The Florida Prepaid College Program

Transcription

1 The Florida Prepaid College Program Growing For The Future 2001 Annual Report

2 TABLE OF CONTENTS Chairman s Message...2 Program Highlights...4 Financial Statements...14 Notes to Financial Statements...18 Report of Independent Certified Public Accountants...22 Actuarial Report...23 Program Partners...24 The Board...25

3 CHILDREN GROW EVERY DAY, AND THE COST OF COLLEGE IS GROWING JUST AS FAST. The Florida Prepaid College Program is helping Florida families financially prepare for college. The program locks in the cost of college tuition, local fees and dormitory housing at today s prices. What you pay now is financially guaranteed by the State of Florida no matter how much college costs increase in the future. Flexible When your child is ready for college, Florida Prepaid covers the actual cost at Florida s 11 public universities and 28 community colleges. Or you can transfer the value of the plan to most private colleges in Florida, select technical schools and most out-of-state colleges. Affordable The price depends on the plan you select and the age of your child. Payments can be made in a single lump sum, monthly or over five years. Guaranteed With Florida Prepaid, you don t have to worry about the stock market or if you will have enough money saved. You cannot lose your money, and you can get a refund anytime, for any reason guaranteed. College tuition in Florida has increased 126 percent in the last 15 years and is expected to quadruple by the time today s newborn goes to college.

4 C H A I R M A N S M E S S A G E Stanley G. Tate Chairman Helping Florida families Helping The Florida Prepaid College Enrollment Growing The Florida Prepaid College Program remains the largest, most successful program of its kind in the country. This year, 62,779 new plans were purchased and enrollment continues to grow. Based on the preliminary results, we expect to exceed 735,000 total contracts sold statewide, by the end of fiscal year Florida Prepaid is helping Florida families of many different backgrounds and from all corners of the state save for college for their children. Today, 63 percent of all new Florida Prepaid families earn less than $70,000 a year, as compared to 60 percent of all Florida households. We are committed to diversity, having increased minority enrollment within the last five years to 24 percent of all new Florida Prepaid families. Minority enrollment grew again this year with minorities representing 27 percent of all new Florida Prepaid families, as compared to 22 percent of Florida s total population. And while the majority of Florida Prepaid families live in the more populated areas of the state, program awareness and participation continue to grow in communities both large and small. Assets Growing This Annual Report includes the audited financial statements prepared by our independent auditors, PricewaterhouseCoopers, and the Actuarial Report prepared by Ernst & Young, for the fiscal year ending June 30, The financial statements reflect total assets of $4.4 billion and net assets, adjusted for security lending obligations, of $3.4 billion. The program remains a model of efficiency with operating expenses of less than three-tenths of 1 percent of net assets. Again this year, the annual actuarial review confirmed that the program remains actuarially sound. As of fiscal year-end, the expected value of assets exceeded the expected value of liabilities by $410 million. Investment performance is another indicator of our strength and stability. Our investments are structured to ensure that the program can meet its projected liabilities now and in the future. With target asset allocations of 88 percent fixed income and 12 percent equities, our investment strategy is considered conservative by most industry standards. Our strategy has proven effective, averaging an 11 percent annualized return, since inception. 2 Florida Prepaid College Program

5 prepare for college. Florida children grow. Program. Growing for the future. Program Growing We expanded the program this year, introducing several new benefits. Earnings on Florida Prepaid are now tax-free as a result of legislation passed by Congress that exempts qualified 529 plan withdrawals from federal income tax. The Florida Legislature authorized Florida Prepaid to pay qualified out-of-state colleges the same rate it pays a public college in Florida and to change the formula for calculating scholarship and death/disability refunds, increasing these payments for most customers. For the first time, Florida Prepaid students had the opportunity to use their plan at not-forprofit technical centers in Florida or for technical education courses at a Florida community college. This year, 260 students took advantage of this new benefit. We also continued development of the new 529 Florida College Savings Plan. This new plan will give families another way to save for college tuition, fees and housing and for other college expenses not covered by Florida Prepaid, including books and graduate school. The new plan will allow families to save for almost any college, anywhere in the United States. There will be no residency requirement, providing a new opportunity for Florida grandparents to save for college for their grandchildren who may live out of state. The new plan will not be guaranteed like Florida Prepaid. It will offer a range of investment options. Customers will have the flexibility to decide how often and how much to invest. Like Florida Prepaid, the earnings on qualified withdrawals from the new 529 Florida College Savings Plan will be tax-free. Growing For The Future Since inception, Florida Prepaid has helped 85,000 children go to college, and the number of Florida Prepaid students in college is increasing each year. We will continue to grow the Florida Prepaid College Program. Because as we grow so does the number of Florida children who are financially prepared for college and for the future. Cordially yours, Stanley G. Tate Chairman Florida Prepaid College Board 2001 Annual Report 3

