Securities and Exchange Commission Washington, D.C. 20549 FORM 11-K (Mark One) /x/ Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1994 or / / Transition Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to _______ Commission File No. 1-3548 Minnesota Power and Affiliated Companies Supplemental Retirement Plan (Full Title of the Plan) ---------------------------- Minnesota Power & Light Company 30 West Superior Street Duluth, Minnesota 55802 (Name of issuer of securities held pursuant to the Plan and the address of its principal executive office) ---------------------------- Report of Independent Accountants To the Participants and Administrator of the Minnesota Power and Affiliated Companies Supplemental Retirement Plan In our opinion, the accompanying statements of net assets available for plan benefits and the related statements of changes in net assets available for plan benefits present fairly, in all material respects, the net assets available for plan benefits of the Minnesota Power and Affiliated Companies Supplemental Retirement Plan at December 31, 1994, and 1993, and the changes in net assets available for plan benefits for the years then ended, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information included in Schedules I and II is presented for purposes of additional analysis and is not a required part of the basic financial statements but is additional information required by the Employees Retirement Income Security Act of 1974. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Price Waterhouse LLP Minneapolis, Minnesota June 16, 1995 1 Minnesota Power and Affiliated Companies Supplemental Retirement Plan Statement of Net Assets Available for Plan Benefits
The accompanying notes are an integral part of these statements. 2December 31, 1994 1993 ---- ---- Assets, at fair/contract value Guaranteed investment contracts (cost of $16,264,983 and $19,414,300, respectively) $16,264,983 $19,414,300 Minnesota Power & Light Company common stock (346,749 and 309,050 shares at cost of $9,951,459 and $9,188,932, respectively) 8,755,412 10,121,481 Mutual fund securities (cost of $15,786,820 and $10,101,162, respectively) 15,732,870 11,234,289 Money market securities 2,565,949 856,731 Loans receivable from participants 1,410,017 1,395,792 ----------- ----------- Net assets available for plan benefits $44,729,231 $43,022,593 =========== =========== Minnesota Power and Affiliated Companies Supplemental Retirement Plan Statement of Changes in Net Assets Available for Plan Benefits
The accompanying notes are an integral part of these statements. 3December 31, 1994 1993 ---- ---- Sources of net assets Contributions $ 4,142,821 $ 4,586,208 Interest income 1,458,391 1,520,295 Dividend income 1,202,029 1,325,533 Net unrealized appreciation (depreciation) in aggregate fair value of securities (2,991,910) 180,068 Participants' loan interest income 105,272 89,115 Net realized gain (loss) on sale of securities (223,184) 67,064 ------------ ----------- 3,693,419 7,768,283 Application of net assets Transfers to retirement plan (717,205) (384,468) Benefit distributions (1,269,576) (808,163) ------------ ------------ Increase in net assets 1,706,638 6,575,652 Net assets available for plan benefits Beginning of year 43,022,593 36,446,941 ----------- ----------- End of year $44,729,231 $43,022,593 =========== =========== Minnesota Power and Affiliated Companies Supplemental Retirement Plan Notes to Financial Statements Note 1 - Description of the Plan The Minnesota Power and Affiliated Companies Supplemental Retirement Plan (the SRP) provides benefits for eligible employees of Minnesota Power & Light Company (Minnesota Power); Superior Water, Light and Power Company; and Topeka Group Incorporated (collectively, the Companies). The SRP is a defined contribution plan that is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Contributions Contributions to the SRP consist of the following: 1. A flexible dollar contribution for the non-union participants up to 3% of each participant's compensation, up to a maximum compensation of $150,000 in 1994, which has been elected by each participant to be contributed to the SRP. 2. A before-tax contribution for the union and non-union participants up to 12%, not to exceed $9,240 in 1994, of each participant's compensation as permitted under Section 401(k) of the Internal Revenue Code of 1986 (Code). The contribution is equal to an amount by which the participant has elected to reduce his or her compensation pursuant to a salary reduction agreement. 