NRRIT 

Annual Management Report 

for Fiscal Year 2015 
 
NRRIT 

National Railroad Retirement 

Investment Trust 

Annual Management Report for Fiscal Year 2015 

Required by Public Law 107-90, 

The Railroad Retirement and Survivors’ 

Improvement Act of 2001 
 

 


 

2 FISCAL YEAR 2015 

National Railroad Retirement Investment Trust 

Mission Statement
 

The mission of the National Railroad Retirement Investment Trust is to help secure the 

retirement benefits of all participants of the railroad retirement system. Through the 

diligent oversight and prudent investment of railroad retirement assets, and an 

adherence to the highest ethical and professional standards within the industry, 

NRRIT’s trustees and investment professionals contribute to the financial security of rail 

workers, retirees, and their families, and the strength of the American rail industry. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 

FISCAL YEAR 2015 TABLE OF CONTENTS - 3 

ANNUAL MANAGEMENT REPORT OF THE
 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST
 

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2015 

1) INTRODUCTORY STATEMENT 5
 

A) OVERVIEW 5
 

B) PORTFOLIO DIVERSIFICATION 6
 

C) BOARD AND COMMITTEE MATTERS 7
 

2) OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS 8
 

A) TRUSTEE UPDATE 8
 

B) COORDINATION WITH FEDERAL GOVERNMENT AGENCIES 8
 

C) TRANSFERS TO AND FROM THE TREASURY 10
 

D) ACCOUNT BENEFITS RATIO 12
 

E) TRUST STAFF 12
 

3) OPERATIONS OF THE TRUST: INVESTMENT MATTERS 14
 

A) OVERVIEW 14
 

B) INVESTMENT PLAN: STRUCTURE 14
 

C) INVESTMENT PLAN: IMPLEMENTATION 15
 

D) PROXY VOTING POLICY 17
 

E) RAILROAD RETIREMENT SYSTEM ASSETS 17
 

F) EXPENSES 18
 

4) AUDIT COMMITTEE 19
 

5) INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS 20
 

A) CUSTODIAL ARRANGEMENTS 20
 

B) ACCOUNTING 20
 

6) FINANCIAL STATUS OF THE TRUST 21
 

A) FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REPORT 21
 
 

_______________________________________________________________________ 

4 – APPENDICES FISCAL YEAR 2015 

APPENDICES 

A) BY-LAWS 

B) INVESTMENT GUIDELINES 

C) 2002 MEMORANDUM OF UNDERSTANDING 

D) 2014 MEMORANDUM OF UNDERSTANDING 

E) CONFLICTS OF INTEREST POLICY STATEMENT 

F) CONFIDENTIALITY POLICY STATEMENT 

G) PROXY VOTING POLICY 

H) AUDIT COMMITTEE CHARTER 

I) ADMINISTRATIVE COMMITTEE CHARTER 

J) CHIEF INVESTMENT OFFICER AND CHIEF FINANCIAL AND OPERATING OFFICER 

CERTIFICATION LETTERS 

K) RAILROAD RETIREMENT BOARD CERTIFICATION LETTER TO TREASURY AND 

TREASURY FEDERAL REGISTER NOTICE ON 2016 TAX RATE 

L) NOTICE TO THE RAILROAD RETIREMENT BOARD AND ACCEPTANCE OF NEW TRUSTEES 

M) BIOGRAPHICAL INFORMATION ON TRUSTEES AND STAFF 
 

 

FISCAL YEAR 2015 INTRODUCTORY STATEMENT - 5 

1) Introductory Statement 

a) Overview 

The stabilization and recovery that the global financial markets experienced in fiscal 

year 2014 continued into the first three quarters of fiscal year 2015 (October 1, 2014 – 

September 30, 2015), before experiencing extreme volatility in the final quarter. In 

this environment, the National Railroad Retirement Investment Trust (“Trust”) achieved 

an investment return of -1.5% (net of fees). This investment return compares with the 

return on the Trust’s benchmark of -3.3% over the same period. 

Overall, during fiscal year 2015, the net asset value of Trust-managed assets 

decreased from $26.1 billion on October 1, 2014, to $24.5 billion on September 30, 

2015. This reduction in asset value includes $1.2 billion that the Trust transferred to 

the US Treasury (the “Treasury”) for railroad retirement (tier 2) benefit payments 

during the fiscal year. 

Market Value of Trust-Managed Assets 

($ in billions) 

October 1, 2014 $26.1 

Transfers from Trust to Treasury $(1.2) 

Net Change in value (0.4) 

Net Increase/(Decrease) (1.6) 

September 30, 2015 $24.5 

In addition to Trust-managed assets, other assets of the railroad retirement 

system are retained by the Railroad Retirement Board (“RRB”) as reserves in accounts 

at the Treasury. These reserves are made up of recent payroll tax contributions from 

rail employers and employees, as well as assets that the Trust has transferred to the 

Treasury to pay future benefits. In order to understand the overall financial position of 

the railroad retirement system, it is important to consider both the Trust-managed 

assets and the system reserves held at the Treasury. 

During its thirteen years of investment operations, the Trust has transferred 

$17.8 billion to the Treasury to pay railroad retirement benefits. Even with these benefit 
 

 

6 - INTRODUCTORY STATEMENT FISCAL YEAR 2015 

payments, total railroad retirement system assets (Trust-managed assets plus reserves 

maintained at the Treasury) grew from $20.7 billion in 2002 to $26.3 billion as of the 

end of fiscal year 2015. As such, despite the challenges encountered in recent years, 

and in fiscal year 2015 in particular, the Trust has made a significant contribution to the 

increase in total assets available to the railroad retirement system. 

Trust-Managed Assets and RRB Assets Held in Reserve 

($ in billions) 

February 1, 2002 (total system assets at Trust inception) $20.7 

Net transfers from the Trust to the Treasury for payment 

of RR Benefits 

Net Change in value* 

Net increase/(decrease) 

September 30, 2015 

$ (17.8) 

23.4 

5.6 

$26.3 

* This includes investment return, payroll tax revenues, additional benefit payments and administrative expenses. 

b) Portfolio Diversification 

Over the past thirteen years, the Trust has deployed assets received from the Treasury 

into a diversified portfolio of US and non-US equity, and US and non-US fixed income 

securities. Over time, the Trust has furthered that diversification by allocating a 

percentage of the portfolio to private equity, real assets, commodities, and absolute 

return investments. As mandated by its statute, the Trust has avoided undue 

concentration of investment in any asset class, type of security, or market sector. 

This policy of broad diversification is intended to serve the Trust well in strong 

markets and to protect its assets from disproportionate market shocks in volatile 

periods. The assumption underlying this diversification of Trust assets is that not all 

asset classes will perform the same in any given market environment. As part of this 

diversification process, the Trust holds tens of thousands of different securities selected 

by its numerous investment managers, pursuing many different strategies, for the Trust 

portfolio. The Trust’s Board and its investment staff carefully monitored the activities of 
 

 

 

FISCAL YEAR 2015 INTRODUCTORY STATEMENT - 7 

the Trust's investment managers throughout the fiscal year, examining portfolio weights 

in each asset class, holdings within each asset class, and the work of active managers, 

in order to evaluate strategy and performance. 

c) Board and Committee Matters 

During this fiscal year, the Board and its investment staff reviewed and updated the 

Trust’s investment, accounting, and operations procedures manuals. The Board and 

the investment staff also continued to monitor the Trust’s asset allocation structure, 

though this review did not result in any changes to the Trust’s Investment Guidelines 

that reflect the evolution of the Trust’s portfolio in the current market environment. 

The Board of Trustees met six times during the course of the year to consider 

the various investment and management issues that are discussed in this fourteenth 

Annual Management Report. In addition, the Board’s Audit and Administrative 

Committees met periodically to consider matters within their areas of responsibility. A 

copy of the Audit Committee Charter, as revised and approved by the Board on May 2, 

2014, is contained at Appendix H. A copy of the Administrative Committee Charter 

setting forth the duties of the Committee, as approved by the Board on May 22, 2013, 

is contained at Appendix I. 

This report and its various appendices provide information on the operations and 

financial status of the Trust for the fiscal year, including the report of the audit of the 

financial statements as required by the Trust’s enabling statute. 
8 - OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS FISCAL YEAR 2015 

2) Operations of the Trust: Administrative Matters 

a) Trustee Update 

In February 2015, the Trust announced the appointment of two Trustees and the 

appointment of its Chair for the period beginning February 1, 2015. Railroad 

management appointed Mr. Richard G. Patsy, Assistant Vice President Pensions and 

Investments, CSX Corporation, to a three-year term that expires on January 31, 2018. 

Railway labor unions appointed Mr. George J. Francisco, Jr., President Emeritus, 

National Conference of Firemen and Oilers - SEIU, to a new three-year term that 

expires on January 31, 2018. In addition, the Trustees appointed Mr. William F. Quinn, 

the chairman and founder of American Beacon Advisors, as the Chair of the Board of 

Trustees for the period February 1, 2015 - January 31, 2016. 

