As filed with the Securities and Exchange Commission on April 27,
2000.
File No. 2-10806
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 84
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 25
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 this filing will become effective:
" immediately upon filing pursuant to paragraph (b)
y on April 30, 2000 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 March 22, 2000, Registrant
filed the necessary Rule 24f-2 Notice and filing fee with the
Commission for its fiscal year ended December 31, 1999.
NICHOLAS INCOME FUND, INC.
FORM N-1A
PART A: PROSPECTUS
NICHOLAS INCOME FUND, INC.
PROSPECTUS
APRIL 30, 2000
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 2
FUND INVESTMENTS 6
INVESTMENT RISKS 10
FINANCIAL HIGHLIGHTS 14
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE 15
THE FUND'S INVESTMENT ADVISER 16
PRICING OF FUND SHARES 17
PURCHASE OF FUND SHARES 18
REDEMPTION OF FUND SHARES 20
EXCHANGE BETWEEN NICHOLAS FAMILY OF FUNDS 24
TRANSFER OF FUND SHARES 25
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAX STATUS 25
DIVIDEND AND DISTRIBUTION REINVESTMENT PLAN 26
SYSTEMATIC WITHDRAWAL PLAN 26
INDIVIDUAL RETIREMENT ACCOUNTS 26
MASTER RETIREMENT PLAN 27
APPENDIX A: Description of Bond Ratings A-1
FOR MORE INFORMATION ABOUT THE FUND Back Cover
You should rely only on the information contained in this
document, or incorporated by reference. The Fund has not
authorized anyone to provide you with information that is
different.
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.
Changes in the affairs of the Fund have possibly occurred between
the date of the Prospectus and the time you receive it.
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 net 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 6.
PRINCIPAL RISKS OF INVESTING
As with any mutual fund, the Fund cannot guarantee
that it will meet its goals or that its 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 invesf adverse market,
economic, political or other conditions, the Fund also may
invest in cash, repurchase agreements and investment grade
fixed income securities. During any period in which the
Fund maintains such a temporary defensive tactic, it may
not achieve its investment objective.
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 At December 31, 1999,
RATINGS 86.7% of the Fund's total
net assets were invested in
RATING AGENCIES SUCH AS rated and unrated corporate
STANDARD AND POOR'S CORPORATION debt securities. The
("S&P") AND MOODY'S INVESTOR following table shows the
SERVICE, INC. ("MOODY'S") credit quality allocation
EVALUATE SECURITIES ON THE (including the Adviser's
BASIS OF THE ISSUER'S ABILITY assessment of the credit
TO MEET ALL REQUIRED PRINCIPAL quality of unrated
AND INTEREST PAYMENTS. BONDS securities held in the
WITH RATINGS ABOVE THE LINE IN Fund's portfolio) of the
THE CHART BELOW ARE CONSIDERED portion of the fund's assets
"INVESTMENT GRADE," WHILE THOSE invested in such securities
WITH RATINGS BELOW THE LINE ARE at December 31, 1999.
REGARDED AS "NON-INVESTMENT
GRADE" OR "JUNK BONDS." CREDIT RATING CATEGORY
PERCENTAGE OF
S&P MOODY'S MEANING S&P/MOODY'S TOTAL NET ASSETS
AAA Aaa Highest Quality AAA/aaa 0%
AA Aa High Quality AA/Aa 0%
A A Above-average A/A 0%
Quality
BBB Baa Average Quality BBB/Baa 3.2%
BB Ba Average Quality BB/Ba 22.8%
B B Below-average B/B 60.7%
Quality
CCC Caa Poor Quality CCC/Caa 0%
CC Ca Highly Speculative CC/Ca 0%
C C Lowest Quality C/C 1.0%
D - In Default D/- 0%
86.7%
Of the Fund's total net
assets invested in rated and
unrated corporate debt
securities, 1.0% were
A DETAILED EXPLANATION OF invested in unrated
THESE RATINGS CAN BE FOUND IN corporate debt securities,
THE APPENDIX TO THIS all of which were believed
PROSPECTUS. by the Adviser to be
equivalent to a C rating.
RATED SECURITIES
For rated securities, the Fund only may invest in securities
rated B or higher by S&P or Moody's at the time of purchase;
however, subsequent to the purchase, the rating of the securities
so purchased may fall below B. In addition to relying, in part,
on the ratings assigned to the debt securities, the Fund also
will rely on the Adviser's judgment, analysis and experience in
evaluating the credit worthiness of the issuer. Accordingly, the
achievement of the Fund's investment objectives 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.
UNRATED SECURITIES
The Fund will invest in 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.
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, 1999 was 7.24 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 LEHMAN BROTHERS
NET ASSETS WHICH MUST INDICES1
BE INVESTED IN SECURITIES OF YIELD TO
ELECTRIC COMPANIES MATURITY ("YTM")
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.
From 0% to 24.99% 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, 1999, 1998 and 1997, the
Fund had approximately 0%, 0% and 0%, 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 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 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
All percentage limitations discussed in the "Fund
Investments" section apply on the date of investment by the Fund.
Thus, if an investment satisfies a percentage restriction when it
is made, no violation of that restriction occurs due to changes
afterwards in the market value of the investment or the total
assets of the Fund.
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 PRINCIPAL
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
stockholders.
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 above. The electric utility industry is an industry
characterized by geographic diversification and 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.
FINANCIAL HIGHLIGHTS
THE FOLLOWING FINANCIAL HIGHLIGHTS TABLE HELPS YOU
UNDERSTAND THE FUND'S FINANCIAL PERFORMANCE FOR THE PAST FIVE
FISCAL YEARS ENDED DECEMBER 31, 1999. 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 TABLE HAS
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, 1999. THE TABLE SHOULD BE READ IN
CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES
INCLUDED IN THE FUND'S ANNUAL REPORT WHICH ARE INCORPORATED BY
REFERENCE INTO THE STATEMENT OF ADDITIONAL INFORMATION AND WHICH
MAY BE OBTAINED WITHOUT CHARGE BY CALLING OR WRITING THE FUND.
[CAPTION]
<TABLE>
YEAR ENDED DECEMBER 31
1999 1998 1997 1996 1995
<C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $3.39 $3.69 $3.53 $3.42 $3.21
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .33 .32 .30 .30 .30
Net gains (losses) on
securities (realized and
unrealized) (.33) (.30) .15 .11 .21
Total from investment
operations -- .02 .45 .41 .51
LESS DISTRIBUTIONS:*
From net investment income (.33) (.32) (.29) (.30) (.30)
NET ASSET VALUE, END
OF YEAR $3.06 $3.39 $3.69 $3.53 $3.42
TOTAL RETURN (0.07)% 0.47% 13.13% 12.37% 16.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (millions) $202.8 $239.4 $254.2 $185.7 $162.1
Ratio of expenses to average
net assets .50% .48% .50% .55% .58%
Ratio of net investment income
to average net assets 9.81% 8.69% 8.29% 8.55% 8.72%
Portfolio turnover rate 47.2% 49.3% 32.2% 33.2% 29.2%
* No capital gains were distributed for the periods presented.
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 bonds. Capital
appreciation is a secondary objective that is sought only 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 trend from 1998 continued into 1999, with a "flight to
quality" as investors sought higher quality and liquidity in U.S.
government securities as well as large capitalization blue chip
stocks. In addition, large returns in the stock markets and
rising short-term interest rates (which depress bond prices)
lured investors away from the bond markets. As a result, the
high yield bond market suffered with lower quality bonds
performing worse than higher quality bonds.
In 1999, the Fund had a total return of (0.07)%
(distributions reinvested). For the year ended December 31,
1999, the returns of the Fund's benchmark, the Lehman Brothers
U.S. Corporate Intermediate High Yield Bond index was 2.64%.
Therefore, the Fund's performance in 1999 was relatively worse
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
(7.24 years) and higher average credit quality (with 98.81% of
total bonds rated at least B) than many high yield bond funds.
These portfolio characteristics will likely cause the Fund to
fluctuate less than other funds in its category in both "up" and
"down" markets. However, the Fund's performance was negatively
impacted by rising interest rates and its investment in REITs
which comprised 6.82% of the Fund's total assets at December 31,
1999 (compared to 7.91% of the Fund's total assets at 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 market for REIT stocks
performed poorly in 1999 in part due to the "flight to quality"
described above.
At December 31, 1999 and 1998, 86.7% and 86.4% of the Fund's
total net assets were invested in rated and unrated corporate
debt securities, respectively. The Fund's investments in equity
securities decreased to 8.7% of the Fund's total net assets at
December 31, 1999 compared to 10.0% at December 31, 1998. Of the
Fund's total net assets at December 31, 1999, none were invested
in corporate debt securities rated A by Standard & Poor's
(compared to 2.1% at December 31, 1998); 3.2% were rated BBB
(compared to none at December 31, 1998); 22.8% rated BB (compared
to 19.0% at December 31, 1998); 60.7% rated B (compared to 62.0%
at December 31, 1998); and 1.0% unrated but believed to be
equivalent to a C rating (compared to 3.3% unrated but believed
to be equivalent to a B rating at December 31, 1998).
