<PAGE>
-------------------
MAIRS AND POWER
BALANCED FUND, INC.
-------------------
- --------------------------------------------------------------------------------
ANNUAL REPORT
December 31, 1999
W-1420 First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
651-222-8478
<PAGE>
February 22, 2000
TO OUR SHAREHOLDERS
FOURTH QUARTER RESULTS
Despite a positive showing in the final quarter, the Fund's investment
results were disappointing relative to most stock market indices. The market
staged a dramatic recovery reflecting a strengthening economy and better than
expected corporate earnings growth. Based on a December 31, 1999, net asset
value per share of $50.13, the Fund achieved a total investment return of 2.4%
during the quarter after adjustment for the reinvestment of cash dividends and
capital gain distributions. By comparison, the major stock market indices such
as the Standard & Poor's 500 and Dow Jones Industrial Average, showed comparable
investment returns of 14.9% and 11.7%, respectively. In contrast, the Lehman
Bros. Gov't/Corp. Bond Index experienced a negative return of 0.4% as a result
of rising interest rates during the period.
The overall economy continued its sizzling growth in the fourth quarter
with Gross Domestic Product rising 5.8% with the benefit of a significant
increase in inventory accumulation. Continued employment gains along with a
record high level of consumer confidence helped personal spending increase at an
impressive 5.3% rate. Business spending for plant and equipment (including
software) increased 4.8%, somewhat below the rate experienced in recent quarters
in part attributable to a slowing in Y2K related expenditures. A surprisingly
strong 5.0% gain in productivity allowed corporate profitability to continue
increasing despite relatively stable pricing. Consequently, corporate operating
earnings are estimated to have risen at an exceptional rate of 15% or more in
the quarter.
In an attempt to rein in the stronger than expected rate of economic
growth, the Federal Reserve's monetary policy became increasingly restrictive
during the fourth quarter. Short-term interest rates were increased by one
quarter percentage point on November 18, 1999 and again more recently on
February 2, 2000 in order to slow the economy and keep growing inflationary
pressures under control.
Despite rising interest rates, the stock market, as measured by the
major market indices, evidenced considerable strength during the period.
However, the strength was very narrow and confined almost exclusively to
technology (communication equipment and services, computer
1
<PAGE>
software and services, electronics, etc.). As one would expect, interest rate
sensitive industries such as banking, housing, insurance and utilities were all
relatively weak. More surprising was rather widespread weakness in such areas as
basic industries, capital goods and various consumer-related sectors which would
normally benefit from a strengthening economy. Among the Fund's individual
holdings, Corning (+88.1%), US West (+26.6%) and Weyerhaeuser (+24.6%) did the
best while American Water Works (-26.6%), MTS Systems (-25.3%) and US Bancorp.
(-21.1%) fared the worst.
1999 IN REVIEW
Due largely to the significant rise in interest rates that took place
last year (+136 basis points on the 30 year benchmark U. S. Treasury bond), the
Balanced Fund experienced a very difficult year, especially in terms of relative
performance. Rising interest rates adversely affected the Fund because some 35%
of the Fund's investments were in fixed income securities and a significant
portion of the common stock investments were in interest rate sensitive
industries such as banking and insurance. Consequently, the Fund produced a
relatively nominal 4.6% total investment return compared to 21.0% for the
Standard & Poor's 500 and an even greater 27.3% for the Dow Jones Industrial
Average. The effect of rising interest rates caused the Lehman Bros. Gov't/Corp.
Bond Index to have a negative 2.2% rate of return. The Fund underperformed its
composite benchmark index (60% - S & P 500 and 40% Lehman Bros. Gov't/Corp.)
which was up 11.7%. Among other comparable funds, the Fund ranked 234th within a
CDA/Wiesenberger universe of 359 domestic balanced mutual funds for the full
year.
