<PAGE>
Registration Number 2-18269
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 39
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 39
Mairs and Power Income Fund, Inc.
- - - --------------------------------------------------------------------------------
(Exact Name of Registration as Specified in Charter)
W-2062 First National Bank Building
332 Minnesota Street
St. Paul, MN 55101
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (612) 222-8478
William B. Frels, President
W-2062 First National Bank Building
332 Minnesota Street
St. Paul, MN 55101
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on April 29, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
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<PAGE>
MAIRS AND POWER INCOME FUND, INC.
CROSS REFERENCE SHEET
Form N-1A Item
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Part A - Prospectus Heading in Prospectus
- - - ----------------------------------- ----------------------------------------
1. Cover Page Prospectus
2. Synopsis Fund Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objective and Policies; the
Fund; Risks
5. Management of the Fund Management of the Fund
5A. Management's Discussion of Fund Management's Discussion of Fund
Performance Performance
6. Capital Stock and Other The Fund; Distributions and Tax
Securities Consequences
7. Purchase of Securities Offered Purchasing Shares; Determining Net Asset
Value Per Share
8. Redemption or Repurchase Redeeming Shares
9. Pending Legal Proceedings Not Applicable
Part B - Statement of Additional Heading in Statement of Additional
Information Information
- - - ----------------------------------- ----------------------------------------
10. Cover Page Statement of Additional Information
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Investment Objective and Policies;
Policies Investment Limitation; Portfolio
Turnover
14. Management of the Fund Officers and Directors
2
<PAGE>
MAIRS AND POWER INCOME FUND, INC.
CROSS REFERENCE SHEET
Form N-1A Item
- - - --------------
Part B - Statement of Additional Heading in Statement of Additional
Information Information
- - - ----------------------------------- ----------------------------------------
15. Control Persons and Principal Officers and Directors; Principal
Holders of Securities Holders of Securities
16. Investment Advisory and Other Investment Adviser; Transfer Agent and
Services Custodian
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other (Included in Prospectus Under "The Fund")
Securities
19. Purchase, Redemption and Purchasing and Redeeming Shares
Pricing of Securities Being
Offered
20. Tax Status (Included in Prospectus Under
"Distributions and Tax Consequences")
21. Underwriters Not Applicable
22. Calculation of Performance Data Not Applicable
23. Financial Statements Financial Statements
3
<PAGE>
W-2062 FIRST NATIONAL BANK
BLDG.
332 MINNESOTA STREET
ST. PAUL, MN 55101
612-222-8478
OBJECTIVE
To provide liberal current
income and the possibility of
modest long-term capital
appreciation by investing in a
diversified list of securities,
including bonds, preferred and
common stocks and securities
convertible into common stock.
The Prospectus, which should be
retained for future reference,
is designed to set forth
concisely the information you
should know before you invest.
A "Statement of Additional
Information" dated April 29,
1996, and incorporated herein
by reference, has been filed
with the Securities and
Exchange Commission. A copy of
the
PROSPECTUS
Statement may be obtained,
without charge, by writing to
or calling the Fund.
April 29, 1996
A NO-LOAD FUND
There is no sales charge for
the purchase or sale of Fund
shares.
THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Fund Expenses........................................................................... 2
Condensed Financial Information......................................................... 3
Financial Highlights Chart.............................................................. 3
Investment Objective and Policies....................................................... 4
Management of the Fund.................................................................. 4
Management's Discussion of Fund Performance............................................. 5
Comparison Chart (Fund, S & P 500 Index, Consumer Price Index).......................... 5
The Fund................................................................................ 6
Purchasing Shares....................................................................... 6
Redeeming Shares........................................................................ 6
Distributions and Tax Consequences...................................................... 7
Determining Net Asset Value Per Share................................................... 8
Other Services.......................................................................... 8
Risks................................................................................... 8
</TABLE>
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FUND EXPENSES
The purpose of the following table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly, and importantly, to compare the expense of an investment in the Fund
with other similar investments.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases.................................... None
Maximum Sales Load Imposed on Reinvested Dividends......................... None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fee............................................................... None
</TABLE>
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1995
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees............................................................ 0.60%
12b-1 Fees................................................................. 0.00
Other Expenses............................................................. 0.52
---------
Total Operating Expenses................................................... 1.12%
---------
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at
the end of each time period: $ 11 $ 36 $ 62 $ 137
</TABLE>
Although this example is based on actual expenses in the most recent year it
should not be considered a representation of past or future expenses; actual
expenses in future years may be greater or less than those shown.
2
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following table shows certain important financial information which may be
helpful in evaluating the Fund's results. The information is derived from the
Fund's financial statements, which have been audited by Ernst & Young LLP,
independent auditors. The financial statements and auditors' report may be found
in the Fund's most recent annual report which may be obtained, without charge,
by writing to or calling the Fund at the number listed on the front of this
Prospectus.
FINANCIAL HIGHLIGHTS
(SELECTED PER SHARE DATA AND RATIOS -- FOR EACH SHARE OF
CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------
PER SHARE
Net asset value, beginning of year $ 52.42 $ 56.38 $ 53.82 $ 53.34 $ 44.11 $ 45.78 $ 41.39 $ 39.08 $ 42.53 $ 41.86
Investment operations:
Net investment income 2.01 2.09 2.00 2.00 1.98 2.12 2.13 2.24 2.00 1.98
Net realized and unrealized gains
(losses) on investments 13.55 (3.25) 3.79 1.07 9.24 (1.53) 5.07 3.14 (1.16) 4.38
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations 15.56 (1.16) 5.79 3.07 11.22 0.59 7.20 5.38 0.84 6.36
Less distributions:
Dividends (from net investment income) (2.04) (2.06) (1.98) (1.99) (1.99) (2.13) (2.15) (2.23) (2.11) (1.95)
Distributions (from capital gains) (0.55) (0.74) (1.25) (0.60) -- (0.13) (0.66) (0.84) (2.18) (3.74)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (2.59) (2.80) (3.23) (2.59) (1.99) (2.26) (2.81) (3.07) (4.29) (5.69)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 65.39 $ 52.42 $ 56.38 $ 53.82 $ 53.34 $ 44.11 $ 45.78 $ 41.39 $ 39.08 $ 42.53
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN 30.0% (2.1)% 10.9% 5.9% 25.9% 1.4% 17.7% 13.9% 1.7% 15.3%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS, END OF YEAR (000'S OMITTED) 16,979 12,973 13,442 11,536 10,676 8,075 7,886 6,570 5,772 5,395
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net
assets 1.12% 1.11% 1.06% 1.13% 1.25% 1.20% 1.22% 1.22% 1.20% 1.20%
Ratio of net investment income to
average net assets 3.47% 3.80% 3.50% 3.72% 4.02% 4.78% 4.78% 5.33% 4.43% 4.43%
Portfolio turnover rate 3.95% 17.28% 24.10% 16.12% 24.37% 20.15% 14.18% 25.83% 20.83% 32.46%
</TABLE>
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's objective is to provide its shareholders with liberal income and
the possibility of modest long-term capital appreciation by investing in a
diversified list of securities, including bonds, preferred and common stocks and
securities convertible into common stock. The percentage of the Fund's assets
invested in various types of securities will vary in accordance with the
judgment of the Fund's investment adviser, Mairs and Power, Inc., but common
stock and securities convertible into common stock are expected to remain the
dominant portfolio emphasis. The Fund seeks to achieve its objective by
investing in a list of holdings that is diversified by security type and by
industry. Assets of the Fund will be reasonably fully invested at all times.
Cash, bank certificates of deposit and short-term debt securities may be held in
modest amounts to provide a reserve for future purchases or better enable the
Fund to achieve its objective. Portfolio turnover is expected to be modest in
relation to comparable mutual funds. Although the Fund will invest primarily in
higher-rated fixed income securities (Baa or better by Moody's Investors
Service, Inc.), fixed income securities with ratings lower than Baa may be
purchased if, in the opinion of the Investment Adviser, the total return
potential of the issue outweighs the added risk. Such lower rated issues will
normally constitute less than 20% of the Fund's net assets.
A detailed description of the Fund's investment limitations is contained in
the Statement of Additional Information. Such limitations are fundamental
policies which cannot be changed without the approval of a majority of the
Fund's shareholders, as defined in the Statement of Additional Information.
MANAGEMENT OF THE FUND
The Board of Directors has overall responsibility for the Fund. The Fund
employs Mairs and Power, Inc., W-2062 First National Bank Building, 332
Minnesota Street, St. Paul, Minnesota 55101, to manage the Fund's investment
portfolio and certain other business affairs under a contract that compensates
Mairs and Power, Inc. at the rate of one-twentieth of one percent of the Fund's
month-end net asset value (0.6% annually), computed and paid each month. Mairs
and Power, Inc. has managed mutual funds since 1958 and has provided investment
counsel services in St. Paul since 1931.
William B. Frels, Secretary of Mairs and Power, Inc. is primarily responsible
for the day-to-day management of the Fund's portfolio. Mr. Frels has been an
officer and director of Mairs and Power, Inc. since July, 1992. Prior to that
time he was a Vice President and Senior Investment Officer for American National
Bank and Trust Company of St. Paul, Minnesota from September 1990 to June 1992.
Mairs and Power, Inc. acts as the Fund's Transfer Agent and Dividend
Disbursing Agent and is reimbursed for all expenditures incurred in the
discharge of these duties. The ratio of the transfer agent fee to average net
assets in 1995 was 0.13%.
Norwest Bank Minnesota, N. A. acts as Custodian for the Fund pursuant to the
terms of a custodial agreement which must be approved annually by the Board of
Directors. It controls all securities and cash for the Fund, receives and pays
for securities purchased, delivers against payment for securities sold, receives
and collects income from investments, makes all payments for Fund expenses and
performs other administrative services, all as directed in writing by authorized
officers of the Fund. The ratio of the custodial fee to average net assets in
1995 was 0.09%.
Effective May 1, 1996 Firstar Trust Company of Milwaukee, Wisconsin will act
as Custodian for the Fund, and will assume all duties, responsibilities and
control pursuant to the same terms set forth above.
