NRRIT 

National Railroad Retirement 

Investment Trust 

Annual Management Report for Fiscal Year 2011 

Required by Public Law 107-90, 

The Railroad Retirement and Survivors’ 

Improvement Act of 2001 
2 FISCAL YEAR 2011 

THIS PAGE 

INTENTIONALLY 

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FISCAL YEAR 2011 TABLE OF CONTENTS - 3 

ANNUAL MANAGEMENT REPORT OF THE

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2011 

 DEDICATION ................................................................................................. 5 

1) INTRODUCTORY STATEMENT .............................................................................. 7 

A) OVERVIEW .................................................................................................... 7 

B) MARKET VOLATILITY OF RECENT YEARS ............................................................. 8 

C) BOARD AND COMMITTEE MATTERS .................................................................... 9 

2) OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS .............................. 10

A) TRUSTEE UPDATE ......................................................................................... 10

B) COORDINATION WITH FEDERAL GOVERNMENT AGENCIES ................................... 11

C) TRANSFERS TO AND FROM THE TREASURY ..................................................... 12

D) ACCOUNT BENEFITS RATIO ....................................................................... 14

E) TRUST STAFF ......................................................................................... 15

3) OPERATIONS OF THE TRUST: INVESTMENT MATTERS ..................................... 16

A) OVERVIEW .................................................................................................. 16 

B) INVESTMENT PLAN: STRUCTURE ................................................................... 16

C) INVESTMENT PLAN: IMPLEMENTATION ........................................................... 17 

D) PROXY VOTING POLICY ............................................................................ 19 

E) RAILROAD RETIREMENT SYSTEM ASSETS .......................................................... 19

4) AUDIT COMMITTEE ........................................................................................... 21

5) INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS ........................ 22 

A) CUSTODIAL ARRANGEMENTS .......................................................................... 22 

B) ACCOUNTING ............................................................................................... 22 

6) FINANCIAL STATUS OF THE TRUST .................................................................. 23 

A) SUMMARY OF CASH FLOWS AND CHANGES IN TRUST ASSETS ................................. 23 

B) FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT .......................... 24
4 – APPENDICES FISCAL YEAR 2011 

_______________________________________________________________________ 

APPENDICES 

A) BY-LAWS 

B) INVESTMENT GUIDELINES 

C) MEMORANDUM OF UNDERSTANDING 

D) CONFLICTS OF INTEREST POLICY STATEMENT

E) CONFIDENTIALITY POLICY STATEMENT

F) PROXY VOTING POLICY 

G) CHIEF INVESTMENT OFFICER, SENIOR OPERATING OFFICER AND SENIOR 

 ACCOUNTING OFFICER CERTIFICATION LETTERS

H) RAILROAD RETIREMENT BOARD CERTIFICATION LETTER TO TREASURY AND 

 TREASURY FEDERAL REGISTER NOTICE ON 2012 TAX RATE 

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

J) BIOGRAPHICAL INFORMATION ON TRUSTEES AND STAFF 
FISCAL YEAR 2011 DEDICATION - 5 

DEDICATION 

JOHN W. MACMURRAY 

The legislation creating the National Railroad Retirement Investment Trust 

(“Trust”) was signed into law in December 2001. The Trust became operational on 

February 1, 2002 with a Board of six initial Trustees, three selected by rail management 

and three selected by rail labor. One of the Board’s first official acts was to institute a 

nationwide search to identify an experienced investment professional to serve as the 

seventh, the Independent Trustee. The individual selected to serve as the Trust’s first 

Independent Trustee, with thirty years of experience in the field, was John W. 

MacMurray. For the energy, enthusiasm, discipline and wisdom that he has brought to 

the Trust during his nine years of service as the Independent Trustee, the Board of 

Trustees (“Board”) dedicates this tenth Annual Management Report to John W. 

MacMurray upon the occasion of his retirement from the Board on January 31, 2011. 

During the Trust’s critical start-up period, Mr. MacMurray played a leadership role 

in the hiring of the initial chief investment officer, the selection of the custodian bank, 

and the design of the Trust’s initial investment strategy. As the Trust matured and 

moved from indexed investment into a more diverse blend of active and passive 

managers and further diversified its range of asset classes, Mr. MacMurray’s experience 

and advice contributed much to the process. He played a central role in the 

development of the Trust’s asset allocations, its benchmarks, as well as its performance 

measurement and risk assessment tools. 

Mr. MacMurray approached his Trustee responsibilities with a sense of 

commitment and dedication which magnified his contribution. John saw his role as 

extending far beyond just participating in Trustee meetings. He often came to 

Washington to meet with the staff to better understand their ideas and initiatives, and 

to share his insights with them. During his nine year tenure on the Trust’s Board, he 

served on both the Audit and Administrative Committees each year, chaired the Audit 
6 - DEDICATION FISCAL YEAR 2011 

Committee in 2006-2007, and assumed a leadership role on all issues considered by 

these Committees. In addition, at every meeting of the Board, Mr. MacMurray would 

present a well-prepared and timely analysis of an investment topic relevant to the 

issues under consideration by the Board and its investment staff. The handwritten 

charts and multi-color spreadsheets used in these educational sessions have become 

legendary, and will always remain as a testimonial to his analytic rigor. In addition, 

everyone at the Trust appreciated receiving his monthly package of articles on 

investments and market conditions drawn from his insatiable appetite for reading and 

research. 

