<PAGE>
=====================
MAIRS AND POWER
BALANCED FUND, INC.
=====================
--------------------------------------------------------------------------------
2ND QUARTER REPORT
June 30, 2000
To Our Shareholders: August 21, 2000
SECOND QUARTER RESULTS
With corporate earnings continuing strong, interest rates starting to show
signs of stabilizing and some help from corporate mergers, the Fund
experienced another quarter of solid investment performance, especially on a
relative basis. Based on a June 30, 2000 net asset value of $52.11 per
share, the Fund experienced a total investment return of 2.3% for the
quarter after adjustment for the reinvestment of cash dividends. Comparable
benchmark returns did not fare nearly as well with both the Standard & Poors
500 and the Dow Jones Industrial Average showing negative returns of -2.7%
and -4.0%, respectively. The Lehman Bros. Gov't/Corp. Bond Index did better
with a positive +1.5% return. For the first half, the Fund produced a total
return of +5.2% compared with still negative returns for the S & P 500 and
DJIA of -0.4% and -8.5%, respectively. The Lehman Bros. Gov't/Corp. Index
did much better with a positive +4.2%. Among other comparable domestic
balanced mutual funds, the Fund ranked 33rd out of a CDA/Wiesenberger
domestic balanced fund universe of 364 funds.
The economy continued to perform exceptionally well during the second
quarter despite a number of recent tightening moves by the Federal Reserve.
Gross Domestic Product rose an impressive 5.2% while inflation remained
reasonably well behaved, thanks in part to a 5.3% surge in productivity
improvement. Although some slowdown did occur in consumer spending, it was
more than offset by a surprisingly large 21.2% jump in the annual rate of
business spending. Corporate profit growth continued strong as indicated by
a 17% increase shown by BUSINESS WEEK'S "Corporate Scoreboard", a survey of
some 900 corporations.
The stock market did not fare nearly as well as the economy in the second
quarter as investors became increasingly concerned about higher interest
rates and some pick-up in the rate of inflation. In keeping with growing
concerns over the future direction of the economy, defensive sectors such as
consumer staples (drugs, housewares, soft drinks and tobacco) did the best
while more cyclical sectors like basic industries (chemicals, metals and
papers), consumer cyclicals (autos, appliances and retailing) and technology
(computer hardware and software,
<PAGE>
communication equipment and electronics) fared the worst. Within the Fund,
the individual holdings that performed the best included ReliaStar Financial
(+54.8%), Corning (+39.1%) and Pfizer (+31.3%) while Honeywell (-36.1%),
Weyerhaeuser (-24.6%), Bank of America (-18.0%) and MTS Systems (-18.0%)
performed the worst.
FUTURE OUTLOOK
Although some slowdown in the second half seems likely, the outlook for the
economy appears basically positive for the remainder of 2000 and on into
next year. With employment trends continuing to be favorable, consumer
spending should remain reasonably strong in coming months. Recent strength
in productivity should help keep inflation in check even though energy costs
are expected to continue moving up. Assuming continued economic growth,
corporate profits should continue growing at a near "double digit" rate over
the foreseeable future.
The outlook for interest rates seems relatively benign for the second half.
With no compelling reason to further tighten credit over the near term, the
Federal Reserve is expected to remain on hold until at least after the
presidential election in November. The yield curve is expected to remain
somewhat inverted until inflationary pressures begin easing and/or the Fed
reverses its current policy of restraint. Consequently, the bond market
should be fairly stable over the near term with bond returns about equaling
underlying coupon rates.
Considering the likelihood of continuing above-trend growth in corporate
profits and a stable interest rate environment, the outlook for the stock
market remains favorable. Although overall valuation levels are historically
high, it is important to consider the fact that many individual stocks
appear quite reasonably valued relative to their earnings growth rates. The
market indices continue to be dominated by a relatively few very large
capitalization "new economy" technology issues, which sell at significant
valuation premiums. Volatility is also expected to remain high given such
factors as historically high valuation levels, the increasing speed at which
information flows and the ever growing pressure for short-term investment
performance.
