CollegeCounts 529 Fund Advisor Plan

Transcription

1 Accountants Report and Financial Statements

2 Contents Independent Accountants Report... 1 Management s Discussion and Analysis... 2 Financial Statements Statement of Fiduciary Net Assets... 5 Statement of Changes in Fiduciary Net Assets... 6 Notes to Financial Statements... 7 Supplemental Schedules Schedule of Fiduciary Net Assets by Schedule of Changes in Fiduciary Net Assets by Financial Highlights by Schedule of Age-Based Target s Independent Accountants Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards... 31

3 Independent Accountants Report Members of the Board of Trustees of UBT 529 Fund Services, a Division of Union Bank & Trust Company (Program Manager) Montgomery, Alabama We have audited the accompanying statement of fiduciary net assets and statement of changes in fiduciary net assets of the (the Plan), as of and for the period from August 2, 2010 to. These financial statements are the responsibility of the Program Manager and the Board of Trustees (collectively, hereinafter referred to as management of the Plan ). Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the as of and the changes in net assets for the period from August 2, 2010 to 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 May 17, 2011, on our consideration of the Plan s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The accompanying management s discussion and analysis as listed in the table of contents is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Plan s basic financial statements. The accompanying supplementary information, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. May 17, 2011

4 Management s Discussion and Analysis The following is a discussion and analysis of the financial performance of the State of Alabama s (the Plan ) as of and for the timeframe July 30, 2010 through. 529 Fund assets are held in the Alabama College Education Savings ( ACES ) Trust Fund. Union Bank & Trust Company ( Union Bank ) manages the 529 Fund under a Program Management Agreement with the Board of Trustees of the ACES Trust Fund. The 529 Fund is intended to be a qualified state tuition program under Section 529 of the Internal Revenue Code. The 529 Fund was created pursuant to an Alabama statute to encourage the investment of funds to be used for qualified higher education expenses at eligible educational institutions. Until July 30, 2010, the State of Alabama offered a 529 college savings plan with Van Kampen Asset Management ( Van Kampen ) as program manager named the Higher Education 529 Fund. Over the weekend, July 30, 2010 to August 2, 2010 the State transitioned program management from Van Kampen to Union Bank. All of the Program s account records and assets were transferred to Union Bank as of the close of business Friday, July 30, 2010, and effective Monday, August 2, 2010 (the Transition Date ). At the Transition Date, account owner assets were transferred to a new portfolio(s) that most closely aligned with the account owner s previous investment portfolio(s) prior to the Transition Date. The Plan was renamed the 529 Fund Advisor Plan. Financial Highlights The following financial highlights occurred during the period from July 30, 2010 through September 30, 2010: Assets totaling $623.4 million were brought under the management of Union Bank; At, the Plan s net assets totaled $626.8 million, an increase of $3.4 million since the Transition Date; The Plan earned $15.9 million from investment operations and incurred $0.9 million for operating expenses during the period. Overview of the Financial Statements The Plan s financial statements are prepared in accordance with Governmental Accounting Standards Board ( GASB ) Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments. 2

5 This report consists of two parts: management s discussion and analysis (this section) and the basic financial statements. The basic financial statements consist of a Statement of Fiduciary Net Assets and a Statement of Changes in Fiduciary Net Assets and Notes to Financial Statements that explain some of the information in the financial statements and provide more detailed information. The Statement of Fiduciary Net Assets presents information on the Plan s assets and liabilities, with the difference between the two reported as net assets as of. This statement is prepared using the accrual basis of accounting. Contributions and withdrawals are recognized on trade date; expenses and liabilities are recognized when services are provided, regardless of when cash is received or paid. The Statement of Changes in Fiduciary Net Assets presents information showing how the Plan s net assets changed from the Transition Date through, another important factor that needs to be considered in order to determine the financial health of the 529 Fund. This statement presents information showing how the plan s net assets changed from the Transition Date through based on activities from securities transactions and market activity. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of when cash is received or paid. The Notes to Financial Statements provide additional information that is integral to a full understanding of the data provided in the basic financial statements. As a fiduciary fund, the 529 Fund Trust assets do not represent discretionary assets of the State of Alabama to finance its operations. 529 Fund Trust assets can only be used for the benefit of account owners and beneficiaries of the Plan. Financial Analysis Net Assets. The following is a condensed Statement of Fiduciary Net Assets for the Program as of : Assets Investments, at fair value $ 627,170,741 Amounts to be invested 105,551 Receivables for contributions 363,142 Accrued Investment income 252,181 Total Assets 627,891,615 Liabilities Amounts to be distributed 260 Withdrawals payable 293,310 Accrued Expenses 813,113 Net Assets Held in Trust $ 626,784,932 3

6 Investments make up more than 99% of total net assets, and consist of 28 Investment s, each of which is invested in one or more underlying mutual funds. Net assets represent cumulative contributions from participants plus net increases from operations less redemptions and expenses. Other assets consist of receivables for securities sold, receivables for units sold and receivables for accrued income. Liabilities consist of payables for securities purchased, payables for withdrawals, payables for reinvestment of net investment income and payables for accrued expenses. Changes in Fiduciary Net Assets The following is a condensed Statement of Changes in Fiduciary Net Assets for the Period from July 30, 2010 to : Additions: Contributions 9,061,873 Exchanges In 25,952,738 Net Investment Income 15,906,893 Total Additions 50,921,504 Deductions: Withdrawals 20,665,747 Exchanges Out 25,952,738 Management fees 875,513 Total Deductions 47,493,998 Net Increase 3,427,506 Transfer in from Previous Plan 623,357,426 Net Assets Held in Trust, Beginning of Period - Net Assets Held in Trust, End of Period $ 626,784,932 4