In 2002, “John Mac” agreed to assume an undefined position in a start-up 

organization. Over the past nine years, he has worked tirelessly to contribute to the 

growth and development of the Trust. His contribution has established a very high 

standard for the role of the Independent Trustee as the organization transitions to a 

new generation of leadership. The Board of Trustees takes this opportunity to thank 

John W. MacMurray for his collegiality, energy, enthusiasm, and most importantly, the 

wisdom that he has brought to the Board of the National Railroad Retirement 

Investment Trust. 
FISCAL YEAR 2011 INTRODUCTORY STATEMENT - 7 

1) Introductory Statement 

a) Overview 

After the recovery of the global financial markets in fiscal year 2010, fiscal year 2011 

(October 1, 2010 – September 30, 2011) saw a return to the economic volatility that 

created tremendous challenges for the global financial markets in prior years. In this 

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

investment return of -0.1% (net of fees). This investment return compares with the 

return on the Trust’s benchmark for this period of 1.6%. 

 Overall, during fiscal year 2011, the net asset value of Trust-managed assets 

decreased from $23.8 billion on October 1, 2010 to $22.1 billion on September 30, 

2011. Almost all of this decrease in asset value is attributable to the $1.7 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, 2010 $23.8 

Transfers from Trust to Treasury $(1.7)

Net Change in value 0.0

Net Increase/(Decrease) (1.7) 

September 30, 2011 $22.1 

 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. 
8 - INTRODUCTORY STATEMENT FISCAL YEAR 2011 

During its nine years of investment operations, the Trust has transferred $11.6 

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

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

maintained at the Treasury) grew from $20.7 billion in 2002 to $23.6 billion as of the 

end of fiscal year 2011. As such, despite the challenges of the past few years, 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 $ (11.6) 

Change in value* 14.5 

Net increase/(decrease) 2.9 

September 30, 2011 $23.6 

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

b) Market Volatility of Recent Years 

Over the past nine 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 various market environments. 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 
FISCAL YEAR 2011 INTRODUCTORY STATEMENT - 9 

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

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 took steps to review and 

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

investment staff also performed an extensive asset allocation review, which resulted in 

the Board’s approval of changes to the Trust’s Investment Guidelines. These changes 

reflect the staff’s asset allocation recommendations, as well as certain changes to the 

scope of the staff’s non-mandatory rebalancing authority. 

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

the various investment and management issues that are discussed in this tenth Annual 

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

periodically to consider matters within their areas of responsibility. 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. 
10 - OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS FISCAL YEAR 2011 

2) Operations of the Trust: Administrative Matters 

a) Trustee Update 

In February 2011, the Trust announced the appointment of three Trustees and a new 

Chair for the period beginning February 1, 2011. Railroad management appointed Mr. 

Richard G. Patsy, Assistant Vice President Pensions and Investments of CSX 

Corporation, to a three-year term that expires on January 31, 2014. Railway labor 

unions appointed Mr. Joel Parker, Special Assistant to the President and International 

Vice President of the Transportation Communications International Union/IAM, to a new 

three-year term that expires on January 31, 2014. The six Trustees then selected Mr. 

William F. Quinn, the chairman and founder of American Beacon Advisors, as the new 

Independent Trustee, with a three-year term that expires on January 31, 2014. In 

addition, the Trustees selected Mr. James A. Hixon, Executive Vice President Law and 

Corporate Relations of Norfolk Southern Corporation, as the Chair of the Board of 

Trustees for the period February 1, 2011-January 31, 2012. 

 Mr. Patsy, Mr. Parker, and Mr. Quinn joined the following four members of the 

Board: for terms expiring on January 31, 2012, Mr. James A. Hixon, and Mr. George 

Francisco, Jr., President Emeritus, National Conference of Firemen and Oilers-SEIU; and 

for terms expiring on January 31, 2013, Mr. Alec Vincent, Assistant Vice President 

Finance and Treasurer, Burlington Northern Santa Fe LLC, and Mr. Walter A. Barrows, 

International Secretary-Treasurer, Brotherhood of Railroad Signalmen. 

In addition to the new Trustees who joined the Trust in February 2011, the Trust 

welcomed another Trustee just after the end of the fiscal year, due to the departure of 

Mr. Walter A. Barrows. Mr. Barrows resigned from his positions with the Brotherhood of 

Railroad Signalmen and the Board on September 30, 2011, following his appointment as 

the labor member of the U.S. Railroad Retirement Board. Effective October 19, 2011, 

railway labor unions appointed Mr. William C. Walpert, National Secretary-Treasurer of 

the Brotherhood of Locomotive Engineers and Trainmen, to serve out the remainder of 

Mr. Barrows’ term. 
FISCAL YEAR 2011 OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS - 11 

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

b) Coordination with Federal Government Agencies 

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

Railroad Retirement Board (“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 the Memorandum 

of Understanding (“MOU”) entered into in 2002 with these entities and the Office of 

Management and Budget (“OMB”). The MOU outlines the budgetary, transfer, 

accounting, and financial reporting responsibilities for assets held by the Trust and 

railroad retirement system assets held within the Treasury. The MOU requires the Trust 

to report on a monthly basis: receipt and disbursement of funds, purchases and sales of 

assets, earnings and losses on investments, value of investments held, and 

administrative expenses incurred. A copy of the MOU is included in Appendix C. 

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

fiscal year 2011, 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 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 2011, 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, 2010, for use in the preparation of the RRB’s annual Statement of 

Social Insurance. 
12 - OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS FISCAL YEAR 2011 

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 amounts 

necessary to pay RRA benefits under the Act. During fiscal year 2011, the Trust 

transferred a total of $1.7 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 2011. 
FISCAL YEAR 2011 OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS - 13 

Summary of transfers: From its inception in February 2002 to September 30, 2011, the 

Trust received $21.3 billion from the Treasury and transferred $11.6 billion to the 

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

therefore, is $9.7 billion. 

