N-30B-2 1 a2121843zn-30b_2.txt N-30B-2 MAIRS AND POWER GROWTH FUND, INC. October 31, 2003 3RD QUARTER REPORT To Our Shareholders: September 30, 2003 Mairs and Power Growth Fund shares had a return of 14.2% for the nine month period ending September 30 after adjustment for the June dividend. That compares with returns of 14.7% for the Standard & Poor's 500 Stock Index and 13.1% for the Dow Jones Industrial Average. The average domestic stock fund had a return of 17.9%. Our ten year average return of 16.0% once again placed us on the WALL STREET JOURNAL list of the fifty best performing mutual funds for the past ten years and within that list we ranked sixth among the diversified stock funds. Our fifteen year average annual return of 16.4% ranked 2nd among all diversified stock funds according to a similar study in the October 6th issue of BARRONS. FORBES Magazine, in the September 15th issue, presented its annual survey of mutual funds. The survey includes an Honor Roll of ten funds measured by performance, preservation of capital in declining markets, tax efficiency and continuity of management. Mairs and Power Growth Fund appeared on this list, as it has in six of the past seven years, and ranked second. In addition, FORBES listed 10 stock funds which they recommended as Best Buys based on relatively high risk-adjusted returns as well as low overhead costs. The Fund appeared on that list as well, where it has also appeared in six of the past seven years, and ranked fourth. Economic growth surged in the third quarter with Gross Domestic Product rising at a surprising annual rate of 7.2%, the strongest growth since 1984 and far better than the 3.3% rate in the second quarter. This should put to rest lingering concerns that the economy cannot achieve sustainable growth. The mix of growth was extraordinary with consumer spending up 6.6%, the strongest rise in six years, and business investment in equipment up 15.4%, the best rise in about four years. A further positive surprise was a 9.3% increase in exports, indicating that the lackluster manufacturing sector is gaining traction. Growth will inevitably slow in the fourth quarter but remains solid with business needing to rebuild inventories which are at rock bottom levels. Job creation should become evident in the months ahead with employment levels having already stabilized. Sustained growth at 4% or better is the prospect for 2004 as fiscal and monetary stimulus remain in force and personal income continues its steady expansion. Such growth would compare favorably with the record expansion from 1991 to 2001 when the economy grew at an average rate of 3.6%. Corporate profits in the quarter exceeded expectations, and earnings for the S&P 500 companies rose 20% from the year-earlier period. Revenues of the same companies increased 7.5% which indicates underlying strength in their operations. A key factor contributing to earnings growth has been increased labor efficiency that allows American companies to accomplish more with fewer people. Such productivity growth averaged 2.6% in 1996-2002 but has risen above 5% this year as the economy has expanded. While that rate is not sustainable, it augurs well for further improvement in corporate earnings in the year ahead. The stock market has had a remarkable recovery this year which we believe to be justified by the strengthening economy and rising earnings. While a pause or a modest correction would not be unexpected, the fundamentals appear strong and valuations in most sectors appear reasonable. The Federal Reserve has clearly expressed its intent to keep interest rates low for an extended period based on the assumption that inflation is well contained. Low interest rates have usually been associated with rising stock valuations and we expect this trend should continue well into next year. Therefore, we continue our constructive stance on the outlook for the U.S. stock market. George A. Mairs, President William B. Frels, Co-Manager SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003
