Texas Association of Public Schools Property and Liability Fund

Annual Report2010-2011 Fund Year

CONTENTS

Chairman’s Message …………………………………………………… 2

Board of Trustees ………………………………………………………… 3

TAPS Membership Map ………………………………………………… 4

Executive Director’s Report …………………………………………… 6

Independent Auditors’ Report ……………………………………… 9

Management’s Discussion and Analysis ………………………… 10

Basic Financial Statements:

Statements of Net Assets ………………………………………… 13

Statements of Revenues,

Expenses and Changes in Net Assets ………………………… 14

Statements of Cash Flows ………………………………………… 15

Notes to Financial Statements …………………………………… 16

Supplemental Information:

Schedule of Claims Development Information …………… 22

Report on Internal Control Over Financial Reporting

and on Compliance and Other Matters Based on an Audit

of Financial Statements Performed in Accordance with

Government Auditing Standards ……………………………… 23

TExaS aSSOCiaTiON Of PubliC SChOOlSPr OPErT y aNd liabiliT y fuNd

1TAPS

The TAPS Board of Trustees is pleased to present this annual report for the 2010-2011 Fund Year. We have just successfully completed our tenth year of existence. We have an excellent story worth sharing. Starting out in 2001 as an association of nine public school districts suffering from the uncontrollable swings in the commercial insurance market, TAPS has grown to be the second largest public education property and liability fund in Texas with nearly two hundred members.

In the past two years, educational institutions across Texas have suffered financial hardships in the form of diminishing revenue from eroding tax base valuations and a failure of the state to provide adequate funding. In the next biennial, conditions will not get any better due to cuts in the state public education budget.

TAPS continues to do its part to try to assist its members in these difficult times. For the previous two fund years, the TAPS’ Board of Trustees has acted to commit surplus (member equity) to support lower rates for our members. For the current year and the upcoming year, TAPS has pledged to freeze rates as winds of an approaching hard market begin to blow. This has been accomplished with strong long-term relationships with our reinsurance partners.

ThE CuLTuRE OF MEMBERShIPTAPS is an association of primarily public school districts, but also community colleges, education service centers, and special education cooperatives. Although each of our members is an important segment of public education in Texas, there are some differences in the needs of our various member segments. Even in the public school district segment, we have wide differences in district sizes. We have member districts with a few hundred students, but we also have some of the largest districts in the state with enrollments approaching one hundred thousand students.

TAPS pledges to work to meet the varied needs of its members. We have expanded our board and board committees to provide representation for all segments of our membership. We need your help to volunteer to serve on committees and as trustees when vacancies occur.

Each TAPS member is an owner of TAPS. We urge you to be an active owner. Volunteer to serve on committees where you have expertise (finance, claims, risk management, underwriting). We welcome your ideas and encourage you to submit your name to the nominations committee as a potential trustee. For information, contact any trustee or write to TAPS’ Executive Director directly at Lamar.Sawyer@TAPSPLF.org. At TAPS, our members come first.

TAPS has become a stable and effective risk financing and risk management resource for our Texas public education members. We now call upon all of our member institutions to engage with us in this endeavor and to become promoters of the good news of TAPS to other potential members who have an interest in controlling their risk management destinies. Member referrals continue to be one of our best methods of growth. Please pass this report on to your professional colleagues with a note of recommendation.

I am honored to have been elected by the board in 2011 to serve for the next two years as your Chairman. I pledge to do my part to contribute to the continued success of TAPS. Please help with your active participation.

The TAPS Board of Trustees has set a strategic plan for member growth over the next few years. However, our goal is not to be the biggest risk management pool in Texas, but rather to be, like the students we serve, the best in class.

Scott Niven, CPA

Chairman, Board of TrusteesRed Oak ISD

Superintendent

TAPS2 ChairMaN’S MESSaGE

CECIL TATuMTrusteeNorthside ISD, San AntonioExecutive Director of Benefits and Risk Management

ShARAY BOYNTON, CPA

Trustee, TreasurerGranbury ISDExecutive Director of Finance

KEN REESETrusteeTexarkana ISDChief Operating Officer

NANCY NELSONTrusteeEl Paso Community CollegeAssociate Vice President, Employee Relations

JOEY LIghTTrusteeWylie ISDSuperintendent

BARRETT LANKFORDTrusteeHudson ISDBusiness Manager

JANE EuTSLERTrusteeHarlandale ISD, San AntonioDirector of Risk Management

NINA CONWAY, CPA

TrusteeHitchcock ISDBusiness Manager

3TAPS bOard Of TruSTEES

School Districts

Community Colleges

Education Service Centers and Cooperatives

Members as of January 2012

Providing A+ statewide coverage for Texas public education institutions

TAPS4 TaPS MEMbErShiP MaP

Alamo Heights ISDAlvarado ISDAmarillo CollegeAnthony ISDAspermont ISDAubrey ISDAustin Community CollegeBallinger ISDBangs ISDBarbers Hill ISDBellevue ISDBloomburg ISDBowie County SchoolsBoyd ISDBroaddus ISDBronte ISDBrookesmith ISDBuena Vista ISDCaldwell ISDCallisburg ISDCanadian ISDCenterville ISDCharlotte ISDChireno ISDCity View ISD Clarendon ISDClint ISDColdspring-Oakhurst CISDColeman ISDColumbia-Brazoria ISDComal ISDCotulla ISDCoupland ISDCross Plains ISDDalhart ISDDallas County SchoolsDanbury ISDDawson ISDDayton ISDDe Leon ISDDell City ISDDesoto ISDDeweyville ISDDiboll ISDDime Box ISDEarly ISDEdcouch-Elsa ISDEdgewood ISDEl Paso CCEl Paso ISD

