3M 2011 Annual Report Download - page 90

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84
Publicly traded equities are valued at the closing price reported in the active market in which the individual securities
are traded. Index funds are valued at the net asset value (NAV) as determined by the custodian of the fund. The NAV
is based on the fair value of the underlying assets owned by the fund, minus its liabilities then divided by the number
of units outstanding. Long/short equity interests are valued using the most recent general partner statement of fair
value, updated for any subsequent partnership interests’ cash flows or expected changes in fair value.
Fixed income includes derivative instruments such as credit default swaps, interest rate swaps and futures contracts
that are used to help manage risks. U.S. government and government agency bonds and notes are valued at the
closing price reported in the active market in which the individual security is traded. Corporate bonds and notes,
asset backed securities and collateralized mortgage obligations are valued at either the yields currently available on
comparable securities of issuers with similar credit ratings or valued under a discounted cash flows approach that
maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks
that may not be observable such as credit and liquidity risks. Private placement funds are valued using the most
recent general partner statement of fair value, updated for any subsequent partnership interests’ cash flows or
expected changes in fair value. Swaps and derivative instruments are valued by the custodian using closing market
swap curves and market derived inputs.
The private equity portfolio is a diversified mix of partnership interests including buyouts, distressed debt, growth
equity, mezzanine, real estate and venture capital investments. Partnership interests are valued using the most
recent general partner statement of fair value, updated for any subsequent partnership interests’ cash flows or
expected changes in fair value.
Absolute return consists primarily of private partnership interests in hedge funds, hedge fund of funds and bank loan
funds. Partnership interests are valued using the NAV as determined by the administrator or custodian of the fund.
Hedge fund partnership interests, which have a redemption right and are past any lock-up redemption period, are
classified as level 2.
Commodities consist of commodity-linked notes and commodity-linked derivative contracts designed to deliver
investment returns similar to the Goldman Sachs Commodities Index (GSCI) or Dow Jones UBS Commodity index
returns. Commodities are valued at closing prices determined by calculation agents for outstanding transactions.
Other items to reconcile to fair value of plan assets is the net of insurance receivable for WG Trading Company,
interest receivable, amounts due for securities sold, amounts payable for securities purchased and interest payable.
The following table sets forth a summary of changes in the fair values of the U.S. pension plans’ level 3 assets for the
years ended December 31, 2011 and 2010:
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
(Millions) Equities
Fixed
Income
Private
Equity
Absolute
Return Commodities Total
Beginning balance at Jan. 1, 2010 . $ 4 $ 185 $ 1,961 $ 728 $ 237 $ 3,115
Net transfers into / (out of) level 3 .. 49 (37 ) 27 (49 ) (140) (150 )
Purchases, sales, issuances, and
settlements, net .......................... 412 (34 ) (55 ) (201 )
—
122
Realized gain/(loss) ........................ — 1 133 4
—
138
Change in unrealized gains/(losses)
relating to instruments still held at
the reporting date ........................ 41 29 9 141 14 234
Ending balance at Dec. 31, 2010 ... 506 144 2,075 623 111 3,459
Net transfers into / (out of) level 3 .. — 5 — (59 )
—
(54 )
Purchases, sales, issuances and
settlements, net .......................... (52 ) (97 ) (108 ) 3
—
(254 )
Realized gain/(loss) ........................ 3 21 (50 ) 5
—
(21 )
Change in unrealized gains/(losses)
relating to instruments sold during
the period .................................... (8 ) (17 ) 133 (36 )
—
72
Change in unrealized gains/(losses)
relating to instruments still held at
the reporting date ........................ (7 ) 18 12 (16 ) (6) 1
Ending balance at Dec. 31, 2011 ... $ 442 $ 74 $ 2,062 $ 520 $ 105 $ 3,203