<PAGE>
PAGE 1
(EXHIBIT (99.1))
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Act of 1934
For the Year Ended
December 31, 1999
__________________________________
THE LIFELINE EMPLOYEES' SAVINGS AND INVESTMENT PLAN
---------------------------------------------------
<PAGE>
The Lifeline Employees' Savings
and Investment Plan
Financial Statements and Supplemental Schedule
To Accompany 1999 Form 5500
Annual Report of Employee Benefit Plan
Under ERISA of 1974
For the Years Ended December 31, 1999 and 1998
<PAGE>
The Lifeline Employees' Savings and Investment Plan
Index to Financial Statements and Supplemental Schedule
For the Years Ended December 31, 1999 and 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Report of Independent Accountants 2
Financial Statements:
Statements of Net Assets Available for Plan Benefits, with Fund Information,
December 31, 1999 and 1998 3-4
Statements of Changes in Net Assets Available for Plan Benefits, with Fund Information,
for the years ended December 31, 1999 and 1998 5-6
Notes to Financial Statements 7-12
Supplemental Schedule:
Schedule of Assets Held for Investment Purposes as of December 31, 1999 13
</TABLE>
Certain supplemental schedules have been omitted because they are either not
required or not applicable under the Employee Retirement Income Security Act of
1974.
1
<PAGE>
Report of Independent Accountants
To the Participants and Administrator of the
Lifeline Employees' Savings and Investment Plan:
In our opinion, the accompanying statements of net assets available for plan
benefits and the related statements of changes in net assets available for plan
benefits present fairly, in all material respects, the net assets available for
plan benefits of the Lifeline Employees' Savings and Investment Plan (the
"Plan") at December 31, 1999 and 1998, and the changes in net assets available
for plan benefits for the years then ended 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 supplemental schedule of Assets Held
for Investment Purposes 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. The fund information in the statement of net assets available for plan
benefits and the statement of changes in net assets available for plan benefits
is presented for purposes of additional analysis rather than to present the net
assets available for plan benefits and changes in net assets available for plan
benefits of each fund. The supplemental schedule and fund information are the
responsibility of the Plan's management. The supplemental schedule and fund
information 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.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
June 8, 2000
2
<PAGE>
The Lifeline Employees' Savings and Investment Plan
Statement of Net Assets Available for Plan Benefits, with Fund Information
December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SSGA SSGA Strong INVESCO Dreyfus
Lifeline Growth & S&P 500 Government Total Emerging
Fixed Income Index Securities Return Leaders
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments, at fair value (Notes C and D):
Common collective trust $ 368,042
Shares of registered investment companies 930,611 $3,568,457 $1,328,463 $ 271,612 $2,072,817 $1,088,009
Lifeline Systems, Inc. stock
Participant loans receivable
------------ ---------- ---------- ---------- ---------- ----------
Total investments 1,298,653 3,568,457 1,328,463 271,612 2,072,817 1,088,009
Employer contributions receivable 1,589 3,837 5,209 1,067 7,777 3,720
Employee contributions receivable 4,802 11,078 15,439 2,440 19,309 12,389
------------ ---------- ---------- ---------- ---------- ----------
Total assets 1,305,044 3,583,372 1,349,111 275,119 2,099,903 1,104,118
------------ ---------- ---------- ---------- ---------- ----------
Net assets available for plan benefits $ 1,305,044 $3,583,372 $1,349,111 $ 275,119 $2,099,903 $1,104,118
============ ========== ========== ========== ========== ==========
<CAPTION>
Lifeline
Scudder Systems, Inc. Participant
International Common Loan Total
