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 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
or
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________________
Commission file number 1-2360
IBM TAX DEFERRED SAVINGS PLAN 401(K)
(Full title of the plan)
Director of Compensation & Benefits
Capital Accumulation Programs
IBM Corporation
Old Orchard Road
ARMONK, NEW YORK 10504
(Address of the plan)
INTERNATIONAL BUSINESS MACHINES CORPORATION
(Name of issuer of the securities held pursuant to the plan)
New Orchard Road
ARMONK, NEW YORK 10504
(Address of issuer's principal executive office)
REQUIRED INFORMATION
PAGE
CONSENT OF INDEPENDENT ACCOUNTANTS 3
REPORT OF INDEPENDENT ACCOUNTANTS 4
FINANCIAL STATEMENTS:
Statement of Net Assets Available for Plan Benefits as of
December 31, 1999 and December 31, 1998 5
Statement of Changes in Net Assets Available for Plan Benefits
for the year ended December 31, 1999 6
Notes to Financial Statements 7
SUPPLEMENTARY SCHEDULES:
Schedule I - Item 27a - Assets Held for Investment Purposes
at December 31, 1999 21
Schedule II - Item 27d - Schedule of Reportable Transactions 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the plan) have duly caused this annual
report to be signed by the undersigned thereunto duly authorized.
IBM TAX DEFERRED SAVINGS PLAN 401(K)
------------------------------------
(Name of Plan)
Dated: June 28, 2000 BY: /s/ M. Loughridge
--------------------------------
M. Loughridge
(Vice President and Controller)
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Registration Nos. 333-09055 and 33-33590) of the IBM Tax
Deferred Savings Plan 401(k) of our report dated June 26, 2000 appearing on page
4 of this Annual Report on Form 11-K for the year ended December 31, 1999.
PricewaterhouseCoopers LLP
1301 Avenue of the Americas
New York, NY 10019
June 26, 2000
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of the International Business Machines Corporation (IBM)
Retirement Plans Committee and the Participants of the IBM Tax Deferred
Savings Plan 401(k)
In our opinion, the financial statements as referenced in the Required
Information Section on page 2, present fairly, in all material respects, the net
assets available for plan benefits of the IBM Tax Deferred Savings Plan 401(k)
at December 31, 1999 and December 31, 1998, and the changes in net assets
available for benefits for the year ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with auditing standards
generally accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included in
Schedules I and II is presented for the purpose of additional analysis and is
not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. These supplemental schedules are the responsibility of the Plan's
management. The supplemental schedules have been subjected to the auditing
procedures applied in the 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.
PricewaterhouseCoopers LLP
1301 Avenue of the Americas
New York, NY 10019
June 26, 2000
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INTERNATIONAL BUSINESS MACHINES CORPORATION
IBM TAX DEFERRED SAVINGS PLAN 401(K)
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
(Dollars in thousands)
At December 31: 1999 1998
---- ----
Assets:
Investments at fair value (See Note 6) $20,952,226 $17,130,814
Receivables:
Income and sales proceeds receivable 2,803 3,056
Loans receivable 315,751 301,706
----------- -----------
Total assets 21,270,780 17,435,576
Liabilities:
Expenses payable 2,024 226
Investments purchased -- 9,552
----------- -----------
Total liabilities 2,024 9,778
Net assets available for plan benefits $21,268,756 $17,425,798
=========== ===========
(The accompanying notes are an integral part of this financial statement.)
-5-
INTERNATIONAL BUSINESS MACHINES CORPORATION
IBM TAX DEFERRED SAVINGS PLAN 401(K)
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1999
(Dollars in thousands)
ADDITIONS:
Participant contributions $ 918,831
Employer contributions 270,574
Transfers from other benefits plans, net 407,329
Interest and dividend income from investments 361,494
Net appreciation in fair value of investments 2,696,975
-----------
Total additions 4,655,203
DEDUCTIONS:
Distributions to participants 797,232
Administrative expenses 15,013
-----------
Total reductions 812,245
Net increase in net assets during the year 3,842,958
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 17,425,798
-----------
End of year $21,268,756
===========
(The accompanying notes are an integral part of this financial statement.)
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INTERNATIONAL BUSINESS MACHINES CORPORATION
IBM TAX DEFERRED SAVINGS PLAN 401(K)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF THE PLAN:
The following description of the International Business Machines Corporation
(IBM) Tax Deferred Savings Plan 401(k) (the Plan) provides only general
information. Participants should refer to the Plan prospectus for a complete
description of the Plan's provisions. Effective July 1, 1999, the name of the
Plan was changed to the IBM Tax Deferred Savings Plan (TDSP) 401(k) from the IBM
Tax Deferred Savings Plan. This was a change in name only and does not impact
the tax status or operation of the Plan.
