<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
Form 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
Commission file number 1-7479
------------
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
-------------------------
(Full title of the plan)
BAY STATE GAS COMPANY
300 Friberg Parkway
Westborough, Massachusetts 01581-5039
----------------------------------------------
(Name and address of issuer of the securities
held pursuant to the plan)
<PAGE> 2
Index Page No.
----- -------
(a) Signatures 3
(b) Financial Statements
Independent Auditors' Report 4
Statements of Net Assets Available for
Plan Benefits of December 31, 1997 and 1996 5
Statements of Changes in Net Assets Available
for Plan Benefits for the years ended December 31,
1997, 1996 and 1995 6-8
Notes to Financial Statements 9-17
Schedule I: Item 27a - Schedule of Assets
Held for Investment Purposes 18
Schedule II: Item 27d - Schedule of Reportable
Transactions - Year Ended December 31, 1997 19
-2-
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Committee administering the Plan has duly caused this annual report to be signed
by the undersigned thereunto duly authorized.
BAY STATE GAS COMPANY
BENEFITS COMMITTEE
By /s/ Charles H. Tenney, III
--------------------------------
Charles H. Tenney, III
Chairman
By /s/ Thomas W. Sherman
--------------------------------
Thomas W. Sherman
Committee Member
By /s/ William D. MacGillivray
--------------------------------
William D. MacGillivray
Committee Member
By /s/ Elizabeth A. Foley
--------------------------------
Elizabeth A. Foley
Committee Member
Date: June 30, 1998
-3-
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Benefits Committee
Bay State Gas Company
We have audited the accompanying statements of Net Assets Available for Plan
Benefits of the Bay State Gas Company Employee Savings Plan as of December 31,
1997 and 1996, and the related statements of Changes in Net Assets Available for
Plan Benefits for each of the years in the three-year period ended December 31,
1997. 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 Bay
State Gas Company Employee Savings Plan at December 31, 1997 and 1996, and the
changes in Net Assets Available for Plan Benefits for each of the years in the
three-year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The fund information in the statements of
changes in net assets available for plan benefits is presented for purposes of
additional analysis rather than to present the changes in net assets available
for plan benefits of each fund. The supplemental schedules of assets held for
investment purposes and reportable transactions are presented for the purpose 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 and supplemental
schedules 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.
Boston, Massachusetts KPMG Peat Marwick LLP
June 5, 1998
-4-
<PAGE> 5
Bay State Gas Company Employee Savings Plan
Statements of Net Assets Available for Plan Benefits
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets
- ------
1997 1996
----------- -----------
<S> <C> <C>
Investments, at market value (note 4):
Company Stock Master Trust $12,714,368 $13,216,392
Palm Constellation Fund 4,716,476 4,033,829
Templeton Foreign Fund 6,544,504 7,593,679
MasterWorks S&P 500 Stock Fund 8,137,473 5,311,924
Life Path Funds:
LifePath 2000 141,209 167,938
LifePath 2010 679,548 608,596
LifePath 2020 662,894 575,509
LifePath 2030 672,984 292,052
LifePath 2040 1,124,544 728,741
Stable Value Fund 8,310,125 9,196,092
Investments, at cost which approximates fair value:
Loan Fund 1,441,069 1,632,350
----------- -----------
Net Assets Available for Plan Benefits $45,145,194 $43,357,102
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE> 6
Bay State Gas Company Employee Savings Plan
Statement of Changes in Net Assets Available for Plan Benefits,
with Fund Information
Year ended December 31, 1997
<TABLE>
<CAPTION>
Plan Interest in AIM LifePath LifePath LifePath LifePath
