texas prepaid higher education tuition program …...the texas tuition promise fund®, the state’s...

Texas Prepaid Higher Education Tuition Program

Texas Comptroller Glenn Hegar, Chair

2 0 1 8 A N N U A L R E P O R T

Ma t c hTh eProm i s e . o r g

F O U N D A T I O N

T E X A S G U A R A N T E E D T U I T I O N P L A N

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A SAVINGS PROGRAM FOR TEXANS WITH DISABILITIES

TEXAS SM

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Texas Prepaid Higher Education Tuition Program

Texas Comptroller Glenn Hegar, Chair

ANNUAL REPORT 2018 Texas Prepaid Higher Education Tuition Programii

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Texas Prepaid Higher Education Tuition Program ANNUAL REPORT 2018 iii

T A B L E O F C O N T E N T ST H I S R E P O R T C O N S O L I D A T E S V A R I O U S A N N U A L R E P O R T S I N T O O N E D O C U M E N T

PROGRAM SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Cumulative Enrollment Data for the Texas Guaranteed Tuition Plan, 1996-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Cumulative Enrollment Data for the Texas Tuition Promise Fund® 2008-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

TEXAS PREPAID HIGHER EDUCATION TUITION BOARD, ANNUAL REPORT – YEAR ENDED AUGUST 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11INDEPENDENT AUDITOR’S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17MANAGEMENT’S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21GOVERNMENT-WIDE FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Statement of Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Statement of Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

PROPRIETARY FUND FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Statement of Net Position – Major Enterprise Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Statement of Revenues, Expenses and Changes in Net Position – Major Enterprise Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Statement of Cash Flows – Major Enterprise Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

FIDUCIARY FUND FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Combining Statement of Fiduciary Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Combining Statement of Changes in Fiduciary Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

DISCRETELY PRESENTED COMPONENT UNITS FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47Combining Statement of Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49Combining Statement of Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

NOTES TO THE FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51INDEPENDENT AUDITOR’S 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

TEXAS GUARANTEED TUITION PLAN, ACTUARY’S REPORT ON PROGRAM SOUNDNESS – AUGUST 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81Section I – Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87Section II – Summary of Contract Data and Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90Section III – Plan Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93Section IV – Actuarial Methods and Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95Section V – Soundness of the Plan as of August 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98Section VI – Sensitivity Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103Section VII – Changes in Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104Appendix A – Active Contract Counts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106Appendix B – Matriculation Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

TEXAS TUITION PROMISE FUND®, ACTUARY’S REPORT ON PROGRAM SOUNDNESS – AUGUST 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117Section I – Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123Section II – Summary of Contract Data and Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127Section III – Plan Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131Section IV – Actuarial Methods and Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134Section V – Soundness of the Plan as of August 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136Section VI – Sensitivity Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141Appendix A – Active Contract Counts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142Appendix B – Tuition and Fee Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

TEXAS GUARANTEED TUITION PLAN FUND INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

ANNUAL REPORT 2018 Texas Prepaid Higher Education Tuition Programiv



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ANNUAL REPORT 2018 Texas Prepaid Higher Education Tuition Program2


Texas Prepaid Higher Education Tuition Program ANNUAL REPORT 2018 3

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The Texas Guaranteed Tuition Plan opened for enrollment in 1996. It was closed to new enrollment in June 2003. A total of 46,487 of the 158,442 contracts sold were active at August 31, 2018.

CONTRACT SUMMARY

Type of College Plan PurchasedThe senior college plan is the most popular tuition plan purchased, consisting of more than 84 percent of the contracts.

Senior College Plan 133,704 84.38%

Junior-Senior College Plan 14,935 9.43%

Junior College Plan 6,721 4.24%

Private College Plan 3,082 1.95%

Total 158,442 100.00%

Payment Option SelectedThe payment option chosen most often is monthly until matricula-tion at 34 percent, followed by lump sum at 28 percent.

Monthly Until Matriculation 54,485 34.39%

Lump Sum 44,806 28.28%

Monthly for Ten Years 22,332 14.09%

Monthly for Five Years 20,338 12.84%

Annual Payments 16,481 10.40%

Total 158,442 100.00%

Monthly Payment Method SelectedThe most popular monthly payment method selected is the coupon booklet at 54 percent, followed by lump sum payments at 28 percent.

Coupon Booklet 84,864 53.56%

Lump Sum Payments 44,806 28.28%

Automatic Bank Draft 12,291 7.76%

Annual Payments 16,481 10.40%

Total 158,442 100.00%



Age or Grade Level of BeneficiaryNewborns and children under one year of age represent the largest groups for whom contracts have been purchased at nearly 18 percent.

Newborn 13,903 8.78%

0 Year 14,488 9.14%

1 Year 9,846 6.21%

2 Years 8,651 5.46%

3 Years 8,215 5.18%

4 Years 8,494 5.36%

Kindergarten 10,056 6.35%

First Grade 9,762 6.16%

Second Grade 10,318 6.51%

Third Grade 9,656 6.09%

Fourth Grade 9,692 6.12%

Fifth Grade 9,787 6.18%

Sixth Grade 9,293 5.87%

Seventh Grade 8,497 5.36%

Eighth Grade 7,003 4.42%

Ninth Grade 5,035 3.18%

Tenth Grade 3,011 1.90%

Eleventh Grade 1,720 1.09%

Twelfth Grade 1,015 0.64%

Total 158,442 100.00%

Beneficiary’s Relationship to Purchaser78 percent of contracts are purchased by the parents of the child, followed by grandparents at 10 percent.

Child 124,219 78.39%

Grandchild 16,075 10.15%

Other 2,910 1.84%

Great Grandchild 399 0.25%

Not Reported by Purchaser 14,839 9.37%

Total 158,442 100.00%

Counties with Largest Volume of ContractsThe largest number of contracts (14 percent) is purchased in Harris County.

Harris 23,327 14.72%

Dallas 14,252 9.00%

Travis 11,509 7.26%

Tarrant 10,543 6.65%

Bexar 10,149 6.41%

Collin 8,037 5.07%

Denton 4,924 3.11%

Total 82,741 52.22%



OPTIONAL INFORMATION AS PROVIDED BY THE PURCHASER

At the time the applications were submitted between 1996 and 2003, the following information was requested on a voluntary basis. “Not Reported by Purchaser” indicates that the Purchaser chose not to report the information.

Annual Family Household IncomeFamilies with incomes from $50,000 to $75,000 purchased the largest single volume of contracts by income group at 18 percent. Families with incomes from less than $20,000 up to $50,000 purchased nearly 17 per-cent of the contracts. Some 38 percent of respondents did not elect to report family income.

Less than $20,000 2,068 1.31%

$20,000 to $29,999 5,003 3.16%

$30,000 to $39,999 8,141 5.14%

$40,000 to $49,999 10,958 6.92%

$50,000 to $74,999 28,478 17.97%

$75,000 to $100,000 25,423 16.05%

Over $100,000 18,765 11.84%


Total 158,442 100.00%

Beneficiary’s EthnicityA total of 81,766 (52 percent) of the beneficiaries are Anglo.

Anglo 81,766 51.61%

Hispanic 16,036 10.12%

African-American 5,100 3.22%

Asian-American 4,248 2.68%

Other 3,589 2.27%

Native-American 1,035 0.65%


Total 158,442 100.00%

Education Level of PurchaserNearly 29 percent of those that reported information related to education levels had a bachelor’s degree, 13 percent had a master’s degree and 13% had a high school diploma.

Bachelor’s Degree 44,848 28.31%

Master’s Degree 20,569 12.98%

High School Graduate 19,834 12.52%

Associate Degree 10,375 6.55%

Other 3,596 2.27%

Doctorate Degree 9,191 5.80%


Total 158,442 100.00%



C U M U L A T I V E E N R O L L M E N T D A T A F O R T H E T E X A S T U I T I O N P R O M I S E F U N D®

The Texas Tuition Promise Fund®, the state’s newest prepaid tuition plan, opened for enrollment in 2008. The plan is open for enrollment annually between September 1 and February 28/29. A total of 35,851 contracts had been sold as of August 31, 2018.

CONTRACT SUMMARY

Type of College Plan PurchasedType I units are the most popular type plan. Type I units pay tuition and required fees at up to the most expensive Texas public 4-year college or university. Type II units pay the weighted average tuition and required fees at Texas public 4-year colleges and universities. Type III units pay the weighted average tuition and required fees at Texas public 2-year colleges.

Type I Units 21,783 61%

Type II Units 11,790 33%

Type III Units 2,278 6%

Total 35,851 100%

Payment Option SelectedThe Pay-As-You-Go payment option is chosen most often. The Pay-As-You-Go payment option allows individuals to pay as much as they like, whenever they like after establishing an account with a minimum of one unit and subsequent payment amounts of at least $15 each.

Lump Sum 9,447 26%

Installment 10,220 29%

Pay-As-You-Go 16,134 45%

Total 35,851 100%

Beneficiary’s Relationship to PurchaserThe majority of the contracts are bought for the purchaser’s child.

Child84%

Grandchild, 10%

Other, 6%



Age of BeneficiaryThe majority of contracts were purchased for benefi-ciaries less than 1 year of age.

Less Than 1 Year 6,820 19%

1 Year 2,339 7%

2 Years 2,166 6%

3 Years 2,166 6%

4 Years 2,215 6%

5 Years 2,177 6%

6 Years 2,089 6%

7 Years 2,181 6%

8 Years 2,144 6%

9 Years 2,076 6%

10 Years 1,963 5%

11 Years 2,028 6%

12 Years 1,744 5%

13 Years 1,472 4%

14 Years 1,142 3%

15 Years 624 2%

16 Years 230 1%

17 Years 59 –

18 Years 11 –

Over 18 Years 5 –

Undesignated 200 –

Total 35,851 100.0%

Counties with Largest Volume of ContractsThe top ten counties purchasing contracts are listed below. Sales of contracts in those counties represents 63% of the contracts sold.

Harris 4,792 13%

Travis 3,315 9%

Collin 3,060 9%

Dallas 2,366 7%

Tarrant 2,020 6%

Fort Bend 1,982 5%

Bexar 1,570 4%

Williamson 1,474 4%

Denton 1,329 4%

Montgomery 731 2%

All Other 13,302 37%

Total 35,851 100.0%



OPTIONAL INFORMATION AS PROVIDED BY THE PURCHASER

At the time the applications are submitted, purchasers are asked to provide the following informa-tion on a voluntary basis. Not Reported by Purchaser indicates that the purchaser did not report the information.

Annual Family Household Income

Under $50,000 4%

$50,001-$75,000 10%

$75,001-$100,000 18%

Over $100,000 56%

Not Reported by Purchaser 12%

Total 100.0%

Beneficiary’s Ethnicity

African-American 3%

Asian 14%

Anglo 56%

Hispanic 13%

Native-American –

Other 4%


Total 100.0%

Education Level of Purchaser

High School Graduate 2%

Some College 6%

Associate Degree 4%

Bachelor’s Degree 38%

Master’s Degree 29%

Doctorate 12%


Total 100.0%



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13Texas Prepaid Higher Education Tuition Program ANNUAL REPORT 2018

Pages from the Texas Prepaid Higher Education Tuition Board – ANNUAL REPORT – Year Ended August 31, 2018

Texas Prepaid Higher Education Tuition Board (315) Annual Report For the Fiscal Year Ended August 31, 2018

14 ANNUAL REPORT 2018 Texas Prepaid Higher Education Tuition Program



Pages from the Texas Prepaid Higher Education Tuition Board – ANNUAL REPORT – Year Ended August 31, 2018 (continued)

Texas Prepaid Higher Education Tuition Board (315)

Annual Report

For the Fiscal Year Ended August 31, 2018

TABLE OF CONTENTS

Independent Auditor’s Report ....................................................................................................................................... 1 Management’s Discussion and Analysis (Unaudited) ................................................................................................... 3 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position .............................................................................................................................. 11 Statement of Activities .................................................................................................................................. 12 Proprietary Fund Financial Statements Exhibit F-1 – Statement of Net Position – Major Enterprise Funds .............................................................. 14 Exhibit F-2 – Statement of Revenues, Expenses and Changes in Net Position – Major Enterprise Funds ........................................................................................................................................ 16 Exhibit F-3 – Statement of Cash Flows – Major Enterprise Funds .............................................................. 18 Fiduciary Fund Financial Statements Combining Statement of Fiduciary Net Position ........................................................................................... 21 Combining Statement of Changes in Fiduciary Net Position ........................................................................ 22 Discretely Presented Component Units Financial Statements Combining Statement of Net Position ........................................................................................................... 24 Combining Statement of Activities ............................................................................................................... 25 Notes to the Financial Statements ................................................................................................................................ 26 Independent Auditor’s 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 ............................................................................................... 49


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Independent Auditor’s Report To the Texas Prepaid Higher Education Tuition Board Report on the Financial Statements We have audited the accompanying basic financial statements of the business-type activities, the aggregate discretely presented component units, each major enterprise fund and the aggregate remaining fund information of the Texas Prepaid Higher Education Tuition Board (the Board), an agency of the state of Texas, as of and for the year ended August 31, 2018, and the related notes to the financial statements, which collectively comprise the Board’s basic financial statements, as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the Texas Tuition Promise Fund®, which represents 69.00 percent and 100.00 percent, respectively, of the assets and revenues of the business-type activities, the major enterprise funds and the Texas ABLE® Program, which represents 0.05 percent and 0.16 percent, respectively, of the assets and revenues of the aggregate remaining fund information of the Board as of and for the year ended August 31, 2018. Those financial statements were audited by other auditors whose report thereon has been furnished to us and, our opinions, insofar as they relate to the amounts included for the Texas Tuition Promise Fund® and the Texas ABLE® Program are based on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Board’s preparation and fair presentation of the basic financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Board’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.



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Opinions In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities, the aggregate discretely presented component units, each major enterprise fund and the aggregate remaining fund information of the Board as of August 31, 2018, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of a Matter As described in Note 20 to the financial statements, the Texas Guaranteed Tuition Plan has a deficit net position. The Texas Guaranteed Tuition Plan is backed by a constitutionally guaranteed trust fund and the full faith and credit of the state of Texas; thus, guaranteeing payment of tuition and required fee benefits at colleges and universities in which a plan beneficiary enrolls. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We and the other auditors have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Board’s basic financial statements. The Program Summary, the Texas Guaranteed Tuition Plan, Actuary’s Report on Program Soundness; the Texas Tuition Promise Fund®, Actuary’s Report on Program Soundness; and the Texas Guaranteed Tuition Plan Fund Investment Information are presented for purposes of additional analysis and are not a required part of the financial statements.

The Program Summary, the Texas Guaranteed Tuition Plan, Actuary’s Report on Program Soundness; the Texas Tuition Promise Fund®, Actuary’s Report on Program Soundness; and the Texas Guaranteed Tuition Plan Fund Investment Information have not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not express an opinion or provide any assurance on them.

Austin, Texas December 12, 2018


F O U N D A T I O N


SM


TEXAS SM

M A N A G E M E N T’S D I S C U S S I O N

A N D A N A L Y S I S

2 0 1 8




Management’s Discussion and Analysis (Unaudited)


3

This section of the Texas Prepaid Higher Education Tuition Board’s (the “Board” or “Agency”) annual financial report presents a discussion and analysis of the Agency’s financial performance during the fiscal year ended August 31, 2018. Please read it in conjunction with the Agency’s financial statements. The Board administers the Texas Guaranteed Tuition Plan (“TGTP”), the Texas Tuition Promise Fund® (“TTPF”), the Texas Prepaid Scholarship Foundation, the Texas College Savings Plan®, the LoneStar 529 Plan®, and the Texas Achieving a Better Life Experience Program (“Texas ABLE® Program”). The Board also administers the Texas Save and Match Program in cooperation with the Texas Match the Promise FoundationSM. Financial Highlights of the Texas Guaranteed Tuition Plan Net Position of the Texas Guaranteed Tuition Plan decreased by $12.2 million in fiscal 2018. Financial highlights include:

Payment of participants’ benefits to colleges and universities of $147,255,693.07

Net investment income of $9,324,808.27

Contract receipts of $5,910,920.81

Refunds of Contract Principal of $21,820,572.74

Earnings paid on refunds of $24,929,884.83

Operating expenses of $2,248,096.14

Net positive change in actuarial assumptions of contract collections and future contract benefits of $168,472,251.00

Increase in the unfunded liability for contract benefits payable of $12,241,383.94 The Texas Guaranteed Tuition Plan opened for enrollment in 1996 and plan benefits are guaranteed by the full faith and credit of the State of Texas (the “State”). The plan closed for new enrollment in 2003 when tuition was deregulated; however, there were 46,487 active contracts as of August 31, 2018. The fund’s unfunded liability at August 31, 2017, was ($613,824,409.69) compared to ($626,065,793.63) at August 31, 2018, an increase in the unfunded liability of $12,241,383.94. This was a favorable variance when compared to the expected unfunded liability at August 31, 2018 of ($628,865,171.00), due to a change in the investment return assumptions for future years and lower than expected tuition increases. The Plan’s funded ratio, which is the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present value of expected future tuition and school-wide required fees, refunds and other expenses, declined to 41.5%. The Plan’s actuary projects that the Plan will have depleted all cash and investments available to pay contract benefits in 2020, long before the final Plan benefits are estimated to be paid in year 2038. Since the plan is closed to new enrollment, the number of plan beneficiaries using the plan will continue to decrease after peaking in 2009-2010.






4

Number of Students Using Texas Guaranteed Tuition Plan Benefits by Academic Year* 97

652 1,

293 2,

542

4,46

4

6,87

4

9,49

1

12,4

66

15,2

08

18,1

61

20,8

08 22

,683

24,4

07

25,3

36

24,5

88

24,5

45

24,6

28

24,3

25

24,0

42

23,1

44

21,6

32

18,1

69

16,0

97

14,2

87

12,9

62

9,85

3

6,90

9

4,36

8

2,36

6

168

121

89

-

5,000

10,000

15,000

20,000

25,000

30,000

Academic Year

Historical

Projected

*Academic Years 2019-2028 are projected based on the projected high school graduation dates of beneficiaries. The plan’s

actuary projects that all accounts will be depleted by the year 2038. Financial Highlights of the Texas Tuition Promise Fund® The State’s prepaid tuition plan, the Texas Tuition Promise Fund opened for enrollment in 2008. The fund is not guaranteed by the State of Texas. Through August 31, 2018, the Texas Tuition Promise Fund had 35,851 active contracts with a purchase value of approximately $662 million. Receipts from purchasers in fiscal 2018 totaled over $59 million. Because contracts are subject to a three-year holding period before any contract benefits can be paid to schools, the 2017-2018 academic year marked the sixth year benefits were paid from the Plan. The Plan’s funded ratio, which is the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present value of expected future tuition and school-wide required fees, refunds and other expenses, is 116.0% at August 31, 2018. Financial Highlights of the College Savings Plans Net position of the Board’s 529 college saving plans, the direct-sold Texas College Savings Plan® and the advisor-sold LoneStar 529 Plan®, increased from $646,682,475.13 at August 31, 2017, to $722,465,076.47 at August 31, 2018, an increase of nearly $75.8 million. The increase was due to an increase in the number of account owners from 41,588 at August 31, 2017, to 42,805 at August 31, 2018, which resulted in increased net contributions to savings accounts and positive returns on investments. Financial highlights include:

Contributions from investors of $234,408,147.94 Distributions from investor accounts of $213,110,506.68 Net income from investing activities of $54,497,770.13






5

Financial Highlights of Discretely Presented Component Units Texas Prepaid Tuition Scholarship Foundation The Texas Prepaid Tuition Scholarship Foundation recognizes as an asset and liability the value of contracts owned by the foundation in the Texas Guaranteed Tuition Plan that were awarded as scholarships. As of August 31, 2018 the value of the remaining contracts totaled $80,744.96. Two scholarship contracts remain active with total hours available for distribution of 256. Per statute, Texas Guaranteed Tuition Plan accounts terminate on the tenth anniversary of the date the account beneficiary is projected to graduate from high school, not counting time spent by the beneficiary as an active duty member of the United States armed services. Any refund for terminated hours is returned to the foundation as the owner of the scholarship accounts. Of the eight scholarship accounts awarded by the foundation, each for 128 hours, a total of 181.754 hours have been cancelled for accounts that reached the tenth anniversary deadline. A total of $17,100.27 has been returned to the foundation for terminated contracts. Texas Match the Promise FoundationSM The Texas Match the Promise Foundation, a 501(c)(3) federal tax-exempt public charity eligible to receive tax deductible donations, was established in fiscal 2009. Individuals and companies can make donations to the foundation to be used to encourage families to save for college by providing matching scholarships and tuition grants for participants in the Texas Tuition Promise Fund. Donations provide matching scholarships to students with demonstrated needs. During fiscal 2018, the foundation received approximately $44,000 in donations from donors contributing a portion of their unclaimed property receipts to the foundation to be used for scholarships. The foundation purchased an additional 797 Type I tuition units in the Texas Tuition Promise Fund in fiscal 2018 totaling $109,922.24. As of August 31, 2018, the foundation owned 6,122 Texas Tuition Promise Fund Type I tuition units at a cost of $750,552.80. These units are recognized as assets in the foundation’s Statement of Net Position. In March 2018, the foundation awarded its sixth round of scholarships. A total of fifty-two Texas schoolchildren received matching Texas Tuition Promise Fund tuition units worth up to $1,000 and twelve of the top-ranking applicants were recognized with an additional scholarship grant of tuition units worth $2,000 at 2017-2018 Texas Tuition Promise Fund enrollment prices. To date, 362 scholarships have been awarded totaling $498,493.04. Overview of the Financial Statements The annual report consists of four parts – management’s discussion and analysis, the basic financial statements, required supplementary information, and statements for major enterprise funds. The basic financial statements include government-wide financial statements, fund financial statements, and notes to the financial statements. Government-Wide Financial Statements Government-wide financial statements (i.e., the Statement of Net Position and Statement of Activities) present an overall picture of the financial position of the Agency. These statements provide both long-term and short-term information about the Agency using accounting methods similar to those used by private-sector companies. The Statement of Net Position includes all of the Agency’s assets and liabilities. All of the current year’s revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. The two government-wide statements report the Agency’s net position and how the net position increased or decreased during the fiscal year. Net position is the difference between the Agency’s assets and liabilities and represents one way to measure the Agency’s financial health or position.






6

The government-wide financial statements of the Agency are divided into two categories:

Business-Type Activities – This includes activities for which a fee is charged to customers to pay most or all of the cost of services. Financial activity for the TGTP and the TTPF is reported as an enterprise fund.

Component Units – This includes activities of legally separate entities for which the Agency is either

financially accountable or the nature and significance of their relationship with the Agency is such that exclusion would cause the Agency’s financial statements to be misleading or incomplete. The Agency has two discretely presented component units. Financial information for these entities is presented separately in the supplemental statements and in the notes.

Fund Financial Statements

Fund financial statements provide more detailed information on the Agency’s most significant funds. They use a format that is more familiar to experienced users of governmental financial statements. A fund is a separate accounting entity with a self-balancing set of accounts. Governmental entities use funds to keep track of sources of funding and spending related to separate activities. The Agency has two kinds of funds: Proprietary Funds – When a government charges for services it provides to customers, these activities are generally reported in proprietary funds. Services provided to outside (non-governmental) customers are reported in enterprise funds, which are a type of proprietary fund. Proprietary funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. The financial activity of the TGTP and TTPF is reported as a proprietary fund, as the State is holding funds that will later be used to support the State’s own programs to pay future tuition and required fees in return for the contracts that are purchased. A constitutional amendment passed by Texas voters in November 1997 guarantees TGTP benefits to be paid to colleges and universities on behalf of beneficiaries of the plan as follows:

If in any fiscal year there is not enough money in the Texas Tomorrow Fund to pay the tuition and required fees of an institution of higher education in which a beneficiary enrolls or the appropriate portion of the tuition and required fees of a private or independent institution of higher education in which a beneficiary enrolls as provided by a prepaid tuition contract, there is appropriated out of the first money coming into the state treasury in each fiscal year not otherwise appropriated by the constitution the amount that is sufficient to pay the applicable amount of tuition and required fees of the institution.

