UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 1-9813
GENENTECH, INC. TAX REDUCTION INVESTMENT PLAN
(Full title of the Plan)
GENENTECH, INC.
(Name of issuer of the securities held pursuant to the Plan)
1 DNA Way, South San Francisco, California 94080
(Address of principal executive offices and zip code)
Genentech, Inc. Tax Reduction Investment Plan
Index to Financial Statements
Item Page No.
- -------------------------------------------------------- ---------
Statement of Net Assets Available for Benefits with Fund
Information at December 31, 1997 and 1996 3-4
Statement of Changes in Net Assets Available
for Benefits with Fund Information for Years Ended
December 31, 1997 and 1996 5-8
Notes to Financial Statements 9-17
Report of Ernst & Young LLP, Independent Auditors 18
Signatures 19
Supplemental Schedules for the Year Ended December 31, 1997:
Schedule I - Schedule of Assets Held for Investment Purposes 20
Schedule II - Schedule of Reportable Transactions 21
Page 2
Genentech, Inc. Tax Reduction Investment Plan
Statement of Net Assets Available for Benefits with Fund Information
December 31, 1997
FIDELITY FIDELITY
GENENTECH FIDELITY GROWTH GROWTH & FIDELITY
COMMON MAGELLAN COMPANY INCOME INTERMEDIATE
STOCK FUND(2) FUND(1) FUND(1) PORTFOLIO(1) BOND FUND(1)
----------- ----------- ----------- ----------- -----------
ASSETS:
Investments, at
fair value $ 8,888,380 $42,752,024 $22,633,377 $41,214,011 $ 3,550,836
Contribution
receivable from
Genentech, Inc. 351,640 1,417,772 1,000,970 1,474,291 175,466
----------- ----------- ----------- ----------- -----------
Net assets
available for
benefits $ 9,240,020 $44,169,796 $23,634,347 $42,688,302 $ 3,726,302
=========== =========== =========== =========== ===========
FIDELITY FIDELITY FIDELITY
FIDELITY FIDELITY ASSET ASSET ASSET
OVERSEAS BALANCED MANAGER MANAGER: MANAGER:
FUND(1) FUND(1) FUND(1) GROWTH FUND(1) INCOME FUND(1)
----------- ----------- ----------- ----------- -----------
ASSETS:
Investments, at
fair value $ 6,371,403 $17,692,544 $ 1,712,971 $ 2,761,351 $ 561,511
Contribution
receivable from
Genentech, Inc. 332,306 534,069 94,157 182,941 32,191
----------- ----------- ----------- ----------- -----------
Net assets
available for
benefits $ 6,703,709 $18,226,613 $ 1,807,128 $ 2,944,292 $ 593,702
=========== =========== =========== =========== ===========
FIDELITY FIDELITY
RETIREMENT SPARTAN
MONEY MARKET U.S. EQUITY PARTICIPANT
PORTFOLIO(1) INDEX FUND(1) LOANS TOTAL
----------- ----------- ----------- ------------
ASSETS:
Investments, at
fair value $12,205,141 $11,878,056 $ 4,571,014 $176,792,619
Contribution
receivable from
Genentech, Inc. 502,254 571,775 0 6,669,832
----------- ----------- ----------- ------------
Net assets
available for
benefits $12,707,395 $12,449,831 $ 4,571,014 $183,462,451
=========== =========== =========== ============
<FN>
See accompanying notes.
(1) Fund shares are in registered investment companies.
(2) A unitized stock fund.
</FN>
Page 3
Genentech, Inc. Tax Reduction Investment Plan
Statement of Net Assets Available for Benefits with Fund Information
December 31, 1996
FIDELITY FIDELITY
GENENTECH FIDELITY GROWTH GROWTH & FIDELITY
COMMON MAGELLAN COMPANY INCOME INTERMEDIATE
STOCK FUND(2) FUND(1) FUND(1) PORTFOLIO(1) BOND FUND(1)
----------- ----------- ----------- ----------- -----------
ASSETS:
Investments, at
fair value $ 8,403,851 $33,142,803 $17,360,152 $27,078,832 $ 2,933,257
Contribution
receivable from
Genentech, Inc. 375,407 1,351,091 943,834 1,225,961 159,902
----------- ----------- ----------- ----------- -----------
Net assets
available for
benefits $ 8,779,258 $34,493,894 $18,303,986 $28,304,793 $ 3,093,159
=========== =========== =========== =========== ===========
FIDELITY FIDELITY FIDELITY
FIDELITY FIDELITY ASSET ASSET ASSET
OVERSEAS BALANCED MANAGER MANAGER: MANAGER:
FUND(1) FUND(1) FUND(1) GROWTH FUND(1) INCOME FUND(1)
----------- ---------- ----------- ----------- -----------
ASSETS:
Investments, at
fair value $ 4,783,884 $14,115,444 $ 1,305,895 $ 1,396,410 $ 466,683
Contribution
receivable from 303,851 563,957 87,305 128,964 33,340
Genentech, Inc.
