<PAGE>
UNITED STATES
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
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________.
Commission file number: 333-77145
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
PG&E Corporation Retirement Savings Plan
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
PG&E Corporation
One Market, Spear Tower
Suite 2400
San Francisco, CA 94105
<PAGE>
REQUIRED INFORMATION
1. The Statements of Net Assets of the Savings Fund Plan Master Trust as of
December 31, 1998 and 1997 and the Statements of Net Changes in Net Assets
of the Savings Fund Plan Master Trust for the years then ended, together
with the report of Arthur Andersen LLP, independent accountants, the
Statements of Net Assets Available for Benefits of the Savings Fund Plan
Part I* (the Pacific Gas and Electric Company Savings Fund Plan for Non-
Union Employees) as of December 31, 1998 and 1997 and the Statements of Net
Changes in Net Assets of the Savings Fund Plan Part I* for the years then
ended, together with the report of Arthur Andersen LLP, independent
accountants, are contained in Exhibit 1 to this Annual Report.
2. The Consent of Arthur Andersen LLP, independent accountants, is contained in
Exhibit 2 to this Annual Report.
* As of June 1, 1999, Part I was transferred to the PG&E Corporation Retirement
Savings Plan.
<PAGE>
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the trustees (or other persons who administer the employee benefit plan)
have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
PG&E CORPORATION RETIREMENT SAVINGS PLAN
Date: June 30, 1999 By: BRUCE R. WORTHINGTON
------------------------------------
Bruce R. Worthington
Chairman, Employee Benefit Committee
<PAGE>
EXHIBIT 1
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN MASTER TRUST
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN MASTER TRUST
<TABLE>
<CAPTION>
Table of Contents
-----------------
<S> <C>
Report of Independent Public Accountants 1
Statements of Net Assets as of December 31, 1998 and 1997 2
Statements of Changes in Net Assets
for the Years Ended December 31, 1998 and 1997 3
Notes to Financial Statements 4
Fund Information:
Exhibit I Statement of Changes in Net Assets
with Fund Information for the Year Ended December 31, 1998 9
Exhibit II Statement of Changes in Net Assets
with Fund Information for the Year Ended December 31, 1997 10
Supplemental Schedules:
Schedule I Line 27(a) -- Schedule of Assets Held for Investment Purposes as of
December 31, 1998 11
Schedule II Line 27(d) -- Schedule of Reportable Transactions for the
Year Ended December 31, 1998 13
</TABLE>
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Employee Benefit Committee of PG&E Corporation,
Pacific Gas and Electric Company and Participants in the
Pacific Gas and Electric Company Savings Fund Plans:
We have audited the accompanying statements of net assets of Pacific Gas and
Electric Company Savings Fund Plan Master Trust (the Master Trust) as of
December 31, 1998 and 1997, and the related statements of changes in net assets
for the years then ended. These financial statements schedules referred to below
are the responsibility of the Master Trust's management. Our responsibility is
to express an opinion on these financial statements and schedules 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.
The accompanying statements are those of the Master Trust established under the
Pacific Gas and Electric Company Savings Fund Plan Master Trust. These
statements do not purport to present the financial statements of the individual
employee benefit plans and do not contain disclosures necessary for a fair
presentation of the financial statements of the individual employee benefit
plans in conformity with generally accepted accounting principles. Furthermore,
these statements do not purport to satisfy the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974 relating to financial statements of employee benefit plans.
Reference should be made to the Form 5500s and related financial statements of
the individual employee benefit plans that have been prepared and filed pursuant
to these reporting rules and regulations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets of the Trust as of December 31, 1998 and
1997, and the changes in net assets for the years then ended, in conformity with
generally accepted accounting principles.
Our audits were made of the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental schedules of assets held for
investment purposes as of December 31, 1998, and of reportable transactions for
the year ended December 31, 1998, are presented for purposes of additional
analysis and are not a required part of the basic financial statements but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The fund information presented in Exhibits I and II is
presented for purposes of additional analysis rather than to present the changes
in net assets of each fund. The supplemental schedules and fund information have
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California
June 3, 1999
3
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN MASTER TRUST
Statements of Net Assets
as of December 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS:
Investments at Fair Value $2,812,079 $2,530,972
Stable Value Fund 445,845 303,220
Participant Loans 11,057 -
---------- ----------
Total Investments 3,268,981 2,834,192
Interest and Dividend Receivable 11,582 11,481
Other Receivable 2,333 431
---------- ----------
TOTAL ASSETS 3,282,896 2,846,104
---------- ----------
LIABILITIES:
Amounts Due to Brokers for Securities
Received but not yet Paid 5,387 6,996
---------- ----------
TOTAL LIABILITIES 5,387 6,996
---------- ----------
NET ASSETS AVAILABLE TO PARTICIPATING PLANS $3,277,509 $2,839,108
========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
2
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN MASTER TRUST
Statements of Changes in Net Assets
for the Years Ended December 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS ATTRIBUTABLE TO:
Participating Plan Contributions:
Employer $ 33,245 $ 32,393
Participant 105,412 96,682
Interest and Dividend income 62,568 81,801
Net Appreciation in Fair Value of Investments 382,914 613,047
----------- -----------
TOTAL INCREASE 584,139 823,923
----------- -----------
DECREASE IN NET ASSETS ATTRIBUTABLE TO:
Withdrawals Paid to Participating Plans 145,738 113,449
----------- -----------
TOTAL DECREASE 145,738 113,449
----------- -----------
NET INCREASE DURING THE YEAR 438,401 710,474
----------- -----------
NET ASSETS AVAILABLE TO PARTICIPATING PLANS:
BEGINNING OF YEAR 2,839,108 2,128,634
----------- -----------
END OF YEAR $ 3,277,509 $ 2,839,108
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
3
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN MASTER TRUST
Notes to Financial Statements
December 31, 1998 and 1997
(1) DESCRIPTION OF THE MASTER TRUST
- -----------------------------------
The following description of the Pacific Gas and Electric Company Savings Fund
Plan Master Trust (the Master Trust) provides only general information.
Participants should refer to the Trust Agreement for a complete description of
the Trust provisions.
General
- -------
Pacific Gas and Electric Company (the Company) established the Master Trust on
January 1, 1988, to hold the assets of the Company Savings Fund Plans (the
Plans). The Pacific Service Employees Association also participated in the
Master Trust up to January 1, 1998. The Master Trust and its participating
Plans are subject to the provisions of the Employee Retirement Income Security
Act of 1974 (ERISA).
Effective November 17, 1997 the Board of Directors of PG&E Corporation (the
Corporation), the Company's parent company, established the Employee Benefit
Committee (EBC) to have oversight over the administration and financial
management of the Master Trust and its participating Plans. The Company
provides administrative support to the EBC to handle the day-to-day financial
administration. The EBC reserves express authority over all decision-making on
behalf of the Plan. The EBC retains State Street Bank and Trust Company as the
trustee (Trustee) of the Master Trust.
Investment Options
- ------------------
The Trustee invests a significant portion of the contributions from the
participating Plans in the common stock of PG&E Corporation, as directed by
participants.
Individual Plan participants designate the way in which their contributions are
invested and may change their investment designation at any time. Effective
October 1, 1997, the Plan offered a total of nine investment funds to Plan
participants. Participants were asked to re-direct funds by September 30, 1997.
Balances not re-directed by participants were automatically rolled into funds as
indicated below. The following investment funds are available to the
participants:
. PG&E Corporation Stock Fund - This Fund is structured to maximize the
investment of participants' contributions in shares of PG&E Corporation
common stock, while holding an appropriate level (approximately one to
five percent) of short-term investments to meet daily liquidity
requirements.
. Bond Index Fund (the former Bond Index Fund rolled into this fund) -
This Fund invests primarily in government, corporate, mortgage-backed,
and asset-backed securities. The Fund invests in a well-diversified
portfolio that is representative of the broad domestic bond market.
. Small Company Stock Index Fund - This Fund attempts to invest in all
of the stocks in the Russell Special Small Company Index in proportion to
their weighting in the index.
