A N N U A L Texas Prepaid Higher Education Tuition Program R E P O R T Texas ... · 2019. 7. 1. ·...

A N N U A L

R E P O R T

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Te x a s P r e p a i d H i g h e r E d u c a t i o n Tu i t i o n P r o g r a m Te x a s C o m p t r o l l e r G l e n n He g a r, C h a i r

M A T C H

T H E P R O M I S E

M a t c hT h e Pro m i s e . o r g

F O U N D A T I O N

T E X A S G U A R A N T E E D T U I T I O N P L A N

Texas Prepaid Higher Education Tuition Program

ANNUAL REPORT2014

2014 ANNUAL REPORT – Texas Prepaid Higher Education Tuition Programii

Texas Prepaid Higher Education Tuition Program – ANNUAL REPORT 2014 iii

T A B L E O F C O N T E N T ST H I S R E P O R T C O N S O L I D A T E S V A R I O U S A N N U A L R E P O R T S I N T O O N E D O C U M E N T

PROGRAM SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Cumulative Enrollment Data for the Texas Guaranteed Tuition Plan, 1996-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Cumulative Enrollment Data for the Texas Tuition Promise Fund® 2008-2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

TEXAS PREPAID HIGHER EDUCATION TUITION BOARD, ANNUAL REPORT – YEAR ENDED AUGUST 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Statement of Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Combining Statement of Net Position – Enterprise Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Statement of Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Combining Statement of Activities – Enterprise Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Combined Statement of Cash Flows – Enterprise Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Combining Statement of Cash Flows – Enterprise Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Statement of Fiduciary Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Statement of Changes in Fiduciary Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Combined Statement of Net Position – Discretely Presented Component Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Combining Statement of Net Position – Discretely Presented Component Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Combined Statement of Activities – Discretely Presented Component Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Combining Statement of Activities – Discretely Presented Component Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Independent Auditor’s 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

TEXAS GUARANTEED TUITION PLAN, ACTUARY’S REPORT ON PROGRAM SOUNDNESS – AUGUST 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Section I – Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Section II – Summary of Contract Data and Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Section III – Plan Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Section IV – Actuarial Methods and Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Section V – Soundness of the Plan as of August 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Section VI – Sensitivity Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Section VII – Changes in Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Appendix A – Active Contract Counts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Appendix B – Matriculation Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

TEXAS TUITION PROMISE FUND®, ACTUARY’S REPORT ON PROGRAM SOUNDNESS – AUGUST 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Section I – Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Section II – Summary of Contract Data and Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

Section III – Plan Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Section IV – Actuarial Methods and Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

Section V – Soundness of the Plan as of August 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Section VI – Sensitivity Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

Appendix A – Active Contract Counts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

Appendix B – Tuition and Fee Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

TEXAS GUARANTEED TUITION PLAN FUND INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

2014 ANNUAL REPORT – Texas Prepaid Higher Education Tuition Programiv


PROGRAM SUMMARY

2014 ANNUAL REPORT – Texas Prepaid Higher Education Tuition Program2

Texas Prepaid Higher Education Tuition Program – ANNUAL REPORT 2014 3

C U M U L A T I V E E N R O L L M E N T D A T AF O R T H E T E X A S G U A R A N T E E D T U I T I O N P L A N ,

1 9 9 6 - 2 0 0 3

The Texas Guaranteed Tuition Plan opened for enrollment in 1996. It was closed to new enrollment in June 2003. Approximately 72,055 of the 158,442 contracts sold were active at August 31, 2014.

CONTRACT SUMMARY

Type of College Plan PurchasedThe senior college plan is the most popular tuition plan purchased, consisting of more than 84 percent of the contracts.

Senior College Plan 133,704 84.38%

Junior-Senior College Plan 14,935 9.43%

Junior College Plan 6,721 4.24%

Private College Plan 3,082 1.95%

Total 158,442 100.00%

Payment Option SelectedThe payment option chosen most often is monthly until matricula-tion at 34 percent, followed by lump sum at 28 percent.

Monthly Until Matriculation 54,485 34.39%

Lump Sum 44,806 28.28%

Monthly for Ten Years 22,332 14.09%

Monthly for Five Years 20,338 12.84%

Annual Payments 16,481 10.40%

Total 158,442 100.00%

Monthly Payment Method SelectedThe most popular monthly payment method selected is the coupon booklet at 54 percent, followed by lump sum payments at 28 percent.

Coupon Booklet 84,864 53.56%

Lump Sum Payments 44,806 28.28%

Automatic Bank Draft 12,291 7.76%

Annual Payments 16,481 10.40%

Total 158,442 100.00%

P R O G R A M S U M M A R Y


Age or Grade Level of BeneficiaryNewborns and children under one year of age represent the largest groups for whom contracts have been purchased at nearly 18 percent.

Newborn 13,903 8.78%

0 Year 14,488 9.14%

1 Year 9,846 6.21%

2 Years 8,651 5.46%

3 Years 8,215 5.18%

4 Years 8,494 5.36%

Kindergarten 10,056 6.35%

First Grade 9,762 6.16%

Second Grade 10,318 6.51%

Third Grade 9,656 6.09%

Fourth Grade 9,692 6.12%

Fifth Grade 9,787 6.18%

Sixth Grade 9,293 5.87%

Seventh Grade 8,497 5.36%

Eighth Grade 7,003 4.42%

Ninth Grade 5,035 3.18%

Tenth Grade 3,011 1.90%

Eleventh Grade 1,720 1.09%

Twelfth Grade 1,015 0.64%

Total 158,442 100.00%

Beneficiary’s Relationship to Purchaser78 percent of contracts are purchased by the parents of the child, followed by grandparents at 10 percent.

Child 124,219 78.39%

Grandchild 16,075 10.15%

Other 2,910 1.84%

Great Grandchild 399 0.25%

Not Reported by Purchaser 14,839 9.37%

Total 158,442 100.00%

Counties with Largest Volume of ContractsThe largest number of contracts (14 percent) is purchased in Harris County.

Harris 23,327 14.72%

Dallas 14,252 9.00%

Travis 11,509 7.26%

Tarrant 10,543 6.65%

Bexar 10,149 6.41%

Collin 8,037 5.07%

Denton 4,924 3.11%

Total 82,741 52.22%



OPTIONAL INFORMATION AS PROVIDED BY THE PURCHASER

At the time the applications were submitted between 1996 and 2003, the following information was requested on a voluntary basis. “Not Reported by Purchaser” indicates that the Purchaser chose not to report the information.

Annual Family Household IncomeFamilies with incomes from $50,000 to $75,000 purchased the largest single volume of contracts by income group at 18 percent. Families with incomes from less than $20,000 up to $50,000 purchased nearly 17 per-cent of the contracts. Some 38 percent of respondents did not elect to report family income.

Less than $20,000 2,068 1.31%

$20,000 to $29,999 5,003 3.16%

$30,000 to $39,999 8,141 5.14%

$40,000 to $49,999 10,958 6.92%

$50,000 to $74,999 28,478 17.97%

$75,000 to $100,000 25,423 16.05%

Over $100,000 18,765 11.84%


Total 158,442 100.00%

Beneficiary’s EthnicityA total of 81,766 (52 percent) of the beneficiaries are Anglo.

Anglo 81,766 51.61%

Hispanic 16,036 10.12%

African-American 5,100 3.22%

Asian-American 4,248 2.68%

Other 3,589 2.27%

Native-American 1,035 0.65%


Total 158,442 100.00%

Education Level of PurchaserNearly 29 percent of those that reported information related to education levels had a bachelor’s degree, 13 percent had a master’s degree and 13% had a high school diploma.

Bachelor’s Degree 44,848 28.31%

Master’s Degree 20,569 12.98%

High School Graduate 19,834 12.52%

Associate Degree 10,375 6.55%

Other 3,596 2.27%

Doctorate Degree 9,191 5.80%


Total 158,442 100.00%



C U M U L A T I V E E N R O L L M E N T D A T A F O R T H E T E X A S T U I T I O N P R O M I S E F U N D®

The Texas Tuition Promise Fund®, the state’s new prepaid tuition plan, opened for enrollment in 2008. The plan is open for enrollment annually between September 1 and February 28/29. Approximately 27,857 contracts had been sold as of August 31, 2014.

CONTRACT SUMMARY

Type of College Plan PurchasedType I units are the most popular type plan. Type I units pay tuition and required fees at up to the most expensive Texas public 4-year college or university. Type II units pay the weighted average tuition and required fees at Texas public 4-year colleges and universities. Type III units pay the weighted average tuition and required fees at Texas public 2-year colleges.

Type I Units 16,723 60%

Type II Units 9,394 34%

Type III Units 1,740 6%

Total 27,857 100%

Payment Option SelectedThe Pay-As-You-Go payment option is chosen most often. The Pay-As-You-Go payment option allows individuals to pay as much as they like, whenever they like after establishing an account with a minimum of one unit and subsequent payment amounts of each least $15.

Lump Sum 7,440 27%

Installment 8,794 31%

Pay-As-You-Go 11,623 42%

Total 27,857 100%

Beneficiary’s Relationship to PurchaserThe majority of the contracts are bought for the purchaser’s child.

Child86%

Grandchild, 9%

Other, 5%



Age of BeneficiaryThe majority of contracts were purchased for benefi-ciaries less than 1 year of age.

Less Than 1 Year 4,773 17%

1 Year 1,815 7%

2 Years 1,724 6%

3 Years 1,777 6%

4 Years 1,814 7%

5 Years 1,701 6%

6 Years 1,645 6%

7 Years 1,753 6%

8 Years 1,661 6%

9 Years 1,618 6%

10 Years 1,537 6%

11 Years 1,592 6%

12 Years 1,380 5%

13 Years 1,219 4%

14 Years 950 3%

15 Years 539 2%

16 Years 209 1%

17 Years 59 –

18 Years 9 –

Over 18 Years 6 –

Undesignated 76 –

Total 27,857 100.0%

Counties with Largest Volume of ContractsThe top ten counties purchasing contracts are listed below. Sales of contracts in those counties represents 64% of the contracts sold.

Harris 3,816 14%

Travis 2,502 9%

Collin 2,397 8%

Dallas 1,872 7%

Tarrant 1,651 6%

Fort Bend 1,330 5%

Bexar 1,262 4%

Williamson 1,141 4%

Denton 1,048 4%

Montgomery 545 2%

All Other 10,293 36%

Total 27,857 100.0%



OPTIONAL INFORMATION AS PROVIDED BY THE PURCHASER

At the time the applications are submitted, purchasers are asked to provide the following informa-tion on a voluntary basis. Not Reported by Purchaser indicates that the purchaser did not report the information.

Annual Family Household Income

Under $50,000 5%

$50,001-$75,000 11%

$75,001-$100,000 19%

Over $100,000 55%

Not Reported by Purchaser 10%

Total 100.0%

Beneficiary’s Ethnicity

African-American 3%

Asian 14%

Anglo 57%

Hispanic 13%

Native-American –

Other 4%


Total 100.0%

Education Level of Purchaser

High School Graduate 2%

Some College 7%

Associate Degree 4%

Bachelor’s Degree 39%

Master’s Degree 28%

Doctorate 12%


Total 100.0%


M A T C H

T H E P R O M I S E


F O U N D A T I O N


ANNUALR E P O R T


Pages from the Texas Prepaid Higher Education Tuition Board – ANNUAL REPORT – Year Ended August 31, 2014

Texas Prepaid Higher EducationTuition Board (315)

Annual Report

For the Fiscal Year Ended August 31, 2014


Pages from the Texas Prepaid Higher Education Tuition Board – ANNUAL REPORT – Year Ended August 31, 2014 (continued)



Texas Prepaid Higher Education Tuition Board (315)

Annual Report


TABLE OF CONTENTS

Independent Auditor’s Report ....................................................................................................................................... 1

Management’s Discussion and Analysis (Unaudited) ................................................................................................... 3

Basic Financial Statements

Financial Statements Statement of Net Position .............................................................................................................................. 11 Exhibit F-1 – Combining Statement of Net Position – Enterprise Funds ...................................................... 12 Statement of Activities .................................................................................................................................. 14 Exhibit F-2 – Combining Statement of Activities – Enterprise Funds .......................................................... 15 Combined Statement of Cash Flows – Enterprise Funds ............................................................................. 17 Exhibit F-3 – Combining Statement of Cash Flows – Enterprise Funds ...................................................... 18 Statement of Fiduciary Net Position .............................................................................................................. 20 Statement of Changes in Fiduciary Net Position ........................................................................................... 21

Discretely Presented Component Units Financial Statements Combined Statement of Net Position ............................................................................................................ 22 Combining Statement of Net Position ........................................................................................................... 23 Combined Statement of Activities ................................................................................................................. 24 Combining Statement of Activities ............................................................................................................... 25

Notes to the Financial Statements ........................................................................................................................ 26

Independent Auditor’s 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 ..................................................................................................... 47

M A T C H

T H E P R O M I S E


F O U N D A T I O N


INDEPENDENTAUDITOR’SREPORT



AUSTIN HOUSTON SAN ANTONIO 811 BARTON SPRINGS ROAD, SUITE 550 1980 POST OAK BOULEVARD, SUITE 1500 100 N.E. LOOP 410, SUITE 1100 TOLL FREE: 800 879 4966 AUSTIN, TEXAS 78704 HOUSTON, TEXAS 77056 SAN ANTONIO, TEXAS 78216 WEB: PADGETT‐CPA.COM 512 476 0717 800 879 4966 210 828 6281

Independent Auditor’s Report

To the Texas Prepaid Higher Education Tuition Board Austin, Texas

Report on the Financial Statements

We have audited the accompanying financial statements of the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Texas Prepaid Higher Education Tuition Board (the “Board”), an agency of the State of Texas, as of and for the fiscal year ended August 31, 2014, and the related notes to the financial statements, which collectively comprise the Board’s basic financial statements, as listed in thetable of contents. We did not audit the financial statements of the Texas College Savings Plan® and the LoneStar 529 Plan®,which represent 100% and 99.8% of the assets and revenues/additions, respectively, of the aggregate remaining fund information of the Board as of and for the fiscal year ended August 31, 2014. We also did not audit the Texas Tuition Promise Fund®, which represents 34.4% and 62.8%, respectively, of the assets and revenues of the business type activities of the Board as of and for the fiscal year ended August 31, 2014. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and, our opinion, insofar as it relates to the amounts included for the Texas Tuition Promise Fund, the Texas College Savings Plan®, and the LoneStar 529 Plan®, is based on the report of the other auditors.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions 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 from material misstatement. The financial statements of the Texas Tuition Promise Fund, the Texas College Savings Plan®, and the LoneStar 529 Plan® were not audited in accordance with Government Auditing Standards.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Board’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Board’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.



2

Opinions

In our opinion, based on our audit report and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities, the aggregate discretelypresented component units, each major fund and the aggregate remaining fund information of the Board as of August 31, 2014, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Emphasis of a Matter

As described in Note 20 to the financial statements, the Texas Guaranteed Tuition Plan has a deficit net position. The Texas Guaranteed Tuition Plan is backed by a constitutionally guaranteed trust fund and the full faith and credit of the state of Texas; thus, guaranteeing payment of tuition and required fee benefits at colleges and universities in which a plan beneficiaryenrolls.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Board’s basic financial statements. The Program Summary, Texas Guaranteed Tuition Plan, Actuary’s Report on Program Soundness; the Texas Tuition Promise Fund, Actuary’s Report on Program Soundness; and the Texas Guaranteed Tuition Plan Fund Investment Information are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The Program Summary, Texas Guaranteed Tuition Plan, Actuary’s Report on Program Soundness; the Texas Tuition Promise Fund, Actuary’s Report on Program Soundness; and the Texas Guaranteed Tuition Plan Fund Investment Information have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated December 1, 2014 on our consideration of the Board’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordancewith Government Auditing Standards in considering the Board’s internal control over financial reporting and compliance.

Austin, Texas December 1, 2014

M A T C H

T H E P R O M I S E


F O U N D A T I O N


MANAGEMENT’S DISCUSSION AND ANALYSIS




Management’s Discussion and Analysis


3

This section of the Texas Prepaid Higher Education Tuition Board’s (the “Board” or “Agency”) annual financial report presents a discussion and analysis of the Agency’s financial performance during the fiscal year ended August 31, 2014. Please read it in conjunction with the Agency’s financial statements. The Board administers the Texas Guaranteed Tuition Plan (“TGTP”), Texas Tuition Promise Fund® (“TTPF”), Texas Prepaid Scholarship Foundation, the Texas College Savings Plan®, and the LoneStar 529 Plan®. The Board administers the Texas Save and Match Program in cooperation with the Texas Match the Promise FoundationSM.

Financial Highlights of the Texas Guaranteed Tuition Plan

Net Position of the Texas Guaranteed Tuition Plan increased $44 million in fiscal 2014.

Financial highlights include:

Payment of participants’ benefits to colleges and universities of $154,189,171.19

Net investment income of $90,709,346.86

Contract receipts of ($6,141,808.29), which is net of refund of principal on cancelled contracts in the amount of $19,745,439.04

Earnings paid on refunds of $19,733,804.61

Operating expenses of $3,576,251.83

Decrease in the unfunded liability for contract benefits payable of $44,325,655.53

The Texas Guaranteed Tuition Plan opened for enrollment in 1997 and plan benefits are guaranteed by the full faith and credit of the State of Texas (the “State”). The plan closed for new enrollment in 2003 when tuition was deregulated; however, there were approximately 72,000 active contracts as of August 31, 2014. The fund’s unfunded liability at August 31, 2013, was ($612,496,449.33) compared to ($568,170,793.80) at August 31, 2014, a decrease in the unfunded liability of $44,325,655.53. This was a favorable variance when compared to the expected unfunded liability at August 31, 2014, due to higher than projected interest returns and lower than projected tuition increases.

The Plan’s funded ratio, that is the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present value of expected future tuition and school-wide required fees, refunds and other expenses, is 66.1%. The Plan’s actuary projects that the Plan will have depleted all cash and investments available to pay contract benefits between years 2019 and 2020. Since the plan is closed to new enrollment, the number of plan beneficiaries using the plan will continue to decrease after peaking in 2009-2010.






4

Number of Students Using Texas Guaranteed Tuition Plan Benefits by Academic Year*

97

652 1,

293 2,

542

4,46

4

6,87

4

9,49

1

12,4

66

15,2

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36

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88

24,5

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41

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9,79

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10,000

15,000

20,000

25,000

30,000

Academic Year

Historical Projected

*Academic Years 2015-2027 are projected based on the projected high school graduation dates of beneficiaries. The plan’s actuary projects that all accounts will be depleted by the year 2035.

Financial Highlights of the Texas Tuition Promise Fund

The State’s new prepaid tuition plan, the Texas Tuition Promise Fund opened for enrollment in 2008. The fund is not guaranteed by the State of Texas. Through August 31, 2014, the Texas Tuition Promise Fund had approximately 28,000 active contracts at a value of approximately $516 million. Receipts from purchasers in fiscal 2014 totaled $62 million. Because contracts are subject to a three-year holding period before any contract benefits can be paid to schools, the 2013-2014 academic year marked the second year benefits were paid from the plan. The Plan’s funded ratio, that is the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present value of expected future tuition and school-wide required fees, refunds and other expenses, is 121.2%.






5

Financial Highlights of the College Savings Plans

Net position of the Board’s 529 college saving plans, the direct-sold Texas College Savings Plan and the advisor-sold LoneStar 529 Plan, increased from $419,527,103.03 at August 31, 2013, to $503,029,946.85 at August 31, 2014, an increase of $83.5 million. The increase was due to an increase in the number of account owners from 36,012 at August 31, 2013, to 37,830 at August 31, 2014, increased net contributions to savings accounts, and net income from investment activities. Financial highlights include:

Contributions from investors of $166,402,371.40

Distributions from investor accounts of $145,233,874.53

Net income from investing activities of $62,335,883.78

Financial Highlights of Discretely Presented Component Units

Texas Prepaid Tuition Scholarship Foundation

The Texas Prepaid Scholarship Foundation recognizes as an asset and liability the value of contracts owned by the foundation in the Texas Guaranteed Tuition Plan that were awarded as scholarships. As of August 31, 2014 the value of the remaining contracts totaled $75,070.91. Three of the scholarship contracts remain active with total hours available for distribution of 275.

Per statute, Texas Guaranteed Tuition Plan accounts terminate on the tenth anniversary of the date the account beneficiary is projected to graduate from high school, not counting time spent by the beneficiary as an active duty member of the United States armed services. Any refund for terminated hours is returned to the foundation as the owner of the scholarship accounts. Of the eight scholarship accounts awarded by the foundation, each for 128 hours, a total of 162.92 hours have been cancelled for accounts that reached the tenth anniversary deadline. A total of $15,410.50 has been returned to the foundation for terminated contracts.

Texas Match the Promise Foundation

The Texas Match the Promise Foundation, a 501(c)(3) federal tax-exempt public charity eligible to receive tax deductible donations, was established in fiscal 2009. Individuals and companies can make donations to the foundation to be used to provide matching scholarships and tuition grants for participants in the Texas Tuition Promise Fund. Donations provide matching scholarships to students with demonstrated needs. During fiscal 2014, the foundation received approximately $89,000 in donations from donors contributing a portion of their unclaimed property receipts to the foundation to be used for scholarships. The foundation purchased an additional 900 Type I tuition units in the Texas Tuition Promise Fund in fiscal 2014 totaling $106,254.00. As of August 31, 2014, the foundation owned 3,079 Texas Tuition Promise Fund Type I tuition units at a cost of $352,712.64. These units are recognized as assets in the foundation’s Statement of Net Position. In March 2014, the foundation awarded its second round of scholarships. A total of sixty-seven Texas schoolchildren received matching Texas Tuition Promise Fund tuition units worth up to $1,500 and twelve of the top-ranking applicants were recognized with an additional scholarship grant of tuition units worth $2,000 at 2013-2014 Texas Tuition Promise Fund enrollment prices.

Overview of the Financial Statements

The annual report consists of four parts – management’s discussion and analysis, the basic financial statements,required supplementary information, and an optional section that presents combining statements for enterprise funds. The basic financial statements include government-wide financial statements, fund financial statements, and notes to the financial statements.






6

Government-wide Financial Statements

Government-wide financial statements (i.e., the Statement of Net Position and Statement of Activities) present an overall picture of the financial position of the Agency. These statements provide both long-term and short-term information about the Agency using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the Agency’s assets and liabilities. All of the current year’s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the Agency’s net position and how the net position increased or decreased during the fiscal year. Net position is the difference between the Agency’s assets and liabilities and represents one way to measure the Agency’s financial health or position. The government-wide financial statements of the Agency are divided into two categories:

Business-Type Activities – This includes activities for which a fee is charged to customers to pay most or all of the cost of services. Financial activity for the TGTP and the TTPF is reported as an enterprise fund.

Component Units – This includes activities of legally separate entities for which the Agency is either financially accountable or the nature and significance of their relationship with the Agency is such that exclusion would cause the Agency’s financial statements to be misleading or incomplete. The Agency has two discretely presented component units. Financial information for these entities is presented separately in the supplemental statements and in the notes.