As indicated by the fourth quarter, the economy performed superbly last
year with real GDP advancing more than 4.0%. Personal spending increased an
amazing 6.9% with the help of a second half surge perhaps in part stimulated by
Y2K concerns. Inflation remained remarkably well-behaved in the face of a
significant increase in oil prices with the Consumer Price Index rising only
2.75%. Corporate earnings are estimated to have increased at an unexpectedly
strong rate well into the "double digits" in response to improved productivity
and higher profitability. Aside from rising interest rates, the only major area
of concern was an expanding trade deficit.
The strength in the stock market, as suggested by the major market
indices, was somewhat of a mirage with approximately half of all stocks in the
Standard & Poor's 500 experiencing a negative return for the year. In fact, it
can be argued that some 30 stocks contributed all of the performance for the
S & P 500 and only seven stocks contributed 50% of last year's return. These
high performing issues can almost exclusively be classified as large
capitalization, technology issues.
2
<PAGE>
OUTLOOK FOR 2000
Looking ahead, everything seems to be in place for another year of
solid economic growth. However, without the impetus of Y2K spending and another
round of inventory accumulation, growth in real GDP is projected at a more
normal 3% rate. Consumer spending should continue leading the charge in light of
record high confidence levels, continued employment growth and low unemployment.
Business spending is also expected to remain reasonably strong in view of
relatively high capacity utilization rates in some industries and continuing
efforts to raise productivity. A slowing economy is expected to translate into a
more sustainable high "single digit" increase in corporate earnings.
Unless the anticipated slowdown in the economy is more than expected,
indications are that the Federal Reserve will increase short-term interest rates
at least one more time. Although the stated rate of inflation has remained
relatively stable so far, pressures are building for a somewhat higher rate in
the future. However, given the increase in longer term rates that has already
taken place, the bond market seems to be pretty well discounting a higher
inflation rate along with some further tightening on the part of the Fed. The
current interest rate curve inversion also suggests that investors may be less
worried about the future rate of inflation than the Fed. Consequently, bond
market performance is projected to be much improved in the coming year with
returns more in line with underlying coupon rates.
Although less favorable than last year, the environment for stock
prices still seems to be basically positive. With most stocks selling well below
their twelve month highs, the risk of a significant correction from current
levels seems limited given the outlook for further earnings growth and
likelihood of a relatively modest further increase in interest rates. However,
the risks in the high-flying technology sector seem to be significantly greater
in view of unreasonably high valuation levels and historically high volatility.
The most compelling question facing investors at this juncture seems to be what
effect a major sell-off in the technology sector would have on the rest of the
market.
ANNUAL MEETING
In view of the increasing cost of proxy solicitation along with the
changing shareholder base of the Fund, the Board of Directors has determined
that shareholder interests would be best
3
<PAGE>
served by holding an annual meeting only in years when there is a legal
requirement to do so. It should be noted that this is in line with industry
practice as most mutual funds do not routinely hold annual meetings.
William B. Frels
President
-----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
FUND, S & P 500 INDEX, AND THE CONSUMER PRICE INDEX
-----------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDING
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THOUSANDS
Fund 10 10.14 12.76 13.51 14.97 14.66 19.07 22.48 28.78 32.86 34.37
S & P 10 9.68 12.63 13.61 14.98 15.17 20.87 25.67 34.24 44.07 53.34
CPI 10 10.54 10.98 11.31 11.62 11.93 12.23 12.63 12.85 13.05 13.41
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
- -------------------------------------------
1 Year 5 Year 10 Year
- -------------------------------------------
<S> <C> <C>
4.6% 18.6% 13.1%
- -------------------------------------------
</TABLE>
PAST INVESTMENT RESULTS SHOULD NOT BE TAKEN AS NECESSARILY REPRESENTATIVE
OF FUTURE PERFORMANCE.
