-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E3zDPoq2MGAEmOzMr1z6EbC4YFAJEscMtkktcExMCTfJGUDkr9rviIy7g+TW1cfz Mf/miI5O406tBv8O7YSoOw== 0000071304-99-000018.txt : 19990503 0000071304-99-000018.hdr.sgml : 19990503 ACCESSION NUMBER: 0000071304-99-000018 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMONWEALTH ENERGY SYSTEM CENTRAL INDEX KEY: 0000071304 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 041662010 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-07316 FILM NUMBER: 99606442 BUSINESS ADDRESS: STREET 1: ONE MAIN ST CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6172254000 MAIL ADDRESS: STREET 1: P O BOX 9150 CITY: CAMBRIDGE STATE: MA ZIP: 02142-9150 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND GAS & ELECTRIC ASSOCIATION DATE OF NAME CHANGE: 19810603 10-K405/A 1 COMMONWEALTH ENERGY SYSTEM 1998 FORM 10-K405A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549-1004 Form 10-K/A Amendment No. 1 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission file number 1-7316 COMMONWEALTH ENERGY SYSTEM (Exact name of registrant as specified in its Declaration of Trust) Massachusetts 04-1662010 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Main Street, Cambridge, Massachusetts 02142-9150 (Address of principal executive offices) (Zip Code) (617) 225-4000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Shares of Beneficial New York Stock Exchange, Inc. Interest $2 par value Pacific Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: Title of Class None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ x ] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES [ x ] NO [ ] Aggregate market value of the voting stock held by non-affiliates of the registrant as of March 16, 1998: $801,039,203 Common Shares outstanding at March 16, 1999: 21,540,550 shares Document Incorporated by Reference Part in Form 10-K None Not applicable COMMONWEALTH ENERGY SYSTEM The undersigned registrant hereby amends the following item of its Annual Report for 1998 on Form 10-K as set forth on page 3. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K Exhibit 99. Additional Exhibit: Pursuant to Rule 15(d)-21 of the Securities Exchange Act of 1934, report of independent accountants, financial statements, notes to financial statements and schedules required in Form 11-K with respect to: (1) Employees Savings Plan of Commonwealth Energy System and Subsidiary Companies Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. COMMONWEALTH ENERGY SYSTEM (Registrant) By JAMES D. RAPPOLI James D. Rappoli, Financial Vice President and Treasurer Date: April 30, 1999 INFORMATION REQUIRED BY FORM 11-K ANNUAL REPORT For the Fiscal Year Ended December 31, 1998 A. Full title of plan: Employees Savings Plan of Commonwealth Energy System and Subsidiary Companies (hereinafter referred to as the "Plan"). B. Name of issuer of the securities held pursuant to the Plan and the address of its principal executive office: Commonwealth Energy System One Main Street Cambridge, Massachusetts 02142-9150 Index Report of Independent Public Accountants, Financial Statements and Schedules filed herewith: Page Report of Independent Public Accountants 4 Statements of Net Assets Available for Benefits, With Fund Information, at December 31, 1998 and 1997 5 - 14 Statements of Changes in Net Assets Available for Benefits, With Fund Information, for the Years Ended December 31, 1998, 1997 and 1996 15 - 29 Notes to Financial Statements 30 - 39 Schedule I - Item 27a: Schedule of Investments at December 31, 1998 40 Schedule II - Item 27d: Schedule of Reportable Transactions for the Year Ended December 31, 1998 41 EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES Report of Independent Public Accountants To the Savings Plan Board of the Employees Savings Plan of Commonwealth Energy System and Subsidiary Companies: We have audited the accompanying statements of net assets available for benefits, with fund information, of the EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES as of December 31, 1998 and 1997, and the related statements of changes in net assets available for benefits, with fund information, for each of the three years in the period ended December 31, 1998. These financial statements and the supplemental schedules referred to below are the responsibility of the plan administrator. Our responsibility is to express an opinion on these financial statements and supplemental 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. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits, with fund information, of the Employees Savings Plan of Commonwealth Energy System and Subsidiary Companies as of December 31, 1998 and 1997, and its changes in net assets available for benefits, with fund information, for each of the three years in the 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. Supplemental Schedules I and II are presented for purposes of additional analysis and are not a required part of the basic financial statements, but are supplemental 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 Informa- tion in the statement of net assets available for benefits, with fund informa- tion, and the statement of changes in net assets available for benefits, with fund information, is presented for purposes of additional analysis rather than to present the net assets available for benefits and changes in net assets available for benefits 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 Boston, Massachusetts April 26, 1999 EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1998 (Page 1 of 5) FUND INFORMATION Commonwealth Vanguard Energy System Prime Common Share Money Market Total Fund Fund Assets Investments, at quoted market value (Schedule I): Common Shares of Commonwealth Energy System $106,740,442 $106,740,442 $ - Registered investment company shares 225,012,503 549,978 24,473,796 Total investments 331,752,945 107,290,420 24,473,796 Other assets: Loans to participants 8,390,564 - - Receivables - Contributions 136,651 32,159 11,633 Interest 3,154 3,154 - Exchanges in 53,869 53,869 - Total other assets 8,584,238 89,182 11,633 Total assets 340,337,183 107,379,602 24,485,429 Liability Accounts payable 88,204 88,204 - Net assets available for benefits $340,248,979 $107,291,398 $24,485,429 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1998 (Page 2 of 5) FUND INFORMATION Vanguard Vanguard Short-Term Vanguard Windsor II Corporate Wellington Fund Fund Fund Assets Investments, at quoted market value (Schedule I): Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 119,896,169 5,165,460 49,042,170 Total investments 119,896,169 5,165,460 49,042,170 Other assets: Loans to participants - - - Receivables - Contributions 46,237 2,471 27,015 Interest - - - Exchanges in - - - Total other assets 46,237 2,471 27,015 Total assets 119,942,406 5,167,931 49,069,185 Liability Accounts payable - - - Net assets available for benefits $119,942,406 $ 5,167,931 $49,069,185 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1998 (Page 3 of 5) FUND INFORMATION Vanguard Vanguard Extended International Market Vanguard Growth