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

35 NOTE 1 (cont.) In evaluating the Board as a reporting entity, management has considered all potential component units (traditionally separate reporting entities) for which the Board may or may not be financially accountable and, if accountable, be included in the Board s financial statements. The accompanying financial statements present the financial position and changes in financial position of the Board s discretely presented component unit, the Florida Prepaid College Foundation, Inc. (the Foundation.) The Board is a legally separate organization from the Foundation. However, the Board is financially accountable for the Foundation. In accordance with governmental accounting standards, the Board (the primary government) is financially accountable if it appoints a majority of the organization s governing board and (1) it is able to impose its will on the organization or (2) there is a potential for the organization to provide specific financial benefit or to impose specific financial burden on the Board. Additionally, the primary government is required to consider other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity s financial statements to be misleading or incomplete. The Board s analysis disclosed no other component units that should be included in the Board s financial statements. Component Unit Justification for Inclusion in the Reporting Entity Separate Financial Statements Foundation The Board s chair and executive director jointly appoint a majority of the Foundation s board and is able to impose its will, as defined by Governmental Accounting Standards Board (GASB) Statement No. 14, on the Foundation. Available upon request P. O. Box 1117 Tallahassee, Florida (850) The Foundation is a directsupport organization of the Board and is authorized by section of the Florida Statutes. The Foundation was incorporated under the provisions of chapter 617 and approved by the Secretary of State. The legislation was passed in 1989 and the Foundation was implemented in The Foundation administers the Stanley Tate Project STARS Scholarship Program (formerly the Florida Prepaid Tuition Scholarship Program) and other scholarship programs, on behalf of the Board. The Stanley Tate Project STARS Scholarship Program provides prepaid scholarships to economically disadvantaged, atrisk students. The accompanying financial statements do not include the funds and accounts of the State of Florida, and therefore, are not intended to present the financial position and the results of operations of the State of Florida in conformity with generally accepted accounting principles. 32

36 NOTE 2 BASIS OF PRESENTATION Prepaid Plan Proprietary funds report activities generally financed and operated like private businesses and include enterprise funds and internal service funds. Enterprise funds are used to report activities for which a fee is charged to external users for goods or services. The Prepaid Plan charges an actuarially determined price to contract purchasers. The contract price and investment earnings thereon are intended to be sufficient to provide for the future costs of the services provided. As such, the Prepaid Plan is accounted for as an enterprise fund. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing goods and services in connection with a proprietary fund s ongoing operations. Operating revenues and expenses for the Prepaid Plan include the contract revenue and expenses associated with covered college tuition and fees, and dormitory housing fees. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Savings Plan Fiduciary fund reporting focuses on net assets and changes in net assets. Fiduciary funds are used to report assets held in a trustee or agency capacity for others and therefore cannot be used to support the government s own programs. The fiduciary fund category includes pension (and other employee benefit) trust funds, investment trust funds, privatepurpose trust funds and agency funds. Trust funds are used to report resources held and administered by the reporting government when it is acting in a fiduciary capacity for individuals, private organizations, or other governments. Privatepurpose trust funds are used to report all trust arrangements, excluding those recognized in pension, investment trust or agency funds, under which principal and income benefit individuals, private organizations, or other governments. In determining the basis of presentation, management considered the definitions of each of the four fiduciary fund types as presented in Statement No. 34 of the Governmental Accounting Standards Board, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments and determined the privatepurpose trust fund category to be most definitive of the funds representing the Savings Plan and the Foundation. Basis of Accounting These financial statements have been prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB). Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. The accounting and reporting treatment applied to a fund is determined by its measurement focus. Enterprise funds and fiduciary type funds use the economic resources measurement focus and thus, the accrual basis of accounting. Revenues are recognized as earned when prepaid plans are purchased and expenses are recognized when services or benefits are received. 33

37 NOTE 2 (cont.) The Foundation receives donations from donor organizations with instructions to purchase contracts from the Prepaid Plan for specified thirdparty beneficiaries. The Foundation has no discretion in determining the parties to be benefited and it must deliver the contracts to the specified beneficiaries. Receipt of those donations is not a contribution to the Foundation, nor is the delivery of the contracts considered an expense of the Foundation. The unexpended funds from the donors are classified as restricted assets and amounts due to beneficiaries in the statement of fiduciary net assets, and totaled $6,626,236 at June 30, NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Equipment Equipment is reported at historical cost and depreciated using the straightline method over the estimated useful lives of the related assets, which range from three to seven years. Cash and Cash Equivalents Cash and cash equivalents include certain investments in highly liquid instruments with original maturities of three months or less when purchased. Cash equivalents held at Northern Trust are classified as investments in accordance with GASB 9 Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting. Investments Investments are recorded at fair value. Fair value is the amount at which an investment could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Quoted market prices are used to determine fair value. Compensated Absences The liability for compensated absences reported in the financial statements consists of unpaid, accumulated annual and sick leave balances. The liability has been calculated using the vesting method, in which leave amounts for both employees who currently are eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included. Revenue Recognition Prepaid tuition, fees and dormitory housing contracts are set up to be paid under either a lumpsum plan, a fiveyear monthly payment plan or a monthly payment plan. The lumpsum plan is a onetime payment when the child is enrolled in the Prepaid Plan. The fiveyear monthly payment plan provides for 55 equal monthly payments. The monthly payment plan provides for equal payments each month until the child enters college. Revenues are recognized as earned when plans are purchased. Additionally, contract premiums revenue includes the annual change in the actuarially determined net present value of existing contract payments to be received in the future. 34

38 NOTE 3 (cont.) Delinquent Fees and Contracts Receivable Delinquent fees and contracts receivable are the total due as of June 30, 2012 on contract payments that are past due. Management considers these amounts fully collectible as any contracts that remain delinquent past six months are cancelled and all fees are deducted from contract payments already received prior to cancellation. Future Contract Premiums and Other Receivables Future contract premiums receivable represents the actuarially determined present value of future receipts on contracts existing as of June 30, Future other receivables represent the actuarially determined present value of future revenue receivable from late payments, non sufficient funds fees, and cancellation fees due as of June 30, Future Contract Benefits and Expenses Payable Future contract benefits payable represents the actuarially determined present value of future contract benefit obligations of the Prepaid Plan. Future contract benefits payable includes return of payments, which is the actuarially determined present value of future cancellation refund payments to participants. Future expenses payable represents the actuarially determined present value of future administrative expenses of the Prepaid Plan. Interfund Transactions During the course of normal operations, the Board engages in transactions between funds. These transactions are reflected as operating transfers or as interfund receivables and payables. Management s intent to reimburse a fund determines whether or not the interfund transaction is recorded as a transfer or a receivable. The administrative expenses of the Savings Plan are funded in part by operating transfers from the Prepaid Plan. Income Taxes The Foundation is a nonprofit organization, exempt from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code. Accordingly, no provision for income taxes is shown in the accompanying financial statements. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 35

