SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1998
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, IN 46802
(Name of Issuer and Principal Executive Office)
FORM 11-K
Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
<PAGE>
TABLE OF CONTENTS
Facing Sheet
Financial Statements
Exhibit 23--Consent of Ernst & Young LLP, Independent Auditors
Signature
<PAGE>
Financial Statements
Lincoln National Corporation
Employees' Savings
and Profit-Sharing Plan
Years ended December 31, 1998 and 1997
with Report of Independent Auditors
<PAGE>
Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Financial Statements
and Schedules
Years ended December 31, 1998 and 1997
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
Signature.................................................................... 16
Consent of Ernst & Young LLP, Independent Auditors........................... 17
<PAGE>-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, 1998 and 1997, 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, 1998 and 1997, and the changes in its net assets available for plan
benefits for the years then ended, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Fort Wayne, Indiana
May 21, 1999
<PAGE>-2-
Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Statements of Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
December 31
1998 1997
---- ----
<S> <C> <C>
Assets
Investments:
Common stock--Lincoln National Corporation........................... $166,728,148 $155,505,156
Norwest Bank Short-Term Investment Fund.............................. 4,900,071 5,105,624
Pooled separate accounts--The Lincoln National
Life Insurance Company Separate Accounts............................ 139,922,466 105,386,059
Investment contracts--The Lincoln National
Life Insurance Company.............................................. 37,418,835 33,060,177
Participant loans.................................................... 12,368,264 12,300,926
----------- ----------
Total investments.............................................. 361,337,784 311,357,942
Cash and invested cash ................................................ 295,913 499,148
Accrued interest receivable............................................ 23,207 22,745
Contributions receivable from Employer Companies....................... 9,354,515 9,971,336
---------- -----------
Net assets available for plan benefits......................... $371,011,419 $321,851,171
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>-3-
Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Statements of Changes in Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
Year ended December 31
1998 1997
<S> <C> <C>
Additions:
Net realized and unrealized appreciation
in fair value of investments......................................... $ 28,552,368 $ 68,923,702
Investment income:
Cash dividends--Lincoln National Corporation......................... 4,157,618 4,005,373
Interest:
The Lincoln National Life Insurance Company........................ 2,030,745 2,028,563
Other.............................................................. 807,979 917,147
----------- ----------
Total investment income.......................................... 6,996,342 6,951,083
Contributions:
Participants......................................................... 17,800,355 14,633,661
Participating employers (net of
forfeitures: 1998--$52,036; 1997--$55,161).......................... 11,528,864 12,415,078
----------- ----------
Total contributions.............................................. 29,329,219 27,048,739
----------- ----------
Total additions......................................................... 64,877,929 102,923,524
Deductions:
Distributions to participants.......................................... (15,505,698) (11,375,437)
Administrative expenses................................................ (211,983) (204,026)
------------ -------------
Total deductions....................................................... (15,717,681) (11,579,463)
----------- -----------
Net increase in net assets available for plan benefits................... 49,160,248 91,344,061
Net assets available for plan benefits at beginning of the year.......... 321,851,171 230,507,110
----------- ------------
Net assets available for plan benefits at end of the year................ $371,011,419 $321,851,171
=========== =============
</TABLE>
See accompanying notes.
<PAGE>-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 participation units in pooled separate accounts is based on
quoted redemption value on the last business day of the year.
The investment contracts are 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. These
contracts are fully benefit responsive.
Participant loans are valued at their outstanding balances which approximate
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 Employees' Savings & Profit Sharing Plan ("Plan") is a contributory, defined
contribution plan which covers eligible employees of LNC and certain of its
subsidiaries ("Employer"). Through July 31, 1997, any person 21 years of age or
older who was an employee of the Employer was eligible to enroll in the Plan on
the next Plan entry date if the person has been employed by the Employer 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 years following the
date of the final contribution for the plan year.
Employer contributions to the Plan are based on an amount equal to a
participant's contributions, not to exceed 6% of eligible earnings, multiplied
by a percentage, ranging from 25% to 150%. Effective April 1998, the Board of
Directors of LNC adopted an amendment approving certain changes to the
contribution formula. Under the new formula, Employer contributions to the
Plan are based on LNC's increase in operating income. Prior to April 1998,
Employer contributions were based on LNC's return on equity in relation to pre-
identified peer companies. The Employer match on eligible participants'
contributions during their first year of employment is limited to a maximum of
25%.
