SEMIANNUAL REPORT
NICHOLAS INCOME
FUND, INC.
700 North
Water Street
Milwaukee,
Wisconsin 53202
June 30, 1996
<PAGE>
NICHOLAS INCOME FUND, INC.
August 23, 1996
Report to Fellow Shareholders:
Nicholas Income Fund's relative performance for the first half of
calendar 1996 was good compared to most fixed-income indices. Most
fixed-income returns were negative while the Nicholas Income Fund produced a
total return of +3.60%. Two characteristics of Nicholas Income Fund helped in
our recent results: shorter fixed-income maturities and lower quality bonds.
Results of the latest one, five, ten and fifteen year periods ended
June 30, 1996 are shown below:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
--------------------------------------------
1 YEAR 5 YEARS 10 YEARS 15 YEARS
------- ------- -------- --------
<S> <C> <C> <C> <C>
Nicholas Income Fund (Distributions Reinvested) +10.19% +10.00% +8.54% +11.36%
Consumer Price Index (Inflation) +2.82% +2.89% +3.67% +3.73%
Ending value of $10,000 invested in Nicholas
Income Fund (Distributions Reivested) $11,019 $16,105 $22,699 $50,229
</TABLE>
*TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGE IN SHARE PRICE AND
REINVESTMENT OF DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL VALUE AND RETURN WILL FLUCTUATE
SO AN INVESTMENT, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
At June 30, total net assets of Nicholas Income Fund were $168 million.
Cash and equivalents were 2.9%. The 30-day yield on Nicholas Income Fund was
8.85% as of June 30, 1996.
The interest rate outlook appears steady because of a slow growth
economy and low inflation. Management will continue to spend its time on
security selection.
Thank you for the confidence you have placed in the Nicholas Income
Fund.
Sincerely,
/s/ Albert O. Nicholas
Albert O. Nicholas
President
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
QUOTED
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (NOTE A)
___________ ___________
<C> <C> <C>
NON-CONVERTIBLE BONDS - 86.9%
BROADCASTING AND COMMUNICATIONS - 10.3%
$6,000,000 Cablevision Systems Corporation
9.875%, 5/15/06 $ 5,782,500
6,000,000 Century Communications Corporation
9.50%, 8/15/00 5,970,000
2,000,000 Young Broadcasting Inc.
10.125%, 2/15/05 1,920,000
4,000,000 Young Broadcasting Inc.
9.00%, 1/15/06 3,560,000
___________
17,232,500
___________
CONSUMER PRODUCTS AND SERVICES - 18.0%
5,500,000 Coca-Cola Bottling Group Southwest, Inc.
9.00%, 11/15/03 5,335,000
1,000,000 Outboard Marine Corp.
8.25%, 3/15/98 1,011,669
3,300,000 Outboard Marine Corp.
8.625%, 3/15/01 3,313,758
3,000,000 Owens-Illinois, Inc.
10.25%, 4/1/99 3,060,000
1,000,000 Owens-Illinois, Inc.
10.00%, 8/1/02 1,020,000
6,000,000 Playtex Family Products Corp.
9.00%, 12/15/03 5,610,000
6,000,000 Royal Crown Corp.
9.75%, 8/1/00 5,715,000
5,000,000 Samsonite Corporation
11.125%, 7/15/05 5,150,000
___________
30,215,427
___________
DIVERSIFIED PRODUCTS AND SERVICES - 13.4%
3,750,000 Borg-Warner Security Corporation
9.125%, 5/1/03 3,496,875
4,250,000 Fort Howard Corp.
9.25%, 3/15/01 4,260,625
2,000,000 Fort Howard Corp.
10.00%, 3/15/03 2,000,000
2,400,000 IDEX Corp.
9.75%, 9/15/02 2,460,000
5,300,000 Mark IV Industries, Inc.
8.75%, 4/1/03 5,220,500
1,000,000 Sequa Corp.
9.625%, 10/15/99 1,001,250
4,150,000 Sequa Corp.
8.75%, 12/15/01 4,030,688
___________
22,469,938
___________
ELECTRIC - UTILITIES - 6.0%
3,000,000 Cleveland Electric Illuminating Co.