GENERAL:
The Plan was established by resolution of IBM's Retirement Plans Committee (the
Committee) effective July 1, 1983 and is held in trust for the benefit of its
participants. The Plan offers all qualifying active regular and part-time
employees of IBM and certain of its domestic related companies and partnerships
an opportunity to defer from one to fifteen percent of their eligible
compensation for contribution to any of eleven investment funds subject to the
legal limit allowed by Internal Revenue Service (IRS) regulations. The
investment objectives of these funds are described in Note 3. Effective July 1,
2000, ten additional investment funds will become available to Plan participants
(see Note 8 - Subsequent Events on page 20).
The Plan qualifies under Section 401(a) of the Internal Revenue Code of 1986, as
amended, and is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA), as amended.
ADMINISTRATION:
The Plan is administered by the Committee which appointed officials of IBM to
assist in administering the Plan. The Committee also appointed, effective
November 1, 1999, State Street Corporation as Trustee to safeguard the assets of
the funds, and State Street Global Advisors, the institutional investment
management affiliate of State Street Bank and Trust Company, and other
investment managers to direct investments in the various funds (for additional
information on investment managers by fund see Note 3 - Description of
Investment Funds on pages 12 through 15). Before November 1, 1999, Bankers Trust
Company, a subsidiary of Deutsche Bank AG, was Plan Trustee as well as
investment manager for several of the Plan's funds. Metropolitan Life Insurance
Company provides recordkeeping, participant services and communications
services, and operates the TDSP Service Center in Nashville, Tennessee.
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CONTRIBUTIONS AND PARTICIPANTS' EQUITY:
IBM contributes to the Plan fifty percent of each participant's elected deferral
up to a maximum of six percent of a participant's annual eligible compensation.
Eligible compensation includes regular salary, commissions, overtime, shift
premium and similar additional compensation payments, recurring payments under
any form of variable compensation plan, regular Sickness and Accident Income
Plan payments, holiday, and vacation pay.
Participants may choose to have their contributions invested entirely in one of,
or in any combination of, the following funds in five percent multiples: Money
Market Fund, Large Company Index Fund, Small Company Stock Fund, IBM Stock Fund,
Stable Value Fund, Total Bond Market Fund, International Stock Fund, Income Plus
Life Strategy Fund, Conservative Life Strategy Fund, Moderate Life Strategy
Fund, and Aggressive Life Strategy Fund. These funds and their investment
objectives are more fully described in Note 3. Effective July 1, 2000, ten
additional investment funds will become available to Plan participants (see Note
8 - Subsequent Events on page 20).
Participants may change their investment selection for future contributions once
during a payroll period up to twenty-four times each calendar year. Employees
may change the percentage of their compensation that they defer into the Plan up
to six times in a calendar year. Also, the participant may transfer part or all
of existing account balances among funds in the Plan once daily, but will incur
a service fee for each transfer in excess of eight in a calendar year. However,
participant balances in the Stable Value Fund may not be transferred directly
into the Money Market Fund or Total Bond Market Fund, and if transferred into
another fund may not subsequently be transferred to the Money Market Fund or
Total Bond Market Fund for three months.
The Plan recordkeeper maintains an account in the name of each participant to
which each participant's contributions and share of the net earnings, losses and
expenses, if any, of the various investment funds are recorded. The earnings on
the assets held in each of the funds and all proceeds from the sale of such
assets are held and reinvested in the respective funds.
Participants may transfer rollover contributions of pretax dollars from other
qualified savings plans or conduit Individual Retirement Accounts (IRAs that
exclusively hold a previously taxable distribution from a qualified plan) into
their Plan accounts. Rollovers must be made in cash within the time limits
specified by the IRS; stock or in-kind rollovers cannot be accepted. These
rollovers are limited to active employees on the payroll of IBM (or affiliated
companies) who have existing accounts in the Plan. Retirees or employees on
leave or bridge leave of absence are not eligible for such rollovers.
The interest of each participant in each of the funds is represented by
units/shares credited to the participant's account.
The initial unit value of each fund on the first valuation date was equivalent
to $1.00. On each succeeding valuation date, the unit value of each fund is
determined by dividing the value of the
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fund on that date by the number of outstanding units in the fund. In determining
the unit value, new contributions that are to be allocated as of the valuation
date are excluded from the calculation. The number of additional units to be
credited to a participant's account for each fund, due to new contributions, is
equal to the amount of the participant's new contributions to the fund divided
by the unit value for the applicable fund as determined on the valuation date.
At December 31, 1999 and 1998 the number of participants in the Plan were
220,851 and 207,973, respectively.