39 NOTE 4 DEPOSITS AND RISK INVESTMENT DISCLOSURES Deposits Custodial credit risk for deposits is the risk that in the event of a bank failure, the Board s deposits may not be returned to them. Cash deposits consisted of interest bearing and noninterest bearing demand accounts at two financial institutions which are entirely insured by the Federal Depository Insurance Corporation or by collateral pursuant to The Florida Security for Public Deposits Act (the Act). The Act establishes guidelines for qualification and participation by banks and savings associations, procedures for the administration of the collateral requirements and characteristics of eligible collateral. Under the Act, the Board s cash deposits in qualified public depositories are totally insured. Deposits are presented in the basic financial statements at cost plus accrued interest which is also the market or fair value. In addition to cash deposits in operating accounts, cash was received as collateral for securities lent under the Security Lending Agreement. At June 30, 2012, the Prepaid Plan and the Savings Plan had $11,251,847 and $238,582, respectively, invested in shortterm cash and cash equivalents that is not insured under the Act. The Board and Foundation believe the credit risk related to these balances is minimal. Investments Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty, the Board will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. At June 30, 2012 all investments, except those held in money market funds at the State of Florida, State Board of Administration (SBA), were registered in the name of the Florida Prepaid College Board and were held in the possession of the Florida Prepaid College Board s custodial bank, The Northern Trust Company. At June 30, 2012, investments in the Federal National Mortgage Association represented approximately 5% and 10% of the Prepaid and Savings Plan s portfolio, respectively. Investments in the Federal National Mortgage Association are not backed by the full faith and credit of the U.S. Government, but have special authority to borrow from the U.S. Treasury. 36

40 NOTE 4 (cont.) Investments of the Prepaid Plan at June 30, 2012 were as follows: Asset Category Fair Value June 30, 2012 Money market funds U.S. guaranteed obligations U.S. Treasury bills U.S. Treasury bonds and notes U.S. Treasury strips Index linked government bonds U.S. government guaranteed Ginnie Mae (GNMA) obligations GNMA commitments to purchase (TBA s) GNMA collateralized mortgage obligations (CMO s) Federal agencies: Unsecured bonds & notes Agency strips Agency mortgagebacked Agency mortgagebacked commitments to purchase (TBA s) Agency collateralized mortgage obligations (CMO s) Domestic bonds & notes: Corporate Municipal/provincial Mortgage backed securities Collateralized mortgage obligations (CMO s) & commercial mortgagebacked securities (CMBS) International corporate bonds & notes ($ denom): Domestic stocks International Stocks ($ denom) International Stocks (held in foreign currency) $ 292,700, ,394, ,901,037 5,819,336, ,019,931 35,546,677 77,562,979 41,718, , ,208, ,198, ,178, ,393,295 12,317, ,228,375 2,158,015 3, ,132, ,091, ,705,534 11,006,740 99,548,415 Total investments excluding lending collateral 10,422,780,916 Lending collateral investments: Certificates of deposit Commercial paper Repurchase agreements U.S. Guaranteed obligations: U.S. Treasury bills U.S. Treasury bonds and notes Federal agency discount notes Federal agencies, unsecured Domestic assetbacked and mortgagebacked International CMO s ($ denom) 194,705, ,483, ,813,206 97,770,789 74,537,565 81,141,977 55,834,332 19,979,185 2,661,401 Total lending collateral investments 1,416,927,566 Total investments prepaid plan $ 11,839,708,482 37

41 NOTE 4 (cont.) Investments of the Savings Plan at June 30, 2012 were as follows: Asset Category Fair Value June 30, 2012 Money market funds U.S. guaranteed obligations: U.S. Treasury bills U.S. Treasury bonds and notes U.S. Treasury strips Ginnie Mae (GNMA) obligations Federal agencies: Agency strips Agency mortgagebacked Agency mortgagebacked commitments to purchase (TBA s) Agency collateralized mortgage obligations (CMO s) Domestic bonds & notes: Corporate Municipal/provincial Asset backed and mortgage backed securities Collateralized mortgage obligations (CMO s) & commercial mortgagebacked securities (CMBS) International bonds & notes ($ denom): Corporate Domestic stocks International Stocks ($ denom) $ 21,027,275 7,496,842 8,836,281 1,907,696 5,003, ,572 35,081,729 1,292,845 2,045,394 26,745, ,458 1,090,427 15,146,135 5,356, ,910,795 1,886,302 Total investments excluding lending collateral 267,758,433 Lending collateral investments: Certificates of deposit Commercial paper Repurchase agreements U.S. Treasury bills U.S. Treasury bonds and notes Federal agency discount notes Federal agencies, unsecured Domestic assetbacked and mortgagebacked securities International CMO s ($ denom) Total lending collateral investments 4,302,264 2,485,479 17,186,794 2,160,373 1,647,004 1,792,938 1,233, ,466 58,807 31,308,857 Total investments Savings plan $ 299,067,290 The Foundation held $7,594,723 in money market funds at June 30,

42 NOTE 4 (cont.) Credit Risk The Board s policy is that investments in debt obligations and preferred stock may not be rated less than Baa3/BBB as established by Moody s, Standard & Poors or Fitch. Any exceptions to the policy will be noted and a statement provided indicating the steps to be taken to bring the portfolio back into compliance with the policy. Securities rated below Baa in the following schedules are being actively managed with the intention of selling when value is deemed to be maximized. All investments are included in this schedule, including security lending collateral investments. S&P ratings were primarily used. If S&P did not rate a security, then Moody s ratings were used. If neither rating agency issued a rating, the security was listed as Not rated. Longterm ratings are presented, except for AAAm and A1. The AAAm rating is the top S&P rating for money market funds. The A1 rating is a shortterm rating for S&P. Prepaid Plan Credit Quality Ratings As of June 30, 2012 The credit quality ratings of the Prepaid Plan investments are presented below. Certificates of deposit Commercial paper Money Market funds Federal agencies Domestic bonds & notes International bonds & notes ($ denom) Total S&P rating Moody s rating $ 194,705,168 $ 112,483,943 $ 292,700,311 $ 205,066,292 1,621 43,929,220 1,571,275,102 $ 215,617,959 68,537, ,248, ,423,440 6,475,765 17,462,858 68,925,515 2,157,175 7,652,869 $ 2,661,401 27,392, ,820,393 66,847,309 31,031 $ 510,979, ,996, ,070, ,270,749 6,475,765 17,462, ,854,735 2,157, ,483,943 1,773,664,170 AAA/AAAm AA A BBB BB CCC Not rated Not rated A1 Not rated Aaa Baa P1 Not rated $ 194,705,168 $ 112,483,943 $ 292,700,311 $ 1,820,272,235 $ 1,144,501,579 $ 199,752,557 $ 3,764,415,793 Repurchase agreements U.S. Guaranteed obligations Domestic stocks International stocks TOTAL INVESTMENTS 777,813,206 6,722,218, ,705, ,555,155 $ 11,839,708,482 Not rated Not rated Not rated Not rated Not rated Not rated Not rated Not rated Savings Plan Credit Quality Ratings As of June 30, 2012 The credit quality ratings of the Savings Plan investments are presented below. Certificates of deposit $ 4,302,264 Commercial paper $ 2,485,479 Money Market funds $ 21,027,275 Federal agencies $ 1,233,732 40,810,478 Domestic bonds & notes $ 11,899, ,840 15,862,748 11,105, , ,865 2,613, ,715 International bonds & notes ($ denom) Total S&P rating $ 58, ,416 1,243,366 3,108, ,859 $ 32,985,717 2,834,988 17,106,114 14,214, , ,865 2,613,744 2,485,479 45,450,457 $ 4,302,264 $ 2,485,479 $ 21,027,275 $ 42,044,210 $ 43,757,486 $ 5,415, ,031,866 Repurchase agreements U.S. Guaranteed obligations Domestic stocks International stocks ($ denom) TOTAL INVESTMENTS 17,186,794 27,051, ,910,795 1,886,302 $ 299,067,290 AAA/AAAm AA A BBB BB CCC Not rated A1 Not rated Not rated Not rated Not rated Not rated Moody s rating Aaa P1 Not rated Not rated Not rated Not rated Not rated 39 The Foundation held $7,594,723 in money market funds at June 30, 2012 with an S&P rating of AAAm.