Fund Financial Statements

Fund financial statements provide more detailed information on the Agency’s most significant funds. They use a format that is more familiar to experienced users of governmental financial statements. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental entities use funds to keep track of sources of funding and spending related to separate activities.

The Agency has two kinds of funds:

Proprietary Funds – When a government charges for services it provides to customers, these activities are generally reported in proprietary funds. Services provided to outside (non-governmental) customers are reported in enterprise funds, which are a type of proprietary fund. Proprietary funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. The financial activity of the TGTP and TTPF is reported as a proprietary fund, as the State is holding funds that will later be used to support the State’s own programs to pay future tuition and required fees in return for the contracts that are purchased.

A constitutional amendment passed by Texas voters in November 1997 guarantees TGTP benefits to be paid to colleges and universities on behalf of beneficiaries of the plan as follows:

If in any fiscal year there is not enough money in the Texas Tomorrow Fund to pay the tuition and required fees of an institution of higher education in which a beneficiary enrolls or the appropriate portion of the tuition and required fees of a private or independent institution of higher education in which a beneficiary enrolls as provided by a prepaid tuition contract, there is appropriated out of the first money coming into the state treasury in each fiscal year not otherwise appropriated by the constitution the amount that is sufficient to pay the applicable amount of tuition and required fees of the institution.

Benefits of the TTPF are not guaranteed by the State; however, Texas public colleges and universities are required to accept the plan as payment of tuition and required fees in full for plan beneficiaries for the applicable number of hours covered. The transfer value of the plan is paid to Texas private colleges and universities, career schools and out-of-state schools. Transfer value is the lesser of (1) the costs the unit would cover at a public in-state college or (2) the original purchase price of the unit plus or minus the plan’s net investment earnings or losses on that amount.






7

Fiduciary Funds – The Agency is the trustee, or fiduciary, for the direct-sold Texas College Savings Plan and the advisor-sold LoneStar 529 Plan, the State’s 529 college savings plans. The college savings plan was first offered by the Board in September 2002. It is reported as a private purpose trust fund because these are fiduciary funds and the State does not guarantee the program. All governmental fiduciary activities are reported in separate Statements of Fiduciary Net Position and Changes in Fiduciary Net Position. The fiduciary activities are excluded from government-wide financial statements because a government cannot use these assets to finance its operations.

Financial Analysis of the Agency as a Whole

Net Position

Total Assets of the Agency on August 31, 2014 were $2.0 billion, while total liabilities were nearly $2.5 billion, resulting in a net position (deficit) of $(445.6) million.

A summary of net position is shown below:

2014 2013 % of ChangeCurrent and Other Assets 2,044,070,319.67$ 1,988,666,802.45$ 2.79%Capital Assets - - 0.00%Total Assets 2,044,070,319.67 1,988,666,802.45 2.79%

Current and Other Liabilities 2,489,673,730.91 2,530,254,591.37 -1.60%Total Liabilities 2,489,673,730.91 2,530,254,591.37 -1.60%

Net Position:Investment in Capital Assets - - 0.00%Unrestricted Deficit (445,603,411.24) (541,587,788.92) 17.72%Total Net Position (Deficit) (445,603,411.24)$ (541,587,788.92)$ 17.72%

Statement of Net Position Information

Business-Type ActivitiesFiscal Year

Changes in Net Position

The Agency earned program revenues of over $76 million; had an increase in the fair value of investments of $122 million, and expenses of over $103 million. The excess of revenues over expenses caused the Agency’s total net position to increase by nearly $96 million.






8

This compares with an increase in net assets the previous fiscal year of over $79 million. Revenues and expenses of the Agency’s business-type activities are detailed below:

2014 2013 % of ChangeRevenues

Program RevenuesCharges for Services 44,705,738.87$ 56,032,058.73$ -20.21%Capital Gains and Contributions 32,173,618.02 37,152,375.49 -13.40%

Total Revenues 76,879,356.89 93,184,434.22 -17.50%

Net Increase in Fair Value of Invesments 122,251,180.55 65,270,485.25 87.30%Expenses 103,146,159.76 78,987,875.40 30.58%Increase in Net Position 95,984,377.68$ 79,467,044.07$

Changes in Net Position Information

Business-Type ActivitiesFiscal Year

Analysis of the Agency’s Funds

Proprietary Funds

The increase of nearly $96 million in the Agency’s net position was due to a decrease in the unfunded liability of the Texas Guaranteed Tuition Plan of $44.3 million and an increase in the funded liability of the Texas Tuition Promise Fund of $51.7 million.

The decrease of $44.3 million in the unfunded liability of the Texas Guaranteed Tuition Plan can be attributable to the following factors:

Investment performance was higher than the projected annual return in the 2013 Actuary’s Report.

Tuition increases for the 2013-2014 Academic Year were lower than projected in the 2013 Actuary’s Report.

Fiduciary Funds

The financial activity of the Board’s college saving plans, the direct-sold Texas College Savings Plan and theadvisor-sold LoneStar 529 Plan, is reported as a private purpose trust fund.

Budgetary Highlights

The Board adopts an annual operating budget. The fiscal 2014 expenditure budget included all administrative costs paid directly by the Agency for the prepaid tuition and college savings plans. The budget totaled over $4 million for the fiscal year ended August 31, 2014.

The largest component of the fiscal 2014 budget was consultant and professional fees at $2.5 million or 58% of the total budget. Of that figure, $1.9 million was budgeted for investment management and consulting fees.

The fiscal 2014 budget remained flat when compared to the fiscal 2013 budget. The increase in Professional Fees and Services of 2.5 % was offset by budget decreases across all other budget categories for an overall increase year over year of 1.31%.






9

A summary comparison of the fiscal 2014 budget to actual expenditures is shown below:

Salaries and Payroll Related Costs 1,135,353.00$ 1,091,077.46$ 64,529.24$ 1,155,606.70$ 20,253.70$ 1.78%Professional Fees and Services 2,559,325.00 2,221,957.88 211,894.66 2,433,852.54 (125,472.46) -4.90%Repairs and Maintenance 318,727.00 320,455.10 - 320,455.10 1,728.10 0.54%Materials and Supplies 76,836.00 92,337.80 - 92,337.80 15,501.80 20.18%Other Operating Expenses 261,054.00 220,656.10 72,010.36 292,666.46 31,612.46 12.11%

4,351,295.00$ 3,946,484.34$ 348,434.26$ 4,294,918.60$ (56,376.40)$ -1.30%

FY 2014 EXPENSE TO BUDGET COMPARISON

FY 2014 Actual Expenses$ Variance Comparing Actual to Budget

% Variance Comparing Actual to Budget

FY 2014 Budget

EnterpriseFunds

PrivatePurpose

Trust Funds

TotalActual

Expenses

Overall expenses were below budget by $56,376.40 due to lower than expected investment management fees included in Professional Fees. Those fees are based on assets under management (“AUM”). During fiscal 2014, the market value of the AUM decreased below the balances projected when the budget was developed resulting in lower investment management fees. Salaries and payroll related costs were slightly higher because previous vacancies were filled in fiscal 2014. Despite filling the vacancies, temporary staff services were utilized during the year to assist with transition of the new staff; resulting in an increase in Other Operating Expenses.

Capital Assets and Debt Administration

Capital Assets

As of August 31, 2014, the Agency’s capital assets were fully depreciated. All capital assets were verified for existence and impairment.

Debt Administration

The Agency has no debt issued.

Economic Factors and Next Year’s Budget and Rates

The two main economic indicators that affected the financial position of the Agency during fiscal year 2014 were:

The increase in fair value of investments of $122 million.

The change in the actuarial assumptions to reflect the actual 2013-2014 academic year tuition inflation and updated assumptions for future return on investments.

In August 2014, the Board adopted an operating budget of $4 million for fiscal 2015.






10

Contacting the Agency’s Financial Management

This report is designed to provide our citizens, taxpayers, customers, account owners, investors, and creditors with a general overview of the Agency’s finances and to demonstrate the Agency’s accountability for the money it receives. If you have questions about this report or need additional financial information, you can contact the Comptroller’s Educational Opportunities and Investment Division by sending a letter to 1711 San Jacinto Blvd., 2nd Floor, Room 202, Austin, Texas 78711, by calling 800-531-5441, ext. 3-2072, or sending an email to [email protected].

Comments or complaints may be forwarded to the Texas Prepaid Higher Education Tuition Board, Office of the Comptroller of Public Accounts, PO Box 13407, Austin, Texas 78711-3407, or by calling 512-936-2064.

M A T C H

T H E P R O M I S E


F O U N D A T I O N


FINANCIALSTATEMENTS

31




Statement of Net Position

August 31, 2014

The accompanying notes to the financial statements are an integral part of this financial statement.

11

Total PresentedEnterprise Component

Funds UnitsASSETS

Current Assets:Cash and Cash Equivalents (Note 3)

Cash in Bank $ 154,885.54 $ - Cash in State Treasury 6,223,636.85 51,992.35

Short Term Investments 17,722.68 Securities Lending Collateral 78,237,202.91 - Restricted:

Cash and Cash Equivalents (Note 3)Cash Equivalents 215,738,069.85 -

Receivables from:Investment Trades 144,252,695.87 - Tuition Contracts Receivable 35,923,870.12 - Interest and Dividends 3,845,762.23 18.87 Other 147,902.29 427,783.55

Total Current Assets 484,524,025.66 497,517.45

Non-Current Assets:Restricted:

Tuition Contracts Receivable 127,544,950.04 - Investments (Note 3) 1,432,001,343.97 -

Capital Assets (Note 2):Depreciable:

Computer Software-Intangible 26,906.91 - Less Accumulated Depreciation (26,906.91) -

Furniture and Equipment 2,199,883.46 - Less Accumulated Depreciation (2,199,883.46) -

Total Non-Current Assets 1,559,546,294.01 -

Total Assets $ 2,044,070,319.67 $ 497,517.45

LIABILITIESCurrent Liabilities:

Payables from:Accounts 794,281.87 3.52 Investment Trades 154,314,134.49 - Contract Benefits and Expenses 287,004,777.00 -

Due To Other Agencies (Note 12) 97,529.43 - Deferred Revenues 863,261.47 - Obligations Under Securities Lending 78,237,202.91 - Employees' Compensable Leave (Note 5) 69,992.81 - Other Liabilities - 143,122.99

Total Current Liabilities 521,381,179.98 143,126.51

Non-Current LiabilitiesContract Benefits and Expenses 1,968,243,850.00 - Employees' Compensable Leave (Note 5) 48,700.93 -

Total Non-Current Liabilities 1,968,292,550.93 -

Total Liabilities 2,489,673,730.91 143,126.51

NET POSITION (DEFICIT)Unrestricted (445,603,411.24) 354,390.94

Total Net Position (Deficit) $ (445,603,411.24) $ 354,390.94




Exhibit F-1 – Combining Statement of Net Position – Enterprise Funds

August 31, 2014


12

Texas Tomorrow Constitutional Trust

Fund/Texas Guaranteed Tuition

Plan

Prepaid Tuition Unit Undergraduate

Education Program/Texas

Tuition Promise Fund(Fund 0892) (Fund 0842)U/F (0892) U/F (0842/4892) Totals

ASSETSCurrent Assets:

Cash and Cash EquivalentsCash in Bank -$ 154,885.54$ 154,885.54$ Cash in State Treasury 5,405,524.99 818,111.86 6,223,636.85

Securities Lending Collateral 78,237,202.91 - 78,237,202.91Restricted:

Cash and Cash EquivalentsCash Equivalents 215,738,069.85 - 215,738,069.85

Receivables from:Investment Trades 144,252,695.87 - 144,252,695.87Tuition Contracts Receivable 10,154,277.00 25,769,593.12 35,923,870.12Interest and Dividends 3,624,432.81 221,329.42 3,845,762.23Other Assets - 147,902.29 147,902.29

Total Current Assets 457,412,203.43 27,111,822.23 484,524,025.66

Non-Current Assets:Restricted:

Tuition Contracts Receivable 24,441,925.00 103,103,025.04 127,544,950.04Investments 859,861,251.57 572,140,092.40 1,432,001,343.97

Capital Assets:Depreciable:

Computer Software-Intangible 26,906.91 - 26,906.91Less Accumulated Depreciation (26,906.91) - (26,906.91)

Furniture and Equipment 2,199,883.46 - 2,199,883.46Less Accumulated Depreciation (2,199,883.46) - (2,199,883.46)

Total Non-Current Assets 884,303,176.57 675,243,117.44 1,559,546,294.01

Total Assets 1,341,715,380.00$ 702,354,939.67$ 2,044,070,319.67$




Exhibit F-1 – Combining Statement of Net Position – Enterprise Funds (Continued)

August 31, 2014


13



Plan





Payables fromAccounts 723,523.71$ 70,758.16$ 794,281.87$ Investment Trades 154,314,134.49 0.00 154,314,134.49Contract Benefits and Expenses 260,610,949.00 26,393,828.00 287,004,777.00

Due To Other Agencies 78,178.34 19,351.09 97,529.43Deferred Revenues - 863,261.47 863,261.47Obligations Under Securities Lending 78,237,202.91 - 78,237,202.91Employees' Compensable Leave 64,770.16 5,222.65 69,992.81

Total Current Liabilities 494,028,758.61 27,352,421.37 521,381,179.98

Non-Current LiabilitiesContract Benefits and Expenses 1,415,816,379.00 552,427,471.00 1,968,243,850.00Employees' Compensable Leave 41,036.19 7,664.74 48,700.93

Total Non-Current Liabilities 1,415,857,415.19 552,435,135.74 1,968,292,550.93

Total Liabilities $1,909,886,173.80 $579,787,557.11 $2,489,673,730.91

NET POSITION (DEFICIT)Unrestricted (568,170,793.80) 122,567,382.56 (445,603,411.24)

Total Net Position (Deficit) (568,170,793.80)$ 122,567,382.56$ (445,603,411.24)$




Statement of Activities



14

TotalEnterprise

Funds

Discretely Presented

Component Units

OPERATING REVENUESSales of Goods and Services

Tuition Contracts (Net of Refund of Contract Principal of $19,745,439.04) $ 54,794,810.49 $ - Changes in Actuarial Future Contract Collections (10,850,125.00) - Licenses, Fees, and Permits 761,053.38 - Other Revenues 190,898.59 -

Total Operating Revenues 44,896,637.46 -

OPERATING EXPENSESTuition Contract Benefits and Expenses 160,685,187.60 - Changes in Future Contract Benefits (83,288,905.00) - Salaries and Wages 869,707.43 - Payroll Related Costs 221,370.03 - Professional Fees and Services 2,997,188.02 - Travel 7,715.67 - Materials and Supplies 92,337.80 - Communication and Utilities 39,486.65 - Repairs and Maintenance 320,455.10 - Rentals and Leases 21,041.69 - Printing and Reproduction 3,561.29 - Interest 42.66 - Other Operating Expenses (Includes Earnings Paid on Refunds of $19,733,804.61) 19,882,618.35 68,110.29

Total Operating Expenses 101,851,807.29 68,110.29

Operating (Loss) (56,955,169.83) (68,110.29)

NONOPERATING REVENUE (EXPENSES)Gifts, Pledges, and Donations - 89,147.72 Interest and Dividend Income 31,696,607.00 - Loan Premiums/Fees on Security Lending 286,112.43 - Investing Activities Expenses (1,222,964.26) 225.26Borrower Rebates and Agent Fees (71,388.21) - Net Increase in Fair Value of Investments 122,251,180.55 - Other Nonoperating Revenues - 737.14

Total Other Nonoperating Revenues (Expenses) 152,939,547.51 90,110.12

Change in Net Position 95,984,377.68 21,999.83

Total Net Position (Deficit), September 1, 2013 (541,587,788.92) 332,391.11

Net Position (Deficit), August 31, 2014 $ (445,603,411.24) $ 354,390.94



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Combined Statement of Cash Flows – Enterprise Funds



17

TotalEnterprise

FundsCASH FLOWS FROM OPERATING ACTIVITIES

Proceeds Received From Customers (Net of Refunds) 55,534,330.60$ Earnings Paid on Refunds (19,733,804.61) Proceeds from Other Revenues 680,351.05 Payments to Suppliers for Goods and Services (3,190,731.29) Payments to Employees for Salaries (848,500.43) Payments to Employees for Benefits (218,015.53) Payments for Other Expenses (Includes Benefit Payments to Universities and Colleges) (160,773,783.61)

Net Cash Provided by (Used in) Operating Activities (128,550,153.82)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIESNet Cash Provided by Noncapital Financing Activities -

CASH FLOWS FROM CAPITAL AND RELATEDFINANCING ACTIVITIES

Financing Activities -

CASH FLOWS FROM INVESTING ACTIVITIESProceeds from Sales of Investments 2,067,765,816.38 Proceeds from Interest Income 32,193,568.35 Payments to Acquire Investments (2,017,588,148.76)

Net Cash Provided by Investing Activities 82,371,235.97

Net Decrease in Cash and Cash Equivalents (46,178,917.85) Cash and Cash Equivalents, September 1, 2013 268,295,510.09

Cash and Cash Equivalents, August 31, 2014 222,116,592.24$

RECONCILIATION OF OPERATING INCOME TONET CASH PROVIDED BY OPERATING ACTIVITIES

Operating (Loss) (56,955,169.83)$

Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities

Changes in Assets and Liabilities:(Increase) Decrease in Tuition Contracts Receivables 11,341,527.72 (Increase) Decrease in Other Receivable (58,771.70) Increase (Decrease) in Benefits and Expenses Payable (83,475,477.00) Increase (Decrease) in Accounts Payable 390,843.26 Increase (Decrease) in Deferred Revenue 180,795.55 Increase (Decrease) in Due to Other Agencies 12,475.86 Increase (Decrease) in Compensated Absence Liabilities 13,622.32

Total Adjustments (71,594,983.99)

Net Cash Used in Operating Activities (128,550,153.82)$

NON CASH TRANSACTIONSNet Change in Fair Value of Investments 122,251,180.55$




Exhibit F-3 – Combining Statement of Cash Flows – Enterprise Funds



18



Plan

Prepaid Tuition Unit

Undergraduate Education

Program/Texas Tuition Promise

Fund(Fund 0892) (Fund 0842)U/F (0892) U/F (0842/4892) Totals

CASH FLOWS FROM OPERATING ACTIVITIESProceeds Received From Customers (Net of Refunds) (6,100,743.67)$ 61,635,074.27$ 55,534,330.60$ Earnings Paid on Refunds (19,733,804.61) - (19,733,804.61) Proceeds from Other Revenues 190,898.59 489,452.46 680,351.05 Payments to Suppliers for Goods and Services (2,290,248.38) (900,482.91) (3,190,731.29) Payments to Employees for Salaries (694,848.72) (153,651.71) (848,500.43) Payments to Employees for Benefits (186,294.30) (31,721.23) (218,015.53) Payments for Other Expenses (Includes Benefit Payments) (154,247,996.77) (6,525,786.84) (160,773,783.61)

Net Cash Provided by (Used in) Operating Activities (183,063,037.86) 54,512,884.04 (128,550,153.82)

CASH FLOWS FROM NONCAPITAL FINANCINGACTIVITIES - - -

Net Cash Provided by Noncapital Financing Activities - - -

CASH FLOWS FROM CAPITAL AND RELATEDFINANCING ACTIVITIES - - -

Net Cash Provided by Capital and RelatedFinancing Activities - - -

CASH FLOWS FROM INVESTING ACTIVITIESProceeds from Sales of Investments 2,041,255,047.65 26,510,768.73 2,067,765,816.38 Proceeds from Interest Income 28,161,462.03 4,032,106.32 32,193,568.35 Payments to Acquire Investments (1,932,130,926.50) (85,457,222.26) (2,017,588,148.76)

Net Cash Provided by (Used in) Investing Activities 137,285,583.18 (54,914,347.21) 82,371,235.97

Net Decrease in Cash and Cash Equivalents (45,777,454.68) (401,463.17) (46,178,917.85)

Cash and Cash Equivalents, September 1, 2013 266,921,049.52 1,374,460.57 268,295,510.09 Cash and Cash Equivalents, August 31, 2014 221,143,594.84$ 972,997.40$ 222,116,592.24$




Exhibit F-3 – Combining Statement of Cash Flows – Enterprise Funds (Continued)



19



Plan




RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES

Operating (Loss) (46,383,691.33)$ (10,571,478.50)$ (56,955,169.83)$

Adjustments to Reconcile Operating Income (Loss)to Net Cash Provided by Operating Activities

Changes in Assets and Liabilities:(Increase) Decrease in Tuition Contracts Receivables 10,850,125.00 491,402.72 11,341,527.72 (Increase) Decrease in Other Receivable - (58,771.70) (58,771.70) Increase (Decrease) in Benefits and Expenses Payable (147,916,571.00) 64,441,094.00 (83,475,477.00) Increase (Decrease) in Accounts Payable 348,154.32 42,688.94 390,843.26 Increase (Decrease) in Deferred Revenue - 180,795.55 180,795.55 Increase (Decrease) in Due to Other Agencies 13,000.83 (524.97) 12,475.86 Increase (Decrease) in Compensated Absence Liabilities 25,944.32 (12,322.00) 13,622.32

Total Adjustments (136,679,346.53) 65,084,362.54 (71,594,983.99)

Net Cash Provided by (Used in) Operating Activities (183,063,037.86)$ 54,512,884.04$ (128,550,153.82)$

NON CASH TRANSACTIONSNet Change in Fair Value of Investments 62,854,626.28$ 59,396,554.27$ 122,251,180.55$




Statement of Fiduciary Net Position

August 31, 2014


20

College Savings Plans

Private-PurposeTrust Funds(Fund 0892)

U/F (2892 & 3892) TotalsASSETS

Cash and Cash EquivalentsCash in Bank 2,775,193.65$ 2,775,193.65$ Cash in State Treasury 453,334.51 453,334.51

InvestmentsOther Investments 500,219,532.17 500,219,532.17

Receivables from:Interest and Dividends 35,284.84 35,284.84 Investment Trades 97.00 97.00 Other 67,881.66 67,881.66

Total Assets 503,551,323.83 503,551,323.83

LIABILITIESPayables from:

Accounts 67,383.49 67,383.49 Investment Trades - -

Deferred Revenues 448,506.06 448,506.06 Due to Other Agencies 5,487.43 5,487.43

Total Liabilities 521,376.98 521,376.98

NET POSITIONHeld in Trust For:

College Savings Plan Contributors 503,029,946.85$ 503,029,946.85$




Statement of Changes in Fiduciary Net Position



21

College Savings Plans Private-Purpose Trust(Fund 0892)

U/F (2892 & 3892)ADDITIONS

Investment IncomeFrom Investing Activities:

Net Appreciation inFair Value of Investments 61,911,159.13$

Interest and Investment Income 2,293,012.40 Total Investing Income 64,204,171.53

Less Investing Activities Expense 1,868,287.75 Net Income from Investing Activities 62,335,883.78

Total Net Investment Income 62,335,883.78

Contributions Account Holder Contributions 166,402,371.40

Total Contributions 166,402,371.40

Other Additions Fees-Administrative Services 346,897.43 Total Other Additions 346,897.43

