1 How to Pay for College ©2014 Legg Mason Investor Services, LLC, a Legg Mason Inc. Subsidiary. Member FINRA, SIPC What You Need to Know About Savings & Federal Student Aid

2 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Challenge

3 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID  The cost of college continues to climb  More and more parents can’t save the entire amount Challenge 1 College Savings Plan Network 529 Report, March Trends in College Pricing 2013 College Board. See Disclosure page 39 for additional details.

4 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Solution

5 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Solution

6 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Solution: What You Need to Know 1.How do we set a college funding goal?

7 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Put our five-step savings plan in place: 1. Determine the cost of college 2. Identify your savings profile 3. Set your savings goal (may be less than total cost) 4. Choose a savings vehicle 5. Establish a savings schedule Visit scholars-choice.com to download our How to Save Guide, Five Steps to Successful Savings.scholars-choice.com 1. How do we set a college funding goal?

8 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 2.What advantages do 529 College Savings Plans offer? Solution: What You Need to Know

9 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID  529s offer three primary advantages: 1. Tax benefits 2. Professional money management 3. Control by account owner  To remember them easily, think “The Preferred Choice”  Visit scholars-choice.com to download our Product Overview brochure, Explore.scholars-choice.com 2. What advantages do 529 plans offer?

10 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 3.If we can’t save the entire cost of college, what sources of federal student aid are available? Solution: What You Need to Know

11 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID  Available at no cost to students:  Scholarships  Grants  Work-study  Comes at a price:  Student loans (federal and private) For links to student aid resources, please see page What sources of federal student aid are available?

12 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 4.How do we apply for federal aid? Do we complete the FAFSA SM ? Solution: What You Need to Know

13 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID  Completing the “Free Application for Federal Student Aid” form (“FAFSA”) is the first step:  Most college students and families are expected to contribute  How much, depends upon the Expected Family Contribution = EFC  FAFSA looks at assets, income, other information to determine EFC  Fastest and easiest way to apply is online at FAFSA on the Web SM  How do we apply for federal aid? Do we complete the FAFSA?

14 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 5.How is information on the FAFSA used? Solution: What You Need to Know

15 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID  Expected Family Contribution (EFC) is the number used to calculate how much aid a student is eligible for  Difference between cost of attendance (COA) and EFC = financial need  Most colleges use FAFSA to determine eligibility for  Federal, state, college-sponsored financial aid  Including grants, work-study, student loans  Some colleges require FAFSA to determine scholarship eligibility 5. How is information on the FAFSA used?

16 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 6.What are the most important factors in calculating the EFC? Solution: What You Need to Know

17 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Summary  Assets & Income Source of data: savingforcollege.com  Additional considerations  How many children in the family?  How many children in college? 6. What are the most important factors in calculating the EFC? OwnerAssets 3 Income 4 Student20%50% ParentsUp to 5.6%22% - 47% 3 Total current balance of cash, savings and checking accounts; net worth of investments, including real estate, excluding the home in which parents and student live; net worth of parent and student current businesses and/or investment farms, excluding family farms or businesses with 100 or fewer full-time or full-time equivalent employees. Net worth means current value minus debt. Source: FAFSA 7/1/14 - 6/30/15. 4 Income includes the adjusted gross income from the parents‘ and students’ Forms 1040 along with certain other items representing untaxed income and benefits, e.g., untaxed portions of IRA distributions and veterans non-education benefits, such as disability. Source: FAFSA 7/1/14 - 6/30/15.

18 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 7.How, exactly, are 529 plan assets and distributions counted in the EFC? Solution: What You Need to Know

19 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Summary  529 plan owned by a parent treated as parental assets  Distributions from a parent-owned plan are considered income  Third-party-owned plans, e.g., grandparents, are treated differently 7. How, exactly, are 529 plan assets and distributions counted in the EFC? Owner Assets 3 Income 4 ParentUp to 5.6%0% Third Party0%50% 3 Total current balance of cash, savings and checking accounts; net worth of investments, including real estate, excluding the home in which parents and student live; net worth of parent and student current businesses and/or investment farms, excluding family farms or businesses with 100 or fewer full-time or full-time equivalent employees. Net worth means current value minus debt. Source: FAFSA 7/1/14 - 6/30/15. 4 Income includes the adjusted gross income from the parents‘ and students’ Forms 1040 along with certain other items representing untaxed income and benefits, e.g., untaxed portions of IRA distributions and veterans non-education benefits, such as disability. Source: FAFSA 7/1/14 - 6/30/15. Source of data: savingforcollege.com

20 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 8.Is it true that it’s better to use a Roth IRA to save for college because it doesn’t affect the EFC calculation on the FAFSA? Solution: What You Need to Know

21 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID  Not necessarily  The value of a Roth IRA is not reported as assets on the FAFSA  However, tax-free distributions must be reported as untaxed income  Appears on following year’s FAFSA  Will be counted % in the following year’s EFC calculation 8. Is it true that it’s better to use a Roth IRA to save for college?

