<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, 1998
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
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
INDEX PAGE
(a) Signatures 1
(b) Financial Statements
Independent Auditors' Report 2
Statements of Net Assets Available for Plan Benefits
as of December 31, 1998 and 1997 3
Statements of Changes in Net Assets Available for Plan Benefits
for the years ended December 31, 1998 and 1997 4 - 5
Notes to Financial Statements 6 - 12
Schedule 1: Line 27a - Schedule of Assets Held for
Investment Purposes 13
Schedule 2: Line 27d - Schedule of Reportable Transactions -
Year ended December 31, 1998 14
<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/ 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, 1999
1
<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,
1998 and 1997, and the related statements of changes in net assets available for
plan benefits, with fund information, for each of the years in the two-year
period ended December 31, 1998. 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, 1998 and 1997, and the
changes in net assets available for plan benefits for each of the years in the
two-year period ended December 31, 1998 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.
/s/ KPMG LLP
Boston, Massachusetts
June 11, 1999
2
<PAGE> 5
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 1998 and 1997
1998 1997
----------- ----------
Investments, at market value (note 4):
Company Stock Master Trust (note 5) $13,902,100 12,714,368
AIM Constellation Fund 5,242,079 4,716,476
Templeton Foreign Fund 5,292,488 6,544,504
MasterWorks S&P 500 Stock Fund 11,321,869 8,137,473
Life Path Funds:
LifePath 2000 82,901 141,209
LifePath 2010 1,128,823 679,548
LifePath 2020 1,038,598 662,894
LifePath 2030 927,918 672,984
LifePath 2040 1,834,207 1,124,544
Stable Value Fund 9,063,634 8,310,125
Investments, at cost which approximates fair value:
Loan Fund 1,224,407 1,441,069
----------- ----------
Total investments 51,059,024 45,145,194
Contributions receivable from employees and employer 13,180 --
----------- ----------
Net assets available for plan benefits $51,072,204 45,145,194
=========== ==========
See accompanying notes to financial statements.
3
<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, 1998
<TABLE>
<CAPTION>
Plan
interest in
Company
Stock AIM LifePath LifePath LifePath LifePath
Master Constellation 2000 2010 2020 2030
Trust Fund Fund Fund Fund Fund
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest and other investment
income $ -- 128,899 -- -- -- --
Net appreciation (depreciation)
in the market value of
investments -- 724,701 11,209 109,509 130,786 156,604
Plan interest in Company Stock
Master Trust investment
income (note 5) 1,436,333 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total investment income 1,436,333 853,600 11,209 109,509 130,786 156,604
Contributions:
Employee 272,490 435,567 9,165 88,143 105,787 127,130
Employer 144,636 185,150 3,649 29,944 41,976 41,619
----------- ----------- ----------- ----------- ----------- -----------
Total contributions 417,126 620,717 12,814 118,087 147,763 168,749
----------- ----------- ----------- ----------- ----------- -----------
Total additions 1,853,459 1,474,317 24,023 227,596 278,549 325,353
----------- ----------- ----------- ----------- ----------- -----------
Benefits paid (642,141) (156,971) (12,024) (11,773) (52,611) (25,302)
Administrative fees (note 11) (3,496) (1,781) (40) (350) (464) (467)
Transfers between funds (17,967) (787,746) (70,151) 234,169 150,868 (43,975)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) 1,189,855 527,819 (58,192) 449,642 376,342 255,609
Net assets available for plan benefits:
Beginning of year 12,714,368 4,716,476 141,209 679,548 662,894 672,984
----------- ----------- ----------- ----------- ----------- -----------
End of year $13,904,223 5,244,295 83,017 1,129,190 1,039,236 928,593
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
MasterWorks
LifePath Templeton S&P 500 Stable
2040 Foreign Stock Value Loan
Fund Fund Fund Fund Fund Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest and other investment
income $ -- 567,261 590,685 546,507 122,089 1,955,441
Net appreciation (depreciation)
in the market value of
investments 299,090 (890,273) 1,641,220 -- -- 2,182,846
Plan interest in Company Stock
Master Trust investment
income (note 5) -- -- -- -- -- 1,436,333
----------- ----------- ----------- ----------- ----------- -----------
Total investment income 299,090 (323,012) 2,231,905 546,507 122,089 5,574,620
Contributions:
Employee 136,246 340,283 596,869 283,195 -- 2,394,875
Employer 53,196 133,826 204,358 169,894 -- 1,008,248
----------- ----------- ----------- ----------- ----------- -----------
Total contributions 189,442 474,109 801,227 453,089 -- 3,403,123
----------- ----------- ----------- ----------- ----------- -----------
Total additions 488,532 151,097 3,033,132 999,596 122,089 8,977,743
----------- ----------- ----------- ----------- ----------- -----------
Benefits paid (3,289) (315,325) (639,256) (1,013,019) (158,280) (3,029,991)
Administrative fees (note 11) (631) (1,950) (2,830) (8,733) -- (20,742)
Transfers between funds 225,886 (1,084,462) 796,430 777,419 (180,471) --
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) 710,498 (1,250,640) 3,187,476 755,263 (216,662) 5,927,010