Total Additions 229,085,152.61

DEDUCTIONSDistributions Made from Accounts 145,233,874.53 Salaries and Wages 64,529.24 Professional Fees and Services 211,894.66 Other Expenses 72,010.36

Total Deductions 145,582,308.79

INCREASE IN NET POSITION 83,502,843.82

NET POSITIONNet Position Held in Trust for College Savings Plan Contributors, September 1, 2013 419,527,103.03

Net Position Held in Trust for College Savings Plan Contributors, August 31, 2014 503,029,946.85$




Combined Statement of Net Position

Discretely Presented Component Units

August 31, 2014


22

DiscretelyPresented

Component UnitsASSETS

Current Assets:Cash and Cash Equivalents

Cash In State Treasury 51,992.35$ Short Term Investments 17,722.68 Receivables from:

Interest and Dividends 18.87 Other Current Assets 427,783.55

Total Current Assets 497,517.45 Total Assets 497,517.45


Payables from:Accounts 3.52

Other Liabilities 143,122.99 Total Current Liabilities 143,126.51

Total Liabilities 143,126.51

NET POSITIONUnrestricted 354,390.94

Total Net Position 354,390.94$




Combining Statement of Net Position


August 31, 2014


23

Texas Prepaid Tuition

Scholarship Foundation

Texas Save and Match Program/

Match the Promise

Foundation(Fund 0892) (Fund 0878)U/F (1892) U/F (6892) Totals

ASSETSCurrent Assets:

Cash and Cash EquivalentsCash In State Treasury 15,369.59$ 36,622.76$ 51,992.35$

Short Term Investments - 17,722.68 17,722.68 Receivables from:

Interest and Dividends 4.28 14.59 18.87 Other Current Assets 75,070.91 352,712.64 427,783.55

Total Current Assets 90,444.78 407,072.67 497,517.45 Total Assets 90,444.78 407,072.67 497,517.45


Payables from:Accounts - 3.52 3.52

Other Liabilities 75,070.91 68,052.08 143,122.99 Total Current Liabilities 75,070.91 68,055.60 143,126.51

Total Liabilities 75,070.91 68,055.60 143,126.51

NET POSITIONUnrestricted 15,373.87 339,017.07 354,390.94

Total Net Position 15,373.87$ 339,017.07$ 354,390.94$




Combined Statement of Activities




24

Discretely Presented Component Unit

OPERATING REVENUESTotal Operating Revenues -$

OPERATING EXPENSESOther Operating Expenses 68,110.29

Total Operating Expenses 68,110.29 Operating Loss (68,110.29)

NONOPERATING REVENUE (EXPENSES)Gifts, Pledges and Donations 89,147.72 Investment Income 225.26 Other Nonoperating Revenues 737.14

Total Other Nonoperating Revenues (Expenses) 90,110.12 Income Before Other Revenues, Expenses, Gains/Losses, and Transfers 21,999.83

OTHER REVENUES, EXPENSES, GAINS/LOSSES, and TRANSFERSTransfer In - Transfer Out -

Total Other Revenues, Expenses, Gains/Losses, and Transfers -

Change in Net Position 21,999.83

Total Net Position, September 1, 2013 332,391.11

Net Position, August 31, 2014 354,390.94$




Combining Statement of Activities




25

Texas Prepaid Tuition

Scholarship Foundation

Texas Save and Match Program/

Match the Promise

Foundation(Fund 0892) (Fund 0878)U/F (1892) U/F (6892) Totals

OPERATING REVENUE:Total Operating Revenues -$ -$ -$

OPERATING EXPENSESOther Operating Expenses - 68,110.29 68,110.29

Total Operating Expenses - 68,110.29 68,110.29 Operating Loss - (68,110.29) (68,110.29)

NONOPERATING REVENUE (EXPENSES)Gifts, Pledges and Donations 89,147.72 89,147.72 Investment Income 51.49 173.77 225.26 Other Nonoperating Revenues 737.14 737.14

Total Other Nonoperating Revenues (Expenses) 788.63 89,321.49 90,110.12 Income Before Other Revenues, Expenses,

Gains/Losses, and Transfers 788.63 21,211.20 21,999.83

OTHER REVENUES, EXPENSES, GAINS/LOSSES, AND TRANSFERSTransfer In - - - Transfer Out - - -

Total Other Revenues, Expenses, Gains/Losses, and Transfers - - -

Change in Net Position 788.63 21,211.20 21,999.83

Net Position, September 1, 2013 14,585.24 317,805.87 332,391.11

Net Position, August 31, 2014 15,373.87$ 339,017.07$ 354,390.94$

M A T C H

T H E P R O M I S E


F O U N D A T I O N


NOTES T0THE FINANCIALSTATEMENTS




Notes to the Financial Statements

Fiscal Year Ended August 31, 2014

26

NOTE 1: Summary of Significant Accounting Policies

ENTITY

The Texas Prepaid Higher Education Tuition Board (the “Board” or “Agency”) is an agency of the State of Texas (the “State”) and its financial records comply with state statutes and regulations. This includes compliance with the Texas State Comptroller of Public Accounts’ Reporting Requirements of State Agencies.

The Board is chaired by the Texas State Comptroller of Public Accounts and includes two members appointed by the Governor and four members appointed by the Lt. Governor (the Speaker of the House of Representatives submits the names of two persons to the Lt. Governor). By law, these board members must have experience in higher education, business, or finance. The Board administers the Texas Guaranteed Tuition Plan, the Texas College Savings Plan®, the LoneStar 529 Plan®, the Texas Tuition Promise Fund®, and the Texas Save and Match Program. Generally, earnings on the State’s prepaid tuition and college savings plans are tax-free to participants if used for a qualified higher education expense.

As authorized by the Texas Education Code, Chapter 54, Subchapters F, G, H, and I, the agency operates the Texas Prepaid Higher Education Tuition Program, also known as the Texas Tomorrow Funds®.

House Bill 1214 enacted by the Legislature in May 1995 and signed by the Governor in June 1995 established a prepaid higher education tuition program that allowed purchasers to enter into a prepaid tuition contract with the Board to prepay tuition and required fees for a beneficiary to attend an institution of higher education or private or independent institution of higher education. In November 1997, Texas voters passed Proposition 13, a constitutional amendment that put the State’s official backing behind the plan, thereby guaranteeing the Texas Tomorrow constitutional trust fund with the full faith and credit of the State of Texas and the name of the plan was changed from the Texas Tomorrow Fund to the Texas Guaranteed Tuition Plan.

Assets of the plan totaled approximately $1.3 billion at August 31, 2014. Approximately 158,400 prepaid tuition contracts were sold; 72,055 of those accounts were active at August 31, 2014. Participants purchased plans for junior colleges, senior colleges and universities, and/or private colleges and universities. The prepaid tuition program pays tuition and school-wide required fees only and can be used at eligible Texas public or private colleges and universities, out-of-state colleges and universities, and career schools. Benefits are paid based on an hourly reimbursement rate for the plan type purchased. The plan was closed to new enrollment in 2003 when tuition was deregulated. By rule, the Board considers re-opening plan enrollment on an annual basis based on evaluation of the fund’s actuarial soundness.

In May 2001, the 77th Legislature passed Senate Bill No. 555 that authorized the Board to offer a college savings plan in addition to its prepaid tuition program. The State offers two college savings plans, the direct-sold Texas College Savings Plan and the advisor-sold LoneStar 529 Plan. OFI Private Investments Inc. (“OFIPI”), a subsidiary of OppenheimerFunds, Inc., served as the plan manager for the college savings plans for the fiscal year ended August 31, 2014. The Board, with the assistance of an independent investment consultant, sets the asset allocations and selects the underlying investments of the plans.

College savings accounts can be used for qualified higher education expenses including tuition and fees, certain room and board expenses, books and required supplies and equipment at any accredited post-secondary school that is eligible to participate in federal student financial aid programs. This includes most public or private universities, graduate schools, community colleges and certain vocational schools. Assets in the plans are subject to investment risk and are not guaranteed by the State. There were approximately 37,830 accounts in the college savings plans at August 31, 2014; assets of the plans totaled $503 million.






27

In 2007, the 80th legislature passed House Bill 3900 that established the Texas Tomorrow Fund II (“TTF II”) and authorized the Texas Save and Match Program. The Texas Tuition Promise Fund, created to fulfill the requirement to establish TTF II, opened for new enrollment in November 2008. The Texas Tuition Promise Fund allows participants to purchase tuition units at today's Texas public college prices that can be redeemed in the future for tuition and school-wide required fees at Texas public colleges and universities and the transfer value can be used for payment to Texas private or out-of-state colleges and universities or career schools. Transfer value is limited to the lesser of (1) the costs the tuition units would cover at a public in-state college or university or (2) the original purchase price of the tuition unit plus or minus the plan’s net investment earnings or losses on that amount. OFIPI served as plan manager for the fiscal year ended August 31, 2014.

As of fiscal year end, the Texas Tuition Promise Fund had sold 27,857 contracts and fund assets totaled $702.4 million. Texas public colleges and universities must accept the tuition units as payment in full for tuition and school-wide required fees for the number of hours paid by the plan. Contracts used for Texas private colleges and universities, career schools or out-of-state colleges and universities are subject to investment risk.

The Texas Prepaid Tuition Scholarship Foundation (the “Scholarship Foundation”) was created to provide prepaid tuition scholarships to students meeting certain economic or academic requirements. The Scholarship Foundation is a 501(c)(3) direct-support organization of the Texas Guaranteed Tuition Plan and is authorized by Section 54.633 of the Texas Education Code. The Scholarship Foundation is governed by a board composed of the Texas State Comptroller of Public Accounts, a member appointed by the Governor with the advice and consent of the Senate, and three members appointed jointly by the Comptroller and the member appointed by the Governor.

The Texas Match the Promise Foundation SM (the “Promise Foundation”), a 501(c)(3) public charity, was established in 2009 to implement the requirements of the Texas Save and Match Program established by Section 54.7521 of the Texas Education Code. In the 82nd legislative session, Section 54.7521 was repealed and replaced by Education Code, Chapter 54, Subchapter I, that clarified the roles of the Promise Foundation and the Board in administering the program. The program provides matching scholarships to eligible beneficiaries enrolled in the Texas Tuition Promise Fund based on criteria established by statute and additional criteria established by the Promise Foundation or Board. The Promise Foundation is administered by a board of directors appointed by the Comptroller.

By contract, the plan manager of the college savings plans and Texas Tuition Promise Fund is required to provide audited financial statements to the Board annually. Those audited figures are incorporated into this report.

FINANCIAL REPORTING ENTITY

In accordance with accounting principles generally accepted in the United States of America, the Board’s financial reporting entity consists of (a) the Board and (b) component units for which the nature and significance of their relationship with the Board is such that exclusion from the reporting entity’s financial statements would be misleading or incomplete (discretely presented).






28

Discrete Component Units

These are component units that are legally separate from the State, but are financially accountable to the State, or have a relationship with the State such that exclusion would cause the financial statements to be misleading. The Texas Match the Promise Foundation and the Texas Prepaid Tuition Scholarship Foundation are included as discretely presented component units of the Texas Prepaid Higher Education Tuition Board.

FUND STRUCTURE

Government-Wide and Fund Financial Statements

The basic financial statements, as required by the Governmental Accounting Standards Board, include three basic components: (1) government-wide financial statements, (2) fund financial statements, and (3) notes to the financial statements. The government-wide financial statements (Statement of Net Position and Statement of Activities) report information on all non-fiduciary activities of the Board as a whole and its component units. The Management Discussion and Analysis section introduces the basic financial statements and provides an analytical overview of the Board’s financial activities.

Fund Financial Statements

The accounts of the Board are organized in the basis of funds, each of which is considered a separate accounting entity. The Board has two types of funds: (1) proprietary and (2) fiduciary. The fund financial statements provide more detailed information about the Board’s major funds only and not the Board as a whole. The Board reports the following major funds in its fund financial statements: The Texas Guaranteed Tuition Plan and the Texas Tuition Promise Fund.

PROPRIETARY FUND TYPES

Enterprise Funds

Enterprise Funds are used to account for any activity for which a fee is charged to external users for goods or services. Activities must be reported as enterprise funds if any one of the following criteria is met.

1. The activity is financed with debt that is secured solely by a pledge of the net revenues from fees and charges of the activity.

2. Laws or regulations require that the activity’s costs of providing services including capital costs (such as depreciation or debt service) be recovered with fees and charges.

3. The pricing policies of the activity establish fees and charges designed to recover its costs, including capital costs.

The financial activities of the Texas Guaranteed Tuition Plan (Fund 0892) and the Texas Tuition Promise Fund(Fund 0842/4892) are reported as enterprise fund activities.

FIDUCIARY FUND TYPES

Fiduciary Funds account for assets held by the State in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and/or other funds. When assets are held under the terms of a formal trust agreement, either a pension trust fund, an agency fund or a private purpose trust fund is used to account for such assets.






29

Private Purpose Trust Funds

Private Purpose Trust Funds are used to account for all other trust arrangements whose principal and interest benefit individuals, private organizations, or other governments. The financial activities of the Texas College Savings Plan and the LoneStar 529 Plan (Funds 2892 and 3892) are reported as private purpose trust fund activities.

Component Units

Additional information about component units can be found in Note 19. The Texas Prepaid Tuition Scholarship Foundation (Fund 1892) and the Texas Match the Promise Foundation (Funds 5892 and 6892) are presented in this report as Discrete Component Units.

MEASUREMENT FOCUS AND BASIS OF ACCOUNTING

The basis of accounting determines when revenues and expenditures or expenses are recognized in the accounts reported in the financial statements. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus.

Government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenue is recognized when earned and expenses are recognized when a liability is incurred, regardless of the timing of related cash flows.

Proprietary funds and private purpose trust funds are accounted for on the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized at the time liabilities are incurred. Proprietary funds distinguish operating from non-operating items. Operating revenues and expenses result from providing services or producing and delivering goods in connection with the proprietary funds principal ongoing operations. Operating expenses for the enterprise funds include the costs of services, administrative expenses, and depreciation on capital assets.

Tuition contract revenue is recognized in the year the contracts are entered into with a purchaser and are recorded at the future discounted contract payments adjusted for unearned interest and estimated cancellations. Application fees are recognized as revenue when the application is accepted. Refunds of contract principal are recorded as contra-revenue in the year the refund is paid. The Board paid refunds of contract principal in the amount of $19,745,439.04 for the year ended August 31, 2014.

BUDGETS AND BUDGETARY ACCOUNTING

The Board at the beginning of each fiscal year adopts an annual operating budget. This expenditure budget includes all administrative and marketing costs paid directly by the Board for both the prepaid tuition and college savings plans and totaled $4,351,295 for the fiscal year ended August 31, 2014.






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ASSETS, LIABILITIES, AND NET POSITION

ASSETS

Cash and Cash Equivalents

Short-term highly liquid investments with an original maturity of three months or less are considered cash equivalents. For purposes of reporting cash flows, the Board considers cash and cash equivalents as money market accounts, certificates of deposit, and government obligations with original maturities of three months or less from the date of purchase. The carrying amount of the Board’s deposits and balances with banks, which are held by the State Treasury at August 31, 2014, were $5,405,524.99 for the Texas Guaranteed Tuition Plan and $818,111.86 for the Texas Tuition Promise Fund, all of which were fully collateralized or insured. A total of $215,738,069.85 was invested in the Texas Guaranteed Tuition Plan’s investment custodian’s short-term investment funds and U. S. Treasury Securities at August 31, 2014.

Investments and Securities Lending Collateral

Investments are stated at fair value in all funds in accordance with GASB Statement 31 – Accounting and Financial Reporting for Certain Investments and for External Investment Pool. Collateral received for securities lent is reported as an asset on the balance sheet and is offset by a like amount under liabilities to recognize the obligation to repay the collateral when the securities are returned. The costs of securities lending transactions are reported as expenses in the operating statement. These costs are reported at gross.

Interest and Dividends Receivable

Accrued interest and dividends on investments and the depository interest earned by the State Treasury at year-end that will not be deposited with the Board until after the end of the fiscal year are recorded when earned.

Investment Trade Receivables

This account represents investment sales that occurred on or before the fiscal year end for which cash payments will be received after the fiscal year end.

Tuition Contracts Receivable

The prepaid tuition plans record tuition contracts receivable at the actuarial present value (“APV”) of future discounted contract payments adjusted for unearned interest and estimated cancellations. Any portion due within the next 12 months will be classified as short-term; otherwise, classification as a long-term receivable is appropriate.

Capital Assets

Assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year are capitalized. Proprietary fund purchases of fixed assets are reported in those funds at cost or estimated historical cost if actual historical cost is not available. Donated assets are reported at fair value on the acquisition date. Depreciation or amortization is charged to operations over the estimated useful life of each asset, using the straight-line method. The accumulated depreciation and amortization account records the accumulation of periodic deductions from capital assets to account for the expiration of service life of the asset.






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LIABILITIES

Accounts Payable

Accounts Payable represent the liability for the value of assets or services received at the balance sheet date for which payment is pending.

Investment Trade Payables

This account represents the liability for investment purchases that occurred on or before the fiscal year end for which cash payment will be made after the fiscal year end.

Contract Benefits and Expenses Payable

The prepaid tuition plans record contract benefits payable at the actuarial present value (“APV”) of future tuition obligations, which is adjusted for the effects of projected tuition and fee increases and termination of contracts. Any portion due within the next 12 months will be classified as current; otherwise, classification as a noncurrent liability is appropriate.

Obligations Under Securities Lending

Collateral received for securities lent is reported as an asset on the balance sheet and is offset by a liability to recognize the obligation to repay the collateral when the securities are returned.

Employees’ Compensable Leave

Employees’ Compensable Leave balances represent the total liability that becomes “due” upon the occurrence of relevant events such as resignations, retirements, and other uses of leave balances by covered employees. Liabilities are reported separately as either current or noncurrent in the statements of net position.

Significant Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from these estimates.

NET POSITION

Investment in Capital Assets

Invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation and reduced by outstanding balances for bond, notes, deferred inflows/outflows and other debt that are attributed to the acquisition, construction, or improvement of those assets. There was no investment in capital assets as of August 31, 2014.

Restricted Net Position

Restricted net position results when constraints placed on the use of resources are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law through constitutional provisions or enabling legislation. There was no restricted net position as of August 31, 2014.






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Unrestricted Net Position (Deficit)

Unrestricted net position consists of net resources, which do not meet the definition of the two proceeding categories. Unrestricted net position often has constraints on resources, which are imposed by management, but can be removed or modified.

INTERFUND ACTIVITIES AND BALANCES

The Board has the following transactions between and within State funds:

1. Reimbursements: Reimbursements are repayments from funds responsible for expenditures or expenses to funds that made the actual payment. Reimbursements of expenditures made by one fund for another are recorded as expenditures or expenses in the reimbursing fund and as a reduction of expenditures in the reimbursed fund. Reimbursements are not displayed in the financial statements.

2. Reciprocal Activities (interfund sales and purchases): Charges or collections of services rendered by one fund to another that are recorded as revenues of the recipient fund and expenditures or expenses of the disbursing fund.

The composition of the Agency’s interfund activities and balances is presented in Note 12.

NOTE 2: Capital Assets

A summary of changes in Capital Assets for the year ended August 31, 2014, is presented below:

PRIMARY GOVERNMENT

Balance Balance8/31/2013 Additions Deletions 8/31/2014

BUSINESS-TYPE ACTIVITIESDepreciable Assets: Furniture and Equipment 26,906.91$ -$ -$ 26,906.91$ Computer Software-Intangible 2,199,883.46 - - 2,199,883.46 Less Accumulated Depreciation for: Furniture and Equipment (26,906.91) - - (26,906.91) Computer Software-Intangible (2,199,883.46) - - (2,199,883.46) Depreciable Assets, Net - - - - Business-type Activities Capital Assets, Net -$ -$ -$ -$






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NOTE 3: Deposits, Investments, and Repurchase Agreements

House Bill No. 9 amended Section 54.636 (e), Education Code, on May 7, 1997, to authorize the Board to make investments following the “prudent person rule.” There were no significant violations of legal provisions during the period.

Deposits of Cash in Bank

The Texas Guaranteed Tuition Plan’s investment policy allows its investment managers to hold cash and cash equivalents for liquidity in the portfolio and to facilitate trading. The funds are included as “Cash and Cash Equivalents” on the Statement of Net Position for the Proprietary Fund.

The college savings plans hold cash for liquidity purposes. The funds are included as “Cash in Bank” on the Statement of Fiduciary Net Position for the Private Purpose Fund.

Proprietary Private PurposeFunds Funds Total

Cash in Bank – Carrying Value $ 154,885.54 $ 2,775,193.65 $ 2,930,079.19

Cash in Bank per Annual Financial Report 154,885.54 2,775,193.65 2,930,079.19

Current Asset Restricted Cash in Bank 154,885.54 2,775,193.65 2,930,079.19

Cash in Bank per Annual Financial Report, as Above 154,885.54 2,775,193.65 2,930,079.19

Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the Agency will not be able to recover deposits or collateral securities that are in the possession of an outside party. The Agency’s investment policy requires its investment custodian to perform an annual creditworthiness review of sub-custodians and security lending borrowers in order to minimize custodial credit risk. As of August 31, 2014, the Agency’s bank balances that were exposed to custodial credit risk are shown below:

Uninsured and Collateralized With

Uninsured and Securities Held by the Collateralized With Pledging Financial

Securities Held Institution’s Trust Fund GAAP Uninsured and by the Pledging Department or Agent but Type Fund Uncollateralized Financial Institution Not in the State’s Name

05 0892 -$ -$ -$ 05 0842 154,885.54 - - 20 0892 2,775,193.65 - -

Totals 2,930,079.19$ -$ -$






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Foreign currency risk for deposits is the risk that changes in exchange rates will adversely affect the deposit. The Board has enacted polices to reduce foreign currency risk for the Texas Guaranteed Tuition Plan by reducing its long-term allocation to global fixed-income and by enacting currency hedges on non-U.S. equity portfolios. The exposure to foreign currency risk for proprietary fund deposits of the Texas Guaranteed Tuition Plan as of August 31, 2014, is as follows:

Fund GAAP Foreign Cash inType Fund Currency Bank

05 0892 None -$ -$

Investments

The carrying value and fair values of short-term and long-term investments as of the balance sheet date are shown below:

Carrying Fair % ofValue Value Total

U.S. Government: U.S. Treasury Securities $ 55,972,400.57 $ 55,972,400.57 4.85%U.S. Government Agency Obligations 178,359,347.76 178,359,347.76 15.46%Corporate Obligations 288,686,372.46 288,686,372.46 25.02%Corporate Asset and Mortgage Backed Securities 37,477,620.65 37,477,620.65 3.25%Equity 149,438,994.87 149,438,994.87 12.95%International Obligations (Govt and Corp) 6,669,258.92 6,669,258.92 0.58%International Equity 143,257,256.34 143,257,256.34 12.42%Other Commingled Funds – Short Term Investment Fund 215,738,069.85 215,738,069.85 18.70%Securities Lending Collateral Investment Pool 78,237,202.91 78,237,202.91 6.78% Totals $ 1,153,836,524.33 $ 1,153,836,524.33 100.00%

$ 78,237,202.91215,738,069.85859,861,251.57

Total, as above $ 1,153,836,524.33

Carrying Fair % ofValue Value Total

International Asset Allocation Fund $ 48,133,282.22 56,553,457.28 9.88%International Equity Securities-Backed Index Fund 43,852,086.70 55,922,804.60 9.77%International Equity Securities-Backed Growth Fund 38,818,690.11 55,247,032.35 9.66%Domestic Equity Securities-Backed Indexed Fund 80,865,666.94 128,161,375.61 22.40%Domestic Equity Securities-Backed Value Fund 37,092,969.59 58,099,379.82 10.16%Alternative Fund 56,833,901.33 57,068,949.46 9.97%Indexed Corporate Bond Fund 143,666,000.49 161,087,093.28 28.16% Totals $ 449,262,597.38 $ 572,140,092.40 100.00%

Other Commingled Funds – Mutual Fund Investments 372,691,539.05 500,219,532.17 100.00% Totals $ 372,691,539.05 500,219,532.17 100.00%

BUSINESS-TYPE ACTIVITIES-Texas Tuition Promise Fund* (Fund 0842)

FIDUCIARY FUNDS-College Savings Plans* (Fund 2892)

Proprietary Funds Non-Current Restricted Investments

BUSINESS-TYPE ACTIVITIES-Texas Guaranteed Tuition Plan (Fund 0892)

Business Type Activities-Texas Guaranteed Tuition Plan consist of the following: Proprietary Funds Current Invested Security Lending Collateral Proprietary Funds Current Restricted Cash Equivalents

*Investments of the Texas Tuition Promise Fund and College Savings Plans are held by the plan manager in the name of the Plan.