Contributions made to the Plan as well as interest, dividends or other earnings
of the Plan are not includable in gross income of the participant until
withdrawal, at which time all earnings and contributions withdrawn generally are
taxed as ordinary income to the participant. Additionally, withdrawals by the
participant before attaining age 59 1/2 generally are subject to a penalty tax
of 10%.
Consistent with provisions established by the IRS, the Plan's 1999 limit on
employee salary deferrals was $10,000. The 1999 maximum annual deferral amount
for employees residing in Puerto Rico was limited by local government
regulations to the lesser of $8,000 or ten percent of eligible compensation.
VESTING:
Participants in the Plan are at all times fully vested in their account balance,
including deferred compensation, matching contributions and earnings thereon.
DISTRIBUTIONS:
A participant who has attained age 59 1/2 may request a cash distribution of all
or part of the value of his or her account. The minimum amount of any such
distribution shall be the lesser of the participant's account balance or $500.
If the participant retires under the prior IBM Retirement Plan (which was
incorporated into the IBM Personal Pension Plan effective July 1, 1999) or
becomes eligible for benefits under the IBM Long-Term Disability Plan, the
participant may elect to receive the balance of his or her account in a number
of annual cash installments he or she has specified, over a period not to exceed
ten years, or to defer distribution until age 70 1/2.
Withdrawals for financial hardship are permitted provided they are for a severe
and immediate financial need and the distribution is necessary to satisfy that
need. Employees are required to fully use the Plan loan program, described on
page 10, before requesting a hardship withdrawal. Only an employee's deferred
compensation is eligible for hardship withdrawal; earnings and IBM matching
contribution are not eligible for withdrawal. Employees must submit evidence of
hardship to Metropolitan Life, who will determine whether the situation
qualifies for a hardship withdrawal. A hardship withdrawal is taxed as regular
income to the employee and may be subject to the 10% additional tax on early
distributions.
-9-
Upon the death of a participant, the value of the participant's account will be
distributed to the participant's beneficiary in a lump-sum cash payment. If the
participant is married, the beneficiary must be the participant's spouse, unless
the participant's spouse has previously given written, notarized consent to
designate another person as beneficiary. If the participant marries or
remarries, any prior beneficiary designation is canceled and the spouse
automatically becomes the beneficiary. If the participant is single, the
beneficiary may be anyone previously designated by the participant under the
Plan. In the absence of an effective designation under the Plan at the time of
death, the proceeds normally will be paid in the following order: the
participant's spouse, the participant's children in equal shares, or to
surviving parents equally. If no spouse, child, or parent is living, payments
will be made to the executors or administrators of the participant's estate.
LOANS:
Participants may borrow up to one-half of the value of the account balance, not
to exceed $50,000. Loans will be granted in $50 increments subject to a minimum
loan amount of $500. Participants are limited to two simultaneous outstanding
Plan loans. Repayment of a loan shall be made through semi-monthly payroll
deductions over a term of one to four years. The loan shall bear a fixed rate of
interest, set quarterly, for the term of the loan, determined by the plan
administrator to be 1.25 % above the prime rate. The interest shall be credited
to the participant's account as the semi-monthly repayments of principal and
interest are made. Interest rates on outstanding loans at December 31, 1999
ranged from 9.00% to 9.75%.
Participants may prepay the entire remaining loan principal after payments have
been made for three full months. Employees on an approved leave of absence may
elect to make scheduled loan payments directly to the Plan. Participants may
continue to contribute to the Plan while having an outstanding loan, provided
that the loan is not in default.
Participants who retire or separate from IBM and have outstanding Plan loans may
choose automated loan repayments or coupon payment options to continue monthly
loan repayments according to their original amortization schedule.
TERMINATION OF SERVICE:
The value of the participant's account will be distributed to the participant in
a lump-sum cash payment as soon as practical following the termination of the
participant's employment with IBM for any reason other than retirement, medical
disability or death. If the account balance is greater than $5,000 at the time
of separation, the participant may elect to defer distribution of the account
until age 70 1/2.
TERMINATION OF THE PLAN:
IBM reserves the right to terminate this Plan at any time by action of the
Committee. In that event, each participant or beneficiary receiving or entitled
to receive payments under the Plan
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would receive the balance of his or her account at such time and in such manner
as the Committee shall determine at its discretion.
In the event of a full or partial termination of the Plan, or upon complete
discontinuance of contributions under the Plan, the rights of all affected
participants in the value of their accounts would be nonforfeitable.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
VALUATION OF INVESTMENTS:
The fair value of the net assets of the Plan is based on the estimated fair
values of the underlying assets and liabilities. Investments in registered
investment companies and pooled funds are valued at the net asset values per
share as quoted by such companies or funds as of the valuation date. Interest
accrued on investments is recorded separately as interest receivable until paid
and reinvested.