Benefits of the TTPF are not guaranteed by the State; however, Texas public colleges and universities are required to accept the plan as payment of tuition and required fees in full for plan beneficiaries for the applicable number of hours covered. The transfer value of the plan is paid to Texas private colleges and universities, career schools and out-of-state schools. Transfer value is the lesser of (1) the costs the unit would cover at a public in-state college or university, or (2) the original purchase price of the unit plus or minus the plan’s net investment earnings or losses on that amount. Fiduciary Funds – The Agency is the trustee, or fiduciary, for the direct-sold Texas College Savings Plan and the advisor-sold LoneStar 529 Plan, the State’s 529 college savings plans and the Texas ABLE Program, the State’s 529A savings plan for individuals with disabilities. The college savings plan was first offered by the Board in September 2002 and the Texas ABLE Program opened to new enrollment in May 2018. All these funds are reported as private purpose trust funds because these are fiduciary funds. The State does not guarantee the programs. All governmental fiduciary activities are reported in separate Statements of Fiduciary Net Position and Changes in Fiduciary Net Position. The fiduciary activities are excluded from government-wide financial statements because a government cannot use these assets to finance its operations.






7

Financial Analysis of the Agency as a Whole Net Position Total Assets of the Agency on August 31, 2018 were over $1.4 billion, while total liabilities were nearly $2.0 billion, resulting in a net position (deficit) of approximately ($488.9) million. A summary of net position is shown below:

2018 2017 % of ChangeCurrent and Other Assets 1,440,431,363.22$ 1,565,637,497.10$ -8.00%Capital Assets (Net of Depreciation) - - 0.00%Total Assets 1,440,431,363.22 1,565,637,497.10 -8.00%

Current and Other Liabilities 1,929,330,278.60 2,066,846,054.95 -6.65%Total Liabilities 1,929,330,278.60 2,066,846,054.95 -6.65%

Net Position:Unrestricted Deficit (488,898,915.38) (501,208,557.85) -2.46%Total Net Position (Deficit) (488,898,915.38)$ (501,208,557.85)$ -2.46%

Statement of Net Position Information

Business-Type ActivitiesFiscal Year

Changes in Net Position The Agency recorded program revenues totaling over $76 million, which includes over $65 million in contract receipts, net of $32 million in refunds of contract principle and a decrease in the actuarial value of future contract principal of over $4 million and other capital gains and contributions of over $46 million; had an increase in the fair value of investments of over $16 million, and expenses of nearly $81 million, which includes a $122 million positive actuarial change in future contract benefits. The excess of revenues over expenses caused the Agency’s total net position to increase by over $12 million. This compares with an increase in net assets in the previous fiscal year of nearly $49 million. Revenues and expenses of the Agency’s business-type activities are detailed below:

2018 2017 % of ChangeRevenues

Education Program RevenuesCharges for Services 29,674,048.09$ 36,219,732.36$ -18.07%Capital Gains and Contributions 46,724,268.35 37,196,929.87 25.61%Transfers (100,000.00) 0.00 100.00%

Total Revenues and Transfers 76,298,316.44 73,416,662.23 3.93%

Net Increase in Fair Value of Investments 16,611,763.78 51,644,149.54 -67.83%Expenses (80,600,437.75) (76,081,334.28) 5.94%Increase in Net Position 12,309,642.47$ 48,979,477.49$ 74.87%

Statement of Activities Information

Business-Type ActivitiesFiscal Year






8

Analysis of the Agency’s Funds Proprietary Funds The increase of over $12 million in the Agency’s net position was due to an increase in the unfunded liability of the Texas Guaranteed Tuition Plan of over $12 million and an increase in the funded liability of the Texas Tuition Promise Fund of nearly $25 million. The increase of $12 million in the unfunded liability of the Texas Guaranteed Tuition Plan can be attributable to the following factors:

a change in the investment return assumptions for future years, lower than projected tuition increases, an increase in deferred matriculation as a result of beneficiaries postponing the use of their benefits or

taking fewer credit hours than expected. Fiduciary Funds The financial activity of the Board’s college saving plans, the direct-sold Texas College Savings Plan and theadvisor-sold LoneStar 529 Plan and the Board’s 529A savings plan, the Texas ABLE Program, are reported as private purpose trust funds. Budgetary Highlights The Board adopts an annual operating budget. The fiscal 2018 expenditure budget included all administrative costs paid directly by the Agency for the prepaid tuition, college savings plans and the Texas ABLE Program. The budget totaled over $3.8 million for the fiscal year ended August 31, 2018.

The largest component of the fiscal 2018 budget was consultant and professional fees at over $1.7 million or 44% of the total budget. Of that figure, nearly $0.9 million was budgeted for investment management and custodian fees.

The fiscal 2018 budget decreased when compared to the fiscal 2017 budget. The decrease in

Professional Fees and Services of 16.52% was coupled with decreases across most other budget categories for an overall decrease year over year of 11.91%.

A summary comparison of the fiscal 2018 budget to actual expenditures paid directly by the Board is shown below:

Salaries and Payroll Related Costs 1,559,256.71$ 1,375,274.63$ 135,919.44$ 1,511,194.07$ (48,062.64)$ -3.08%Professional Fees and Services 1,722,877.08 1,217,959.63 151,271.89 1,369,231.52 (353,645.56) -20.53%Repairs and Maintenance 42,000.00 43,193.70 - 43,193.70 1,193.70 2.84%Materials and Supplies 74,425.00 36,174.04 2,107.30 38,281.34 (36,143.66) -48.56%Other Operating Expenses 482,465.00 198,270.79 115,113.19 313,383.98 (169,081.02) -35.05%

3,881,023.79$ 2,870,872.79$ 404,411.82$ 3,275,284.61$ (605,739.18)$ -15.61%

FY 2018 EXPENSE TO BUDGET COMPARISONFY 2018 Actual Expenses

$ Variance Comparing Actual

to Budget

% Variance Comparing Actual to Budget

FY 2018 Budget

EnterpriseFunds

PrivatePurpose

Trust Funds

TotalActual

Expenses






9

Overall expenses were below budget by $605,739.18 due to lower than expected investment management fees included in Professional Fees and Other Expenses. Investment management fees are based on assets under management (“AUM”). During fiscal 2018, the market value of the AUM decreased below the balances projected when the budget was developed resulting in lower than projected investment management fees. Capital Assets and Debt Administration Capital Assets As of August 31, 2018, the Agency’s capital assets were fully depreciated. All capital assets were verified for existence and impairment. Debt Administration The Agency has no debt issued. Economic Factors and Next Year’s Budget and Rates The two main economic indicators that affected the financial position of the Agency during fiscal year 2018 were:

An increase in deferred matriculation as a result of beneficiaries postponing the use of their benefits or taking fewer credit hours than expected.

The change in the actuarial assumptions to reflect the actual 2017-2018 academic year tuition inflation

and updated assumptions for future return on investments. In August 2018, the Board adopted an operating budget of nearly $3.1 million for fiscal 2019. Contacting the Agency’s Financial Management This report is designed to provide our citizens, taxpayers, customers, account owners, investors, and creditors with a general overview of the Agency’s finances and to demonstrate the Agency’s accountability for the money it receives. If you have questions about this report or need additional financial information, you can contact the Comptroller’s Educational Opportunities and Investment Division by sending a letter to P.O. Box 13407, Austin, Texas 78711-3407, by calling 800-531-5441, ext. 3-2072, or sending an email to [email protected]. Comments or complaints may be forwarded to the Texas Prepaid Higher Education Tuition Board, Office of the Comptroller of Public Accounts, P.O. Box 13407, Austin, Texas 78711-3407, or by calling 512-936-2064.


F O U N D A T I O N


SM


TEXAS SM

G O V E R N M E N T - W I D E F I N A N C I A L S T A T E M E N T S

2 0 1 8




Statement of Net Position

August 31, 2018

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

11

AggregateDiscretely

Enterprise PresentedActivities Component Units

ASSETSCurrent Assets:

Cash and Cash Equivalents (Note 3):Cash in Bank $ - $ - Cash in State Treasury 4,018,308.38 49,822.32

Short Term Investments - 37,607.92 Securities Lending Collateral 24,893.30 - Restricted:

Cash and Cash Equivalents (Note 3):Cash Equivalents 112,759,026.76 -

Receivables From:Investment Trades 69,310.55 - Tuition Contracts Receivable 29,339,273.00 - Interest and Dividends 1,053,940.38 85.30 Other Assets 43,642.10 831,297.76

Total Current Assets 147,308,394.47 918,813.30

Non-Current Assets:Restricted:

Tuition Contracts Receivable 106,983,747.00 - Investments (Note 3) 1,186,139,221.75 -

Capital Assets (Note 2):Depreciable:

Computer Software-Intangible 2,199,883.46 - Less Accumulated Depreciation (2,199,883.46) -

Furniture and Equipment 26,906.91 - Less Accumulated Depreciation (26,906.91) -

Total Non-Current Assets 1,293,122,968.75 -

Total Assets $ 1,440,431,363.22 $ 918,813.30

LIABILITIESCurrent Liabilities:

Payables From:Accounts 633,803.17 656.16 Investment Trades 23,475.21 - Contract Benefits and Expenses 309,602,986.00 -

Obligations Under Securities Lending 24,893.30 - Employees’ Compensable Leave (Note 5) 82,052.29 - Other Liabilities 1,662,833.92 475,229.37

Total Current Liabilities 312,030,043.89 475,885.53

Non-Current Liabilities:Contract Benefits and Expenses 1,617,248,650.00 - Employees' Compensable Leave (Note 5) 51,584.71 -

Total Non-Current Liabilities 1,617,300,234.71 -

Total Liabilities 1,929,330,278.60 475,885.53

NET POSITION (DEFICIT)Unrestricted (488,898,915.38) 442,927.77

Total Net Position (Deficit) $ (488,898,915.38) $ 442,927.77




Statement of Activities



12

Enterprise Activities-Education Programs

AggregateDiscretelyPresented

Component UnitsPROGRAM REVENUES

Charges for Services:Tuition Contracts $ 65,429,986.89 $ - Tuition Contracts – Refund of Contract Principal (31,537,779.98) - Changes in Actuarial Future Contract Collections (4,965,537.00) - Licenses, Fees, and Permits 747,378.18 - Other Revenues 520,116.94 5.36

Total Program Revenues 30,194,165.03 5.36

PROGRAM EXPENSESTuition Contract Benefits and Expenses 169,776,881.81 - Changes in Future Contract Benefits (121,781,030.00) - Salaries and Wages 1,081,725.12 - Payroll Related Costs 293,549.51 - Professional Fees and Services 5,515,481.13 625.00 Travel 15,611.73 - Materials and Supplies 36,174.04 140.00 Communication and Utilities 22,583.23 - Repairs and Maintenance 43,193.70 - Rentals and Leases 23,816.10 - Printing and Reproduction 2,787.64 - Interest 118.95 - Other Operating Expenses (Includes Earnings Paid on Refunds of $24,929,884.83) 25,063,237.97 54,178.65

Total Program Expenses 80,094,130.93 54,943.65

Operating (Loss) (49,899,965.90) (54,938.29)

GENERAL REVENUESGifts, Pledges, and Donations - 43,754.58 Interest and Dividend Income 46,108,525.65 - Loan Premiums/Fees on Security Lending 95,625.76 - Investing Activities Expenses (486,828.97) 1,345.08 Borrower Rebates and Agent Fees (19,477.85) - Net (Decrease) Increase in Fair Value of Investments 16,611,763.78 - Transfers (100,000.00) 100,000.00

Total General Revenues and Transfers 62,209,608.37 145,099.66

Change in Net Position 12,309,642.47 90,161.37

Total Net Position (Deficit), September 1, 2017 (501,208,557.85) 352,766.40

Net Position (Deficit), August 31, 2018 $ (488,898,915.38) $ 442,927.77


F O U N D A T I O N


SM


TEXAS SM

P R O P R I E T A R Y F U N D F I N A N C I A L S T A T E M E N T S

2 0 1 8




Exhibit F-1 – Statement of Net Position – Major Enterprise Funds

August 31, 2018


14

Texas Tomorrow Constitutional Trust

Fund/Texas Guaranteed Tuition

Plan

Prepaid Tuition Unit Undergraduate

Education Program/Texas

Tuition Promise Fund(Fund 0892) (Fund 0842)U/F (0892) U/F (0842/4892) Totals


Cash and Cash Equivalents:Cash in Bank -$ -$ -$ Cash in State Treasury 2,359,815.54 1,658,492.84 4,018,308.38

Securities Lending Collateral 24,893.30 - 24,893.30Restricted:

Cash and Cash Equivalents:Cash Equivalents 112,759,026.76 - 112,759,026.76

Receivables From:Investment Trades 69,310.55 - 69,310.55Tuition Contracts Receivable 3,559,842.00 25,779,431.00 29,339,273.00Interest and Dividends 1,050,918.24 3,022.14 1,053,940.38Other Assets 1,806.24 41,835.86 43,642.10

Total Current Assets 119,825,612.63 27,482,781.84 147,308,394.47

Non-Current Assets:Restricted:

Tuition Contracts Receivable 3,203,277.00 103,780,470.00 106,983,747.00Investments 321,815,407.44 864,323,814.31 1,186,139,221.75

Capital Assets:Depreciable:

Computer Software-Intangible 2,199,883.46 - 2,199,883.46Less Accumulated Depreciation (2,199,883.46) - (2,199,883.46)

Furniture and Equipment 26,906.91 - 26,906.91Less Accumulated Depreciation (26,906.91) - (26,906.91)

Total Non-Current Assets 325,018,684.44 968,104,284.31 1,293,122,968.75

Total Assets 444,844,297.07$ 995,587,066.15$ 1,440,431,363.22$




Exhibit F-1 – Statement of Net Position – Major Enterprise Funds (Continued)

August 31, 2018


15



Plan





Payables From:Accounts 199,716.77$ 434,086.40$ 633,803.17$ Investment Trades 23,475.21 0.00 23,475.21Contract Benefits and Expenses 240,996,493.00 68,606,493.00 309,602,986.00

Obligations Under Securities Lending 24,893.30 - 24,893.30Employees’ Compensable Leave 67,444.39 14,607.90 82,052.29Other Liabilities 0.00 1,662,833.92 1,662,833.92

Total Current Liabilities 241,312,022.67 70,718,021.22 312,030,043.89

Non-Current Liabilities:Contract Benefits and Expenses 829,556,301.00 787,692,349.00 1,617,248,650.00Employees’ Compensable Leave 41,767.03 9,817.68 51,584.71

Total Non-Current Liabilities 829,598,068.03 787,702,166.68 1,617,300,234.71

Total Liabilities $1,070,910,090.70 $858,420,187.90 $1,929,330,278.60

NET POSITION (DEFICIT)Unrestricted (626,065,793.63) 137,166,878.25 (488,898,915.38)

Total Net Position (Deficit) (626,065,793.63)$ 137,166,878.25$ (488,898,915.38)$



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Exhibit F-3 – Statement of Cash Flows – Major Enterprise Funds



18



Plan




CASH FLOWS FROM OPERATING ACTIVITIESProceeds Received From Customers (Net of Refunds) (15,805,452.73)$ 49,801,858.84$ 33,996,406.11$ Earnings Paid on Refunds (24,929,884.83) - (24,929,884.83) Proceeds from Other Revenues 189,216.15 1,064,542.53 1,253,758.68 Payments to Suppliers for Goods and Services (1,276,785.56) (4,362,701.92) (5,639,487.48) Payments to Employees for Salaries (758,042.14) (321,412.49) (1,079,454.63) Payments to Employees for Benefits (220,793.60) (72,755.91) (293,549.51) Payments for Other Expenses (Includes Benefit Payments) (147,300,280.21) (22,643,753.54) (169,944,033.75)

Net Cash Provided by (Used in) Operating Activities (190,102,022.92) 23,465,777.51 (166,636,245.41)

CASH FLOWS FROM NONCAPITAL FINANCINGACTIVITIESPayments for Transfers to Other Funds - (100,000.00) (100,000.00)

Net Cash Provided by (Used in) Noncapital Financing Activities - (100,000.00) (100,000.00)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES - - -

Net Cash Provided by Capital and RelatedFinancing Activities - - -

CASH FLOWS FROM INVESTING ACTIVITIESProceeds from Sales of Investments 497,789,355.36 195,698,393.33 693,487,748.69 Proceeds from Interest Income 10,713,171.22 36,693,534.26 47,406,705.48 Payments to Acquire Investments (511,866,724.46) (255,651,409.49) (767,518,133.95)

Net Cash Provided by (Used in) Investing Activities (3,364,197.88) (23,259,481.90) (26,623,679.78)

Net Increase (Decrease) in Cash and Cash Equivalents (193,466,220.80) 106,295.61 (193,359,925.19)

Cash and Cash Equivalents, September 1, 2017 308,585,063.10 1,552,197.23 310,137,260.33

Cash and Cash Equivalents, August 31, 2018 115,118,842.30$ 1,658,492.84$ 116,777,335.14$




Exhibit F-3 – Statement of Cash Flows – Major Enterprise Funds (Continued)



19



Plan




RECONCILIATION OF OPERATING LOSS TO NET CASHPROVIDED BY (USED IN) OPERATING ACTIVITIES

Operating Loss (21,566,192.21)$ (28,333,773.69)$ (49,899,965.90)$

Adjustments to Reconcile Operating Loss to Net CashProvided by (Used In) Operating Activities

Changes in Assets and Liabilities:Decrease in Tuition Contracts Receivables 4,965,537.00 1,161,905.00 6,127,442.00 (Increase) Decrease in Other Receivable 2.14 (3,724.62) (3,722.48) Increase (Decrease) in Benefits and Expenses Payable (173,437,788.00) 50,494,853.00 (122,942,935.00) Increase (Decrease) in Accounts Payable (64,868.21) 39,640.35 (25,227.86) Increase in Compensated Absence Liabilities 1,286.36 1,222.68 2,509.04 Increase in Other Liabilities - 105,654.79 105,654.79

Total Adjustments (168,535,830.71) 51,799,551.20 (116,736,279.51)

Net Cash Provided by (Used in) Operating Activities (190,102,022.92)$ 23,465,777.51$ (166,636,245.41)$

NON CASH TRANSACTIONSNet Change in Fair Value of Investments (155,216.88)$ 16,766,980.66$ 16,611,763.78$


F O U N D A T I O N


SM


TEXAS SM

F I D U C I A R Y F U N D F I N A N C I A L S T A T E M E N T S

2 0 1 8




Combining Statement of Fiduciary Net Position

August 31, 2018


21

College TexasSavings Plans ABLE Program

Private-Purpose Private-PurposeTrust Funds Trust Funds(Fund 0892) (Fund 0907)

U/F (2892 & 3892) U/F (0907) TotalsASSETS

Cash and Cash Equivalents:Cash in Bank 442,506.16$ 162,849.44$ 605,355.60$ Cash in State Treasury 754,296.48 241,796.48 996,092.96

Investments:Other Investments 722,851,360.36 208,785.72 723,060,146.08

Receivables From:Contribution Receivable 726,543.71 - 726,543.71 Interest and Dividends 390,616.28 432.23 391,048.51 Other 265,387.34 59.23 265,446.57

Total Assets 725,430,710.33 613,923.10 726,044,633.43

LIABILITIESPayables From:

Accounts 433,540.90 300.31 433,841.21 Withdrawals 680,744.72 - 680,744.72

Other Liabilities 1,851,348.24 242,095.40 2,093,443.64 Total Liabilities 2,965,633.86 242,395.71 3,208,029.57

NET POSITIONHeld in Trust For:

College Savings Plan Contributors 722,465,076.47$ 371,527.39$ 722,836,603.86$




Combining Statement of Changes in Fiduciary Net Position



22

CollegeSavings Plans

Texas ABLE Program

Private-Purpose Private-PurposeTrust Funds Trust Funds(Fund 0892) (Fund 0907)

U/F (2892 & 3892) U/F (0907) TotalsADDITIONS

Investment Income:From Investing Activities:

Net Appreciation in Fair Value of Investments 32,185,003.65$ 2,237.11$ 32,187,240.76$

Interest and Investment Income 26,955,834.45 1,996.55 26,957,831.00 Total Investing Income 59,140,838.10 4,233.66 59,145,071.76

Less Investing Activities Expense 4,643,067.97 (0.60) 4,643,067.37 Net Income from Investing Activities 54,497,770.13 4,234.26 54,502,004.39

Total Net Investment Income 54,497,770.13 4,234.26 54,502,004.39

Contributions:Account Holder Contributions 234,408,147.94 452,078.00 234,860,225.94

Total Contributions 234,408,147.94 452,078.00 234,860,225.94

Other Additions: Fees – Administrative Services 314,277.80 26.50 314,304.30 Reimbursements-Third Party 67,913.70 7,904.60 75,818.30 Total Other Additions 382,191.50 7,931.10 390,122.60

Total Additions 289,288,109.57 464,243.36 289,752,352.93

DEDUCTIONSDistributions Made from Accounts 213,110,506.68 83,305.70 213,193,812.38 Salaries and Wages 113,447.57 - 113,447.57 Payroll Related Costs 22,471.87 - 22,471.87 Professional Fees and Services 151,205.00 66.89 151,271.89 Travel 433.64 1,673.66 2,107.30 Materials and Supplies 146.48 - 146.48 Communications and Utilities - 219.72 219.72 Rental and Leases 756.98 1,950.00 2,706.98 Interest Expense 23.40 - 23.40 Other Expense 106,516.61 5,500.00 112,016.61

Total Deductions 213,505,508.23 92,715.97 213,598,224.20

INCREASE IN NET POSITION 75,782,601.34 371,527.39 76,154,128.73

NET POSITIONNet Position Held in Trust for College Savings Plan Contributors, September 1, 2017 646,682,475.13 - 646,682,475.13

Net Position Held in Trust for College Savings Plan Contributors, August 31, 2018 722,465,076.47$ 371,527.39$ 722,836,603.86$


F O U N D A T I O N


SM


TEXAS SM

D I S C R E T E L Y P R E S E N T E D C O M P O N E N T U N I T S

F I N A N C I A L S T A T E M E N T S

2 0 1 8




Combining Statement of Net Position

Discretely Presented Component Units

August 31, 2018


24

Texas Prepaid Tuition

Scholarship Foundation

Texas Save and Match Program/ Match the Promise Foundation

Aggregate Discretely Presented

(Fund 0892) (Fund 0878) ComponentU/F (1892) U/F (6892) Units


Cash and Cash EquivalentsCash In State Treasury 17,764.12$ 32,058.20$ 49,822.32$

Short Term Investments - 37,607.92 37,607.92 Receivables From:

Interest and Dividends 29.61 55.69 85.30 Other Current Assets 80,744.96 750,552.80 831,297.76

Total Current Assets 98,538.69 820,274.61 918,813.30 Total Assets 98,538.69 820,274.61 918,813.30


Payables From:Accounts - 656.16 656.16

Other Liabilities 80,744.96 394,484.41 475,229.37 Total Current Liabilities 80,744.96 395,140.57 475,885.53

Total Liabilities 80,744.96 395,140.57 475,885.53

NET POSITIONUnrestricted 17,793.73 425,134.04 442,927.77

Total Net Position 17,793.73$ 425,134.04$ 442,927.77$




Combining Statement of Activities

Discretely Presented Component Units



25

Texas Prepaid Tuition

Scholarship Foundation

Texas Save and Match Program/ Match the Promise Foundation

Aggregate Discretely Presented

(Fund 0892) (Fund 0878) ComponentU/F (1892) U/F (6892) Units

OPERATING REVENUEOther Operating Revenue -$ 5.36$ 5.36$

Total Operating Revenues - 5.36 5.36

OPERATING EXPENSESProfessional Fees and Services -$ 625.00$ 625.00$ Materials and Supplies - 140.00 140.00 Other Operating Expenses - 54,178.65 54,178.65

Total Operating Expenses - 54,943.65 54,943.65 Operating Loss - (54,938.29) (54,938.29)

NONOPERATING REVENUE (EXPENSES)Gifts, Pledges and Donations - 43,754.58 43,754.58 Investment Income 384.64 960.44 1,345.08

Total Nonoperating Revenues (Expenses) 384.64 44,715.02 45,099.66 Income (Loss) Before Other Revenues, Expenses,

Gains/Losses, and Transfers 384.64 (10,223.27) (9,838.63)

OTHER REVENUES, EXPENSES, GAINS/LOSSES, AND TRANSFERSTransfer In - 100,000.00 100,000.00

Total Other Revenues, Expenses, Gains/Losses, and Transfers - 100,000.00 100,000.00

Change in Net Position 384.64 89,776.73 90,161.37

Net Position, September 1, 2017 17,409.09 335,357.31 352,766.40

Net Position, August 31, 2018 17,793.73$ 425,134.04$ 442,927.77$


F O U N D A T I O N


SM


TEXAS SM

N O T E S T O T H E F I N A N C I A L

S T A T E M E N T S

2 0 1 8




Notes to the Financial Statements

Fiscal Year Ended August 31, 2018

26

NOTE 1: Summary of Significant Accounting Policies ENTITY The Texas Prepaid Higher Education Tuition Board (the “Board”) is an agency of the State of Texas (the “State”) and its financial records comply with state statutes and regulations. This includes compliance with the Texas State Comptroller of Public Accounts’ Reporting Requirements of State Agencies.

