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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-2755
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
GTE SAVINGS PLAN
GTE CORPORATION
ONE STAMFORD FORUM
STAMFORD, CONNECTICUT 06904
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of the
GTE Savings Plan:
We have audited the accompanying statements of net assets available
for plan benefits, with fund information of the GTE Savings Plan as of
December 31, 1997 and 1996, and the related statement of changes in net
assets available for plan benefits, with fund information for the year ended
December 31, 1997. These financial statements are the responsibility of the
Plan Administrator. 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 as of December 31, 1997 and 1996, and the changes in net assets
available for plan benefits for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the
financial statements taken as a whole. The fund information in the
statements of net assets available for plan benefits and 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 fund information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
June 22, 1998
<TABLE>
GTE SAVINGS PLAN
STATEMENT of Net Assets Available for Plan Benefits, WITH FUND INFORMATION
DECEMBER 31, 1997
(thousands of dollars)
<CAPTION>
Investments Employee Employer Total Net
in Master Trust Receivables Receivable Assets Notes Payable Assets
<S> <C> <C> <C> <C> <C> <C>
FIDELITY FUNDS:
Equity-Income Fund $ 339,168 $ 698 $ - $ 339,866 $ - $ 339,866
Overseas Fund 94,909 297 - 95,206 - 95,206
U.S. Equity Index Collective Trust Fund 272,161 558 - 272,719 - 272,719
Retirement Government Money Market Portfolio 103,967 303 - 104,270 - 104,270
Magellan Fund 418,962 1,037 - 419,999 - 419,999
Conservative Strategy Portfolio 327,618 264 - 327,882 - 327,882
Conservative Growth Strategy Portfolio 223,847 341 - 224,188 - 224,188
Moderate Growth Strategy Portfolio 359,338 709 - 360,047 - 360,047
Long-Term Growth Strategy Portfolio 287,051 770 - 287,821 - 287,821
Aggressive Growth Strategy Portfolio 48,847 335 - 49,182 - 49,182
OTHER FUNDS:
MAS Fixed Income Portfolio 9,930 23 - 9,953 - 9,953
Morgan Stanley Inst. Equity Growth Portfolio 47,814 175 - 47,989 - 47,989
Templeton Inst. Foreign Equity Fund 26,043 91 - 26,134 - 26,134
Templeton Inst. Emerging Markets Fund 10,279 65 - 10,344 - 10,344
Warburg Pincus Emerging Growth Fund 23,319 106 - 23,425 - 23,425
GTE Stock Portfolio 1,106,070 774 13,849 1,120,693 - 1,120,693
PAYSOP Fund (Note 6) 276,655 - - 276,655 - 276,655
Loan Fund 124,665 - - 124,665 - 124,665
ESOP Shares Fund Allocated (Note 4) 373,446 - - 373,446 - 373,446
ESOP Shares Fund Unallocated (Note 4) 761,520 - - 761,520 554,694 206,826
Total $5,235,609 $6,546 $13,849 $5,256,004 $554,694 $4,701,310
The accompanying notes are an integral part of this financial statement.
GTE SAVINGS PLAN
STATEMENT of Net Assets Available for Plan Benefits, WITH FUND INFORMATION
DECEMBER 31, 1996
(thousands of dollars)
<CAPTION>
Investments Employee Employer Total Net
in Master Trust Receivables Receivable Assets Notes Payable Assets
<S> <C> <C> <C> <C> <C> <C>
FIDELITY FUNDS:
Equity-Income Fund $ 256,225 $ 480 $ - $ 256,705 $ - $ 256,705
Overseas Fund 106,632 282 - 106,914 - 106,914
U.S. Equity Index Collective Trust Fund 180,480 311 - 180,791 - 180,791
Retirement Government Money Market Portfolio 90,417 262 - 90,679 - 90,679
Magellan Fund 367,482 879 - 368,361 - 368,361
Conservative Strategy Portfolio 352,452 247 - 352,699 - 352,699
Conservative Growth Strategy Portfolio 214,318 297 - 214,615 - 214,615
Moderate Growth Strategy Portfolio 317,747 594 - 318,341 - 318,341
Long-Term Growth Strategy Portfolio 256,535 623 - 257,158 - 257,158
OTHER FUNDS:
GTE Stock Portfolio 1,067,080 683 13,660 1,081,423 - 1,081,423
PAYSOP Fund (Note 6) 273,103 - - 273,103 - 273,103
Loan Fund 116,708 - - 116,708 - 116,708
ESOP Shares Fund Allocated (Note 4) 288,215 - - 288,215 - 288,215
ESOP Shares Fund Unallocated (Note 4) 741,506 - - 741,506 593,018 148,488
Total $4,628,900 $4,658 $13,660 $4,647,218 $593,018 $4,054,200
The accompanying notes are an integral part of this financial statement.