 The assets received by the Trust have been invested in a diversified multi-asset 

class 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, 2011, the net 

asset value of the Trust-managed assets totaled $22.1 billion, representing an increase 

of $12.4 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 

since September 30, 2002. 

0

50

100

150

200

250

Transfers from the Trust to the Treasury

Fiscal Year 2011

$ Millions

Note:  The chart above reflects the cash required by the Treasury for 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.  
14 - OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS FISCAL YEAR 2011 

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 2011 and certified the ratio to the Secretary of the Treasury on October 21, 2011. 

 $-

 $5

 $10

 $15

 $20

 $25

 $30

 $35

 $-

 $100

 $200

 $300

 $400

 $500

 $600

 $700

 $800

 $900

Sep-02Dec-02Mar-03Jun-03Sep-03Dec-03Mar-04Jun-04Sep-04Dec-04Mar-05Jun-05Sep-05Dec-05Mar-06Jun-06Sep-06Dec-06Mar-07Jun-07Sep-07Dec-07Mar-08Jun-08Sep-08Dec-08Mar-09Jun-09Sep-09Dec-09Mar-10Jun-10Sep-10Dec-10Mar-11Jun-11Sep-11

Millions

Billions

Transfers to Treasury (LHS) Market Value (RHS) Book Value (RHS)

Since Inception Transfers:

from Treasury = $21.3 Billion

to Treasury = $11.6 Billion $22.1 B 

$9.7 B

Book vs Market Value and Quarterly Transfers to Treasury

09/30/02 - 09/30/11
FISCAL YEAR 2011 OPERATIONS OF THE TRUST: ADMINISTRATIVE MATTERS - 15 

The Secretary determined the AABR for fiscal year 2011 and on November 18, 2011 

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

for calendar year 2012. Copies of the RRB certification letter and the Treasury notice 

are contained in Appendix H. The ABR declined from 5.27 for fiscal year 2010 to 4.81 

for fiscal year 2011. The ten-year AABR declined from 6.7 at September 30, 2010 to 

6.5 at September 30, 2011. 

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, 

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

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

 Biographical information on the Trust’s staff members can be found in Appendix 

J. 
16 – OPERATIONS OF THE TRUST: INVESTMENT MATTERS FISCAL YEAR 2011 

 

3) Operations of the Trust: Investment Matters 

 

a) Overview 

For fiscal year 2011, the investment return, net of fees, on Trust-managed assets was 

-0.1%. The Trust’s strategic benchmark returned 1.6%. The relative 

underperformance for the current fiscal year was driven partly by the Trust’s tactical 

positions to longer-term investment themes, such as private equity and real estate 

programs where it takes an extended amount of time to achieve desired returns, and 

partly by active manager underperformance relative to their benchmarks, primarily in 

US Equities and US Fixed Income. 

 The Trust experienced positive investment returns during the first three quarters 

of the fiscal year. However, several concerns caused the capital markets to pull back 

during the fourth quarter. The sovereign debt problems in Europe and a general 

slowdown in global economic growth, combined with continued high unemployment and 

the United States’ own political stalemate on key budget matters, weighed heavily on 

investors, who became more risk-averse, creating a sell-off in most assets. The Trust 

maintains a long-term focus and is well diversified to take advantage of market moves 

as the global economic picture improves. 

b) Investment Plan: Structure 

The Trust’s asset class structure has developed over the nine years since September 

2002 from a starting portfolio consisting entirely of government securities, to a simple 

three-asset-class 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 by asset class to measure actual Trust performance against 

an objective standard. The Trust’s fiscal year 2011 asset allocation study resulted in 
FISCAL YEAR 2011 OPERATIONS OF THE TRUST: INVESTMENT MATTERS - 17 

minor revisions to the previous target allocations and ranges. The revised asset class 

target ranges, approved by the Trustees on September 20, 2011, reflect changes in 

capital market expectations since the previous asset allocation study.

Current Long-Term Target Asset Allocation 

(Approved September 20, 2011) 

 

 Asset Class Target Range 

 US Equity 23.0% 18-28% 

 Non-US Equity 21.0% 16-26% 

 Private Equity 10.0% 2-15% 

 US Fixed Income 13.5% 9-18% 

 Non-US Fixed Income 8.5% 5-15% 

 Real Estate 10.0% 2-15% 

 Commodities 5.0% 2-8% 

 Absolute Return 8.0% 2-10% 

 Cash 1.0% 0-3% 

 100.0% 

 In its changes to the Investment Guidelines, the Trust set a separate allocation 

to cash. In addition, the Opportunistic asset class title was revised to Absolute Return; 

it continues to be used for investments that are incompatible with the criteria for the 

other primary asset classes yet are believed to offer the Trust an attractive riskadjusted investment return, low correlation with other investments, or other attributes 

that will help the Trust achieve its strategic investment objectives. The Trust’s 

Investment Guidelines are included in Appendix B. 

 

c) Investment Plan: Implementation 

 US Equity: During the fiscal year, the Trust terminated four active manager 

accounts, ending fiscal year 2011 with 16 active US Equity managers and one US Equity 

index manager managing two products. 60% of the Trust’s US Equity portfolio was 
18 – OPERATIONS OF THE TRUST: INVESTMENT MATTERS FISCAL YEAR 2011 

 

actively managed at the end of the fiscal year. 

 Non-US Equity: During the fiscal year, the Trust added three active investment 

managers to manage emerging markets equity and reclassified one passive/enhanced 

manager to active, bringing the total number of active investment managers in non-US 

equity to nine at the end of the fiscal year. In addition to these nine active managers, 

the Trust ended fiscal year 2011 with one index investment manager who manages six 

products in non-US equity. At the end of the fiscal year, 67% of the Trust’s non-US 

equity allocation was actively managed. Additionally, the Trust employed three active 

managers for the currency overlay program. 