By Texas law, the Board is comprised of seven members. The Comptroller is the Board’s presiding officer. The Governor appoints two Board members, and the Lieutenant Governor appoints four, two of which come from persons recommended by the Speaker of the Texas House of Representatives. Board members must possess knowledge, skill, and experience in higher education, business, or finance. The Board is in the office of the Comptroller, and Comptroller employees serve as Board staff. The Board meets at least quarterly in Austin, Texas. The Board’s mission is to assist Texas families by providing a means to save sufficient funds for higher education. The Board administers the Texas Guaranteed Tuition Plan, the Texas College Savings Plan®, the LoneStar 529 Plan®, the Texas Tuition Promise Fund®, the Texas Achieving a Better Life Experience Program (“Texas ABLE®

Program”) and the Texas Save and Match Program. Generally, earnings on the State's prepaid tuition and college savings plans are tax-free to participants if used for a qualified higher education expense.

House Bill 1214 enacted by the Legislature in May 1995 and signed by the Governor in June 1995 established a prepaid higher education tuition program that allowed purchasers to enter into a prepaid tuition contract with the Board to prepay tuition and school-wide required fees for a beneficiary to attend an institution of higher education or private or independent institution of higher education. In November 1997, Texas voters passed Proposition 13, a constitutional amendment that put the State’s official backing behind the plan, thereby guaranteeing the Texas Tomorrow constitutional trust fund with the full faith and credit of the State of Texas and the name of the plan was changed from the Texas Tomorrow Fund® to the Texas Guaranteed Tuition Plan. Assets of the plan totaled approximately $444.8 million at August 31, 2018. Approximately 158,400 prepaid tuition contracts were sold; 46,487 of those accounts were active at August 31, 2018. Participants purchased plans for junior colleges, senior colleges and universities, and/or private colleges and universities. The prepaid tuition program pays tuition and school-wide required fees only and can be used at eligible Texas public or private colleges and universities, out-of-state colleges and universities, and career schools. Benefits are paid based on an hourly reimbursement rate for the plan type purchased. The plan was closed to new enrollment in 2003 when tuition was deregulated. By rule, the Board considers re-opening plan enrollment on an annual basis based on evaluation of the fund’s actuarial soundness.

In May 2001, the 77th Legislature passed Senate Bill 555 that authorized the Board to offer a college savings plan in addition to its prepaid tuition program. The State offers two college savings plans, the direct-sold Texas College Savings Plan and the advisor-sold LoneStar 529 Plan. NorthStar Financial Services Group, LLC, (“NorthStar”) served as the plan manager for the college savings plans for the fiscal year ended August 31, 2018. NorthStar provides administrative, record keeping, accounting, distribution, custodian, and customer services for the plans. The Board, with the assistance of an independent investment consultant, sets the asset allocations and selects the underlying investments of the plans. College savings accounts can be used for qualified higher education expenses including tuition and fees, certain room and board expenses, books and required supplies and equipment at any accredited post-secondary school that is eligible to participate in federal student financial aid programs. This includes most public or private universities, graduate schools, community colleges and certain vocational schools. The Tax Cuts and Jobs Act of 2017 amended the Internal Revenue Code Section 529 to allow college savings accounts to be used to pay tuition at an elementary or secondary public, private or religious school. Assets in the plans are subject to investment risk and are not guaranteed by the State. There were 42,805 accounts in the college savings plans at August 31, 2018; plan assets totaled $725.4 million.






27

In 2007, the 80th legislature passed House Bill 3900 that established the Texas Tomorrow Fund II (“TTF II”) and authorized the Texas Save and Match Program. The Texas Tuition Promise Fund, created to fulfill the requirement to establish TTF II, opened for new enrollment in November 2008. The Texas Tuition Promise Fund allows participants to purchase tuition units at today's Texas public college prices that can be redeemed in the future for tuition and school-wide required fees at Texas public colleges and universities and the transfer value can be used for payment to Texas private or out-of-state colleges and universities or career schools. Transfer value is limited to the lesser of (1) the costs the tuition units would cover at a public in-state college or university or (2) the original purchase price of the tuition unit plus or minus the plan’s net investment earnings or losses on that amount. NorthStar served as plan manager for the fiscal year ended August 31, 2018. As of fiscal year end, the Texas Tuition Promise Fund had sold 35,851 contracts and fund assets totaled $995.6 million. Texas public colleges and universities must accept the tuition units as payment in full for tuition and school-wide required fees for the number of hours paid by the plan. Contracts used for Texas private colleges and universities, career schools or out-of-state colleges and universities are subject to investment risk. The Texas Prepaid Tuition Scholarship Foundation, Inc. (the “Scholarship Foundation”) was created to provide prepaid tuition scholarships to students meeting certain economic or academic requirements. The Scholarship Foundation is a 501(c)(3) direct-support organization of the Texas Guaranteed Tuition Plan and is authorized by Section 54.633 of the Texas Education Code. The Scholarship Foundation is governed by a board composed of the Texas State Comptroller of Public Accounts, a member appointed by the Governor with the advice and consent of the Senate, and three members appointed jointly by the Comptroller and the member appointed by the Governor. The Texas Match the Promise FoundationSM (the “Promise Foundation”), a 501(c)(3) public charity, was established in 2009 to implement the requirements of the Texas Save and Match Program established by Section 54.7521 of the Texas Education Code. The 82nd Legislature repealed Section 54.7521 and created Education Code, Chapter 54, Subchapter I, that clarified the roles of the Promise Foundation and the Board in administering the program. The program encourages families to save for college by providing matching funds to beneficiaries enrolled in the Texas Tuition Promise Fund based on criteria established by statute and additional criteria established by the Promise Foundation or Board. The Promise Foundation is administered by the Comptroller and a board of directors appointed by the Comptroller. The Texas ABLE® Program was created by Senate Bill 1664 in the 84th Legislative Session and signed by the Governor in June 2015 to encourage and assist individuals and families in saving funds for the purpose of supporting individuals with disabilities to maintain health, independence and quality of life; and to provide secure funding for qualified disability expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, the Supplemental Security Income (SSI) program, the Social Security Disability Insurance (SSDI) program, the Medicaid program, the beneficiary's employment and other sources. The Texas ABLE Program, is established and maintained by the Texas Prepaid Higher Education Tuition Board, with assistance from the Comptroller’s Office. The program was opened for enrollment in May 2018. The Board contracted with NorthStar Financial Services Group, LLC to serve as program manager for the Texas ABLE Program. NorthStar served as program manager for the fiscal year ended August 31, 2018. As of fiscal year end, the Texas ABLE Program had 234 accounts and fund assets totaled $371,527.39. By contract, the plan manager of the college savings plans, Texas Tuition Promise Fund and the Texas ABLE Program is required to provide audited financial statements to the Board annually. Those audited statements were used in preparing the Board’s financial statements






28

FINANCIAL REPORTING ENTITY In accordance with accounting principles generally accepted in the United States of America, the Board’s financial reporting entity consists of (a) the Board and (b) component units for which the nature and significance of their relationship with the Board is such that exclusion from the reporting entity’s financial statements would be misleading or incomplete (discretely presented). Discrete Component Units These are component units that are legally separate from the State, but are financially accountable to the State, or have a relationship with the State such that exclusion would cause the financial statements to be misleading. The Texas Match the Promise Foundation and the Texas Prepaid Tuition Scholarship Foundation are included as discretely presented component units of the Texas Prepaid Higher Education Tuition Board. FUND STRUCTURE Government-Wide and Fund Financial Statements The basic financial statements, as required by the Governmental Accounting Standards Board, include three basic components: (1) government-wide financial statements, (2) fund financial statements, and (3) notes to the financial statements. The government-wide financial statements (Statement of Net Position and Statement of Activities) report information on all non-fiduciary activities of the Board as a whole and its component units. The Management Discussion and Analysis section introduces the basic financial statements and provides an analytical overview of the Board’s financial activities. The accounts of the Board are organized in the basis of funds, each of which is considered a separate accounting entity. The Board has two types of funds: (1) proprietary and (2) fiduciary. The fund financial statements provide more detailed information about the Board’s major funds only and not the Board as a whole. The Board reports the following major funds in its fund financial statements: The Texas Guaranteed Tuition Plan and the Texas Tuition Promise Fund. PROPRIETARY FUND TYPES Enterprise Funds Enterprise Funds are used to account for any activity for which a fee is charged to external users for goods or services. Activities must be reported as enterprise funds if any one of the following criteria is met.

1. The activity is financed with debt that is secured solely by a pledge of the net revenues from fees and charges of the activity.

2. Laws or regulations require that the activity’s costs of providing services including capital costs (such as depreciation or debt service) be recovered with fees and charges.

3. The pricing policies of the activity establish fees and charges designed to recover its costs, including capital

costs. The financial activities of the Texas Guaranteed Tuition Plan (Fund 0892) and the Texas Tuition Promise Fund (Fund 0842/4892) are reported as enterprise fund activities.






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FIDUCIARY FUND TYPES Fiduciary Funds account for assets held by the State in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and/or other funds. When assets are held under the terms of a formal trust agreement, a pension trust fund, an agency fund or a private purpose trust fund is used to account for such assets.

Private Purpose Trust Funds

Private Purpose Trust Funds are used to account for all other trust arrangements whose principal and interest benefit individuals, private organizations, or other governments. The financial activities of the Texas College Savings Plan, the LoneStar 529 Plan (Funds 2892 and 3892) and the Texas ABLE Program (Fund 0907) are reported as private purpose trust fund activities.

Component Units

Additional information about component units can be found in Note 19. The Texas Prepaid Tuition Scholarship Foundation (Fund 1892) and the Texas Match the Promise Foundation (Fund 6892) are presented in this report as Discrete Component Units. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING The basis of accounting determines when revenues and expenses are recognized in the accounts reported in the financial statements. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenue is recognized when earned and expenses are recognized when a liability is incurred, regardless of the timing of related cash flows. Proprietary funds and private purpose trust funds are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized at the time liabilities are incurred. Proprietary funds distinguish operating from non-operating items. Operating revenues and expenses result from providing services or producing and delivering goods in connection with the proprietary funds principal ongoing operations. Operating expenses for the enterprise funds include the costs of services, administrative expenses, and depreciation on capital assets. Tuition contract revenue is recognized in the year the contracts are entered into with a purchaser and is recorded at the future discounted contract payments adjusted for unearned interest and cancellations. Application fees are recognized as revenue when the application is accepted. Refunds of contract principal, due to cancelations, are recorded as contra-revenue in the year the contract is canceled. The Board paid refunds of contract principal in the amount of $21,820,572.74 and $9,717,207.24, respectively, for Texas Guaranteed Tuition Plan and Texas Tuition Promise Fund for the year ended August 31, 2018. BUDGETS AND BUDGETARY ACCOUNTING The Board at the beginning of each fiscal year adopts an annual operating budget. This expenditure budget includes all administrative and marketing costs paid directly by the Board for both the prepaid tuition and college savings plans and totaled $3,881,023.79 for the fiscal year ended August 31, 2018.






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ASSETS, LIABILITIES, AND NET POSITION ASSETS Cash and Cash Equivalents

Short-term highly liquid investments with an original maturity of three months or less are considered cash equivalents. For purposes of reporting cash flows, the Board considers cash and cash equivalents as money market accounts, certificates of deposit, and government obligations with original maturities of three months or less from the date of purchase. The carrying amount of the Board’s deposits and balances with banks, which are held by the State Treasury at August 31, 2018, were $2,359,815.54 for the Texas Guaranteed Tuition Plan and $1,658,492.84 for the Texas Tuition Promise Fund, all of which were fully collateralized or insured. A total of $112,759,026.76 was invested in the Texas Guaranteed Tuition Plan's investment custodian’s short-term investment funds August 31, 2018.

Investments and Securities Lending Collateral Investments are stated at fair value in all funds in accordance with GASB Statement No. 72 Fair Value Measurement and Application. Fair Value is the price that would be received to sell an asset in an ordinary transaction between market participants at the measurement date. The Board carries its investments in equities and debt securities at fair value using observable inputs including but not limited to quoted prices for similar securities, interest rates, and a fixed income pricing model which uses available market rates. The Board also participates and holds investments in pooled funds which publish net asset values and, as permitted by GASB Statement No. 72, carries the securities at net asset value per share. Collateral received for securities lent is reported as an asset on the balance sheet and is offset by a like amount under liabilities to recognize the obligation to repay the collateral when the securities are returned. The costs of securities lending transactions are reported as expenses in the operating statement. These costs are reported at gross. Interest and Dividends Receivable Accrued interest and dividends on investments and the depository interest earned by the State Treasury at year-end that will not be deposited with the Board until after the end of the fiscal year are recorded when earned.

Investment Trade Receivables This account represents investment sales that occurred on or before the fiscal year end for which cash payments will be received after the fiscal year end. Tuition Contracts Receivable The prepaid tuition plans record tuition contracts receivable at the actuarial present value of future discounted contract payments adjusted for unearned interest and estimated cancellations. Any portion due within the next 12 months is classified as short-term; otherwise, classification as a long-term receivable is appropriate.






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Other Receivables On a monthly basis, the Texas Tuition Promise Fund, the College Savings Plans and the Texas ABLE Program, collect an administrative fee at the annual rate of 0.0575%, 0.0843% and .1%, respectively, of the average daily net assets of the plans to offset the Board’s costs of administering the plans. The balances owed on the statement date are recognized as receivables. At August 31, 2018, the administrative fee balance for each plan was $41,835.86, $36,661.54 and $13.17, respectively. In the normal course of business, both the College Savings Plans and the Texas ABLE Program, also had other receivables resulting from securities sold and not collected and reimbursable expenses not collected from third parties. The balances at August 31, 2018, for these receivables were $228,725.80 and $46.06, respectively.

Capital Assets Assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year are capitalized. Proprietary fund purchases of fixed assets are reported in those funds at cost or estimated historical cost if actual historical cost is not available. Donated assets are reported at their acquisition value on the acquisition date. Depreciation or amortization is charged to operations over the estimated useful life of each asset, using the straight-line method. The accumulated depreciation and amortization account records the accumulation of periodic deductions from capital assets to account for the expiration of the service life of the asset. Other Assets

Other Assets consist of tuition units purchased by one of the Board’s discretely presented component units, theTexas Match the Promise Foundation. These units are used by the foundation to offer competitive matching scholarships and tuition awards to Texas students who participate in the Texas Tuition Promise Fund. LIABILITIES

Accounts Payable

Accounts Payable represents the liability for the value of assets or services received at the balance sheet date for which payment is pending.

Investment Trade Payables This account represents the liability for investment purchases that occurred on or before the fiscal year end for which cash payment will be made after the fiscal year end.

Contract Benefits and Expenses Payable The prepaid tuition plans record contract benefits payable at the actuarial present value of future tuition obligations, which is adjusted for the effects of projected tuition and fee increases and termination of contracts. Any portion due within the next 12 months is classified as current; otherwise, classification as a noncurrent liability is appropriate. Obligations Under Securities Lending

Collateral received for securities lent is reported as an asset on the balance sheet and is offset by a liability to recognize the obligation to repay the collateral when the securities are returned.






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Employees’ Compensable Leave

Employees’ Compensable Leave balances represent the total liability that becomes “due” upon the occurrence of relevant events such as resignations, retirements, and other uses of leave balances by covered employees. Liabilities are reported separately as either current or noncurrent in the Statement of Net Position. Other Liabilities

Other Liabilities consists of administrative fees at August 31, 2018 in the Texas Tuition Promise Fund and the college savings plans and the value of tuition units awarded as scholarships by the Board’s discretely presented component units, the Texas Match the Promise Foundation and Texas Prepaid Tuition Scholarship Foundation. The Texas Match the Promise Foundation offers competitive matching scholarships and tuition awards to Texas students who participate in the Texas Tuition Promise Fund. The Texas Prepaid Tuition Scholarship Foundation awarded its scholarships to poster board contest winners. Significant Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from these estimates. NET POSITION Investment in Capital Assets Investment in capital assets, net of related debt consists of capital assets, net of accumulated depreciation and reduced by outstanding balances for bond, notes, deferred inflows/outflows and other debt that are attributed to the acquisition, construction, or improvement of those assets. There was no investment in capital assets as of August 31, 2018.

Restricted Net Position Restricted net position results when constraints placed on the use of resources are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law through constitutional provisions or enabling legislation. There was no restricted net position as of August 31, 2018.

Unrestricted Net Position (Deficit) Unrestricted net position consists of net resources, which do not meet the definition of the two proceeding categories. Unrestricted net position often has constraints on resources, which are imposed by management, but can be removed or modified. INTERFUND ACTIVITIES AND BALANCES The Board has the following transactions between and within State funds:

1. Reimbursements: Reimbursements are repayments from funds responsible for expenditures or expenses to funds that made the actual payment. Reimbursements of expenditures made by one fund for another are recorded as expenditures or expenses in the reimbursing fund and as a reduction of expenditures in the reimbursed fund. Reimbursements are not displayed in the financial statements.

2. Reciprocal Activities (interfund sales and purchases): Charges or collections of services rendered by one fund to another that are recorded as revenues of the recipient fund and expenditures or expenses of the disbursing fund.






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3. Operating Transfers: Legally required transfers that are reported when incurred as ‘Operating Transfers In’ by the recipient fund and as ‘Operating Transfers Out’ by the disbursing fund.

The composition of the Agency’s interfund activities and balances is presented in Note 12. NOTE 2: Capital Assets

A summary of changes in Capital Assets for the year ended August 31, 2018, is presented below:

PRIMARY GOVERNMENT

Balance Balance8/31/2017 Additions Deletions 8/31/2018

BUSINESS-TYPE ACTIVITIESDepreciable Assets: Furniture and Equipment 26,906.91$ -$ -$ 26,906.91$ Computer Software – Intangible 2,199,883.46 - - 2,199,883.46 Less Accumulated Depreciation for: Furniture and Equipment (26,906.91) - - (26,906.91) Computer Software – Intangible (2,199,883.46) - - (2,199,883.46) Depreciable Assets, Net - - - - Business-type Activities Capital Assets, Net -$ -$ -$ -$

NOTE 3: Deposits, Investments, and Repurchase Agreements House Bill No. 9 amended Section 54.636(e), Education Code, on May 7, 1997, to authorize the Board to make investments following the “prudent person rule.” Deposits of Cash in Bank The Texas Guaranteed Tuition Plan’s and Texas Tuition Promise Fund’s investment policies allow their investment managers to hold cash and cash equivalents for liquidity in the portfolio and to facilitate trading. The funds are included as “Cash Equivalents” and “Cash in State Treasury” on the Statement of Net Position for the Proprietary Funds. Cash in State Treasury is not considered a deposit with a financial institution for the Board’s reporting purposes since the State Treasury in not a bank. The college savings plans and the Texas ABLE Program hold cash for liquidity purposes, as well. The funds are included in the Cash and Cash Equivalents section of the Combining Statement of Fiduciary Net Position for the Private Purpose Trust Funds.

Proprietary Private PurposeFunds Trust Funds Total

Cash in Bank – Carrying Value $ - $ 605,355.60 $ 605,355.60






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Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the Texas College Savings Plan and the Texas ABLE Program will not be able to recover deposits or collateral securities that are in the possession of an outside party. None of the Texas College Savings Plan’s deposits as of August 31, 2018 were exposed to custodial credit risk. The Texas ABLE Program’s cash deposits are FDIC insured up to $250,000. While the Program’s cash deposits are below that limit currently, in the event of a failure, the Program’s deposits may not be returned promptly. Investments The carrying value and fair values of short-term and long-term investments as of August 31, 2018 are shown below:

Carrying Fair % of Value Value Total

BUSINESS-TYPE ACTIVITIES – Texas Guaranteed Tuition Plan (TGTP) (Fund 0892)U.S. Government: U.S. Treasury Securities 197,531,917.13$ 197,531,917.13$ 45.45%U.S. Government Agency Obligations 64,948,910.63 64,948,910.63 14.94%Corporate Obligations 30,943,588.94 30,943,588.94 7.12%Corporate Asset and Mortgage Backed Securities 5,454,069.22 5,454,069.22 1.25%Equity 21,273,984.82 21,273,984.82 4.90%International Obligations (Govt and Corp) 1,662,936.70 1,662,936.70 0.38%Other Commingled Funds – Short Term Investment Fund 112,759,026.76 112,759,026.76 25.95%Securities Lending Collateral Investment Pool 24,893.30 24,893.30 0.01% Totals 434,599,327.50$ 434,599,327.50$ 100.00%

Business-Type Activities – Texas Guaranteed Tuition Plan consists of the following: Proprietary Funds Current Invested Security Lending Collateral 24,893.30$ Proprietary Funds Current Restricted Cash Equivalents 112,759,026.76 Proprietary Funds Non-Current Restricted Investments 321,815,407.44 Total, as above 434,599,327.50$

Fair % of Cost Value Total

BUSINESS-TYPE ACTIVITIES – Texas Tuition Promise Fund* (Fund 0842)Domestic Equity Funds 250,262,060.75$ 262,433,971.19$ 30.36%International Equity Funds 159,805,826.27 163,638,056.44 18.93%Fixed Income Funds 317,362,759.95 306,673,337.71 35.48%Asset Allocation Funds 67,827,442.32 63,864,970.86 7.39%Commodity Funds 37,570,633.02 33,911,221.70 3.92%Exchange Traded Funds 34,301,651.91 33,802,256.41 3.91% Totals 867,130,374.22$ 864,323,814.31$ 100.00%






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Fair % of Cost Value Total

FIDUCIARY FUNDS – college Savings Plans* (Fund 2892)Fixed Income Mutual Funds 248,946,982.51$ 243,186,830.56$ 33.64%Equity Mutual Funds 343,117,556.25 430,950,985.20 59.62%Money Market Funds 48,713,544.61 48,713,544.60 6.74% Totals 640,778,083.37$ 722,851,360.36$ 100.00%

FIDUCIARY FUNDS – Texas ABLE Program* (Fund 0907)Domestic Equity Funds 67,986.19$ 70,550.32$ 33.79%International Equity Funds 52,785.33 52,514.55 25.15%Fixed Income Funds 85,574.33 85,720.85 41.06% Totals 206,345.85$ 208,785.72$ 100.00%

* Investments of the Texas Tuition Promise Fund, the college savings plans and the Texas ABLE Program are held

by the plan manager in the name of the Plan. The Plans utilize various methods to measure the fair value of investments on a recurring basis. GASB Statement No. 72, Fair Value Measurement and Application, establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are: Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities that the Plan has the ability to access. Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument in an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Plan’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments measured at net asset value do not have significant terms, limitations, or conditions for the frequency of redemption or any commitments for additional funding. The U.S. Treasury Securities Index Fund invests in U.S. Treasury debt securities and pursue capital preservation while seeking to replicate or outperform the U.S. Treasury Bond Index. The Short Term Investment Fund invests in money market investments of high quality and low risk with the objective of capital preservation.






