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## B. Plan assets 

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In general, our strategy for both the U.S. and non-U.S. pensions includes ongoing alignment of our investments to our liabilities, while reducing risk in our portfolio. The current U.S. pension target asset allocation is 70 percent fixed income and 30 percent equities. This target allocation will be revisited periodically to ensure it reflects our overall objectives. The non-U.S. pension weighted-average target allocations are 78 percent fixed income, 13 percent equities, 5 percent real estate and 4 percent other. The target allocations for each plan vary based upon local statutory requirements, demographics of plan participants and funded status. The non-U.S. plan assets are primarily invested in non-U.S. securities. 

Our target allocation for the other postretirement benefit plans is 70 percent equities and 30 percent fixed income. 

The U.S. plans are rebalanced to within the appropriate target asset allocation ranges on a monthly basis. The frequency of rebalancing for the non-U.S. plans varies depending on the plan. As a result of our diversification strategies, there are no significant concentrations of risk within the portfolio of investments. 

The use of certain derivative instruments is permitted where appropriate and necessary for achieving overall investment policy objectives. The plans do not engage in derivative contracts for speculative purposes. 

The accounting guidance on fair value measurements specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques (Level 1, 2 and 3). See Note 18 for a discussion of the fair value hierarchy. 

Fair values are determined as follows: 

• Equity securities are primarily based on valuations for identical instruments in active markets. 

• Fixed income securities are primarily based upon models that take into consideration such market-based factors as recent sales, risk- free yield curves and prices of similarly rated bonds. 

• Real estate is stated at the fund’s net asset value or at appraised value. 

• Cash, short-term instruments and other are based on the carrying amount, which approximates fair value, or the fund’s net asset value. 