43 NOTE 4 (cont.) Interest Rate Risk Through the Board s Comprehensive Investment Plan (CIP), the Board controls exposure to fair value losses arising from increasing interest rates by using an enhanced immunization style of management. This style of investment management means the liabilities of the Prepaid Plan will be immunized by structuring the assets in such a way that the value of the Prepaid Plan s assets increase (decrease) in conjunction with increases (decreases) in the value of its liabilities due to changes in interest rates. Certain investment types are managed using different techniques, such as effective duration method and the weighted average maturity method. Investment types related to debt portfolios are presented using the effective duration method. Investment types related to security lending transactions, money market funds and certain certificates of deposit within the savings plan are presented using the weighted average maturity. The total duration of the Prepaid Plan fixed income portfolio should not differ from the total duration of the benchmark by more than 9 months for the active fixed income securities, and 3 months for the passive fixed income securities. The total duration of the Prepaid Plan fixed income portfolio, including cash, was 8.59 at June 30, The customized benchmark s duration for the Prepaid Plan was 8.69 at June 30, Prepaid Plan Interest Rate Risk As of June 30, 2012 The Prepaid Plan had the following debt securities subject to interest rate risk. Investment type Fair value duration Effective weighted duration (in years) Fair value (WAM) Weighted average maturity (in days) Certificates of deposit Commercial paper Money market funds Repurchase agreements U.S. government guaranteed: U.S. Treasury bills U.S. Treasury bonds and notes U.S. Treasury strips Index linked government bonds U.S. government guaranteed Ginnie Mae (GNMA) mortgagebacked GNMA commitments to purchase (TBAs) GNMA collateralized mortgage obligations (CMO s) Federal agencies: Discount notes Unsecured bonds & notes Agency strips Mortgagebacked Mortgagebacked commitments to purchase (TBAs) Collateralized mortgage obligations (CMO s) Domestic bonds & notes: Corporate Assetbacked and mortgagebacked Collateralized mortgage obligations (CMO s) & Commercial mortgagebacked securities (CMBS) Municipal/provincial International bonds & notes ($ denom): Corporate International CMO s ($ denom) $ 343,394, ,901,037 5,819,336, ,019,931 35,546,677 77,562,979 41,718, , ,208, ,198, ,178, ,393,295 12,317, ,228,375 3, ,132,646 2,158, ,091, $ 194,705, ,483, ,700, ,813,206 97,770,789 74,537,565 81,141,977 55,834,332 19,979,185 2,661, $ 9, 5 5 4, 8 1 9, $ 1,709,627,877 40

44 NOTE 4 (cont.) Savings Plan Interest Rate Risk As of June 30, 2012 The Savings Plan had the following debt securities subject to interest rate risk. Investment type Certificates of deposit Commercial paper Money market funds Repurchase agreements U.S. government guaranteed: U.S. Treasury bills U.S. Treasury bonds and notes U.S. Treasury strips Ginnie Mae (GNMA) mortgagebacked Federal agencies: Discount notes Unsecured bonds & notes Agency strips Mortgagebacked (FNMA, FHLMC) Mortgagebacked commitments to purchase (TBAs) Collateralized mortgage obligations (CMO s) Domestic bonds & notes: Corporate Assetbacked and mortgagebacked Collateralized mortgage obligations (CMO s) & Commercial mortgagebacked securities (CMBS) Municipal/provincial International bonds & notes ($ denom): Corporate International CMO s ($ denom) Fair value duration $ 7,496,842 8,836,281 1,907,696 5,003, ,572 35,081,729 1,292,845 2,045,394 26,745,000 1,090,427 15,146, ,458 5,356,345 Effective weighted duration (in years) Fair value (WAM) $ 4,302,264 2,485,479 21,027,275 17,186,794 2,160,373 1,647,004 1,792,938 1,233, ,466 58,807 $ 110,934,061 $ 52,336,132 Weighted average maturity (in days) The Foundation held $7,594,723 in a money market fund at June 30, 2012 with a weighted average maturity of 2 days. Foreign Currency Risk Through the CIP, the Board hopes to reduce total portfolio volatility while enhancing total return through international diversification of the equity class. The Board seeks companies that are domiciled outside of the US equity market for inclusion in the international equity portfolio. The international equity portfolio will be measured against the MSCI EAFE (Europe, Australia, Far East) Index which is designed to measure the equity market performance of developed markets excluding US and Canada. 41

45 NOTE 4 (cont.) Prepaid Plan Foreign Currency Risk As of June 30, 2012 The Prepaid Plan held securities in the following currencies. Foreign Currency Australian dollar British pound sterling Danish krone Euro currency unit Hong Kong dollar Israeli shekel Japanese yen New Zealand dollar Norwegian krone Singapore dollar Swedish krona Swiss franc Fair Value (US$) $ 10,054,676 22,988,505 2,050,729 26,093,464 2,962, ,833 20,419, ,212 1,941,691 3,678,885 2,077,101 6,530,676 Total securities held in foreign currencies $ 99,548,415 Savings plan Foreign Currency Risk As of June 30, 2012 The Savings Plan had no securities held in foreign currencies. Securities Lending Under the provisions of the Securities Lending Authorization Agreement, the Board lends securities to brokerdealers and other entities (borrowers) for collateral that will be returned for the same securities in the future. The types of securities lent include U.S. government agency bonds, U.S. government bonds, U.S. common stock, international common stock and U.S. corporate bonds. The Board s investment trustee manages the securities lending program and receives cash, certain governmental securities or irrevocable bank letters of credit as collateral from the borrower. The noncash collateral cannot be pledged or sold by the Board unless the borrower defaults, so the noncash collateral is not reported on the statement of net assets. Collateral cash, securities and letters of credit are initially pledged at 102% of the market value plus any accrued interest of the securities lent for U.S. securities and 105% of the market value plus any accrued interest for nonu.s. securities. Additional collateral must be provided by the next business day if the value of the collateral falls to less than 100.5% of the market value of the securities lent. All securities loans can be terminated on demand by either the lender or the borrower, although the average term of the Prepaid Plan s and Savings Plan s loans was approximately 176 and 51 days, respectively, as of June 30, Cash open collateral is invested in a shortterm investment pool, the Florida PC Custom Fund, which had an interest rate sensitivity of 39 days as of June 30, Cash collateral may also be invested separately in term loans, in which case the investments match the loan term. 42