The ratio of the management fee to average net assets in 1995 was 0.6%; the
ratio of total Fund operating expenses to average net assets ("expense ratio")
was 1.12%. Mairs and Power, Inc. has agreed with the Fund that the expense ratio
will not exceed the lowest expense limitation of any state in which the Fund's
shares are sold.
4
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
1995 IN REVIEW
With both stock and bond markets achieving near record increases, 1995 was
almost a complete reversal from the previous year. The Income Fund fully
participated in the market strength showing a 30.0% total investment return for
the year after adjustment for the reinvestment of cash dividends and capital
gain distributions. This compared to a return of 37.5% for the Standard & Poor
500, which was the best since 1958 when a 43.4% return was realized. The Lehman
Brothers Gov't./Corp. Bond Index earned a return of 19.2% reflecting a dramatic
decline in interest rates (U.S. Treasury rates fell nearly 185 basis points on
the 30 year bond and some 245 basis points on the 2 year note). The Income Fund
also did well relative to other balanced mutual funds as evidenced by an average
return of 24.9% for a CDA/Wiesenberger universe of 253 balanced funds.
The past year could be characterized as a near perfect market environment for
financial assets. Inflation remained low as measured by a relatively modest 2.5%
increase in the Consumer Price Index. Corporate profits are estimated to have
improved at an above average rate of near 15%. There was plenty of liquidity
with which to purchase financial assets as individuals increased their savings
rate and corporations generated excess cash flow as a result of cost cutting and
restructuring. This surplus cash was used in many instances to help fund stock
repurchase programs. Finally, foreign investors are thought to have stepped up
their investment in U.S. markets with the recovery of the Dollar relative to
other major currencies that began around mid-year. Over the course of the year,
the Income Fund continued to hold more than half of its assets in common stocks
(60.7% at year end) with the balance invested in a combination of bonds,
(corporate and Federal Government), convertible bonds and preferred stock
(convertible and non-convertible). The Fund remained pretty fully invested
throughout the year with cash reserves of only 3.6% at year end.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MPI S&P CPI
<S> <C> <C> <C>
1985 10000 10000 10000
1986 11535 11870 10190
1987 11733 12487 10567
1988 13364 14560 11000
1989 15726 19161 11528
1990 15940 18548 12151
1991 20065 24205 12661
1992 21241 26069 13041
1993 23545 28702 13393
1994 23056 29075 13755
1995 29981 39990 14099
Average Annual Total Return
1 Year 5 Year 10 Year
30.04% 13.47% 11.60%
Past investment results should not be taken
as
necessarily representative of future
performance.
</TABLE>
5
<PAGE>
THE FUND
The Fund is an open-ended, diversified management company which was
incorporated in Minnesota in 1961. The fund has authorized capital stock of
10,000,000 shares, $0.10 par value per share. Each share entitles the holder to
one vote at all meetings of Fund shareholders and to participate equally in
dividends and distributions declared by the Fund, and in its remaining net
assets on liquidation after satisfaction of outstanding liabilities. Fund shares
are fully paid and non-assessable when issued, have no preemptive, conversion,
or cumulative voting rights, are transferable without restrictions and are
redeemable at net asset value.
PURCHASING SHARES
Shares of the Fund may be purchased, with no sales charge, at the Fund's
office in St. Paul. Shares are purchased at the next-computed net asset value
after receipt and acceptance of a purchase application in proper form. Net asset
value will be calculated as of the close of trading of the New York Stock
Exchange on the last business day of each week (normally a Friday), on the final
business day of each month, and on any day in which an order to redeem Fund
shares is received (a "special" valuation). All subscriptions are subject to
acceptance by authorized officers of the Fund and are not binding until so
accepted. An initial purchase must be a least $2,500 and each subsequent
purchase must be at least $100, although the Fund reserves the right to waive or
change these minimums at its discretion. The Fund will not accept currency.
Stock certificates will not ordinarily be issued unless the investor requests a
certificate in writing. The Fund will invest the entire dollar amount of each
purchase order in full and fractional Fund shares and, unless otherwise
instructed, will reinvest all income dividends and capital gains distributions
in additional full and fractional shares. Investors may, however, request that
income dividends and/or capital gains distributions be paid in cash.
REDEEMING SHARES
Shareholders may redeem for cash all or a portion of their shares by
instructing the Fund at its office in St. Paul. Shares will be redeemed at the
net asset value next computed after the receipt of a redemption order. Although
the net asset value of Fund shares is normally determined only as of the close
of trading on the New York Stock Exchange each Friday and at month-end, a
special net asset value determination will be made as of the close of New York
Stock Exchange trading on any day that an order for the redemption of Fund
shares is received. A redemption request must be in "good order" before the
proceeds can be released. This means the following will be required:
(a) A letter of instruction or a stock assignment specifying the number of
shares or dollar amount to be redeemed, signed by all owners of the shares
exactly as their names appear in the Fund's shareholder records. If
certificates have been issued representing shares to be redeemed, they must
accompany the letter.
(b) A guarantee of the signature of each owner by an eligible signature
guarantor such as a U.S. commercial bank, trust company, or member of the
New York Stock Exchange for redemption requests greater than $10,000.
(c) In the case of estates, trusts, guardianships, custodianships, corporations
and pension and profit-sharing plans, other supporting legal documents may
be required.
(d) A guarantee of the signature of each owner by an eligible signature
guarantor such as a U.S. commercial bank, trust company, or member of the
New York Stock Exchange if the address of record has been changed within the
15 days preceding any liquidation.
If the proceeds of any redemption are requested to be sent to other than the
address of record, signature(s) on the request must be guaranteed by an eligible
signature guarantor such as a commercial bank, trust company, or a member of the
New York Stock Exchange.
6
<PAGE>
The Fund may be required to withhold federal income tax at a rate of 31%
(backup withholding) from dividend payments, distributions, and redemption
proceeds if a shareholder fails to furnish the Fund with his or her social
security or tax identification number. The shareholder also must certify that
the number is correct and that he or she is not subject to backup withholding.
The certification is included as part of the share purchase application form. If
the shareholder does not have a social security number, he or she should
indicate on the purchase form that an application to obtain a number is pending.
The Fund is required to withhold taxes if a number is not delivered to the fund
within seven days.
No redemption request will become effective until all documents have been
received in proper form by the Fund. The shareholder should contact the Fund for
further information concerning documentation required for a redemption of Fund
shares.
Shareholders who have an IRA or other retirement plan must indicate on their
redemption request whether or not to withhold federal income tax. Redemption
requests failing to indicate an election not to have tax withheld will be
subject to withholding.
Payment will be made as soon as possible, but in no event later than five
business days after receipt of a redemption order in proper form. The right of
redemption may be suspended or the date of payment may be postponed (1) during
weekend or holiday closings, or when trading is restricted as determined by the
Securities and Exchange Commission ("SEC"), (2) during any period when an
emergency exists as determined by the SEC as a result of which it is not
reasonably practicable for the Fund to dispose of securities owned by it or to
fairly determine the value of its net assets, and (3) for such a period as the
SEC may permit. A redemption order may not be canceled or revoked by the
shareholder once redemption instructions have been received and accepted by the
Fund. Since the redemption price is net asset value per share determined at the
same time and in the same manner as for a purchase order received at that time,
it reflects the market value of the Fund's investments at the time of
redemption. This value may be more or less than the price originally paid for
the shares, and the investor may realize a gain or loss on redemption.
DISTRIBUTIONS AND TAX CONSEQUENCES
The Fund distributes all of its net investment income to shareholders in the
form of quarterly dividends, normally in March, June, September and December. If
net capital gains are realized, the Fund will distribute them near year-end in
the year in which such gains are realized. The Fund intends to comply, as it did
in 1995, with the special provisions of Subchapter M of the Internal Revenue
Code that relieve it from federal income tax on net investment income and
capital gains currently distributed to shareholders. The Internal Revenue Code
requires all regulated investment companies to pay a non deductible 4% excise
tax if at least 98% of ordinary income and 98% of capital gains are not paid out
to shareholders during the year in which they are earned or realized. The Fund
intends to distribute income and capital gains in such a manner as to avoid the
imposition of this excise tax.
Fund shareholders will be subject to federal income tax at ordinary rates on
distributions of investment income and short-term capital gains. Distributions
of net long-term capital gains are taxable to Fund shareholders as long-term
capital gain regardless of the length of time shares of the Fund are held.
Short-term capital gains are taxed at the same rate as an individual's ordinary
income; long-term capital gains are taxed at a maximum rate of 28%. Dividends
and distributions will be taxable whether received in cash or reinvested in
additional shares of the Fund. Shareholders will be advised annually as to the
source of distributions for tax purposes. Distributions may also be subject to
state and local taxes. Shareholders not subject to tax on income will not be
required to pay tax on amounts distributed from the Fund.
The Fund's dividends and distributions are paid on a per share basis. At the
time of such payment, therefore, the value of each share will be reduced by the
amount of the payment. If shares are purchased shortly before the payment of a
dividend or a capital gains distribution, purchasers will pay the full price for
the shares and then receive some portion of the price back as a taxable dividend
or distribution.
7
<PAGE>
The foregoing is a general summary of current federal income tax law regarding
the Fund. Investors should consult with their own tax adviser regarding federal,
state and local tax consequences of an investment in the Fund.
DETERMINING NET ASSET VALUE PER SHARE
The net asset value per share for purchase and redemption orders is determined
on the days set forth under the paragraphs for "Purchasing Shares" and
"Redeeming Shares," as of the close of regular trading hours on the New Stock
Exchange (currently 3:00 p.m., Central time) on each day the New York Stock
Exchange is open for trading. As a result, shares of the Fund will not be priced
on the days which the Exchange observes: New Years Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share is determined by dividing the total
market value of the Fund's investment and other assets, less any liabilities, by
the total outstanding shares of the Fund. Each security traded on one or more of
the national exchanges are valued at its last sale price as shown in the Wall
Street Journal or other recognized national financial publication on the day of
the valuation, or if there were no sales on that day, the most recent sales
price. All other securities are valued at the mean between the bid and the asked
price. For securities where quotations are not readily available, or where the
last quoted price is not considered representative of the value of that security
if it were to be sold on that day, the security will be valued at fair value as
determined in good faith by the Adviser.