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

specialist managers. At the end of the fiscal year, this asset class had 16 

active/specialist managers, and 100% of the Trust’s US fixed income allocation was 

actively managed. 

 Non-US Fixed Income: One new specialist manager was hired in this asset 

class in fiscal year 2011. At the end of the fiscal year, this asset class had ten 

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

actively managed. 

 Commodities: The Trust did not hire any new managers for this asset class in 

fiscal year 2011. At the end of the fiscal year, this asset class had one passive manager 

and one specialist manager, and 66% of the Trust’s allocation to commodities was 

actively managed. 

 Absolute Return: This asset class includes multi-asset class strategies. During 

the fiscal year, one new multi-asset class manager was hired, bringing the total to four 

active managers, one of which manages two separate portfolios for the Trust. This 

allocation is 100% actively managed. 

 Private Equity: During fiscal year 2011, the Trust continued its private equity 

program implementation with seven new private equity funds whose investment period 

began during the year, bringing the total number of active partnerships in the private 

equity portfolio to 59 at the end of the fiscal year. These 59 partnerships are actively 
FISCAL YEAR 2011 OPERATIONS OF THE TRUST: INVESTMENT MATTERS - 19 

managed by 38 managers. Additionally, commitments were made to four new 

partnerships scheduled to begin their investment period during fiscal year 2012. 

 Real Assets: Six new real estate partnerships and two new energy partnerships 

began their investment period during fiscal year 2011, bringing the total number of 

active partnerships in Real Assets to 29. These 29 partnerships are actively managed 

by 21 managers. Commitments were made during fiscal year 2011 to two additional 

partnerships which are scheduled to begin their investment period during fiscal year 

2012. 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 F. 

 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 

reviewed and reported 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 6.4% of the total, or 
20 – OPERATIONS OF THE TRUST: INVESTMENT MATTERS FISCAL YEAR 2011 

 

$1.5 billion out of $23.6 billion as of September 30, 2011, 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 

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

investment policies accordingly. For fiscal year 2011, the investment return on Trustmanaged assets only (excluding reserves at the RRB), was -0.1% net of fees.
FISCAL YEAR 2011 AUDIT COMMITTEE - 21 

4) Audit Committee 

The Audit Committee held four meetings during fiscal year 2011. During the year, the 

Audit Committee engaged Deloitte & Touche LLP (“Deloitte”) to perform an audit of the 

Trust’s Schedule of Investments in Securities and Statement of Assets and Liabilities as 

of December 31, 2010. The completion of the balance sheet audit provided the RRB 

with an independent audited net asset balance for the Trust, allowing the RRB to 

complete an annual Statement of Social Insurance using audited inputs from the Trust. 

 In addition, the Audit Committee engaged Deloitte to perform the annual audit 

of the Trust’s financial statements for the fiscal year ended September 30, 2011. The 

Audit Committee provided oversight of the financial statement audit process in 

accordance with its fiduciary duty to the Trust. The Trust issued its audited financial 

statements within 45 days of its fiscal year end, allowing the RRB to include the Trust’s 

net assets in its financial statements and meet its financial reporting deadline.

 
22 – INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS FISCAL YEAR 2011 

5) Internal Accounting and Administrative Controls 

During fiscal year 2011, 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 represented by 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 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

Northern Trust provides the Trust with a full accounting and performance 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 

the basis for the Trust’s required reports and financial statements. 

 In addition, Trust staff updated its Accounting Policies and Procedures Manual 

during the fiscal year and presented the updates in detail to the Audit Committee. 

These updates consisted primarily of addressing new financial statement disclosure 

requirements, and accruing for investment management performance fees.
FISCAL YEAR 2011 FINANCIAL STATUS OF THE TRUST - 23 

6) Financial Status of the Trust 

a) Summary of Cash Flows and Changes in Trust Assets 

During fiscal year 2011, the Trust continued to make cash transfers of assets to the 

Treasury for beneficiary payments and expenses. These transfers totaled 

approximately $1.7 billion during fiscal year 2011. The net amount transferred to the 

Trust from the Treasury since inception was $9.7 billion through the end of the fiscal 

year. 

 The major changes in Trust assets result from transfers to the Treasury, net 

investment income on investments, and realized and unrealized gains and losses on 

investments. These impacts for fiscal year 2011 were as follows: 

 $ in Billions 

Trust Net Assets as of 9/30/2010 $23.8 

Net Investment Income 0.4* 

Net Realized and Unrealized 

Gain/(Loss) (.4) 

Assets Transferred to the Treasury (1.7) 

Trust Net Assets as of 9/30/2011 

 

 $22.1 

*Net of Trust expenses of $0.1 billion 
24 – FINANCIAL STATUS OF THE TRUST FISCAL YEAR 2011 

b) Financial Statements and Independent Auditors’ Report 
National Railroad 

Retirement Investment 

Trust 

Financial Statements as of and for the 

Fiscal Year Ended September 30, 2011, and 

Independent Auditors’ Report 
NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST 

Table of Contents 

Page(s) 

Independent Auditors’ Report 

Financial Statements as of and for the Fiscal Year Ended 

September 30, 2011:

Statement of Assets and Liabilities 2 

Condensed Schedule of Investments 3–8 

Statement of Operations 9 

Statement of Changes in Net Assets 10 

Notes to Financial Statements 11–20 
INDEPENDENT AUDITORS' REPORT

To the Board of Trustees

National Railroad Retirement Investment Trust:

We have audited the accompanying statement of assets and liabilities of the National 