GTE SAVINGS PLAN
STATEMENT of CHANGES IN Net Assets Available for Plan Benefits, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(thousands of dollars)
<CAPTION>
Fidelity Funds
U.S. Equity Retirement
Equity- Index Government
Income Overseas Collective Money Market Magellan
Fund Fund Trust Fund Portfolio Fund
<S> <C> <C> <C> <C> <C>
Interest and Dividends $ 18,527 $ 4,697 $ - $ 4,804 $ 26,858
Net Investment Gain (Loss) (Note 2) 58,498 5,363 63,228 - 60,963
Contributions (Note 3):
Employee 17,714 8,456 13,230 8,018 26,355
Employer - - - - -
Transfers From (To) Other Plans (Note 6) 2,943 1,313 4,500 2,635 4,670
Net Transfers Between Funds 14,306 (22,765) 29,083 17,241 (34,300)
Participant Loans:
Repayments 3,962 2,109 2,583 3,007 6,637
Withdrawals (3,938) (1,928) (2,888) (3,003) (7,252)
Interest Expense - - - - -
Withdrawals and Terminations (28,851) (8,953) (17,808) (19,111) (32,293)
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS DURING THE YEAR 83,161 (11,708) 91,928 13,591 51,638
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT BEGINNING OF YEAR 256,705 106,914 _180,791 90,679 368,361
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT END OF YEAR $339,866 $95,206 $272,719 $104,270 $419,999
The accompanying notes are an integral part of this financial statement.
GTE SAVINGS PLAN
STATEMENT of CHANGES IN Net Assets Available for Plan Benefits, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(thousands of dollars)
<CAPTION>
Fidelity Funds
Conservative Moderate Long-Term Aggressive
Conservative Growth Growth Growth Growth
Strategy Strategy Strategy Strategy Strategy
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Interest and Dividends $ - $ - $ - $ - $ -
Net Investment Gain (Loss) (Note 2) 21,679 25,676 55,854 45,046 4,994
Contributions (Note 3):
Employee 7,536 9,428 19,174 20,179 5,948
Employer - - - - -
Transfers From (To) Other Plans (Note 6) 3,840 1,595 2,312 3,313 1,143
Net Transfers Between Funds (16,136) (1,879) (8,619) (18,101) 38,327
Participant Loans:
Repayments 2,262 2,314 4,377 4,037 910
Withdrawals (3,029) (2,594) (4,656) (4,139) (756)
Interest Expense - - - - -
Withdrawals and Terminations (40,969) (24,967) (26,736) (19,672) (1,384)
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS DURING THE YEAR (24,817) 9,573 41,706 30,663 49,182
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT BEGINNING OF YEAR 352,699 214,615 318,341 257,158 -
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT END OF YEAR $327,882 $224,188 $360,047 $287,821 $49,182
The accompanying notes are an integral part of this financial statement.
GTE SAVINGS PLAN
STATEMENT of CHANGES IN Net Assets Available for Plan Benefits, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(thousands of dollars)
<CAPTION>
Other Funds
Morgan Stanley Templeton Templeton Warburg
MAS Fixed Inst. Equity Inst. Foreign Inst. Emerging Pincus
Income Growth Equity Markets Emerging
Portfolio Portfolio Fund Fund Growth Fund
<S> <C> <C> <C> <C> <C>
Interest and Dividends $ 577 $ 6,175 $ 1,168 $ 597 $ 1,374
Net Investment Gain (Loss) (Note 2) (60) 2,334 529 (3,035) 911
Contributions (Note 3):
Employee 351 3,544 1,919 1,443 1,704
Employer - - - - -
Transfers From (To) Other Plans (Note 6) 100 650 128 198 248
Net Transfers Between Funds 9,325 36,778 23,356 11,941 19,946
Participant Loans:
Repayments 97 629 319 280 251
Withdrawals (71) (503) (299) (240) (209)
Interest Expense - - - - -
Withdrawals and Terminations (366) (1,618) (986) (840) (800)
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS DURING THE YEAR 9,953 47,989 26,134 10,344 23,425
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT BEGINNING OF YEAR - - - - -
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT END OF YEAR $9,953 $47,989 $26,134 $10,344 $23,425
The accompanying notes are an integral part of this financial statement.