7 Statement of Fiduciary Net Assets Assets Investments, at fair value $ 627,170,741 Amounts to be invested 105,551 Receivables for contributions 363,142 Accrued investment income 252,181 Total assets 627,891,615 Liabilities Amounts to be distributed 260 Withdrawals payable 293,310 Accrued expenses 813,113 Total liabilities 1,106,683 Net Assets Held in Trust $ 626,784,932 See Notes to Financial Statements 5

8 Statement of Changes in Fiduciary Net Assets For the Period from August 2, 2010 to Additions Contributions $ 9,061,873 Exchanges in 25,952,738 Investment income Dividends and interest 1,420,275 Net appreciation in fair value of investments 14,486,618 Net investment income 15,906,893 Total additions 50,921,504 Deductions Withdrawals 20,665,747 Exchanges out 25,952,738 Management and administrative fees 875,513 Total deductions 47,493,998 Net Increase 3,427,506 Transfer in From Previous Plan 623,357,426 Net Assets Held in Trust, Beginning of Period - Net Assets Held in Trust, End of Period $ 626,784,932 See Notes to Financial Statements 6

9 Notes to the Financial Statements Note 1: Description of the Plan The following provides a brief description of the (the Plan). For more information about the Plan, call or visit advisor.com to obtain a Disclosure Statement. General The Plan is one of two college savings plans offered by the Alabama College Education Savings (ACES) Program (the Program) to help individuals and families save for higher education costs. This Plan and the 529 Fund, which were established as authorized under the Wallace Folsom College Savings Investment Plan Act, 16-33C-1 to 16-33C-13 of the Code of Alabama 1975, as amended from time to time, are designed to comply with the requirements for treatment as a qualified tuition program under Section 529 of the Internal Revenue Code of 1986, as amended, and any regulations and other guidance issued there under (Section 529). The Board of Trustees of the ACES Trust Fund (the Board) administers the Program and has oversight responsibility for establishing rules and regulations governing operation of the plans, overseeing the administration of the plans and ensuring that the plans comply with state and federal laws and regulations. The Board acts as trustee of the Plan and is responsible for the overall administration of the Program. The Board has delegated day-to-day administration of the Program to the Alabama State Treasurer. Plan assets are held for the benefit of account owners and their designated beneficiaries in the, thereby ensuring the assets of the Plan can only be used for the benefit of account owners and their beneficiaries and cannot be used by the State of Alabama to finance its operations. These financial statements present only the activities and balances attributable to the and do not include any balances or activities attributable to the 529 Fund. Plan Administration Until July 30, 2010 the State of Alabama offered the Higher Education 529 Fund, a 529 college savings plan, with Van Kampen Asset Management serving as program manager. On August 2, 2010, the Program transitioned program management and investment advisory duties to UBT 529 Services (Union Bank), a division of Union Bank & Trust Company (the Program Manager). All of the Plan s account records and assets were transferred to Union Bank as of the close of business July 30, 2010 and effective August 2, 2010 (the Transition Date). At the Transition Date, the previously existing plan was divided into two plans the 529 Fund and the. Individual accounts were assigned to one of the two plans based on the nature of the individual account, and each account owner s assets were transferred to a new portfolio option that most closely aligned with the account owner s previous investment option election prior to the Transition Date. These financial statements cover the period from the Transition Date to. 7

10 Notes to the Financial Statements Note 1: Description of the Plan - Continued The Program Manager has engaged Wilshire Associates, Inc. to advise with respect to the structures and asset allocations of the Plan. Northern Trust Securities, Inc. serves as the distributor of the Plan s assets and is responsible to engage registered broker-dealers and other financial service firms to assist in marketing the Plan. The Plan s assets are held by the Program Manager. Note 2: Significant Accounting Policies Basis of Accounting The Plan prepares its financial statements in conformity with applicable pronouncements of the Governmental Accounting Standards Board (GASB). The Plan s financial statements are prepared using the flow of economic resources measurement focus and the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America applicable to special-purpose governments engaged in fiduciary activities. Under this method of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Investments The Plan s investment alternatives are made available through investment portfolios (the s), each of which represents a separate, segregated portfolio of investments in mutual funds (the Underlying Funds), which are managed by the Program Manager. The asset allocations for each are recommended by the Board of Trustees in consultation with the Program Manager. Investments in the Underlying Funds are valued at the closing net asset value per share of each Underlying Fund determined as of the close of the New York Stock Exchange on the day of valuation, which approximates fair value. Net realized and unrealized gains and losses are reported as net appreciation in fair value of investments in the Statement of Changes in Fiduciary Net Assets. Purchases and sales of Underlying Fund shares are recorded on a trade date basis. Dividend income and any capital gain distributions are recorded on the ex-dividend date as an accrual and are automatically reinvested in additional shares of the respective Underlying Fund. Amounts to be Invested or Distributed Amounts to be invested or distributed generally include account owner contributions that have not been invested in Underlying Funds or redemption proceeds from Underlying Funds that have not yet been distributed in accordance with account owner instruction. These transactions are processed through the Program Manager. The financial institution holding these accounts is participating in the FDIC s Transaction Account Guarantee Program. Under that program, through December 31, 2010, all non interest bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account. Pursuant to legislation enacted in 2010, the FDIC will fully insure all noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012, at all FDIC-insured institutions. 8