Railroad Retirement Investment Trust (the “Trust”), including the condensed schedule of 

investments, as of September 30, 2011, and the related statement of operations and 

changes in net assets for the year then ended. These financial statements are the 

responsibility of the Trust’s management. 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 of material 

misstatement. An audit includes consideration of internal control over financial reporting 

as a basis for designing audit procedures that are appropriate in the circumstances, but not 

for the purpose of expressing an opinion on the effectiveness of the Trust's internal 

control over financial reporting. Accordingly, we express no such opinion. An audit also 

includes examining, on a test basis, evidence supporting the amounts and disclosures in 

the financial statements, assessing the accounting principles used and significant 

estimates made by management, as well as evaluating the overall financial statement 

presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the 

financial position of the National Railroad Retirement Investment Trust as of September 

30, 2011, and the results of its operations and changes in its net assets for the year then

ended in conformity with accounting principles generally accepted in the United States of 

America.

November 15, 2011

Deloitte & Touche LLP

Suite 800

1750 Tysons Boulevard

McLean, VA 22102-4219

USA

Tel: + 1 703 251 1000

Fax: + 1 703 251 3400

www.deloitte.com
- 2 - 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST

Statement of Assets and Liabilities

As of September 30, 2011

($ in thousands)

Assets

 Investments in securities — at fair value (cost $21,563,905) 21,726,411 $ 

 Cash and cash equivalents (including restricted cash of $38,360) 549,104 

 Cash denominated in foreign currency — at fair value (cost $17,876) 17,236 

 Receivable for investments sold 570,430 

 Interest receivable 59,855 

 Dividends receivable 14,450 

 Unrealized gain on foreign currency exchange contracts 246,489 

 Unrealized gain on swap contracts 9,713 

 Securities sold under agreements to repurchase 645 

 Other assets 11,867 

 Total assets 23,206,200 

Liabilities

 Payable for investments purchased 771,392 

 Securities purchased under agreements to resell 23,618 

 Accrued management fees 18,867 

 Unrealized loss on foreign currency exchange contracts 232,263 

 Unrealized loss on swap contracts 46,518 

 Options written — at fair value (premiums received $1,625) 1,603 

 Other liabilities 13,915 

 Total liabilities 1,108,176 

Net Assets 22,098,024 $ 

The accompanying footnotes are an integral part of these financial statements.
- 3 - 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST

Condensed Schedule of Investments

As of September 30, 2011

($ in thousands)

% of 

Net Assets

Number of 

Units, Shares or 

Par Value (000) Fair Value

Global Equity

 US Equity

 US Common Stocks

Apple Inc. 269 102,460 $ 

JP Morgan Chase & Co. 1,855 55,885 

Microsoft Corp. 2,138 53,209 

Wells Fargo & Co. 2,167 52,278 

Exxon Mobil Corp. 672 48,798 

Chevron Corp. 494 45,680 

Google Inc. 83 42,933 

Other US Common Stocks 3,341,964 

16.94% 3,743,207 

 Other US Equity Securities (a) 0.04% 9,162 

 US Equity Unit Trusts

BlackRock Russell 1000 Index Fund 149,242 2,183,259 

BlackRock Russell 2000 Equity Index Fund 22,851 343,242 

Other US Equity Unity Trusts 477 

11.44% 2,526,978 

 Total US Equity 28.42% $ 6,279,347

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, 2011

($ in thousands)

% of 

Net Assets

Number of 

Units, Shares or 

Par Value (000) Fair Value

Global Equity (continued)

 Non US Equity

 Non US Common Stocks (c)

United Kingdom 2.41% 531,500 $ 

Japan 2.26% 498,546 

France 1.00% 220,358 

Switzerland 0.85% 187,058 

Germany 0.81% 179,454 

Korea 0.79% 173,860 

China 0.79% 173,558 

Canada 0.60% 133,094 

Hong Kong 0.57% 126,498 

Australia 0.46% 102,375 

Other Non US Common Stock 4.93% 1,088,888 

15.45% 3,415,189 

 Non US Preferred Stocks 0.44% 98,141 

 Non US Equity Unit Trusts

BlackRock MSCI EAFE Equity Index Fund 41,337 581,190 

BlackRock World ex-US Small Cap Equity 

 Index Fund 41,516 495,967 

BlackRock EAFE Growth Index Fund 18,696 221,205 

BlackRock EAFE Value Index Fund 28,771 217,588 

BlackRock MSCI Equity Index Fund (Canada) 1,856 117,414 

Other Non US Equity Unit Trusts 83,855 

7.77% 1,717,219 

 Total Non US Equity 23.67% $ 5,230,549

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, 2011

($ in thousands)

% of 

Net Assets

Number of 

Units, Shares or 

Par Value (000) Fair Value

Global Equity (continued)

 Private Equity

Providence Total Market Trust Special 

 Situations Feeder, LP 79,190 126,577 $ 

Blackstone Capital Partners V, LP 93,345 98,602 

Warburg Pincus Private Equity X, LP 75,659 81,094 

McCoy Investments LP 67,586 78,588 

Warburg Pincus Private Equity IX, LP 42,610 77,583 

Apollo Investment Fund VI, LP 57,683 68,669 

Providence Equity Partners VI, LP 48,563 60,162 

Carlyle Partners V, LP 47,516 59,981 

First Reserve Fund XII, LP 57,551 56,977 

Apollo Investment Fund VII, LP 41,438 53,733 

CVC European Equity Partners V (C) , LP 30,966 50,698 

GTCR Partners IX-A, LP 44,678 46,459 

Blackstone Credit Liquidity Partners, LP 17,054 46,129 

First Reserve Fund XI, LP 39,410 44,330 

TCV VII, LP 40,978 43,718 

Other Private Equity 839,652 

 Total Private Equity 8.29% 1,832,952

Total Global Equity (cost $13,573,765) 60.38% $ 13,342,848

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, 2011

($ in thousands)