7.625%, 8/1/02 2,791,764
4,000,000 Long Island Lighting Company
7.05%, 3/15/03 3,656,152
1,000,000 Toledo Edison Co.
8.18%, 7/30/02 943,959
1,500,000 Toledo Edison Co.
8.70%, 9/1/02 1,388,925
1,000,000 Toledo Edison Co.
7.78%, 4/1/03 903,209
500,000 Toledo Edison Co.
8.00%, 11/1/03 474,684
___________
10,158,693
___________
ENERGY - 8.5%
4,925,000 Energy Ventures, Inc.
10.25%, 3/15/04 5,085,063
1,000,000 Maxus Energy Corp.
10.63%, 8/19/98 1,058,909
2,000,000 Maxus Energy Corp.
10.75%, 4/2/02 2,130,918
1,000,000 Maxus Energy Corp.
8.46%, 9/29/03 929,529
1,500,000 Maxus Energy Corp.
9.375%, 11/1/03 1,440,000
3,250,000 Rowan Companies, Inc.
11.875%, 12/1/01 3,510,000
___________
14,154,419
___________
FINANCE AND INSURANCE - 4.0%
1,000,000 American Annuity Group, Inc.
11.125%, 2/1/03 1,080,000
4,000,000 American Financial Corp.
9.75%, 4/20/04 4,230,000
475,000 Litchfield Financial Corp.
8.875%, 11/1/03 448,875
1,000,000 Litchfield Financial Corp.
10.00%, 11/1/04 1,006,250
___________
6,765,125
___________
FOOD AND BEVERAGES - 12.5%
3,000,000 ARA Group, Inc.
8.50%, 6/1/03 2,977,500
1,000,000 ARA Services, Inc.
10.625%, 8/1/00 1,117,305
6,000,000 Canandaigua Wine Company, Inc.
8.75%, 12/15/03 5,820,000
5,400,000 Chiquita Brands International, Inc.
11.50%, 6/1/01 5,656,500
1,000,000 Chiquita Brands International, Inc.
9.625%, 1/15/04 972,500
5,000,000 Flagstar Corp.
10.875%, 12/1/02 4,362,500
___________
20,906,305
___________
FOOD RETAILER - 2.6%
4,220,000 Stater Brothers Holdings, Inc.
11.00%, 3/1/01 4,367,700
___________
HEALTH CARE - 8.7%
3,860,000 Beverly Enterprises, Inc.
8.75%, 12/31/03 3,686,300
2,000,000 Beverly Enterprises, Inc.
9.00%, 2/15/06 1,850,000
3,000,000 Magellan Health Services Inc.
11.25%, 4/15/04 3,225,000
4,000,000 Quorum Health Group, Inc.
8.75%, 11/1/05 3,900,000
2,000,000 Universal Health Services, Inc.
8.75%, 8/15/05 1,955,000
___________
14,616,300
___________
RETAIL TRADE - 2.9%
5,000,000 Best Buy Co., Inc.
8.625%, 10/1/00 4,843,750
___________
TOTAL NON-CONVERTIBLE BONDS
(cost $148,833,478) 145,730,157
___________
CONVERTIBLE BOND - 0.3%
500,000 Continental Pacific Bank
8.875%, 4/30/03
(cost $500,000) 500,000
___________
STOCKS - 9.9%
5,000 Homestead Savings
Convertible Preferred,
Series A, $2.95 * 5,000
100,000 Healthcare Realty Trust Incorporated 2,375,000
130,000 Hospitality Properties Trust 3,477,500
100,000 Meditrust 3,337,500
130,000 National Health Investors, Inc. 4,257,500
110,000 Omega Healthcare Investors, Inc. 3,038,750
___________
TOTAL STOCKS
(cost $15,098,417) 16,491,250
___________
SHORT-TERM INVESTMENTS - 1.5%
COMMERCIAL PAPER - 1.3%
$1,000,000 Schreiber Foods, Inc.
5.60%, due July 3, 1996 999,689
1,250,000 American Bankers Insurance Group, Inc.
