-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PXslDuQzjT0uk6zQ1b5Pk0qpHQRzSkxuFqXJLDC2+fQ/2RXo+hadGd8kFkPTeN/2 JafwuTs8IpJ2fqqjFpwHnQ== 0000059558-98-000077.txt : 19980701 0000059558-98-000077.hdr.sgml : 19980701 ACCESSION NUMBER: 0000059558-98-000077 CONFORMED SUBMISSION TYPE: 11-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980630 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN NATIONAL CORP CENTRAL INDEX KEY: 0000059558 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 351140070 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 11-K SEC ACT: SEC FILE NUMBER: 001-06028 FILM NUMBER: 98657279 BUSINESS ADDRESS: STREET 1: 200 E BERRY ST STREET 2: PO BOX 1110 CITY: FORT WAYNE STATE: IN ZIP: 46802 BUSINESS PHONE: 2194552000 11-K 1 COVER PAGE SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 11-K ANNUAL REPORT Pursuant to Section 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year ended December 31, 1997 LINCOLN NATIONAL CORPORATION EMPLOYEES' SAVINGS AND PROFIT-SHARING PLAN (Full Title of Plan) [Current Reg. No. 33-52667] LINCOLN NATIONAL CORPORATION 200 East Berry Street Fort Wayne, Indiana 46802 (Name of Issuer and Principal Executive Office) FORM 11-K Lincoln National Corporation Employees' Savings and Profit-Sharing Plan TABLE OF CONTENTS Facing Sheet Financial Statements Schedules Signature Exhibit 23--Consent of Ernst & Young LLP, Independent Auditors Financial Statements and Schedules Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Years ended December 31, 1997 and 1996 with Report of Independent Auditors -2 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Financial Statements and Schedules Years ended December 31, 1997 and 1996 Contents Report of Independent Auditors............................................... 1 Audited Financial Statements Statements of Net Assets Available for Plan Benefits ........................ 2 Statements of Changes in Net Assets Available for Plan Benefits.............. 3 Notes to Financial Statements ............................................... 4 Schedules Schedule of Assets Held for Investment Purposes...............................13 Schedule of Loans or Fixed Income Obligations.................................14 Schedule of Reportable Transactions...........................................15 Signature.....................................................................16 Consent of Ernst & Young LLP, Independent Auditors............................17 -1 Report of Independent Auditors Lincoln National Corporation Benefits Investment Committee Lincoln National Corporation We have audited the accompanying statements of net assets available for plan benefits of the Lincoln National Corporation Employees' Savings and Profit-Sharing Plan as of December 31, 1997 and 1996, and the related statements of changes in net assets available for plan 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 plan benefits of the Plan at December 31, 1997 and 1996, and the changes in its net assets available for plan benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedules of assets held for investment purposes and loans or fixed income obligations as of December 31, 1997, and 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 financial statements. The supplemental schedules have been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole. Ernst & Young LLP Fort Wayne, Indiana June 24, 1998 -2 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Statements of Net Assets Available for Plan Benefits
December 31 1997 1996 Assets Investments: Common stock--Lincoln National Corporation........................... $155,505,156 $109,451,501 Norwest Bank Short-Term Investment Fund.............................. 5,105,624 -- Pooled separate accounts--The Lincoln National Life Insurance Company ............................................. 105,386,059 72,586,832 Investment contract--The Lincoln National Life Insurance Company............................................ 33,060,177 30,194,850 Participant loans.................................................... 12,300,926 8,740,008 ---------- ----------- Total investments.............................................. 311,357,942 220,973,191 Cash .................................................................. 499,148 198,023 Accrued interest receivable............................................ 22,745 23,986 Other receivables...................................................... -- 1,319,840 Contributions receivable from Employer Companies....................... 9,971,336 8,849,872 ------------ ------------- Total assets................................................... 321,851,171 231,364,912 Liability--miscellaneous payables...................................... -- 857,802 ------------ -------------- Net assets available for plan benefits......................... $321,851,171 $230,507,110
See accompanying notes. -3 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Statements of Changes in Net Assets Available for Plan Benefits
