November 20, 1998
Report to Shareholders:
For the third calendar quarter ended September 30, 1998, the Fund, the
Standard & Poor's 500 and the Russell 2000 had negative total returns of 15.89%
9.95% and 20.15%, respectively. For the six months ended September 30, 1998,
the Fund's total return was negative 14.45%. In comparison, the Standard &
Poor's 500 and the Russell 2000 decreased 6.98% and 23.87%, respectively. Cash
equivalents at September 30 were 12.50% of net assets.
Long-term performance of the Fund is shown below for time periods ended
September 30, 1998 as well as the one year return.
<TABLE>
<CAPTION>
Average Annual Total Return*
-------------------------------------------------------------
July 14, 1969**
1 year 5 years 10 years 15 Years 29.2 years
------ ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Nicholas Fund
(Distributions Reinvested) ... 0.77% 15.99% 15.13% 14.26% 13.74%
Standard & Poor's 500 Index
(Dividends Reinvested) ....... 9.05% 19.91% 17.29% 16.42% 12.45%
Russell 2000 Index
(Dividends Reinvested) ....... (19.02)% 9.10% 11.15% 9.82% N/A
Consumer Price Index ............ 1.43% 2.43% 3.18% 3.31% 5.25%
Ending value of $10,000 invested in
Nicholas Fund (Distributions Reinvested) $10,078 $20,993 $40,914 $73,884 $430,169
</TABLE>
As we reflect on the last six months in the stock market, one of our
investment principles seems validated: no one can predict short-term movements
in the market place. The recent volatility of stock prices also confirms
another of our investment standards: dollar cost averaging is an intelligent
and rewarding way to purchase Nicholas Fund shares. One significant aspect of
the current market which is worth mentioning is that, in general, the larger a
company's market capitalization, the better its stock has performed. Market
leviathans such as General Electric, Coca-Cola, Microsoft, Merck, Pfizer and
Wal-Mart, which influence the market indexes disproportionately, have made the
major averages look substantially stronger than the overall market. Because
Nicholas Fund is composed of some large but mostly mid-cap names, we have been
at a disadvantage. We believe our program does work and we look forward to
improved relative performance.
Management would like to thank all shareholders for the confidence they
have placed in the long-term investment philosophy of the Fund. We appreciate
your patience and support.
Sincerely,
/s/ Albert O. Nicholas /s/David O. Nicholas
------------------ -----------------
Albert O. Nicholas David O. Nicholas
Co-Portfolio Manager Co-Portfolio Manager
*Total returns are historical and include change in share price and
reinvestment of dividends 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.
**Date of initial public offering. Starting time period for Standard &
Poor's 500 and the Consumer Price Index was June 30, 1969.
Financial Highlights
(For a share outstanding throughout each period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended 9/30/98 Year ended March 31,
-----------------------------------------
(unaudited) 1998 1997 1996 1995 1994
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $93.98 $67.11 $63.81 $52.22 $51.10 $52.91
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .34 .36 .40 .57 .69 .74
Net gains (losses) on securities
(realized and unrealized) (14.46) 32.67 8.64 15.68 4.46 (.68)
------ ------ ------ ------ ------ ------
Total from investment operations (14.12) 33.03 9.04 16.25 5.15 .06
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net
investment income) (.13) (.36) (.42) (.57) (.71) (.82)
Distributions (from capital gains) (2.47) (5.80) (5.32) (4.09) (3.32) (1.05)
------ ------ ------ ------ ------ ------
Total distributions (2.60) (6.16) (5.74) (4.66) (4.03) (1.87)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $77.26 $93.98 $67.11 $63.81 $52.22 $51.10
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN (15.45)%** 50.98% 14.68% 32.38% 10.88% 0.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) $4,953.3 $5,907.2 $3,989.5 $3,655.3 $3,004.4 $2,941.2
Ratio of expenses to average net assets .70%* .71% .72% .74% .77% .78%
Ratio of net investment income
to average net assets .77%* .44% .61% .87% 1.34% 1.40%
Portfolio turnover rate 24.64%* 17.01% 15.18% 25.70% 29.82% 33.39%
*Annualized.