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The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following tables summarize the inputs used as of August 31, 2018 for the Plan’s assets and liabilities measured at fair value:

Fair Value Level 1 Level 2 Level 3

BUSINESS-TYPE ACTIVITIES – Texas Guaranteed Tuition Plan (Fund 0892)U.S. Government: U.S. Treasury Securities 197,531,917.13$ -$ 197,531,917.13$ -$ U.S. Government Agency Obligations 26,428,924.01 - 26,428,924.01 - Corporate Obligations 30,943,588.94 - 30,943,588.94 - Corporate Asset and Mortgage Backed Securities 5,454,069.22 - 5,454,069.22 - Equity 21,273,984.82 21,273,984.82 - - International Obligations (Govt and Corp) 1,662,936.70 - 1,662,936.70 - Securities Lending Collateral Investment Pool 24,893.30 - 24,893.30 -

283,320,314.12 21,273,984.82$ 262,046,329.30$ -$

Investments Measured at Net Asset Value (NAV) U.S. Treasury Securities (Index Fund) 38,519,986.62 Other Commingled Funds – Short Term Investment Fund 112,759,026.76 Totals 434,599,327.50$

BUSINESS-TYPE ACTIVITIES – Texas Tuition Promise Fund (Fund 0842)Domestic Equity Funds 262,433,971.19$ 262,433,971.19$ -$ -$ International Equity Funds 163,638,056.44 163,638,056.44 - - Fixed Income Funds 306,673,337.71 306,673,337.71 - - Asset Allocation Funds 63,864,970.86 63,864,970.86 - - Commodity Funds 33,911,221.70 33,911,221.70 - - Exchange Traded Funds 33,802,256.41 33,802,256.41 Total 864,323,814.31$ 864,323,814.31$ -$ -$

`FIDUCIARY FUNDS – College Savings Plans (Fund 2892)Fixed Income Mutual Funds 243,186,830.56$ 243,186,830.56$ -$ -$ Equity Mutual Funds 430,950,985.20 430,950,985.20 - - Totals 674,137,815.76 674,137,815.76$ -$ -$

Investments Measured at Amortized Cost Money Market Funds 48,713,544.60 Totals 722,851,360.36$

FIDUCIARY FUNDS – Texas ABLE Program (Fund 0907)Domestic Equity Funds 70,550.32$ 70,550.32$ -$ -$ International Equity Funds 52,514.55 52,514.55 - - Fixed Income Funds 85,720.85 85,720.85 - - Totals 208,785.72$ 208,785.72$ -$ -$

Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty, the Agency will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The Agency’s investment policy requires its Texas Guaranteed Tuition Plan investment custodian to perform an annual creditworthiness review of sub-custodians and security lending borrowers in order to minimize custodial credit risk. Texas Tuition Promise Fund, the College Savings Plans and the Texas ABLE Program do not have a formal policy for limiting exposure to custodial credit risk; however, because investments are generally in mutual funds, the risk is significantly mitigated. As of August 31, 2018, none of the Texas Guaranteed Tuition Plan's investments were exposed to custodial credit risk, because all securities are held by the Plan’s custodial bank in the Plan’s name.

Foreign currency risk for investments is the risk that changes in exchange rates will adversely affect the investment. The Board has enacted polices to reduce foreign currency risk for the Texas Guaranteed Tuition Plan by reducing its long-term allocation to global fixed-income and by enacting currency hedges on non-U.S. equity portfolios. No exposure to foreign currency risk for the Texas Guaranteed Tuition Plan exists as of August 31, 2018, due to balances being denominated in U.S. Dollars.






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The Texas Tuition Promise Fund, College Savings Plans and the Texas ABLE Program invest in various foreign currencies in pooled vehicles. The registered Underlying Investments prospectuses provide greater detail about the investment strategies and practices of the Underlying Investments, in compliance with federal regulations and specifically, the Form N-1A of the Investment Company Act of 1940. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The Board’s investments held for the Texas Guaranteed Tuition Plan had the following credit risk structure as of August 31, 2018, based on Standard & Poor’s and Moody’s ratings:

U.S. Government Corporate AssetInvestment Total Debt U.S. Treasury Agency Corporate and Mortgage Other Commingled

Grade Rating Securities Securities Obligations Obligations (b) Backed Securities Funds-Short Term

A 6,525,497.74$ -$ -$ 5,983,725.19$ 541,772.55$ -$ AAA 2,524,208.40 - 2,524,208.40 - - - BBB 29,046,618.08 - 1,588,907.10 26,622,800.45 834,910.53 -

U.S. Government Guaranteed 256,904,739.35 197,531,917.13 59,372,822.22 - - - NR (a) 118,299,385.81 - 1,462,972.91 - 4,077,386.14 112,759,026.76 Totals 413,300,449.38$ 197,531,917.13$ 64,948,910.63$ 32,606,525.64$ 5,454,069.22$ 112,759,026.76$

Standard & Poor’s

U.S. Government Corporate AssetInvestment Total Debt U.S. Treasury Agency Corporate and Mortgage Other Commingled

Grade Rating Securities Securities Obligations Obligations (b) Backed Securities Funds-Short Term

A 10,157,037.78$ -$ -$ 10,157,037.78$ -$ -$ Aa 2,708,103.09 - 2,524,208.40 - 183,894.69 - Aaa 196,886,738.16 192,993,246.71 - - 3,893,491.45 - Ba 1,720,374.24 - - 1,720,374.24 - - Baa 16,888,799.32 - - 16,888,799.32 - -

U.S. Government Guaranteed 63,911,492.64 4,538,670.42 59,372,822.22 - - - NR (a) 121,027,904.15 - 3,051,880.01 3,840,314.30 1,376,683.08 112,759,026.76 Totals 413,300,449.38$ 197,531,917.13$ 64,948,910.63$ 32,606,525.64$ 5,454,069.22$ 112,759,026.76$

Note a: Not rated securitiesNote b: Corporate Obligations includes International Obligations (Govt and Corp)

Moody’s

The Texas Tuition Promise Fund’s investment pool had the following credit risk structure as of August 31, 2018, based on the Nationally Recognized Statistical Rating Organization (“NRSRO”):

Investment Rating

Eaton Vance Floating-Rate Fund PIMCO Total Return Fund

Vanguard Total Bond Market Index Fund

A1/P1 -$ 8,697,351.50$ -$ Below A1/P1 - 880,021.11 -

AAA - 65,521,571.78 73,476,638.65 AA - 7,165,886.19 3,690,607.42 A - 13,451,751.26 12,497,738.77

BAA - 7,154,457.34 - BBB 5,952,589.44 - 15,181,816.89 BB 30,725,866.10 4,102,955.57 - B 43,944,116.19 4,594,395.93 -

Below B 3,151,370.88 2,720,065.25 - Not Rated 3,764,137.44 - -

NRSRO Total 87,538,080.05$ 114,288,455.93$ 104,846,801.73$






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The college savings plans’ investment pools had the following credit risk structure as of August 31, 2018, based on the NRSRO:

Investment Rating

DFA Inflation Protected Securities Portfolio

Dreyfus Bond Market Index Fund

Vanguard Total Bond Market Index Fund

AAA 98,843,910.73$ 25,027,441.85$ 76,819,135.19$ AA - 1,222,375.40 3,858,495.37 A - 3,816,450.48 13,066,268.43

BBB - 4,660,306.23 15,872,446.88 NRSRO

Total 98,843,910.73$ 34,726,573.96$ 109,616,345.87$

The Texas ABLE Program’s investment pools had the following credit risk structure as of August 31, 2018, based on the Nationally Recognized Statistical Rating Organization (NRSRO):

Investment Rating Eaton Vance Floating-Rate Fund PIMCO Total Return Fund

A1/P1 -$ 5,075.11$ Below A1/P1 - 513.51

AAA - 38,233.33 AA - 4,181.46 A - 7,849.40

BAA - 4,174.79 BBB 1,294.10 - BB 6,679.86 2,394.17 B 9,553.53 2,680.93

Below B 685.11 1,587.22 Not Rated 818.33 -

NRSRO Total 19,030.93$ 66,689.92$

Concentration of credit risk is the risk of loss attributable to the magnitude of investment in a single issuer. The Agency’s investment policy for the Texas Guaranteed Tuition Plan restricts each fixed income investment manager to purchases of no more than 5.00% and to holdings of no more than 10.00% of its assets in the securities of a single entity other than the U.S. Government or its agencies. Based on the investment policy, holdings of an equity investment manager are generally not to exceed 3.00% of the amount of shares outstanding for an individual issuer. As of August 31, 2018, no single issuer of the Agency’s investments, other than mutual funds or external investment pools, exceeded 5.00%; thus, no concentration of credit disclosure is required by the Governmental Accounting Standards Board. The investments held by the Texas Tuition Promise Fund, the College Savings Plans and the Texas ABLE Program were in pooled investments. Therefore, as of August 31, 2018, the Plans did not have any investments subject to the concentration of credit risk.

Interest rate risk refers to the value fluctuations of fixed-income securities resulting from the inverse relationship between price and yield. The market value fluctuations of fixed-income securities that the Plans already hold will not affect the interest payable on those securities. However, the fluctuations will affect the market value and in turn will affect the Plans’ net positions.






39

Through its investment policy, the Texas Guaranteed Tuition Plan manages its exposure to market value losses arising from increasing interest rates by limiting the effective duration of its overall fixed income portfolio to seven years or less. The Texas Guaranteed Tuition Plan’s interest rate risk at August 31, 2018, is as follows:

EffectiveInvestment Type Fair Value Duration

Texas Guaranteed Tuition Plan:U.S. Treasury Securities U.S. Treasury Securities 197,531,917.13$ 1.95

197,531,917.13$ U.S. Government Agency Obligations Funds – Government Agencies 38,519,986.62$ - Government Mortgage Backed Securities 22,315,808.51 4.53 Municipal/Provincial Bonds 4,113,115.50 0.67

64,948,910.63$

Corporate and International Obligations (Govt and Corp) Bank Loans $ - Corporate Bonds 32,606,525.64 1.14 Corporate Convertible Bonds -

32,606,525.64$ Corporate Asset and Mortgage Backed Securities Asset Backed Securities 1,376,683.08$ 3.08 Commercial Mortgage-Backed Securities 3,893,491.45 3.92 Non-Government Backed C.M.O.s 183,894.69 3.96

5,454,069.22$ Other Commingled Funds-Short Term Funds-Short Term Investments 112,759,026.76$ -

112,759,026.76$ Total Interest Rate Risk Debt Securities 413,300,449.38$

The Texas Guaranteed Tuition Plan holds $22,315,808.51 in government mortgage-backed securities that are highly sensitive to changes in interest rates. These securities are based on cash flows from interest payments on underlying mortgages. Therefore, they are sensitive to prepayments by mortgagees, which may result from a decline in interest rates.






40

In order to monitor interest rate risk for the Texas Tuition Promise Fund , College Savings Plans and the Texas ABLE Program the Board utilizes an investment consultant to review and report, on a quarterly basis, to the Board detailed performance reporting and risk assessments on each of the underlying holdings of the Plans. The Texas Tuition Promise Fund’s, the College Savings Plans’, and Texas ABLE Program’s interest rate risks at August 31, 2018, are as follows:

EffectiveHoldings Fair Value Duration

Texas Tuition Promise Fund:Eaton Vance Floating-Rate Fund 87,538,080.05$ 0.22PIMCO Total Return Fund 114,288,455.93 4.43Vanguard Total Bond Market Index Fund 104,846,801.73 6.07

306,673,337.71$

Effective

Holdings Fair Value Duration

College Savings PlansDFA Inflation Protected Securities Portfolio 98,843,910.73$ 7.79Dreyfus Bond Market Index Fund 34,726,573.96 6.00Vanguard Total Bond Market Index Fund 109,616,345.87 6.07

243,186,830.56$

Effective

Holdings Fair Value Duration

Texas ABLE ProgramEaton Vance Floating-Rate Fund 19,030.93$ 0.22PIMCO Total Return Fund 66,689.92 4.06

85,720.85$

The effective duration is weighted by fair value of each security and is expressed in years. Securities Lending The Board authorized management to contract with its investment custodian to participate in a security-lending program for investments of the Texas Guaranteed Tuition Plan. Types of securities lent include domestic common stocks, foreign common stocks, government bonds, government agencies, and corporate bonds. There are no restrictions on the amount of securities that can be lent. The Board had $24,893.30 in market value of securities out on loan to broker/dealers at August 31, 2018. One hundred percent of these securities had cash collateral pledged. In securities lending transactions, the Board transfers its securities to broker-dealers and other entities for collateral, which may be cash or securities, and simultaneously agrees to return the collateral cash or the same securities in the future. The Board’s investment custodian, Northern Trust Company, invests the cash received as collateral and, if the return on those investments exceeds the “rebate” paid to the borrowers of the securities, the security lending transactions generate income for the Board. However, if the investment of the cash collateral does not provide a return exceeding the rebate or if the investment incurs a loss on principal, part of the payment to the borrower would come from the Board’s resources. The borrower will pay a “loan premium or fee” for the securities on loan, thus generating income for the Board.






41

Collateral may include cash, U.S. government securities and irrevocable letters of credit at a value of 102% of market value plus accrued interest for U. S. securities loaned and 105% plus accrued interest for non-U.S. securities. Non-cash collateral cannot be pledged or sold unless the borrower defaults. Contracts with the lending agents require them to indemnify the Board if the borrowers fail to return the securities. There were no significant violations of legal or contractual provisions, no borrower or lending agent default losses, and no recoveries of prior-period losses during the year. All security loans can be terminated on demand by either the lender or borrower. The average term for the Board’s overall loans was 141 days as of August 31, 2018. The maturities of the cash collateral investments are closely matched to the security loan terms in order to minimize risk and more closely match cash flows. The Board’s custodian invests open cash collateral in an institutional prime money market fund, which had an average weighted maturity of 15 days during the year. Funds can be withdrawn from the money market fund, as cash collateral needs to be returned. Cash collateral may also be invested separately in “term loans,” in which case the investments match the loan term. During fiscal year 2018, the Board had gross earnings of $112,634.06, paid rebates of $18,243.59 and paid bank fees of $18,861.03. The net income earned from security lending was $75,529.44. NOTE 4: Short-Term Debt The Board held no short term debt during the fiscal year ended August 31, 2018. NOTE 5: Long-Term Liabilities Changes in Long-Term Liabilities During the year ended August 31, 2018, the following changes occurred in liabilities:

Amounts DueBalance Balance Within One

8/31/2017 Additions Reductions 8/31/2018 Year

Texas Tomorrow Constitutional Trust Fund/Texas Guaranteed Tuition Plan (Fund 0892):Employees’ Compensable

Leave $ 108,163.61 $ 84,272.22 $ 83,224.41 $ 109,211.42 $ 67,444.39 Liabilities Payable From

Restricted Assets – Contract Benefits and Expenses 1,243,990,582.00 - 173,437,788.00 1,070,552,794.00 240,996,493.00

Total Business-Type Activities $ 1,244,098,745.61 $ 84,272.22 $ 173,521,012.41 $ 1,070,662,005.42 $ 241,063,937.39

Prepaid Tuition Undergraduate Education Program/Texas Tuition Promise Fund (Fund 0842):Employees’ Compensable

Leave $ 23,202.90 $ 17,437.10 $ 16,214.42 $ 24,425.58 $ 14,607.90 Liabilities Payable From

Restricted Assets – Contract Benefits and Expenses 805,803,989.00 50,494,853.00 - 856,298,842.00 68,606,493.00

Total Business-Type Activities $ 805,827,191.90 $ 50,512,290.10 $ 16,214.42 $ 856,323,267.58 $ 68,621,100.90

Business-TypeActivities






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Employees’ Compensable Leave If a State employee has had continuous employment with the State for at least six months, the State employee is entitled to be paid for all unused vacation time accrued in the event of the employee’s resignation, dismissal, or separation from State employment. Both an expense and a liability are recorded as the benefits accrue to employees. No liability is recorded for non-vesting accumulated rights to receive sick pay benefits. This obligation is usually paid from the same funding source(s) from which the employee’s salary or wage compensation is paid. Liabilities Payable from Restricted Assets/Contract Benefits and Expenses The Board recognizes a liability for future benefits payable to the participants in the State’s two prepaid tuition plans, the Texas Guaranteed Tuition Plan established in 1996 and the Texas Tuition Promise Fund established in 2007. The breakdown is on Exhibit F-1 – Statement of Net Position – Major Enterprise Funds. The prepaid tuition plans record the future benefit payable at the actuarial present value of future tuition obligations, adjusted for the effects of projected tuition and schools-wide required fee increase and termination of contracts. NOTE 6: Bonded Indebtedness The Board was obligated for no bonds during the fiscal year ended August 31, 2018. NOTE 7: Derivatives The Board does not have any derivatives to report for the fiscal year ended August 31, 2018. NOTE 8: Leases The Board does not have any leases to report for the fiscal year ended August 31, 2018. NOTE 9: Retirement Plans The Board is not allocated any pension expense by the Employee Retirement System of Texas. NOTE 10: Deferred Compensation The Board does not have any deferred compensation to report for the fiscal year ended August 31, 2018. NOTE 11: Post Employment Health Care and Life Insurance Benefits The Board is not allocated any post-employment health care or life insurance benefit expense by the Employee Retirement System of Texas.






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NOTE 12: Interfund Activity and Transactions The Board had $0.00 in Interfund Receivable/Payable, $0.00 in Due From/To Other Agencies, and $100,000.00 Operating Transfers at August 31, 2018:

Non-Current Non-CurrentInterfund Interfund

Current Portion Receivable Payable

None -$ -$

Due From Due to Other Other

Current Portion Agencies Agencies

None -$ -$

Transfer TransferCurrent Portion In Out

Proprietary (02) Appd Fund 0842, D23 Fund 4892 To Agy 315, D23 Fund 6892 -$ 100,000.00$ Contractual Scholarship Funding

Discrete Component Unit (06) Appd Fund 0878, D23 Fund 6892 From Agy 315, D23 Fund 4892 100,000.00$ -$ Contractual Scholarship Funding

Purpose

Purpose

Source

N/A

N/A

NOTE 13: Continuance Subject to Review Under the Texas Sunset Act, the Agency will be abolished effective September 1, 2021, unless continued in existence by the Legislature as provided by the Act. If abolished, the Agency may continue until September 1, 2022, to close out its operations. NOTE 14: Adjustments to Net Position The Board does not have any adjustments to Net Position to report for the fiscal year ended August 31, 2018. NOTE 15: Contingencies and Commitments The Board has no contingencies or commitments to report for the fiscal year ended August 31, 2018. NOTE 16: Subsequent Events Management evaluated the need for disclosures and/or adjustments resulting from subsequent events through December 12, 2018, the date the financial statements were available to be issued. As a result of this evaluation, management has determined that there are no subsequent events that necessitate disclosures and/or adjustments.






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NOTE 17: Risk Management The staff of the Texas Prepaid Higher Education Tuition Board are employees of the Texas Comptroller of Public Accounts. The Dragoo Insurance Agency, Wormley-Mitchell/GC Companies carried a faithful performance blanket bond on the Texas Comptroller of Public Accounts and his employees. On August 31, 2018, the amount of coverage was $1,000,000 per loss with a $25,000 deductible. In addition, the Texas Prepaid Higher Education Tuition Board has Public Official and Employment Practices Liability Insurance coverage for board members through Arthur J. Gallagher & Co. – Dallas. The coverage amount as of August 31, 2018, was $2,000,000 per claim and in the aggregate with a $100,000 deductible. Presented below is the total tuition benefits obligation of the Texas Guaranteed Tuition Plan based upon the actuarial present value (“APV”) of the future tuition obligation. The Texas Guaranteed Tuition Plan is constitutionally guaranteed by the State. The valuation method reflects the present value of estimated tuition benefits that will be paid in future years and is adjusted for the effects of projected tuition and fee increases and termination of contracts. Net assets available represent assets in the program at market value and the future discounted contract payments adjusted for estimated cancellation based upon the actuarial assumptions and evaluations.

August 31, 2018 APV of Future Benefits Payable Future contract benefits and expenses .............................. $1,070,552,794.00 Total Net Assets Available ............................................... $444,487,000.37 Total Assets as a Percentage of Tuition Benefit Obligations .......................................................... 41.5% Deficit…………………………………………………… $626,065,793.63 The following Board approved assumptions were used in the actuarial evaluations: * Investment Rates: The investment yield assumption ranges are as follows:

2.7% for 2019 2.5% for 2020 2.5% for 2021 2.5% for 2022 and after

* Tuition/Required Fees The assumed tuition increases for future years were as follows:

6.3% for Public Senior Colleges 5.2% for Junior Colleges 7.3% for Private Universities

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

The Texas Tuition Promise Fund is not guaranteed by the State. Assumptions for tuition increases are the same as those for the Texas Guaranteed Tuition Plan above. The assumption for investment return used for the 2018 actuarial valuation, net of fees and expenses, is 5.55% for 2018 (6.5% minus 0.95% fees and $50,000 per year in expenses). Total assets as a percentage of tuition benefit obligations for the Plan as of August 31, 2018 are 116.0%. NOTE 18: Management’s Discussion and Analysis (See pages 3-9)






45

NOTE 19: The Financial Reporting Entity Individual Component Unit Disclosures Component units are legally separate organizations for which the elected officials of the primary government are financially accountable. Component units can also be other organizations for which the nature and significance of their relationship with a primary government is such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete. In addition, component units can be organizations that raise and hold economic resources for the direct benefit of a government unit. Because of the closeness of their relationships with the primary government, some component units are blended as though they are part of the primary government. Some component units, however, are discretely presented. None of the component units for the Board meet the criteria for major component unit presentation and those presented are for informational purposes of interested parties. The component units are reported for the year ended August 31, 2018, unless indicated otherwise. Blended Component Units The Board does not have any blended component units to report. Discretely Presented Component Units The Board reports the following legally separate entities as component units because both entities are functionally accountable to the Board. The component units do not provide services entirely or almost entirely to the Board. Therefore, the component units’ financial data are discretely presented in the Combining Statement of Net Position – Discretely Presented Component Units and Combining Statement of Revenues, Expenses and Changes in Net Position – Discretely Presented Component Units. Texas Prepaid Tuition Scholarship Foundation (“TPTSF”) (FT 15, Fund 0892/1892) is a legally separate entity that was created to provide prepaid tuition scholarships to students meeting economic or academic requirements. TPTSF is authorized by the Texas Education Code. TPTSF is governed by a board composed of the Comptroller, a member appointed by the Governor with the advice and consent of the Senate and three members appointed jointly by the Comptroller and the member who is appointed by the Governor. The Comptroller serves as the Executive Director of the Board and assigns and supervises employees responsible for the day-to-day operations of TPTSF. Separate financial statements are not issued by TPTSF. Texas Match the Promise Foundation (“TMPF”) (FT 15, Fund 0892/6892) is a legally separate entity established to implement the Texas Save and Match Program, which helps families save for college by offering competitive matching scholarships and tuition grants to Texas students who participate in the Texas Tuition Promise Fund. The Comptroller appoints TMPF's governing board, and can remove appointed board members at will. The Comptroller also assigns and supervises employees responsible for the day-to-day operations of TMPF. Separate financial statements are not issued by TMPF. Related Parties The Texas State Comptroller of Public Accounts (“Comptroller”) serves as the Chair and Executive Director of the seven-member Texas Prepaid Higher Education Tuition Board that administers the Texas Guaranteed Tuition Plan and the Texas Tuition Promise Fund, the State's prepaid tuition plans, the Texas College Savings Plan and theLoneStar 529 Plan, the State's college savings plans, and the Texas ABLE Program, the State’s savings plan for individuals with disabilities. The Comptroller's office provides financial and staff support to conduct and administer the day-to-day operations of the Agency and contract management. Daily operations of the Texas Tuition Promise Fund, the Texas College Savings Plan, the LoneStar 529 Plan, and the Texas ABLE Program are outsourced to a plan manager.






46

Salaries and related benefit expenses are reimbursed by the Board to the Comptroller’s office. The Comptroller's Office also pays salaries and related benefit expenses for outreach staff that supports the plans. Funding for outreach staff is provided by the plan manager. Salaries and related benefits paid by the Comptroller's Office totaled $1,518,993.85 for the fiscal year. The Comptroller also serves as the Chair of the Texas Match the Promise FoundationSM and the Texas Prepaid Tuition Scholarship Foundation. NOTE 20: Stewardship, Compliance, and Accountability The Economic Growth and Tax Relief Reconciliation Act of 2001 made significant changes to Section 529 of the Internal Revenue Code. Distributions from qualified tuition programs that are used for qualified higher education expenses are currently exempt from federal income tax. This exemption was scheduled to expire on December 31, 2010. The Pension Protection Act (H. R. 4), which was signed by President Bush on August 17, 2006, made the exemption permanent. At August 31, 2018, the Texas Guaranteed Tuition Plan had a projected unfunded deficit of ($626,065,793.63) compared to a deficit of ($613,824,409.69) at August 31, 2017. The deficit is determined by comparing estimated future contract collections and investment earnings to the projected value of future contract benefits to be paid. At August 31, 2018, the Texas Tuition Promise Fund had a projected surplus of $137,166,878.25 compared to a surplus of $112,615,851.84 at August 31, 2017. The surplus is determined by comparing estimated future contract collections and investment earnings to the projected value of future contract benefits to be paid. NOTE 21: Reserved Reserved for Statewide reporting purposes. NOTE 22: Donor-Restricted Endowments The Board has no donor-restricted endowments to report for the fiscal year ended August 31, 2018. NOTE 23: Extraordinary and Special Items The Board has no extraordinary or special items to report for the fiscal year ended August 31, 2018. NOTE 24: Disaggregation of Receivable and Payable Balances The Board’s receivable and payable balances are disaggregated on the Statement of Net Position. NOTE 25: Termination Benefits The Board has no termination benefits to report for the fiscal year ended August 31, 2018. NOTE 26: Segment Information The Board has no segment information to report for the fiscal year ended August 31, 2018. NOTE 27: Service Concession Arrangements The Board has no service concession agreements to report for the fiscal year ended August 31, 2018.






