529 Savings Plan. Key program accomplishments since the Plan s inception in 1988 include: An entire generation of Florida Prepaid College Plan students have gone to college, including nearly 320,000 students who have used their benefits since More than 105,000 students were actively using their Prepaid Plan benefits during the 2001 fall semester. Families have purchased more than 1.5 million Florida Prepaid College Plans covering tuition, local fees, dormitory housing and the university tuition differential fee. The market value of the Florida 529 Savings Plan increased by more than $27 million in the last year. 1

5 For the enrollment period, four Prepaid Plan options were offered, giving families a more comprehensive means to securely save for tuition and most mandatory fees. Created in response to the evolving Florida College System, the recently introduced 4Year Florida College Plan has garnered much success. The plan provides families additional saving options, fulfilling a variety of college savings budgets and goals. With the 4Year Florida College Plan, students are able to obtain a bachelor s degree at one of the state s 28 colleges. The enclosed actuarial report reflects that the Trust Fund has 12.1 billion in assets and liabilities of 11.6 billion resulting in an actuarial reserve of $569 million as of June 30, Now is the time for families to start preparing and saving early for their child s higher education. We look forward to continuing our mission of helping Floridians save for future qualified higher education expenses by providing a cost effective, financially sound Prepaid College Plan and other college savings programs. Sincerely, Duane L. Ottenstroer Chairman, Florida Prepaid College Board 2

6 PAVING THE WAY FOR THE FUTURE Since 1988, Florida Prepaid College Plans have made a college degree accessible for millions of Floridians. With our help, families have been able to plan for their children s and grandchildren s futures. These quotes represent just a few of the stories we ve helped to inspire. Even before having children, I was anxious about future college costs and how I would be able to afford it. When the Florida Prepaid College Plan became available I soon enrolled my young daughter into the 4Year University Plan, and not long after my second daughter. Early enrollment kept the costs affordable through the years and brought me great peace of mind. Between the Florida Prepaid College Plan and the Bright Futures Scholarship, the only costs I paid out of pocket for their fouryear degrees were the application fees! Today I have two young grandchildren whom I enrolled while they were infants. The fee is still affordable. It s just too great a thing to pass up, and it s a wonderful gift to give! Sue L. ` As a parent, the college education for your children is one of the big 4 in expenses. Florida Prepaid served as an excellent hedge against rising tuition costs and fees. I strongly encourage any parent to educate themselves of its benefits. 3 Stuart D.

7 Upon completing my doctorate degree, my wife and I were in severe debt. One of the goals for our five kids was that they d all be able to earn college degrees and avoid similar financial burdens. We enrolled our children in Florida Prepaid College Plans and are proud to say that all five are college graduates with little to no debt. The structured savings plan was the best thing we could have ever done. We are thrilled to have two children who have continued on to earn a master s degree as well as another who is finishing her doctoral program at the University of Florida. Gary C. I always knew I would go to college not only because my parents invested in a Florida Prepaid Plan, making it financially feasible, but also because I knew a college degree would be necessary to achieve my goals. Florida Prepaid was a convenient, inexpensive way for my parents to save for my college education. With the luxury of not having to worry about paying for a higher education, I was able to focus solely on classes and gain the experience needed to get me where I am today. I purchased prepaid plans for my two sons when they were young. Knowing that their tuition is paid for makes the thought of college less stressful, for both my sons and myself. I know that my sons are grateful for the education that we were able to provide for them. Monica G. Audrey M. 4

8 FLORIDA PREPAID COLLEGE BOARD ABOUT THE FLORIDA PREPAID COLLEGE BOARD Education is the foundation in which this state depends on and no one has done more to provide for our education system than Stanley G. Tate. Created in 1987, with the mission to provide Florida families with affordable means to save for their children s future college education, the Florida Prepaid College Board was lead by Mr. Tate, who served as Chairman of the Board for the first 18 years. As a result of Mr. Tate s tireless dedication to Florida s future generations, the Florida Prepaid College Program has grown to become the longest continuous running prepaid plan in the nation. On June 26, 2006, Governor Jeb Bush signed a law renaming the program the Stanley G. Tate Florida Prepaid College Program in recognition of Mr. Tate s service. Since 1988, the Florida Prepaid College Board has provided families with the means to prepay the cost of college tuition, required fees and dormitory housing for future use at any Florida state university or college through the Florida Prepaid College Plan. In addition to the Florida College Prepaid Plan, the Board also offers the Florida 529 Savings Plan. The Florida 529 Savings Plan offers a complementary savings tool for Florida Prepaid College Plan participants. Both plans are sponsored by the state of Florida and administered by the Board. Section 529 of the Internal Revenue Code authorizes the Plans, so withdrawals for higher education expenses are taxfree. The Florida Prepaid College Board is an agency of the state of Florida. The seven members who make up the Board are appointed and serve on a volunteer basis. They are responsible for establishing policy and monitoring performance for the Florida Prepaid College Plan and Florida 529 Savings Plan. The Executive Director and staff manage the daytoday operations of the Board and its programs. The Board s first priority is always the safety of the money entrusted to us by Florida families. Saving for college is one of the most important investments a parent or grandparent can make for their children. The Board is committed to helping Florida families save for one of the most important aspects in their children s lives receiving a college education. 5