GTE SAVINGS PLAN
STATEMENT of CHANGES IN Net Assets Available for Plan Benefits, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(thousands of dollars)
<CAPTION>
Other Funds
GTE ESOP Shares ESOP Shares
Stock PAYSOP Loan Fund Fund
Portfolio Fund Fund Allocated Unallocated Total
<S> <C> <C> <C> <C> <C> <C>
Interest and Dividends $ 36,187 $ 6,698 $ 8,891 $ 13,840 $ 28,991 $ 159,384
Net Investment Gain (Loss)(Note 2) 150,156 35,427 - 65,288 80,508 673,359
Contributions (Note 3):
Employee 20,575 - - - - 165,574
Employer 13,883 - - - 46,741 60,624
Transfers From (To) Other Plans (Note 6) 23,260 (1,963) 3,499 (1,382) - 53,002
Net Transfers Between Funds (95,175) (653) - 37,738 (40,413) -
Participant Loans:
Repayments 22,971 - (56,745) - - -
Withdrawals (22,835) - 58,340 - - -
Interest Expense - - - - (57,489) (57,489)
Withdrawals and Terminations (109,752) (35,957) (6,028) (30,253) - (407,344)
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS DURING THE YEAR 39,270 3,552 7,957 85,231 58,338 647,110
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT BEGINNING OF YEAR 1,081,423 273,103 116,708 288,215 148,488 4,054,200
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT END OF YEAR $1,120,693 $276,655 $124,665 $373,446 $206,826 $4,701,310
The accompanying notes are an integral part of this financial statement.
</TABLE>
GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
(1) Description of the Plan:
Eligibility
The GTE Corporation ("GTE") GTE Savings Plan (the "Plan") is a defined
contribution plan under the Employee Retirement Income Security Act of 1974
("ERISA"). The Plan provides eligible employees of GTE and its subsidiaries
("Participating Affiliates") with a convenient way to save for both medium
and long-term needs.
Eligible employee generally means an employee of GTE or a Participating
Affiliate, but does not include any of the following:
a. an individual in a unit covered by a collective bargaining
agreement between GTE or one or more Participating Affiliates
and a collective bargaining agent;
b. an individual paid by the hour unless GTE or a Participating
Affiliate has agreed to become a co-sponsor under the Plan for
such employees;
c. an active participant in any other tax-qualified retirement
plan of GTE or a Participating Affiliate that includes a cash or
deferred arrangement qualified under Code section 401(k);
d. a nonresident alien with no United States source income from
GTE;
e. a "leased employee" within the meaning of the Internal
Revenue Code Section 414(n);
f. an individual who is not paid directly by GTE or a
Participating Affiliate; and
g. an individual whose employment contract excludes
participation in the Plan.
To the extent expressly provided in any written separation policy of
GTE or a Participating Affiliate, eligible employee also includes any former
employee of GTE or a Participating Affiliate who is receiving salary
continuation payments pursuant to the separation policy.
An individual's active participation in the Plan shall terminate when
the individual ceases to be an eligible employee; but, the individual shall
remain a participant until the entire account balance under the Plan has
been distributed or forfeited.
Vesting and Investment Choices
Matching contributions vest immediately upon death, disability,
retirement, attainment of age 65 or five years of service with GTE or
Participating Affiliate. For participants with less than five years of
GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
service, matching contributions vest 50% immediately and 50% 24 months after
the end of the Plan year for which the contributions were made. Forfeitures
of a participant's account due to termination prior to 100% vesting are used
to reduce GTE's future contributions.
Each participant directs their contributions to be invested in one of
the following current investment options: five Fidelity funds, five
Fidelity strategy portfolios, five other funds and portfolios, the GTE stock
portfolio or in any combination of these funds and portfolios. Participants
are permitted to make changes to their investment choices on a daily basis.