Investments in fully benefit responsive bank and insurance company investment
contracts are stated at contract value which is equal to cost plus reinvested
interest. Contracts include synthetic investment contracts, whereby individual
assets are placed in a trust that the Plan owns and a third party issues a
wrapper contract that provides that holders can, and must, execute transactions
at contract value. Individual assets of the synthetic contracts are valued at
representative quoted market prices. The wrapper is valued as the difference
between fair value of the assets and contract value of the investment contract.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities and disclosures at the date
of the financial statements. Actual results could differ from those estimates.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME:
Security transactions are recorded on a trade-date basis. Realized gains and
losses on sales of securities are based on average cost at the time of sale.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis.
ADMINISTRATIVE EXPENSES AND INVESTMENT MANAGEMENT FEES:
All administrative costs of the Plan are deducted from participant's account
balances. These costs include (a) brokerage fees and commissions which are
included in the cost of investments and in determining net proceeds on sales of
investments, (b) investment management fees which are paid from the assets of
the respective funds (excluding the IBM Stock Fund); those fees comprise fixed
annual charges and charges based on a percentage of net asset value, and (c)
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operational expenses required for administration of the Plan consisting of
trustee, recordkeeping, participant reports and communications, and service
center expenses, which are charged against the fund's assets on a pro rata basis
throughout the year.
NOTE 3 - DESCRIPTION OF INVESTMENT FUNDS:
Effective August 1, 1999, the following is applicable to the Small Company
Stock Fund and the Stable Value Fund (the "Funds"): Each of the Funds may
lend securities held in that Fund to unaffiliated broker-dealers registered
under the Securities Exchange Act of 1934, or banks organized in the United
States of America. At all times, the borrower must maintain cash or
equivalent collateral equal in value to at least 102% of the value of the
securities loaned. The primary risk in lending securities is that the
borrower may default during a sharp rise in the price of the security that
was borrowed. This can result in a deficiency in the collateral posted by the
borrower. The Funds will seek to minimize this risk by requiring that the
value of the securities that are loaned is computed each day and that
additional collateral is furnished each day, if necessary. The addition of
the securities lending provision does not change the investment objectives
for the Funds.
The objectives of the investment funds to which employees may contribute monies
are described below:
MONEY MARKET FUND: - Preservation of principal and liquidity while providing a
variable rate of return based on short-term investment yields.
Investments are made in a diversified portfolio of high-quality interest-bearing
money market instruments with average maturity dates not exceeding 91 days from
the date of purchase. Twenty percent of the value of the fund may be invested in
instruments with maturities not to exceed 182 days. At all times, not less than
twenty percent of the assets of the fund must comprise cash, demand obligations
and assets that mature on the next business day. State Street Global Advisors
manages investments in the Money Market Fund. Before November 1, 1999, Bankers
Trust Company managed the fund.
LARGE COMPANY INDEX FUND: - Long term growth of capital with a market rate of
return from a diversified group of large-capitalization company common stocks.
This fund invests in a broad range of common stocks designed to produce
investment results that approximate the price and yield performance of the
Standard & Poor's Composite Index of 500 Stocks (S&P 500 Index). The S&P 500
Index comprises 500 selected common stocks, most of which are listed on the New
York Stock Exchange. Standard and Poor's, a financial services corporation,
chooses the stocks to be included in the index on a statistical basis, by which
it seeks to represent a cross-section of industry sectors and companies within
each sector.
-12-
Dividends paid on common stocks in the portfolio are reinvested in the fund. The
value of a participant's assets in this fund will vary as a result of
fluctuations in the applicable common stock prices and dividends paid on those
stocks.
The Vanguard Group manages investments in the Large Company Index Fund. Before
November 1, 1999, Bankers Trust Company managed the fund.
SMALL COMPANY STOCK FUND: - Long term growth of capital from a diversified group
of medium- and small-capitalization company common stocks.
This fund is designed to match the returns of the Russell Special 2500 Index.
The Small Company Stock Fund invests in a broad range of common stocks to
produce investment results that approximate the price and yield performance of
medium- and small-capitalization company common stocks generally not represented
in the S&P 500 Index. Dividends paid on common stocks in the portfolio are
reinvested in the fund.
The value of a participant's assets invested in this fund will vary as a result
of fluctuations in applicable common stock prices and dividends paid on those
stocks. State Street Global Advisors manages investments in the Small Company
Stock Fund.