NUMBER OF SHARES COMMON STOCKS MARKET VALUE -------------------- --------------------------------------------- --------------- BASIC INDUSTRIES 11.3% 728,100 BMC Industries, Inc. * $ 51,695 710,000 Bemis Company, Inc. 31,453,000 1,020,000 Ecolab, Inc. 25,755,000 1,175,000 H. B. Fuller 28,517,250 840,000 The Valspar Corporation 39,186,000 --------------- 124,962,945 --------------- CAPITAL GOODS 11.8% 760,000 Donaldson Company, Inc. 40,964,000 1,042,662 Graco Inc. 39,151,958 1,280,100 MTS Systems Corporation 19,483,122 790,000 Pentair, Inc. 31,497,300 --------------- 131,096,380 --------------- CONSUMER CYCLICAL 8.3% 1,380,000 Target Corporation 51,929,400 877,600 The Toro Company 39,492,000 --------------- 91,421,400 --------------- CONSUMER STAPLE 11.7% 930,000 General Mills, Inc. 43,775,100 1,540,000 Hormel Foods Corporation 35,389,200 754,700 International Multifoods Corp. * 17,622,245 1,400,000 SUPERVALU Inc. 33,404,000 --------------- 130,190,545 --------------- DIVERSIFIED 6.0% 840,000 General Electric Company 25,040,400 606,000 3M Company 41,856,420 --------------- 66,896,820 --------------- FINANCIAL 15.6% 840,000 St. Paul Companies, Inc. 31,105,200 980,000 TCF Financial Corporation 46,991,000 1,610,000 U.S. Bancorp 38,623,900 1,110,000 Wells Fargo & Company 57,165,000 --------------- 173,885,100 --------------- HEALTH CARE 21.1% 880,000 Baxter International, Inc. 25,572,800 800,000 Johnson & Johnson 39,616,000 1,170,000 Medtronic, Incorporated 54,896,400 535,000 Merck & Co. 27,081,700 1,290,000 Pfizer Inc. 39,190,200 650,000 St. Jude Medical, Inc. * 34,950,500 410,000 Techne Corp. * 13,033,900 --------------- 234,341,500 --------------- TECHNOLOGY 9.8% 2,100,000 ADC Telecommunications Inc. * 4,893,000 1,390,000 Ceridian * 25,881,800 1,200,000 Corning, Inc. * 11,304,000 1,287,030 eFunds Corp. * 15,894,821 580,000 Emerson Electric Co. 30,537,000 780,000 Honeywell International Inc. 20,553,000 --------------- 109,063,621 --------------- UTILITIES 1.4% 490,000 Verizon Communications 15,895,600 --------------- TOTAL COMMON STOCKS 97.0% 1,077,753,911 SHORT TERM INVESTMENTS 3.2% 25,308,782 First American Prime Obligation Fund Class I 25,308,782 10,602,333 Merrill Lynch Institutional Money Market Fund 10,602,333 --------------- 35,911,115 --------------- TOTAL INVESTMENTS 100.2% 1,113,665,026 OTHER ASSETS AND LIABILITIES (NET) -0.2% (2,161,242) --------------- NET ASSETS 100% $ 1,111,503,784 ===============
*Non-income producing
STATEMENT OF NET ASSETS AT SEPTEMBER 30, 2003 --------------------------------------------------------------------------------------------------------- ASSETS Investments at market value (cost $825,722,967) $ 1,077,753,911 Cash 35,911,115 Dividends receivable 1,221,894 Receivables for securities sold, not yet delivered 0 Prepaid expense 29,558 --------------- 1,114,916,478 LIABILITIES Accrued management fee $ 542,481 Accrued custodian and transfer agent fee 105,843 Payable for securities purchased, not yet received 2,764,370 3,412,694 --------------- --------------- NET ASSETS Equivalent to $56.06 per share on 19,826,392 shares outstanding $ 1,111,503,784 ===============
STATEMENT OF CHANGES IN NET ASSETS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 --------------------------------------------------------------------------------------------------------- NET ASSETS, December 31, 2002 $ 850,301,939 Net investment income, per statement below $ 7,255,372 Distribution to shareholders (3,759,712) 3,495,660 --------------- Fund shares issued and repurchased: Received for 3,696,815 shares issued 193,445,435 Paid for 1,133,678 shares repurchased (58,571,938) 134,873,497 --------------- Increase in unrealized net appreciation of investments 107,415,853 Net gain realized from sales of securities 15,416,835 --------------- NET ASSETS, September 30, 2003 $ 1,111,503,784 ===============
STATEMENT OF NET INVESTMENT INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 --------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends $ 12,684,680 Other income 237 --------------- 12,684,917 EXPENSES Management fee (Note A) $ 4,325,623 Fees and expenses of custodian, transfer agent and dividend disbursing agent (Note A) 533,904 Legal and auditing fees and expenses 25,776 Insurance 15,272 Other Fees and Expenses 528,970 5,429,545 --------------- --------------- NET INVESTMENT INCOME $ 7,255,372 ===============
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 a total of $79,800 for meetings scheduled 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, 2003 aggregated $152,594,286 and $22,825,781, 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 Sep. 30, 2003 19,826,392 1,111,503,784 56.06 - 0.20
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 SEPTEMBER 30, 2003) ARE AS FOLLOWS: 1 YEAR: +23.1% 5 YEARS: +12.2% 10 YEARS: +16.0% 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. THE TOTAL RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. OFFICERS AND DIRECTORS George A. Mairs, III Jon A. Theobald Peter G. Robb Lisa J. Hartzell President Secretary Vice-President Treasurer William B. Frels Edward C. Stringer Director Director Norbert J. Conzemius Charlton Dietz Charles M. Osborne Director Director Director