% of 

Net Assets

Number of 

Units, Shares or 

Par Value (000) Fair Value

Global Fixed Income

 Government Notes and Bonds (c)

US Treasury Notes, 3.125%, 5/15/2021 95,606 106,115 $ 

Government of UK Bonds, 4.25%, 7/3/2036 33,075 58,423 

US Treasury Notes, 1.25%, 12/31/2013 50,000 51,324 

Government of Japan Bonds, 1.9%, 3/22/2021 3,500,000 49,240 

Other Government Notes and Bonds 1,901,087 

9.80% 2,166,189 

 Corporate Bonds 6.77% 1,495,232 

 Government - Sponsored Mortgage Backed Securities ("MBS")

FNMA Single Family Mortgage, 4.5%, 30 years, October 42,300 44,871 

Other Government - Sponsored MBS 790,686 

3.78% 835,557 

 Short Term Bills and Notes

US Treasury Bills, 10/27/11 68,600 68,599 

US Treasury Bills, 1/19/12 75,000 74,996 

US Treasury Bills, 12/15/11 81,000 80,998 

Other Short Term Bills and Notes 33,856 

1.17% 258,449 

 Government Agencies 0.79% 174,723 

 Non-Government Collateralized Mortgage 0.58% 128,720 

 Obligations

 Commercial Mortgage-Backed Securities 0.56% 123,182 

 Index-Linked Government Bonds 0.31% 68,395 $ 

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, 2011

($ in thousands)

% of 

Net Assets

Number of 

Units, Shares or 

Par Value (000) Fair Value

Global Fixed Income (continued)

 Asset Backed Securities 0.30% 65,860 $ 

 Other Fixed Income Securities (b) 0.85% 188,378 

 Fixed Income Unit Trusts

Blue Mountain Credit Alternatives 2,400 245,489 

MKP Credit Offshore 58 229,597 

GAM Global Rates 1,500 143,415 

Angelo Gordon GECC PPIF Holdings 84,530 96,904 

King Street Capital Ltd Class A Series 3 Fund 754 95,739 

Other Fixed Income Unit Trusts 59,192 

3.94% 870,336 

Total Global Fixed Income (cost $6,321,350) 28.85% 6,375,021

Global Real Assets

 Real Estate

Campbell Opportunity Timber Fund, LP 99,341 93,571 

Blackstone Real Estate Partners VI TE 2, LP 41,479 54,299 

Other Real Estate 365,904 

2.32% 513,774 

 Commodities

Blenheim Commodity Fund 2.09% 151 461,839 

Total Global Real Assets (cost $885,927) 4.41% $ 975,613

The accompanying footnotes are an integral part of these financial statements.
- 8 - 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST

Condensed Schedule of Investments (continued)

As of September 30, 2011

($ in thousands)

% of 

Net 

Assets

Number of 

Units, Shares or 

Par Value (000) Fair Value

Multi-Asset Class Mandates

 Multi-Asset Class Unit Trusts

Bridgewater Pure Alpha II Ltd Class B 327 566,092 $ 

Bridgewater All Weather Portfolio Ltd Class B 209 232,413 

Davidson Kempner Int'l Ltd Class C 1,040 105,604 

Paulson Advantage Ltd Class A 472 76,472 

Kepos Alpha Ltd C1 F-R Ser 6 50 52,348 

Total Multi-Asset Class Mandates (cost $782,863) 4.67% 1,032,929

Total Investments in Securities (cost $21,563,905) 98.32% 21,726,411

Other Assets less Liabilities 1.68% 371,613 

Net Assets 100% $ 22,098,024

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

(b) Includes Municipal Bonds, Bank Loans, Government Issued CMBS, Guaranteed Fixed Income

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

(c) Includes investments quoted in foreign currency, which are translated into US dollars at the 

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.

 Contracts, Certificates of Deposit, Sukuk Financial Certificates, Collateralized Bonds, and

 prevailing foreign exchange spot rates on the date of valuation.

 Index Linked Corporate Bonds.
- 9 - 

NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST

Statement of Operations

For the Fiscal Year Ended September 30, 2011

($ in thousands)

Income

 Interest 261,161 $ 

 Dividends 218,540 

 Total income 479,701 

Expenses

 Investment management fees 68,401 

 Compensation 4,651 

 Professional fees 3,911 

 Trustee fees and expenses 222 

 Custodial fees 107 

 Other expenses 5,761 

 Total expenses 83,053 

Net Investment Income 396,648 

Realized and Unrealized Gain (Loss) from Investments

 Net realized gain (loss) from investments and foreign currency 1,014,057 

 Net increase (decrease) in unrealized gain (loss) on investments 

 and foreign currency (1,378,110) 

Net Realized and Unrealized Gain (Loss) from Investments (364,053) 

Net increase in net assets resulting from operations 32,595 $ 

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, 2011

($ in thousands)

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:

 Net investment income 396,648 $ 

 Net realized gain (loss) from investments and foreign currency 1,014,057 

 Net change in unrealized gain (loss) on investments and translation 

 of assets and liabilities in foreign currencies (1,378,110) 

 Net increase in net assets resulting from operations 32,595 

ASSETS TRANSFERRED TO THE TREASURY (1,744,000) 

NET ASSETS:

 Beginning of year 23,809,429 

 

 End of year 22,098,024 $ 

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, 2011 

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 of 

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

case of commingled funds. 

