April 28, 1999
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. 83
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 a copy of Post-
Effective Amendment No. 83 to the Registration Statement.
As indicated in the Exhibit Index certain exhibits will follow
in subsequent filing(s) as well as other pertinent financial data.
Very truly yours,
NICHOLAS COMPANY, INC.
/s/ Jeffery T. May
--------------------
JEFFREY T. MAY
Senior Vice President and Treasurer
Enclosure
Very truly yours,
MICHAEL BEST & FRIEDRICH
/s/ Kate M. Fleming
______________________
Kate M. Fleming
As filed with the Securities and Exchange Commission on April 28, 1999
File No. 2-10806
FORM N-1A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. __
POST-EFFECTIVE AMENDMENT NO. 83
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 24
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:
TERESA M. LEVY
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)
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 April 1, 1999, Registrant
filed the necessary Rule 24f-2 Notice and filing fee with the
Commission for its fiscal year ended December 31, 1998.
NICHOLAS INCOME FUND, INC.
FORM N-1A
PART A: PROSPECTUS
NICHOLAS INCOME FUND, INC.
PROSPECTUS
APRIL 30, 1999
The Fund's primary investment objective is to seek high current
income, by investing primarily in high yield bonds. Capital
appreciation is a secondary objective that is sought only when
consistent with the Fund's primary investment objective.
This Prospectus gives vital information about the Fund. For
your benefit and protection, please read it before you invest,
and keep it on hand for future reference.
Investment Adviser
NICHOLAS COMPANY, INC.
Minimum Initial Investment - $500
AS WITH ALL MUTUAL FUNDS, THE
SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
OF THE FUND'S SHARES OR DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANYONE
WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
700 NORTH WATER STREET SUITE 1010 MILWAUKEE, WISCONSIN 53202
414-272-6133 800-227-5987
TABLE OF CONTENTS
PAGE
AN OVERVIEW OF THE FUND................................. __
FUND INVESTMENTS........................................ __
INVESTMENT RISKS........................................ __
FINANCIAL HIGHLIGHTS.................................... __
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE............. __
PERFORMANCE DATA........................................ __
THE FUND'S INVESTMENT ADVISER........................... __
PRICING OF FUND SHARES.................................. __
PURCHASE OF FUND SHARES................................. __
REDEMPTION OF FUND SHARES............................... __
EXCHANGE BETWEEN FUNDS.................................. __
TRANSFER OF FUND SHARES................................. __
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAX STATUS......... __
DIVIDEND AND DISTRIBUTIONS REINVESTMENT PLAN............ __
SYSTEMATIC WITHDRAWAL PLAN.............................. __
INDIVIDUAL RETIREMENT ACCOUNTS.......................... __
MASTER RETIREMENT PLAN.................................. __
YEAR 2000 ISSUES........................................ __
APPENDIX A: DESCRIPTION OF BOND RATINGS................. A-1
FOR MORE INFORMATION ABOUT THE FUND..................... Back Cover
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, 1999. 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 is not an offer to sell, or a solicitation
of an offer to buy, shares of the Fund to any person in any state
or jurisdiction where it is unlawful to make such an offer. 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.
AN OVERVIEW OF THE FUND
GOALS
The Fund seeks high current income, by investing primarily in high
yield corporate bonds (also known as "non-investment grade bonds"
or "junk bonds"). Capital appreciation is a secondary objective that
is sought only when consistent with the Fund's primary investment
objective.
PRINCIPAL INVESTMENT STRATEGIES
To pursue the Fund's investment objective, the Fund primarily
invests in a diversified portfolio of fixed income securities, including
high yield corporate bonds, debentures and preferred stocks,
securities convertible into common stocks, and common stocks, including
securities of real estate investment trusts ("REITS"). The Fund does not
have a pre-set asset allocation strategy which would require that the
Fund maintain a specific percentage of its assets in income-related
securities (i.e., bonds) and equity-related securities (i.e., stocks).
The Fund may invest up to 50% of its total assets taken at market in
securities of electric companies. The Fund must follow specific
guidelines in assessing the percentage of total net assets which are to
be so invested. The percentage of the Fund's total net assets which must
be invested in securities of electric companies will fall within one of
the following ranges: (1) 0% to 24.99%; or (2) 25% to 50%. The exact
percentage investment within those ranges is up to the discretion of
the Fund's adviser. The guidelines governing the determination of
which percentage range is applicable at various times are discussed
in detail herein. With the exception of this electric utility
concentration policy, the Fund's assets are diversified as to
company and industry.
The Fund's fixed income investments may include rated and unrated
securities. The Fund may only invest in securities rated B or
higher by Standard and Poor's Corporation ("S&P") or Moody's Investor
Service, Inc. ("Moody's") at the time of purchase (or unrated securities
deemed to be of comparable credit quality by the Adviser at the time of
purchase). The Fund is not subject to any limitations as to the
percentage of its assets which must be invested in securities within
those rating categories specified as B or higher. The Fund invests
in both short-term and long-term debt, and is not limited as to the
maturities of the corporate debt securities in which it invests.
In selecting investments, the Adviser performs its own in-depth
credit analysis on the credit quality of issuers. 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 Adviser also evaluates the long-term outlook for interest
rate movement in selecting investments. By doing so, the Adviser attempts
to mitigate potential interest rate and credit risk volatility by selecting
investments which it believes offer reasonable prospects for preservation
of capital values.
For further information on the Fund's principal investment
strategies and how the Fund invests, see "Fund Investments" starting on
page __.
PRINCIPAL RISKS OF INVESTING
As with any mutual fund, there can be no guarantee that the Fund
will meet its goals or that the Fund's performance will be positive over
any period of time.
Because of the following risks, you could lose money on your
investment in the Fund over the short- or long-term:
CREDIT RISK. Credit risk refers to an issuer's ability to make
timely payments of interest or principal. Because the Fund primarily
invests in non-investment grade debt securities (securities with lower
credit qualities), the Fund is subject to a higher level of credit risk
than a fund that only invests in investment grade securities. Recognized
rating agencies consider the credit quality of non-investment grade
securities to be speculative with respect to the issuer's continuing
ability to pay interest or principal. Lower grade securities may have
less liquidity, a higher incidence of default and the Fund may incur
higher expenditures to protect the Fund's interest in such securities
than investments in higher grade securities. Issuers of lower grade
securities generally are more sensitive to negative corporate
developments, such as a decline in issuer profits, or adverse economic
conditions, such as a recession, than issuers of higher grade securities.
INTEREST RATE RISK. Interest rate risk refers to the risk that the
prices of the Fund's investments, particularly the debt securities in
which the Fund primarily invests, are likely to fall if interest rates
rise. This is because the prices of debt securities typically move in
the opposite direction of interest rates. Debt securities with longer
maturities generally are affected to a greater degree than debt securities
with shorter maturities. Because the Fund does not have a policy limiting
the maturity of its investments, and the Fund may invest in debt securities
with longer maturities, the Fund may be subject to greater interest rate
risk than a fund that invests primarily in short-term debt securities.
HIGH YIELD BOND MARKET RISK. The entire high yield bond market
can experience sudden and sharp price swings due to a variety of factors,
including changes in economic forecasts, stock market activity, large
sustained sales by major investors, a high-profile default or just a
change in the market's volatility.
CALL RISK. If interest rates fall, it is possible that issuers of
bonds with high interest rates will prepay or "call" their bonds before their
maturity dates. In such event, the proceeds could be reinvested by the Fund
in bonds with the new, lower interest rates, resulting in a possible decline
in the Fund's income and distributions to shareholders.
SELECTION RISK. The Fund also is subject to selection risk, which
is the risk that the investments the Fund's adviser selects will underperform
markets or other mutual funds with similar investment objectives and
strategies.
LIQUIDITY RISK. The Fund may invest in restricted or illiquid
securities. Difficulty in selling a security may result in a loss to the
Fund or additional costs. In addition, because the market for lower rated
debt securities may be thinner and less active than for higher rated
securities, there may be market price volatility for the Fund's lower
rated debt securities and limited liquidity in the resale market.
STOCK MARKET RISK. To the extent the Fund's investments include
stocks of publicly traded entities, there is a possibility that the value
of the Fund's investments will decrease because of general declines in the
stock market or due to specific factors which may adversely affect the
value of a specific investment.
INVESTMENT CONCENTRATION IN ELECTRIC UTILITY INDUSTRY. As discussed
in detail herein, there are industry related risks related to the Fund's
potential investment concentration in the electric utility industry. In
addition, there are risks related to the Fund's adherence to specific
restrictions and procedures it must follow in determining the level of
the Fund's investment concentration in the electric utility industry.
RISKS RELATED TO INVESTMENTS IN REITS AND OTHER REAL ESTATE-BASED
SECURITIES. From time to time, the Fund may invest in REITs and other
real estate-based securities listed on a national securities exchange
or authorized for quotation on NASDAQ. These securities are subject
to risks related to the real estate industry which are described in
further detail herein.
In view of the risks inherent in all investments in securities,
there is no assurance that the Fund's objectives will be achieved. In
addition, certain investments by the Fund and certain investment
techniques the Fund may use entail other risks. Before you invest,
please read "Investment Risks" (starting on page ___), which discusses
the above noted risks and other risks in greater detail.
WHO MAY WANT TO INVEST
The Fund may be appropriate for investors who:
* Are seeking high current income
* Are long-term risk oriented investors
* Are seeking higher potential returns than money market funds
and are willing to accept risk of volatility
* Are seeking a mutual fund for the income portion of a
diversified portfolio
The Fund may NOT be appropriate if you:
* Are investing for maximum return over a long time horizon
* Require absolute stability of your principal
PERFORMANCE INFORMATION
Mutual fund performance is commonly measured as total return. Total
return measures the price change in a share assuming reinvestment of all
dividend income and capital gain distributions. All mutual funds must
use the same formula to calculate total return. The total returns that
follow are based on historical results and do not reflect the effect of
taxes.
One way to measure the risks of investing in the Fund is to look at
how its performance varies from year to year and how the Fund's
historical performance compares with alternative broad measures of market
performance.
The bar chart below shows the Fund's calendar year total returns over
the following ten years.
<TABLE>
<CAPTION>
BAR CHART PLOT POINTS
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3.94% (1.03)% 23.05% 10.33% 12.95% (0.17)% 16.16% 12.37% 13.13% 0.47%
</TABLE>
During the ten calendar year period shown in the above bar chart,
the highest quarterly return was 8.64% (for the quarter ended March 31,
1991) and the lowest quarterly return was (4.00)% (for the quarter ended
September 30, 1998).
The table below shows how the Fund's average annual returns for the
one, five and ten calendar year periods ending on December 31, 1998 (the
Fund's most recently completed calendar year), compare to the returns of
the Lehman Brothers Intermediate High Yield Corporate Bond Index, which
is a broad-based bond market index (including issuers of non-investment
grade, U.S. dollar denominated corporate debt with maturities ranging
from one to ten years).
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
THE FUND............... 0.47% 8.17% 8.86%
LEHMAN BROTHERS
INTERMEDIATE HIGH YIELD
CORPORATE BOND INDEX.. 1.49% 8.36% 10.38%
The Fund's 30-day annualized yield at December 31, 1998 was 9.49%.
Investors can obtain the Fund's current yield by calling 1-800-272-5987
(toll-free).
OF COURSE, THE FUND'S PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RETURNS.
FEES AND EXPENSES OF THE FUND
FUND INVESTORS PAY VARIOUS EXPENSES, EITHER DIRECTLY OR INDIRECTLY.
THE TABLE BELOW DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU
BUY AND HOLD SHARES OF THE FUND.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases.............. None
Maximum Deferred Sales Charge (Load).......................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends... None
Redemption Fees............................................... (1)
Exchange Fee.................................................. (2)
Maximum Account Fee........................................... None
ANNUAL FUND OPERATING EXPENSES(3) (AS A PERCENTAGE OF AVERAGE NET ASSETS)
(EXPENSES THAT ARE DEDUCED FROM FUND ASSETS)
Management Fees............................................... 0.36%
Distribution [and/or Service] (12b-1) Fees(4)................. None
Other Expenses................................................ 0.12%
Total Annual Fund Operating Expenses.......................... 0.48%
__________
(1) A fee of $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, 1998.
(4) Some mutual funds charge these fees to pay for advertising and other
costs of selling shares.
EXAMPLE: THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COSTS OF
INVESTING IN THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL
FUNDS.(1)
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
THE EXAMPLE ASSUMES THAT YOU
INVEST $10,000 IN THE FUND FOR THE
TIME PERIODS INDICATED AND THEN
REDEEM ALL OF YOUR SHARES AT THE
END OF THOSE PERIODS. THE
EXAMPLE ALSO ASSUMES THAT YOUR
INVESTMENT HAS A 5% RETURN
EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES REMAIN
THE SAME. ALTHOUGH YOUR
ACTUAL COSTS MAY BE HIGHER OR
LOWER, BASED ON THESE
ASSUMPTIONS, YOUR COSTS WOULD BE: $50 $155 $269 $604
__________
(1) This example should not be considered a representation of past or
future expenses. Actual expenses may be greater or lesser than
those shown.
For a further description of the fees paid to the Fund's adviser,
the Nicholas Company, Inc., (the "Adviser") see "The Fund's Investment
Adviser" on page
___.
PORTFOLIO MANAGEMENT
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 is President and a Director of the Fund. Mr.
Nicholas has been a Director of the Adviser since 1967, served as
President of the Adviser from 1967 to 1998, and currently serves as Chief
Executive Officer of the Adviser. For a further discussion of
Mr. Albert O. Nicholas' experience, see "The Fund's Investment Adviser."
FUND INVESTMENTS
GENERAL
The Fund's main investment goal is to obtain high current income,
by investing primarily in high yield corporate bonds (also known as
"non-investment grade bonds" or "junk bonds"). Capital appreciation is
a secondary goal that is sought only when consistent with the Fund's
primary investment goal. Capital appreciation may result, for example,
from an improvement in the credit standing of an issuer whose securities
are held in the Fund's portfolio or from a general lowering of interest
rates, or a combination of both.
To pursue the Fund's investment goal, the Fund primarily invests
in a diversified portfolio of fixed income securities, including high
yield corporate bonds, debentures and preferred stocks, securities
convertible into common stocks, and common stocks, including securities
of REITs. The Fund does not have a pre-set asset allocation strategy
which would require that the Fund maintain a specific percentage of
its assets in income-related securities (i.e., bonds) and equity-related
securities (i.e., stocks).
The Fund may invest up to 50% of its total net assets taken at
market in securities of electric companies (subject to specific investment
limitations, as described below). With the exception of this electric
utility concentration policy, the Fund assets are diversified as to
company and industry.
In selecting its investments, the Adviser performs its own
in-depth credit analysis on the credit quality of issuers. 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 Adviser also
evaluates the long-term outlook for interest rate movement. By
doing so, the Adviser attempts to mitigate potential interest
rate and credit risk volatility by selecting investments which it
believes also offer reasonable prospects for preservation of
capital values.
