audited financial statements trinity university · trinity university completed its 145th academic...

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AuditedFinancialStatements

WITH REPORT OF INDEPENDENT AUDITORS

MAY 31, 2014 AND 2013

TRINITY UNIVERSITY

Contents

AUDITED FINANCIAL STATEMENTS

Financial Overview

Trinity University Board of Trustees

Report of the Independent Auditors

Audited Financial Statements

Statements of Financial Position

Statement of Activities

Statements of Cash Flows

Notes to Financial Statements

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6

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for years ended May 31, 2014 and 2013

Trinity University completed its 145th academic year on May 31, 2014, celebrating the completion of the final phase of the Center for Sciences and Innovation, a 230,000 square foot state-of-the-art science building. The University continued its multi-year renewal of residential halls by completing, in three months, its most ambitious summer residence hall renovation project: a $12 million renovation of the Witt/Winn Residence Hall. In addition, the admissions and financial aid offices were relocated to a central location to better serve prospective and current students and the academic mall area was completely re-landscaped in connection with the science building project, greatly enhancing the beauty of the upper campus.

In May 2013, the Board of Trustees approved the current strategic plan and the University began the process of aligning resources to support the plan’s objectives and to fine-tune implementation plans for various strategic initiatives. The latter will allow Trinity to re-envision its unique brand: blending its long history of excellence in the liberal arts with a strong natural sciences program and select professional programs. To this end, the faculty approved a new core curriculum to build inter-disciplinary environments for new and more effective kinds of learning, global engagement and experiential learning opportunities. These milestones solidify the University’s ability to deliver traditional liberal arts education rich in the development of critical thinking and writing skills, with selected professional and pre-professional programs. The University’s 9:1 student-to-teacher ratio provides ample opportunity for collaborative research and other “productive collisions” between students and our world-class faculty.The following pages present the University’s audited financial statements for the fiscal year ended May 31, 2014. As a result of strong growth in the endowment market value, the statement of financial position includes assets totaling $1.43 billion, an increase of $117.8 million or 9.0%, from the prior year. Total liabilities increased $48.9

million to $110.6 million, reflecting the issuance of $50 million bond issue in conjunction with the construction of the Center for Sciences and Innovation. Net assets grew by $68.9 million.The University has adopted the Composite Financial Index (“CFI”) as its primary measure of strategic financial health. The CFI is a single indicator of overall institutional financial health based on a composite performance score of four ratios: • Primary Reserve Ratio - A measure of financial

resource sufficiency and flexibility• Viability Ratio - A measure of debt

management• Return on Net Assets Ratio - A measure of

overall net asset return• Net Operating Income Ratio - A measure of

operating performance

The Primary Reserve Ratio measures the sufficiency and flexibility of financial resources by comparing expendable net assets to total expenses. Expendable net assets are total net assets, excluding permanently restricted net assets and net property, plant and equipment (and its related long-term debt). This ratio provides an important view of financial flexibility for pursuit of mission by comparing the rate of consumption of resources to available and expendable resources. Stated another way, this ratio represents the number of years (or portion of a year) the institution could sustain current operating expenses with currently available net assets without considering future revenue inflows.

OverviewF I N A N C I A L

i

Primary Reserve Ratio6.0

5.0

4.0

3.0

2.0

1.0

2011

Expendable net assets

Total expenses

$501,686

$101,929

$445,415

$112,565

$490,102

$107,795

$557,789

$125,278

2012 2013 20144.

5

4.54.

9

4.0

Resource Sufficiency and Flexibility-Primary Reserve Ratio

Trinity’s ratio is quite strong at 4.5x as of May 31, 2014, indicating strong accumulated reserves as a foundation for pursuing a robust strategic plan in the coming years. The University has established a long-term planning threshold of maintaining this ratio at 4.0X or higher throughout the implementation of the current strategic plan. The established threshold of financial health for this ratio is 0.4, or 1/10th of the University’s planning threshold.

The Viability Ratio measures the ability of the institution to adequately manage debt, indicating how easily the institution can meet its entire debt obligation with expendable net assets. Generally, a ratio of at least 1.25x is recommended for good financial health. Trinity’s ratio is significantly stronger, reflecting the University’s conservative use of long-term debt and debt capacity.

The University’s expendable net assets increased $67.7 million, or 13.8%, as a result of endowment growth and the issuance of $50 million of new fixed-rate tax exempt bonds in FY 2014, reimbursing expendable net assets previously used for funding construction costs of the Center for Sciences and Innovation. Total debt outstanding increased in FY 2014 as a result of the new debt issuance.

The University’s long-term planning goal is to maintain this ratio at 4.2x or higher which, in the

CFI methodology, receives the maximum strength score of ten.

The Net Operating Income Ratio gauges the results of institutional operations and indicates whether the institution is operating within available resources in its basic day-to-day function of pursuing its mission. A positive ratio indicates that the institution experienced an operating surplus for the year. Operating surplus for this ratio includes depreciation expense which is often omitted from universities’ budgetary consideration of operating surplus or deficit.

The very strong 17% ratio for FY 2011 was the result of oil and gas royalty income earned on funds held in an unrestricted trust which can be terminated at the discretion of the University. Net tuition revenue has not grown significantly for several years reflecting the competitive marketplace and substantial increase in the University’s commitment to financial aid support since the onset of the last economic recession. This has pressured the net operating income ratio which has steadily declined over the four year period. Additionally, operating expenses increased $17.3 million to $125.3 million in FY 2014 which includes significant one-time expenses. With the completion of the final phase of the Center for Sciences and Innovation and other construction projects in FY 2014, the University incurred $10.2 million of one-time charges to operating expenses for non-capitalized additions and loss on disposal of assets. After eliminating these one-time expenses in FY 2014,

ii

Operating Performance Results-Net Operating Income Ratio

Net Operating Income Ratio

15.0%

10.0%

20.0%

5.0%

0.0%

-5.0%

-10.0%

2011

Unrestricted operating net income

Unrestricted revenues

$20,880

$122,809

$7,087

$119,652

$2,653

$110,628

($7,178)

$118,100

2012 2013

2014

17.0%

5.9%

-6.1%

2.4%

Debt Management-Viability Ratio

Viability Ratio

12.0

16.0

10.0

14.0

8.0

6.0

4.0

2.0

2011

$501,686

$32,000

$445,415

$32,035

$490,102

$32,035

$557,789

$81,850

2012 2013 2014

15.7

15.3

6.8

13.9

Expendable net assets

Long-termdebt

by $7.1 million from the prior year, or 6.6%, and the net operating income and net operating income ratio would be a positive $3.0 million and 2.5%, respectively. With the completion of this major construction the University anticipates net income from operations returning to positive in FY 2015. The threshold value for this ratio has been established at 4% for the current strategic planning period.

Trinity’s endowment spending rate is 4.5% of a trailing twelve-quarter moving average of endowment market values. The University includes in operating revenues amounts appropriated from the endowment pursuant to its spending formula. Additionally, distributions from funds held in trust by others are included in operating revenues if restricted to support operating expenses by the external trustee or, in the absence of such restriction, if designated by the University’s board of trustees for the support of operating expenses.

The University’s practice is to fund a substantial portion of annual depreciation expense through its operating budget. In FY 2014, approximately $6.5 million of total depreciation expenses of $9.7 million was funded from the operating budget. In addition, the University regularly supplements this operating investment in plant renewal with distributions from non-operating funds held in trust by others restricted for this purpose by the external fund trustee and contributions received for plant construction and renewal. The University’s funding model for plant renewal and replacement has allowed the University to expend $146.3 million for renewal of property, plant and equipment over the past four fiscal years while incurring only $50 million in additional debt.

The Return on Net Assets Ratio measures overall net asset management and performance, thus indicating whether an institution is able to produce real financial returns that ensure continued improvement in overall financial health from year to year. For universities with relatively large endowments like Trinity this ratio is heavily influenced by financial markets valuations and the related effect on the University’s endowment portfolio. Thus, because of its relative volatility in a given year, this ratio is best understood over a multi-year trend. Trinity’s long-term planning goal is to grow net assets by inflation (as measured by

the Higher Education Price Index-HEPI), plus 3%. The University’s total net assets grew at 5.8% per annum for the fiscal years 2011-2014. HEPI grew by 2.1% per annum over this same period. Thus, the University’s net assets grew 3.7% per annum, in real terms, over the four year period. Growth in net assets outperformed the HEPI + 3% planning threshold by 0.7% per annum.