47

NOTE 28: Deferred Outflows of Resources and Deferred Inflows of Resources The Board has no deferred outflows and deferred inflows of resources to report for the fiscal year ended August 31, 2018. NOTE 29: Troubled Debt Restructuring The Board has no troubled debt restructuring to report for the fiscal year ended August 31, 2018. NOTE 30: Non-Exchange Financial Guarantees The Board has no non-exchange financial guarantees to report for the fiscal year ended August 31, 2018. NOTE 31: Tax Abatements The Board has no property tax abatements to report for the fiscal year ended August 31, 2018. NOTE 32: Fund Balances-Classification The Board’s Net Position is reported as required within these financial statements. Schedule 1A – Schedule of Expenditures of Federal Awards and Accompanying Notes The Board has no federal awards to report for the fiscal year ended August 31, 2018. Schedule 1B – Schedule of State Grant Pass-Through From/To State Agencies/Universities The Board has no state grant pass-through activity to report for the fiscal year ended August 31, 2018. Schedule 2A – Miscellaneous Bond Information The Board has no bond information to report for the fiscal year ended August 31, 2018. Schedule 2B – Changes in Bonded Indebtedness The Board has no bond information to report for the fiscal year ended August 31, 2018. Schedule 2C – Debt Service Requirements The Board has no debt service information to report for the fiscal year ended August 31, 2018. Schedule 2D – Analysis of Funds Available for Debt Service The Board has no funds available for debt service information to report for the fiscal year ended August 31, 2018. Schedule 2E – Defeased Bonds Outstanding The Board has no defeased bonds outstanding to report for the fiscal year ended August 31, 2018. Schedule 2F – Early Extinguishment and Refunding The Board has no extinguishment or refunding information to report for the fiscal year ended August 31, 2018.






48

Schedule 3 – Reconciliation of Cash in State Treasury and Schedule of Cash and Cash Equivalents Cash in State Treasury, Cash in Bank and Cash Equivalents are reported as separate line items in these financial statements.


F O U N D A T I O N


SM


TEXAS SM

INDEPENDENT AUDITOR’S 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

2 0 1 8



49

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

Independent Auditor’s Report To the Texas Prepaid Higher Education Tuition Board We have audited, in accordance with the 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, the basic financial statements of the business-type activities, the aggregate discretely presented component units, each major enterprise fund and the aggregate remaining fund information of the Texas Prepaid Higher Education Tuition Board (the Board) as of and for the fiscal year ended August 31, 2018, and the related notes to the financial statements, which collectively comprise the Board’s basic financial statements, and have issued our report thereon dated December 12, 2018. Our report includes a reference to other auditors who audited the financial statements of the Texas Tuition Promise Fund® and the Texas ABLE® Program, as described in our report on the Board’s basic financial statements. The financial statements of the Texas Tuition Promise Fund®, Texas College Savings Plan®, LoneStar 529 Plan® and the Texas ABLE® Program were not audited in accordance with Government Auditing Standards and, accordingly, this report does not include reporting on internal control over financial reporting or instances of reportable noncompliance associated with these plans. Internal Control Over Financial Reporting In planning and performing our audit of the basic financial statements, we considered the Board’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the basic financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Board’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Board’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Board’s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a 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 internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.


Pages from the Texas Prepaid Higher Education Tuition Board – ANNUAL REPORT – Year Ended August 31, 2018 (concluded)

50

Compliance and Other Matters As part of obtaining reasonable assurance about whether the Board’s basic financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations and contracts, 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.

Purpose of This Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Board’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Board’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Austin, Texas December 12, 2018



A C T U A R Y ’ S R E P O R T

2 0 1 8


Pages from the Texas Guaranteed Tuition Plan – Actuary’s Report on Program Soundness – August 31, 2018

TEXAS GUARANTEED TUITION PLAN

ACTUARY’S REPORT ON PROGRAM SOUNDNESS

AUGUST 31, 2018

October 2018


Pages from the Texas Guaranteed Tuition Plan – Actuary’s Report on Program Soundness – August 31, 2018 (continued)

Texas Guaranteed Tuition Plan

Actuary’s Report on Program Soundness August 31, 2018

Contents

Page Section I Executive Summary 1

Section II Summary of Contract Data and Current Assets 4

Section III Plan Description 7

Section IV Actuarial Methods and Assumptions 9

Section V Soundness of the Plan as of August 31, 2018 12

Section VI Sensitivity Testing 17

Section VII Changes in Surplus 18

Appendix A Active Contract Counts 20

Appendix B Matriculation Information 22



1

Section I – Executive Summary

Adequacy of the Fund As of August 31, 2018, the Plan had an unfunded liability of $626,065,794. The unfunded liability represents the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present value of the expected future tuition and required fees, refunds and expenses. The unfunded liability is $12,241,385 higher than last year’s unfunded liability of $613,824,409, and $2,799,377 less than the expected unfunded liability of $628,865,171. The four primary sources of change are:

a) Investment asset performance of 4.19% was higher than the assumed investment return of 2.50%. The positive variance of 1.69% generated an asset gain of $10.3 million. This estimate may vary from the actual asset performance as determined by the investment consultant.

b) Tuition Increases: Increases in tuition were less than expected and resulted in a $25.1 million decrease in the unfunded liability.

c) Changing the investment return assumptions for future years resulted in a $5.0 million gain.

d) More students deferred their matriculation or took fewer credit hours than expected. These deferrals increased the liability by $37.1 million because the investment return in the fund was less than the tuition increases.

The table below summarizes current balances:

Assets Investments $ 437,723,881 Future Contract Collections 6,763,120Total Assets 444,487,001Liabilities and Surplus Future Contract Benefits and Expenses $ 1,070,552,795 Deficit of Assets over Liabilities (626,065,794)Total Liabilities and Surplus (Deficit) 444,487,001

The program’s funded ratio is 41.5%. This represents a reduction of 9.2% from last year’s ratio of 50.7%.

The assumptions used to measure the adequacy of the Plan, which were approved by the Board, are stated in Section IV. The most important assumptions are:

The investment yield; The rate of increase in tuition/fees; Withdrawal rates;

Future new entrants; and Expenses.



2

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

The actuarial valuation of the Plan was determined using the schedule of interest rates found in Section IV. We also assumed the Plan is exempt from federal income tax. It is important to highlight the sensitivity of this analysis to this assumption. As pointed out subsequently, a 25-basis points shortfall in such a goal would place the Plan in a much less favorable position. Additionally, the nature of this type of program involves payment of benefits at fixed future points in time, subjecting the Plan to greater than average investment risk due to short-term fluctuation and in matching investment maturities with expected outlays.

Rate of Increase in Tuition/Fees Under statutory changes approved in 2003 by the Texas Legislature, the amount of tuition and required fees paid for each beneficiary who uses a Senior College contract to attend a 4-year Texas Public College or University (Public Senior College) will be the lesser of: 1) actual tuition and required fees or 2) the weighted average tuition and required fees of all Texas public 4-year colleges and universities. Under this formula, Public Senior Colleges must accept this amount as payment in full for a beneficiary who attends using plan benefits.

After careful analysis, the Texas Prepaid Higher Education Tuition Board (Board) selected tuition and fee increase assumptions above an expected rate of inflation. The assumed annual increases were 6.3% for Public Senior Colleges, 5.2% for Junior Colleges and 7.3% for Private Universities. These assumptions were unchanged from the prior valuation.

Future New Entrants New contracts in future years would serve: a) to expand the base for spreading fixed expenses; b) to increase the likelihood that the Plan average tuition cost will not exceed Weighted Average Tuition (WAT) by a significant amount; and c) to ensure a large enough fund balance to invest profitably. However, adding new entrants could also expose the Plan to increased unfunded liabilities if either tuition inflation exceeds the assumption or investment returns are less than the assumption used to price the contracts.

In 2003 the Board suspended new enrollment in the Plan. For purpose of the actuarial analysis in this report, it is assumed that no future contracts will be sold.

ExpenseIn our analysis we provide an expense provision for records administration charges and for general expenses. The provision for fiscal year 2018 is $32 per contract that we assumed will increase 3.5% per year for inflation. This assumption was unchanged from the prior valuation.

Bias Against the Program by Purchasers and Beneficiaries Bias is the result of rational decisions by purchasers and beneficiaries. Bias against the Plan is expected and is intrinsic to the purpose of a prepaid tuition program. A basic reason for establishing the Texas Guaranteed Tuition Plan is that the purchase of a contract will increase the commitment of the purchaser to a belief the beneficiary will become qualified to enter college and that the ownership of a contract will cause the beneficiary to be comfortable with a



3

commitment to academic achievement.

Bias against the Plan causes the amount the Plan pays to exceed the WAT. WAT is the average tuition/fees weighted by the number of full-time equivalent students. Bias refers to the degree to which the Texas Guaranteed Tuition Plan beneficiaries choose to attend the higher priced schools and so cause the Plan to pay out more tuition/fee benefits.

According to the amendments to state law, under statutory changes approved in 2003 by the Texas Legislature, the amount of tuition and required fees paid for each beneficiary who uses a Senior College contract to attend a Texas public 4-year college or university will be the lesser of: 1) actual tuition and required fees or 2) the weighted average tuition and required fees of all Texas public 4-year colleges and universities. Under this formula, Texas public colleges and universities must accept this amount as payment in full for a beneficiary who attends a Public Senior College using Plan benefits.

The statutory change removes the bias against the Plan by the Plan beneficiaries choosing to attend the higher priced school, because the maximum tuition/fees payout is limited by the WAT.

However, these amendments do not apply to community colleges. The assumed bias load was 10.0% for community colleges. This assumption was unchanged from the prior valuation.

Use of Report This report is prepared solely to assist the Board of the Texas Guaranteed Tuition Plan in evaluating the actuarial soundness of the Plan each year. The report is not intended and is not suitable for any other purpose. Accordingly, Sherman Actuarial Services does not intend this report or the data contained therein to be used as personal financial advice. Other readers of this report should consult with their own financial advisors regarding the application of this report to their particular circumstances.

Qualifications Daniel Sherman is an Associate of the Society of Actuaries, and a Member of the American Academy of Actuaries. He is the actuary for the Texas prepaid tuition plans, and is the current actuary for three other state prepaid tuition plans. He meets the Qualification Standards of the Academy to render the actuarial opinions contained herein. This report has been prepared in accordance with all applicable Actuarial Standards of Practice, and we are available to answer questions concerning it.

All assumptions were approved by the Board and in my opinion are reasonable.

SHERMAN ACTUARIAL SERVICES, LLC

Daniel Sherman, ASA, MAAA CEO and Consulting Actuary



4

SECTION II – Summary of Contract Data and Current Assets

Contract Data A contract inventory report as of August 31, 2018 was extracted from Plan data. The contract inventory report presents the number of credit hours issued net of cancellations by contract type, number of years of tuition, grade or age of beneficiary and payment option.

The contracts issued in 1996 are for 30 credit hours per year. The contracts issued after 1996 are for 32 credit hours per year. The credit inventory (number of hours) as of August 31, 2018 is summarized in the following table.

Payment Options

Plans Lump

Sum Five-Year

MonthlyTen-Year Monthly

Extended Monthly

Five-Year Annually

Ten-Year Annually

Extended Annually

1996 Enrollment Sr. College 38,841 31,499 46,312 50,114 - - - Jr. College 452 1,150 1,469 2,236 - - - Jr. & Sr. College 2,832 3,618 6,764 7,672 - - - Private College 403 711 490 517 - - - Total 1996 42,528 36,978 55,035 60,539 - - -

1997 Enrollment Sr. College 51,713 35,721 48,298 37,532 - - 17 Jr. College 914 426 828 1,098 - - - Jr. & Sr. College 2,255 2,723 4,551 4,304 - - - Private College 2,906 665 454 448 - - - Total 1997 57,789 39,535 54,132 43,382 - - 17

1998 Enrollment Sr. College 62,386 20,609 45,466 40,859 20,633 7,711 4,624 Jr. College 323 199 304 791 16 55 3 Jr. & Sr. College 2,030 1,593 3,276 3,018 946 436 310 Private College 1,939 323 447 819 213 124 - Total 1998 66,678 22,724 49,493 45,488 21,808 8,327 4,936

1999 Enrollment Sr. College 64,087 20,673 49,473 49,490 19,463 9,156 4,642 Jr. College 295 243 698 588 104 - - Jr. & Sr. College 1,943 1,498 3,650 5,066 529 113 0 Private College 1,356 90 697 812 929 116 220 Total 1999 67,682 22,504 54,518 55,956 21,025 9,385 4,862

2000 Enrollment Sr. College 103,130 39,506 89,357 87,445 33,616 14,212 9,571 Jr. College 724 589 683 1,243 251 - 234 Jr. & Sr. College 3,339 3,972 7,849 7,334 1,291 1,090 561 Private College 1,620 170 530 692 1,442 506 248 Total 2000 108,812 44,237 98,420 96,714 36,600 15,809 10,614

Sum of values may not match totals due to rounding.



5

Payment Options

Plans Lump

Sum Five-Year

MonthlyTen-Year Monthly

Extended Monthly

Five-Year Annually

Ten-Year Annually

Extended Annually

2001 Enrollment Sr. College 115,330 51,125 95,615 132,146 53,709 29,568 20,005 Jr. College 1,296 1,133 1,114 2,986 96 486 29 Jr. & Sr. College 6,921 5,281 13,096 24,286 2,636 2,221 2,289 Private College 2,870 945 735 1,889 1,593 371 177 Total 2001 126,416 58,483 110,559 161,307 58,034 32,647 22,501

2002 Enrollment Sr. College 143,556 51,082 100,061 134,357 73,803 40,127 24,056 Jr. College 1,670 1,152 1,809 3,130 129 382 327 Jr. & Sr. College 7,591 4,916 15,034 15,603 4,732 3,879 1,912 Private College 3,809 234 1,419 1,844 1,510 767 235 Total 2002 156,626 57,383 118,322 154,934 80,174 45,156 26,531

2003 Enrollment Sr. College 368,097 64,790 140,558 236,756 141,359 85,143 59,515 Jr. College 4,492 1,295 2,331 3,815 611 479 658 Jr. & Sr. College 16,405 5,714 16,311 30,539 7,950 6,654 5,059 Private College 11,485 1,272 1,159 2,334 6,364 665 1,020 Total 2003 400,479 73,070 160,360 273,445 156,284 92,941 66,252

Total Enrollment Sr. College 947,140 315,003 615,140 768,698 342,583 185,918 122,429 Jr. College 10,166 6,186 9,236 15,890 1,207 1,402 1,251 Jr. & Sr. College 43,316 29,315 70,531 97,821 18,083 14,395 10,132 Private College 26,387 4,410 5,932 9,354 12,053 2,550 1,901 Total Enrollment 1,027,008 354,914 700,839 891,764 373,926 204,265 135,713


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



6

Current Assets The assets are administered by the Board and invested by external managers with whom the Board contracts. The value of the assets as of August 31, 2018 is $437,723,881. Asset totals shown below do not include securities lending collateral and tuition contracts receivable.

Assets held as of August 31, 2018:

Cash in State Treasury $ 2,359,816 Investments 434,620,269 Interest & Dividends Receivable 1,052,724 Less Accounts Payable (308,928) Total Assets $437,723,881

It is assumed that this mix will produce a net annual investment return of 2.7% in fiscal year 2019.



7

SECTION III – Plan Description

Overview The Texas Guaranteed Tuition Plan (Plan) is an Internal Revenue Code Section 529 prepaid tuition plan. It allows the contract holder to lock in the cost of undergraduate college tuition and required fees, thus providing protection against future tuition inflation.

At matriculation the Plan will pay, based on the contract type and number of credit hours purchased, either 1) the weighted average or actual cost of college tuition and required fees at Texas public colleges and universities, whichever is less, or 2) the estimated average private tuition and required fees at Texas private colleges and universities.

The contract holder buys credit hours representing a fixed amount of resident tuition and required fees. When the beneficiary is ready for college, all or a portion of the tuition and required fees will be covered at all four- or two-year public colleges and universities in Texas. The portion of the fees covered will vary based on the type of contract purchased. The contract can also be used to help pay for tuition at all private colleges in Texas and out-of-state institutions. Texas public colleges and universities are required by statute to accept the benefit payments as payment in full for the hours purchased.

Eligibility At the time of enrollment, the beneficiary must be a Texas resident or his/her parent must be both the purchaser and a Texas resident.

Contract Types The fund will pay the maximum number of credit hours listed below for the type of plan purchased:

Junior College Plan Purchaser can prepay up to 64 credit hours of tuition and required fees at any public junior or community college in the state.

Senior College Plan Purchaser can prepay up to 160 credit hours of tuition and required fees at any public senior college or university in the state.

Junior-Senior College Plan Purchaser can prepay up to 64 credit hours of tuition and required fees at any public, community or technical college in the state. In addition, the purchaser can prepay up to 64 credit hours of tuition and required fees for any public senior college or university in the state. Thus, a total of 128 credit hours can be purchased.

Private College Plan Provides an estimated average private tuition and required fees, as determined by the Board each year. This amount is applied toward any of Texas’ private or independent colleges for up to 160 credit hours. If tuition and required fees at the private college chosen exceed the estimated average, the beneficiary is responsible for the remaining balance. If the college charges are less than the estimated average, the purchaser can request a refund of the



8

difference. Otherwise, only the hours necessary to pay the student’s tuition and required fee charges will be deducted from his or her plan.

Payment Plans The Plan offers two types of payment plans: Lump Sum and Installment:

Lump Sum Entire purchase made in one lump sum payment.

Installment Plan Pay every month or once a year. Payment period of 5 years, 10 years, or the number of years until the beneficiary’s

projected high school graduation date.

RefundsThe purchaser may receive a refund on the unused portion of the contract.



9

SECTION IV – Actuarial Methods and Assumptions

Actuarial Methods The actuarial method projects the expected future cash flows from contract payments, tuition and refund benefits and expense. These projected future cash flows are discounted to the present and compared to the market value of the assets to indicate the soundness of the Plan.

The development of the measurement of soundness has seven stages:

Develop base line average tuition and required fees from data provided by the Plan;

Project average tuition and required fees through the expected term of the contracts, based on assumptions as to future tuition increases;

Determine the nominal cost of expected future tuition and required fees, based on the contract inventory and assumptions as to mortality, disability, voluntary surrender and utilization of benefits;

Determine the nominal cost of expected future administrative expenses, based on the contract inventory and the records administration fee schedule, as well as assumptions as to inflation and utilization of benefits;

Project future contract payments based on the contracts and assumptions as to mortality, disability and voluntary surrender;

Determine the present value of expected future benefits, expenses and contract payments, based on the discount rate assumption; and

As the indication of soundness, measure the surplus or deficit, which is the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present values of the expected future tuition and required fees, refunds and expenses.

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

Tuition/Fee Increase Assumed annual increases in future tuition and required fees remained unchanged from the prior valuation:

Public Senior College Junior College Private University 6.3% 5.2% 7.3%



10

Investment Yield The assumed annual net investment yield is illustrated in the following table:

ExpensesIn our analysis we provide an expense provision for records administration charges and for general expense. The provision for fiscal year 2018 is $32 per contract, which we assume will increase 3.5% per year for inflation. This assumption remains unchanged from the prior valuation.

Future Participation in the Program It is assumed that no new contracts will be issued in the future.

Mortality and Disability Mortality rates for beneficiaries are assumed to follow the 1990 U.S. Life Tables.

PlanYear

EndingCurrent

ValuationPrior

Valuation2019 2.70% 2.20%2020 2.50% 2.30%2021 2.50% 2.70%

2022+ 2.50% 2.70%



11

Early Voluntary Surrender of Contract We assumed the following percentages of the public senior college contracts in effect at the beginning of the year would be surrendered during the year. We use similar estimates for the other college types, based on empirical evidence. This assumption remains unchanged from the prior valuation.

Years From Purchase Lump Sum

Five-YearPayments

Ten-YearPayments

ExtendedPayments

1 to 2 2.50% 6.30% 8.80% 13.70% 2 to 3 1.80% 3.60% 5.30% 6.00% 3 to 4 0.40% 1.50% 2.30% 3.00% 4 to 5 0.50% 1.00% 2.00% 3.00% 5 to 6 0.50% 0.50% 1.30% 2.00%

After 6 Years 0.80% 1.30% 0.70% 2.30%

Matriculation Percent We assumed the beneficiary of a contract not voluntarily surrendered matriculates at the date specified in the contract. This assumption remains unchanged from the prior valuation.

Dropout Rate We assumed beneficiaries use the number of credits specified in the contract.

Utilization of Credits We assumed beneficiaries use the credits specified according to the following schedule. This assumption remains unchanged from the prior valuation.

Type of Contract FirstYear

SecondYear

ThirdYear

FourthYear

FifthYear

SixthYear

Five – Year Contracts 20% 20% 20% 20% 15% 5%Four – Year Contracts 25% 24% 23% 20% 8% 0%Three – Year Contracts 30% 30% 30% 10% 0% 0%Two – Year Contracts 50% 40% 10% 0% 0% 0%One – Year Contracts 80% 20% 0% 0% 0% 0%

Frequency of Beneficiary Replacement We assumed no replacement of beneficiaries.

BiasWe assumed no bias load for universities and a bias load of 10.0% for community colleges. This assumption remains unchanged from the prior valuation.



12

SECTION V – Soundness of the Plan as of August 31, 2018

As a measure of the soundness of the Plan as of August 31, 2018, we determined the difference between the value of the assets and the actuarial present value of the future contract payments and the actuarial present value of future benefits and expenses. This measurement of soundness is summarized on the following pages.

A projection of the status of the Plan at each future anniversary date through the life of these contracts is presented on page 15, labeled Present Value of Assets and Liabilities.

The projections of future benefits and expenses and contract payments are presented on page 16, labeled Expected Annual Cash Flows.

Our measurement of the present value and projections are based on asset and contract information provided and on the assumptions chosen by the Board.



13

Funded Status The liabilities of the trust fund exceed the value of assets as of August 31, 2018 (including the value of future payments by contract purchasers) by $626.1 million. The funded ratio, assets divided by liabilities, is equal to 41.5%. Asset totals shown below do not include securities lending collateral. The assumptions used to perform the actuarial valuation of the fund were approved by the Board and are described in Section IV.

Current Assets$437,723,881

Tuition/FeePayments

$1,070,552,795

Future ContractPayments$6,763,120

Assets Liabilities

Total:$444,487,001

Total:$1,070,552,795



14

Cash Flow Projection The expected income and disbursements of the trust fund, based on the assumptions used in the actuarial valuation, and the current group of contract beneficiaries, are shown below. These amounts are cash amounts, not present value amounts.

(1,200)

(1,000)

(800)

(600)

(400)

(200)

0

200

400

600

'19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '31 '32 '33 '34 '35 '36 '37 '38

Millions

Assets at beginning of year

Payments Out of Fund

Payments into Fund + InvestmentIncome



15

Present Value of Assets and Liabilities

8/31 of Year

Present Value of Future Benefit and Expenses

Value of Assets and Present Value of Future

CollectionsDeficit of Assets to

Liabilities

2018 1,070,552,795 444,487,001 (626,065,794)2019 851,954,322 208,687,434 (643,266,887)2020 648,021,788 (11,304,897) (659,326,685)2021 460,309,853 (215,478,533) (675,788,385)2022 292,072,478 (400,594,474) (692,666,952)2023 171,876,425 (538,090,332) (709,966,756)2024 92,460,329 (635,240,374) (727,700,702)2025 39,075,154 (706,800,623) (745,875,777)2026 13,183,040 (751,325,369) (764,508,410)2027 8,897,415 (774,723,597) (783,621,012)2028 6,953,705 (796,257,807) (803,211,512)2029 5,500,894 (817,790,887) (823,291,781)2030 4,197,251 (839,676,813) (843,874,064)2031 3,122,761 (861,848,147) (864,970,909)2032 2,176,453 (884,418,726) (886,595,178)2033 1,457,525 (907,302,531) (908,760,055)2034 931,988 (930,547,068) (931,479,056)2035 569,606 (954,196,427) (954,766,033)2036 352,882 (978,282,301) (978,635,183)2037 170,722 (1,002,930,341) (1,003,101,063)2038 73,458 (1,028,105,131) (1,028,178,589)




16

Expected Annual Cash Flows

Fiscal Year Ending

Benefit Payments and Expenses

ContractPayment Receipts

AnnualCash Flow

2019 243,727,564 3,559,842 (240,167,721) 2020 221,811,704 2,258,827 (219,552,876) 2021 200,818,949 1,142,687 (199,676,262) 2022 177,014,096 10,010 (177,004,086) 2023 125,568,739 0 (125,568,739) 2024 82,452,540 0 (82,452,540) 2025 54,868,937 0 (54,868,937) 2026 26,478,368 0 (26,478,368) 2027 4,544,622 0 (4,544,622) 2028 2,132,982 0 (2,132,982) 2029 1,601,749 0 (1,601,749) 2030 1,419,093 0 (1,419,093) 2031 1,161,354 0 (1,161,354) 2032 1,008,681 0 (1,008,681) 2033 761,489 0 (761,489) 2034 553,362 0 (553,362) 2035 379,771 0 (379,771) 2036 227,425 0 (227,425) 2037 188,055 0 (188,055) 2038 99,975 0 (99,975)


Note: The amounts shown above are annual expected amounts for the year corresponding to the “Fiscal Year Ending” column. They are not cumulative amounts. In addition, Payment Receipts are frontloaded. Therefore, the Expected Annual Cash Flows project positive cash flows in the early years and negative in the later years. It is expected that positive cash flows prior to Fiscal Year Ending 2018 would be invested to help cover the negative cash flows in future years.



