November 1999


Summary annual report

Plan Participants and Beneficiaries:
[The 1998 benefit plans report has been prepared in accordance with instructions from the U.S. Department of Labor and is required by the Employee Retirement Income Security Act of 1974.].

This special section summarizes annual reports of various Lockheed Martin Energy Systems Inc. benefit plans for 1998 and is written in language specified under regulations prepared by the U.S. Department of Labor. Complete annual reports for the
• ( insurance plans,
• ( savings plans, and
• ( retirement program plan
have been filed with the Internal Revenue Service, as required under the Employee Retirement Income Security Act (ERISA) of 1974.

The employer identification number for the insurance plans, retirement program plan and savings program is 52-1318516.

Summary annual report

1998 Insurance Plans
This is a summary of the annual reports for the insurance plans listed below. The plans have contracts with the insurance carriers shown to pay all claims incurred under the terms of the plans. The group life plan is a so-called “experience-rated” contract, so the premium costs are affected by, among other things, the number and size of claims.

Plan Name Insurance
carrier
Total premiums
paid in 1998
Total benefits
paid in 1998
Group life
insurance
Metropolitan
Life Ins. Co.
$ 11,544.553 $ 7,403,512
Business
travel
accident
insurance
Life lnsurance
Co. of North
America
$ 21,000 0
Special
accident
insurance
Life lnsurance
Co. of North
America
$ 860,002 $ 468,500

Medical plan
The employee medical plan operates under a contract between Lockheed Martin Energy Systems Inc., and Connecticut General Life Insurance Company, which provides that Energy Systems will supply funds for the payment of all claims due under the terms of the plan, up to a specified maximum determined each plan year. For the plan year 1998, the maximum was $73,579,747.00. In addition, the plan has an insurance contract with Connecticut General that guarantees the payment by Connecticut General of all claims incurred under the plan that may exceed the maximum and also provides for all claims administration.

The total insurance premiums paid for the group medical plan for the year ended December 31, 1998, were $1,124,187. In addition, Energy Systems supplied funds of $73,922,572.00, including costs for the self insured drug program, to Connecticut General for payment of claims resulting in total plan costs of $75,046,759.00.

As an alternative to the Health Benefits Program, you may elect membership in a Health Maintenance Organization. Energy Systems has entered into agreements with HMO’s to provide a variety of health care services to its members for a fixed, prepaid fee. For the plan year 1998, the total fees paid by Energy Systems were $17,047,827.00.

The Major Medical Medicare Supplement Plan is designed to provide protection against hospital and medical expenses during a participantís retirement years. The total premiums paid for the MMMSP for the year ended December 31, 1998 were $1,918,897.00. In addition, Energy Systems supplied funds of $12,630,908.00 to United HealthCare for payment of claims resulting in total plan costs of $14,549,805.00

Pre-tax medical premium contribution plan
The pre-tax medical premium contribution plan provides for employee contributions toward the cost of medical coverage with before-tax dollars. Before-tax contributions are deducted from pay before federal income taxes and Social Security taxes are withheld, resulting in a lower actual cost to the employee. For the plan year 1998, there were 11,164 participants who contributed $4,910,819.00 to the medical plan with before-tax dollars.

Dental expense assistance plan
The dental expense assistance plan operates under a contract between Lockheed Martin Energy Systems Inc. and the Metropolitan Life Insurance Company, which provides that Energy Systems will supply funds for the payment of all claims due under the terms of the plan, up to a specified maximum determined each plan year.

For the plan year ended December 31, 1998, the maximum was $9,808,103.00. In addition, the plan has an insurance contract with Metropolitan that guarantees the payment by Metropolitan of all claims incurred under the plan that may exceed the maximum and also provides for all claims administration.

The total insurance premiums paid for the plan year ended December 31, 1998, were $1,141,870.00. In addition, Energy Systems supplied funds of $8,483,866.00 to Metropolitan for payment of claims resulting in total plan costs of $9,625,736.00.

Employee assistance program
The Employee Assistance Program (EAP) operates under a contract between Energy Systems and Personal Performance Consultants Inc., which provides that Energy Systems will supply all funds for the services available to employees. The EAP provides confidential assessment, referral and, if appropriate, counseling services for problems that affect personal life, job or health. For the plan year ended December 31, 1998, the fees paid totaled $363,235.00.

Your right to additional information:
Participants in an insurance plan have the right to receive a copy of the full annual report, or any part of it, on request. Included in that report is insurance information.

Savings program
This is a summary of the annual reports of the savings plans for 1998, including basic financial statements.

Savings plan for salaried and hourly employees
Benefits under the savings plan for salaried and hourly employees are provided by a trust fund. Plan expenses were $488,318.00 in benefits paid to participants and beneficiaries. A total of 707 persons were participants in or beneficiaries of the plan at the end of the plan year, although not all of these persons had yet earned the right to receive benefits.

The value of plan assets, after subtracting plan liabilities, was $5,014,894.00 as of December 31, 1998, compared to $4,340,960.00 as of January 1, 1998. During the plan year, the plan experienced an increase in net assets of $674,024.00. This increase includes unrealized appreciation or depreciation in the value of the plan assets; that is, the difference between the value of the plan assets at the end of the year and the value of the assets at the beginning of the year or the cost of assets acquired during the year.

The plan had total income of $1,162,252.00, including employer contributions of $163,788.00; employee contributions of $868,800.00; realized and unrealized gains (losses) of ($192,702.00); and earnings from investments of $322,366.00.