The Composite Financial Index (CFI) is a weighted average of standardized strength scores derived from the four core ratios described above: Primary Reserve, Viability, Return on Net Assets and Net Operating Income ratios. As such, it provides a single comprehensive view of the overall financial health of an institution.

Return on Net Assets Ratio

12.0%

10.0%

14.0%

8.0%

6.0%

4.0%

2.0%

-2.0%

-4.0%

0%2011

Change in net assets

Beginning net assets

$132,230

$1,048,960

$(40,803)

$1,181,189

$107,513

$1,140,386

$68,895

$1,247,899

2012

2013 201412

.6%

-3.5

%

9.4%

5.5%

Asset Performance-Return on Net Assets Ratio

Composite Financial Index

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The CFI is calculated by converting each of the four core ratios to a standardized strength score ranging from negative four to ten using formulae created by the authors of the CFI. A strength score of three or better for each ratio, and for the overall CFI, is considered to represent good financial health. The strength scores can range seven below (to negative four) and seven above (to ten). These strength scores are averaged using weightings to reflect the relative importance of each ratio. The University’s long-term planning threshold is to maintain a CFI score of 7.0, or better throughout the implementation phase of the current strategic plan.

The University’s primary reserve ratio and viability ratio received the highest strength rating of 10 for each of the four fiscal years reflecting strong balance sheet ratio. The University’s strength scores were less than the maximum for the Net Operating Income and Return on Net Assets ratio. For FY 2014 the University’s Net Operating Income

was negatively affected by the significant one-time operating expenses relating to large construction projects. The University expects this ratio to be positive in future years. The return on net assets ratio varies significantly from year-to-year due to financial market volatility and its effect on the endowment market value.

Trinity’s overall CFI scores, as well as the individual results for the four core ratios comprising the CFI, indicates very strong financial reserves and sound financial management, which places the University in a position of strength to pursue its robust vision and mission. The following chart presents general guidelines for interpreting the CFI scores, according to the authors of the index (Prager, Sealy & Co., LLC; KPMG LLP; and Attain LLC. Strategic Financial Analysis for Higher Education, Identifying, Measuring and Reporting Financial Risks. USA: 2010:

Composite Financial Index

Strength Factor10.0

8.0

6.0

4.0

2.0

02011 2012 2013 2014

Primary ReserveViabilityOperating IncomeReturn on Net Assets

CFI

35%35%10%20%

10.010.010.0

6.3

9.3

10.010.0

8.5-1.7

7.5

10.010.0

3.44.7

8.3

10.010.0(4.0)

2.8

7.2

2011Weight 2012 2013 2014

9.3

7.5 8.

3

7.2

Scale for Charting CFI Performance

109876543210-1-2-3-4

Deploy resources to achieve a robust mission

Allow experimentation with new initiatives

Focus resources to compete in future state

Direct resources to allow transformation

Re-engineer the institution

Consider substantive programmatic adjustments

Assess debt, DoE, compliance and remediation

Consider structured programs to conserve cash

Consider whether financial exigency is appropriate

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Net student revenues, comprised of net tuition, room and board, totaled $60.9 million, represented 51 percent of total unrestricted net revenues from operations. Investment income includes certain endowment revenues and distributions from funds held in trust by others. Endowment revenues include endowment resources appropriated for expenditure under the University’s endowment spending formula. Funds held in trust by others include those funds restricted for support of operating expenses by the fund’s trustee, or in the absence of trustee restriction, designated for and utilized for support of operating expenses by the University.

Enrollment was 2,228 annual full-time equivalent students for FY 2014. The University received 4,505 first-year undergraduate applications for fall 2013 with an acceptance rate of 64 percent. The University’s yield was 19 percent, generating enrollment of 534 first-year students for the fall 2013 semester. While the number of applications grew by 103 from the prior year, yield dropped from 21% in FY13 to 19% in FY14, resulting in fewer deposited students (534 in FY14 versus 596 in FY13). The University has taken numerous measures to increase enrollment in future years and expects first year first-year student deposits to exceed the goal of 600 for FY15.

Student charges (tuition, fees, room and board) were $46,274, an increase of 4.2 percent from the prior year. Total scholarships and grants were $38.6 million – an average of $18,600 per

undergraduate student. The source of funding for these scholarships includes operating funds, endowment funds and external grants and contribution revenue.

Scholarships continue to be one of the fastest growing line items in the Statement of Activities, reflecting the University’s commitment to providing access to a broad spectrum of students and increased market competition in recent years. Although student tuition continues to increase, net student revenues are growing at a significantly slower pace in recent years due to the increased number of students receiving financial aid and the increase in the average aid package per student.

Unrestricted Operating Revenues

Auxiliaryenterprises

17%

Net tuitionincome

34%

Other18%

Investmentincome

31%

Net Tuition Revenue

Results of FY 2014

Endowment, Investments, and Funds Held in Trust by Others

Sources of Student Financial Aid

Grants and contributions

8%

Operating budget

69%

Endowment funds23%

v

Endowment Market Value (in millions)

Managed Internally Funds Held in Trust by Others

1000

800930 867

959

1,108

600

400

200

020122011 2013 2014

Total balances for internally managed investments and funds held in trust by others was $1.1 billion as of May 31, 2014, representing a net increase in value of $149.1 million, or 15.5% for the year. In FY14, the University transferred $74 million of unrestricted operating reserves into the endowment, in the form of funds that function as endowment. Endowment distributions appropriated under the University’s endowment spending formula totaled $29.8 million, representing an effective spending rate of 4.9% for the year. Additional support to operations of $6.2 million was provided by distributions from funds held in trusts by others. As reflected in footnote 12 the net investment return on the endowment was 12.9% for the year. All investment income not utilized in operations was reinvested.Approximately 55 percent of the endowment funds are permanently or temporarily restricted net assets, reflecting donor-imposed use restrictions or time restrictions due to the use of the spending formula. The remaining 45 percent of the endowment is primarily comprised of funds that function as endowment and are unrestricted net assets, reflecting significant financial flexibility for the University.

Trinity’s endowment resources per full-time student continues to rank among the top colleges and universities in the nation. According to the, NACUBO-Commonfund Study of Endowments as of June 30, 2013, the most recently available report, Trinity’s endowment ranked 38th out of 814 universities participating in the study in endowment market value per student reflecting the generous support of generations of Trinity University alumni and friends, and the fiduciary care exercised by the University’s Board of Trustees.

Operating Expenses Trinity’s FY14 operating expenses include significant one-time expenses relating to non-capitalized asset additions and loss on disposal of

assets of $10,157 and $293, respectively, relating to major construction projects. These non-recurring expenses equal 8% of total expenses for the year. Excluding these one-time expenses, total expenses increased $7.1 million, or 6.6%, from the prior year.

Conclusion Trinity University completed another strong year, maintaining its tradition of educating and molding the leaders of the future in a liberal arts environment, while adjusting to the needs of the marketplace and the 21st century. Our endowment has recouped the losses incurred during the financial recession and closed FY 2014 at an all-time high for year-end market values. As noted above and reflected in the accompanying financial statements, the University is financially positioned to undertake its robust strategic vision of defining the new liberal arts experience in America.

Gary LoganVice President for Finance and AdministrationTrinity University

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Non-recurringcapital

8%

Professional Fees4%

Food Service5%

Occupancy5%

Depreciation8%

General Operating9%

Other11%

Compensation50%

Expenses by Natural Classification

Ms. Sharon J. BellAttorneyRogers and BellTulsa, OK

Mr. Ted BeneskiChief Executive Officerand Managing PartnerInsight EquitySouthlake, TX

Mr. Walter Brown, Jr.Vice PresidentDelray Oil, Inc.San Antonio, TX

Mr. Richard W. CalvertRetiredSan Antonio, TX

Mr. Miles C. CortezExecutive Vice President andChief Administrative OfficerAimcoDenver, CO

Mr. James F. Dicke IIChairman and Chief Executive Officer Crown Equipment Corp.New Bremen, OH

Mr. Douglas D. HawthorneChief Executive OfficerTexas Health ResourcesArlington, TX

Mr. George C. (Tim) HixonHixon PropertiesSan Antonio, TX

Mr. Walter R. Huntley Jr.Senior Vice PresidentCHA Consulting Inc.Atlanta, GA

Mr. John R. (J.R.) HurdChairmanHurd Enterprises, LTDSan Antonio, TX

Mr. E. Carey Joullian IVChairman, President and Chief Executive OfficerMustang Fuel CorporationOklahoma City, OK

The Rev. Dr. Richard R. KannwischerSenior PastorSt. Andrew Presbyterian ChurchNewport Beach, CA