----------- ----------- ----------- ----------- -----------
Net assets
available for
benefits $ 5,087,735 $14,679,401 $ 1,393,200 $ 1,525,374 $ 500,023
=========== =========== =========== =========== ===========
FIDELITY FIDELITY
RETIREMENT SPARTAN
MONEY MARKET U.S. EQUITY PARTICIPANT
PORTFOLIO(1) INDEX FUND(1) LOANS TOTAL
----------- ----------- ----------- ------------
ASSETS:
Investments, at
fair value $10,593,850 $ 5,680,716 $ 3,326,576 $130,588,353
Contribution
receivable from
Genentech, Inc. 537,155 340,828 0 6,051,595
----------- ----------- ----------- ------------
Net assets
available for
benefits $11,131,005 $ 6,021,544 $ 3,326,576 $136,639,948
=========== =========== =========== ============
<FN>
See accompanying notes.
(1) Fund shares are in registered investment companies.
(2) A unitized stock fund.
</FN>
Page 4
Genentech, Inc. Tax Reduction Investment Plan
Statement of Changes in Net Assets Available for Benefits with Fund Information
Year Ended December 31, 1997
FIDELITY FIDELITY
GENENTECH FIDELITY GROWTH GROWTH & FIDELITY
COMMON MAGELLAN COMPANY INCOME INTERMEDIATE
STOCK FUND FUND FUND PORTFOLIO BOND FUND
----------- ----------- ----------- ----------- -----------
Investment income:
Interest and dividends $ 0 $ 2,750,590 $ 2,145,451 $ 1,818,911 $ 202,838
Realized/unrealized
gain, net 1,064,766 6,176,380 1,317,558 7,244,757 31,914
----------- ----------- ----------- ----------- -----------
Total investment
income 1,064,766 8,926,970 3,463,009 9,063,668 234,752
Contributions:
Basic 753,851 3,090,832 2,466,941 3,262,951 346,819
Rollover 74,297 524,508 594,466 876,250 73,487
Employer match 351,706 1,417,772 1,000,970 1,474,290 175,466
----------- ----------- ----------- ----------- -----------
Total contributions 1,179,854 5,033,112 4,062,377 5,613,491 595,772
Distributions (580,069) (2,207,055) (1,251,010) (1,781,627) (104,830)
Administrative fees (6,879) (10,596) (2,875) (1,600) (262)
Transfers between funds (1,196,910) (2,066,529) (941,140) 1,489,577 (92,289)
----------- ----------- ----------- ----------- -----------
Net change
during the year 460,762 9,675,902 5,330,361 14,383,509 633,143
Net assets available
for benefits:
Beginning of year 8,779,258 34,493,894 18,303,986 28,304,793 3,093,159
----------- ----------- ----------- ----------- -----------
End of year $ 9,240,020 $44,169,796 $23,634,347 $42,688,302 $ 3,726,302
=========== =========== =========== =========== ===========
FIDELITY FIDELITY FIDELITY
FIDELITY FIDELITY ASSET ASSET ASSET
OVERSEAS BALANCED MANAGER MANAGER: MANAGER:
FUND FUND FUND GROWTH FUND INCOME FUND
----------- ----------- ----------- ----------- -----------
Investment income:
Interest and dividends $ 315,655 $ 2,137,796 $ 150,048 $ 288,624 $ 35,605
Realized/unrealized
gain, net 260,194 1,197,001 175,607 199,601 20,246
----------- ----------- ----------- ----------- -----------
Total investment
income 575,849 3,334,797 325,655 488,225 55,851
Contributions:
Basic 786,540 1,169,646 232,970 421,800 80,368
Rollover 162,672 105,177 27,903 116,327 9,704
Employer match 332,306 534,842 94,288 182,942 32,191
----------- ----------- ----------- ----------- -----------
Total contributions 1,281,518 1,809,665 355,161 721,069 122,263
Distributions (360,071) (608,106) (92,999) (144,742) (26,766)
Administrative fees (50) (625) (113) (100) 0
Transfers between funds 118,728 (988,519) (173,776) 354,466 (57,669)
----------- ----------- ----------- ----------- -----------
Net change
during the year 1,615,974 3,547,212 413,928 1,418,918 93,679
Net assets available
for benefits:
Beginning of year 5,087,735 14,679,401 1,393,200 1,525,374 500,023
----------- ----------- ----------- ----------- -----------
End of year $ 6,703,709 $18,226,613 $ 1,807,128 $ 2,944,292 $ 593,702
=========== =========== =========== =========== ===========
Page 5
Genentech, Inc. Tax Reduction Investment Plan
Statement of Changes in Net Assets Available for Benefits with Fund Information
Year Ended December 31, 1997
FIDELITY FIDELITY
RETIREMENT SPARTAN
MONEY MARKET U.S. EQUITY PARTICIPANT
PORTFOLIO INDEX FUND LOANS TOTAL
----------- ----------- ----------- ------------
Investment income:
Interest and dividends $ 632,790 $ 236,710 $ 406,602 $ 11,121,620
Realized/unrealized
gain, net 0 2,203,451 0 19,891,475
----------- ----------- ----------- ------------
Total investment
income 632,790 2,440,161 406,602 31,013,095
Contributions:
Basic 1,044,944 1,207,435 0 14,865,097
Rollover 246,640 635,082 0 3,446,513
Employer match 502,926 571,775 0 6,671,474
----------- ----------- ----------- ------------
Total contributions 1,794,510 2,414,292 0 24,983,084
Distributions (1,154,113) (619,367) (218,297) (9,149,052)
Administrative fees (1,287) (237) 0 (24,624)
Transfers between funds 304,490 2,193,438 1,056,133 0
----------- ----------- ----------- ------------
Net change
during the year 1,576,390 6,428,287 1,244,438 46,822,503
Net assets available
for benefits:
Beginning of year 11,131,005 6,021,544 3,326,576 136,639,948
----------- ----------- ----------- ------------
End of year $12,707,395 $12,449,831 $ 4,571,014 $183,462,451
=========== =========== =========== ============
<FN>
See accompanying notes.
