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2007 Annual Report - Texas Guaranteed Tuition Plan

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					TEXAS GUARANTEED TUITION PLAN




                                                 Photo: Courtesy of MACEA.




         2007 ANNUAL REPORT
  For t he Year Ende d Augus t 31, 20 07


Te x as Pr ep aid Higher Educ at ion Tui t ion Pr o g r am
           Comptroller Susan Combs, Chair
                                                                                 2007 ANNUAL REPORT                                                                                               Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                                                                                                    TA b L E O F CO N T E N TS


PROGRAM SUMMARY  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .    3

INDEPENDENT AUDITORS’ REPORT  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                     9

MANAGEMENT’S DISCUSSION AND ANALYSIS  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                       13

FINANCIAL STATEMENTS  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .    21

STATEMENT OF NET ASSETS  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .       23

STATEMENT OF ACTIVITIES  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .    24
             Statement of Net Assets – Proprietary Funds  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                     25
             Statement of Revenues, Expenses and Changes in Net Assets – Enterprise Funds  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                                                                 27
             Statement of Cash Flows – Proprietary Fund  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                      28
             Statement of Fiduciary Net Assets – Fiduciary Funds  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                               29
             Statement of Changes to Fiduciary Net Assets  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                       30
             Statement of Net Assets – Governmental Funds  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                             31
             Statement of Revenues, Expenditures and Changes in Fund balance – Governmental Funds  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                                                                                    31

NOTES TO THE FINANCIAL STATEMENTS  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                           35

REPORT ON COMPLIANCE AND INTERNAL CONTROL OVER FINANCIAL REPORTING bASED ON AN
     AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                                                                                                                                  53

ACTUARY’S REPORT ON PROGRAM SOUNDNESS  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                            55
             Section I: Executive Summary  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .             59
             Section II: Summary of Contract Data and Current Assets  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                       61
             Section III: Actuarial Methods and Assumptions  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                        64
             Section IV: Soundness of the Plan as of August 31, 2007  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                       67
             Section V: Sensitivity Testing  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .        71
             Section VI: Changes in Surplus  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .           71

APPENDIX A: ACTIVE CONTRACTS COUNTS  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                     74

APPENDIX b: MATRICULATION INFORMATION  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                            76

FUND INVESTMENT INFORMATION  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                     87




                                                                                                                                                                                                                                                                                                                                                     iii
                  Photo: Courtesy of Prairie View A&M University.




PROGRAM SUMMARY
                                                                    TEXAS GUARANTEED TUITION PLAN
                             2007 ANNUAL REPORT                       Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




             C U M U L AT I V E E N R O L L M E N T D ATA
   FOR THE TEXAS GUARANTEED TUITION PLAN, 1996-2003


This annual report is designed to provide statistical information on enrollment, the latest financial audit report and the latest
Actuary’s Report on Program Soundness.



SUMMARY OF RESULTS
Type of College Plan Purchased
The 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 Selected
The payment option chosen most often is monthly until matriculation (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 Selected
The 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%




                                                                                                                                              3
Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m   2007 ANNUAL REPORT




        Age or Grade Level of Beneficiary
        Newborns and children under one year of age represent the largest groups for whom contracts have been purchased (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 Purchaser
        78 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 Contracts
        The largest number of contracts (15 percent) is purchased in Harris County.
                                         Harris                                        23,327        15.49%

                                         Dallas                                        14,252         9.47%

                                         Travis                                        11,509         7.64%

                                         Tarrant                                       10,543         7.00%

                                         Bexar                                         10,149         6.74%

                                         Collin                                         8,037         5.34%

                                         Denton                                         4,924         3.27%

                                         Total                                         82,741        54.95%




  4
                              2007 ANNUAL REPORT                     Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




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 Income
Families with incomes from $50,000 to $75,000 purchased the largest single volume of contracts by income group (18 percent).
Families with incomes from less than $20,000 up to $50,000 purchased nearly 17 percent 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%

                            Not Reported by Purchaser                         59,606            37.61%

                            Total                                            158,442           100.00%




Beneficiary’s Ethnicity
A 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%

                            Not Reported by Purchaser                         46,668            29.45%

                            Total                                            158,442           100.00%




Education Level of Purchaser
Nearly 29 percent of those that reported information related to education levels had a bachelor’s degree, 13 percent had a mas-
ter’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%

                            Not Reported by Purchaser                         50,029            31.57%

                            Total                                            158,442           100.00%




                                                                                                                                             5
AUDIT REPORT
               Photo: Courtesy of the University of North Texas.
                                                                   TEXAS GUARANTEED TUITION PLAN
                                2007 ANNUAL REPORT                            Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                               INDEPENDENT AUDITORS’ REPORT


To the Texas Prepaid Higher Education Tuition Board:

We have audited the accompanying financial statements of the business-type activities, the discretely presented component unit, each
major fund, and the fiduciary fund information of the Texas Prepaid Higher Education Tuition Board (the “Board”), a Board of the
State of Texas, as of and for the year ended August 31, 2007, which collectively comprise the Board’s basic financial statements as listed
in the table of contents. These financial statements are the responsibility of the Board’s management. Our responsibility is to express an
opinion on these financial statements based on our audit. We did not audit the financial statements of Tomorrow’s College Investment
Plan (the “Plan”), which represent 9%, and 30%, respectively, of the assets and revenues of the Board. Those financial statements were
audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included
for the Plan, is based on the report of the other auditors.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards
applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material
respects, the respective financial position of the business-type activities, the discretely presented component unit, each major fund, and
the fiduciary fund information of the Board, as of August 31, 2007, and the respective changes in financial position and cash flows, where
applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated January 22, 2008 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, and
contracts. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance
and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That
report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction
with this report in considering the results of our audit.

The Management’s Discussion and Analysis, on pages 2 through 7, is not a required part of the basic financial statements but is
supplementary information required by the Governmental Accounting Standards Board and accounting principles generally accepted
in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management
regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the informa-
tion and express no opinion on it.




Houston, Texas
January 22, 2008




                                                                                                                                                      9
       TEXAS GUARANTEED TUITION PLAN




                                         Photo: Courtesy of Rice Owlnet.




M A N AG E M E N T ’ S D IS C US S I O N A N D A N A LY S IS
                                2007 ANNUAL REPORT                            Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




         T E X A S P R E PA I D H I G H E R E D U C AT I O N T U I T I O N b O A R D
               M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
                                       UnAUdITEd


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, 2007. Please read it in
conjunction with the Agency’s financial statements.



FINANCIAL HIgHLIgHTS
The following events occurred at the Agency during fiscal year 2007:

The Texas Guaranteed Tuition Plan (TGTP)’s net assets, which are reported in an Enterprise Fund, decreased $54.3 million due
to several factors.

    •	    The	average	tuition	and	required	fees	for	Texas	public	senior	colleges	is	estimated	at	8.00%	for	all	unfunded	con-
          tracts at August 31, 2007, compared to the August 31, 2006, estimates of 7.50% for senior public contracts, 7.50% for
          junior college contracts, and 6.50% for private university contracts. The increase in the estimated average tuition and
          required fees resulted in a projected liability of $2,260,477,519.00 at August 31, 2007, compared to $2,096,825,348.00
          at August 31, 2006, an increase in the liability of $163.7 million.

    •	    The	projected	return	on	future	contract	collections	available	for	investment	at	August	31,	2007,	is	estimated	to	range	
          from 8.00% for the next 7 years to a low of 5.00% for the last 7 years of the program’s projected life-span, compared to
          the August 31, 2006, estimate of 8.25% for the remaining life of the program. The change in the projected interest rate
          decreased the value of future contract collections to $217,959,605.00 at August 31, 2007, compared to $275,577,417.00
          at August 31, 2006, a decrease of $57.6 million.

    •	    The	 impact	 of	 the	 above	 items	 is	 partially	 offset	 by	 an	 increase	 of	 $167.3	 million	 in	 the	 market	 value	 of	 current	
          assets.

The Texas Prepaid Higher Education Tuition Board (the Board) suspended new enrollment in the prepaid tuition plan in June
2003 when tuition rates were deregulated. The Board annually reviews the tuition rates at Texas colleges and universities and
assesses the feasibility of selling future contracts.

Net assets of the Board’s college saving plan, Tomorrow’s College Investment Plan (TCIP), as reported in the fiduciary fund state-
ments increased from $175,341,684.00 at August 31, 2006, to $223,766,139.00 at August 31, 2007. The financial activity for the
college saving plan is reported as a Private-Purpose Trust Fund. TCIP’s $48,424,455.00 increase was due to:

    •	    Investors	contributing	$49,625,517.00	to	TCIP	during	fiscal	year	2007,	and	

    •	    Appreciation	in	the	fair	value	of	their	investments	at	year	end	of	$17,437,665.00.	

These increases were partially offset by account distributions in fiscal 2007 of $21,900,684.00.




                                                                                                                                                    13
Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m    2007 ANNUAL REPORT




        OVERVIEw OF THE FINANCIAL STATEMENTS
        The annual reports consists of four parts - management’s discussion and analysis (this section), the basic financial statements,
        required supplementary information, and an optional section that presents combining statements for non-major governmental
        funds and enterprise funds. The basic financial statements include government-wide financial statements, fund financial state-
        ments, and notes to the financial statements.

        Government-wide Financial Statements
        Government-wide financial statements 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 assets 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 assets and how they have changed during the fiscal year. Net assets are the
        difference between the Agency’s assets and liabilities and represent 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. The Texas Guaranteed Tuition Plan (the state’s original prepaid qualified tuition plan), which the Board
                    oversees, is reported as a business-type activity.

              •	    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 Texas Prepaid Higher Education Tuition
                    Scholarship Foundation, Inc. (the “Foundation”) is reported as a component unit.



        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 three kinds of funds:

              •	    Governmental Funds	–	Activity	of	the	Agency’s	component	unit	is	reported	as	a	governmental	fund	type.	Governmen-
                    tal funds are accounted for using the modified accrual method of accounting, which measures cash and other assets
                    that can be readily converted into cash. The governmental fund statements provide a detailed short-term view of the
                    Texas Prepaid Higher Education Scholarship Foundation, Inc.

              •	    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 enter-
                    prise 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 Texas Guaranteed Tuition Plan
                    (TGTP) is reported as a proprietary fund, rather than a private purpose trust fund, because of its State of Texas con-
                    stitutional guaranty that state revenues will be transferred to pay obligated college tuition costs if sufficient resources
                    aren’t available in the fund.




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                                 2007 ANNUAL REPORT                      Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




     •	    Fiduciary Funds	–	The	Agency	is	the	trustee,	or	fiduciary,	for	Tomorrow’s College Investment Plan (TCIP), which is a
           college saving plan. TCIP was first offered by the Board in September 2002 but had financial activity prior to imple-
           mentation. It is reported as a Private Purpose Trust Fund because the State of Texas does not guarantee the program.
           All governmental fiduciary activities are reported in separate Statements of Fiduciary Net Assets and Changes in
           Fiduciary Net Assets. 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 Assets
Total assets of the Agency on August 31, 2007, were $2.549 billion, while total liabilities were $2.713 billion, resulting in a net
deficit balance of $165 million. $13.5 thousand of its net assets, which have been reduced by related debt and depreciation, were
invested in capital assets.

A summary of net assets is shown below:

                                                     Statement of Net Assets
                                                                BUsiNEss-TyPE ACTiViTiEs                           PERCENT ChANgE
                                                              2006                    2007                            2006-2007
 AssETs:

   Current and Other Assets                                $2,390,293,172.55             $2,548,516,542.76                   6.62%

   Capital Assets                                                 51,438.79                     13,485.10                  -73.78%

 TOTAl AssETs                                             $2,390,344,611.34             $2,548,530,027.86                    6.62%

 liABiliTiEs:

   Long-term Debt Outstanding                                             –                             –

   Other Liabilities                                       $2,500,681,684.75             $2,713,126,486.63                   8.50%

 TOTAl liABiliTiEs                                        $2,500,681,684.75             $2,713,126,486.63                    8.50%

 NET AssETs:

   Invested in Capital Assets,

      Net of Related Debt                                        $51,438.79                    $13,485.10                  -73.78%
   Restricted                                                             –                             –

   Unrestricted                                             (110,388,512.20)              (164,609,943.87)                  49.12%

 TOTAl NET AssETs                                         $(110,337,073.41)             $(164,596,458.77)                   49.18%




                                                                                                                                               15
Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m              2007 ANNUAL REPORT




        Changes in net Assets
        The Agency earned program revenues of $234.7 million and had expenses of $288.9 million. The excess of expenses over
        revenues caused the Agency’s total net assets to decrease by $54.2 million. This compares with a decrease in net assets the
        previous fiscal year of $2.6 million. Revenues and expenses of the Agency’s business-type activities are detailed below:


                                                                       Changes in Net Assets
                                                                                   BUsiNEss-TyPE ACTiViTiEs              PERCENT ChANgE
                                                                                 2006                    2007               2006-2007
         REvENUES

         Program Revenues:

            Charges for Services                                                $17,467,649.02           $8,774,499.25        -49.77%

            Operating Grants and Contributions                                  149,376,141.63          225,924,584.28         51.25%

            Capital Grants and Contributions                                                 –                      –
         TOTAl REVENUEs                                                        $166,843,790.65        $234,699,083.53         40.67%

         ExPENSES                                                               169,436,348.66          288,958,468.89         70.54%

         increase (Decrease) in Net Assets                                      $(2,592,558.01)       $(54,259,385.36)       1992.89%




        ANALYSIS OF THE AgENCY’S FUNDS
        Proprietary Funds
        The Agency’s decrease in net assets was primarily the result of several factors which were discussed earlier in this section under
        the “Financial Highlights”. In addition, these other financial changes should be noted:

              •	    Assets,	net	of	other	liabilities,	were	92.7%	of	tuition	benefits	obligations	at	August	31,	2007.	This	was	a	change	of	
                    -2.00% from fiscal year 2006’s figure.

              •	    Revenues	for	Tuition	Contract	Sales	totaled	$7.4	million	in	fiscal	year	2007,	which	was	a	53%	decrease	from	2006’s	
                    figure of $15.8 million. Revenue from contract sales is calculated by adding the change in future tuition contract
                    receivable estimated by the actuary to cash contract payments received from contract purchasers during the fiscal
                    year. The current year’s decrease was the result of actual tuition contract revenue received in FY 2007 being less than
                    the change in future prepaid contracts receivable from August 31, 2006 to August 31, 2007.

              •	    The	fair	value	of	investments	increased	9.65%	from	$1.7	billion	at	August	31,	2006,	to	$1.8	billion	at	August	31,	2007.	
                    This change was primarily due to the $53 million increase in market value of investments, $56 million in interest and
                    dividend income that was reinvested, and the additional $16 million in prepaid contract receipts that were invested
                    during fiscal year 2007.

              •	    Tuition	contract	benefit	expenses	totaled	$256.5	million,	which	was	an	80%	increase	over	2006.	Tuition	benefit	
                    expense is calculated by adding the change in future tuition contract benefits payable estimated by the actuary to
                    cash tuition payments made by TGTP during the fiscal year. The current year’s increase was the result of more
                    students using the plan to pay for college in fiscal year 2007. Average tuition and required fees for the 2007-2008
                    academic year increased 7.3% compared to the assumption of 7.5% that was used in estimating future contract
                    benefits payable at August 31, 2006.