Index Explorer Fund Fund Fund Assets Investments, at quoted market value (Schedule I): Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 10,447,020 6,500,818 2,586,920 Total investments 10,447,020 6,500,818 2,586,920 Other assets: Loans to participants - - - Receivables - Contributions 6,643 4,422 2,269 Interest - - - Exchanges in - - - Total other assets 6,643 4,422 2,269 Total assets 10,453,663 6,505,240 2,589,189 Liability Accounts payable - - - Net assets available for benefits $ 10,453,663 $ 6,505,240 $ 2,589,189 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1998 (Page 4 of 5) FUND INFORMATION Vanguard LifeStrategy Funds- Conservative Moderate Income Growth Growth Fund Fund Fund Assets Investments, at quoted market value (Schedule I): Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 707,856 849,482 2,335,510 Total investments 707,856 849,482 2,335,510 Other assets: Loans to participants - - - Receivables - Contributions 278 240 1,228 Interest - - - Exchanges in - - - Total other assets 278 240 1,228 Total assets 708,134 849,722 2,336,738 Liability Accounts payable - - - Net assets available for benefits $ 708,134 $ 849,722 $ 2,336,738 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1998 (Page 5 of 5) FUND INFORMATION Vanguard LifeStrategy Funds- Growth Loan Fund Fund Assets Investments, at quoted market value (Schedule I): Common Shares of Commonwealth Energy System $ - $ - Registered investment company shares 2,457,324 - Total investments 2,457,324 - Other assets: Loans to participants - 8,390,564 Receivables - Contributions 2,056 - Interest - - Exchanges in - - Total other assets 2,056 8,390,564 Total assets 2,459,380 8,390,564 Liability Accounts payable - - Net assets available for benefits $ 2,459,380 $ 8,390,564 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1997 (Page 1 of 5) FUND INFORMATION Commonwealth Vanguard Energy System Prime Common Share Money Market Total Fund Fund Assets Investments, at quoted market value: Common Shares of Commonwealth Energy System $ 88,626,418 $88,626,418 $ - Registered investment company shares 210,721,055 - 25,809,453 Total investments 299,347,473 88,626,418 25,809,453 Other assets: Loans to participants 8,939,289 - - Receivables - Contributions 128,326 29,668 12,629 Loan repayments 99,893 12,701 6,259 Interest 2,064 2,064 - Exchanges in 3,037 3,037 - Total other assets 9,172,609 47,470 18,888 Total assets 308,520,082 88,673,888 25,828,341 Liability Accounts payable 303,986 303,986 - Net assets available for benefits $308,216,096 $88,369,902 $25,828,341 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1997 (Page 2 of 5) FUND INFORMATION Vanguard Vanguard Short-Term Vanguard Windsor II Corporate Wellington Fund Fund Fund Assets Investments, at quoted market value: Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 110,334,177 5,367,919 45,097,834 Total investments 110,334,177 5,367,919 45,097,834 Other assets: Loans to participants - - - Receivables - Contributions 43,755 2,384 25,318 Loan repayments 41,578 788 34,598 Interest - - - Exchanges in - - - Total other assets 85,333 3,172 59,916 Total assets 110,419,510 5,371,091 45,157,750 Liability Accounts payable - - - Net assets available for benefits $110,419,510 $ 5,371,091 $45,157,750 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1997 (Page 3 of 5) FUND INFORMATION Vanguard Vanguard Extended International Market Vanguard Growth Index Explorer Fund Fund Fund Assets Investments, at quoted market value: Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 9,471,899 6,914,193 2,940,817 Total investments 9,471,899 6,914,193 2,940,817 Other assets: Loans to participants - - - Receivables - Contributions 6,669 3,593 1,927 Loan repayments 2,294 841 427 Interest - - - Exchanges in - - - Total other assets 8,963 4,434 2,354 Total assets 9,480,862 6,918,627 2,943,171 Liability Accounts payable - - - Net assets available for benefits $ 9,480,862 $ 6,918,627 $ 2,943,171 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1997 (Page 4 of 5) FUND INFORMATION Vanguard LifeStrategy Funds- Conservative Moderate Income Growth Growth Fund Fund Fund Assets Investments, at quoted market value: Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 455,415 841,499 1,836,746 Total investments 455,415 841,499 1,836,746 Other assets: Loans to participants - - - Receivables - Contributions 5 91 897 Loan repayments 5 4 125 Interest - - - Exchanges in - - - Total other assets 10 95 1,022 Total assets 455,425 841,594 1,837,768 Liability Accounts payable - - - Net assets available for benefits $ 455,425 $ 841,594 $ 1,837,768 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1997 (Page 5 of 5) FUND INFORMATION Vanguard LifeStrategy Funds- Growth Loan Fund Fund Assets Investments, at quoted market value: Common Shares of Commonwealth Energy System $ - $ - Registered investment company shares 1,651,103 - Total investments 1,651,103 - Other assets: Loans to participants - 8,939,289 Receivables - Contributions 1,390 - Loan repayments 273 - Interest - - Exchanges in - - Total other assets 1,663 8,939,289 Total assets 1,652,766 8,939,289 Liability Accounts payable - - Net assets available for benefits $ 1,652,766 $ 8,939,289 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1998 (Page 1 of 5) FUND INFORMATION Commonwealth Vanguard Energy System Prime Common Share Money Market Total Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ 4,189,776 $ 4,189,776 $ - Registered investment company shares 20,241,324 - 1,367,123 Interest on participant loans 732,423 - - 25,163,523 4,189,776 1,367,123 Net appreciation (depreciation) in fair value of investments 26,682,017 19,225,920 - Contributions: Employees 8,326,452 1,669,244 583,058 Employers 3,687,825 813,575 315,139 12,014,277 2,482,819 898,197 Total additions, net 63,859,817 25,898,515 2,265,320 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 29,715,068 5,717,564 5,162,153 Asset transfers out to other benefit providers 2,108,545 364,173 242,754 Purchase fees 3,321 - - Total deductions 31,826,934 6,081,737 5,404,907 Net increase (decrease) prior to interfund transfers 32,032,883 19,816,778 (3,139,587) Interfund transfers - (895,282) 1,796,675 Net increase (decrease) 32,032,883 18,921,496 (1,342,912) Net assets available for benefits: Beginning of year 308,216,096 88,369,902 25,828,341 End of year $340,248,979 $107,291,398 $24,485,429 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1998 (Page 2 of 5) FUND INFORMATION Vanguard Vanguard Short-Term Vanguard Windsor II Corporate Wellington Fund Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 12,067,238 328,114 5,435,922 Interest on participant loans - - - 12,067,328 328,114 5,435,922 Net appreciation (depreciation) in fair value of investments 5,447,187 15,129 (66,156) Contributions: Employees 2,943,261 152,303 1,734,284 Employers 1,257,753 76,092 742,099 4,201,014 228,395 2,476,383 Total additions, net 21,715,439 571,638 7,846,149 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 9,837,779 1,242,491 4,136,722 Asset transfers out to other benefit providers 1,050,152 39,336 309,495 Purchase fees - - - Total