OTHER SERVICES
Shareholder Reports -- Shareholders will receive a confirmation statement
reflecting each purchase and redemption of Fund shares, as well as periodic
statements detailing distributions made by the Fund. In addition, the Fund will
send shareholders quarterly and annual reports showing its portfolio holdings
and will provide tax information annually.
Systematic Withdrawals -- Shareholders may arrange to have quarterly or
monthly withdrawals of cash from an account by sending a systematic withdrawal
request to the Fund. Withdrawal payments are derived from liquidation of
sufficient shares from a shareholder's account to meet the designated payments.
The withdrawal plan may be terminated at any time by writing to the Fund. The
minimum investment to establish a systematic withdrawal program is $10,000.
Retirement Plans -- The Fund sponsors IRA and Keogh retirement plans,
information on which is available on request from the Fund's office in St. Paul.
RISKS
All investments have risks. Although the Fund cannot eliminate all risk, it
seeks to moderate risk by investing in a diversified portfolio. Long-term
investors, for whom the Fund is designed, should be prepared to accept
fluctuations in portfolio value as the Fund seeks to achieve its investment
objective of liberal income and the possibility of modest capital appreciation.
There can be no assurance, of course, that the Fund will achieve its objective.
8
<PAGE>
OFFICERS AND DIRECTORS
- - - --------------------------------------------------------------------------------
William B. Frels ........................................ President and Director
George A. Mairs, III .................................... Secretary and Director
Peter G. Robb ...................................... Vice President and Director
Kathleen M. Kellerman ................................................ Treasurer
Litton E. S. Field .................................................... Director
Donald E. Garretson ................................................... Director
J. Thomas Simonet ..................................................... Director
<TABLE>
<S> <C>
INVESTMENT ADVISER CUSTODIAN
Mairs and Power, Inc. Firstar Trust Company
W-2062 First National Bank 615 East Michigan Street
Building Milwaukee, Wisconsin 53202
332 Minnesota Street
Saint Paul, Minnesota 55101
TRANSFER AGENT INDEPENDENT AUDITORS
Mairs and Power, Inc. Ernst & Young LLP
W-2062 First National Bank 1400 Pillsbury Center
Building 200 South Sixth Street
332 Minnesota Street Minneapolis, Minnesota
Saint Paul, Minnesota 55101 55402
</TABLE>
9
<PAGE>
MAIRS AND POWER
INCOME FUND, INC.
PROSPECTUS
APRIL 29, 1996
<PAGE>
Mairs and Power Income Fund, Inc.
STATEMENT OF ADDITIONAL INFORMATION
Dated April 29, 1996
Mairs and Power Income Fund, Inc. (the "Fund") is a no-load mutual fund
that has as its investment objective liberal current income and the possibility
of modest long-term capital appreciation. In seeking to accomplish its
objective, the Fund invests in a combination of equity, fixed income and
convertible securities.
This Statement of Additional Information is not a prospectus, but contains
information in addition to and more detailed than what is contained in the
Fund's Prospectus. It should be read in conjunction with the Prospectus, dated
April 29, 1996, which has been filed with the Securities and Exchange Commission
and can be obtained, without charge, by calling or writing the Fund. This
Statement of Additional Information has been incorporated by reference into the
Prospectus. The address of the Fund is W-2062 First National Bank Building, 332
Minnesota Street, St. Paul, MN 55101 and its telephone number is (612) 222-8478.
Table of Contents
Investment Objective and Policies............................................ 5
Investment Limitations....................................................... 5
Portfolio Turnover........................................................... 6
Purchasing and Redeeming Shares.............................................. 6
Principal Holders of Securities.............................................. 6
Officers and Directors....................................................... 7
Investment Adviser........................................................... 8
Transfer Agent and Custodian................................................. 9
Portfolio Transactions....................................................... 9
Financial Statements......................................................... 10
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
As discussed on page 4 of the Fund's Prospectus, the Fund will normally
invest in a diversified list of securities, including bonds, preferred and
common stocks and securities convertible into common stock. The percentage of
the Fund's assets that may be held in each category will vary in accordance with
the judgment of the Fund's investment adviser, Mairs and Power, Inc. While
equities and securities convertible into equities are expected to remain the
dominant holdings in the Fund, the Adviser may, in its discretion, alter the
relative weightings in response to market conditions.
INVESTMENT LIMITATIONS
The Fund is subject to the following restrictions which may not be changed
without the approval of a majority of the shareholders of the Fund. The vote of
a majority of the shareholders means the vote, at the annual or a special
meeting of the security holders, of holders representing (a) 67% or more of the
voting securities present at such meeting, if the holders of more than 50% of
the outstanding voting securities are present or represented by proxy; or (b)
more than 50% of the outstanding voting securities, whichever is less. The Fund
may not:
(1) Purchase securities of any issuer if as a result, (a) more than 5% of
the value of the total assets of the Fund would then be invested in
the securities of a single issuer (other than U.S. Government
obligations), or (b) more than 10% of any class of securities, or more
than 10% of the outstanding voting securities, of the issuer would
then be held by the Fund;
(2) Purchase securities of other investment companies if as a result more
than 5% of the Fund's total assets would then be (a) invested in the
securities of that investment company, or (b) more than 10% of the
Fund's assets would then be invested in securities of all investment
companies;
(3) Concentrate more than 20% of its investments in a particular industry;
(4) Purchase or sell real estate, real estate investment trusts, or other
interests in real estate which are not readily marketable;
(5) Write, purchase or sell puts, calls, or combinations thereof;
(6) Make loans (although it may acquire portions of an issuer's publicly
distributed securities);
(7) Purchase securities on margin or sell short;
(8) Borrow money, except that the Fund may borrow from banks up to 5% of
its total assets to pay capital gains distributions, to pay income
dividends, or to relieve an extraordinary or emergency situation, but
not for investment purposes;
5
<PAGE>
(9) Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund;
(10) Participate on a joint or a joint and several basis in any trading
account in securities;
(11) Invest in companies for the purpose of exercising control of
management;
(12) Act as an underwriter of securities of other issuers;
(13) Purchase or retain the securities of any issuer if officers and
directors of the Fund or its investment adviser who own individually
more than one-half of one percent of the securities of such issuer,
together own more than 5% of the securities of such issuer;
(14) Purchase or sell commodities or commodity contracts in the ordinary
course of its business;
(15) Purchase or sell "restricted securities" in such a way as to become an
"underwriter" within the meaning of that term as used in the
Securities Act of 1933.
PORTFOLIO TURNOVER
The Fund anticipates that its annual portfolio turnover rate will not
exceed 50%. The Fund, however, has not placed any limit on its rate of
portfolio turnover and securities may be sold without regard to the time they
have been held when in the opinion of the Investment Adviser investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of securities with maturities of one year or less at the
time the Fund acquired them) by the monthly average value of the securities in
the Fund's portfolio during the year.
PURCHASING AND REDEEMING SHARES
The purchase and redemption of Mairs and Power Income Fund, Inc. shares are
subject to the procedures described on page 7 of the Fund's Prospectus, which is
incorporated herein by reference.
PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 1996, the only shareholder holding more than 5% of the
Fund's outstanding shares was Smyth Profit Sharing and Savings Plan, St. Paul,
MN (20,531 shares, 7.8%).
6
<PAGE>
OFFICERS AND DIRECTORS
The Officers and Directors of the Fund and their principal occupations for
the last five years are set forth below. Unless otherwise noted, the address
for each Director and Officer is 332 Minnesota Street, W-2062 First National
Bank Bldg., St. Paul, MN 55101.
Position(s) Held Principal Occupation(s) During
Name and Address With Registrant Past 5 Years
- - - ---------------- ---------------- -------------------------------------
William B. Frels* President and Vice President and Secretary of the
Director Investment Adviser (July 1992 to
Present); Vice President and Senior
Investment Officer, American National
Bank and Trust Company of St. Paul,
MN (September 1990 to June 1992)
George A. Mairs, III* Secretary and President of the Investment
Director Adviser
Peter G. Robb* Vice President Vice President of the Investment
and Director Adviser (June 1994 to Present); Vice
President and Portfolio Manager,
First Trust N.A., St. Paul, MN (June
1986 to April 1994)
Kathleen M. Kellerman Treasurer Treasurer of the Investment Adviser
(June 1993 to Present); Office
Manager of the Investment Adviser
Litton E.S. Field Director Chairman, T.C. Field & Co. Insurance
530 North Robert Street Agency
St. Paul, MN 55101
Donald E. Garretson Director Retired Vice President, 3M Company
709 Linwood Avenue
St. Paul, MN 55105
J. Thomas Simonet Director Retired Chief Executive Officer,
315 Stonebridge Blvd. First Trust Company
St. Paul, MN 55105
*Interested person of the Fund, as defined in the Investment Company Act of
1940.
7
<PAGE>
All of the above listed persons serve in the same officer and/or director
capacities with Mairs and Power Growth Fund, Inc., an open-end investment
company which also retains Mairs and Power, Inc. as its investment adviser,
except that Mr. Mairs is President and Mr. Frels is Secretary of that fund.
The Fund's non-interested Directors are members of the Audit Committee
which makes recommendations to the Board regarding the selection of auditors and
confers with the auditors regarding the scope and results of the annual audit.
The Fund does not pay any remuneration to its officers and Directors other than
fees to Directors who are not officers, directors, employees or holders of 5% or
more of the outstanding voting securities of the Fund's Investment Adviser,
which totaled $4,650 in 1995. As of March 31, 1996, the Directors and Officers
of the Fund, as a group, and their spouses and minor children owned beneficially
5,829 shares, or 2.2% of the Fund.
