NICHOLAS INCOME FUND, INC.
February 21, 1996
Report to Fellow Shareholders:
In sharp contrast to last year, 1995 was an excellent year
for fixed income investors. Nicholas Income Fund's total return
was 16.16%, with distributions reinvested. This was slightly
below the Morningstar Corporate Bond High-Yield fund average
(16.41%), primarily reflecting the Fund's shorter average maturity
of approximately 6.4 years. Being conservative in maturity
selection has been a cardinal principle of the Fund for many
years. Results of the latest one, five, ten and fifteen year
periods ended December 31, 1995 are shown below:
Average Annual Total Return*
_________________________________
1 year 5 years 10 years 15 years
_____ ______ _______ _______
Nicholas Income Fund
(Distributions reinvested) +16.16% +12.20% +8.83% +11.37%
Consumer Price Index (Inflation) +2.6% +2.8% +3.5% +3.9%
Ending value of $10,000 invested
in Nicholas Income Fund
(Distributions reinvested) $11,616 $17,781 $23,311 $50,288
* 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 December 31,
1995, total net assets of Nicholas Income Fund were $162 million.
Cash and equivalents were 5.3%. The 30-day SEC yield annualized
on Nicholas Income Fund was 9.13%, and the distribution rate was
8.63%. With the economy growing at only a modest pace, and the
Federal Reserve Board in a tentative easing mode, the outlook for
the Nicholas Income Fund is reasonably positive. However, it
probably is too optimistic to expect a repeat of 1995 performance.
Short-term interest rates are likely to decline more than longer
rates in the months ahead. Thank you for your interest in the
shares of Nicholas Income Fund. We appreciate it.
Sincerely,
Albert O. Nicholas
-------------------------
/s/ Albert O. Nicholas
President
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
QUOTED
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (NOTE A)
- -------------------- -----------------
NON-CONVERTIBLE BONDS _ 84.9%
BROADCASTING _ 5.1%
$6,000,000 Century Communications Corporation
9.50%, 8/15/00 $ 6,180,000
2,000,000 Young Broadcasting Inc.
10.125%, 2/15/05 2,110,000
___________
8,290,000
___________
CONSUMER PRODUCTS AND SERVICES _ 18.0%
5,500,000 Coca-Cola Bottling Group Southwest, Inc.
9.00%, 11/15/03 5,541,250
1,000,000 Outboard Marine Corp.
8.25%, 3/15/98 1,030,789
3,300,000 Outboard Marine Corp.
8.625%, 3/15/01 3,451,335
3,000,000 Owens-Illinois Inc.
10.25%, 4/1/99 3,120,000
1,000,000 Owens-Illinois, Inc.
10.00%, 8/1/02 1,046,250
6,000,000 Playtex Family Products Corp.
9.00%, 12/15/03 5,280,000
6,000,000 Royal Crown Corp.
9.75%, 8/1/00 4,800,000
5,000,000 Samsonite Corporation
11.125%, 7/15/05 4,900,000
___________
29,169,624
___________
DIVERSIFIED PRODUCTS AND SERVICES _ 18.3%
1,000,000 American Standard Inc.
10.875%, 5/15/99 1,092,500
3,250,000 American Standard Inc.
9.875%, 6/1/01 3,485,625
3,750,000 Borg-Warner Security Corporation
9.125%, 5/1/03 3,412,500
4,250,000 Fort Howard Corp.
9.25%, 3/15/01 4,303,125
1,000,000 Fort Howard Corp.
10.00%, 3/15/03 1,035,000
2,400,000 IDEX Corp.
9.75%, 9/15/02 2,544,000
1,755,000 MacAndrews & Forbes Group, Inc.
12.25%, 7/1/96 1,763,775
5,300,000 Mark IV Industries, Inc.
8.75%, 4/1/03 5,551,750
1,000,000 Sequa Corp.
9.625%, 10/15/99 992,500
<PAGE>
DIVERSIFIED PRODUCTS AND SERVICES _ 18.3% (CONTINUED)
4,150,000 Sequa Corp.
8.75%, 12/15/01 $ 3,921,750
2,000,000 United States Banknote Corp.