</FN>
Page 6
Genentech, Inc. Tax Reduction Investment Plan
Statement of Changes in Net Assets Available for Benefits with Fund Information
Year Ended December 31, 1996
FIDELITY FIDELITY
GENENTECH FIDELITY GROWTH GROWTH & FIDELITY
COMMON MAGELLAN COMPANY INCOME INTERMEDIATE
STOCK FUND FUND FUND PORTFOLIO BOND FUND
----------- ----------- ----------- ----------- -----------
Investment income:
Interest and dividends $ 0 $ 5,213,751 $ 750,272 $ 1,296,172 $ 183,192
Realized/unrealized
gain(loss), net 88,550 (1,673,186) 1,481,322 2,943,030 (86,751)
----------- ----------- ----------- ----------- -----------
Total investment
income 88,550 3,540,565 2,231,594 4,239,202 96,441
Contributions:
Basic 830,540 3,258,021 2,003,675 2,453,471 332,688
Rollover 38,368 271,323 359,704 504,153 95,272
Employer match 375,407 1,351,843 943,927 1,226,146 159,902
----------- ----------- ----------- ----------- -----------
Total contributions 1,244,315 4,881,187 3,307,306 4,183,770 587,862
Distributions (517,198) (2,229,268) (906,200) (1,708,484) (88,385)
Administrative fees (3,200) (3,823) (1,000) (1,563) (538)
Transfers between funds (1,646,067) (3,342,222) 1,661,350 2,490,796 (90,347)
----------- ----------- ----------- ----------- -----------
Net change
during the year (833,600) 2,846,439 6,293,050 9,203,721 505,033
Net assets available
for benefits:
Beginning of year 9,612,858 31,647,455 12,010,936 19,101,072 2,588,126
----------- ----------- ----------- ----------- -----------
End of year $ 8,779,258 $34,493,894 $18,303,986 $28,304,793 $ 3,093,159
=========== =========== =========== =========== ===========
FIDELITY FIDELITY FIDELITY
FIDELITY FIDELITY ASSET ASSET ASSET
OVERSEAS BALANCED MANAGER MANAGER: MANAGER:
FUND FUND FUND GROWTH FUND INCOME FUND
----------- ----------- ----------- ----------- -----------
Investment income:
Interest and dividends $ 287,003 $ 655,819 $ 96,361 $ 116,370 $ 30,819
Realized/unrealized
gain, net 216,397 558,546 33,525 44,844 735
----------- ----------- ----------- ----------- -----------
Total investment
income 503,400 1,214,365 129,886 161,214 31,554
Contributions:
Basic 668,507 1,292,258 176,278 266,531 67,465
Rollover 104,656 183,831 46,839 147,071 33,493
Employer match 303,851 564,230 87,305 128,963 33,340
----------- ----------- ----------- ----------- -----------
Total contributions 1,077,014 2,040,319 310,422 542,565 134,298
Distributions (462,876) (566,746) (15,720) (25,929) (33,219)
Administrative fees (100) (1,825) (12) (37) 0
Transfers between funds 459,588 (1,993,676) 184,704 204,784 153,136
----------- ----------- ----------- ----------- -----------
Net change
during the year 1,577,026 692,437 609,280 882,597 285,769
Net assets available
for benefits:
Beginning of year 3,510,709 13,986,964 783,920 642,777 214,254
----------- ----------- ----------- ----------- -----------
End of year $ 5,087,735 $14,679,401 $ 1,393,200 $ 1,525,374 $ 500,023
=========== =========== =========== =========== ===========
Page 7
Genentech, Inc. Tax Reduction Investment Plan
Statement of Changes in Net Assets Available for Benefits with Fund Information
Year Ended December 31, 1996
FIDELITY FIDELITY
RETIREMENT SPARTAN
MONEY MARKET U.S. EQUITY PARTICIPANT
PORTFOLIO INDEX FUND LOANS TOTAL
----------- ----------- ----------- ------------
Investment income:
Interest and dividends $ 504,185 $ 118,579 $ 278,216 $ 9,530,739
Realized/unrealized
gain, net 0 735,934 0 4,342,946
----------- ----------- ----------- ------------
Total investment
income 504,185 854,513 278,216 13,873,685
Contributions:
Basic 1,066,131 601,080 0 13,016,645
Rollover 183,294 236,167 0 2,204,171
Employer Match 537,758 341,013 0 6,053,685
----------- ----------- ----------- ------------
Total contributions 1,787,183 1,178,260 0 21,274,501
Distributions (510,852) (265,711) (123,808) (7,454,396)
Administrative fees (4,448) (388) 0 (16,934)
Transfers between funds (249,817) 1,435,493 732,278 0
----------- ----------- ----------- ------------
Net change
during the year 1,526,251 3,202,167 886,686 27,676,856
Net assets available
for benefits:
Beginning of year 9,604,754 2,819,377 2,439,890 108,963,092
----------- ----------- ----------- ------------
End of year $11,131,005 $ 6,021,544 $ 3,326,576 $136,639,948
=========== =========== =========== ============
<FN>
See accompanying notes.