Company Stock Constellation 2000 2010 2020 2030
Master Trust Fund Fund Fund Fund Fund
---------------- ------------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest and other investment income $ -- $ 333,977 $ -- $ -- $ -- $ --
Net appreciation (depreciation)
in the market value of investments -- 76,001 6,838 75,949 99,266 84,130
Plan interest in Company Stock
Master Trust investment income 3,832,489 -- -- -- -- --
----------- ---------- -------- -------- --------- --------
Total investment income 3,832,489 409,978 6,838 75,949 99,266 84,130
Contributions:
Employee 351,378 521,279 8,585 72,124 88,814 102,568
Employer 151,504 213,902 3,266 27,138 41,140 32,892
----------- ---------- -------- -------- --------- --------
Total contributions 502,882 735,181 11,851 99,262 129,954 135,460
----------- ---------- -------- -------- --------- --------
Total additions 4,335,371 1,145,159 18,689 175,211 229,220 219,590
----------- ---------- -------- -------- --------- --------
Benefits Paid (2,268,518) (462,464) (45,713) (94,891) (191,984) (28,179)
Administrative Fees (Note 12) (2,914) (1,652) (74) (202) (376) (294)
Transfers between funds (2,565,963) 1,604 369 (9,166) 50,525 189,815
----------- ---------- -------- -------- --------- --------
Net increase (decrease) (502,024) 682,647 (26,729) 70,952 87,385 380,932
Net Assets Available for Plan Benefits:
Beginning of year 13,216,392 4,033,829 167,938 608,596 575,509 292,052
----------- ---------- -------- -------- --------- --------
End of year $12,714,368 $4,716,476 $141,209 $679,548 $ 662,894 $672,984
=========== ========== ======== ======== ========= ========
<CAPTION>
LifePath Templeton MasterWorks Stable
2040 Foreign S&P 500 Value Loan
Fund Fund Stock Fund Fund Fund Total
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest and other investment income $ -- $ 741,935 $ 261,843 $ 487,835 $ 132,658 $ 1,958,248
Net appreciation (depreciation) in the
market value of investments 185,933 (256,219) 1,470,798 -- -- 1,742,696
Plan interest in Company Stock
Master Trust investment income -- -- -- -- -- 3,832,489
---------- ---------- ---------- ---------- ---------- -----------
Total investment income 185,933 485,716 1,732,641 487,835 132,658 7,533,433
Contributions:
Employee 100,220 380,440 439,315 337,136 -- 2,401,859
Employer 38,720 151,249 156,723 118,599 -- 935,133
---------- ---------- ---------- ---------- ---------- -----------
Total contributions 138,940 531,689 596,038 455,735 -- 3,336,992
---------- ---------- ---------- ---------- ---------- -----------
Total additions 324,873 1,017,405 2,328,679 943,570 132,658 10,870,425
---------- ---------- ---------- ---------- ---------- -----------
Benefits Paid (25,813) (1,488,759) (1,194,176) (3,008,391) (260,801) (9,069,689)
Administrative Fees (Note 12) (311) (2,097) (1,971) (2,753) -- (12,644)
Transfers between funds 97,054 (575,724) 1,693,017 1,181,607 (63,138) --
---------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease) 395,803 (1,049,175) 2,825,549 (885,967) (191,281) 1,788,092
Net Assets Available for Plan Benefits:
Beginning of year 728,741 7,593,679 5,311,924 9,196,092 1,632,350 43,357,102
---------- ---------- ---------- ---------- ---------- -----------
End of year $1,124,544 $6,544,504 $8,137,473 $8,310,125 $1,441,069 $45,145,194
========== ========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
-6-
<PAGE> 7
Bay State Gas Company Employee Savings Plan
Statement of Changes in Net Assets Available for Plan Benefits,
with Fund Information
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Plan Interest in AIM LifePath LifePath LifePath LifePath
Company Stock Constellation 2000 2010 2020 2030
Master Trust Fund Fund Fund Fund Fund
---------------- ------------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest and other investment income -- $ 136,994 -- -- -- --
Net appreciation in the
fair value of investments -- 317,154 7,779 40,913 49,089 22,457
Plan interest in Company Stock