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Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty, the Agency will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The Agency’s investment policy requires its Texas Guaranteed Tuition Plan investment custodian to perform an annual creditworthiness review of sub-custodians and security lending borrowers in order to minimize custodial credit risk. Texas Tuition Promise Fund investments are generally in mutual funds which significantly mitigates that plan’s custodial credit risk. As of August 31, 2014, none of the Texas Guaranteed Tuition Plan’s investments were exposed to custodial credit risk.

Foreign currency risk for investments is the risk that changes in exchange rates will adversely affect the investment. The Board has enacted polices to reduce foreign currency risk for the Texas Guaranteed Tuition Plan by reducing its long-term allocation to global fixed-income and by enacting currency hedges on non-U.S. equity portfolios. The exposure to foreign currency risk for the Texas Guaranteed Tuition Plan as of August 31, 2014, is as follows:

Other Commingled Funds (Cash

International Equivalents at Fund GAAP Foreign Obligation International International Sub-Type Fund Currency (Govt and Corp) Equity Custodian Banks)

05 0892 None -$ -$ -$

Total Securities Subject to Foreign Currency Risk - - -

International Securities Denominated in U.S. Dollars 6,669,258.92 143,257,256.34 -

Total International Securities 6,669,258.92$ 143,257,256.34$ -$

The Texas Tuition Promise Fund invests in various foreign currencies in pooled vehicles. Consistent with the requirements established for external investment pools, no disclosure is required for the individual investments of the pool. The registered Underlying Investments prospectuses provide greater detail about the investment strategies and practices of the Underlying Investments, in compliance with federal regulations and specifically, the Form N-1A of the Investment Company Act of 1940.

Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The Board’s investment policy for the Texas Guaranteed Tuition Plan addresses credit risk by limiting its core domestic fixed income investments to an overall average credit rating of “A” or better as rated by Standard & Poor’s or Moody’s national statistical rating organization.






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The Texas Tuition Promise Fund’s investment pool had the following credit risk structure as of August 31, 2014, based on the Nationally Recognized Statistical Rating Organization (“NRSRO”):

Proportion %Dreyfus Bond Market Index Fund:

AAA 7.68%AA+ 64.50%AA 5.67%A 13.45%BBB 8.70%

Total 100.00%

The Texas Guaranteed Tuition Plan had the following credit risk structure as of August 31, 2014, based on Standard & Poor’s and Moody’s ratings:

OtherU.S. Government Corporate Asset Commingled

Investment Total Debt U.S. Treasury Agency Corporate and Mortgage Funds-Grade Rating Securities Securities Obligations Obligations (b) Backed Securities Short Term

AAA 13,992,563.01$ -$ 5,747,478.48$ -$ 8,245,084.53$ -$ AA 15,737,053.95 - 9,636,247.55 2,199,556.00 3,901,250.40 - A 31,907,471.70 - - 30,490,510.70 1,416,961.00 -

BBB 49,864,537.94 - 1,365,084.08 47,146,153.03 1,353,300.83 - BB 65,286,692.57 - - 64,568,290.57 718,402.00 - B 104,159,203.34 - - 104,159,203.34 - -

CCC 2,612,438.00 - - 2,612,438.00 - - US Government Guaranteed 212,928,243.70 55,972,400.57 156,955,843.13 - - -

NR (a) 286,414,866.00 - 4,654,694.52 44,179,479.74 21,842,621.89 215,738,069.85Totals 782,903,070.21$ 55,972,400.57$ 178,359,347.76$ 295,355,631.38$ 37,477,620.65$ 215,738,069.85$

Note a: Not rated securitiesNote b: Corporate Obligations includes International Obligations (Govt and Corp)

OtherU.S. Government Corporate Asset Commingled

Investment Total Debt U.S. Treasury Agency Corporate and Mortgage Funds-Grade Rating Securities Securities Obligations Obligations (b) Backed Securities Short Term

Aaa 82,774,323.76$ 53,651,251.93$ 6,065,148.48$ -$ 23,057,923.35$ -$ Aa 11,265,240.01 - 7,971,037.80 - 3,294,202.21 - A 16,926,048.62 - - 14,263,420.82 2,662,627.80 -

Baa 61,609,668.67 - - 60,821,977.18 787,691.49 - Ba 72,378,573.67 - - 72,378,573.67 - - B 92,708,524.88 - - 92,708,524.88 - -

Caa 1,626,500.00 - - 1,626,500.00 - - US Government Guaranteed 159,276,991.77 2,321,148.64 156,955,843.13 - - -

NR (a) 284,337,198.83 - 7,367,318.35 53,556,634.83 7,675,175.80 215,738,069.85Totals 782,903,070.21$ 55,972,400.57$ 178,359,347.76$ 295,355,631.38$ 37,477,620.65$ 215,738,069.85$

Note a: Not rated securitiesNote b: Corporate Obligations includes International Obligations (Govt and Corp)

Standard & Poor's

Moody's

Concentration of credit risk is the risk of loss attributable to the magnitude of investment in a single issuer. The Agency’s investment policy restricts each fixed income investment manager to purchases of no more than 5.00% and to holdings of no more than 10.00% of its assets in the securities of a single entity other than issues of the U.S. Government or its agencies. Based on the investment policy, holdings of an equity investment manager are






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generally not to exceed 3.00% of the amount of shares outstanding for an individual issuer. As of August 31, 2014, no single issuer of the Agency’s investments, other than mutual funds or external investment pools, exceeded 5.00%; thus, no concentration of credit disclosure is required by the Governmental Accounting Standards Board.

Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Through its investment policy, the Texas Guaranteed Tuition Plan manages its exposure to fair value losses arising from increasing interest rates by limiting the effective duration of its overall fixed income portfolio to seven years or less.

The Agency’s interest rate risk at August 31, 2014, is as follows:

Fair EffectiveInvestment Type Value Duration

Texas Guaranteed Tuition PlanU.S. Government: U.S. Treasury Securities $ 55,972,400.57 7.02U.S. Government Agency Obligations 178,359,347.76 2.77Corporate Obligations 288,686,372.46 1.78International Obligations (Govt and Corp) 6,669,258.92 1.71Corporate Asset and Mortgage Backed 37,477,620.65 4.85Other Commingled Funds-Short Term 215,738,069.85 1.00 Total Interest Rate Risk Debt Securities $ 782,903,070.21

Effective Duration for Debt Security Portfolio 2.31

Fair EffectiveInvestment Type Value Duration

Texas Tuition Promise FundDreyfus Bond Market Index Fund 161,087,093.28 5.60 Total Interest Rate Risk Debt Securities $ 161,087,093.28

The effective duration is weighted by fair value of each security and is expressed in years.

The Texas Guaranteed Tuition Plan holds $80,240,628.64 in government mortgage-backed securities that are highly sensitive to changes in interest rates. These securities are based on cash flows from interest payments on underlying mortgages. Therefore, they are sensitive to prepayments by mortgagees, which may result from a decline in interest rates.

Securities Lending

The Board authorized management to contract with its investment custodian to participate in a security-lending program for investment of the Texas Guaranteed Tuition Plan. Types of securities lent include domestic common stocks, foreign common stocks, government bonds, government agencies, and corporate bonds. There are no restrictions on the amount of securities that can be lent. The Board had $78,237,202.91 in market value of securities out on loan to broker/dealers at August 31, 2014. One hundred percent of these securities had cash collateral pledged.






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In securities lending transactions, the Board transfers its securities to broker-dealers and other entities for collateral, which may be cash or securities, and simultaneously agrees to return the collateral cash or the same securities in the future. The Board’s investment custodian, Northern Trust Company, invests the cash received as collateral and, if the return on those investments exceeds the “rebate” paid to the borrowers of the securities, the security lending transactions generate income for the Board. However, if the investment of the cash collateral does not provide a return exceeding the rebate or if the investment incurs a loss on principal, part of the payment to the borrower would come from the Board’s resources. The borrower will pay a “loan premium or fee” for the securities loan, thus generating income for the Board.

Collateral may include cash, U.S. government securities, and irrevocable letters of credit at a value of 102% of market value plus accrued interest for U. S. securities loaned and 105% plus accrued interest for non-U.S. securities. Non-cash collateral cannot be pledged or sold unless the borrower defaults. Contracts with the lending agents require them to indemnify the Board if the borrowers fail to return the securities. There were no significant violations of legal or contractual provisions, no borrower or lending agent default losses, and no recoveries of prior-period losses during the year.

All security loans can be terminated on demand by either the lender or borrower. The average term for the Board’s overall loans was 65 days as of August 31, 2014. The maturities of the cash collateral investments are closely matched to the security loan terms in order to minimize risk and more closely match cash flows. The Board’s custodian invests cash open collateral in a short-term investment pool, which had an average weighted maturity of 40 days during the year. Funds can be withdrawn from the short-term investment pool, as cash collateral needs to be returned. Cash collateral may also be invested separately in “term loans,” in which case the investments match the loan term.

During fiscal year 2014, the Board had gross earnings of $179,563.95, received rebates of $29,338.23, and paid bank fees of $41,674.94. The net income earned from security lending was $167,227.24.

NOTE 4: Short-Term Debt

(Not Applicable)






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NOTE 5: Long-Term Liabilities

Changes in Long-Term Liabilities

During the year ended August 31, 2014, the following changes occurred in liabilities:

Amounts DueBalance Balance Within One

8/31/2013 Additions Reductions 8/31/2014 Year

Texas Tomorrow Constitutional Trust Fund/Texas Guaranteed Tuition Plan (Fund 0892):Employees' Compensable

Leave $ 81,398.71 81,390.55 $ 56,982.91 $ 105,806.35 $ 64,770.16 Liabilities Payable from

Restricted Assets – Contract Benefits and

Expenses 1,824,343,899.00 147,916,571.00 1,676,427,328.00 260,610,949.00Total Business-Type Activities $ 1,824,425,297.71 81,390.55 $ 147,973,553.91 $ 1,676,533,134.35 $ 260,675,719.16

Prepaid Tuition Undergraduate Education Program/Texas Tuition Promise Fund (Fund 0842):Employees' Compensable

Leave 25,209.39 $ 6,584.38 $ 18,906.38 $ 12,887.39 $ 5,222.65 Liabilities Payable from

Restricted Assets – Contract Benefits and

Expenses 514,380,205.00 64,441,094.00 578,821,299.00 26,393,828.00Total Business-Type Activities $ 514,405,414.39 $ 64,447,678.38 $ 18,906.38 $ 578,834,186.39 $ 26,399,050.65

Business-TypeActivities

Employees’ Compensable Leave

If a State employee has had continuous employment with the State for at least six months, the State employee is entitled to be paid for all unused vacation time accrued in the event of the employee’s resignation, dismissal, or separation from State employment. Both an expense and a liability business-type activity are recorded in the proprietary funds as the benefits accrue to employees. No liability is recorded for non-vesting accumulated rights to receive sick pay benefits. This obligation is usually paid from the same funding source(s) from which the employee’s salary or wage compensation is paid.

Liabilities Payable from Restricted Assets/Contract Benefits and Expenses

The Board recognizes a liability for future benefits payable to the participants in the State’s two prepaid tuition plans, the Texas Guaranteed Tuition Plan established in 1996 and the Texas Tuition Promise Fund established in 2007. The breakdown is on Exhibit F-1 – Combining Statement of Net Position – Enterprise Funds.

NOTE 6: Bonded Indebtedness

(Not Applicable)

NOTE 7: Derivatives

The Board does not have any derivatives to report.






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NOTE 8: Leases

The Board does not have any leases to report.

NOTE 9: Retirement Plans

(Not Applicable)

NOTE 10: Deferred Compensation

(Not Applicable)

NOTE 11: Post Employment Health Care and Life Insurance Benefits

(Not Applicable)

NOTE 12: Interfund Activity and Transactions

The Board had $0.00 in Interfund Receivable/Payable and the following Amounts Due to Other Agencies at August 31, 2014:

Non-Current Non-CurrentInterfund Interfund

Current Portion Receivable Payable

None -$ -$

Due From Due to Other Other

Current Portion Agencies Agencies

ENTERPRISE FUND 05Appd Fund 0892 and D23 Fund 0892 -$ 78,178.34$

(Agency 304, D23 Fund 0001)

Appd Fund 0842 and D23 Fund 4892 - 19,351.09 Reimbursement of Salaries, Benefits(Agency 304, D23 Fund 0001)

Total Due From/To Other Agencies (Exh. III) -$ 97,529.43$

PRIVATE PURPOSE TRUST FUND 20Appd Fund 0892 and D23 Fund 2892 - 5,487.43

(Agency 304, D23 Fund 0001)

Total Due From/To Other Agencies (Exh. VI) -$ 5,487.43$

Reimbursement of Salaries, Benefits

Purpose

Source

Reimbursement of Salaries, Benefits






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NOTE 13: Continuance Subject to Review

Under the Texas Sunset Act, the Agency will be abolished effective September 1, 2021, unless continued in existence by the Legislature as provided by the Act. If abolished, the Agency may continue until September 1, 2022, to close out its operations.

NOTE 14: Adjustments to Net Position

The Board does not have any adjustments to Fund Balance/Net Position to report.

NOTE 15: Contingencies and Commitments

The Board has no contingencies or commitments to report.

NOTE 16: Subsequent Events

Management evaluated the need for disclosures and/or adjustments resulting from subsequent events through November 20, 2014, the date the financial statements were available to be issued.

OFI Private Investments, Inc., a subsidiary of OppenheimerFunds, Inc., plan manager for the Texas Tuition Promise Fund and the College Savings Plans, requested early release from their contract which expires December 31, 2014. A request for proposals for plan manager services was issued in 2013 and NorthStar Financial Services Group, LLC, was selected as the new plan manager following the evaluation process.

The Board completed successful transition of the plan manager services to Northstar Financial Services Group, LLC effective September 1, 2014. NorthStar will provide administrative, record keeping, accounting, distribution, custodian, and customer services for the plans.

Except for this matter, there are no subsequent events that necessitate disclosures and/or adjustments






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NOTE 17: Risk Management

Presented below is the total tuition benefits obligation of the Texas Guaranteed Tuition Plan based upon the actuarial present value (“APV”) of the future tuition obligation. The Texas Guaranteed Tuition Plan is constitutionally guaranteed by the State. The valuation method reflects the present value of estimated tuition benefits that will be paid in future years and is adjusted for the effects of projected tuition and fee increases and termination of contracts. Net assets available represent assets in the program at market value and the future discounted contract payments adjusted for estimated cancellation based upon the actuarial assumptions and evaluations.

August 31, 2014 APV of Future Benefits Payable Future contract benefits and expenses ........................................ $1,676,427,328.00

Total Assets Available ...................................................... $1,108,256,534.20

Total Assets as a Percentage of Tuition Benefits Obligation .......................................................... 66.1%

Deficit…………………………………………………… $568,170,793.80

The following Board approved assumptions were used in the actuarial evaluations:

* Investment Rates: The investment yield assumption ranges are as follows: 4.5% for 2014 4.2% for 2015 4.1% for 2016 3.8% for 2017 3.5% for 2018 3.2% for 2019 3.0% for 2020 and after

* Tuition/Required Fees The assumed tuition increases for future years were as follows: 6.3% for Public Senior Colleges 5.2% for Junior Colleges 7.3% for Private Universities

* Future New Entrants: It was assumed that no new contracts would be sold in the future.

The Texas Tuition Promise Fund is not guaranteed by the State. Assumptions for tuition increases are the same as those for the Texas Guaranteed Tuition Plan above. The assumption for investment return, net of fees and expenses, is 6.2% for 2014 (7.1% minus 0.90% fees and $50,000 per year in expenses). Total assets as a percentage of tuition benefit obligations for the Plan as of August 31, 2014 are 121.2%.

NOTE 18: Management’s Discussion and Analysis

(See pages 3-9)






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NOTE 19: The Financial Reporting Entity

Individual Component Unit Disclosures

Component units are legally separate organizations for which the elected officials of the primary government are financially accountable. Component units can also be other organizations for which the nature and significance of their relationship with a primary government is such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete. In addition, component units can be organizations that raise and hold economic resources for the direct benefit of a government unit. Because of the closeness of their relationships with the primary government, some component units are blended as though they are part of the primary government. Most component units, however, are discretely presented. None of the component units for the Board meet the criteria for major component unit presentation and those presented are for informational purposes of interested parties. The component units are reported for the year ended August 31, 2013, unless indicated otherwise.

Finally, based upon criteria established by GASB No. 14, as amended by GASB No. 61, the Board is not a component unit of the Texas State Comptroller of Public Accounts’ Office.

Blended Component Units

The Board does not have any blended component units to report.


The Board reports the following legally separate entities as component units because both entities support the Board’s programs; however, the component units do not provide services entirely or almost entirely to the Board. Therefore, the component units’ financial data is discretely presented in Exhibits VIII-Combined Statement of Net Position-Discretely Presented Component Units and Exhibit IX-Combined Statement of Revenues, Expenses and Changes in Net Position- Discretely Presented Component Units.

Texas Prepaid Scholarship Foundation (TPSF) (FT 15, Fund 0892/1892) was incorporated under the Texas Nonprofit Corporation Act and is legally separate from the Board. Its purpose is to further the educational goals of the State by purchasing and awarding prepaid tuition scholarships to residents of the State of Texas. The Foundation’s resources include donations received from the public. The five member board of directors consists of the Comptroller of the State of Texas, a member appointed by the Governor of the State of Texas, and three members appointed jointly by the Comptroller and the member appointed by the Governor. Separate financial statements are not issued by the foundation.

Texas Match the Promise Foundation (TMPF) (FT 15, Fund 0892/5892 and 6892) was incorporated under the Texas Nonprofit Corporation Act and is legally separate from the Board. Its purpose is to assist the Board in administering the Texas Save and Match Program. The Foundation encourages Texas families to save for college by offering competitive matching scholarships and tuition awards to Texas students who participate in the Texas Tuition Promise Fund. The Foundation’s resources include donations received from the public. The five member board of directors consists of the Comptroller of the State of Texas, and four members appointed by the Comptroller. Separate financial statements are not issued by the foundation.






44

Related Parties

The Texas State Comptroller of Public Accounts (“Comptroller”) serves as the Chair and Executive Director of the seven-member Texas Prepaid Higher Education Tuition Board that administers the Texas Guaranteed Tuition Plan and the Texas Tuition Promise Fund, the State's prepaid tuition plans, and the Texas College Savings Plan and theLoneStar 529 Plan, the State's college savings plans. The Comptroller's office provides financial and staff support to conduct and administer the day-to-day operations of the Agency and contract management. Daily operations of the Texas Tuition Promise Fund, the Texas College Savings Plan, and the LoneStar 529 Plan are outsourced to a plan manager.

Salaries and related benefit expenses are reimbursed on a monthly basis. The Comptroller's Office also pays salaries and related benefit expenses for marketing staff that support the plans. Salaries and related benefits paid by the Comptroller's Office totaled $1,155,606.70 for the fiscal year.

The Comptroller also serves as the Chair of the Texas Match the Promise Foundation SM and the Texas Prepaid Scholarship Foundation.

NOTE 20: Stewardship, Compliance, and Accountability

The Economic Growth and Tax Relief Reconciliation Act of 2001 made significant changes to Section 529 of the Internal Revenue Code. Distributions from qualified tuition programs that are used for qualified higher education expenses are currently exempt from federal income tax. This exemption was scheduled to expire on December 31, 2010. The Pension Protection Act (H.R. 4), which was signed by President Bush on August 17, 2006, made the exemption permanent.

At August 31, 2014, the Texas Guaranteed Tuition Plan had a projected unfunded deficit of ($568,170,793.50) compared to a deficit of ($612,496,449.33) at August 31, 2013. The deficit is determined by comparing estimated future contract collections and investment earnings to the projected value of future contract benefits to be paid. The Texas Guaranteed Tuition Plan is backed by a constitutionally guaranteed trust fund and the full faith and credit of the state of Texas; thus guaranteeing payment of tuition and required fee benefits at colleges and universities in which a plan beneficiary enrolls.

At August 31, 2014, the Texas Tuition Promise Fund had a projected surplus of $122,567,382.56 compared to a surplus of $70,908,660.41 at August 31, 2013. The surplus is determined by comparing estimated future contract collections and investment earnings to the projected value of future contract benefits to be paid.

NOTE 21: Not Applicable

NOTE 22: Donor-Restricted Endowments

(Not Applicable)

NOTE 23: Extraordinary and Special Items

The Board has no extraordinary or special items to report for the fiscal year ended August 31, 2014.