Mr. Patsy and Mr. Francisco joined the following five members on the Board: for 

terms expiring on January 31, 2016, Mr. James A. Hixon, Executive Vice President Law 

and Corporate Relations of Norfolk Southern Corporation, and Mr. William C. Walpert, 

National Secretary-Treasurer Emeritus of the Brotherhood of Locomotive Engineers and 

Trainmen (BLET); and for terms expiring on January 31, 2017, Mr. Alec Vincent, 

Assistant Vice President Tax of Burlington Northern Santa Fe, LLC, Mr. Joel Parker, 

Special Assistant to the President and International Vice President of the Transportation 

Communications International Union (TCU)/IAM, and Mr. Quinn. 

 Biographical information on the Trustees can be found in Appendix M. 

b) Coordination with Federal Government Agencies 

Throughout the fiscal year, the Trust maintained regular communications with the RRB 

and the Treasury on all matters relating to the transfer of monies between the various 

RRB accounts at the Treasury and the Trust. In addition, the Trust transmitted all 

monthly data required pursuant to a Memorandum of Understanding (“MOU”) entered 

into in 2002 with these entities and the Office of Management and Budget (“OMB”). 

This 2002 MOU outlines the budgetary, transfer, accounting, and financial reporting 

responsibilities for assets held by the Trust and railroad retirement system assets held 
 

 

FISCAL YEAR 2015 OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS - 9 

within the Treasury. This MOU requires the Trust to report on a monthly basis: receipts 

and disbursements of funds, purchases and sales of assets, earnings and losses on 

investments, value of investments held, and administrative expenses incurred. A copy 

of the 2002 MOU is included in Appendix C. 

During this fiscal year, the Trust and the RRB entered into a subsequent MOU 

that delineates responsibilities and procedures for financial audits and performance 

reviews with respect to assets held by the Trust. This MOU formalizes the requirement 

that the Trust retain an independent qualified public accounting firm to annually audit 

the Trust’s financial statements, and the deadline for transmittal of the audited financial 

statements to the RRB. In addition, this MOU contains provisions related to the timing, 

structuring, scope, and cost of periodic performance reviews, as well as the assessment 

of the results of the reviews. A copy of the 2014 MOU is included in Appendix D. 

Pursuant to its established practice of periodic meetings with the RRB, during 

fiscal year 2015, the Trustees, the Chief Executive Officer/Chief Investment Officer, and 

Trust legal counsel held periodic meetings and telephone conferences with the 

Members of the RRB and its General Counsel and Chief Financial Officer to review the 

investment and administrative activities of the Trust. Senior staff of the two 

organizations and Trust legal counsel conferred after each meeting of the Trust Board. 

The Trustees and the Members of the RRB met twice during the year. In addition, the 

Trust prepared Quarterly Updates that were transmitted to the Congressional 

committees of jurisdiction and posted on the RRB website to be available to all other 

interested parties. 

During 2015, the Trust also consulted with the RRB on its fiscal year-end audit 

and reporting processes to facilitate the transmittal of fiscal year audited net asset data 

of the Trust to the RRB by November 15 for use in the year-end Financial Report of the 

United States. In addition, the Trust provided audited financial asset data to the RRB 

as of December 31, 2014, for use in the preparation of the RRB’s annual Statement of 

Social Insurance. 
 

               

                                      

                                        

                                         

 

 

10 - OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS FISCAL YEAR 2015 

c) Transfers to and from the Treasury 

The Railroad Retirement and Survivors’ Improvement Act of 2001 (the "Act") provided 

for the transfer of railroad retirement system funds to the Trust for investment in a 

diversified portfolio similar to those of other large US pension plans. From inception 

through fiscal year 2004, the Trust received $21.3 billion of railroad retirement system 

funds. The Trust has received no transfers from the Treasury since the end of fiscal 

year 2004. The funds transferred to the Trust consisted primarily of assets transferred 

from the Railroad Retirement Account ("RRA"), and a smaller amount from the Social 

Security Equivalent Benefit (“SSEB”) Account. The RRA assets were invested in a 

diversified portfolio in accordance with the Trust’s Investment Guidelines, while the 

funds received from the SSEB Account were invested in federal securities as required in 

the Act. 

The Act also provides for the transfer from the Trust to the Treasury of amounts 

necessary to pay RRA benefits under the Act. During fiscal year 2015, the Trust 

transferred a total of $1.2 billion to the Treasury for payment of RRA benefit 

obligations. The following chart displays the individual transfers from the Trust to the 

Treasury in fiscal year 2015. 

Transfers from the Trust to the Treasury

Fiscal Year 2015

250

200

150

100

50

0

$ Millions

Note: The chart above reflects the cash required by the Treasury for payment of railroad retirement (tier 2) benefit

payments each respective month. Transfers are made on the first business day of the month unless the first falls on

a Saturday. If the first falls on a Saturday, the transfer is made on the last business day of the prior month.
FISCAL YEAR 2015 OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS - 11 

Summary of transfers: From its inception in February 2002 to September 30, 2015, the 

Trust received $21.3 billion from the Treasury and transferred $17.8 billion to the 

Treasury. The net book value of funds received from the Treasury since inception, 

therefore, is $3.5 billion. 

The assets received by the Trust have been invested in a diversified multi-assetclass portfolio in accordance with the Trust’s Investment Guidelines. This diversification 

of assets away from the prior all-Treasury-securities portfolio has allowed the Trust’s 

assets to grow beyond their original book value. As of September 30, 2015, the net 

asset value of the Trust-managed assets totaled $24.5 billion, representing an increase 

of $21.0 billion above the net book value of assets transferred to the Trust for 

investment. The following chart reflects the growth of the Trust’s assets, comparing 

the net book value of assets received by the Trust to the net asset value of those 

assets, and the transfers from the Trust to the Treasury at the end of each quarter for 

the past ten years. 
 

 

 

12 - OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS FISCAL YEAR 2015 

d) Account Benefits Ratio 

The funds available to pay railroad retirement benefits and administrative costs include 

assets held in the RRA, the SSEB Account, and assets held by the Trust. Section 204 of 

the Act requires that amounts in the RRA and assets held by the Trust be included in 

the annual calculation of the account benefits ratio (“ABR”). The ABR is the ratio of the 

combined fair market value of RRA and Trust assets as of the close of the fiscal year to 

the total benefits and RRB and Trust expenses paid in that fiscal year. The average 

account benefits ratio ("AABR"), the ten-year average of the ABR, is used to determine 

the tier 2 tax rates for railroad employers and employees. 

As provided in the Act, the RRB computed the account benefits ratio for fiscal 

year 2015 and certified the ratio to the Secretary of the Treasury on October 27, 2015. 

The Secretary determined the AABR for fiscal year 2015 and on November 23, 2015 

published a notice in the Federal Register of the tier 2 employer and employee tax rates 

for calendar year 2016. Copies of the RRB certification letter and the Treasury notice 

are contained in Appendix K. The ABR declined from 5.18 for fiscal year 2014 to 4.84 

for fiscal year 2015. The ten-year AABR declined from 6.0 at September 30, 2014 to 

5.8 at September 30, 2015. 

e) Trust Staff 

The Trust’s staff is comprised of professionals in three major areas of responsibility: 

investments, operations, and accounting. The investment staff reports to a Senior 

Managing Director – Investments. The operations staff reports to the Senior Operating 

Officer, and the accounting staff to the Senior Accounting Officer. All senior officers 

report to the Chief Executive Officer/Chief Investment Officer (“CEO/CIO”). The 

CEO/CIO and staff are accountable to the Board of Trustees. 

Investment management personnel include Directors who are responsible for 

each major asset class. Working with the Directors are investment analysts assigned to 

specific asset classes. The operations staff is responsible for tracking and monitoring 

Trust assets, as well as other operational functions such as information technology, 
FISCAL YEAR 2015 OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS - 13 

office management, and human resources. The accounting staff interacts with the 

Trust’s independent auditor, and is responsible for financial reporting in accordance 

with Generally Accepted Accounting Principles. 

Biographical information on the Trust’s staff can be found in Appendix M. 
14 – OPERATIONS OF THE TRUST: INVESTMENT MATTERS FISCAL YEAR 2015 

3) Operations of the Trust: Investment Matters 

a) Overview 

For fiscal year 2015, the investment return, net of fees, on Trust-managed assets was 

-1.5% while the Trust’s strategic benchmark returned -3.3%. The relative 

outperformance for the Trust during the current fiscal year was driven by the 

investment performance of the Trust’s investment managers as well as the tactical 

investment positions taken by the Trust. 

Volatility returned to the capital markets during August and September as 

investors found ample reasons to worry about the future of global growth. As China’s 

economy showed signs of a significant slowdown and world oil prices hit five-year lows, 

the capital markets struggled to provide positive returns. The top three performing 

asset classes for the Trust were private real assets, private equity and public real 

estate, which returned 22.1%, 9.4% and 6.9% respectively for the year. The Trust 

maintains a long-term focus and a well-diversified portfolio to take advantage of such 

market movements regardless of which asset classes are in favor in any single year. 

b) Investment Plan: Structure 

Since its inception in September 2002, the Trust’s asset class structure has evolved 

from a portfolio consisting entirely of government securities, to a simple three-assetclass approach, and finally to a structure which is more fully diversified across 

geography, capitalization size, investment style, credit quality, and other characteristics. 