Master Trust investment income 1,088,574 -- -- -- -- --
----------- ---------- -------- -------- -------- --------
Total investment income 1,088,574 454,148 7,779 40,913 49,089 22,457
Contributions:
Employee 378,033 492,349 30,483 79,046 95,045 66,199
Employer 160,568 209,503 9,789 32,966 46,424 23,347
----------- ---------- -------- -------- -------- --------
Total contributions 538,601 701,852 40,272 112,012 141,469 89,546
----------- ---------- -------- -------- -------- --------
Total additions 1,627,175 1,156,000 48,051 152,925 190,558 112,003
----------- ---------- -------- -------- -------- --------
Benefits Paid (574,627) (94,884) (31,602) (4,106) (7,015) (6,457)
Administrative Fees (Note 12) (4,932) (1,967) (56) (247) (431) (206)
Transfers between funds (3,094,081) 969,651 114,732 96,106 206,959 92,724
----------- ---------- -------- -------- -------- --------
Net increase (decrease) (2,046,465) 2,028,800 131,125 244,678 390,071 198,064
Net Assets Available for Plan Benefits:
Beginning of year 15,262,857 2,005,029 36,813 363,918 185,438 93,988
----------- ---------- -------- -------- -------- --------
End of year $13,216,392 $4,033,829 $167,938 $608,596 $575,509 $292,052
=========== ========== ======== ======== ======== ========
<CAPTION>
LifePath Templeton MasterWorks Stable
2040 Foreign S&P 500 Value Loan
Fund Fund Stock Fund Fund Fund Total
-------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest and other investment income -- $ 316,269 $ 173,196 $ 500,316 $ 141,327 $ 1,268,102
Net appreciation in the
fair value of investments 80,732 842,010 787,346 -- -- 2,147,480
Plan interest in Company Stock
Master Trust investment income -- -- -- -- -- 1,088,574
-------- ---------- ---------- ---------- ---------- -----------
Total investment income 80,732 1,158,279 960,542 500,316 141,327 4,504,156
-------- ---------- ---------- ---------- ---------- -----------
Contributions:
Employee 74,127 338,160 284,196 256,966 -- 2,094,604
Employer 32,940 156,195 101,489 136,782 -- 910,003
-------- ---------- ---------- ---------- ---------- -----------
Total contributions 107,067 494,355 385,685 393,748 -- 3,004,607
-------- ---------- ---------- ---------- ---------- -----------
Total additions 187,799 1,652,634 1,346,227 894,064 141,327 7,508,763
-------- ---------- ---------- ---------- ---------- -----------
Benefits Paid (6,626) (342,150) (404,186) (748,176) (62,851) (2,282,680)
Administrative Fees (Note 12) (265) (3,013) (2,023) (3,948) -- (17,088)
Transfers between funds 270,840 (221,070) 348,021 1,236,518 (20,400) --
-------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease) 451,748 1,086,401 1,288,039 1,378,458 58,076 5,208,995
Net Assets Available for Plan Benefits:
Beginning of year 276,993 6,507,278 4,023,885 7,817,634 1,574,274 38,148,107
-------- ---------- ---------- ---------- ---------- -----------
End of year $728,741 $7,593,679 $5,311,924 $9,196,092 $1,632,350 $43,357,102
======== ========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE> 8
Bay State Gas Company Employee Savings Plan
Statement of Changes in Net Assets Available for Plan Benefits
Year ended December 31, 1995
<TABLE>
<CAPTION>
Plan Interest in AIM LifePath LifePath LifePath
Selection Index Templeton Company Stock Constellation 2000 2010 2020
Fund Fund Fund Master Trust Fund Fund Fund Fund
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Interest $126,204 -- $ 82 -- $63,544 -- -- --
Dividends -- -- -- -- -- -- -- --
Net appreciation
(depreciation) in the fair
value of investments -- $279,802 259,137 -- (39,398) $1,718 $10,508 $ 9,741
Plan interest in Company
Stock Master Trust
investment income -- -- -- $2,231,119 -- -- -- --
----------------------------------------------------------------------------------------------------
Total investment income 126,204 279,802 259,219 2,231,119 24,146 1,718 10,508 9,741
Contributions:
Employee 112,799 56,898 136,242 327,587 344,513 28,894 62,545 62,166
Employer 51,272 26,667 62,333 131,553 139,003 9,576 25,976 27,210
