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MAIRS AND POWER
INCOME FUND, INC.
------------------
3RD QUARTER REPORT
September 30, 1995
W-2062 First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
612-222-8478
<PAGE>
November 20, 1995
To Our Shareholders:
THIRD QUARTER RESULTS
Reflecting the strong overall investment environment, the Income Fund
continued to achieve favorable investment results during the third quarter.
Based on a net asset value of $63.39 per share on September 30, 1995, the Fund
showed a total investment return of 5.4% for the quarter after adjustment for
the reinvestment of cash dividends. This compared to comparable returns of 7.9%
for the Standard & Poor's 500, 5.8% for the Dow Jones Industrial Average and
1.9% for the Lehman Brothers Gov't/Corp. Bond Index. The year-to-date nine month
return for the Fund was 24.0% compared to similar returns of 29.8% for the S&P
500, 27.4% for the DJIA and 13.9% for the Lehman Brothers Gov't/Corp. Bond
Index. Based on CDA/ Wiesenberger figures, the average return for a universe of
237 balanced mutual funds over the first nine months of 1995 was 19.8%.
During the third quarter, the economy experienced a strong rebound from a
relatively weak second quarter. Real Gross Domestic Product grew at an
unexpectedly high 4.2% (preliminary basis) compared to only 1.3% in the second
quarter with consumer spending, business investment, residential investment and
government spending all contributing to the gain. While inventories rose during
the quarter after declining during the previous quarter, the rate of increase
should not be considered too significant in view of a strong gain in final sales
pretty much in line with overall GDP growth. Inflation remained subdued and even
showed some improvement rising at a surprisingly low 1.8% annual rate compared
to a 3.2% rate in the second quarter. Net income for most corporations continued
to show good year to year comparisons although the rate of increase diminished
from the first half. In this regard, a recent BUSINESS WEEK survey of some 900
corporations showed corporate earnings rising 11% in the quarter after
charge-offs.
The continuing above average growth in corporate earnings accompanied by a low
rate of inflation has created a most favorable environment for investing in
financial assets. In this regard, the flow of funds into stocks via mutual funds
has been especially significant. Foreign investors are also thought to have
returned to the U.S. market with the dollar having shown recent signs of
strength. During the third quarter, such market sectors as communications,
financial, health care and technology (electronics and semiconductors) performed
the best while consumer cyclicals (autos and housing) and energy did the worst.
Among individual issues held in the Fund, Graco (+27.0%), American Express
(+25.9%) and Merrill Lynch (+19.0%) did the best while Corning (-12.6%), Cooper
Industries (-10.8%) and AMP (-8.9%) performed the worst.
FUTURE OUTLOOK
Economic growth is expected to continue over the coming year although the rate
of expansion should moderate to the 2-2 1/2% range from the 4.2% rate
(preliminary basis) shown in the third quarter of 1995. While inflation should
remain under good control, the rate seems more likely to be in the area of 3%
instead of 2% or less as some of the more optimistic forecasters suggest.
Corporate profits are projected to continue growing in 1996 in response to a
further improvement in profitability, however, the rate of growth may slip to
mid to high "single digit" levels compared to 12% or more estimated for 1995.
Even though interest rates may continue to ease somewhat more over the
immediate future as investors continue to worry about the direction of the
economy and further discount the possibility of another monetary policy
adjustment by the Federal Reserve, the outlook for additional growth in 1996 and
an inflation rate in the area of 3% should keep rates from declining much from
current levels. Hence, the bond market would appear to be pretty fully valued
except on a very short-term basis where current momentum may move the market
higher. The stock market, on the other hand, seems to offer a greater
possibility of further progress if corporate earnings continue to grow at near
historical rates. While equity valuation levels might appear rather full at near
16x estimated 1996 earnings (based on the S&P 500), it should be noted that
historically this is more of an average level when compared to other periods of
relatively low inflation. Other factors suggesting higher stock prices include
ample liquidity in the hands of both individual investors and corporations with
stock buyback programs and signs of increasing interest on the part of foreign
investors in the U.S. market.