INVESTMENT ADVISER
Mairs and Power, Inc., a Minnesota corporation, is the Investment Adviser
of the Fund. Mairs and Power, Inc. shareholders, all of whom are officers and
directors of the Fund, along with their percentage ownership positions in Mairs
and Power, Inc., are listed below:
George A. Mairs, III 54.9%
William B. Frels 31.9%
Peter G. Robb 11.8%
Kathleen M. Kellerman 1.4%
Mairs and Power, Inc. has furnished continuous investment supervision to
the Fund since 1961. Mairs and Power, Inc. currently provides similar services
to one other mutual fund, Mairs and Power Growth Fund, Inc., net assets of which
as of December 31, 1995 were $70,536,880.
Mairs and Power, Inc. serves as Investment Adviser to the Fund under the
terms of an Investment Advisory Agreement dated March 20, 1972. The Investment
Advisory Agreement must be approved annually by the Board of Directors of the
Fund, including a majority of those directors who are not parties to such
contract or "interested persons" of any such party as defined in the Investment
Company Act of 1940, by vote cast in person at a meeting called for such
purpose. The Agreement may be terminated at any time, without penalty, on sixty
days' written notice by the Fund's Board of Directors, by the holders of a
majority of the Fund's outstanding voting securities or by the Investment
Adviser. The Agreement automatically terminates in the event of its assignment
(as defined in the Investment Company Act of 1940 and the rules thereunder).
As compensation for its services to the Fund, the Investment Adviser
receives monthly compensation at the rate of one-twentieth of one percent of
month-end net asset value (0.6% annually), computed and paid each month. The
ratio of the management fee to average net assets in 1995 was 0.6%; the ratio of
total expenses to average net assets was 1.12%. Mairs and Power, Inc. has
agreed with
8
<PAGE>
the Fund that the expense ratio will not exceed the expense limitation of any
state in which the Fund's share are sold.
Advisory fees paid by the Fund to Mairs and Power, Inc. amounted to $90,626
in 1995, $81,084 in 1994 and $78,041 in 1993. Under the terms of the Investment
Advisory Agreement, the Investment Adviser agrees to render research,
statistical and advisory services to the Fund, pay for office rental, executive
salaries and executive expenses and pay all expenses related to the distribution
and sale of Fund shares. All other expenses, such as brokerage commissions,
fees charged by the Securities and Exchange Commission, custodian and transfer
agent fees, legal and auditing fees, taxes, premiums on fidelity bonds,
supplies, and all other miscellaneous expenses are borne by the Fund. No
compensation was paid to any other director or officer of the Fund.
TRANSFER AGENT AND CUSTODIAN
Mairs and Power, Inc. also acts as the Fund's Transfer Agent and Dividend
Disbursing Agent and is reimbursed for all expenditures incurred in the
discharge of these responsibilities. Reimbursements amounted to $18,833 in
1995, $19,196 in 1994 and $12,971 in 1993.
Custodial services for the Fund are performed by Norwest Bank Minnesota,
N.A., Sixth and Marquette, Minneapolis, MN 55479, pursuant to the terms of a
Custodial Agreement reviewed annually by the Board of Directors. As Custodian,
Norwest Bank Minnesota, N.A. controls all securities and cash for the Fund,
receives and pays for securities purchased, delivers against payment for
securities sold, receives and collects income from investments, makes all
payments for Fund expenses and performs other administrative services, as
directed in writing by authorized officers of the Fund. For these services,
Norwest Bank Minnesota, N.A. received $14,100 in 1995, $15,287 in 1994 and
$14,957 in 1993.
Effective May 1, 1996 Firstar Trust Company of Milwaukee, WI will act as
Custodian for the Fund, and will assume all duties, responsibilities and control
pursuant to the same terms as set forth above.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is responsible for the Fund's portfolio decisions and the
placing of orders to effect the Fund's portfolio transactions. With respect to
such transactions, the Investment Adviser seeks to obtain the best net results
for the Fund taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved. While the Investment Adviser
generally seeks reasonably competitive commission rates, the Fund will not
necessarily be paying the lowest commission or spread available. The Fund has
no obligation to deal with any broker or dealer in the execution of its
portfolio transactions, and there is no affiliation
9
<PAGE>
between the Fund's officers or directors, or its Investment Adviser, and any
broker-dealer or affiliated persons of any broker-dealer who executes
transactions for the Fund.
Investment decisions for the Fund are made independently from those of
Mairs and Power Growth Fund, Inc., also managed by Mairs and Power, Inc. When
these funds are simultaneously engaged in the purchase or sale of the same
securities the transactions are averaged as to price and allocated as to amount
in accordance with a formula deemed equitable to each fund. In some cases this
system may adversely affect the price paid or received by the Fund, or the size
of the position obtainable for the Fund.
Decisions with respect to allocations of portfolio brokerage will be made
by the Investment Adviser. Portfolio transactions are normally placed with
broker-dealers which provide the Fund's Investment Adviser with research and
statistical assistance. Recognizing the value of these factors, the Fund may
pay brokerage commissions in excess of those which another broker might charge
for effecting the same transaction, even though the research services furnished
by brokers through whom the Fund effects securities transactions may benefit
other clients of Mairs and Power, Inc.
The Fund has an investment in the securities of Merrill Lynch & Co., Inc.,
an investment company; at the end of 1995, the value of this investment was
$306,000 or 1.8% of the Fund's net assets.
For the year 1995, the Fund paid $2,756 in brokerage fees on purchase and
sale of portfolio securities. All of this amount was paid to brokers or dealers
who supplied research services to the Investment Adviser. Total brokerage fees
for 1994 and 1993 amounted to $6,927 and $7,571, respectively.
FINANCIAL STATEMENTS
The Fund's financial statements, including a listing of portfolio
securities as of December 31, 1995, are included in the Fund's Annual Report to
Shareholders for the year ended December 31, 1995 and are incorporated herein by
reference. The financial statements have been audited by Ernst & Young LLP,
independent auditors, 1400 Pillsbury Center, 200 South Sixth Street,
Minneapolis, Minnesota 55402, as set forth in their report appearing in the
Annual Report and incorporated herein by reference. Additional copies of the
Annual Report may be obtained, without charge, by writing or calling the Fund.
10
<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The financial statements identified with an asterisk (*) in the index
below, together with the report of Ernst & Young LLP dated January 12,
1996, appearing on pages 5 to 13 of the 1995 Annual Report to
Shareholders are incorporated by reference. With the exception of the
preceding information, the Annual Report is not incorporated herein by
reference and is not deemed filed as part of this Form N-1A.
Page Number In:
Prospectus Annual Report
---------- -------------
*Financial Highlights for each of
the ten years in the period ended
December 31, 1995 3 5
*Statement of Net Assets at
December 31, 1995 6-8
*Statement of Operations for the
year ended December 31, 1995 9
*Statement of Changes in Net Assets
for the years ended December 31,
1995 and 1994 10
*Notes to Financial Statements 11
Report of Independent Auditors 12
Schedules other than Schedule I - Investments in Securities of Unaffiliated
Issuers, which is included in the Statement of Net Assets, are omitted for the
reason that they are not required or are not applicable, or the required
information is shown in the financial statements or notes thereto.
(b) Exhibits
1. Articles of Incorporation. Incorporated by reference to
registrant's Registration Statement on Form N-1A, No. 2-18269,
Post-Effective Amendment No. 33, filed on April 9, 1990.
2. By-laws. Incorporated by reference to registrant's Registration
Statement on Form N-1A, No. 2-18269, Post-Effective Amendment No.
33, filed on April 9, 1990.
11
<PAGE>
3. None.
4. Articles of Incorporation, Article V. Incorporated by reference
to registrant's Registration Statement on Form N-1A, No. 2-18269,
Post-Effective Amendment No. 33, filed on April 9, 1990.
5. Investment Advisory Contract. Incorporated by reference to
registrant's Registration Statement on Form N-1, No. 2-18269,
Post-Effective Amendment No. 14, filed April, 1972.
6. None.
7. None.
8. Custodian Agreement entered into between the Fund and Firstar
Trust Company on April 15, 1996.
9. None.
10. None.
11. Consent of Independent Auditors
12. Financial Statements contained in 1995 Annual Report to
Shareholders (See Index, Item 24 (a), Part C, Other Information).
13. None.
14. Mairs and Power, Inc. Prototype Self-Employed Money Purchase and
Pension Plan, Trust, Summary Plan Description, Adoption
Agreements Nos. 001 and 002, and Custody Agreement. Incorporated
by reference to registrant's Registration Statement on Forms
N-1A.
15. None.
16. None.
17. Financial Data Schedule.
18. None.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable
12
<PAGE>
Item 26. NUMBER OF HOLDERS OF SECURITIES
Title of Class (1) Number of Record Holders (2)
-------------- -------------------------
Capital Stock, 10,000,000 shares 353
Par Value ten cents ($.10) (As of March 31, 1996)
Item 27. INDEMNIFICATION
The Fund's Amended and Restated Articles of Incorporation state that a
director of the corporation shall have no personal liability to the
corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director to the full extent such immunity is
permitted from time to time under the Minnesota Business Corporation
Act, as now enacted or hereafter amended, except as prohibited by the
Investment Company Act of 1940, as amended.
Section 302A.521 of the Minnesota Business Corporation Act provides
that a Minnesota corporation shall indemnify any director, officer, or
employee of the corporation made or threatened to be made a party to a
proceeding, by reason of the former or present official capacity of
the person, against judgments, penalties, fines, settlements and
reasonable expenses incurred by the person in connection with the
proceeding, provided that certain statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including one
by or in the right of the corporation. Indemnification is required
under Section 302A.521 only if the person (i) has not been indemnified
by any other organization with respect to the same acts or omissions,
(ii) acted in good faith, (iii) received no improper personal benefit,
(iv) in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful, and (v) reasonably believed that the
conduct was in the best interests of the corporation.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Inapplicable
Item 29. PRINCIPAL UNDERWRITERS
Inapplicable
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Custodian: Firstar Trust Company
615 East Michigan Street
Milwaukee, WI 53202
13
<PAGE>
Transfer Agent: Mairs and Power, Inc.
W-2062 First National Bank Bldg.
332 Minnesota Street
St. Paul, MN 55101
Investment Adviser: Mairs and Power, Inc.
W-2062 First National Bank Bldg.
