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MAIRS AND POWER
INCOME FUND, INC.
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2ND QUARTER REPORT
June 30, 1995
W-2062 First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
612-222-8478
<PAGE>
August 11, 1995
To Our Shareholders
SECOND QUARTER RESULTS
The Income Fund continued to exhibit quite favorable investment results in the
second quarter as a consequence of overall strength in the financial markets.
The strong showing in both stock and bond markets in turn reflected modest
economic growth, only moderate inflation and another good gain in corporate
profits. Based on a net asset value of $60.63 per share on June 30, 1995, the
Fund produced a total investment return of 7.8% for the quarter after adjustment
for the reinvestment of cash dividends. This brought the first half return up to
a surprisingly strong 17.7%. Comparable second quarter returns for the popular
market indices were 10.3% -- Dow Jones Industrial Average; 9.5% -- Standard &
Poor's 500; and 6.5% -- Lehman Brothers Gov't/Corp. Index. First half returns
for the three market indices were 20.4%, 20.1% and 11.8%, respectively. The Fund
nicely out-performed the first half average return of 13.6% for the
CDA/Wiesenberger universe of 217 balanced mutual funds.
The rate of economic growth continued to decelerate in the second quarter as
the Gross Domestic Product rose at only a 0.5% annual rate compared to a 2.7%
rate in the first quarter. The principal cause of the decline in the rate of
growth was a further slowdown in consumer spending which in turn led to a rise
in the rate of inventory accumulation. However, business spending on plant and
equipment and export sales of goods and services continued to show good gains
during the period. The combination of strengthening overseas markets, favorable
currency translation effects and stringent cost control resulted in a 15%
increase in second quarter corporate profits according to a recent Wall Street
Journal survey. Inflation remained under good control as continuing strong
competition limited price increases to a 2.7% annual rate down from a 3.3% rate
in the first quarter.
Turning to the stock market, equity money flowed into such growth oriented
sectors as health care and technology (computers, software and semiconductors )
in response to growing concerns about the future direction of the economy.
Financial issues including the banks and S & L's also did well benefiting from
lower interest rates. As might be expected, consumer cyclical groups such as
appliances, autos and automotive parts, building materials, retailing, and
textiles were among the worst performing groups in the quarter due to the
general slowdown in consumer spending. Energy and certain other groups that
would eventually be affected by a slowing economy did poorly as well. Among the
various Fund holdings, National Computer (+23.9%), Merrill Lynch (+23.5%) and
Weyerhaeuser (+21.2%) performed the best while Corning (-9.0%), Briggs &
Stratton (-6.1%), Genuine Parts (-5.0%) and McCormick (-5.0%) did the worst.
FUTURE OUTLOOK
Recent indicators of future economic activity such as employment trends,
factory orders and retail sales all seem to be pointing to a stabilization after
the recent decline in the growth rate along with a growing likelihood of some
rebound by year end. The early July reversal of Federal Reserve Policy as
evidenced by a lowering of the Fed funds rate also increases the probability of
at least a mild improvement by the end of the year. In any event, continuing
strength in export sales and business capital spending should keep the economy
from getting any worse until consumer spending begins to show a more pronounced
recovery. Corporate profits are projected to continue to grow, albeit at a
reduced rate from the first half, considering the fact that the full impact is
yet to be felt from cost control programs placed in effect during recent years.
With respect to the financial markets, fixed income securities are not
expected to earn much more than their coupon rate over the near term unless the
economy weakens further and the Fed takes additional action. On the other hand,
rates are not projected to increase much with economic growth likely to remain
tepid at least through the end of 1995. While the stock market has had an almost
unbroken upward move since the beginning of the year, valuation levels have
moved up only modestly as earnings have increased almost in line with the market
rise. Consequently, while a market correction seems long over due, we believe
any decline will be held to moderate proportions (5-10%) assuming the upward
trend in corporate earnings remains intact.
RECENT EVENTS
It is with deep regret that we must inform you of the passing of George C.
Power, Jr., Chairman and Director, on July 18, 1995. He will be sorely missed
for his many contributions and invaluable guidance over the years since the Fund
came into existence in 1961.
On a happier note, Peter G. Robb, Vice President, was elected a Director of
the Fund at the Annual Shareholders Meeting held on May 15, 1995.