4
<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
1999 1998 1997 1996 1995
--------------------------------------------------------------------
PER SHARE
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $50.05 $45.52 $36.84 $32.70 $26.21
Investment operations:
Net investment income 1.38 1.29(*) 1.18 1.09 1.01
Net realized and unrealized
gains (losses) on investment 0.90 5.08 9.04 4.69 6.78
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS 2.28 6.37 10.22 5.78 7.79
Less distributions:
Dividends (from net
investment income) (1.39) (1.24) (1.19) (1.10) (1.02)
Distributions (from capital gains) (0.81) (0.60) (0.35) (0.54) (0.28)
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (2.20) (1.84) (1.54) (1.64) (1.30)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $50.13 $50.05 $45.52 $36.84 $32.70
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN 4.6% 14.2% 28.0% 17.9% 30.0%
==== ===== ===== ===== =====
NET ASSETS, END OF YEAR
(000'S OMITTED) $40,611 $38,356 $28,790 $20,565 $16,979
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to
average net assets 0.88% 0.91% 0.92% 1.08% 1.12%
Ratio of net investment
income to average net
assets 2.70% 2.69% 2.81% 3.16% 3.47%
Portfolio turnover rate 13.40% 11.88% 5.32% 8.25% 3.95%
</TABLE>
(*)Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments, at market value (cost $15,477,791) $32,269,673
U.S. Governments (cost $8,473,225) 8,076,857
Dividends and interest receivable 287,111
-----------
Total assets 40,633,641
LIABILITIES
Accrued management fee 20,186
Accrued custodian and transfer agent fee 2,577
-----------
Total liabilities 22,763
NET ASSETS
Equivalent to $50.13 per share on 810,184 shares outstanding $40,610,878
-----------
-----------
NET ASSETS CONSIST OF:
Capital stock $ 81,018
Additional paid-in capital 24,125,513
Accumulated undistributed net investment income 3,494
Accumulated undistributed net realized gain on investment transactions 5,339
Net unrealized appreciation of investments 16,395,514
-----------
TOTAL NET ASSETS $40,610,878
-----------
-----------
CAPITAL STOCK (par value $.10 a share)
Shares authorized 10,000,000
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MARKET
FACE VALUE
AMOUNT SECURITY DESCRIPTION (NOTE 2a.)
----------- ---------------------------------------------------------------------------- ----------
<S> <C> <C> <C> <C>
FIXED INCOME SECURITIES
U.S.TREASURY & FEDERAL AGENCY OBLIGATIONS 19.9%
$250,000 Federal Farm Credit Bank 7.00% 07/19/06 $244,945
250,000 Federal Home Loan Bank 6.30% 05/19/03 245,020
250,000 Federal Home Loan Bank 7.025% 02/17/05 246,148
250,000 Federal Home Loan Bank 7.00% 07/14/05 245,281
250,000 Federal Home Loan Bank 7.00% 08/15/07 241,313
250,000 Federal Home Loan Bank 7.075% 07/25/12 235,108
250,000 Federal Home Loan Bank 6.50% 09/18/13 224,330
250,000 Federal Home Loan Bank 6.41% 02/11/14 222,284
250,000 Federal Home Loan Mortgage Corporation 6.00% 12/01/05 236,129
250,000 Federal Home Loan Mortgage Corporation 6.33% 04/24/06 238,163
250,000 Federal Home Loan Mortgage Corporation 7.01% 07/13/06 243,900
250,000 Federal Home Loan Mortgage Corporation 6.41% 01/20/09 232,666
