THRIFT SAVINGS FUND

Washington, DC

FINANCIAL STATEMENTS

December 31, 2010 and 2009
TABLE OF CONTENTS

PAGE

INDEPENDENT AUDITORS' REPORT 1

FINANCIAL STATEMENTS 2

Statements ofNet Assets Available for Benefits 3

Statements ofChanges in Net Assets Available for Benefits 4

Notes to Financial Statements 5
~Clifton Gunderson LLP

Certified Public Accountants & Consultants

Independent Auditor's Report

Members ofthe Board and Executive Director

Federal Retirement Thrift Investment Board

Washington, DC

We have audited the accompanying statements of net assets available for benefits ofthe Thrift Savings Fund

(the "Fund") as of December 31, 2010 and 2009, and the related statements of changes in net assets available

for benefits for the years then ended. These financial statements are the responsibility ofthe Fund's

management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits 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 ofmaterial misstatement. An audit includes examining, on a test

basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes

assessing the accounting principles used and significant estimates made by management, as well as evaluating

the overall financial statement presentation. We believe that our audits provide a reasonable basis for our

opinion.

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

available for benefits ofthe Fund as of December 31, 2010 and 2009, and the changes in its net assets

available for benefits for the years then ended in conformity with accounting principles generally accepted in

the United States ofAmerica.

Calverton, Maryland

April 4, 2011

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Offices in 17 states and Washington, DC
FINANCIAL STATEMENTS

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THRIFT SAVINGS FUND

Statements of Net Assets Available for Benefits

As of December 31,2010 and 2009

(In thousands)

2010 2009

ASSETS:

Investments, at fair value:

U.S. Government Securities Investment Fund $ 124,749,528 $ 114,853,495

BlackRock U.S. Debt Index Fund 19,137,669 16,255,885

BlackRock Equity Index Fund 77,058,403 64,673,967

BlackRock Extended Market Index Fund 27,157,622 17,771,367

BlackRock EAFE Index Fund 24,322,580 22,808,032

Total investments 272,425,802 236,362,746

Receivables:

Employer contributions 281,922 257,997

Participant contributions 754,045 713,820

Participant loans 7,722,197 7,217,398

Due for securities sold 26 ,228

Total receivables 8,758,164 8,215,443

Fixed assets:

Furniture, equipment, and leasehold improvements,

net of accumulated depreciation and amortization

of$14,840 in 2010 and $8,747 in 2009 7,427 12,830

Data processing software, net of accumulated

amortization of $40,874 in 2010 and $34,228 in 2009 13,702 17,671

Total fixed assets 21,129 30,501

Other assets 60,146 2,917

Total assets 281 ,265,241 244,611,607

LIABILITIES:

Accounts payable 23,194 31,829

Accrued payroll and benefits 1,266 1,117

Benefits and participant loans payable 119,817 85,460

Deferred rent and lease credits 225 293

Due for securities purchased 75,562 57,142

Total liabilities 220,064 175,841

FUNDS RESTRICTED FOR THE PURCHASE OF

FIDUCIARY INSURANCE (4,335) (4,455)

NET ASSETS AVAILABLE FOR BENEFITS $ 281,040,842 $ 244,431,311

See notes to financial statements and Independent Auditor's Report.

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THRIFT SAVINGS FUND

Statements of Changes in Net Assets Available for Benefits

Years Ended December 31, 2010 and 2009

(In thousands)

2010 2009

ADDITIONS:

Investment income:

U.S. Government Securities Investment Fund $ 3,344,646 $ 3,344,233

Net appreciation (depreciation) in fair value

ofBlackRock funds:

BlackRock U.S. Debt Index Fund 1,124,939 851,841

BlackRock Equity Index Fund 9,837,728 13,080,601

BlackRock Extended Market Index Fund 5,460,070 4,193,336

BlackRock EAFE Index Fund 1,578,280 4,639,155

Asset manager rebates 30,978 48,411

Less investment expenses (13,945) (5,897)

Net investment income 21,362,696 26,151,680

Contributions:

Participant 17,544,111 16,433,363

Employer 6,950,045 6,287,245

Total contributions 24,494,156 22,720,608

Interest income on participant loans 257,948 267,681

Total additions 46,114,800 49,139,969

DEDUCTIONS:

Benefits paid to participants 9,155,772 7,189,077

Administrative expenses 120,213 113,834

Participant loans declared taxable distributions 229,404 244,829

Total deductions 9,505,389 7,547,740

CHANGE IN FUNDS RESTRICTED FOR THE

PURCHASE OF FIDUCIARY INSURANCE 120 115

Net increase 36,609,531 41,592,344

NET ASSETS AVAILABLE FOR BENEFITS:

Beginning of period 244,431,311 202,838,967

End of period $ 281,040,842 $ 244,431,311

See notes to fmancial statements and Independent Auditor's Report.