------------------------------------------------------------------------------------------------------
Total contributions 164,071 83,565 198,575 459,140 483,516 38,470 88,521 89,376
------------------------------------------------------------------------------------------------------
Total additions 290,275 363,367 457,794 2,690,259 507,662 40,188 99,029 99,117
------------------------------------------------------------------------------------------------------
Benefits Paid (339,425) (23,877) (450,486) (386,246) (838) (6,010) 18,778 (514)
Administrative Fees (7,500) (3,000) (1,250) (3,701) (909) (15) (131) (209)
Transfers between funds (7,808,137) (3,282,789) (6,419,651) 12,962,545 1,499,114 2,650 246,242 87,044
------------------------------------------------------------------------------------------------------
Net increase (decrease) (7,864,787) (2,946,299) (6,413,593) 15,262,857 2,005,029 36,813 363,918 185,438
Net Assets Available for
Plan Benefits:
Beginning of year 7,864,787 2,946,299 6,413,593 -- -- -- -- --
-------------------------------------------------------------------------------------------------------
End of year -- -- -- $15,262,857 $2,005,029 $36,813 $363,918 $ 185,438
=======================================================================================================
<CAPTION>
LifePath LifePath Templeton Stagecoach Stable Company
2030 2040 Foreign S&P 500 Value Stock Loan
Fund Fund Fund Stock Fund Fund Fund Fund Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Interest -- -- $417,490 $119,707 $381,729 $ 957 $116,848 $1,226,561
Dividends -- -- -- -- -- 212,155 -- 212,155
Net appreciation
(depreciation) in the fair
value of investments $5,063 $20,019 212,509 629,654 -- 322,290 -- 1,711,043
Plan interest in Company
Stock Master Trust
investment income -- -- -- -- -- -- -- 2,231,119
------------------------------------------------------------------------------------------------------
Total investment income 5,063 20,019 629,999 749,361 381,729 535,402 116,848 5,380,878
Contributions:
Employee 43,092 40,899 282,690 162,179 266,589 130,412 -- 2,057,505
Employer 12,557 17,067 125,482 64,375 109,523 60,736 -- 863,330
------------------------------------------------------------------------------------------------------
Total contributions 55,649 57,966 408,172 226,554 376,112 191,148 -- 2,920,835
------------------------------------------------------------------------------------------------------
Total additions 60,712 77,985 1,038,171 975,915 757,841 726,550 116,848 8,301,713
------------------------------------------------------------------------------------------------------
Benefits Paid (1,143) -- (103,966) (100,318) (368,106) (727,498) (15,156) (2,504,805)
Administrative Fees (95) (98) (2,039) (1,250) (2,913) (3,600) (4) (26,714)
Transfers between funds 34,514 199,106 5,575,112 3,149,538 7,430,812 (13,780,941) 104,841 --
-------------------------------------------------------------------------------------------------------
Net increase (decrease) 93,988 276,993 6,507,278 4,023,885 7,817,634 (13,785,489) 206,529 5,770,194
Net Assets Available for
Plan Benefits:
Beginning of year -- -- -- -- -- 13,785,489 1,367,745 32,377,913
-------------------------------------------------------------------------------------------------------
End of year $93,988 $276,993 $6,507,278 $4,023,885 $7,817,634 -- $1,574,274 $38,148,107
=======================================================================================================
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE> 9
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to the Financial Statements
December 31, 1997, 1996 and 1995
1) DESCRIPTION OF PLAN
(a) GENERAL
The Bay State Gas Company Employee Savings Plan ("the Plan") is a defined
contribution payroll reduction savings plan. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974
("ERISA"). Participants should refer to the Plan document for more
complete information.