Year ended December 31 1997 1996 Additions: Net realized and unrealized appreciation (depreciation) in fair value of investments......................................... $ 68,923,702 $ (3,017,943) Investment income: Cash dividends--Lincoln National Corporation......................... 4,005,373 5,933,463 Interest: The Lincoln National Life Insurance Company......................... 2,028,563 1,894,621 Other............................................................... 917,147 1,093,843 ---------- --------- Total investment income.......................................... 6,951,083 8,921,927 Contributions: Participants......................................................... 14,633,661 18,237,161 Participating employers (net of forfeitures: 1997--$55,161; 1996--$15,008).......................... 12,415,078 10,713,394 ---------- ---------- Total contributions.............................................. 27,048,739 28,950,555 ---------- ---------- Total additions......................................................... 102,923,524 34,854,539 Deductions: Distributions to participants.......................................... (11,375,437) (21,915,376) Transfer to American States Financial Corporation Employees' Savings and Profit-Sharing Plan........................... -- (175,764,524) Administrative expenses................................................ (204,026) (207,599) ----------- ------------- Total deductions....................................................... (11,579,463) (197,887,499) ----------- ------------ Net increase (decrease) in net assets available for plan benefits........ 91,344,061 (163,032,960) Net assets available for plan benefits at beginning of the year.......... 230,507,110 393,540,070 ----------- ----------- Net assets available for plan benefits at end of the year................ $321,851,171 $230,507,110
See accompanying notes. -4 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Notes to Financial Statements 1. Significant Accounting Policies Investments The investment in Lincoln National Corporation ("LNC") common stock is valued at the last reported sales price per the national securities exchange on the last business day of the year. The Norwest Bank Short-Term Investment Fund is valued at cost which approximates fair value. The fair value of the participation units owned by Lincoln National Corporation Employees' Savings and Profit-Sharing Plan ("Plan") in pooled separate accounts is based on quoted redemption value on the last business day of the year. The investment contract is valued at contract value as estimated by The Lincoln National Life Insurance Company ("Lincoln Life"). Contract value represents net contributions made plus interest at the contract rate. This contract is fully benefit responsive. Participant loans are valued at cost which approximates fair value. The cost of investments sold, distributed or forfeited is determined using the specific identification method. Investment purchases and sales are accounted for on a trade date basis. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. Description of the Plan The Plan is a contributory, defined contribution plan which covers eligible employees of LNC and certain of its subsidiaries ("Employer Companies"). Through July 31, 1997, any person 21 years of age or older who was an employee of the Employer Companies was eligible to enroll in the Plan on the next Plan entry date if the person had been employed by the Employer Companies for at least one year. Effective August 1, 1997, the age and service requirements for eligibility in the Plan were eliminated. A participant may make pretax contributions at a rate of at least 1%, but not more than 15% of compensation, up to a maximum annual amount as determined and adjusted annually by the Internal Revenue Service ("IRS"). The participants are fully vested in their contributions and direct the Plan to invest their contributions in any combination of the investment options as described in Note 4. Participants can direct employer contributions, but only after the contributions have been in the Plan for two full plan years following the year for which they were contributed. The Employer Companies contribute to the Plan an amount equal to a participant's contributions, not to exceed 6%, multiplied by a percentage, ranging from 25% to 150%, which varies according to LNC's return on equity in relation to pre-identified peer companies. The Employer Companies contributions are invested in the LNC Common Stock Fund. The Employer Companies contributions vest based upon years of service as defined in the Plan document as follows: Years of Service Percent Vested 1 0% 2 50% 3 or more 100% -5 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 2. Description of the Plan (continued) The Employer Companies have the right in accordance with the Plan to discontinue contributions at any time and terminate participation in the Plan. In the event of termination of the Plan, all amounts allocated to participants' accounts shall become vested. The Plan allows loans to participants in amounts up to 50% of the vested account value to a maximum of $50,000 but not more than the total value of the participant's account excluding employer contributions that have not been in the Plan for two full years, less the highest outstanding loan balance in the previous twelve-month period. A participant may have a maximum of two loans outstanding at any one-time. Upon termination of service due to disability or retirement, a participant or beneficiary, in case of the participant's death, may elect to receive either a lump-sum amount equal to the value of the participant's vested interest in his or her account, or annual installments over a five year period. For termination of service due to other reasons, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution. Each participant's account is credited with the participant's contribution and the Employer Companies' matching contribution and allocations of Plan earnings, and charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account. Forfeited non-vested amounts are used to reduce future Employer Companies' contributions. 3. Investments Individual investments greater than 5% of Net Assets Available for Benefits at December 31, 1997 and 1996 are as follows:
