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MAIRS AND POWER
BALANCED FUND, INC.
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3RD QUARTER REPORT
September 30, 2000
To Our Shareholders: November 20, 2000
THIRD QUARTER RESULTS
Benefitting from a renewed interest in "old economy" stocks, a relatively high
level of corporate merger activity and slightly lower longer term interest
rates, the Fund turned in a period of surprisingly strong investment performance
in the third quarter. Based on a September 30, 2000 net asset value of $54.99,
the Fund achieved a total investment return of 6.2% for the quarter after
adjustment for the reinvestment of cash dividends. This compared quite favorably
with other benchmark returns of a negative 1.0% for the Standard & Poor's 500,
+2.3% for the Dow Jones Industrial Average and +2.9% for the Lehman Bros.
Gov't/Corp. Bond Index. For the first nine months, the Fund produced a rather
impressive return of +11.7% in contrast to negative returns of 1.4% and 6.3%,
respectively, for the S & P 500 and DJIA. Fixed income returns were better with
the Lehman Bros. Gov't/Corp. Bond Index showing +7.2%. Among other comparable
domestic balanced mutual funds, the Fund ranked 20th out of a CDA/Wiesenberger
domestic balanced fund universe of 374 funds.
Although slowing from the brisk pace shown in the first half, the overall
economy still performed very well by most standards in the third quarter. Real
Gross Domestic Product increased at a 2.7% annual rate (preliminary basis), down
from unsustainably high rates of 4.8% and 5.6% in the first and second quarters,
respectively. The slower rate of growth was primarily a function of reduced
investment spending together with a decline in government spending. Consumer
spending held up rather well showing a 4.5% rate of improvement reflecting
continued employment gains. While inflation remained under control with
productivity gains continuing to offset unit labor cost pressures, some
acceleration did take place at the end of the quarter in September reflecting
higher food and energy prices. Corporate profits on an operating basis continued
to experience strong growth with BUSINESS WEEK'S Corporate Scoreboard (a survey
of 900 companies) showing a collective 18% increase.
The weakness in the stock market during the third quarter is thought to be
primarily a function of concerns over the future rate of corporate earnings
growth given the recent slowdown in the economy. This uncertainty coupled with
extended valuation levels in several important sectors of the market has also
resulted in increased volatility in both individual stocks as well as the
various market indices. Reflecting the growing uncertainty, the best performing
sectors of the market include such defensive sectors as consumer staples
(beverage, food and tobacco), healthcare and utilities. Financials also did
<PAGE>
well with interest rates stabilizing and starting to show some decline at the
longer end of the curve. The weakest areas of the market included those most
sensitive to changes in the economy such as basic industries and consumer
cyclicals as well as those sectors carrying the highest valuations like
information technology and communication equipment and services. Among holdings
in the Fund, J. P. Morgan (+48.4%), St. Paul Companies (+44.5%) and Bank of
America (+21.8) did the best while Eastman Kodak (-31.3%), Pentair (-24.6%) and
Ingersoll-Rand (-15.8%) fared the worst.
FUTURE OUTLOOK
The outlook for the economy over the remainder of 2000 and on into the coming
year still appears favorable although the rate of growth will likely remain well
below the exceptional rate experienced during the first half of the current
year. The major risk over the near term seems to be a decline in the rate of
growth of consumer spending resulting from previous Federal Reserve interest
rate hikes, the negative wealth effect of the recent decline in the stock
market, and an eroding level of consumer confidence. Although the possibility of
a major slowdown in consumer spending cannot be dismissed, we believe spending
growth will continue to be strong enough to move the economy ahead at an annual
rate of 2% or more. Under this assumption, corporate earnings should also
continue increasing, although at a more moderate rate of around 5%.
The core rate of inflation seems likely to remain under control in the 2-3%
range with productivity gains continuing to largely offset cost increases.
However, greater increases in the more volatile areas of food and energy could
lift the Consumer Price Index somewhat above this level. Increasingly strong
competition on a worldwide basis should continue to make it very difficult to
routinely pass along cost increases in the form of higher prices. Consequently,
the outlook for the bond market appears reasonably positive with interest rates
likely to move within a relatively narrow range over the next few months.