332 Minnesota Street
St. Paul, MN 55101
Item 31. MANAGEMENT SERVICES
Inapplicable
Item 32. UNDERTAKINGS
Inapplicable
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of the Registration Statement pursuant to Rule
485 (b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of St. Paul, and State of Minnesota on the 29th day of
April 1996.
MAIRS AND POWER INCOME FUND, INC.
/s/ William B. Frels
----------------------------------------
William B. Frels, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ William B. Frels President and Director
- - - ------------------------- (Principal Executive Officer) April 29, 1995
William B. Frels
/s/ George A. Mairs, III Secretary and Director
- - - ------------------------- (Principal Financial and
George A. Mairs, III Accounting Officer) April 29, 1995
/s/ Peter G. Robb Vice-President and Director
- - - ------------------------- April 29, 1995
Peter G. Robb
/s/ Litton E.S. Field Director
- - - ------------------------- April 29, 1995
Litton E.S. Field
/s/ Donald E. Garretson Director
- - - ------------------------- April 29, 1995
Donald E. Garretson
/s/ J. Thomas Simonet Director
- - - ------------------------- April 29, 1995
J. Thomas Simonet
15
<PAGE>
EXHIBIT INDEX
1-7 Not filed herewith.
8 Custodian Agreement.
9-10 Not filed herewith.
11 Consent of Independent Auditors.
12 Financial Statements contained in 1995 Annual Report to Shareholders
(See Index Under Item 24 (a) in Part C).
13-16 Not filed herewith.
17 Financial Data Schedule.
18 Not filed herewith.
16
<PAGE>
CUSTODIAN AGREEMENT
THIS AGREEMENT made on April 15, 1996, between Mairs and Power Income
Fund, Inc., a Minnesota corporation (hereinafter called the ("Fund"), and
FIRSTAR TRUST COMPANY, a corporation organized under the laws of the State of
Wisconsin (hereinafter called "Custodian"),
WHEREAS, the Fund desires that its securities and cash shall be
hereafter held and administered by Custodian pursuant to the terms of this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Fund and Custodian agree as follows:
1. DEFINITIONS
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Fund by any two of the
President, a Vice President, the Secretary and the Treasurer of the Fund, or any
other persons duly authorized to sign by the Board of Directors.
The word "Board" shall mean Board of Directors of Mairs and Power
Growth Fund, Inc.
2. NAMES, TITLES, AND SIGNATURES OF THE FUND'S OFFICERS
An officer of the Fund will certify to Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Directors, together with any changes which may occur from time to time.
3. RECEIPT AND DISBURSEMENT OF MONEY
A. Custodian shall open and maintain a separate account or accounts
in the name of the Fund, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it from or
for the account of the Fund. Custodian shall make payments of cash to, or for
the account of, the Fund from such cash only:
- 1 -
<PAGE>
(a) for the purchase of securities for the portfolio of the Fund upon
the delivery of such securities to Custodian, registered in the
name of the Fund or of the nominee of Custodian referred to in
Section 7 or in proper form for transfer;
(b) for the purchase or redemption of shares of the common stock of the
Fund upon delivery thereof to Custodian, or upon proper
instructions from the Mairs and Power Growth Fund, Inc.;
(c) for the payment of interest, dividends, taxes, investment adviser's
fees or operating expenses (including, without limitation thereto,
fees for legal, accounting, auditing and custodian services and
expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund held by
or to be delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution of the
Board of Directors of the Fund.
Before making any such payment, Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Fund issues appropriate oral or
facsimile instructions to Custodian and an appropriate officers' certificate is
received by Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of the Fund.
C. Custodian shall, upon receipt of proper instructions, make federal
funds available to the Fund as of specified times agreed upon from time to time
by the Fund and the custodian in the amount of checks received in payment for
shares of the Fund which are deposited into the Fund's account.
- 2 -
<PAGE>
4. SEGREGATED ACCOUNTS
Upon receipt of proper instructions, the Custodian shall establish and maintain
a segregated account(s) for and on behalf of the portfolio, into which
account(s) may be transferred cash and/or securities.
5. TRANSFER, EXCHANGE, REDELIVERY, ETC. OF SECURITIES
Custodian shall have sole power to release or deliver any securities of
the Fund held by it pursuant to this Agreement. Custodian agrees to transfer,
exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon
receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone or
other securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment, or
otherwise;
(e) upon conversion of such securities pursuant to their terms into
other securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of the
Fund upon delivery thereof to Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by Custodian pursuant to items (a), (b), (d),
(e), (f), and (g), securities or cash receivable in exchange therefore shall be
deliverable to Custodian.
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery,
- 3 -
<PAGE>
and stating that it is for a purpose permitted under the terms of items (a),
(b), (c), (d), (e), (f), (g), or (h) of this Section 5 and also, in respect of
item (i), upon receipt of an officers' certificate specifying the securities to
be delivered, setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made, provided, however,
that an officers' certificate need not precede any such transfer, exchange or
delivery of a money market instrument, or any other security with same or
next-day settlement, if the President, a Vice President, the Secretary or the
Treasurer of the Fund issues appropriate oral or facsimile instructions to
Custodian and an appropriate officers' certificate is received by Custodian
within two business days thereafter.
6. CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of the Fund, which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
the Fund, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
the Fund, all necessary ownership certificates required by the Internal Revenue
Code or the Income Tax Regulations of the United States Treasury Department or
under the laws of any state now or hereafter in effect, inserting the Fund's
name on such certificates as the owner of the securities covered thereby, to the
extent it may lawfully do so.
7. REGISTRATION OF SECURITIES
Except as otherwise directed by an officers' certificate, Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of Custodian as defined in the Internal Revenue Code and
any Regulations of the Treasury Department issued hereunder or in any provision
of any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. Custodian shall use its best efforts to the end that the
specific securities held by it hereunder shall be at all times identifiable in
its records.
The Fund shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which it
may hold for the account of the Fund and which may from time to time be
registered in the name of the Fund.
- 4 -
<PAGE>
8. VOTING AND OTHER ACTION
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and delivered, to the
Corporation all notices, proxies and proxy soliciting materials with relation to
such securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
9. TRANSFER TAX AND OTHER DISBURSEMENTS
The Fund shall pay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exemptable transfers and/or deliveries of any such securities.
10. CONCERNING CUSTODIAN
Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto. If the Fund terminates this
Agreement prior to the first anniversary of this Agreement, the Fund agrees to
reimburse Custodian for the difference between the standard fee schedule and the
discounted fee schedule agreed to between the parties.
Custodian shall exercise reasonable care in the performance of its
duties under this Agreement. Custodian shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which this Agreement relates, including losses resulting from
mechanical breakdowns or the failure of communication or power supplies beyond
Custodian's control, except a loss resulting from Custodian's refusal or failure
to comply with the terms of this Agreement or from bad faith, negligence, or
willful misconduct on its part in the performance of its duties under this
Agreement. Notwithstanding any other provision of this Agreement, the Fund
shall indemnify and hold harmless Custodian from and against any and all claims,
demands, losses, expenses, and liabilities (whether with or without basis in
fact or law) of any and every nature (including reasonable attorneys' fees)
which Custodian may sustain or incur or which may be asserted against Custodian
by any person arising out of any action taken or omitted
- 5 -
<PAGE>
to be taken by it in performing the services hereunder (i) in accordance with
the foregoing standards, or (ii) in reliance upon any written or oral
instruction provided to Custodian by any duly authorized officer of the Fund,
such duly authorized officer to be included in a list of authorized officers
furnished to Custodian and as amended from time to time in writing by resolution
of the Board of Directors of the Fund.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, Custodian shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond Custodian's control. Custodian will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such a
breakdown at the expense of Custodian. Custodian agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing equipment
to the extent appropriate equipment is available. Representatives of the Fund
shall be entitled to inspect Custodian's premises and operating capabilities at
any time during regular business hours of Custodian, upon reasonable notice to
Custodian.
Regardless of the above, Custodian reserves the right to reprocess and
correct administrative errors at its own expense.
In order that the indemnification provisions contained in this section
shall apply, it is understood that if in any case the Fund may be asked to
indemnify or hold Custodian harmless, the Fund shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and it is
further understood that Custodian will use all reasonable care to notify the
Fund promptly concerning any situation which presents or appears likely to
present the probability of such a claim for indemnification against the Fund.
The Fund shall have the option to defend Custodian against any claim which may
be the subject of this indemnification. In the event that the Fund so elects,
it will so notify Custodian and thereupon the Fund shall take over complete
defense of the claim, and Custodian shall in such situation initiate no further
legal or other expenses for which it shall seek indemnification under this
section. Custodian shall in no case confess any claim or make any compromise in
any case in which the Fund will be asked to indemnify Custodian except with the
Fund's prior written consent.
Custodian shall indemnify and hold the Fund harmless from and against
any and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which may be asserted against the Fund by any person arising
out of any action taken or omitted to be taken by Custodian as a result of
Custodian's refusal or failure to comply with the terms of this Agreement, its
bad faith, negligence, or willful misconduct.
- 6 -
<PAGE>
12. SUBCUSTODIANS
Custodian is hereby authorized to engage another bank (as defined in
Section 2.5 of the Investment Company Act of 1940) or trust company as a
Subcustodian for all or any part of the Fund's assets, so long as any such bank
or trust company is a bank or trust company organized under the laws of any
state of the United States, having an aggregate capital, surplus and undivided
profit, as shown by its last published report, of not less than Two Million
Dollars ($2,000,000) and provided further that, if the Custodian utilizes the
services of a Subcustodian, the Custodian shall remain fully liable and
responsible for any losses caused to the Fund by the Subcustodian as fully as if
the Custodian was directly responsible for any such losses under the terms of
the Custodian Agreement.
Notwithstanding anything contained herein, if the Fund requires the
Custodian to engage specific Subcustodians for the safekeeping and/or clearing
of assets, the Fund agrees to indemnify and hold harmless Custodian from all
claims, expenses and liabilities incurred or assessed against it in connection
with the use of such Subcustodian in regard to the Fund's assets, except as may
arise from its own negligent action, negligent failure to act or willful
misconduct.