3. Each participant is also allowed to make voluntary after-tax contributions to the SRP through payroll deductions or lump-sum contributions. Total voluntary contributions made by a participant for all fiscal years since July 1, 1980, shall not exceed 8.5% of the aggregate compensation received for all years since becoming a participant less the amount of voluntary contributions made to either the Minnesota Power and Affiliated Companies Retirement Plan A or Plan B. 4. Contributions by participants may also be made through rollovers from other qualified plans. 5. Core contributions were made to the SRP prior to January 1, 1989, and were based on each participant's compensation. Core contribuions have not been made to the SRP since December 31,1988. Vesting Flexible dollar, before-tax, voluntary after-tax, core and rollover contributions are fully vested and nonforfeitable. Loan Program The SRP was amended during 1992 to allow participants to borrow money from their SRP accounts. A participant may borrow up to $50,000 or 50% of their total vested account 4 balances, whichever is less, for up to 5 years for a general purpose loan and 10 years for the acquisition of a primary residence. A fixed interest rate of the prime rate plus 1%, but not less than the Minnesota Power Employees Credit Union share secured rate, is charged until the loan is repaid. As loans are repaid, principal and interest amounts are redeposited into the participant's SRP accounts. Participant Accounts Each participant's account is credited with the participant's contribution and their share of the Companies' contributions. Income from the SRP's investment funds is allocated to each participant's account based upon their ownership interest in each fund. Every December each non-union SRP participant is required to make an election as to the flexible dollar, before-tax and after-tax contributions to the SRP. Each December union participants are required to make an election for before-tax and after-tax contributions. Flexible dollar, before-tax and after- tax contributions may be invested in the Minnesota Power Common Stock Fund, Fidelity Magellan Fund, Vanguard Index 500 Fund, Vanguard Short Term Federal Portfolio, IAI Emerging Growth Fund, IAI International Developed Market Fund, Templeton International Emerging Market Fund, Fidelity Balanced Fund and the Fixed Income Fund. Contributions to the Fixed Income Fund are invested in guaranteed investment contracts (GICs) with insurance companies. Flexible dollar, before-tax and after-tax contributions may be transferred between funds once a month with at least 10 days written notice to the Employee Benefit Plans Committee (the Committee). While participants are active employees, they may withdraw money as a loan from their core, flexible dollar or before-tax accounts. After age 59 1/2, participants may withdraw the full amount of their flexible dollar, before-tax account, and the vested amount from their core account. After-tax accounts may be withdrawn at specified times during the year by participants of any age. When participants terminate employment, become disabled or die, they or their beneficiaries may elect to receive the vested amount of all their SRP accounts. Upon retirement participants may elect to transfer the vested amount of their SRP account balances to the Minnesota Power and Affiliated Companies Retirement Plan A or Plan B. Minnesota Power maintains the participants' records and issues a quarterly report to each participant showing the status of individual accounts. At December 31, 1994, there were 1,672 participants in the SRP. Administration The SRP is administered by the Committee. The address of the Committee is 30 West Superior Street, Duluth, Minnesota 55802. The responsibility of the Committee includes the determination of compliance with the SRP's eligibility requirements as well as the administration and payment of benefits all in a manner consistent with the terms of the SRP and applicable law. The Committee has the authority to designate persons to carry out fiduciary responsibilities (other than trustee responsibilities) under the SRP. The Committee has the power to appoint an investment manager or managers. Administration fees and expenses of agents, outside experts, consultants, and managers shall be paid