46 NOTE 4 (cont.) For the Prepaid Plan, securities lent to others under security lending agreements with cash collateral had a fair value of $1,392,193,394 as of June 30, For the Savings Plan, securities lent to others under security lending agreements with cash collateral had a fair value of $31,356,831 as of June 30, Both the Prepaid Plan and the Savings Plan received cash as collateral for the securities lent to other borrowers. The cash collateral is invested in a shortterm investment pool including asset backed securities, corporate bonds, certificates of deposit and repurchase agreements. As of June 30, 2012, the Board has no credit risk exposure to borrowers because the amounts the Board owes the borrowers exceeds the amounts the borrowers owe the Board. The Agreement with the Board s trustee requires it to indemnify the Board if the borrowers fail to return the securities or fail to pay the Board for income distributions by the securities issuers while the securities are on loan if the loss to the Board is a result of the negligence or intentional misconduct of the trustee. Risks and Uncertainties The Board s Comprehensive Investment Plan allows a maximum allocation of 20% to securitized debt obligations, including, but not limited to, mortgage passthroughs and assetbacked securities within the Prepaid Plan s fixed income portfolio. As of June 30, 2012, the fixed income segment of the Prepaid Plan portfolio had an allocation of 14.5% for mortgage/asset backed securities. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate, delinquencies or defaults, or both, and may be adversely affected by shifts in the market s perception of the issuers and changes in interest rates. NOTE 5 FUTURE CONTRACT BENEFITS AND EXPENSES PAYABLE The Prepaid Plan s future contract benefits and expenses payable represents the actuarially determined present value of future Prepaid Plan obligations. The following is a summary of changes in longterm future contract benefits payable: APV of future contract benefits and expenses payable Net assets available (net of outstanding refund payments and unrealized loss on securities lending portfolio) Net assets as a percentage of future contract benefits and expenses obligation $ 11,554,965,985 12,124,424, % The standard measurement is the actuarial present value (APV) of the future contract benefits and expenses obligation. The valuation method reflects the present value of estimated contract benefits and expenses that will be paid in future years and is adjusted for the effects of projected tuition and fees and dormitory housing fees increases and termination of contracts. The net assets available represent assets in trust at market value and the future discounted contract payments adjusted for estimated cancellations. Net present value of future contract benefits and expenses payable at June 30, 2011 Payments for contract benefits Increase in future contract benefits and expenses payable Net present value of future contract benefits and expenses payable at June 30, 2012 Current portion $ 9,892,039,279 (412,691,021) 2,075,6 1 7, ,554,965, ,524,610 Longterm future contract benefits and expenses payable $ 10, 851, 441,375 43

47 NOTE 4 (cont.) The following assumptions were used in the actuarial evaluations: Rate of return: 2.32% per annum. Based on the U.S. Treasury Spot Rate Curve as provided by Northern Trust Global Investments and increased by the 21.9 basis point incremental return assumption provided by Callan Associates. Tuition rates: For Florida University tuition plans in effect on July 1, 2009, the prospective inflation rate assumption has been modeled in accordance with (10), F.S. For Florida University tuition plans and Florida University combined fee plans issued after July 1, 2009, the projected rates are based on a tuition inflation rate of 6.5% for Florida Universities. For Florida College tuition plans, the Florida Legislature establishes annual tuition rates. The projected rates are based on a tuition inflation rate of 6.0% for Florida Upper and Lower Division Colleges. Dormitory rates: The 2012/2013 rate per semester is increased at 6.0% per annum. Local fee rates: For plans in effect on July 1, 2009, the 2012/2013 rate per credit hour is increased at 5.0% per annum in accordance with (10), F.S. For Florida University local fee plans and Florida University combined fee plans issued after July 1, 2009, the projected rates are based on an inflation rate of 6.5% per annum. For Florida College local fee plans, annual local fee rates are set by each Florida College. The projected rates are based on an inflation rate of 6.0% for Florida College Upper Division and Lower Division. Tuition Differential Fees: For plans in effect on July 1, 2009 and paying benefits on or after academic year 2012/2013, the TDF rate paid by the Program will be fixed for the 2012/2013 academic year at $37.03 per credit hour. The same rate of inflation that is assessed for Florida University tuition plans will be assessed on these plans together. For Florida University TDF plans and Florida University combined fee plans issued after July 1, 2009, the projected rates for TDF plans are set at 10% of the annual increase of the sum of the Florida University matriculation fee and TDF for the academic year 2013/2014 through 2015/2016. Beginning in academic year 2016/2017, the projected rates for the TDF plans will be assessed according to (16), F.S. NOTE 6 DUE TO BENEFICIARIES The Foundation receives donations from donors and purchases contracts for the donor s designated beneficiaries. The unexpended funds from these donors are classified as due to beneficiaries. The receipts and disbursements of the funds received are as follows: Balance, June 30, 2011 Donations Payments on behalf of donors $ 3,402,496 10,961,688 (7,737,948) Balance, June 30, 2012 $ 6,626,236 NOTE 7 EQUIPMENT A summary of the changes in equipment held within the funds is as follows: Prepaid Plan Equipment, at June 30, 2011 Purchases Equipment, at June 30, 2012 Depreciation expense $ 2,606 (1,166) 1,440 (1,012) Net equipment, at June 30, 2012 $ 428 Depreciation expense for the Prepaid Plan totaled $1,012 for the year ended June 30, 2012 and is included in administration expenses. Savings Plan Equipment, at June 30, 2012 Accumulated depreciation $ 5,719 (5,719) Net equipment, at June 30, 2012 $ For the year ended June 30, 2012, there was no activity in equipment for the Savings Plan. 44

