April 30, 1998
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. 82
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. 82 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 30, 1998
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. 82
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 23
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 LLP
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
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Title of Securities Being Registered: Common Stock, $0.01 par
value per share
Pursuant to Rule 24f-2, the Registrant hereby registers an
indefinite amount of securities. On February 26, 1998,
Registrant filed the necessary Rule 24f-2 Notice and filing fee
with the Commission for its fiscal year ended December 31, 1997.
NICHOLAS INCOME FUND, INC.
CROSS-REFERENCE SHEET
(As required by Rule 481(a))
Part A. Information Required Heading
in Prospectus
-------------------- -------
Item 1. Cover Page Cover Page
Item 2. Synopsis Performance Measurement
Item 3. Condensed Financial Consolidated Disclosure of
Information Fund Fees and Expenses;
Financial Highlights
Item 4. General Description of Introduction; Investment
Registrant 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 Transfer of Capital Stock;
Securities Dividends and Federal Tax
Status; Capital Structure;
Annual Meeting; Shareholder
Reports
Item 7. Purchase of Securities Purchase of Capital Stock;
Being Offered Redemption of Capital Stock;
Exchange Between Funds;
Transfer of Capital Stock;
Determination of Net Asset
Value; Dividend Reinvestment
Plan; Individual Retirement
Accounts; 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 Introduction
History
Item 13. Investment Objectives and Investment Objectives,
Policies 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 Principal Shareholders
Securities
Item 16. Investment Advisory and
Other Investment Adviser;
Services Custodian and Transfer
Agent; Independent Auditors
and Legal Counsel
Item 17. Brokerage Allocation and
Other Practices Brokerage
Item 18. Capital Stock and Other Transfer of Capital Stock;
Securities Dividends, Distributions and
Federal Tax Status; Capital
Structure; Shareholder
Reports; Annual Meeting
Item 19. Purchase, Redemption and
Pricing of Securities Purchase of Capital Stock;
Being Offered 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. Calculation of Performance Measurement
Performance Data
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
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 SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
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, 1998. 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, 1998
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFE
RENCE.
TABLE OF CONTENTS
Page
INTRODUCTION............................................. 1
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.............................. 12
EXCHANGE BETWEEN FUNDS................................... 14
TRANSFER OF CAPITAL STOCK................................ 15
DETERMINATION OF NET ASSET VALUE......................... 15
DIVIDENDS AND FEDERAL TAX STATUS......................... 15
DIVIDEND REINVESTMENT PLAN............................... 16
SYSTEMATIC WITHDRAWAL PLAN............................... 16
INDIVIDUAL RETIREMENT ACCOUNTS........................... 16
MASTER RETIREMENT PLAN................................... 17
CAPITAL STRUCTURE........................................ 17
ANNUAL MEETING........................................... 17
SHAREHOLDER REPORTS...................................... 18
CUSTODIAN AND TRANSFER AGENT............................. 18
INDEPENDENT AUDITORS AND LEGAL COUNSEL................... 18
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, 1998. 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.
FUND FEES AND EXPENSES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases................. None
Maximum Sales Load Imposed on Reinvested Dividends...... None
Maximum Deferred Sales Load............................. None
Redemption Fees(1)...................................... None
Exchange Fee(2)......................................... None
ANNUAL FUND OPERATING EXPENSES(3) (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees......................................... 0.37%
12b-1 Fees.............................................. None
Other Expenses.......................................... 0.13%
Total Fund Operating Expenses........................... 0.50%
__________
(1) A fee of up to $12.00 is charged for each wire redemption.
(2) A fee of $5.00 is charged for each telephone exchange.
(3) Annual Fund Operating Expenses are based on expenses incurred for
the fiscal year ended December 31, 1997.
Example
1 Year 3 Years 5 Years 10 Years
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 $5 $16 $28 $63
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, 1997, 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, 1997. The table should
be read in conjunction with the financial statements and related notes
included in the Fund's Annual Report which is incorporated by
reference into the Statement of Additional Information and which may
be obtained without charge by writing or calling the Fund.
<TABLE>
Year ended December 31,
----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR....... $3.53 $3.42 $3.21 $3.52 $3.38 $3.34 $3.01 $3.44 $3.68 $3.64
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... .30 .30 .30 .30 .30 .31 .35 .39 .38 .38
Net gains (losses) on
securities (realized
and unrealized)........ .15 .11 .21 (.31) .13 .03 .33 (.43) (.24) .03
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations........... .45 .41 .51 (.01) .43 .34 .68 (.04) .14 .41
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS*:
Dividends (from net
investment income)..... (.29) (.30) (.30) (.30) (.29) (.30) (.35) (.39) (.38) (.37)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF
YEAR................... $3.69 $3.53 $3.42 $3.21 $3.52 $3.38 $3.34 $3.01 $3.44 $3.68
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN.............. 13.13% 12.37% 16.16% (0.17)% 12.95% 10.33% 23.05% (1.03)% 3.94% 11.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions)............... $254.2 $185.7 $162.1 $140.9 $158.3 $119.1 $79.9 $60.6 $75.4 $78.2
Ratio of expenses to
average net assets....... .50% .55% .58% .59% .62% .69% .76% .77% .81% .83%
Ratio of net investment
income to average net
assets................... 8.29% 8.55% 8.72% 8.75% 8.42% 9.23% 10.70% 11.74% 10.46% 10.03%
Portfolio turnover rate... 32.2% 33.2% 29.2% 29.2% 39.1% 56.1% 27.5% 40.4% 39.6% 11.9%
* 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. Therefore,
the Adviser designs the Fund's portfolio for stability, trying to
protect against both interest rate risk and credit risk. At December
31, 1997 and 1996, 80.8% of the Fund's total net assets were invested
in rated and unrated corporate debt securities. The Fund's investments
in equity securities decreased to 9.6% of the Fund's total net assets
at December 31, 1997 compared to 10.2% at December 31, 1996. Of the
Fund's total net assets at December 31, 1997, 0.4% were invested in
corporate debt securities rated BBB by Standard & Poor's (compared
to 0.6% at December 31, 1996); 34.0% rated BB (compared to 24.2% at
December 31, 1996); 39.4% rated B (compared to 49.4% at December 31,
1996); and 7.0% unrated but believed to be equivalent to a BB or B
rating (compared to 6.6% at December 31, 1996). During 1997, the
Adviser continued to emphasize diversification of investments, with
the largest holding accounting for only 3.58% of the Fund's total
net assets at December 31, 1997. The Adviser also attempts to
reduce the Fund's price per share volatility by holding fixed
income securities with intermediate maturities. At December 31, 1997,
the dollar weighted maturity of the Fund's bond portfolio was 7.4
years.
In 1997, the Fund had an average annual total return of 13.13%
(distributions reinvested), reflecting the continued strong
performance of the Fund's relatively stable lower quality bond
holdings during 1997. At December 31, 1997, the Fund's 30-day SEC
yield (annualized) was 7.77%. Even though credit risk was not much of
a market concern in 1997, the Adviser still remained cautious, at
times trading increased returns for a less risky credit profile. The
Adviser also continues to attempt to limit the Fund's interest rate
sensitivity, again trading potential increased returns for increased
stability.
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 INVESTMENT IN
NICHOLAS INCOME FUND, INC. VS. LEHMAN BROTHERS INTERMEDIATE HIGH YIELD
CORPORATE BOND INDEX
(PLOT POINTS FOR GRAPH)
Date Nicholas Income Lehman Brothers
Fund, Inc. Index
------ --------------- ---------------
December 31, 1987 $10,000.00 $10,000.00
December 31, 1988 $11,154.36 $11,196.48
December 31, 1989 $11,593.57 $11,406.90
December 31, 1990 $11,474.49 $10,409.84
December 31, 1991 $14,119.34 $14,878.88
December 31, 1992 $15,577.18 $17,306.70
December 31, 1993 $17,595.24 $20,114.39
December 31, 1994 $17,565.32 $20,084.22
December 31, 1995 $20,403.88 $23,562.80
December 31, 1996 $22,927.84 $26,435.11
December 31, 1997 $25,938.27 $29,609.96
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, 1997 December 31, 1997 December 31, 1997
----------------- ----------------- -----------------
Average Annual
Total Return 13.13% 10.74% 10.00%
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
using annualized distributions 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, Barron's, Lipper Analytical
Services Mutual Fund Performance Analysis Morningstar Inc., CDA
Investment Technologies, Inc.and Value Line, Inc.
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 intermediate 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, 1995,
1996 and 1997, the Fund had approximately 6.7%, 2.1% and 0%,
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. For rated securities, the Fund will only invest in
securities rated B or higher 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, 1997, 80.8% of the Fund's
total net assets were invested in rated and unrated corporate debt
securities. As of December 31, 1997, of the Fund's total net assets,
0.4% were invested in corporate debt securities rated BBB by Standard
& Poor's, 34.0% rated BB, 39.4% rated B, none were rated CCC, CC, C
or D, and approximately 7.0% unrated by Standard & Poor's or Moody's
but believed to be equivalent to a BB or B rating. For rated
securities, the Fund will only invest in securities rated B or higher
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 may vary 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. 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 25 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. As of March 31, 1998, the Adviser had approximately $8.5
billion in assets under management.
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, and is a controlling person
of the Adviser through his ownership of 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 or by an authorized agent of 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 $20 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 Fund has established $500 as the minimum initial purchase and
$100 as the minimum for any subsequent purchase, except in the case of
reinvestment of distributions. 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. 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. To purchase shares of the Fund by federal wire
transfer, instruct your bank to use the following instructions:
Wire To: Firstar Bank Milwaukee, N.A.
ABA 075000022
Credit: Firstar Trust Company
777 E. Wisconsin Ave
Milwaukee, Wisconsin 53202
Account 112-952-137
Further Credit: Nicholas Income Fund, Inc.
(shareholder account number)
(shareholder registration)
Please call Firstar Trust Company at 414-276-0535 or 800-544-6547
prior to sending the wire in order to obtain a confirmation number and
to ensure prompt and accurate handling of funds. The Fund and its
transfer agent are not responsible for the consequences of delays
resulting from the banking or Federal Reserve wire system, or from
incomplete wiring instructions.
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. Certain service providers may receive compensation from the
Fund for providing transfer agent-related services relating to the
accounts held in street name. 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. Such charges may vary among
broker-dealers, but in all cases will be retained by the broker-dealer
and not remitted to the Fund or the Adviser. 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.
The Fund also may enter into an arrangement with some Processing
Intermediaries authorizing them to process purchase orders or
redemption requests on behalf of the Fund on an expedited basis (an
"authorized agent"). Receipt of a purchase order or redemption
request by an authorized agent will be deemed to be receipt by the
Fund for purposes of determining the net asset value of Fund shares to
be purchase or redeemed. For purchase orders placed through an
authorized agent, a shareholder will pay the Fund's net asset value
per share next computed after the receipt by the authorized agent of
such purchase order, plus any applicable transaction charge imposed by
the agent. For redemption orders placed through an authorized agent,
a shareholder will receive redemption proceeds which reflect the net
asset value per share next computed after the receipt by the
authorized agent of the redemption order, less any redemption fees
imposed by the agent.
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, 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. See "Purchase of Capital Stock" for a
description of certain arrangements the Fund may enter into with
Processing Intermediaries to process redemption requests on an
expedited basis. 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.
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 414-276-0535 or 800-
544-6547. 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.
During periods of substantial economic or market changes, telephone
transactions may be difficult to implement. If a shareholder is
unable to contact Firstar Trust Company by telephone, shares also may
be redeemed by delivering the redemption request in person or by mail.
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 responsible for the authenticity of redemption
instructions received by telephone which they reasonably believe to be
genuine, even if such instructions prove to be unauthorized or
fraudulent. The Fund and Firstar Trust Company will employ reasonable
procedures to confirm that instructions received by telephone are
genuine, and if they do not, they may be liable for losses due to
unauthorized or fraudulent instructions.
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 Firstar Trust
Company (or by an authorized agent of the Fund). Shares
tendered for redemption on a day the New York Stock 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. 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 redemption price will
depend on the market value of the investments in the Fund's portfolio
at the time of redemption and may be more or less than the cost of
shares redeemed.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 business 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 available for purchase, 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. 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 $500 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 and liabilities
of the Fund are valued at fair value using methods determined in good
faith by the 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. The Taxpayer Relief Act of 1997 reduced from 28% to 20%
the maximum tax rate on long-term capital gains. This reduced rate
generally applies to securities held more than 18 months. The 28%
maximum rate would still apply for securities held between twelve
months and 18 months. 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 or she 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 ACCOUNTS
Individuals may be able to establish a traditional IRA, a Roth
IRA and/or an education IRA. The Fund offers prototype IRA plans
for adoption by individuals who qualify. 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
IRS requires to be furnished to individuals who are considering
adopting an IRA. It is important you obtain up-to-date information
from the Fund before opening an IRA.
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.
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. 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.
A copy of the Fund's most recent Annual Report (which may be obtained
without charge) may be obtained by calling or writing the Fund.
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 LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, has passed on the legality of the shares of Common Stock of the
Fund being offered.
1 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.
A-2
PROSPECTUS
NICHOLAS INCOME FUND, INC.
Investment Adviser
NICHOLAS COMPANY, INC.
Milwaukee, Wisconsin
414-272-6133 or 800-227-5987
Custodian and Transfer Agent
FIRSTAR TRUST COMPANY
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
Independent Public Accountants
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
Counsel
MICHAEL BEST & FRIEDRICH LLP
Milwaukee, Wisconsin
NICHOLAS INCOME FUND, INC.
700 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
April 30, 1998
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, 1998, and the Fund's Annual Report for the fiscal
year ended December 31, 1997, 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, 1998
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.............................. 12
EXCHANGE BETWEEN FUNDS................................... 14
TRANSFER OF CAPITAL STOCK................................ 15
DETERMINATION OF NET ASSET VALUE......................... 15
PERFORMANCE MEASUREMENT.................................. 16
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAX STATUS.......... 18
BACKUP WITHHOLDING OF DIVIDENDS AND REDEMPTION PAYMENTS.. 19
INVESTORS' SERVICE PLANS................................. 19
DIVIDEND REINVESTMENT PLAN............................... 19
SYSTEMATIC WITHDRAWAL PLAN............................... 19
RETIREMENT PLANS......................................... 20
MASTER (KEOGH) RETIREMENT PLAN........................... 20
INDIVIDUAL RETIREMENT ACCOUNTS........................... 20
BROKERAGE................................................ 21
CAPITAL STRUCTURE........................................ 22
ANNUAL MEETING........................................... 23
SHAREHOLDER REPORTS...................................... 23
CUSTODIAN AND TRANSFER AGENT.............................. 23
INDEPENDENT AUDITORS AND LEGAL COUNSEL.................... 23
FINANCIAL INFORMATION..................................... 23
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 (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, 1995, 1996 and 1997, the Fund
had approximately 6.7%, 2.1% and 0%, 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. For rated
securities, the Fund will only invest in securities rated B or
higher 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. 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, 1997, 80.8% of the Fund's total
net assets were invested in rated and unrated corporate debt
securities. As of December 31, 1997, of the Fund's total net
assets, 0.4% were invested in corporate debt securities rated BBB
by Standard & Poor's, 34.0% rated BB, 39.4% rated B, none were
rated CCC, CC, C or D, and approximately 7.0% unrated by Standard
& Poor's or Moody's but believed to be equivalent to a BB or B
rating. For rated securities, the Fund will only invest in
securities rated B or higher 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 may vary 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 selling 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 also 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.
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, 1995, 1996 and 1997, the rates of portfolio
turnover were 9.2%, 33.2% and 32.2%, 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. 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
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 any of
these policies 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 25 institutions and
individuals with substantial investment portfolios and to the
following five mutual funds which, like the Fund, are sold
without a sales charge:
Net Assets as of
Fund Primary Investment Objective March 31, 1998
- ------------------- ---------------------------- ----------------
Nicholas Fund, Inc. Capital Appreciation $5,907,204,282
Nicholas II, Inc. Long-Term Growth $1,177,064,447
Nicholas Money Market
Fund, Inc. Current Income $ 128,816,879
Nicholas Equity
Income Fund, Inc. Reasonable Income $ 28,971,893
Nicholas Limited
Edition, Inc. Long-Term Growth $ 389,577,554
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 ended December 31, 1997 were 0.50%.
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, 1995, 1996 and 1997, the
Fund paid management fees to the Adviser of $603,736, $661,606
and $809,091, respectively. The Adviser was not required to
reimburse the Fund for excess expenses in 1995, 1996 and 1997.
Albert O. Nicholas, President and a Director of the Fund, is
also President and a Director of the Adviser, and is a
controlling person of the Adviser through his ownership of 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 LPP, 100 E. Wisconsin Avenue, Milwaukee,
Wisconsin, legal counsel to the Fund and the Adviser. Daniel J.
Nicholas, 2618 Harlem Boulevard, Rockford, Illinois, is the only
other Director of the Adviser. Mr. Nicholas, a brother of
Albert 0. Nicholas, 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, 1998:
NAME, ADDRESS AND PRINCIPAL POSITIONS HELD
OCCUPATION AGE WITH FUND
DURING PAST FIVE YEARS
____________________________ ___ ______________
*Albert O. Nicholas 67 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 F. Hansen 71 Director since 1973
759 N. Milwaukee St.,
Milwaukee, WI 53202;
President, Hanseatic
Equities Corp., a private
investment firm.
Melvin L. Schultz 64 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 53 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 H. 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 56 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.
36 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 41 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 40 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 49 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. Albert O. 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. Albert O. 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 Executive Vice President of
Nicholas Fund, Inc., Nicholas II, Inc., Nicholas Limited
Edition, Inc., Nicholas Money Market Fund, Inc. and Nicholas
Equity Income Fund, Inc. Mr. Saeger also is Executive Vice
President and Secretary of Nicholas Fund, Inc., 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
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 1997 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, 1997. 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
_______________
(1) During the fiscal year ended December 31, 1997, 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,
1997, the Fund compensated the disinterested directors at a
rate of $750 per director per meeting attended ($1,000
commencing January 1, 1998). The disinterested directors
did not receive any other form or amount of compensation
from the Fund Complex for the fiscal year ended December 31,
1997. 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 of 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 3,090,926 shares of Common Stock of the Fund
or 4.34% as of March 31, 1998. Of this amount, 125,277 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 2,174,217 shares; the Nicholas Family Foundation owned
of record 541,382 shares; and the Nicholas Company, Inc. Profit-
Sharing Trust, of which Mr. Nicholas and David E. Leichtfuss are
trustees, owned of record 250,050 shares.
Charles Schwab & Co., 101 Montgomery Street, San Francisco,
California 94104-4122, owned of record 7,711,961 shares of Common
Stock of the Fund, or 10.82% as of March 31, 1998, as nominee 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, 1998. All directors and executive officers
of the Fund as a group (ten in number) beneficially owned
approximately 4.73% of the full shares of Common Stock of the
Fund as of March 31, 1998.
PURCHASE OF CAPITAL STOCK
Applications for the purchase of shares are made to
Nicholas Income Fund, Inc., c/o Firstar Trust Company, P.0. Box
2944, Milwaukee, Wisconsin 53201-2944. Firstar Trust Company
acts as Transfer Agent and Custodian for the Fund. 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, or by an authorized agent of 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 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 E. 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. Payment should
be made by check or money order drawn on a U.S. bank, savings and
loan or credit union. Checks are accepted subject to collection
at full face value in U.S. funds. The custodian will charge a
$20 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. For example, if an individual previously tried to
purchase shares with a bad check, or the proper social security
number or taxpayer identification number was omitted, the Fund
reserves the right not to accept future investments from such
individuals. 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 Fund has established $500 as the minimum initial
purchase and $100 as the minimum for any subsequent purchase,
except in the case of reinvestment of distributions. 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. 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. To purchase shares of the
Fund by federal wire transfer, instruct your bank to use the
following instructions:
Wire To: Firstar Bank Milwaukee, N.A.
ABA 075000022
Credit: Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Account 112-952-137
Further Credit: Nicholas Income Fund, Inc.
(shareholder account number)
(shareholder registration)
Please call Firstar Trust Company at 414-276-0535 or 800-544-
6547 prior to sending the wire in order to obtain a confirmation
number and to ensure prompt and accurate handling of funds. The
Fund and its transfer agent are not responsible for the
consequences of delays resulting from the banking or Federal
Reserve wire system, or from incomplete wiring instructions.
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. Certain service providers may receive compensation from
the Fund for providing transfer agent-related services relating
to the accounts held in street name. 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. Such charges may vary among broker-
dealers, but in all cases will be retained by the broker-dealer
and not remitted to the Fund or the Adviser. 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.
The Fund also may enter into arrangements with some
Processing Intermediaries authorizing them to process purchase
orders or redemption requests on behalf of the Fund on an
expedited basis (an "authorized agent"). Receipt of a purchase
order or redemption request by an authorized agent will be deemed
to be receipt by the Fund for purposes of determining the net
asset value of Fund shares to be purchase or redeemed. For
purchase orders placed through an authorized agent, a shareholder
will pay the Fund's net asset value per share next computed after
the receipt by the authorized agent of such purchase order, plus
any applicable transaction charge imposed by the agent. For
redemption orders placed through an authorized agent, a
shareholder will receive redemption proceeds which reflect the
net asset value per share next computed after the receipt by the
authorized agent of the redemption order, less any redemption
fees imposed by the agent.
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, 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. See "Purchase of
Capital Stock" for a description of certain arrangements the Fund
may enter into with Processing Intermediaries to process
redemption requests on an expedited basis.
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., New York time) to receive that day's
net asset value. There will be no exceptions due to market
activity. During periods of substantial economic or market
changes, telephone transactions may be difficult to implement.
If a shareholder is unable to contact Firstar Trust Company by
telephone, shares also may be redeemed by delivering the
redemption request in person or by mail. 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 responsible for the authenticity of
redemption instructions received by telephone which they
reasonably believe to be genuine, even if such instructions prove
to be unauthorized or fraudulent. The Fund and Firstar Trust
Company will employ reasonable procedures to confirm that
instructions received by telephone are genuine, and if they do
not, they may be liable for losses due to unauthorized or
fraudulent instructions.
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 Firstar
Trust Company (or by an authorized agent of the Fund)the Fund.
Shares tendered for redemption on a day the New York Stock
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.
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 redemption price will depend on the market
value of the investments in the Fund's portfolio at the time of
redemption and may be more or less than the cost of shares
redeemed. 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. 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 business 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 available for purchase, 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. 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 $500
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. The Exchange generally is open for trading Monday
through Friday except New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Martin Luther
King Day, Thanksgiving Day and Christmas Day. Additionally, if
any of the aforementioned holidays falls on a Saturday, the
Exchange will not be open for trading on the preceding Friday,
and when any such holiday falls on a Sunday, the Exchange will
not be open for trading on the succeeding Monday, unless unusual
business conditions exist (such as the ending of a monthly or
yearly accounting period). 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 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 and liabilities of the Fund
are valued at fair value using methods determined in good faith
by the 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 $1,000
T = average annual total return
n = number of years from initial investment to the end of the
period
ERV = at the end of the stated period, the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of
the stated period.
FOR THE ONE, FIVE AND TEN YEAR
PERIODS ENDED DECEMBER 31, 1997
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
Total Return 13.13% 66.50% 159.37%
Average Annual Total Return 13.13% 10.74% 10.00%
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 using annualized
distributions 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
The Fund's 30-day yield was 7.77%, and the Fund's distribution
rate was 7.87% at December 31, 1997.
In sales materials, reports and other communications to
shareholders, the Fund may compare its performance to certain
indices, including the Dow Jones Industrial Average, the Standard
& Poor's Index Composites, the National Association
of Securities Dealers Automated Quotation System, the Russell
2000 Index and the United States Department of Labor Consumer
Price Index. The Fund also may include evaluations of the Fund
published by nationally recognized financial publications and
ranking services, such as Forbes, Money, Financial World,
Barron's, Lipper Analytical Services Mutual Fund Performance
Analysis, Morningstar , Inc., CDA Investment Technologies Inc.
and Value Line, Inc.
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, 1997. The Fund also 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, 1997, the Fund had a capital loss
carryforward and will make no capital gains distribution as long
as such conditions exist. The Fund has approximately $7,434,000
of net capital losses which may be used to offset capital gains
in future years. Capital loss carryovers of approximately
$3,366,000 expire 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 or she 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 various 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 ACCOUNTS
Individuals may be able to establish a traditional IRA, a
Roth IRA and/or an education IRA. The Fund offers a prototype
IRA plans for adoption by individuals who qualify. 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 IRS requires to be furnished to
individuals who are considering adopting an IRA. It is important
you obtain up-to-date information from the Fund before opening an
IRA.
Individuals who receive compensation, including earnings from
self-employment, may be entitled to establish and make
contributors to a traditional IRA. Taxation of the income and
gains paid to a traditional IRA by the Fund is deferred until
distribution from the IRA.
The Taxpayer Relief Act of 1997 has created the new Roth IRA.
While contributions to a Roth IRA are not currently deductible,
the amounts within the accounts accumulate tax-free and qualified
distributions will not be included in a shareholder's taxable
income. The contribution limit is $2,000 annually ($4,000 for
joint returns) in aggregate with contributions to traditional
IRAs. Certain income phaseouts apply.
The Taxpayer Relief Act of 1997 also has created the new
education IRA. Like the Roth IRA, contributions are non-
deductible, but the investment earnings accumulate tax-free, and
distributions used for higher education expenses are not taxable.
Contribution limits are $500 per account and certain income
phaseouts apply.
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.
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
The Adviser is responsible for decisions to buy and sell
securities for the Fund and for the placement of the Fund's
investment business and the negotiations of the commissions to be
paid on such transactions. 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.
Section 28(e) of the Securities Exchange Act of 1934
("Section 28(e)") permits an investment adviser, under certain
circumstances, to cause an account to pay a broker or dealer a
commission for effecting a transaction in recognition of the
value of the brokerage and research service provided by the
broker or dealer. Brokerage and research services include (i)
furnishing advice as to the value of securities, the advisability
of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of
securities; (ii) furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; and (iii)
effecting securities transactions and performing functions
incidental thereto.
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 brokerage
and research services. The Adviser may cause the Fund to pay a
broker, which provides brokerage and research services to the
Adviser, a commission for effecting a securities transaction in
excess of the amount another broker would have charged for
effecting the transaction. The Adviser believes it is important
to its investment decision-making process to have access to
independent research. The Adviser understands that since the
brokers and dealers rendering such services are compensated
through 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.
Higher commissions may be paid by the Fund, provided (i) the
Adviser determines in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction
or in terms of the Adviser's overall responsibilities with
respect to the accounts as to which it exercises investment
discretion; (ii) such payment is made in compliance with the
provisions of Section 28(e) and other applicable state and
federal law; and (iii) in the Adviser's opinion, the total
commissions paid by the Fund will be reasonable in relation to
the benefits to the Fund over the long term.
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 $12,173, $7,142 and $5,519
in fiscal 1995, 1996 and 1997, 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. 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 LLP, 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, 1997, 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, 1997, 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, 1997.
(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.
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, 1998, the number of record holders of the
securities of the Registrant was as follows:
Title of Class Number of Record Holders
-------------- -------------------------
Common Stock 9,645
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. In addition,
Registrant maintains a joint errors and omissions insurance
policy with a $2.0 million limit of liability under which the
Registrant, the Adviser and the other funds advised by the
Adviser, and each of their respective directors and officers, are
named insureds.
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
Incorporated by reference to pages 6-9 of the
Statement of Additional Information pursuant to Rule 411 under
the Securities Act of 1933, as amended.
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, 1998.
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, 1998.
/s/Albert O. Nicholas President
- ---------------------- (Principal Executive
Albert O. Nicholas Officer) and
Director
/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 LLP, 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, 1997,
and the related Statement of Changes in Net Assets for each of
the two years in the period ended December 31, 1997, and the
Financial Highlights for each of the ten years in the period
ended December 31, 1997 [included in the Annual Report to
Shareholders of Registrant for the fiscal year ended December
31, 1997].
(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) Powers of Attorney
ARTICLES OF MERGER
MERGING
NICHOLAS INCOME FUND, INC.
(a Delaware Corporation)
Into
NICHOLAS INCOME FUND, INC.
(a Maryland Corporation)
FIRST: Nicholas Income Fund, Inc., a corporation organized
-----
and existing under the laws of the State of Delaware, and
Nicholas Income Fund, Inc., a corporation organized and existing
under the laws of the State of Maryland, agree that Nicholas
Income Fund, Inc. (Delaware) shall be merged with and into
Nicholas Income Fund, Inc. (Maryland). The terms and conditions
of the merger and the mode of carrying the same into effect are
as herein set forth in these Articles of Merger.
SECOND: Nicholas Income Fund, Inc., a corporation organized
------
and existing under the laws of the State of Maryland, shall
survive the merger and shall continue under the name Nicholas
Income Fund, Inc.
THIRD: The parties to the Articles of Merger are Nicholas
-----
Income Fund, Inc., a corporation organized and existing under the
laws of the State of Maryland and Nicholas Income Fund, Inc., a
corporation incorporated in March, 1929, under the General
Corporation Law of the State of Delaware, which corporation is
neither qualified nor registered to do business in the State of
Maryland.
FOURTH: There shall be no amendments to the charter of the
------
surviving corporation which are to be effected as part of the
merger.
FIFTH: Nicholas Income Fund, Inc. (Delaware) has authority
-----
to issue ten million (10,000,000) shares of common stock, $1.00
par value, with an aggregate par value of Ten Million Dollars
($10,000,000).
Nicholas Income Fund, Inc. (Maryland) has authority to issue
one hundred million (100,000,000) shares of common stock, $.01
par value, with an aggregate par value of One Million Dollars
($1,000,000).
SIXTH: The manner and basis of converting issued stock of
-----
the merged corporation into stock of the surviving corporation
shall be as follows: each share and fractional share of stock of
the merged corporation that is issued immediately prior to the
merger shall, by virtue of the merger, be converted into one
share and fractional share, respectively, of the surviving
corporation.
SEVENTH: The principal office of Nicholas Income Fund, Inc.
-------
(Maryland), is located in Baltimore City, State of Maryland.
Nicholas Income Fund, Inc. (Delaware) does not own property
in the State of Maryland, the title to which could be affected by
the recording of an instrument among the Land Records.
EIGHTH: The terms and conditions of the transaction set
------
forth in these Articles of Merger were advised, authorized, and
approved by each corporation party to such Articles in the manner
and by the vote required by its charter and the laws of the place
where it is organized.
NINTH: The merger was (a) duly advised by the board of
-----
directors of Nicholas Income Fund, Inc. (Maryland), by the
adoption, as of January 15, 1986, of a resolution, declaring that
the merger herein proposed was advisable substantially upon the
terms and conditions set forth in these Articles of Merger and
directing that the proposed Articles of Merger be submitted for
action thereon to the shareholders of the corporation, and (b)
duly approved by the sole shareholder of the corporation by
unanimous consent on January 15, 1986.
TENTH: The terms and conditions as set forth in these
-----
Articles of Merger were approved in the following manner: the
merger to be effected by these Articles of Merger was duly
advised and authorized and approved by Nicholas Income Fund, Inc.
(Delaware) in the manner and by the vote required by the laws of
the State of Delaware and by the charter of such corporation.
IN WITNESS WHEREOF, Nicholas Income Fund, Inc. (Delaware)
and Nicholas Income Fund, Inc. (Maryland), the corporations
parties to the merger, have caused these Articles of Merger to be
signed in their respective corporate names and on their behalf by
their respective Presidents and witnessed or attested by their
respective Secretaries all as of the 20th day of February, 1986.
Nicholas Income Fund, Inc. (Delaware)
By: /s/ Albert O. Nicholas
Attest: ----------------------
Albert O. Nicholas
President
/s/ Thomas J. Saeger
- --------------------
Thomas J. Saeger
Vice-President & Secretary
Nicholas Income Fund, Inc. (Maryland)
By:/s/ Albert O. Nicholas
Attest: ---------------------
Albert O. Nicholas
President
/s/ Thomas J. Saeger
- --------------------
Thomas J. Saeger
Vice-President & Secretary
THE UNDERSIGNED, President of Nicholas Income Fund, Inc.
(Delaware), who executed on behalf of said corporation the
foregoing Articles of Merger, of which this certificate is made a
part, hereby acknowledges, in the name and on behalf of said
corporation, the foregoing Articles of Merger to be the corporate
act of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts
set forth therein with respect to the approval thereof are true
in all material respects, under the penalties of perjury.
/s/ Albert O. Nicholas
----------------------
Albert O. Nicholas
THE UNDERSIGNED, President of Nicholas Income Fund, Inc.
(Maryland), who executed on behalf of said corporation the
foregoing Articles of Merger, of which this certificate is made a
part, hereby acknowledges, in the name and on behalf of said
corporation, the foregoing Articles of Merger to be the corporate
act of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts
set forth therein with respect to the approval thereof are true
in all material respects, under the penalties of perjury.
/s/ Albert O. Nicholas
----------------------
Albert O. Nicholas
<PAGE>
ARTICLES OF INCORPORATION
OF
NICHOLAS INCOME FUND, INC.
We, the undersigned natural persons of the age of
twenty-one years or more, acting as Incorporators of a
corporation under the General Laws of the State of Maryland
authorizing the formation of corporations, adopt the following
Articles of Incorporation for such corporation:
FIRST: The name of the corporation (which is
-----
hereinafter called the "Corporation") is NICHOLAS INCOME FUND,
INC.
SECOND: The period of its existence is perpetual.
------
THIRD: The purpose or purposes for which the
-----
Corporation is organized are:
A. To engage in the business of a diversified,
open-end management investment company under the Investment
Company Act of 1940.
B. To purchase or otherwise acquire, hold for
investment or otherwise, and to sell, exchange or otherwise
dispose of securities, or rights or warrants to acquire
securities, of any private or public company, corporation,
association, trust or syndicate, however organized.
C. To purchase or otherwise acquire, hold for
investment or otherwise, and to sell, exchange, or otherwise
dispose of, securities issued or guaranteed by the United States
of America, by any State of the United States of America, by any
political subdivision of any State, by any public instrumentality
of a State, or by any person controlled or supervised by and
acting as an instrumentality of the United States of America.
D. To deposit its funds from time to time in
such checking account or accounts as may reasonably be required,
and to deposit its funds at interest in any bank, savings bank or
trust company in good standing organized under the laws of the
United States of America or any State thereof, or of the District
of Columbia.
E. To conduct research and investigations with
respect to securities, organizations and business conditions in
the United States and elsewhere; to secure information and advice
pertaining to the investment and employment of the assets and
funds of the Corporation and to pay compensation to others for
the furnishing of any or all of the foregoing.
F. Subject to any restrictions contained in the
Investment Company Act of 1940, in applicable state securities or
"blue sky" laws, or in any rules or regulations issued pursuant
to any of the foregoing, to exercise in respect of all
securities, property and assets owned by it, all rights, powers
and privileges which could be exercised by any natural person
owning the same securities, property or assets.
G. To acquire all or any part of the goodwill,
property and business of any firm, person, association or
corporation heretofore or hereafter engaged in any business
similar to any business which it has power to conduct, and to
hold, utilize, enjoy, and in any manner dispose of the whole or
any part of the rights, property and business so acquired and to
assume in connection therewith any liabilities of any such
person, firm, association or corporation.
H. Without the vote or consent of the
shareholders of the Corporation, to purchase, acquire, hold,
dispose of, transfer and reissue or cancel shares of its own
capital stock in any manner or to any extent now or hereafter
permitted by the laws of Maryland and by these Articles of
Incorporation.
I. To carry out all or any part of the aforesaid
objects and purposes and to conduct its business in all or any of
its branches in any or all states, territories, districts and
possessions of the United States of America and in foreign
countries; and to maintain offices and agencies in any and all
states, territories, districts and possessions of the United
States of America and in foreign countries.
The foregoing objects and purposes shall, except when
otherwise expressed, be in no way limited or restricted by
reference to or inference from the terms of any clause of this
or any other Section of these Articles of Incorporation, or of
any amendment thereto, and shall each be regarded as independent
and construed as powers as well as objects and purposes.
The Corporation shall be authorized to exercise and
enjoy all of the powers, rights and privileges granted to or
conferred upon corporations of a similar character by the General
Laws of the State of Maryland now or hereafter in force and the
enumeration of the foregoing powers shall not be deemed to
exclude any powers, rights or privileges so granted or conferred.
FOURTH: The aggregate number of shares which the
------
Corporation shall have authority to issue is one hundred million
(100,000,000) consisting of one class only, designated as "Common
Stock," of the par value of $.01 per share and of the aggregate
par value of One Million Dollars ($1,000,000).
FIFTH: Provisions limiting or denying to
-----
shareholders the preemptive rights to acquire additional shares
of the Corporation are:
No holder of any of the shares of this Corporation
shall, as such holder, have any preemptive or other right to
purchase or subscribe for any shares which this Corporation may
issue or sell other than such rights, if any, as the board of
directors in its discretion may from time to time determine to
offer to shareholders of this Corporation.
SIXTH: The number of initial directors is four (4),
-----
and the names of the initial directors are:
Albert O. Nicholas
Kenneth Loeffler Frank
Frederick Fairchild Hansen
Alfonso Derious Robertson
Thereafter, the number of directors shall be such number (not
less than three) as is fixed from time to time by the By-laws.
SEVENTH: The post office address of the principal
-------
office of the Corporation in this State is c/o The Corporation
Trust Incorporated, 32 South Street, Baltimore, Maryland 21202.
The name of the resident agent of the Corporation in this State
is The Corporation Trust Incorporated, a corporation of this
State, and the post office address of the resident agent is 32
South Street, Baltimore, Maryland 21202.
EIGHTH: The name and address of each incorporator is:
------
Name Address
---- -------
Albert O. Nicholas 700 North Water Street, Suite 1010
Milwaukee, Wisconsin 53202
Thomas J. Saeger 700 North Water Street, Suite 1010
Milwaukee, Wisconsin 53202
Frank J. Pelisek 250 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
NINTH: The following provisions are hereby adopted
-----
for the purpose of defining, limiting and regulating the powers
of the Corporation and of the directors and shareholders:
A. The board of directors of the corporation
shall authorize an initial issuance of shares of the
capital stock of the Corporation for such consideration
not less than the aggregate par value of the shares
included in the issuance as the board of directors
shall determine. After such initial issuance, the
board of directors may authorize the issuance (and
reissuance) from time to time of shares of capital
stock of any class, whether now or hereafter
authorized, for such consideration, not less than the
aggregate par value of the shares so issued, as said
board of directors may deem advisable, provided that,
except with respect to shares issued as a share
dividend or distribution, such consideration shall be
not less than the net asset value of such shares
computed in accordance with this Article NINTH. That
portion of the consideration received by the
Corporation for shares issued (or reissued) which is
equal to the aggregate par value of such shares shall
be capital and any consideration received in excess of
said aggregate par value shall be capital surplus. The
board of directors may, in its sole and absolute
discretion, reject in whole or in part orders for the
purchase of shares of capital stock, and may, in
addition, require such orders to be in such minimum
amounts as it shall determine.
B. The holders of any fractional shares of the
capital stock of the Corporation shall be entitled to
the payment of dividends on such fractional shares, to
receive the net asset value thereof upon redemption and
to share in the assets of the Corporation upon
liquidation, but no holder of a fractional share shall
be entitled to receive a certificate representing any
fractional share. Whenever a shareholder owns
fractional shares aggregating a full share, he shall
have all rights provided herein with respect to such
full share and shall be entitled to receive a
certificate representing such full share.
C. The board of directors shall have full power
in accordance with good accounting practice: (a) to
determine what receipts of the Corporation shall
constitute income available for payment of dividends
and what receipts shall constitute principal and to
make such allocation of any particular receipt between
principal and income as it may deem proper; and (b)
from time to time, in its discretion (i) to determine
whether any and all expenses and other outlays paid or
incurred (including any and all taxes, assessments of
governmental charges which the Corporation may be
required to pay or hold under any present or future law
of the United States of America or of any other taxing
authority therein) shall be charged to or paid from
principal or income or both; and (ii) to apportion any
and all of said expenses and outlays, including taxes,
between principal and income.
D. Each holder of record of stock of this
Corporation shall be entitled to one (1) vote for each
share thereof standing registered in his name on the
books of the Corporation. At all elections of
directors of the Corporation, each shareholder shall be
entitled to vote the shares owned of record by him for
as many persons as there are directors to be elected,
but shall not be entitled to exercise any right of
cumulative voting.
E. The board of directors shall have power to
determine from time to time whether and to what extent
and at what time and places and under what conditions
and regulations the books, accounts and documents of
the Corporation, or any of them, shall be open to the
inspection of shareholders, except as otherwise
provided by statute or by law; and except as so
provided no shareholder shall have any right to inspect
any book, account or document of the Corporation unless
authorized to do so by resolution of the board of
directors.
F. When the total assets of the Corporation
shall for the first time have amounted to $100,000, or
more, a fact which shall be conclusively evidenced by a
resolution of the board of directors of the Corporation
specifying the date and time when such total assets
first amounted to $100,000, or more, each holder of
shares of the capital stock of the Corporation shall be
entitled at any time thereafter to require the
Corporation to redeem all or any part of the shares
standing in the name of such holder on the books of the
Corporation at the net asset value of such shares as
determined in accordance with the provisions of this
Article NINTH, subject to the provisions of Section K
of this Article.
G. The net asset value to which a holder of
shares of capital stock of the Corporation shall be
entitled upon redemption of shares held by him is the
net asset value applicable at the time when
certificates representing said shares, duly endorsed or
accompanied by proper instruments of assignment, with
proper stock transfer stamps affixed, if required, and
accompanied by irrevocable instruments in writing in
form acceptable to the board of directors to redeem the
stock represented by such certificates, shall have been
received by the Corporation at such place as the board
of directors may from time to time designate.
H. The time of payment for shares redeemed shall
be within seven (7) days after certificates
representing the shares to be redeemed have been
received by the Corporation in accordance with Section
G of this Article NINTH.
I. The net asset value of each share of the
Corporation shall be determined as of the close of
trading on the New York Stock Exchange each day that
said Exchange is open for trading and any such net
asset value shall be applicable to all transactions in
the capital stock of the Corporation occurring at or
before the close of business on that day and after the
close of business on the last preceding day on which
said Exchange was open for trading, subject to
adjustment for declared dividends or distributions, or
in accordance with any controlling provisions of the
Investment company Act of 1940 or any rule or
regulation thereunder.
J. The net asset value of each share of the
capital stock of the Corporation at any particular time
shall be the quotient obtained by dividing the value of
the net assets of the Corporation (i.e., the value of
the assets of the Corporation, less its liabilities
exclusive of capital and surplus) at such time by the
total number of shares (including fractional shares)
outstanding at such time, all determined and computed
as follows:
(1) The value of any cash on hand or on
deposit, bills and demand notes and accounts
receivable, prepaid expenses, dividends receivable
(from and after the ex-dividend date) and interest
declared or accrued and not yet received shall be
deemed to be the full amount thereof unless the board
of directors shall have determined that any such
deposit, bill, demand note or account receivable is not
worth the full amount thereof, in which event such
value shall be the fair value thereof as determined in
good faith by the board of directors.
(2) Securities listed or commonly dealt in
on the New York Stock Exchange or the American Stock
Exchange shall be valued at the last sale prices on
such Exchanges on the day on which such value is being
computed (or, lacking any such sales, the last bid
price), unless it appears to the board of directors
that some other price reflects more closely the true
market value, but in no case shall such other price be
lower than the last bid price or higher than the last
asked price at the time as of which the net asset value
is being determined, all as reported by any means in
common use; provided, however that the board of
directors may by resolution permit over-the-counter
rather than stock exchange quotations to be used when
they appear to the board of directors to reflect more
closely the true market value of any particular
security in the portfolio.
(3) Other securities as to which market
quotations are readily available shall be valued in the
same manner as securities listed or commonly dealt in
on the New York or American Stock Exchanges.
(4) In the case of all other securities and
assets, the value thereof shall be the fair value as
determined in good faith by the board of directors (but
no value shall be assigned to goodwill of the
Corporation).
(5) The liabilities of the Corporation shall
be deemed to include all bills and accounts payable;
all administrative expenses payable and/or accrued,
including the estimated amount of any fees payable
under an investment advisory agreement, all contractual
obligations for the payment of money or property,
including the amount of any unpaid dividends upon the
shares of the Corporation, declared at or before the
time as of which the net asset value is being
determined; all reserves authorized or approved by the
board of directors for taxes or contingencies,
including such reserves, if any, for taxes based on any
unrealized appreciation in the value of the assets of
the Corporation; and all other liabilities of the
Corporation of whatsoever kind and nature, except
liabilities represented by outstanding shares and
surplus of the Corporation.
(6) Securities purchased shall be included
among the assets of the Corporation, and the cost
thereof shall simultaneously be regarded as a
liability, not later than the day following the date of
purchase; and securities sold shall be excluded from
such assets, and the amount receivable therefor shall
simultaneously be included as an asset, not later than
the day following the date of sale.
(7) Shares of the capital stock of the
Corporation for which purchase orders have been
accepted shall be considered as issued and outstanding
as soon as the net asset value thereof can reasonably
be ascertained pursuant to the provisions of this
Article NINTH, and the amount receivable therefor shall
simultaneously become an asset of the Corporation.
(8) Shares of the capital stock of the
Corporation delivered for redemption or repurchase
shall be considered as no longer outstanding as soon as
the net asset value thereof can reasonably be
ascertained pursuant to the provisions of this Article
NINTH, and the amount payable on such redemption or
repurchase shall simultaneously become a liability of
the Corporation.
(9) Notwithstanding the provisions of
paragraphs (1) and (5) of this Section J, interest
declared or accrued and not yet received, and any
accrued expenses, may be omitted from any calculation
of net asset value, in the discretion of the board of
directors, if the net amount of all such interest and
expenses is less than one percent of the net asset
value per share.
K. In the event that the New York Stock Exchange
shall be closed at any time because of then existing
financial conditions or for any other unusual or
extraordinary reason, the right of a holder of shares
of the capital stock of the Corporation to have his
shares redeemed by the Corporation shall be suspended
for a period from and including the day on which the
action is taken for the closing of said Exchange and
the day on which said Exchange is reopened. In
accordance with the provisions of the Investment
Company Act of 1940 and the rules and regulations
promulgated thereunder by the Securities and Exchange
Commission, the Corporation may also suspend such right
of redemption (a) for any period during which trading
on the New York Stock Exchange is restricted; (b) for
any period during which an emergency exists as a result
of which (i) disposal by the Corporation of securities
owned by it is not reasonably practicable or (ii) it is
not reasonably practicable for the Corporation fairly
to determine the value of its net assets; or (c) for
such other periods as the Commission may by order
permit for the protection of shareholders of the
Corporation.
L. The Corporation may purchase in the open
market or otherwise acquire from any owner or holder
thereof any shares of its capital stock, in which case
the consideration paid therefor (in cash or in
securities in which the funds of the Corporation shall
then be invested) shall not exceed the net asset value
thereof determined or estimated in accordance with any
method deemed proper by the board of directors and
producing an amount approximately equal to the net
asset value of said shares (determined in accordance
with the provisions of this Article NINTH) at the time
of the purchase or acquisition by the Corporation
thereof.
In respect of all powers, duties and authorities
conferred by the preceding Sections J and K and this
Section L, the Corporation may act by and through
agents from time to time designated and appointed by
the board of directors and the board of directors may
delegate to any such agent any and all powers, duties
and authorities conferred upon the Corporation or upon
the board of directors by said Sections.
TENTH: The Corporation reserves the right to enter
-----
into, from time to time, investment advisory agreements providing
for the management and supervision of the investments of the
Corporation and the furnishing of advice to the Corporation with
respect to the desirability of investing in, purchasing or
selling securities or other property. Such agreement shall
contain such other terms, provisions and conditions as the board
of directors of the Corporation may deem advisable.
The Corporation may designate custodians, transfer
agents, registrars and/or disbursing agents for the stock and
assets of the Corporation and employ and fix the powers, rights,
duties, responsibilities and compensation of each such custodian,
transfer agent, registrar and/or disbursing agent.
ELEVENTH: The Corporation reserves the right, from
--------
time to time, to make any amendment of these Articles of
Incorporation now or hereafter authorized by law, including any
amendment which alters the contract rights as expressly set forth
in these Articles of Incorporation of any outstanding stock. The
Corporation may take or authorize such action upon the
concurrence of a majority of the aggregate number of the votes
entitled to be cast thereon.
TWELFTH: In the event of the dissolution of the
-------
Corporation and in the event there are assets available for
distribution to the shareholders, the trustees or receivers may
take distributions of assets in cash or in kind or partly in cash
and partly in kind, and it shall not be necessary for the
trustees or receivers to give each shareholder a pro rata share
of each asset, but the trustees or receivers may allocate certain
assets to certain shareholders and certain assets to other
shareholders, so long as there shall be distributed to each
shareholder his pro rata share in market value of the assets of
the Corporation.
Dated: December 31, 1985.