. Large Company Stock Index Fund (the Diversified Equity Fund rolled into
this fund) - This Fund invests in all 500 stocks in the S&P 500 Index in
proportion to their weightings in the Index.
. International Stock Index Fund - This Fund typically invests in all
stocks in the Morgan Stanley Capital International Europe Australasia Far
East (EAFE) Index in proportion to their weightings in the Index.
4
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN MASTER TRUST
Notes to Financial Statements
December 31, 1998 and 1997
(1) Description of the Master Trust (cont.)
- -------------------------------------------
. Conservative Asset Allocation Fund - This Fund is a portfolio of
commingled stock and bond funds. This Fund invests approximately 60
percent in the Bond Index Fund, 25 percent in the Large Company Stock
Index Fund, 10 percent in the Small Company Stock Index Fund, and 5
percent in the International Stock Index Fund.
. Moderate Asset Allocation Fund (the Stock and Bond Fund rolled into this
Fund) - This Fund is a portfolio of commingled stock and bond funds. This
Fund invests approximately 40 percent in the Bond Index Fund, 35 percent
in the Large Company Stock Index Fund, 15 percent in the Small Company
Stock Index Fund, and 10 percent in the International Stock Index Fund.
. Aggressive Asset Allocation Fund - This Fund is a portfolio of
commingled stock and bond funds. This Fund invests approximately 20
percent in the Bond index Fund, 45 percent in the Large Company Stock
Index Fund, 20 percent in the Small Company Stock Index Fund, and 15
percent in the International Stock Index Fund.
. Stable Value Fund (the Utility Stock Fund and the Guaranteed Income Fund
rolled into this Fund) - This Fund invests in a diversified portfolio of
investment contracts issued by insurance companies, banks, and other
financial institutions.
The United States Bond Fund was closed to new contributions on July 1, 1991.
Participant Loans
- -----------------
Effective April 1, 1998, participants of a participating Plan may borrow from
their fund accounts a minimum of $1,000 and a maximum equal to the lesser of
$50,000 or 50 percent of their vested account balance. Loan terms are up to
five years for general purpose loans or up to fifteen years for the purchase of
a primary residence. The loans are secured by the balance in the participant's
account and bear interest at a rate commensurate with prevailing rates as
determined monthly by the Plan administrator. Interest rates on outstanding
loans ranged from 8.75 percent to 9.50 percent as of December 31, 1998.
Principal and interest are paid ratably through monthly deductions. The related
interest income associated with these loans is re-invested back into the Plans
in accordance with participants' current investment elections. Another
participating plan implemented a similar loan program on January 1, 1999.
Administrative Fees
- -------------------
The Company pays certain costs of administering the Plan, including fees and
expenses of the Trustee and certain investment management fees. Certain
investment management fees are paid by participants. The fees paid by
participants reduce the investment return reported and credited to participants.
Trust Termination or Merger
- ---------------------------
The Corporation's Board of Directors reserves the right to amend or terminate
the Master Trust at any time by giving written notice to the Trustee. If the
Master Trust is terminated, the Master Trust assets will be paid out to each
participating Plan in proportion to its interest in the Master Trust.
5
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN MASTER TRUST
Notes to Financial Statements
December 31, 1998 and 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------
Basis of Accounting and Use of Estimates
- ----------------------------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions. These estimates and assumptions
affect the accompanying financial statements and disclosures. Actual results
could differ from those estimates. These financial statements do not purport to
present the net assets available for benefits or the change in net assets
available for benefits of any of the individual participating Plans and do not
include all disclosures necessary for a fair presentation of the financial
statements of the individual participating plans in conformity with generally
accepted accounting principles.
A participant's interest in the investment funds is represented by participation
units allocated on the basis of contributions and assigned a unit value on the
basis of the total value of each fund.
Investment Valuation and Income Recognition
- -------------------------------------------
All investments (other than the Stable Value Fund and the Participant Loans)
held by the Master Trust are stated at fair value based on published market
quotations. Fair value for units is determined by quoted prices in an active
market. Investments in the Stable Value Fund and Participant Loans are valued
at cost which approximates fair value.
Interest income, dividends, investment management fees where appropriate, and
the net appreciation or depreciation in the fair value of investments held by
the Master Trust are allocated to the individual participating Plans each day
based upon their proportional share of the net assets.
Interest income is recognized as it is earned and dividends are recorded on the
ex-dividend date.
Net appreciation (depreciation) in fair value of investments consists of the net
change in unrealized appreciation (depreciation) during the year on investments
held at the end of the year and the realized gain or loss on the sale of
investments during the year.
Purchases and sales of securities are recorded on a trade date basis. Realized
gains and losses from security transactions are reported on the moving average
basis.
Payment of Benefits
- -------------------
Benefit payments to participating plans are recorded upon distribution.
(3) INVESTMENTS
- ----------------
General
- -------
Each investment fund is managed by the Trustee or investment manager, which has
discretionary investment authority over the funds. Although the EBC is
responsible for the selection of the Plan's investment funds, neither the
Company nor the Corporation is involved in their day-to-day investment
operations.
6
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN MASTER TRUST
Notes to Financial Statements
December 31, 1998 and 1997
(3) Investments (cont.)
- ------------------------
Total investments were comprised of the following balances as of December 31,
1998 and 1997:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------ ------------------
(in thousands) (in thousands)
<S> <C> <C>
PG&E Corporation Stock Fund $ 987,289 $1,082,056
Bond Index Fund 88,637 57,147
Small Company Stock Index Fund 98,059 86,134
Large Company Stock Index Fund 1,304,359 1,034,267
International Stock Index Fund 37,346 23,087
Conservative Asset Allocation Fund 36,770 24,063
Moderate Asset Allocation Fund 181,106 163,909
Aggressive Asset Allocation Fund 73,929 55,754
United States Bond Fund 4,584 4,555
---------- ----------
Investments at Fair Value 2,812,079 2,530,972
Stable Value Fund 445,845 303,220
Participant Loans 11,057 --
---------- ----------
TOTAL INVESTMENTS $3,268,981 $2,834,192
---------- ----------
</TABLE>
The accompanying Exhibits I and II provide a summary of the Plan's changes in
net assets by investment options for the years ended December 31, 1998 and 1997,
respectively.
The following individual investments represented 5% or more of net assets at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------ ------------------
(in thousands) (in thousands)
<S> <C> <C>
PG&E Corporation Common Stock $ 962,043 $1,054,786
State Street Global Advisors S&P 500
Index Fund $1,409,680 $1,124,126
</TABLE>
Financial Investments with Off-Balance Sheet Risk
- -------------------------------------------------
The EBC has adopted a "Position Statement on Risk Management and the Use of
Derivatives" which applies to the Master Trust. This statement recognizes that
derivatives may be used by the Master Trust's investment managers to achieve
their investment objectives. However, the Master Trust assets will not be
exposed to risks through derivatives that would be inappropriate in their
absence. At December 31, 1998 and 1997, the Master Trust held no direct
investments in derivatives.
7
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN MASTER TRUST
Notes to Financial Statements
December 31, 1998 and 1997
(4) TAX STATUS
- ---------------
The Company received favorable tax determination letters from the Internal
Revenue Service (IRS) in November of 1995. The Master Trust is exempt from
federal income taxes under Section 501(a) of the Internal Revenue Code.
Accordingly, no provision for federal income taxes has been made in the
financial statements. The Plan sponsor believes that the Master Trust continues
to be designed and operated in accordance with IRS requirements.
(5) SUBSEQUENT EVENT
- ---------------------
Effective June 1, 1999, a significant participating plan of the Master Trust was
amended to merge with various affiliated company plans forming the new PG&E
Corporation Retirement Savings Plan. The assets of the amended plan withdrew
and were transferred into the new plan in proportion to its interest in the
Master Trust as of June 1, 1999. The withdrawing plan had approximately 48%
interest in the net assets of the Master Trust at December 31, 1998.
