ComEd 2013 Annual Report Download - page 220

(c) Inconnection withtheacquisition ofConstellation inMarch 2012,Exelon assumedConstellation’s pension plan assetsresultingin transfersinto Level 3 of$141
million.
(d) In 2012,Exelon refineditspolicy over thecriteriathat hedgefundinvestmentsmustmeet inorder to becategorizedwithinLevel 2 andLevel 3 ofthefairvalue
hierarchy. Therefore,certainhedgefundinvestmentsthat were categorizedwithinLevel 3 inprior periods havebeen re-categorizedasLevel 2 investmentsasof
December 31,2012.There-categorization ofthesehedgefundinvestmentsisreflectedastransfersout ofLevel 3 of$1.1billion.
(e)In 2012,theliquidityterms ofacertain real estate investment changedto allowredemption within a reasonable periodoftimefromtheredemption date which ledto a
transfer out ofLevel 3 to Level 2 of$5million.
Valuation Techniques Used to Determine Fair Value
Cash equivalents.Investmentswithmaturitiesofthree months or less when purchased, includingcertainshort—term fixedincome
securitiesandmoneymarket funds, are consideredcash equivalents. Thefairvaluesare basedon observable market pricesand,
therefore,are includedintherecurringfairvalue measurementshierarchy asLevel 1.
Equity securities.Withrespecttoindividuallyheldequitysecurities, includinginvestmentsinU.S. andinternational securities, the
trusteesobtainpricesfrompricingservices, whosepricesare obtainedfromdirectfeeds frommarket exchanges, which Exelon is
able to independentlycorroborate.Equitysecuritiesheldindividuallyare primarilytradedon exchangesthat contain onlyactively
tradedsecurities, due to thevolume tradingrequirementsimposedbytheseexchanges. Equitysecuritiesare valuedbasedon
quotedpricesinactivemarketsandare categorizedasLevel 1.Certainprivate placement equitysecuritiesare categorizedasLevel
3becausetheyare not publiclytradedandare pricedusing significant unobservable inputs.
Equitycommingledfunds andmutual funds are maintainedbyinvestment companiesthat holdcertaininvestmentsinaccordance
withastatedset offundobjectives, which are consistent withExelon’s overall investment strategy. Thevaluesofsomeofthese
funds are publiclyquoted. For mutual funds which are publiclyquoted, thefunds are valuedbasedon quotedpricesinactive
marketsandhavebeen categorizedasLevel 1.For equitycommingledfunds andmutual funds which are not publiclyquoted, the
fundadministratorsvalue thefunds usingthe net asset value per fundshare,derivedfromthequotedpricesinactivemarketsofthe
underlyingsecurities. Thesefunds havebeen categorizedasLevel 2.
Fixed income.For fixedincomesecurities, which consistprimarilyofcorporate debtsecurities, foreigngovernment securities,
municipal bonds, asset andmortgage-backedsecurities, commingledfunds, mutual funds andderivativeinstruments, the trustees
obtainmultiple pricesfrompricingvendorswhenever possible, which enablescross-provider validationsinaddition to checks for
unusual dailymovements. Aprimarypricesourceis identifiedbasedon asset type,class or issue for each security. The trustees
monitor pricessuppliedbypricingservicesandmayuseasupplemental pricesourceorchangetheprimarypricesourceofagiven
securityifthe portfoliomanagerschallengeanassignedpriceandthe trusteesdetermine that another pricesourceis consideredto
be preferable.Exelon hasobtainedan understandingofhowthesepricesare derived, includingthe nature andobservabilityofthe
inputsusedinderivingsuch prices. Additionally, Exelon selectivelycorroboratesthefairvaluesofsecuritiesbycomparison to other
market-basedpricesources. InvestmentsinU.S. Treasurysecuritieshavebeen categorizedasLevel 1 becausetheytradeinhighly-
liquid andtransparent markets. Certainprivate placement fixedincomesecuritieshavebeen categorizedasLevel 3 becausethey
are pricedusingcertainsignificant unobservable inputsandare typicallyilliquid. Thefairvaluesof fixedincomesecurities, excluding
U.S. Treasurysecuritiesandprivatelyplaced fixedincomesecurities, are basedon evaluatedpricesthat reflectobservable market
information,such asactual tradeinformation of similar securities, adjustedfor observable differencesandare categorizedas
Level 2.
Derivativeinstrumentsconsistingprimarilyofinterest rate swapsto managerisk are recordedat fairvalue.Derivativeinstruments
are valuedbasedon external pricedata ofcomparable securitiesandhavebeen categorizedasLevel 2.
Fixedincomecommingledfunds andmutual funds, includingshort-terminvestment funds, are maintainedbyinvestment companies
andholdcertaininvestmentsinaccordancewithastatedset offundobjectives, which are consistent withExelon’s overall
investment strategy. Thevaluesofsomeofthesefunds are publiclyquoted. For mutual funds which are publiclyquoted, thefunds
are valuedbasedon quotedpricesinactivemarketsandhavebeen categorizedasLevel 1.For fixedincomecommingledfunds and
mutual funds which are not publiclyquoted, thefundadministratorsvalue thefunds usingthe net asset value per fundshare,derived
fromthequotedpricesinactivemarketsoftheunderlyingsecurities. Thesefunds havebeen categorizedasLevel 2.
Private equity.Private equityinvestmentsincludethoseinlimitedpartnershipsthat investin operatingcompaniesthat are not
publiclytradedon a stock exchangesuch asleveragedbuyouts, growthcapital,venture capital, distressedinvestmentsand
investmentsin natural resources. Private equityvaluationsare reportedbythefundmanager andare basedon thevaluation ofthe
underlyinginvestments, which includeinputssuch ascost,operatingresults, discountedfuture cash flows andmarket based
comparable data.Sincethesevaluation inputsare not highlyobservable,private equityinvestmentshavebeen categorizedas
Level 3.
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