A description of the investment choices follows:
a. Fidelity Equity-Income Fund - invests primarily in corporate
common and preferred stock, with up to 20% of the fund invested
in bonds and convertible securities.
b. Fidelity Overseas Fund - invests primarily in foreign
securities whose principal activities are outside the United
States and also invests in public and private bonds (both
foreign and domestic), bank deposits and money market
instruments denominated in United States dollars or foreign
currencies.
c. Fidelity U.S. Equity Index Collective Trust Fund - invests
in commingled funds seeking to provide results that correspond
to the total return performance of common stocks publicly
traded in the United States as represented by the Standard
& Poor's 500 Composite Stock Price Index.
d. Fidelity Retirement Government Money Market Portfolio -
invests in high-quality money market instruments and obligations
issued or guaranteed by the United States government or its
agencies.
e. Fidelity Magellan Fund - invests primarily in stocks and
securities convertible into common stock of United States and
foreign companies and in high yield securities, options and
futures contracts related to securities in the portfolio.
f. Fidelity Conservative Strategy Portfolio - invests 100% of
its assets in an underlying portfolio of fixed-income
securities, including investment contracts and bonds.
g. Fidelity Conservative Growth Strategy Portfolio - invests
approximately 75% of its assets in a portfolio of fixed-income
securities including investment contracts and bonds, with the
remaining 25% invested in a portfolio of United States equities.
h. Fidelity Moderate Growth Strategy Portfolio - invests
approximately 50% of its assets in a portfolio of United States
equities. The remaining 50% is invested in a portfolio of fixed-
income securities, including investment contracts and bonds.
GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
i. Fidelity Long-Term Growth Strategy Portfolio - invests
approximately 75% of its assets in a portfolio of equity
securities consisting of a combination of United States equities
(50%) and international equities (25%). The remaining 25% is
invested in a portfolio of fixed-income securities, including
investment contracts and bonds.
j. Fidelity Aggressive Growth Strategy - invests 70% of its
assets in equities of United States companies with
capitalizations ranging from large to small. The remaining 30%
is invested in companies in both developed and emerging markets.
k. MAS Fixed Income Portfolio - invests in a variety of bonds
including United States government or agency securities,
corporate bonds, international bonds and mortgage securities.
l. Morgan Stanley Institutional Equity Growth Portfolio -
invests at least 65% of its assets in equity securities,
including common and preferred stocks, convertible securities,
and rights and warrants to purchase common stocks. Up to 25% of
the funds assets may be invested in foreign securities.
m. Templeton Institutional Foreign Equity Fund - invests
at least 65% of its assets in equity securities, which include
common and preferred stock, securities convertible into common and
preferred stock and warrants or rights to subscribe to or purchase
such securities. Up to 35% may be invested in debt securities.
n. Templeton Institutional Emerging Markets Fund - invests at
least 65% of its assets in emerging market equity securities.
The fund considers countries having emerging markets to be all
countries that are generally considered to be developing or
emerging countries by the international financial community. Up to
35% of the funds assets may be invested in debt securities.
o. Warburg Pincus Emerging Growth Fund - invests at least 65%
of its assets in common stocks or warrants of emerging growth
companies. Emerging growth companies are small or medium-sized
companies that have passed their start-up phase and show
positive earnings and prospects of achieving significant profit
and gain in a relatively short period of time.
p. GTE Stock Portfolio - invests principally in GTE common
stock but may also invest a portion in short-term money market
instruments.
q. PAYSOP Fund - comprised of GTE common stock and a small
amount of cash. The only participant directed funds are those
which were contributed by participants between the years 1979 and
1982. All other contributions were made by GTE. Participants
cannot borrow from this fund; however, its balance is used to
determine a maximum loan amount available to participants.
GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
The Savings Plan Committee may, at its sole discretion, eliminate,
and/or change the underlying composition of any of the investment options,
and may add other funds as a current investment option.
Participant Loans
A loan feature is available to participants which permits borrowing up
to 50% of a participant's vested balance, subject to certain limitations.
The primary assets of the Loan Fund are promissory notes executed by
participants who have taken loans.
Interest rates on loans are equal to the prime interest rate on the
first business day of each calendar quarter. Participant loans are
withdrawn proportionately from the participants' investment accounts. When
loans are repaid, the principal and interest are reinvested according to the
participants' current investment choices. Short-term loans are from six
months to five years; long-term loans for the purchase of a primary
residence are from five to twenty years.
Master Trust
The Plan participates in the GTE Master Savings Trust (the "Master
Trust") and, along with the GTE Hourly Savings Plan ("Hourly Plan") owns a
percentage of the assets in the Master Trust. These percentages are based
on a pro rata share of the Master Trust assets. At December 31, 1997 and
1996, the Plan owned approximately 78% of the assets in the Master Trust.