22 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 9.When do we need to submit the FAFSA? Solution: What You Need to Know

23 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID  As soon as possible after January 1 of the academic school year the student will be starting college; no later than June 30 of same school year  For , the FAFSA may be submitted as early as January 2, 2014, but no later than June 30, 2015  Many types of student aid are awarded first come-first serve  State and college deadlines may vary Visit 9. When do we need to submit the FAFSA?

24 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 10.What happens after we submit the FAFSA? Solution: What You Need to Know

25 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID  Student Aid Report will be sent in three days to three weeks after FAFSA submitted  Summarizes FAFSA data  Does not indicate how much financial aid will be provided  If student has been accepted at school listed on FAFSA, school will calculate aid student will receive and send separate award letter  Timing of award letters varies by school  As early as spring; as late as immediately before start of school  Depends on when student applies and school scheduling of awards 10. What happens after we submit the FAFSA?

26 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 11.Is the FAFSA hard to fill out? Solution: What You Need to Know

27 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 11. Is the FAFSA hard to fill out?  Form has >100 questions, but is not hard to fill out  Easiest to complete online:  Use IRS Data Retrieval tool to transfer your tax return information  If paper FAFSA is being completed, help available from…  High School Counselor  Financial Aid Office of school student plans to attend  Federal Student Aid Office: FED-AID

28 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 12.We make too much money. Why bother filling out the FAFSA? Solution: What You Need to Know

29 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID  No income cutoff to qualify for student aid  Many factors considered  Family size  Age of older parent  Eligibility determined by formula, not by parent income alone  Automatically includes application for state and possibly school funds  Some schools won’t consider scholarship awards without FAFSA  Don’t make assumptions. Complete the form! 12. We make too much money. Why bother filling out the FAFSA?

30 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID 13.College is years away. Can we estimate how much federal financial student aid our child may qualify for without filling out the FAFSA? Solution: What You Need to Know

31 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID  Parents not ready to apply for federal student aid but who are seeking an estimate can use a free financial aid calculator: FAFSA4caster  It provides an early estimate of eligibility  The calculator is offered at the website of Federal Student Aid, an office of The U.S. Department of Education Can we estimate federal student aid our children may qualify for without filling out the FAFSA ?

32 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Get the Fundamentals of Funding

33 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Get the Fundamentals of Funding 1.Read our new brochure 2.Ask us questions 3.Know Scholars Choice ® is a top-ranked plan 5 Ranked #4, #1, #1, #8 for the 1-, 3-, 5-, 10-year periods respectively, by Savingforcollege.com as of June 30, 2014; See page 38 for ranking methodology.

34 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Why Scholars Choice? 1. A leading plan  One of the largest advisor-sold plans nationwide  Top-ranked by savingforcollege.com 2. Portfolio management expertise  QS Legg Mason Global Asset Allocation  Disciplined. Thoughtful. Experienced. 3.Multi-manager portfolios  ClearBridge, Western Asset, QS Batterymarch, Brandywine, Royce  Thornburg* *Thornburg is not an affiliate of Legg Mason.

35 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Why Scholars Choice? 4.Broad range of portfolio options  Age-based or static allocations  Individual portfolio options  Cash Reserve portfolio 5. Competitive pricing structure  Unit Class A sales charge = 3.5%  Unit Class C = no up-front sales charge or back-end CDSC An investment in the Cash Reserve Portfolio is not a bank deposit and is not insured or guaranteed by the FDIC or any other governmental agency. There is no assurance that the Cash Reserve Portfolio will be able to maintain the value of its units at $1 per unit. It is possible to lose money by investing in this option. The Cash Reserve Portfolio will not seek capital appreciation and may underperform other investment options. While the Cash Reserve Portfolio will invest all of its assets in a money market mutual fund and will value its units based on the underlying money market fund share value, the Cash Reserve Portfolio itself is not a money market mutual fund.

36 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Resources Student Aid Primary Sources  Scholarships  Private database of > 2,700,000 scholarship opportunities  U.S. Dept. of Labor database of >5,000 scholarship opportunities  Grants   Also see the two websites listed under the scholarships  Work-Study 

37 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Student Aid Primary Sources  Federal student loans   Perkins Loan 6 : (up to $5,550 for undergraduates; up to $8,000 for graduates)  Direct Subsidized Stafford Loan 6 : $3,500 - $5,500 (undergraduates only)  Direct Unsubsidized Stafford Loan 6 : $5,500 - $20,500 (undergraduates and graduates)  Direct Plus Loan: Student’s Cost of Attendance (COA) minus any other financial aid (for parent of dependent undergraduate students and for graduate or professional students)  Private student loans  If student does not have sufficient funds  Consult with school’s Financial Aid Office or parent’s bank Resources 6 As of July 2014