William B. Frels
President
<PAGE>
SCHEDULE OF INVESTMENTS JUNE 30, 2000
--------------------------------------------------------------------------------
FIXED INCOME SECURITIES
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SECURITY DESCRIPTION VALUE
--------- -------------------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C>
FEDERAL AGENCY OBLIGATIONS 20.6%
$ 250,000 Federal Farm Credit Bank 7.00% 07/19/06 $ 244,849
250,000 Federal Home Loan Bank 6.30% 05/19/03 244,692
250,000 Federal Home Loan Bank 7.025% 02/17/05 245,777
250,000 Federal Home Loan Bank 7.00% 07/14/05 245,130
250,000 Federal Home Loan Bank 7.00% 08/15/07 241,885
250,000 Federal Home Loan Bank 7.075% 07/25/12 236,321
250,000 Federal Home Loan Bank 6.50% 09/18/13 226,635
250,000 Federal Home Loan Bank 6.41% 02/11/14 224,768
250,000 Federal Home Loan Mortgage Corporation 6.00% 12/01/05 236,652
250,000 Federal Home Loan Mortgage Corporation 6.33% 04/24/06 238,639
250,000 Federal Home Loan Mortgage Corporation 7.01% 07/13/06 243,820
250,000 Federal Home Loan Mortgage Corporation 6.41% 01/20/09 233,038
250,000 Federal Home Loan Mortgage Corporation 6.25% 01/21/09 231,128
250,000 Federal Home Loan Mortgage Corporation 6.45% 04/29/09 233,187
250,000 Federal Home Loan Mortgage Corporation 7.33% 07/13/09 242,052
250,000 Federal Home Loan Mortgage Corporation 6.60% 11/19/13 227,809
250,000 Federal National Mortgage Association 7.23% 05/17/04 246,307
500,000 Federal National Mortgage Association 6.45% 04/04/05 482,987
250,000 Federal National Mortgage Association 6.26% 08/03/05 239,202
250,000 Federal National Mortgage Association 7.50% 02/02/07 244,534
250,000 Federal National Mortgage Association 7.68% 04/24/07 246,061
250,000 Federal National Mortgage Association 7.43% 06/13/07 244,577
250,000 Federal National Mortgage Association 6.41% 01/16/08 235,728
250,000 Federal National Mortgage Association 6.52% 03/05/08 236,287
250,000 Federal National Mortgage Association 6.56% 04/23/08 236,865
250,000 Federal National Mortgage Association 6.58% 06/16/08 236,433
250,000 Federal National Mortgage Association 6.18% 02/19/09 231,307
500,000 Federal National Mortgage Association 6.49% 03/18/09 469,838
250,000 Federal National Mortgage Association 7.15% 06/11/09 241,296
250,000 Federal National Mortgage Association 7.15% 11/03/10 238,884
250,000 Federal National Mortgage Association 6.37% 02/25/14 226,634
-----------
7,853,322
-----------
CORPORATE BONDS 8.7%
300,000 Bankers Trust NY Corp. 7.125% 07/31/02 297,899
250,000 Household Finance Corp. 7.00% 02/15/03 246,288
250,000 Ford Motor Credit Company 6.70% 07/16/04 241,581
265,000 J.C. Penney & Co. 6.00% 05/01/06 219,429
250,000 Bankers Trust NY Corp. 6.70% 10/01/07 233,994
250,000 General Foods Corporation 7.00% 06/15/11 216,170
200,000 Ford Motor Company Debentures 9.50% 09/15/11 226,702
250,000 Goldman Sachs & Company 8.00% 03/01/13 245,162
250,000 Allstate Corp. 7.50% 06/15/13 239,406
500,000 General Motors Acceptance Corporation 7.30% 07/15/14 480,963
500,000 Lincoln National Corp. 7.00% 03/15/18 449,285
250,000 South Jersey Gas Co. 7.125% 10/22/18 215,444
-----------
3,312,323
-----------
CONVERTIBLE CORPORATE BONDS 1.6%
150,000 Cray Research, Inc. 6.125% 02/01/11 91,500
331,000 Kerr McGee Corp. 7.50% 05/15/14 316,519
250,000 Noram Energy 6.00% 03/15/12 218,750
-----------
$ 626,769
-----------
</TABLE>
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED) JUNE 30, 2000
--------------------------------------------------------------------------------
FIXED INCOME SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT SECURITY DESCRIPTION VALUE
--------- -------------------------------------------------------------------------------- ------------
<S> <C> <C> <C>
CONVERTIBLE AND NON-CONVERTIBLE PREFERRED STOCK 1.2%
6,000 Barclays Bank PLC, Series E $ 2.00 $ 139,500
2,500 J. P. Morgan & Co., Series A., Adj Rate Pf $ 5.00 180,000
2,000 St. Paul Capital Pf $ 3.00 119,500
------------
439,000
------------
TOTAL FIXED INCOME SECURITIES 32.1% $12,231,414
------------
</TABLE>
COMMON STOCKS
