<PAGE>
[LOGO]
ANNUAL REPORT
December 31, 1997
W-1420 First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
612-222-8478
<PAGE>
February 20, 1998
TO OUR SHAREHOLDERS
FOURTH QUARTER RESULTS
Reflecting continuing strength in both the stock and bond markets, the
Balanced Fund experienced another period of relatively strong investment
performance in the final quarter of 1997. Based on a December 31, 1997 net asset
value per share of $91.03 per share, the Fund produced a total investment return
of 3.9% during the quarter after adjustment for the reinvestment of cash
dividends and capital gain distributions. This compares with similar returns of
2.9% for the Standard & Poor's 500 Stock Index and 3.2% for the Lehman Brothers
Gov't/Corp. Bond Index.
The securities markets responded to a surprisingly strong 4.3% annual rate
of economic growth (preliminary basis) in the fourth quarter as measured by real
Gross Domestic Product together with a very modest level (1.7% annual rate) of
inflation. The main drivers for the economy were a better than expected 3.2%
increase in consumer spending, a pick-up in the rate of inventory accumulation
and some improvement in the balance of trade. In line with the improved outlook
for inflation, interest rates continued to decline at the long end of the curve
with the 30-year U. S. Treasury finishing the year at 5.92%. Fourth quarter
operating profits for publicly held companies are believed to have increased
nearly 12% although net profits advanced only 1-2% because of a large number of
non-recurring restructuring related charge-offs.
Turning to the stock market, some of the best performances were turned by
interest rate sensitive sectors such as financials (banks and insurance ) and
utilities. Certain consumer sectors characterized by predictable growth
prospects (cosmetics, drugs, household products and services) also did quite
well. The weakest sectors of the market tended to be those more cyclically
sensitive areas including basic industries (chemicals, metals, paper and forest
products) and technology (computers, semiconductors electrical equipment). The
energy sector also did poorly. Individual holdings in the Fund that did the best
included Norwest (+26.5%), Delta Air Lines (+26.3%) and Pfizer (+24.0%) while
AMP (-21.6%), Corning (-21.4%) and Weyerhaeuser (-17.5%) performed the worst.
1997 IN REVIEW
Full year 1997 was another banner year for the Balanced Fund with a number
of new records being established. The Fund produced an exceptional 28.0% total
rate of return after adjustment for the reinvestment of cash dividends and
capital gain distributions. This compared with other benchmark returns of 33.4%
for the Standard & Poor's 500 Stock Index, 24.9% for the Dow Jones Industrial
Average and 9.8% for the Lehman Brothers Gov't/Corp. Bond Index. More
importantly, the Fund ranked second in a CDA/Wiesenberger universe of 314 other
similar balanced funds investing in domestic securities which had an average
return of 18.8%.
The strong performance of financial markets in 1997 can be attributable to
an ideal economic background. Real GDP advanced a solid 3.8% which was the best
showing since 1988. Inflation remained under good control falling to an eleven
year low of 1.7% based on the Consumer Price Index. Rising productivity and
stable raw material costs have generally more than compensated for modest
increases in unit labor costs. As a result, corporate profitability continued to
improve, thus allowing profits on an operating basis before charge-offs to once
again increase at an above average "double digit" rate.
OUTLOOK FOR 1998
The U. S. economy should remain the envy of the world with the expansion of
recent years likely to continue in 1998 despite the well publicized problems of
Southeast Asia. Although down
1
<PAGE>
from last year's pace, real GDP is still expected to show an increase in the
area of 2% given the continuing strength in consumer spending. Inflation is
expected to remain subdued with the strong dollar leading to an increasingly
competitive market place. While corporate profits are expected to be up, the
rate of growth also seems likely to slip to the area of 5-8% from the "double
digit" rates in evidence during recent years.
Considering the favorable outlook for inflation together with the likelihood
of some slowdown in the overall economy, interest rates are forecasted to remain
near current levels in coming months. However, any changes that do take place
seem more likely to occur at the short end of the curve with the possibility of
a less restrictive Federal Reserve policy in the face of a slowing economy.
Turning to the stock market, we believe that today's higher valuation levels
are justified by the relatively low level of interest rates and forecasted
continuing growth in corporate profits. While current valuation levels are high
historically at some 20 times estimated 1998 operating earnings on the S & P
500, they still do not appear to be excessive when compared to other past
periods of low inflation. However, current valuation levels also almost
guarantee a continued higher level of volatility because of the magnified effect
that relatively small changes in the outlook for either corporate profits or
interest rates can have on prices.