6 P R O G R A M H I G H L I G H T S ADMINISTRATION The Florida Prepaid College Program is an agency of Florida government, administered by the independent Florida Prepaid College Board. A model public-private partnership, the program contracts with various private partners for financial, investment, customer relations, marketing and other professional support services. The staff, just 10 in all, manages the day-to-day operation of the program. Assets and Expenses The program is financially strong. Net assets, adjusted for securities lending obligations, reached $3.4 billion this year. Administrative expenses were less than three-tenths of 1 percent of net assets or just $9.5 million. The program is selfsupporting and, therefore, receives no public funding. ASSETS & EXPENSES $3.4 Billion $9.5 Million Assets Expenses Net assets and expenses as of fiscal year-end Assets do not include $924 million in securities lending collateral. OUR NEW 529 PLAN Florida Prepaid is the largest, most successful 529 college prepaid plan in the country. Building on that tradition, the Florida Prepaid College Board focused much of this year on the development of the new 529 Florida College Savings Plan. The new 529 Florida College Savings Plan. Another way to save for college. This new plan will complement Florida Prepaid. It will give families another way to save for college tuition, fees and housing and for other college expenses not covered by Florida Prepaid, including books and graduate school. The new plan will also help families save for the additional costs of most private and out-of-state colleges. The new plan will not be guaranteed like Florida Prepaid. It will offer a range of investment options. Customers will have the flexibility to decide how often and how much to invest. The earnings on qualified withdrawals will grow tax-free. OTHER 2001 ACTIVITIES Now Tax-Free Earnings on Florida Prepaid are now tax-free. In 2001, Congress passed legislation that exempts earnings on qualified withdrawals from 529 plans like Florida Prepaid from any federal income tax. New Out-of-State Policy The Florida Legislature authorized the program to pay qualified out-of-state colleges the same rate it pays a public college in Florida, increasing the out-of-state benefit amount for most customers. Out-of-state colleges were previously paid the same rate as a public college in Florida or the original amount the customer paid for the plan plus 5 percent interest, whichever was less. Currently 4 percent of all Florida Prepaid students are enrolled out of state. Refund Policy Change New legislation has changed the formula for calculating scholarship and death/disability refunds, increasing the refund amount for most customers. Scholarship and death/disability refunds are now based on the value of the plan when the refund is issued. The program previously paid the redemption value of the plan at a public college in Florida or the original amount the customer paid for the plan plus 5 percent interest, whichever was less. Technical Training Expanded Last year, the Florida Legislature expanded access to technical training by allowing students to use their prepaid plan at notfor-profit technical centers in Florida and for technical education courses offered by Florida s community colleges. For the first time this year, Florida Prepaid students took advantage of this new program feature. College Enrollment Grows This year, 43,038 Florida Prepaid students attended college a new all-time high. 4 Florida Prepaid College Program

7 P R O G R A M H I G H L I G H T S CONTRACT SALES Florida families purchased 62,779 new tuition, local fee and dormitory plans this year 11 percent more than last year. Since the program started, there have been 658,196 total plans purchased statewide. The program averages approximately 37,000 new tuition plans each year. Close to 38 percent of new customers purchase the local fee plan, and 23 percent of all customers also have a dormitory plan. Children Enrolled This year, 35,875 Florida children were enrolled. Total Florida Prepaid enrollment has grown to 489,294 children statewide. Contracts Children 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 TOTAL CONTRACTS SOLD = 658, Enrollment Year All tuition, local and dormitory plans purchased since the program started, including active, depleted and cancelled accounts. In 1998, sale of the dormitory plan was temporarily suspended, resulting in a one-year decline in sales. In 1999, sale of the dormitory plan was reinstated and the local fee plan was first introduced, resulting in a one-year spike in sales. 500, , , , ,000 0 TOTAL CHILDREN ENROLLED = 489, Enrollment Year Based on total tuition plans purchased since the program started. Each child may have only one active tuition plan. Payment Options Payments can be made in a lump sum, over five years or monthly until the year the child is projected to start college. The payment options selected shift slightly from year-to-year but have not changed much over time. Most customers, whether purchasing a tuition plan, local fee plan or dormitory plan, select the monthly payment option. Sales Revenue Projected revenue for all new plans sold this year is $382 million. Total projected revenue for all plans sold, since the program started, is now $2.82 billion. PAYMENT OPTIONS By Plan Type - Cumulative 27% Tuition Plan Monthly 5 Years Lump Sum 46% 27% 31% Local Fee Plan Monthly 5 Years Lump Sum 36% 33% 29% Dormitory Plan Monthly 5 Years Lump Sum 44% 27% Payment options selected for all plans purchased. PROJECTED SALES REVENUE By Payment Option - Cumulative $1.35 Billion TOTAL: $2.82 BILLION Monthly 5 Years Lump Sum $761 Million $714 Million Revenue and receivables at actual payment amounts. Does not include investment income. Does not include cancelled accounts Annual Report 5