Turning to the stock market, we remain fairly constructive given our forecast
for continued growth in corporate profits and relatively stable outlook for
interest rates. Although valuation levels remain on the high side historically,
it is important to realize that the market averages continue to be
disproportionately influenced by a relatively few richly valued large
capitalization issues. Market leadership in the future is expected to broaden
and include more representation from those sectors carrying lower valuations but
still having the capacity to show earnings growth during a more difficult
economic environment.
CAPITAL GAIN DISTRIBUTION
Because of the effect of several corporate mergers made on a cash basis, the
capital gain distribution to be paid to shareholders in late December, 2000 is
expected to be in the area of $5.00 per share.
MAIRS AND POWER WEB SITE
Mairs and Power Growth and Balanced Fund shareholders can now use the internet
to access our web site (www.mairsandpower.com) to obtain various kinds of
information for each Fund including previous day's NAV, investment style,
certain data and statistics, forms, reports and applications.
William B. Frels
President
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SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2000
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FIXED INCOME SECURITIES
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SECURITY DESCRIPTION VALUE
------ ------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
FEDERAL AGENCY OBLIGATIONS 20.6%
$ 250,000 Federal Farm Credit Bank 7.00% 07/19/06 $ 248,943
250,000 Federal Home Loan Bank 6.30% 05/19/03 247,191
250,000 Federal Home Loan Bank 7.025% 02/17/05 248,074
250,000 Federal Home Loan Bank 7.00% 07/14/05 247,558
250,000 Federal Home Loan Bank 7.00% 08/15/07 245,326
250,000 Federal Home Loan Bank 7.445% 08/15/07 251,716
250,000 Federal Home Loan Bank 7.075% 07/25/12 238,782
250,000 Federal Home Loan Bank 6.50% 09/18/13 229,071
250,000 Federal Home Loan Bank 6.41% 02/11/14 227,106
250,000 Federal Home Loan Mortgage Corporation 6.00% 12/01/05 240,824
250,000 Federal Home Loan Mortgage Corporation 6.33% 04/24/06 242,486
250,000 Federal Home Loan Mortgage Corporation 7.01% 07/13/06 246,752
250,000 Federal Home Loan Mortgage Corporation 6.41% 01/20/09 237,283
250,000 Federal Home Loan Mortgage Corporation 6.25% 01/21/09 235,635
250,000 Federal Home Loan Mortgage Corporation 6.45% 04/29/09 237,422
250,000 Federal Home Loan Mortgage Corporation 7.33% 07/13/09 245,107
250,000 Federal Home Loan Mortgage Corporation 6.60% 11/19/13 230,219
250,000 Federal National Mortgage Association 7.23% 05/17/04 249,954
500,000 Federal National Mortgage Association 6.45% 04/04/05 491,482
250,000 Federal National Mortgage Association 6.26% 08/03/05 244,060
250,000 Federal National Mortgage Association 7.50% 02/02/07 249,502
250,000 Federal National Mortgage Association 7.68% 04/24/07 250,317
250,000 Federal National Mortgage Association 7.43% 06/13/07 248,913
250,000 Federal National Mortgage Association 6.41% 01/16/08 240,544
250,000 Federal National Mortgage Association 6.52% 03/05/08 241,053
250,000 Federal National Mortgage Association 6.56% 04/23/08 241,772
250,000 Federal National Mortgage Association 6.58% 06/16/08 241,218
250,000 Federal National Mortgage Association 6.18% 02/19/09 236,626
500,000 Federal National Mortgage Association 6.49% 03/18/09 480,080
250,000 Federal National Mortgage Association 7.15% 06/11/09 245,767
250,000 Federal National Mortgage Association 7.15% 11/03/10 243,432
250,000 Federal National Mortgage Association 6.37% 02/25/14 231,721
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8,235,936
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CORPORATE BONDS 9.0%
300,000 Bankers Trust NY Corp. 7.125% 07/31/02 300,365
250,000 General Mills, Inc. 7.00% 09/16/02 250,281
250,000 Household Finance Corp. 7.00% 02/15/03 249,519
250,000 Ford Motor Credit Company 6.70% 07/16/04 245,089
265,000 J.C. Penney & Co. 6.00% 05/01/06 206,662
250,000 Bankers Trust NY Corp. 6.70% 10/01/07 240,044
250,000 General Foods Corporation 7.00% 06/15/11 230,516
200,000 Ford Motor Company Debentures 9.50% 09/15/11 226,899
250,000 Goldman Sachs & Company 8.00% 03/01/13 252,832
250,000 Allstate Corp. 7.50% 06/15/13 247,382
500,000 General Motors Acceptance Corporation 7.30% 07/15/14 494,441
500,000 Lincoln National Corp. 7.00% 03/15/18 452,937
250,000 South Jersey Gas Co. 7.125% 10/22/18 224,937
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$3,621,904