48 NOTE 8 RETIREMENT The Florida Retirement System All permanent fulltime employees of the Board participate in the Florida Retirement System (FRS) Pension Plan, a multiple employer cost sharing defined benefit retirement system, administered by the State, and the FRS Investment Plan, a defined contribution plan designed for mobile employees. The FRS provides retirement and disability benefits, annual costofliving adjustments, and death benefits to plan members and beneficiaries. The State issues a publicly available report that includes financial statements and required supplementary information for FRS. That report may be obtained by writing to Florida Retirement System, State of Florida, Tallahassee, Florida The FRS provides vesting of benefits after six years of creditable service for the Pension Plan and one year of creditable service for the Investment Plan. Normal retirement age is attained at the earlier of thirty years of creditable service regardless of age or retirement at age sixtytwo with at least six years of creditable service. Early retirement may be taken anytime; however, there is a five percent benefit reduction for each year prior to normal retirement age. Benefits are computed on the basis of age, average final compensation, creditable years of service and accrual value by membership class. Members are also eligible for inlineofduty or regular disability benefits if permanently disabled or unable to work. The Board contribution requirements are established by Florida Statutes, Chapter 121, Section and may be amended by FRS. The Board contribution rate under the uniform rate structure (a blending of both the FRS Pension Plan and the Investment Plan rates) was 4.91% for the fiscal year ended June 30, The employee retirement contribution rate for both the FRS Pension Plan and Investment Plan was 3% for the fiscal year ended June 30, The Board s contributions to FRS for the year ended June 30, 2012 were $30,132, and were equal to the required contributions. The employee s contributions to FRS for the year ended June 30, 2012 were $18,457. The FRS was amended in July 1998 to add the Deferred Retirement Option Program (DROP), which is subject to provisions of Section (13) of Florida Statutes. It permits eligible defined benefit plan members who have reached normal retirement age to defer receipt of monthly benefit payments while continuing employment with an FRS employer. An employee may participate in DROP for a maximum of 60 months after becoming eligible to participate. Additionally, authorized instructional personnel may participate in DROP for up to 36 additional months beyond their initial 60month participation period. For fiscal year ended June 30, 2012 the Board had one employee who participated in DROP. The Board contribution requirements are established by Florida Statutes, Chapter 121, Section and may be amended by FRS. The Board contribution rate under the uniform rate structure (a blending of both the FRS Pension Plan and the Investment Plan rates) was 4.42% for the fiscal year ended June 30, The plan is noncontributory for employees with all contributions being the obligation of the Board. The Board s contributions to DROP for the year ended June 30, 2012 were $5,242, and were equal to the required contributions. 45

49 NOTE 8 (cont.) Retiree Health Insurance Subsidiary Program The Retiree Health Insurance Subsidiary (HIS) Program is a costsharing multipleemployer defined benefit pension plan established under Section of the Florida Statues. The benefit is a monthly cash payment to assist retirees of stateadministered retirement systems in paying their health insurance costs. For fiscal year ended June 30, 2012, eligible retirees and beneficiaries received a monthly HIS payment equal to the number of years of creditable service completed at the time of retirement multiplied by $5. The payments are at least $30 but not more than $150 per month. To be eligible to receive the HIS, a retiree under a stateadministered retirement system must provide proof of health insurance coverage, which can include Medicare. The HIS Program is funded by required contributions from FRS participating employers as set by the Legislature. Employer contributions for the HIS Program are a percentage of gross compensation for all active FRS employees. For fiscal year ended June 30, 2012, the contribution rate was 1.11% of gross payroll. The Board contributions to the HIS program for the year ended June 30, 2012 were $8,288, and were equal to the required contribution. NOTE 9 RELATEDPARTY TRANSACTIONS The Foundation purchases Florida Prepaid College Plans from the Prepaid Plan on behalf of selected scholarship recipients. Florida Prepaid College Plans at a cost of $7,737,948 were purchased during the year ended June 30, NOTE 10 RISK MAGEMENT The Board is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The Board participates in the State Risk Management Trust Fund which provides property insurance coverage, casualty coverage for the risks of loss related to Federal civil rights and employment actions, workers compensation, courtawarded attorney fees, automobile liability, and general liability insurance coverage. 46

50 Report on internal control over financial reporting and on compliance and other matters based on an audit of the FINCIAL statements performed in accordance with government auditing standards Florida Prepaid College Board Members Tallahassee, Florida We have audited the financial statements of the businesstype activities, the fiduciary fund type and the discretely presented component unit of the Florida Prepaid College Board (the Board) as of and for the year ended June 30, 2012, which collectively comprise the Board s basic financial statements and have issued our report thereon dated October 16, 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 Accounting Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting Management of the Board is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Board s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements but not for the purpose of expressing an opinion on the effectiveness of the Board s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Florida Prepaid College Board s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 47

51 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Board s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, administrative rules, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We have noted other matters pursuant to the Rules of the Auditor General, Chapter that we have reported to the management of the Board in a separate letter dated October 16, This report is intended solely for the information and use of the Members of the Board, management, and the Auditor General of the State of Florida and is not intended to be and should not be used by anyone other than those specified parties. October 16,

52 MAGEMENT LETTER PURSUANT TO CHAPTER , RULES OF THE AUDITOR GENERAL FOR LOCAL GOVERNMENTAL ENTITY AUDITS Florida Prepaid College Board Members Tallahassee, Florida We have audited the financial statements of the Florida Prepaid College Board, as of and for the fiscal year ended June 30, 2012, and have issued our report thereon dated October 16, 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. We have issued our Independent Auditors Report on Internal Control over Financial Reporting and Compliance and Other Matters. Disclosures in the report, which is dated October 16, 2012, should be considered in conjunction with this management letter. Additionally, our audit was conducted in accordance with Chapter , Rules of the Auditor General, which governs the conduct of local governmental entity audits performed in the State of Florida. This letter includes the following information, which is not included in the aforementioned auditors reports or schedule: Section (1)(i)I., Rules of the Auditor, requires that we determine whether or not correction actions have been taken to address findings and recommendations made in the preceding annual financial audit report. No findings and recommendations were made in the preceding annual financial audit report. Section (1)(i)2., Rules of the Auditor General, requires our audit to include a review of the provisions of Section , Florida Statutes, regarding the investment of public funds. In connection with our audit, we determined that the Florida Prepaid College Board complied with Section , Florida Statutes. Section (1)(i)3., Rules of the Auditor General, requires that we address in the management letter any recommendations to improve financial management. In connection with our audit, we did not have any such recommendations. Section (1)(i)4., Rules of the Auditor General, requires that we address violations of provisions of contracts or grant agreements, or abuse, that have occurred, or are likely to have occurred, that have an effect on the financial statements that is less than material but more than inconsequential. In connection with our audit, we did not have any such findings. 49