Interest and dividends along with net investment gains or losses are
allocated to the Plan on a daily basis based upon the Plan's participation
in the various investment funds and portfolios that comprise the Master
Trust as a percentage of the total participation in such funds and
portfolios (see Note 7).
Trustee
Fidelity Management Trust Company (the "Trustee") has been designated
as the Trustee under the Plan and is responsible for the investment,
reinvestment, control and disbursement of the funds and portfolios of the
Plan including the payment of principal and interest on the Employee Stock
Ownership Plan's (the "ESOP") notes payable (see Note 4). Expenses of
administering the Plan and related funds and portfolios, including fees and
expenses of the Trustee, are charged to the participants' accounts. GTE
Service Corporation, a subsidiary of GTE, is the plan administrator.
Plan Modification
GTE reserves the right to terminate, modify, alter or amend the Plan
at any time, provided that no such change shall permit any of the funds to
be used for any purpose other than the exclusive benefit of the
participants. In the event of termination or discontinuance of the Plan by
GTE, participants' interest in their accounts will become fully vested.
GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
Effective January 1, 1997, participants may elect to have dividends on
GTE common stock paid in cash rather than reinvested in the Plan. Also, GTE
has enhanced the Plan to 16 investment choices from the 10 prior investment
choices. The investment choices added are as follows: The Fidelity
Aggressive Growth Strategy, MAS Fixed Income Portfolio, Morgan Stanley
Institutional Equity Growth Portfolio, Templeton Institutional Foreign
Equity Fund, Templeton Institutional Emerging Market Fund, and Warburg
Pincus Emerging Growth Fund.
(2) Accounting Policies:
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles which require that estimates
and assumptions be made that affect reported amounts. Actual results could
differ from those estimates. Certain reclassifications have been made to
prior-year data to conform to the current year presentation.
Investments are generally stated at market value determined from
publicly stated price information, if available; otherwise, the estimated
fair value is used. Guaranteed investment contracts are stated at cost plus
accrued interest. Net investment gains and losses include both unrealized
gains and losses on investments held by the Plan at year end as well as
realized gains and losses on investments sold during the year. Net
unrealized and net realized gains and losses are based on the changes in
value of the investments at the beginning of the Plan year or at the time of
purchase if acquired during the Plan year. For 1997, the GTE Stock
Portfolio had an unrealized gain of $168.0 million and a realized loss of
$17.9 million. For the same period, the combined ESOP shares fund had an
unrealized gain of $139.0 million and a realized gain of $6.8 million.
(3) Contributions:
The Plan is funded by employee contributions up to a maximum of 16% of
compensation and by company matching contributions in shares of GTE common
stock equivalent in value to 75% of the initial 6% of the participants'
contributions not withdrawn during the Plan year. The company matching
contributions are credited following the close of each calendar year to the
accounts of participants who have not terminated their active participation.
Participant contributions may be before tax ("Elective Contributions") or
from currently taxed compensation ("After-Tax Contributions"). Each
participant's Elective Contributions for the 1997 Plan year was limited to
$9,500. The total amount of Elective contributions, After-Tax contributions
and company matching contributions and certain forfeitures that may be
allocated to a Plan participant for the 1997 Plan year was limited to the
lesser of (i) $30,000 or (ii) 25% of the participant's total compensation;
and the compensation on which such contributions were based was limited to
$160,000.
GTE matching contributions are made in GTE common stock and in
general, participants cannot redirect these shares into other investment
choices. For the 1997 Plan year, total company matching contributions of
1,461,814 shares of GTE common stock were made with a market value at date
of contribution of $78.9 million. These contributions included an
allocation of ESOP shares of 1,205,207 with a market value of $65.0 million
GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
and accrued contributions of GTE common stock of 256,607 shares with a
market value of $13.9 million.
(4) Employee Stock Ownership Plan:
An Employee Stock Ownership Plan (the "ESOP") was established within
the Plan. In 1989, the ESOP borrowed $700 million to acquire, at market
value, 24.6 million shares of GTE common stock which will be used to meet a
substantial portion of the estimated employer contributions to the Plan
through 2004. GTE and the Participating Affiliates also make annual cash
contributions to the ESOP which, when combined with dividends on the GTE
common stock held by the ESOP, are sufficient to repay the principal and
interest on the loans which have 10 and 15-year terms. As the ESOP makes
loan payments, a percentage of the GTE common stock held by the ESOP will be
allocated to the participants' accounts in the form of company matching
contributions.
