Morgan Stanley 2015 Annual Report Download - page 156

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(1) At December 31, 2015, Loans and lending commitments held at fair value consisted of $7,286 million of corporate loans, $1,885 million of residential real estate
loans and $1,447 million of wholesale real estate loans. At December 31, 2014, Loans and lending commitments held at fair value consisted of $7,093 million of
corporate loans, $1,682 million of residential real estate loans and $3,187 million of wholesale real estate loans.
(2) For trading purposes, the Company holds or sells short equity securities issued by entities in diverse industries and of varying sizes.
(3) For positions with the same counterparty that cross over the levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included
in the column titled “Counterparty and Cash Collateral Netting.” For contracts with the same counterparty, counterparty netting among positions classified
within the same level is included within that shared level. For further information on derivative instruments and hedging activities, see Note 4.
(4) Amounts exclude certain investments that are measured at fair value using the NAV per share, which are not classified in the fair value hierarchy. At
December 31, 2015 and December 31, 2014, the fair value of these investments was $3,843 million and $5,009 million, respectively. For additional disclosure
about such investments, see “Fair Value of Investments Measured at Net Asset Value” herein.
(5) The balance of Level 3 asset derivative equity contracts increased by $57 million with a corresponding decrease in the balance of Level 2 asset derivative equity
contracts, and the balance of Level 3 liability derivative equity contracts increased by $842 million with a corresponding decrease in the balance of Level 2
liability derivative equity contracts to correct the fair value level assigned to these contracts at December 31, 2014. The total amount of asset and liability
derivative equity contracts remained unchanged.
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis.
The following tables present additional information about Level 3 assets and liabilities measured at fair value on a recurring
basis for 2015, 2014 and 2013, respectively. Level 3 instruments may be hedged with instruments classified in Level 1 and
Level 2. As a result, the realized and unrealized gains (losses) for assets and liabilities within the Level 3 category presented
in the tables below do not reflect the related realized and unrealized gains (losses) on hedging instruments that have been
classified by the Company within the Level 1 and/or Level 2 categories.
Additionally, both observable and unobservable inputs may be used to determine the fair value of positions that the Company
has classified within the Level 3 category. As a result, the unrealized gains (losses) during the period for assets and liabilities
within the Level 3 category presented in the tables below may include changes in fair value during the period that were
attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-
dated volatilities) inputs.
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