NOTE 24: Disaggregation of Receivable and Payable Balances

(Not Applicable)






45

NOTE 25: Termination Benefits

(Not Applicable)

NOTE 26: Segment Information

(Not Applicable)

NOTE 27: Service Concession Arrangements

(Not Applicable)

NOTE 28: Deferred Outflows of Resources and Deferred Inflows of Resources

(Not Applicable)

NOTE 29: Troubled Debt Restructuring

(Not Applicable)

NOTE 30: Non-Exchange Financial Guarantees

(Not Applicable)

Schedule 1A – Schedule of Expenditures of Federal Awards and Accompanying Notes

(Not Applicable)

Schedule 1B – Schedule of State Grant Pass Through From/To State Agencies/Universities

(Not Applicable)

Schedule 2A – Miscellaneous Bond Information

(Not Applicable)

Schedule 2B – Changes in Bonded Indebtedness

(Not Applicable)

Schedule 2C – Debt Service Requirements

(Not Applicable)

Schedule 2D – Analysis of Funds Available for Debt Service

(Not Applicable) Schedule 2E – Defeased Bonds Outstanding

(Not Applicable)






46

Schedule 2F – Early Extinguishment and Refunding

(Not Applicable)

Schedule 3 – Reconciliation of Cash in State Treasury and Schedule of Cash and Cash Equivalents

(Not Applicable)

M A T C H

T H E P R O M I S E


F O U N D A T I O N


INDEPENDENTAUDITORS’ REPORTON 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



AUSTIN HOUSTON SAN ANTONIO 811 BARTON SPRINGS ROAD, SUITE 550 1980 POST OAK BOULEVARD, SUITE 1500 100 N.E. LOOP 410, SUITE 1100 TOLL FREE: 800 879 4966 AUSTIN, TEXAS 78704 HOUSTON, TEXAS 77056 SAN ANTONIO, TEXAS 78216 WEB: PADGETT‐CPA.COM 512 476 0717 800 879 4966 210 828 6281

Independent Auditor’s 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

To the Texas Prepaid Higher Education Tuition Board Austin, Texas

We have audited, in accordance with the 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, the financial statements of the business-type activities, the aggregate discretely presented component units, each major fund and the aggregate remaining fund information of the Texas Prepaid Higher Education Tuition Board (the “Board”) as of and for the year ended August 31, 2014, and the related notes to the financial statements, which collectively comprise the Board’s basic financial statements, and have issued our report thereon dated December 1, 2014. Our report includes a reference to other auditors who audited the financial statements of the Texas Tuition Promise Fund, the Texas College Savings Plan®, and the LoneStar 529 Plan®, as described in our report on the Board’s basic financial statements. The financial statements of the Texas Tuition Promise Fund, the Texas College Savings Plan®, and the LoneStar 529 Plan®

were not audited in accordance with Government Auditing Standards and, accordingly, this report does not include reporting on internal control over financial reporting or instances of reportable noncompliance associated with these plans.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered the Board’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Board’s internal control. Accordingly, we do not express an opinion on the effectiveness of Board’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Board’s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.


Pages from the Texas Prepaid Higher Education Tuition Board – ANNUAL REPORT – Year Ended August 31, 2014 (concluded)

48

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Board’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, and contracts, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Purpose of This Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Board’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Board’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Austin, Texas December 1, 2014


TEXAS GUARANTEED TUITION PLAN ACTUARY’S REPORT


Pages from the Texas Guaranteed Tuition Plan – Actuary’s Report on Program Soundness – August 31, 2014

TEXAS GUARANTEED TUITION PLAN

ACTUARY’S REPORT ON PROGRAM SOUNDNESS

AUGUST 31, 2014

October 2014


Pages from the Texas Guaranteed Tuition Plan – Actuary’s Report on Program Soundness – August 31, 2014 (continued)



Texas Guaranteed Tuition Plan

Actuary’s Report on Program Soundness August 31, 2014

Contents

Page Section I Executive Summary 1

Section II Summary of Contract Data and Current Assets 4

Section III Plan Description 7

Section IV Actuarial Methods and Assumptions 9

Section V Soundness of the Plan as of August 31, 2014 12

Section VI Sensitivity Testing 17

Section VII Changes in Surplus 18

Appendix A Active Contract Counts 20

Appendix B Matriculation Information 22



1

Section I – Executive Summary

Adequacy of the Fund As of August 31, 2014, the Plan had an unfunded liability of $568,170,794. The unfunded liability represents the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present value of the expected future tuition and required fees, refunds and expenses. The unfunded liability is $44,325,655 lower than last year’s unfunded liability of $612,496,449, and $72,500,492 less than the expected unfunded liability of $640,671,286. The three primary sources of change are:

a) Investment asset performance of 8.44%, higher than the assumed investment return of 4.60%. The result was an asset gain of $41.23 million. This estimate may vary from the actual asset performance as determined by the investment consultant.

b) Tuition Increases: Increases in tuition were less than expected and resulted in a $15.33 million decrease in the unfunded liability.

c) Changing the investment return assumptions for future years resulted in a $21.82 million gain.

The table below summarizes current balances:

Assets Investments $ 1,073,660,332 Future Contract Collections 34,596,202 Total Assets 1,108,256,534 Liabilities and Surplus Future Contract Benefits and Expenses $ 1,676,427,328 Deficit of Assets over Liabilities (568,170,794) Total Liabilities and Surplus (Deficit) 1,108,256,534

The program’s funded ratio is 66.1%. This represents a reduction of 0.3% from last year’s ratio of 66.4%.

The assumptions used to measure the adequacy of the Plan, which were approved by the Board, are stated in Section III. The most important assumptions are:

The investment yield; The rate of increase in tuition/fees; Withdrawal rates;

Future new entrants; and Expenses.



2

Investment Yield The investment yield is the expected long-term net earnings rate of return on the assets.

The actuarial valuation of the Plan was determined using the schedule of interest rates found in Section IV. We also assumed the Plan is exempt from federal income tax. It is important to highlight the sensitivity of this analysis to this assumption. As pointed out subsequently, a 25-basis points shortfall in such a goal would place the Plan in a much less favorable position. Additionally, the nature of this type of program involves payment of benefits at fixed future points in time, subjecting the Plan to greater than average investment risk due to short-term fluctuation and in matching investment maturities with expected outlays.

Rate of Increase in Tuition/Fees Under statutory changes approved in 2003 by the Texas Legislature, the amount of tuition and required fees paid for each beneficiary who uses a Public Senior College contract to attend a Public Senior College will be the lesser of: 1) actual tuition and required fees or 2) the weighted average tuition and required fees of all Texas public 4-year colleges and universities. Under this formula, Texas colleges and universities must accept this amount as payment in full for a beneficiary who attends a Public Senior College using plan benefits.

After careful analysis, the Texas Prepaid Higher Education Tuition Board (Board) selected tuition and fee increase assumptions above an expected rate of inflation. The assumed annual increases were 6.3% for Public Senior Colleges, 5.2% for Junior Colleges and 7.3% for Private Universities. This assumption was unchanged from the prior valuation.

Future New Entrants New contracts in future years would serve: a) to expand the base for spreading fixed expenses; b) to increase the likelihood that the Plan average tuition cost will not exceed Weighted Average Tuition (WAT) by a significant amount; and c) to ensure a large enough fund balance to invest profitably. However, adding new entrants could also expose the Plan to increased unfunded liabilities if either tuition inflation exceeds the assumption or investment returns are less than the assumption used to price the contracts.

In 2003 the Board suspended new enrollment in the Plan. For purpose of the actuarial analysis in this report, it is assumed that no future contracts will be sold.

ExpenseIn our analysis we provide an expense provision for records administration charges and for general expenses. The provision for fiscal year 2014 is $32 per contract that we assumed will increase 3.5% per year for inflation. This assumption was unchanged from the prior valuation.

Bias Against the Program by Purchasers and Beneficiaries Bias is the result of rational decisions by purchasers and beneficiaries. Bias against the Plan is expected and is intrinsic to the purpose of a prepaid tuition program. A basic reason for establishing the Texas Guaranteed Tuition Plan is that the purchase of a contract will increase the commitment of the purchaser to a belief the beneficiary will become qualified to enter college and that the ownership of a contract will cause the beneficiary to be comfortable with a



3

commitment to academic achievement.

Bias against the Plan causes the amount the Plan pays to exceed the WAT. WAT is the average tuition/fees weighted by the number of full-time equivalent students. Bias refers to the degree to which the Texas Guaranteed Tuition Plan beneficiaries choose to attend the higher priced schools and so cause the Plan to pay out more tuition/fee benefits.

According to the amendments to state law, under statutory changes approved in 2003 by the Texas Legislature, the amount of tuition and required fees paid for each beneficiary who uses a Public Senior College contract to attend a Public Senior College will be the lesser of: 1) actual tuition and required fees or 2) the weighted average tuition and required fees of all Texas public 4-year colleges and universities. Under this formula, Texas public colleges and universities must accept this amount as payment in full for a beneficiary who attends a Public Senior College using plan benefits.

The statutory change removes the bias against the Plan by the Plan beneficiaries choosing to attend the higher priced school, because the maximum tuition/fees payout is limited by the WAT.

However, these amendments do not apply to community colleges. The assumed bias load was 10.0% for community colleges. This assumption was unchanged from the prior valuation.

Use of Report This report is prepared solely to assist the Board of the Texas Guaranteed Tuition Plan in evaluating the actuarial soundness of the Plan each year. The report is not intended and is not suitable for any other purpose. Accordingly, Sherman Actuarial Services does not intend this report or the data contained therein to be used as personal financial advice. Other readers of this report should consult with their own financial advisors regarding the application of this report to their particular circumstances.

Qualifications Daniel Sherman is an Associate of the Society of Actuaries, and a Member of the American Academy of Actuaries. He is the actuary for the Texas prepaid tuition plans, and is the current actuary for three other state prepaid tuition plans. He meets the Qualification Standards of the Academy to render the actuarial opinions contained herein. This report has been prepared in accordance with all applicable Actuarial Standards of Practice, and we are available to answer questions concerning it.

All assumptions were approved by the Board and in my opinion are reasonable.

SHERMAN ACTUARIAL SERVICES, LLC

Daniel Sherman, ASA, MAAA, EA CEO and Consulting Actuary



4

SECTION II – Summary of Contract Data and Current Assets

Contract Data A contract inventory report as of August 31, 2014 was extracted from Plan data. The contract inventory report presents the number of credit hours issued net of cancellations by contract type, number of years of tuition, grade or age of beneficiary and payment option.

The contracts issued in 1996 are for 30 credit hours per year. The contracts issued after 1996 are for 32 credit hours per year. The credit inventory (number of hours) as of August 31, 2014 is summarized in the following table.

Payment Options

Plans Lump

Sum Five-Year

MonthlyTen-Year Monthly

Extended Monthly

Five-Year Annually

Ten-Year Annually

Extended Annually

1996 Enrollment Sr. College 139,285 111,874 159,618 180,203 - - 19 Jr. College 1,452 2,360 3,520 6,046 - - - Jr. & Sr. College 9,131 11,760 18,369 33,665 - - 48 Private College 1,220 1,681 1,706 2,185 - - - Total 1996 151,089 127,675 183,213 222,099 - - 67

1997 Enrollment Sr. College 167,965 102,540 143,462 124,960 - - 163 Jr. College 1,399 2,067 1,819 3,288 - - - Jr. & Sr. College 7,131 9,752 14,903 14,885 - - 128 Private College 8,459 1,823 1,274 1,313 - - - Total 1997 184,953 116,182 161,458 144,446 - - 291

1998 Enrollment Sr. College 157,148 48,665 105,069 93,244 47,353 20,327 10,046 Jr. College 1,279 793 1,141 1,778 132 171 34 Jr. & Sr. College 5,811 4,163 9,069 9,748 2,243 1,072 845 Private College 3,633 915 610 1,417 1,027 406 128 Total 1998 167,870 54,535 115,889 106,187 50,755 21,976 11,053

1999 Enrollment Sr. College 129,253 37,610 92,619 92,461 38,578 17,123 9,179 Jr. College 692 502 1,456 1,234 261 - 3 Jr. & Sr. College 4,644 3,466 8,143 9,292 1,213 931 248 Private College 2,648 288 970 1,287 2,119 179 393 Total 1999 137,238 41,866 103,188 104,274 42,171 18,233 9,824

2000 Enrollment Sr. College 168,585 67,052 136,462 131,508 53,627 23,409 16,507 Jr. College 1,159 1,077 1,469 2,047 415 78 293 Jr. & Sr. College 6,280 6,966 13,709 13,281 2,095 1,719 987 Private College 2,664 411 1,012 907 2,039 576 280 Total 2000 178,688 75,506 152,651 147,743 58,175 25,782 18,067

Sum of values may not match totals due to rounding.



5

Payment Options

Plans Lump

Sum Five-Year

MonthlyTen-Year Monthly

Extended Monthly

Five-Year Annually

Ten-Year Annually

Extended Annually

2001 Enrollment Sr. College 179,711 79,826 135,115 182,927 79,324 42,025 27,139 Jr. College 2,416 1,675 1,774 5,752 228 585 113 Jr. & Sr. College 12,778 8,993 19,806 32,759 4,775 3,490 3,251 Private College 4,615 1,100 961 2,642 1,943 1,207 442 Total 2001 199,520 91,594 157,656 224,079 86,270 47,307 30,945

2002 Enrollment Sr. College 223,065 78,674 137,763 169,567 103,152 55,496 32,014 Jr. College 2,997 2,682 3,105 4,455 235 587 642 Jr. & Sr. College 12,108 8,477 22,334 22,062 6,386 5,773 3,238 Private College 5,709 448 1,831 2,828 2,139 1,182 700 Total 2002 243,879 90,281 165,033 198,913 111,912 63,038 36,594

2003 Enrollment Sr. College 556,666 91,713 179,276 277,113 196,565 110,192 75,347 Jr. College 7,068 2,064 2,890 5,202 1,065 610 691 Jr. & Sr. College 25,932 10,099 22,782 39,716 11,595 9,518 6,555 Private College 17,928 2,083 1,440 2,903 7,791 1,402 1,235 Total 2003 607,594 105,960 206,388 324,933 217,015 121,722 83,828

Total Enrollment Sr. College 1,721,678 617,954 1,089,384 1,251,982 518,599 268,572 170,414 Jr. College 18,463 13,220 17,175 29,801 2,336 2,031 1,776 Jr. & Sr. College 83,816 63,676 129,114 175,408 28,307 22,503 15,301 Private College 46,875 8,749 9,804 15,483 17,057 4,952 3,178 Total Enrollment 1,870,831 703,599 1,245,476 1,472,675 566,299 298,058 190,670


The number of active contract counts (for all enrollment years combined) by plan type and projected year of matriculation is included in Appendix A.



6

Current Assets The assets are administered by the Board and invested by external managers with whom the Board contracts. The value of the assets as of August 31, 2014 is $1,073,660,332. Asset totals shown below do not include securities lending collateral and tuition contracts receivable.

Assets held as of August 31, 2014:

Cash in State Treasury $ 5,405,525 Investments 1,065,537,883 Interest & Dividends Receivable 3,624,433 Less Accounts Payable (907,509) Total Assets $1,073,660,332

It is assumed that this mix will produce a net annual investment return of 4.50% in fiscal year 2015.



7

SECTION III – Plan Description

Overview The Texas Guaranteed Tuition Plan (Plan) is an Internal Revenue Code Section 529 prepaid tuition plan. It allows the contract holder to lock in the cost of undergraduate college tuition and required fees, thus providing protection against future tuition inflation.

At matriculation the Plan will pay, based on the number of credit hours purchased, either 1) the weighted average or actual cost of college tuition and required fees at Texas public colleges and universities, whichever is less, or 2) the estimated average private tuition and required fees at Texas private colleges and universities.

The contract holder buys credit hours representing a fixed amount of resident tuition and required fees. When the beneficiary is ready for college, all or a portion of the tuition and required fees will be covered at all four- or two-year public colleges and universities in Texas. The portion of the fees covered will vary based on the type of contract purchased. The contract can also be used to help pay for tuition at all private colleges in Texas and out-of-state institutions. Texas public colleges and universities are required by statute to accept the benefit payments as payment in full for the hours purchased.

Eligibility At the time of enrollment, the beneficiary must be a Texas resident or his/her parent must be both the purchaser and a Texas resident.

Contract Types The fund will pay the maximum number of credit hours listed below for the type of plan purchased:

Junior College Plan Purchaser can prepay up to 64 credit hours of tuition and required fees at any public junior or community college in the state.

Senior College Plan Purchaser can prepay up to 160 credit hours of tuition and required fees at any public senior college or university in the state.

Junior-Senior College Plan Purchaser can prepay up to 64 credit hours of tuition and required fees at any public, community or technical college in the state. In addition, the purchaser can prepay up to 64 credit hours of tuition and required fees for any public senior college or university in the state. Thus, a total of 128 credit hours can be purchased.

Private College Plan Provides an estimated average private tuition and required fees, as determined by the Board each year. This amount is applied toward any of Texas’ private or independent colleges for up to 160 credit hours. If tuition and required fees at the private college chosen exceed the estimated average, the beneficiary is responsible for the remaining balance. If the college charges are less than the estimated average, the purchaser can



8

request a refund of the difference. Otherwise, only the hours necessary to pay the student’s tuition and required fee charges will be deducted from his or her plan.

Payment Plans The Plan offers two types of payment plans: Lump Sum and Installment:

Lump Sum Entire purchase made in one lump sum payment.

Installment Plan Pay every month or once a year. Payment period of 5 years, 10 years, or the number of years until the beneficiary’s

projected high school graduation date.

RefundsThe purchaser may receive a refund on the unused portion of the contract.



9

SECTION IV – Actuarial Methods and Assumptions

Actuarial Methods The actuarial method projects the expected future cash flows from contract payments, tuition and refund benefits and expense. These projected future cash flows are discounted to the present and compared to the market value of the assets to indicate the soundness of the Plan.

The development of the measurement of soundness has seven stages:

Develop base line average tuition and required fees from data provided by the Plan;

Project average tuition and required fees through the expected term of the contracts, based on assumptions as to future tuition increases;

Determine the nominal cost of expected future tuition and required fees, based on the contract inventory and assumptions as to mortality, disability, voluntary surrender and utilization of benefits;

Determine the nominal cost of expected future administrative expenses, based on the contract inventory and the records administration fee schedule, as well as assumptions as to inflation and utilization of benefits;

Project future contract payments based on the contracts and assumptions as to mortality, disability and voluntary surrender;

Determine the present value of expected future benefits, expenses and contract payments, based on the discount rate assumption; and

As the indication of soundness, measure the surplus or deficit, which is the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present values of the expected future tuition and required fees, refunds and expenses.

Actuarial Assumptions Necessary adjustments to reflect new information were made to this year’s assumptions. The assumptions were approved by the Board. The revisions to the assumptions, if any, are noted herein.

Tuition/Fee Increase Assumed annual increases in future tuition and required fees remained unchanged from the prior valuation:

Public Senior College Junior College Private University 6.3% 5.2% 7.3%



10

Investment Yield The assumed annual net investment yield is illustrated in the following table:

ExpensesIn our analysis we provide an expense provision for records administration charges and for general expense. The provision for fiscal year 2014 is $32 per contract, which we assume will increase 3.5% per year for inflation. This assumption remains unchanged from the prior valuation.

Future Participation in the Program It is assumed that no new contracts will be issued in the future.

Mortality and Disability Mortality rates for beneficiaries are assumed to follow the 1990 U.S. Life Tables.

PlanYear

BeginningCurrent

Valuation Prior

Valuation 2014 4.50% 4.40% 2015 4.20% 4.10% 2016 4.10% 3.90% 2017 3.80% 3.60% 2018 3.50% 3.20% 2019 3.20% 2.60%

2020+ 3.00% 2.60%



11

Early Voluntary Surrender of Contract We assumed the following percentages of the public senior college contracts in effect at the beginning of the year would be surrendered during the year. We use similar estimates for the other college types, based on empirical evidence. This assumption remains unchanged from the prior valuation.

Years From Purchase Lump Sum

Five-YearPayments

Ten-YearPayments

ExtendedPayments

1 to 2 2.50% 6.30% 8.80% 13.70% 2 to 3 1.80% 3.60% 5.30% 6.00% 3 to 4 0.40% 1.50% 2.30% 3.00% 4 to 5 0.50% 1.00% 2.00% 3.00% 5 to 6 0.50% 0.50% 1.30% 2.00%

After 6 Years 0.80% 1.30% 0.70% 2.30%

Matriculation Percent We assumed the beneficiary of a contract not voluntarily surrendered matriculates at the date specified in the contract. This assumption remains unchanged from the prior valuation.

Dropout Rate We assumed beneficiaries use the number of credits specified in the contract.

Utilization of Credits We assumed beneficiaries use the credits specified according to the following schedule. This assumption remains unchanged from the prior valuation.

Type of Contract FirstYear

SecondYear

ThirdYear

FourthYear

FifthYear

SixthYear

Five – Year Contracts 20% 20% 20% 20% 15% 5% Four – Year Contracts 25% 24% 23% 20% 8% 0% Three – Year Contracts 30% 30% 30% 10% 0% 0% Two – Year Contracts 50% 40% 10% 0% 0% 0% One – Year Contracts 80% 20% 0% 0% 0% 0%

Frequency of Beneficiary Replacement We assumed no replacement of beneficiaries.

BiasWe assumed no bias load for universities and a bias load of 10.0% for community colleges. This assumption remains unchanged from the prior valuation.



12

SECTION V – Soundness of the Plan as of August 31, 2014

As a measure of the soundness of the Plan as of August 31, 2014, we determined the difference between the value of the assets and the actuarial present value of the future contract payments and the actuarial present value of future benefits and expenses. This measurement of soundness is summarized on the following pages.

A projection of the status of the Plan at each future anniversary date through the life of these contracts is presented on page 15, labeled Present Value of Assets and Liabilities.

The projections of future benefits and expenses and contract payments are presented on page 16, labeled Expected Annual Cash Flows.

Our measurement of the present value and projections are based on asset and contract information provided and on the assumptions chosen by the Board.



13

Funded Status The liabilities of the trust fund exceed the value of assets as of August 31, 2014 (including the value of future payments by contract purchasers) by $568.2 million. The funded ratio, assets divided by liabilities, is equal to 66.1%. Asset totals shown below do not include securities lending collateral. The assumptions used to perform the actuarial valuation of the fund were approved by the Board and are described in Section IV.

Current Assets$1,073,660,332

Tuition/FeePayments

$1,676,427,328

Future ContractPayments

$34,596,202

Assets Liabilities

Total:$1,108,256,534

Total:$1,676,427,328



14

Cash Flow Projection The expected income and disbursements of the trust fund, based on the assumptions used in the actuarial valuation, and the current group of contract beneficiaries, are shown below. These amounts are cash amounts, not present value amounts.