Elkhart ISDEtoile ISDEula ISDEvadale ISDFabens ISDFairfield ISDForsan ISDFort Hancock ISDFort Stockton ISDFrank Phillips CollegeGalena Park ISDGarland ISDGarrison ISDGholson ISDGlasscock County ISDGlen Rose ISDGrady ISDGranbury ISDGrand Prairie ISDGrandview ISDGroveton ISDHale Center ISDHamilton ISDHamshire-Fannett ISDHappy ISDHarlandale ISDHarleton ISDHarlingen CISDHays CISDHenderson County SSAHenrietta ISDHermleigh ISD Highland Park ISDHitchcock ISDHoney Grove ISDHooks ISDHoward County Junior College DistrictHudson ISDHuntington ISDIowa Park CISDItasca ISDJim Ned CISDJoaquin ISDJohnson City ISDJudson ISDKarnack ISDKirbyville CISDLa Porte ISDLazbuddie ISD

Liberty ISD Liberty-Eylau ISDLingleville ISDMatagorda ISD May ISDMcDade ISDMcLennan County Challenge Academy CoopMeridian ISDMerkel ISDMiami ISDMount Enterprise ISDMunday CISDNacogdoches Special Ed CoopNavarro ISDNazareth ISDNeches ISDNixon-Smiley CISDNocona ISDNorth East ISDNorth Lamar ISDNorthside ISDOlton ISDPaint Creek ISDPalacios ISDPearsall ISDPetrolia ISDPflugerville ISDPharr San Juan Alamo ISDPlains ISDPort Arthur ISDPoth ISDPottsboro ISDRanger ISDReagan County ISDRed Lick ISDRed Oak ISDRegion 06 ESCRegion 13 ESCRegion 14 ESCRegion 15 ESCRegion 19 ESCRice CISDRichardson ISDRio Grande City CISDRobert Lee ISDRocksprings ISDS AND S CISDSalado ISD

San Augustine ISDSchertz-Cibolo-U City ISDShelbyville ISDSherman ISDSierra Blanca ISDSnyder ISDSomerset ISDSonora ISDSouth Plains CC South San Antonio ISDSouth Texas ISD Southside ISDSpecial Education Cooperative Cluster XIISplendora ISDSpringlake Earth ISDStanton ISDSterling City ISDStockdale ISDSulphur Springs ISDSweetwater ISDTaft ISDTenaha ISDTexarkana CollegeTexarkana ISDTimpson ISDTrent ISDTrinity ISDUvalde CISDValentine ISDVan Zandt County SSAVeribest ISD Vernon ISDVictoria CollegeVidor ISDWaco ISDWarren ISDWaskom ISDWellington ISDWhite Deer ISDWhite Settlement ISDWhiteface CISDWilson ISDWink-Loving ISDWoden ISDWylie ISDYorktown ISDZavalla ISDZephyr ISD

5TAPS TaPS MEMbErShiP MaP

TAPS has now reached the significant milestone of ten successful years since we were founded. What started as nine districts joining together on September 1, 2001, under an interlocal cooperation contract to take control of their risk management futures, has grown to be the second largest public education property and liability pool in Texas with 196 loyal members. (see TAPS Membership Map on page 4) This loyalty demonstrates that for the last two years, TAPS has averaged a 96% member retention rate. We also average over 10 new members each year.

ThE CuLTuRE OF MEMBERShIPAs a member of TAPS you, along with the other members, are the sole owners of this organization and its assets. It is you, through your elected Board of Trustees that determine the coverages that will be offered and the rates that will be charged.

Between 2008 and 2010, in a period of public education financial distress, the TAPS Board of Trustees lived up to our slogan “Our Members Come First” and committed surplus (member equity) to provide lower property and liability rates than those that were actuarially recommended. In this past year TAPS has

actually been able to replenish some of that equity. This was done by a renewed commitment to risk management which is detailed in the following section.

To support this culture of membership over the years to come, TAPS is going to continue to develop new benefits for our members. We are going to call upon each member to participate in the process with feedback, participation in board committees and being available to serve as a Trustee. We will have many opportunities to bring additional values to our members, but we will need your help.

TAPS AND ITS MEMBERS: PARTNERS IN RISK MANAgEMENTOn average, a given number of exposures (students, vehicles, employees, property values) will produce a predictable set of losses based upon prior history. A pool can not charge rates less than what it will cost to cover the predicted losses over the long run and expect to survive. However, if the losses can be reduced, rates can be reduced as well.

The best way to reduce losses is through Risk Management. This is why TAPS has recently invested heavily in risk management resources. We now have a team of risk management professionals serving our members. To the left is a photograph of our team:

You will notice that many of our staff have advanced degrees and professional designations. One important designation that all of our staff will earn is CSRM, Certified School Risk Manager. This is a five course and five examination certification program, administered by The National Alliance for Insurance Education and Research, which provides all TAPS’ staff with the academic background to understand the particular risk management challenges the public education institutions face. In addition to this requirement for TAPS staff, in the past year we have sponsored all five of these courses for our members.

In the next year our Risk Management team will be visiting each of our member organizations to provide claims analysis and risk management assessments. In addition, it is anticipated that they will be introducing our new Excellence in Risk Management certification program. Under this program, members who establish and exhibit a set of best practices under each risk area will be able to qualify for recognition and a contribution credit at the next renewal, and for as long as these best practices remain in force. Our goal is to help each member achieve this certification with its recognition and financial credits.

R. Lamar Sawyer, Jr. CPCu, MBA, ARM, CSRM

Executive Director

Left to Right: Lisa Benavides, Risk Management Consultant,

Jeremy Diller, MBA, MA, ARM-P,

CSRM, Risk Management Director; Latasha Partlow, MBA, MA, CSRM,

Risk Management Consultant

TAPS6 ExECuTiVE dirECTOr’S rEPOrT

Besides the consultant services, TAPS provides other risk management benefits to members. These include: annual risk management grants; periodic professional replacement cost appraisals; online continuing education including state certified harassment prevention training; webinars on current issues in school risk management, and regional seminars on legal and risk management issues for public education.

