Stocks represent shares of ownership in a company. When you buy a share of stock, you become a part owner of that company.

Long-term investments in stocks historically provided higher returns than the returns of other types of investments, such as short-term Treasuries and bonds. However, there is more risk associated with an investment in stocks, particularly over short periods of time (less than five years). You might consider a stock fund if you are willing to wait out short-term fluctuations in value in exchange for potentially higher investment returns over the long run.

The Savings Plan offers the following core investment funds which invest primarily in stocks, in order from lowest to highest potential risk and return:

·         Balanced Fund

·         U.S. Equity Fund

·         International Equity Fund

·         Small Cap Fund

·         Emerging Markets Equity Fund

·         Northrop Grumman Stock Fund

The following provides more information about the core investment funds and their investment objectives.

Balanced Fund

The Balanced Fund is designed to provide investors with a diversified portfolio. The fund’s target asset allocation is 45% domestic stocks, 20% international stocks, and 35% fixed income (bonds and cash equivalents). The allocation may vary over time as the fund managers buy and sell securities (pursuant to the fund’s investment guidelines and objectives).

The goal of the Balanced Fund is to earn a higher rate of return than the bond market, but with less risk than investing only in stocks. The fund’s risk and return potential will reflect a weighted average of the risk and return of the component allocations. At any time, the actual allocation percentages may differ from the targeted proportions; however, the fund is monitored to ensure that the allocation does not deviate beyond acceptable levels from the targeted allocation. If market conditions change significantly, the Savings Plan Investment Committee may change the targeted allocations. The performance of the Balanced Fund is compared to a custom benchmark composed of 45% Russell 3000®, 20% Morgan Stanley Capital International EAFE®, and 35% Lehman Brothers Aggregate Bond Index.

U.S. Equity Fund

By primarily investing in stocks of large and medium-size U.S. companies, the U.S. Equity Fund is designed to achieve a high total return through long-term growth of capital and the reinvestment of current income. The performance of the U.S. Equity Fund is compared to that of the Standard & Poor’s 500 Stock Index (S&P 500).

International Equity Fund

The International Equity Fund is designed to achieve a high total return through long-term capital appreciation and the reinvestment of income. The fund invests in the stocks of a diversified group of companies primarily in developed countries outside the United States. The performance of the International Equity Fund is compared to that of the Morgan Stanley Capital International EAFE® Index (MSCI EAFE®).

Small Cap Fund

The Small Cap Fund is designed to achieve a high total return by investing primarily in a diversified group of U.S. companies with lower market capitalization and higher revenue growth than the large, well-established companies that make up the S&P 500 Index. As with other stock funds, the objective is to grow your investment over the long term, rather than provide current income. However, this is especially true for small cap stocks because their market values tend to fluctuate more widely than do those of the stocks of larger companies. The performance of the Small Cap Fund is compared to that of the Russell 2000® Index (Russell 2000).

Emerging Markets Equity Fund

The Emerging Markets Equity Fund is designed to achieve a high total return over the long term by investing primarily in a diversified portfolio of stocks issued by companies based in developing countries. Like other stock funds, its objective is to attain capital appreciation over the long term. However, emerging markets stocks can experience added volatility due to political unrest and monetary instability. In addition:

· Some countries that are considered emerging markets may have unconventional accounting standards, and it could be difficult to obtain company information.

· Trading can be more difficult in these countries because only a few individuals may hold shares of stock and trading volume may be low.

· These stocks may be affected by fluctuations in currency exchange rates.

With higher levels of risk, however, come potential long-term growth opportunities. Emerging markets have the potential to experience periods of economic growth beyond that of the markets of developed countries. The performance of the Emerging Markets Equity Fund is compared to that of the Morgan Stanley Capital International Emerging Markets Free Index® (MSCI EMF).

Northrop Grumman Stock Fund

This fund provides employees an opportunity to participate in Northrop Grumman’s growth through the purchase of Northrop Grumman common stock. This makes you a part owner of Northrop Grumman and gives you full voting rights for any shares of stock that are attributable to your account.

Like any fund invested in a single stock, the fund has potential for losses as well as gains and is subject to risk with respect to Northrop Grumman’s profitability and investors’ perceptions of Northrop Grumman’s financial future, the industry, and the stock market in general.

The performance of the Northrop Grumman Stock Fund is compared to that of the Standard & Poor’s 500 Stock Index (S&P 500).