5.60%, due July 10, 1996 1,248,250
___________
2,247,939
___________
VARIABLE DEMAND NOTES - 0.2%
205,829 General Mills, Inc.
5.14%, due July 1, 1996 205,829
27,600 Johnson Controls, Inc.
5.17%, due July 1, 1996 27,600
75,200 Pitney Bowes Credit Corporation
5.14%, due July 1, 1996 75,200
33,700 Wisconsin Electric Power Company
5.19%, due July 1, 1996 33,700
___________
342,329
___________
TOTAL SHORT-TERM INVESTMENTS
(cost $2,586,107) 2,590,268
___________
TOTAL INVESTMENTS 165,311,675
___________
CASH AND RECEIVABLES,
NET OF LIABILITIES - 1.4% 2,292,733
___________
TOTAL NET ASSETS
(Basis of percentages
disclosed above) $167,604,408
___________
___________
</TABLE>
* This security has been classified as non-income producing.
See notes to financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value (cost $167,018,002) (Note A) $165,311,675
Cash 2,982,148
Receivables -
Interest and dividends 3,419,341
___________
Total assets 171,713,164
___________
LIABILITIES:
Payables -
Investment securities purchased 3,932,500
Management fee (Note C) 47,274
Other payables and accrued expenses 128,982
___________
Total liabilities 4,108,756
___________
Total net assets $167,604,408
___________
___________
NET ASSETS CONSIST OF:
Fund shares issued and outstanding $181,782,720
Net unrealized depreciation on investments (Note B) (1,710,488)
Accumulated net realized losses on investments (16,729,805)
Undistributed net investment income 4,261,981
___________
$167,604,408
___________
___________
NET ASSET VALUE PER SHARE ($.01 par value, 100,000,000 shares authorized),
offering price and redemption price ($167,604,408 ./. 48,351,959 shares
outstanding) $3.47
_____
_____
</TABLE>
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1996 (unaudited)
<TABLE>
<S> <C>
INCOME: (Note A)
Interest $6,823,531
Dividends 639,013
Other 36,866
__________
Total income 7,499,410
__________
EXPENSES:
Management fee (Note C) 318,085
Transfer agent fees 61,056
Registration fees 18,306
Postage 16,321
Legal fees 5,861
Printing 7,905
Custodian fees 6,956
Directors' fees 4,500
Pricing service fees 4,102
Telephone 1,994
Other operating expenses 1,354
__________
Total expenses 456,440
__________
Net investment income 7,042,970
__________
NET REALIZED GAIN ON INVESTMENTS 1,140,776
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (2,405,569)
__________
Net loss on investments (1,264,793)
__________
Net increase in net assets resulting from operations $5,778,177
__________
__________
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ended June 30, 1996 (unaudited) and the year ended December 31, 1995
1996 1995
___________ ___________
<S> <C> <C>
OPERATIONS:
Net investment income $ 7,042,970 $ 13,236,512
Net realized gain (loss) on investments 1,140,776 (1,504,358)
Net (decrease) increase in unrealized appreciation on investments (2,405,569) 10,919,434
___________ ___________
Net increase in net assets resulting from operations 5,778,177 22,651,588
___________ ___________
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.072 and $0.2950 per share, respectively) (3,427,015) (13,329,923)
___________ ___________
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (4,368,497 and 7,902,672 shares, respectively) 15,131,401 26,523,048
Net asset value of shares issued in distributions from net
investment income (720,396 and 2,823,597 shares, respectively) 2,456,550 9,538,891
Cost of shares redeemed (4,165,288 and 7,246,075 shares, respectively) (14,414,644) (24,222,850)
___________ ___________
Increase in net assets derived from capital share transactions 3,173,307 11,839,089
___________ ___________
Total increase in net assets 5,524,469 21,160,754
___________ ___________
NET ASSETS:
Beginning of period (including undistributed net
investment income of $646,026 and $739,437) 162,079,939 140,919,185
___________ ___________
End of period (including undistributed net
investment income of $4,261,981 and $646,026) $167,604,408 $162,079,939
___________ ___________
___________ ___________
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED 6/30/96 ______________________________________
(UNAUDITED) 1995 1994 1993 1992 1991
____________ ______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $3.42 $3.21 $3.52 $3.38 $3.34 $3.01
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .15 .30 .30 .30 .31 .35
