UPS 2010 Annual Report Download - page 93

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
comprised of corporate and government bonds, hedge funds, real estate investments and private equity funds.
The commingled funds are valued using net asset values, adjusted, as appropriate, for investment fund specific
inputs determined to be significant to the valuation. Investments in hedge funds are valued using reported net
asset values as of December 31. These assets are primarily invested in a portfolio of diversified, direct
investments and funds of hedge funds. Real estate investments and private equity funds are valued using fair
values per the most recent partnership audited financial reports, adjusted as appropriate for any lag between the
date of the financial reports and December 31. The real estate investments consist of U.S. and non-U.S. real
estate investments and are broadly diversified. The fair values may, due to the inherent uncertainty of valuation
for those alternative investments, differ significantly from the values that would have been used had a ready
market for the alternative investments existed, and the differences could be material.
At December 31, 2010 approximately $3.766 billion of the plan assets are held in comingled stock funds
that each hold U.S. and international public market securities. The plan held the right to liquidate its positions in
these commingled stock funds at any time, subject only to a brief notification period. No unfunded commitment
existed with respect to these commingled stock funds at December 31, 2010.
The plan holds approximately $2.098 billion of its investments in limited partnership interests in various
private equity and real estate funds. Limited provision exists for the redemption of these interests by the general
partners that invest these funds until the end of the term of the partnerships, typically ranging between 12 and 18
years from the date of inception. An active secondary market exists for similar partnership interests, although no
particular value (discount or premium) can be guaranteed. At December 31, 2010, unfunded commitments to
such limited partnerships totaling approximately $585 million are expected to be contributed over the remaining
investment period, typically ranging between three and six years.
Approximately $2.023 billion of the plan investments are held in hedge funds that pursue multiple strategies
to diversify risk and reduce volatility. Most of these funds require two to three months notice for redemptions
and allow them to occur either quarterly or semi-annually, while others allow for redemption after only a brief
notification period with no restriction on redemption frequency. No unfunded commitments existed with respect
to these hedge funds.
The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed during
2010 due to the following (in millions):
Corporate
Bonds
Hedge
Funds
Real
Estate
Private
Equity Total
Balance on January 1, 2010 ............................... $201 $1,284 $550 $1,145 $3,180
Actual Return on Assets:
Assets Held at End of Year ........................... (5) 129 100 177 401
Assets Sold During the Year .......................... 13 10 — 1 24
Purchases ............................................. 41 711 152 149 1,053
Sales ................................................. (57) (111) (13) (163) (344)
Settlements ........................................... — — — — —
Transfers Into (Out of) Level 3 ............................ — — — — —
Balance on December 31, 2010 ............................ $193 $2,023 $789 $1,309 $4,314
The fair value disclosures above have not been provided for our international pension benefits plans since
asset allocations are determined and managed at the individual country level. However, in general, the asset
allocations for these plans (approximately 65% equity securities, 30% debt securities and 5% cash) are similar to
81