December 31, 1997 December 31, 1996 Shares/ Market Shares/ Market Par Value Value Par Value Value Common stock--Lincoln National Corporation....................... 1,990,466 $155,505,156 2,084,790 $109,451,501 Pooled separate accounts--Lincoln Life Core Equity Fund........................... 2,447,047.178 26,759,193 2,039,150.637 16,888,478 Medium Capitalization Equity Fund.......... 2,167,398.551 21,753,157 2,082,404.287 18,876,487 Large Capitalization Equity Fund........... 2,467,841.675 18,578,559 2,154,330.425 12,377,768 Investment contract with Lincoln Life....... $ 33,060,177 33,060,177 $ 30,194,850 30,194,850
The investment contract earned an average interest rate of approximately 6.6% and 6.8% in 1997 and 1996, respectively. The credited interest rates for new contributions at December 31, 1997 and 1996 were 6.0% and 7.0%, respectively. The rate on new contributions is guaranteed through the succeeding three calendar year quarters. The credited interest rates for the remaining contract value balance at December 31, 1997 and 1996 were 6.5% and 6.8%, respectively, and were determined based upon the performance of Lincoln Life's general account. The credited interest rates change at least quarterly. The minimum guaranteed rate is 4.5% for the first 5 contract years, 4.0% for years 6-10 and 3.5% following year 10. The guarantee is based on Lincoln Life's ability to meet its financial obligations out of its general assets. Restrictions may apply to the aggregate movement of funds to other investment options. The fair value of the investment contract approximates contract value. Participants are allocated interest on the investment contract based on the average rate earned on all Plan investments in the investment contract. During 1997 and 1996, the Plan's investments (including investments bought, sold as well as held during the year) appreciated (depreciated) in fair value as follows:
1997 1996 Fair value as determined by quoted market price: Common stock.............................................. $52,860,047 $(15,041,531) Pooled Seperate accounts.................................. 16,063,655 12,023,588 ---------- ---------- Total............................................. $68,923,702 $ (3,017,943)
-6 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 4. Investment Options The detail of net assets available for plan benefits by investment option is as follows: Investment Options
December 31, 1997 Total 1 2 3 4 5 6 Assets Investments: Common stock $155,505,156 $155,505,156 Short-term investment fund 5,105,624 5,105,624 Pooled separate accounts 105,386,059 $4,880,053 $3,945,083 $5,581,674 $2,305,095 Investment contract 33,060,177 $33,060,177 Participant loans 12,300,926 ----------- ----------- ---------- --------- --------- --------- --------- Total investments 311,357,942 160,610,780 33,060,177 4,880,053 3,945,083 5,581,674 2,305,095 Cash 499,148 51,966 22,304 10,267 22,857 14,157 Accrued interest receivable 22,745 22,745 Contributions receivable from Employer Companies 9,971,336 9,971,336 ------------- ------------ ---------- --------- --------- --------- ---------- Total assets 321,851,171 170,604,861 33,112,143 4,902,357 3,955,350 5,604,531 2,319,252 ------------- ------------ ---------- --------- --------- --------- ---------- Net assets available for plan benefits $321,851,171 $170,604,861 $33,112,143 $4,902,357 $3,955,350 $5,604,531 $2,319,252
Investment Options
7 8 9 10 11 12 13 Loans Assets Investments: Common stock Short-term investment fund Pooled separate accounts $3,646,261 $7,024,970 $26,759,193 $5,189,885 $21,753,157 $18,578,559 $5,722,129 Investment contract Participant loans 12,300,926 ---------- --------- ---------- --------- ---------- ---------- --------- ----------- Total investments 3,646,261 7,024,970 26,759,193 5,189,885 21,753,157 18,578,559 5,722,129 12,300,926 Cash 24,691 34,448 94,570 29,921 79,587 73,402 40,424 554 Accrued interest receivable Contributions receivable from Employer Companies ---------- --------- ---------- --------- ---------- ---------- --------- ---------- Total assets 3,670,952 7,059,418 26,853,763 5,219,806 21,832,744 18,651,961 5,762,553 12,301,480 Net assets available for plan ---------- --------- ---------- --------- ---------- --------- -------- ---------- benefits $3,670,952 $7,059,418 $26,853,763 $5,219,806 $21,832,744 $18,651,961 $5,762,553 $12,301,480
-7 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 4. Investment Options (continued) The detail of the changes in net assets available for plan benefits by investment option is as follows: Investment Options