Below is a graph showing the composition of TAPS’ gross contributions by line of coverage:

Net claims (claims costs less member deductibles and reinsurance recoveries) do not necessarily come in proportion to the contributions received. However, for the 2010-2011 Fund Year the amount of contribution to net claims is more proportional than it has been in past years. Below is a graph showing the comparative composition of losses incurred by lines of coverage:

Out of balance losses in past years under Educators’ Legal Liability, and to a lesser extent, Automobile Liability, have encouraged us to take a closer look at the sources of losses in these lines of coverage and to invest in processes to reduce these losses. Detailed analyses of our claims experience in these lines of coverages have revealed that the majority of these losses come from a minority of our members. Over the next few years we will be offering these members coverage structure options and services that will allow them to continue with TAPS without a major change in the contribution levels. These structure options may include increased member retentions in the short term, but will include enhanced risk management education and services to control losses. TAPS is making a significant investment in personnel for risk management education and consultative services in order to better meet the needs of our members.

TAPS has a current strategic goal to increase membership up to approximately 250 member Partners in Risk Management. If we select the right members with similar risk management goals, we will be able to reach that membership goal even faster as well as reach a point where excess surplus can be distributed back to members

2010-2011 Total Contributions

Property

Vehicle Physical damage

Equipment breakdown

Crime

General liability

Educators legal liability

Vehicle Physical damage

Excess liability53.8%

17.7%

14.2%

3.9%.9%

.5%

1.5%7.5%

Property

General liability

auto liability

Educators legal liability

Vehicle Physical damage

Equipment breakdown - 0%

Crime - 0%

2010-2011 Net losses

15%

20%

51%

1%

13%

7TAPS ExECuTiVE dirECTOr’S rEPOrT

in the form of additional services, rate discounts, or dividends. We ask for your help in achieving this goal by sharing the good TAPS story with your risk management colleagues. A current member recommendation to potential members is one of the best sources of growth for TAPS.

Some of the benefits of TAPS, besides the control of your own risk management destinies, are the avoidance of the costs of premium tax, income tax and the regulation costs that a standard insurance carrier must bear. Besides these savings for our members, TAPS also maintains a low cost of operations. Below is a graph showing the uses of TAPS gross contributions in the 2010-2011 Fund Year:

In the beginning TAPS was administered exclusively by contracted service providers handling general administration, underwriting, claims administration, accounting, marketing, loss control, brokerage and actuarial services (I was one of these contractors handling marketing and general administration). After I was appointed Executive Director in 2005, under the direction of the Board, we began to assume control of TAPS’ operations, and to bring in-house as many functions as were practical and economical.

Since I was appointed, we have internalized the functions of accounting, claims oversight, information services management, risk management and general operations with the addition of an Operations Director, a Marketing Manager, and a Risk Management Director with Risk Management Consultants. Photographs of our senior staff with a summary of their responsibilities are to the left.

The TAPS’ Board of Trustees continues to make strategic plans for the next decade. Among the questions under consideration will be: (1) “How much can we grow in membership without diminishing the quality of service to our members?” and (2) “What services can be added or assumed from contractors in order to more efficiently serve our members?” Services still available for assumption by employed staff are claims handling, underwriting, and reinsurance brokerage. Please take time to communicate with me and with your trustees as we make these challenging decisions. We are members working for members to make a better future together.

TAPS primary mission is to serve our members. At TAPS, Our Members Come First. I can be reached at any time at 210.415.6447 or at by email at Lamar.Sawyer@TAPSPLF.org. Please feel free to contact me.

Jan Skovbjerg, CSRM

Operations DirectorResponsible for accounting,

information technology and meeting planning

Patricia hagan, CSRM

Marketing ManagerResponsible for member and

agency relations, exhibitions, publications and promotions

Jeremy Diller, MBA,

MA, ARM-P, CSRM

Risk Management DirectorResponsible for risk

management staff and risk management education

uses of Gross Contributions

reinsurance

Net Claims & legal Expenses

agent’s Commissions

Claims administration

brokerage/ underwriting fees

Member Equity

Operations Expense

5%4%

33%

3%

41%

6%

12%

TAPS8 ExECuTiVE dirECTOr’S rEPOrT

9TAPS iNdEPENdENT audiTOr’S rEPOrT

A Professional Accounting Corporation

www.pncpa.com

8550 United Plaza Blvd, Suite 1001 Baton Rouge, LA 70809 Tel: 225-.922.4600 Fax: 225.922.4611

Board of TrusteesTexas Association of Public Schools

Property and Liability Fund

We have audited the accompanying statements of net assets of the Texas Association of Public Schools Property and Liability Fund (the Fund) as of August 31, 2011 and 2010, and the related statements of revenues, expenses and changes in net assets, and cash flows for the years then ended. These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America and with Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Texas Association of Public Schools Property and Liability Fund as of August 31, 2011 and 2010, and the changes in its financial position, and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Management’s discussion and analysis on pages 10 through 12 and the supplemental schedule of claims development information on page 22 are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted primarily of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it.

In accordance with Government Auditing Standards, we have also issued a report, dated November 10, 2011, on our consideration of the Fund’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. 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 audits.

Baton Rouge, LouisianaNovember 10, 2011

A Professional Accounting Corporation

www.pncpa.com

8550 United Plaza Blvd, Suite 1001 Baton Rouge, LA 70809 Tel: 225-.922.4600 Fax: 225.922.4611

As management of the Texas Association of Public Schools Property and Liability Fund (TAPS or the Fund), we offer readers of the Fund’s financial statements this narrative overview and analysis of the financial activities of TAPS for the years ended August 31, 2011 and 2010. We encourage readers to consider the information presented here in conjunction with TAPS’ financial statements, which follow this section.

FINANCIAL HIGHLIGHTS

• TheassetsofTAPSexceeded its liabilitiesatAugust31,2011by$3,097,731compared to$2,611,459asofAugust31,2010whichisa19%increaseoverthepreviousyear.

• Attheendofthecurrentfiscalyear,netassetstotaled$3,097,731orapproximately32%ofthecurrent year expenses.

• AtAugust 31,2011, the Fund’s assets totaled$8,513,711andare comprisedprimarily ofcash and cash equivalents, certificates of deposit, fixed income securities, a subscriber savings account, contributions receivable, as well as reinsurance and deductibles receivable. At August 31,2010,theFund’sassetstotaled$7,398,625andarecomprisedprimarilyofcashandcashequivalents, certificates of deposit, a subscriber savings account, contributions receivable, as well as reinsurance and deductibles receivable.