(b) ELIGIBILITY
Substantially all non-union employees of Bay State Gas Company ("the
Company") and its wholly-owned subsidiaries, Northern Utilities, Inc. and
Granite State Gas Transmission, Inc., are eligible for participation in
the Plan. Beginning July 1, 1996, participation begins on the first day of
the next month after the employee has completed 60 days of service.
Employees may participate in the Plan until death, retirement, or
withdrawal of the entire contributed balance.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the accrual
basis of accounting.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities
and disclosure of contingent liabilities at the date of the financial
statements. Certain amounts of reported revenues and expenses are also
affected by these estimates and assumptions. Actual results could differ
from those estimates.
-9-
<PAGE> 10
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 1997, 1996 and 1995
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) INVESTMENTS
Investments in the AIM Constellation Fund, MasterWorks S & P 500 Stock
Fund, LifePath Funds, Company Stock Master Trust and the Templeton Foreign
Fund are stated at market value. Market values are based on quotations
from national securities exchanges for the various investments as of the
close of business on the last day of the year.
Guaranteed Investment Contracts ("GICs") held by the Stable Value Fund are
valued at contract value. Contract value represents contributions made
under the contract plus interest at the contract rate. The crediting
interest rates are fixed for GICs and averaged 7.18% at December 31, 1997.
At December 31, 1997, the fair value of the GICs held by the Stable Value
Fund approximates contract value.
The Barclays Global Investors Income Accumulation Fund, held by the Stable
Value Fund, is stated at market value which is based on the fair value of
its underlying securities as follows: GICs and synthetic GICs, which are
all benefit responsive, are stated at contract value, publicly traded U.S.
Government notes and bonds are stated at quoted market value and money
market securities are stated at cost which approximates fair value.
Participant loans are valued at cost which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded
on the ex-dividend date. Net appreciation (depreciation) in the fair value
of investments includes both realized and unrealized gains and losses.
-10-
<PAGE> 11
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 1997, 1996 and 1995
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) PAYMENT OF BENEFITS
Benefits are recorded when paid.
3) PLAN ADMINISTRATION
(a) ADMINISTRATION
The Plan is administered by the Bay State Gas Company Benefits Committee
("the Committee"), which is comprised of three or more individuals
selected by the Board of Directors of the Company. The Committee carries
out the provisions of the Plan, replies to questions, and resolves
disputes arising under the Plan. Members of the Committee do not receive
compensation for service.
(b) EXPENSES
The plan charges a monthly loan processing fee of $3.50 to participants
borrowing from their accounts and a $10 fee for each participant's change
of investment instructions in excess of 10 in any calendar year.
4) INVESTMENTS
All contributions are remitted to the Plan Trustee for investment in
accordance with the instructions of the participants. Participants may
allocate their contributions (in 10% multiples) to various investment
funds. Allocation percentages, as well as investment options among the
investment funds, may be changed daily by the participant.
The following investment funds are offered to active participants of the
Plan.
COMPANY STOCK MASTER TRUST - Funds are invested in the common stock of Bay
State Gas Company.
-11-
<PAGE> 12
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to the Financial Statements
December 31, 1997, 1996 and 1995
4) INVESTMENTS (CONTINUED)
AIM CONSTELLATION FUND - Funds are invested principally in common stocks
with emphasis on medium-sized and smaller emerging growth companies.
TEMPLETON FOREIGN FUND - Funds are invested in stocks and debt obligations
of companies and governments outside of the United States.
MASTERWORKS S & P 500 STOCK FUND - Funds are invested in domestic debt and
equity securities designed to approximate, as closely as practicable, the
capitalization-weighted total rate of return of the S & P 500 Index.
LIFEPATH FUNDS - Funds are invested in a changing mix of U.S. and
international stocks, bonds and money market instruments. The target dates
of each fund refers to the year when investors plan to retire or begin to
withdraw portions of their investment. Each fund accepts higher risk early
on, and adjusts its asset mix to lower-risk investments over time.