Year ended December 31, 1997 Total 1 2 3 4 5 6 Additions: Net realized and unrealized appreciation (depreciation) in fair value of investments $ 68,923,702 $ 52,860,047 $ 244,454 $ 278,038 $ 448,811 $ 174,224 Investment income: Cash dividends 4,005,373 4,005,373 Interest 2,945,710 $2,028,563 --------- --------- ----------- -------- --------- -------- -------- Total investment income 6,951,083 4,005,373 2,028,563 Contributions: Participants 14,633,661 2,793,201 1,528,782 211,355 229,083 547,558 317,155 Participating employers (net of forfeitures) 12,415,078 12,415,078 ------------ ---------- ---------- --------- --------- ------- -------- Total contributions 27,048,739 15,208,279 1,528,782 211,355 229,083 547,558 317,155 ------------ ----------- ---------- -------- -------- -------- ------- Total additions 102,923,524 72,073,699 3,557,345 455,809 507,121 996,369 491,379 Deductions: Distributions to participants(11,375,437) (5,116,488) (1,907,269) (724,366) (146,429) (174,822) (86,794) Administrative expenses (204,026) (174,850) (9,604) (1,073) (1,674) (1,219) (1,212) Net transfers -- (14,775,497) 1,092,693 1,213,797 (139,610) 125,866 925,892 ------------ ------------ ---------- ---------- --------- ------- ------- Total deductions (11,579,463) (20,066,835) (824,180) 488,358 (287,713) (50,175) 837,886 ------------ ------------ --------- -------- --------- -------- ------- Net increase in net assets available for plan benefits 91,344,061 52,006,864 2,733,165 944,167 219,408 946,194 1,329,265 Net assets available for plan benefits at beginning of the year 230,507,110 118,597,997 30,378,978 3,958,190 3,735,942 4,658,337 989,987 ----------- ------------ ----------- ---------- ---------- ---------- ---------- Net assets available for plan benefits at end of the year $321,851,171 $170,604,861 $33,112,143 $4,902,357 $3,955,350 $5,604,531 $2,319,252
Investment Options
7 8 9 10 11 12 13 Loans Additions: Net realized and unrealized appreciation (depreciation) in fair value of investments $ 450,937 $1,297,501 $ 6,223,604 $ 784,488 $ 2,199,901 $ 4,265,917 $ (304,220) Investment income: Cash dividends Interest $ 917,147 ---------- ---------- ----------- --------- ---------- ---------- ---------- --------- Total investment income 917,147 Contributions: Participants 571,927 822,483 2,170,155 743,339 1,926,031 1,688,230 1,084,362 Participating employers (net of forfeitures) ----------- ---------- --------- -------- --------- --------- ---------- ----------- Total contributions 571,927 822,483 2,170,155 743,339 1,926,031 1,688,230 1,084,362 ---------- ----------- ---------- -------- ---------- ---------- --------- ----------- Total additions 1,022,864 2,119,984 8,393,759 1,527,827 4,125,932 5,954,147 780,142 917,147 Deductions: Distributions to participants (187,747) (256,053) (688,981) (94,580) (831,861) (679,216) (219,023) (261,808) Administrative expenses (904) (949) (4,595) (679) (3,391) (2,871) (1,005) Net transfers 1,125,593 2,673,096 2,229,210 1,259,592 (387394) 972,956 801,659 2,882,147 ---------- ---------- ---------- ---------- ---------- -------- -------- --------- Total deductions 936,942 2,416,094 1.535,634 1,164,333 (1,222,646) 290,869 581,631 2,620,339 ----------- ---------- ---------- ---------- ----------- -------- -------- --------- Net increase in net assets available for plan benefits 1,959,806 4,536,078 9,929,393 2,692,160 2,903,286 6,245,016 1,361,773 3,537,486 Net assets available for plan benefits at beginning of the year 1,711,146 2,523,340 16,924,370 2,527,646 18,929,458 12,406,945 4,400,780 8,763,994 -------------------- ----------- ---------- ----------- ----------- ---------- --------- Net assets available for plan benefits at end of the year $3,670,952 $7,059,418 $26,853,763 $5,219,806 $21,832,744 $18,651,961 $5,762,553 $12,301,480
-8 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 4. Investment Options (continued) The detail of net assets available for plan benefits by investment option is as follows: Investment Options
December 31, 1996 Total 1 2 3 4 5 6 Assets Investments: Common stock $109,451,501 $109,451,501 Pooled separate accounts 72,586,832 $3,915,270 $3,732,897 $4,652,521 $989,778 Investment contract 30,194,850 $30,194,850 Participant loans 8,740,008 ----------- ------------ ---------- --------- --------- --------- -------- Total investments 220,973,191 109,451,501 30,194,850 3,915,270 3,732,897 4,652,521 989,778 Cash 198,023 1,083,337 (300,713) (36,717) (6,823) (44,806) (24,569) Accrued interest receivable 23,986 Other receivables 1,319,840 484,841 79,637 9,868 50,622 24,778 Contributions receivable from Employer Companies 8,849,872 8,849,872 ----------- ------------ ---------- --------- --------- --------- -------- Total assets 231,364,912 119,384,710 30,378,978 3,958,190 3,735,942 4,658,337 989,987 Liability--miscellaneous payables 857,802 786,713 Net assets available for plan ----------- ----------- ---------- --------- --------- --------- -------- benefits $230,507,110 $118,597,997 $30,378,978 $3,958,190 $3,735,942 $4,658,337 $989,987
Investment Options
