ESBD_File_319471_Combined ISPs.pdf

Texas Prepaid Higher Education Tuition Board

LoneStar 529 Plan® Investment Policy

Adopted August 17, 2021

LoneStar 529 Plan Investment Policy Statement

TABLE OF CONTENTS

I. ROLES AND RESPONSIBILITIES

II. PURPOSE

III. OBJECTIVE

IV. INVESTMENT GUIDELINES

V. INVESTMENT SELECTION CRITERIA

VI. EVALUATION AND REVIEW

VII. OTHER CONSIDERATIONS

APPENDIX l: INVESTMENT PORTFOLIOS

APPENDIX II: REPORTING REQUIREMENTS

APPENDIX III: FEES

APPENDIX IV: UNIT CLASSES

I. ROLES AND RESPONSIBILITIES

A. Definitions

1. Account Owner: “Account Owner” means an individual or entity establishing an account or any successor to such individual or entity.

2. Beneficiary: “Beneficiary” means an individual designated as the individual whose qualified higher education expenses are expected to be paid from the Savings Trust Account.

3. Board: “Board” refers to the Texas Prepaid Higher Education Tuition Board.

4. Investment Consultant: “Investment Consultant” refers to the individuals or firms, including key personnel of firms, who are contractually retained by the Board to provide investment advice to the Board but do not exercise investment discretion. The Investment Consultant serves as a fiduciary to the Board.

5. Plan: The “Plan” refers to the higher education savings plans established under Texas Education Code, Chapter 54, Subchapter G.

6. Plan Manager: “Plan Manager” means a financial institution under contract with the Board to serve as the Plan’s Plan Manager as contemplated by Texas Education Code Section 54.704 and to invest the assets of the Plan on behalf of, and at the direction of, the Board.

7. Plan Manager Agreement: “Plan Manager Agreement” means the agreement established from time to time between the Board and the Plan Manager pursuant to Texas Education Code Section 54.704(a).

8. Portfolio: “Portfolio” means from time to time any of the investment options offered by the Plan to Account Owners at that time. Each Portfolio may consist of one or more Underlying Investments.

9. Savings Trust Account: "Savings Trust Account" means an account established in the Plan by an individual under Texas Education Code Section 54.707 on behalf of a Beneficiary in order to apply distributions from the account toward qualified higher education expenses at eligible educational institutions.

10. Underlying Investments: “Underlying Investments” means one or more mutual funds or other investment vehicles in which the assets of the Plan are invested.

B. Investment Authority and Investment Standard

1. Money contributed to a Savings Trust Account and earnings on the account are held in trust by the Board for the sole benefit of the Account Owner and Beneficiary. The Board shall contract with one or more financial institutions to serve as Plan Manager and to invest the money in Savings Trust Accounts. Texas Education Code Section 54.704(a) requires that investments shall be made by the Plan Manager with the judgment and care that persons of prudence, discretion, and intelligence exercise in the management of the property of another, not in regard to speculation but in regard to the permanent disposition of funds, considering the probable income as well as the probable safety of capital.

2. In accordance with this standard and as provided in this investment policy, the Board, with the advice of the Investment Consultant, will establish a number of alternative Portfolios from which an Account Owner may choose, determine the allocation of each Portfolio among different investment asset classes, select specific Underlying Investments for inclusion in each Portfolio in accordance with its asset allocation, and change such decisions as circumstances warrant from time to time. In performing these functions, the Board will exercise the judgment and care required by Texas Education Code Section 54.704(a).

3. The Plan Manager will invest the money in Savings Trust Accounts in a manner that is at all times consistent with the selection of Portfolios made by each Account Owner for the investment of the funds in his/her Savings Trust Account or is otherwise authorized by the terms of the Savings Trust Agreement.

C. Investment Related Responsibilities

1. Texas Prepaid Higher Education Tuition Board Responsibilities

The Board will be responsible for the following:

a) The Board shall maintain the status of the Plan as a qualified tuition program as described under Section 529 of the Internal Revenue Code of 1986.

b) The Board shall contract with one or more financial institutions to serve as Plan Manager and to invest the money in Savings Trust Accounts in accordance with selections made by Account Owners from Portfolios maintained by the Board as provided in this Policy Statement.

c) The Board shall ensure that investments by a Plan Manager are made as contemplated by the Plan Manager Agreement and this

Policy Statement with the judgment and care that persons of prudence, discretion, and intelligence exercise in the management of the property of another, not in regard to speculation but in regard to the permanent disposition of funds, considering the probable income as well as the probable safety of capital.

d) The Board is responsible for the selection and replacement of the Plan Manager.

e) With the assistance of the Investment Consultant, the Board is responsible for:

(i) the establishment of Portfolios from which an Account Owner may choose,

(ii) the allocation of each Portfolio among different investment asset classes,

(iii) the selection of specific Underlying Investments to comprise each Portfolio in accordance with its asset allocation, and

(iv) changes to the foregoing when appropriate.

f) The Board shall develop sound and consistent Investment Guidelines as set out in Part IV, revising the Investment Guidelines to reflect changing conditions within the markets or the Plan, or refining the Investment Guidelines in order to make them more effective.

g) The Board shall establish the primary duties and responsibilities of the Plan Manager and any others accountable for achieving investment results consistent with Texas Education Code Section 54.705.

h) The Board shall provide guidelines regarding the voting of proxies of investment securities owned by the Plan.

i) The Board shall take appropriate action, including termination, against the Plan Manager, the Investment Consultant, or other consultants for failing to perform according to stated expectations or to abide by this Policy Statement, applicable law, or (as applicable) the Plan Manager Agreement or the consulting agreement.

j) The Board shall review the investment strategy and accomplishment of investment objectives on a periodic basis.