‐1,500

‐1,000

‐500

0

500

1,000

1,500

'15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '31 '32 '33 '34 '35

Millions Assets at beginning of year

Payments Out of Fund

Payments into Fund +Investment Income



15

Present Value of Assets and Liabilities

8/31 of Year

Present Value of Future Benefit and Expenses

Value of Assets and Present Value of Future

CollectionsDeficit of Assets to

Liabilities

2014 1,676,427,328 1,108,256,534 (568,170,794)2015 1,479,474,039 885,735,560 (593,738,480)2016 1,281,275,403 662,599,907 (618,675,496)2017 1,079,711,470 435,670,278 (644,041,191)2018 895,788,037 227,273,281 (668,514,756)2019 713,145,728 21,232,956 (691,912,773)2020 552,592,797 (161,461,184) (714,053,982)2021 393,398,049 (342,077,552) (735,475,601)2022 243,761,704 (513,778,165) (757,539,869)2023 137,611,092 (642,654,974) (780,266,065)2024 65,407,087 (738,266,960) (803,674,047)2025 23,300,140 (804,484,128) (827,784,269)2026 7,279,332 (845,338,465) (852,617,797)2027 4,281,641 (873,914,690) (878,196,331)2028 3,152,992 (901,389,228) (904,542,220)2029 2,339,920 (929,338,568) (931,678,487)2030 1,673,753 (957,955,089) (959,628,842)2031 1,199,335 (987,218,372) (988,417,707)2032 793,179 (1,017,277,059) (1,018,070,238)2033 456,268 (1,048,156,077) (1,048,612,345)2034 245,599 (1,079,825,117) (1,080,070,716)2035 127,482 (1,112,345,356) (1,112,472,837)




16

Expected Annual Cash Flows

Fiscal Year Ending

Benefit Payments and Expenses

ContractPayment Receipts

AnnualCash Flow

2015 266,107,353 10,154,277 (255,953,076) 2016 254,393,235 8,520,202 (245,873,033) 2017 248,298,901 6,855,819 (241,443,082) 2018 219,823,006 5,214,363 (214,608,643) 2019 209,167,368 3,753,017 (205,414,352) 2020 179,198,859 2,397,012 (176,801,847) 2021 171,787,093 1,210,283 (170,576,809) 2022 157,768,870 15,197 (157,753,673) 2023 110,854,975 0 (110,854,975) 2024 74,571,600 0 (74,571,600) 2025 43,052,712 0 (43,052,712) 2026 16,334,305 0 (16,334,305) 2027 3,142,088 0 (3,142,088) 2028 1,228,304 0 (1,228,304) 2029 886,928 0 (886,928) 2030 719,577 0 (719,577) 2031 512,726 0 (512,726) 2032 432,130 0 (432,130) 2033 352,577 0 (352,577) 2034 219,370 0 (219,370) 2035 122,776 0 (122,776)


Note: The amounts shown above are annual expected amounts for the year corresponding to the “Fiscal Year Ending” column. They are not cumulative amounts. In addition, Payment Receipts are frontloaded. Therefore, the Expected Annual Cash Flows project positive cash flows in the early years and negative in the later years. It is expected that positive cash flows prior to Fiscal Year Ending 2015 would be invested to cover the negative cash flows in future years.



17

SECTION VI – Sensitivity Testing

The Program operates under conditions of risk and uncertainty. For example, while it is assumed the assets of the fund will earn the annual net rate found in Section IV, we also expect actual returns to vary from year to year. To accept the reasonableness of the basis for the measurement of the soundness, it is useful to know how the status of the fund may be affected by the vagaries of the markets and other factors. We have rerun the valuation under the following alternative scenarios, and the deficit as of August 31, 2014 under each of these scenarios is presented in the following table:

Scenarios Deficit Baseline 568,170,794

Tuition increases are 25 basis points higher in each future year than assumed 581,485,085

The investment return is 25 basis points lower than assumed 581,591,397

Tuition increases are 25 basis points higher in each future year and the investment return is 25 basis points lower than assumed 595,089,312

Tuition increases are 25 basis points lower in each future year than assumed 555,009,388

Tuition increases are 25 basis points lower in each future year and the investment return is 25 basis points lower than assumed 568,249,020









18

SECTION VII – Changes in Surplus

Adequacy of the Fund As of August 31, 2014, the Plan had an unfunded liability of $568,170,794. The unfunded liability represents the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present value of the expected future tuition and required fees, refunds and expenses. The unfunded liability is $44,325,655 lower than last year’s unfunded liability of $612,496,449, and $72,500,492 less than the expected unfunded liability of $640,671,286. The three primary sources of change are:

a) Investment asset performance of 8.44%, higher than the assumed investment return of 4.60%. The result was an asset gain of $41.23 million. This estimate may vary from the actual asset performance as determined by the investment consultant.

b) Tuition Increases: Increases in tuition were less than expected and resulted in a $15.33 million decrease in the unfunded liability.

c) Changing the investment return assumptions for future years resulted in a $21.82 million gain.

Following is a comparison of the assumed and the actual results for the year ended August 31, 2014.

Investment ReturnAssets performed better than expected during the 2014 fiscal year, returning 8.44% versus the prior year assumption of 4.60%. The result was an asset gain of $41.23 million. The extent that investment experience exceeds the assumption will result in an actuarial gain.

Tuition and Required Fee Increase The Weighted Average Tuition (WAT) for Senior College increased from $8,741 to $9,175, an increase of 4.97% compared to the assumed 6.30% increase. The Junior College WAT increased from $2,802 to $2,888, an increase of 3.06% compared to the assumed 5.20% increase. The Private College WAT increased from $23,673 to $24,502, an increase of 3.50% compared to the assumed 7.30% increase. The tuition experience resulted in an actuarial gain of approximately $15.33 million.

Bias Against the Program by Purchasers and Beneficiaries The design of the program removed the bias relating to beneficiaries of Texas Guaranteed Tuition Plan contracts attending relatively higher priced universities. However, there was still a -1.71% bias for community colleges as calculated by comparing the actual tuition and fee payment for the contract beneficiaries who attend community colleges to the expected payout based on program assumptions. Therefore the bias was 11.71% less than the 10% expected by last year’s valuation, resulting in an actuarial gain of $733,000.

ExpenseThe assumption for records administration charges and general expenses remains at $32 per contract for fiscal year 2014, with an increase of 3.5% per year in each future year for inflation. The actual expenses were greater resulting in a loss of $1,005,000.



19

Voluntary Withdrawal and Contract Reductions and Matriculation There were approximately 1,902 contracts surrendered during the year by contract holders on behalf of beneficiaries who have not yet graduated from an institution of higher learning. This is more than the 1,040 expected, creating a gain and decreasing the present value of expected payments by contract holders.

Beneficiaries delayed entry into schools or took fewer hours than expected. Since the tuition increases exceeded the assumed investment return, this created an actuarial loss.

Gain/Loss Summary During the last year, the plan experienced a $50.68 million actuarial gain. The sources of the (gain)/loss are as follows:

(Gain) / Loss (millions) Asset Gain (8.44% return) $(41.23) Tuition Inflation Gain (15.33) Expense 1.00 Bias (0.73) Withdrawal and Matriculation 5.61 Total (Gain) / Loss $(50.68)

Assumption Change Changes to the investment return assumption resulted in a $21.82 million decrease in the unfunded liability. When combined with the actuarial gain of $50.68 million, results in the total unexpected decrease in unfunded liability of $72.50 million.



20


TEXAS GUARANTEED TUITION PLAN Appendix A

Active Contract Counts for All Enrollment PeriodsAs of August 31, 2014

Matriculation Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 151997 1998 1999 1 2000 4 2001 3 2002 1 2 1 2 1 2003 3 6 1 3 1 2004 12 53 4 4 6 4 12 2005 134 906 22 69 20 26 5 13 2 1 67 21 2006 169 1321 40 112 50 30 5 25 1 1 2 113 25 2007 191 1675 54 121 42 40 12 31 5 1 2 139 30 2008 273 2052 65 151 57 55 6 47 2 4 3 175 32 2009 288 2500 80 231 76 78 16 46 1 3 1 1 253 28 2010 359 3405 103 255 117 92 20 52 1 4 1 2 304 44 2011 455 4225 125 329 106 110 17 70 1 2 3 4 311 66 2012 538 4350 172 472 162 115 18 93 7 9 11 1 338 64 2013 542 4464 155 491 210 149 40 70 3 8 7 5 349 60 2014 532 4431 167 467 217 165 50 78 1 4 5 1 346 30 12015 399 3677 118 347 179 135 29 65 3 11 5 457 4 2016 370 3375 123 329 138 111 22 57 8 9 5 1 518 2017 331 2975 86 268 144 109 26 54 5 5 495 2018 328 2750 100 285 166 97 25 37 1 6 2 474 2 2019 299 2364 76 234 133 68 18 39 1 5 1 426 1 2020 223 1899 74 196 132 55 11 33 2 5 4 1 353 2021 250 2261 86 213 144 65 14 29 2 3 14 463 2022 5 50 2 4 2 2 5 2023 2 27 4 5 2 1 1 3 2024 2 20 2 2 2 1 2 2025 1 15 1 3 4 1 1 2026 2 10 1 2 1 2027 1 7 1 1 2028 3 Total 5710 48830 1660 4592 2112 1508 338 840 33 86 66 24 5606 410 1

% of Total 7.92% 67.77% 2.30% 6.37% 2.93% 2.09% 0.47% 1.17% 0.05% 0.12% 0.09% 0.03% 7.78% 0.57% 0.00%

Key to Plan Type:1. Jr/Sr - 2/2 4. Sr - 2 Yr 7. Jr - 1 Yr 10. Pr - 2 Yr 13. Sr - 5 Yr2. Sr - 4 Yr 5. Sr - 1 Yr 8. Pr - 4 Yr 11. Pr - 1 Yr 14. Sr - 4 Yr +8Hrs3. Sr - 3 Yr 6. Jr - 2 Yr 9. Pr - 3 Yr 12. Jr/Sr - 2/2 + 4Hrs 15. Sr - 4 Yr + 6Hrs

Plan



21


TEXAS GUARANTEED TUITION PLAN Appendix A

Active Contract Counts for All Enrollment PeriodsAs of August 31, 2014

Matriculation Year 16 18 21 23 24 31 34 35 Total % of Total1997 0 0.00%1998 0 0.00%1999 1 0.00%2000 4 0.01%2001 3 0.00%2002 7 0.01%2003 14 0.02%2004 95 0.13%2005 1 1 1 1289 1.79%2006 1 2 1 2 2 1902 2.64%2007 2 1 1 1 7 2355 3.27%2008 1 1 5 10 2939 4.08%2009 1 1 4 2 3610 5.01%2010 1 1 5 12 4778 6.63%2011 1 1 2 1 4 8 5841 8.11%2012 1 2 2 5 14 6374 8.85%2013 1 7 3 2 2 7 8 6583 9.14%2014 1 1 1 11 6 6515 9.04%2015 1 5 8 5443 7.55%2016 2 7 5075 7.04%2017 12 4510 6.26%2018 14 4287 5.95%2019 1 8 3674 5.10%2020 1 10 2999 4.16%2021 11 3555 4.93%2022 70 0.10%2023 45 0.06%2024 31 0.04%2025 1 27 0.04%2026 16 0.02%2027 10 0.01%2028 3 0.00%Total 3 4 17 9 10 3 53 140 72,055 100.00%

% of Total 0.00% 0.01% 0.02% 0.01% 0.01% 0.00% 0.07% 0.19% 100.00%

Key to Plan Type:16. Sr - 4 Yr + 4Hrs 23. Sr - 1 Yr + 2Hrs 34. Sr Add'l Year18. Sr - 3 Yr + 6Hrs 24. Pr - 4 Yr + 8Hrs 35. Pr - 5 Yr21. Sr - 2 Yr + 4Hrs 31. Pr - 2 Yr + 4Hrs

Plan



22

Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2014 Payments to Community Colleges

Number of Semester Tuition and Average Paid PerContracts Hours Fees Paid Semester Hour

Texas Community College Alamo Community College District 362 2,831 586,961 207.33Alvin Community College 50 337 66,021 196.19Amarillo College 43 390 59,224 151.92Angelina College 16 87 19,217 220.74Austin Community College 578 4,352 976,495 224.39Blinn College 698 5,511 1,269,552 230.39Brazosport College 19 175 25,177 144.10Brookhaven College 51 196 42,676 218.22Cedar Valley College 14 55 8,454 153.06Central Texas College 24 208 25,949 124.53Cisco College 13 97 21,659 222.81Clarendon College 3 27 5,224 197.04Coastal Bend College 20 211 42,346 200.80College of the Mainland 33 240 39,646 165.53Collin County Community College 212 1,279 158,405 123.88Dallas County Community College LeCroy Center 15 33 8,784 262.85Del Mar College 71 672 125,467 186.67Eastfield College 62 364 44,796 123.19El Centro College 14 45 7,631 169.82El Paso Community College 56 391 66,319 169.49Frank Phillips College 8 156 21,943 140.69Galveston College 14 97 14,961 154.24Grayson County College 19 188 27,402 145.45Hill College 23 167 24,604 147.61Houston Community College 197 1,079 231,543 214.61Howard College 20 137 29,343 214.57Kilgore College 37 388 76,259 196.41Lamar Institute of Technology 23 216 56,832 262.72Lamar State College Orange 16 177 46,448 261.83Lamar State College Port Arthur 13 116 28,842 248.43Laredo Community College 32 376 74,868 199.23Lee College 23 287 34,908 121.66Lone Star College System 348 1,988 337,546 169.78McLennan Community College 88 914 185,649 203.05Midland College 129 372 89,280 239.84Mountain View College 22 77 12,859 165.98Navarro College 52 349 63,166 181.08North Central Texas College 105 667 136,272 204.40North Lake College 45 207 37,466 181.20Northeast Texas Community College 17 145 25,755 177.70Odessa College 21 187 27,997 149.62Panola College 9 68 18,007 266.06Paris Junior College 29 226 27,480 121.85Ranger College 10 98 19,542 198.50Richland College 108 512 79,371 155.10San Jacinto College Central 173 1,258 212,232 168.67San Jacinto Community College District 3 9 2,548 272.02South Plains College 118 964 209,489 217.29South Texas College 64 467 107,038 229.06Southwest Texas Junior College 23 184 33,758 183.18Sum of values may not match totals due to rounding.



23

Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2014 Payments to Community Colleges


Texas Community College Tarrant County College Ft. Worth (NW) 38 237 30,944 130.50Tarrant County College NE Hurst 85 509 64,912 127.48Tarrant County College SE Campus 56 289 42,069 145.51Tarrant County College South Campus 32 206 27,030 131.11Tarrant County College Trinity River Campus 33 230 24,287 105.71Temple College 38 498 96,796 194.43Texarkana College 6 77 12,470 161.67Texas Southmost College 16 92 24,895 270.32Texas State Technical College Harlingen 23 200 48,760 243.21Texas State Technical College Marshall 4 21 5,713 273.14Texas State Technical College Waco 65 809 197,783 244.40Texas State Technical College West Texas 5 75 20,606 273.15Trinity Valley Community College 36 313 52,488 167.81Tyler Junior College 69 780 129,722 166.27Vernon College 26 256 61,402 240.24Victoria College 38 336 53,886 160.14Weatherford College 39 253 49,275 194.58Western Texas College 36 118 30,357 256.72Wharton County Junior College 133 1,098 257,865 234.83 Total 4,921 35,976 7,124,671 198.04Sum of values may not match totals due to rounding.



24

Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2014 Payments to Proprietary Institutions


Texas Proprietary Institutions Alamo Community College Continuing Education 1 5 1,283 265.96Alvin Community College Continuing Education 1 1 357 273.14American Intercontinental University - Houston 1 38 10,308 271.26Art Institute of Austin 23 387 90,931 234.88Art Institute of Dallas 10 376 102,718 273.02Art Institute of Fort Worth 1 51 13,931 273.15Art Institute of Houston 16 271 75,975 280.69Art Institute of Houston North Campus 3 63 17,288 273.15Art Institute of San Antonio 7 246 67,046 272.56Austin Community College Continuing Education 8 37 6,363 169.78Blinn College Workforce Education 1 3 895 273.12Brazosport College Continuing Education 1 3 750 273.12Brookhaven College Continuing Education 2 9 1,420 156.61Cedar Valley College Continuing Education 2 24 6,514 273.15Central Texas College Distance Learning 2 25 2,863 114.24Central Texas College Europe 1 9 2,250 255.39College of Health Care Professions San Antonio 2 164 33,900 207.33Collin County Continuing Education 7 78 10,233 130.49Concorde Career College - Arlington/Grand Prairie 2 37 10,107 273.15Concorde Career College - Dallas 1 71 7,498 105.71Concorde Career College - San Antonio 2 95 25,839 273.15Culinary Institute Alain and Marie LeNôtre (Houston) 1 37 10,090 273.15Eastfield College Continuing Education 1 6 1,650 270.05Embry-Riddle Aeronautical University San Antonio 1 33 9,014 273.15Everest College Fort Worth North Campus 1 8 2,185 273.15Everest College Fort Worth South Campus 1 15 4,170 273.14Galen College - San Antonio 3 78 21,985 280.59Hallmark College 3 158 34,862 220.36Houston Community College-Cont Ed 2 2 605 273.14ITT Technical Institute Houston North 1 36 9,833 273.15ITT Technical Institute Houston West 1 8 2,049 273.15ITT Technical Institute San Antonio 1 27 7,375 273.15ITT Technical Institute Waco 1 32 8,853 273.15Kaplan College Arlington 1 53 14,780 277.34Kaplan University Dallas 3 73 19,865 271.09Lamar University Grad & Academic Partnership 12 86 23,182 270.63Le Cordon Bleu College of Culinary Arts Austin 5 158 43,130 272.88Le Cordon Bleu College of Culinary Arts Dallas 3 200 42,652 213.66Lincoln Technical Institute, TX 4 111 30,424 273.15Lone Star College Continuing Education 1 2 466 273.15Lone Star College Kingwood Continuing Education 1 10 2,809 273.17Lone Star College Montgomery Continuing Education 2 17 3,486 209.50National American University Lewisville Campus 1 35 9,504 271.30Sum of values may not match totals due to rounding.



25

Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2014 Payments to Proprietary Institutions


Texas Proprietary Institutions National American University Richardson 1 27 7,497 277.67North Central Texas College Continuing Ed 1 20 1,711 87.58Sam Houston State University Correspondence Dept. 2 4 1,146 273.12Sanford Brown College Dallas 1 42 11,174 264.37South University Austin Campus 2 41 11,199 272.31Texas A&M Engineering Extension Service TEEX 2 37 10,600 286.70Texas A&M Engineering Extension Service TEEX EMS 1 7 1,820 273.15Texas A&M University Graduate Studies 8 119 56,954 477.14Texas A&M University Health Science Center 36 833 233,706 280.52Texas Southern University Graduate Students 4 38 18,139 480.32Texas State Technical College Waco Aviation Division 6 53 14,500 273.15Texas State University Continuing Education 1 10 2,695 273.16Texas State University Extension Studies 13 46 12,652 273.15Texas State University Office of Correspondence 69 294 78,238 266.32Texas Tech University Grad 3 76 20,705 273.15Texas Woman's University Graduate Studies 9 49 14,960 303.83The Golf Academy of America-Dallas 1 40 10,608 267.47Tyler Junior College Continuing Education 2 12 3,228 269.54Universal Technical Institute Houston 8 334 97,662 292.07Universal Technical Institute Irving 4 221 60,456 272.97University Extension UT Austin 117 307 84,764 276.22University of Houston Clear Lake Graduate Studies 1 33 9,057 272.62University of Houston Continuing Education 1 13 3,500 273.16University of Houston Graduate Studies 1 15 4,023 273.15University of North Texas Health Science Center 20 328 101,216 308.22University of Texas at Arlington Academic Partnership 22 221 58,561 265.54University of Texas at Austin Engineering Co-op Ofc 2 3 860 273.19University of Texas at Austin Grad Students 11 305 90,319 296.10University of Texas at Austin in DC 3 49 13,370 273.16University of Texas at Austin McCombs School of Business 6 167 45,489 271.82University of Texas at Austin Study Abroad / Intl Office 14 82 22,398 273.15University of Texas at San Antonio Study Abroad 1 14 4,097 286.70University of Texas Austin Department of Eastern Studies 1 10 2,732 273.15University of Texas Health Science Center at Houston 34 759 228,237 300.69University of Texas Health Science San Antonio 42 750 238,180 317.71UT in LA 1 12 3,415 286.71Vet Tech Institute of Houston 5 296 60,722 205.16Virginia College at Austin 2 21 5,866 273.16Vista College Lubbock 1 60 16,389 273.15Weatherford College Continuing Ed 4 62 10,295 165.62West Texas A&M University Education on Demand 1 2 595 273.19

Total 608 8,992 2,465,171 274.14Sum of values may not match totals due to rounding.



26

Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2014 Payments to Texas Four-Year Public Universities


Texas Four-Year Public University Angelo State University 146 3,690 912,048 247.19Lamar University 99 2,133 555,003 260.19Midwestern State University 89 1,941 471,515 242.95Prairie View A&M University 30 783 210,627 268.88Sam Houston State University 455 11,155 2,938,048 263.38Stephen F. Austin State University 349 8,672 2,315,248 266.98Sul Ross State University Alpine 26 669 143,940 215.21Tarleton State University 248 6,169 1,362,036 220.80Texas A&M International University 36 722 164,306 227.53Texas A&M University Central Texas 7 93 22,295 239.73Texas A&M University College Station 3,273 77,237 20,678,520 267.73Texas A&M University Commerce 114 2,371 515,937 217.59Texas A&M University Corpus Christi 283 7,129 1,690,215 237.10Texas A&M University Galveston 114 2,929 756,282 258.17Texas A&M University Kingsville 76 2,025 464,127 229.20Texas A&M University San Antonio 34 525 117,163 223.18Texas A&M University Texarkana 8 114 27,037 237.91Texas Southern University 11 177 50,483 284.96Texas State University San Marcos 1,605 37,519 10,019,948 267.07Texas Tech University 1,680 44,362 11,979,333 270.03Texas Tech University Health Sciences Center 52 1,293 299,786 231.79Texas Woman's University 182 3,674 931,408 253.54University of Houston 682 15,977 4,361,431 272.99University of Houston Clear Lake 67 1,106 255,639 231.08University of Houston Downtown 88 1,653 345,912 209.23University of Houston Victoria 41 771 157,072 203.67University of North Texas 1,002 23,246 6,241,344 268.49University of North Texas at Dallas 18 257 56,438 219.78University of Texas at Arlington 408 8,872 2,387,665 269.13University of Texas at Austin 2,721 63,515 17,578,419 276.76University of Texas at Brownsville 45 880 167,967 190.79University of Texas at Dallas 472 11,134 3,031,311 272.25University of Texas at El Paso 166 3,510 811,798 231.28University of Texas at San Antonio 690 16,787 4,474,757 266.57University of Texas at Tyler 147 3,546 731,679 206.36University of Texas of the Permian Basin 29 680 143,033 210.40University of Texas Pan American 176 3,938 811,658 206.13West Texas A&M University 159 4,096 917,439 223.98 Total 15,828 375,348 99,098,867 264.02Sum of values may not match totals due to rounding.