/s/ Albert O. Nicholas
-----------------------
Albert O. Nicholas
/s/ Thomas J. Saeger
-----------------------
Thomas J. Saeger
/s/ Frank J. Pelisek
------------------------
Frank J. Pelisek
Incorporators
STATE OF WISCONSIN )
) ss.
COUNTY OF MILWAUKEE )
I hereby certify that on December 31, 1985, before me,
the subscriber, a Notary Public of the State of Wisconsin in and
for the County of Milwaukee, personally appeared ALBERT O.
NICHOLAS, THOMAS J. SAEGER and FRANK J. PELISEK, and severally
acknowledged the foregoing Articles of Incorporation to be their
act.
WITNESS my hand and notarial seal this 31st day of
December, A.D. 1985.
/s/ Eric R. Christiansen
------------------------
Eric R. Christiansen
Notary Public
Milwaukee County, Wisconsin
My commission is permanent.
<PAGE>
AMENDED ARTICLES OF INCORPORATION
OF
NICHOLAS INCOME FUND, INC.
We, the undersigned natural persons of the age of
twenty-one years or more, acting as Incorporators of a
corporation under the General Laws of the State of Maryland
authorizing the formation of corporations, adopt the following
Articles of Incorporation for such corporation:
FIRST: The name of the corporation (which is
-----
hereinafter called the "Corporation") is NICHOLAS INCOME FUND,
INC.
SECOND: The period of its existence is perpetual.
------
THIRD: The purpose or purposes for which the
-----
Corporation is organized are:
A. To engage in the business of a diversified,
open-end management investment company under the Investment
Company Act of 1940.
B. To purchase or otherwise acquire, hold for
investment or otherwise, and to sell, exchange or otherwise
dispose of securities, or rights or warrants to acquire
securities, of any private or public company, corporation,
association, trust or syndicate, however organized.
C. To purchase or otherwise acquire, hold for
investment or otherwise, and to sell, exchange, or otherwise
dispose of, securities issued or guaranteed by the United States
of America, by any State of the United States of America, by any
political subdivision of any State, by any public instrumentality
of a State, or by any person controlled or supervised by and
acting as an instrumentality of the United States of America.
D. To deposit its funds from time to time in
such checking account or accounts as may reasonably be required,
and to deposit its funds at interest in any bank, savings bank or
trust company in good standing organized under the laws of the
United States of America or any State thereof, or of the District
of Columbia.
E. To conduct research and investigations with
respect to securities, organizations and business conditions in
the United States and elsewhere; to secure information and advice
pertaining to the investment and employment of the assets and
funds of the Corporation and to pay compensation to others for
the furnishing of any or all of the foregoing.
F. Subject to any restrictions contained in the
Investment Company Act of 1940, in applicable state securities or
"blue sky" laws, or in any rules or regulations issued pursuant
to any of the foregoing, to exercise in respect of all
securities, property and assets owned by it, all rights, powers
and privileges which could be exercised by any natural person
owning the same securities, property or assets.
G. To acquire all or any part of the goodwill,
property and business of any firm, person, association or
corporation heretofore or hereafter engaged in any business
similar to any business which it has power to conduct, and to
hold, utilize, enjoy, and in any manner dispose of the whole or
any part of the rights, property and business so acquired and to
assume in connection therewith any liabilities of any such
person, firm, association or corporation.
H. Without the vote or consent of the
shareholders of the Corporation, to purchase, acquire, hold,
dispose of, transfer and reissue or cancel shares of its own
capital stock in any manner or to any extent now or hereafter
permitted by the laws of Maryland and by these Articles of
Incorporation.
I. To carry out all or any part of the aforesaid
objects and purposes and to conduct its business in all or any of
its branches in any or all states, territories, districts and
possessions of the United States of America and in foreign
countries; and to maintain offices and agencies in any and all
states, territories, districts and possessions of the United
States of America and in foreign countries.
The foregoing objects and purposes shall, except when
otherwise expressed, be in no way limited or restricted by
reference to or inference from the terms of any clause of this
or any other Section of these Articles of Incorporation, or of
any amendment thereto, and shall each be regarded as independent
and construed as powers as well as objects and purposes.
The Corporation shall be authorized to exercise and
enjoy all of the powers, rights and privileges granted to or
conferred upon corporations of a similar character by the General
Laws of the State of Maryland now or hereafter in force and the
enumeration of the foregoing powers shall not be deemed to
exclude any powers, rights or privileges so granted or conferred.
FOURTH: The aggregate number of shares which the
------
Corporation shall have authority to issue is one hundred million
(100,000,000) consisting of one class only, designated as "Common
Stock," of the par value of $.01 per share and of the aggregate
par value of One Million Dollars ($1,000,000).
FIFTH: Provisions limiting or denying to
-----
shareholders the preemptive rights to acquire additional shares
of the Corporation are:
No holder of any of the shares of this Corporation
shall, as such holder, have any preemptive or other right to
purchase or subscribe for any shares which this Corporation may
issue or sell other than such rights, if any, as the board of
directors in its discretion may from time to time determine to
offer to shareholders of this Corporation.
SIXTH: The number of initial directors is four (4),
-----
and the names of the initial directors are:
Albert O. Nicholas
Kenneth Loeffler Frank
Frederick Fairchild Hansen
Alfonso Derious Robertson
Thereafter, the number of directors shall be such number (not
less than three) as is fixed from time to time by the By-laws.
SEVENTH: The post office address of the principal
-------
office of the Corporation in this State is c/o The Corporation
Trust Incorporated, 32 South Street, Baltimore, Maryland 21202.
The name of the resident agent of the Corporation in this State
is The Corporation Trust Incorporated, a corporation of this
State, and the post office address of the resident agent is 32
South Street, Baltimore, Maryland 21202.
EIGHTH: The name and address of each incorporator is:
------
Name Address
---- -------
Albert O. Nicholas 700 North Water Street, Suite 1010
Milwaukee, Wisconsin 53202
Thomas J. Saeger 700 North Water Street, Suite 1010
Milwaukee, Wisconsin 53202
Frank J. Pelisek 250 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
NINTH: The following provisions are hereby adopted
-----
for the purpose of defining, limiting and regulating the powers
of the Corporation and of the directors and shareholders:
A. The board of directors of the corporation
shall authorize an initial issuance of shares of the
capital stock of the Corporation for such consideration
not less than the aggregate par value of the shares
included in the issuance as the board of directors
shall determine. After such initial issuance, the
board of directors may authorize the issuance (and
reissuance) from time to time of shares of capital
stock of any class, whether now or hereafter
authorized, for such consideration, not less than the
aggregate par value of the shares so issued, as said
board of directors may deem advisable, provided that,
except with respect to shares issued as a share
dividend or distribution, such consideration shall be
not less than the net asset value of such shares
computed in accordance with this Article NINTH. That
portion of the consideration received by the
Corporation for shares issued (or reissued) which is
equal to the aggregate par value of such shares shall
be capital and any consideration received in excess of
said aggregate par value shall be capital surplus. The
board of directors may, in its sole and absolute
discretion, reject in whole or in part orders for the
purchase of shares of capital stock, and may, in
addition, require such orders to be in such minimum
amounts as it shall determine.
B. The holders of any fractional shares of the
capital stock of the Corporation shall be entitled to
the payment of dividends on such fractional shares, to
receive the net asset value thereof upon redemption and
to share in the assets of the Corporation upon
liquidation, but no holder of a fractional share shall
be entitled to receive a certificate representing any
fractional share. Whenever a shareholder owns
fractional shares aggregating a full share, he shall
have all rights provided herein with respect to such
full share and shall be entitled to receive a
certificate representing such full share.
C. The board of directors shall have full power
in accordance with good accounting practice: (a) to
determine what receipts of the Corporation shall
constitute income available for payment of dividends
and what receipts shall constitute principal and to
make such allocation of any particular receipt between
principal and income as it may deem proper; and (b)
from time to time, in its discretion (i) to determine
whether any and all expenses and other outlays paid or
incurred (including any and all taxes, assessments of
governmental charges which the Corporation may be
required to pay or hold under any present or future law
of the United States of America or of any other taxing
authority therein) shall be charged to or paid from
principal or income or both; and (ii) to apportion any
and all of said expenses and outlays, including taxes,
between principal and income.
D. Each holder of record of stock of this
Corporation shall be entitled to one (1) vote for each
share thereof standing registered in his name on the
books of the Corporation. At all elections of
directors of the Corporation, each shareholder shall be
entitled to vote the shares owned of record by him for
as many persons as there are directors to be elected,
but shall not be entitled to exercise any right of
cumulative voting.
E. The board of directors shall have power to
determine from time to time whether and to what extent
and at what time and places and under what conditions
and regulations the books, accounts and documents of
the Corporation, or any of them, shall be open to the
inspection of shareholders, except as otherwise
provided by statute or by law; and except as so
provided no shareholder shall have any right to inspect
any book, account or document of the Corporation unless
authorized to do so by resolution of the board of
directors.
F. When the total assets of the Corporation
shall for the first time have amounted to $100,000, or
more, a fact which shall be conclusively evidenced by a
resolution of the board of directors of the Corporation
specifying the date and time when such total assets
first amounted to $100,000, or more, each holder of
shares of the capital stock of the Corporation shall be
entitled at any time thereafter to require the
Corporation to redeem all or any part of the shares
standing in the name of such holder on the books of the
Corporation at the net asset value of such shares as
determined in accordance with the provisions of this
Article NINTH, subject to the provisions of Section K
of this Article.
G. The net asset value to which a holder of
shares of capital stock of the Corporation shall be
entitled upon redemption of shares held by him is the
net asset value next determined after the time when
certificates representing said shares, duly endorsed or
accompanied by proper instruments of assignment, with
proper stock transfer stamps affixed, if required, and
accompanied by irrevocable instruments in writing in
form acceptable to the board of directors to redeem the
stock represented by such certificates, shall have been
received by the Corporation at such place as the board
of directors may from time to time designate.
H. The time of payment for shares redeemed shall
be within seven (7) days after certificates
representing the shares to be redeemed have been
received by the Corporation in accordance with Section
G of this Article NINTH.
I. The net asset value of each share of the
Corporation shall be determined as of the close of
trading on the New York Stock Exchange each day that
said Exchange is open for trading and any such net
asset value shall be applicable to all transactions in
the capital stock of the Corporation occurring at or
before the close of business on that day and after the
close of business on the last preceding day on which
said Exchange was open for trading, subject to
adjustment for declared dividends or distributions, or
in accordance with any controlling provisions of the
Investment company Act of 1940 or any rule or
regulation thereunder.
J. The net asset value of each share of the
capital stock of the Corporation at any particular time
shall be the quotient obtained by dividing the value of
the net assets of the Corporation (i.e., the value of
the assets of the Corporation, less its liabilities
exclusive of capital and surplus) at such time by the
total number of shares (including fractional shares)
outstanding at such time, all determined and computed
as follows:
(1) The value of any cash on hand or on
deposit, bills and demand notes and accounts
receivable, prepaid expenses, dividends receivable
(from and after the ex-dividend date) and interest
declared or accrued and not yet received shall be
deemed to be the full amount thereof unless the board
of directors shall have determined that any such
deposit, bill, demand note or account receivable is not
worth the full amount thereof, in which event such
value shall be the fair value thereof as determined in
good faith by the board of directors.
(2) Securities listed or commonly dealt in
on the New York Stock Exchange or the American Stock
Exchange shall be valued at the last sale prices on
such Exchanges on the day on which such value is being
computed (or, lacking any such sales, the last bid
price), unless the board of directors in good faith
determines that some other price reflects more closely
the true market value.
(3) Other securities as to which market
quotations are readily available shall be valued in the
same manner as securities listed or commonly dealt in
on the New York or American Stock Exchanges.
(4) In the case of all other securities and
assets, the value thereof shall be the fair value as
determined in good faith by the board of directors (but
no value shall be assigned to goodwill of the
Corporation).
(5) The liabilities of the Corporation shall
be deemed to include all bills and accounts payable;
all administrative expenses payable and/or accrued,
including the estimated amount of any fees payable
under an investment advisory agreement, all contractual
obligations for the payment of money or property,
including the amount of any unpaid dividends upon the
shares of the Corporation, declared at or before the
time as of which the net asset value is being
determined; all reserves authorized or approved by the
board of directors for taxes or contingencies,
including such reserves, if any, for taxes based on any
unrealized appreciation in the value of the assets of
the Corporation; and all other liabilities of the
Corporation of whatsoever kind and nature, except
liabilities represented by outstanding shares and
surplus of the Corporation.
(6) Securities purchased shall be included
among the assets of the Corporation, and the cost
thereof shall simultaneously be regarded as a
liability, not later than the day following the date of
purchase; and securities sold shall be excluded from
such assets, and the amount receivable therefor shall
simultaneously be included as an asset, not later than
the day following the date of sale.
(7) Shares of the capital stock of the
Corporation for which purchase orders have been
accepted shall be considered as issued and outstanding
as soon as the net asset value thereof can reasonably
be ascertained pursuant to the provisions of this
Article NINTH, and the amount receivable therefor shall
simultaneously become an asset of the Corporation.
(8) Shares of the capital stock of the
Corporation delivered for redemption or repurchase
shall be considered as no longer outstanding as soon as
the net asset value thereof can reasonably be
ascertained pursuant to the provisions of this Article
NINTH, and the amount payable on such redemption or
repurchase shall simultaneously become a liability of
the Corporation.
(9) Notwithstanding the provisions of
paragraphs (1) and (5) of this Section J, interest
declared or accrued and not yet received, and any
accrued expenses, may be omitted from any calculation
of net asset value, in the discretion of the board of
directors, if the net amount of all such interest and
expenses is less than one percent of the net asset
value per share.
K. In the event that the New York Stock Exchange
shall be closed at any time because of then existing
financial conditions or for any other unusual or
extraordinary reason, the right of a holder of shares
of the capital stock of the Corporation to have his
shares redeemed by the Corporation shall be suspended
for a period from and including the day on which the
action is taken for the closing of said Exchange and
the day on which said Exchange is reopened. In
accordance with the provisions of the Investment
Company Act of 1940 and the rules and regulations
promulgated thereunder by the Securities and Exchange
Commission, the Corporation may also suspend such right
of redemption (a) for any period during which trading
on the New York Stock Exchange is restricted; (b) for
any period during which an emergency exists as a result
of which (i) disposal by the Corporation of securities
owned by it is not reasonably practicable or (ii) it is
not reasonably practicable for the Corporation fairly
to determine the value of its net assets; or (c) for
such other periods as the Commission may by order
permit for the protection of shareholders of the
Corporation.
L. The Corporation may purchase in the open
market or otherwise acquire from any owner or holder
thereof any shares of its capital stock, in which case
the consideration paid therefor (in cash or in
securities in which the funds of the Corporation shall
then be invested) shall not exceed the net asset value
thereof determined or estimated in accordance with any
method deemed proper by the board of directors and
producing an amount approximately equal to the net
asset value of said shares (determined in accordance
with the provisions of this Article NINTH) at the time
of the purchase or acquisition by the Corporation
thereof.
In respect of all powers, duties and authorities
conferred by the preceding Sections J and K and this
Section L, the Corporation may act by and through
agents from time to time designated and appointed by
the board of directors and the board of directors may
delegate to any such agent any and all powers, duties
and authorities conferred upon the Corporation or upon
the board of directors by said Sections.
TENTH: The Corporation reserves the right to enter
-----
into, from time to time, investment advisory agreements providing
for the management and supervision of the investments of the
Corporation and the furnishing of advice to the Corporation with
respect to the desirability of investing in, purchasing or
selling securities or other property. Such agreement shall
contain such other terms, provisions and conditions as the board
of directors of the Corporation may deem advisable.
The Corporation may designate custodians, transfer
agents, registrars and/or disbursing agents for the stock and
assets of the Corporation and employ and fix the powers, rights,
duties, responsibilities and compensation of each such custodian,
transfer agent, registrar and/or disbursing agent.
ELEVENTH: The Corporation reserves the right, from
--------
time to time, to make any amendment of these Articles of
Incorporation now or hereafter authorized by law, including any
amendment which alters the contract rights as expressly set forth
in these Articles of Incorporation of any outstanding stock. The
Corporation may take or authorize such action upon the
concurrence of a majority of the aggregate number of the votes
entitled to be cast thereon.
TWELFTH: In the event of the dissolution of the
-------
Corporation and in the event there are assets available for
distribution to the shareholders, the trustees or receivers may
take distributions of assets in cash or in kind or partly in cash
and partly in kind, and it shall not be necessary for the
trustees or receivers to give each shareholder a pro rata share
of each asset, but the trustees or receivers may allocate certain
assets to certain shareholders and certain assets to other
shareholders, so long as there shall be distributed to each
shareholder his pro rata share in market value of the assets of
the Corporation.
Dated: January 14, 1986.
/s/ Albert O. Nicholas
-----------------------
Albert O. Nicholas
/s/ Thomas J. Saeger
---------------------
Thomas J. Saeger
/s/ Frank J. Pelisek
---------------------
Frank J. Pelisek
Incorporators
STATE OF WISCONSIN )
) ss.
COUNTY OF MILWAUKEE )
I hereby certify that on December 31, 1985, before me,
the subscriber, a Notary Public of the State of Wisconsin in and
for the County of Milwaukee, personally appeared ALBERT O.
NICHOLAS, THOMAS J. SAEGER and FRANK J. PELISEK, and severally
acknowledged the foregoing Articles of Incorporation to be their
act.
WITNESS my hand and notarial seal this 14th day of
January, A.D., 1986.
/s/ Eric R. Christiansen
-------------------------
Eric R. Christiansen
Notary Public
Milwaukee County, Wisconsin
My commission is permanent.
BY-LAWS OF NICHOLAS INCOME FUND, INC.
ARTICLE I
Shareholders' Meetings
Section 1. Place of Meetings. All meetings of shareholders
---------
shall be held at 700 North Water Street, Milwaukee, Wisconsin, or
such other location in the State of Wisconsin as determined by
the Board of Directors.
Section 2. If and to the extent permitted by Maryland law,
---------
the Corporation shall not be required to hold an annual meeting
of shareholders in any year in which none of the following is
required to be acted upon by shareholders under the Investment
Company Act of 1940, as amended: (1) election of directors; (2)
approval of any investment advisory agreement; (3) ratification
of the selection of independent auditors; and (4) approval of a
distribution agreement. In the event an annual meeting is
required to be held, such annual meeting shall be held at 10:00
A.M., Milwaukee time, on the fourth Tuesday in April of each
year, if not a legal holiday, and if a legal holiday, then on the
next secular day following. Any business of the Corporation may
be transacted at the annual meeting without being specifically
designated in the notice, except such business as is specifically
required by statute to be stated in the notice.
Section 3. Shareholder Meetings. Meetings of the
----------
shareholders may be called by (i) at the direction of the board
of directors, the president, an executive vice president or a
senior vice president, or the secretary, or (ii) by the secretary
upon the written request of the holders of shares entitled to not
less than 10% of all the votes entitled to be cast at such
meeting. Such request shall state the purpose or purposes of
such meeting and the matters proposed to be acted on thereat.
The secretary shall inform such shareholders of the reasonably
estimated cost of preparing and mailing such notice of the
meeting, and upon payment to the corporation of such costs the
secretary shall give notice stating the purpose or purposes of
the meeting to all shareholders entitled to vote at such meeting.
No meeting need be called upon the request of the holders of
shares entitled to cast less than a majority of all votes
entitled to be cast at such meeting, to consider any matter which
is substantially the same as a matter voted upon at any special
meeting of the shareholders held during the preceding twelve
months. The business transacted at any meeting of shareholders
shall be limited to the purposes stated in the notice.
Section 4. Notice of Meeting. Not less than ten days nor
---------
more than 90 days before the date of every shareholders meeting,
the secretary shall give to each shareholder entitled to vote at
such meeting, written or printed notice stating the time and
place of the meeting, and in the case of a special meeting the
purpose or purposes for which the meeting is called, either by
mail or by presenting it to him personally or by leaving it at
his residence or place of business. If mailed, such notice shall
be deemed to be given when deposited in the United States mail
addressed to the shareholder at his post office address as it
appears on the records of the corporation, with postage thereon
prepaid.
Section 5. Quorum. At any meeting of shareholders the
----------
presence in person or by proxy of shareholders entitled to cast a
majority of the votes thereat shall constitute a quorum; but this
section shall not affect any requirement under the statute or
under the charter for the vote necessary for the adoption of any
measure. If at any meeting a quorum is not present or
represented, the chairman of the meeting or the holders of a
majority of the stock present or represented may adjourn the
meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present or represented. At
such adjourned meeting at which a quorum is present or
represented, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 6. Stock Entitled to Vote. Each issued share of
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stock shall be entitled to vote at any meeting of shareholders
except (i) shares as to which any installment payable thereon is
overdue and unpaid, and (ii) shares owned, other than in a
fiduciary capacity, by the corporation or by another corporation
in which the corporation owns shares entitled to more than 50% of
the votes entitled to be cast by all shares outstanding of such
corporation.
Section 7. Voting. Each full outstanding share of stock
----------
entitled to vote at a meeting of shareholders shall be entitled
to one vote on each matter submitted to a vote, and fractional
shares shall have fractional votes. In all elections for
directors every shareholder shall have the right to vote the
shares owned of record by him for as many persons as there are
directors to be elected. A shareholder may vote the shares owned
of record by him either in person or by proxy executed in writing
by the shareholder or by his duly authorized attorney-in-fact.
No proxy shall be valid after eleven months from its date unless
otherwise provided in the proxy. At all meetings of
shareholders, unless the voting is conducted by inspectors, all
questions relating to the qualification of voters, the validity
of proxies and the acceptance or rejection of votes shall be
decided by the chairman of the meeting. A majority of the votes
cast at a meeting of shareholders, duly called and at which a
quorum is present, shall be sufficient to take or authorize any
action which may properly come before the meeting, unless a
greater number is required by the statute or by the articles of
incorporation. No vote upon any matter, except the election of
directors and except in those cases where a vote is required
under the provisions of the Investment Company Act of 1940, as
amended, need be by ballot unless demanded by the holders of at
least 10% of the shares of stock present or represented at the
meeting.
Section 8. Informal Action. Any action required or
----------
permitted to be taken at any meeting of shareholders may be taken
without a meeting, if a consent in writing, setting forth such
action, is signed by all the shareholders entitled to vote on the
subject matter thereof and such consent is filed with the records
of the corporation.
ARTICLE II
DIRECTORS
Section 1. Number. The number of directors of the
----------
corporation shall be four. By vote of a majority of the entire
board of directors, the number of directors fixed by the charter
or by these by-laws may be increased or decreased from time to
time to not exceeding fifteen nor less than three, but the tenure
of office of a director shall not be affected by any increase in
the number of directors so made by the board.
Section 2. Election and Qualification. Subject to the
----------
restrictions on the election and qualification of directors under
the Investment Company Act of 1940, as amended, a director may be
elected either by the directors as provided under Section 3 of
Article II of the By-Laws or by the shareholders. Each director
shall serve until he or she retires, resigns, is removed or dies
or until the next meeting of shareholders called for the purpose
of electing directors and until the election and qualification of
his or her successor. A director need not be a shareholder of
the corporation, but must be eligible to serve as a director of a
registered investment company under the Investment Company Act of
1940, as amended. Each director but one may be an affiliated
person of the investment adviser of the corporation, as defined
in the Investment Company Act of 1940, as amended.
Section 3. Vacancies. Any vacancy on the board of
----------
directors occurring between shareholders' meetings called for the
purpose of electing directors may be filled, if immediately after
filling any such vacancy at least two-thirds of the directors
then holding office shall have been elected to such office at an
annual or special meeting of shareholders, in the following
manner: (i) for a vacancy occurring other than by reason of an
increase in directors, by a majority of the remaining members of
the board, although such majority is less than a quorum; or (ii)
for a vacancy occurring by reason of an increase in the number of
directors, by action of a majority of the entire board. A
director elected by the board to fill a vacancy shall be elected
to hold office until the next annual meeting of shareholders or
until his successor is elected and qualifies. If by reason of
the death, disqualification or bona fide resignation of any
director or directors, there is no member of the board who is not
an affiliated person of the investment adviser of the
corporation, as defined in the Investment Company Act of 1940, as
amended, such vacancy shall be filled within 30 days if it may be
filled by the board, or within 60 days if a vote of shareholders
is required to fill such vacancy; provided that such vacancy may
be filled within such longer period as the Securities and
Exchange Commission may prescribe, by rules and regulations upon
its own motion or by order upon application. In the event that
at any time less than a majority of the directors were elected by
the shareholders, the board or proper officer shall forthwith
cause to be held as promptly as possible and in any event within
60 days a meeting of shareholders for the purpose of electing
directors to fill any existing vacancies in the board unless the
Securities and Exchange Commission shall by order extend such
period.
Section 4. Powers. The business and affairs of the
----------
corporation shall be managed by the board of directors, which may
exercise all of the powers of the corporation, except such as are
by law or by the articles of incorporation or by these by-laws
conferred upon or reserved to the shareholders.
Section 5. Removal. At any meeting of shareholders, duly
---------
called and at which a quorum is present, the shareholders may, by
the affirmative vote of the holders of a majority of the votes
entitled to be cast thereon, remove any director or directors
from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of removed directors.
Section 6. Place of Meetings. Meetings of the board of
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directors, regular or special, may be held at any place in or out
of the State of Maryland as the board may from time to time
determine or as may be specified in the call of any meeting.
Section 7. First Meeting of Newly Elected Board. The first
---------
meeting of each newly elected board of directors shall be held
without call or notice immediately after and at the same general
place as the annual meeting of the shareholders, for the purpose
of organizing the board, electing officers and transacting any
other business that may properly come before the meeting.
Section 8. Regular Meetings. Regular meetings of the board
---------
of directors may be held without notice at such time and place as
shall from time to time be determined by the board.
Section 9. Special Meetings. Special meetings of the board
---------
of directors may be called at any time either by the board, the
president, an executive vice president, a senior vice president
or a majority of the directors in writing with or without a
meeting. Notice of special meetings shall either be mailed by
the secretary to each director at least three days before the
meeting or shall be given personally or telegraphed to each
director at least one day before the meeting. Such notice shall
set forth the time and place of such meeting but need not, unless
otherwise required by law, state the purposes of the meeting.
Section 10. Quorum and Vote Required for Action. At all
----------
meetings of the board of directors a majority of the entire board
shall constitute a quorum for the transaction of business, and
the action of a majority of the directors present at any meeting
at which a quorum is present shall be the action of the board of
directors unless the concurrence of a greater proportion is
required for such action by statute, the articles of
incorporation or these by-laws. If at any meeting a quorum is
not present, a majority of the directors present may adjourn the
meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present.
Section 11. Meetings By Telephone Or By Other Communication
----------
Technology. Meetings of the Board of Directors or committees
thereof may be conducted by telephone or by other communication
technology in accordance with Section 2-409 of the Annotated Code
of Maryland, Corporations and Associations (or any successor
statute).
Section 12. Informal Action. Any action required or
-----------
permitted to be taken at any meeting of the board of directors
may be taken without a meeting, if a written consent to such
action is signed by all members of the board and such written
consent is filed with the minutes of proceedings of the board;
except, however, where applicable law specifically requires a
meeting of the board of directors at which votes are cast by the
directors in person.
Section 13. Committees. The Board of Directors, by the
-----------
affirmative vote of a majority of the entire Board, may appoint
certain committees composed of two or more members (who need not
be members of the Board of Directors) and shall have such powers
as may be delegated or authorized by the resolution appointing
them. The Board may at any time change the members of any such
committee, fill vacancies or discharge any such committee. In
the absence of any member of any such committee, the members
thereof present at any meeting, whether or not they constitute a
quorum, may appoint a member of the Board to act in the place of
such absent member. A majority of any such committee may
determine its action and fix the time and place of its meetings,
unless the Board shall otherwise provide.
ARTICLE III
OFFICERS AND EMPLOYEES
Section 1. Election and Qualification. At least annually
----------
at a meeting of the board of directors, there shall be elected a
president, one or more vice presidents, a secretary and a
treasurer. The board may also elect one or more executive vice
presidents, senior vice presidents, assistant vice presidents,
assistant secretaries and assistant treasurers. No officer
except the president need be a director. Two or more offices,
except those of president and vice president, may be held by the
same person but no officer shall execute, acknowledge or verify
any instrument in more than one capacity, if such instrument is
required by law, the articles of incorporation or these by-laws
to be executed, acknowledged or verified by two or more officers.
Each officer must be eligible to serve as an officer of a
registered investment company under the Investment Company Act
of 1940, as amended. Nothing herein shall preclude the
employment of other employees or agents by the corporation from
time to time without action by the board.
Section 2. Term, Removal and Vacancies. The officers shall
---------
be elected to serve until the next first meeting of a newly
elected board of directors and until their successors are elected
and qualify. Any officer may be removed by the board, with or
without cause, whenever in its judgment the best interest of the
corporation will be served thereby, but such removal shall be
without prejudice to the contractual rights, if any, of the
person so removed. A vacancy in any office shall be filled by
the board for the unexpired term.
Section 3. Bonding. Each officer and employee of the
----------
corporation who singly or jointly with others has access to
securities or funds of the corporation, either directly or
through authority to draw upon such funds or to direct generally
the disposition of such securities shall be bonded against
larceny and embezzlement by a reputable fidelity insurance
company authorized to do business in Wisconsin. Each such bond,
which may be in the form of an individual bond or a schedule or
blanket bond covering all such officers and employees, shall be
in such form and for such amount (determined at least annually)
as the board of directors shall determine in compliance with the
requirements of Section 17(g) of the Investment Company Act of
1940, as amended, and the rules, regulations or orders of the
Securities and Exchange Commission thereunder.
Section 4. President. The president shall be the principal
---------
executive officer of the corporation. He shall preside at all
meetings of the shareholders and directors, have general and
active management of the business of the corporation, see that
all orders and resolutions of the board of directors are carried
into effect, and execute in the name of the corporation all
authorized instruments of the corporation, except where the
signing shall be expressly delegated by the board to some other
officer or agent of the corporation.
Section 5. Executive Vice Presidents, Senior Vice
---------
Presidents, Vice Presidents and Assistant Vice Presidents. The
Executive Vice President, if any, or if there be more than one,
the Executive Vice Presidents in the order determined by the
Board of Directors, shall, in the absence or disability of the
President, perform the duties and exercise the powers of the
President, and shall have such other duties and powers as the
Board may from time to time prescribe or the President delegate.
The Senior Vice President, if any, or if there be more than one,
the Senior Vice Presidents in the order determined by the Board
of Directors, shall, in the absence or disability of the
President and the Executive Vice President(s) (if any), perform
the duties and exercise the powers of the President, and shall
have such other duties and powers as the Board may from time to
time prescribe or the President delegate. The Vice President, if
any, or if there be more than one, the Vice Presidents in the
order determined by the Board of Directors, shall, in the absence
or disability of the President, the Executive Vice President(s)
(if any) and the Senior Vice President(s) (if any), perform the
duties and exercise the powers of the President, and shall have
such other duties and powers as the Board may from time to time
prescribe or the President delegate. The Assistant Vice
President, if any, or if there be more than one, the Assistant
Vice Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the President,
the Executive Vice President(s) (if any), the Senior Vice
President(s) (if any), or the Vice President(s) (if any), perform
the duties and exercise the powers of the President, and shall
have such other duties and powers as the Board may from time to
time prescribe or the President delegate.
Section 6. Secretary and Assistant Secretaries. The
----------
secretary shall give notice of, attend and record the minutes of
meetings of shareholders and directors, keep the corporate seal
and, when authorized by the board, affix the same to any
instrument requiring it, attesting to the same by his signature,
and shall have such further duties and powers as are incident to
his office or as the Board may from time to time prescribe. The
assistant secretary, if any, or if there be more than one the
assistant secretaries in the order determined by the board, shall
in the absence or disability of the secretary, perform the duties
and exercise the powers of the secretary, and shall have such
other duties and powers as the board may from time to time
prescribe or the secretary delegate.
Section 7. Treasurer and Assistant Treasurers. The
----------
treasurer shall be the principal financial and accounting officer
of the corporation. He shall be responsible for the custody and
supervision of the corporation's books of account and subsidiary
accounting records, and shall have such further duties and powers
as are incident to his office or as the board of directors may
from time to time prescribe. The assistant treasurer, if any, or
if there be more than one the assistant treasurers in the order
determined by the board of directors, shall, in the absence or
disability of the treasurer, perform the duties and exercise the
powers of the treasurer, and shall have such other duties and
powers as the board may from time to time prescribe or the
treasurer delegate.
ARTICLE IV
RESTRICTIONS ON COMPENSATION,
TRANSACTIONS AND INVESTMENTS
Section 1. Salary and Expenses. Directors, officers and
----------
employees as such shall not receive any salary for their services
or reimbursement for expenses from the corporation; provided that
the corporation may pay fees in such amounts and at such times as
the board of directors shall determine to directors who are not
affiliated persons of the corporation's investment adviser for
attendance at meetings of the board of directors.
Section 2. Compensation and Profit from Purchases and
----------
Sales. No affiliated person of the corporation, as defined in
the Investment Company Act of 1940, as amended, or affiliated
person of such person, shall, except as permitted by Section
17(e) of the Investment Company Act of 1940, as amended, or the
rules, regulations or orders of the Securities and Exchange
Commission thereunder, (i) acting as agent, accept from any
source any compensation for the purchase or sale of any property
or securities to or for the corporation or any controlled company
of the corporation, as defined in the Investment Company Act of
1940, as amended, or (ii) receive from any source a commission,
fee or other remuneration for effecting such transaction. The
investment adviser of the corporation shall not profit directly
or indirectly from sales of securities to or from the
corporation.
Section 3. Transactions with Affiliated Persons. No
----------
affiliated person of the corporation, as defined in the
Investment Company Act of 1940, as amended, or affiliated person
of such person shall knowingly (i) sell any security or other
property to the corporation or to any company controlled by the
corporation, as defined in the Investment Company Act of 1940, as
amended, except shares of stock of the corporation or securities
of which such person is the issuer and which are part of a
general offering to the holders of a class of its securities,
(ii) purchase from the corporation or any such controlled company
any security or property, other than shares of stock of the
corporation, (iii) acting as principal, effect any transaction in
which the corporation or controlled company is a joint or joint
and several participant with such person; provided, however, that
this section shall not apply to any transaction permitted by
Sections 17(b), (c) or (d) of the Investment Company Act of 1940,
as amended, or the rules, regulations or orders of the Securities
and Exchange Commission thereunder.
Section 4. Investment Adviser. The corporation shall
----------
employ only one investment adviser, which employment shall be
pursuant to a written agreement in accordance with Section 15 of
the Investment Company Act of 1940, as amended.
Section 5. Ownership of Stock by Officers and Directors.
----------
No officer or director shall take a long or short position in the
stock of the corporation; provided, however, that officers or
directors may purchase stock of the corporation for investment
purposes at the same price as that available to the public at the
time of purchase, or in connection with the original
capitalization of the corporation.
Section 6. Portfolio Transactions. The corporation shall
---------
not purchase, acquire or retain:
(a) the securities of any issuer if an officer or
director of the corporation or its investment 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;
(b) any security issued by or any interest in the
business of an investment company, insurance company,
broker, dealer, underwriter or investment adviser,
except as permitted under Sections 12(d), (e) and (g)
of the Investment Company Act of 1940, as amended, or
the rules, regulations or orders of the Securities and
Exchange Commission thereunder;
(c) voting securities of another issuer, the
acquisition or retention of which would result in
circular or cross ownership, as defined in Section
20(c) of the Investment Company Act of 1940, as
amended, or
(d) during the existence of any underwriting or
selling syndicate, any security, except stock of the
corporation, a principal underwriter of which is an
officer, director, investment adviser or employee of
the corporation, or is a person (other than a company
of the character described in Sections 12(d)(3)(A) and
(B) of the Investment Company Act of 1940, as amended)
of which any such officer, director, investment adviser
or employee is an affiliated person, as defined in the
Investment Company Act of 1940, as amended, unless in
acquiring such security the corporation is itself
acting as a principal underwriter for the issue, except
as the Securities and Exchange Commission, by rules,
regulations or order shall permit.
Section 7. General Business and Investment Activities. The
---------
corporation shall not:
(a) purchase any security on margin, except such short
term credits as are necessary for the clearance of
transactions;
(b) participate on a joint or joint and several basis
in any trading account in securities;
(c) effect a short sale of any security;
(d) act as an underwriter in the distribution of any
security other than stock of the corporation;
(e) make loans to other persons, except for (i) the
purchase of a portion of an issue of publicly
distributed debt securities; (ii) 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
vendor for later delivery, in an amount not to exceed
20% of the total net assets, taken at market, of the
corporation; and (iii) the purchase of a portion of
bonds, debentures or other debt securities of types
commonly distributed privately to financial
institutions, in an amount not to exceed 10% of the
total net assets, taken at market, of the corporation;
(f) borrow money or issue senior securities except to
the extent permitted under Sections 18(f), (g) and (h)
of the Investment Company Act of 1940, as amended,
provided that the amount of money that may be borrowed
shall not exceed that which would be permitted under
the margin requirements of the Board of Governors of
the Federal Reserve System, in force at the time of the
borrowing, as specified by Regulation T, or any
amendment thereto;
(g) purchase or sell real estate or interests in real
estate, commodities or commodity futures. The
Corporation 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
Corporation's total assets will be invested in real
estate investment trusts nor will more than 25% in
value of the Corporation's total assets be invested in
the real estate industry in the aggregate;
(h) deviate from its policy in respect to
concentration of investments in any particular industry
or group of industries as reported in its registration
statement under the Investment Company Act of 1940, as
amended, or deviate from any fundamental policy recited
in such registration statement pursuant to Section
8(b)(2) of the Investment Company Act of 1940, as
amended;
(i) change the nature of its business so as to cease
to be an investment company; or
(j) charge any sales load or commission in connection
with the issuance or sale of any stock of the
corporation; provided that the Board of Directors may
impose a redemption charge in such amount, with such
limitations and at such times as the Board of Directors
in its discretion shall determine.
ARTICLE V
STOCK CERTIFICATES AND TRANSFER BOOKS
Section 1. Certificates. Unless the board of directors
----------
authorizes the issuance of uncertificated shares in accordance
with Section 3 of this Article V below, upon written request to
the corporation, each shareholder shall be entitled to a
certificate or certificates, in such form as the board of
directors shall from time to time approve, representing and
certifying the number of whole shares of stock owned by him in
the corporation. Each certificate shall be signed, manually or
by facsimile signature by the president or a vice president,
countersigned, manually or by facsimile signature by either the
secretary, an assistant secretary, the treasurer or an assistant
treasurer, and sealed with the corporate seal or facsimile
thereof. In case any officer who has signed any certificate, or
whose facsimile signature appears thereon, ceases to be an
officer of the corporation before the certificate is issued, the
certificate may nevertheless be issued with the same effect as
if the officer had not ceased to be such officer as of the date
of its issue. Any certificate representing stock which is
restricted or limited as to transferability shall have a summary
of such restriction on limitation plainly stated thereon. No
certificate shall be issued for any share of stock until such
share is fully paid.
Section 2. Lost Certificates. The board of directors may
---------
direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, destroyed or
mutilated (or may delegate such authority to one or more officers
of the corporation) upon the making of an affidavit of that fact
by the person claiming the certificate to be lost, stolen,
destroyed or mutilated. The board or such officer may, in its or
his discretion, require the owner of such certificate or his
legal representative to give bond with sufficient surety to the
corporation to indemnify it against any loss or claim which may
arise or expense which may be incurred by reason of the issuance
of a new certificate.
Section 3. Uncertificated Shares. In accordance with
----------
Section 2-210 of the Annotated Code of Maryland, Corporations and
Associations (or any successor statute), any and all shares of
capital stock now or hereafter authorized for issuance may be
uncertificated shares.
Section 4. Stock Ledger. The corporation shall maintain at
---------
its office in Milwaukee, Wisconsin, or at the office of its
principal transfer agent, if any, an original or duplicate stock
ledger containing the names and addresses of all shareholders and
the number of shares held by each shareholder.
Section 5. Registered Shareholders. The corporation shall
---------
be entitled to recognize the exclusive right of a person
registered on its books as such, as the owner of shares for all
purposes, and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any
other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the
State of Maryland.
Section 6. Transfer Agent and Registrar. The corporation
----------
may maintain one or more transfer offices or agencies, each in
charge of a transfer agent designated by the board of directors,
where the shares of stock of the corporation shall be
transferable. The corporation may also maintain one or more
registry offices, each in charge of a registrar designated by the
board, where such shares of stock shall be registered. The same
person or entity may be both a transfer agent and registrar.
Section 7. Transfers of Stock. Upon surrender to the
----------
corporation or a transfer agent of a certificate for shares duly
endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled
thereto (if certificates are to be issued), cancel the old
certificate and record the transaction upon its books.
Section 8. Fixing of Record Dates and Closing of Transfer
----------
Books. The board of directors may fix, in advance, a date as the
record date for the purpose of determining shareholders entitled
to notice of, or to vote at, any meeting of shareholders, or
shareholders entitled to receive payment of any dividend or the
allotment of any rights, or in order to make a determination of
shareholders for any other proper purpose. Such date, in any
case, shall be not more than ninety (90) days, and in case of a
meeting of shareholders not less than ten (10) days, prior to the
date on which the particular action requiring such determination
of shareholders is to be taken. In lieu of fixing a record date,
the board may provide that the stock transfer books shall be
closed for a stated period but not to exceed, in any case, twenty
(20) days. If the stock transfer books are closed for the
purpose of determining shareholders entitled to vote at a meeting
of shareholders, such books shall be closed for at least ten (10)
days immediately preceding such action.
ARTICLE VI
ACCOUNTS, REPORTS AND CUSTODIAN
Section 1. Inspection of Books. The board of directors
----------
shall determine from time to time whether, and, if allowed, when
and under what conditions and regulations the accounts and books
of the corporation (except such as may by statute be specifically
open to inspection) or any of them, shall be open to the
inspection of the shareholders and the shareholders rights in
this respect are and shall be limited accordingly.
Section 2. Reliance on Records. Each director and officer
---------
shall, in the performance of his duties, be fully protected in
relying in good faith on the books of account or reports made to
the corporation by any of its officials, by an independent public
accountant, or by any appraiser selected with reasonable care by
the board, and in relying in good faith upon other records of the
corporation.
Section 3. Preparation and Maintenance of Accounts, Records
---------
and Statements. The president, an executive vice president, a
senior vice president, a vice president or the treasurer shall
prepare or cause to be prepared annually, a full and correct
statement of the affairs of the corporation, including a balance
sheet or statement of financial condition and a financial
statement of operations for the preceding fiscal year, which
shall be submitted at the annual meeting of the shareholders (if
there is one) and filed within 20 days thereafter at the
principal office of the corporation in the State of Maryland.
The proper officers of the corporation shall also prepare,
maintain and preserve or cause to be prepared, maintained and
preserved the accounts, books and other documents required by
Section 31 of the Investment Company Act of 1940, as amended, and
shall prepare and file or cause to be prepared and filed the
reports required by Section 30 of the Investment Company Act of
1940, as amended. No financial statement shall be filed with the
Securities and Exchange Commission unless any officer or employee
who prepared or participated in the preparation of such financial
statement has been specifically designated for such purpose by
the board of directors.
Section 4. Auditors. No independent public accountant
----------
shall be retained or employed by the corporation to examine,
certify or report on its financial statements for any fiscal year
unless such selection (i) shall have been approved by a majority
of the entire board of directors within 30 days before or after
the beginning of such fiscal year; and (ii) shall otherwise meet
the requirements of Section 32 of the Investment Company Act of
1940, as amended. If the board of directors shall select an
independent public accountant that has not previously been
employed by the Corporation, such selection shall be submitted to
the shareholders for ratification or rejection within 120 days
after such selection by the board of directors, at a
shareholders' meeting called pursuant to Section 3 of Article I
of these By-Laws.
Section 5. Custodian. All securities, evidences of
----------
indebtedness and funds of the corporation shall be entrusted to
the custody of one or more custodians or depositaries, each of
which shall be a bank or trust company which is a member of the
Federal Reserve System having capital, surplus and undivided
profits of not less than Two Million ($2,000,000) Dollars, as set
forth in its most recently published report of condition, and the
qualifications prescribed by and pursuant to Sections 17(f) and
26 of the Investment Company Act of 1940, as amended, employed as
agent or agents of the corporation by the board of directors.
Section 6. Agreement with Custodian. Each custodian shall
---------
be employed pursuant to a written agreement which shall conform
to the requirements prescribed by any applicable rules and
regulations of the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and, except as
otherwise provided by such rules and regulations, shall provide
substantially as follows:
(a) The custodian shall keep (i) all cash on deposit
with it or with such other banks in the name of the
custodian as the corporation shall direct, and (ii) all
securities in a separate account, not commingled with
other assets, in the name of the custodian, its nominee
or the corporation in care of the custodian, or in the
custody of the custodian or its agents in street
certificate or bearer form. The custodian shall
receive and collect the income or funds due with
respect to such securities.
(b) Securities and cash held by the custodian may be
withdrawn only upon written order signed on behalf of
the corporation by two employees, at least one of whom
shall be an officer, included within a list of officers
and employees certified for such purpose by resolution
of the board of directors.
(c) Securities held by the custodian may be withdrawn
only for the following purposes:
(i) The sale of such securities for the
account of the corporation with delivery and
payment therefor in accord with procedures
and customs used by the custodian in the sale
of securities for the trust estates of which
it is trustee;
(ii) The delivery of securities in exchange
for or conversion into other securities
alone, cash or cash and other securities
pursuant to the provisions of such securities
or a plan of merger, consolidation,
reorganization, recapitalization or
readjustment of the securities of the issuer
thereof;
(iii) The surrender of warrants, rights or
similar securities in the exercise of such
warrants, rights or similar securities or the
surrender of interim receipts or temporary
securities for definitive securities;
(iv) The delivery of securities to a lender
as collateral on borrowing effected by the
corporation; and
(v) The delivery of securities as a
redemption in kind of or distribution on stock
of the corporation;
provided that in each case specified in clauses (ii), (iii)
and (iv) the payment, collateral or securities to be
received are delivered to the custodian simultaneously or as
promptly thereafter as possible.
(d) Cash held by the custodian may be withdrawn only
for the following purposes:
(i) The purchase of securities to be
retained by the custodian with delivery and
payment therefor in accord with
procedures and customs used by the custodian
in the purchase of securities for the trust
estates of which it is trustee;
(ii) The redemption or purchase of stock of
the corporation;
(iii) The payment of dividends or other
distributions on stock of the corporation;
(iv) The payment of taxes, interest, or the
investment adviser's fees incurred in
connection with the operation of the
corporation;
(v) The payment in connection with the
conversion, exchange or surrender of
securities owned by the corporation; or
(vi) The deposit of funds in the name of the
custodian in or with any other bank or trust
company designated by the corporation.
Section 7. Termination of Custodian Agreement. Any
----------
agreement with a custodian shall be terminable on 60 days' notice
in writing by the board of directors or the custodian and upon
any such termination the custodian shall turn over only to the
succeeding custodian designated by the board of directors all
funds, securities and property and documents of the corporation
in its possession.
Section 8. Checks and Requisitions. Except as otherwise
----------
authorized by the board of directors, all checks and drafts for
the payment of money shall be signed in the name of the
corporation by a custodian, and all requisitions or orders for
the payment of money by a custodian or for the issue of checks
and drafts therefor, all promissory notes, all assignments, or
stock or securities standing in the name of the corporation, and
all requisitions or orders for the assignment of stock or
securities standing in the name of a custodian or its nominee,
or for the execution of powers to transfer the same, shall be
signed in the name of the corporation by not less than two
persons (who shall be among those persons designated for this
purpose by the board of directors) at least one of which shall be
an officer. Promissory notes, checks or drafts payable to the
corporation may be endorsed only to the order of a custodian or
its nominee by the treasurer or president or by such other person
or persons as shall be thereto authorized by the board of
directors.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Offices. The principal office of the
----------
corporation in the State or Maryland shall be in the City of
Baltimore. The corporation may also have offices at such other
places within and without the State of Maryland as the board of
directors may from time to time determine. Except as otherwise
required by statute, the books and records of the corporation may
be kept outside the State of Maryland.
Section 2. Seal. The corporate seal shall have inscribed
---------
thereon the name of the corporation, and the words "Corporate
Seal" and "Maryland." The seal may be used by causing it or a
facsimile thereof to be impressed, affixed, reproduced or
otherwise.
Section 3. Fiscal Year. The fiscal year of the corporation
---------
shall be fixed by the board of directors.
Section 4. Notice and Waiver of Notice. Whenever any
---------
notice of the time, place or purpose of any meeting of
shareholders or directors is required to be given under the
statute, the articles of incorporation or these by-laws, a waiver
thereof in writing, signed by the person or persons entitled to
such notice and filed with the records of the meeting, either
before or after the holding thereof, or actual attendance at the
meeting of shareholders in person or by proxy or at the meeting
of directors in person, shall be deemed equivalent to the giving
of such notice to such persons. No notice need be given to any
person with whom communication is made unlawful by any law of the
United States or any rule, regulation, proclamation or executive
order issued under any such law.
