August 20, 1999
Report to Fellow Shareholders:
For the first six months of 1999, Nicholas Income Fund
had a total return of 2.26%. The Fund's per share price
decline was more than offset by the interest and dividends
earned on the investment portfolio. This performance was in
line with similar fixed-income funds, but better than U.S.
Government bonds and high-grade corporates.
Returns for Nicholas Income Fund and selected indices
are provided in the chart below for the periods ended June
30, 1999.
Average Annual Total Return*
--------------------------------------------------
6 Months 1 Year 3 Years 5 Years 10 Years 15 Years
-------- ------ ------- ------- -------- --------
Nicholas Income Fund,
Inc. (Distributions
Reinvested)............ 2.26% 0.26% 8.03% 9.01% 8.65% 10.06%
Morningstar High Yield
Bond Fund Category
(Distributions
Reinvested)............ 3.18% (1.79)% 7.62% 8.54% 9.25% 10.53%
Lehman Brothers U.S.
Corporate Intermediate
High Yield Bond Index.. 2.45% (0.39)% 7.81% 9.20% 10.13% 11.52%
Consumer Price Index
(inflation)............ 1.09% 1.96% 1.96% 2.35% 2.96% 3.19%
Ending value of $10,000
invested in Nicholas
Income Fund, Inc.
(Distributions
Reinvested)............ $10,226 $10,026 $12,606 $15,390 $22,916 $42,127
Total assets of Nicholas Income Fund were $230 million
at June 30, 1999. Cash and equivalents were 6.39%. Because
of current conditions in the bond market, the Fund is now
available to investors at a very attractive yield. The 30-
day annualized yield was 10.13% at July 31, 1999 and 9.68%
at June 30, 1999. It should be remembered that there is
price volatility involved in Nicholas Income Fund shares.
In reviewing our long-term performance, it is
interesting and pleasing to note that our average annual
total returns compare favorably with what stock market
investors might have expected a few years ago. Excluding
recent strong performance, stocks have returned around 9-10%
annually over the last 50-60 years.
Thank you for your continued interest in the Nicholas
Income Fund. Please call if you have any questions.
Sincerely,
/s/ Albert O. Nicholas
------------------
Albert O. Nicholas
President
*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, return and yield will fluctuate
so an investment, when redeemed, may be worth more or less
than original cost. The Funds one, five and ten year
average annual total returns ended July 31, 1999 were 1.60%,
8.99% and 8.64% respectively.
Financial Highlights
(For a share outstanding throughout each period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year ended December 31,
Ended 6/30/99 ---------------------------------------
(unaudited) 1998 1997 1996 1995 1994
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $3.39 $3.69 $3.53 $3.42 $3.21 $3.52
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... .16 .32 .30 .30 .30 .30
Net gains (losses) on securities
(realized and unrealized)............... (.08) (.30) .15 .11 .21 (.31)
------ ----- ----- ----- ----- -----
Total from investment operations...... .08 .02 .45 .41 .51 (.01)
------ ----- ----- ----- ----- -----
LESS DISTRIBUTIONS: ***
From net investment income............... (.08) (.32) (.29) (.30) (.30) (.30)
------ ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD............. $3.39 $3.39 $3.69 $3.53 $3.42 $3.21
------ ----- ----- ----- ----- -----
------ ----- ----- ----- ----- -----
TOTAL RETURN............................... 2.26% ** .47% 13.13% 12.37% 16.16% (.17)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)....... $230.0 $239.4 $254.2 $185.7 $162.1 $140.9
Ratio of expenses to average net assets.... 0.50% * 0.48% 0.50% 0.55% 0.58% 0.59%
Ratio of net investment income
to average net assets.................... 9.32% * 8.69% 8.29% 8.55% 8.72% 8.75%
Portfolio turnover rate.................... 54.2% * 49.3% 32.2% 33.2% 29.2% 29.2%
</TABLE>
* Annualized.
** Not annualized.
*** The Fund distributed no capital gains for the time periods listed.
The accompanying notes to financial statements are an
integral part of these statements.