13. REPORTS BY CUSTODIAN
Custodian shall furnish the Fund periodically as agreed upon with a
statement summarizing all transactions and entries for the account of Fund.
Custodian shall furnish to the Fund, at the end of every month, a list of the
portfolio securities showing the aggregate cost of each issue. The books and
records of Custodian pertaining to its actions under this Agreement shall be
open to inspection and audit at reasonable times by officers of, and of auditors
employed by, the Fund.
14. TERMINATION OR ASSIGNMENT
This Agreement may be terminated by the Fund, or by Custodian, on sixty
(60) days notice, given in writing and sent by registered mail to Custodian at
P.O. Box 2054, Milwaukee, Wisconsin 53201, or to the Fund at W-2062 First
National Bank Building, 332 Minnesota Street, St. Paul, Minnesota 55101, as the
case may be. Upon any termination of this Agreement, pending appointment of a
successor to Custodian or a vote of the shareholders of the Fund to dissolve or
to function without a custodian of its cash, securities and other property,
Custodian shall not deliver cash, securities or other property of the Fund to
the Fund, but may deliver them to a bank or trust company of its own selection,
having an aggregate capital, surplus and undivided profits, as shown by its last
published report of not less than Two Million Dollars ($2,000,000) as a
Custodian for the Fund to be held under terms similar to those of this
Agreement, provided, however, that Custodian shall not be required to make any
such delivery or payment until full payment shall have been made by the Fund of
all liabilities constituting a charge on or against the properties then held by
Custodian or on or against Custodian, and until full payment shall have been
made to
- 7 -
<PAGE>
Custodian of all its fees, compensation, costs and expenses, subject to the
provisions of Section 10 of this Agreement.
This Agreement may not be assigned by Custodian without the consent of
the Fund, authorized or approved by a resolution of its Board of Directors.
15. DEPOSITS OF SECURITIES IN SECURITIES DEPOSITORIES
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Directors of the Fund approves by resolution the
use of such central securities clearing agency or securities depository.
16. RECORDS
To the extent that Custodian in any capacity prepares or maintains any
records required to be maintained and preserved by the Fund pursuant to the
provisions of the Investment Company Act of 1940, as amended, or the rules and
regulations promulgated thereunder, Custodian agrees to make any such records
available to the Fund upon request and to preserve such records for the periods
prescribed in Rule 31a-2 under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and their respective corporate seals to be affixed hereto as of the
date first above-written by their respective officers thereunto duly authorized.
Executed in several counterparts, each of which is an original.
Attest: FIRSTAR TRUST COMPANY
By
- - - -------------------------------- ----------------------------
Assistant Secretary Vice President
Attest: Mairs and Power Income Fund, Inc.
By
- - - -------------------------------- ----------------------------
- 8 -
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Condensed Financial
Information" and "Financial Statements" in Amendment No. 39 to the Registration
Statement (Form N-1A, No. 2-18269) and related Prospectus of Mairs and Power
Income Fund, Inc. and to the incorporation by reference therein of our report
dated January 12, 1996, with respect to the financial statements and financial
highlights of Mairs and Power Income Fund, Inc. included in its Annual Report
for the year ended December 31, 1995, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 19, 1996
<PAGE>
ANNUAL REPORT
December 31, 1995
W-2062 First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
612-222-8478
<PAGE>
TO THE SHAREHOLDERS:
FOURTH QUARTER RESULTS
Just when you think that things can't get much better, they do! The Income
Fund continued its recent string of consecutive quarterly gains with another
strong showing in the final quarter of 1995. Based on a net asset value of
$65.39 per share on December 31, 1995, the Fund produced a total investment
return of 4.9% for the quarter after adjustment for the reinvestment of cash
dividends and capital gain distributions. This compared with equally strong
gains of 6.0% for the Standard & Poor's 500 Stock Index and 4.7% for the Lehman
Brothers Gov't/Corp. Bond Index.
The overall investment environment continued to be very positive with low
inflation, falling interest rates and growing corporate profits. However, the
economy showed signs of running out of steam toward the end of the quarter with
inventory levels rising and growth in final demand slowing down. This is
believed to have contributed to an increased disparity in the performance among
various industry groups during the period. Farm machinery, housing and health
care did the best while groups more sensitive to the economy such as
semi-conductors, machine tools, and retailing fared worst. Individual holdings
within the Fund that did the best included Pfizer (+18.0%), Bristol Myers-Squibb
(+17.8%), Minnesota Mining & Mfg. (+17.7%) and Texas Utilities (+17.6%) while
Merrill Lynch (-18.4%), Deluxe (-12.5%), Sturm Ruger (-12.4%) and National
Computer Systems (-12.2%) did the worst.
FULL YEAR 1995 IN REVIEW
With both stock and bond markets achieving near record increases, 1995 was
almost a complete reversal from the previous year. The Income Fund fully
participated in the market strength showing a 30.0% total investment return for
the year after adjustment for the reinvestment of cash dividends and capital
gain distributions. This compared to a return of 37.5% for the Standard & Poor
500 which was the best since 1958 when a 43.4% return was realized. The Lehman
Brothers Gov't./Corp. Bond Index earned a return of 19.2% reflecting a dramatic
decline in interest rates (U.S. Treasury rates fell nearly 175 basis points on
the 30 year bond and some 245 basis points on the 2 year note). The Income Fund
also did well relative to other balanced mutual funds as evidenced by an average
return of 24.9% for a CDA/Wiesenberger universe of 253 balanced funds.
The past year can be characterized as a near perfect market environment for
financial assets. Inflation remained low as measured by a relatively modest 2.5%
increase in the Consumer Price Index. Corporate profits are estimated to have
improved at an above average rate of near 15%. There was plenty of liquidity
with which to purchase financial assets as individuals increased their savings
rate and corporations generated excess cash flow as a result of cost cutting and
restructuring. This surplus cash was used in many instances to help fund stock
repurchase programs. Finally, foreign investors are thought to have stepped up
their investment in U.S. markets with the recovery of the Dollar relative to
other major currencies that began around mid-year.
As compared to past years, mutual funds have now become the driving force
behind financial markets replacing defined benefit pension plans. This was
especially true in 1995 when the Investment Company Institute reported that some
$250 billion in new money found its way
1
<PAGE>
into mutual funds. Moreover, the number of shareholder accounts in mutual funds
have more than doubled since 1990 to 127 million and the number of mutual funds
now in existence exceeds the number of stocks listed on the New York Stock
Exchange.
FUTURE OUTLOOK
The weakness in the economy that began to surface late last year is expected
to continue at least through the first half of 1996. Consumer spending will
likely remain sluggish for awhile due to a number of factors including
historically high debt levels and a rising savings rate. Consequently, with
inventories still on the high side, the production of consumer goods seems
likely to be restrained until a pick-up in final demand becomes evident.
Government spending is also not expected to provide much of a stimulus over the
near term given the current budget impasse in Washington D.C. and a generally
conservative posture at state and local levels. On the other hand, business
spending and export demand are expected to remain strong enough to keep the
overall economy moving ahead albeit at a very modest rate.
Despite the stock market's spectacular gains of last year and so far during
1996, we remain positive on the outlook to the extent that we believe some
further progress can be achieved over the remainder of the year. The factors
that have driven the stock market higher over the past year continue to be
largely in place. The major risk to this scenario seems to lie with corporate
profits which at this time are expected to show a reasonable increase in the
5-8% range considering the prospects for some further profitability improvement.
However, any surprises seem more likely to be on the downside rather than the
upside given a relatively weak economic outlook. From a valuation standpoint,
the market does not appear excessively valued based on a Standard & Poor 500
price/earnings multiple of some 17X estimated 1996 earnings although
historically low dividend yields and high book value ratios might suggest
otherwise.
Interest rates seem likely to trend lower over the near term given the
slowdown in the economy and Fed's recent efforts to revive it. However, any
further declines are expected to show-up more at the short end of the yield
curve as opposed to the longer end where yields are more responsive to changes
in inflation rates real or perceived. While we do not expect inflation to
increase much from current levels, neither do we expect any decline with the
important food and energy components unlikely to show much, if any, improvement
in the near future.
William B. Frels
President
2
<PAGE>
[LOGO]
GEORGE C. POWER, JR.
1914-1995
George Power began his investment career in 1933 while he was still an
undergraduate at Carleton College. He held a summer job at Northwestern National
Bank of Minneapolis where his responsibilities included valuing collateral for
customers who had borrowed funds to purchase securities prior to the 1929 market
crash. At an early age, he learned the relationship of risk and reward. Upon
graduation from college, he jointed the Investment Research Department of First
Bank Stock Corporation where he made many life-long friends, several of whom
played leadership roles in the investment community of the Twin Cities. After a
stint in the U.S. Army during World War II where he rose to the rank of Captain,
he became a partner of George A. Mairs, Jr. who founded the firm in 1931 which
subsequently became Mairs and Power, Investment Counsel. George Power's
remarkable investment career spanned 62 years and continued until his death on
July 18, 1995. While he received many accolades along the way, he will best be
remembered for his uncommon concern for all of the people he knew and served
during this long and fruitful career. George served as an Officer and Director
of Mairs and Power Income Fund from its inception in 1961 until the time of his
death. While he suffered physical impairment in recent years, his intellectual
powers and great enthusiasm for life remained undiminished. His wise counsel and
high level of personal integrity served as a constant inspiration to all of us
who had the good fortune to share his association.
3
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MPI S&P CPI
<S> <C> <C> <C>
1985 10000 10000 10000
1986 11535 11870 10190
1987 11733 12487 10567
1988 13364 14560 11000
1989 15726 19161 11528
1990 15940 18548 12151
1991 20065 24205 12661
1992 21241 26069 13041
1993 23545 28702 13393
1994 23056 29075 13755
1995 29981 39990 14099
Average Annual Total Return
1 Year 5 Year 10 Year
30.04% 13.47% 11.60%
Past investment results should not be taken
as
necessarily representative of future
performance.