9 HELPING STUDENTS & FAMILIES AVOID DEBT Twothirds of college seniors graduated with loans in 2010, carrying an average debt of $25,250, according to a recent report from the Project on Student Debt. While student loan debt has surpassed $1 trillion, exceeding the U.S. credit card debt, economists from the Federal Reserve Bank of New York have recently concluded that student loan debt now surpasses the nation s outstanding balance on auto loans as well. Stanley G. Tate Florida Prepaid College Plans increase students likelihood of graduating debtfree. Participants of the program, both families and students, say they have been able to avoid taking out student loans. Students who graduate without debt may be given more opportunities such as attending graduate school, starting a family, beginning a business or buying a home. AFFORDABILITY Affordability plays a significant role within the Florida Prepaid College Board s mission to meet the needs of Florida families who come from diverse backgrounds, ethnicities, races, income levels and geographic areas. Since the Program s inception in 1988, nearly two out of three Florida College Plan families report household incomes of less than $70,000 at the time of plan purchase. Spreading awareness of the program to low and middleincome families, including the advantages and affordability of saving for college is an important priority for the Board. As financing a college education becomes increasingly challenging for many families due to increases in the basic costs of running a household and raising a child, saving for college at a child s early age is critical. The Stanley G. Tate Florida Prepaid College Program helps families from a widerange of financial situations achieve their college savings goals by offering a variety of Prepaid Plans and payment options. DIVERSITY We are pleased to report that minority participation continues to increase in the Florida Prepaid College Plan. Minorities represent 45.7 percent of the families enrolling in Over the past 24 years, 26.7 percent of Prepaid families have been minorities. Spanish versions of the Enrollment Kit and applications are available for the Florida Prepaid College Plan and online information in Spanish can be found at MINORITIES REPRESENT 45.7% OF PREPAID COLLEGE PLAN ENROLLMENT Hispanic 25.2% Caucasian 54.3% African American 8.4% Asian 6.2% Native American 0.3% Other 5.6% 6

10 FLORIDA PREPAID COLLEGE PLANS The Florida Prepaid College Plan has offered families an affordable and secure way to save for tuition and fees and dormitory housing for higher education expenses at Florida s 12 state universities and 28 Florida Colleges for more than 24 years. The Florida Prepaid College Plan is guaranteed by the state of Florida. The value of the plan may be transferred to most private and outofstate colleges and select technical schools. SECURE INVESTMENTS A conservative investment strategy is used for the Florida Prepaid College Plan, with customer payments invested based on a Comprehensive Investment Plan structured to ensure the Board s obligations for tuition, the tuition differential fee, local fees and dormitory costs, as applicable, are met. The Board has adopted an asset allocation policy which limits the amounts of equities to 15 percent of the market value of the total portfolio, or the most current actuarial reserve balance as determined by the Board s actuary, whichever is less. Fixed income investments include U.S. Treasuries, assetbacked securities and corporate bonds. Equity investments include large capitalization growth, large capitalization value, small capitalization core, mid capitalization core, international developed market and S&P 500 index stocks. EASY TO ENROLL Most customers enroll online every year. During the open enrollment period, more than 88 percent of the applications were completed online. Website visits totaled more than 435,180. More than 25,000 customer calls were fielded using the GRAD (4723) hotline, to request Enrollment Kit information or speak with a customer service representative. Open Enrollment for the Florida Prepaid College Plan was October 17, 2011 through January 31, SAVINGS CHOICES FOR FAMILIES With the close of the enrollment period, the total number of children and students enrolled in the plan has grown to almost 1,000,000. Prepaid Plans may be purchased for most Florida children, from newborns to students in the eleventh grade. To qualify for the Florida Prepaid College Plan, the child or the child s parent or guardian must have been a Florida resident for the past 12 consecutive months. 7 Financially guaranteed by state of Florida. Section (7) Florida Statutes.

11 PLAN OPTIONS FOR THE OPEN ENROLLMENT SEASON For the open enrollment period, the Board offered four prepaid plan options which combined tuition and required fees into a single plan. By combining specific mandatory fees assessed by higher education institutions into a single plan, Florida families are provided with a comprehensive means to save for tuition and most required fees. Families were offered the choice of four Florida Prepaid College Plans: the 2Year Florida College Plan, the 4Year Florida College Plan, the Florida Plan and the 4Year Florida University Plan. 4YR UNIV 38.9% 2011/2012 Plan Types Sold 4YR FC 23.6% In addition to the Prepaid Plans, the Board offered plans such as the tuition differential fee plan and the local fee plan to cover required fees and to supplement previously purchased tuition plans. In addition to these fee plans, a dormitory housing plan was offered % 2YR FC 19.5% Q&A Favorite time in a child s life to buy a Florida Prepaid College Plan? Newborn babies, infants and oneyearolds received 38.5 percent of the plans purchased in Saving early is a growing trend, with 27.5 percent of the plans purchased for children oneyearold or younger since Most popular way to pay? Almost 79 percent of families chose to make monthly payments until the child is expected to enroll in college. Another 12 percent selected monthly payments over five years and nine percent of families made a single lumpsum payment. Most likely to buy a Florida Prepaid College Plan? Parents remain the most frequent purchasers since the Plan was first offered in Parents comprised 84 percent of the purchasers in , with grandparents purchasing another 11 percent and the remaining five percent bought by relatives and others. Most popular tuition plan? Purchasing a 4Year Florida University Plan was the choice of 39 percent of families in Another 24 percent of families purchased the 4Year Florida College Plan. The Florida Plan garnered 18 percent of Prepaid Plan sales and 19 percent purchased the 2Year Florida College Plan. 8