401(k) savings plan for hourly employees
Benefits under the 401(k) savings plan for hourly employees are provided by a trust fund. Plan expenses were $987,067.00 in benefits paid to participants and beneficiaries. A total of 707 persons were participants in or beneficiaries of the plan at the end of the plan year, although not all of these persons had yet earned the right to receive benefits.

The value of plan assets, after subtracting liabilities of the plan, was $13,528,443.00 as of December 31, 1998, compared to $12,061,260.00 as of January 1,1998. During the plan year, the plan experienced an increase in net assets of $1,487,957.00. This increase includes unrealized appreciation or depreciation in the value of the plan assets; that is, the difference between the value of the plan assets at the end of the year and the value of the assets at the beginning of the year or the cost of assets acquired during the year. The plan had total income of $2,475,480.00, including employer contributions of $378,455.00; employee contributions of $1,831,337.00; realized and unrealized gains (losses) of ($663,451.00); and earnings from investments of $938,703.00.

Savings program
Benefits under the savings program are provided by a trust fund. Plan expenses were $94,814,440.00; including benefits paid to participants and beneficiaries of $91,758,902.00 and administrative expenses of $3,055,538.00. A total of 15,435 persons were participants in or beneficiaries of the plan at the end of the plan year, although not all of these persons had yet earned the right to receive benefits.

The value of plan assets as of December 31, 1998, after subtracting liabilities of the plan, was $1,105,518,744.00 compared to $1,124,951,970.00 as of January 1, 1998. During the plan year, the plan experienced a decrease in net assets of ($19,432,226.00). This decrease includes unrealized appreciation or depreciation in the value of the plan assets; that is, the difference between the value of the plan assets at the end of the year and the value of the assets at the beginning of the year or the cost of assets acquired during the year. The plan had total income of $153,163,387.00, including employer contributions of $21,565,354.00; employee contributions of $54,925,208.00; realized and unrealized gains of $1,803,133.00; and earnings from investments of $74,869,692.00. Transfers to other programs totaled ($77,481,470.00) during the year.

Your right to additional information
Each participant has the right to receive a copy of the full annual report, or any part of it, on request. The items listed below are included in that report:
• ( an accountant’s report,
• ( assets held for investment, and
• ( transactions in excess of five percent of plan assets.

Note: Transactions for financial reporting purposes for the Form 5500 and the summary annual report differ slightly from the requirements for audited financial statements as they relate to distributions payable and expense reporting at year end. This may result in timing differences between amounts reported on the Form 5500 and those published in the audited financial statements.

Retirement program
This is a summary of the annual report for the retirement program plan for 1998.

Basic financial statement
Benefits under the plan are provided by group annuity contracts. Plan expenses were $ 151,973,981.00. These expenses include $139,297,974.00 in benefits paid to participants and beneficiaries and to purchase benefits, and $12,676,007.00 in administrative expenses. A total of 19,193 persons were participants in or beneficiaries of the plan at the end of the plan year, although not all of these persons had yet earned the right to receive benefits.

The value of plan assets, after subtracting liabilities of the plan, was $3,057,344,519.00 as of December 31, 1998, compared to $2,872,344,579.00 as of January 1, 1998. During the plan year, the plan experienced an increase in its net assets of $185,000,219.00. The plan had total income of $472,894,952.00, including earnings from investments. During the plan year, the plan transferred some $135,920,971 to other pension plans.

The plan has contracts with the Metropolitan Life Insurance Company and the Prudential Insurance Company of America. The assets of the plan are invested in either the General Account or Separate Accounts of the insurer in accordance with the contract terms.

Minimum funding standards
An actuary’s statement shows that enough money was contributed to the plan to keep it funded in accordance with the minimum funding standards of ERISA.

Your right to additional information
Participants have the right to receive a copy of the full annual report, or any part of it, on request. The items listed below are included in that report:
• ( an accountant’s report,
• ( assets held for investment,
• ( insurance information,
• ( actuarial information regarding the funding of the plan, and
• ( transactions in excess of five percent of plan assets.

Note: Transactions for financial reporting purposes for the Form 5500 and the summary annual report differ slightly from the requirements for audited financial statements as they relate to distributions payable and expense reporting at year end. This may result in timing differences between amounts reported on the Form 5500 and those published in the audited financial statements.

For more detailed information
To obtain a copy of the full or partial annual reports for the insurance plans, retirement program plan or savings program, write to Plans Administrator: Lockheed Martin Energy Systems Inc., P.O. Box 2003, Oak Ridge, TN 37831-6497. Copying costs are 25 cents per individual page; $4 for the complete insurance plans; $5 for each savings plan annual report; and $10 for the entire retirement program plan annual report.

With regard specifically to the retirement program plan and savings plans, participants have the right to receive from the plan administrator, on request and at no charge, a statement of the assets and liabilities of the plan and accompanying notes, a statement of income and expenses of the plan and accompanying notes, or both.

For each participant requesting a copy of the full annual report, these two statements and accompanying notes will be included as part of that report. The copying cost previously mentioned does not include a charge for duplicating these portions of the report because they are furnished without charge.

Participants also have the legally protected right to examine the insurance, savings or retirement program plan annual reports at the main office, located at 701 Scarboro Road, Rm. 200, Oak Ridge, Tenn., and at the U.S. Department of Labor in Washington, D.C.

Participants also may obtain copies from the U.S. Department of Labor upon payment of copying costs. Requests to the Department of Labor should be addressed to: Public Disclosure Room, N4677, Pension and Welfare Benefit Programs, Frances Perkins Department of Labor Building, 200 Constitution Avenue, N.W., Washington, DC 20216.