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Your
Investment Options: |
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What are the advantages
of investing in the TSP stock funds?
The C, S, and I Funds give TSP participants the opportunity to diversify their investments among a broad range of stocks. In addition, because the C, S, and I Funds are invested in broad-based index funds, they provide the opportunity to earn the relatively high investment returns that are sometimes available from stocks, while at the same time lessening the effect of poor investment performance by an individual company or industry. Furthermore, the TSP funds have relatively low investment management fees and transaction costs.
What are the risks of
investing in the TSP stock funds?
The value of stocks can decline sharply with unfavorable changes in economic conditions. Depending on the size of the decline, the total return on the stocks held by a stock fund could be negative, resulting in a loss to the fund holder. This is true whether the stocks held by a stock fund are tracking an index, or otherwise.
There is no assurance that future rates of return for the TSP stock funds will replicate any of the historical rates of return for those funds. If you choose to contribute to any of the TSP stock funds — the C, S, or I Fund — you must formally acknowledge that you understand and accept the risks involved.
The C Fund is the TSP's large-company domestic stock fund. It is invested in the Barclays Equity Index Fund, a commingled stock index fund that tracks the Standard & Poor's 500 (S&P 500) stock index. A commingled fund is a fund in which the assets of many plans are combined and invested together.
The Barclays Equity Index Fund holds stocks of all the companies represented in the S&P 500 index. A small portion of the Equity Index Fund assets is invested in S&P 500 index futures contracts to provide liquidity.
Thus, the Equity Index Fund uses a "passive" investment strategy of replicating the performance of the S&P 500 index, rather than an "active" investment strategy, which bases the selection of stocks on economic, financial, and market analyses. The performance of the Equity Index Fund is evaluated by comparing how closely its returns match the returns of the S&P 500 index. Standard & Poor's calculates and publishes total rates of return for the S&P 500 index monthly.
The securities lending program of the Equity Index Fund produces income that adds to the returns of the C Fund.
C Fund contributions are invested in the Equity Index Fund regardless of gains or losses in the stock market. The C Fund also includes temporary investments in G Fund securities.
The S&P 500 index, introduced in 1957, was designed by Standard & Poor's Corporation to provide a representative measure of stock market performance. The index includes stocks of 500 companies that are traded in the U.S. stock markets, primarily on the New York Stock Exchange. As of December 31, 2002, these stocks represented 105 separate industries grouped into ten major industry groups: industrials, utilities, financial, information technology, health care, consumer discretionary, consumer staples, energy, telecommunications services, and materials. The stocks in the S&P 500 index make up approximately 79 percent of the value of the U.S. stock markets.
The 500 companies in the index are selected by Standard & Poor's largely based on the companies' representation of their industry groupings. Standard & Poor's does not select companies on the basis of the expected performance of their stock price (although when adding companies to the index Standard & Poor's does attempt to select stocks that it considers relatively stable in order to minimize turnover in the index). Standard & Poor's sole objective is to maintain the S&P 500 index as a representative measure of U.S. stock market performance. Mergers and acquisitions are the most common reasons for changes to the S&P 500 index. If a company in the S&P 500 index is taken over or merged with another company, Standard & Poor's will remove the company from the index and add another firm in its place. Standard & Poor's also removes from the index companies that file for protection under Chapter 11 of the Federal bankruptcy laws because of financial failure.
The S&P 500 is considered a "big company" index, with the largest companies in the index representing the largest portion of the index. The weightings of stocks in the S&P 500 index are based on each stock's total market value (that is, its market price per share times the number of shares outstanding) relative to the market value of the other stocks in the index. As of December 31, 2002, the 100 largest companies in the S&P 500 index represented 70 percent of the S&P 500 index market value. The Barclays Equity Index Fund, in which the C Fund invests, holds the S&P 500 stocks in virtually the same weightings as they are represented in the S&P 500 index.
What are the advantages of
investing in the C Fund?
The general advantages of investing in the C Fund are outlined in "What are the advantages of investing in the TSP stock funds?". In particular, the C Fund gives participants the opportunity to diversify their investments and, indirectly, to own shares in a variety of large companies that are traded on the U.S. stock markets.
What are the risks of
investing in the C Fund?
The risks of investing in the C Fund are the same as for any stock index fund, as explained in "What are the risks of investing in the TSP stock funds?".
Only you can decide whether your TSP account should include a C Fund investment. For more detailed information about the C Fund, read the the Guide to TSP Investments.