53 Section (1)(i)5., Rules of the Auditor General, provides that the auditor may, based on professional judgment, report the following matters that have an inconsequential effect on financial statements, considering both quantitative and qualitative factors: (1) violations of provisions of contracts or grant agreements, fraud, illegal acts, or abuse, and (2) Deficiencies in internal control that are not significant deficiencies. In connection with our audit, we did not have any such findings. Section (1)(i)6., Rules of the Auditor General, requires that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in this management letter, unless disclosed in the notes to the financial statements. This information is included in Note 1 of Notes to the Financial Statements. Section (l)(i)7.a., Rules of the Auditor General, requires a statement be included as to whether or not the local governmental entity has met one or more of the conditions described in Section (1), Florida Statutes, and identification of the specific condition(s) met. In connection with our audit, we determined that the Florida Prepaid College Board did not meet any of the conditions described in Section (1), Florida Statues. Section (l)(i)7.b., Rules of the Auditor General, requires that we determine whether the annual financial report for the Florida Prepaid College Board for the fiscal year ended June 30, 2012, filed with the Florida Department of Financial Services pursuant to Section (1)(a), Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended June 30, In connection with our audit, we determined the Florida Prepaid College Board does not file an annual financial report with the Florida Department of Financial Services pursuant to Section (1)(a), Florida Statues. The Board s financial information is included in the report filed by the State Board of Administration for these purposes. Pursuant to Sections (l)(i)7.c. and (7), Rules of the Auditor General, we applied financial condition assessment procedures. It is management s responsibility to monitor the Florida Prepaid College Board s financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. Pursuant to Chapter 119, Florida Statutes, this management letter is a public record and its distribution is not limited. Auditing standards generally accepted in the United States of America require us to indicate that this letter is intended solely for the information and use of management, and the Florida Auditor General, and is not intended to be and should not be used by anyone other than these specified parties. October 16,

54 ACTUARIAL REPORT Florida Prepaid College Board Members Tallahassee, Florida Dear Members of the Board, We have completed our calculations related to the Trust Fund (the Fund) for the Stanley G. Tate Florida Prepaid College Program (the Program) as of June 30, The work to date has been performed in accordance with our engagement letter dated July 2, 2008, and our procedures have been limited to those described in that letter. This report presents the results of our calculations in the following areas: adequacy of the Fund, projection of the Fund s cash flows, calculation of the duration of the Fund s liabilities, and calculation of the Fund s Program Termination Liability. Our work related to the Program s funding was prepared for the Florida Prepaid College Board (the Board) for the sole purpose of assessing the actuarial adequacy of the Fund. The calculations have been completed in accordance with generally accepted actuarial principles and practices applicable to similar types of arrangements. In preparing this report we have relied on the asset and plan information provided by the Board for the enrollment periods 1988/ /2012, assumptions specified to us by the Board and on unaudited financial information as of June 30, 2012, also provided by the Board. Jennifer Haid, FSA, MAAA and Chris Raham, FSA, MAAA are responsible for this report. We are members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to perform this engagement and provide the findings contained herein. Comments or questions regarding this communication should be directed to Jennifer Haid at (212) , who is available to provide supplemental information and/or explanation as requested. We appreciate the continued opportunity to work with the Board. Very truly yours, 51

55 Executive Summary Background and scope Ernst & Young LLP (hereafter referred to as we, us, our) was engaged by the Board to calculate the adequacy of the Stanley G. Tate Florida Prepaid College Program s (the Program) Trust Fund (the Fund) as of June 30, As part of this engagement, we also calculated the Program s liability duration, provided a projection of the Fund s cash flows for use by the Board s investment managers and calculated the Program Termination Liability, which is the liability facing the Board were the Program to be terminated as of June 30, Our calculations include only the existing business of the Program in force as of June 30, 2012 and do not consider the impact of any future plan participants. This scope is consistent with work we have previously performed for the Board. Our work product is intended solely for the information and use of the management of the Board and is not intended to be and should not be used by anyone other than this specified party. In addition, this report is intended for a reader with a working knowledge of the Program s attributes. Ernst & Young, therefore, assumes no responsibility to any user of the report other than the Board. Any other persons who choose to rely on our report do so entirely at their own risk. In this section, we have summarized key results and the assumptions on which they are predicated. More detailed information is contained in the body of our report. Reliance and limitations This report presents an actuarial analysis of data, conditions, and practices communicated to Ernst & Young actuaries. Ernst & Young believes these communications to be reliable. Our calculations relied on data and qualitative information provided to us by the Board. This information included, but was not limited to, descriptions of material legislative changes, attributes of the Program, participant data and the economic and demographic assumptions used to project the Program s actuarial liabilities (the Data and Information). A more detailed listing of this information is provided in the body of this report. We have relied on the oral and/or written statements of employees of the Board regarding the quality, accuracy, and completeness of the Data and Information supplied to us. We did not review the Data and Information provided to us because such a review was outside the scope of our engagement and we are therefore unable to comment on its reasonableness. Any inaccuracies or inconsistencies could have a significant effect on our results. Should any inaccuracies be found, we should be notified so that our analysis can be adjusted accordingly. Our work was limited in scope and more detailed procedures, additional analyses or alternative assumptions or methods may reveal findings that this work has not. Actual results will differ from those assumed or projected. 52

56 In performing our analysis, we have not evaluated the accounting treatment of the policies that are the subject of this review. Our report is not intended to express any opinions with regard to the appropriate accounting treatment of the premiums estimated here under either US GAAP or any other set of accounting standards. For purposes of this report, tuition means registration fee as defined in Paragraph 1.11 of the Master Covenant; and local fee as defined in Paragraph 1.06 of the Master Covenant. In addition, for the purposes of this report, TDF means tuition differential fee as defined in Paragraph 1.14 of the Master Covenant. Adequacy of the Fund Based on the assumptions provided by the Board, our calculations show that the Fund is actuarially sound. That is, the expected value of assets of the Fund exceeds the expected value of liabilities. We define this excess to be the Actuarial Reserve. The assumptions used to determine the status of the Fund are those set by the Board. Table 01 below shows the present value of assets, liabilities and reserves at June 30, PRESENT VALUE AS OF JUNE 30, 2012 ASSETS Investments [1][2] $ 9,980,279,062 Future Plan Premiums $ 2,1 3 6,874,61 6 Other [3] $ 7,270,868 TOTAL ASSETS $ 12,124,424,546 LIABILITIES AND ACTUARIAL RESERVES Future Plan Benefits and Expenses $ 11,554,965,986 Actuarial Reserves $ 569,458,560 TOTAL LIABILITIES AND RESERVES $ 12,124,424,546 1 Invested assets are shown at market value. Effective February 1, 2009, the Board no longer automatically issues involuntary cancellation refund checks upon the account s cancellation; instead, a signed and notarized request is required. The total value of outstanding refund payments of $21,926,938 has been deducted from the market value of invested assets and the corresponding accounts are not included in the valuation population Invested assets include an unrealized securities lending loss of ($2,556,763). 3 Future revenue receivable from late payment charges, not sufficient funds charges and cancellation charges.