deductions 10,887,931 1,281,827 4,446,217 Net increase (decrease) prior to interfund transfers 10,827,508 (710,189) 3,399,932 Interfund transfers (1,304,612 507,029 511,503 Net increase (decrease) 9,522,896 (203,160) 3,911,435 Net assets available for benefits: Beginning of year 110,419,510 5,371,091 45,157,750 End of year $119,942,406 $ 5,167,931 $49,069,185 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1998 (Page 3 of 5) FUND INFORMATION Vanguard Extended International Market Vanguard Growth Index Explorer Fund Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 208,699 525,149 24,346 Interest on participant loans - - - 208,699 525,149 24,346 Net appreciation (depreciation) in fair value of investments 1,366,607 (71,726) 106,283 Contributions: Employees 485,436 350,392 170,702 Employers 201,695 133,449 62,376 687,131 483,841 233,078 Total additions, net 2,262,437 937,264 363,707 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 608,342 664,830 350,589 Asset transfers out to other benefit providers 56,825 13,882 - Purchase fees - 3,321 - Total deductions 665,167 682,033 350,589 Net increase (decrease) prior to interfund transfers 1,597,270 255,231 13,118 Interfund transfers (624,469) (668,618) (367,100) Net increase (decrease) 972,801 (413,387) (353,982) Net assets available for benefits: Beginning of year 9,480,862 6,918,627 2,943,171 End of year $ 10,453,663 $ 6,505,240 $ 2,589,189 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1998 (Page 4 of 5) FUND INFORMATION Vanguard LifeStrategy Funds- Conservative Moderate Income Growth Growth Fund Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 48,584 45,581 103,771 Interest on participant loans - - - 48,584 45,581 103,771 Net appreciation (depreciation) in fair value of investments 24,478 69,480 249,320 Contributions: Employees 17,073 16,404 71,899 Employers 3,768 3,076 28,189 20,841 19,480 100,088 Total additions, net 93,903 134,541 453,179 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 618,050 91,963 589,563 Asset transfers out to other benefit providers - - 329 Purchase fees - - - Total deductions 618,050 91,963 589,892 Net increase (decrease) prior to interfund transfers (524,147) 42,578 (136,713) Interfund transfers 776,856 (34,450) 635,683 Net increase (decrease) 252,709 8,128 498,970 Net assets available for benefits: Beginning of year 455,425 841,594 1,837,768 End of year $ 708,134 $ 849,722 $ 2,336,738 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1998 (Page 5 of 5) FUND INFORMATION Vanguard LifeStrategy Funds- Growth Loan Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ - $ - Registered investment company shares 86,797 - Interest on participant loans - 732,423 86,797 732,423 Net appreciation (depreciation) in fair value of investments 315,495 - Contributions: Employees 132,396 - Employers 50,614 - 183,010 - Total additions, net 585,302 732,423 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 418,481 276,541 Asset transfers out to other benefit providers 31,599 - Purchase fees - - Total deductions 450,080 276,541 Net increase (decrease) prior to interfund transfers 135,222 455,882 Interfund transfers 671,392 (1,004,607) Net increase (decrease) 806,614 (548,725) Net assets available for benefits: Beginning of year 1,652,766 8,939,289 End of year $ 2,459,380 $ 8,390,564 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1997 (Page 1 of 5) FUND INFORMATION Commonwealth Vanguard Energy System Prime Common Share Money Market Total Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ 4,791,915 $ 4,791,915 $ - Registered investment company shares 17,162,911 - 1,518,535 Interest on participant loans 820,039 - - 22,774,865 4,791,915 1,518,535 Net appreciation (depreciation) in fair value of investments 50,188,782 26,962,004 - Contributions: Employees 8,727,513 1,844,576 793,610 Employers 4,172,439 963,411 429,025 12,899,952 2,807,987 1,222,635 Total additions, net 85,863,599 34,561,906 2,741,170 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 38,166,213 6,463,039 11,399,265 Purchase fees 11,503 - - Total deductions 38,177,716 6,463,039 11,399,265 Net increase (decrease) prior to interfund transfers 47,685,883 28,098,867 (8,658,095) Interfund transfers - (14,815,594) 5,914,612 Net increase (decrease) 47,685,883 13,283,273 (2,743,483) Net assets available for benefits: Beginning of year 260,530,213 75,086,629 28,571,824 End of year $308,216,096 $ 88,369,902 $25,828,341 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1997 (Page 2 of 5) FUND INFORMATION Vanguard Vanguard Short-Term Vanguard Windsor II Corporate Wellington Fund Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 10,063,826 345,842 3,866,494 Interest on participant loans - - - 10,063,826 345,842 3,866,494 Net appreciation (depreciation) in fair value of investments 17,438,941 30,754 4,616,872 Contributions: Employees 2,951,932 186,801 1,793,160 Employers 1,350,142 96,666 818,282 4,302,074 283,467 2,611,442 Total additions, net 31,804,841 660,063 11,094,808 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 11,275,388 1,134,527 5,474,381 Purchase fees - - - Total deductions 11,275,388 1,134,527 5,474,381 Net increase (decrease) prior to interfund transfers 20,529,453 (474,464) 5,620,427 Interfund transfers 3,723,709 114,613 2,438,346 Net increase (decrease) 24,253,162 (359,851) 8,058,773 Net assets available for benefits: Beginning of year 86,166,348 5,730,942 37,098,977 End of year $110,419,510 $ 5,371,091 $45,157,750 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1997 (Page 3 of 5) FUND INFORMATION Vanguard Vanguard Extended International Market Vanguard Growth Index Explorer Fund Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 410,854 467,053 283,422 Interest on participant loans - - - 410,854 467,053 283,422 Net appreciation (depreciation) in fair value of investments (96,346) 839,872 40,357 Contributions: Employees 588,069 289,009 156,631 Employers 264,637 129,120 65,369 852,706 418,129 222,000 Total additions, net 1,167,214 1,725,054 545,779 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 1,142,796 507,308 198,883 Purchase fees - 11,503 - Total deductions 1,142,796 518,811 198,883 Net increase (decrease) prior to interfund transfers 24,418 1,206,243 346,896 Interfund transfers 201,916 678,067 281,489 Net increase (decrease) 226,334 1,884,310 628,385 Net assets available for benefits: Beginning of year 9,254,528 5,034,317 2,314,786 End of year $ 9,480,862 $ 6,918,627 $ 2,943,171 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1997 (Page 4 of 5) FUND INFORMATION Vanguard LifeStrategy Funds- Conservative Moderate Income Growth Growth Fund Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 21,161 41,796 81,732 Interest on participant loans - - - 21,161 41,796 81,732 Net appreciation (depreciation) in fair value of investments 25,332 47,936 151,357 Contributions: Employees 4,166 7,215 36,734 Employers 1,921 2,716 18,573 6,087 9,931 55,307 Total additions, net 52,580 99,663 288,396 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 13,499 18,190 87,658 Purchase fees - - - Total deductions 13,499 18,190 87,658 Net increase (decrease) prior to interfund transfers 39,081 81,473 200,738 Interfund transfers 151,490 580,394 947,883 Net increase (decrease) 190,571 661,867 1,148,621 Net assets available for benefits: Beginning of year 264,854 179,727 689,147 End of year $ 455,425 $ 841,594 $ 1,837,768 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1997 (Page 5 of 5) FUND INFORMATION Vanguard LifeStrategy Funds- Growth Loan Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ - $ - Registered investment company shares 62,196 - Interest on participant loans - 820,039 62,196 820,039 Net appreciation (depreciation) in fair value of investments 131,703 - Contributions: Employees 75,610 - Employers 32,577 - 108,187 - Total additions, net 302,086 820,039 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 52,688 398,591 Purchase fees - - Total deductions 52,688 398,591 Net increase (decrease) prior to interfund transfers 249,398 421,448 Interfund transfers 814,035 (1,030,960) Net increase (decrease) 1,063,433 (609,512) Net assets available for benefits: Beginning of year 589,333 9,548,801 End of year $ 1,652,766 $ 8,939,289 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1996 (Page 1 of 5) FUND INFORMATION Commonwealth Vanguard Energy System Prime Common Share Money Market Total Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ 5,113,157 $ 5,113,157 $ - Registered investment company shares 11,654,177 - 1,408,836 Interest on participant loans 675,349 - - 17,442,683 5,113,157 1,408,836 Net appreciation (depreciation) in fair value of investments 17,828,551 3,951,273 - Contributions: Employees 8,294,889 1,975,041 761,184 Employers 4,053,049 1,039,431 442,636 12,347,938 3,014,472 1,203,820 Total additions, net 47,619,172 12,078,902 2,612,656 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 15,766,572 3,979,714 4,672,998 Purchase fees 9,498 - - Total deductions 15,776,070 3,979,714 4,672,998 Net increase (decrease) prior to interfund transfers 31,843,102 8,099,188 (2,060,342) Interfund transfers - (8,751,780) 3,267,792 Net increase (decrease) 31,843,102 (652,592) 1,207,450 Net assets available for benefits: Beginning of year 228,687,111 75,739,221 27,364,374 End of year $260,530,213 $ 75,086,629 $28,571,824 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1996 (Page 2 of 5) FUND INFORMATION Vanguard Vanguard Short-Term Vanguard Windsor II Corporate Wellington Fund Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 6,056,337 346,159 2,893,328 Interest on participant loans - - - 6,056,337 346,159 2,893,328 Net appreciation (depreciation) in fair value of investments 10,665,917 (92,444) 2,215,457 Contributions: Employees 2,678,605 228,352 1,688,196 Employers 1,247,197 116,897 783,045 3,925,802 345,249 2,471,241 Total additions, net 20,648,056 598,964 7,580,026 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 3,941,035 277,681 1,872,076 Purchase fees - - - Total deductions 3,941,035 277,681 1,872,076 Net increase (decrease) prior to interfund transfers 16,707,021 321,283 5,707,950 Interfund transfers 701,540 (469,744) 172,531 Net increase (decrease) 17,408,561 (148,461) 5,880,481 Net assets available for benefits: Beginning of year 68,757,787 5,879,403 31,218,496 End of year $ 86,166,348 $ 5,730,942 $37,098,977 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1996 (Page 3 of 5) FUND INFORMATION Vanguard Vanguard Extended International Market Vanguard Growth Index Explorer Fund Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 396,605 369,401 116,347 Interest on participant loans - - - 396,605 369,401 116,347 Net appreciation (depreciation) in fair value of investments 787,700 345,278 (57,811) Contributions: Employees 569,446 277,279 85,954 Employers 255,699 119,339 36,125 825,145 396,618 122,079 Total additions, net 2,009,450 1,111,297 180,615 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 289,952 363,550 77,579 Purchase fees - 9,498 - Total deductions 289,952 373,048 77,579 Net increase (decrease) prior to interfund transfers 1,719,498 738,249 103,036 Interfund transfers 225,557 435,349 2,211,750 Net increase (decrease) 1,945,055 1,173,598 2,314,786 Net assets available for benefits: Beginning of year 7,309,473 3,860,719 - End of year $ 9,254,528 $ 5,034,317 $ 2,314,786 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1996 (Page 4 of 5) FUND INFORMATION Vanguard LifeStrategy Funds- Conservative Moderate Income Growth Growth Fund Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ - $ - $ - Registered investment company shares 10,885 8,159 26,245 Interest on participant loans - - - 10,885 8,159 26,245 Net appreciation (depreciation) in fair value of investments (3,056) 767 (3,545) Contributions: Employees 800 1,867 7,950 Employers 333 645 3,681 1,133 2,512 11,631 Total additions, net 8,962 11,438 34,331 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries - - - Purchase fees - - - Total deductions - - - Net increase (decrease) prior to interfund transfers 8,962 11,438 34,331 Interfund transfers 255,892 168,289 654,816 Net increase (decrease) 264,854 179,727 689,147 Net assets available for benefits: Beginning of year - - - End of year $ 264,854 $ 179,727 $ 689,147 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1996 (Page 5 of 5) FUND INFORMATION Vanguard LifeStrategy Funds- Growth Loan Fund Fund Assets Additions to net assets attributed to: Investment income Dividends - Common Shares of Commonwealth Energy System $ - $ - Registered investment company shares 21,875 - Interest on participant loans - 675,349 21,875 675,349 Net appreciation (depreciation) in fair value of investments 19,015 - Contributions: Employees 20,215 - Employers 8,021 - 28,236 - Total additions, net 69,126 675,349 Deductions from net assets attributed to: Benefits paid to participants or beneficiaries 79 291,908 Purchase fees - - Total deductions 79 291,908 Net increase (decrease) prior to interfund transfers 69,047 383,441 Interfund transfers 520,286 607,722 Net increase (decrease) 589,333 991,163 Net assets available for benefits: Beginning of year - 8,557,638 End of year $ 589,333 $ 9,548,801 The accompanying notes are an integral part of these financial statements. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS (1) General Information The Employees Savings Plan of Commonwealth Energy System and Subsidiary Companies (the Plan) was originally created in 1962 by Commonwealth Energy System (COM/Energy) and its subsidiary companies to assist employees in adopting a regular savings program and to help employees by providing addi- tional security for their retirement. The Plan has been amended or restated from time to time thereafter. The latest Plan amendments became effective January 1, 1998 and relate to changes in eligibility requirements and allow- ance of rollovers from other qualified plans or Individual Retirement Accounts to the Plan. Vanguard Fiduciary Trust Company of Valley Forge, Pennsylvania, has acted as Trustee for the Plan (Plan Trustee) since January 1, 1989. The Trustee retains the Plan assets and provides records of Plan activity to a Plan Agent designated by a three-member Savings Plan Board (the Board) that is appointed by the Trustees of COM/Energy and by the directors of its subsidiary compa- nies. The Board is responsible (except for the duties specifically vested in the Plan Trustee) for the administration of the Plan. The term "Participant" as used in this report shall be deemed to include Members, Inactive Members or Former Members, all as defined in the Plan. The Employers participating in the Plan consist of certain, wholly-owned subsidiary companies of COM/Energy, as follows: Cambridge Electric Light Company, Canal Electric Company, Commonwealth Gas Company, COM/Energy Services Company, Commonwealth Electric Company, Advanced Energy Systems, Inc. (effec- tive December 1996), COM/Energy Marketing, Inc. (effective May 1997) and COM/Energy Technologies, Inc. (effective September 1997) (Employers). The electric utility industry has continued to change in response to legislative and regulatory mandates that are aimed at lowering prices for energy by creating a more competitive marketplace. These pressures have resulted in an increasing trend in the electric industry to seek competitive advantages and other benefits through business combinations. On December 5, 1998, COM/Energy and BEC Energy (BEC), headquartered in Boston, Massachusetts, entered into an Agreement and Plan of Merger (the Merger Agreement). Pursuant to the Merger Agreement, COM/Energy and BEC will be merged into a new holding company to be known as NSTAR. The regulatory approval process is expected to be completed during the second half of 1999. Upon completion of the merger, each Common Share of COM/Energy held by the Plan in the Commonwealth Energy System Common Share Fund will be converted into 1.05 shares of NSTAR or $44.10 in cash (subject to certain restrictions) based on elections to be made by Participants. On December 30, 1998, COM/Energy sold substantially all of its electric generating facilities to affiliates of Southern Energy New England, L.L.C., an affiliate of The Southern Company of Atlanta, Georgia (Buyer). As a result of this sale, approximately 150 Plan Participants transferred employment to the Buyer. The Buyer has advised the Board that it will not accept a trustee-to- trustee transfer (within the meaning of Section 414(1) of the Internal Revenue Code (IRC)) of all assets from the Plan attributable to these Participants, EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS and thus, COM/Energy continues to maintain the accounts of these Participants. The Plan intends to file with the Internal Revenue Service (IRS) in 1999 for a private letter ruling on whether the Plan may distribute to these Participants amounts attributable to their elective contributions as a result of the sale without adversely affecting the qualified status of the Plan's cash or deferred arrangement under Section 401(k) of the IRC and of the Plan under section 401(a) of the IRC. Each eligible employee, upon joining the Plan, shall specify in one percent (1%) increments his or her contributions and the applicable Employer contributions to be invested in each of twelve separate Investment Funds (Fund(s)) that are collectively referred to as the Trust Fund (Trust Fund). The Trust Fund is described in Note 4. Participants may change their Fund allocation contribution daily by contacting Vanguard Participant Services. However, not more than fifty percent (50%) of a Participant's contributions and the applicable Employer contributions may be allocated to the Commonwealth Energy System Common Share Fund. The Plan is subject to provisions of the Employee Retirement Income Security Act of 1974 (ERISA), the Retirement Equity Act of 1984, the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1993, and the Taxpayer Relief Act of 1997 relating to plans of this type. (2) Significant Accounting Policies (a) Principles of Accounting The financial statements of the Plan are prepared under the accrual method of accounting. Shares in Funds of the Plan Trustee are valued at quoted market prices that represent the net asset value of shares held by the Plan at year-end. The Commonwealth Energy System Common Share Fund is valued at its year-end closing market price and may include uninvested cash. Participant loans are valued at cost which approximates fair value. In addition, certain prior period amounts are reclassified from time to time to conform with the presentation used in the current year's financial statements. (b) Federal Income Taxes The Plan is subject to certain provisions of the IRC and qualifies under Section 401(a) and 401(k) of the IRC. The IRS has issued a favorable determi- nation letter, applicable to Plan years beginning after January 1, 1993 and for amendments adopted on January 15, 1993, which indicates that the Plan was designed in accordance with applicable IRC requirements. The Board believes that the Plan, as amended, is currently designed and operated in accordance with applicable IRC requirements. As a result, the Plan has not provided for Federal income taxes. Generally, Participants are not subject to taxes on contributions or the earned income until such time as distributions are made. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS (c) Expenses Brokerage fees, commissions, stock transfer taxes and other expenses in connection with the purchase, sale or distribution of securities for each Fund may be charged to such Fund. Any expense of litigation may be paid by the Plan Trustee and charged to the Trust Fund or to the Fund or Funds to which the litigation relates. Expenses and charges incurred in the administration of the Plan are generally paid by the Employers. An administrative fee relating to the issuance of Plan loans under the Loan Fund is paid by Plan Participants. (d) Net Appreciation (Depreciation) in Fair Value of Investments The net appreciation (depreciation) in fair value of investments as provided for in the accompanying Statements of Changes in Net Assets Available For Benefits, With Fund Information consists of the following: Realized Gain (Loss) on Investments Sold or Distributed Realized gain (loss) is the difference between the selling price of a Fund investment and the average cost of that Fund investment. The average is based on revalued and not historical cost. Under this method, the cost of a security is equal to its market value at the beginning of the Plan year or its acquisition cost if acquired during the Plan year. Unrealized Appreciation (Depreciation) of Investments The Plan provides that the market value of each Fund shall be determined by the Plan Trustee on the last day of each month. Unrealized appreciation (depreciation) is the difference between the market value of a Fund investment at the beginning of the Plan year or its acquisition cost if acquired during the Plan year. A summary of realized gains (losses) on investments sold or distributed and the change in unrealized appreciation (depreciation) for the years ended December 31, 1998, 1997 and 1996 is set forth below: Unrealized Realized Appreciation Investment Funds Gain (Loss) (Depreciation) Total 1998 Commonwealth Energy System Common Share Fund $ 670,595 $18,555,325 $19,225,920 Vanguard Windsor II Fund 1,314,973 4,132,214 5,447,187 Vanguard Short-Term Corporate Fund 4,523 10,606 15,129 Vanguard Wellington Fund 343,349 (409,505) (66,156) Vanguard International Growth Fund 207,044 1,159,563 1,366,607 Vanguard Extended Market Index Fund (58,103) (13,623) (71,726) Vanguard Explorer Fund 24,239 82,044 106,283 Vanguard LifeStrategy Income Fund (8,099) 32,577 24,478 Vanguard LifeStrategy Conservative Growth Fund 4,695 64,785 69,480 Vanguard LifeStrategy Moderate Growth Fund 29,409 219,911 249,320 Vanguard LifeStrategy Growth Fund 33,283 282,212 315,495 $2,565,908 $24,116,109 $26,682,017 EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS Unrealized Realized Appreciation Investment Funds Gain (Loss) (Depreciation) Total 1997 Commonwealth Energy System Common Share Fund $1,021,874 $25,940,130 $26,962,004 Vanguard Windsor II Fund 2,555,813 14,883,128 17,438,941 Vanguard Short-Term Corporate Fund 182 30,572 30,754 Vanguard Wellington Fund 796,997 3,819,875 4,616,872 Vanguard International Growth Fund 148,803 (245,149) (96,346) Vanguard Extended Market Index Fund 103,366 736,506 839,872 Vanguard Explorer Fund 62,805 (22,448) 40,357 Vanguard LifeStrategy Income Fund 4,249 21,083 25,332 Vanguard LifeStrategy Conservative Growth Fund 5,349 42,587 47,936 Vanguard LifeStrategy Moderate Growth Fund 25,112 126,245 151,357 Vanguard LifeStrategy Growth Fund 15,555 116,148 131,703 $4,740,105 $45,448,677 $50,188,782 1996 Commonwealth Energy System Common Share Fund $ 675,475 $ 3,275,798 $ 3,951,273 Vanguard Windsor II Fund 892,747 9,773,170 10,665,917 Vanguard Short-Term Corporate Fund (26,387) (66,057) (92,444) Vanguard Wellington Fund 212,439 2,003,018 2,215,457 Vanguard International Growth Fund 158,799 628,901 787,700 Vanguard Extended Market Index Fund 61,829 283,449 345,278 Vanguard Explorer Fund (10,001) (47,810) (57,811) Vanguard LifeStrategy Income Fund (396) (2,660) (3,056) Vanguard LifeStrategy Conservative Growth Fund 594 173 767 Vanguard LifeStrategy Moderate Growth Fund - (3,545) (3,545) Vanguard LifeStrategy Growth Fund 1,605 17,410 19,015 $1,966,704 $15,861,847 $17,828,551 (e) Income Recognition Income of the Commonwealth Energy System Common Share Fund consists primarily of dividends on its Common Shares. The allocation of each Fund's earnings to a Participant's account is based on the percentage of the Partici- pant's units in the Funds and is allocated daily. Purchases and sales of investments are recorded on a trade-date basis. Interest income is accrued when earned. Dividend income is recorded on the ex-dividend date. Capital gain distributions are included in dividend income. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS (3) Participating Companies and Contributions Generally, the Plan permits Participants to make contributions of at least one percent (1%) but not more than sixteen (16%) of their compensation as defined in the Plan. Effective January 1, 1998, the maximum amount a Partici- pant may defer annually was increased to $10,000 from $9,500 previously. This amount is increased from time to time by the Secretary of the Treasury in accordance with the cost of living adjustment factor prescribed in Section 402(g)(1) of the IRC. Compensation is defined to be an employee's authorized basic salary (including any "lump sum payment" under the authorized basic compensation pay program), except that in the case of sales personnel compen- sated in whole or in part by commissions, compensation shall be considered to equal ninety percent (90%) of the average compensation earned by such employee in the preceding four calendar quarters but not less than each employee's authorized basic compensation. Salary deferral contributions by employees are made to the Plan by payroll deduction. The Employer contributes an additional amount equal to each employee's contribution, up to a maximum of four percent (4%) of each employee's basic compensation rate, as previously defined, and up to five percent (5%) for those employees no longer eligible for postretirement health benefits. Effective January 1, 1998, any employee, except an employee who is classified as a "temporary employee," who was not a Member of the Plan as of December 31, 1997, is eligible to participate in the Plan on January 1, 1998. A regular employee who is hired after December 31, 1997 will become eligible to participate in the Plan on the first day of the second month following his or her initial date of employment. The employer matching contribution will not begin until the first day of the month that follows the employee's completion of one full year of eligibility service (completion of one-thousand (1,000) hours of service in a twelve-month period). Previously, employees were eligible to join the Plan upon completion of their eligibility service. A Participant is fully vested in and has a nonforfeitable right to the value of his or her Member, Pay Deferral and Company Accounts at all times. Any eligible employee may change his or her contribution percentage as of the first day of any month by contacting Vanguard Participant Services by the fifteenth day of the preceding month. Effective January 1, 1998, an employee may file a written request with the Board for approval of a rollover cash contribution from another qualified plan or Individual Retirement Account to the Plan, as further discussed in "Invest- ment Funds Accounts" below. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS The participating COM/Energy companies' Employer and Employee contribu- tions (including $186,695 of employee-related rollovers in 1998 from other qualified plans or distributions from conduit Individual Retirement Accounts) for the years ended December 31, 1998, 1997 and 1996 are summarized below: Employee Contributions 1998 1997 1996 Cambridge Electric Light Company $ 721,894 $ 654,877 $ 658,553 Canal Electric Company 661,110 661,950 684,476 Commonwealth Electric Company 3,357,604 3,693,090 3,814,155 Commonwealth Gas Company 2,709,731 2,682,350 2,134,806 COM/Energy Services Company 681,707 998,047 1,002,899 Advanced Energy Systems, Inc. 28,797 19,209 - COM/Energy Technologies, Inc. 79,717 - - COM/Energy Marketing, Inc. 85,892 17,990 - $8,326,452 $8,727,513 $8,294,889 Employer Contributions 1998 1997 1996 Cambridge Electric Light Company $ 293,779 $ 302,097 $ 310,388 Canal Electric Company 243,993 256,419 260,990 Commonwealth Electric Company 1,435,294 1,672,192 1,788,366 Commonwealth Gas Company 1,312,318 1,366,255 1,108,006 COM/Energy Services Company 334,396 558,343 585,299 Advanced Energy Systems, Inc. 11,009 6,784 - COM/Energy Technologies, Inc. 19,958 - - COM/Energy Marketing, Inc. 37,078 10,349 - $3,687,825 $4,172,439 $4,053,049 Participation by employees is voluntary and may begin as of the first day of any month by notifying the respective employer in writing on or before the fifteenth day of the preceding month coincident with or next following eligibility. Of the 1,694 individuals eligible to participate at December 31, 1998, 1,634 (96.5%) Participants were active and fully vested in the Plan. (4) Investments (a) Description of Investment Funds Effective October 27, 1998, several Vanguard fund names were simplified or clarified and were not the result of changes in fund management, in fund policies or objectives, in the Plan, or in the investment options under the Plan. The following is a description of the twelve Investment Funds in which a Participant may allocate his or her contributions and matching Employer contributions: Commonwealth Energy System Common Share Fund - Consists of Common Shares of Beneficial Interest of Commonwealth Energy System purchased on the open market with employee and Employer contributions, dividends and interest EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS income. The Trustee, at its discretion, will determine the manner in which such shares may be acquired. The Fund provides the possibility of long-term growth through increases in the market value of the Common Shares and the reinvestment of dividends and interest. Participants may not allocate more than fifty percent (50%) of their contributions to this Fund. Vanguard Prime Money Market Fund - (formerly, "Vanguard Money Market Reserves-Prime Portfolio") A mutual fund that seeks the highest level of income consistent with maintaining a stable share price of $1. Value is added primarily by emphasizing specific issues and sectors of the money market that appear to be attractively priced based upon historical yield spread relation- ships. The fund invests in short-term, high-quality money market instruments issued by financial institutions, nonfinancial corporations, the U.S. govern- ment and federal agencies. Its holdings may include certificates of deposit, bank-guaranteed securities, corporate notes, other money market instruments, U.S. Treasury and government agency securities and repurchase agreements on such securities. The average maturity of the fund's holdings will be 90 days or less. Vanguard Windsor II Fund - A mutual fund that seeks long-term growth of capital and income from dividends. As a secondary objective, the fund seeks a reasonable level of current income. The fund invests in a diversified group of out-of-favor stocks of large capitalization companies. The stocks that comprise the fund sell at prices below the overall market average compared to their dividend income and future return potential. Vanguard Short-Term Corporate Fund - (formerly, "Vanguard Fixed Income Securities Fund-Short-Term Corporate Portfolio") A mutual fund that seeks income while maintaining a high degree of stability of principal. The fund invests in short-term bonds, including investment-grade corporate and U.S. Treasury securities. It maintains an average maturity of two to three years to reduce the risk of share-price fluctuations in response to changing interest rates. Vanguard Wellington Fund - A mutual fund that seeks income and long-term growth of capital without undue risk to capital. The fund's assets are divided between common stocks and bonds, with an average of 65% of assets in stocks and 35% in bonds. The fund invests in dividend-paying large- and mid- capitalization stocks of well-established companies whose prospects are improving, but whose values have yet to be recognized in the marketplace. The objective is to identify these companies before their values are recognized in the marketplace. Vanguard International Growth Fund - (formerly, "Vanguard Internation- al Growth Portfolio") A mutual fund that seeks long-term growth of capital by investing in stocks of high-quality companies based outside the United States. The fund invests 60% to 70% of its assets in companies with sustainable competitive advantages and strong prospects for long-term growth. To supple- ment these core holdings and boost its allocations to particularly attractive markets, the fund also invests in large stocks in those markets that are expected to have particularly strong near-term returns. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS Vanguard Extended Market Index Fund - (formerly, "Vanguard Index Trust - Extended Market Portfolio") A mutual fund that seeks long-term growth of capital that attempts to match the performance of the Wilshire 4500 Equity Index, an unmanaged index consisting primarily of mid- and small-capitaliza- tion companies. The fund invests in a large sample of stocks that matches certain characteristics of the index such as industry weightings, market capitalization and dividend yield. Fund transaction costs, consisting of bid/ask spreads, commissions and market impact, are not reflected in the performance of market indexes. To minimize tracking errors and to allocate these costs equitably, the fund assesses a 0.25% transaction fee on shares purchased. Vanguard Explorer Fund - A mutual fund that seeks long-term growth of capital by investing in a diversified group of small-company stocks with prospects for above-average growth. Vanguard LifeStrategy Funds - Consists of four funds that attempt to maximize total investment return (i.e. capital growth and income), subject to different investment guidelines and asset allocation policies. These Funds invest in other Vanguard mutual funds, representing different combinations of stocks, bonds and cash reserves, and reflecting varying degrees of investment risk and reward. The four funds are: The Income Fund seeks a high level of income. The Conservative Growth Fund seeks a high level of income and moderate long-term growth of capital and income. The Moderate Growth Fund seeks to provide a reasonable level of income and long-term growth of capital and income. The Growth Fund seeks to provide long-term growth of capital and income. (b) Investment Funds Accounts The Board maintains for each Participant in the Plan, under each Fund in which all or part of his or her contributions and the applicable Employer contributions are invested, a separate Member Account that includes a Pay Deferral Account for current pre-tax contributions. In addition, the Member Account may include previous after-tax contributions. The Board also main- tains a separate Company Account (for each Participant) that includes Employer contributions made on behalf of Participants. These Accounts reflect the portion of each Participant's interest in the Fund that is attributable to the contributions to such Accounts. The Plan permits Participants to transfer amounts between Funds on a daily basis, subject to certain limitations. Effective January 1, 1998, a Participant may request to rollover an "eligible rollover distribution" as defined in Section 402(c)(4) of the IRC from a qualified plan or a distribution from a conduit Individual Retirement Account to the Plan. The Board will maintain a separate Rollover Account for each Participant and all Participants are fully vested in their Rollover Account at all times. EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS The Plan Trustee may, at its discretion, temporarily invest funds desig- nated for a particular Fund in short-term interest-bearing securities or may retain certain amounts of cash in each Fund without interest being credited thereon, for the