17

SECTION VI – Sensitivity Testing

The Program operates under conditions of risk and uncertainty. For example, while it is assumed the assets of the fund will earn the annual net rate found in Section IV, we also expect actual returns to vary from year to year. To accept the reasonableness of the basis for the measurement of the soundness, it is useful to know how the status of the fund may be affected by the vagaries of the markets and other factors. We have rerun the valuation under the following alternative scenarios, and the deficit as of August 31, 2018 under each of these scenarios is presented in the following table:

Scenarios Deficit Baseline 626,065,794

Tuition increases are 25 basis points higher in each future year than assumed 631,343,437

The investment return is 25 basis points lower than assumed 638,435,493

Tuition increases are 25 basis points higher in each future year and the investment return is 25 basis points lower than assumed 643,821,228

Tuition increases are 25 basis points lower in each future year than assumed 620,826,075

Tuition increases are 25 basis points lower in each future year and the investment return is 25 basis points lower than assumed 633,088,810









18

SECTION VII – Changes in Surplus

Adequacy of the Fund As of August 31, 2018, the Plan had an unfunded liability of $626,065,794. The unfunded liability represents the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present value of the expected future tuition and required fees, refunds and expenses. The unfunded liability is $12,241,385 higher than last year’s unfunded liability of $613,824,409, and $2,799,377 less than the expected unfunded liability of $628,865,171. The four primary sources of change are:

a) Investment asset performance of 4.19% was higher than the assumed investment return of 2.50%. The positive variance of 1.69% generated an asset gain of $10.3 million. This estimate may vary from the actual asset performance as determined by the investment consultant.

b) Tuition Increases: Increases in tuition were less than expected and resulted in a $25.1 million decrease in the unfunded liability.

c) Changing the investment return assumptions for future years resulted in a $5.0 million gain.

d) More students deferred their matriculation or took fewer credit hours than expected. These deferrals increased the liability by $37.1 million because the investment return in the fund was less than the tuition increases.

Following is a comparison of the assumed and the actual results for the year ended August 31, 2018.

Investment ReturnThe asset return was more than expected during the 2018 fiscal year, returning 4.19% versus the prior year assumption of 2.20%. The positive variance of 1.99% generated an asset gain of $10.3 million. The extent that investment experience exceeds the assumption will result in an actuarial gain.

Tuition and Required Fee Increase The Weighted Average Tuition (WAT) for Senior College increased from $10,093 to $10,476, an increase of 3.80% compared to the assumed 6.30% increase. The Junior College WAT increased from $3,257 to $3,351, an increase of 2.88% compared to the assumed 5.20% increase. The Private College WAT increased from $27,603 to $28,484, an increase of 3.19% compared to the assumed 7.30% increase. The tuition experience resulted in an actuarial gain of approximately $25.1 million.

Bias Against the Program by Purchasers and Beneficiaries The design of the program removed the bias relating to beneficiaries of Texas Guaranteed Tuition Plan contracts attending relatively higher priced universities. However, there was still an 9.14% bias for community colleges as calculated by comparing the actual tuition and fee payment for the contract beneficiaries who attend community colleges to the expected payout based on program assumptions. Therefore, the bias was .86% less than the 10% expected by last year’s valuation, resulting in an actuarial gain of $53,525.



19

ExpenseThe assumption for records administration charges and general expenses remains at $32 per contract for fiscal year 2018, with an increase of 3.5% per year in each future year for inflation. The actual expenses were greater resulting in a loss of $540,281.

Voluntary Withdrawal and Contract Reductions and Matriculation Beneficiaries delayed entry into schools or took fewer hours than expected. Since the tuition increases exceeded the assumed investment return, this created an actuarial loss.

Gain/Loss Summary During the last year, the plan experienced an $2.19 million actuarial loss. The sources of the (gain)/loss are as follows:

(Gain) / Loss (millions) Asset Gain (4.19% return) $(10.27) Tuition Inflation Gain (25.11) Expense .54 Bias (0.05) Withdrawal and Matriculation 37.08 Total (Gain) / Loss $2.19

Assumption Change Changes to the investment return assumption resulted in a $4.98 million decrease in the unfunded liability. When combined with the actuarial loss of $2.19 million, results in the total unexpected decrease in unfunded liability of $2.79 million.



20


TEXAS GUARANTEED TUITION PLAN Appendix A

Active Contract Counts for All Enrollment PeriodsAs of August 31, 2018

Matriculation Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 151997 1998 1999 2000 2001 1 2002 1 1 1 1 2003 2 1 2004 1 2005 4 1 2006 1 6 1 1 2007 2 10 1 1 1 1 2008 29 218 7 17 13 9 1 7 31 2009 134 1262 39 90 41 41 11 25 1 2 1 133 14 2010 155 1443 39 105 43 49 13 30 2 1 1 153 14 2011 198 1770 42 135 36 47 11 35 1 1 4 186 37 2012 229 2026 63 148 67 42 9 48 4 4 2 213 35 2013 252 2473 62 176 77 70 13 44 2 2 2 251 43 2014 308 3401 99 221 94 84 22 53 1 2 1 1 301 24 12015 316 3454 100 213 95 63 14 61 3 6 3 1 431 4 2016 340 3235 118 287 94 86 16 57 8 9 2 489 2017 309 2865 86 261 132 83 20 52 4 5 484 2018 313 2751 99 292 170 93 26 34 1 7 2 447 4 2019 291 2371 76 234 133 61 16 38 1 2 1 418 2 2020 224 1914 76 191 132 50 12 33 2 5 4 1 357 2021 248 2245 88 210 142 66 14 30 2 3 14 459 2022 13 78 5 6 3 2 1 2 7 2023 7 59 4 9 2 2 1 1 9 2024 4 41 2 7 4 1 3 2025 1 29 2 4 5 1 2 2026 4 17 2 1 2 1 2027 1 18 1 1 1 2028 14 1 1 1 1 2029 5 13 2 1 2 2 2030 1 6 1 1 2031 3 3 1 1 2032 1 4 2033 4 2034 1 1 2035 2036 1 1 Total 3389 31739 1014 2609 1292 853 202 551 26 49 38 10 4381 182 1

% of Total 7.29% 68.28% 2.18% 5.61% 2.78% 1.83% 0.43% 1.19% 0.06% 0.11% 0.08% 0.02% 9.42% 0.39% 0.00%

Key to Plan Type:1. Jr/Sr - 2/2 4. Sr - 2 Yr 7. Jr - 1 Yr 10. Pr - 2 Yr 13. Sr - 5 Yr2. Sr - 4 Yr 5. Sr - 1 Yr 8. Pr - 4 Yr 11. Pr - 1 Yr 14. Sr - 4 Yr +8Hrs3. Sr - 3 Yr 6. Jr - 2 Yr 9. Pr - 3 Yr 12. Jr/Sr - 2/2 + 4Hrs 15. Sr - 4 Yr + 6Hrs

Plan



21


TEXAS GUARANTEED TUITION PLAN Appendix A

Active Contract Counts for All Enrollment PeriodsAs of August 31, 2018

Matriculation Year 16 18 21 23 24 31 34 35 Total % of Total1997 0 0.00%1998 0 0.00%1999 0 0.00%2000 0 0.00%2001 1 0.00%2002 4 0.01%2003 3 0.01%2004 1 0.00%2005 5 0.01%2006 9 0.02%2007 16 0.03%2008 1 333 0.72%2009 2 1 1797 3.87%2010 3 8 2059 4.43%2011 1 1 1 1 2 4 2513 5.41%2012 1 1 2 2 10 2906 6.25%2013 2 1 1 5 8 3484 7.49%2014 1 1 8 6 4629 9.96%2015 1 4 8 4777 10.28%2016 2 4 4747 10.21%2017 1 12 4314 9.28%2018 12 4251 9.14%2019 1 7 3652 7.86%2020 1 10 3012 6.48%2021 11 3532 7.60%2022 117 0.25%2023 94 0.20%2024 62 0.13%2025 1 45 0.10%2026 27 0.06%2027 22 0.05%2028 18 0.04%2029 1 26 0.06%2030 1 10 0.02%2031 8 0.02%2032 5 0.01%2033 4 0.01%2034 2 0.00%2034 0 0.00%2034 2 0.00%Total 1 2 7 2 5 2 30 102 46,487 100.00%

% of Total 0.00% 0.00% 0.02% 0.00% 0.01% 0.00% 0.06% 0.22% 100.00%

Key to Plan Type:16. Sr - 4 Yr + 4Hrs 23. Sr - 1 Yr + 2Hrs 34. Sr Add'l Year18. Sr - 3 Yr + 6Hrs 24. Pr - 4 Yr + 8Hrs 35. Pr - 5 Yr21. Sr - 2 Yr + 4Hrs 31. Pr - 2 Yr + 4Hrs

Plan



22

Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2018 Payments to Community Colleges

Number of Semester Tuition and Average Paid PerContracts Hours Fees Paid Semester Hour

Texas Community College Alamo Community College District 193 1,476 352,095 238.57Alvin Community College 32 227 54,181 238.40Amarillo College 21 174 39,458 226.14Angelina College 11 86 16,589 192.57Austin Community College 346 3,225 882,529 273.64Blinn College 326 5,074 1,440,787 283.97Brazosport College 22 269 46,664 173.16Brookhaven College 32 220 52,346 237.90Cedar Valley College 9 67 18,774 278.83Central Texas College 18 180 29,646 164.94Cisco College 5 70 20,312 292.23Clarendon College 5 72 16,488 229.98Coastal Bend College 15 156 37,592 241.36College of the Mainland 7 116 11,920 102.33Collin College 140 802 143,790 179.22Dallas TeleCollege LeCroy Center 1 10 3,309 336.88Del Mar College 32 250 67,522 269.98Eastfield College 18 169 25,311 149.35El Centro College 12 81 13,676 168.38El Paso Community College 25 174 43,662 251.58Galveston College 9 50 14,726 297.46Grayson College 17 136 24,146 177.80Houston Community College 79 454 118,603 261.28Howard College 10 92 29,116 315.13Kilgore College 15 210 42,632 202.68Lamar Institute of Technology 16 185 58,078 314.29Lamar State College Orange 7 55 17,190 313.63Lamar State College Port Arthur 11 121 35,347 291.94Laredo Community College 17 174 42,210 242.49Lee College 25 211 45,800 217.36Lone Star College CyFair 7 231 46,730 201.88Lone Star College Kingwood 3 13 2,246 166.90Lone Star College Montgomery 5 137 21,363 155.94Lone Star College North Harris 1 44 4,309 98.66Lone Star College System 214 1,099 196,077 178.44Lone Star College University Park 3 74 10,735 144.52McLennan Community College 45 464 103,680 223.34Midland College 44 244 63,713 260.99Mountain View College 8 52 8,037 153.65Navarro College 27 260 59,298 228.24North Central Texas College 75 782 180,164 230.45North Lake College 16 90 21,054 234.70Northeast Texas Community College 7 103 31,942 309.19Odessa College 11 88 21,107 238.94Panola College 5 56 17,628 315.42Paris Junior College 20 179 39,559 220.98Ranger College 11 108 26,042 240.80Richland College 44 306 56,123 183.16San Jacinto College Central 137 1,162 232,382 200.04South Plains College 54 652 175,159 268.60Sum of values may not match totals due to rounding.



23

Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2018 Payments to Community Colleges


Texas Community College South Texas College 29 234 59,884 255.65Southwest Texas Junior College 17 183 52,497 287.07Tarrant County College Ft. Worth (NW) 41 376 40,827 108.56Tarrant County College NE Hurst 44 266 43,536 163.88Tarrant County College SE Campus 31 134 27,380 205.02Tarrant County College South Campus 14 147 20,333 138.35Tarrant County College Trinity River Campus 14 103 17,245 167.50Temple College 28 297 66,511 224.07Texarkana College 0 6 1,916 315.39Texas Southmost College 3 50 13,430 270.62Texas State Technical College Harlingen 21 202 57,950 286.73Texas State Technical College Marshall 1 31 5,041 162.61Texas State Technical College Waco 42 682 197,647 289.64Texas State Technical College West Texas 2 12 3,818 315.41Trinity Valley Community College 22 185 40,465 219.04Tyler Junior College 62 714 163,376 228.66Vernon College 12 150 42,360 281.64Victoria College 26 296 50,241 169.99Weatherford College 34 295 61,582 208.58Western Texas College 25 169 48,497 287.43Wharton County Junior College 50 539 136,152 252.60

Total 2,731 25,803 6,212,535 240.77Sum of values may not match totals due to rounding.



24

Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2018 Payments to Proprietary Institutions


Texas Proprietary Institutions Alamo Community College Continuing Education 0 12 3,736 315.41Angelo State University Graduate Studies 4 76 23,918 315.41Art Institute of Austin 8 219 68,911 314.63Art Institute of Dallas 2 79 24,579 311.92Art Institute of Houston 4 118 36,338 308.15Art Institute of Houston North Campus 1 4 1,219 304.83Art Institute of San Antonio 3 121 37,744 312.37Auguste Escoffier School of Culinary Arts 1 32 3,257 101.77Austin Community College Continuing Education 3 17 5,273 309.74Blinn College TEEX Fire Academy 0 17 5,400 315.40Blinn College Workforce Education 1 9 2,826 315.40Brightwood College Corpus Christi 1 9 2,979 315.41Brightwood College Dallas Campus 1 71 22,096 311.80Brookhaven College Continuing Education 0 2 699 315.43Cedar Valley College Continuing Education 1 11 3,410 304.82College of Health Care Professions Houston NW 2 118 36,940 313.66Collin College Continuing Education 2 9 2,946 315.42Concorde Career College - Dallas 1 26 8,201 315.41Culinary Institute Alain and Marie LeNotre Houston 3 90 28,333 314.00Dallas Institute of Funeral Service 2 47 14,800 315.40Embry Riddle Aeronautical University Houston 1 3 946 315.41Fortis College Houston 1 52 15,864 303.49Galen College - San Antonio 3 86 27,267 315.41Galveston College Continuing Education 0 3 899 315.44Hallmark University 1 47 14,697 312.71KD College 1 29 9,122 311.71Lamar University Grad & Academic Partnership 10 111 37,193 335.20Lincoln College of Technology Dallas-Fort Worth 3 90 28,303 315.41Lone Star College Montgomery Continuing Education 1 4 1,335 315.38Lone Star College North Harris Continuing Education 2 20 6,271 315.40Lone Star College University Park Continuing Education 1 40 4,090 101.77McLennan Community College Continuing Education 0 1 300 315.46Mediatech Institute Dallas 3 56 17,703 315.41Parker University 6 110 34,057 310.68Pima Medical Institute - Houston 4 131 41,183 315.41Prairie View A&M University Graduate Studies 4 33 10,409 315.41Purdue University Global 0 10 3,154 315.41Richland College Continuing Education 1 1 177 185.53Sam Houston State University Graduate Studies 0 4 1,219 315.39San Jacinto College Continuing Education and 0 20 6,194 315.41School of Automotive Machinists 2 32 9,941 309.98South University Austin Campus 2 41 12,802 309.61Sul Ross State University Continuing Education 0 10 3,000 315.42Tarleton State University Graduate Studies 2 19 5,693 304.82Texarkana College Continuing Education 0 5 1,500 315.39Texas A&M Commerce Professional Development 2 18 4,361 243.75Texas A&M International University Graduate Students 1 4 1,279 312.60Texas A&M University Commerce Graduate Students 8 127 39,966 315.41Texas A&M University Corpus Christi Graduate Studies 1 4 1,142 315.44




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Texas Proprietary Institutions Texas A&M University Graduate Studies 27 1,250 436,073 348.92Texas A&M University Health Science Center 36 896 282,590 315.41Texas A&M University Kingsville Graduate Studies 5 77 24,235 315.41Texas A&M University Study Abroad Programs Ofc 0 28 8,831 315.41Texas Health And Science University 1 49 15,455 315.41Texas Southern University Graduate Students 1 43 13,455 315.41Texas State Technical College Waco Aviation Division 1 7 2,160 315.42Texas State University Extension Studies 3 147 45,574 309.61Texas State University Office of Correspondence 2 8 2,504 315.39Texas State University San Marcos Grad Students 0 4 3,340 862.65Texas Tech Health Science Center El Paso 1 27 8,840 327.39Texas Tech University Graduate Studies 10 336 105,963 315.41Texas Tech University Health Sciences Center 51 1,181 372,538 315.41Texas Tech University Study Abroad Ofc 1 31 9,778 313.38Texas Woman's University Graduate Studies 1 5 4,313 862.59Tyler Junior College Continuing Education 3 54 12,057 223.62Universal Technical Institute Houston 2 109 34,416 315.41Universal Technical Institute Irving 4 253 79,693 315.41University Extension UT Austin 25 260 83,198 319.99University of Houston Clear Lake Graduate Studies 4 68 21,586 315.41University of Houston Graduate Studies 5 123 59,687 485.70University of Houston Victoria Graduate Studies 1 16 5,008 315.39University of North Texas for Studies Abroad 0 7 2,104 315.43University of North Texas Graduate Students 3 92 29,043 315.41University of North Texas Health Science Center 16 333 105,109 315.41University of St. Augustine for Health Sciences - Austin 2 28 8,894 315.41University of Texas at Arlington Academic Partnership 27 443 132,238 298.29University of Texas at Arlington Graduate Studies 5 110 34,541 315.41University of Texas at Arlington On Line Courses 1 6 1,966 315.42University of Texas at Austin Grad Students 22 381 128,418 337.18University of Texas at Austin in DC 4 71 22,270 315.41University of Texas at Austin McCombs School of Business 0 47 17,362 368.61University of Texas at Austin Study Abroad 2 80 28,316 353.96University of Texas at Dallas Grad 5 198 62,436 315.41University of Texas at El Paso Graduate Studies 1 22 6,970 315.41University of Texas at San Antonio Graduate Studies 2 57 17,931 314.69University of Texas at Tyler Graduate Studies 2 34 10,653 310.38University of Texas Austin Professional Dell Medical Studies 2 65 20,173 309.48University of Texas Health Science Center at Houston 40 909 289,087 318.18University of Texas Health Science San Antonio 30 732 253,390 345.95University of Texas Permian Basin Graduate Studies 1 3 810 315.36University of Texas Rio Grande Valley Continuing Education 1 6 1,799 315.39University of Texas Rio Grande Valley Graduate Studies 4 80 25,130 315.06Vet Tech Institute of Houston 3 114 35,964 315.41Virginia College Austin 1 28 8,579 309.41Vista College Online 1 36 3,664 101.77Wade College 1 41 12,865 315.41Weatherford College Continuing Ed 1 12 3,780 315.42Sum of values may not match totals due to rounding.



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Texas Proprietary Institutions West Coast University Dallas 4 63 20,016 315.41West Texas A&M Graduate Studies 0 47 14,861 315.40Wharton County Junior College-Extended Studies 4 34 10,750 315.42

Total 469 11,246 3,614,084 321.35Sum of values may not match totals due to rounding.



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Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2018 Payments to Texas Four-Year Public Universities


Texas Four-Year Public University Angelo State University 112 2,912 783,127 268.90Lamar University 75 1,776 563,632 317.44Midwestern State University 65 1,603 464,280 289.62Prairie View A&M University 23 653 179,971 275.54Sam Houston State University 378 9,239 2,816,929 304.91Stephen F. Austin State University 318 8,491 2,575,898 303.38Sul Ross State University 20 404 105,987 262.21Sul Ross State University Rio Grande College 2 15 2,660 177.35Tarleton State University 223 6,029 1,656,845 274.80Texas A&M International University 27 530 150,413 283.79Texas A&M University Central Texas 6 118 34,516 293.27Texas A&M University College Station 2,672 67,994 21,382,300 314.47Texas A&M University Commerce 85 2,297 610,672 265.86Texas A&M University Corpus Christi 218 5,425 1,589,553 293.03Texas A&M University Galveston 70 1,901 597,477 314.35Texas A&M University Kingsville 68 1,855 481,901 259.84Texas A&M University San Antonio 43 817 220,645 269.99Texas A&M University Texarkana 12 244 68,091 279.14Texas Southern University 9 246 75,144 305.33Texas State University San Marcos 1,092 27,023 8,321,784 307.95Texas Tech University 1,273 33,857 10,545,659 311.47Texas Woman's University 138 2,941 912,494 310.28University of Houston 554 13,672 4,336,613 317.19University of Houston Clear Lake 65 1,429 398,839 279.15University of Houston Downtown 55 1,201 324,273 270.06University of Houston Victoria 30 768 189,191 246.44University of North Texas 818 20,529 6,414,337 312.46University of North Texas at Dallas 9 138 37,640 272.75University of Texas at Arlington 311 7,206 2,175,352 301.89University of Texas at Austin 1,875 48,281 15,349,688 317.92University of Texas at Dallas 416 10,022 3,208,915 320.18University of Texas at El Paso 100 2,196 576,776 262.60University of Texas at San Antonio 569 13,644 4,160,561 304.93University of Texas at Tyler 124 2,766 718,376 259.68University of Texas of the Permian Basin 21 317 74,132 234.07University of Texas Rio Grande Valley 119 2,761 738,192 267.38West Texas A&M University 106 2,615 724,537 277.07




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Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2018 Payments to Texas Private Institutions


Texas Private Institutions Abilene Christian University 82 2,268 746,836 329.33Amberton University 2 22 6,952 314.15Arlington Baptist College 2 42 13,104 315.41Austin College 36 1,136 393,325 346.24Baptist Health System 5 128 40,504 315.41Baylor College of Medicine 8 204 62,542 306.81Baylor University 355 10,114 3,565,461 352.52College of Biblical Studies - Houston 1 9 2,839 315.41Concordia University Austin 30 771 243,104 315.22Criswell College 2 34 10,724 315.41Dallas Baptist University 43 1,161 375,810 323.77Dallas Christian College 1 6 1,892 315.41Dallas Theological Seminary 2 30 9,546 315.41East Texas Baptist University 16 400 119,085 297.78Hardin-Simmons University 43 1,155 378,309 327.67Houston Baptist University 20 454 139,832 307.88Howard Payne University 14 387 116,082 299.95Huston-Tillotson University 2 41 12,932 315.41Jacksonville College 3 16 4,895 315.40Jarvis Christian College 2 63 19,713 315.41LeTourneau University 9 294 86,093 292.78Lubbock Christian University 15 375 118,058 314.90McMurry University 11 279 102,466 367.26Our Lady of the Lake University 8 108 41,132 379.18Paul Quinn College 1 27 8,516 315.41Rice University 57 1,720 710,184 412.84Schreiner University 28 778 232,427 298.92South Texas College of Law 11 202 81,223 402.09Southern Methodist University 98 2,691 1,000,525 371.78Southwestern Assemblies of God University 2 42 13,313 315.41Southwestern Baptist Theological Seminary 3 18 1,947 106.00Southwestern University 59 1,786 550,263 308.13St. Edwards University 83 2,295 767,930 334.60St. Mary's University 27 840 282,514 336.25Texas Christian University 182 5,734 1,935,501 337.57Texas Lutheran University 22 567 163,883 289.03Texas Wesleyan University 13 294 92,731 315.41The King's University 1 16 1,628 101.77Trinity University 76 2,203 678,508 308.04University of Dallas 12 333 105,032 315.41Sum of values may not match totals due to rounding.