• TheFundreportedgrossmembercontributionsof$16,010,915and$14,927,099duringtheyears ended August 31, 2011 and 2010, respectively.

OvervIew OF THe FINANCIAL STATemeNTS

This financial report consists of management’s discussion and analysis and the basic financial statements. The basic financial statements also include notes to the financial statements, which explain some of the information in the financial statements in more detail.

The basic financial statements of the Fund report information about the Fund using accounting meth-ods similar to those used by private sector businesses. These financial statements offer short and long-term financial information about its activities. The Statements of Net Assets includes all of the Fund’s assets and liabilities and provides information about the nature and amounts of investments in resources (assets) and the obligations to the Fund’s members and creditors (liabilities). It also provides the basis for computing rate of return, evaluating the capital structure of the Fund and assessing the liquidity and financial flexibility of the Fund. All of the year’s revenues and expenses are accounted for in the Statements of Revenues, Expenses and Changes in Net Assets. These statements measure the success of the Fund’s operations over the year and can be used to determine whether the Fund has successfully recovered all its costs through its member contributions and investment income, profitability and credit worthiness. The final required financial statement is the Statements of Cash Flows. The primary purpose of this statement is to provide information about the Fund’s cash receipts and cash payments throughout the year. This statement reports cash receipts, cash payments and net changes in cash resulting from operations, investing, and financing activities.

The preparation of these financial statements requires the utilization of significant estimates, many of which will not be known for many years. Changes in estimates as well as the differences in actual results and estimated amounts will be included in the Statements of Revenues, Expenses and Changes in Net Assets as these circumstances become known.

TAPS10 MaNaGEMENT’S diSCuSSiON aNd aNalySiS fOr ThE yEarS ENdEd auGuST 31, 2011 aNd 2010

FINANCIAL ANALySIS OF TAPS’ FuNdS

TAPS uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements and segregation for particular purposes.

AssetsatAugust31,2011,amountedto$8,513,711.Thetotalincreaseinassetswas$1,115,086primarily as a result increased gross member contributions and reductions in the costs of ceded contributions. For the year ended August 31, 2011, members of TAPS contributed approximate-ly$16,000,000 inmembercontributionscompared to$14,900,000 for theyearendedAugust 31, 2010. Member contributions ceded during the year ended August 31, 2011 totaled approxi-mately$5,825,000comparedto$6,350,000fortheyearendedAugust31,2010.Lossesandlossadjustmentexpenseduring theyearendedAugust31,2011 totaledapproximately$5,430,000comparedtoapproximately$6,050,000fortheyearendedAugust31,2010.AdministrativeandservicefeesduringtheyearendedAugust31,2011totaledapproximately$1,385,000comparedtoapproximately$1,470,000 for the year endedAugust31,2010.Agent commissions totaledapproximately$1,920,000fortheyearendedAugust31,2011comparedto$1,720,000fortheyear ended August 31, 2010.

CONdeNSed STATemeNTS OF NeT ASSeTS

AuguST 31, 2011 AuguST 31, 2010 AuguST 31, 2009

Cashandinvestments $ 6,961,541 $ 6,065,315 $ 7,513,480 Receivables and other assets 1,552,170 1,333,310 1,191,286 Totalassets $ 8,513,711 $ 7,398,625 $ 8,704,766

Claimsliabilities $ 5,340,405 $ 4,695,493 $ 4,674,390 Other liabilities 75,575 91,673 59,680

Total liabilities $ 5,415,980 $ 4,787,166 $ 4,734,070

Netassets $ 3,097,731 $ 2,611,459 $ 3,970,696

TAPSexperiencedanexcessofrevenuesoverlosspaymentsandreservesintheamountof$486,272forthe current fund year. The 2011 increase in net assets resulted from increased gross member contributions primarily from new membership as well as decreased reinsurance costs. Net assets increased by 19%. See Statements of Revenues, Expenses and Changes in Net Assets on page 14 of this report.

11TAPS MaNaGEMENT’S diSCuSSiON aNd aNalySiS fOr ThE yEarS ENdEd auGuST 31, 2011 aNd 2010

CONdeNSed STATemeNTS OF reveNueS ANd exPeNSeS ANd CHANGeS IN NeT ASSeTS

YEAR ENDED AuguST 31, 2011 AuguST 31, 2010 AuguST 31, 2009

Operating revenues $ 10,185,285 $ 8,576,095 $ 8,545,319

Operating expenses $ 9,728,148 $ 10,037,266 $ 9,790,178 Non-operating income $ 29,135 $ 101,934 $ 150,133

Change in net assets $ 486,272 ($1,359,237) ($ 1,094,726)

FINANCIAL OuTLOOK

TAPS continues to plan for a continued increase in membership during the next fund year with corresponding increases in total contributions as part of a multi-year strategic plan for growth, reorganization and loss control. A large part of this plan includes a significant investment in risk management services to control losses for the increasing membership. As the new fund year begins, TAPS will complete a major part of this plan with a fully staffed risk management department, a function that was formerly contracted. It is anticipated that these services will serve to reduce average losses per exposure, especially in the employment practices area, as membership increases. Success in this initiative will enable us to build surplus to be able to maintain moderate rates for our members through the assumption of additional financial risks.

Significant reinsurance premium reductions that were enjoyed during the past four years are not expected to continue, especially in property. Liability rates should not change significantly due to TAPS’ financial strength, long-term reinsurance relations, and favorable loss experience with its long time carrier. Member rates for liability should remain constant in the next two years if TAPS’ overall experience in the liability lines does not significantly change from that of the last five years. However, the soft reinsurance market in property is unlikely to continue into 2011-2012 as current pricing is approaching the limit for covering expected property losses in Texas and the recent catastrophic losses nationally and internationally. To moderate the market cycle, TAPS has entered into a multi-year agreement with its property reinsurer that should allow for stable rates in the property line for the next two years.