11 Notes to the Financial Statements Note 2: Significant Accounting Policies - Continued Contributions Individuals or entities that have properly executed an enrollment form with the Plan may establish an account to which cash contributions may be made, subject to certain account balance limitations. Contributions received prior to the close of the New York Stock Exchange are recorded as increases in net assets on the date they are received, provided that all related documentation is found to be in good order. Contributions are reported net of applicable initial sales charges, as more fully discussed in Note 4. Account owners may elect to invest their contributions in one or more of several different investment options, which are Individual Fund s, Age-Based s, Target s or based upon the account owner s investing preference and risk tolerance. The investment options are composed of mutual funds and one money-market fund offered by PIMCO, BlackRock, T. Rowe Price, Northern Funds, Fidelity, American Century, William Blair Funds, Lazard, Neuberger Berman, Lord Abbett, or Harbor Funds ( Investment Managers ). The Individual Fund s consist of 18 single mutual funds and one money market fund. The six Target s are allocated among equity, real estate, fixed income, and money market securities. These allocations are maintained over the life of the account. The account owner may also choose from three Age-Based options, which are a simplified approach to college investing. These have been designed by the Program, the Program Manager, and Wilshire Associates, Inc. to allow account owners to select a based upon the beneficiary s age and risk tolerance. Money invested in these investment options is allocated to individual Target s and is automatically adjusted annually over time to become more conservative as the beneficiary s year of enrollment in college draws nearer. The Plan offers Class A, C, and F Units for each investment option. The Plan only offers Class B units to account owners who acquired Class B units prior to the transition of the Plan from the Higher Education 529 Fund. Each class of units has different fee structures as outlined in the Note 4. A full description of the respective fees associated with each class of units is located in the Program Disclosure Statement. Contributions by a participant are evidenced through the issuance of units in a particular. These units are municipal fund securities. Although money contributed to the Plan is invested in portfolio options that hold mutual funds, the Plan units themselves are not direct investments in these investments. The units issued by the Plan are not insured by the FDIC, the Program Manager, the Distributor, or the State of Alabama nor have they been registered with the Securities and Exchange Commission or any state commission. Although the account owners can direct the portfolio options in which their contributions are invested, they cannot direct the selection or allocation of the Underlying Funds comprising each portfolio option. 9

12 Notes to the Financial Statements Note 2: Significant Accounting Policies - Continued Withdrawals Account owners may request withdrawals for qualified or nonqualified expenses. It is the responsibility of the account owner to determine whether the withdrawal is for qualified or nonqualified purposes and to calculate the applicable amount of federal or state tax or penalties for nonqualified withdrawals, if any. Withdrawals are recorded as deductions from net assets on the date the withdrawal request is found to be in good order and approved for payment. Withdrawals, as presented on the Statement of Changes in Fiduciary Net Assets, include annual account fees and contingent deferred sales charges, as more fully discussed in Note 4. Unit Valuation Each account owner s full and/or fractional interest in a portfolio option is evidenced by a unit. The net asset value of a unit in a portfolio option is calculated daily based on the fair market value of the Underlying Funds, adjusted for the effects of such transactions as accrued administrative fees, contributions and withdrawal requests that have been approved but have not yet been processed, and investment income that has not been reinvested in the Underlying Funds. The value of any individual account is determined by multiplying the number of units in a portfolio attributable to that account holder by the net asset value per unit of that portfolio. Exchanges As explained above, for each of the Age-Based Options, account balances will automatically be exchanged from one portfolio to another more conservative portfolio as the beneficiary gets older. In addition, subject to certain limitations and restrictions, account owners may generally direct that their account balance be reinvested in a different portfolio option one time each year. The transfers of funds between portfolios are referred to as exchanges. The amounts of contributions and withdrawals reported in the Statement of Changes in Fiduciary Net Assets do not include these exchanges, as they have no impact on the overall financial position of the Plan. Income Taxes The Plan has been designed to comply with the requirements for treatment as a qualified state tuition program under Section 529 of the Internal Revenue Code, and is exempt from federal and state income tax. Therefore, no provision for income tax is required. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results may differ from those estimates. 10

13 Notes to the Financial Statements Note 3: Investments The Underlying Fund allocations at are as follows: Investment Balance American Century Equity Growth 529 American Century Equity Growth Fund $ 86,478 BlackRock Cash Funds 529 BlackRock Cash Funds 5,080,446 BlackRock Inflation Protected Bond 529 BlackRock Inflation Protected Bond Fund 183,681 Fidelity Advisor Mid Cap II 529 Fidelity Advisor Mid Cap II Fund 9,460,819 Harbor Large Cap Value 529 Harbor Large Cap Value Fund 21,772,259 Lazard Emerging Market Equity 529 Lazard Emerging Markets Equity Fund 394,063 Lord Abbett Developing Growth 529 Lord Abbett Developing Growth Fund 604,604 Neuberger Berman International Large Cap 529 Neuberger Berman International Large Cap Fund 7,437,155 Northern Bond Index 529 Nothern Bond Index Fund 6,473,254 Northern Equity Index 529 Northern Equity Index Fund 8,185,428 Nothern International Equity Index 529 Northern International Equity Index Fund 5,651,594 Nothern Mid Cap Index 529 Northern Mid Cap Index Fund 2,318,436 Northern Small Company Index 529 Northern Small Company Index Fund 1,139,225 PIMCO Short-Term 529 PIMCO Short-Term Fund 4,627,926 PIMCO Total Return 529 PIMCO Total Return Fund 11,042,452 T. Rowe Price Balanced 529 T. Rowe Price Balanced Fund 36,701,555 T. Rowe Price Large-Cap Growth 529 T. Rowe Price Large-Cap Growth Fund 5,018,345 T. Rowe Price Real Estate 529 T. Rowe Price Real Estate Fund 149,635 William Blair Small Cap Value 529 William Blair Small Cap Value Fund 6,609,332 Conservative Money Market Fund BlackRock Cash Funds 6,915,056 Fixed Income Fund BlackRock Inflation Protected Bond Fund 2,647,905 Fixed Income Fund Northern Bond Index Fund 4,210,560 Fixed Income Fund PIMCO Total Return Fund 4,218,356 Fixed Income Fund BlackRock Cash Funds 11,107,199 Total Fixed Income Fund 22,184,020 Fund 20 Harbor Large Cap Value Fund 1,964,468 Fund 20 Lord Abbett Developing Growth Fund 298,537 Fund 20 Northern Equity Index Fund 4,515,364 Fund 20 Northern Mid-Cap Index Fund 581,181 Fund 20 Northern Small Cap Value Fund 288,535 Fund 20 T. Rowe Price Large Cap Growth Fund 1,426,008 Fund 20 BlackRock Inflation Protected Bond Fund 6,196,426 Fund 20 Northern Bond Index Fund 16,379,884 Fund 20 PIMCO Total Return Fund 16,958,943 Fund 20 Northern International Equity Index Fund 1,140,006 Fund 20 Neuberger Berman International Large Cap Fund 1,149,023 Fund 20 BlackRock Cash Funds 5,631,614 Total Fund 20 56,529,989 11