During 1999, the Adviser continued to emphasize
diversification of investments, with the largest holding
accounting for only 3.99% of the Fund's total net assets at
December 31, 1999. 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, 1999, the dollar-weighted maturity of the Fund's
bond portfolio was 7.24 years. At December 31, 1999, the Fund's
30-day annualized yield was 10.93%.
Set forth below is a line graph showing a comparison of the
initial account value and subsequent account values at the end of
each of the most recently completed ten fiscal years of the Fund,
assuming a $10,000 investment in the Fund at the beginning of the
first fiscal year, to the same investment over the same periods
in the Lehman Brothers U.S. Corporate Intermediate High Yield
Bond Index.
Comparison of Change in Value of $10,000 Investment in
Nicholas Income Fund, Inc. vs. Lehman Brothers U.S. Corporate In
termediate High Yield Bond Index
(Plot Points For Graph)
Date Nicholas Income Lehman Brothers
Fund, Inc. Index
December 31, 1989 $10,000 $10,000
December 31, 1990 $9,897 $9,126
December 31, 1991 $12,179 $13,044
December 31, 1992 $13,436 $15,172
December 31, 1993 $15,177 $17,634
December 31, 1994 $15,151 $17,607
December 31, 1995 $17,599 $20,657
December 31, 1996 $19,776 $23,175
December 31, 1997 $22,373 $25,958
December 31, 1998 $22,478 $26,345
December 31, 1999 $22,462 $27,040
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>
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS
ENDED ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
<C> <C> <C> <C>
Average Annual Total Return (0.07)% 8.19% 8.43%
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 additional mutual funds
it advises are: 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, 1999, the
Adviser had approximately $7 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:
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%
For the fiscal year ended December 31, 1999, 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 for all
expenses incurred in excess of this amount.
The Fund pays all of its operating expenses. Operating
expenses include, but are not limited to, fees paid for
attendance at Board meetings to 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 and accounting services, legal fees and
expenses, printing, fees and expenses of any custodian or trustee
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.
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 for, and primarily responsible for the
day-to-day management of, the portfolios of 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 ("NAV") of the Fund. The NAV 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 NAV is determined as of the close of trading on
the New York Stock Exchange ("NYSE") on each day the NYSE is open
for unrestricted trading.
PURCHASE OF FUND SHARES
MINIMUM 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 the
INFORMATION Fund by submitting an application to Nicholas
Income Fund, Inc., c/o Firstar Mutual Fund
Services, LLC ("Firstar"), P.O. 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. You 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 in proper order 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 fulland 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 Fund Services, LLC, Third Floor, 615
East Michigan Street, Milwaukee, Wisconsin
53202.
Your application to purchase Fund shares
must be in proper order to be accepted, may
only be accepted by the Fund or an Authorized
Agent of the Fund and is not binding until
accepted. Applications must be accompanied
by payment in U.S. funds. Your check should
be 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 your account, in addition to any
loss sustained by the Fund, if any payment
check is returned to the transfer agent for
insufficient funds. The Fund will not accept
applications under circumstances or in
amounts considered disadvantageous for
shareholders. If you open an account
(including custodial accounts) without a
proper social security number or taxpayer
identification number, it may be liquidated.
Proceeds will be distributed to the owner(s)
of record on the first business day following
the 60th day of investment, net of the backup
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 any 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, N.A.
ABA 075000022
Credit: Firstar Mutual
Fund Services, LLC
Account 112-952-137
Further Credit: Nicholas Income Fund, Inc. 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 The Fund won't issue certificates representing
Fund shares unless the shareholder specifically
requests certificates in writing. Signature
guarantees may be required. Certificates are mailed
to requesting shareholders approximately two
weeks after receipt of the request by the
Fund. The Fund won't issue certificates for
fractional shares even if requested. 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 FUND SHARES.
PURCHASES You can purchase shares of the Fund
[ICON] through certain broker-dealers, financial
institutions or other service providers
("Processing Intermediaries"). If you do,
the Processing Intermediary, rather than you,
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. You should read the
program materials provided by the Processing
Intermediary in conjunction with this
Prospectus before you invest in the Fund this
way.
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.
The Fund also may enter into an
arrangement with some Processing
Intermediaries which authorizes 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. If you place a purchase order
through an Authorized Agent, you will pay the
Fund's NAV next computed after the receipt by
the Authorized Agent of such purchase order,
plus any applicable transaction charge
imposed by the Authorized Agent.
Of course, you do not have to use
the services of a Processing Intermediary, or
pay the fees that may be charged for such
services. You can invest directly with the
Fund without a sales charge.
REDEMPTION OF FUND SHARES
REDEMPTION You may redeem all or part of your Fund
PRICE shares by any of the methods described
[ICON] below. All redemptions will be processed
immediately upon receipt 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 order as described below, or pursuant
to proper telephone instructions as described
below.
Requests for redemption of 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.
Requests for redemption of 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 closing
of trading on the next day the NYSE is open.
THE FUND WILL RETURN AND NOT PROCESS REDEMPTION
REQUESTS THAT CONTAIN RESTRICTIONS AS TO THE TIME
OR DATE REDEMPTIONS ARE TO BE EFFECTED.
If any of the shares you want redeemed were
purchased recently by personal or certified check,
the Fund reserves the right to hold 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, be sure that the
[ICON] 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.
If you have certificates for your shares, you may
redeem by delivering to the Fund, c/o Firstar Mutual
Fund Services, LLC, P.O. Box 2944, Milwaukee, Wisconsin
53201-2944, the certificate(s) for the full shares. The
certificate(s) must be properly endorsed or accompanied
by an 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 you don't have certificates for your shares, you may
redeem by delivering an original signed written request
for redemption addressed to Nicholas Income Fund, Inc.,
c/o Firstar Mutual Fund 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.
YOU MAY NOT FAX YOUR REDEMPTION REQUEST.
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 YOU ARE UNCERTAIN ABOUT WHAT
DOCUMENTS OR INSTRUCTIONS ARE NECESSARY IN
ORDER TO REDEEM SHARES, 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 PROPERORDER BY FIRSTAR.
If you have an individual
retirement account ("IRA") or other
retirement plan, you must indicate on your
written redemption requests whether or not to
withhold federal income tax. Unless a
redemption request specifies not to have
federal income tax withheld, the redemption
will be subject to withholding. Please
consult your current Disclosure Statement for
any applicable fees.
OVERNIGHT You should be aware that deposit in
DELIVERY the mail or with other independent delivery services
[ICON] or receipt 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 Fund Services, LLC, Third Floor, 615
East Michigan Street, Milwaukee, Wisconsin
53202.
TELEPHONE You can redeem your shares by
REDEMPTIONS telephone unless you decline that option in
[ICON] writing. Telephone redemptions can only be
made by calling Firstar (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, you may have difficulty making a
redemption by telephone. If you are unable
to contact Firstar by telephone, you may
redeem your shares 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 liable for instructions
communicated by telephone which they
reasonably believe to be genuine. 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
REDEMPTION redemption generally is treated as a sale of the
[ICON] shares being redeemed. You may recognize capital
gain or loss equal to the difference between the
redemption price and your cost basis for the
shares being redeemed. See "Dividends,
Distributions and Federal Tax Status" for
further tax information.
The Fund ordinarily pays for
redeemed shares within seven days after
receipt of a request in proper order, 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 is
GUARANTEES 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
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, you must have your
signature guaranteed if you request
redemption of $100,000 or more from your
account. Your redemption will not be
processed until the signature guarantee, if
required, is received in proper order. 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, you may redeem
shares of the Fund through certain broker- dealers,
financial institutions and other service providers
("Processing Intermediaries"). You should read the
program materials provided by the Processing Intermediary
before you redeem your Fund shares this way. Then follow
those instructions and procedures.
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.
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, you will receive redemption proceeds which
reflect the Fund's NAV per share next computed
after the receipt by the Authorized Agent of the
redemption order, less any redemption fees imposed by
the Authorized Agent.
Of course, you do not have to use
the services of a Processing Intermediary, or
pay the fees that may be charged for such
services, unless you hold Fund shares through
a Processing Intermediary. Then you must
redeem your shares through such Processing
Intermediary. In such event, you should
contact the Processing Intermediary for
instructions on how to redeem. Otherwise if
you originally invested directly with the
Fund, you can redeem Fund shares through the
Fund without a redemption charge.
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.