Section 5. Voting of Stock. Unless otherwise ordered by
---------
the board of directors, or unless otherwise delegated to the
investment adviser in an investment advisory agreement, the
president shall have full power and authority, in the name and on
behalf of the corporation, (i) to attend, act and vote at any
meeting of shareholders of any company in which the corporation
may own shares of stock of record, beneficially (as the proxy or
attorney-in-fact of the record holder) or of record and
beneficially, and (ii) to give voting directions to the record
shareholder of any such stock beneficially owned. At any such
meeting, he shall possess and may exercise any and all rights and
powers incident to the ownership of such shares and which, as the
holder or beneficial owner and proxy of the holder thereof, the
corporation might possess and exercise if personally present,
and may exercise such power and authority through the execution
of proxies or may delegate such power and authority to any other
officer, agent or employee of the corporation.
Section 6. Dividends. Dividends upon the stock of the
----------
corporation, subject to the provisions of the articles of
incorporation, if any, may be declared by the board of directors
at any regular or special meeting, or by unanimous written
consent, all pursuant to law. The source of each dividend
payment shall be disclosed to the shareholders receiving such
dividend, to the extent required by the laws of the State of
Maryland and by Section 19 of the Investment Company Act of 1940,
as amended, and the rules and regulations of the Securities and
Exchange Commission thereunder. Before payment of any dividend,
there may be set aside out of any funds of the corporation
available for dividends such sum or sums as the directors from
time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends,
or for repairing or maintaining any property of the corporation,
or for such other purpose as the directors shall think conducive
to the interests of the corporation, and the directors may modify
or abolish any such reserve in the manner in which it was
created.
Section 7. Indemnification. Any person who is serving or
---------
has served as a director or officer of the corporation or, at its
request, as a director or officer of another corporation in which
it owns stock or of which it is a creditor, shall be indemnified
by the corporation against expenses (including judgments, amounts
paid in settlement and fees and expenses of counsel and experts)
actually and necessarily incurred by him in connection with the
defense of any action, suit or proceeding in which he is made a
party, or from any claim with which he is threatened by reason of
his being or having been a director or officer of the corporation
or any such other corporation (whether or not he continues to be
a director or officer at the time such expense is incurred by
him), except in relation to matters as to which such person has
been adjudged liable because of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his office. In the absence of an adjudication
which expressly absolves such person from liability to the
corporation or its stockholders for willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, indemnification shall be
conditioned upon the prior determination by a resolution of
two-thirds of those members of the board of directors of the
corporation who are not involved in the action, suit, proceeding
or claim and who are not interested directors as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as
amended (or, if a majority of such members are so involved, upon
the prior written opinion of independent counsel), that such
person has no liability by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Amounts paid in
settlement shall not exceed costs, fees and expenses which would
have been reasonably incurred if the action, suit or proceeding
had been litigated to a conclusion. Such a determination by the
board of directors, or by independent counsel, and the payments
of amounts by the corporation on the basis thereof shall not
prevent a stockholder from challenging such indemnification by
appropriate legal proceedings on the grounds that the person
indemnified was liable to the corporation or its security holders
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office. In the event of such person's death, the right to
indemnification shall extend to his legal representative. The
corporation may advance attorneys' fees or other expenses
incurred by its directors, officers, investment adviser, agent or
employee in defending a proceeding, upon the undertaking by or on
behalf of the person to be indemnified ("indemnitee") to repay
the advance unless it is ultimately determined that he is
entitled to indemnification, so long as the advance is
conditioned on one of the following: (1) the indemnitee shall
provide a security for his undertaking; (2) the corporation shall
be insured against losses arising by reason of any lawful
advances; or (3) a majority of a quorum of the disinterested
non-party directors of the corporation, or an independent legal
counsel in a written opinion, shall determine, based on a review
of readily available facts, that there is reason to believe that
the indemnitee ultimately will be found entitled to
indemnification. The foregoing rights of indemnification shall
be exclusive of any other rights to which the officers and
directors may be entitled according to law.
Section 8. Amendments. The board of directors shall have
---------
the power to alter or repeal any by-laws of the corporation and
to make new by-laws, except that the board shall not alter or
repeal any by law made by the shareholders and shall not alter or
repeal Section 3 of Article III, Sections 2, 3, 6 and 7 of
Article IV, Sections 3 through 8 of Article VI and Sections 6
through 8 of Article VII. The shareholders shall have the power
at any meeting, if notice thereof be included in the notice of
such meeting, to alter or repeal any by-laws of the corporation
and to make new by-laws.
FRONT
NUMBER SHARES
SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 653741 10 8
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
NICHOLAS INCOME FUND, INC.
This certifies that is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CAPITAL STOCK, PAR VALUE $.01 PER
SHARE OF THE NICHOLAS INCOME FUND, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate is not valid until countersigned by the Transfer Agent
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
/S/ Thomas J. Saeger Nicholas Income Fund, Inc /S/ Albert O. Nicholas
------------------ Corporate Seal ------------------
Thomas J. Saeger Maryland Albert O. Nicholas
Secretary President
Dated:
COUNTERSIGNED:
FIRSTAR TRUST CO. (Milwaukee)
BY TRANSFER AGENT
- ---------------------------------------------
Authorized Signature
BACK
The following abbreviations, when used in the inscription on the face of this
certificate, shall be constructed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - ___________________ Custodian _________________
(Cust) (Minor)
under Uniform Gifts to Minors Act _____________
State
Additional abbreviations may also be used though not in the
above list.
TRANSFER FORM
COMPLETE THIS FORM ONLY WHEN TRANSFERRING TO ANOTHER PERSON
For value received ________________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNED ___________________________________
____________________________________ Please print or typewrite name and
address
___________________________________
___________________________________
___________________________________
of the capital stock represented by the within certificate and do hereby
irrevocably constitute and appoint __________________________ attorney to
transfer the same on the books of the within-named corporation, with full
power of substitution in the premises.
Dated ________________________________________________
SIGNATURE GUARANTEE BY:
__________________________________________ ________________________________
SIGNATURE(S)
Signature guarantee must be made by a NOTICE: the signature(s) to this
member or a member organization of the assignment must correspond with
New York Stock Exchange, or by a the name as written upon the face
commercial bank (not a savings bank), of the certificate in every
or by a trust company. particular, without alteration or
enlargement or any change whatever.
---------------------
REDEMPTION FORM
COMPLETE THIS FORM ONLY WHEN REDEEMING SHARES
The undersigned hereby tenders the written certificate properly endorsed
in blank or in favor of the corporation with any requisite guarantee of
signature and supporting papers and requests the redemption of
___________________________________________________(______________) shares
of capital stock represented by the within certificate in accordance with
the terms of the articles of incorporation of the corporation.
Dated: ____________________________
SIGNATURE GUARANTEE BY:
__________________________________________ ________________________________
SIGNATURE(S)
Signature guarantee must be made by a NOTICE: the signature(s) to this
member or a member organization of the assignment must correspond with
New York Stock Exchange, or by a the name as written upon the face
commercial bank (not a savings bank), of the certificate in every
or by a trust company. particular, without alteration or
enlargement or any change whatever.
---------------------------------
---------------------------------
Address
INVESTMENT ADVISORY AGREEMENT
-----------------------------
AGREEMENT made as of the 15th day of January, 1986 at
Milwaukee, Wisconsin, by and between NICHOLAS INCOME FUND, INC.,
a Maryland corporation (the "Fund"), and NICHOLAS COMPANY, INC.,
a Wisconsin corporation (the "Adviser"):
WITNESSETH:
1. The Fund hereby employs the Adviser to act as
investment adviser for and to manage the investment and
reinvestment of the assets of the Fund and to administer its
affairs, to the extent requested by and subject to the
supervision of the Board of Directors of the Fund, for the period
and on the terms set forth in this Agreement.
The Adviser hereby accepts such employment and agrees during
such period, at its own expense, to render the services and to
assume the obligations herein set forth, for the compensation
herein provided. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise to be
deemed an agent for the Fund.
2. The Adviser, at its own expense, shall furnish to the
Fund suitable office space in its own offices or in such other
place as may be agreed upon from time to time, and all necessary
office facilities and equipment for managing the affairs and
investments of the Fund. The Adviser shall pay all salaries of
officers and fees of directors of the Fund who are interested
persons of the Adviser. The Fund will not charge any sales load
or commission in connection with the sale of Fund shares and the
Adviser shall bear all sales and promotional expenses of the
Fund, other than expenses incurred in complying with laws
regulating the issue or sale of securities.
3. The Fund will pay all of its operating expenses,
including but not limited to the charges and expenses of any
custodians appointed by the Fund for the safekeeping of its
securities and/or other property and for keeping its books of
accounts and other charges and expenses of independent auditors,
of legal counsel, and of any transfer and dividend disbursing
agents and registrars of the Fund, cost of stock certificates and
of corporate reports, notices of meeting, proxy solicitations,
membership dues in the Investment Company Institute, fees and
salaries of the officers and directors who are not interested
persons of the Adviser, costs of personnel to perform clerical,
accounting, and other office services for the Fund, registration
fees payable to any government or governmental body or agency
(including those incurred on account of the registration or
qualification under federal or state laws, of securities issued
by the Fund), cost of registration statements, cost of
prospectuses, postage and other like miscellaneous expenses.
4. All taxes, brokerage commissions, interest and other
similar expenses shall be paid by the Fund.
5. For the services to be rendered and the charges and
expenses assumed to be paid as provided in paragraph 2 hereof,
the Fund shall pay to the Adviser as annual compensation the sum
of 1/2 of 1% of the average net assets of the Fund, except that
on average net assets in excess of $50,000,000 the annual rate of
compensation shall be reduced as follows:
Assets Rate
------ ----
$50,000,000 to $100,000,000 4/10 of 1%
$100,000,000 and over 3/10 of 1%
In the event that the expense the Fund is required to pay by
the terms of paragraph 3 hereof shall exceed in any year 1/2 of
1% of the average net assets of the Fund for that year, the
Adviser covenants and agrees to reimburse the Fund for the amount
of the excess of such expenses over 1/2 of 1% of the average net
assets. Any required reimbursement will be made on a monthly
basis as a reduction of the management fee payable to the Adviser
for the month.
The average net assets of the Fund for the purposes of this
paragraph shall be the average of the closing valuations of the
total net assets of each business day of the year, computed on
the same basis as provided for the determination of net asset
value for the sale and repurchase of the Fund's own stock.
The compensation shall be paid monthly. In case of
termination of this Agreement otherwise than at the end of a
month, such compensation for the current month shall be
apportioned and the part thereof allocable to the part of such
month then expired shall be payable to the Adviser upon such
termination.
6. No order, direction, approval, contract or obligation
on behalf of the Fund with or affecting the Adviser shall be
deemed binding unless made in writing and signed on behalf of the
Fund by an officer or officers of the Fund authorized by the
Board of Directors.
7. It is understood that the directors, officers, agents
and stockholders of the Fund are or may be interested in the
Adviser as officers, directors, agents, stockholders or
otherwise, and that the directors, officers, agents and
stockholders of the Adviser are or may be interested in the Fund
as directors, officers, agents, stockholders or otherwise, and
that the Adviser is or may be interested in the Fund as a
stockholder for investment purposes.
8. The Adviser agrees that it will not take any long or
short positions in the shares of the Fund and that so far as it
can control the situation, it will prevent any officer, director,
agent or stockholder of the Adviser from taking any long or short
position in the shares of the Fund; provided, however, that it
shall be permissible for the Adviser, for any officer, director,
agent or stockholder of the Adviser to purchase and own stock of
the Fund for investment purposes.
9. This Agreement shall, in the event of assignment as
defined in the Investment Company Act of 1940, as amended,
automatically terminate.
10. This Agreement shall continue in force until terminated
as provided in this Agreement, except that this Agreement shall
continue in effect after the expiration of two years from the
date of its execution only so long as such continuance is
specifically approved at least annually (a) by the Board of
Directors or by the vote of a majority of the outstanding voting
securities of the Fund, and (b) by a vote of a majority of
directors of the Fund who are not parties to such contract or
agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval.
11. This Agreement may be terminated at any time, without
payment of any penalty, either by a majority of the Board of
Directors of the Fund or by a vote of the majority of the
outstanding voting securities of the Fund or by the Adviser on
sixty (60) days notice in writing to the other party.
12. This Agreement may be amended by mutual consent of the
parties, provided that the terms of each such amendment shall be
approved in advance by the vote of a majority of the outstanding
voting securities of the Fund. If at any time during the
existence of this Agreement the Fund deems it necessary or
advisable in the best interests of the Fund that any amendment of
this Agreement be made in order to comply with the
recommendations or requirements of the Securities and Exchange
Commission or state regulatory bodies or other governmental
authority, or to obtain any advantage under state or federal tax
laws, the Fund shall notify the Adviser of the form of amendment
which it deems necessary or advisable and the reasons therefor,
and if the Adviser declines to assent to such amendment, the Fund
may terminate this Agreement forthwith.
13. Any notice under this Agreement shall be in writing,
addressed and delivered, or mailed postpaid to the other party at
any place of business of such party.
14. This Agreement shall be in force and effect from
January 15, 1986, or from such subsequent date as the parties may
mutually agree upon.
15. The Adviser agrees while this Agreement is in force and
effect, that it will not accept employment as investment adviser
for or administer the affairs of any other investment objective
and policy. Nothing in this Agreement shall limit or prevent the
Adviser from acting as investment adviser or from administering
the affairs or other investment companies that are growth funds,
growth income funds, balanced funds, or special funds as
presently categorized in the mutual fund investment field.
NICHOLAS INCOME FUND, INC.
By: /s/ Albert O. Nicholas
-----------------------------
Albert O. Nicholas, President
NICHOLAS COMPANY, INC.
By: /s/ Albert O. Nicholas
-----------------------------
Albert O. Nicholas, President
NICHOLAS
FAMILY OF FUNDS
[LOGO]
INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
TRADITIONAL
ROTH
EDUCATIONAL
TABLE OF CONTENTS
Page
General Information 3
Initial Investment Minimums 3
Firstar Trust Company Custodial Fees 3
Instructions for Establishing an IRA 3
Opening an IRA 3
Transferring an IRA 4
Conversion of Traditional IRA a Roth IRA 4
Where to Obtain Assistance on Your Nicholas IRA 4
Disclosure Statement 5
Terms and Definitions 5
Questions and Answers 7
General IRA Information 7
Traditional IRA 9
Roth IRA 14
Education IRA 17
Individual Retirement Account Custodial Agreements (5305 Series)
5305-A, Traditional IRA 19
5305-RA, Roth IRA 21
5305-EA, Education IRA 23
NICHOLAS FAMILY OF FUNDS
GENERAL INFORMATION
Welcome to the Nicholas Family of Funds. Please take some time
to review this Individual Retirement Account (IRA) Disclosure
Statement as well as the fund prospectus(es) you are considering
investment in. The following information in this General
Information section will help you by outlining investment options
and minimums, identifying fees associated with IRA accounts,
providing instructions for establishing your IRA account, and
identifying where you can receive assistance on your Nicholas
account.
The Taxpayer Relief Act of 1997 brings many changes beginning in
1998 to the Traditional IRA as well as the introduction of two
new products: the Roth IRA and the Education IRA. These changes
extend the opportunity for tax-deferred, and in some instances
tax-exempt, savings through the use of IRA accounts.
The remainder of this Disclosure Statement is divided into
sections to provide easier access to the information pertaining
specifically to the type of IRA account you are considering
investment in. Please refer to the table of contents for faster
location of information pertinent to your situation. We hope
that this Disclosure Statement is a useful tool for your IRA
decision making process. Thank you for considering investing in
the Nicholas Family of Funds.
INITIAL INVESTMENT MINIMUMS:
Nicholas Fund - $500 Nicholas Equity Income Fund - $2,000
Nicholas II Fund - $500 Nicholas Income Fund - $500
Nicholas Limited Edition* - $2,000 Nicholas Money Market Fund - $2,000
*NICHOLAS LIMITED EDITION HAS A LIMITED NUMBER OF SHARES FOR SALE
AND MAY NOT BE AVAILABLE AT THIS TIME. PLEASE CONTACT THE
NICHOLAS FAMILY OF FUNDS REGARDING THE AVAILABILITY OF NICHOLAS
LIMITED EDITION.
FIRSTAR TRUST COMPANY CUSTODIAL FEES:
(a) Annual maintenance fee; Traditional and Roth IRA - $12.50
per account
(There is a cap of $25.00 for two or more accounts
under one social security or taxpayer identification number. Education IRA
accounts are not included in this cap. The $25.00 will be divided equally
between all IRA accounts.)
Annual maintenance fee for Education IRA - $5.00 per account
THE ANNUAL MAINTENANCE FEE WILL BE DEDUCTED FROM YOUR
ACCOUNT ANNUALLY, UNLESS IT IS PAID BY SEPTEMBER 15TH.
ACCOUNTS CLOSED PRIOR TO THAT WILL BE ASSESSED THE ANNUAL
MAINTENANCE FEE UPON REDEMPTION.
(b) Transfer to a successor trustee-$15.00.
(c) Distribution to a participant-$15.00. (Excluding Systematic
Withdrawal Plan distributions)
(d) Refund of excess contribution-$15.00.
The charge for refunding excess contributions will be
deducted from your account at the time of the refund.
(e) Any outgoing wire transfer-$12.00.
Enough fund shares will be redeemed to cover these fees. These
fees will apply regardless of the size of your account. The fees
are subject to change.
INSTRUCTIONS FOR ESTABLISHING AN IRA
OPENING AN IRA:
1) Please read the prospectus for the fund you are interested
in. If you do not have the applicable investment kit which
contains the prospectus, contact Nicholas Family of Funds. This
material contains more complete information regarding charges and
expenses.
2) Fill in the information required on the IRA Custodial
Account Application - Form A (A through F) for Traditional and
Roth IRA accounts, and on the IRA Custodial Account Application -
Form B (A through G) for Education IRA accounts.
3) Please make your check payable to the fund you are investing
in. If you are investing in more than one fund, one check made
payable to Nicholas Family of Funds is appropriate.
4) Direct Rollover contributions (for use with Traditional IRA
accounts only) from an employer plan or tax-sheltered annuity
should be made payable to:
Firstar Trust Company, Custodian
Nicholas Family of Funds IRA
FBO (your name)
5) Send the completed application along with your check in the
envelope provided to:
Firstar Trust Company
Corporate Trust Department-IRA
P.O. Box 2944
Milwaukee, WI 53201-2944
A confirmation verifying your IRA investment will be mailed to
you within a week to 10 days after receipt of your deposit.
NOTE: If a fund has not been selected on the application or is
not indicated on the check, the investment will be made in the
Nicholas Money Market Fund.
TRANSFERRING AN IRA:
Use the transfer form (Form C) enclosed to transfer an existing
IRA from a current custodian or trustee to the Nicholas Family of
Funds. Be sure to fill in all of the information required. Return
the form, intact, with the IRA Custodial Account Application, and
we will handle the transfer for you. If the current custodian
sends you a check for the money in your account, forward a check
to the Firstar Trust Company within 60 days to avoid any tax
liability (please see "rollover" in the terms and definitions).
This last type of transaction is permitted only once every 12
months. PLEASE NOTE THAT MOST CUSTODIANS WILL REQUIRE THAT YOUR
SIGNATURE BE GUARANTEED BY A COMMERCIAL BANK, A MEMBER OF THE NEW
YORK STOCK EXCHANGE OR A SAVINGS AND LOAN ASSOCIATION.
TRANSFERS CAN ONLY BE MADE BETWEEN LIKE IRA ACCOUNTS; TRADITIONAL
IRA TO TRADITIONAL IRA, ROTH IRA TO ROTH IRA, OR EDUCATION IRA TO
EDUCATION IRA.
CONVERSION OF TRADITIONAL IRA TO ROTH IRA:
1) Please read the Question and Answer section pertaining to
Roth IRA accounts.
2) Complete Form D - Conversion of Traditional IRA to Roth IRA
3) Complete Form A - IRA Custodial Account Application for
Traditional or Roth IRA Account.
It is not necessary to return the Form 5305-RA.
4) Send completed Form A and Form D to:
Firstar Trust Company
Corporate Trust Department-IRA
P.O. Box 2944
Milwaukee, WI 53201-2944
A confirmation verifying your IRA investment will be mailed to
you within a week to 10 days after the conversion is complete.
NOTE: The conversion Roth will be established in the same fund
the Traditional IRA is invested in unless otherwise noted on the
conversion form (Form D) and the IRA application (Form A).
WHERE TO OBTAIN ASSISTANCE ON YOUR NICHOLAS IRA ACCOUNT
ACCOUNT QUESTIONS AND TRANSACTIONS:
Questions regarding your IRA account transactions should be
directed TO FIRSTAR TRUST COMPANY AT (800)544-6547 OR
(414)276-0535. As the Custodian of Nicholas Family of Funds IRA
accounts, Firstar can answer questions regarding purchases,
redemptions, and compliance issues. Representatives are
available Monday through Friday between 8:00 a.m. and 7:00 p.m.,
Central time to speak with investors. Account holders may access
their account information through our Voice Response Unit 24
hours a day by receiving computerized updates.
INVESTMENT OPTIONS AND PORTFOLIO QUESTIONS:
Questions regarding the Fund objectives, performance, or
management should be directed to NICHOLAS FAMILY OF FUNDS AT
(800)227-5987 OR (414)272-6133. Our registered representatives
are available to assist you personally between 8:15 a.m. and 4:30
p.m., Central time. After regular business hours, investors may
leave a message on our answering machine to receive additional
information or to have a representative return their call the
following business day.
INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
The Internal Revenue Service requires that you be given a
Disclosure Statement for the purpose of understanding individual
retirement accounts. The following Question/Answer Series is part
of our Disclosure Statement. Please read this section, the
Custodial Agreement (Forms 5305-A, 5305-RA, and 5305-EA) and the
appropriate Prospectus very carefully before deciding to invest.
You may revoke your IRA within seven days from the date the
individual retirement account is established. Upon revocation you
will receive the entire amount of consideration paid for your
account without adjustment for losses, gains or administrative
expenses. You may revoke your IRA by mailing or delivering a
written notice to the address listed below. A mailed notice,
properly addressed with first class postage prepaid, is deemed
mailed on the date of its postmark, certification or
registration.
Firstar Trust Company, Custodian
Nicholas Family of Funds, IRA
P.O. Box 2944
Milwaukee, Wisconsin 53201-2944
If you need further assistance in answering questions pertaining
to the Nicholas Family of Funds IRA, please call us at (414)
272-6133, or (800) 227-5987 or write to:
Nicholas Family of Funds
Individual Retirement Accounts
700 N. Water St., Suite 1010
Milwaukee, Wisconsin 53202
We recommend that you consult your lawyer, accountant or personal
tax adviser regarding questions on tax and legal implications.
TERMS AND DEFINITIONS
ACTIVE PARTICIPANT - An employee who is eligible to participate
in, actually participates in, or receives a contribution in
(including forfeitures) an employer-sponsored retirement plan.
BENEFICIARY - The individual(s) identified to receive your IRA
proceeds in the event of your death. Special rules apply to the
Education IRA; please read the 5305-EA and related materials
closely.
COMPENSATION INCOME - Income reported to you by an employer on
Form W-2 or on Schedule C for self-employed individuals.
CONDUIT IRA - This is an IRA account established as a "holding
account" for proceeds from a previous employer's retirement plan.
You may roll over those assets into another qualified employer's
plan only if they are made up of the funds received from the
first employer's plan (plus earnings), and you did not commingle
regular contributions or funds from other sources with them.
CONTRIBUTION - The annual dollar amount deposited to an IRA
account for a specific calendar year. Contribution limits vary
depending on individual circumstances. Please review the
Question and Answer section of the IRA type you are considering
for a more detailed discussion.
CUSTODIAN - A bank, federally insured credit union, savings &
loan association, or other person found acceptable by the
Secretary of the Treasury. Firstar Trust Company acts as
Custodian on Nicholas Family of Funds IRA accounts.
DIRECT ROLLOVER - A direct rollover to a Traditional IRA is
payment of a distribution from an employer-sponsored plan to the
IRA custodian instead of to you. You are entitled to have all or
part of an eligible rollover distribution made after 1992 from a
qualified plan or tax-sheltered annuity paid as a direct
rollover.
DISTRIBUTION - Any money or property you receive due to a
withdrawal or "pay out" from your IRA account or annuity is a
distribution. Generally, distributions are to be included in
your gross income in the year you receive them. Exceptions to
the general rule are rollovers made within the 60 day limitation
period and tax-free withdrawals of excess contributions. If you
made nondeductible contributions for tax years after 1986, a
portion of each distribution will be tax-free, up to the total
amount of nondeductible contributions you made.
EARNED INCOME - Income earned by providing a service to another
individual or entity. This does not include investment income
(such as dividends and capital gains). Earned income does
include income from royalties, commissions, and taxable alimony.
EDUCATION IRA - An Education IRA is a specialized savings vehicle
to be used for post-secondary education expenses incurred by the
designated beneficiary of the account. Contributions do not
receive a current deduction and are made to an IRA maintained on
behalf of a designated beneficiary. However, if amounts are used
for certain educational purposes, neither the contributor nor the
beneficiary of the IRA are taxed upon distribution.
EXCESS CONTRIBUTION - The amount you contribute to your IRA
(other than rollover contributions and transfers) that is greater
than the allowable contribution limits outlined in the specific
IRA Question and Answer section. Contributions that exceed the
allowable maximum for federal income tax purposes are treated as
excess contributions. A nondeductible penalty tax of 6% of the
excess amount contributed will be added to your income tax for
each year in which the excess contribution remains in your
account. Firstar Trust Company, as Custodian, charges a $15.00
fee to refund any excess amounts.
IRA - "IRA" stands for Individual Retirement Arrangement. In
general, an IRA is a savings program that lets you set money
aside for future retirement (except with the Education IRA).
Please refer to the Question and Answer section on the type of
IRA you are considering establishing to determine the
deductibility of contributions and the taxation of future
distributions.
MAINTENANCE FEE - The annual fee assessed by the Custodian to
offset expenses related to maintaining IRA accounts within IRS
limitations.
PASSIVE INCOME - Income which is not earned, such as investment
income from dividends and capital gains.
PREMATURE DISTRIBUTION - Any distribution from your IRA made
prior to the minimum standards established by the IRS. Different
terms govern the different IRA accounts available. Please refer
to the Question and Answer section for the type of account you
are considering for more specific terms.
REQUIRED MINIMUM DISTRIBUTION - Distributions from a Traditional
IRA must begin by April 1 in the year following the year an IRA
owner attains 70 1/2. Roth IRAs do not require a minimum
distribution.
ROLLOVER - A rollover is the deposit of cash, stock, etc. from
one retirement program into another tax-free where by the IRA
OWNER RECEIVES A CHECK from the resigning custodian, and upon
receipt of the check has 60 days to deposit the proceeds into
another custodial account. Only one rollover is permitted per
IRA account in any twelve month period.
ROTH IRA - A Roth IRA is a new IRA product available beginning
with contributions made for tax year 1998. Amounts contributed to
your IRA are taxed at the time of contribution, but distributions
from the IRA may not be subject to tax if you have held the IRA
for certain minimum periods of time (generally, until age 59 1/2
but in some cases longer).
SPOUSAL IRA - An IRA account for a spouse without earned income.
Contribution limits and deductibility of contributions will vary
depending on the situation. Please refer to the Question and
Answer section for the account type you are considering.
TOTAL RETURN - This is the increase (or decrease) in the Fund's
share price, plus the reinvestment of all dividends and capital
gains, over a specific period of time. Total return is a measure
of actual past performance and can be used as an indicator of the
future potential growth of a fund, but it is in no way a
guarantee of future performance.
TRADITIONAL IRA - A Traditional IRA is a specialized IRA
account where amounts contributed to the IRA may be tax
deductible at the time of contribution. Distributions from the
IRA will be taxed at distribution except to the extent that the
distribution represents a return of your own contributions for
which you did not claim (or where not eligible to claim) a
deduction.
TRANSFER - This is THE MOVEMENT OF IRA PROCEEDS DIRECTLY FROM ONE
CUSTODIAN TO ANOTHER with the funds never coming under your
direct control. The IRS allows transfers as often as the IRA
owner desires; however, the fund you are considering may impose
restrictions. Transfers are accomplished with written
instructions, using a Transfer Form provided by the receiving
custodian.
1099-R - The government form used to report distributions (all
except transfers between custodians) from your IRA account. A
copy is sent to you and to the IRS in January following the year
of distribution.
5498 - The government form used to report annual contributions
and rollovers (but not transfers) as well as the year-end market
value of your IRA account for each calendar year. Copies are
sent to you and to the IRS in May of the following year.
QUESTION AND ANSWERS
GENERAL IRA ACCOUNT INFORMATION
1) HOW WILL MY ACCOUNT BE INVESTED?
Contributions made to an IRA will be invested, at your
election, in one or more of the regulated investment companies
for which Nicholas Company, Inc. serves as Investment Advisor or
any other regulated investment company designated by Nicholas
Company, Inc. No part of the IRA may be invested in life
insurance contracts; further, the assets of the IRA may not be
commingled with other property.
Information about the shares of each mutual fund available for
investment by your IRA must be furnished to you in the form of a
prospectus governed by rules of the Securities and Exchange
Commission. Please refer to the prospectus for detailed
information concerning your mutual fund. You may obtain further
information concerning IRAs from any District Office of the
Internal Revenue Service.
2) WHAT IS THE RATE OF RETURN ON MY NICHOLAS IRA CONTRIBUTION?
The rate of return on your investment depends on the increase
or decrease of the fund share price in relation to your purchase
price, plus a reinvestment of all distributions. Growth in the
value of your account is in no way guaranteed by the fund you
choose, Nicholas Company, or the Custodian. Market risks are
inherent in any investment and there can be no assurance against
possible loss in the value of any of the fund's portfolios.
Future earnings on your contributions cannot be projected because
of the fluctuations in the value of the funds.
3) MAY I TRANSFER MY BALANCE BETWEEN THE FUNDS MANAGED BY
NICHOLAS COMPANY?
Yes. Please review the final article of each Individual
Retirement Account Custodial Agreement (5305 series) for specific
rules. Exchanges made between Nicholas funds are considered
transfers for tax purposes and are not limited by the IRS as to
frequency. However, Fund policy may limit frequency of
transactions. Please review your Fund prospectus regarding
exchanges between funds.
4) WHAT IS THE DEADLINE FOR MAKING IRA CONTRIBUTIONS?
The deadline for making contributions to the IRA is the due
date your tax return for the year in which the deduction is
claimed, without extensions. Consequently, you must make your
contribution before April 15, even if you obtain an extension for
filing your tax returns.
You must fully execute the IRA Custodial Account Application
by April 15. One exception applies to Education IRAs. At the
time of this printing, current legislation appears to require
contributions to an Education IRA be made during the calendar
year the contribution applies to.
5) AM I REQUIRED TO CONTRIBUTE TO AN IRA EVERY YEAR?
No.
6) CAN I HAVE MORE THAN ONE IRA ACCOUNT?
Yes. You may establish more than one IRA account provided that
the total contributions to all of your IRAs (including
Traditional, Roth, and Education where applicable) for the
taxable year do not exceed the maximum limits. For example, you
may wish to place a portion of your contribution in a mutual fund
IRA, and place the remainder with an IRA offered by a savings and
loan or bank.
7) WHAT HAPPENS IF I MAKE AN EXCESS CONTRIBUTE TO MY IRA?
If you make a contribution in excess of your allowable
maximum, you may correct the excess contribution and avoid the 6%
penalty tax for that year by withdrawing the excess contribution
and its earnings on or before the date, including extensions, for
filing your tax return for the tax year for which the
contribution was made. Any earnings on the withdrawn excess
contribution may be subject to a 10% early distribution penalty
tax if you are under age 59 1/2. In addition, in certain cases an
excess contribution may be withdrawn after the time for filing
your tax return. Finally, excess contributions for one year may
be carried forward and applied against the contribution
limitation in succeeding years.
8) WHAT DO I DO IN THE EVENT I WISH A REFUND OF THE EXCESS
CONTRIBUTION AND EARNINGS IN MY NICHOLAS IRA?
To request a refund you must submit a letter, addressed to the
Custodian at the address given on page 5 of this Disclosure
Statement, indicating the principal amount of the excess
contribution which should be redeemed and refunded to you. This
letter should include the date of the contribution, state that
this redemption is due to an over-contribution and that the net
income attributable to the contribution should also be returned.
The letter must bear your signature.
9) HOW ARE DISTRIBUTIONS MADE?
If you wish to receive a full or partial distribution, or
installment payments from your IRA account in the Nicholas Family
of Funds, an IRA Distribution Request Form must be completed and
returned to the Custodian prior to distribution. This form can be
obtained by writing or calling Firstar Trust Company
(414-276-0535 or 800-544-6547). A written request for
distribution is also acceptable provided it contains a facsimile
notice of federal income tax withholding as it appears on our
form.
Distributions can be made in a single sum payment or in
various installment methods which are described in greater detail
in the appropriate 5305 form at the end of this Disclosure
Statement.
10) CAN ANYTHING CAUSE DISQUALIFICATION OF MY IRA?
Yes. If you or your beneficiary engage in a prohibited
transaction (i.e. self-dealing types of activities, including
borrowing of money from the account) described in section 4975(c)
of the Internal Revenue Code with respect to your IRA, the
account will lose its tax-deferred status as of the first day of
the taxable year in which the prohibited transaction occurs. The
fair market value of the account as of the first day of the
taxable year must be included in your gross income, or in the
gross income of your beneficiary. If your account is disqualified
in this manner, and you are not disabled or 59 1/2 years of age on
the first day of the taxable year, you must also pay the 10%
additional tax as though there had been a premature distribution.
11) MAY I REDEEM PERSONAL SHARES AND TRANSFER THE CASH INTO AN
IRA?
Yes, however, you should take into consideration that any
realized gains made on the redemption may be subject to federal
and state income taxes.
12) MAY I PLEDGE MY IRA AS SECURITY FOR A LOAN?
If you pledge your IRA as security for a loan, the portion so
pledged is treated as a fully taxable distribution. If you have
not attained the age of 59 1/2 at the time of the pledge, the
distribution is also subject to a 10% nondeductible excise tax as
a premature distribution.
13) WHERE MAY I OBTAIN ADDITIONAL INFORMATION ABOUT MY IRA?
You may obtain additional information about your IRA from your
local Internal Revenue Service district office.
NOTE: As of calendar year 1997, the 15% excess distribution tax
is repealed, as is the 15% excess accumulation at death tax.
TRADITIONAL IRA ACCOUNTS
1) WHAT ARE SOME OF THE RULES GOVERNING TRADITIONAL INDIVIDUAL
RETIREMENT ACCOUNTS?
An Individual Retirement Account (IRA) is either a trust or
custodial account. It must be created by document for your
exclusive benefit, as an individual, or for your beneficiaries.
It also must meet the following IRS requirements:
(a) The custodian must be a bank, federally insured credit union,
savings and loan association, or other person found acceptable by
the Secretary of the Treasury.
(b) Contributions may not exceed $2,000 (or your full income,
whichever is less) in any taxable year and are combined with any
other contributions made for your benefit to other IRA accounts
such as Roth IRAs or Education IRAs. Distributions from
qualified employer retirement plans or tax-sheltered annuities
purchased for you by a public school or charitable employer are
not included in the annual $2,000 limit. Contributions must be
made by check and not in the form of securities.
(c) No part of the assets of the savings plan fund may be
invested in ordinary life insurance contracts.
(d) The assets of the custodial account may not be commingled
with other property except in a common trust fund or common
investment fund.
(e) Your interest, as a depositor, in the balance of your IRA
must be non-forfeitable.
(f) The entire interest, in a Traditional IRA maintained for your
benefit, must be distributed to you by the "required beginning
date for distributions", which is April 1 following the close of
the calendar year in which you attain age 70 1/2. Alternatively,
the entire interest must be distributed, beginning no later than
the required beginning date for distributions, over either:
(i) your life as depositor, or the joint lives of you and
your designated beneficiary; or over
(ii) a period not extending beyond your life expectancy, or
the joint life expectancy of you and your designated beneficiary.
(g) If you die on or after the date distribution of your interest
has begun, the remaining interest will continue to be distributed
to your beneficiaries under the same method in effect prior to
your death. If you die before the distribution of your interest
has begun, the entire remaining interest will, at the election of
your beneficiary or beneficiaries, be distributed either:
(i) by December 31 of the year containing the fifth (5th)
anniversary of the your death; or
(ii) in equal or substantially equal payments over the life
or life expectancy of the designated beneficiary or
beneficiaries.
The election of either (i) or (ii) above must be made by December
31 of the year following the year of your death. If the
beneficiary or beneficiaries do not elect either of the
distribution options by that time, distribution will be made in
accordance with (ii) if the beneficiary is your surviving spouse,
and in accordance with option (i) if the beneficiary or
beneficiaries are or include anyone other than your surviving
spouse. Distributions under option (ii) must begin by December 31
of the year following the year of your death. However, if your
spouse is the beneficiary, distributions need not begin until
December 31 of the year you would have attained age 70 1/2. The
spouse, as beneficiary, has the option to rollover your account
into their own IRA and take distributions according to
Traditional IRA rules. It should be noted that the deferral on
income recognition may be available to the surviving spouse upon
proper elections being made. Professional advice should be
obtained to effect the deferral of income recognition.
2) DOES THE NICHOLAS IRA MEET ALL OF THE INTERNAL REVENUE SERVICE
REQUIREMENTS?
Yes. The Nicholas IRA has been approved, in form, by the
Internal Revenue Service. IRS approval is not a determination of
the merit of the Nicholas IRA as an investment.
3) WHO IS ELIGIBLE TO PARTICIPATE IN A TRADITIONAL IRA?
Anyone under age 70 1/2 who has earned income at some time
during the year may participate in an IRA. You may contribute
whether or not you are an active participant in an
employer-sponsored retirement plan. However, if you are an active
participant in an employer-sponsored plan, your contributions
will be deductible only if the income of you and your spouse, if
any, is below certain limits (see Question 6 on page 10).
4) ARE THERE LIMITATIONS ON THE AMOUNT OF CONTRIBUTIONS I CAN
MAKE TO AN IRA?
Yes, yearly IRA contributions may not exceed the lesser of the
following amounts: (1) $2,000, or (2)100 % of your annual
compensation (earned income) that is includable in your gross
income. Please see the answer to Question 6 on page 10 for rules
relating to the deductibility of IRA contributions.
5) DO THE IRA LIMITATIONS MENTIONED PREVIOUSLY APPLY SEPARATELY
TO A HUSBAND AND WIFE WHO BOTH WORK?
Yes, a husband can contribute $2,000 maximum per year to his
IRA, and his wife may contribute $2,000 maximum per year to her
IRA.
It is important to note that there can be no joint IRA
accounts. IRAs are set aside in the name of one person; however,
beneficiaries are designated in the event of death.
6) ARE TRADITIONAL IRA CONTRIBUTIONS FULLY TAX DEDUCTIBLE?
Your Traditional IRA contributions will be fully tax
deductible (up to the maximum contribution limit) if you, or you
and your spouse, are not an active participant(s) in an
employer-sponsored retirement plan. Your Traditional IRA
contributions will also be fully deductible if you are not an
active participant in an employer sponsored retirement plan, but
your spouse is and your adjusted gross income is less than
$150,000 for the taxable year the contribution is being made.
(If your adjusted gross income is between $150,000 and $160,000,
your contribution will be partially deductible.)
If you are an active participant in an employer-sponsored
plan, please refer to the following charts to determine
deductibility. These limits are subject to changes by the IRS
and you should consult with the IRS or your tax advisor for the
most recent levels.
If you are married and file a separate return and are not an
"active participant" in an employer-sponsored retirement plan,
you may make a fully deductible contribution to a Traditional IRA
(up to the contribution limits described above). If you are
married and filing separately and are an "active participant" in
an employer-sponsored retirement plan, you may not make a fully
deductible contribution to a Traditional IRA. A partial deduction
is available if your 1998 adjusted gross income is less than
$10,000. This amount is not adjusted for cost-of-living changes
or otherwise.
EARNED INCOME LEVELS FOR "ACTIVE PARTICIPANTS"
TRADITIONAL IRA CONTRIBUTIONS
SINGLE and HEAD OF HOUSEHOLD:
Eligible To Make A Eligible To Make A Not Eligible To Make
Deductible Partially Deductible A Deductible
Year Contribution If AGI Contribution If AGI Contribution
Less Than Or Between If AGI is Equal to
Equal To or Greater Than
---- -------------------- ------------------- -------------------
[S] [C] [C] [C]
1998 $30,000 $30,001 - $39,999 $40,000
1999 $31,000 $31,001 - $40,999 $41,000
2000 $32,000 $32,001 - $41,999 $42,000
2001 $33,000 $33,001 - $42,999 $43,000
2002 $34,000 $34,001 - $43,999 $44,000
2003 $40,000 $40,001 - $49,999 $50,000
2004 $45,000 $45,001 - $54,999 $55,000
2005 and thereafter $50,000 $50,001 - $59,999 $60,000
MARRIED FILING JOINTLY:
Eligible To Make A Eligible To Make A Not Eligible To Make
Deductible Partially Deductible A Deductible
Year Contribution If AGI Contribution If AGI Contribution
Less Than Or Between If AGI is Equal to
Equal To or Greater Than
---- -------------------- ------------------- -------------------
[S] [S] [S] [S]
1998 $50,000 $50,001 - $59,999 $60,000
1999 $51,000 $51,001 - $60,999 $61,000
2000 $52,000 $52,001 - $61,999 $62,000
2001 $53,000 $53,001 - $62,999 $63,000
2002 $54,000 $54,001 - $63,999 $64,000
2003 $60,000 $60,001 - $69,999 $70,000
2004 $65,000 $65,001 - $74,999 $75,000
2005 $70,000 $70,001 - $79,999 $80,000
2006 $75,000 $75,001 - $84,999 $85,000
2007 and thereafter $80,000 $80,001 - $99,999 $100,000
7) IF MY IRA CONTRIBUTIONS ARE NOT FULLY DEDUCTIBLE, MAY I MAKE
NONDEDUCTIBLE CONTRIBUTIONS?
Yes, as long as your total contributions do not exceed the
yearly maximum described in the answer to Question 4. For
example, if you are single and can only make a $1,000 deductible
IRA contribution in a certain year, you can make an additional,
nondeductible contribution that year of $1,000 as long as you
have earned income of at least $2,000. All earnings will
continue to accumulate tax-free until distributed.
You must designate all nondeductible contributions as such on
your tax return (use IRS Form 8606) for the taxable year for
which they are made.
8) CAN A TRADITIONAL IRA BE ESTABLISHED FOR A SPOUSE WITHOUT
EARNED INCOME?
Yes, this is referred to as a Spousal IRA. A working spouse
also can elect in any year to be treated as having no
compensation for that year in order to be eligible for a Spousal
IRA.
If you are married and file a joint income tax return, you may
make contributions to your spouse's IRA. However, the maximum
amount contributed to both your own and to your spouse's IRA may
not exceed 100% of your combined taxable compensation or $4,000,
whichever is less. Moreover, the annual contribution to each
individual IRA may not exceed $2,000.
If either you or your spouse is an active participant in an
employer-sponsored retirement plan, the allowable tax deduction
for a Spousal IRA for that year may be reduced or eliminated in
accordance with the rules explained in the answer to Question 6.
Nondeductible contributions may still be made as long as the
combined total contributions to both IRAs for the tax year do not
exceed the lesser of $4,000 or 100% of your combined taxable
income.
9) WHAT IS THE TAX STATUS OF EARNINGS ON MY TRADITIONAL IRA?
IRA earnings, including both dividends and capital gains, are
exempt from federal income tax as long as your plan remains
qualified and until distributions are made.
10) WHEN CAN DISTRIBUTIONS FROM MY TRADITIONAL IRA BEGIN?
Generally, you must be at least 59 1/2 years old to receive a
penalty-free IRA distribution. Other penalty-free distributions
may be made before age 59 1/2 in the event of death, disability,
or if they are in the form of lifetime, periodic payments which
meet IRS requirements.
The Health Insurance Portability and Accountability Act of
1996 permits penalty-free early withdrawals from your IRA where
such withdrawn amounts are used for:
1) qualified medical expenses exceeding 7.5% of adjusted
gross income; or
2) the payment of medical insurance premiums for qualified
unemployed individuals.
Additionally, beginning with tax year 1997, penalty-free
premature distributions may be made from your Traditional IRA
for:
1) First time home purchase (up to $10,000 lifetime limit)
2) Post-secondary education expenses.
You should consult your tax adviser before you take any
distributions. Premature distributions will be penalized by a 10%
nondeductible excise tax on the amount of the distribution that
is includable in gross income. A premature distribution must also
be added to your gross income for the taxable year (except any
portion representing nondeductible contributions), and may result
in additional income taxes. An individual receiving a premature
distribution must file Form 5329 with the IRS for the year in
which the distribution is received.
11) How will I be taxed on distributions from my Traditional IRA
after the age of 59 1/2?
Distributions are taxable as ordinary income. Capital gain
treatment or income averaging is not available for IRA
distributions. Installment payments are taxable as ordinary
income in the year of receipt. Distributions to persons who have
attained the age of 65 prior to the close of the taxable year may
qualify for credit for the elderly.
A proportionate amount of each distribution will be tax-free
if you have made nondeductible contributions for tax years after
1986. For this purpose, all distributions during any year from
any of your IRAs must be totaled and treated like a single
distribution, and all of your IRAs are treated like a single IRA.
The total amounts you receive tax-free for all years cannot
exceed the total nondeductible contributions made.
(Any distributions from your IRA represent a return of pre-tax
and after-tax dollars. You must determine what percentage of
your prior year-end market value on all of your IRA accounts is
represented by after-tax contributions. That same percentage of
any distributions during the current calendar year will not be
taxable; the balance of the distribution will be taxable at
ordinary income levels for the current calendar year. Any return
of after-tax dollars due to partial distributions from your IRA
reduces the remaining after-tax dollars represented in the
balance of your IRA in future years. This new balance will be
used for calculating the percentage of after-tax dollars in
future distributions.)
12) HOW LONG MAY I DELAY DISTRIBUTIONS FROM MY TRADITIONAL IRA?
You must comply with certain "minimum distribution rules" that
apply to your IRA under the Internal Revenue Code. The failure to
satisfy these rules can result in significant adverse tax
consequences for you, such as being taxed on your entire IRA
account balance and paying other tax penalties.
I. PRE-DEATH DISTRIBUTIONS
The minimum distribution rules require that in your 70 1/2
year, and each year thereafter, you make withdrawals from the IRA
that are at least equal to the "minimum distribution." Your 70 1/2
year is the calendar year that contains the date six months after
your seventieth birthday. The amount of the minimum distribution
is usually determined by dividing the account balance of the IRA
as of December 31 of the prior year by a divisor that is based on
your life expectancy, or the joint life expectancy for you and
your beneficiary. However, there are a number of rules that
determine how the calculation of your minimum distribution should
be made, including special exceptions that may apply to you.
These are discussed in IRS Publication 590, Individual Retirement
Arrangements, which you should consult.
Generally, you must withdraw an amount at least equal to the
minimum distribution by December 31 of each year. However, you
may delay your minimum required distribution for your 70 1/2 year
until April 1 of the following year. This means that if you wait
to make your withdrawal for the 70 1/2 year until April 1 of the
following year, your total withdrawal in that year must equal the
minimum distributions for two years-a withdrawal by April 1 that
is equal to the minimum distribution for the 70 1/2 year, and a
second withdrawal by December 31 that is equal to the minimum
distribution for the current year. In each following year you
must withdraw the minimum distribution for that year by December
31.
II. DISTRIBUTIONS AFTER DEATH
If you are the beneficiary of an IRA account for which the
owner is deceased, the minimum distribution rules also apply to
you. Specific information on how the minimum distribution rules
apply to beneficiaries of an IRA is contained in IRS Publication
590, Individual Retirement Arrangements. In general, the amount
that you must withdraw in each year depends upon whether the IRA
owner reached age 70 1/2 before death, and whether you are the
surviving spouse of the IRA owner.
If the IRA owner was age 70 1/2 before death, then regardless
of your age you must withdraw an amount in each year that is at
least equal to the amount that the IRA owner would have been
required to withdraw. This rule also applies if you are the
surviving spouse of the IRA owner, and you choose not to roll the
account into an IRA of your own.
If the IRA owner was not age 70 1/2 before death and you are
not the surviving spouse, there are two possible options. Under
the first option, you must withdraw the entire IRA account by
December 31 of the fifth year following the year of the IRA
owner's death. Under the second option, you must, by December 31
of the year following the year of the IRA owner's death and in
each year thereafter, withdraw an amount that is at least equal
to the IRA account balance divided by your life expectancy. If
you are the surviving spouse, the same two options apply, but
additional options are available to you for satisfying the
minimum distribution requirements.
III. OTHER RULES
You can satisfy the minimum distribution rules by withdrawing
from one IRA the amount required to satisfy the minimum
distribution requirement for all of your IRAs.
