3M 2009 Annual Report Download - page 95

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89
Domestic and foreign fixed income consists of both active and passive mandates including governments, corporate,
mortgage backed and other fixed income instruments. Included in fixed income are derivative investments such as
interest rate swaps that are used to help manage risks. Governments, corporate bonds and notes and mortgage
backed securities are valued at either the closing price reported if traded on an active market or at yields currently
available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flows
approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments
for certain risks that may not be observable such as credit and liquidity risks.
Real estate consists of property funds and REITS (Real Estate Investment Trusts). Property funds are valued using
the most recent partnership statement of fair value, updated for any subsequent partnership interests’ cash flows.
REITS are valued at the closing price reported in the active market in which it is traded.
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.
Other consists primarily of interests in hedge funds. 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 is the net of interest receivable, 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 year ended December 31, 2009:
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
(Millions)
Global
equity
Domestic
fixed
income
Real
estate
Insur-
ance Total
Beginning balance at January 1, 2009....... $ 23 $ 29 $ 45 $ 337 $ 434
Net transfers into / (out of) level 3 .............. — — — 11 11
Foreign currency exchange........................ 2 4 3 7 16
Purchases, sales, issuances and
settlements, net ......................................
(7) (2) — (10) (19)
Realized gain/(loss).................................... — — — — —
Unrealized gains/(losses) relating to
instruments still held at the reporting
date.........................................................
(4) (1) 3 30 28
Ending balance at December 31, 2009...... $ 14 $ 30 $ 51 $ 375 $ 470
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.