William B. Frels
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SCHEDULE OF INVESTMENTS AT JUNE 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 6.8%
250,000 Federal Home Loan Bank 7.48% 6/28/01 $ 250,000 $ 258,600
250,000 Federal National Mortgage Association 7.19% 3/22/04 243,750 254,485
300,000 US Treasury Notes 7.00% 9/30/96 300,000 304,312
200,000 US Treasury Notes 7.125% 9/30/99 197,172 208,375
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990,922 1,025,772
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OTHER NON-CONVERTIBLE BONDS 13.1%
250,000 Allstate Corp. 7.50% 6/15/13 218,937 247,072
250,000 Dupont (E.I.) de Nemours & Company 6.00% 12/1/01 249,750 242,813
200,000 Ford Motor Company Debentures 9.50% 9/15/11 199,836 242,000
250,000 General Foods Corporation 7.00% 6/15/11 240,000 239,140
250,000 Goldman Sachs & Company 8.00% 3/01/13 256,025 249,490
250,000 Household Finance Corp. 7.00% 2/15/03 250,000 252,905
250,000 Merrill Lynch and Co., Inc. 7.00% 4/27/08 247,977 246,050
265,000 J. C. Penney & Co. 6.00% 5/01/06 239,613 246,609
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1,902,138 1,966,079
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CONVERTIBLE BONDS 5.9%
150,000 Ashland Oil, Inc. 6.75% 7/01/14 144,000 148,875
150,000 Browning-Ferris Industries, Inc. 6.25% 8/15/12 136,125 152,250
113,000 Cooper Industries, Inc. 7.05% 1/01/15 122,475 117,944
150,000 Cray Research, Inc. 6.125% 2/01/11 101,000 122,250
150,000 General Signal Corporation 5.75% 6/01/02 147,375 160,500
181,000 Pogo Producing Co. 8.00% 12/31/05 138,277 183,715
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789,252 885,534
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<CAPTION>
NUMBER OF
SHARES
- ---------
<C> <S> <C> <C> <C> <C>
NON-CONVERTIBLE AND CONVERTIBLE PREFERRED STOCK 11.6%
6,000 Bankers Trust New York Corporation $ 1.91 144,495 145,500
6,000 Barclays Bank PLC, Series E $ 2.00 150,000 147,750
5,000 The Bear Stearns Companies, Inc. Pf, Series C $ 1.90 125,000 120,000
5,000 Community First Bankshares, Inc. $ 1.75 125,000 141,250
5,000 ConAgra, Inc. Pf, Series E $1.6875 159,531 176,875
4,000 Delta Air Lines, Inc. Pf, Series C $ 3.50 204,938 234,000
7,000 Fourth Financial Corporation Pf. Series A $ 1.75 209,125 215,250
2,500 J. P. Morgan & Co., Series A, Adj Rate Pf $ 5.00 143,720 185,000
5,000 NorAm Energy Pf $ 3.00 150,600 174,375
4,000 Provident Life & Accident Insurance Co. Pf $ 2.025 100,000 101,000
2,000 St. Paul Capital Pf $ 3.00 100,000 104,500
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1,612,409 1,745,500
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TOTAL FIXED INCOME SECURITIES 37.4% $ 5,294,721 $ 5,622,885
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<PAGE>
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES COMMON STOCKS COST VALUE
- --------- --------------------------------------------------------------------------------- ----------- -----------
<C> <S> <C> <C> <C> <C>
BASIC INDUSTRIES 6.5%
4,000 Cooper Industries, Inc. $ 134,186 $ 158,000
8,000 Graco Inc. 147,460 215,000
5,000 Ingersoll-Rand Company 61,341 191,250
4,000 Pentair, Inc. 51,782 174,000
5,000 Weyerhaeuser Company 135,368 235,625
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530,137 973,875
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CONSUMER 11.1%
6,000 Briggs & Stratton Corporation 73,339 207,000
5,000 Deluxe Corp. 131,746 165,625
3,000 The Dun & Bradstreet Corporation 146,260 157,500
2,000 Eastman Kodak Company 53,573 121,250
3,000 General Mills, Inc. 151,030 154,125
4,000 Genuine Parts Company 112,273 151,500
3,000 Hershey Foods Corporation 146,610 165,750
7,000 Hormel Foods 141,965 182,875
5,000 McCormick & Co., Inc. 98,750 107,500
8,000 Sturm, Ruger & Co., Inc. 67,552 259,000
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1,123,098 1,672,125
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ENERGY 7.4%
4,000 Amoco Corporation 140,723 266,500
2,000 Exxon Corporation 20,793 141,250
2,000 Kerr-McGee Corporation 95,364 107,500
2,500 Mobil Corporation 54,750 240,000
4,000 Murphy Oil Corporation 101,288 164,000
3,000 Schlumberger Limited 105,048 186,375
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517,966 1,105,625
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FINANCIAL 13.8%
5,000 American Express Company 99,215 176,250
5,000 First Bank System, Inc. 58,358 205,000
5,000 Firstar Corp. 163,175 168,125
2,250 Jefferson-Pilot Corp. 60,323 123,187
6,000 Merrill Lynch & Co., Inc. 99,319 315,000
4,000 J.P. Morgan & Co., Inc. 102,082 280,500
20,000 Norwest Corporation 94,825 575,000
6,000 ReliaStar 110,625 229,500
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787,921 2,072,562
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<PAGE>
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES COMMON STOCKS COST VALUE
- --------- --------------------------------------------------------------------------------- ----------- -----------
<C> <S> <C> <C> <C> <C>
HEALTH CARE 7.6%
3,000 American Home Products Corporation $ 182,542 $ 232,125
5,000 Baxter International Inc. 76,524 181,875
4,000 Bristol-Myers Squibb Company 205,562 272,500
5,000 Pfizer Inc. 136,357 460,625
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600,985 1,147,125
