JP Morgan Chase 2010 Annual Report Download - page 206

Notes to consolidated financial statements
206 JPMorgan Chase & Co./2010 Annual Report
The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for the years indi-
cated, as well as the respective approved range/target allocation by asset category, for the Firm’s U.S. and non-U.S. defined benefit pension
and OPEB plans.
Defined benefit pension plans
U.S. Non-U.S. OPEB plans
(c)
Target
% of plan assets
Target
% of plan assets
Target
% of plan assets
December 31,
Allocation
2010
2009 Allocation
2010
2009 Allocation
2010
2009
Asset categor
y
Debt secur
ities
(a)
10-30% 29% 29% 72% 71% 75% 50% 50% 50 %
Equity secur
ities 25-60
40
40 26
28
23 50
50
50
Real estate
5-20
4
4 1
—
1 —
—
—
Alternatives
(b)
15-50 27 27 1 1 1 — — —
Total
100%
100%
100% 100%
100%
100% 100%
100%
100 %
(a) Debt securities primarily include corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities.
(b) Alternatives primarily include limited partnerships.
(c) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.
Fair value measurement of the plans’ assets and liabilities
The following details the instruments measured at fair value, in-
cluding the general classification of such instruments pursuant to
the valuation hierarchy, as described in Note 3 on pages 170–187
of this Annual Report.
Cash and cash equivalents
Cash and cash equivalents includes currency on hand, demand
deposits with banks or other financial institutions, and any short-
term, highly liquid investments readily convertible into cash (i.e.,
investments with original maturities of three months or less). Due
to the highly liquid nature of these assets, they are classified within
level 1 of the valuation hierarchy.
Equity securities
Common and preferred stocks are valued at the closing price re-
ported on the major market on which the individual securities are
traded and are generally classified within level 1 of the valuation
hierarchy. If quoted exchange prices are not available for the spe-
cific security, other independent pricing or broker quotes are con-
sulted for valuation purposes. Consideration is given to the nature
of the quotes (e.g., indicative or firm) and the relationship of re-
cently evidenced market activity to the prices provided from inde-
pendent pricing services. Common and preferred stock that do not
have quoted exchange prices are generally classified within level 2
of the valuation hierarchy.
Common/collective trust funds
These investments are public investment vehicles valued based on
the calculated NAV of the fund. Where the funds produce a daily
NAV that is validated by a sufficient level of observable activity
(purchases and sales at NAV), the NAV is used to value the fund
investment and it is classified in level 1 of the valuation hierarchy.
Where adjustments to the NAV are required, for example, with
respect to interests in funds subject to restrictions on redemption
(such as withdrawal limitations) and/or observable activity for the
fund investment is limited, investments are classified within level 2
of the valuation hierarchy.
Limited partnerships
Limited partnerships include investments in hedge funds, private
equity funds and real estate funds. Hedge funds are valued based
on quoted NAV and are classified within level 2 or 3 of the valua-
tion hierarchy depending on the level of liquidity and activity in the
markets for each investment. Certain of these hedge fund invest-
ments are subject to restrictions on redemption (such as initial lock-
up periods, withdrawal limitations and illiquid assets) and are
therefore classified within level 3 of the valuation hierarchy. The
valuation of private equity investments and real estate funds re-
quire significant management judgment due to the absence of
quoted market prices, the inherent lack of liquidity and the long-
term nature of such assets and therefore, they are generally classi-
fied within level 3 of the valuation hierarchy. Unfunded commit-
ments to purchase limited partnership investments for the Plans
were $1.1 billion and $1.3 billion for 2010 and 2009, respectively.
Corporate debt securities and U.S. federal, state, local and non-
government debt securities
The Firm estimates the value of debt instruments using a combina-
tion of observed transaction prices, independent pricing services
and relevant broker quotes. Consideration is given to the nature of
the quotes (e.g., indicative or firm) and the relationship of recently
evidenced market activity to the prices provided from independent
pricing services. The Firm may also use pricing models or dis-
counted cash flows. Such securities are generally classified within
level 2 of the valuation hierarchy.
Mortgage-backed securities
MBS include both U.S. government agency and U.S. government-
sponsored enterprise (collectively, “U.S. government agencies”)
securities, and nonagency pass-through securities. U.S. government
agency securities are valued based on quoted prices in active markets
and are therefore classified in level 1 of the valuation hierarchy.
Nonagency securities are primarily “AAA” rated residential and
commercial MBS valued using a combination of observed transaction
prices, independent pricing services and relevant broker quotes.
Consideration is given to the nature of the quotes and the relation-
ships of recently evidenced market activity to the prices provided from
independent pricing services. Such securities are generally classified
within level 2 of the valuation hierarchy.