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THRIFT SAVINGS FUND

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31,2010, AND

DECEMBER 31,2009

1. PLAN DESCRIPTION

The following description is provided for general information purposes. Participants should refer to the

Summary ofthe Thrift Savings Plan, www.tsp.gov, and applicable legislation and regulations for more

complete information.

General-The Thrift Savings Plan (the Plan or the TSP) is a retirement savings and investment plan for

Federal employees and members ofthe uniformed services. It was authorized by the United States

Congress in the Federal Employees' Retirement System Act of 1986 (FERSA). The Plan provides

Federal employees and members ofthe uniformed services with a savings and tax benefit similar to what

many private sector employers offer their employees under 40 1(k) plans. The Plan was primarily

designed to be a key part ofthe retirement package (along with a basic annuity benefit and Social

Security) for employees who are covered by the Federal Employees' Retirement System (FERS).

The Plan is administered by an independent Government agency, the Federal Retirement Thrift

Investment Board (the Agency), which is charged with operating the Plan prudently and solely in the

interest ofthe participants and their beneficiaries. Assets ofthe Plan are maintained in the Thrift

Savings Fund (the Fund).

Federal employees, who are participants ofFERS, the Civil Service Retirement System (CSRS), or

equivalent retirement systems, as provided by statute, and members ofthe uniformed services, are

eligible to join the Plan immediately upon being hired. Generally, FERS employees are those

employees hired on or after January 1, 1984, while CSRS employees are employees hired before

January 1, 1984, who have not elected to convert to FERS. Each group has different rules that govern

contribution rates. As of December 31, 2010, there were approximately 4.4 million participants in the

Plan, with approximately 2.9 million contributing their own money. As ofDecember 31, 2009, there

were approximately 4.3 million participants in the Plan, with approximately 2.8 million contributing

their own money.

Contributions-The Plan is a defined contribution plan and, as such, the law specifies how much an

employee may contribute and how much the employing agency must contribute to each FERS

employee's account. No participant could contribute more than the Internal Revenue Service (IRS)

elective deferral limit of$16,500 for 2009 and 2010.1 In addition, participants age 50 and older, who

are already contributing the maximum amount of contributions for which they are eligible, may make

supplemental tax-deferred catch-up contributions (up to $5,500 in 2009 and 2010) from their basic pay.

FERS participants are entitled to receive agency matching contributions on the first 5 percent of basic

pay that they contribute each pay period, according to a formula prescribed by FERSA (5 United States

Code (U.S.C.) § 8432(c)). For FERS employees, their employing agencies also contribute an agency

automatic contribution equal to 1 percent of each employee's basic pay each pay period, as prescribed

1Members ofthe uniformed services who are serving in a combat zone earn tax-exempt pay. Tax-exempt

pay does not count towards this elective deferral limit.

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by FERSA (5 U.S.C. § 8432 (cj), Uniformed services members may also contribute up to 100% of

designated special pay, incentive pay, and bonuses. The Federal Government or uniformed services does

not match amounts contributed by CSRS employees or uniformed services members.j- One provision

ofthe 2009 Thrift Savings Plan Enhancement Act (p.L. 111-31) requires civilian Federal Agencies to

automatically enroll newly hired (and rehired) eligible employees unless the employee makes an

affirmative election not to participate in the Fund or to participate at other than the default rate ofthree

percent. This provision was implemented in August 2010.

Participants may also transfer funds from traditional individual retirement accounts (IRAs) or other

eligible employer plans into the Plan.

Investments-Pursuant to FERSA (5 U.S.C. § 8438), Plan participants are offered five investment

funds: the Government Securities Investment Fund (G Fund), the Fixed Income Index Investment Fund

(F Fund), the Common Stock Index Investment Fund (C Fund), the Small Capitalization Stock Index

Investment Fund (S Fund), and the International Stock Index Investment Fund (I Fund).