IBM STOCK FUND: - Direct investment in IBM common stock, with dividends
automatically reinvested in additional shares of IBM common stock.
The trustee will purchase or sell IBM common stock on the open market and will
maintain a minimal cash reserve to meet the administrative needs of the fund.
The return on the participant's investment will be determined by the market
price of IBM common stock, the amount of any dividends paid thereon, and the
cash balance necessary to maintain liquidity. At the time a participant elects a
withdrawal or distribution, the participant may elect to receive a stock
certificate for the underlying IBM common shares plus a cash payment for any
fractional shares. If no election is indicated, a cash distribution will be made
for the value of the fund withdrawn.
State Street Global Advisors manages investments in the IBM Stock Fund. Before
November 1, 1999, Bankers Trust Company managed the fund.
STABLE VALUE FUND (formerly Fixed Income Fund): - Preservation of principal with
a relatively stable and predictable rate of interest.
Investments comprise interest-bearing instruments, including corporate and U.S.
government securities, bank time deposits, and investment contracts with
insurance companies, banks, and other financial institutions.
The investments in this fund may have fixed rates of interest for fixed periods
of time, or may have rates of interest that vary during the contract period
based on the contract issuer's
-13-
investment experience for the assets or pooled assets that support the contract
or on another formula applicable under the contract.
Investment contracts with insurance companies and other financial institutions
require the repayment of principal plus interest as determined under the
contract. Certain of the investment contracts are held in trusts owned by the
Plan, and managed by insurance companies or financial institutions. Such
investment contracts provide for return of principal and interest earned, with
interest rates being fixed quarterly. The contract value of the investments held
in trusts at December 31, 1999 and 1998 was $2,614 million and $2,478 million,
respectively, and fair value was $2,536 million and $2,547 million,
respectively.
The plan administrators select the various contracts and oversee nine
external bond managers who are responsible for the individual portfolios
within the Stable Value Fund. Investments are with highly rated institutions
and money managers, but there is no guarantee of the return of either
principal or interest.
TOTAL BOND MARKET FUND: - The Total Bond Market Fund seeks investment results
that modestly exceed the total return of the Lehman Brothers Aggregate Bond
Index, a broad market-weighted index comprised of U.S. Treasury and agency
securities, investment-grade corporate bonds and mortgage-backed securities,
each with maturities exceeding one year. State Street Global Advisors manages
investments in the Total Bond Market Fund.
INTERNATIONAL STOCK FUND: - Long-term capital growth with a market rate of
return from a diversified group of equity holdings in stock markets of
Europe, Asia/Pacific, as well as emerging markets and Canada.
Effective November 1, 1999, the benchmark for the International Stock Fund was
changed to the Morgan Stanley Capital International (MSCI) All Country World ex
U.S. Index, replacing the MSCI EAFE Index and the MSCI EMF ex Malaysia Index.
The International Stock Fund is designed to broaden and supplement Plan
investment options by offering a way to participate in foreign equity markets,
while maintaining diversification within and across different asset classes.
Dividend income is reinvested in the fund. Foreign equities are subject to price
fluctuations including foreign currency exchange fluctuations that affect the
dollar value of the fund.
State Street Global Advisors manages the International Stock Fund. Before
November 1, 1999, Bankers Trust Company managed the fund.
LIFE STRATEGY FUNDS: The Life Strategy Funds diversify their assets among the
following five Plan funds: Large Company Index Fund, Small Company Stock Fund,
International Stock Fund, Stable Value Fund, and Total Bond Market Fund. The
Life Strategy Funds enable participants to choose from four portfolios of stock,
bond and stable value investments, ranging from very conservative to aggressive,
to pursue their personal financial goals. The Funds are rebalanced monthly by
State Street Global Advisors (before November 1,
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1999 by Bankers Trust Company) to the target allocations as the value of the
underlying investment funds fluctuate. The Life Strategy Funds are passively
managed, that is, the fund managers do not actively select investments, but
instead follow investment allocations set by IBM Retirement Fund professionals.
State Street Global Advisors and IBM Retirement Fund professionals manage the
underlying core funds. Before November 1, 1999, Bankers Trust Company and IBM
Retirement Fund professionals managed the underlying core funds.
The four Life Strategy Funds and their target allocations are as follows:
INCOME PLUS LIFE STRATEGY FUND: - Seeks investment returns that modestly and
fairly consistently outpace inflation, with a target allocation of twenty
percent stocks and eighty percent stable value/bonds.
Investments in this fund automatically are allocated among the following five
Plan investment options, while maintaining the target allocations as shown:
Large Company Index Fund - 11%, Small Company Stock Fund - 4%, International
Stock Fund - 5%, Stable Value Fund - 75%, and Total Bond Market Fund- 5%.
