February 4, 1997
Report to Fellow Shareholders:
It is a pleasure to report that Nicholas Fund had a good
calendar year in 1996. Total return to shareholders was 19.78%
with distributions reinvested. While this result was below the
performance of the S&P 500 (large companies), it exceeded the
results of the Russell 2000 results (small companies). Nicholas
Fund tends to own stocks in both categories. Outstanding upward
moves in bank, finance, insurance and health care equities
were largely responsible for the year's return. As is our
custom, we are fully invested with 4.4% in cash.
More of the same, and it's great -- a modestly growing
economy, quiescent inflation and a reasonable interest rate
environment continue in place. Company earnings are strong
for the most part. Add to this scene the tremendous net
inflows of cash into stock mutual funds which in turn have
invested in the market, thereby helping to cause "very high"
equity valuations. Moreover, the rising use of indexing has
resulted in large company stocks outperforming small company
stocks. This could prove dangerous for the market indexes in
1997, especially in view of the fact that the S&P 500 rose 38%
and 23% in 1995 and 1996, respectively. Over long time spans,
the S&P has compounded at about 10% annually. Another reason for
some caution is the fact that the stock market has not had a 10%
correction in over six years. We do not predict market trends,
but we do want you to know the facts of the current investment
scene.
Long-term performance of the Fund is shown below for time
periods ended December 31, 1996.
<TABLE>
<CAPTION>
Average Annual Total Return*
-----------------------------------------------------
July 14, 1969**
1 year 5 years 10 years 15 years 27.2 years
------ ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Nicholas Fund (Distributions Reinvested) +19.78% +13.45% +13.99% +16.54% +13.59%
Standard & Poor's 500 (Income Reinvested) +22.95% +15.20% +15.28% +16.78% +11.88%
Russell 2000 (Income Reinvested) +16.49% +15.64% +12.41% +13.49% N/A
Consumer Price Index +3.31% +2.84% +3.68% +3.56% +5.49%
Ending Value of $10,000 invested in
Nicholas Fund (Distributions Reinvested) $11,978 $18,793 $37,040 $99,279 $331,098
</TABLE>
*Total returns are historical and include change in
share price and reinvestment of dividend and capital
gain distributions. Past performance is no guarantee
of future results. Principal value and return will
fluctuate so an investment, when redeemed, may be worth
more or less than original cost.
**Date of initial public offering. Starting time
period for Standard & Poor's 500 and the Consumer Price
Index was June 30, 1969.
In addition to our constant emphasis on investment
performance, I want shareholders to know that our administrative
staff is continuing to do its job effectively and in an extremely
cost-conscious manner. This effort is an important part of
achieving good investment results. As most of you know, we are a
pure no-load mutual fund with no front or rear-end sales charges
and no 12b-1 fees. The total annual expenses (which include
management fees) of running Nicholas Fund amounts to about .74%
of assets compared to approximately 1.4% for the average domestic
stock fund. I am very pleased and proud of the accomplishments
of this segment of our operation.
Management hopes to build on the solid foundation of the
past few years via intense research, competent stock selection,
larger positions in favored stocks and patience. Please keep in
mind that Nicholas Company is consistently attempting to achieve
reasonable returns in a low risk, conservative manner. Thank you
for being part of the Nicholas Fund.
Sincerely,
/s/ Albert O. Nicholas /s/ David O. Nicholas
---------------------- ---------------------
Albert O. Nicholas David O. Nicholas
Co-Portfolio Manager Co-Portfolio Manager
Nicholas Fund, Inc.
TOP TEN PORTFOLIO HOLDINGS
December 31, 1996.
Percentage of
Net Assets
-------------
Federal National Mortgage Association............... 4.21%
Federal Home Loan Mortgage Corporation.............. 4.16%
Mercury General Corporation......................... 3.32%
General Motors Corporation - Class H................ 3.25%
Tyco International Ltd. ............................ 2.61%
Travelers Group, Inc. .............................. 2.47%
SunAmerica, Inc. ................................... 2.45%
Wells Fargo & Company............................... 2.37%
Berkshire Hathaway, Inc. ........................... 2.05%
Circuit City Stores, Inc. .......................... 2.04%
Total of top ten holdings
as a percent of net assets........................ 28.93%
- ---------------------------------------------------------------
HISTORICAL RECORD
_______________________________________________________________
<TABLE>
<CAPTION>
(ADJUSTED FOR TWO-FOR-ONE STOCK SPLIT JUNE 15, 1979)
NET NET INVESTMENT CAPITAL GAIN DOLLAR WEIGHTED GROWTH OF AN
ASSET VALUE INCOME DISTRIBUTIONS PRICE/EARNINGS INITIAL $10,000
PER SHARE PER SHARE PER SHARE RATIO** INVESTMENT***
__________ ______________ _____________ _______________ _______________
<S> <C> <C> <C> <C> <C>
July 14, 1969* $ 6.59 $ -- $ -- -- $ 10,000
March 31, 1986 35.26 0.5750 0.6100 15.8 times 87,699
March 31, 1987 39.94 0.8820 0.1870 16.3 102,386
March 31, 1988 32.15 1.8400 4.0340 14.1 98,557
March 31, 1989 35.27 1.0250 0.4510 13.2 113,155
March 31, 1990 37.72 0.9240 1.0540 14.9 127,360
March 31, 1991 42.99 0.7900 0.2250 16.9 149,179
March 31, 1992 49.68 0.6790 0.8240 19.4 178,015
March 31, 1993 52.91 0.6790 2.0420 18.5 200,098
March 31, 1994 51.10 0.8175 1.0470 16.7 200,182
March 31, 1995 52.22 0.7070 3.3170 17.2 221,970
March 31, 1996 63.81 0.5650 4.0945 21.0 293,836
December 31, 1996 65.94 0.4190(a) 5.3155(a) 22.3 331,098
* Date of Initial Public Offering (a) Paid May 22, 1996 to shareholders of record May 16, 1996
** Based on latest 12 months accomplished earnings and December 31, 1996 to shareholders of record December
26, 1995.
** Assuming reinvestment of all distributions
</TABLE>
Range in quarter end price/earnings
ratios since December 31, 1974
High Low
- -------------- -------------
12/31/96 22.3 3/31/82 8.3