The Fund adheres to applicable investment restrictions and
policies, as described below, at the time it makes an investment.
However, a later change in circumstances will not require the
sale of an investment if it was proper at the time it was made.
As a temporary defensive tactic because of adverse market,
economic, political or other conditions, the Fund also may invest
in cash, repurchase agreements and investment grade fixed income
securities. In the event the Fund employs such a temporary
defensive tactic, the Fund may not achieve its investment objective
during the period in which the Fund maintains such defensive
position.
CREDIT QUALITY OF FIXED INCOME INVESTMENTS
The Fund's fixed income investments may include rated and unrated
securities. The Fund may only invest in securities rated B or higher
at the time of purchase (or unrated securities deemed to be of
comparable credit quality by the Adviser at the time of
purchase). The Fund is not subject to any limitations as to the
percentage of its assets which must be invested in securities
within those rating categories specified as B or higher.
UNDERSTANDING CREDIT QUALITY RATINGS RATED SECURITIES
For rated securities, the
RATING AGENCIES SUCH AS Fund only may invest in
STANDARD AND POOR'S securities rated B or
CORPORATION ("S&P") AND higher by S&P or Moody's at
MOODY'S INVESTOR SERVICE, INC. the time of purchase;
("MOODY'S") EVALUATE however, subsequent to the
SECURITIES ON THE BASIS OF THE purchase, the rating of the
ISSUER'S ABILITY TO MEET ALL securities so purchased may
REQUIRED PRINCIPAL AND fall below B. In addition
INTEREST PAYMENTS. BONDS WITH to relying, in part, on the
RATINGS ABOVE THE LINE IN THE ratings assigned to the
CHART BELOW ARE CONSIDERED debt securities, the Fund
"INVESTMENT GRADE," WHILE also will rely on the
THOSE WITH RATINGS BELOW THE Adviser's judgment,
LINE ARE REGARDED AS "NON- analysis and experience in
INVESTMENT GRADE" OR "JUNK evaluating the credit
BONDS." worthiness of the issuer.
Accordingly, the
S&P MOODY'S MEANING achievement of the Fund's
investment objectives may
AAA Aaa Highest Quality be more dependent on the
AA Aa High Quality Adviser's own credit
A A Above-average Quality analysis than would be the
BBB Baa Average Quality case if the Fund invested
- ------------------------------- primarily in higher quality
BB Ba Average Qualtiy debt securities.
B B Below average Quality
CCC Caa Poor Quality UNRATED SECURITIES
CC Ca Highly Speculative
C C Lowest Quality The Fund will invest in
D - In Default unrated securities 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.
A DETAILED EXPLANATION OF THESE RATINGS CAN BE FOUND IN
THE APPENDIX TO THIS PROSPECTUS.
At December 31, 1998, 86.4% of the Fund's total net assets
were invested in rated and unrated corporate debt securities.
The following table shows the credit quality allocation
(including the Adviser's assessment of the credit quality of
unrated securities held in the Fund's portfolio) of the portion
of the Fund's assets invested in such securities at December 31,
1998.
CREDIT RATING CATEGORY PERCENTAGE OF
S&P/MOODY'S TOTAL NET ASSETS
AAA/Aaa 0%
AA/Aa 0%
A/A 2.1%
BBB/Baa 0%
BB/Ba 19.0%
B/B 65.3%
CCC/Caa 0%
CC/Ca 0%
C/C 0%
D/- 0%
86.4%
=====
Of the Fund's total net assets invested in rated and unrated
corporate debt securities, 3.3% were invested in unrated
corporate debt securities, all of which were believed by the
Adviser to be equivalent to a B rating.
MATURITY OF INVESTMENTS
The Fund invests in both short-term and long-term
securities. Debt securities with longer maturities generally
tend to produce higher yields but are subject to greater interest
rate risk than debt securities with shorter maturities. The Fund
is not limited as to the maturities of securities in which it
invests. Most preferred stocks have no stated maturity or
redemption date. The weighted average maturity, which is likely
to vary from time to time, of the corporate bonds owned by the
Fund on December 31, 1998 was seven years.
ELECTRIC UTILITY INDUSTRY CONCENTRATION
The Fund may invest up to 50% of its total net assets in
securities of electric companies. The percentage of the Fund's total
net assets which must be invested in securities of electric companies
must fall within one of the following ranges: (1) 0% to 24.99%; or
(2) 25% to 50%. The exact percentage investment within those ranges
is up to the discretion of the Adviser. The Adviser is required to
determine which percentage range is applicable by comparing the
difference in the yield to maturity ("YTM") of two different bond
indices. These indices are the Lehman Brothers Intermediate Utility
Bond Index ("Lehman Utility Bond Index") and the Lehman Brothers
Intermediate Baa Corporate Bond Index ("Lehman Corporate Bond Index").
To determine the applicable percentage range, the Adviser must follow
the guidelines set forth below in comparing the bond indices:
PERCENTAGE OF THE FUND'S TOTAL
NET ASSETS WHICH MUST LEHMAN BROTHERS INDICES (1)
BE INVESTED IN SECURITIES OF YIELD TO MATURITY ("YTM")
ELECTRIC COMPANIES AND SYSTEMS COMPARISON
- -------------------------------- ----------------------------------
At least 25% and up to 50% If the YTM of the Lehman
Utility Bond Index is at least
five basis points or more over
the YTM of the Lehman
Corporate Bond Index at the end of
each month for three consecutive months.
Less than 25% If the YTM of the Lehman Utility Bond
Index is less than five basis
points over the YTM of the
Lehman Corporate Bond Index at the end
of each month for three consecutive months.
"YIELD TO MATURITY" is the annual return on a bond, assuming the
bond is held until its maturity date. The calculation takes into
consideration the purchase price, redemption value, time to maturity,
coupon yield and time between interest payments.
A "BASIS POINT" is one-one hundredth of one percentage point, or
0.01%.
(1) Both the Lehman Corporate Bond Index and the Lehman Utility Bond
Index consist of debt securities which are non-convertible publicly
traded corporate issues with fixed rates and maturities ranging from
one up to ten years. Securities in the Lehman Corporate Bond Index
must have at least a Baa rating by Moody's (or the equivalent from
S&P or Fitch Investors Service, Inc.). The Lehman Utility Bond
Index is comprised of investment grade utility securities rated
by the aforementioned rating services. The Fund has chosen to
use these Lehman Brothers indices as an indication of the general
trend of yields for securities of electric companies, and for
securities of non-electric companies, even though the Fund may
invest in lower grade securities and may invest in short- and
long-term securities.
The Fund must meet the above-noted percentage of asset
requirements at specified times. The Fund continually monitors
the spreads (differences in the yields to maturity) on the above-noted
indices. If the YTM of the Lehman Utility Bond Index is at least five
basis points or more over the YTM of the Lehman Corporate Bond Index at
the end of each month for three consecutive months, the Fund must
purchase or sell securities to ensure that by the end of the fourth
consecutive month (the "Phase-In Period"), the percentage of the Fund's
total net assets invested in securities of electric companies is at
least 25% and may be up to 50% at the discretion of the Adviser.
An example of the three-month YTM comparison which would trigger
a Phase-In Period is as follows:
MONTH-END MONTH-END SPREAD
YTM OF LEHMAN YTM OF LEHMAN (DIFFERENCE IN
UTILITY BOND INDEX CORPORATE BOND INDEX YTM)
-------------------- -------------------- -------------
January 6.58% 6.51% .07
February 6.52% 6.39% .13
March 7.00% 6.92% .08
If the YTM of the Lehman Utility Bond Index is less than
five basis points over the YTM of the Lehman Corporate Bond Index
at the end of each month for three consecutive months, the Fund
must purchase or sell securities to ensure that by the end of
the fourth consecutive month (the "Phase-Out Period"), the
percentage of the Fund's total net assets invested in securities
of electric companies is less than 25% and may be as low as 0%
at the discretion of the Adviser. An example of the three-month
YTM comparison which would trigger a Phase-Out Period is as follows:
MONTH-END MONTH-END SPREAD
YTM OF LEHMAN YTM OF LEHMAN (DIFFERENCE IN
UTILITY BOND INDEX CORPORATE BOND INDEX YTM)
-------------------- -------------------- -------------
January 6.21% 6.19% .02
February 6.27% 6.40% (.13)
March 6.75% 7.10% (.35)
Over the past three fiscal years, there has been no Phase-In
or Phase-Out period. At December 31, 1998, 1997 and 1996, the Fund
had approximately 0%, 0% and 2.1%, respectively, of its total net
assets invested in securities of electric companies.
OTHER INVESTMENTS
The Fund also may invest in the following types of
securities, subject to certain limitations as described below:
* Common and preferred stocks
* Convertible securities and warrants (subject to
certain limitations under the Fund's operating policy,
as described herein)
* Short-term debt of the U.S. Government or its
agencies
* Commercial paper (rated A-1 or A-2 by S&P or Prime-
1 or Prime-2 by Moody's) or unrated money market
instruments which are of comparable quality
* Bank certificates of deposit
* Repurchase agreements (only with a member bank of
the Federal Reserve System or a primary dealer in U.S.
government securities, and only in an amount not to
exceed 20% of the Fund's total assets, taken at market,
at the time of investment)
* Securities of ("REITs") 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 Quotation System ("NASDAQ") (subject
to the restriction that at time of investment the
Fund may not invest more than 10% in value of the Fund's
total assets in REITS and not more than 25% in value of
the Fund's total assets in the real estate industry in
the aggregate)
* Securities of other investment companies (up to
10% of the Fund's total assets at the time of investment,
and provided no sales charge or commission is incurred)
The proportions invested in each type of security classification
may change from time to time in accordance with the Adviser's
interpretation of economic conditions and underlying security
values.
ADDITIONAL OPERATING POLICIES AND RESTRICTIONS ADOPTED BY THE
FUND'S BOARD OF DIRECTORS
The Fund may not invest more than 15% of its total assets in
illiquid securities and must limit its investments in warrants to
5% of the value of the Fund's total assets. Warrants not listed
on the New York Stock Exchange ("NYSE") or American Stock
Exchange may not exceed 2% of the Fund's total assets. The Fund
may not invest in oil, gas or other mineral leases. The
foregoing policies are subject to change by the Fund's 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 in the form of an Amended
Statement of Additional Information filed with the SEC.
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS
The Fund may use many different investment strategies in
seeking its investment objectives, and it has certain investment
restrictions. These strategies and certain of the restrictions
and policies governing the Fund's investments are explained in
detail in the Fund's Statement of Additional Information, which
is incorporated by reference herein. If you would like to learn
more about how the Fund may invest, you should request a copy of
the Statement of Additional Information. To learn how to obtain a
copy of the Fund's Statement of Additional Information, see the
back cover page of this Prospectus.
INVESTMENT RISKS
THIS SECTION CONTAINS A SUMMARY DESCRIPTION OF THE GENERAL
RISKS OF INVESTING IN THE FUND. AS WITH ANY MUTUAL FUND, THERE
CAN BE NO GUARANTEE THAT THE FUND WILL MEET ITS GOALS OR THAT YOU
WON'T LOSE MONEY ON YOUR INVESTMENT. THERE IS NO GUARANTEE THE
FUND'S PERFORMANCE WILL BE POSITIVE OVER ANY PERIOD OF TIME.
Because of the following risks, you could lose money on your
Investment in the fund over the short- or long- term:
CREDIT RISK. Credit risk refers to an issuer's ability to
make timely payments of interest or principal. Recognized rating
agencies consider non-investment grade securities (securities
with lower credit qualities) to be speculative with respect to
the issuer's continuing ability to pay interest or principal.
Because the Fund primarily invests in non-investment grade debt
securities, the Fund is subject to a higher level of credit risk
than a fund that only invests in investment grade securities.
Lower grade securities may have less liquidity, a higher
incidence of default and the Fund may incur higher expenditures
to protect the Fund's interest in such securities than
investments in higher grade securities. Issuers of lower grade
securities generally are more sensitive to negative corporate
developments, such as a decline in profits, or adverse economic
conditions, such as a recession, than issuers of higher grade
securities. In addition, the achievement of the Fund's investment
goals may be more dependent on the Adviser's own credit analysis
than would be the case if the Fund invested primarily in higher
quality debt securities.
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 attempts to minimize this
risk through diversification of its investments and by analysis
of each issuer and its ability to make timely payments of
interest and principal.
INTEREST RATE RISK. Interest rate risk refers to the risk
that the prices of the Fund's investments, particularly the debt
securities in which the Fund primarily invests, are likely to
fall if interest rates rise. This is because the prices of debt
securities typically move in the opposite direction of interest
rates. Debt securities with longer maturities generally are
affected by changes in interest rates to a greater degree than
debt securities with shorter maturities. Because the Fund does
not have a policy limiting the maturity of its investments, and
the Fund may invest in debt securities with longer maturities,
the Fund may be subject to greater interest rate risk than a fund
that primarily invests in short-term debt securities.
In addition, the income you receive from the Fund is based
primarily on interest rates, which can vary widely over the short-
and long-term. If interest rates decline, your income from the
Fund may decline as well.
INVESTMENTS IN UNRATED DEBT SECURITIES. Unrated securities
will be considered for investment by the Fund, but only when the
Adviser believes the financial condition of the issuer 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 liquid and
thus they may carry greater market risk and a higher yield than
rated securities. These factors have the effect of limiting the
availability 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 the financial markets.
HIGH YIELD BOND MARKET RISK The entire high yield bond market
can experience sudden and sharp price swings due to a variety of
factors, including changes in economic forecasts, stock market
activity, large sustained sales by major investors, a high-profile
default or just a change in the market's volatility.
CALL RISK. If interest rates fall, it is possible that
issuers of bonds with high interest rates will prepay or "call"
their bonds before their maturity dates. In such event, the
proceeds could be reinvested by the Fund in bonds with the new,
lower interest rates, resulting in a possible decline in the
Fund's income and distributions to shareholders.
SELECTION RISK. The Fund also is subject to selection risk,
which is the risk that the investments the Fund's adviser selects
will underperform the markets or other mutual funds with similar
investment objectives and strategies.
RISKS RELATED TO PREFERRED STOCK AND CONVERTIBLE
INVESTMENTS. Preferred stocks may provide a higher dividend rate
than the interest yield on debt securities of the same issuer,
but are subject to greater risk of fluctuation in market value
and greater risk of non-receipt of income. Unlike interest on
debt securities, dividends on preferred stocks must be declared
by the issuer's board of directors before becoming payable.
Preferred stocks are in many ways like perpetual debt securities,
providing a stream of income but without a stated maturity date.
Because they often lack a fixed maturity or redemption date,
preferred stocks are likely to fluctuate substantially in price
when interest rates change. Preferred stocks have claims on
assets and earnings of the issuer which are subordinate to the
claims of all creditors but senior to the claims of common stock
holders.