  16
                             2007 ANNUAL REPORT                       Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




    •	   Other	operating	expenses	totaled	$7.5	million	in	2007,	which	was	a	30.1%	increase	from	2006.	This	change	was	pri-
         marily the result of a $1.7 million increase in the payment of earnings to purchasers on cancelled contracts. Since a
         contract purchaser who voluntarily cancels when the beneficiary has graduated from high school receives a refund
         based on current average tuition, the increase in earnings paid was due to more cancellation refunds that were eligible
         to receive earnings in 2007, partially offset by the lower than expected 7.3% increase in tuition rates compared to the
         estimate of 7.5% at August 31, 2006.



FIDUCIARY FUNDS
The financial activity of the Board’s college saving program, Tomorrow’s College Investment Program (TCIP), was launched
on September 4, 2002, and is reported as a private-purpose trust fund. Over the first five years of the plan, Enterprise Capital
Management, which is the mutual fund company selected by the Board to serve as fund manager for the college saving pro-
gram, committed to contribute $6,619,800 to the Board for use in marketing the plan program. It also committed $438,000 for
state implementation and administration costs. The unspent portion of these payments will be used to cover future costs and is
reported as deferred revenue on the statement of net assets.

During the fiscal year ending August 31, 2007, the following events occurred:

    •	   The	Board	spent	$686,198.41	to	market	the	college	saving	plan.	The	source	of	funding	was	$709,884.41	received	from	
         its plan manager, Enterprise Capital Management, in September 2006.

    •	   Investors	contributed	$49,625,517.00	to	TCIP,	the	program	earned	$4,092,859.54	in	interest	and	investment	income,	
         and the fair market value of the investments increased $17,437,665.00.

    •	   $21,900,684.00	was	distributed	from	TCIP	accounts.	

    •	   Net	assets	for	the	plan	increased	to	$223,766,139.00	at	August	31,	2007.	



BUDgETARY HIgHLIgHTS
The Board at the beginning of each fiscal year adopts an annual operating budget. This expenditure budget includes all admin-
istrative and marketing costs for both the prepaid and college saving programs and totaled $10.2 million for the fiscal year
ended August 31, 2007.

    •	   The	largest	component	of	the	2007	budget	was	consultant	and	professional	fees	at	$8.3	million	and	81%	of	the	total	
         budget. Of that figure, $7.3 million dollars was budgeted to pay TGTP’s investment managers, $725 thousand was
         for media buys (marketing) to advertise the college saving plan, and the remaining $269 thousand was budgeted for
         professional fees that included investment advisors, a plan manager advisor, outside auditors, outside legal counsel,
         and actuarial services.

    •	   The	budget	increased	$900	thousand	and	10%	from	the	fiscal	year	2006	budget	due	to	the	increased	amount	budgeted	
         for investment managers as a result of the increase in the total assets under management.




                                                                                                                                            17
Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m            2007 ANNUAL REPORT




        CAPITAL ASSETS AND DEBT ADMINISTRATION
        Capital Assets

        As of August 31, 2007, the Agency had $13.5 thousand in capital assets net of depreciation. The 73.78% decrease in capital assets
        was due to $22 thousand in depreciation expense for fiscal year 2007 and the transfer and deletion of net assets of $16 thousand.

                                                               Capital Assets (Net of Depreciation)
                                                                                   BUsiNEss-TyPE ACTiViTiEs            PERCENT ChANgE

                                                                                2006                    2007               2006-2007
         Furniture and Equipment                                               $51,438.79               $13,485.10            (73.78)%

         TOTAl CAPiTAl AssETs                                                  $51,438.79              $13,485.10            (73.78)%




        debt Administration

        The Agency has no debt issued.



        ECONOMIC FACTORS AND NExT YEAR’S BUDgET AND RATES
        The two main economic indicators affecting the financial position of the Agency during fiscal year 2007 were:

              •	    The	average	tuition	and	required	fees	for	Texas	public	senior	colleges	increased	7.3%	in	the	fall	of	2007	compared	to	
                    the 7.5% estimated last year. This slightly favorable variance in the 2007 tuition increase was offset by an increase from
                    7.5% to 8.0% in the assumption for projected future average tuition increases.

              •	    The	Fund’s	gross	investment	return	of	12.53%	for	the	current	year	exceeded	the	actuary	assumption	of	8.25%.	The	
                    Board revised the assumption for future investment returns downward from 8.25% projected in fiscal 2006 for the
                    life-span of the program to a range of 8.00% for 2008-2014, 7.80% for 2015, 7.50% for 2016, 7.20% for 2017, 5.60% for
                    2018, and 5.00% for 2019 and after.

        Because of the uncertainty due to tuition deregulation and the widening gap between the highest and the lowest priced Texas
        senior public universities, the Texas Prepaid Higher Education Tuition Board has not set a new enrollment period for the Texas
        Guaranteed Tuition Plan for the 2007-2008 academic year. The Board will review the tuition rates at Texas colleges annually
        and assess the feasibility of selling future contracts.

        The Board adopted an operating budget of $10.8 million for fiscal year 2008. The $600 thousand increase was primarily the
        result of additional investment management costs being budgeted for the prepaid plan due to the greater amount of assets
        under management.




  18
                             2007 ANNUAL REPORT                       Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




CONTACTINg THE AgENCY
This report is designed to provide our citizens, taxpayers, customers, and 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 contact the Chief Financial Officer of the Texas Tomorrow Funds at 111 E. 17th
Street, Austin Texas 78711-1440, 1-800-445-4723(GRAD).




                                                                                                                                            19
TEXAS GUARANTEED TUITION PLAN




                         Photo: Courtesy of Texas A&M at Kingsville.




    FINAN CIAL S TAT E MENT S
                                     2007 ANNUAL REPORT                                   Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                                                   Statement of Net Assets
                                                                       August 31, 2007
                                                                                                PRiMARy gOVERNMENT
                                                                                                 Business-type Activities           Component Unit
AssETs
Current Assets:
  Cash and Temporary Investments:
      Cash in State Treasury                                                                               $7,211,802.88                      $2,741.00
  Securities Lending Collateral                                                                           304,333,655.87
  Restricted Assets:
      Cash in Bank                                                                                            493,835.50
      Cash Equivalents                                                                                     51,966,785.62
  Receivables:
      Interest and Dividends Receivable                                                                    10,050,448.46
      Investment Trades                                                                                   146,028,896.95
      Tuition Contracts Receivable                                                                         53,422,681.00
Total Current Assets                                                                                    $573,508,106.28                       $2,741.00
Non-Current Assets:
  Restricted Assets:
      Investments                                                                                      $1,810,471,512.48
      Tuition Contracts Receivable                                                                        164,536,924.00
  Capital Assets:
      Depreciable:
          Furniture and Equipment                                                                           2,269,002.70
          Less: Accumulated Depreciation                                                                   (2,255,517.60)
Total Non-Current Assets                                                                               $1,975,021,921.58                          $0.00
TOTAl AssETs                                                                                           $2,548,530,027.86                      $2,741.00
liABiliTiEs
Current liabilities:
  Payables:
      Accounts Payable                                                                                     $1,972,784.14
      Investment Trades                                                                                   146,216,710.47
      Due to Other Agencies (Note 8)                                                                           72,591.76
      Employees’ Compensable Leave                                                                             48,949.35
      Liabilities Payable From Restricted Assets:
          Contract Benefits and Expenses                                                                  194,435,578.00
          Obligations Under Security Lending                                                              304,333,655.87
Total Current liabilities                                                                               $647,080,269.59                           $0.00
Non-Current liabilities:
  Employees’ Compensable Leave                                                                                 $4,276.04
  Liabilities Payable From Restricted Assets:
      Contract Benefits and Expenses                                                                     2,066,041,941.00
Total Non-Current liabilities                                                                          $2,066,046,217.04                          $0.00
TOTAl liABiliTiEs                                                                                      $2,713,126,486.63                          $0.00
NET AssETs
  Invested in Capital Assets, Net of Related Debt                                                             $13,485.10
  Unrestricted                                                                                           (164,609,943.87)                     $2,741.00
TOTAl NET AssETs                                                                                       $(164,596,458.77)                      $2,741.00

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




                                                                                                                                                                23
24
                                                                                                 Statement of Activities
                                                                                                    August 31, 2007

                                                                                        PROgRAM REVENUEs                                 NET (ExPENsE) REVENUE AND ChANgEs iN NET AssETs
                                                                                                                                                    PRiMARy gOVERNMENT
                                                                    Charges for        Operating grants        Capital grants and      governmental Business-type                              Component
                                                 Expenses            services          and Contributions         Contributions           Activities       Activities            Total             Unit
     FUNCTiONs/PROgRAMs

     Primary government:

       Business-type Activities:

           Prepaid Tuition Plan                $288,958,468.89        $8,774,499.25        $225,924,584.28               $0.00             $0.00        $(54,259,385.36)    $(54,259,385.36)

       Total Business-type Activities         $288,958,468.89        $8,774,499.25        $225,924,584.28                $0.00             $0.00       $(54,259,385.36)    $(54,259,385.36)        $0.00

     TOTAl PRiMARy gOVERNMENT                 $288,958,468.89        $8,774,499.25        $225,924,584.28                $0.00             $0.00       $(54,259,385.36)    $(54,259,385.36)        $0.00

     COMPONENT UNiTs:
                                                                                                                                                                                                             Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




       No Activity

     TOTAl COMPONENT UNiTs                               $0.00                $0.00                   $0.00              $0.00                                                                     $0.00



                                                                                                              gENERAl REVENUEs:

                                                                                                              None

                                                                                                                Change in Net Assets           $0.00    $(54,259,385.36)    $(54,259,385.36)       $0.00

                                                                                                              Net Assets-Beginning             $0.00   $(110,337,073.41)   $(110,337,073.41)    $2,741.00

                                                                                                              Net Assets-Ending                $0.00   $(164,596,458.77)   $(164,596,458.77)    $2,741.00

     The accompanying notes to the financial statements are an integral part of this financial statement.
                                                                                                                                                                                                            2007 ANNUAL REPORT
                                     2007 ANNUAL REPORT                     Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                                                Exhibit III
                                     Combined Balance Sheet/Statement of Net Assets – Proprietary Funds
                                                             August 31, 2007
                                                                                                              PROPRiETARy FUND
                                                                                                                  ENTERPRisE
                                                                                                             (Fund 0892) U/F (0892)
AssETs

Current Assets:

  Cash and Cash Equivalents:

      Cash in State Treasury                                                                                             $7,211,802.88

  Securities Lending Collateral                                                                                         304,333,655.87

  Restricted Assets:

      Cash in Bank (Note 3)                                                                                                 493,835.50

      Cash Equivalents (Note 3)                                                                                          51,966,785.62

  Receivables from:

      Interest and Dividends                                                                                             10,050,448.46

      Investment Trades                                                                                                 146,028,896.95

      Tuition Contracts                                                                                                  53,422,681.00

Total Current Assets                                                                                                  $573,508,106.28

Non-Current Assets:

  Restricted Assets:

      Investments (Note 3)                                                                                           $1,810,471,512.48

      Tuition Contracts Receivable                                                                                      164,536,924.00

  Capital Assets:

      Depreciable:

          Furniture and Equipment                                                                                         2,269,002.70

          Less: Accumulated Depreciation                                                                                 (2,255,517.60)

Total Non-Current Assets                                                                                            $1,975,021,921.58

TOTAl AssETs                                                                                                        $2,548,530,027.86

liABiliTiEs

Current liabilities:

  Payables:

      Accounts Payable                                                                                                   $1,972,784.14

      Investment Trades                                                                                                 146,216,710.47

      Due to Other Agencies (Note 8)                                                                                         72,591.76

      Employees’ Compensable Leave                                                                                           48,949.35

      Liabilities Payable From Restricted Assets:

  Contract Benefits and Expenses                                                                                        194,435,578.00

  Obligations Under Security Lending                                                                                    304,333,655.87

Total Current liabilities                                                                                             $647,080,269.59




                                                                                                                                                  25
Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m                     2007 ANNUAL REPORT




                                                                   Exhibit III (Continued)
                                              Combined Balance Sheet/Statement of Net Assets – Proprietary Funds
                                                                      August 31, 2007
                                                                                                                       PROPRiETARy FUND
                                                                                                                           ENTERPRisE
                                                                                                                      (Fund 0892) U/F (0892)
         Non-Current liabilities:

            Employees’ Compensable Leave                                                                                            $4,276.04

            Liabilities Payable from Restricted Assets:

               Contract Benefits and Expenses                                                                                 2,066,041,941.00

         Total Non-Current liabilities                                                                                      $2,066,046,217.04

         TOTAl liABiliTiEs                                                                                                  $2,713,126,486.63

         NET AssETs

            Invested in Capital Assets, Net of Related Debt                                                                        $13,485.10

            Unrestricted                                                                                                      (164,609,943.87)

         TOTAl NET AssETs                                                                                                   $(164,596,458.77)

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




  26
                                     2007 ANNUAL REPORT                                    Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                                            Exhibit IV
                       Combined Statement of Revenues, Expenses, and Changes in Net Assets – Enterprise Funds
                                                         August 31, 2007
                                                                                                                             PROPRiETARy FUND
                                                                                                                                 ENTERPRisE
                                                                                                                            (Fund 0892) U/F (0892)
OPERATiNg REVENUEs:

  Sales of Goods and Services:

      Tuition Contracts                                                                                                                 $7,415,375.69

      License, Fees and Permits                                                                                                          1,359,123.56

      Other Revenues                                                                                                                       227,460.89

TOTAl OPERATiNg REVENUEs                                                                                                               $9,001,960.14

OPERATiNg ExPENsEs:

  Tuition Contract Benefits and Expenses                                                                                              $256,501,818.03

  Salaries and Wages                                                                                                                       777,290.26

  Payroll Related Costs                                                                                                                    175,164.01

  Professional Fees and Services                                                                                                         6,962,834.95

  Travel                                                                                                                                     3,194.07

  Materials and Supplies                                                                                                                    91,477.88

  Communications and Utilities                                                                                                              53,691.46

  Repairs and Maintenance                                                                                                                  307,485.47

  Rentals and Leases                                                                                                                        24,305.36

  Printing and Reproduction                                                                                                                 28,492.31

  Depreciation                                                                                                                              22,319.20

  Other Operating Expenses                                                                                                               7,457,292.10

TOTAl OPERATiNg ExPENsEs                                                                                                             $272,405,365.10

OPERATiNg iNCOME (lOss)                                                                                                             $(263,403,404.96)

NONOPERATiNg REVENUEs (ExPENsEs):

  Interest and Dividend Income                                                                                                         $55,776,121.35

  Loan Premiums/Fees on Security Lending                                                                                                17,209,748.45

  Net Increase in Fair value of Investments                                                                                            152,711,253.59

  Investing Activities Expense                                                                                                             (18,144.42)

  Borrower Rebates and Agent Fees                                                                                                      (16,519,324.88)

  Loss on Sale of Fixed Asses                                                                                                              (15,634.49)

TOTAl NONOPERATiNg REVENUE (ExPENsE)                                                                                                 $209,144,019.60

NET iNCOME (lOss)                                                                                                                    $(54,259,385.36)

ChANgE iN NET AssETs                                                                                                                 $(54,259,385.36)

TOTAl NET AssETs – september 1, 2006                                                                                                $(110,337,073.41)

TOTAl NET AssETs – August 31, 2007                                                                                                  $(164,596,458.77)

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




                                                                                                                                                                 27
Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m                    2007 ANNUAL REPORT