8 P R O G R A M H I G H L I G H T S Tuition Plan Florida families purchased 35,875 new tuition plans this year. Since the program started, 489,294 total tuition plans have been purchased. TUITION PLAN BY YEAR , , , , , , , , , , , , ,875 TOTAL 489,294 New customers purchased 79 percent of all tuition plans this year. Current customers, who already had at least one other child enrolled in the program, purchased the remaining 21 percent. Most customers buy the four-year university tuition plan. The tuition plan covers the matriculation, capital improvement, building and financial aid fees charged by Florida s public colleges. There are other fees charged by Florida s public colleges, including local fees, which are not covered by the tuition plan. The tuition plan may be purchased for a child newborn through the eleventh grade. To qualify, the child or the child s parent must be a Florida resident. There are three tuition plans: Four-Year University Plan Covering 120 undergraduate credit hours at a state university. 2+2 Plan Covering 60 credit hours at a community college and 60 undergraduate credit hours at a state university. Two-Year Community College Plan Covering 60 community college credit hours. Since the program started, 74 percent of all customers have selected the four-year university plan, 21 percent have selected the 2+2 plan and 5 percent have selected the two-year community college plan. Again this year, the four-year university plan was the most popular, representing 72 percent of all new tuition plans. The 2+2 plan made up 23 percent and the two-year community college plan represented 5 percent of all new tuition plans. TUITION PLAN TYPE % 4-Year University Plan 2+2 Plan 2-Year Community College Plan 23% 5% Local Fee Plan This year, 19,139 new local fee plans were purchased. The local fee plan was introduced three years ago, and in that time, 54,698 total local fee plans have been purchased. LOCAL FEE PLAN BY YEAR , , ,139 TOTAL 54,698 The local fee plan was introduced in The local fee plan covers the required student activity and service, health and athletic fees charged by Florida s public colleges. To qualify for the local fee plan, the child must have a tuition plan and be in the eighth grade or younger. The local fee plan may be purchased with a new tuition plan or may be added to an existing tuition plan, anytime prior to the child completing the eighth grade. This year, 77 percent of all new local fee plans were purchased with a new tuition plan; 23 percent were added to an existing tuition plan. The local fee plan supplements the tuition plan and, therefore, must be the same type as the corresponding tuition plan. Like the tuition plan, there are three local fee plans: the four-year university plan, the 2+2 plan and the two-year community college plan. Close to 38 percent of new customers purchase the local fee plan. 6 Florida Prepaid College Program

9 P R O G R A M H I G H L I G H T S This year, the four-year university plan represented 76 percent, the 2+2 plan 22 percent, and the two-year community college plan 2 percent of all new local fee plans. LOCAL FEE PLAN TYPE % 4-Year University Plan 2+2 Plan 2-Year Community College Plan 2% 22% Dormitory Plan In 2001, 7,765 new dormitory plans were purchased bringing total dormitory plans sold to 114,204. DORMITORY PLAN BY YEAR , , , , , , , , , , , ,765 TOTAL 114,204 The dormitory plan was not offered in 1998 pending clarification of federal legislation impacting the tax status of the plan. The dormitory plan was re-introduced in The dormitory plan covers the cost of a standard, double-occupancy, air-conditioned dorm room. The value of the plan may be applied toward the cost of other housing managed or designated by a university, including some fraternity and sorority houses, and select community college residence facilities. To qualify for the dormitory plan, the child must have a tuition plan and be in the eighth grade or younger. Like the local fee plan, the dormitory plan may be purchased with a new tuition plan or may be added to an existing tuition plan, anytime prior to the child completing the eighth grade. This year, 82 percent of all new dormitory plans were purchased with a new tuition plan; 18 percent were added to an existing tuition plan. The dormitory plan may be purchased with a four-year university tuition plan or a 2+2 tuition plan. It is offered in one-year increments, up to five years. The purchasing patterns for the dormitory plan have been consistent over time. This year, the majority of customers purchased the one-year plan or two-year plan. Less than one quarter selected the four-year plan. The three-year and five-year plans each made up only 1 percent of sales. DORMITORY PLAN TYPE % 1% 1-Year Plan 2-Year Plan 3-Year Plan 4-Year Plan 5-Year Plan 23% 36% On average, 23 percent of all customers have a dormitory plan. 1% 2001 Annual Report 7

10 P R O G R A M H I G H L I G H T S OUR CUSTOMERS Any person or organization can purchase a Florida Prepaid plan, including a parent, grandparent, friend, community group, trust or business. The purchaser is the owner of the plan. The plan is purchased for a child (beneficiary) newborn through the eleventh grade. To qualify, the child or the child s parent must be a Florida resident. Age of Beneficiary When saving for college, financial experts agree the sooner you start the better. Florida Prepaid families are getting an early start on saving for college. Over the years, more Florida Prepaid plans have been purchased for children 1 year old or younger than any other single age group. Of all the children enrolled this year, 28 percent were 1 year old or younger. The trend toward enrolling younger children has continued in recent years. On average today, 78 percent of all children, when enrolled, are elementary school age or younger, 16 percent are in middle school and 6 percent are in high school. BENEFICIARY AGE Children 110, ,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, Age at Time of Purchase FAMILY INCOME Median Florida Household Income = $55,351 Income Florida Prepaid Florida Households Less Than $20,000 4% 16% $20,000 - $39,000 19% 17% $40,000 - $69,000 40% 27% $70,000 or More 37% 40% MEDIAN FLORIDA HOUSEHOLD INCOME: U.S. Department of Commerce, Bureau of the Census, FLORIDA PREPAID: Based on new data collected for families enrolled in Family income is self-reported at time of purchase with 60 percent of all customers responding. FLORIDA HOUSEHOLDS: University of Florida, Bureau of Economic and Business Research, percent of customers said that they would recommend Florida Prepaid to a friend. Relationship On average, 88 percent of all Florida Prepaid plans have been purchased by a parent, 10 percent by a grandparent and the remaining 2 percent by another relative, a friend, a business or a foundation. The relationship between the purchaser and the child is self-reported at the time of enrollment. Family Income Florida Prepaid is helping put college within financial reach of the average Florida family. Today, 63 percent of all new Florida Prepaid families earn less than $70,000 a year, as compared to 60 percent of all Florida households. Florida Prepaid family income parallels the income of most Florida households, except among lower income families earning less than $20,000 a year. For these families, studies suggest that saving for college is important, but because of other competing financial needs, putting money aside for college is often not possible. 8 Florida Prepaid College Program