CONVERTIBLE CORPORATE BONDS 1.6% -----------
150,000 Cray Research, Inc. 6.125% 02/01/11 77,250
331,000 Kerr McGee Corp. 7.50% 05/15/14 326,449
250,000 Noram Energy 6.00% 03/15/12 221,250
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$ 624,949
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</TABLE>
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SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2000
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FIXED INCOME SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SECURITY DESCRIPTION VALUE
------ ------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
CONVERTIBLE AND NON-CONVERTIBLE PREFERRED STOCK 0.8%
6,000 Barclays Bank PLC, Series E $ 2.00 $ 145,125
2,500 J. P. Morgan & Co., Series A., Adj Rate Pf $ 5.00 189,062
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394,187
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TOTAL FIXED INCOME SECURITIES 32.0% $12,816,976
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</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS
NUMBER MARKET
OF SHARES SECURITY DESCRIPTION VALUE
---------- ------------------------------------------------------------- -----------
<S> <C> <C>
BASIC INDUSTRIES 2.2%
12,000 Bemis Company, Inc. $ 385,500
12,000 Weyerhaeuser Company 484,500
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870,000
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CAPITAL GOODS 5.0%
7,000 Briggs & Stratton Corporation 264,688
2,000 Cooper Industries, Inc. 70,500
25,000 Graco Inc. 806,250
10,000 Ingersoll-Rand Company 338,750
40,000 MTS Systems Corporation 280,000
10,000 Pentair, Inc. 267,500
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2,027,688
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CONSUMER CYCLICAL 1.0%
10,000 Deluxe Corp. 203,125
5,000 Genuine Parts Company 95,312
12,000 Sturm, Ruger & Co., Inc. 98,250
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396,687
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CONSUMER STAPLE 4.4%
4,000 Eastman Kodak Company 163,500
6,000 General Mills, Inc. 213,000
6,000 Hershey Foods Corporation 324,750
30,000 Hormel Foods Corporation 500,625
10,000 Kimberly Clark 558,125
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1,760,000
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HEALTH CARE 8.5%
10,000 American Home Products Corporation 565,625
5,000 Baxter International Inc. 399,063
15,000 Bristol-Myers Squibb Company 856,875
35,000 Pfizer Inc. 1,572,812
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3,394,375
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</TABLE>
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SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
NUMBER MARKET
OF SHARES SECURITY DESCRIPTION VALUE
---------- ------------------------------------------------------------- -----------
<S> <C> <C>
ENERGY 7.3%
10,586 BP Amoco PLC ADR $ 561,058
8,000 Burlington Resources Inc. 294,500
10,600 Exxon Mobil Corporation 944,725
6,000 Murphy Oil Corporation 388,875
9,000 Schlumberger, Limited 740,813
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2,929,971
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FINANCIAL 18.1%
15,000 American Express Company 911,250
8,000 Bank of America Corporation 419,000
18,690 Community First Bankshares, Inc. 328,243
22,800 Firstar Corp. 510,150
5,062 Jefferson-Pilot Corp. 343,583
18,000 Merrill Lynch & Co., Inc. 1,188,000
5,000 J. P. Morgan & Co., Inc. 816,875
15,390 St. Paul Companies 758,919
17,000 U.S. Bancorp 386,750
35,000 Wells Fargo & Company 1,607,813
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7,270,583
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TECHNOLOGY 10.7%
7,000 Corning Inc. 2,079,000
9,000 Emerson Electric Co. 603,000
20,000 Honeywell International 712,500
8,000 International Business Machines Corporation 900,000
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4,294,500
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TRANSPORTATION 0.7%
6,000 Delta Air Lines, Inc. 266,250
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UTILITIES 3.0%
10,000 American Water Works Company, Inc. 275,625
8,646 Qwest Communications 415,548
11,000 Verizon Communications 532,813
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1,223,986
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DIVERSIFIED 1.6%
7,000 Minnesota Mining & Manufacturing Company 637,875
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TOTAL COMMON STOCK 62.5% 25,071,915