250,000 Federal Home Loan Mortgage Corporation 6.25% 01/21/09 230,717
250,000 Federal Home Loan Mortgage Corporation 6.45% 04/29/09 233,666
250,000 Federal Home Loan Mortgage Corporation 7.33% 07/13/09 241,857
250,000 Federal Home Loan Mortgage Corporation 6.60% 11/19/13 225,477
250,000 Federal National Mortgage Association 7.23% 05/17/04 247,102
500,000 Federal National Mortgage Association 6.45% 04/04/05 483,714
250,000 Federal National Mortgage Association 6.26% 08/03/05 239,050
250,000 Federal National Mortgage Association 7.50% 02/02/07 244,152
250,000 Federal National Mortgage Association 7.68% 04/24/07 246,021
250,000 Federal National Mortgage Association 7.43% 06/13/07 244,487
250,000 Federal National Mortgage Association 6.41% 01/16/08 235,798
250,000 Federal National Mortgage Association 6.52% 03/05/08 236,471
250,000 Federal National Mortgage Association 6.56% 04/23/08 237,137
250,000 Federal National Mortgage Association 6.58% 06/16/08 236,508
250,000 Federal National Mortgage Association 6.11% 01/15/09 230,617
250,000 Federal National Mortgage Association 6.18% 02/19/09 231,356
500,000 Federal National Mortgage Association 6.49% 03/18/09 470,459
250,000 Federal National Mortgage Association 7.15% 06/11/09 242,083
250,000 Federal National Mortgage Association 7.15% 11/03/10 239,150
250,000 Federal National Mortgage Association 6.37% 02/25/14 225,748
----------
8,076,857
----------
</TABLE>
7
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MARKET
FACE VALUE
AMOUNT SECURITY DESCRIPTION (NOTE 2a.)
----------- ---------------------------------------------------------------------------- ----------
<S> <C> <C> <C> <C>
FIXED INCOME SECURITIES (CONTINUED)
OTHER NON-CONVERTIBLE BONDS 9.5%
$ 300,000 Bankers Trust NY Corp. 7.125% 07/31/02 $ 297,804
250,000 Household Finance Corp. 7.00% 02/15/03 247,323
250,000 Ford Motor Credit Company 6.70% 07/16/04 244,836
265,000 J.C. Penney & Co. 6.00% 05/01/06 229,603
250,000 Bankers Trust NY Corp. 6.70% 10/01/07 235,685
500,000 Merrill Lynch and Co., Inc. 7.00% 04/27/08 481,971
250,000 General Foods Corporation 7.00% 06/15/11 230,187
200,000 Ford Motor Company Debentures 9.50% 09/15/11 231,442
250,000 Goldman Sachs & Company 8.00% 03/01/13 248,156
250,000 Allstate Corp. 7.50% 06/15/13 243,489
500,000 General Motors Acceptance Corporation 7.30% 07/15/14 491,922
500,000 Lincoln National Corp. 7.00% 03/15/18 450,387
250,000 South Jersey Gas Co. 7.125% 10/22/18 212,950
-----------
3,845,755
-----------
CONVERTIBLE BONDS 1.6%
150,000 Cray Research, Inc. 6.125% 02/01/11 91,500
350,000 Kerr McGee Corp. 7.50% 05/15/14 325,063
250,000 Noram Energy 6.00% 03/15/12 221,250
-----------
637,813
-----------
<CAPTION>
NUMBER OF
SHARES
---------
NON-CONVERTIBLE AND CONVERTIBLE PREFERRED STOCK 1.1%
<S> <C> <C> <C>
6,000 Barclays Bank PLC, Series E $2.00 132,750
2,500 J. P. Morgan & Co., Series A, Adj Rate Pf $5.00 180,000
2,000 St. Paul Capital Pf $3.00 118,000
-----------
430,750
-----------
TOTAL FIXED INCOME SECURITIES 32.1% 12,991,175
-----------
-----------
</TABLE>
8
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES SECURITY DESCRIPTION (NOTE 2a.)
