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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 11-K

 

(Mark One)

 

x      ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2011

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                   to                  

 

Commission file number 1-2360

 

A.            Full title of the plan and address of the plan, if different from that of the issuer named below:

 

IBM 401(k) Plus Plan

Director of Compensation and Benefits

IBM

North Castle Drive, M/D 147

Armonk, New York 10504

 

B.            Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

New Orchard Road

Armonk, New York 10504

 

 

 



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IBM 401(k) PLUS PLAN

 

Table of Contents

 

 

Page

 

 

Financial Statements and Schedules:

 

 

 

Report of Independent Registered Public Accounting Firm

4

 

 

Financial Statements:

 

 

 

Statements of Net Assets Available for Benefits at December 31, 2011 and 2010

5

 

 

Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 2011

6

 

 

Notes to Financial Statements

7

 

 

Supplemental Schedules*:

 

 

 

Schedule G, Part I - Schedule of Loans or Fixed Income Obligations in Default or Classified as Uncollectible

33

 

 

Schedule G, Part III - Nonexempt Transactions

34

 

 

Schedule H, Line 4i - Schedule of Assets (Held at End of Year)

42

 

 

Exhibit:

 

 

 

Exhibit 23 - Consent of Independent Registered Public Accounting Firm

 

 


*   Other schedules required by Section 2520.103-10 of the Department of Labor Rules and Regulations for Reporting and Disclosures under the Employee Retirement Income Security Act of 1974 are omitted because they are not applicable.

 

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SIGNATURE

 

The Plan.  Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

IBM 401(k) Plus Plan

 

 

 

 

 

 

 

 

 

 

Date:

June 19, 2012

 

By:

/s/ James J. Kavanaugh

 

 

 

 

James J. Kavanaugh

 

 

 

 

Vice President and Controller

 

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Report of Independent Registered Public Accounting Firm

 

To the Members of the International Business Machines Corporation (“IBM”) Retirement Plans Committee and the Participants of the IBM 401(k) Plus Plan:

 

In our opinion, the accompanying statements of net assets available for benefits and the related statement of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of the IBM 401(k) Plus Plan (the “Plan”) at December 31, 2011 and 2010, and the changes in net assets available for benefits for the year ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.  These financial statements are the responsibility of the Plan’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole.  The supplemental schedules of loans or fixed income obligations in default or classified as uncollectible, of nonexempt transactions, and of assets (held at end of year) are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.  These supplemental schedules are the responsibility of the Plan’s management.  The supplemental schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

 

/s/ PricewaterhouseCoopers LLP

 

 

 

PricewaterhouseCoopers LLP

 

New York, NY

 

June 19, 2012

 

 

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IBM 401(k) PLUS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS

AT DECEMBER 31,

 

 

 

2011

 

2010

 

 

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

Investments, at fair value (Note 3)

 

$

 37,278,696

 

$

 36,741,589

 

 

 

 

 

 

 

Receivables:

 

 

 

 

 

Employer contributions

 

38,347

 

40,593

 

Participant contributions

 

25,518

 

25,618

 

Notes receivable from participants

 

326,586

 

315,055

 

Income, sales proceeds and other receivables

 

2,480,366

 

1,984,365

 

Total receivables

 

2,870,817

 

2,365,631

 

 

 

 

 

 

 

Total assets

 

40,149,512

 

39,107,220

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Payable for collateral deposits

 

23,353

 

20,538

 

Accrued expenses and other liabilities

 

2,758,432

 

3,084,734

 

Total liabilities

 

2,781,784

 

3,105,272

 

 

 

 

 

 

 

Net assets at fair value

 

37,367,728

 

36,001,949

 

 

 

 

 

 

 

Adjustment from fair value to contract value for fully benefit-responsive investment contracts

 

(570,356

)

(373,136

)

 

 

 

 

 

 

Net assets available for benefits

 

$

 36,797,372

 

$

 35,628,813

 

 

The accompanying notes are an integral part of these financial statements.

 

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IBM 401(k) PLUS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS

FOR THE YEAR ENDED DECEMBER 31,

 

 

 

2011

 

 

 

(Dollars in thousands)

 

Additions to net assets attributed to:

 

 

 

 

 

 

 

Investment income:

 

 

 

Net depreciation in fair value of investments (Note 3)

 

$

(139,049

)

Interest income from investments

 

592,577

 

Dividends

 

214,992

 

 

 

668,520

 

 

 

 

 

Interest income on notes receivable from participants

 

15,038

 

 

 

 

 

Contributions:

 

 

 

Participants

 

1,200,993

 

Employer

 

874,983

 

 

 

2,075,976

 

 

 

 

 

Transfers from other benefit plans

 

228,311

 

 

 

 

 

Total additions

 

2,987,845

 

 

 

 

 

Deductions from net assets attributed to:

 

 

 

 

 

 

 

Distributions to participants

 

1,787,756

 

 

 

 

 

Administrative expenses, net

 

31,530

 

 

 

 

 

Total deductions

 

1,819,286

 

 

 

 

 

Net increase in net assets during the year

 

1,168,559

 

 

 

 

 

Net assets available for benefits:

 

 

 

 

 

 

 

Beginning of year

 

35,628,813

 

 

 

 

 

End of year

 

$

36,797,372

 

 

The accompanying notes are an integral part of these financial statements.

 

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IBM 401(k) PLUS PLAN
NOTES TO FINANCIAL STATEMENTS

 

NOTE 1 - DESCRIPTION OF THE PLAN

 

The following description of the IBM 401(k) Plus Plan (the “Plan”) provides only general information.  Participants should refer to the Plan prospectus (Summary Plan Description) for a complete description of the Plan’s provisions.

 

General

 

The Plan was established by resolution of International Business Machines Corporation’s Retirement Plans Committee (the “Committee”) effective July 1, 1983 and Plan assets are held in trust for the benefit of its participants.  The Plan offers all eligible active, full-time and part-time regular and long-term supplemental United States (U.S.) employees of International Business Machines Corporation (“IBM”) and certain of its domestic related companies and partnerships an opportunity to defer from one to eighty percent of their eligible compensation for before-tax 401(k) and/or Roth 401(k) contributions to any of 32 primary investment funds and over 150 mutual funds in a “mutual fund window.”  The investment objectives of the primary funds are described in Note 6, Description of Investment Funds.  In addition, participants are able to contribute up to ten percent of their eligible compensation on an after-tax basis.  Roth 401(k) and after-tax contributions are not available for employees working in Puerto Rico.  Annual contributions are subject to the legal limits permitted by Internal Revenue Service (“IRS”) regulations.

 

Participants are provided the choice to enroll in a “disability protection program” under which a portion of the participant’s account is used to pay premiums to purchase term insurance (underwritten by Metropolitan Life Insurance Company), which will pay the amount of their before-tax 401(k) contributions, matching contributions, automatic contributions and/or Special Savings Awards into their accounts in the event the participant becomes disabled while insured.

 

At December 31, 2011 and 2010, the number of participants with an account balance in the Plan was 200,205 and 202,638, respectively.

 

The Plan is dual qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended, and Section 1081.01 of the Internal Revenue Code for a New Puerto Rico (2011).  It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended.

 

Administration

 

The Plan is administered by the Committee, which appointed certain officials of IBM to assist in administering the Plan.  The Committee appointed State Street Bank and Trust Company (“SSBT”), as Trustee, to safeguard the assets of the funds and State Street Global Advisors (“SSGA”), the institutional investment management affiliate of SSBT, The Vanguard Group and other investment managers to direct investments in the various funds.

 

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Fidelity Investments Institutional Operations Company, Inc. (“Fidelity”) is the provider of record keeping and participant services, operator of the IBM Employee Services Center for the Plan in Raleigh, North Carolina as well as the provider of administrative services related to the mutual fund window.  Communications services were provided by Fidelity as well as The Vanguard Group.

 

Contributions

 

Under the Plan, IBM provides employer contributions for eligible participants as shown in the table below:

 

IBM Pension Plan
Eligibility at 12/31/2007

 

IBM Automatic
Contribution

 

IBM Matching
Contribution

 

Pension Credit Formula

 

4

%

100% on 6% of eligible compensation

 

Personal Pension Account

 

2

%

100% on 6% of eligible compensation

 

New Hires on or after 1/1/2005

 

1

%

100% on 5% of eligible compensation

 

 

IBM employer contributions are based upon the IBM pension formula for which the employee was eligible on December 31, 2007, or on hire date on or after January 1, 2005.  Any employees who terminate employment and are rehired on or after January 1, 2005 will be eligible to participate in the “New Hires on or after 1/1/2005” contribution rates.

 

A contribution equal to five percent of eligible compensation (referred to as a “Special Savings Award”) will be added to the accounts of participants who are non-exempt employees at each year-end and who participated in the Pension Credit Formula as of December 31, 2007 and have been continuously employed by IBM since that date.