8
<PAGE>
Exhibit 1
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN MASTER TRUST
Statement of Changes in Net Assets with Fund Information
for the Year Ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Fund Information
----------------------------------------------------------------------------------
Small Large
PG&E Company Company International Conservative Moderate
Corporation Bond Stock Stock Stock Asset Asset
Stock Index Index Index Index Alocation Alocation
Fund Fund Fund Fund Fund Fund Fund
-------- --------- ------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS ATTRIBUTABLE TO:
Participating Plan Contributions:
Employer $ 10,844 $ 679 $ 1,569 $ 13,538 $ 629 $ 274 $ 2,196
Participant 32,197 2,163 5,745 43,136 2,338 883 6,949
Interest and Dividend Income 39,615 - - (15) - - -
Net Appreciation in Fair Value of Investments 36,135 5,765 7,353 286,170 5,241 4,171 26,745
---------- ------- -------- ---------- -------- -------- ---------
TOTAL INCREASE 118,791 8,607 14,667 342,829 8,208 5,331 35,890
DECREASE IN NET ASSETS ATTRIBUTABLE TO:
Withdrawals Paid to Participating Plans 48,523 3,280 2,275 42,148 740 1,094 5,749
---------- ------- ------- ---------- -------- -------- ---------
TOTAL DECREASE 48,523 3,280 2,275 42,148 740 1,094 5,749
NET LOAN TRANSFERS (3,849) (222) (215) (4,089) (170) (31) (490)
INTERFUND TRANSFERS (161,549) 26,379 (253) (26,306) 6,957 8,032 (12,419)
----------- ------- ------- ---------- -------- -------- ---------
NET INCREASE (DECREASE) DURING THE YEAR (95,130) 31,484 11,924 270,286 14,255 12,238 17,232
----------- ------- ------- ---------- -------- -------- --------
NET ASSETS AVAILABLE TO PARTICIPATING PLANS:
BEGINNING OF YEAR 1,089,261 57,134 86,109 1,034,178 23,079 24,060 163,884
----------- ------- ------- ---------- --------- -------- ---------
END OF YEAR $ 994,131 $88,618 $98,033 $1,304,464 $ 37,334 $36,298 $181,116
========== ======= ======= ========== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
Fund Information
-----------------------------------------------------
Aggressive United
Asset States Stable
Allocation Bond Value Participant
Fund Fund Fund Loans Total
---------- -------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS ATTRIBUTABLE TO:
Participating Plan Contributions:
Employer $ 1,195 $ - $ 2,321 $ - $ 33,245
Participant 4,395 - 7,606 - 105,412
Interest and Dividend Income - 140 22,353 475 62,586
Net Appreciation in Fair Value of Investment 11,287 - 44 - 382,914
-------- ------ -------- ------- ----------
TOTAL INCREASE 16,877 140 37,324 475 584,157
DECREASE IN NET ASSETS ATTRIBUTABLE TO:
Withdrawals Paid to Participating Plans 1,520 111 40,168 130 145,738
-------- ------ -------- ------- ----------
TOTAL DECREASE 1,520 111 40,168 130 145,738
NET LOAN TRANSFERS (280) - (1,366) 10,712 -
INTERFUND TRANSFERS 3,108 - 136,051 - -
-------- ------ -------- ------- ----------
NET INCREASE (DECREASE) DURING THE YEAR 18,185 29 146,841 11,057 438,401
-------- ------ -------- ------- ----------
NET ASSETS AVAILABLE TO PARTICIPATING PLANS:
BEGINNING OF YEAR 35,746 4,555 301,102 - 2,839,108
-------- ------ -------- ------- ----------
END OF YEAR $ 73,931 $4,584 $447,943 $11,057 $3,277,509
========= ====== ======== ======= ==========
</TABLE>
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY Exhibit II
SAVINGS FUND PLAN MASTER TRUST
Statement of Changes in Net Assets with Fund Information
For The Year Ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Fund Information
----------------------------------------------------------------------------------
Small Large
PG&E Company Company International Conservative Moderate
Corporation Bond Stock Stock Stock Asset Asset
Stock Index Index Index Index Alocation Alocation
Fund Fund Fund Fund Fund Fund Fund
-------- --------- ------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS ATTRIBUTABLE TO:
Participating Plan Contributions:
Employer $ 12,616 $ 469 $ 347 $ 3,399 $ 119 $ 55 $ 580
Participant 36,193 1,365 1,742 10,749 412 161 1,805
Interest and Dividend Income 46,065 1,343 - 1,377 - - -
Net Appreciation (Depreciation) in Fair
Value of Investments 331,535 1,919 (1,576) 27,802 (2,007) 393 1,665
---------- ------- ------- ---------- ------- ------- --------
TOTAL INCREASE 426,409 5,096 13 43,227 (1,476) 614 4,050
DECREASE IN NET ASSETS ATTRIBUTABLE TO:
Withdrawals Paid to Participating Plans 41,266 1,574 439 12,959 96 62 1,465
---------- ------- ------- ---------- ------- ------- --------
TOTAL DECREASE 41,266 1,574 439 12,959 96 62 1,465
INTERFUND TRANSFERS (161,235) 25,084 86,535 1,003,910 24,651 23,508 161,299
---------- ------- ------- ---------- ------- ------- --------
NET INCREASE (DECREASE) DURING THE YEAR 223,908 28,606 86,109 1,034,178 23,079 24,060 163,884
---------- ------- ------- ---------- ------- ------- --------
NET ASSETS AVAILABLE TO PARTICIPATING PLANS:
BEGINNING OF YEAR 865,353 28,528 - - - - -
---------- ------- ------- ---------- ------- ------- --------
END OF YEAR $1,089,261 $57,134 $86,109 $1,034,128 $23,079 $24,060 $163,884
========== ======= ======= ========== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Fund Information
------------------------------------------------------------------------
Aggressive United
Asset States Stable Diversified Stock and Utility
Allocation Bond Value Equity Bond Stock
Fund Fund Fund Fund Fund Fund Total
---------- -------- ------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS ATTRIBUTABLE TO:
Participating Plan Contributions:
Employer $ 741 $ - $ 2,039 $ 10,012 $ 1,982 $ 534 $ 32,393
Participant 819 - 6,161 30,167 5,896 1,707 96,682
Interest and Dividend Income - 129 18,523 12,821 78 1,565 81,801
Net Appreciation (Depreciation) in Fair
Value of Investments 109 - (93) 229,087 23,501 712 613,047
------- ------- -------- --------- ------- -------- ---------
TOTAL INCREASE 1,169 129 26,630 282,087 31,457 4,518 823,923
DECREASE IN NET ASSETS ATTRIBUTABLE TO:
Withdrawals Paid to Participating Plans 141 116 26,319 23,851 3,771 1,390 113,449
------- ------- -------- --------- ------- --------- ---------
TOTAL DECREASE 141 116 26,319 23,851 3,771 1,390 113,449
INTERFUND TRANSFERS 54,718 - 27,936 (1,024,082) (178,760) (43,564) -
------- ------- -------- ----------- -------- --------- ---------
NET INCREASE (DECREASE) DURING THE YEAR 55,746 13 28,247 765,846 (151,074) (40,436) 710,474
------- ------- -------- ----------- -------- --------- ---------
NET ASSETS AVAILABLE TO PARTICIPATING PLANS:
BEGINNING OF YEAR - 4,542 $272,855 763,846 151,074 40,436 2,128,634