Fund Stock Fund Plan
<S> <C> <C> <C> <C>
Assets
Investments, at fair value (Notes C and D):
Common collective trust $ 368,042
Shares of registered investment companies $ 543,628 9,803,597
Lifeline Systems, Inc. stock $ 1,425,917 1,425,917
Participant loans receivable $ 512,608 512,608
------------- ------------ ----------- -------------
Total investments 543,628 1,425,917 512,608 12,110,164
Employer contributions receivable 1,504 3,763 28,466
Employee contributions receivable 4,526 9,962 79,945
------------- ------------ ----------- -------------
Total assets 549,658 1,439,642 512,608 12,218,575
------------- ------------ ----------- -------------
Net assets available for plan benefits $ 549,658 $ 1,439,642 $ 512,608 $ 12,218,575
============= ============ =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
The Lifeline Employees' Savings and Investment Plan
Statement of Net Assets Available for Plan Benefits, with Fund Information
December 31, 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SSGA SSGA SSGA SSGA
Lifeline Bond S&P 500 Matrix Small Scudder
Fixed Market Index Equity Cap International
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments, at fair value (Notes C and D):
Common collective trust $ 659,442
Shares of registered investment companies 778,252 $ 228,683 $ 860,319 $3,327,413 $ 762,230 $ 236,215
Lifeline Systems, Inc. stock
Participant loans receivable
------------ --------- --------- ---------- --------- ----------
Total investments 1,437,694 228,683 860,319 3,327,413 762,230 236,215
Employer contributions receivable 2,653 968 3,995 3,885 4,315 1,428
Employee contributions receivable 6,867 3,315 10,872 11,163 13,982 3,865
------------ --------- --------- ---------- --------- ----------
Total assets 1,447,214 232,966 875,186 3,342,461 780,527 241,508
------------ --------- --------- ---------- --------- ----------
Net assets available for plan benefits $ 1,447,214 $ 232,966 $ 875,186 $3,342,461 $ 780,527 $ 241,508
============ ========= ========= ========== ========= ==========
<CAPTION>
Life Life
Solutions Solutions Life Lifeline
Income & Balanced Solutions Systems, Inc. Participant
Growth Growth Growth Common Loan Total
Fund Fund Fund Stock Fund Plan
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments, at fair value (Notes C and D):
Common collective trust $ 659,442
Shares of registered investment companies $ 442,577 $ 875,747 $ 474,387 7,985,823
Lifeline Systems, Inc. stock $ 1,860,216 1,860,216
Participant loans receivable $ 447,146 447,146
--------- ---------- --------- ------------ ---------- -----------
Total investments 442,577 875,747 474,387 1,860,216 447,146 10,952,627
Employer contributions receivable 1,536 3,229 3,664 4,195 29,868
Employee contributions receivable 3,495 8,190 11,384 9,877 83,010
--------- ---------- --------- ------------ ---------- -----------
Total assets 447,608 887,166 489,435 1,874,288 447,146 11,065,505
--------- ---------- --------- ------------ ---------- -----------
Net assets available for plan benefits $ 447,608 $ 887,166 $ 489,435 $ 1,874,288 $ 447,146 $11,065,505
========= ========== ========= ============ ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
The Lifeline Employees' Savings and Investment Plan
Statement of Changes in Net Assets Available for Plan Benefits, with Fund
Information For the Year Ended December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SSGA SSGA SSGA SSGA
Lifeline Bond S&P 500 Matrix Small
Fixed Market Index Equity Cap
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 95,151 $ 33,940 $ 277,146 $ 160,060 $ 172,256
Employer contributions 26,911 12,417 63,004 42,969 47,668
Interest and dividend income 9,237 50,300 441,003 50,830
Net appreciation in fair value of investments 66,177 180,558
Interfund transfers 131,725 66,118 288,819 113,279 61,945
------------ ----------- ------------ ------------ ------------
Total additions 319,964 121,712 859,827 757,311 332,699
Deductions:
Benefits and withdrawals 292,454 30,383 153,676 288,897 20,198
