<PAGE>
[LOGO]
ANNUAL REPORT
December 31, 1996
W-2062 First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
612-222-8478
<PAGE>
TO OUR SHAREHOLDERS:
FOURTH QUARTER RESULTS
With the continuing strength of the stock market and some improvement in the
bond market, the fourth quarter of 1996 turned out to be the best quarter of the
year for the Income Fund. Based on a December 31, 1996 net asset value of $73.68
per share, the Fund generated a total investment return of 6.6% for the final
quarter after adjustment for the reinvestment of cash dividends and capital gain
distributions. Comparable fourth quarter investment returns for the Standard &
Poor's 500 Stock Index and Lehman Brothers Gov't/Corp. Bond Index were 8.4% and
3.1%, respectively.
The economy continued to perform extremely well during the fourth quarter.
Real Gross Domestic Product increased at a surprisingly strong 4.7% (preliminary
basis) due in large part to a 3.4% pick-up in consumer spending. Other factors
contributing to the relatively strong showing were a 22.5% gain in commercial
construction and a 25.5% rise in exports of goods and services. The "core" rate
of inflation remained fairly stable although the total rate increased somewhat
more because of higher food and energy prices. Interest rates remained pretty
steady during the quarter despite the faster than expected rate of economic
growth. Corporate profits are estimated to have increased at an above trend rate
in the low "double digits" in response to continued productivity improvement.
The strength in the stock market seemed to be centered more on large
capitalization growth issues as opposed to smaller capitalization issues or
issues of companies more sensitive to the vagaries of the business cycle. In
this regard, some of the stronger groups included technology (semiconductors),
financials (banks and insurance) and energy (oil service). The weakest groups
included basic industries (chemicals, metals and forest products), capital goods
(machinery) and consumer cyclicals (retailing). Individual holdings within the
Fund that did the best included Graco (+30.7%), National Computer Systems
(+24.4%) and Merrill Lynch (+23.7%) while Deluxe (-13.2%), Hershey Foods
(-12.9%) and Ingersoll-Rand (-6.3%) fared the worst.
FULL YEAR 1996 IN REVIEW
Looking back over the past year, the Income Fund set a number of records
just like the overall stock market. The total investment return for the full
year reached 17.9% after adjustment for the reinvestment of cash dividends and
capital gain distributions. This compared to returns of 23.0% for the Standard &
Poor's Stock Index and 2.9% for the Lehman Brother Gov't/ Corp. Bond Index. The
Fund did relatively well compared to other balanced mutual funds as represented
by a CDA/Wiesenberger universe of 314 funds which produced an average return of
13.2% in 1996.
The near perfect stock market environment of recent years continued in 1996.
Full year real GDP rose at a moderate 2.5% rate compared to 2.0% the previous
year. Inflation remained well contained with the GDP deflator pretty stable at
2.1% and the Consumer Price Index inching up only slightly to 3.3%. Corporate
profits again grew nicely at around 10% in response to steady demand growth and
continuing productivity improvement. Historically high net investment in mutual
funds provided the liquidity to move stock prices higher in the absence of more
attractive investment alternatives.
1997 OUTLOOK
The very favorable trends in evidence last year give every indication of
continuing in 1997 with no serious imbalances as yet apparent in the economy.
Even concerns over the build-up in consumer debt seem to be waning as job
creation remains good, personal income continues to
1
<PAGE>
grow and delinquencies appear manageable. In fact, recent figures suggest the
savings rate has also increased as the pick-up in consumer spending has lagged a
faster growth in personal income. One area of potential disappointment could be
exports which will be affected by the strengthening dollar at some point. The
profitability of those corporations with significant international exposure will
also be impacted. However, other factors such as economic growth both here and
abroad and productivity improvement are expected to be strong enough to allow
corporate earnings to increase at a quite respectable rate in the high "single
digits".
The outlook for the bond market would appear reasonably promising given the
prospect of continuing moderate economic growth without any significant increase
in inflation. Without any noticeable increase in wage pressures or unexpected
developments which would affect the cost of food or energy, the Federal Reserve
seems unlikely to take any action to increase interest rates over the near term.
Consequently, bond investments are expected to at least earn their coupon rates
while offering some opportunity for modest appreciation, especially in longer
term maturities.