                                                                      Exhibit V
                            Combined Statement of Cash Flows – All Proprietary Fund Types and Nonexpendable Trust Funds
                                                                  August 31, 2007
                                                                                                                      PROPRiETARy FUND
                                                                                                                          ENTERPRisE
                                                                                                                     (Fund 0892) U/F (0892)
         CAsh FlOWs FROM OPERATiNg ACTiViTiEs
            Proceeds Received from Customers                                                                                  $66,382,641.96
            Proceeds from Other Revenues                                                                                          227,460.89
            Payments to Suppliers for Goods and Services                                                                      (15,535,460.76)
            Payments for Other Expenses (i.e. Universities/Colleges)                                                          (92,838,414.52)
         Net Cash Used by Operating Activities                                                                              $(41,763,772.43)
         CAsh FlOWs FROM NONCAPiTAl FiNANCiNg ACTiViTiEs
         Net Cash Provided by Noncapital Financing Activities                                                                          $0.00
         CAsh FlOWs FROM CAPiTAl AND RElATED FiNANCiNg ACTiViTiEs
            Payments to Acquire Fixed Assets
         Net Cash Provided by Capital and Related Financing Activities                                                                 $0.00
         CAsh FlOWs FROM iNVEsTiNg ACTiViTiEs
            Proceeds from Interest and Investment Income                                                                      $72,737,860.91
            Payments to Security Lending Borrowers and Agents                                                                 (16,523,908.36)
            Payments to Acquire Investments, Net                                                                              (14,199,771.78)
         Net Cash Used by investing Activities                                                                               $42,014,180.77
         Increase (Decrease) in Cash and Cash Equivalents                                                                        $250,408.34
         Cash and Cash Equivalents 2006                                                                                      $59,422,015.66
         Cash and Cash Equivalents 2007                                                                                      $59,672,424.00
         RECONCiliATiON OF OPERATiNg iNCOME TO NET CAsh PROViDED By OPERATiNg ACTiViTiEs
            Operating Income (Loss)                                                                                         $(263,403,404.96)
         Adjustments to Reconcile Operating loss to Net Cash Used by Operating Activities:
            Cash Flow and Operating Classification Differences                                                                    241,034.72
            Amortization and Depreciation                                                                                          22,319.20
            Change in Assets and Liabilities:
               (Increase) Decrease in Tuition Contracts Receivable                                                             57,617,812.00
               Increase (Decrease) Benefits and Expenses Payable                                                              163,652,171.00
               Increase (Decrease) in Accounts Payables                                                                           128,870.52
               Increase (Decrease) in Due to Other Agencies                                                                       (34,214.51)
               Increase (Decrease) in Accrued Compensable Leave                                                                    11,639.60
         TOTAl ADjUsTMENTs                                                                                                  $221,639,632.53
         Net Cash Used by Operating Activities                                                                              $(41,763,772.43)
         Disclosure of Accounting Policy On Cash and Cash Equivalents:
         All highly liquid investments with a maturity of three months or less at the time of
         purchase are considered cash and cash equivalents.
         COMPOsiTiON OF ENDiNg BAlANCE iN CAsh AND CAsh EQUiVAlENTs
            Cash in State Treasury                                                                                             $7,211,802.88
            Restricted Cash and Cash Equivalents                                                                              $52,460,621.12
         TOTAl, CAsh AND CAsh EQUiVAlENTs                                                                                    $59,672,424.00

         The accompanying Notes to the Financial Statements are an integral part of this financial statement.




  28
                                     2007 ANNUAL REPORT                                    Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                                                  Exhibit VI
                                       Balance Sheet/Statement of Fiduciary Net Assets – Fiduciary Funds
                                                              August 31, 2007
                                                                                                                          PRiVATE-PURPOsE TRUsT
                                                                                                                        (Fund 0892) U/F (2892 & 3892)
AssETs

Cash and Cash Equivalents:

  Cash in State Treasury                                                                                                                   $73,004.83

Investments (Note 3)                                                                                                                   223,764,653.00

Receivables From:

      Interest and Dividends                                                                                                                   334.78

      Investment Trades                                                                                                                    745,796.00

TOTAl AssETs                                                                                                                         $224,583,788.61

liABiliTiEs

Payables From:

  Accounts                                                                                                                                 $15,191.49

  Investment Trades                                                                                                                        744,310.00

Deferred Revenues                                                                                                                           58,148.12

TOTAl liABiliTiEs                                                                                                                        $817,649.61

NET AssETs

Held in Trust For:

  College Saving Plan Contributors                                                                                                     223,766,139.00

TOTAl NET AssETs                                                                                                                     $223,766,139.00

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




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m                     2007 ANNUAL REPORT




                                                                       Exhibit VII
                                           Combined Statement of Changes to Fiduciary Net Assets – Fiduciary Funds
                                                                     August 31, 2007
                                                                                                                    PRiVATE-PURPOsE TRUsT
                                                                                                                  (Fund 0892) U/F (2892 & 3892)
         ADDiTiONs

         Contributions:

            Account Holder Contributions                                                                                      $49,625,517.00

         Total Contributions                                                                                                  $49,625,517.00

         investment income:

            From Investing Activities

            Net Appreciation (Depreciation) in Fair value of Investments                                                      $17,437,665.00

            Interest and Investment Income                                                                                      4,092,859.54
         Total investing income (loss)                                                                                        $21,530,524.54

            Less Investing Activities Expense                                                                                     818,985.00

         Net income from investing Activities                                                                                 $20,711,539.54

         Other Additions:

            Fees – Adminstrative Service                                                                                         $741,584.54

            Other                                                                                                                   2,470.00

         Total Other Additions                                                                                                   $744,054.54

         TOTAl ADDiTiONs                                                                                                      $71,081,111.08

         DEDUCTiONs

            Distributions Made from Accounts                                                                                  $21,900,684.00

            Professional Fees and Services                                                                                        755,970.28

            Other                                                                                                                       1.80

         TOTAl DEDUCTiONs                                                                                                     $22,656,656.08

         NET iNCREAsE (DECREAsE)                                                                                              $48,424,455.00

         NET ASSETS – September 1, 2006                                                                                      $175,341,684.00

         NET ASSETS – August 31, 2007                                                                                        $223,766,139.00

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




  30
                                     2007 ANNUAL REPORT                                    Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                                                Exhibit I
                                   Combined Balance Sheet/Statement of Net Assets – governmental Funds
                                                             August 31, 2007
                                                                                                                       DisCRETE gOVERNMENTAl
                                                                                                                            COMPONENT UNiT
                                                                                                                  Texas Prepaid higher Education Tuition
                                                                                                                         scholarship Foundation
                                                                                                                          (Fund 0892) U/F (1892)
AssETs

Current Assets:

      Cash and Cash Equivalents:

      Cash in State Treasury                                                                                                             $2,741.00

TOTAl AssETs                                                                                                                            $2,741.00

liABiliTiEs AND FUND BAlANCE
  Fund Balance (Deficits):

      Undesignated                                                                                                                       $2,741.00

  Total Fund Balance                                                                                                                     $2,741.00

TOTAl liABiliTiEs AND FUND BAlANCE                                                                                                      $2,741.00

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




                                                                Exhibit II
                               Combined Statement of Revenues, Expenditures, and Changes in Fund Balances/
                                              Statement of Activities – governmental Funds
                                                            August 31, 2007
                                                                                                                       DisCRETE gOVERNMENTAl
                                                                                                                            COMPONENT UNiT
                                                                                                                  Texas Prepaid higher Education Tuition
                                                                                                                         scholarship Foundation
                                                                                                                          (Fund 0892) U/F (1892)
REVENUEs

  License, Fees and Permits

  Contributions and Donations

TOTAl REVENUEs                                                                                                                              $0.00

ExPENDiTUREs

  Other Expenditures:

      Scholarships Purchased

TOTAl ExPENDiTUREs                                                                                                                          $0.00

ExCEss (DEFiCiENCy) OF REVENUEs OVER (UNDER) ExPENDiTUREs

Fund Balance – September 1, 2006                                                                                                         $2,741.00

Fund Balance – August 31, 2007                                                                                                           $2,741.00

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




                                                                                                                                                                 31
                                             Photo: Reprinted, courtesy of Texas A&M College of Veterinary Medicine & Biomedical sciences.
                                                                                                                                             TEXAS GUARANTEED TUITION PLAN




N OT E S TO T HE FINAN CIAL S TAT E MENT S
                              2007 ANNUAL REPORT                       Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




T E X A S P R E PA I D H I G H E R E D U C AT I O N T U I T I O N b O A R D ( 3 1 5 )
                    b A S I C F I N A N C I A L S TAT E M E N T S
              N O T E S TO T H E F I N A N C I A L S TAT E M E N T S


NOTE 1: Summary Of SigNificaNT accOuNTiNg POliciES

ENTITY
The Texas Prepaid Higher Education Tuition Board (Board) is an Agency of the State of Texas and its financial records com-
ply with state statutes and regulations. This includes compliance with the Texas Comptroller of Public Accounts’ Reporting
Requirements of State Agencies.

The Texas Prepaid Higher Education Tuition Board is chaired by Comptroller Susan Combs and includes two members
appointed by the Governor and four members appointed by the Lt. Governor (the House Speaker 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 Agency operates the Texas Prepaid Higher Education Tuition Programs, also known as the Texas Tomorrow Funds, under
the authority of House Bill 1214 enacted by the Legislature in May 1995 and signed by the Governor in June 1995. In May 2001,
the 77th Legislature passed Senate Bill No. 555 that authorized the Texas Prepaid Higher Education Tuition Board to offer a
college savings plan in addition to its prepaid tuition program. Because of this second option for saving for college, the name of
the original prepaid program was changed from the Texas Tomorrow Fund to the Texas Guaranteed Tuition Plan.

The Texas Guaranteed Tuition Plan is a unique program that allows Texas families to lock in the cost of tomorrow’s college
tuition and required fees today. The program is flexible and offers a variety of college plans and payment options. Since the
program began, over 158,000 prepaid tuition contracts have been sold.

The Board selected Enterprise Capital Management as plan manager for the new college savings plan, which is named Tomor-
row’s College Investment Plan. The plan offers contributors a variety of investment options and was launched on September 4,
2002. The assets can be used for 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 vocational schools. As contractually required,
Enterprise provided funds to the Board during the fiscal year for the marketing and reimbursement of state administrative costs
to implement and oversee the new plan.

The Enterprise contract expired on August 31, 2007, but was extended to allow for transition to a new plan manager, OFI Private
Investments, Inc., a subsidiary of OppenheimerFunds, Inc., effective November 19, 2007.

Blended Component Units
No component units have been identified which should have been blended into an appropriate fund.




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m    2007 ANNUAL REPORT




        discrete Component Units
        These component units 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 component unit column of the financial
        statements includes financial data of the following entity:

        Texas Prepaid Higher Education Tuition Scholarship Foundation, Inc. (the “Foundation”) was created to provide prepaid tuition
        scholarships to students meeting economic or academic requirements. The Foundation is a direct-support organization of the
        prepaid tuition program and is authorized by Section 54.633 of the Texas Education Code. The Foundation is governed by a
        board composed of the 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.



        FUND STRUCTURE
        The accompanying financial statements are presented on the basis of funds, each of which is considered a separate accounting
        entity.

        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.

        Financial activity for the Texas Guaranteed Tuition Plan (Fund 0892) is reported as an enterprise fund.

        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 pen-
        sion trust fund, or a private purpose trust fund is used.

        Private-Purpose Trust Funds
        Private-Purpose Trust Funds are used to account for all other trust arrangements whose principal and interest benefit individu-
        als, private organizations, or other governments.

        Financial activity for Tomorrow’s College Investment Plan (Funds 2892 and 3892) is reported as a private-purpose trust fund.

        COMPOnEnT UnITS
        Governmental Component Units are used to account for discretely presented component units that follow governmental fund
        accounting principles. The financial activity for the Texas Prepaid Higher Education Tuition Scholarship Foundation, Inc.
        (Fund 1892) is reported as a governmental component unit.




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                               2007 ANNUAL REPORT                         Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




MEASUREMENT FOCUS AND BASIS OF ACCOUNTINg
The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis
of accounting as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and
expenses are recorded when a liability is incurred, regardless of the timing of related cash flows.



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 measure-
ment focus.

Governmental fund types that build the fund financial statements are accounted for using the modified accrual basis of
accounting. Under the modified accrual basis, revenues are recognized in the period in which they become both measurable
and available to finance operations of the fiscal year or liquidate liabilities existing at fiscal year end. The State of Texas consid-
ers receivables collected within sixty days after year-end to be available and recognizes them as revenues of the current year
for Fund Financial Statements prepared on the modified accrual basis. Expenditures and other uses of financial resources are
generally recognized when the related fund liability is incurred.

Governmental adjustment fund types that will build the government-wide financial statements are accounted for using the full
accrual method of accounting. This includes capital assets, accumulated depreciation, unpaid Employee Compensable leave, the
unmatured debt service (principal and interest) on general long-term liabilities, long-term capital leases, long-term claims and
judgments and full accrual revenues and expenses. The activity will be recognized in these fund types.

Proprietary funds, pension trust funds, external investment trust 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 and internal service funds include the costs of
sales and services, administrative expenses, and depreciation on capital assets.

Prepaid tuition contracts represent probable future economic benefits to the Agency and are legally enforceable agreements.
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.

The Board applies all applicable GASB pronouncements and all applicable Financial Accounting Standards Board (FASB)
statements and interpretations issued on or before November 30, 1989, unless they conflict or contradict GASB pronounce-
ments. The Board has elected not to apply FASB guidance issued subsequent to November 30, 1989, unless specifically
adopted by the GASB.

Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not
available to support the Board’s own programs. Fiduciary funds are presented on an economic resources measurement focus
and the accrual basis of accounting, similar to the government-wide financial statements.




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m   2007 ANNUAL REPORT




        BUDgETS AND BUDgETARY ACCOUNTINg
        At the beginning of each fiscal year, the Board adopts an annual operating budget. This expenditure budget includes all
        administrative and marketing costs for both the prepaid tuition and college savings programs and totaled $10,249,923 for
        the fiscal year ended August 31, 2007.



        ASSETS, LIABILITIES AND FUND BALANCES/NET ASSETS
        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 Fund 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 Fund
        carrying amount of deposits and bank balances held by the state treasury was $7,211,802.88 for the Texas Guaranteed Tuition
        Plan, $73,004.83 for Tomorrow’s College Investment Plan, and $2,741.00 for the Texas Higher Education Tuition Scholarship
        Foundation, Inc. at August 31, 2007, all of which were fully collateralized or insured. A total of $52,460,621.12 was invested in
        the investment custodian’s short-term investment funds and U. S. Treasury Securities at August 31, 2007.

        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. Securities lent are reported as assets on the balance sheet. The costs
        of securities lending transactions are reported as expenses in the operating statement. These costs are reported at gross.

        Interest and Dividends Receivables
        This includes interest and dividends accrued on investments and the depository interest earned by the State Treasury at year-
        end that will not be deposited to the Fund until after the end of the fiscal year.

        Investment Trade Receivables
        This represents investment sales that occurred on or before fiscal year end for which cash payment will be received after fiscal
        year end.

        Tuition Contracts Receivable
        The prepaid tuition plan records 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 clas-
        sified as short-term; otherwise, classification as a long-term receivable is appropriate.

        Capital Assets
        Assets with an initial, individual cost of more than $5,000.00 and an estimated useful life in excess of one year should be capital-
        ized. 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 market value on the acquisition date. Depreciation is charged to opera-
        tions over the estimated useful life of each asset, using the straight-line method. The accumulated depreciation 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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                               2007 ANNUAL REPORT                        Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




LIABILITIES

Accounts Payable
Accounts Payable represents 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 fiscal year end for which cash payment
will be made after fiscal year end.