<PAGE>-5-
Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Notes to Financial Statements
2. Description of the Plan (continued)
Employer contributions are invested in the LNC Common Stock Fund. Participants'
contributions are fully vested. Employer 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%
<PAGE>-6-
The Employer has 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 contributions,
matching contributions from the Employer and allocations of Plan earnings, and
is charged with an allocation of administrative expenses. Allocations are based
on participant 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
contributions.
3. Investments
Individual investments greater than 5% of Net Assets Available for Benefits at
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------ -------------------------------
Number of Number of
Shares, Units Market Shares, Units Market
or Par Value Value or Par Value Value
<S> <C> <C> <C> <C>
Common stock--Lincoln
National Corporation....................... 2,037,930 $166,728,148 1,990,466 $155,505,156
Pooled separate accounts--Lincoln Life:
Core Equity Fund........................... 2,532,054.939 33,032,052 2,435,392.640 26,759,193
Medium Capitalization Equity Fund.......... 2,197,547.709 27,165,219 2,158,755.910 21,753,157
Large Capitalization Equity Fund........... 2,607,565.754 26,296,054 2,458,079.650 18,578,559
Investment contracts-- Lincoln Life......... $ 37,418,835 37,418,835 $ 33,060,177 33,060,177
</TABLE>
The investment contracts ("Guaranteed Fund") earned an average interest rate of
approximately 6.45% and 6.60% in 1998 and 1997, respectively. The credited
interest rates for new contributions, which approximate the current market rate,
were 5.50 % and 6.00% at December 31, 1998 and 1997, 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, 1998 and 1997 were 6.40% and 6.50%, respectively, and were
determined based upon the performance of Lincoln Life's general account. The
<PAGE>-7-
Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Notes to Financial Statements
3. Investments (continued)
credited interest rates change at least quarterly. The minimum guaranteed rate
is 4.50% for the first 5 contract years, 4.00% for years 6-10 and 3.50%
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 contracts approximates contract value. Participants are allocated
interest on the investment contracts based on the average rate earned on
all Plan investments in the investment contracts.
During 1998 and 1997 the Plan's investments (including investments bought, sold
as well as held during the year) appreciated in fair value as follows:
<TABLE>
<CAPTION>
1998 1997
--------- -----------
Fair value as determined by quoted market price:
<S> <C> <C>
Common stock.............................................. $ 7,144,207 $52,860,047
Pooled separate accounts.................................. 21,408,161 16,063,655
---------- ----------
Total............................................. $28,552,368 $68,923,702
========== ==========
</TABLE>
<PAGE>-8-
Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Notes to Financial Statements
4. Investment Options (continued)
The detail of net assets available for plan benefits by investment option is as
follows:
<TABLE>
<CAPTION>
Investment Options
December 31, 1998 Total 1 2 3 4 5 6
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Common stock $166,728,148 $166,728,148
Short-term investment fund 4,900,071 4,900,071
Pooled separate accounts 139,922,466 $7,663,146 $5,101,100 $7,406,613 $3,252,200
Investment contracts 37,418,835 $37,418,835
Participant loans 12,368,264
---------- ---------- ---------- --------- -------- --------- ---------
Total investments 361,337,784 171,628,219 37,418,835 7,663,146 5,101,100 7,406,613 3,252,200
Cash and invested cash (deficit) 295,913 314,088 (8,873) (5,503) (132)
Accrued interest receivable 23,207 23,207
Contributions receivable from
Employer companies 9,354,515 9,354,515
----------- ----------- ---------- --------- --------- -------- -----------
Net assets available for
plan benefits $371,011,419 $181,320,029 $37,409,962 $7,663,146 $5,095,597 $7,406,481 $3,252,200
=========== =========== ========== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Investment Options
7 8 9 10 11 12 13 Loans
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments:
Common stock
Short-term investment fund
Pooled separate accounts $6,178,932 $8,806,591 $33,032,052 $7,581,016 $27,165,219 $26,296,054 $7,439,543
Investment contract
Participant loans $12,368,264
---------- -------- ---------- --------- -------- --------- --------- ----------
Total investments 6,178,932 8,806,591 33,032,052 7,581,016 27,165,219 26,296,054 7,439,543 12,368,264
Cash and invested cash (deficit) (12) (3,612) (1,245) 1,202
Accrued interest receivable
Contributions receivable from
Employer companies
Net assets available for --------- --------- ---------- -------- --------- ---------- --------- ----------
plan benefits $6,178,932 $8,806,591 $33,032,040 $7,581,016 $27,161,607 $26,294,809 $7,439,543 $12,369,466