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
YEAR ENDING FUND S&P CPI
<S> <C> <C> <C>
1987 $10,000.00 $10,000.00 $10,000.00
1988 $11,390.00 $11,660.00 $10,410.00
1989 $13,402.61 $15,334.56 $10,909.68
1990 $13,584.89 $14,853.53 $11,498.80
1991 $17,100.66 $19,383.86 $11,981.75
1992 $18,102.76 $20,876.42 $12,341.21
1993 $20,066.91 $22,984.94 $12,674.42
1994 $19,649.51 $23,283.74 $13,016.63
1995 $25,552.23 $32,024.46 $13,342.04
1996 $30,133.74 $39,383.68 $13,782.33
1997 $38,577.22 $52,537.83 $14,016.63
AVERAGE ANNUAL TOTAL RETURN
1 Year 28.0%
5 Year 16.3%
10 Year 14.5%
PAST INVESTMENT RESULTS SHOULD NOT 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
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
Net asset value, beginning of year $ 73.68 $ 65.39 $ 52.42 $ 56.38 $ 53.82 $ 53.34 $ 44.11 $ 45.78 $ 41.39 $ 39.08
Investment operations:
Net investment income 2.35 2.19 2.01 2.09 2.00 2.00 1.98 2.12 2.13 2.24
Net realized and unrealized gains
(losses) on investment 18.07 9.38 13.55 (3.25) 3.79 1.07 9.24 (1.53) 5.07 3.14
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations 20.42 11.57 15.56 (1.16) 5.79 3.07 11.22 0.59 7.20 5.38
Less distributions:
Dividends (from net investment
income) (2.37) (2.20) (2.04) (2.06) (1.98) (1.99) (1.99) (2.13) (2.15) (2.23)
Distributions (from capital gains) (0.70) (1.08) (0.55) (0.74) (1.25) (0.60) - (0.13) (0.66) (0.84)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (3.07) (3.28) (2.59) (2.80) (3.23) (2.59) (1.99) (2.26) (2.81) (3.07)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 91.03 $ 73.68 $ 65.39 $ 52.42 $ 56.38 $ 53.82 $ 53.34 $ 44.11 $ 45.78 $ 41.39
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN 28.0% 17.9% 30.0% (2.1)% 10.9% 5.9% 25.9% 1.4% 17.7% 13.9%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS, END OF YEAR (000'S
OMITTED) 28,790 20,565 16,979 12,973 13,442 11,536 10,676 8,075 7,886 6,570
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average net
assets 0.92% 1.08% 1.12% 1.11% 1.06% 1.13% 1.25% 1.20% 1.22% 1.22%
Ratio of net investment income to
average net assets 2.81% 3.16% 3.47% 3.80% 3.50% 3.72% 4.02% 4.78% 4.78% 5.33%
Portfolio turnover rate 5.32% 8.25% 3.95% 17.28% 24.10% 16.12% 24.37% 20.15% 14.18% 25.83%
Average commission rate paid $ .1200 $ .1201 - - - - - - - -
</TABLE>
3
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS
Investments as annexed, at market value (cost $9,040,941) $ 22,176,020
U.S. Governments (cost $5,693,141) 5,763,836
Cash 685,751
Dividends and interest receivable 179,200
Receivables for securities sold, not yet delivered 0
Prepaid expense 0
------------
$ 28,804,807
LIABILITIES
Accrued management fee 14,388
Accrued custodian and transfer agent fee 826
Payable for securities purchased, not yet received 0 15,214
------------ ------------
NET ASSETS
Equivalent to $91.03 per share on 316,270 shares
outstanding $ 28,789,593
------------
------------
NET ASSETS CONSIST OF:
Capital stock $ 31,627
Additional paid-in capital 15,491,311
Accumulated undistributed net investment income 73,712
Accumulated overdistributed net realized gain on
investment transactions (12,830)
Net unrealized appreciation (depreciation) of investments 13,205,773
------------
TOTAL NET ASSETS $ 28,789,593
------------
------------
CAPITAL STOCK (par value $.10 a share)
Shares authorized 10,000,000
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
FIXED INCOME SECURITIES
<TABLE>
<CAPTION>
Market
Face Value
Amount Security Description Cost [Note (2a)]
