Raytheon 2011 Annual Report Download - page 117

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
109
Plan Assets
Substantially all our domestic Pension Benefit Plan (Plan) assets, which consist of investments in cash and cash equivalents,
publicly traded equity securities, private equity funds, fixed-income securities, private real estate funds, commingled funds
and other investments such as insurance contracts, derivatives and repurchase agreements, are held in a master trust, which
was established for the investment of assets of our Company sponsored retirement plans. The assets of the master trust are
overseen by the Company’s Investment Committee comprised of members of senior management drawn from appropriate
diversified levels of the executive management team.
The Investment Committee is responsible for setting the policy that provides the framework for management of the Plan
assets. In accordance with its responsibilities and charter, the Investment Committee meets on a regular basis to review the
performance of the Plan assets and compliance with the investment policy. The policy sets forth an investment structure for
managing Plan assets, including setting the asset allocation ranges, which are expected to provide an appropriate level of
overall diversification and total investment return over the long term while maintaining sufficient liquidity to pay the benefits
of the Plan. Asset allocation ranges are set to produce the highest return on investment taking into account investment risks
that are prudent and reasonable given prevailing market conditions. In developing the asset allocation ranges, third party asset
allocation studies are periodically performed that consider the current and expected positions of the plan assets and funded
status. Based on these studies and other appropriate information, the Investment Committee establishes asset allocation ranges
taking into account acceptable risk targets and associated returns.
The investment policy asset allocation ranges for the Plan, as set by the Investment Committee, for the year ended December 31,
2011 were as follows:
Asset Category
U.S. equities
International equities
Fixed-income securities
Cash and cash equivalents
Other (including private equity, real estate and absolute return funds)
25% - 40%
10% - 30%
25% - 40%
3% - 15%
0% - 20%
The Investment Committee appoints the investment fiduciary, who is responsible for making investment decisions within the
framework of the Investment Policy and for supervising the internal pension investment team. The pension investment team
is comprised of experienced financial managers, who are all employees of the Company. The investment fiduciary reports
back to the Investment Committee. During times of unusual market conditions, the investment fiduciary may seek authorization
from the Investment Committee to change the investing allocation ranges to reasonably limit excessive volatility or other
undesirable consequences.
Taking into account the asset allocation ranges, the investment fiduciary determines the specific allocation of the Plan’s
investments within various asset classes. The Plan utilizes select investment strategies which are executed through separate
account or fund structures with external investment managers who demonstrate experience and expertise in the appropriate
asset classes and styles. The selection of investment managers is done with careful evaluation of all aspects of performance
and risk, due diligence of internal operations and controls, reputation, systems evaluation and a review of investment managers'
policies and processes. The Plan also utilizes funds that track an index and are highly liquid. Investment performance is
monitored frequently against appropriate benchmarks and tracked to compliance guidelines with the assistance of third party
performance evaluation tools and metrics.
Consistent with the objective of maximizing return while minimizing risk, multiple investment strategies are employed to
diversify risk such that no single investment or manager holding presents a significant exposure to the total investment
portfolio. Plan assets are invested in numerous diversified strategies with the intent to minimize correlations. This allows for
diversification of returns. Plan assets can be invested in funds that track an index and are designed to achieve diversification
across the related indices. The Plan had $2 billion invested in such funds across four indices as of December 31, 2011. Other
than funds that track an index, no individual investment strategy represented more than 5% of the Plan as of December 31,
2011. Further, within each separate account strategy, guidelines are established which set forth the list of authorized
investments, the typical portfolio characteristics and diversification required by limiting the amount that can be invested by
sector, country and issuer.