------- ------- -------- ---------- -------- --------- ----------
END OF YEAR $55,746 $ 4,555 $301,102 $ - $ - $ - $2,839,108
======= ======= ======== ========== ======== ========= ==========
</TABLE>
<PAGE>
Schedule I
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN MASTER TRUST
Line 27(a) - Schedule of Assets Held for Investment Purposes
as of December 31, 1998
(Cost and Current Value in thousands)
<TABLE>
<CAPTION>
NUMBER OF
UNITS OR CURRENT
INDENTITY OF ISSUER AND DESCRIPTION OF INVESTMENT (INCLUDING MATURITY AND YIELD) U.S. BONDS COST VALUE
- ------------------------------------------------------------------------------- --------------- ------------ ---------------
<S> <C> <C> <C>
PG&E CORPORATION STOCK FUND
* PG&E CORPORATION COMMON STOCK 30,541,054 $709,586 $962,043
* STATE STREET BANK + TRUST CO
SHORT TERM INVESTMENT FUND 25,246,298 25,246 25,246
--------------- ------------ ---------------
TOTAL PG&E CORPORATION STOCK FUND 55,787,352 $734,832 $987,289
=============== ============ ===============
BOND INDEX FUND
* STATE STREET GLOBAL ADVISORS BOND MARKET INDEX FUND 7,940,989 $83,125 $88,637
=============== ============ ===============
SMALL COMPANY STOCK INDEX FUND
* STATE STREET GLOBAL ADVISORS RUSSELL SPECIAL SMALL CO. FUND 8,472,402 $90,598 $98,059
=============== ============ ===============
LARGE COMPANY STOCK INDEX FUND
* STATE STREET GLOBAL ADVISORS S&P 500 INDEX FUND 78,344,605 $1,017,004 $1,304,359
=============== ============ ===============
INTERNATIONAL STOCK INDEX FUND
* STATE STREET GLOBAL ADVISORS DAILY EAFE FUND 3,295,905 $34,064 $37,346
=============== ============ ===============
CONSERVATIVE ASSET ALLOCATION FUND
* STATE STREET GLOBAL ADVISORS BOND MARKET INDEX FUND 1,946,229 $20,376 $21,724
* STATE STREET GLOBAL ADVISORS DAILY EAFE FUND 161,241 1,636 1,827
* STATE STREET GLOBAL ADVISORS RUSSELL SPECIAL SMALL CO. FUND 335,766 3,542 3,886
* STATE STREET GLOBAL ADVISORS S&P 500 INDEX FUND 560,560 7,753 9,333
--------------- ------------ ---------------
TOTAL CONSERVATIVE ASSET ALLOCATION FUND 3,003,796 $33,307 $36,770
=============== ============ ===============
MODERATE ASSET ALLOCATION FUND
* STATE STREET GLOBAL ADVISORS BOND MARKET INDEX FUND 6,465,026 $65,884 $72,163
* STATE STREET GLOBAL ADVISORS DAILY EAFE FUND 1,598,518 16,199 18,113
* STATE STREET GLOBAL ADVISORS RUSSELL SPECIAL SMALL CO. FUND 2,406,296 25,491 27,850
* STATE STREET GLOBAL ADVISORS S&P 500 INDEX FUND 3,782,806 48,663 62,980
--------------- ------------ ---------------
TOTAL MODERATE ASSET ALLOCATION FUND 14,252,646 $156,237 $181,106
=============== ============ ===============
AGGRESSIVE ASSET ALLOCATION FUND
* STATE STREET GLOBAL ADVISORS BOND MARKET INDEX FUND 1,317,732 $13,660 $14,708
* STATE STREET GLOBAL ADVISORS DAILY EAFE FUND 977,478 9,952 11,076
* STATE STREET GLOBAL ADVISORS RUSSELL SPECIAL SMALL CO. FUND 1,307,888 13,965 15,137
* STATE STREET GLOBAL ADVISORS S&P 500 INDEX FUND 1,982,596 26,311 33,008
--------------- ------------ ---------------
TOTAL AGGRESSIVE ASSET ALLOCATION FUND 5,585,694 $63,888 $73,929
=============== ============ ===============
UNITED STATES BOND FUND
UNITED STATES SAVINGS BONDS, SERIES E
(UNITS OF $18.75 COST AND $25.00 MATURITY) 4,580 $86 $383
UNITED STATES SAVINGS BONDS, SERIES EE
(UNITS OF $25.00 COST AND $50.00 MATURITY) 72,468 1,812 3,520
UNITED STATES SAVINGS BONDS, SERIES EE
(UNITS OF $50.00 COST AND $100.00 MATURITY) 8,638 432 681
--------------- ------------ ---------------
TOTAL UNITED STATES BOND FUND 85,686 $2,330 $4,584
=============== =========== ==============
</TABLE>
11
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY Schedule I (cont.)
SAVINGS FUND PLAN MASTER TRUST
Line 27(a) - Schedule of Assets Held for Investment Purposes
as of December 31, 1998 (cont.)
(Cost and Current Value in thousands)
<TABLE>
<CAPTION>
NUMBER OF
UNITS OR CURRENT
IDENTITY OF ISSUER AND DESCRIPTION OF INVESTMENT (INCLUDING MATURITY AND YIELD) US BONDS COST VALUE
- --------------------------------------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STABLE VALUE FUND (1)
INSURANCE COMPANY GENERAL ACCOUNTS
ALLSTATE LIFE INSURANCE CO 11/99 8.3% N/A $6,816 $6,816
ALLSTATE LIFE INSURANCE CO 02/02 6.1% N/A 27,655 27,655
CDC INVESTMENT MGMT CORP 10/99 7.6% N/A 3,018 3,018
CDC INVESTMENT MGMT CORP 12/20 6.5% N/A 1,241 1,241
CONTINENTAL ASSURANCE CO 12/99 6.0% N/A 46,081 46,081
JACKSON NATIONAL LIFE 06/01 6.0% N/A 9,006 9,006
JOHN HANCOCK MUTUAL LIFE 06/20 Variable N/A 2,984 2,984
JOHN HANCOCK MUTUAL LIFE 12/99 Variable N/A 21,088 21,088
JOHN HANCOCK MUTUAL LIFE 09/00 6.7% N/A 4,046 4,046
LIFE INSURANCE CO OF VIRGINIA 02/00 6.4% N/A 4,506 4,506
MASS MUTUAL LIFE INS 11/03 6.0% N/A 10,617 10,617
METROPOLITAN LIFE INS CO 12/99 Variable N/A 11,762 11,762
MET LIFE INS GAC 08/99 7.4% N/A 10,391 10,391
NEW YORK LIFE INS CO 10/00 7.1% N/A 10,305 10,305
PACIFIC MUTUAL LIFE INS CO 02/00 6.4% N/A 2,808 2,808
PEOPLES SECURITY LIFE 09/03 6.0% N/A 55,442 55,442
PEOPLES SECURITY LIFE 12/99 6.4% N/A 5,855 5,855
PEOPLES SECURITY LIFE 12/99 7.1% N/A 2,321 2,321
PEOPLES SECURITY LIFE 12/99 6.5% N/A 4,020 4,020
* STATE STREET BANK + TRUST CO 05/01 Variable N/A 58,718 58,718
TRANSAMERICA LIFE + ANNUITY 11/04 Variable N/A 55,159 55,159
SECURITY LIFE OF DENVER 10/99 Variable N/A 2,519 2,519
UNITED OMAHA LIFE INS 07/00 5.9% N/A 1,996 1,996
-------------- ------------ ------------
TOTAL INSURANCE COMPANY GENERAL ACCOUNTS $358,354 $358,354
------------ ------------
CORPORATE DEBT INSTRUMENTS
CAISSE DES DEPOTS 10/02 6.0% N/A 20,119 20,119
CAISSE DES DEPOTS 12/99 5.3% N/A 10,071 10,071
CAISSE DES DEPOTS 09/00 6.2% N/A 3,187 3,187
CAISSE DES DEPOTS 12/99 6.2% N/A 2,465 2,465
-------------- ------------ ------------
TOTAL CORPORATE DEBT INSTRUMENTS $35,842 $35,842
------------ ------------
INTEREST BEARING ACCOUNTS
GENERAL ELEC CAP CORP DISC 15,000,000 $14,970 $14,970
IBM CR CORP 10,000,000 $9,994 $9,994
* STATE STREET BANK + TRUST CO CD 26,685,527 26,685 26,685
-------------- ------------ ------------
TOTAL INTEREST BEARING ACCOUNTS $51,649 $51,649
-------------- ------------ ------------
TOTAL STABLE VALUE FUND 51,685,527 $445,845 $445,845
============== ============ ============
PARTICIPANT LOANS (Interest ranging from 8.75% to 9.50%) N/A $11,057 $11,057
============== ============ ============
TOTAL ASSETS HELD FOR INVESTMENT PURPOSES 228,454,602 2,672,287 3,268,981
============== ============ ============
</TABLE>
(1) The Stable Value Fund investment contracts are not measured in number of
units and therefore unit information is not applicable (N/A).