- --------- --------------------------------------------------------------- ------------ ------------
<C> <S> <C> <C> <C> <C>
U.S. TREASURY & FEDERAL AGENCY BONDS 20.0%
$ 200,000 U.S. Treasury Notes 7.125% 09/30/99 $ 197,172 $ 204,750
250,000 Federal Home Loan Bank 6.85% 10/10/00 249,844 250,775
250,000 Federal Home Loan Bank 6.25% 10/20/00 250,000 250,078
250,000 Federal Home Loan Bank 7.025% 05/21/01 250,000 251,250
250,000 Federal Home Loan Bank 6.455% 02/22/02 250,000 252,109
250,000 Federal Home Loan Bank 6.885% 07/29/02 250,000 252,813
250,000 Federal Home Loan Bank 6.550% 11/12/02 250,000 251,562
250,000 Federal Home Loan Bank 6.515% 12/02/02 250,000 249,844
250,000 Federal Home Loan Bank 7.42% 07/08/03 250,000 255,156
250,000 Federal Home Loan Bank 7.20% 09/11/03 250,000 252,500
250,000 Federal Home Loan Bank 7.012% 07/14/04 250,000 252,060
250,000 Federal Home Loan Bank 7.00% 07/14/05 250,000 253,438
250,000 Federal Home Loan Bank 7.00% 08/15/07 250,000 254,297
250,000 Federal Home Loan Bank 7.075% 07/25/12 250,000 253,437
250,000 Federal Home Loan Mortgage Corporation 7.00% 03/24/03 250,000 250,703
250,000 Federal Home Loan Mortgage Corporation 7.30% 07/27/05 250,000 251,250
250,000 Federal Home Loan Mortgage Corporation 7.00% 03/13/06 250,000 249,922
250,000 Federal National Mortgage Association 7.23% 05/17/04 250,000 255,078
250,000 Federal National Mortgage Association 6.67% 02/06/06 249,531 248,594
250,000 Federal National Mortgage Association 7.50% 02/02/07 250,000 255,937
250,000 Federal National Mortgage Association 7.68% 04/24/07 249,844 256,797
250,000 Federal National Mortgage Association 7.43% 06/13/07 250,000 257,109
250,000 Federal National Mortgage Association 7.15% 11/03/10 246,750 254,375
------------ ------------
5,693,141 5,763,834
OTHER NON-CONVERTIBLE BONDS 7.2%
250,000 Dupont (E.I.) de Nemours & Company 6.00% 12/01/01 249,750 248,750
250,000 Household Finance Corp. 7.00% 02/15/03 250,000 256,563
265,000 J. C. Penney & Co. 6.00% 05/01/06 239,613 257,961
250,000 Merrill Lynch and Co., Inc. 7.00% 04/27/08 247,977 258,438
250,000 General Foods Corporation 7.00% 06/15/11 240,000 248,125
200,000 Ford Motor Company Debentures 9.50% 09/15/11 199,836 252,875
250,000 Goldman Sachs & Company 8.00% 03/01/13 256,025 277,578
250,000 Allstate Corp. 7.50% 06/15/13 218,938 271,094
------------ ------------
1,902,139 2,071,384
</TABLE>
5
<PAGE>
SCHEDULE OF INVESTMENTS (CONT.)
FIXED INCOME SECURITIES (Cont.)
<TABLE>
<CAPTION>
Market
Face Value
Amount Security Description Cost [Note (2a)]
- --------- --------------------------------------------------------------- ------------ ------------
<C> <S> <C> <C> <C> <C>
CONVERTIBLE BONDS 1.2%
$ 150,000 Cray Research, Inc. 6.125% 02/01/11 $ 101,000 $ 119,250
250,000 Noram Energy 6.00% 03/15/12 150,600 227,500
------------ ------------
251,600 346,750
NON-CONVERTIBLE AND CONVERTIBLE PREFERRED STOCK 3.2%
6,000 Bankers Trust New York Corporation $ 1.91 144,495 153,000
6,000 Barclays Bank PLC, Series E $ 2.00 150,000 156,750
5,000 The Bear Stearns Companies, Inc. Pf,
Series C $ 1.90 125,000 126,563
2,500 J. P. Morgan & Co., Series A, Adj Rate Pf $ 5.00 143,720 231,250
4,000 Provident Life & Accident Insurance Co.
Pf $2.025 100,000 102,000
2,000 St. Paul Capital Pf $ 3.00 100,000 144,000
------------ ------------
763,215 913,563
------------ ------------
TOTAL FIXED INCOME SECURITIES 31.6% $ 8,610,095 $ 9,095,531
------------ ------------
------------ ------------
</TABLE>
6
<PAGE>
SCHEDULE OF INVESTMENTS (CONT.)