Mr. Richard M. Kleberg IIIPresidentSFD Enterprises, LLCSan Antonio, TX

Dr. Katherine Wood KlingerPresidential Fellow andSenior Vice PresidentGenzyme CorporationFramingham, MA

Mr. John C. KorbellManaging Director – Wealth Management Senior Investment Management ConsultantMorgan Stanley Wealth ManagementSan Antonio, TX

Mr. Oliver T.W. LeePresidentIronSight Capital LLCSan Antonio, TX

Mr. Steven P. MachVice President and Chief Financial OfficerMach Industrial Group, LPHouston, TX

Mr. Robert S. McClanePresident McClane Partners, LLCSan Antonio, TX

Ms. Melody MeyerPresidentChevron Asia Pacific Exploration and Production Co.Singapore

Mr. Forrest E. MillerRetiredDallas, TX

Mr. Marshall B. Miller Jr.PartnerJackson Walker, LLPSan Antonio, TX

Mr. Michael F. NeidorffChairman and Chief Executive OfficerCentene CorporationSt. Louis, MO

Ms. Barbara W. PierceRockmount Real EstateDashiell Properties, LLCGreenwood Village, CO

Mr. Thomas R. SemmesPresidentSemmes Foundation, Inc.San Antonio, TX

Mr. Paul H. SmithAttorney (Retired)San Antonio, TX

Mr. L. Herbert Stumberg Jr.PresidentAir Measurement Technologies, LLCSan Antonio, TX

Ms. Lissa Walls VahldiekChief Operating OfficerSouthern Newspapers, Inc.Houston, TX

vii

Board of TrusteesTRINITY UNIVERSITY 2013 - 2014

Ernst & Young LLP Frost Bank Tower Suite 1800 100 West Houston Street San Antonio, TX 78205

Tel: +1 210 228 9696 Fax: +1 210 242 7252 ey.com

1

Report of Independent Auditors

Management and the Board of Trustees Trinity University

Report on the Financial Statements

We have audited the accompanying financial statements of Trinity University, which comprise the statements of financial position as of May 31, 2014 and 2013, and the related statements of activities, and cash flows for the years then ended and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

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

Auditor’s Responsibility

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

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

.

A member firm of Ernst & Young Global Limited

A member firm of Ernst & Young Global Limited

2

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Trinity University as of May 31, 2014 and 2013, and the changes in its net assets and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

Supplementary Information

Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The Financial Overview is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has not been subjected to the auditing procedures applied in our audits of the financial statements and, accordingly, we express no opinion on it.

Report on Other Legal and Regulatory Requirements

In accordance with Government Auditing Standards, we also have issued our report dated November 7, 2014 on our consideration of Trinity University’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Trinity University’s internal control over financial reporting and compliance.

ey November 7, 2014

Trinity University Statements of Financial PositionAs of May 31, 2014 and 2013

2014 2013(in thousands) (in thousands)

AssetsCash and cash equivalents 73,580$ 119,704$ Accounts receivable, net 5,228 4,847 Other assets 4,824 2,867 Student loans receivable, net 21,836 22,958 Gifts and bequests receivable 5,346 10,593 Investments 718,250 586,868 Beneficial interest in funds held in trust by others 365,732 347,459 Property, plant, and equipment, net 232,552 214,217

Total assets 1,427,348$ 1,309,513$

LiabilitiesAccounts payable 9,912$ 11,133$ Compensation-related accrued liabilities 7,148 7,023 Actuarial liability for annuities payable 2,424 2,626 Deposits and deferred revenue 2,964 2,617 Refundable government loans 6,256 6,180 Bonds payable 81,850 32,035 Total liabilities 110,554 61,614

Net assetsUnrestricted 531,393 520,085 Temporarily restricted 177,098 152,199 Permanently restricted 608,303 575,615 Total net assets 1,316,794 1,247,899

Total liabilities and net assets 1,427,348$ 1,309,513$

See accompanying notes

3

Trinity University Statement of ActivitiesFor the Year Ended May 31, 2014(with comparative totals for the Year Ended May 2013)

Temporarily Permanently Total Total Unrestricted Restricted Restricted 2014 2013

(in thousands) (in thousands) (in thousands) (in thousands) (in thousands)

Operating revenues Tuition and fees 79,693$ -$ -$ 79,693$ 78,944$ Less scholarships and student aid (38,634) - - (38,634) (38,303) Net tuition income 41,059 - - 41,059 40,641

Contributions 7,700 1,350 - 9,050 7,367 Endowment income used for operations 10,342 19,436 - 29,778 25,727 Investment income from non-endowment 505 - - 505 644 Distributions from funds held in trust by others used for operations 5,871 324 - 6,195 6,697 Auxiliary enterprises 19,885 - - 19,885 20,627 Contracts and other exchange transactions 6,388 - - 6,388 6,950 Other income 5,607 - - 5,607 6,096 Net assets released from restrictions 20,743 (20,743) - - - Total operating revenues 118,100 367 - 118,467 114,749

Operating expensesInstructional services and research 49,742 - - 49,742 38,446 Academic support 11,501 - - 11,501 10,257 Public service 2,675 - - 2,675 2,732 Student services 20,190 - - 20,190 17,768 Institutional support 27,343 - - 27,343 24,940 Auxiliary enterprises 13,827 - - 13,827 13,832 Total operating expenses 125,278 - - 125,278 107,975

(Decrease) increase in net assets from operating activities (7,178) 367 - (6,811) 6,774

Nonoperating activitiesContributions for endowment and property 80 468 1,874 2,422 6,936 Endowment income in excess of defined spending limit 17,488 28,415 - 45,903 59,714 Distributions from funds held in trust by others 2,415 7,207 - 9,622 11,298 Distributions from terminal trust - - 2,998 2,998 -Gains on funds held in trust by others - 18,273 18,273 25,559 Change in value of split-interest agreements - (2,744) - (2,744) (2,573) Other expense - (768) - (768) (195) Transfers (9,272) (271) 9,543 - - Net assets released from restrictions 7,775 (7,775) - - -

Increase in net assets from nonoperating activities 18,486 24,532 32,688 75,706 100,739

Increase in net assets 11,308 24,899 32,688 68,895 107,513 Net assets at beginning of year 520,085 152,199 575,615 1,247,899 1,140,386 Net assets at end of year 531,393$ 177,098$ 608,303$ 1,316,794$ 1,247,899$


4

Trinity University Statement of ActivitiesFor the Year Ended May 31, 2013

Temporarily Permanently Total Unrestricted Restricted Restricted 2013

(in thousands) (in thousands) (in thousands) (in thousands)

Operating revenues Tuition and fees 78,944$ -$ -$ 78,944$ Less scholarships and student aid (38,303) - - (38,303) Net tuition income 40,641 - - 40,641

Contributions 4,380 2,987 - 7,367 Endowment income used for operations 9,584 16,143 - 25,727 Investment income from non-endowment 644 - - 644 Distributions from funds held in trust by others used for operations 6,372 325 - 6,697 Auxiliary enterprises 20,627 - - 20,627 Contracts and other exchange transactions 6,950 - - 6,950 Other income 5,988 108 - 6,096 Net assets released from restrictions 15,442 (15,442) - - Total operating revenues 110,628 4,121 - 114,749

Operating expensesInstructional services and research 38,446 - - 38,446 Academic support 10,257 - - 10,257 Public service 2,732 - - 2,732 Student services 17,768 - - 17,768 Institutional support 24,940 - - 24,940 Auxiliary enterprises 13,832 - - 13,832 Total operating expenses 107,975 - - 107,975

Increase in net assets from operating activities 2,653 4,121 - 6,774

Nonoperating activitiesContributions for endowment and property 4,426 1,187 1,323 6,936 Endowment income in excess of defined spending limit 23,079 36,635 - 59,714 Distributions from funds held in trust by others 3,444 7,590 264 11,298 Gain on funds held in trust by others - - 25,559 25,559 Change in value of split-interest agreements - (2,573) - (2,573) Other expense - (195) - (195) Transfers (287) 287 - Net assets released from restrictions 6,475 (6,475) - -

Increase in net assets from nonoperating activities 37,424 35,882 27,433 100,739

Increase in net assets 40,077 40,003 27,433 107,513 Net assets at beginning of year 480,008 112,196 548,182 1,140,386 Net assets at end of year 520,085$ 152,199$ 575,615$ 1,247,899$


5

Trinity UniversityStatements of Cash Flows

For the Years Ended May 31, 2014 and 20132014 2013

(in thousands) (in thousands)

