Municipal Secondary Market Disclosure Information Cover Sheet
Municipal Securities Rulemaking Board (MSRB)
Electronic Municipal Market Access System (EMMA)
IF THIS FILING RELATES TO A SINGLE BOND ISSUE:
Name of bond issue exactly as it appears on the cover of the Official Statement:

Nine-digit CUSIP* numbers if available, to which the information relates:

IF THIS FILING RELATES TO ALL OR SEVERAL SECURITIES ISSUED BY THE ISSUER, OR ALL OR
SEVERAL SECURITIES OF A SPECIFIC CREDIT OR ISSUED UNDER A SINGLE INDENTURE:
Issuer'sName:

Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities

Financinp Authoritv
Other Obligated Person's Name (if any):

Puerto Rico Tourism Develo~mentFund
(Exactly as it appears on the Official Statement Cover)

Six-digit CUSIP* number(s):

74527R

WHAT TYPE OF INFORMATION ARE YOU PROVIDING?
A.

ISI Annual Financial Information and Operating Data pursuant to Rule 15c2-12
Fiscal Period Covered:

B.

2010-201 1

ISI Audited Financial Statements or CAFR pursuant to Rule 152-12
Fiscal Period Covered:

C.

(Check all that apply)

2010-201 1

Notice of an Event pursuant to Rule 15c2-12 (Check as appropriate)

q Bond calls and tender offers
q Defeasances

1 . 0 Principal and interest payment delinquencies

8.

2. q Non-payment related defaults

9.

3 . 0 Unscheduled draws on debt service reserves reflecting
financial difficulties

1 0 . 0 Release, substitution, or sale of property securing repayment of
the securities

4 . 0 Unscheduled draws on credit enhancements reflecting
financial difficulties

1 1 . 0 Rating changes
1 2 . 0 Bankruptcy, insolvency, receivership, or similar event

5 . 0 Substitution of credit or liquidity providers, or their failure
to perform
6 . 0 Adverse tax opinions or events affecting the tax exempt
status of the security

7 . 0 Modifications to the rights of security holders

1 3 . 0 Merger, consolidation or acquisition involving an obligated
person or the sale of all or substantially all the assets of the
obligated person
1 4 . 0 ~ ~ ~ o i n t mofe na tsuccessor or additional trustee or the change
of name of a trustee

D.

q Notice of Failure to Provide Annual Financial Information as Required

E.

q Other Secondary Market Information (Specify):

 GDB

BANK FOR

~ v a n r Rrco
o

C O M M O N W E A L T H

Of

P U E R T O

RICO

PC Box 42001
San Juan, PR 00940-2001
Telephon~ (7i37) 722 2525

April 27,2012

Municipal Securities Rulemaking Board (MSRB)
Electronic Municipal Market Access System (EMMA)
Re:

Puerto Rico Tourism Development Fund
(Base CUSIP No. 74527R)
Audited Financial Statements and Other Financial Information

In connection with the continuing disclosure obligations of the Puerto Rico Tourism
under the Securities
Development Fund (the "PRTDF ") under Rule 15c2-12(b)(5)(i)(A)
Exchange Act of 1934, as amended, we hereby file with you on behalf of the PRTDF one
copy of its audited financial statements for the fiscal year ended June 30, 2011, along
with certain financial and operating information.
Sincerely,

Executive Vice President
and Fiscal Agent

 PUERTO RICO TOURISM DEVELOPMENT FUND
ANNUAL FINANCIAL INFORMATION
Fiscal Year Ended June 30, 2011

Introduction
In connection with the issuances by the Puerto Rico Industrial, Tourist,
Educational, Medical and Environmental Control Facilities Financing Authority
of its Tourism Revenue Bonds (Base CUSIP No. 74527R) and in compliance with
Rule 15c2-12, as amended, of the Securities and Exchange Commission, the
Puerto Rico Tourism Development Fund (the “TDF”) has covenanted to file
within 305 after the end of each fiscal year, with the Municipal Securities
Rulemaking Board (“MSRB”) through the Electronic Municipal Market Access
System (“EMMA”), core financial information and operating data for the prior
fiscal year, including:


TDF’s audited financial statements, prepared in accordance with
generally accepted accounting principles.



Operating data and other information included in the respective
Official Statements.

Appendix I
Included as Appendix I are TDF’s audited financial statements, prepared
in accordance with generally accepted accounting principles, for the fiscal year
that ended on June 30, 2011.
Appendix II
Included as Appendix II is TDF’s Annual Financial Information and
Operating Data Report for the fiscal year ended June 30, 2011. All terms not
otherwise defined herein shall have the respective meanings given to them in the
Official Statements.

 APPENDIX I

PUERTO RICO TOURISM DEVELOPMENT FUND

AUDITED FINANCIAL STATEMENTS

Deloitte,
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Puerto Rico Tourism
Development Fund
(A Component Unit of Government
Development Bank for Puerto Rico)
Basic Financial Statements and Required
Supplementary Information as of and for
the Year Ended June 30,201 1, and
Independent Auditors' Report

 PUERTO RICO TOURISM DEVELOPMENT FUND
(A Component Unit of Government Development Bank for Puerto Rico)
TABLE OF CONTENTS
AS OF AND FOR THE YEAR ENDED JUNE 30,2011

Page

INDEPENDENT AUDITORS' REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
BASIC FINANCIAL STATBrnNTS:

Balance Sheet
Statement of Revenues, Expenses, and Changes in Net Assets
Statement of Cash Flows
Notes to Basic Financial Statements

1
2 4

 Deloitte.