 

Newly hired employees are automatically enrolled at 5 percent of eligible salary and performance pay after approximately thirty days of employment with IBM, unless they elect otherwise.  After completing one year of service with IBM, they are eligible for the IBM automatic contribution and the IBM matching contribution.  Contributions will be invested in the default Target Date fund that most closely corresponds to the year in which they will reach age 60 unless they elect otherwise.  The match maximizer is an automatic feature that ensures they will receive the full IBM match for their savings level (based on eligible 401(k) deferrals and eligible pay) no matter what their savings patterns are during the year. Any match maximizer amount for which they are eligible will be calculated and added to their account each pay period.

 

Eligible compensation under the Plan includes regular salary, commissions, overtime, shift premium and similar additional compensation payments for nonscheduled workdays, recurring payments under an employee variable compensation plan, regular IBM Short-Term Disability Income Plan payments, holiday pay and vacation pay, and payments made under any executive incentive compensation plan.  Non-recurring compensation, such as awards, deal team payments and significant signing bonuses are not eligible compensation and cannot be deferred under the Plan.

 

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Participants are able to choose to have their contributions invested entirely in one of, or in any combination of, the following funds or in the mutual fund window funds, in multiples of one percent.  These funds and their investment objectives are more fully described in Note 6, Description of Investment Funds.

 

Life Cycle Funds (14)

Target Date 2005 Fund

Target Date 2010 Fund

Target Date 2015 Fund

Target Date 2020 Fund

Target Date 2025 Fund

Target Date 2030 Fund

Target Date 2035 Fund

Target Date 2040 Fund

Target Date 2045 Fund

Target Date 2050 Fund

Income Plus Life Strategy Fund

Conservative Life Strategy Fund

Moderate Life Strategy Fund

Aggressive Life Strategy Fund

 

Core Funds (7)

Stable Value Fund (Effective February 29, 2012, renamed Interest Income Fund)
Inflation Protected Bond Fund

Total Bond Market Fund

Total Stock Market Index Fund

Total International Stock Market Index Fund

Real Estate Investment Trust (REIT) Index Fund

International Real Estate Index Fund

 

Expanded Choice Funds (11)

Long-Term Corporate Bond Fund

High Yield and Emerging Markets Bond Fund

Large Company Index Fund

Large-Cap Value Index Fund

Large-Cap Growth Index Fund

Small/Mid-Cap Stock Index Fund

Small-Cap Value Index Fund

Small-Cap Growth Index Fund

European Stock Index Fund

Pacific Stock Index Fund

IBM Stock Fund

 

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The Plan participants also have access to the “mutual fund window” investment options.

 

Participants may change their deferral percentage and investment selection for future contributions at any time.  The changes will take effect for the next eligible pay cycle if the request is completed before the applicable cutoff date.  Also, participants may transfer part or all of existing account balances among funds in the Plan once daily, subject to the Plan restrictions on trading.

 

The Committee is committed to preserving the integrity of the Plan as a long-term savings vehicle for its employees.  Frequent, short-term trading that is intended to take advantage of pricing lags in funds can harm long-term investors, or increase trading expenses in general.  Therefore, the Plan has implemented frequent trading transaction restrictions and reserves the right to take other appropriate action to curb short-term transactions (buying/selling).

 

Participant Accounts

 

The Plan record keeper maintains an account in the name of each participant to which each participant’s contributions and share of the net earnings, losses and expenses, if any, of the various investment funds are recorded.  The earnings on the assets held in each of the funds and all proceeds from the sale of such assets are held and reinvested in the respective funds.

 

Participants may transfer rollover contributions of before-tax and Roth 401(k) amounts from other qualified savings plans or Individual Retirement Accounts into their Plan account.  Rollovers must be made in cash within the time limits specified by the IRS; stock or in-kind rollovers are not accepted.  These rollovers are limited to active employees on the payroll of IBM (or affiliated companies) who have existing accounts in the Plan.  Retirees are not eligible for such rollovers, except that a retiree or separated employee who has an existing account in the Plan may rollover a lump-sum distribution from an IBM-sponsored qualified retirement plan, including the IBM Personal Pension Plan.  After-tax amounts may also be directly rolled over into the Plan from another qualified savings plan.

 

On each valuation date, the unit/share value of each fund is determined by dividing the current investment value of the assets in that fund on that date by the number of units/shares in the fund.  The participant’s investment value of assets equals the market value of assets for all funds except the Stable Value Fund for which the participant’s investment value of assets equals the contract value of assets.  In determining the unit/share value, new contributions that are to be allocated as of the valuation date are excluded from the calculation.  On the next day, the cash related to new contributions is transferred into the fund and the number of additional units to be credited to a participant’s account for each fund, due to new contributions, is equal to the amount of the participant’s new contributions to the fund divided by the prior night’s unit value.

 

Contributions (with the exception of after-tax contributions and Roth 401(k) contributions) made to the Plan, as well as interest, dividends, or other earnings of the

 

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Plan are generally not included in the taxable income of the participant until withdrawal, at which time all earnings and contributions withdrawn generally are taxed as ordinary income to the participant.  Additionally, withdrawals by the participant before attaining age 59 1/2 generally are subject to a penalty tax of 10 percent.  After-tax contributions made to the Plan are not tax deferred, but are taxable income prior to the participant making the contribution.  Any interest, dividends or other earnings on the after-tax contributions are generally not included in the taxable income of the participant until withdrawal, at which time all earnings withdrawn are generally taxed as ordinary income to the participant.  Any distribution of earnings on after-tax contributions that are withdrawn by the participant before attaining age 59 1/2 generally are subject to a penalty tax of 10 percent.  Roth 401(k) contributions are not deferred, but are taxable income prior to the participant making the contribution.  Interest, dividends or other earnings on Roth 401(k) contributions may not be taxable at withdrawal provided the participant has met the applicable rules.

 

Consistent with provisions established by the IRS, the Plan’s 2011 limit on employee salary and performance pay deferrals was $16,500.  (The limit for 2012 is $17,000.)  Participants who were age 50 or older during 2011 could take advantage of a higher 401(k) contribution limit of $22,000 ($22,500 for 2012).  The 2011 maximum annual deferral amount for employees residing in Puerto Rico was limited by local government regulations to $10,000.  (The Puerto Rico limit for 2012 is $13,000.)  Puerto Rico participants who were age 50 or older in 2011 could take advantage of a higher contribution limit of $11,000 ($14,500 for 2012).

 

Vesting

 

Participants in the Plan are at all times fully vested in their account balance, including employee contributions, employer contributions and earnings thereon, if any.

 

Distributions

 

Participants who have attained age 59 1/2 may request a distribution of all or part of the value in their account.  A maximum of four distributions are allowed each year and the minimum amount of any such distribution shall be the lesser of the participant’s account balance or $500.

 

In addition, participants who (1) retire under the prior IBM Retirement Plan provisions of the IBM Personal Pension Plan, or (2) become eligible for benefits under the IBM Long-Term Disability Plan or the IBM Medical Disability Income Plan, or (3) separate from IBM and have attained age 55, may also elect to receive the balance of their account in annual installments over a period not to exceed twenty years.

 

Withdrawals for financial hardship are permitted provided they are for an immediate and significant financial need, and the distribution is necessary to satisfy that need.  Employees are required to fully use the Plan loan program, described below, before requesting a hardship withdrawal.  Only an employee’s contributions are eligible for hardship withdrawal; earnings on before-tax 401 (k) and Roth 401(k), and IBM contributions (match, automatic, transition credits and Special Savings Award) are not

 

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eligible for withdrawal.  Employees must submit evidence of hardship to the record keeper who will determine whether the situation qualifies for a hardship withdrawal based on guidance from the Plan administrator.   A hardship withdrawal is taxed as ordinary income to the employee and may be subject to the 10 percent additional tax on early distributions.

 

If the participant dies and is married at the time of death, the participant’s spouse must be the beneficiary of the participant’s Plan account, unless the participant’s spouse has previously given written, notarized consent to designate another person as beneficiary.  If the participant marries or remarries, any prior beneficiary designation is canceled and the spouse automatically becomes the beneficiary.  If the participant is single, the beneficiary may be anyone previously designated by the participant under the Plan.  In the absence of an effective designation under the Plan at the time of death, the proceeds normally will be paid in the following order:  the participant’s spouse, the participant’s children in equal shares, or to surviving parents equally.  If no spouse, child, or parent is living, payments will be made to the executors or administrators of the participant’s estate.

 

After the death of a participant, an account will be established for the participant’s beneficiary.  If the beneficiary is a spouse or domestic partner, the beneficiary’s account may be maintained in the Plan, subject to IRS Minimum Required Distribution rules.  If the beneficiary is neither a spouse nor a domestic partner, the account will be paid to the beneficiary in a lump sum.  Beneficiaries may rollover distributions from the Plan.

 

Participant Loans

 

Participants may borrow up to one-half of the value of their account balance, not to exceed $50,000, within a twelve month period.  Loans will be granted in $1 increments subject to a minimum loan amount of $500.  Participants are limited to two simultaneous outstanding Plan loans.  Repayment of a loan is made through semi-monthly payroll deductions.  Loans originated under the Plan have a repayment term of one to four years for a general purpose loan or one to ten years for a primary residence loan.  There are a limited number of outstanding loans originated under acquired company plans that were merged into the Plan having repayment terms greater than 10 years and up to a maximum term of 28 years.  The loans originated under the Plan bear a fixed rate of interest, set quarterly, for the term of the loan, determined by the plan administrator to be 1.25 points above the prime rate.  The interest is credited to the participant’s account as the semi-monthly repayments of principal and interest are made.  Interest rates on outstanding loans at December 31, 2011 and 2010 ranged from 3.25 percent to 11.00 percent.