10.375%, 6/1/02 1,500,000
___________
29,602,525
___________
ELECTRIC - UTILITIES _ 6.6%
3,000,000 Cleveland Electric Illuminating Co
7.625%, 8/1/02 2,901,279
4,000,000 Long Island Lighting Company
7.05%, 3/15/03 3,916,496
1,000,000 Toledo Edison Co.
8.18%, 7/30/02 989,039
1,500,000 Toledo Edison Co.
8.70%, 9/1/02 1,405,793
1,000,000 Toledo Edison Co.
7.78%, 4/1/03 948,689
500,000 Toledo Edison Co.
8.00%, 11/1/03 500,150
___________
10,661,445
___________
ENERGY _ 6.0%
1,000,000 Maxus Energy Corp.
10.20%, 5/15/96 1,014,072
1,000,000 Maxus Energy Corp.
10.63%, 8/19/98 1,084,639
2,000,000 Maxus Energy Corp.
10.75%, 4/2/02 2,201,898
1,000,000 Maxus Energy Corp.
8.46%, 9/29/03 959,529
1,000,000 Maxus Energy Corp.
9.375%, 11/1/03 986,250
3,250,000 Rowan Companies, Inc.
11.875%, 12/1/01 3,501,875
___________
9,748,263
___________
FINANCE AND INSURANCE _ 6.1%
3,100,000 American Annuity Group, Inc.
9.50%, 8/15/01 3,193,000
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 4,130,000
500,000 Litchfield Financial Corp.
8.875%, 11/01/03 506,250
1,000,000 Litchfield Financial Corp.
10.00%, 11/1/04 $ 1,056,250
___________
9,965,500
___________
FOOD AND BEVERAGES _ 11.7%
3,000,000 ARA Group, Inc.
8.50%, 6/1/03 3,142,500
1,000,000 ARA Services, Inc.
10.625%, 8/1/00 1,149,266
5,000,000 Canandaigua Wine Company, Inc.
8.75%, 12/15/03 4,975,000
5,000,000 Chiquita Brands International, Inc.
11.50%, 6/1/01 5,200,000
5,000,000 Flagstar Corp.
10.875%, 12/1/02 4,500,000
___________
18,966,766
___________
FOOD RETAILER _ 2.6%`
4,220,000 Stater Brothers Holdings, Inc.
11.00%, 3/1/01 4,198,900
___________
HEALTH CARE - 6.3%
3,860,000 Beverly Enterprises, Inc.
8.75%, 12/31/03 3,802,100
3,000,000 Magellan Health Services Inc.
11.25%, 4/15/04 3,277,500
1,000,000 Quorum Health Group, Inc.
8.75%, 11/1/05 1,033,750
2,000,000 Universal Health Services, Inc.
8.75%, 8/15/05 2,040,000
___________
10,153,350
___________
INDUSTRIAL AND CONSUMER ELECTRONICS _ 1.2%
2,000,000 Unisys Corp.
9.75%, 9/15/96 1,940,000
___________
RETAIL TRADE _ 3.0%
5,000,000 Best Buy Co., Inc.
8.625%, 10/1/00 4,912,500
___________
TOTAL NON-CONVERTIBLE BONDS
(cost $139,457,075) 137,608,873
___________
CONVERTIBLE BONDS _ 0.3%
$ 500,000 Continental Pacific Bank
8.875%, 4/30/03 $ 500,000
___________
TOTAL CONVERTIBLE BONDS
(cost $500,000) 500,000
___________
STOCKS _ 9.5%
5,000 Homestead Savings
Convertible Preferred,
Series A, $2.95 * 5,000
100,000 Healthcare Realty Trust Incorporated 2,300,000
80,000 Hospitality Properties Trust 2,140,000
35,000 Meditrust 1,220,625
150,000 National Health Investors, Inc. 4,968,750
180,000 Omega Healthcare Investors, Inc. 4,792,500
___________
TOTAL STOCKS
(cost $12,883,593) 15,426,875
___________
SHORT-TERM INVESTMENTS _ 3.3%
COMMERCIAL PAPER _ 2.8%
2,500,000 Source One Mortgage Services Corporation
6.10%, due January 3, 1996 2,499,576
2,000,000 Payco American Corporation
5.85%, due January 19, 1996 1,994,475
___________
4,494,051
___________
VARIABLE DEMAND NOTES _ 0.5%
789,550 Sara Lee Corporation
5.47%, due January 2, 1996 789,550
___________
TOTAL SHORT-TERM INVESTMENTS
(cost $5,269,111) 5,283,601
___________
TOTAL INVESTMENTS 158,819,349
___________
CASH AND RECEIVABLES,
NET OF LIABILITIES _ 2.0% 3,260,590
___________
TOTAL NET ASSETS
(Basis of percentages
disclosed above) $ 162,079,939
___________
___________
* This security has been classified as non-income producing.