Deloitte & Touche UP
Torre Chardon
350 Chardon Avenue, Ste. 700
San Juan, PR 00918
USA

Tel: +I
787 759 7171

www.deIoitte.com

INDEPENDENT AUDITORS' REPORT

To the Memben of the Board of Directors of
Puerto Rico Tourism Development Fund
We have audited the accompanying balance sheet of Puerto liico Tourism Development Fund (the
"Tourism Fund"), a component unit of Government Development Bank for Puerto Rico, as of June 30,
2011, and the related statements of revenues, expenses, and changes in net assets, and of cash flows for
the year then ended. These financial statements are the responsibility of the Tourism Fund's management.
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. 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 consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Tourism Fund's internal control over fmancial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, 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, such financial statements present fairly, in all material respects, the financial position of
the Tourism Fund as of June 30,201 1, and its changes in net assets and its cash flows for the year then
ended in conformitywith accounting principles generally accepted in the United States of America.
As discussed in notes 1 and 7 to the financial statements, the Tourism Fund is a component unit of
Government Development Bank for Puerto Rico (the "Bank"). The Tourism Fund has material
transactions with the Bank to finance its operations.
The management's discussion and analysis on pages 2 to 4 is not a required part of the basic financial
statements but is supplementary information required by the Governmental Accounting Standards Board.
This supplementary information is the responsibility of Puerto Rico Tourism Fund's management. We
have applied certain limited procedures, which consisted principally of inquiries of management
regarding the methods of measurement and presentation of the supplementary information. However, we
did not audit such information and we do not express an opinion on it.

December 1,2011
stamp No. El9973
affixed to original.

Member of
Deloitte Touche Tohmatsu Limited

 PUERTO RlCO TOURISM DEVELOPMENT FUND
(A Component Unit of Government Development Bank for Puerto Rico)

As financial management of the Puerto Rico Tourism Development Fund (the "Tourism Fund"), we offer
readers of the Tourism Fund's financial statements this narrative overview and analysis of the Tourism
Fund's fmancial performance during the fiscal year ended June 30, 201 1. We encourage readers to read the
information presented here in conjunction with the basic fmancial statements, which follow this section.
Financial Highlights
Total assets and net assets amounted to approximately $611 million and $154 million, respectively, at
June 30,201 1, increasing by approximately $25 million and decreasing by approximately $17 million
when compared to June 30,2010, respectively.
The year ended with a negative change in net assets of approximately $17 million fiom a positive change
in net assets of $70 million in fiscal year 2010.
Operating revenues increased approximately $7 million or 63.2% as a result of an increase in the
guarantee fees earned of $3 million and interest income of $3.4 million.
At June 30,201 1, outstanding guarantees and letter of credit issued amounted to approximately
$5 18 million fiom approximately $140 million at June 30,2010.
Overview of the Financial Statements
This report includes this management's discussion and analysis section, the independent auditors' report, and
the basic fjnancial statements of the Tourism Fund. The basic financial statements also include notes that
explain in more detail some of the information in the basic financial statements.
Required Financial Statements
The financial statements of the Tourism Fund report information using accounting methods similar to those
used by private sector enterprises. The balance sheet provides information about the nature and amounts of
investments in resources (assets) and obligations to creditors (liabilities). It also provides the basis for
evaluating the capital structure of the Tourism Fund and assessing its liquidity and fmancial flexibility.
Revenues and expenses are accounted for in the statement of revenues, expenses, and changes in net assets.
This statement measures the success of the Tourism Fund's operations over the past year and can be used to
determine whether the Tourism Fund has successfully recovered its costs fiom the revenues it generates.

 PUERTO RlCO TOURISM DEVELOPMENT FUND
(A Component Unit of Government Development Bank for Puerto Rico)

The fmal required financial statement is the statement of cash flows. This statement reports cash receipts, cash
payments, and net changes in cash resulting h m operating, investing, and capital and noncapital financing
activities, and provides answers to such questions as where did cash come from, what was cash used for, and
what was the change in the cash balance during the reporting period.
Financial Analysis of the Tourism Fund

The balance sheet a d the statement of revenues, expenses, and changes in net assets report information about
the Tourism Fund's activities in a way that will help determine whether the Tourism Fund as a whole is better
or worse financially as a result of this year's activities. These two statements report the net assets of the
Tourism Fund and the changes in them. The Tourism Fund's net assets -the difference between assets and
liabilities - is one way to measure financial health or financial position. Over time, increases or decreases in
the Tourism Fund's net assets are one indicator of whether its financial health is improving or deteriorating.
However, it is important to consider other nonfinancial factors such as changes in economic conditions
particularly in the tourism industry, and new or changed government legislation.
Condensed financial information on assets, liabilities and net assets is presented below (in thousands):
June 30,

2011

2010

Change
Amount
Percent

Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities
Net assets
Total liabilities and net assets

Total assets increased by $25 million or 4.3%during the year mainly due to the net increase in loan receivable.
During fiscal year 2011, net loans increased by approximately $26 million. Total liabilities increased by
$42 million or 10.1% during the year mainly due to the net increase in the financing obtained from the
Government Development Bank for Puerto Rico to fund loan disbursements. Additionally, the allowance for
possible losses on guarantees and letters of credit increased by $2 million in fiscal year 201 1.