COMMON STOCK
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security Description Cost [Note (2a)]
- --------- ------------------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
BASIC INDUSTRIES 7.3%
5,000 Cooper Industries, Inc. $ 186,470 $ 245,000
3,000 Delta Air Lines, Inc. 206,976 357,000
5,000 General Signal Corp. 195,449 210,938
12,000 Graco Inc. 147,460 447,750
7,500 Ingersoll-Rand Company 61,341 303,750
8,000 Pentair, Inc. 51,782 287,500
5,000 Weyerhaeuser Company 135,368 245,312
------------ ------------
984,846 2,097,250
CONSUMER 8.8%
7,000 American Greetings Class A 189,500 273,875
5,000 Briggs & Stratton Corporation 61,116 242,812
6,000 Deluxe Corp. 164,591 207,000
3,000 Dow Jones & Company, Inc. 102,675 161,063
2,000 Eastman Kodak Company 53,573 121,125
3,000 General Mills, Inc. 151,030 214,875
6,000 Genuine Parts Company 112,273 203,625
6,000 Hershey Foods Corporation 146,610 371,625
10,000 Hormel (Geo. A.) & Company 214,325 327,500
10,000 Jostens. Inc. 199,575 230,625
10,000 Sturm, Ruger & Co., Inc. 42,220 184,375
------------ ------------
1,437,488 2,538,500
ENERGY 5.9%
4,000 Amoco Corporation 140,723 340,500
4,000 Exxon Corporation 20,793 244,750
5,000 Mobil Corporation 54,750 360,937
5,000 Murphy Oil Corporation 123,696 270,938
6,000 Schlumberger, Limited 105,048 483,000
------------ ------------
445,010 1,700,125
FINANCIAL 20.7%
5,000 American Express Company 99,215 446,250
7,845 Community First Bankshares, Inc. 125,000 417,746
10,000 Firstar Corp. 163,175 424,375
3,375 Jefferson-Pilot Corp. 60,323 262,828
12,000 Merrill Lynch & Co., Inc. 99,319 875,250
4,000 J.P. Morgan & Co., Inc. 102,082 451,500
8,000 NationsBank Corp. 216,194 486,500
40,000 Norwest Corporation 94,825 1,550,000
12,000 ReliaStar Financial Corp. 110,625 494,250
5,000 U.S. Bancorp 58,358 559,688
------------ ------------
1,129,116 5,968,387
</TABLE>
7
<PAGE>
SCHEDULE OF INVESTMENTS (CONT.)
COMMON STOCK (Cont.)
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security Description Cost [Note (2a)]
- --------- ------------------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
HEALTH CARE 10.3%
6,000 American Home Products Corporation $ 182,542 $ 459,000
5,000 Baxter International Inc. 70,751 252,188
8,000 Bristol-Myers Squibb Company 205,562 757,000
20,000 Pfizer Inc. 136,357 1,491,250
------------ ------------
595,212 2,959,438
TECHNOLOGY 9.5%
5,000 AMP Incorporated 133,605 210,000
10,000 Corning Inc. 294,783 371,250
6,000 Emerson Electric Co. 128,697 338,625
5,000 Honeywell Inc. 90,716 342,500
4,000 International Business Machines Corporation 96,740 418,500
10,000 MTS Systems Corporation 81,500 375,000
4,000 Minnesota Mining & Manufacturing Company 163,370 328,250
10,000 National Computer Systems, Inc. 121,380 352,500
------------ ------------
1,110,791 2,736,625
UTILITIES 2.9%
7,000 GTE Corporation 96,007 365,750
5,000 Texas Utilities Company (Holding Company) 183,482 207,500
6,000 U S West Communications 142,035 270,750
------------ ------------
421,524 844,000
------------ ------------
TOTAL COMMON STOCK 65.4% 6,123,987 18,844,325
------------ ------------
TOTAL INVESTMENTS 97.0% $ 14,734,082 27,939,856
------------
------------
OTHER ASSETS IN EXCESS OF
LIABILITIES 3.0% 849,737
------------
NET ASSETS 100% $ 28,789,593
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 418,799
Interest 504,191
------------
TOTAL INCOME 922,990
Expenses:
Investment advisory fees (NOTE 5) $ 150,554
Transfer agent fees (NOTE 5) 11,743
Custodian fees 4,794
Legal and audit fees 23,776
Administrative fees 23,236
Other fees and expenses 14,005
------------
TOTAL EXPENSES 228,108
------------
NET INVESTMENT INCOME 694,882
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 4)
Net realized gain on investments sold 222,772
Unrealized appreciation of investments 5,145,492
------------
NET GAIN ON INVESTMENTS 5,368,264
------------
INCREASE IN NET ASSETS FROM OPERATIONS $ 6,063,146
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
---------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 694,882 $ 592,805
Net realized gains on investments sold 222,772 298,179
Unrealized appreciation of investments 5,145,492 2,237,463
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS 6,063,146 3,128,447
NET EQUALIZATION CREDITS 15,984 2,499
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (707,676) (592,863)
Short-term (gain) loss distributed as ordinary income (4,819) (1,585)