 

Participants may prepay the entire remaining loan principal at any time.  Employees on an approved leave of absence may elect to make scheduled loan payments directly to the Plan.  Participants may continue to contribute to the Plan while having an outstanding loan.  A loan default is a taxable event to the participant and will be reported as such in the year of the loan default.

 

Participants who retire or separate from IBM and have outstanding Plan loans may make loan repayments via coupon payments or ACH deductions to continue monthly loan repayments according to their original amortization schedule.

 

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Termination of Service

 

If the value of a participant’s account is $1,000 or less, it will be distributed to the participant in a lump-sum payment following the termination of the participant’s employment with IBM.  If the account balance is greater than $1,000 at the time of separation, the participant may defer distribution of the account until age 70 ½.

 

Termination of the Plan

 

IBM reserves the right to terminate this Plan at any time by action of the Board of Directors of IBM.  In that event, each participant or beneficiary receiving or entitled to receive payments under the Plan would receive the balance of the account at such time and in accordance with applicable law and regulations.  In the event of a full or partial termination of the Plan, or upon complete discontinuance of contributions under the Plan, the rights of all affected participants in the value of their accounts would be non-forfeitable.

 

Risks and Uncertainties

 

The Plan provides for various investment options in the form of mutual funds, commingled funds or separately-managed funds. These funds invest in equities, fixed income securities, synthetic guaranteed investment contracts (“synthetic GICs”) and derivative contracts.  Investment securities are exposed to various risks, such as interest rates, credit and overall market volatility.  Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is reasonably possible that changes in risks in the near term could materially affect participants’ account balances and the amounts reported in the statement of net assets available for benefits.  The Plan is potentially exposed to credit loss in the event of non-performance by the companies with whom the synthetic GICs are placed.  However, the Committee does not anticipate non-performance by these companies at this time.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying financial statements are prepared under the accrual basis of accounting, except distributions, which are recorded when paid.  Within the financial tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes.

 

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Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and disclosures of contingent assets and liabilities at the date of the financial statements.  Actual results could differ from those estimates.

 

Investment Contracts

 

Investment contracts held by a defined contribution plan are reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan.  Contract value represents the cost plus contributions made under the contracts plus interest at the contract rates less withdrawals and administrative expenses.  The statements of net assets available for benefits present the fair value of the investment in the Stable Value Fund as well as the adjustment from fair value to contract value for the fully benefit responsive investment contracts within the Stable Value Fund.  The statement of changes in net assets available for benefits presents these investments on a contract value basis.

 

Valuation of Investments

 

The Plan’s investments are stated at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Under fair value measurement guidance, the Plan is required to classify certain assets and liabilities based on the fair value hierarchy.  The framework establishes a three-level fair value hierarchy based on the nature of the information used to measure fair value.  These levels are accounting terms that refer to different methods of valuing assets and do not represent relative risk or credit quality of an investment.  The levels of assets are as follows:

 

· Level 1 — Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

 

· Level 2 — Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and

 

· Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable, including the Plan’s own assumptions in determining fair value.

 

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Assets are classified within the fair value hierarchy according to the lowest level input that is significant to the fair value measurement. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs.

 

Investments in mutual funds and commingled funds are valued at the net asset values per share using available inputs to measure fair value by such companies or funds as of the valuation date. Generally, mutual funds have a quoted market price in an active market and are classified as Level 1 and commingled funds are classified as Level 2 based upon observable data.

 

Common stocks and financial derivative instruments, such as futures contracts or options contracts that are traded on a national securities exchange are stated at the last reported sale or settlement price on the day of valuation.  Valuation adjustments may be applied to certain securities that are solely traded on a foreign exchange to account for the market movement between the close of the foreign market and the close of the New York Stock Exchange. These securities are valued using pricing service providers that consider the correlation of the trading patterns of the foreign security to the intraday trading in the U.S. markets for investments.

 

Fixed income investments are valued on the basis of valuations furnished by Trustee-approved independent pricing services. These services determine valuations for normal institutional-size trading units of such securities using models or matrix pricing, which incorporates yield and/or price with respect to bonds that are considered comparable in characteristics such as rating, interest rate and maturity date and quotations from bond dealers to determine current value. If these valuations are deemed to be either not reliable or not readily available, the fair value will be determined in good faith by the Trustee.

 

Over-the-counter derivatives are typically valued using proprietary pricing models that use as their basis readily observable market parameters — that is, parameters that are actively quoted and can be validated to external sources, including industry pricing services. Depending on the types and contractual terms of derivatives, fair value can be modeled using a series of techniques, such as the Black-Scholes option pricing model, simulation models or a combination of various models, which are consistently applied. Where derivative products have been established for some time, the Plan uses models that are widely accepted in the financial services industry. These models reflect the contractual terms of the derivatives, including the period to maturity, and market-based parameters such as interest rates, volatility, and the credit quality of the counterparty. Further, many of these models do not contain a high level of subjectivity, as the methodologies used in the models do not require significant judgment, and inputs to the model are readily observable from actively quoted markets, as is the case for “plain vanilla” interest rate swaps, option contracts and credit default swaps.

 

Interest bearing cash securities are valued at amortized cost, which includes cost and accrued interest and approximates fair value.

 

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.  Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

 

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Security Transactions and Related Investment Income

 

Security transactions are recorded on a trade-date basis.  Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis.

 

The Plan presents in the Statement of Changes in Net Assets Available for Benefits the net change in the fair value of its investments, which consists of realized gains and losses and the unrealized appreciation and depreciation on those investments.

 

Administrative Expenses and Investment Management Fees

 

Administrative costs of the Plan are deducted from participants’ account balances.  These costs include (a) brokerage fees, benefit responsive investment contract fees and commissions, which are included in the cost of investments and in determining net proceeds on sales of investments, and (b) operational expenses required for administration of the Plan including trustee, recordkeeping, custody, and investment management which are charged against the fund’s assets on a pro rata basis throughout the year and are included as part of administrative expenses.  Custodian and investment management fees for commingled trusts are charged based on a percentage of net asset value and are paid from the assets of the respective funds.

 

Standards to be Implemented

 

In December 2011, the Financial Accounting Standards Board (FASB) issued additional disclosure requirements for offsetting and related arrangements.  These additional requirements will become effective for the year ended December 31, 2013 and are not expected to have an impact on the Plan’s Financial Statements.

 

In May 2011, the FASB issued amended guidance and disclosure requirements for fair value measurements.  These amendments are not expected to have a material impact on the Plan’s Financial Statements.  These changes will become effective January 1, 2012 on a prospective basis.

 

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Table of Contents

 

NOTE 3 — INVESTMENTS

 

The following schedules summarize the fair value of investments within the fair value hierarchy, level 3 gains and losses, investments that represent 5 percent or more of the Plan’s net assets and the related net change in the fair value of investments by type of investment.

 

The following tables set forth by level, within the fair value hierarchy, the Plan’s investments at fair value at December 31, 2011 and 2010.

 

Investments at Fair Value as of December 31, 2011

 

(Dollars in Thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

Equity commingled/mutual funds

 

$

2,032,370

 

$

9,953,854

 

$

 

 

$

11,986,224

 

IBM Corporation common stock

 

2,462,501

 

 

 

 

 

2,462,501

 

International equity securities

 

431,572

 

2,415,410

 

 

 

2,846,981

 

US large-cap equity securities

 

583,292

 

 

 

 

 

583,292

 

US mid-cap equity securities

 

1,704,952

 

 

 

 

 

1,704,952

 

US small-cap equity securities

 

1,187,075

 

 

 

 

 

1,187,075

 

 

 

 

 

 

 

 

 

 

 

Fixed income:

 

 

 

 

 

 

 

 

 

Government securities rated A or higher

 

 

 

8,046,879

 

 

 

8,046,879

 

Government securities rated below A

 

 

 

338,363

 

 

 

338,363

 

Corporate bonds rated A or higher

 

 

 

1,108,909

 

348

 

1,109,257

 

Corporate bonds rated below A

 

 

 

2,210,664

 

10,327

 

2,220,986

 

Mortgage and asset-backed securities

 

 

 

1,156,850

 

6,710

 

1,163,560

 

Fixed income commingled/mutual funds 

 

1,224,163

 

581,014

 

 

 

1,805,178

 

Investment contracts

 

 

 

24,671

 

 

 

24,671

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

57,788

 

1,144,182

 

 

 

1,201,975

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

(5,678

)

(8,392

)

 

 

(14,070

)

 

 

 

 

 

 

 

 

 

 

Other commingled/mutual funds

 

340,201

 

270,671

 

 

 

610,872

 

Total investments at fair value

 

$

10,018,237

 

$

27,243,074

 

$

 17,384

 

$

37,278,696

 

 

There were no significant transfers between levels 1 and 2.