 PUERTO RlCO TOURISM DEVELOPMENT FUND
(A Component Unit of Government Development Bank for Puerto Rico)
MANAGEMENT'S DISCUSSION AND ANALYSIS
AS OF AND FOR THE YEAR ENDED JUNE 30,2011

Condensed financial information on revenues, expenses, and changes in net assets is presented below
(in thousands):
For the Years Ended
June 30,
Change
2010
Amount
Percent
2011

Operating revenues:
Guarantee fees
Interest income on loans
Total operating revenues
Total operating expenses
Operating loss
Nonoperating revenues
Loss before contributions from others
Contributionfiom the Commonwealthof Puerto Rico
Contribution from Government Development Bank
for herto Rim Capital Fund
Change in net assets
Net assets -beginning of year
Net assets - end of year

The change in net assets for the fiscal year 201 1 resulted in net assets at June 30,201 1 of $154 million, which
is $17 million or 9.9% less than the net assets at June 30, 2010. The decrease is mainly the result of the net
effect of an increase in the provision for loan losses of $28 million offset by a decrease in the provision for
possible losses on guarantees and letters of credit of $12 million.
Contacting the Tourism Fund's Financial Management

This financial report is designed to provide a general overview of the Tourism Fund's finances. Questions
concerning any of the information provided in this report or requests for additional information should be
addressed to the Puerto Rico Tourism DeveIopment Fund, PO Box 42001, San Juan, Puerto Rim,
00940-200 1.

 PUERTO RlCO TOURISM DEVELOPMENT FUND
(A Component Unit of Government Development Bank for Puerto Rico)
BALANCE SHEET
AS OF JUNE 30,2011

ASSETS

CURRENT ASSETS:
Cash
Deposits placed with bank
Investments
b a n s receivable
Accrued interest receivable
Other assets
Total current assets
NONCURRENT ASSETS :
Investments
Loans receivable -net
Other assets
Total noncurrent assets
TOTAL
LIABILITIES AND NET ASSETS

CURRENT LVLBILITIES:
Unearned guarantee fees
Accrued interest payable
Loans payable to Government Development Bank for Puerto Rico
Allowance for losses on guarantees and letters of credit
Other liabilities
Total current liabilities
NONCURRENT LIABILITIES:
Unearned guarantee fees
Allowance for losses on guarantees and letters of credit
Participation agreement payable
Loans payable to Government Development Bank for Puerto Rico
Other liabilities
Total noncurrent liabilities
Total liabilities
UNRESTRICTED NET ASSETS
TOTAL
See notes to basic financial statements.

 PUERTO RlCO TOURISM DEVELOPMENT FUND
(A Component Unit of Government Development Bank for Puerto Rico)
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30,2011

OPERATING REVENUES:
Guarantee and other fees
Interest income on loans
Total operating revenues
OPERATING EXPENSES:
Interest expense
Provision for loan losses
Provision for losses on guarantees and letters of credit
Professional fees
Management fees to Government Development Bank
for Puerto Rico
Other
Total operating expenses

OPERATING LOSS
NONOPERATING REVENUES:
Interest income on deposits placed with banks and investments
Net increase in fair value of investments
Other income
Total nonoperating revenues

CHANGE IN NET ASSETS
NET ASSETS -Beginning
NET ASSETS -End

of year

of year

See notes to basic financial statements.

 PUERTO RlCO TOURISM DEVELOPMENT FUND
(A Component Unit of Government Development Bank for Puerto Rico)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,2011

CASH FLOWS FROM OPERATING ACTIVITIES:
Guarantee and other fees collected
Management fees paid to Government Development Bank for Puerto Rico
Payments to service providers
Net cash provided by operating activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES:
Interest paid
Proceeds from loans payable
Principal payments on loans payable
Net cash provided by noncapital filancing activities
CASH FLOWS FROM WESTING ACTIVITIES:
Net increase in deposits placed with bank
Interest collected on deposits placed with bank and investments
Proceeds from redemptions and maturities of investments
Purchases of investments
Interest collected on loans
Principal collected on loans
Origination of loans
Net cash used in investing activities
NET DECREASE IN CASH
CASH -Beginning of year
CASH -End of year
See notes to basic financial statements.

(Continued)

 PUERTO RlCO TOURISM DEVELOPMENT FUND
(A Component Unit of Government Development Bank for Puerto Rico)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,2011

Reconciliation of operating loss to net cash provided by operating activities:
Operating loss
Adjustments to reconcile operating loss to net cash provided by operating activities:
Provision for losses on guarantees and letters of credit
Provision for loan losses
Interest income on loans
Interest expense
Other income collected
Changes in operating assets and liabilities:
Decrease in other assets
Decrease in unearned guarantee fees
hcrease in other liabilities
Total adjustments

NET CASH PROVIDED BY OPERATING ACTIVITIES
NONCASH INVESTING AND NONCAPZTAL FINANCING ACTIVITIES:
Accretion of discount on investments
Net increase in fair value of investments
Capitalized interest on loans
Capitalized interest on loan payable to Government Development Bank for
Puerto Riw
See notes to basic financial statements.

$

8,864,142

(Concluded)

 PUERTO RlCO TOURISM DEVELOPMENT FUND
(A Component Unit of Government Development Bank for Puerto Rico)
NOTES TO BASIC FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED JUNE 30,2011

I.