The Trust’s Investment Guidelines specify the neutral target allocation and approved 

ranges for each asset class, as well as rules for rebalancing back towards these neutral 

targets as market valuations change. The Investment Guidelines also provide a policy 

benchmark for each asset class and a composite benchmark for the total portfolio to 

measure actual Trust performance against an objective standard. The Trust’s most 

recent full asset allocation study was conducted during fiscal year 2014 and resulted in 

minor revisions to the previous target allocations and ranges reflecting changes in 

capital market expectations since the previous asset allocation study. The new target 
 

 

 

 

FISCAL YEAR 2015 OPERATIONS OF THE TRUST: INVESTMENT MATTERS - 15 

allocations and ranges became effective beginning October 1, 2014. The Trust’s 

Investment Guidelines are included in Appendix B. 

Current Long-Term Target Asset Allocation 

(Approved August 19, 2014) 

Asset Class Target Range 

US Equity 22% 17-27% 

Non-US Equity 22% 17-27% 

Private Equity 10% 5-15% 

US Fixed Income 13% 9-17% 

Non-US Fixed Income 7% 4-10% 

Real Estate 10% 2-15% 

Commodities 5% 2-8% 

Absolute Return 10% 5-15% 

Cash 1% 0-3% 

100% 

c) Investment Plan: Implementation 

 US Equity: There were no additions or terminations to the US equity manager 

accounts during fiscal year 2015. At the end of the fiscal year, this asset class had 15 

active US equity managers, one of which manages two separate accounts, and one US 

equity index manager managing three products. 67% of the Trust’s US equity portfolio 

was actively managed at the end of the fiscal year. 

 Non-US Equity: During the fiscal year, the Trust terminated one index 

manager account and added one active manager account. The Trust ended fiscal year 

2015 with 11 active non-US equity managers, two of which manage two separate 

accounts each, and one index manager, which manages five products in non-US equity. 

Approximately 84% of the Trust’s non-US equity allocation was actively managed. 

Additionally, for the currency overlay program, there were no additions or terminations, 
 

 

16 – OPERATIONS OF THE TRUST: INVESTMENT MATTERS FISCAL YEAR 2015 

and the Trust continued to employ three active managers at the end of the fiscal year. 

US Fixed Income: During the fiscal year, the Trust terminated two active 

manager accounts and added one specialist manager account. At the end of the fiscal 

year, this asset class had 11 active/specialist managers, and 100% of the Trust’s US 

fixed income allocation was actively managed. Additionally, a commitment was made to 

one new account with an existing manager, scheduled to begin its investment period 

during fiscal year 2016. 

Non-US Fixed Income: During the fiscal year, the Trust terminated one active 

manager account. At the end of the fiscal year, this asset class had seven active 

managers, and 100% of the Trust’s non-US fixed income allocation was actively 

managed. 

Commodities: During the fiscal year, the Trust terminated three active 

manager accounts and one passive manager account, and added three active manager 

accounts. At the end of the fiscal year, this asset class had three active managers and 

two specialist managers, and 100% of the Trust’s allocation to commodities was 

actively managed. 

 Absolute Return: During fiscal year 2015, three specialist manager accounts 

were added, new mandates were added to two existing managers and one mandate 

was terminated. At the end of the fiscal year, this asset class had 18 active managers, 

one of which manages three separate portfolios for the Trust, and two of which each 

manage two separate portfolios for the Trust. This allocation is 100% actively managed. 

 Private Equity: During fiscal year 2015, the Trust continued its private equity 

program implementation with five new private equity funds with existing managers, as 

well as one new private equity fund with a new manager, bringing the total number of 

active partnerships in the private equity portfolio to 84 at the end of the fiscal year. 

These 84 partnerships are actively managed by 41 managers. Additionally, 

commitments were made to five new partnerships with existing managers, which were 

scheduled to begin their investment period during fiscal year 2016. 

 Real Assets: Nine new real estate partnerships began their investment period 
FISCAL YEAR 2015 OPERATIONS OF THE TRUST: INVESTMENT MATTERS - 17 

during fiscal year 2015, all with existing managers, bringing the total number of active 

partnerships in Real Assets to 61. These 61 partnerships are actively managed by 33 

managers. Additionally, commitments were made to four new partnerships, three with 

existing managers, which were scheduled to begin their investment period during fiscal 

year 2016. The Trust also had investments in three actively-managed REIT funds at 

the end of the fiscal year. 

Cash: The Trust has two passively-managed cash accounts, one with its 

custodian bank and one with a separate institutional money manager. 

d) Proxy Voting Policy 

The Trust maintains a proxy voting policy which delegates the voting of Trust proxies to 

its investment managers as fiduciaries of the Trust. It also details specific 

responsibilities of those managers in the voting of proxies, makes clear the 

responsibility of investment managers to coordinate proxy voting with the Trust’s 

custodian, and retains for the Trust itself responsibility for monitoring, reviewing, and 

reporting on the implementation of the proxy voting policy. A copy of the proxy voting 

policy can be found in Appendix G. 

Each year, managers with proxy voting responsibilities are required to certify that 

they have voted all proxies in accordance with the policy and solely in the interest of 

the participants and beneficiaries of the Trust. After the end of the fiscal year, staff 

reviews and reports to the Board of Trustees regarding each manager’s proxy voting 

record with respect to Trust securities. 

e) Railroad Retirement System Assets 

While most railroad retirement system assets are managed by the Trust, some assets 

remain in Treasury accounts managed by the RRB. Approximately 6.8% of the total, or 

$1.8 billion out of $26.3 billion as of September 30, 2015, is held in the form of 

reserves that are invested in Treasury securities by the RRB. These reserves are 

replenished as needed through transfers from the Trust to the Treasury. In 
 

 

18 – OPERATIONS OF THE TRUST: INVESTMENT MATTERS FISCAL YEAR 2015 

determining its asset allocation, the Trust takes into account these reserves and sets its 

investment policies accordingly. 

f) Expenses 

The largest component of the Trust's expenses is investment management fees which 

now constitute approximately 82% of all expenses. These fees have increased over 

time as the investment portfolio has been transitioned from an all-indexed portfolio to 

one that is primarily actively managed. As the transition to active management nears 

completion, total expenses as a percentage of assets under management have 

stabilized, and the expense ratio compares favorably to investment industry standards. 

Trust Expense Ratio 

FY 2008 – FY 2015 

Fiscal Year Expense Ratio (%) 

2015 0.27 

2014 0.29 

2013 0.29 

2012 0.30 

2011 0.36 

2010 0.33 

2009 0.26 

2008 0.25 
FISCAL YEAR 2014 INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS - 19 

4) Audit Committee 

The Audit Committee (the “Committee”) held four meetings during fiscal year 2015. 

During the year, the Committee engaged KPMG LLP to perform an audit of the Trust’s 

Statement of Assets and Liabilities as of December 31, 2014. The completion of this 

balance sheet audit provided the RRB with an independently audited net asset balance 

for the Trust, allowing the RRB to complete an annual Statement of Social Insurance 

using audited inputs from the Trust. 

Also during fiscal year 2015, the Committee provided oversight of the Trust’s 

ongoing program of periodic performance reviews. This included consideration of the 

scope for the upcoming review, and an evaluation of proposals received from qualified, 

independent, non-governmental organizations to conduct the review, in accordance 

with the 2014 MOU included in Appendix D. 

The Committee engaged KPMG to perform the annual audit of the Trust’s 

financial statements for the fiscal year ended September 30, 2015. The Audit 

Committee provided oversight of the financial statement audit process in accordance 

with its fiduciary duty to the Trust. The Trust issued its financial statements, including 

an unqualified audit opinion, within 45 days of its fiscal year-end. This allowed the RRB 

to include the Trust’s audited net assets in its financial statements and meet its financial 

reporting deadline. 
 

 

20 – FINANCIAL STATUS OF THE TRUST FISCAL YEAR 2015 

5) Internal Accounting and Administrative Controls 

During fiscal year 2015, the Trust’s staff continued to improve the system of internal 

accounting and administrative controls designed to ensure the safekeeping and proper 

accounting of investments, and the efficient operation of the Trust’s activities. 

a) Custodial Arrangements 

The Trust’s assets are primarily held by its custodian, The Northern Trust Company 

(“Custodian”). Assets invested in commingled funds are held with the custodian of each 

respective fund. Likewise, investments in private partnerships and absolute return 

strategies are maintained by the custodian or administrator of each respective fund. 

Periodic statements are presented to and recorded by the Custodian on the Trust’s 

books. The Custodian maintains records of, and custodial accounts for, all of the 

Trust’s assets. 