EXCHANGES
Nicholas Company, Inc. also is adviser to the
following funds which have investment objectives
[ICON] and net assets as noted below:
NET ASSETS AT FUND INVESTMENT OBJECTIVE
DECEMBER 31, 1999
Nicholas Fund, Inc. Capital appreciation $5,154,231,564
Nicholas II, Inc. Long-term growth $ 940,854,205
Nicholas Limited
Edition, Inc. (1)Long-term growth $ 278,796,360
Nicholas Equity Reasonable income;
Income Fund, Inc Moderate
long-term growth as
a secondary consideration $ 18,504,520
Nicholas Money High level of current
Market Fund, Inc income as is consistent
withpreserving capital
and liquidity $ 140,949,418
____________
(1) You should be aware 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).
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,
your shares will be exchanged at their next determined
NAV. If you exercise an exchange into the Nicholas
Money Market Fund, Inc. on a day when the NYSE
is open for trading but the Federal Reserve
Banks are closed, your 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 will
be delayed one business day. In such a case,
the exchanged amount would be uninvested for
this one-day period.
If you are interested in exercising the exchange
privilege you must obtain the appropriate
prospectus from Nicholas Company, Inc.
An exchange constitutes a sale for federal
tax purposes and you may realize a capital
gain or loss upon the exchange, depending
upon whether the NAV at the time is more or
less than your cost basis. An exchange between
the funds involving master retirement plans
and IRA accounts generally is not a taxable
transaction for federal tax purposes. See
"Dividends, Distributions and Federal Tax Status"
for further tax information.
This exchange privilege may be termineated 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.
EXCHANGE If you are interested in exercising the exchange by mail
BY privilege, you may obtain the appropriate prospectus from
MAIL Nicholas Company, Inc. Signatures required are the same
[ICON] as previously explained under "Redemption of Fund Shares."
EXCHANGE You also may exchange by telephone among all Nicholas
BY mutual funds. Only exchanges of $500.00 or more will
TELEPHONE be executed using the telephone exchange privilege.
[ICON] 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. You
are allowed four telephone exchanges per
account during any twelve-month period.
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 exchangeinstructions received by telephone.
Telephone exchanges can only be made by calling Firstar
(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. You can obtain documents and instructions necessary to
transfer Fund shares 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 or excise taxes will be payable by the
Fund. 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.
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. The
maximum tax rate on long-term capital gains for sales of
securities held greater than twelve 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, whether distributed as cash or additional shares. 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 Fund shares, the Fund may have
undistributed income or capital gains included in the computation
of the NAV per share. Therefore, a dividend or capital gain
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
NAV 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,
you must certify under penalties of perjury that the taxpayer
identification number you give to the Fund is correct and that you
are not subject to backup withholding.
The foregoing tax discussion relates to federal income taxes
only and is not intended to be a complete discussion of all
federal tax consequences. You 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 elect to accept cash in lieu of shares, all
dividends and capital gain distributions are automatically
reinvested in additional shares of the Fund through the Dividend
and Distribution Reinvestment Plan (the "Reinvestment Plan"). You
may elect to accept cash in an application to purchase shares, by
telephone 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. Firstar will notify you of the number of shares
purchased and the price following each reinvestment period.
You may withdraw from or thereafter elect to participate in the
Reinvestment Plan at any time by giving written or telephonic
notice to Firstar. 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 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 Reinvestment Plan at any time on 30 days
written notice to participants.
SYSTEMATIC WITHDRAWAL PLAN
If you own $10,000 or more of Fund shares at the current market
value, you may open a Systematic Withdrawal Plan (the "Plan") and
receive monthly quarterly, semiannual or annual checks for any
designated amount. Firstar reinvests all income and capital gain
dividends in shares of the Fund. You may add shares to, withdraw
shares from, or terminate the Plan, at any time. Each withdrawal
may be a taxable event to you. 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 who receive compensation, including earnings from
self-employment, 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.
Qualifying individuals who have a traditional IRA may make
deductible contributions to it. Taxation of the income and gains
paid to a traditional IRA by the Fund is deferred until
distribution from the IRA.
Qualifying individuals who maintain a Roth IRA may make non-
deductible contributions to it. However, the amounts within the
Roth IRA 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 phase-outs
apply.
Like the Roth IRA, qualifying individuals may make non-
deductible contributions to an Education IRA, 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 phase-outs 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 you to consult with your personal tax adviser to
determine the deductibility of your IRA contributions.
Because a retirement program involves commitments covering
future years, it is important that the investment objectives of
the Fund be consistent with your own retirement objectives.
Premature withdrawals from a retirement plan may result in adverse
tax consequences. Consultation with a tax adviser regarding the
tax consequences is recommended.
MASTER RETIREMENT PLAN
The Fund has available a master retirement plan for
self-employed individuals. You may contact the Fund for
additional information or if you wish to participate in the plan.
Consultation with a tax adviser regarding tax consequences of the
plan is recommended.
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. A "C" rated bond also may involve a situation where a
bankruptcy petition has been filed, but debt service payments are
continued.
D rated bonds are in payment default. They involve a situation
where interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired,
unless Standard & Poor's believes such payments will be made
during such grace period. A "D" rated bond also may involve the
filing of a bankruptcy petition if debt service payments are
jeopardized.
MOODY'S BOND RATINGS
AAA rated bonds are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt-edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA rated bonds are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risk appear somewhat larger than in Aaa
securities.
A rated bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA rated bonds are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA rated bonds are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B rated bonds generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
CAA rated bonds are of poor standing. They may be in default
or there may be present elements of danger with respect to
principal or interest.
CA rated bonds represent obligations which are speculative in a
high degree. They are often in default or have other marked
shortcomings.
C rated bonds are the lowest rated class of bonds, and bonds so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
PROSPECTUS
APRIL 30, 2000
NICHOLAS INCOME FUND, INC.
FOR MORE INFORMATION ABOUT THE FUND:
The Fund's Statement of Additional Information ("SAI"), dated April 30,
2000, 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 Semiannual Report to Shareholders.
To request a free copy of the current Annual/Semiannual 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 SEC at 800-SEC-0330. Reports and other
information about the Fund also are available on the SEC'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 SEC, 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
TRANSFER AGENT CUSTODIAN
FIRSTAR MUTUAL FUND SERVICES, LLC FIRSTAR INSTITUTIONAL CUSTODY SERVICES
Milwaukee, Wisconsin Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
INDEPENDENT PUBLIC AUDITORS COUNSEL
DELOITTE & TOUCHE LLP MICHAEL BEST & FRIEDRICH LLP
Milwaukee, Wisconsin Milwaukee, Wisconsin
NO LOAD NO SALES CHARGE
NICHOLAS INCOME FUND, INC. 700 NORTH WATER STREET SUITE 1010
MILWAUKEE, WISCONSIN 53202 WWW.NICHOLASFUNDS.COM
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, which 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, 2000.
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, 1999,
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 a free 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 OR REDEMPTION CHARGE BY THE FUND
Investment Adviser
NICHOLAS COMPANY, INC.
April 30, 2000
TABLE OF CONTENTS
Page
INTRODUCTION 1
INVESTMENT OBJECTIVES AND INVESTMENT STRATEGIES 1
INVESTMENT RESTRICTIONS 6
INVESTMENT RISKS 8
THE FUND'S INVESTMENT ADVISER 11
MANAGEMENT-DIRECTORS, EXECUTIVE OFFICERS AND
PORTFOLIO MANAGER OF THE FUND 13
PRINCIPAL SHAREHOLDERS 16
PRICING OF FUND SHARES 16
PURCHASE OF FUND SHARES 16
REDEMPTION OF FUND SHARES 18
EXCHANGE BETWEEN NICHOLAS FAMILY OF FUNDS 21
TRANSFER OF FUND SHARES 22
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAX STATUS 22
DIVIDEND AND DISTRIBUTION REINVESTMENT PLAN 24
SYSTEMATIC WITHDRAWAL PLAN 24
INDIVIDUAL RETIREMENT ACCOUNTS 24
MASTER RETIREMENT PLAN 25
BROKERAGE 25
PERFORMANCE DATA 26
CAPITAL STRUCTURE 28
STOCK CERTIFICATES 28
ANNUAL MEETING 28
SHAREHOLDER REPORTS 29
CUSTODIAN AND TRANSFER AGENT 29
INDEPENDENT AUDITORS AND LEGAL COUNSEL 29
FINANCIAL INFORMATION 29
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.
This type of investment is commonly called a mutual fund.
As an open-end investment company, it obtains its assets by
continuously selling shares of its common stock, $0.01 par value,
to the public. Proceeds from such sales are invested by the Fund
in securities of other companies. 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. In this manner, the resources of many
investors are combined and each individual investor has an
interest in every one of the securities owned by the Fund. As an
open-end investment company, the Fund will redeem any of its
outstanding shares on demand of the owner at their net asset
value next determined following acceptance of the redemption
request.