11 P R O G R A M H I G H L I G H T S Race More than 15.6 million people live in Florida today. Close to 78 percent are white and 22 percent are minorities. In comparison, 73 percent of all Florida Prepaid families who enrolled this year are white and 27 percent are minorities. Florida Prepaid encourages racial and ethnic diversity through education and promotion in traditional minority FAMILY RACE ETHNIC ORIGIN markets. As a result, minority enrollment has grown. In the first eight years of the program, minorities represented 15 percent of total enrollment. Within the last five years, minority participation has increased 60 percent to 24 percent of all new Florida Prepaid families Florida Prepaid Florida Prepaid Florida Last 5 Years First 8 Years Since Inception White Families 73% 78% 76% 85% 81% Minority Families 27% 22% 24% 15% 19% Hispanic 15% 17% 13% 8% 10% African American 7% 15% 7% 4% 5% Asian 2% 2% Other 3% 5% 4% 3% 4% 2001 FLORIDA PREPAID: Families enrolled in FLORIDA:Total population of Florida. Hispanics may be of any race; therefore, the total of all racial/ethnic groups does not equal 100 percent. University of Florida, Bureau of Economic and Business Research, FLORIDA PREPAID LAST 5 YEARS: Families enrolled FLORIDA PREPAID FIRST 8 YEARS: Families enrolled FLORIDA PREPAID SINCE INCEPTION: All families enrolled since 1989, the first enrollment year. Florida Prepaid family race-ethnic origin is self-reported with approximately 75 percent of all customers responding. Where They Live Most Florida Prepaid customers live in the more populated, metropolitan areas of the state. Nearly 46 percent of all customers currently live in South Florida, 32 percent in Central Florida and 15 percent in North Florida. The remaining 7 percent now reside out of state or their address is unknown. Close to 60 percent of all new Florida Prepaid customers this year live in the six largest populated counties in Florida. Program awareness and participation, however, continue to grow in communities both large and small. Top Counties Families County Rank Miami-Dade 18% 1 Broward 15% 2 Palm Beach 9% 3 Hillsborough 7% 4 Pinellas 6% 5 Orange 5% 6 FAMILIES: Families enrolled in COUNTY RANK: Six largest populated counties in Florida. University of Florida, Bureau of Economic and Business Research, Customers By County NORTH FLORIDA CENTRAL FLORIDA SOUTH FLORIDA Alachua...7,335 Baker Bay...2,921 Bradford Calhoun Clay...4,571 Columbia Dixie...94 Duval...19,276 Escambia...4,698 Flagler...1,069 Franklin...91 Gadsden Gilchrist Gulf Hamilton Holmes Jackson Jefferson Lafayette...46 Leon...11,883 Liberty Madison Nassau...1,205 Okaloosa...3,672 Putnam...1,046 St. Johns...5,052 Santa Rosa...3,012 Suwannee Taylor Union Wakulla Walton Washington Brevard...13,540 Citrus...2,078 Hernando...2,382 Hillsborough...31,490 Indian River...2,919 Lake...4,351 Levy Marion...4,561 Orange...22,388 Osceola...2,662 Pasco...7,738 Pinellas...28,754 Polk...8,504 Seminole...12,991 Sumter Volusia...9,692 Broward...68,102 Charlotte...2,095 Collier...5,427 Desoto Glades...66 Hardee Hendry Highlands...1,131 Lee...10,164 Manatee...4,815 Martin...4,275 Miami-Dade...70,151 Monroe...2,535 Okeechobee Palm Beach...41,612 St. Lucie...4,374 Sarasota...6,813 TOTAL...72,708 TOTAL...155,002 TOTAL...223,033 Of the 489,294 customers who have purchased a tuition plan, 38,551 now live out of state or their current address is unknown for reasons including the customer has moved but has not provided a forwarding address or the plan was purchased through the Florida Prepaid College Foundation and the beneficiary has not yet been named Annual Report 9

12 P R O G R A M H I G H L I G H T S COLLEGE ENROLLMENT The number of Florida Prepaid students in college has grown, increasing 13 percent this year to 43,038 students. Of those students, 12,053 enrolled in college for the first time. Since the program began, 85,000 Florida Prepaid students have gone to college. More than 21,000 are known to have graduated from a public university or community college in Florida.* *The program does not track students who may have graduated from a private Florida college, technical center or out-of-state college. PLAN USAGE FALL % Most Florida Prepaid students go to a public university or community college in Florida. This year, 58 percent of all Florida prepaid students were enrolled at a Florida university and 32 percent were enrolled at a Florida community college. Approximately 4 percent went to a private college in Florida and 4 percent to an outof-state college. For the first time, Florida Prepaid students had the opportunity to use their plan at an approved technical center in Florida or for technical education courses at a Florida community college. Close to 1 percent, a total of 260 students, took advantage of this new benefit. Future Enrollment Within the next five years, annual Florida Prepaid college enrollment is projected to surpass 62,000 students. College Payments More than $328.6 million in tuition, dormitory and local fee plan payments have been made since the program started. Florida s public universities have benefited the most, receiving 68 percent of all Florida Prepaid payments. Since the program started, more than $222 million has been paid to public universities in Florida. Florida s community colleges have received close to $62.8 million. TOTAL PAYMENTS By College Type - Cumulative 19% 58% TOTAL: 43,038 STUDENTS Florida University 25,047 Students 4% 4% 1% 1% Florida Community College 13,684 Students Out-Of-State College 1,885 Students Students Projected Enrollment Next Five Years 70,000 60,000 50,000 40,000 30,000 20,000 10, Fall Semester 68% TOTAL $328.6 MILLION Florida University $222 Million 4% 1% Florida Community College $62.8 Million 9% Florida Private College 1,634 Students Out-Of-State College $29.8 Million Florida Technical Center* 260 Students Florida Private College $13.7 Million Scholarship** 528 Students Florida Technical Center* $250,000 * Includes 135 students enrolled at an approved technical center in Florida and 125 students enrolled in technical education courses at a Florida community college. ** Includes students who qualified for and received a scholarship refund. Scholarship refunds are paid to the account owner, not the college; therefore, the program does not track where these students are attending college. *Payments to approved technical centers in Florida and for technical education courses offered by Florida s community colleges were authorized for the first time in Florida Prepaid College Program