The value of convertible preferred stock and debt
securities convertible into common stock generally will be
affected by its stated dividend rate or interest rate, as
applicable, and the value of the underlying common stock. As a
result of the conversion feature, the dividend rate or interest
rate on convertible preferred stock or convertible debt
securities generally is less than would be the case if the
security were not convertible. Therefore, the value of
convertible preferred stock and convertible debt securities will
be affected by the factors that affect both equity securities
(such as stock market movements) and debt securities (such as
interest rates). Some convertible securities might require the
Fund to sell the securities back to the issuer or a third party
at a time that is disadvantageous to the Fund.
LIQUIDITY RISK. From time to time, the Fund may purchase a
portion of bonds, debentures or other debt securities in private
placements. Restricted securities may have a contractual limit on
resale or may require registration under federal securities laws
before they can be sold publicly. Difficulty in selling these
securities may result in a loss to the Fund or additional costs,
which could adversely impact the Fund's net asset value.
However, the Fund is subject to an operating policy adopted by
the Fund's Board that the Fund will not invest more than 15% of
its total assets in illiquid securities. While this policy is
subject to change by the Fund's Board without a shareholder vote,
as matter of practice, the Fund will not change such policy
without prior notice to its shareholders.
In addition, because the market for lower rated debt
securities may be thinner and less active than for higher rated
securities, there may be market price volatility for the Fund's
lower rated debt securities and limited liquidity in the resale
market.
RISKS RELATED TO INVESTMENTS IN REPURCHASE AGREEMENTS. The
Fund may only enter into repurchase agreements with a member bank
of the Federal Reserve System or a primary dealer in U.S.
Government securities. Under such agreements, the Fund buys U.S.
Government securities from the bank or primary dealer and
simultaneously agrees to sell the securities back to the bank or
primary dealer at a mutually agreed upon time and price. While
the underlying obligation is a U.S. Government security, the
obligation of the seller to repurchase the security is not
guaranteed by the U.S. Government. Delays or losses could result
if the bank or primary dealer defaults on its repurchase
obligation or becomes insolvent, which could adversely impact the
Fund's net asset value. Not more than 20% of the Fund's total net
assets, taken at market, may be invested in repurchase agreements.
STOCK MARKET RISK. To the extent the Fund's investments include
stocks of publicly traded entities, there is a possibility that the
value of the Fund's investments will decrease because of general
declines in the stock market or due to specific factors which may
adversely affect the value of a specific investment.
INVESTMENT CONCENTRATION IN ELECTRIC UTILITY INDUSTRY. The
Fund may invest up to 50% of its total assets in securities of
electric companies, subject to certain limitations as previously
described. The electric utility industry is an industry
characterized by geographic diversification, supervision and
regulation by state and federal agencies 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
electric utilities.
As described in detail in the "Fund Investments" section of
this Prospectus, the Fund is subject to specific restrictions and
procedures it must follow in determining the level of the Fund's
concentration of investments in the electric utility industry.
These procedures involve a continual assessment of the yield to
maturity of the Lehman Utility Bond Index and the Lehman
Corporate Bond Index. The risks related to the Fund's adherence
to the foregoing restrictions are as follows:
* No assurance that the changes in the Fund's
investment concentration mandated by such restrictions
will improve the performance of the Fund, nor can there
by any assurances that the Fund's performance will
equal or surpass the performance indicated by the
indices.
* The Adviser may be required to purchase or sell
securities of electric companies or securities
of non-electric companies In order to meet the
noted percentage restrictions at the
specified times, and thus the Fund's transaction costs
may increase.
* The portfolio changes as a result of the
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.
RISKS RELATED TO INVESTMENTS IN REITS AND OTHER REAL ESTATE-BASED
SECURITIES. From time to time, the Fund may invest in REITs and other
real estate-based securities listed on a national securities exchange
or authorized for quotation on NASDAQ. These securities are subject
to risks related to the real estate industry. The performance of these
securities are dependent on the types and locations of the properties
owned by the entities issuing the securities and how well the properties
are managed. For instance, the income of the properties could decline
due to vacancies, increased competition or poor management, and the values
of the properties could decrease due to a decline in neighborhood condition,
overbuilding, uninsured damages caused by natural disasters, property tax
increases or other factors. In addition, these securities also are subject
to market risk (the risk that stock prices overall will decline over short
or even extended periods) and interest rate risk (the risk that the prices
of these securities will decrease if interest rates rise).
At the time of investment, not more than 10% of the Fund's total
assets may be invested in REITs, and in the aggregate, not more than 25%
of the Fund's total assets may be invested in the real estate industry.
In view of the risks inherent in all investments in
securities, there is no assurance that the Fund's objectives will
be achieved.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
The financial highlights table below is intended to help you
understand the Fund's financial performance for the past five
fiscal years. Certain information reflects financial results for
a single Fund share. The total returns in the table represent
the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming the reinvestment of all dividends and
distributions). The following Financial Highlights of the Fund
for the five years ended December 31, 1998, 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, 1998. 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>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR.................... $3.69 $3.53 $3.42 $3.21 $3.52
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income...... .32 .30 .30 .30 .30
Net gains (losses) on
securities (realized and
unrealized)................ (.30) .15 .11 .21 (.31)
Total from investment
operations............. .02 .45 .41 .51 (.01)
LESS DISTRIBUTIONS:*
Dividends (from net
investment income)...... (.32) (.29) (.30) (.30) (.30)
NET ASSET VALUE, END
OF YEAR.................. $3.39 $3.69 $3.53 $3.42 $3.21
TOTAL RETURN............... 0.47% 13.13% 12.37% 16.16% (0.17%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (millions)......... $239.4 $254.2 $185.7 $162.1 $140.9
Ratio of expenses to average
net assets.............. .48% .50% .55% .58% .59%
Ratio of net investment income
to average net assets... 8.69% 8.29% 8.55% 8.72% 8.75%
Portfolio turnover rate.... 49.3% 32.2% 33.2% 29.2% 29.2%
</TABLE>
* The Fund distributed no capital gains for the time periods listed.
PLEASE CONSIDER THE PERFORMANCE INFORMATION ABOVE IN LIGHT
OF THE FUND'S INVESTMENT OBJECTIVES AND POLICIES, AND MARKET
CONDITIONS DURING THE REPORTED TIME PERIODS. AGAIN, YOU MUST
REMEMBER THAT HISTORICAL PERFORMANCE DOES NOT NECESSARILY
INDICATE WHAT WILL HAPPEN IN THE FUTURE. THE VALUE OF YOUR FUND
SHARES MAY GO UP OR DOWN.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The primary objective of the Fund is to seek high current income,
by investing primarily in high yield corporate bonds. Capital appreciation
is a secondary objective that is sought when consistent with the Fund's
primary investment objective. Therefore, the Adviser designs the Fund's
portfolio for stability, trying to protect against both interest rate risk
and credit risk. The Fund's bond portfolio is primarily comprised of
domestic issues and the Fund does not invest in any bonds rated below B
at the time of purchase.
The equity and bond market shifts in 1998 were driven in part
by international instability in Southeast Asia, Russia and Latin America.
During the first half of calendar 1998, the high yield bond market
performed well. However, in July and August 1998, in response to
international turbulence, there was a "flight to quality" as investors
sought higher quality and liquidity in U.S. government securities as
well as large capitalization blue chip stocks. As a result, the high
yield bond market suffered with lower quality bonds performing worse
than higher quality bonds. For the quarter ended September 30, 1998,
the Fund's total return was (4.00)%.
In 1998, the Fund had a total return on 0.47% (distributions
reinvested). For the year ended December 31, 1998, the returns of the
Fund's benchmarks, the Morningstar High Yield Bond Fund category
(distributions reinvested) and the Lehman Brothers Intermediate High
Yield Corporate Bond index were (0.72)% and 1.49%, respectively.
Therefore, the Fund's performance in 1998 was relatively better
than the performance of some of its peer group high yield bond funds.
Management attributes the Fund's relative performance to the fact that
the Fund had a slightly lower average bond maturity (7.0 years) and
higher average credit quality (with 96.56% of total bonds rated a
least B) than many high yield bond funds. However, the Fund's
performance was negatively impacted by its investments in REITs
which comprised 7.91% of the Fund's total assets a December 31, 1998.
While management believes that REIT investments have the potential to
increase dividends over time and generally provide a generous income
stream, the industry performed poorly in 1998 in part due to the
"flight to quality" described above.
At December 31, 1998 and 1997, 86.4% and 80.8% of the
Fund's total net assets were invested in rated and unrated corporate
debt securities, respectively. The Fund's investments in equity
securities increased to 10.0% of the Fund's total net assets at
December 31, 1998 compared to 9.6% at December 31, 1997. Of the
Fund's total net assets at December 31, 1998, 2.1% were invested
in corporate debt securities rated A by Standard & Poor's (compared
to none at December 31, 1997); none were rated BBB (compared to 0.4%
at December 31, 1997); 19.0% rated BB (compared to 34.0% at December
31, 1997); 62.0% rated B (compared to 39.4% at December 31, 1997);
and 3.3% unrated but believed to be equivalent to a B rating (compared
to 7.0% unrated but believed to be equivalent to a BB or B rating at
December 31, 1997).
During 1998, the Adviser continued to emphasize diversification
of investments, with the largest holding accounting for only 4.12% of
the Fund's total net assets at December 31, 1998. The Adviser also
attempts to reduce the Fund's price per share volatility by holding
fixed income securities with intermediate maturities (i.e., 5 to 10
years). At December 31, 1998, the dollar-weighted maturity of the
Fund's bond portfolio was 7.0 years. At December 31, 1998, the Fund's
30-day annualized yield was 9.49%.
Comparison of Change in Value of $10,000 Investment in
Nicholas Income Fund, Inc. vs. Lehman Brothers Intermediate High
Yield Corporate Bond Index
<TABLE>
<CAPTION>
(Plot Points For Graph)
Date Nicholas Income Lehman Brothers
Fund, Inc. Index
----------------- --------------- ---------------
<S> <C> <C>
December 31, 1988 $10,000 $10,000
December 31, 1989 $10,394 $10,188
December 31, 1990 $10,287 $ 9,297
December 31, 1991 $12,658 $13,289
December 31, 1992 $13,965 $15,457
December 31, 1993 $15,774 $17,964
December 31, 1994 $15,748 $17,938
December 31, 1995 $18,292 $21,045
December 31, 1996 $20,555 $23,610
December 31, 1997 $23,254 $26,446
December 31, 1998 $23,363 $26,840
</TABLE>
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:
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS
ENDED ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Average Annual Total
Return............. 0.47% 8.17% 8.86%
</TABLE>
Past performance is not predicative of future performance.
THE FUND'S INVESTMENT ADVISER
Nicholas Company, Inc., located at 700 North Water Street,
Suite 1010, Milwaukee, Wisconsin 53202, is the Fund's investment
adviser. The Adviser 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.
The Adviser is the investment adviser to five other
mutual funds and to approximately 25 institutions and individuals
with substantial investment portfolios. The Adviser acts as
investment adviser to the following additional mutual funds:
Nicholas Fund, Inc., Nicholas II, Inc., Nicholas Limited Edition,
Inc., Nicholas Money Market Fund, Inc. and Nicholas Equity Income
Fund, Inc. As of December 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 following table illustrates the calculation of the
Adviser's annual fee:
<TABLE>
<CAPTION>
ANNUAL FEE CALCULATION
NET ASSET (BASED ON THE AVERAGE
VALUE OF THE FUND NET ASSET VALUE OF THE FUND)
- ------------------ ----------------------------
<S> <C>
Up to and including $50,000,000................ 0.50 of 1%
Over $50,000,000 and including $100,000,000.... 0.40 of 1%
In excess of $100,000,000...................... 0.30 of 1%
</TABLE>
For the fiscal year ended December 31, 1998, the aggregate fee
paid to the Adviser was 0.36% of the Fund's average net assets. The
Adviser has agreed to reduce the annual fee by any operating expenses
(other than the management fee) incurred by the Fund in excess of 0.50
of 1% of average daily net assets. The Adviser shall at least annually
reimburse the Fund all expenses incurred in excess of this amount.
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 but not limited to taxes, interest, commissions,
expense of issue and redemption of shares, registration fees,
charges of the custodian and transfer agent, disinterested
officers and directors' fees, auditing fees 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 is President and a Director of
the Fund. Mr. Nicholas has been a Director of the Adviser since
1967, served as President of the Adviser from 1967 to 1998, and
currently serves as Chief Executive Officer of the Adviser. 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 served as Portfolio Manager of Nicholas Fund, Inc. from
1969 to 1996, and, has served as Co-Portfolio Manager of such fund
since 1996. 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 O. Nicholas is a controlling person of the Adviser through
his ownership of 91% of the outstanding voting securities of the
Adviser.
PRICING OF FUND SHARES
When you buy shares of the Fund, the purchase price per
share is the NET ASSET VALUE per share of the Fund. The NET
ASSET VALUE of a share of the Fund is determined by dividing the
total value in U.S. dollars of the Fund's total net assets by the
total number of shares outstanding at that time. Net assets of
the Fund are determined by deducting the liabilities of the Fund
from the total assets of the Fund. The net asset value is
determined as of the close of trading on the NYSE on each day the
NYSE is open for unrestricted trading.
PURCHASE OF FUND SHARES
MINIMUM To Open An Account......... $500
INVESTMENTS To Add To An Account....... $100
[ICON] Minimum Balance............ $500
The Fund's Automatic Investment Plan has
a minimum monthly investment of $50. Due to
fixed expenses incurred by the Fund in
maintaining individual accounts, the Fund
reserves the right to redeem accounts that
fall below the $500 minimum investment
required 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.
APPLICATION You may apply to purchase shares of
INFORMATION the Fund by submitting an application to
[ICON] Nicholas Income Fund, Inc., c/o
Firstar Mutual Funds Services, LLC
("Firstar"), P.0. Box 2944, Milwaukee,
Wisconsin 53201-2944. See the back cover
page of this Prospectus for information on
how to contact the Fund. The Fund also has
available an Automatic Investment Plan for
shareholders. Anyone interested should
contact the Fund for additional information.
When you make a purchase, your purchase
price per share will be the net asset value
("NAV") per share next determined after the
time the Fund receives your application in
proper order. The NAV is calculated once a
day based on the closing market price for
each security held in the Fund's portfolio.
The determination of NAV for a particular day
is applicable to all purchase applications
received by the close of trading on the
NYSE on that day (usually 4:00 p.m., New
York time).
Applications to purchase Fund shares
received in proper order on a day
the NYSE is open for trading, prior
to the close of trading on that day,
will be based on the NAV as of the
close of trading on that day.
Applications to purchase Fund shares
received in proper order AFTER the
close of trading on the NYSE will be
based on the NAV as determined as
of the close of trading on the NEXT
day the NYSE is open.
Purchase of shares will be made in full
and fractional shares computed to three
decimal places.
You should be aware that DEPOSIT in the
U.S. mail or with other independent delivery
services, or receipt at Firstar's Post Office
Box, of purchase applications DOES NOT
constitute receipt by Firstar or the Fund. Do
not mail letters by overnight courier to the
post office box address. OVERNIGHT COURIER
DELIVERY SHOULD BE SENT TO FIRSTAR MUTUAL
FUNDS SERVICES, LLC, THIRD FLOOR, 615 EAST
MICHIGAN STREET, MILWAUKEE, WISCONSIN 53202.
