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MAIRS AND POWER
BALANCED FUND, INC.
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1ST QUARTER REPORT
March 31, 2000
To Our Shareholders: May 19, 2000
FIRST QUARTER RESULTS
After a somewhat disappointing fourth quarter last year, the Fund turned in a
pretty good first quarter in terms of both absolute and relative investment
performance. The improvement in performance reflected a better bond market
along with a late-quarter revival in the "old economy" stocks. Based on a
March 31, 2000 net asset value per share of $51.21, the Fund produced a total
investment return of 2.8% for the quarter after adjustment for the
reinvestment of cash dividends. This compared with other comparable benchmark
returns of 2.3% for the Standard & Poor's 500, a negative 4.7% for the Dow
Jones Industrial Average and 2.7% for the Lehman Bros. Gov't/Corp. Bond
Index. Among other comparable balanced mutual funds, the Fund ranked 166th
out of a CDA/Wiesenberger domestic balanced fund universe of 369 funds.
The U. S. economy continued to be the envy of the world showing an above-trend
5.4% rate of Gross Domestic Product growth in the first quarter despite five
separate one-quarter point interest rate increases on the part of the Federal
Reserve since mid-year 1999. Rising inflationary pressures have led the Fed to
move even more aggressively with a one-half point increase more recently on May
16, 2000. The unusually rapid late-cycle growth continued to be fueled by
consumer spending which increased at a sizzling 8.3% annual rate. Business
capital spending improved at a brisk 21.2% rate as compared to a rather weak
2.9% fourth quarter rate, which reflected Y2K concerns. Although the final tally
is not yet available, corporate earnings are believed to have also fared very
well increasing at a rate well into the "double digits".
The stock market finally started to show some signs of broadening
participation late in the quarter after several quarters of increasingly
narrow leadership confined mainly to the technology sector, However, for the
full quarter, technology (computer hardware, networking and systems;
electrical equipment and electronics) and energy displayed the best
performance. Basic industries (chemicals, containers, metals and forest
products) and consumer staples (cosmetics, foods, household products and soft
drinks) experienced the worst performance although most industry groups
lagged well behind the technology sector. Small and mid-sized companies
generally performed quite well compared to their large company counterparts,
especially where above average growth rates were present. Among
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holdings in the Fund, Corning (+50.5%), American Home Products (+36.0%),
Schlumberger (+36.0%) and National Computer Systems (+34.9%) performed best
while Briggs & Stratton (-23.3%), Weyerhaeuser (-20.6%), Ingersoll-Rand
(-19.6%), Graco (-19.2%) and Hormel Foods (-19.1%) did the worst.
FUTURE OUTLOOK
Recent moves by the Federal Reserve, which reflect an increasingly more
restrictive monetary policy, are expected to have the desired effect of
gradually slowing the pace of economic growth in the months to come.
Consequently, Gross Domestic Product growth in the second half of 2000 is
expected to decline to a more sustainable level in the area of 3%. If this
forecast is correct, some easing of inflationary pressures should also become
evident by the end of the year. This in turn would likely lead to some
relaxation of monetary policy with the now inverted interest rate yield curve
beginning to show some flattening. Although corporate profit increases may also
slow, continuing strong productivity gains could keep the rate of growth near
"double digit" levels.
Even though interest rates have moved up recently, the outlook for the stock
market as a whole remains basically positive considering the still relatively
strong outlook for corporate profits. However, progress over the next six to
twelve months is expected to be quite different than over the past couple of
years. The broadening of market participation since the technology laden NASDAQ
made its high on March 10, 2000 and the renewed emphasis on valuation are
expected to continue for some time to come. "New economy" technology stocks
remain richly valued even though a significant portion of the valuation premium
has been eroded recently. Volatility for the market, as well as for many
individual stocks, is expected to remain high with historically high valuation
levels leaving little room for error. As a number of market analysts have
observed recently, "the market is priced for perfection".