57 Economic assumptions The key economic assumptions used to develop our estimates are listed below. All assumptions were provided to us by the Board. Yield on investments The weighted average yield rate is calculated as 2.32% based on the June 30, 2012 U.S. Treasury Spot Rate Curve as provided to the Board by Northern Trust Global Investments, increased by an incremental return assumption of 21.9 basis points as provided to the Board by Callan Associates. This rate is calculated net of the Board s annual operating expenses. Florida University tuition increases Plans in effect on July 1, % for the 2012/2013 academic year. Subsequent years inflation rates are determined in accordance with (10), F.S. as described below Plans issued after July 1, 2009 Florida College tuition increases Tuition differential Fee ( TDF ) increases Plans in effect on July 1, % per annum 6.0% per annum Increases from $37.03 at the rate dictated by (10). F.S. (as described on the next page) for plans matriculating from 2012/2013 forward. Plans issued after July 1, 2009 The sum of the Florida University tuition and tuition differential fees increases at 10% per annum for the academic years 2013/2014 through 2015/2016; beginning in academic year 2016/2017, the limit is increased to 15% for the remainder of the projection period until the sum of Florida University tuition, tuition differential fee and local fees reaches the national average. [4] Florida University local fee increases Plans in effect on July 1, 2009 Plans issued after July 1, 2009 Florida College local fee increases Dormitory fee increases Plans in effect on July 1, 2009 Plans issued after July 1, 2009 The national average is assumed to increase at 7.0% per annum. 5.0% per annum 6.5% per annum 6.0% per annum 6.0% per annum 6.0% per annum The weighted average yield on investments mentioned on this page represents an average annual yield, based on annualized liability cash flows and a spot rate curve based on the June 30, 2012 U.S. Treasury Spot Rate Curve. The spot rate curve is adjusted for an assumed incremental return to reflect the impact of fixed income funds management. The incremental return is specified by Callan Associates to the Board and used in our calculations. As of June 30, 2012 the specified spread is 21.9 basis points. This rate is calculated net of the Board s annual operating expenses. 4 In prior years, this assumption was set to be 15% per annum for all years in the projection period. 54

58 (10), F.S (10), F.S. sets prospective inflation on Florida University tuition for any prepaid plans in effect on July 1, 2009 as a function of the actuarial adequacy of the Program, and on June 30 of each fiscal year thereafter, based on the adequacy level assessed in those subsequent reviews. The inflation applied to Florida University tuition in future academic years will be set according to Table 02 below: Florida University tuition inflation levels implied by reserve levels Actuarial Reserve level Florida University tuition inflation for subsequent year < 5.0% of liabilities [5] 5.5% >= 5.0% and < 6.0% of liabilities 6.0% >= 6.0% and < 7.5% of liabilities 6.5% >= 7.5% of liabilities 7.0% For example, if the results of the calculations performed show that the reserve is estimated to be 5.0% of Program liabilities as of June 30, 2012 (the end of the 2011/2012 academic year). For plans in effect on July 1, 2009, the Florida University tuition inflation rate for the 2011/2012 academic year would be set to be 6.0%, resulting in a Florida University tuition rate of $ per credit hour. Our preliminary calculations based on the assumptions described above indicated that the Florida University tuition inflation rate for the 2011/2012 academic year for Plans in effect on July 1, 2009 is 6.0%. Due to the iterative nature of the calculations involved, an assumed tuition inflation rate of 6.0% resulted in an actuarial reserve of less than 5.0% while an assumed tuition inflation rate of 5.5% resulted in an actuarial reserve of more than 5.0%. This situation has not occurred before. The Board has directed us to round the reserve as a percentage of Program liabilities to the nearest 50 basis points (5.0% at June 30, 2012) for the purpose of determining the Florida University tuition rate. Therefore, the Florida University tuition inflation rate for the 2011/2012 academic year is 6.0%, resulting in a Florida University tuition rate of $ per credit hour for the 2012/2013 academic year. The methodology used to determine the 2011/2012 Florida University tuition inflation rate has been determined by the Board to be in accordance with (10), F.S. For TDF plans in effect on July 1, 2009, the TDF rate paid by the Program is fixed for the 2012/2013 academic year at $37.03 per credit hour. The same rate of inflation that is assessed for Florida University tuition is assessed on TDF plans making payments in academic years 2013/2014 forward. The cost of these plans will be assessed according to (16), F.S. as described on the next page. For plans in effect on July 1, 2009, inflation on Florida University dormitory fees paid by the Program will be fixed at 6.0% and inflation on Florida University local fees paid by the Program will be fixed at 5.0% (10), F.S. covers all plans in effect on July 1, 2009, but does not apply to any subsequent plan cohorts. 5 Liabilities are defined as the expected present value of payments from the Fund for all plans in effect at July 1,

59 (16), F.S (16), F.S. replaced the prior legislation governing the TDF, and took effect for the fall 2009 term (i.e. the 2009/2010 academic year). The legislation allows all state universities to charge the TDF (subject to the Board of Governor s approval) and permits the TDF to vary by course, campus, and institution. The annual limit on the rate of increase is set at 15% on the annual increase of the sum of the Florida University matriculation fee and TDF. The sum of Florida University tuition, TDF, and local fees will be capped on an absolute dollar basis at the national average as determined by the Education Estimating Conference. The current exemption from any tuition differential fee, which exists for beneficiaries having prepaid tuition plans pursuant to s (2)(b) which were both in effect on July 1, 2007, and remain in effect, is unchanged. Expected cash flows For existing plans, cash flows to the Fund are expected to be negative until 2033/2034 and positive from then until all liabilities are satisfied. A positive cash flow occurs when plan payments and investment income exceed tuition payments, tuition differential fee payments, local fee payments, dormitory payments and expenses. When negative cash flows occur, asset sales and maturities will be needed to provide the necessary cash. Investment strategy As described to us by the Board, the investment strategy of the Fund is designed to enable the Board to meet the actuarially determined Program liabilities. The sole objective of the Board s Comprehensive Investment Plan (the CIP) is to meet the projected liabilities. Effective July 1, 2010, the Board hired Columbia Management Advisors, LLC (Columbia Management), Neuberger Berman Fixed Income, LLC (Neuberger Berman), Northern Trust Investments, N.A. (Northern Trust), and Standish Mellon Asset Management Company, LLC (Standish) to provide fixed income investment services. The Board s longterm strategy is to immunize the Fund against interest rate fluctuations. The Board employs an enhanced structured immunization strategy to control interest rate risk while providing higher portfolio returns. We have not reviewed the strategies in detail and we are not expressing an opinion on the immunization strategies. We note that an immunization strategy is consistent with the stated goals of the CIP. In June 1994, the Program began investing in equities. The purpose of this change in investment allocation was to increase the total return to the Fund over the long term. As of June 30, 2012, the equity investment managers were Florida State Board of AdministrationQuantitative Management Associates LLC (large capitalization value equities), Fiduciary Management, Inc. (small capitalization equities), Northern Trust Investments, N.A. (Northern Trust) (S&P 500 Index Fund), The Boston Company (mid capitalization equities), and Panagora (international equities). In June 2006, the Florida Prepaid College Board adopted an asset allocation policy that limits the amount of assets invested in equities to the amount of the Actuarial Reserve as determined by the Board s actuary, Ernst & Young, or 15% of the market value of the total assets under management, whichever is less. 56