While the stock market has shown significant appreciation over the past
couple of years, valuation levels still do not appear unduly excessive given our
forecast for continuing growth in corporate earnings and a positive outlook for
interest rates. Currently valued at some 18 times estimated 1997 operating
earnings, the S & P 500 still sells in line with other past periods of low
inflation (2.5% or below). Consequently, we remain constructive on the outlook
for stock prices even though valuation levels are not cheap and market
volatility seems likely to increase at these higher levels.
William B. Frels
President
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN
VALUE OF $10,000 INVESTMENT
IN FUND, S&P 500 INDEX, AND
THE CONSUMER PRICE INDEX
<S> <C> <C> <C> <C>
Fund S&P CPI
1986 10000 10000 10000
1987 10172 10520 10370
1988 11586 12266 10795
1989 13633 16142 11313
1990 13819 15626 11924
1991 17395 20392 12425
1992 18414 21962 12798
1993 20412 24180 13143
1994 19987 24494 13498
1995 25992 33690 13836
1996 30652 41432 14292
AVERAGE ANNUAL TOTAL RETURN
1 Year 5 Year 10 Year PAST INVESTMENT RESULTS SHOULD NOT
17.90% 12.00% 11.90% BE TAKEN AS NECESSARILY REPRESENTATIVE
OF FUTURE PERFORMANCE.
</TABLE>
2
<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
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
Net asset value, beginning of year $ 65.39 $ 52.42 $ 56.38 $ 53.82 $ 53.34 $ 44.11 $ 45.78 $ 41.39 $ 39.08 $ 42.53
Investment operations:
Net investment income 2.19 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 9.38 13.55 (3.25) 3.79 1.07 9.24 (1.53) 5.07 3.14 (1.16)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations 11.57 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) (2.20) (2.04) (2.06) (1.98) (1.99) (1.99) (2.13) (2.15) (2.23) (2.11)
Distributions (from capital gains) (1.08) (0.55) (0.74) (1.25) (0.60) - (0.13) (0.66) (0.84) (2.18)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (3.28) (2.59) (2.80) (3.23) (2.59) (1.99) (2.26) (2.81) (3.07) (4.29)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 73.68 $ 65.39 $ 52.42 $ 56.38 $ 53.82 $ 53.34 $ 44.11 $ 45.78 $ 41.39 $ 39.08
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN 17.9% 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) 20,565 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 1.08% 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 3.16% 3.47% 3.80% 3.50% 3.72% 4.02% 4.78% 4.78% 5.33% 4.43%
Portfolio turnover rate 8.25% 3.95% 17.28% 24.10% 16.12% 24.37% 20.15% 14.18% 25.83% 20.83%
Average commission rate paid $ .1201 - - - - - - - - -
</TABLE>
3
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments as annexed, at market value (cost
$9,265,739) $17,327,504
U.S. Governments (cost $2,693,453) 2,691,969
Cash 432,996
Dividends and interest receivable 123,196
Receivables for securities sold, not yet delivered 0
Prepaid expense 0
----------
$20,575,665
LIABILITIES
Accrued management fee 10,277
Accrued custodian and transfer agent fee 374
Payable for securities purchased, not yet received 0 10,651
---------- ----------
NET ASSETS
Equivalent to $73.68 per share on 279,117 shares
outstanding $20,565,014
----------
----------
NET ASSETS CONSIST OF:
Capital stock $ 27,912
Additional paid-in capital 12,417,826
Accumulated undistributed net investment income 70,526
Accumulated undistributed net realized gain (loss) on
investment transactions (11,531)
Net unrealized appreciation (depreciation) of
investments 8,060,281
----------
TOTAL NET ASSETS $20,565,014
----------
----------
CAPITAL STOCK (par value $.10 a share)
Shares authorized 10,000,000
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
FIXED INCOME SECURITIES
<TABLE>
<CAPTION>
Market
Face Value
Amount Security Description Cost [Note 2(a)]
- ---------------------------------------------------------- ----------- ------------
<C> <S> <C> <C>