Unless you or your spouse elects otherwise, your life
expectancy and/or the life expectancy of your spouse will be
recalculated annually. An election not to recalculate life
expectancy(ies) is irrevocable and will apply to all subsequent
years. The life expectancy of a nonspouse beneficiary may not be
recalculated.
Distributions from your IRA must satisfy the special "minimum
distribution incidental benefit" rules of the Internal Revenue
Code. These provisions set forth certain limitations on the
determination of the joint life expectancy of you and your
beneficiary. Special rules will determine how you calculate the
joint life expectancy of you and your beneficiary if your
beneficiary is not your spouse and is more than 10 years younger
than you.
This explanation only summarizes the minimum distribution
rules. Other rules and exceptions may apply to you that are not
discussed in this summary including rules which, in some cases,
would prevent you from using certain options described above. You
should consult your personal tax adviser or IRS publication 590,
Individual Retirement Arrangements, for more detailed
information. This publication is available from your local IRS
office or by calling 1-800-TAX-FORM.
13) WHAT HAPPENS TO MY TRADITIONAL IRA IN THE EVENT OF DEATH?
Part E of the IRA Custodial Account Application (Form A)
permits you to name a beneficiary or beneficiaries to receive any
amounts remaining in your IRA at the time of your death. If you
do not name a beneficiary, your beneficiary will be your estate.
The act of naming a beneficiary to receive IRA benefits upon your
death is not considered a gift subject to federal gift taxes.
Your beneficiary designation can be revoked at any time by
completing a Change of Beneficiary form. Contact Nicholas Family
of Funds at 1-800-227-5987 for this form.
Amounts remaining in your Traditional IRA at death will be
included in your estate and may be subject to estate tax.
See Question 1(g) for information on the timing of
distributions to your beneficiaries.
14) What are the Specific Limitations of Rollovers?
The IRS allows one rollover per IRA account in any 12 month
period. When the rollover represents a distribution from an
employer-sponsored retirement plan or a tax-sheltered "403(b)"
annuity purchased for you by a public school or charitable
employer, a penalty tax of 20% is withheld upon distribution to
you and it is your responsibility to deposit the full amount of
the employer plan proceeds into an IRA custodial account within
60 days to avoid IRS penalties and taxes. The 20% withholding
can be returned through your annual tax filing. Rollover
contributions are not tax deductible.
Most distributions made after 1992 of all or part of your
interest in a qualified plan or tax-sheltered annuity are
eligible rollover distributions, unless the distribution is: a
return of your after-tax contributions; part of a series of
substantially equal installments being paid over a period of 10
years or more, or a period measured by one or more lives or life
expectancies; or a required minimum distribution (e.g., if you
have reached age 70 1/2 ). Certain other exceptions may also
apply.
15) WHY SHOULD I CONSIDER A DIRECT ROLL OVER FROM MY PREVIOUS
EMPLOYER WHEN THEY CAN GIVE ME A CHECK?
The direct rollover option is important because if you do not
elect a direct rollover of the distribution (to a Traditional IRA
or certain other eligible plans), 20% of the distribution will be
withheld for income taxes. You can still make a rollover
contribution other than a direct rollover, but you will not fully
avoid taxes.
For example, if the eligible rollover distribution is $10,000
and it is paid to you instead of paid as a direct rollover,
$2,000 will be withheld. You will only receive $8,000. If you
rollover only the $8,000, the other $2,000 will be taxed as a
distribution as described in the answers to Questions 10 and 11.
In order to avoid these taxes, you will have to add $2,000 of
your own funds to the rollover to make up for the amounts
withheld. The withheld amounts will not be refunded by the IRS
until your tax return for the year is filed.
In order to make a direct rollover to a Nicholas Traditional
IRA, make sure the distribution check from your qualified plan or
tax-sheltered annuity is made payable as described under "Opening
an IRA" (see page 3). You may also need to provide certain other
information required by the plan administrator or annuity
provider.
ROTH IRA ACCOUNTS
1 Am I eligible to contribute to a Roth IRA?
Anyone with compensation income whose adjusted gross income
does not exceed the limits described below is eligible to
contribute to a Roth IRA. You may also establish a Roth IRA to
receive rollover contributions or transfers from another Roth IRA
or, in some cases, from a Traditional IRA. You may not roll
amounts into a Roth IRA from other retirement plans such as an
employer-sponsored qualified plan. However, current law does not
appear to prohibit a rollover from a qualified plan into a
Traditional IRA, and then from the Traditional IRA into a Roth
IRA.
The limits to AGI are as follows:
Full Contribution if Partial Contribution No Contribution
AGI is Less Than or if AGI is Between Allowed if AGI is
Equal to Equal to or
Greater Than
--------------------- -------------------- -----------------
[S] [C] [C] [C]
Single and Head of
Household Filers $95,000 $95,001 - $109,999 $110,000
Married Filing Jointly $150,000 $150,001 - $159,999 $160,000
Married Filing Separately $0 $1 - $14,999 $15,000
Note that the amount you may contribute to a Roth IRA is not
affected by your participation in an employer-sponsored
retirement plan.
2) WHEN CAN I MAKE CONTRIBUTIONS?
You may make annual contributions to your Roth IRA any time up
to and including the due date for filing your tax return for the
year, not including extensions. Unlike a Traditional IRA, you may
continue to make regular contributions to your Roth IRA even
after you attain age 70 1/2 as long as you have earned income. In
addition, rollover contributions and transfers (to the extent
permitted as discussed below) may be made at any time, regardless
of your age.
3) HOW MUCH MAY I CONTRIBUTE TO A ROTH IRA?
You may make annual contributions to a Roth IRA in any amount
up to 100% of your compensation for the year or $2,000, whichever
is less. The $2,000 limitation is reduced by any contributions
made by you or on your behalf to any other individual retirement
plan (such as a Traditional IRA). (Legislation pending as of this
printing clarifies that, for this purpose, the term individual
retirement plan does not include SEP IRAs or SIMPLE IRAs.) Also,
your annual contribution limitation is not reduced by
contributions you make to an Education IRA that covers someone
other than yourself. Qualifying rollover contributions and
transfers are not subject to these limitations.
In addition, if you are married and file a joint return, you
may make contributions to your spouse's Roth IRA. Also, the
maximum amount contributed to both your own and to your spouse's
Roth IRA may not exceed 100% of your combined compensation or
$4,000, whichever is less. The maximum amount that may be
contributed to either your Roth IRA or your spouse's Roth IRA is
$2,000. Again, these dollar limits are reduced by any
contributions made by or on behalf of you or your spouse to any
other individual retirement plan (such as a Traditional IRA),
except that the limit is not reduced for contributions either of
you make to an Education IRA for someone other than yourselves.
Please note that these contribution limits may be reduced or
eliminated if your filing status and AGI are within certain
limits. Please refer to the chart in Question #1 (above) for the
1998 income limitations.
4) CAN I ROLL OVER OR TRANSFER AMOUNTS FROM OTHER ROTH IRAS?
You are allowed to "roll over" a distribution or transfer your
assets from one Roth IRA to another without any tax liability.
Rollovers between Roth IRAs are permitted once per 12 month
period per account and must be accomplished within 60 days after
receipt of the distribution.
Transfers between Roth accounts may also be transacted and are
not restricted by the IRS. Please consult your Fund prospectus
for any Fund restrictions.
5) CAN I MOVE MONEY FROM MY TRADITIONAL IRA INTO A ROTH IRA?
Yes. This transaction is called a "conversion". If you are a
single, head of household or married filing jointly taxpayer and
your adjusted gross income (as measured at the calendar year end
for the year of conversion) is not more than $100,000, you may
roll over amounts from another individual retirement plan (such
as a Traditional IRA) to a Roth IRA. Such amounts are subject to
tax as if they were additional income to you for the year, but
are not subject to the 10% penalty tax. (However, under
legislation pending as of this printing, if the amount rolled
over is distributed before the end of the five-tax-year period
beginning with the beginning of the tax year of the rollover, a
10% penalty tax will apply to the taxed portion of the rollover
as well as a potential additional penalty tax on the premature
Roth distributions for conversions done in 1998.)
6) CAN I ROLL OVER FROM OTHER RETIREMENT PLANS INTO MY ROTH IRA?
You may not roll amounts into a Roth IRA from other retirement
plans such as an employer-sponsored qualified plan. However,
current law does not appear to prohibit a rollover from a
qualified plan into a Traditional IRA and then from the
Traditional IRA into a Roth IRA, as long as you are within the
established income levels for doing a conversion transaction.
(See question 5, page 14)
7) ARE THERE SPECIAL TAX ISSUES I SHOULD BE AWARE OF REGARDING
CONVERSIONS FROM TRADITIONAL IRAS TO ROTH IRAS?
If you roll over amounts from a Traditional IRA to a Roth IRA
during 1998, you may take advantage of special tax treatment.
Under the special rules, you may take your rollover into income
as if one quarter of the amount rolled over was distributed to
you in 1998 and one quarter of the amount was distributed to you
in each of the following three years.
(Legislation pending as of this printing indicates that if you
die prior to taking all four amounts into income, the remaining
amounts are included in income for the year of your death unless
you have a spouse who elects to take those amounts into his or
her income over the remaining period.)
Subject to the foregoing limits, you may also directly convert
a Traditional IRA to a Roth IRA with similar tax results.
Furthermore, if you have made contributions to a Traditional
IRA during the year in excess of the deductible limit, you may
convert those nondeductible IRA contributions to contributions to
a Roth IRA (subject to the contribution limit for a Roth IRA).
You may not roll over amounts to a Roth IRA from a qualified
retirement plan or any other retirement plan that is not an
individual retirement plan.
8) WHAT IF I MAKE AN EXCESS CONTRIBUTION?
Contributions that exceed the allowable maximum for federal
income tax purposes are treated as excess contributions. A
nondeductible penalty tax of 6% of the excess amount contributed
will be added to your income tax for each year in which the
excess contribution remains in your account.
9) HOW DO I CORRECT AN EXCESS CONTRIBUTION?
If you make a contribution in excess of your allowable
maximum, you may correct the excess contribution and avoid the 6%
penalty tax for that year by withdrawing the excess contribution
and its earnings on or before the date, including extensions, for
filing your tax return for the tax year for which the
contribution was made. Any earnings on the withdrawn excess
contribution may also be subject to the 10% early distribution
penalty tax if you are under age 59 1/2 or have not satisfied the
five-year requirement described below. In addition, although you
will still owe penalty taxes for one or more years, excess
contributions may be withdrawn after the time for filing your tax
return. Finally, excess contributions for one year may be carried
forward and applied against the contribution limitation in
succeeding years.
(Legislation pending as of this printing would permit an
individual who is partially or entirely ineligible for a Roth IRA
to transfer amounts of up to $2,000 to a nondeductible
Traditional IRA (subject to reduction for amounts remaining in
the Roth IRA and for other Traditional IRA contributions).)
10) CAN I COMBINE MY CONVERSION ROTH ACCOUNT WITH MY CURRENT
YEAR ROTH CONTRIBUTIONS?
No. Form 5303-RA, Article I, number 2 states "If this Roth
IRA is designated as a Roth conversion IRA, no contributions
other than IRA conversion contributions made during the same tax
year will be accepted."
11) HOW ARE DISTRIBUTIONS FROM A CONTRIBUTION ROTH IRA TREATED?
Distributions from Roth accounts which represent annual
contributions are treated as contributions being removed first.
Contributions can be removed at any time without tax or penalty.
Any earnings removed before the later of five years or age 59 1/2
will be subject to an early withdrawal penalty tax of 10% and
will be treated as ordinary income in the year of the
distribution, unless the distribution is for a qualified purpose.
12) HOW DO DISTRIBUTIONS FROM CONVERSION ROTH ACCOUNTS DIFFER
FROM CONTRIBUTORY ROTH ACCOUNT DISTRIBUTIONS?
According to legislation currently pending, contributions plus
earnings must remain in a Conversion Roth account for a minimum
of five calendar years, beginning with the calendar year of the
conversion, to avoid any penalty taxes and income tax. After the
five calendar year waiting period, the principal converted may be
removed without penalty, regardless of the depositor's age. The
earnings must remain in the Roth account until the depositor
attains age 59 1/2 to avoid a penalty tax of 10% and treatment as
ordinary income for tax purposes. Any distributions of principal
and/or earnings prior to the five year waiting period will be
subject to a 10% early distribution penalty. Plus, distributions
representing a return of principal converted to a Roth IRA in
1998 may be subject to an additional penalty tax.
13) ARE THERE ANY SPECIAL CIRCUMSTANCES WHEN EARNINGS CAN BE
WITHDRAWN BEFORE THE LATER OF FIVE YEARS OR 59 1/2 WITHOUT
PENALTY?
Yes. No penalty tax nor income tax will be assessed on
qualified distributions. Qualified Distributions include first
time home purchases (maximum $10,000 lifetime limit), disability,
medical expenses in excess of 7.5% of AGI, or death.
Distribution for qualified post-secondary education expenses may
be penalty-free, but not tax free.
14) ARE THERE ANY OTHER SPECIAL TAX ISSUES I SHOULD BE AWARE OF?
To the extent a distribution would be taxable to you, neither
you nor anyone else can qualify for capital gains treatment for
amounts distributed from your account. Similarly, you are not
entitled to the special five- or ten-year averaging rule for
lump-sum distributions that may be available to persons receiving
distributions from certain other types of retirement plans.
Rather, the taxable portion of any distribution is taxed to you
as ordinary income. Your Roth IRA is not subject to taxes on
excess distributions or on excess amounts remaining in your
account as of your date of death.
You may be required to indicate on distribution requests
whether or not federal income taxes should be withheld on the
taxable portion (if any) of a distribution from a Roth IRA.
Redemption requests not indicating an election not to have
federal income tax withheld will be subject to withholding with
respect to the taxable portion (if any) of a distribution to the
extent required under federal law. (Note that legislation pending
as of this printing clarifies that, for federal tax purposes,
Roth IRAs are taxed separately from Traditional IRAs, Roth IRAs
with rollovers are taxed separately from Roth IRAs without
rollovers, and Roth IRAs with rollovers with different five-year
periods are taxed separately.)
15) WHEN MUST DISTRIBUTIONS FROM A ROTH IRA BEGIN?
Unlike Traditional IRAs, there is no requirement that you
begin distribution of your account at any particular age.
16) ARE THERE DISTRIBUTION RULES THAT APPLY AFTER MY DEATH?
Your account must be distributed after your death in
accordance with rules similar to those that apply to
distributions from a Traditional IRA. Thus, although the IRS has
not issued guidance it is expected that the rules will require
that your remaining interest in your Roth IRA will, at the
election of your beneficiary or beneficiaries, (i) be distributed
by December 31 of the year in which occurs the fifth anniversary
of your death, or (ii) must commence distributions by December 31
of the year following your death over a period not exceeding the
life or life expectancy of your designated beneficiary or
beneficiaries. If your beneficiary is your spouse, he/she will
have the option to roll your Roth IRA into a Roth IRA of his/her
own under the same rules for other Roth accounts.
17) WHAT IF I PLEDGE MY ACCOUNT?
If you use (pledge) all or part of your Roth IRA as security
for a loan, your account may lose its tax-favored status.
18) HOW ARE CONTRIBUTIONS TO A ROTH IRA REPORTED FOR FEDERAL TAX
PURPOSES?
As of the date of this printing, the Internal Revenue Service
had not issued forms for reporting information related to
contributions to or distributions from a Roth IRA.
19) IS THERE ANYTHING ELSE I SHOULD KNOW?
Your Roth Individual Retirement Account Plan has been approved
as to form by the Internal Revenue Service. The Internal Revenue
Service approval is a determination only as to the form of the
Plan and does not represent a determination of the merits of the
Plan as adopted by you. You may obtain further information with
respect to your Roth Individual Retirement Account from any
district office of the Internal Revenue Service. The statute
provides that Roth IRAs are to be treated the same as Traditional
IRAs for most purposes. As the IRS clarifies its interpretation
of the statute, revised or updated information will be provided.
EDUCATION IRA ACCOUNTS
1) Who is eligible for an Education IRA?
The beneficiary of an Education IRA must be under age 18 at
the time a contribution is made to an Education IRA on his or her
behalf. An Education IRA may also be established to receive
rollover contributions or transfers from another Education IRA.
For purposes of this discussion, except as noted, the term
"beneficiary" is used to refer to an individual whose education
is to be financed, in part or in whole, through an Education IRA.
2) Who can contribute to an Education IRA?
Anyone may contribute to an Education IRA regardless of his or
her relationship to the beneficiary as long as they are within
certain limits for AGI. Please refer to the following chart:
Full Contribution if Partial Contribution No Contribution
AGI is Less Than or if AGI is Between Allowed if AGI is
Equal to Equal to or
Greater Than
--------------------- -------------------- -----------------
[S] [C] [C] [C]
Single/Head of
Household/Married $95,000 $95,001 - $109,999 $110,000
Filing Separately
Married Filing Jointly $150,000 $150,001- $159,999 $160,000
3) WHEN CAN I MAKE CONTRIBUTIONS TO AN EDUCATION IRA?
You may make contributions to an Education IRA for the
calendar year during the calendar year regardless of your age.
At the time of this printing, current legislation appears to
require contributions for a specific calendar year be made during
that calendar year, without the allowance of the April 15th
deadline given to Traditional and Roth IRA contributions.
However, you may not make a contribution to an Education IRA
after the beneficiary attains age 18. In addition, rollover
contributions and transfers (as discussed below) may be made at
any time, regardless of the age of the beneficiary
4) HOW MUCH MAY I CONTRIBUTE TO AN EDUCATION IRA?
The total of all contributions made to all Education IRAs that
cover a particular beneficiary may not exceed $500 in a taxable
year. It is the joint responsibility of the contributor and the
beneficiary (or the person legally responsible if the beneficiary
is under 18) to verify that excess contributions are not made on
behalf of a particular beneficiary. Qualifying rollover
contributions and transfers are not subject to these limitations.
Note that special rules apply to contributions to Education IRAs
for purposes of gift and estate taxes.
The total amount a contributor may deposit on behalf of a
beneficiary may be reduced or eliminated depending on the
contributor's AGI. Please refer to the chart in question #2
(above).
In addition to the limitations described above, the $500 limit
may be reduced by other amounts contributed to an individual
retirement plan for the benefit of a particular beneficiary, but
is not affected by the adjusted gross income of the beneficiary.
If the beneficiary of the Education IRA also maintains a
Traditional or Roth IRA, his or her overall contributions to
other individual retirement plans may be limited. Please contact
your tax advisor for more information.
5) CAN I ROLL OVER OR TRANSFER AMOUNTS FROM ANOTHER EDUCATION
IRA?
Amounts may be "rolled over" from one Education IRA to another
Education IRA benefiting the same beneficiary. In addition,
amounts may be rolled over without any tax liability to benefit
(i) the spouse of the beneficiary, (ii) an ancestor of the
beneficiary, (iii) a descendant of the beneficiary, of the
beneficiary's parents, or of the beneficiary's spouse, or (iv)
the spouse of a lineal descendant of an individual described in
(iii). Rollovers between Education IRAs may be made once per 12
month period and must be accomplished within 60 days of receipt
of the distribution.
You may also transfer Education IRA accounts directly between
IRA custodians without IRS restrictions. Please contact the
receiving custodian for the appropriate transfer form.
6) WHAT IF I MAKE AN EXCESS CONTRIBUTION?
Contributions that exceed the allowable maximum for federal
income tax purposes are treated as excess contributions. A
nondeductible penalty tax of 6% of the excess amount contributed
must be paid for each year in which the excess contribution
remains in the beneficiary's account.
7) HOW DO I CORRECT AN EXCESS CONTRIBUTION?
If a contribution in excess of the allowable maximum is made,
it may be corrected to avoid the 6% penalty tax for that year by
withdrawing the excess contribution and its earnings on or before
the due date, including extensions, for filing the tax return for
the contributor's tax year for which the contribution was made.
(Legislation pending as of this printing would use the
beneficiary's tax year rather than the contributor's.) Any
earnings on the withdrawn excess contribution will be taxable in
the year the excess contribution was made and will be subject to
a 10% penalty tax.
8) WHAT FORMS OF DISTRIBUTION ARE AVAILABLE FROM AN EDUCATION
IRA?
Distributions may be made as a lump sum of the entire account,
or distributions of a portion of the account may be requested.
9) WHEN MUST DISTRIBUTIONS FROM AN EDUCATION IRA BEGIN?
There is no requirement that a beneficiary begin distribution
of an Education IRA account at any particular age. (Legislation
pending as of the date of this printing would in general require
distribution within 30 days of the earlier of the beneficiary's
death or attainment of age 30 and would deem distribution to
occur for any amounts not distributed within such time.)
10) ARE THERE DISTRIBUTION RULES THAT APPLY AFTER DEATH?
Special rules apply in the case of the divorce or death of a
beneficiary of an Education IRA. (In particular, under
legislation pending as of this printing, any balances to the
credit of a beneficiary must be distributed to his or her estate
within 30 days of death.)
11) HOW ARE DISTRIBUTIONS FROM AN EDUCATION IRA TAXED FOR
FEDERAL INCOME TAX PURPOSES?
Amounts distributed are generally excludable from gross income
if they do not exceed the beneficiary's "qualified higher
education expenses" for the year, or are rolled over to another
Education IRA. "Qualified higher education expenses" generally
include the cost of tuition, fees, books, supplies, and equipment
for enrollment at (i) accredited post-secondary educational
institutions offering credit toward a bachelor's degree, an
associate's degree, a graduate-level or professional degree or
another recognized post-secondary credential and (ii) certain
vocational schools. In addition, room and board may be covered
if the beneficiary is at least a "half-time" student. This
amount may be reduced by certain scholarships, qualified state
tuition programs, HOPE, Lifetime Learning tax credits, and other
amounts paid on the beneficiary's behalf. To the extent payments
during the year exceed such amounts, they are partially taxable
and partially nontaxable, similar to payments received from an
annuity. Any taxable portion of a distribution is subject to a
10% penalty tax in addition to income tax unless the distribution
is due to the death or disability of the beneficiary or is made
on account of scholarship received by the beneficiary. A
beneficiary may elect to waive the exclusion from gross income
for qualified higher education expenses and treat the entire
distribution as if it were a payment from an annuity.
To the extent a distribution is taxable, capital gains
treatment does not apply to amounts distributed from the account.
Similarly, the special five- and ten-year averaging rules for
lump-sum distributions do not apply to distributions from an
Education IRA. The taxable portion of any distribution is taxed
as ordinary income except the portion of a distribution that
represents a return of nondeductible contributions.
The recipient of a distribution may need to indicate on
certain distribution requests whether or not federal income taxes
should be withheld. Redemption requests not indicating an
election not to have federal income tax withheld will be subject
to withholding with respect to the taxable portion (if any) of
the distribution to the extent required under federal law.
12) WHAT IF A PROHIBITED TRANSACTION OCCURS?
If a "prohibited transaction," as defined in Section 4975 of
the Internal Revenue Code, occurs, the Education IRA could be
disqualified. Rules similar to those that apply to Traditional
IRAs will apply.
13) WHAT IF THE EDUCATION IRA IS PLEDGED?
If all or part of the Education IRA is pledged as security for
a loan, rules similar to those that apply to Traditional IRAs
will apply. In general, those rules provide that the amount
pledged is treated as distributed.
14) HOW ARE CONTRIBUTIONS TO AN EDUCATION IRA REPORTED FOR
FEDERAL TAX PURPOSES?
As of the date of this Disclosure Statement, the Internal
Revenue Service had not issued forms for reporting information
related to contributions to or distributions from an Education
IRA.
15) IS THERE ANYTHING ELSE I SHOULD KNOW?
As the IRS clarifies its interpretation of the Education IRA
provisions of the Code, revised or updated information will be
provided to you.
[Form 5305-A Individual Retirement Custodial Account]
(Under Section 408(a) of the Internal Revenue Code)
[Form 5305-RA Roth Individual Retirement Custodial Account]
(Under Section 530 of the Internal Revenue Code)
[Form 5305-EA Education Individual Retirement Custodial Account]
(Under Section 530 of the Internal Revenue Code)
NICHOLAS FAMILY OF FUNDS
IRA CUSTODIAL ACCOUNT APPLICATION
__Traditional IRA Account __Contributory Roth IRA __Conversion Roth IRA
______________________________________________________________________________
After reading the prospectus(es) for the fund(s) you are interested in,
PLEASE COMPLETE THE INFORMATION BELOW WHICH IS REQUIRED TO SET UP AN ACCOUNT.
If you are interested in a fund that you do not have a prospectus for, please
contact the Nicholas Family of Funds at (800) 227-5987 or (414) 272-6133. The
prospectus contains more complete information regarding charges and expenses.
Read it carefully before you invest.
A. __Nicholas Fund $_________ __Nicholas Equity Income Fund $____________
$500 minimum $2,000 minimum
__Nicholas II $_________ __Nicholas Income Fund $_________
$500 minimum $500 minimum
__*Nicholas Limited Edition $_________
$2000 minimum
__Nicholas Money Market Fund $_________
$2,000 minimum
*This Fund may close at any time. Call Nicholas for details.
B. TOTAL AMOUNT OF CONTRIBUTION $__________________________
This should be applied to (choose one):
__Traditional IRA Contribution for tax year ________
__Roth IRA Contribution for tax year ________
__Conversion Roth IRA Contribution for tax year ________
(redemption of Traditional IRA deposited into Roth IRA)
__Transfer (Traditional IRA to Traditional IRA; Roth IRA to Roth IRA)
__Roll Over (You have received a check within the last 60 days payable
to you from an IRA or employer retirement plan.)
__Direct Roll Over (Attached is a check from your employer retirment
plan made payable to: Firstar Trust Co. as custodian of Nicholas
IRA fbo: employee's name.)
C. GENERAL INFORMATION (Please print clearly)
______________________________________________________________________________
Name
____________________________________ __________________ ________ ________
Street Address City State Zip
____________________________________ __________________ _______________
Date of Birth Social Security Number Daytime Phone
D. TELEPHONE OPTIONS (Details are provided in your Fund prospectus. If no
option is indicated, telephone exchange privileges will automatically be
available on your account(s)). PHONE REDEMPTION IS NOT AVAILABLE ON IRAS.
-----------------------------------------
__YES Telephone exchange - transfer of assets among all funds in the
Nicholas Family by telephone.
__NO Telephone exchange - exchanges among all funds in the Nicholas
Family must be done in writing.
E. BENEFICIARY DESIGNATION
Hereby revoking all prior designations, I designate as my beneficiary(ies)
under the Nicholas Funds IRA Custodial Account the following person(s):
PRIMARY BENEFICIARY
________________________ _____________ _________________ _______________
Name Relationship Address Social Security #
(if available)
SECONDARY BENEFICIARY
________________________ _____________ _________________ _______________
Name Relationship Address Social Security #
(if available)
I retain the right to revoke this designation and to designate a new
beneficiary or beneficiaries at any time by communicating to the Firstar
Trust Company in writing similarly executed. I understand that if no
designated beneficiary survives me, then in accordance with the Custodial
Agreement, any benefits due upon my death shall be paid to my estate.
F. DEPOSITOR'S STATEMENT
I attest that I have read the form 5305-A Custodial Agreement or form
5305-RA Roth Custodial Agreement, the Disclosure Statement and the
applicable fund prospectus, and that I meet the eligibility
requirements for the type of account I am establishing. I understand
and agree to be governed by the provisions of the Custodial Agreement
and this Application, and understand that I alone am responsible for
ascertaining the deductibility and tax consequences of any
contribution and/or withdrawal to or from my account. I hereby
authorize Firstar Trust Company to act as custodian of my shares of
the Nicholas fund indicated above.
___________________________________ __________________________
Signature Dated
G. ACCEPTANCE BY CUSTODIAN
This Application is hereby accepted by the Custodian, Firstar Trust Company.
___________________________________ __________________________
Signature Dated
_____________________________________________________________________________
3/98
NICHOLAS FAMILY OF FUNDS
EDUCATION IRA CUSTODIAL ACCOUNT APPLICATION B
After reading the prospectus for the fund(s) you are interested in,
PLEASE CANT PLETE THE INFORMATION BELOW WHICH IS REQUIRED TO SET UP
AN ACCOUNT. If you are interested in a fund that you do not have a
prospectus for, please contact the Nicholas Family of Funds at
(800)227-5987 or (414)2726133. The prospectus contains more complete
information regarding charges and expenses. Please read it carefully
before you invest.
A. FUND CHOICES (initial investment is $500 for each fund);
Nicholas Fund $______________________________
Nicholas II $________________________________
Nicholas Income Fund $_______________________
B. TRANSACTION TYPE:
__ Calendar Year Contribution (maximum $500 annually
to beneficiary under 18 years old)
__Transfer (Education IRA to Education IRA only)
__Rollover (Education IRA to Education IRA only)
C. BENEFICIARY INFORMATION:
___________________________________ _______ ____________________________
First Name of Beneficiary M.I. Last Name of Beneficiary
___________________________________ _______ ____________________________
First Name of Person Legally M.I. Last Name of Person Legally
Responsible for the Beneficiary Responsible for the Beneficiary
(if applicable) (if applicable)
___________________________________ ________________________________
Address Birth Date of Beneficiary
____________________________________
Telephone Number
D. DEPOSITOR INFORMATION:
_________________________ ____ _____________________ ____________________
First Name M.I. Last Name Social Security Number
_________________________ __________________ ____________ ________________
Address City State Zip code
E. TELEPHONE OPTIONS (Details are provided in your fund
prospectus. If no option is indicated, telephone exchange
privileges will automatically be available on your
account(s)). PHONE REDEMPTION IS NOT AVAILABLE ON IRA'S.
------------------------------------------
__YES - Telephone exchange - exchanges of assets among all funds in the
Nicholas Family by telephone.
__NO - Telephone exchange - exchanges of assets among all funds in the
Nicholas Family must be done in writing.
F. DEPOSITOR'S STATEMENT
I attest that I have read the form 5305-EA Education Individual Retirement
Custodial Account Agreement, the Disclosure Statement, and the applicable
fund prospectus(es), and that I meet the eligibility requirements, including
earned income limitations, to make a deposit on behalf of the above
identified beneficiary. I understand that I alone am responsible for
ascertaining any tax consequences of any contribution to this beneficiary's
account
________________________________________ ________________________________
Signature of Donor Dated
C. BENEFICIARY'S STATEMENT (or Person Legally Responsible for the Beneficiary)
I attest that I have read the form 5305-EA Education Individual Retirement
Custodial Account Agreement, the Disclosure Statement, and the applicable
fund prospectus(es), and that l meet the eligibility requirements for the
type of account I am establishing. I understand and agree to be governed by
the provisions of the Custodial Agreement, as well as this Application. I
understand that I alone am responsible for ascertain any tax consequences
of any contribution and/or withdrawal to or from my account. I hereby
authorize Firstar Trust Company at P.O. Box 2944, Milwaukee, WI 53201-2944,
to act as custodian of my shares of the Nicholas fund(s) indicated above.
_______________________________________ ___________________________________
Signature of Beneficiary (or Person Dated
Legally Responsible for the Beneficiary)
H. ACCEPTANCE BY CUSTODIAN
This application is hereby accepted by the Custodian, Firstar Trust Company.
______________________________________ ____________________________________
Signature Dated
TRANSFER FORM - NICHOLAS FAMILY OF FUNDS C
______________________________________________________________________________
INSTRUCTIONS:
Use this form to transfer assets of an existing IRA or employer retirement
plan to a plan with the NICHOLAS FAMILY OF FUNDS.
If you are opening a new account, the appropriate Nicholas application
form MUST accompany this form. Do NOT retain a copy of this form.
Transactions that constitute a rollover or a distribution from an
employer-sponsored plan will result in tax reporting to the IRS.
Please be aware that your resigning trustee/custodian may impose a fee
or penalty, and may require additional documentation. Consult your
resigning trustee/custodian to see if they require a signature guarantee
by a commercial bank or NYSE member. Most trustees/custodians WILL REQUIRE
it to process a direct transfer.
Fill in ALL of the information in Section I (A & B). Incomplete forms will
delay your transfer. Including a copy of your latest statement may assist
us with this transfer. Mail this form with your application (Form A or B)
in the enclosed envelope to:
FIRSTAR TRUST COMPANY, P.O. Box 2944, Milwaukee, WI 53201-2944.
We will contact your current trustee/custodian and handle the transfer for
you. Nicholas Family of Funds will send you confirmation when the transfer
is complete and your funds are invested.
SECTION I.
A. _________________________________ ___________________________________
Name of owner (or person legally name of resigning trustee/custodian
responsible - Education IRA only)
_________________________________ ___________________________________
street address resigning fund name (if applicable)
__________________________________ ___________________________________
city state zip resigning account number
__________________________________ ___________________________________
daytime phone number address of resigning trustee/custodian
______________________ __________ ___________________________________
social security number date of birth city state zip
Attention: Retirement Plan Department
__ Transfer on receipt of this request __ Transfer on maturity date of_________
Please accept this authorization to sell and transfer the sum of
__All of my assets $______ of assets in the above mentioned
account and prepare a check made payable to the NICHOLAS FAMILY OF FUNDS.
The resigning trustee/custodial account is (choose one):
__Traditional IRA __ SEP IRA __Master Retirement Plan/Profit Sharing
__Contributory Roth IRA __ SAR-SEP IRA __Master Retirement Plan/Money Purchase
__Conversion Roth IRA for tax year __5304-SIMPLE IRA
__Other Employer-Sponsored Retirement Plan __Education IRA
It is my intention to transfer these assets to the Nicholas Family of Funds as
(choose one):
__Traditional IRA __ SEP IRA __Master Retirement Plan/Profit Sharing
__Contributory Roth IRA __ SAR-SEP IRA __Master Retirement Plan/Money Purchase
__Conversion Roth IRA for tax year __5304-SIMPLE IRA
__Other Employer-(from employer plan) __Education IRA
If I am over 70 1/2, I certify that none of the amount transferred will include
the required minimum distribution per the Internal Revenue Code for the current
year.
_____________________________ _______________
signed dated
______________________________________________________________________________
signature guarantee if required by resigning trustee/custodian
B. PLEASE CHECK
This is a new account for:
__Nicholas Fund __ Nicholas II __Nicholas Limited Edition*
__Nicholas Equity Income Fund __Nicholas Income Fund
__Nicholas Money Market Fund
__Deposite to my existing Nicholas retirement account________________________
account number
*Nicholas Limited Edition has a limited number of shares for sale.
The Fund may be closed at the time assets are received. A Nicholas
Money Market account will be established if Nicholas Limited Edition
is closed. Call Nicholas Family of Funds at 1-8O0-227-5987 to check
on the availability of Nicholas Limited Edition shares.
______________________________________________________________________________
SECTION II. (To be completed by the Firstar Trust Company - trustee/custodian
for the Nicholas Family of Funds)
Custodian:
We have been requested to send you a letter of acceptance in order to transfer
the assets of the above mentioned account for deposit to the NICHOLAS FAMILY
OF FUNDS. To ensure proper crediting, please return the check made payable to
NICHOLAS FAMILY OF FUNDS for the benefit of the individual named above.
Mail to: Nicholas Family of Funds, Firstar Trust Company, P.0. Box 2944,
Milwaukee, WI 53201-2944.
Please include a copy of this form to identify the check as a transfer of
assets. This is to be executed as a fiduciary to fiduciary transfer so as
not to put the plan participant in actual or constructive receipt of all
or any part of the transferred assets.
Tax reporting will be issued on transactions between Traditional IRA and
Conversion Roth IRA accounts and between Master Retirement Plan/Employer-
Sponsored Retirement Plan accounts and Traditional IRA accounts.
Thank you for your prompt attention to this matter.
_____________________________________ ____________________________________
dated authorized signature
SUBMIT THIS FORM INTACT TO: Nicholas Family of Funds
c/o Firstar Trust Company
P.O. Box 2944, Milwaukee, WI 53201-2944
2/98 800-544-6547 414-276-0535
NICHOLAS FAMILY OF FUNDS
Dear Investor:
Enclosed is the Master Retirement Plan package for the
Nicholas Master Retirement Profit Sharing and Money
Purchase plans.
The Internal Revenue Service has issued opinion letters
approving the form of these plans. The Internal Revenue
Service has categorized the Nicholas Profit Sharing and
Money Purchase plans as "standardized," "paired" plans.
As a result, the individual employer-sponsors are not
required to apply by submitting Form 5307 to the Internal
Revenue Service for a determination letter with regard to
the employer's participation in the plans unless:
1. The employer ever maintained another qualified plan
for one or more employees who are covered by the Nicholas
Plans, other than a specified paired plan within the
meaning of Section 7 of Rev. Proc. 89-9, 1989-6 I.R.B.
14; or
2. After December 31,1985, the employer maintains a
welfare benefit fund defined in Internal Revenue Code
Section 419(e), which provides post-retirement medical
benefits allocated to separate accounts for key employees
as defined in Code Section 419(A)(d)(3).
If either of the two exceptions applies, the employer
should request a determination letter as to whether the
Nicholas Plan, considered with all related qualified
plans and, if appropriate, welfare benefit funds,
satisfies the requirements of the Internal Revenue Code.
An employer who does not fall within one of the two
exceptions who adopts one of the Nicholas Plans will be
considered to have a plan qualified under Code Section
401 (a) provided all the terms of the plan are followed,
and the eligibility requirements and contributions are
not more favorable for officers, owners or highly
compensated employees than for other employees.
Employers must provide notice of the adoption (or
amendment) of the Nicholas Plan(s), or if applicable as
described above, of the intent to apply for a
determination letter; to interested parties in accordance
with the requirements of Sections 16, 17 and 18 of IRS
Revenue Procedure 94-6 (or of any subsequent IRS
pronouncement which may modify or supersede these
sections of Rev. Proc. 94-6).
We have enclosed a copy of the Internal Revenue Service
opinion letters together with the Basic Plan Document and
all related documents which have been approved by the
Internal Revenue Service. Employers should complete and
submit separate Participation Agreements for the profit
sharing plan and the money purchase plan. We have
enclosed both Participation Agreements for your use. Of
course, if you intend to participate in only one of the
two plans, your should complete and return only the
Participation Agreement for that plan.
We would like to remind all employers that the Nicholas
Company does not provide plan administration forms or
services. Forms necessary for plan administration (such
as a summary Plan Description, if necessary, Beneficiary
Designations and Benefit Election and Distribution Forms)
must be provided by the employer or other plan
administrator designated by the employer, and should be
prepared in consultation with legal counsel to ensure
compliance with the requirements of the Internal Revenue
Code and ERISA.
We have enclosed for all employers an explanation of the
Nicholas Master Retirement Plan which answers some of the
most frequently asked questions. Please keep this form
for your reference. Also enclosed is a brief checklist
for your use along with a list of custodian fees. If not
separately included, all fees will be deducted equally
from each account.
If you have any questions after looking over the
information enclosed, you should contact me at
(414) 272-6133.
NICHOLAS FAMILY OF FUNDS
Candace L. Lesak
Vice-President
12/94
NICHOLAS MASTER RETIREMENT PLAN
FOR SELF-EMPLOYED INDIVIDUALS
As Amended to January 1, 1989
Basic Plan Document Number 01
SECTION 1
PURPOSE
This Master Plan has been established by Nicholas Company,
inc., for use by self-employed individuals and partnerships
who wish to establish retirement plans which qualify under
the Self-Employed Individuals Tax Retirement Act of 1962, as
amended, and the Employee Retirement income Security Act of
1974.
SECTION 2
DEFINITIONS
The following words and terms as used herein shall have
the following meanings:
(a) BENEFICIARY shall mean the person designated by a
Participant as his beneficiary on the Beneficiary
Designation Form, or in the absence thereof, the person
designated in accordance with the procedure established by
Section 7.5. Any designation of a non-spouse Beneficiary
shall be automatically revoked upon the marriage or
remarriage of a Participant, and the designation of any non-
spouse Beneficiary which has not been consented to in
writing by the Participant's spouse on a Beneficiary
Designation Form provided by the Plan Administrator shall
also be automatically evoked.
(b) BENEFICIARY DESIGNATION Form shall mean the
instrument by which the Participant designates his
beneficiary.
(c) BREAK IN SERVICE shall occur in any twelve
consecutive month period (computation period) used to
compute a Year of Service under Section 2(ff) in which a
Participant has not accumulated more than five hundred
(500) Hours of Service. A one (1) year Break in Service
will not be deemed to have occurred during the first
computation period that the Participant failed to earn at
least five hundred and one (501) Hours of Service because
of (i) pregnancy of the Participant, (ii) birth of a
child of the Participant, (iii) placement of a child for
adoption with the Participant, or (iv) caring for a child
during the period immediately following such a birth or
placement. A Participant who takes a leave of absence for
one of the above reasons shall certify on such forms as
are provided by the Plan Administrator that the leave was
taken for one of the above reasons and shall supply such
supporting documentation as shall be required under
uniform rules adopted by the Plan Administrator.
(d) CODE shall mean the Internal Revenue Code of 1986
and amendments thereto.
(e) COMPENSATION, as elected by the Employer in the
Participation Agreement, shall mean all of each
Participant's (i) W-2 earnings or (ii) compensation (as
that term is defined in section 415(c) (3) of the Code).
For any Self-Employed Individual covered under the Plan,
Compensation will mean Earned Income. Compensation shall
include only that compensation which is actually paid to
the Participant during the Applicable Period. Except as
provided elsewhere in this Plan, the Applicable Period
shall be the period elected by the Employer in the
Participation Agreement if the Employer makes no
election, the Applicable Period shall be the Plan Year.
Notwithstanding the above, if elected by the Employer
in the Participation Agreement, Compensation shall
include any amount which is contributed by the Employer
pursuant to a salary reduction agreement and which is not
includible in the gross income of the Employee under
Sections 125, 402(a) (8), 402(h) or 403(b) of the Code.
If the above definition of Compensation replaces
another definition of Compensation under the Employer's
Plan and is being adopted as part of the Employer's
amendment of its plan to comply with the Tax Reform Act
of 1986, the above definition of Compensation shall take
effect as of the first day of the first Plan Year after
the Plan Year in which the amendment is adopted. The
following limitation, however, is effective January 1,
1989.
The annual Compensation of each Participant taken into
account under the Plan for any year shall not exceed
$200,000, as adjusted by the Secretary at the same time
and in the same manner as under Section 415 (d) of the
Code. In determining the Compensation of a Participant
for purposes of this limitation, the rules of Section 414
(q)(6) of the Code shall apply, except in applying such
rules, the term "family" shall include only the spouse of
the Participant and any lineal descendants of the
Participant who have not attained age 19 before the close
of the year. If, as a result of the application of such
rules the adjusted $200,000 limitation is exceeded, then
the limitation shall be prorated among the affected
individuals in proportion to each such individual's
Compensation as determined under this Section prior to
the application of this limitation.
OBRA '93 COMPENSATION LIMIT: In addition to other
applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the
contrary for Plan Years beginning on or after January 1,
1994, the annual Compensation of each Employee taken into
account under the Plan shall not exceed the OBRA '93
Annual Compensation Limit. The OBRA '93 Annual
Compensation Limit is $150,000, as adjusted by the
Commissioner for increases in the cost of living in
accordance with Section 401(a)(17)(B) of the Internal
Revenue Code. The cost-of-living adjustment in effect for
a calendar year applies to any period not exceeding 12
months, over which Compensation is determined
(determination period) beginning in such calendar year.
If a determination period consists of fewer than 12
months, the OBRA '93 Annual Compensation Limit will be
multiplied by a fraction, the numerator of which is the
number of months in the determination period, and the
denominator of which is 12.
For Plan Years beginning on or after January 1, 1994,
any reference in this Plan to the limitation under
Section 401(a)(17) of the Code shall mean the OBRA '93
Annual Compensation Limit set forth in this provision.
If Compensation for any prior determination period is
taken into account in determining an employee's benefits
accruing in the current Plan Year, the Compensation for
that prior determination period is subject to the OBRA
'93 Annual Compensation Limit in effect for that prior
determination period. For this purpose, for determination
periods beginning before the first day of the first Plan
Year beginning on or after January 1, 1994, the OBRA '93
Annual Compensation Limit is $150,000.
(f) CUSTODIAL AGREEMENT shall mean the instrument
attached hereto, as amended from time to time subject to
the conditions of Section 13A of the Plan, which the
Employer shall be deemed to have adopted by executing the
Participation Agreement.
(g) CUSTODIAN shall mean the bank designated as
Custodian under the Custodial Agreement, and any
successor thereto. The Custodian shall be a fiduciary
under the Employee Retirement income Security Act of 1974
(hereinafter referred to as "ERISA").
(h) EARNED INCOME shall mean the net earnings from self-
employment in the trade or business with respect to which
the Plan is established, for which personal services of
the individual are a material income-producing factor.
Net earnings will be determined without regard to items
not included in gross income and the deductions allocable
to such items. Net earnings are reduced by contributions
by the Employer to a qualified plan to the extent
deductible under Section 404 of the Code. Net earnings
shall be determined with regard to the deduction allowed
to the Employer by Section 164 (f) of the Code for
taxable years beginning after December31, 1989.
(i) EMPLOYEE shall mean any employee of the Employer
maintaining the Plan or f any other employer required to
be aggregated with such Employer under Sections 414(b),
(c), (m) or (o) of the Code. The term Employee shall also
include any Leased Employee deemed to be an employee of
any employer described in the previous sentence as pro
vided in Sections 414 (n) or (o) of the Code.
(j) EMPLOYER shall mean the individual proprietor or
partnership that establishes or maintains the Plan, any
"Affiliated Employer" and any successor of such
establishing Employer.
"Affiliated Employer" shall mean any corporation which
is a member of a controlled group of corporations (as
defined in Section 414(b) of the Code) which includes the
Employer; any trade or business (whether or not
incorporated) which is under common control (as defined
in Section 414(c) of the Code) with the Employer; any
organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in
Section 414(m) of the Code) which includes the Employer;
and any other entity required to be aggregated with the
Employer pursuant to regulations under Section 414(o) of
the Code.
(k) FIVE PERCENT OWNER shall mean any person who owns
(or is considered to own within the meaning of Section
318 of the Code) five percent (5%) or more of the capital
or profits interest in the Employer.
(1) HIGHLY COMPENSATED EMPLOYEE shall include highly
compensated active Employees and highly compensated
former Employees.
A highly compensated active Employee includes any
Employee who performs service for the Employer during the
determination year and who, during the look-back year:
(i) received compensation from the Employer in excess of
$75,000 (as adjusted pursuant to Section 415(d) of the
Code); (ii) received compensation from the Employer in
excess of $50,000 (as adjusted pursuant to Section 415(d)
of the Code) and was a member of the top paid group for
such year; or (iii) was an officer of the Employer and
received compensation during such year that is greater
than 50 percent of the dollar limitation in effect under
Section 415 (b) (1) (A) of the Code.
The term Highly Compensated Employee also includes:
(i) Employees who are both described in the preceding
sentence if the term "determination year" is substituted
for the term "look-back year" and the Employee is one of
the 100 Employees who received the most compensation from
the Employer during the determination year; and (ii)
Employees who are Five Percent Owners at any time during
the look- back year or determination year.
If no officer has satisfied the compensation
requirement of sub paragraph (iii) above during either a
determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly
Compensated Employee.
For this purpose, the determination year shall be the
Plan Year. The look-back year shall be the twelve-month
period immediately preceding the determination year.
A highly compensated former Employee includes any
Employee who separated from service (or was deemed to
have separated) prior to the determination year, performs
no service for the Employer during the determination
year, and was a highly compensated active Employee for
either the separation year or any determination year
ending on or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-
back year, a family member of either a Five Percent Owner
who is an active or former Employee or a Highly
Compensated Employee who is one of the 10 most highly
compensated Employees ranked on the basis of compensation
paid by the Employer during such year, then the family
member and the Five Percent Owner or top-ten highly
compensated Employee shall be aggregated. In such case,
the family member and Five Percent Owner or top-ten
highly compensated Employee shall be treated as a single
Employee receiving compensation and Plan contributions or
benefits equal to the sum of such compensation and
contributions or benefits of the family member and Five
Percent Owner or top-ten highly compensated Employee. For
purposes of this section, family member includes the
spouse, lineal ascendants and descendants of the Employee
or former Employee and the spouses of such lineal
ascendants and descendants.
The determination of who is a Highly Compensated
Employee, including the determinations of the number and
identity of Employees in the top-paid group, the top 100
Employees, the number of Employees treated as officers
and the compensation that is considered, will be made in
accordance with Section 414(q) of the Code and the
regulations thereunder.
(m) HOUR OF SERVICE shall mean:
(i) Each hour for which an Employee is paid, or
entitled to payment, for the performance of duties
for the Employer. These hours will be credited to the
Employee for the computation period in which the
duties are per- formed; and
(ii) Each hour for which an Employee is paid, or
entitled to payment, by the Employer on account of a
period of time during which no duties are performed
(irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty,
military duty or leave of absence. No more than 501
hours of service will be credited under this
paragraph for any single continuous period (whether
or not such period occurs in a single computation
period). Hours under this paragraph will be
calculated and credited pursuant to Section 2530.200b-
2 of the Department of Labor Regulations which is
incorporated herein by this reference; and
(iii) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to
by the Employer. The same hours of service will not
be credited both under subparagraph (i) or
subparagraph (ii), as the case may be, and under this
subparagraph (iii). These hours will be credited to
the Employee for the computation period or periods to
which the award or agreement pertains rather than the
computation period in which the award, agreement or
payment is made.