27

Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2014 Payments to Texas Private Institutions


Texas Private Institutions Abilene Christian University 102 2,849 763,206 267.87Amberton University 2 13 3,640 273.15Arlington Baptist College 2 41 11,375 277.45Austin College 56 1,819 499,544 274.63Baptist Health System 2 25 6,692 273.15Baylor College of Medicine 5 148 51,160 346.66Baylor Law School 4 36 9,926 273.15Baylor University 476 13,408 3,955,879 295.03Concordia University Austin 30 732 206,554 282.07Criswell College 3 78 21,306 273.15Dallas Baptist University 40 986 270,977 274.94Dallas Christian College 1 28 7,605 273.15Dallas Theological Seminary 4 66 18,028 273.15East Texas Baptist University 18 519 121,440 234.15Grace School of Theology 1 7 1,801 269.41Hardin-Simmons University 55 1,332 378,533 284.19Houston Baptist University 28 603 152,447 252.82Howard Payne University 18 551 163,598 296.91Huston-Tillotson University 2 47 12,838 273.15Jacksonville College 10 120 24,396 203.40LeTourneau University 12 384 99,089 258.16Lubbock Christian University 35 516 132,475 256.83McMurry University 16 425 98,336 231.63National American University Allen Campus 1 9 2,458 273.15Northwestern University School of Law 2 36 10,015 276.26Northwood University Texas 4 112 30,593 273.15Our Lady of the Lake University 6 146 52,946 362.64Parker University 4 155 30,387 196.39Rice University 90 2,672 829,949 310.55Schreiner University 27 680 199,773 293.70South Texas College of Law 11 151 41,268 273.15Southern Methodist University 131 3,828 1,199,582 313.37Southwestern Assemblies of God University 10 283 69,780 246.57Southwestern Baptist Theological Seminary 3 39 10,706 272.05Southwestern Christian College 1 26 7,216 273.15Southwestern University 76 2,090 548,856 262.67St. Edwards University 128 3,366 989,961 294.14St. Mary's University 40 1,038 361,336 348.26Texas Christian University 250 7,036 2,151,329 305.76Texas Lutheran University 37 1,043 261,712 250.91Sum of values may not match totals due to rounding.



28

Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2014 Payments to Texas Private Institutions


Texas Private Institutions Texas Wesleyan University 18 438 131,321 299.79Trinity University 98 2,861 888,766 310.70University of Dallas 27 796 231,940 291.32University of Mary Hardin-Baylor 52 1,327 345,845 260.55University of St. Thomas 21 516 153,934 298.48University of Texas Medical Branch at Galveston 37 901 255,175 283.21University of Texas Southwestern Medical Center at Dallas 13 247 78,476 317.80University of the Incarnate Word 92 2,391 644,089 269.43Wayland Baptist University 8 159 43,454 273.15West Coast University Dallas 1 16 4,370 273.15Wiley College 1 8 2,185 273.15

Total 2,111 57,101 16,588,269 290.51Sum of values may not match totals due to rounding.


Pages from the Texas Guaranteed Tuition Plan – Actuary’s Report on Program Soundness – August 31, 2014 (concluded)

29

* There are a total of 24,764 contracts in matriculation status on August 31, 2014. This is different than the total seen in the chart above due to 2,456 students attending multiple schools in the same semester.


Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information

Number of Semester Tuition and verage Paid PerContracts Hours Fees Paid Semester Hour

Matriculation Information: Executive Summary

Texas Universities and Colleges Texas Community Colleges 4,921 35,976 7,124,671 198.04Texas Proprietary Institutions 608 8,992 2,465,171 274.14Texas Four-Year Public Universities 15,828 375,348 99,098,867 264.02Texas Private Institutions 2,111 57,101 16,588,269 290.51Total Texas Institutions 23,468 477,418 125,276,979 262.41

Out-Of-State Institutions Out-of-State Community Colleges 175 1,790 382,015 213.46Out-of-State Proprietary Institutions 37 911 242,753 266.33Out-of-State Universities 2,313 59,569 16,363,708 274.70Out-of-State Private Universities 1,227 34,695 10,432,264 300.69Total Out-Of-State Institutions 3,752 96,964 27,420,740 282.79

Grand Total 27,220 574,382 152,697,719 265.85

TEXAS TUITION PROMISE FUND ACTUARY’S REPORT


Pages from the Texas Tuition Promise Fund® – Actuary’s Report on Program Soundness – August 31, 2014

TEXAS TUITION PROMISE FUND®

ACTUARY’S REPORT ON PROGRAM SOUNDNESS

AUGUST 31, 2014

October 2014


Pages from the Texas Tuition Promise Fund® – Actuary’s Report on Program Soundness – August 31, 2014 (continued)



Texas Tuition Promise Fund

Actuary’s Report on Program Soundness August 31, 2014

Contents

Page Section I Executive Summary 1

Section II Summary of Contract Data and Current Assets 5

Section III Plan Description 9

Section IV Actuarial Methods and Assumptions 12

Section V Soundness of the Plan as of August 31, 2014 14

Section VI Sensitivity Testing 19

Appendix A Active Contracts Counts 20

Appendix B Tuition and School-wide Fee Payments 24



1

Section I – Executive Summary

Plan Description The Texas Tuition Promise Fund® plan (Plan) is a Section 529 prepaid tuition plan. It allows the contract holder to lock in the cost of undergraduate college tuition and school-wide required fees at Texas public colleges and universities, thus providing protection against future tuition inflation. (Required fees are only those school-wide required fees paid by all students as a condition of enrollment, regardless of year, major or course of study.)

The contract holder buys tuition units that represent a fixed amount of resident tuition and school-wide required fees. When the beneficiary is ready for college, all or a portion of the tuition and school-wide required fees will be covered at all four- or two-year public colleges and universities in Texas. The portion of the fees covered will vary based on the number and type of units purchased and the college or university attended.

The transfer value of tuition units can be used to help pay for tuition at all private colleges in Texas and out-of-state institutions. Transfer value is limited to the lesser of (1) the costs the unit would cover at a public in-state college or university or (2) the original purchase price of the unit plus or minus the Plan’s net investment earnings or losses on that account.

OFI Private Investments Inc. a subsidiary of Oppenheimer Funds, Inc. served as the Plan Manager in FY2014.

For a more complete plan description, see Section III.

Adequacy of the Fund As of August 31, 2014, the Texas Tuition Promise Fund (Plan) had a surplus of Assets over Liabilities of $122,567,382. As of August 31, 2013, the surplus was $70,908,660. The surplus represents the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present value of the expected future tuition and school-wide required fees, refunds and expenses.

The table below summarizes current balances:

Assets Investments $ 572,508,404 Future Contract Collections 128,872,618 Total Assets 701,381,022 Liabilities and Surplus Future Contract Benefits and Expenses $ 578,813,640 Surplus (Deficit) of Assets over Liabilities 122,567,382 Total Liabilities and Surplus (Deficit) 701,381,022

The program’s funded ratio is 121.2%, versus 113.8% for 2013.

The assumptions used to measure the adequacy of the Plan, which were approved by the Texas Prepaid Higher Education Tuition Board (Board), are stated in Section IV. Due to the limited



2

experience, with this being the sixth year of enrollment in the Plan, most of the assumptions were based on the Texas Guaranteed Tuition Plan. The most important assumptions are:

The investment yield; The rate of increase in tuition/fees; Withdrawal rates; and

Expense.

Investment Yield The investment yield is the expected long-term net earnings rate of return on the assets.

The actuarial valuation of the Plan was determined using the interest rate found in Section IV. We also assumed the Plan is exempt from federal income tax.

Because of its plan design, the Plan is less sensitive to the investment yield assumption than typical prepaid tuition plans. If the return is higher than expected, the plan will benefit and the schools will potentially receive up to 101% of the current tuition and school-wide required fees at benefit redemption. But if the investment yield is unfavorable, the school will bear the risk if the beneficiary matriculates in a Texas public school, and the contract holder will bear the risk if the beneficiary matriculates in a Texas private or out-of-state school.

If the funded ratio is 110% or more, the calculation of payments to Texas public colleges and universities should include consideration of a 5% assumed net return.

Rate of Increase in Tuition/Fees The Board selected tuition and fee increase assumptions. The assumed annual increase is 6.3% for Public Senior Colleges and 5.2% for Junior Colleges.

Similar to the investment yield assumption, the plan design drives the risk that the plan will bear. If tuition increases are lower than expected, then the Texas public schools will have a greater likelihood of receiving the 1% tuition bonus. But if the tuition increases are greater than the investment return, the Texas public schools will bear the risk if the beneficiary matriculates to a Texas public school, and the contract holder will bear the risk if the beneficiary matriculates to a Texas private or out-of-state school.

Future New Entrants New contracts in future years would serve: a) to expand the base for spreading fixed expenses; and b) to ensure a large enough fund balance to invest profitably.

Although new contracts are currently being sold, it is assumed that future contracts will not be sold since the purpose of the report is to value the plan “as is” on the valuation date.

ExpenseExpenses of 0.9% are netted against the investment return. In addition, $50,000 per year, which we assume will increase 4% per year for inflation, is included for state administration costs related to investment reporting and monitoring.



3

Bias Against the Program by Purchasers and Beneficiaries Due to the design of the program, no bias against the Plan is assumed. Note that the bias does exist, but either the schools or the contract holder bears the risk instead of the Plan.

Bias is the result of rational decisions by purchasers and beneficiaries. This is both expected and intrinsic to the purpose of a prepaid tuition program. A premise of 529 plans is that the purchase of a contract will increase the commitment of the purchaser to a belief the beneficiary will become qualified to enter college and that the ownership of a contract will cause the beneficiary to be comfortable with a commitment to academic achievement.

Bias against the Plan causes the beneficiaries to matriculate in a school with tuition and school-wide required fees that exceed the Weighted Average Tuition (WAT). The WAT is the average tuition and fees weighted by the number of full-time equivalent students.

For many prepaid tuition plan designs, this would result in the plan paying higher benefits than would be expected without taking bias into consideration. But under the Texas Tuition Promise Fund, Texas public schools will receive the lesser of a) the greater of the amount paid for units, plus net earnings or minus net losses, or 5% annually subject to availability of funds, or b) 101% of current tuition at the time of redemption. Under this formula, Texas public schools must accept this amount as payment of tuition and school-wide required fees in full for the hours paid by the Plan. Therefore, it is the Texas public school that bears the bias risk, not the Plan.

Similarly, private or out-of-state colleges will receive the transfer value which is the lesser of a) redemption value of tuition units if redeemed at a Texas public college, or b) amount paid for the tuition units plus actual net earnings or minus net losses. In this case, it is the contract holder that bears the bias risk, not the Plan.

Reconciliation of Surplus

Shown below is a reconciliation of the funded status from last year to this year. The prior year surplus is moved forward with assumed investment return to determine the expected surplus. Other gains and losses include the effects of fewer cancellations than expected, new contract sales and administrative expenses different than expected.

8/31/2013 Surplus $ 70,908,660 Expected increase 4,541,3548/31/2014 Expected Surplus 75,450,014 Tuition Gain and (Losses) 23,150,556 Asset Gain and (Losses) 21,834,425 Other Gains and (Losses) 9,529,871 Total Gain and (Losses) 54,514,852Change in Assumptions (7,397,484)8/31/2014 Surplus 122,567,382

Use of Report This report is prepared solely to assist the Board in evaluating the actuarial soundness of the Plan each year. The report is not intended and is not suitable for any other purpose. Accordingly,



4

Sherman Actuarial Services does not intend this report or the data contained therein to be used as personal financial advice. Other readers of this report should consult with their own financial advisors regarding the application of this report to their particular circumstances.

Qualifications Daniel Sherman is an Associate of the Society of Actuaries, and a Member of the American Academy of Actuaries. He has served as the actuary to the Texas prepaid tuition plans for nine years, and is the current actuary for the Alabama and West Virginia prepaid tuition plans. He meets the Qualification Standards of the Academy to render the actuarial opinions contained herein. This report has been prepared in accordance with all applicable Actuarial Standards of Practice, and we are available to answer questions concerning it.

All assumptions were chosen by the Board. In my opinion the actuarial assumptions selected by the Board are reasonable.

SHERMAN ACTUARIAL SERVICES, LLC

Daniel Sherman, ASA, MAAA, EA Director and Consulting Actuary



5

SECTION II – Summary of Contract Data and Current Assets

Contract Data A contract inventory report as of August 31, 2014 was extracted from Plan data. The contract inventory report presents the number of units purchased by contract type and payment option.

In general, one hundred units represents one academic year of tuition at a Texas public college or university whose tuition and required fee costs closely match the pricing base of the units. The unit inventory (number of units) as of August 31, 2014 is summarized in the following table.

Plans

Payment Options Type I Units

Type II Units

Type III Units

TotalUnits

2009 Enrollment Period Pay-as-you-go 376,380 173,949 24,316 574,644Lump Sum 456,575 210,350 29,150 696,075Extended Monthly 189,450 240,250 34,450 464,150Extended Annual 39,575 38,400 2,250 80,225Custom Monthly 20,050 8,750 0 28,800Custom Annual 3,200 1,850 0 5,0505 Year Monthly 78,225 68,900 13,400 160,5255 Year Annual 90,675 48,323 1,650 140,64810 Year Monthly 103,725 86,850 11,050 201,62510 Year Annual 45,700 27,250 2,600 75,550Total 2009 1,403,555 904,872 118,866 2,427,292

2010 Enrollment Period Pay-as-you-go 127,970 60,457 7,669 196,096Lump Sum 183,975 80,750 13,600 278,325Extended Monthly 44,750 57,150 8,450 110,350Extended Annual 9,400 5,900 0 15,300Custom Monthly 4,150 2,100 0 6,250Custom Annual 550 450 0 1,0005 Year Monthly 23,225 15,450 4,250 42,9255 Year Annual 24,150 10,750 200 35,10010 Year Monthly 27,325 20,100 5,400 52,82510 Year Annual 10,800 5,300 0 16,100Total 2010 456,295 258,407 39,569 754,271

Sum of values may not equal the total due to rounding.



6

Plans


Type II Units

Type III Units

TotalUnits

2011 Enrollment Period Pay-as-you-go 131,554 42,823 9,638 184,015Lump Sum 202,100 62,700 10,150 274,950Extended Monthly 46,600 50,300 8,800 105,700Extended Annual 9,175 9,650 450 19,275Custom Monthly 4,250 5,050 0 9,300Custom Annual 800 0 0 8005 Year Monthly 22,925 8,550 3,350 34,8255 Year Annual 21,750 11,700 200 33,65010 Year Monthly 19,750 16,900 2,450 39,10010 Year Annual 9,725 5,100 0 14,825Total 2011 468,629 212,773 35,038 716,440

2012 Enrollment Period Pay-as-you-go 109,252 37,388 5,253 151,893Lump Sum 165,225 49,800 7,750 222,775Extended Monthly 34,975 38,250 7,350 80,575Extended Annual 7,525 6,700 1,400 15,625Custom Monthly 3,500 3,100 0 6,600Custom Annual 400 0 0 4005 Year Monthly 16,475 8,950 2,950 28,3755 Year Annual 15,200 10,250 650 26,10010 Year Monthly 21,150 17,900 2,550 41,60010 Year Annual 8,000 3,350 200 11,550Total 2012 381,702 175,688 28,103 585,493

2013 Enrollment Period Pay-as-you-go 81,469 25,240 4,518 111,227Lump Sum 153,000 55,700 7,850 216,550Extended Monthly 35,125 31,650 12,350 79,125Extended Annual 8,550 4,450 0 13,000Custom Monthly 2,000 1,600 0 3,600Custom Annual 0 0 0 05 Year Monthly 12,250 10,150 2,650 25,0505 Year Annual 17,175 7,350 650 25,17510 Year Monthly 19,350 13,000 3,700 36,05010 Year Annual 4,000 1,400 100 5,500Total Enrollment 332,919 150,540 31,818 515,277




7

Plans


Type II Units

Type III Units

TotalUnits

2014 Enrollment Period Pay-as-you-go 49,263 19,805 1,711 70,779Lump Sum 128,900 49,550 6,400 184,850Extended Monthly 30,650 31,900 10,750 73,300Extended Annual 8,275 6,150 1,200 15,625Custom Monthly 1,200 400 0 1,600Custom Annual 0 0 0 05 Year Monthly 9,850 8,700 2,850 21,4005 Year Annual 14,950 6,800 2,400 24,15010 Year Monthly 14,925 11,100 2,600 28,62510 Year Annual 4,800 4,550 300 9,650Total Enrollment 262,813 138,955 28,211 429,979

Total Enrollment Inception to date Pay-as-you-go 875,887 359,662 53,105 1,288,655Lump Sum 1,289,775 508,850 74,900 1,873,525Extended Monthly 381,550 449,500 82,150 913,200Extended Annual 82,500 71,250 5,300 159,050Custom Monthly 35,150 21,000 0 56,150Custom Annual 4,950 2,300 0 7,2505 Year Monthly 162,950 120,700 29,450 313,1005 Year Annual 183,900 95,173 5,750 284,82310 Year Monthly 206,225 165,850 27,750 399,82510 Year Annual 83,025 46,950 3,200 133,175Total Enrollment 3,305,912 1,841,235 281,605 5,428,753


The number of active contracts (for all enrollment years combined) by plan type and projected year of matriculation is included in Appendix A.



8

Current Assets The value of the assets held by the Plan as of August 31, 2014 is $572,508,404. Total assets do not include investment transfers receivable, tuition contracts receivable or the related obligations for those assets.

Assets held as of August 31, 2014:

Investments $572,140,092 Cash and cash equivalents 147,227 Dividends receivable 221,085 Administrative fees payable 0 Management fees payable 0 Contracts and benefits payable 0 Payable for securities purchased (0) Total Assets $572,508,404

It is assumed that this mix will produce a net annual investment return of 6.20% in fiscal year 2015, as developed below.

Investment Return Assumption 7.10% Less Expenses (0.90%) Net Annual Investment Return 6.20%



9

SECTION III – Plan Description

Overview The Texas Tuition Promise Fund (Plan) is an Internal Revenue Code Section 529 prepaid tuition plan. It allows the contract holder to lock in the cost of undergraduate college tuition and school-wide required fees at Texas public colleges and universities thus providing protection against future tuition inflation.

The contract holder buys tuition units that represent a fixed amount of resident tuition and school-wide required fees. When the beneficiary is ready for college, all or a portion of the tuition and school-wide required fees will be covered at all four- or two-year public colleges and universities in Texas. The portion of the tuition and fees covered will vary based on the number and type of units purchased, the college or university attended, and the hours enrolled. If the beneficiary attends an eligible career school, Texas private college, or out-of-state college, the transfer value is paid. The transfer value is the lesser of 1) the costs the units would cover at a public in-state college, or 2) the price paid for the units plus or minus net earnings or losses on that amount.

Eligibility At the time of enrollment, the beneficiary must be a Texas resident or his/her parent must be both the purchaser and a Texas resident.

Tuition Units Tuition units represent a fixed portion of undergraduate resident tuition and school-wide required fees charged by Texas public colleges and universities. The Plan offers three types of tuition units: Type I, Type II, and Type III.

Type I Tuition Units The value of Type I tuition units is based on undergraduate resident college tuition and school-wide required fees at the Texas four-year public college or university with the highest tuition and fee costs in the year of redemption. 100 Type I units will pay for 30 semester hours assuming 15 hours per semester at the most expensive Texas public 4-year school. If the units are redeemed at a less expensive school, more hours would be paid by 100 units.

Type II Tuition Units The value of Type II tuition units is based on the weighted average cost of tuition and school-wide required fees charged by all eligible Texas four-year public colleges or universities in the year of redemption. Unlike the Type I units, this unit type does not cover the full tuition and school-wide required fees at all Texas public four-year colleges or universities if the institution's costs are above the weighted average cost.

Type III Tuition Units The value of Type III tuition units is based on the weighted average cost of in-district resident tuition and school-wide required fees charged by all eligible Texas public junior and community colleges and public technical institutes in the year of redemption. This unit type does not cover the full tuition and school-wide required fees at all Texas junior and community colleges and public technical institutes if the costs of the institution are above the weighted average.



10

Any combination of units (Type I, Type II or Type III) may be redeemed at any accredited Texas public school. However, the benefit paid will depend on the type of unit, the number of units, the school selected, and the hours enrolled.

Payment Plans The Plan offers three types of payment plans: Lump Sum, Installment, and Pay-As-You-Go:

Lump Sum Can purchase up to the current dollar equivalent of 600 Type I tuition units in one

lump sum payment.

Installment Plan Pay every month or once a year. Payment period of 5 years, 10 years, or the number of years until the beneficiary’s

projected high school graduation date. Minimum of 25 Type I tuition units or 50 Type II or Type III tuition units. Maximum of the then-current dollar equivalent of 600 Type I tuition units. No prepayment penalties. Subject to an annual interest component charge.

Pay-As-You-Go Contract holder can buy tuition units after establishing a contract by paying the

application fee and purchasing at least one unit of any type. Additional increments as small as $15 after a minimum purchase of one unit. Pay the then-current unit price in effect at the time payment is received (unit prices

are updated on September 1 of each year). Maximum total purchase of up to the dollar equivalent of 600 Type I tuition units.

Redemption of Units Three year holding period – Tuition units cannot be used earlier than the third

anniversary of the date the tuition unit was purchased. Units must be paid-in-full prior to use. Texas public colleges will receive lesser of

a) Amount paid for units, plus earnings, Earnings = greater of actual net return or net loss on investments or 5% return on

investments, subject to the availability of money in the fund for that purpose. b) 101% of current tuition and school-wide required fees at the time of redemption.

Private or out-of-state colleges will receive lesser of a) Redemption value of tuition units if redeemed at a Texas public college, or b) Amount paid for the tuition units plus actual net earnings or net losses.

Refund Scenarios There are three types of refund calculations: Reduced Refund Value, Transfer Value, and Refund Value.

Reduced Refund Value This is the refund value for voluntary cancellations before the end of the three year holding period, cancellations due to default, or automatic cancellations. The calculation is the lesser of:

a) the purchase price of unused tuition units, or



11

b) the purchase price plus or minus net earnings or losses on that amount. If the fund had a net negative return over the term that the contract was held, the “reduced refund value” would be less than the purchase price. No net earnings are paid.

Transfer Value This is the refund value for transfers to another qualified 529 plan (Texas or otherwise) or the amount paid if the beneficiary attends an eligible career school, Texas private college or out-of-state college. The calculation is the lesser of:

a) The current tuition unit redemption value of the units being transferred, or b) The price paid for the units plus or minus net earnings or losses on that amount.

Refund Value This is the refund value for voluntary cancellations after the three year holding period is met, cancellations due to death or disability of the beneficiary, or unused tuition units. The calculation is the purchase price of unused tuition units plus or minus net earnings or losses at a rate of return set by the Board. At August 31, 2014 this rate is capped at 2% less than the actual fund earnings or 5%, whichever is less. Earnings may be paid with a refund only if the Board determines that such payments will not adversely affect the actuarial soundness of the Plan.

Purchase Price – The actual dollar amount (contributions) paid into the contract, excluding amounts applied to administrative fees (e.g. account setup fee, late fees, return payment fees).

Market Value – The total purchase price paid for any unused Tuition Units, plus the portion of the total net earnings or losses on assets of the plan attributable to that amount.

Redemption Value – The current payout rate of the unit type being redeemed multiplied by the number of units.

For a complete description of the Plan, see the Plan Description and Master Agreement at www.texastuitionpromisefund.org. In the event of differences between the Plan Description and any information presented in this report, the Plan Description would control.



12

SECTION IV – Actuarial Methods and Assumptions

Actuarial Methods The actuarial method projects the expected future cash flows from contract payments, tuition and refund benefits and expense. These projected future cash flows are discounted to the present and compared to the market value of the assets to indicate the soundness of the Plan.