NEW DIRECTOR APPOINTED
At the April 14, 2000 meeting of the Board of Directors, Norbert J. Conzemius
was appointed to the Board. Mr. Conzemius (58) was a career employee of U. S.
Bancorp. where he held a number of senior level management positions including
the presidency of a trust company subsidiary. He subsequently retired to run
Road Rescue, Inc., a privately held emergency vehicle manufacturing company that
was recently sold.
William B. Frels
President
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<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS MARCH 31, 2000
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FIXED INCOME SECURITIES
FACE MARKET
AMOUNT SECURITY DESCRIPTION VALUE
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<S> <C> <C>
U.S.TREASURY & FEDERAL AGENCY OBLIGATIONS 20.5%
$ 250,000 Federal Farm Credit Bank 7.00% 07/19/06 $ 245,284
250,000 Federal Home Loan Bank 6.30% 05/19/03 243,839
250,000 Federal Home Loan Bank 7.025% 02/17/05 245,403
250,000 Federal Home Loan Bank 7.00% 07/14/05 244,636
250,000 Federal Home Loan Bank 7.00% 08/15/07 241,441
250,000 Federal Home Loan Bank 7.075% 07/25/12 236,306
250,000 Federal Home Loan Bank 6.50% 09/18/13 226,701
250,000 Federal Home Loan Bank 6.41% 02/11/14 224,805
250,000 Federal Home Loan Mortgage Corporation 6.00% 12/01/05 235,702
250,000 Federal Home Loan Mortgage Corporation 6.33% 04/24/06 237,854
250,000 Federal Home Loan Mortgage Corporation 7.01% 07/13/06 243,394
250,000 Federal Home Loan Mortgage Corporation 6.41% 01/20/09 232,546
250,000 Federal Home Loan Mortgage Corporation 6.25% 01/21/09 230,595
250,000 Federal Home Loan Mortgage Corporation 6.45% 04/29/09 232,749
250,000 Federal Home Loan Mortgage Corporation 7.33% 07/13/09 241,996
250,000 Federal Home Loan Mortgage Corporation 6.60% 11/19/13 227,902
250,000 Federal National Mortgage Association 7.23% 05/17/04 246,025
500,000 Federal National Mortgage Association 6.45% 04/04/05 481,874
250,000 Federal National Mortgage Association 6.26% 08/03/05 238,495
250,000 Federal National Mortgage Association 7.50% 02/02/07 244,730
250,000 Federal National Mortgage Association 7.68% 04/24/07 246,324
250,000 Federal National Mortgage Association 7.43% 06/13/07 244,715
250,000 Federal National Mortgage Association 6.41% 01/16/08 235,420
250,000 Federal National Mortgage Association 6.52% 03/05/08 236,035
250,000 Federal National Mortgage Association 6.56% 04/23/08 236,757
250,000 Federal National Mortgage Association 6.58% 06/16/08 236,190
250,000 Federal National Mortgage Association 6.18% 02/19/09 230,872
500,000 Federal National Mortgage Association 6.49% 03/18/09 469,118
250,000 Federal National Mortgage Association 7.15% 06/11/09 241,544
250,000 Federal National Mortgage Association 7.15% 11/03/10 239,065
250,000 Federal National Mortgage Association 6.37% 02/25/14 226,857
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7,845,174
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CORPORATE BONDS 8.8%
300,000 Bankers Trust NY Corp. 7.125% 07/31/02 296,934
250,000 Household Finance Corp. 7.00% 02/15/03 246,783
250,000 Ford Motor Credit Company 6.70% 07/16/04 242,647
265,000 J.C. Penney & Co. 6.00% 05/01/06 213,439
250,000 Bankers Trust NY Corp. 6.70% 10/01/07 234,792
250,000 General Foods Corporation 7.00% 06/15/11 233,813
200,000 Ford Motor Company Debentures 9.50% 09/15/11 231,431
250,000 Goldman Sachs & Company 8.00% 03/01/13 252,111
250,000 Allstate Corp. 7.50% 06/15/13 242,208
500,000 General Motors Acceptance Corporation 7.30% 07/15/14 486,442
500,000 Lincoln National Corp. 7.00% 03/15/18 448,788
250,000 South Jersey Gas Co. 7.125% 10/22/18 220,837
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3,350,225
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CONVERTIBLE CORPORATE BONDS 1.7%
150,000 Cray Research, Inc. 6.125% 02/01/11 91,500
350,000 Kerr McGee Corp. 7.50% 05/15/14 331,625
250,000 Noram Energy 6.00% 03/15/12 213,750
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$ 636,875
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<CAPTION>
SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2000
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FIXED INCOME SECURITIES (CONTINUED)
FACE MARKET
AMOUNT SECURITY DESCRIPTION VALUE
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<S> <C> <C>
CONVERTIBLE AND NON-CONVERTIBLE PREFERRED STOCK 1.1%
6,000 Barclays Bank PLC, Series E $ 2.00 $ 137,625
2,500 J. P. Morgan & Co., Series A., Adj Rate Pf $ 5.00 181,250