Cash flows from operating activitiesIncrease in net assets 68,895$ 107,513$ Adjustments to reconcile increase in net assets to net

cash (used in) provided by operating activities:Depreciation 9,707 8,802 Loss on disposal of property, plant, and equipment 293 578 Provision for bad debts 799 415 Net unrealized and realized gain on investments (57,632) (72,429) Changes in operating assets and liabilities:

Accounts receivable (381) 634 Other assets (1,504) (88) Gift and bequest receivables 7,911 5,071 Beneficial interest in funds held in trust by others (18,273) (25,559) Accounts payable (1,221) 1,597 Compensation-related accrued liabilities 125 398 Deposits and deferred revenue 347 (576) Refundable government loans 76 43 Actuarial liability for annuities payable (202) 151

Contributions restricted for investment (1,874) (1,323) Distributions from perpetual trusts restricted for investment (9,622) (11,298)

Net cash (used in) provided by operating activities (2,556) 13,929

Cash flows from investing activitiesProceeds from sales and maturities of investments 218,582 138,920 Purchases of investments (292,333) (120,905) Purchases of property, plant, and equipment (28,334) (44,773) Disbursements of student loans (2,717) (2,637) Repayments of student loans 3,120 2,655 Net cash used in investing activities (101,682) (26,740)

Cash flows from financing activitiesBond proceeds net of issuance costs 49,362 - Distributions from perpetual trusts restricted for investment 9,622 11,298 Net interest, dividends, and other investment income restricted for investment (2,744) (2,573) Contributions restricted for investment 1,874 1,323 Net cash provided by financing activities 58,114 10,048

Net decrease in cash and cash equivalents (46,124) (2,763) Cash and cash equivalents at beginning of year 119,704 122,467 Cash and cash equivalents at end of year 73,580$ 119,704$

Supplemental dataInterest paid 1,733$ 854$


6

Trinity University Notes to Financial Statements Years Ended May 31, 2014 and 2013 (In Thousands)

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1. NATURE OF OPERATIONS Trinity University (the University) is a private, coeducational university in the liberal arts and science tradition. The University was founded in Tehuacana, Texas, in 1869 and has been located in San Antonio, Texas, since 1942. The University is related to the Presbyterian Church by historic ties, an ongoing association, and a covenant of understanding. The University’s principal focus is on undergraduate education, but it also offers selected graduate programs in professional fields. In addition, the University provides various research and other sponsored projects as well as public service programs of continuing education, intellectual enlightenment, and cultural enrichment. The University attracts talented and highly motivated students to its predominantly full-time, residential student body. The current student body is approximately 2,440 students, with approximately 7% of these students coming from outside the United States and approximately 67% from within Texas. The revenues generated by the University consist primarily of tuition and fees paid by students. Many students rely on funds received from federal financial aid programs under Title IV of the Federal Higher Education Act of 1965 (HEA), as amended, to pay for a substantial portion of their tuition. As an educational institution, the University is subject to licensure from various accrediting and state authorities and other regulatory requirements of the United States Department of Education (USDE). Student Financial Assistance Programs The University participates in various student financial aid programs. These programs are subject to periodic review by the USDE. Disbursements under each program are subject to disallowance and repayment by the University. The University derives a portion of its net revenues from financial aid received by its students under Title IV programs administered by the USDE pursuant to the HEA, as amended. In order to continue to participate in Title IV programs, the University must comply with the standards set forth in the HEA and the regulations promulgated thereunder (the Regulations). Among other things, these Regulations require the University to exercise due diligence in approving and disbursing funds and servicing loans, and to exercise financial responsibility related to maintaining certain financial ratios and requirements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Statement Presentation The financial statements of the University are prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other liabilities, in accordance with U.S. generally accepted accounting principles (GAAP). The financial statement presentation follows the recommendations of the Financial Accounting Standards Board (FASB) in Accounting Standards Codification (ASC or Codification) 958, Not-for-Profit Entities (ASC 958). In accordance with ASC 958, the University is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Cash and Cash Equivalents The University considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are recorded at cost. Accounts Receivable Accounts receivable includes student tuition balances, grants receivable, and accrued investment income and is recorded at the amount billed. Student Loans Receivable The Federal Perkins Loan Program consists primarily of funds advanced to students by the U.S. government. Under the terms of the program, these loans are subject to forgiveness or assignment back to the federal government under certain circumstances. The amount to be forgiven or assigned is based on the occurrence of certain future events that cannot be anticipated. Certain gifts have been made to the University in the form of endowments to be used for student loans. The income from these gifts is classified as temporarily restricted endowment until funds are advanced to students receiving loans, at which time they are released from restriction and the loan receivable is established. Under donor stipulation, any uncollectible loans are considered a reduction of the endowment. Bequests in Probate and Unconditional Promises Receivable The University considers unconditional bequests in probate to be unconditional promises receivable. Unconditional bequests that are not in probate are considered to be intentions to give and are not recognized in the financial statements. Unconditional promises receivable that are expected to be collected within one year are recorded at their net realizable value. Unconditional promises receivable that are expected to be collected in future years are recorded at the present value of estimated future cash flows. The discounts on those amounts are computed using a risk-free interest rate applicable to the year in which the promise is expected to be received. Amortization of the discount is included in contribution revenue. Expiration of Donor-Imposed Restrictions The expiration of a donor-imposed restriction on a contribution or on endowment income is recognized in the period in which the restriction expires, and at that time the related resources are reclassified to unrestricted net assets. A restriction expires when the stipulated time has elapsed, at the point of substantial completion for the construction of long-lived assets, or when the stipulated purpose for which the resource was restricted has been fulfilled. The University reports as unrestricted support donor-imposed restricted contributions when the restrictions are met in the same period as the contribution is received.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investments at Fair Value Investments with readily determinable fair value are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Investments in securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the year. If no sale was reported on that date, they are valued at the last reported bid price. Over-the-counter securities and government obligations are valued at the bid price or the average of the bid and asked price on the last business day of the year from published sources where available and, if not available, from other sources considered reliable. Purchases and sales of securities are recorded as of the trade date. Realized gains and losses on sales of securities are determined on the FIFO (first-in, first-out) method. Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date. Investments held in privately managed institutional funds are valued at redemption values that represent the net asset values of units held at year-end in accordance with Accounting Standards Update (ASU) 2009-12, Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), as discussed in Note 8. Investments at Historical Cost or Market Alternative investments consist of the University’s investments in hedge funds, private equity, venture capital, real estate, and other alternative investments that do not have a readily determinable fair value. Participation in these funds is achieved via ownership of shares in limited partnerships and limited liability companies. Some of these alternative investments may entail liquidity risks to the extent that they are difficult to sell or cannot be converted to cash quickly at favorable prices. These funds are generally diversified across strategies, managers, and geography. The University’s alternative investments are carried at historical cost, adjusted downward for any market value impairment. These alternative investments are not traded in an active market; however, the net asset value (NAV) of the shares is reported by the fund manager on a monthly or quarterly basis. As of May 31, 2014, the carrying value of alternative investments was $128,103 and the historical cost was $132,860. As of May 31, 2013, the carrying value of alternative investments was $130,354 and the historical cost was $134,501. In accordance with the Texas Uniform Prudent Management of Institutional Funds Act of 2007, dividends, interest, gains, losses, and other investment income are reported in the statement of activities as increases or decreases in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulations or by law. In the absence of donor stipulations or law to the contrary, losses on the investments of a donor-restricted endowment fund reduce temporarily restricted net assets to the extent that donor-imposed temporary restrictions on net appreciation of the fund have not been met before any remaining loss reduces unrestricted net assets. If losses reduce the fair value of a donor-restricted endowment fund below the level required by the donor stipulations or law, gains that restore the fair value of the assets of the endowment fund to the required level are reported as increases in unrestricted net assets.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Beneficial Interest in Funds Held in Trust by Others The University is an income beneficiary of certain perpetual trusts held by third parties where the trustee has no discretion regarding the income beneficiaries’ participation in the trust. The University’s proportionate share of the fair value of the trust, which approximates the net present value of the estimated future cash flows receivable by the University, is reported as an asset and as permanently restricted contribution revenue at the formation of the trust. Annual income distributions from the trust are recognized as investment income in the appropriate net asset class according to the restrictions of the trust. Changes in the University’s proportionate share of the fair value of the trust are reported as gains or loss on funds held in trust by others in the permanently restricted net asset class. The University is an income and/or principal beneficiary of certain terminal trusts held by third parties where the trustee has no discretion regarding the beneficiaries’ participation in the trust. The net present value of the estimated future cash flows receivable by the University is reported as unconditional promises receivable and as contribution revenue in the appropriate net asset class at the formation of the trust. The discounts on these amounts are computed using a risk-free interest rate applicable to the year in which the promise is expected to be received. Subsequent distributions from the trust reduce the unconditional promises receivable. Changes from year to year in the net present value of the estimated future cash flows to be received are reported as a change in value of split-interest agreements in the appropriate net asset class according to the trust restrictions. The University is an income beneficiary of certain perpetual trusts held by third parties where the trustee has discretion regarding the beneficiaries’ participation in the trust. Management considers these to represent an intention to give and, accordingly, recognizes distributions received from the trusts as contribution revenue in the appropriate net asset class according to the trust restrictions. Property, Plant, and Equipment Property, plant, equipment, and collection items, including library books, are stated at cost or, in the case of property contributed, at the fair value at the date of contribution. The University’s asset capitalization threshold is $5,000 for individual asset acquisitions. Depreciation of property, plant, and equipment is provided by the use of the straight-line method over the estimated useful lives of the assets. The University does not depreciate collection items. The principal estimated useful lives used in computing depreciation are as follows:

Land improvements 20-50 years Buildings and related components 15-50 years Furniture and equipment 4-20 years Library books 5 years


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income Taxes The University is exempt from federal income tax under Section 501(a) as an organization described in Section 501(c)(3) of the Internal Revenue Code (the Code). This exemption does not apply to unrelated business income, as defined by Section 512(a)(1) of the Code, which is subject to federal income tax. The University had no material tax liability resulting from such unrelated business income in 2014 or 2013. U.S. GAAP requires management to evaluate uncertain tax positions taken by the University. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the Internal Revenue Service or the U.S. Department of the Treasury. Management has analyzed the tax positions taken by the University and has concluded that as of May 31, 2014, there are no uncertain positions taken or expected to be taken. The University has recognized no interest or penalties related to uncertain tax positions. The University is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Management believes the University is no longer subject to income tax examinations for years prior to May 31, 2011. Revenue Recognition Tuition, fees, and income from auxiliary enterprises are recognized on an accrual basis in the period earned. Tuition income received in one fiscal year relating to a semester in a future fiscal year is recorded as deferred revenue and recognized when the semester commences. Contributions are recorded as revenue at fair market value at the date of donation and are considered available for use unless specifically restricted by the donor. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Allocation of Certain Expenses The statement of activities presents expenses by functional classification. The University’s primary program services are instruction and student services. Expenses reported as institutional support, academic support, and auxiliary enterprises are incurred in support of these primary program services. Depreciation and the cost of operation and maintenance of plant facilities are allocated to functional categories based on building square footage dedicated to that specific function. Interest expense is allocated to institutional support and auxiliary enterprises based on the percentage of use derived from the original bond proceeds. Operating and Nonoperating Activities The University defines operating activities, as included in the accompanying statement of activities, as the revenue and expenses resulting from its educational programs and other core mission activities.


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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Operating activities exclude (a) gifts, grants, pledges, and distribution from funds held in trust by others for property and endowment (including annuity and life-income trusts); (b) release from restrictions of contributions restricted for the acquisition of property and equipment; (c) endowment returns net of the University’s operating needs as defined by University spending policy; (d) actuarial adjustments of annuities payable; (e) the net gain or loss on funds held in trust by others, and (f) unrestricted funds designated by the Board of Trustees for capital or future period use. 3. CASH AND CASH EQUIVALENTS The University invests cash in excess of daily requirements primarily in money market accounts and short-term investments. Cash balances consist of the following:

May 31, 2014 May 31, 2013 Cash in banks $ 11,995 $ 1,377Cash equivalents 8,615 84,243Operating pool 20,610 85,620 Endowment cash and cash equivalents 52,970 34,084Endowment pool 52,970 34,084 Total cash and cash equivalents $ 73,580 $ 119,704

4. ACCOUNTS RECEIVABLE Accounts receivable consist of the following:

May 31, 2014 May 31, 2013 Student receivable $ 1,551 $ 1,463Grants receivable 1,317 1,173Accrued income receivable 2,474 1,803Other receivables 168 690 5,510 5,129Less allowance for uncollectible accounts (282) (282) $ 5,228 $ 4,847

5. OTHER ASSETS Other assets consist of the following:

May 31, 2014 May 31, 2013 Prepaid expenses $ 1,559 $ 1,195Residential property held for resale 1,850 -Cash surrender value of life insurance - 621Deposits 500 500Inventory 392 476Cost of bond issuances 523 75Total other assets $ 4,824 $ 2,867


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6. STUDENT LOANS RECEIVABLE The University lends money to students under two primary loan programs: the Federal Perkins Loan Program and endowment-based loan programs. Student loan receivable balances and related allowance balances are presented below:

May 31, 2014 May 31, 2013 Endowment loans $ 17,234 $ 17,392 Perkins loans 6,757 7,002 Total student loans receivable 23,991 24,394 Less allowance for uncollectible loans (1,788) (1,436)Less allowance for forgivable loans (367) - Student loans receivable, net $ 21,836 $ 22,958

Interest income related to student loans for the fiscal years ended May 31, 2014 and May 31, 2013, was approximately $792 and $781, respectively. Federal Perkins Loans The University lends money to students with exceptional financial need through the Federal Perkins Loan Program. Determination of financial need is based on a nationally recognized methodology and regulations promulgated by the USDE. The loans are long term and bear an interest rate of 5%. The University acts as the lender, and the loan is made primarily with government funds. The University contributes to the Federal Perkins Loan Program by matching the federal capital contribution with a mandatory one-third match. However, during the fiscal years ended May 31, 2014 and May 31, 2013, there was no federal capital contribution; hence, the University was not required to match one-third. In addition, a liability is recorded to recognize the funds advanced from the USDE for original funding of the loans. The University holds the loans until maturity, assignment, or cancellation. A third-party servicer assists with the billing and collection of the loans on behalf of the University. As loan payments are received from borrowers, the funds are applied to both the loans receivable asset and interest income. These funds are then used to create additional loans to qualified students. The liability to the USDE was approximately $6,256 and $6,180 at May 31, 2014 and May 31, 2013, respectively. Federal Perkins loans may also be deferred or cancelled based on federal guidelines. A portion of cancelled loans are repaid to the University by the federal government. At May 31, 2014 and May 31, 2013, approximately $2,226 and $2,198 in loans, respectively, have been cancelled (since the inception of the Perkins Loan Program). Interest does not accrue on Federal Perkins loans until the student leaves school and enters repayment status. Typically, there is a nine-month grace period upon graduation before interest begins to accrue and payments are required. Federal Perkins loans that are determined to be uncollectible after appropriate due diligence procedures have been performed can be assigned to the federal government. Thus, the ultimate credit risk of the portfolio is low. Loans are classified as In School, In Grace, Active, and Delinquent. In School and In Grace loans represent loans made to students who are still in school or who are in the nine-month grace period following graduation. Active loans are those loans that are in repayment status and are considered current. Delinquent loans are those that are active but not current with payments. Because the federal government can ensure ultimate collectibility, the University has established no allowance for uncollectible Federal Perkins loans. Loan default rates (Federal Cohort Default Rate) are monitored by


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6. STUDENT LOANS RECEIVABLE (continued) the federal government based on a legislated formula and measured annually at June 30. An institution that does not meet the federal expectation can lose future government funding. The University’s Federal Cohort Default Rate was 4.137% and 4.316% at May 31, 2014 and May 31, 2013, respectively. Endowment-Based Loans Certain gifts have been made to the University in the form of endowments to be used for student loans (endowment loans). The income from these gifts is classified as temporarily restricted endowments until funds are advanced to students receiving loans, at which time they are released from restriction and the loan receivable is established. A third party assists with the billing and collection of the loans on behalf of the University. As loan payments are received from borrowers, the funds are applied to the loan funds, which are then used to create additional loans to students. Typically, interest accrues on endowment loans while the student is enrolled at the University. Payments of interest on the loan during the period of enrollment are encouraged. Typically, a six-month grace period follows graduation, at the end of which any unpaid interest is added to the student’s loan amount. Under donor stipulation, any uncollectible endowment loans will result in a reduction to the endowment. Loans are classified as In School, In Grace, Active, and Delinquent. In School and In Grace loans represent loans made to students who are still in school or who are in the six-month grace period following graduation. Active loans are those loans that are in repayment status and are considered current. Delinquent loans are those that are active but not current with payments. 7. GIFTS AND BEQUESTS RECEIVABLE Gifts and bequests receivable at May 31, 2014, have been discounted to their estimated present values based upon discount rates that vary from 0.37% to 4.02%. The expected amounts to be received are as follows: May 31, 2014 May 31, 2013 Funds held in trust by others in terminal trusts – temporarily

restricted $ 99

$ 3,026Permanently restricted endowments (including charitable

lead trusts) 2,154

2,728Other and undesignated – temporarily restricted 3,093 4,839

Total unconditional promises and bequests receivable $ 5,346 $ 10,593 The discount equaled $539 and $727 at May 31, 2014 and May 31, 2013, respectively. The future receipt of these receivables is estimated to be as follows:

May 31, 2014 In one year or less $ 1,364Between one year and five years 2,229More than five years 1,753

Total unconditional promises and bequests receivable $ 5,346


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7. GIFTS AND BEQUESTS RECEIVABLE (continued) The University is also a beneficiary of certain perpetual trusts held by others in which the trustees have discretion as to the amount to be distributed to beneficiaries. Distributions from these trusts are reported as contributions when received in the appropriate net asset class according to the restrictions of the trusts. Contributions received from these trusts are as follows: May 31, 2014 May 31, 2013 Leta McFarlin Chapman Memorial Trust $ 1,284 $ 1,231Clifton C. and Henryetta C. Doak Charitable Trust 10 10Mattie-Jennie Fund under will of Perry J. Adams 4 4Margarite Bright Parker Chapel Endowment Trust 15 15Total contributions received from discretionary

perpetual trusts $ 1,313

$ 1,260 For the majority of these gifts, the trustee annually designates the purpose of the gift. 8. INVESTMENTS The University invests in various securities. Investment securities are exposed to various risks, such as interest rate, liquidity, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and those changes could materially affect the amounts reported in the statements of financial position. Investments are as follows:

May 31, 2014 May 31, 2013 Investments carried at fair value:

Equity and equity mutual funds $ 392,400 $ 279,257Equities-emerging markets 34,149 22,391Fixed income 150,080 128,719Commodities 12,790 25,419 589,419 455,786

Investments carried at lower of cost or market: Alternative investments 128,103 130,354Real estate 13 13Oil and gas interests 715 715 128,831 131,082 Total investments $ 718,250 $ 586,868


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8. INVESTMENTS (continued) The amount of unfunded commitments related to investments equals $12,354 and $16,263 as of May 31, 2014 and May 31, 2013, respectively. Operating investment income of the University is the sum of endowment income appropriated for current operations and investment income realized and distributable from non-endowment investments. Nonoperating investment income is net investment gain or loss on endowments minus the spending appropriated for operations. The composition of investment income earned by the University, its allocation between operating and nonoperating, and net asset classifications is as follows: May 31, 2014 May 31, 2013

Dividends and interest on investments $ 10,263 $ 8,488 Net realized and unrealized gain on investments 57,632 72,429 Mineral royalties and leases 10,011 6,901 Less: investment expenses (1,720) (1,733)Total net investment income $ 76,186 $ 86,085 Allocation of operating and nonoperating:

Operating $ 30,283 $ 26,371 Nonoperating 45,903 59,714

Total investment income $ 76,186 $ 86,085 Net asset classification of investment income:

Unrestricted $ 28,335 $ 33,307 Temporarily restricted 47,851 52,778

Total investment income $ 76,186 $ 86,085 ASC 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the University has the ability to access. The types of investments classified as Level 1 include listed equities, U.S. government and agency obligations, and frequently traded corporate bonds. Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted market prices that are observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 includes certificates of deposit and investments in investment funds with underlying marketable securities.


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8. INVESTMENTS (continued) Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Fair value is often based on internally developed models in which there are few, if any, external observations. The University’s Level 3 assets include beneficial interests in funds held in trust by others (see Note 9). These interests are carried at fair value in terms of the University’s deemed portion of the NAV of the underlying trust assets. The University must rely on the trustee to provide accurate pricing and NAV calculations. The University takes necessary steps to obtain a comfort level with the procedures being used by these trustees. In many cases, the University is able to obtain detailed trust statements containing the asset listing for the assets in the trust. Some of these trusts hold Level 3 assets themselves. The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used should maximize the use of observable inputs and minimize the use of unobservable inputs. The valuation methodologies described in the Investments section of Note 2 may produce a fair value calculation that may not indicate net realizable value or reflect future fair values. Furthermore, while the University believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used at May 31, 2014 or May 31, 2013. The following tables summarize the valuation of the University’s assets carried at fair value at May 31, 2014 and May 31, 2013. Such valuations are classified into the three-level hierarchy defined by ASC 820 and described above. Level 1 Level 2 Level 3 Total Investments, May 31, 2014: Equity and equity mutual funds:

Core-domestic equities $ 75,558 $ - $ - $ 75,558Mid-large cap domestic equities 4,874 - -

4,874

Global (ex. U.S.) 26,050 - - 26,050Global (ex. U.S.) mutual fund - 93,759 - 93,759Global-balanced mutual fund - 192,159 - 192,159Equities-emerging markets - 34,149 - 34,149

Fixed income: Domestic 118,920 - 118,920Global 743 30,417 - 31,160

Commodities funds: Core commodities - 12,790 - 12,790

Beneficial interest in funds held in trust by others - - 365,732

365,732

Total investments $ 226,145 $ 363,274 $ 365,732 $ 955,151


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8. INVESTMENTS (continued) Level 1 Level 2 Level 3 Total Investments, May 31, 2013: Equity and equity mutual funds:

Core-domestic equities $ 45,906 $ 21,012 $ - $ 66,918Mid-large cap-domestic equities 21,835 - -

21,835

Global (ex. U.S.) mutual fund - 78,881 - 78,881Global-balanced mutual fund - 111,623 - 111,623

Equities-emerging markets 22,391 - - 22,391Fixed income funds:

Domestic 81,558 12,785 - 94,343Global - 34,376 - 34,376

Commodities funds: Global energy - 12,672 - 12,672Core commodities - 12,747 - 12,747

Beneficial interest in funds held in trust by others - - 347,459

347,459

Total Investments $ 171,690 $ 284,096 $ 347,459 $ 803,245 Investments valued at the entities’ NAV were classified as Level 2 because substantially all of the holdings of each entity are in securities traded in an active market; however, the value of the entity itself can only be derived based on those holdings in Level 1 investments. The following table includes additional disclosures required by ASC 820 for the fair value measurements of investments in certain entities that calculate fair value NAV per share.

Investments Valued at NAV, May 31, 2014

Fair Value Unfunded

Commitments

Redemption Frequency (if Currently

Eligible)

Redemption Notice Period

Equity and equity mutual funds: Global (ex. U.S.) mutual fund2 $ 43,703 $ - Daily 1-5 days Global (ex. U.S.) mutual fund2 50,056 - Monthly 5 days

Global-balanced mutual fund3

192,159

- Semi-

monthly

2 days

Emerging markets8

34,149 - Semi-

monthly

5 days Fixed income:

Global5 30,417 - Monthly 3-10 days Commodities:

Commodities-core7 12,790 - Monthly 5 days

Total Level 2 $ 363,274 $ -


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8. INVESTMENTS (continued)

Investments Valued at NAV, May 31, 2013

Fair Value Unfunded

Commitments

Redemption Frequency (if Currently

Eligible)

Redemption Notice Period

Equity and equity mutual funds:

Domestic core1 $ 21,012 $ - Daily 1-5 days

Global (ex. U.S.) mutual fund2 37,551 - Daily 1-5 days

Global-balanced mutual fund3 41,330 - Monthly 5 days

Global-balanced mutual fund3

111,623

- Semi-

monthly

2 days Fixed income:

Domestic4 12,785 - Daily n/a

Global5 34,376 - Monthly 3-10 days Commodities:

Commodities-global energy6 12,672 - Daily n/a Commodities-core7 12,747 - Monthly 5 days

Total Level 2 $ 284,096 $ - The changes in assets measured at fair value for which the University has used Level 3 inputs to determine fair value are as follows: Level 3 reconciliation: Beneficial interest in funds held in trust by others – beginning balance on June 1, 2012 $ 321,899Unrealized gain/loss 43,300Distributions (17,740)Beneficial interest in funds held in trust by others – ending balance on May 31, 2013 $ 347,459 Beneficial interest in funds held in trust by others – beginning balance on June 1, 2013 $ 347,459Unrealized gain/loss 33,995Distributions (15,722)Beneficial interest in funds held in trust by others – ending balance on May 31, 2014 $ 365,732

1 This category includes investments in mutual funds with concentration in U.S. (domestic) equity securities in the mid-to-large capitalization range. The benchmark for these mid-to-large cap domestic mutual funds is the Russell 3000 Index. 2 This category includes investments in mutual funds with global equity securities that typically exclude U.S. concentrations and provide for global diversification. The benchmark for these global (ex. U.S. equity) mutual funds is the MSCI EAFE Index. 3 This category includes investments in mutual funds and/or index funds with globally balanced equity securities, meaning there is a fair concentration of equity securities from most global markets, including the U.S. The benchmark for these globally balanced investments is the MSCI World Index. 4 This category includes bond investment funds denominated in U.S. dollars invested in U.S. government and government-related securities, mortgage and asset-backed securities, corporate bonds, and other permissible debentures, typically of investment-grade quality. 5 This category includes bond investment funds denominated in non-U.S. dollar currencies invested in government and government-related securities, mortgage and asset-backed securities, corporate bonds, and other permissible debentures, typically of investment-grade quality. 6 This category includes funds with investments in common stock securities of ownership interest in companies operating within the energy sector. 7 This category includes funds that hold investments in futures contracts with underlying exposure to a diversified basket of commodities, including energy, agriculture, metals, and livestock. 8 This category includes funds that hold investments in low to mid per capita income countries that are transitioning towards an industrialized economy.