Contract Benefits and Expenses Payable
The prepaid tuition plan records contract benefits payable at the actuarial present value (APV) of future tuition obligation,
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.

Employees’ Compensable Leave
Employees’ Compensable Leave Balances represent the 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 assets.

FUnd BALAnCE/nET ASSETS
The difference between fund assets and liabilities is ‘Net Assets’ on the government-wide, proprietary and fiduciary fund state-
ments, and ‘Fund Balance’ is the difference between fund assets and liabilities on the governmental fund statements.

Reservations of Fund Balance
Fund balances for governmental funds are classified as either reserved or unreserved in the fund financial statements. Reserva-
tions are legally restricted to a specific future use or not available for expenditure.

Unreserved/Undesignated
This represents the unappropriated balance at year-end of special funds.

Invested in Capital Assets, Net of Related Debt
Invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation and reduced by outstanding
balances for bond, notes, and other debt that are attributed to the acquisition, construction, or improvement of those assets.

Restricted Net Assets
Restricted Net Assets result when constraints placed on net asset use are either externally imposed by creditors, grantors, con-
tributors, and the like, or imposed by law through constitutional provisions or enabling legislation.

Unrestricted Net Assets
Unrestricted net assets consist of net assets, which do not meet the definition of the two proceeding categories. Unrestricted net
assets often have constraints on resources, which are imposed by management, but can be removed or modified.




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m                2007 ANNUAL REPORT




        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 expendi-
                  tures or expenses in the reimbursing fund and as a reduction of expenditures in the reimbursed fund. Reimburse-
                  ments 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 are presented in Note 8.



        NOTE 2: caPiTal aSSETS
        A summary of changes in Capital Assets for the year ended August 31, 2007, is presented below:


                                                                                           PRiMARy gOVERNMENT
                                                                                        REClAssiFiCATiONs
                                                                                            increase-   Decrease-
                                                Balance                        Completed      int’agy     int’agy                                     Balance
                                                09/01/06       Adjustments        CiP        Transfer    Transfer      Additions      Deletions       08/31/07
         Business-type Activities:

         Depreciable Assets:

            Furniture and Equipment           $2,427,333.25                                             $(98,138.25)                  $(60,192.30)   $2,269,002.70

         Less Accumulated Depreciation for:

            Furniture and Equipment           (2,375,894.46)                                              82,503.76    (22,319.20)      60,192.30    (2,255,517.60)

         Net Depreciable Assets                   51,438.79        $ -            $ -          $ -          $ -        (22,319.20)        $ -            13,485.10

         NET BUSINESS-TYPE ACTIvITIES,
                                                 $51,438.79        $ -            $ -          $ -      $(15,634.49)   $(22,319.20)       $ -           $13,485.10
         CAPITAL ASSETS




        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.




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                               2007 ANNUAL REPORT                                 Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




DEPOSITS OF CASH IN BANk
The Texas Guaranteed Tuition Plan’s investment policy allows its investment managers to hold cash and cash equivalents for liquid-
ity in the portfolio and to facilitate trading. They are included as “Restricted Cash in Bank” on the statement of net assets.



                             Business-type Activities
                             Cash in Bank – Carrying value                                               $493,835.50

                             Cash in Bank per Annual Financial Report                                    $493,835.50

                             Proprietary Funds Current Assets Restricted Cash in Bank                    $493,835.50

                             Cash in Bank per Annual Financial Report, as above                          $493,835.50




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, 2007, the Agency’s bank balances that were exposed to
custodial credit risk are shown below:



                                                        Uninsured and Collateralized              Uninsured and Collateralized with securities
                                 Uninsured and           with securities held by the            held by the Pledging Financial institution’s Trust
  Fund Type      gAAP Fund       Uncollateralized       Pledging Financial institution          Department or Agent but Not in the state’s Name

      05            0892              $ 493,835.50                   $-                                                  $-

    TOTAls                           $ 493,835.50                    $-                                                  $-




Foreign currency risk for deposits is the risk that changes in exchange rates will adversely affect the deposit. The Agency’s policy
is to limit investments subject to foreign currency risk to 5.00% of total investments. The exposure to foreign currency risk for
deposits as of August 31, 2007, is as follows:



                               Fund Type             gAAP Fund             Foreign Currency             Cash in Bank
                                    05                 0892                   Danish Krone                      $1.28

                                    05                 0892                       Euro                         210.10

                                    05                 0892                   Japanese Yen                        0.10

                                    05                 0892                South African Rand               493,624.02

                                TOTAls                                                                    $493,835.50




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m              2007 ANNUAL REPORT




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



         Business-type Activities                                                          Carrying Value         Fair Value        Percent of Total
         U. S. Government:

            U. S. Treasury Securities                                                         $34,539,674.53      $34,539,674.53             1.59%

         U.S. Government Agency Obligations                                                   138,657,843.83      138,657,843.83             6.88%

         Corporate Obligations                                                                233,226,600.50      233,226,600.50            10.86%

         Corporate Asset and Mortgage Backed Securities                                        22,404,034.66       22,404,034.66             1.03%

         Equity                                                                               620,237,226.52      620,237,226.52            28.62%

         International Obligations (Govt. and Corp)                                           165,043,312.05      165,043,312.05             7.04%

         International Equity                                                                 394,115,773.83      394,115,773.83            18.19%

         Other Commingled Funds – Cash Equivalents at International Sub-custodian Banks         9,513,243.58        9,513,243.58             0.44%

         Other Commingled Funds – Short Term Investment Fund                                   26,430,605.00       26,430,605.00             1.22%

         Other Commingled Funds – Tactical Asset Allocation Fund                              123,921,876.71      123,921,876.71             5.72%

         Other Commingled Funds – Northern Trust Co. S & P 500 Fund                            94,348,106.89       94,348,106.89             4.35%

         Securities Lending Collateral Investment Pool                                        304,333,655.87      304,333,655.87            14.06%

         TOTAls                                                                            $2,166,771,953.97   $2,166,771,953.97           100.00%

         Business-type Activities investments consists of the following:

         Proprietary Funds Current Invested Security Lending Collateral                                           $304,333,655.87

         Proprietary Funds Current Restricted Cash Equivalents                                                      51,966,785.62

         Proprietary Funds Non-Current Restricted Investments                                                    1,810,471,512.48

         TOTAl , As ABOVE                                                                                      $2,166,771,953.97


         Fiduciary Funds                                                                   Carrying Value        Fair Value         Percent of Total
         Other Commingled Funds – Mutual Fund Investments                                    $223,766,139.00     $223,766,139.00            100.00%

         TOTAls                                                                             $223,766,139.00     $223,766,139.00




        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 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, 2007, none of the Agency’s investments were exposed to custodial credit risk.




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                               2007 ANNUAL REPORT                            Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




Foreign currency risk for investments is the risk that changes in exchange rates will adversely affect the investment. The Agency’s
policy is to limit investments subject to foreign currency risk to 5.00% of total investments. The exposure to foreign currency
risk as of August 31, 2007, is as follows:


                                                                      international                         Other Commingled Funds (Cash
                                  gAAP                                 Obligation        international        Equivalents at international
            Fund Type             Fund      Foreign Currency        (govt. and Corp)        Equity              sub-custodian Banks)
                 05               0892       Australian Dollar         $25,428,012.42     $20,086,016.73

                 05               0892         Danish Krone                                 1,924,895.69                      $1,281.02

                 05               0892       Canadian Dollar            26,282,759.05

                 05               0892          Swiss Franc                                21,426,007.19

                 05               0892             Euro                 13,580,433.20     140,215,197.05                     115,876.25

                 05               0892     British Pound Sterling       14,816,895.21      65,472,341.32

                 05               0892      Hong Kong Dollar                                9,425,016.83

                 05               0892      Indonesian Rupiah                               1,536,874.33

                 05               0892         Japanese Yen                                62,772,276.23

                 05               0892      South Korean Won                                2,173,141.49

                 05               0892       Malaysian Ringgit           9,611,017.45

                 05               0892      New Zealand Dollar           8,177,496.07       1,997,456.66

                 05               0892       Norwegian Krone             6,204,224.47       2,960,581.23

                 05               0892        Phillipine Peso                               1,779,201.22

                 05               0892          Polish Zloty            15,431,912.27

                 05               0892        Swedish Krona              7,823,476.07       2,705,749.98

                 05               0892       Singapore Dollar           14,275,182.37       2,005,361.60

                 05               0892           Thai Baht

                 05               0892      South African Rand           9,287,922.47       2,430,420.49
 TOTAl sECURiTiEs sUBjECT TO
                                                                       150,919,331.05     338,910,538.04                     117,157.27
 FOREigN CURRENCy RisK
 International Securities
                                                                        14,123,981.00      55,205,235.79                   9,396,086.31
 Denominated in U.S. Dollars
 TOTAl iNTERNATiONAl sECURiTiEs                                      $165,043,312.05     $394,115,773.83                  $9,513,243.58




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m                    2007 ANNUAL REPORT




        Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The general invest-
        ment policy of the Agency limits investments in debt securities so that the overall average investment grade for its fixed income
        portfolio is “A” or better as rated by Standard & Poor’s or Moody’s national statistical rating organization. As of August 31, 2007,
        the Agency’s credit quality distribution for securities with credit risk exposure was as follows:



        STANDARD AND POOR’S

          investment                                                     U.s. government                                    Corporate Asset      international
             grade             Total Debt           U.s. Treasury       Agency Obligations            Corporate              and Mortgage         Obligations
            Rating             securities            securities               (Note A)                Obligations          Backed securities    (govt and Corp)
           AAA                $282,189,667.22        $34,539,674.53          $139,462,491.84               $8,148,209.58       $17,358,853.03      $82,680,438.24

           AA                    36,179,168.26                                                             32,701,347.21                             3,477,821.05

           A                     77,418,105.42                                                             67,486,232.99                             9,931,872.43
           BBB                   24,623,933.01                                                             23,209,754.91                             1,414,178.10

           BB                    51,920,711.85                                                             44,233,461.85                             7,687,250.00

           B                     39,081,540.50                                                             37,795,665.50                             1,285,875.00

           CCC                      480,000.00                                                               480,000.00

           NR (Note B)           77,278,258.17                                   4,965,437.65              21,158,636.40         5,045,181.63       46,109,002.49

           TOTAls            $589,171,384.43        $34,539,674.53          $144,427,929.49          $235,213,308.44          $22,404,034.66     $152,586,437.31
         Note A: Excludes $4,700,081.14 in U.S. Government Agency Obligations with an explicit guaranty.
         Note B: Not Rated securities.




        MOODY’S


          investment                                                     U.s. government                                    Corporate Asset      international
             grade             Total Debt           U.s. Treasury       Agency Obligations            Corporate              and Mortgage         Obligations
            Rating             securities            securities               (Note A)                Obligations          Backed securities    (govt and Corp)
           AAA                $268,166,599.61       $34,539,674.53           $128,992,325.04               $8,148,209.58       $20,930,910.16      $75,555,480.30
           AA                    39,232,052.58                                                             35,754,231.53                             3,477,821.05
           A                   104,993,711.88                                                              70,666,812.06                            34,326,899.82
           BAA                   21,573,579.62                                                             20,159,401.52                             1,414,178.10
           BA                    49,183,311.85                                                             42,957,186.85                             6,226,125.00
           B                     54,429,815.50                                                             52,968,690.50                             1,461,125.00
           Caa                    1,712,750.00                                                              1,712,750.00
           NR (Note B)           49,879,563.39                                 15,435,604.45                2,846,026.40         1,473,124.50       30,124,808.04
           TOTAls             $589,171,384.43       $34,539,674.53           $144,427,929.49          $235,213,308.44          $22,404,034.66     $152,586,437.31
         Note A: Excludes $4,700,081.14 in U.S. Government Agency Obligations with an explicit guaranty.
         Note B: Not Rated securities.




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                                        2007 ANNUAL REPORT                                        Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




Concentration of credit risk is the risk of loss attributable to the magnitude of investment in a single issuer. The Agency’s invest-
ment policy restricts each fixed income investment manager to purchases of no more than 5% and to holdings of no more than
10% of its assets in the securities of a single entity other than issues of the U.S. Government or it’s agencies. Based on the invest-
ment policy, holdings of an equity investment manager are generally not to exceed 3% of the amount of shares outstanding for
an individual issuer. As of August 31, 2007, no single issuer of the Agency’s investments, other than mutual funds or external
investment pools, exceeded 5%; thus, no concentration of credit disclosure is required by GASB.

Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Through its invest-
ment policy, the Agency manages its exposure to fair value losses arising from increasing interest rates by limiting the effective
duration of its business type investment portfolio to seven years or less for domestic fixed income and ten years for global
securities. The Agency’s interest rate risk at August 31, 2007, is as follows:



 investment Type                                                                                                       Fair Value             Effective Duration
 U. S. Government:
    U. S. Treasury Securities                                                                                            $34,539,674.53              12.67

 U.S. Government Agency Obligations                                                                                      149,128,010.63              11.36

 Corporate Obligations                                                                                                   235,213,308.44               5.35

 Corporate Asset and Mortgage Backed Securities                                                                           22,404,034.66              15.09

 International Obligations (Govt and Corp)                                                                               152,586,437.31               2.81

 TOTAl iNTEREsT RATE RisK DEBT sECURiTiEs                                                                              $593,871,465.57

 Effective Duration for Debt Security Portfolio                                                                                                       4.49

 Note: Effective duration is weighted by fair value of each security and is expressed in years.




The Agency holds $123,468,762.52 in government mortgage backed securities and $17,358,853.03 in commercial mortgage
backed securities that are both highly sensitive to changes in interest rates. These securities are based on cash flows from inter-
est 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 the Agency 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 included 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 Agency had $324,391,016.20 in market value of securities out on loan to broker/dealers at August 31, 2007.
$297,545,837.92 of these securities had cash collateral pledged while $26,845,178.28 of the loaned securities had non-cash col-
lateral pledged.

In securities lending transactions, the Agency 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
Agency’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 Agency. 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 Agency’s resources. The borrower will pay
a “loan premium or fee” for the securities loan, thus generating income for the Agency.




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m           2007 ANNUAL REPORT




        Collateral may include cash, U.S. government securities and irrevocable letters of credit at a value of 102 percent of market
        value plus accrued interest for U. S. securities loaned and 105 percent plus accrued interest for non-U.S. securities. Non-cash
        collateral cannot be pledged or sold unless the borrower defaults. At year-end, the Agency has no credit risk exposure to bor-
        rowers because the amounts the Agency owes to borrowers exceed the amounts the borrowers owe the Agency. Contracts with
        the lending agents require them to indemnify the Agency 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 Texas Prepaid Higher
        Education Tuition Board’s overall loans was 75 days as of August 31, 2007. 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 Agency’s custodian
        invests cash open collateral in a short-term investment pool, which had an average weighted maturity of 35 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 2007 related to security lending, the Agency had gross earnings of $17,199,423.45, paid rebates of
        $16,153,035.03 and bank fees of $366,035.40. The net income earned from security lending was $680,353.02.

        The rate of return on investments of the Texas Guaranteed Tuition Plan was 11.5% for the fiscal year.



