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, 1996 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) ---------------------- 3100 Multifoods Tower Telephone 612 332 7000 33 South Sixth Street Facsimile 612 332 6711 Minneapolis, MN 55402-3795 Price Waterhouse LLP [LOGO] 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, 1996 and 1995, 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 Employee 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 Price Waterhouse LLP Minneapolis, Minnesota June 6, 1997 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, 1996 1995 ---- ---- Assets Investments, at fair/contract value Guaranteed investment contracts (cost of $17,287,380 and $15,277,799, respectively) $ 17,287,380 $ 15,277,799 Minnesota Power & Light Company common stock (411,926 and 415,451 shares at cost of $10,871,470 and $11,251,800, respectively) 11,248,406 11,788,422 Mutual fund securities (cost of $27,852,756 and $19,118,520, respectively) 30,496,581 22,729,345 Money market securities 109,684 1,641,532 Loans receivable from participants 1,548,170 1,512,920 ------------ ------------ Total investments 60,690,221 52,950,018 Cash - 36,479 ------------ ------------ Net assets available for plan benefits $ 60,690,221 $ 52,986,497 ============ ============ 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. 3Year Ended December 31, 1996 1995 ---- ---- Sources of net assets Contributions $ 5,453,494 $ 4,912,365 Interest income 1,132,496 1,262,849 Dividend income 3,829,390 1,877,680 Net unrealized appreciation (depreciation) in aggregate fair value of securities (65,380) 4,787,572 Participants' loan interest income 127,275 118,066 Net realized gain (loss) on sale of securities (95,332) 587,935 ------------ ------------ 10,381,943 13,546,467 Application of net assets Transfers to retirement plan (184,617) (3,165,992) Benefit distributions (2,484,890) (2,123,209) Administrative expenses (8,712) - ------------ ------------ Increase in net assets 7,703,724 8,257,266 Net assets available for plan benefits Beginning of year 52,986,497 44,729,231 ------------ ------------ End of year $ 60,690,221 $ 52,986,497 ============ ============ 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 MP Water Resources Group, Inc. formerly 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 percent of each participant's compensation, up to a maximum compensation of $150,000 in 1996, 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 percent, not to exceed $9,500 in 1996, 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 percent 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 contributions have not been made to the SRP since December 31, 1988. Vesting All contributions plus actual earnings are fully vested and nonforfeitable. Loan Program The SRP allows participants to borrow money from their SRP accounts. A participant may borrow up to $50,000 or 50 percent of their total account 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 percent, 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. 4 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 participants are required to make an election as to the flexible dollar, if applicable, before-tax and after-tax contributions to the SRP for the subsequent year. Contributions may be invested in the Minnesota Power Common Stock Fund, Heartland Value 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. Funds may be transferred between investment options 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 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, 1996 there were 1,639 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 are paid by the Companies or the SRP. 