INVESTMENT OBJECTIVES
AND INVESTMENT STRATEGIES
General
The Fund has adopted primary investment objectives, which
are fundamental policies. The section captioned "FUND
INVESTMENTS" in the Fund's Prospectus describes the principal
investment objectives and the investment policies applicable to
the Fund. Please read the Prospectus in conjunction with this
Statement of Additional Information. The Fund also has adopted
certain other investment strategies and policies which are not
fundamental and may be changed by the Board of Directors without
shareholder approval. However, any changes 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. Set forth
below is additional information on the other Fund investment
strategies and permissible investments which the Fund may use in
an effort to obtain its primary objectives.
The Fund's investments in 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.
INVESTMENT RESTRICTIONS
The Fund observes the following restrictions, which are
matters of fundamental policy and cannot be changed without the
approval of the holders of a majority of its outstanding shares
or, if less, 67% of the shares represented at a meeting of
shareholders at which 50% or more of the holders are represented
in person or by proxy. The Fund may not:
1. Purchase the securities of any one issuer, except
securities issued or guaranteed by the United States,
or its instrumentalities or agencies, if immediately
after and as a result of such purchase (a) the market
value of the holdings of the Fund in the securities of
such issuer exceed 5% of the market value of the Fund's
total assets, or (b) the Fund owns more than 10% of the
voting securities of such issuer.
2. Purchase securities of other registered investment
companies, except where no sales charge or commission
is incurred.
3. Purchase or sell real estate or interests in real
estate, commodities or commodity futures. The Fund may
invest in the securities of real estate investment
trusts and other real estate-based securities
(including securities of companies whose assets consist
substantially of real property and interests therein)
listed on a national securities exchange or authorized
for quotation on 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 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.
Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities
transferred to the purchaser. The Fund will require the seller
to provide additional collateral if the market value of the
securities falls below the repurchase price at any time during
the term of the repurchase agreement. In the event of default by
the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by
the Fund, but only constitute collateral for the seller's
obligation to pay the repurchase price. Therefore, the Fund may
suffer time delays and incur costs or losses in connection with
the disposition of the collateral. The Fund also would retain
ownership of the securities in the event of a default under a
repurchase agreement that is construed not to be a collateralized
loan. In such event, the Fund also would have rights against the
seller for breach of contract with respect to any losses arising
from market fluctuations following the failure of the seller to
perform.
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. If the value of the Fund's investments go
down, the value of your Fund shares also may go down and you may
lose money.
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 and 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
property 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
five other mutual funds and approximately 25 institutions and
individuals with substantial investment portfolios. The other
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>
<TABLE>
<CAPTION>
Net Assets AS Of
Fund Primary Investment Objective December 31, 1999
---- ---------------------------- ------------------
<C> <C> <C>
Nicholas Fund, Inc. Capital Appreciation $5,154,231,564
Nicholas II, Inc. Long-Term Growth $940,854,205
Nicholas Limited Edition, Inc. Long-Term Growth $278,796,360
Nicholas Equity Income Fund, Inc. Reasonable Income $18,504,520
Nicholas Money Market Fund, Inc. Current Income $140,949,418
</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 upon the
Value of the Fund Average Net Asset Value)
Up to and including $50,000,000 0.5 of 1%
Over $50,000,000 and including $100,000,000 0.4 of 1%
In excess of $100,000,000 0.3 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 by offsetting
against its fee 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, 1999 were 0.50%. During the fiscal
years ended December 31, 1999, 1998 and 1997, the Fund paid the
Adviser an aggregate of $821,950, $926,354 and $809,091,
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
pays 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 for all of its operating
expenses, including, but not limited to, the costs of preparing
and printing its registration statements required under the
Securities Act and the 1940 Act, and any amendments thereto, the
expense of registering it shares with the Securities and Exchange
Commission and in the various states, the printing and
distribution cost of prospectuses mailed to existing shareholders
and to persons making unsolicited requests for information, the
cost of stock certificates, reports to shareholders, interest
charges, taxes and legal expenses. Also included as operating
expenses which are paid for 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, printing and mailing
expenses, postage and 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.
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.
Albert O. Nicholas is President, Director and Portfolio
Manager of the Fund, is Chief Executive Officer and Chairman of
the Board 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 is
Executive Vice President of the Fund and 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 is
a Senior Vice President and Treasurer of the Fund and a 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, 100 E.
Wisconsin Avenue, Milwaukee, Wisconsin, is a Director and the
Secretary of the Adviser. Mr. Leichtfuss is a partner in the law
firm of Michael Best & Friedrich LLP, , legal counsel to the Fund
and the Adviser. Daniel J. Nicholas, 2618 Harlem Boulevard,
Rockford, Illinois, is Director Emeritus 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, 1999:
Name, Age and Positions Held Principal Occupations
Address with Fund During Past Five Years
- -------------- -------------- -----------------------
Albert O. Nicholas, 68 President, Chief Executive Officer
700 North Water Portfolio Manager and Chairman of the
Milwaukee, WI 53202 and Director Board, Nicholas Company,
Inc., the Adviser to the
Fund. 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, 73 Director President, Hanseatic
759 North Water Street Equities Corp., a
Miwaukee, WI 53202 private investment firm.
Melvin L. Shultz, 66 Director Director and Management
3636 North 124th Street Consultant, Professional
Wauwatosa, WI 53222 Management of Milwaukee,
Inc. He is a Certified
Business Consultant and
provides financial
advice to members of the
medical and dental
professions.
Jay H. Roberstson, 47 Director Chairman of the Board of
660 East Mason Robertson-Ryan and
Milwaukee, WI 53202 Associates, Inc., an
insurance brokerage
firm.
David L. Jonson, 58 Executive Vice Executive Vice
Johnson, 58 President President, Nicholas
700 North Water Company, Inc., the
Milwaukee, WI 53202 Adviser to the Fund, and
employed by the Adviser
since 1980. He is a
Chartered Financial
Analyst.
Thomas J. Saeger, 55 Executive Vice Executive Vice President
700 North Water 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.
Name, Age and Positions Held Principal Occupations
Address with Fund During Past Five Years
_____________ _______________ ______________________
David O. Nicholas, 38 Senior Vice President, Chief
700 North Water Street President Investment Officer and
Milwaukee, WI 53202 Director of Nicholas
Company, Inc., the
Adviser to the Fund, and
employed by the Adviser
since December 1985. He
has been Portfolio
Manager for, and
primarily responsible
for the day-to-day
management of, the
portfolios of Nicholas
II, Inc. and Nicholas
Limited Edition, Inc.
since March 1993. He
also has been Co-
Portfolio Manager of
Nicholas Fund, Inc.
since November 1996. He
is a Chartered Financial
Analyst.
Jeffrey T. May, 43 Senior Vice Senior Vice President
700 North 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, 42 Vice President Employee, Nicholas
700 North Water Street Company, Inc., the
Milwaukee, WI 53202 Adviser to the Fund,
since February 1983.
She is a Certified
Financial Planner.
Kathleen A. Evans, 51 Assistant Vice Vice President, Nicholas
700 North 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. Mr. Nicholas is Chief Executive Officer and
a director of the Adviser and owns 91% of the outstanding
voting securities of the Adviser.
See "The Fund's Investment Adviser" for a description of the
relationships of the officers of the Fund to the Adviser and the
family relationships between directors and the Adviser and
officers and directors of the Fund.
The Investment Advisory Agreement between the Fund and
Nicholas Company, Inc. states that the Fund shall pay the
directors' fees of directors who are not interested persons of
Nicholas Income Fund, Inc. The amount of such fees is subject to
increase or decrease at any time, but is subject to the overall
limitation on the Fund's annual expenses.
The table below sets forth the aggregate compensation received
by all directors of the Fund during the year ended December 31,
1999. 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.
[CAPTION]
<TABLE>
Pension or Estimated Total Compensation
Aggregate Retirement Annual from Fund and
Compensation Accrued as Benefits Fund Complex Paid
Name From the of the Fund Upon to Directors
Fund(1) Expenses Retirement (1)
<C> <C> <C> <C> <C>
Albert O. $ 0 $0 $0 $ 0
Nicholas (2)
Frederick F. $4,000 $0 $0 $ 8,000
Hansen (2)
Melvin L. $4,000 $0 $0 $21,200
Schultz (2)
Jay H. $4,000 $0 $0 $ 8,000
Robertson (2)
_______________
(1) During the fiscal year ended December 31,1999,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 Income Fund, Inc, Nicholas Money Market
Fund, 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, 1999,the Fund compensated the
disinterested directors at a rate of $1000 per director per meeting
attended. Except for out-of-pocket expenses, the disinterested
directors did not receive any other form or amount of compensation
from the Fund Complex during the fiscal year ended December 31, 1999.
All other directors and officers of the Fund were compensated by the
Adviser in accordance with its investment advisory agreement.