Hours of service will be credited for employment with
other members of an affiliated service group (under Section
414(m) of the Code), a controlled group of corporations
(under Section 414(b) of the Code), or a group of trades or
businesses under common control (under Section 414(c) of the
Code) of which the adopting Employer is a member, and any
other entity required to be aggregated with the Employer
pursuant to Section 414(o) of the Code and the regulations
thereunder.
Hours of service will also be credited for any individual
considered an Employee for purposes of this Plan under
Section 414(n) or Section 414(o) of the Code and the
regulations thereunder.
Solely for purposes of determining whether a Break in
Service, as defined in Section 2(c), has occurred in a
computation period, an individual who is absent from work
for maternity or paternity reasons shall receive credit for
the Hours of Service which would otherwise have been
credited to such individual but for such absence, or in any
case in which such hours cannot be determined, eight (8)
Hours of Service per day of such absence. For purposes of
this paragraph, an absence from work for maternity or
paternity reasons means an absence (i) by reason of the
pregnancy of the individual, (ii) by reason of a birth of a
child of the individual, (iii) by reason of the placement of
a child with the individual in connection with the adoption
of such child by such individual, or (iv) for purposes of
caring for such child for a period beginning immediately
following such birth or placement The Hours of Service
credited under this paragraph shall be credited (i) in the
computation period in which the absence begins if the
crediting is necessary to prevent a Break in Service in that
period, or (ii) in all other cases, in the following
computation period.
(n) INVESTMENT COMPANY shall mean an investment company
as defined in Internal Revenue Code Section 851(a), for
which Nicholas Company, Inc. serves as an investment adviser
and which has agreed to offer shares for investment under
this Plan. Investment Company Shares or Shares shall mean
shares of capital stock of the Investment Company.
(o) KEY EMPLOYEE shall mean any Employee or former
Employee (and the Beneficiaries of such Employee) who at any
time during the Determination Period was an officer of the
Employer if such individual's Annual Compensation exceeds 50
percent of the dollar limitation under Section 415(b)(1)(A)
of the Code, an owner (or considered an owner under Section
318 of the Code) of one of the ten largest interests in the
Employer if such individual's compensation exceeds 100
percent of the dollar limitation under Section 415(c)(l)(A)
of the Code, a Five Percent owner of the Employer, or a one
percent owner of the Employer who has an Annual Compensation
of more than $150,000. Annual Compensation means
compensation as defined in Section 415(c)(3) of the Code,
but including amounts contributed by the Employer pursuant
to a salary reduction agreement which are excludible from
the Employee's gross income under Section 125, Section
402(a) (8), Section 402(h) or Section 403(b) of the Code.
The Determination Period is the Plan Year containing the
Determination Date and the four (4) preceding Plan Years.
The determination of who is a Key Employee will be made in
accordance with Section 416(i)(1) of the Code and the
regulations thereunder.
The Determination Date for any Plan Year subsequent to
the first Plan Year is the last day of the preceding Plan
Year. For the first Plan Year of the Plan, the Determination
Date is the last day of that year.
(p) LEASED EMPLOYEE shall mean any person (other than an
employee of the recipient) who pursuant to an agreement
between the recipient and any other person ("leasing
organization") has performed services for the recipient (or
for the recipient and related persons deter- mined in
accordance with Section 414(n)(6) of the Code) on a
substantially full time basis for a period of at least one
year, and such services are of a type historically performed
by employees in the business field of the recipient
employer. Contributions or benefits provided a leased
employee by the leasing organization which are attributable
to services performed for the recipient employer shall be
treated as provided by the recipient employer.
A leased employee shall not be considered an employee of
the recipient if: (i) such employee is covered by a money
purchase pension plan providing: (A) a nonintegrated
employer contribution rate of at least ten percent (10%) of
compensation, as 4efined in Section 415(c)(3) of the Code,
but including amounts contributed pursuant to a salary
reduction agreement which are excludable from the employee's
gross income under Section 125, Section 402(a)(8), Section
402(h) or Section 403(b) of the Code, (B) immediate
participation, and (C) full and immediate vesting; and (ii)
leased employees do not constitute more than twenty percent
(20%) of the recipient's nonhighly compensated workforce.
(q) MONEY PURCHASE ACCOUNT shall mean the account
established and maintained by the Custodian under Section
5.1 of the Plan consisting of that portion of all
contributions of the Employer under the Money Purchase Plan
Participation Agreement.
(r) NET INCOME OF THE EMPLOYER shall mean the net income
determined from the Employer's books in accordance with
generally accepted accounting principles, but before
deduction for state and federal net income taxes,
surtaxes and excess profits taxes and contributions under
this Plan, or under any other pension or retirement plan
to which the Employer contributes.
(s) NON-OWNER PARTNER shall mean a partner who is not an
Owner or self-employed Individual.
(t) NORMAL RETIREMENT AGE shall be the age selected
in the Participation Agreement. If the Employer enforces a
mandatory retirement age, the Normal Retirement Age is the
lesser of the mandatory age or the age specified in the
Participation Agreement.
(u) OWNER shall mean a person who is the sole proprietor
of the Employer or a partner having an interest of more than
10% in the capital or profits of the Employer.
(v) PARTICIPANT shall mean an Employee who has satisfied
the participation requirements established under Section 3
of this Plan.
(w) PARTICIPANT'S ACCOUNT AND/OR PARTISIPANT ACCOUNT
shall mean the individual investment accounts maintained by
the Custodian pursuant to Section 5 containing each
Participant's entire interest in the Plan.
(x) PARTICIPATION AGREEMENT shall mean the instruments by
which the Employer adopts the Plan.
(y) PLAN shall mean the Nicholas Master Retirement Plan
for Self- Employed Individuals set forth herein, as it may
be amended from time to time.
(z) PLAN ADMINISTRATOR shall mean the Employer unless
other- wise indicated in Paragraph 6 of the Participation
Agreement. The Plan Administrator shall be the named
fiduciary under ERISA.
(aa) PLAN YEAR means the calendar year.
(bb) PROFIT SHARING ACCOUNT shall mean the account
established and maintained by the Custodian under Section
5.1 of the Plan consisting of that portion of the Employer's
contributions under the Profit Sharing Plan Participation
Agreement.
(cc) ROLLOVER CONTRIBUTION ACCOUNT shall mean an account
established and maintained by the Custodian under Sections
4.6 and 5.1 of the Plan consisting of any rollover
contributions of the Participant as described in Section 4.6
of the Plan. An ADEC Rollover Account shall mean a separate
Rollover Contribution Account consisting solely of amounts
which represent accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of
the Code.
(dd) SELF-EMPLOYED INDIVIDUAL shall mean an individual
who has Earned Income for the taxable year from the trade or
business for which the Plan is established; also an
individual who would have had Earned Income but for the fact
that the trade or business had no net profits for the
taxable year.
(ee) VOLUNTARY CONTRIBUTION ACCOUNT shall mean the
account established and maintained by the Custodian under
Section 5.1 of the Plan consisting of the voluntary
contributions made by each Participant.
(ff) YEAR OF SERVICE shall mean a l2 consecutive month
period (computation period), computed with reference to the
Employee's date of employment or anniversaries thereof,
during which the Employee has completed at least 1000 Hours
of Service (or such lesser number of Hours of Service as the
Employer designates in the Participation Agreement).
(gg) YEARS OF CREDITED SERVICE shall mean the total Years
of Service of an Employee; provided that Years of Service
accumulated prior to a Break in Service shall not be given
credit in determining Years of Credited Service for an
Employee who has not satisfied the participation
requirements established under Section 3 of this Plan. In
the event the Employer maintains the plan of a predecessor
Employer, service for such predecessor shall be treated as
service for the Employer.
SECTION 3
PARTICIPATION
3.1 AN EMPLOYEE WHO HAS COMPLETED THE MINIMUM NUMBER OF
YEARS OF CREDITED SERVICE AND REACHED THE MINIMUM AGE
REQUIRED UNDER SECTION 3(A)(I) AND (II) OF THE PARTICIPATION
AGREEMENT SHALL BECOME A PARTICIPANT ON THE FIRST DAY OF THE
PLAN YEAR DURING WHICH HE OR SHE MEETS THE SERVICE AND AGE
REQUIREMENTS. A FORMER PARTICIPANT WILL BECOME A PARTICIPANT
IMMEDIATELY UPON RETURNING TO THE EMPLOY OF THE EMPLOYER.
3.2 If this Plan provides contributions or benefits
for one or more Owners who control both the business for
which this Plan is established and one or more other trades
or businesses, this Plan and the plan established for such
other trades or businesses must, when looked at as a single
plan, satisfy Sections 401(a) and (d) of the Code for the
Employees of this and all other trades or businesses.
If this Plan provides contributions or benefits for one
or more Owners who control one or more other trades or
businesses, the Employees of the other trades or businesses
must be included in a plan which satisfies Section 401 (a)
and (d) of the Code and which provides contributions and
benefits not less favorable than provided for such Owners
under this Plan.
If an individual is covered as an Owner under the plans
of two or more trades or businesses which are controlled and
such individual controls a trade or business, then the
contributions or benefits of the Employees under the plan of
the trades or businesses which are controlled must be as
favorable as those provided for him under the most favorable
plan of the trade or business which is not controlled.
For purposes of the preceding paragraphs, an Owner or two
or more Owners shall be considered to control a trade or
business if such Owner or such two or more Owners together:
(i) own the entire interest in an unincorporated trade
or business, or
(ii) in the case of a partnership, own more than fifty
percent (50%) of either the capital interest or the profits
interest in such partnership.
For purposes of the preceding sentence, an Owner, or
two or more Owners shall be treated as owning any interest
in a partnership which is owned, directly or indirectly, by
a partnership which such Owner, or such two or more Owners,
are considered to control within the meaning of the
preceding sentence.
3.3 In the event a Participant is no longer a member of
an eligible class of Employees and becomes ineligible to
participate but has not incurred a Break in Service, such
Employee will participate immediately upon returning to an
eligible class of Employees. If such Participant incurs a
Break in Service, eligibility will be determined under the
Break in Service rules of the Plan.
In the event an Employee who is not a member of an
eligible class of Employees becomes a member of an eligible
class, such Employee will participate immediately if such
Employee has satisfied the minimum age and service
requirements and would have otherwise previously become a
Participant
SECTION 4
CONTRIBUTIONS
4.1 The Employer shall make contributions as set forth
in paragraph 5 of the Participation Agreement and deliver
the contributions to the Custodian not later than the due
date for filing the Employer's income tax return, including
extensions thereof. All contributions shall be in cash.
In the case of contributions to Profit Sharing Accounts, if
the Employer has elected in paragraph 5(b) of the
Participation Agreement to have this provision apply, then
notwithstanding any other provisions of the Plan, Employer
contributions for Plan Years specified in paragraph 5(b) of
the Participation Agreement shall be made to the Plan
without regard to current or accumulated earnings and
profits for the taxable year or years ending with or within
such Plan Year. The Plan with respect to which the Profit
Sharing Account is maintained shall continue to be designed
to qualify as a profit sharing plan for purposes of Sections
401(a), 402, 412 and 417 of the Code. In the absence of such
an election, Employer contributions to Profit Sharing
Accounts shall be made out of current or accumulated Net
Income.
4.2 Except as otherwise provided below, the Employer
contributions allocated on behalf of any Participant who is
not a Key Employee for any Plan Year shall not be less than
the lesser of three percent (3%) of such Participant's
Compensation or in the case where the Employer has no
defined benefit plan which designates this Plan to satisfy
Section 401 of the Code, the largest percentage of Employer
contributions, as a percentage of the first $200,000 of the
Key Employee's Compensation, allocated on behalf of any Key
Employee for that year. The minimum allocation is determined
without regard to any Social Security contribution. For
purposes of computing the minimum allocation, Compensation
shall mean Compensation as defined in Section 2(e) of the
Plan. This Section shall not apply to any Participant to the
extent the Participant is covered under any other plan or
plans of the Employer and the Employer has provided in
paragraph 13 of the Participation Agreement that the minimum
allocation or benefit requirement will be met in the other
plan or plans.
4.3 During any Plan Year prior to January 1, 1988, any
Participant may voluntarily contribute to the Plan an amount
equal to not more than ten percent (10%) of his Compensation
or Earned Income. This limitation applies in the aggregate
to voluntary contributions by any Participant to two or more
plans maintained by the same Employer.
If an Owner is covered under any other self-employed
retirement plan qualified under Section 401 of the Internal
Revenue Code to which he makes voluntary contributions, the
total amount of voluntary contributions to all such
qualified plans shall be taken into account in determining
the maximum voluntary contributions for such Owner under the
preceding paragraph.
This Plan will not accept voluntary Employee
contributions for Plan Years beginning after December 31,
1987. Employee contributions for Plan Years beginning after
December 31, 1986, will be limited so as to meet the
nondiscrimination test of Section 401(m) of the Code.
4.4 A Participant may at any time withdraw the amount of
his Voluntary Contributions Account, provided that the
entire amount in such Voluntary Contributions Account (based
upon the published market value of the Investment Company
shares on the close of trading on the day before the
withdrawal is accomplished) is withdrawn at such time, and
also provided that if the Participant is married, his or her
spouse consents in writing to the withdrawal. Any
Participant who shall elect to withdraw his voluntary
contributions shall not be permitted to make further
voluntary contributions for a period of one year.
4.5 Except as provided in Section 6.1 of this Plan and
Section 4.3 of the Custodial Agreement, no contributions
made by the Employer nor any assets held by the Custodian
shall ever revert to the Employer or ever be diverted to
purposes other than for the exclusive benefit of the
Participants and their beneficiaries.
4.6 An Employee may transfer to the Plan accrued benefits
attributable to employer contributions, or to accumulated
deductible employee contributions within the meaning of
Section 72(o)(5)(B) of the Code, from another plan which
meets the requirements of Section 401(a) of the Code,
provided that the distribution of such benefits qualifies
under the requirements of Section 402(a)(5) of the Code for
treatment as a tax-flee rollover. The Plan Administrator
shall develop such procedures, and may require such
information from an Employee desiring to make such a
transfer, as the Plan Administrator deems necessary to
determine that the proposed transfer will meet the
requirements of the Code. Upon approval by the Plan
Administrator the amount transferred shall be deposited with
the Custodian and shall be credited to a Rollover
Contribution Account, or in the case of amounts representing
accumulated deductible employee contributions within the
meaning of Section 72(o)(5)(B), to an ADEC Rollover Account,
which shall be established and maintained by the Custodian
for that purpose. An Employee shall at all times have a one
hundred percent (100%) vested interest in his Rollover
Contribution Account or ADEC Rollover Account, but shall not
share in Employer contributions hereunder by reason of the
Employee's Rollover Contribution Account or ADEC Rollover
Account Subject to Section 7 relating to Joint and Survivor
Annuity requirements (if applicable), the Participant may
withdraw any part of the ADEC Rollover Account by making a
written application to the Plan Administrator. Upon
termination of employment, the total amount of the
Employee's Rollover Contribution Account or ADEC Rollover
Account shall be distributed in accordance with Section 7.
SECTION 5
ACCOUNTS OF PARTICIPANT
5.1 The Custodian shall cause to be maintained for each
Participant (a) a separate Profit Sharing Account which
shall consist of that portion of all contributions of the
Employer under the Employer's Profit Sharing Plan
Participation Agreement allocated to a Participant; (b) a
separate Money Purchase Account which shall consist of that
portion of all contributions of the Employer under the
Employer's Money Purchase Plan Participation Agreement
allocated to a Participant; (c) a separate Voluntary
Contribution Account for the voluntary contributions made by
each Participant; and (d) in the event of any rollover
contributions as described in Section 4.6, separate Rollover
Contribution and/or ADEC Rollover Accounts for such rollover
contributions.
5.2 Contributions by or on behalf of all Participants
under the Plan shall be transferred to the Custodian by the
Employer and shall be invested by the Custodian in whole or
fractional Investment Company Shares. All contributions
transferred to the Custodian shall be allocated, pursuant to
the written instructions of the Plan Administrator as
provided under the Custodial Agreement, to accounts of
Employees eligible to participate in the Plan as defined in
paragraph 3(a) of the Participation Agreement (including
eligible Employees who have died or retired during such Plan
Year), provided that for the Plan Year beginning January 1,
1989, no such allocation shall be made to the account of any
Employee (a "1989 Terminee") who is otherwise eligible to
participate under Paragraph 3(a)(i) and (ii) of the
Participation Agreement and who terminates employment during
such Plan Year (other than by reason of death or retirement)
and is not an Employee as of the last day of such Plan Year.
All 1989 Terminees shall nevertheless be treated as
benefiting under the Plan pursuant to Proposed Treasury
Regulations Sections 1.401(a)(26)-8(b)(6) and 1.410(b)-
10(b)(2). Employer contributions under Paragraph 5 of the
Profit Sharing Plan Participation Agreement (Paired Plan 01-
001) shall be allocated to each Participant in the ratio
that such Participant's Compensation bears to the
Compensation of all Participants. Employer contributions
under the Money Purchase Plan Participation Agreement
(Paired Plan 01-002) shall be allocated to each Participant
in an amount equal to the amount contributed on behalf of
such Participant under Paragraph 5(a) of the Money Purchase
Plan Participation Agreement Each Participant shall direct
the Plan Administrator as to the specific Investment Company
Shares to be purchased for the Participant's Account(s). The
Plan Administrator shall then provide written instructions
to the Custodian, in form acceptable to the Custodian,
designating the specific Investment Company Shares to be
purchased for each Participant's Account(s), as directed by
the Participant All income, dividends and capital gain
distributions received on the Investment Company Shares held
in each Participant Account shall be reinvested in such
Shares, which shall be credited to such Account. All
contributions made by or on behalf of each Participant and
all investments made with such contributions, and the
earnings thereon, shall immediately become and at all times
remain fully vested and nonforteitable.
5.3 Investment Company Shares acquired by the Custodian
shall be registered in the name of the Custodian or its
nominee. The Participant for whom such shares are
acquired shall be the beneficial owner of all such shares
held in the Custodial Account and shall have the right to
diect the manner of voting such stock.
5.4 At the close of each calendar year the Custodian
shall, taking into account the contributions during said
calendar year, determine as of the end of such calendar
year the fair market value of each Participant account.
5.5 In the event the Employer's plan fails to attain or
retain its status as a qualified plan, the Custodian
shall segregate the assets affected thereby from the
assets of the master custodial account as soon as
administratively feasible.
SECTION 6
LIMITATIONS ON ALLOCATIONS
6.1 PARTICIPANTS NOT COVERED BY OTHER PLANS.
(a) If the Participant does not participate in, and has
never participated in another qualified plan maintained
by the Employer or a welfare benefit fund, as defined in
Section 419(e) of the Cede maintained by the Employer, or
an individual medical account, as defined in Section
415(1)(2) of the Code, maintained by the Employer, which
provides an Annual Addition as defined in Subsection
6.5(a) of this Plan, the amount of Annual Additions which
may be credited to the Participant's account for any
Limitation Year will not exceed the lesser of the Maximum
Permissible Amount or any other limitation contained in
this Plan. If the Employer contribution that would
otherwise be contributed or allocated to the
Participant's account would cause the Annual Additions
for the Limitation Year to exceed the Maximum Permissible
Amount, the amount contributed or allocated will be
reduced so that the Annual Additions for the limitation
Year will equal the Maximum Permissible Amount
(b) Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer may
determine the Maximum Permissible Amount for a
Participant on the basis of a reasonable estimation of
the Participant's Compensation for the Limitation Year,
uniformly determined for all Participants similarly
situated.
(c) As soon as is administratively feasible after the
end of the Limitation Year, the Maximum Permissible
Amount for the Limitation Year will be determined on the
basis of the Participant's actual Compensation for the
Limitation Year.
(d) If pursuant to Subsection 6.1(c) there is an excess
amount, the excess will be disposed of as follows:
(i) Any nondeductible voluntary Employee
contributions, to the extent they would reduce the
excess amount, will be returned to the Participant;
(ii) If after the application of subparagraph (i) an
excess amount still exists, and the Participant is
covered by the Plan at the end of the Limitation
Year, the excess amount in the Participant's account
will be used to reduce Employer contributions for
such Participant in the next Limitation Year, and
each succeeding Limitation Year if necessary.
(iii) If after the application of paragraph (i) an
excess amount still exists, and the Participant is
not covered by the Plan at the end of a Limitation
Year, the excess amount will be held unallocated in a
suspense account The suspense account will be applied
to reduce future Employer contributions for all
remaining Participants in the next Limitation Year,
and each succeeding Limitation Year if necessary.
(iv) If a suspense account is in existence at any
time during a Limitation Year pursuant to this
section, the suspense account shall be invested by
the Custodian in whole or fractional Investment
Company Shares. If a suspense account is in existence
at any time during a particular Limitation Year, all
amounts in the suspense account must be allocated and
reallocated to Participants' accounts before any
Employer or any Employee contributions may be made to
the Plan for that Limitation Year. Excess amounts may
not be distributed to Participants or former
Participants. In the event of termination of the Plan
the suspense account shall revert to the Employer to
the extent it may not then be allocated to any
Participant's account.
6.2 PARTICIPANTS COVERED BY OTHER MASTER OR PROTOTYPE
DEFINED CONTRIBUTION PLANS.
(a) This subsection applies if, in addition to this
Plan, the Participant is covered under another qualified
master or prototype defined contribution plan maintained
by the Employer, a welfare benefit fund, as defined in
Section 419(e) of the Code maintained by the Employer, or
an individual medical account, as defined in Section
415(1)(2) of the Code, maintained by the Employer, which
provides an Annual Addition as defined in Subsection
6.5(a), during any Limitation Year. The Annual Additions
which maybe credited to a Participant's Account under
this Plan for any such Limitation Year will not exceed
the Maximum Permissible Amount reduced by the Annual
Additions credited to a Participant's account under the
other plans and welfare benefit funds for the same
Limitation Year. If the Annual Additions with respect to
the Participant under other defined contribution plans
and welfare benefit funds maintained by the Employer are
less than the Maximum Permissible Amount and the Employer
contribution that would otherwise be contributed or
allocated to the Participant's account under this Plan
would cause the Annual Additions for the Limitation Year
to exceed this limitation, the amount contributed or
allocated will be reduced so that the Annual Additions
under all such plans and funds for the Limitation Year
will equal the Maximum Permissible Amount If the Annual
Additions with respect to the Participant under such
other defined contribution plans and welfare benefit
funds in the aggregate are equal to or greater than the
Maximum Permissible Amount, no amount will be contributed
or allocated to the Participant's account under this Plan
for the Limitation Year.
(b) Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer may
determine the Maximum Permissible Amount for a
Participant in the manner described in Subsection 6.1(b).
(c) As soon as is administratively feasible after the
end of the Limitation Year, the Maximum Permissible
Amount for the Limitation Year will be determined on the
basis of the Participant's actual Compensation for the
Limitation Year.
(d) If, pursuant to Subsection 6.2(c) or as a result of
the allocation of forfeitures, a Participant's Annual
Additions under this Plan and such other plans would
result in an excess amount for a Limitation Year, the
excess amount will be deemed to consist of the Annual
Additions last allocated, except that Annual Additions
attributable to a welfare benefit fund or individual
medical account will be deemed to have been allocated
first regardless of the actual allocation date.
(e) If an excess amount was allocated to a Participant
on an allocation date of this Plan which coincides with
an allocation date of another plan, the excess amount
attributed to this Plan will be the product of:
(i) the total excess amount allocated as of such
date, times
(ii) the ratio of (A) the Annual Additions allocated
to the Participant for the Limitation Year as of such
date under this Plan to (B) the total Annual
Additions allocated to the Participant for the
Limitation Year as of such date under this and all
the other qualified master or prototype defined
contribution plans.
(f) Any excess amount attributed to this plan will be
disposed in the manner described in Subsection 6.1(d).
6.3 PARTICIPANTS COVERED BY OTHER NON-MASTER OR NON-
PROTOTYPE DEFINED CONTRIBUTION PLANS.
If the Participant is covered under another qualified
defined contribution plan maintained by the Employer which
is not a master or prototype plan, Annual Additions which
may be credited to the Participant's
account under this Plan for any Limitation Year will be
limited in accordance with Subsections 6.2(a) through 62(f)
as though the other plan were a master or prototype plan
unless the Employer provides other limitations in paragraph
10(a) of the Participation Agreement.
6.4 EMPLOYERS WITH DEFINED BENEFIT PLAN.
If the Employer maintains, or at any time maintained, a
qualified defined benefit plan covering any Participant in
this Plan, the sum of the Participant's Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction will not
exceed 1.0 in any Limitation Year. The Annual Additions
which may be credited to the Participant's account under
this Plan for any Limitation Year will be limited in
accordance with paragraph 10(0) of the Participation
Agreement
6.5 DEFINITIONS.
(A) ANNUAL ADDITIONS: The sum of the following amounts
credited to a Participant's account for the Limitation
Year:
(i) Employer contributions,
(ii) Employee contributions,
(iii) forfeitures, and
(iv) amounts allocated, after March 31, 1984, to an
individual medical account, as defined in Section 415
(1) (2) of the Code, which is part of a pension or
annuity plan maintained by the Employer are treated
as Annual Additions to a defined contribution plan.
Also, amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years
ending after such date, which are attributable to
post-retirement medical benefits, allocated to the
separate account of a Key Employee, as defined in
Section 419A(d) (3) of the Code, under a welfare
benefit fund, as defined in Section 419(e) of the
Code, maintained by the Employer are treated as
Annual Additions to a defined contribution plan.
For this purpose, any excess amount applied under
Subsections 6.1(d) or 62(f) in the Limitation Year to
reduce Employer contributions will be considered Annual
Additions for such Limitation Year.
(b) COMPENSATION: A Participant's Earned Income, wages,
salaries, and fees for professional services and other
amounts received for personal services actually rendered
in the course of employment with the Employer maintaining
the Plan (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums,
tips and bonuses), and excluding the following:
(i) Employer contributions to a plan of deferred
compensation which are not includible in the
Employee's gross income for the taxable year in which
contributed, or Employer contributions under a
simplified employee pension plan to the extent such
contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
(ii) Amounts realized from the exercise of a
nonqualified stock option, or when restricted stock
(or property) held by the Employee either becomes
freely transferable or is no longer subject to a
substantial risk of forfeiture;
(iii) Amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified
stock option; and
(iv) other amounts which received special tax
benefits, or contributions made by the Employer
(whether or not under a salary reduction agreement)
towards the purchase of an annuity described in
Section 403(0) of the Internal Revenue Code (whether
or not the amounts are actually excludible from the
gross income of the Employee).
For purposes of applying the limitations of this section,
Compensation for a Limitation Year is the Compensation
actually paid or includible in gross income during such
Limitation Year.
(c) DEFINED BENEFIT FRACTION: A fraction, the numerator
of which is the sum of the Participant's projected annual
benefits under all the defined benefit plans (whether or not
terminated) maintained by the Employer, and the denominator
of which is the lesser of 125 percent of the dollar
limitation determined for the Limitation Year under Sections
415(0) and (d) of the Code or 140 percent of the Highest
Average Compensation, including any adjustments under
Section 415(0) of the Code.
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first Limitation
Year beginning after December31, 1986, in one or more
defined benefit plans maintained by the Employer which
were in existence on May 6, 1986, the denominator of this
fraction will not be less than 125 percent of the sum of
the annual benefits under such plans which the
Participant had accrued as of the close of the last
Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of
the plan after May 5, 1986. The preceding sentence
applies only if the defined benefit plans individually
and in the aggregate satisfied the requirements of
Section 415 of the Code for all Limitation Years
beginning before January 1, 1987.
(d) DEFINED CONTRIBUTION DOLLAR LIMITATION: $30,000 or
if greater, one-fourth of the defined benefit dollar
limitation set forth in Section 415(0)(1) of the Code as in
effect for the Limitation Year.
(e) DEFINED CONTRIBUTION FRACTION: A fraction, the
numerator of which is the sum of the Annual Additions to the
Participant's account under all the defined contribution
plans (whether or not terminated) maintained by the Employer
for the current and all prior Limitation Years (including
the Annual Additions attributable to the Participant's
nondeductible employee contributions to all defined benefit
plans, whether or not terminated, maintained by the
Employer, and the Annual Additions attributable to all
welfare benefit funds, as defined in Section 419(e) of the
Code, and individual medical accounts, as defined in Section
415(1)(2) of the Code, maintained by the Employer), and the
denominator of which is the sum of the maximum aggregate
amounts for the current and all prior Limitation Years of
service with the Employer (regardless of whether a defined
contribution plan was maintained by the Employer). The
maximum aggregate amount in any Limitation Year is the
lesser of 125 percent of the dollar limitation determined
under Sections 415(0) and (d) of the Code in effect under
Section 415(c)(1)(A) of the Code or 35 percent of the
Participant's Compensation for such year.
If the Employee was a Participant as of the end of the
first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined contribution plans
maintained by the Employer which were m existence on May 6,
1986, the numerator of this fraction will be adjusted if the
sum of this fraction and the Defined Benefit Fraction would
otherwise exceed 1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the
denominator of this fraction, will be permanently subtracted
from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as
of the end of the last Limitation Year beginning before
January 1, 1987, and disregarding any changes in the terms
and conditions of the Plan made after May 5, 1986, but using
the Section 415 limitation applicable to the first
Limitation Year beginning on or after January 1, 1987.
The Annual Addition for any Limitation Year beginning
before January 1, 1987, shall not be recomputed to treat all
Employee contributions as Annual Additions.
(f) EMPLOYER: For purposes of this Section 6, Employer
shall mean the Employer that adopts this Plan, and all
members of a controlled group of corporations (as defined in
Section 414(0) of the Code as modified by Section 415(0)),
all commonly controlled trades or businesses (as defined in
Section 414(c) as modified by Section 415(0)) or affiliated
service groups (as defined in Section 414(m)) of which the
adopting Employer is a part, and any other entity required
to be aggregated with the Employer pursuant to regulations
under Section 414(0) of the Code.
(g) EXCESS AMOUNT: The excess of the Participant's
Annual Additions for the Limitation Year over the Maximum
Permissible Amount
(h) HIGHEST AVERAGE COMPENSATION: The average
Compensation for the three consecutive Years of Service with
the Employer that produces the highest average. A Year of
Service with the Employer is the 12- consecutive month
period defined in Section 2(gg) of this Plan.
(i) LIMITATION YEAR: A calendar year, or the
12~onsecutive month period elected by the Employer in
paragraph 12 of the Participation Agreement. All qualified
plans maintained by the Employer must use the same
Limitation Year. If the Limitation Year is amended to a
different 12~onaecutive month period, the new Limitation
Year must begin on a date within the Limitation Year in
which the amendment is made.
(j) Master or Prototype Plan: A plan the form of which
is the subject of a favorable opinion letter from the
Internal Revenue Service.
(k) Maximum Permissible Amount: The maximum Annual
Addition that may be contributed or allocated to a
Participant's account under the Plan for any Limitation Year
shall not exceed the lesser of:
(i) the Defined Contribution Dollar Limitation, or
(ii) 25 percent of the Participant's Compensation for
the Limitation Year.
The Compensation limitation referred to in Subparagraph
(ii) shall not apply to any contribution for medical
benefits (within the meaning of Section 401(h) or Section
419A(f)(2) of the Code which is otherwise treated as an
Annual Addition under Section 415(l)(l) or 419A(d)(2) of the
Code.
If a short Limitation Year is created because of an
amendment changing the Limitation Year to a different
l2consecutive month period, the Maximum Permissible Amount
will not exceed the Defined Contribution Dollar Limitation
multiplied by the following fraction:
NUMBER OF MONTHS IN THE SHORT LIMITATION YEAR
12
(1) PROJECTED ANNUAL BENEFIT: The annual retirement
benefit (adjusted to an actuarially equivalent straight life
annuity if such benefit is expressed in a form other than a
straight life annuity or qualified joint and survivor
annuity) to which the Participant would be entitled under
the terms of the Plan assuming:
(i) the Participant will continue employment until
Normal Retirement Age under the Plan (or current age,
if later), and
(ii) the Participant's Compensation for the current
Limitation Year and all other relevant factors used
to determine benefits under the Plan will remain
constant for all future Limitation Years.
SECTION 7
PAYMENT OF BENEFFIS
7.1 For purposes of this Section, the term
"Participant" shall mean an Employee who has received a
contribution to his Participant account and who retains a
balance in such account A Participant who dies, retires,
terminates service with the Employer or who is a Participant
on the date the Plan terminates shall have the right to have
the balance of his account(s) applied for his benefit For
purposes of making lump sum distributions, or purchasing
annuity contracts, the value of such Participant's
account(s) shall be based upon the published market value of
the Investment Company Shares on the close of trading on the
day before the distribution is made.
7.2 (a) Upon retirement or termination of the
Participant's services with the Employer if the value of the
Participant's Account Balance(s) derived from Employer and
Participant contributions is not greater than $3,500, the
Participant will receive a distribution of the value of his
Account Balance(s). However, no distribution shall be made
pursuant to the preceding sentence after the first day of
the first period for which an amount is received as an
annuity unless the Participant and his or tier Spouse (or
the Participant's Surviving Spouse) consent in writing to
such distribution.
(b) If the value of a Participant's Account Balance(s)
derived from Employer and Participant contributions exceeds
(or at the time of any prior distribution exceeded) $3,000,
and the Account Balance(s) are Immediately Distributable,
the Participant and the Participant's Spouse (or where
either the Participant or the Spouse has died, the survivor)
must consent to any distribution of such Account Balance(s).
The consent of the Participant and the Participant's Spouse
shall be obtained in writing within the 90-day period ending
on the Annuity Starting Date. The Annuity Starting Date is
the first day of the first period for which an amount is
paid as an annuity or any other form. The Plan Administrator
shall notify the Participant and the Participant's Spouse of
the right to defer any distribution until the Participant's
Account Balance(s) are no longer Immediately Distributable.
Such notification shall include a general description of the
material features, and an explanation of the relative values
of, the optional forms of benefit available under the Plan
in a manner that would satisfy the notice requirements of
Section 417(a)(3) of the Code, and shall be provided no less
than 30 days and no more than 90 days prior to the Annuity
Starting Date. If a distribution is one to which Sections
401(a)(11) and 417 of the Internal Revenue Code do not
apply, such distribution may commence less thin 30 days
after the notice required under Section 1.411(a)-11(c) of
the Income Tax Regulations is given, provided that:
(i) the Plan Administrator clearly informs the
Participant that the Participant has a right to a
period of at least 30 days after receiving the notice
to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular
distribution option), and
(ii) the Participant, after receiving the notice,
affirmatively elects a distribution.
Notwithstanding the foregoing, only the Participant
need consent to the commencement of a distribution in the
form of a Qualified Joint and Survivor Annuity while the
Account Balance(s) are Immediately Distributable.
(Furthermore, with respect to any Profit Sharing Plan
Account Balance(s), only the Participant need consent to the
distribution of Account Balance(s) that are Immediately
Distributable.) Neither the consent of the Participant nor
the Participant's Spouse shall be required to the extent
that a distribution is required to satisfy Section 401(a)(9)
or Section 415 of the Code. In addition, upon termination of
this Plan if the Plan does not offer an annuity option
(purchased from a commercial provider), the Participant's
Account Balance(s) may, without the Participant's consent,
be distributed to the Participant or transferred to another
defined contribution plan (other thin an employee stock
ownership plan as defined in Section 4975(e)(7) of the Code)
within the same controlled group.
An account balance is Immediately Distributable if any
part of the account balance could be distributed to the
Participant (or Surviving Spouse) before the Participant
attains (or would have attained if not deceased) the later
of Normal Retirement Age or age 62.
For purposes of determining the applicability of the
foregoing consent requirements to distributions made before
January 1, 1989, the Participant's Account Balance(s) shall
not include amounts attributable to accumulated deductible
employee contributions within the meaning of Section
72(o)(5)(B) of the Code.
7.3 (a) TIME OF PAYMENT Unless the Participant elects
otherwise, distribution of benefits will begin no later than
the 60th day after the latest of the close of the Plan Year
in which:
(i) the Participant attains age 65 (or Normal
Retirement Age, if earlier);
(ii) occurs the 10th anniversary of the year in which
the Participant commenced participation in the Plan;
or,
(iii) the Participant terminates service with the
Employer.
(b) ELECTION. A Participant may elect to have benefit
payments commence at a date later thin that allowed by
Subparagraph (a), pr~ vided that benefit payments shall
commence not later thin the Required Beginning Date
specified in Section 7.9. The Participant may make such
an election by submitting to the Plan Administrator for
transmittal to the Custodian, a signed written statement
describing the benefit and the date on which the payment
of such benefit shall commence.
Notwithstanding the foregoing, the failure of a
Participant and Spouse to consent to a distribution while
a benefit is Immediately Distributable, within the
meaning of Section 7.2(b) of the Plan, shall be deemed to
be an election to defer commencement of payment of any
benefit sufficient to satisfy this Section 7.3(b).
7.4 RETIREMENT BENEFITS. The provisions of Sections 7.4
and 7.5 shall apply to any Participant who is credited
with at least one Hour of Service with the Employer on or
after August 23, 1984, and such other Participants as
provided in Section 7.8.
(a) MONEY PURCHASE PLAN RETIREMENT BENEFITS. Unless an
optional form of benefit is selected pursuant to a
Qualified Election with-in the ninety (90) day period
ending on the Annuity Starting Date, a married
Participant's Money Purchase Plan Account Balance(s)
shall be paid in the form of a Qualified Joint and
Survivor Annuity and an unmarried Participant's Money
Purchase Plan Account Balance(s) shall be paid in the
form of a life annuity. The Participant may elect to have
such annuity distributed upon attainment of the Earliest
Retirement Age under the Plan.
A Participant in the Money Purchase Plan who has made a
Qualified Election, will receive his Money Purchase Plan
Account Balance(s) in one of the following optional forms
of distribution as selected by the Participant
(i) By a single payment in cash; or
(ii) By equal or substantially equal annual
installments over a period certain not to exceed the
life expectancy of the Participant or the joint life
or life expectancy of the Participant and his
Beneficiary.
(b) PROFIT SHARING PLAN RETIREMENT BENEFITS. The Profit
Sharing Plan Account Balance(s) of each Participant shall
be distributed upon direction of the Participant by one
or a combination of the following methods:
(i) By a single payment in cash; or
(ii) By equal or substantially equal annual
installments over a period certain not to exceed the
life expectancy of the Participant or the joint life
or life expectancy of the Participant and his
Beneficiary.
A Participant may not elect payments in the form of a life
annuity with respect to any Profit Sharing Plan Account
Balance(s).
7.5 DEATH BENEFITS.
(a) Qualified Preretirement Survivor Annuity. Unless an
optional form of benefit identified in Section 7.4(a) is
selected within the Election Period pursuant to a Qualified
Election, if a Participant dies before the Annuity Starting
Date then the Participant's Money Purchase Plan Account
Balance(s) shall be applied toward the purchase of an
annuity for the life of the Surviving Spouse. The Surviving
Spouse may elect to have such annuity distributed within a
reasonable period after the Participant's death.
(b) BENEFITS TO PROFIT SHARING PLAN PARTICIPANTS AND
UNMARRIED MONEY PURCHASE PLAN PARTICIPANTS. In the event of
the death of a Participant, the Participant's Profit Sharing
Plan Account Balance(s) (and/or the Participant's Money
Purchase Plan Account Balance(s), if the Participant is
unmarried) shall be distributed to the Participant's
Surviving Spouse, but if there is no Surviving Spouse, or if
the Surviving Spouse has consented in a manner conforming to
a Qualified Election, then to the Beneficiaries designated
in the Beneficiary Designation Form. In the event the
Participant has not designated any Beneficiaries, or all of
the designated Beneficiaries are deceased, then the Profit
Sharing Plan Account Balance(s) (and/or Money Purchase Plan
Account Balance(s)) shall be distributed to the following
persons, to take in the order named:
(i) Spouse of the Participant; (ii) if the Spouse shall
predecease the Participant, then in equal shares to any
children surviving the Participant and to the descendants
then living of a deceased child, by right of representation;
(iii) if the Participant shall leave neither Spouse nor
descendants surviving then to the personal representative of
the Participant's estate.
The Surviving Spouse (if any) may elect to have
distribution of any Profit Slating Plan Account Balance(s)
commence within the ninety (9O-day period following the date
of the Participant's death. The Profit Sharing Plan or Money
Purchase Plan Account Balance(s) (as the case may be) shall
be adjusted for gains or losses occurring after the
Participant's death in accordance with the provisions of
this Plan governing the adjustment of Account Balances for
other types of distributions.
The Participant may waive the spousal death benefit
described in this Section at any time provided that no such
waiver shall be effective unless it satisfies the conditions
of Section 7.6(c) (other than the notification requirement
referred to therein) that would apply to the Participant's
waiver of the Qualified Preretirement Survivor Annuity
(c) DEATH CERTIFICATE. Before making any distribution
upon the death of a Participant, the Plan Administrator
shall furnish the Custodian with a certified copy of the
death certificate of the Participant.
7.6 DEFINITIONS. For purposes of this Section 7, the
following terms shall have their respective meanings set
forth below, unless a different meaning is clearly required
by the context:
(a) ELECTION PERIOD means the period which begins on
the first day of the Plan Year in which the Participant
attains age thirty-five (35) and ends on the date of the
Participant's death. If a Participant separates from service
prior to the first day of the Plan Year in which age thirty-
five (35) is attained, with respect to the Participant's
Account balance(s) as of the date of separation, the
Election Period shall begin on the date of separation.
Pre-age 35 waiver: A Participant who will not yet
attain age 35 as of the end of any current Plan Year may
make a special Qualified Election to waive the Qualified
Preretirement Survivor Annuity for the period beginning on
the date of such election and ending on the first day of the
Plan Year in which the Participant will attain age 35. Such
election shall not be valid unless the Participant receives
a written explanation of the Qualified Preretirement
Survivor Annuity in such terms as are comparable to the
explanation required under Section 7.7(a). Qualified
Preretirement Survivor Annuity coverage will be
automatically reinstated as of the first day of the Plan
Year in which the Participant attains age 35. Any new waiver
on or after such date shall be subject to the hall
requirements of this Section 7.
(b) EARLIEST RETIREMENT AGE means the earliest date on
which, under the Plan, the Participant could elect to
receive retirement benefits.
(c) QUALIFIED ELECTION means a waiver of a Qualified Joint
and
Survivor Annuity or a Qualified Preretirement Survivor
Annuity. Any waiver of a Qualified Joint and Survivor
Annuity or a Qualified Preretirement Survivor Annuity shall
not be effective unless:
(i) the Participant's Spouse consents in writing to
the election;
(ii) the election designates a specific Beneficiary,
including any class of Beneficiaries or any
contingent Beneficiaries, which may not be changed
without Spousal consent (or the Spouse expressly
permits designations by the Participant without any
further Spousal consent);
(iii) the Spouse's consent acknowledges the effect of
the election; and
(iv) the Spouse's consent is witnessed by a Plan
representative or notary public. Additionally, a
Participant's waiver of the Qualified Joint and
Survivor Annuity shall not be effective unless the
election designates a form of benefit payment which
may not be changed without Spousal consent (or the
Spouse expressly permits designations by the
Participant without any further Spousal consent).
If it is established to the satisfaction of a Plan
representative that there is no Spouse or that the Spouse
cannot be located, a waiver will be deemed a Qualified
Election.
Any consent by a Spouse obtained under this provision (or
establishment that the consent of a Spouse may not be
obtained) shall be effective only with respect to such
Spouse. A consent that permits designations by the
Participant without any requirement of further consent by
such Spouse must acknowledge that the Spouse has the right
to limit consent to a specific Beneficiary, and a specific
form of benefit where applicable, and that the Spouse
voluntarily elects to relinquish either or both of such
rights. A revocation of a prior waiver maybe made by a
Participant without the consent of the Spouse at any time
before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under
this provision shall be valid unless the Participant has
received notice as provided in Section 7.7 below.
(d) QUALIFIED JOINT AND SURVIVOR ANNUITY means an
immediate annuity for the life of the Participant with a
survivor annuity for the life of the Spouse which is fifty
percent (50%) of the amount of the annuity which is payable
during the joint lives of the Participant and the Spouse and
which is the amount of benefit which can be purchased with
the Participant's Account Balance(s).
(e) SPOUSE OR SURVIVING SPOUSE means the Spouse or
Surviving Spouse of the Participant, provided that a former
Spouse will be treated as the Spouse or Surviving Spouse and
a current Spouse will not be treated as the Spouse or
Surviving Spouse only to the extent provided under a
qualified domestic relations order as described in Section
414(p) of the Code.
(f) ANNUITY STARTING DATE means the first day of the first
period for which an amount is paid as an annuity or any
other form.
(g) ACCOUNT BALANCE(S) means the aggregate value of the
Participant's Account balances derived from Employer and
Participant contributions (including rollovers).
7.7 NOTICE REQUIREMENTS.
(a) In the case of a Qualified Joint and Survivor
Annuity, the Plan Administrator shall no less than thirty
(30) days and no more than ninety (90) days prior to the
Annuity Starting Date provide each Participant a written
explanation of: (i) the terms and conditions of a Qualified
Joint and Survivor Annuity; (ii) the Participant's right to
make and the effect of an election to waive the Qualified
Joint and Survivor Annuity form of benefit; (iii) the rights
of a Participant's Spouse; and (iv) the right to make and
the effect of a revocation of a previous election to waive
the Qualified Joint and Survivor Annuity.
(b) In the case of a Qualified Preretirement Survivor
Annuity as described in Section 7.5(a), the Plan
Administrator shall provide each Participant within the
Applicable Period for such Participant a written explanation
of the Qualified Preretirement Survivor Annuity in such
terms and in such manner as would be comparable to the
explanation provided for meeting the requirements of Section
7.7(a) applicable to a Qualified Joint and Survivor Annuity.
The Applicable Period for a Participant is whichever of
the following periods ends last: (i) the period beginning
with the first day of the Plan Year in which the Participant
attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age
35; (ii) a reasonable period ending after the individual
becomes a Participant; (iii) a reasonable period ending
after Section 7.7(c) ceases to apply to the Participant;
(iv) a reasonable period ending after this Section 7 first
applies to the Participant Notwithstanding the foregoing,
notice must be provided within a reasonable period ending
after separation from service in the case of a Participant
who separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a
reasonable period ending after the enumerated events
described in subparagraphs (ii), (iii) and (iv) is the end
of the two-year period beginning one year prior to the date
the applicable event occurs, and ending one year after that
date. In the case of a Participant who separates from
service before the Plan Year in which age 35 is attained,
notice shall be provided within the two-year period
beginninng one year prior to separation and ending one year
after separation. If such a Participant thereafter returns
to employment with the Employer, the Applicable Period for
such Participant shall be redetermined.
(c) Notwithstanding the other requirements of this
Section 7.7, the respective notices prescribed by this
Section need not be given to a Participant if: (i) the Plan
"fully subsidizes" the costs of a Qualified Joint and
Survivor Annuity or Qualified Preretirement Survivor
Annuity; and (ii) the Plan does not allow the Participant to
waive the Qualified Joint and Survivor Annuity or Qualified
Preretirement Survivor Annuity and does not allow a married
Participant to designate a nonspouse Beneficiary. For
purposes of this Section 7.7(c), a Plan fully subsidizes the
costs of a benefit if no increase in cost, or decrease in
benefits to the Participant may result from the
Participant's failure to elect another benefit.
7.8 TRANSITIONAL RULES.
(a) Any living Participant not receiving benefits on
August 23, 1984, who would otherwise not receive the
benefits prescribed by the previous sections of this Section
7 must be given the opportunity to elect to have the prior
sections of this Section 7 apply if such Participant is
credited with at least one Hour of Service under this Plan
or a predecessor Plan in a Plan Year beginning on or after
January 1, 1976, and such Participant had at least ten (10)
years of vesting service when he or she separated from
service.
(b) Any living Participant not receiving benefits on
August 23, 1984, who was credited with at least one Hour of
Service under this Plan or a predecessor plan on or after
September 2, 1974, and who is not otherwise credited with
any service in a Plan Year beginning on or after January 1,
1976, must be given the opportunity to have his or her
benefits paid in accordance with Section 7.8(d).