        NOTE 4: ShOrT-TErm DEbT
        (Not Applicable)



        NOTE 5: Summary Of lONg-TErm liabiliTiES

        CHANgES IN LONg-TERM LIABILITIES
        During the year ended August 31, 2007, the following changes occurred in liabilities:


                                                               Balance                                              Balance             Amounts Due
         Business-type Activities                              09/01/06           Additions        Reductions       08/31/07           Within One year
         Employees’ Compensable Leave                               $41,585.79        $83,045.84     $71,406.24          $53,225.39           $48,949.35
         Liabilities Payable from Restricted Assets -
         Contract Benefits and Expenses                       2,096,825,348.00    163,652,171.00                    2,260,477,519.00      194,435,578.00
         TOTAl BUsiNEss-TyPE ACTiViTiEs                     $2,096,866,933.79    $163,735,216.84     $71,406.24   $2,260,530,744.39      $194,484,527.35




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                                    2007 ANNUAL REPORT                    Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




EMPLOYEES’ COMPENSABLE LEAVE
A 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 government, provided the employee has had continuous employment with the State for six months.
Expenditures for accumulated annual leave are recognized in the period paid or taken in governmental fund types. For these
fund types, the liability for unpaid benefits is recorded in the Statement of Net Assets. An expense and liability for proprietary
fund types 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.



NOTE 6: caPiTal lEaSES
(Not Applicable)



NOTE 7: OPEraTiNg lEaSE ObligaTiONS
(Not Applicable)



NOTE 8: iNTErfuND balaNcES/acTiviTiES
The Agency had no interfund activity to report for fiscal 2007. Amounts Due to Other Agencies at August 31, 2007, are as
follows:


             Current portion                                Current interfund Receivable         Current interfund Payable
             Enterprise Fund (05)

             TOTAl iNTERFUND RECEiVABlE/PAyABlE                            $ -0-                             $ -0-



                                                       Non-current interfund             Non-current interfund
 Non-current portion                                        Receivable                         Payable                        Purpose
 Enterprise Fund (05)

 TOTAl iNTERFUND RECEiVABlE/PAyABlE                             $ -0-                              $ -0-



 Current portion                                    Due From Other Agencies              Due To Other Agencies                 source
 Enterprise Fund (05)

 Appd Fund 0892 and D23 Fund 0892                                                                  $ 72,591.76             Reimbursement
 (Agency 304, D23 Fund 0001)

 TOTAl DUE FROM/TO OThER AgENCiEs (Exh. i)                    $ -0-                                $ 72,591.76



                                                                         legislative                   legislative
                                                                        TRANsFERs iN                 TRANsFERs OUT
                 Enterprise Fund (05)

                 TOTAl lEgislATiVE TRANsFERs                                $ -0-                           $ -0-




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m              2007 ANNUAL REPORT




        NOTE 9: cONTiNgENT liabiliTy
        Sick leave, the accumulation of which is unlimited, is earned at the rate of eight hours per month and is paid to the employee
        only in case of illness or to the employee’s estate in the event of his/her death while employed by the Agency. The maximum sick
        leave that may be paid to an employee’s estate is one-half of the employee’s accumulated entitlement or 336 hours, whichever is
        less. The Agency’s policy is to recognize the cost of any sick leave when paid. The liability is not recorded in the Agency’s funds
        since experience indicates the likely expenditure for sick-leave settlements to be minimal.



        NOTE 10: cONTiNuaNcE SubjEcT TO rEviEw
        Under the Texas Sunset Act, this Agency will be abolished effective September 1, 2019, unless continued in existence by the
        Legislature as provided by the Act. If abolished, this Agency may continue until September 1, 2020, to close out its operations.



        NOTE 11: riSk fiNaNciNg aND rElaTED iNSuraNcE
        Presented below is the total tuition benefits obligation of the Fund based upon the actuarial present value (APV) of the future
        tuition obligation. 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, 2007

                                           APv of Future Benefits Payable

                                           Future contract benefits and expenses                       $2,260,477,519.00

                                           Net Assets Available                                        $2,096,135,656.00

                                           Net Assets as a Percentage of Tuition Benefits Obligation             92.7%


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

           * Investment Rates:                                    The investment yield assumption is 8.00% per year for 2008-2014 decreasing
                                                                  to 5.00% for the last year of the program’s projected life span.

           * Tuition and Required Fees Increases:                 The senior public college tuition increases were estimated as
                                                                  8.00% for the 2008/2009 academic year, and thereafter.

                                                                  The junior college tuition increases were estimated as 8.00%
                                                                  for the 2008/2009 academic year, and thereafter.

                                                                  The private university tuition increases were estimated as 8.00%
                                                                  for the 2008/2009 academic year, and thereafter.

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

        Note: Assumptions for this report are preliminary and are based on unaudited numbers.




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                              2007 ANNUAL REPORT                       Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




NOTE 12: SEgmENT iNfOrmaTiON
(Not Applicable)



NOTE 13: bONDED iNDEbTEDNESS
(Not Applicable)



NOTE 14: SubSEquENT EvENTS
Management of the 529 college savings plan was transferred from Enterprise to OFI Private Investments, Inc., a subsidiary of
OppenheimerFunds, Inc., on November 19, 2007.

House Bill 3900 passed in the 80th legislative session created a new prepaid unit based plan. Contracts will be sold beginning
September 1, 2008.



NOTE 15: rElaTED ParTiES
The State Comptroller serves as the chair and executive director of the seven-member board. The Comptroller of Public
Accounts provides financial and staff support to conduct and administer the day-to-day operations of the program and the
direct-support foundation. The reimbursement of program expenses/expenditures occurs on a monthly basis and totaled
$952,454.27 for the fiscal year.



NOTE 16: STEwarDShiP, cOmPliaNcE, aND accOuNTabiliTy
The Economic Growth and Tax Relief Reconciliation Act of 2001 made significant changes to Section 529 of the Internal Rev-
enue 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, 2007, the prepaid tuition plan had a projected deficit of $164,341,863 when comparing estimated future contract
collections to the projected value of future contract benefits. The projected deficit reflects the impact of higher than expected
tuition increases in past years. Texas Guaranteed Tuition Plan has State of Texas constitutional guaranty that state revenues will
be transferred to pay obligated college tuition costs if sufficient resources aren’t available in the fund.



NOTE 17: ThE fiNaNcial rEPOrTiNg ENTiTy aND jOiNT vENTurES
Component units are legally separate organizations for which the elected officials of the primary government are financially
accountable. Based upon criteria established by GASB 14, the Board is not a component unit of the Comptroller of Public
Accounts for the state of Texas. The Texas Prepaid Higher Education Tuition Scholarship Foundation is a direct-support orga-
nization of the Board, and is presented as a component unit in its financial report.




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m          2007 ANNUAL REPORT




        NOTE 18: rESTaTEmENT Of fuND balaNcES/rETaiNED EarNiNgS
        (Not Applicable)



        NOTE 19: EmPlOyEES rETirEmENT PlaNS
        (Not	Applicable	–	Note	only	included	by	an	administering	Agency)



        NOTE 20: DEfErrED cOmPENSaTiON
        (Not	Applicable	–	Note	only	included	by	an	administering	Agency)



        NOTE 21: DONOr-rESTricTED ENDOwmENTS
        (Not Applicable)



        NOTE 22: maNagEmENT DiScuSSiON aND aNalySiS
        The following events occurred at the Agency during fiscal year 2007:

        The Texas Guaranteed Tuition Plan’s net assets, which are reported in an Enterprise Fund, decreased $54.3 million due to several
        factors.

              •	    The	average	tuition	and	required	fees	for	Texas	public	senior	colleges	is	estimated	at	8.00%	for	all	unfunded	con-
                    tracts at August 31, 2007, compared to the August 31, 2006, estimates of 7.50% for senior public contracts, 7.50% for
                    junior college contracts, and 6.50% for private university contracts. The increase in the estimated average tuition and
                    required fees resulted in a projected liability of $2,260,477,519.00 at August 31, 2007, compared to $2,096,825,348.00
                    at August 31, 2006, an increase in the liability of $163.7 million.

              •	    The	projected	return	on	future	contract	collections	available	for	investment	at	August	31,	2007,	is	estimated	to	range	
                    from 8.00% for the next 7 years to a low of 5.00% for the last 7 years of the program’s projected life-span, compared to
                    the August 31, 2006, estimate of 8.25% for the remaining life of the program. The change in the projected interest rate
                    decreased the value of future contract collections to $217,959,605.00 at August 31, 2007, compared to $275,577,417.00
                    at August 31, 2006, a decrease of $57.6 million.

              •	    The	 impact	 of	 the	 above	 items	 is	 partially	 offset	 by	 an	 increase	 of	 $167.3	 million	 in	 the	 market	 value	 of	 current	
                    assets.




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                             2007 ANNUAL REPORT                      Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




The Board suspended new enrollment in the prepaid tuition plan in June 2003 when tuition rates were deregulated. The Board
annually reviews the tuition rates at Texas colleges and assesses the feasibility of selling future contracts.

Net Assets of Tomorrow’s College Investment Plan as reported in the fiduciary fund statements increased $48.4 million in fiscal
2007, for an ending total of $223,766,139.00 at August 31, 2007, compared to $175,341,684.00 at August 31, 2006. The Agency
received $741,584.54 in administrative fees. Activity of the plan in fiscal 2007 included:

    •	   Account	Holder	Contributions	totaled	$49,625,517.00	compared	to	$48,746,387.00	in	the	prior	fiscal	year.

    •	   Net	Income	from	Investments	totaled	$20,711,539.54	compared	to	$6,622,882.56	in	the	prior	fiscal	year.

    •	   Distributions	to	Account	Holders	totaled	$21,900,684.00	compared	to	$11,523,135.00	in	the	prior	fiscal	year.



NOTE 23: POST EmPlOymENT hEalTh carE aND lifE iNSuraNcE bENEfiTS
(Not Applicable)



NOTE 24: SPEcial Or ExTraOrDiNary iTEmS
(Not Applicable)



NOTE 25: DiSaggrEgaTiON Of rEcEivablE aND PayablES balaNcES
(Not Applicable)



NOTE 26: TErmiNaTiON bENEfiTS
(Not Applicable)




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m   2007 ANNUAL REPORT




  52
                                 2007 ANNUAL REPORT                            Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




              REPORT ON COMPLIANCE AND INTERNAL CONTROL OVER FINANCIAL REPORTINg
                      BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED
                       IN ACCORDANCE wITH GOVERnMEnT AUdITInG STANDARDS

To the Texas Prepaid Higher Education Tuition Board:

We have audited the basic financial statements of the Texas Prepaid Higher Education Tuition Board (the “Board”) as of and for the
year ended August 31, 2007, and have issued our report thereon dated January 22, 2008. 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.

Internal Control over Financial Reporting

In planning and performing our audit, we considered the Board’s internal control over financial reporting as a basis for designing our
auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an
opinion on the effectiveness of the Board’s internal control over financial reporting. Accordingly, we do not express an opinion on the
effectiveness of the Board’s internal control over financial reporting.

A control deficiency 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 misstatements on a timely basis. A significant deficiency is a control deficiency, or
combination of control deficiencies, that adversely affects the Board’s ability to initiate, authorize, record, process, or report financial data
reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement
of the Board’s financial statements that is more than inconsequential will not be prevented or detected by the Board’s internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood
that a material misstatement of the financial statements will not be prevented or detected by the Board’s internal control.

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section
and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did
not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Board’s financial statements are free of material misstatement, we per-
formed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which
could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compli-
ance 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.

This report is intended solely for the information and use of the members of the Board, management, and other applicable regulatory
bodies and is not intended to be and should not be used by anyone other than these specified parties.




Houston, Texas
January 22, 2008


                                                                                                                                                     53
TEXAS GUARANTEED TUITION PLAN




                               Photo: Courtesy of West Texas A&M University.




       ACTUARY’S REPORT
 On Program Soundness, Augus t 31, 20 07
             as Produced by
                                                                              2007 ANNUAL REPORT                                                                                         Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                                                                                               TA b L E O F CO N T E N TS



SECTION I: EXECUTIVE SUMMARY  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .        59

SECTION II: SUMMARY OF CONTRACT DATA AND CURRENT ASSETS  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                                    61

SECTION III: ACTUARIAL METHODS AND ASSUMPTIONS  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                               64

SECTION IV: SOUNDNESS OF THE PLAN AS OF AUGUST 31, 2007  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                           67

SECTION V: SENSITIVITY TESTING  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .   71

SECTION VI: CHANGES IN SURPLUS  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .         71

APPENDIX A: ACTIVE CONTRACT COUNTS  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                    74

APPENDIX b: MATRICULATION INFORMATION  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                             76




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                              2007 ANNUAL REPORT                       Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                           SECTION I – EXECUTIVE SUMMARY


ADEqUACY OF THE FUND
As of August 31, 2007, the Plan had an unfunded liability of $164,341,863. 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 $54,004,790
higher than last year’s unfunded liability of $110,337,073. The two primary sources of change are:

    a)   Investment asset performance of 12.53%, 4.28% above the assumed investment return of 8.25%. The result was an
         asset gain of $71.5 million.

    b)   Assumption Changes. Based on historical data and the projected future cash available, the Board voted to change
         the assumed interest rate, the rate of increase in tuition and the community college bias. The change in assumptions
         resulted in a $142.2 million increase in the unfunded liability.

The table below summarizes current balances:


                                                                                           Balance
                             AssETs

                                Investments                                               $1,878,176,051
                                Future Contract Collections                                  217,959,605
                             TOTAl AssETs                                                 $2,096,135,656
                             liABiliTiEs AND sURPlUs
                             Future Contract Benefits and Expenses                        $2,260,477,519
                             Deficit of Assets over Liabilities                             (164,341,863)
                             TOTAl liABiliTiEs AND sURPlUs (DEFiCiT)                      $2,096,135,656




The program’s funded ratio is 92.70%.

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
         Expense.



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




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m   2007 ANNUAL REPORT




        The actuarial valuation of the Plan was determined using the schedule of interest rates found in Section III. 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 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.

        Tuition and fee increases assume effective management of the schools as well as general inflation, the rate of increase in state
        support and real improvements in the quality of educational services. After careful analysis, the Board selected tuition and fee
        increase assumptions above an expected rate of inflation. The assumed annual increase for all Colleges and Universities is 8.00%
        for all years. In the prior valuation, the assumed annual increase was 7.50% for Public Senior Colleges, 7.50% for Junior Colleges
        and 6.50% for Private Universities.



        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.

        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.



        ExPENSE
        In our analysis we provide an expense provision for records administration charges and for general expenses. The provision for
        fiscal year 2008 is $32 per contract that we assumed will increase 3.50% per year for inflation.


        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 commitment to academic achievement.




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                              2007 ANNUAL REPORT                        Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




Bias against the Plan causes the amount the Plan pays to exceed the WAT. WAT is the average tuition/fees weighted by the num-
ber of full-time equivalent students. Bias refers to the degree to which the Texas Guaranteed Tuition Plan beneficiaries choose
to attend the higher priced school 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
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 increased to 8.60% for commu-
nity colleges.



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, Buck Consultants 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.




                                  SECTION II –
       S U M M A R Y O F C O N T R A C T D ATA A N D C U R R E N T A S S E T S


CONTRACT DATA
A contract inventory report as of August 31, 2007 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.




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m        2007 ANNUAL REPORT




        The contracts issued in 1996 were for 30 credit hours. The contracts issued after 1996 were for 32 credit hours. The credit inven-
        tory as of August 31, 2007 is summarized in the following table.