The total return for the C Fund consists of the components described in "What do the earnings on the TSP investment funds consist of ?".
The 1993 – 2002 C Fund rates of return are presented in the table below. The table also shows the rates of return for the S&P 500 index for the last 10 years.
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| Year | C Fund* | S&P 500 Index** |
| 1993 | 10.13% | 10.08% |
| 1994 | 1.33% | 1.32% |
| 1995 | 37.41% | 37.58% |
| 1996 | 22.85% | 22.96% |
| 1997 | 33.17% | 33.36% |
| 1998 | 28.44% | 28.58% |
| 1999 | 20.95% | 21.04% |
| 2000 | – 9.14% | – 9.10% |
| 2001 | – 11.94% | – 11.89% |
| 2002 | – 22.05% | – 22.10% |
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1993-2002 compound annual rate of return |
9.29% |
9.34% |
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| * Returns are stated after deducting TSP administrative expenses and C Fund management fees and trading costs. | ||
| ** Calculated by Standard & Poor's. Returns are stated without deducting administrative and management expenses and trading costs. | ||
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The Small Capitalization Stock Index Investment (S) Fund is the TSP's medium and small company stock fund. The objective of the S Fund is to track the returns of the Wilshire 4500 stock index, which includes those U.S. stocks that are not included in the S&P 500 index. The S Fund meets this objective by investing in the Barclays Extended Market Index Fund, which holds common stocks of companies in the Wilshire 4500 index. A small portion of the Barclays Extended Market Index Fund is invested in futures contracts to provide liquidity.
Because the Wilshire 4500 index contains such a large number of stocks, including illiquid stocks (stocks that have low trading volume) and stocks with prices less than $1.00 per share, it is not practical for the Extended Market Index Fund to invest in every stock in the index. Barclays holds the stocks of most of the companies in the index with market values (i.e., a company's market price per share multiplied by the number of shares outstanding) greater than $1 billion. Barclays buys the stock of a company in the same proportion as the market value of that stock relative to the market value of the rest of the index. For stocks with market values below $1 billion, Barclays uses a sampling technique to select stocks that represent the various industry sectors that the Wilshire 4500 index comprises. The Barclays Extended Market Index Fund held stocks of 3,276 companies, as of December 31, 2002.
S Fund contributions are invested in the Barclays Extended Market Index Fund regardless of gains or losses in the stock market. The S Fund also includes temporary investments in G Fund securities.
The securities lending program of the Barclays Extended Market Index Fund produces income that adds to the returns of the S Fund.
What is the Wilshire 4500 index?
The Wilshire 4500 index, computed and published by Wilshire Associates, includes the common stocks (excluding the stocks in the S&P 500 index) of all U.S. companies which are actively traded in the stock markets on a daily basis. The Wilshire 4500 actually contains more than 4,500 securities, as there are more than 4,500 non-S&P 500 companies on the U.S. stock exchanges. As of December 31, 2002, the index included 5,171 companies.
The weightings of the stocks in the Wilshire 4500 index are based on each company's total market value in relation to the market value of the other companies represented in the index. As of December 31, 2002, the largest 100 companies in the Wilshire 4500 index represented 27 percent of the Wilshire 4500 market value.
What are the advantages
of investing in the S Fund?
The general advantages of investing in the S Fund are outlined in "What are the advantages of investing in the TSP stock funds?". The S Fund gives TSP participants the opportunity to diversify their investments by owning, indirectly, a fuller range of U.S. company stocks than are available in the C Fund alone.
What are the risks of
investing in the S Fund?
The risks of investing in the S Fund are the same as those for any stock index fund; these risks are outlined in "What are the risks of investing in the TSP stock funds?". In addition, historically, stocks of mid-size and smaller companies tend to be more volatile in price and therefore potentially riskier than stocks of the larger companies in the C Fund's S&P 500 index.
Only you can decide whether your TSP account should include an S Fund investment. For more detailed information about the S Fund, read the Guide to TSP Investments.
The S Fund was implemented in May 2001. Thus, there is no S Fund historical performance data for periods before May 2001. However, the table below includes 10 years of performance data for the Wilshire 4500 index, which the S Fund tracks.