</TABLE>
4
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED PER SHARE DATA AND RATIOS -- FOR EACH SHARE OF
CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
PER SHARE
Net asset value, beginning
of year $ 52.42 $ 56.38 $ 53.82 $ 53.34 $ 44.11 $ 45.78 $ 41.39 $ 39.08 $ 42.53
Investment operations:
Net investment income 2.01 2.09 2.00 2.00 1.98 2.12 2.13 2.24 2.00
Net realized and
unrealized gains
(losses) on investments 13.55 (3.25) 3.79 1.07 9.24 (1.53) 5.07 3.14 (1.16)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 15.56 (1.16) 5.79 3.07 11.22 0.59 7.20 5.38 0.84
Less distributions:
Dividends (from net
investment income) (2.04) (2.06) (1.98) (1.99) (1.99) (2.13) (2.15) (2.23) (2.11)
Distributions (from
capital gains) (0.55) (0.74) (1.25) (0.60) -- (0.13) (0.66) (0.84) (2.18)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (2.59) (2.80) (3.23) (2.59) (1.99) (2.26) (2.81) (3.07) (4.29)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end of
year $ 65.39 $ 52.42 $ 56.38 $ 53.82 $ 53.34 $ 44.11 $ 45.78 $ 41.39 $ 39.08
--------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN 30.0% (2.1)% 10.9% 5.9% 25.9% 1.4% 17.7% 13.9% 1.7%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSETS, END OF YEAR
(000'S OMITTED) 16,979 12,973 13,442 11,536 10,676 8,075 7,886 6,570 5,772
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets 1.12% 1.11% 1.06% 1.13% 1.25% 1.20% 1.22% 1.22% 1.20%
Ratio of net investment
income to average net
assets 3.47% 3.80% 3.50% 3.72% 4.02% 4.78% 4.78% 5.33% 4.43%
Portfolio turnover rate 3.95% 17.28% 24.10% 16.12% 24.37% 20.15% 14.18% 25.83% 20.83%
<CAPTION>
1986
<S> <C>
PER SHARE
Net asset value, beginning
of year $ 41.86
Investment operations:
Net investment income 1.98
Net realized and
unrealized gains
(losses) on investments 4.38
---------
Total from investment
operations 6.36
Less distributions:
Dividends (from net
investment income) (1.95)
Distributions (from
capital gains) (3.74)
---------
Total distributions (5.69)
---------
Net asset value, end of
year $ 42.53
---------
TOTAL INVESTMENT RETURN 15.3%
---------
---------
NET ASSETS, END OF YEAR
(000'S OMITTED) 5,395
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets 1.20%
Ratio of net investment
income to average net
assets 4.43%
Portfolio turnover rate 32.46%
</TABLE>
5
<PAGE>
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
FIXED INCOME SECURITIES
Market
Value
[Note
Face Amount Security Description Cost 2(A)]
- - - ----------- --------------------------------------------- ---------- ----------
U.S. TREASURY & FEDERAL AGENCY OBLIGATIONS 7.5%
<C> <S> <C> <C>
$ 300,000 U.S. Treasury Notes 7.00% 9/30/96 300,000 303,844
200,000 U.S. Treasury Notes 7.125% 9/30/99 197,172 212,063
250,000 Federal Home Loan Bank 7.48% 6/28/01 250,000 254,710
250,000 Federal National Mortgage Association 7.19%
3/22/04 243,750 250,125
250,000 Federal Home Loan Mortgage Corporation 7.30%
7/27/05 250,000 256,525
---------- ----------
1,240,922 1,277,267
OTHER NON-CONVERTIBLE BONDS 12.2%
250,000 Dupont (E.I.) de Nemours & Company 6.00%
12/1/01 249,750 248,438
250,000 Household Finance Corp. 7.00% 2/15/03 250,000 261,780
265,000 J. C. Penney & Co. 6.00% 5/01/06 239,613 259,591
250,000 Merrill Lynch and Co., Inc. 7.00% 4/27/08 247,977 257,345
250,000 General Foods Corporation 7.00% 6/15/11 240,000 250,000
200,000 Ford Motor Company Debentures 9.50% 9/15/11 199,836 255,900
250,000 Goldman Sachs & Company 8.00% 3/01/13 256,025 274,707
250,000 Allstate Corp. 7.50% 6/15/13 218,937 265,855
---------- ----------
1,902,138 2,073,616
CONVERTIBLE BONDS 6.0%
150,000 General Signal Corporation 5.75% 6/01/02 147,375 155,625
177,000 Pogo Producing Co. 8.00% 12/31/05 135,221 181,425
150,000 Cray Research, Inc. 6.125% 2/01/11 101,000 120,750
150,000 Browning-Ferris Industries, Inc. 6.25%
8/15/12 136,125 149,625
150,000 Ashland, Inc. 6.75% 7/01/14 144,000 149,250
250,000 Cooper Industries, Inc. 7.05% 1/01/15 240,892 257,500
---------- ----------
904,613 1,014,175
NON-CONVERTIBLE AND CONVERTIBLE PREFERRED STOCK 10.0%
6,000 Bankers Trust New York Corporation $1.91 144,495 151,500
6,000 Barclays Bank PLC, Series E $2.00 150,000 153,000
5,000 The Bear Stearns Companies, Inc. Pf, Series C
$1.90 125,000 125,000
5,000 Community First Bankshares, Inc. $1.75 125,000 178,750
4,000 Delta Air Lines, Inc. Pf, Series C $3.50 204,938 237,500
7,000 Fourth Financial Corporation Pf. Series A
$1.75 209,125 245,875
2,500 J. P. Morgan & Co., Series A, Adj Rate Pf
$5.00 143,720 200,000
5,000 Noram Energy Pf $3.00 150,600 196,250
4,000 Provident Life & Accident Insurance Co. Pf
$2.025 100,000 104,000
2,000 St. Paul Capital Pf $3.00 100,000 112,500
---------- ----------
1,452,878 1,704,375
---------- ----------
TOTAL FIXED INCOME SECURITIES 35.7% 5,500,551 6,069,433
---------- ----------
</TABLE>
6
<PAGE>
STATEMENT OF NET ASSETS (CONT.)
<TABLE>
<C> <S> <C> <C>
COMMON STOCK
<CAPTION>
Market
Value
Number of [Note
Shares Security Description Cost 2(A)]
- - - ----------- --------------------------------------------- ---------- ----------
<C> <S> <C> <C>
BASIC INDUSTRIES 6.0%
5,000 Cooper Industries, Inc. $ 171,431 $ 183,750
8,000 Graco Inc. 147,460 244,000
5,000 Ingersoll-Rand Company 61,341 175,625
4,000 Pentair, Inc. 51,782 199,000
5,000 Weyerhaeuser Company 135,368 216,250
---------- ----------
567,382 1,018,625
CONSUMER 11.7%
5,000 American Greetings Class A 136,250 138,125
5,000 Briggs & Stratton Corporation 61,116 216,875
5,088 ConAgra, Inc. 159,531 209,880
6,000 Deluxe Corp. 159,116 174,000
3,000 The Dun & Bradstreet Corporation 146,260 194,250
2,000 Eastman Kodak Company 53,573 134,000
3,000 General Mills, Inc. 151,030 173,250
4,000 Genuine Parts Company 112,272 164,000
3,000 Hershey Foods Corporation 146,610 195,000
7,000 Hormel (Geo. A.) & Company 141,965 172,375
8,000 Sturm, Ruger & Co., Inc. 67,552 219,000
---------- ----------
1,335,275 1,990,755
ENERGY 6.7%
4,000 Amoco Corporation 140,723 286,000
2,000 Exxon Corporation 20,793 161,000
2,500 Mobil Corporation 54,750 279,375
5,000 Murphy Oil Corporation 139,408 207,500
3,000 Schlumberger, Limited 105,048 207,750
---------- ----------
460,722 1,141,625
FINANCIAL 13.9%
5,000 American Express Company 99,215 206,875
5,000 First Bank System, Inc. 58,358 248,125
5,000 Firstar Corp. 163,175 198,125
3,375 Jefferson-Pilot Corp. 60,323 156,937
6,000 Merrill Lynch & Co., Inc. 99,319 306,000
4,000 J.P. Morgan & Co., Inc. 102,082 321,000
20,000 Norwest Corporation 94,825 660,000
6,000 ReliaStar 110,625 266,250
---------- ----------
787,922 2,363,312
</TABLE>
7
<PAGE>
STATEMENT OF NET ASSETS (CONT.)
<TABLE>
<CAPTION>
Market
Value
Number of [Note
Shares Security Description Cost 2(A)]
- - - ----------- --------------------------------------------- ---------- ----------
HEALTH CARE 8.7%
<C> <S> <C> <C>
3,000 American Home Products Corporation $ 182,542 $ 291,000
5,000 Baxter International Inc. 76,524 209,375
4,000 Bristol-Myers Squibb Company 205,562 343,500
10,000 Pfizer Inc. 136,357 630,000
---------- ----------
600,985 1,473,875
TECHNOLOGY 9.7%
5,000 AMP Incorporated 133,605 191,250
7,000 Corning Inc. 188,965 224,000
3,000 Emerson Electric Co. 128,697 245,250
5,000 Honeywell Inc. 90,716 243,125
2,000 International Business Machines Corporation 96,740 182,750
5,000 MTS Systems Corporation 81,500 165,000
3,000 Minnesota Mining & Manufacturing Company 78,077 199,125
10,000 National Computer Systems, Inc. 121,380 188,750
---------- ----------
919,680 1,639,250
UTILITIES 4.0%
7,000 GTE Corporation 96,007 307,125
5,000 Texas Utilities Company 183,482 205,000
4,470 U S West Communications 93,420 159,244
---------- ----------
372,909 671,369
---------- ----------
TOTAL COMMON STOCK 60.7% 5,044,875 10,298,811
---------- ----------
TOTAL INVESTMENTS 96.4% $10,545,426 16,368,244
----------
----------
OTHER ASSETS IN EXCESS OF LIABILITIES
3.6% 610,509
----------
NET ASSETS 100.0% $16,978,753
----------
----------
NUMBER OF SHARES OUTSTANDING 259,636
----------
----------
NET ASSET VALUE PER SHARE $ 65.39
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 397,127
Interest 288,841
---------
TOTAL INCOME 685,968
Expenses:
Investment advisory fees (NOTE 5) $ 90,626
Transfer agent fees (NOTE 5) 18,833
Custodian Fees 14,100
Audit Fees 15,169
Other fees and expenses 28,709
---------
TOTAL EXPENSES 167,437
---------
NET INVESTMENT INCOME 518,531
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 4)
Realized net gain on investments sold 122,640
Unrealized appreciation of investments 3,220,932
---------
NET GAIN ON INVESTMENTS 3,343,572
---------
INCREASE IN NET ASSETS FROM OPERATIONS $3,862,103
---------
---------
SEE ACCOMPANYING NOTES.