                                                                         Payment Options
                                                                     Five-year   Ten-year   Extended   Five-year   Ten-year   Extended
                             Plans                  lump sum         Monthly     Monthly    Monthly    Annually    Annually   Annually
         1996 Enrollment

         Sr. College                                   510,296        357,817     413,467    544,397          -           -        256

         Jr. College                                     6,420          7,275      10,549     21,913          -           -           -

         Jr. & Sr. College                              33,912         40,252      53,783    106,962          -           -         83

         Private College                                 4,895          5,397       3,824      5,885          -           -

         Total 1996                                   555,523         410,741     481,623    679,157          -           -        339

         1997 Enrollment

         Sr. College                                   467,388        256,174     283,942    299,808          -           -        352

         Jr. College                                     4,039          5,106       4,450      8,878          -           -           -

         Jr. & Sr. College                              23,172         26,613      31,723     41,223          -           -         78

         Private College                                21,042          6,183       3,034      4,288          -           -         11

         Total 1997                                   515,641         294,076     323,149    354,197          -           -        441

         1998 Enrollment

         Sr. College                                   352,208        105,836     154,511    157,135     91,749      36,241      22,949

         Jr. College                                     2,754          1,438       2,083      2,892       436         288         325

         Jr. & Sr. College                              14,053          9,080      13,287     20,182      5,038       2,048       1,898

         Private College                                 8,969          2,396        722       1,716      2,172       1,118        427

         Total 1998                                   377,984         118,750     170,603    181,925     99,395     39,695       25,599

         1999 Enrollment

         Sr. College                                   231,427         71,155     108,277    128,222     68,826      23,457      18,149

         Jr. College                                     1,220          1,015       1,846      2,092       752         116         243

         Jr. & Sr. College                              11,904          8,049      10,262     15,456      3,781       1,407        808

         Private College                                 5,948          1,009       1,043      1,608      3,657        595         476

         Total 1999                                   250,499          81,228     121,428    147,378     77,016     25,575       19,676

         2000 Enrollment

         Sr. College                                   289,277        120,432     129,928    159,770     84,916      26,814      26,394

         Jr. College                                     2,615          2,627       1,687      2,897       729          77         378

         Jr. & Sr. College                              13,632         14,208      14,219     18,160      3,796       2,234       1,794

         Private College                                 4,859            965       1,002      1,040      3,284        663         230

         Total 2000                                   310,383         138,232     146,836    181,867     92,725     29,788       28,796

         2001 Enrollment

         Sr. College                                   311,917        140,920     107,001    216,056    125,259      37,673      41,504

         Jr. College                                     3,786          3,570       2,398      8,292       832         699         590

         Jr. & Sr. College                              23,744         19,358      16,805     41,735      9,340       3,493       6,172

         Private College                                 8,535          1,795        817       3,436      2,998       1,348       1,117

         Total 2001                                   347,982         165,643     127,021    269,519    138,429     43,213       49,383




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                              2007 ANNUAL REPORT                               Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                                     Payment Options (Continued)
                                                        Five-year        Ten-year      Extended         Five-year     Ten-year       Extended
                     Plans            lump sum          Monthly          Monthly       Monthly          Annually      Annually       Annually
 2002 Enrollment

 Sr. College                             374,076          138,099           87,330       161,212            150,547      41,698         40,215

 Jr. College                               5,756               5,387         2,697         6,883               716          594            806

 Jr. & Sr. College                        20,994              18,413        16,417        28,628             11,389       4,653          5,415

 Private College                          10,168                944          1,027         2,744              3,428         890            672

 Total 2002                              410,994         162,843          107,471        199,467            166,080      47,835         47,108

 2003 Enrollment

 Sr. College                             897,056          120,744           92,098       238,640            275,034      69,961         88,687

 Jr. College                              11,834               3,887         1,626         6,604              1,888         455            822

 Jr. & Sr. College                        45,769              14,668        11,483        33,916             17,432       6,005          8,448

 Private College                          30,867               2,862          869          3,829              9,811         807          1,810

 Total 2003                              985,526         142,161          106,076        282,989            304,165      77,228         99,767

 TOTAl ENROllMENT

 Sr. College                           3,433,645        1,311,177        1,376,554     1,905,240            796,331     235,844        238,506

 Jr. College                              38,424              30,305        27,336        60,451              5,353       2,229          3,164

 Jr. & Sr. College                       187,180          150,641         167,979        306,262             50,776      19,840         24,696

 Private College                          95,283              21,551        12,338        24,546             25,350       5,421          4,743

 TOTAl ENROllMENT                      3,754,532       1,513,674         1,584,207     2,296,499            877,810    263,334         271,109



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



CURRENT ASSETS
The assets are administered and invested by the State Treasury and external managers with whom the Board contracts. The
value of the assets as of August 31, 2007 is $1,878,176,051. Asset totals shown below do not include securities lending collateral,
investment transfers receivable, tuition contracts receivable or the related obligations for those assets.


                                     Cash in State Treasury                                  $7,211,803
                                     Investments                                          1,862,744,320
                                     Interest and Dividends Receivable                       10,050,448
                                     Furniture and Equipment – Net of Depreciation                 13,485
                                     Less Accounts Payable                                   (1,844,005)
                                     TOTAl AssETs                                       $1,878,176,051




It is assumed that this mix will produce a net annual investment return of 8.00% in fiscal year 2008.




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m   2007 ANNUAL REPORT




            SECTION III – 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 though 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;

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



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




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                              2007 ANNUAL REPORT                         Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




TUITION/FEE INCREASE
Tuition increases assume effective management of the schools as well as general inflation, the rate of increase in state support
and real improvements in the quality of public education. After careful analysis, the Board selected tuition increase assumptions
above the expected rate of inflation.

Assumed annual increases in future tuition and required fees are:

                              Public Senior College           Junior College             Private University
                              8.00%                           8.00%                      8.00%



INVESTMENT YIELD
The assumed annual net investment yield is illustrated in the following table:

                                                      year        investment yield

                                                      2007             8.00%

                                                      2008             8.00%

                                                      2009             8.00%

                                                      2010             8.00%

                                                      2011             8.00%

                                                      2012             8.00%

                                                      2013             8.00%

                                                      2014             8.00%

                                                      2015             7.80%

                                                      2016             7.50%

                                                      2017             7.20%

                                                      2018             5.60%

                                                      2019+            5.00%




ExPENSES
In our analysis we provide an expense provision for records administration charges and for general expense. The provision for
fiscal year 2008 is $32 per contract, which we assume will increase 3.50% per year for inflation.



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.




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m             2007 ANNUAL REPORT




        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 sur-
        rendered during the year. We use similar estimates for the other college types, based on empirical evidence:


               years From Purchase                 lump sum              Five-year Payments         Ten-year Payments           Extended Payments
                        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%
                        6 to 7                        0.25%                      0.25%                    0.40%                       0.50%
                     After 7 Years                    0.25%                      0.25%                    0.40%                       0.50%




        MATRICULATION PERCENT
        We assumed the beneficiary of a contract not voluntarily surrendered matriculates at the date specified in the contract.



        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:


              Type of Contract              First year             second year             Third year             Fourth year           Fifth year
             Five – Year Contracts             20%                     20%                    20%                    20%                   20%
             Four – Year Contracts             25%                     23%                    22%                    20%                   10%
            Three – Year Contracts             35%                     30%                    25%                    10%                      0%
             Two – Year Contracts              60%                     30%                    10%                     0%                      0%
             One – Year Contracts              90%                     10%                    0%                      0%                      0%




        FREqUENCY OF BENEFICIARY REPLACEMENT
        We assumed no replacement of beneficiaries.



        BIAS
        We assumed no bias load for universities and a bias load of 8.60% for community colleges.



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                                2007 ANNUAL REPORT                            Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                        SECTION IV –
         SOUNDNESS OF THE PLAN AS OF AUGUST 31, 2007


As a measure of the soundness of the Plan as of August 31, 2007, 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 69,
labeled Present Value of Assets and Liabilities.

The projections of future benefits and expenses and contract payments are presented on page 70, labeled Expected Cash
Flows.

Our measurement of the present value and projection are based on asset and contract information provided and on the assump-
tions chosen by the Board.



FUNDED STATUS
The liabilities of the trust fund exceed the value of assets as of August 31, 2007 (including the value of future payments by
contract purchasers) by $164.34 million. The funded ratio, assets divided by liabilities, is equal to 92.70%. Asset totals shown
below do not include securities lending collateral, 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.



                                                            Current Assets:                  Future Contract Payments:
                                                           $1,878.2 million                        $218.0 million

                           Total Assets:
                         $2,096.5 million

                                                        Tuition/Fee Payments:
                                                           $2,260.5 million

                         Total Liabilities:
                         $2,260.5 million




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m                     2007 ANNUAL REPORT




        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.


                 Thousands                                                       Fiscal Year End
                 $2,000,000

                                                                                                                    Assets
                  1,500,000                                                                                         Payments Out of Fund
                                                                                                                    Payments Into Fund + Investment Income

                  1,000,000


                    500,000


                         $0
                               ‘08   ‘09   ‘10   ‘11   ‘12   ‘13   ‘14   ‘15   ‘16   ‘17   ‘18   ‘19   ‘20   ‘21   ‘22   ‘23   ‘24   ‘25   ‘26   ‘27   ‘28   ‘29

                  $-500,000


                 $-1,000,000




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               2007 ANNUAL REPORT                       Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                              Present Value of Assets and Liabilities
                Present Value of Future     Value of Assets and Present Value of              surplus of Assets
8/31 of year     Benefit and Expenses                Future Collections                        over liabilities
   2007              $2,260,477,519                   $2,096,135,656                             $(164,341,863)

   2008              $2,231,325,296                   $2,053,836,085                             $(177,489,212)

   2009              $2,180,850,109                   $1,989,161,760                             $(191,688,349)

   2010              $2,127,195,659                   $1,920,172,243                             $(207,023,417)

   2011              $2,059,033,983                   $1,835,448,693                             $(223,585,290)

   2012              $1,976,753,621                   $1,735,281,508                             $(241,472,113)

   2013              $1,873,045,978                   $1,612,256,096                             $(260,789,882)

   2014              $1,747,072,649                   $1,465,419,576                             $(281,653,073)

   2015              $1,605,036,569                   $1,300,851,250                             $(304,185,319)

   2016              $1,447,022,434                   $1,119,012,606                             $(328,009,828)

   2017              $1,278,459,775                    $925,992,222                              $(352,467,552)

   2018              $1,099,538,742                    $722,667,782                              $(376,870,959)

   2019               $907,183,358                     $510,000,663                              $(397,182,694)

   2020               $703,724,373                     $291,816,396                              $(411,907,977)

   2021               $473,290,313                      $53,661,183                              $(419,629,131)

   2022               $286,313,065                    $(141,279,269)                             $(427,592,334)

   2023               $141,710,860                    $(296,888,375)                             $(438,599,235)

   2024                $44,917,876                    $(411,205,246)                             $(456,123,123)

   2025                   $480,596                    $(483,213,050)                             $(483,693,646)

   2026                   $200,079                    $(522,122,612)                             $(522,322,691)

   2027                    $51,416                    $(564,019,165)                             $(564,070,581)

   2028                     $2,758                    $(609,180,187)                             $(609,182,945)

   2029                         $0                    $(657,916,769)                             $(657,916,769)




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m        2007 ANNUAL REPORT




                                                                       Expected Cash Flows
                      Fiscal year Ending                              Expense                Payments      Cash Flow
                              2008                                   $197,718,257            $55,518,479   $(142,199,779)
                              2009                                   $215,530,725            $45,896,890   $(169,633,835)
                              2010                                   $214,678,056            $40,373,231   $(174,304,825)
                              2011                                   $224,283,203            $33,896,261   $(190,386,942)
                              2012                                   $232,429,945            $27,320,320   $(205,109,625)
                              2013                                   $246,389,082            $19,919,215   $(226,469,867)
                              2014                                   $259,524,140            $14,462,604   $(245,061,536)
                              2015                                   $265,148,279            $12,296,771   $(252,851,508)
                              2016                                   $268,984,669            $10,417,396   $(258,567,273)
                              2017                                   $265,777,314             $8,469,567   $(257,307,747)
                              2018                                   $260,901,717             $6,560,786   $(254,340,931)
                              2019                                   $254,300,484             $4,741,119   $(249,559,365)
                              2020                                   $243,452,790             $3,052,588   $(240,400,202)
                              2021                                   $245,856,654             $1,635,435   $(244,221,218)
                              2022                                   $187,432,909                    $0    $(187,432,909)
                              2023                                   $135,759,600                    $0    $(135,759,600)
                              2024                                    $85,201,684                    $0     $(85,201,684)
                              2025                                    $36,794,885                    $0     $(36,794,885)
                              2026                                       $237,608                    $0       $(237,608)
                              2027                                       $119,284                    $0       $(119,284)
                              2028                                        $37,197                    $0         $(37,197)
                              2029                                         $2,085                    $0          $(2,085)




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                                     2007 ANNUAL REPORT                                   Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                 SECTION V – 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 surplus as of
August 31, 2007 under each of these scenarios is presented in the following table:



                                                                 scenarios                                                                     surplus
  Tuition increases are 25 basis points higher in each future year than assumed                                                              $(197,376,913)
  The investment return is 25 basis points lower than assumed                                                                                $(197,359,615)
  Tuition increases are 25 basis points higher in each future year and the investment return is 25 basis points lower than assumed           $(231,151,566)
  Tuition increases are 25 basis points lower in each future year than assumed                                                               $(131,949,702)
  Tuition increases are 25 basis points lower in each future year and the investment return is 25 basis points lower than assumed            $(164,227,987)
  The investment return is 50 basis points lower than assumed                                                                                $(231,220,580)
  The investment return is 75 basis points lower than assumed                                                                                $(265,951,220)
  The investment return is 100 basis points lower than assumed                                                                               $(301,578,951)
  Tuition increases are 50 basis points higher in each future year than assumed                                                              $(231,068,784)
  Tuition increases are 75 basis points higher in each future year than assumed                                                              $(265,431,715)
  Tuition increases are 100 basis points higher in each future year than assumed                                                             $(300,480,260)




                               SECTION VI – CHANGES IN SURPLUS


ADEqUACY OF THE FUND
As of August 31, 2007, the Plan had an unfunded liability of $164,341,863. 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 $54,004,790
higher than last year’s unfunded liability of $110,337,073. The two primary sources of change are:

     a)     Investment asset performance of 12.53%, 4.28% above the assumed investment return of 8.25%. The result was an
            asset gain of $71.5 million.

     b)     Assumption Changes. Based on historical data and the projected future cash available, the Board voted to change
            the assumed interest rate, the rate of increase in tuition and the community college bias. The change in assumptions
            resulted in a $142.2 million increase in the unfunded liability.




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        Following is a comparison of the assumed and the actual results for the year ended August 31, 2007.



        INVESTMENT RETURN
        Assets performed better than expected during the 2007 fiscal year, returning 12.53% versus the prior year assumption of 8.25%.
        The result was an asset gain of $71.5 million. The extent that investment experience exceeds tuition increases will result in an
        actuarial gain.



        TUITION AND REqUIRED FEE INCREASE
        The Weighted Average Tuition (WAT) for Senior College increased from $6,086 to $6,529, an increase of 7.30% compared to
        the assumed 7.50% increase. The Junior College WAT increased from $1,890 to $1,949, an increase of 3.10% compared to the
        assumed 7.50% increase. The Private College WAT increased from $15,726 to $16,860, an increase of 7.20% compared to the
        assumed 6.50% increase. The tuition experience resulted in an actuarial gain of approximately $5.1 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. There is a 9.90% bias for liability loading on community colleges, when comparing the
        actual tuition and fee payment for the contract beneficiaries who attend community colleges to the expected payout based on
        program assumptions. This bias resulted in an actuarial loss of $0.4 million.