(c) The respective opportunities to elect (as described
in Sections 7.8(a) and 7.8(b) above) must be afforded to
the appropriate Participants during the period commencing
on August 23, 1984, and ending on the date benefits would
otherwise commence to said Participant
(d) Any Participant who has elected pursuant to Section
7.8(b) and any Participant who does not elect under
Section 7.8(a) or who meets the requirements of Section
7.8(a) except that such Participant does not have at
least ten (10) years of vesting service when he or she
separates from service, shall have his or her benefits
distributed in accordance with all of the following
requirements if benefits would have been payable in the
form of a life annuity:
(i) AUTOMATIC JOINT AND SURVIVOR ANNUITY. If
benefits in the form of a life annuity become payable
to a married Participant who:
(A) begins to receive payments under the Plan on
or after Normal Retirement Age; or
(B) dies on or after Normal Retirement Age while
still working for the Employer; or
(C) begins to receive payments on or after the
Qualified Early Retirement Age; or
(D) separates from service on or after attaining
Normal Retirement Age (or the Qualified Early
Retirement Age) and after satisfying the
eligibility requirements for the payment of
benefits under the Plan and thereafter dies before
beginning to receive such benefits;
then such benefits will be received under this Plan in
the form of a Qualified Joint and Survivor Annuity,
unless the Participant his elected otherwise during the
Election Period. The Election Period must begin at least
six (6) months before the Participant attains Qualified
Early Retirement Age and end not more than ninety (90)
days before the commencement of benefits. Any election
hereunder will be in writing and maybe changed by the
Participant at any time.
(ii) ELECTION OF EARLY SURVIVOR ANNUITY. A Participant
who is employed after attaining the Qualified Early
Retirement Age will be given the opportunity to elect,
during the Election Period, to have a survivor annuity
payable on death. Ii the Participant elects the survivor
annuity, payments under such annuity must not be less
than the payments which would have been made to the
Spouse under the Qualified Joint and Survivor Annuity if
the Participant had retired on the day before his or her
death. Any election under this provision will be in
writing and maybe changed by the Participant at any time.
The Election Period begins on the later of (1) the 9Oth
day before the Participant attains the Qualified Early
Retirement Age, or (2) the date on which participation
begins, and ends on the date the Participant terminates
employment.
(iii) For purposes of this Section 7.8(d):
(A) QUALIFIED EARLY RETIREMENT AGE is the latest
of:
(1) the earliest date, under the Plan, on
which the Participant may elect to receive
retirement benefits;
(2) the first day of the 12Oth month
beginning before the Participant reaches Normal
Retirement Age, or
(3) the date the Participant begins
participation.
(B) Qualified Joint and Survivor Annuity is an
annuity for the life of the Participant with a
survivor annuity for the life of the Spouse as
described in Section 7.6(d).
7.9 DISTRIBUTION REQUIREMENTS.
(a) GENERAL RULES.
(i) Subject to Sections 7.4 through 7.8 of this
Plan, the requirements of this Section 7.9 shall
apply to any distribution of a Participant's interest
and will take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified,
the provisions of this Section 7.9 apply to calendar
years beginning after December 31, 1984.
(ii) All distributions required under this Section
7.9 shall be determined and made in accordance with
the Proposed Regulations under Section 401(a)(9) of
the Code, including the minimum distribution
incidental benefit requirement of Section 1.401(a)(9)-
2 of the Proposed Regulations.
(b) Required Beginning Date. The entire interest of a
Participant must be distributed or begin to be distributed
no later than the Participant's Required Beginning Date.
(c) Limits on Distribution Periods. As of the first
Distribution Calendar Year, distributions, if not made in a
single sum, may only be made over one of the following
periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and a Designated
Beneficiary;
(iii) a period certain not extending beyond the Life
Expectancy of the Participant, or
(iv) a period certain not extending beyond the Joint
and Last Survivor Expectancy of the Participant and a
Designated Beneficiary.
(d) DETERMINATION OF AMOUNT TO BE DISTRIBUTED EACH
YEAR. if the Participant's interest is to be distributed in
other than a single sum, the following minimum distribution
rules shall apply on or after the Required Beginning Date:
(i) INDIVIDUAL ACCOUNT
(A) If a Participant's Benefit is to be
distributed over (1) a period not extending beyond
the Life Expectancy of the Participant or the
Joint Life and Last Survivor Expectancy of the
Participant and the Participant's designated
Beneficiary or (2) a period not extending beyond
the Life Expectancy of the Designated Beneficiary;
the amount required to be distributed for each
calendar year, beginning with distributions for
the first Distribution Calendar Year, must at
least equal the quotient obtained by dividing the
Participant's Benefit by the Applicable Life
Expectancy.
(B) For calendar years beginning before January
1, 1989, if the Participant's Spouse is not the
Designated Beneficiary; the method of distribution
selected must assure that at least 50% of the
present value of the amount available for
distribution is paid within the Life Expectancy of
the Participant
(C) For calendar years beginning after December
31, 1988, the amount to be distributed each year;
beginning with distributions for the first
Distribution Calendar Year shall not be less than
the quotient obtained by dividing the
Participant's Benefit by the lesser of (1) the
Applicable Life Expectancy or (2) if the
Participant's Spouse is not the Designated
Beneficiary, the applicable divisor determined
from the table set forth in Q&A-4 of Section
1.401(a)(9)-2 of the Proposed Regulations.
Distributions after the death of the Participant
shall be distributed using the applicable life
expectancy in Section 7.9(d)(i)(A) above as the
relevant divisor without regard to Proposed
Regulations Section 1.401(a)(9)-2.
(D) The minimum distribution required for the
Participant's first Distribution Calendar Year
must be made on or before the Participant's
Required Beginning Date. The minimum distribution
for other calendar years, including the minimum
distribution for the Distribution Calendar Year in
which the Participant's Required Beginning Date
occurs, must be made on or before December 31 of
that Distribution Calendar Year.
(ii) OTHER FORMS.
(A) If the Participant's Benefit is distributed
in the form of an annuity purchased from an
insurance company, distributions thereunder shall
be made in accordance with the requirements of
Section 401(a)(9) of the Code and the Proposed
Regulations thereunder.
(e) DEATH DISTRIBUTION PROVISIONS.
(i) DISTRIBUTION BEGINNING BEFORE DEATH. If the
Participant dies after distribution of his or her
interest has begun, the remaining portion of such
interest will continue to be distributed at least as
rapidly as under the method of distribution being used
prior to the Participant's death.
(ii) DISTRIBUTION BEGINNING AFTER DEATH. If the
Participant dies before distribution of his or her
interest begins, distribution of the Participant's entire
interest shall be completed by December 31 of the
calendar year containing the fifth anniversary of the
Participant's death except to the extent that an election
is made to receive distributions in accordance with (A)
or (B) below:
(A) if any portion of the Participant's
interest is payable to a Designated Beneficiary
distributions may be made over the life or over a
period certain not greater than the Life Expectancy
of the Designated Beneficiary commencing on or before
December 31 of the calendar year immediately
following the calendar year in which the Participant
died;
(B) if the Designated Beneficiary is the
Participant's Surviving Spouse, the date
distributions are required to begin in accordance
with (A) above shall not be earlier than the later of
(1) December 31 of the calendar year immediately
following the calendar year in which the Participant
died and (2) December 31 of the calendar year in
which the Participant would have attained age 70-1/2.
If the Participant has not made an election
pursuant to this subparagraph (ii) by the time of his or
her death, the Participant's Designated Beneficiary must
elect the method of distribution no later than the
earlier of (1) December 31 of the calendar year in which
distributions would be required to begin under this
subparagraph (ii), or (2) December 31 of the calendar
year which contains the fifth anniversary of the date of
death of the Participant If the Participant has no
Designated Beneficiary or if the Designated Beneficiary
does not elect a method of distribution, distribution of
the Participant's entire interest must be completed by
December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
(iii) For purposes of subparagraph (ii) above,
if the Surviving Spouse dies after the Participant, but
before payments to such Spouse begin, the provisions of
subparagraph (ii), with the exception of clause (B)
therein, shall be applied as if the Surviving Spouse were
the Participant.
(iv) For purposes of this paragraph (e), any
amount paid to a child of the Participant will be treated
as if it had been paid to the Surviving Spouse if the
amount becomes payable to the Surviving Spouse when the
child reaches the age of majority.
(v) For the purposes of this paragraph (e),
distribution of a Participant's interest is considered to
begin on the Participant's Required Beginning Date (or,
if subparagraph (iii) above is applicable, the date
distribution is required to begin to the Surviving Spouse
pursuant to su~ paragraph (li) above). If distribution in
the form of an annuity irrevocably commences to the
Participant before the Required Beginning Date, the date
distribution is considered to begin is the date
distribution actually commences.
(f) DEFINITIONS.
(i) APPLICABLE LIFE EXPECTANCY means the Life
Expectancy (or Joint and Last Survivor Expectancy)
calculated using the attained age of the Participant (or
Designated Beneficiary) as of the Participant's (or
Designated Beneficiary's) birthday in the Applicable
Calendar Year reduced by one for each calendar year which
has elapsed since the date Life Expectancy was first
calculated. If Life Expectancy is being recalculated, the
Applicable Life Expectancy shall be the Life Expectancy
as so recalculated. The Applicable Calendar Year shall be
the first Distribution Calendar Year and if Life
Expectancy is being recalculated such succeeding calendar
year.
(ii) DESIGNATED BENEFICIARY means the
individual who is designated as the Beneficiary under the
Plan in accordance with Section 401(a)(9) of the Code and
the Proposed Regulations thereunder.
(iii) DISTRIBUTION CALENDAR YEAR means a
calendar year for which a minimum distribution is
required. For distributions beginning before the
Participant's death, the first Distribution Calendar Year
is the calendar year immediately preceding the calendar
year which contains the Participant's Required Beginning
Date. For distributions beginning after the Participant's
death, the first Distribution Calendar Year is the
calendar year in which distributions are required to
begin pursuant to paragraph (e).
(iv) LIFE EXPECTANCY. Life Expectancy and Joint
and Last Survivor Expectancy are computed by use of the
expected return multiples in Tables V and VI of Section
1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or
Spouse, in the case of distributions described in
paragraph (e)(ii)(B) above) by the time distributions are
required to begin, Life Expectancies shall be
recalculated annually. Such election shall be irrevocable
as to the Participant (or Spouse) and shall apply to all
subsequent years. The Life Expectancy of a non-Spouse
Beneficiary may not be recalculated.
(v) PARTICIPANT'S BENEFIT.
(A) The account balance as of the last valuation date in
the calendar year immediately preceding the Distribution
Calendar Year (Valuation Calendar Year) increased by the
amount of any contributions allocated to the account balance
as of dates in the Valuation Calendar Year after the
valuation date and decreased by distributions made in the
Valuation Calendar Year after the valuation date.
(B) Exception for second Distribution Calendar Year. For
purposes of clause (A) above, if any portion of the minimum
distribution for the first Distribution Calendar Year is
made in the second Distribution Calendar Year on or before
the Required Beginning Date, the amount of the minimum
distribution made in the second Distribution Calendar Year
shall be treated as if it had been made in the immediately
preceding Distribution Calendar Year.
(vi) REQUIRED BEGINNING DATE.
(A) GENERAL RULE. The Required Beginning Date of a
Participant is the first day of April of the calendar
year following the calendar year in which the
Participant attains age 70-1/2.
(B) TRANSITIONAL RULES. The Required Beginning
Date of a Participant who attains age 70-1/2 before
January 1, 1988, shall be deter- mined in accordance
with (1) or (2) below:
(1) Non-Five Percent Owners. The Required
Begin- ding Date of a Participant who is not a
Five Percent Owner is the first day of April of
the calendar year following the calendar year in
which the later of retirement or attainment of age
70-1/2 occurs.
(2) Five Percent Owners. The Required
Beginning Date of a Participant who is a Five
Percent Owner during any year beginning after
December 31, 1979, is the first day of April
following the later of: (I) the calendar year in
which the Participant attains age 70-1/2, or (II)
the earlier of the calendar year with or within
which ends the Plan Year in which the Participant
becomes a Five Percent Owner, or the calendar year
in which the Participant retires.
The Required Beginning Date of a Participant who
is not a Five Percent Owner who attains age 70-1/2
during 1988 and who has not retired as of January 1,
1989, is April 1,1990.
(C) Five Percent Owner. A Participant is treated
as a Five Percent Owner for purposes of this
paragraph (f) if such Participant is a Five Percent
Owner as defined in Section 416(i) of the Code
(determined in accordance with Section 416 but
without regard to whether the Plan is top heavy) at
any time during the Plan Year ending with or within
the calendar year in which such Owner attains age 66-
1/2 or any subsequent Plan Year.
(D) Once distributions have begun to a Five
Percent Owner under this paragraph (f), they must
continue to be distributed, even if the Participant
ceases to be a Five Percent Owner in a subsequent
year.
(g) TRANSITIONAL RULE.
(i) Notwithstanding the other requirements of this
Section 7.9 and subject to the requirements of Sections 7.4
through 7.8, distribution on behalf of any Participant,
including a Five Percent Owner, may be made in accordance
with all of the following requirements (regardless of when
such distribution commences):
(A) The distribution is one which would not have
disqualified the Plan under Section 401(a)(9) of the
Internal Revenue Code as in effect prior to amendment
by the Deficit Reduction Act of 1984.
(B) The distribution is in accordance with a
method of distribution designated by the Participant
whose interest is being distributed or, if the
Participant is deceased, by a Beneficiary of such
Participant.
(C) Such designation was in writing, was signed
by the Participant or the Beneficiary; and was made
before January 1, 1984.
(D) The Participant had accrued a benefit under
the Plan as of December 31, 1983.
(E) The method of distribution designated by the
Participant or the Beneficiary specifies the time at
which distribution will commence, the period over
which distributions will be made, and in the case of
any distribution upon the Participant's death, the
Beneficiaries of the Participant listed in order of
priority.
(ii) A distribution upon death will not be covered
by this transitional rule unless the information in the
designation contains the required information described
above with respect to the distributions to be made upon
the death of the Participant.
(iii) For any distribution which commences before
January 1,1984, but continues after December31, 1983,
the Participant, or the Beneficiary, to whom such
distribution is being made, will be presumed to have
designated the method of distribution under which the
distribution is being made if the method of
distribution was specified in writing and the
distribution satisfies the requirements in
subparagraphs (g)(i)(A) and (E).
(iv) If a designation is revoked any subsequent
distribution must satisfy the requirements of Section
401(a)(9) of the Code and the Proposed Regulations
thereunder. if a designation is revoked subsequent to
the date distributions are required to begin, the
Custodian must distribute by the end of the calendar
year following the calendar year in which the
revocation occurs the total amount not yet distributed
which would have been required to have been distributed
to satisfy Section 401(a)(9) of the Code and the
Proposed Regulations thereunder, but for the Section
242(b)(2) election. For calendar years beginning after
December 31, 1988, such distributions must meet the
minimum distribution incidental benefit requirements in
Section 1.401(a)(9)-2 of the Proposed Regulations. Any
changes in the designation will be considered to be a
revocation of the designation. However, the mere
substitution or addition of another Beneficiary (one
not named in the designation) under the designation
will not be considered to be a revocation of the
designation, so long as such substitution or addition
does not after the period over which distributions are
to be made under the designation, directly or
indirectly (for example, by altering the relevant
measuring life). In the case in which an amount is
transferred or rolled over from one plan to another
plan, the rules in Q&A J-2 and Q&A J-3 shall apply.
7.10 ANNUITY CONTRACTS. Any annuity contract
distributed under this Plan must be nontransferable.
The terms of any annuity contract purchased and
distributed by the Plan to a Participant or Spouse
shall comply with the requirements of this Plan. The
Custodian will not issue annuity contracts. The Plan
Administrator shall be responsible for the purchase of
any annuity contracts required to be distributed under
the terms of this Plan. The Custodian shall pay over
the amount required to purchase such annuity contract
to the Plan Administrator or directly to the annuity
issuer designated by the Plan Administrator, as
directed by the Plan Administrator in written
instructions to the Custodian.
7.11(a) DIRECT ROLLOVER ELECTION. This Section
applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect,
at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an eligible
rollover distribution paid directly to an eligible
retirement plan specified by the distributes in a
direct rollover.
(b) DEFINITIONS.
(i) ELIGIBLE ROLLOVER DISTRIBUTION: An
eligible rollover distribution is any distribution
of all or any portion of the balance to the credit
of the distributee, except that an eligible
rollover distribution does not include: any
distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or
life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the
distributes and the distributee's designated
beneficiary, or for a specified period of ten
years or more; any distribution to the extent such
distribution is required under Section 401(a)(9)
of the Code; and the portion of any distribution
that is not includible in gross income (determined
without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(ii) ELIGIBLE RETIREMENT PLAN: An eligible
retirement plan is an individual retirement
account described in Section 408(a) of the Code,
an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the
Code, that accepts the distributee's eligible
rollover distribution However, in the case of an
eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an
individual retir~ ment account or individual
retirement annuity.
(iii) DISTRIBUTEE: A distributee includes an
employee or former employee. In addition, the
employee's or former employee's surviving spouse
and the employee's or former employee's spouse or
former spouse who is the alternate payee under a
qualified domestic relations order, as defined in
Section 414(p) of the Code, are distributees with
regard to the interest of the spouse or former
spouse.
(iv) DIRECT ROLLOVER: A direct rollover is a
payment by the Plan to the eligible retirement
plan specified by the distributee.
SECTION B
PLAN ADMINISTRATOR
(a) The Plan Administrator shall be the
Employer unless the Employer has designated another
person or business entity as the Plan Administrator under
paragraph 6 of the Participation Agreement. A designated
Plan Administrator may resign at any time by filing a
written notice of resignation with the Employer and may
be removed at any time by the Employer. In the event of a
vacancy in the office of Plan Administrator, the Employer
may appoint a successor, in which event, the Employer
shall notify the Custodian of the change in the office of
Plan Administrator by delivering a signed and completed
copy of an amended Participation Agreement to the
Custodian prior to the end of the Plan Year for which
such change is effective. The Custodian shall be
protected in acting upon the directions of the Plan
Administrator designated in the most recent Participation
Agreement of the Employer filed with the Custodian until
receipt of the amended Participation Agreement giving
notice of the change in Plan Administrator.
(b) The Plan Administrator shall
administer the Plan in accordance with its terms and
shall have all powers necessary to effectuate the
provisions of the Plan. The Plan Administrator shall
interpret the Plan and determine all questions arising in
the administration, interpretation and application of the
Plan, and shall, from time to time, formulate and issue
such rules and regulations as may be necessary for the
purpose of administering the Plan. Any determination,
rule or regulation issued by the Plan Administrator shall
be conclusive and binding on all persons, except as may
otherwise be provided herein.
(c) Except as may otherwise be provided,
whenever under the provisions of the Plan the Employer
shall have authority right or power to act, such action
shall be evidenced by a written document signed by the
Plan Administrator. The Plan Administrator shall have the
authority to give to the Custodian, in writing, any other
notice or direction permitted by the terms of the Plan,
and the Custodian shall be entitled to rely upon such
writing until such time as the Plan Administrator shall
file a written revocation of the notice or direction with
the Custodian.
(d) The Plan Administrator shall keep a
record of all his actions, and shall keep such books of
account, records and other data as may be necessary for
the proper administration of the Plan. The Plan
Administrator shall notify the Custodian and the Employer
of any action taken and, when required, shall notify any
other interested person or persons.
(e) The Plan Administrator shall timely
file, or cause to be timely filed, all annual reports,
financial and other statements as may be required of the
Plan Administrator by any federal or state statute,
agency or authority. The Plan Administrator shall timely
furnish, or cause to be furnished, all such reports,
statements and other documents as may be required by any
federal or state statute, agency or authority to be
furnished by the Plan Administrator to any Participant,
Beneficiary or interested party.
(f) The Plan Administrator shall have the
authority to accept service of process on behalf of the
Plan.
(g) If the Plan Administrator is an
Employee, he shall not be compensated.
(h) In the event of the death of a sole
proprietor Employer who was serving as Plan
Administrator, the estate of the sole proprietor shall be
deemed the Plan Administrator. In the event of the
dissolution of a partnership Employer that was serving as
Plan Administrator, the remaining ex-partners shall
collectively be deemed the Plan Administrator.
SECTION 9
FIDUCIARY DUTIES AND RESPONSIBILITIES
9.1 All fiduciaries shall discharge their duties
with respect to the Plan and/or Trust solely in the interest
of the Participants and Beneficiaries; for the exclusive
purpose of providing benefits to participating Employees and
their Beneficiaries, and defraying reasonable expenses of
administering the Plan and/or Trust; with the care, skill,
prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity
and familiar with such matters would use; and in accordance
with the Plan documents and instruments insofar as such
documents and instruments are consistent with the provisions
of the Self-Employed Individuals Retirement Act of 1962, and
the Employee Retirement Income Security Act of 1974, and any
acts amendatory thereof.
9.2 To the extent that a fiduciary may be relieved
of liability under Section 410(a) of ERISA for breach of any
responsibility, obligation or duty provided for by Title I,
Part 4 of ERISA, no fiduciary shall be liable for any action
or failure to act hereunder, except for bad faith, willful
misconduct or gross negligence. To the extent that a
fiduciary may be relieved of liability under Section 410(a)
of ERISA for a breach by another fiduciary of any
responsibility, obligation or duty provided for by Title I,
Part 4 of ERISA, no fiduciary shall be liable for a breach
committed by any other fiduciary unless the fiduciary:
(a) Knowingly participated in or knowingly
concealed a breach by such other fiduciary;
(b) By its failure to comply with the
fiduciary duties set out in Section 9.1, it has enabled
such other fiduciary to commit a breach; or,
(c) It has failed to make reasonable
efforts under the circumstances to remedy the breach of
another fiduciary of which it has knowledge.
To the same extent, no fiduciary shall be
personally liable for the acts or omissions of any
attorney or agency employed by the fiduciary hereunder,
if such attorney or agent shall have been selected with
reasonable care.
SECTION 10
CLAIMS PROCEDURE
10.1 If an Employee, or his Beneficiary
shall make a claim for Benefits under the Plan, the clain
shall be referred to the Plan Administrator for
resolution. Within thirty (30) days after receipt of a
claim the Plan Administrator shall render a written
decision concerning the merits of the request If the
claim is denied, the written decision shall set forth:
(a) The specific reason or reasons for the
denial;
(b) Specific reference to pertinent Plan
provisions on which the denial is based;
(c) A description of any additional
material or information; and
(d) An explanation of the Plan's claim
review procedure.
If a claimant is not furnished a written decision
containing such information within thirty (30) days, the
claim shall be deemed denied and automatically proceed to
the review stage.
10.2 The claimant may file a written
request with the Plan Administrator for a review of the
decision rendered under paragraph 10.1 within sixty (60)
days after receiving a written decision denying the
claim, or, if no written decision is rendered, within
ninety (90) days after filing the claim. The claimant may
review pertinent Plan documents prior to such request,
and submit written issues and comments. The Plan
Administrator shall render a written decision within
thirty (30) days after receipt of the request for review,
setting forth the specific reasons for the decision in
language calculated to be understood by the claimant,
with specific reference to the pertinent Plan provisions
on which the decision is based.
SECTION 11
AMENDMENT AND TERMINATION
11.1 The Plan may be amended at anytime by the Board of
Directors of Nicholas Company, Inc., provided that no such
amendment shall be effective which shall cause or permit:
(a) Any portion of the assets held by the
Custodian to be diverted to purposes other than for the
exclusive benefit of the Participants or their
Beneficiaries; or
(b) Any portion of such assets to revert to or to
become the property of the Employer.
No such amendment shall take effect until at least
ten (10) days after the mailing of notice by regular mall to
the last known address of each Employer affected thereby.
11.2 The Employer may (a) change the choice of options
in the Participation Agreement for any Plan Year by
delivering a signed and completed copy of such amended
Participation Agreement to the Custodian prior to the end of
such Plan Year, (b) add overriding language in the
Participation Agreement when such language is necessary to
satisfy Section 415 or Section 416 of the Code because of
the required aggregation of multiple plans, and (c) add
certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will
not cause the Plan to be treated as individually designed.
An Employer that amends the Plan for any other reason,
including a waiver of the minimum funding requirement under
Section 412(d) of the Code, will no longer participate in
this Master Plan and will be considered to have an
individually designed plan.
11.3 No amendment to the Plan or the Participation
Agreement shall be effective to the extent that it has the
effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's
account balance may be reduced to the extent permitted under
Section 412(c)(8) of the Code. For purposes of this
paragraph, a Plan amendment which has the effect of
decreasing a Participant's account balance or eliminating an
optional form of benefit, with respect to benefits
attributable to service before the amendment shall be
treated as reducing an accrued benefit. Furthermore, if the
vesting schedule of the Plan is amended, in the case of an
Employee who is a Participant as of the later of the date
such amendment is adopted or the date it becomes effective,
the nonforfeitable percentage (determined as of such date)
of such Employee's right to his Employer-derived accrued
benefit will not be less than his percentage computed under
the Plan without regard to such amendment.
11.4 If the Plan's vesting schedule is amended, or the
Plan is amended in any way that directly or indirectly
affects the computation of the Participant's nonforfeitable
percentage, each Participant with at least 3 Years of
Service with the Employer may elect, within a reasonable
period after the adoption of the amendment or change, to
have the non-forfeitable percentage computed under the Plan
without regard to such amendment or change. For Participants
who do not have at least 1 Hour of Service in any Plan Year
beginning after December 31, 1988, the preceding sentence
shall be applied by substituting "5 Years of Service" for "3
Years of Service" where such language appears.
The period during which the election may be made shall
commence with the date the amendment is adopted or deemed to
be made and shall end on the latest of:
(1) 60 days after the amendment is adopted;
(2) 60 days after the amendment becomes effective; or
(3) 60 days after the Participant is issued written
notice of the amendment by the Employer or Plan
Administrator.
11.5 The Employer shall have the right to terminate the
Plan upon sixty (60) days notice in writing to the
Custodian. The Plan shall automatically terminate on the
death of the Employer, if the Employer is a sole proprietor,
or upon the termination of the partnership, if the Employer
is a partnership, unless provision is made by a successor to
the business of the Employer for the continuation of the
Plan.
11.6 Upon termination of the Plan, all assets held by
the Custodian shall be distributed as soon as is
administratively feasible to the Participants pursuant to
the provisions of Section 7 hereof.
SECTION 12
TRANSFERS TO AND FROM OTHER QUALIFIED PLANS
12.1 The Employer may cause to be transferred in cash
to the Custodian the assets held (whether by a trustee,
Custodian, or otherwise) in respect of any other self-
employed retirement plan which satisfies the applicable
requirements of the Internal Revenue Code and which is
maintained by the Employer for the benefit of any of the
Participants. Any cash so transferred shall be accompanied
by written instructions from the Plan Administrator naming
the persons for whose benefit such cash has been transferred
and showing separately the respective contributions by the
Employer and by the Participants and the amount of cash
attributable thereto.
12.2 Upon receipt of any cash transferred to it
pursuant to Section 12.1, the Custodian shall immediately
invest such moneys in designated whole or fractional
Investment Company Shares and, in accordance with the
instructions of the Plan Administrator, make appropriate
credits to the accounts of the persons for whose benefit
such cash has been transferred. Provided, however, the
Employer may not cause to be transferred to this Plan and
credited to the Profit Sharing Plan Account Balance(s) of
Participants any assets held in respect of any retirement
plan which is a defined benefit plan, money purchase plan
(including a target benefit plan), stock bonus, or profit
sharing plan which is subject to the survivor annuity
requirements of Sections 401(a)(11) and 417 of the Code.
Provided further that the Plan Administrator shall not
permit any transfer to this Plan, and no transaction
amending or having the effect of amending a plan or plans to
transfer benefits to this Plan shall be permitted, if such
transfer or similar transaction would result in elimination
or reduction of: any benefits described in Section
411(d)(6)(A) of the Code; any early retirement benefits or
retirement-type subsidies described in Section
411(d)(6)(B)(i) of the Code; or any optional forms of
benefit described in Section 411(d)(6)(B)(ii) of the Code.
The preceding sentence shall not apply to the extent that
any such benefits have not accrued or that elimination or
reduction of such benefits would be permitted by applicable
regulations under the Code. Any amounts so credited as
contributions previously made by the Employer or by such
persons under such other Plan, as specified by the Plan
Administrator, shall be treated as contributions previously
made under the Plan by the Employer or by such persons, as
the case may be. Transferred amounts representing
accumulated deductible employee contributions within the
meaning of Section 72(o)(5)(B) of the Code shall be credited
to a separate ADEC Rollover Account as described in Section
4.6.
12.3 The Employer may request the Custodian to transfer
Plan assets held by the Custodian to itself or any bank as
Custodian or trustee of any other plan maintained by the
Employer which satisfies the requirements of the Internal
Revenue Code, provided that such transfer is permitted by
such other plan and the Custodian is provided with (a) a
letter of direction signed by the Owner or all partners
directing the transfer of Plan assets, which letter shall
indicate the name of the successor trustee or Custodian and
verify that a new qualified plan has been established with
such successor; (b) a signed acceptance by the successor
Custodian or trustee of the new plan verifying that the plan
is a qualified retirement trust and indicating the date of
qualification and Internal Revenue Service qualification
number; and (c) such other information as the Custodian may
require.
12.4 In the event of a merger or consolidation with, or
transfer of assets or liabilities to, any other plan, each
Participant shall, if the plan then terminates, receive a
benefit immediately after the merger, consolidation or
transfer, which is equal to or greater than the benefit the
Participant would have been entitled to receive immediately
before the merger, consolidation or transfer, assuming that
the plan had then terminated.
SECTION 13
MISCELLANEOUS
13.1 Neither the establishment of the Plan, including
the execution of the Custodial Agreement and the
Participation Agreement, nor any modification or amendment
thereof, nor the creation of any fund or account, nor the
payment of any benefit, shall be construed as giving to any
Participant or other person any legal or equitable right
against the Employer or the Custodian except as herein
provided; and in no event shall the terms of employment of
any Participant be modified or enlarged or in any way
affected hereby.
13.2 The benefits provided hereunder shall not be
subject to any voluntary or involuntary alienation,
assignment, garnishment, attachment, execution or levy of
any kind, and any attempt to cause such benefits to be so
subjected shall not be recognized. The preceding sentence
shall also apply to the creation, assignment, or recognition
of a right to any benefit payable with respect to a
Participant pursuant to a domestic relations order, unless
such order is determined by the Plan Administrator to be a
"qualified domestic relations order," as defined in Section
4l4(p) of the Code or is a domestic relations order entered
before January 1985.
13.3 The masculine gender wherever used in this Plan
shall include the feminine as well; the singular shall
include the plural, and the plural the singular wherever
appropriate for the proper interpretation of this Plan.
13.4 This Plan shall be construed, administered and
enforced according to the laws of the State of Wisconsin
where not superseded by federal law. In the event of a
conflict between the terms of this Plan and those of the
Custodial Agreement, the former shall prevail.
SECTION 14
EFFECTIVE DATE
This Plan, as amended, is declared effective commencing
with the Plan Year commencing January 1, 1989, subject to
the Employer obtaining a determination from the Internal
Revenue Service ("IRS") that the Plan and its supporting
documents meet the requirements for qualification contained
in the Code (unless the Employer is permitted by applicable
IRS rulings or procedures to rely on the IRS opinion letter
approving the form of this master Plan without obtaining a
determination with respect to the Employer's plan). If the
Employer's plan fails to attain or retain qualification,
such plan will no longer participate in this master plan and
will be considered an individually designed plan.
NICHOLAS MASTER RETIREMENT PLAN
FOR SELF-EMPLOYED INDIVIDUALS
CUSTODIAL AGREEMENT
SECTION 1. PURPOSE AND APPLICATION OF AGREEMENT
The purpose of this Custodial Agreement is to provide for
the receipt of contributions made under the Nicholas
Master Retirement Plan for Self-Employed Individuals
hereinafter "Plan") and the investment of the
contributions and the earnings thereon in Investment
Company Shares for the exclusive benefit of the
Participants in said Plan.
SECTION 2. DEFINITIONS.
All terms defined in the Plan shall have the same meaning
when used in the Custodial Agreement unless the contrary
is specifically expressed or the context clearly
indicates otherwise.
SECTION 3. PARTICIPANTS' ACCOUNTS.
The Custodian shall open and maintain the following
accounts for each individual as the Plan Administrator
shall from time to time certify to the Custodian as a
Participant in the Plan:
(a) a Profit Sharing Account which shall consist of
that portion of all contributions of the Employer
under the Employer's Profit Sharing Plan
Participation Agreement allocated to the Participant,
and earnings thereon;
(b) a Money Purchase Plan Account which shall
consist of that portion of all contributions of the
Employer under the Employer's Money Purchase Plan
Participation Agreement allocated to the Participant,
and earnings thereon;
(c) a Voluntary Contribution Account for the
voluntary contributions made by the Participant and
earnings thereon; and
(d) a Rollover Contribution Account or ADEC Rollover
Account for any rollover contributions of a
Participant as described in Section 4.6 of the Plan,
and earnings thereon.
SECTION 4. RECEIPT AND INVESTMENT OF CONTRIBUTIONS.
4.1 All contributions shall be made only by or
through the Employer. Notwithstanding the preceding
sentence, rollover contributions as described in Section
4.6 of the Plan may be transferred directly to the
Custodian from the distributing plan. All contributions
shall be in cash. Each Participant shall direct the Plan
Administrator as to the specific Investment Company
Shares to be purchased with such contributions.
4.2 All contributions shall be in accordance
with the terms of the Plan and shall be accompanied by
signed written instructions from the Plan Administrator
to the Custodian indicating the amount thereof which is
to be allocated to each Participant's Account and any
portion thereof which is the Participant's voluntary
contribution. In addition, each set of such instructions
shall designate for each Participant the Investment
Company(ies) in which the Participant has directed the
Plan Administrator to cause the contribution made by or
on behalf of the Participant to be invested.
4.3 In the event that the Custodian in its sole
discretion shall determine that the Plan Administrator's
instructions are inadequate, the Custodian may return the
contribution to the Plan Administrator without any
liability Immediately upon receipt of contributions by or
on behalf of a Participant, the Custodian shall invest
such contributions in whole or fractional Shares of the
Investment Company designated by the Plan Administrator,
pursuant to the direction of the Participant, at the
price and in the manner in which such Shares are then
being publicly offered by the Investment Company, which
shares shall then be appropriately credited to the
Participant's Account. All distributions received on
Investment Company Shares held in a Participant's Account
shall be reinvested in such Shares and credited to such
Participant's Account. If any distribution of Investment
Company Shares may be received at the election of the
shareholder in additional shares or in cash or other
property the Custodian shall elect to receive such
distribution in additional Investment Company Shares.
4.4 The minimum initial contribution which the
Custodian shall be required to accept with respect to
either the Profit Sharing Plan or the Money Purchase Plan
shall be $500 per Participant if either the Nicholas Fund
or Nicholas Income Fund is designated as the Investment
Company, $1,000 per Participant if Nicholas II is
designated as the Investment Company, and $2,000 per
Participant if Nicholas Limited Edition, Inc. is
designated as the Investment Company. The minimum
contribution which the Custodian shall thereafter be
required to accept shall be $100 per Participant.
SECTION 5. DISTRIBUTIONS.
Distributions and repayments shall be made only
as authorized or required by the Plan. The Custodian
shall make such distributions on the basis of information
supplied in writing by the Plan Administrator and shall
be fully protected in so doing.
SECTION 6. BENEFICIARY DESIGNATION.
If a Participant, as permitted by the Plan,
designates a beneficiary to receive any undistributed
balance of the Participant's Account(s) on the
Participant's death, the Plan Administrator shall file
such designation with the Custodian. In the absence of an
effective designation so filed, any such undistributed
balance shall, on the Participant's death, be paid
pursuant to Section 7.5 of the Plan.
SECTION 7. RELIANCE UPON RECORDS, CERTIFICATES, ETC.
7.1 Notices and communications from the Plan
Administrator or Employer to the Custodian shall be
considered to have been made only upon delivery to the
main office of the Custodian in Milwaukee, Wisconsin. All
notices and other communications from the Custodian to
the Employer, the Plan Administrator or any Participant
shall be considered sufficient if mailed by regular first
class mail (unless other- wise required herein) to the
Employer's last address as listed on the Custodian's
records.
7.2 The Custodian may rely upon any affidavit,
certificate, letter, notice, telegram or other paper or
document believed by it to be genuine, and upon any
evidence believed by it to be sufficient, and it shall
not be liable for any payment made hereunder if made in
good faith and without actual notice or knowledge of any
fact which would make such payment improper. The
Custodian may rely upon any instructions received from
the Plan Administrator and may conclusively presume,
without any duty to inquire, that all instructions of the
Plan Administrator regarding specific Investment Company
Shares to be purchased for a Participant's Account(s)
reflect the directions of such Participant in accordance
with the Plan.
7.3 The Custodian shall be under no duty to
examine the records of the Employer to determine the
accuracy thereof or whether any certification has been or
should have been made, or the accuracy of any information
which shall have been received from the Plan
Administrator or Employer, or whether any contribution
under the Plan has been properly determined by the
Employer, nor shall the Custodian have any duty or
responsibility to enforce contributions.
7.4 The Custodian shall not be liable for any
action taken upon any certification or direction of the
Plan Administrator or Employer, or for acting upon any
written notice, certification or other document or
writing believed by it to be genuine and to have been
signed and delivered by proper person or persons. The
Custodian shall be under no duty to make any
investigation or inquiry as to statements contained in
any such notice, certification or other document in
writing, and may accept the same as conclusive evidence
of the truth and accuracy of the statements therein
contained but, in its sole and absolute discretion, the
Custodian may require such further or additional evidence
as to it may seem reasonable.
7.5 The approval by the Employer of any report
or accounting by the Custodian, including but not limited
to an account by any resigned or removed Custodian, shall
be a complete release and discharge of the Custodian or
of such resigned or removed Custodian (as the case may
be), if not prohibited by section 410(a) of ERISA, and
shall be binding upon all Participants and all persons
claiming under them. No successor Custodian shall be in
any way liable or responsible for anything done or
omitted in the administration of the Participant's
Accounts prior to the date it becomes a Custodian.
Anything herein to the contrary notwithstanding, the
Employer shall be without power to approve any action
taken by the Custodian which is in contravention of any
of the terms or provisions of the Plan or Custodial
Agreements.
SECTION 8. ACCOUNTING, RECORDS AND RETURNS.
8.1 Within 90 days after the close of each Plan
Year or the date of its removal or resignation, the
Custodian shall file with the Employer an account of its
administration of all transactions hereunder during the
preceding year or from the close of the last Plan Year to
the date of removal or resignation. If the Employer or
the Plan Administrator has not objected to any accounting
by the Custodian within 90 days of receipt thereof, such
accounting shall be deemed to have been approved by the
Employer and the Plan Administrator. All transactions
hereunder shall be recorded by the Custodian in records
open to inspection by the Employer or persons designated
by the Employer.
8.2 The Custodian shall file with the Internal
Revenue Service such returns and other information
required of it pursuant to the Internal Revenue Code.
8.3 The Custodian shall mail to the Employer
all notices, prospectuses, financial statements, proxies
and proxy soliciting material relating to Investment
Company Shares held hereunder, which notices, etc. shall
be distributed by the Plan Administrator to the
appropriate Participants.
SECTION 9. COMPENSATION OF THE CUSTODIAN.
The Custodian shall receive compensation for
its services hereunder in accordance with the current
schedule of rates as agreed to between Nicholas Company,
Inc. and the Custodian.
SECTION 10. RESIGNATION AND REMOVAL OF THE CUSTODIAN.
10.1 The Custodian may resign by giving written
notice to Nicholas Company, Inc. by certified or
registered mail, which resignation shall be effective no
less than sixty (60) days after receipt by Nicholas
Company, Inc. of such notice, unless otherwise agreed by
the Custodian and Nicholas Company, Inc. In the event of
resignation by the Custodian, Nicholas Company, Inc.
shall amend the Plan in accordance with Section 11.1 of
the Plan and create a new trust or other funding vehicle
within sixty (60) days after receipt of the notice of
resignation. Should Nicholas Company, Inc. fail so to
act, the Plan shall terminate and the Participant's
Accounts shall be distributed in accordance with Section
11.5 of the Plan.
10.2 The Board of Directors of Nicholas
Company, Inc. may remove the Custodian by giving written
notice by certified or registered mail, which removal
shall be effective no less than sixty (60) days after
receipt by the Custodian of such notice, unless otherwise
agreed by the Custodian and Nicholas Company, Inc. In the
event of removal of the Custodian, Nicholas Company, Inc.
shall amend the Plan in accordance with Section 11.1 of
the Plan and create a new trust or other funding vehicle
within sixty (60) days after the Custodian's receipt of
the notice of removal. Should Nicholas Company, Inc. fall
so to act, the Plan shall terminate and the Participant's
Accounts shall be distributed in accordance with Section
11.5 of the Plan.
SECTION 11. CONCERNING THE CUSTODIAN.
11.1 The Custodian need not engage in
litigation unless first indemnified against expense by
the Employer or unless the litigation is occasioned by
the fault of the Custodian or involves a question of its
fault.
11.2 Nothing contained in the Plan, either
expressly or by implication, shall be deemed to impose
any powers, duties or responsibilities on the Custodian
other than those set forth in this Agreement The
Custodian shall be under no duty to take any other
action unless the Employer or Plan Administrator shall
furnish the Custodian with instructions in proper form
and such instructions shall have been specifically
agreed to by the Custodian in writing.
11.3 The Employer shall have the sole authority
to enforce this Agreement on behalf of any and all
persons having or claiming any interest in the
Participant's Account(s) by virtue of the Custodial
Agreement or Plan. To protect the Participant's
Account(s) from expenses which might otherwise be
incurred, it is imposed as a condition to the acquisition
of any interest in the Participant's Account(s), and it
is hereby agreed, that no person other than the Employer
may institute or maintain any action or proceeding
against the Custodian in the absence of written authority
from the Employer or a determination of a court of
competent jurisdiction that in refusing such authority
the Employer has acted fraudulently or in bad faith
11.4 The Custodian shall have the following
specific powers:
(a) To hold securities in its name or the name of a
nominee;
(b) To employ suitable agents or counsel;
(c) To continue to have the powers granted under
this Agreement until final distribution of assets
regardless of termination of the Plan or Custodial
Agreements; and
(d) To act in any jurisdiction without bond unless
otherwise required by law.
SECTION 12. RULES AND REGUMTIONS.
The Custodian shall, from time to time, formulate and
issue such rules and regulations as it may deem necessary
for the purpose of its administration of the Plan, but no
such rule or regulation shall be effective which shall
attempt to divest any Participant from any beneficial
interest or right accruing to him under the terms hereof,
or which shall attempt to vest in the Employer at any
time any property rights in or to funds or property held
by the Custodian.
SECTION 13. AMENDMENT
The Custodian may with the approval of Nicholas Company,
Inc. amend the provisions of this Custodial Account at
any time. Amendments may be retroactive, and may be
applicable to existing as well as future Custodial
Agreements of which this Custodial Agreement is a part,
but no amendment, whether or not retroactive, shall take
effect until ten (10) days subsequent to the mailing of
notice thereof by the Custodian to each Employer, if any,
whose Custodial Agreement will be affected thereby.
EXHIBIT B
NICHOLAS MASTER RETIREMENT PLAN
GENERAL INFORMATION
In 1962, the Federal Government established the
Self-Employed Individual Tax Retirement Act. It is
commonly called the Keogh Act in honor of the sponsor.
The purpose of the Act is to help self-employed
individuals provide for their own retirement by
establishing retirement plans. Your yearly contributions
to a Keogh plan are a tax deductible expense, and the
earnings of the fund accumulate tax-free until
retirement.
The Nicholas Master Retirement Plan for Self-
Employed Individuals includes two types of plans - a
profit sharing plan allowing a flexible rate of
contributions from year to year, and a money purchase
plan requiring the same fixed rate of contributions each
year. You can adopt either or both plans. If you adopt
both, you will be considered as having two Keogh plans.
The Nicholas Company, Inc. provides you with
IRS approved master plan documents (consisting of the
Basic Plan Document Number 01 and the Participation
Agreement or Agreements you complete and sign), and also
provides professional investment management through the
Nicholas Family of Mutual Funds.
You are responsible for administering the plan
or plans you adopt in accordance with the terms of the
plan documents and applicable laws and regulations, and
for preparing any notices, descriptions, elections,
consents, beneficiary designations, reports or similar
materials that may be required in the course of
administering your plan(s). Failure to operate your
plan(s) in accordance with the master plan documents may
result in disqualification of your plan(s) by the IRS,
even though the IRS has approved the master plan
documents. You should work in close consultation with
your own professional advisors in adopting and
administering a plan or plans.
The following questions and answers address
questions that are frequently asked about Keogh plans.
Many facets of life have their own "language"
and Keogh plans are no exception. A complete
understanding of the terms and definitions of Keogh plans
is necessary Defined terms used in the following
"question and answer section" and the other Keogh
documents are explained in Section 2 of the Nicholas
Master Retirement Plan for Self-Employed Individuals.
Please refer to these definitions frequently as you read
this.
I. GENERAL
(1) WHO MAY ESTABLISH A KEOGH PLAN?
Incorporated businesses cannot establish a
Nicholas Plan. Generally, anyone who receives income for
personal services in an unincorporated business may do
so. Examples include persons running small commercial or
industrial unincorporated businesses and professional
people in private practice. Eligibility in some
situations can be more difficult to determine. Many
individuals who work with a company, such as
manufacturers' representatives, may still be considered
self-employed and eligible for a Keogh plan on their own.
Another example would be that some real estate agents are
deemed independent contractors even though they work for
a realtor organization. Where there is a question, your
tax adviser or the IRS can usually clarify the situation
quickly.
Many people who work for corporations engage in
part-time work for themselves and may set up a Keogh plan
for that portion of their income.
(2) DO ALL YOUR EMPLOYEES HAVE TO BE COVERED?
All regular "employees" and "non-owner
partners" must be covered subject to the conditions noted
below These people may not exclude themselves from
coverage.
(a) You may establish a waiting period of up to two years
of service before entering the plan. You may establish a
minimum age requirement for participation, but the minimum
age may not be later than age 21. All owners must satisfy
the same waiting period as their employees.
(b) Part-time employees do not have to be covered. For
example, a person who never works over 1,000 hours in a year
may be considered a part-time employee. If 1,000 hours is
established as the cutoff point, owners will not get credit
for a "year of service" if they do not accumulate 1,000
hours of service. The cutoff point for a year of service can
be set lower than 1,000 hours, but not higher. Refer to
paragraph 3(b) of the Participation Agreement.
(3) MUST ALL "OWNERS" BE COVERED?
All employees, including owner-employees, must
be covered by the same rules governing participation.
(4) HOW MUCH MAY BE CONTRIBUTED ON BEHALF OF
PARTICIPANTS UNDER A KEOGH PLAN?
An owner who maintains one or more Keogh plans
for his business or who maintains a defined contribution
plan may contribute up to the lesser of 25% of
compensation or $30,000 for each participant. The maximum
deductible contribution to any profit sharing plan,
however, is 15% of compensation, not counting
compensation in excess of $150,000. (The $30,000 and
$150,000 limits are subject to cost of living increases
announced by the IRS from time to time. See your tax
adviser for further information on the applicable
limits.)
You should be aware that the percentage
limitation on the deductible contribution must be
computed for owners by reducing the owner's compensation
by the amount of the contribution made by the employer on
behalf of the owner to the Plan (or any other qualified
plan) and also by the amount of any self-employment tax
deduction. The formula to determine the dollar amount of
your contribution is to multiply the percentage of
compensation you want to contribute within the above
limits by the following amount: [Your Net Profits minus
1/2 Self-Employment Tax] divided by [1 + Your Desired
Contribution Percentage]. Please consult your tax adviser
to determine the exact amount of the maximum deductible
contribution you may make each year.
Only the first $150,000 of earned income or compensation
is considered under the Nicholas Plan in determining
contributions. The $150,000 limit applies, in many cases,
to the combined compensation of the owner and any spouse
or children who are also employed by the business.
Part-time, self-employed persons can also
contribute to a Keogh plan subject to the above limits.
It is recommended that the part-time, self-employed
consult their tax advisers before making any
contributions.
The percentage contributed for your employees
is determined by the formula of your plan. You must
contribute to each employee no less of a percentage than
you contribute for yourself.
(5) WHAT IS A PARTICIPANT'S "COMPENSATION"?
For owners, "compensation" means the owner's
earned income (see Section 2(h) of the Plan). In
determining earned income, any deductible contributions
made by the employer on behalf of the owner to this Plan
or any other qualified plan, and any deduction allowed to
the employer for self-employment taxes, must be
subtracted from the total earnings of the owner.
For other participants, "compensation" will
mean either W-2 earnings or "compensation" as defined in
Section 415(c)(3) of the Internal Revenue Code. You must
select the applicable definition in the Participation
Agreement.
IRS regulations identify W-2 compensation as
compensation received by the employee from the employer
that is required to be reported as wages on the
employee's Form W-2 for income tax purposes. Section
415(c)(3)(A) of the Internal Revenue Code defines
"compensation" for any year to mean "the compensation of
the participant from the employer for the year." IRS
regulations specify that Section 415(c)(3)(A)
compensation does not include: contributions to a
deferred compensation plan that are not taxable to the
employee in the year of contribution; amounts realized
upon the exercise of a non-qualified stock option;
amounts realized upon the sale of stock acquired under a
qualified stock option; other amounts that receive
special tax benefits (such as group term life insurance
premiums or amounts realized when restricted property is
no longer subject to a risk of forfeiture); or
distributions from a deferred compensation plan (whether
or not includable in the employee's gross income).