The Agency contracted with Barclays Global Investors (Barclays) for investment in the collective

investment trusts in which the F, C, S, and 1Fund assets are invested. On December 1,2009, BlackRock

Inc. acquired Barclays Global Investors and the contracting party was renamed BlackRock Trust

Company, N.A. (BiackRock). The acquisition has not changed the provisions of the investment

management contract.

In 2005, the Agency initiated the TSP L (Lifecycle) Funds. These are asset allocation portfolios

designed for the TSP by Mercer Investment Consulting, Inc. (Mercer) with investment mixes, based on

the Plan's existing investment funds, tailored to a target time horizon when the participant intends to

withdraw the funds. As described in the TSP L Funds Information Sheet on the TSP website

(www.tsp.gov), the L2020 Fund, the L2030 Fund and the L2040 Fund are designed for participants who

will withdraw their accounts five years before or after the year in the title ofthe account. The L2010

Fund was retired on December 31, 2010 and the L201 0 investments were rolled into the L Income Fund.

The L Income Fund was designed to produce current income for the participants who are already

receiving money from their accounts through monthly payments. The L 2050 Fund was established on

January 31,2011. The asset allocations are based on Mercer's economic assumptions regarding future

investment returns, inflation, economic growth, and interest rates. These asset allocations are adjusted

quarterly, moving to a more conservative mix over time. Between quarterly adjustments, the asset

allocations of each fund are maintained through daily rebalancing to that fund's target allocation. The

Agency, with the help ofMercer, reviews the assumptions underlying the asset allocations at least

annually.

Participants may allocate any portion oftheir contributions among the five investment funds and the

TSP Lifecycle Funds. Also, participants may reallocate their account balance among the five investment

funds and the TSP Lifecycle Funds through the interfund transfer process. The Agency restricts the

number ofinterfund transfers a participant can make per month in order to curb frequent trading and its

associated costs to all TSP participants. The first two (2) interfund transfers per calendar month are

2 The Army ran a small test matching program for soldiers who agreed to enlist for five years or more. This

program is no longer open to new soldiers. However, soldiers who took part in the test program and who are

still serving their initial term of enlistment continue to receive matching contributions.

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.I

unrestricted. After that, participants may move money only from the F, C, S, and I Funds and the TSP

Lifecycle Funds to the G Fund.

Vesting-Plan participants are immediately vested in all oftheir own contributions and attributable

earnings. Participants are also immediately vested in any agency matching contributions made to their

accounts and attributable earnings. In order to be vested in the agency automatic (l%) contributions, a

FERS employee must have either 2 or 3 years ofservice as described in section 8432(g) of FERSA.

FERS employees who are not vested and who separate from the Federal Government forfeit all agency

automatic contributions and attributable earnings.

Forfeitures-Forfeited funds, consisting primarily ofstatutory forfeitures (pursuant to 5 U.S.C.

§8432(g» and agency contributions forfeited due to retirement coverage corrections made under the

Federal Erroneous Retirement Coverage Correction Act (FERCCA), totaled $44,554,712 in 2010, and

$36,564,627 in 2009. Under FERCCA, when a participant's retirement coverage is corrected from

FERS to CSRS, any excess agency contributions are forfeited to the Plan. All forfeitures are used by

the Plan daily to offset accrued administrative expenses. Ifthe forfeited funds (along with participant

loan fees) are not sufficient to meet all administrative expenses, earnings on investments are then

charged.

ParticipantAccounts-Individual accounts are maintained for each Plan participant. Each participant's

account is credited with the participant's contributions, agency automatic and matching contributions,

and loan repayments and charged with loans and withdrawals. The value ofthe participant's account

reflects the number ofshares and the daily share prices ofthe funds in which the participant is invested.

Administrative expenses are a component ofthe share price calculation. The benefit to which a

participant is entitled is the amount ofthe participant's vested account.

ParticipantLoans-Participants may apply for loans from their accounts. There are two types of Plan

loans: general purpose and residential. General purpose loans can be obtained for any purpose, with a

repayment period from 1 to 5 years. Residential loans can be obtained for the purpose of purchasing a

primary residence, with a repayment period from 1 to 15 years. Participant loans may only be taken

from participant contributions and attributable earnings. The minimum loan amount is $1,000 and the

maximum loan amount is $50,000. A $50 fee is deducted from the proceeds ofthe loan. In 2010, loan

fees of $14,029,600 were used to offset administrative expenses. In 2009, loan fees of $13,014,850

were used to offset administrative expenses.