14 Notes to the Financial Statements Note 3: Investments - Continued Investment Balance Fund 40 Harbor Large Cap Value Fund $ 5,079,753 Fund 40 Lord Abbett Developing Growth Fund 1,146,177 Fund 40 Northern Equity Index Fund 9,102,793 Fund 40 Northern Mid-Cap Index Fund 1,121,471 Fund 40 Northern Small Cap Value Fund 1,095,988 Fund 40 T. Rowe Price Large Cap Growth Fund 4,423,688 Fund 40 BlackRock Inflation Protected Bond Fund 6,524,923 Fund 40 Northern Bond Index Fund 16,814,937 Fund 40 PIMCO Total Return Fund 20,517,623 Fund 40 Lazard Emerging Markets Equity Fund 769,458 Fund 40 Northern International Equity Index Fund 2,214,336 Fund 40 Neuberger Berman International Large Cap Fund 3,706,395 Fund 40 T. Rowe Price Real Estate Fund 720,423 Total Fund 40 73,237,965 Fund 60 Harbor Large Cap Value Fund 10,390,501 Fund 60 Lord Abbett Developing Growth Fund 3,263,574 Fund 60 Northern Equity Index Fund 15,680,648 Fund 60 Northern Mid-Cap Index Fund 2,120,092 Fund 60 Northern Small Cap Value Fund 3,194,403 Fund 60 T. Rowe Price Large Cap Growth Fund 10,557,503 Fund 60 BlackRock Inflation Protected Bond Fund 7,193,331 Fund 60 Northern Bond Index Fund 14,377,130 Fund 60 PIMCO Total Return Fund 19,642,921 Fund 60 Lazard Emerging Markets Equity Fund 1,630,196 Fund 60 Northern International Equity Index Fund 6,360,026 Fund 60 Neuberger Berman International Large Cap Fund 7,978,223 Fund 60 T. Rowe Price Real Estate Fund 2,050,751 Total Fund ,439,299 Fund 80 Harbor Large Cap Value Fund 15,516,657 Fund 80 Lord Abbett Developing Growth Fund 4,605,362 Fund 80 Northern Equity Index Fund 21,160,529 Fund 80 Northern Mid-Cap Index Fund 2,251,449 Fund 80 Northern Small Cap Value Fund 4,496,946 Fund 80 T. Rowe Price Large Cap Growth Fund 15,756,089 Fund 80 BlackRock Inflation Protected Bond Fund 5,467,204 Fund 80 Northern Bond Index Fund 5,490,619 12

15 Notes to the Financial Statements Note 3: Investments - Continued Investment Balance Fund 80 PIMCO Total Return Fund $ 11,114,240 Fund 80 Lazard Emerging Markets Equity Fund 3,489,332 Fund 80 Northern International Equity Index Fund 7,869,077 Fund 80 Neuberger Berman International Large Cap Fund 12,461,431 Fund 80 T. Rowe Price Real Estate Fund 2,174,885 Total Fund ,853,820 Fund 100 Harbor Large Cap Value Fund 20,054,130 Fund 100 Lord Abbett Developing Growth Fund 7,179,425 Fund 100 Northern Equity Index Fund 23,749,702 Fund 100 Northern Mid-Cap Index Fund 3,627,018 Fund 100 Northern Small Cap Value Fund 6,008,967 Fund 100 T. Rowe Price Large Cap Growth Fund 22,617,643 Fund 100 Lazard Emerging Markets Equity Fund 6,085,514 Fund 100 Northern International Equity Index Fund 9,538,035 Fund 100 Neuberger Berman International Large Cap Fund 16,743,311 Fund 100 T. Rowe Price Real Estate Fund 3,470,160 Total Fund ,073,905 $ 627,170,741 The following table reconciles the fair value of investments to the net assets held in trust at : Fair value of investments, end of period $ 627,170,741 Plus amounts to be invested, receivables and accrued investment income 720,874 Less amounts to be distributed, payables and accrued expenses (1,106,683) Net assets held in trust, end of period $ 626,784,932 13