U.S. TREASURY & FEDERAL AGENCY OBLIGATIONS 13.1%
$200,000 U.S. Treasury Notes 7.125% 9/30/99 $ 197,172 $ 205,500
250,000 Federal Home Loan Bank 6.01% 12/04/98 250,000 249,063
250,000 Federal Home Loan Bank 7.03% 5/21/01 250,000 252,188
250,000 Federal Home Loan Bank 7.48% 6/28/01 250,000 252,025
250,000 Federal Home Loan Bank 7.42% 7/08/03 250,000 254,062
250,000 Federal Home Loan Bank 7.20% 9/11/03 250,000 250,312
250,000 Federal Home Loan Mortgage Corporation 7.00%
3/24/03 250,000 250,297
250,000 Federal Home Loan Mortgage Corporation 7.30%
7/27/05 250,000 248,350
250,000 Federal Home Loan Mortgage Corporation 7.00%
3/13/06 250,000 244,500
250,000 Federal National Mortgage Association 6.67%
2/06/06 249,531 241,797
250,000 Federal National Mortgage Association 7.15%
11/03/10 246,750 243,875
----------- ------------
2,693,453 2,691,969
OTHER NON-CONVERTIBLE BONDS 9.6%
250,000 Dupont (E.I.) de Nemours & Company 6.00% 12/1/01 249,750 245,312
250,000 Household Finance Corp. 7.00% 2/15/03 250,000 251,698
265,000 J. C. Penney & Co. 6.00% 5/01/06 239,613 245,170
250,000 Merrill Lynch and Co., Inc. 7.00% 4/27/08 247,978 249,117
250,000 General Foods Corporation 7.00% 6/15/11 240,000 240,988
200,000 Ford Motor Company Debentures 9.50% 9/15/11 199,836 239,010
250,000 Goldman Sachs & Company 8.00% 3/01/13 256,025 258,230
250,000 Allstate Corp. 7.50% 6/15/13 218,937 250,215
----------- ------------
1,902,139 1,979,740
CONVERTIBLE BONDS 4.5%
150,000 General Signal Corporation 5.75% 6/01/02 147,375 159,000
150,000 Cray Research, Inc. 6.125% 2/01/11 101,000 118,688
250,000 Noram Energy 6.00% 3/15/12 150,600 215,625
150,000 Ashland, Inc. 6.75% 7/01/14 144,000 154,500
250,000 Cooper Industries, Inc. 7.05% 1/01/15 240,892 267,500
----------- ------------
783,867 915,313
</TABLE>
5
<PAGE>
SCHEDULE OF INVESTMENTS (CONT.)
FIXED INCOME SECURITIES (Cont.)
<TABLE>
<CAPTION>
Market
Face Value
Amount Security Description Cost [Note 2(a)]
- ---------------------------------------------------------- ----------- ------------
<C> <S> <C> <C>
NON-CONVERTIBLE AND CONVERTIBLE PREFERRED STOCK 7.3%
$ 6,000 Bankers Trust New York Corporation $1.91 $ 144,495 $ 153,000
6,000 Barclays Bank PLC, Series E $2.00 150,000 149,250
5,000 The Bear Stearns Companies, Inc. Pf, Series C
$1.90 125,000 126,875
8,000 Boatman's Bancshares Pfd $1.75 243,245 448,000
5,000 Community First Bankshares, Inc. $1.75 125,000 215,000
2,500 J. P. Morgan & Co., Series A, Adj Rate Pf $5.00 143,720 202,500
4,000 Provident Life & Accident Insurance Co. Pf $2.025 100,000 103,000
2,000 St. Paul Capital Pf $3.00 100,000 110,750
----------- ------------
1,131,460 1,508,375
----------- ------------
TOTAL FIXED INCOME SECURITIES 34.5% $ 6,510,919 $ 7,095,397
----------- ------------
----------- ------------
</TABLE>
COMMON STOCK
<TABLE>
<CAPTION>
Number Market
of Value
Shares Security Description Cost [Note 2(a)]
- ---------------------------------------------------------- ----------- ------------
<C> <S> <C> <C>
BASIC INDUSTRIES 7.2%
5,000 Cooper Industries, Inc. $ 171,431 $ 210,625
3,802 Delta Air Lines, Inc. 262,308 269,467
12,000 Graco Inc. 147,460 294,000
5,000 Ingersoll-Rand Company 61,341 222,500
8,000 Pentair, Inc. 51,782 258,000
5,000 Weyerhaeuser Company 135,368 236,875
----------- ------------
829,690 1,491,467
CONSUMER 10.7%
7,000 American Greetings Class A 189,500 198,625
5,000 Briggs & Stratton Corporation 61,116 220,000
6,000 Deluxe Corp. 164,591 196,500
5,000 Dow Jones & Company, Inc. 171,125 169,375
2,000 Eastman Kodak Company 53,573 160,500
3,000 General Mills, Inc. 151,030 190,875
4,000 Genuine Parts Company 112,272 178,000
6,000 Hershey Foods Corporation 146,610 262,500
8,000 Hormel (Geo. A.) & Company 166,210 215,000
10,000 Jostens, Inc. 199,575 211,250
10,000 Sturm, Ruger &Co., Inc. 42,220 193,750
----------- ------------
1,457,822 2,196,375
</TABLE>
6
<PAGE>
SCHEDULE OF INVESTMENTS (CONT.)