William B. Frels
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SCHEDULE OF INVESTMENTS AT SEPTEMBER 30, 1995
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<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT FIXED INCOME SECURITIES COST VALUE
- ---------- ---------------------------------------------------------------------------------- ------------ ------------
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS 7.9%
300,000 US Treasury Notes 7.00% 9/30/96 $ 300,000 $ 303,656
200,000 US Treasury Notes 7.125% 9/30/99 197,172 207,938
250,000 Federal Home Loan Bank 7.48% 6/28/01 250,000 254,122
250,000 Federal National Mortgage Association 7.19% 3/22/04 243,750 249,063
250,000 Federal Home Loan Mortgage Corporation 7.30% 7/27/05 250,000 250,000
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1,240,922 1,264,779
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OTHER NON-CONVERTIBLE BONDS 12.5%
250,000 Dupont (E.I.) de Nemours & Company 6.00% 12/1/01 249,750 243,437
250,000 Household Finance Corp. 7.00% 2/15/03 250,000 253,262
265,000 J. C. Penney & Co. 6.00% 5/01/06 239,613 249,747
250,000 Merrill Lynch and Co., Inc. 7.00% 4/27/08 247,977 249,342
250,000 General Foods Corporation 7.00% 6/15/11 240,000 240,768
200,000 Ford Motor Company Debentures 9.50% 9/15/11 199,836 243,192
250,000 Goldman Sachs & Company 8.00% 3/01/13 256,025 259,538
250,000 Allstate Corp. 7.50% 6/15/13 218,937 250,000
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1,902,138 1,989,286
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CONVERTIBLE BONDS 5.7%
150,000 General Signal Corporation 5.75% 6/01/02 147,375 153,000
181,000 Pogo Producing Co. 8.00% 12/31/05 138,276 183,489
150,000 Cray Research, Inc. 6.125% 2/01/11 101,000 117,000
150,000 Browning-Ferris Industries, Inc. 6.25% 8/15/12 136,125 149,625
150,000 Ashland Oil, Inc. 6.75% 7/01/14 144,000 147,000
150,000 Cooper Industries, Inc. 7.05% 1/01/15 139,142 152,625
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805,918 902,739
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<CAPTION>
NUMBER OF
SHARES
- ----------
<C> <S> <C> <C> <C> <C>
NON-CONVERTIBLE AND CONVERTIBLE PREFERRED STOCK 11.4%
6,000 Bankers Trust New York Corporation $ 1.91 144,495 150,750
6,000 Barclays Bank PLC, Series E $ 2.00 150,000 147,750
5,000 The Bear Stearns Companies, Inc. Pf, Series C $ 1.90 125,000 121,250
5,000 Community First Bankshares, Inc. $ 1.75 125,000 156,250
5,000 ConAgra, Inc. Pf, Series E $ 1.6875 159,531 201,250
4,000 Delta Air Lines, Inc. Pf, Series C $ 3.50 204,938 227,500
7,000 Fourth Financial Corporation Pf. Series A $ 1.75 209,125 217,875
2,500 J. P. Morgan & Co., Series A, Adj Rate Pf $ 5.00 143,720 182,500
5,000 NorAm Energy Pf $ 3.00 150,600 192,500
4,000 Provident Life & Accident Insurance Co. Pf $ 2.025 100,000 104,000
2,000 St. Paul Capital Pf $ 3.00 100,000 117,000
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1,612,409 1,818,625
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TOTAL FIXED INCOME SECURITIES 37.5% $ 5,561,387 $ 5,975,429
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<PAGE>
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES COMMON STOCKS COST VALUE
- ---------- ---------------------------------------------------------------------------------- ------------ ------------
<C> <S> <C> <C> <C> <C>
BASIC INDUSTRIES 6.3%
4,000 Cooper Industries, Inc. $ 134,186 $ 141,000
8,000 Graco Inc. 147,460 273,000
5,000 Ingersoll-Rand Company 61,341 187,500
4,000 Pentair, Inc. 51,782 180,000
5,000 Weyerhaeuser Company 135,368 228,125
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530,137 1,009,625
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CONSUMER 11.2%
6,000 Briggs & Stratton Corporation 73,339 241,500
5,000 Deluxe Corp. 131,746 165,625
3,000 The Dun & Bradstreet Corporation 146,260 173,625
2,000 Eastman Kodak Company 53,573 118,500
3,000 General Mills, Inc. 151,030 167,250
4,000 Genuine Parts Company 112,273 160,500
3,000 Hershey Foods Corporation 146,610 193,125
7,000 Hormel Foods 141,965 184,625
5,000 McCormick & Co., Inc. 98,750 119,375
8,000 Sturm, Ruger & Co., Inc. 67,552 250,000
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1,123,098 1,774,125
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ENERGY 6.3%
4,000 Amoco Corporation 140,723 256,500
2,000 Exxon Corporation 20,793 144,500
2,500 Mobil Corporation 54,750 249,063
4,000 Murphy Oil Corporation 101,288 160,000
3,000 Schlumberger Limited 105,048 196,125
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422,602 1,006,188
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FINANCIAL 14.9%
5,000 American Express Company 99,215 221,875
5,000 First Bank System, Inc. 58,358 240,625
5,000 Firstar Corp. 163,175 185,625
2,250 Jefferson-Pilot Corp. 60,323 144,562
6,000 Merrill Lynch & Co., Inc. 99,319 375,000
4,000 J.P. Morgan & Co., Inc. 102,082 309,500
20,000 Norwest Corporation 94,825 650,000
6,000 ReliaStar 110,625 243,750
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787,921 2,370,937
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<PAGE>
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES COMMON STOCKS COST VALUE
- ---------- ---------------------------------------------------------------------------------- ------------ ------------