The interest rate for loans is the G Fund rate at the time the loan agreement is issued. The rate is fixed at

this level for the life of each loan. Participant loans are valued at their unpaid balances. Interest earned

on loans is allocated to the participant account as loan payments are made to the account.

By IRS regulation, the Agency must identify each calendar quarter any participant loan that is in default.

The participant then has until the end ofthe following calendar quarter to pay the overdue amount. If

not paid, a taxable distribution ofthe unpaid loan balance, plus accrued interest, will be declared.

Participants should refer to the booklet, TSP Loans, for more information.

Payment ofBenefits-After leaving service, participants may elect benefit withdrawals in the form of a

partial withdrawal or they may choose a full withdrawal as a single payment, a series ofmonthly

payments, or a life annuity. Participants may choose to combine any two, or all three, ofthe available

full withdrawal options. Participants should refer to the booklet, Withdrawing Your TSP Account After

Leaving Federal Service, for more complete information.

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Participants should refer to the booklet, TSP In-Service Withdrawals, for information on withdrawal

options while employed in Federal service.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis ofAccounting-«The accompanying financial statements have been prepared in accordance with

accounting principles generally accepted in the United States of America. Revenue is recognized when

earned and expenses are recognized when incurred. Benefits and participant loans payable for the last

three trade dates of each month are recorded when withdrawn from participants' accounts.

Investments-All investments are stated at fair value, based upon the quoted market values ofthe

underlying securities at the end of each period. The Agency invests in (or redeems from) the Thrift

Savings Fund investment funds each business day. Purchases and sales of securities are recorded on a

trade-date basis.

The Plan offers its participants various investment funds that are exposed to different types and amounts

ofrisk, including interest rate, credit, and market risk. The funds (except for the G Fund, which is

invested in a way to avoid losses) can be expected to experience greater or lesser volatility over time,

depending upon each fund's individual risk profile, thus affecting the fund balances from one period to

the next.

During the years ended December 31, 2010, and December 31,2009, the Plan's investment funds

consisted ofthe following (objectives ofthe investment funds are described in the various TSP Fund

Information Sheets, available on www.tsp.gov):

The G Fund was invested in short-term nonmarketable U.S. Treasury securities specially issued to the

Thrift Savings Plan. All investments in the G Fund earned interest at a rate that is equal, by law, to the

average ofmarket rates ofreturn on outstanding U.S. Treasury marketable securities with 4 or more

years to maturity.

The F Fund was invested primarily in the U.S. Debt Index Fund "E", which in turn holds shares ofthe

U.S. Debt Index Master Fund. Both the U.S. Debt Index Fund "E" and the Master Fund are passively

managed commingled funds that track the Barclays Capital U.S. Aggregate Bond Index.

As of December 31,2010, the U.S. Debt Index Master Fund contained approximately 35 percent

mortgage-backed securities (31 percent securities issued by the Government National Mortgage

Association, Fannie Mae, and Freddie Mac; 3 percent commercial mortgage-backed securities and 1

percent hybrid ARMs), 23 percent investment-grade corporate securities (U.S. and sovereign),

33 percent Treasury securities, 8 percent Agency securities, and 1 percent asset-backed securities and

taxable municipals.

As of December 31, 2010, the U.S. Debt Index Master Fund held 5,469 securities totaling $36.1 billion,

with a weighted-average life of 6.3 years. The value ofthe U.S. Debt Index Fund "E" as of December

31, 2010, was $29.8 billion, which consisted primarily ofMaster Fund shares totaling $29.8 billion. The

F Fund holdings constituted $19.1 billion ofthe December 31, 2010 value ofthe Debt Index "E" Fund.

As ofDecember 31, 2009, the F Fund holdings constituted $16.3 billion ofthe value ofthe Debt Index

"E" Fund.

The C Fund was invested primarily in the Equity Index Fund "EX", which in turn holds shares ofthe

Equity Index Master funds. The Equity Index Fund "E", the Equity Index Fund "EX", and the Master

Fund are passively managed commingled funds that track the S&P 500 Index. As of December 31,

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2009, the C Fund was invested primarily in the Equity Index "E" Fund and Equity Index Fund "EX",

which in turn held shares ofthe Equity Index Master funds.