As the Trust’s investments have grown in complexity over the years, the Trust 

has worked closely with the Custodian to enhance internal processes, procedures, and 

systems supporting all investment and operational activity. 

b) Accounting 

The Custodian provides the Trust with investment performance of Trust assets, as well 

as a record of all transactions involving Trust assets. Reconciliations of the primary 

custodial records to the investment managers’ records are performed monthly. The 

Trust has established a process to review the monthly reconciliations to ensure that all 

transactions are recorded properly on the respective books. Financial data from the 

custodial bank form an integral part of the Trust’s required reports and financial 

statements. 
FISCAL YEAR 2015 INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS - 21 

6) Financial Status of the Trust 

a) Financial Statements and Independent Auditors’ Report 
National Railroad 

Retirement Investment 

Trust 

Financial Statements as of and for the 

Fiscal Year Ended September 30, 2015, and 

Independent Auditors’ Report 

 


 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 

Table of Contents 

Page(s) 

Independent Auditors’ Report 1 

Financial Statements as of and for the Fiscal Year Ended 

September 30, 2015:
 

Statement of Assets and Liabilities 2 

Condensed Schedule of Investments 3–8
 

Notes to Financial Statements 12–27 

Statement of Operations 9 

Statement of Cash Flows 10 

Statement of Changes in Net Assets 11 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 


 


 


 

KPMG LLP 

1676 International Drive 

McLean, VA 22102 

Independent Auditors’ Report 

The Board of Trustees
 

National Railroad Retirement Investment Trust:
 

We have audited the accompanying financial statements of the National Railroad Retirement Investment 

Trust, which comprise the statement of assets and liabilities, including the condensed schedule of 

investments, as of September 30, 2015, and the related statements of operations, cash flows and changes in 

net assets for the fiscal year then ended, and the related notes to the financial statements. 

Management’s Responsibility for the Financial Statements 

Management is responsible for the preparation and fair presentation of these financial statements in 

accordance with U.S. generally accepted accounting principles; this includes the design, implementation, 

and maintenance of internal control relevant to the preparation and fair presentation of financial statements 

that are free from material misstatement, whether due to fraud or error. 

Auditors’ Responsibility 

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted 

our audit in accordance with auditing standards generally accepted in the United States 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 auditors’ judgment, including the assessment of 

the risks of material misstatement of the financial statements, whether due to fraud or error. In making those 

risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair 

presentation of the financial statements in order to design audit procedures that are appropriate in the 

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal 

control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of 

accounting policies used and the reasonableness of significant accounting estimates made by management, 

as well as evaluating the overall presentation of the financial statements. 

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

audit opinion. 

Opinion 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial 

position of the National Railroad Retirement Investment Trust as of September 30, 2015, and the results of 

its operations, changes in its net assets, and its cash flows for the fiscal year then ended in accordance with 

U.S. generally accepted accounting principles. 

McLean, Virginia 

November 13, 2015 

KPMG LLP is a Delaware limited liability partnership, 

the U.S. member firm of KPMG International Cooperative 

(“KPMG International”), a Swiss entity. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 
 

Statement of Assets and Liabilities 

As of September 30, 2015 

($ in thousands) 

Assets

 Investments — at fair value (cost $20,656,455) $ 23,812,266 

 Cash and cash equivalents (including restricted cash of $16,635) 885,920 

 Receivable for investments sold 240,911 

 Unrealized gain on forward contracts 40,855 

 Interest receivable 39,563 

 Cash denominated in foreign currency — at fair value (cost $30,112) 29,632 

 Dividends receivable 

 Swap contracts, at fair value 

 Other assets 

 Total assets 

Liabilities

 Payable for investments purchased 

 Unrealized loss on forward contracts 

 Accrued management fees 

 Swap contracts, at fair value 

 Other liabilities 

 Total liabilities 

Net Assets 

17,851
 

1,298
 

16,121
 

25,084,417 

480,449 

34,965 

16,520 

12,749 

11,417 

556,100 

$ 24,528,317 

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

2 
 

 

 

 

 

 

 

 

 

 

 

 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 
 

Condensed Schedule of Investments 

As of September 30, 2015 

($ in thousands) 

% of 

Net Assets 

Number of 

Units, Shares or 

Par Value (000) Fair Value 

Global Equity

 US Equity

 US Common Stocks 

Apple Inc. 812 $ 

JP Morgan Chase & Co. 1,048 

Visa Inc. 878 

Facebook Inc. 665 

Other US Common Stocks 

16.01% 

 Other US Equity Securities (a) 0.08% 

 US Equity Commingled Funds 

BlackRock Russell 1000 Index Fund 54,961 

BlackRock Russell Growth Index Fund 24,404 

Other US Equity Commingled Funds 

8.46% 

 Total US Equity 24.55% $ 6,021,573 

89,579 

63,919 

61,167 

59,740 

3,651,356 

3,925,761
 

19,957
 

1,494,734 

574,929 

6,192 

2,075,855

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

3 
 

 

 

 

 

 

 

 

 

 

 

 

 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 

Condensed Schedule of Investments (continued) 

As of September 30, 2015 

($ in thousands) 

Number of 

% of Units, Shares or 

Net Assets Par Value (000) Fair Value 

Global Equity (continued)

 Non-US Equity

 Non-US Common Stocks 

Novartis AG 710 $ 65,001 

Roche Holdings AG 239 62,734 

Other Non-US Common Stock 4,533,561 

19.00% 4,661,296

 Non-US Preferred Stocks 0.11% 28,061

 Non-US Equity Commingled Funds 

BlackRock MSCI EAFE Equity Index Fund 15,457 294,598 

BlackRock EAFE Growth Index Fund 12,663 210,059 

BlackRock EAFE Value Index Fund 19,408 192,152 

BlackRock World ex-US Small Cap Equity

 Index Fund 5,717 96,518 

BlackRock MSCI Equity Index Fund (Canada) 1,244 79,507 

3.56% 872,834

 Total Non-US Equity 22.68% $ 5,562,191 

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

4 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 
 

Condensed Schedule of Investments (continued) 

As of September 30, 2015 

($ in thousands) 

Global Equity (continued) 

 Private Equity 

McCoy Investments LP 

Blackstone Capital Partners VI, LP 

TCV VII, LP 

Energy & Minerals Group Fund II, LP 

Blackstone Capital Partners V, LP 

Warburg Pincus X, LP 

Menlo Ventures XI 

Providence Equity Partners VI, LP 

Carlyle Partners V, LP 

Energy & Minerals Group Fund III, LP 

Other Private Equity 

 Total Private Equity 

Total Global Equity (cost $11,236,780) 

Global Fixed Income

 Government Notes and Bonds 

US Treasury Notes, 2.125%, 5/15/25 

Other Government Notes and Bonds 

 Corporate Bonds 

 Government Sponsored Entity Mortgage -

 Backed Securities ("MBS") 

% of 

Net Assets 

Number of 

Units, Shares or 

Par Value (000) Fair Value 

8.48% 

52,215 

56,519 

20,228 

34,787 

1,032 

25,818 

9,560 

30,871 

1 

55,771 

$ 107,572 

76,875 

72,597 

71,304 

68,400 

68,006 

66,385 

66,271 

65,157 

59,294 

1,357,588 

2,079,449 

55.71% $ 13,663,213 

7.61% 

103,160 $ 103,781 

1,762,809 

1,866,590

6.48% 1,588,234

2.12% 519,646 

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

5 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 
 

Condensed Schedule of Investments (continued) 

As of September 30, 2015 

($ in thousands) 

Global Fixed Income (continued) 

Asset Backed Securities 

 Commercial Mortgage-Backed Securities 

 Index-Linked Government Bonds 

 Government Agencies 

Non-Government Collateralized Mortgage

 Obligations 

 Municipal Bonds 

 Short Term Bills and Notes 

 Other Fixed Income Securities (b) 

 Fixed Income Commingled Funds 

AG Mortgage Value Partners 

Other Fixed Income Commingled Funds 

Total Global Fixed Income (cost $5,068,851) 

% of 

Net Assets 

Number of 

Units, Shares or 

Par Value (000) 

0.54% 

0.51% 

0.50% 

0.46% 

$ 

Fair Value 

133,074 

126,028 

121,650

112,424 

0.36% 

0.25% 

0.04% 

0.02% 

89,259 

61,739 

10,334

4,662 

0.76% 

19.65% 

100,000 

$ 

105,108 

81,921 

187,029 

4,820,669 

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

6 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 
 

Condensed Schedule of Investments (continued) 

As of September 30, 2015 

($ in thousands) 

Number of 

% of Units, Shares or 

Net Assets Par Value (000) Fair Value 

Global Real Assets

 Private Real Estate 

Blackstone Real Estate Partners VII, LP 

Campbell Opportunity Timber Fund, LP 

Carmel Partners Investment Fund IV, LP 

Prudential PRISA II 

Other Private Real Estate 

 Commodities 

Wellington Commodity Fund 

Gresham ETAP Fund 

Blenheim Commodity Fund 

PIMCO CommoditiesPlus 

Armajaro Commodities Ltd Class C 

 Real Estate Investment Trusts 

Total Global Real Assets (cost $2,402,274) 

Absolute Return 

Bridgewater Pure Alpha II Ltd Class B 

Blue Mountain Credit Alternatives 

MKP Credit Offshore Ltd Class C 

Carlson Double Black Diamond Ltd Series E 

Davidson Kempner International Ltd Class C 

GAM Global Rates Inc 

5.86% 

3.81% 

2.39% 

12.06% 

70,424 $ 158,260 

99,341 83,084 

39,147 71,995 

2 61,460 

1,061,598 

1,436,397 

25,503 

275,000 

88 

18,161 

255 

243,043 

235,724 

214,782 

181,697 

59,570 

934,816 

$ 

585,708 

2,956,921 

163 $ 328,876 

2,263 234,266 

38 209,469 

1,374 168,649 

1,219 160,114 

1,317 148,325 

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

7 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 


 


 


 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 

Condensed Schedule of Investments (continued)
 

As of September 30, 2015
 

($ in thousands)
 

% of Number of 

Net Units, Shares or 

Assets Par Value (000) Fair Value 

Absolute Return (continued) 

Elliott International Class B 

BlueCrest AllBlue Ltd Class A 

Kepos Alpha Ltd C1 F-R Ser 6 

Fir Tree International Value Fund 

King Street Capital Ltd Class A 

Mason Capital Ltd Class F 

CQS Directional Opportunities Feeder Fund Ltd Class A 

Farallon Capital Institutional Partners 

Two Sigma Absolute Return Fund 

PDT Mosiac Fund, LLC Class A 

Other Absolute Return Funds 

Total Absolute Return (cost $1,948,550) 9.67% 

Total Investments (cost $20,656,455) 97.08% 

Other Assets less Liabilities 2.92% 

Net Assets 100% 

132 $ 145,743 

527 112,273 

72 104,192 

100,000 99,842 

559 90,869 

47 86,538 

17 80,329 

75,000 74,539 

60,000 65,395 

600 64,311 

197,733 

$ 2,371,463 

23,812,266 

716,051 

$ 24,528,317 

Note: The Condensed Schedule of Investments presents the investments of the National Railroad 

Retirement Investment Trust within each asset class while identifying the largest 50 holdings in the 

portfolio. 