60 FLORIDA PREPAID COLLEGE BOARD MEMBERS The Florida Prepaid College Board is committed to helping Floridians save for future qualified higher education expenses by providing a costeffective, financially sound Florida Prepaid College Plan and other college savings programs. The board has seven members including three members appointed by the Governor, the Chief Financial Officer of Florida, the Attorney General of Florida, the Chancellor of the Board of Governors and the Chancellor of the Division of Florida Colleges, or their designees. The Board manages the Florida Prepaid College Plan and the Florida 529 Savings Plan, which are taxadvantaged 529 plans authorized by Section 529 of the Internal Revenue Code. Board meetings are open to the public and held quarterly. The Florida Prepaid College Board would like to thank Mr. Anthony C. Krayer for his contributions to the Board from August 2009 through February In addition, the Board would also like to thank Mr. John G. O Rourke for his contributions from February 2012 through August On February 22, 2013, Governor Rick Scott announced the appointments of Mr. Robert Champion and Mr. Patrick Hogan to the Florida Prepaid College Board. Mr. Champion is a wealth management advisor with Morgan Stanley Smith Barney. Filling a vacant seat on the Board, he is appointed for a term beginning February 22, 2013, and ending June 30, Mr. Hogan is the managing shareholder of Hogan Legal Services. He succeeds Thomas Ruggie and is appointed for a term beginning February 22, 2013, and ending June 30, At the March 2013 Board meeting, Phillip Marshall was elected to serve as Vice Chairman. Duane Ottenstroer Chairman Duane Ottenstroer was originally appointed to the Florida Prepaid College Board in 2001 as the designee for Florida Chief Financial Officer Tom Gallagher. In 2007, Mr. Ottenstroer was reappointed as the designee for Attorney General Bill McCollum and is the current Chairman of the Board. Mr. Ottenstroer serves on numerous corporate, charitable and community boards and is active in higher education policy as a board member for Flagler College. Mr. Ottenstroer has a Bachelor s degree in Business from the University of Minnesota. Thomas H. Ruggie Thomas H. Ruggie was appointed to the Florida Prepaid College Board by Governor Charlie Crist in 2009 and served as ViceChairman of the Board through February An 18year veteran of the investment and financial planning industries, Mr. Ruggie founded Ruggie Wealth Management in 1991 and serves as President and CEO. Ruggie Wealth specializes in wealth management and financial planning. His industry certifications include designation as a Chartered Financial Consultant as well as a Certified Financial Planner. Mr. Ruggie has garnered numerous mentions including the selection by The Robb Report s Worth Magazine as one of the Top Wealth Advisors in the United States for 2006, 2007 and 2008 and Barron s Top 1000 Advisors for Active in numerous civic and charitable affairs, Mr. Ruggie serves as president of the Cornerstone Hospice Foundation Board and is the former president of the MidFlorida Estate Planning Council. Mr. Ruggie graduated from the University of Central Florida with a Bachelor s degree in Finance. 57

61 Frank T. Brogan Frank Brogan was named chancellor for the State University System of Florida in July Previously, Chancellor Brogan served as president of Florida Atlantic University. Prior to joining his alma mater as its fifth president, he was twice elected Florida s lieutenant governor with thengovernor Jeb Bush. His educational career in Florida began more than three decades ago in Martin County where he held several positions before being named Martin s County s superintendent of schools. In 1994, he was named as Florida s Education Commissioner, the youngest person to serve the position. Chancellor Brogan has extensive involvement in public service on the local, state and national levels and has chaired Florida s Dialogue on Cancer as well as the state s Blueprint Commission on juvenile justice issues. He was one of 16 university presidents serving on the board of directors of the National Collegiate Athletic Association. Chancellor Brogan received a Bachelor s degree in Education magna cum laude from the University of Cincinnati and earned a Master s degree in Education from Florida Atlantic University. Randy Hanna Randy Hanna was named chancellor for the Florida College System in November Most recently, he held the role of Managing Shareholder of Bryant Miller Olive since 1997, where he served as special counsel to numerous governmental units and represented clients before state agencies. With a tremendous higher education background, Mr. Hanna previously served as Chair of the Florida State Board of Community Colleges and the Florida College System Foundation and member of Tallahassee Community College s governing board. He is a current member of the Board of Trustees for the University of West Florida and has served as a trustee for Florida A & M University. His civic involvement also includes serving as Chairman of the Florida Board of Bar Examiners and is the current Chairman of the Chamber of the Tallahassee Area Chamber of Commerce. Chancellor Hanna received a Bachelor of Science degree from the University of Florida and a M.B.A. from the Goizueta Business School at Emory University. Philip E. Marshall Philip E. Marshall was appointed to the Florida Prepaid College Board in 2011 as the designee for the Chief Financial Officer of Florida, Jeff Atwater. With more than 30 years experience in the investment banking industry, Mr. Marshall serves as a Principal at Advantage Capital Partners where he is responsible for the investment activities and portfolio management of the firm s investments in Florida. Prior to this, he was associated with SunTrust Robinson Humphrey, the investment banking arm of SunTrust Banks for more than two decades. Mr. Marshall is active in the Central Florida community and currently serves as Chairman of the Board of Trustees of Bishop Moore Catholic High School in Orlando as well as a member of the Finance Committee. Mr. Marshall earned a Bachelor s degree from the University of Florida in Agricultural Economics and a M.B.A. with a concentration in Finance from the Wharton School of the University of Pennsylvania. Liana O Drobinak Liana R. O Drobinak was appointed to the Florida Prepaid College Board by Governor Rick Scott in Ms. O Drobinak is the Managing Director of Bay Consulting Partners LLC. Prior to Bay Consulting Ms. O Drobinak served as Vice President for Jefferson Wells, President and CEO of Acclaris, Inc., a business process solutions company that she cofounded in 2001 and partner at Arthur Andersen. With more than 25 years of business consulting and operational experience, she is a Certified Public Accountant and Certified Internal Auditor. Ms. O Drobinak graduated magna cum laude with a Bachelor s degree in Accounting and a M.B.A. from the University of South Florida. KEVIN THOMPSON Executive Director 58

62 SERVICE PROVIDERS The Board contracts with various companies for legal, financial, investment, customer service, marketing and other professional support. Our vendors include: Callan Associates, Inc. Investment Consulting Services Carr, Riggs & Ingram, LLC Auditing and Accounting Services Columbia Management Investment Advisors, LLC. Investment Management Services Ernst & Young, LLP Actuarial Services Fidelity Security Life Insurance Student Insurance Services Fiduciary Management, Inc. Investment Management Services NEUBERGER BERMAN FIXED INCOME, LLC. Investment Management Services Northern Trust Investments, N.A. Investment Management Services PAGORa asset management, Inc. Investment Management Services Quantitative Management Associates (Under a State Board of Administration contract) Investment Management Services Standish Mellon Asset Management Company, LLC Investment Management Services Florida PRIME (Under a State Board of Administration contract) Investment Management Services GRAY ROBINSON, P.A. Legal Services Intuition Systems, Inc. Records and Customer Service THE BOSTON COMPANy asset management, LLC Investment Management Services The Northern Trust Company Trustee and Securities Lending Services The Zimmerman Agency Advertising, Marketing & Community Relations Wachovia Bank Banking Services 59

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64 myfloridaprepaid.com GRAD (4723) or Florida Prepaid College Board P.O. Box 6567 Tallahassee, FL