The Equity Index Master funds hold stocks of all the companies represented in the S&P 500 Index in

virtually the same weights as they are represented in the S&P 500 Index. As ofDecember 31, 2010, the

Equity Index Master Funds held $90 .8 billion ofsecurities. The value ofthe Equity Index Fund "EX" as

ofDecember 31,2010, was $83.2 billion, which consisted primarily ofthe Master Funds shares totaling

$83.2 billion. The C Fund holdings constituted $77.1 billion ofthe December 31, 2010 value ofthe

Equity Index "EX" Fund. As ofDecember 31,2009, the C Fund holdings constituted $64.7 billion of

the value ofthe Equity Index Fund "E" and Equity Index Fund "EX".

The S Fund was invested primarily in the Extended Equity Market Index Fund "E," which in turn holds

shares ofthe Extended Equity Market Master Fund. Both the Extended Market Index Fund "E" and the

Master Fund are passively managed commingled funds that track the Dow Jones U.S. Completion Total

Stock Market Index by holding most ofthe stocks with larger capitalizations in virtually the same

weights as they are represented in the index and by holding a representative sample ofthe remaining

stocks in the index.

As of December 31,2010, the Extended Equity Market Index Master Fund held $35.3 billion of

securities. The value ofthe Extended Equity Market Index Fund "E" as of December 31, 2010, was

$32.7 billion, which consisted primarily ofthe Master Fund shares totaling $32.7 billion. The S Fund

holdings constituted $27.2 billion ofthe December 31,2010 value ofthe Extended Equity Market Index

"E" Fund. As of December 31, 2009, the S Fund holdings constituted $17.8 billion ofthe value ofthe

Extended Equity Market Index "E" Fund.

The I Fund was invested primarily in the EAFE Equity Index Fund "E", which in turn holds shares of

the EAFE Index Master Fund, plus a liquidity reserve that is invested in futures contracts. Both the

EAFE Equity Index Fund "E" and the Master Fund are passively managed commingled funds that track

the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index. The EAFE Equity

Index Master Fund holds stocks of all the companies represented in the EAFE Index in virtually the

same weights as they are represented in the index.

As of December 31, 2010, the EAFE Equity Index Master Fund held $68.0 billion ofsecurities. The

value ofthe EAFE Equity Index Fund "E" as of December 31, 2010, was $24.4 billion, which included

shares ofthe Master Fund totaling $23.6 billion, plus liquidity reserves. The I Fund holdings constituted

$24.3 billion ofthe December 31,2010 value ofthe EAFE Equity Index "E" Fund. As of December 31,

2009, the I Fund holdings constituted $22.8 billion ofthe value ofthe EAFE Index "E" Fund.

Change in Accounting Principles-In September 2010, the Financial Accounting Standards Board

(FASB) released Accounting Standards Update (ASU) 2010-25, Reporting Loans to Participants by

Defined Contribution Pension Plans. The ASU clarifies how loans to participants should be classified

and measured by defined contribution pension benefit plans. Participant loans were previously classified

as investments at fair value in accordance with ASC 962-325. ASU 2010-25 requires that participant

loans be classified as notes receivable from participants, which are segregated from plan investments

and measured at their unpaid principal balance plus any accrued but unpaid interest. The Plan adopted

the ASU for the Plan year ending December 31,2010. The impact ofthe adoption of ASU 2010-25 was

a reclassification of participant loans from investments to notes receivables from participants on the

statement of net assets available for benefits and removing these receivables from the fair market

valuations disclosure. These changes were made for all years presented.

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Fair Market Valuations- The Plan follows the Financial Accounting Standard Board's (FASB)

Codification 820-10, which provides a comprehensive framework for measuring fair value and expands

disclosures which are required about fair value measurements. Specifically, FASB Codification 820-10

sets forth a definition offair value and establishes a hierarchy prioritizing the inputs to valuation

techniques, giving the highest priority to quoted prices in active markets for identical assets and

liabilities and the lowest priority to unobservable value inputs.

Under FASB Codification 820-10, the fair value hierarchy prioritizes inputs to valuation techniques used

to measure fair value into three broad levels: Level I, Level II, and Level m. Inputs may be based on

independent market data ("observable inputs") or they may be internally developed ("unobservable

inputs"). The hierarchy gives the highest priority to quoted prices in active markets for identical assets

(Level 1) and the lowest priority to unobservable inputs (Level III). BlackRock has worked with pricing

vendors to confirm its understanding oftheir pricing methodologies and has consulted with BlackRock's

independent auditors, PricewaterhouseCoopers LLP, to perform necessary analysis to support

BlackRock's approach to comply with Codification 820-10.