STABLE VALUE FUND - Funds are invested in a combination of guaranteed
investment contracts (GICs) and shares of the Barclays Global Investors
Income Accumulation Fund. The Barclays Global Investors Income
Accumulation Fund is a pooled stable value fund that invests in a variety
of fixed-income securities including; GIC's, synthetic GICs, publicly
traded U.S. Government notes and bonds and money market securities.
LOAN FUND - Funds are comprised of amounts borrowed by participants from
their account balances (see Note 7).
At December 31, 1997, each of the investment funds had the following
number of participants:
<TABLE>
<S> <C>
AIM Constellation Fund 318
LifePath 2000 Fund 17
LifePath 2010 Fund 56
LifePath 2020 Fund 88
LifePath 2030 Fund 58
LifePath 2040 Fund 91
Templeton Foreign Fund 352
S & P 500 Stock - MasterWorks Fund 348
Stable Value Fund 334
Company Stock Master Trust 415
</TABLE>
-12-
<PAGE> 13
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to the Financial Statements
December 31, 1997, 1996 and 1995
4) INVESTMENTS (CONTINUED)
All funds, with the exception of the Loan Fund and the LifePath Funds,
represented more than five percent of Net Assets Available for Plan
Benefits at December 31, 1997 and 1996.
5) INTEREST IN BAY STATE GAS COMPANY STOCK MASTER TRUST
A portion of the Plan's investments are invested in the Company Stock
Master Trust (Master Trust) which was established for the investment of
assets of the Plan and the Bay State Gas Company Savings Plan for
Operating Employees. Each plan has an undivided interest in the Master
Trust. The assets of the Master Trust are held by Barclays Global
Investors. At December 31, 1997 and 1996, the Plan's interest in the net
assets of the Master Trust was approximately 69% and 74%, respectively.
Investment income and administrative expenses relating to the Master Trust
are allocated to the individual plans based upon average monthly balances
invested by each plan. Contributions and benefit payments to Plan
participants directly increase/decrease the assets of the Master Trust
allocated to the Plan. The following table presents the fair values of
investments for the Master Trust.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Bay State Gas Company Stock $18,493,079 $17,768,586
=========== ===========
</TABLE>
Investment income for the Master Trust is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31,1996
----------------- ----------------
<S> <C> <C>
Net appreciation in fair value
of Bay State Gas Company Stock $4,470,583 $ 304,698
Interest 6,665 8,279
Dividends 905,878 1,052,116
---------- ----------
$5,383,126 $1,365,093
========== ==========
</TABLE>
-13-
<PAGE> 14
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 1997, 1996 and 1995
6) CONTRIBUTIONS
(a) PARTICIPANT CONTRIBUTIONS
Participants may designate a percentage of their annual compensation to be
contributed to the Plan on their behalf by entering into a salary
reduction agreement, thereby reducing their compensation by 1% to 15% of
their annual eligible compensation. This compensation reduction was
limited to a maximum amount of $9,500 per year in 1997. In 1997, for
employees whose earnings are in excess of $80,000, contributions are
limited to 9% of their annual compensation. A participant's eligible
compensation for any given year generally consists of straight time wages,
certain supplementary compensation and 75% to 100% of sales commissions
paid or accrued. All overtime, bonuses, some supplementary compensation
payments, deferred compensation, retirement benefits and other forms of
nonrecurring compensation are excluded.
(b) COMPANY CONTRIBUTIONS
Company contributions begin on the first day of the next month after
completion of a 12-month eligibility period in which the employee is
credited with at least 1,000 hours of service during that period.
Beginning October 1, 1992, for participants under the age of 45 on January
1, 1992, and all employees hired after September 1, 1990, the Company
changed the amount of its contribution to each participant's account to an
amount equal to 100% of the first 2-1/2% of the participant's eligible
compensation contributed and 50% of the next 5% of the participant's
eligible compensation contributed, provided that total Company
contributions did not exceed 5% of the participant's eligible
compensation. For participants not meeting this criteria, the Company
contributes 50% of the first 5% of the participant's eligible compensation
contributed.
(c) VESTING
Employer and employee contributions vest immediately.