========= ========= ========== ========= ========== ========== ========= ==========
</TABLE>
<PAGE>-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:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Investment Options
Total 1 2 3 4 5 6
<S> <C> <C> <C> <C> <C> <C> <C>
Additions:
Net realized and unrealized
appreciation
in fair value of investments $ 28,552,368 $ 7,144,207 $ 334,744 $ 346,008 $ 615,068 $ 182,032
Investment income:
Cash dividends 4,157,618 4,157,618
Interest 2,838,724 313,784 $2,030,745
--------- --------- --------- ---------- ------- ----- --------
Total investment income 6,996,342 4,471,402 2,030,745
Contributions:
Participants 17,800,355 3,313,968 1,802,766 345,150 236,740 588,927 460,993
Participating employers
(net of forfeitures) 11,528,864 11,528,864
---------- ----------- ----------- ---------- -------- ---------- ----------
Total contributions 29,329,219 14,842,832 1,802,766 345,150 236,740 588,927 460,993
----------- ----------- ----------- ---------- -------- ---------- ----------
Total additions 64,877,929 26,458,441 3,833,511 679,894 582,748 1,203,995 643,025
Deductions:
Distributions to participants (15,505,698) (6,162,320) (2,028,901) (1,419,999) (277,737) (362,270) (106,702)
Administrative expenses (211,983) (123,228) (27,404) (3,607) (3,426) (4,280) (3,444)
Net transfers -- (9,457,725) 2,520,613 3,504,501 838,662 964,505 400,069
------------ ---------- ----------- --------- ---------- ---------- ----------
Total deductions (15,717,681) (15,743,273) 464,308 2,080,895 557,499 597,955 289,923
----------- ----------- ----------- --------- ---------- ---------- --------
Net increase in net
assets available for plan benefits 49,160,248 10,715,168 4,297,819 2,760,789 1,140,247 1,801,950 932,948
Net assets available for plan
benefits at beginning of the year 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 at end of the year $371,011,419 $181,320,029 $37,409,962 $7,663,146 $5,095,597 $7,406,481 $3,252,200
=========== =========== ========== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Investment Options
7 8 9 10 11 12 13 Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additions:
Net realized and unrealized
appreciation
in fair value of investments $771,351 $1,054,090 $ 5,077,621 $1,045,078 $ 4,938,120 $ 6,334,143 $ 709,906
Investment income:
Cash dividends
Interest 494,195
------- -------- --------- -------- --------- -------- -------- --------
Total investment income 494,195
Contributions:
Participants 1,118,053 1,143,375 2,570,469 923,568 1,982,210 2,237,961 1,076,175
Participating employers
(net of forfeitures) --------- --------- ---------- ---------- ---------- --------- --------- ----------
Total contributions 1,118,053 1,143,375 2,570,469 923,568 1,982,210 2,237,961 1,076,175
--------- --------- ---------- ---------- ---------- ---------- --------- ----------
Total additions 1,889,404 2,197,465 7,648,090 1,968,646 6,920,330 8,572,104 1,786,081 494,195
Deductions:
Distributions to participants (306,506) (292,542) (1,179,234) (213,070) (913,947) (863,713) (280,539) (1,098,218)
Administrative expenses (3,280) (3,787) (15,431) (2,448) (9,522) (9,206) (2,920)
Net transfers 928,362 (153,963) (275,148) 608,082 (667,998) (56,337) 174,368 672,009
---------- --------- ----------- ---------- ----------- ---------- ---------- ---------
Total deductions 618,576 (450,292) (1,469,813) 392,564 (1,591,467) (929,256) (109,091) (426,209)
---------- --------- ---------- ---------- ---------- ---------- --------- ---------
Net increase in net
assets available for plan benefits 2,507,980 1,747,173 6,178,277 2,361,210 5,328,863 7,642,848 1,676,990 67,986
Net assets available for plan
benefits at beginning 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
--------- --------- ---------- --------- --------- -------- -------- ----------
benefits at end of the year $6,178,932 $8,806,591 $33,032,040 $7,581,016 $27,161,607 $26,294,809 $7,439,543 $12,369,466
========= ========= ========== ========= ========== ========== ========= ==========
</TABLE>
<PAGE>-10-
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:
<TABLE>
<CAPTION>
Investment Options
December 31, 1997 Total 1 2 3 4 5 6
<S> <C> <C> <C> <C> <C> <C> <C>
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 and invested 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
------------- ----------- ----------- -------- ---------- --------- ----------
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
=========== =========== ========== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Investment Options
7 8 9 10 11 12 13 Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 and invested cash 24,691 34,448 94,570 29,921 79,587 73,402 40,424 554
Accrued interest receivable
Contributions receivable from
Employer companies
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
========= ========= ========== ========= ========== ========== ========= ==========
</TABLE>
<PAGE>-11-