2,000 St. Paul Capital Pf $ 3.00 119,500
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438,375
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TOTAL FIXED INCOME SECURITIES 32.1% $12,270,649
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COMMON STOCKS
NUMBER OF MARKET
SHARES SECURITY DESCRIPTION VALUE
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BASIC INDUSTRIES 2.6%
12,000 Bemis Company, Inc. $ 442,500
10,000 Weyerhaeuser Company 570,000
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1,012,500
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CAPITAL GOODS 5.7%
6,000 Briggs & Stratton Corporation 246,750
2,000 Cooper Industries, Inc. 70,000
25,000 Graco Inc. 725,000
10,000 Ingersoll-Rand Company 442,500
40,000 MTS Systems Corporation 305,000
10,000 Pentair, Inc. 370,625
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2,159,875
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CONSUMER CYCLICAL 1.3%
10,000 Deluxe Corp. 265,000
5,000 Genuine Parts Company 119,375
12,000 Sturm, Ruger & Co., Inc. 105,000
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489,375
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CONSUMER STAPLE 4.7%
4,000 Eastman Kodak Company 217,250
6,000 General Mills, Inc. 217,125
6,000 Hershey Foods Corporation 292,500
30,000 Hormel (Geo. A.) & Company 493,125
10,000 Kimberly Clark 560,000
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1,780,000
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HEALTH CARE 8.9%
14,000 American Home Products Corporation 750,750
5,000 Baxter International Inc. 313,438
15,000 Bristol-Myers Squibb Company 866,250
40,000 Pfizer Inc. 1,462,500
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$3,392,938
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<CAPTION>
SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2000
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COMMON STOCKS (CONTINUED)
NUMBER OF MARKET
SHARES SECURITY DESCRIPTION VALUE
- -------- ------------------------------------------------------------------------------- ---------
ENERGY 7.3%
10,586 BP Amoco PLC ADR $ 561,720
8,000 Burlington Resources Inc. 296,000
10,600 Exxon Mobil Corporation 824,812
6,000 Murphy Oil Corporation 345,750
10,000 Schlumberger, Limited 765,000
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2,793,282
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FINANCIAL 17.9%
5,000 American Express Company 744,688
8,000 BankAmerica Corporation 419,500
18,690 Community First Bankshares, Inc. 299,040
22,800 Firstar Corp. 522,975
5,062 Jefferson-Pilot Corp. 336,939
10,000 Merrill Lynch & Co., Inc. 1,050,000
5,000 J. P. Morgan & Co., Inc. 658,750
16,000 ReliaStar Financial Corp. 542,000
12,000 St. Paul Companies 409,500
15,000 U.S. Bancorp 328,125
37,000 Wells Fargo & Company 1,514,688
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6,826,205
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TECHNOLOGY 12.5%
8,000 Corning Inc. 1,552,000
9,000 Emerson Electric Co. 475,875
15,000 Honeywell Inc. 790,312
8,000 International Business Machines Corporation 944,000
20,000 National Computer Systems, Inc. 1,015,000
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4,777,187
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TRANSPORTATION 0.8%
6,000 Delta Air Lines, Inc. 319,500
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UTILITIES 2.9%
10,000 American Water Works Company, Inc. 237,500
7,000 GTE Corporation 497,000
5,000 U S West Inc. 363,125
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1,097,625
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DIVERSIFIED 1.6%
7,000 Minnesota Mining & Manufacturing Company 619,937
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TOTAL COMMON STOCK 66.2% 25,268,424
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SHORT TERM INVESTMENTS 1.1%
422,924 Firstar Institutional Money Market Fund 422,924
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TOTAL INVESTMENTS 99.4% 37,961,997
OTHER ASSETS IN EXCESS OF LIABILITIES 0.6% 226,543
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NET ASSETS 100% $38,188,540
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</TABLE>
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<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS AT MARCH 31, 2000
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<S> <C> <C>
ASSETS
Investments at market value (cost $13,537,703)................................................... $ 29,693,899