2. Investment Consultant Responsibilities

The Investment Consultant will be responsible for the following:

a) On an annual basis, Investment Consultant shall perform a review of the number and types of Portfolios offered to Account Owners in the Plan and make recommendations to the Board and Comptroller for changes, when necessary;

b) On an annual basis, Investment Consultant shall perform a review of the asset allocations underlying the age-based Portfolios and other multi-asset class Portfolios and make recommendations for change, when necessary;

c) On an annual basis, Investment Consultant shall provide the Board with an assessment of each of the Underlying Investments included in the Portfolios offered in the Plan. Investment Consultant’s independent analysis shall highlight the likelihood of each Underlying Investment meeting its performance objective, as well as provide detail on the risks inherent in each of the Underlying Investments;

d) On an ongoing basis, Investment Consultant shall monitor and provide ongoing due diligence on each of the Underlying Investments offered in the Plan. Investment Consultant shall evaluate any changes to the investment management of the Underlying Investments, changes to the investment philosophy and process used, any changes to the organizations managing the Underlying Investments, and any abnormal investment performance experienced. Based upon this diligence, if Investment Consultant believes a change in an Underlying Investment needs to take place, Investment Consultant shall recommend such to the Board;

e) As needed, Investment Consultant shall recommend how the Comptroller’s staff should vote proxies in the best interest of the Plan.

f) Investment Consultant shall provide the Board with a recommended replacement Underlying Investment for the Plan if deemed necessary; and,

g) On a quarterly basis, Investment Consultant shall provide detailed performance reporting on each of the Underlying Investments offered in the Plan. Investment Consultant’s analysis shall include performance versus benchmarks, as well as performance relative to peer universes.

3. Plan Manager Responsibilities

a) Pursuant to Texas Education Code, Section 54.705, a Plan Manager shall:

i) take all actions required to keep the Plan in compliance with Texas Education Code Subchapter G, to ensure that the Plan qualifies as a qualified state tuition program under Section 529, Internal Revenue Code of 1986, as amended, and to ensure that the Plan is exempt from registration under federal securities law;

ii) keep adequate and separate records of each Savings Trust Account and provide the Board with the information necessary to prepare the reports required by Section 529, Internal Revenue Code of 1986, as amended, or to file those reports on behalf of the Board;

iii) compile necessary information for statements to Account Owners and statements required by federal or state tax law and provide those compilations to the Board;

iv) provide representatives of the Board with access to the books and records of the Plan Manager and its subcontractors as necessary to determine compliance with the Plan Manager Agreement; and

v) hold all Savings Trust Accounts in trust as authorized by the Board in the Plan Manager Agreement. A Plan Manager shall make investments with the judgment and care that persons of prudence, discretion, and intelligence exercise in the management of the property of another, not in regard to speculation but in regard to the permanent disposition of funds, considering the probable income as well as the probable safety of capital.

b) The Plan Manager shall provide information, as allowed by applicable law, to the Investment Consultant upon the Investment Consultant’s request. If the Plan Manager is aware of a violation of this Policy Statement, the Plan Manager shall notify the Investment Consultant and Board as promptly as allowed by applicable law.

II. PURPOSE

A. This Policy Statement is issued for the guidance of fiduciaries acting on behalf of the Board, in the course of investing the assets of Account Owners in the LoneStar 529 Plan®.

The Board will make all decisions regarding the establishment of Portfolios, the asset allocation within each Portfolio, and the selection of Underlying Investments held by each Portfolio. Account Owners will choose the Portfolios in which they invest from the Portfolios offered by the Plan. It is the policy of the Board to offer investment choices to Account Owners that are broad enough to allow for prudent diversification to be achieved by Account Owners as well as providing investments that allow for multiple investment strategies to be pursued by the Plan’s Account Owners. The Board’s intent is to provide Account Owners with prudent Portfolio choices with reasonable expense levels.

B. This document is intended to serve as a reference tool, an operating standard, and a communications link between the Board and its:

1. staff;

2. Plan Managers;

and

3. Investment Consultant and other professional advisers.

C. This document conveys guidelines for action and is a general framework for managing the investments of the Plan but does not constitute an agreement among the parties for specific investment performance results.

III. OBJECTIVE

A. The Plan was established to offer a program of tax-advantaged savings trust agreements from which distributions will be made for qualified higher education expenses at eligible educational institutions as provided in Internal Revenue Code, Section 529 and other applicable law.

B. The Board shall administer the Plan to enable individuals to save money for the qualified higher education expenses of an individual by establishing a Savings Trust Account in the Plan.

C. The primary goal of the program is to provide Account Owners with investment options that:

1. Meet the various educational saving needs of Account Owners and Plan Beneficiaries;

2. Encompass a range of expected risk and expected return opportunities;

3. Allow for a rate of return commensurate with an appropriate level of risk;

and

4. Are appropriate for college savings.

D. The Plan’s Account Owners and Beneficiaries are expected to have different time horizons and risk tolerances. To meet these varying investment needs, Account Owners will be able to direct their account balances among a range of diversified Portfolio options that reasonably span the expected risk / expected return spectrum.