16 Notes to the Financial Statements Note 3: Investments - Continued The following table calculates the net increase in the value of investments for the period ended : Fair value of investments, end of period $ 627,170,741 Less cost of investments purchased and dividends reinvested during the period (9,761,274) Plus proceeds from investments sold during the period and management and administrative fees 20,434,577 Less fair value of investments transferred in to the Plan (623,357,426) Net appreciation in fair value of investments $ 14,486,618 GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements) and Reverse Repurchase Agreements, as amended by GASB Statement No. 40, Deposit and Investment Risk Disclosures, requires that certain disclosures be made related to the Plan s exposure to credit risk, interest rate risk and foreign currency risk, which are included in the paragraphs that follow. Credit Risk Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. The Plan s investment policy does not specifically address credit risk, as permitted investments are generally mutual funds. At, approximately 20% of the investments in the plan have an AAA risk rating, approximately 75% have a Baa>AA risk rating. Approximately 5% of the investments in the plan are money market mutual funds which are not rated. Interest Rate Risk Although BlackRock Cash Funds, BlackRock Inflation Protected Bond Fund, Northern Bond Index Fund, PIMCO Short-Term Fund, PIMCO Total Return Fund and T. Rowe Price Balanced Fund are invested primarily in short and intermediate-term bonds, these Underlying Funds are exposed to interest rate risk, which is the risk that changes in interest rates will adversely affect their fair values. As of, the average duration and effective maturity of holdings in each of these mutual funds was as follows: Average Duration Average Maturity BlackRock Cash Funds n/a 0.1 years BlackRock Inflation Protected Bond Fund 7.4 years 10.1 years Northern Bond Index Fund 5.1 years 7.2 years PIMCO Short-Term Fund 0.8 years 1.1 years PIMCO Total Return Fund 3.9 years 5.4 years T. Rowe Price Balanced Fund 4. 7 years 7.0 years 14

17 Notes to the Financial Statements Note 3: Investments - Continued Custodial Credit Risk For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the Plan will not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. Since the Underlying Funds represent shares of mutual funds rather than individual securities, they are not subject to classification by custodial credit risk. Concentration of Credit Risk The Plan places no limit on the amount that may be invested in any one issuer; however as stated above, all investments are with mutual funds. Foreign Currency Risk This risk relates to adverse affects on the fair value of an investment from changes in exchange rates. The Plan s exposure to foreign currency risk derives from its investment in Underlying Funds with international holdings. The Plan had no investments denominated in foreign currency at. Note 4: Fees and Expenses Annual Account Fee An annual account fee of $12 is assessed on accounts when neither the account owner nor the designated beneficiary is an Alabama resident. The fees are paid annually from respective accounts during November each year. There were no annual account fees withdrawn for the period from August 2, 2010 to. Asset-Based Fees All classes of units of each investment option are assessed a program manager fee of 0.32%, which is accrued daily and paid to the Program Manager for providing administrative and management services. All units are also assessed a state administration fee of 0.10%. These fees are accrued daily and paid to the Program to be used for the purpose of administering and marketing the Program and paying certain costs associated with the administration of the Plan. These fees are reflected as an expense in the daily net asset value calculation for each, and are calculated based on the average daily net assets with respect to a. Class A units and Class C units invested in Underlying Funds, except for BlackRock Cash Funds 529 or the Age-Based Conservative (21+), are assessed an annual account servicing fee of 0.25% and 0.50%, respectively, based on the average daily net assets which remain invested for more than twelve months this fee is paid to the financial advisors through which account owners invest in the Plan, depending on the nature and terms of agreements. 15

18 Notes to the Financial Statements Note 4: Fees and Expenses - Continued Sales Charges With certain exceptions, account owners investing in Class A units are required to pay an initial sales charge of up to 3.50% for each new contribution. Account owners in Class B units are required to pay a contingent deferred sales charge if they withdraw a contribution within a specified period of time, not to exceed 5%. Account owners investing in Class C or Class F units are not required to pay an initial sales charge. All or a portion of these sales charges are paid to financial advisors through which account owners invest in the Plan, depending on the nature and terms of agreements. Underlying Fund Expenses Fees related to the management of each of the Underlying Funds are paid directly to the related fund manager or advisor and reduce the amount of income available for distribution to account owners. These expenses are not reflected in the Plan s financial statements. The expense ratios of the Underlying Funds, which are the ratios of the total operating expenses of the Underlying Funds as a percentage of their average daily net assets, vary over time and ranged from 0.12% % for Age-Based s, 0.28% % for Target s, and 0.12% % for Individual Fund s during the period from August 2, 2010 to. Management and administrative fees related to the period from August 2, 2010 to September 30, 2010, are comprised of the following amounts attributable to the Program Manager, the State and the financial advisors: Program management fees $ 307,857 State administration fees 95,302 Annual account servicing fees 472,354 Total management and administrative fees $ 875,513 Note 5: Risks and Uncertainties The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the account owners account balances and the amounts reported in the statements of net assets available for benefits. The current economic environment presents 529 plans with difficult circumstances and challenges, which in some cases have resulted in large declines in the fair value of investments. The financial statements have been prepared using values and information currently available to the Plan. Given the volatility of current economic conditions, the values of assets recorded in the financial statements could change rapidly, resulting in material future adjustments in investment values that could negatively impact the Plan. 16

19 Notes to the Financial Statements Note 6: Subsequent Events Subsequent events have been evaluated through May 17, 2011, which is the date the financial statements were available to be issued. 17