U.S. Governments (cost $8,225,348)............................................................... 7,845,173
Cash............................................................................................. 422,924
Dividends and interest receivable................................................................ 236,149
Receivables for securities sold, not yet delivered............................................... 0
Prepaid expense.................................................................................. 11,610
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38,209,755
LIABILITIES
Accrued management fee................................................. $ 18,718
Accrued custodian and transfer agent fee............................... 2,497
Payable for securities purchased, not yet received..................... 0 21,215
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NET ASSETS
Equivalent to $51.21 per share on 745,788 shares outstanding..................................... $ 38,188,540
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STATEMENT OF CHANGES IN NET ASSETS FOR THE THREE MONTHS ENDED MARCH 31, 2000
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NET ASSETS, December 31, 1999.................................................................... $ 40,610,878
Net investment income, per statement below............................. $ 330,508
Distribution to shareholders........................................... (223,431) 107,077
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Fund shares issued and repurchased:
Received for 10,763 shares issued................................... 535,034
Paid for 75,159 shares repurchased.................................. (3,677,744) (3,142,710)
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Increase in unrealized net appreciation (depreciation) of investments............................ (619,492)
Net gain (or loss) realized from sales of securities............................................. 1,232,760
Distribution from net realized gain reversed..................................................... 27
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NET ASSETS, March 31, 2000....................................................................... $ 38,188,540
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STATEMENT OF NET INVESTMENT INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000
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INVESTMENT INCOME
Dividends........................................................................................ $ 131,081
Interest......................................................................................... 281,831
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412,912
EXPENSES
Management fee (Note A)................................................ $ 56,321
Fees and expenses of custodian, transfer agent and
dividend disbursing agent (Note A)................................. 4,826
Legal and auditing fees and expenses................................... 5,375
Insurance.............................................................. 367
Other Fees and Expenses................................................ 15,515 82,404
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NET INVESTMENT INCOME............................................................................ $ 330,508
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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 also paid to Firstar Mutual Fund Services, LLC which serves as
transfer agent.
SUPPLEMENTARY INFORMATION: 1) Each director of the Fund not affiliated with
Mairs and Power, Inc. received no compensation for meetings attended during this
three 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 three months ended March 31, 2000 aggregated $76,553 and $2,474,116
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
651-222-8478
Shareholder Information: 800-304-7404
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
Mar. 31, 2000 745,788 38,188,540 51.21 - 0.30
</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 MARCH 31, 2000)
ARE AS FOLLOWS:
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1 YEAR: + 7.6% 5 YEARS: + 17.1% 10 YEARS: + 13.6%
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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>
<CAPTION>
<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
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MAIRS AND POWER
BALANCED FUND, INC.