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Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information – FY 2018 Payments to Texas Private Institutions


Texas Private Institutions University of Mary Hardin-Baylor 41 1,146 348,846 304.41University of North Texas at Dallas Law & Grad Studies 1 6 5,089 862.54University of St. Thomas 14 339 100,784 297.74University of Texas Medical Branch at Galveston 35 942 325,404 345.57University of Texas Southwestern Medical Center at Dallas 12 277 90,731 327.07University of the Incarnate Word 72 1,963 637,481 324.78Wayland Baptist University 13 280 90,001 321.37



Pages from the Texas Guaranteed Tuition Plan – Actuary’s Report on Program Soundness – August 31, 2018 (concluded)

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* There are a total of 20,062 contracts in matriculation status on August 31, 2018. This is different than the total seen in the chart above due to students attending multiple schools in the same semester.


Texas Guaranteed Tuition Plan Contracts Appendix BMatriculation Information

Number of Semester Tuition and Average Paid Per Contracts Hours Fees Paid Semester Hour

Matriculation Information: Executive Summary

Texas Universities and Colleges Texas Community Colleges 2,731 25,803 6,212,535 240.77Texas Proprietary Institutions 469 11,246 3,614,084 321.35Texas Four-Year Public Universities 12,101 303,914 93,567,402 307.88Texas Private Institutions 1,575 43,994 14,835,695 337.22Total Texas Institutions 16,876 384,957 118,229,716 307.12 Out-Of-State Institutions

Out-of-State Community Colleges 124 1,313 370,708 282.29Out-of-State Proprietary Institutions 27 955 282,380 295.54Out-of-State Universities 2,019 52,322 16,743,177 320.00Out-of-State Private Universities 1,016 28,637 10,149,808 354.43Total Out-Of-State Institutions 3,186 83,228 27,546,073 330.97

Grand Total 20,062 468,185 145,775,790 311.36

T E X A S T U I T I O N P R O M I S E F U N D

A C T U A R Y ’ S R E P O R T

2 0 1 8


Pages from the Texas Tuition Promise Fund® – Actuary’s Report on Program Soundness – August 31, 2018

TEXAS TUITION PROMISE FUND®

ACTUARY’S REPORT ON PROGRAM SOUNDNESS

AUGUST 31, 2018

October 2018


Pages from the Texas Tuition Promise Fund® – Actuary’s Report on Program Soundness – August 31, 2018 (continued)

Texas Tuition Promise Fund®

Actuary’s Report on Program Soundness August 31, 2018

Contents

Page Section I Executive Summary 1

Section II Summary of Contract Data and Current Assets 5

Section III Plan Description 9

Section IV Actuarial Methods and Assumptions 12

Section V Soundness of the Plan as of August 31, 2018 14

Section VI Sensitivity Testing 19

Appendix A Active Contracts Counts 20

Appendix B Tuition and School-wide Fee Payments 24



1

Section I – Executive Summary

Plan Description The Texas Tuition Promise Fund® plan (Plan) is a Section 529 prepaid tuition plan. It allows the contract holder to lock in the cost of undergraduate college tuition and school-wide required fees at Texas public colleges and universities, thus providing protection against future tuition inflation. (Required fees are only those school-wide required fees paid by all students as a condition of enrollment, regardless of year, major or course of study.)

The contract holder buys tuition units that represent a fixed amount of resident tuition and school-wide required fees. When the beneficiary is ready for college, all or a portion of the tuition and school-wide required fees will be covered at all four- or two-year public colleges and universities in Texas. The portion of the fees covered will vary based on the number and type of units purchased and the college or university attended.

The transfer value of tuition units can be used to help pay for tuition at all private colleges in Texas, out-of-state colleges and career schools. Transfer value is limited to the lesser of (1) the costs the unit would cover at a public in-state college or university or (2) the original purchase price of the unit plus or minus the Plan’s net investment earnings or losses on that account.

NorthStar Financial Services Group, LLC served as the Plan Manager in FY2018.

For a more complete plan description, see Section III.

Adequacy of the Fund As of August 31, 2018, the Texas Tuition Promise Fund (Plan) had a surplus of Assets over Liabilities of $137,166,878. As of August 31, 2017, the surplus was $112,615,852. The surplus represents the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present value of the expected future tuition and school-wide required fees, refunds and expenses.

The table below summarizes current balances:

Assets Investments $ 863,905,819 Future Contract Collections 129,559,901 Total Assets 993,465,720 Liabilities and Surplus Future Contract Benefits and Expenses $ 856,298,842 Surplus (Deficit) of Assets over Liabilities 137,166,878 Total Liabilities and Surplus (Deficit) 993,465,720

The program’s funded ratio is 116.0%, versus 114.0% for 2017.

The assumptions used to measure the adequacy of the Plan, which were approved by the Texas Prepaid Higher Education Tuition Board (Board), are stated in Section IV. The most important assumptions are:



2

The investment yield; The rate of increase in tuition/fees; Withdrawal rates; and

Expense.

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

The actuarial valuation of the Plan was determined using the interest rate found in Section IV. We also assumed the Plan is exempt from federal income tax.

Because of its plan design, the Plan is less sensitive to the investment yield assumption than typical prepaid tuition plans. If the return is higher than expected, the plan will benefit and the schools will potentially receive up to 101% of the current tuition and school-wide required fees at benefit redemption. But if the investment yield is unfavorable, the school will bear the risk if the beneficiary matriculates in a Texas public school, and the contract holder will bear the risk if the beneficiary matriculates in a Texas private, out-of-state school, or career school.

Effective January 1st of each year, if the funded ratio for the previous year end is 110% or more, the calculation of payments to Texas public colleges and universities should include consideration of a 5% assumed net return.

Rate of Increase in Tuition/Fees The Board selected tuition and fee increase assumptions. The assumed annual increase is 6.3% for Public Senior Colleges and 5.2% for Junior Colleges.

Similar to the investment yield assumption, the plan design drives the risk that the plan will bear. If tuition increases are lower than expected, then the Texas public schools will have a greater likelihood of receiving the 1% tuition bonus. But if the tuition increases are greater than the investment return, the Texas public schools will bear the risk if the beneficiary matriculates to a Texas public school, and the contract holder will bear the risk if the beneficiary matriculates to a Texas private, out-of-state or career school.

Future New Entrants New contracts in future years could serve: a) to expand the base for spreading fixed expenses; and b) to ensure a large enough fund balance to invest profitably.

Although new contracts are currently being sold, it is assumed that future contracts will not be sold since the purpose of the report is to value the plan “as is” on the valuation date.

ExpenseExpenses of 0.95% are netted against the investment return. In addition, $50,000 per year, which we assume will increase 4% per year for inflation, is included for state administration costs related to investment consulting and monitoring.



3

Bias Against the Program by Purchasers and Beneficiaries Due to the design of the program, no bias against the Plan is assumed. Note that the bias does exist, but either the schools or the contract holders bear the risk instead of the Plan.

Bias is the result of rational decisions by purchasers and beneficiaries. This is both expected and intrinsic to the purpose of a prepaid tuition program. A premise of 529 plans is that the purchase of a contract will increase the commitment of the purchaser to a belief the beneficiary will become qualified to enter college and that the ownership of a contract will cause the beneficiary to be comfortable with a commitment to academic achievement.

Bias against the Plan causes the beneficiaries to matriculate in a school with tuition and school-wide required fees that exceed the Weighted Average Tuition (WAT). The WAT is the average tuition and school-wide fees weighted by the number of full-time equivalent students.

For many prepaid tuition plan designs, this would result in the plan paying higher benefits than would be expected without taking bias into consideration. But under the Texas Tuition Promise Fund, Texas public schools will receive the lesser of a) the greater of the amount paid for units, plus net earnings or minus net losses, or 5% annually subject to availability of funds, or b) 101% of current tuition at the time of redemption. Under this formula, Texas public schools must accept this amount as payment of tuition and school-wide required fees in full for the hours paid by the Plan. Therefore, it is the Texas public schools that bear the bias risk, not the Plan.

Similarly, private or out-of-state colleges or career schools will receive the transfer value which is the lesser of a) redemption value of tuition units if redeemed at a Texas public college, or b) amount paid for the tuition units plus actual net earnings or minus net losses. In this case, it is the contract holder that bears the bias risk, not the Plan.

Reconciliation of Surplus

Shown below is a reconciliation of the funded status from last year to this year. The prior year surplus is moved forward with assumed investment return to determine the expected surplus. Other gains and losses include the effects of fewer cancellations than expected, new contract sales and administrative expenses different than expected.

8/31/2017 Surplus $ 112,615,852 Expected increase 6,083,9558/31/2018 Expected Surplus 118,699,807 Tuition Gain and (Losses) 32,479,264 Asset Gain and (Losses) 10,292,877 Other Gains and (Losses) (29,219,235) Total Gain and (Losses) 13,552,906Change in Assumptions 4,914,1658/31/2018 Surplus 137,166,878

Use of Report This report is prepared solely to assist the Board in evaluating the actuarial soundness of the Plan each year. The report is not intended and is not suitable for any other purpose. Accordingly, Sherman Actuarial Services does not intend this report or the data contained therein to be used as



4

personal financial advice. Other readers of this report should consult with their own financial advisors regarding the application of this report to their particular circumstances.

Qualifications Daniel Sherman is an Associate of the Society of Actuaries, and a Member of the American Academy of Actuaries. He has served as the actuary to the Texas prepaid tuition plans for nine years, and is the current actuary for the Alabama and West Virginia prepaid tuition plans. He meets the Qualification Standards of the Academy to render the actuarial opinions contained herein. This report has been prepared in accordance with all applicable Actuarial Standards of Practice, and we are available to answer questions concerning it.

All assumptions were chosen by the Board. In my opinion the actuarial assumptions selected by the Board are reasonable.

SHERMAN ACTUARIAL SERVICES, LLC

Daniel Sherman, ASA, MAAA Director and Consulting Actuary



5

SECTION II – Summary of Contract Data and Current Assets

Contract Data A contract inventory report as of August 31, 2018 was extracted from Plan data. The contract inventory report presents the number of units purchased by contract type and payment option.

In general, one hundred units represents one academic year of tuition at a Texas public college or university whose tuition and required fee costs closely match the pricing base of the units. The unit inventory (number of units) as of August 31, 2018 is summarized in the following table.

Plans

Payment Options Type I Units

Type II Units

Type III Units

TotalUnits

2008-11 Enrollment Periods Pay-as-you-go 892,570 392,503 55,072 1,340,145Lump Sum 935,675 378,600 57,900 1,372,175Extended Monthly 276,650 343,300 52,050 672,000Extended Annual 58,600 47,400 4,000 110,000Custom Monthly 28,900 17,800 - 46,700Custom Annual 4,950 2,300 - 7,2505 Year Monthly 132,350 95,650 23,450 251,4505 Year Annual 146,050 77,423 2,400 225,87310 Year Monthly 157,150 133,600 19,750 310,50010 Year Annual 64,475 37,650 1,700 103,825Total Enrollment 2,697,370 1,526,226 216,322 4,439,918

2012 Enrollment Period Pay-as-you-go 132,049 40,616 8,674 181,339Lump Sum 145,550 52,000 7,550 205,100Extended Monthly 27,250 27,950 9,800 65,000Extended Annual 8,250 3,100 100 11,450Custom Monthly 2,350 1,600 - 3,950Custom Annual - - - -5 Year Monthly 10,525 8,950 1,600 21,0755 Year Annual 14,175 5,500 650 20,32510 Year Monthly 14,650 13,000 2,950 30,60010 Year Annual 3,600 1,300 100 5,000Total Enrollment 358,399 154,016 31,424 543,839

Sum of values may not equal the total due to rounding.



6

Plans


Type II Units

Type III Units

TotalUnits

2013 Enrollment Period Pay-as-you-go 113,706 43,404 4,568 161,679Lump Sum 119,100 44,650 6,000 169,750Extended Monthly 24,100 28,300 7,600 60,000Extended Annual 5,600 5,750 600 11,950Custom Monthly 1,200 400 - 1,600Custom Annual - - - -5 Year Monthly 7,925 6,450 1,850 16,2255 Year Annual 13,050 5,150 200 18,40010 Year Monthly 10,625 9,900 1,600 22,12510 Year Annual 4,100 4,100 300 8,500Total Enrollment 299,406 148,104 22,718 470,229

2014 Enrollment Period Pay-as-you-go 102,967 35,464 10,198 148,628Lump Sum 131,450 35,450 4,600 171,500Extended Monthly 22,325 30,100 6,850 59,275Extended Annual 2,550 3,400 900 6,850Custom Monthly 3,150 600 - 3,750Custom Annual 800 - - 8005 Year Monthly 9,250 5,200 2,300 16,7505 Year Annual 12,425 4,400 650 17,47510 Year Monthly 11,125 8,050 1,900 21,07510 Year Annual 4,450 4,850 - 9,300Total Enrollment 300,492 127,514 27,398 455,403

2015 Enrollment Period Pay-as-you-go 83,512 36,394 3,698 123,604Lump Sum 101,200 39,500 4,850 145,550Extended Monthly 29,975 26,800 5,800 62,575Extended Annual 4,875 2,000 400 7,275Custom Monthly 650 400 - 1,050Custom Annual - - - -5 Year Monthly 9,525 7,050 3,500 20,0755 Year Annual 11,275 3,650 - 14,92510 Year Monthly 14,250 11,050 3,400 28,70010 Year Annual 6,125 1,150 200 7,475Total Enrollment 261,387 127,994 21,848 411,229




7

Plans


Type II Units

Type III Units

TotalUnits

2016 Enrollment Period Pay-as-you-go 62,111 22,694 5,354 90,160Lump Sum 107,850 34,800 4,800 147,450Extended Monthly 20,925 30,250 11,450 62,625Extended Annual 3,750 1,800 400 5,950Custom Monthly 700 200 - 900Custom Annual - - - -5 Year Monthly 11,425 6,300 2,400 20,1255 Year Annual 9,650 4,250 900 14,80010 Year Monthly 10,125 8,550 1,900 20,57510 Year Annual 3,850 1,250 0 5,100Total Enrollment 230,386 110,094 27,204 367,685

2017 Enrollment Period Pay-as-you-go 32,562 13,001 3,051 48,614Lump Sum 99,625 31,200 2,450 133,275Extended Monthly 19,200 25,145 9,250 53,595Extended Annual 2,750 1,150 700 4,600Custom Monthly - - - -Custom Annual - - - -5 Year Monthly 12,850 5,700 1,200 19,7505 Year Annual 7,400 2,400 - 9,80010 Year Monthly 10,100 5,450 2,150 17,70010 Year Annual 6,200 1,800 - 8,000Total Enrollment 190,687 85,846 18,801 295,334

Total Enrollment Inception to date Pay-as-you-go 1,419,477 584,076 90,615 2,094,168Lump Sum 1,640,450 616,200 88,150 2,344,800Extended Monthly 420,425 511,845 102,800 1,035,070Extended Annual 86,375 64,600 7,100 158,075Custom Monthly 36,950 21,000 - 57,950Custom Annual 5,750 2,300 - 8,0505 Year Monthly 193,850 135,300 36,300 365,4505 Year Annual 214,025 102,773 4,800 321,59810 Year Monthly 228,025 189,600 33,650 451,27510 Year Annual 92,800 52,100 2,300 147,200Total Enrollment 4,338,127 2,279,794 365,715 6,983,636


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



8

Current Assets The value of the assets held by the Plan as of August 31, 2018 is $863,905,819. Total assets do not include investment transfers receivable, tuition contracts receivable or the related obligations for those assets.

Assets held as of August 31, 2018:

Investments $ 864,323,814 Cash and cash equivalents 0 Dividends receivable 0 Other Receivables 0 Administrative fees payable (0) Management fees payable (417,995) Other payables (0) Payable for securities purchased (0) Total Assets $ 863,905,819

It is assumed that this mix will produce a net annual investment return of 5.55% in fiscal year 2018, as developed below.

Investment Return Assumption 6.50% Less Expenses (0.95%) Net Annual Investment Return 5.55%



9

SECTION III – Plan Description

Overview The Texas Tuition Promise Fund (Plan) is an Internal Revenue Code Section 529 prepaid tuition plan. It allows the contract holder to lock in the cost of undergraduate college tuition and school-wide required fees at Texas public colleges and universities thus providing protection against future tuition inflation.

The contract holder buys tuition units that represent a fixed amount of resident tuition and school-wide required fees. When the beneficiary is ready for college, all or a portion of the tuition and school-wide required fees will be covered at all four- or two-year public colleges and universities in Texas. The portion of the tuition and fees covered will vary based on the number and type of units purchased, the college or university attended, and the hours enrolled. If the beneficiary attends an eligible career school, Texas private college, or out-of-state college, the transfer value is paid. The transfer value is the lesser of 1) the costs the units would cover at a public in-state college, or 2) the price paid for the units plus or minus net earnings or losses on that amount.

Eligibility At the time of enrollment in the Plan, the beneficiary must be a Texas resident or his/her parent must be both the purchaser and a Texas resident.

Tuition Units Tuition units represent a fixed portion of undergraduate resident tuition and school-wide required fees charged by Texas public colleges and universities. The Plan offers three types of tuition units: Type I, Type II, and Type III.

Type I Tuition Units The value of Type I tuition units is based on undergraduate resident college tuition and school-wide required fees at the Texas four-year public college or university with the highest tuition and school-wide required fee costs in the year of redemption. 100 Type I units will pay for 30 semester hours assuming 15 hours per semester at the most expensive Texas public 4-year school. If the units are redeemed at a less expensive school, more hours would be paid by 100 units.

Type II Tuition Units The value of Type II tuition units is based on the weighted average cost of undergraduate resident tuition and school-wide required fees charged by all eligible Texas four-year public colleges or universities in the year of redemption. Unlike the Type I units, this unit type does not cover the full tuition and school-wide required fees at all Texas public four-year colleges or universities if the institution's costs are above the weighted average cost.

Type III Tuition Units The value of Type III tuition units is based on the weighted average cost of in-district resident tuition and school-wide required fees charged by all eligible Texas public junior and community colleges and public technical institutes in the year of redemption. This unit type does not cover the full tuition and school-wide required fees at all Texas junior and community colleges and public technical institutes if the costs of the institution are above the weighted average.



10

Any combination of units (Type I, Type II or Type III) may be redeemed at any accredited Texas public school. However, the benefit paid will depend on the type of unit, the number of units, the school selected, and the hours enrolled.

Payment Plans The Plan offers three types of payment plans: Lump Sum, Installment, and Pay-As-You-Go:

Lump Sum Can purchase up to the current dollar equivalent of 600 Type I tuition units in one lump

sum payment.

Installment Plan Pay every month or once a year. Payment period of 5 years, 10 years, or the number of years until the beneficiary’s

projected high school graduation date. Minimum of 25 Type I tuition units or 50 Type II or Type III tuition units. Maximum of the then-current dollar equivalent of 600 Type I tuition units. No prepayment penalties. Subject to an annual interest component charge.

Pay-As-You-Go Contract holder can buy tuition units after establishing a contract by paying the

application fee and purchasing at least one unit of any type. Additional increments as small as $15 after a minimum purchase of one unit. Pay the then-current unit price in effect at the time payment is received (unit prices are

updated on September 1 of each year). Maximum total purchase of up to the dollar equivalent of 600 Type I tuition units.

Redemption of Units Three year holding period – Tuition units cannot be used earlier than the third anniversary

of the date the tuition unit was purchased. Units must be paid-in-full prior to use. Texas public colleges will receive lesser of

a) Amount paid for units, plus earnings, or Earnings = greater of actual net return or net loss on investments or 5% return on

investments, subject to the availability of money in the fund for that purpose. b) 101% of current tuition and school-wide required fees at the time of redemption.

Private or out-of-state colleges or career schools will receive lesser of a) Redemption value of tuition units if redeemed at a Texas public college, or b) Amount paid for the tuition units plus actual net earnings or net losses.

Refund Scenarios There are three types of refund calculations: Reduced Refund Value, Transfer Value, and Refund Value.

Reduced Refund Value This is the refund value for voluntary cancellations before the end of the three year holding period, cancellations due to default, or automatic cancellations. The calculation is the lesser of:

a) the purchase price of unused tuition units, or



11

b) the purchase price plus or minus net earnings or losses on that amount.

If the fund had a net negative return over the term that the contract was held, the “reduced refund value” would be less than the purchase price. No net earnings are paid.

Transfer Value This is the refund value for transfers to another qualified 529 plan (Texas or otherwise) or the amount paid if the beneficiary attends an eligible career school, Texas private college or out-of-state college. The calculation is the lesser of:

a) The current tuition unit redemption value of the units being transferred, or b) The price paid for the units plus or minus net earnings or losses on that amount.

Refund Value This is the refund value for voluntary cancellations after the three year holding period is met, cancellations due to death or disability of the beneficiary, or unused tuition units. The calculation is the purchase price of unused tuition units plus or minus net earnings or losses at a rate of return set by the Board. At August 31, 2018 this rate is capped at 2% less than the actual fund earnings or 5%, whichever is less. Earnings may be paid with a refund only if the Board determines that such payments will not adversely affect the actuarial soundness of the Plan.

Purchase Price – The actual dollar amount (contributions) paid into the contract, excluding amounts applied to administrative fees (e.g. account setup fee, late fees, return payment fees).

Market Value – The total purchase price paid for any unused Tuition Units, plus the portion of the total net earnings or losses on assets of the plan attributable to that amount.

Redemption Value – The current payout rate of the unit type being redeemed multiplied by the number of units.

For a complete description of the Plan, see the Plan Description and Master Agreement at www.texastuitionpromisefund.com. In the event of differences between the Plan Description and any information presented in this report, the Plan Description would control.



12

SECTION IV – Actuarial Methods and Assumptions

Actuarial Methods The actuarial method projects the expected future cash flows from contract payments, tuition and refund benefits and expense. These projected future cash flows are discounted to the present and compared to the market value of the assets to indicate the soundness of the Plan.

The development of the measurement of soundness has six stages:

Project unit costs through the expected term of the contracts, based on assumptions as to future tuition increases;

Determine the nominal cost of expected future tuition based on the contract inventory and assumptions as to voluntary surrender and utilization of benefits;

Determine the nominal cost of expected future administrative expenses, based on the contract inventory and the records administration fee schedule, as well as assumptions as to inflation and utilization of benefits;

Project future contract payments based on the contracts and voluntary surrender assumption;

Determine the present value of expected future benefits, expenses and contract payments, using a discount rate equal to the assumed rate of return on plan assets;

As the indication of soundness, measure the surplus or deficit, which is the difference between the sum of the market value of the assets and the present value of the expected future contract payments and the sum of the present values of the expected future tuition and school-wide required fees, refunds and expenses.

Actuarial Assumptions The assumptions were approved by the Board.

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

Tuition/Fee Increase Assumed annual increases in future tuition and school-wide required fees are:

Public Senior College Junior College 6.3% 5.2%

Tuition/Fee Levels for the 2018-2019 enrollment year: Type I: $142.74/unit Type II: $101.95/unit Type III: $25.64/unit



13

Investment Yield Expenses of 0.95% are netted against the Investment Return Assumption of 6.50%, leaving a Net Annual Investment Return of 5.55% per year.

ExpensesExpenses of 0.95% are netted against the investment return. In addition, $50,000 per year, which we assume will increase 4% per year for inflation, is included for state administrative costs for investment reporting and monitoring.

Future Participation in the Program Although new contracts are currently being sold, it is assumed that future contracts will not be sold since the purpose of the report is to value the Plan “as is” on the valuation date.

Mortality and Disability Due to the transferability of the contract, there is no mortality or disability assumption.

Early Voluntary Surrender of Contract We assumed the following percentages of the public senior college contracts in effect at the beginning of the year would be surrendered during the year. This is based on a 2016 Experience Study:

Years From Purchase Lump Sum

Five-YearPayments

Ten-YearPayments

ExtendedPayments

1 to 2 0.00% 0.00% 0.00% 0.00% 2 to 3 1.75% 3.50% 2.50% 3.75% 3 to 4 1.00% 1.00% 1.75% 1.50% 4 to 5 1.00% 1.00% 1.00% 1.00% 5 to 6 1.00% 1.00% 1.00% 1.00%

After 6 Years 1.00% 1.00% 1.00% 1.00%

Matriculation Percent We assumed the beneficiary of a contract, not voluntarily surrendered, matriculates in the year of high school graduation.

Utilization of Credits We assumed beneficiaries will use all units necessary to cover the tuition cost of each year as it occurs. For example, if 300 Type II units are available for use at the beginning of year one, 100 will be used in each of the first three years.

Frequency of Beneficiary Replacement We assumed no replacement of beneficiaries.

Bias Against the Program by Purchasers and Beneficiaries Due to the design of the program, no bias against the Plan is assumed.