E. The Board offers an advisor-sold version of the Plan (LoneStar 529 Plan®) for those investors who prefer the professional guidance of an investment advisor to help select appropriate Portfolios and a direct-sold version of the Plan (Texas College Savings Plan) for those investors who prefer to make their own decisions about the selection of the appropriate Portfolios.

F. Account Owners and Beneficiaries alone bear the risk of the investment results from the Portfolios that they select.

IV. INVESTMENT GUIDELINES

A. Commingled and/or mutual fund managers of the Underlying Investments are granted discretion regarding asset allocation, the selection of securities, and the timing of transactions assuming such investments are permitted in each respective fund’s prospectus or other offering documents.

B. Proxy Voting

1. The exercise of ownership rights with respect to securities held by Underlying Investments shall rest solely with the commingled and/or mutual fund manager, which is expected to vote proxies in accordance with its Proxy Voting Guidelines.

2. The exercise of ownership rights with respect to Underlying Investments shall rest solely with the Board. The Board delegates to the staff the responsibility for voting proxies as a shareholder of the Underlying Investment vehicle. The staff will vote proxies based upon the recommendation of the Investment Consultant. The Investment Consultant shall consider the best interest of the Plan in making any recommendation to the staff for a proxy vote. The Investment Consultant shall report quarterly to the Board on any proxy votes made on behalf of the Board.

C. Commingled and/or Mutual Funds

1. The Board may select Underlying Investments such as commingled funds and/or mutual funds to take advantage of the benefits of such types of Underlying Investments, e.g., the ability to diversify more extensively than in a small, direct investment account and the lower costs which can be associated with these funds.

2. The Board recognizes that it may not be permitted to give specific policy directives to a commingled fund and/or mutual fund whose policies are already established by a board of directors/trustees or a general partner;

therefore, the Investment Consultant must assess and monitor the investment policies of such Underlying Investments to ascertain whether they are appropriate and consistent with this Policy Statement and promptly report to the Board any observed variance of the actual policies or practices of such Underlying Investments from the requirements and limitations of this Policy Statement.

D. Avoidance of Unrelated Business Taxable Income and Tax Penalties

1. The Plan is subject to federal tax on its unrelated business taxable income, if any, and it is the policy of the Board to generally avoid the imposition of such tax by avoiding investments and transactions that are reasonably likely to create unrelated business taxable income as defined in Section 512 of the Internal Revenue Code of 1986 (UBTI). Additionally, it is the policy of the Board to avoid the imposition of penalties and related reporting requirements under the Internal Revenue Code, including Section 4965 thereof.

Accordingly, all investments of Plan assets are subject to the following requirements and limitations as qualified by D.2. below:

a) The Investment Consultant shall competently evaluate the likelihood that an Underlying Investment will create UBTI.

b) If the Investment Consultant concludes that the Underlying Investment is reasonably likely to create UBTI, it will immediately notify the Board in writing of the relevant facts.

c) The Investment Consultant shall not knowingly allow any investment manager to make or hold any investment, without the specific approval of the Board or its designee that would generate UBTI to the Plan within the meaning of Internal Revenue Code section 511.

d) The Investment Consultant shall not knowingly allow any investment manager to make or hold any investment or transaction that would cause the Plan to become or be a “party” to a “prohibited tax shelter transaction” or to a “subsequently listed transaction”, as each such term is defined in Internal Revenue Code Section 4965 (excise tax).

e) The Investment Consultant shall not knowingly allow any investment manager to make or hold any investment or transaction by or on behalf of the Plan that would create for the Plan, its Custodian or affiliated organizations or Investment Consultant any obligation under section 6111 or 6112 of the Internal Revenue Code to file any report, make any disclosure, or maintain any records.

2. It is acknowledged that the terms and conditions of commingled funds and mutual funds typically do not permit investors in the fund to determine or control specific investment decisions within the fund and the provisions of D.1.c, D.1.d, and D.1.e above shall not require the Investment Consultant and investment managers to control or direct investments or transactions within commingled or mutual funds.

E. Derivatives Policy

1. The Plan may invest in Underlying Investments that use derivatives.

2. The Investment Consultant will monitor Underlying Investments to determine whether derivatives are used in a manner which would result in exposures that would not otherwise be allowed by this Policy Statement.

3. The Plan may include Underlying Investments whose investment managers use derivative securities for the following reasons:

a. Hedging. To the extent that the Underlying Investment is exposed to clearly defined risks and there are derivative contracts that can be used to reduce those risks, the investment manager is permitted to use such derivatives for hedging purposes, including cross-hedging of currency exposures.

b. Creation of Market Exposures. An investment manager is permitted to use derivatives to replicate the risk/return profile of an asset or asset class provided that the guidelines for the investment manager allow for such exposures to be created with the Underlying Investment itself.

4. The Plan may not include Underlying Investments whose investment managers use derivative securities for the following reasons:

a. Leverage. Derivatives shall not be used to magnify the Underlying Investment’s overall exposure to an asset, asset class, interest rate, or any other financial variable beyond that which would be allowed by an Underlying Investment’s guidelines if derivatives were not used. The Investment Consultant will monitor the gross assets to net assets ratio on an ex post facto basis, when such information is legally available and if the gross assets to net assets ratio for an Underlying Investment exceeds 110%, the Investment Consultant will bring this information to the attention of the Board and its staff in a timely manner.

b. Unrelated Speculation. Derivatives shall not be used to create exposures to securities, currencies, indices, or any other financial variable unless such exposures would be allowed by an Underlying Investment’s investment guidelines if created with non-derivative securities.