</FN>
Page
Genentech, Inc. Tax Reduction Investment Plan
Notes to Financial Statements
(1) Description of the Plan:
The following description of the Genentech, Inc. Tax Reduction Investment
Plan (the Plan) provides only general information. Participants should refer
to the Plan document for a more complete description of the Plan's
provisions.
The Plan was established, effective January 1, 1985, by Genentech, Inc.
(the Company) for the benefit of eligible employees of the Company in order
to provide them with a means of supplementing their retirement income on a
tax-favored basis, an incentive to continue and increase their efforts to
contribute to the success of the Company, and an opportunity to acquire an
equity interest in the Company. The Plan accomplishes this through a savings
program that is based on systematic salary reductions. The employee's salary
is reduced by the amount elected to be saved on a pre-tax basis. The
"deferred" part of the employee's salary is then invested in the Plan. An
individual employee's account is credited with earnings or losses on a pro
rata basis as the actual investment funds report their earnings performance.
Individuals eligible to participate under the Plan must be employees of the
Company or employees of an affiliate of the Company that adopts the Plan with
the approval of the Board of Directors. However, the following employees or
classes of employees are not eligible to participate: (i) any employee who is
classified as temporary by the Company, unless such employee has completed at
least 1,000 hours of service in a 12-month period beginning on his or her
hire date or any anniversary thereof; (ii) any part-time employee normally
scheduled to work less than 20 hours per week, unless such employee has
completed at least 1,000 hours of service in a 12-month period beginning on
his or her hire date or any anniversary thereof; (iii) any employee who is a
member of a collective bargaining unit and who is covered by a collective
bargaining agreement where retirement benefits were the subject of good faith
bargaining; (iv) any individual employed by any corporation or other business
entity that is merged or liquidated into the Company, unless the Company
designates such employees as eligible employees; (v) any employee paid from a
non-U.S. payroll; or (vi) any employee classified or treated as an
independent contractor, consultant, leased employee (as defined under the
Internal Revenue Code of 1986, as amended (the Code)), or an employee of an
employment agency or other entity, even if subsequently determined to have
been a common-law employee of the Company.
The Board of Directors of the Company has the right under the Plan to
alter, amend or terminate the Plan, or any part thereof, in such a manner as
it may determine. If the Plan is terminated, the interests of all Plan
members would remain fully (100%) vested and nonforfeitable. The balances
credited to their accounts would remain with the Plan trustee until they
become distributable in accordance with the Plan.
The Company matches a portion of employee contributions, up to a maximum of
4% of a participant's eligible compensation (the Match). The Match is
effective December 31st of each year (the Effective Date) and contributions
under the Match are fully vested at that time. The Match is funded in the
first quarter of the subsequent year. In the first quarter of 1998 and 1997,
the Company contributed approximately $6.7 million and $6.1 million,
respectively, to the Plan in accordance with the terms of the Plan.
Page 9
The Plan trustee is Fidelity Management Trust Company (the Plan Trustee).
All amounts contributed to the Plan are deposited in a trust account with the
Plan Trustee. The Plan Trustee's fees and expenses are paid by the Company
and are not charged to the Plan. Accounts of terminated employees who
continue to hold an account under the Plan as non-employee participants are
charged an annual fee of $50.00 by the Company. The Plan Trustee has blanket
bond insurance covering the full market value of the securities and
investments of which it has custody.
Effective as of May 8, 1996, the Company changed the mechanics of its
Genentech Common Stock Fund (the Stock Fund) to a unitized fund that assigns
units to participants rather than shares of the Company's stock. These units
represent a proportionate interest in all of the assets of the Stock Fund,
which includes shares of the Company's callable putable common stock (Special
Common Stock) and a small percentage (approximately 2%, although the
percentage may vary over time) in short-term investments. A net asset value
per unit will be determined daily for each unit outstanding in the Stock
Fund. The return earned by the Stock Fund will represent a combination of
the dividends paid on the shares of the Company's Special Common Stock (the
Company's Special Common Stock currently does not pay a dividend) held by the
Stock Fund, gains or losses realized on sales of the Company's Special Common
Stock, appreciation or depreciation in the market price of those shares
owned, and interest on the short-term investments held by the Stock Fund.
On May 21, 1997, the Plan employee eligibility provisions were amended
(retroactively effective to January 1, 1985) to clarify that independent
contractors, consultants, leased employees (as defined in the Code), and
employees of employment agencies or other entities are not eligible to
participate in the Plan, even if subsequently determined to have been common-
law employees of the Company. On December 31, 1997, the Plan was amended
(retroactively effective to January 1, 1985) to clarify in the Plan the
manner in a participant's Plan account is treated if and when the Company
receives notice that a domestic relations order specifying such account as a
source of payment is being sought.