13 P R O G R A M H I G H L I G H T S Plan Type Tuition Dormitory TOTAL PAYMENTS By Plan Type Cumulative Payments $288.8 million $39.7 million Local Fee $55,000 TOTAL $328.6 million Total payments since the program started. Because most local fee plans since first introduced in 1999, have been purchased for children who have not yet started college, local fee plan payments are significantly less than tuition plan and dormitory plan payments. Florida Prepaid Enrollment By University Fall 2000 Fall 2001 University of Florida 6,753 7,248 Florida State University 4,573 4,946 University of Central Florida 3,803 4,449 University of South Florida 2,311 2,722 Florida International University 1,974 2,087 Florida Atlantic University 1,126 1,380 University of North Florida 1,036 1,134 University of West Florida Florida A&M University Florida Gulf Coast University New College of Florida* TOTAL 22,521 25,047 Florida Prepaid Enrollment By Community College Florida Colleges Of Choice Florida Prepaid enrollment grew at most all of Florida s public universities and community colleges this year. Again this year, more Florida Prepaid students were enrolled at the University of Florida than at any other college. Close to 17 percent of all Florida Prepaid students attended the University of Florida this year. Of all Florida Prepaid students at a public university in Florida, 29 percent were enrolled at the University of Florida. Miami-Dade Community College continues to have the highest Florida Prepaid enrollment among Florida s community colleges. Of all Florida Prepaid students at a public community college in Florida, 11 percent were enrolled at Miami-Dade Community College. Fall 2000 Fall 2001 Miami-Dade Community College 1,296 1,500 Valencia Community College 1,236 1,394 Broward Community College 1,117 1,241 Santa Fe Community College 937 1,064 Tallahassee Community College 922 1,024 Palm Beach Community College St. Petersburg College Hillsborough Community College Florida Community College at Jacksonville Brevard Community College Seminole Community College Daytona Beach Community College Edison Community College Indian River Community College Pensacola Junior College Manatee Community College Polk Community College Central Florida Community College Pasco-Hernando Community College St. Johns River Community College Gulf Coast Community College Okaloosa-Walton Community College Lake-Sumter Community College Lake City Community College South Florida Community College Chipola Junior College Florida Keys Community College North Florida Community College TOTAL 12,038 13,684 * New College of Florida was recently designated a public university. New College was previously a campus of the University of South Florida; therefore, students enrolled at New College for Fall 2000 and Fall 2001 are included in the count for USF Annual Report 11

14 P R O G R A M H I G H L I G H T S MARKETING Marketing of the program centers around the enrollment campaign from October to January each year. This year s theme was Will college be in your child s future? The campaign strategies included: Direct mail targeting 100,000 Florida parents statewide. A new direct mail piece asking African- American church and organization leaders to share information about the program with their members. A direct mail package encouraging daycare centers to distribute information about the program to parents. Television advertising in all major markets and radio advertising in select markets statewide. Print ads in seven different African- American newspapers in Florida. Outdoor billboards in eight markets plus moving billboards on buses in Miami and Jacksonville. Interior bus signage reaching lower to middle income neighborhoods in Miami. Expanded promotion of the Florida Prepaid Web site. A comprehensive media relations campaign, generating continuous news coverage. Information was also distributed through Florida elementary and middle schools, reaching a potential 2 million families, and through Florida libraries. Presentations were made to parentteacher organizations, businesses and community groups. And the program continues to partner with a growing number of businesses statewide to promote the advantages of saving for college through payroll deduction. PRICING Ernst & Young, an independent actuary, calculates the plan prices each year. The plan prices are based on current college costs and projected costs for future years. The plan prices vary according to the plan type, the payment option and the age of the child. Payments can be made in a lump sum, over five years or monthly until the year the child is projected to start college. The five-year payment option and the monthly payment option include a fixed financing rate of 6.8 percent. Tuition Plan Pricing This year, tuition costs were $59.13 per credit hour at all state universities. Tuition costs at Florida community colleges vary, averaging $43.90 per credit hour in In setting the prices, it was assumed that university tuition will increase 6.8 percent and community college tuition will increase 6 percent annually. Tuition Plan Type Lump Sum 5 Years Monthly 4-Year University Plan $7,083 $150 $ Plan 5, Year Community College Plan 1, Plan prices are for a newborn child. Prices are rounded up to the next dollar. Local Fee Plan Pricing Local fees vary by college, averaging $18.38 per credit hour at a state university and $4.86 per credit hour at a community college in The plan prices were based on a weighted average and a projected 6 percent university increase and an 11 percent community college increase in local fees annually. Local Fee Plan Type Lump Sum 5 Years Monthly 4-Year University Plan $1,683 $36 $ Plan 1, Year Community College Plan 557 Plan prices are for a newborn child. Prices are rounded up to the next dollar. The two-year community college plan can only be purchased in a lump sum. Dormitory Plan Pricing Dormitory costs also vary by college, averaging $2, in The plan prices were based on a weighted average and a projected 6 percent inflation factor for all future years. Dormitory Plan Type Lump Sum 5 Years Monthly 1-Year Plan $2,191 $47 $18 2-Year Plan 4, Plan prices for a newborn child. Prices are rounded up to the next dollar. The one-year and two-year dormitory plans are the most popular. The program also offers three-, four- and five-year dormitory plans. 12 Florida Prepaid College Program