 

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Table of Contents

 

Investments at Fair Value as of December 31, 2010

 

(Dollars in Thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

Equity commingled/mutual funds

 

$

2,079,294

 

$

10,170,143

 

$

 

 

$

12,249,437

 

IBM Corporation common stock

 

1,944,980

 

 

 

 

 

1,944,980

 

International equity securities

 

1,198,120

 

1,973,255

 

 

 

3,171,375

 

US large-cap equity securities

 

406,866

 

 

 

 

 

406,866

 

US mid-cap equity securities

 

2,022,426

 

13,007

 

 

 

2,035,434

 

US small-cap equity securities

 

1,216,831

 

332

 

16

 

1,217,178

 

 

 

 

 

 

 

 

 

 

 

Fixed income:

 

 

 

 

 

 

 

 

 

Government securities rated A or higher

 

3,645

 

6,309,719

 

 

 

6,313,363

 

Government securities rated below A

 

 

 

1,361,490

 

 

 

1,361,490

 

Corporate bonds rated A or higher

 

 

 

1,513,998

 

1,012

 

1,515,009

 

Corporate bonds rated below A

 

 

 

1,799,518

 

15,773

 

1,815,291

 

Mortgage and asset-backed securities

 

7,173

 

875,274

 

4,325

 

886,772

 

Fixed income commingled/mutual funds

 

1,039,222

 

527,493

 

360,975

 

1,927,690

 

Investment contracts

 

 

 

27,337

 

 

 

27,337

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

61,356

 

1,271,530

 

 

 

1,332,886

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

6,342

 

420

 

(3,245

)

3,517

 

 

 

 

 

 

 

 

 

 

 

Other commingled/mutual funds

 

258,813

 

274,149

 

 

 

532,962

 

Total investments at fair value

 

$

10,245,068

 

$

26,117,665

 

$

378,856

 

$

36,741,589

 

 

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Table of Contents

 

The Plan has holdings in commingled funds as noted in the tables above.  Generally, under ordinary market conditions, investments by participants in investment funds with underlying holdings in commingled funds provide daily market liquidity to Plan participants and the Plan.  The Plan invests in several commingled funds, in which participant transactions (issuances and redemptions) may occur daily.  Investment in some of these funds may be subject to redemption restrictions, at the commingled fund’s discretion in limited situations.  At December 31, 2011 and 2010, commingled funds subject to redemption restrictions were zero and $361 million, respectively.  However, this restriction has not impacted any participant’s ability to withdraw their funds.

 

Level 3 Gains and Losses

 

The following table presents the changes in the fair value of the Plan’s level 3 investments for the year ended December 31, 2011:

 

(Dollars in Thousands)

 

US Small-
Cap Equity
Securities

 

Corporate
Bonds Rated
A or Higher

 

Corporate
Bonds
Rated Below

A

 

Mortgage
and Asset-
Backed
Securities

 

Fixed Income
Commingled/
Mutual Funds

 

Derivatives

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1

 

$

16

 

$

1,012

 

$

15,773

 

$

4,325

 

$

360,975

 

$

(3,245

)

$

378,856

 

Unrealized gains/(losses) on assets held at end of year*

 

(16

)

(33

)

(1,676

)

128

 

(87,674

)

13

 

(89,257

)

Realized gains/(losses) *

 

19

 

27

 

(26

)

167

 

103,258

 

122

 

103,565

 

Purchases

 

 

 

 

 

 

 

3,748

 

 

 

17,771

 

21,518

 

Sales

 

(19

)

(658

)

(3,744

)

(1, 658

)

(376,559

)

(17,455

)

(400,093

)

Transfers into Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers out of Level 3**

 

 

 

 

 

 

 

 

 

 

 

2,795

 

2,795

 

Balance at December 31

 

$

0

 

$

348

 

$

10,327

 

$

6,710

 

$

0

 

$

0

 

$

17,384

 

 


*Reported in the net change in fair value of investments in the Statement of Changes in Net Assets Available for Benefits.

**Transferred from Level 3 to Level 2 because observable market data became available for the securities.

 

The Plan’s policy is to recognize transfers in and transfers out at the beginning of the period.

 

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Table of Contents

 

Investments — Five Percent or More of Plan’s Net Assets

 

The investments that represent 5 percent or more of the Plan’s net assets available for benefits at December 31, 2011 and 2010 are as follows:

 

Investments

 

2011

 

2010

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Large Company Index Fund (Vanguard Employee Benefit Index Fund)

 

$

3,766,587

 

$

3,848,043

 

Total Stock Market Index Fund (Vanguard Total Stock Market Index Trust)

 

3,462,292

 

3,357,911

 

IBM Common Stock

 

2,462,501

 

1,944,980

 

 

Net Change in Fair Value of Investments

 

The following table represents the Net Change in Fair Value of Investments (including gains and losses on investments bought and sold, as well as held during the year):

 

 

 

2011

 

 

 

(Dollars in thousands)

 

Investments at fair value:

 

 

 

Commingled / Mutual Funds

 

$

(149,164

)

Equity Securities

 

201,776

 

Fixed Income Securities

 

(191,661

)

Total

 

$

(139,049

)

 

NOTE 4 — DERIVATIVES

 

In accordance with the investment strategy of the separately-managed funds and the Stable Value Fund, investment managers execute transactions in various derivative instruments.  These derivative instruments include swaps, options, bond and equity futures and forward contracts.  The use of derivatives is permitted principally to gain or reduce exposure or execute an investment strategy more efficiently.  The investment managers use these derivative instruments to manage duration and interest rate volatility and exposure to credit, currency, equity, and cash to achieve a certain performance result.

 

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Table of Contents

 

Within the fixed income funds, the investment managers either sell or purchase credit protection through credit default swaps.  The investment managers also enter into interest rate swap transactions where a series of fixed versus floating rate amounts are exchanged.

 

Derivatives may be executed on exchange traded investment instruments or via over-the-counter (OTC) transactions.  When an OTC contract is executed, there is exposure to credit loss in the event of non-performance by the counterparties to these transactions. IBM manages this exposure through stringent credit approval guidelines and regularly monitors and reports market and counterparty credit risks associated with these instruments. The Plan’s investment managers negotiate and enter into collateral and netting agreements with counterparties on the Plan’s behalf.  In the event of a counterparty default, these agreements reduce the potential loss to the Plan.   These arrangements define the nature of the collateral (cash or U.S. Treasury securities) and the established thresholds for when additional collateral is required by either party. For OTC transactions, the Plan has posted collateral of $32 million and $18 million and received collateral of $21 million and $17 million at December 31, 2011 and 2010, respectively.   In addition, for exchange traded transactions, the Plan has posted $21 million and $5 million of collateral as of December 31, 2011 and 2010, respectively and received collateral of $0 million and $1 million at December 31, 2011 and 2010, respectively.  Derivative collateral received is recorded in Investments, at fair value and Payable for collateral deposits in the Statements of Net Assets Available For Benefits.  Derivative collateral posted is recorded in Investments, at fair value in the Statements of Net Assets Available For Benefits.

 

Market risk arises from the potential for changes in value of financial instruments resulting from fluctuations in interest and foreign exchange rates and in prices of debt and equity securities.  The notional (or contractual) amounts used to express the volume of these transactions do not necessarily represent the amounts potentially subject to market risk.

 

All derivative financial instruments are carried at fair value.  The net fair value of derivative financial instruments was a liability of $14 million and an asset of $4 million as of December 31, 2011 and 2010.

 

The Plan has authorized Investment Managers to use specific derivative instruments in the implementation of their investment strategy for financial instruments that are managed by the Plan.  The following section discloses how these derivatives may be used, their fair value and financial position at year-end, and the risks associated with each.  Exchange traded derivatives, including futures and options, are regulated by the exchange and approved broker dealers.  OTC derivatives include foreign currency forward contracts, options, and swaps. These transactions will be contracted between two counterparties and governed by separate agreements.  A description of these instruments and the risks are below.

 

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Table of Contents

 

Futures Contracts

 

Futures contracts are standardized agreements to buy or sell a specific amount of a financial instrument on a future date for a specified price.  Futures are valued based upon their quoted daily price.  The primary risks associated with futures are the accuracy of the correlation between the value of bonds or equities and the price of the futures contracts. Futures contracts may be used to equitize cash and manage exposure to changes in interest rates. Upon entering into a futures contract, the investment manager is required to deposit collateral or initial margin and subsequent margin payments are moved daily depending on the value of the contract. Futures contracts may be subject to risk of loss in excess of the daily variation margin.  They are classified as either interest rate or equity contracts on the derivative instrument tables that follow.

 

Options Contracts

 

Options include equity options, index options, options on swaps (swaptions), and options on futures. Options are contracts that give the owner the right, but not the obligation, to buy or sell an asset at a specified price (strike price) on a future date. Options may be purchased or written to help manage exposure to the securities markets. Investment managers may write (sell) call and put options and the premiums received from writing options which expire are treated as realized gains.  Premiums received from a position which is exercised/closed are offset against the amount paid for the underlying security to calculate the gain or loss. An option writer (seller) has no control over whether the underlying instrument may be sold (call) or purchased (put) and bears the market risk of an unfavorable change in the price of the underlying instrument.  Investment managers may also purchase put and call options. Purchasing call options is intended to increase exposure to the underlying instrument, while purchasing put options would tend to decrease exposure to the underlying issue. Premiums paid for purchasing options which expire are realized losses. The risk associated with purchasing put and call options is limited to the premium paid.  Options may be traded on an exchange or OTC.  For OTC options, the Plan could be exposed to risk if the counterparties are unable to meet the terms of the contracts. This risk is mitigated by the posting of collateral by the counterparty and monitored against the contract terms.  Options are classified as interest rate or foreign exchange contracts on the derivative instruments tables that follow.