Top Ten Issuers
June 30, 1999 (unaudited)
- -------------------------------------------------------------------------------
Percentage
Name of Net Assets
- ---- ------------
Stater Brothers Holdings, Inc. .............. 4.38%
Polaroid Corporation ........................ 3.70%
Perkins Family Restaurants, L.P. ............ 3.62%
Playtex Family Products Corp. ............... 3.51%
Advanced Micro Devices, Inc. ................ 3.50%
Level 3 Communications, Inc. ................ 3.42%
United Rentals, Inc. ........................ 3.41%
Triton Energy Limited ....................... 3.39%
NEXTLINK Communications, Inc. ............... 3.38%
Fisher Scientific International Inc. ........ 3.31%
------
Total of top ten issuers.................. 35.62%
------
------
Schedule of Investments
June 30, 1999 (unaudited)
- -------------------------------------------------------------------------------
Quoted
Shares or Market
Principal Value
Amount (Note A)
- ------------ ------------
NON-CONVERTIBLE BONDS - 81.12%
Consumer Products and Services - 20.85%
$7,000,000 Brown Shoe Company, Inc. 9.50%, 10/15/06 $7,157,500
5,875,000 Greyhound Lines, Inc. 11.50%, 4/15/07 6,653,208
8,000,000 KinderCare Learning Centers, Inc. 9.50%, 2/15/09 7,600,000
3,700,000 Outboard Marine Corp. 8.625%, 3/15/01 3,729,582
6,200,000 Paging Network, Inc. 10.125%, 8/1/07 4,774,000
2,000,000 Paging Network, Inc. 8.875%, 2/1/06 1,440,000
8,000,000 Playtex Family Products Corp. 9.00%, 12/15/03 8,080,000
8,000,000 Polaroid Corporation 11.50%, 2/15/06 8,500,000
------------
47,934,290
------------
Diversified Products and Services - 0.44%
1,000,000 Sequa Corp. 9.625%, 10/15/99 1,002,500
------------
Energy - 6.68%
7,850,000 Canadian Forest Oil Ltd. 8.75%, 9/15/07 7,555,625
8,000,000 Triton Energy Limited 9.25%, 4/15/05 7,800,000
------------
15,355,625
------------
Finance and Insurance - 0.61%
1,000,000 Litchfield Financial Corp. 10.00%, 11/1/04 960,000
475,000 Litchfield Financial Corp. 8.875%, 11/1/03 451,250
------------
1,411,250
------------
Food and Beverages - 6.29%
3,000,000 Chiquita Brands International, Inc. 10.25%, 11/1/06 3,030,000
3,000,000 Chiquita Brands International, Inc. 9.125%, 3/1/04 2,958,750
1,000,000 Chiquita Brands International, Inc. 9.625%, 1/15/04 1,005,000
4,000,000 Fleming Companies, Inc. 10.50%, 12/1/04 3,760,000
4,000,000 Fleming Companies, Inc. 10.625%, 7/31/07 3,710,000
------------
14,463,750
------------
Food Retailers - 7.99%
8,000,000 Perkins Family Restaurants, L.P. 10.125%, 12/15/07 8,320,000
6,070,000 Stater Brothers Holdings, Inc. 11.00%, 3/1/01 6,221,750
4,000,000 Stater Brothers Holdings, Inc. 9.00%, 7/1/04 3,840,000
------------
18,381,750
------------
Health Care Products - 3.30%
8,000,000 Fisher Scientific International Inc. 9.00%, 2/1/08 7,600,000
------------
Health Care Services - 2.97%
7,000,000 Quorum Health Group, Inc. 8.75%, 11/1/05 6,825,000
------------
Industrial and Consumer
Products and Services - 3.41%
8,000,000 United Rentals, Inc. 9.00%, 4/1/09 7,840,000
------------
Industrial Products and Services - 8.45%
7,750,000 CEX Holdings, Inc. 9.625%, 6/1/08 7,304,375
8,000,000 Doman Industries Ltd. 9.25%, 11/15/07 4,720,000
8,000,000 Parker Drilling Company 9.75%, 11/15/06 7,400,000
------------
19,424,375
------------
Media and Entertainment - 8.55%
8,000,000 AMC Entertainment Inc. 9.50%, 3/15/09 7,600,000
5,000,000 Cinemark USA, Inc. 9.625%, 8/1/08 4,900,000
5,000,000 Hollinger International, Inc. 9.25%, 2/1/06 5,106,250
2,000,000 Young Broadcasting Inc. 10.125%, 2/15/05 2,057,500
------------
19,663,750
------------
Technology and Communications - 11.58%
1,000,000 Adelphia Communications Corp. 11.875%, 9/15/04 1,051,250
8,000,000 Advanced Micro Devices, Inc. 11.00%, 8/1/03 8,040,000
2,000,000 Call-Net Enterprises, Inc. 9.375%, 5/15/09 1,905,000
8,000,000 Level 3 Communications, Inc. 9.125%, 5/1/08 7,860,000
8,000,000 NEXTLINK Communications, Inc. 9.625%, 10/1/07 7,780,000
------------
26,636,250
------------
TOTAL NON-CONVERTIBLE BONDS
(cost $196,474,876) 186,538,540
------------
CONVERTIBLE BONDS - 1.19%
750,000 Assisted Living Concepts, Inc. 6.00%, 11/1/02 408,750
3,781,000 Emeritus Corporation 6.25%, 1/1/06 2,320,589
------------
TOTAL CONVERTIBLE BONDS
(cost $3,629,992) 2,729,339
------------
STOCKS - 11.30%
265,000 Glacier Water Trust I
Preferred, 9.0625%, 1/31/28 5,200,625
120,000 Healthcare Realty Trust Inc. 2,520,000
5,000 Homestead Savings Convertible
Preferred, Series A, $2.95 * 5,000
300,000 National Health Investors, Inc. 6,843,750
611,828 National Health Realty, Inc. 6,806,587
160,000 Omega Healthcare Investors, Inc. 4,130,000
20,500 Reckson Associates Realty Corp.
Convertible Preferred, 7.625%, Series A 467,656
------------
TOTAL STOCKS
(cost $29,627,814) 25,973,618
------------
SHORT-TERM INVESTMENTS - 3.80%
Commercial Paper - 2.93%
$4,000,000 Cox Enterprises, Inc.
5.27%, due July 7, 1999 3,996,487
1,500,000 Wausau-Mosinee Paper Corp.
5.35%, due July 7, 1999 1,498,662
1,250,000 Quad/Graphics, Inc.
5.40%, due July 9, 1999 1,248,500
------------
6,743,649
------------
Variable Rate Demand Note - 0.87%
2,004,437 Firstar Bank U.S.A., N.A.
4.89%, due July 1, 1999 2,004,437
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $8,739,618) 8,748,086
------------
TOTAL INVESTMENTS
(cost $238,472,300) 223,989,583
------------
CASH AND RECEIVABLES,
NET OF LIABILITIES - 2.59% 5,961,197
------------
TOTAL NET ASSETS
(Basis of percentages
disclosed above) $229,950,780
------------
------------
* This security has been classified as non-income producing.
The accompanying notes to financial statements are an
integral part of this schedule.
Statement of Assets and Liabilities
June 30, 1999 (unaudited)
- -------------------------------------------------------------------------------
ASSETS:
Investments in securities at market value
(cost $238,472,300) (Note A)......................... $223,989,583
------------
Receivables -
Dividends and interest............................. 5,429,065
Investment securities sold......................... 725,625
------------
Total receivables.............................. 6,154,690
------------
Total assets................................... 230,144,273
------------
LIABILITIES:
Payables -
Management fee (Note C)............................ 68,721
Other payables and accrued expenses................ 124,772
------------
Total liabilities.............................. 193,493
------------
Total net assets............................... $229,950,780
------------
------------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding.................... $242,780,740
Net unrealized depreciation on investments (Note B)... (14,491,185)
Accumulated net realized losses on investments........ (4,733,882)
Accumulated undistributed net investment income....... 6,395,107
------------
$229,950,780
------------
------------
NET ASSET VALUE PER SHARE ($.01 par value, 100,000,000 shares
authorized), offering price and redemption price
($229,950,780 ./. 67,791,499 shares outstanding)....... $3.39
------
------
The accompanying notes to financial statements are an
integral part of this statement.
Statement of Operations
For the six months ended June 30, 1999 (unaudited)
- -------------------------------------------------------------------------------
INCOME:
Interest.............................................. $ 9,560,450
Dividends............................................. 1,442,287
Other................................................. 537,751
-----------
Total income................................... 11,540,488
-----------
EXPENSES:
Management fee (Note C)............................... 417,101
Transfer agent fees................................... 67,171
Legal fees............................................ 58,566
Postage and mailing fees.............................. 18,562
Printing fees......................................... 8,375
Custodian fees........................................ 5,500
Directors' fees....................................... 3,000
Pricing service fees.................................. 2,992
Registration fees..................................... 1,878
Other operating expenses.............................. 4,026
-----------
Total expenses................................. 587,171
-----------
Net investment income.......................... 10,953,317
-----------
NET REALIZED LOSS ON INVESTMENTS........................... (666,189)
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS..... (4,874,080)
-----------
Net loss on investments........................ (5,540,269)
-----------
Net increase in net assets resulting
from operations............................... $ 5,413,048
-----------
-----------
The accompanying notes to financial statements are an
integral part of this statement.
Statements of Changes in Net Assets
For the six months ended June 30, 1999 (unaudited)
and the year ended December 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income................................. $ 10,953,317 $ 22,352,579
Net realized gain (loss) on investments............... (666,189) 1,478,353
Net decrease in unrealized appreciation on investments (4,874,080) (23,042,691)
------------ ------------
Net increase in net assets resulting
from operations................................. 5,413,048 788,241
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.0770 and $0.3155 per share, respectively)........ (5,302,006) (22,331,451)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (6,184,382 and 18,725,675 shares,
respectively) 21,040,794 67,790,328
Net asset value of shares issued in distributions to
shareholdres (1,179,184 and 4,867,962 shares, respectively) 4,021,018 16,989,161
Cost of shares redeemed (10,163,767 and 21,806,858 shares,
respectively) (34,641,929) (78,022,412)
------------- ------------
Increase (decrease) in net assets derived from
capital share transactions..................... (9,580,117) 6,757,077
------------ ------------
Total decrease in net assets..................... (9,469,075) (14,786,133)
------------ ------------
NET ASSETS, at the beginning of period (including undistributed net
investment income of $743,796 and $722,668, respectively) 239,419,855 254,205,988
------------ ------------
NET ASSETS, at the end of period (including undistributed net
investment income of $6,395,107 and $743,796, respectively) $229,950,780 $239,419,855
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
Historical Record (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
Net Investment
Net Income Growth of an
Asset Value Distributions Initial $10,000
Per Share Per Share Investment**
----------- -------------- ---------------
<S> <C> <C> <C>
November 21, 1977*........... $5.10 $ ---- $10,000
December 31, 1987............ 3.64 0.4660 22,560
December 31, 1988............ 3.68 0.3710 25,164
December 31, 1989............ 3.44 0.3830 26,155
December 31, 1990............ 3.01 0.3970 25,886
December 31, 1991............ 3.34 0.3460 31,853
December 31, 1992............ 3.38 0.2955 35,143
December 31, 1993............ 3.52 0.2890 39,695
December 31, 1994............ 3.21 0.3010 39,626
December 31, 1995............ 3.42 0.2950 46,029
December 31, 1996............ 3.53 0.2960 51,721
December 31, 1997............ 3.69 0.2903 58,514
December 31, 1998............ 3.39 0.3155 58,788
June 30, 1999................ 3.39 0.0770(a) 60,116
</TABLE>
The Fund distributed no capital gains for the time periods listed.
* Initial date under Nicholas Company, Inc. management.
** Assuming reinvestment of distributions.
(a) Paid April 23, 1999 to shareholders of record April 22, 1999.
The accompanying notes to financial statements are an integral part of this
statement.
Notes to Financial Statements
June 30, 1999 (unaudited)
- -------------------------------------------------------------------------
Note A -- Summary of significant accounting policies:
Nicholas Income Fund, Inc. (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. Equity securities are generally valued at the last
sale price reported by the principal security exchange on which the issue is
traded or if no sale is reported, the latest bid price is used. U.S.
Treasury Bills and commercial paper are stated at market value with
the resultant difference between market value and original purchase price
being recorded as interest income. Variable rate demand notes are valued at
cost which approximates market value.
Securities transactions and related investment income -- Securities
transactions are generally 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from estimates.
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, 1999, the
Fund has approximately $4,734,000 of net capital losses which may be used to
offset capital gains in future years. Capital loss carryovers of
approximately $482,000 will expire in 1999, $2,081,000 in 2000, $1,505,000 in
2003, and $666,000 in 2007.
At June 30, 1999, the net unrealized appreciation (depreciation) 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......................... $ 1,508,590
Aggregate gross unrealized depreciation for all
investments in which there was an excess of
tax cost over value......................... (15,999,775)
-----------
Net unrealized depreciation............ $(14,491,185)
-----------
-----------
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, 1999, liabilities of the Fund included $68,721 payable
to the investment adviser.
Note D -- Investment portfolio transactions:
For the six months ended June 30, 1999, the cost of purchases and
the proceeds from sales of investments, other than short-term obligations,
aggregated $58,871,516 and $68,943,313, respectively.
NICHOLAS FAMILY OF FUNDS
Services Offered
- ---------------------------------------------------------------------
* IRAs
*Traditional *Simple *Educational
*Roth *SEP
*Self-employed Master Retirement Plan
*Money Purchase *Profit Sharing
*Automatic Investment Plan
*Direct Deposit of Distributions
*Systematic Withdrawl Plan
*Monthly Automatic Exchange between Funds
*Telephone Redemption
*Telephone Exchange
*24-hour Automated Account Information (800-544-6547)
Please call a shareholder representative for further information on
the above services or with any other questions you may have regarding
the Nicholas Family of Funds.
Officers and Directors
ALBERT O. NICHOLAS, President and 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 and Secretary
JEFFREY T. MAY, Senior Vice President and Treasurer
DAVID O. NICHOLAS, Senior Vice President
CANDACE L. LESAK, Vice President
KATHLEEN A. EVANS, Assistant Vice President
Investment Adviser
NICHOLAS COMPANY, INC.
Milwaukee, Wisconsin
414-272-6133 or 800-227-5987
Transfer Agent
FIRSTAR MUTUAL FUND SERVICES, LLC
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
Custodian
FIRSTAR BANK MILWAUKEE, N.A.
Milwaukee, Wisconsin
Auditors
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
Counsel
MICHAEL, BEST & FRIEDRICH LLP
Milwaukee, Wisconsin
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>
SEMIANNUAL REPORT
NICHOLAS INCOME FUND, INC.
700 North Water Street
Milwaukee, Wisconsin 53202
www.nicholasfunds.com
June 30, 1999