CONSERVATIVE LIFE STRATEGY FUND: - Seeks to moderately outpace inflation over
the long term with a fair measure of consistency, and a target allocation of
forty percent stocks and sixty percent stable value/bonds.
Investments in this fund automatically are allocated among the following five
Plan investment options, while maintaining the target allocations as shown:
Large Company Index Fund - 23%, Small Company Stock Fund - 7%, International
Stock Fund - 10%, Stable Value Fund - 50%, and Total Bond Market Fund - 10%.
MODERATE LIFE STRATEGY FUND: - Seeks to provide relatively high returns at a
moderate risk level, with a target allocation of sixty percent stocks and forty
percent stable value/bonds.
Investments in this fund automatically are allocated among the following five
Plan investment options, while maintaining the target allocations as shown:
Large Company Index Fund - 34%, Small Company Stock Fund - 11%, International
Stock Fund - 15%, Stable Value Fund - 25%, and Total Bond Market Fund- 15%.
AGGRESSIVE LIFE STRATEGY FUND: - Seeks to provide high returns over longer time
periods with a target allocation of eighty percent stocks and twenty percent
stable value/bonds.
Investments in this fund automatically are allocated among the following four
Plan investment options, while maintaining the target allocations as shown:
Large Company Index Fund - 45%, Small Company Stock Fund - 15%, International
Stock Fund - 20%, and Total Bond Market Fund - 20%.
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NOTE 4 - PLAN TRANSFERS:
The transfers below represent participant account balances attributable to
employees transferred to IBM as a result of IBM acquisitions or outsourcing
agreements:
During 1999, participant account balances of 841 former employees of AT&T were
transferred into the Plan as a result of an outsourcing agreement between IBM
and AT&T. Accordingly, there were net transfers into the Plan of cash and
securities of $43,360,965 during 1999.
During 1999, participant account balances of 205 former employees of First
Chicago NBD were transferred into the Plan as a result of an outsourcing
agreement between IBM and First Chicago NBD. Accordingly, there were net
transfers into the Plan of cash and securities of $9,353,752 during 1999.
Effective December 2, 1999, participant account balances of 30 former employees
of ICI Paints were transferred into the Plan as a result of an outsourcing
agreement between IBM and ICI Paints. Accordingly, there were net transfers of
cash and securities into the Plan of $2,183,470 during 1999.
Effective October 1, 1999, the 401(k) plan of Lotus Development Corporation, a
wholly-owned subsidiary of IBM, was merged into the Plan. As a result, there
were net transfers into the Plan of cash and securities of $322,132,996 during
1999, representing approximately 5,000 participant account balances.
Effective September 10, 1999, the 401(k) plan of CommQuest Technologies, Inc., a
wholly-owned subsidiary of IBM, was merged into the Plan. As a result, there
were net transfers into the Plan of cash and securities of $8,611,271 during
1999, representing 232 participant account balances.
Effective August 2, 1999, the 401(k) plan of Transarc Corporation, a
wholly-owned subsidiary of IBM, was merged into the Plan. As a result, there
were net transfers into the Plan of cash and securities of $18,870,014 during
1999, representing 442 participant account balances.
Effective July 20, 1999 the 401(k) plan of DPI/TFS, Inc. (a wholly-owned
subsidiary of IBM that was dissolved March 31, 1999) was merged into the Plan.
As a result, there were net transfers into the Plan of cash and securities of
$2,248,275 during 1999, representing 85 participant account balances.
Effective May 4, 1999, participant account balances of 48 former employees of
CompUSA, Inc. were transferred into the Plan as a result of an outsourcing
agreement between IBM and CompUSA, Inc. Accordingly, there were net transfers
into the Plan of cash and securities of $568,102 during 1999.
-16-
NOTE 5 - TAX STATUS:
The Trust established under the Plan is qualified under the appropriate section
of the Internal Revenue Code and the Trustees intend to continue it as a
qualified trust. The Plan received a favorable determination letter from the IRS
on June 14, 1993. The Plan has been amended since receiving the determination
letter. The Plan administrator continues to believe the Plan is designed and is
being operated in compliance with the applicable requirements of the Internal
Revenue Code. Accordingly, a provision for federal income taxes has not been
made.