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:
<TABLE>
<CAPTION>
Year ended December 31, 1997 Investment Options
Total 1 2 3 4 5 6
<S> <C> <C> <C> <C> <C> <C> <C>
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
=========== =========== ========== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Investment Options
7 8 9 10 11 12 13 Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
------- ------- --------- --------- -------- -------- ----------- --------
917,147
Total investment income
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 (387,394) 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
========= ========= ========== ========= ========== ========== ========= ============
</TABLE>
<PAGE>-12-
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 United States 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, 1998, the net assets in the LNC Common Stock Fund not subject to
participant direction was $23,777,435.
Investment options 3 through 13 are invested in pooled separate accounts of
Lincoln Life through a group annuity contract issued by Lincoln Life.
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.
<PAGE>-13-
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 separate accounts
and investment contracts with Lincoln Life of $166,728,148; $139,922,466 and
$37,418,835, respectively, at December 31, 1998 (44.9%; 37.7% and 10.1% 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. 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. LNC and its operating subsidiaries have been redirecting a large
portion of internal Information Technology ("IT") efforts and contracting with
outside consultants to update systems to address Year 2000 issues. Experts have
been engaged to assist in developing work plans and cost estimates and to
complete remediation activities.
For the year ended December 31, 1998, LNC identified expenditures of $37.5
million ($24.4 million after-tax) to address this issue. This brings the
expenditures for 1996-1998 to $48.5 million ($31.5 million after-tax). LNC's
financial plans for 1999-2000 include expected expenditures of an additional
$44.4 million ($28.9 million after-tax) bringing estimated overall Year 2000
expenditures to $92.9 million ($60.4 million after-tax). Because updating
systems and procedures is an integral part of LNC's on-going operations,
approximately 50% of expenditures shown above are expected to continue after all
Year 2000 issues have been resolved. Actual Year 2000 expenditures through
December 31, 1998 and future Year 2000 expenditures are expected to be funded
from operating cash flows. The anticipated cost of addressing Year 2000 issues
is 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. Such costs
will be monitored closely by management. Nevertheless, there can be no guarantee
that actual costs will not be higher than these estimated costs. 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.
The current scope of the overall Year 2000 program includes the following four
major project areas: 1) addressing the readiness of business applications,
operating systems and hardware on mainframe, personal computer and Local Area
Network platforms (IT); 2) addressing the readiness of non-IT embedded software
and equipment (non-IT); 3) addressing the readiness of key business partners and
4) establishing year 2000 contingency plans.
The projects to address IT and non-IT readiness have four major phases. Phase
one involves raising awareness and creating an inventory of all IT and non-IT
assets. The second phase consists of assessing all items inventoried to
initially determine whether they are affected by the Year 2000 issue and
preparing general plans and strategies. The third phase entails the detailed
planning and remediation of affected systems and equipment. The last phase
consists of testing to verify Year 2000 readiness.
<PAGE>-14-
Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Notes to Financial Statements (continued)
7. Century Compliance (unaudited) [continued]
LNC has completed these four phases for over two-thirds of its high priority IT
systems, including those provided by software vendors. While LNC's year 2000
program for nearly all high priority IT systems is expected to be completed in
the first quarter of 1999, phase four, for a small but important subset of these
systems, will continue through the end of the second quarter 1999. As of
December 31, 1998 the status of projects addressing readiness of IT assets is:
100% of IT assets have been inventoried (Phase 1) and assessed (Phase 2); 97% of
IT projects have been through the remediation phase (Phase 3) with the last
project scheduled for completion by the end of March 1999; and 71% of IT
projects have completed the testing phase (Phase 4) with the last project
scheduled to finish testing by the end of June 1999. A portion of the effort
that extends into 1999 is dependent on outside third parties and is behind the
original schedule. LNC is working with these parties to modify the completion
schedule.