All applications to purchase Fund shares
are subject to acceptance or rejection by
the Fund and are not binding until accepted.
Your application must be in proper order to
be accepted and may only be accepted by the
Fund or an authorized agent of the Fund.
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.
Checks are accepted subject to collection at
full face value in U.S. funds. The transfer agent
will charge a $20 fee against a shareholder's
account, in addition to any loss sustained by
the Fund, for any payment check returned to
the transfer agent for insufficient funds. The
Fund will not accept applications under
circumstances or in amounts considered
disadvantageous for shareholders. Any
account (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.
WIRE PAYMENTS You also may purchase Fund shares via the
[ICON] Federal Reserve wire system. If a wire purchase
is to be an initial purchase, please call
Firstar (414-276-0535 or 800-544-6547) with
the appropriate account information prior to
sending the wire. Firstar will provide you
with a confirmation number for the wire
purchase which will ensure the prompt and
accurate handling of funds. 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 Mutual Funds Services, LLC
Account 112-952-137
Further
Credit: Nicholas Income Fund, Inc.
(shareholder account number)
(shareholder registration)
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.
CERTIFICATES Certificates representing Fund shares
[ICON] purchased will not be issued unless the shareholder
specifically requests certificates by written
notice 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. Where
certificates are not requested, the Fund's
transfer agent, Firstar, will credit the
shareholder's account with the number of
shares purchased. Written confirmations are
issued for all purchases of Fund shares.
THIRD PARTY USE OF A PROCESSING INTERMEDIARY TO PURCHASE
PURCHASES FUND SHARES. Shares of the Fund may be purchased
[ICON] through certain broker-dealers, financial
institutions or other service providers
("Processing Intermediaries"). When shares
of the Fund are purchased this way, the
Processing Intermediary, rather than its
customer, may be the shareholder of record.
Processing Intermediaries may use procedures
and impose restrictions in addition to or
different from those applicable to
shareholders who invest in the Fund directly.
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 or other charges for the services
they provide to their customers. Such
charges may vary among Processing
Intermediaries, but in all cases will be
retained by the Processing Intermediary and
not remitted to the Fund or the Adviser.
Investors who do not wish to use
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 of
shares of the Fund may be made without a
sales charge.
The Fund also may enter into an
arrangement with some Processing
Intermediaries authorizing them to process
purchase orders on behalf of the Fund on an
expedited basis (an "authorized agent").
Receipt of a purchase order by an authorized
agent will be deemed to be received by the
Fund for purposes of determining the NAV of
the Fund shares to be purchased. For
purchase orders placed through an authorized
agent, a shareholder will pay the Fund's NAV
per share next computed after the receipt by
the authorized agent of such purchase order,
plus any applicable transaction charge
imposed by the agent.
REDEMPTION OF FUND SHARES
REDEMPTION You may redeem Fund shares in whole or in
PRICE part by any of the methods described below. All
$ redemptions will be processed immediately upon receipt
[ICON] and written confirmations will be issued for
redemptions of Fund shares. The redemption
price will be the Fund's NAV next computed
after the time of receipt by Firstar (or by
an authorized agent of the Fund) of the
certificate(s), or written request in the
proper form as described below, or pursuant
to proper telephone instructions as described
below.
Requests for redemption of Fund shares
received in proper form on a day the NYSE
is open for trading, prior to the close of
trading on that day, will be based on
the NAV as of the close of trading on
that day.
Requests for redemption of Fund shares
received in proper form AFTER the close of
trading on the NYSE will be based on the NAV as
determined as of the closing of trading
on the NEXT day the NYSE is open.
REDEMPTION REQUESTS THAT CONTAIN
RESTRICTIONS AS TO THE TIME OR DATE
REDEMPTIONS ARE TO BE EFFECTED WILL BE
RETURNED AND WILL NOT BE PROCESSED.
If any portion of the shares to be redeemed
represents an investment made by personal or certified
check, the fund reserves the right to hold a payment up
to 15 days or until notified that investments made by
check have been collected, at which time the redemption
request will be processed and payment made.
REDEMPTIONS If you redeem in writing, you must ensure
BY MAIL that the redemption request is signed by each
[ICON] shareholder in the exact manner as the Fund account is
registered and includes the redemption amount
and the shareholder account number.
WHEN SHARES ARE REPRESENTED BY CERTIFICATES,
you may redeem by delivering to the Fund, c/o
Firstar Mutual Funds Services, LLC, 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," which is 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,
you may redeem by delivering an original
signed written request for redemption
addressed to Nicholas Income Fund, Inc.,
c/o Firstar Mutual Funds Services, LLC,
P.O. Box 2944, Milwaukee, Wisconsin
53201-2944. If the account registration is
individual, joint tenants, sole
proprietorship, custodial (Uniform
Transfer to Minors Act), or general
partners, the written request must be
signed exactly as the account is
registered. If the account is owned
jointly, all owners must sign.
FACSIMILE TRANSMISSION OF REDEMPTION REQUESTS IS NOT ACCEPTABLE.
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 must 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 IN WRITING, PLEASE
WRITE OR CALL FIRSTAR (414-276-0535 OR 800-
544-6547), PRIOR TO SUBMITTING A WRITTEN
REDEMPTION REQUEST. A WRITTEN REDEMPTION
REQUEST WILL NOT BECOME EFFECTIVE UNTIL ALL
DOCUMENTS HAVE BEEN RECEIVED IN PROPER FORM
BY FIRSTAR.
Shareholders who have an
individual retirement account ("IRA"), a
master retirement plan or other retirement
plan must indicate on their written
redemption requests whether or not to
withhold federal income tax. Redemption
requests lacking an election not to have
federal income tax withheld will be subject
to withholding. Please consult your current
Disclosure Statement for any applicable fees.
OVERNIGHT You should be aware that DEPOSIT in the mail or
DELIVERY with other independent delivery services or receipt
[ICON] at Firstar's Post Office Box of redemption requests
DOES NOT constitute receipt by Firstar or the Fund.
DO NOT mail letters by overnight courier to
the Post Office Box address. OVERNIGHT
COURIER DELIVERY SHOULD BE SENT TO
FIRSTAR MUTUAL FUNDS SERVICES, LLC, THIRD
FLOOR, 615 EAST MICHIGAN STREET, MILWAUKEE,
WISCONSIN 53202.
TELEPHONE Telephone redemption is automatically
REDEMPTIONS extended to all accounts in the Fund unless this
[ICON] privilege is declined in writing.This option does not
apply to IRA accounts and master retirement
plans for which Firstar Bank Milwaukee, N.A.
acts as custodian. Telephone redemptions can
only be made by calling Firstar at 800-544-
6547 or 414-276-0535. In addition to the
account registration, you will be required to
provide the account number and social
security number. Telephone calls will be
recorded.
Telephone redemption requests
must be received prior to the closing of the
NYSE (usually 4:00 p.m., New York time) to
receive that day's NAV. 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 by telephone,
shares also may be redeemed by delivering the
redemption request in person or by mail. The
maximum telephone redemption is $50,000 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. Neither the Fund nor
Firstar 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 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.
TAX EFFECT OF For federal income tax purposes, a
REDEMPTIONS redemption generally is treated as a sale of
[ICON] the shares being redeemed, with the shareholder
recognizing capital gain or loss
equal to the difference between the
redemption price and the shareholder's cost basis
for the shares being redeemed. See "Dividends,
Distributions and Federal Tax Status" for further
Tax information.
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 to be wired also
ordinarily will be wired within seven days
after receipt of the request, and normally
will be wired on the next business day after
a NAV 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.
You may instruct Firstar 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 charges a wire redemption fee of
$12.00. Please contact the Fund for the
appropriate form if you are interested in
setting your account up with wiring
instructions.
SIGNATURE A signature guarantee of each owner
GUARANTEES is required to redeem shares in the following
[ICON] situations, for all size transactions:
* if you change the ownership on your account
* upon redemption of shares when certificates
have been issued for your account
* when you want the redemption proceeds sent to a
different address than is registered on
the account
* for both certificated and uncertificated shares,
if the proceeds are to be made payable
to someone other than the account owner(s)
* any redemption transmitted by federal wire transfer
to your bank not previously set up with the
Fund
* if a change of address request has been received
by the Fund or Firstar within 15 days of a
redemption request
In addition, signature guarantees
will be 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.
THIRD PARTY USE OF A PROCESSING INTERMEDIARY TO REDEEM FUND SHARES.
REDEMPTIONS As with the purchase of Fund shares, shares of the Fund
[ICON] may be sold through certain broker-dealers,
financial institutions and other service
providers ("Processing Intermediaries"). An
investor intending to redeem Fund shares
through his or her Processing Intermediary
should read the program materials provided by
the Processing Intermediary and follow the
instructions and procedures outlined therein.
Processing Intermediaries may
charge fees or other charges for the services
they provide to their customers. Such
charges vary among Processing Intermediaries,
but in all cases will be retained by the
Processing Intermediary and not remitted to
the Fund or the Adviser.
Investors who do not wish to use
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. IF YOU HOLD FUND
SHARES THROUGH A PROCESSING INTERMEDIARY, YOU
MUST REDEEM YOUR SHARES THROUGH SUCH
PROCESSING INTERMEDIARY. IN SUCH EVENT, YOU
SHOULD CONTACT THE PROCESSING INTERMEDIARY
FOR INSTRUCTIONS ON HOW TO REDEEM. If an
investor has originally invested directly
with the Fund, direct sale of Fund shares
through the Fund (and not the Processing
Intermediary) may be made without a
redemption charge.
The Fund also may enter into an
arrangement with some Processing
Intermediaries authorizing them to process
redemption requests on behalf of the Fund on
an expedited basis (an "authorized agent").
Receipt of a redemption request by an
authorized agent will be deemed to be
received by the Fund for purposes of
determining the NAV of Fund shares to be
redeemed. For redemption orders placed
through an authorized agent, a shareholder
will receive redemption proceeds which
reflect 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.
EXCHANGE BETWEEN NICHOLAS FAMILY OF FUNDS
You may exchange Fund shares for shares of other
mutual funds for which Nicholas Company, Inc.
serves as the investment adviser.
GENERAL Nicholas Company, Inc. also is
adviser to the following funds which have
investment objectives and net assets as noted
below:
<TABLE>
<CAPTION>
NET ASSETS AT
FUND INVESTMENT OBJECTIVE DECEMBER 31, 1998
---- -------------------- ------------------
<S> <C> <C>
Nicholas Fund, Inc. Capital appreciation; Income as
a secondary consideration $5,823,474,514
Nicholas II, Inc. Long-term growth; Income as a
secondary consideration $1,109,497,195
Nicholas Limited Long-term growth; $ 367,191,042
Edition, Inc.(1)
Nicholas Equity Reasonable income; Moderate
Income Fund, Inc. long-term growth as a secondary
Consideration $ 26,813,593
Nicholas Money High level of current income as
Market Fund, Inc. as is consistent with preserving
capital and liquidity $ 160,187,297
____________
</TABLE>
(1) Shareholders are reminded, however,
that Nicholas Limited Edition, Inc. is
restricted in size to ten
million shares (without taking into account
shares outstanding as a result of capital
gain and dividend distributions), and that
the exchange privilege into that mutual
fund may be terminated or modified at any
time or times when that maximum is reached.
If you choose to exercise the exchange
privilege, the shares will be
exchanged at their next determined NAV
When an exchange into the Nicholas
Money Market Fund, Inc. would involve
investment of the exchanged amount on a day
when the NYSE 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.
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 NAV at the time is more or less than
the shareholder's cost basis. An exchange
between the funds involving master retirement
plans and IRA accounts generally will not
constitute a taxable transaction for federal
tax purposes. See "Dividends, Distributions
and Federal Tax Status" for further tax
information.
EXCHANGE The exchange privilege is available
BY only in States where shares of the fund being
MAIL acquired may legally be sold, and the privilege
[ICON] may be terminated or modified only upon 60
days advance notice to shareholders. You may
exchange shares of the Fund for
shares of other available Nicholas mutual funds
directly through Nicholas Company, Inc.
without cost by written request.
If you are interested in exercising the
exchange by mail privilege, you may obtain the
appropriate prospectus from Nicholas Company, Inc.
Signatures required are the same as previously
explained under "Redemption of Fund Shares."
EXCHANGE You may exchange by telephone among
BY all funds for which the Nicholas Company, Inc.
TELEPHONE serves as investment adviser. Only exchanges of
[ICON] $500 or more may be executed using the telephone
exchange privilege. Firstar 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. Exchanges
between the Fund and Nicholas Equity Income Fund,
Inc. are limited to $25,000 per day and $100,000
per day for related accounts.
Procedures for exchanging Fund shares by
telephone may be modified or terminated at any
time by the Fund or Firstar.
Neither the Fund nor Firstar will be
responsible for the authenticity of exchange
instructions received by telephone. Telephone
exchanges can only be made by calling Firstar
at 414-276-0535 or 800-544-6547. You will be
required to provide pertinent information
regarding your account. Calls will be
recorded.
TRANSFER OF FUND SHARES
You may transfer Fund shares 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 (414-276-0535
or 800-544-6547) or Nicholas Company, Inc. (414-272-6133 or 800-
227-5987) prior to submitting any transfer requests.
DIVIDENDS, DISTRIBUTIONS 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 NAV 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 maximum tax rate on
long-term capital gains for sales of securities held longer than
12 months is 20%. Income distributed from the Fund's net
investment income and net realized short-term capital gains are
taxable to shareholders as ordinary income. The Fund will provide
information to shareholders concerning the character and federal
tax treatment of all dividends and distributions.
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 or (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 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 AND DISTRIBUTION REINVESTMENT PLAN
Unless you 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. You may elect to accept cash 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.
You 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 ("Plan") and receive monthly or
quarterly checks for any designated amount. Firstar 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 upon written
notice mailed to the shareholders. Please contact Nicholas
Company, Inc. 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.
Individuals who receive compensation, including earnings from
self-employment, may be entitled to establish and make
contributions 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.
Contributions to a Roth IRA are not currently deductible.
However, 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.
Like the Roth IRA, contributions to an Education IRA 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 contributions 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 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 of the plan is recommended.
YEAR 2000 ISSUES
The "Year 2000" issue presents a significant technological
challenge for the securities industry. Due to the limited memory
and the high cost of storage space associated with early computer
equipment, the century was implied rather than actually stored.
As a result, many computer systems are unable to interpret dates
beyond 1999. Software and hardware which is not designed to work
across centuries may potentially malfunction on January 1, 2000.
Because dates are part of every securities transaction, accurate
date calculations are critical.
The Fund has focused on the Year 2000 computer conversion issue
and management believes that there should be a smooth transition
on the part of suppliers of services to the Fund. The Fund's
custodian bank and transfer agent has reported that the necessary
conversion process is in progress, and it appears to have
dedicated the appropriate level of resources to solve the problem.