(2) Messrs. Albert O. Nicholas and Melvin L. Schultz also are members 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.
The Fund and the Adviser adhere to Codes of Ethics ("Codes")
established and adopted by their Boards of Directors pursuant to
Rule 17j-1 under the Investment Company Act of 1940, as amended.
The Codes govern the personal trading activities of all "Access
Persons" of the Fund and the Adviser. Access Persons include
every director and officer of the Adviser and the investment
companies managed by the Adviser, including the Fund, as well as
certain employees of the Adviser and Fund who, in connection with
their regular functions and duties, make, participate in, or
obtain information regarding the purchase or sale of a security
by the Adviser or the Fund, or whose functions relate to the
making of a recommendation with respect to such purchases or
sales. The Codes are based on the principle that such Access
Persons have a fiduciary duty to place the interests of the Fund
and the Adviser's clients above their own.
The Codes provide for trading "black out" periods of fifteen
calendar days during which time Access Persons may not trade in
securities which have been purchased or sold by the Fund or any
other registered investment company or account to which the
Adviser serves as investment adviser, unless the transaction is
pre-approved by the Fund or the Adviser, as applicable. In
addition, the Codes ban Access Persons from engaging in any
manipulative or deceptive practices in connection with certain
securities held or to be acquired by the Fund. The Codes also
require that Access Persons obtain pre-approval prior to
investing in any initial public offering or private placement.
PRINCIPAL SHAREHOLDERS
Nicholas Company, Inc., the investment adviser to the Fund,
beneficially owned 7,408,859 shares of the Fund, or 12.88%, as of
March 31, 2000. Of this amount, 2,870,167 shares were owned of
record by Albert O. Nicholas, President and a Director of the
Fund, Chief Executive Officer 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
2,963,467 shares; the Nicholas Family Foundation owned of record
655,456 shares; and the Nicholas Company, Inc. Profit-Sharing
Trust, of which Mr. Nicholas and David E. Leichtfuss are
trustees, owned of record 292,889 shares.
Charles Schwab & Co., 101 Montgomery Street, San Francisco,
California 94104-4122, owned of record 3,613,761 shares of the
Fund, or 6.28% as of March 31, 2000, 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 outstanding shares of the Fund as
of March 31, 2000. All directors and executive officers of the
Fund as a group (ten in number) beneficially owned approximately
13.45% of the outstanding shares of the Fund as of March 31, .
PRICING OF FUND SHARES
When you buy shares of the Fund, the price per share you pay
is the net asset value ("NAV") of the Fund. The NAV 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. Equity securities traded on a
stock exchange will 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
there are no readily available market quotations and other assets
and liabilities of the Fund are valued at their then 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 NAV 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
Fund Services, LLC ("Firstar"), P.O. Box 2944, Milwaukee,
Wisconsin 53201-2944. The Fund also has available an Automatic
Investment Plan for shareholders. You should contact the Fund
for additional information.
Whenyou make a purchase, your purchase price per share will
be the NAV next determined after the time the Fund receives the
application in proper order. The determination of the NAV for a
particular day is applicable to all purchase applications
received in proper order 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 when 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 mail or with
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 Fund Services, LLC, Third Floor,
615 East Michigan Street, Milwaukee, Wisconsin 53202-5207.
Your applications to purchase Fund shares must be in proper order
to be accepted, may only be accepted by the Fund or an Authorized
Agent of the Fund and is not binding until accepted.
Applications must be accompanied by payment in U.S. funds. Your
check should be 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 your account, in addition to any loss sustained by the
Fund, if any payment check is returned to the transfer agent for
insufficient funds. The Fund will not accept applications under
circumstances or in amounts considered disadvantageous for
shareholders. If you open an account (including custodial
accounts) without a proper social security number or taxpayer
identification number, it may be liquidated. Proceeds will be
distributed to the owner(s) of record on the first business day
following the 60th day of investment, net of the backup
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. Firstar will provide you with a confirmation number
for any 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 , N.A.
ABA 075000022
Credit: Firstar Mutual Fund 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. The Fund won't issue certificates
representing Fund shares unless the shareholder specifically
requests in writing. Certificates are mailed to requesting
shareholders approximately two weeks after receipt of the request
by the Fund. The Fund won't issue certificates for fractional
shares even if requested. 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. You can purchase shares of the Fund
through certain broker-dealers, financial institutions or other
service providers ("Processing Intermediaries"). If you do, the
Processing Intermediary, rather than you, 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. You should read the program
materials provided by the Processing Intermediary in conjunction
with this Statement of Additional Information before you invest
in the Fund this way.
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.
The Fund also may enter into arrangements with some
Processing Intermediaries which authorizes 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, you will
pay the Fund's NAV next computed after the receipt by the
Authorized Agent of such purchase order, plus any applicable
transaction charge imposed by the Authorized Agent.
Of course, you do not have to use the services of a
Processing Intermediary, or pay the fees that may be charged for
such services. You can invest directly with the Fund without a
sales charge.
REDEMPTION OF FUND SHARES
Redemption Price. You may redeem all or part of your Fund
shares 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
order as described below, or pursuant to proper telephone
instructions as described below.
Requests for redemption of Fund shares received in proper
order on a day when 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
order 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.
The Fund will return and not process redemption requests
that contain restrictions as to the time or date redemptions are
to be effected.
If any of the shares you want redeemed were recently
purchased by personal or certified check, the Fund reserves the
right to hold payment up to 15 days or until notified that
investments made by check have been collected, at which time your
redemption request will be processed and payment made.
Written Redemptions. If you redeem in writing, you must
ensure 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.
If you have certificates for your shares, you may redeem by
delivering to the Fund, c/o Firstar Mutual Fund Services, LLC,
P.O. Box 2944, Milwaukee, Wisconsin 53201-2944, the
certificate(s) for the full shares. The certificate(s) must be
properly endorsed or accompanied by an 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 you don't have certificates for your shares, you may
redeem by delivering an original signed written request for
redemption addressed to Nicholas Income Fund, Inc., c/o Firstar
Mutual Fund 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.
You may not fax your redemption request.
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 you are uncertain about what documents or instructions
are necessary in order to redeem shares, 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 order by Firstar.
If you have an individual retirement account ("IRA") or
other retirement plan, you must indicate on your 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.
You should be aware that deposit in the mail or with other
independent delivery services or receipt 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 Fund Services, LLC, Third Floor, 615 East
Michigan Street, Milwaukee, Wisconsin 53202.
Telephone Redemptions. You can redeem your shares by
telephone unless you decline that option in writing. Telephone
redemptions can only be made by calling Firstar (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, you may have difficulty making a redemption by
telephone. If you are unable to contact Firstar by telephone,
you may redeem your shares 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
liable for following instructions communicated by telephone which
they reasonably believe to be genuine. 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. You may recognize capital gain or loss equal to the
difference between the redemption price and your cost basis for
the shares being redeemed. See "Dividends, Distributions and
Federal Tax Status" for further tax information.
The Fund ordinarily pays for redeemed shares within seven
days after receipt of a request in proper order, 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
notified 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.
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, you must have your signature guaranteed if you
request redemption of $100,000 or more from your account. Your
redemption will not be processed until the signature guarantee,
if required, is received in proper order. 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, you
may redeem shares of the Fund through certain broker-dealers,
financial institutions and other service providers ("Processing
Intermediaries"). Certain service providers my receive
compensation from the Fund for providing transfer agent-related
services relating to the accounts held in street name. You
should read the program materials provided by the Processing
Intermediary before you redeem your shares of the Fund this way.
Then follow those instructions and procedures.
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.
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, you will receive redemption proceeds which reflect the
Fund's NAV next computed after the receipt by the Authorized
Agent of the redemption order, less any redemption fees imposed
by the Authorized Agent.
Of course, you do not have to use the services of a
Processing Intermediary, or pay the fees that may be charged for
such services unless you hold Fund shares through a Processing
Intermediary. Then you must redeem your shares through such
Processing Intermediary. In such event, you should contact the
Processing Intermediary for instructions on how to redeem.
Otherwise, if you originally invested directly with the Fund, you
can redeem Fund shares through the Fund without a redemption
charge.
EXCHANGE BETWEEN NICHOLAS FAMILY 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:
Net Assets at
Fund Investment Objective December 31, 1999
Nicholas Fund, Inc. Capital appreciation $5,154,231,564
Nicholas II, Inc. Long-term growth $940,854,205
Nicholas Limited
Edition, Inc. (1) Long-term growth $278,796,360
Nicholas Equity
Income Fund, Inc. Reasonable income;
Moderate Long-term $18,504,250
growth as a secondary
consideration
Nicholas Money
Market Fund, Inc. High level of current income $140,949,418
as is consistent with
preserving capital and liquidity
____________
(1)You should be aware 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). 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. If you exercise
an exchange into the Nicholas Money Market Fund, Inc. on a day
when the NYSE is open for trading but the Federal Reserve Banks
are closed, your shares of the Fund will be redeemed on the day
upon which the exchange request is received; however, issuance of
your Nicholas Money Market Fund, Inc. shares will be delayed one
business day. In such a case, the exchanged amount would be
uninvested for this one-day period.