REPORTING ENTITY

Puerto Rico Tourism Development Fund (the "Tourism Fund7') is a component unit of Government
Development Bank for Puerto Rico (the "Bauk"). The Bank is a component unit of the Commonwealth
of Puerto Rico (the "Commonwealth").
The Tourism Fund was created by resolution of the Bank's board of directors in 1993 to promote the
hotel and tourism industry of the Commonwealth by making capital investments in, or by providing
financing directly or indirectly (through the use of letters of credit and guarantees) to entities that cau
contribute to the development of this industry. The Tourism Fund is exempt fiom taxation in Puerto
Rico.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Tourism Fund conform to accounting principles generally
accepted in the United States of America (V.S. GAAP"), as applicable to governmental entities. The
Tourism Fund follows Governmental Accounting Standards Board ("GASB") under the hierarchy
established by Statement No. 55, The Hierarchy of Generally Accepted Principlesfor the Sfate and
Local Governments, in the preparation of its financial statements. The Tourism Fund has elected to
apply all Financial Accounting Standards Board's pronouncements issued after November 30, 1989 to
the extent they did not conflict with GASB pronouncements.
The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reported period. Actual results could differ fiom those estimates.
Following is a description of the Tourism Fund's most significant accounting policies:
Measurement Focus and Basis of Accounting -The Tourism Fund's fmancial statements are
reported using the economic resources measurement focus and the accrual basis of accounting.
Revenues are recorded when earned and expenses are recorded when incurred, regardless of the timing
of related cash flows.
Operating Revenues and Expenses -Operating revenues and expenses are distinguished from
nonoperating items. The principal operating revenues of the Tourism Fund are interest earned on loans
granted to developers of tourism projects, and guarantee and other fees collected fiom developers of
tourism projects. Operating expenses include the provisions for losses on guarantees and letters of credit
and on loans, interest expense related to fmancings used to fund the origination of loans or to honor
guarantee disbursements, and those expenses related to the administration of the entity. All other
revenues and expenses not meeting these criteria are reported as nonoperating revenues and expenses.
Guarantee and Other Fees -Guarantee and other fees collected in advance are amortized over the
life of the related guarantee using the straight-line method.

 Investments -Investments and investment contracts are carried at fair value, except for money market
instruments and participating investment contracts with a remaining maturity at the time of purchase of
one year or less, and nonparticipating investment contracts (guaranteed investment contracts), which are
carried at cost; and investment positions in 2a-7 like external investment pools, which are carried at the
pools' share price. Fair value is determined based on quoted market prices and quotations received from
independent broker/dealers or pricing sewice organizations. Realized gains and losses from the sale of
investments and unrealized changes in the fair value of outstanding investments are included in net
increase (decrease) in fair value of investments.
Investments in preferred stock that either is required to be redeemed by the issuing entity or is
redeemable at the option of the investor, are reported at fair value. hvestments in preferred stock,
excluding preferred stock that either is required to be redeemed by the issuing entity or is redeemable at
the option of the investor, are reported at fair value when it is readily determinable. Iffair value is not
readily determinable preferred stock are reported at cost, adjusted for other-than-temporary impairment.
Fair value is determined based on quotations received from independent brokertdealers. Realized gains
and losses from the sale of investments, unrealized changes in the fair value of outstanding investments,
and other-than-temporary impairment losses are included in net increase (decrease) in fair value of
investment.
Loans and Allowance for Loan Losses -Loans are presented at the outstanding unpaid principal
balance reduced by any charge-offs and the allowance for loan losses. The accrual of interest on loans
ceases when loans become past due over six months. Once a loan is placed in nonaccrual status, all
accrued interest receivable is reversed from interest income. Interest income on nonaccrual loans is
thereafter recognized as income only to the extent actually collected. Management reinstates a
nonaccrual loan to accrual when the borrower has totally satisfied all amounts due.

The allowance for loan losses is established through provisions charged to operations. The allowance is
based on management's evaluation of the risk chamcteristics of the loans, including such factors as the
nature of individual credits outstanding, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any underlying collateral, and general
economic conditions. Loan charge-offs are recorded against the allowance when management believes
that the collectabilityof the principal is unlikely. Recoveries of amounts previously charged off are
credited to the allowance for loan losses. Because of uncertainties inherent in the estimation process,
management estimate of credit losses in the outstanding loans receivable portfolio and the related
allowance may change in the near future.
Loans considered to be impaired are generally reduced to the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral dependent, by allocating a portion
of the allowance for loan losses to such loans. If these allocations cause increases to the allowance for
loan losses, such increase is reported as provision for loan losses. Management, considering current
information and events regarding the borrowers' ability to repay their obligations, considers a loan to be
impaired when it is probable that the Tourism Fund will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Interest income and cash receipts on impaired loans are
accounted predominantly in the same manner as nonaccrual loans.
Transfers of Receivable -Transfers of receivable are accounted and reported as a sale if the Tourism
Fund's continuing involvementwith the receivable is effectively terminated. This approach
distinguishes transfers of receivables that are sales from transfers that are collateralized borrowings.

 The Tourism Fund's continuing involvement is considered to be effectively terminated if all of the
following criteria are met: (i) the transfme's ability to subsequently sell or pledge the receivables is not
significantly limited by constraints imposed by the transferor, either in the transfer agreement or through
other means, (ii) the transferor does not have the option or ability to unilaterally substitute for or
reacquire specific accounts from among the receivables transferred, except in certain limited
circumstances, (iii) the sale agreement is not cancelable by either party, including cancellation through
payment of a lump sum or transfer of other assets or rights, and (iv) the receivables and the cash
resulting from their collection have been isolated fiom the transferor.
Allowance for Losses on Guarantees and Letters of Credit -Management periodically evaluates the
credit risk inherent in the guarantees and letters of credit on the same basis as loans are evaluated. The
Tourism Fund charges as expense the amount required to cover estimated losses by establishing a
specific allowance component for guarantees and letters of credit relating to loans in default, determined
on the basis of the estimated future net cash outlays in connection with the related guarantees and letters
of credit or the fair value of the collateral, and a general component for the risk inherent in certain other
guarantees and letters of credit outstanding, established as a percentage of the principal amount of the
underlying loans, based on the Tourism Fund's loss experience on financial guarantees and letters of
credit, and management's best judgment.