purpose of more effectively timing the purchase of invest- ments or liquidity needs for the several Funds. All contributions are transmitted weekly to the Plan Trustee. A Participant's choice of contribution allocation to eligible Funds will continue until changed by such Participant. Investment designations may be changed daily by contacting a Vanguard Participant Services representative. All interest, dividends, and other income, as well as any cash from the sale or exchange of securities or other property produced by each of the Funds will be reinvested in the same Fund that produced such interest, dividends and other income. (5) Party in Interest COM/Energy is a "party in interest" as that term is defined in Section 3.14 of ERISA. Certain transactions involving the acquisition and distribution of securities are made at the direction of Participants in the Plan who elect to participate in the Commonwealth Energy System Common Share Fund as one of their investment options. These transactions are reflected in the accompany- ing financial statements at market value and are net of brokerage commissions relating to the acquisition of these securities. During the years ended December 31, 1998, 1997 and 1996, the Plan Trustee purchased Common Shares of Commonwealth Energy System, made distributions of Common Shares to Participants and sold Common Shares to accommodate cash distributions as follows: Commonwealth Energy System Common Share Fund Shares Shares Sold / Distributed Purchased Cost Shares Aggregate Value 1998 179,601 $6,570,462 209,450 $3,187,551 1997 198,067 4,667,158 721,145 10,862,830 1996 258,747 9,134,782 453,158 8,876,352 The Plan Trustee also represents a party in interest to the Plan due to the Plan's investments in Funds of the Plan Trustee. (6) Loans to Plan Participants Participants may request a loan from the Plan for a minimum amount of $1,000. The amount of the loan shall not exceed the lesser of $50,000 or fifty percent (50%) of the balance of the Participant's total value in the various Funds of the Plan. The interest rate on a loan is based on the prime rate at BankBoston, N.A. on the first day of the quarter preceding the loan request plus one percent. Participants may choose a repayment period of one EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS to five years. For the years 1998, 1997 and 1996, the interest rates ranged from 8.75% to 9.50%. Eligible Participants have the option of securing a second loan from the Plan including requests for up to a thirty (30) year loan to purchase a primary residence. (7) Reportable Transactions Under ERISA, transactions which, individually or in the aggregate with the same issuer, exceed five percent (5%) of the current value of Plan assets at the beginning of the Plan year are "reportable transactions." Details of these reportable transactions are set forth in Schedule II of this report. (8) Amendment and Termination COM/Energy expects the Plan to be permanent, but since future conditions affecting the Plan cannot be anticipated or foreseen, COM/Energy reserves the right by action of the Board of Trustees of COM/Energy and Boards of Directors of the Participating Companies to terminate or amend the Plan in whole or in part at any time and from time to time. In addition, by action only of the Board's officers, each of the Participating Companies may make any modifica- tions or amendments to the Plan that are necessary or appropriate to maintain the Plan as a plan meeting the requirements of Section 401 of the IRC, or any other applicable provisions of the IRC as now in effect, or hereafter amended, or the provisions of ERISA and the regulations or rulings issued thereunder. Notwithstanding the foregoing, it shall be impossible for any part of the Trust Fund, after the payment of expenses, to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their beneficiaries, either by amendment, operation or termination of the Plan, or by other means. COM/Energy does not expect to terminate the Plan. However, as discussed in Note 1, COM/Energy expects to merge with BEC Energy during the second half of 1999 and this event could have an impact on the Plan. Upon termination of the Plan or upon permanent discontinuance of contri- butions under the Plan, the interest of each person having an interest in the Trust Fund shall be determined as of that date. The interest of each such person in the Trust Fund shall be set aside by the Plan Trustee for the special account of such Participant or his or her beneficiary. Thereafter, after payments of expenses, distribution shall be made in accordance with the provisions of the Plan. Schedule I Employer Identification Number: 04-1662010 Plan Number: 091187 EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES ITEM 27A: SCHEDULE OF INVESTMENTS DECEMBER 31, 1998 Market Value Name of Issuer and Number of at End of Title of Issue Shares or Units Cost Period Commonwealth Energy System Common Share Fund: Common Shares of Beneficial Interest - Commonwealth Energy System* 2,635,566 $ 44,103,918 $106,740,442 Temporary Investments - Vanguard Prime Money Market Fund* 549,978 549,978 549,978 44,653,896 107,290,420 Vanguard Funds*: Prime Money Market Fund 24,473,796 24,473,796 24,473,796 Windsor II Fund 4,016,622 85,295,607 119,896,169 Short-Term Corporate Fund 476,518 5,138,293 5,165,460 Wellington Fund 1,670,943 41,742,494 49,042,170 International Growth Fund 556,581 8,856,032 10,447,020 Extended Market Index Fund 212,306 5,613,395 6,500,818 Explorer Fund 45,617 2,528,465 2,586,920 LifeStrategy Income Fund 53,544 659,290 707,856 LifeStrategy Conservative Growth Fund 57,749 748,043 849,482 LifeStrategy Moderate Growth Fund 138,524 2,029,074 2,335,510 LifeStrategy Growth Fund 130,778 2,080,152 2,457,324 Total Vanguard Funds 179,164,641 224,462,525 Total Investments $223,818,537 $331,752,945 Loans to Participants (rates of 8.75% - 9.50%) $ 8,390,564 $ 8,390,564 * Represent parties in interest to the Plan The accompanying notes are an integral part of this schedule. Schedule II Employer Identification Number: 04-1662010 Plan Number: 091187 EMPLOYEES SAVINGS PLAN OF COMMONWEALTH ENERGY SYSTEM AND SUBSIDIARY COMPANIES ITEM 27D: SCHEDULE OF REPORTABLE TRANSACTIONS (a) FOR THE YEAR ENDED DECEMBER 31, 1998 Purchase PURCHASES Price Vanguard Prime Money Market Fund (b) $21,748,519 Vanguard Windsor II Fund (b) 28,977,676 Vanguard Wellington Fund (b) 12,896,873 Commonwealth Energy System Common Share Fund (b) 15,841,051 Selling Historical Historical SALES Price Cost Gain Vanguard Prime Money Market Fund (b) $23,084,177 $23,084,177 $ - Vanguard Windsor II Fund (b) 24,862,870 19,034,451 5,828,419 Vanguard Wellington Fund (b) 8,886,380 7,167,289 1,719,091 Commonwealth Energy System Common Share Fund (b) 16,135,264 9,791,744 6,343,520 (a) Fund investments with transactions or a series of transactions in excess of five percent (5%) of the current value of the Plan's assets as of the beginning of the Plan year. (b) Represent parties in interest to the Plan The accompanying notes are an integral part of this schedule. -----END PRIVACY-ENHANCED MESSAGE-----