N-30B-2 1 a2111750zn-30b_2.txt N-30B-2 MAIRS AND POWER GROWTH FUND, INC. May 19, 2003 1ST QUARTER REPORT To Our Shareholders: March 31, 2003 Mairs and Power Growth Fund shares registered a decline of 2.6% in the quarter ended March 31, 2003. This compares favorably with declines of 3.1% for the Standard & Poor's 500 Stock Index and 3.6% for the Dow Jones Industrial average. The average domestic stock fund had a decline of 3.3%. Our ten year average annual return of 14.9% once again placed us on the WALL STREET JOURNAL list of the fifty best performing mutual funds for the past ten year period and within that list we ranked 2nd among the diversified stock funds. Our fifteen year average annual return of 15.2% ranked 4th among all diversified stock funds according to a similar survey in the April 7th issue of BARRON'S. The April issue of CONSUMER REPORTS contained its annual Mutual Fund ratings. Only 40 stock funds were recommended, five of which were categorized as Blend Funds and our fund placed at the top of that list. Blend Funds are funds that place emphasis on valuation as well as growth. This is the third consecutive year that the Fund has appeared on CONSUMER REPORTS recommended list. Economic growth remained lackluster in the first quarter with Gross Domestic Product rising at an annual rate of 1.6%, only marginally higher than the revised 1.4% rate in the fourth quarter of 2002. Growth was held down by one-time factors including war worries and bad winter weather. However, prospects for the current quarter are better. In addition, personal income remains firm which bodes well for further growth in consumer spending this spring. Consumer spending accounts for two-thirds of the economy and has been the bulwark of the economy over the past two years. The housing market remains healthy with new-home sales in March rising at a 7% annual rate. One major area of concern remains the weak labor market with the unemployment rate hovering around 6.0%. Employers are reluctant to add to their payrolls until they see stronger economic growth. The other major concern is continuing weakness in the economies of Japan and Germany, the second and third largest economies in the World. The stock market has now recovered from the 10% decline which occurred as investors awaited the onset of hostilities in Iraq and attention is now focused on the economy and corporate earnings. Most economists expect a gradual strengthening in the economy over the balance of the year. Business inventories are low and need rebuilding. Capital spending is showing modest signs of strengthening. Corporate earnings for the March quarter exceeded expectations and rose 13% from the year-earlier period. These results are impressive in light of the economy's tepid growth rate in the quarter and they reflect more than just companies laying off workers. For three years now, businesses have made wrenching adjustments in order to be more profitable. They have eliminated excess capacity, slashed inventories, increased productivity and reduced interest costs by refinancing high cost debt. Based on the generally accepted assumption that U.S. economic and profit growth will gradually strengthen over the course of the year, we find the stock market to be moderately valued, on average. While certain areas of the market are fully priced, other areas have valuation levels we find compelling. Consequently, we expect generally higher valuations over the course of the year. In order to strengthen confidence in corporate governance and Board independence, the mutual fund industry is moving in the direction of reduced management participation on fund boards. We wish to be in forefront of Best Practices and accordingly at the April 15th meeting, George Mairs, who had reached Board retirement age, tendered his resignation along with Peter Robb. However, both will continue their current role as fund officers. William Frels continues as the management member on the Board. George A. Mairs, President William B. Frels, Co-Manager SCHEDULE OF INVESTMENTS MARCH 31, 2003
