3M 2012 Annual Report Download - page 93
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87
Absolute return consists of private partnership interests in hedge funds, insurance contracts, derivative instruments,
hedge fund of funds, and bank loan funds. Insurance consists of insurance contracts, which are valued using cash
surrender values which is the amount the plan would receive if the contract was cashed out at year end. Derivative
instruments consist of interest rate swaps that are used to help manage risks. Hedge funds are valued at the NAV as
determined by the independent administrator or custodian of the fund.
Other items to reconcile to fair value of plan assets include the net of interest receivables, 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 international pension plans’ level 3 assets for
the years ended December 31, 2012 and 2011:
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
Equities
Fixed Income
Private
Equity
Absolute
Return
Total
(Millions)
Beginning balance at Jan. 1, 2011
$
98
$
34
$
70
$
344
$
546
Net transfers into / (out of) level 3
(93)
―
(21)
18
(96)
Foreign currency exchange
―
(1)
(1)
(10)
(12)
Purchases, sales, issuances, and
settlements, net
―
―
17
3
20
Realized gain / (loss)
―
―
―
1
1
Change in unrealized gains / (losses)
relating to instruments sold during
the period
―
―
―
―
―
Change in unrealized gains / (losses)
relating to instruments still held at
the reporting date
―
6
2
14
22
Ending balance at Dec. 31, 2011
5
39
67
370
481
Net transfers into / (out of) level 3
―
―
―
―
―
Foreign currency exchange
―
2
(4)
2
―
Purchases, sales, issuances, and
settlements, net
―
(2)
11
92
101
Realized gain / (loss)
―
―
―
―
―
Change in unrealized gains / (losses)
relating to instruments sold during
the period
―
―
―
―
―
Change in unrealized gains / (losses)
relating to instruments still held at
the reporting date
―
(3)
(3)
21
15
Ending balance at Dec. 31, 2012
$
5
$
36
$
71
$
485
$
597
Postretirement Benefit Plans Assets
In order to achieve the investment objectives in the U.S. postretirement plan, the investment policy includes a target
strategic asset allocation. The investment policy allows some tolerance around the target in recognition that market
fluctuations and illiquidity of some investments may cause the allocation to a specific asset class to stray from the target
allocation, potentially for long periods of time. Acceptable ranges have been designed to allow for deviation from long-
term targets and to allow for the opportunity for tactical over- and under-weights. The portfolio will normally be rebalanced
when the quarter-end asset allocation deviates from acceptable ranges. The allocation is reviewed regularly by the named
fiduciary of the plan.
87
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