The outstanding units and net asset values for the Stock Fund are calculated
at the end of each month by the Plan Trustee. The monthly Stock Fund units
and net asset value per unit for 1997 and 1996 are as follows:
Page 1
Number Net Net Asset
For the Period Ending January 31, 1997 of Asset Value
through December 31, 1997 Units Value Per Unit
- ---------------------------------------- ------- ------------- -----------
January 31, 1997:
Genentech Common Stock Fund 158,035 $ 8,672,171 $ 54.88
Fidelity Institutional Cash Portfolio:
Money Market Fund 123,528 123,528 1.00
February 28, 1997:
Genentech Common Stock Fund 155,434 8,568,299 55.12
Fidelity Institutional Cash Portfolio:
Money Market Fund 125,545 125,545 1.00
March 31, 1997:
Genentech Common Stock Fund 154,628 8,833,124 57.12
Fidelity Institutional Cash Portfolio:
Money Market Fund 126,485 126,485 1.00
April 30, 1997:
Genentech Common Stock Fund 155,559 9,119,646 58.62
Fidelity Institutional Cash Portfolio:
Money Market Fund 141,233 141,233 1.00
May 31, 1997:
Genentech Common Stock Fund 157,059 9,207,584 58.63
Fidelity Institutional Cash Portfolio:
Money Market Fund 137,963 137,963 1.00
June 30, 1997:
Genentech Common Stock Fund 157,610 9,289,139 58.94
Fidelity Institutional Cash Portfolio:
Money Market Fund 121,349 121,349 1.00
July 31, 1997:
Genentech Common Stock Fund 156,110 9,015,353 57.75
Fidelity Institutional Cash Portfolio:
Money Market Fund 128,627 128,627 1.00
August 31, 1997:
Genentech Common Stock Fund 156,710 8,952,059 57.13
Fidelity Institutional Cash Portfolio:
Money Market Fund 122,445 122,445 1.00
September 30, 1997:
Genentech Common Stock Fund 153,710 8,934,394 58.13
Fidelity Institutional Cash Portfolio:
Money Market Fund 111,522 111,522 1.00
October 31, 1997:
Genentech Common Stock Fund 146,410 8,500,931 58.06
Fidelity Institutional Cash Portfolio:
Money Market Fund 95,885 95,885 1.00
November 30, 1997:
Genentech Common Stock Fund 146,896 8,575,054 58.38
Fidelity Institutional Cash Portfolio:
Money Market Fund 89,664 89,664 1.00
December 31, 1997:
Genentech Common Stock Fund 144,903 8,782,485 60.61
Fidelity Institutional Cash Portfolio:
Money Market Fund 105,895 105,895 1.00
Page 11
Number Net Net Asset
For the Period Ending May 31, 1996 of Asset Value
through December 31, 1996 Units Value Per Unit
- ---------------------------------------- ------- ------------- -----------
May 31, 1996:
Genentech Common Stock 170,901 $ 8,993,665 $52.62
Fidelity Institutional Cash Portfolio:
Money Market Fund 122,580 122,580 1.00
June 30, 1996:
Genentech Common Stock 169,001 8,851,427 52.37
Fidelity Institutional Cash Portfolio:
Money Market Fund 45,181 45,181 1.00
July 31, 1996:
Genentech Common Stock 164,601 8,662,128 52.63
Fidelity Institutional Cash Portfolio:
Money Market Fund 127,632 127,632 1.00
August 31, 1996:
Genentech Common Stock 162,080 8,509,200 52.50
Fidelity Institutional Cash Portfolio:
Money Market Fund 49,181 49,181 1.00
September 30, 1996:
Genentech Common Stock 158,380 8,374,343 52.88
Fidelity Institutional Cash Portfolio:
Money Market Fund 120,408 120,408 1.00
October 31, 1996:
Genentech Common Stock 156,780 8,446,523 53.88
Fidelity Institutional Cash Portfolio:
Money Market Fund 108,720 108,720 1.00
November 30, 1996:
Genentech Common Stock 155,268 8,403,881 54.13
Fidelity Institutional Cash Portfolio:
Money Market Fund 84,407 84,407 1.00
December 31, 1996:
Genentech Common Stock 154,568 8,292,400 53.65
Fidelity Institutional Cash Portfolio:
Money Market Fund 111,451 111,451 1.00
Page 12
In 1997 and 1996, subject to limitations of the Code, each participant in
the Plan could elect to defer up to the lower of (i) $9,500 or (ii) 15% and
12%, respectively, of his or her eligible compensation. For the plan years
1997 and 1996, each participant was required to direct the investment of
his or her contributions to any of the following twelve investment funds of
the Plan (or any combination thereof):
Genentech Common Stock Fund
This fund invests primarily in the Special Common Stock of the Company,
which is purchased at full market price. In addition, a small percentage of
this fund (approximately 2%, although the percentage may vary over time)
invests in the Fidelity Institutional Cash Portfolios: Money Market
Portfolio: Class A, (or other mutual funds or money market funds as may be
agreed to by the Company and the Plan Trustee), to provide liquidity for the
timely settlement of trades. The Special Common Stock of the Company does
not currently pay dividends; therefore the return on this fund is largely
dependent on the performance of the stock and, to a lesser degree, the
interest received on the short-term investments. See above for information
on the unitization of this fund.
Fidelity Magellan, registered trademark, Fund
The Fidelity Magellan Fund is a mutual fund managed by Fidelity Management
and Research Company (FMR). The fund invests in the common stock, and
securities convertible into common stock, of various types of domestic and
foreign companies.