2. SIGNIFICANT ACCOUNTING POLICIES 

The following is a summary of significant accounting policies followed by the Trust in preparation of its 

financial statements. The policies conform to accounting principles generally accepted in the United 

States of America (“GAAP”) for investment companies. 

Basis of Accounting — The Trust applies the accrual method of accounting when preparing its financial 

statements. 

Valuation of Investments — The Trust follows the Financial Accounting Standards Board (“FASB”) 

Accounting Standards Codification (“ASC”) Fair Value Measurements and Disclosures Topic (“Topic 
- 12 - 

820”). 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 

additional disclosure about fair value (See Note 3). 

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 over-thecounter (“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 debt 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. 

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

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

exchange spot rates on the date of valuation. 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. 

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. 

Commingled funds and hedge funds (“Funds”), which are not publicly traded, may include publiclytraded securities for which detailed holdings are reported to the Trust. The fair value of these Funds as of 

September 30, 2011 totaled approximately $6.5 billion. Fair values of these non-publicly traded 

securities are determined after consideration of valuations provided by the external investment managers 

adjusted for receipts, disbursements, and distributions through the date of the statement of assets and 

liabilities. These Funds generally have redemption restrictions that limit the days when redemption 

requests can be made to one or more days per month. The valuation of these non-publicly traded Funds 

may involve estimates, appraisals, assumptions, and methods that are reviewed by management. 
- 13 - 

Private Equity (“PE”) partnership assets are valued by the Trust at fair value as determined by the 

General Partner (“GP”) of the investment partnership in accordance with the terms of each partnership’s 

governing agreement. Changes in value for non-marketable securities held by each PE partnership are 

valued by the GP in accordance with GAAP and oversight by Limited Partners. This value may be 

adjusted by the Trust if there is evidence in a secondary market of partnership share transactions that are 

different than the partner capital accounts. Private equity partnerships typically have investment periods 

of 5 years and terms of 10 years. Generally, the partnership invests the committed dollars during the 

investment period and harvests the portfolio during the remainder of the term. These commitments are 

disclosed in Note 7. 

Swap agreements are valued by the Trust at prices furnished by approved pricing sources. Changes in 

the value of swap agreements are recorded as unrealized appreciation or depreciation in the Statement of 

Assets and Liabilities. The amounts related to net receipts/(payments) under the swap agreements are 

recorded as realized gain/(loss) in the Statement of Operations. Aside from market risk, the primary risk 

associated with swap agreements is that a counterparty could default on its obligation to pay net amounts 

due to the Trust. The Trust’s swap agreements consist of interest rate swaps, credit default swaps and 

total return swaps. 

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

investment securities on a trade-date basis. Investment securities are recorded at fair value. 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, 2011, the Trust held approximately $38 million of restricted cash, representing initial 

margin on futures contracts and pledged collateral received from counterparties for swap agreements. 

Options Contracts — The Trust may purchase or sell (write) exchange- (or OTC-) traded 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 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 (or paid 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. 
- 14 - 

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 an unrealized gain or loss 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. 

Forward Foreign Currency Exchange Contracts — The Trust may use currency contracts to hedge 

against fluctuations in currency exchange rates. The Trust enters forward foreign currency exchange 

contracts (“forward currency contracts”) or spot currency contracts as part of its investment strategies 

when purchasing or selling investment securities denominated in a foreign currency. Differences in 

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

investment securities denominated in a foreign currency. 

The Trust may 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. The Trust may also use forward currency contracts to hedge against foreign 

currency exchange rate fluctuations related to portfolio holdings or concentrations of such holdings. 

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. 
- 15 - 

Swap Agreements — The Trust may enter swap transactions for hedging purposes as well as in order 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 agreements 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. Entering into these agreements 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 agreements, that the counterparty to the agreements may default on its obligations to 

perform or disagree as to the meaning of contractual terms in the agreements, and that there may be 

unfavorable changes in interest rates. At the time a swap agreement 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 agreements consist of interest rate swaps, credit default swaps and total return swaps. 

Common Stock — The Trust invests in common stock across all corporate sectors. 

Government-Sponsored Entity Mortgage Backed Securities — The Trust invests in governmentsponsored entity mortgage backed securities (“MBS”). MBS are issued generally by governmentsponsored enterprises (e.g., the Federal National Mortgage Association (“Fannie Mae”); Federal Home 

Loan Mortgage Corporation (“Freddie Mac”); and Government National Mortgage Association (“Ginnie 

Mae”), respectively). 

The Trust’s portfolio includes government-sponsored mortgage backed “to be announced” (“TBA”) 

securities. TBA securities are marked-to-market on a daily basis by the custodian. TBAs can be either 

purchased or sold for forward settlement. 

Corporate and Government Bonds — The Trust may invest in corporate bonds covering all sectors of 

the market. The Trust may also invest in government bonds. These include bonds and notes issued by 

the US government as well as foreign governments. 

Income Taxes — The Trust is exempt from 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. 

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 
- 16 - 

weighted-average value of assets under management, with an additional performance fee in some 

instances. 

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. 

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 — quoted prices in active markets for identical investments 

Level 2 — other significant observable inputs (including quoted prices for similar investments, interest 

rates, prepayment speeds, credit risk, etc.) 

Level 3 — significant unobservable inputs (including the Trust’s own assumptions in determining the 

fair value of investments) 

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. 

