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TSP Investment Options and Fund Performance

These are the available investment funds for TSP accounts:
• G Fund—investments in short-term, non-marketable U.S. Treasury securities.
• C Fund—large-capitalization U.S. stocks.
• F Fund—a bond index fund consisting of a mix of government and corporate bonds. • S Fund—small and mid-capitalization U.S. stocks.
• I Fund—mostly large-capitalization foreign stocks.
• L Funds—mixes of investments in the other funds.
The L Funds invest in the G, C, F, S and I Funds, with the money allocated among those five funds according to a formula based on the investor’s expected withdrawal date. Investments are adjusted each business day to maintain the desired allocations. There is an L Income fund for those currently making withdrawals or who expect to begin withdrawals relatively soon, and target withdrawal date funds for 2025, 2030, 2035, 2040, 2045, 2050, 2055, 2060 and 2065 designed for those who expect to begin withdrawals in those years or the two years before or after.

All employees may elect to invest any portion of their current account balances or future investments in any or all of the funds. Separated participants who keep their accounts open similarly may reallocate their existing balances, although they cannot make new investments.

The G Fund and L Funds are managed by the Thrift Investment Board’s staff. The S, I, C and F Funds are managed under contracts with several investment firms.

The G Fund was launched in 1987, the C and F Funds in 1988, the S and I Funds in 2001 and the original L Funds in 2005. At the end of 2010, assets in a former L 2010 Fund were merged into the Income Fund, the 2010 Fund was discontinued, and the 2050 Fund was launched as of January 31, 2011. Effective June 30, 2020, that year’s fund similarly was merged with the Income Fund and the TSP created funds in addition to the others avail- able at that time (the 2030, 2040 and 2050 funds).

Note: Public Law 111-31 authorized the TSP to create a “window” through which par- ticipants could invest in funds of a mutual fund company under contract with the TSP. The TSP has committed to using that authority, although it is not projected to be available until late 2022. Full details remained to be determined, including investment minimums and maximums and additional fees to be charged to those who make outside investments.

How Returns Are Calculated

G Fund—By definition, the G Fund never can have a losing month. All investments in the fund earn interest at a rate equal to the average of market yields on Treasury marketable securities with four or more years to maturity, with a weighted average maturity of approximately 12 years.

G Fund returns are reduced by administrative expenses, in recent years about $0.40 for every $1,000 on investment.

C, S, I and F Funds—The C, S, I and F Funds can post gains or losses. The capital gain or loss consists of these elements:

• the change in the price of the stocks in the equity index funds (C, S and I Funds) or the notes in the U.S. Debt Index Fund (F Fund);
• dividend (C, S and I Funds) or interest (F Fund) income credited to the funds;
• interest while investments are being processed;
• income from lending securities (C, S and I Funds) or notes and bonds (F Fund) on a short-term basis;
• administrative expenses, in recent years about $0.40 for every $1,000 on investment; and • trading costs.

In addition, the I Fund fluctuates relative to the U.S. dollar’s value against the currencies of the countries in whose stock markets that fund has investments.

L Funds—The returns of the L Funds reflect the returns of the underlying G, F, C, S, and I

Funds, calculated in proportion to their allocations in each L Fund. The L Funds do not have administrative charges beyond the charges paid by their underlying funds.

Government Securities Investment (G) Fund

The G Fund consists of investments in short-term, non-marketable U.S. Treasury securities specially issued to the TSP by the Treasury. The Treasury holds the assets of the G Fund in trust. Maturities range from one day on business days to four days over holiday weekends. However, because the rate is calculated to equal the average market yield on out-standing marketable Treasury securities with four or more years to maturity, the securities earn a longer-term, higher rate.

The G Fund rate is set monthly by the Treasury; all G Fund investments earn interest at that rate for the month. Since the G Fund is invested in short-term securities regardless of the rate, the value of securities does not fluctuate. Thus, there are no capital gains or losses in the G Fund. The G Fund rate is calculated by the Treasury using the closing market bid prices of approximately 140 Treasury securities on the last day of the previous month. These prices are used to calculate the yield on each security. The yield of each security has a weight in the G Fund rate calculation based on the market value of each security. The larger the dollar amount for a security, the larger the weight in the calculation.

Common Stock Index Investment (C) Fund

The C Fund is invested in the BlackRock Equity Index Fund and tracks the S&P 500 index, which provides a representative measure of stock market performance of 500 large companies traded in U.S. stock markets, primarily on the New York Stock Exchange. Industries are grouped into major sectors, with information technology, health care, financial companies, communications services, consumer discretionary, industrials, consumer staples and energy the largest. The stocks in the S&P 500 make up about four-fifths of the market value of the U.S. stock markets.

The companies in the index are selected by S&P primarily based on their representation in their industry groupings, not because they are expected to have superior stock price performance relative to the stock market in general or to any other companies in particular. Instead, the measure is designed to be a representative gauge of U.S. large company stock performance. The makeup of the index varies from time to time.

The weighting of stocks in the S&P 500 index is based on each stock’s total market value—its market stock price per share times the number of shares freely traded—relative to the market value of the other stocks in the index. The result is that the companies with high market value have a disproportionate effect on the direction of the index.