V. INVESTMENT SELECTION CRITERIA

A. The Board will select and replace Underlying Investments as necessary. The Board will rely on information provided by the Investment Consultant to help make these decisions.

B. In recommending Underlying Investments, the Investment Consultant will draw upon its experience and resources to assess the viability and appropriateness of the Underlying Investment’s strategy, the investment team and its processes, the risk controls in place, the strategy’s track record, and associated fees.

VI. EVALUATION AND REVIEW

A. The Board will review actual investment results achieved by the Plan’s Underlying Investments at least quarterly.

B. The Investment Consultant will review actual investment results achieved at least quarterly and determine when to recommend that a particular Underlying Investment be removed.

C. The Investment Consultant will designate an Underlying Investment under “watch” status or recommend replacement in the absence of one or more of the following, although the Investment Consultant’s recommendation will be solely based upon what it perceives to be in the best interest of the Plan’s Account Owners:

1. The performance results for each Underlying Investment are competitive relative to appropriate market indices and comparable universes of other funds;

2. The Underlying Investment satisfies the investment guidelines set forth herein;

3. The management of the Underlying Investment has remained stable from an organizational standpoint, including staffing, level of assets managed, etc.;

4. The Underlying Investment performed in a manner consistent with its stated approach;

5. The investment approach of the Underlying Investment continues to accurately reflect the Plan’s investment style for which it is intended; and

6. The Investment Consultant’s research shows that the Underlying Investment remains prudent on an ongoing basis.

D. These evaluations and reviews will have both a short- and medium/long-term component, where short-term generally means one year or less, and medium/long-term generally means one to five years. The performance objectives relate to the total return (income and capital appreciation) of the Plan.

The Investment Consultant shall report, as outlined in Appendix II, returns to the Board at least quarterly and shall be available to meet with the Board.

VII. OTHER CONSIDERATIONS

The Board shall have continued authority to adjust and modify this Policy Statement as needed. The Board agrees to provide reasonable time for the Investment Consultant and Plan Manager to implement such policy changes.

APPENDIX I

LoneStar 529 Plan

INVESTMENT PORTFOLIOS

List of current Underlying Investments and Benchmarks.

Current Underlying Investments Benchmark Ticker

Vanguard Total Stock Market Index CRSP U.S. Total Market Index VSMPX

Vanguard FTSE Social Index FTSE4Good US Select Index VFTAX

T Rowe Price Large Cap Growth Russell 1000 Growth Index TRLGX

Artisan Value Fund Russell 1000 Value Index APHLX

DFA US Small Cap Portfolio Russell 2000 Index DFSTX

Vanguard Total International Stock Market FTSE Global ex USA All Cap Index (Net) VTPSX

Dodge & Cox International stock MSCI All Country World ex-U.S. Index DODFX

BlackRock Advantage Emerging Markets MSCI Emerging Markets Index BLSKX

T. Rowe Price Global Growth Stock MSCI ACWI RGGIX

Dodge & Cox Global Stock MSCI ACWI DODWX

PIMCO International Bond Barclays Global Aggregate ex-USD PFORX

Vanguard Total Bond Market Index Barclays U.S. Aggregate Bond Index VBMPX

Vanguard Long-Term Treasury Index Barclays US Long Treasury Index VLGSX

Baird Short-Term Bond Barclays U.S. Aggregate 1-3 year Index BSBIX

PIMCO Total Return Barclays U.S. Aggregate Bond Index PTTRX

Federated Hermes Institutional High Yield Barclays US Corporate High Yield 2% Issuer

Capped Index

FIHBX

Eaton Vance Institutional Senior Loan Fund Credit Suisse Leveraged Loans EIBLX

DFA Inflation-Protected Securities Barclays U.S. TIPS Index DIPSX

PIMCO Commodity Real Return Bloomberg Commodity Index Total Return PCRIX

Vanguard Real Estate Index MSCI US IM Real Estate 25/50 Index VGSNX

NY Life Guaranteed Interest Account 90 Day U.S. Treasury Bill N/A

Benchmarks and Target Asset Allocation for Investment Portfolios

*Blended benchmark consists of a weighted average of the benchmarks of the Underlying Investments.

**Target Date Portfolios de-risk every 6-months in-line with the schedule approved by the Board, the Target Date

Portfolio allocations above represent the target asset allocation at the point in time described.

Benchmark* U.S.

Equity Non U.S.