* Represents a party-in-interest as defined by ERISA.
12
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY Schedule II
SAVINGS FUND PLAN MASTER TRUST
LINE 27(d) - Schedule of Reportable Transactions
for the Year Ended December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
PG&E CORPORATION STOCK FUND
BEGINNING TOTAL ASSET VALUE: $1,092,293
5% OF TOTAL ASSET VALUE: $54,615
PURCHASE SALE 5500 TOTAL COST/
SECURITY DESCRIPTION #PURCH. COST #SALES PROCEEDS GAIN TOTAL# PROCEEDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PG&E CORPORATION COMMON STOCK FUND 28 $ 72,839 169 $201,717 $6,525 197 $274,556
STATE STREET BANK + TRUST CO.
SHORT TERM INVESTMENT FUND 117 $264,144 130 $266,168 $ - 247 $530,312
</TABLE>
13
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY Schedule II (cont.)
SAVINGS FUND PLAN MASTER TRUST
LINE 27(d) - Schedule of Reportable Transactions
for the Year Ended December 31, 1998 (cont.)
(dollars in thousands)
BOND INDEX FUND
<TABLE>
<CAPTION>
BEGINNING TOTAL ASSET VALUE: $57,147
5% OF TOTAL ASSET VALUE: $2,857
PURCHASE SALE 5500 TOTAL COST/
SECURITY DESCRIPTION #PURCH. COST #SALES PROCEEDS LOSS TOTAL# PROCEEDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATE STREET GLOBAL ADVISORS BOND
MARKET INDEX FUND 147 $58,194 114 $32,469 $1,057 261 $90,663
</TABLE>
14
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY Schedule II (cont.)
SAVINGS FUND PLAN MASTER TRUST
LINE 27(d) - Schedule of Reportable Transactions
for the Year Ended December 31, 1998 (cont.)
(dollars in thousands)
SMALL COMPANY STOCK INDEX FUND
BEGINNING TOTAL ASSET VALUE: $ 86,134
5% OF TOTAL ASSET VALUE: $ 4,307
<TABLE>
<CAPTION>
PURCHASE SALE 5500 TOTAL COST/
SECURITY DESCRIPTION #PURCH. COST #SALES PROCEEDS GAIN TOTAL# PROCEED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATE STREET GLOBAL ADVISORS RUSSELL
SPECIAL SMALL COMPANY FUND 122 $ 56,017 137 $ 51,445 $ (615) 259 $ 107,462
</TABLE>
15
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY Schedule II (cont.)
SAVINGS FUND PLAN MASTER TRUST
LINE 27(d) - Schedule of Reportable Transactions
for the Year Ended December 31, 1998 (cont.)
(dollars in thousands)
LARGE COMPANY STOCK INDEX FUND
BEGINNING TOTAL ASSET VALUE: $ 1,034,282
5% OF TOTAL ASSET VALUE: $ 51,714
<TABLE>
<CAPTION>
PURCHASE SALE 5500 TOTAL COST/
SECURITY DESCRIPTION #PURCH. COST #SALES PROCEEDS GAIN TOTAL# PROCEEDS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATE STREET GLOBAL ADVISORS
S&P 500 INDEX FUND 131 $ 236,902 136 $ 252,979 $ 28,587 267 $ 489,881
</TABLE>
16
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY Schedule II (cont.)
SAVINGS FUND PLAN MASTER TRUST
LINE 27(d) - Schedule of Reportable Transactions
for the Year Ended December 31, 1998 (cont.)
(dollars in thousands)
INTERNATIONAL STOCK INDEX FUND
BEGINNING TOTAL ASSET VALUE: $ 23,087
5% OF TOTAL ASSET VALUE: $ 1,154
<TABLE>
<CAPTION>
PURCHASE SALE 5500 TOTAL COST/
SECURITY DESCRIPTION #PURCH. COST #SALES PROCEEDS GAIN TOTAL# PROCEEDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATE STREET GLOBAL ADVISORS
DAILY EAFE FUND 132 $ 41,187 128 $ 32,170 $ 1,332 260 $ 73,357
</TABLE>
17
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY Schedule II (cont.)
SAVINGS FUND PLAN MASTER TRUST
LINE 27(d) - Schedule of Reportable Transactions
for the Year Ended December 31, 1998 (cont.)
(dollars in thousands)
CONSERVATIVE ASSET ALLOCATION FUND
BEGINNING TOTAL ASSET VALUE: $24,063
5% OF TOTAL ASSET VALUE: $ 1,203
<TABLE>
<CAPTION>
PURCHASE SALE 5500 TOTAL COST/
SECURITY DESCRIPTION #PURCH. COST #SALES PROCEEDS GAIN TOTAL# PROCEEDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATE STREET GLOBAL ADVISORS BOND
MARKET INDEX FUND 146 $ 16,829 108 $ 10,896 $ 390 254 $ 27,725
STATE STREET GLOBAL ADVISORS
DAILY EAFE FUND 136 $ 1,638 104 $ 1,316 $ 72 240 $ 2,954
STATE STREET GLOBAL ADVISORS
RUSSELL SPECIAL SMALL CO. FUND 141 $ 3,313 105 $ 2,202 $ (36) 246 $ 5,515
STATE STREET GLOBAL ADVISORS
S&P 500 INDEX FUND 140 $ 6,936 108 $ 5,769 $ 497 248 $ 12,705
</TABLE>
18
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY Schedule II (cont.)
SAVINGS FUND PLAN MASTER TRUST
LINE 27(d) - Schedule of Reportable Transactions
for the Year Ended December 31, 1998 (cont.)
(dollars in thousands)
MODERATE ASSET ALLOCATION FUND
BEGINNING TOTAL ASSET VALUE: $ 163,909
5% OF TOTAL ASSET VALUE: $ 8,195
<TABLE>
<CAPTION>
PURCHASE SALE 5500 TOTAL COST/
SECURITY DESCRIPTION #PURCH. COST #SALE PROCEEDS LOSS TOTAL# PROCEEDS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATE STREET GLOBAL ADVISORS BOND
MARKET INDEX FUND 118 $ 22,133 136 $ 19,973 $ 908 254 $ 42,106
STATE STREET GLOBAL ADVISORS
DAILY EAFE FUND 115 $ 6,417 131 $ 7,996 $ 544 246 $ 14,413
STATE STREET GLOBAL ADVISORS
RUSSELL SPECIAL SMALL CO. FUND 116 $ 8,555 131 $ 7,940 $ (231) 247 $ 16,495
STATE STREET GLOBAL ADVISORS
S&P 500 INDEX FUND 113 $ 9,724 137 $ 20,467 $ 2,162 250 $ 30,191
</TABLE>
19
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY Schedule II (cont.)
SAVINGS FUND PLAN MASTER TRUST
LINE 27(d) - Schedule of Reportable Transactions
for the Year Ended December 31, 1998 (cont.)
(dollars in thousands)
<TABLE>
<CAPTION>
AGGRESSIVE ASSET ALLOCATION FUND
BEGINNING TOTAL ASSET VALUE: $ 55,754
5% OF TOTAL ASSET VALUE: $ 2,788
PURCHASE SALE 5500 TOTAL COST/
SECURITY DESCRIPTION #PURCH. COST #SALES PROCEEDS GAIN TOTAL# PROCEEDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATE STREET GLOBAL ADVISORS BOND
MARKET INDEX FUND 140 $ 8,415 108 $ 5,660 $ 234 248 $ 14,075
STATE STREET GLOBAL ADVISORS
DAILY EAFE FUND 140 $ 6,115 107 $ 5,115 $ 285 247 $ 11,230
STATE STREET GLOBAL ADVISORS
RUSSELL SPECIAL SMALL CO. FUND 141 $ 7,538 106 $ 4,746 $ (150) 247 $ 12,284
STATE STREET GLOBAL ADVISORS
S&P 500 INDEX FUND 138 $ 11,792 115 $ 11,451 $ 1,043 253 $ 23,243
</TABLE>
20
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY Schedule II (cont.)