The Adviser has identified and is taking steps it believes are
reasonably designed to resolve potential problems and address the
Year 2000 issue, although there can be no assurances that such
steps will be sufficient. The Adviser, which performs the Fund's
internal accounting and pricing functions, is in the process of re-
engineering its hardware to handle the century date, and has
identified and is taking steps to resolve potential software
problems. Some systems are currently compliant. Internal testing
is ongoing, and the Fund expects that all systems will have been
converted by mid-1999.
In addition, there can be no assurances that the Year 2000
issue will not have an adverse effect on issuers whose securities
are held by the Fund or on global markets or economies generally.
APPENDIX A
DESCRIPTION OF BOND RATINGS
STANDARD AND POOR'S RATINGS
AAA rated bonds are the 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. Marketwise, as with AAA rated bonds, they move with
interest rates.
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.
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
APRIL 30, 1999
NICHOLAS INCOME FUND, INC.
FOR MORE INFORMATION ABOUT THE FUND:
The Fund's Statement of Additional Information ("SAI"), dated
April 30, 1999, contains more detailed information on all aspects
of Nicholas Income Fund, Inc., and is incorporated by reference
in this Prospectus. Additional information about the Fund also
is available in the Fund's Annual and Semi-Annual Report to
Shareholders.
To request a free copy of the current Annual/Semi-Annual
Report or SAI, or to make shareholder inquiries, please write or
call: Nicholas Income Fund, Inc., 700 North Water Street,
Milwaukee, Wisconsin 53202, 800-227-5987 (toll-free). Additional
information about the Fund also can be obtained from the Fund's
Internet website at www.nicholasfunds.com.
In addition, you can review the Fund's reports and SAIs at the
Public Reference Room of the Securities and Exchange Commission
in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at 800-
SEC-0330. Reports and other information about the Fund also are
available on the Commission's Internet website at www.sec.gov.
For a duplicating fee, copies of such information may be obtained
by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6000.
For the most current price and return information for the
Fund, you may call the Fund at 800-227-5987 (toll-free) or 414-
272-6133 or check the Fund's website at www.nicholasfunds.com.
You also can find the most current price of the Fund's shares in
the business section of your newspaper in the mutual fund section
under the heading "Nicholas Group" - "NchIn." If you prefer to
obtain this information from an on-line computer service, you can
do so by using the ticker symbol "NCINX" or cusip number 653741108.
Investment Adviser
NICHOLAS COMPANY, INC.
Milwaukee, Wisconsin
414-272-6133 or 800-227-5987
Custodian
FIRSTAR BANK MILWAUKEE, N.A.
Milwaukee, Wisconsin
Transfer Agent
FIRSTAR MUTUAL FUND SERVICES, LLC
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
Independent Public Auditors
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
Counsel
MICHAEL BEST & FRIEDRICH LLP
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
NICHOLAS II, INC.
700 NORTH WATER STREET SUITE 1010
MILWAUKEE, WISCONSIN 53202
www.nicholasfunds.com
NO LOAD FUND - NO SALES CHARGE
INVESTMENT COMPANY ACT FILE NO. 811-0216
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, is not a
prospectus and contains information in addition to and more
detailed than that set forth in the current Prospectus of
Nicholas Income Fund, Inc. (the "Fund"), dated April 30, 1999.
It is intended to provide you with additional information
regarding the activities and operations of the Fund, and should
be read in conjunction with the Fund's current Prospectus and the
Fund's Annual Report for the fiscal year ended December 31, 1998,
which is incorporated herein by reference, as they may be revised
from time to time. The Fund's prospectus provides the basic
information you should know before investing in the Fund.
To obtain free 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
Investment Adviser
NICHOLAS COMPANY, INC.
April 30, 1999
TABLE OF CONTENTS
PAGE
INTRODUCTION............................................ --
INVESTMENT OBJECTIVES AND
PRINCIPAL INVESTMENT STRATEGIES....................... --
INVESTMENT RESTRICTIONS................................. --
INVESTMENT RISKS........................................ --
THE FUND'S INVESTMENT ADVISER........................... --
MANAGEMENT-DIRECTORS, EXECUTIVE OFFICERS AND
PORTFOLIO MANAGER OF THE FUND........................ --
PRINCIPAL SHAREHOLDERS
PURCHASE OF FUND SHARES................................. --
REDEMPTION OF FUND SHARES............................... --
EXCHANGE BETWEEN FUNDS.................................. --
TRANSFER OF FUND SHARES................................. --
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAX STATUS......... --
DIVIDEND AND DISTRIBUTION REINVESTMENT PLAN............. --
SYSTEMATIC WITHDRAWAL PLAN.............................. --
INDIVIDUAL RETIREMENT ACCOUNTS.......................... --
MASTER RETIREMENT PLAN.................................. --
BROKERAGE............................................... --
PERFORMANCE DATA........................................ --
CAPITAL STRUCTURE....................................... --
STOCK CERTIFICATES...................................... --
ANNUAL MEETING.......................................... --
SHAREHOLDER REPORTS..................................... --
YEAR 2000 ISSUES........................................ --
CUSTODIAN AND TRANSFER AGENT............................ --
INDEPENDENT CCOUNTANTS AND LEGAL COUNSEL................ --
FINANCIAL INFORMATION................................... --
INTRODUCTION
Nicholas Income Fund, Inc. (the "Fund") was originally
organized under Delaware law as a diversified management
investment company through the consolidation in 1930 of two
investment companies. The Fund is an open-end, diversified
management investment company registered under the Investment
Company Act of 1940, as amended. 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 $0.01 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 AND PRINCIPAL INVESTMENT STRATEGIES
GENERAL
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 Fund's main investment goal is to obtain high current income,
by investing primarily in high yield, bonds (also known as
"non-investment grade bonds" or "junk bonds"). Capital
appreciation is a secondary goal that is sought only when
consistent with the Fund's primary investment goal. Capital
appreciation may result, for example, from an improvement in
the credit standing of an issuer whose securities are held in
the Fund's portfolio or from a general lowering of interest
rates, or a combination of both.
To pursue the Fund's investment goal, the Fund primarily
invests in a diversified portfolio of fixed income securities,
including high yield corporate bonds, debentures and preferred
stocks, securities convertible into common stocks, and common
stocks, including securities of REITs. The Fund does not have
a pre-set asset allocation strategy which would require that
the Fund maintain a specific percentage of its assets in
income-related securities (i.e., bonds) and equity-related
securities (i.e., stocks).
The Fund may invest up to 50% of its total net assets taken
at market in securities of electric companies (subject to specific
investment limitations, as described below). With the exception of
this electric utility concentration policy, the Fund's assets are
diversified as to company and industry. The Fund does not invest
in unseasoned companies (companies having a record of less than
three years' continuous operation). In addition, except for
securities issued or guaranteed by the United States, its
instrumentalities or agencies, the Fund may not acquire the
securities of any one issuer if the market value of the Fund's
holdings of such issuer would exceed 5% of the market value of
the Fund's total assets or the Fund would own in excess of 10%
of the voting securities of such issuer.
In selecting its investments, the Adviser performs its own
in-depth credit analysis on the credit quality of issuers. 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 Adviser also
evaluates the long-term outlook for interest rate movement. By
doing so, the Adviser attempts to mitigate potential interest
rate and credit risk volatility by selecting investments which it
believes also offer reasonable prospects for preservation of
capital values.
The Fund adheres to applicable investment restrictions and
policies, as described below, at the time it makes an investment.
However, a later change in circumstances will not require the
sale of an investment if it was proper at the time it was made.
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 Fund's rate of
portfolio turnover normally will not exceed 50%. For the years
ended December 31, 1998, 1997 and 1996, the Fund's rate of
portfolio turnover was 49.3%, 32.2%, and 33.2%, respectively.
As a temporary defensive tactic because of adverse market,
economic, political or other conditions, the Fund also may invest
in cash, repurchase agreements and investment grade fixed income
securities. In the event the Fund employs such a temporary
defensive tactic in response to abnormal market or other
conditions, the Fund may not achieve its investment objective
during the period in which the Fund maintains such defensive
position.
CREDIT QUALITY OF FIXED INCOME INVESTMENTS
To meet its investment objective of providing high current
income, the Fund invests primarily in a diversified portfolio of
fixed income securities, including high yield corporate bonds.
The Fund's investments include rated and unrated securities.
The Fund may only invest in securities rated B or higher at
the time of purchase (or unrated securities deemed to be of
comparable credit quality by the Adviser at the time of
purchase). The Fund is not subject to any limitations as to the
percentage of its assets which must be invested in securities
within those rating categories specified as B or higher.
UNDERSTANDING CREDIT QUALITY RATINGS RATED SECURITIES
For rated securities, the
RATING AGENCIES SUCH AS Fund only may invest in
STANDARD AND POOR'S securities rated B or
CORPORATION ("S&P") AND higher by S&P or Moody's at
MOODY'S INVESTOR SERVICE, INC. the time of purchase;
("MOODY'S") EVALUATE however, subsequent to the
SECURITIES ON THE BASIS OF THE purchase, the rating of the
ISSUER'S ABILITY TO MEET ALL securities so purchased may
REQUIRED PRINCIPAL AND fall below B. In addition
INTEREST PAYMENTS. BONDS WITH to relying, in part, on the
RATINGS ABOVE THE LINE IN THE ratings assigned to the
CHART BELOW ARE CONSIDERED debt securities, the Fund
"INVESTMENT GRADE," WHILE also will rely on the
THOSE WITH RATINGS BELOW THE Adviser's judgment,
LINE ARE REGARDED AS "NON- analysis and experience in
INVESTMENT GRADE" OR "JUNK evaluating the credit
BONDS." worthiness of the issuer.
Accordingly, the
S&P MOODY'S MEANING achievement of the Fund's
investment objectives may
AAA Aaa Highest Quality be more dependent on the
AA Aa High Quality Adviser's own credit
A A Above-average Quality analysis than would be the
BBB Baa Average Quality case if the Fund invested
- ------------------------------- primarily in higher quality
BB Ba Average Qualtiy debt securities.
B B Below average Quality
CCC Caa Poor Quality UNRATED SECURITIES
CC Ca Highly Speculative
C C Lowest Quality The Fund will invest in
D - In Default unrated securities 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.
A DETAILED EXPLANATION OF THESE RATINGS CAN BE FOUND IN
THE APPENDIX TO THIS PROSPECTUS.
At December 31, 1998, 86.4% of the Fund's total net assets
were invested in rated and unrated corporate debt securities.
The following table shows the credit quality allocation
(including the Adviser's assessment of the credit quality of
unrated securities held in the Fund's portfolio) of the portion
of the Fund's assets invested in such securities at December 31,
1998.
CREDIT RATING CATEGORY PERCENTAGE OF
S&P/MOODY'S TOTAL NET ASSETS
AAA/Aaa 0%
AA/Aa 0%
A/A 2.1%
BBB/Baa 0%
BB/Ba 19.0%
B/B 65.3%
CCC/Caa 0%
CC/Ca 0%
C/C 0%
D/- 0%
86.4%
=====
Of the Fund's total net assets invested in rated and unrated
corporate debt securities, 3.3% were invested in unrated
corporate debt securities, all of which were believed by the
Adviser to be equivalent to a B rating.
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.
MATURITY OF INVESTMENTS
The Fund invests in both short-term and long-term
securities. Debt securities with longer maturities
generally tend to produce higher yields but are subject to
greater interest rate risk than debt securities with shorter
maturities. The Fund is not limited as to the maturities of
securities in which it invests. Most preferred stocks have
no stated maturity or redemption date. The weighted average
maturity, which is likely to vary from time to time, of the
corporate bonds owned by the Fund on December 31, 1998 was
seven years.
ELECTRIC UTILITY INDUSTRY CONCENTRATION
The Fund may invest up to 50% of its total net assets
in securities of electric companies. The percentage of the Fund's
total net assets which must be invested in securities of electric
companies must fall within one of the following ranges: (1) 0%
to 24.99%; or (2) 25% to 50%. The exact percentage investment
within those ranges is up to the discretion of the Adviser. The
Adviser is required to determine which percentage range is applicable
by comparing the difference in the yield to maturity ("YTM") of
two different bond indices. These indices are the Lehman Brothers
Intermediate Utility Bond Index ("Lehman Utility Bond Index") and
the Lehman Brothers Intermediate Baa Corporate Bond Index ("Lehman
Corporate Bond Index"). To determine the applicable percentage range,
the Adviser must follow the guidelines set forth below in comparing
the bond indices:
PERCENTAGE OF THE FUND'S TOTAL
NET ASSETS WHICH MUST LEHMAN BROTHERS INDICES (1)
BE INVESTED IN SECURITIES OF YIELD TO MATURITY ("YTM")
ELECTRIC COMPANIES AND SYSTEMS COMPARISON
- -------------------------------- ----------------------------------
At least 25% and up to 50% If the YTM of the Lehman
Utility Bond Index is at least
five basis points or more over
the YTM of the Lehman
Corporate Bond Index at the end of
each month for three consecutive months.
Less than 25% If the YTM of the Lehman Utility Bond
Index is less than five basis
points over the YTM of the
Lehman Corporate Bond Index at the end
of each month for three consecutive months.
"YIELD TO MATURITY" is the annual return on a bond, assuming the
bond is held until its maturity date. The calculation takes into
consideration the purchase price, redemption value, time to maturity,
coupon yield and time between interest payments.
A "BASIS POINT" is one-one hundredth of one percentage point, or 0.01%.
(1) Both the Lehman Corporate Bond Index and the Lehman Utility Bond Index
consist of debt securities which are non-convertible publicly traded
corporate issues with fixed rates and maturities ranging from one up
to ten years. Securities in the Lehman Corporate Bond Index must
have at least a Baa rating by Moody's (or the equivalent from S&P
or Fitch Investors Service, Inc.). The Lehman Utility Bond Index
is comprised of investment grade utility securities rated by the
aforementioned rating services. The Fund has chosen to use these
Lehman Brothers indices as an indication of the general trend of
yields for securities of electric companies, and for securities of
non-electric companies, even though the Fund may invest in lower
grade securities and may invest in short- and long-term securities.