Equity Global Stock

Core Fixed

Income TIPs

High Yield

Bank Loans

REITs Cash Total

Target Date Portfolio 18 Years Before Enrollment**

Blended 37.95% 14.54% 28.26% 5.00% 0.00% 3.80% 3.80% 6.65% 0.00% 100.00%

Target Date Portfolio 16 Years Before Enrollment**

Blended 37.95% 14.54% 28.26% 5.00% 0.00% 3.80% 3.80% 6.65% 0.00% 100.00%

Target Date Portfolio 14 Years Before Enrollment**

Blended 37.31% 14.28% 27.76% 6.66% 0.00% 3.73% 3.73% 6.53% 0.00% 100.00%

Target Date Portfolio 12 Years Before Enrollment**

Blended 35.95% 13.77% 26.78% 10.00% 0.00% 3.60% 3.60% 6.30% 0.00% 100.00%

Target Date Portfolio 10 Years Before Enrollment**

Blended 30.64% 11.73% 22.80% 18.14% 5.18% 3.07% 3.07% 5.37% 0.00% 100.00%

Target Date Portfolio 8 Years Before Enrollment**

Blended 25.31% 9.69% 18.84% 23.68% 12.99% 2.53% 2.53% 4.43% 0.00% 100.00%

Target Date Portfolio 6 Years Before Enrollment**

Blended 19.98% 7.65% 14.88% 30.84% 19.15% 2.00% 2.00% 3.50% 0.00% 100.00%

Target Date Portfolio 4 Years Before Enrollment**

Blended 14.65% 5.61% 10.90% 38.00% 25.33% 1.47% 1.47% 2.57% 0.00% 100.00%

Target Date Portfolio 2 Years Before Enrollment**

Blended 9.33% 3.57% 6.94% 42.16% 28.12% 0.93% 0.93% 1.63% 6.39% 100.00%

Target Date Portfolio in Enrollment **

Blended 3.99% 1.53% 2.98% 45.00% 30.00% 0.40% 0.40% 0.70% 15.00% 100.00%

Balanced Allocation Portfolio Blended 27.72% 10.62% 20.66% 20.00% 10.00% 3.00% 3.00% 5.00% 0.00% 100.00%

Conservative Allocation Portfolio Blended 9.86% 3.78% 7.36% 41.00% 28.00% 1.00% 1.00% 2.00% 6.00% 100.00%

Aggressive Allocation Portfolio Blended 33.84% 12.96% 25.20% 14.00% 1.00% 3.50% 3.50% 6.00% 0.00% 100.00%

Inflation Protection Fund Portfolio Barclays U.S. TIPS Index -- -- -- -- -- -- -- -- -- --

Passive Bond Fund Portfolio Barclays U.S. Aggregate

Bond Index

Diversified Equity Portfolio Blended 47.00% 18.00% 35.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00%

US Total Stock Market Fund Portfolio

CRSP U.S. Total Market Index

Socially Responsible Fund Portfolio

FTSE4Good US Select Index

US Value Fund Portfolio Russell 1000 Value

Index

US Growth Fund Portfolio Russell 1000 Growth

Index

Small-Cap Fund Portfolio Russell 2000 Index -- -- -- -- -- -- -- -- -- --

Active International Fund Portfolio MSCI All Country World ex-U.S. Index

Diversified Fixed Income Portfolio Blended 0.00% 0.00% 0.00% 70.00% 0.00% 15.00% 15.00% 0.00% 0.00% 100.00%

Passive International Fund Portfolio

FTSE Global ex USA All Cap Index (Net)

Emerging Markets Fund Portfolio MSCI Emerging Markets

Index

Active Bond Fund Portfolio Barclays U.S. Aggregate

Bond Index

Long-Term Fixed Income Fund Portfolio

Barclays US Long Treasury Index

Short-Term Fixed Income Fund Portfolio

Barclays U.S. Aggregate 1-3 year Index

International Fixed Income Fund Portfolio

Barclays Global Aggregate ex-USD

High Yield Fixed Income Fund Portfolio

Barclays US Corporate High Yield 2% Issuer

Capped Index

Real Estate Fund Portfolio MSCI US IM Real Estate

25/50 Index

Commodity Fund Portfolio Bloomberg Commodity

Index Total Return

Capital Preservation Portfolio 90 Day U.S. Treasury Bill -- -- -- -- -- -- -- -- -- --

The allocation for each asset class is expected to remain within +/‐ 5 percentage points of the target allocation.

APPENDIX II

LoneStar 529 Plan

PLAN MANAGER AND INVESTMENT CONSULTANT REPORTING REQUIREMENTS

As Necessary (based on occurrence)

Plan Manager:

A. Organizational changes (e.g., corporate ownership).

Investment Consultant:

A. Organizational changes (e.g., corporate ownership).

B. Discussion of any material changes to the investment objective or strategies of Plan Underlying Investments

C. Departures of and additions to key investment personnel (e.g., portfolio managers) of Plan Underlying Investments.

D. The Investment Consultant shall make a full report to the Board when it knows of facts or circumstances that do, or reasonably may, constitute a material failure by an Underlying Investment to satisfy the applicable policy concerning UBTI and tax penalties.

Quarterly

Investment Consultant:

1. Investment Performance Review

A. Present to Board Underlying Investment returns for last month, last calendar quarter, year-to-date, last year, last three years, last five years, and since inception versus designated benchmarks.

B. Discuss performance relative to designated benchmarks and peer universes.

C. Other Comments or Information.

Annually

Investment Consultant:

1. Investment Option Review

a) Recommendation on number and types of investment Portfolios to offer in the Plan.

b) Review and recommendation on the asset allocation for the age-based Portfolios and other multi-asset class Portfolios, if utilized.

c) Qualitative and quantitative assessment of each of the Underlying Investments.

APPENDIX III

LoneStar 529 Plan

FEES

The funds that have been selected have annualized expense ratios, inclusive of any administrative wrapper, as of August 6, 2021, as follows:

Underlying Funds Fee

Vanguard Total Stock Market Index 0.02%

Vanguard FTSE Social Index 0.14%

T Rowe Price Large Cap Growth 0.56%

Artisan Value Fund 0.83%

DFA US Small Cap Portfolio 0.33%

Vanguard Total International Stock Market 0.07%

Dodge & Cox International stock 0.63%

BlackRock Advantage Emerging Markets 0.82%

T. Rowe Price Global Growth Stock 0.69%

Dodge & Cox Global Stock 0.62%

PIMCO International Bond 0.50%

Vanguard Total Bond Market Index 0.03%

Vanguard Long-Term Treasury Index 0.07%

Baird Short-Term Bond 0.30%

PIMCO Total Return 0.46%

Federated Hermes Institutional High Yield 0.50%

Eaton Vance Institutional Senior Loan Fund 0.71%

DFA Inflation-Protected Securities 0.11%

PIMCO Commodity Real Return 0.74%

Vanguard Real Estate Index 0.10%

New York Life Guaranteed Interest 0.00%

APPENDIX IV

LoneStar 529 Plan

UNIT CLASSES

The LoneStar 529 Plan offers Unit classes. Two Unit classes are currently offered: Class A Units and

Class RIA Units.