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SHORT TERM INVESTMENTS 4.9%
978,657 Firstar Institutional Money Market Fund 978,657
1,000,000 Merrill Lynch Institutional Money Market Fund 1,000,000
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1,978,657
TOTAL INVESTMENTS 99.4% 39,867,548
OTHER ASSETS IN EXCESS OF LIABILITIES 0.6% 234,480
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NET ASSETS 100% $40,102,028
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</TABLE>
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<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS AT SEPTEMBER 30, 2000
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ASSETS
<S> <C> <C>
Investments at market value (cost $13,591,069)......................................................... $ 29,652,955
U.S. Governments (cost $8,476,230)..................................................................... 8,235,936
Cash................................................................................................... 1,978,657
Dividends and interest receivable...................................................................... 243,789
Receivables for securities sold, not yet delivered..................................................... 0
Prepaid expense........................................................................................ 13,436
40,124,773
LIABILITIES
Accrued management fee.................................................. $ 20,429
Accrued custodian and transfer agent fee................................ 2,316
Payable for securities purchased, not yet received...................... 0 22,745
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NET ASSETS
Equivalent to $54.99 per share on 729,246 shares outstanding........................................... $ 40,102,028
============
STATEMENT OF CHANGES IN NET ASSETS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
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NET ASSETS, December 31, 1999.......................................................................... $ 40,610,878
Net investment income, per statement below.............................. $ 864,810
Distribution to shareholders............................................ (697,143) 167,667
Fund shares issued and repurchased: -----------
Received for 38,084 shares issued.................................... 1,980,954
Paid for 119,023 shares repurchased.................................. (5,981,594) (4,000,640)
-----------
Increase in unrealized net appreciation (depreciation) of investments.................................. (573,922)
Net gain (or loss) realized from sales of securities................................................... 3,898,045
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NET ASSETS, September 30, 2000......................................................................... $ 40,102,028
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STATEMENT OF NET INVESTMENT INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
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INVESTMENT INCOME
Dividends.............................................................................................. $ 384,855
Interest............................................................................................... 741,839
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1,126,694
EXPENSES
Management fee (Note A)................................................. $ 174,440
Fees and expenses of custodian, transfer agent and
dividend disbursing agent (Note A).................................. 14,056
Legal and auditing fees and expenses.................................... 15,821
Insurance............................................................... 1,052
Other Fees and Expenses................................................. 56,515 261,884
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NET INVESTMENT INCOME.................................................................................. $ 864,810
===========
</TABLE>
NOTE A: The investment advisory fee was paid to Mairs and Power, Inc., which is
owned by individuals who are directors and officers of the Fund, for its
services as investment adviser. Investment advisory fees are paid to the adviser
pursuant to an advisory agreement approved by the Directors of the Fund. The
advisory fee is computed each month and is 1/20th of one percent of the net
asset value of the Fund on the last valuation day of the month. The transfer
agent fee was paid to Firstar Mutual Fund Services, LLC which serves as transfer
agent.