(a) Includes Purchased Options, Preferred Stock, and Rights/Warrants. 

(b) Includes Government Issued Commercial Mortgage Backed Securities and Sukuk. 

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

8 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 

Statement of Operations 

For the Fiscal Year Ended September 30, 2015 

($ in thousands) 

Income

 Dividends 

 Interest 

 Total income 

$ 224,162 

167,269 

391,431 

Expenses

 Investment management fees 

 Compensation and benefits 

 Investment related fees and expenses 

 Professional fees 

 Network, software and systems 

 Occupancy expense 

 Trustee fees and expenses 

 Custodial fees 

 Other expenses 

 Total expenses 

57,893 

5,018 

2,880 

1,939 

882 

732 

198 

134 

1,001 

70,677 

Net Investment Income 320,754 

Realized Gain and Unrealized Loss from Investments

 Net realized gain from investments and foreign currency 

 Net change in unrealized gain/loss on investments and foreign currency 

Net Realized and Unrealized Loss from Investments 

1,007,440 

(1,714,370) 

(706,930) 

Net change in net assets resulting from operations $ (386,176) 

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

9 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	 

	 

	 

	 

	 

	 


 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 

Statement of Cash Flows 

For the Fiscal Year Ended September 30, 2015 

($ in thousands) 

Cash flows from operating activities: 

Change in net assets resulting from operations $ (386,176) 

Adjustments to reconcile net change in net assets from operations

 to net cash provided by operating activities: 

Proceeds from sales and maturities of long-term investments 

Purchase of long-term investments 

Net change in unrealized gain/loss on investments and foreign currency 

Net realized gain from investments and foreign currency 

Net proceeds from purchases/sales of short-term investments 

Proceeds from principal paydowns of asset-backed securities 

Net decrease in cash from swap contract transactions 

Change in receivable for investments sold 

Change in other accrued expenses and liabilities 

Change in other assets 

Change in accrued investment management fees 

Change in dividends receivable 

Change in payable for investments purchased 

Change in interest receivable 

20,353,980 

(19,777,145) 

1,714,370 

(1,007,440) 

178,080 

107,127 

(82,549) 

(24,640) 

(2,204) 

1,911 

(1,488) 

(792) 

744 

732 

1,074,510 

Cash flows from financing activities: 

Assets transferred to the Treasury (1,191,000) 

(1,191,000) 

Effect of foreign currency on cash 96,952 

Net change in Cash, Cash Equivalents and Foreign Currency (19,538) 

Beginning Balance 935,090 

Ending Balance $ 915,552 

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

10
 
 

 

 

 

 

 

 

 


 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 

Statement of Changes in Net Assets 

For the Fiscal Year Ended September 30, 2015 

($ in thousands) 

Change in net assets from operations:

 Net investment income $ 320,754 

 Net realized gain from investments and foreign currency 1,007,440

 Net change in unrealized loss on investments and foreign currency (1,714,370)

 Net change in net assets resulting from operations (386,176) 

Assets transferred to the Treasury (1,191,000) 

Net Assets:

 Beginning of year 26,105,493

 End of year $ 24,528,317 

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

11
 

 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 

Notes to Financial Statements 

As of and for the Fiscal Year Ended September 30, 2015 

1. ORGANIZATION 

Formation — The National Railroad Retirement Investment Trust (the “Trust”) was created as a 

result of Federal legislation. The Railroad Retirement and Survivors’ Improvement Act of 2001 (the 

“Act”) established the Trust, the sole purpose of which is to manage and invest industry-funded 

Railroad Retirement assets as set forth in the Act. Domiciled in, and subject to the laws of the 

District of Columbia (to the extent not inconsistent with the Act), the Trust is a tax-exempt entity 

under section 501(c)(28) of the Internal Revenue Code of 1986, and is neither an agency nor 

instrumentality of the Federal Government. The Trust became effective on February 1, 2002. 

The Railroad Retirement system was created as a Federal pension program during the 1930s to fund 

retirement benefits of railroad workers and their dependents. For more than 65 years, the Railroad 

Retirement Account (“RRA”), a Federal trust fund, has collected payroll taxes from railroad 

employers and employees and paid out benefits to beneficiaries. Railroad Retirement is funded as a 

pay-as-you-go system that is not subject to the Employee Retirement Income Security Act of 1974 

(“ERISA”) funding rules. 

The Act authorizes the Trust to manage and invest the assets of the Railroad Retirement system in 

the same array of investment alternatives available to private sector pension plans, and to pay 

administrative expenses of the Trust from the assets in the Trust. Prior to the Act, Railroad 

Retirement assets were limited to investment in US Government securities issued directly by the 

United States Treasury (the “Treasury”). Responsibility for administering the Railroad Retirement 

system, including eligibility determinations and the calculation of beneficiary payments, remains 

with the Railroad Retirement Board (the “Board”), a Federal agency. 

Investment Management — The Trust’s principal investment objective for its portfolio of 

investments (“portfolio”) is to achieve a long term rate-of-return on assets for the portfolio sufficient 

to enhance the financial strength of the railroad retirement system and to provide timely funding to 

the Treasury for payment of benefit obligations and administrative expenses. 

Except for limited partnership interests and derivative instruments owned by the Trust, generally all 

assets in the Trust’s portfolio are held by custodians appointed by the Trust, or transfer agents in the 

case of commingled funds. 

12
 

 

2. SIGNIFICANT ACCOUNTING POLICIES 

Basis of Preparation — The Trust qualifies as an investment company and follows the accounting 

and reporting requirements of the Financial Accounting Standards Board (“FASB”) Accounting 

Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. The 

accompanying financial statements were prepared in accordance with accounting principles 

generally accepted in the United States of America (“GAAP”), including but not limited to ASC 

946. 

Valuation of Investments — The Trust follows FASB ASC Topic 820, Fair Value Measurement. 

The Topic establishes a single definition of fair value, creates a three-tier hierarchy as a framework 

for measuring fair value based on inputs used to value the Trust’s investments, and requires certain 

disclosures about fair value. The Topic defines fair value as the price that would be received to sell 

an asset, or paid to transfer a liability, in an orderly transaction between market participants at the 

measurement date. See Note 3 for further information on fair value. 

Securities (US and foreign) for which quotations are not readily available are valued under 

procedures contained in the Investment Manager Guidelines of the Trust’s custodian contract with 

Northern Trust, approved by the Trustees. The pricing procedures for a security traded within the 

US, which includes, among other factors, researching most recent bid and ask prices, documenting 

the reason(s) for unavailability of data from a pricing service, and requesting current bids for similar 

securities from independent securities broker-dealers, may also be used to determine the value of a 

foreign security should something occur that renders quotations not readily available for a foreign 

security. 

Security Transactions, Accrued Income, and Expense — The Trust records purchases and sales 

of investment securities on a trade-date basis. Interest income is determined on the basis of coupon 

interest accrued using the effective interest method. Dividend income (less foreign tax withheld, if 

any) is recorded on the ex-dividend date. Gains or losses realized on sales of investment securities 

are based on average cost. 

Cash and Cash Equivalents — Cash and Cash Equivalents includes cash held at banks and cash 

balances held in short-term investment funds, which can be drawn down with same day notice. As of 

September 30, 2015, the Trust held approximately $16.6 million of restricted cash, representing 

initial margin on futures contracts and pledged collateral received from counterparties for option, 

swap or forward contracts. 

Options Contracts — The Trust may purchase or sell (write) exchange-traded or over-the-counter 

(“OTC”) options contracts to hedge against risks associated with price fluctuations for certain 

securities. 

When either a put or call option is purchased, the contract is recorded as an investment and the 

premium gets marked-to-market daily to reflect the current market value of the option contract. 