COMMON STOCK (Cont.)
<TABLE>
<CAPTION>
Number Market
of Value
Shares Security Description Cost [Note 2(a)]
- ---------------------------------------------------------- ----------- ------------
<C> <S> <C> <C>
ENERGY 6.8%
4,000 Amoco Corporation $ 140,723 $ 322,500
2,000 Exxon Corporation 20,793 196,000
2,500 Mobil Corporation 54,750 305,625
5,000 Murphy Oil Corporation 139,408 278,125
3,000 Schlumberger, Limited 105,048 299,625
----------- ------------
460,722 1,401,875
FINANCIAL 15.4%
5,000 American Express Company 99,215 282,500
5,000 First Bank System, Inc. 58,358 341,250
5,000 Firstar Corp. 163,175 262,500
3,375 Jefferson-Pilot Corp. 60,323 191,109
6,000 Merrill Lynch & Co., Inc. 99,319 489,000
4,000 J.P. Morgan & Co., Inc. 102,082 390,500
20,000 Norwest Corporation 94,825 870,000
6,000 ReliaStar Financial Corp. 110,625 346,500
----------- ------------
787,922 3,173,359
HEALTH CARE 9.0%
1,000 Allegiance Corp. 5,773 27,625
6,000 American Home Products Corporation 182,542 351,750
5,000 Baxter International Inc. 70,751 205,000
4,000 Bristol-Myers Squibb Company 205,562 436,000
10,000 Pfizer Inc. 136,357 830,000
----------- ------------
600,985 1,850,375
TECHNOLOGY 10.2%
5,000 AMP Incorporated 133,605 191,875
6,000 Corning Inc. 161,970 277,500
3,000 Emerson Electric Co. 128,697 290,625
5,000 Honeywell Inc. 90,716 328,750
2,000 International Business Machines Corporation 96,740 303,000
10,000 MTS Systems Corporation 81,500 200,000
3,000 Minnesota Mining & Manufacturing Company 75,000 249,000
10,000 National Computer Systems, Inc. 121,380 255,000
----------- ------------
889,608 2,095,750
</TABLE>
7
<PAGE>
SCHEDULE OF INVESTMENTS (CONT.)
COMMON STOCK (Cont.)
<TABLE>
<CAPTION>
Number Market
of Value
Shares Security Description Cost [Note 2(a)]
- ---------------------------------------------------------- ----------- ------------
<C> <S> <C> <C>
UTILITIES 3.5%
7,000 GTE Corporation $ 96,007 $ 317,625
5,000 Texas Utilities Company 183,482 203,750
6,000 U S West Communications 142,035 193,500
----------- ------------
421,524 714,875
----------- ------------
TOTAL COMMON STOCK 62.8% 5,448,273 12,924,076
----------- ------------
TOTAL INVESTMENTS 97.3% $11,959,192 20,019,473
-----------
-----------
OTHER ASSETS IN EXCESS OF
LIABILITIES 2.7% 545,541
------------
NET ASSETS 100.0% $ 20,565,014
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 417,047
Interest 378,837
---------
TOTAL INCOME 795,884
Expenses:
Investment advisory fees (NOTE 5) $ 113,288
Transfer agent fees (NOTE 5) 20,177
Custodian fees 4,939
Legal and audit fees 21,133
Administrative fees 25,977
Other fees and expenses 17,565
---------
TOTAL EXPENSES 203,079
---------
NET INVESTMENT INCOME 592,805
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 4)
Net realized gain on investments sold 298,179
Unrealized appreciation of investments 2,237,463
---------
NET GAIN ON INVESTMENTS 2,535,642
---------
INCREASE IN NET ASSETS FROM OPERATIONS $3,128,447
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES.
