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Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
92 Xerox 2010 Annual Report
The following table represents a roll-forward of the defined benefit plans
assets measured using significant unobservable inputs (Level 3 assets):
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
Private Guaranteed
Equity/Venture Insurance
Hedge Funds Real Estate Capital Contracts Other Total
December 31, 2008 $ 3 $ 279 $ 331 $ 104 $ — $ 717
Net payments, purchases and sales 1 5 16 1 — 23
Net transfers in (out) — — — 16 — 16
Realized gains (losses) — — 8 3 (1) 10
Unrealized gains (losses) — (66) (69) 2 1 (132)
Currency translation — 19 — 4 — 23
December 31, 2009 4 237 286 130 — 657
Net payments, purchases and sales — 7 (8) (12) — (13)
Net transfers in (out) — — — 1 — 1
Realized gains (losses) — 5 28 (2) — 31
Unrealized gains (losses) — 22 — (2) — 20
Currency translation — (6) — (9) — (15)
Other — 10 1 (9) (1) 1
December 31, 2010 $ 4 $ 275 $ 307 $ 97 $ (1) $ 682
Our pension plan assets and benefit obligations at December 31, 2010
were as follows:
Fair Value of Pension Funded
Pension Plan Benefit Status
(in billions) Assets Obligations Status
U.S. $ 3.2 $ 4.4 $ (1.2)
U.K. 2.9 2.9 —
Canada 0.6 0.8 (0.2)
Other 1.2 1.6 (0.4)
Total $ 7.9 $ 9.7 $ (1.8)
Investment Strategy
The target asset allocations for our worldwide plans for 2010 and 2009
were:
2010 2009
Equity investments 42% 41%
Fixed income investments 45% 45%
Real estate 7% 7%
Private equity 4% 4%
Other 2% 3%
Total Investment Strategy 100% 100%
We employ a total return investment approach whereby a mix of
equities and fixed income investments are used to maximize the long-
term return of plan assets for a prudent level of risk. The intent of this
strategy is to minimize plan expenses by exceeding the interest growth
in long-term plan liabilities. Risk tolerance is established through careful
consideration of plan liabilities, plan funded status and corporate
financial condition. This consideration involves the use of long-term
measures that address both return and risk. The investment portfolio
contains a diversified blend of equity and fixed income investments.
Furthermore, equity investments are diversified across U.S. and non-
U.S. stocks, as well as growth, value and small and large capitalizations.
Other assets such as real estate, private equity and hedge funds are
used to improve portfolio diversification. Derivatives may be used to
hedge market exposure in an efficient and timely manner; however,
derivatives may not be used to leverage the portfolio beyond the market
value of the underlying investments. Investment risks and returns are
measured and monitored on an ongoing basis through annual liability
measurements and quarterly investment portfolio reviews.
Expected Long-term Rate of Return
We employ a “building block” approach in determining the long-term
rate of return for plan assets. Historical markets are studied and long-
term relationships between equities and fixed income are assessed.
Current market factors such as inflation and interest rates are evaluated
before long-term capital market assumptions are determined. The long-
term portfolio return is established giving consideration to investment
diversification and rebalancing. Peer data and historical returns are
reviewed periodically to assess reasonableness and appropriateness.