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, 1997 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 President - Minnesota Power Electric (1) David G. Gartzke Senior Vice President - Finance Chief Financial Officer Roger P. Engle Vice President Minnesota Power Electric President and Chief Operating Officer - Superior Water, Light and Power Company Philip R. Halverson Vice President, General Counsel and Secretary Donald J. Shippar Vice President Minnesota Power Electric - Transmission and Distribution Claudia S. Welty Vice President Minnesota Power Electric - Support Services Mark A. Schober Controller Lori A. Collard Director - Minnesota Power Services Group, Inc. Brenda J. Flayton Director - Minnesota Power Electric - Human Resources Jeweleon W. Tuominen Manager Employee Benefits - ---------------------- (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 $7,000,000. 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 represents the purchase price of the contract plus accrued interest. Participants' loans are reported at cost which approximates fair value. Note 3 - Federal Income Tax Status A favorable determination letter dated December 12, 1995 was obtained from the Internal Revenue Service stating that the SRP, as amended and restated effective January 1, 1992, qualifies as a profit sharing plan under Section 401(a) of the Code. 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, 1996. 8
Fixed Income Fund Mutual Fund Securities ------ ------------------------------------------------------ Vanguard Heartland Short Term Value Fidelity Vanguard Federal GICs Fund Magellan Index 500 Portfolio Sources of net assets Contributions $ 885,926 $ 652,733 $ 883,827 $ 664,728 $ 191,010 Interest income 1,131,587 Dividend income 166,581 1,696,862 170,803 51,295 Net unrealized appreciation (depreciation) in aggregate fair value of securities 159,257 (360,613) 646,843 (9,154) Participants' loan repayments, including interest 271,685 17,597 89,965 49,243 17,441 Net gain (loss) on sale of securities 13,671 (174,775) 85,896 (2,013) ----------- ---------- ----------- ----------- --------- 2,289,198 1,009,839 2,135,266 1,617,513 248,579 Application of net assets Transfers to retirement plans (184,617) Benefit distributions (1,228,318) (42,311) (318,325) (92,571) (8,293) Loans to participants (741,567) Administrative expenses (8,712) ----------- ---------- ----------- ----------- --------- Increase (decrease) in net assets 125,984 967,528 1,816,941 1,524,942 240,286 Net transfers 235,027 858,296 (1,335,252) 629,222 (40,036) Net assets available for plan benefits Beginning of year 16,955,530 967,487 10,317,288 3,445,351 782,601 ----------- ---------- ----------- ----------- --------- End of year $17,316,541 $2,793,311 $10,798,977 $ 5,599,515 $ 982,851 =========== ========== =========== =========== ========= 7 Mutual Fund Securities (Continued) -------------------------------------------------- Templeton IAI IAI Int'l. Inter- Minnesota Loans Emerging Developed Fidelity national Power Receivable Growth Market Balanced Emerging Common from Total Fund Fund Fund Market Fund Stock Participants Changes Sources of net assets Contributions $ 706,017 $ 287,208 $ 450,498 $ 314,713 $ 416,834 $ 5,453,494 Interest income 909 1,132,496 Dividend income 583,540 157,218 107,411 48,662 847,018 3,829,390 Net unrealized appreciation (depreciation) in aggregate fair value of securities (432,871) (57,098) 99,209 206,458 (317,411) (65,380) Participants' loan repayments, including interest 41,588 15,061 26,359 22,993 211,947 $ (636,604) 127,275 Net gain (loss) on sale of securities 7,057 7,541 (2,671) 19,085 (49,123) (95,332) ---------- ---------- ---------- ---------- ----------- ---------- ----------- 905,331 409,930 680,806 611,911 1,110,174 (636,604) 10,381,943 Application of net assets Transfers to retirement plans (184,617) Benefit distributions (99,902) (64,527) (27,160) (76,400) (457,370) (69,713) (2,484,890) Loans to participants 741,567 0 Administrative expenses (8,712) ---------- ---------- ---------- ---------- ----------- ---------- ----------- Increase (decrease) in net assets 805,429 345,403 653,646 535,511 652,804 35,250 7,703,724 Net transfers 726,286 24,909 (183,741) 198,121 (1,112,832) 0 Net assets available for plan benefits Beginning of year 2,678,226 1,164,968 2,046,401 1,327,120 11,788,605 