When a purchased option contract expires (unexercised), a loss is realized in the amount of the cost 

of (premium paid for) the option. If a closing sale contract is entered into, however, a gain or loss is 

13
 
 


 

realized, to the extent that the proceeds from the sale are greater or less than the cost of the option. If 

a put option is exercised, a gain or loss is realized from the sale of the underlying security by 

adjusting the proceeds from such sale by the amount of the premium paid for the put option. If a call 

option is exercised, the cost of the security purchased upon exercise is increased by the premium 

paid for the call option. 

When either a put or call option is sold (written), an amount equal to the premium received is 

recorded as a liability. The liability gets marked-to-market daily to reflect the current market value 

of the written option. When a written option contract expires (unexercised), a gain is realized in the 

amount of the premium received for this option. If a closing purchase contract is entered into, 

however, a gain or loss is realized in the amount of the premium less the cost of the option. If a 

written put option is exercised, the amount of the premium originally received reduces the cost of 

the security, which is purchased upon exercise of the put option. If a sold (written) call is exercised, 

a gain or loss is realized from the sale of the underlying security, and the proceeds (if any) from such 

sale are increased by the premium received for the written call. 

The Trust could be exposed to risk if the counterparties in options transactions were unable to meet 

the terms of the contracts. To mitigate this risk, the Trust requires its counterparties to these 

contracts to pledge either cash or securities as collateral against any default in these transactions. 

Futures Contracts — The Trust may invest in financial futures contracts for the purpose of hedging 

its portfolio to counter fluctuations in value, to gain access to securities the Trust intends to 

purchase, and to manage overall portfolio risk as part of a broad risk management program. 

The Trust is required to pledge an amount of cash, US government securities, or other assets, equal 

to a certain percentage of the futures contract amount (initial margin deposit) upon entering a 

financial futures contract. Subsequent payments, known as “variation margin,” are made (or 

received) by the Trust each day, depending on the daily fluctuations in the value of the underlying 

financial instrument. The Trust records a receivable or payable equal to the daily variation margin. 

When the margin amount is received or paid in cash, the daily variation margins are recorded as a 

realized gain or loss. Futures contracts are valued at the last sales price quoted on the exchange on 

which they primarily trade. 

The Trust’s use of financial futures transactions entails the risk of imperfect correlation in 

movements in the price of futures contracts and the value of the underlying hedged assets, and the 

risk associated with the possibility of an illiquid market. Should futures’ market conditions change 

unexpectedly, and the Trust takes no action to respond to such changes, the Trust may not achieve 

the anticipated benefits of the financial futures contracts and may realize a loss. Potential losses 

associated with counterparty risk are mitigated by initial margin deposits either in the form of cash 

or securities and variation margins deposited daily. 

Foreign Currency Translation — The Trust maintains accounting records in US dollars. All 

investments quoted in foreign currency are translated into US dollars at the prevailing foreign 

exchange spot rates on the date of valuation. Purchases and sales of securities, income receipts and 

trading expenses are translated into US dollars at the exchange rate on the date of the transactions. 

14
 

 

Foreign securities are valued as of the close of each foreign security’s market wherein each security 

trades. Investments in foreign securities may involve risks not present in domestic investments. 

Since foreign securities may be denominated in foreign currency and involve settlement and pay 

interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to 

the US dollar can significantly affect the value of investments and earnings of the portfolio. Foreign 

investments may also subject the Trust to foreign government exchange restrictions, expropriations, 

taxation or other political, social or economic risks, all of which could affect the value of the foreign 

securities investments. 

Forward Foreign Currency Exchange Contracts — The Trust may use forward foreign currency 

exchange contracts to hedge against foreign currency exchange rate fluctuations related to portfolio 

holdings or concentrations of such holdings. The Trust may also use spot currency contracts to 

hedge against foreign currency exchange rate fluctuations related to a specific portfolio transaction, 

such as the delay between a security transaction’s trade date and settlement date. Differences in 

currency exchange rates can adversely impact the value associated with the purchasing or selling of 

investment securities denominated in a foreign currency. 

Currency contracts are adjusted daily by the prevailing spot or forward rate of the underlying 

currency, and any appreciation or depreciation is recorded for financial statement purposes as 

unrealized until the contract settlement date, at which time the Trust records realized gains or losses 

equal to the difference between the value of the contract at the time the contract opened and the 

value at the time it closed. 

The Trust could be exposed to risk if the counterparty is unable to meet the terms of a currency 

contract or if the value of the foreign currency changes unfavorably and the Trust does not alter its 

position in the transaction. To mitigate this risk, the Trust requires its counterparties to pledge either 

cash or corporate securities as collateral against default in these transactions. 

Swap Contracts — The Trust may enter swap transactions for hedging purposes and/or to 

efficiently gain exposure to a particular asset class index. 

Swaps are marked-to-market daily based upon values from third party vendors or quotations from 

counterparties. Unrealized appreciation is recorded as an asset and unrealized depreciation is 

recorded as a liability on the Statement of Assets and Liabilities. The change in value of swaps, 

including accruals of periodic amounts of interest to be paid or received on swaps, is recorded as 

unrealized appreciation or depreciation in the Statement of Operations. Payments received or made 

at the beginning of the measurement period represent payments made or received upon entering into 

the swap agreement to compensate for differences between the stated terms of the swap contracts 

and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other 

relevant factors). These upfront payments are included in the calculation of realized gain or loss in 

the Statement of Operations. A liquidation payment received or made at the termination of the swap 

is recorded as realized gain or loss in the Statement of Operations. Net periodic payments received 

by the Trust are included as part of the realized gain or loss in the Statement of Operations. 

15
 

 

Entering into these contracts involves, to varying degrees, elements of credit, market and 

counterparty risk in excess of the amounts recognized in the Statement of Assets and Liabilities. 

Such risks involve the possibility that there will be no liquid market for these contracts, that the 

counterparty to the contracts may default on its obligations to perform or disagree as to the meaning 

of contractual terms in the contracts, and that there may be unfavorable changes in interest rates. At 

the time a swap contract reaches its scheduled termination (or contract expiration) date, there is risk 

that the Trust would not be able to obtain a replacement transaction or that the terms of the 

replacement would not be as favorable as the expiring transaction. The Trust’s swap contracts 

consist of interest rate swaps, credit default swaps and total return swaps. 

Repurchase Agreements — The Trust may engage in repurchase agreement transactions, whereby 

a security is simultaneously purchased and sold under a master forward agreement. There were no 

repurchase agreements outstanding as of September 30, 2015. 

Income Taxes — The Trust is exempt from federal income taxes under Section 501(c)(28) of the 

Internal Revenue Code of 1986 and from state and local taxes pursuant to Section 231(n)(j)(6) of the 

Railroad Retirement Act of 1974. As such, no provision for income taxes is included in the financial 

statements. The Trust files an annual informational return with the Internal Revenue Service 

(“IRS”). These returns are subject to examination by the IRS for a period of three fiscal years after 

they are filed. 

Uncertain tax positions are evaluated in accordance with the Income Taxes Topic (“Topic 740”) of 

the FASB ASC. The Trust has no material uncertain tax positions. 

Investment Management Fees — The Trust has entered into investment management agreements 

with third party investment managers. These agreements provide for the payment of investment 

management fees, which are generally paid on a quarterly basis. The fees are calculated as a 

percentage of the weighted-average value of assets under management, with an additional 

performance fee in some instances. 

Counterparty Risk and Collateral — The Trust invests in derivatives that are transacted and settle 

directly with a counterparty and thereby expose the Trust to counterparty risk. To mitigate this risk, 

the Trust’s third party investment managers have entered into master netting arrangements with 

certain counterparties that permit net settlement under specified conditions and, for certain 

counterparties, also provide collateral agreements. The Trust accounts for derivatives on a gross 

basis. It does not offset the fair value of derivative liabilities against the fair value of derivative 

assets in its financial statements. 

Use of Estimates — The preparation of financial statements requires management to make 

estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of 

contingent assets and liabilities at the date of the financial statements and the reported amounts of 

increases and decreases in net assets from operations during the reporting period. Actual results 

could differ from those estimates. 

16
 
 


 

Reclassification — Certain prior period amounts have been reclassified to conform to the current 

year’s presentation. These reclassifications had no effect on the previously reported changes in net 

assets. 

3. FAIR VALUE MEASUREMENT 

The Trust’s assets and liabilities recorded at fair value have been categorized based upon a fair value 

hierarchy in accordance with FASB’s guidance on fair value measurement. 

The hierarchy of inputs is summarized below. 

Level 1 — Investments that reflect unadjusted quoted prices in active markets for identical assets or 

liabilities that the Trust has the ability to access at the measurement date. The types of investments 

generally included in this category are exchange traded common and preferred stock, futures 

contracts, and foreign currency. The fair value of these securities is generally based on quotations 

obtained from national securities exchanges. 

Level 2 — Investments valued using observable inputs such as quoted prices for identical securities 

in inactive markets or quoted prices for similar securities in active markets. Where securities are not 

listed on an exchange, quotations may be obtained from brokerage firms. Other observable inputs 

may include such factors as interest rates, credit spreads, prepayment speeds, and credit risk, among 

other relevant factors. Level 2 investments generally included in this category are bonds, swap 

contracts, foreign currency exchange contracts, and options contracts. 