It is anticipated that operational expenses will rise slightly in the next year due to new staff positions and their travel expenses. However these costs will be moderated by reductions in underwriting expenses gained by decreases in fees from the integration of formerly contracted positions as employees and from the effects of a more professional risk management program. For the long run, overall operations expenses should be approximately the same relative percentage to gross contributions in the upcoming fund years.

requeSTS FOr INFOrmATION

This financial report is designed to provide our members, potential members, reinsurers, agents and creditors with a general overview of TAPS’ finances, as well as to demonstrate accountability for the funds TAPS receives. Questions concerning any of the information provided in this report or requests for additional information should be addressed to: R. Lamar Sawyer, Jr., Executive Director, Texas Association of Public Schools Property and Liability Fund, 342 West Woodlawn Avenue, Suite 300, San Antonio, Texas 78212-3314 or by email to Info@TAPSPLF.org.

TAPS12 MaNaGEMENT’S diSCuSSiON aNd aNalySiS fOr ThE yEarS ENdEd auGuST 31, 2011 aNd 2010

ASSeTS

2011 2010

Cash and cash equivalents $ 3,730,162 $ 2,934,315 Certificates of deposit 1,740,000 3,131,000 Investments 1,491,379 - Subscriber savings account 1,199,477 1,036,980 Contributions receivable 3,764 7,948 Reinsurance and deductibles receivable 348,929 288,382 Total assets $ 8,513,711 $ 7,398,625

LIAbILITIeS ANd NeT ASSeTS

2011 2010

Reserveforlossesandlossadjustmentexpenses $ 5,340,405 $ 4,695,493 Accrued expenses and other liabilities 75,575 91,673 Total liabilities 5,415,980 4,787,166 Net assets, unrestricted 3,097,731 2,611,459 Totalliabilitiesandnetassets,unrestricted $ 8,513,711 $ 7,398,625

The accompanying notes are an integral part of these financial statements.

13TAPS STaTEMENTS Of NET aSSETSauGuST 31, 2011 aNd 2010

2011 2010

OPerATING reveNueS

Member contributions earned $ 16,010,915 $ 14,927,099 Member contributions ceded (5,825,630) (6,351,004)

Total operating revenues 10,185,285 8,576,095

OPerATING exPeNSeS

Losses and loss adjustment expenses 5,431,525 6,053,724 Claims services fee 615,446 569,190 Agent commissions 1,917,918 1,717,688 Administration fee 770,449 898,160 Appraisal fees 71,810 83,870 Other operating expenses 921,000 714,634

Total operating expenses 9,728,148 10,037,266

OPerATING (LOSS) INCOme

457,137 (1,461,171)

NON-OPerATING INCOme

Investment income - net 29,135 101,934

CHANGe IN NeT ASSeTS

486,272 (1,359,237)

NeT ASSeTS - beGINNING OF yeAr

2,611,459 3,970,696

NeT ASSeTS - eNd OF yeAr

$ 3,097,731 $ 2,611,459

The accompanying notes are an integral part of these financial statements.

TAPS14 STaTEMENTS Of rEVENuES, ExPENSES aNd ChaNGES iN NET aSSETS fOr ThE yEar ENdEd auGuST 31, 2011 aNd 2010

2011 2010

CASH FLOwS FrOm OPerATING ACTIvITIeS

Cash received from: Net member contributions collected $ 9,966,425 $ 8,434,071 Cash paid for: Service providers (1,401,993) (1,435,347) Agent commissions (1,917,918) (1,717,688) Losses and loss adjustment expenses (4,786,613) (6,032,621) Other (992,810) (798,504) Net cash provided by (used in) operating activities 867,091 (1,550,099)

CASH FLOwS FrOm INveSTING ACTIvITIeS

Investment income 29,135 101,934 Proceeds from the maturity of certificates of deposit and investments 3,129,129 2,202,254 Purchase of investments (3,229,508) (3,131,000) Net cash provided by investing activities (71,244) (826,812) Net change in cash and cash equivalents 795,847 (2,376,911) Cash and cash equivalents at beginning of year 2,934,315 5,311,226 Cashandcashequivalentsatendofyear $ 3,730,162 $ 2,934,315 Reconciliation of change in net assets to net cash provided by operating activities: Changeinnetassets $ 486,272 $ (1,359,237)

Investment income (29,135) (101,934)

457,137 (1,461,171)

Adjustments to reconcile changes in net assets to net cash provided by (used in) operating activities: Reinsurance and deductibles receivable (60,547) 63,487 Contributions receivable 4,184 770 Reinsurance deposits - - Reserve for losses and loss adjustment expenses 644,912 21,103 Change in subscriber savings account (162,497) (206,281) Accrued expenses and other liabilities (16,098) 31,993 Net cash provided by operating activities $ 867,091 $ (1,550,099)

The accompanying notes are an integral part of these financial statements.

15TAPS STaTEMENTS Of CaSh flOWSfOr ThE yEar ENdEd auGuST 31, 2011 aNd 2010

1. NATure OF buSINeSS ANd SIGNIFICANT ACCOuNTING POLICIeS

(A) NATure OF buSINeSS

The Texas Association of Public Schools Property and Liability Fund (TAPS or the Fund) was created effective September 1, 2001, as a public entity risk-sharing pool for Texas public schools, junior or community colleges, and education service centers. The Fund was created in accordance with the Interlocal Cooperation Act, Chapters 791 and 2259 of the Texas Government Code and operates within the appropriate rules, regulations, and laws of the state of Texas. The Fund offers the following coverages: automobile liability, errors and omissions, general liability, and property including automobile physical damage. Most coverages are on an occurrence basis, with the exception of errors and omissions, which is on a claims-made basis.

The Fund was formed for the purpose of providing competitive costs for coverage, loss control, and administrative services for members. Members join the Fund by executing Interlocal Participation Agreements.