SALES CHARGES

The Board, in its sole discretion, will establish, and may change at any time, the sales charges, fees and expenses it deems appropriate for the Plan. The Plan Manager or its affiliated distributor deducts the sales charge and remits it to the Account Owner’s financial advisor to compensate the financial advisor for advice and services provided to the Account Owner in connection with the LoneStar 529 Plan. The

Plan Manager or its affiliated distributor may retain a portion of the sales charge or may pay all or a portion of the sales charge to the financial advisor as a concession. The current approved sales charges for the LoneStar 529 Plan are as follows:

Class A Units. An initial sales charge of 2.75% is imposed as a percentage of each contribution by an

Account Owner with respect to the Class A Units. In addition, Class A Units carry distribution and service fees of 0.25% of net assets.

The Plan allows rollovers from other IRC Section 529 plans at Net Asset Value (NAV) without an initial sales charge.

Class RIA Units. Class RIA Units are sold at net asset value, without an initial sales charge and with no distribution and service fees.

Texas ABLE Program Investment Policy Statement

Texas ABLE® Program

Approved by the Board:

August 17, 2021

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Texas ABLE® Program Investment Policy Statement Approved August 17, 2021

Texas ABLE® Program

I. ROLES AND RESPONSIBILITIES

II. PURPOSE

III. OBJECTIVE

IV. INVESTMENT GUIDELINES

V. INVESTMENT SELECTION CRITERIA

VI. EVALUATION AND REVIEW

VII. OTHER CONSIDERATIONS

APPENDIX l: INVESTMENT OPTIONS AND STRATEGIES

APPENDIX II: REPORTING REQUIREMENTS

APPENDIX III: UNDERLYING INVESTMENTS, FEES, BENCHMARKS 15

APPENDIX IV: FDIC CHECKING ACCOUNT AND DEBIT CARD………16

This Page is Intentionally Left Blank

A. Definitions

1. Board: In this Policy Statement, the “Board” refers to the Texas Prepaid Higher Education Tuition Board.

2. Fund: The “Fund” refers to the Texas Achieving a Better Life Experience Program (“Texas ABLESM Program”), a qualified ABLE program as established by SB1664, 84th Legislative Session, a trust fund outside of the state treasury, as provided in Chapter 54, Subchapter J, Education Code.

3. Investment Consultant: “Investment Consultant” refers to the individuals or firms, including key personnel of firms, who are contractually retained by the Board to provide investment advice to the Board but who do not exercise investment discretion. The Investment Consultant serves as a fiduciary to the Board.

4. Plan Manager: “Plan Manager” means a financial institution under contract with the Board to serve as Plan Manager(s) of the Program and invest the assets of the Fund on behalf of, and at the direction of, the Board, provided that Plan Manager shall not provide investment advice to the Board or in connection with the Program.

5. Program: The “Program” refers to the Texas ABLE Program established under Subchapter J, Chapter 54 of the Education Code.

B. Investment Authority The Board shall invest the assets of the Fund pursuant to Section 54.905, Education Code.

C. Investment Standard

1. Funds in a Texas ABLE savings plan account and earnings are held in trust by the

Board for the sole benefit of a designated beneficiary, as defined in Section 54.902(4) of the Education Code.

2. The Board shall contract with one or more financial institutions to invest the money in the Fund. Texas Education Code Section 54.905(c) authorizes the Board to delegate to a financial institution the investment and reinvestment of all or part of the Funds and authority to act on behalf of the Board in the holding, purchasing, selling, assigning, transferring, or disposing of any or all of the securities and investments in which the Funds in the Texas ABLE savings plan account have been invested.

3. Texas Education Code Section 54.905(h) requires the Board to exercise ordinary business care and prudence under the facts and circumstances prevailing at the time of the action or decision.

4. In accordance with this standard and as provided in this investment policy, the

Board, with the advice of the Investment Consultant, will establish a number of alternative portfolios from which a designated beneficiary, or parent/legal guardian/fiduciary acting on the designated beneficiary’s behalf, may choose, determine the allocation of each portfolio among different investment asset classes, select specific underlying investments for inclusion in each portfolio in accordance with its asset allocation and change such decisions as circumstances warrant from time to time. In performing these functions, the Board will exercise the judgment and care required by Texas Education Code Section 54.905(h).

5. The Plan Manager will invest the Funds in a manner that is at all times consistent with the selection of portfolios made by each designated beneficiary for the investments of the monies in his/her Texas ABLE savings plan account.