As of December 31, 1998, the status of projects that address readiness of high
priority non-IT assets is: 100% of non-IT assets have been inventoried (Phase 1)
and assessed (Phase 2); 72% of non-IT projects addressing remediation (Phase 3)
have been completed and 23% of non-IT projects have completed the testing phase
(Phase 4). LNC expects to have all phases related to high priority non-IT
completed by the end of October 1999.
Concurrent with the IT and non-IT projects, the readiness of key business
partners is being reviewed and Year 2000 contingency plans are being developed.
The most significant categories of key business partners are financial
institutions, software vendors and utility providers (gas, electric and
telecommunications). Surveys have been mailed to these key business partners.
Based on responses received, current levels of readiness are being assessed,
follow-up contacts are underway, alternative strategies are being developed and
testing is being scheduled where feasible. This effort is expected to continue
well into 1999. As noted above, software vendor assessments are considered part
of the IT projects and, therefore, would follow the schedule shown above for
such projects.
While LNC is working to meet the schedules outlined above, some uncertainty
remains. Specific factors that give rise to this uncertainty include a possible
loss of technical resources to perform the work, failure to identify all
susceptible systems, non-compliance by third parties whose systems and
operations impact LNC and other similar uncertainties.
A worst case scenario might include LNC's inability to achieve Year 2000
readiness with respect to one or more of LNC's significant policyholder systems,
resulting in a material disruption to LNC's operations. Specifically, LNC could
experience an interruption in its ability to collect and process premiums or
deposits, process claim payments, accurately maintain policyholder information,
accurately maintain accounting records, and/or perform adequate customer
service. Should the worst case scenario occur, it could, depending on its
duration, have a material impact on LNC's results of operations and financial
position. Simple failures can be repaired and returned to production within a
matter of hours with no material impact. Unanticipated failures with a longer
service disruption period would have a more serious impact. For this reason, LNC
is placing significant emphasis on risk management and Year 2000 contingency
planning. LNC is in the process of modifying its contingency plans to address
potential year 2000 issues. Where these efforts identify high risks due either
to unacceptable work around procedures or significant readiness risks,
appropriate risk management techniques are being defined. These techniques, such
as resource shifting or use of alternate providers, will be employed to provide
stronger assurances of readiness. LNC has gone through exercises to identify
worst case scenario failures. At this time, LNC believes its plans are
sufficient to mitigate identified worst case scenarios.
<PAGE>-15-
Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Notes to Financial Statements (continued)
7. Century Compliance (unaudited) [continued]
The record keeping for the Plan is currently performed by Norwest Bank,
Minnesota. Record keeping consists of the day to day maintenance of the
individual accounts within the Plan. As a result of the arrangement with
Norwest Bank, and as part of LNC's century compliance efforts, LNC has surveyed,
and continues to survey, Norwest Bank with respect to Norwest Bank's Year 2000
readiness. In response to LNC's Year 2000 surveys, Norwest Bank has represented
to LNC, that although there can be no guarantees that any one product will not
be affected in some way by a Year 2000 problem, Norwest Bank has dedicated
sufficient resources to both address and minimize the impact of the century
date change. Separately, Norwest Bank has represented on its web site that
Norwest Bank has identified mission critical systems based on Federal
Institutions Examination Council (FIEC) guidelines, addressed all other
systems, largely completed remediation and testing of internal systems, and
is currently developing comprehensive contingency plans to address any Year 2000
problems that may arise.
8. Subsequent Event (unaudited)
On October 1, 1998, LNC acquired the domestic individual life insurance business
of Aetna, Inc. In connection with this transaction, individuals who became
employees of the Employer will be eligible to participate in the Plan effective
January 1, 1999.
<PAGE>-16-
SIGNATURE
THE PLAN. Pursuant to the requirements of the Securities
Exchange Act of 1934, the Administrator of the Plan has duly
caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
By:/S/ GEORGE E. DAVIS
George E. Davis
Administrator
Date: June 24, 1999
<PAGE>-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's
Savings and Profit-Sharing Plan of our report dated May 21, 1999 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, 1998.
Ernst & Young LLP
Fort Wayne, Indiana
May 21, 1999