Net depreciation in fair value of investments 9,279 117,791 69,988
Administrative expenses 228 7 206 220 164
Interfund transfers 169,452 315,009 232,020 3,692,864 1,022,876
------------ ----------- ------------ ------------ ------------
Total deductions 462,134 354,678 385,902 4,099,772 1,113,226
------------ ----------- ------------ ------------ ------------
Net additions (deductions) (142,170) (232,966) 473,925 (3,342,461) (780,527)
Net assets available for plan benefits, beginning of year 1,447,214 232,966 875,186 3,342,461 780,527
------------ ----------- ------------ ------------ ------------
Net assets available for plan benefits, end of year $ 1,305,044 $ - $ 1,349,111 $ - $ -
============ =========== ============ ============ ============
<CAPTION>
Life Life
Solutions Solutions Life SSGA
Scudder Income & Balanced Solutions Growth &
International Growth Growth Growth Income
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 73,177 $ 55,639 $ 89,589 $ 149,192 $ 22,595
Employer contributions 20,654 18,851 32,097 46,017 7,978
Interest and dividend income 32,378 19,629 31,024 19,888 20,114
Net appreciation in fair value of investments 147,189 2,339 43,086 43,383 125,443
Interfund transfers 91,952 10,631 26,077 15,268 3,444,919
------------- ------------ ------------ ------------ ------------
Total additions 365,350 107,089 221,873 273,748 3,621,049
Deductions:
Benefits and withdrawals 17,713 12,083 25,429 18,600 11,835
Net depreciation in fair value of investments
Administrative expenses 84 80 170 95 28
Interfund transfers 39,403 542,534 1,083,440 744,488 25,814
------------- ------------ ------------ ------------ ------------
Total deductions 57,200 554,697 1,109,039 763,183 37,677
------------ ----------- ------------ ------------ ------------
Net additions (deductions) 308,150 (447,608) (887,166) (489,435) 3,583,372
Net assets available for plan benefits, beginning of year 241,508 447,608 887,166 489,435
------------- ------------ ------------ ------------ ------------
Net assets available for plan benefits, end of year $ 549,658 $ - $ - $ - $ 3,583,372
============= ============ ============ ============ ============
<CAPTION>
Strong INVESCO Dreyfus Lifeline
Government Total Emerging Systems, Inc. Participant
Securities Return Leaders Common Loan Total
Fund Fund Fund Stock Fund Plan
<S> <C> <C> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 5,154 $ 38,789 $ 24,765 $ 227,413 $ 1,424,866
Employer contributions 2,027 16,390 8,130 58,403 403,516
Interest and dividend income 2,170 97,670 1,928 $ 29,732 805,903
Net appreciation in fair value of investments 108,239 716,414
Interfund transfers 274,925 2,146,986 964,870 268,471 263,579 8,169,564
--------- ----------- ----------- ----------- --------- -----------
Total additions 284,276 2,299,835 1,107,932 554,287 293,311 11,520,263
Deductions:
Benefits and withdrawals 1,305 55,903 2,120 99,510 32,985 1,063,091
Net depreciation in fair value of investments 5,461 107,744 822,725 1,132,988
Administrative expenses 225 43 1,550
Interfund transfers 2,391 36,060 1,651 66,698 194,864 8,169,564
--------- ----------- ----------- ----------- --------- -----------
Total deductions 9,157 199,932 3,814 988,933 227,849 10,367,193
--------- ----------- ----------- ----------- --------- -----------
Net additions (deductions) 275,119 2,099,903 1,104,118 (434,646) 65,462 1,153,070
Net assets available for plan benefits, beginning of year 1,874,288 447,146 11,065,505
--------- ----------- ----------- ----------- --------- -----------
Net assets available for plan benefits, end of year $ 275,119 $ 2,099,903 $ 1,104,118 $ 1,439,642 $ 512,608 $12,218,575
========= =========== =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
The Lifeline Employees' Savings and Investment Plan
Statement of Changes in Net Assets Available for Plan Benefits, with Fund
Information For the Year Ended December 31, 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SSGA SSGA SSGA SSGA
Lifeline Bond S&P 500 Matrix Small