The Fund must meet the above-noted percentage of asset
requirements at specified times. The Fund continually monitors
the spreads (differences in the yields to maturity) on the above-noted
indices. If the YTM of the Lehman Utility Bond Index is at least
five basis points or more over the YTM of the Lehman Corporate Bond
Index at the end of each month for three consecutive months, the Fund
must purchase or sell securities to ensure that by the end of the fourth
consecutive month (the "Phase-In Period"), the percentage of the Fund's
total net assets invested in securities of electric companies is at least
25% and may be up to 50% at the discretion of the Adviser. An example
of the three-month YTM comparison which would trigger a Phase-In Period
is as follows:
MONTH-END MONTH-END SPREAD
YTM OF LEHMAN YTM OF LEHMAN (DIFFERENCE IN
UTILITY BOND INDEX CORPORATE BOND INDEX YTM)
-------------------- -------------------- -------------
January 6.58% 6.51% .07
February 6.52% 6.39% .13
March 7.00% 6.92% .08
If the YTM of the Lehman Utility Bond Index is less than
five basis points over the YTM of the Lehman Corporate Bond Index
at the end of each month for three consecutive months, the Fund
must purchase or sell securities to ensure that by the end of
the fourth consecutive month (the "Phase-Out Period"), the
percentage of the Fund's total net assets invested in securities
of electric companies is less than 25% and may be as low as 0%
at the discretion of the Adviser. An example of the three-month
YTM comparison which would trigger a Phase-Out Period is as follows:
MONTH-END MONTH-END SPREAD
YTM OF LEHMAN YTM OF LEHMAN (DIFFERENCE IN
UTILITY BOND INDEX CORPORATE BOND INDEX YTM)
-------------------- -------------------- -------------
January 6.21% 6.19% .02
February 6.27% 6.40% (.13)
March 6.75% 7.10% (.35)
Over the past three fiscal years, there has been no Phase-In
or Phase-Out period. At December 31, 1998, 1997 and 1996, the Fund
had approximately 0%, 0% and 2.1%, respectively, of its total net
assets invested in securities of electric companies.
OTHER INVESTMENTS
The Fund also may invest in the following types of
securities, subject to certain limitations as described below:
* Common and preferred stocks
* Convertible securities and warrants (subject to
certain limitations under the Fund's operating policy,
as described herein)
* Short-term debt of the U.S. Government or its
agencies
* Commercial paper (rated A-1 or A-2 by S&P or Prime-
1 or Prime-2 by Moody's) or unrated money market
instruments which are of comparable quality
* Bank certificates of deposit
* Repurchase agreements (only with a member bank of
the Federal Reserve System or a primary dealer in U.S.
government securities, and only in an amount not to
exceed 20% of the Fund's total assets, taken at market,
at the time of investment)
* Securities of real estate investment trusts
("REITs") 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 Quotation System ("NASDAQ") (subject
to the restriction that at the time of investment the
Fund may not invest more than 10% in value of the Fund's
total assets in REITS and not more than 25% in value of
the Fund's total assets in the real estate industry in
the aggregate)
* Securities of other investment companies (up to
10% of the Fund's total assets at the time of investment,
and provided no sales charge or commission is incurred)
The proportions invested in each type of security
classification may range from time to time in accordance
with the Adviser's interpretation of economic conditions and
underlying security values.
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.
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 "Securities Act").
Such securities are not registered for purchase and sale by
the public under the Securities 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 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 NASDAQ, 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 (the
"1940 Act").
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 Stock Exchange ("NYSE")
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 RISKS
THIS SECTION CONTAINS A SUMMARY DESCRIPTION OF THE GENERAL
RISKS OF INVESTING IN THE FUND. AS WITH ANY MUTUAL FUND, THERE
CAN BE NO GUARANTEE THAT THE FUND WILL MEET ITS GOALS OR THAT YOU
WON'T LOSE MONEY ON YOUR INVESTMENT. THERE IS NO GUARANTEE THE
FUND'S PERFORMANCE WILL BE POSITIVE OVER ANY PERIOD OF TIME.
Because of the following risks, you could lose money on your
Investment in the fund over the short- or long- term.
CREDIT RISK. Credit risk refers to an issuer's ability to
make timely payments of interest or principal. Recognized rating
agencies consider non-investment grade securities (securities
with lower credit qualities) to be speculative with respect to
the issuer's continuing ability to pay interest or principal.
Because the Fund primarily invests in non-investment grade debt
securities, the Fund is subject to a higher level of credit risk
than a fund that only invests in investment grade securities.
Lower grade securities may have less liquidity, a higher
incidence of default and the Fund may incur higher expenditures
to protect the Fund's interest in such securities than
investments in higher grade securities. Issuers of lower grade
securities generally are more sensitive to negative corporate
developments, such as a decline in profits, or adverse economic
conditions, such as a recession, than issuers of higher grade
securities. In addition, the achievement of the Fund's investment
goals may be more dependent on the Adviser's own credit analysis
than would be the case if the Fund invested primarily in higher
quality debt securities.
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 attempts to minimize this
risk through diversification of its investments and by analysis
of each issuer and its ability to make timely payments of
interest and principal.
INTEREST RATE RISK. Interest rate risk refers to the risk
that the prices of the Fund's investments, particularly the debt
securities in which the Fund primarily invests, are likely to
fall if interest rates rise. This is because the prices of debt
securities typically move in the opposite direction of interest
rates. Debt securities with longer maturities generally are
affected by changes in interest rates to a greater degree than
debt securities with shorter maturities. Because the Fund does
not have a policy limiting the maturity of its investments, and
the Fund may invest in debt securities with longer maturities,
the Fund may be subject to greater interest rate risk than a fund
that primarily invests in short-term debt securities.
In addition, the income you receive from the Fund is based
primarily on interest rates, which can vary widely over the short-
and long-term. If interest rates decline, your income from the
Fund may decline as well.
INVESTMENTS IN UNRATED DEBT SECURITIES. Unrated securities
will be considered for investment by the Fund, but only when the
Adviser believes the financial condition of the issuer 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 liquid and
thus they may carry greater market risk and a higher yield than
rated securities. These factors have the effect of limiting the
availability 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 the financial markets.
HIGH YIELD BOND MARKET RISK The entire high yield bond market
can experience sudden and sharp price swings due to a variety of
factors, including changes in economic forecasts, stock market
activity, large sustained sales by major investors, a high-profile
default or just a change in the market's volatility.
CALL RISK. If interest rates fall, it is possible that
issuers of bonds with high interest rates will prepay or "call"
their bonds before their maturity dates. In such event, the
proceeds would be reinvested by the Fund in bonds with the new,
lower interest rates, resulting in a possible decline in the
Fund's income and distributions to shareholders.
SELECTION RISK. The Fund also is subject to selection risk,
which is the risk that the investments the Fund's adviser selects
will underperform the markets or other mutual funds with similar
investment objectives and strategies.
RISKS RELATED TO PREFERRED STOCK AND CONVERTIBLE
INVESTMENTS. Preferred stocks may provide a higher dividend rate
than the interest yield on debt securities of the same issuer,
but are subject to greater risk of fluctuation in market value
and greater risk of non-receipt of income. Unlike interest on
debt securities, dividends on preferred stocks must be declared
by the issuer's board of directors before becoming payable.
Preferred stocks are in many ways like perpetual debt securities,
providing a stream of income but without a stated maturity date.
Because they often lack a fixed maturity or redemption date,
preferred stocks are likely to fluctuate substantially in price
when interest rates change. Preferred stocks have claims on
assets and earnings of the issuer which are subordinate to the
claims of all creditors but senior to the claims of common stock
holders.
The value of convertible preferred stock and debt
securities convertible into common stock generally will be
affected by its stated dividend rate or interest rate, as
applicable, and the value of the underlying common stock. As a
result of the conversion feature, the dividend rate or interest
rate on convertible preferred stock or convertible debt
securities generally is less than would be the case if the
security were not convertible. Therefore, the value of
convertible preferred stock and convertible debt securities will
be affected by the factors that affect both equity securities
(such as stock market movements) and debt securities (such as
interest rates). Some convertible securities might require the
Fund to sell the securities back to the issuer or a third party
at a time that is disadvantageous to the Fund.
LIQUIDITY RISK. From time to time, the Fund may purchase a
portion of bonds, debentures or other debt securities in private
placements. Restricted securities may have a contractual limit on
resale or may require registration under federal securities laws
before they can be sold publicly. Difficulty in selling these
securities may result in a loss to the Fund or additional costs,
which could adversely impact the Fund's net asset value.
However, the Fund is subject to an operating policy adopted by
the Fund's Board that the Fund will not invest more than 15% of
its total assets in illiquid securities. While this policy is
subject to change by the Fund's Board without a shareholder vote,
as matter of practice, the Fund will not change such policy
without prior notice to its shareholders.
In addition, because the market for lower rated debt
securities may be thinner and less active than for higher rated
securities, there may be market price volatility for the Fund's
lower rated debt securities and limited liquidity in the resale
market.
RISKS RELATED TO INVESTMENTS IN REPURCHASE AGREEMENTS. The
Fund may only enter into repurchase agreements with a member bank
of the Federal Reserve System or a primary dealer in U.S.
Government securities. Under such agreements, the Fund buys U.S.
Government securities from the bank or primary dealer and
simultaneously agrees to sell the securities back to the bank or
primary dealer at a mutually agreed upon time and price. While
the underlying obligation is a U.S. Government security, the
obligation of the seller to repurchase the security is not
guaranteed by the U.S. Government. Delays or losses could result
if the bank or primary dealer defaults on its repurchase
obligation or becomes insolvent, which could adversely impact the
Fund's net asset value. Not more than 20% of the Fund's total net
assets, taken at market, may be invested in repurchase agreements.
STOCK MARKET RISK. To the extent the Fund's investments
include stocks of publicly traded entities, there is a possibility
that the value of the Fund's investments will decrease because of
general declines in the stock market or due to specific factors
which may adversely affect the value of a specific investment.
INVESTMENT CONCENTRATION IN ELECTRIC UTILITY INDUSTRY. The
Fund may invest up to 50% of its total assets in securities of
electric companies, subject to certain limitations as previously
described. The electric utility industry is an industry
characterized by geographic diversification, supervision and
regulation by state and federal agencies 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
electric utilities.
As described in detail in the "Fund Investments" section of
this Prospectus, the Fund is subject to specific restrictions and
procedures it must follow in determining the level of the Fund's
concentration of investments in the electric utility industry.
These procedures involve a continual assessment of the yield to
maturity of the Lehman Utility Bond Index and the Lehman
Corporate Bond Index. The risks related to the Fund's adherence
to the foregoing restrictions are as follows:
* No assurance that the changes in the Fund's
investment concentration mandated by such restrictions
will improve the performance of the Fund, nor can there
by any assurances that the Fund's performance will
equal or surpass the performance indicated by the
indices.
* The Adviser may be required to purchase or sell
securities of electric companies or securities
of non-electric companies In order to meet the
noted percentage restrictions at the specified
times, and thus the Fund's transaction costs
may increase.
* The portfolio changes as a result of the
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.
RISKS RELATED TO INVESTMENTS IN REITS AND OTHER REAL
ESTATE-BASED SECURITIES. From time to time, the Fund may invest
in REITs and other real estate-based securities listed on a national
securities exchange or authorized for quotation on NASDAQ. These
securities are subject to risks related to the real estate industry.
The performance of these securities are dependent on the types and
locations of the properties owned by the entities issuing the
securities and how well the properties are managed. For instance,
the income of the properties could decline due to vacancies,
increased competition or poor management, and the values of
the properties could decrease due to a decline in neighborhood
condition, overbuilding, uninsured damages caused by natural
disasters, property tax increases or other factors. In addition,
these securities also are subject to market risk (the risk that
stock prices overall will decline over short or even extended
periods) and interest rate risk (the risk that the prices
of these securities will decrease if interest rates rise).
At time of investment, not more than 10% of the Fund's total
assets may be invested in REITs, and in the aggregate, not more
than 25% of the Fund's total assets may be invested in the real
estate industry.
In view of the risks inherent in all investments in
securities, there is no assurance that the Fund's objectives
will be achieved.
THE FUND'S INVESTMENT ADVISER
Nicholas Company, Inc., located at 700 North Water
Street, Suite 1010 Milwaukee, Wisconsin 53202, is the Fund's
investment adviser. The Adviser 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. The Adviser
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:. The other mutual funds for
which the Adviser serves as an investment adviser are
Nicholas Fund, Inc., Nicholas II, Inc., Nicholas Limited
Edition, Inc., Nicholas Money Market, Inc. and Nicholas
Equity Income Fund, Inc., with primary investment objectives
and net assets as set forth below.
<TABLE>
<CAPTION>
NET ASSETS AT
FUND INVESTMENT OBJECTIVE DECEMBER 31, 1998
---- -------------------- --------------
<S> <C> <C>
Nicholas Fund, Inc. Capital appreciation $5,823,474,514
Nicholas II, Inc. Long-term growth $1,109,497,195
Nicholas Limited
Edition, Inc. Long-term growth $ 367,191,042
Nicholas Equity
Income Fund, Inc. Reasonable income $ 26,813,593
Nicholas Money
Market Fund, Inc. Current income $ 160,187,593
</TABLE>
The annual fee paid to the Adviser is paid monthly and
is based on the average net assets of the Fund as determined
by the valuations made at the close of each business day of
the month.
The following table illustrates the calculation of the
Adviser's annual fee:
ANNUAL FEE CALCULATION
NET ASSET (BASED ON THE AVERAGE
VALUE OF THE FUND NET ASSET VALUE OF THE FUND)
- ------------------ ----------------------------
Up to and including $50,000,000................ 0.50 of 1%
Over $50,000,000 and including $100,000,000.... 0.40 of 1%
In excess of $100,000,000...................... 0.30 of 1%
The Adviser has agreed to reduce the 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 at least
annually reimburse the Fund all expenses incurred in excess of this
amount. The total expenses of the Fund as a
percentage of net assets for the year ended December 31, 1998 were
0.48%. During the fiscal years ended December 31, 1998, 1997 and 1996,
the Fund paid the Adviser an aggregate of $926,354, $809,091 and
$661,606, respectively, in fees. During none of the foregoing
fiscal years did the expenses borne by the Fund exceed the expense
limitation then in effect and the Adviser was not required to
reimburse the Fund for any additional expenses.
Under an Investment Advisory Agreement with the Fund,
the Adviser, at its own expense and without reimbursement
from the Fund, furnishes the Fund with office space, office
facilities, executive officers and executive expenses (such
as health insurance premiums for executive officers). The
Adviser also bears all sales and promotional expenses of the
Fund other than expenses incurred in complying with laws
regulating the issue or sale of securities, The Fund pays
all of its operating expenses, including, but not limited
to, the costs of preparing and
printing post-effective amendments to its registration
statements required under the Securities Act and the 1940
Act, and any amendments thereto and of preparing and
printing registration statements in the various states, the
printing and distribution cost of prospectuses mailed to
existing shareholders, the cost of stock certificates,
reports to shareholders, interest charges, taxes and legal
expenses. Also included as "operating expenses" which are
paid by the Fund are fees of directors who are not
interested persons of the Adviser or officers or employees
of the Fund, salaries of administrative and clerical
personnel, association membership dues, auditing, accounting
and tax consulting services, fees and expenses of any
custodian or trustees having custody of Fund assets,
postage, charges and expenses of dividend disbursing agents,
registrars and stock transfer agents, including the cost of
keeping all necessary shareholder records and accounts and
handling any problems related thereto, and certain other
costs and costs related to the aforementioned items.