15 P R O G R A M H I G H L I G H T S INVESTMENTS The State of Florida guarantees to pay the actual costs covered by the Florida Prepaid College Program, when the beneficiary of the plan the child is ready for college. To achieve this objective, customer payments are invested according to a Comprehensive Investment Plan approved by the Florida Prepaid College Board and Florida s Governor, Comptroller and Treasurer. The Comprehensive Investment Plan describes the investment goals, strategy, asset allocation and benchmarks for monitoring investment performance. The overarching investment goal is to ensure that the program meets its forecasted liabilities or, in other words, that the program can keep pace with increases in tuition, local fee and dormitory costs and satisfy its financial obligation to its customers now and in the future. The investment strategy is conservative by most industry standards with target asset allocations of 88 percent fixed income and 12 percent equities. The benchmark yield on investments is approximately 6 percent. Since inception, the program has averaged an 11 percent annualized return on its investments and, as of fiscal year ending June 30, 2001, had an actuarial reserve of $410 million. The market value of invested assets, including contract receivables, exceeds $3.4 billion. 13% Domestic Equity Investments: 12% 9% 4% 4% 4% 66% Fixed Income Portfolio The fixed income portfolio is invested using an enhanced immunization style of management, in which assets are structured to increase in value in conjunction with any increase in liabilities. The benchmark allocations for the fixed income fund are 66 percent U.S. Treasury bonds, 13 percent mortgage-backed securities and 9 percent corporate bonds. Equity Portfolio The Comprehensive Investment Plan splits the 12 percent allocation of equity assets among large capitalization growth, large capitalization value and S&P 500 index stocks. Investment Managers The program contracts with several nationally recognized firms to provide investment management services. All investment managers are selected through a competitive bidding process, and existing contracts are periodically rebid. COMPREHENSIVE INVESTMENT PLAN U.S. Treasury Agency Bonds Mortgage-Backed Bonds Corporate Bonds Large Cap Growth Stocks Large Cap Value Stocks THE FOUNDATION The Florida Prepaid College Foundation is a 501(c)(3) direct support organization for the Florida Prepaid College Program. Through the Foundation, businesses, community groups and individuals can make tax-deductible contributions to fund prepaid college scholarships for lowincome children and other children who may not have the opportunity to go to college. Created in 1990, the Foundation has awarded 14,479 prepaid college scholarships statewide. Project STARS Project STARS Scholarship Tuition For At-Risk Students is a Foundation scholarship program for low-income children who are at risk of dropping out of school. Project STARS is funded by an annual appropriation from the Florida Legislature and matching funds from private donors. Project STARS is making a difference. Today, 96 percent of all Project STARS students are progressing academically, are staying drug- and crime-free, and are making plans to go to college. Other Scholarships The Foundation sponsors several other scholarships including the School District Scholarship, a program which encourages middle school students to pursue a career in education, and the Lawton Chiles Scholarship which is awarded each year to an at-risk middle school student in honor of the late-governor Lawton Chiles and his lifelong commitment to Florida s children. The Foundation also partners with the community to provide scholarships for children who because of special circumstances the untimely death of a parent or other unique family situations may not be able to afford college. Fixed Income Investments: 88% S&P 500 Index Stocks 2001 Annual Report 13

16 FINANCIAL STATEMENTS Balance Sheet Year ended June 30, 2001 Fiduciary Fund Type Expendable Trust ASSETS AND OTHER DEBITS Cash and cash equivalents $ Restricted assets: Cash and cash equivalents 596,385 Investments 3,666,169,583 Investment trades receivable 7,829,890 Tuition and housing payments receivable 685,406,213 Accrued interest receivable 12,971,797 Equipment Amount available in expendable trust fund Amount to be provided for tuition and housing benefits payable compensated absences Total assets and other debits $ 4,372,973,868 LIABILITIES Liabilities: Current liabilities (payable from restricted assets): Accounts payable and accrued expenses $ 4,629,628 Due to beneficiaries Obligations under securities lending 924,489,524 Investment trades payable 35,988,441 Deferred revenue 685,406,213 Refunds payable 4,148,450 Long-term liabilities: Tuition and housing benefits payable Compensated absences Total liabilities 1,654,662,256 Fund equity and other credits: Investment in general fixed assets Fund balances: Reserved for program expenditures 2,718,311,612 Unreserved Total fund equity and other credits 2,718,311,612 Total liabilities, fund equity and other credits $ 4,372,973, Florida Prepaid College Program