Pursuant to BlackRock's global pricing policy, to the extent possible, securities and other assets held by

Funds are valued using independent market quotations. An "independent market quotation" for a

security or other asset is defmed as a quoted price in an active market for an identical security or asset (a

"Level I Price").

As a general principle, the current "fair market value" of a security or other asset is the amount that a

Fund might reasonably expect to: (i) receive upon the sale ofthe security or asset; or (ii) pay to transfer

the liability associated with the security or asset in an orderly transaction between market participants on

the date on which the security or asset is being valued. In the event that a Level I Price is not readily

available for a given type ofsecurity or asset, the fair value ofthe security or other asset is determined

by using pricing inputs that are either directly or indirectly observable on the valuation date for the

security or asset, which may include the use ofmodels or other valuation methodologies (a "Level II

Price").

Level I Prices and Level II Prices are provided by broker dealers or by pricing providers, services, and

vendors (together, "pricing sources") approved by the BlackRock Global Pricing Committee or its

delegates. The pricing sources approved by the BlackRock Global Pricing Committee vary according to

security or asset type and include, but are not limited to, Reuters, Bloomberg, IDC, and Mark-it Partners.

The net asset value of a Fund is calculated based on the compilation of primarily observable market

information. The number of units ofthe Fund that are outstanding on the calculation date is derived

from observable purchase and redemption activity in the Fund. Accordingly, pursuant to Codification

820-10, the unit values for all BlackRock Funds are classified as Level II Prices.

The table at Appendix I sets forth by level, within the fair value hierarchy, the Plan's assets at fair value

for the years ended December 31, 20 10 and December 31, 2009.

The F Fund, C Fund, S Fund, and I Fund include temporary investments in the same securities held by

the G Fund pending purchase ofshares in their respective index funds and to cover liquidity needs, such

as loans and withdrawals from the Thrift Savings Fund.

Certain BlackRock funds in which the C, S, and I Funds are invested may invest in futures contracts and

other derivatives to the extent contemplated by the fund guidelines. As part ofthe investment strategies,

derivative instruments may be used to provide liquidity for daily investments or to manage currency,

interest, and other exposures.

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The F, C, S, and I Funds also participate in securities lending activities, under agreements between

BlackRock and third parties to lend debt and equity securities in exchange for collateral. The collateral

received, which is required to equal 102% ofthe value ofthe securities lent (for domestic equities) and

105% ofthe value ofsecurities lent (for international equities), as marked to market each day, may be

invested in cash collateral funds managed by BlackRock, which in turn invest in money market

securities and instruments. The cash collateral funds may also invest in certain derivative fmancial

instruments, including swaps and futures. The major source ofrisk in any securities lending program is

that the securities and instruments in which the cash collateral received (against security loans) is

invested may decline in value. BlackRock's responsibilities include performing appropriate borrower

and collateral investment credit analysis, demanding adequate types and levels of collateral and

complying with applicable Department ofLabor and Federal Financial Institutions Examiner Council

regulations regarding securities lending. As ofthe years ended December 31, 2010, and December 31,

2009, the TSP's maximum exposure to credit risk from the derivatives, should the counterparties fail to

perform and the collateral received prove to be ofno value, was approximately $0.0 million and

$0.2 million, respectively.

The tables at Appendix 2 show how the participants' account balances in the various investment options

are allocated among the core TSP funds as of and for the years ended December 31, 2010, and

December 31,2009, respectively.

Fixed Assets-All fixed assets were recorded at cost and are depreciated on a straight-line basis over

their estimated useful lives, which range as follows:

Furniture and Equipment

Leasehold Improvements

Data Processing Software

3 to 10 years

10 years

3 to 10 years

Depreciation expense was approximately $13 million and $10 million for the years ended December 31,

2010, and December 31, 2009, respectively.

Earnings Allocation-Net earnings are used to calculate the daily share price of each investment fund

as defined in regulations issued by the Agency (5 Code of Federal Regulations (CFR) Part 1645).

Contributions Receivable-Contributions receivable are estimated as the amount of contributions

recorded through the first 2 weeks ofthe month following the date ofthe fmancial statements and

represent both participant and employer portions of contributions.