When a guarantee or letter of credit is honored, the Tourism Fund recognizes any disbursement as a
nonperforming loan; therefore, no interest is accrued on the principal. After a specific analysis of the
provision requirements, the related allowance included in the allowance for guarantees and letters of
credit is reclassified to the allowance for loan losses. Any deficiency in the estimated allowance
requirement is recorded as an additional provision to the allowance for loan losses.
The concentration of risk in the guarantees and letters of credit issued, predominantly those issued by the
Tourism Fund (small number of large guarantees, geographical concentration in Puerto Rico, industry
concentration in hotel and tourism), as well as the limited historical loss experience and other factors,
compounds the uncertainty in management's estimate of the allowance for losses on guarantees and
letters of credit. As a result, the aggregate losses on guarantees and letters of credit ultimately incurred
by the Tourism Fund may differ fiom the allowance for losses as reflected in the accompanying basic
financial statements, and such differences may be material.
Pursuant to the legislation under which the Tourism Fund was created, the executive director of the
Tourism Fund is required to certify each year to the director of the OMB the amount, if any, that is
necessary to reimburse the Tourism Fund for disbursementsmade in the previous year, in connection
with obligations guaranteed in excess of fees and charges collected on such guarantees ("net
disbursements"). On December 16,2009, Act No. 173 was enacted, which amended the legislation that
created the Tourism Fund, to modify the definition of net disbursements to include disbursements made
by the Tourism Fund, for (i) loans to third parties, (ii) the acquisition of loan participations, and (iii) the
acceleration of maturities of loans, notes, bonds or other type of debt guaranteed by the Tourism Fund.
In addition, Act No. 173 provides that disbursements shall not be deemed made in the year in which the
disbursement occurs but shall be deemed made in the year in which the executive director of the
Tourism Fund determines that a loss was incurred with respect to a loan, note, bond or debt (such
determination being referred to as a "realized loss"). The director of the OMB has to include the amount
subject to reimbursement in the general budget of the Commonwealth for the following fiscal year for
the Legislature's consideration and approval. The Legislature is not obligated to authorize such
appropriations. As of June 30,201 1, there were no outstanding claims for reimbursements.

 Future Adoption of Accounting Pronouncements -The GASB has issued the following Statements:

GASB Statement No. 57, OPEB Measurements by Agent Enzployers and Agent Multiple-Employers
Plans, which is effective for periods beginning after June 15,2011.
GASB Statement No. 60, Accounting and Financial Reportingfor Service Concession
Arrangements, which is effective for periods beginning after December 15,2011.
GASB Statements No. 61, The Financial Reporting Entity: Omnibus - an anzendment of GASB
Statements No. 14 and No. 34, which is effective for periods beginning after June 15,2012.
GASB Statements No. 62, Codijkation ofAccowzting and Financial Reporting Guidance Contained
in Pre-November 30, 1989 FASB and AICPA Pronouncements, which is effective for periods
beginning after December 15,20 11.
GASB Statements No. 63, Financial Reporting of Deferred Ouffows of Resources, Defewedlnjlows
of Resources, and Net Position, which is effective for periods beginning after December 15, 201 1.
GASB Statements No. 64, Derivative Imtruments: Applicafion of Hedge Accounting Termination
Provisions -An Anzendment of GASB Statement No. 53, which is effective for periods beginning
after June 15,201 1.
Management is evaluating the impact that these statements will have on the Tourism Fund's basic
financial statements.
3.

CASH
Custodial credit risk is the risk that, in the event of a fmancial institution failure, the Tourism Fund's
may not be able to recover its deposits. The depository bank balance of $21,865,802 as of June 30,201 1
represents interest-bearing demand deposits with the Bank and was uninsured and uncollateralized. The
Tourism Fund does not have a formal policy for custodial credit risk for deposits.

4.

DEPOSITS PLACED WITH BANK
Deposits placed with bank represent time deposits with the Bank as of June 30,201 1. These time
deposits of approximately $33.4 million and $4.9 million bear interest at 0.25% and 0.30%, respectively,
and both mature in July 20 11.This balance was uninsured and uncollateralized.

5.

INVESTMENTS
The Bank's board of directors made extensive to the Tourism Fund the investment policies of the Bank.
These investment policies allow management to purchase or enter into the following investment
instruments:
U.S. government and agencies obligations
Certificates of deposit and time deposits
a