The Adviser has undertaken to reimburse the Fund to the
extent the aggregate annual operating expenses, including
the investment advisory fee, but excluding interest, taxes,
brokerage commissions, litigation and extraordinary expenses
exceed the lowest (i.e., most restrictive) percentage of the
Fund's average net assets established by the laws of the
states in which the Fund's shares are registered for sale,
as determined by valuations made as of the close of each
business day of the year. The Adviser also may in its
discretion reimburse the Fund for any operating expenses
incurred by the Fund in excess of this most restrictive
percentage. Such optional reimbursement by the Adviser
of operating expenses previously incurred by the Fund
will serve to temporarily enhance the Fund's NAV. The
Adviser has agreed to reduce the management fee by
any operating expenses (other than the management fee)
incurred by the Fund in excess of 1/2 of 1% of average
daily net assets. The Adviser shall reimburse the Fund
by offsetting against its monthly fee all expenses in
excess of these amounts prorated on an annual basis.
Any optional reimbursement will be made at a time
determined by the Adviser. During the fiscal years
ended December 31, 1998, 1997 and 1996, the Fund
paid the Adviser an aggregate of $926,354, $809,091
and $661,606, respectively, in fees. During none
of the foregoing fiscal years did the expenses
borne by the Fund exceed the expense limitation
then in effect and the Adviser was not required
to reimburse the Fund for any additional expenses.
The Investment Advisory Agreement with the Adviser is
not assignable and may be terminated by either party,
without penalty, on 60 days notice. Otherwise, the
Investment Advisory Agreement continues in effect so long as
it is approved annually by (i) the Board of Directors or by
a vote of a majority of the outstanding shares of the Fund
and (ii) in either case, by the affirmative vote of a
majority of directors who are not parties to the Investment
Advisory Agreement or "interested persons" of the Adviser or
of the Fund, as defined in the 1940 Act cast in person at a
meeting called for the purpose of voting for such approval.
The Investment Advisory Agreement with the Adviser
provides for payment by the Fund of fees for attendance at
meetings of the Fund's Board of Directors to directors who
are not interested persons of the Fund. The amount of such
fees is subject to increase or decrease at any time, but is
subject to the overall limitation of the Fund's annual
expenses. During the fiscal year ended December 31, 1998, a
total of $12,000 was paid in fees to the Fund's non-
interested directors.
Albert O. Nicholas, President, Director and Portfolio
Manager of the Fund, is also Chairman, Chief Executive
Officer 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 President and Chief
Investment Officer 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. Daniel J. Nicholas, a brother of Albert O.
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 Board of Directors governs the Fund and is responsible for
protecting the interests of shareholders. The Board of Directors
consists of individuals who meet periodically throughout the year
to oversee the Fund's activities and review the Fund's performance.
The following table sets forth the pertinent information about the
Fund's officers and directors as of December 31, 1998:
Name, Age and Positions Principal Occupations
Address Held During Past
with Fund Five Years
------------------- ------------- -------------------------
* Albert O. Nicholas, President, Chairman and Chief Executive
67 Director and Officer, Nicholas Company
700 N. Water Street Portfolio Inc since 1998.
Milwaukee, WI 53202 Manager Director of Nicholas Company
Inc. since 1967, and President
of Nicholas Company, Inc.
From 1967 to 1998. 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
Income Fund, Inc.,
and Nicholas
Equity Income Fund, Inc.
since the Nicholas
Company, Inc. has served
as investment adviser
for such funds. He is a
Chartered Financial Analyst.
Frederick F. Hansen, 72 Director President, Hanseatic
759 N. Milwaukee Street Equities Corp., a
Milwaukee, WI 53202 private investment firm.
Melvin L. Schultz, 65 Director Director and Management
3636 N 124th Street Consultant, Professional
Wauwatosa, WI 53222 Management of Milwaukee,
Inc. He offers
financial advice to
members of the medical
and dental professions
and is a Certified
Professional Business
Consultant.
Jay H. Robertson, 47 Director Chairman of the Board of
660 E. Mason Street Robertson-Ryan and
Milwaukee, WI 53202 Associates, Inc., an
insurance brokerage firm.
David L. Johnson, 57 Executive Vice Executive Vice
700 N. Water Street President President, Nicholas
Milwaukee, WI 53202 Company, Inc., the
Adviser to the Fund, and
employed by the Adviser
since 1980. He is a
Chartered Financial
Analyst.
Thomas J. Saeger, 54 Executive Vice Executive Vice President
700 N. Water Street President and and Assistant Secretary,
Milwaukee, WI 53202 Secretary Nicholas Company, Inc.,
the Adviser to the Fund,
and employed by the
Adviser since 1969. He
is a Certified Public
Accountant.
David O. Nicholas, 37 Senior Vice President and Chief
700 N. Water Street President Investment Officer of
Milwaukee, WI 53202 Nicholas Company, Inc.,
the Adviser to the Fund,
since April 1998. Director
of the Advisor since
December 1997,
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, 42 Senior Vice Senior Vice President
700 N. Water Street President and and Treasurer, Nicholas
Milwaukee, WI 53202 Treasurer Company, Inc., the
Adviser to the Fund, and
employed by the Adviser
since July 1987. He is
a Certified Public
Accountant.
Candace L. Lesak, 41 Vice President Employee, Nicholas
700 N. Water Street Company, Inc., the
Milwaukee, WI 53202 Adviser to the Fund,
since February 1983.
She is a Certified
Financial Planner.
Kathleen A. Evans, 50 Assistant Vice Vice President, Nicholas
700 N. Water Street President Company, Inc., the
Milwaukee, WI 53202 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 Chief Executive Officer and
a director of the Adviser and owns 91% of the outstanding
voting securities of the Adviser.
The aggregate remuneration paid by the Fund during
1998 to all Fund directors as a group amounted to $12,000.
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 by all directors of the Fund during
the year ended December 31, 19978. 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.
<TABLE>
Pension or Estimated Total Compensation
Aggregate Retirement Annual From Fund and Fund
Name and Compensation Benefits Benefits Complex Paid to
Position From the Accrued As Upon Directors (1)
Fund Part of Fund Retirement
Expenses
--------- ------------- ------------ ---------- -------------------
<S> <C> <C> <C> <C>
Albert O. Nicholas,
Director (2) $ 0 $ 0 $ 0 $ 0
Frederick F Hansen,
Director (2) $ 4,000 $ 0 $ 0 $ 8,000
Melvin L. Schultz,
Director (2) $ 4,000 $ 0 $ 0 $ 21,200
Jay H. Robertson
Director (2) $ 4,000 $ 0 $ 0 $ 8,000
</TABLE>
_______________
(1) During the fiscal year ended December 31, 1998, the
Fund and other funds in the Nicholas 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,
1998, the Fund compensated the disinterested directors
at a rate of $1,000 per director per meeting attended.
The disinterested directors did not receive any other
form or amount of compensation from the Fund Complex
for the fiscal year ended December 31, 1998. 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. 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. Messrs. Hansen and
Robertson also are directors of Nicholas Money Market
Fund, Inc.
PRINCIPAL SHAREHOLDERS
Nicholas Company, Inc., the investment adviser to the
Fund, beneficially owned 5,215,781 shares of Common Stock of
the Fund, or 7.52%, as of December 31, 1998. Of this
amount, 1,978,058 shares were owned of record by Albert O.
Nicholas, Chief Executive Officer 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
2,377,705 shares; the Nicholas Family Foundation owned of
record 592,051 shares; and the Nicholas Company, Inc. Profit-
Sharing Trust, of which Mr. Nicholas and David E. Leichtfuss
are trustees, owned of record 267,967 shares.
Charles Schwab & Co., 101 Montgomery Street, San
Francisco, California 94104-4122, owned of record 6,916,777
shares of Common Stock of the Fund, or 9.97% as of December
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 December 31, 1998. All
directors and executive officers of the Fund as a group (ten
in number) beneficially owned approximately 8.01% of the
full shares of Common Stock of the Fund as of March 31,
1999.
PRICING OF FUND SHARES
When shares of the Fund are purchased, the purchase
price per share is the NET ASSET VALUE ("NAV") per share of
the Fund. The NET ASSET VALUE of a share is determined by
dividing the total value in U.S. dollars of the Fund's total
net assets by the total number of shares outstanding at that
time. Net assets of the Fund are determined by deducting
the liabilities of the Fund from the total assets of the
Fund. The NAV is determined as of the close of trading on
the New York Stock Exchange ("NYSE") on each day the NYSE is
open for trading. The NYSE 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 NYSE will not be open for trading on the
preceding Friday, and when any such holiday falls on a
Sunday, the NYSE 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).
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.
PURCHASE OF FUND SHARES
MINIMUM INVESTMENTS. The minimum initial purchase is
$500 and the minimum for any subsequent purchase is $100,
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.
APPLICATION INFORMATION. Applications for the purchase
of shares are made to Nicholas Income Fund, Inc., c/o
Firstar Mutual Funds Services, LLC, P.0. Box 2944,
Milwaukee, Wisconsin 53201-2944. The Fund also has
available an Automatic Investment Plan for shareholders.
Anyone interested should contact the Fund for additional
information.
When shares of the Fund are purchased, the purchase
price per share will be the NAV per share next determined
after the time the Fund receives the application in proper.
The determination of the NAV for a particular day is
applicable to all applications for the purchase of shares
received by the close of trading on the NYSE on that day
(usually 4:00 p.m., New York time).
Applications to purchase Fund shares received
in proper order on a day the NYSE is open for
trading, prior to the close of trading on that
day, will be based on the NAV as of the close of
trading on that day.
Applications to purchase Fund shares received
in proper order AFTER the close of trading on the
NYSE will be based on the NAV as determined as of
the close of trading on the NEXT day the NYSE is
open.
Purchase of shares will be made in full and fractional
shares computed to three decimal places.
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 Mutual Funds Services, LLC's ("Firstar")
Post Office Box, of purchase applications DOES NOT
constitute receipt by Firstar or the Fund. Do not mail
letters by overnight courier to the post office box address.
OVERNIGHT COURIER DELIVERY SHOULD BE SENT TO FIRSTAR MUTUAL
FUNDS SERVICES, LLC, THIRD FLOOR, 615 EAST MICHIGAN STREET,
MILWAUKEE, WISCONSIN 53202-5207.
All applications to purchase Fund shares are subject to
acceptance or rejection by the Fund and are not binding
until accepted. Applications must be in proper order to be
accepted and may only be accepted by the Fund or an
authorized agent of the Fund. 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 & loan or credit union. Checks are accepted
subject to collection at full face value in U.S. funds. The
transfer agent will charge a $20 fee against a shareholder's
account, in addition to any loss sustained by the Fund, for
any payment check returned to the transfer agent for
insufficient funds. The Fund will not accept applications
under circumstances or in amounts considered disadvantageous
for shareholders. Any account (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.
WIRE PAYMENTS. You also may purchase Fund shares via the
Federal Reserve wire system. If a wire purchase is to be an
initial purchase, please call Firstar (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 Mutual Funds Services, LLC
Account 112-952-137
Further Credit: Nicholas Income Fund, Inc.
(shareholder account number)
(shareholder registration)
Please call Firstar 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.
CERTIFICATES. Certificates representing Fund shares
purchased will not be issued unless the shareholder
specifically requests certificates by written notice to the
Fund. 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. Where certificates are not requested,
the Fund's transfer agent, Firstar, will credit the
shareholder's account with the number of shares purchased.
Written confirmations are issued for all purchases of Fund
shares.
THIRD PARTY PURCHASES - USE OF A PROCESSING
INTERMEDIARY TO PURCHASE FUND SHARES. Shares of the Fund
may be purchased through certain broker-dealers, financial
institutions or other service providers ("Processing
Intermediaries"). When shares 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. 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 or other
charges for the services they provide to their customers.
Such charges may vary among Processing Intermediaries, but
in all cases will be retained by the Processing Intermediary
and not remitted to the Fund or the Adviser.
Investors who do not wish to use 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 of shares of the Fund may
be made without a sales charge.
The Fund also may enter into arrangements with some
Processing Intermediaries authorizing them to process
purchase orders on behalf of the Fund on an expedited basis
(an "authorized agent"). Receipt of a purchase order by an
authorized agent will be deemed to be received by the Fund
for purposes of determining the NAV of Fund shares to be
purchased. For purchase orders placed through an authorized
agent, a shareholder will pay the Fund's NAV per share next
computed after the receipt by the authorized agent of such
purchase order, plus any applicable transaction charge
imposed by the agent.
REDEMPTION OF CAPITAL STOCK
REDEMPTION PRICE. A shareholder may redeem Fund shares in
whole or in part by any of the methods described below. All
redemptions will be processed immediately upon receipt and
written confirmations will be issued for all redemptions of
Fund shares. The redemption price will be the Fund's NAV
next computed after the time of receipt by Firstar (or by an
authorized agent of the Fund) of the certificate(s), or
written request in the proper form and described below, or
pursuant to proper telephone instructions as described
below.
Requests for redemption of Fund shares
received in proper form on a day the NYSE is open
for trading, prior to the close of trading on that
day, will be based on the NAV as of the close of
trading on that day.
Requests for redemption of Fund shares
received in proper form AFTER the close of trading
on the NYSE will be based on the NAV as determined
as of the closing of trading on the NEXT day the
NYSE is open.
REDEMPTION REQUESTS THAT CONTAIN RESTRICTIONS AS TO
THE TIME OR DATE REDEMPTIONS ARE TO BE EFFECTED WILL BE
RETURNED AND WILL NOT BE PROCESSED.
If any portion of the shares to be redeemed
represents an investment made by personal or certified
check, the fund reserves the right to hold a payment up
to 15 days or until notified that investments made by
check have been collected, at which time the redemption
request will be processed and payment made.
WRITTEN REDEMPTIONS. If you redeem in writing, you
must sure that the redemption request is signed by each
shareholder in the exact manner as the Fund account is
registered and includes the redemption amount and the
shareholder account number.
WHEN SHARES ARE REPRESENTED BY CERTIFICATES,
you may redeem by delivering to the Fund, c/o
Firstar Mutual Funds Services, LLC, 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," which is 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, you may
redeem by delivering an original signed written
request for redemption addressed to Nicholas
Income Fund, Inc., c/o Firstar Mutual Funds
Services, LLC, P.O. Box 2944, Milwaukee, Wisconsin
53201-2944. If the account registration is
individual, joint tenants, sole proprietorship,
custodial (Uniform Transfer to Minors Act), or
general partners, the written request must be
signed exactly as the account is registered. If
the account is owned jointly, all owners must
sign.
FACSIMILE TRANSMISSION OF REDEMPTION REQUESTS IS NOT
ACCEPTABLE.
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 must 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 IN WRITING, PLEASE
WRITE OR CALL FIRSTAR (414-276-0535 OR 800-544-6547), PRIOR
TO SUBMITTING A WRITTEN REDEMPTION REQUEST. A WRITTEN
REDEMPTION REQUEST WILL NOT BECOME EFFECTIVE UNTIL ALL
DOCUMENTS HAVE BEEN RECEIVED IN PROPER FORM BY FIRSTAR .
Shareholders who have an individual retirement account
("IRA"), a master retirement plan or other retirement plan
must indicate on their written redemption requests whether
or not to withhold federal income tax. Redemption requests
lacking an election not to have federal income tax withheld
will be subject to withholding. Please consult your current
Disclosure Statement for any applicable fees.