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NOTE 6 - TDSP INVESTMENT VALUATIONS:
The following schedules summarize the fair value of investments, and the related
net appreciation in fair value of investments by type of investment
(dollars in thousands):
Fair value determined by
----------------------------------------------
Quoted
market Estimates
prices of Trustee Total
------ ---------- -----
DECEMBER 31, 1999:
Interest in equity-oriented
pooled funds $12,057,118 $12,057,118
Interest in short-term investment-
oriented pooled funds 851,656 851,656
Investment contracts $ 4,093,950 4,093,950
Interest in bond market-oriented
pooled funds 502,977 502,977
IBM common stock 3,446,525 3,446,525
----------- ----------- -----------
Total $16,858,276 $ 4,093,950 $20,952,226
=========== =========== ===========
DECEMBER 31, 1998:
Interest in equity-oriented
pooled funds $ 9,893,650 $ 9,893,650
Interest in short-term investment-
oriented pooled funds 721,074 721,074
Investment contracts $ 4,004,246 4,004,246
Interest in bond market-oriented
pooled funds 485,806 485,806
IBM common stock 2,026,038 2,026,038
----------- ----------- -----------
Total $13,126,568 $ 4,004,246 $17,130,814
=========== =========== ===========
-18-
NOTE 6 - TDSP INVESTMENT VALUATIONS (CONTINUED):
Net appreciation in fair value of investments (dollars in thousands):
For the year ended
December 31, 1999
-----------------
Investments at fair value
determined by quoted market price:
Interest in pooled funds $2,147,220
IBM common stock 549,755
----------
Total $2,696,975
==========
NOTE 7 - RELATED PARTY TRANSACTIONS:
At December 31, 1999 a significant portion of the Plan's assets were invested in
State Street Global Advisors funds. State Street Global Advisors also acts as
the trustee for the Plan and, therefore, these transactions qualify as
party-in-interest. At December 31, 1998, a majority of the Plan's assets were
invested in Bankers Trust Company funds. Bankers Trust Company also acted as the
Plan trustee at that time and, therefore, those transactions qualified as
party-in-interest. Additionally, the Plan held $204,286,050 and $186,534,495 in
investment contracts with Metropolitan Life Insurance Company, the Plan
recordkeeper, at December 31, 1999 and December 31, 1998, respectively.
On April 27, 1999, IBM stockholders approved amendments to the Certificate of
Incorporation reducing the par value of common shares from $.50 per share to
$.20 per share, and granting common stockholders of record at the close of
business on May 10, 1999, one additional share for each share held. At December
31, 1999, the Plan held 31,949,242 shares of IBM common stock valued at
$3,446,524,481. At December 31, 1998, the Plan held 21,977,364 shares of IBM
common stock valued at $2,026,038,244. The number of shares have been adjusted
to reflect the two-for-one stock split.
-19-
NOTE 8 - SUBSEQUENT EVENTS:
In the Plan newsletter dated April 2000, IBM announced that effective July 1,
2000, the following ten investment funds will be added to the Plan: Inflation
Protected Bond Fund, Total Stock Market Index Fund, Equity Income Fund, Vanguard
Small-Cap Value Index Fund, Vanguard Small-Cap Growth Index Fund, Vanguard
Pacific Index Fund, Vanguard Long-Term Corporate Fund, Vanguard Value Index
Fund, Vanguard Growth Index Fund, and Vanguard European Index Fund. In addition,
the International Stock Fund will be renamed Total International Stock Market
Index Fund and the Small Company Stock Fund will be renamed Small/Mid-Cap Stock
Index Fund; their investment objectives and benchmarks remain unchanged. Details
of these new Plan offerings including the investment objectives and benchmarks
of each of the funds will be communicated to Plan participants before July 1,
2000.
-20-
SCHEDULE I
INTERNATIONAL BUSINESS MACHINES CORPORATION
IBM TAX DEFERRED SAVINGS PLAN 401(K)
ITEM 27A - ASSETS HELD FOR INVESTMENT PURPOSES AT DECEMBER 31, 1999
Fair
Total Value
Shares/Units (In Thousands)
------------ --------------
INTEREST IN STATE STREET GLOBAL
ADVISORS AND VANGUARD GROUP
POOLED FUNDS:
Discretionary Cash Funds 851,655,954 $ 851,656
============ ============
Equity Index Funds 222,814,356 $ 12,057,118
============ ============
Bond Index Fund 40,181,871 $ 502,977
============ ============
COMMON STOCK:
IBM Common Stock 31,949,242 $ 3,446,525
============ ============
LOANS TO PARTICIPANTS: $ 315,751
============
INVESTMENT CONTRACTS:
Contract
Maturity Total Value
Rate Date Shares/units (In Thousands)
---- ------ ------------ --------------
CDC Bric
BR 30301 7.01% 12/25/02 1,738,973 $ 1,739
Combined Insurance Co. of America
GIC 1026 7.30% 3/1/00 2,783,724 2,784
CNA Insurance
GP 13078-026 6.64% 10/2/00 26,101,655 26,102
CNA Insurance
GP 13078-036 6.78% 4/1/03 107,359,928 107,360
Jackson National Insurance Co.