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 is a summary of the inputs used in valuing 

the Trust’s assets and liabilities carried at fair value ($ in thousands): 
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Assets Level 1 Level 2 Level 3 Total

Fixed Income 19,473 $ 4,769,839 $ 1,585,709 $ 6,375,021 $ 

US Equity* 3,747,762 2,530,417 1,168 6,279,347 

Non-US Equity* 3,511,117 1,717,067 2,365 5,230,549 

Private Equity - - 1,832,952 1,832,952 

Multi-Asset Class Mandates - - 1,032,929 1,032,929 

Real Estate - - 513,774 513,774 

Commodities - - 461,839 461,839

Total investments in securities 7,278,352 $ $ 9,017,323 $ 5,430,736 $ 21,726,411

Swap contracts - $ 9,713 $ - $ 9,713 $ 

Futures contracts** 2,945 2,945 

Foreign currency exchange 

 contracts 246,489 246,489 

Foreign currency 17,236 17,236 

Liabilities 

Swap contracts - $ (46,518) $ - $ (46,518) $ 

Futures contracts** (8) (8) 

Foreign currency exchange 

 contracts (232,263) (232,263) 

Written options (1,603) (1,603) 

*In accordance with ASC 820-10, the Trust has determined the fair value of investments in 

US Equity and Non-US Equity commingled index funds, based upon the net asset value of those

Funds, and have classified those measurements as falling within Level 2 of the fair value

hierarchy. The fair value of such Funds as of September 30, 2011 totaled $2,526,501 and

 $1,717,067 for US Equity and Non-US Equity, respectively.

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

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

used in determining fair value ($ in thousands): 

Investments 

in Securities

Balance — September 30, 2010 3,768,584 $ 

 Purchases and other acquisitions 2,065,153 

 Sales and other settlements (1,099,257) 

 Net change in unrealized gain (loss) 355,489 

 Net realized gain (loss) 92,319 

 Transfers into Level 3 422,169 

 Transfers out of Level 3 (173,721) 

Balance — September 30, 2011 5,430,736 $ 
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4. DERIVATIVE INSTRUMENTS 

GAAP requires disclosures that enable investors to understand how and why an entity uses derivatives, 

how derivatives are accounted for, and how derivative instruments affect the Trust’s financial position. 

As of September 30, 2011, 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 table summarizes the value of asset and liability derivatives as of September 30, 

2011. 

Risk Exposure Location within statement of assets and Fair Value

liabilities ($ in thousands)

Purchased Options Investments in securities - at fair value 2,038 $ 

Swap Contracts Unrealized gain on swap contracts 9,713 

Swap Contracts Unrealized loss on swap contracts (46,518) 

Futures Contracts Other Assets 2,945 

Futures Contracts Other Liabilities (8) 

Foreign Currency Exchange Contracts Unrealized gain on foreign currency exchange contracts 246,489 

Foreign Currency Exchange Contracts Unrealized loss on foreign currency exchange contracts (232,263) 

Written Options Options written - at fair value (1,603) 

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 $11.6 billion has been 

transferred to the Treasury by the Trust. During the fiscal year ended September 30, 2011, 

approximately $1.7 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. 

Legal Counsel — The Trust incurred approximately $2.9 million in legal fees during the fiscal year 

ended September 30, 2011. 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, 2011. 

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, 2011, the Trust made 

contributions of $259,213 to the Plan on behalf of the employees. 
- 19 - 

7. COMMITMENTS 

Office Space Lease — In July 2003, the Trust entered into a ten-year operating lease agreement with 

respect to its principal office space in Washington, DC. Subsequently, the Trust has entered into 

additional leases to expand its office space. 

Remaining payment obligations relating to the leases for each of the next five years and thereafter are as 

follows: 

Fiscal Year Ending Amount

September 30, 2011

2012 433,902 $ 

2013 369,324 

2014 -

2015 -

2016 -

Thereafter - 

Total $ 803,226

Private Investments — As of September 30, 2011, the Trust had commitments to invest up to an 

additional $2.3 billion in Private Investments. These investments are callable at the discretion of the GP 

and are funded from cash and cash equivalents held by the Trust. 

8. FINANCIAL HIGHLIGHTS 

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

September 30, 2011. 

October 1, 2010 —

September 30, 2011

FINANCIAL RATIOS (1):

 Expense to average net assets 0.36 %

 Net investment income to average net assets 1.73%

TOTAL RETURN (2)

 — Total return -0.10%

(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. 
- 20 - 

9. 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. 

10. RECENTLY ISSUED ACCOUNTING STANDARDS 

In January 2010, the FASB issued ASU 2010-06 – Improving Disclosures about Fair Value 

Measurements. ASU 2010-06 requires additional disclosures about fair value measurements including 

transfers in and out of Levels 1 and 2 and a higher level of disaggregation for the different types of 

financial instruments. For the reconciliation of Level 3 fair value measurements, information about 

purchases, sales, issuances and settlements should be presented separately. This ASU is effective for 

annual and interim reporting periods beginning after December 15, 2009, except for the new level 3 

disclosures, which are effective for periods beginning after December 15, 2010. The adoption of the 

guidance did not have a material impact on the Trust’s financial position, operations, or changes in net 

assets. 

In May, 2011, the FASB and the International Accounting Standards Board (“IASB”) published 

converged standards on fair value measurement and disclosure. This included FASB’s issuance of ASU 

2011-04 – Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value 

Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting 

Standards (“IFRS”). This standard updates the FASB Codification on fair value measurement and the 

IASB’s issuance of IFRS 13 – Fair Value Measurement. For nonpublic entities, the amendments are 

effective for annual periods beginning after December 15, 2011. The impact on the Trust’s financial 

statement disclosures is currently being assessed. 

11. SUBSEQUENT EVENTS 

In accordance with the Subsequent Events Topic of the FASB ASC 855, the Trust has evaluated 

subsequent events through November 15, 2011, the date these financial statements were issued. 

******