 

Foreign Currency Forwards

 

A foreign currency forward is a contract between two parties to exchange money denominated in one currency into another currency at a set price on a specified future date. Foreign currency forwards are used to hedge the currency exposure, as a part of an investment strategy, or in connection with settling transactions.  Foreign currency contracts may involve market risk in excess of the unrealized gain or loss. Forward transactions are typically not collateralized. The Plan could be exposed to risk if the counterparties are unable to meet the terms of the contracts.

 

Swap Agreements

 

Swap agreements are privately negotiated contracts to exchange investment cash flows at a future date based on the underlying value of the assets.   Swap agreements involve elements of credit, market, and documentation risk. The Plan could be exposed to risk if the counterparties are unable to meet the terms of the contracts. This risk is mitigated by the posting of collateral by the counterparty and monitored against the contract terms.  Swap agreements may be centrally cleared or traded OTC.  For OTC swap agreements, the Plan could be exposed to risk if the counterparties are unable to meet the terms of the contracts. This risk is mitigated by the posting of collateral by the counterparty and monitored against the contract terms.  Swap agreements are classified as interest rate or credit contracts on the derivative instruments tables that follow.

 

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Table of Contents

 

Interest Rate Swaps

 

An interest rate swap is an agreement in which two parties exchange cash flows based upon a notional principal amount and pay or receive fixed or floating rate amounts of interest. One party exchanges a stream of fixed interest payments for another party’s stream of floating interest payments.  Investment managers may enter into interest rate swap agreements to help hedge against interest rate risk and to maintain its ability to generate income at prevailing market rates. Interest rate swaps expose users to interest rate risk and credit risk.  The notional value of an interest rate swap is not at risk.

 

Credit Default Swaps

 

Credit default swaps are agreements where one party (the buyer of protection) makes payments to another party (seller of protection) in exchange for the right to receive a specified return in the event of a default or other credit event.  Investment managers may use credit default swaps to provide a measure of protection against defaults of the issuers or to gain or reduce exposure to a particular credit exposure.  The typical term of an agreement is five years.  If an investment manager is a buyer of protection and a credit event occurs, the portfolio will either receive from the seller of protection an amount equal to the notional amount of the swap or receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.  If an investment manager is a seller of protection and a credit event occurs, the portfolio will either pay to the buyer of protection an amount equal to the notional amount of the swap or pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.  The maximum potential amount of future payments that the Plan as a seller could be required to make is $130 million.  Credit default swaps are considered to have credit risk-related contingent features since they require payment by the protection seller upon the occurrence of a defined credit event.

 

Total Return Swaps

 

A total return swap allows one party to derive the economic benefit of owning an asset without putting that asset on its balance sheet, and allows the other party, which does retain the asset on its balance sheet, to buy protection against loss in value.  Investment managers may enter into total return swaps to gain/reduce exposure on the referenced asset.   These transactions are primarily found within the commingled commodities fund.

 

The following tables provide a quantitative summary of the derivative activity as of December 31, 2011 and 2010 and for the year ended December 31, 2011.

 

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Table of Contents

 

Fair Values of Derivative Instruments on Statements of Net Assets Available for Benefits

 

(Dollars in Thousands)

 

 

 

Notional/

 

 

 

 

 

 

 

contractual

 

 

 

 

 

At December 31, 2011:

 

amount

 

Assets *

 

Liabilities *

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

 2,379,158

 

$

 204,900

 

$

 (220,461

)

Foreign exchange contracts

 

621,890

 

7,529

 

(5,549

)

Credit contracts

 

277,910

 

46,996

 

(47,015

)

Equity contracts

 

89,733

 

(471

)

 

Carrying value of derivatives on the statement of net assets available for benefits

 

 

 

$

 258,954

 

$

 273,024

 

 

 

 

Notional/

 

 

 

 

 

 

 

contractual

 

 

 

 

 

At December 31, 2010:

 

amount

 

Assets *

 

Liabilities *

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

2,127,668

 

$

558,760

 

$

556,332

 

Foreign exchange contracts

 

700,414

 

5,153

 

8,068

 

Credit contracts

 

225,956

 

228,409

 

225,956

 

Equity contracts

 

120,306

 

1,551

 

 

Carrying value of derivatives on the statement of net assets available for benefits

 

 

 

$

793,873

 

$

790,356

 

 


* Reported in Investments, at fair value

 

The Effect of Derivative Instruments on the Statement of Changes in Net Assets Available for Benefits

 

(Dollars in Thousands)

 

For the year ended December 31, 2011 *

 

 

 

 

 

Interest rate contracts

 

$

(15,179

)

Foreign exchange contracts

 

5,828

 

Credit contracts

 

(921

)

Equity contracts

 

(8,069

)

Total net gain

 

$

(18,341

)

 


* Reported in Net change in fair value of investments

 

24



Table of Contents

 

NOTE 5 — INVESTMENT CONTRACTS

 

The Plan entered into benefit-responsive investment contracts (“investment contracts”), such as synthetic investment contracts (“synthetic GICs”), through the Stable Value Fund (effective February 29, 2012, Interest Income Fund — “the Fund”), with various third parties, i.e., insurance companies and banks.   Contract value represents contributions made to investment contracts, plus earnings, less participant withdrawals and administrative expenses.  The fair value of the synthetic GIC was determined using a discounted cash flow model which considers recent rebids as determined by recognized dealers, discount rate and the duration of the underlying portfolio.

 

A synthetic GIC provides for a fixed return on principal over a specified period of time, e.g., a quarterly crediting rate.  These investment contracts, which are backed by underlying assets owned by the Plan, are issued by third parties and are meant to be fully benefit-responsive.  Synthetic GICs accrue interest using a formula called the “crediting rate.”  Synthetic GICs use the crediting rate formula to smooth and decrease differences over time between the market value of the covered assets and the contract value.  The crediting rate is most impacted by the change in the annual effective yield to maturity of the underlying securities, but is also affected by changes in general level of interest rates and cash flows into or out of the contract.  The difference between the contract value and the market value of the covered assets is amortized over the synthetic GIC’s benchmark duration. A change in duration of the covered assets from reset period to reset period can affect the speed with which any difference is amortized.  Crediting rates are reset quarterly or more often if deemed appropriate.  Synthetic GICs provide a guarantee that the crediting rate will not fall below zero percent.

 

A synthetic GIC crediting rate, and hence the Fund’s return, may be affected by many factors, including purchases and redemptions by participants.  The precise impact on the synthetic GIC depends on whether the market value of the covered assets is higher or lower than the contract value of those assets.  If the market value of the covered assets is higher than the contract value, the crediting rate will ordinarily be higher than the yield of the covered assets.  Under these circumstances, cash from new investors will tend to lower the crediting rate and the Fund’s return, and redemptions by existing participants will tend to increase the crediting rate and the Fund’s return.  If the market value of the covered assets is less than the contract value, the crediting rate will ordinarily be lower than the yield of the covered assets.  Under these circumstances, cash from new investors will tend to increase the crediting rate and the Fund’s return, and redemptions by existing participants will tend to decrease the crediting rate and the Fund’s return. If the synthetic GIC experiences significant redemptions when the market value is below the contract value, the synthetic GIC’s crediting rate may be reduced significantly, to a level that may not be competitive with other investment options. If redemptions continued, the crediting rate could be reduced to zero.  If the synthetic GIC has insufficient covered assets to meet redemption requests the Fund would require payments from the investment contract issuer to pay further participant redemptions.

 

The Fund and the investment contracts purchased by the Fund are designed to pay all participant-initiated transactions at contract value.  Participant-initiated transactions are those transactions allowed by the provisions of the Plan (typically this would include withdrawals for benefits, loans, or transfers to non-competing funds within the Plan).  However, the investment contracts may limit the ability of the Fund to transact at contract value upon the occurrence of certain events.  At this time, the occurrence of any of these events is not probable.  These events include:

 

·                  The Plan’s failure to qualify under Section 401(a) or Section 401(k) of the Internal Revenue Code.

 

·                  The establishment of a defined contribution plan that competes with the Plan for employee contributions.

 

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Table of Contents

 

·                  Any substantive modification of the Plan or the administration of the Plan that is not consented to by the investment contract issuer.

 

·                  Complete or partial termination of the Plan.

 

·                  Any change in law, regulation or administrative ruling applicable to the Plan that could have a material adverse effect on the Fund’s cash flow.

 

·                  Merger or consolidation of the Plan with another plan, the transfer of Plan assets to another plan, or the sale, spin-off or merger of a subsidiary or division of the Plan sponsor.