38 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Disclosure Savingforcollege.com — an independent informational website owned by Saving for College, LLC — is generally regarded by industry professionals as one of the leading experts on college savings. Scholars Choice is managed by Legg Mason’s independent investment firm, QS Legg Mason Global Asset Allocation, and distributed by Legg Mason Investor Services, for the State of Colorado. All Savingforcollege.com rankings are as of June 30, 2014, and are based on the universe of 30 advisor-sold plans for Class A share performance (including maximum sales charges). The portfolios within the plans are compared and ranked based on published investment returns. The plan's composite ranking is determined by the average of its percentile ranking. The ranking is based on short and long-term performance (i.e., rolling 1-, 3-, 5- and 10-year periods). The program ranked 4, 1, 1 and 8 for the quarterly rolling 1-, 3-, 5- and 10-year periods, respectively. Past performance is no guarantee of future results. The performance and rankings discussed are inherently limited and are not indicative of longer-term performance. Current performance may be lower or higher than performance results used for these rankings, resulting in different rankings that may be lower than those shown. Market volatility, interest-rate changes and economic events, among other factors, can affect an investment's short-term returns. Ranking Methodology Savingforcollege.com derives the rankings using each plan’s relevant portfolio performance in seven unique asset allocation categories: 100% Equity, 80% Equity, 60% Equity, 40% Equity, 20% Equity, 100% Fixed and 100% Short Term. The plan’s composite ranking is determined by the average of its percentile ranking in these categories. Within each category, portfolios are compared and ranked based on published investment returns. Separate rankings are produced for one-, three-, five-, and ten-year periods. In addition, two versions of rankings for each performance period are produced: one based on performance without sales charges and the other based on performance with maximum sales charges. Please visit savingforcollege.com for more information about the ranking. Additional unit classes may exist for each plan ranked. Please refer to each plan’s program disclosure statement for more information regarding its performance, fees and expenses. For Scholars Choice’s program disclosure statement, please visit scholars-choice.com.

39 HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID Disclosure An investor should consider the Program’s investment objectives, risks, charges and expenses before investing. The Program Disclosure Statement at scholars-choice.com, which contains more information, should be read carefully before investing. If an investor and/or an investor’s beneficiary are not Colorado taxpayers, they should consider before investing whether their home states offer 529 plans that provide state tax and other benefits only available to state taxpayers investing in such plans. Investments in the Scholars Choice College Savings Program are not insured by the FDIC or any other government agency and are not deposits or other obligations of any depository institution. Investments are not guaranteed by the State of Colorado, CollegeInvest, QS Legg Mason Global Asset Allocation, LLC, Legg Mason Investor Services, LLC, or Legg Mason, Inc. or its affiliates and are subject to investment risks, including loss of principal amount invested. Legg Mason, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Scholars Choice is a registered service mark of CollegeInvest. CollegeInvest and the CollegeInvest logo are registered trademarks. Administered and issued by CollegeInvest, State of Colorado. QS Legg Mason Global Asset Allocation, LLC is the Investment Manager and Legg Mason Investor Services, LLC is the primary distributor of interests in the Program; together they serve as Manager of the Program. QS Legg Mason Global Asset Allocation, LLC, ClearBridge Investments, LLC, Brandywine Global Investment Management, LLC, QS Batterymarch Financial Management, Inc., Royce & Associates, LLC, Western Asset Management Company and Western Asset Management Company Limited, and Legg Mason Investor Services, LLC are Legg Mason, Inc. affiliates. Thornburg Investment Management, Inc. is not affiliated with Legg Mason Inc. and its affiliates. QS Legg Mason Global Asset Allocation (QS LMGAA) is part of the combined QS Investors investment platform, which is comprised of QS Investors, LLC, QS Batterymarch Financial Management, Inc. and QS LMGAA. 2 Trends in College Pricing 2013, College Board: Average published tuition and fees ($8,893) + room and board charges ($9,498) for in-state students at public four-year institutions in is $18,391. The average annual real rate of increase in in-state tuition and fees at public four-year colleges and universities for to was 4.2%. The same percentage increase is assumed for room and board. The total cost through is $78,329 ($18,391 + $19,163 + $19,968 + $20,807). Average published tuition and fees ($30,094) + room and board ($10,823) at private nonprofit four-year institutions in is $40,917. The average annual real rate of increase in tuition at private nonprofit four-year institutions was 2.3% for to The same percentage increase is assumed for room and board. The total cost through is $169,402 ($40,917 + $41, $42,821 + $43,806). scholars-choice.com ©2014 Legg Mason Investor Services, LLC, a Legg Mason Inc subsidiary. Member FINRA, SIPC 10/14 FN