<C> <S> <C> <C> <C> <C>
HEALTH CARE 8.1%
3,000 American Home Products Corporation $ 182,542 $ 254,625
5,000 Baxter International Inc. 76,524 205,625
4,000 Bristol-Myers Squibb Company 205,562 291,500
10,000 Pfizer Inc. 136,357 533,750
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600,985 1,285,500
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TECHNOLOGY 9.3%
5,000 AMP Incorporated 133,605 192,500
5,000 Corning Inc. 135,725 143,125
3,000 Emerson Electric Co. 128,697 214,500
5,000 Honeywell Inc. 90,716 214,375
2,000 International Business Machines Corporation 96,740 189,000
5,000 MTS Systems Corporation 81,500 141,250
3,000 Minnesota Mining & Manufacturing Company 78,077 169,125
10,000 National Computer Systems, Inc. 121,380 215,000
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866,440 1,478,875
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UTILITIES 4.1%
7,000 GTE Corporation 96,007 273,875
5,000 Texas Utilities Company 183,482 174,375
4,470 U S West Communications 156,168 210,649
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435,657 658,899
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TOTAL COMMON STOCKS 60.2% $ 4,766,840 $ 9,584,149
Other Assets in Excess of Liabilities 2.3% 360,390
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NET ASSETS 100.0% $ 10,328,227 $ 15,919,968
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</TABLE>
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STATEMENT OF NET ASSETS AT SEPTEMBER 30, 1995
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<TABLE>
<S> <C> <C> <C>
ASSETS
Investments as annexed, at market value (cost $9,087,306)............................. $14,294,799
U.S. Governments (cost $1,240,922).................................................... 1,264,779
Cash.................................................................................. 258,827
Dividends and interest receivable..................................................... 104,512
Receivables for securities sold, not yet delivered.................................... 0
Prepaid expense....................................................................... 7,902
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$15,930,819
LIABILITIES
Accrued management fee......................................... $ 7,956
Accrued custodian and transfer agent fee....................... 2,895
Payable for securities purchased, not yet received............. 0 10,851
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NET ASSETS
Equivalent to $63.39 per share on 251,154 shares outstanding.......................... $15,919,968
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</TABLE>
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STATEMENT OF CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C> <C> <C>
NET ASSETS, December 31, 1994......................................................... $12,972,976
Net investment income, per statement below..................... $ 385,441
Net accrued income in price of shares sold and repurchased..... 1,490
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386,931
Distribution to shareholders................................... 369,867 17,064
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Fund shares issued and repurchased:
Received for 19,552 shares issued............................ 1,155,983
Paid for 15,882 shares repurchased........................... 912,287 243,696
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Increase in unrealized net appreciation (depreciation) of
investments................................................... 2,629,464
Net gain or (loss) realized from sales of securities........... 56,768
Distribution from net realized gain............................ 0
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NET ASSETS, September 30, 1995................................. $15,919,968
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</TABLE>
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STATEMENT OF NET INVESTMENT INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends............................................................................. $ 294,249
Interest.............................................................................. 209,884
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$ 504,133
EXPENSES
Management fee (Note B)........................................ $ 65,834
Fees and expenses of custodian, transfer agent and dividend
disbursing agent (Note B)..................................... 25,701
Legal and auditing fees and expenses........................... 12,583
Insurance...................................................... 2,026
Other Fees and Expenses........................................ 12,548 118,692
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NET INVESTMENT INCOME.......................................... $ 385,441
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</TABLE>
NOTE A: No provision has been made for Federal income taxes as it is the
intention of the Fund to comply with the provision of the Internal Revenue Code
available to investment companies and to make distributions of income and
security profits which will be sufficient to relieve it from all or
substantially all income taxes.