by the Companies. The Committee may from time to time establish, modify and repeal rules for the administration of the SRP as may be necessary to carry out the purpose of the SRP. Members of the Committee receive no compensation for their services with respect to the SRP. 5 As of June 1, 1995, the members of the Committee, all employees of Minnesota Power, and their respective titles are as follows: Name Title ---- ----- Robert D. Edwards Executive Vice President and President - Minnesota Power - Electric (1) David G. Gartzke Senior Vice President - Finance and Chief Financial Officer Roger P. Engle Vice President - Customer Operations Eugene G. McGillis Vice President; President of Superior Water, Light and Power Company Stephen D. Sherner Vice President - Power Marketing and Delivery Geraldine R. VanTassel Vice President - Corporate Resource Planning Mark A. Schober Corporate Controller Philip R. Halverson General Counsel and Corporate Secretary Dennis L. Hollingsworth Assistant Vice President - Corporate Development Lori A. Collard Director - Marketing Donald J. Shippar Director - Human Resources Jeweleon W. Tuominen Supervisor - Benefits Accounting and Administration - -------------------- (1) Committee Chairman North Shore Bank of Commerce is retained as Trustee (Trustee) for the SRP. The Trustee's main office is located at 131 West Superior Street, Duluth, Minnesota 55802. The Trustee carries blanket bond insurance in the amount of $2,000,000. Plan Termination The Companies reserve the right to reduce, suspend, or discontinue their contributions at any time or to terminate the SRP subject to the provisions of ERISA and the Code. In the event of SRP termination, all of the account balances of the participants will be fully vested and nonforfeitable, and distribution will be made in accordance with the terms of the SRP. Note 2 - Summary of Accounting Policies The SRP uses the accrual basis of accounting and accordingly reflects income in the year earned and expenses when incurred. Mutual funds, money market securities and Minnesota Power common stock are reported at fair value based on quoted market prices. GIC amounts are reported at contract value which represent the purchase price of the contract plus accrued interest. Participants' loans are reported at fair value which is the principal balance outstanding. Note 3 - Federal Income Tax Status A favorable determination letter was obtained from the Internal Revenue Service stating that the SRP, as amended and restated effective January 1, 1985, qualifies as a profit sharing plan under Section 401(a) of the Code. As required by the Internal Revenue Service, the Committee filed an application for a determination letter from the Internal Revenue Service for changes made to the SRP in subsequent years on March 31, 1995. 6 Note 4 - Changes in SRP Assets for Participant Directed Accounts The table below is a breakdown of the changes in SRP assets for each investment fund for the year ended December 31, 1994.
8Sources of net assets Contributions $627,625 $849,815 $382,195 $143,023 Interest income 1,456,823 Dividend income 297,024 59,269 27,929 Net unrealized appreciation (depreciation) in aggregate fair value of securities $23,154 (428,363) (36,726) (30,112) Participants' loan interest income 285,539 69,060 23,585 9,623 Net gain (loss) on sale of securities (22,888) (1,279) (2,327) --------- ------- --------- --------- --------- 2,369,987 23,154 764,648 427,044 148,136 Application of net assets Transfers to retirement plans (717,205) Benefit distributions (734,299) (60,152) (137,225) (39,095) (5,661) Loans to participants (632,287) ------------ ----------- ----------- ----------- --------- Increase (decrease) in net assets 286,196 (36,998) 627,423 387,949 142,475 Net transfers (3,232,918) (2,539,869) 530,887 345,492 19,530 Net assets available for plan benefits Beginning of year 19,960,350 2,576,867 6,822,351 1,393,838 441,376 ----------- ---------- ---------- ---------- -------- End of year $17,013,628 $ 0 $7,980,661 $2,127,279 $603,381 =========== ========== ========== ========== ======== 7 Mutual Fund Securities (Continued) ----------------------------------------------------- IAI IAI Int'l. Templeton Emerging Developed Fidelity International Growth Market Balanced Emerging Fund Fund Fund Market Fund Sources of net assets Contributions $511,052 $292,180 $634,199 $376,726 Interest income Dividend income 43,448 47,244 