Net assets available for plan benefits:
Beginning of year 1,124,544 6,544,504 8,137,473 8,310,125 1,441,069 45,145,194
----------- ----------- ----------- ----------- ----------- -----------
End of year $ 1,835,042 5,293,864 11,324,949 9,065,388 1,224,407 51,072,204
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<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, 1997
<TABLE>
<CAPTION>
Plan
interest in
Company
Stock AIM LifePath LifePath LifePath LifePath
Master Constellation 2000 2010 2020 2030
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 (note 5) 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 11) (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
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
MasterWorks
LifePath Templeton S&P 500 Stable
2040 Foreign Stock Value Loan
Fund Fund 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 (note 5) -- -- -- -- -- 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 11) (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.
5
<PAGE> 8
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(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 the 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 may begin 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 income and expenses are also affected by these
estimates and assumptions. Actual results could differ from those
estimates.
(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 7.48% and 7.18% at December 31, 1998 and 1997,
respectively. At December 31, 1998, the fair value of the GICs
held by the Stable Value Fund approximates contract value.
(Continued)
6
<PAGE> 9
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
The Merrill Lynch 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.
(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 to five
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 $10.00 fee for
each participant's change of investment instructions in excess of
ten 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.
(Continued)
7
<PAGE> 10
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
The following investment funds are offered to active participants of the
Plan:
* COMPANY STOCK MASTER TRUST - Funds are invested in the common stock
of the Bay State Gas Company.
* 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 GICs and
shares of the Merrill Lynch Income Accumulation Fund. The Merrill
Lynch Income Accumulation Fund is a pooled stable value fund that
invests in a variety of fixed-income securities including: GICs,
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, 1998, each of the investment funds had the following
number of participants:
Company Stock Master Trust 410
AIM Constellation Fund 317
Templeton Foreign Fund 319
MasterWorks S&P 500 Stock Fund 398
LifePath 2000 Fund 21
LifePath 2010 Fund 62
LifePath 2020 Fund 100
LifePath 2030 Fund 85
LifePath 2040 Fund 121
Stable Value Fund 320
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, 1998 and 1997.
(Continued)
8
<PAGE> 11
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(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 Merrill Lynch. At
December 31, 1998 and 1997, the Plan's interest in the net assets of the
Master Trust was approximately 69%. 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 at December 31:
1998 1997
---- ----
Bay State Gas Company common stock $20,183,148 18,493,079
=========== ==========
Investment income for the Master Trust is as follows for the years ended
December 31:
1998 1997
---- ----
Net appreciation in fair value of
Bay State Gas Company common stock $ 1,260,903 4,470,583
Interest 10,372 6,665
Dividends 801,891 905,878
----------- ----------
$ 2,073,166 5,383,126
=========== ==========
(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
$10,000 and $9,500 per year in 1998 and 1997, respectively. In
1998, for employees whose earnings are in excess of $80,000,
contributions are limited to 10% 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.
(Continued)
9
<PAGE> 12
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(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.
(7) WITHDRAWALS, BORROWINGS AND DISTRIBUTIONS
(a) WITHDRAWALS
Participants may withdraw all or any portion of their
contributions 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 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 (1) one-half of the
amounts in all of their accounts or (2) 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.
(Continued)
10
<PAGE> 13
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(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 the life
expectancy of the participant and his or her beneficiary.
Upon the death of a Plan participant, benefits to the
participant's spouse must commence no later than the end of the
calendar year that includes the first anniversary of the
participant's death or the end of the calendar year in which the
participant would have been age 70 1/2. For any other beneficiary,
death benefits must either be completed by the end of the calendar
year containing the fifth anniversary of the participant's death
or begin by the end of the calendar year containing the first
anniversary 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, in partial payments or in installments over a period not to
exceed the life expectancy of the participant and his or her
beneficiary.