1,512,920 52,986,497 ---------- ---------- ---------- ---------- ----------- ---------- ----------- End of year $4,209,941 $1,535,280 $2,516,306 $2,060,752 $11,328,577 $1,548,170 $60,690,221 ========== ========== ========== ========== =========== ========== =========== - ----------------- These beginning of year balances include $1,641,532 of short term money market securities of which $1,000,000 was being held to be invested in anew GIC on January 3, 1996 and the balance for participant distributions. These end of year balances include $109,684 of short term money market securities of which $79,559 was being held to be invested in Minnesota Power Common Stock and the balance for participant distributions. 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, 1995. 10
Fixed Income Fund Mutual Fund Securities ------ ---------------------------------------------------- Vanguard Heartland Short Term Value Fidelity Vanguard Federal GICs Fund Magellan Index 500 Portfolio Sources of net assets Contributions $ 1,148,916 $ 406,265 $ 661,052 $ 409,795 $ 140,310 Interest income 1,257,630 Dividend income 42,218 594,504 73,563 41,522 Net unrealized appreciation (depreciation) in aggregate fair value of securities 30,247 2,039,135 709,033 31,720 Participants' loan repayments, including interest 314,990 4,518 81,907 31,012 11,491 Net gain (loss) on sale of securities 2,890 326,575 57,396 6,285 ------------ --------- ------------ ----------- --------- 2,721,536 486,138 3,703,173 1,280,799 231,328 Application of net assets Transfers to retirement plans (3,165,992) Benefit distributions (953,755) (6,083) (254,359) (95,030) (33,112) Loans to participants (756,812) ------------ --------- ------------ ----------- --------- Increase (decrease) in net assets (2,155,023) 480,055 3,448,814 1,185,769 198,216 Net transfers 2,096,925 487,432 (1,112,187) 132,303 (18,996) Net assets available for plan benefits Beginning of year 17,013,628 0 7,980,661 2,127,279 603,381 ------------ --------- ------------ ----------- --------- End of year $ 16,955,530 $ 967,487 $ 10,317,288 $ 3,445,351 $ 782,601 ============ ========= ============ =========== ========= 9 Mutual Fund Securities (Continued) ------------------------------------------------- Templeton IAI IAI Int'l. Inter- Minnesota Loans Emerging Developed Fidelity national Power Receivable Growth Market Balanced Emerging Common from Total Fund Fund Fund Market Fund Stock Participants Changes Sources of net assets Contributions $ 450,546 $ 357,800 $ 488,611 $ 426,920 $ 422,150 $ 4,912,365 Interest income 5,219 1,262,849 Dividend income 48,959 92,615 85,574 34,409 864,316 1,877,680 Net unrealized appreciation (depreciation) in aggregate fair value of securities 689,610 (2,008) 154,044 (32,233) 1,168,024 4,787,572 Participants' loan repayments, including interest 27,134 14,222 19,799 14,336 239,086 $ (640,429) 118,066 Net gain (loss) on sale of securities 38,927 4,777 32,094 (683) 119,674 587,935 ---------- ---------- ---------- ---------- ----------- ---------- ------------ 1,255,176 467,406 780,122 442,749 2,818,469 (640,429) 13,546,467 Application of net assets Transfers to retirement plans (3,165,992) Benefit distributions (80,116) (44,057) (91,732) (21,130) (530,355) (13,480) (2,123,209) Loans to participants 756,812 0 ---------- ---------- ---------- ---------- ----------- ---------- ------------ Increase (decrease) in net assets 1,175,060 423,349 688,390 421,619 2,288,114 102,903 8,257,266 Net transfers 156,019 (162,997) (320,170) (186,189) (1,072,140) 0 Net assets available for plan benefits Beginning of year 1,347,147 904,616 1,678,181 1,091,690 10,572,631 1,410,017 44,729,231 ---------- ---------- ---------- ---------- ----------- ---------- ------------ End of year $2,678,226 $1,164,968 $2,046,401 $1,327,120 $11,788,605 $1,512,920 $ 52,986,497 ========== ========== ========== ========== =========== ========== ============ - -------------- These beginning 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. These end of year balances include $1,641,532 of short term money market securities of which $1,000,000 was being held to be invested in a new GIC on January 3, 1996 and the balance for participant distributions. Schedule I Minnesota Power and Affiliated Companies Supplemental Retirement Plan Schedule of Investments Held December 31, 1996