37,551 39,030 Net unrealized appreciation (depreciation) in aggregate fair value of securities 8,944 (63,861) (103,712) (130,329) Participants' loan interest income 23,333 14,331 18,193 21,212 Net gain (loss) on sale of securities (2,753) (2,819) (4,482) (1,683) ----------- --------- ----------- ----------- 584,024 287,075 581,749 304,956 Application of net assets Transfers to retirement plans Benefit distributions (845) (33,395) (10,618) (7,201) Loans to participants ----------- --------- ----------- ----------- Increase (decrease) in net assets 583,179 253,680 571,131 297,755 Net transfers 763,968 650,936 1,107,050 793,935 Net assets available for plan benefits Beginning of year 0 0 0 0 ---------- -------- ---------- ---------- End of year $1,347,147 $904,616 $1,678,181 $1,091,690 ========== ======== ========== ========== Minnesota Loans Power Receivable Common from Total Stock Participants Changes Sources of net assets Contributions $326,006 $4,142,821 Interest income 1,568 1,458,391 Dividend income 650,534 1,202,029 Net unrealized appreciation (depreciation) in aggregate fair value of securities (2,230,905) (2,991,910) Participants' loan interest income 220,808 $(580,412) 105,272 Net gain (loss) on sale of securities (184,953) (223,184) ------------ ---------- ------------ (1,216,942) (580,412) 3,693,419 Application of net assets Transfers to retirement plans (717,205) Benefit distributions (203,435) (37,650) (1,269,576) Loans to participants 632,287 0 ------------ ---------- ------------ Increase (decrease) in net assets (1,420,377) 14,225 1,706,638 Net transfers 1,560,989 0 Net assets available for plan benefits Beginning of year 10,432,019 1,395,792 43,022,593 ------------ ---------- ----------- End of year $10,572,631 $1,410,017 $44,729,231 =========== ========== =========== These beginning of year balances include $856,731 of short term money market securities of which $776,891 was being held to be reinvested into other SRP funds and the balance for participant distributions. These end of year balances include $2,565,949 of short term money market securities of which $1,811,767 was being held to be reinvested into other SRP funds and the balance for participant distributions. Note 4 - Changes in SRP Assets for Participant Directed Accounts (Continued) The table below is a breakdown of the changes in SRP assets for each investment fund for the year ended December 31, 1993.
9Fixed Income Fund Mutual Fund Securities ------ -------------------------------------------------------- Vanguard Short Term Fidelity Vanguard Federal GICs Evergreen Magellan Index 500 Portfolio Sources of net assets Contributions $ 1,377,951 $ 282,971 $ 978,088 $ 658,578 $217,868 Interest income 1,518,919 Dividend income 117,287 603,356 28,116 19,323 Net unrealized appreciation (depreciation) in aggregate fair value of securities 26,743 555,434 52,309 (1,330) Participants' loan interest income 217,005 11,150 33,210 33,140 6,522 Net gain (loss) on sale of securities 9,049 57,586 3,724 373 ----------- ---------- ---------- ---------- -------- 3,113,875 447,200 2,227,674 775,867 242,756 Application of net assets Transfers to retirement plans (384,468) Benefit distributions (566,101) (50,753) (34,068) (3,301) (2,391) Loans to participants (895,384) ------------ ----------- ----------- ----------- --------- Increase (decrease) in net assets 1,267,922 396,447 2,193,606 772,566 240,365 Net transfers 291,089 (454,914) (34,627) 67,803 29,092 Net assets available for plan benefits Beginning of year 18,401,339 2,635,334 4,663,372 553,469 171,919 ----------- ---------- ---------- ---------- -------- End of year $19,960,350 $2,576,867 $6,822,351 $1,393,838 $441,376 =========== ========== ========== ========== ======== Minnesota Loans Power Receivable Common from Total Stock Participants Changes Sources of net assets Contributions $ 1,070,752 $ 4,586,208 Interest income 1,376 1,520,295 Dividend income 557,451 1,325,533 Net unrealized appreciation (depreciation) in aggregate fair value of securities (453,088) 180,068 Participants' loan interest income 188,465 $ (400,377) 89,115 Net gain (loss) on sale of securities (3,668) 67,064 ------------ ----------- ----------- 1,361,288 (400,377) 7,768,283 Application of net assets Transfers to retirement plans (384,468) Benefit distributions (151,549) (808,163) Loans to participants 895,384 0 ------------ ---------- ----------- Increase (decrease) in net assets 