        ExPENSE
        Based on analysis, the assumption for records administration charges and general expenses remains at $32 per contract for fiscal
        year 2007, with an increase of 3.50% per year in each future year for inflation, compared to the 2006 assumed expense rate of
        $33.12, adjusted for 2007. The change in assumption resulted in an actuarial liability reduction of $0.6 million.



        VOLUNTARY wITHDRAwAL AND CONTRACT REDUCTIONS
        There were approximately 3,800 contracts surrendered during the year with a present value of future contract payments of about
        $28.7 million. This is greater than expected, creating a gain and reducing the present value of expected payments by contract
        holders by about $4.1 million.




  72
                              2007 ANNUAL REPORT                       Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




gAIN/LOSS SUMMARY
During the last year, the plan experienced a $97.3 million actuarial gain. The sources of the (gain)/loss are as follows:

                                        (Gain) / Loss                            (millions)
                                        Asset Gain (~12.53% return)               $(71.5)
                                        Tuition Inflation Gain                      (5.1)
                                        Expense                                     (0.6)
                                        Bias                                          0.4
                                        Withdrawal and Matriculation               (20.5)
                                        Total Gain                                $(97.3)



ASSUMPTION CHANgE
Based on historical data and the projected future cash available, the Board voted to change the assumed interest rate, the rate of
increase in tuition and the community college bias. In the prior valuation of the Plan, the assumed interest rate was 8.25% per
year and tuition inflation was 7.50% for Public Senior Colleges, 7.50% for Junior Colleges and 6.50% for Private Universities.
The August 31, 2007 actuarial valuation of the Plan was determined using the schedule of interest rates found in Section III and
an 8.00% tuition inflation rate for all colleges and universities. The change in assumptions resulted in a $142.2 million increase
in the unfunded liability.

If actual experience had matched our assumptions, we would have expected the trust deficit to increase from $110.3 million
in 2006 to $119.4 million in 2007. However, the plan experienced a $97.3 million actuarial gain, as noted above, and the
assumption change resulted in a $142.2 million increase in the unfunded liability. Hence, the actual trust deficit for 2007 was
$164.3 million, $44.9 million higher than the projected deficit following the prior valuation.




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                                                                      Texas guaranteed Tuition Plan
                                                      Active Contract Counts for All Enrollment Periods - Appendix A
                                                                          As of August 31, 2007
         Matriculation                                                                                        PlAN
             year             1             2           3            4            5         6             7          8         9         10        11          12         13            14        15
               1996               0              1          0            0            0         0             0          0         0          0         0           0          0             0         0
               1997               4             47          1            5            0         1             2          1         0          0         0           0          0             4         0
               1998            14               137         2            15           2         7             2          4         1          0         0           1          2             9         0
               1999            39               295         7            27           4         15            4          8         0          0         0           2          5         10            0
               2000            64               546         18           50           14        25            5          7         0          1         0           0        13          22            1
               2001           119               904         37           71           23        36            4          16        0          2         1           1        16          30            0
               2002           179           1,487           57        103             42        49            5          34        0          2         0           2        51          36            0
               2003           302           2,656           82        206             81        61            12         37        1          4         1           3       157          70            0
               2004           397           3,582       137           292         123           98            20         75        8        16          2           1       176          80            1
               2005           514           4,139       200           439         133        131              19         80        3        13          4           5       197          80            0
               2006           553           4,582       195           584         261        177              36         92        4        12          8           3       285          72            0
               2007           627           4,823       199           590         241        197              67         93        5        13        15            5       295          69            0
               2008           751           5,197       234           640         277        220              57      104          5        16          6           6       307          69            1
               2009           610           4,885       204           611         281        264              48      100          2        11          9           4       352          73            0
               2010           657           4,801       193           598         267        233              61         78        5          6         8           3       363          56            0
               2011           635           4,675       149           509         211        215              36         89        1          3         6           4       369          72            0
               2012           621           4,756       183           553         250        186              36      105          7        11        15            1       371          69            0
               2013           618           4,790       169           512         232        205              55         75        3        10          7           5       391          69            0
               2014           603           4,534       167           453         225        191              52         73        1          5         5           1       362          31            1
               2015           429           3,810       117           341         184        136              34         67        2        10          5           0       486              2         0
               2016           395           3,483       117           352         141        126              23         61        8          9         5           1       541              0         0
               2017           370           3,124           82        267         143        120              31         58        0          4         5           0       525              0         0
               2018           354           2,828           97        292         164        109              26         35        1          7         2           0       507              2         0
               2019           332           2,460           76        241         136           77            19         39        1          6         1           0       460              1         0
               2020           239           2,009           76        194         135           65            12         34        2          5         4           1       364              0         0
               2021           273           2,376           88        229         153           74            17         31        3          3       14            0       504              0         0
               2022               1              5          0            2            0         0             0          0         0          0         0           0          1             0         0
               2023               0              2          1            0            0         0             0          0         0          0         0           0          1             0         0
               2024               0              3          0            0            0         0             0          0         0          0         0           0          0             0         0
               2025               0              0          0            1            0         0             0          0         0          0         0           0          0             0         0
              TOTAl         9,700          76,937     2,888        8,177         3,723     3,018          683       1,396       63        169       123         49       7,101          926            4
           % OF TOTAl       8.41%          66.71%     2.50%        7.09%      3.23%        2.62%       0.59%        1.21%     0.05%    0.15%      0.11%       0.04%      6.16%     0.80%         0.00%



        key to Plan Type:
         1. jr/sr - 2/2     7. jr - 1 yr                         13. sr - 5 yr                       19. sr - 3 yr + 4hrs              25. Pr - 4 yr + 6hrs             31. Pr - 2 yr + 4hrs
         2. sr - 4 yr       8. Pr - 4 yr                         14. sr - 4 yr +8hrs                 20. sr - 3 yr + 2hrs              26. Pr - 4 yr + 4hrs             32. Pr - 2 yr + 2hrs
         3. sr - 3 yr       9. Pr - 3 yr                         15. sr - 4 yr + 6hrs                21. sr - 2 yr + 4hrs              27. Pr - 4 yr + 2hrs             33. Pr - 1 yr + 2hrs
         4. sr - 2 yr       10. Pr - 2 yr                        16. sr - 4 yr + 4hrs                22. sr - 2 yr + 2hrs              28. Pr - 3 yr + 6hrs             34. sr Add’l year
         5. sr - 1 yr       11. Pr - 1 yr                        17. sr - 4 yr + 2hrs                23. sr - 1 yr + 2hrs              29. Pr - 3 yr + 4hrs             35. Pr - 5 yr
         6. jr - 2 yr       12. jr/sr - 2/2 + 4hrs               18. sr - 3 yr + 6hrs                24. Pr - 4 yr + 8hrs              30. Pr - 3 yr + 2hrs




  74
                                         2007 ANNUAL REPORT                                Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                                          Texas guaranteed Tuition Plan
                                    Active Contract Counts for All Enrollment Periods – Appendix A (Continued)
                                                               As of August 31, 2007
 Matriculation                                                                            PlAN
       year          16             17       18          21          22         23           24        31          34              35        Total           % of Total
       1996                0             0        0            0          0           0            0        0            0              0            1          0.00%
       1997                0             0        0            0          0           0            0        0            0              0         65            0.06%
       1998                0             0        0            0          0           0            0        0            0              0        196            0.17%
       1999                1             0        0            0          0           0            0        0            1              0        418            0.36%
       2000                1             0        0            1          0           1            2        0            2              0        773            0.67%
       2001                0             0        0            1          0           0            0        0            2              0      1,263            1.10%
       2002                1             1        1            1          0           0            1        0            1              0      2,053            1.78%
       2003                1             0        0            2          0           0            1        0            3              3      3,683            3.19%
       2004                0             0        0            1          0           0            3        0            5              3      5,020            4.35%
       2005                1             0        0            2          0           2            1        0            5              5      5,973            5.18%
       2006                3             1        2            5          1           2            2        0            7              5      6,892            5.98%
       2007                0             0        0            4          0           1            2        0            4              10     7,260            6.30%
       2008                2             0        2            3          0           3            0        0            9              14     7,923            6.87%
       2009                1             0        1            1          0           1            4        0            5              6      7,473            6.48%
       2010                0             0        0            2          0           1            3        0            5              17     7,357            6.38%
       2011                0             0        1            3          0           2            2        2            2              10     6,996            6.07%
       2012                0             0        0            2          0           2            2        0            7              14     7,191            6.24%
       2013                0             0        1            5          0           2            3        2            6              9      7,169            6.22%
       2014                1             0        0            1          0           1            1        0           12              6      6,726            5.83%
       2015                0             0        0            0          0           0            0        0            5              10     5,638            4.89%
       2016                0             0        0            0          0           0            0        0            2              7      5,271            4.57%
       2017                0             0        0            0          0           0            0        0            0              12     4,741            4.11%
       2018                0             0        0            0          0           0            0        0            0              14     4,438            3.85%
       2019                0             0        0            1          0           0            0        0            0              8      3,858            3.35%
       2020                0             0        0            0          0           0            0        0            0              10     3,150            2.73%
       2021                0             0        0            0          0           0            0        0            0              12     3,777            3.28%
       2022                0             0        0            0          0           0            0        0            0              0            9          0.01%
       2023                0             0        0            0          0           0            0        0            0              0            4          0.00%
       2024                0             0        0            0          0           0            0        0            0              0            3          0.00%
       2025                0             0        0            0          0           0            0        0            0              0            1          0.00%
      TOTAl               12             2        8           35          1          18           27        4           83          175      115,322
  % OF TOTAl         0.01%          0.00%    0.01%       0.03%       0.00%     0.02%        0.02%      0.00%       0.07%       0.15%



key to Plan Type:
 1. jr/sr - 2/2     7. jr - 1 yr                  13. sr - 5 yr               19. sr - 3 yr + 4hrs          25. Pr - 4 yr + 6hrs             31. Pr - 2 yr + 4hrs
 2. sr - 4 yr       8. Pr - 4 yr                  14. sr - 4 yr +8hrs         20. sr - 3 yr + 2hrs          26. Pr - 4 yr + 4hrs             32. Pr - 2 yr + 2hrs
 3. sr - 3 yr       9. Pr - 3 yr                  15. sr - 4 yr + 6hrs        21. sr - 2 yr + 4hrs          27. Pr - 4 yr + 2hrs             33. Pr - 1 yr + 2hrs
 4. sr - 2 yr       10. Pr - 2 yr                 16. sr - 4 yr + 4hrs        22. sr - 2 yr + 2hrs          28. Pr - 3 yr + 6hrs             34. sr Add’l year
 5. sr - 1 yr       11. Pr - 1 yr                 17. sr - 4 yr + 2hrs        23. sr - 1 yr + 2hrs          29. Pr - 3 yr + 4hrs             35. Pr - 5 yr
 6. jr - 2 yr       12. jr/sr - 2/2 + 4hrs        18. sr - 3 yr + 6hrs        24. Pr - 4 yr + 8hrs          30. Pr - 3 yr + 2hrs




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Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m     2007 ANNUAL REPORT




                                            Texas guaranteed Tuition Plan Contracts Matriculation Information
                                                                       Appendix B
                                                                               Number of    semester     Tuition and      Average Paid Per
                                                                               Contracts     hours        Fees Paid        semester hour
         TExAs COMMUNiTy COllEgEs
         Alvin Community College                                                  29              391           $31,374         $80.29
         Amarillo College                                                         49              328            39,931         121.84
         Angelina College                                                         19              116            12,832         110.67
         Austin Community College                                                587             4,802          743,356         154.81
         Blinn College at Bryan                                                  437             4,245          629,327         148.25
         Brazosport College                                                       12              119             9,846          83.03
         Brookhaven College                                                       71              360            48,497         134.59
         Cedar valley College                                                     14              125            10,398          83.14
         Central Texas College                                                    25              143            14,728         103.22
         Cisco Junior College                                                     32              284            43,861         154.50
         Clarendon College                                                         4               45             5,386         118.89
         Coastal Bend College                                                     16              180            29,066         161.05
         College of the Mainland                                                  16               94             7,041          74.69
         Collin County Community College                                         208             1,463          136,351          93.23
         Del Mar College                                                          98              947           125,228         132.29
         Eastfield College                                                        37              318            26,355          82.75
         El Centro College                                                        16               97            10,446         108.09
         El Paso Community College                                                52              341            47,128         138.26
         Frank Phillips College                                                    5               97            12,727         130.80
         Galveston College                                                        10               50             7,741         154.06
         Grayson County College                                                   24              324            24,053          74.21
         Hill College                                                             19              173            16,082          93.20
         Houston Community College                                               136             1,162          170,461         146.72
         Howard College                                                           27              166            22,916         137.87
         Kilgore College                                                          44              623            61,416          98.61
         Lamar State College Orange                                                8              106            18,583         175.01
         Lamar State College Port Arthur                                          19              171            33,252         194.89
         Laredo Community College                                                 28              157            21,580         137.12
         Lee College                                                              19              139            17,909         129.06
         McLennan Community College                                               57              456            62,910         137.90
         Midland College                                                          43              262            34,791         132.54
         Mountain view College                                                    20              190            12,423          65.50
         Navarro College                                                          52              572            65,223         114.00
         North Central Texas College                                              81              622            86,525         139.05
         North Harris Montgomery Community College                               267             1,870          224,790         120.22




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                                     2007 ANNUAL REPORT                    Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                     Texas guaranteed Tuition Plan Contracts Matriculation Information
                                                         Appendix B (Continued)
                                                                      Number of       semester        Tuition and        Average Paid Per
                                                                      Contracts        hours           Fees Paid          semester hour
TExAs COMMUNiTy COllEgEs (CONTiNUED)
North Lake College                                                         53                 393             $44,437          $113.05
Northeast Texas Community College                                          16                 175              20,779           118.42
Northwest vista College                                                    99                 760             106,423           140.11
Odessa College                                                             19                 126              11,887             94.32
Palo Alto College                                                          36                 318              42,145           132.67
Panola College                                                              8                  76              11,522           152.58
Paris Junior College                                                       36                 298              35,925           120.53
Richland College                                                           86                 585              49,326             84.34
San Antonio College                                                       128                 924             131,623           142.45
San Jacinto College Central                                               139               1,266             137,360           108.48
South Plains College                                                      127               1,254             188,279           150.14
South Texas College                                                        48                 269              44,176           164.04
Southwest Texas Junior College                                              7                  73               6,709             92.35
St. Philips College                                                        32                 287              34,470           120.08
Tarrant County College Ft. Worth (NW)                                      42                 423              41,831             98.97
Tarrant County College Hurst                                               99                 637              69,018           108.33
Tarrant County College SE Campus                                           62                 365              47,003           128.86
Tarrant County College South Campus                                        33                 260              27,838           107.02
Temple College                                                             53                 524              70,703           134.80
Texarkana College                                                          17                 176              16,810             95.59
Texas State Technical College Harlingen                                    10                  96              15,623           163.29
Texas State Technical College Marshall                                      2                  15               3,747           248.77
Texas State Technical College Sweetwater                                    6                  85              12,506           146.78
Texas State Technical College Waco                                         84               1,669             228,240           136.76
Trinity valley Community College                                           34                 262              25,315             96.77
Tyler Junior College                                                       90                 927             118,480           127.88
UT Brownsville & Texas Southmost College                                   45                 535              90,243           168.77
vernon College                                                             11                 100              10,734           107.85
victoria College                                                           47                 356              35,544             99.74
Weatherford College                                                        41                 495              45,939             92.80
Western Texas College                                                      27                 168              21,240           126.26
Wharton County Junior College                                              71                 671              91,054           135.61
TOTAl                                                                   4,189              36,104         $4,701,461           $130.22