A shareholder should be aware that DEPOSIT in the mail
or with other independent delivery services or receipt at
Firstar Post Office Box of redemption requests DOES NOT
constitute receipt by Firstar or the Fund. DO NOT mail
letters by overnight courier to the Post Office Box address.
OVERNIGHT COURIER DELIVERY SHOULD BE SENT TO THE FIRSTAR
MUTUAL FUNDS SERVICES, LLC, THIRD FLOOR, 615 EAST MICHIGAN
STREET, MILWAUKEE, WISCONSIN 53202.
TELEPHONE REDEMPTIONS. 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 Bank Milwaukee, N.A. ("Firstar Bank") acts as
custodian. Telephone redemptions can only be made by
calling Firstar at 800-544-6547 or 414-276-0535. In
addition to the account registration, you will be required
to provide the account number and social security number.
Telephone calls will be recorded.
Telephone redemption requests must be received prior to
the closing of the NYSE (usually 4:00 p.m., New York time)
to receive that day's NAV. 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
by telephone, shares also may be redeemed by delivering the
redemption request in person or by mail. The maximum
telephone redemption is $50,000 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. Neither the
Fund nor Firstar 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 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.
EFFECT OF REDEMPTION. For federal income tax purposes, a
redemption generally is treated as a sale of the shares being
redeemed, with the shareholder recognizing capital gain or
loss equal to the difference between the redemption price
and the shareholder's cost basis for the shares being redeemed.
See "Dividends, Distributions and Federal Tax Status" for further
tax information.
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 to
be wired also ordinarily will be wired within seven days
after receipt of the request, and normally will be wired on
the next business day after a NAV 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 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 charges a
wire redemption fee of $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:
* if you change the ownership on your account
* upon redemption of shares when certificates
have been issued for your account
* when you want the redemption proceeds sent to a
different address than is registered on
the account
* for both certificated and uncertificated shares,
if the proceeds are to be made payable
to someone other than the account owner(s)
* any redemption transmitted by federal wire transfer
to your bank not previously set up with the
Fund
* if a change of address request has been received
by the Fund or Firstar within 15 days of a
redemption request
In addition, signature guarantees will be 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.
THIRD PARTY REDEMPTIONS - USE OF A PROCESSING
INTERMEDIARY TO REDEEM FUND SHARES. As with the purchase of
Fund shares, shares of the Fund may be sold through certain
broker-dealers, financial institutions and other service
providers ("Processing Intermediaries"). An investor
intending to redeem Fund shares through his or her
Processing Intermediary should read the program materials
provided by the Processing Intermediary and follow the
instructions and procedures outlined therein.
Processing Intermediaries may charge fees or other
charges for the services they provide to their customers.
Such charges vary among Processing Intermediaries, but in
all cases will be retained by the Processing Intermediary
and not remitted to the Fund or the Adviser.
Investors who do not wish to use 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. IF YOU HOLD FUND SHARES THROUGH A PROCESSING
INTERMEDIARY, YOU MUST REDEEM YOUR SHARES THROUGH SUCH
PROCESSING INTERMEDIARY. IN SUCH EVENT, YOU SHOULD CONTACT
THE PROCESSING INTERMEDIARY FOR INSTRUCTIONS ON HOW TO
REDEEM. If an investor has originally invested directly
with the Fund, direct sale of Fund shares through the Fund
(and not the Processing Intermediary) may be made without a
redemption charge.
The Fund also may enter into an arrangement with some
Processing Intermediaries authorizing them to process
redemption requests on behalf of the Fund on an expedited
basis (an "authorized agent"). Receipt of a redemption
request by an authorized agent will be deemed to be received
by the Fund for purposes of determining the net asset value
of Fund shares to be redeemed. For redemption orders placed
through an authorized agent, a shareholder will receive
redemption proceeds which reflect 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.
EXCHANGE BETWEEN FUNDS NICHOLAS FAMILY OF FUNDS
Shares of the Fund may be exchanged for shares of other
mutual funds for which Nicholas Company, Inc. serves as the
investment adviser. Nicholas Company, Inc. is also the
investment adviser to the following funds which have
investment objectives and net assets as noted below:
<TABLE>
<CAPTION>
NET ASSETS AT
FUND INVESTMENT OBJECTIVE DECEMBER 31, 1998
---- -------------------- ------------------
<S> <C> <C>
Nicholas Fund, Inc. Capital appreciation; Income as
a secondary consideration $5,823,474,514
Nicholas II, Inc. Long-term growth; Income as a
secondary consideration $1,109,497,195
Nicholas Limited Long-term growth $ 367,191,042
Edition, Inc.(1)
Nicholas Equity Reasonable income; Moderate
Income Fund, Inc. long-term growth as a secondary
Consideration $ 26,813,593
Nicholas Money High level of current income as
Market Fund, Inc. as is consistent with preserving
capital and liquidity $ 160,187,297
</TABLE>
____________
(1) Shareholders are reminded, however, that Nicholas
Limited Edition, Inc. is restricted in size to ten
million shares (without taking into account shares
outstanding as a result of capital gain and dividend
distributions), and that the exchange privilege into
that mutual fund may be terminated or modified at any
time or times when that maximum is reached.
If a shareholder chooses to exercise the exchange
privilege, the shares will be exchanged at their next
determined NAV. When an exchange into the Nicholas Money
Market Fund, Inc. would involve investment of the exchanged
amount on a day when the NYSE 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.
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 NAV at the time is
more or less than the shareholder's cost basis. An exchange
between the funds involving master retirement plans and IRA
accounts generally will not constitute a taxable transaction
for federal tax purposes. See "Dividends, Distributions and
Federal Tax Status" for further information.
The exchange privilege is available only in States
where shares of the fund being acquired may legally be sold,
and the privilege may be terminated or modified only upon
60 days advance notice to shareholders.
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
directly through Nicholas Company, Inc. 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
Fund Shares."
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. Neither the Fund nor Firstar will be responsible
for the authenticity of exchange instructions received by
telephone. Telephone exchanges can only be made by calling
Firstar 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 FUND SHARES
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 (414-276-0535 or 800-
544-6547) or Nicholas Company, Inc. (414-272-6133 or 800-227-
5987) prior to submitting any transfer requests.
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, 19978.
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 NAV or, at each shareholder's
election, in cash. An election must be received by Firstar
prior to the record date of any particular distribution for
the election to be effective for that distribution.
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
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 NAV 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 NAV per
share. As of December 31, 19978, the Fund had a capital
loss carryforward and will make no capital gains
distribution as long as such conditions exist. The Fund has
approximately $4,068,000 of net capital losses which may be
used to offset capital gains in future years. Capital loss
carryovers of approximately $482,000 expire 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.
Under Federal law, 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.
DIVIDEND AND DISTRIBUTION 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. A
shareholder may elect to accept cash on 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 NAV in
effect at the close of the dividend or distribution 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 or
telephonic 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 Firstar 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 ("Plan") and receive
monthly or quarterly checks for any designated amount.
Firstar 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 upon written notice mailed to the shareholders.
Please contact Nicholas Company, Inc. 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.
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.
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.
Like the Roth IRA, contributions to an Education IRA
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.
MASTER RETIREMENT PLAN
The Fund has available a master retirement 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.
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. The fund and
the adviser are not affiliated with any broker.
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.
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 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 Fund's rate
of portfolio turnover normally will not exceed 50%. For the
years ended December 31, 1998, 1997 and 1996, the Fund's rate
of portfolio turnover was 49.3%, 32.2% and 33.2%, respectively.
In instances where it is determined by the Adviser that
the supplemental research and statistical services are of
significant value, it is the practice of the Adviser to
place the Fund's transactions with brokers or dealers who
are paid a higher commission than other brokers or dealers.
However, commissions paid are generally lower than those
paid prior to the elimination of fixed minimum rates in 1975
and are no higher than rates which could be obtained from
other brokers or dealers who would also furnish comparable
supplemental research and statistical services. The Adviser
utilizes research and other information obtained from
brokers and dealers in managing its other client accounts.
On the other hand, the Adviser obtains research and
information from brokers and dealers who transact trades for
the Advisor's other client accounts, which are also utilized
by the Adviser in managing the Fund's portfolio. The
aggregate amount of brokerage commissions paid by the Fund
for its fiscal year ended December 31, 1998 was $39,798.
Brokerage commissions paid by the Fund during the fiscal
years ended December 31, 1997 and 1996 totalled $5,519 and
$7,142, respectively. The increase in the amount of brokerage
commissions paid by the Fund in fiscal 1998 relative to fiscal
1997 and 1996 is attributable to the increased purchase and
sale of the Fund's equity investments in fiscal 1998.
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.
The Adviser may effect portfolio transactions with
brokers or dealers who recommend the purchase of the Fund's
shares. The Adviser 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.
PERFORMANCE DATA
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.
n
P(1+T) = ERV
or
Total Return = ERV - 1
---
P
n
Average Annual Total Return = the 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 = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the stated
periods at the end of the stated periods.
<TABLE>
FOR THE ONE, FIVE AND TEN YEAR
PERIODS ENDED DECEMBER 31, 1998
--------------------------------
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
<S> <C> <C> <C>
Total Return 0.47% 48.10% 133.62%
Average Annual Total Return 0.47% 8.17% 8.86%
</TABLE>
For purposes of the above calculations, the following
assumptions are made: (1) all dividends and distributions
by the Fund are reinvested at the NAV 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 9.49%, and the Fund's
distribution rate was 9.31% at December 31, 1998.
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'sr Index Composite Stock Price, 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.
CAPITAL STRUCTURE
Nicholas Income Fund, Inc. is authorized to issue
(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.
STOCK CERTIFICATES
The Fund will not issue certificates evidencing shares
purchased unless so requested in writing. Where
certificates are not issued, the shareholder's account will
be credited with the number of shares purchased, relieving
shareholders of responsibility for safekeeping of
certificates and the need to deliver them upon redemption.
Written confirmations are issued for all purchases of
shares. Any shareholder may deliver certificates to the
Fund's transfer agent, Firstar, and direct that his account
be credited with the shares. A shareholder may in writing
direct Firstar at any time to issue a certificate for his
shares without charge.
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
1940 Act. 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 1940 Act.
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 public accountants,
Deloitte & Touche LLP, will be sent to shareholders.
YEAR 2000 ISSUES
The "Year 2000" issue presents a significant
technological challenge for the securities industry. Due to
the limited memory and the high cost of storage space
associated with early computer equipment, the century was
implied rather than actually stored. As a result, many
computer systems are unable to interpret dates beyond 1999.
Software and hardware which is not designed to work across
centuries may potentially malfunction on January 1, 2000.
Because dates are part of every securities transaction,
accurate date calculations are critical.
The Fund has focused on the Year 2000 computer
conversion issue and management believes that there should
be a smooth transition on the part of suppliers of services
to the Fund. The Fund's custodian bank and transfer agent
has reported that the necessary conversion process is in
progress, and it appears to have dedicated the appropriate
level of resources to solve the problem.
The Adviser has identified and is taking steps it
believes are reasonably designed to resolve potential
problems and address the Year 2000 issue, although there can
be no assurances that such steps will be sufficient. The
Adviser, which performs the Fund's internal accounting and
pricing functions, is in the process of re-engineering its
hardware to handle the century date, and has identified and
is taking steps to resolve potential software problems.
Some systems are currently compliant. Internal testing is
ongoing, and the Fund expects that all systems will have
been converted by mid-1999.
In addition, there can be no assurances that the Year
2000 issue will not have an adverse effect on issuers whose
securities are held by the Fund or on global markets or
economies generally.
CUSTODIAN AND TRANSFER AGENT
Firstar Bank acts as Custodian of the Fund. Firstar,
615 East Michigan Street, Milwaukee, Wisconsin 53202-5207,
acts as Transfer Agent and Dividend Disbursing Agent of the
Fund. As cCustodian, Firstar Bank 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. Firstar Bank and Firstar do not
exercise any supervisory function over the management of the
Fund, the purchase or sale of securities or the payment or
distribution to shareholders
INDEPENDENT AUDITING 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 Public
Accountants contained in the Annual Report of the Fund for
the fiscal year ended December 31, 1998, which have been
filed with the SEC pursuant to Rule 30d-1 of the 1940 Act,
are incorporated herein by reference. You may obtain a free
copy of the Annual Report by writing or calling the Fund.
NICHOLAS INCOME FUND, INC.
FORM N-1A
PART C: OTHER INFORMATION
PART C. OTHER INFORMATION
ITEM 23. FINANCIAL STATEMENTS AND EXHIBITS
All exhibits required to be filed with this Form N-1A
pursuant to Item 23 thereof are listed in the Exhibit Index
appearing elsewhere in this Registration Statement, and (i)
appear in their entirety herein, or (ii) are incorporated by
reference to previous filings with the Securities and
Exchange Commission, as indicated in such Exhibit Index.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH THE FUND
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 25. 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT
ADVISER
Incorporated by reference to pages __-__ of the
Statement of Additional Information pursuant to Rule 411
under the Securities Act of 1933, as amended.
ITEM 27. PRINCIPAL UNDERWRITERS
None.
ITEM 28. 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 29. MANAGEMENT SERVICES
None.
ITEM 30. 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, as amended; 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, hereby certifies that it meets all of the
requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(a) under the
Securities Act of 1933, as amended, and has duly caused this
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on the ___ day of
February, 1999.
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
February , 1999.
/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.
(a) Articles of Incorporation of the Registrant *
(b) By-Laws of the Registrant.
(c) Specimen certificate evidencing common stock, par value *
$0.01 per share, of the Registrant.
(d) Investment Advisory Agreement, dated January 15, 1986, *
between the Registrant and Nicholas Company, Inc.
(e) Custodian Agreement, dated January 15, 1986, between *
the Registrant and Firstar Trust Company.
(f) 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.
(g) Consent of Deloitte & Touche LLP, independent auditors. **
(h) Financial Data Schedule ____
(*) Powers of Attorney *
- --------
* Incorporated by reference to previous filings with
the Securities and Exchange Commission.
** To be filed herewith
LIST OF CONSENTS
1. Consent of Michael Best & Friedrich LLP
(included in Exhibit)
2. Consent of Deloitte & Touche LLP
(to be filed herewith and included as Exhibit)
<letterhead>
April 8, 1999
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. 82 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 LLP
David E. Leichtfuss
DEL/KLS
<letterhead>
INDEPENDENT AUDITORS' CONSENT
Nicholas Income Fund, Inc.
We consent to the incorporation by reference in the Post-Effective
Amendment
No. 83 to the Registration Statement on Form N-1A (File No. 2-
10806) of
Nicholas Income Fund, Inc. of our report dated January 25, 1999
accompanying
the Financial statements of Nicholas Income Fund, Inc. contained
in the
Fund's 199 annual report to shareholders and to the reference to
us under the
captions "Financial Highlights", "Shareholder Reports" and
"Independent Auditors and Legal Counsel" which appear in the
Fund's Prospectus and Statement of Additional Information, which
are a part of such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Milwaukee, Wisconsin
April 21, 1999