The trustees of the Fund entered into a contract with Willis North American, Inc. to manage and administer the Fund. These services include, but are not limited to, enrolling participants, billing and collecting contributions, planning, underwriting, and cost control. Willis Risk Solutions North America provides actuarial services to the Fund. Trustees of the Fund also entered into a contract with Crawford U.S. Property and Casualty, effective December 1, 2009, Inc. to review, investigate, adjust, and settle all reported property damage and injury cases within the discretionary settlement authority limit granted by the trustees and Fund members. Fees under the preceding agreements for the years ended August 31, 2011 and 2010 were approximately: 2011 2010

Willis North American, Inc. $ 770,000 $ 898,000 Willis Risk Solutions North America 27,500 26,000 Crawford U.S. Property and Casualty 615,000 570,000 $ 1,412,500 $ 1,494,000

A summary of the significant accounting policies followed by the Fund in preparation of the accompanying financial statements is set forth below:

(b) bASIS OF ACCOuNTING

The financial statements of the Fund have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The Fund applies Financial Accounting Standards Board pronouncements and Accounting Principles Board opinions issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements, in which case, GASB prevails.

The Fund is a proprietary fund type and is presented as a business type activity. Proprietary fund types are used to account for governmental activities that are similar to those found in the private sector where the determination of operating income and changes in net assets is necessary or useful for sound financial administration. GAAP used for proprietary funds are generally those applicable to similar businesses in the private sector (accrual basis of accounting). Under the accrual basis of accounting, revenues are recognized in the accounting period in which they are earned and expenses are recognized in the period incurred.

TAPS16 NOTES TO fiNaNCial STaTEMENTS

Since the business of the Fund is essentially that of an insurance company having a business cycle greater than one year, the statements of net assets are not presented in a classified format.

(C) CASH ANd CASH equIvALeNTS

For purposes of the statements of cash flows, cash equivalents include all highly liquid investments with original maturities of three months or less.

(d) CerTIFICATeS OF dePOSIT

The Fund invests in various certificates of deposits with interest rates that range from 0.40% to 2.18% and maturities through May 2014 as of August 31, 2011. As of August 31, 2010 interest rates ranged from 0.55% to 1.60%.

(e) INveSTmeNTS

Investments are reported at estimated fair value. Fair value is based on the last reported sales price if available; if not available, fair value is based on estimated fair value. Realized and unrealized gains and losses on investments recorded at fair value are included in investment income.

(F) OPerATING / NON-OPerATING reveNue ANd exPeNSeS

Operating revenues consist of member contributions as these revenues are generated from the Fund’s operations and are needed to carry out its purpose. All expenses incurred for that purpose are classified as operating expenses. Investment income and other revenues and expenses which are ancillary to the Fund’s purpose are classified as non-operating.

(G) PrOPerTy ANd LIAbILITy member CONTrIbuTIONS

Property and liability member contributions are established as of the coverage date through the end of the Fund’s fiscal year and are earned on a pro rata basis over the period from the coverage date through August 31 of each year. The Fund’s member contributions are developed annually with assistance from Willis Risk Solutions North America and are based on projected claims and expense costs. The Fund’s Board of Trustees annually approves the funding methodology utilized by the Fund. Member contributions receivable are considered fully collectible by management; therefore, no reserve for bad debts has been established.

(H) INCOme TAxeS

The Fund is exempt from federal income taxes under Sections 7701 and 115 of the Internal Revenue Code.

(I) POLICy ACquISITION COSTS

Commissions and other costs of acquiring insurance that vary with and are primarily related to the production of new and renewal business are deferred and amortized over the terms of the policies to which they relate. Contract acquisition costs were fully amortized at August 31, 2011 and 2010.

17TAPS NOTES TO fiNaNCial STaTEMENTS

(j) INSurANCe LIAbILITIeS

The reserve for losses and loss adjustment expenses includes an amount determined from loss reports and individual cases and an amount, based on past experience, for losses incurred but not reported. The length of time for which such costs must be estimated varies depending on the coverage involved. Because actual claims costs depend on such complex factors as inflation, changes in doctrines of legal liability, and damage awards, the process used in computing claims liabilities does not necessarily result in an exact amount, particularly for liability coverage. Such liabilities are necessarily based on estimates and, while management believes that the amount is adequate, the ultimate liability may be in excess of or less than the amounts provided. The methods for making such estimates and for establishing the resulting liability are continually reviewed, and any adjustments are reflected in current earnings. The reserve for losses and loss adjustment expenses is reported net of anticipated recoverables for salvage and subrogation and deductibles.

An increase or decrease of the liability for unpaid claims (other than for payment of claims) as determined for the prior years will result in a direct increase or decrease in the claims expense of the current year. These changes can be material in relation to the financial statements taken as a whole. The reserve for losses and loss adjustment expenses has not been discounted for the time value of money.

(K) exCeSS INSurANCe ANd reINSurANCe

The Fund uses excess insurance and reinsurance contracts with insurance carriers to reduce its exposure to large losses on insured events. The Fund does not report risks covered by excess insurers as liabilities unless it is probable that those risks will not be covered by the excess insurers or reinsurers.

(L) uSe OF eSTImATeS

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. For example, significant estimates and assumptions are used in estimating its insurance liabilities, fair values of investments and accruals. If future experience differs materially for these estimates and assumptions, the financial statements could be affected.

(m) NeT ASSeTS

The net assets of the Fund are available to pay the obligations of the Fund or may be returned to participating members and are considered unrestricted. Should the Fund exhaust its assets available to pay obligations, outstanding claim liabilities would become the responsibility of the respective member.

2. CASH equIvALeNTS, CerTIFICATeS OF dePOSIT, ANd INveSTmeNTS

AtAugust31,2011and2010,theFundhadcashequivalentstotaling$5,470,162and$6,065,315which are held in an investment brokerage accounts, certificates of deposit as well as demand deposit accounts.

TAPS18 NOTES TO fiNaNCial STaTEMENTS

AtAugust31,2011,investmentsof$1,491,379consistedofthefollowing:

Custodial Credit Risk: Custodial credit risk for deposits is the risk that, in the event of bank failure, the Fund’s deposits may not be returned. For investments, custodial credit risk is the risk that, in the event of the failure of the counterparty, the Fund will not be able to recover the value of its investments, or collateral securities that are in the possession of an outside party. Investment securities are exposed to custodial credit risk if the securities are uninsured, are not registered in the name of the Fund, and are held by either: a) the counterparty or b) the counterparty’s custodian or agent but not in the Fund’s name. The Fund had no custodial credit risk as of August 31, 2011.

