May 10, 1998
Report to Shareholders:
Nicholas Fund completed its fiscal year ended March 31, 1998 with a
50.98% total return. In comparison, the Standard & Poor's 500 increased
47.96% and the Russell 2000 was up 42.01% for the same period. The Fund
produced a 12.15% total return for the quarter ended March 31, 1998. This
result compared to 13.94% and 10.06% for the Standard & Poor's 500 and
Russell 2000, respectively. The Fund's cash position was 5.16% at fiscal
year-end.
As our investment strategy stresses patience, we would like to
emphasize long-term results. Shown below are results for various time
periods ended March 31, 1998.
<TABLE>
Average Annual Total Return*
---------------------------- July 14, 1969**
5 years 10 years 15 years 28.7 years
<S> <C> <C> <C> <C>
Nicholas Fund ------- -------- -------- ---------------
(Distributions Reinvested)..... 20.52% 17.84% 16.59% 14.67%
Russell 2000 (Dividends Reinvested) 17.67% 14.85% 12.84% N/A
Standard & Poor's 500
(Dividends Reinvested) ........ 22.38% 18.93% 17.78% 12.97%
Consumer Price Index ............. 2.45% 3.34% 3.40% 5.31%
Ending value of $10,000
invested in Nicholas Fund
(Distributions Reinvested) .... $25,426 $51,621 $99,933 $508,762
</TABLE>
The vertiginous nature of the stock market has made managing equity
portfolios extremely difficult. While there are many good reasons for
the market to be strong, valuations are at high tide. The overvalued market
of 1971/1972 was somewhat similar to the current period. While we are not
predictive at Nicholas Company, veteran investors remember that the Standard
& Poor's 500 declined approximately 37% in the 1973/1974 time period.
In brief, there is almost no margin of safety in stock prices despite
generally favorable economic conditions and company fundamentals.
Consequently, shareholders may need to lower their return expectations, at
least over the next few years. One statistic I would like to highlight is
Nicholas Fund's average annual total return of 14.67% over its lifetime.
We are pleased with this performance and would remind our fellow shareholders
that compounding at 15% per year doubles your capital every 5 years.
Patience has its reward.
Management would like to thank all shareholders for the confidence they
have placed in the long-term investment philosophy of the Fund. We
appreciate your support.
Sincerely, Sincerely,
/s/ Albert O. Nicholas /s/ David O. Nicholas
---------------------- ---------------------
Albert O. Nicholas David O. Nicholas
Co-Portfolio Manager Co-Portfolio Manager
*Total returns are historical and include change in share price and
reinvestment of dividends 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 is June 30, 1969.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
- ----------------------------------------------------------------------
<TABLE>
Year ended March 31,
--------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $67.11 $63.81 $52.22 $51.10 $52.91 $49.68 $42.99 $37.72 $35.27 $32.15
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .36 .40 .57 .69 .74 .75 .70 .80 .96 .97
Net gains or (losses) on securities
(realized and unrealized) 32.67 8.64 15.68 4.46 (.68) 5.20 7.49 5.48 3.46 3.63
------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Total from investment operations 33.03 9.04 16.25 5.15 .06 5.95 8.19 6.28 4.42 4.60
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net
investment income) ( .36) (.42) (.57) (.71) (.82) (.68) (.68) (.79) (.92) (1.03)
Distributions (from capital gains) (5.80) (5.32) (4.09) (3.32) (1.05) (2.04) (.82) (.22) (1.05) (.45)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (6.16) (5.74) (4.66) (4.03) (1.87) (2.72) (1.50) (1.01) (1.97) (1.48)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $93.98 $67.11 $63.81 $52.22 $51.10 $52.91 $49.68 $42.99 $37.72 $35.27
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN 50.98% 14.68% 32.38% 10.88% 0.04% 12.41% 19.33% 17.13% 12.55% 14.81%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions) $5,907.2 $3,989.5 $3,655.3 $3,004.4 $2,941.2 $3,013.4 $2,234.1 $1,642.8 $1,389.5$1,172.3
Ratio of expenses to average net assets .71% .72% .74% .77% .78% .76% .78% .81% .82% .86%
Ratio of net investment income
to average net assets .44% .61% .87% 1.34% 1.40% 1.53% 1.60% 2.17% 2.56% 2.84%
Portfolio turnover rate 17.01% 15.18% 25.70% 29.82% 33.39% 10.20% 14.58% 21.85% 21.31% 24.03%
Average commission rate paid by the
Fund on portfolio investment
transactions* $0.0475 $0.0473 $0.0492 -- -- -- -- -- -- --
*Disclosure of this rate is required by the Securities and Exchange Commission on a prospective basis beginning with the Fund's
1996 fiscal year end.