17 PRIMARY GOVERNMENT Account Groups Total (Memorandum Only) COMPONENT UNIT Governmental Total (Memorandum Only) General Fixed Assets General Long-Term Debt Primary Government Florida Prepaid College Foundation, Inc. Reporting Entity $ $ $ $ 1,422,647 $ 1,422, ,385 10,185,876 10,782,261 3,666,169,583 3,666,169,583 7,829,890 7,829, ,406, ,406,398 12,971,797 12,971,797 90,925 90,925 90,925 2,718,311,420 2,718,311,420 2,718,311, ,471, ,471, ,471, , , ,811 $ 90,925 $ 2,997,910,540 $ 7,370,975,333 $ 11,608,708 $ 7,382,584,041 $ $ $ 4,629,628 $ $ 4,629,628 10,186,061 10,186, ,489, ,489,524 35,988,441 35,988, ,406, ,406,213 4,148,450 4,148,450 2,997,782,729 2,997,782,729 2,997,782, , , ,811 2,997,910,540 4,652,572,796 10,186,061 4,662,758,857 90,925 90,925 90,925 2,718,311,612 2,718,311,612 1,422,647 1,422,647 90,925 2,718,402,537 1,422,647 2,719,825,184 $ 90,925 $ 2,997,910,540 $ 7,370,975,333 $ 11,608,708 $ 7,382,584,041 The accompanying notes are an integral part of these financial statements Annual Report 15

18 F I N A N C I A L S T A T E M E N T S Statement Of Revenues, Expenditures And Changes In Fund Balances Year Ended June 30, 2001 Primary Government Fiduciary Fund Type Component Unit Governmental Total (Memorandum Only) Expendable Trust Florida Prepaid College Foundation, Inc. Reporting Entity Revenues: Prepaid tuition and housing $ 253,496,351 $ $ 253,496,351 Investment income 217,356, , ,875,676 Securities lending income 54,524,105 54,524,105 Application and other fees 3,147,060 77,268 3,224,328 Donations 77,500 77,500 Total revenues 528,524, , ,197,960 Expenditures: Tuition and housing 64,553,215 64,553,215 Refunds 39,798,790 39,798,790 Administration 9,518, ,935 10,131,470 Securities lending 52,141,879 52,141,879 Total expenditures 166,012, , ,625,354 Excess of revenues over expenditures 362,511,909 60, ,572,606 Fund balances, beginning of year 2,355,799,703 1,361,950 2,357,161,653 Fund balances, end of year $ 2,718,311,612 $ 1,422,647 $ 2,719,734,259 The accompanying notes are an integral part of these financial statements. 16 Florida Prepaid College Program

19 F I N A N C I A L S T A T E M E N T S Statement Of Cash Flows Year Ended June 30, 2001 Component Unit Governmental Florida Prepaid College Foundation, Inc. Cash flows from operating activities: Excess of revenues over expenditures $ 60,697 Adjustments to reconcile excess of revenues over expenditures to net cash provided by operating activities: Changes in operating assets and liabilities: Accounts receivable (185) Due to beneficiaries 2,432,102 Net cash provided by operating activities 2,492,614 Net increase in cash 2,492,614 Cash at beginning of year 9,115,909 Cash at end of year 11,608,523 Classified as: Current assets 1,422,647 Restricted assets 10,185,876 $ 11,608,523 The accompanying notes are an integral part of these financial statements Annual Report 17

20 NOTES TO FINANCIAL STATEMENTS ACCOUNTING POLICIES Description of Program The Florida Prepaid College Program (the Program ), formerly the Florida Prepaid Postsecondary Education Expense Program, is administered by the Florida Prepaid College Board (the Board ). The Program was created in 1987 to provide a medium through which the cost of State postsecondary education may be paid in advance of enrollment at a rate lower than the projected corresponding costs at the time of enrollment. The Program is authorized by Chapter of the Florida Statutes and governed by Board Rules. The State of Florida guarantees to meet the obligations of the Program to qualified beneficiaries if funds in the Program are insufficient. In the event that the State determines the Program to be financially infeasible, the State may discontinue the provisions of the Program. If discontinued, any qualified beneficiary who has been accepted by and is enrolled or is within 5 years of enrollment at a state college, university or postsecondary institution, (or other institution as specified in the contract), shall be entitled to exercise the complete benefits. All other contract holders shall receive a refund with an additional amount for interest at prevailing rates. Effective July 1, 2000, the Florida College Savings Plan (the Savings Plan ) was created as a supplement to the existing Florida Prepaid College Program. The Savings Plan is authorized by Chapter of the Florida Statues and governed by Board Rules. The Savings Plan provides a vehicle whereby participants can save for supplemental post secondary education costs not covered by the traditional plan. Such costs include books, off-campus housing, food and graduate studies. Participant contributions are collected and invested in accordance with participant agreements. Participant agreements 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 from such contributions are held in trust. During the year ended June 30, 2001, no contributions were made to the Savings Plan. If the State determines that the Savings Plan is financially infeasible, it has the authority to discontinue the Savings Plan. Otherwise, the Savings Plan will continue in existence until it is terminated by law. Upon termination of the Savings Plan, all deposits shall be returned to the participants and any unclaimed assets in the Savings Plan will revert to the State in accordance with general law regarding unclaimed property. Reporting Entity The Board is a body corporate assigned to and administratively housed within the State of Florida, State Board of Administration. In evaluating the Program as a reporting entity, management has addressed all potential component units (traditionally separate reporting entities) for which the Program may or may not be financially accountable and, as such, be includable in the Program s financial statements. In accordance with governmental accounting standards, the Program (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 Program. 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 Program has one discretely presented component unit The Florida Prepaid College Foundation, Inc. (the Foundation ). The Foundation was created in 1989 to provide prepaid tuition scholarships to economically disadvantaged at-risk, students. The Foundation is a direct-support organization of the Program and is authorized by Section (5)(j) of the Florida Statutes. The Program appoints 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. Separate financial statements are available from the Foundation upon request. The financial statements include the funds and accounts of the Program and its component unit. The 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. Fund Accounting An expendable trust fund is used to account for the combined net assets held by the Program and the Savings Plan on behalf of the participants. The general fixed assets account group used to account for the combined fixed assets owned by the Program and the Savings Plan. The general long-term debt account group is used to account for outstanding longterm tuition and housing benefits payable and other long-term obligations of the Program and the Savings Plan. Foundation Accounting The accounts of the Foundation are maintained in accordance with the principles of not-for-profit accounting. General Fixed Assets Account Group The general fixed assets account group is used to maintain control and cost information for all fixed assets of the Program and the Savings Plan. General fixed assets are recorded as expenditures in the expendable trust fund at the time the goods are received and a liability is incurred. These assets are capitalized at cost in the general fixed asset account group. Donated assets are recorded at fair market value at the time received. No depreciation is provided on general fixed assets. Equipment The Foundation s equipment is recorded at cost and depreciated on the declining balance method over five years, the estimated useful lives of the assets. General Long-Term Debt Account Group The general long-term debt account group is used to record the longterm tuition and housing benefits payable and other long-term obligations of the Program and the Savings Plan not otherwise recorded 18 Florida Prepaid College Program