SAVINGS FUND PLAN MASTER TRUST
LINE 27(d) - Schedule of Reportable Transactions
for the Year Ended December 31, 1998 (cont.)
(dollars in thousands)
STABLE VALUE FUND
BEGINNING TOTAL ASSET VALUE: $ 304,880
5% OF TOTAL ASSET VALUE: $ 15,244
<TABLE>
<CAPTION>
PURCHASE SALE 5500 TOTAL COST/
SECURITY DESCRIPTION #PURCH. COST #SALES PROCEEDS LOSS TOTAL# PROCEEDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED INCOME
- ------------
CAISSE DES DEPOTS 12 $ 37,431 19 $ 24,399 $ - 31 $ 61,830
CONTINENTAL ASSURANCE CD 16 $ 55,953 66 9,871 $ - 82 $ 65,824
FLEETWOOD CR GRANTOR TR 17 $ 59,723 75 $ 60,497 $ - 92 $ 120,220
PEOPLES SECURITY LIFE 13 $ 24,240 82 $ 18,565 $ - 95 $ 42,805
PROVIDENT LIFE + ACCIDENT 1 $ 10,373 7 $ 28,333 $ - 8 $ 38,706
STATE STREET BANK + TRUST CD 137 $ 440,004 127 $ 370,421 $ - 264 $ 810,425
TRANSAMERICA LIFE + ANNUITY 2 $ 55,310 3 $ 151 $ - 5 $ 55,461
SHORT TERM
- ----------
GENERAL ELECTRIC CAP CORP DISC 2 $ 29,953 2 $ 26,942 $ 15 4 $ 56,895
KOCH INDUSTRIES 1 $ 9,997 1 $ 10,000 $ 4 2 $ 19,997
MERRILL LYNCH + CO INC. 2 $ 9,993 2 $ 9,993 $ - 4 $ 19,986
</TABLE>
21
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN - PART I
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN - PART I
Table of Contents
-----------------
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants 1
Statements of Net Assets Available for Benefits as of December 31, 1998 and 1997 2
Statements of Changes in Net Assets Available for Benefits
for the Years Ended December 31, 1998 and 1997 3
Notes to Financial Statements 4
</TABLE>
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Employee Benefit Committee of PG&E Corporation,
Pacific Gas and Electric Company and Participants in the
Pacific Gas and Electric Company Savings Fund Plan:
We have audited the accompanying statements of net assets available for benefits
of Pacific Gas and Electric Company Savings Fund Plan - Part I (the Plan) as of
December 31, 1998 and 1997, and the related statements of changes in net assets
available for 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 benefits of the Plan as of
December 31, 1998 and 1997, and the changes in its net assets available for
benefits for the years then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
June 3, 1999
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN - PART I
Statements of Net Assets Available for Benefits
as of December 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
ASSETS:
Investment in Pacific Gas and Electric Company
Savings Fund Plan Master Trust $ 1,556,898 $ 1,329,770
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS $ 1,556,898 $ 1,329,770
============= =============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
2
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN - PART I
Statements of Changes in Net Assets Available for Benefits
for the Years Ended December 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
--------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS ATTRIBUTABLE TO:
Employer Contributions $ 17,148 $ 16,715
Employee Contributions 42,113 37,769
Net Investment Gain From Master Trust 231,479 308,198
--------------- -----------------
TOTAL INCREASE 290,740 362,682
--------------- -----------------
DECREASE IN NET ASSETS ATTRIBUTABLE TO:
Benefit Distributions to Participants 59,405 57,293
--------------- -----------------
TOTAL DECREASE 59,405 57,293
--------------- -----------------
NET INCREASE DURING THE YEAR BEFORE
INTERPLAN TRANSFERS 231,335 305,389
INTERPLAN TRANSFERS (OUT) IN (4,207) 6
--------------- -----------------
NET ASSETS AVAILABLE FOR BENEFITS:
BEGINNING OF YEAR 1,329,770 1,024,375
--------------- -----------------
END OF YEAR $ 1,556,898 $ 1,329,770
=============== =================
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
3
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN - PART I
Notes to Financial Statements
December 31,1998 and 1997
(1) DESCRIPTION OF PLAN
- -----------------------
The following brief description of the Pacific Gas and Electric Company Savings
Fund Plan - Part I is provided for general informational purposes only.
Participants should refer to the Plan document for more complete information.
General
- -------
The Pacific Gas and Electric Company Savings Fund Plan - Part I (the Plan) is a
defined contribution plan and is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA). The Plan covers all eligible
non-union employees of Pacific Gas and Electric Company (the Company) and the
non-union employees of other related entities as designated by the Employee
Benefit Committee (EBC) of the Company's parent company, PG&E Corporation (the
Corporation). The Plan participates in the Pacific Gas and Electric Company
Savings Fund Plan Master Trust (the Master Trust).
The EBC was established November 17, 1997 by the Corporation's Board of
Directors to have oversight over the administration and financial management of
the Plan and the related Master Trust. The Company provides administrative
support to the EBC to handle the day-to-day financial administration. The EBC
reserves express authority over all decision-making on behalf of the Plan. The
EBC retained State Street Bank and Trust Company as the Trustee (the Trustee) of
the Plan.
Eligibility
- -----------
Non-Union Employees of the Company are eligible to participate in the Plan
immediately upon employment.
Contributions
- -------------
Participating employees may elect to contribute from 1 to 15 percent of their
annual base salary ("Annual Base Salary") on a pre-tax or after-tax basis
through payroll deductions. The Annual Base Salary for purposes of the Plan is
limited by the Internal Revenue Code (the Code) to $160,000 for 1998 and 1997.
Participants may also rollover amounts representing distributions from other
qualified plans. This amount may be pre-tax, or after-tax contributions. Pre-
tax contributions are not subject to federal or state income tax until withdrawn
or distributed from the Plan.
As provided by the Code, pre-tax employee contributions may not exceed $10,000
for 1998 and $9,500 for 1997, and total contributions to a participant's account
may not exceed the lesser of 25% of compensation or $30,000 for each year.
The Company matches contributions in an amount equal to 75% of each
participant's elective contribution, up to 6% of the participant's annual base
salary depending on length of service as defined by the Plan.
Participating employees may elect to contribute to the Plan any excess funds
from the FLEX benefits program, which is a cafeteria plan qualified under
Section 125 of the Code. These funds, which are invested in the participant's
account in December, are considered tax deferred contributions but are not
eligible for matching employer contributions.
4
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN - PART I
Notes to Financial Statements
December 31,1998 and 1997
(1) Description of Plan (cont.)
- --------------------------------
Participant Accounts
- --------------------
Individual accounts are maintained for each of the Plan's participants and each
account is credited with their elective contribution, the Company's matching
contribution and an allocation of the Plan's net earnings and administrative
expenses. Allocations are based on participant account balances as defined in
the Plan Agreement.
Vesting
- -------
Participant elective contributions, Company matching contributions, and the
accumulated earnings and losses thereon are 100% vested at all times.
Investment Options
- ------------------
Individual Plan participants designate the way in which their contributions are
invested and may change their investment designation at any time. Effective
October 1, 1997, the Plan offered a total of nine investment funds to Plan
participants. Participants were asked to re-direct funds by September 30, 1997.
Balances not re-directed by participants were automatically rolled into funds as
indicated below. The following investment funds are available to the
participants:
. PG&E Corporation Stock Fund - This Fund is structured to maximize the
investment of participants' contributions in shares of PG&E Corporation
common stock, while holding an appropriate level (approximately one to five
percent) of short-term investments to meet daily liquidity requirements.