Fidelity Growth Company Fund
The Fidelity Growth Company Fund is a mutual fund managed by FMR. It
invests primarily in common stock of companies that it believes have the
potential for above-average growth.
Fidelity Growth & Income Portfolio
The Fidelity Growth & Income Portfolio is a mutual fund managed by FMR and
invests primarily in securities of U.S. and foreign companies that it
believes offer growth of earnings potential while paying current dividends.
The Portfolio may also invest in bonds.
Fidelity Intermediate Bond Fund
The Fidelity Intermediate Bond Fund is a mutual fund managed by FMR. The
fund invests in various types of U.S. and foreign bonds, including corporate
or U.S. government issues. The fund selects bonds that it considers medium-
to high-quality and normally maintains an average maturity of 3 to 10 years.
Fidelity Overseas Fund
The Fidelity Overseas Fund is a mutual fund managed by FMR. The fund
invests in foreign securities including common stock and securities
convertible to common stock of foreign businesses and debt instruments of
foreign businesses and governments.
Page 13
Fidelity Balanced Fund
The Fidelity Balanced Fund is a mutual fund managed by FMR that invests in
a broad variety of what it believes are high yielding U.S. and foreign
securities. The fund maintains at least 25% of its assets in fixed income
securities (bonds) and preferred stocks.
Fidelity Asset Manager, trademark, Fund
The Fidelity Asset Manager Fund is a mutual fund managed by FMR. The Asset
Manager Fund allocates its assets among domestic and foreign equities, bonds
and short-term instruments, aiming for an investment mix of 40% stocks, 40%
bonds and 20% short-term investments.
Fidelity Asset Manager: Growth Fund
The Fidelity Asset Manager: Growth Fund, a mutual fund managed by FMR,
invests in domestic and foreign stocks, bonds and short-term instruments,
aiming for an investment mix of 65% stocks, 30% bonds and 5% short-term
investments.
Fidelity Asset Manager: Income Fund
The Fidelity Asset Manager: Income Fund is a mutual fund managed by FMR
that invests in domestic and foreign stocks, bonds and short-term
instruments, aiming for an investment mix of 20% stocks, 30% bonds and 50%
short-term investments.
Fidelity Retirement Money Market Portfolio
The Fidelity Retirement Money Market Portfolio is a mutual fund managed by
FMR. It invests in what it believes are high-quality U.S. dollar-denominated
money market instruments of U.S. and foreign issuers, including short-term
corporate obligations and certificates of deposit.
Fidelity Spartan U.S. Equity Index Fund
The Fidelity U.S. Equity Index Fund, a mutual fund managed by FMR, invests
mostly in the common stocks of a variety of the 500 companies that make up
the Standard & Poor's Composite Index.
Participant Loans
Loans are made to Plan participants, at fixed interest rates (presently 2%
above the then-current bank prime interest rate), subject to certain
restrictions, principally related to a participant's account balance,
permissible loan amount, and repayment through payroll withholding. Loans
are repaid through monthly payroll deductions over three or five years, or
fifteen years if the purpose of the loan is to purchase a participant's
principal residence.
Conditions of Withdrawal
Distributions under the Plan will be made upon a participant's death,
disability, retirement or other termination of employment with the Company,
attainment of age 70-1/2, or authorized exercise of his or her withdrawal
rights under the Plan. A participant must consent to a distribution unless
he or she has attained age 62 or the balance credited to his or her account
Page 14
under the Plan does not exceed and has not exceeded $3,500. Distributions
are made upon receipt of the participant's or beneficiary's election
directing the method of distribution.
Prior to termination of employment with the Company, the Plan administrator
may grant a participant's request for a withdrawal if the Plan administrator
makes a determination that such withdrawal is necessary in light of the
immediate and heavy financial needs of the participant and is in accordance
with the requirements of the Code and regulations promulgated thereunder. In
addition, a Plan participant may withdraw up to the entire balance of his or
her Plan account if over age 59-1/2 at the time of withdrawal.
(2) Summary of Significant Accounting Policies:
Investment Valuation
Investments are stated at market value at year end. Fidelity Magellan
Fund, Fidelity Growth Company Fund, Fidelity Growth & Income Portfolio,
Fidelity Intermediate Bond Fund, Fidelity Overseas Fund, Fidelity Balanced
Fund, Fidelity Asset Manager Fund, Fidelity Asset Manager: Growth Fund,
Fidelity Asset Manager: Income Fund, and Fidelity Spartan U.S. Equity Index
Fund securities are valued at the last reported sales price on the last
business day of the year, which for the mutual funds represents the net asset
values of shares held by the Plan at year end. The Fidelity Retirement Money
Market Portfolio instruments is valued on the basis of historical cost that
approximates fair value. Participant loans are valued at their outstanding
balance which approximates fair value. See Note (1) for a description of the
investment valuation of the Genentech Common Stock Fund.
Contributions
Basic contributions are accrued and vested when deducted from employee pay;
the Match is accrued and vested on the Effective Date; and qualified rollover
contributions are recorded and vested when received by the Plan Trustee.
Contributions are invested pursuant to participants' directions to the Plan
Trustee after receipt of contributions by the Plan Trustee. Participants may
change the amount of contributions (as a percentage reduction of pre-tax
eligible compensation) at any time by contacting the Plan Trustee.