7 8 9 10 11 12 13 Loans Assets Investments: Common stock Pooled separate accounts $1,708,663 $2,521,725 $16,888,478 $2,526,822 $18,876,487 $12,377,768 $4,396,423 Investment contract Participant loans $8,740,008 --------- --------- ---------- --------- ---------- ---------- ---------- --------- Total investments 1,708,663 2,521,725 16,888,478 2,526,822 18,876,487 12,377,768 4,396,423 8,740,008 Cash (21,012) (80,832) (7,320) (20,832) (158,135) (175,836) (78,808) 71,089 Accrued interest receivable 23,986 Other receivables 23,495 82,447 43,212 21,656 211,106 205,013 83,165 Contributions receivable from Employer Companies --------- --------- ---------- --------- ---------- ---------- --------- --------- Total assets 1,711,146 2,523,340 16,924,370 2,527,646 18,929,458 12,406,945 4,400,780 8,835,083 Liability--miscellaneous payables 71,089 Net assets available for plan --------- --------- ---------- --------- ---------- ---------- --------- --------- benefits $1,711,146 $2,523,340 $16,924,370 $2,527,646 $18,929,458 $12,406,945 $4,400,780 $8,763,994
-9 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 4. Investment Options (continued) The detail of the changes in net assets available for plan benefits by investment option is as follows: Investment Options
Year Ended December 31, 1996 Total 1 2 3 4 5 6 Additions: Net realized and unrealized appreciation (depreciation) in fair value of investments$ (3,017,943) $(15,041,531) $ 304,350 $ 143,367 $ 5,661 $ 88,081 Investment income: Cash dividends 5,933,463 5,933,463 Interest 2,988,464 $ 1,894,621 --------- ---------- --------- --------- ------- ------- ------ Total investment income 8,921,927 5,933,463 1,894,621 Contributions: Participants 18,237,161 3,860,254 3,160,217 296,439 422,316 759,809 274,330 Participating employers (net of forfeitures) 10,713,394 10,713,394 ---------- ---------- --------- ------- ------- ------- -------- Total contributions 28,950,555 14,573,648 3,160,217 296,439 422,316 759,809 274,330 ----------- ----------- ---------- -------- -------- ------- ------- Total additions 34,854,539 5,465,580 5,054,838 600,789 565,683 765,470 362,411 Deductions: Distributions to participants(21,915,376) (9,613,257) (5,663,295) (347,190) (477,478) (556,164) (38,304) Transfer to American States Financial Corporation Employees' Savings and Profit-Sharing Plan (175,764,524) (76,082,981)(47,006,178) (4,703,573) (4,592,411) (2,976,419) (409,847) Administrative expenses (207,599) (191,420) (6,744) (921) (823) (741) (124) Net transfers -- (6,274,995) 891,546 (493,335) (383,734) (276,239) 305,505 ------------ ----------- ------------ --------- --------- --------- ------- Total deductions (197,887,499) (92,162,653)(51,784,671) (5,545,019) (5,454,446) (3,809,563) (142,770) ------------- ----------- ------------ ----------- ----------- ----------- --------- Net increase (decrease) in net assets available for plan benefits (163,032,960) (86,697,073)(46,729,833) (4,944,230) (4,888,763) (3,044,093) 219,641 Net assets available for plan benefits at beginning of the year 393,540,070 205,295,070 77,108,811 8,902,420 8,624,705 7,702,430 770,346 ------------ ------------ ----------- ---------- ---------- ---------- ------- Net assets available for plan benefits at end of the year $230,507,110 $118,597,997 $30,378,978 $3,958,190 $3,735,942 $4,658,337 $989,987
Investment Options
7 8 9 10 11 12 13 Loans Additions: Net realized and unrealized appreciation (depreciation) in fair value of investments $ 175,374 $ 301,715 $ 3,768,123 $ 165,356$ 4,316,435 $ 2,374,239 $ 380,887 Investment income: Cash dividends Interest $ 1,093,843 -------- ------- --------- -------- --------- --------- --------- --------- Total investment income 1,093,843 Contributions: Participants 698,051 602,804 2,043,734 618,570 2,450,567 1,816,085 1,035,379 198,606 Participating employers (net of forfeitures) -------- ------- --------- ------- --------- ---------- --------- --------- Total contributions 698,051 602,804 2,043,734 618,570 2,450,567 1,816,085 1,035,379 198,606 -------- -------- ---------- -------- --------- ---------- ---------- -------- Total additions 873,425 904,519 5,811,857 783,926 6,767,002 4,190,324 1,416,266 1,292,449 Deductions: Distributions to participants (281,324) (223,044) (1,434,977) (133,929) (1,370,504) (844,182) (368,132) (563,596) Transfer to American States Financial Corporation Employees' Savings and Profit-Sharing Plan (1,480,296) (950,784)(11,818,472) (882,793)(11,272,913) (4,699,957) (1,543,572) (7,344,328) Administrative expenses (253) (264) (1,940) (315) (2,094) (1,386) (574) Net transfers 865,363 934,249 1,447,772 731,383 1,035,000 793,079 927,806 (503,400) -------- -------- ---------- -------- ---------- -------- ------- --------- Total deductions (896,510) (239,843)(11,807,617) (285,654)(11,610,511) (4,752,446) (984,472) (8,411,324) --------- --------- ----------- --------- ----------- ----------- --------- ----------- Net increase (decrease) in net assets available for plan benefits (23,085) 664,676 (5,995,760) 498,272 (4,843,509) (562,122) 431,794 (7,118,875) Net assets available for plan benefits at beginning of the year 1,734,231 1,858,664 22,920,130 2,029,374 23,772,967 12,969,067 3,968,986 15,882,869 ---------- ---------- ----------- ---------- ----------- ----------- ---------- ---------- Net assets available for plan benefits at end of the year $1,711,146 $2,523,340 $16,924,370 $2,527,646 $18,929,458 $12,406,945 $4,400,780 $ 8,763,994