From net realized gains (219,253) (297,844)
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (931,748) (892,292)
CAPITAL STOCK TRANSACTIONS
Proceeds from shares sold 3,844,558 2,466,493
Reinvestment of distributions from net investment income
and net realized gains 735,269 692,559
Cost of shares redeemed (1,502,630) (1,811,445)
------------ ------------
INCREASE IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS 3,077,197 1,347,607
------------ ------------
TOTAL INCREASE IN NET ASSETS 8,224,579 3,586,261
NET ASSETS
Beginning of year 20,565,014 16,978,753
------------ ------------
End of year (including undistributed investment income of
$73,712 and $70,526, respectively) $ 28,789,593 $ 20,565,014
------------ ------------
------------ ------------
CHANGES IN CAPITAL STOCK
Shares sold 46,889 36,141
Shares issued for reinvested distributions 8,535 9,645
Shares redeemed (18,271) (26,306)
------------ ------------
NET INCREASE IN SHARES 37,153 19,480
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
<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 investment objective of the Fund is to provide regular
current income, the potential for capital appreciation, and a moderate
level of volatility by investing in a diversified list of securities,
including bonds, preferred stocks, common stocks and other 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) The Fund is a "regulated investment company" as defined in
Subtitle A, Chapter 1, Subchapter M of the Internal Revenue Code,
as amended. 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 follows 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, 1997
aggregated $3,844,351 and $1,292,233, respectively.
Note 4 -- Net unrealized appreciation on investments for Federal income tax
purposes aggregated $13,205,773, of which $13,207,945 related to
appreciated investment securities and $2,172 related to depreciated
investment securities. Aggregate cost of investments for Federal income
tax purposes was $14,734,082.
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 $3,600 in 1997. 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 Balanced Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Mairs
and Power Balanced Fund, Inc. (the Fund), including the schedule of investments,
as of December 31, 1997, 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, 1997, 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 Balanced Fund, Inc. at December 31, 1997, 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.
/s/ Ernst & Young LLP
Janauary 21, 1998
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, 1988 158,713 $ 6,569,555 $41.39 $0.84 $2.23 $11,390
Dec. 31, 1989 172,243 $ 7,886,058 $45.78 $0.66 $2.15 $13,402
Dec. 31, 1990 183,079 $ 8,075,488 $44.11 $0.13 $2.13 $13,584
Dec. 31, 1991 200,138 $10,676,264 $53.34 $0.00 $1.99 $17,100
Dec. 31, 1992 214,336 $11,535,822 $53.82 $0.60 $1.99 $18,102
Dec. 31, 1993 238,430 $13,441,576 $56.38 $1.25 $1.98 $20,066
Dec. 31, 1994 247,484 $12,972,976 $52.42 $0.74 $2.06 $19,648
Dec. 31, 1995 259,636 $16,978,753 $65.39 $0.55 $2.04 $25,550
Dec. 31, 1996 279,117 $20,565,014 $73.68 $1.08 $2.20 $30,132
Dec. 31, 1997 316,270 $28,789,593 $91.03 $0.70 $2.37 $38,576
</TABLE>
*Assumes the reinvestment of all income dividends and capital gain distributions
for a $10,000 investment made at the beginning of 1988.
- --------------------------------------------------------------------------------
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, 1997) ARE AS FOLLOWS:
1 YEAR: +28.0% 5 YEARS: +16.3% 10 YEARS: +14.5%
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
Lisa J. Hartzell ..................................................... Treasurer
Charlton Dietz ........................................................ Director
Donald E. Garretson ................................................... Director
J. Thomas Simonet ..................................................... Director
INVESTMENT ADVISER CUSTODIAN
Mairs and Power, Inc. Firstar Trust Company
W-1420 First National Bank 615 East Michigan Street
Building P.O. Box 701
332 Minnesota Street Milwaukee, Wisconsin 53201-0701
Saint Paul, Minnesota 55101
TRANSFER AGENT INDEPENDENT AUDITORS
Mairs and Power, Inc. Ernst & Young, LLP
W-1420 First National Bank 1400 Pillsbury Center
Building 200 South Sixth Street
332 Minnesota Street Minneapolis, Minnesota 55402
Saint Paul, Minnesota 55101
SHAREHOLDER ACCOUNT INFORMATION AND INQUIRIES
612-222-8478
14