12 Every county in Florida has children with a Florida Prepaid College Plan CUSTOMERS BY COUNTY CUMULATIVE North Florida: 15.1% Central Florida: 34.5% South Florida: 50.4% Alachua 11,957 Baker 644 Bay 4,897 Bradford 586 Calhoun 279 Clay 9,329 Columbia 1,697 Dixie 202 Duval 34,088 Escambia 7,516 Flagler 2,627 Franklin 188 Gadsden 1,360 Gilchrist 318 Gulf 320 Hamilton 156 Holmes 352 Jackson 1,310 Jefferson 636 Lafayette 140 Leon 20,352 Liberty 278 Madison 430 Nassau 2,516 Okaloosa 6,251 Putnam 1,686 Saint Johns 13,964 Santa Rosa 5,712 Suwannee 903 Taylor Union 337 Wakulla 1,600 Walton 1,011 Washington 538 Brevard 26,483 Citrus 4,1 6 8 Hernando 5,481 Hillsborough 66, 3 19 Indian River 5,797 Lake 10,023 Levy 957 Marion 9,069 Orange 44,304 Osceola 5,658 Pasco 19,150 Pinellas 49,747 Polk 16,909 Seminole 24,902 Sumter 1,341 Volusia 18, 281 TOTAL 308,589 Broward 130,784 Charlotte 4,1 57 Collier 10,874 De Soto 524 Glades 86 Hardee 539 Hendry 782 Highlands 2,421 Lee 19,794 Manatee 11,353 Martin 9,413 MiamiDade 145,349 Monroe 4,187 Okeechobee 1,008 Palm Beach 85,377 Saint Lucie 10,026 Sarasota 13,245 TOTAL 449,919 TOTAL 134,661 9 (This does not include recipients of Foundation scholarships or families who moved out of state.)

13 SENDING STUDENTS OFF TO COLLEGE The opportunity for a child to go to college is enhanced when parents or grandparents save for college. One of the ways to ensure that opportunity is by saving with the Florida Prepaid College Plan. The Florida Prepaid College Plan prepays the costs of tuition (and other prepaid college expenses, if purchased) at the time the student enrolls in a Florida state university or Florida College. Should the student decide to go to private or outofstate college, the full value of the Plan, what would be paid by the Board to a Florida state university or Florida College for that beneficiary, can be transferred semester by semester to the private or outofstate college. During the 2011 fall semester, 105,198 students throughout the U.S. were using Florida Prepaid Plan benefits to pursue higher education. Most Florida Prepaid Plan students, 52,705 of them, attended Florida state universities. Another 33,952 attended Florida Colleges and 16,152 attended private, outofstate or technical schools. Prepaid Plan Usage Fall 2011 TOTAL: 105,198 COLLEGE STUDENTS Florida Colleges 32.3% 1 Florida State Universities 50.1% OutofState Colleges 9.7% Private Florida Colleges 5.0% Florida Technical Centers 1.1% 2 Scholarships/ Reimbursements 1.8% 3 1 Includes students taking university level classes at a Florida College. 2 Includes students enrolled at an approved technical center in Florida and students enrolled in technical education courses offered by a Florida College. 3 Includes scholarship refunds and qualified account owner reimbursements for enrolled students. 10

14 FLORIDA UNIVERSITIES & THE FLORIDA PREPAID COLLEGE PLAN Florida s public universities received approximately $76.4 million in Florida Prepaid College Plan tuition and fee payments for 52,705 students in fall semester PUBLIC UNIVERSITIES Florida A&M University Florida Atlantic University Florida Gulf Coast University Florida International University Florida State University New College of Florida University of Central Florida University of Florida University of North Florida University of South Florida University of West Florida Students with Prepaid PlanS 819 4,074 2,713 4,892 10, ,153 9,937 2,739 5,960 1,122 Plan Payments to UNIVERSITY ($) 1,209,000 5,550,000 4,040,000 6,586,000 14,957, ,000 14,412,000 14,971,000 3,845,000 8,768,000 1,567,000 Total 52,705 $ 76,355,000 11