 

·                  Any communication given to participants by the Plan sponsor or any other Plan fiduciary that is designed to induce or influence participants not to invest in the Fund or to transfer assets out of the Fund.

 

·                  Exclusion of a group of previously eligible employees from eligibility in the Plan.

 

·                  Any significant retirement program, group termination, group layoff, facility closing or similar program.

 

·                  Any transfer of assets from the Fund directly to a competing option, if such transfers are prohibited.

 

·                  Bankruptcy of the Plan sponsor or other Plan sponsor events which cause a significant withdrawal from the Plan.

 

An investment contract issuer may terminate a contract at any time.  In the event that the market value of the covered assets is below the contract value at the time of such termination, the Plan may elect to keep a contract in place to allow for the convergence of the market value and the contract value.  An investment contract issuer may also terminate a contract if certain terms of the investment contract fail to be met.

 

Investment contracts generally impose conditions on both the Plan and the issuer.  If an event of default occurs and is not cured, the non-defaulting party may terminate the contract.  The following may cause the Plan to be in default: a breach of material obligation under the contract; a material misrepresentation; or a material amendment to the Plan agreement.  The issuer may be in default if it breaches a material obligation under the investment contract; makes a material misrepresentation; is acquired or reorganized.  If, in the event of default of an issuer, the Fund were unable to obtain a replacement investment contract, the Fund may experience losses if the market value of the Plan’s assets no longer covered by the contract is below contract value.  The Fund may seek to add additional issuers over time to diversify the Fund’s exposure to such risk, but there is no assurance the Fund will be able to do so.  The combination of the default of an issuer and an inability to obtain a replacement agreement could render the Fund unable to achieve its objective of maintaining contract value.  The terms of an investment contract generally provide for settlement of payments only upon termination of the contract or total liquidation of the covered investments.  Generally, payments will be made pro-rata, based on the percentage of investments covered by each issuer.  Contract termination occurs whenever the contract value or market value of the covered investments reaches zero or upon certain events of default.  If the contract terminates when the market value equals zero, the issuer will pay the excess of contract value over market value to the Plan to the extent necessary for the Plan to satisfy outstanding contract value withdrawal requests.  Contract termination also may occur by either party upon election and notice as agreed to under the terms of the contract.

 

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Table of Contents

 

The following table provides the fair value and contract value for the synthetic GICs and the fair value of the underlying assets net of all receivables and payables.

 

Investment Contracts at December 31,

 

2011

 

2010

 

 

 

(Dollars in thousands)

 

Fair value:

 

 

 

 

 

Synthetic GICs

 

$

24,671

 

$

27,122

 

Underlying assets net of payables/receivables

 

9,631,348

 

9,094,099

 

Fair value of synthetic GICs and underlying assets

 

$

9,656,019

 

$

9,121,221

 

Adjustment from fair value to contract value

 

(570,356

)

(373,136

)

Contract value of synthetic GICs

 

$

9,085,663

 

$

8,748,085

 

 

The investment contracts owned by the Stable Value Fund produced the following returns:

 

 

 

Year Ended
December 31,

 

 

 

2011

 

2010

 

Earned by the Plan

 

5.90

%

7.37

%

Credited to participants

 

3.86

%

4.19

%

 

NOTE 6 - DESCRIPTION OF INVESTMENT FUNDS

 

The objectives of the thirty-two primary investment funds in which participants could invest in 2011 are described below:

 

Life Cycle Funds —

 

The fourteen Life Cycle funds reflect a portfolio of diversified investments — U.S. stocks, international stocks, real estate equity stocks, and fixed-income investments — from the existing core funds noted below, plus a commodities fund (not available to participants as a standalone offering).  These funds offer a convenient low-cost way to achieve diversification, professional money management and periodic rebalancing.  The funds are structured by the IBM Retirement Fund organization and managed by the underlying funds’ managers.

 

Four Life Cycle Funds are Life Strategy Funds that have a preset mix of stock and fixed income investments in order to provide broad diversification at four given levels of exposure to equities.  The preset mix of each Life Strategy Fund is not expected to change over time.

 

·                                          Income Plus Life Strategy Fund - target allocation: 30% stocks*, 70% bonds; seeks returns that modestly outpace inflation on a fairly consistent basis.

 

·                                          Conservative Life Strategy Fund - target allocation: 50% stocks*, 50% bonds; seeks returns that moderately outpace inflation over the long term.

 

·                                          Moderate Life Strategy Fund - target allocation: 65% stocks*, 35% bonds; seeks relatively high returns at a moderate risk level.

 

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·                                          Aggressive Life Strategy Fund - target allocation: 85% stocks*, 15% bonds; seeks high returns over the long term.

 


* Exposure to commodities is considered part of the allocation to stocks.

 

Ten Life Cycle Funds are Target Date Funds that offer portfolios with asset allocations designed for varying retirement dates or the year in which one expects to start drawing on their retirement assets.  The portfolios are offered in five year increments from 2005 to 2050, with the 2030 through 2050 funds providing a significantly higher allocation to stocks.  As a fund draws closer to its associated target date, the fund will automatically shift toward a more conservative risk level by reducing its allocation to stocks.  Each fund’s reduction to stocks continues through its “target date” for another 15 years, until the fund’s allocation and risk profile matches that of the Income Plus Fund.  Target Date funds assume a retirement age of 60.

 

·                                          Target Date 2005 Fund - designed for investors who have retired or started to draw on their retirement assets on or around the year 2005; seeks returns that moderately outpace inflation over the long term. Target asset allocation between stocks and bonds is 42% stocks*, 58% bonds.

 

·                                          Target Date 2010 Fund - seeks relatively high returns at a moderate risk level. Target asset allocation between stocks and bonds is 52% stocks*, 48% bonds.

 

·                                          Target Date 2015 Fund - seeks relatively high returns at a moderate risk level. Target asset allocation between stocks and bonds is 62% stocks*, 38% bonds.

 

·                                          Target Date 2020 Fund - seeks high returns over the long term. Target asset allocation between stocks and bonds is 72% stocks*, 28% bonds.

 

·                                          Target Date 2025 Fund - seeks high returns over the long term. Target asset allocation between stocks and bonds is 82% stocks*, 18% bonds.

 

·                                          Target Date 2030 Fund - seeks high returns over the long term. Target asset allocation between stocks and bonds is 89% stocks*, 11% bonds.

 

·                                          Target Date 2035 Fund - seeks high returns over the long term. Target asset allocation between stocks and bonds is 90% stocks*, 10% bonds.

 

·                                          Target Date 2040 Fund - seeks high returns over the long term. Target asset allocation between stocks and bonds is 90% stocks*, 10% bonds.

 

·                                          Target Date 2045 Fund - seeks high returns over the long term. Target asset allocation between stocks and bonds is 90% stocks*, 10% bonds.

 

·                                          Target Date 2050 Fund - seeks high returns over the long term. Target asset allocation between stocks and bonds is 90% stocks*, 10% bonds.

 


* Exposure to commodities is considered part of the allocation to stocks.

 

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Core Funds - seven funds that provide an opportunity to build a portfolio from a selection of broadly diversified U.S. and international stock funds and from funds that track the fixed-income markets.

 

·                                          Stable Value Fund (Effective February 29, 2012, renamed Interest Income Fund) - seeks to preserve principal and provide income at a stable rate of interest that is competitive with intermediate-term rates of return.  The fund is managed by multiple money managers.

 

·                                          Inflation Protected Bond Fund - seeks over the long term to provide a rate of return similar to the Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index.  The fund is managed by State Street Global Advisors.

 

·                                          Total Bond Market Fund - seeks to provide a rate of return similar to its benchmark index (Barclays Aggregate Bond Index), which consists of more than 5,000 U.S. Treasury, federal agency, mortgage-backed, and corporate securities.   The fund is managed by Neuberger Berman.

 

·                                          Total Stock Market Index Fund - seeks long-term growth of capital and income with a market rate of return for a diversified group of U.S. equities.  It attempts to match the performance of the Dow Jones U.S. Total Stock Market Index. The fund is managed by The Vanguard Group.

 

·                                          Total International Stock Market Index Fund - seeks long-term capital growth with a market rate of return for a diversified group of non-U.S. equities in such major markets as Europe and Asia plus the emerging markets of the world.  It attempts to match the performance of the MSCI All Country World Ex-USA Investable Market Index.  The fund is managed by State Street Global Advisors.

 

·                                          Real Estate Investment Trust (REIT) Index Fund - seeks a total rate of return approximating the returns of the MSCI U.S. REIT index.  Investment consists of U.S. publicly traded real estate equity securities.  The fund is managed by BlackRock Institutional Trust Company.

 

·                                          International Real Estate Index Fund. - seeks to replicate the returns of the FTSE EPRA/NAREIT Developed ex US Rental Index. Investment consists of the international market for securities of companies principally engaged in the real estate industry that derive greater than or equal to 70% of their total revenue from rental revenue of investment properties. The fund is managed by BlackRock Institutional Trust Company.

 

Expanded Choice Funds — eleven funds that provide an opportunity to build an investment portfolio with funds that are less broadly diversified, focusing instead on discrete sectors of the stock and bond markets.