GTE received a ruling from the Internal Revenue Service in 1996
permitting a tax deduction for dividends on certain GTE common stock in the
PAYSOP fund that are used to pay the Plan's ESOP debt. The deduction is
limited to reinvested dividends on GTE common stock in its PAYSOP fund
credited to participants' accounts prior to August 5, 1989.
Debt service payments for 1997 totaled $96 million. This requirement
was funded from $43 million of dividends accumulated on the GTE stock held
by the ESOP, $6 million of PAYSOP fund dividends and by $47 million of cash
contributions. At December 31, 1997, 13.3 million shares of GTE common
stock in the ESOP Shares Fund were held as collateral for the ESOP loans.
The borrowings of the ESOP are as follows:
Interest Maturity
Rates Dates 1997 1996
(thousands of dollars)
Series A 9.48% 1999 $ 46,194 $ 84,518
Series B 9.73% 1999-2005 508,500 508,500
$554,694 $593,018
Maturities of the outstanding loans are as follows:
Maturity 1997
Date Amount
(thousands of dollars)
1998 $ -
1999 46,194
2000 55,231
2001 65,316
2002 76,596
Thereafter 311,357
Total $554,694
GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
The Plan has pledged the unallocated shares in the ESOP Shares Fund as
collateral for the ESOP borrowings. GTE has guaranteed all principal and
interest payments on the ESOP borrowings in the event of default by the
Plan.
(5) Tax Status:
The Plan is a qualified profit sharing plan under Sections 401(a),
401(k) and 501 of the Internal Revenue Code of 1986, as amended (the
"Code"), and consequently is exempt from income tax. Management has received
a determination letter from the Internal Revenue Service to the effect that
the Plan, as amended, qualifies under Sections 401(a), 401(k) and 501 of the
Code.
(6) Transfers from (to) Other Plans:
In 1997, transfers into the Plan consist primarily of assets of
participants in the Hourly Plan who became eligible to participate in the
Plan.
Effective November 15, 1996, a portion of the GTE Consolidated
Employee Stock Ownership Plan (the "PAYSOP") was merged into the Plan.
Accordingly, approximately 6 million shares of GTE common stock with an
approximate market value of $272 million and a small amount of cash was
transferred into the Plan. All participants in the PAYSOP are fully vested.
The only participant directed funds are those which were contributed by
participants between 1979 and 1982. All other contributions, in the form of
GTE common shares, were made by GTE. Participants may elect to reinvest
dividends or receive them in cash. Participants cannot borrow from this
account; however, the balance is used to determine a maximum loan amount
available to participants.
(7) GTE Master Savings Trust:
The plans participating in the Master Trust include the GTE Savings
Plan; GTE Hourly Savings Plan; AGCS Savings Plan (limited participation) and
AGCS Hourly Savings Plan (limited participation). Effective June 30, 1997
AGCS elected to terminate its limited participation in the Master Trust.
Accordingly its net assets were transferred to the AGCS Master Trust.
In the Master Trust, funds are invested in contracts with insurance
companies which represented 68% of the conservative pool consisting of 71
investment contracts held with 25 insurance companies. These insurance
companies, excluding Mutual Benefit Life Insurance Company ("Mutual
Benefit") discussed below were rated AA- or better by Standard & Poor's as
of December 31, 1997 and 1996. The contracts are included in the financial
statements at contract value, approximately $603 million, which approximates
fair value, as reported by the insurance companies.
Contract value represents contributions made under the contract, plus
earnings, less withdrawals and administrative expenses. Investment
contracts are
GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
normally set at a fixed rate through maturity, which is also the minimum
crediting interest rate. Limitations on guarantees for normal investment
contracts are dependent on the creditworthiness of the insurance company.
Synthetic investment contracts ("Synthetics") are determined by an internal
rate of return calculation that equates market value and book value at the
expected average life of the securities. The Synthetics interest rate is
reset quarterly but has no minimum crediting rate. Limitations on
Synthetics are dependent upon the credit quality of the underlying
securities.
The investment contracts had average yields of 6.8% and 7.0% at
December 31, 1997 and 1996, respectively. The crediting interest rate for
the investment contracts, excluding Mutual Benefit, had a range from 5.56%
to 7.45% and 5.28% to 8.56% at December 31, 1997 and 1996 respectively. The
investment contracts have scheduled maturities from January 6, 1998 to March
5, 2002.