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9. BENEFICIAL INTEREST IN FUNDS HELD IN TRUST BY OTHERS The University is an income beneficiary of several non-discretionary trusts held by others. Most are perpetual trusts, although one is not perpetual, as it is scheduled to terminate in the future. In addition, one trust is revocable as the University maintains the right to terminate the revocable trust and administer the assets in-house. The University reports its share of the fair value of trust net assets, which approximates the net present value of estimated future cash flows receivable as a permanently restricted net asset. Income distributions from the trusts are reported as separate line items on the statement of activities depending on whether the distributions are used for current operations or for nonoperating activities such as endowment or property. These distributions are reported in the appropriate net asset class according to the trust restrictions. Changes in the value of trust assets are reported as gains or losses on funds held in trust by others in the permanently restricted net asset class as applicable for the fiscal year. The University has the following beneficial interests in funds held in trust by others in nondiscretionary perpetual trusts:

The University’s Interest in Net Assets Held in

Trust at May 31, 2014

Distributions to the University

During the Year Ended

May 31, 2014 Raymond W. and Margaret P. Banowsky Trust $ 99 $ 3

The University has a 50% interest in the income distributed from this perpetual trust, which is administered by Bank of America.

James A. and Leta M. Chapman Charitable Trust 255,101 9,768The University has a 25% interest in the income distributed from this perpetual trust, which is administered by the Bank of Oklahoma Trust Company.

J.A. and Leta M. Chapman 1949 Trust 34,502 1,323The University has a 25% interest in the income distributed from this perpetual trust, which is administered by the Bank of Oklahoma Trust Company.

Luther and Margaret J. Coulter Family Sheltered Trust This trust has a charitable fund allocation of 30% and a living beneficiary allocation of 70%. The University is included in the charitable fund allocation and has a 20% interest in the 30% allocation, which calculates to 6% of the interest in the income distributed from this perpetual trust. The University’s interest will increase from 6% to 20% over time as the charitable fund allocation increases to 100%. This trust is administered by Frost Bank.

354 10

Ruth Chapman and Andrew G. Cowles Charitable Trust The University has an 87% interest in the income distributed from this perpetual trust, which is administered by Frost Bank.

22,190 675


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9. BENEFICIAL INTEREST IN FUNDS HELD IN TRUST BY OTHERS (continued)

The University’s Interest in Net Assets Held in

Trust at May 31, 2014

Distributions to the University

During the Year Ended

May 31, 2014 Ruth Chapman and Andrew G. Cowles Memorial Trust

The University has a 70% interest in the income distributed from this perpetual trust, which is to be used for support of the Cowles Life Science Building and scholarships. This trust is administered by the Bank of Oklahoma Trust Company.

$ 15,208 $ 936

Wade H. and Clarkie E. Harrison Scholarship Fund 506 22The University is the sole beneficiary of this perpetual trust, which is administered by Texas Presbyterian Foundation.

Harold D. Herndon Charitable Trust 7,340 193The University has a 41% interest in the income distributed from this perpetual trust, which is administered by Frost Bank.

Imogene A. Herndon Charitable Trust 6,592 174The University has a 36% interest in the income distributed from this perpetual trust, which is administered by Frost Bank.

Everett and Ruth King Trust 48 2The University has a 20% interest in the income distributed from this perpetual trust, which is administered by Texas Presbyterian Foundation.

Marrs and Verna McLean Revocable Trust 18,991 2,412The University has an approximate 40% interest in the trust. The trust can be terminated upon the request of the University. The trust is administered by Frost Bank.

Marrs McLean Trust The University has a 33.33% interest in both the net income and the trust corpus upon termination of the trust, anticipated on March 5, 2031. The trust is administered by Frost Bank.

4,423 184

Louise and Staylor Tilman Trust The University has a 50% interest in the income distributed from this perpetual trust, which is administered by Texas Presbyterian Foundation.

378 20

Total beneficial interest in funds held in trust by others $ 365,732 $ 15,722


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10. PROPERTY, PLANT, AND EQUIPMENT, NET Property, plant, and equipment consist of the following:

May 31, 2014 May 31, 2013 Land and improvements $ 33,212 $ 33,099 Buildings 275,379 207,642 Furniture and equipment 37,524 36,528 Library books 42,417 41,982 Art collections 4,362 4,265 Construction in progress 5,861 52,039 398,755 375,555 Less accumulated depreciation (166,203) (161,338)Total property, plant, and equipment, net $ 232,552 $ 214,217

Land, art collections, and construction in progress are not subject to depreciation. 11. BONDS PAYABLE

May 31, 2014 May 31, 2013

City of San Antonio, Texas, Education Facilities Corporation, original issue $32,000 Higher Education Variable Rate Demand Revenue Refunding and Improvement Bonds (Trinity University Project) Series 2002. In 2011 these bonds were reduced to $12,000. Interest is based upon a daily rate with an annual effective rate of 0.08% for the year ending May 31, 2014. Bond proceeds were used to refund the City of San Antonio, Texas, Higher Education authority Adjustable Tender Refunding Revenue Bonds (Trinity University Project) Series 1993; certain costs of issuance; and projects consisting of certain land, buildings, equipment, and improvements on the University's campus. The bonds mature on June 1, 2033.

$ 12,000 $ 12,000

City of San Antonio, Texas, Education Facilities Corporation, Higher Education Revenue Refunding Bonds (Trinity University Project) Series 2011; $20,035. The bonds carry fixed interest rates ranging for 3.0% to 5.0%. The issue consists of both serial and term bonds with annual maturities scheduled from 2014 through 2033. The proceeds of the Series 2011 were used to retire $20,000 of the Series 2002 bonds and to pay certain costs of issuance.

19,410 20,035

City of San Antonio, Texas Education Facilities Corporation, Higher Education Revenue Improvement Bonds (Trinity University Project), Series 2014; $50,000 with interest rates ranging from 3.0% to 5.0%. The issue consists of both serial and term bonds with annual maturities scheduled from 2015 through 2043. The proceeds of the series 2014 were used for certain construction costs and to pay certain costs of issuance.

48,540 -

Sub-total 79,950 32,035 Net unamortized premium 1,900 - Total bonds payable $ 81,850 $ 32,035


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11. BONDS PAYABLE (continued) Total interest expense incurred on bond issues and charged to expense is $1,733 and $854 for the fiscal years ended May 31, 2014 and May 31, 2013, respectively. The carrying values of the bonds payable approximate their fair values at May 31, 2014 and May 31, 2013. Below are the University’s total debt maturities, excluding premiums, by fiscal year.

Fiscal Year of Maturity

Principal Amount

2015 $ 6452016 1,4852017 1,5352018 1,6002019 1,675

Thereafter 73,010 Total $ 79,950

12. ENDOWMENTS AND FUNDS FUNCTIONING AS ENDOWMENTS The endowment of the University consists of numerous individual funds established for a variety of purposes. The endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. As required by GAAP, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law Effective September 1, 2007, the Texas Legislature adopted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) to provide modern articulation of the standards for the managing and investing of charitable funds and for endowment spending. UPMIFA also provided guidance and authority to charitable organizations concerning the management and investment of funds held by those organizations and provides additional duties for individuals who manage and invest such funds. The Board of Trustees has interpreted UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the organization in a manner consistent with the standard of prudence prescribed by UPMIFA.


