Hasbro 2011 Annual Report Download - page 84

HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)
Level 1 assets consist of investments traded on active markets that are valued using published closing
prices. The Plans’ Level 2 assets primarily consist of investments in common and collective trusts as well as
other private investment funds that are valued using the net asset values provided by the trust or fund. Although
these trusts and funds are not traded in an active market with quoted prices, the investments underlying the net
asset value are based on quoted prices. The Company believes that these investments could be sold at amounts
approximating the net asset values provided by the trust or fund. The Plans’ Level 3 assets consist of an
investment in a hedge fund which is valued using the net asset value provided by the investment manager as well
as an investment in a public-private investment fund which is also valued using the net asset value provided by
the investment manager. The hedge fund contains investments in financial instruments that are valued using
certain estimates which are considered unobservable in that they reflect the investment manager’s own
assumptions about the inputs that market participants would use in pricing the asset or liability. The public-
private investment fund, which is included in fixed income investments above, invests in commercial mortgage-
backed securities and non-agency residential mortgage-backed securities. These securities are valued using
certain estimates which are considered unobservable in that they reflect the investment manager’s own
assumptions about the inputs that market participants would use in pricing the asset. The Company believes that
the net asset value is the best information available for use in the fair value measurement of this fund. Of the
activity in Level 3 assets for 2011 $3,400 relates to purchases of investments, $1,500 relates to capital
distributions and $(1,000) relates to the unrealized loss on plan assets still held at December 25, 2011.
Hasbro’s two major funded plans (the “Plans”) are defined benefit pension plans intended to provide
retirement benefits to participants in accordance with the benefit structure established by Hasbro, Inc. The Plans’
investment managers, who exercise full investment discretion within guidelines outlined in the Plans’ Investment
Policy, are charged with managing the assets with the care, skill, prudence and diligence that a prudent
investment professional in similar circumstance would exercise. Investment practices, at a minimum, must
comply with the Employee Retirement Income Security Act (ERISA) and any other applicable laws and
regulations.
The Plans’ asset allocations are structured to meet a long-term targeted total return consistent with the
ongoing nature of the Plans’ liabilities. The shared long-term total return goal, presently 7.25%, includes income
plus realized and unrealized gains and/or losses on the Plans’ assets. Utilizing generally accepted diversification
techniques, the Plans’ assets, in aggregate and at the individual portfolio level, are invested so that the total
portfolio risk exposure and risk-adjusted returns best meet the Plans’ long-term obligations to employees. The
Company’s asset allocation includes alternative investment strategies designed to achieve a modest absolute
return in addition to the return on an underlying asset class such as bond or equity indices. These alternative
investment strategies may use derivatives to gain market returns in an efficient and timely manner; however,
derivatives are not used to leverage the portfolio beyond the market value of the underlying assets. These
alternative investment strategies are included in other equity and fixed income asset categories at December 25,
2011 and December 26, 2010. Plan asset allocations are reviewed at least quarterly and rebalanced to achieve
target allocation among the asset categories when necessary.
The Plans’ investment managers are provided specific guidelines under which they are to invest the assets
assigned to them. In general, investment managers are expected to remain fully invested in their asset class with
further limitations of risk as related to investments in a single security, portfolio turnover and credit quality.
With the exception of the alternative investment strategies mentioned above, the Plans’ Investment Policy
restricts the use of derivatives associated with leverage or speculation. In addition, the Investment Policy also
restricts investments in securities issued by Hasbro, Inc. except through index-related strategies (e.g. an S&P 500
Index Fund) and/or commingled funds. In addition, unless specifically approved by the Investment Committee
(which comprises members of management, established by the Board to manage and control pension plan assets),
certain securities, strategies, and investments are ineligible for inclusion within the Plans.
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