NUMBER OF SHARES COMMON STOCKS MARKET VALUE ----------------- --------------------------------------------- --------------- BASIC INDUSTRIES 12.4% 728,100 BMC Industries, Inc. * $ 946,530 610,000 Bemis Company, Inc. 25,656,600 510,000 Ecolab, Inc. 25,158,300 1,050,000 H. B. Fuller 24,276,000 757,800 The Valspar Corporation 31,016,754 --------------- 107,054,184 --------------- CAPITAL GOODS 12.1% 890,000 Donaldson Company, Inc. 32,556,200 1,181,662 Graco Inc. 33,204,702 1,280,100 MTS Systems Corporation 13,825,080 690,000 Pentair, Inc. 24,391,500 --------------- 103,977,482 --------------- CONSUMER CYCLICAL 8.6% 1,380,000 Target Corporation 40,378,800 479,800 The Toro Company 33,609,990 --------------- 73,988,790 --------------- CONSUMER STAPLE 10.6% 814,000 General Mills, Inc. 37,077,700 1,470,000 Hormel Foods Corporation 31,119,900 70,000 International Multifoods Corp. * 1,352,400 1,400,000 SUPERVALU Inc. 21,700,000 --------------- 91,250,000 --------------- DIVERSIFIED 6.0% 840,000 General Electric Company 21,420,000 233,000 3M Company 30,296,990 --------------- 51,716,990 --------------- FINANCIAL 15.1% 700,000 St. Paul Companies, Inc. 22,260,000 960,000 TCF Financial Corporation 38,438,400 1,420,350 U.S. Bancorp 26,958,243 940,000 Wells Fargo & Company 42,290,600 --------------- 129,947,243 --------------- HEALTH CARE 21.1% 850,000 Baxter International, Inc. 15,844,000 570,000 Johnson & Johnson 32,985,900 940,000 Medtronic, Incorporated 42,412,800 385,000 Merck & Co. 21,090,300 1,110,000 Pfizer Inc. 34,587,600 720,000 St. Jude Medical, Inc. * 35,100,000 --------------- 182,020,600 --------------- TECHNOLOGY 8.8% 2,100,000 ADC Telecommunications Inc. * 4,326,000 1,260,000 Ceridian * 17,614,800 1,200,000 Corning, Inc. * 7,008,000 1,287,030 eFunds Corp. * 8,841,896 518,050 Emerson Electric Co. 23,493,567 688,750 Honeywell International Inc. 14,711,700 --------------- 75,995,963 --------------- UTILITIES 2.0% 490,000 Verizon Communications 17,321,500 --------------- TOTAL COMMON STOCKS 96.7% 833,272,752 SHORT TERM INVESTMENTS 3.4% 19,113,067 First American Prime Obligation Fund Class I 19,113,067 10,544,410 Merrill Lynch Institutional Money Market Fund 10,544,410 --------------- 29,657,477 --------------- TOTAL INVESTMENTS 100.1% 862,930,229 OTHER ASSETS AND LIABILITIES (NET) -0.1% (594,153) --------------- NET ASSETS 100% $ 862,336,076 ===============
*Non-income producing STATEMENT OF NET ASSETS AT MARCH 31, 2003
ASSETS Investments at market value (cost $712,906,162) $ 833,272,752 Cash 29,657,477 Dividends receivable 1,139,865 Receivables for securities sold, not yet delivered 0 Prepaid expense 20,410 -------------- 864,090,504 LIABILITIES Accrued management fee $ 424,720 Accrued custodian and transfer agent fee 97,680 Payable for securities purchased, not yet received 1,232,028 1,754,428 ------------ -------------- NET ASSETS Equivalent to $48.00 per share on 17,965,601 shares outstanding $ 862,336,076 ==============
STATEMENT OF CHANGES IN NET ASSETS FOR THE THREE MONTHS ENDED MARCH 31, 2003 NET ASSETS, December 31, 2002 $ 850,301,939 Net investment income, per statement below $ 2,320,795 Distribution to shareholders (17) 2,320,778 ------------ Fund shares issued and repurchased: Received for 1,164,442 shares issued 56,137,729 Paid for 462,095 shares repurchased (22,175,866) 33,961,863 ------------ Decrease in unrealized net appreciation of investments (24,248,499) Net gain realized from sales of securities (5) -------------- NET ASSETS, March 31, 2003 $ 862,336,076 ==============