Bankers' acceptances

 Obligations of the Commonwealth of Puerto Rico, its agencies, municipalities, public corporations,
and instrumentalities
Federal hnds sold
Securities purchased under agreements to resell
World Bank securities
Mortgage-backed and asset-backed securities
Corporate debt, including investment contracts
External investment pools
Stock of corporations created under the laws of the United States of America or the Commonwealth
of Puerto Rico
Options, futures, and interest-rate swap agreements for hedging and risk control purposes, as well as
for the creation of synthetic products which qualify under any of the foregoing investment categories
Open-end mutual funds with acceptable underlying assets and rated AAA by Standard & Poor's or
its equivalent by Moody's
The Tourism Fund's investment policies establish limitations and other guidelines on maturities and
amounts to be invested in the aforementioned investment categories and by issuer/counterparty and on
exposure by country. In addition, such policies provide guidelines on the institutions with which
investment transactions can be entered into. In addition, the board of directors of the Tourism Fund will
determine, from time to time, other transactions that the Tourism Fund may enter into.
The Tourism Fund's investment policies provide that investment transactions shall be entered into only
with counterparties that are rated BBB+/A-1 or better by Standard & Poor's or equivalent rating by
Moody's Investors Service or Fitch Ratings, depending on the type and maturity of the investment and
the counterparty to the transaction. Any exceptions must be approved by the Tourisin Fund's board of
directors. The investment policies also provide that purchases and sales of investment securities shall be
made using the delivery vs. payment procedures. The Tourism Fund does not have a formal policy for
interest rate risk management.

 The following table summarizesthe type and maturities of investments held by the Tourism Fund at
June 30,201 1. Investments by type in any one issuer representing 5% or more of total investments have
been separately disclosed. Expected maturities will differ from contractual maturities, because borrowers
may have the right to call or prepay obligations with or without call or prepayment penalties.
Within
One Year

U.S. sponsored agencies notes Fedcral Home Loan Bank
$
Mortgage and asset-backed securilies:
Federal IIome Loan Mortgage
Corporation
Federal Farm Credit Bank
Federal National Mortgage
Association
Corporate debt:
Goldman Sachs
General Electric
Walrnart Stores

After One
to Five years

After Five
to Ten Years

After Ten
Years

Total

-

Total
External investment pools -Equity securities:
Russell 1000 Growth Commont Trust Fund
Global Opporbnities Capital Appreciation Fund
DesarroIIadora del Norte, S. en C. -Class B preferred special interests
Flagship Resort Property, S.E.

Investments in fixed income external investment pools had an average maturity of approximately
60 days; accordingly, they were presented as investments with maturity of less than one year. These
investments are with the Puerto Rico Government Investment Trust Fund, a government-sponsored pool,
which is administered by the Bank. This pool is subject to regulatoly oversight by the Commissioner of
Financial Institutions of Puerto Rico. The fair value of the pool is the same as the value of the pool
shares.
On December 23,2009, the Tourism Fund invested $50 million in Class B preferred special interest of
Desarrolladora del Norte, S. en C., ("Desarrolladora del Norte"), which is a partnership and owns and
operates the Hotel Gran Melik, Puerto Rico. This investment accrues dividends at an annual rate of
6.50%, which are cumulative and payable when declared by the managing partner and on the date of
redemption, as indicated below. Undeclared and accrued dividends at June 30,201 1, amount to
approximately $4.5 million. At the end of five years, Desarrolladora del Norte has the option to redeem
Class B special interests that shall represent an ownership interest inthe partnership equal to 30 percent.
Sol Melik, S.A., the parent company of Desarrolladora del Norte, will pledge 5,000,000 of its common
stock to the Tourism Fund on February 25,2012, and has provided a guarantee to the Tourism Fund to
cover any shortfall between the fair value of the pledged common stock and the original investment of
$50 million plus accrued and unpaid dividends. In case the conversion to Class B special interests takes
plaee and in order to recover its original investment plus unpaid dividends, the Tourism Fund is entitled
to sell the shares, subject to a limit of 40,000 shares per day or 15% of the previous day volume.

All of the investments at June 30,201 1 were rated f m AAA to A- by Standard & Poor's in compliance
with the Tourism Fund's policies for investments, except for the investments in external investment
pools in equity securities and investments in partnerships, which are not rated.

 On August 29,2003, the Tourism Fund acquired a participation of 5% in Flagship Resort Property, S.E.
as consideration for issuing its credit facilities for the rehabilitation of the resort. The carrying value of
this investment at June 30,201 1 amounted to $4,475.
6.

LOANS RECEIVABLE

As part of the credit facilities offered by the Tourism Pund, it has provided direct loans to tourism
development projects. The intention is to provide (i) alternative financing to some projects in the
Tourism Pund guarantee portfolio and (ii) interim financing to projects under construction.
Total loans receivable as of June 30,201 1 consist of approximately $345 million, net of an allowance
for possible loan losses of approximately $87 million.
The Tourism Fund originated loans for approximately $55 million during the year ended June 30,201 1.
Management considers these loans to have greater credit risk due to the dependency on income
production or future development of the tourism project. These loans are principally collateralized by
real estate property to minimize the credit risk.
The following is a summary of loans considered to be impaired as of June 30,201 1, and the related
interest income for the year then ended (in thousands):
Recorded investment in impaired loans:
Not requiring an allowance for loan losses
Requiring an allowance for loan losses
Total recorded investment in impaired loans
Related allowance for loan losses
Average recorded investment in impaired loans
Interest income recognized on impaired loans
The following is a summary ofthe activity in the allowance for loan losses for the year ended June 30,
2011:
Balance -beginning of year
Provision for loan losses
Balance -end of year
7.

LOANS PAYABLE TO GOVERNMENT DEVELOPMENT BANK FOR PUERTO RTCO

The Tourism Fund has obtained various lines of credit from the Bank in order to provide loans or invest
in tourism projects. These lines of credit contain flexible terms with respect to maturity date and interest
rate. They bear variable interest based on the London InterBanlc Offered Rate or fured rates ranging from
1.69% to 6.25% at June 30,201 1, and maturing from December 201 1 to June 2029. The source of
payment of these lines of credit comes £rom cash flows from the operations of the Tourism Fund.