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12. ENDOWMENTS AND FUNDS FUNCTIONING AS ENDOWMENTS (continued) In accordance with UPMIFA, the University considers the following factors in determing to appropriate or accumulate donor-restricted endowment funds:

1. The duration and preservation of the endowment funds 2. The purposes of the University and the endowment funds 3. General economic conditions 4. The possible effect of inflation or deflation 5. The expected total return from income and the appreciation of investments 6. Other resources of the University 7. The University’s investment policy

Funds With Deficiencies (Underwater) From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor, under UPMIFA, requires the University to retain as a fund of perpetual duration. These deficiencies result from unfavorable market fluctuations that occurred shortly after the investment of new permanently restricted contributions and continued appropriation for certain programs that was deemed prudent by the University. There were no deficiencies as of May 31, 2014 or May 31, 2013. Return Objectives, Risk Parameters, and Strategies Employed for Achieving Objectives The University’s investment objectives for endowment funds are to preserve or grow the principal value of the endowment funds in both absolute and real terms and to maximize the long-term total rate of return (cash income plus market appreciation) earned by the endowment funds, without assuming an unreasonable degree of risk. It is recognized that the desire to preserve or grow the principal and to produce a stable and predictable payment stream involves trade-offs that must be balanced in establishing the investment and spending policies. The long-term investment objective of the endowment funds is to earn an average annual real (after inflation) total return of at least 5%, net of management fees, over long time periods (rolling ten-year periods). Actual returns in any given year may vary from this amount. The financial objectives attempt to promote intergenerational equity (to balance the support of present and future generations of University students). In order to achieve this objective, funds have had to historically exceed the objective substantially during some periods in order to compensate for inevitable shortfalls during other periods. Hence, evaluation of progress toward this objective is made with a long-term perspective. It is recognized that this objective implies a high average allocation to equity securities and consequent market price volatility. Spending Policy and How the Investment Objectives Relate to Spending Policy Accordingly, the Board of Trustees has adopted a spending formula for determining the part of the total return on endowment funds that can be expended annually. The spending formula determines spendable endowment return as a percentage of the average of the 12 most recent quarter-end endowment market values, which was approximately 4.5% of these values for the fiscal years ended May 31, 2014 and May 31, 2013.


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12. ENDOWMENTS AND FUNDS FUNCTIONING AS ENDOWMENTS (continued) In establishing this spending policy, the University considered the long-term expected return on its endowment. Accordingly, over the long term, the University expects the current spending policy to allow the endowment to grow at an average of 0.5% (after inflation) annually over long time periods. This is consistent with the University’s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term, as well as to provide additional real growth through new gifts and investment returns. The spending formula provided for use in current operations and physical plant renovations was $29,778 and $25,727 during the fiscal years ended May 31, 2014 and May 31, 2013, respectively. The University also received $18,815 and $17,995 during fiscal years ended May 31, 2014 and May 31, 2013, respectively, from nondiscretionary perpetual trusts and terminal trusts held by others for use in operations and physical plant repair and renovation projects. Changes in Endowment Net Assets Activity of endowments and funds functioning as endowments for the fiscal years ended May 31, 2014 and May 31, 2013, is as follows:

Unrestricted Temporarily Restricted

Permanently Restricted Total

Endowment net assets, June 1, 2013 $ 244,190 $ 139,406 $ 228,156 $ 611,752

Investment return: Net appreciation of investments 24,273 33,036 - 57,309 Investment income 5,861 15,709 - 21,570

Contributions 168 10 1,874 2,052 Appropriation of endowment

assets for expenditure (10,342) (19,436) - (29,778)Transfers from terminal

trust - - 2,998 2,998 Board designated 74,000 - - 74,000 Transfers (7,643) (309) 7,952 - Other additions

(deductions) 1,020 9 1,591 2,620 Endowment net assets,

May 31, 2014 $ 331,527 $ 168,425 $ 242,571 $ 742,523


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12. ENDOWMENTS AND FUNDS FUNCTIONING AS ENDOWMENTS (continued)

Unrestricted Temporarily Restricted

Permanently Restricted Total

Endowment net assets,

June 1, 2012 $ 219,075 $ 100,084 $ 226,283 $ 545,442Investment income:

Net appreciation of investments 29,669 41,619 - 71,288

Investment income 4,236 12,630 - 16,866Contributions 266 1,690 1,323 3,279Appropriation of endowment

assets for expenditure (9,584) (16,143) - (25,727)Other additions (deductions) 528 (474) 550 604 Endowment net assets,

May 31, 2013 $ 244,190 $ 139,406 $ 228,156 $ 611,752 13. ENDOWMENT BALANCES BY CATEGORY Endowment balances for May 31, 2014 and May 31, 2013, respectively, are listed by purpose as follows:

May 31, 2014 May 31, 2013 General $ 400,591 $ 300,310Scholarship 186,785 173,587Faculty development 90,544 84,091Loan 24,294 20,637Facility maintenance 30,833 24,281Library 9,476 8,846 $ 742,523 $ 611,752

14. SCHOLARSHIPS AND STUDENT AID The source of funding for scholarships and student aid is as follows:

May 31, 2014 May 31, 2013 Operational budget $ 26,892 $ 27,424 Endowment funds 8,765 8,154 Contracts and other exchange transactions 2,626 2,498 Restricted funds 351 227 $ 38,634 $ 38,303


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15. EXPENSES BY NATURAL CLASSIFICATION Expenses for the years ended May 31, 2014 and May 31, 2013, were incurred for the following:

May 31, 2014 May 31, 2013 Salary and wages $ 50,412 $ 48,586 Benefits 12,558 12,054 General operating 11,009 10,801 Depreciation 9,707 8,802 Occupancy 6,073 5,750 Food service 6,054 6,339 Professional fees 4,571 2,696 Computer/software/licenses 3,436 2,091 Travel 3,120 3,028 Debt service 1,841 946 Communications 1,415 1,480 Insurance 1,017 939 Other operating 3,615 3,885 Other nonrecurring expenditures 10,157 - Loss on assets disposals 293 578 $ 125,278 $ 107,975

Other nonrecurring expenditures relate to one-time expenditures related to non-capitalized furniture and equipment installed in the Center for Science and Innovation and the relocation of the Offices of Admissions and Financial Aid into Northrup Hall and gain on disposal of buildings. 16. RETIREMENT PLAN Full-time University employees participate in a contributory retirement plan administered by an insurance company that provides a defined contribution plan exclusively for employees of educational and research organizations. The University’s share of premiums paid into this plan is based on 10% of the participating employee’s qualifying salary. Participation of all permanent employees who have obtained the age of 21 years and work an average of at least 20 hours per week is mandatory upon completion of two years of service. The retirement plan expense was $4,003 and $3,919 for the fiscal years ended May 31, 2014 and May 31, 2013, respectively. 17. FUND RAISING Fund raising is expensed as incurred. Expenses were $3,057 and $2,342 for the fiscal years ended May 31, 2014 and May 31, 2013, respectively.


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18. NET ASSETS RELEASED FROM RESTRICTION Assets released from restriction were used in the following capacity:

May 31, 2014 May 31, 2013 Capital outlay $ 7,775 $ 6,475 General operations 6,768 6,474 Scholarships 6,177 5,757 Faculty development 2,067 1,905 Miscellaneous programs 5,731 1,306 Total net assets released from restrictions $ 28,518 $ 21,917

19. NET ASSETS Restricted net assets consist of the following:

May 31, 2014 May 31, 2013 Temporarily restricted net assets:

Endowments $ 168,425 $ 139,406 Other 8,673 12,793

Total temporarily restricted net assets $ 177,098 $ 152,199 Permanently restricted net assets:

Endowments $ 242,571 $ 228,156 Beneficial interest in funds held in trust by

others 365,732

347,459 Total permanently restricted net assets $ 608,303 $ 575,615

20. COMMITMENTS AND CONTINGENCIES At May 31, 2014 and May 31, 2013, respectively, the estimated remaining costs to be incurred under construction contracts were approximately $8,218 and $34,477. Currently, the University is the defendant in various matters in litigation. The University is vigorously opposing these matters, and in management’s opinion, their outcome should not result in any material adverse effect upon the University. Certain assets of the University contain asbestos that will be abated in the future. The University estimates that it will incur approximately $362 for probable abatement projects, and this amount has been recorded in the financial statements. However, other asbestos exists in the University’s assets for which the cost of removal cannot be reasonably estimated. In management’s opinion, the liability associated with the cost of asbestos removal should not have a material adverse effect on the University. 21. SUBSEQUENT EVENTS Subsequent events were evaluated through November 7, 2014, the date at which the financial statements were available to be issued.

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