</TABLE>
9
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
<S> <C> <C>
----------------------
OPERATIONS
Net investment income $ 518,531 $ 513,783
Realized net gains on investments sold 122,640 181,275
Unrealized appreciation of investments 3,220,932 (966,393)
---------- ----------
INCREASE IN NET ASSETS
FROM OPERATIONS 3,862,103 (271,335)
NET EQUALIZATION CREDITS 4,113 1,305
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (528,266) (506,287)
Short-term (gain) loss distributed as ordinary income 20,648 (38,775)
From net realized gains (140,978) (144,512)
---------- ----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (648,596) (689,574)
CAPITAL STOCK TRANSACTIONS
Proceeds from shares sold 1,573,573 1,217,607
Reinvestment of distributions:
From net investment income 366,643 397,799
From net realized gains 114,356 115,152
Cost of shares redeemed (1,266,415) (1,239,554)
---------- ----------
INCREASE IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS 788,157 491,004
---------- ----------
TOTAL INCREASE IN NET ASSETS 4,005,777 (468,600)
NET ASSETS
Beginning of year 12,972,976 13,441,576
---------- ----------
End of year (including undistributed investment income
of $47,432 and $53,055, respectively) $16,978,753 $12,972,976
---------- ----------
---------- ----------
CHANGES IN CAPITAL STOCK
Shares sold 25,820 22,220
Shares issued for reinvested distributions 7,759 9,561
Shares redeemed (21,427) (22,727)
---------- ----------
NET INCREASE IN SHARES 12,152 9,054
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
<TABLE>
<S> <C>
Note 1 -- The fund is registered under the Investment Company Act of 1940 (as
amended) as a diversified, no-load, open-end management investment
company. The objective of the Fund is to provide liberal current income
and the possibility of modest long-term capital appreciation by
investing in a diversified list of securities, including bonds,
preferred and common stocks and securities convertible into common
stock.
Note 2 -- Significant accounting policies of the Fund are as follows:
(a) Market value of investments is based on the last reported sale price
on December 31 for listed securities or the mean of the bid and asked
price for other securities. Security transactions are recorded on
the trade date, the date on which securities are purchased or sold.
Dividend income is recognized on the ex-dividend date and interest
income is recorded on the accrual basis. The cost of securities sold
is determined based on the specific identification method.
(b) No provision has been made for Federal income taxes as it is the
intention of the Fund to comply with the provisions of the Internal
Revenue Code applicable to investment companies and to make
distributions of income and security gains sufficient to relieve it
from all or substantially all income taxes.
(c) The Fund allows the accounting practice known as equalization. When
Fund shares are issued or redeemed, the distributable net investment
income per share is credited or charged to undistributed net
investment income; therefore, undistributed net investment income
per share is not affected by sales or redemptions.
Note 3 -- Purchases and sales of investment securities, excluding government and
short-term securities, during the year ended December 31, 1995
aggregated $1,101,582 and $576,006, respectively.
Note 4 -- At December 31, 1995, the accumulated excess distributions of realized
net gains on investments sold was $10,369. Net unrealized appreciation
on investments for federal income tax purposes aggregated $5,822,818, of
which $5,824,131 related to appreciated investment securities and $1,313
related to depreciated investment securities. Aggregate cost of
investments for Federal income tax purposes was $10,545,426.
Note 5 -- The investment advisory fees were 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 were 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
1/20 of one percent of the net asset value of the Fund on the last
valuation day of the month. The transfer agent fees were also paid to
Mairs and Power, Inc. who serves as transfer agent. Directors of the
Fund not affiliated with Mairs and Power, Inc. received compensation for
meetings attended totaling $4,650 in 1995. No compensation was paid to
any other director or officer of the Fund.
Note 6 -- At December 31, 1995, there were 10,000,000 shares of $0.10 par value
capital stock authorized and additional paid-in capital aggregated
$11,098,133.
</TABLE>
11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Mairs and Power Income Fund, Inc.
We have audited the accompanying statement of net assets of Mairs and Power
Income Fund, Inc. (the Fund) as of December 31, 1995, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the ten years in the period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Mairs
and Power Income Fund, Inc. at December 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the ten years
in the period then ended in conformity with generally accepted accounting
principles.
[LOGO]
January 12, 1996
12
<PAGE>
SUMMARY OF FINANCIAL INFORMATION
- - - --------------------------------------------------------------------------------
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 or capital gain or loss which may result from an investment made in the
Fund today.
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------
DISTRIBU-
TIONS OF DIVIDENDS PERFORMANCE
SHARES REALIZED FROM NET OF AN ASSUMED
OUT- TOTAL NET NET ASSET SECURITIES INVESTMENT INVESTMENT OF
DATES STANDING ASSETS VALUE GAINS INCOME $10,000*
- - - ------------ ----------- ---------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dec. 31,
1986 126,862 $5,395,111 $ 42.53 $ 3.74 $ 1.95 $ 11,535
Dec. 31,
1987 147,717 $5,772,298 $ 39.08 $ 2.18 $ 2.11 $ 11,733
Dec. 31,
1988 158,713 $6,569,555 $ 41.39 $ 0.84 $ 2.23 $ 13,364
Dec. 31,
1989 172,243 $7,886,058 $ 45.78 $ 0.66 $ 2.15 $ 15,725
Dec. 31,
1990 183,079 $8,075,488 $ 44.11 $ 0.13 $ 2.13 $ 15,938
Dec. 31,
1991 200,138 $10,676,264 $ 53.34 $ 0.00 $ 1.99 $ 20,063
Dec. 31,
1992 214,336 $11,535,822 $ 53.82 $ 0.60 $ 1.99 $ 21,239
Dec. 31,
1993 238,430 $13,441,576 $ 56.38 $ 1.25 $ 1.98 $ 23,543
Dec. 31,
1994 247,484 $12,972,976 $ 52.42 $ 0.74 $ 2.06 $ 23,054
Dec. 31,
1995 259,636 $16,978,753 $ 65.39 $ 0.55 $ 2.04 $ 29,978
</TABLE>
*Assumes the reinvestment of all income dividends and capital gain distributions
for a $10,000 investment made at the beginning of 1986.
- - - --------------------------------------------------------------------------------
Note: No adjustment has been made for any income tax payable by stockholders on
capital gains distributions accepted in shares.
Past investment results should not be taken as necessarily representative of
future performance.
AVERAGE ANNUAL TOTAL RETURNS--THE AVERAGE ANNUAL TOTAL RETURNS FOR THE FUND
(PERIODS ENDED DECEMBER 31, 1995) ARE AS FOLLOWS:
1 YEAR: +30.0% 5 YEARS: +13.5% 10 YEARS: +11.6%
* THE TOTAL RETURN DATA REPRESENTS PAST PERFORMANCE, AND 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.
13
<PAGE>
OFFICERS AND DIRECTORS
William B. Frels .................President and Director
George A. Mairs, III ...............Secretary and Director
Peter G. Robb ................Vice-President and Director
Kathleen M. Kellerman .....................Treasurer
Litton E. S. Field .......................Director
Donald E. Garretson .......................Director
J. Thomas Simonet ........................Director
<TABLE>
<S> <C>
INVESTMENT ADVISER CUSTODIAN
Mairs and Power, Inc. Norwest Bank Minnesota, N.A.
332 Minnesota Street 6th and Marquette Avenue
W-2062 First National Bank Minneapolis, Minnesota 55479
Building
Saint Paul, Minnesota 55101
TRANSFER AGENT INDEPENDENT AUDITORS
Mairs and Power, Inc. Ernst & Young, LLP
332 Minnesota Street 1400 Pillsbury Center
W-2062 First National Bank 200 South Sixth Street
Building Minneapolis, Minnesota 55402
Saint Paul, Minnesota 55101
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 10545426
<INVESTMENTS-AT-VALUE> 16368244
<RECEIVABLES> 108582
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 512658
<TOTAL-ASSETS> 16989484
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10732
<TOTAL-LIABILITIES> 10732
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11098133
<SHARES-COMMON-STOCK> 259636
<SHARES-COMMON-PRIOR> 247484
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (47432)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (10369)
<ACCUM-APPREC-OR-DEPREC> 5822818
<NET-ASSETS> 16978753
<DIVIDEND-INCOME> 397127
<INTEREST-INCOME> 288841
<OTHER-INCOME> 0
<EXPENSES-NET> (167438)
<NET-INVESTMENT-INCOME> 518531
<REALIZED-GAINS-CURRENT> 122640
<APPREC-INCREASE-CURRENT> 3220932
<NET-CHANGE-FROM-OPS> 3862103
<EQUALIZATION> 4113
<DISTRIBUTIONS-OF-INCOME> (507618)
<DISTRIBUTIONS-OF-GAINS> (140978)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25820
<NUMBER-OF-SHARES-REDEEMED> (21426)
<SHARES-REINVESTED> 7757
<NET-CHANGE-IN-ASSETS> 4005777
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (53055)
<OVERDIST-NET-GAINS-PRIOR> (945)
<GROSS-ADVISORY-FEES> 90626
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 167437
<AVERAGE-NET-ASSETS> 14583486
<PER-SHARE-NAV-BEGIN> 52.42
<PER-SHARE-NII> 2.01
<PER-SHARE-GAIN-APPREC> 13.55
<PER-SHARE-DIVIDEND> (2.04)
<PER-SHARE-DISTRIBUTIONS> (0.55)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 65.39
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