 Activity of the various lines of credit during the year was as follows:
Beginning
Balance

Additions

Reductions

Ending
Balance

Due Within
One Year

Lies of credit

8.

PARTICIPATION AGREEMENT PAYABLE
On April 10,2006, the Tourism Fund entered into a debt restructuring agreement with Hotel Dorado,
S.E. (the "'Hotel") whereby the Tourism Fun4 as guarantor of the Hotel's AFICA bonds, accelerated the
AFICA bonds payment in exchange for a note receivable of $26 million (the "Note") from the Hotel. In
addition, on April 10,2006, the Tourism Fund entered into a participation agreement with a financial
institution whereby the Tourism Fund transferred a 100% participation (the "Participationy') in the Note.
The Participation is subject to recourse and the Tourism Fund is obligated to purchase the loan from the
financial institution upon the occurrence and during the continuance of an event of default under the
participation agreement. The participation agreement also stipulates that the financial institution cannot
sell, pledge, transfer, assign or dispose of the Participation without the Tourism Fund's consent.
Accordingly, the Tourism Fund has recorded the Note as part of loans receivable and has recorded a
participation agreement payable (i.e. a collateralized borrowing) in the accompanying balance sheet.
The Participation bears a variable interest rate, based on the three-month LIBOR plus 2.50% (the threemonth LIBOR rate was approximately 2 5 % at June 30,201 I), until maturity. Interest is payable on a
quarterly basis. In August 2008, The Tourism Fund agreed to extend the maturity to July 1,2018 and
approved a conditional-commitmentto provide a guarantee for a permanent loan to be provided by the
financial institution upon completion of the construction of some amenities and subject to compliance
with certain conditions. The outstanding principal balance of the Note and the corresponding
participation agreement payable amounted to $26 million as of June 30,201 1.

9.

FINGNCXAL INSTRUMENTS WITH OFF-BALANCESHEET RISK
In the normal course of business, the Tourism Fund is party to transactions involving financial
instruments with off-balance-sheet risk, to meet the financing needs of its customers. These financial
instruments include commitments to extend credit. These instruments involve, to varying degrees,
elements of credit risk in excess of amounts recognized in the accompanying balance sheet. These offbalancesheet risks are managed and monitored in manners similar to those used for on-balance-sheet
risks. The Tourism Fund's exposure to credit losses for lending commitments is represented by the
contractual amount of those transactions.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the commitments might expire
without being drawn upon, the total commitment amounts do not necessarily represent future cash
requirements. The Tourism Fund evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained upon extension of credit is based on management's credit evaluation
of the counterparty. Collateral held varies but may include property, plant, and equipment, and incomeproducing commercial properties. At June 30,201 1, commitments to extend credit amounted to
approximately $21.6 million.

 10. COMMITMENTS AND CONTINGENCIES

At June 30,201 1, the Tourism Fund had the following outstanding guarantees and letters of credit:

Description

Palmas Athletic Club
DBR Dorado Owner LLC
SGDP Hotel LLC -Condado Lagoon Villas II
Serrallb Hotel, Inc. (Ponce Hilton)
Coco Beach Golf & Country Club
CCHPR Hospitality LLC

Outstanding
Commitment
Amount

Expiration
Date

December 2030
August 2018
June 2020
April 2033
December 2030
August 2017

Total
Typically, the Tourism Fund provides guarantee for the timely payment of principal and interest on the
obligations issued to finance the tourism projects. It also provides other types of credit facilities such as
(i) deficiency guarantees where the Tourism Fund guarantees the recovery of any deficiency the lender
may realize on the final disposition of the collateral and (ii) direct loans.

Since December 24,2009, the Tourism Fund has honored its guarantee to the Palmas Athletic Club
project in connection with the $30 million Revenue Bonds 2000, Series A, (the "Revenue Bonds")
issued by Puerto Rico Industrial, Tourisf Educational, Medical and Environmental Control Facilities
Financing Authority ("AFICA"). On August 4,2010, Palmas del Mar Country Club, Inc. ("PCCI"), the
former owner and operator of the Palmas del Mar project, filed a voluntary petition for relief under
Chapter 11 of the United State Bmkrupcy Code. On October 19,20 10, the Bankruptcy court approved
the sale of the facilities by PCCI to Tourism Fund and such sale was consummated. On October 22,
20 10, the Tourism Fund entered into an agreement of purchase and sale with Palmas Athletic
Club, Corp. (PAC), a not-for-profit corporation. PAC is currently operating the Palmas del Mar project.
PAC also assumed all the liabilities and obligations of PCCI, including the AFICA's Revenue Bonds
2000, Series A. As of June 30,2011, the Tourism Fund had paid $4.9 million to cover the debt service of
such bonds.
On July 14,20X 0, the Tourism Fund entered into a guaranty agreement for $231 million interim and
permanent financing to DBR Dorado Owner LLC for the development of the Ritz-Carlton Reserve,
Dorado Beach Resort and Spa.
On August 17,2010, the Tourism Fund made effective its guarantee to a $157.6 million senior term
loan, provided by a fmancial institution to CCHPR Hospitality LLC ("CCHPR"). CCHPR is the
corporate entity that owns the Sheraton Puerto Rico Hotel & Casino, which opened on November 9,
2009. The loan is payable monthly on the first day of each month, commencing March 1,2011.
In November 20 10, SGDP Hotel LLC, the corporate entity that owns the Condado Lagoon Villas a
defaulted on a loan. Since December 2010, the Tourist Fund has made $244,734 in interest and principal
payments to honor its guarantee on the loan. On March 28,201 1, the Tourism Fund received a $137,778
reimbursement horn SGDP Hotel LLC as part of a principal moratorium, granted until Februarty 2013,
approved by the Tourism Fund and the commercial bank.