--------- ----------------------------------------------------- ----------
<S> <C> <C>
COMMON STOCK
BASIC INDUSTRIES 8.2%
12,000 Bemis Company, Inc. $ 418,500
2,000 Cooper Industries, Inc. 80,875
6,000 Delta Air Lines, Inc. 298,875
25,000 Graco Inc. 896,875
10,000 Ingersoll-Rand Company 550,625
10,000 Pentair, Inc. 385,000
10,000 Weyerhaeuser Company 718,125
----------
3,348,875
CONSUMER 7.0%
2,000 American Greetings Class A 47,250
6,000 Briggs & Stratton Corporation 321,750
8,000 Deluxe Corp. 219,500
4,000 Eastman Kodak Company 265,000
6,000 General Mills, Inc. 214,500
5,000 Genuine Parts Company 124,062
6,000 Hershey Foods Corporation 285,000
15,000 Hormel (Geo. A.) & Company 609,375
10,000 Kimberly Clark 652,500
12,000 Sturm, Ruger & Co., Inc. 106,500
----------
2,845,437
ENERGY 6.7%
10,586 BP Amoco PLC ADR 627,882
8,000 Burlington Resources Inc. 264,500
10,600 Exxon Mobil Corporation 853,963
6,000 Murphy Oil Corporation 344,250
10,000 Schlumberger, Limited 562,500
1,936 Transocean Sedco Forex, Inc. 65,219
----------
2,718,314
FINANCIAL 17.6%
5,000 American Express Company 831,250
8,000 BankAmerica Corporation 401,500
18,690 Community First Bankshares, Inc. 294,367
22,800 Firstar Corporation 481,650
5,062 Jefferson-Pilot Corp. 345,482
15,000 Merrill Lynch & Co., Inc. 1,252,500
5,000 J. P. Morgan & Co., Inc. 633,125
16,000 ReliaStar Financial Corp. 627,000
12,000 St. Paul Companies 404,250
15,000 U.S. Bancorp 357,188
38,000 Wells Fargo & Company 1,536,625
----------
7,164,937
</TABLE>
9
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES SECURITY DESCRIPTION (NOTE 2a.)
--------- ---------------------------------------------------- ----------
<S> <C> <C>
COMMON STOCK (CONTINUED)
HEALTH CARE 8.1%
14,000 American Home Products Corporation $ 552,125
5,000 Baxter International Inc. 314,062
15,000 Bristol-Myers Squibb Company 962,813
45,000 Pfizer Inc. 1,459,687
-----------
3,288,687
TECHNOLOGY 14.2%
14,000 Corning Inc. 1,805,125
9,000 Emerson Electric Co. 516,375
15,000 Honeywell Inc. 865,313
8,000 International Business Machines Corporation 864,000
37,000 MTS Systems Corporation 286,750
7,000 Minnesota Mining & Manufacturing Company 685,125
20,000 National Computer Systems, Inc. 752,500
-----------
5,775,188
UTILITIES 2.8%
10,000 American Water Works Company, Inc. 212,500
7,000 GTE Corporation 493,936
6,000 U S West Inc. 432,000
-----------
1,138,436
TOTAL COMMON STOCK 64.6% 26,279,874
SHORT TERM INVESTMENTS 2.6%
1,075,481 Firstar Institutional Money Market Fund, 5.5% 1,075,481
TOTAL INVESTMENTS 99.3% 40,346,530
-----------
OTHER ASSETS IN EXCESS OF LIABILITIES 0.7% 264,348
-----------
NET ASSETS 100% $40,610,878
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
10
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $522,490
Interest 932,787
---------
TOTAL INCOME $1,455,277
Expenses:
Investment advisory fees (NOTE 5) 245,014
Administrative fees 62,060
Legal and audit fees 21,498
Transfer agent fees (NOTE 5) 19,490
Custodian fees 8,921
Other fees and expenses 1,470
---------
TOTAL EXPENSES 358,453
-----------
NET INVESTMENT INCOME 1,096,824
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 4)
Net realized gains on investments sold 647,007
Unrealized appreciation of investments 33,014
---------
NET GAIN ON INVESTMENTS 680,021
-----------
INCREASE IN NET ASSETS FROM OPERATIONS $ 1,776,845
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998
-------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 1,096,824 $ 903,689
Net realized gains on investments sold 647,007 452,769
Unrealized appreciation of investments 33,014 3,156,726