Level 3 — Investments valued using pricing inputs which are both unobservable and significant to 

the valuation. The Level 3 investments consist primarily of corporate bonds and certain foreign 

government bonds. The significant unobservable inputs used in the fair value measurement of these 

securities are predominantly uncorroborated non-binding broker quotes, and extrapolated data points 

in security pricing models. These prices are provided by third-party pricing services, and the range 

of unobservable inputs applied by these sources is not readily available or cannot be reasonably 

estimated. Significant changes in any of those inputs could result in a significantly different fair 

value measurement. 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value 

hierarchy. In such cases, the level in the fair value hierarchy within which the fair value 

measurement in its entirety falls has been determined based on the lowest level input that is 

significant to the fair value measurement in its entirety. The Trust’s assessment of the significance 

of a particular input to the fair value measurement in its entirety requires judgment and considers 

factors specific to the asset or liability. Investments are transferred into or out of any level at their 

beginning period values. 

17
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

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, and other characteristics. To the extent that valuation is based on 

models or inputs that are less observable in the market, the determination of fair value requires more 

judgment. Accordingly, the degree of judgment exercised by the Trust in determining fair value is 

greatest for instruments categorized as Level 3. 

The inputs or methodology used for valuing securities are not necessarily an indication of the risk 

associated with investing in those securities. The following table is a summary of the inputs used in 

valuing the Trust’s assets and liabilities carried at fair value ($ in thousands): 

Assets 

US Equity 

Non-US Equity 

Private Equity 

Global Fixed Income 

Global Real Assets 

Absolute Return Mandates 

Level 1 

$ 3,937,903 

4,679,094 

-

3,585 

585,676 

-

Level 2 

$ 7,613 

9,020 

-

4,585,872 

-

-

$ 

Level 3 

1,021 

1,143 

-

44,183 

32 

-

Other* 

$ 2,075,036 

872,934 

2,079,449 

187,029 

2,371,213 

2,371,463 

Total 

$ 6,021,573 

5,562,191 

2,079,449 

4,820,669 

2,956,921 

 2,371,463 

Total investments in securities $ 9,206,258 $ 4,602,505 $ 46,379 $ 23,812,266 9,957,124 $ 

Swap contracts, at fair value 

Futures contracts** 

Forward contracts 

Foreign currency 

$ - $ 1,298 

11,972 -

- 40,855 

29,632 -

$ -

-

-

-

-$ 

-

-

-

$ 1,298 

11,972 

40,855 

29,632 

Liabilities 

Swap contracts, at fair value 

Futures contracts** 

Forward contracts 

Written options*** 

$ - $ 12,749 

12,278 -

- 34,965 

- 4,629 

$ -

-

-

-

-$ 

-

-

-

$ 12,749 

12,278 

34,965 

4,629

 * In accordance with FASB Accounting Standards Update (“ASU”) 2015-07, investments in 

commingled funds and partnerships which are valued using the Net Asset Value (“NAV”) practical 

expedient are not classified within the fair value hierarchy (see Note 11). 

**Amounts represent cumulative gross gains and losses on open futures contracts, translated into US 

dollars, as of September 30, 2015. Only the current day’s variation margin is included in Other 

Assets and Other Liabilities in the Statement of Assets and Liabilities. 

***Included in Other Liabilities in the Statement of Assets and Liabilities. 

The Trust uses a third party pricing agent to value its securities. When determining the reliability of 

third party pricing information, the Trust reviews the valuation policies of the third party and 

conducts due diligence on the execution of the third party’s pricing procedures. External investment 

managers reconcile valuations to the third party on a monthly basis, and discrepancies are 

investigated and resolved. 

18 

 

Equity securities that are traded on a national securities exchange or quoted on the NASDAQ 

National Market System (“NMS”) are valued on their last reported sale price on the principal 

exchange (US or foreign) or official closing price as reported by NASDAQ. Options and futures 

contracts are valued at the last sales price quoted on the exchange on which they primarily trade. 

Securities traded on OTC markets as well as listed securities for which no sales are reported are 

valued at the most recent bid quotation. 

Fixed income securities (US and foreign) for which price quotations are readily available are valued 

at the most recent reported sales price. If no reported sales price is available, fixed income securities 

are valued at prices furnished by an independent pricing service, which considers yield or price of 

bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who 

make markets in such securities. 

The ability of issuers of the fixed income securities held by the Trust to meet their obligations may 

be affected by economic developments in a specific industry or region. The values of the securities 

can be significantly affected by changes in interest rates or in the financial condition of the issuer or 

market conditions generally. The Trust invests a portion of its assets in mortgage-backed securities 

and debentures. The value and related income of these securities is sensitive to change in economic 

conditions, including delinquencies and/or defaults. 

Commingled funds (“Funds”), which are not publicly traded, may include publicly-traded securities 

for which detailed holdings are reported to the Trust. Fair values of these Funds are determined 

after consideration of net asset valuations provided by the external investment managers. The 

valuation of these Funds may involve estimates, appraisals, assumptions, and methods that are 

reviewed by management. 

Private Equity and Real Estate limited partnership assets (“Partnerships”) are valued by the Trust at 

fair value after consideration of net asset valuations provided by each Partnership’s general partner. 

The valuation of these Partnerships may involve estimates, appraisals, assumptions, and methods 

that are reviewed by management. 

As a practical expedient, the Trust relies on the NAV of Funds and Partnerships as their fair value. 

The NAVs that have been provided by investees are derived from the fair values of the underlying 

investments as of the reporting date. All investments for which NAV is used as fair value (a) do not 

have a readily determinable fair value and (b) either prepare financial statements consistent with the 

measurement principles of an investment company or have the attributes of an investment company. 

The following table lists the Trust’s unfunded commitments to investments in Funds and Partnerships 

by major category ($ in thousands): 

19
 
 

 

 

 

 

 

 

 

 

 

 


 

Unfunded 

As s et Clas s Strategy Commitments Note 

US Equity Includes passively managed funds tracking major US 

Equity indices 

$ - (a)

Non-US Equity Includes passively managed funds tracking major NonUS Equity indices - (a)

Private Equity Includes Venture Capital, Leveraged Buyout, and 

Corporate Finance investment funds 

1,149,007 (b)

Global Fixed Income Includes US Investment Grade, High Yield, and Global 

Government Bond and Currency investment funds 

86,445 (c)

Global RealAssets Includes Commodities, Natural Resources, Private Real 

Estate and Real Estate Investment Trust investment 

funds 

1,261,165 (d)

Absolute Return Includes multi-asset class strategies that offer an 

attractive risk-adjusted return and have a low correlation 

with other Trust investments 

190,851 (e)

$ 2,687,468 

(a) Investments may have redemption restrictions that limit the days when redemption requests can 

be made to one or more days per month. Advance notice of up to 3 days may be required for 

redemption. 

(b) Private Equity investments are generally held for the life of the investment. 

(c) Investments can generally be redeemed on either a monthly or quarterly basis with the exception 

of one fund which may impose redemption fees, and one fund which may impose gate 

provisions. 

(d) Private Real Estate and Natural Resources investment funds are generally held for the life of the 

investment. Commodities fund investments can be redeemed on either a monthly or quarterly 

basis with up to 90 days advance notice. 

(e) Absolute Return investments can generally be redeemed on either a monthly, quarterly or annual 

basis after the expiration of an initial lock-up period of up to three years. 

20
 
 

 

 

 

 

 

 

 

 


 


 


 

Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were 

used in determining fair value ($ in thousands): 

US Non-US Private Global Fixed Global Real Absolute Total 

Equity Equity Equity Income Assets Return Level 3 

Balance — September 30, 2014 $ 2,811 $ 1,636 $ - $ 37,513 $ - $ - $ 41,960

 Purchases and other acquisitions 145 268 - 35,976 29 - 36,418

 Sales and other redemptions (2,217) (823) - (26,985) - - (30,025)

 Net change in unrealized gain (loss) 186 (114) - (331) 3 - (256)

 Net realized gain (loss) 96 186 - (2,628) - - (2,346)

 Transfers into Level 3 - 449 - 5,050 - - 5,499

 Transfers out of Level 3 (459) - - (4,412) - - (4,871)
 

Balance — September 30, 2015 $ 1,143 1,021 $ $ - 44,183 $ $ 32 $ - $ 46,379 

Change in unrealized loss* $ (319) (188) $ $ - $ (1,901) $ - $ - $ (2,408) 

*Represents the total change in unrealized appreciation (depreciation) included in the Statement of 

Operations attributable to level 3 investments still held at September 30, 2015. 

For the year ended September 30, 2015, there were no significant changes to the Trust’s fair value 

methodologies. Certain Non-US Equity and Fixed Income securities were transferred between the 

Level 2 and 3 categories due to changes in the availability of significant observable inputs in the 

valuation of these securities. 

4. DERIVATIVE INSTRUMENTS 

As of September 30, 2015, the Trust invested in derivative contracts, primarily futures, forwards, 

options and swaps. Derivative contracts serve as components of the Trust’s investment strategy as 

described in Note 2. The following tables summarize the value of asset and liability derivatives and 

related gains and losses as of and for the year ended September 30, 2015 ($ in thousands). 

