APS 2013 Annual Report Download - page 122

Table of Contents
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
active market prices, and are classified as Level 1. Fixed income securities issued by corporations, municipalities, and other agencies are primarily valued
using quoted inactive market prices, or quoted active market prices for similar securities, or by utilizing calculations which incorporate observable inputs
such as yield, maturity and credit quality. These instruments are classified as Level 2.
The common and collective trusts, which are similar to mutual funds, are maintained by banks or investment companies and hold certain
investments in accordance with a stated set of objectives (such as tracking the performance of the S&P 500 Index). Common and collective trusts are valued
using the concept of net asset value (“NAV”), which is a value derived from the quoted active market prices of the underlying securities. The plans’ common
and collective real estate trust is valued using NAV, which is derived from the appraised values of the trust’s underlying real estate assets. As of December 31,
2013, the plans were able to transact in the common and collective trusts at NAV and accordingly classify these investments as Level 2. Because the trust’s
shares are offered to a limited group of investors, they are not considered to be traded in an active market.
The plans’ trustee provides valuation of our plan assets by using pricing services that utilize methodologies described to determine fair market
value. We have internal control procedures to ensure this information is consistent with fair value accounting guidance. These procedures include assessing
valuations using an independent pricing source, verifying that pricing can be supported by actual recent market transactions, assessing hierarchy
classifications, comparing investment returns with benchmarks, and obtaining and reviewing independent audit reports on the trustee’s internal operating
controls and valuation processes.
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