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TECHNOLOGY 9.8%
5,000 AMP Incorporated 133,605 211,250
4,000 Corning Inc. 105,980 131,000
3,000 Emerson Electric Co. 128,697 214,500
5,000 Honeywell Inc. 90,716 215,625
2,000 International Business Machines Corporation 96,740 192,000
5,000 MTS Systems Corporation 81,500 137,500
3,000 Minnesota Mining & Manufacturing Company 78,077 172,125
10,000 National Computer Systems, Inc. 121,380 207,500
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836,695 1,481,500
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UTILITIES 4.0%
7,000 GTE Corporation 96,007 238,875
5,000 Texas Utilities Company 183,482 171,875
4,470 U S West Communications 156,168 186,064
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435,657 596,814
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TOTAL COMMON STOCKS 60.2% $ 4,832,459 $ 9,049,626
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TOTAL INVESTMENTS 97.6% 10,127,180 14,672,511
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Other Assets in Excess of Liabilities 2.4% 363,447
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NET ASSETS 100% $15,035,958
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</TABLE>
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STATEMENT OF NET ASSETS AT JUNE 30, 1995
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<TABLE>
<S> <C> <C> <C>
ASSETS
Investments as annexed, at market value (cost $9,136,258)............................. $13,646,739
U.S. Governments (cost $990,922)...................................................... 1,025,773
Cash.................................................................................. 280,088
Dividends and interest receivable..................................................... 82,053
Receivables for securities sold, not yet delivered.................................... 0
Prepaid expense....................................................................... 11,747
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$15,046,400
LIABILITIES
Accrued management fee........................................ $ 7,514
Accrued custodian and transfer agent fee...................... 2,928
Payable for securities purchased, not yet received............ 0 10,442
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NET ASSETS
Equivalent to $60.63 per share on 248,001 shares outstanding.......................... $15,035,958
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</TABLE>
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STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<S> <C> <C> <C>
NET ASSETS, December 31, 1994......................................................... $12,972,976
Net investment income, per statement below.................... $ 252,591
Net accrued income in price of shares sold and repurchased.... 26
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252,617
Distribution to shareholders.................................. 244,998 7,619
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Fund shares issued and repurchased:
Received for 12,309 shares issued........................... 708,531
Paid for 11,792 shares repurchased.......................... 661,533 46,998
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Increase in unrealized net appreciation (depreciation) of
investments.................................................. 1,943,445
Net gain or (loss) realized from sales of securities.......... 64,920
Distribution from net realized gain........................... 0
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NET ASSETS, June 30, 1995..................................... $15,035,958
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</TABLE>
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STATEMENT OF NET INVESTMENT INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends............................................................................. $ 192,586
Interest.............................................................................. 138,278
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$ 330,864
EXPENSES
Management fee (Note B)....................................... $ 42,490
Fees and expenses of custodian, transfer agent and dividend
disbursing agent (Note B).................................... 17,031
Legal and auditing fees and expenses.......................... 8,591
Insurance..................................................... 1,244
Other Fees and Expenses....................................... 8,917 78,273
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NET INVESTMENT INCOME $ 252,591
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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 $2,438. No
compensation was paid to any other officer or director of the Fund.
SUPPLEMENTARY INFORMATION: Purchases and sales of investment securities during
the six months ended June 30, 1995 aggregated $288,720 and $123,670
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
June 30, 1995 248,001 15,035,958 60.63 0.00 1.00
</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 JUNE 30, 1995) ARE AS FOLLOWS:
1 YEAR: +18.3% 5 YEARS: +11.1% 10 YEARS: +11.8%
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.