15 FLORIDA COLLEGES & THE FLORIDA PREPAID COLLEGE PLAN Institutions in the Florida College System received approximately $30.6 million in Florida Prepaid College Plan tuition and fee payments for 34,457 students in fall semester FLORIDA COLLEGES Brevard Community College Broward College Chipola College College of Central Florida Daytona State College Edison State College Florida Gateway College Florida Keys Community College Florida State College at Jacksonville Gulf Coast Community College Hillsborough Community College Indian River State College LakeSumter Community College MiamiDade College North Florida Community College Northwest Florida State College Palm Beach State College PascoHernando State College Pensacola State College Polk State College Santa Fe College Seminole State College South Florida Community College St. Johns River Community College St. Petersburg College Students with Prepaid PlanS 1,087 3, , ,186 1, , , ,264 1, ,576 Plan Payments to Florida Colleges ($) 1,048,000 2,676, , , , , , , 000 1,897, ,000 1,941,000 1,025, ,000 3,601,000 93, ,000 2,380, , , ,000 1,851,000 1,139, , ,000 2,165,000 State College of Florida ManateeSarasota Tallahassee Community College Valencia Community College Total 678 2,057 3,051 34, ,000 2,000,000 2,727,000 $ 30,566,000 12

16 Florida 529 Savings Plan The Florida 529 Savings Plan offers families a flexible means to save for their children s college education. Families can save at a pace that meets their family s budget, allowing them to decide how much money to put into a college savings account. Families can open a Florida 529 Savings Plan account for as little as $25 per month through automatic withdrawals from a checking or savings account, or a lumpsum payment of $250. With five investment options, families can decide how they want to invest their funds. Earnings on the investments are taxfree when used for any qualified higher education expense such as tuition, fees, room and board, books and even graduate or professional school. The Florida 529 Savings Plan can be used at almost any public or private university, community college or technical school anywhere in the U.S. The plan can also be used by adults returning to college for graduate school or professional certification. As of June 30, 2012, there were 33,275 active Florida 529 Savings Plan accounts. The total market value of the Florida 529 Savings Plan was more than $266 million as of June 30, 2012, up $27.1 million from the previous year. The average account balance was $8,059. Introduced in 2002, the Florida 529 Savings Plan is an alternative 529 savings plan to the Florida Prepaid College Plan. Families can participate in one or both plans, depending on what fits their budget and their college goals for their children. More than 56 percent of families with a Florida 529 Savings Plan also have a Florida Prepaid College Plan and 91 percent are Florida residents. Unlike the Florida Prepaid College Plan, the Florida 529 Savings Plan exposes the account owner to investment risk. There is no guarantee that the value of the investment will grow. You could lose all or a portion of the money invested. Potential account owners are given the Florida 529 Savings Plan Disclosure Statement, which discloses the potential risk of an account. LOW FEES The Florida 529 Savings Plan charges no commission or sales fees. There is an annual administrative fee, which is 3/4 of one percent (75 basis points or ) of the account balance. 13

17 DEMOGRAPHICS SINCE INCEPTION Information is selfreported at the time of plan purchase. Not all enrollees participated. PURCHASERS MINORITIES Parents 84.7% Grandparents 11.2% Caucasian 70.2% Hispanic 14.6% Self 0.9% Other 0.8% Other Relative 2.4% Other 4.1% Native American 0.2% African American 5.6% Asian 5.3% FAMILY INCOME Over 70K 73% $50k $70k 14.5% Less than $50k 12.5% Q&A Who can establish an account in the Florida 529 Savings Plan? Anyone, including parents, grandparents, other relatives, friends and even businesses, can open an account. You can even open an account for yourself to save for an additional degree or certification to advance your career. The account owner and beneficiary (student) do not have to be Florida residents. I have a Florida Prepaid College Plan. Why should I sign up for the Florida 529 Savings Plan? The Florida 529 Savings Plan gives you a way to save for extra expenses not covered by your Florida Prepaid College Plan, including books, offcampus housing and the additional costs of most private and outofstate colleges and graduate or professional schools. What is the most popular investment option? Many families choose the AgeBased/Years to Enrollment Investment Option, which automatically adjusts the level of investment risk to match the child s age, so the investment risk is higher when the child is young and the risk is lowered automatically as the child gets closer to enrolling in college. 14