Transfers between funds and changes in investment allocations can be made at
any time, up to ten times per year, effective upon direction by the
participant to the Plan Trustee.
Distributions
Distributions are recorded when paid.
Other
All security transactions are recorded on the trade date. Gains and losses
on the disposals of investments are determined based on the average cost of
all securities. Dividend income is recorded on the effective date of a
declared dividend. Income from other investments is recorded as earned on an
accrual basis.
Page 15
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
(3) Income Tax Status:
The Internal Revenue Service (the IRS) has determined and informed the
Company by letter dated September 25, 1995, that the December 21, 1984 Plan,
as amended and restated, qualified in form under Section 401(a) of the Code
and the underlying trust is, therefore, exempt from federal income taxes
under Section 501(a) of the Code.
Effective as of May 8, 1996, the Plan was again amended and restated. In
May 1997 and December 1997, the amended and restated Plan was amended
(retroactively effective to January 1, 1985). The changes made in the May
8, 1996 amendment and restatement, the May 1997 amendment and the December
1997 amendment were technical in nature, and in the opinion of the Company
and its legal counsel, did not require another determination from the IRS
concerning the Plan's tax exempt status.
The Company believes that the Plan is designed and is currently being
operated in compliance with the applicable requirements of the Code.
(4) Related Party Transactions:
Certain of the investment funds are managed by FMR, an affiliate of the
Plan Trustee. Because of this relationship, transactions involving these
funds qualify as party-in-interest transactions, as well as transactions in
Genentech Special Common Stock and loans to Plan participants.
Page 16
(5) Assets held for investment at December 31, 1997 were as follows:
Number of
Name of Issuer Shares, Units Fair
and Title of Principal or Amount Cost Value
- ----------------------------------------------- ------------- ------------ ------------
GENENTECH COMMON STOCK FUND
Genentech, Inc. -
Special Common Stock....................... 144,903 $ 6,199,615 $ 8,782,485
Fidelity Institutional Cash Portfolio:
Money Market Fund.......................... 105,895 105,895 105,895
FIDELITY MAGELLAN, registered trademark, FUND
Fidelity Magellan Fund....................... 448,746 34,428,835 42,752,024
FIDELITY GROWTH COMPANY FUND
Fidelity Growth Company Fund ................ 522,469 19,285,747 22,633,377
FIDELITY GROWTH & INCOME PORTFOLIO
Fidelity Growth & Income Portfolio........... 1,081,733 29,241,699 41,214,011
FIDELITY INTERMEDIATE BOND FUND
Fidelity Intermediate Bond Fund.............. 349,148 3,560,542 3,550,836
FIDELITY OVERSEAS FUND
Fidelity Overseas Fund ...................... 195,802 5,894,918 6,371,403
FIDELITY BALANCED FUND
Fidelity Balanced Fund ...................... 1,158,647 15,506,958 17,692,544
FIDELITY ASSET MANAGER, trademark, FUND
Fidelity Asset Manager Fund.................. 93,350 1,517,502 1,712,971
FIDELITY ASSET MANAGER: GROWTH FUND
Fidelity Asset Manager: Growth Fund ......... 149,424 2,509,826 2,761,351
FIDELITY ASSET MANAGER: INCOME FUND
Fidelity Asset Manager: Income Fund ........ 46,101 544,519 561,511
FIDELITY RETIREMENT MONEY MARKET PORTFOLIO
Fidelity Retirement Money Market Portfolio .. 12,205,141 12,205,141 12,205,141
FIDELITY SPARTAN U.S. EQUITY INDEX FUND
Fidelity Spartan U.S. Equity Index Fund ..... 339,567 8,954,526 11,878,056
PARTICIPANT LOANS
Loans receivable from participants .......... 4,571,014 4,571,014 4,571,014
------------ ------------
TOTAL INVESTMENTS ............................. $144,526,737 $176,792,619
============ ============
Page 1
Report of Ernst & Young LLP, Independent Auditors
To the Participants and Plan Administration Committee of the
Genentech, Inc. Tax Reduction Investment Plan
We have audited the accompanying statements of net assets available for
benefits of the Genentech, Inc. Tax Reduction Investment Plan as of December
31, 1997 and 1996, and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements
are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the
Genentech, Inc. Tax Reduction Investment Plan at December 31, 1997 and 1996,
and the changes in its net assets available for benefits for the years then
ended, in conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental
schedules of assets held for investment purposes as of December 31, 1997 and
of reportable transactions for the year then ended, are presented for
purposes of complying with the Department of Labor's Rules and Regulations
for Reporting and Disclosure under the Employee Retirement Income Security
Act of 1974, and are not a required part of the basic financial statements.
The Fund Information in the statement of net assets available for benefits
and the statement of changes in net assets available for benefits is
presented for purposes of additional analysis rather than to present the net
assets available for benefits and changes in net assets available for
benefits of each fund. The supplemental schedules and Fund Information have
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
ERNST & YOUNG LLP
San Jose, California
May 15, 1998
Page 18
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Plan administrator has duly caused this annual report to be signed by the
undersigned hereunto duly authorized.
Genentech, Inc. Tax Reduction Investment Plan
by Genentech, Inc., Plan Administrator
By: /S/LOUIS J. LAVIGNE, JR. Date: June 23, 1998
----------------------------------
Louis J. Lavigne, Jr.