At December 31, 1997, the income pool had an investment contract with
Mutual Benefit which represented approximately 5% of the conservative pool's
investments and approximately 1% of the Master Trust investments. At
December 31, 1997, this investment is carried at contract value of $40.7
million in the Master Trust. On July 15, 1991, the Board of Directors of
Mutual Benefit asked the New Jersey Department of Insurance to place Mutual
Benefit into rehabilitation. On January 15, 1993, Mutual Benefit filed its
First Amended Plan of Rehabilitation which was approved by the Superior
Court of New Jersey effective May 2, 1994. GTE participated in the plan and
received a new contract which preserves principal and extends maturities,
with minimum interest and premium payments over the rehabilitation period.
During 1997 the contract was credited with interest at 6.35% for the period
from January 1, 1997 to June 30, 1997; and at 9.75% for the period from July
1, 1997 to December 31, 1997. In each subsequent year, the contract balance
will earn an annual rate of interest that can be adjusted each year, or more
often under certain circumstances, and will be determined by a formula based
on the investment performance of the assets which support the GTE contract.
There is no reserve held for resolution of the rehabilitation.
The following schedules reflect the Master Trust net investments by
fund as of December 31, 1997 and 1996 and investment income for the year
ended December 31, 1997:
GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31,
Investments in Master Trust: 1997 1996
(thousands of dollars)
Fidelity funds:
Equity - Income Fund $ 405,308 $
303,235
Overseas Fund 113,064
125,478
U.S. Equity Index Collective Trust Fund 358,229
241,454
Retirement Government Money Market Portfolio 157,201
137,236
Magellan Fund 521,831
454,381
Conservative Strategy Portfolio 427,254
481,725
Conservative Growth Strategy Portfolio 260,408
257,709
Moderate Growth Strategy Portfolio 417,013
379,793
Long-Term Growth Strategy Portfolio 333,442
312,522
Aggressive Growth Strategy Portfolio 58,325 -
Other funds:
MAS Fixed Income Portfolio 11,355 -
Morgan Stanley Inst. Equity Growth Portfolio 58,832 -
Templeton Inst. Foreign Equity Fund 29,604 -
Templeton Inst. Emerging Markets Fund 12,377 -
Warburg Pincus Emerging Growth Fund 26,805 -
GTE Stock Portfolio 1,659,221
1,651,259
ESOP Shares Fund Allocated 373,446
288,215
ESOP Shares Fund Unallocated 761,520
741,506
PAYSOP Fund 557,894
539,904
Loan Fund 197,161
183,536
Total $6,740,290
$6,097,953
GTE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
Year Ended December 31, 1997
Dividends Net Investment
& Interest Gain (Loss)
Investment Income in Master Trust: (thousands of dollars)
Fidelity funds:
Equity - Income Fund $ 22,112 $
69,651
Overseas Fund 5,583
6,352
U.S. Equity Index Collective Trust Fund -
83,950
Retirement Government Money Market Portfolio 7,347 -
Magellan Fund 33,433
75,792
Conservative Strategy Portfolio -
28,895
Conservative Growth Strategy Portfolio -
30,379
Moderate Growth Strategy Portfolio -
65,966
Long-Term Growth Strategy Portfolio -
54,231
Aggressive Growth Strategy Portfolio -
5,850
Other funds:
MAS Fixed Income Portfolio 663 (68)
Morgan Stanley Inst. Equity Growth Portfolio 7,590
2,886
Templeton Inst. Foreign Equity Fund 1,327 603
Templeton Inst. Emerging Markets Fund 715
(3,674)
Warburg Pincus Emerging Growth Fund 1,581 994
GTE Stock Portfolio 57,233
221,627
ESOP Shares Fund Allocated 13,840 65,288
ESOP Shares Fund Unallocated 28,991 80,508
PAYSOP Fund 13,755
68,447
Loan Fund 14,066
- -
Total $208,236
$857,677
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Savings Plan Committee has duly caused this annual report to be signed
by the undersigned thereunto duly authorized.
GTE SAVINGS PLAN
(Name of Plan)
Date June 26, 1998 By Paul R. Shuell
(Paul R. Shuell)
Vice President and Controller
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 11-K into GTE
Corporation's previously filed Registration Statement on Form S-8
(File No. 33-20178).
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
June 26, 1998