18 DOLLARS INVESTED By Customer as of June 30, 2012 AVERAGE ACCOUNT BALANCE = $8,059 INVESTMENT OPTION SELECTION Less than $1k 26.1% $100k + 0.9% $1k$9, % $10k$24, % $25k$99, % AgeBased/ Years to Enrollment Investment Option 31.4% U.S. Equity Investment Option 21.3% Money Market Investment Option 12.2% Fixed Income Investment Option 15.9% Balanced Investment Option 19.2% Source: Florida Prepaid College Board. There is a minimum contribution of $250 required to open an account, or the customer may authorize contributions of at least $25 per month. After that, the customer decides how much and how often to contribute, up to the current maximum account limit of $418,000. Source: Florida Prepaid College Board based on data provided by The Northern Trust Company. FLORIDA College Investment Plan annual Performance Summary July 1, 2011 June 30, 2012 Investment options Investment returns* Fixed Income Investment Option 7.9% U.S. Equity Investment Option 2.9% Balanced Investment Option 5.9% AgeBased/Years to Enrollment Investment Option Age 04 Years / 14 or More Years to Enrollment Age 58 Years / 1013 Years to Enrollment Age 912 Years / 69 Years to Enrollment Age 1315 Years / 35 Years to Enrollment Age 16 & Above / 02 Years to Enrollment 2.8% 4.5% 5.9% 6.9% 7.9% Money Market Investment Option.3% Investment performance is reported gross of the annual administrative fee, which is 3/4 of one percent (75 basis points or ) of the account balance. *The investment returns for the Investment Options are provided as general information only and are not intended to provide investment or other advice. Past performance is no guarantee of future performance. The investment return show for each Investment Option reflects the composite returns for the institutional portfolios comprising the investment options. Investment returns shown in the table were calculated by Callan Associates Inc., the Board s investment consultant, by computing the percentage change in the trust unit value of each Investment Option. The unit values for the investment options were calculated by the plan s custodian, The Northern Trust Company. 15 The investment period FY2011 /2012 covers July 1, 2011 through June 30, Under no circumstances is this information to be used or considered as an offer to sell or a solicitation of any offer to buy a particular investment. Please refer to the Florida College Savings Plan Disclosure Statement for more information.

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20 INDEPENDENT AUDITORS REPORT Florida Prepaid College Board Members Tallahassee, Florida We have audited the accompanying financial statements of the businesstype activities, of the Florida Prepaid College Board (the Board), a component unit of the State of Florida, State Board of Administration as of and for the year ended June 30, 2012, which comprise the Board s basic financial statements as listed in the table of contents. We have also audited the fiduciary fund type and the discretely presented component unit of the Board as of and for the year ended June 30, 2012 as displayed in the Board s basic financial statements. These financial statements are the responsibility of the Board s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 audits 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 audits provide a reasonable basis for our opinion. As discussed in Note 1, the financial statements of the Board, a component unit of the State of Florida, State Board of Administration are intended to present the financial position, and the changes in financial position and, where applicable, cash flows of only that portion of the businesstype activities, the fiduciary fund type and the discretely presented component unit information of the State that is attributable to the transactions of the Board. They do not purport to, and do not, present fairly the financial position of the State of Florida as of June 30, 2012, the changes in its financial position, or, where applicable, its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. 17

21 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the businesstype activities, the fiduciary fund type and the discretely presented component unit of the Board, as of June 30, 2012, and the respective changes in financial position and where applicable, cash flows thereof 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 October 16, 2012, on our consideration of the Board s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, administrative rules, 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. Accounting principles generally accepted in the United States of America require that the management s discussion and analysis be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historic context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s response to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. October 16,

22 MAGEMENT S DISCUSSION AND ALYSIS Management s discussion and analysis of financial performance for the Florida Prepaid College Board ( the Board ), provides an overview of the Board s financial activities for the fiscal year ended June 30, Please read this information in conjunction with the Board s financial statements, which begin on page 20. OVERVIEW OF THE FINCIAL STATEMENTS The Board presents the following basic financial statements: a Statement of Net Assets Enterprise Fund, a Statement of Revenues, Expenses, and Changes in Net Assets Enterprise Fund, a Statement of Cash Flows Enterprise Fund, a Statement of Fiduciary Net Assets, and a Statement of Changes in Fiduciary Net Assets. The enterprise fund statements offer financial information about The Stanley G. Tate Florida Prepaid College Program which the Board operates like a business. Fiduciary fund statements provide information about the financial relationships like the Florida 529 Savings Plan and The Stanley G. Tate Florida Prepaid College Foundation, Inc. in which the Board acts as a trustee for the benefit of others, to whom the resources in question belong. The Board s financial position is measured in terms of resources (assets) owned and obligations (liabilities) owed on a given date. This information is reported on the Statement of Net Assets Enterprise Fund, which reflects the Board s resources in relation to its obligations. The excess of assets over liabilities are equal to net assets. The Board s financial position, or net assets, is one way to measure the Board s financial health. Information regarding the results of operations during the current year is reported in the Statement of Revenues, Expenses and Changes in Net Assets. This statement shows the increase or decrease in net assets during the year as a result of operations. The Board is the trustee, or fiduciary, for the Florida 529 Savings Plan and The Stanley G. Tate Florida Prepaid College Foundation, Inc. The funds in these programs can only be used for the trust beneficiaries. The Board is responsible for ensuring that assets reported in these funds are used for their intended purposes. All of the Board s fiduciary activities are reported in a separate statement of fiduciary net assets and a statement of changes in fiduciary net assets. 19