Fixed Market Index Equity Cap
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 88,899 $ 144,283 $ 163,925 $ 246,805 $ 241,789
Employer contributions 30,876 10,395 48,889 46,732 59,429
Interest and dividend income 37 12,695 82,089 454,256 942
Net appreciation in fair value of investments 68,940 65,171 153,020
Interfund transfers 219,218 20,884 251,780 28,100 230,827
------------ ---------- ---------- ------------ ----------
Total additions 407,970 188,257 611,854 928,913 532,987
Deductions:
Benefits and withdrawals 190,307 4,577 12,312 86,832 17,696
Net depreciation in fair value of investments 1,482 59,675
Administrative expenses 483 94 192 537 276
Interfund transfers 328,504 4,542 92,268 398,153 202,887
------------ ---------- ---------- ------------ ----------
Total deductions 519,294 10,695 104,772 485,522 280,534
------------ ---------- ---------- ------------ ----------
Net additions (deductions) (111,324) 177,562 507,082 443,391 252,453
Net assets available for plan benefits, beginning of year 1,558,538 55,404 368,104 2,899,070 528,074
------------ ---------- ---------- ------------ ----------
Net assets available for plan benefits, end of year $ 1,447,214 $ 232,966 $ 875,186 $ 3,342,461 $ 780,527
============ ========== ========== ============ ==========
<CAPTION>
Life Life
SSGA Solutions Solutions
Active Scudder Income & Balanced
International International Growth Growth
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 30,752 $ 61,227 $ 59,711 $ 99,889
Employer contributions 9,072 9,895 19,773 37,954
Interest and dividend income 23,769 36,768 85,567
Net appreciation in fair value of investments 19,820 5,969 7,611
Interfund transfers 18,440 187,697 80,333 51,417
------------- ------------ ------------ ------------
Total additions 78,084 282,588 202,554 282,438
Deductions:
Benefits and withdrawals 6,600 327 16,351 33,066
Net depreciation in fair value of investments 27,269
Administrative expenses 69 7 242 317
Interfund transfers 197,288 13,477 102,554 78,319
------------- ------------ ------------ ------------
Total deductions 203,957 41,080 119,147 111,702
------------- ------------ ------------ ------------
Net additions (deductions) (125,873) 241,508 83,407 170,736
Net assets available for plan benefits, beginning of year 125,873 364,201 716,430
------------- ------------ ------------ ------------
Net assets available for plan benefits, end of year $ - $ 241,508 $ 447,608 $ 887,166
============= ============ ============ ============
<CAPTION>
Life Lifeline
Solutions Systems, Inc. Participant
Growth Common Loan Total
Fund Stock Fund Plan
<S> <C> <C> <C> <C>
Additions:
Employee contributions and rollovers $ 152,785 $ 150,157 $ 1,440,222
Employer contributions 53,231 56,412 382,658
Interest and dividend income 45,799 $ 26,819 768,741
Net appreciation in fair value of investments 3,312 44,813 368,656
Interfund transfers 82,320 340,921 266,259 1,778,196
----------- ------------ ----------- ------------
Total additions 337,447 592,303 293,078 4,738,473
Deductions:
Benefits and withdrawals 21,625 48,562 31,712 469,967
Net depreciation in fair value of investments 88,426
Administrative expenses 572 2,789
Interfund transfers 66,366 113,956 179,882 1,778,196
----------- ------------ ----------- ------------
Total deductions 88,563 162,518 211,594 2,339,378
----------- ------------ ----------- ------------
Net additions (deductions) 248,884 429,785 81,484 2,399,095
Net assets available for plan benefits, beginning of year 240,551 1,444,503 365,662 8,666,410
----------- ------------ ----------- ------------
Net assets available for plan benefits, end of year $ 489,435 $ 1,874,288 $ 447,146 $ 11,065,505
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
The Lifeline Employees' Savings and Investment Plan
Notes to Financial Statements
--------------------------------------------------------------------------------
A. Description of the Plan
The following description of the Lifeline Employees' Savings and 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.