See notes to financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
ASSETS:
Investments in securities at
market value (cost $158,109,779) (Note A) $ 158,819,349
Cash 79,301
Receivables-
Interest and dividends 3,373,609
Investment securities sold 930,850
___________
Total receivables 4,304,459
___________
Total assets 163,203,109
___________
LIABILITIES:
Payables-
Dividends payable 1,003,657
Management fee (Note C) 55,506
Other payables and accrued expenses 64,007
___________
Total liabilities 1,123,170
___________
Total net assets $ 162,079,939
___________
___________
NET ASSETS CONSIST OF:
Fund shares issued and outstanding $178,609,414
Net unrealized appreciation on
investments (Note B) 695,080
Accumulated net realized losses on investments (17,870,581)
Undistributed net investment income 646,026
___________
$ 162,079,939
___________
___________
NET ASSET VALUE PER SHARE
($.01 par value, 100,000,000 shares authorized),
offering price and redemption price
($162,079,939 divided by 47,428,354 shares outstanding) $3.42
_____
_____
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
INCOME: (Note A)
Interest $12,891,802
Dividends 1,231,946
__________
Total income 14,123,748
__________
EXPENSES:
Management fee (Note C) 603,736
Transfer agent fees 117,539
Postage 40,121
Legal fees 30,590
Registration fees 29,141
Printing 15,551
Custodian fees 14,877
Audit and tax consulting fees 13,500
Pricing service fees 7,906
Directors' fees 8,250
Telephone 3,413
Insurance 1,569
Other operating expenses 1,043
__________
Total expenses 887,236
__________
Net investment income 13,236,512
__________
NET REALIZED LOSS ON INVESTMENTS (1,504,358)
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 10,919,434
__________
Net gain on investments 9,415,076
__________
Net increase in net assets resulting
from operations $ 22,651,588
__________
__________
See notes to financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
-------- --------
OPERATIONS:
Net investment income $ 13,236,512 $ 13,313,382
Net realized (loss) gain on investments (1,504,358) 736,274
Net increase (decrease) in unrealized
appreciation on investments 10,919,434 (14,836,039)
___________ ___________
Net increase (decrease) in net
assets resulting from operations 22,651,588 (786,383)
___________ ___________
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.2950 and $0.3010 per share
respectively) (13,329,923) (13,272,187)
___________ ___________
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued
(7,902,672 and 6,660,229 shares,
respectively) 26,523,048 22,518,983
Net asset value of shares issued in
distributions from net investment income
(2,823,597 and 2,917,981 shares,
respectively) 9,538,891 9,601,976
Cost of shares redeemed
(7,246,075 and 10,571,936 shares,
respectively) (24,222,850) (35,467,002)
___________ ___________
Increase (decrease) in net
assets derived from capital
share transactions 11,839,089 (3,346,043)
__________ ___________
Total increase (decrease)
in net assets 21,160,754 (17,404,613)
___________ ___________
NET ASSETS:
Beginning of year (including
undistributed net investment
income of $739,437 and $698,242,
respectively) 140,919,185 158,323,798
___________ ___________
End of year (including undistributed
net investment income of $646,026 and
$739,437, respectively) $162,079,939 $140,919,185
___________ ___________
___________ ___________
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
____________________________________________________________________________________
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
____ ____ ____ ____ ____ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $3.21 $3.52 $3.38 $3.34 $3.01 $3.44 $3.68 $3.64 $4.01 $3.96
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .30 .30 .30 .31 .35 .39 .38 .38 .38 .40
Net gains or (losses) on securities
(realized and unrealized) .21 (.31) .13 .03 .33 (.43) (.24) .03 (.28) .03
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Total from investment operations .51 (.01) .43 .34 .68 (.04) .14 .41 .10 .43
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
LESS DISTRIBUTIONS*:
Dividends (from net investment income)(.30) (.30) (.29) (.30) (.35) (.39) (.38) (.37) (.47) (.38)
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
NET ASSET VALUE, END OF YEAR $3.42 $3.21 $3.52 $3.38 $3.34 $3.01 $3.44 $3.68 $3.64 $4.01
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
TOTAL RETURN 16.16% (0.17)% 12.95% 10.33% 23.05% (1.03)% 3.94% 11.55% 2.53% 11.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions) $162.1 $140.9 $158.3 $119.1 $79.9 $60.6 $75.4 $78.2 $69.6 $65.0
Ratio of expenses to
average net assets .58% .59% .62% .69% .76% .77% .81% .83% .86% .96%
Ratio of net investment income
to average net assets 8.72% 8.75% 8.42% 9.23% 10.70% 11.74% 10.46% 10.03% 9.79% 10.22%
Portfolio turnover rate 29.2% 29.2% 39.1% 56.1% 27.5% 40.4% 39.6% 11.9% 47.5% 20.4%
</TABLE>
* The Fund distributed no capital gains for the time periods listed.
See notes to financial statements.
<PAGE>
FIFTEEN YEAR HISTORICAL RECORD (unaudited)
GROWTH OF
NET DIVIDEND AN INITIAL
ASSET VALUE DISTRIBUTIONS $10,000
PER SHARE PER SHARE INVESTMENT**
__________ _____________ ____________
December 31, 1980* $3.49 $ _ $10,000
December 31, 1981 3.14 0.4700 10,395
December 31, 1982 3.68 0.4630 14,048
December 31, 1983 3.67 0.4430 15,781
December 31, 1984 3.65 0.4420 17,785
December 31, 1985 3.96 0.4170 21,572
December 31, 1986 4.01 0.3800 24,038
December 31, 1987 3.64 0.4660 24,647
December 31, 1988 3.68 0.3710 27,493
December 31, 1989 3.44 0.3830 28,575
December 31, 1990 3.01 0.3970 28,282
December 31, 1991 3.34 0.3460 34,801
December 31, 1992 3.38 0.2955 38,395
December 31, 1993 3.52 0.2890 43,368
December 31, 1994 3.21 0.3010 43,293
December 31, 1995 3.42 0.2950 50,288
* Date of initial investment.
** Assuming reinvestment of distributions.
The Fund distributed no capital gains for the time
periods listed.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
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 December 31, 1995, the Fund has
approximately $9,674,000 of net capital losses which may be used
to offset capital gains in future years. Capital loss carryovers
of approximately $802,000 will expire in 1997, $4,805,000 in 1998,
$482,000 in 1999, $2,081,000 in 2000, and $1,504,000 in 2003.
At December 31, 1995, the net unrealized appreciation based on
cost was as follows (the Fund's book and Federal income tax cost
of investment assets were substantially identical):
Aggregate gross unrealized appreciation
for all investments in which there was
an excess of value over tax cost.............. $5,659,751
Aggregate gross unrealized depreciation
for all investments in which there was
an excess of tax cost over value.............. (4,964,671)
_________
Net unrealized appreciation $ 695,080
_________
_________
<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 December 31, 1995, liabilities of the Fund included $55,506
payable to the investment adviser.
NOTE D _ INVESTMENT PORTFOLIO TRANSACTIONS:
Purchases and sales of investments, other than short-term
obligations, aggregated $49,263,895 and $40,869,532, respectively,
for the year ended December 31, 1995.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Nicholas Income Fund, Inc.
We have audited the accompanying statement of assets and
liabilities of Nicholas Income Fund, Inc., including the schedule
of investments, as of December 31, 1995, 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 ten 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 generally accepted
auditing standards. 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. Our procedures included confirmation of securities
owned at December 31, 1995 by correspondence with the custodian.
As to securities purchased but not received, we requested
confirmation from brokers and, when not received, we carried out
other alternative auditing procedures. 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, such financial statements and financial highlights
present fairly, in all material respects, the financial position
of Nicholas Income Fund, Inc. as of December 31, 1995, 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 ten years in the period then
ended, in conformity
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
January 11, 1996
<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.
<PAGE>
ANNUAL REPORT
NICHOLAS INCOME
FUND, INC.
700 North
Water Street
Milwaukee,
Wisconsin 53202
December 31, 1995