21
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Risk Exposure Location within Statement of Assets and 

Liabilities 

Commodity 

Purchased Options Investments - at fair value 

Written Options Other liabilities 

Commodity 

Forward Contracts Unrealized gain/loss on forward contracts 

Commodity Swaps Swap contracts, at fair value 

Futures Contracts Other assets 

Credit 

Written Options Other liabilities 

Credit Default Swaps Swap contracts, at fair value 

Currency 

Purchased Options Investments - at fair value 

Written Options Other liabilities 

Foreign Currency 

Exchange Contracts Unrealized gain/loss on forward contracts 

Currency Swaps Swap contracts, at fair value 

Interest Rate 

Purchased Options Investments - at fair value 

Written Options Other liabilities 

Interest Rate Swaps Swap contracts, at fair value 

Futures Contracts Other assets 

Risk Exposure 

Net change in unrealized 

gain (loss) on investments 

and foreign currency 

Commodity 

Options Contracts $ (37) 

Commodity Forward Contracts (39) 

Commodity Swaps 518 

Futures Contracts -

Credit 

Options Contracts 2 

Credit Default Swaps (110) 

Currency 

Options Contracts (1,986) 

Foreign Currency Exchange Contracts (11,521) 

Currency Swaps 1,056 

Derivative Derivative 

Assets Liabilities 

$ 13 $ -

- (70) 

39 (103) 

344 (2,366) 

402 -

- (31) 

334 (309) 

5,605 -

- (2,379) 

40,816 (34,862) 

350 -

1,419 -

- (2,149) 

270 (10,074) 

1,977 (107) 

Location within the Statement of Operations 

Interest Rate 

Options Contracts 

Interest Rate Swaps 

Futures Contracts 

(974) 

(11,567) 

-

Net realized gain (loss) from 

investments and foreign 

currency 

$ 33 

-

(71,109) 

12 

-

204 

(16,234) 

59,666 

(479) 

2,043 

2,845 

(940) 

22
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

The following table summarizes the long and short notional exposure of derivative contracts as of 

September 30, 2015 ($ in thousands): 

Risk Exposure 

Commodity 

Purchased Options 

Written Options 

Commodity Forward Contracts 

Commodity Swaps 

Futures Contracts 

Long Exposure 

$ 1

-

4,134 

105 

172,032 

Short Exposure 

$ -

2 

402 

15,710 

172,877 

Credit 

Written Options 

Credit Default Swaps 

-

41,287 

26,500 

12,113 

Currency 

Purchased Options 

Written Options 

Foreign Currency Exchange Contracts 

Currency Swaps 

538,415 

-

1,844,172 

9,488 

-

450,276 

2,156,741 

-

Interest Rate 

Purchased Options 

Written Options 

Interest Rate Swaps 

Futures Contracts 

732,700 

-

22,600 

357,614 

-

1,301 

315,695 

663,056 

5. RELATED-PARTY TRANSACTIONS 

Railroad Retirement Board — Under the provisions of the Act, the Board directs the Treasury to 

contribute RRA and Social Security Equivalent Benefit Account (“SSEBA”) assets to the Trust, as 

defined in the Act. Since the Trust’s inception, the Board has contributed $21.3 billion to the Trust. 

The Board also periodically directs the Trust to transfer funds to the Treasury to fund benefit 

payments and administrative expenses of the RRA. Since the Trust’s inception, approximately 

$17.8 billion has been transferred to the Treasury by the Trust. During the fiscal year ended 

September 30, 2015, approximately $1.2 billion was transferred to the Treasury. As defined in the 

Act, the Trust reports to the Board and is required to perform its duties solely in the interest of the 

Board and through it, the participants and beneficiaries of the programs funded by the Act. 

23
 

 


 

Legal Counsel — The Trust incurred approximately $1.4 million in legal fees during the fiscal year 

ended September 30, 2015. Legal counsel was provided by firms that may also provide services to 

the major railroads and railway labor unions whose representatives are members of the Board of 

Trustees. 

Custodian — The Trust’s custodian may also be engaged to provide investment management 

services for a portion of Trust assets, however no such services were provided by the custodian
 

during the fiscal year ended September 30, 2015. 

6. EMPLOYEE BENEFIT PLAN 

The Trust provides a defined contribution plan (“Plan”) covering all employees. Employees 

participate in the Plan by making discretionary contributions from their eligible compensation, but 

not more than the maximum annual amount allowed by law. The Trust makes matching 

contributions equal to 100% on the first 6% of compensation deferred. The Trust may also, at its 

discretion, make an additional profit-sharing contribution to the Plan. During the fiscal year ended 

September 30, 2015, the Trust made contributions of approximately $259 thousand to the Plan on 

behalf of the employees. 

7. INDEMNIFICATIONS 

In the ordinary course of business, the Trust may enter into contracts or agreements that contain 

indemnifications. Future events could occur that lead to the execution of these provisions against 

the Trust. The Trust’s maximum exposure under these contracts or agreements is unknown. No 

such claims have occurred, nor are they expected to occur and the Trust expects the risk of loss to be 

remote. 

8. COMMITMENTS 

Office Space Lease — In October 2012, the Trust entered into an eleven year operating lease 

agreement with respect to its principal office space in Washington, DC. 

24
 
 

 

 

 

 

 

 

	 

	 


 

Remaining rental payment obligations relating to the lease for each of the next five years and 

thereafter are as follows: 

Fiscal Years Ending 

September 30 Amount 

2016 

2017 

2018 

2019 

2020 

Thereafter 

$ 451,333 

460,361 

469,535 

483,665 

499,987 

1,874,020 

Total $ 4,238,901 

Investments — The Trust has made contractual commitments to fund various investments. These 

investments typically have investment periods of 5 years and terms of 10 years. The investment 

invests the committed dollars during the investment period and harvests the portfolio during the 

remainder of the term. The amounts of these commitments are disclosed in the table in Note 3. 

9. FINANCIAL HIGHLIGHTS 

The financial ratios noted below encompass the net of all funds received by the Trust through 

September 30, 2015. 

October 1, 2014 — 

September 30, 2015 

FINANCIAL RATIOS (1):

 Expense to average net assets 0.27%

 Net investment income to average net assets 1.24% 

TOTAL RETURN (2) — Total return	 -1.53% 

(1)	 The ratios of expense to average net assets and net investment income to average net assets 

represent the expenses and net investment income for the period, as reported on the Statement of 

Operations, to the Trust’s average net assets. 

(2) The total return reflected in the table includes net investment income and net realized and 

unrealized gains on investments. The return is time-weighted and measures the performance of a 

unit of assets held continuously for the time period covered. 

25
 
 

 

 

 

 

 

 

 

 


 


 

10. TRUST DIVERSIFICATION 

Since its inception in 2002, the Trust has deployed assets received from Treasury into a diversified 

and balanced portfolio of US and non-US equity and US and non-US fixed income securities. Over 

time, the Trust has furthered that diversification by allocating a percentage of the portfolio to private 

equity, real estate, and commodities. As mandated by its statute, the Trust manages its concentration 

of investment in any asset class, type of security or market sector. The Trust’s policy of broad 

diversification is intended to protect its assets from disproportionate market shocks in volatile 

periods. 

The following table is a summary of the Trust’s concentration of investments by geographic region 

($ in thousands): 

Geographic US Non-US Private Global Fixed Global Real Absolute 

Region Equity Equity Equity Income Assets Return Total 

North America $ 6,021,573 $ 566,102 $ 1,868,304 $ 3,076,928 $ 1,882,207 $ 1,076,473 $ 14,491,587 

Europe - 2,465,731 84,811 731,937 148,292 - 3,430,771 

Asia - 1,687,791 - 379,264 148,474 - 2,215,529 

Australia - 137,763 - 134,312 18,809 - 290,884 

Central America - 52,043 - 199,227 - - 251,270 

South America 76,653 162,203 631 - 239,487 

Africa - 94,390 - 86,151 - - 180,541 

Multi-Region / 

Global - 481,718 126,334 50,647 758,508 1,294,990 2,712,197 

$ 6,021,573 $ 5,562,191 $ 2,079,449 $ 4,820,669 $ 2,956,921 $ 2,371,463 $ 23,812,266 

11. RECENTLY ISSUED ACCOUNTING STANDARDS 

In June 2013, the FASB issued ASU 2013-08, Amendments to the Scope, Measurement, and 

Disclosure Requirements for Investment Companies. This update modifies the criteria used to 

define an investment company under GAAP. The update also sets forth certain measurement 

guidance and disclosure requirements. The amendments in this update are effective for interim and 

annual reporting periods in fiscal years beginning after December 15, 2013. The adoption of the 

guidance had no impact on the Trust’s financial position or results of operations. 

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That 

Calculate Net Asset Value per Share (or Its Equivalent). This ASU eliminates the requirement to 

categorize investments in the fair value hierarchy if their fair value is measured at NAV using the 

practical expedient in the FASB’s fair value measurement guidance. The ASU is effective for the 

Trust is for fiscal years beginning after December 15, 2016, however early adoption is permitted. 

The Trust has elected early adoption of these changes to disclosure requirements for its fiscal year 

2015 financial statements. 

26
 

 


 

12. SUBSEQUENT EVENTS 

The Trust has evaluated subsequent events through November 13, 2015, the date these financial 

statements were issued, and determined that there were no subsequent events requiring adjustments 

to or disclosure in the financial statements. 

*****
 

27