-10 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 4. Investment Options (continued) Information with respect to investment options is as follows: Option Description of Investment Option 1 LNC Common Stock Fund, which invests in the stock of Lincoln National Corporation. However, some funds may be invested in the Norwest Bank Short-Term Investment Fund until the LNC stock can be purchased. 2 Guaranteed Fund, which invests primarily in investment contracts which guarantee a rate of return and principal. 3 Short-Term Fund,which invests primarily in notes of government agencies and private corporations. 4 Government Bond Fund, which invests primarily in bonds issued by the United States government that have short maturities. 5 Government/Corporate Bond Fund, which invests primarily in corporate and U.S. government bonds and mortgage-backed securities. 6 High Yield Bond Fund, which invests primarily in below-investment-grade bonds providing higher rates of return to compensate higher risk. 7 Balanced Fund, which invests in three different asset classes; stock, bonds and money market instruments, which provide growth through the stock portion and reduced risk through the bond and money market portion. 8 Value Equity Fund, which invests primarily in large capitalization stocks, which are bought at low prices, of companies who have strong earnings power and are industry leaders. 9 Core Equity Fund, which invests primarily in large capitalization stock of established companies. 10 Small Capitalization Equity Fund, which invests primarily in the stock of small companies with potential for rapid growth. 11 Medium Capitalization Equity Fund, which invests primarily in medium-sized companies with potential for rapid growth. 12 Large Capitalization Equity Fund, which invests primarily in high-risk common stocks which have the potential for a significant appreciation in value over an 18 to 24 month period. 13 International Equity Fund, which invests primarily in stocks of non-United States companies. At December 31, 1997, the net assets in the LNC Common Stock Fund not subject to participant direction was $27,556,041. Investment options 3 through 13 are invested in pooled separate accounts of the Company through a group annuity contract issued by the Company. Interest charged on new loans to participants is established monthly based upon the prime rate plus 1%. Loans may be repaid over any period selected by the participant up to a maximum repayment period of 5 years except that the maximum repayment period may be 20 years for the purchase of a principal residence. -11 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 5. Income Tax Status On June 20,1997, the IRS ruled that the Plan qualifies as defined by Section 401(a) of the Internal Revenue Code ("IRC") and, therefore, is not subject to tax based on the present income tax laws. Further, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan's administrator is not aware of any course of action or series of events that have occurred that might adversely affect the Plan's qualified status. 6. Transactions With Parties-In-Interest The Plan has investments in common stock of LNC, and in pooled seperate accounts an investment contract with Lincoln Life of $155,505,156; $105,386,059 and $33,060,177, respectively, at December 31, 1997 (48.3%; 32.7% and 10.3% of net assets, respectively). LNC and Lincoln Life operate predominately in the insurance and financial services industries. LNC and Lincoln Life also provide certain administrative services at no charge to the Plan. Trustee fees and additional expenses incurred solely for the LNC Stock Fund are charged directly to the LNC Stock Fund. Audit fees are charged to earnings of all investment funds based upon the market value of the respective funds applicable to each investment option. These transactions are exempt. 7. Transfer of Assets Effective May 28, 1996, LNC's principal subsidiary within its Property-Casualty segment, American States Financial Corporation, closed an initial public offering of 17% of its common stock. As a result, the subsidiary formed the American States Financial Corporation Employees' Savings and Profit-Sharing Plan ("American States Plan") effective June 24, 1996. Assets transferred from the Plan to the American States Plan attributed to employees of American States Financial Corporation were $175,764,524 as of the effective date. LNC sold its 83% interest in American States Financial Corporation on October 1, 1997. On October 1, 1997, LNC sold its 83% interest in American States Financial Corporation. 8. Reconciliation of Financial Statements to Form 5500 The following is a reconciliation of net assets available for plan benefits per the financial statements to Form 5500:
1997 1996 ---- ---- Net assets available for plan benefits per the financial statements............................. $321,851,171 $230,507,110 Amounts allocated to withdrawing participants........................ -- (687,332) ------------ ------------ Net assets available for plan benefits per Form 5500................. $321,851,171 $229,819,778
The following is a reconciliation of distributions to participants per the financial statements to Form 5500:
1997 1996 ---- ---- Distributions to participants per the financial statements........... $11,375,437 $ 21,915,376 Add amounts allocated to withdrawing participants at end of the year................................... -- 687,332 Deduct amounts allocated to withdrawing participants at beginning of the year............................. (687,332) (1,273,955) ----------- ---------- Distributions to participants per Form 5500.......................... $10,688,105 $ 21,328,753
Amounts allocated to withdrawing participants are recorded on Form 5500 for distributions that have been processed and approved for payment prior to year end but have not yet been paid. -12 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 9. Recordkeeping for the Plan Effective July 1, 1997, the recordkeeping for the Plan was transferred from LNC to Norwest Bank, Minnesota. Also, effective July 1, 1997, the Plan began using the daily valuation method. 10. Century Compliance (unaudited) The year 2000 issue is pervasive and complex and affects virtually every aspect of LNC's businesses. LNC's computer systems and interfaces with the computer systems of vendors, suppliers, customers and business partners are particularly vulnerable. The inability to properly recognize date sensitive electronic information and transfer data between systems could cause errors or even a complete systems failure which would result in a temporary inability to process transactions correctly and engage in normal business activities for one or more of LNC's businesses. LNC is redirecting a large portion of its internal information technology efforts and contracting with outside consultants to update its systems to accommodate the year 2000. Also, LNC has initiated formal communications with critical parties that interface with LNC's systems to gain an understanding of their progress in addressing year 2000 issues. While LNC is making every effort to address its own systems and the systems with which it interfaces, it is not possible to provide assurance that operational problems will not occur. LNC presently believes that, with the modification of existing computer systems, updates by vendors and conversion to new software and hardware, the year 2000 issue will not pose significant operational problems for its computer systems. In addition, LNC is developing contingency plans in the event that, despite its best efforts, there are unresolved year 2000 problems. If the remediation efforts noted above are not completed timely or properly, the year 2000 issue could have a material adverse impact on the operation of LNC's businesses. During 1996 and 1997, LNC identified expenditures of approximately $11 million ($7 million after-tax) that it had spent to address this issue. LNC's financial plans for 1998-2000 include expected expenditures of an additional $39 million ($25 million after-tax) on this issue. The cost of addressing year 2000 issues and the timeliness of completion will be closely monitored by management and are based on management's current best estimates which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. Nevertheless, there can be no guarantee that these estimated costs will be achieved and actual results could differ significantly from those anticipated. Specific factors that might cause such differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer problems, and other uncertainties. 11. Subsequent Events (unaudited) On January 2, 1998, Lincoln Life completed the purchase of a block of individual life insurance and annuity business from CIGNA Corporation. In connection with this purchase, individuals who become employees of any of the Employer Companies will be eligible to participate in the Plan in 1998. On May 21, 1998, LNC announced its intent to acquire the domestic individual life insurance business of Aetna Inc. This transaction is expected to close in the fall of 1998 and in connection with this transaction, individuals who become employees of any of the Employer Companies will be eligible to participate in the Plan after the transaction is closed. -13 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Plan Number: 005 EIN: 35-1140070 Line 27a - Schedule of Assets Held for Investment Purposes December 31, 1997
(c) Description of Investment (b) Including Maturity (e) Identity of Issuer, Borrower Date, Rate of Interest, (d) Current Lessor or Similar Party Par or Maturity Value Cost Value *Common Stock Fund: Lincoln National Corporation common stock..... 1,990,466 shares $ 82,600,416 $155,505,156 Norwest Bank Short-Term Investment Fund....... 5,105,624 par value 5,105,624 5,105,624 ----------- ------------ 87,706,040 160,610,780 *Pooled separate accounts--The Lincoln National Life Insurance Company: Short-Term Fund........................... 1,679,250.300 participation units 4,226,752 4,880,053 Government Bond Fund...................... 2,438,291.700 participation units 2,988,064 3,945,083 Government/Corporate Bond Fund............ 1,040,989.990 participation units 4,167,521 5,581,674 High Yield Bond Fund...................... 993,879.490 participation units 2,010,612 2,305,095 Balanced Fund............................. 696,453.350 participation units 3,090,344 3,646,261 Value Equity Fund......................... 3,305,183.790 participation units 5,477,831 7,024,970 Core Equity Fund.......................... 2,435,393.640 participation units 14,685,801 26,759,193 Small Capitalization Equity Fund.......... 1,286,876.940 participation units 4,316,618 5,189,885 Medium Capitalization Equity Fund......... 2,158,755.910 participation units 13,383,867 21,753,157 Large Capitalization Equity Fund.......... 2,458,079.650 participation units 11,450,624 18,578,559 International Equity Fund................. 1,188,332.390 participation units 5,711,692 5,722,129 ----------- ------------ 71,509,726 105,386,059 *Investment contract--The Lincoln National Life Insurance Company (Guaranteed Fund) 6.5% Interest Rate 33,060,177 33,060,177 Participant loans Various loans at interest rates varying from 6.50% to 11.50% due from 1998 to 2017. -- 12,300,926 ------------ ------------ $192,275,943 $311,357,942