Fixed Income Investment (F) Fund

The F Fund is managed by the BlackRock Institutional Trust Company and tracks the Bloomberg Barclays U.S. Aggregate Bond Index, a measure of major U.S. bond markets. The government sector represents 41 percent of the total, primarily Treasury issues, but also including some agency-issued obligations. Asset-backed securities constitute another 29 percent. The “credit” sector represents the remainder of the index and contains publicly issued fixed rate investment grade securities.

Small Capitalization Stock Index Investment (S) Fund

The S Fund tracks the Dow Jones U.S. Completion Total Stock Market Index, commonly called the Wilshire 4500. The index represents about a fifth of the market value of the U.S. stock market, consisting of medium and small companies whose stocks are not in the S&P 500, which the C Fund tracks. The index actually reflects about 3,300 common stocks and real estate investment trusts.

The S Fund is invested in the BlackRock Extended Market Index Fund. The fund holds the stocks of most of the companies in the index with market values greater than $1 billion. A mathematical sampling technique is used to select among the smaller stocks.

The largest market sectors are information technology, financials, industrials, health care, consumer discretionary and real estate. Communications services, materials and energy make up most of the rest.

International Stock Index Investment (I) Fund

The I Fund is invested in the BlackRock EAFE Index Fund, which consists of the stocks of companies in 21 foreign countries. The primary source of earnings is the net changes in the prices of stocks, although at times foreign currency exchange rates relative to the U.S. dollar can be a more significant component of the results than stock price gains or losses. Dividend income is another source of earnings.

The EAFE Index Fund holds common stocks of companies represented in the Morgan Stanley Capital International EAFE (Europe, Australasia and Far East) stock index, and uses a passive investment strategy of replicating the performance of the index.

Each country’s weighting in the EAFE index is based on the total market value of its stock market relative to the market value of the stock markets of the other countries in the index. In turn, the weightings of the stocks in the EAFE index are based on each stock’s total market value relative to the market value of the other stocks of that country which are included in the index. Like the S&P 500, the EAFE index is a big company index. Stocks of the Japan make up about 25 percent and those of the United Kingdom about 17 percent, with stocks of France, Germany and Switzerland about 12, 9 and 9 percent, respectively.

The L Funds

The “Lifecycle” (L) Funds reflect a form of investing for retirement in which the investor chooses an expected withdrawal date, and the amount designated is divided among the other TSP funds according to ratios reflecting predetermined risk/reward profiles for the time frames. The TSP offers an Income Fund designed for those already making post-separation withdrawals from the TSP or who expect to begin making withdrawals soon, and funds in five-year increments from 2025 through 2065 for those expecting to begin withdrawals in those years or the two years before or after. In the target date funds, the farther out the expected withdrawal date, the more aggressive the investment mix. Investments in the funds are automatically reallocated each business day to take into account the actual returns of the underlying funds, in order to maintain the desired ratios.

The most conservative, the Income Fund, traditionally maintained a constant 20 percent in the three stock-based funds collectively, 74 percent in the G Fund and 6 percent in the F Fund. However, the TSP in 2018 decided to have all the L Funds weighted more heavily toward stocks. For the Income Fund, that meant increasing the percentage of in the stock funds (C, S and I) collectively by 1 percentage point per year for 10 years, phased in by calendar quarter; as of January 2021, for example, the total stock allocation in the Income Fund was 22.5 percent.

Also traditionally, the target-date L Funds became more conservative over time through minor changes each calendar quarter in their investment allocations away from the stock funds and toward the G and F Funds. However, the TSP’s 2018 decision froze the portion of each fund invested in the stock funds collectively at the level of the last calendar quarter of that year.

The collective stock vs. non-stock investment mixes in each target date fund are to remain unchanged until they equal what they would have been if a more stock-oriented profile been in effect since their inception. That was projected to be in 2024, 2028 and 2032 for the 2030, 2040 and 2050 funds, respectively. Afterward, the funds will become more conservative over time as they had before. In the meantime the TSP is making minor adjustments in the ratios of each of the stock funds within the collective stock portion of an L Fund’s portfolio, as well as in the ratios of the G and F funds in the non-stock portion.

Note: When the 2025, 2035 and 2045 funds began in July 2022, their initial allocations reflected a mid-way point between their two surrounding funds—Income and 2030; 2030 and 2040; and 2040 and 2050, respectively. The 2055, 2060 and 2065 funds launched at the same time all had 99 percent of their allocations in the three stock funds collectively.

The fund profiles are at www.tsp.gov/funds-lifecycle.

Returns of L Funds are determined by the returns of the funds in which assets in them are invested, on a prorated basis according to each underlying fund’s percentage within each L Fund. There are no additional administrative fees associated with L Fund investing; only the costs associated with the underlying funds are deducted, on a similar prorated basis. L Fund investments are expressed in shares and share prices as are other TSP funds.

Investors may invest in more than one L Fund and may move money among those funds in the same way as with other TSP funds.

Investment Performance Information

The Thrift Investment Board provides several sources of information about the investment performance of the TSP funds:

• Monthly and annual rates of return are at www.tsp.gov/fund-performance.

• Current and historical daily share prices are at www.tsp.gov/fund-performance/share-price-history.

• The TSP issues participant statements quarterly, for the periods ending each March 31, June 30, September 30 and December 31, as well as an annual statement early in the calendar year.

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