-14-
<PAGE> 15
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to the Financial Statements
December 31, 1997, 1996 and 1995
7) WITHDRAWALS, BORROWINGS AND DISTRIBUTIONS
(a) WITHDRAWALS
Participants may withdraw all or any portion of their contributions made
through November 1, 1983 on the last day of any month, upon 30 days notice
to the Committee. Only one withdrawal may be made in any twelve-month
period and the withdrawal may not exceed the value of the contributions in
their account on that date.
Contributions made subsequent to November 1, 1983 may be withdrawn in the
event of financial hardship or the attainment of 59-1/2 years of age.
(b) BORROWINGS
Participants may borrow from their accounts an amount which, together with
any outstanding loans from any other qualified plans of the Company, does
not exceed the lesser of (i) one-half of the amounts in all of their
accounts or (ii) an amount which, when added to any other amounts borrowed
under any other plan, does not exceed $50,000. Applications to borrow must
be adequately secured, must be for at least $1,000 and must be repaid at a
rate of interest equal to the prime interest rate, as published in THE
WALL STREET JOURNAL, at the time the loan is made, plus one percent. This
interest rate is applicable for the duration of the loan. Only two loans
may be outstanding to a participant at any time and must be repaid within
five years.
-15-
<PAGE> 16
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to the Financial Statements
December 31, 1997, 1996 and 1995
7) WITHDRAWALS, BORROWINGS AND DISTRIBUTIONS (CONTINUED)
(c) DISTRIBUTIONS
Distribution of a participant's entire account balance in the Plan will be
made upon retirement, termination of employment or death. Distributions
will be made to the participant or to the participant's designated
beneficiary in either a lump sum payment or in periodic payments over a
period not to exceed ten years for a spousal beneficiary or over a period
within five years in the case of a non-spousal beneficiary.
Upon the death of a Plan participant, benefits to the participant's spouse
must commence no later than April 1st following the date the participant
would have been age 70-1/2. For any other beneficiary, death benefits must
commence within one year of the participant's death.
Upon retirement or termination of employment, Plan participants (thereby
becoming inactive Plan participants) may elect to receive their share of
Net Assets Available for Plan Benefits in a lump sum or in installments
over a period not to exceed ten years.
8) INCOME TAX STATUS
The Internal Revenue Service has issued a determination letter dated
November 19, 1996 that the Plan qualified, in form, under Sections 401 (a)
and 401 (k) of the Internal Revenue Code of 1986, as amended (the "Code")
and, the underlying trust was therefore, exempt from federal income taxes
under Section 501 (a) of the Code. The Plan is required to operate in
accordance with the Code to maintain its tax qualification. In the opinion
of the Plan administrator and Plan's tax advisor, the Plan remained
qualified under the applicable provisions of the Code.
9) PLAN TERMINATION
(a) If the Plan is discontinued, all assets of the Plan must be used for
the exclusive benefit of participants of the Plan.
(b) The Company may terminate the Plan at any time by giving written
notice to the Trustee. After termination, the Company will make no further
contributions to the Plan.
-16-
<PAGE> 17
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 1997, 1996 and 1995
10) RECONCILIATION OF ACCOMPANYING FINANCIAL STATEMENTS TO FEDERAL FORM 5500
The following is a reconciliation of benefits paid to participants per
accompanying financial statements to Federal Form 5500:
<TABLE>
<CAPTION>
Year ended December 31, 1995
----------------------------
<S> <C>
Benefits paid to participants per
accompanying financial statements $2,504,805
Benefits payable at December 31, 1994
per Federal Form 5500 786,044
----------
Benefits paid per Federal Form 5500 $1,718,761
----------
</TABLE>
Benefits payable were recorded on Federal Form 5500 for benefit claims
that had been processed and approved prior to December 31, 1994 but not
yet paid as of that date. Benefits payable are not required to be accrued
at the end of each year in the accompanying financial statements in order
to conform with generally accepted accounting principles.