. Bond Index Fund (the previous Bond Index Fund rolled into this fund) - This
Fund invests primarily in government, corporate, mortgage-backed, and asset-
backed securities. The Fund invests in a well-diversified portfolio that is
representative of the broad domestic bond market.
. Small Company Stock Index Fund - This Fund attempts to invest in all of the
stocks in the Russell Special Small Company Index in proportion to their
weighting in the index.
. Large Company Stock Index Fund (the Diversified Equity Fund rolled into this
fund) - This Fund invests in all 500 stocks in the S&P 500 Index in
proportion to their weighting in the Index.
. International Stock Index Fund - This Fund typically invests in all stocks
in the Morgan Stanley Capital International Europe Asia Far East (EAFE)
Index in proportion to their weighting in the Index.
. Conservative Asset Allocation Fund - This Fund is a portfolio of commingled
stock and bond funds. This Fund invests approximately 60 percent in the Bond
Index Fund, 25 percent in the Large Company Stock Index Fund, 10 percent in
the Small Company Stock Index Fund, and 5 percent in the International Stock
Index Fund .
5
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN - PART I
Notes to Financial Statements
December 31,1998 and 1997
(1) Description of Plan (cont.)
- --------------------------------
. Moderate Asset Allocation Fund (the Stock and Bond Fund rolled into this
fund) - This Fund is a portfolio of commingled stock and bond funds. This
Fund invests approximately 40 percent in the Bond Index Fund, 35 percent in
the Large Company Stock Index Fund, 15 percent in the Small Company Stock
Index Fund, and 10 percent in the International Stock Index Fund.
. Aggressive Asset Allocation Fund - This Fund is a portfolio of commingled
stock and bond funds. This Fund invests approximately 20 percent in the Bond
index Fund, 45 percent in the Large Company Stock Index Fund, 20 percent in
the Small Company Stock Index Fund, and 15 percent in the International
Stock Index Fund .
. Stable Value Fund (the Utility Stock Fund and the Guaranteed Income Fund
rolled into this Fund) - This Fund invests in a diversified portfolio of
investment contracts issued by insurance companies, banks, and other
financial institutions.
Participant Loans
- -----------------
Effective April 1, 1998, participants may borrow from their fund accounts a
minimum of $1,000 and a maximum equal to the lesser of $50,000 or 50 percent of
their vested account balance. Loan terms are up to five years for general
purpose loans or up to fifteen years for the purchase of a primary residence.
The loans are secured by the balance in the participant's account and bear
interest at a rate commensurate with prevailing rates as determined monthly by
the Plan administrator. Interest rates on outstanding loans ranged from 8.75
percent to 9.50 percent as of December 31, 1998. Principal and interest are
paid ratably through payroll deductions. The related interest income associated
with these loans is re-invested back into the Plan in accordance with
participants' current investment elections.
Benefits
- --------
Upon termination of service from any affiliate of the Corporation, disability or
retirement, a participant may elect to receive an amount equal to the
participant's account value. The form of payment may be a single lump-sum
distribution, or a partial distribution with the remainder paid later. The
participant may also elect to roll their account balances into another qualified
plan or account. In the event of a participant's death, the participant's
beneficiaries will receive the participant's account value in a lump sum
payment.
Withdrawals
- -----------
Except upon death, total disability, termination or retirement, withdrawal of
participant balances requires approval of the Trustee and Plan Administrator.
In-service withdrawals and hardship withdrawals are permitted.
Administrative Expenses
- -----------------------
The Company pays certain costs of administering the Plan, including fees and
expenses of the Trustee and certain investment management fees. Certain
investment management fees are paid by participants. The fees paid by
participants reduce the investment return reported and credited to participants.
6
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN - PART I
Notes to Financial Statements
December 31,1998 and 1997
(1) Description of Plan (cont.)
- -------------------------------
Voting Rights
- -------------
Each participant is entitled to exercise voting rights attributable to the
shares allocated to their account for the PG&E Corporation Stock Fund and is
notified by the Trustee prior to the time that such rights are to be exercised.
The Trustee is not permitted to vote any share for which a participant has not
given instructions. The Trustee is required, however, to vote any unallocated
shares on behalf of the collective best interest of Plan participants and
beneficiaries.
Plan Termination
- ----------------
The Corporation's Board of Directors reserves the right to amend or terminate
the Plan at any time subject to provisions of ERISA. In the event the Plan is
terminated, participants will receive full payment of the balance in their
accounts. No plan assets may revert to the Company or the Corporation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------
Basis of Accounting and Use of Estimates
- ----------------------------------------
The accompanying financial statements are prepared in conformity with generally
accepted accounting principles. The preparation of financial statements, in
conformity with generally accepted accounting principles, requires management to
make estimates and assumptions. These estimates and assumptions affect the
reported amounts of additions, deductions, assets, and liabilities and
disclosure of contingencies. Actual results could differ from these estimates.
A participant's interest in the investment funds is represented by participation
units allocated on the basis of contributions and assigned a unit value on the
basis of the total value of each fund.
Investment Valuation and Income Recognition
- -------------------------------------------
The Plan's interest in the Master Trust (except for interest in the Stable Value
Fund and the Participant Loans) is stated at fair value based on the Plan's
prorated interest in the Master Trust. Fair value for units is determined by
quoted prices in an active market. The Master Trust values investments in the
Stable Value Fund and Participant Loans at cost which approximates fair value.
Interest income, dividends, investment management fees where appropriate, and
the net appreciation or depreciation in the fair value of the investments held
by the Master Trust are allocated to the individual participating plans each day
based upon their proportional share of the fund balances
Interest income is recognized as it is earned and dividends are recorded on the
ex-dividend date.
Net appreciation (depreciation) in fair value of investments consists of the net
change in unrealized appreciation (depreciation) during the year on investments
held at the end of the year and the realized gain or loss on the sale of
investments during the year.
Purchases and sales of securities are recorded on a trade date basis. Realized
gains and losses from security transactions are reported on the moving average
basis.
7
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN - PART I
Notes to Financial Statements
December 31,1998 and 1997
(2) Summary of Significant Accounting Policies (cont.)
- -------------------------------------------------------
Payment of Benefits
- -------------------
Benefit payments to participants are recorded upon distribution.
(3) INVESTMENTS
- ----------------
General
- -------
Each investment fund is managed by the Trustee or investment manager, which has
discretionary investment authority over the funds. Although the EBC is
responsible for the selection of the Plan's investment funds, neither the
Company nor the Corporation is involved in their day-to-day investment
operations.
The Plan has a prorated interest in the net assets of the Master Trust.
Effective January 1, 1998, active employees of Pacific Service Employees
Association (PSEA) withdrew their interest from the Master Trust. As of
December 31, 1998, the Master Trust Agreement allows the Company's Savings Fund
Plans and PSEA retirees to participate in the Master Trust.
Participants should refer to the separate Master Trust financial statements or
their individual quarterly Savings Fund Plan account statements for information
relating to the activity in each of the investment options.
8
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN - PART I
Notes to Financial Statements
December 31,1998 and 1997
(3) Investments (cont.)
- ------------------------
Master Trust Fund Information and Plan Allocation
- -------------------------------------------------
The following summarizes the net assets and related investment fund balances of
the Master Trust and the Plan's allocated share of such amounts as of December
31, 1998 and 1997:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------ ------------------
(in thousands) (in thousands)
<S> <C> <C>
PG&E Corporation Stock Fund $ 987,289 $1,082,056
Bond Index Fund 88,637 57,147
Small Company Stock Index Fund 98,059 86,134
Large Company Stock Index Fund 1,304,359 1,034,267
International Stock Index Fund 37,346 23,087
Conservative Asset Allocation Fund 36,770 24,063
Moderate Asset Allocation Fund 181,106 163,909
Aggressive Asset Allocation Fund 73,929 55,754
United States Bond Fund 4,584 4,555
---------- ----------
Investments at Fair Value 2,812,079 2,530,972
Stable Value Fund 445,845 303,220
Participant Loans 11,057 --
---------- ----------
TOTAL INVESTMENTS 3,268,981 2,834,192
---------- ----------
Interest and Dividend Receivable 11,582 11,481
Other Receivable 2,333 431
Liabilities (5,387) (6,996)
---------- ----------
NET ASSETS 3,277,509 2,839,108
---------- ----------
Allocated to the Plan 1,556,898 1,329,770
Allocated to other plans 1,720,611 1,509,338
---------- ----------
TOTAL ALL PLANS $3,277,509 $2,839,108
---------- ----------
</TABLE>
9
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN - PART I
Notes to Financial Statements
December 31, 1998 and 1997
(3) Investments (cont.)
