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EMPLOYEES’ PROFIT SHARING AND SALARY DEFERRAL PLAN OF

SM&P UTILITY RESOURCES, INC.

See notes to financial statements.

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EMPLOYEES’ PROFIT SHARING AND SALARY DEFERRAL PLAN OF

SM&P UTILITY RESOURCES, INC.

See notes to financial statements.

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EMPLOYEES’ PROFIT SHARING AND SALARY DEFERRAL PLAN OF

SM&P UTILITY RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

General—The following description of the Employees’ Profit Sharing and Salary Deferral Plan of SM&P Utility Resources, Inc. (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan document for more complete information. The Plan was established effective July 1, 1987. The Plan is a defined contribution plan, which covers employees of SM&P Utility Resources, Inc. (the “Company”), a wholly owned subsidiary of The Laclede Group, Inc. (“Group”), who are not represented by a collective bargaining agreement, provided they meet the prescribed eligibility requirements. Certain employees of the Company act as trustees (the “Trustees”) of the Plan and control and manage the operation of the Plan. American United Life Insurance Company (“AUL” or “Custodian”) serves as the custodian of the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).

Participation or Eligibility—All full time, employees of the Company who are not represented by a collective bargaining agreement and have attained age 20-1/2 years and completed six months of service, as defined by the Plan document, are eligible to participate.

Contributions—Under the Plan, eligible participants may elect a salary deferral of 1% to 75% of compensation, as defined in the Plan document, subject to certain Internal Revenue Code (“IRC”) limitations.

The Company may make discretionary matching contributions from its net profits that are allocated to each eligible participant’s account based upon the participant’s salary deferral amount. For the years ended December 31, 2005 and 2004, the Company elected to make matching contributions equal to 50% of each participant’s salary deferral amount, up to a maximum of 6% of the participant’s compensation. The Company may make additional discretionary contributions that are allocated to each eligible participant in proportion to compensation and are unrelated to any participant salary deferral amounts. No additional discretionary contributions were made during the 2005 and 2004 Plan years.

Rollovers From Other Qualified Employer Plans—The Plan allows for employees to transfer certain of their other qualified employer retirement plan assets to the Plan.

Participant Accounts—Individual accounts are maintained for each Plan participant. In addition to the employee and Company matching contributions, each participant’s account is credited with an allocation of Plan earnings, based on participant account balances, as defined in the Plan document. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

Investment Options—There are fifteen investment alternatives available for the investment of contributions to the Plan. Participants direct the investment of their contributions and Company matching contributions to the Plan in any one or more of the investment funds and may request the transfer of their contributions and Company matching contributions among the funds. The investment funds consist of mutual, bond, and equity funds offered by the Plan.

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Vesting—Participants are immediately vested in their contributions and actual earnings thereon. Participants vest ratably over a five-year period in Company contributions and earnings thereon.

Forfeitures—Forfeitures of Company matching contributions are used to reduce future Company matching contributions. There were no forfeitures available to offset future Company contributions at December 31, 2005 and 2004. Forfeitures of $18,832 and $26,088 were utilized during the years ended December 31, 2005 and 2004, respectively, to reduce Company contributions.

Payment of Benefits—Upon retirement or termination of service, participants may elect one of several benefit distribution options including, but not limited to, monthly payments or a lump-sum distribution. There was $0 payable to terminated participants at December 31, 2005 and 2004. Benefits are recorded upon distribution.

Hardship Withdrawals—Participants may request withdrawals of their vested account balance if they satisfy hardship requirements established by the plan administrator in accordance with Internal Revenue Service (“IRS”) guidelines.

Loans—A participant may borrow from his or her fund accounts a minimum of $1,000 up to the lesser of $50,000 or 50% of the participant’s vested account balance. The repayment period may not exceed five years unless the loan is used to purchase the participant’s primary residence, subject to certain restrictions. Loans are secured by the balance in the participant’s account and bear interest at a rate comparable to the rate charged by a commercial lender, subject to review periodically by the Employee Benefits Committee. Principal and interest is paid ratably through payroll deductions.

Basis of Accounting—The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Plan management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein. Actual results could differ from those estimates.

The Plan invests in corporate stocks and funds that invest in various securities including U.S. Government securities, corporate debt instruments, and corporate stocks. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements.

Investment Valuation—All investments in investment funds and common stock are stated at fair value as reported by the Custodian and based upon quoted market prices. Participant loans are valued at the outstanding loan balance. Purchases and sales of investments are accounted for on the trade date. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

Administrative Expenses—Administrative expenses of the Plan are paid by the Company. Certain other expenses of the Plan such as investment manager fees and broker fees are deducted from income earned on a daily basis and are not separately reflected. Consequently, management fees and operating expenses are reflected as a reduction of investment return for such investments.