General
The Plan is a defined contribution profit-sharing plan covering all United
States employees of Lifeline Systems, Inc. (the "Company") who work at
least 1,000 hours during the plan year. Employees become eligible to
participate on the entry date following six months of service. The Plan
was established in 1984 to provide participants an opportunity to defer
taxes on their savings and is intended to be a "qualified cash or deferred
arrangement" under certain sections of the Internal Revenue Code. It is
subject to the provisions of the Employee Retirement Income Security Act of
1974 (ERISA).
The Plan was amended in December 1998 to qualify employees who transferred
employment to the Company as of November 13, 1998 in connection with the
Company's acquisition of AlertCall, Inc. as participants in the Plan
effective January 1, 1999.
The Plan was amended in December 1999 to qualify employees who transferred
employment to the Company as of August 6, 1999, in connection with the
Company's acquisition of TelCARE Systems, Inc. as participants in the Plan
effective October 1, 1999.
Contributions
Participants may contribute from 1% to 15% of their pay on a pretax basis
subject to the annual dollar limits established by the Internal Revenue
Service (IRS) and plan limitations. Participants are immediately vested in
their contributions and earnings thereon. Rollover contributions from
qualified 401(k) plans are also allowed. Withdrawals are permitted as
specified by IRS regulations.
Employer contributions may vary from year to year in such amounts as have
been voted by the Board of Directors of the Company pursuant to the
provisions of the Plan. For the year ended December 31, 1999 and 1998, the
Company matched 100% of the first 2% contributed and 50% of the next 2%
contributed up to a maximum of $500 per quarter, or $2,000 per year per
participant. Participants are immediately vested in Company matched
contributions and earnings thereon. The Board of Directors has the
discretion to make additional contributions.
Loans
With the approval of the plan administrator, participants may borrow from
their vested account balance attributable to employee pre-tax, matching,
discretionary, and rollover contributions. The maximum amount that may be
borrowed is 50% of a participant's vested interest or $50,000, whichever is
less. The minimum loan is $1,000. The interest rate is fixed and will be
equal to the prime rate plus one and one-half percent. The maximum loan
period is five years. The interest rate charged on participant loans
ranged from 9.25% to 10.00% in 1999 and 1998.
Benefits and Withdrawals
The Plan allows benefits to be paid in the form of a cash payment or an in-
kind distribution for employees who invest in the Company Stock Fund.
Several annuity options may be selected by participants (or their
beneficiaries) with account balances exceeding $3,500 as of December 1,
1990.
7
<PAGE>
The Lifeline Employees' Savings and Investment Plan
Notes to Financial Statements, Continued
--------------------------------------------------------------------------------
The Plan also provides for a preretirement survivor annuity to participants
of the Plan with account balances exceeding $3,500 as of December 1, 1990,
which allows 100% of a married participant's benefits to be used to provide
benefits to his/her spouse if the participant dies before benefit payments
commence. This provision may be waived once the participant reaches age 35
and obtains written consent from his/her spouse. Benefits to participants
not married who die before retirement will be distributed to designated
beneficiaries. No death benefits were paid in 1999 or 1998.
Hardship withdrawals are allowed under the provisions of the Plan.
Vesting
Plan participants are at all times 100% vested in the value of their own
contributions, rollovers, employer matching contributions, and earnings
thereon.
Investment Options
The Plan's investment advisor, State Street Global Advisors ("SSGA"), now
offers eight investment options which includes stock of the Company to
which employees may allocate their contributions and the Company-matching
contributions.
Participants may invest in the following investment options effective
January 1, 1998:
. Lifeline Fixed Fund - This fund contains the following two funds:
(i) Bankers Trust Company Pyramid Guaranteed Investment Contracts
Fund - This fund invests in Guaranteed Investment Contracts and
Bank Investment Contracts issued by life insurance companies or
banks. The estimated range of returns for the fund is announced at
the beginning of each year. Interest is credited monthly. This
represented the Income Fund prior to January 1, 1997.
