American Airlines 2009 Annual Report Download - page 79

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76
10. Retirement Benefits (Continued)
Each asset class is actively managed and, historically, the plans’ assets have produced returns, net of
management fees, in excess of the expected rate of return over the last ten years. Stocks and emerging market
bonds are used to provide diversification and are expected to generate higher returns over the long-term than
longer duration U.S. bonds. Public stocks are managed using a value investment approach in order to participate
in the returns generated by stocks in the long-term, while reducing year-over-year volatility. Longer duration U.S.
bonds are used to partially hedge the assets from declines in interest rates. Alternative (private) investments are
used to provide expected returns in excess of the public markets over the long-term. Additionally, the Company
engages currency overlay managers in an attempt to increase returns by protecting non-U.S. dollar denominated
assets from a rise in the relative value of the U.S. dollar. The Company also participates in securities lending
programs to generate additional income by loaning plan assets to borrowers on a fully collateralized basis. These
programs are subject to market risk.
Investments in securities traded on recognized securities exchanges are valued at the last reported sales price on
the last business day of the year. Securities traded in the over-the-counter market are valued at the last bid price.
The money market fund is valued at fair value which represents the net asset value of the shares of such fund as
of the close of business at the end of the period. Investments in limited partnerships are carried at estimated net
asset value as determined by and reported by the general partners of the partnerships and represent the
proportionate share of the estimated fair value of the underlying assets of the limited partnerships.
Common/collective trusts are valued at net asset value based on the fair values of the underlying investments of
the trusts as determined by the sponsor of the trusts. The 103-12 investment trust is valued at net asset value
which is determined by the issuer at the end of each month and is based on the aggregate fair value of trust
assets less liabilities, divided by the number of units outstanding. Investments in segregated funds are carried at
net asset value, which is based on the fair market value of the underlying asset. No changes in valuation
techniques or inputs occurred during the period.
The fair values of the Company’s pension plan assets at December 31, 2009, by asset category are as follows:
Fair Value Measurements at December 31, 2009 (in millions)
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Asset Category
Cash and cash equivalents
$ 162
$ –
$ –
$ 162
Equity securities
International markets (a)(e)
1,410
–
–
1,410
Large-cap companies (b)(e)
1,431
–
–
1,431
Mid-cap companies (c)(e)
241
–
–
241
Small-cap companies(d)(e)
49
–
–
49
Fixed Income
Corporate bonds (f)
--
2,023
--
2,023
Government securities (g)
--
793
--
793
U.S. municipal securities
--
40
--
40
Alternative investments
Private equity funds (h)
–
-
744
744
Common/collective and 103-12
investment trusts (i)
–
115
–
115
Insurance group annuity contracts
–
–
3
3
Dividend and interest receivable
40
–
–
40
Total
$ 3,333
$ 2,971
$ 747
$ 7,051