Estimates-The preparation offmancial statements in conformity with accounting principles generally

accepted in the United States of America requires management to make estimates and assumptions that

affect the reported amounts of net assets available for benefits and changes therein. Actual results could

differ from those estimates.

Thrift Savings Plan Enhancement Act of2009-0n June 22, 2009, the Thrift Savings Plan

Enhancement Act (the Act or P.L. 111-31) was signed into law by President Obama. The Act provides

for immediate agency automatic (1%) and matching contributions for FERS employees (implemented in

August 2009). The Act also requires civilian Federal agencies to automatically enroll newly hired (and

rehired) eligible employees unless the employee makes an affmnative election not to participate in the

Fund (implemented in August 2010) or elect a deferral rate other than the deferral rate of 3 percent. The

Act also gives the Federal Retirement Thrift Investment Board the authority to establish a qualified Roth

contribution program and the authority to establish a mutual fund window. The Act also allows the

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Agency to establish accounts for the surviving spouses ofTSP participants (implemented December,

2010).

3. INCOME TAX STATUS

FERSA (5 U.S.C. § 8440(a)(1» states that the Thrift Savings Fund shall be treated as a trust described in

section 401(a) ofthe Internal Revenue Code (I.R.C. or Code), which is exempt from taxation under

section 501(a) ofthe Code. This status was reaffirmed in the Tax Reform Act of 1986, Section 1147

(codified at I.R.C. § 7701(j». It is not necessary for the Plan to apply for a tax status determination

letter as it is qualified by statute.

4. COMMITMENTS AND CONTINGENCIES

The Agency has entered into a contract with Serco Systems, Inc. (Serco) to perform TSP software

maintenance and development, systems operations and recordkeeping support. The annual cost ofthis

service is approximately $55 million for CY 2010. The Agency contracts with Serco to provide a call

center in Virginia and with The Active Network, Inc. to provide a call center in Maryland. The term of

each ofthe call center contracts is one year, with four one-year options renewable at the Agency's

discretion. The Active Network contract value for CY 2010 is approximately $6 million. The Serco call

center contract value for CY 2010 is approximately $5 million.

The Agency leases the office space it occupies in Washington, DC, the call center space in Virginia, and

the Agency's business continuity space in northern Virginia, under operating leases. The current

Washington, DC operating lease ends in 2012, with an option to extend for two five-year periods.

However, the Agency has entered a new lease for new office space in Washington, DC. Monthly base

rental payments under the current lease range from approximately $121,000 to $127,000. Monthly base

rental payments under the new lease range from approximately $226,000 to $331,000. The lease

commencement date is October 1, 2011 with an end-date of September 30, 2026. The terms ofthe lease

provide for a fifteen month free-rent allowance that is not reflected in the future minimum lease

commitments shown below. The call center operating lease ends in August 2015, with an option to

extend for a five-year period. Monthly base rental payments are $12,548. The business continuity space

is an annual obligation and monthly rental payments are $9,169.

Future minimum lease commitments (through CY 2026) under the operating leases are:

CY 2011 $ 2,318,145

CY 2012 4,401,369

CY 2013 2,951,311

CY 2014 3,021,383

CY 2015 2,942,345

Thereafter 34,649,103

Total $ 50,283,656

Rent expense is recorded on a straight-line basis over the lease terms. Rent expense under the leases

was approximately $2.4 million and $2.5 million for the years ended December 31,2010, and

December 31, 2009, respectively.

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5. FIDUCIARY INSURANCE

FERSA (5 U.S.C. § 8479(b)(1)) provides that the Executive Director may assess Federal agencies for

the purpose of buying fiduciary insurance. The Agency's Executive Director exercised this authority in

1987 and required agencies to submit an amount equal to 1 percent oftheir agency automatic

contributions. Such sums were collected during 1987 and 1988 and are invested to the extent not

currently required to purchase fiduciary insurance. In February 1988, the Executive Director instructed

agencies to discontinue the 1 percent fiduciary insurance contributions. The balance offunds available

for the purchase offiduciary insurance for the years ended December 31,2010, and December 31, 2009,

was $4,335,000 and $4,455,000, respectively. These funds are invested in the same securities held by

the G Fund and are included in total investments on the accompanying statements of net assets available

for benefits, with a corresponding reduction in the net assets available for benefits. Such amounts

cannot be, by statute, allocated to participants' accounts. The Agency has determined that the current

insurance reserve is adequate to fund coverage needs for the foreseeable future .