D. Investment-Related Responsibilities

1. Texas Prepaid Higher Education Tuition Board Responsibilities The Board will be responsible for the following:

a) Maintaining a qualified ABLE program as described under Section 529A of the

Internal Revenue Code of 1986.

b) Complying with federal and state law related to the Program as provided by

Sections 54.904(2)(A), (B) and (C) of the Education Code.

c) Providing for administering the assets of the Fund, as outlined in Section 54.906 of the Education Code.

d) Providing for investing the assets of the Fund as specified by Section 54.905 of the Education Code.

e) With the assistance of the Investment Consultant, the Board is responsible for the selection and changes to Investment Managers, commingled funds, mutual funds, asset classes, target asset allocations, and permissible ranges for asset class allocations.

f) Providing for acquiring, holding, managing, purchasing, selling, assigning, trading, transferring, or disposing of any security, evidence of indebtedness, or other investment in which the Fund’s assets may be invested as outlined in Section 54.905 of the Education Code.

g) Developing sound and consistent investment guidelines, revising the guidelines to reflect changing conditions within the markets or the Fund, or refining the guidelines in order to make them more effective.

h) Developing written objectives concerning the underlying investment of the Fund’s assets that may address desired rates of return, involved risks, investment time frames, and any other relevant considerations as provided in Section 54.905 of the Education Code.

i) In the Board’s discretion, the Board may contract with one or more financial institutions to serve as Plan Manager and to invest the money in Texas ABLE accounts.

j) Monitoring the Fund’s investments to ensure that investments are made according to the standard of investment provided by Section 54.905(h) of the Education Code and set out herein in Section I.C. (Investment Standard).

k) Establishing the primary duties and responsibilities of the Plan Manager and any others accountable for achieving investment results.

l) Providing guidelines regarding the voting of proxies or investment securities owned on behalf of the Fund.

m) Taking appropriate action, including termination, against the Plan Manager, the Investment Consultant or other consultant for failing to perform according to stated expectations or to abide by this policy statement.

n) Reviewing the investment strategy and accomplishment of investment objectives on a periodic basis.

o) Administering the Fund in a manner that is sufficiently financially feasible to pay the costs of the Program administration and operations and to meet the obligations of the Program, as required by Section 54.909 of the Education Code.

p) Report financial information related to the Fund annually and as required by Section 54.913 of the Education Code.

q) Reporting to certain state officials the fiscal transactions of the Board and Plan Manager, the market and book value of the Fund, the asset allocations of the Fund, the rate of return on the investment of the Fund’s assets, and determining that the Program is financially feasible, as specified in Subchapter J, Chapter 54 of the Education Code.

2. Investment Consultant Responsibilities The Investment Consultant will be responsible for the following:

a) Assisting the Board in the development of sound and consistent investment guidelines, with modifications to this policy statement and investment guidelines to reflect changing conditions within the markets or Fund, and with refining the policy statement and investment guidelines in order to make them more effective.

b) Making periodic recommendations to the Board regarding asset classes, target asset allocations, and permissible ranges for asset class allocations.

c) Searching for, interviewing, and making recommendations to the Board regarding the selection, maintenance, and replacement of qualified Investment Managers, commingled funds, and mutual funds (which may or may not be affiliated with the Plan Manager).

d) Assisting the Board in monitoring asset allocation and overall investment performance of the Fund and the various Investment Managers. This role includes the calculation, if applicable, and reporting of the Policy Statement Indices described in detail in the Evaluation and Review section.

e) Providing assistance in the search for, interviewing, and maintaining of a qualified Plan Manager(s) on behalf of the Fund.

f) Assisting the Board in developing a policy on voting proxies related to management of commingled funds and mutual funds.

g) Advising the Board on matters related to investment performance and providing timely information, written and/or oral, on Plan Manager(s), investment strategies, instruments, Investment Managers and other related issues as requested by the Board.

h) Providing any required reports, as outlined in Appendix II, or as otherwise requested by the Board in accordance with Subchapter J, Chapter 54 of the Education Code.

i) Complying with all provisions of this policy statement pertaining to the Investment Consultant’s duties and responsibilities as a fiduciary.

j) Recommending the rebalancing process to be used by the Plan Manager in operating the portfolios.

3. Plan Manager Responsibilities The duties and responsibilities of the Plan Manager include:

a) Complying with, and causing any affiliates or subcontractors providing services to the Program to comply with, state and federal laws, including meeting all applicable requirements of Subchapter J of Chapter 54, Education Code as interpreted by the Board, with respect to the implementation of this policy statement.

b) Adhering to the applicable duties of a Plan Manager as required by Section 54.905(h) thereof. These duties include:

(1) taking all actions required to ensure that the Program qualifies as a qualified ABLE program under Section 529A of the Internal Revenue Code of 1986, as amended, and to ensure that the Program is exempt from taxation under federal tax law;

(2) keeping appropriate records as may be necessary to prepare the reports required by Section 529A of the Internal Revenue Code of 1986, as amended, or to file those reports on behalf of the Board;

(3) compiling and providing necessary information for statements to a designated beneficiary or a participant acting on behalf of a designated beneficiary and statements required by federal or state tax law; and

(4) providing representatives of the Board with access to the books and records of the Fund as necessary to determine compliance with the Program Management Services Agreement for the Texas ABLE Program (“Program Management Agreement”).

c) Initiating written communication with the Board when the Plan Manager believes that this policy statement should be amended.

d) Implementing the portfolio rebalancing process directed by the Board and the Investment Consultant.

e) Complying with all provisions of this policy statement pertaining to the Plan Manager’s duties and responsibilities as a fiduciary.

f) Meeting with the Board at the request of the Board.

g) Providing any required reports, as outlined in Appendix II, or as otherwise requested by the Board.

h) Selecting and monitoring the custodian bank, which may be an affiliated organization, for the Fund and working with this bank to verify monthly reports.

i) Providing representatives of the Board with access to the books and records of the Plan Manager and its subcontractors as necessary to determine compliance with the Program Management Agreement; and

j) Acknowledging in writing to the Board the Plan Manager’s intention to comply with the policy statement as it currently exists or as modified in the future.

