Avon 2004 Annual Report Download - page 53

Plan Assets
Avon’s U.S. and non-U.S. pension plans target and weighted-average asset allocations at December 31, 2004 and 2003,
by asset category were as follows:
U.S. Plans Non-U.S. Plans
% of Plan Assets % of Plan Assets
Target at Year End Target at Year End
Asset Category 2005 2004 2003 2005 2004 2003
Equity securities 65% 65% 65% 61% 65% 65%
Debt securities 35% 35% 35% 32% 30% 27%
Other — — — 7% 5% 8%
Total 100% 100% 100% 100% 100% 100%
The overall objective of Avon’s U.S. pension plan is to
provide the means to pay benefits to participants and
their beneficiaries in the amounts and at the times
called for by the plan. This is expected to be achieved
through the investment of Avon’s contributions and
other trust assets and by utilizing investment policies
designed to achieve adequate funding over a reason-
able period of time.
Pension trust assets are invested so as to achieve a
return on investment, based on levels of liquidity and
investment risk, that is prudent and reasonable under
circumstances which exist from time to time. While
Avon recognizes the importance of the preservation of
capital, it also adheres to the theory of capital market
pricing which maintains that varying degrees of invest-
ment risk should be rewarded with compensating
returns. Consequently, prudent risk-taking is justifiable.
The asset allocation decision includes consideration
of the non-investment aspects of the Avon Retirement
Plan, including future retirements, lump-sum elections,
growth in the number of participants, company con-
tributions, and cash flow. These actual characteristics
of the plan place certain demands upon the level, risk,
and required growth of trust assets. Avon regularly con-
ducts analyses of the plan’s current and likely future
financial status by forecasting assets, liabilities, benefits
and company contributions over time. In so doing, the
impact of alternative investment policies upon the
plan’s financial status is measured and an asset mix
which balances asset returns and risk is selected.
Avon’s decision with regard to asset mix is reviewed
periodically. Asset mix guidelines include target alloca-
tions and permissible ranges for each asset category.
Assets are monitored on an ongoing basis and rebal-
anced as required to maintain an asset mix within the
permissible ranges. The guidelines will change from
time to time, based on an ongoing evaluation of the
plan’s tolerance of investment risk.
Avon expects to contribute up to
approximately $85 million and
$37 million to its U.S. and non-U.S.
pension plans, respectively, in 2005.