6. SUBSEQUENT EVENTS

Agency management evaluated subsequent events through April 4, 2011, the date the financial

statements were available to be issued. Events or transactions occurring after December 31, 2010, but

prior to April 4, 2011 that provided additional evidence about conditions that existed at December 31,

2010, have been recognized in the financial statements for the year ending December 31,2010. Events

or transactions that provided evidence about conditions that did not exist at December 31, 2010, but

arose before the financial statements were available to be issued, have not been recognized in the

financial statements for the year ended December 31, 2010.

******

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Appendix 1

Fair Value Measurements as of December 31, 2010

(in thousands)

Quoted Prices

in Active Significant

Markets for Other Significant

Identical Observable Unobservable

Assets Inputs Inputs

Description (Levell) (Level 2) (Level 3) Total

U.S. Government

Securities Investment

Fund $124,749,528 $ $ $124,749,528

US Debt Index Fund 19,137,669 19,137,669

Equity Index Fund 77,058,403 77,058,403

Extended Equity Market

Index Fund 27,157,622 27,157,622

EAFE Equity Index Fund 24,322,580 24,322,580

Total assets at fair value $124,749,528 $147,676,274 s $272,425,802

Fair Value Measurements as of December 31, 2009

(in thousands)

Quoted Prices

in Active Significant

Markets for Other Significant

Identical Observable Unobservable

Assets Inputs Inputs

Description (Levell) (Level 2) (Level 3) Total

U.S. Government

Securities Investment

Fund $114,853,495 $ $ $114,853,495

US Debt Index Fund 16,255,885 16,255,885

Equity Index Fund 64,673,967 64,673,967

Extended Equity Market

Index Fund 17,771,367 17,771,367

EAFE Equity Index Fund 22,808,032 22,808,032

Total assets at fair value $114,853,495 $121,509,251 s $236,362,746

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Appendix 2

Investment Summary by Fund as of December 31,2010

(in thousands)

Investment GFund FFund CFund S Fund I Fund

Options Investment Investment Investment Investment Investment Total

GFund $ 113,285,286 $ 113,285,286

FFund $ 16,453,086 16,453,086

C Fund $ 66,687,253 66,687,253

S Fund $ 23,386,899 23,386,899

I Fund $ 18,551,577 18,551,577

L Income 3,998,366 324,537 648,328 161,843 270,617 5,403,691

L 2010 (RETIRED)

L2020 4,568,881 968,586 3,912,197 1,271,563 2,192,627 12,913,854

L2030 1,923,398 751 ,685 3,170,955 1,222,145 1,771,837 8,840,020

L2040 715,279 631 ,679 2,649,218 1,120,283 1,528,848 6,645,307

Differences (*) 258,318 8,096 (9,548) (5,111) 7,074 258,829

Statement ofNet

Assets $ 124,749,528 $ 19,137,669 $ 77,058,403 $ 27,157,622 $ 24,322,580 $ 272,425,802

(*J Differences area result of timing differences, includingInvestment transactions notsettled as of December 31,2010. These

differences maynotbeallocated down totheL Funds untilthe following business day.

Investment Summary by Fundas of December 31,2009

(in thousands)

Investment GFund F Fund CFund SFund I Fund

Options Investment Investment Investment Investment Investment Total

GFund $ 105,803,031 $ 105,803,031

F Fund $ 14,223,118 14,223,118

CFund $ 56,960,615 56,960,615

S Fund $ 14,950,386 14,950,386

I Fund $ 18,507,232 18,507,232

L Income 892,970 72,270 143,345 35,824 60,284 1,204,693

L2010 3,112,539 275,512 633,092 166,548 291 ,481 4,479,172

L2020 3,154,128 706,039 2,865,429 951 ,135 1,613,011 9,289,742

L2030 1,292,656 535,582 2,247,150 884,949 1,259,060 6,219,397

L2040 443,554 438,613 1,829,819 778,439 1,067,836 4,558,261

Differences (*) 154,617 4,751 (5,483) 4,086 9,128 167,099

Statement of Net

Assets $ 114,853,495 $ 16,255,885 $ 64,673,967 $ 17,771,367 $ 22,808,032 $ 236,362,746

(*J Differences arearesult oftiming differences, including investment transactions notsettled asof December 31, 2009. These

differences maynotbeallocated down to theL Funds until the following business day.

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