You must also elect in the Participation
Agreement whether "compensation" will include or exclude
contributions made pursuant to a salary reduction
agreement and which are not includable in the employee's
gross income because of Code Sections 125 [cafeteria
plans], 402(a)(8) [now 402(e)(3), cash or deferred
arrangements], 402(h) [SEPs] or 403(b) [tax-deferred
annuities].
Employers should consult their tax advisers
regarding which definition of "compensation" is most
suitable to them.
(6) AM I LOCKED INTO THE SAME ANNUAL CONTRIBUTION EACH
YEAR?
The annual contribution percentages to the
profit sharing plan may be changed by the employer to
allow for changes in business conditions. If you wish to
change your annual contribution percentage to the profit
sharing plan, you must submit an amended Participation
Agreement to the custodian. Fluctuations in annual
contributions must not discriminate in favor of owners or
be used as an income averaging device by owners.
The annual contribution percentage to the money purchase
plan may not be varied from year to year because that may
adversely affect the plan's tax status.
(7) WHAT ABOUT EMPLOYERS WITH OTHER KEOGH PLANS OR OTHER
EMPLOYEE BENIFT PLANS?
Generally, limits on contributions apply to the
sum of all plans maintained by a single employer. Please
refer to Sections 6.2, 6.3 and 6.4 of the Nicholas Master
Retirement Plan for Self-Employed lndividuals. Employers
in the situation described in Sections 6.3 or 6.4 of the
Plan should consult their tax advisers regarding proper
allocation to more than one Keogh plan.
(8) HOW LONG MAY CONTRIBUTIONS BE MADE ON BEHALF OF AN
OWNER?
The owner may continue to make contributions to
the plan as long as he continues to work.
(9) WHAT BENEFITS IS AN EMPLOYEE ENTITLED TO RECEIVE IF
HE LEAVES THE EMPLOYER?
The Nicholas Plan provides that the account of
a participant is 100% "vested" at all times (i.e.,
nonforfeitable, whether or not he continues to work for
the employer). Consequently, a participant who leaves the
employer would be entitled to receive 100% of his or her
account.
(10) WHEN CAN THE PAYMENT OF BENEFITS BEGIN?
Payment of benefits generally may begin when a
participant's employment terminates (including retirement
or death). However, the participant and, in some cases,
the participant's spouse, must sign a written consent to
any payment of benefits before the participant reaches
age 62 or, if later, the normal retirement age you
specify in the participation agreement
A 10% additional tax (in addition to regular
income taxes) is imposed on distributions before a self-
employed participant reaches age 59-1/2, unless the
participant makes a tax-free rollover or in situations
where certain other limited exceptions apply. See
question (12) for more information on rollovers.
Generally, benefit distribution for all
participants must begin by the April 1 following the
calendar year in which the participant reaches age 70-
1/2. For participants who attained age 70-1/2 before
January 1, 1989, special rules apply. Please consult
your tax adviser and Section 1.401(a)(9) of the Proposed
Income Tax Regulations concerning the timing and amount
of any required minimum distributions.
(11) HOW MAY DISTRIBUTIONS BE MADE?
In the case of married participants in the
money purchase plan who die prior to the commencement of
benefits, distributions from the money purchase plan must
be made to the participant's surviving spouse in the form
of a pre-retirement survivor annuity unless the married
participant makes a qualified election to have benefits
distributed in an optional form.
In addition, retirement benefits to a married
participant in the money purchase plan must be paid in
the form of a qualified joint and survivor annuity and in
the form of a life annuity to an unmarried participant,
unless the participant makes a qualified election to have
benefits distributed in an optional form.
Distributions from the profit sharing plan to a
participant or his beneficiary may be made in a single
payment or in installments.
If a participant dies before his entire
interest in the profit sharing plan is distributed to
him, his remaining interest may have to be distributed
within five (5) years. The five-year rule may also apply
to post-death distributions from the money purchase plan,
if the participant was single or made a qualified
election not to have benefits paid as a pre-retirement
survivor annuity. Please refer to Section 7.9(e) of the
Plan for additional details.
The plan administrator (see question (24)) is
responsible for making sure that distributions comply
with the consent procedures and other requirements and
restrictions described in Section 7 of the Plan.
(12) HOW IS THE DISTRIBUTION TAXED?
Unless part of your distribution has resulted
from assets transferred to the Nicholas Master Retirement
Plan for Self-Employed Individuals from an older plan,
all distributions are taxed as ordinary income.
If the entire amount is paid in one year it is
considered ordinary income. Participants who turned 50
before January 1, 1986 may elect a form of ten-year
averaging. Other participants may be eligible to elect a
special five-year forward averaging for lump sum
distributions however, a distribution before age 59-1/2
to a self-employed individual on account of separation
from service does not qualify). Distributions taken in
installments are taxed as ordinary income as received.
Distributions generally are subject to
mandatory 20% withholding for federal income taxes.
Participants can avoid this withholding and defer taxes
by electing to have the distribution paid directly to the
trustee or custodian of an IRA or of another retirement
plan that accepts rollovers. This type of transaction is
sometimes called a "Direct Rollover." The plan
administrator (see question (24)) is required to provide
a written explanation of the mandatory withholding and
direct rollover rules before the distribution is made.
Please consult your tax adviser before a
distribution is made to review the alternatives and the
tax. Be particularly careful if you made any
contributions to a Keogh plan before December 31, 1973.
Your tax adviser can determine, in such a situation, if
part of any distribution is eligible for capital gain
treatment.
(13) MAY VOLUNTARY CONTRIBUTIONS BE MADE?
No.
(14) ARE THERE PENALTIES IMPOSED UNDER CERTAIN
SITUATIONS?
There may be a 10% penalty on distributions
before age 59-1/2, as described in the answer to question
(10) above. An individual receiving distributions from
qualified retirement plans, tax sheltered annuities and
IRAs in excess of $150,000 may be subject to a 15% excise
tax. There are exceptions, however, for payments: (a) to
a beneficiary after a participant's death; (b) directed
by a qualified domestic relations order; (c) of after-tax
employee contributions; or (d) rolled over to an IRA or
another qualified plan.
(15) WHAT GOVERNMENT FORMS MUST BE FILED AND WHAT
INFORMATION MUST BE DISTRIBUTED TO PARTICIPANTS?
Most adopting employers may rely on the
favorable opinion letters issued by the Internal Revenue
Service to the Nicholas Company on the qualification of
the Master Plan. The following employers may not rely on
the opinion letters issued by the IRS on the Nicholas
Plan, and must apply to the IRS for a separate
determination that their participation in the Nicholas
Plan qualifies for favorable tax treatment:
(a) An employer who maintains or ever has
maintained another qualified plan for one or more
employees who are covered by the Nicholas Plan(s), other
than a specified paired plan within the meaning of
Section 7 of Rev. Proc. 89-9, 1989-6 I.R.B. 14; or
(b) An employer who maintains a welfare benefit
fund defined in Internal Revenue Code Section 419(e),
which provides post retirement medical benefits allocated
to separate accounts for key employees as defined in Code
Section 419A(d)(3).
If either of the two exceptions apply, the
employer should request a determination letter as to
whether the Nicholas Plan(s), considered with all related
qualified plans and, if appropriate, welfare benefit
funds, satisfies the requirements of Code Section
401(a)(16) as to limitations on benefits and
contributions in Code Section 415.
An adopting employer must provide notice of the
adoption (or amendment) of the Nicholas Plan(s) or, if
applicable, of the intent to apply for a determination
letter, to interested parties in accordance with the
requirements of Sections 16, 17 and 18 of IRS Rev. Proc.
94-6, I.R.B. 1994-1, 142 (or any successor instructions
from the IRS).
The Internal Revenue Service and Department of
Labor require certain forms to be filed each year. The
plan administrator (which is normally the employer) is
responsible for filing these forms on a timely basis.
These forms may be obtained directly from either of these
agencies. Nicholas Company and the custodian will provide
certain data each year that the employer or his plan
administrator, can insert on the applicable forms. In the
initial plan year and every third year, the employer must
file a form number 5500C. In the intervening two years
the employer must file a shorter, less complicated Form
5500R. One-participant plans may generally use Form
5500EZ, and may not need to file at all if total plan
assets are $100,OOO or less.
A summary plan description, which is a "plain
language" description of the Plan must also be prepared
and submitted to the Department of Labor and to each new
participant. A summary description of any amendments to
the Plan must also be prepared, distributed to Plan
participants, and filed with the Department of Labor each
time the Plan is amended. In addition, each year the plan
administrator must also distribute to each participant a
summary of the annual report filed on the IRS Form 5500
series.
Certain notices, elections and consents may be
required in connection with beneficiary designations and
benefit distributions. These requirements are detailed in
specific Plan Document sections, especially Section 7.
The IRS and Department of Labor may change the
filing and notice requirements from time to time.
Employers, or their administrators, should check with
their legal tax advisers before the end of each calendar
year. These functions are the responsibility of the plan
administrator and neither Nicholas nor the custodian will
monitor the employer's compliance.
(16) HOW MANY INVESTMENT COMPANIES CURRENTLY ADVISED BY
NICHOLAS COMPANY ARE AVAILABLE FOR CONTRIBUTIONS?
Currently Nicholas offers a choice of six
mutual funds:
- Nicholas Fund
- Nicholas II
- Nicholas Limited Edition
- Nicholas Equity Income Fund
- Nicholas Income Fund
- Nicholas Money Market Fund
See question (19) for information regarding the
investment objectives of these funds. If you do not have
the applicable fund prospectus, please contact the
Nicholas Family of Funds. The prospectus contains more
complete information regarding charges and expenses. Read
it carefully before you invest.
(17) MUST ALL MY CONTRIBUTIONS BE MADE TO INVESTMENT
COMPANIES ADVISED BY NICHOLAS COMPANY?
All contributions to this self-employed plan
must be invested in investment companies advised by
Nicholas Company. However, employers may also contribute
to other qualified retirement plans. Contributions to all
plans are added together in regards to maximum limits
allowed per year.
(18) WHY SHOULD I CONSIDER A MUTUAL FUND FOR MY KEOGH
ACCOUNT?
A mutual fund, through its adviser, provides
its investors with professional investment management. It
also provides the investor with diversification of
portfolio investments.
(19) WHAT ARE THE INVESTMENT OBJECTIVES OF THE VARIOUS
MUTUAL FUNDS OFFERED BY NICHOLAS COMPANY?
The primary investment objective of Nicholas
Fund is capital appreciation, and securities are selected
for its portfolio on this basis. Current income will be
only a secondary factor in considering the selection of
investments and incidental to the primary objective of
appreciation. Nicholas II has an investment objective of
long-term growth in which income is a secondary
consideration. Nicholas Limited Edition, a growth fund
with a similar objective of long-term growth in which
income is a secondary consideration, is limited in the
amount and scope of its offering. The primary investment
objective of Nicholas Equity Income Fund is to produce
reasonable income, with moderate long-term growth as a
secondary consideration. Nicholas Income Fund seeks high
current income consistent with the conservation of
capital values. There are market risks inherent in any
equity investment and there can be no assurance against
possible loss in the value of the Fund's portfolio.
Nicholas Money Market Fund has an investment objective of
achieving as high a level of current income as is
consistent with preserving capital and providing
liquidity.
(20) WHEN MUST THE PLAN BE STARTED?
The Nicholas Master Retirement Plan
Participation Agreement must be signed by both the
employer and the custodian before the end of the
employer's tax year (generally December 31). The minimum
contribution is $500 for the Nicholas Fund and the
Nicholas Income Fund, $1,000 for Nicholas II, and $2,000
for Nicolas Limited Edition, Nicholas Equity Income Fund
and Nicholas Money Market Fund. This contribution must be
received by the custodian at the time the plan is
started.
The balance of the employer's contribution must
be received by the custodian prior to the due date of the
employer's tax return (generally April 15) or any
extension thereof.
(21) WHAT FEES MUST BE PAID?
Please refer to the enclosed fee schedule for a list and
explanation of the current custodian fees.
II. PROCEDURES
(22) HOW DO I ESTABLISH MY SELF EMPLOYED RETIREMENT PLAN
AND MAKE MY INITIAL CONTRIBUTION?
The employer must complete and execute two
copies of the Participation Agreement and forward them
directly to the custodian at the following address:
Nicholas Master HR-10 Plan
c/o Firstar Trust Company
P0. Box 2944
Milwaukee, Wisconsin 53201-2944
Along with the Participation Agreements, the employer must
also forward to the custodian a completed and executed
Application for Participation for each participant,
including each owner or partner. Each application must be
approved by the plan administrator. The plan administrator
must also obtain directions from each participant as to the
investment fund(s) the participant desires the contribution
on his or her behalf to be invested in. A completed initial
Contribution Summary Form must be sent to the custodian
indicating the amount contributed on behalf of each
participant and the investment fund(s) in which the
participant has directed the contribution on his or her
behalf to be invested. To establish a valid self-employed
retirement plan, the above documents must be received by the
custodian prior to the end of the employer's taxable year
(generally December 31).
(23) WHAT IF A PARTICIPANT MAKES AN IMPRUDENT INVESTMENT
DECISION?
Department of Labor regulations under a federal law
referred to as "ERISA 404(c)" describe conditions under
which you (or any other administrator of your plan) may be
relieved of responsibility or potential legal liability that
might otherwise apply in connection with participant
investment decisions.
To qualify for this special protection, the new
regulations will require that you follow certain
administrative procedures. Generally speaking, participants
must be allowed to change investments at least quarterly,
and they must be given certain disclosures regarding the
investment options, how to give investment instructions, and
whether the plan is intended to qualify for ERISA 404(c)
protection.
Please consult an attorney with expertise in
this area for specific guidance on how to qualify for
this protection.
(24) WHAT IS A "PLAN ADMINISTRATOR"?
Section 2(z) of the Plan and Paragraph 6 of the
Participation Agreement name the employer as "plan
administrator." An employer is permitted to delegate that
duty to someone else (but not to the Nicholas Company or to
the custodian) if he chooses. A plan administrator is
generally responsible for transmitting contributions,
payments and information between the employer, participants
and the custodian. The specific duties of the plan
administrator are found in Section 8 of the Plan. There are
additional duties and responsibilities placed on the plan
administrator by regulations issued by the Internal Revenue
Service and the U.S. Department of Labor, some of which are
described in the answer to question (15) above. You should
consult with your attorney or other counsel to determine
those additional responsibilities.
(25) HOW DO I MAKE ADDITIONAL CONTRIBUTIONS?
You should forward to the custodian a Contribution
Summary Form with each contribution submitted to the
custodian. The Contribution Summary Form should indicate the
name of each participant for whom a contribution is being
made, the amounts contributed and whether they are employer
or rollover contributions, and the account number to which
the additional contributions are being made. The form should
also designate the investment fund(s) in which the
participant has directed the contribution for him or her to
be invested. The form must be signed by the plan
administrator. The minimum additional contribution is $100.
Please notify Nicholas Company if you require additional
Contribution Summary Forms.
(26) HOW WILL I KNOW WHAT HAS BEEN INVESTED FOR THE
PARTICIPANTS' ACCOUNTS?
Upon receipt of your Contribution Summary Form, the
custodian will invest contributions in the specified
investment funds and will forward to the plan administrator
a confirmation for each amount invested showing the dollar
amount invested and the number of shares purchased by the
contribution. At the end of the year, the custodian will
forward to the plan administrator annual statements showing
the contributions and dividend reinvestments for the account
for the entire year.
(27) WHAT HAPPENS WHEN A NEW PARTICIPANT BECOMES ELIGIBLE
FOR THE PLAN?
When a new participant first becomes eligible he should
execute an Application for Participation. At the time a
contribution is first made for that participant, the plan
administrator should approve his application and forward it
to the custodian along with the Contribution Summary Form
indicating his initial contribution. The plan administrator
should also have the participant direct the plan
administrator as to which investment fund(s) the
contribution for that participant is to be invested in, and
the plan administrator must designate the participant's
investment choice on the Contribution Summary Form.
(28) WHAT HAPPENS WHEN A PARTICIPANT TERMINATES EMPLOYMENT?
As soon as possible after a participant terminates
employment with the employer, the plan administrator should
complete the Benefit Payment Authorization Form, a sample of
which is enclosed. The plan administrator should make
additional copies of this form as necessary. If the reason
for payment of benefit is death of the participant, a
participant's certified death certificate, beneficiary
designation (and/or survivor annuity benefit waiver and
spousal consent) must be forwarded to the custodian with the
Payment Authorization Form. If termination of employment is
due to disability, a doctor's certification of the
disability must also be forwarded to the custodian. Please
note that both the participant's signature and the plan
administrator's signature must appear on the Benefit Payment
Authorization Form.
Your plan administrator is also responsible for
complying with any notice, election, consent or other
requirements specified in the plan documents (especially in
Section 7) relating to distributions.
(29) WHAT HAPPENS IF THE EMPLOYER INCORPORATES?
If the employer incorporates, contributions to his self-
employed plan must cease. You should consult your legal or
tax advisers regarding the disposition of your Keogh plan
before incorporating your business.
(30) MAY I TRANSFER MY CONTRIBUTIONS FROM ONE FUND TO
ANOTHER AFTER THEY HAVE BEEN INVESTED?
Yes, if you are interested in this, please contact
Nicholas Company for details.
(31) MAY I ROLLOVER A DISTRIBUTION I RECEIVE FROM ANOTHER
QUALIFIED RETIREMENT PLAN INTO EITHER OF THE NICHOLAS PLANS?
Yes. The Internal Revenue Code was amended effective
beginning in 1987 to remove certain restrictions on rollover
contributions by key employees. Therefore, beginning in
1987, the Nicholas Plan will accept rollover contributions
which qualify as tax-free rollovers under the requirements
of the Internal Revenue Code. You should consult your tax
adviser for more information and guidance about making a
rollover contribution. Please note that, among other
requirements, a rollover must be accomplished within sixty
(60) days of receipt of the distribution to qualify. In
order to avoid mandatory tax withholding on a distribution
from a qualified plan, a rollover should be made by means of
a direct payment from the distributing plan to the
custodian.
(32) WHERE CAN I GET MORE INFORMATION ABOUT THE NICHOLAS
MASTER RETIREMENT PLAN FOR SELF-EMPLOYED INDIVIDUALS?
If your question deals with general, legal or tax
aspects of a self-employed retirement plan, you may obtain
additional information from your local Internal Revenue
Service office. Your attorney or other professional adviser
should be consulted regarding the legal and tax
considerations of your using the Nicholas Master Retirement
Plan.
NICHOLAS MASTER RETIREMENT PLAN
CHECKLIST OF ENCLOSURES
A. TO BE FILLED OUT AND FILED WITH THE CUSTODIAN - FIRSTAR TRUST COMPANY
1. Participation Agreements (Profit Sharing, Money Purchase
Plan or both) DUPLICATE - FORMS 1 and 2
2. Contribution Summary Form - FORM 3
3. Application for Participation (ONE FOR EACH PARTICIPANT) - FORM 4
B. TO BE FILED WITH THE PLAN ADMINISTRATOR FOR FUTURE USE OR REFERENCE
1. Nicholas Company Master Retirement Plan - EXHIBIT A
2. Custodial Agreement - EXHIBIT A
3. General Information - EXHIBIT B
4. Benefit Payment Authorization - FORM 5
CUSTODIAN FEES*
Annual Maintenance Fee per Participant**
Account Maintained $12.50
Transfer to Successor Trustee 15.00
Lump Sum or Partial Distribution to a Participant 15.00
Systematic Withdrawal Plan Distributions No Fee
Refund of Excess Contribution 15.00
Any Outgoing Wire 7.50
*THESE FEES MAY BE SUBJECT TO CHANGE
**DUE BY SETTEMBER 15th EACH YEAR OR DEDUCTED AUTOMATICALLY
700 North Water Street . Milwaukee Wisconsin . 53202-4276 . 414-272-6133
[logo] 12/94
<PAGE>
Form 1
NICHOLAS MASTER RETIREMENT PLAN
[ ] New
[ ] Amended
PARTICIPATION AGREEMENT
(PROFIT-SHARING PLAN)
(PAIRED PLAN 01-001)
The _________________________________________ Retirement Plan
The Sole Proprietor or Partnership named below (hereinafter
called "Employer") hereby agrees to participate in the Nicholas
Master Retirement Plan for Self-Employed Individuals (consisting
of this Participation Agreement and Basic Plan Document Number
01) and the Nicholas Custodial Agreement effective for the
calendar year ending December 31, 1 9__. (NOTE TO EMPLOYERS: If
you are adopting this Plan as an amendment to an existing Profit-
Sharing Plan in order to comply with the Tax Reform Act of 1986,
insert "89" in this blank, or if later, the first year for which
the existing plan was effective. The terms of this replacement
Plan will be effective retroactively for all Plan Years beginning
after 1988, except as otherwise specified in this Participation
Agreement or in the Basic Plan Document.) The Employer also
hereby agrees to be bound by said Plan and Custodial Agreement,
as from time to time amended, and all terms and provision
thereof. All words or terms defined in the Basic Plan Document
shall have the same definition in this Participation Agreement.
Participation by the Employer in said Plan and Custodial
Agreement shall be upon the following additional terms and
conditions:
1.__________________________________________________________
Name of Employer
__________________________________________________________
Street Address
__________________________________________________________
City State Zip Code
___________________________________________________________
Nature of Business or Profession
_________________________________________________________
Employer's Federal Tax Identification Number
(Enter your 9-digit employer identification number
(EIN) assigned by IRS. If you do not have one, enter
"applied for" and apply for one on Form SS-4, available
from your local IRS office. This number will be needed
for your Form 5500 CIR annual reports and other IRS
filings. Notify us of your EIN as soon as one is
assigned to you.)
Employer's Taxable Year for Federal Income Tax Purposes:
( ) Calendar Year
( ) Fiscal Year Ending
Serial Number of the Plan ___________________________________
(You should assign a three-digit number, beginning with "001"
and continuing in numerical sequence, to each tax-qualified
retirement plan you adopt. This numbering will differentiate your
plans on reports or returns you file with IRS and other agencies.
For instance, if this Plan is the only plan you maintain, enter
"001", or if this Plan is the second plan you have adopted, enter
"002".)
2. EMPLOYER APPOINTS FIRST WISCONSIN TRUST COMPANY AS
CUSTODIAN. Custodian shall invest all contributions received
under the Plan in Investment Company Shares designated by the
Plan Administrator and in accordance with the Custodial
Agreement.
3. ELIGIBILITY.
(a) Each Employee will be eligible to participate in this Plan
in accordance with Section 3 of the Basic Plan Document, except
the following:
(i) Employees who have not attained the age of
__________ (cannot exceed 21).
(ii) Employees who have not completed ___________ Years
of Credited Service (as defined in the Basic Plan
Document). This requirement shall not be greater than
two (2) years and shall be deemed to be two (2) years
unless otherwise indicated. Employers may not use
fractional Years of Credited Service.
(iii) Employees who terminate employment (other than by
reason of death or retirement) during the Plan Year with
not more than 500 Hours of Service and who are not
Employees as of the last day of the Plan Year. (NOTE TO
EMPLOYERS: Under a special transition rule reflected in
Section 5.2 of the Basic Plan Document, Participants
whose employment terminates during 1989 and who are not
Employees as of December 31, 1989 other than because of
death or retirement do not share in employer
contributions to the Plan for 1989, even if they had
more than 500 Hours of Service for 1989. All such
Participants must nevertheless be treated as benefiting
under the Plan in 1989 for purposes of the minimum
participation and coverage rules under IRC Sections 401
(a)(26) and 410(b). See Proposed Treasury Regulations
Sections 1.401 (a) (26)-8(b) (6) and 1.410(b)-10(b)(2).)
For purposes of this Section, the term "Employee" shall include
all employees of this Employer or any employee aggregated with
this Employer under IRC Sections 414(b), (c), (m) or (o) and
leased employees required to be considered employees of any such
Employer under IRC Section 414(n) or (0).
(b) The number of Hours of Service, as that term is defined in
the Basic Plan Document, which shall constitute a Year of Service
shall be ___________ hours. This amount shall be no greater than
1,000 hours and shall be deemed to read 1,000 hours unless a
smaller number is filled in. (NOTE TO EMPLOYERS: The number you
fill in is the number of Hours of Service an Employee must
complete within the 12 month period after he or she is hired or
after an anniversary of that date in order to receive a Year of
Credited Service towards eligibility to participate in the Plan
under paragraph 3(a) (ii) above. A former Participant will become
a Participant immediately upon returning to the employ of the
Employer.)
4. COMPENSATION. (NOTE TO EMPLOYERS: The Nicholas Master
Retirement Plan for Self-Employed Individuals formerly defined
"Compensation" to mean a Participant's total W-2 earnings for the
Plan Year. If you are adopting this Plan as an amendment to an
existing Profit-Sharing Plan in order to comply with the Tax
Reform Act of 1986, and the definition of Compensation elected
below replaces another definition of Compensation under the
existing plan, the definition elected below will be effective as
of January 1 of the year after the year in which this Participant
Agreement is executed. Employers also note: For any Self-Employed
Individual covered under the Plan, Compensation means Earned
Income, regardless of the definition selected below.)
Compensation will mean all of each Participant's (check one):
[ ] W-2 earnings
[ ] compensation (as that term is defined in Section 415(c)(3) of
the Code - see Question 5 of your General Information form)
which is actually paid to the Participant during (check one):
[ ] the Plan Year
[ ] the taxable year ending with or within the Plan Year
[ ] the Limitation Year ending with or within the Plan Year.
Compensation (check one):
[ ] shall include
[ ] shall not include
Employer contributions made pursuant to a salary reduction
agreement which are not includible in the gross income of the
Employee under Section 125, 402(a)(8), 402(h) or 403(b) of the
Code.
5. CONTRIBUTIONS
(a) Subject to the limitations contained in Section 6 (and the
minimum contribution requirements of Section 4.2) of the Basic
Plan Document, the Employer shall contribute on behalf of each
Participant an amount equal to ___________ percent of such
individual's Compensation (limited to Earned Income for an Owner
or Self-Employed Individual). Unless otherwise indicated, the
percent of Compensation (or Earned Income for an Owner or Self-
Employed Individual) shall be deemed to be 15%. The Employer may
change the percentage of Compensation (or Earned Income for an
Owner or Self-Employed Individual) to be contributed for a Plan
Year by delivering a signed and completed copy of an amended
Participation Agreement to the Custodian prior to the end of such
Plan Year.
(b) If checked here [ ] by the adopting Employer; then
effective beginning with the first calendar year for which this
Participation Agreement is effective (as specified in the first
paragraph of this Participation Agreement), or effective instead
beginning with the Plan Year ending December 31, 19__ (insert a
year only if you want to delay the effective date to a later
year), and notwithstanding any other provision of the Plan, the
Employer contributions under subparagraph (a) above shall be made
without regard to current or accumulated earnings and profits for
the taxable year or years ending with or within the Plan Year for
which the contribution is made. If the preceding sentence does
not apply for a Plan Year; then Employer contributions under
subparagraph (a) above shall be made out of current or
accumulated Net Income and shall be ratably reduced in the event
the Net Income of the Employer is less than the total
contributions required to be made for such Plan Year under
subparagraph (a) above. (Note to Employers: If you choose to have
this subparagraph (b) apply, then you will be required to make
the full contribution specified in subparagraph (a) each year
whether or not you have any current or accumulated profits, and
this Plan will still be considered a Profit-Sharing Plan.)
(c) The Annual Addition for each Participant, as described
in Section 6.5(a) of the Basic Plan Document, shall not exceed
for any Limitation Year the lesser of the Defined Contribution
Dollar Limitation ($30,000 or one4ourth of the defined benefit
dollar limitation in effect for the Limitation Year under Section
415(b)(1) of the Code, whichever is greater) or 25% of the
Participant's Compensation (limited to Earned Income for an
Owner) for such Limitation Year.
6. PLAN ADMINISTRATOR. The Plan Administrator is_____________.
The Plan Administrator must not be the Custodian or the
sponsoring organization identified in paragraph
15, and shall be deemed to be the Employer unless otherwise
indicated. The Employer shall notify the Custodian of any change
in the Plan Administrator by delivering a signed and completed
copy of an Amended Participation Agreement to the Custodian prior
to the end of the Plan Year for which such change is effective.
(Note to Employers: The Plan Administrator is the party who has
the legal responsibility for administering and interpreting the
Plan, as detailed more fully in Section 8 of the Basic Plan
Document. The Plan Administrator must, among other things, keep
all necessary books and records relating to the Plan, file annual
reports and other forms required by government agencies, and
provide to or obtain from Participants or beneficiaries
appropriate summaries, notices and elections regarding the Plan
and benefits to be distributed under the Plan. The Custodian and
Nicholas Company, Inc. do not provide plan administration
services. Such services are available for a fee through other
professional consultants and advisers.)
7. CUSTODIAN'S FEES. The Custodian shall receive fees for
its services in respect to each Participant's account in
accordance with the attached fee schedule, which may be changed
by the Custodian with advance notice from time to time. lf not
separately included, any acceptance fee listed in the attached
schedule will be deducted from the initial contribution received
from the Employer. Any acceptance or other Custodian fees
excluding annual maintenance or activity fees not separately
included will be deducted equally from each Owner's contribution
or account. Annual maintenance fees for each Participant's
account and any fees directly related to activity in that
Participant's account shall be deducted from his account. Annual
maintenance fees will be deducted on the last business day in
September of each year and activity fees will be deducted at the
time incurred. Sufficient Investment Company Shares will be
redeemed to cover this fee.
Extraordinary services resulting from unusual administrative
responsibilities not contemplated by this schedule will be
subject to such additional charges as will reasonably compensate
the Custodian for the services performed.
8. EMPLOYER'S DUTIES. The Employer hereby agrees that it
will distribute copies of the current prospectus of the
appropriate Investment Company or Companies, the Basic Plan
Document, the Custodial Agreement, and this completed
Participation Agreement, to each and every Participant on whose
behalf a contribution is made. The Employer or Plan Administrator
also agrees to distribute to Participants, and file with the
appropriate government agency, such forms (including annual
reports, summary plan descriptions and any other forms) as may be
required by the Internal Revenue Service, Department of Labor or
any other government agency.
9. AUTOMATIC TERMINATION OF PLAN. If the Employer's plan fails
to attain or retain qualification, such plan will no longer
participate in this Master Plan and will be considered an
individually designed plan.
10. LIMITATIONS ON ALLOCATIONS. If you maintain or ever
maintained another qualified plan (other than paired plan 01-002)
in which any Participant in this Plan is (or was) a participant
or could possibly become a participant, you must complete this
paragraph. You must also complete this paragraph if you maintain
a welfare benefit fund, as defined in Section 419(e) of the Code,
or an individual medical account, as defined in Section 415(1)(2)
of the Code, under which amounts are treated as Annual Additions
with respect to any Participant in this Plan. (NOTE TO EMPLOYERS:
You do not need to complete this paragraph unless either: (a) you
are currently maintaining another qualified defined contribution
plan which is not a master or prototype plan; or (b) you are
currently maintaining or have ever previously maintained a
qualified defined benefit plan.)
(a) If you maintain a qualified defined contribution plan,
other than a master or prototype plan, the provisions of Section
6.2 of the Basic Plan Document will apply as if the other plan
were a master or prototype plan, unless you provide another
method below under which the plans will properly limit total
Annual Additions to the Maximum Permissible Amount, and will
properly reduce any excess amounts, in a manner that precludes
Employer discretion (see your legal or tax counsel for guidance):
_________________________________________________________________
_________________________________________________________________
(b) If the Participant is or ever has been a participant in
a defined benefit plan maintained by you, provide language that
will satisfy the 1.0 limitation of Section 415(e) of the Code.
Such language must preclude employer discretion. See Section
1.415)1 of the Treasury Regulations and consult your legal or tax
counsel for guidance:
_________________________________________________________________
_________________________________________________________________
11. NORMAL RETIREMENT AGE. For each Participant Normal
Retirement Age is age ___ (not to exceed 65). (NOTE TO EMPLOYERS:
If no age is specified, Normal Retirement Age shall be age 65. If
the Employer enforces a mandatory retirement age, the Normal
Retirement Age is the lesser of that mandatory retirement age or
the age specified in this paragraph).
12. LIMITATION YEAR. The Limitation Year for purposes of
the Plan shall be the 12-consecutive month period ending on _____
(Note to Employers: The Limitation Year is the period used for
purposes of applying the annual limits on Plan contributions and
allocations under paragraphs 5(c) and 10 above and Section 6 of
the Basic Plan Document. If no Limitation Year is specified, the
Limitation Year shall be the calendar year. All qualified plans
maintained by the Employer must use the same limitation year.)
13. MINIMUM ALLOCATION. Complete (a) or (b) of this
paragraph (as appropriate) only if you maintain another qualified
plan or plans (including Paired Plan 01-002) and any non-Key
Employee is or could possibly become a Participant in this Plan
and any of the other plans at the same time. Otherwise go on to
paragraph 14. See Section 2(o) of the Basic Plan Document for a
definition of who are Key Employees.
(a) ALL OTHER PLANS ARE ALSO DEFINED CONTRIBUTION PLANS.
(NOTE TO EMPLOYERS: Paired Plan 01-002, the Money Purchase Plan,
is a defined contribution plan). This Profit-Sharing Plan is a
"deemed top-heavy' plan" designed to operate as though it were
always "top-heavy" under IRC Section 416, whether or not it
actually would be "top-heavy" under the provisions of that
Section. Section 4.2 of the Basic Plan Document and IRC Section
416(c)(2) require certain non-Key Employees to receive a minimum
allocation of contributions (generally 3% of Compensation) for
each year they are Participants in the Plan and would not
otherwise be entitled to receive a greater allocation of
contributions under the Plan. lf you maintain more than one
qualified defined contribution plan covering the same non-Key
Employee, only one of the plans must provide the required minimum
allocation. In such a case (check one):
[ ] the required minimum allocation specified in Section 4.2
of the Basic Plan Document will be provided by this Plan.
[ ] the required minimum allocation specified in Section
4.2 of the Basic Plan Document will be provided by Paired
Plan 01-002, the Nicholas Money Purchase Plan (this option
is available only if the Employer has adopted that plan and
the non-Key Employee is a Participant in that plan).
[ ] the method under which the plans will provide the
required minimum allocation in a manner that will preclude
Employer discretion and avoid inappropriate omissions is as
follows (see IRC Section 416(c)(2) and Treasury Regulations
Section 1.416-1, Part M, and consult your legal or tax
counsel before completing the blanks below):
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(b) EMPLOYER ALSO MAINTAINS ONE OR MORE DEFINED BENEFIT
PLANS. If you maintain a defined benefit plan in addition to this
Plan (which is a defined contribution plan), specify the method
by which the plans will satisfy the minimum allocation and/or
benefit requirements of IRC Section 416(c), as modified by IRC
Section 416(h), including any required adjustments in computing
the denominators of the Defined Benefit and Defined Contribution
Fractions, in a manner that will preclude Employer discretion and
avoid inappropriate omissions (see IRC Sections 416(c) and 416(h)
and Treasury Regulations Section 1 .416-1, Part M, and consult
your legal or tax counsel before completing the blanks below):
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(c) The Employer may change the method specified in (a) or
(b) above only by executing a new Participation Agreement setting
forth the new method that is to apply.
14. CAUTION TO ADOPTING EMPLOYERS: Failure to properly fill
out this Participation Agreement may result in disqualification
of the Plan.
15. SPONSORING ORGANIZATION. The sponsoring organization
for the Nicholas Master Retirement Plan for Self-Employed
Individuals is the Nicholas Company, Inc., 700 North Water
Street, Milwaukee, Wisconsin 53202, telephone number (414) 272-
6133. The sponsoring organization will inform you of any
amendments made to the Plan or of the discontinuance or
abandonment of the Plan.
AN EMPLOYER WHO HAS EVER MAINTAINED OR WHO LATER ADOPTS ANY PLAN
(INCLUDING A WELFARE BENEFIT FUND, AS DEFINED IN IRC SECTION
419(e), WHICH PROVIDES POST RETIREMENT MEDICAL BENEFITS ALLOCATED
TO SEPARATE ACCOUNTS FOR KEY EMPLOYEES, AS DEFINED IN IRC SECTION
419(d)(3) OR AN INDIVIDUAL MEDICAL ACCOUNTS DEFINED IN IRC
SECTION 415(1)(2)) IN ADDITION TO THIS PLAN (OTHER THAN PAIRED
PLAN NO.01-002) MAY NOT RELY ON THE OPINION LETTER ISSUED BY
THE NATIONAL OFFICE OF THE INTERNAL REVENUE SERVICE AS EVIDENCE
THAT THIS PLAN IS QUALIFIED UNDER IRC SECTION 401. IF THE
EMPLOYER WHO ADOPTS OR MAINTAINS MULTIPLE PLANS WISHES TO OBTAIN
RELIANCE THAT HIS OR HER PLAN(S) ARE QUALIFIED, APPLICATION FOR
A DETERMINATION LETTER SHOULD BE MADE TO THE APPROPRIATE KEY
DISTRICT DIRECTOR OF INTERNAL REVENUE SERVICE. THIS ADOPTION
AGREEMENT MAY BE USED ONLY IN CONNECTION WITH BASIC PLAN DOCUMENT
NUMBER 01.
The Participation Agreement has been signed by the Employer
this _______ day of 19__.
_____________________________________
(Print Name of Employer -
Specify if a Partnership)
By: _____________________________________
(Signature of Employer. If Employer
is a Partnership, must be signed
by authorized general partner.)
Appointment as Plan Administrator accepted:
___________________________________________
(Signature of Plan Administrator)
___________________________________________
Address (If different from Employer's)
Date: ____________________
Appointment as Custodian accepted:
By:________________________________________
Date: ____________________
Form 2
NICHOLAS MASTER RETIREMENT PLAN
[ ] New
[ ] Amended
PARTICIPATION AGREEMENT
(Money Purchase Plan)
(Paired Plan 01-002)
The ____________________________________________ Retirement Plan
The Sole Proprietor or Partnership named below (hereinafter
called "Employer") hereby agrees to participate in the Nicholas
Master Retirement Plan for Self-Employed Individuals (consisting
of this Participation Agreement and Basic Plan Document Number
01) and the Nicholas Custodial Agreement effective for the
calendar year ending December 31, 19__. (NOTE TO EMPLOYERS: If you
are adopting this Plan as an amendment to an existing Money
Purchase Plan in order to comply with the Tax Reform Act of 1985,
insert "89" in this blank, or if later; the first year for which
the existing plan was effective. The terms of this replacement
Plan will be effective retroactively for all Plan Years beginning
after 1988, except as otherwise specified in this Participation
Agreement or in the Basic Plan Document.) The Employer also
hereby agrees to be bound by said Plan and Custodial Agreement,
as from time to time amended, and all terms and provision
thereof. All words or terms defined in the Basic Plan Document
shall have the same definition in this Participation Agreement.
Participation by the Employer in said Plan and Custodial
Agreement shall be upon the following additional terms and
conditions:
1.__________________________________________________________
Name of Employer
__________________________________________________________
Street Address
__________________________________________________________
City State Zip Code
___________________________________________________________
Nature of Business or Profession
_________________________________________________________
Employer's Federal Tax Identification Number
Employer's Federal Tax Identification Number (Enter
your 9-digit employer identification number (EIN)
assigned by IRS. If you do not have one, enter "applied
for" and apply for one on Form SS-4, available from
your local IRS office. This number will be needed for
your Form 5500 C/R annual reports and other IRS
filings. Notify us of your EIN as soon as one is
assigned to you.)
Employer's Taxable Year for Federal Income Tax Purposes:
[ ] Calendar Year
[ ] Fiscal Year Ending
Serial Number of the Plan ______________________________ (you
should assign a three-digit number; beginning with "001" and
continuing in numerical sequence, to each tax-qualified
retirement plan you adopt This numbering will differentiate your
plans on reports or returns you file with IRS and other agencies.
For instance, if this Plan is the only plan you maintain, enter
"001", or if this Plan is the second plan you have adopted, enter
"002".)
2. Employer appoints First Wisconsin Trust Company as
Custodian. Custodian shall invest all contributions received
under the Plan in Investment Company Shares designated by the
Plan Administrator and in accordance with the Custodial
Agreement.
3. ELIGIBILITY.
(a) Each Employee will be eligible to participate in this Plan
in accordance with Section 3 of the Basic Plan Document, except
the following:
(i) Employees who have not attained the age of __________
(cannot exceed 21).
(ii) Employees who have not completed ___________ Years of
Credited Service (as defined in the Basic Plan Document).
This requirement shall not be greater than two (2) years and
shall be deemed to be two (2) years unless otherwise
indicated. Employers may not use fractional Years of
Credited Service.
(iii) Employees who terminate employment (other than by
reason of death or retirement) during the Plan Year with not
more than 500 Hours of Service and who are not Employees as
of the last day of the Plan Year. (NOTE TO EMPLOYERS: Under
a special transition rule reflected in Section 5.2 of the
Basic Plan Document, Participants whose employment
terminates during 1989 and who are not Employees as of
December 31, 1989 other than because of death or retirement
do not share in employer contributions to the Plan for 1989,
even lf they had more than 500 Hours of Service for 1989.
All such Participants must nevertheless be treated as
benefiting under the Plan in 1989 for purposes of the
minimum participation and coverage rules under IRC Sections
401(a) (26) and 410(b). See Proposed Treasury Regulations
Sections 1.401 (a)(26)-8(b)(6) and 1.410(b)-10(b)(2).)
For purposes of this Section, the term "Employee" shall include
all employees of this Employer or any employee aggregated with
this Employer under IRC Sections 414(b), (c), (m) or (o) and
leased employees required to be considered employees of any such
Employer under IRC Section 414(n) or (o).
(b) The number of Hours of Service, as that term is defined
in the Basic Plan Document, which shall constitute a Year of
Service shall be _________ hours. This amount shall be no greater
than 1,000 hours and shall be deemed to read 1 ,000 hours unless
a smaller number is filled in. (Note to Employers: The number you
fill in is the number of Hours of Service an Employee must
complete within the 12 month period after he or she is hired or
after an anniversary of that date in order to receive a Year of
Credited Service towards eligibility to participate in the Plan
under paragraph 3(a)(ii) above. A former Participant will become
a Participant immediately upon returning to the employ of the
Employer.)
4. COMPENSATION. (NOTE TO EMPLOYERS: The Nicholas Master
Retirement Plan for Self-Employed Individuals formerly defined
"Compensation" to mean a Participant's total W-2 earnings for the
Plan Year. If you are adopting this Plan as an amendment to an
existing Money Purchase Plan in order to comply with the Tax
Reform Act of 1986, and the definition of Compensation elected
below replaces another definition of Compensation under the
existing plan, the definition elected below will be effective as
of January 1 of the year after the year in which this Participant
Agreement is executed. Employers also note: For any Self-Employed
Individual covered under the Plan, Compensation means Earned
Income, regardless of the definition selected below.)
Compensation will mean all of each Participant's (check one):
[ ] W-2 earnings
[ ] compensation (as that term is defined in Section 415(c)(3) of
the Code - see Question 5 of your General Information form)
which is actually paid to the Participant during (check one):
[ ] the Plan Year
[ ] the taxable year ending with or within the Plan Year
[ ] the Limitation Year ending with or within the Plan Year.
Compensation (check one):
[ ] shall include
[ ] shall not include
Employer contributions made pursuant to a salary reduction
agreement which are not includible in the gross income of the
Employee under Section 125, 402(a)(8), 402(h) or 403(b) of the
Code.
5. CONTRIBUTIONS
(a) Subject to the limitations contained in Section 6 (and
the minimum contribution requirements of Section 4.2) of the
Basic Plan Document, the Employer shall contribute for each Plan
Year on behalf of each Participant an amount equal to __________
(not to exceed 25) percent of such individual's Compensation
(limited to Earned Income for an Owner or Self-Employed
Individual). In the event the Net Income of the Employer is less
than the total contributions required to be made during such Plan
Year on behalf of all Plan Participants, the Employer will make
contributions regardless of the amount of Net Income.
(b) The Annual Addition for each Participant, as defined in
Section 6.5(a) of the Basic Plan Document, shall not exceed for
any Limitation Year the lesser of the Defined Contribution Dollar
Limitation ($30,000 or one4ourth of the defined benefit dollar
limitation in effect for the Limitation Year under Section 415(b)
(1) of the Code, whichever is greater) or 25% of the
Participant's Compensation (limited to Earned Income for an Owner
or Self-Employed Individual) for such Limitation Year.
6. PLAN ADMINISTRATOR. The Plan Administrator is_____________.
The Plan Administrator must not be the Custodian or the
sponsoring organization identified in paragraph
15, and shall be deemed to be the Employer unless otherwise
indicated. The Employer shall notify the Custodian of any change
in the Plan Administrator by delivering a signed and completed
copy of an Amended Participation Agreement to the Custodian prior
to the end of the Plan Year for which such change is effective.
(Note to Employers: The Plan Administrator is the party who has
the legal responsibility for administering and interpreting the
Plan, as detailed more fully in Section 8 of the Basic Plan
Document. The Plan Administrator must, among other things, keep
all necessary books and records relating to the Plan, file annual
reports and other forms required by government agencies, and
provide to or obtain from Participants or beneficiaries
appropriate summaries, notices and elections regarding the Plan
and benefits to be distributed under the Plan. The Custodian and
Nicholas Company, Inc. do not provide plan administration
services. Such services are available for a fee through other
professional consultants and advisers.)
7. CUSTODIAN'S FEES. The Custodian shall receive fees for
its services in respect to each Participant's account in
accordance with the attached fee schedule, which may be changed
by the Custodian with advance notice from time to time. If not
separately included, any acceptance fee listed in the attached
schedule will be deducted from the initial contribution received
from the Employer. Any acceptance or other Custodian fees
excluding annual maintenance or activity fees not separately
included will be deducted equally from each Owner's contribution
or account. Annual maintenance fees for each Participant's
account and any fees directly related to activity in that
Participant's account shall be deducted from his account. Annual
maintenance fees will be deducted on the last business day in
September of each year and activity fees will be deducted at the
time incurred. Sufficient Investment Company Shares will be
redeemed to cover this fee.
Extraordinary services resulting from unusual administrative
responsibilities not contemplated by this schedule will be
subject to such additional charges as will reasonably compensate
the Custodian for the services performed.
8. EMPLOYER'S DUTIES. The Employer hereby agrees that it will
distribute copies of the current prospectus of the appropriate
Investment Company or Companies, the Basic Plan Document, the
Custodial Agreement, and this completed Participation Agreement,
to each and every Participant on whose behalf a contribution is
made. The Employer or Plan Administrator also agrees to
distribute to Participants, and file with the appropriate
government agency, such forms (including annual reports, summary
plan descriptions and any other forms) as may be required by the
Internal Revenue Service, Department of Labor or any other
government agency.
9. AUTOMATIC TERMINATION OF PLAN. If the Employer's plan
fails to attain or retain qualification, such plan will no longer
participate in this Master Plan and will be considered an
individually designed plan.
10. LIMITATIONS ON ALLOCATIONS. If you maintain or ever
maintained another qualified plan (other than paired plan 01-001)
in which any Participant in this Plan is (Or was) a participant
or could possibly become a participant, you must complete this
paragraph. You must also complete this paragraph if you maintain
a welfare benefit fund, as defined in Section 419(e) of the Code,
or an individual medical account, as defined in Section 415(1)(2)
of the Code, under which amounts are treated as Annual Additions
with respect to any Participant in this Plan. (Note to Employers:
You do not need to complete this paragraph unless either: (a) you
are currently maintaining another qualified defined contribution
plan which is not a master or prototype plan; or (b) you are
currently maintaining or have ever previously maintained a
qualified defined benefit plan.)
(a) If you maintain a qualified defined contribution plan,
other than a master or prototype plan, the provisions of Section
6.2 of the Basic Plan Document will apply as if the other plan
were a master or prototype plan, unless you provide another
method below under which the plans will properly limit total
Annual Additions to the Maximum Permissible Amount, and will
properly reduce any excess amounts, in a manner that precludes
Employer discretion (see your legal or tax counsel for guidance):
_________________________________________________________________
_________________________________________________________________
(b) If the Participant is or ever has been a participant in
a defined benefit plan maintained by you, provide language that
will satisfy the 1.0 limitation of Section 415(e) of the Code.
Such language must preclude employer discretion. See Section
1.415-1 of the Treasury Regulations and consult your legal or tax
counsel for guidance:
_________________________________________________________________
_________________________________________________________________
11. NORMAL RETIREMENT AGE. For each Participant Normal
Retirement Age is age ___ (not to exceed 65). (NOTE TO EMPLOYERS:
If no age is specified, Normal Retirement Age shall be age 65. If
the Employer enforces a mandatory retirement age, the Normal
Retirement Age is the lesser of that mandatory retirement age or
the age specified in this paragraph).
12. LIMITATION YEAR. The Limitation Year for purposes of
the Plan shall be the 12-consecutive month period ending on _____
(Note to Employers: The Limitation Year is the period used for
purposes of appyling the annual limits on Plan contributions and
allocations under paragraphs 5(c) and 10 above and Section 6 of
the Basic Plan Document. If no Limitation Year is specified, the
Limitation Year shall be the calendar year. All qualified plans
maintained by the Employer must use the same limitation year.)