4. Investment Manager Responsibilities “Investment Manager” refers to the individuals or firms who manage one or more of the mutual funds or other investment vehicles in which assets of the Program are invested. The duties and responsibilities of each Investment Manager selected by the Board include:

a) Managing, or having one of its affiliates manage, the assets in accordance with the then-current prospectus or offering document. The Investment Manager shall notify the Investment Consultant in writing of any changes in the affiliate assigned to manage any assets and of material changes in the prospectus or offering document.

b) Voting and reporting proxy votes that are not consistent with the Investment Manager’s standing policies to the Investment Consultant.

A. This policy statement is issued for the guidance of fiduciaries acting on behalf of the Board, in the course of investing the assets of the Fund. This policy statement represents the guidance and conclusions for investing assets of the Fund over a long-range future period.

The Board recognizes that the investment markets have historically demonstrated broad performance cycles having two fundamental characteristics, which bear heavily on the Fund’s expectations toward its future:

1. The cycles cannot be accurately predicted as to either their beginning points or ending points, or their magnitude, and;

2. There is little or no relationship between market cycles and the convenient fiscal or calendar periods commonly used for measurement and evaluation.

B. This document is intended to serve as a reference tool, an operating standard, and a communications link between the Board and its:

1. staff;

2. Plan Manager(s);

3. Investment Consultant(s);

4. Investment Manager(s); and

5. Other professional advisers.

C. This policy statement conveys guidelines for action and is a general framework for managing the investments of the Program but does not constitute an agreement between the parties for specific performance results.

A. The purposes of the Program are as follows:

1. To encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities to maintain health, independence, and quality of life.

2. To provide secure funding for disability related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, the Medicaid program under Title XIX of the Social Security Act, the supplemental security income program under Title XVI of the Social Security Act, the Social Security disability insurance program under Title II, the beneficiary’s employment, and other sources.

IV. INVESTMENT GUIDELINES

A. The investment strategy defined here should not be considered as permanent. It is essential that the Investment Consultant, Texas Prepaid Higher Education Tuition Board, and the Texas State Comptroller review the investment strategy for the Fund on a periodic basis.

B. The overall capital structure targets and permissible ranges for eligible asset classes for the Fund are detailed in Appendix I of this policy statement. Overall, Fund structure shall be targeted to the ratios reflected in Appendix I but may vary within prescribed policy statement limits.

C. Subject to the guidelines, limitations, and other requirements that are included herein, Investment Managers are granted discretion regarding asset allocation, the selection of securities, and the timing of transactions assuming such investments are permitted in each respective fund’s prospectus or other offering documents.

D. Equity Investments Equity specialist managers are expected to be fully invested. Equity specialist managers are permitted to hold international securities as well as any size capitalization security.

E. Fixed Income Investments Fixed income specialist managers are permitted to hold domestic and international securities as well as below-investment grade securities.

F. Benefit Payments The Plan Manager shall work with the Board and investment managers to meet the liquidity needs of a designated beneficiary or a participant acting on behalf of a designated beneficiary in the Fund.

G. Proxy Voting

1. The exercise of proxy ownership rights shall rest solely with the Investment Manager.

2. On a quarterly basis, each Investment Manager shall report to the Investment

Consultant its standing policies with respect to proxy voting, including any changes that have occurred in those policies.

H. Commingled and/or Mutual Funds The Board may elect to invest assets of the Fund in commingled funds and/or mutual funds, to take advantage of the benefits of commingled funds and/or mutual funds as investment vehicles, e.g., the ability to diversify more extensively than in a small, direct investment account and the lower costs which can be associated with these funds. The Board recognizes that it may not be permitted to give specific policy directives to a commingled and/or mutual fund whose policies are already established by a board of directors/trustees or a general partner; therefore, the Investment Consultant must assess and monitor the investment policies of such funds to ascertain whether they are appropriate and consistent with this policy statement and promptly report to the Board any observed variance of the actual policies or practices of such funds from the requirements and limitations of this policy statement.

I. Avoidance of Unrelated Business Taxable Income and Tax Penalties

1. The Fund is subject to federal tax on its unrelated business taxable income, if any, and it is the policy of the Board to generally avoid the imposition of such tax by avoiding investments and transactions that are reasonably likely to create unrelated business taxable income as defined in Section 512 of the Internal Revenue Code of 1986 (UBTI). Additionally, it is the policy of the Board to avoid the imposition of penalties and related reporting requirements under the Internal Revenue Code, including Section 4965 thereof.

2. Accordingly, all investments of Fund assets are subject to the following requirements and limitations, as qualified by I.3. below:

a) The Investment Consultant shall competently evaluate the likelihood that a proposed investment of Fund assets will create UBTI.

b) If the Investment Consultant concludes that the Fund includes an investment or asset that is reasonably likely to create UBTI, it will immediately notify the Board in writing of the relevant facts.

c) The Investment Consultant shall not knowingly allow any Investment Managers to make or hold any investment, without the specific approval of the Board or its designee that would generate UBTI to the Fund within the meaning of Internal Revenue Code Section 511.

d) The Investment Consultant shall not knowingly allow any Investment Manager to make or hold any investment or transaction that would cause the Fund to become or be a “party” to a “prohibited tax shelter transaction” or to a “subsequently…