If you are interested in exercising the exchange privilege
you must obtain the appropriate prospectus from Nicholas Company,
Inc.
An exchange constitutes a sale for federal tax purposes and
you may realize a capital gain or loss upon the exchange,
depending upon whether the NAV at the time is more or less than
your cost basis. An exchange between the funds involving master
retirement plans and IRA accounts generally is not a taxable
transaction for federal tax purposes. See "Dividends,
Distributions and Federal Tax Status" for further tax
information.
This 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
you through 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 by Telephone. You also may exchange by telephone
among all Nicholas mutual funds. Only exchanges of $500.00
or more will 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.
You will be allowed four telephone exchanges per account
during any twelve-month period.
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 (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
You may transfer shares of the Fund 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. You can obtain documents and instructions
necessary to transfer Fund shares 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.
As a result, the Fund generally will seek to distribute
substantially all of its net investment income and net realized
capital gains.
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. The
maximum tax rate on long-term capital gains for sales of
securities held greater than twelve 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.
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 Fund shares, the Fund may
have undistributed income or capital gains included in the
computation of the NAV per share. Therefore, a dividend or
capital gain distribution received shortly after such purchase by
a shareholder 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, 1999, the Fund
had a capital loss carryforward and will make no capital gains
distribution as long as such conditions exist. The Fund has
approximately $13,062,000 of net capital losses which may be used
to offset capital gains in future years. Capital loss carryovers
of approximately $2,081,000 in 2000, $1,505,000 in 2003 and
$9,476,000 in 2007.
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. 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%
"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; (ii) who have failed to declare or underreported certain
income on their federal returns. When establishing an account,
you must certify under penalties of perjury that the taxpayer
identification number you give to the Fund is correct and that
you are not subject to backup withholding.
The foregoing tax discussion relates to federal income taxes
only and is not intended to be a complete discussion of all
federal tax consequences. You 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 elect to accept cash in lieu of shares, all
dividend and capital gain distributions are automatically
reinvested in shares of the Fund through the Dividend and
Distribution Reinvestment Plan (the "Reinvestment Plan"). You
may elect to accept cash on the application to purchase shares ,
by telephone or by separate written notification. All
reinvestments are at the NAV per share in effect on 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.
Firstar will notify you of the number of shares purchased and the
price following each reinvestment period. 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.
You may withdraw from the Reinvestment Plan at any time by
giving written notice or telephonic notice to Firstar. 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 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 Reinvestment Plan at any time on 30 days written
notice to participants.
SYSTEMATIC WITHDRAWAL PLAN
If you own $10,000 or more of Fund shares at the current
market value, you may open a Systematic Withdrawal Plan (the
"Plan") and receive monthly, quarterly, semiannual or annual
checks for any designated amount. Firstar reinvests all income
and capital gain dividends in shares of the Fund. You may add
shares to, withdraw shares from, or terminate the Plan at any
time. Each withdrawal payment may be a taxable event to you.
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 who receive compensation, including earnings
from self-employment 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.
Qualifying individuals who have a traditional IRA may make
deductible contributions to it. Taxation of the income and gains
paid to a traditional IRA by the Fund is deferred until
distribution from the IRA.
Qualifying individuals who maintain a Roth IRA may make non-
deductible contributions to it. However, the amounts within the
Roth IRA 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 phase-
outs apply.
Like the Roth IRA, qualifying individuals may make non-
deductible contributions to an Education IRA, 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 phase-outs 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 you to consult with your personal tax adviser
to determine the deductibility of 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 the tax consequences is recommended.
MASTER RETIREMENT PLAN
The Fund has available a master retirement plan for self
employed individuals. You may contact the Fund for additional
information or if you wish to participate in the plan.
Consultation with a tax adviser regarding tax consequences is
recommended.
BROKERAGE
The Adviser decides which securities to buy for the Fund and
when to sell them. It also selects the broker or dealer who
places the Fund's investment business and negotiates their
commissions. The Adviser selects a broker or dealer to execute 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. This policy 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 companies
and events and current conditions in specific industries, and the
rendering of advice regarding general economic conditions
affecting the stock market and the economy. The Fund and the
Adviser are not affiliated with any broker.
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 brokerage and
research services. Section 28(e) of the Securities Exchange Act
of 1934 ("Section 28(e)") permits the Adviser, under certain
circumstances, to cause the Fund 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. Such commissions may be less than, equal to
or exceed 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.
In instances where the Adviser determines 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. 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 is also utilized by the Adviser in managing the Fund's
portfolio.
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.
The Fund paid aggregate brokerage commissions of
approximately $6,525, $39,798 and $5,519in fiscal year 1999, 1998
and 1997, respectively. The increase in the amount of brokerage
commissions paid by the Fund in fiscal 1998 relative to fiscal
1997 is attributable to the increased purchase and sale of the
Fund's equity investments in fiscal 1998. The decrease in the
amount of brokerage commissions paid by the Fund in fiscal 1999
relative to fiscal 1998 is attributable to the decrease in
purchases and sales of the Fund's equity investments in fiscal
1999.
PERFORMANCE DATA
The Fund may quote a "total return," "average annual total
return," "yield" and "distribution rate" from time to time in
advertisements or in information furnished to present or
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 "average annual total return" and "total return" are
computed according to the following formulas:
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years from initial investment to the end of the
period
ERV = at the end of the stated period, the ending
redeemable value of a hypothetical $1,000 payment made at
the beginning of the stated period
For the Periods Ended December 31, 1999
One Year Five Years Ten Years
Total Return (0.07)% 48.26% 124.62%
Average Annual Total Return (0.07)% 8.19% 8.43%
For purposes of these 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 10.93%, and the Fund's distribution rate
was 10.82% at December 31, 1999.
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 NASDAQ, 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. Shares are redeemable and are
transferable. Fractional shares entitle the holder to the same
rights as whole shares except fractional shares have no voting
rights.
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
auditors, will be sent to shareholders.
CUSTODIAN AND TRANSFER AGENT
Firstar Bank, N.A. ("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 such, 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 AUDITORS AND LEGAL COUNSEL
Deloitte & Touche LLP, 411 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, are the independent auditors for the Fund.
Michael Best & Friedrich LLP, 100 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, have passed on the legality of the
shares of the Fund being offered.
FINANCIAL INFORMATION
The schedule of investments, the financial statements and
notes thereto and the Report of Independent Auditors contained in
the Annual Report of the Fund for the fiscal year ended December
31, 1999, 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. 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 THE INVESTMENT ADVISERS
Incorporated by reference to pages 11-16 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
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.
EXHIBIT INDEX
</TABLE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <C> <C>
(a) Articles of Incorporation
of the Registrant *
(b) By-Laws of Registrant *
(c) Specimen certificate evidencing
common stock, $0.01 par value
per share, of Registrant *
(d) Investment Advisory Agreement,
dated January 15, 1986, between the
Registrant and Nicholas Company, Inc *
(g) Custodian Agreement, dated January 15,
1986, between the Registrant and
Firstar Trust Company *
(i) Opinion of Michael Best & Friedrich
LLP, counsel to the Registrant,
concerning the legality of
Registrant's common stock,
including consent to the
use thereof. **
(j) Consent of Deloitte & Touche LLP,
independent auditors **
(n) Financial Data Schedule *
(p) Code of Ethics of Nicholas Income Fund, Inc. **
(p.1) Nicholas Company, Inc. Code of Ethics and **
Insider Trading Policy.
Powers of Attorney *
</TABLE>
* Incorporated by reference to previous filings with the
Securities and Exchange Commission.
** Filed herewith.
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 27 day of April, 2000.
NICHOLAS INCOME FUND, INC.
By:
Thomas J. Saeger, Executive Vice
President, Secretary and Principal
Financial and Accounting Officer
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
this Amendment to the Registration Statement has been signed
below by the following persons in the capacities indicated on
April 27, 2000.
/s/ Albert O. Nicholas President(Principal Executive
- -------------------------------- Officer), and Director
Albert O. Nicholas
/s/ Frederick F.Hansen Director
- --------------------------------
Frederick F. Hansen
/s/ Jay H. Robertson Director
- --------------------------------
Jay H. Robertson
/s/ Melvin L. Schultz Director
- --------------------------------
Melvin L. Schultz
* By:
--------------------------------------------
Thomas J. Saeger, as
Attorney-in-Fact for the above officers
and directors, under authority of
Powers of Attorney previously filed and filed herewith.