Credit Risk: Credit risk is defined as the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Nationally recognized standardized rating systems are a tool with which to assess credit risk on debt obligations. U.S. Government debt securities are not required to be rated.

Interest Rate Risk: Interest rate risk is defined as the risk that changes in interest rates will adversely affect the fair value of an investment. The Fund measures and monitors the maturity of the fixed income portfolio to manage exposure to interest rate risk. This includes the maturities of the total fixed income portfolio, individual securities, as well as categories of securities held by the Fund.

The aggregate amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value, for available-for-sale securities by major type at August 31, 2011 is as follows:

3. SubSCrIber SAvINGS ACCOuNT

On May 1, 2005, the Fund entered into a reinsurance agreement (see Note 4) with a reciprocal risk retention group, United Educators (UE). In connection with this agreement, a portion of the amount of the reinsurance premium paid remains in a subscriber savings account (SSA), which could be reduced if UE incurs losses or makes negative allocations. As of August 31, 2011 and 2010 this account totals $1,199,477and$1,036,980,respectively. Inaccordancewithstandardsandformulasadoptedby the UE’s Subscribers’ Advisory Committee, a withdrawing subscriber has a legal right to be paid its entire SSA balance, if any, no later than six years following the end of the fiscal year during which the subscriber terminates its coverage under a UE insurance policy. The appropriate date for making such payment within this time range is in the exclusive discretion of the Subscribers’ Advisory Committee, based solely on the anticipated absorption of losses by the withdrawing subscriber’s

Investment Type Fair Value Credit Quality %Of Maturity

Federal Farm Credit Bank $ 991,379 Aaa* 66% 2/27/2014Federal Home Loan Bank $ 500,000 Aaa* 34% 6/9/2014

$ 1,419,379 100%

* Credit quality rating from Moody’s

2011 Amortized gross gross Estimated Cost unrealized unrealized Fair gains Losses Value

Investment securities $ 1,489,509 $ 1,870 $ - $ 1,491,379

Rating

19TAPS NOTES TO fiNaNCial STaTEMENTS

and the other subscribers’ SSA balances arising from events, occurrences or claims during years in which the withdrawing subscriber was a member. The withdrawing subscriber’s SSA balance is determined in accordance with the standards and formulas in place as of the date of the withdrawing subscriber’s notice of intent to withdraw.

4. reINSurANCe ANd exCeSS INSurANCe AGreemeNTS

In the normal course of business, the Fund seeks to reduce the losses that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. Reinsurance agreements permit recovery of a portion of losses from reinsurers although it does not discharge the primary liability of the Fund as direct insurer of the risks reinsured. Amounts recoverable from reinsurers are estimated in a manner consistent with the reinsured policy. Failure of reinsurers to honor their obligations could adversely affect the Fund. The Fund evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies.

The Fundhaspurchased reinsurancewith a$150,000per occurrence retentionand$850,000per occurrence limit for liability coverage for each of the policy years ended September 1, 2011 and 2010. The Fund has also purchased aggregate reinsurance coverage for liability claims with retentionofapproximately$3,600,000and$3,200,000 for theyearsendedAugust31,2011 and 2010.

The Fund has purchased excess insurance with a $250,000 per occurrence retention and$250,000,000 per occurrence limits for property claims for each of the policy years endedSeptember1,2011and2010.The retention forhaildamage is$500,000peroccurrence.Forcoastalpropertiesthelimitpernamedstormis$50,000,000witharetentionof2%ofthevaluesofthe affected structure, the same retention as that of the member.

The Fund has purchased reinsurance with a $100,000,000 per occurrence limit for equipmentbreakdownforthepolicyyearsendedSeptember1,2011and2010whichhasa$1,000retention.

AtAugust31,2011and2010,reinsurancereceivablesof$267,094and$172,071,respectively,have been recorded on claims paid by the Fund.

5. LIAbILITy FOr LOSSeS ANd LOSS AdjuSTmeNT exPeNSeS

The Fund establishes loss reserves based primarily upon consultation with its actuary, Willis Risk Solutions North America. These loss reserves are based upon the accumulation of (i) case-based estimates for losses and expenses on claims reported and in process of settlement, (ii) estimates of additional reserves for reported claims based on statistical analyses, and (iii) estimates of losses and expenses incurred but not reported based on past experience. The estimates represent the ultimate cost of settling claims, including the effects of inflation and other societal and economic factors. Adjustments to these estimates are charged or credited to operations in the period they become known. Because the Fund was established September 1, 2001, it does not have adequate loss history to support actuarial calculations of the claim and loss adjustment expenses based only on its own loss history. Industry loss information was used to supplement the Fund’s actual loss experience. Such industry information does not consider constitutional immunity provided to Texas school districts from certain types of claims, such as automobile and general liability. Because of the preceding and due to the nature of risks underwritten, such estimates of reserves could be more or less than the amount ultimately paid upon settlement of the claims.

TAPS20 NOTES TO fiNaNCial STaTEMENTS

Changes in liabilities for losses and loss adjustment expenses for the years ended August 31, 2011 and 2010 are as follows:

2011 2010

Direct balance at beginning of year $ 6,212,530 $ 10,947,053 Less reinsurance recoverables (1,517,037) (6,272,663) Net balance at beginning of year 4,695,493 4,674,390

Net incurred related to: Current year 5,861,764 6,009,384 Prior years (430,239) 44,340 Total incurred 5,431,525 6,053,724 Net paid related to: Current year 2,723,439 3,123,241 Prior years 2,063,174 2,909,380 Total paid 4,786,613 6,032,621

Direct balance at end of year 10,416,899 6,212,530 Less reinsurance recoverables (5,076,494) (1,517,037) Net balance at end of year $ 5,340,405 $ 4,695,493

The estimated cost of loss and loss adjustment expenses (LAE) attributable to insured events of prioryearsdecreasedbyapproximately$430,000during2011andincreasedbyapproximately$44,000during2010.Variancesofthisnatureoccurastheresultofclaimsettlementsduringthecurrent year and as additional information is received regarding individual claims, causing changes from the original estimates of the cost of these claims. Recent loss development trends are also taken into account in evaluating the overall adequacy of unpaid losses and LAE. Large increases in direct balances as of August 31, 2011 as well as reinsurance recoveries resulting from a large claim which was settled subsequent to the current year end and was primarily covered by reinsurance.