(ii) SSGA Stable Value Fund - This fund invests in Investment Contracts
issued by insurance companies, banks and other financial
institutions, as well as enhanced short-term investment products.
The fund's primary objective is to preserve the principal amount of
contributions to the fund.
. SSGA Bond Market Fund - The SSGA Bond Market Fund invests in a
diversified portfolio of high quality bonds and strives to maintain a
portfolio duration similar to that of the Lehman Brothers Aggregate Bond
Index. Duration is a measurement of price sensitivity to interest rate
changes. This fund was replaced on November 15, 1999 by the Strong
Government Securities Fund.
. SSGA S&P 500 Index Fund - This fund allows investors to follow the
performance of the country's largest, most established companies. It
seeks to mirror the performance of the S&P 500 index, one of the most
widely followed stock market indicators, generally considered to be
representative of the overall U.S. stock market.
8
<PAGE>
The Lifeline Employees' Savings and Investment Plan
Notes to Financial Statements, Continued
--------------------------------------------------------------------------------
. SSGA Matrix Equity Fund - This fund looks to outperform the overall
stock market while maintaining a broadly diversified approach. Stock
markets tend to move in cycles, sometimes favoring growth-oriented
stocks and other times favoring stable "value" stocks. This fund's
strategy is to find the right mix of growth stocks and value stocks in
order to participate in up markets and provide protection in down
markets. This fund was replaced on November 15, 1999 by the SSGA Growth
& Income Fund.
. SSGA Small Cap Fund - This fund allows investors to capitalize on the
potential growth of small cap companies, those with market
capitalization's ranging in value from $100 million to $1.5 billion. The
fund seeks to meet or exceed the returns of the Russell 2000 Index which
provides broad exposure to the U.S. small cap stock market. This fund
was replaced on November 15, 1999 by the Dreyfus Emerging Leaders Fund.
. SSGA Active International Fund - This fund seeks to maximize capital
growth while investing primarily in international stocks. The selection
process combines both value and growth measures to identify attractive
securities. Investments will be made in, but not limited to countries
included in the Morgan Stanley Capital International Europe, Australia
and Far East (MSCI EAFE Index). This fund was terminated on July 1, 1998
and replaced by the Scudder International Fund.
. SSGA Growth & Income Fund - The SSGA Growth & Income Fund seeks to
achieve long-term capital growth, current income and growth of income
primarily through investments in equity securities. The fund's strategy
focuses on stocks that seem poised for price increase and stocks that
have historically provided reliable dividends.
. Scudder International Fund - This fund seeks long-term growth of capital
through a diversified portfolio of foreign equity securities. The fund
invests primarily in foreign companies with strong earnings growth and
attractively priced shares. It broadly diversifies assets in many
companies, across a wide range of economic sectors, typically in 20 or
more different countries.
. Strong Government Securities Fund - This fund seeks total return by
investing for a high level of current income with a moderate degree of
share-price fluctuation. Although the fund must invest at least 80% of
its net assets in U.S. government securities, the fund intends to invest
at least 90% of its net assets in such securities under normal market
conditions.
. INVESCO Total Return Fund - The fund seeks high total return through
capital appreciation and current income. The fund pursues reasonably
consistent returns over a variety of market cycles. The fund primarily
invests in a combination of dividend-paying common stocks and fixed-
income securities. The common stock component of the fund is comprised
of medium-to larger-sized companies that are currently undervalued by
the market. Debt securities include high-quality corporate bonds and
obligations of the U.S. government and its agencies.
. Dreyfus Emerging Leaders Fund - This fund seeks capital growth through
investing in small companies characterized by new or innovative
products, services or processes having the potential to enhance earnings
growth. The fund invests at least 65% of total assets in companies with
total market value of less than $1.5 billion at time of purchase. The
fund's investments may include common stocks, preferred stocks and
convertible securities.