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS 1,776,845 4,513,184
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (1,104,630) (889,320)
Short-term gain distributed as ordinary income (79,387) -
From net realized gains (563,646) (454,472)
----------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,747,663) (1,343,792)
CAPITAL STOCK TRANSACTIONS
Proceeds from shares sold 6,548,426 8,482,738
Reinvestment of distributions from net investment
income and net realized gains 1,433,119 1,089,262
Cost of shares redeemed (5,755,458) (3,175,376)
----------- -----------
INCREASE IN NET ASSETS FROM
CAPITAL STOCK TRANSACTIONS 2,226,087 6,396,624
----------- -----------
TOTAL INCREASE IN NET ASSETS 2,255,269 9,566,016
NET ASSETS
Beginning of year 38,355,609 28,789,593
----------- -----------
End of year (including undistributed investment income
of $3,494 and $14,369, respectively)
$40,610,878 $38,355,609
----------- -----------
----------- -----------
CHANGES IN CAPITAL STOCK
Shares sold 127,310 178,359
Shares issued for reinvested distributions 28,545 22,241
Shares redeemed (112,091) (66,720)
----------- -----------
NET INCREASE IN SHARES 43,764 133,880
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 polices 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 `trade date plus one', with `trade date' being
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. Realized gains and losses are
reported on an identified cost basis.
(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.
Note 3 -- Purchases and sales of investment securities, excluding government
and short-term securities, during the year ended December 31, 1999
aggregated $6,881,871 and $5,299,190, respectively.
Note 4 -- Net unrealized appreciation on investments for federal income tax
purposes aggregated $16,395,514, of which $17,024,991 related to
appreciated investment securities and $629,477 related to
depreciated investment securities. Aggregate cost of investments for
federal income tax purposes was $23,951,016.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
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 1/20th of one percent of the net asset value of
the Fund on the last valuation day of the month. Transfer agent fees
were paid to Mairs and Power, Inc. who served as transfer agent for
the period January 1, 1999 through May 31, 1999. Transfer agent fees
were also paid to Firstar Mutual Fund Services, LLC for the period
June 1, 1999 through December 31, 1999, who now serves as transfer
agent. Directors of the Fund not affiliated with Mairs and Power,
Inc. received compensation for meetings attended totaling $7,200 in
1999. No compensation was paid to any other director or officer of
the Fund.
14
<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, 1999, 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 five 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 auditing standards generally accepted
in the United States. 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 and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999, 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, 1999, 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 five years in the period then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
January 24, 2000
15
<PAGE>
SUMMARY OF FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
This table covers a period of generally rising common stock prices. The results
shown should not be considered as a representation of the dividend income or
capital gain or loss which may be realized from an investment made in the Fund
today.