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY DESCRIPTION VALUE
--------- -------------------------------------------------------------------------------- ------------
<S> <C> <C>
BASIC INDUSTRIES 2.2%
12,000 Bemis Company, Inc. $ 403,500
10,000 Weyerhaeuser Company 430,000
------------
833,500
------------
CAPITAL GOODS 5.5%
6,000 Briggs & Stratton Corporation 205,500
2,000 Cooper Industries, Inc. 65,125
25,000 Graco Inc. 812,500
10,000 Ingersoll-Rand Company 402,500
40,000 MTS Systems Corporation 250,000
10,000 Pentair, Inc. 355,000
------------
2,090,625
------------
CONSUMER CYCLICAL 1.2%
10,000 Deluxe Corp. 235,625
5,000 Genuine Parts Company 100,000
12,000 Sturm, Ruger & Co., Inc. 106,500
------------
442,125
------------
CONSUMER STAPLE 4.8%
4,000 Eastman Kodak Company 238,000
6,000 General Mills, Inc. 229,500
6,000 Hershey Foods Corporation 291,000
30,000 Hormel Foods Corporation 504,375
10,000 Kimberly Clark 573,750
------------
1,836,625
------------
HEALTH CARE 9.2%
10,000 American Home Products Corporation 587,500
5,000 Baxter International Inc. 351,562
15,000 Bristol-Myers Squibb Company 873,750
1,000 Edwards Lifesciences Corp. 18,500
35,000 Pfizer Inc. 1,680,000
------------
3,511,312
------------
</TABLE>
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED) JUNE 30, 2000
--------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY DESCRIPTION VALUE
--------- -------------------------------------------------------------------------------- ------------
<S> <C> <C>
ENERGY 7.3%
10,586 BP Amoco PLC ADR $ 598,771
8,000 Burlington Resources Inc. 306,000
10,600 Exxon Mobil Corporation 832,100
6,000 Murphy Oil Corporation 356,625
9,000 Schlumberger, Limited 671,625
------------
2,765,121
------------
FINANCIAL 17.5%
15,000 American Express Company 781,875
8,000 BankAmerica Corporation 344,000
18,690 Community First Bankshares, Inc. 304,881
22,800 Firstar Corp. 480,225
5,062 Jefferson-Pilot Corp. 285,687
9,000 Merrill Lynch & Co., Inc. 1,035,000
5,000 J. P. Morgan & Co., Inc. 550,625
16,000 ReliaStar Financial Corp. 839,000
12,000 St. Paul Companies 409,500
15,000 U.S. Bancorp 288,750
35,000 Wells Fargo & Company 1,356,250
------------
6,675,793
------------
TECHNOLOGY 12.9%
7,500 Corning Inc. 2,024,062
9,000 Emerson Electric Co. 543,375
15,000 Honeywell Inc. 505,312
8,000 International Business Machines Corporation 876,500
20,000 National Computer Systems, Inc. 985,000
------------
4,934,249
------------
TRANSPORTATION 0.8%
6,000 Delta Air Lines, Inc. 303,375
------------
UTILITIES 2.9%
10,000 American Water Works Company, Inc. 250,000
7,000 GTE Corporation 435,750
5,000 U S West Inc. 428,750
------------
1,114,500
------------
DIVERSIFIED 1.5%
7,000 Minnesota Mining & Manufacturing Company 577,500
------------
TOTAL COMMON STOCK 65.8% 25,084,725
------------
SHORT TERM INVESTMENTS 1.4%
521,168 Firstar Institutional Money Market Fund 521,168
------------
TOTAL INVESTMENTS 99.3% 37,837,307
OTHER ASSETS IN EXCESS OF LIABILITIES 0.7% 268,557
------------
NET ASSETS 100% $38,105,864
============
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF NET ASSETS AT JUNE 30, 2000
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<S> <C> <C>
ASSETS
Investments at market value (cost $13,306,889)..................................................................... $ 29,462,817
U.S. Governments (cost $8,225,785)................................................................................. 7,853,322
Cash............................................................................................................... 521,168
Dividends and interest receivable.................................................................................. 269,793
Receivables for securities sold, not yet delivered................................................................. 0
Prepaid expense.................................................................................................... 20,389
----------------
38,127,489
LIABILITIES
Accrued management fee.................................................................... $ 19,229