NOTE B: The investment advisory fee was paid to Mairs and Power, Inc., which is
owned by individuals who are directors and officers of the Fund, for its
services as investment adviser. Investment advisory fees are paid to the adviser
pursuant to an advisory agreement approved by the Directors of the Fund. The
advisory fee is computed each month and is 1/20th of one percent of the net
asset value of the Fund on the last valuation day of the month. The transfer
agent fee was also paid to Mairs and Power, Inc. which serves as transfer agent.
Directors of the Fund not affiliated with Mairs and Power, Inc. received
compensation for meetings attended during this period totaling $3,751. No
compensation was paid to any other officer or director of the Fund.
SUPPLEMENTARY INFORMATION: Purchases and sales of investment securities during
the nine months ended September 30, 1995 aggregated $707,607 and $333,357
respectively.
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MAIRS AND POWER
INCOME FUND, INC.
---------------------------
A NO-LOAD FUND
W-2062 FIRST NATIONAL BANK BUILDING, 332 MINNESOTA STREET, ST. PAUL, MINNESOTA
55101
612-222-8478
SUMMARY OF FINANCIAL INFORMATION
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This table covers a period of generally rising bond and common stock prices. The
results shown should not be considered as a representation of the dividend
income and capital gain or loss which may result from an investment made in the
Fund today.
<TABLE>
<CAPTION>
PER SHARE
--------------------------------------
DISTRIBUTIONS DIVIDENDS
OF REALIZED FROM NET
SHARES TOTAL NET NET ASSET SECURITIES INVESTMENT
DATES OUTSTANDING ASSETS VALUE GAINS INCOME
- ----------------- ----------- ----------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Dec. 31, 1985 91,674 $ 3,837,245 $41.86 $0.75 $2.19
Dec. 31, 1986 126,862 5,395,111 42.53 3.74 1.95
Dec. 31, 1987 147,717 5,772,298 39.08 2.18 2.11
Dec. 31, 1988 158,713 6,569,555 41.39 0.84 2.23
Dec. 31, 1989 172,243 7,886,058 45.78 0.66 2.15
Dec. 31, 1990 183,079 8,075,488 44.11 0.13 2.13
Dec. 31, 1991 200,138 10,676,264 53.34 0.00 1.99
Dec. 31, 1992 214,336 11,535,822 53.82 0.60 1.99
Dec. 31, 1993 238,430 13,441,576 56.38 1.25 1.98
Dec. 31, 1994 247,484 12,972,976 52.42 0.74 2.06
Sept. 30, 1995 251,154 15,919,968 63.39 0.00 1.50
</TABLE>
No adjustment has been made for any income tax payable by stockholders on
capital gains distributions accepted in shares.
This report is not to be used in connection with the offering of shares of the
Fund unless accompanied or preceded by an effective Prospectus. Please call or
write if you desire further information.
AVERAGE ANNUAL TOTAL RETURNS -- THE AVERAGE ANNUAL TOTAL RETURNS FOR THE
FUND (PERIODS ENDED SEPTEMBER 30, 1995) ARE AS FOLLOWS:
1 YEAR: +22.1% 5 YEARS: +13.6% 10 YEARS: +12.5%
PAST INVESTMENT RESULTS SHOULD NOT BE TAKEN AS NECESSARILY REPRESENTATIVE
OF FUTURE PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
OFFICERS AND DIRECTORS
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<TABLE>
<S> <C> <C> <C>
William B. Frels George A. Mairs, III Peter G. Robb Kathleen M. Kellerman
President and Director Secretary and Director Vice-President and Director Treasurer
</TABLE>
<TABLE>
<S> <C> <C>
Litton E.S. Field Donald E. Garretson J. Thomas Simonet
Director Director Director
</TABLE>
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MAIRS AND POWER
INCOME FUND, INC.