- ------------------------
The composition of the Master Trust investment income by major category for the
years ended December 31, 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Net appreciation in fair value of investments $382,914 $613,047
Interest and Dividend Income 62,568 81,801
-------------- --------------
Total Investment Income 445,482 694,848
-------------- --------------
Allocated to the Plan 231,479 308,198
Allocated to other plans 214,003 386,650
-------------- --------------
$445,482 $694,848
-------------- --------------
</TABLE>
The net appreciation (depreciation) in fair value of investments of the Master
Trust by major investment category for the years ended December 31, 1998 and
1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
PG&E Corporation Common Stock Fund $ 36,135 $331,535
Bond Index Fund 5,765 1,919
Small Company Stock Index Fund 7,353 (1,576)
Large Company Stock Index Fund 286,170 27,802
International Stock Index Fund 5,241 (2,007)
Conservative Asset Allocation Fund 4,174 393
Moderate Asset Allocation Fund 26,745 1,665
Aggressive Asset Allocation Fund 11,287 109
Stable Value Fund 44 (93)
Diversified Equity Fund --- 229,087
Stock and Bond Fund --- 23,501
Utility Stock Fund --- 712
-------------- --------------
Total Appreciation 382,914 613,047
-------------- --------------
Allocated to the Plan 190,564 273,033
Allocated to other plans 192,350 340,014
-------------- --------------
$382,914 $613,047
-------------- --------------
</TABLE>
10
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
SAVINGS FUND PLAN - PART I
Notes to Financial Statements
December 31,1998 and 1997
(3) Investments (cont.)
- ------------------------
Fund Value per Unit
- -------------------
The net asset value per unit of the funds is determined by dividing the fair
value of fund assets by the number of fund units outstanding. The total number
of units held by the Plan and the value per unit of the Funds for the four
quarters ended December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997 1998 1997
31-Mar 30-Jun
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PG&E Corporation Stock Fund
Number of Units 23,297,687 29,431,516 27,710,141 28,629,271
Value per Unit $ 16.04 $ 11.04 $ 15.50 $ 11.52
Bond Index Fund
Number of Units 2,520,222 1,349,024 2,646,581 1,368,616
Value per Unit $ 15.96 $ 14.32 $ 16.35 $ 14.83
Small Company Stock
Index Fund
Number of Units 5,079,269 N/A 5,389,794 N/A
Value per Unit $ 10.91 N/A $ 10.62 N/A
Large Company Stock
Index Fund
Number of Units 3,411,269 N/A 3,393,384 N/A
Value per Unit $ 190.40 N/A $ 196.64 N/A
International Stock
Index Fund
Number of Units 1,801,552 N/A 2,130,022 N/A
Value per Unit $ 9.39 N/A $ 9.51 N/A
Conservative Asset
Allocation Fund
Number of Units 3,243,727 N/A 3,384,580 N/A
Value per Unit $ 5.40 N/A $ 5.51 N/A
Moderate Asset
Allocation Fund
Number of Units 9,897,233 N/A 9,908,115 N/A
Value per Unit $ 11.08 N/A $ 11.28 N/A
Aggressive Assets
Allocation Fund
Number of Units 2,330,106 N/A 2,469,006 N/A
Value per Unit $ 16.66 N/A $ 16.93 N/A
Stable Value Fund
Number of Units 132,132,568 138,595,533 141,428,055 139,548,320
Value per Unit $ 1.19 $ 1.21 $ 1.21 $ 1.14
Diversified Equity Fund
Number of Units N/A 3,581,542 N/A 3,661,539
Value per Unit N/A $ 127.28 N/A $ 150.54
Stock and Bond Fund
Number of Units N/A 11,342,316 N/A 11,200,710
Value per Unit N/A $ 8.71 N/A $ 9.52
Utility Stock Fund
Number of Units N/A 1,168,560 N/A 1,092,308
Value per Unit N/A $ 16.21 N/A $ 17.02
1998 1997 1998 1997
30-Sep 31-Dec
- ------------------------------------------------------------------------------------------------------------------------------------
PG&E Corporation Stock Fund
Number of Units 19,935,681 27,232,816 19,859,886 24,473,577
Value per Unit $ 15.83 $ 11.17 $ 15.76 $ 14.69
Bond Index Fund
Number of Units 3,213,229 1,483,166 3,405,281 2,439,334
Value per Unit $ 17.05 $ 15.34 $ 17.11 $ 15.73
Small Company Stock
Index Fund
Number of Units 4,985,759 N/A 5,342,870 5164507
Value per Unit $ 8.78 N/A $ 10.73 $ 9.90
Large Company Stock
Index Fund
Number of Units 3,365,502 N/A 3,274,589 3,371,278
Value per Unit 177.09 N/A 214.88 167.07
International Stock
Index Fund
Number of Units 2,047,741 N/A 2,101,915 1,607,707
Value per Unit $ 8.16 N/A $ 9.86 $ 8.19
Conservative Asset
Allocation Fund
Number of Units 3,690,428 N/A 3,824,906 3,001,968
Value per Unit $ 5.37 N/A $ 5.83 $ 5.09
Moderate Asset
Allocation Fund
Number of Units 9,495,914 N/A 9,464,764 9,979,590
Value per Unit $ 10.62 N/A $ 11.96 $ 10.22
Aggressive Assets
Allocation Fund
Number of Units 2,423,288 N/A 2,440,544 2,304,445
Value per Unit $ 15.37 N/A $ 17.99 $ 15.04
Stable Value Fund
Number of Units 162,457,439 138,956,779 170,849,363 128,161,257
Value per Unit $ 1.23 $ 1.16 $ 1.25 $ 1.18
Diversified Equity Fund
Number of Units N/A 3,750,526 N/A N/A
Value per Unit N/A $ 162.36 N/A N/A
Stock and Bond Fund
Number of Units N/A 11,270,203 N/A N/A
Value per Unit N/A $ 10.11 N/A N/A
Utility Stock Fund
Number of Units N/A 985,901 N/A N/A
Value per Unit N/A $ 17.85 N/A N/A
</TABLE>
11
<PAGE>
(4) TAX STATUS
- --- -----------
The Internal Revenue Service (IRS) has ruled that the Plan is a qualified tax-
exempt plan under Section 401(a) and Section 409(a) of the Code and the trust
forming a part thereof is exempt under Section 501(a) of the Code. Accordingly,
no provision for federal income taxes has been made in the financial statements.
Furthermore, participating employees are not liable for federal income tax on
amounts allocated to their accounts attributable to: (1) employee 401(k)
contributions, (2) dividends, earnings, and interest income on both 401(k)
contributions and non-401(k) contributions, or (3) employer contributions, until
the time that they withdraw such amounts from the Plan.
The Company received a favorable tax determination letter from the IRS in
November of 1995. Accordingly, the Plan sponsor believes that the Plan
continues to be designed and operated in accordance with IRS requirements.
(4) SUBSEQUENT EVENT
- ---- ----------------
Effective June 1, 1999, the Plan was amended to merge with other affiliated
company plans forming the new PG&E Corporation Retirement Savings Plan. Upon
the merger, the Plan's trustee will change from State Street Bank and Trust
Company to Fidelity Management Trust Company.
12
<PAGE>
EXHIBIT 2
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated June 3, 1999, included in this Form 11-K relating to the PG&E
Corporation Retirement Savings Plan, into PG&E Corporation's previously filed
Registration Statement File No. 333-77145.
ARTHUR ANDERSEN LLP
San Francisco, California
June 23, 1999