- ----------------- * Party-in-interest The above data was prepared from information certified as complete and accurate by North Shore Bank of Commerce, the plan Trustee. 11Fair/Contract Description Cost Value Guaranteed Investment Contracts Metropolitan Life Insurance Company 8.65% due 1997 $ 2,418,762 $ 2,418,762 Protective Life Insurance Company 6.99% due 1997 1,575,572 1,575,572 Provident Life and Accident Insurance Company 7.06% due 1998 2,895,632 2,895,632 Allstate Life Insurance Company 7.14% due 1998 2,307,503 2,307,503 Aetna Life Insurance Company 6.06% due 1999 2,388,884 2,388,884 Provident Mutual Insurance Company 5.80% due 1999 1,903,227 1,903,227 SunAmerica Life Insurance Company 6.00% due 2000 1,913,438 1,913,438 Commonwealth Life Insurance Company 6.67% due 2001 1,884,362 1,884,362 --------------- -------------- Total guaranteed investment contracts 17,287,380 17,287,380 --------------- -------------- Minnesota Power & Light Company Common Stock * (411,926 shares) 10,871,470 11,248,406 --------------- -------------- Mutual Fund Securities Heartland Value Fund (88,256 shares) 2,607,392 2,793,294 Fidelity Magellan Fund (133,897 shares) 9,319,844 10,798,773 Vanguard Index 500 (81,317 shares) 4,986,322 5,599,499 Vanguard Short Term Federal Portfolio (97,215 shares) 986,222 982,845 IAI Emerging Growth Fund (210,918 shares) 3,995,140 4,209,927 IAI International Developed Market Fund (124,314 shares) 1,635,285 1,535,268 Fidelity Balanced Fund (178,713 shares) 2,352,758 2,516,276 Templeton International Emerging Market Fund (165,518 shares) 1,969,793 2,060,699 --------------- -------------- Total mutual funds 27,852,756 30,496,581 --------------- -------------- Money Market Securities Dreyfus Institutional Government Securities Fund, floating interest rate with no maturity date 109,684 109,684 --------------- -------------- Loans Receivable from Participants - 7% to 10% 1,548,170 1,548,170 --------------- -------------- Total Investments $ 57,669,460 $ 60,690,221 =============== ============== 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, 1996
Purchases ------------------------------------------ Aggregate Purchase Price and Fair Value on Number of Description Transaction Dates Transactions Dreyfus Institutional Government Series $ 8,172,542 265 Fidelity Magellan Fund $ 1,230,801 34 Minnesota Power & Light Company Common Stock $ 1,614,717 25 SunAmerica Life Insurance Company $ 3,988,058 25 Vanguard Index 500 $ 9,879,204 46 - ----------------- The above data was prepared from information certified as complete and accurate by North Shore Bank of Commerce, the plan Trustee. 12
Sales ------------------------------------------ Aggregate ---------------------------------------------- Net Cost of Gain/ Number of Description Asset Sale Price (Loss) Transactions Dreyfus Institutional Government Series $ 9,807,884 $ 9,807,884 0 182 Fidelity Magellan Fund $ 2,085,360 $ 1,910,585 $ (174,775) 31 Minnesota Power & Light Company Common Stock $ 1,649,438 $ 1,600,315 $ (49,123) 35 SunAmerica Life Insurance Company $ 2,161,690 $ 2,161,690 0 20 Vanguard Index 500 $ 8,542,687 $ 8,628,583 $ 85,896 22 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 24, 1997 By R.D. Edwards -------------------------------------------- R.D. Edwards Chairman, Employee Benefit Plans Committee 13 Index to Exhibits Exhibit Page a - Consent of Independent Accountants Exhibit a Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-26755) of the Minnesota Power and Affiliated Companies Supplemental Retirement Plan of our report dated June 6, 1997 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, 1996. PRICE WATERHOUSE LLP Price Waterhouse LLP Minneapolis, Minnesota June 23, 1997