                                                                                                                                                 77
Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m        2007 ANNUAL REPORT




                                                Texas guaranteed Tuition Plan Contracts Matriculation Information
                                                                    Appendix B (Continued)
                                                                                   Number of     semester     Tuition and     Average Paid Per
                                                                                   Contracts      hours        Fees Paid       semester hour
         TExAs PROPRiETARy iNsTiTUTiONs

         Academy of Health Care Professions in Austin                                    1               14          $1,100         $76.43

         Academy of Health Care Professions NL                                           1               18           3,400         190.18

         American Intercontinental University - Houston                                  1               11           2,029         190.18

         Art Institute of Dallas                                                        15              528         106,363         201.58

         Art Institute of Houston                                                       18              480          88,491         184.29

         ATI Technical Training Center                                                   4               93          10,864         116.80

         Austin Business College                                                         1               61          11,511         190.18

         Austin Community College Continuing Education                                   4               26           4,833         186.87
         Baylor College of Dentistry                                                     2               78          14,818         190.18

         Bradford School of Business                                                     1               38           7,227         190.18

         Brookhaven College Continuing Education                                         1                1            130          190.06

         Cedar valley College Continuing Ed                                              1                2            299          190.20

         Collin County Special Billing                                                   2               13           2,394         190.18

         Court Reporting Institute of Houston                                            1                8           1,478         190.17

         Dallas County Community College LeCroy Center                                   4                4            747          210.36

         Dallas Institute of Funeral Service                                             1               52           3,974          76.43

         Devry University Houston                                                        3               90          14,711         163.45

         Devry University Irving                                                         6               59           8,514         144.30

         Eastfield College Continuing Education                                          1                1            275          190.18

         El Centro College Continuing Education                                          1                0             60          190.48

         Everest College Arlington                                                       1               21           3,395         161.40

         Everest College Fort Worth                                                      1               22          10,793         491.44

         Hallmark Institute of Aeronautics                                               2               73           9,788         134.08

         Houston Community College-Cont Ed                                               1               31           2,355          76.43

         ITT Technical Institute Austin                                                  5              230          44,074         191.74

         ITT Technical Institute Houston West                                            1               36           6,846         190.18

         ITT Technical Institute San Antonio                                             1               36           6,846         190.18

         ITT Technical Institute Webster                                                 1               24           1,834          76.43

         KD Studio                                                                       1               17           3,233         190.18

         Kilgore College Continuing Education                                            1                2            800          491.40

         North Harris Montgomery CCD Continuing Education                                5               31           3,547         114.08

         Remington College North Houston                                                 2               44           4,728         107.45

         Sam Houston State University Correspondence Dept.                               1                3            480          190.17

         San Antonio College Continuing Education                                        3               28           3,505         123.93

         South Plains College Continuing Education                                       1                4            690          190.19

         Texas A&M University Commerce Graduate Students                                 7               87          16,523         190.18

         Texas A&M University Health Science Center                                     13              176          34,162         194.25

         Texas A&M University Kingsville Graduate Studies                                2               19           3,551         190.18




  78
                                    2007 ANNUAL REPORT                      Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                      Texas guaranteed Tuition Plan Contracts Matriculation Information
                                                          Appendix B (Continued)
                                                                         Number of      semester        Tuition and       Average Paid Per
                                                                         Contracts       hours           Fees Paid         semester hour
Texas A&M University Study Abroad Programs Ofc                                14                116            $22,061          $190.18

Texas Culinary Academy                                                        11                918            167,329            182.25

Texas Engineering Extension Service                                            3                 49              9,400            190.18

Texas State University Continuing Education                                    1                 11              2,100            190.18

Texas State University Extension Studies                                       2                   5             1,043            190.19

Texas State University Office of Correspondence                               38                190             35,212            185.59

Texas Tech Murdough Center for Engineering                                     1                   2               400            190.17

Texas Tech Outreach & Extended Studies                                        43                188             35,764            189.80

Texas Tech University-Rawls College of Business                                3                 15              2,853            190.18

Universal Technical Institute                                                  9                697            110,735            158.85

University Extension UT Austin                                                58                223             42,946            192.94

University of Houston Clear Lake Graduate Studies                              3                 24              4,571            190.18

University of Houston Downtown CJTC                                            1                   9             1,800            190.17

University of Houston Office of International                                  1                   5               951            190.18

University of North Texas Health Science Center                                1                   3               571            190.18

University of Texas at Arlington Continuing Education                          1                 26              2,000             76.43

University of Texas at Arlington Graduate Studies                              1                 22              4,165            190.18

University of Texas at Austin Engineering Co-op Ofc                            1                   2               430            190.18

University of Texas Health Science Center at Houston                          14                319             84,357            264.85

University of Texas Health Science San Antonio                                15                237             42,234            178.18

UT Austin Continuing & Extended Education                                      4                 11              1,999            190.18

UT in DC                                                                       1                 12              2,448            204.03

UT McCombs School of Business CIBER                                            6                 36              6,846            190.18

UT Study Abroad Office / International Office                                 26                220             41,621            189.42

virginia College @ Austin                                                      5                 58             11,094            190.18

Wade College                                                                   4                159             27,047            170.09

TOTAl                                                                        385              6,015         $1,102,345          $183.26




                                                                                                                                                  79
Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m        2007 ANNUAL REPORT




                                                Texas guaranteed Tuition Plan Contracts Matriculation Information
                                                                    Appendix B (Continued)
                                                                                   Number of     semester     Tuition and         Average Paid Per
                                                                                   Contracts      hours        Fees Paid           semester hour
         TExAs FOUR-yEAR PUBliC UNiVERsiTy

         Angelo State University                                                       145            3,551           $529,188         $149.02

         Lamar Institute of Technology                                                  17              305             34,131          111.82

         Lamar University                                                              111            2,519            407,267          161.67

         Midwestern State University                                                    77            1,781            260,070          146.04

         Prairie view A&M University                                                    25              689            121,188          175.97

         Sam Houston State University                                                  381            9,752           1,549,945         158.93

         Stephen F. Austin State University                                            320            9,050           1,490,078         164.65

         Sul Ross State University Alpine                                               25              658             94,832          144.02

         Tarleton State University                                                     184            4,867            716,250          147.17

         Texas A&M International University                                             35              864            121,428          140.62

         Texas A&M University Galveston                                                 72            1,894            356,838          188.40

         Texas A&M University College Station                                         2,834          73,182          13,822,885         188.88

         Texas A&M University Commerce                                                  79            1,899            293,040          154.33

         Texas A&M University Corpus Christi                                           190            5,155            832,882          161.56

         Texas A&M University Kingsville                                                48            1,152            171,977          149.28

         Texas A&M University Texarkana                                                  2               18               1,995         110.83

         Texas Southern University                                                      18              359             64,970          180.98

         Texas State University San Marcos                                            1,083          27,239           4,966,527         182.33

         Texas Tech University                                                        1,608          41,953           7,925,580         188.91

         Texas Tech University Health Sciences Center                                   53            1,253            185,743          148.29

         Texas Woman's University                                                      120            2,692            437,257          162.42

         University of Houston                                                         501           11,279           2,138,338         189.58

         University of Houston Clear Lake                                               32              591             99,544          168.57

         University of Houston Downtown                                                 78            1,453            216,277          148.84

         University of Houston victoria                                                 17              292             46,622          159.49

         University of North Texas                                                     953           23,712           4,357,771         183.78

         University of Texas at Arlington                                              392            8,981           1,683,084         187.41

         University of Texas at Austin                                                2,658          67,895          13,053,440         192.26

         University of Texas at Brownsville                                             16              113             16,252          143.38

         University of Texas at Dallas                                                 277            7,075           1,337,721         189.08

         University of Texas at El Paso                                                118            2,670            457,420          171.35

         University of Texas at San Antonio                                            751           18,136           3,342,582         184.31

         University of Texas at Tyler                                                  102            2,326            377,440          162.24

         University of Texas of the Permian Basin                                       41              956            136,271          142.48

         University of Texas Pan American                                              123            2,616            361,811          138.31

         West Texas A&M University                                                     107            2,663            374,826          140.74

         TOTAl                                                                       13,593         341,590         $62,383,467        $182.63




  80
                                   2007 ANNUAL REPORT                    Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                   Texas guaranteed Tuition Plan Contracts Matriculation Information
                                                       Appendix B (Continued)
                                                                         Number of      semester       Tuition and      Average Paid Per
                                                                         Contracts       hours          Fees Paid        semester hour
TExAs PRiVATE iNsTiTUTiONs

Abilene Christian University                                                  61              1,681         $444,069         $264.09

Arlington Baptist College                                                      1                 35            6,656          190.18

Austin College                                                                63              1,880          387,701          206.19

Baylor University                                                            429             12,145         2,659,365         218.96

Concordia University Austin                                                   19               517            94,911          183.58

Criswell College                                                               2                 42            7,988          190.18

Dallas Baptist University                                                     27               805           172,562          214.36

East Texas Baptist University                                                 14               397            69,761          175.58

Hardin-Simmons University                                                     48              1,190          224,380          188.56

Houston Baptist University                                                    20               386            73,409          190.18

Howard Payne University                                                       26               687           125,496          182.59

Huston-Tillotson University                                                    1                 27            5,206          190.18

Jacksonville College                                                           1                  1              282          190.16

Le Tourneau University                                                        11               294            55,944          190.18

Lon Morris College                                                             5               122            22,209          181.82

Lubbock Christian University                                                  23               485            97,015          199.91

McMurry University                                                            20               531           100,940          190.09

Northwood University Texas                                                    10               294            47,199          160.50

Our Lady of the Lake University                                                3                 52            9,943          190.18

Parker College of Chiropractic                                                 1                 23            4,374          190.18

Paul Quinn College                                                             1                 23            4,374          190.18

Rice University                                                               80              2,315          541,438          233.88

Sanford-Brown Institute Houston                                                1                 24            4,564          190.18

Schreiner University                                                          22               642           118,619          184.64

South Texas College of Law                                                     4                 57           10,894          190.18

Southern Methodist University                                                134              3,924          838,115          213.60

Southwestern Assemblies of God University                                      7               127            21,423          168.68

Southwestern University                                                      104              2,900          621,819          214.39

St. Edwards University                                                       151              3,999          764,076          191.09

St. Mary's University                                                         43              1,123          221,972          197.61

Texas Christian University                                                   276              7,715         1,652,854         214.23

Texas Lutheran University                                                     34               838           155,845          185.97

Texas Wesleyan School of Law                                                   1                  2              380          190.18

Texas Wesleyan University                                                     12               288            63,248          219.47

Trinity University                                                           115              3,300          719,325          218.00

University of Dallas                                                          21               654           117,553          179.74

University of Mary Hardin-Baylor                                              69              1,892          338,955          179.18

University of St. Thomas                                                      30               776           146,763          189.23




                                                                                                                                               81
Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m                       2007 ANNUAL REPORT




                                                 Texas guaranteed Tuition Plan Contracts Matriculation Information
                                                                     Appendix B (Continued)
                                                                                                      Number of         semester        Tuition and         Average Paid Per
                                                                                                      Contracts          hours           Fees Paid           semester hour
         University of Texas Medical Branch at Galveston                                                     8                  143             $26,214           $183.74

         University of Texas Southwestern Medical Center at Dallas                                           2                   16               3,070             190.18

         University of the Incarnate Word                                                                   45                1,265             252,473             199.60

         Wayland Baptist University                                                                         16                  323              55,921             173.26

         Wiley College                                                                                       1                   33               6,276             190.18

         TOTAl                                                                                          1,962                53,977        $11,295,581            $209.27



                                                                                                      Number of         semester        Tuition and         Average Paid Per
                                                                                                      Contracts          hours           Fees Paid           semester hour
         MATRiCUlATiON iNFORMATiON: ExECUTiVE sUMMARy

         TExAs UNiVERsiTiEs

         Texas Community Colleges                                                                         4,189              36,104          $4,701,461           $130.22

         Texas Proprietary Institutions                                                                     385               6,015           1,102,345             183.26

         Texas Four-Year Public Universities                                                             13,593             341,590          62,383,467             182.63

         Texas Private Institutions                                                                       1,962              53,977          11,295,581             209.27

         TOTAl TExAs iNsTiTUTiONs                                                                        20,129            437,686         $79,482,854            $181.60

         OUT-OF-STATE INSTITUTIONS

         Out-of-State Community Colleges                                                                    133               1,415           $241,562            $170.77

         Out-of-State Proprietary Institutions                                                                   6              122              22,919             187.39

         Out-of-State Universities                                                                        1,371              33,400           6,452,867             193.20

         Out-of-State Private Universities                                                                  924              25,628           5,383,003             210.05

         Total Out-Of-State Institutions                                                                  2,434              60,564        $12,100,350            $199.80

         gRAND TOTAl*                                                                                    22,563            498,250         $91,583,204            $183.81

         *There are a total of 20,884 contracts in matriculation status on August 31, 2007. This is different than the total seen in the chart above due to 1,679 students attending
         multiple schools in the same semester.




  82
2007 ANNUAL REPORT                       Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




          Total Enrollment
                   8.70%

                             10.79%



60.24%
                               18.57%




                                      1.71%
                                                      Texas Community Colleges
                                                      Texas Proprietary Institutions
  Total Tuition and Fee Payments                      Texas Four-Year Universities
                                                      Texas Private Universities
                                                      Total Out-of-State Institutions
                     12.33%


                               13.21%

 68.12%
                                 5.13%

                                          1.20%




                                                                                                               83
TEXAS GUARANTEED TUITION PLAN




                           Photo: Courtesy of Texas A&M at Kingsville.




FUND INV E S TMENT INF O R M AT I O N
                                     2007 ANNUAL REPORT                                  Te x a s P re p a i d H i g h e r Ed u c a t i o n Tu i t i o n P ro g r a m




                                          Texas guaranteed Tuition Plan Fund Investment Information
                                                       Market Value of Fund
                                                    year Ending August 31, 2007
                                                       (Amounts in millions)
Total Fund                                                          $1,863


                                                         Fiscal year 2007
                                                 Time Weighted gross Fund Return
Total Fund                                                            8.7%
Total Fund Benchmark                                                  8.5%


                                                            Fiscal year 2007                                            Fiscal year 2006
Gross Return - Total Fund                                             8.7%                                                      8.7%
Gross Return - Equity                                               16.4%                                                     12.2%

Gross Return - Fixed Income                                           5.4%                                                      2.9%

Gross Return - Cash and Short-term                                    5.0%                                                      4.3%

Gross Return - All Other                                               N/A                                                      N/A



                                                       Market Value of Fund                                      Market Value of Fund
                                                    year Ending August 31, 2007                               year Ending August 31, 2006
Portfolio Diversification                              (Amounts in millions)                                     (Amounts in millions)
Equity                                                              $1,232                        66%                         $1,077                 63%
Fixed Income                                                         $579                         31%                          $596                  35%
Cash and Short-term Securities                                         $52                         3%                            $42                  2%
Other Investments                                                       $0                         0%                             $0                  0%
TOTAl, All iNVEsTMENTs                                             $1,863                        100%                         $1,715                100%

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




                                               Investment Asset Allocation,
                                                     August 31, 2007




                                                                                            3%

                                            66%
                                                                                                     Equity
                                                                                                     Fixed Income
                                                                          31%
                                                                                                     Cash and Short Term Securities




                                                                                                                                                               87

				
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