 

·                                          Long-Term Corporate Bond Fund - seeks to modestly outperform the return of the Barclays U.S. Long Credit Index.  The fund invests in a diversified group of investment grade corporate fixed-rate debt issues with maturities of ten years or more.  The fund is managed by Neuberger Berman.

 

·                                          High Yield and Emerging Markets Bond Fund - seeks to modestly exceed the returns of the Barclays U.S. High Yield & Emerging Markets Bond Index.  The fund invests in “below investment grade” U.S. corporate and emerging market dollar bonds and is managed by Pacific Investment Management Company, LLC (PIMCO).

 

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Table of Contents

 

·                                          Large Company Index Fund - seeks long-term growth of capital and income from dividends by holding all the stocks that make up the Standard & Poor’s 500 Index.  The fund is managed by The Vanguard Group.

 

·                                          Large-Cap Value Index Fund - seeks long-term growth of capital and income from dividends.  The fund holds all the stocks in the Russell 1000 Value Index in approximately the same proportion as those stocks represented in the index.   The fund is managed by The Vanguard Group.

 

·                                          Large-Cap Growth Index Fund - seeks long-term growth of capital by holding all the stocks in the Russell 1000 Growth Index in approximately the same proportion as those stocks represented in the index.  The fund is managed by The Vanguard Group.

 

·                                          Small/Mid-Cap Stock Index Fund - seeks long-term growth of capital with a market rate of return from a diversified group of medium- and small-company stocks.  The fund holds stocks in the Russell 3000 index that are not part of the Standard and Poor’s 500 index and attempts to match the performance of the Russell SmallCap Completeness Index.   The fund is managed by State Street Global Advisors.

 

·                                          Small-Cap Value Index Fund - seeks long-term growth of capital by attempting to match the performance of the Russell 2000 Value Index.  The fund is managed by The Vanguard Group.

 

·                                          Small-Cap Growth Index Fund - seeks long-term growth of capital by attempting to match the performance of the Russell 2000 Growth Index.  The fund is managed by The Vanguard Group.

 

·                                          European Stock Index Fund - seeks long-term growth of capital that corresponds to an index of European stocks.   It attempts to match the investment results of the MSCI Europe Index.  The fund is managed by The Vanguard Group.

 

·                                          Pacific Stock Index Fund - seeks long-term growth of capital by attempting to match the performance of the MSCI Pacific Index.  The fund is managed by The Vanguard Group.

 

·                                          IBM Stock Fund - invests in IBM common stock and holds a small interest-bearing cash balance of approximately 0.35% for liquidity purposes.  The fund is managed by State Street Bank and Trust Company.

 

IBM 401(k) participants also have access to the “mutual fund window” investments — which expands the Plan’s investment options to include over 150 mutual funds, most of which are actively managed.  This feature gives more options to participants who are interested in investing in brand-name funds, or in simply having a broader range of investment options from which to choose.

 

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Table of Contents

 

Securities Lending

 

The Plan does not currently engage in securities lending for the separate accounts.  Securities lending may be permitted in certain commingled funds and in funds within the IBM Mutual Fund Window.  The prospectus for each fund will disclose if lending is permitted and the risks involved.

 

Repurchase Agreements

 

Certain investment managers of separately managed accounts may enter into repurchase agreements with the objective of managing cash in the portfolio.  The repurchase agreements are short-term and managers are limited in the percent of assets which may be invested in them.  Counterparties must meet credit rating requirements and permitted collateral is restricted to government securities.  There was no collateral at December 31, 2011 and 2010, respectively because the net exposures were below the minimum collateral posting requirements.  The prospectus of commingled funds or funds within the Mutual Fund Window will disclose if repurchase agreements are permitted.

 

NOTE 7 - TAX STATUS

 

The Trust established under the Plan is qualified under Section 401(a) of the Internal Revenue Code of 1986 and Section 1081.01 of the Internal Revenue Code for a New Puerto Rico (2011), and the Trustee intends for the Trust to remain dual-qualified in this manner.  The Plan received a favorable determination letter from the IRS on September 10, 2004, and received a favorable determination letter from the Hacienda (Puerto Rico) on April 29, 1993.  Subsequent to these determination letters by the IRS and the Hacienda, the Plan was amended.  The Plan administrator and Counsel continue to believe the Plan is designed and is being operated in compliance with the applicable requirements of the Internal Revenue Code and the Internal Revenue Code for a New Puerto Rico (2011).  The Plan submitted a request for a new determination letter to the IRS in January 2011.

 

Accounting principles generally accepted in the United States of America require plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2011, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.

 

NOTE 8 - RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500

 

The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500 as of:

 

 

 

12/31
2011

 

12/31
2010

 

 

 

(Dollars in thousands)

 

Net assets available for benefits per the financial statements

 

$

 36,797,372

 

$

 35,628,813

 

Plus:

 

 

 

 

 

Adjustment from contract value to fair value for fully benefit-responsive investment contracts held by the Stable Value Fund

 

570,356

 

373,136

 

Net assets available for benefits per the Form 5500

 

$

37,367,728

 

$

36,001,949

 

 

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Table of Contents

 

The following is a reconciliation of investment income per the financial statements to the Form 5500:

 

 

 

Year Ended
December 31,
2011

 

 

 

(Dollars in thousands)

 

Total investment income and interest income on notes receivable from participants per the financial statements

 

$

683,558

 

Less:

 

 

 

Adjustment from fair value to contract value for fully benefit-responsive investment contracts at December 31, 2010

 

373,136

 

Plus:

 

 

 

Adjustment from fair value to contract value for fully benefit-responsive investment contracts at December 31, 2011

 

570,356

 

Total investment income per the Form 5500

 

$

880,778

 

 

NOTE 9 - RELATED-PARTY TRANSACTIONS

 

At December 31, 2011, a significant portion of the Plan’s assets were managed by State Street Global Advisors.  State Street Global Advisors’ affiliate, State Street Bank and Trust Company, also acts as the trustee for the Plan and, therefore, these investments qualify as party-in-interest transactions.  The Plan also pays a fee to the trustee.  These transactions qualify as party-in-interest transactions as well.

 

In addition, Fidelity Investments Institutional Operations Company, Inc. is the provider of administrative services related to the mutual fund window as well as the investment manager of Fidelity funds within the mutual fund window.  Fidelity is also the provider of record keeping and participant services, and the operator of the IBM Employee Services Center for the IBM 401(k) Plus Plan.

 

At December 31, 2011 and 2010, the Plan held 13,391,892 and 13,252,797 shares of IBM common stock valued at $2,462,501,101 and $1,994,980,488, respectively.  During the year ended December 31, 2011, purchases of shares by the Plan totaled $264,421,636 and sales of shares by the Plan totaled $247,819,101.

 

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Table of Contents

 

IBM 401(k) PLUS PLAN AT DECEMBER 31, 2011

Schedule G, Part I - Schedule of Loans or Fixed Income Obligations in Default or Classified as Uncollectible

 

 

 

(c) Detailed description of loan including dates of
making and maturity, interest rate, the type and value of
collateral, any renegotiation of the loan and the terms of
the renegotiation, and other material items

 

(d) Original

 

Amount received during
reporting year

 

(g) Unpaid balance

 

Amount Overdue

 

(a)*

 

(b) Identity and address of Obligor

 

Security ID

 

Issue Date

 

Maturity Date

 

Interest Rate

 

amount of loan

 

(e) Principal

 

(f) Interest

 

at end of year

 

(h) Principal

 

(i) Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Glitnir Bank HF, Islandsbanki, Kirkjusandi 2-155 Reykjavik, Iceland

 

37930EAC0

 

7/28/2006

 

7/28/2011

 

6.33

 

$

1,060,000

 

 

 

 

 

$

1,261,294

 

$

1,060,000

 

$

201,294

 

 

 

Glitnir Bank HF, Islandsbanki, Kirkjusandi 2-155 Reykjavik, Iceland

 

37930JAE5

 

9/25/2007

 

9/15/2012

 

6.375

 

1,260,000

 

 

 

 

 

240,975

 

 

 

240,975

 

 

 

Glitnir Bank HF, Islandsbanki, Kirkjusandi 2-155 Reykjavik, Iceland

 

379308AA7

 

6/15/2006

 

6/15/2016

 

6.693

 

2,100,000

 

 

 

 

 

491,936

 

 

 

491,936

 

 

 

Glitnir Bank HF, Islandsbanki, Kirkjusandi 2-155 Reykjavik, Iceland

 

379308AB5

 

9/14/2006

 

9/14/2049

 

7.451

 

200,000

 

 

 

 

 

44,706

 

 

 

44,706

 

 

 

Kaupthing Bank hf., Borgartun 26 IS-105 Reykjavik, Iceland

 

48632FAA9

 

10/4/2006

 

10/4/2011

 

5.75

 

510,000

 

 

 

 

 

597,975

 

$

510,000

 

87,975

 

 

 

Kaupthing Bank hf., Borgartun 26 IS-105 Reykjavik, Iceland

 

48632FAE1

 

2/28/2008

 

2/28/2015

 

7.625

 

5,090,000

 

 

 

 

 

1,164,338

 

 

 

1,164,338

 

 

 