Executive Vice President and
Chief Financial Officer
and Plan Administration Committee
Member for Genentech, Inc.
Tax Reduction Investment Plan
By: /S/JUDITH A. HEYBOER Date: June 23, 1998
----------------------------------
Judith A. Heyboer
Senior Vice President - Human Resources
and Plan Administration Committee
Member for Genentech, Inc.
Tax Reduction Investment Plan
By: /S/JAMES P. PANEK Date: June 23, 1998
----------------------------------
James P. Panek
Vice President - Manufacturing,
Engineering and Facilities
and Plan Administration Committee
Member for Genentech, Inc.
Tax Reduction Investment Plan
Page 19
SCHEDULE I
Genentech, Inc. Tax Reduction Investment Plan
Item 27a
Schedule of Assets Held For Investment Purposes
December 31, 1997
Description Current
Identity of Issue of Investment Cost Value
- ---------------------------------------- ----------------- ------------ ------------
* GENENTECH COMMON STOCK FUND
Genentech, Inc. - Common stock -
Special Common Stock................. 144,903 units $ 6,199,615 $ 8,782,485
Fidelity Institutional Cash Portfolio: Mutual Fund
Money Market Fund .................. 105,895 units 105,895 105,895
* FIDELITY MAGELLAN, registered trademark, FUND
Mutual fund -
Fidelity Magellan Fund................ 448,746 shares 34,428,835 42,752,024
* FIDELITY GROWTH COMPANY FUND
Mutual fund -
Fidelity Growth Company Fund ......... 522,469 shares 19,285,747 22,633,377
* FIDELITY GROWTH & INCOME PORTFOLIO
Mutual fund -
Fidelity Growth & Income Portfolio ... 1,081,733 shares 29,241,699 41,214,011
* FIDELITY INTERMEDIATE BOND FUND
Mutual fund -
Fidelity Intermediate Bond Fund ...... 349,148 shares 3,560,542 3,550,836
* FIDELITY OVERSEAS FUND
Mutual fund -
Fidelity Overseas Fund ............... 195,802 shares 5,894,918 6,371,403
* FIDELITY BALANCED FUND
Mutual fund -
Fidelity Balanced Fund ............... 1,158,647 shares 15,506,958 17,692,544
* FIDELITY ASSET MANAGER, trademark, FUND
Mutual fund -
Fidelity Asset Manager Fund........... 93,350 shares 1,517,502 1,712,971
* FIDELITY ASSET MANAGER: GROWTH FUND
Mutual fund -
Fidelity Asset Manager: Growth Fund .. 149,424 shares 2,509,826 2,761,351
* FIDELITY ASSET MANAGER: INCOME FUND
Mutual fund -
Fidelity Asset Manager: Income Fund .. 46,101 shares 544,519 561,511
* FIDELITY RETIREMENT MONEY MARKET PORTFOLIO
Mutual fund -
Fidelity Retirement Money Market Portfolio 12,205,141 shares 12,205,141 12,205,141
* FIDELITY SPARTAN U.S. EQUITY INDEX FUND
Mutual fund -
Fidelity Spartan U.S. Equity Index Fund 339,567 shares 8,954,526 11,878,056
* PARTICIPANT LOANS
Loans receivable from participants ... (1) 4,571,014 4,571,014
------------ ------------
TOTAL INVESTMENTS ...................... $144,526,737 $176,792,619
============ ============
<FN>
(1) Maturing at various dates through 2012 at interest rates ranging from 8.00% to 12.25%.
* Party-in-interest.
</FN>
Page 20
SCHEDULE II
Genentech, Inc. Tax Reduction Investment Plan
Item 27d
Schedule of Reportable Transactions
For the Year ended December 31, 1997
Purchases Sales
-------------------------- ------------------------------------------------
Description Number of Purchase Number of Selling Net
of Asset Transactions Price Transactions Cost Price Gain/Loss
- -------------------------------- ----------- ----------- ----------- ----------- ---------
Fidelity
Magellan Fund 240 $ 9,577,470 209 $ 5,247,344 $ 6,144,629 $ 897,285
Fidelity Growth
Company Fund 224 8,053,465 181 3,323,469 4,097,798 774,329
Fidelity Growth
& Income Portfolio 241 11,074,163 195 3,205,052 4,183,741 978,689
Fidelity
Balanced Fund 185 4,490,884 155 1,845,720 2,110,785 265,065
Fidelity Retirement
Money Market Portfolio 203 6,999,569 197 5,388,277 5,388,277 -
Fidelity Spartan
U.S. Equity Index Fund 202 5,647,821 126 1,303,873 1,653,932 350,059
<FN>
Reportable transactions include any series of transactions that in the aggregate
exceed five percent of the fair market value of Plan assets at the beginning of the
year. The transactions can occur on a daily basis. These transactions represent
Category (iii) reportable transactions in accordance with Department of Labor
regulations. There were no other reportable transactions during 1997.
</FN>
Page 21
Genentech, Inc. Tax Reduction Investment Plan
Index of Exhibits Filed with Form 11-K
For the Year Ended December 31, 1997
Sequential
Exhibit Number Description Page Numbers
- -------------- --------------------------------------------------- -------------
23 Consent of Ernst & Young LLP, Independent Auditors,
filed with this document 23
Page 22