23 Florida Prepaid College Plans Financial Summary FINCIAL POSITION A summary comparison of the Prepaid Plan s Statement of Net Assets at June 30, 2012 and June 30, 2011 is as follows. June 30, Change Assets Restricted assets Equipment $ 14,199,307, $ 12,188,133,203 1, % 70.28% Total assets $ 14,199,307,764 $ 12,188,134, % Liabilities Current liabilities Longterm liabilities $ 2,782,741,283 10,851,529,467 $ 2,348,939,985 9, 247,791, % 17.34% Total liabilities 13,634,270,750 11,596,731, % Net assets Invested in capital assets Restricted ,036,586 1, ,401, % 4.46% Total net assets 565,037, ,402, % Total liabilities and net assets $ 14,199,307,764 $ 12,188,134, % CHANGES IN NET ASSETS A summary comparison of the Prepaid Plan s Statement of Revenues, Expenses and Changes in Net Assets for the years ended June 30, 2012 and June 30, 2011 is as follows. Years ended June Change Operating revenues Operating expenses Net operating revenues Nonoperating revenues Nonoperating expenses Transfers to other funds Net nonoperating revenues Change in net assets Net assets, beginning $ 549,829,353 2,003,703,998 (1,453,874,645) 1,434,105,193 5,304,342 1,292,000 1,427,508,851 (26,365,794) 591,402,808 $ 446,842, ,890,390 (238,047,773) 353,168,730 5,488,816 1,596, ,083, ,035, ,366, % % % % 3.36% 19.06% % % 22.35% Net assets, ending $ 565,037,014 $ 591,402, % The increase in operating expenses is due primarily to an increase in the present value of future contract benefit obligations of the Prepaid Plan. The increase in nonoperating revenues is due primarily to an increase in the market value of investment securities from June 30, 2011 to June 30,

24 Florida Prepaid College Plans Financial Highlights Total market value of investments, net of Obligations Under Securities Lending which represents collateral held for securities on loan, at June 30, 2012 was $10.0 billion as compared to $8.5 billion at June 30, Projected value of assets exceeds the projected value of liabilities by $569 million per the June 30, 2012 actuarial adequacy report prepared by Ernst & Young, LLP as compared to $589 million per the June 30, 2011 report. The actuarial reserve was determined by deducting future contract benefits and expenses from the sum of investments, future contract payments receivable, and fees. The decrease in the actuarial reserve is primarily due to the decrease in the updated yield curve. Tuition, fees, and dormitory housing benefits payable increased from $9.892 billion at June 30, 2011 to $ billion at June 30, 2012, due primarily to the decrease in the updated yield curve and new Florida Prepaid College Plans sales. Beginning with the enrollment period, the Board began offering combined fee plans. Combined fee plans include Tuition, Local Fee, and if necessary, Tuition Differential Fee plan benefits. Enrollment counts reflect each component of combined fee plans enrolled. Total number of Florida Prepaid College Plans purchased during the enrollment period as of June 30, 2012 was 55,818 (19,547 Tuition, 11,850 Tuition Differential Fee, 21,575 Local Fee, and 2,846 Dormitory). Total number of Florida Prepaid College Plans purchased since the inception of the Prepaid Plan in 1988, was 1,554,855 (997,668 Tuition, 66,599 Tuition Differential Fee, 279,936 Local Fee, and 210,652 Dormitory). New Florida Prepaid College Plan purchases caused an increase to the tuition and housing contracts receivable, revenue, tuition and housing benefits payable, and expenses. The total gross investment portfolio (exclusive of the securities lending portfolio) return of 16.77% was due to realized gains and unrealized gains in the market value of the portfolio as of June 30, The fixed income segment of the portfolio returned 18.18% and constituted 94.18% of the total portfolio as of June 30, The equity segment of the portfolio returned 0.19% and constituted 5.81% of the total portfolio. For comparison purposes, the total portfolio return for was 4.4%. In , the fixed income segment of the portfolio returned 2.73% and the equity segment of the portfolio returned 29.7%. Total administrative expenditures for the Prepaid Plan were $12.0 million for administration and $4.7 million for investment fees totaling $16.7 million during fiscal year as compared to $12.2 million for administration and $4.3 million for investment fees totaling $16.5 million during

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26 Florida 529 Savings Plan Financial Summary FINCIAL POSITION A summary comparison of the Savings Plan s Statement of Fiduciary Net Assets at June 30, 2012 and June 30, 2011 is presented here. June 30, Change Assets Restricted assets $ 300,705,556 $ 271,157, % Total assets $ 300,705,556 $ 271,157, % Liabilities Current liabilities Longterm liabilities $ 33,833,132 3,393 $ 31,397,874 3, % 1.07% Total liabilities 33,836,525 31,401, % Net assets Held in trust for individuals 266,869, ,756, % Total net assets 266,869, ,756, % Total liabilities and net assets $ 300,705,556 $ 271,157, % CHANGES IN NET ASSETS A summary comparison of the Savings Plan s Statement of Changes in Fiduciary Net Assets for the years ended June 30, 2012 and June 30, 2011 is presented here. Years Ended June Change Additions Deductions Increase in net assets Net assets, beginning $ 45,744,092 18,631,342 27,112, ,756,281 $ 67,895,576 15,422,295 52,473, ,283, % 20.81% 48.33% 28.02% Net assets, ending $ 266,869,031 $ 239,756, % 23