STATEMENT OF NET INVESTMENT INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2003 INVESTMENT INCOME Dividends $ 3,932,182 Other income 83 -------------- 3,932,265 EXPENSES Management fee (Note A) $ 1,257,864 Fees and expenses of custodian, transfer agent and dividend disbursing agent (Note A) 166,673 Legal and auditing fees and expenses 8,325 Insurance 5,090 Other Fees and Expenses 173,518 1,611,470 ------------ -------------- NET INVESTMENT INCOME $ 2,320,795 ==============
NOTE A: The investment management 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 management fees are paid to the adviser pursuant to an advisory agreement approved by the Directors of the Fund. The management fee is computed each month at an annual rate of 0.60% based on the Fund's average daily net assets. The transfer agent fee was paid to U.S. Bancorp Fund Services, LLC which serves as transfer agent. SUPPLEMENTARY INFORMATION: 1) The directors of the Fund not affiliated with Mairs and Power, Inc. received no compensation as there were no meetings scheduled 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, 2003 aggregated $32,310,620 and 0, respectively. MAIRS AND POWER GROWTH FUND, INC. A NO-LOAD FUND W1520 First National Bank Building, 332 Minnesota Street, St. Paul, Minnesota 55101-1363 Investment Manager: 651-222-8478 Shareholder Information: 800-304-7404 www.mairsandpower.com 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 and capital gain or loss which may result from an investment made in the Fund today.
PER SHARE -------------------------------------------- DISTRIBUTIONS DIVIDENDS OF REALIZED FROM NET SHARES TOTAL NET NET ASSET SECURITIES INVESTMENT DATES OUTSTANDING ASSETS VALUE GAINS INCOME ------------- ----------- ------------ --------- ------------- ---------- Dec. 31, 1983 1,763,184 $ 18,972,177 $ 10.76 $ 0.35 $ 0.24 Dec. 31, 1984 1,744,138 17,304,204 9.92 0.38 0.23 Dec. 31, 1985 1,713,476 21,553,457 12.58 0.43 0.23 Dec. 31, 1986 1,787,700 22,235,453 12.44 1.37 0.20 Dec. 31, 1987 1,828,278 19,816,097 10.84 1.15 0.24 Dec. 31, 1988 1,858,078 20,630,251 11.11 0.61 0.21 Dec. 31, 1989 1,733,168 22,630,081 13.06 0.92 0.22 Dec. 31, 1990 1,734,864 22,501,587 12.97 0.35 0.21 Dec. 31, 1991 1,808,046 31,440,529 17.39 0.79 0.20 Dec. 31, 1992 1,913,628 34,363,306 17.96 0.58 0.20 Dec. 31, 1993 2,012,570 39,081,010 19.42 0.61 0.22 Dec. 31, 1994 2,128,038 41,889,850 19.69 0.49 0.33 Dec. 31, 1995 2,490,650 70,536,880 28.32 0.76 0.28 Dec. 31, 1996 4,322,492 150,161,759 34.74 0.70 0.36 Dec. 31, 1997 9,521,030 412,590,619 43.34 0.96 0.39 Dec. 31, 1998 12,525,664 580,460,523 46.34 0.68 0.36 Dec. 31, 1999 11,771,794 546,836,085 46.46 2.74 0.47 Dec. 31, 2000 10,891,038 581,668,419 53.41 4.82 0.55 Dec. 31, 2001 12,490,964 679,026,689 54.36 2.00 0.51 Dec. 31, 2002 17,263,254 850,301,939 49.26 0.24 0.45 Mar. 31, 2003 17,965,601 862,336,076 48.00 - -
The above data has been adjusted to reflect the 2-for-1 stock split paid to shareholders on October 10, 2001. 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 MARCH 31, 2003) ARE AS FOLLOWS: 1 YEAR: -16.1% 5 YEARS: +5.5% 10 YEARS: +14.9% 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
George A. Mairs, III William B. Frels Peter G. Robb Lisa J. Hartzell President Secretary and Director Vice-President Treasurer Norbert J. Conzemius Charlton Dietz Charles M. Osborne Edward C. Stringer Director Director Director Director