LIST OF CONSENTS
1. Consent of Michael Best & Friedrich LLP
(included in Exhibit (i))
2. Consent of Deloitte & Touche LLP
(filed herewith and included as Exhibit (j))
EXHIBIT NO. (I)
OPINION OF MICHAEL BEST & FRIEDRICH LLP,
COUNSEL TO THE REGISTRANT, CONCERNING THE
LEGALITY OF THE REGISTRANT'S COMMON STOCK,
INCLUDING THE CONSENT TO THE USE THEREOF.
EXHIBIT NO. (J)
CONSENT OF DELOITTE & TOUCHE LLP,
INDEPENDENT AUDITORS.
EXHIBIT NO. (P)
CODE OF ETHICS OF NICHOLAS INCOME FUND, INC.
EXHIBIT NO. (P.1)
NICHOLAS COMPANY, INC. CODE OF ETHICS
AND INSIDER TRADING POLICY.
<letterhead>
April 25, 2000
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. 83 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
EXHIBIT (J)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 84 to the Registration Statement No. 2-10806 of Nicholas Income Fund, Inc.
on Form N-1A under the Securities Act of 1933, of our report dated
February 11, 2000, and to the reference to us under the heading "Financial
Highlights" in the Prospectus, which is part of such Registration Statement.
Deloitte & Touche LLP
Chicago, Illinois
April 26, 2000
AMENDED CODE OF ETHICS
Nicholas Income Fund, Inc., an investment company registered
under the Investment Company Act of 1940, as amended, hereby
adopts the following Amended Code of Ethics governing the conduct
of personal trading by persons associated with it. The purpose
of this Amended Code of Ethics is to foster compliance with
applicable federal regulatory requirements and to eliminate
transactions suspected of being in conflict with the best
interests of the Fund.
1. Definitions.
-----------
A. Access Person.
-------------
As used in this Code, the term "Access Person" shall
mean any director or officer of the Fund, or any
employee of the investment adviser to the Fund who, in
connection with his or her regular functions or duties,
makes, participates in, or obtains information
regarding the purchase or sale of a security by the
Fund, or whose functions relate to the making of an
recommendation with respect to such purchases or sales.
B. Fund.
----
As used in this Code, the term "Fund" shall mean
Nicholas Income Fund, Inc.
C. Beneficial Ownership.
--------------------
As used in this Code, the term "beneficial ownership"
shall be interpreted in the same manner as it would be
in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act
of 1934, as amended, and the rules and regulations
thereunder. Pursuant to Section 16, the term
"beneficial owner" shall mean any person who is deemed
a beneficial owner pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended. For the
purposes of Section 13(d), a beneficial owner includes
any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship, or
otherwise, has or shares: (1) voting power, which
includes the power to vote, or to direct the voting of,
such security; and/or (2) investment power, which
includes the power to dispose, or to direct the
disposition of, such security. For example, close
family or business relationships may give rise to a
degree of influence of one person over the voting or
investment decisions of another such as to result in
shared beneficial ownership. Typically, ownership of
securities by a spouse, minor child or a trust of which
an Access Person is grantor, beneficiary or trustee,
will be deemed beneficial ownership of those securities
by the related Access Person.
D. Security.
--------
As used in this Code, the term "security" shall mean
any equity security, corporate debt security,
convertible security, option or warrant, except that it
shall not include securities issued by the U.S.
Government (i.e., "government securities" within the
meaning of Section 2(a)(16) of the Investment Company
Act of 1940, as amended), banker's acceptances, bank
certificates of deposit, commercial paper and shares of
registered open-end investment companies.
2. Prohibited Activities
---------------------
A. No Access Person shall:
(1) Employ any device, scheme or artifice to
defraud the Fund.
(2) Make to the Fund any untrue statement of
a material fact or omit to state to the Fund any
material fact necessary in order to make the
statements made, in light of the circumstances
under which they are made, not misleading.
(3) Engage in any act, practice, or course
of business which operates or would operate as a
fraud or deceit upon the Fund.
(4) Engage in any manipulative practice with
respect to the Fund.
B. No Access Person shall purchase or sell, directly
or indirectly, for his/her own account, or acquire any
beneficial ownership in, any security which has been
purchased or sold within the preceding fifteen (15)
days by the Fund or which to his/her knowledge will be
purchased or sold within the succeeding fifteen (15)
days by the Fund unless such purchase or sale is
approved in writing by Albert O. Nicholas, David O.
Nicholas or Jeffrey T. May, or a person delegated by
either of the foregoing, prior to the effectuation of
such purchase or sale. A copy of such written approval
shall be retained for a period of at least five (5)
years.
C. No Access Person shall purchase any security from,
or sell any security to, the Fund, unless the sale or
purchase involves solely securities of which the issuer
is the Fund.
3. Reporting
---------
A. Within ten (10) days of the end of each calendar
quarter of the Fund, each Access Person shall report in
writing all purchases and sales of securities for
his/her own account, and all other transactions in
which he/she acquires or terminates any beneficial
ownership in a security. The report shall state the
title and number of shares of the security involved;
the date and the nature of the transaction (i.e.,
purchase, sale or other acquisition or disposition);
the price at which it was effected; and the name of the
broker, dealer or bank with or through whom the
transaction was effected. Such report may also contain
a statement declaring that the reporting of any such
transaction shall not be construed as an admission that
the Access Person making the report has any beneficial
ownership in the security.
B. A person who qualifies as an Access Person solely
because he is a director of the Fund is not required to
file the report required by subparagraph (A) hereof if
such person:
(1) is not an "interested" director of the
investment adviser to the Fund, as "interested" is
defined in Section 2(a)(19) of the Investment
Company Act of 1940, as amended; and
(2) does not know, or in the ordinary course
of fulfilling his duties as a director is not
charged with knowing, that during the 15-day
period immediately preceding or following a
transaction in a security by such director, the
Fund purchased or sold, or considered purchasing
or selling, the same security. Thus, a
disinterested director only must file a report if
he had, or should have had, actual or imputed
knowledge at the time he entered into his
transaction that (i) the Fund had engaged in a
transaction in the same security within the last
fifteen (15) days, or is engaging in such
transaction or is going to engage in such
transaction in the same security in the next
fifteen (15) days, or (ii) the Fund or its
investment adviser has within the last fifteen
(15) days considered a transaction in the same
security or is considering a transaction in the
security or within the next fifteen (15) days is
going to consider a transaction in the security.
4. Sanctions
---------
Mr. Jeffrey T. May, or another person designated by the
Board of Directors, shall review all reports submitted, and shall
determine if any violations of the Amended Code of Ethics have
occurred. If a violation of this Amended Code of Ethics occurs,
Albert O. Nicholas or the Board of Directors of the Fund may
impose such sanctions as they deem appropriate in the
circumstances, including termination of employment of the
violator.
NICHOLAS COMPANY, INC.
CODE OF ETHICS
AND INSIDER TRADING POLICY
Nicholas Company, Inc., an investment adviser registered
under the Investment Advisers Act of 1940, as amended, hereby
adopts the following Code of Ethics and Insider Trading Policy
("Code") governing the conduct of personal trading by persons
associated with it. The purpose of this Code of Ethics and
Insider Trading Policy is to foster compliance with applicable
federal and state regulatory requirements and to eliminate
transactions suspected of being in conflict with the best
interests of the Company's clients. In addition, as an entity
with access to highly confidential and sensitive information, the
Company has potential exposure to liability or penalties under
the Federal securities laws for insider trading or other improper
use of information by employees or other persons under their
control. In addition, Section 204A of the Investment Advisors
Act of 1940 mandates that investment advisors adopt, maintain and
enforce policies and procedures to prevent insider trading or
other misuse of material, non-public information.
1. Definitions
-----------
A. Access Person.
--------------
As used in this Code, the term "Access Person" shall
mean any officer or director of Nicholas Company, Inc.,
or any employee of Nicholas Company, Inc. who, in
connection with his or her regular functions or duties,
makes, participates in, or obtains information
regarding the purchase or sale of a security by any
account to which the Company serves as investment
adviser, or whose functions relate to the making of any
recommendation with respect to such purchases or sales.
B. Company.
-------
As used in this Code, the term "Company" shall mean
Nicholas Company, Inc.
C. Beneficial Ownership.
--------------------
As used in this Code, the term "beneficial ownership"
shall be interpreted in the same manner as it would be
in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act
of 1934, as amended, and the rules and regulations
thereunder. Pursuant to Section 16, the term
"beneficial owner" shall mean any person who is deemed
a beneficial owner pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended. For the
purposes of Section 13(d), a beneficial owner includes
any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship, or
otherwise, has or shares: (1) voting power, which
includes the power to vote, or to direct the voting of,
such security; and/or (2) investment power, which
includes the power to dispose, or to direct the
disposition of, such security. For example, close
family or business relationships may give rise to a
degree of influence of one person over the voting or
investment decisions of another such as to result
in shared beneficial ownership. Typically, ownership
of securities by a spouse, minor child or a trust of
which an Access Person is grantor, beneficiary or
trustee, will be deemed beneficial ownership of those
securities by the related Access Person.