9
<PAGE>
The Lifeline Employees' Savings and Investment Plan
Notes to Financial Statements, Continued
--------------------------------------------------------------------------------
. Life Solutions Income & Growth Fund - Life Solutions Income & Growth is
the least aggressive of the Life Solutions asset allocation portfolios.
Its long-term average allocation is expected to be approximately 35% in
U.S. stocks, 5% in international stocks, and 60% in bonds. This fund was
replaced on November 15, 1999 by the INVESCO Total Return Fund.
. Life Solutions Balanced Growth Fund - Life Solutions Balanced Growth is
the moderate Life Solutions asset allocation portfolio. Its long-term
average allocation is expected to be approximately 50% in U.S. stocks,
10% in international stocks, and 40% in bonds. This fund was replaced on
November 15, 1999 by the INVESCO Total Return Fund.
. Life Solutions Growth Fund - Life Solutions Growth is the most
aggressive of the Life Solutions asset allocation portfolios. Its long-
term average allocation is expected to be approximately 65% in U.S.
stocks, 15% in international stocks, and 20% in bonds. This fund was
replaced on November 15, 1999 by the INVESCO Total Return Fund.
. Lifeline Systems, Inc. Common Stock - The Plan's trustee purchases the
stock of the Company on the open market.
B. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements of the Plan have been prepared under the accrual
basis of accounting and in conformity with generally accepted accounting
principles.
Investment Valuation
Investments in mutual funds, common collective trusts and the Company's
common stock are valued at fair market value using year-end closing prices.
Participant loans are valued at cost which approximates fair value.
Interest and dividend income is recorded as earned on the accrual basis.
The Plan presents in the statement of changes in net assets available for
plan benefits the net appreciation (depreciation) in the fair value of its
investments which consists of the realized gains or losses and the
unrealized appreciation (depreciation) on those investments.
Contributions
Employee and employer matching contributions are recorded in the period in
which the employee payroll deductions are made.
Payment of Benefits
Benefit payments are recorded when paid.
Expenses
All administrative expenses and fees are paid by the Company except for
loan fees which are paid by the participants of the Plan.
Use of Estimates
The preparation of the Plan's financial statements in conformity with
generally accepted accounting principles requires the plan administrator to
make significant estimates and assumptions that affect the reported amounts
of net assets available for plan benefits at the date of the financial
statements and the changes in net assets available for plan benefits during
the reporting period and, when applicable, disclosures of contingent assets
and liabilities at the date of the financial statements. Actual results
could differ from those estimates.
10
<PAGE>
The Lifeline Employees' Savings and Investment Plan
Notes to Financial Statements, Continued
--------------------------------------------------------------------------------
Risks and Uncertainties
The Plan provides for various investment options in any combination of
stocks, bonds, fixed income securities, mutual funds, and other investment
securities. Investment securities are exposed to various risks, such as
interest rate, market, and credit risks. Due to the level of risk
associated with certain investment securities, it is at least reasonably
possible that changes in the values of investment securities will occur in
the near term and that such changes could materially affect participants'
account balances and the amounts reported in the statement of net assets
available for plan benefits.
C. Investment Contracts with Insurance Company and Bank
In January 1992 the Plan entered into an investment agreement with Bankers
Trust Company to enter into the Bankers Trust Pyramid Guaranteed Investment
Contracts Fund, a common collective trust established and managed by
Bankers Trust Company. The Fund invests primarily in Guaranteed Investment
Contracts ("GICs") and Bank Investment Contracts issued by life insurance
companies, banks or other financial institutions, and any of the Bankers
Trust Commingled short-term investments funds. The Fund's assets are
valued at fair market value, provided, however, assets for which there is
no readily ascertainable market value are valued at fair value determined
in good faith by the Trustee of the Fund. The Fund expects to maintain a
constant unit value of $1.00. Withdrawals are permitted and are subject to
a deferred payout schedule.