1,209,739 495,007 6,575,652 Net transfers 101,557 0 Net assets available for plan benefits Beginning of year 9,120,723 900,785 36,446,941 ----------- ---------- ----------- End of year $10,432,019 $1,395,792 $43,022,593 =========== ========== =========== These beginning of year balances include $2,821,576 of short term money market securities of which $2,784,606 was being held to be reinvested into other SRP funds and the balance for participant distributions. These end of year balances include $856,731 of short term money market securities of which $776,891 was being held to be reinvested into other SRP funds and the balance for participant distributions. Schedule I Minnesota Power and Affiliated Companies Supplemental Retirement Plan Schedule of Investments Held December 31, 1994
10Fair/Contract Description Cost Value Guaranteed Investment Contracts Metropolitan Life Insurance Company 8.65% due 1995 and 1997 $4,096,990 $4,096,990 Provident Life and Accident Insurance Company 7.6% due 1998 2,526,323 2,526,323 Sun Life Insurance Company of America 8.73% due 1995 2,194,179 2,194,179 Aetna Life Insurance Company 6.06% due 1999 2,117,699 2,117,699 Allstate Life Insurance Company 7.14% due 1998 2,010,199 2,010,199 John Hancock Mutual Life Insurance Company 7.22% due 1996 1,943,170 1,943,170 Protective Life Insurance Company 6.99% due 1997 1,376,423 1,376,423 ----------- ----------- Total guaranteed investment contracts 16,264,983 16,264,983 ----------- ----------- Minnesota Power & Light Company Common Stock (346,749 shares) 9,951,459 8,755,412 ----------- ----------- Mutual Fund Securities Fidelity Magellan Fund (119,470 shares) 7,735,437 7,980,576 Vanguard Index 500 (49,506 shares) 2,106,013 2,127,279 Vanguard Short Term Federal Portfolio (62,268 shares) 634,778 603,381 IAI Emerging Growth Fund (90,413 shares) 1,338,203 1,347,147 IAI International Developed Market Fund (70,728 shares) 968,477 904,616 Templeton International Emerging Market Fund (97,385 shares) 1,222,019 1,091,690 Fidelity Balanced Fund (136,549 shares) 1,781,893 1,678,181 ----------- ----------- Total mutual funds 15,786,820 15,732,870 ----------- ----------- Money Market Securities Dreyfus Institutional Government Securities Fund, floating interest rate with no maturity date 2,565,949 2,565,949 ----------- ----------- Loans Receivable from Participants - 7% to 10% 1,410,017 1,410,017 ----------- ----------- Total Investments $45,979,228 $44,729,231 =========== =========== - ------------------ Party-in-interest Schedule II Minnesota Power and Affiliated Companies Supplemental Retirement Plan Schedule of Transactions in Excess of 5% of Fair Value of Plan Assets For the Year Ended December 31, 1994
Purchases ------------------- Aggregate Purchase Price and Fair Value on Number of Description Transaction Dates Transactions Dreyfus Institutional Government Series $7,222,120 145 Aetna Life Insurance Company $2,843,678 13 Fidelity Magellan Fund $2,132,799 47 Minnesota Power & Light Company Common Stock $1,606,255 39 Evergreen Fund $3,937 3 11
Sales ----------------- Aggregate -------------------------------------- Net Cost of Gain/ Number of Description Asset Sale Price (Loss) Transactions Dreyfus Institutional Government Series $5,132,967 $5,132,967 0 93 Evergreen Fund $2,580,742 $2,603,895 $23,153 17 Aetna Life Insurance Company $2,888,000 $2,888,000 0 11 New York Life Insurance Company $2,676,224 $2,676,224 0 1 Minnesota Power & Light Company Common Stock $1,126,373 $ 941,420 $(184,953) 31 Fidelity Magellan Fund $ 843,151 $ 820,263 $ (22,888) 30 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the Employee Benefit Plans Committee has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. Minnesota Power and Affiliated Companies Supplemental Retirement Plan ---------------------------------------- (Name of Plan) June 23, 1995 By R.D. Edwards -------------------------- R.D. Edwards Chairman, Employee Benefit Plans Committee 12 Index to Exhibits Exhibit Page a - Consent of Independent Accountants 13 Exhibit a Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-32033) of the Minnesota Power and Affiliated Companies Supplemental Retirement Plan of our report dated June 16, 1995, appearing on page 1 of this Annual Report of the Minnesota Power and Affiliated Companies Supplemental Retirement Plan on Form 11-K for the year ended December 31, 1994. PRICE WATERHOUSE LLP Minneapolis, Minnesota June 22, 1995 14