Financial Highlights
(For a share outstanding throughout each period)
--------------------------------------------------------------------------
[CAPTION]
<TABLE>
Six Months
Ended 06/30/00 Year ended December 31,
---------------------------------------
(unaudited) 1999 1998 1997 1996 1995
-------------- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $3.06 $3.39 $3.69 $3.53 $3.42 $3.21
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .16 .33 .32 .30 .30 .30
Net gains (losses) on securities
(realized and unrealized) (.27) (.33) (.30) .15 .11 .21
------ ----- ----- ----- ----- -----
Total from investment operations (.11) --- .02 .45 .41 .51
------ ----- ----- ----- ----- -----
LESS DISTRIBUTIONS: ***
From net investment income (.08) (.33) (.32) (.29) (.30) (.30)
------ ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $2.87 $3.06 $3.39 $3.69 $3.53 $3.42
------ ------- ------- ------- ------ ------
------ ------- ------- ------- ------ ------
TOTAL RETURN (3.63) ** (0.07)% 0.47% 13.13% 12.37% 16.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) $165.6 $202.8 $239.4 $254.2 $185.7 $162.1
Ratio of expenses to average net assets 0.57% * .50% .48% .50% .55% .58%
Ratio of net investment income
to average net assets 10.41% * 9.81% 8.69% 8.29% 8.55% 8.72%
Portfolio turnover rate 7.65% * 47.2% 49.3% 32.2% 33.2% 29.2
</TABLE>
* Annualized.
** Not annualized.
*** No capital gains were distributed for the periods presented.
The accompanying notes to financial statements are an
integral part of these statements.
-------------------------------------------------------------------------
TOP TEN ISSUERS
June 30, 2000 (unaudited)
--------------------------------------------------------------------------
Percentage of
Name Net Assets
---- ------------
Parker Drilling Company ..................... 4.67%
Perkins Family Restaurants, L.P.............. 4.64%
NEXTLINK Communications, Inc................. 4.55%
Canadian Forest Oil Ltd...................... 4.45%
KinderCare Learning Centers, Inc............. 4.44%
Fisher Scientific International Inc.......... 4.42%
Polaroid Corporation......................... 4.39%
Level 3 Communications, Inc.................. 4.33%
United Rentals, Inc.......................... 4.27%
Quorum Health Group, Inc..................... 4.01%
------
Total of top ten ......................... 44.17%
------
------
Schedule of Investments
June 30, 2000 (unaudited)
------------------------------------------------------------------------
[CAPTION]
<TABLE>
Quoted
Shares or Market
Principal Value
Amount (Note A)
--------- ------------
<C> <C>
NON-CONVERTIBLE BONDS -- 81.02%
Communication Services -- 11.49%
$7,000,000 Call-Net Enterprises, Inc.
9.375%, 05/15/09 ................................... $ 4,305,000
8,000,000 Level 3 Communications, Inc.
9.125%, 05/01/08 ................................... 7,180,000
8,000,000 NEXTLINK Communications, Inc.
9.625%, 10/01/07 ................................... 7,540,000
------------
19,025,000
------------
Consumer Cyclicals - Products -- 13.42%
7,000,000 Brown Shoe Company, Inc.
9.50%, 10/15/06 .................................... 6,547,500
3,700,000 Outboard Marine Corp.
8.625%, 03/15/01 ................................... 3,693,347
7,000,000 Polaroid Corporation
11.50%, 02/15/06 ................................... 7,280,000
5,000,000 Sequa Corp.
9.00%, 08/01/09 .................................... 4,800,000
------------
22,230,847
------------
Consumer Cyclicals - Services -- 11.76%
7,000,000 Greyhound Lines, Inc.
11.50%, 04/15/07 ................................... 5,040,000
8,000,000 KinderCare Learning Centers, Inc.
9.50%, 02/15/09 .................................... 7,360,000
8,000,000 United Rentals, Inc.
9.00%, 04/01/09 .................................... 7,080,000
------------
19,480,000
------------
Consumer Staples -
Drug, Retail, Food & Beverage -- 16.85%
1,000,000 Chiquita Brands International, Inc.
9.625%, 01/15/04 ................................... 800,000
3,000,000 Chiquita Brands International, Inc.
9.125%, 03/01/04 ................................... 2,370,000
3,000,000 Chiquita Brands International, Inc.
10.25%, 11/01/06 ................................... 2,385,000
4,000,000 Fleming Companies, Inc.
10.50%, 12/01/04 ................................... 3,580,000
4,000,000 Fleming Companies, Inc.
10.625%, 07/31/07 .................................. 3,340,000
8,000,000 Perkins Family Restaurants, L.P.
10.125%, 12/15/07 .................................. 7,680,000
5,000,000 Sbarro, Inc.
11.00%, 9/15/09 .................................... 5,112,500
3,000,000 Stater Brothers Holdings, Inc.
10.75%, 08/15/06 ................................... 2,640,000
------------
27,907,500
------------
Consumer Staples -
Media & Entertainment -- 6.82%
8,000,000 AMC Entertainment Inc.
9.50%, 03/15/09 .................................... 3,720,000
7,000,000 Cinemark USA, Inc.
9.625%, 08/01/08 ................................... 3,640,000
4,000,000 Hollinger International, Inc.
9.25%, 02/01/06 .................................... 3,945,000
------------
11,305,000
------------
Energy -- 9.13%
7,850,000 Canadian Forest Oil Ltd.
8.75%, 09/15/07 .................................... 7,379,000
8,000,000 Parker Drilling Company
9.75%, 11/15/06 .................................... 7,740,000
------------
15,119,000
------------
Health Care - Services -- 8.43%
8,000,000 Fisher Scientific International Inc.
9.00%, 02/01/08 .................................... 7,320,000
7,000,000 Quorum Health Group, Inc.
8.75%, 11/01/05 .................................... 6,650,000
------------
13,970,000
------------
Technology - Products -- 3.12%
5,000,000 Advanced Micro Devices, Inc.
11.00%, 08/01/03 .................................... 5,162,500
------------
TOTAL NON-CONVERTIBLE BONDS
(cost $156,531,831) ............................ 134,199,847
------------
CONVERTIBLE BOND -- 0.98%
$ 2,781,000 Emeritus Corporation
6.25%, 01/01/06 .................................... $1,630,361
(cost $2,308,230)
------------
STOCKS -- 7.97%
Consumer Staples -
Drug, Retail, Food & Beverage -- 2.72%
265,000 Glacier Water Trust I
Preferred, 9.0625%, 01/31/28 ....................... 4,505,000
------------
Financial - Banks & Diversified
Financials -- 0.00%
5,000 Homestead Savings Convertible
Preferred, Series A, $2.95 * ....................... 5,000
------------
Financial - Real Estate
Investment Trusts -- 5.25%
300,000 National Health Investors, Inc. ..................... 3,300,000
611,828 National Health Realty, Inc. ........................ 4,932,863
20,500 Reckson Associates Realty Corp.
Convertible Preferred, 7.625%, Series A ............ 454,844
------------
8,687,707
------------
TOTAL STOCKS
(cost $23,415,941) ............................. 13,197,707
------------
SHORT-TERM INVESTMENTS -- 7.30%
Commercial Paper --5.88%
1,250,000 Universal Foods Corporation
6.75%, due July 5, 2000 ............................. 1,249,531
3,000,000 Fiserv, Inc. ........................................
6.90%, due July 7, 2000 ............................. 2,997,700
3,000,000 Universal Foods Corporation .........................
6.95%, due July 11, 2000 ............................ 2,995,367
2,500,000 Banta Corporation ...................................
6.80%, due July 19, 2000 ............................ 2,492,445
---------
9,735,043
---------
Variable Rate Demand Note -- 1.42%
2,352,355 Firstar Bank U.S.A., N.A.
6.34%, due July 3, 2000 ............................. 2,352,355
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $12,072,676) ............................. 12,087,398
------------
TOTAL INVESTMENTS
(cost $194,328,678) -- 97.27% .................. 161,115,313
------------
OTHER ASSETS,
NET OF LIABILITIES -- 2.73% ........................ 4,531,440
------------
TOTAL NET ASSETS
(Basis of percentages
disclosed above) -- 100.00% .................... $165,646,753
------------
------------
* This security has been classified as non-income producing.
The accompanying notes to financial statements
are an integral part of this statement.
Statement of Assets and Liabilities
June 30, 2000 (unaudited)
-------------------------------------------------------------------------
<CAPTION>
</TABLE>
<TABLE>
<C> <C>
ASSETS:
Investments in securities at market value
(cost $194,328,678) (Note A) $ 161,115,313
Interest and dividends receivable ....................... 4,685,215
-------------
Total assets ................................... 165,800,528
-------------
LIABILITIES:
Payables -
Management fee (Note B) 55,914
Other payables and accrued expenses 97,861
------------
Total liabilities 153,775
------------
Total net assets $165,646,753
------------
------------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding $210,947,281
Net unrealized depreciation on investments (Note C) (33,228,087)
Accumulated net realized losses on investments (17,329,045)
Accumulated undistributed net investment income 5,256,604
------------
$165,646,753
------------
------------
NET ASSET VALUE PER SHARE ($.01 par value, 100,000,000 shares
authorized), offering price and redemption price
($165,646,753 ./. 57,626,418 shares outstanding) $2.87
------
------
</TABLE>
The accompanying notes to financial statements are an integral
part of this statement.
Statement of Operations
For the six months ended June 30, 2000 (unaudited)
-------------------------------------------------------------------------
<TABLE>
<C> <C>
INCOME: (Note A)
Interest $ 8,153,891
Dividends 1,256,588
-----------
Total income 9,410,479
-----------
EXPENSES:
Management fee (Note B) 330,574
Transfer agent fees 62,091
Legal fees 31,325
Registration fees 18,656
Postage and mailing 14,760
Audit and tax consulting fees 9,900
Printing 8,936
Custodian fees 4,032
Pricing service 3,335
Insurance 3,240
Directors fees 3,000
Other operating expenses 1,787
-----------
Total expenses 491,636
-----------
Net investment income 8,918,843
-----------
NET REALIZED LOSS ON INVESTMENTS (4,267,018)
NET INCREASE IN UNREALIZED DEPRECIATION ON INVESTMENTS (11,033,943)
-----------
Net realized and unrealized loss on investments (15,300,961)
-----------
Net decrease in net assets resulting from operations $(6,382,118)
----------
-----------
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, 2000 (unaudited) and the year
ended December 31, 1999
--------------------------------------------------------------------------
<CAPTION>
</TABLE>
<TABLE>
2000 1999
------------- ------------
<C> <C> <C>
OPERATIONS:
Net investment income $ 8,918,843 $ 22,041,474
Net realized gain (loss) on investments (4,267,018) (9,476,444)
Net decrease in unrealized appreciation on investments (11,033,943) (12,577,039)
------------ ------------
Net decrease in net assets resulting
from operations (6,382,118) ( 12,009)
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.0780 and $0.3312 per share, respectively) (4,403,671) (22,043,838)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (5,899,361 and 13,812,153 shares,
respectively) 17,010,653 45,693,672
Reinvestment of distributions
(1,163,579 and 5,210,003 shares, respectively)
Cost of shares redeemed (15,751,420 and 23,298,958 shares, 3,304,564 16,763,222
respectively) (46,657,343) (77,046,234)
------------- ------------
decrease) in net assets derived from
capital share transactions (26,342,126) (14,589,340)
------------ ------------
Total decrease in net assets (37,127,915) (36,645,187)
------------ ------------
NET ASSETS:
Beginning of period (including undistributed net
investment income of $741,432 and $743,796, respectively) 202,774,668 239,419,855
------------ ------------
End of period (including undistributed net
investment income of $5,256,604 and $741,432, respectively) $165,646,753 $202,774,668
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
Historical Record (unaudited)
-------------------------------------------------------------------------
[CAPTION]
<TABLE>
Net Investment
Net Income Growth of An
Asset Value Distributions Initial $10,000
Per Share Per Share Investment**
----------- -------------- ---------------
<C> <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
December 31, 1999............ 3.06 0.3312 58,749
June 30, 2000................ 2.87 0.0780(a) 56,614
The Fund distributed no capital gains for the time periods listed.
* Initial date under Nicholas Company, Inc. management.
** Assuming reinvestment of distributions.
(a) Paid $0.0780 in net investment income on April 19, 2000 to shareholders
of record April 18, 2000.
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
Notes to Financial Statements
June 30, 2000 (unaudited)
-----------------------------------------------------------------------------
Note A -- Summary of significant accounting policies:
Nicholas Income Fund, Inc. (the "Fund") is an open-end diversified
investment company registered under the Investment Company Act of 1940, as
amended. 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, if any, 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. Investments for which market
quotations are not readily available are valued at their fair 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. Distributions from net investment income are generally
declared and paid on a quarterly basis. Net realized gains on investments,
if any, are declared and distributed at least annually.
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 net
investment 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.
Use of estimates -- 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 those
estimates.
Note B -- Management Fees
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, 2000, liabilities of the Fund included $55,914 payable to
the investment adviser.
Note C -- Investment portfolio transactions:
At June 30, 2000, the net unrealized depreciation 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......................... $ 45,301
Aggregate gross unrealized depreciation for all
investments in which there was an excess of
tax cost over value......................... (33,273,388)
-----------
Net unrealized depreciation............ $(33,228,087)
-----------
-----------
As of June 30, 2000 the Fund has approximately $17,329,000 of net capital
losses which may be used to offset capital gains in future years. Capital
loss carryovers of approximately $2,081,000 will expire in 2000, $1,505,000
in 2003, $9,476,000 in 2007 and 4,267,000 in 2008.
For the six months ended June 30, 2000, the cost of purchases and the
proceeds from sales of investments, other than short-term obligations,
aggregated $6,282,500 and $37,517,678, respectively.
OFFICERS AND DIRECTORS
ALBERT O. NICHOLAS, President and 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 INSTITUTIONAL CUSTODY SERVICES
Cincinnati, Ohio
Auditors
DELOITTE & TOUCHE LLP
Chicago, Illinois
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.
SEMIANNUAL REPORT
NICHOLAS INCOME FUND, INC.
700 North Water Street
Milwaukee, Wisconsin 53202
www.nicholasfunds.com
June 30, 2000
</TABLE>