In February 1997, the plan terminated its participation in the Bankers
Trust Pyramid Guaranteed Investment Contracts Fund and entered into an
Investment Management Agreement with Bankers Trust Company. The Investment
Management Agreement allows the Company to receive payouts of the Plan's
remaining balance in six installments from February 1, 1997 through October
1, 2001.
11
<PAGE>
The Lifeline Employees' Savings and Investment Plan
Notes to Financial Statements, Continued
--------------------------------------------------------------------------------
D. Investments
Investments held by the Plan at December 31, 1999 and 1998 are summarized
as follows:
<TABLE>
<CAPTION>
1999 1998
Description Fair value Fair value
<S> <C> <C>
Lifeline Fixed Fund $ 1,298,653 * $ 1,437,694 *
SSGA Bond Market Fund - 228,683
SSGA S&P 500 Fund 1,328,463 * 860,319 *
SSGA Matrix Equity Fund - 3,327,413 *
SSGA Small Cap Fund - 762,230 *
Scudder International Fund 543,628 236,215
Life Solutions Income & Growth Fund - 442,577
Life Solutions Balanced Growth Fund - 875,747 *
Life Solutions Growth Fund - 474,387
Strong Government Securities Fund 271,612 -
SSGA Growth & Income Fund 3,568,457 * -
INVESCO Total Return Fund 2,072,817 * -
Dreyfus Emerging Leaders Fund 1,088,009 * -
Lifeline Systems, Inc. Company Stock 1,425,917 * 1,860,216 *
Participant Loan Fund 512,608 447,146
------------- -------------
$ 12,110,164 $ 10,952,627
============= =============
</TABLE>
* Investment represents 5% or more of net assets available for plan
benefits.
E. Tax Status
The Internal Revenue Service has determined and informed the Company by a
letter dated July 10, 1995 that the Plan and related trust are designed in
accordance with applicable sections of the Internal Revenue Code (IRC).
The Plan has been amended since receiving the determination letter.
However, the plan administrator and the Plan's tax counsel believe that the
Plan is designed and is currently being operated in compliance with the
applicable requirements of the IRC.
F. Plan Termination
The Company intends to continue the Plan indefinitely but reserves the
right to terminate the Plan at any time without any liability whatsoever
for such discontinuance or termination. After payment of expenses by the
trustee, the Plan would be liquidated and each participant would receive
his or her interest in the form of a lump-sum payment.
G. Related Party Transactions
CitiStreet, formerly State Street Solutions, is the Custodian for the Plan.
The Plan invests in mutual funds managed by State Street Global Advisors, a
related entity to the Custodian. Therefore, CitiStreet is a party-in-
interest. In addition, purchases and sales of the Company's common shares
and participant loans are considered party-in-interest transactions.
12
<PAGE>
The Lifeline Employees' Savings and Investment Plan
Supplemental Schedule
Schedule of Assets Held for Investment Purposes
December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Identity of issue, borrower, Current
lessor or similar party Description of investment value
<S> <C> <C>
* Lifeline Fixed Fund Common Collective Trust / Mutual Fund $ 1,298,653
* SSGA Growth & Income Fund Mutual Fund 3,568,457
* SSGA S&P 500 Index Fund Mutual Fund 1,328,463
Strong Government Securities Fund Mutual Fund 271,612
INVESCO Total Return Fund Mutual Fund 2,072,817
Dreyfus Emerging Leaders Fund Mutual Fund 1,088,009
Scudder International Fund Mutual Fund 543,628
* Lifeline Systems, Inc. Common Stock Shares of Common Stock 1,425,917
* Participant Loan Fund Participant Loans; rates
ranging from 9.25% to 10.00% 512,608
-------------
$ 12,110,164
=============
</TABLE>
* Party-in-interest
13