SUPPLEMENTARY INFORMATION: 1) The directors of the Fund not affiliated with
Mairs and Power, Inc. received a total of $6,700.00 compensation for meetings
attended during this nine month period. No compensation was paid to any other
director or officer of the Fund. 2) 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 available to investment companies and to make
distributions of income and security profits which will be sufficient to relieve
it from all or substantially all income taxes. 3) Purchases and sales of
investment securities during the nine months ended September 30, 2000 aggregated
$1,020,898 and $5,785,882 respectively.
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=================================
MAIRS AND POWER
BALANCED FUND, INC.
=================================
A NO-LOAD FUND
W-1420 First National Bank Building, 332 Minnesota Street,
St. Paul, Minnesota 55101-1363
Investment Adviser: 651-222-8478 Shareholder Information: 800-304-7404
www.mairsandpower.com
SUMMARY OF FINANCIAL INFORMATION
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This table covers a period of generally rising bond and common stock
prices. The results shown should not be considered as a representation of
the dividend income and capital gain or loss which may result from an
investment made in the Fund today.
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------------------
DISTRIBUTIONS DIVIDENDS
OF REALIZED FROM NET
SHARES TOTAL NET NET ASSET SECURITIES INVESTMENT
DATES OUTSTANDING ASSETS VALUE GAINS INCOME
------------- ----------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Dec. 31, 1980 129,196 1,969,896 15.25 0.21 1.25
Dec. 31, 1981 132,236 1,928,460 14.59 - 1.21
Dec. 31, 1982 135,050 2,274,421 16.84 0.33 1.25
Dec. 31, 1983 155,828 2,907,432 18.66 - 1.28
Dec. 31, 1984 155,810 2,729,570 17.52 0.45 1.28
Dec. 31, 1985 183,348 3,837,245 20.93 0.35 1.13
Dec. 31, 1986 253,724 5,395,111 21.27 1.87 0.98
Dec. 31, 1987 295,434 5,772,298 19.54 1.09 1.06
Dec. 31, 1988 317,426 6,569,555 20.70 0.42 1.12
Dec. 31, 1989 344,486 7,886,058 22.89 0.33 1.08
Dec. 31, 1990 366,158 8,075,488 22.06 0.07 1.07
Dec. 31, 1991 400,276 10,676,264 26.67 - 1.00
Dec. 31, 1992 428,672 11,535,822 26.91 0.30 1.00
Dec. 31, 1993 476,860 13,441,576 28.19 0.63 0.99
Dec. 31, 1994 494,968 12,972,976 26.21 0.37 1.03
Dec. 31, 1995 519,272 16,978,753 32.70 0.28 1.02
Dec. 31, 1996 558,234 20,565,014 36.84 0.54 1.10
Dec. 31, 1997 632,540 28,789,593 45.52 0.35 1.19
Dec. 31, 1998 766,420 38,355,609 50.05 0.60 1.24
Dec. 31, 1999 810,184 40,610,878 50.13 0.81 1.39
Sep. 30, 2000 729,246 40,102,028 54.99 - 0.95
</TABLE>
No adjustment has been made for any income tax payable by shareholders on
capital gain distributions accepted in shares.
This report is not to be used in connection with the offering of shares of the
Fund unless accompanied or preceded by an effective Prospectus. Please call or
write if you desire further information.
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AVERAGE ANNUAL TOTAL RETURNS
THE AVERAGE ANNUAL TOTAL RETURNS FOR THE FUND (PERIOD ENDED SEPTEMBER 30, 2000)
ARE AS FOLLOWS:
<TABLE>
<S> <C> <C>
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1 YEAR: +14.4% 5 YEARS: +16.1% 10 YEARS: +14.8%
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</TABLE>
PAST INVESTMENT RESULTS SHOULD NOT BE TAKEN AS NECESSARILY REPRESENTATIVE OF
FUTURE PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
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OFFICERS AND DIRECTORS
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<TABLE>
<S> <C> <C> <C>
William B. Frels George A. Mairs, III Peter G. Robb Lisa J. Hartzell
President and Director Secretary and Director Vice-President and Director Treasurer
Norbert J. Conzemius Charlton Dietz Donald E. Garretson J. Thomas Simonet
Director Director Director Director
</TABLE>
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MAIRS AND POWER
BALANCED FUND, INC.