Net gains or (losses) on securities
(realized and unrealized) (.03) .21 (.31) .13 .03 .33
_____ _____ _____ _____ _____ _____
Total from investment operations .12 .51 (.01) .43 .34 .68
_____ _____ _____ _____ _____ _____
LESS DISTRIBUTIONS***:
Dividends (from net investment income) (.07) (.30) (.30) (.29) (.30) (.35)
_____ _____ _____ _____ _____ _____
NET ASSET VALUE, END OF PERIOD $3.47 $3.42 $3.21 $3.52 $3.38 $3.34
_____ _____ _____ _____ _____ _____
_____ _____ _____ _____ _____ _____
TOTAL RETURN 3.60%** 16.16% (0.17)% 12.95% 10.33% 23.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) $167.6 $162.1 $140.9 $158.3 $119.1 $79.9
Ratio of expenses to average net assets .55%* .58% .59% .62% .69% .76%
Ratio of net investment income
to average net assets 8.48%* 8.72% 8.75% 8.42% 9.23% 10.70%
Portfolio turnover rate 23.41%* 29.2% 29.2% 39.1% 56.1% 27.5%
</TABLE>
* Annualized
** Not annualized
*** The Fund distributed no capital gains for the time periods listed.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (unaudited)
NOTE A - SUMMARY OF ACCOUNTING POLICIES:
The Fund is an open-end diversified investment company. The
primary objective of the Fund is high current income
consistent with the preservation and conservation of capital
values.
Securities valuation - Market values of most debt securities
are based on valuations provided by a pricing service, which
determines valuations for normal, institutional-size trading
units of securities using market information, transactions
for comparable securities and various other relationships
between securities which are generally recognized by
institutional traders. Other securities are generally
valued at the last sale price reported by the principal
security exchange on which the issue is traded or the NASDAQ
national market system. If no sale is reported, the latest
bid price is used.
Securities transactions and related investment income -
Securities transactions are recorded no later than the first
business day after the trade date (date the order to buy or
sell is executed). Gains or losses on sales of investments
are calculated on an identified cost basis. Dividend income
is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Distributions to
shareholders are recorded on the ex-dividend date.
U.S. Treasury Bills and commercial paper, if any, are stated
at market value with the resultant difference between market
value and original purchase price being recorded as interest
income.
NOTE B - INCOME TAXES:
No provision has been made for Federal income taxes or
excise taxes because it is the policy of the Fund to
distribute all taxable net income and qualify as a
"regulated investment company" under the provisions in the
Internal Revenue Code applicable to regulated investment
companies. The Fund is not subject to State of Wisconsin
income taxes. As of June 30, 1996, the Fund has
approximately $8,533,000 of net capital losses which may be
used to offset capital gains in the current and future
years. Capital loss carryovers of approximately $4,466,000
will expire in 1998, $482,000 in 1999, $2,081,000 in 2000,
and $1,504,000 in 2003.
At June 30, 1996, the net unrealized depreciation based on
cost was as follows (the Fund's book and Federal income tax
cost of investment assets were substantially identical):
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost $ 3,414,502
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value (5,124,990)
__________
Net unrealized depreciation $(1,710,488)
__________
__________
</TABLE>
<PAGE>
NOTE C - EXPENSES:
The Fund has an investment advisory agreement with Nicholas
Company, Inc. (with whom certain officers and directors of
the Fund are affiliated) to serve as investment adviser and
manager. The management fee of Nicholas Company, Inc. is
payable at an annual rate of 1/2 of 1% of the average daily
net assets of the Fund up to and including $50,000,000. On
average daily net assets over $50,000,000 up to and
including $100,000,000, the management fee is reduced to an
annual rate of 4/10 of 1% and on average daily net assets
over $100,000,000, the fee is further reduced to an annual
rate of 3/10 of 1%. Nicholas Company, Inc. has agreed to
reduce such management fee by any operating expenses (other
than management fee) incurred by the Fund in excess of 1/2
of 1% of average daily net assets.