Accrued custodian and transfer agent fee.................................................. 2,396
Payable for securities purchased, not yet received........................................ 0 21,625
------------- ----------------
NET ASSETS
Equivalent to $52.11 per share on 731,239 shares outstanding....................................................... $ 38,105,864
================
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED JUNE 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, December 31, 1999...................................................................................... $ 40,610,878
Net investment income, per statement below................................................ $ 599,320
Distribution to shareholders.............................................................. (441,907) 157,413
-------------
Fund shares issued and repurchased:
Received for 29,856 shares issued...................................................... 1,531,446
Paid for 108,801 shares repurchased.................................................... (5,424,044) (3,892,598)
-------------
Increase in unrealized net appreciation (depreciation) of investments.............................................. (612,048)
Net gain (or loss) realized from sales of securities............................................................... 1,842,219
----------------
NET ASSETS, June 30, 2000.......................................................................................... $ 38,105,864
================
<CAPTION>
STATEMENT OF NET INVESTMENT INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends.......................................................................................................... $ 258,116
Interest........................................................................................................... 507,633
----------------
765,749
EXPENSES
Management fee (Note A)................................................................... $ 114,470
Fees and expenses of custodian, transfer agent and
dividend disbursing agent (Note A).................................................... 9,445
Legal and auditing fees and expenses...................................................... 10,749
Insurance................................................................................. 735
Other Fees and Expenses................................................................... 31,030 166,429
------------- ----------------
NET INVESTMENT INCOME.............................................................................................. $ 599,320
================
</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 also 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 $1,900.00 compensation for meetings
attended during this six 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 six months ended June 30, 2000 aggregated
$76,553 and $3,317,094 respectively.
<PAGE>
=====================
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
--------------------------------------------------------------------------------
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
Jun. 30, 2000 731,239 38,105,864 52.11 - 0.60
</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.
------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
THE AVERAGE ANNUAL TOTAL RETURNS FOR THE FUND (PERIOD ENDED JUNE 30, 2000)
ARE AS FOLLOWS:
------------------------------------------------------------------------------
1 YEAR: +3.1% 5 YEARS: +15.9% 10 YEARS: +13.5%
------------------------------------------------------------------------------
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.
-------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
--------------------------------------------------------------------------------
William B. Frels George A. Mairs, III
President and Director Secretary and Director
Norbert J. Conzemius Charlton Dietz
Director Director
Peter G. Robb Lisa J. Hartzell
Vice-President and Director Treasurer
Donald E. Garretson J. Thomas Simonet
Director Director
<PAGE>
MAIRS AND POWER
BALANCED FUND, INC.