20 Supplemental Schedules

21 Schedule of Fiduciary Net Assets by American Century Equity Growth 529 BlackRock Cash Funds 529 BlackRock Inflation Protected Bond 529 Fidelity Advisor Mid Cap II 529 Harbor Large Cap Value 529 Lazard Emerging Markets Equity 529 Lord Abbett Developing Growth 529 Assets Investments, at fair value $ 86,478 $ 5,080,446 $ 183,681 $ 9,460,819 $ 21,772,259 $ 394,063 $ 604,604 Amounts to be invested ,846-4, Receivables for contributions ,412 29,191 2, Accrued investment income - 1, Total assets 86,478 5,081, ,780 9,470,077 21,801, , ,757 Liabilities Amounts to be distributed Withdrawals payable - 1,100-5,622 16,281 2,193 - Accrued expenses ,405 28, Total liabilities 51 1, ,027 44,938 2, Net Assets Held in Trust $ 86,427 $ 5,079,811 $ 183,653 $ 9,455,050 $ 21,756,512 $ 398,182 $ 604,245 Unit Information Class A Total net assets - fee structure A $ 50,734 $ 1,870,011 $ 67,125 $ 5,632,467 $ 13,660,009 $ 269,277 $ 413,713 Units outstanding 4,995 1,870,011 6, ,500 1,353,747 25,000 38,416 Net asset value per unit $ $ 1.00 $ $ $ $ $ Class B Total net assets - fee structure B $ 21,327 $ 1,117,542 $ 56,897 $ 1,697,258 $ 3,958,669 $ 57,737 $ 61,630 Units outstanding 2,103 1,117,542 5, , ,782 5,365 5,730 Net asset value per unit $ $ 1.00 $ $ $ $ $ Class C Total net assets - fee structure C $ 9,288 $ 2,089,758 $ 54,493 $ 2,119,881 $ 4,132,786 $ 65,778 $ 123,515 Units outstanding 915 2,089,758 5, , ,729 6,107 11,474 Net asset value per unit $ $ 1.00 $ $ $ $ $ Class F Total net assets - fee structure F $ 5,078 $ 2,500 $ 5,138 $ 5,444 $ 5,048 $ 5,390 $ 5,387 Units outstanding 500 2, Net asset value per unit $ $ 1.00 $ $ $ $ $

22 Schedule of Fiduciary Net Assets by Neuberger Berman International Large Cap 529 Northern Bond Index 529 Northern Equity Index 529 Northern International Equity Index 529 Northern Mid Cap Index 529 Northern Small Company Index 529 PIMCO Short- Term 529 Assets Investments, at fair value $ 7,437,155 $ 6,473,254 $ 8,185,428 $ 5,651,594 $ 2,318,436 $ 1,139,225 $ 4,627,926 Amounts to be invested Receivables for contributions 14, ,913 6,146 2,571 1, Accrued investment income - 3, ,567 Total assets 7,451,542 6,477,362 8,195,341 5,657,827 2,321,007 1,140,726 4,631,518 Liabilities Amounts to be distributed Withdrawals payable 9, ,748 1, ,100 Accrued expenses 7,517 8,425 10,705 5,936 2,996 1,177 5,115 Total liabilities 16,974 8,725 12,453 7,216 3,464 1,411 6,215 Net Assets Held in Trust $ 7,434,568 $ 6,468,637 $ 8,182,888 $ 5,650,611 $ 2,317,543 $ 1,139,315 $ 4,625,303 Unit Information Class A Total net assets - fee structure A $ 4,335,245 $ 3,619,126 $ 4,609,780 $ 3,153,882 $ 1,283,119 $ 624,743 $ 1,589,942 Units outstanding 415, , , , ,726 61, ,274 Net asset value per unit $ $ $ $ $ $ $ Class B Total net assets - fee structure B $ 1,277,806 $ 1,215,564 $ 1,464,508 $ 1,037,038 $ 435,194 $ 206,610 $ 1,026,826 Units outstanding 122, , , ,032 42,014 20, ,298 Net asset value per unit $ $ $ $ $ $ $ Class C Total net assets - fee structure C $ 1,816,298 $ 1,628,873 $ 2,103,514 $ 1,454,550 $ 594,042 $ 302,844 $ 2,003,510 Units outstanding 174, , , ,595 57,304 29, ,520 Net asset value per unit $ $ $ $ $ $ $ Class F Total net assets - fee structure F $ 5,219 $ 5,074 $ 5,086 $ 5,141 $ 5,188 $ 5,118 $ 5,025 Units outstanding Net asset value per unit $ $ $ $ $ $ $

23 Schedule of Fiduciary Net Assets by PIMCO Total Return 529 T. Rowe Price Balanced 529 T. Rowe Price Large-Cap Growth 529 T. Rowe Price Real Estate 529 William Blair Small Cap Value 529 Conservative Money Market Fund Fixed Income Fund Assets Investments, at fair value $ 11,042,452 $ 36,701,555 $ 5,018,345 $ 149,635 $ 6,609,332 $ 6,915,056 $ 22,184,020 Amounts to be invested 4, ,692 Receivables for contributions 8,013 14,270 10,735-4,888 6,443 16,647 Accrued investment income 28, ,583 15,560 Total assets 11,082,964 36,715,825 5,029, ,637 6,614,220 6,923,082 22,247,919 Liabilities Amounts to be distributed Withdrawals payable 10,496 5,094 8,160-3,421-6,368 Accrued expenses 11,964 44,542 5, , ,256 Total liabilities 22,460 49,636 13, , ,624 Net Assets Held in Trust $ 11,060,504 $ 36,666,189 $ 5,015,901 $ 149,554 $ 6,602,829 $ 6,922,087 $ 22,216,295 Unit Information Class A Total net assets - fee structure A $ 4,812,752 $ 22,471,697 $ 3,051,894 $ 87,767 $ 3,789,078 $ 2,674,871 $ 8,371,046 Units outstanding 470,289 2,202, ,597 8, ,379 2,674, ,963 Net asset value per unit $ $ $ $ $ $ 1.00 $ Class B Total net assets - fee structure B $ 1,584,968 $ 5,792,366 $ 870,990 $ 35,660 $ 1,465,890 $ 1,063,300 $ 3,745,778 Units outstanding 155, ,415 83,604 3, ,074 1,063, ,363 Net asset value per unit $ $ $ $ $ $ 1.00 $ Class C Total net assets - fee structure C $ 4,657,665 $ 8,383,172 $ 1,087,800 $ 21,101 $ 1,342,730 $ 3,160,644 $ 10,029,846 Units outstanding 455, , ,332 2, ,949 3,160, ,586 Net asset value per unit $ $ $ $ $ $ 1.00 $ Class F Total net assets - fee structure F $ 5,119 $ 18,954 $ 5,217 $ 5,026 $ 5,131 $ 23,272 $ 69,625 Units outstanding 500 1, ,272 6,890 Net asset value per unit $ $ $ $ $ $ 1.00 $