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
<S> <C> <C>
----------------------
OPERATIONS
Net investment income $ 592,805 $ 518,531
Net realized gains on investments sold 298,179 122,640
Unrealized appreciation of investments 2,237,463 3,220,932
---------- ----------
INCREASE IN NET ASSETS FROM OPERATIONS 3,128,447 3,862,103
NET EQUALIZATION CREDITS 2,499 4,113
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (592,863) (528,266)
Short-term (gain) loss distributed as ordinary income (1,585) 20,648
From net realized gains (297,844) (140,978)
---------- ----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (892,292) (648,596)
CAPITAL STOCK TRANSACTIONS
Proceeds from shares sold 2,466,493 1,573,573
Reinvestment of distributions from net investment
income and net realized gains 692,559 480,999
Cost of shares redeemed (1,811,445) (1,266,415)
---------- ----------
INCREASE IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS 1,347,607 788,157
---------- ----------
TOTAL INCREASE IN NET ASSETS 3,586,261 4,005,777
NET ASSETS
Beginning of year 16,978,753 12,972,976
---------- ----------
End of year (including undistributed investment income
of $70,526 and $68,085, respectively) $20,565,014 $16,978,753
---------- ----------
---------- ----------
CHANGES IN CAPITAL STOCK
Shares sold 36,141 25,820
Shares issued for reinvested distributions 9,645 7,759
Shares redeemed (26,306) (21,427)
---------- ----------
NET INCREASE IN SHARES 19,480 12,152
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
<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, 1996
aggregated $2,616,576 and $1,200,989, respectively.
Note 4 -- Net unrealized appreciation on investments for Federal income tax
purposes aggregated $8,060,281, of which $8,085,915 related to
appreciated investment securities and $25,634 related to depreciated
investment securities. Aggregate cost of investments for Federal income
tax purposes was $11,959,192.
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 $4,725 in 1996. No compensation was paid to
any other director or officer of the Fund.
</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 assets and liabilities of Mairs
and Power Income Fund, Inc. (the Fund), including the schedule of investments,
as of December 31, 1996, 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, 1996, 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, 1996, 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 14, 1997
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- PERFORMANCE
TIONS OF DIVIDENDS OF AN
SHARES REALIZED FROM NET ASSUMED
OUT- TOTAL NET NET ASSET SECURITIES INVESTMENT INVESTMENT
DATES STANDING ASSETS VALUE GAINS INCOME OF $10,000*
- --------------- ----------- ---------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dec. 31, 1987 147,717 $5,772,298 $ 39.08 $ 2.18 $ 2.11 $ 10,172
Dec. 31, 1988 158,713 $6,569,555 $ 41.39 $ 0.84 $ 2.23 $ 11,586
Dec. 31, 1989 172,243 $7,886,058 $ 45.78 $ 0.66 $ 2.15 $ 13,632
Dec. 31, 1990 183,079 $8,075,488 $ 44.11 $ 0.13 $ 2.13 $ 13,818
Dec. 31, 1991 200,138 $10,676,264 $ 53.34 $ 0.00 $ 1.99 $ 17,394
Dec. 31, 1992 214,336 $11,535,822 $ 53.82 $ 0.60 $ 1.99 $ 18,413
Dec. 31, 1993 238,430 $13,441,576 $ 56.38 $ 1.25 $ 1.98 $ 20,411
Dec. 31, 1994 247,484 $12,972,976 $ 52.42 $ 0.74 $ 2.06 $ 19,986
Dec. 31, 1995 259,636 $16,978,753 $ 65.39 $ 0.55 $ 2.04 $ 25,989
Dec. 31, 1996 279,117 $20,565,014 $ 73.68 $ 1.08 $ 2.20 $ 30,650
</TABLE>
*Assumes the reinvestment of all income dividends and capital gain distributions
for a $10,000 investment made at the beginning of 1987.
- --------------------------------------------------------------------------------
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, 1996) ARE AS FOLLOWS:
1 YEAR: +17.9% 5 YEARS: +12.0% 10 YEARS: +11.9%
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
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OFFICERS AND DIRECTORS
William B. Frels ........................................ President and Director
George A. Mairs, III .................................... Secretary and Director
Peter G. Robb ...................................... Vice-President and Director
Lisa J. Hartzell ..................................................... Treasurer
Litton E. S. Field .................................................... Director
Donald E. Garretson ................................................... Director
J. Thomas Simonet ..................................................... Director
INVESTMENT ADVISER CUSTODIAN
Mairs and Power, Inc. Firstar Trust Company
332 Minnesota Street 615 East Michigan Street
W-2062 First National Bank P.O. Box 701
Building Milwaukee, Wisconsin 53201-0701
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
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