Kaupthing Bank hf., Borgartun 26 IS-105 Reykjavik, Iceland

 

48632HAA5

 

5/19/2006

 

5/19/2016

 

7.125

 

700,000

 

 

 

 

 

149,625

 

 

 

149,625

 

 

 

Landsbank IIS NB hf., Asuturstraeti 11, 155 Reykjavik, Iceland

 

5150X0AA9

 

8/25/2006

 

8/25/2011

 

6.1

 

2,970,000

 

 

 

 

 

3,513,510

 

$

2,970,000

 

543,510

 

 

 

Lehman Brothers Holdings Inc., 745 Seventh Avenue, New York, NY 10019

 

5249087M6

 

12/21/2007

 

12/28/2017

 

6.75

 

6,350,000

 

 

 

 

 

1,285,875

 

 

 

1,285,875

 

 

 

Lehman Brothers Holdings Inc., 745 Seventh Avenue, New York, NY 10019

 

524908XA3

 

5/17/2007

 

11/29/2049

 

5.857

 

1,730,000

 

 

 

 

 

1,651,445

 

 

 

1,651,445

 

 

 

Lehman Brothers Holdings Inc., 745 Seventh Avenue, New York, NY 10019

 

5252M0BZ9

 

1/22/2008

 

1/24/2013

 

5.625

 

11,500,000

 

 

 

 

 

1,940,625

 

 

 

1,940,625

 

 

 

Lehman Brothers Holdings Inc., 745 Seventh Avenue, New York, NY 10019

 

5252M0FD4

 

4/24/2008

 

5/2/2018

 

6.875

 

900,000

 

 

 

 

 

218,109

 

 

 

218,109

 

 

 

Lehman Brothers Holdings Inc., 745 Seventh Avenue, New York, NY 10019

 

5249087M6

 

12/21/2007

 

12/28/2017

 

6.75

 

3,500,000

 

 

 

 

 

708,750

 

 

 

708,750

 

 

 

Lehman Brothers Holdings Inc., 745 Seventh Avenue, New York, NY 10019

 

52517PE23

 

1/25/2006

 

12/31/2049

 

variable

 

5,300,000

 

 

 

 

 

199,493

 

 

 

199,493

 

 

 

Lehman Brothers Holdings Inc., 745 Seventh Avenue, New York, NY 10019

 

52517PXU0

 

10/25/2004

 

11/10/2010

 

variable

 

400,000

 

 

 

 

 

407,556

 

400,000

 

7,556

 

 

 

Lehman Brothers Holdings Inc., 745 Seventh Avenue, New York, NY 10019

 

52517P2K6

 

5/25/2007

 

5/25/2010

 

variable

 

800,000

 

 

 

 

 

811,333

 

800,000

 

11,333

 

 

 

Sigma Finance Corp., M&C Corp. Services LTD, Box 309GT, Ugland House, South Church St., George Town, Grand Cayman, Grand Cayman Islands

 

8265Q0XQ0

 

6/4/2007

 

6/4/2009

 

1

 

10,000,000

 

 

 

 

 

9,554,482

 

$

9,494,970

 

59,512

 

 

 

Station Casinos, 1505 South Pavilion Center Drive, Las Vegas NV

 

857689AT0

 

2/27/2004

 

3/1/2016

 

6.875

 

30,000

 

 

 

 

 

6,188

 

 

 

6,188

 

 


* Party-in-interest

 

Schedule G, Part I - Overdue Loan Explanation

 

Investment managers have responsibility for these securities as well as other securities in their portfolio and they have or will take appropriate actions taking into consideration the circumstances surrounding each security and the overall portfolio that they manage.

 

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Table of Contents

 

IBM 401(k) PLUS PLAN AT DECEMBER 31, 2011

 

Schedule G, Part III- Nonexempt Transactions

 

(a)

 

(b)

 

(c)

 

(c)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

 

 

 

 

 

DESCRIPTION OF TRANSACTION

 

 

 

 

 

 

 

Identity of

 

Relationship

 

 

 

 

 

 

 

Purchase

 

Selling

 

Lease

 

Transaction

 

Cost of

 

Current value

 

Net G/(L)

 

Party Involved

 

to Plan

 

Transaction

 

Currency

 

Trade Date

 

Price (USD)

 

Price (USD)

 

Rental

 

Expenses/Fees

 

Asset

 

of asset

 

on Transaction

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

11/24/1999

 

 

$

5,339,516

 

N/A

 

$

13,349

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

11/25/1999

 

 

166,629

 

N/A

 

417

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

ILS

 

11/26/1999

 

 

2,182,118

 

N/A

 

5,455

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

AUD

 

11/29/1999

 

 

60,272

 

N/A

 

151

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

EUR

 

11/29/1999

 

 

33,013

 

N/A

 

83

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

GBP

 

11/29/1999

 

 

811,216

 

N/A

 

2,028

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

PLN

 

12/23/1999

 

 

1,201,542

 

N/A

 

3,004

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

BRL

 

1/11/2000

 

$

487,686

 

 

N/A

 

1,219

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

ILS

 

1/11/2000

 

 

14,537

 

N/A

 

36

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

BRL

 

1/17/2000

 

414,296

 

 

N/A

 

1,036

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

1/17/2000

 

 

452,523

 

N/A

 

1,131

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

1/24/2000

 

 

900,423

 

N/A

 

2,251

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

1/25/2000

 

 

81,083

 

N/A

 

203

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

3/9/2000

 

 

112,964

 

N/A

 

282

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

3/13/2000

 

 

36,760

 

N/A

 

92

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

ILS

 

5/17/2000

 

 

174,599

 

N/A

 

436

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

THB

 

5/31/2000

 

 

10

 

N/A

 

0

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

CHF

 

6/21/2000

 

 

3,926

 

N/A

 

10

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

CHF

 

7/12/2000

 

 

3,926

 

N/A

 

10

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

7/27/2000

 

 

56,180

 

N/A

 

140

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

8/31/2000

 

 

1,359,462

 

N/A

 

3,399

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

9/4/2000

 

 

32,410

 

N/A

 

81

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

CAD

 

9/22/2000

 

9,900

 

 

N/A

 

25

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

CAD

 

9/26/2000

 

 

1,435

 

N/A

 

4

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

10/4/2000

 

 

542,682

 

N/A

 

1,357

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

BRL

 

10/24/2000

 

351,263

 

 

N/A

 

878

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

EUR

 

1/2/2001

 

 

241,998

 

N/A

 

605

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

GRD

 

1/2/2001

 

241,998

 

 

N/A

 

605

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

BRL

 

3/30/2001

 

370,200

 

 

N/A

 

926

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

BRL

 

5/2/2001

 

128,514

 

 

N/A

 

321

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

5/17/2001

 

 

323,215

 

N/A

 

808

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

5/18/2001

 

 

11,404

 

N/A

 

29

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

BRL

 

10/23/2001

 

352,961

 

 

N/A

 

882

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

ILS

 

10/23/2001

 

485,526

 

 

N/A

 

1,214

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

BRL

 

10/24/2001

 

222,488

 

 

N/A

 

556

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

HUF

 

10/24/2001

 

52,790

 

 

N/A

 

132

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

HUF

 

10/25/2001

 

189,080

 

 

N/A

 

473

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

ILS

 

11/27/2001

 

180,318

 

 

N/A

 

451

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

EUR

 

12/24/2001

 

450,000

 

 

N/A

 

1,125

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

ILS

 

1/2/2002

 

 

84,412

 

N/A

 

211

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

ILS

 

1/11/2002

 

 

24,270

 

N/A

 

61

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

BRL

 

2/7/2002

 

60,704

 

 

N/A

 

152

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

ILS

 

3/1/2002

 

 

17,529

 

N/A

 

44

 

N/A

 

N/A

 

N/A

 

 

34



Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

(b)

 

(c)

 

(c)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

 

 

 

 

 

DESCRIPTION OF TRANSACTION

 

 

 

 

 

 

 

Identity of

 

Relationship

 

 

 

 

 

 

 

Purchase

 

Selling

 

Lease

 

Transaction

 

Cost of

 

Current value

 

Net G/(L)

 

Party Involved

 

to Plan

 

Transaction

 

Currency

 

Trade Date

 

Price (USD)

 

Price (USD)

 

Rental

 

Expenses/Fees

 

Asset

 

of asset

 

on Transaction

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

ILS

 

5/28/2002

 

270,790

 

 

N/A

 

677

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

BRL

 

5/29/2002

 

541,950

 

 

N/A

 

1,355

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

6/7/2002

 

 

13,274

 

N/A

 

33

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

6/19/2002

 

 

1,859

 

N/A

 

5

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

BRL

 

8/6/2002

 

 

48,262

 

N/A

 

121

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

ILS

 

9/4/2002

 

3,332

 

 

N/A

 

8

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

ILS

 

9/4/2002

 

 

23,495

 

N/A

 

59

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Sell

 

TRL

 

10/28/2002

 

 

162

 

N/A

 

0

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company

 

Fiduciary (Investment Manager)

 

Buy

 

BRL

 

11/28/2002

 

75,217

 

 

N/A

 

188

 

N/A

 

N/A

 

N/A

 

State Street Bank and Trust Company