24 Schedule of Fiduciary Net Assets by Fund 20 Fund 40 Fund 60 Fund 80 Fund 100 Plan Total Assets Investments, at fair value $ 56,529,989 $ 73,237,965 $ 104,439,299 $ 111,853,820 $ 119,073,905 $ 627,170,741 Amounts to be invested - 18,710-43, ,551 Receivables for contributions 33,628 43,824 42,052 64,341 45, ,142 Accrued investment income 52,145 59,698 56,660 30, ,181 Total assets 56,615,762 73,360, ,538, ,991, ,119, ,891,615 Liabilities Amounts to be distributed Withdrawals payable 35,599 38,205 91,525 28,123 26, ,310 Accrued expenses 123,346 85, , , , ,113 Total liabilities 158, , , , ,042 1,106,683 Net Assets Held in Trust $ 56,456,817 $ 73,236,762 $ 104,307,808 $ 111,839,233 $ 118,928,208 $ 626,784,932 Unit Information Class A Total net assets - fee structure A $ 21,454,502 $ 29,650,426 $ 46,614,838 $ 55,660,388 $ 59,240,618 Units outstanding 2,105,278 2,897,670 4,545,155 5,414,270 5,745,728 Net asset value per unit $ $ $ $ $ Class B Total net assets - fee structure B $ 13,973,065 $ 19,400,102 $ 29,488,550 $ 29,023,508 $ 24,692,180 Units outstanding 1,372,783 1,898,197 2,878,663 2,826,569 2,397,714 Net asset value per unit $ $ $ $ $ Class C Total net assets - fee structure C $ 21,024,152 $ 24,181,116 $ 28,164,370 $ 26,973,583 $ 34,782,430 Units outstanding 2,063,856 2,364,123 2,747,249 2,624,859 3,374,854 Net asset value per unit $ $ $ $ $ Class F Total net assets - fee structure F $ 5,098 $ 5,118 $ 40,050 $ 181,754 $ 212,980 Units outstanding ,902 17,677 20,649 Net asset value per unit $ $ $ $ $

25 Schedule of Changes in Fiduciary Net Assets by For the Period from August 2, 2010 to American Century Equity Growth 529 BlackRock Cash Funds 529 BlackRock Inflation Protected Bond 529 Fidelity Advisor Mid Cap II 529 Harbor Large Cap Value 529 Lazard Emerging Markets Equity 529 Lord Abbett Developing Growth 529 Additions Contributions $ 36,626 $ 56,553 $ 55,783 $ 82,011 $ 274,824 $ 87,995 $ 18,349 Exchanges in 52, , , , , ,998 39,751 Investment income Dividends and interest 318 2, Net appreciation in fair value 1,905-2, , ,874 27,788 44,684 Net investment income 2,223 2,270 2, , ,874 27,866 44,684 Total additions 91, , ,727 1,058, , , ,784 Deductions Withdrawals 4, ,987 9, ,511 1,290,520 10,064 34,913 Exchanges out - 68, , ,833 13,347 - Management and administrative fees 59 1, ,251 29, Total deductions 4, ,572 10, ,709 1,755,874 23,677 35,587 Net Increase (Decrease) 86, , , ,266 (1,110,595) 398,182 67,197 Transfer in From Previous Plan - 4,792,059-8,946,784 22,867, ,048 Net Assets Held in Trust, Beginning of Period Net Assets Held in Trust, End of Period $ 86,427 $ 5,079,811 $ 183,653 $ 9,455,050 $ 21,756,512 $ 398,182 $ 604,245 22

26 Schedule of Changes in Fiduciary Net Assets by For the Period from August 2, 2010 to Neuberger Berman International Large Cap 529 Northern Bond Index 529 Northern Equity Index 529 Northern International Equity Index 529 Northern Mid Cap Index 529 Northern Small Company Index 529 PIMCO Short- Term 529 Additions Contributions $ 115,334 $ 66,871 $ 118,132 $ 80,879 $ 46,355 $ 33,670 $ 55,321 Exchanges in 122,613 95,316 26,311 46,953 35,159 5, ,647 Investment income Dividends and interest - 34,083 33, ,383 Net appreciation in fair value 312,280 68,246 99, ,945 82,820 25,659 18,875 Net investment income 312, , , ,945 82,820 25,659 26,258 Total additions 550, , , , ,334 64, ,226 Deductions Withdrawals 308, , , ,216 97,368 49, ,399 Exchanges out 245, , , ,995 90,216 46,385 61,954 Management and administrative fees 9,800 9,124 11,280 7,722 3,114 1,530 6,625 Total deductions 564, , , , ,698 97, ,978 Net Increase (Decrease) (14,242) (232,228) (439,822) (209,156) (26,364) (32,639) (166,752) Transfer in From Previous Plan 7,448,810 6,700,865 8,622,710 5,859,767 2,343,907 1,171,954 4,792,055 Net Assets Held in Trust, Beginning of Period Net Assets Held in Trust, End of Period $ 7,434,568 $ 6,468,637 $ 8,182,888 $ 5,650,611 $ 2,317,543 $ 1,139,315 $ 4,625,303 23