G-1128-1 6.75% 10/2/00 113,033,236 113,033
-21-
INVESTMENT CONTRACTS (CONTINUED):
Contract
Maturity Total Value
Rate Date Shares/units (In Thousands)
---- ------ ------------ --------------
John Hancock Life Insurance Co.
GAC #8663 6.85% 1/2/02 131,447,474 131,447
John Hancock Life Insurance Co.
GAC #14406 6.38% 6/30/09 128,304,746 128,305
John Hancock Life Insurance Co.
GAC #6387 6.41% 3/31/00 2,612,504 2,613
John Hancock Life Insurance Co.
GAC #7053 5.39% 3/31/00 2,694,362 2,694
Metropolitan Life Insurance Co.
GAC #24650 6.75% 10/1/01 50,557,857 50,558
Metropolitan Life Insurance Co.
GAC #24976 5.20% 1/2/01 70,595,559 70,596
Metropolitan Life Insurance Co.
GAC #24977 5.27% 1/2/02 80,689,609 80,690
Metropolitan Life Insurance Co.
GAC #246649 6.64% 3/31/00 2,443,025 2,443
New York Life Insurance Company
GA-30898 5.26% 1/2/02 161,355,406 161,355
New York Life Insurance Company
GA-30721 6.88% 1/2/03 56,551,305 56,551
Principal Mutual
#4-23271-1 6.53% 6/30/00 42,783,850 42,784
Principal Mutual
#4-23271-2 7.26% 7/1/01 60,717,573 60,718
Principal Mutual
#4-23271-3 6.61% 10/1/01 136,449,892 136,450
-22-
INVESTMENT CONTRACTS (CONTINUED):
Contract
Maturity Total Value
Rate Date Shares/units (In Thousands)
---- ------ ------------ --------------
Principal Mutual
#4-23271-4 6.93% 3/31/03 71,988,415 71,988
Prudential Asset Management Co.
GA-10034 211 6.07% 12/31/02 135,201,557 135,202
SafeCo
GAC 1 6.18% 1/3/00 997,548 998
Synthetic GIC Global Wrapper : 6.09% Non-Maturing 2,613,759,000
Investment Managers:
--------------------
Pacific Investment Management 309,802
Loomis, Sayles 163,268
State Street Global Advisors 273,454
NISA Investment Advisors 261,171
Blackrock Financial Management 292,750
Prudential Global Advisors 113,788
Trust Company of the West 312,525
Western Asset Management 210,302
Brundage, Story & Rose 91,978
NISA Investment Advisors II 354,563
Passive Maturing Buy & Hold Assets 230,158
-------
Total Wrapper 2,613,759
Sun America
#4785 6.35% 4/1/03 93,781,320 93,781
----------
$4,093,950
==========
-23-
SCHEDULE II
INTERNATIONAL BUSINESS MACHINES CORPORATION
IBM TAX DEFERRED SAVINGS PLAN 401(K)
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS*
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
Cost of Proceeds Cost of Assets Realized
Volume Purchases From Sale Disposed Gain
------ --------- --------- -------- ----
Bankers Trust Discretionary
Cash Fund
- Acquisition Transactions 130 $ 263,437 -- -- --
- Disposal Transactions 145 -- $ 739,808 $ 739,808 --
Bankers Trust Directed Account
Cash Fund
- Acquisition Transactions 417 $2,027,819 -- -- --
- Disposal Transactions 444 -- $2,079,321 $2,079,321 --
International Business Machines
Corporation Common Stock
- Acquisition Transactions 143 $1,665,287 -- -- --
- Disposal Transactions 53 -- $ 468,366 $ 253,851 $ 214,515
Bankers Trust Large
Capitalization Equity Index Fund
- Acquisition Transactions 54 $ 661,904 -- -- --
- Disposal Transactions 175 -- $8,155,327 $7,674,830 $ 480,497
State Street Short Term
Investment Fund
- Acquisition Transactions 178 $1,310,119 -- -- --
- Disposal Transactions 140 -- $1,341,333 $1,341,333 --
Bankers Trust International Equity
Index Fund
- Acquisition Transactions 102 $ 143,075 -- -- --
- Disposal Transactions 127 -- $ 980,702 $ 749,192 $ 231,510
Vanguard Employee Benefits Index Fund
- Acquisition Transactions 13 $ 893,936 -- -- --
- Disposal Transactions 32 -- $ 125,273 $ 120,595 $ 4,678
* NOTE: Cumulative transactions involving an amount in excess of 5 percent of
the value of plan assets at the beginning of the plan year.
-24-