21 NOTES TO FINANCIAL STATEMENTS in the expendable trust fund. Budget The budgetary basis of accounting used by the Program and the Savings Plan as required by State law differs materially from the basis used to report revenues and expenditures in accordance with generally accepted accounting principles. Budgetary basis revenues are essentially on the cash basis. Budgetary basis expenditures include disbursements plus current year payables and encumbrances which are certified forward into the next fiscal year and exclude prior year certified forwards. State law requires prior year payables and encumbrances not certified forward to be paid from the current year budget. All revenues and other financing uses are not formally budgeted. These appear on the income statement but are not part of the operating budget. The total appropriations for those expenditure items which are budgeted was $10,540,447 and total actual expenditures for these items were $8,341,837 for the year ended June 30, Basis of Accounting These financial statements have been prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board. Basis of accounting refers to when revenues and expenditures/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. The modified accrual basis of accounting is utilized by the Program and the Savings Plan. Accordingly, revenues are recognized when they are susceptible to accrual, i.e. both measurable and available. The Foundation receives scholarship funds from donor organizations with instructions to purchase contracts from the Program for specified third-party 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 scholarship funds is not a contribution to the Foundation, nor is the delivery of the contracts an expense of the Foundation. The unexpended funds from the donors are classified as due to beneficiaries. 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. Revenue Recognition Prepaid tuition and housing payments The Program has three payment plans: 1) A lump-sum plan; 2) A five-year installment plan; and 3) A monthly payment plan. The lump-sum plan is a one-time payment when the child is enrolled in the Program. The five-year installment plan provides for 55 equal monthly payments. The monthly payment plan provides for equal payments each month until the child enters college. Revenues from the three payment plans are recognized as received. Income Taxes The Foundation is a non-profit 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 financial statements. Total Columns on Financial Statements The columns entitled Total (Memorandum Only) included in the financial statements section of this report are presented only to facilitate financial analysis. These total columns are not comparable to consolidated financial information as the basic reporting entity is by fund types which utilize differing bases of accounting, interfund transactions that have not been eliminated, and the caption amounts to be provided which is not an asset in the usual sense. The columns do not present information that reflects financial position, results of operations or cash flow in accordance with generally accepted accounting principles. New Accounting Pronouncements Statement No. 34 of the Governmental Accounting Standards Board (GASB), Basic Financial Statements and Management s Discussion and Analysis-for State and Local Governments establishes new financial reporting standards for state and local governments in the United States. When implemented, it will create new information and will restructure much of the information that governments have presented in the past. The statement was developed to make the annual reports of governmental entities more comprehensive and easier to understand and use. Statement No. 34 establishes that the basic financial statements and required supplementary information (RSI) for general-purpose governments should consist of the following: 1) Management s discussion and analysis (MD&A). MD&A should introduce the basic financial statements and provide an analytical overview of the government s financial activities. 2) Basic financial statements. The basic financial statements should include: Government-wide financial statements Government-wide financial statements consist of a statement of net assets and a statement of activities. Prepared using the economic resources measurement focus and the accrual basis of accounting, these statements should report all of the assets, liabilities, revenues, expenses, and gains and losses of the government. Each statement should distinguish between the governmental and business-type activities of the primary government and between the total primary government and its discretely presented component units by reporting each in separate columns. Fiduciary activities, whose resources are not available to finance the government s programs, should be excluded from the government-wide statements. Fund financial statements Fund financial statements consist of a series of statements that focus on information about the government s major governmental and enterprise 2001 Annual Report 19