27 Schedule of Changes in Fiduciary Net Assets by For the Period from August 2, 2010 to PIMCO Total Return 529 T. Rowe Price Balanced 529 T. Rowe Price Large-Cap Growth 529 T. Rowe Price Real Estate 529 William Blair Small Cap Value 529 Conservative Money Market Fund Fixed Income Fund Additions Contributions $ 185,171 $ 446,226 $ 84,809 $ 41,181 $ 86,638 $ 177,898 $ 303,917 Exchanges in 740, , , ,214 98, ,140 1,814,592 Investment income Dividends and interest 54, , ,202 48,711 Net appreciation in fair value 210, , , , ,814 Net investment income 264, , , ,486 3, ,525 Total additions 1,190,671 2,074, , , , ,240 2,367,034 Deductions Withdrawals 741,490 1,571, ,273 4, , ,188 1,551,827 Exchanges out 234,913 1,199, , ,958 1,122,938 2,193,885 Management and administrative fees 15,496 48,910 6, ,931 1,687 32,663 Total deductions 991,899 2,819, ,026 4, ,958 1,751,813 3,778,375 Net Increase (Decrease) 198,772 (745,227) 7, ,554 (74,412) (969,573) (1,411,341) Transfer in From Previous Plan 10,861,732 37,411,416 5,008,559-6,677,241 7,891,660 23,627,636 Net Assets Held in Trust, Beginning of Period Net Assets Held in Trust, End of Period $ 11,060,504 $ 36,666,189 $ 5,015,901 $ 149,554 $ 6,602,829 $ 6,922,087 $ 22,216,295 24

28 Schedule of Changes in Fiduciary Net Assets by For the Period from August 2, 2010 to Fund 20 Fund 40 Fund 60 Fund 80 Fund 100 Plan Total Additions Contributions $ 573,884 $ 849,264 $ 1,358,390 $ 1,906,758 $ 1,919,034 $ 9,061,873 Exchanges in 3,732,395 4,166,833 6,690,667 4,418, ,206 25,952,738 Investment income Dividends and interest 186, , , , ,969 1,420,275 Net appreciation in fair value 924,155 1,493,876 2,478,811 2,959,751 3,491,993 14,486,618 Net investment income 1,110,652 1,722,421 2,727,469 3,149,220 3,628,962 15,906,893 Total additions 5,416,931 6,738,518 10,776,526 9,474,372 6,084,202 50,921,504 Deductions Withdrawals 3,280,802 1,893,007 2,167,262 1,687,457 2,884,838 20,665,747 Exchanges out 2,607,928 3,318,988 3,680,227 4,596,877 4,732,574 25,952,738 Management and administrative fees 83, , , , , ,513 Total deductions 5,972,279 5,320,129 5,999,903 6,442,655 7,782,871 47,493,998 Net Increase (Decrease) (555,348) 1,418,389 4,776,623 3,031,717 (1,698,669) 3,427,506 Transfer in From Previous Plan 57,012,165 71,818,373 99,531, ,807, ,626, ,357,426 Net Assets Held in Trust, Beginning of Period Net Assets Held in Trust, End of Period $ 56,456,817 $ 73,236,762 $ 104,307,808 $ 111,839,233 $ 118,928,208 $ 626,784,932 25

29 Financial Highlights by For the Period from August 2, 2010 to American Century Equity Growth 529 BlackRock Cash Funds 529 BlackRock Inflation Protected Bond 529 Fidelity Advisor Mid Cap II 529 Harbor Large Cap Value 529 Lazard Emerging Markets Equity 529 Lord Abbett Developing Growth 529 Class A Ratio of net investment income to average net assets - annualized * 2.35% 0.14% -0.66% -0.67% -0.67% -0.27% -0.67% Ratio of expense to average net assets - annualized ** 0.66% 0.15% 0.66% 0.67% 0.67% 0.66% 0.67% Total return *** 1.60% 0.02% 2.70% 8.80% 0.90% 7.70% 7.70% Class B Ratio of net investment income to average net assets - annualized * 1.89% 0.14% -1.40% -1.42% -1.42% -0.74% -1.42% Ratio of expense to average net assets - annualized ** 1.38% 0.15% 1.40% 1.42% 1.42% 1.39% 1.42% Total return *** 1.40% 0.02% 2.60% 8.70% 0.80% 7.60% 7.60% Class C Ratio of net investment income to average net assets - annualized * 2.18% 0.14% -0.90% -0.92% -0.92% -0.43% -0.92% Ratio of expense to average net assets - annualized ** 0.92% 0.15% 0.90% 0.92% 0.92% 0.91% 0.92% Total return *** 1.50% 0.02% 2.70% 8.80% 0.90% 7.70% 7.70% Class F Ratio of net investment income to average net assets - annualized * 2.52% 0.14% -0.39% -0.39% -0.39% -0.10% -0.39% Ratio of expense to average net assets - annualized ** 0.39% 0.15% 0.39% 0.39% 0.39% 0.39% 0.39% Total return *** 1.60% 0.02% 2.80% 8.90% 1.00% 7.80% 7.70% * This ratio represents investment income recognized by the Plan from the underlying investments, less expenses, divided by the average net assets. This ratio is annualized since the Plan has not been in existence for an entire year. ** This ratio represents the Plan s expenses divided by average net assets. This ratio is annualized since the Plan has not been in existence for an entire year. *** Total return is calculated for account owners taken as a whole. An individual account owner's return may vary based on the timing of investment transactions. 26