13. MINIMIUM ALLOCATION. Complete (a) or (b) of this
paragraph (as appropriate) only lf you maintain another qualified
plan or plans (including Paired Plan 01-001) and any non-Key
Employee is or could possibly become a Participant in this Plan
and any of the other plans at the same time. Otherwise, go on to
paragraph 14. See Section 2(0) of the Basic Plan Document for a
definition of who are Key Employees.
(a) ALL OTHER PLANS ARE ALSO DEFINED CONTRIBUTION PLANS.
(Note to Employers: Paired Plan 01-001, the Profit-Sharing Plan,
is a defined contribution plan). This Money Purchase Plan is a
"deemed top-heavy plan" designed to operate as though it were
always "top-heavy" under IRC Section 416, whether or not it
actually would be "top-heavy" under the provisions of that
Section. Section 4.2 of the Basic Plan Document and IRC Section
416(c)(2) require certain non-Key Employees to receive a minimum
allocation of contributions (generally 3% of Compensation) for
each year they are Participants in the Plan and would not
otherwise be entitled to receive a greater allocation of
contributions under the Plan. If you maintain more than one
qualified defined contribution plan covering the same non-Key
Employee, only one of the plans must provide the required minimum
allocation. In such a case (check one):
[ ] the required minimum allocation specified in Section 4.2 of
the Basic Plan Document will be provided by this Plan.
[ ] the required minimum allocation specified in Section 4.2 of
the Basic Plan Document will be provided by Paired Plan 01-001,
the Nicholas Profit-Sharing Plan (this option is available only
if the Employer has adopted that plan and the non-Key Employee is
a Participant in that plan).
[ ] the method under which the plans will provide the required
minimum allocation in a manner that will preclude Employer
discretion and avoid inappropriate omissions is as follows (see
IRC Section 41 6(c)(2) and Treasury Regulations Section 1.416-1,
Part M, and consult your legal or tax counsel before completing
the blanks below):
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(b) EMPLOYER ALSO MAINTAINS ONE OR MORE DEFINED BENEFIT
PLANS. If you maintain a defined benefit plan in addition to this
Plan (which is a defined contribution plan), specify the method
by which the plans will satisfy the minimum allocation and/or
benefit requirements of IRC Section 416(c), as modified by IRC
Section 416(h), including any required adjustments in computing
the denominators of the Defined Benefit and Defined Contribution
Fractions, in a manner that will preclude Employer discretion and
avoid inappropriate omissions (see IRC Sections 416(c) and 416(h)
and Treasury Regulations Section 1 .416-1, Part M, and consult
your legal or tax counsel before completing the blanks below):
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(c) The Employer may change the method specified in (a) or
(b) above only by executing a new Participation Agreement setting
forth the new method that is to apply.
14. CAUTION TO ADOPTING EMPLOYERS: Failure to properly fill
out this Participation Agreement may result in disqualification
of the Plan.
15. SPONSORING ORGANIZATION. The sponsoring organization
for the Nicholas Master Retirement Plan for Self-Employed
Individuals is the Nicholas Company, Inc., 700 North Water
Street, Milwaukee, Wisconsin 53202, telephone number (414) 272-
6133. The sponsoring organization will inform you of any
amendments made to the Plan or of the discontinuance or
abandonment of the Plan.
AN EMPLOYER WHO HAS EVER MAINTAINED OR WHO LATER ADOPTS ANY PLAN
(INCLUDING A WELFARE BENEFIT FUND, AS DEFINED IN IRC SECTION
419(e), WHICH PROVIDES POST RETIREMENT MEDICAL BENEFITS ALLOCATED
TO SEPARATE ACCOUNTS FOR KEY EMPLOYEES, AS DEFINED IN IRC SECTION
419(d)(3) OR AN INDIVIDUAL MEDICAL ACCOUNT AS DEFINED IN IRC
SECTION 415(1)(2)) IN ADDITION TO THIS PLAN (OTHER THAN PAIRED
PLAN NO.01-001) MAY NOT RELY ON THE OPINION LETTER ISSUED BY THE
NATIONAL OFFICE OF THE INTERNAL REVENUE SERVICE AS EVIDENCE THAT
THIS PLAN IS QUALIFIED UNDER IRC SECTION 401. IF THE EMPLOYER WHO
ADOPTS OR MAINTAINS MULTIPLE PLANS WISHES TO OBTAIN RELIANCE THAT
HIS OR HER PLAN(S) ARE QUALIFIED, APPLICATION FOR A DETERMINATION
LETTER SHOULD BE MADE TO THE APPROPRIATE KEY DISTRICT DIRECTOR OF
INTERNAL REVENUE SERVICE. THIS ADOPTION AGREEMENT MAY BE USED
ONLY IN CONNECTION WITH BASIC PLAN DOCUMENT NUMBER 01.
The Participation Agreement has been signed by the Employer
this _______ day of 19__.
_____________________________________
(Print Name of Employer -
Specify if a Partnership)
By: _____________________________________
(Signature of Employer. If Employer
is a Partnership, must be signed
by authorized general partner.)
Appointment as Plan Administrator accepted:
___________________________________________
(Signature of Plan Administrator)
___________________________________________
Address (If different from Employer's)
Date: ____________________
Appointment as Custodian accepted:
By:________________________________________
Date: ____________________
<PAGE>
NICHOLAS MASTER RETIREMENT PLAN Form 3
CONTRIBUTION SUMMARY FORM
The following contribution enclosed herewith is to be credited to the
respective accounts of the following Participants in the amounts set
forth opposite their names, and each Participant has chosen to have
such amount(s) invested in the fund(s) indicated.
<TABLE>
Social Nicholas Nicholas Nicholas Nicholas
Security Nicholas Nicholas Limited Equity Income Income Money
Name of Participant Number Fund II Edition* Fund Fund Market
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Employer Profit ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
Sharing
Contributions ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
===================================
Employer Money ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
Purchase
Contributions ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
===================================
Qualified ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
Non-ADEC**
Rollover ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
Contributions
(Designate "PS" ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
by name ifto
Profit Sharing
Plan, "MP" if
to Money
Purchase Plan)
===================================
Qualified ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
ADEC**
Rollover ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
Contributions
(Designate "PS" ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
by name ifto
Profit Sharing Subtotals...................... $_______ $_______ $_______ $________ $________ $_______
Plan, "MP" if
to Money Total custodian Charges..................................................................... $_______
Purchase Plan)
Total Contribution (Employer, Rollover and Custodian Charges)
NOTE: MINIMUM - $500 for Nicholas Fund and Niholas Income Fund, $1,000 for Nicholas II, Inc.,$2000 for Nicholas
Equity Income Fund, Nicholas Limited Edition and Nicholas Money Market Fund. If you do not have the applicable
Fund propsectus, please contact the Nicholas Family of Funds. The prospectus contains more complete information
regarding charges and expenses. Read it carefully before you invest. $_______
The Custodian will not bill any employer for its fees; therefore, any Custodian charges not seperately included with this
participation agreement will be deducted in equal amounts from the contributions made on behalf of each Owner. Owners must be
identified as such on this form. If additional space is required to report contributions, please attach a seperate sheet hereto.
A completely-executed and approved "Application for Participation" form for each Participant (including Owners/Pertners) must
be attached to this summary contribution Form or the Custodian cannot accept this form. This form and all application forms must
be signed and dated by the Plan Administrator.
_________________________________
(Print name of Employer)
Date _____________________
by:______________________________
Plan Administrator Signature
Approved: FIRSTAR TRUST CO.
Date ______________________
by:_______________________________
*See Share Limitation in the current edition of this Fund's prospectus. Investments received after the Fund is closed will be
returned. If you are up against a tax deadline, please call our offices to check on the status of Nicholas Limted Edtion
**ADEC refers to amounts attributable to accumulated deductable employee contributions within the meaning of
IRC Section 72(0)(5)(B), See Section 2.cc and 4.6 of Plan Document.
</TABLE>
<PAGE>
Form 4
NICHOLAS MASTER RETIREMENT PLAN
Application For Participation
(This form to be filed with
Custodian after approval by
Plan Administrator.)
(Please Print)
Name of Employer ____________________________________________________
Name of Participant _________________________________________________
Current Address _____________________________________________________
Social Security Number ______________________________________________
Date of Birth _______________________________________________________
Date of Employment __________________________________________________
Date of Participation January 1, 19__.
Owner (as defined in Plan) (check one): ____Yes ____No
I have completed the eligibility requirements for participation
in the above-named self-employed retirement plan and hereby apply
to become a participant in that plan. I agree to furnish the Plan
Administrator (the employer or its delegate) all information
necessary to implement my initial and continuing participation in
the plan. I agree to be bound by all terms of the plan and to
keep the Plan Administrator advised of my current address at all
times when there is an account balance being held in my name. If
I am not an Owner or Partner, I agree to notify the Plan
Administrator and Custodian if I should at any later date become
an Owner or Partner.
I acknowledge that I have received a copy of the summary plan
description for the above-named self-employed retirement plan and
that the Plan Administrator has explained to my satisfaction my
rights and duties under the plan.
_____________ ______________________________________________________
(Date) (Signature of Participant)
_____________ ______________________________________________________
(Date) Approval by Plan Administrator
5/90
<PAGE>
NICHOLAS MASTER RETIREMENT PLAN Form 5
BENEFIT PAYMENT AUTHORIZATION
Name of Employer:_______________________________________________
1. Participant's Name __________________________________________
2. Current Mailing Address______________________________________
Street Address
______________________________________
City State Zip Code
3. Social Security No.________________ 4. Date of Birth______________
5. Date of Employment ___________________ 6. Date of Termination__________
7. Date of Initial Participation in Plan ____________________
8. Reason for Payment (check appropriate line)
[ ] Employment Terminated [ ] Death
[ ] Retirement [ ] Other (Explain) ___________________________
(If "Death," include a certified copy of the death certificate,
beneficiary's full name, address, social security number and
copies of Beneficiary Designation and/or required Benefit Waiver
and Spousal Consent, if any)
9. Method of distribution of benefits (check appropriate line):
(A Participant's benefits under the Money Purchase Plan can be
paid in a f6rm other than Survivor Annuity only if a valid
Benefit Waiver and Spousal Consent is filed with the Plan
Administrator.)
[ ] Single lump-sum cash payment (See Item 10 Below)
[ ] Equal annual installment over a period of ____ years (See Item 10 Below)
[ ] Qualified Joint and Survivor Annuity
[ ] Pre-retirement Survivor Annuity
[ ] Other (Explain)
10. Direct Rollover: Is all or part of the distribution to be
paid directly to an eligible retirement plan in a Direct
Rollover? (CAUTION: a Direct Rollover normally is available
only for a lump sum distribution or distribution in
installments over less than 10 years. Certain distributions,
such as distributions of after-tax contributions or minimum
required distributions under Code Section 401(a) (9), do not
qualify for a Direct Rollover. See your legal or other
professional advisor to make sure the distribution is an
"eligible rollover distribution" and that all applicable
requirements for such distributions, including the requirement
of a written explanation to the distributee, have been met.)
____ Yes ____ No
If Yes, complete (a) and (b):
(a) Provide the following information about the plan
receiving the Rollover:
Name of Plan: ______________________________________________
Name and Address of Trustee or Custodian
____________________________________________________________
____________________________________________________________
____________________________________________________________
(over please)
Type of Plan (check one - if none applies, a Direct Rollover
cannot be made):
[ ] Qualified IRA, described in Section 408(a) of the
Internal Revenue Code.
[ ] Qualified Individual Retirement Annuity (other than
endowment contract), described in Code Section 408~),
issued by an insurance company
*[ ] Qualified Annuity Plan of employer for employees, described
in Code Section 408(a).
*[ ] Qualified employer pension, profit sharing or stock
bonus plan and trust described in Code Sections 401(a) and
501(a), that is a defined contribution plan and accepts
rollover contributions.
_____________________
*Surviving spouse cannot elect a Direct Rollover to these
types of plans.
(b) Amount of Direct Rollover (if less than entire
distribution): $_______________________________
11. Does Participant participate in another pension or profit
sharing plan maintained by the Employer? ___Yes ____No
12. Participant invested in these investment funds (give
names and account numbers):
(a)
(b)
(c)
(d)
13. BY SIGNING BELOW, THE PLAN ADMINISTRATOR CERTIFIES that any
and all explanations, notices and election forms required by the
plan and by applicable Internal Revenue Code provisions and
Treasury Regulations to be given to the Participant in connection
with the benefit distribution requested have been or will be
provided within the required time periods.
Payment approved by ______________________________________ (Date) _________
(Plan Administrator's Signature)
BY SIGNING BELOW, THE DISTRIBUTEE CERTIFIES that if a Direct
Rollover is selected at Item 10, the name, type of plan, and
other information shown about the plan to receive the Rollover is
correct.
Payment requested by _____________________________________ (Date) _________
(Distributee's Signature)
[LOGO] 12/94
<PAGE>
Department of the Treasury
Internal Revenue Service Washington DC 20224
Plan Description: Master Standardized Profit Sharing Plan & Trust
FFN: 50271590001-00l Case 9000951 EIN: 39-1091673
BPD: 0l Plan: 001 Letter Serial No: D245323a
Person to Contact: Mr. Westry
Nicholas Co Inc Telephone Number (2O2) 535-4972
700 North Water Street Refer Reply to E:EP:Q:4
Suite 1010
Milwaukee WI 53202 Date: 04/04/90
Dear Applicant:
In our opinion. the form of the plan identified above is
acceptable under section 401 of the Internal Revenue Code for
use by employers for the benefit of their employees. This
opinion relates only to the acceptability of the form of the
plan under the Internal Revenue Code. It is not an opinion of
the effect of other Federal or local statutes.
We have determined that the related trust or custodial account
under this Master plan is exempt from income tax under Code
section 501(a).
You must furnish a copy of this letter to each employer who
adopts this plan. You are also required to send a copy of
the approved form of the plan, any approved amendments and
related documents to each Key District Director of Internal
Revenue Service in whose jurisdiction there are adopting
employers.
Our opinion on the acceptability of the form of the plan is
not a ruling or determination as to whether an employer's
plan qualifies under Code section 401(a). an employer who
adopts this plan will be considered to have a plan qualified
under Code section 401(a) provided all the terms of the plan
are followed) and the eligibility requirements and
contribution or benefit provisions are not More favorable
for officers, owners, or highly compensated employees than for
other employees. Except as stated below) the Key District
Director will not issue a determination letter with regard to
this plan.
Our opinion does not apply to the form of the plan for
purposes of Code section 401(a)(16) if: (1) an employer ever
maintained another qualified plan for one or more employees
who are covered by this plan, other than a specified paired
plan within the Meaning of section 7 of Rev. Proc. 89-9, 1989-
6 I.R.B. 14; or (2) after December 3I, 1985, the employer
Maintains a welfare benefit fund defined in Code section
419(e), which provides postretirement medical benefits
allocated to separate accounts for key employees as defined in
Code section 419A(d)(3). In such situations, the employer
should request a determination as to whether the plan,
considered with all related qualified plans and, if
appropriate1 welfare benefit funds, satisfies the
requirements of Code section 401(a)(16) as to limitations
on benefits and contributions in Code section 415.
If you, the pan sponsor, have any questions concerning the
IRS processing of this case, please call the above telephone
number. This number is only for use of the plan sponsor.
Individual participants and/or adopting employers with
questions concerning the plan should contact the plan sponsor.
The plan's adoption agreement Must include the sponsor's
address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide
your telephone number and the Most convenient time for us to
call in case we need more information. Whether you call or
write, please refer to the Letter Serial Number and File
Folder number shown in the heading of this letter.
You should keep this letter as a permanent record. Please
notify us if you modify or discontinue sponsorship of this
plan.
Sincerely yours,
Chief, Employee Plan Qualifications Branch
<PAGE>
Internal Revenue Service
Plan Description: Master Standardized Money Purchase Pension Plan
& Trust
FFN: 50271590001-001 Case: 9000954 EIN: 39-1091673
BPD: 0l Plan: 002 Letter Serial No: D245324a
Person to Contact: Mr. Westry
Nicholas Co Inc Telephone Number (2O2) 535-4972
700 North Water Street Refer Reply to E:EP:Q:4
Suite 1010
Milwaukee WI 53202 Date: 04/04/90
Dear Applicant:
In our opinion the form of the plan identified above is
acceptable under section 401 of the Internal Revenue Code for
use by employers for the benefit of their employees This
opinion relates only to the acceptability of the form of the
plan under the Internal Revenue Code. It is not an opinion of
the effect of other Federal or local statutes.
We have determined that the related trust or custodial account
under this master plan is exempt from income tax under Code
section 501(a).
You Must furnish a copy of this letter to each employer who
adopts this plan. You are also required to send a copy of
the approved form of the plan, any approved amendments and
related documents to each Key District Director of Internal
Revenue Service in whose jurisdiction there are adopting
employers.
Our opinion on the acceptability of the form of the plan is
not a ruling or determination as to whether an employer's
plan qualifies under Code section 401(a). an employer who
adopts this plan will be considered to have a plan qualified
under Code section 401(a) provided all the terms of the plan
are followed, and the eligibility requirements and
contribution or benefit provisions are not more favorable
for officers, owners, or highly compensated employees than for
other employees. Except as stated below, the Key District
Director will not issue a determination letter with regard to
this plan.
Our opinion does not apply to the form of the plan for
purposes of Code section 401(a)(16) if: (I) an employer ever
maintained another qualified plan for one or More employees
who are covered by this plan, other than a specified paired
plan within the meaning of section 7 of Rev. Proc. 89-9, 1989-
6 I.R.B. 14; or (2) after December 31, 1985 the employer
maintains a welfare benefit fund defined in Code section
419(e), which provides postretirement medical benefits
allocated to separate accounts for key employees as defined in
Code section 419A(d)(3). In such situations, the employer
should request a determination as to whether the plan,
considered with all related qualified plans and, if
appropriate, welfare benefit funds, satisfies the
requirements of Code section 401(a)(16) as to limitations
on benefits and contributions in Code section 415.
If you, the plan sponsor, have any questions concerning the
IRS processing of this case, please call the above
telephone number. This number is only for use of the plan
sponsor. Individual participants and/or adopting employers
with questions concerning the plan should contact the plan
sponsor. The plan's adoption agreement must include the
sponsor's address and telephone number for inquiries by
adopting employers.
If you write to the IRS regarding this plan, please provide
your telephone number and the most convenient time to us to
call in case we need more information. Whether you call or
write, please refer to the Letter Serial Number and File
Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please
notify us if you modify or discontinue sponsorship of this
plan.
Sincerely yours,
Chief, Employee Plans Qualifications Branch
<PAGE>
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
February 25, 1998
Report to Fellow Shareholders:
It is pleasing to report another year of solid performance for Nicholas
Income Fund. Total return for 1997 was 13.13% with distributions reinvested,
better than last years 12.37% and above our long term average annual rate.
Results of the lastest one, five, ten and fifteen year periods ended December
31, 1997 are shown below:
Average Annual Total Return*
--------------------------------------------
1 Year 5 Years 10 Years 15 Years
------ ------- -------- --------
Nicholas Income Fund
(Distributions Reinvested) +13.13% +10.74% +10.00% +10.63%
Consumer Price Index
(Inflation) + 1.70% + 2.60% + 3.42% + 3.42%
Ending value of $10,000 invested
in Nicholas Income Fund
(Distributions Reinvested) $11,313 $16,651 $25,937 $45,506
As one can see from the table above, Nicholas Income Fund has provided a
substantial return over inflation for many years. For the fifteen year period
ended December 31, 1997, the margin of return over inflation has been 7.21% on
an average annual basis. We also take pride in the fact that Nicholas Income
Fund has earned Morningstar's five star (*****) rating for its overall
risk-adjusted performance as of December 31, 1997 based on a comparison of 1371
fixed income funds eligible for the overall rating. The Fund's three, five and
ten year ratings were also five stars, as of December 31, 1997, based on a
comparison of 1371, 771 and 323 fixed income funds, respectively. The top ten
percent of funds in their respective categories receive five stars.*
At December 31, 1997, total net assets of Nicholas Income Fund were $254
million. Cash and equivalents were 9.67%. The 30-day SEC yield annualized
on Nicholas Income Fund was 7.77%
Thank you for your interest in the Nicholas Income Fund.
Sincerely,
/S/ Albert O. Nicholas
------------------
Albert O. Nicholas
President
*Total returns are historical and include change in share price and
reinvestment of dividend and capital gain distributions. Past
performance is no guarantee of future results. Principal value and
return will fluctuate so an investment, when redeemed, may be worth
more or less than original cost. 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.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the year)
- ---------------------------------------------------------------------
<TABLE>
Year ended December 31,
----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR....... $3.53 $3.42 $3.21 $3.52 $3.38 $3.34 $3.01 $3.44 $3.68 $3.64
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... .30 .30 .30 .30 .30 .31 .35 .39 .38 .38
Net gains (losses) on
securities (realized
and unrealized)........ .15 .11 .21 (.31) .13 .03 .33 (.43) (.24) .03
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations........... .45 .41 .51 (.01) .43 .34 .68 (.04) .14 .41
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS*:
Dividends (from net
investment income)..... (.29) (.30) (.30) (.30) (.29) (.30) (.35) (.39) (.38) (.37)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF
YEAR................... $3.69 $3.53 $3.42 $3.21 $3.52 $3.38 $3.34 $3.01 $3.44 $3.68
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN.............. 13.13% 12.37% 16.16% (0.17)% 12.95% 10.33% 23.05% (1.03)% 3.94% 11.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions)............... $254.2 $185.7 $162.1 $140.9 $158.3 $119.1 $79.9 $60.6 $75.4 $78.2
Ratio of expenses to
average net assets....... .50% .55% .58% .59% .62% .69% .76% .77% .81% .83%
Ratio of net investment
income to average net
assets................... 8.29% 8.55% 8.72% 8.75% 8.42% 9.23% 10.70% 11.74% 10.46% 10.03%
Portfolio turnover rate... 32.2% 33.2% 29.2% 29.2% 39.1% 56.1% 27.5% 40.4% 39.6% 11.9%
* The Fund distributed no capital gains for the time periods listed.
</TABLE>
See notes to financial statements.
TOP TEN ISSUERS
December 31, 1997
- ---------------------------------------------------------------------
Percentage
Name of Net Assets
Stater Brothers Holdings, Inc.................3.58%
Cablevision Systems Corporation...............3.45
McDermott (J. Ray), S.A.......................3.37
Century Communications Corporation............3.34
Paging Network, Inc...........................3.31
Vencor, Inc...................................3.04
Greyhound Lines, Inc..........................2.99
Canandaigua Wine Company, Inc.................2.97
Meditrust Corporation, Paired ctf.............2.94
Adelphia Communications Corporation...........2.93
------
Total of top ten issuers..................31.92%
------
------
SCHEDULE OF INVESTMENTS
December 31, 1997
- ----------------------------------------------------------------------
Quoted
Shares or Market
Principal Value
Amount (Note A)
- --------- --------
NON-CONVERTIBLE BONDS - 76.50%
CONSUMER PRODUCTS AND SERVICES - 18.80%
7,000,000 Brown Group, Inc.
9.50%, 10/15/06..................................... 7,315,000
5,500,000 Coca-Cola Bottling Group Southwest, Inc.
9.00%, 11/15/03..................................... 5,637,500
6,875,000 Greyhound Lines, Inc.
11.50%, 4/15/07..................................... 7,596,875
1,000,000 Outboard Marine Corp.
8.25%, 3/15/98...................................... 1,001,527
3,600,000 Outboard Marine Corp.
8.625%, 3/15/01..................................... 3,668,954
6,200,000 Paging Network, Inc.
10.125%, 8/1/07..................................... 6,448,000
2,000,000 Paging Network, Inc.
8.875%, 2/1/06...................................... 1,960,000
7,000,000 Playtex Family Products Corp.
9.00%, 12/15/03..................................... 7,113,750
7,000,000 Viacom, Inc.
8.00%, 7/7/06....................................... 7,052,500
----------
47,794,106
----------
DIVERSIFIED PRODUCTS AND SERVICES - 11.54%
3,750,000 Borg-Warner Security Corporation
9.125%, 5/1/03...................................... 3,829,688
2,400,000 IDEX Corp.
9.75%, 9/15/02...................................... 2,490,000
3,300,000 Mark IV Industries, Inc.
8.75%, 4/1/03....................................... 3,481,500
8,000,000 McDermott (J. Ray), S.A.
9.375%, 7/15/06..................................... 8,570,000
4,150,000 Sequa Corp.
8.75%, 12/15/01..................................... 4,212,250
1,000,000 Sequa Corp.
9.625%, 10/15/99.................................... 1,032,500
5,000,000 Unisys Corp.
11.75%, 10/15/04.................................... 5,712,500
-----------
29,328,438
-----------
FINANCE AND INSURANCE- 0.99%
1,000,000 American Annuity Group, Inc.
11.125%, 2/1/03....................................... 1,031,789
1,000,000 Litchfield Financial Corp.
10.00%, 11/1/04...................................... 1,025,000
475,000 Litchfield Financial Corp.
8.875%, 11/1/03.................................... 470,250
-----------
2,527,039
-----------
FOOD AND BEVERAGES - 7.11%
3,000,000 ARA Group, Inc.
8.50%, 6/1/03....................................... 3,126,483
7,500,000 Canandaigua Wine Company, Inc.
8.75%, 12/15/03..................................... 7,556,250
3,000,000 Chiquita Brands International, Inc.
9.125%, 3/1/04...................................... 3,157,500
1,000,000 Chiquita Brands International, Inc.
9.625%, 1/15/04..................................... 1,060,000
3,000,000 Fleming Companies, Inc.
10.625%, 7/31/07.................................... 3,165,000
-----------
18,065,233
-----------
FOOD RETAILER - 3.58%
4,470,000 Stater Brothers Holdings, Inc.
11.00%, 3/1/01...................................... 4,928,175
4,000,000 Stater Brothers Holdings, Inc.
9.00%, 7/1/04....................................... 4,180,000
-----------
9,108,175
-----------
HEALTH CARE - 9.21%
3,000,000 Beverly Enterprises, Inc.
9.00%, 2/15/06...................................... 3,120,000
5,000,000 Genesis Health Ventures, Inc.
9.25%, 10/1/06...................................... 5,093,750
3,000,000 Magellan Health Services Inc.
11.25%, 4/15/04..................................... 3,326,250
4,000,000 Quorum Health Group, Inc.
8.75%, 11/1/05...................................... 4,125,000
7,750,000 Vencor, Inc.
8.625%, 7/15/07..................................... 7,740,312
-----------
23,405,312
-----------
MEDIA, COMMUNICATIONS AND ENTERTAINMENT - 24.01%
5,000,000 Adelphia Communications Corporation
9.875%, 3/1/05...................................... $ 5,281,250
2,000,000 Adelphia Communications Corporation
11.875%, 9/15/04.................................... 2,175,000
6,700,000 American Radio Systems Corporation
9.00%, 2/1/06....................................... 7,169,000
8,000,000 Cablevision Systems Corporation
9.875%, 5/15/06..................................... 8,780,000
8,250,000 Century Communications Corporation
8.875%, 1/15/07..................................... 8,497,500
5,000,000 Cinemark USA, Inc.
9.625%, 8/1/08...................................... 5,187,500
2,000,000 Comcast Cellular Communications, Inc.
9.50%, 5/1/07....................................... 2,085,000
5,000,000 Comcast Corporation
9.375%, 5/15/05..................................... 5,306,250
4,000,000 Heritage Media Corporation
8.75%, 2/15/06...................................... 4,220,000
5,000,000 Hollinger International, Inc.
9.25%, 2/1/06....................................... 5,250,000
2,000,000 Young Broadcasting Inc.
10.125%, 2/15/05.................................... 2,090,000
5,000,000 Young Broadcasting Inc.
9.00%, 1/15/06...................................... 5,000,000
-----------
61,041,500
-----------
TECHNOLOGY - 1.26%
3,000,000 Advanced Micro Devices, Inc.
11.00%, 8/1/03...................................... 3,210,000
-----------
TOTAL NON-CONVERTIBLE BONDS
(cost $187,751,189)................................. 194,479,803
-----------
CONVERTIBLE BONDS - 4.25%
7,531,000 Emeritus Corporation
6.25%, 1/1/06....................................... 6,561,384
4,500,000 Tenet Healthcare Corporation
6.00%, 12/1/05...................................... 4,235,625
-----------
TOTAL CONVERTIBLE BONDS
(cost $10,426,300)................................ 10,797,009
-----------
STOCKS - 9.58%
5,000 Homestead Savings Convertible
Preferred, Series A, $2.95 *......................... 5,000
100,000 Healthcare Realty Trust Incorporated................. 2,893,750
130,000 Hospitality Properties Trust......................... 4,273,750
204,272 Meditrust Corporation, Paired ctf.................... 7,481,462
130,000 National Health Investors, Inc....................... 5,443,750
110,000 Omega Healthcare Investors, Inc...................... 4,248,750
-----------
TOTAL STOCKS
(cost $18,020,199)................................. 24,346,462
-----------
SHORT-TERM INVESTMENTS - 8.02%
Commercial Paper - 6.45%
$3,000,000 Banta Corporation
6.35%, due January 5, 1998........................... 2,998,413
2,000,000 WICOR Industries, Inc.
6.30%, due January 5, 1998........................... 1,998,950
5,500,000 Harnischfeger Industries, Inc.
6.35%, due January 7, 1998........................... 5,495,149
1,800,000 Manpower, Inc.
6.35%, due January 7, 1998........................... 1,798,413
4,100,000 Quad/Graphics, Inc.
6.20%, due January 8, 1998........................... 4,095,763
-----------
16,386,688
-----------
Variable Rate Demand Notes - 1.57%
468,655 General Mills, Inc.
5.33%, due January 2, 1998........................... 468,655
2,374,865 Johnson Controls, Inc.
5.33%, due January 2, 1998........................... 2,374,865
335,781 Warner-Lambert Company
5.49%, due January 2, 1998........................... 335,781
814,116 Wisconsin Electric Power Company
5.49%, due January 2, 1998........................... 814,116
-----------
3,993,417
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $20,359,143)................................... 20,380,105
-----------
TOTAL INVESTMENTS
(cost $236,556,831).................................. 250,003,379
-----------
CASH AND RECEIVABLES,
NET OF LIABILITIES - 1.65%........................... 4,202,609
-----------
TOTAL NET ASSETS
(Basis of percentages
disclosed above).................................... $254,205,988
------------
------------
* This security has been classified as non-income producing.
See notes to financial statements.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value (cost $236,556,831) (Note A)............ $250,003,379
Interest and dividends receivable............................................ 5,653,152
------------
Total assets............................................................ 255,656,531
------------
LIABILITIES:
Payables-
Dividends payable............................................................ 1,298,302
Management fee (Note C)...................................................... 79,613
Other payables and accrued expenses.......................................... 72,628
------------
Total liabilities....................................................... 1,450,543
------------
Total net assets........................................................ $254,205,988
------------
------------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding................................................ $247,492,109
Net unrealized appreciation on investments (Note B)............................... 13,425,586
Accumulated net realized losses on investments.................................... (7,434,375)
Accumulated undistributed net investment income................................... 722,668
------------
$254,205,988
------------
------------
NET ASSET VALUE PER SHARE ($.01 par value, 100,000,000 shares authorized),
offering price and redemption price ($254,205,988/68,804,921
shares outstanding)............................................................... $3.69
-----
-----
See notes to financial statements.
</TABLE>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
- ---------------------------------------------------------------------
INCOME: (Note A)
Interest...................................... $17,274,549
Dividends..................................... 1,521,750
Other......................................... 524,737
----------
Total income............................. 19,321,036
----------
EXPENSES:
Management fee (Note C)....................... 809,091
Transfer agent fees........................... 120,657
Registration fees............................. 51,158
Legal fees.................................... 30,677
Postage and mailing fees...................... 24,653
Audit and tax consulting fees................. 14,500
Custodian fees................................ 11,417
Printing...................................... 10,904
Pricing service fees.......................... 9,433
Directors' fees............................... 9,000
Insurance..................................... 8,544
Telephone..................................... 4,191
Other operating expenses....................... 727
-----------
Total expenses................................ 1,104,952
------------
Net investment income.................... 18,216,084
-----------
NET REALIZED GAIN ON INVESTMENTS................... 1,781,466
NET INCREASE IN UNREALIZED APPRECIATION
ON INVESTMENTS................................... 7,724,030
-----------
Net gain on investments.................. 9,505,496
-----------
Net increase in net assets
resulting from operations................ $27,721,580
-----------
-----------
See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
- ----------------------------------------------------------------------
<TABLE>
1997 1996
----------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income........................................... $ 18,216,084 $14,578,760
Net realized gain (loss) on investments......................... 1,781,466 458,971
Net increase in unrealized appreciation on investments.......... 7,724,030 5,006,476
------------ ------------
Net increase in net assets resulting from operations....... 27,721,580 20,044,207
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.2903 and $0.2960 per share, respectively)................. (18,102,607) (14,615,595)
----------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (21,707,323 and 10,614,891
shares, respectively)......................................... 79,140,388 36,879,473
Net asset value of shares issued in distributions from net
investment income (3,765,603 and 3,051,652 shares,
respectively)................................................. 13,707,776 10,528,296
Cost of shares redeemed (9,318,378 and 8,444,524
shares, respectively)......................................... (33,929,068) (29,248,401)
----------- -----------
Increase in net assets derived from
capital share transactions............................... 58,919,096 18,159,368
----------- -----------
Total increase in net assets............................... 68,538,069 23,587,980
----------- -----------
NET ASSETS:
Beginning of year (including undistributed net
investment income of $609,191 and $646,026, respectively).... 185,667,919 162,079,939
------------ ------------
End of year (including undistributed net
investment income of $722,668 and $609,191, respectively)..... $254,205,988 $185,667,919
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- ---------------------------------------------------------------------
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. Variable rate demand notes are valued at cost
which approximates market value.
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. The Fund
is not subject to State of Wisconsin income taxes. As of December 31, 1997,
the Fund has approximately $7,434,000 of net capital losses which may be used
to offset capital gains in future years. Capital loss carryovers of
approximately $3,366,000 will expire in 1998, $482,000 in 1999, $2,081,000 in
2000, and $1,505,000 in 2003.
At December 31, 1997, 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......................... $14,047,766
----------
Aggregate gross unrealized depreciation for all
investments in which there was an excess of
tax cost over value......................... ( 622,180)
-----------
-----------
Net unrealized appreciation............ $13,425,586
-----------
-----------
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, 1997, liabilities of the Fund included $79,613 payable to
the investment adviser.
Note D -- Investment portfolio transactions:
For the year ended December 31, 1997, the cost of purchases and the
proceeds from sales of investments, other than short-term obligations,
aggregated $115,769,466 and $64,592,824, respectively.
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, 1997, 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, 1997 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, 1997, 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 15, 1998
HISTORICAL RECORD (unaudited)
- ---------------------------------------------------------------------
Net Investment Growth of
Net Income An Initial
Asset Value Distributions $10,000
Per Share Per Share Investment**
----------- ------------- ------------
November 21, 1977*........... $ 5.10 $ $10,000
December 31, 1987............ 3.64 0.4660 22,560
December 31, 1988............ 3.68 0.3710 25,164
December 31, 1989............ 3.44 0.3830 26,155
December 31, 1990............ 3.01 0.3970 25,886
December 31, 1991............ 3.34 0.3460 31,853
December 31, 1992............ 3.38 0.2955 35,143
December 31, 1993............ 3.52 0.2890 39,695
December 31, 1994............ 3.21 0.3010 39,626
December 31, 1995............ 3.42 0.2950 46,029
December 31, 1996............ 3.53 0.2960 51,721
December 31, 1997............ 3.69 0.2903 58,514
* Initial date under Nicholas Company, Inc. management.
** Assuming reinvestment of distributions.
The Fund distributed no capital gains for the time periods listed.
NICHOLAS FAMILY OF FUNDS
Services Offered
- ---------------------------------------------------------------------
* IRAs
*Traditional *Educational
*Roth *SEP
*Self-employed Master Retirement Plan
*Money Purchase *Profit Sharing
*Automatic Investment Plan
*Direct Deposite of Distributions
*Systematic Withdrawl Plan
*Monthly Automatic Exchange between Funds
*Telephone Redemption (Regular accounts only)
*Telephone Exchange
*24-hour Automated Account Information (800-544-6547)
Please call a shareholder representative for further information on
the above services or with any other questions you may have regarding
the Nicholas Family of Funds.
800-227-5987
OFFICERS AND DIRECTORS
ALBERT O. NICHOLAS
President and Director
FREDERICK F. HANSEN
Director
JAY H. ROBERTSON
Director
MELVIN L. SCHULTZ
Director
DAVID L. JOHNSON
Executive Vice President
THOMAS J. SAEGER
Executive Vice President and Secretary
JEFFREY T. MAY
Senior Vice President and Treasurer
DAVID O. NICHOLAS
Senior Vice President
CANDACE L. LESAK
Vice President
KATHLEEN A. EVANS
Assistant Vice President
Investment Adviser
NICHOLAS COMPANY, INC.
414-272-6133 or 800-227-5987
Custodian and Transfer Agent
FIRSTAR TRUST COMPANY
414-276-0535 or 800-544-6547
Counsel
MICHAEL, BEST & FRIEDRICH
Milwaukee, WI
Auditors
DELOITTE & TOUCHE LLP
Milwaukee, WI
This report is submitted for the information of shareholders of
the Fund. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective
prospectus.
ANNUAL REPORT
NICHOLAS INCOME
FUND, INC.
700 North
Water Street
Milwaukee,
Wisconsin 53202
December 31, 1997
<letterhead>
INDEPENDENT AUDITORS' CONSENT
Nicholas Income Fund, Inc.
We consent to the incorporation by reference in the Post-Effective Amendment
No. 82 to the Registration Statement on Form N-1A (File No. 2-10806) of
Nicholas Income Fund, Inc. of our report dated January 15, 1998 accompanying
the Financial statements of Nicholas Income Fund, Inc. contained in the
Fund's 1997 annual report to shareholders and to the reference to us under the
captions "Financial Highlights" and "Independent Auditors and Legal Counsel"
which appear in the Fund's Prospectus, which is a part of such Registration
Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Milwaukee, Wisconsin
April 27, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 236556831
<INVESTMENTS-AT-VALUE> 250003379
<RECEIVABLES> 5653152
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 255656531
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1450543
<TOTAL-LIABILITIES> 1450543
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 247492109
<SHARES-COMMON-STOCK> 68804921
<SHARES-COMMON-PRIOR> 52650373
<ACCUMULATED-NII-CURRENT> 722668
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7434375)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13425586
<NET-ASSETS> 254205988
<DIVIDEND-INCOME> 1521750
<INTEREST-INCOME> 17274549
<OTHER-INCOME> 524737
<EXPENSES-NET> 1104952
<NET-INVESTMENT-INCOME> 18216084
<REALIZED-GAINS-CURRENT> 1781466
<APPREC-INCREASE-CURRENT> 7724030
<NET-CHANGE-FROM-OPS> 27721580
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18102607
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21707323
<NUMBER-OF-SHARES-REDEEMED> 9318378
<SHARES-REINVESTED> 3765603
<NET-CHANGE-IN-ASSETS> 68538069
<ACCUMULATED-NII-PRIOR> 609191
<ACCUMULATED-GAINS-PRIOR> (9215841)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 809091
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1104952
<AVERAGE-NET-ASSETS> 219630553
<PER-SHARE-NAV-BEGIN> 3.53
<PER-SHARE-NII> .3
<PER-SHARE-GAIN-APPREC> .15
<PER-SHARE-DIVIDEND> .29
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 3.69
<EXPENSE-RATIO> .5
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE>
<CAPTION>
Compound and Total Return Calculation NICHOLAS INCOME 12/31/96 THRU 12/31/97
Starting date: 12/31/96 future value 1,131.34
Ending date: 12/31/97 present valu 1,000.00
Total Return 13.1341% # years 1
Average annual return 13.1341% # days 365.00
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>
12/31/96 A 3.53 1000 283.286 283.286 $1,000.00
04/25/97 D 3.51 0.0710 5.730 289.016 $1,014.45
07/18/97 D 3.64 0.0690 5.479 294.495 $1,071.96
10/17/97 D 3.70 0.0710 5.651 300.146 $1,110.54
12/30/97 D 3.69 0.0793 6.450 306.596 $1,131.34
12/31/97 A 3.69 306.596 $1,131.34
</TABLE>
<TABLE>
<CAPTION>
Compound and Total Return Calculation NICHOLAS INCOME 12/31/92 THRU 12/31/97
Starting date: 12/31/92 future value 1,665.05
Ending date: 12/31/97 present valu 1,000.00
Total Return 66.5046% # years 5
Average annual return 10.7351% # days 1826.00
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>
12/31/92 A 3.38 1000 295.858 295.858 $1,000.00
04/23/93 D 3.49 0.0720 6.104 301.962 $1,053.85
07/23/93 D 3.53 0.0700 5.988 307.950 $1,087.06
10/15/93 D 3.55 0.0730 6.332 314.282 $1,115.70
12/30/93 D 3.52 0.0740 6.607 320.889 $1,129.53
12/31/93 A 3.52 320.889 $1,129.53
04/22/94 D 3.35 0.0730 6.993 327.882 $1,098.40
07/22/94 D 3.32 0.0740 7.308 335.190 $1,112.83
10/14/94 D 3.29 0.0740 7.539 342.729 $1,127.58
12/29/94 D 3.21 0.0800 8.542 351.271 $1,127.58
12/31/94 A 3.21 351.271 $1,127.58
04/21/95 D 3.30 0.0730 7.771 359.041 $1,184.84
07/14/95 D 3.40 0.0730 7.709 366.750 $1,246.95
10/13/95 D 3.40 0.0730 7.874 374.624 $1,273.72
12/28/95 D 3.41 0.0760 8.349 382.974 $1,305.94
12/31/95 A 3.42 382.974 $1,309.77
04/19/96 D 3.41 0.0720 8.086 391.060 $1,333.51
07/12/96 D 3.39 0.0730 8.421 399.481 $1,354.24
10/11/96 D 3.46 0.0740 8.544 408.025 $1,411.77
12/30/96 D 3.53 0.0770 8.900 416.925 $1,471.75
12/31/96 A 3.53 416.925 $1,471.75
04/25/97 D 3.51 0.0710 8.434 425.359 $1,493.01
07/18/97 D 3.64 0.0690 8.063 433.422 $1,577.65
10/17/97 D 3.70 0.0710 8.317 441.739 $1,634.43
12/30/97 D 3.69 0.0793 9.493 451.232 $1,665.05
12/31/97 A 3.69 451.232 $1,665.05
</TABLE>
<TABLE>
<CAPTION>
Compound and Total Return Calculation NICHOLAS INCOME 12/31/87 THRU 12/31/98
Starting date: 12/31/87 future value 2,593.74
Ending date: 12/31/97 present valu 1,000.00
Total Return 159.3744% # years 11
Average annual return 9.0510% # days 4018.00
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>
12/31/87 A 3.64 1000 274.725 274.725 $1,000.00
04/22/88 D 3.74 0.0890 6.538 281.263 $1,051.92
07/15/88 D 3.74 0.0920 6.919 288.182 $1,077.80
10/21/88 D 3.75 0.0930 7.147 295.329 $1,107.48
12/29/88 D 3.68 0.0970 7.784 303.113 $1,115.46
12/31/88 A 3.68 303.113 $1,115.46
04/21/89 D 3.65 0.0940 7.806 310.919 $1,134.86
07/20/89 D 3.66 0.0970 8.240 319.159 $1,168.12
10/25/89 D 3.53 0.0940 8.499 327.658 $1,156.63
12/28/89 D 3.43 0.0980 9.362 337.020 $1,155.98
12/31/89 A 3.44 337.020 $1,159.35
04/20/90 D 3.33 0.0980 9.918 346.938 $1,155.30
07/20/90 D 3.37 0.0990 10.192 357.130 $1,203.53
10/19/90 D 3.03 0.0990 11.669 368.799 $1,117.46
12/28/90 D 3.00 0.1010 12.416 381.215 $1,143.65
12/31/90 A 3.01 381.215 $1,147.46
04/19/91 D 3.24 0.0900 10.589 391.804 $1,269.45
07/19/91 D 3.30 0.0900 10.686 402.490 $1,328.22
10/18/91 D 3.35 0.0850 10.212 412.702 $1,382.55
12/30/91 D 3.33 0.0810 10.039 422.741 $1,407.73
12/31/91 A 3.34 422.741 $1,411.96
04/21/92 D 3.36 0.0740 9.310 432.051 $1,451.69
07/17/92 D 3.41 0.0700 8.869 440.921 $1,503.54
10/16/92 D 3.39 0.0700 9.105 450.025 $1,525.58
12/30/92 D 3.38 0.0815 10.851 460.876 $1,557.76
12/31/92 A 3.38 460.876 $1,557.76
04/23/93 D 3.49 0.0720 9.508 470.384 $1,641.64
07/23/93 D 3.53 0.0700 9.328 479.712 $1,693.38
10/15/93 D 3.55 0.0730 9.865 489.577 $1,738.00
12/30/93 D 3.52 0.0740 10.292 499.869 $1,759.54
12/31/93 A 3.52 499.869 $1,759.54
04/22/94 D 3.35 0.0730 10.893 510.761 $1,711.05
07/22/94 D 3.32 0.0740 11.384 522.146 $1,733.52
10/14/94 D 3.29 0.0740 11.744 533.890 $1,756.50
12/29/94 D 3.21 0.0800 13.306 547.196 $1,756.50
12/31/94 A 3.21 547.196 $1,756.50
04/21/95 D 3.30 0.0730 12.105 559.300 $1,845.69
07/14/95 D 3.40 0.0730 12.009 571.309 $1,942.45
10/13/95 D 3.40 0.0730 12.266 583.575 $1,984.16
12/28/95 D 3.41 0.0760 13.006 596.582 $2,034.34
12/31/95 A 3.42 596.582 $2,040.31
04/19/96 D 3.41 0.0720 12.596 609.178 $2,077.30
07/12/96 D 3.39 0.0730 13.118 622.296 $2,109.58
10/11/96 D 3.46 0.0740 13.309 635.605 $2,199.19
12/30/96 D 3.53 0.0770 13.864 649.470 $2,292.63
12/31/96 A 3.53 649.470 $2,292.63
04/25/97 D 3.51 0.0710 13.137 662.607 $2,325.75
07/18/97 D 3.64 0.0690 12.560 675.168 $2,457.61
10/17/97 D 3.70 0.0710 12.956 688.124 $2,546.06
12/30/97 D 3.69 0.0793 14.788 702.912 $2,593.74
12/31/97 A 3.69 702.912 $2,593.74
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, as amended, 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 on the
6th day of April, 1987.
NICHOLAS INCOME FUND, INC.
By: /s/ Albert O. Nicholas
----------------------
Albert O. Nicholas, President,
Treasurer and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
this Registration Statement has been signed below by the
following persons in the capacity indicated on the dates
indicated.
KNOW ALL MEN BY THESE PRESENTS, that each of the persons
whose signature appears below constitutes and appoints Albert O.
Nicholas and Thomas J. Saeger, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place
and stead, and in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
--------- ----- ----
/s/ Albert O. Nicholas President, Chief April 6, 1987
- ---------------------- Executive Officer
Albert O. Nicholas Treasurer and Director
/s/ Thomas J. Saeger Vice President April 6, 1987
- --------------------- Secretary, Chief
Thomas J. Saeger Financial Officer,
and Chief Accounting
Officer
/s/ Frederick Hansen Director April 6, 1987
- ----------------------
Frederick Hansen
/s/ Alfonso D. Robertson Director April 6, 1987
- ------------------------
Alfonso D. Robertson
<PAGE>
POWER OF ATTORNEY
FOR NICHOLAS INCOME FUND, INC.
KNOW ALL MEN BY THESE PRESENTS, that Jay H. Robertson
constitutes and appoints Albert O. Nicholas and Thomas J. Saeger,
and each of them, his true and lawful attorneys-in-fact and
agents, for him and in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-
effective amendments) to the Form N-1A Registration Statement of
Nicholas Income Fund, Inc., and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission and any state of the
United States, granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done
by virtue thereof.
Date: December 20, 1995 /s/ Jay H. Robertson
--------------------
Jay H. Robertson
<PAGE>
POWER OF ATTORNEY
FOR NICHOLAS INCOME FUND, INC.
KNOW ALL MEN BY THESE PRESENTS, that Melvin L. Schultz
constitutes and appoints Albert O. Nicholas and Thomas J. Saeger,
and each of them, his true and lawful attorneys-in-fact and
agents, for him and in his name, place and stead in any and all
capacities, to sign any and all amendments (including post-
effective amendments) to the Form N-1A Registration Statement of
Nicholas Income Fund, Inc., and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission and any state of the
United States, granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done
by virtue thereof.
Date: December 20, 1995 /s/ Melvin L. Schultz
---------------------
Melvin L. Schultz