**Not annualized.
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
- ------------------------------------------------------------------------------
Top Ten Equity Holdings
September 30, 1998 (Unaudited)
- ------------------------------------------------------------------------------
Percentage of
Net Assets
----------------
Berkshire Hathaway Inc. - Class A 4.76%
Freddie Mac 4.56%
Fannie Mae 4.41%
SunAmerica, Inc. 3.45%
Marshall & Ilsley Corporation 3.22%
Mercury General Corporation 3.21%
Fifth Third Bancorp 2.52%
General Motors Corporation - Class H 2.51%
Travelers Group, Inc. 2.46%
Elan Corporation plc 2.05%
-----
Total of top ten holdings 33.15%
------
------
Schedule of Investments
September 30, 1998 (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or Quoted
Principal Market
Amount Value
- ---------- -----------
(Note 1(a))
COMMON STOCKS - 87.50%
Agriculture - 1.48%
<S> <C> <C>
1,300,000 Monsanto Company $ 73,287,500
----------------
Banks and Finance - 21.54%
408,000 Edwards (A.G.), Inc. 12,367,500
3,400,000 Fannie Mae 218,450,000
2,168,812 Fifth Third Bancorp 124,706,690
1,291,400 Firstar Corporation 65,377,125
4,571,200 Freddie Mac 225,988,700
3,341,363 Marshall & Ilsley Corporation 159,550,083
650,000 Merrill Lynch & Co., Inc. 30,793,750
2,000,000 Norwest Corporation 71,625,000
3,252,000 Travelers Group Inc. 121,950,000
1,010,700 U.S. Bancorp 35,943,019
----------------
1,066,751,867
----------------
Business Services - 2.29%
1,372,000 Cintas Corporation 68,771,500
1,754,000 Interim Services, Inc. * 36,066,625
491,800 Wallace Computer Services, Inc. 8,821,662
----------------
113,659,787
----------------
Consumer Products and Services - 4.63%
500,000 American Express Company 38,812,500
852,000 CSS Industries, Inc. * + 24,015,750
1,510,000 Leggett & Platt, Incorporated 31,332,500
2,071,800 ServiceMaster Company (The) 45,320,625
1,692,600 Valspar Corporation (The) 50,672,213
1,550,000 Walt Disney Company (The) 39,234,375
----------------
229,387,963
----------------
Food and Beverage - 1.45%
1,200,000 McDonald's Corporation 71,625,000
----------------
Health Care Products - 9.82%
2,000,000 Abbott Laboratories 86,875,000
1,636,000 American Home Products Corporation 85,685,500
1,411,800 Elan Corporation plc * 101,737,837
400,000 Medtronic, Inc. 23,150,000
700,000 Pfizer Inc. 74,156,250
1,700,000 Stryker Corporation 57,800,000
2,463,500 St. Jude Medical, Inc. * 56,968,438
----------------
486,373,025
----------------
Health Care Services - 6.21%
853,150 Cardinal Health, Inc. 88,087,738
1,762,400 HCR Manor Care, Inc. * 51,660,350
2,685,937 Health Management Associates, Inc. - Class A * 49,018,350
1,029,352 National HealthCare Corporation + 23,675,096
1,680,000 PSS World Medical, Inc. * 31,080,000
3,892,000 Quorum Health Group, Inc. * + 63,245,000
265,600 Vencor, Inc. * 1,062,400
----------------
307,828,934
----------------
Industrial Products and Services - 3.54%
1,110,000 Fastenal Company 27,750,000
2,537,400 General Cable Corporation + 46,941,900
2,354,300 Sybron International Corporation * 45,025,987
2,733,325 Thermo Electron Corporation * 41,170,708
1,019,800 Wausau-Mosinee Paper Corporation 14,659,625
----------------
175,548,220
----------------
Insurance - 11.93%
2,741,131 Foremost Corporation of America + 50,196,961
4,235,600 Mercury General Corporation + 158,835,000
1,589,600 Mutual Risk Management Ltd. 56,232,100
500,000 Progressive Corporation (The) 56,375,000
2,737,000 Protective Life Corporation 98,532,000
2,800,000 SunAmerica, Inc. 170,800,000
----------------
590,971,061
----------------
Investment Management - 0.87%
1,439,900 Franklin Resources, Inc. 43,197,000
----------------
Media, Communications and
Entertainment -7.36%
2,290,000 ADC Telecommunications, Inc. * 48,376,250
1,730,000 Cincinnati Bell Inc. 44,980,000
3,380,000 General Motors Corporation - Class H * 124,426,250
2,194,900 Loral Space & Communications Ltd. * 32,374,775
420,866 Pulitzer Publishing Company 33,301,022
2,417,441 Qwest Communications International Inc. * 75,696,121
285,000 USA Networks, Inc. * 5,539,688
----------------
364,694,106
----------------
Real Estate - 3.85%
3,348,900 Corrections Corporation of America * 45,419,456
1,500,000 Crescent Real Estate Equities, Inc. 37,875,000
611,327 Meditrust Corp., Paired ctf. 10,430,767
1,085,300 National Health Investors, Inc. 33,644,300
666,828 National Health Realty, Inc. + 9,752,360
1,200,000 Reckson Associates Realty Corp. 28,200,000
2,127,905 Ventas, Inc. * 25,268,872
----------------
190,590,755
----------------
Retail Trade - 5.49%
1,850,000 AutoZone, Inc. * 45,556,250
1,854,100 Consolidated Stores Corporation * 36,386,712
1,500,000 Home Depot, Inc. (The) 59,250,000
1,474,000 Kohl's Corporation * 57,486,000
2,068,300 OfficeMax, Inc. * 20,295,194
1,200,000 Walgreen Co. 52,875,000
----------------
271,849,156
----------------
Technology - 0.98%
117,100 Electronic Data Systems Corp. 3,886,256
1,050,000 Motorola, Inc. 44,821,875
----------------
48,708,131
----------------
Transportation - 0.72%
2,147,089 Heartland Express, Inc. * + 35,426,969
----------------
Miscellaneous - 5.34%
3,959 Berkshire Hathaway Inc. - Class A * 235,956,400
38 Berkshire Hathaway Inc. - Class B * 75,734
960,000 Leucadia National Corporation 28,140,000
----------------
264,172,134
----------------
TOTAL COMMON STOCKS
(cost $2,361,296,791) 4,334,071,608
--------------
SHORT-TERM INVESTMENTS - 12.38%
Commercial Paper - 12.04%
$10,000,000 Levi Strauss & Company
5.72%, due October 1, 1998 10,000,000
8,250,000 Lockheed Martin Corporation
5.68%, due October 1, 1998 8,250,000
29,000,000 Tyson Foods, Inc.
5.61%, due October 2, 1998 28,995,481
9,000,000 Houston Industries, Inc.
5.70%, due October 5, 1998 8,994,300
21,000,000 Cox Enterprises, Inc.
5.77%, due October 6, 1998 20,983,375
15,000,000 Houston Industries, Inc.
5.68%, due October 7, 1998 14,985,800
9,061,000 ConAgra, Inc.
5.70%, due October 8, 1998 9,050,957
14,000,000 ConAgra, Inc.
5.70%, due October 8, 1998 13,984,483
15,000,000 Levi Strauss & Company
5.72%, due October 9, 1998 . 14,980,933
4,000,000 Quad/Graphics, Inc.
5.70%, due October 9, 1998 3,994,933
9,000,000 Cox Enterprises, Inc.
5.68%, due October 13, 1998 8,982,960
26,110,000 Fiserv, Inc.
5.70%, due October 13, 1998 26,060,391
7,000,000 Marriott International, Inc.
5.84%, due October 13, 1998 6,986,359
14,000,000 Cox Enterprises, Inc.
5.68%, due October 14, 1998 13,971,284
5,000,000 Quad/Graphics, Inc.
5.70%, due October 14, 1998 4,989,708
20,000,000 Union Pacific Resources Group, Inc.
5.70%, due October 14, 1998 19,958,833
10,000,000 Lockheed Martin Corporation
5.66%, due October 15, 1998 9,977,989
10,000,000 Marriott International, Inc.
5.72%, due October 15, 1998 9,977,756
12,500,000 Lockheed Martin Corporation
5.67%, due October 16, 1998 12,470,469
7,400,000 Sprint Capital Corporation
5.70%, due October 16, 1998 7,382,425
12,000,000 ConAgra, Inc.
5.63%, due October 19, 1998 11,966,220
13,000,000 Levi Strauss & Company
5.72%, due October 20, 1998 12,960,754
10,000,000 PanAmSat Corporation
5.70%, due October 20, 1998 9,969,917
7,000,000 Lockheed Martin Corporation
5.66%, due October 21, 1998 6,977,989
5,000,000 Tyson Foods, Inc.
5.63%, due October 21, 1998 4,984,361
5,551,000 Fiserv, Inc.
5.65%, due October 22, 1998 5,532,705
17,000,000 Marriott International, Inc.
5.72%, due October 22, 1998 16,943,277
3,615,000 Schreiber Foods, Inc.
5.65%, due October 22, 1998 3,603,086
3,600,000 Universal Foods Corporation
5.65%, due October 22, 1998 3,588,135
3,450,000 Applied Power Inc.
5.70%, due October 23, 1998 3,437,983
10,000,000 PanAmSat Corporation
5.70%, due October 23, 1998 9,965,167
13,350,000 Raytheon Company
5.67%, due October 23, 1998 13,303,742
18,650,000 Boston Scientific Corporation
5.73%, due October 26, 1998 18,575,789
10,000,000 Torchmark Corporation
5.65%, due October 26, 1998 9,960,764
20,000,000 Cox Enterprises, Inc.
5.68%, due October 27, 1998 19,917,956
6,000,000 Applied Power Inc.
5.70%, due October 28, 1998 5,974,350
10,000,000 Houston Industries, Inc.
5.70%, due October 28, 1998 9,957,250
9,500,000 Lockheed Martin Corporation
5.67%, due October 29, 1998 9,458,105
6,391,000 Lockheed Martin Corporation
5.60%, due October 29, 1998 6,363,164
3,900,000 Quad/Graphics, Inc.
5.70%, due October 29, 1998 3,882,710
5,000,000 Universal Foods Corporation
5.45%, due October 29, 1998 4,978,805
10,000,000 Applied Power Inc.
5.70%, due October 30, 1998 9,954,083
9,500,000 Fiserv, Inc.
5.70%, due October 30, 1998 9,456,379
5,000,000 Quad/Graphics, Inc.
5.70%, due October 30, 1998 4,977,042
16,000,000 Marriott International, Inc.
5.50%, due November 2, 1998 15,921,778
11,000,000 Houston Industries, Inc.
5.50%, due November 3, 1998 10,944,542
16,000,000 Cox Enterprises, Inc.
5.65%, due November 5, 1998 15,912,111
2,500,000 Banta Corporation
5.70%, due November 6, 1998 2,485,750
5,000,000 DeKalb Genetics Corporation
5.70%, due November 6, 1998 4,971,500
16,000,000 Cox Enterprises, Inc.
5.63%, due November 9, 1998 15,902,413
3,500,000 Cox Enterprises, Inc.
5.67%, due November 10, 1998 3,477,950
10,000,000 Lockheed Martin Corporation
5.61%, due November 12, 1998 9,934,550
4,000,000 Union Pacific Resources Group, Inc.
5.68%, due November 12, 1998 3,973,493
3,000,000 Banta Corporation
5.45%, due November 13, 1998 2,980,471
5,000,000 Manpower Inc.
5.45%, due November 13, 1998 4,967,451
8,000,000 Quad/Graphics, Inc.
5.45%, due November 13, 1998 7,947,922
9,000,000 Cox Communications, Inc.
5.68%, due November 18, 1998 8,931,840
6,455,000 Manpower Inc.
5.65%, due November 23, 1998 6,401,307
10,000,000 Levi Strauss & Company
5.62%, due December 1, 1998 9,904,772
--------------
596,326,019
--------------
Variable Rate Demand Notes - 0.34%
5,343,243 General Mills, Inc.
4.95% due October 1, 1998 5,343,243
3,522,198 Sara Lee Corporation
4.94%, due October 1, 1998 3,522,198
3,561,179 Pitney Bowes Credit Corporation
4.95%, due October 1, 1998 3,561,179
3,097,126 Warner-Lambert Company
4.96%, due October 1, 1998 3,097,126
1,445,546 Wisconsin Electric Power Company
4.96%, due October 1, 1998 1,445,546
--------------
16,969,292
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $610,413,593) 613,295,311
--------------
TOTAL INVESTMENTS
(cost $2,971,710,384) 4,947,366,919
--------------
CASH AND RECEIVABLES, NET OF
LIABILITIES - 0.12% 5,951,464
--------------
TOTAL NET ASSETS (Basis of
percentages disclosed above) $4,953,318,383
--------------
--------------
* Nondividend paying security.
+ This company is affiliated with the Fund as defined in Section 2(a)(3)
of the Investment Company Act of 1940, in that the Fund holds 5% or more of
its outstanding voting securities. (Note 5)
</TABLE>
The accompanying notes to financial statements
are an integral part of this schedule.
Statement of Assets and Liabilities
September 30, 1998 (unaudited)
- -------------------------------------------------------------------------------
ASSETS:
Investments in securities at market value (Note 1 (a)) -
Nonaffiliated issuers (cost $2,714,622,240) -
see accompanying schedule of investments......... $4,535,277,883
Affiliated issuers (cost $257,088,144) -
see accompanying schedule of investments (Note 5) 412,089,036
--------------
Total investments....................... 4,947,366,919
--------------
Receivables --
Investment securities sold................... 23,491,367
Dividends and interest....................... 1,932,453
--------------
Total receivables....................... 25,423,820
--------------
Total assets............................ 4,972,790,739
--------------
LIABILITIES:
Payables --
Investment securities purchased.............. 16,238,578
Management fee (Note 2)...................... 2,671,168
Other payables and accrued expenses.......... 562,610
--------------
Total liabilities....................... 19,472,356
--------------
Total net assets........................ $4,953,318,383
--------------
--------------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding............... $2,596,269,211
Net unrealized appreciation on
investments (Note 3)............................. 1,972,774,817
Accumulated undistributed net realized
gains on investments............................. 365,689,888
Accumulated undistributed net investment income.. 18,584,467
--------------
$4,953,318,383
--------------
--------------
NET ASSET VALUE PER SHARE ($.50 par value, 200,000,000 shares authorized)
offering price and redemption price ($4,953,318,383/64,108,817 shares
outstanding)..................................... $77.26
------
------
The accompanying notes to financial statements
are an integral part of this statement.
Statement of Operations
For the Six Months Ended September 30, 1998 (unaudited)
- -------------------------------------------------------------------------------
INCOME:
Dividends --
Nonaffiliated issuers ....................... $ 28,165,283
Affiliated issuers (Note 5).................. 3,535,361
Interest.......................................... 10,022,876
Other............................................. 289,227
--------------
41,830,747
--------------
EXPENSES:
Management fee (Note 2)........................... 18,544,212
Transfer agent fees............................... 964,356
Postage and mailing fees.......................... 149,985
Custodian fees.................................... 142,278
Printing fees..................................... 69,612
Registration fees................................. 42,599
Telephone fees.................................... 39,230
Legal fees........................................ 16,596
Audit and tax consulting fees..................... 10,950
Directors' fees................................... 7,593
Other operating expenses.......................... 2,501
--------------
19,989,912
--------------
Net investment income................... 21,840,835
--------------
NET REALIZED GAINS ON INVESTMENTS:
Nonaffiliated issuers ............................ 353,908,670
Affiliated issuers (Note 5) ...................... 11,887,413
--------------
365,796,083
--------------
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (1,297,869,826)
--------------
Net loss on investments...................... (932,073,743)
--------------
Net decrease in net assets resulting
from operations.............................. $ (910,232,908)
--------------
--------------
The accompanying notes to financial statements
are an integral part of this statement.
Statements of Changes in Net Assets
For the Six Months Ended September 30, 1998 (unaudited)
and the Year Ended March 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended 9/30/98 1998
------------- --------------
OPERATIONS:
<S> <C> <C>
Net investment income................................................ $ 21,840,835 $ 21,616,712
Net realized gains on investments.................................... 365,796,083 436,911,653
Net increase (decrease) in unrealized appreciation on investments.... (1,297,869,826) 1,553,035,607
-------------- --------------
Net increase (decrease) in net assets resulting
from operations........................................... (910,232,908) 2,011,563,972
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.1340 and $0.3616 per share, respectively)...................... (8,440,178) (21,461,299)
Distributions from net realized gains on investment transactions
($2.4716 and $5.8002 per share, respectively)...................... (155,677,191) (344,374,893)
-------------- --------------
Total distributions......................................... (164,117,369) (365,836,192)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (2,512,976 and 3,910,077
shares, respectively).............................................. 224,893,543 316,714,028
Net asset value of shares issued in distributions from net investment
income and net realized gains (1,679,412 and 4,286,977 shares,
respectively) ..................................................... 153,531,781 342,434,753
Cost of shares redeemed (2,940,192 and 4,783,859 shares,
respectively)...................................................... (257,960,946) (387,160,979)
-------------- --------------
Increase in net assets derived from capital share transactions 120,464,378 271,987,802
-------------- --------------
Total increase (decrease) in net assets (953,885,899) 1,917,715,582
-------------- --------------
NET ASSETS, at the beginning of the period (including undistributed net
investment income of $5,183,810 and $5,028,397, respectively)........... 5,907,204,282 3,989,488,700
-------------- --------------
NET ASSETS, at the end of the period (including undistributed net investment
income of $18,584,467 and $5,183,810, respectively)....................$4,953,318,383 $5,907,204,282
-------------- --------------
-------------- --------------
The accompanying notes to financial statements are
an integral part of these statements.
</TABLE>
Notes to Financial Statements
September 30, 1998 (unaudited)
- -------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies --
Nicholas Fund, Inc. (the "Fund") is an open-end, diversified management
investment company registered under the Investment Company Act of 1940,
as amended. The primary objective of the Fund is capital appreciation in
which income is a secondary consideration. To achieve its objective, the
Fund invests in a diversified list of common stocks having growth
potential. The following is a summary of the significant accounting
policies of the Fund:
(a) Each equity security is 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. Market values of most debt
securities are valued at current evaluated bid price. Variable rate
demand notes are valued at cost which approximates market value. 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. Investment transactions are
generally recorded no later than the first business day after the
trade date. Cost amounts, as reported on the schedule of investments
and the statement of assets and liabilities, are the same for Federal
income tax purposes.
(b) Net realized gains and losses on common stocks and bonds were computed
on the basis of specific certificates.
(c) Provision has not been made for Federal income taxes or excise taxes
since the Fund has elected to be taxed as a "regulated investment
company" and intends to distribute substantially all taxable income to
its shareholders and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies.
(d) Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Non-cash dividends, if any, are recorded at fair
market value on date of distribution.
(e) 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.
(2) Investment Adviser and Management Agreement --
The Fund has an agreement with Nicholas Company, Inc. (with whom certain
officers and directors of the Fund are affiliated) to serve as investment
adviser and manager. Under the terms of the agreement, a monthly fee is
paid to the investment adviser based on 1/16th of 1% (.75 of 1% on an
annual basis) of the average net asset value up to and including $50
million and 2/37th of 1% (.65 of 1% on an annual basis) of the average net
asset value in excess of $50 million. Also, the investment adviser may be
reimbursed for clerical and administrative services rendered by its
personnel. This advisory agreement is subject to an annual review by the
Directors of the Fund.
(3) Net Unrealized Appreciation --
Aggregate gross unrealized appreciation (depreciation) as of September 30,
1998, based on investment cost for Federal tax purposes is as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation on investments...... $2,225,698,912
Aggregate gross unrealized depreciation on investments...... (252,924,095)
---------------
Net unrealized appreciation ......................... $1,972,774,817
---------------
---------------
</TABLE>
(4) Investment Transactions --
For the six months ended September 30, 1998, the cost of purchases and the
proceeds from sales of investment securities, other than short-term
obligations, aggregated $656,731,520 and $1,000,829,575, respectively.
(5) Transactions with Affiliates --
Following is an analysis of transactions for the six months ended September
30, 1998 with "affiliated companies" as defined by the Investment Company
Act of 1940:
<TABLE>
<CAPTION>
Share Activity Amount of
------------------------------------------- Capital
Amount of Gain/(Loss)
Dividends Realized
Balance Balance Credited on Sale
Security Name 3/31/98 Purchases Sales 9/30/98 to Income of Shares
------------- ------- --------- ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CSS Industries, Inc. 852,000 -- -- 852,000 $ -- $ --
Foremost Corporation of
America 2,641,331 99,800 -- 2,741,131 491,621 --
General Cable Corporation 2,302,200 235,200 -- 2,537,400 202,485 --
Heartland Express, Inc. 1,272,089 875,000 -- 2,147,089 -- --
Mercury General Corporation 5,045,600 -- 810,000 4,235,600 1,542,835 44,947,705
National HealthCare
Corporation 798,552 230,800 -- 1,029,352 -- --
National Health Realty, Inc. 666,828 -- -- 666,828 443,441 --
Quorum Health Group, Inc. 3,030,000 862,000 -- 3,892,000 -- --
Wallace Computer Services,
Inc.(a) 3,200,000 -- 2,708,200 491,800 672,479 (33,060,292)
----------- -------------
$32353,361 $11,887,413
----------- -------------
----------- -------------
</TABLE>
(a) As of September 30, 1998, the Fund is no longer affiliated with this
company.
Historical Record (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Adjusted for a Two-for-One Stock Split June 15, 1979)
Net Investment Dollar
Net Income Capital Gain Weighted Growth of An
Asset Value Distributions Distributions Price/Earnings Initial $10,000
Per Share Per Share Per Share Ratio** Investment***
----------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
July 14, 1969*............... $ 6.59 $ -- $ -- -- $ 10,000
March 31, 1986............... 35.26 0.5750 0.6100 15.8 times 87,699
March 31, 1987............... 39.94 0.8820 0.1870 16.3 102,387
March 31, 1988............... 32.15 1.8400 4.0340 14.1 98,557
March 31, 1989............... 35.27 1.0250 0.4510 13.2 113,155
March 31, 1990............... 37.72 0.9240 1.0540 14.9 127,360
March 31, 1991............... 42.99 0.7900 0.2250 16.9 149,180
March 31, 1992............... 49.68 0.6790 0.8240 19.4 178,011
March 31, 1993............... 52.91 0.6790 2.0420 18.5 200,098
March 31, 1994............... 51.10 0.8175 1.0470 16.7 200,182
March 31, 1995............... 52.22 0.7070 3.3170 17.2 221,970
March 31, 1996............... 63.81 0.5650 4.0945 21.0 293,836
March 31, 1997.............. 67.11 0.4179 5.3166 21.7 336,973
March 31, 1998............... 93.98 0.3616 5.8002 30.0 508,762
September 30, 1998........... 77.26 0.1340 (a) 2.4716 (a) 27.7 430,169
</TABLE>
*Date of Initial Public Offering.
**Based on latest 12 months accomplished earnings.
***Assuming reinvestment of all distibutions.
(a) Paid May 20, 1998 to shareholders of record May 14, 1998.
Range in quarter end price/earnings
ratios since December 31, 1974
High Low
--------------- ---------------
6/30/98 31.4 3/31/82 8.3
AUTOMATIC INVESTMENT PLAN - AN UPDATE (UNAUDITED)
The Nicholas Family of Funds' Automatic Investment Plan provides a simple
method to dollar cost average into the fund(s) of your choice.
Dollar cost averaging involves making equal systematic investments over an
extended time period. A fixed dollar investment will purchase more shares when
the market is low and fewer shares when the market is high. The automatic
investment plan is an excellent way for you to become a disciplined investor.
The following table illustrates what dollar cost averaging can achieve. Please
note that past performance is no guarantee of future results. Nicholas Company
recommends dollar cost averaging as a practical investment method. It should
be consistently applied for long periods (5-10 years or more) so that
investments are made through several market cycles. The table will be updated
and appear in future financial reports issued by the Nicholas Family of Funds.
<TABLE>
<CAPTION>
Nicholas Fund
______________________________
<S> <C> <C>
$1,000 initial investment on 7-14-69* 9-30-88
$100 invested on the last day of each month following
the date of the initial investment (in years) 29.2 10
Total cash invested $ 36,100 $13,000
Total dividends and capital gains distributions reinvested $265,196 $ 8,352
Total full shares owned 9/30/98 8,318 401
Total market value on 9/30/98 $642,668 $30,981
</TABLE>
The results above assume purchase on the last day of the month. The Nicholas
Automatic Investment Plan actually invests on the 20th of each month (or on the
alternate date specified by the investor). Total market value includes
reinvestment of all distributions.
* Dated initial public offerings.
<TABLE>
<CAPTION>
NICHOLAS FAMILY OF FUNDS DECEMBER DISTRIBUTION SCHEDULE
-------------------------------------------------------
FUND RECORD DATE EX-DIVIDEND DATE PAYMENT DATE
- ---- ----------- ---------------- ------------
<S> <C> <C> <C>
NICHOLAS FUND 12/28/98 12/29/98 12/31/98
NICHOLAS II 12/22/98 12/23/98 12/31/98
NICHOLAS LIMITED
EDITION 12/29/98 12/30/98 12/31/98
NICHOLAS EQUITY
INCOME 12/29/98 12/30/98 12/31/98
NICHOLAS INCOME 12/29/98 12/30/98 12/31/98
</TABLE>
Officers and Directors
ALBERT O. NICHOLAS
President and Director
ROBERT H. BOCK
Director
MELVIN L. SCHULTZ
Director
RICHARD SEAMAN
Director
DAVID L. JOHNSON
Executive Vice President
THOMAS J. SAEGER
Executive Vice President and Secretary
DAVID O. NICHOLAS
Senior Vice President
LYNN S. NICHOLAS
Senior Vice President
JEFFREY T. MAY
Senior Vice President and Treasurer
MARK J. GIESE
Vice President
CANDACE L. LESAK
Vice President
KATHLEEN A. EVANS
Assistant Vice President
TRACY C. EBERLEIN
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
414-276-0535 or 800-544-6547
Counsel
DAVIS & KUELTHAU, S.C.
Milwaukee, Wisconsin
Auditors
ARTHUR ANDERSEN 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.
700 North Water Street
Milwaukee, Wisconisn 53202
www.nicholasfunds.com