(8) INCOME TAX STATUS
The Internal Revenue Service has issued a determination letter dated
November 19, 1996 that the Plan qualified, in form, under Section 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 the 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.
(Continued)
11
<PAGE> 14
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(10) SUBSEQUENT EVENT
On May 27, 1998, the shareholders of the Bay State Gas Company approved
an Agreement and Plan of Merger whereby the Bay State Gas Company will be
merged into NiSource Inc. (formerly known as NIPSCO Industries, Inc.). On
February 12, 1999, the acquisition was completed. Currently, it is not
known how the Plan may be merged into a NiSource plan.
(11) 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 $20,742 and $12,644 for the
years ended December 31, 1998 and 1997, respectively.
12
<PAGE> 15
SCHEDULE 1
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Line 27a - Schedule of Assets Held for Investment Purposes
December 31, 1998
<TABLE>
<CAPTION>
(c)
(b) DESCRIPTION OF INVESTMENT, INCLUDING (e)
IDENTITY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST, (d) CURRENT
(a) LESSOR OR SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE COST VALUE
- --- ---------------------------- ------------------------------------------- ----------- -----------
<S> <C> <C> <C>
* Company Stock Master Trust Master trust; 775,787 units $ 9,102,066 13,902,100
* Stable Value Fund Pooled fund; 726,381 shares 9,063,634 9,063,634
AIM Constellation Fund Mutual fund; 171,759 shares 4,583,260 5,242,079
Templeton Foreign Fund Mutual fund; 630,809 shares 5,977,992 5,292,488
* MasterWorks S&P 500 Stock
Fund Mutual fund; 460,052 shares 9,221,325 11,321,869
* LifePath 2000 Fund Collective trust fund; 5,702 shares 77,208 82,901
* LifePath 2010 Fund Collective trust fund; 65,250 shares 971,234 1,128,823
* LifePath 2020 Fund Collective trust fund; 53,098 shares 832,876 1,038,598
* LifePath 2030 Fund Collective trust fund; 43,381 shares 734,954 927,918
* LifePath 2040 Fund Collective trust fund; 78,351 shares 1,475,759 1,834,207
* Loan Fund Participant loans; interest at 6.99%-10.8% 1,224,407 1,224,407
----------- ----------
Total assets held for investment purposes $43,264,715 51,059,024
=========== ==========
* Party-in-interest
</TABLE>
13
<PAGE> 16
SCHEDULE 2
BAY STATE GAS COMPANY
EMPLOYEE SAVINGS PLAN
Line 27d - Schedule of Reportable Transactions
Year ended December 31, 1998
<TABLE>
<CAPTION>
(h)
(f) CURRENT
EXPENSE VALUE (i)
(a) (b) (c) (d) (e) INCURRED (g) OF ASSET ON NET
IDENTITY OF PARTY DESCRIPTION PURCHASE SELLING LEASE WITH COST TRANSACTION GAIN OR
INVOLVED OF ASSET PRICE PRICE RENTAL TRANSACTION OF ASSET DATE (LOSS)
- ----------------------------- ----------------------- ---------- --------- ------ ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AIM Constellation Fund Mutual fund - purchase $1,332,578 -- -- -- 1,332,578 1,332,578 --
- sale -- 1,531,675 -- -- 1,458,617 1,531,675 73,058
Templeton Foreign Fund Mutual fund - purchase 1,372,558 -- -- -- 1,372,558 1,372,558 --
- sale -- 1,734,300 -- -- 1,724,585 1,734,300 9,715
* MasterWorks S&P 500 Stock Mutual fund - purchase 7,621,585 -- -- -- 7,621,585 7,621,585 --
Fund - sale -- 6,078,408 -- -- 4,743,866 6,078,408 1,334,542
* Stable Value Fund Pooled fund - purchase 7,248,569 -- -- -- 7,248,569 7,248,569 --
- sale -- 7,041,524 -- -- 7,041,524 7,041,524 --
* Company Stock Master Trust Master trust - purchase 2,951,917 -- -- -- 2,951,917 2,951,917 --
- sale -- 3,200,518 -- -- 2,103,846 3,200,518 1,096,672
* Party-in-interest
</TABLE>
14