At June 30, 1996, liabilities of the Fund included $47,274
payable to the investment adviser.
NOTE D - INVESTMENT PORTFOLIO TRANSACTIONS:
Purchases and sales of investments, other than short-term
obligations, aggregated $29,027,438 and $18,576,986,
respectively, for the six months ended June 30, 1996.
TEN YEAR HISTORICAL RECORD (UNAUDITED)
Growth of
Net Dividend An Initial
Asset Value Distributions $10,000
Per Share Per Share Investment**
__________ _____________ ____________
June 30, 1986* $4.01 $ _ $10,000
June 30, 1987 3.94 0.367 10,772
June 30, 1988 3.83 0.372 11,568
June 30, 1989 3.74 0.376 12,487
June 30, 1990 3.42 0.387 12,741
June 30, 1991 3.35 0.389 14,095
June 30, 1992 3.44 0.330 15,960
June 30, 1993 3.57 0.2935 18,033
June 30, 1994 3.39 0.290 18,593
June 30, 1995 3.43 0.301 20,601
June 30, 1996 3.47 0.294 22,699
* Date of initial investment.
** Assuming reinvestment of distributions.
The Funds distributed no capital gains for the time
periods listed.
<PAGE>
CAN YOU AFFORD NOT TO INVEST IN AN IRA?
The maximum yearly IRA contribution is the lesser of $2,000
or 100% of your compensation. Every year that you contribute
this amount you may also deduct it from your Federal income
taxes, unless you (or your spouse) are an eligible
participant in an employer-sponsored retirement plan and
your adjusted gross income exceeds certain limits as defined
by the Internal Revenue Code. This deduction can lead to
substantial savings, especially when you look at the
relationship between higher tax brackets and the net cost of
investing. The table below illustrates a schedule of tax
brackets, resulting tax savings, and the net cost of
investing $2,000 in an IRA, assuming full deductibility of
your contributions.
TABLE I
FEDERAL TAX FEDERAL TAX NET COST OF INVESTING
BRACKETS SAVINGS $2,000 IN AN IRA
___________ ___________ _____________________
15% $300 $1,700
28% 560 1,440
31% 620 1,380
36% 720 1,280
39.6% 792 1,208
Even if you are an eligible participant in an employer-
sponsored retirement plan, you may still make a non-
deductible IRA contribution (subject to the $2,000/100% of
compensation limit). Another tax advantage to investing in
an IRA is that any amounts received from dividends,
interest, etc., accumulate tax deferred, whether or not your
contribution is fully deductible. Taxes will have to be paid
when you receive distributions.
Finally, Table II shows the various amounts accumulated in
an IRA under different annual rates of return, based on a
$2,000 annual year end contribution. These figures are
purely hypothetical since investment returns are rarely
constant year to year. Yet, one can get a good idea that
investing in an IRA plan provides a good nest egg for
retirement.
TABLE II
Amounts accumulated in an IRA
ANNUAL RATES OF RETURN
__________________________
AFTER 8% 10%
_____ _______ _______
10 Years $ 28,973 $ 31,874
20 Years 91,524 114,550
30 Years 226,566 328,980
40 Years 518,113 885,180
<PAGE>
Officers and Directors
ALBERT O. NICHOLAS
President, Treasurer and a Director
FREDERICK F. HANSEN
Director
JAY H. ROBERTSON
Director
MELVIN L. SCHULTZ
Director
DAVID L. JOHNSON
Executive Vice President
THOMAS J. SAEGER
Executive Vice President, Secretary
CANDACE L. LESAK
Vice President
JEFFREY T. MAY
Vice President
DAVID O. NICHOLAS
Vice President
KATHLEEN A. EVANS
Assistant Vice President
Custodian and Transfer Agent
FIRSTAR TRUST COMPANY
Milwaukee 414/276-0535
Counsel
MICHAEL, BEST & FRIEDRICH
Milwaukee
Auditors
DELOITTE & TOUCHE LLP
Milwaukee
This report is submitted for the information of shareholders
of the Fund. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an
effective prospectus.