2. Insider Trading.
---------------
A. Introduction.
------------
Under the antifraud provisions of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), an
affirmative duty to disclose material non-public information
traditionally has been imposed on corporate "insiders"
participating in securities transactions. Ordinarily,
"insiders," who are corporate figures such as officers,
directors and controlling shareholders who have access to
confidential corporate information, owe a duty to a
company's shareholders not to trade on that information. A
corporate insider who is in possession of material inside
information must either disclose it to the investing public
or abstain from trading while the inside information remains
undisclosed. If disclosure prior to effecting a purchase or
sale would be improper or unrealistic, the alternative is to
forego the transaction.
The duty to disclose inside information before trading
arises from: (i) the existence of a relationship giving
access to information intended to be available only for a
corporate purpose and not for the personal benefit of
anyone; and (ii) the unfairness of allowing a corporate
insider to take advantage of that information while knowing
it is unavailable to the investing public. The Securities
and Exchange Commission has recognized that "a significant
purpose of the Exchange Act was to eliminate the idea that
the use of inside information for personal advantage was a
normal emolument of corporate office."
Under some circumstances, "outsiders" become
fiduciaries of shareholders and thus become subject to the
same duty to disclose or abstain as an insider. Such
persons assume the duties of an insider temporarily, by
virtue of a special relationship with the company. For the
duty to be imposed, however, the company must expect the
outsider to keep the disclosed non-public information
confidential, and the relationship must imply that duty.
For investment advisers, such as the Company, this duty may
be imposed on the basis of the Company's access to material
non-public information and the confidentiality relationship
which may exist between the Company and the registrant whose
securities the Company may trade on behalf of its clients.
As hereinafter discussed, any reference to an "insider"
shall apply to all access persons of the Company, and shall
relate to all securities of which the access person has
inside information.
Liability for trading on confidential information also
has been extended to non-insiders under a theory of
misappropriating information from their employers. The
misappropriation theory broadly proscribes the conversion by
insiders or others of material non-public information in
connection with the purchase or sale of securities. While a
person may gain a competitive advantage in the securities
marketplace through skill, one may not gain such an
advantage by stealing material non-public information in
breach of an employer-imposed fiduciary duty to
confidentiality. The misappropriation theory has been
applied to find violations of the antifraud provisions by an
employee of a financial printer, investment banking
employees, and a law firm's officer manager for trading in
securities of an employer's corporate client on the basis of
misappropriated information.
B. Materiality of Inside Information.
---------------------------------
Despite the "disclose or refrain from trading" rule, an
insider is not always foreclosed from investing merely
because he or she may be more familiar with company
operations than are outside investors. An insider's duty to
either disclose information or refrain from dealing arises
in "those situations which are essentially extraordinary in
nature and which are reasonably certain to have a
substantial effect on the market price of the security."
The Exchange Act only requires the disclosure of material
facts, allowing outsiders to make their own evaluations in
reaching investment decisions.
The test of materiality has been described as weighing
whether the information in question would have been
important to a reasonable investor in determining whether to
buy, sell or hold a security.
C. Disclosure of Inside Information.
--------------------------------
Information loses its inside character once it has been
effectively disclosed. It may be difficult to determine
when the information is sufficiently disseminated to allow
an insider to trade. An insider who traded immediately
after release to the news media, for example, but before the
news was published, was held in violation of the insider
trading prohibition. In that case, the court said that, at
a minimum, the insider should not have placed his order
until the news could reasonably have been expected to appear
over the media of widest circulation. The Securities and
Exchange Commission has said that "in order to effect a
meaningful public disclosure of corporate information, it
must be disseminated in a manner calculated to reach the
securities market place in general through recognized
channels of distribution, and public investors must be
afforded a reasonable waiting period to react to the
information."
How soon after the release of material information
insiders may begin to trade thus depends both on how
thoroughly and how quickly the information is published by
the news-wire services and the press. In addition, insiders
should refrain from trading following dissemination until
the public has had an opportunity to evaluate the
information thoroughly. Where the impact of the information
on investment decisions is readily understandable, as in the
case of an earnings report, the required waiting period will
be shorter than when the information must be interpreted
before its bearing on investment decisions can be evaluated.
While the waiting period is dependent on the circumstances,
certain stock exchanges recommend that insiders wait for at
least 24 hours after the general publication of the
information in a national medium. Where publication is not
so widespread, a minimum waiting period of 48 to 72 hours is
recommended.
D. Tipping.
-------
Not only are insiders, as fiduciaries, forbidden to
personally use undisclosed corporate information to their
advantage, they also may give such information to an
outsider for the similarly improper purpose of exploiting
the information for personal gain. "Tipping" is viewed as a
means of indirectly violating the "disclose or abstain from
trading" rule which applies to insiders.
Liability for tipping derives from the rule that
silence when trading with inside information constitutes a
fraud under the antifraud provisions of the Exchange Act if
there is a relationship of trust and confidence between
shareholders and the person trading on the inside
information. Unlike insiders who have independent fiduciary
duties to both the company and its shareholders, the typical
tippee has no such relationship. A tippee, however, is not
always free to trade on inside information. If the insider-
tipper has breached his or her fiduciary duty to
shareholders, the tippee inherits the duty to disclose or
abstain.
The tippee's duty to disclose or abstain is a
derivative of the duty of the insider. Some tippees assume
an insider's duty to the shareholders not because of
receiving the insider information, but rather because it has
been made available to them improperly. A tippee assumes a
fiduciary duty to the shareholders of a company not to trade
on material non-public information only when the insider has
breached a fiduciary duty to the shareholders by disclosing
the information to the tippee and the tippee knows or should
know there has been a breach.
E. Conclusion.
----------
The purpose of the foregoing discussion is to educate
and sensitize all access persons of the Company to insider
trading issues. Insider trading, or tipping, by any access
person of the Company is strictly prohibited.
3. Prohibited Activities
---------------------
A. No Access Person shall:
(1) Employ any device, scheme, or artifice
to defraud any client or prospective client of the
Company;
(2) Engage in any transaction, practice, or
course of business which operates as a fraud or
deceit upon any client or prospective client of
the Company;
(3) Acting for his/her own account,
knowingly to sell any security to or purchase any
security from a client, without disclosing to such
client in writing before the completion of such
transaction the capacity in which he/she is acting
and obtain the consent of the client to such
transaction; and
(4) Engage in any act, practice, or course
of business which is fraudulent, deceptive or
manipulative.
B. No Access Person shall purchase or sell, directly
or indirectly, for his/her own account, or acquire any
beneficial ownership in, any security which has been
purchased or sold within the preceding fifteen (15)
days by any registered investment company or account to
which the Company serves as investment adviser or which
to his/her knowledge will be purchased or sold within
the succeeding fifteen (15) days by any such registered
investment company or account to which the Company
serves as investment adviser, unless such purchase or
sale is approved in writing by Albert O. Nicholas,
David O. Nicholas or Jeffrey T. May, or a person
delegated by any of the foregoing, prior to the
effectuation of such purchase or sale. A copy of such
written approval shall be retained for a period of at
least five (5) years.
C. No Access Person shall purchase any security from,
or sell any security to, any registered investment
company or account to which the Company serves as
investment adviser, unless the sale or purchase
involves solely securities of which the registered
investment company is the issuer.
4. Exempt Purchases and Sales
--------------------------
The prohibitions in Section 2 of this Amended Code of
Ethics shall not be applicable to purchases effected upon
exercise of rights issued by an issuer pro rata to all
holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such
rights so acquired.
5. Reporting
---------
A. Within ten (10) days of the end of each fiscal
quarter of the Company, each Access Person shall report
in writing all purchases and sales of securities for
his/her own account, and all other transactions in
which he/she acquires or terminates any beneficial
ownership in a security. The report shall state the
title and amount of the security involved; the date and
the nature of the transaction (i.e., purchase, sale or
other acquisition or disposition); the price at which
it was effected; the reason for the transaction; and
the name of the broker, dealer or bank with or through
whom the transaction was effected. Such report may
also contain a statement declaring that the reporting
or recording of any such transaction shall not be
construed as an admission that the Access Person making
the report has any beneficial ownership in the
security.
6. Sanctions
---------
Mr. Jeffrey T. May, or another person designated by the
Board of Directors, shall review all reports submitted, and
shall determine if any violations of the Amended Code of
Ethics have occurred. If a violation of this Amended Code
of Ethics occurs, Albert O. Nicholas or the Board of
Directors of the Company may impose such sanctions as they
deem appropriate in the circumstances, including termination
of employment of the violator.