27 Florida 529 Savings Plan Financial Highlights Total market value of investments, net of Obligations Under Securities Lending which represents collateral held for securities on loan, at June 30, 2012 was $ million as compared to $240.4 million at June 30, Total active participants at June 30, 2012 was 33,275 as compared to 32,346 at June 30, Total new participants during fiscal year was 2,252 as compared to 2,760 during fiscal year Total administrative expenses for the Savings Plan during fiscal year were $4.5 million as compared to $4.7 million during fiscal year Savings Plan Summary Years Ended June 30, 2012 Option Money Market Investment Option Fixed Income Investment Option Balanced Investment Option U.S. Equity Investment Option AgeBased Investment Options Ages 04 Ages 58 Ages 912 Ages 1315 Ages 16+ Market Value (millions) % of Total Portfolio 4.9% 10.0% 15.7% 25.2% 3.9% 9.1% 12.0% 8.9% 10.3% Total Portfolio % OPTION PERFORMANCE 1 0.3% 7.9% 5.9% 2.9% 2.8% 4.5% 5.9% 6.9% 7.9% PARTICIPANTS* BY INVESTMENT 7,931 10,325 12,439 13,851 20,363 1 Gross of Administration Fee of 75 basis points *Participants may elect to invest in one or more investment options. 24

28 Florida Prepaid College Board Statement of Net Assets Enterprise Fund June 30, 2012 Assets Restricted assets Current Cash and cash equivalents Investments Future contract premiums and other receivables Delinquent fees and contracts receivable Investment trades receivable Accrued interest receivable Total current restricted assets Florida Prepaid College Plan (Primary Government) $ 14,056,074 2,225,241, ,552,362 6,712, ,123,354 2,783,246,874 Noncurrent Investments Future contract premiums and other receivables Equipment, net of depreciation Total noncurrent restricted assets Total assets 21,561,411 9,614,467,340 1,801,593, ,416,060,890 $ 14,199,307,764 Liabilities and Net Assets Current liabilities Accounts payable and accrued expenses Obligations under securities lending Investment trades payable Future contract benefits and expenses payable Compensated absences Total current liabilities $ 33,290,982 1,427,575, ,319, ,524,610 31,521 2,782,741,283 Longterm liabilities Future contract benefits and expenses payable Compensated absences Total longterm liabilities Total liabilities Net assets Invested in capital assets Restricted Total net assets Total liabilities and net assets 10,851,441,375 88,092 10,851,529,467 13,634,270, ,036, ,037,014 $ 14,199,307,764 See accompanying notes to financial statements. 25

29 Florida Prepaid College Board Statement of Revenues, Expenses and Changes in Net Assets Enterprise Fund Year ended June 30, 2012 Operating Revenues Contract premiums Less refunds Contract premiums, net Application and other fees Total operating revenues Florida Prepaid College Plan (Primary Government) $ 631,048,011 (83,943,020) 547,104,99 1 2,724, ,829,353 Operating Expenses Contract benefits Administration Total operating expenses 1,991,674,709 12,029,289 2,003,703,998 Operating loss (1,453,874,645) Nonoperating Revenues (Expenses) Investment income Investment expense Securities lending income Securities lending expense Total nonoperating revenues (expenses) 1,431,486,251 (4,693,258) 2,618,942 (611,084) 1,428,800,851 Transfers to other funds (1,292,000) Change in net assets (26,365,794) Net assets, beginning of year 591,402,808 Net assets, end of year $ 565,037,014 See accompanying notes to financial statements. 26

30 Florida Prepaid College Board Statement of Cash Flows Enterprise Fund Year ended June 30, 2012 Cash flows from operating activities: Receipts from contract purchasers Payments to schools and others for contract obligations Payments to employees, vendors and other consultants Net cash provided by operating activities Florida Prepaid College Plan (Primary Government) $ 475,810,278 (409,438,168) (12,066,841) 54,305,269 Cash flows from noncapital and related financing activities: Operating subsidies and transfers to other funds Net cash used in noncapital and related financing activities (1,292,000) (1,292,000) Cash flows from investing activities: Purchases of investments Net investment income Proceeds from sales and maturities of investments Net cash used in investing activities (11,648,689,246) 107,806,568 11,448,940,638 (91,942,040) Decrease in cash and cash equivalents (38,928,771) Cash and cash equivalents, beginning of year 52,984,845 Cash and cash equivalents, end of year $ 14,056,074 See accompanying notes to financial statements. 27

31 Florida Prepaid College Board Statement of Cash Flows Enterprise Fund (continued) Year ended June 30, 2012 Reconciliation of operating loss to net cash provided by operating activities: Florida Prepaid College Plan (Primary Government) Operating loss Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation and amortization (Increase) decrease in: Future contract premiums and other receivables Delinquent fees and contracts receivable Increase (decrease) in: Accounts payable and accrued expenses Future contract benefits and expenses payable Compensated absences payable Net cash provided by operating activities $ (1,453,874,645) 1,012 (157,875,240) (86,855) 3,262,272 1,662,926,706 (47,981) $ 54,305,269 Noncash investing, capital, and financing activities: Change in the fair value of investments $ 949,853,722 See accompanying notes to financial statements. 28