14

SECTION V – Soundness of the Plan as of August 31, 2018

As a measure of the soundness of the Plan as of August 31, 2018, we determined the difference between the value of the assets and the actuarial present value of the future contract payments and the actuarial present value of future benefits and expenses. This measurement of soundness is summarized on the following pages.

A projection of the status of the Plan at each future anniversary date through the life of these contracts is presented on page 17, labeled Present Value of Assets and Liabilities.

The projections of future benefits and expenses and contract payments are presented on page 18, labeled Expected Annual Cash Flows.

Our measurement of the present value and projection are based on asset and contract information provided by the Plan Manager and on the assumptions chosen by the Board.



15

Current Assets$863,905,819

Tuition/FeePayments

$856,298,842

Future ContractPayments

$129,559,901

‐

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750

800

850

900

950

1,000

Assets Liabilities

Millions

Funded Status

The value of the trust fund exceeds the value of liabilities as of August 31, 2018 (including the value of future payments by contract purchasers) by $137,166,878. The funded ratio, assets divided by liabilities, is equal to 116.0%. Assets do not include investment transfers receivable or the related obligations for those assets. The assumptions used to perform the actuarial valuation of the fund were approved by the Board and are described in Section IV.

Total:$993,465,720

Total:$856,298,842



16

‐ 50

100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 950

'18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '31 '32 '33 '34 '35 '36 '37 '38 '39 '40 '41 '42

Millions

Assets

Payments Out of Fund

Payments into Fund + Investment Income

The expected income and disbursements of the trust fund, based on the assumptions used in the actuarial valuation, and the current group of contract beneficiaries, are shown below. These amounts are cash amounts, not present value amounts.

Cash Flow Projection

Fiscal Year End



17

Present Value of Assets and Liabilities

8/31 of Year

Present Value of Future Benefit and Expenses

Value of Assets and Present Value of Future

CollectionsAssets over Liabilities

2018 856,298,842 993,465,721 137,166,878 2019 831,409,274 976,191,690 144,782,415 2020 806,939,668 959,760,393 152,820,725 2021 778,555,082 939,860,359 161,305,277 2022 744,324,136 914,584,977 170,260,841 2023 704,024,560 883,738,124 179,713,564 2024 651,913,572 841,604,615 189,691,043 2025 595,488,393 795,710,801 200,222,408 2026 532,478,366 743,816,769 211,338,403 2027 465,403,432 688,474,914 223,071,482 2028 398,789,989 634,245,888 235,455,899 2029 335,791,829 584,319,638 248,527,809 2030 276,623,845 538,949,220 262,325,374 2031 222,748,511 499,637,386 276,888,876 2032 175,259,895 467,520,724 292,260,829 2033 132,017,653 440,503,763 308,486,110 2034 94,961,118 420,573,205 325,612,087 2035 62,951,593 406,640,348 343,688,755 2036 37,086,314 399,855,200 362,768,887 2037 17,917,306 400,825,488 382,908,181 2038 7,513,914 411,679,346 404,165,432 2039 2,806,186 429,408,880 426,602,694 2040 1,247,302 451,532,769 450,285,467 2041 809,673 476,092,560 475,282,887 2042 596,801 502,264,727 501,667,927




18

Expected Annual Cash Flows

Fiscal Year Ending

Benefit Payments and Expenses

ContractPayment Receipts

AnnualCash Flow

2019 68,606,493 25,779,431 (42,827,062)2020 66,899,878 23,152,948 (43,746,929)2021 69,322,348 21,046,819 (48,275,529)2022 73,368,786 18,284,747 (55,084,039)2023 77,318,395 15,463,935 (61,854,459)2024 86,389,721 10,807,403 (75,582,318)2025 87,736,980 9,353,769 (78,383,210)2026 91,008,653 7,947,145 (83,061,508)2027 91,546,645 6,625,518 (84,921,127)2028 87,582,504 5,457,335 (82,125,169)2029 80,654,670 3,128,857 (77,525,813)2030 73,713,340 2,700,592 (71,012,748)2031 65,587,833 2,201,576 (63,386,257)2032 56,704,082 1,749,228 (54,954,854)2033 50,183,956 1,362,046 (48,821,911)2034 42,049,754 1,010,287 (41,039,466)2035 35,319,628 678,427 (34,641,200)2036 27,815,341 269,868 (27,545,473)2037 20,111,130 37,335 (20,073,795)2038 10,798,487 - (10,798,487)2039 4,855,282 - (4,855,282)2040 1,624,469 - (1,624,469)2041 480,203 - (480,203)2042 244,254 - (244,254)


Note: The amounts shown above are annual expected amounts for the year corresponding to the “Fiscal Year Ending” column. They are not cumulative amounts. In addition, Payment Receipts are frontloaded. Therefore, the Expected Annual Cash Flows project positive cash flows in the early years and negative in the later years. It is expected that positive cash flows prior to Fiscal Year Ending 2018 would be invested to cover the negative cash flows in future years.



19

SECTION VI – Sensitivity Testing

The Program operates under conditions of risk and uncertainty. For example, while it is assumed the assets of the fund will earn the annual net rate found in Section IV, we also expect actual returns to vary from year to year. To accept the reasonableness of the basis for the measurement of the soundness, it is useful to know how the status of the fund may be affected by the vagaries of the markets and other factors. We have rerun the valuation under the following alternative scenarios, and the assets over liabilities as of August 31, 2018 under each of these scenarios are presented in the following table:

Scenarios Assets over Liabilities

Baseline assumptions used in valuation 137,166,878



Tuition increases are 25 basis points higher in each future year and the investment return is 25 basis points lower than assumed 121,724,929

Tuition increases are 25 basis points lower in each future year than assumed 146,056,824

Tuition increases are 25 basis points lower in each future year and the investment return is 25 basis points lower than assumed 137,501,237









20

TEXAS TUITION PROMISE FUND Active Contract Counts for All Enrollment Periods – Appendix A As of August 31, 2018

Matriculation Year Plan Type I Type II Type III Total

2012 275 198 23 496 2013 367 252 43 662 2014 434 294 37 765 2015 625 426 63 1,114 2016 784 480 81 1,345 2017 857 522 114 1,493 2018 1,107 570 89 1,766 2019 1,052 637 118 1,807 2020 1,149 646 138 1,933 2021 1,286 723 127 2,136 2022 1,460 832 175 2,467 2023 1,536 829 134 2,499 2024 1,390 702 111 2,203 2025 1,375 717 159 2,251 2026 1,360 691 129 2,180 2027 1,264 613 122 1,999 2028 1,052 496 98 1,646 2029 915 457 87 1,459 2030 829 366 76 1,271 2031 667 325 84 1,076 2032 611 316 74 1,001 2033 496 273 58 827 2034 432 209 51 692 2035 315 156 30 501 2036 168 73 21 262 Total 21,806 11,803 2,242 35,851



21


Matriculation Year

Number of Type I Units 25 50 100 150 200 250 300 350 400 450 500 550 600 PAYG*

2012 8 30 7 44 7 24 7 30 3 1 1 1132013 14 44 11 57 10 23 10 42 3 2 6 1452014 17 44 14 56 14 34 10 66 6 2 1 13 1572015 17 66 18 59 14 35 9 113 8 4 4 14 2642016 28 95 15 102 17 29 19 125 7 6 11 16 3142017 21 94 27 83 15 45 32 150 4 8 6 17 3552018 27 105 42 100 25 53 29 205 6 2 2 7 15 4892019 20 121 29 80 19 60 30 175 9 8 7 26 4682020 35 119 22 113 15 74 29 216 7 7 7 20 4852021 56 143 35 116 20 53 39 209 4 13 9 32 5572022 37 118 32 137 26 72 36 262 25 18 1 13 25 6582023 60 145 19 132 37 60 44 281 19 18 1 13 26 6812024 46 127 34 111 24 60 25 223 17 15 1 12 34 6612025 56 121 30 136 30 50 34 203 16 18 2 6 30 6432026 53 117 33 86 28 51 34 203 13 10 2 5 43 6822027 50 116 29 99 21 47 22 173 15 10 1 13 46 6222028 36 88 22 72 10 45 25 135 10 11 6 30 5622029 24 73 12 69 21 26 21 115 10 9 2 13 5202030 33 75 14 54 7 30 22 110 9 5 2 4 18 4462031 20 52 7 51 11 16 10 93 4 2 3 25 3732032 21 51 14 35 8 19 10 68 4 6 3 16 3562033 17 39 9 35 3 14 16 66 8 7 2 11 2692034 29 39 10 25 4 12 12 56 5 6 1 7 2262035 10 30 3 24 4 8 8 53 3 3 2 9 1582036 11 22 8 10 2 6 4 18 2 3 5 77Total 746 2,074 496 1,886 392 946 537 3,390 215 190 12 143 498 10,281

* Pay-as-you-go contracts



22


Matriculation Year

Number of Type II Units

50 100 150 200 250 300 350 400 450 500 550 600 MAX PAYG* 2012 6 29 7 33 9 20 3 20 3 3 1 642013 10 36 13 28 7 13 10 41 2 2 902014 16 36 8 48 6 18 7 35 6 4 1102015 22 48 9 63 10 17 12 65 5 6 1 1 1672016 17 55 13 75 12 22 7 70 10 5 1942017 25 54 18 75 14 21 7 84 7 2 1 2 2122018 34 51 20 64 15 23 8 81 10 4 1 2592019 24 70 20 82 9 38 8 93 15 4 1 2732020 21 61 26 78 9 38 4 105 14 1 2892021 37 67 15 79 15 44 9 109 4 4 1 3392022 29 81 28 105 19 40 11 153 20 9 3 3342023 37 73 27 108 18 44 9 158 18 9 3 1 3242024 32 86 19 80 19 26 8 123 16 10 1 2822025 26 96 17 102 15 25 7 119 18 7 2 2 2812026 27 69 13 88 14 30 6 117 19 5 1 1 1 3002027 28 67 21 71 18 21 3 84 18 9 2 2 2692028 27 45 15 67 11 19 5 77 9 5 2162029 21 47 6 50 13 15 7 60 12 6 2 2182030 22 37 6 51 5 13 1 51 14 2 1642031 23 36 9 38 10 9 4 49 4 2 1 1402032 10 26 10 40 7 8 37 7 4 1 1662033 12 25 4 31 6 4 2 44 5 3 1 1362034 19 17 5 22 6 6 2 30 1 3 982035 6 21 2 14 3 7 2 25 2 1 732036 2 8 3 7 1 1 15 2 34Total 533 1,241 334 1,499 271 522 142 1,845 241 110 15 16 2 5,032




23


Matriculation Year

Number of Type III Units

50 100 150 200 250 300 350 400 450 500 550 600 PAYG* 2012 1 4 10 1 72013 6 1 22 1 1 1 112014 7 2 17 3 82015 2 5 1 31 2 1 1 1 192016 3 19 2 25 4 2 262017 5 20 3 45 1 1 392018 2 12 2 32 2 1 1 3 342019 1 17 2 43 1 1 2 512020 5 12 4 48 3 3 1 3 2 1 2 542021 10 8 4 51 2 1 2 2 472022 8 19 12 68 3 2 1 6 2 542023 4 15 2 51 4 2 2 1 532024 4 12 5 39 3 2 6 402025 7 18 8 52 2 3 1 6 1 612026 5 13 4 46 4 1 9 1 462027 2 17 8 38 3 3 5 1 1 2 422028 3 12 7 38 1 2 2 1 322029 4 6 30 4 2 2 5 342030 3 8 1 25 4 2 3 1 292031 1 9 6 29 2 1 5 1 302032 3 3 5 22 6 1 1 1 1 312033 3 3 4 22 1 2 232034 1 8 2 17 3 1 192035 2 2 1 9 2 142036 1 1 8 2 1 2 6Total 76 253 93 818 60 26 11 65 11 5 1 13 810




24

TEXAS TUITION PROMISE FUND Tuition and School-wide Fee Payments – Appendix B For year ending August 31, 2018

Units Paid Total Payments Abilene Christian University 393.996 52,980 Alvin Community College 34.231 3,355 Amarillo College 435.326 15,334 Amherst College 91.722 12,650 Angelina College 29.003 3,798 Angelo State University 601.136 62,235 Arapahoe Community College 27.284 3,763 Arizona State University 420.119 55,942 Arlington Baptist College 120.590 11,806 Art Institute of San Antonio 294.216 40,579 Auburn University 386.051 49,216 Austin College 301.777 38,198 Austin Comm Coll 1,282.145 99,653 Baylor University 4,696.680 578,066 Belmont University 566.672 62,434 Benedictine College 96.458 13,304 Bentley University 10.176 1,403 Black Hawk College 3.944 544 Blinn College 1,518.404 163,350 Boise State University 60.692 5,942 Bossier Parish Community College 6.001 828 Boston University 242.295 33,417 Bradley University 173.848 23,977 Brazosport College 51.589 2,709 Brigham Young University Utah 27.885 2,730 Brookhaven College 110.486 3,984 California Baptist University 72.356 7,084 California Institute of Technology 241.240 33,272 California Institute of the Arts 101.000 13,930 California Polytechnic State University 19.387 2,674 Cameron University 91.967 3,684 Case Western Reserve University 170.656 23,537 Central Texas College 67.837 9,450 Central Wyoming College 42.111 5,808 City University of New York Hunter College 94.254 13,000 Coastal Carolina University 95.954 13,234 College of Western Idaho 19.094 2,634 Collin College 690.125 57,435 Colorado Christian University 101.600 14,013 Colorado Mesa University 16.000 2,207 Colorado School of Mines 496.053 68,416 Colorado State University 593.893 69,961 Columbus State Community College 135.021 13,219 Community College of Aurora 73.791 7,224 Concordia University Austin 244.345 33,700 Dallas Baptist University 281.010 36,268 Dallas Christian College 60.455 8,338



25


Units Paid Total Payments Dallas Institute of Funeral Service 79.672 7,800 Del Mar College 49.920 5,712 Diablo Valley College 10.243 1,413 DigiPen Institute of Technology 105.133 14,500 Drake University 150.506 20,758 Drury University 87.014 12,001 Duke University 182.501 25,171 East Texas Baptist University 25.000 2,448 Eastfield College 3.226 298 El Paso Community College 14.215 1,980 Elizabethtown Community and Technical College 53.614 2,169 Embry-Riddle Aeronautical University Florida 50.000 4,895 Emory University 250.000 26,476 Fairleigh Dickinson University 88.051 8,620 Fashion Institute of Technology 186.950 18,302 Florida State University 133.520 18,415 Fordham University 246.292 26,113 Front Range Community College Westminster 27.804 3,835 Galen College - San Antonio 68.759 6,732 George Washington University 202.718 27,959 Georgetown University 95.083 9,309 Georgia Institute of Technology 38.737 3,792 Georgia State University 114.841 11,243 Grayson County College 75.379 3,711 Grove City College 91.573 8,965 Hallmark College 216.291 21,175 Hardin-Simmons University 294.210 29,443 Harvard University 188.801 26,040 Henderson State University 34.053 3,675 Hesston College 50.000 6,896 Houston Baptist University 293.827 40,525 Houston Comm Coll 239.840 25,169 Howard College 52.519 6,633 Indiana University Bloomington 535.822 73,901 Iowa State University 128.424 13,793 John Cabot University 86.644 11,950 John Carroll University 83.707 11,545 Johns Hopkins University 373.924 51,571 Juniata College 78.434 10,818 Kansas City Art Institute 53.360 5,224 Kansas State University 157.422 17,263 Kent State University 71.410 9,849 Kilgore College 48.693 6,783 Lamar Institute of Technology 78.452 9,224 Lamar State College Port Arthur 39.613 4,733 Lamar University 424.285 45,754 Laredo Community College 167.805 16,285 Le Tourneau University 75.000 10,344



26


Units Paid Total Payments Lee College 31.092 3,074 LeTourneau University School of Graduate & Prof. Studies 197.868 27,290 Liberty University 45.071 6,216 Lone Star College System District 456.874 36,510 Louisiana State University 150.000 20,688 Louisiana State University Health Science Center 53.794 7,419 Loyola Marymount University 34.967 4,823 Lubbock Christian University 187.936 18,399 Lyon College 218.673 26,000 Maricopa County CCD Chandler-Gilbert Comm. College 21.447 2,958 Massachusetts Institute of Technology 570.000 78,762 McDaniel College 129.082 17,803 McLennan Community College 26.217 3,138 McMurry University 291.254 24,872 McPherson College 73.462 10,132 Michigan State University 212.357 24,792 Midland College 15.980 2,169 Midwestern State University 630.982 68,046 Minnesota State University Mankato 97.696 13,474 Mississippi State University 172.731 21,346 Mountain View College 10.021 1,121 Navarro College 48.802 5,178 New York University 501.694 69,194 Newschool of Architecture & Design 219.664 30,255 North Central Texas College 303.917 29,164 North Lake College 41.325 4,460 Northeast Lakeview College 26.403 668 Northeast Texas Community College 4.710 643 Northwest Vista College 180.823 17,160 Ohio State University 55.778 5,461 Oklahoma Christian University 129.930 17,920 Oklahoma State University 1,091.459 144,802 Oklahoma Wesleyan College 50.000 4,895 Otterbein College 50.000 6,896 Ouachita Baptist University 91.719 12,650 Our Lady of the Lake University 4.640 454 Palo Alto College 185.956 8,794 Paris Junior College 23.562 3,283 Pepperdine University 121.295 16,729 Pima Medical Institute 193.512 18,945 Pittsburg State University 65.367 6,400 Prairie View A&M University 613.823 63,198 Pratt Institute 100.000 13,792 Purdue University 77.485 10,687 Rhodes College 121.425 16,747 Rice University 663.942 91,571 Richland College 68.113 2,015 Ringling College of Art and Design 22.839 2,236



27


Units Paid Total Payments Saint Louis University 243.480 33,581 Sam Houston State University 2,392.557 261,902 Samford University 30.000 2,937 San Antonio College 300.475 18,753 San Jacinto College Central 512.623 25,971 Savannah College of Art and Design 210.497 29,032 Schreiner University 224.918 27,532 Smith College 371.403 51,224 South Plains College 200.735 12,152 South Texas College 75.031 7,975 Southern Methodist University 921.457 127,088 Southwest Texas Junior College 11.290 1,079 Southwestern Adventist University 71.700 9,889 Southwestern University 330.678 41,086 St. Cloud State University 18.653 2,573 St. Edwards University 560.885 72,137 St. Mary's University 105.515 10,330 St. Philips College 27.865 967 Stanford University 100.000 13,792 Stephen F. Austin State University 1,930.461 228,172 Sul Ross State University Alpine 83.526 8,259 Tarleton State University 1,361.395 149,217 Tarrant County College Ft. Worth (NW) 159.413 13,075 Tarrant County College NE Hurst 60.709 6,013 Tarrant County College SE Campus 42.316 2,068 Tarrant County College South Campus 79.013 3,749 Tarrant County College Trinity River Campus 10.552 1,227 Temple College 8.577 1,195 Temple University (includes Beasley School of law) 60.000 8,275 Texas A&M International University 150.310 19,382 Texas A&M University Central Texas 57.037 7,945 Texas A&M University College Station 35,891.740 4,317,331 Texas A&M University Commerce 616.051 46,611 Texas A&M University Corpus Christi 885.778 88,559 Texas A&M University Galveston 1,229.438 150,976 Texas A&M University Kingsville 398.164 51,584 Texas A&M University San Antonio 136.593 15,914 Texas Christian University 1,704.649 202,708 Texas College 51.113 5,004 Texas State Technical College Harlingen 267.650 14,719 Texas State Technical College Waco 50.071 5,718 Texas State Technical College West Texas 69.586 6,808 Texas State University San Marcos 8,744.781 1,016,072 Texas Tech University 13,446.614 1,549,141 Texas Tech University Health Sciences Center 101.036 12,572 Texas Woman's University 630.202 57,950 The King's University 44.541 4,361 The New School 150.000 20,688


28


Units Paid Total Payments Trinity University 1,124.309 142,782 Tulane University 368.489 44,079 Tyler Junior College 616.562 31,869 United States Naval Academy 67.782 9,859 University Extension UT Austin 36.973 5,151 University of Alabama 576.739 74,406 University of Alabama at Birmingham 59.440 8,198 University of Arizona 100.000 13,792 University of Arkansas at Fayetteville 2,320.355 284,375 University of Arkansas at Little Rock 52.450 5,135 University of California Berkeley 713.717 82,428 University of California Los Angeles 135.451 18,681 University of California San Diego 38.665 5,333 University of Central Arkansas 29.659 4,091 University of Chicago 212.745 23,339 University of Colorado at Boulder 26.874 3,706 University of Colorado at Colorado Springs 175.231 24,168 University of Colorado at Denver 241.762 33,344 University of Dallas 190.368 22,254 University of Hawaii at Manoa 95.865 13,222 University of Houston 6,561.895 758,953 University of Houston Clear Lake 314.181 37,067 University of Houston Downtown 309.571 35,394 University of Illinois at Chicago 63.549 6,222 University of Illinois at Urbana 155.913 21,503 University of Illinois Springfield 50.000 7,232 University of Kansas 37.000 5,103 University of Mary Hardin-Baylor 565.458 60,563 University of Maryland Baltimore County 50.000 4,895 University of Miami 205.756 28,378 University of Michigan 37.938 5,232 University of Mississippi 547.556 58,991 University of Missouri Columbia Campus 248.135 27,964 University of Nevada Reno 99.809 12,754 University of New Mexico 99.291 13,694 University of North Texas 7,520.081 877,466 University of Northern Colorado 100.000 9,790 University of Notre Dame 253.460 25,814 University of Oklahoma 1,547.153 192,088 University of Oklahoma Health Science Center 100.000 9,790 University of Pennsylvania 153.991 21,239 University of Pittsburgh, Pittsburgh Campus 111.086 15,321 University of South Carolina Columbia 39.290 5,419 University of Southern California 18.186 2,508 University of St. Thomas 511.650 49,854 University of Tampa 50.000 6,896 University of Texas at Arlington 3,107.505 351,839 University of Texas at Austin 36,487.420 4,744,185



29


Units Paid Total Payments University of Texas at Austin in DC 35.527 4,900 University of Texas at Austin McCombs School 50.072 6,975 University of Texas at Dallas 7,723.333 963,535 University of Texas at San Antonio 5,020.342 553,820 University of Texas at Tyler 420.997 49,626 University of Texas Health Science Center Houston 84.626 8,285 University of Texas Health Science Center San Antonio 31.267 3,061 University of Texas Medical Branch at Galveston 228.722 30,007 University of Texas Rio Grande Valley 825.585 68,985 University of the Incarnate Word 409.070 51,590 University of Tulsa 167.722 16,420 University of Washington 100.000 9,790 Valencia Community College 17.008 2,346 Vernon College 152.179 12,216 Victoria College 38.047 4,474 Wade College 110.063 15,180 Wake Forest University 23.080 3,183 Wayland Baptist University 23.503 2,301 Weatherford College 127.586 4,767 West Texas A&M University 655.905 72,968 Western Illinois University 8.724 854 Western State Colorado University 115.308 15,884 Western Texas College 67.276 8,906 Wharton County Junior College 230.244 24,622 Whitman College 97.407 13,435 Worcester Polytechnic Institute 300.000 29,370 Grand Total 189,303.830 22,524,877

Pages from the Texas Tuition Promise Fund® – Actuary’s Report on Program Soundness – August 31, 2018 (concluded)


F U N D I N V E S T M E N T I N F O R M A T I O N

2 0 1 8


Texas Guaranteed Tuition Plan Fund Investment Information

Market Value of FundYear Ending August 31, 2018

(Amounts in millions)

Total Fund $438

Fiscal Year 2018Time Weighted

Gross Fund Return

Total Fund 1.9%

Total Fund Benchmark 1.7%

Fiscal Year 2017

Fiscal Year 2018

Gross Return – Total Fund 1.9% 1.9%

Gross Return – Equity 15.9% 19.2%

Gross Return – Fixed Income 2.1% 1.0%

Gross Return – Cash and Short-term .5% 1.4%

Portfolio Diversification





Equity $26 4% $21 5%

Fixed Income $292 47% $146 33%

Cash and Short-term Securities $301 49% $271 62%

Other Investments $0 0% $0 0%

TOTAL, ALL INVESTMENTS $619 100% $438 100%

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

Equity5%

Fixed Income33%

Cash and Short Term Securites62%

Investment Asset Allocation,August 31, 2018

Publication #96-481 • Revised February 2019For additional copies, write:

Texas Tomorrow FundsP.O. Box 13407

Austin, Texas 78711-3407


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