11) SUBSEQUENT EVENT
On May 27, 1998, the shareholders of Bay State Gas Company approved an
Agreement and Plan of Merger whereby Bay State Gas Company will be merged
into NIPSCO Industries, Inc. Currently, it is not known whether the Plan
will continue in existence or be merged into a NIPSCO plan.
12) RELATED PARTY TRANSACTIONS
Certain Plan investments are managed by the Trustee of the Plan and
therefore qualify as party-in-interest. Fees paid by the Plan for the
investment management services amounted to $12,644 and $17,088 for the
years ended December 31, 1997 and 1996, respectively.
-17-
<PAGE> 18
Bay State Gas Company Employee Savings Plan
Schedule I
----------
Item 27(a)
Schedule of Assets Held for Investment Purposes
December 31, 1997
<TABLE>
<CAPTION>
Identity of Issue Description of Investment Cost Current Value
----------------- ------------------------- ---- -------------
<S> <C> <C> <C>
* Company Master Trust Master Trust; 789,222 units $ 8,253,995 $12,714,368
Stable Value Fund Pooled Fund; 707,944 shares 8,310,125 8,310,125
AIM Constellation Fund Mutual Fund; 178,790 shares 4,709,299 4,716,476
Templeton Foreign Fund Mutual Fund; 657,739 shares 6,330,019 6,544,504
* MasterWorks S&P 500 Stock Fund Mutual Fund; 399,091 shares 6,343,606 8,137,473
* LifePath 2000 Fund Collective Trust Fund; 10,649 shares 137,861 141,209
* LifePath 2010 Fund Collective Trust Fund; 44,973 shares 612,081 679,548
* LifePath 2020 Fund Collective Trust Fund; 40,078 shares 555,436 662,894
* LifePath 2030 Fund Collective Trust Fund; 38,194 shares 577,771 672,984
* LifePath 2040 Fund Collective Trust Fund; 59,784 shares 919,298 1,124,544
* Loan Fund Participant loans; 5.78% - 10.80% 1,441,069 1,441,069
----------- -----------
Total assets held for investment purposes $38,190,560 $45,145,194
=========== ===========
</TABLE>
* Party-in-interest
-18-
<PAGE> 19
BAY STATE GAS COMPANY EMPLOYEE SAVINGS PLAN
Schedule II
-----------
Item 27(d)
Schedule of Reportable Transactions
Year ended December 31, 1997
<TABLE>
<CAPTION>
Identity of party Lease Expense Cost of
involved Description of asset Purchase price Selling price rental Incurred asset
(a) (b) (c) (d) (e) (f) (g)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AIM Constellation Fund Mutual Fund - purchase $3,852,896 -- -- -- $3,852,896
- sale -- 3,246,250 -- -- 2,990,503
Templeton Foreign Fund Mutual Fund - purchase 2,204,540 -- -- -- 2,204,540
- sale -- 2,997,496 -- -- 2,616,808
MasterWorks S&P 500 Stock Fund Mutual Fund - purchase 4,698,370 -- -- -- 4,698,370
- sale -- 3,343,619 -- -- 2,477,338
Stable Value Fund Pooled Fund - purchase 7,707,833 -- -- -- 7,707,833
- sale -- 9,081,635 -- -- 9,081,635
Company Stock Master Trust* Master Trust - purchase 3,379,429 -- -- -- 3,379,429
- sale -- 7,713,942 -- -- 6,310,510
<CAPTION>
Current Value
Identity of party of asset on Net gain
involved transaction date or (loss)
(a) (h) (i)
- ------------------------------------------------------------------
<S> <C> <C>
AIM Constellation Fund $3,852,896 --
3,246,250 255,747
Templeton Foreign Fund 2,204,540 --
2,997,496 380,688
MasterWorks S&P 500 Stock Fund 4,698,370 --
3,343,619 866,281
Stable Value Fund 7,707,833 --
9,081,635 --
Company Stock Master Trust* 3,379,429 --
7,713,942 1,403,432
</TABLE>
* Party-in-interest
-19-