<TABLE>
<CAPTION>
PER SHARE
--------------------------------------------------------
DISTRIBU- PERFORMANCE
TIONS OF DIVIDENDS OF AN
REALIZED FROM NET ASSUMED
SHARES NET ASSET SECURITIES INVESTMENT INVESTMENT OF
DATES OUTSTANDING TOTAL NET ASSETS VALUE GAINS INCOME $10,000*
- ------------- ------------ ---------------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dec. 31, 1975 53,298 $ 695,686 $ 13.06 $ 0.52 $ 0.70 $ 13,274
Dec. 31, 1976 60,638 $ 973,550 $ 16.06 $ 0.43 $ 0.80 $ 17,678
Dec. 31, 1977 94,234 $ 1,439,735 $ 15.28 $ 0.39 $ 0.88 $ 18,233
Dec. 31, 1978 100,458 $ 1,439,598 $ 14.33 $ 0.35 $ 1.00 $ 18,689
Dec. 31, 1979 113,790 $ 1,644,853 $ 14.46 $ 0.30 $ 1.10 $ 20,682
Dec. 31, 1980 129,196 $ 1,969,896 $ 15.25 $ 0.21 $ 1.25 $ 24,059
Dec. 31, 1981 132,236 $ 1,928,460 $ 14.59 - $ 1.21 $ 24,928
Dec. 31, 1982 135,050 $ 2,274,421 $ 16.84 $ 0.33 $ 1.25 $ 32,041
Dec. 31, 1983 155,828 $ 2,907,432 $ 18.66 - $ 1.28 $ 38,033
Dec. 31, 1984 155,810 $ 2,729,570 $ 17.52 $ 0.45 $ 1.28 $ 39,403
Dec. 31, 1985 183,348 $ 3,837,245 $ 20.93 $ 0.35 $ 1.13 $ 50,862
Dec. 31, 1986 253,724 $ 5,395,111 $ 21.27 $ 1.87 $ 0.98 $ 58,669
Dec. 31, 1987 295,434 $ 5,772,298 $ 19.54 $ 1.09 $ 1.06 $ 59,677
Dec. 31, 1988 317,426 $ 6,569,555 $ 20.70 $ 0.42 $ 1.12 $ 67,973
Dec. 31, 1989 344,486 $ 7,886,058 $ 22.89 $ 0.33 $ 1.08 $ 79,980
Dec. 31, 1990 366,158 $ 8,075,488 $ 22.06 $ 0.07 $ 1.07 $ 81,067
Dec. 31, 1991 400,276 $ 10,676,264 $ 26.67 - $ 1.00 $ 102,047
Dec. 31, 1992 428,672 $ 11,535,822 $ 26.91 $ 0.30 $ 1.00 $ 108,025
Dec. 31, 1993 476,860 $ 13,441,576 $ 28.19 $ 0.63 $ 0.99 $ 119,747
Dec. 31, 1994 494,968 $ 12,972,976 $ 26.21 $ 0.37 $ 1.03 $ 117,256
Dec. 31, 1995 519,272 $ 16,978,753 $ 32.70 $ 0.28 $ 1.02 $ 152,477
Dec. 31, 1996 558,234 $ 20,565,014 $ 36.84 $ 0.54 $ 1.10 $ 179,820
Dec. 31, 1997 632,540 $ 28,789,593 $ 45.52 $ 0.35 $ 1.19 $ 230,211
Dec. 31, 1998 766,420 $ 38,355,609 $ 50.05 $ 0.60 $ 1.24 $ 262,811
Dec. 31, 1999 810,184 $ 40,610,878 $ 50.13 $ 0.81 $ 1.39 $ 274,913
</TABLE>
*Assumes the reinvestment of all income dividends and capital gain
distributions for a $10,000 investment made at the beginning of
1975.
- --------------------------------------------------------------------------------
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 DECEMBER 31, 1999)
ARE AS FOLLOWS:
- --------------------------------------------------------------------------------
1 YEAR: +4.6% 5 YEARS: +18.6% 10 YEARS: +13.1%
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
16
<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 Bank Milwaukee
W-1420 First National Bank Building 615 East Michigan Street
332 Minnesota Street P. O. Box 701
Saint Paul, Minnesota 55101 Milwaukee, Wisconsin 53201-0701
INDEPENDENT AUDITORS
Ernst & Young, LLP
1400 Pillsbury Center
200 South Sixth Street
Minneapolis, Minnesota 55402
TRANSFER AGENT
(REGULAR MAIL ADDRESS) (OVERNIGHT OR EXPRESS MAIL ADDRESS)
Firstar Mutual Fund Services, LLC Firstar Mutual Fund Services, LLC
615 East Michigan Street 615 East Michigan Street
P. O. Box 701 3rd Floor
Milwaukee, Wisconsin 53201-0701 Milwaukee, Wisconsin 53202
SHAREHOLDER ACCOUNT INFORMATION AND INQUIRIES
1-800-304-7404
17
<PAGE>
MAIRS AND POWER
BALANCED FUND, INC.
