Plan Assets Investment policies and strategies – Lockheed Martin Investment Management Company (LMIMCo), our wholly- owned subsidiary, has the fiduciary responsibility for making investment decisions related to the assets of our postretirement benefit plans. LMIMCo’s investment objectives for the assets of these plans are (1) to minimize the net present value of expected funding contributions; (2) to ensure there is a high probability that each plan meets or exceeds our actuarial long- term rate of return assumptions; and (3) to diversify assets to minimize the risk of large losses. The nature and duration of benefit obligations, along with assumptions concerning asset class returns and return correlations, are considered when determining an appropriate asset allocation to achieve the investment objectives. Investment policies and strategies governing the assets of the plans are designed to achieve investment objectives within prudent risk parameters. Risk management practices include the use of external investment managers; the maintenance of a portfolio diversified by asset class, investment approach, and security holdings; and the maintenance of sufficient liquidity to meet benefit obligations as they come due. LMIMCo’s investment policies require that asset allocations of postretirement benefit plans be maintained within the following approximate ranges: Fair value measurements – The rules related to accounting for postretirement benefit plans under GAAP require certain fair value disclosures related to postretirement benefit plan assets, even though those assets are not included on our Balance Sheets. The following table presents the fair value of the assets of our qualified defined benefit pension plans and retiree medical and life insurance plans by asset category and their level within the fair value hierarchy, which has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets, Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant unobservable inputs. Asset Class Asset Allocation Ranges Cash and cash equivalents 0 – 30% Equity 10 – 55% Fixed income 10 – 60% Alternative investments: Private equity funds 0 – 15% Real estate funds 0 – 10% Hedge funds 0 – 20% Commodities 0 – 25% Balance as of December 31, 2011 Balance as of December 31, 2010 (In millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 2,886 $ — $ — $ 2,886 $ 1,726 $ — $ — $ 1,726 Equity $^{(a)}$: U.S. equity securities 3,834 37 7 3,878 4,548 44 — 4,592 International equity securities 3,750 11 15 3,776 5,008 6 16 5,030 Commingled equity funds 1,016 1,127 — 2,143 1,287 1,056 — 2,343 Fixed income $^{(a)}$: Corporate debt securities — 946 98 1,044 — 1,351 63 1,414 U.S. Government securities — 10,040 — 10,040 — 7,262 — 7,262 Other fixed income securities — 508 45 553 — 584 47 631 Alternative investments: Private equity funds — — 2,286 2,286 — — 2,085 2,085 Real estate funds — — 278 278 — — 164 164 Hedge funds — — 825 825 — — 1,025 1,025 Commodities (a) 992 277 — 1,269 343 516 — 859 Total $12,478 $12,946 $3,554 $28,978 $12,912 $10,819 $3,400 $27,131 Receivables, net 63 47 Total $29,041 $27,178 (a) Equity securities, fixed income securities, and commodities included derivative assets and liabilities whose fair values were not material as of December 31, 2011 and 2010. LMIMCo’s investment policies restrict the use of derivatives to either establish long exposures for purposes of expediency or capital efficiency, or to hedge risks to the extent of a plan’s current exposure to such risks. Most derivative transactions are settled on a daily basis. 72