The development of the measurement of soundness has six stages:

Project unit costs through the expected term of the contracts, based on assumptions as to future tuition increases;

Determine the nominal cost of expected future tuition based on the contract inventory and assumptions as to voluntary surrender and utilization of benefits;

Determine the nominal cost of expected future administrative expenses, based on the contract inventory and the records administration fee schedule, as well as assumptions as to inflation and utilization of benefits;

Project future contract payments based on the contracts and voluntary surrender assumption;

Determine the present value of expected future benefits, expenses and contract payments, using a discount rate equal to the assumed rate of return on plan assets;

As the indication of soundness, measure the surplus or deficit, which is the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present values of the expected future tuition and school-wide required fees, refunds and expenses.

Actuarial Assumptions Since this is the sixth valuation of the Plan, and there is very limited experience to draw on, most of the assumptions were based on the Texas Guaranteed Tuition Plan. The assumptions were approved by the Board.

Federal Income Tax We assume the income of the Plan is exempt from Federal Income Tax.

Tuition/Fee Increase Assumed annual increases in future tuition and school-wide required fees are:

Public Senior College Junior College 6.3% 5.2%

Tuition/Fee Levels for the 2014-2015 enrollment year: Type I: $118.06/unit Type II: $89.42/unit Type III: $22.23/unit



13

Investment Yield Expenses of 0.90% are netted against the Investment Return Assumption of 7.10%, leaving a Net Annual Investment Return of 6.20% per year. The previous year’s net return assumption was 6.40%.

ExpensesExpenses of 0.90% are netted against the investment return. In addition, $50,000 per year, which we assume will increase 4% per year for inflation, is included for state administrative costs for investment reporting and monitoring.

Future Participation in the Program Although new contracts are currently being sold, it is assumed that future contracts will not be sold since the purpose of the report is to value the Plan “as is” on the valuation date.

Mortality and Disability Due to the transferability of the contract, there is no mortality or disability assumption.

Early Voluntary Surrender of Contract We assumed the following percentages of the public senior college contracts in effect at the beginning of the year would be surrendered during the year. We use similar estimates for the other college types, based on empirical evidence:

Years From Purchase Lump Sum

Five-YearPayments

Ten-YearPayments

ExtendedPayments

1 to 2 0.00% 0.00% 0.00% 0.00% 2 to 3 0.00% 0.00% 0.00% 0.00% 3 to 4 4.70% 11.40% 16.40% 22.70% 4 to 5 0.50% 1.00% 2.00% 3.00% 5 to 6 0.50% 0.50% 1.30% 2.00%

After 6 Years 0.80% 1.30% 0.70% 2.30%

Matriculation Percent We assumed the beneficiary of a contract, not voluntarily surrendered, matriculates in the year of high school graduation.

Utilization of Credits We assumed beneficiaries will use all units necessary to cover the tuition cost of each year as it occurs. For example, if 300 Type II units are available for use at the beginning of year one, 100 will be used in each of the first three years.

Frequency of Beneficiary Replacement We assumed no replacement of beneficiaries.

Bias Against the Program by Purchasers and Beneficiaries Due to the design of the program, no bias against the Plan is assumed.



14

SECTION V – Soundness of the Plan as of August 31, 2014

As a measure of the soundness of the Plan as of August 31, 2014, we determined the difference between the value of the assets and the actuarial present value of the future contract payments and the actuarial present value of future benefits and expenses. This measurement of soundness is summarized on the following pages.

A projection of the status of the Plan at each future anniversary date through the life of these contracts is presented on page 17, labeled Present Value of Assets and Liabilities.

The projections of future benefits and expenses and contract payments are presented on page 18, labeled Expected Annual Cash Flows.

Our measurement of the present value and projection are based on asset and contract information provided by the Plan Manager and on the assumptions chosen by the Board.



15

Current Assets$572,508,404

Tuition/FeePayments

$578,813,640

Future ContractPayments

$128,872,618

Assets Liabilities

Funded Status

The value of the trust fund exceeds the value of liabilities as of August 31, 2014 (including the value of future payments by contract purchasers) by $122,567,382. The funded ratio, assets divided by liabilities, is equal to 121.2%. Assets do not include investment transfers receivable or the related obligations for those assets. The assumptions used to perform the actuarial valuation of the fund were approved by the Board and are described in Section III.

Total:$701,381,022

Total:$578,813,640



16

‐

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750

'14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '31 '32 '33 '34 '35 '36 '37 '38

Millions

Assets

Payments Out of Fund

Payments into Fund + Investment Income

The expected income and disbursements of the trust fund, based on the assumptions used in the actuarial valuation, and the current group of contract beneficiaries, are shown below. These amounts are cash amounts, not present value amounts.

Cash Flow Projection

Fiscal Year End



17

Present Value of Assets and Liabilities

8/31 of Year

Present Value of Future Benefit and Expenses

Value of Assets and Present Value of Future

CollectionsAssets over Liabilities

2014 578,813,640 701,381,022 122,567,382 2015 586,677,974 716,847,634 130,169,660 2016 589,496,659 727,740,062 138,243,403 2017 586,641,366 733,459,213 146,817,847 2018 580,078,253 736,002,294 155,924,041 2019 567,574,484 733,169,441 165,594,957 2020 550,377,202 726,242,818 175,865,616 2021 529,030,925 715,804,132 186,773,207 2022 502,683,813 701,041,038 198,357,225 2023 467,350,806 678,010,422 210,659,616 2024 422,895,709 646,620,633 223,724,924 2025 374,363,408 611,963,866 237,600,458 2026 320,927,175 573,263,634 252,336,459 2027 264,371,794 532,358,077 267,986,283 2028 208,353,690 492,960,284 284,606,594 2029 156,888,128 459,145,699 302,257,571 2030 111,453,364 432,456,487 321,003,123 2031 73,426,571 414,337,695 340,911,124 2032 42,944,052 404,997,704 362,053,652 2033 20,775,190 405,282,448 384,507,258 2034 9,110,584 417,463,823 408,353,239 2035 3,262,901 436,940,833 433,677,932 2036 1,059,475 461,632,503 460,573,028 2037 561,903 489,697,806 489,135,903 2038 398,155 519,868,125 519,469,970




18

Expected Annual Cash Flows

Fiscal Year Ending

Benefit Payments and Expenses

ContractPayment Receipts

AnnualCash Flow

2015 26,386,169 25,769,593 (616,576) 2016 31,596,374 23,959,733 (7,636,641) 2017 37,103,659 21,724,962 (15,378,697) 2018 40,428,321 19,021,309 (21,407,012) 2019 45,639,003 15,657,521 (29,981,482) 2020 49,328,531 10,917,226 (38,411,305) 2021 52,231,321 9,420,961 (42,810,360) 2022 55,694,001 8,012,005 (47,681,996) 2023 62,617,140 6,618,202 (55,998,938) 2024 69,143,925 5,312,452 (63,831,473) 2025 70,387,792 3,285,341 (67,102,451) 2026 72,172,094 2,672,707 (69,499,387) 2027 71,989,516 2,103,528 (69,885,988) 2028 68,181,879 1,555,171 (66,626,708) 2029 60,624,756 1,131,640 (59,493,116) 2030 51,941,458 802,504 (51,138,954) 2031 42,313,466 518,205 (41,795,261) 2032 32,989,611 193,590 (32,796,021) 2033 23,381,727 24,130 (23,357,597) 2034 12,196,485 - (12,196,485) 2035 6,038,173 - (6,038,173) 2036 2,265,278 - (2,265,278) 2037 530,376 - (530,376) 2038 186,992 - (186,992)


Note: The amounts shown above are annual expected amounts for the year corresponding to the “Fiscal Year Ending” column. They are not cumulative amounts. In addition, Payment Receipts are frontloaded. Therefore, the Expected Annual Cash Flows project positive cash flows in the early years and negative in the later years. It is expected that positive cash flows prior to Fiscal Year Ending 2014 would be invested to cover the negative cash flows in future years.



19

SECTION VI – Sensitivity Testing

The Program operates under conditions of risk and uncertainty. For example, while it is assumed the assets of the fund will earn the annual net rate found in Section III, we also expect actual returns to vary from year to year. To accept the reasonableness of the basis for the measurement of the soundness, it is useful to know how the status of the fund may be affected by the vagaries of the markets and other factors. We have rerun the valuation under the following alternative scenarios, and the assets over liabilities as of August 31, 2014 under each of these scenarios are presented in the following table:

Scenarios Assets over Liabilities

Baseline assumptions used in valuation 122,567,382



Tuition increases are 25 basis points higher in each future year and the investment return is 25 basis points lower than assumed 103,797,262

Tuition increases are 25 basis points lower in each future year than assumed 132,319,319

Tuition increases are 25 basis points lower in each future year and the investment return is 25 basis points lower than assumed 123,056,553









20

TEXAS TUITION PROMISE FUND Active Contract Counts for All Enrollment Periods – Appendix A As of August 31, 2014

Matriculation Year Plan Type I Type II Type III Total

2012 372 243 29 644 2013 445 289 48 782 2014 525 332 46 903 2015 718 457 65 1,240 2016 828 514 84 1,426 2017 882 561 133 1,576 2018 1,032 551 93 1,676 2019 929 568 108 1,605 2020 944 539 123 1,606 2021 1,007 562 99 1,668 2022 1,168 679 148 1,995 2023 1,205 650 107 1,962 2024 1,102 544 93 1,739 2025 1,041 597 122 1,760 2026 1,080 573 92 1,745 2027 970 506 91 1,567 2028 719 373 83 1,175 2029 615 319 57 991 2030 532 229 47 808 2031 379 192 42 613 2032 230 116 30 376 Total 16,723 9,394 1,740 27,857



21


Matriculation Year

Number of Type I Units 25 50 100 150 200 250 300 350 400 450 500 550 600 PAYG*

2012 8 35 8 55 9 41 9 48 4 3 3 1 148 2013 16 50 12 68 11 27 13 62 3 2 8 173 2014 17 51 15 63 18 43 17 81 7 2 3 13 195 2015 20 74 17 68 15 49 9 130 8 5 4 18 301 2016 31 98 19 112 22 31 19 141 9 6 10 16 314 2017 21 101 29 88 17 46 31 160 6 9 7 17 350 2018 21 95 36 111 23 54 31 211 6 2 2 8 14 418 2019 18 109 24 75 18 55 29 166 9 9 7 23 387 2020 28 99 18 97 13 63 26 187 4 6 7 13 383 2021 41 109 23 95 18 46 31 182 5 12 8 26 411 2022 30 93 30 111 27 56 31 233 21 17 1 13 21 484 2023 40 112 16 107 30 51 31 236 18 18 1 13 22 510 2024 35 104 32 87 21 47 19 185 17 15 1 11 30 498 2025 34 80 26 111 24 35 25 173 16 17 2 6 22 470 2026 39 88 29 74 25 42 29 172 12 8 3 5 36 518 2027 38 86 22 72 16 34 19 126 14 10 1 12 37 483 2028 23 59 15 49 7 33 14 93 9 7 5 22 383 2029 14 53 5 48 14 21 15 92 7 6 2 12 326 2030 22 44 8 39 3 17 14 76 6 4 1 4 15 279 2031 7 30 5 36 4 9 6 50 3 2 2 18 207 2032 8 18 6 11 4 12 4 31 1 5 1 9 120 Total 511 1,588 395 1,577 339 812 422 2,835 185 163 12 133 393 7,358

* Pay-as-you-go contracts



22


Matriculation Year

Number of Type II Units

50 100 150 200 250 300 350 400 450 500 550 600 MAX PAYG* 2012 8 32 8 38 11 23 4 26 4 6 2 81 2013 10 38 13 36 8 14 11 48 3 2 106 2014 15 40 9 55 6 21 8 39 6 7 126 2015 25 51 8 71 11 21 11 69 6 6 1 1 176 2016 19 56 13 80 11 28 7 82 9 5 204 2017 28 65 18 84 18 22 6 97 8 2 1 2 210 2018 32 56 20 67 14 26 9 88 11 5 1 1 221 2019 22 61 18 81 8 34 6 92 14 4 1 227 2020 17 53 24 78 8 36 5 98 14 3 203 2021 25 50 15 67 12 41 13 109 5 5 1 219 2022 22 56 23 97 12 39 9 145 18 6 2 250 2023 21 52 22 93 17 35 12 135 17 10 3 2 231 2024 23 64 17 80 18 19 7 108 14 8 1 185 2025 18 77 18 84 15 19 6 113 14 6 2 2 223 2026 20 54 13 79 11 26 4 105 18 5 1 1 236 2027 25 52 18 68 9 17 4 81 20 8 1 2 201 2028 21 24 11 46 5 14 3 69 8 4 168 2029 15 30 6 36 4 11 2 52 10 4 2 147 2030 12 20 1 42 6 7 32 12 1 96 2031 12 19 5 26 6 5 1 31 2 1 1 83 2032 5 8 3 15 2 4 20 4 3 1 51 Total 395 958 283 1,323 212 462 128 1,639 217 101 13 18 1 3,644




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Matriculation Year

Number of Type III Units

50 100 150 200 250 300 350 400 450 500 550 600 PAYG* 2012 1 6 13 1 8 2013 6 2 24 1 1 1 13 2014 8 2 20 3 1 12 2015 2 5 1 31 2 2 1 1 20 2016 5 20 2 26 3 3 25 2017 5 22 2 56 3 1 1 43 2018 3 13 3 33 2 1 1 4 1 32 2019 3 18 2 44 1 1 2 37 2020 3 15 4 45 4 3 1 3 1 1 3 40 2021 8 8 4 41 3 1 3 31 2022 6 17 9 64 2 2 1 6 1 40 2023 4 11 1 47 3 2 2 37 2024 2 12 6 38 3 1 5 26 2025 7 11 7 45 4 3 2 1 42 2026 4 9 3 34 4 4 34 2027 2 14 8 40 2 2 1 1 21 2028 3 9 7 36 1 2 1 1 23 2029 1 3 3 21 2 2 25 2030 3 5 18 3 1 1 1 1 14 2031 2 4 19 2 1 2 2 1 2 7 2032 4 1 2 9 2 1 2 1 8 Total 68 213 72 704 50 19 7 40 8 6 1 14 538




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TEXAS TUITION PROMISE FUND Tuition and School-wide Fee Payments – Appendix B For year ending August 31, 2014

Units Paid Total Payments Abilene Christian University 412.348 $ 44,334 Alvin Comm Coll 49.687 4,603 Amarillo College 129.900 2,816 Angelo State University 186.645 17,906 Arizona State University 267.059 22,144 Art Institute of Austin 100.000 8,055 Art Institute of Dallas 58.858 1,278 Austin College 1,053.838 123,931 Austin Comm Coll 274.010 23,433 Baylor University 4,327.702 470,135 Belmont University 90.017 10,495 Berry College 73.154 8,480 Blinn College 878.512 71,807 Boston University 571.000 66,998 Brookhaven College 170.117 3,713 California Institute of the Arts 362.671 30,356 Carnegie Mellon University 100.000 11,592 Central New Mexico Community College 36.830 3,054 Central Texas College 48.105 3,943 Clarendon College 27.495 2,303 College of the Mainland 22.897 1,957 Collin College 232.468 11,571 Columbia College Chicago 29.690 2,462 Columbia University 579.384 67,312 Concordia University Austin 50.000 5,903 Cornell University 150.000 17,388 Dallas Baptist University 129.197 13,821 Del Mar College 2.964 353 Drury University 70.000 8,264 East Carolina University 133.620 15,775 East Texas Baptist University 97.749 11,455 El Paso Comm Coll 42.530 5,049 Elon University 120.000 13,644 Emory University 300.000 35,204 Fairleigh Dickinson University 52.560 4,700 Fashion Institute of Design and Merchandising 200.000 20,316 Florida International University 15.101 1,285 Florida State University International Progra 42.351 5,000 Fort Lewis College 108.734 9,016 Full Sail University 132.273 15,333 George Washington University 197.463 22,890 Georgia Institute of Technology 130.501 15,407 Hardin-Simmons University 466.628 29,467 Harvard University 50.000 5,903 Hawaii Pacific University 24.000 2,042 Holmes Community College 9.994 1,180 Howard College 11.976 1,428 Howard Payne University 4.992 589



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Units Paid Total Payments Indiana University Bloomington 32.357 $3,816 Iowa State University 12.955 1,529 Lamar Institute of Technology 13.759 1,611 Lamar State College Port Arthur 21.607 1,810 Lamar University 102.456 9,859 Lee College 89.207 1,933 Lone Star College System District 37.589 4,163 Louisiana College 187.173 15,894 Louisiana State University 327.233 31,188 Louisiana Tech University 21.505 1,923 Loyola University Chicago 100.000 8,510 Lubbock Christian University 839.777 63,743 Midland College 14.458 1,707 Midwestern State University 512.331 43,683 Mississippi State University 70.607 8,336 Missouri University of Science & Technology 100.000 7,970 Mountain View College 64.669 1,418 Navarro College 152.755 3,345 New Mexico State University - Las Cruces 255.562 8,328 North Central Texas College 144.448 3,167 Northeast Lakeview College 118.888 2,580 Northwest Vista College 388.568 13,830 Odessa College 9.635 828 Oklahoma Christian University 106.911 9,560 Oklahoma City Community College 20.966 2,475 Oklahoma State University 298.189 31,340 Our Lady of the Lake University 32.000 3,735 Pepperdine University 61.000 5,455 Prairie View A&M University 92.430 7,944 Purdue University 270.000 31,491 Ranger College 8.107 697 Rhodes College 319.244 37,530 Rice University 498.746 58,668 Richland College 18.984 2,253 Rider University 246.591 28,770 Rose-Hulman Institute of Technology 250.000 29,268 Rutgers The State University of New Jersey Ne 17.000 1,410 Rutgers University 27.197 2,255 Sam Houston State University 1,797.698 184,321 San Antonio College 153.708 3,492 San Diego State University 126.333 14,915 San Jacinto College Central 382.757 16,236 Schreiner University 601.011 59,005 South Plains College 13.169 763 South Texas College 43.860 3,904 Southern Arkansas University 46.000 3,814 Southern Methodist University 550.000 51,313 Southwestern Illinois College 32.980 716



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Units Paid Total Payments Southwestern University 277.143 $ 27,667 St. Edwards University 84.300 9,225 St. Mary's University 448.583 39,206 Stephen F. Austin State University 1,657.696 165,438 Tarleton State University 533.760 44,447 Tarrant County College NE Hurst 107.652 6,015 Tarrant County College SE Campus 13.978 1,516 Tarrant County College South Campus 5.831 683 Tarrant County College Trinity River Campus 4.744 555 Texas A&M University College Station 16,532.459 1,786,017 Texas A&M University Commerce 182.817 15,990 Texas A&M University Corpus Christi 503.706 42,484 Texas A&M University Galveston 673.358 65,951 Texas A&M University Health Science Center 94.033 8,082 Texas A&M University Kingsville 589.127 37,415 Texas Christian University 1,631.679 171,241 Texas Lutheran University 264.522 21,672 Texas State Technical College Harlingen 6.016 517 Texas State Technical College Sweetwater 7.642 895 Texas State Technical College West Texas 171.256 3,755 Texas State University San Marcos 4,109.165 400,987 Texas Tech University 7,030.096 695,113 Texas Wesleyan University 303.273 28,433 Texas Woman's University 611.346 54,137 The George Washington University 182.153 21,505 The School of the Art Institute of Chicago 200.000 15,940 Trinity University 58.000 5,078 Tyler Junior College 55.531 3,520 University Extension UT Austin 5.658 675 University of Alabama 758.459 70,966 University of Arizona 275.508 23,654 University of Arkansas at Fayetteville 365.396 22,407 University of Arkansas Fayetteville Independence 1,001.627 79,036 University of British Columbia 121.255 10,843 University of Central Florida 200.000 23,291 University of Central Oklahoma 66.220 7,818 University of Charleston 100.796 11,900 University of Colorado at Boulder 97.546 11,308 University of Dallas 90.858 10,147 University of Houston 1,944.285 194,913 University of Houston Clear Lake 104.994 12,520 University of Houston Downtown 93.295 11,019 University of Iowa 150.000 17,602 University of Kansas 3.968 460 University of Mary Hardin-Baylor 524.350 52,862 University of Miami 818.290 82,357 University of Michigan 212.601 25,100 University of Mississippi 157.045 15,475


Pages from the Texas Tuition Promise Fund® – Actuary’s Report on Program Soundness – August 31, 2014 (concluded)

27


Units Paid Total Payments University of Missouri Columbia Campus 46.000 $ 5,137 University of Missouri Columbia Center for 374.587 35,631 University of Montana 240.598 20,146 University of Montana Missoula College of Tec 98.729 8,304 University of New Mexico 87.670 10,350 University of North Carolina at Asheville 10.000 1,159 University of North Texas 3,102.181 291,298 University of Notre Dame 250.000 29,301 University of Oklahoma 2,752.515 291,904 University of Saint Thomas 100.000 11,806 University of San Diego 400.000 33,498 University of South Carolina Colombia 128.105 14,850 University of Southern California 350.000 40,696 University of St. Thomas 52.000 6,139 University of Texas at Arlington 1,456.902 150,357 University of Texas at Austin 15,671.004 1,768,527 University of Texas at Brownsville 110.014 13,000 University of Texas at Dallas 3,059.975 291,009 University of Texas at El Paso 393.073 40,220 University of Texas at San Antonio 2,935.257 296,155 University of Texas at Tyler 340.496 34,332 University of Texas Health Science San Antonio 132.597 11,305 University of Texas Pan American 683.144 59,571 University of the Incarnate Word 183.556 21,443 University of Tulsa 463.244 46,764 University of Washington 142.144 16,626 Vernon College 16.045 1,879 Wellesley College 289.896 34,225 West Texas A&M University 786.350 76,152 Western Technical College 200.000 4,342 Western Texas College 242.723 8,483 Wharton County Junior College 589.853 29,092 Whitman College 216.028 25,256 Grand Total 101,594.143 $ 10,195,387


FUNDINVESTMENTINFORMATION


Texas Guaranteed Tuition Plan Fund Investment Information

Market Value of FundYear Ending August 31, 2014

(Amounts in millions)

Total Fund $1,075

Fiscal Year 2014Time Weighted

Gross Fund Return

Total Fund 8.5%

Total Fund Benchmark 7.9%

Fiscal Year 2013

Fiscal Year 2014

Gross Return – Total Fund 5.2% 8.5%

Gross Return – Equity 18.1% 21.3%

Gross Return – Fixed Income .2% 5.9%

Gross Return – Cash and Short-term .1% .1%

Portfolio Diversification





Equity $293 25% $296 28%

Fixed Income $649 56% $590 55%

Cash and Short-term Securities $225 19% $189 17%

Other Investments $0 0% $0 0%

TOTAL, ALL INVESTMENTS $1,167 100% $1,075 100%

Note: GASB Statement No. 31 requires investments to be reported at fair value, therefore, Market and Book values are the same.

Equity28%

Fixed Income55%

Cash and Short Term Securites17%

Investment Asset Allocation,August 31, 2014

Publication #96-481. Revised January 2015For additional copies, write:

Texas Tomorrow FundsP.O. Box 13407

Austin, Texas 78711-3407

M A T C H

T H E P R O M I S E


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