 On November 5,2010, the Tourism Fund issued a guarantee for a term loan of $5.6 million granted by a
financial institution to Hotel Dorado, S.E. -the corporate entity that owns the Embassy Suites Dorado
del Mar Hotel -to complete the construction and development of a new casino and parking complex.
On March 30,201 1, a financial institution, as trustee, made a drawing of $25,621,123 on an irrevocable
stand-by-letter of credit issued by the Tourism Fund which secured the Puerto Rico Industrial, Tourist,
Educational, Medical and Environmental Control Facilities Financing Authority ("AFICA"), 2000
Series A and 2004 Series A Bonds for the construction and development of the Coco Beach Golf and
Country Club. These two series of bonds were refinanced by a new AFICA 201 1 Series A for
$26,355,000 due on December 20,2034 on which the Toursim Fund remained as guarantor.
On June 8,20 11, the Tourism Fund paid approximately $10.1 million to honor the participation in a
credit agreement between a financial institution and Flagship Resort Properties, S. E. (Verdanza Hotel;
former Holiday Inn - Isla Verde).
Following is the activity of the allowance for guarantees and letters of credit for fiscal year 201 1:

Allowance for losses
on guarantees
and letters of credit

Beginning
Balance

Provision

$21,284,600

$2,370,598

Recoveries

$

-

Charges

$

-

Ending
Balance

$23,655,198

11. LITIGATION
The Tourism Fund and certain of its component units are defendants in several lawsuits arising out of
the normal course of business. Management, based on advice of legal counsel, is of the opinion that the
ultimate Iibility, if any, resulting fiom these pending proceedings will not have a material adverse effect
on the financial position and results of operations of the Tourism Fund.

12. NET ASSETS
The Tourism Fund had internally designated $114 million of its net assets at June 30, 2011 in relation to
guarantees and letters of credit issued and loans outstanding.
13. MANAGEMENT FEES
The Bank provides certain management and administrative services to the Tourism Fund for which the
Bank charged approximately $496,000 during the year ended June 30,201 1.
14. SUBSEQUENTEVENTS

Subsequent events were evaluated through December 1,2011, the date the financial statements were
available to be issued, to determine if any such events should either be recognized or disclosed in the
fmancial statements. Management has determined that there are no material events or transactions that
would affect the Tourism Fund's financial statements through such date.

 APPENDIX II

PUERTO RICO TOURISM DEVELOPMENT FUND

ANNUAL FINANCIAL INFORMATION AND OPERATING DATA REPORT

 PUERTO RICO TOURISM DEVELOPMENT FUND
ANNUAL FINANCIAL INFORMATION AND OPERATING DATA REPORT
FISCAL YEAR ENDED JUNE 30, 2011

The Puerto Rico Tourism Development Fund (the “TDF”) is a subsidiary of
Government Development Bank for Puerto Rico (the “GDB”) and a government
instrumentality of Puerto Rico. TDF was created on November 17, 1993, pursuant to
Resolution No. 6275, adopted by GDB (Resolution No. 6275, including all amendments
thereto, herein referred to as the “Enabling Resolution”) to facilitate the development of
Puerto Rico’s hotel and tourism industry by making capital investments in, or by
providing direct loans or guarantees, to entities that contribute to the development of
said industry. Under the Enabling Resolution, the TDF is specifically authorized to
issue, execute and deliver guarantees to secure the timely payment of interest and
principal on the guaranteed financings. Pursuant to the Enabling Resolution, the initial
capitalization of the TDF was $50,000,000. In accordance with the law pursuant to
which is was created, the Board of Directors of the TDF is composed of the President of
the GDB, the Executive Director of the Puerto Rico Tourism Company, the Secretary of
the Treasury of Puerto Rico and two board members from the private sector.
As of June 30, 2011, the TDF had total assets of $611,251,644; total liabilities of
$457,124,757 (including allowances for losses on guarantee and letters of credit of
$20,877,548) and capital of $154,126,887. TDF has six guaranty agreements with a
maximum guarantee exposure of $518,494,481 that represent total project investment of
$860,946,755. In addition, TDF has $345,483,379 in direct loans to five hotel projects that
represent total project investment of $737,191,001.
As prescribed by law, each year, the Executive Director of TDF is required to
certify to the Director of the Puerto Rico Office of Management and Budget (the
“Budget Director”), on or before December 31 of each year, the amount, if any, deemed
necessary to reimburse TDF for sums disbursed during the previous year, in excess of
certain earnings of TDF from fees and charges collected in connection with the issuance
of guarantees or letters of credit, to cover the payment of principal of and interest on
obligations guaranteed by TDF. The Budget Director is required to include the amount
so certified in the Puerto Rico General Budget for the following fiscal year. The
certificate issued by the Executive Director of TDF shall be based on an evaluation of
the disbursements made and the earnings from fees and charges collected by TDF and
of the obligations of TDF for the coming year and shall be final. The payment of the
amount so certified shall be subject to the consideration of Puerto Rico Legislature.
There is no assurance that Puerto Rico Legislature will appropriate sufficient funds to
reimburse TDF for all disbursements made by it under the TDF letter of credit.