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| Year |
S Fund* |
Wilshire
4500 |
| 1993 | 14.57% | |
| 1994 | – 2.66% | |
| 1995 | 33.48% | |
| 1996 | 17.18% | |
| 1997 | 25.68% | |
| 1998 | 8.63% | |
| 1999 | 35.49% | |
| 2000 | – 15.77% | |
| 2001 |
– 2.22%* |
– 9.33% |
| 2002 |
– 18.14% |
– 17.80% |
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1993-2002 compound annual rate of return |
NA |
7.32% |
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| * Rate of return for May 2001 (inception of S Fund) through December 2001. | ||
| ** Calculated by Wilshire Associates. Returns are stated without deducting administrative and management expenses and trading costs. | ||
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The I Fund is the TSP's international stock index fund. The objective of the I Fund is to track the returns of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) stock index, an index that tracks the overall performance of the major companies and industries in the European, Australian, and Asian stock markets.
The I Fund is invested in the Barclays EAFE Index Fund, which holds stocks of all of the companies represented in the EAFE index, and which uses a passive investment strategy of replicating the performance of the index. A small portion of the Barclays EAFE Index Fund is invested indirectly in futures contracts to provide liquidity.
I Fund contributions are invested in the EAFE Index Fund regardless of gains or losses in the international stock markets. The I Fund also includes temporary investments in G Fund securities.
The securities lending program of the Barclays EAFE Index Fund produces income that adds to the returns of the I Fund.
The EAFE index was developed by Morgan Stanley Capital International (MSCI) to provide broad coverage of the stock markets in the 21 countries represented in the index. As of December 31, 2002, the index included the stocks of 1,000 companies, representing 23 industry groups within 10 economic sectors.
Each country's weighting in the EAFE index is based on 85 percent of the "free float adjusted" market value of its stock market (i.e., the market price per share times the number of publicly available shares outstanding) relative to the free float adjusted market value of the stock markets of the other countries in the index. ("Free float adjustment" involves the exclusion of outstanding shares that are not publicly available, such as holdings by affiliated companies, or that are part of concentrated holdings, such as holdings by controlling shareholders and large institutional shareholders.) In turn, the weightings of the stocks in the EAFE index are based on each stock's free float adjusted market value relative to the free float adjusted market value of the other stocks of that country that are included in the index. Like the S&P 500, the EAFE index is considered a "big company" index containing large international companies, and the largest companies represent the largest portion of the index. As of December 31, 2002, the largest 100 companies in the EAFE index represented 59 percent of the EAFE market value. The Barclays EAFE Index Fund, in which the I Fund invests, holds the EAFE stocks in virtually the same weightings as they are represented in the EAFE index.
What are the advantages
of investing in the I Fund?
The general advantages of investing in the I Fund are outlined in "What are the advantages of investing in the TSP stock funds?". The I Fund, in particular, gives TSP participants the opportunity to further diversify their investments by participating in international stock markets.
What are the risks of
investing in the I Fund?
Most of the risks of investing in the I Fund are outlined in "What are the risks of investing in the TSP stock funds?".
However, the I Fund also carries the risk of foreign currency fluctuations. The stock prices of the companies in the EAFE index are expressed in the currency of each respective country and then converted to U.S. dollars to determine the value of the EAFE index. Thus, the value of the EAFE index will rise as the value of the U.S. dollar falls — and fall as the value of the U.S. dollar rises — relative to the currencies of countries with companies that are represented in the EAFE index.
Historically, the stocks held by the EAFE Index Fund tend to be more volatile in price, and therefore potentially riskier than the stocks held by the index funds underlying the C and S Funds, respectively. Only you can decide whether your TSP account should include an I Fund investment. For more detailed information about the I Fund, read the the Guide to TSP Investments.
The I Fund was implemented in May 2001. Thus, there is no I Fund historical performance data for periods before May 2001. The table below however includes, 10 years of performance data for the EAFE index, which the I Fund tracks.
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| Year |
I Fund* |
EAFE Index** |
| 1993 | 32.68% | |
| 1994 | 7.75% | |
| 1995 | 11.27% | |
| 1996 | 6.14% | |
| 1997 | 1.55% | |
| 1998 | 20.09% | |
| 1999 | 26.72% | |
| 2000 | – 14.17% | |
| 2001 |
– 15.42%* |
– 21.44% |
| 2002 | – 15.98% | – 15.94% |
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1993-2002 compound annual rate of return |
NA |
3.99% |
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* Rate of return for May 2001 (inception of I Fund), through December 2001. | ||
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** Calculated by Morgan Stanley Capital International. Returns are stated without deducting administrative and management expenses and trading costs. | ||
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