6. CONCeNTrATIONS OF rISKS

The Fund’s insured risks are located throughout Texas. Accordingly, its revenues, receivables and insured risks are concentrated with its members described in Note 1(a) throughout Texas.

7. CONTIGeNCIeS

In the normal course of business, the Fund becomes involved in various insurance related claims and legal actions. Management of the Fund establishes estimated liabilities for reported and unreported contingencies. Management believes that the outcome of claims and any related legal proceedings will be provided for by the estimated insurance liabilities and will not have a material adverse effect on the Fund’s financial position or results of operations.

8. SubSequeNT eveNTS

The Fund has evaluated subsequent events through November 10, 2011 the date the financial statements were available to be issued, and determined that no additional disclosures are necessary. No subsequent events occurring after this date have been evaluated for inclusion in these financial statements.

21TAPS NOTES TO fiNaNCial STaTEMENTS

The table below illustrates the Fund’s earned normal premium (ENP) and investment income compared to related costs and claims expense (net of loss assumed by reinsurers) incurred by the Fund as of August 31, 2011 and as of August 31 each of the last nine years.

See accompanying independent auditors’ report.

2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

ENP and investment income

$16,040,050 $15,029,033 $14,361,505 $11,955,800 $12,477,716 $12,250,028 $13,904,957 $17,103,547 $17,736,957 $5,399,593

Operating costs unallocated

4,296,623 3,983,542 4,047,222 3,302,626 3,338,938 3,385,877 3,773,755 4,160,770 4,107,823 1,217,091

Estimated incurred claims and claims expense, end of policy year 5,861,764 6,009,384 6,172,309 4,648,696 4,184,766 4,156,657 2,905,708 3,783,936 3,409,092 2,021,256

Paid (cumulative) as of: End of policy year 2,723,439 3,123,241 2,771,104 1,888,087 1,253,188 1,989,365 992,552 1,513,414 1,812,867 696,396

One year later 4,325,046 4,529,999 3,115,262 2,569,297 2,976,658 1,605,691 2,792,901 2,586,212 1,016,811

Two years later 35,163,432 3,292,282 3,095,989 3,398,642 2,092,435 3,319,471 3,953,969 1,550,248

Three years later 3,433,426 3,411,512 3,631,988 2,269,851 3,470,950 3,739,307 1,804,852

Four years later 3,474,586 3,751,341 2,445,645 3,470,545 3,943,090 1,886,388

Five years later 3,753,320 2,452,898 3,470,722 3,943,693 1,886,388

Six years later 3,479,826 3,470,722 3,923,009 1,886,388

Seven years later 3,471,106 3,922,009 1,734,039

Eight years later 3,879,470 1,739,292

Nine years later 1,715,163

Re-estimated incurred claims and claims expense: End of policy year 5,861,764 6,009,384 6,172,309 4,648,696 4,184,766 4,156,657 2,905,708 3,783,936 3,409,092 2,021,256

One year later 5,671,228 5,465,143 4,239,207 3,729,245 4,010,188 2,558,219 3,483,734 3,440,582 1,617,548

Two years later 5,770,820 3,861,391 3,489,075 3,835,789 2,453,049 3,473,175 4,107,053 1,756,394

Three years later 3,588,193 3,685,350 3,695,232 2,370,067 3,470,950 3,739,307 2,025,234

Four years later 3,585,873 3,847,811 2,445,645 3,470,545 3,943,090 1,886,388

Five years later 3,836,671 2,521,352 3,470,722 3,943,693 1,886,388

Six years later 2,479,826 3,470,722 3,923,009 1,886,388

Seven years later 3,472,106 3,922,009 1,734,039

Eight years later 3,879,470 1,739,292

Nine years later 1,715,163 Increase (decrease) in estimated incurred claims and expense from end of policy year

–

(338,156)

(401,489)

(1,060,503)

(598,893)

(319,986)

(425,882)

(311,830)

470,378

306,093

TAPS22 SChEdulE Of ClaiMS dEVElOPMENT iNfOrMaTiONauGuST 31, 2011

A Professional Accounting Corporation

www.pncpa.com

8550 United Plaza Blvd, Suite 1001 Baton Rouge, LA 70809 Tel: 225-.922.4600 Fax: 225.922.4611

Board of TrusteesTexas Association of Public Schools Property and Liability FundSan Antonio, Texas

We have audited the financial statements of the Texas Association of Public Schools Property and Liability Fund (the Fund), as of and for the year ended August 31, 2011, and have issued our report thereon dated November 10, 2011. We have 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 Fund’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Fund’s internal control over financial reporting.

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

Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, 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.

A Professional Accounting Corporation

www.pncpa.com

8550 United Plaza Blvd, Suite 1001 Baton Rouge, LA 70809 Tel: 225-.922.4600 Fax: 225.922.4611

23TAPS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ONCOMPLIANCE AND OTHER MATTERS BASED ON

AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

A Professional Accounting Corporation

www.pncpa.com

8550 United Plaza Blvd, Suite 1001 Baton Rouge, LA 70809 Tel: 225-.922.4600 Fax: 225.922.4611

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Fund’s financial statements are free of material misstatement, we performed 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 compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

This report is intended solely for the information and use of the Board of Trustees and management of the Fund and is not intended to be and should not be used by anyone other than these specified parties.

Baton Rouge, LouisianaNovember 10, 2011

TAPS24 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ONCOMPLIANCE AND OTHER MATTERS BASED ON

AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS