April 29, 1997
VIA EDGAR TRANSMISSION
Securities and
Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20540
Re: Nicholas Income Fund, Inc. (the "Fund")
SEC File No. 2-10806
Post-Effective Amendment No. 81
Registration Statement on Form N-1A
Gentlemen:
In connection with the amendment by the Fund of its
registration statement on Form N-1A under Section 8 of the
Investment Company Act of 1940, as amended, and pursuant to the
provisions of Rule 472 and Rule 485 under the Securities Act of
1933, as amended, and pursuant to Regulation S-T relating to
electronic filings, we enclose for filing Post-Effective
Amendment No. 81 to the Registration Statement, including
exhibits relating thereto, marked to show changes effected by the
Amendment.
This Amendment shall be effective on the date of filing, in
accordance with Rule 485(b). As legal counsel to the Fund, we
have prepared the Amendment, and we hereby represent pursuant to
Rule 485(b)(4) that the Amendment does not contain disclosures
which would render it ineligible to become effective pursuant to
Rule 485(b).
Very truly yours,
MICHAEL BEST & FRIEDRICH
/s/ Kate M. Fleming
______________________
Kate M. Fleming
KMF/ljg
As filed with the Securities and Exchange Commission on April 29, 1997
File No. 2-10806
FORM N-1A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 81
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 22
NICHOLAS INCOME FUND, INC.
--------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
700 North Water Street, Milwaukee, Wisconsin 53202
--------------------------------------------------
(Address of Principal Executive Offices)
(414) 272-6133
--------------
(Registrant's Telephone Number, including Area Code)
ALBERT O. NICHOLAS, PRESIDENT
NICHOLAS INCOME FUND, INC.
700 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
Copy to:
KATE M. FLEMING
MICHAEL BEST & FRIEDRICH
100 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(Name and Address of Agent for Service)
It is proposed that the filing will become effective:
x immediately upon filing pursuant to paragraph (b)
on pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on ____________ pursuant to paragraph (a)(2) of Rule 485
Pursuant to Rule 24f-2, the Registrant hereby registers an
indefinite amount of securities. On February 26, 1997,
Registrant filed the necessary Rule 24f-2 Notice and filing fee
with the Commission for its fiscal year ended December 31, 1996.
NICHOLAS INCOME FUND, INC.
CROSS-REFERENCE SHEET
(As required by Rule 481(a))
Part A. Information Required in Prospectus Heading
_______ __________________________________ _______
Item 1. Cover Page............................. Cover Page
Item 2. Synopsis............................... Performance Measurement
Item 3. Condensed Financial Information........ Consolidated Disclosure
of Fund Fees and
Expenses; Financial
Highlights; Management's
Discussion of Fund
Performance
Item 4. General Description of Registrant...... Introduction; Investment
Objectives and Policies;
Investment Restrictions
Item 5. Management of the Fund................. Investment Adviser
Item 5A. Management's Discussion of
Fund Performance....................... Management's Discussion
of Fund Performance
Item 6. Capital Stock and Other Securities..... Transfer of Capital
Stock; Dividends and
Federal Tax Status;
Capital Structure; Annual
Meeting; Shareholder
Reports
Item 7. Purchase of Securities Being Offered.. Purchase of Capital
Stock; Redemption of
Capital Stock; Exchange
Between Funds; Transfer
of Capital Stock;
Determination of Net
Asset Value; Dividend
Reinvestment Plan;
Individual Retirement
Account; Master
Retirement Plan
Item 8. Redemption or Repurchase.............. Purchase of Capital
Stock; Redemption of
Capital Stock
Item 9. Pending Legal Proceedings............. N/A
Part B. Information Required in Statement of Additional Information
_______ ___________________________________________________________
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Table of Contents
Item 12. General Information and History....... Introduction
Item 13. Investment Objectives and Policies.... Investment Objectives,
Policies and Restrictions
Item 14. Management of the Fund................ Investment Adviser;
Management - Directors,
Executive Officers and
Portfolio Managers of the
Fund
Item 15. Control Persons and Principal Holders
of Securities......................... Principal Shareholders
Item 16. Investment Advisory and Other
Services.............................. Investment Adviser;
Custodian and Transfer
Agent; Independent
Auditors and Legal
Counsel
Item 17. Brokerage Allocation.
and other practices................... Brokerage
CROSS-REFERENCE SHEET
(Continued)
Item 18. Capital Stock and Other Securities.... Transfer of Capital
Stock; Dividends,
Distributions and Federal
Tax Status; Capital
Structure; Shareholder
Reports; Annual Meeting
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered.............. Purchase of Capital
Stock; Redemption of
Capital Stock; Exchange
Between Funds; Transfer
of Capital Stock;
Determination of Net
Asset Value; Dividend
Reinvestment Plan;
Individual Retirement
Account; Master (Keogh)
Retirement Plan
Item 20. Tax Status............................ Dividends, Distributions
and Federal Tax Status
Item 21. Underwriters.......................... N/A
Item 22. Calculations of Performance Data...... Performance Measurement
Item 23. Financial Statements.................. Financial Information
Part C. Other Information
_______ _________________
Item 24. Financial Statements and Exhibits..... Part C
Item 25. Persons Controlled By or Under
Common Control with Registrant........ Part C
Item 26. Number of Holders of Securities....... Part C
Item 27. Indemnification....................... Part C
Item 28. Business and Other Connections
of Investment Adviser................. Part C
Item 29. Principal Underwriters................ Part C
Item 30. Location of Accounts and Records...... Part C
Item 31. Management Services................... Part C
Item 32. Undertakings.......................... Part C
NICHOLAS INCOME FUND, INC.
FORM N-1A
PART A: PROSPECTUS
-1-
NICHOLAS INCOME FUND, INC.
PROSPECTUS
700 North Water Street, Suite 1010
Milwaukee, Wisconsin 53202
414-272-6133
800-227-5987
Nicholas Income Fund, Inc. (the "Fund") is an open-end
management investment company whose primary investment objective
is to seek high current income, by investing primarily in junk
bonds, but which still is consistent with the preservation of
capital values. While high current income is the primary
objective, the Fund believes there should be a reasonable
opportunity for long-term improvement in income and capital. The
Fund was originally incorporated in 1929 and is one of the oldest
mutual funds in the United States.
NO-LOAD FUND--NO SALES OR REDEMPTION CHARGE
Investment Adviser
NICHOLAS COMPANY, INC.
Minimum Initial Investment - $500
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SE
CURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE A
CCURACY
OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE ARE SPECULATIVE SECURITIES.
JUNK BONDS TEND TO REFLECT INDIVIDUAL CORPORATE DEVELOPMENTS TO A
GREATER EXTENT, TEND TO BE MORE SENSITIVE TO ECONOMIC CONDITIONS
AND TEND TO HAVE A WEAKER CAPACITY TO PAY INTEREST AND REPAY
PRINCIPAL THAN HIGHER RATED SECURITIES. SEE "INVESTMENT
OBJECTIVES AND POLICIES."
This Prospectus sets forth concisely the information about
the Fund that a prospective investor should know before
investing. Additional information about the Fund has been filed
with the Securities and Exchange Commission in the form of a
Statement of Additional Information, dated April 30, 1997. Upon
request to the Fund at the address and telephone number set forth
above, the Fund will provide copies of the Statement of
Additional Information without charge to each person to whom a
Prospectus is delivered.
April 30, 1997
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
TABLE OF CONTENTS
Page
____
INTRODUCTION................................................ 1
CONSOLIDATED DISCLOSURE OF FUND FEES AND EXPENSES........... 2
FINANCIAL HIGHLIGHTS........................................ 3
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE................. 3
PERFORMANCE MEASUREMENT..................................... 5
INVESTMENT OBJECTIVES AND POLICIES.......................... 5
INVESTMENT RESTRICTIONS..................................... 8
INVESTMENT ADVISER.......................................... 9
PURCHASE OF CAPITAL STOCK................................... 10
REDEMPTION OF CAPITAL STOCK................................. 11
EXCHANGE BETWEEN FUNDS...................................... 13
TRANSFER OF CAPITAL STOCK................................... 14
DETERMINATION OF NET ASSET VALUE............................ 14
DIVIDENDS AND FEDERAL TAX STATUS............................ 14
DIVIDEND REINVESTMENT PLAN.................................. 15
SYSTEMATIC WITHDRAWAL PLAN.................................. 15
INDIVIDUAL RETIREMENT ACCOUNT............................... 15
MASTER RETIREMENT PLAN...................................... 16
CAPITAL STRUCTURE........................................... 16
ANNUAL MEETING.............................................. 16
SHAREHOLDER REPORTS......................................... 16
CUSTODIAN AND TRANSFER AGENT............................... 16
INDEPENDENT AUDITORS AND LEGAL COUNSEL..................... 16
APPENDIX A: Description of Bond Ratings.................... A-1
No person has been authorized to give any information or to
make any representations other than those contained in this
Prospectus and the Statement of Additional Information dated
April 30, 1997. If given or made, any such information or
representations may not be relied upon as having been authorized
by Nicholas Income Fund, Inc.
This Prospectus does not constitute an offer to sell
securities in any state or jurisdiction in which such offering
may not lawfully be made. The delivery of this Prospectus at any
time shall not imply that there has been no change in the affairs
of Nicholas Income Fund, Inc. since the date hereof.
INTRODUCTION
Nicholas Income Fund, Inc. (the "Fund") was originally
organized under Delaware law as a diversified management
investment company through the consolidation in 1930 of two
investment companies. The name of the Fund was changed in 1955
from Wisconsin Investment Company to Wisconsin Fund, Inc., in
1976 to Wisconsin Income Fund, Inc., and in 1983 to Nicholas
Income Fund, Inc. In 1986, the Fund changed its state of
organization to Maryland. Nicholas Company, Inc. (the "Adviser")
became the Adviser to the Fund in November 1977.
The primary investment objective of the Fund is to seek high
current income, by investing primarily in junk bonds, but which
still is consistent with the preservation of capital values.
While high current income is the primary objective, the Fund
believes there also should be a reasonable opportunity for
long-term improvement in income and capital.
The Fund may invest up to 50% of its total net assets in
securities of electric companies or systems. The Fund provides
each individual investor with diversification by investing in the
securities of many different companies in a variety of industries
and furnishes experienced management to select and watch over its
investments. The resources of many investors are combined and
each individual investor has an interest in every one of the
securities owned by the Fund. As an open-end investment company,
the Fund will redeem any of its outstanding shares on demand by
the owner at the net asset value next determined following
acceptance of the redemption request. See "Purchase of Capital
Stock" and "Redemption of Capital Stock" for information
regarding how to purchase and redeem shares of the Fund.
The Fund's investments are subject to market fluctuations
and risks inherent in all securities, and there can be no
assurance the Fund's objectives will be realized. Investment in
the Fund is not intended as a complete investment program, and
would not be suitable for investors unable to undertake the risks
involved.
CONSOLIDATED DISCLOSURE OF FUND FEES AND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................. None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Redemption Fees (as a percentage of redemption
proceeds, if applicable)(1).......................... None
Exchange Fee(2)........................................ None
ANNUAL FUND OPERATING EXPENSES(3) (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees........................................ 0.39%
12b-1 Fees............................................. None
Other Expenses......................................... 0.16%
Total Fund Operating Expenses.......................... 0.55%
- -------------
(1) There is a fee of up to $12.00 for federal fund wire
redemptions.
(2) There is a $5.00 fee for telephone exchanges only.
(3) Annual Fund Operating Expenses are based on expenses incurred
for the fiscal year ended December 31, 1996.
<TABLE>
EXAMPLE
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
A shareholder would pay the
following expenses on a $1,000
investment, assuming: (1) 5%
annual return and (2) redemption
at the end of each time period.............. $6 $18 $31 $69
</TABLE>
This Example should not be considered a representation of past
or future expenses. Actual expenses may be
greater or lesser than those shown.
The purpose of the table is to assist the prospective
investor in understanding the various costs and expenses that an
investor in the Fund will bear directly and indirectly. For a
description of "Management Fees" and "Other Expenses," see
"Investment Adviser."
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
The following Financial Highlights of the Fund for the ten
years ended December 31, 1996, have been audited by Deloitte &
Touche LLP, independent auditors, whose report is included in the
Fund's Annual Report for the fiscal year ended December 31, 1996.
The table should be read in conjunction with the financial
statements and related notes included in the Fund's Annual Report
which is incorporated herein by reference.
<TABLE>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR......... $3.42 $3.21 $3.52 $3.33 $3.34 $3.01 $3.44 $3.68 $3.64 $4.01
INCOME FROM NVESTMENT
OPERATIONS:
Net investment income... .30 .30 .30 .30 .31 .35 .39 .38 .38 .38
Net gains or (losses) on
securities (realized and
unrealized)............. .11 .21 (.31) .13 .03 .33 (.43) (.24) .03 (.28)
Total from investment
operations.......... .41 .51 (.01) .43 .34 .68 (.04) .14 .41 .10
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net
investment income)..... (.30) (.30) (.30) (.29) (.30) (.35) (.39) (.38) (.37) (.47)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF YEAR............. $3.53 $3.42 $3.21 $3.52 $3.38 $3.34 $3.01 $3.44 $3.68 $3.64
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN.............. 12.37% 16.16% (0.17)% 12.95% 10.33% 23.05% (1.03)% 3.94% 11.55% 2.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions).............. $185.7 $162.1 $140.9 $158.3 $119.1 $79.9 $60.6 $75.4 $78.2 $69.6
Ratio of expenses to
average net assets...... .55% .58% .59% .62% .69% .76% .77% .81% .83% .86%
Ratio of net investment
income to average net
assets.................. 8.55% 8.72% 8.75% 8.42% 9.23% 10.70% 11.74% 10.46% 10.03% 9.79%
Portfolio turnover rate... 33.2% 29.2% 29.2% 39.1% 56.1% 27.5% 40.4% 39.6% 11.9% 47.5%
- ---------------------------
*The Fund distributed no capital gains for the time periods listed.
</TABLE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The primary objective of the Fund is to seek high current
income, by investing primarily in junk bonds, but which still is
consistent with the preservation and conservation of capital
values. At December 31, 1996, 80.8% of the Fund's total net
assets were invested in rated and unrated corporate debt
securities, compared to 85.2% at December 31, 1995. The Fund's
investments in equity securities increased to 10.2% of the Fund's
total net assets at December 31, 1996 compared to 9.5% at
December 31, 1995. Of the Fund's total net assets at December
31, 1996, 0.6% were invested in corporate debt securities
rated BBB by Standard & Poor's (compared to 0.7% at December 31,
1995); 24.2% rated BB (compared to 28.2% at December 31, 1995);
49.4% rated B (compared to 51.2% at December 31, 1995); and
6.6% unrated but believed to be equivalent to a BB or B rating
(compared to 5.1% at December 31, 1995). During 1996, the Adviser
also continued to emphasize diversification of investments, with
the largest holding accounting for only 3.63% of the Fund's
total net assets at December 31, 1996. The Adviser also
attempts to reduce the Fund's price per share volatility by
holding fixed income securities with intermediate maturities. At
December 31, 1996, the dollar weighted maturity of the Fund's
bond portfolio was 6.8 years.
In 1996, the Fund had an average annual total return of
12.37% (distributions reinvested), reflecting the strong
performance of the Fund's lower quality bond holdings during
1996. At December 31, 1996, the Fund's 30-day SEC yield
(annualized) was 8.32%. 1996 was marked by stability in
short-term interest rates, as the Federal Reserve Board lowered
its Federal Funds target rate in January 1996 by .25% to 5.25%
and kept it unchanged throughout the remainder of 1996. The
overall bond market in 1996 also remained relatively flat.
Despite the relatively flat interest rate environment and bond
performance in 1996 the Fund still produced a strong total
return, primarily as a result of its lower quality bond holdings.
Set forth below is a comparison of the initial account value
and subsequent account values at the end of each of the most
recently completed ten fiscal years of the Fund, assuming a
$10,000 investment in the Fund at the beginning of the first
fiscal year, to the same investment over the same periods in the
Lehman Brothers Intermediate High Yield Corporate Bond Index.
COMPARISON OF CHANGE IN VALUE OF $10,000.00
INVESTMENT IN NICHOLAS INCOME FUND, INC.
AND LEHMAN BROTHERS INTERMEDIATE HIGH YIELD
COMPOSIT BOND INDEX
Nicholas Income Lehman Brothers Intermediate
Fund, Inc High Yield Composite Bond Index
DATE Return Return
_________________ ___________ _______________________________
December 31, 1986 $10,000.00 $10,000.00
December 31, 1987 $10,253.40 $10,448.68
December 31, 1988 $11,437.01 $11,698.84
December 31, 1989 $11,887.35 $11,918.70
December 31, 1990 $11,765.25 $10,876.90
December 31, 1991 $14,477.12 $15,546.47
December 31, 1992 $15,971.90 $18,083.22
December 31, 1993 $18,041.09 $21,016.87
December 31, 1994 $18,010.43 $20,985.35
December 31, 1995 $20,920.91 $24,620.01
December 31, 1996 $23,508.83 $27,621.19
The Fund's average annual total returns for the one, five
and ten year periods ended on the last day of the most recent
fiscal year are as follows:
One Year Five Years Ten Years
Ended Ended Ended
December 31, 1996 December 31, 1996 December 31, 1996
__________________ _________________ __________________
Average Annual
Total Return 12.37% 10.18% 8.92%
Total returns are historical and include change in share
price and reinvestment of dividend and capital gain
distributions. Past performance is not predictive of future
performance. Principal value and return will fluctuate so an
investment, when redeemed, may be worth more or less than
original cost.
PERFORMANCE MEASUREMENT
The Fund may from time to time include its "total return,"
"average annual total return," "yield" and "distribution rate" in
advertisements or in information furnished to present and
prospective shareholders. All performance figures are based on
historical earnings and are not intended to indicate future
results. The "total return" of the Fund is expressed as a ratio
of the increase (or decrease) in value of a hypothetical
investment in the Fund at the end of a measuring period to the
amount initially invested. The "average annual total return" is
the total return discounted for the number of represented time
periods and is expressed as a percentage. The rate represents
the annual rate achieved on the initial investment to arrive at
the ending redeemable value. The ending value assumes
reinvestment of dividends and capital gains and the reduction of
account charges, if any. This computation does not reflect any
sales load or other nonrecurring charges, since the Fund is not
subject to such charges.
The "30-day yield" of the Fund is calculated by dividing the
Fund's net investment income per share, as defined by the
Securities and Exchange Commission, for the 30-day period by the
net asset value per share on the last day of the stated period.
Net investment income represents dividends and interest generated
by the Fund's portfolio securities reduced by all expenses and
any other charges that have been applied to all shareholder
accounts. The calculation assumes the 30-day net investment
income is compounded monthly for six months and then annualized.
The Fund's distribution rate is calculated by annualizing the
most recent per share income distribution and dividing by the net
asset value per share on the last day of the period. Generally,
the distribution rate reflects the amounts actually paid to
shareholders at a point in time and is based on book income,
whereas the yield reflects the earning power, net of expenses, of
the Fund's portfolio securities at a point in time. The Fund's
yield may be more or less than the amount actually distributed to
shareholders. Methods used to calculate advertised yields and
total returns are standardized for all bond and stock mutual
funds by the Securities and Exchange Commission.
All performance measurements will vary from time to time
depending upon market conditions, the composition of the Fund's
portfolio, operating expenses, and the distribution policy as
determined by the Board of Directors. These factors should be
considered when evaluating the Fund's performance. For
additional information regarding the calculation of these
performance data, see the Statement of Additional Information.
In sales materials, reports and other communications to
shareholders, the Fund may compare its performance to certain
indices. The Fund also may include evaluations of the Fund
published by nationally recognized financial publications and
ranking services, such as Forbes, Money, Financial World, Lipper
Analytical Services Mutual Fund Performance Analysis and
Morningstar Mutual Funds.
INVESTMENT OBJECTIVES AND POLICIES
The Fund has adopted primary investment objectives, which
are fundamental policies. The Fund also has adopted secondary
investment objectives and certain other policies which are not
fundamental and may be changed by the Board of Directors without
shareholder approval. However, any such change will be made only
upon advance notice to shareholders. Such changes may result in
the Fund having secondary investment and other policy objectives
different from the objectives which a shareholder considered
appropriate at the time of investment in the Fund.
The primary investment objective of the Fund is to seek to
obtain high current income, by investing primarily in junk bonds,
but which still is consistent with the preservation of capital
values. While high current income is the primary objective,
management believes there also should be reasonable opportunity
for long-term improvement in income. While the relatively longer
average maturities and the lower-rated characteristics of the
bonds held by the Fund may expose the Fund to greater volatility
due to the interest rate and credit risks involved, the Fund's
objective also is to attempt to preserve capital values as well.
In selecting investments for the Fund, along with looking to
obtain higher current income, the Adviser considers the prospects
for preserving capital values, and performs its own in-depth
analysis on the credit quality of the issuer and the longer-term
outlook for interest rate movement. As a result, the Adviser
attempts to mitigate the potential interest rate and credit risk
volatility by selecting investments which the Adviser believes
also offer reasonable prospects for the preservation of capital
values. There can be no assurance, however, that the primary
investment objective of the Fund will be realized, nor can there
be any assurance against possible loss in value of the Fund's
portfolio.
The Fund may invest up to 50% of its total net assets taken
at market in securities of electric companies and systems. All
other assets of the Fund not concentrated in electrical utility
securities are diversified as to companies and not concentrated
by industries. The electrical utility industry is engaged in the
generation and distribution of electricity to residential,
commercial and industrial customers. Characteristics of the
electrical utility industry include geographic diversification,
supervision and regulation by state and federal agencies, a
record of steady growth and an industry that is of extreme
importance to the well-being of the country. The industry is
subject to the following potential problems: increased cost of
fuel supplies, escalating costs in connection with completing
nuclear generating facilities due to revised construction plans
and delays in obtaining operating licenses, the necessity of
installing costly pollution control equipment, and having
electricity rates controlled by state and federal regulatory
agencies. Rate increases often lag behind cost increases to the
electric utilities.
The Fund will invest at least 25% and up to 50% of its total
net assets taken at market in securities of electric companies
and systems within one month subsequent to the end of the third
consecutive month, as determined at month end (the "Phase In
Period"), when the yield to maturity based on the Lehman Brothers
Intermediate Utility Bond Index is five basis points greater than
the yield to maturity based on the Lehman Brothers Intermediate
Baa Corporate Bond Index. The Fund will invest less than 25% of
its total net assets taken at market in securities of electric
companies and systems within one month subsequent to the end of
the third consecutive month, as determined at month end (the
"Phase Out Period"), when the yield to maturity based on the
Lehman Brothers Intermediate Utility Bond Index is less than five
basis points over the yield to maturity based on the Lehman
Brothers Intermediate Baa Corporate Bond Index. The Adviser has
chosen to use these Lehman Brothers indexes as an indication of
the general trends of yields for securities of electric companies
and systems and for securities of non-electric companies and
systems, even though the Adviser may invest in lower grade
securities and may invest in shorter and longer term securities.
There is no assurance that the changes in the concentration
policy will improve the performance of the Fund, nor can there be
any assurance that the Fund's performance will equal or surpass
the performance indicated by the indexes. The Adviser may
purchase securities of electric companies and systems during the
Phase Out Period and may purchase securities of non-electric
companies and systems during the Phase In Period which may
increase transaction costs if these securities have to be sold
before the end of such periods. The Adviser believes, however,
that transaction costs may be kept to a minimum by allowing the
one month Phase In and Phase Out Periods. The portfolio changes
as a result of this investment policy may generate realized
capital gains which would be distributed to the shareholders, and
may require capital gain taxes to be paid by the shareholders.
Over the last three years, there has been no Phase In Period or
Phase Out Period; at December 31, 1994, 1995 and 1996, the Fund
had approximately 10.40%, 6.66% and 2.13%, respectively, of its
total assets invested in securities of electric companies and
systems.
The Fund may invest in various types of securities,
including, but not limited to, senior fixed income securities
such as bonds, debentures and preferred stocks, senior securities
convertible into common stocks, and common stocks. The Fund's
debt security investments, including both short-term and
long-term investments, are expected to include unrated securities
and securities with speculative characteristics. However, the
Fund will not invest in securities rated below B by Moody's
Investors Service, Inc. ("Moody's") or by Standard & Poor's
Corporation ("Standard & Poor's") at the time of purchase. The
market value of such securities rated Baa, Ba or B by Moody's or
BBB, BB or B by Standard & Poor's tend to reflect individual
corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general
level of interest rates. Such lower rated securities also tend
to be more sensitive to economic conditions than higher rated
securities. Because the market for lower rated securities may be
thinner and less active than for higher rated securities, there
may be market price volatility for these securities and limited
liquidity in the resale market. Factors adversely impacting the
market value of high yielding, high risk securities will
adversely impact the Fund's net asset value. The Fund also may
incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal or interest
on its portfolio holding. In addition to relying, in part, on
the ratings assigned to the debt securities, the Fund also will
rely on the Adviser's judgment, analysis and experience in
evaluating the creditworthiness of the issuer. In this
evaluation, the Adviser will consider, among other things, the
issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters. The achievement of
the Fund's investment objectives may be more dependent on the
Adviser's own credit analysis than is the case for higher quality
debt securities.
Since some issuers do not seek ratings for their securities,
unrated securities will be considered for investment by the Fund,
but only when the Adviser believes the financial condition of the
issuers of such securities and/or protection afforded by the
terms of the securities limit the risk to the Fund to a degree
comparable to that of rated securities in which the Fund may
invest. Although unrated securities are not necessarily of lower
quality than rated securities, the market for them may not be as
broad and thus they may carry greater market risk and higher
yield than rated securities. These factors may have the effect
of limiting the availability of securities for purchase by the
Fund and also may limit the ability of the Fund to sell such
securities at their fair market value either to meet redemption
requests or in response to changes in the economy or in the
financial markets.
High yielding, high risk fixed income securities frequently
have call or buy-back features which would permit an issuer to
call or repurchase the security from the Fund. If a call were
exercised by the issuer during periods of declining interest
rates, the Fund would likely have to replace such called security
with a lower yielding security, thus decreasing the net
investment income to the Fund and dividends to shareholders.
From time to time, proposals have been discussed regarding new
legislation designed to limit the use of certain high yielding,
high risk securities by issuers in connection with leveraged
buy-outs, mergers and acquisitions, or to limit the deductibility
of interest payouts on such securities. Such proposals, if
enacted into law, could negatively affect the financial condition
of issuers of high yield, high risk securities by removing or
reducing a source of future financing, and could negatively
affect the value of specific high yield, high risk issues and the
high yield, high risk market in general. However, the likelihood
of any such legislation or the effect thereof is uncertain.
An investment in the Fund may be considered more speculative
than an investment in shares of a fund which invests primarily in
higher rated debt securities. All investments will be made in
conformance with the Fund's primary investment objective which is
to seek to obtain high current income, consistent with the
preservation and conservation of capital values. While the risk
of investing in lower rated securities with speculative
characteristics is greater than the risk of investing in higher
rated securities, the Fund will attempt to minimize this risk
through diversification of its investments and by analysis of
each issuer and its ability to make timely payments of income and
principal. As of December 31, 1996, 80.8% of the Fund's total
net assets were invested in rated and unrated corporate debt
securities. As of December 31, 19956, of the Fund's total net
assets, 0.6% were invested in corporate debt securities rated BBB
by Standard & Poor's, 24.2% rated BB, 49.4% rated B, none were
rated CCC, CC, C or D, and approximately 6.6% unrated by Standard
& Poor's or Moody's but believed to be equivalent to a BB or B
rating. The Fund will not invest in securities rated below B by
Moody's or by Standard & Poor's at the time of purchase; however,
subsequent to purchase, the ratings of the securities so
purchased may fall below B. A description of the rating grades
appears in Appendix A of this Prospectus.
The Fund may invest in short-term debt of the U. S.
Government or its agencies, commercial paper, bank certificates
of deposit, and "repurchase" agreements up to 20% of its total
net assets. The Fund may invest in commercial paper rated A-1 or
A-2 by Standard & Poor's or Prime-1 or Prime-2 by Moody's, or
unrated money market instruments which are of comparable quality.
The proportions invested in each type of security classification
are varied from time to time in accordance with management's
interpretation of economic conditions and underlying security
values.
The Fund has reserved the right to invest in repurchase
agreements as a temporary defensive measure. Repurchase
agreements may be entered into only with a member bank of the
Federal Reserve System or a primary dealer in U.S. Government
securities. Under such agreement, the selling bank or primary
dealer agrees to repurchase such securities from the Fund at a
specified time and place. While the obligation is a U.S.
Government security, the obligation of the seller to repurchase
the security is not guaranteed by the U.S. Government, thereby
creating the risk that the seller may fail to repurchase the
security.
Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities
transferred to the purchaser. The Fund will require the seller
to provide additional collateral if the market value of the
securities falls below the repurchase price at any time during
the term of the repurchase agreement. In the event of default by
the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by
the Fund but only constitute collateral for the seller's
obligation to pay the repurchase price. Therefore, the Fund may
suffer time delays and incur costs or losses in connection with
the disposition of the collateral. The Fund also would retain
ownership of the securities in the event of a default under a
repurchase agreement that is construed not to be collateralized
loan. In such event, the Fund also would have rights against the
seller for breach of contract with respect to any losses arising
from market fluctuations following the failure of the seller to
perform.
The Fund may invest in the securities of real estate
investment trusts and other real estate-based securities
(including securities of companies whose assets consist
substantially of real property and interests therein) listed on a
national securities exchange or authorized for quotation on the
National Association of Securities Dealers Automated Quotations
System.
The Fund also may invest in securities which are issued in
private placements pursuant to Section 4(2) of the Securities Act
of 1933, as amended (the "Act"). Such securities are not
registered for purchase and sale by the public under the Act.
The determination of the liquidity of such securities is a
question of fact for the Board of Directors to determine at the
time of purchase and periodically thereafter as circumstances
warrant, based upon the trading markets for the specific
security, the availability of reliable price information and
other relevant information. There may be a risk of little or no
market for resale associated with such private placement
securities if the Fund does not hold them to maturity. In
addition, to the extent that qualified institutional buyers do
not purchase restricted securities pursuant to Rule 144A, the
Fund's investing in such securities may have the effect of
increasing the level of illiquidity in the Fund's portfolio. The
Fund may invest generally up to 10% of its total assets in
securities of other investment companies where no sales charge or
commission is incurred. Investments in the securities of other
investment companies will involve duplication of advisory fees
and certain other expenses.
INVESTMENT RESTRICTIONS
The Fund observes the following restrictions, which are
matters of fundamental policy and cannot be changed without the
approval of the holders of a majority of its outstanding shares
or, if less, 67% of the shares represented at a meeting of
shareholders at which 50% or more of the holders are represented
in person or by proxy. The Fund may not:
1. Purchase the securities of any one issuer, except securities
issued or guaranteed by the United States, or its
instrumentalities or agencies, if immediately after and as a
result of such purchase (a) the market value of the holdings
of the Fund in the securities of such issuer exceeds 5% of
the market value of the Fund's total assets, or (b) the Fund
owns more than 10% of the voting securities of such issuer.
2. Purchase securities of other registered investment
companies, except where no sales charge or commission is
incurred.
3. Purchase or sell real estate or interests in real estate,
commodities or commodity futures. The Fund may invest in
the securities of real estate investment trusts and other
real estate-based securities (including securities of
companies whose assets consist substantially of real
property and interests therein) listed on a national
securities exchange or authorized for quotation on the
National Association of Securities Dealers Automated
Quotations System, but not more than 10% in value of the
Fund's total assets will be invested in real estate
investment trusts nor will more than 25% in value of the
Fund's total assets be invested in the real estate industry
in the aggregate.
4. Borrow money, except as a temporary measure for
extraordinary or emergency purposes and not for investment
purposes. The Fund may borrow from banks up to 10% of its
total assets taken at cost.
5. Act as an underwriter of securities of other issuers.
6. Invest in companies having a record of less than three
years' continuous operation.
7. Write, purchase or sell puts, calls or combinations thereof
or buy on margin or sell short.
8. Mortgage, pledge, hypothecate, or in any manner transfer, as
security for indebtedness, any securities owned or held by
the Fund.
9. Lend money, except for:
(a) the purchase of a portion of an issue of publicly
distributed debt securities;
(b) the purchase of bank certificates of deposit or
commercial paper;
(c) the purchase of debt securities issued by the U.S.
Treasury or by other federal agencies,
instrumentalities or corporations with a
simultaneous resale of such securities to the
seller for later delivery (on an agreed upon
later date or indefinitely), in an amount not
to exceed 20% of the total assets, taken at
market, of the Fund; or
(d) the purchase of a portion of bonds, debentures, or
other debt securities of types commonly
distributed in private placements to financial
institutions, the amount of which is subject to
the Fund's operating policy regarding illiquid
securities.
10. Purchase or retain the securities of any issuer if an
officer or director of the Fund or its Adviser individually
owns more than one-half of one percent (1/2 of 1%) of the
securities of such issuer and, as a group, such persons own
more than 5% of the securities of such issuer.
11. Participate on a joint or joint and several basis in any
securities trading account.
12. Invest in a company for the purpose of exercising management
or control.
13. Concentrate its investment in particular industries, with
the exception of electric companies and systems.
14. The Fund may not issue senior securities in violation of the
Investment Company Act of 1940, as amended.
All percentage limitations apply on the date of investment
by the Fund. In addition to the foregoing restrictions, the
Fund's Board of Directors has adopted the operating policy that
the Fund will not invest more than 15% of its total net assets in
illiquid securities and will not engage in short-term trading.
Furthermore, the Fund has adopted other restrictions to comply
with the securities laws of various states. These restrictions
may be changed by the Board of Directors of the Fund without
shareholder approval.
INVESTMENT ADVISER
Under an investment advisory agreement dated January 15,
1986, Nicholas Company, Inc. (the "Adviser"), 700 North Water
Street, Suite 1010, Milwaukee, Wisconsin 53202, furnishes the
Fund with continuous investment service and is responsible for
overall management of the Fund's business affairs, subject to
supervision of the Fund's Board of Directors.
Nicholas Company, Inc. is the investment adviser to five
other mutual funds and to approximately 35 institutions and
individuals with substantial investment portfolios. The other
funds for which Nicholas Company, Inc. acts as investment adviser
are Nicholas Fund, Inc., Nicholas II, Inc., Nicholas Limited
Edition, Inc., Nicholas Money Market Fund, Inc. and Nicholas
Equity Income Fund, Inc.
The annual fee paid to the Adviser is paid monthly and is
based on the average net assets of the Fund as determined by the
valuations made at the close of each business day of the month.
The annual fee is five-tenths of one percent (0.5 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 four-tenths of one percent (0.4 of 1%). On
average daily net assets over $100,000,000, the fee is further
reduced to an annual rate of three-tenths of one percent (0.3 of
1%). The Adviser has agreed to reduce such management fee by any
operating expenses (other than the management fee) incurred by
the Fund in excess of 0.5 of 1% of average daily net assets. The
Adviser shall reimburse the Fund at the end of any fiscal year in
which the aggregate annual operating expenses exceed such
restrictive percentage.
The Adviser also pays the Fund's officers' salaries, if any,
and directors' fees of directors who are "interested persons" of
the Adviser as defined in the Investment Company Act of 1940, as
amended. The Adviser provides the Fund with personnel to perform
clerical, accounting and other office services. The personnel
rendering such services may be employees of the Adviser and also
may be officers of the Fund who are not officers of the Adviser.
The rates to be paid by the Fund for such personnel for rendering
such services must be agreed upon by the Board of Directors of
the Fund. It is intended such rates will be the actual costs of
the Adviser. All other expenses incurred in the operation of the
Fund, including taxes, interest, fees, commissions, expense of
issue and redemption of shares, registration fees, charges of the
custodian and transfer agent, disinterested officers and
directors' fees and auditing and legal fees are borne by the
Fund.
Albert O. Nicholas is the Portfolio Manager of the Fund and
is primarily responsible for the day-to-day management of the
Fund's portfolio. Mr. Nicholas has been President and a Director
of the Adviser since 1967. He has been Portfolio Manager (or Co-
Portfolio Manager, in the case of Nicholas Fund, Inc. since
November 1996) for, and primarily responsible for the day-to-day
management of, the portfolios of Nicholas Fund, Inc., Nicholas
Equity Income Fund, Inc. and the Fund since the Adviser has
served as investment adviser for such funds. He also was
Portfolio Manager for Nicholas II, Inc. and Nicholas Limited
Edition, Inc. from the date of each such fund's inception until
March 1993. He is a Chartered Financial Analyst. Albert 0.
Nicholas, President and a Director of the Fund, is
also President and a Director of the Adviser. Mr. Nicholas owns
91% of the outstanding voting securities of the Adviser.
PURCHASE OF CAPITAL STOCK
Applications for the purchase of shares are made to
Nicholas Income Fund, Inc., c/o Firstar Trust Company, P.O. Box
2944, Milwaukee, Wisconsin 53201-2944. The Fund has an Automatic
Investment Plan available for shareholders. Anyone interested
should contact the Fund for additional information.
The price per share will be the net asset value next
computed after the time the application is received in proper
order and accepted by the Fund. The determination of the net
asset value for a particular day is applicable to all
applications for the purchase of shares received at or before the
close of trading on the New York Stock Exchange (the "Exchange")
on that day (usually 4:00 p.m., New York time). Accordingly,
purchase orders received on a day the Exchange is open for
trading, prior to the close of trading on that day, will be
valued as of the close of trading on that day. Applications for
purchase of shares received after the close of trading on the
Exchange will be based on the net asset value as determined as of
the close of trading on the next day the Exchange is open.
The Fund does not consider the U.S. Postal Service or other
independent delivery services to be its agents. Therefore,
deposit in the mail or with such services, or receipt at Firstar
Trust Company's Post Office Box, of purchase applications or
redemption requests does not constitute receipt by Firstar Trust
Company or the Fund. Correspondence intended for overnight
courier should not be sent to the Post Office Box address.
OVERNIGHT COURIER DELIVERY SHOULD BE SENT TO FIRSTAR TRUST
COMPANY, THIRD FLOOR, 615 EAST MICHIGAN STREET, MILWAUKEE,
WISCONSIN 53202.
All applications to purchase capital stock are subject to
acceptance or rejection by authorized officers of the Fund and
are not binding until accepted. Applications will not be
accepted unless they are accompanied by payment in U.S. funds.
Payment should be made by check drawn on a U.S. bank, savings and
loan or credit union. The custodian will charge a $15 fee
against, and the Fund may offset any losses to the Fund by
redemption of sufficient shares from, a shareholder's account for
any check returned to the custodian for insufficient funds. It
is the policy of the Fund not to accept applications under
circumstances or in amounts considered disadvantageous for
shareholders. Any accounts (including custodial accounts) opened
without a proper social security number or taxpayer
identification number may be liquidated and distributed to the
owner(s) of record on the first business day following the 60th
day of investment, net of the back-up withholding tax amount.
The Board of Directors has established $500 as the minimum
initial purchase and $100 as the minimum for any subsequent
purchase, except in the case of dividend and distribution
reinvestment. Management reserves the right to waive the
minimums for custodial accounts. The Automatic Investment Plan
has a minimum monthly investment of $50. Due to the fixed
expenses incurred by the Fund in maintaining individual accounts,
the Fund reserves the right to redeem accounts that fall below
the $500 minimum required investment due to shareholder
redemption (but not solely due to a decrease in net asset value
of the Fund). In order to exercise this right, the Fund will
give advance written notice of at least 30 days to the accounts
below such minimum.
Purchase of shares will be made in full and fractional
shares computed to three decimal places. To purchase additional
shares of the Fund by federal wire transfer, please send to:
FIRSTAR BANK MILWAUKEE, N.A.
ABA #0750-00022
TRUST FUNDS, ACCOUNT #112-952-137
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
FOR FURTHER CREDIT TO NICHOLAS INCOME FUND, INC.
[YOUR ACCOUNT NUMBER AND THE TITLE OF THE ACCOUNT]
If a wire purchase is to be an initial purchase, please call
Firstar Trust Company (414-276-0535 or 800-544-6547) with the
appropriate account information prior to sending the wire.
Shares of Common Stock of the Fund may be purchased or sold
through certain broker-dealers, financial institutions or other
service providers ("Processing Intermediaries"). When shares of
Common Stock of the Fund are purchased this way, the Processing
Intermediary, rather than its customer, may be the shareholder of
record. Processing Intermediaries may use procedures and impose
restrictions in addition to or different from those applicable to
shareholders who invest in the Fund directly. A Processing
Intermediary may be required to register as a broker or dealer
under certain state laws. An investor intending to invest in the
Fund through a Processing Intermediary should read the program
materials provided by the Processing Intermediary in conjunction
with this Prospectus. Processing Intermediaries may charge fees
for the services they provide to their customers. Investors who
do not wish to receive the services of a Processing Intermediary,
or pay the fees that may be charged for such services, may want
to consider investing directly with the Fund. Direct purchase or
sale of shares of Common Stock of the Fund may be made without a
sales or redemption charge.
Certificates representing Fund shares purchased will not be
issued unless the shareholder specifically requests certificates
by signed written request to the Fund. Signature guarantees may
be required. Certificates are mailed to requesting shareholders
approximately two weeks after receipt of the request by the Fund.
In no instance will certificates be issued for fractional shares.
When certificates are not requested, the Fund's transfer agent
will credit the shareholder's account with the number of shares
purchased. Written confirmations are issued for all purchases
and redemptions of Fund shares.
REDEMPTION OF CAPITAL STOCK
A shareholder may require the Fund at any time during normal
business hours to redeem his/her shares in whole or in part. If
in writing, redemption requests must be signed by each
shareholder, in the exact manner as the Fund account is
registered, and must state the amount of the redemption and
identify the shareholder account number. When shares are
represented by certificates, redemption is accomplished by
delivering to the Fund, c/o Firstar Trust Company, P.O. Box 2944,
Milwaukee, Wisconsin 53201-2944, the certificate(s) for the full
shares to be redeemed. The certificate(s) must be properly
endorsed or accompanied by instrument of transfer, in either case
with signatures guaranteed by an "eligible guarantor institution"
as defined in Section 240.17Ad-15 of the Code of Federal
Regulations. An "eligible guarantor institution" includes a
bank, a savings and loan association, a credit union, or a member
firm of a national securities exchange. A notary public is not
an acceptable guarantor.
If certificates have not been issued, redemption can be
accomplished by delivering an original signed written request for
redemption addressed to Nicholas Income Fund, Inc., c/o Firstar
Trust Company. Facsimile transmission of redemption requests is
not acceptable. If the account registration is individual, joint
tenants, sole proprietorship, custodial (Uniform Gift to Minors
Act) or general partners, the written request must be signed
exactly as the account is registered. If the account is owned
jointly, both owners must sign. Written confirmations are issued
for all redemptions of Fund shares.
The Fund may require additional supporting documents for
written redemptions made by corporations, executors,
administrators, trustees and guardians. Specifically, if the
account is registered in the name of a corporation or
association, the written request must be accompanied by a
corporate resolution signed by the authorized person(s). A
redemption request for accounts registered in the name of a legal
trust must have a copy of the title and signature page of the
trust agreement on file or be accompanied by the trust agreement
and signed by the trustee(s).
If there is doubt as to what documents or instructions are
necessary in order to redeem shares, please write or call Firstar
Trust Company (414-276-0535 or 800-544-6547), prior to submitting
a written redemption request. A redemption request will not
become effective until all documents have been received in proper
form by Firstar Trust Company. For federal income tax purposes,
a redemption generally is treated as a sale of the shares being
redeemed, with the shareholder recognizing a capital gain or loss
equal to the difference between the redemption price and the
shareholder's cost for the shares being redeemed.
Shareholders who have an individual retirement account
("IRA"), a master retirement plan or other retirement plan must
indicate on their redemption requests whether or not to withhold
Federal income tax. Redemption requests not indicating an
election not to have Federal income tax withheld will be subject
to withholding. Please consult your current Disclosure Statement
for any applicable fees.
The Fund does not consider the U.S. Postal Service or other
independent delivery services to be its agents. Therefore,
deposit in the mail or with such services or receipt at Firstar
Trust Company's Post Office Box of redemption requests does not
constitute receipt by Firstar Trust Company or the Fund. Do not
mail letters by overnight courier to the Post Office Box address.
CORRESPONDENCE MAILED BY OVERNIGHT COURIER SHOULD BE SENT TO
FIRSTAR TRUST COMPANY, THIRD FLOOR, 615 EAST MICHIGAN STREET,
MILWAUKEE, WISCONSIN 53202.
.9 Telephone redemption is automatically extended to all
accounts in the Fund unless this privilege is declined in
writing. This option does not apply to IRA accounts and master
retirement plans for which Firstar Trust Company acts as
custodian. Telephone redemptions can only be made by calling
Firstar Trust Company at 800-544-6547 or 414-276-0535. In an
effort to prevent unauthorized or fraudulent redemption requests
by telephone, the Fund and its transfer agent employ reasonable
procedures to confirm that such instructions are genuine. In
addition to the account registration, you will be required to
provide either the account number or social security number.
Telephone calls will be recorded. Telephone redemption requests
must be received prior to the closing of the New York Stock
Exchange (usually 4:00 p.m., New York time) to receive that day's
net asset value. There will be no exceptions due to market
activity. The maximum telephone redemption is $25,000 per
account/per business day. The maximum telephone redemption for
related accounts is $100,000 per business day. The minimum
telephone redemption is $500 except when redeeming an account in
full.
The Fund reserves the right to refuse a telephone redemption
if it is believed advisable to do so. Procedures for redeeming
Fund shares by telephone may be modified or terminated at any
time by the Fund or Firstar Trust Company. Neither the Fund nor
Firstar Trust Company will be liable for following instructions
communicated by telephone that it reasonably believes to be
genuine.
All redemptions will be processed immediately upon receipt.
Share redemption orders are effected at the net asset value next
determined after receipt of the order in proper form by the Fund.
The Fund will return redemption requests that contain
restrictions as to the time or date redemptions are to be
effected. The Fund ordinarily will make payment for redeemed
shares within seven days after receipt of a request in proper
form, except as provided by the rules of the Securities and
Exchange Commission. Redemption proceeds which are to be wired
normally will be wired on the next business day after a net asset
value is determined. Firstar Trust Company charges a wire
redemption fee of up to $12.00. The Fund reserves the right to
hold payment up to 15 days or until satisfied that investments
made by check have been collected.
The shareholder may instruct Firstar Trust Company to mail
the proceeds to the address of record or to directly mail the
proceeds to a pre-authorized bank account. The proceeds also may
be wired to a pre-authorized account at a commercial bank in the
United States. Firstar Trust Company charges a wire redemption
fee of up to $12.00. Please contact the Fund for the appropriate
form if you are interested in setting your account up with wiring
instructions.
SIGNATURE GUARANTEES
A signature guarantee of each owner is required to redeem
shares in the following situations, for ALL SIZE transactions:
(i) if you change the ownership on your account; (ii) upon
redemption of shares when certificates have been issued for your
account; (iii) when you want the redemption proceeds sent to a
different address than is registered on the account; (iv) for
both certificated and uncertificated shares, if the proceeds are
to be made payable to someone other than the account owner(s);
(v) any redemption transmitted by federal wire transfer to your
bank not previously set up with the Fund; or (vi) if a change of
address request has been received by the Fund or Firstar Trust
Company within 15 days of a redemption request. In addition,
signature guarantees are required for all redemptions of $100,000
or more from any shareholder account in the Nicholas Family of
Funds. A redemption will not be processed until the signature
guarantee, if required, is received in proper form. A notary
public is not an acceptable guarantor.
EXCHANGE BETWEEN FUNDS
If a shareholder chooses to exercise the exchange privilege,
the shares will be exchanged at their next determined net asset
value. When an exchange into the Nicholas Money Market Fund,
Inc. would involve investment of the exchanged amount on a day
when the New York Stock Exchange is open for trading but the
Federal Reserve Banks are closed, shares of the Fund will be
redeemed on the day upon which the exchange request is received;
however, issuance of Nicholas Money Market Fund, Inc. shares may
be delayed an additional day in order to avoid the dilutive
effect on return (i.e., reduction in net investment income per
share) which would result from issuance of such shares on a day
when the exchanged amount cannot be invested. In such a case,
the exchanged amount would be uninvested for this one day period.
Shareholders interested in exercising the exchange privilege must
obtain the appropriate prospectus from Nicholas Company, Inc.
Such an exchange constitutes a sale for Federal tax purposes and
a capital gain or loss generally will be recognized upon the
exchange, depending upon whether the net asset value at the time
is more or less than the shareholder's cost. An exchange between
the Funds involving master retirement (Keogh) or IRA accounts
generally will not constitute a taxable transaction for Federal
income tax purposes.
The privilege may be terminated or modified only upon 60
days advance notice to shareholders. Shareholders are reminded,
however, that Nicholas Limited Edition, Inc. is restricted in
size to ten million shares, and thus the exchange privilege into
that fund may be terminated or modified at a time when that
maximum is reached.
Shares of the Fund may be exchanged for shares of other
investment companies for which Nicholas Company, Inc. serves as
the investment adviser and which permit such exchanges. Nicholas
Company, Inc. is also the investment adviser to Nicholas Fund,
Inc., Nicholas II, Inc., Nicholas Limited Edition, Inc., Nicholas
Money Market Fund, Inc. and Nicholas Equity Income Fund, Inc.
Nicholas Fund, Inc. has an investment objective of capital
appreciation. Nicholas II, Inc. and Nicholas Limited Edition,
Inc. have long-term growth as their investment objective.
Nicholas Money Market Fund, Inc. has an investment objective of
achieving as high a level of current income as is consistent with
preserving capital and providing liquidity. Nicholas Equity
Income Fund, Inc. has an investment objective of reasonable
income, with moderate long-term growth as a secondary
consideration. Exchange of shares can be accomplished in the
following ways:
Exchange by Mail. An exchange of shares of the Fund for
-----------------
shares of other available Nicholas mutual funds will be made
without cost to the investor through written request.
Shareholders interested in exercising the exchange by mail
privilege may obtain the appropriate prospectus from Nicholas
Company, Inc. Signatures required are the same as previously
explained under "Redemption of Capital Stock."
Exchange by Telephone. Shareholders may exchange by
-----------------------
telephone among all funds for which the Nicholas Company, Inc.
serves as investment adviser. Only exchanges of $l,000 or more
may be executed using the telephone exchange privilege. Firstar
Trust Company charges a $5.00 fee for each telephone exchange.
In an effort to avoid the risks often associated with large
market timers, the maximum telephone exchange per account per day
is set at $100,000, with a maximum of $l,000,000 per day for
related accounts. Four telephone exchanges per account during
any twelve month period will be allowed.
Procedures for exchanging Fund shares by telephone may be
modified or terminated at any time by the Fund or Firstar Trust
Company. Neither the Fund nor Firstar Trust Company will be
responsible for the authenticity of exchange instructions
received by telephone. Telephone exchanges can only be made by
calling Firstar Trust Company at 4l4-276-0535 or 800-544-6547.
You will be required to provide pertinent information regarding
your account. Calls will be recorded.
TRANSFER OF CAPITAL STOCK
Shares of the Fund may be transferred in instances such as
the death of a shareholder, change of account registration,
change of account ownership and in cases where shares of the Fund
are transferred as a gift. Documents and instructions to
transfer capital stock can be obtained by writing or calling
Firstar Trust Company (414-276-0535 or 800-544-6547) or Nicholas
Company, Inc. (414-272-6133 or 800-227-5987) prior to submitting
any transfer requests.
DETERMINATION OF NET ASSET VALUE
The net asset value per share will be computed by the
Adviser as of the close of trading on the New York Stock Exchange
on each day the Exchange is open for unrestricted trading. The
net asset value per share is determined by dividing the total
current market value of the assets of the Fund, less its
liabilities, by the total number of shares outstanding at the
time of determination.
Bid prices for debt securities are obtained from the Fund's
pricing service which consults one or more market makers of each
debt security being priced. Debt securities listed on a national
exchange may be priced at the last sale price if the Fund's
pricing service believes that such price represents market value
of the security for institutional trades. The pricing of all
debt securities takes into account the fact that the Fund trades
in institutional size trading units. Common stocks and other
equity-type securities traded on a stock exchange or NASDAQ
ordinarily will be valued on the basis of the last sale price on
the date of valuation or in the absence of any sale on that day,
the closing bid price. Securities for which current quotations
are not readily available and other assets of the Fund are valued
at fair value as determined in good faith by the Fund's Board of
Directors.
DIVIDENDS AND FEDERAL TAX STATUS
Dividends of the Fund, if any, are paid to shareholders on
or about the end of April, July, October and December. In those
years in which sales of portfolio securities result in net
realized capital gains (after utilization of any available
capital loss carryforwards), such gains are distributed to
shareholders in December or January. It is the practice of the
Fund to distribute capital gains in shares of the Fund at net
asset value or, at each shareholder's election, in cash. The
Fund intends to continue to qualify annually as a "regulated
investment company" under the Internal Revenue Code of 1986 and
intends to take all other action required to insure that little
or no Federal income or excise taxes will be payable by the Fund.
For Federal income tax purposes, distributions by the Fund,
whether received in cash or invested in additional shares of the
Fund, will be taxable to the Fund's shareholders, except those
shareholders that are not subject to tax on their income. Long-
term capital gains distributed by the Fund will retain the
character that it had at the Fund level. Income distributed from
the Fund's net investment income and net realized short-term
capital gains are taxable to shareholders as ordinary income.
At the time of purchase of shares, the Fund may have
undistributed income or capital gains included in the computation
of the net asset value per share. Therefore, a dividend or
capital gains distribution received shortly after such purchase
by a shareholder may be taxable to the shareholder, although it
is, in whole or in part, a return of capital and may have the
effect of reducing the net asset value per share.
Under Federal law, some shareholders may be subject to a 31%
"backup withholding" on reportable dividends, capital gain
distributions (if any) and redemption payments. Generally,
shareholders subject to backup withholding will be those (i) for
whom a taxpayer identification number is not on file with the
Fund or who, to the Fund's knowledge, have furnished an incorrect
number; and (ii) who have failed to declare or under-reported
certain income on their Federal returns. When establishing an
account, an investor must certify under penalties of perjury that
the taxpayer identification number supplied to the Fund is
correct and that he is not subject to backup withholding.
The foregoing tax discussion relates solely to Federal
income taxes and is not intended to be a complete discussion of
all Federal tax consequences. Shareholders should consult with a
tax adviser concerning the Federal, state and local tax aspects
of an investment in the Fund.
DIVIDEND REINVESTMENT PLAN
Unless a shareholder elects to accept cash in lieu of
shares, all dividend and capital gain distributions are
automatically reinvested in additional shares of the Fund through
the Dividend Reinvestment Plan. An election to accept cash may
be made in an application to purchase shares or by separate
written notification. All reinvestments are at the net asset
value per share in effect on the dividend or distribution record
date and are credited to the shareholder's account. Shareholders
will be advised of the number of shares purchased and the price
following each reinvestment.
Shareholders may withdraw from or thereafter elect to
participate in the Dividend Reinvestment Plan at any time by
giving written notice to the Transfer Agent. An election must be
received by the Transfer Agent prior to the dividend record date
of any particular distribution for the election to be effective
for that distribution. If an election to withdraw from or
participate in the Dividend Reinvestment Plan is received between
a dividend record date and payment date, it shall become
effective on the day following the payment date. The Fund may
modify or terminate the Dividend Reinvestment Plan at any time on
30 days written notice to participants.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who have purchased or currently own $10,000 or
more of Fund shares at the current market value may open a
Systematic Withdrawal Plan and receive monthly or quarterly
checks for any designated amount. Firstar Trust Company
reinvests all income and capital gain dividends in shares of the
Fund. Shareholders may add shares to, withdraw shares from, or
terminate the Plan, at any time. Each withdrawal may be a
taxable event to the shareholder. Liquidation of the shares in
excess of distributions may deplete or possibly use up the
initial investment, particularly in the event of a market
decline, and withdrawals cannot be considered a yield or income
on the investment. In addition to termination of the Plan by the
Fund or shareholders, the Plan may be terminated by Firstar Trust
Company upon written notice mailed to the shareholders. Please
contact the Nicholas Company for copies of the Plan documents.
INDIVIDUAL RETIREMENT ACCOUNT
Individuals may be able to establish their own tax-sheltered
individual retirement account ("IRA"). The Fund offers a
prototype IRA Plan for adoption by individuals who qualify for
spousal, deductible and non-deductible IRA accounts. As long as
the aggregate IRA contributions meet the Fund's minimum
investment requirement of $500, the Fund will accept any
allocation of such contribution between spousal, deductible and
non-deductible accounts. The acceptability of this calculation
is the sole responsibility of the shareholder. For this reason,
it is advisable for taxpayers to consult with their personal tax
adviser to determine the deductibility of their IRA
contributions.
A description of applicable service fees and application
forms are available upon request from the Fund. The IRA
documents also contain a Disclosure Statement which the Internal
Revenue Service requires to be furnished to individuals who are
considering adopting an IRA. As changes occur from time to time
in existing IRA regulations, it is important that you obtain
up-to-date information from the Fund before opening an IRA.
Because a retirement program involves commitments covering
future years, it is important that the investment objectives of
the Fund be consistent with the participant's retirement
objectives. Premature withdrawals from a retirement plan may
result in adverse tax consequences. See "Redemption of Capital
Stock." Consultation with a tax adviser regarding tax
consequences is recommended.
MASTER RETIREMENT PLAN
The Fund has available a master retirement plan (formerly
called a "Keogh" Plan) for self-employed individuals. Any person
seeking additional information or wishing to participate in the
plan may contact the Fund. Consultation with a tax adviser
regarding tax consequences is recommended.
CAPITAL STRUCTURE
The Fund is authorized to issue one hundred million
(100,000,000) shares of common stock, $.01 par value per share.
Each full share has one vote and all shares participate equally
in dividends and other distributions by the Fund, and in the
residual assets of the Fund in the event of liquidation. When
issued, the shares are fully paid and non-assessable. There are
no conversion or sinking fund provisions applicable to shares,
and shareholders have no preemptive rights and may not cumulate
their votes in the election of directors. Shares are redeemable
and are transferable. Fractional shares entitle the shareholder
to the same rights as whole shares.
ANNUAL MEETING
Under the laws of the State of Maryland, registered
investment companies, such as the Fund, may operate without an
annual meeting of shareholders under specified circumstances if
an annual meeting is not required by the Investment Company Act
of 1940, as amended. The Fund has adopted the appropriate
provisions in its By-Laws and will not hold annual meetings of
shareholders unless otherwise required to do so.
In the event the Fund is not required to hold annual
meetings of shareholders to elect directors, the Board of
Directors of the Fund will promptly call a meeting of the
shareholders of the Fund for the purpose of voting upon the
question of removal of any director when requested in writing to
do so by the record holders of not less than 10% of the
outstanding shares of Common Stock of the Fund. The affirmative
vote of two-thirds of the outstanding shares, cast in person or
by proxy at a meeting called for such purpose, is required to
remove a director of the Fund. The Fund will assist shareholders
in communicating with each other for this purpose pursuant to the
requirements of Section 16(c) of the Investment Company Act of
1940, as amended.
SHAREHOLDER REPORTS
Shareholders will be provided, at least semiannually, with a
report or a current prospectus showing the Fund's portfolio and
other information. After the close of the Fund's fiscal year,
which ends December 31, an annual report or current prospectus
containing financial statements audited by the Fund's independent
auditors will be sent to shareholders. Inquiries concerning the
Fund may be made by telephone at 414-272-6133 or 800-227-5987, or
by writing to Nicholas Income Fund, Inc., 700 North Water Street,
Milwaukee, Wisconsin 53202.
CUSTODIAN AND TRANSFER AGENT
Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as Custodian, Transfer Agent and Dividend
Disbursing Agent for the Fund.
INDEPENDENT AUDITORS AND LEGAL COUNSEL
Deloitte & Touche LLP, 411 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, are the independent auditors for the Fund.
Michael Best & Friedrich, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, has passed on the legality of the shares of
Common Stock of the Fund being offered.
APPENDIX A
DESCRIPTION OF BOND RATINGS
-----------------------------------------------------------------
STANDARD AND POOR'S RATINGS
AAA rated bonds are highest grade obligations. They possess
---
the ultimate degree of protection as to principal and interest.
Marketwise, they move with interest rates, and hence provide the
maximum safety on all counts.
AA rated bonds also qualify as high-grade obligations, and
--
in the majority of instances differ from AAA issues only in small
degree. Here, too, prices move with the long-term money market.
A rated bonds are regarded as upper medium-grade. They have
-
considerable investment strength but are not entirely free from
adverse effects of changes in economic and trade conditions.
Interest and principal are regarded as safe. They predominantly
reflect money rates in their market behavior, but to some extent,
also economic conditions.
BBB rated bonds, or medium-grade category bonds, are
---
borderline between definitely sound obligations and those where
the speculative element begins to predominate. These bonds have
adequate asset coverage and normally are protected by
satisfactory earnings. Their susceptibility to changing
conditions, particularly to depressions, necessitates constant
watching. Marketwise, the bonds are more responsive to business
and trade conditions than to interest rates. This group is the
lowest which qualifies for commercial bank investment.
BB - B rated bonds are regarded, on balance, as
--
predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms
of the obligation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
CCC rated bonds have a currently identifiable vulnerability
---
to default, and are dependent upon favorable business, financial
and economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
CC-C rated bonds are usually bonds which are subordinated to
----
senior debt that is assigned an actual or implied "CCC" or "CCC-"
rating. A "C" rated bond also may involve a situation where a
bankruptcy petition has been filed, but debt service payments are
continued.
D rated bonds are in payment default. They involve a
-
situation where interest payments or principal payments are not
made on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes such payments will be
made during such grace period. A "D" rated bond also may involve
the filing of a bankruptcy petition if debt service payments are
jeopardized.
A-1
MOODY'S BOND RATINGS
Aaa rated bonds are judged to be of the best quality. They
---
carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by
a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa rated bonds are judged to be of high quality by all
--
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risk appear somewhat larger than in Aaa
securities.
A rated bonds possess many favorable investment attributes
-
and are to be considered as upper medium-grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa rated bonds are considered as medium-grade obligations,
---
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba rated bonds are judged to have speculative elements;
--
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
B rated bonds generally lack characteristics of the
-
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa rated bonds are of poor standing. They may be in
---
default or there may be present elements of danger with respect
to principal or interest.
Ca rated bonds represent obligations which are speculative
--
in a high degree. They are often in default or have other marked
shortcomings.
C rated bonds are the lowest rated class of bonds, and bonds
-
so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
PROSPECTUS
NICHOLAS INCOME FUND, INC.
INVESTMENT ADVISER
NICHOLAS COMPANY, INC.
Milwaukee
414-272-6133 or 800-227-5987
CUSTODIAN, TRANSFER AGENT AND DISBURSING AGENT
FIRSTAR TRUST COMPANY
Milwaukee 414-276-0535 or 800-544-6547
INDEPENDENT PUBLIC ACCOUNTANTS
DELOITTE & TOUCHE LLP
Milwaukee
COUNSEL
MICHAEL BEST & FRIEDRICH
Milwaukee
NICHOLAS INCOME FUND, INC.
700 North Water Street
Milwaukee, Wisconsin 53202
April 30, 1997
NICHOLAS INCOME FUND, INC.
FORM N-1A
---------
PART B: STATEMENT OF ADDITIONAL INFORMATION
NICHOLAS INCOME FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
700 North Water Street
Milwaukee, Wisconsin 53202
414-272-6133 or 800-227-5987
This Statement of Additional Information, which is not a
prospectus, supplements and should be read in conjunction with
the current Prospectus of Nicholas Income Fund, Inc. ("Fund"),
dated April 30, 1997, and the Fund's Annual Report for the fiscal
year ended December 31, 1996, which is incorporated herein by
reference, as they may be revised from time to time. To obtain a
copy of the Fund's Prospectus and Annual Report, please write or
call the Fund at the address or telephone number set forth above.
NO LOAD FUND - NO SALES CHARGE
THESE ARE SPECULATIVE SECURITIES.
SEE "INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS."
Investment Adviser
NICHOLAS COMPANY, INC.
April 30, 1997
TABLE OF CONTENTS
Page
----
INTRODUCTION............................................. 1
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS......... 1
INVESTMENT ADVISER....................................... 6
MANAGEMENT-DIRECTORS, EXECUTIVE OFFICERS
AND PORTFOLIO MANAGER OF THE FUND...................... 7
PRINCIPAL SHAREHOLDERS................................... 10
PURCHASE OF CAPITAL STOCK................................ 10
REDEMPTION OF CAPITAL STOCK.............................. 11
EXCHANGE BETWEEN FUNDS................................... 13
TRANSFER OF CAPITAL STOCK................................ 14
DETERMINATION OF NET ASSET VALUE......................... 14
PERFORMANCE MEASUREMENT.................................. 15
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAX STATUS.......... 16
BACKUP WITHHOLDING OF DIVIDENDS AND REDEMPTION PAYMENTS.. 17
INVESTORS' SERVICE PLANS................................. 18
DIVIDEND REINVESTMENT PLAN............................... 18
SYSTEMATIC WITHDRAWAL PLAN............................... 18
RETIREMENT PLANS......................................... 19
MASTER (KEOGH) RETIREMENT PLAN........................... 19
INDIVIDUAL RETIREMENT ACCOUNT............................ 19
BROKERAGE................................................ 20
CAPITAL STRUCTURE........................................ 20
ANNUAL MEETING........................................... 21
SHAREHOLDER REPORTS...................................... 21
CUSTODIAN AND TRANSFER AGENT............................. 21
INDEPENDENT AUDITORS AND LEGAL COUNSEL................... 21
FINANCIAL INFORMATION....................................
INTRODUCTION
Nicholas Income Fund, Inc. (the "Fund") was originally
organized under Delaware law as a diversified management
investment company through the consolidation in 1930 of two
investment companies. The name of the Fund was changed in 1955
from Wisconsin Investment Company to Wisconsin Fund, Inc., in
1976 to Wisconsin Income Fund, Inc., and in 1983 to Nicholas
Income Fund, Inc. In 1986, the Fund changed its state of
organization to Maryland. Nicholas Company, Inc. (the "Adviser")
became the Adviser to the Fund in November 1977; prior to that
time, the Adviser was Wisconsin Investment Management Co., Inc.
The Fund obtains its assets by continuously selling shares
of its Common Stock, par value $.01 per share, to the public.
The Fund may invest up to 50% of its total assets in securities
of electric companies and systems. All other assets of the Fund
will be diversified as to companies and industries. The
resources of many investors are combined and each individual
investor has an interest in every one of the securities owned by
the Fund. The Fund will redeem any of its outstanding shares on
demand of the owner at their net asset value next determined
following acceptance of the redemption request.
The Fund's investments are subject to market fluctuations
and risks inherent in all securities, and there can be no
assurance the Fund's objectives will be realized. Investment in
the Fund is not intended as a complete investment program, and
would not be suitable for investors unable to undertake the risks
involved.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
The Fund has adopted primary investment objectives, which
are fundamental policies. The Fund also has adopted secondary
investment objectives and certain other policies which are not
fundamental and may be changed by the Board of Directors without
shareholder approval. However, any such change will be made only
upon advance notice to shareholders. Such changes may result in
the Fund having secondary investment and other policy objectives
different from the objectives which a shareholder considered
appropriate at the time of investment in the Fund.
The primary investment objective of the Fund is to seek to
obtain high current income, by investing primarily in junk bonds,
but which still is consistent with the preservation of capital
values. While high current income is the primary objective,
management believes there also should be reasonable opportunity
for long-term improvement in income. While the relatively longer
average maturities and the lower-rated characteristics of the
bonds held by the Fund may expose the Fund to greater volatility
due to the interest rate and credit risks involved, the Fund's
objective also is to attempt to preserve capital values as well.
In selecting investments for the Fund, along with looking to
obtain higher current income, the Adviser considers the prospects
for preserving capital values, and performs its own in-depth
analysis on the credit quality of the issuer and the longer-term
outlook for interest rate movement. As a result, the Adviser
attempts to mitigate the potential interest rate and credit risk
volatility by selecting investments which the Adviser believes
also offer reasonable prospects for the preservation of capital
values. There can be no assurance, however, that the primary
investment objective of the Fund will be realized, nor can there
be any assurance against possible loss in value of the Fund's
portfolio.
The Fund may invest up to 50% of its total net assets taken
at market in securities of electric companies and systems. All
other assets of the Fund not concentrated in electrical utility
securities are diversified as to companies and not concentrated
by industries. The electrical utility industry is engaged in the
generation and distribution of electricity to residential,
commercial and industrial customers. Characteristics of the
electrical utility industry include geographic diversification,
supervision and regulation by state and federal agencies, a
record of steady growth and an industry that is of extreme
importance to the well-being of the country. The industry is
subject to the following potential problems: increased cost of
fuel supplies, escalating costs in connection with completing
nuclear generating facilities due to revised construction plans
and delays in obtaining operating licenses, the necessity of
installing costly pollution control equipment, and having
electricity rates controlled by state and federal regulatory
agencies. Rate increases often lag behind cost increases to the
electric utilities.
The Fund will invest at least 25% and up to 50% of its total
net assets taken at market in securities of electric companies
and systems within one month subsequent to the end of the third
consecutive month, as determined at month end (hereinafter, the
"Phase In Period"), when the yield to maturity based on the
Lehman Brothers Intermediate Utility Bond Index is five basis
points greater than the yield to maturity based on the Lehman
Brothers Intermediate Baa Corporate Bond Index. The Fund will
invest less than 25% of its total net assets taken at market in
securities of electric companies and systems within one month
subsequent to the end of the third consecutive month, as
determined at month end (the "Phase Out Period"), when the yield
to maturity based on the Lehman Brothers Intermediate Utility
Bond Index is less than five basis points over the yield to
maturity based on the Lehman Brothers Intermediate Baa Corporate
Bond Index. The Adviser has chosen to use these Lehman Brothers
indexes as an indication of the general trends of yields for
securities of electric companies and systems and for securities
of non-electric companies and systems, even though the Adviser
may invest in lower grade securities and may invest in shorter
and longer term securities. There is no assurance that the
changes in the concentration policy will improve the performance
of the Fund, nor can there be any assurance that the Fund's
performance will equal or surpass the performance indicated by
the indexes. As a result of this policy, the Adviser may be
required to purchase or sell securities of electric companies and
systems or securities of non-electric companies and systems in
order to meet the above percentage restrictions at the
above-specified times, and thus the Fund's transaction costs may
increase. Furthermore, the Adviser may purchase securities of
electric companies and systems during the Phase Out Period and
may purchase securities of non-electric companies and systems
during the Phase In Period which may increase transaction costs
if these securities have to be sold before the end of such
periods. The Adviser believes, however, that these transaction
costs may be kept to a minimum by allowing the one month Phase In
and Phase Out Periods. The portfolio changes as a result of this
investment policy may generate realized capital gains which would
be distributed to the shareholders, and may require capital gain
taxes to be paid by the shareholders. In addition, the Fund will
not hold more than 5% of more than one electric utility company.
Over the last three years, there has been no Phase In Period or
Phase Out Period; at December 31, 1994, 1995 and 1996, the Fund
had approximately 10.40%, 6.66% and 2.13%, respectively, of its
total assets invested in securities of electric companies and
systems.
The Fund may invest in various types of securities,
including, but not limited to, senior fixed income securities
such as bonds, debentures and preferred stocks, senior securities
convertible into common stocks, and common stocks. The Fund's
debt security investments, including both short-term and
long-term investments, are expected to include unrated securities
and securities with speculative characteristics. However, the
Fund will not invest in securities rated below B by Moody's
Investors Service, Inc. ("Moody's") or by Standard and Poor's
Corporation ("Standard & Poor's") at the time of purchase. The
market value of such securities rated Baa, Ba or B by Moody's or
BBB, BB or B by Standard & Poor's tend to reflect individual
corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general
level of interest rates. Such lower rated securities also tend
to be more sensitive to economic conditions than higher rated
securities. Because the market for lower rated securities may
be thinner and less active than for higher rated securities,
there may be market price volatility for these securities and
limited liquidity in the resale market. Factors adversely
impacting the market value of high yielding, high risk securities
will adversely impact the Fund's net asset value. The Fund also
may incur additional expenses to the extent it is required to
seek recovery upon a default in the payment of principal or
interest on its portfolio holding. In addition to relying, in
part, on the ratings assigned to the debt securities, the Fund
also will rely on the Adviser's judgment, analysis and experience
in evaluating the creditworthiness of the issuer. In this
evaluation, the Adviser will consider, among other things, the
issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters. The achievement of
the Fund's investment objectives may be more dependent on the
Adviser's own credit analysis than is the case for higher quality
debt securities.
Since some issuers do not seek ratings for their securities,
unrated securities will be considered for investment by the Fund,
but only when the Adviser believes the financial condition of the
issuers of such securities and/or protection afforded by the
terms of the securities limit the risk to the Fund to a degree
comparable to that of rated securities in which the Fund may
invest. Although unrated securities are not necessarily of lower
quality than rated securities, the market for them may not be as
broad and thus they may carry greater market risk and higher
yield than rated securities. These factors may have the effect
of limiting the availability of securities for purchase by the
Fund and also may limit the ability of the Fund to sell such
securities at their fair market value either to meet redemption
requests or in response to changes in the economy or in the
financial markets.
High yielding, high risk fixed income securities frequently
have call or buy-back features which would permit an issuer to
call or repurchase the security from the Fund. If a call were
exercised by the issuer during periods of declining interest
rates, the Fund would likely have to replace such called security
with a lower yielding security, thus decreasing the net
investment income to the Fund and dividends to shareholders. In
recent years, adverse publicity regarding lower rated bonds has
contributed to the depression of the prices for such securities.
Whether investor perceptions will continue to have a negative
effect on the price of such securities is uncertain. From time
to time, proposals have been discussed regarding new legislation
designed to limit the use of certain high yielding, high risk
securities by issuers in connection with leveraged buy-outs,
mergers and acquisitions, or to limit the deductibility of
interest payouts on such securities. Such proposals, if enacted
into law, could negatively affect the financial condition of
issuers of high yield, high risk securities by removing or
reducing a source of future financing, and could negatively
affect the value of specific high yield, high risk issues and the
high yield, high risk market in general. However, the likelihood
of any such legislation or the effect thereof is uncertain.
An investment in the Fund may be considered more speculative
than an investment in shares of a fund which invests primarily in
higher rated debt securities. All investments will be made in
conformance with the Fund's primary investment objective which is
to seek to obtain high current income, consistent with the
preservation and conservation of capital values. While the risk
of investing in lower rated securities with speculative
characteristics is greater than the risk of investing in higher
rated securities, the Fund will attempt to minimize this risk
through diversification of its investments and by analysis of
each issuer and its ability to make timely payments of income and
principal. As of December 31, 1996, 80.8% of the Fund's total
net assets were invested in rated and unrated corporate debt
securities. As of December 31, 1996, of the Fund's total net
assets, 0.6% were invested in corporate debt securities rated BBB
by Standard & Poor's, 24.2% rated BB, 49.4% rated B, none were
rated CCC, CC, C or D, and approximately 6.6% unrated by Standard
& Poor's or Moody's but believed to be equivalent to a BB or B
rating. The Fund will not invest in securities rated below B by
Moody's or by Standard & Poor's at the time of purchase; however,
subsequent to purchase, the ratings of the securities so
purchased may fall below B. A description of the rating grades
appears in Appendix A of the Prospectus.
The Fund may invest in short-term debt of the U. S.
Government or its agencies, commercial paper, bank certificates
of deposit, and "repurchase" agreements up to 20% of its total
net assets. The Fund may invest in commercial paper rated A-1 or
A-2 by Standard & Poor's Corporation or Prime-1 or Prime-2 by
Moody's, or unrated money market instruments which are of
comparable quality. The proportions invested in each type of
security classification are varied from time to time in
accordance with management's interpretation of economic
conditions and underlying security values.
The Fund has reserved the right to invest in repurchase
agreements ("REPOs") as a temporary defensive measure.
Repurchase agreements may be entered into only with a member bank
of the Federal Reserve System or a primary dealer in U.S.
government securities. Under such agreements, the bank or
primary dealer agrees, upon entering into the contract, to
repurchase the security from the Fund at a mutually agreed upon
time and price. The prices at which the trades are conducted do
not reflect accrued interest on the underlying obligation.
Although REPOs involve the purchase and sale of U.S. Government
securities, the obligation of the seller to repurchase is not
guaranteed by the U.S. Government, thereby creating the risk that
the seller may default.
Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities
transferred to the purchaser. The Fund will require the seller
to provide additional collateral if the market value of the
securities falls below the repurchase price at any time during
the term of the repurchase agreement. In the event of default by
the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by
the Fund, but only constitute collateral for the seller's
obligation to pay the repurchase price. Therefore, the Fund may
suffer time delays and incur costs or losses in connection with
the disposition of the collateral. The Fund also would retain
ownership of the securities in the event of a default under a
repurchase agreement that is construed not to be a collateralized
loan. In such event, the Fund also would have rights against the
seller for breach of contract with respect to any losses arising
from market fluctuations following the failure of the seller to
perform.
The Fund may also invest in the securities of real estate
investment trusts and other real estate-based securities
(including securities of companies whose assets consist
substantially of real property and interests therein) listed on a
national securities exchange or authorized for quotation on the
National Association of Securities Dealers Automated Quotations
System.
The Fund also may invest in securities which are issued in
private placements pursuant to Section 4(2) of the Securities Act
of 1933, as amended (the "Act"). Such securities are not
registered for purchase and sale by the public under the Act.
The determination of the liquidity of such securities is a
question of fact for the Board of Directors to determine at the
time of purchase and periodically thereafter as circumstances
warrant, based upon the trading markets for the specific
security, the availability of reliable price information and
other relevant information. There may be a risk of little or no
market for resale associated with such private placement
securities if the Fund does not hold them to maturity. In
addition, to the extent that qualified institutional buyers do
not purchase restricted securities pursuant to Rule 144A, the
Fund's investing in such securities may have the effect of
increasing the level of illiquidity in the Fund's portfolio. The
Fund may invest generally up to 10% of its total assets in
securities of other investment companies, where no sales charge
or commission is incurred. Investments in the securities of
other investment companies will involve duplication of advisory
fees and certain other expenses.
It should be recognized that the Fund's investments are
subject to the market fluctuations and risks inherent in all
securities. For this reason, and because income distributed by
corporations may vary with earnings and economic and money market
condition changes, the management of the Fund cannot give
assurances the above investment objectives can be achieved.
The Fund does not make a practice of short-term trading.
The Fund cannot predict its annual portfolio turnover rate;
however, since the Fund does not intend to trade in securities
for short-term profits, it is anticipated that the rate of
portfolio turnover normally will not exceed 50%. For the years
ended December 31, 1994, 1995 and 1996, the rates of portfolio
turnover were 29.2%, 29.2% and 33.2%, respectively.
The investment objectives and policies of the Fund, as
stated above, may not be changed without shareholder approval.
INVESTMENT RESTRICTIONS
The Fund observes the following restrictions, which are
matters of fundamental policy and cannot be changed without the
approval of the holders of a majority of its outstanding shares
or, if less, 67% of the shares represented at a meeting of
shareholders at which 50% or more of the holders are represented
in person or by proxy. The Fund may not:
1. Purchase the securities of any one issuer, except
securities issued or guaranteed by the United States,
or its instrumentalities or agencies, if immediately
after and as a result of such purchase (a) the market
value of the holdings of the Fund in the securities of
such issuer exceed 5% of the market value of the Fund's
total assets, or (b) the Fund owns more than 10% of the
voting securities of such issuer.
2. Purchase securities of other registered investment
companies, except where no sales charge or commission
is incurred.
3. Purchase or sell real estate or interests in real
estate, commodities or commodity futures. The Fund may
invest in the securities of real estate investment
trusts and other real estate-based securities
(including securities of companies whose assets consist
substantially of real property and interests therein)
listed on a national securities exchange or authorized
for quotation on the National Association of Securities
Dealers Automated Quotations System, but not more than
10% in value of the Fund's total assets will be
invested in real estate investment trusts nor will more
than 25% in value of the Fund's total assets be
invested in the real estate industry in the aggregate.
4. Borrow money, except, as a temporary measure for
extraordinary or emergency purposes and not for
investment purposes, the Fund may borrow from banks up
to 10% of its total assets taken at cost.
5. Act as an underwriter of securities of other issuers.
6. Invest in companies having a record of less than
three years' continuous operation.
7. Write, purchase or sell puts, calls or combinations
thereof or buy on margin or sell short.
8. Mortgage, pledge, hypothecate, or in any manner
transfer, as security for indebtedness, any securities
owned or held by the Fund.
9. Lend money, except for:
a. The purchase of a portion of an issue of publicly
distributed debt securities;
b. The purchase of bank certificates of deposit or
commercial paper;
c. The purchase of debt securities issued
by the U.S. Treasury or by other federal agencies,
instrumentalities or corporations with a
simultaneous resale of such securities to the
seller for later delivery (on an agreed upon later
date or indefinitely), in an amount not to exceed
20% of the total assets, taken at market, of the
Fund. "Repurchase" agreements maturing in more
than seven days are considered illiquid assets; or
d. The purchase of a portion of bonds,
debentures, or other debt securities of types
commonly distributed in private placements to
financial institutions, the amount of which is
subject to the Fund's operating policy regarding
illiquid securities.
10. Purchase or retain the securities of any issuer if
an officer or director of the Fund or its Adviser
individually owns more than one-half of one percent
(1/2 of 1%) of the securities of such issuer and, as a
group, such persons own more than 5% of the securities
of such issuer.
11. Participate on a joint or joint and several basis in
any securities trading account.
12. Invest in a company for the purpose of exercising
management or control.
13. Concentrate its investment in particular
industries, with the exception of electric companies
and systems.
14. The Fund may not issue senior securities in
violation of the Investment Company Act of 1940, as
amended.
All percentage limitations apply on the date of investment by the
Fund. As a result, if a percentage restriction is adhered to at
the time of investment, a later increase in percentage resulting
from a change in market value of the investment or the total
assets of the Fund will not constitute a violation of that
restriction.
ADDITIONAL OPERATING POLICIES AND RESTRICTIONS ADOPTED BY THE
BOARD OF DIRECTORS
The Fund will not invest more than 15% of its total net
assets in illiquid securities and will limit investments in
warrants to 5% of the value of the Fund's total assets. Warrants
not listed on the New York or American Stock Exchanges may not
exceed 2% of the Fund's total assets. The Fund at present does
not own any restricted securities or warrants, nor has it any
intention to acquire any. The Fund may not invest in oil, gas or
other mineral leases. The above policies are subject to change
by the Board of Directors without a shareholder vote. As a
matter of practice, however, the Fund will not change either
policy without prior notice to its shareholders.
INVESTMENT ADVISER
Under an investment advisory agreement with the Fund,
Nicholas Company, Inc. (the "Adviser"), 700 North Water Street,
Suite 1010 Milwaukee, Wisconsin 53202, furnishes the Fund with
continuous investment service and is responsible for overall
management of the Fund's business affairs, subject to supervision
of the Fund's Board of Directors. Nicholas Company, Inc. is the
investment adviser to approximately 35 institutions and
individuals with substantial investment portfolios and to the
following five mutual funds which, like the Fund, are sold
without a sales charge:
<TABLE>
<CAPTION>
NET ASSETS AS OF
FUND PRIMARY INVESTMENT OBJECTIVE MARCH 31, 1997
<S> <C> <C>
Nicholas Fund, Inc. Capital Appreciation $3,989,488,700
Nicholas II, Inc. Long-Term Growth $ 775,749,939
Nicholas Limited Edition, Inc. Long-Term Growth $ 226,852,547
Nicholas Money Market Fund, Inc. Current Income $ 125,621,864
Nicholas Equity Income Fund, Inc. Reasonable Income $ 20,821,309
</TABLE>
The annual fee paid to the Adviser is paid monthly and is
based on the average net assets of the Fund as determined by the
valuations made at the close of each business day of the month.
The annual fee is five-tenths of one percent (0.5 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 four-tenths of one percent (0.4 of 1%). On
average daily net assets over $100,000,000, the fee is further
reduced to an annual rate of three-tenths on one percent (0.3 of
1%). The Adviser has agreed to reduce such management fee by any
operating expenses (other than the management fee) incurred by
the Fund in excess of 0.5 of 1% of average daily net assets. Any
required reimbursement will be made on a monthly basis as a
reduction of the management fee payable to the Adviser for that
month. The total expenses of the Fund as a percentage of net
assets for the year ending December 31, 1996 were 0.55%.
The Adviser also pays the Fund's officers' salaries, if any,
and Directors' fees of Directors who are "interested persons" of
the Adviser as defined in the Investment Company Act of 1940, as
amended. The Adviser provides the Fund with personnel to
perform clerical, accounting and other office services. The
personnel rendering such services may be employees of the Adviser
and also may be officers of the Fund who are not officers of the
Adviser. The rates to be paid by the Fund for such personnel for
rendering such services must be agreed to by the Board of
Directors of the Fund. It is intended such rates will be the
actual costs of the Adviser. All other expenses incurred in the
operation of the Fund, including taxes, interest, fees and
commissions, expense of issue and redemption of shares,
registration fees, charges of the custodian and transfer agent,
disinterested officers and Directors' fees and auditing and legal
fees are borne by the Fund.
The Advisory Agreement cannot be amended, nor can any new
agreement become effective, without shareholder approval. It
will terminate automatically on assignment. It is subject to
cancellation upon 60 days written notice by either party without
penalty. The Advisory Agreement will continue in effect as long
as such continuance is specifically approved annually (a) by the
Board of Directors or by the vote of a majority of the
outstanding shares and (b) by the vote of a majority of the
Directors of the Fund who are not "interested persons" of the
Adviser.
For the years ending December 31, 1994, 1995 and 1996, the
Fund paid management fees to the Adviser of $606,641, $603,736
and $661,606, respectively. The Adviser was not required to
reimburse the Fund for excess expenses in 1994, 1995 or 1996.
Albert O. Nicholas, President, and a Director of the Fund,
is also President and a Director of the Adviser. Mr. Nicholas
owns 91% of the outstanding voting securities of the Adviser.
Thomas J. Saeger, Executive Vice President and Secretary of the
Fund, is Executive Vice President and Assistant Secretary of the
Adviser. David L. Johnson, Executive Vice President of the Fund,
is Executive Vice President of the Adviser. He is a brother-in-
law of Albert O. Nicholas. David O. Nicholas, Senior Vice
President of the Fund, is Senior Vice President and a director of
the Adviser. He is the son of Albert O. Nicholas. Jeffrey T.
May, Senior Vice President and Treasurer of the Fund, is Senior
Vice President and Treasurer of the Adviser. Candace L. Lesak is
Vice President of the Fund and an employee of the Adviser.
Kathleen A. Evans is Assistant Vice President of the Fund and
Vice President of the Adviser. David E. Leichtfuss is a
Director and the Secretary of the Adviser. Mr. Leichtfuss is
an Attorney with Michael Best & Friedrich, 100 E. Wisconsin
Avenue, Milwaukee, Wisconsin, legal counsel to the Fund and the
Adviser. Daniel J. Nicholas, 2618 Harlem Boulevard, Rockford,
Illinois, is a brother of Albert 0. Nicholas, and is a private
investor.
MANAGEMENT-DIRECTORS, EXECUTIVE OFFICERS AND PORTFOLIO MANAGER OF THE FUND
The overall operations of the Fund are conducted by the
officers of the Fund under the control and direction of its Board
of Directors. The following table sets forth the pertinent
information about the Fund's officers and directors as of April
30, 1997:
NAME, ADDRESS AND PRINCIPAL POSITIONS HELD
OCCUPATION AGE WITH FUND
DURING PAST FIVE YEARS
____________________________ ___ ______________
*Albert O. Nicholas 66 President,
President and a Director, Portfolio Manager
Nicholas Company, Inc., 700 and Director since
N. Water Street, Milwaukee, 1977
WI 53202, adviser to the
Fund, since 1977. He is a
Chartered Financial Analyst
and has been an investment
analyst and portfolio
manager since 1955. He has
been Portfolio Manager (or
Co-Portfolio Manager, in
the case of Nicholas Fund,
Inc. since November 1996)
for, and primarily
responsible for the day-to-
day management of, the
portfolios of Nicholas
Fund, Inc., Nicholas Equity
Income Fund, Inc. and the
Fund since the Adviser has
served as investment
adviser for such funds. He
also was Portfolio Manager
for Nicholas II, Inc. and
Nicholas Limited Edition,
Inc. from the date of each
fund's inception until
March 1993.
Frederick Hansen 70 Director since 1973
759 N. Milwaukee St.,
Milwaukee, WI 53202;
President, Hanseatic
Equities Corp., a private
investment firm.
Melvin L. Schultz 63 Director since 1995
3636 N. 124th Street,
Wauwatosa, WI 53222;
Director and management
consultant, Professional
Management of Milwaukee,
Inc., a medical and dental
profession financial
advisory firm.
Thomas J. Saeger 52 Executive Vice
Executive Vice President President and
and Assistant Secretary, Secretary
Nicholas Company, Inc., 700
N. Water Street, Milwaukee,
WI 53202, the Adviser to
the Fund, and employed by
the Adviser since 1969.
He is a Certified Public
Accountant.
Jay Robertson 45 Director since 1995
660 E. Mason Street,
Milwaukee, WI 53202;
Chairman of the Board of
Robertson-Ryan and
Associates, Inc., an
insurance brokerage firm.
David L. Johnson 55 Executive Vice
Executive Vice President, President
Nicholas Company, Inc., 700
N. Water Street Milwaukee,
WI 53202, the Adviser to
the Fund, and employed by
the Adviser since 1980. He
is a Chartered Financial
Analyst.
35 Senior Vice
David O. Nicholas President
Senior Vice President,
and a Director of
Nicholas Company, Inc., 700
N. Water Street, Milwaukee,
WI 53202, the Adviser to
the Fund, and employed by
the Adviser since December
1985. He has been
Portfolio Manager for, and
primarily responsible for
the day-to-day management
of, the portfolios of
Nicholas II, Inc. and
Nicholas Limited Edition,
Inc. since March 1993. He
also has been Co-Portfolio
Manager of Nicholas Fund,
Inc. since November 1996.
He also is a Chartered
Financial Analyst.
Jeffrey T. May 40 Senior Vice
Senior Vice President and President and Treasurer
Treasurer, Nicholas
Company, Inc., 700 N. Water
Street, Milwaukee, WI
53202, the Adviser to the
Fund, and employed by the
Adviser since 1987. He is
a Certified Public
Accountant.
Candace L. Lesak 39 Assistant Vice
Employee, Nicholas Company, President
Inc., 700 N. Water Street,
Milwaukee, WI 53202, the
Adviser to the Fund, since
February 1983. She is a
Certified Financial
Planner.
Kathleen A. Evans 48 Assistant Vice
Vice President, Nicholas President
Company, Inc., 700 N. Water
Street, Milwaukee, WI
53202, the Adviser to the
Fund, and employed by the
Adviser since March 1985.
_________________________
* Mr. Nicholas is the only director of the Fund who is an
"interested person" in the Adviser, as that term is defined
in the 1940 Act, and is the only director who has a direct or
indirect interest in the Adviser. Mr. Nicholas is President
and a director of the Adviser and owns 91% of the outstanding
voting securities of the Adviser.
Mr. Nicholas is also a member of the Board of Directors of
Nicholas Fund, Inc., Nicholas II, Inc., Nicholas Limited Edition,
Inc., Nicholas Money Market Fund, Inc. and Nicholas Equity Income
Fund, Inc. Mr. Hansen and Mr. Robertson also are members of the
Board of Directors of Nicholas Money Market Fund, Inc. Mr.
Schultz also is a member of the Board of Directors of Nicholas
Fund, Inc., Nicholas II, Inc., Nicholas Limited Edition, Inc.,
Nicholas Equity Income Fund, Inc. and Nicholas Money Market Fund,
Inc. Mr. Nicholas also is President of Nicholas Fund, Inc.,
Nicholas II, Inc., Nicholas Limited Edition, Inc., Nicholas
Equity Income Fund, Inc. and Nicholas Money Market Fund, Inc.
Mr. Johnson also is Senior Vice President of Nicholas Fund, Inc.,
and Executive Vice President of Nicholas II, Inc., Nicholas
Limited Edition, Inc., Nicholas Money Market Fund, Inc. and
Nicholas Equity Income Fund, Inc. Mr. Saeger also is Senior Vice
President and Secretary of Nicholas Fund, Inc., Executive Vice
President and Secretary of Nicholas II, Inc., Nicholas Equity
Income Fund, Inc. and Nicholas Money Market Fund, Inc. and
Executive Vice President, Secretary and a director of Nicholas
Limited Edition, Inc. David O. Nicholas also is Senior Vice
President of Nicholas Income Fund, Inc., Nicholas Limited
Edition, Inc., Nicholas II, Inc., Nicholas Equity Income Fund,
Inc. and Nicholas Money Market Fund, Inc. Mr. May also is Senior
Vice President and Treasurer of Nicholas Money Market Fund, Inc.,
Nicholas II, Inc., Nicholas Equity Income Fund, Inc. and Nicholas
Fund, Inc. and Senior Vice President of Nicholas Limited Edition,
Inc. Ms. Lesak also is Vice President of Nicholas Fund, Inc.,
Nicholas II, Inc., Nicholas Equity Income Fund, Inc., Nicholas
Money Market Fund, Inc. and Nicholas Limited Edition, Inc. Ms.
Evans also is Assistant Vice President of Nicholas II, Inc. and
Nicholas Money Market Fund, Inc.
The aggregate remuneration paid by the Fund during 1996 to
all Fund directors as a group amounted to $9,000. No
remuneration is paid by the Fund to officers of the Fund or
directors of the Fund who are "interested persons" of the
Adviser.
The table below sets forth the aggregate compensation
received from the Fund by all directors of the Fund during the
year ended December 31, 1996. No officers of the Fund receive
any compensation from the Fund, but rather, are compensated by
the Adviser in accordance with its investment advisory agreement
with the Fund.
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM FUND
AGGREGATE BENEFITS ANNUAL AND FUND
COMPENSATION ACCRUED AS BENEFITS FUND
NAME AND POSITION FROM THE PART OF THE UPON COMPLEX
FUND(1) FUND RETIREMENT PAID TO
EXPENSES DIRECTORS(1)
_________________ ____________ ___________ __________ ____________
Albert O. Nicholas,
Director(2) $0 $0 $0 $0
Frederick F. Hansen,
Director(2) $3,000 $0 $0 $ 6,000
Melvin L. Schultz,
Director(2) $3,000 $0 $0 $17,400
Jay H. Robertson,
Director(2) $3,000 $0 $0 $ 6,000
_______________
<PAGE>
(1) During the fiscal year ended December 31, 1996, the Fund and
other funds in its Fund Complex (i.e., those funds which also
have Nicholas Company, Inc. as its investment adviser, namely
Nicholas Fund, Inc., Nicholas II, Inc., Nicholas Money
Market Fund, Inc., Nicholas Limited Edition, Inc. and
Nicholas Equity Income Fund, Inc.) compensated those
directors who are not "interested persons" of the Adviser in
the form of an annual retainer per director per fund and
meeting attendance fees. During the year ended
December 31, 1996, the Fund compensated the disinterested
directors at a rate of $500 per director per meeting attended
and an annual retainer of $1,000 per director. The
disinterested directors did not receive any other form or
amount of compensation from the Fund Complex for the fiscal
year ended December 31, 1996. All other directors and
officers of the Fund were compensated by the Adviser in
accordance with its investment advisory agreement with the
fund.
(2) Mr. Nicholas also is a member of the Board of Directors of
Nicholas Fund, Inc., Nicholas II, Inc., Nicholas Limited
Edition, Inc., Nicholas Equity Income Fund, Inc. and Nicholas
Money Market Fund, Inc. Mr. Hansen also is a member of the
Board of Directors of Nicholas Money Market Fund, Inc. Mr.
Schultz also is a member of the Board of Directors of
Nicholas Fund, Inc., Nicholas II, Inc., Nicholas Limited
Edition, Inc., Nicholas Equity Income Fund, Inc and Nicholas
Money Market Fund, Inc..Mr. Robertson also is a director of
Nicholas Money Market Fund, Inc.
PRINCIPAL SHAREHOLDERS
Nicholas Company, Inc., the investment adviser to the Fund,
beneficially owned 2,689,795 shares of Common Stock of the Fund
or 4.8% as of March 31, 1997. Of this amount, 115,753 shares
were owned of record by Albert O. Nicholas, President and a
Director of the Fund, President and a Director of the Adviser,
and owner of 91% of the outstanding voting securities of the
Adviser; Nancy Nicholas, the spouse of Albert O. Nicholas, owned
of record 2,008,913 shares; the Nicholas Family Foundation owned
of record 339,537 shares; and the Nicholas Company, Inc. Profit-
Sharing Trust, of which Mr. Nicholas and David E. Leichtfuss are
trustees, owned of record 225,592 shares.
Charles Schwab & Co., 101 Montgomery Street, San
Francisco, California 94101-4122, owned of record 4,302,563
shares of Common Stock of the Fund, or 7.7% as of March 31, 1997,
in nominee name for various of its brokerage customers.
No other persons are known to the Fund to own beneficially
or of record 5% or more of the full shares of Common Stock of the
Fund as of March 31, 1997. All directors and executive officers
of the Fund as a group (ten in number) owned approximately 5.3%
of the full shares of Common Stock of the Fund as of March 31,
1997.
PURCHASE OF CAPITAL STOCK
Applications for the purchase of shares are made to
Nicholas Limited Edition, Inc., c/o Firstar Trust Company, P.O.
Box 2944, Milwaukee, Wisconsin 53201-2944. Firstar Trust Company
acts as Transfer Agent and Custodian for the Fund. The Fund has
available an Automatic Investment Plan for shareholders. Anyone
interested should contact the Fund for additional information.
The price per share will be the net asset value next
computed after the time the application is received in proper
order and accepted by the Fund. The determination of the net
asset value for a particular day is applicable to all
applications for the purchase of shares received at or before the
close of trading on the New York Stock Exchange (the "Exchange")
on that day (usually 4:00 p.m. New York time). Accordingly,
purchase orders received on a day the Exchange is open for
trading, prior to the close of trading on that day, will be
valued as of the close of trading on that day. Applications for
purchase of shares and requests for redemption of shares received
after the close of trading on the Exchange will be based on the
net asset value as determined as of the close of trading on the
next day the Exchange is open.
The Fund does not consider the U S. Postal Service or other
independent delivery services to be its agents. Therefore,
deposit in mail or with such services, or receipt at Firstar
Trust Company's Post Office Box of purchase applications or
redemption requests does not constitute receipt by Firstar Trust
Company or the Fund. Correspondence intended for overnight
courier should not be sent to the Post Office Box address.
OVERNIGHT COURIER DELIVERY SHOULD BE SENT TO FIRSTAR TRUST
COMPANY, THIRD FLOOR, 615 EAST MICHIGAN STREET, MILWAUKEE,
WISCONSIN 53202.
All applications to purchase capital stock are subject to
acceptance or rejection by authorized officers of the Fund and
are not binding until accepted. Applications will not be
accepted unless they are accompanied by payment in U.S. funds.
Payment should be made by check or money order drawn on a U.S.
Bank, Savings & Loan or Credit Union. The custodian will charge
a $20 fee against a shareholder's account for any payment check
returned to the custodian for insufficient funds. It is the
policy of the Fund not to accept applications under circumstances
or in amounts considered disadvantageous for shareholders. Any
accounts (including custodial accounts) opened without a proper
social security number or tax identification number may be
liquidated and distributed to the owner(s) of record on the first
business day following the 60th day of investment, net of the
back-up withholding tax amount.
The Board of Directors has established $2,000 as the minimum
initial purchase and $100 as the minimum for any subsequent
purchase, except in the case of dividend reinvestment. The
Automatic Investment Plan has a minimum monthly investment of
$50. Due to the limited size of the Fund and the fixed expenses
incurred by the Fund in maintaining individual accounts, the Fund
reserves the right to redeem accounts that fall below the $2,000
minimum required investment due to shareholder redemption (but
not solely due to a decrease in net asset value of the Fund). In
order to exercise this right, the Fund would give 30 days advance
written notice to the accounts below such minimums. Purchase of
shares will be made in full and fractional shares computed to
three decimal places, unless the investor specifies full shares
only.
To purchase additional shares of the Fund by Federal wire
transfer, please send to:
FIRSTAR BANK MILWAUKEE, N.A.
ABA #0750-00022
TRUST FUNDS, ACCOUNT #112-952-137
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
FOR FURTHER CREDIT TO NICHOLAS LIMITED EDITION, INC.
[YOUR ACCOUNT NUMBER AND THE TITLE OF THE ACCOUNT]
If a wire purchase is to be an initial purchase, please call
Firstar Trust Company (414-276-0535 or 800-544-6547) with the
appropriate account information prior to sending the wire.
Shares of Common Stock of the Fund may be purchased or sold
through certain broker-dealers, financial institutions or other
service providers ("Processing Intermediaries"). When shares of
Common Stock of the Fund are purchased this way, the Processing
Intermediary, rather than its customer, may be the shareholder of
record. Processing Intermediaries may use procedures and impose
restrictions in addition to or different from those applicable to
shareholders who invest in the Fund directly. A Processing
Intermediary may be required to register as a broker or dealer
under certain state laws. An investor intending to invest in the
Fund through a Processing Intermediary should read the program
materials provided by the Processing Intermediary in conjunction
with this Prospectus. Processing Intermediaries may charge fees
for the services they provide to their customers. Investors who
do not wish to receive the services of a Processing Intermediary,
or pay the fees that may be charged for such services, may want
to consider investing directly with the Fund. Direct purchase or
sale of shares of Common Stock of the Fund may be made without a
sales or redemption charge.
Certificates representing Fund shares purchased will not be
issued unless the shareholder specifically requests certificates
by signed written request to the Fund. Signature guarantees may
be required. Certificates are mailed to requesting shareholders
approximately two weeks after receipt of the request by the Fund.
In no instance will certificates be issued for fractional shares.
When certificates are not requested, the Fund's transfer agent,
Firstar Trust Company, Milwaukee, Wisconsin, will credit the
shareholder's account with the number of shares purchased.
Written confirmations are issued for all purchases and
redemptions of Fund shares.
REDEMPTION OF CAPITAL STOCK
A shareholder may require the Fund at any time during normal
business hours to redeem his/her shares in whole or in part. If
in writing, redemption requests must be signed by each
shareholder, in the exact manner as the Fund account is
registered, and must state the amount of the redemption and
identify the shareholder account number. When shares are
represented by certificates, redemption is accomplished by
delivering to the Fund, c/o Firstar Trust Company, Post Office
Box 2944, Milwaukee, Wisconsin 53201-2944, the certificate(s) for
the full shares to be redeemed. The certificate(s) must be
properly endorsed or accompanied by instrument of transfer, in
either case with signature guaranteed by an "eligible guarantor
institution" as defined in Section 240.17Ad-15 of the Code of
Federal Regulations. An "eligible guarantor institution"
includes a bank, a savings and loan association, a credit union,
or a member firm of a national securities exchange. A notary
public is not an acceptable guarantor.
If certificates have not been issued, redemption can be
accomplished by delivering an original signed written request for
redemption addressed to Nicholas Income Fund, Inc., c/o Firstar
Trust Company. Facsimile transmission of redemption requests is
not acceptable. The written redemption request must be signed
exactly as the account is registered; if the account is owned
jointly, both owners must sign. Written confirmations are issued
for all redemptions of Fund shares.
The Fund may require additional supporting documents for
written redemptions made by corporations, executors,
administrators, trustees and guardians. Specifically, if the
account is registered in the name of a corporation or
association, the written request must be accompanied by a
corporate resolution signed by the authorized person(s). A
redemption request for accounts registered in the name of a legal
trust must have a copy of the title and signature page of the
trust agreement on file or be accompanied by the trust agreement
and signed by the Trustee(s).
If there is doubt as to what documents or instructions are
necessary in order to redeem shares, please write or call Firstar
Trust Company, (414-276-0535 or 800-544-6547), prior to
submitting a written redemption request. A redemption request
will not become effective until all documents have been received
in proper form by Firstar Trust Company.
For federal income tax purposes, a redemption generally is
treated as a sale of the shares being redeemed, with the
shareholder recognizing a capital gain or loss equal to the
difference between the redemption price and the shareholder's
cost for the shares being redeemed.
Shareholders who have an individual retirement account
("IRA"), master retirement plan or other retirement plan must
indicate on their redemption requests whether or not to withhold
federal income tax. Redemption requests must elect not to have
Federal income tax withheld; otherwise, the redemption will be
subject to withholding. Please consult your current Disclosure
Statement for any applicable fees.
Telephone redemption is automatically extended to all
accounts in the Fund unless this privilege is declined in
writing. This option does not apply to IRA accounts and master
retirement plans for which Firstar Trust Company acts as
custodian. Telephone redemptions can only be made by calling
Firstar Trust Company at 800-544-6547 or 414-276-0535. In an
effort to prevent unauthorized or fraudulent redemption requests
by telephone, the Fund and its transfer agent employ reasonable
procedures to confirm that such instructions are genuine. In
addition to the account registration, you will be required to
provide either the account number or social security number.
Telephone calls will be recorded. Telephone redemption requests
must be received prior to the closing of the New York Stock
Exchange (usually 4:00 p.m., Eastern time) to receive that day's
net asset value. There will be no exceptions due to market
activity. The maximum telephone redemption is $25,000 per
account/per business day. The maximum telephone redemption for
related accounts is $100,000 per business day. The minimum
telephone redemption is $500 except when redeeming an account in
full.
The Fund reserves the right to refuse a telephone redemption
if it is believed advisable to do so. Procedures for redeeming
Fund shares by telephone may be modified or terminated at any
time by the Fund or Firstar Trust Company. Neither the Fund nor
Firstar Trust Company will be liable for following instructions
communicated by telephone that it reasonably believes to be
genuine.
All redemptions will be processed immediately upon receipt.
Share redemption orders are effected at the net asset value next
determined after receipt of the order in proper form by the Fund.
The Fund will return redemption requests that contain
restrictions as to the time or date redemptions are to be
effected. The Fund ordinarily will make payment for redeemed
shares within seven days after receipt of a request in proper
form, except as provided by the rules of the Securities and
Exchange Commission. Redemption proceeds which are to be wired
will normally be wired on the next business day after a net asset
value is determined. There is a $7.50 charge to wire the
redemption proceeds. The Fund reserves the right to hold payment
up to 15 days or until satisfied that investments made by check
have been collected.
The shareholder may instruct Firstar Trust Company to mail
the proceeds to the address of record or to directly mail the
proceeds to a pre-authorized bank account. The proceeds may also
be wired to a pre-authorized account at a commercial bank in the
United States. Firstar Trust Company charges a wire redemption
fee of up to $12.00. Please contact the Fund for the appropriate
form if you are interested in setting your account up with wiring
instructions.
Although not anticipated, it is possible that conditions may
arise in the future which would, in the opinion of the Fund's
Adviser or Board of Directors, make it undesirable for the Fund
to pay for all redemptions in cash. In such cases, the Board may
authorize payment to be made in portfolio securities or other
property of the Fund. However, the Fund has obligated itself
under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder up to $250,000 (or 1% of the
Fund's net assets if that is less) in any 90-day period.
Securities delivered in payment of redemptions would be valued at
the same value assigned to them in computing the net asset value
per share. Shareholders receiving such securities would incur
brokerage costs when these securities are sold.
SIGNATURE GUARANTEES
A signature guarantee of each owner is required to redeem
shares in the following situations, for all size transactions:
(i) if you change the ownership on your account; (ii) upon
redemption of shares when certificates have been issued for your
account; (iii) when you want the redemption proceeds sent to a
different address than is registered on the account; (iv) for
both certificated and uncertificated shares, if the proceeds are
to be made payable to someone other than the account owner(s);
(v) any redemption transmitted by federal wire transfer to your
bank not previously set up with the Fund; or (vi) if a change of
address request has been received by the Fund or Firstar Trust
Company within 15 days of a redemption request. In addition,
signature guarantees are required for all redemptions of $100,000
or more from any shareholder account in the Nicholas Family of
Funds. A redemption will not be processed until the signature
guarantee, if required, is received in proper form. A notary
public is not an acceptable guarantor.
The right of redemption may be suspended for any period
during which the New York Stock Exchange is closed other than the
customary weekend and holiday closings, and may be suspended for
any period during which trading on the Exchange is restricted as
determined by the Securities and Exchange Commission, or the
Commission has by order permitted such suspension, or the
Commission has determined that an emergency exists as a result of
which it is not reasonably practicable for the Fund to dispose
of its securities or to determine fairly the value of its net
assets.
EXCHANGE BETWEEN FUNDS
If a shareholder chooses to exercise the exchange privilege,
the shares will be exchanged at their next determined net asset
value. When an exchange into the Nicholas Money Market Fund,
Inc. would involve investment of the exchanged amount on a day
when the New York Stock Exchange is open for trading but the
Federal Reserve Banks are closed, shares of the Fund will be
redeemed on the day upon which the exchange request is received;
however, issuance of Nicholas Money Market Fund, Inc. shares may
be delayed an additional day in order to avoid the dilutive
effect on return (i.e., reduction in net investment income per
share) which would result from issuance of such shares on a day
when the exchanged amount cannot be invested. In such a case,
the exchanged amount would be uninvested for this one day period.
Shareholders interested in exercising the exchange privilege must
obtain and the appropriate prospectus from Nicholas Company, Inc.
Such an exchange constitutes a sale for Federal tax purposes and
a capital gain or loss generally will be recognized upon the
exchange, depending upon whether the net asset value at the time
is more or less than the shareholder's cost. An exchange between
the Funds involving master retirement (Keogh) or IRA accounts
generally will not constitute a taxable transaction for Federal
income tax purposes.
The privilege may be terminated or modified only upon 60
days advance notice to shareholders. Shareholders are reminded,
however, that Nicholas Limited Edition, Inc. is restricted in
size to ten million shares, and thus the exchange privilege into
that fund may be terminated or modified at a time when that
maximum is reached.
Shares of the Fund may be exchanged for shares of other
investment companies for which Nicholas Company, Inc. serves as
the investment adviser and which permit such exchanges. Nicholas
Company, Inc. is also the investment adviser to Nicholas Fund,
Inc., Nicholas II, Inc., Nicholas Limited Edition, Inc., Nicholas
Money Market Fund, Inc. and Nicholas Equity Income Fund, Inc.
Nicholas Fund, Inc. has an investment objective of capital
appreciation. Nicholas II, Inc. and Nicholas Limited Edition,
Inc. have long-term growth as their investment objective.
Nicholas Money Market Fund, Inc. has an investment objective of
achieving as high a level of current income as is consistent with
preserving capital and providing liquidity. Nicholas Equity
Income Fund, Inc. has an investment objective of reasonable
income, with moderate long-term growth as a secondary
consideration. Exchange of shares can be accomplished in the
following ways:
Exchange by Mail. An exchange of shares of the Fund for
------------------
shares of other available Nicholas mutual funds will be made
without cost to the investor through written request.
Shareholders interested in exercising the exchange by mail
privilege may obtain the appropriate prospectus from
Nicholas Company, Inc. Signatures required are the same as
previously explained under "Redemption of Capital Stock."
Exchange by Telephone. Shareholders may exchange by
------------------------
telephone among all funds for which the Nicholas Company,
Inc. serves as investment adviser. Only exchanges of $l,000
or more may be executed using the telephone exchange
privilege. Firstar Trust Company charges a $5.00 fee for
each telephone exchange. In an effort to avoid the risks
often associated with large market timers, the maximum
telephone exchange per account per day is set at $100,000
with a maximum of $l,000,000 per day for related accounts.
Four telephone exchanges per account during any twelve month
period will be allowed.
Procedures for exchanging Fund shares by telephone may be
modified or terminated at any time by the Fund or Firstar Trust
Company. Neither the Fund nor Firstar Trust Company will be
responsible for the authenticity of exchange instructions
received by telephone. Telephone exchanges can only be made by
calling Firstar Trust Company at 4l4-276-0535 or 800-544-6547.
You will be required to provide pertinent information regarding
your account. Calls will be recorded.
TRANSFER OF CAPITAL STOCK
Shares of the Fund may be transferred in instances such as
the death of a shareholder, change of account registration,
change of account ownership and in cases where shares of the Fund
are transferred as a gift. Documents and instructions necessary
to transfer capital stock can be obtained by writing or calling
Firstar Trust Company (414-276-0535 or 800-544-6547) or Nicholas
Company, Inc. (414-272-6133 or 800-227-5987) prior to submitting
any transfer requests.
DETERMINATION OF NET ASSET VALUE
The net asset value per share will be computed by the
Adviser as of the close of trading on the New York Stock Exchange
on each day on which the Exchange is open for unrestricted
trading which, in general, means Monday through Friday of each
week except New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The net asset value per share is determined by
dividing the total current market value of the assets of the
Fund, less its liabilities, by the total number of shares
outstanding at the time of determination. A portfolio security
which is traded on a national securities exchange is valued at
the price of the last sale on such exchange. If no sale has
occurred on the date as of which assets are valued, or if the
security is traded only in the over-the-counter market, it
normally will be valued at the latest bid prices, unless the
Board of Directors in good faith determines that some other price
reflects more closely the true market value.
Bid prices for debt securities are obtained from the Fund's
pricing service which consults one or more market makers of each
debt security being priced. Debt securities listed on a national
exchange may be priced at the last sale price if the Fund's
pricing service believes such price represents market value of
the security for institutional trades. The pricing of all debt
securities takes into account the fact that the Fund trades in
institutional size trading units. Common stocks and other equity-
type securities traded on a stock exchange or NASDAQ ordinarily
will be valued on the basis of the last sale price on the date of
valuation or in the absence of any sale on that day, the closing
bid price. Securities for which current quotations are not
readily available and other assets of the Fund are valued at fair
value as determined in good faith by the Fund's Board of
Directors.
The Fund may, at the discretion of its Board of Directors,
also compute the net asset value at other times and vary the
effective periods of the public offering prices based on such
additional determination of net asset value. Determination of
the net asset value may be suspended when the right of redemption
is suspended.
PERFORMANCE MEASUREMENT
The Fund may from time to time include its "total return,"
"average annual total return," "yield" and "distribution rate" in
advertisements or in information furnished to present and
prospective shareholders. All performance figures are based on
historical earnings and are not intended to indicate future
results. The "total return" of the Fund is expressed as a ratio
of the increase (or decrease) in value of a hypothetical
investment in the Fund at the end of a measuring period to the
amount initially invested. The "average annual total return" is
the total return discounted for the number of represented time
periods and is expressed as a percentage. The rate represents
the annual rate achieved on the initial investment to arrive at
the ending redeemable value. The ending value assumes
reinvestment of dividends and capital gains and the reduction of
account charges, if any. This computation does not reflect any
sales load or other nonrecurring charges, since the Fund is not
subject to such charges.
The "average annual total return" and "total return" are
computed according to the following formulas:
n
P(1 plus T) = ERV
or
Total Return = ERV - 1
___
P
n
Average Annual Total Return = nth root of ERV
--- -1
P
where:
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = at the end of the 1, 5 or 10 year periods, the ending
redeemable value of a hypothetical $1000 payment made at the
beginning of the 1, 5 and 10 year periods.
FOR THE ONE, FIVE AND TEN YEAR
PERIODS ENDED DECEMBER 31, 1996
_______________________________
ONE YEAR FIVE YEARS TEN YEARS
________ __________ _________
Total Return 12.37% 62.37% 135.07%
Average Annual Total Return 12.37% 10.18% 8.92%
For purposes of the above calculations, the following
assumptions are made: (1) all dividends and distributions by
the Fund are reinvested at the net asset value calculated on the
reinvestment dates during the period; (2) a complete redemption
at the end of the periods is made; and (3) all recurring fees
that are charged to all shareholder accounts are included.
These figures are computed by adding the total number of
shares purchased by a hypothetical $1,000 investment in the Fund
to all additional shares purchased within a one year period with
reinvested dividends and distributions, reducing the number of
shares by those redeemed to pay account charges, taking the value
of those shares owned at the end of the year and reducing it by
any deferred charges, and then dividing that amount by the
initial $1,000 investment. This computation does not reflect any
sales load or other nonrecurring charges, since the Fund is not
subject to such charges.
The "30-day yield" of the Fund is calculated by dividing the
Fund's net investment income per share, as defined by the
Securities and Exchange Commission, for the 30-day period by the
net asset value per share on the last day of the stated period.
Net investment income represents dividends and interest generated
by the Fund's portfolio securities reduced by all expenses and
any other charges that have been applied to all shareholder
accounts. The calculation assumes the thirty day net investment
income is compounded monthly for six months and then annualized.
The Fund's distribution rate is calculated by annualizing the
most recent per share income distribution and dividing by the net
asset value per share on the last day of the period. Generally,
the distribution rate reflects the amounts actually paid to
shareholders at a point in time and is based on book income,
whereas the yield reflects the earning power, net of expenses, of
the Fund's portfolio securities at a point in time. The Fund's
yield may be more or less than the amount actually distributed to
shareholders. Methods used to calculate advertised yields and
total returns are standardized for all bond and stock mutual
funds by the Securities and Exchange Commission.
The yield is computed as follows:
Yield = 2[((A-B/CD)+1)6-1]
where:
A = Dividend and interest income
B = Expenses accrued for the period (net of expense
reimbursement)
C = Average daily number of shares outstanding during
the period that were entitled to receive dividends
D = Maximum offering price per share on the last day of
the period
For the 30-day period ended December 31, 1996, the Fund's 30-
day yield was 8.32%, and the Fund's distribution rate was 8.39%.
In sales materials, reports and other communications to
shareholders, the Fund may compare its performance to certain
indices. The Fund also may include evaluations of the Fund
published by nationally recognized financial publications and
ranking services, such as Forbes, Money, Financial World, Lipper
Analytical Services Mutual Fund Performance Analysis and
Morningstar Mutual Funds.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAX STATUS
The Fund intends to continue to qualify annually as a
"regulated investment company" under the Internal Revenue Code of
1986 and intends to take all other action required to insure that
little or no Federal income taxes will be payable by the Fund.
The Fund qualified as a "regulated investment company" for the
year ended December 31, 1996. Among other requirements, the Fund
(i) must derive less than 30% of its gross income from the
aggregate of realized gains on disposition of securities held
less than three months, and (ii) must distribute to its
shareholders not less than 90% of its investment company taxable
income for the taxable year. As a regulated investment company,
the Fund will be relieved from substantially all Federal income
taxes, if, as intended, it distributes substantially all of its
net investment income and net realized capital gains (after
utilization of any available capital loss carryovers).
The Code imposes a 4% nondeductible excise tax on a regulated
investment company, such as the Fund, if it does not distribute
to its shareholders during the calendar year an amount equal to
98% of the Fund's investment company ordinary income, with
certain adjustments, for such calendar year, plus 98% of the
Fund's capital gain net income (if any) for the one-year period
ending on October 31 of such calendar year. In addition, an
amount equal to any undistributed investment company taxable
income or capital gain net income from the previous calendar year
must also be distributed to avoid the excise tax. The excise tax
is imposed on the amount by which the Fund does not meet the
foregoing distribution requirements. The Fund intends to make
distributions necessary to avoid imposition of the excise tax.
Dividends of the Fund, if any, are paid to shareholders on or
about the end of April, July, October and December. In those
years in which sales of portfolio securities result in net
realized capital gains (after utilization of any available
capital loss carryforwards), such gains are distributed to
shareholders in December or January. It is the practice of the
Fund to distribute capital gains in shares of the Fund at net
asset value or, at each shareholder's election, in cash. The net
asset value of the shares received from a capital gain
distribution is determined as of the close of business on the day
set by the Board of Directors for the expiration of the
shareholder's option to take cash rather than shares of the Fund.
(See "Dividend Reinvestment Plan.")
For Federal income tax purposes, distributions by the Fund,
whether received in cash or invested in additional shares of the
Fund, will be taxable to the Fund's shareholders, except those
shareholders that are not subject to tax on their income. Long-
term capital gains distributed by the Fund will retain the
character that it had at the Fund level. Income distributed from
the Fund's net investment income and net realized short-term
capital gains are taxable to shareholders as ordinary income.
Dividends paid by the Fund to individual shareholders will
not qualify for any dividends received exclusion; however,
corporate shareholders will be eligible for a 70% dividends
received deduction, subject to a reduction for various reasons,
including the fact that the total of dividends received from
domestic corporations in any year are less than 100% of the
Fund's gross income.
If at the time of a purchase of the Fund's shares the Fund
has undistributed income or capital gains included in the
computation of net asset value per share, a dividend or capital
gain distribution shortly after such purchase may be taxable to
the shareholder although it is in whole or part a return of
capital and will have the effect of reducing the net asset value
per share. As of December 31, 19956, the Fund had a capital loss
carryforward and will make no capital gains distribution as long
as such conditions exist. The Fund has approximately $9,216,000
of net capital losses which may be used to offset capital gains
in future years. Capital loss carryovers of approximately
$343,000 expire in 1997, $4,805,000 in 1998, $482,000 in 1999,
$2,081,000 in the year 2000 and $1,505,000 in the year 2003.
Net realized losses on investments are not available as
income tax deductions to Fund shareholders but give rise to
capital loss carryforwards of the Fund which may be used to
offset future realized capital gains (if any) otherwise
distributable to shareholders. The Fund will send to all
shareholders annually a statement showing the Federal tax status
of each year's dividends. Dividends and any capital gains
distributions may be subject to state and local taxes.
BACKUP WITHHOLDING OF DIVIDENDS AND REDEMPTION PAYMENTS
Under the Interest and Dividend Tax Compliance Act of 1983,
some shareholders may be subject to a 31% withholding on
reportable dividends, capital gain distributions (if any) and
redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those (i) for
whom a taxpayer identification number is not on file with the
Fund or who, to the Fund's knowledge, have furnished an incorrect
number; (ii) who have failed to declare or underreported certain
income on their federal returns. When establishing an account,
an investor must certify under penalties of perjury that the
taxpayer identification number supplied to the Fund is correct
and that he is not subject to backup withholding.
THE FOREGOING TAX DISCUSSION RELATES SOLELY TO U.S. FEDERAL
INCOME TAXES AND IS NOT INTENDED TO BE A COMPLETE DISCUSSION OF
ALL FEDERAL TAX CONSEQUENCES. SHAREHOLDERS SHOULD CONSULT WITH A
TAX ADVISER CONCERNING THE FEDERAL, STATE AND LOCAL TAX ASPECTS
OF AN INVESTMENT IN THE FUND.
INVESTORS' SERVICE PLANS
The following Plans, which are available for the convenience
of investors, may be terminated at any time by the Fund or the
shareholder without penalty. Except as described below, costs of
the Plans will be borne by the Fund.
DIVIDEND REINVESTMENT PLAN
Unless a shareholder elects to accept cash in lieu of shares,
all dividend and capital gain distributions are automatically
reinvested in shares of the capital stock of the Fund through the
Dividend Reinvestment Plan. An election to accept cash may be
made in an application to purchase capital stock of the Fund or
by separate written notification. Under the Dividend
Reinvestment Plan, all distributions, whether from income or
capital gains, will be reinvested in additional shares of the
Fund at the net asset value in effect at the close of the
dividend or distribution record date and are credited to the
shareholder's account. If the application of such distributions
to the purchase of additional shares of the Fund would result in
the issuance of fractional shares, the Fund may, at its option,
either issue fractional shares (computed to three decimal places)
or pay to the shareholder cash equal to the value of the
fractional share on the dividend or distribution payment date.
Shareholders will be advised of the number of shares purchased
and the price following each reinvestment. As in the case of
normal purchases, stock certificates are not issued unless
requested. In no instance will a certificate be issued for a
fraction of a share.
Shareholders may withdraw from the Dividend Reinvestment Plan
and elect to receive dividends and distribution in cash at any
time by giving written notice to the Fund. Any shareholder who
is not participating in the Dividend Reinvestment Plan may elect
to do so by giving written notice to the Fund. An election must
be received by the Transfer Agent prior to the dividend record
date of any particular distribution for the election to be
effective for that distribution. If an election to withdraw
from or participate in the Dividend Reinvestment Plan is received
between a dividend record date and payment date, it shall become
effective on the day following the payment date. The Fund may
modify or terminate the Dividend Reinvestment Plan at any time on
thirty days written notice mailed to participants.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who have purchased or currently own $10,000 or
more of Fund shares at the current market value may open a
Systematic Withdrawal Plan and receive monthly or quarterly
checks for any designated amount. Firstar Trust Company
reinvests all income and capital gain dividends in shares of the
Fund. Shareholders may add shares to, withdraw shares from, or
terminate the Plan at any time. Each withdrawal payment may be a
taxable event to the shareholder. Liquidation of the shares in
excess of distributions may deplete or possibly use up the
initial investment, particularly in the event of a market
decline, and withdrawals cannot be considered a yield or income
on the investment. This Plan is available in those states where
securities regulations permit. The additional costs involved in
making systematic withdrawal payments will be borne by the
Adviser. In addition to termination of the Plan by the Fund or
shareholders, the Plan may be terminated by Firstar Trust Company
upon written notice mailed to the shareholders. Please contact
the Nicholas Company for copies of the Plan documents.
RETIREMENT PLANS
The following is a summary of two retirement plans developed
by the Fund. Since a retirement investment program involves
commitments covering future years, it is important that the
investor consider the investment objective and policies of the
Fund as described in the Prospectus and this Statement of
Additional Information. Termination or curtailment of a Plan for
other than business reasons within a few years after its adoption
may result in adverse tax consequences. Important tax and legal
consequences are involved in establishing such a Plan. The
advice of legal counsel should be obtained before proceeding.
The minimum initial investment and subsequent investment
requirements apply.
MASTER (KEOGH) RETIREMENT PLAN
The Fund has available a master retirement plan (formerly
called a "Keogh" Plan) for self employed individuals. Any person
seeking additional information or wishing to participate in the
plan may contact the Fund. Consultation with a tax adviser
regarding tax consequences is recommended.
INDIVIDUAL RETIREMENT ACCOUNT
Individuals may be able to establish their own tax-sheltered
individual retirement account ("IRA"). The Fund offers a
prototype IRA Plan for adoption by individuals who qualify for
spousal, deductible and non-deductible IRA accounts. As long as
the aggregate IRA contributions meet the Fund's minimum
investment requirement of $500, the Fund will accept any
allocation of such contribution between spousal, deductible and
non-deductible accounts. The acceptability of this calculation
is the sole responsibility of the shareholder. For this reason,
it is advisable for taxpayers to consult with their personal tax
adviser to determine the deductibility of their IRA
contributions.
A description of applicable service fees as well as
application forms are available upon request from the Fund. The
IRA documents also contain a Disclosure Statement which the
Internal Revenue Service requires to be furnished to individuals
who are considering adopting an IRA.
Because a retirement program involves commitments covering
future years, it is important that the investment objectives of
the Fund be consistent with the participant's retirement
objectives. Premature withdrawals from a retirement plan may
result in adverse tax consequences. See "Purchase and Redemption
of Capital Stock." Consultation with a tax adviser regarding tax
consequences is recommended.
BROKERAGE
Decisions to buy and sell securities and to place the Fund's
brokerage business are made by the Adviser. Mr. Nicholas,
President, Treasurer, Portfolio Manager and director of the Fund
and an officer and director of the Adviser, is primarily
responsible for making those decisions.
The Adviser selects a broker or dealer for the execution of a
portfolio transaction on the basis that such broker or dealer
will execute the order as promptly and efficiently as possible,
subject to the overriding policy of the Fund which is to obtain
the best market price and reasonable execution for all its
transactions, giving due consideration to such factors as
reliability of execution and the value of research, statistical
and price quotation services provided by such broker or dealer.
The research services provided by brokers consist of
recommendations to purchase or sell specific securities, the
rendering of advice regarding events involving specific issuers
of securities and events and current conditions in specific
industries, and the rendering of advice regarding general
economic conditions affecting the stock market and the U.S.
economy.
The Adviser does not specifically negotiate commissions and
charges with a broker or dealer in advance of each transaction.
The approximate brokerage discount and charges are, however,
generally known to the Adviser prior to effecting the
transaction. In determining the overall reasonableness of the
commissions paid, the Adviser compares the commission rates to
those it pays on transactions for its other client accounts and
to the rates generally charged in the industry to institutional
investors such as the Fund. The commissions are also considered
in view of the value of the research, statistical and price
quotation services, if any, rendered by the broker or dealer
through whom a transaction is placed.
Purchases and sales of portfolio securities are frequently
placed, without any agreement or undertaking to do so, with
brokers and dealers who provide the Adviser with such
supplemental research, statistical and price quotation services.
The Adviser understands that since the brokers and dealers
rendering such services are compensated therefor by commissions,
such services would be unilaterally reduced or eliminated by the
brokers and dealers if none of the Fund's transactions were
placed through them. While these services have value which
cannot be measured in dollars, the Adviser believes such services
do not reduce the Fund's or the Adviser's expenses.
The Securities and Exchange Commission prohibits fixed
minimum brokerage rates. In instances where it is determined by
the Adviser that the supplemental research and statistical
services are of significant value, it is the practice of the
Adviser to place the Fund's transactions with brokers or dealers
who are paid a higher commission than other brokers or dealers.
However, commissions paid are presently lower than those paid
prior to the elimination of fixed minimum rates and are no higher
than rates which could be obtained from other brokers or dealers
who would also furnish comparable supplemental research and
statistical services. The Adviser utilizes research and other
information obtained from brokers and dealers in managing its
other client accounts. On the other hand, the Adviser obtains
research and information from brokers and dealers who transact
trades for the Adviser's other client accounts, which is also
utilized by the Adviser in managing the Fund's portfolio.
The Fund may effect portfolio transactions with brokers or
dealers who recommend the purchase of the Fund's shares. The
Fund may not allocate brokerage on the basis of recommendations
to purchase shares of the Fund.
Over-the-counter market purchases and sales of stocks and
most bonds are generally transacted directly with principal
market makers, who retain the difference between their cost in a
security and its selling price. In some circumstances where, in
the opinion of the Adviser, better prices and executions are
available elsewhere, the transactions are placed through brokers
who are paid commissions directly. The Fund paid aggregate
brokerage commissions of approximately $3,040, $12,173 and
$7,142 in fiscal 1994, 1995 and 1996, respectively.
CAPITAL STRUCTURE
Nicholas Income Fund, Inc. has an authorized capitalization
of one hundred million (100,000,000) shares of common stock, par
value $0.01 per share, of which 52,650,373 shares were issued and
outstanding on December 31, 1996.
All shares are of one class, have equal voting power and
participate equally in dividends and distributions from capital
gains, when and as declared by the Board of Directors, and net
assets on liquidation. The shares, when issued, will be fully
paid and non-assessable; they will not have any preemptive,
preference, sinking fund or conversion rights and the Fund may
not call outstanding shares.
The shares are transferable without restriction, are entitled
to redemption as set forth under "Purchase of Capital Stock" and
"Redemption of Capital Stock" and may be exchanged for shares of
other mutual funds managed by Nicholas Company, Inc.
Fund shares have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the
election of directors can elect 100% of the directors and, in
such event, the holders of the remaining shares so voting will
not be able to elect any directors.
ANNUAL MEETING
Under the laws of the State of Maryland, registered
investment companies, such as the Fund, may operate without an
annual meeting of shareholders under specified circumstances if
an annual meeting is not required by the Investment Company Act
of 1940, as amended. The Fund has adopted the appropriate
provisions in its By-Laws and will not hold annual meetings of
shareholders unless otherwise required to do so.
In the event the Fund is not required to hold annual meetings
of shareholders to elect directors, the Board of Directors of the
Fund will promptly call a meeting of the shareholders of the Fund
for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the record holders
of not less than 10% of the outstanding shares of Common Stock of
the Fund. The affirmative vote of two-thirds of the outstanding
shares, cast in person or by proxy at a meeting called for such
purpose, is required to remove a director of the Fund. The Fund
will assist shareholders in communicating with each other for
this purpose pursuant to the requirements of Section 16(c) of the
Investment Company Act of 1940, as amended.
SHAREHOLDER REPORTS
The Fund will send its shareholders interim reports regarding
the operations and assets of the Fund. The Prospectus contains,
or incorporates by reference, financial statements of the Fund
certified by independent auditors selected annually by the Board
of Directors and approved by the holders of a majority of the
Fund's outstanding shares. Inquiries concerning the Fund may be
made by telephone at 414-272-6133 or 800-227-5987, or by writing
to Nicholas Income Fund, Inc., 700 North Water Street, Suite
1010, Milwaukee, Wisconsin 53202, Attention: Corporate
Secretary.
CUSTODIAN AND TRANSFER AGENT
Firstar Trust Company, P.0. Box 2944, Milwaukee, Wisconsin
53201-2944, Milwaukee, Wisconsin 53201, acts as custodian for the
Fund. As custodian, Firstar Trust Company holds all securities
and cash for the Fund (except for cash maintained in an expense
account with Bank One Milwaukee N.A., Milwaukee, Wisconsin),
delivers and receives payment for securities sold, receives and
pays for securities purchased, collects income from investments
and performs other duties, all as directed by the officers of the
Fund. The Firstar Trust Company does not exercise any
supervisory function over the management of the Fund, the
purchase or sale of securities or the payment or distribution to
shareholders. Firstar Trust Company also acts as transfer agent
and dividend disbursing agent.
INDEPENDENT AUDITORS AND LEGAL COUNSEL
Deloitte & Touche LLP, 411 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, are the independent auditors for the Fund.
Michael Best & Friedrich, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, has passed on the legality of the shares of
Common Stock of the Fund being offered.
FINANCIAL INFORMATION
The schedule of investments, the financial statements and
notes thereto and the Report of Independent Auditors contained in
the Annual Report of the Fund for the fiscal year ended December
31, 1996, are incorporated herein by reference.
NICHOLAS INCOME FUND, INC.
FORM N-1A
PART C: OTHER INFORMATION
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements: Per share income and capital
--------------------
changes information with respect to the Registrant's common stock
appears in Part A; the Registrant's statement of assets and
liabilities, including the schedule of investments, as of
December 31, 1996, and the related statement of operations for
the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the per share
income and capital changes for each of the years in the period
then ended are incorporated in Parts A and B by reference to the
Annual Report to Shareholders of the Registrant for its fiscal
year ended December 31, 1996.
(b) Exhibits: All exhibits required to be filed pursuant
--------
to Item 24(b) are listed in the Exhibit Index which appears
elsewhere herein, and (i) appear in their entirety herein, or
(ii) are incorporated by reference to previous filings with the
Commission, as indicated in such Exhibit Index.
FOR THE ONE, FIVE AND TEN YEAR
PERIODS ENDED DECEMBER 31, 1995
_______________________________
ONE YEAR FIVE YEARS TEN YEARS
________ __________ _________
Total Return 16.16% 77.81% 133.11%
Average Annual Total Return 16.16% 12.20% 8.83%
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
----------------------------------------------------------------
The Registrant is not under common control with any other
person. The Registrant, Nicholas Fund, Inc., Nicholas II, Inc.,
Nicholas Limited Edition, Inc., Nicholas Money Market Fund, Inc.
and Nicholas Equity Income Fund, Inc. share a common investment
adviser, Nicholas Company, Inc.; however, each such fund has an
independent Board of Directors responsible for supervising the
investment and business management services provided by the
adviser. The Registrant does not control any other person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
-------------------------------
As of March 31, 1997, the number of record holders of the
securities of the Registrant was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock 8,834
ITEM 27. INDEMNIFICATION
---------------
Article VII, Section 7 of the By-Laws of the Registrant
provides for the indemnification of its officers and directors
against liabilities incurred in such capacities to the extent
described therein, subject to the provisions of the Maryland
General Business Corporation Law; such Section 7 is incorporated
herein by reference to the By-Laws of the Registrant previously
filed with the Securities and Exchange Commission.
The investment advisor to the Registrant, Nicholas Company,
Inc., has, by resolution of its Board of Directors, agreed to
indemnify the Registrant's officers, directors and employees to
the extent of any deductible or retention amount required under
insurance policies providing coverage to such persons in
connection with liabilities incurred by them in such capacities.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
----------------------------------------------------
None.
ITEM 29. PRINCIPAL UNDERWRITERS
----------------------
None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
All accounts, books or other documents required to be
maintained pursuant to Section 31(a) of the Investment Company
Act of 1940, and the Rules of the Securities and Exchange
Commission promulgated thereunder, are located at the offices of
the Registrant, 700 North Water Street, Milwaukee, Wisconsin
53202 or Firstar Trust Company, 615 East Michigan Street,
Milwaukee, Wisconsin 53202.
ITEM 31. MANAGEMENT SERVICES
-------------------
None.
ITEM 32. UNDERTAKINGS
------------
The Registrant's By-Laws provide that it will indemnify its
officers and directors for liabilities incurred by them in any
proceeding arising by reason of the fact that any such person was
or is a director or officer of the Registrant. Insofar as
indemnification for liability arising under the Act may be
permitted to directors, officers and controlling persons of the
Registrant under the Securities Act of 1933 ("Act"), or
otherwise, the Registrant has been advised that, in the opinion
of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Act and may,
therefore, be unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer of controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the
Prospectus is sent or given, the latest Annual Report to
Shareholders which is incorporated by reference in the Prospectus
and furnished pursuant to and meeting the requirements of Rule
14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934;
and, where interim financial information required to be presented
by Article 3 of Regulation S-X is not set forth in the
Prospectus, to deliver, or cause to be delivered to each person
to whom the Prospectus is sent or given, the latest Quarterly
Report which is incorporated by reference in the Prospectus to
provide such interim financial information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant, Nicholas Income Fund, Inc., a corporation
organized and existing under the laws of the State of Maryland,
has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 28th
day of April, 1997.
NICHOLAS INCOME FUND, INC.
By: /s/ Thomas J. Saeger
___________________________
Thomas J. Saeger,
Executive Vice
President, Secretary and
Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
this Amendment to the Registration Statement has been signed
below by the following persons in the capacities indicated on
April 28, 1997.
/s/Albert O. Nicholas President (Principal Executive
______________________ Officer) and Director
Albert O. Nicholas
/s/Frederick F. Hansen Director
______________________
Frederick F. Hansen
/s/Jay H. Robertson Director
______________________
Jay H. Robertson
/s/Melvin L. Schultz Director
______________________
Melvin L. Schultz
By: /s/ Thomas J. Saeger
____________________
Thomas J. Saeger, as
Attorney-in-Fact for the above officers
and directors, under authority of
Powers of Attorney previously filed and filed herewith.
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
____________ ___________ __________
(b)(1) Articles of Incorporation of the Registrant *
(b)(2) By-Laws of the Registrant. *
(b)(4) Specimen certificate evidencing common stock,
par value $0.01 per share, of the Registrant. *
(b)(5) Investment Advisory Agreement, dated January
15, 1986, between the Registrant and Nicholas
Company, Inc. *
(b)(8) Custodian Agreement, dated January 15, 1986,
between the Registrant and Firstar Trust
Company. *
(b)(10) Opinion of Michael Best & Friedrich,
counsel to the Registrant, concerning the
legality of the Registrant's common stock,
including consent to the use thereof. *
(b)(11) Consent of Deloitte & Touche, LLP,
independent auditors.
(b)(12) Statements of Assets and Liabilities of
Registrant, including the Schedule of
Investments, as of December 31, 1996,
and the related Statement of Changes in
Net Assets for each of the two years in
the period ended December 31, 1996,
and the Financial Highlights for each
of the ten years in the period ended
December 31, 1996 [included in the Annual
Report to Shareholders of Registrant for
the fiscal year ended December 31, 1996.
(b)(14.1) Registrant's Prototype IRA Plan. *
(b)(14.2) Registrant's Master Retirement Plan for Self-
Employed Individuals. *
(b)(16) Schedule for computation of performance
quotation provided in response to Item 22 of
Form N-1A.........................................
(b)(17) Financial Data Schedule...........................
(b)(99) Power of Attorney (incorporated by
reference to Registrant's Post-Effective
Amendment No. 71 to the Registration
Statement, as filed with the Securities and
Exchange Commission on April 10, 1987, and
Registrant's Post-Effective Amendment No. 81
to the Registration Statement, as filed with
the Securities and Exchange Commission on
April 30, 1996). *
____________________
* Incorporated by reference to previous filings with the
Securities and Exchange Commission.
LIST OF CONSENTS
1. Consent of Michael Best & Friedrich
(included in Exhibit (b)(10))
2. Consent of Deloitte & Touche, LLP
(included as Exhibit (b)(11))
<letterhead>
INDEPENDENT AUDITORS' CONSENT
Nicholas Income Fund, Inc.
We consent to the incorporation by reference in this Post-Effective Amendment
to the Registration Statement on Form N-1A (File No. 2-10806) of Nicholas
Income Fund, Inc. of our report dated January 11, 1997 accompanying the
financial statements of Nicholas Income Fund, Inc. contained in the Fund's 1996
annual report to shareholders and to the reference to us under the caption
"Financial Highlights" which appears in the Fund's Prospectus, which is a part
of such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Milwaukee, Wisconsin
April 23, 1997
February 28, 1997
Report to Fellow Shareholders:
In a year when many fixed-income investors were disappointed, Nicholas
Income Fund came through with a total return of 12.37%, with distributions
reinvested. Lower quality bonds, which we emphasize, performed better
than high quality issues such as U.S. Government securities during 1996.
Results of the latest one, five, ten and fifteen year periods ended December
31, 1996 are shown below:
<TABLE>
Average Annual Total Return *
-------------------------------
1 Year 5 Years 10 Years 15 Years
------ ------- -------- --------
<S> <C> <C> <C> <C>
Nicholas Income Fund
(Distributions Reinvested) +12.37% +10.18% + 8.92% +11.95%
Consumer Price Index
(Inflation) + 3.31% + 2.84% + 3.68% + 3.56%
Ending value of $10,000 invested
in Nicholas Income Fund
(Distributions Reinvested) $11,237 $16,237 $23,507 $54,359
</TABLE>
As one can see from the table above, Nicholas Income Fund has provided a
substantial return over inflation for many years. In the fifteen year period
ended December 31, 1996, the margin of return over inflation has been 8.39%
on an average annual basis (11.95% minus 3.56%). We also take pride in the
fact that Nicholas Income Fund has earned Morningstar's five star (*****)
rating for it's overall risk-adjusted performance as of December 31, 1996.
The top ten percent of the 1104 fixed income funds eligible for the overall
rating receive five stars.
At December 31, 1996, total net assets of Nicholas Income Fund were $186
million. Cash and equivalents were 9.0%. The 30-day SEC yield annualized on
Nicholas Income Fund was 8.32%.
Thank you for your interest in the shares of Nicholas Income Fund.
Sincerely,
/s/ Albert O. Nicholas
-----------------------
Albert O. Nicholas
President
*Morningstar proprietary ratings reflect historical risk-adjusted
performance. The ratings are subject to change monthly.
Morningstar's overall rating is based on the Fund's three, five,
and ten year average annual returns in excess of 90-day Treasury
bill returns with appropriate fee adjustments and a risk factor
that reflects the Fund's performance below 90-day Treasury bill
returns. The one year rating is calculated using the same
methodology but is not a component of the overall rating. The
Fund's one, three, five and ten year ratings were all five
stars, as of December 31, 1996, based on a comparison of 1670,
1104, 597 and 242 fixed income funds resectively. 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, share price,
yield and return will fluctuate so an investment, when redeemed,
may be worth more or less than original cost.
Schedule of Investments
December 31, 1996
- ---------------------------------------------------------------------------
<TABLE>
Quoted
Shares or Market
Principal Value
Amount (Note A)
- --------- --------
NON-CONVERTIBLE BONDS - 78.5%
<S> <C>
Broadcasting and Communications - 18.2%
$4,000,000 Adelphia Communications Corporation
9.875%, 3/1/05...................................... $ 3,685,000
2,000,000 Adelphia Communications Corporation
11.875%, 9/15/04.................................... 2,012,500
5,000,000 American Radio Systems Corporation
9.00%, 2/1/06....................................... 4,925,000
6,000,000 Cablevision Systems Corporation
9.875%, 5/15/06..................................... 6,157,500
6,000,000 Century Communications Corporation
9.50%, 8/15/00...................................... 6,165,000
5,000,000 Hollinger International, Inc.
9.25%, 2/1/06....................................... 4,950,000
2,000,000 Young Broadcasting Inc.
10.125%, 2/15/05.................................... 1,970,000
4,000,000 Young Broadcasting Inc.
9.00%, 1/15/06...................................... 3,890,000
------------
33,755,000
------------
Consumer Products and Services - 16.4%
5,500,000 Coca-Cola Bottling Group Southwest, Inc.
9.00%, 11/15/03..................................... 5,582,500
1,000,000 Outboard Marine Corp.
8.25%, 3/15/98...................................... 1,013,898
3,300,000 Outboard Marine Corp.
8.625%, 3/15/01..................................... 3,377,662
2,000,000 Owens-Illinois, Inc.
10.00%, 8/1/02...................................... 2,090,000
3,000,000 Owens-Illinois, Inc.
10.25%, 4/1/99...................................... 3,022,500
6,000,000 Playtex Family Products Corp.
9.00%, 12/15/03..................................... 5,985,000
4,000,000 RC/Arby's Corp.
9.75%, 8/1/00....................................... 3,890,000
5,000,000 Samsonite Corporation
11.125% 7/15/05..................................... 5,500,000
------------
30,461,560
------------
Diversified Products and Services - 11.5%
3,750,000 Borg-Warner Security Corporation
9.125%, 5/1/03...................................... 3,745,313
2,000,000 Fort Howard Corp.
10.00%, 3/15/03..................................... 2,095,000
4,250,000 Fort Howard Corp.
9.25%, 3/15/01...................................... 4,409,375
2,400,000 IDEX Corp.
9.75%, 9/15/02...................................... 2,520,000
3,300,000 Mark IV Industries, Inc.
8.75%, 4/1/03....................................... 3,403,125
4,150,000 Sequa Corp.
8.75%, 12/15/01..................................... 4,191,500
1,000,000 Sequa Corp.
9.625%, 10/15/99.................................... 1,032,500
------------
21,396,813
------------
Electric-Utilities - 2.1%
1,000,000 Toledo Edison Co.
7.78%, 4/1/03....................................... 979,884
500,000 Toledo Edison Co.
8.00%, 11/1/03...................................... 497,858
1,000,000 Toledo Edison Co.
8.18%, 7/30/02...................................... 1,003,121
1,500,000 Toledo Edison Co.
8.70%, 9/1/02....................................... 1,467,194
------------
3,948,057
------------
Energy - 5.9%
4,925,000 Energy Ventures, Inc.
10.25%, 3/15/04..................................... 5,331,312
1,000,000 Maxus Energy Corp.
10.63%, 8/19/98..................................... 1,034,535
2,000,000 Maxus Energy Corp.
10.75%, 4/02/02..................................... 2,082,526
1,000,000 Maxus Energy Corp.
8.46%, 9/29/03...................................... 965,713
1,500,000 Maxus Energy Corp.
9.375%, 11/1/03..................................... 1,522,500
------------
10,936,586
------------
Finance and Insurance - 2.5%
1,000,000 American Annuity Group, Inc.
11.125%, 2/1/03..................................... 1,072,500
2,000,000 Amresco, Inc.
8.75%, 7/1/99....................................... 2,005,000
1,000,000 Litchfield Financial Corp.
10.00%, 11/1/04..................................... 1,030,000
475,000 Litchfield Financial Corp.
8.875%, 11/01/03.................................... 465,500
------------
4,573,000
------------
Food and Beverages - 7.0%
3,000,000 ARA Group, Inc.
8.50%, 6/1/03....................................... 3,125,463
6,000,000 Canandaigua Wine Company, Inc.
8.75%, 12/15/03..................................... 5,850,000
3,000,000 Chiquita Brands International, Inc.
9.125%, 3/1/04...................................... 3,022,500
1,000,000 Chiquita Brands International, Inc.
9.625%, 1/15/04..................................... 1,035,000
------------
13,032,963
------------
Food Retailer - 2.6%
4,470,000 Stater Brothers Holdings, Inc.
11.00%, 3/1/01...................................... 4,782,900
------------
Health Care - 12.3%
3,860,000 Beverly Enterprises, Inc.
8.75%, 12/31/03..................................... 3,729,725
3,000,000 Beverly Enterprises, Inc.
9.00%, 2/15/06...................................... 3,003,750
3,000,000 Magellan Health Services, Inc.
11.25%, 4/15/04..................................... 3,330,000
7,000,000 Paracelsus Healthcare Corporation
10.00%, 8/15/06..................................... 6,562,500
4,000,000 Quorum Health Group, Inc.
8.75%, 11/1/05...................................... 4,105,000
2,000,000 Universal Health Services, Inc.
8.75%, 8/15/05...................................... 2,052,500
------------
22,783,475
------------
TOTAL NON-CONVERTIBLE BONDS
(cost $143,873,238)................................. 145,670,354
------------
CONVERTIBLE BONDS - 2.3%
500,000 Continental Pacific Bank
8.00%, 4/30/03...................................... 525,000
4,631,000 Emeritus Corporation
6.25%, 1/1/06....................................... 3,739,532
------------
TOTAL CONVERTIBLE BONDS
(cost $4,267,925)................................. 4,264,532
------------
STOCKS - 10.2%
5,000 Homestead Savings
Convertible Preferred,
Series A, $2.95 *.................................... 5,000
100,000 Healthcare Realty Trust Incorporated................. 2,650,000
130,000 Hospitality Properties Trust......................... 3,770,000
100,000 Meditrust............................................ 4,000,000
130,000 National Health Investors, Inc....................... 4,923,750
110,000 Omega Healthcare Investors, Inc...................... 3,657,500
------------
TOTAL STOCKS
(cost $15,098,417)................................. 19,006,250
------------
SHORT-TERM INVESTMENTS - 7.5%
Commercial Paper - 5.7%
$1,500,000 Houston Industries, Inc.
5.60%, due January 2, 1997........................... 1,500,000
1,500,000 Schreiber Foods, Inc.
5.55%, due January 2, 1997........................... 1,500,000
1,500,000 Houston Industries, Inc.
5.60%, due January 3, 1997........................... 1,499,763
1,000,000 Quad/Graphics, Inc.
5.60%, due January 3, 1997........................... 999,844
2,500,000 Fiserv, Inc.
5.60%, due January 6, 1997........................... 2,498,444
2,500,000 Fiserv, Inc.
6.00%, due January 7, 1997........................... 2,497,917
------------
10,495,968
------------
Variable Demand Notes - 1.8%
1,066,051 Sara Lee Corporation
5.32%, due January 2, 1997........................... 1,066,051
2,120,214 Johnson Controls, Inc.
5.36%, due January 2, 1997........................... 2,120,214
170,856 Pitney Bowes Credit Corporation
5.34%, due January 2, 1997........................... 170,856
------------
3,357,121
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $13,811,847)................................... 13,853,089
------------
TOTAL INVESTMENTS.................................... 182,794,225
------------
CASH AND RECEIVABLES,
NET OF LIABILITIES - 1.5%............................ 2,873,694
------------
TOTAL NET ASSETS
(Basis of percentages
disclosed above).................................... $185,667,919
------------
------------
</TABLE>
* This security has been classified as non-income producing.
See notes to financial statements.
Statement of Operations
For the Year Ended December 31, 1996
- --------------------------------------------------------------------
<TABLE>
<S> <C>
INCOME: (Note A)
Interest......................................................... $14,034,414
Dividends........................................................ 1,427,913
Other............................................................ 47,164
----------
Total income................................................ 15,509,491
----------
EXPENSES:
Management fee (Note C)......................................... 661,606
Transfer agent fees............................................. 115,380
Registration fees............................................... 33,460
Legal fees...................................................... 27,707
Postage......................................................... 24,777
Audit and tax consulting fees................................... 14,200
Printing........................................................ 12,712
Custodian fees.................................................. 10,521
Pricing service fees............................................ 9,164
Directors' fees.................................................. 9,000
Insurance....................................................... 7,147
Telephone....................................................... 3,404
Other operating expenses......................................... 1,653
-----------
Total expenses.................................................. 930,731
------------
Net investment income...................................... 14,578,760
-----------
NET REALIZED GAIN ON INVESTMENTS..................................... 458,971
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS............... 5,006,476
-----------
Net gain on investments.................................... 5,465,447
-----------
Net increase in net assets resulting from operations....... $20,044,207
-----------
-----------
See notes to financial statements.
</TABLE>
Statements of Changes in Net Assets
For the Years Ended December 31, 1996 and 1995
- ---------------------------------------------------------------------------
<TABLE>
1996 1995
----------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income........................................... $ 14,578,760 $ 13,236,512
Net realized gain (loss) on investments......................... 458,971 (1,504,358)
Net increase in unrealized appreciation on investments.......... 5,006,476 10,919,434
------------ ------------
Net increase in net assets resulting from operations....... 20,044,207 22,651,588
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.2960 and $0.2950 per share, respectively)................. (14,615,595) (13,329,923)
----------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (10,614,891 and 7,902,672
shares, respectively)......................................... 36,879,473 26,523,048
Net asset value of shares issued in distributions from net
investment income (3,051,652 and 2,823,597 shares,
respectively)................................................. 10,528,296 9,538,891
Cost of shares redeemed (8,444,524 and 7,246,075
shares, respectively)......................................... (29,248,401) (24,222,850)
----------- -----------
Increase in net assets derived from
capital share transactions............................... 18,159,368 11,839,089
----------- -----------
Total increase in net assets............................... 23,587,980 21,160,754
----------- -----------
NET ASSETS:
Beginning of year (including undistributed net
investment income of $646,026 and $739,437, respectively).... 162,079,939 140,919,185
------------ ------------
End of year (including undistributed net
investment income of $609,191 and $646,026, respectively)..... $185,667,919 $162,079,939
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
Statement of Assets and Liabilities
December 31, 1996
- --------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value (cost $177,051,427) (Note A)............ $182,794,225
Receivables-
Interest and dividends....................................................... 4,108,609
------------
Total assets............................................................ 186,902,834
------------
LIABILITIES:
Payables-
Dividends payable............................................................ 1,099,057
Management fee (Note C)...................................................... 59,406
Other payables and accrued expenses.......................................... 76,452
------------
Total liabilities....................................................... 1,234,915
------------
Total net assets........................................................ $185,667,919
------------
------------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding................................................ $188,573,013
Net unrealized appreciation on investments (Note B)............................... 5,701,556
Accumulated net realized losses on investments.................................... (9,215,841)
Undistributed net investment income............................................... 609,191
------------
$185,667,919
------------
------------
NET ASSET VALUE PER SHARE ($.01 par value, 100,000,000 shares authorized),
offering price and redemption price ($185,667,919./.52,650,373
shares outstanding)............................................................... $3.53
-----
-----
</TABLE>
See notes to financial statements.
Financial Highlights
(For a share outstanding throughout the year)
- ----------------------------------------------------------------------
<TABLE>
Year ended December 31,
----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR....... $3.42 $3.21 $3.52 $3.38 $3.34 $3.01 $3.44 $3.68 $3.64 $4.01
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... .30 .30 .30 .30 .31 .35 .39 .38 .38 .38
Net gains or (losses) on
securities (realized
and unrealized)........ .11 .21 (.31) .13 .03 .33 (.43) (.24) .03 (.28)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations........... .41 .51 (.01) .43 .34 .68 (.04) .14 .41 .10
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS *:
Dividends (from net
investment income)..... (.30) (.30) (.30) (.29) (.30) (.35) (.39) (.38) (.37) (.47)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF
YEAR................... $3.53 $3.42 $3.21 $3.52 $3.38 $3.34 $3.01 $3.44 $3.68 $3.64
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN.............. 12.37% 16.16% (0.17)% 12.95% 10.33% 23.05% (1.03)% 3.94% 11.55% 2.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions)............... $185.7 $162.1 $140.9 $158.3 $119.1 $79.9 $60.6 $75.4 $78.2 $69.6
Ratio of expenses to
average net assets....... .55% .58% .59% .62% .69% .76% .77% .81% .83% .86%
Ratio of net investment
income to average net
assets................... 8.55% 8.72% 8.75% 8.42% 9.23% 10.70% 11.74% 10.46% 10.03% 9.79%
Portfolio turnover rate... 33.2% 29.2% 29.2% 39.1% 56.1% 27.5% 40.4% 39.6% 11.9% 47.5%
* The Fund distributed no capital gains for the time periods listed.
</TABLE>
See notes to financial statements.
Notes to Financial Statements
December 31, 1996
- ------------------------------------------------------------------
Note A -- Summary of significant 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, excluding short-term investments, 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. 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.
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.
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 the 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. As of
December 31, 1996, the Fund has approximately $9,216,000 of net capital
losses which may be used to offset capital gains in future years. Capital
loss carryovers of approximately $343,000 will expire in 1997, $4,805,000 in
1998, $482,000 in 1999, $2,081,000 in 2000, and $1,505,000 in 2003.
At December 31, 1996, 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......................... $ 7,772,402
Aggregate gross unrealized depreciation for all
investments in which there was an excess of
tax cost over value......................... (2,070,846)
----------
Net unrealized appreciation............ $5,701,556
----------
----------
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, 1996, liabilities of the Fund included $59,406 payable to
the investment adviser.
Note D -- Investment portfolio transactions:
Purchases and sales of investments, other than short-term obligations,
aggregated $62,922,863 and $52,982,921, respectively, for the year ended
December 31, 1996.
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, 1996, 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, 1996 by correspondence with the custodian. 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, 1996, 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 with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
January 9, 1997
Fifteen Year Historical Record (Unaudited)
- --------------------------------------------------------------------
<TABLE>
Net Investment Growth of
Net Income An Initial
Asset Value Distributions $10,000
Per Share Per Share Investment**
----------- ------------- ------------
<S> <C> <C> <C>
December 31, 1981 *.......... 3.14 $ --- $10,000
December 31, 1982............ 3.68 0.4630 13,514
December 31, 1983............ 3.67 0.4430 15,181
December 31, 1984............ 3.65 0.4420 17,109
December 31, 1985............ 3.96 0.4170 20,752
December 31, 1986............ 4.01 0.3800 23,124
December 31, 1987............ 3.64 0.4660 23,710
December 31, 1988............ 3.68 0.3710 26,448
December 31, 1989............ 3.44 0.3830 27,488
December 31, 1990............ 3.01 0.3970 27,206
December 31, 1991............ 3.34 0.3460 33,478
December 31, 1992............ 3.38 0.2955 36,935
December 31, 1993............ 3.52 0.2890 41,719
December 31, 1994............ 3.21 0.3010 41,647
December 31, 1995............ 3.42 0.2950 48,376
December 31, 1996............ 3.53 0.2960 54,359
</TABLE>
* Date of initial investment.
** Assuming reinvestment of distributions.
The Fund distributed no capital gains for the time periods listed.
April 28, 1997
Nicholas Income Fund, Inc.
700 North Water Street
Suite 1010
Milwaukee, WI 53202
Gentlemen:
We have acted as counsel to Nicholas Income Fund, Inc.
(the "Fund"), a corporation organized under the laws of the State
of Maryland, in connection with the preparation and filing of a
registration statement on Form N-1A and amendments thereto
("Registration Statement"), relating to the registration of the
shares of common stock of the Fund ("Common Stock") under the
Securities Act of 1933, as amended.
We have reviewed the Articles of Incorporation and By-
Laws of the Fund and the Registration Statement; we have also
examined such other corporate records, certified documents and
other documents as we deem necessary for the purposes of this
opinion and we have considered such questions of law as we
believe to be involved. We have assumed without independent
verification the genuineness of signatures and the conformity
with originals of all documents submitted to us as copies. Based
upon the foregoing, we are of the opinion that:
1. The Fund is validly organized under the laws of
the State of Maryland, and has the corporate power to carry on
its present business and is duly authorized to own its properties
and conduct its business in those states where such authorization
is presently required.
2. The Fund is authorized to issue up to one hundred
million (100,000,000) shares of Common Stock, par value $0.01 per
share, including those shares currently issued and outstanding.
3. The shares of Common Stock of the Fund to be
offered for sale pursuant to the Registration Statement have been
duly authorized and, upon the effectiveness of Post-Effective
Amendment No. 81 to the Registration Statement and compliance
with applicable federal and state securities laws and
regulations, when sold, issued (within the limits authorized
under the Articles of Incorporation of the Fund) and paid for as
contemplated in the Registration Statement, such shares will have
been validly and legally issued, fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us in the
Prospectus comprising Part A and elsewhere in the Registration
Statement.
Very truly yours,
MICHAEL BEST & FRIEDRICH
/s/ David E. Leichtfuss
________________________
David E. Leichtfuss
DEL/ljg
<TABLE>
<CAPTION>
Compound and Total Return Calculation NICHOLAS INCOME 12/31/95 THRU 12/31/96
Starting date: 12/31/95 future value 1,123.67
Ending date: 12/31/96 present valu 1,000.00
Total Return 12.3667% # years 1
Average annual return 12.3667% # days 366.00
Investment Redemption
Lump sum Lump sum
Annuity Annuity
PRICE INV INC CAP GAIN # of SHARES REINVESTED REINVESTED CUM TOTAL
DATE /SHARE /SHARE /SHARE INVEST PURCHASED INV INC CAP GAIN SHARES MARKET VALUE
- ----------- ------------- ----------- ----------- ------------- ---------- ----------- ---------- ---------- ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/95 A 3.42 1000 292.398 292.398 $1,000.00
04/19/96 D 3.41 0.0720 6.174 298.571 $1,018.13
07/12/96 D 3.39 0.0730 6.429 305.001 $1,033.95
10/11/96 D 3.46 0.0740 6.523 311.524 $1,077.87
12/30/96 D 3.53 0.0770 6.795 318.319 $1,123.67
12/31/96 A 3.53 318.319 $1,123.67
</TABLE>
<TABLE>
<CAPTION>
Compound and Total Return Calculation NICHOLAS INCOME 12/31/91 THRU 12/31/96
Starting date: 12/31/91 future value 1,623.73
Ending date: 12/31/96 present valu 1,000.00
Total Return 62.3726% # years 5
Average annual return 10.1799% # days 1827.00
Investment Redemption
Lump sum Lump sum
Annuity Annuity
PRICE INV INC CAP GAIN # of SHARES REINVESTED REINVESTED CUM TOTAL
DATE /SHARE /SHARE /SHARE INVEST PURCHASED INV INC CAP GAIN SHARES MARKET VALUE
- ----------- ------------- ----------- ----------- ------------- ---------- ----------- ---------- ---------- ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/91 A 3.34 1000 299.401 299.401 $1,000.00
04/21/92 D 3.36 0.0740 6.594 305.995 $1,028.14
07/17/92 D 3.41 0.0700 6.281 312.277 $1,064.86
10/16/92 D 3.39 0.0700 6.448 318.725 $1,080.48
12/30/92 D 3.38 0.0815 7.685 326.410 $1,103.27
12/31/92 A 3.38 326.410 $1,103.27
04/23/93 D 3.49 0.0720 6.734 333.144 $1,162.67
07/23/93 D 3.53 0.0700 6.606 339.750 $1,199.32
10/15/93 D 3.55 0.0730 6.986 346.737 $1,230.92
12/30/93 D 3.52 0.0740 7.289 354.026 $1,246.17
12/31/93 A 3.52 354.026 $1,246.17
04/22/94 D 3.35 0.0730 7.715 361.741 $1,211.83
07/22/94 D 3.32 0.0740 8.063 369.803 $1,227.75
10/14/94 D 3.29 0.0740 8.318 378.121 $1,244.02
12/29/94 D 3.21 0.0800 9.424 387.545 $1,244.02
12/31/94 A 3.21 387.545 $1,244.02
04/21/95 D 3.30 0.0730 8.573 396.118 $1,307.19
07/14/95 D 3.40 0.0730 8.505 404.623 $1,375.72
10/13/95 D 3.40 0.0730 8.687 413.310 $1,405.25
12/28/95 D 3.41 0.0760 9.212 422.522 $1,440.80
12/31/95 A 3.42 422.522 $1,445.02
04/19/96 D 3.41 0.0720 8.921 431.443 $1,471.22
07/12/96 D 3.39 0.0730 9.291 440.734 $1,494.09
10/11/96 D 3.46 0.0740 9.426 450.160 $1,557.55
12/30/96 D 3.53 0.0770 9.819 459.979 $1,623.73
12/31/96 A 3.53 459.979 $1,623.73
</TABLE>
<TABLE>
<CAPTION>
Compound and Total Return Calculation NICHOLAS INCOME 12/31/86 THRU 12/31/96
Starting date: 12/31/86 future value 2,350.71
Ending date: 12/31/96 present valu 1,000.00
Total Return 135.0710% # years 10
Average annual return 8.9231% # days 3653.00
Investment Redemption
Lump sum Lump sum
Annuity Annuity
PRICE INV INC CAP GAIN # of SHARES REINVESTED REINVESTED CUM TOTAL
DATE /SHARE /SHARE /SHARE INVEST PURCHASED INV INC CAP GAIN SHARES MARKET VALUE
- ----------- ------------- ----------- ----------- ------------- ---------- ----------- ---------- ---------- ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/86 A 4.01 1000 249.377 249.377 $1,000.00
01/15/87 D 3.99 0.0910 5.688 255.064 $1,017.71
04/21/87 D 3.92 0.0920 5.986 261.050 $1,023.32
07/17/87 D 3.82 0.0930 6.355 267.406 $1,021.49
10/21/87 D 3.62 0.0950 7.018 274.423 $993.41
12/14/87 D 3.59 0.0950 7.262 281.685 $1,011.25
12/31/87 A 3.64 281.685 $1,025.33
04/22/88 D 3.74 0.0890 6.703 288.388 $1,078.57
07/15/88 D 3.74 0.0920 7.094 295.482 $1,105.10
10/21/88 D 3.75 0.0930 7.328 302.810 $1,135.54
12/29/88 D 3.68 0.0970 7.982 310.792 $1,143.71
12/31/88 A 3.68 310.792 $1,143.71
04/21/89 D 3.65 0.0940 8.004 318.796 $1,163.61
07/20/89 D 3.66 0.0970 8.449 327.245 $1,197.72
10/25/89 D 3.53 0.0940 8.714 335.959 $1,185.94
12/28/89 D 3.43 0.0980 9.599 345.558 $1,185.26
12/31/89 A 3.44 345.558 $1,188.72
04/20/90 D 3.33 0.0980 10.170 355.728 $1,184.57
07/20/90 D 3.37 0.0990 10.450 366.178 $1,234.02
10/19/90 D 3.03 0.0990 11.964 378.142 $1,145.77
12/28/90 D 3.00 0.1010 12.731 390.873 $1,172.62
12/31/90 A 3.01 390.873 $1,176.53
04/19/91 D 3.24 0.0900 10.858 401.730 $1,301.61
07/19/91 D 3.30 0.0900 10.956 412.687 $1,361.87
10/18/91 D 3.35 0.0850 10.471 423.158 $1,417.58
12/30/91 D 3.33 0.0810 10.293 433.451 $1,443.39
12/31/91 A 3.34 433.451 $1,447.73
04/21/92 D 3.36 0.0740 9.546 442.997 $1,488.47
07/17/92 D 3.41 0.0700 9.094 452.091 $1,541.63
10/16/92 D 3.39 0.0700 9.335 461.426 $1,564.23
12/30/92 D 3.38 0.0815 11.126 472.552 $1,597.23
12/31/92 A 3.38 472.552 $1,597.23
04/23/93 D 3.49 0.0720 9.749 482.301 $1,683.23
07/23/93 D 3.53 0.0700 9.564 491.865 $1,736.28
10/15/93 D 3.55 0.0730 10.114 501.979 $1,782.03
12/30/93 D 3.52 0.0740 10.553 512.532 $1,804.11
12/31/93 A 3.52 512.532 $1,804.11
04/22/94 D 3.35 0.0730 11.169 523.701 $1,754.40
07/22/94 D 3.32 0.0740 11.673 535.374 $1,777.44
10/14/94 D 3.29 0.0740 12.042 547.416 $1,801.00
12/29/94 D 3.21 0.0800 13.643 561.059 $1,801.00
12/31/94 A 3.21 561.059 $1,801.00
04/21/95 D 3.30 0.0730 12.411 573.470 $1,892.45
07/14/95 D 3.40 0.0730 12.313 585.783 $1,991.66
10/13/95 D 3.40 0.0730 12.577 598.360 $2,034.42
12/28/95 D 3.41 0.0760 13.336 611.695 $2,085.88
12/31/95 A 3.42 611.695 $2,092.00
04/19/96 D 3.41 0.0720 12.916 624.611 $2,129.92
07/12/96 D 3.39 0.0730 13.450 638.061 $2,163.03
10/11/96 D 3.46 0.0740 13.646 651.708 $2,254.91
12/30/96 D 3.53 0.0770 14.216 665.924 $2,350.71
12/31/96 A 3.53 665.924 $2,350.71
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 177051427
<INVESTMENTS-AT-VALUE> 182794225
<RECEIVABLES> 4108609
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 186902834
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1234915
<TOTAL-LIABILITIES> 1234915
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 188573013
<SHARES-COMMON-STOCK> 52650373
<SHARES-COMMON-PRIOR> 47428354
<ACCUMULATED-NII-CURRENT> 609191
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8215841)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5701556
<NET-ASSETS> 185667919
<DIVIDEND-INCOME> 1427913
<INTEREST-INCOME> 14034414
<OTHER-INCOME> 47164
<EXPENSES-NET> 930731
<NET-INVESTMENT-INCOME> 14578760
<REALIZED-GAINS-CURRENT> 458971
<APPREC-INCREASE-CURRENT> 5006476
<NET-CHANGE-FROM-OPS> 20044207
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14615595
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10614891
<NUMBER-OF-SHARES-REDEEMED> 8444524
<SHARES-REINVESTED> 3051652
<NET-CHANGE-IN-ASSETS> 23587980
<ACCUMULATED-NII-PRIOR> 646026
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 661606
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 930731
<AVERAGE-NET-ASSETS> 170443770
<PER-SHARE-NAV-BEGIN> 3.42
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> .11
<PER-SHARE-DIVIDEND> .30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 3.53
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