32 Florida Prepaid College Board Statement of Fiduciary Net Assets PrivatePurpose Trust Funds June 30, 2012 Florida 529 Savings Plan (Primary Government) Stanley G. Tate Florida Prepaid College Foundation, Inc. (Component Unit) PrivatePurpose Trust Funds Total Assets Cash and cash equivalents $ $ 589,875 $ 589,875 Investments 968, ,487 Restricted assets Cash and cash equivalents 423, ,774 Investments 299,067,290 6,626, ,693,526 Investment trades receivable 299, ,450 Accrued interest receivable 915, ,042 Total assets $ 300,705,556 $ 8,184,598 $ 308,890,154 Liabilities and Net Assets Liabilities Current liabilities Accounts payable and accrued expenses $ 318,130 $ 11,893 $ 330,023 Due to beneficiaries 6,626,236 6,626,236 Obligations under securities lending 31,544,128 31,544,128 Investment trades payable 1,967,245 1,967,245 Compensated absences 3,629 3,629 Total current liabilities 33,833,132 6,638,129 40,471,261 Longterm liabilities Compensated absences 3,393 3,393 Total liabilities 33,836,525 6,638,129 40,471,261 Net assets Held in trust for individuals 266,869, ,869,031 Held in trust for scholarships and other 1,546,469 1,546,469 Total net assets 266,869,031 1,546, ,415,500 Total liabilities and net assets $ 300,705,556 $ 8,184,598 $ 308,890,154 See accompanying notes to financial statements. 29

33 Florida Prepaid College Board Statement of Changes in Fiduciary Net Assets PrivatePurpose Trust Funds Year ended June 30, 2012 Florida 529 Savings Plan (Primary Government) Stanley G. Tate Florida Prepaid College Foundation, Inc. (Component Unit) PrivatePurpose Trust Funds Total Additions Contributions $ 30,113, 076 $ 2,500 $ 30,115,576 Investment income 12,339,090 12,030 12,351,120 Securities lending (loss) 100, ,215 Application and other fees 1,899,711 33,750 1,933,461 Transfers from other funds 1,292,000 1,292,000 Total additions 45,744,092 48,280 45,792,372 Deductions Payments in accordance with trust agreements 13,776, ,372 13,916,642 Securities lending expense 12,512 12,512 Administration expense 4,842,560 71,828 4,914,388 Total deductions 18,631, ,200 18,843,542 Change in net assets held in trust for individuals 27,112,750 27,112,750 Change in net assets held in trust for scholarships and other (163,920) (163,920) Total change in net assets held in trust 27,112,750 (163,920) 26,948,830 Net assets, beginning of year 239,756,281 1,710, ,466,670 Net assets, end of year $ 266,869,031 $ 1,546,469 $ 268,415,500 See accompanying notes to financial statements. 30

34 NOTES TO STATEMENTS NOTE 1 Description of the Reporting Entity The Florida Prepaid College Board (the Board ) is a corporate body assigned to, and administratively housed within, the State of Florida, State Board of Administration (the SBA ). The Board was created pursuant to Chapter (1) of the Florida Statutes to administer the Stanley G. Tate Florida Prepaid College Program (the Prepaid Plan ) and the Florida 529 Savings Plan (the Savings Plan ). The Board is a component unit of the State of Florida, SBA. The legislation which created the Prepaid Plan was passed in 1987 and the Prepaid Plan was implemented in fall The Prepaid Plan was created to provide a medium through which the cost of a state postsecondary education may be paid in advance of enrollment at a rate lower than the projected corresponding cost at the time of actual enrollment. The Prepaid Plan is authorized by Chapter of the Florida Statutes and governed by Board Rules. The State of Florida (the State ) guarantees to meet the obligations of the Prepaid Plan for qualified beneficiaries if funds in the Prepaid Plan are insufficient. In the event that the State determines the Prepaid Plan to be financially infeasible, the State may discontinue the provisions of the Prepaid Plan. If discontinued, any qualified beneficiary who has been accepted by, and is enrolled in, or is within five years of enrollment at, a state college, university or postsecondary institution, (or other institution as specified in the contract), would be able to exercise the complete benefits of the Prepaid Plan. All other contract holders would receive a refund with an additional amount for interest at prevailing rates. The legislation which created the Savings Plan was passed in 2000 and the Savings Plan was implemented in fall 2002, to provide a vehicle whereby participants can save for qualified educational expenses. The Savings Plan is authorized by Chapter of the Florida Statutes and is also governed by Board Rules. Participant contributions are collected and invested in accordance with Savings Plan provisions and participant direction. Savings Plan provisions clearly state that the participant contributions are solely the debt of the Savings Plan and not the debt of the State. Participants retain ownership of all amounts on deposit with the Savings Plan, up to the dates of distribution on behalf of designated beneficiaries. Participant contributions and the earnings derived therefrom are held in trust for the participants. The Savings Plan will continue in existence until it is terminated by law. Upon termination of the Savings Plan, all deposits would be returned to the participants and any unclaimed assets in the Savings Plan would revert to the Florida Prepaid College Foundation in accordance with general laws regarding unclaimed property of the Florida Prepaid College Board. 31