*Indicates party-in-interest to the plan. -14 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Plan Number: 005 EIN: 35-1140070 Line 27b - Schedule of Loans or Fixed Income Obligations December 31, 1997
(b) (c) (d) (e) (f) (g) (h) (i) Identity Original Amount received Unpaid and amount during reporting balance at Description of loan Amount Overdue address of of Loan year end of --------------------------------- --------------- obligor* Principal Interest year Issued Maturity Int. Rate Principal Interest - ---------- ------ -------- --------- ----------- ------ -------- --------- ---------- -------- 1 $ 338 $ 215 $ 6 $ 69 09/01/94 10/24/97 5.01% $ 69 $ 13 2 500 3 2 497 07/12/97 07/12/02 10.50% 33 21 3 500 0 0 500 07/29/97 07/26/02 9.50% 33 20 4 12,000 1,470 213 3,816 12/04/93 12/04/98 8.00% 1,225 120 5 9,097 859 380 6,257 04/17/95 04/01/00 11.00% 1,379 479 6 40,000 6,858 642 5,098 10/01/92 10/01/97 8.00% 5,098 0 7 1,500 137 39 783 08/19/94 07/31/99 9.75% 160 36 8 28,286 0 0 28,286 10/15/91 10/01/96 10.50% 28,286 5,092 9 10,000 0 0 10,000 08/20/97 08/16/02 9.50% 545 326 10 8,026 128 418 7,270 12/27/91 08/01/01 10.50% 700 373 11 6,615 677 131 2,817 05/07/94 05/07/99 8.25% 761 110 12 1,872 0 0 1,872 10/01/93 10/01/98 8.00% 1,872 396 13 4,500 565 120 1,930 06/18/94 06/18/99 8.75% 406 65 14 4,840 547 268 3,544 01/26/96 01/26/01 10.50% 342 137 15 4,900 0 0 4,850 09/05/97 09/06/02 9.50% 241 139 16 4,394 417 76 1,830 04/09/94 04/09/99 8.00% 543 73 17 10,000 1,275 127 2,072 06/05/93 06/05/98 8.00% 1,063 59 18 13,000 2,563 425 13,000 08/19/97 10/21/16 9.50% 73 437 19 4,800 547 266 3,487 12/15/95 12/15/00 10.75% 340 138 20 5,500 290 50 2,195 10/15/93 10/15/98 8.00% 904 114 21 3,000 994 60 3,000 08/26/97 07/07/00 9.50% 318 94 22 4,500 326 206 4,174 03/22/97 03/22/02 10.25% 226 129 23 1,000 0 0 397 03/29/96 05/09/97 10.25% 397 9 24 15,000 2,077 878 6,989 03/09/95 03/09/00 11.00% 1,608 363 25 8,258 1,159 62 598 07/01/92 07/01/97 8.50% 598 13 26 1,500 0 0 636 10/01/93 10/01/98 8.00% 309 32 27 7,885 923 475 6,195 05/04/96 05/04/01 10.25% 487 212 28 15,000 701 300 14,299 12/10/93 10/01/98 8.00% 11,414 2,593 29 6,000 0 0 6,000 07/29/97 07/26/02 9.50% 401 239 30 15,000 4,218 467 14,420 04/11/97 02/23/02 10.50% 1,206 741 31 3,590 0 0 2,821 04/23/93 04/23/98 8.00% 2,821 459 32 1,286 0 0 614 07/26/91 10/01/95 12.00% 614 37 33 7,185 0 0 6,576 04/01/96 04/01/01 10.25% 1,039 479 34 28,000 0 0 28,000 09/11/92 09/11/97 8.00% 28,000 6,248 35 3,175 259 155 2,822 03/31/96 03/31/01 10.25% 559 268
*All of the loans which are in default are loans made to participants in accordance with IRC 72(p). Outstanding loans are collateralized by the vested account balances of the participant receiving the loan. Since these participants are employees of the company, as a consideration of their privacy, the identity and address of each participant (obligor) has not been disclosed in this schedule but is available upon request. -15 Lincoln National Corporation Employees' Savings and Profit-Sharing Plan Plan Number: 005 EIN: 35-1140070 Line 27d - Schedule of Reportable Transactions Year ended December 31, 1997
(h) Current Value (I) (a) (b) (c) (d) (g) of Assets on Net Identity of Description Purchase Selling Cost of Transaction Gain Party Involved of Assets Price Price Assets Date (Loss) - -------------- ----------- ----- ----- ------ ---- ------ Category (iii)--- Series of transactions in excess of 5 percent of plan assets. Purchases and sales are transacted on the market-- Lincoln National Corporation shares of common stock: Purchases $21,586,488 $21,586,488 $21,586,488 Sales $23,218,046 12,835,222 23,218,046 $10,382,824
Note: Columns (e) and (f), and categories (i), (ii) and (iv) are not applicable. -16 SIGNATURE THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934, the Members of the Lincoln National Corporation Benefits Investment Committee have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. LINCOLN NATIONAL CORPORATION EMPLOYEES' SAVINGS AND PROFIT-SHARING PLAN /S/ H. THOMAS MCMEEKIN Date: 6/24/98 _____________________________ H. Thomas McMeekin, Chairman Lincoln National Corporation Benefits Investment Committee EX-23 2 CONSENT LETTER OF ERNST & YOUNG LLP -17 Exhibit 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-52667) pertaining to the Lincoln National Corporation Employees' Savings and Profit-Sharing Plan of our report dated June 24, 1998 with respect to the financial statements and schedules of the Lincoln National Corporation Employees' Savings and Profit-Sharing Plan included in this Annual Report (Form 11-K) for the year-ended December 31, 1997. /S/ ERNST & YOUNG L.L.P. Fort Wayne, Indiana June 24, 1998 219-455-1263 -----END PRIVACY-ENHANCED MESSAGE-----