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
TOP TEN EQUITY HOLDINGS
March 31, 1998 (Unaudited)
- ----------------------------------------------------------------------
Percentage
Name of Net Assets
---- -------------
Mercury General Corporation.............................. 5.34%
Freddie Mac.............................................. 4.84%
Fannie Mae............................................... 4.82%
Berkshire Hathaway, Inc. - Class A....................... 4.50%
Travelers Group, Inc..................................... 3.30%
Marshall & Ilsley Corporation............................ 3.29%
SunAmerica, Inc.......................................... 2.67%
General Motors Corporation - Class H..................... 2.28%
Fifth Third Bancorp...................................... 2.09%
McDonald's Corporation................................... 1.88%
Total of top ten holdings........................... 35.01%
------
------
SCHEDULE OF INVESTMENTS
March 31, 1998
- ----------------------------------------------------------------------
Shares or Quoted
Principal Market
Amount Value
- ---------- ------
(Note 1 (a))
COMMON STOCKS - 94.84%
AGRICULTURE - 1.14%
1,300,000 Monsanto Company $ 67,600,000
----------------
67,600,000
BANKS AND FINANCE - 21.78%
408,000 Edwards (A.G.), Inc. 17,850,000
4,500,000 Fannie Mae 284,625,000
1,445,875 Fifth Third Bancorp 123,622,313
891,400 Firstar Corporation 35,210,300
6,021,200 Freddie Mac 285,630,675
3,341,363 Marshall & Ilsley Corporation 194,216,724
300,000 Merrill Lynch & Co., Inc. 24,900,000
2,000,000 Norwest Corporation 83,125,000
3,252,000 Travelers Group Inc. 195,120,000
336,900 U.S. Bancorp 42,028,275
-----------------
1,286,328,287
BUSINESS SERVICES - 3.31%
1,372,000 Cintas Corporation 71,001,000
66,600 Cresent Operating, Inc.* 1,423,575
370,000 Interim Services, Inc.* 12,487,500
3,200,000 Wallace Computer Services, Inc. 110,800,000
-----------------
195,712,075
CONSUMER PRODUCTS AND SERVICES - 7.41%
500,000 American Express Company 45,906,250
1,668,300 Cooper Tire & Rubber Company 39,622,125
852,000 CSS Industries, Inc. * 27,956,250
400,000 Gillette Company (The) 47,475,000
755,000 Leggett & Platt, Incorporated 38,835,313
1,170,000 Nike, Inc. - Class B 51,772,500
828,200 ServiceMaster Company (The) 23,655,462
1,692,600 Valspar Corporation (The) 66,434,550
898,400 Walt Disney Company (The) 95,904,200
-----------------
437,561,650
FOOD AND BEVERAGE - 2.73%
650,000 Coca-Cola Company (The) 50,334,375
1,850,000 McDonald's Corporation 111,000,000
-----------------
161,334,375
HEALTH CARE PRODUCTS - 7.42%
1,000,000 Abbott Laboratories 75,312,500
818,000 American Home Products Corporation 78,016,750
1,411,800 Elan Corporation PLC * 91,237,575
400,000 Medtronic, Inc. 20,750,000
700,000 Pfizer Inc. 69,781,250
1,600,000 Stryker Corporation 75,000,000
850,000 St. Jude Medical, Inc.* 28,421,875
-----------------
438,519,950
HEALTH CARE SERVICES - 6.54%
903,150 Cardinal Health, Inc. 79,646,541
422,900 Health Care and Retirement Corporation * 18,158,269
1,790,625 Health Management Associates, Inc. - Class A* 51,256,640
798,552 National HealthCare Corporation 26,951,130
1,855,000 PhyCor, Inc.* 41,853,437
5,000 PSS World Medical, Inc. * 117,500
3,030,000 Quorum Health Group, Inc. * 101,883,750
2,227,905 Vencor,Inc. * 66,697,906
-----------------
386,565,173
INDUSTRIAL PRODUCTS AND SERVICES - 4.39%
1,534,800 General Cable Corporation 69,641,550
1,178,325 Thermo Electron Corporation * 47,574,872
2,000,000 Tyco International Ltd. 109,250,000
1,430,200 Wausau-Mosinee Paper Corporation 32,983,987
-----------------
259,450,409
INSURANCE - 12.63%
2,641,331 Foremost Corporation of America 64,712,610
5,045,600 Mercury General Corporation 315,665,350
1,589,600 Mutual Risk Management Ltd. 53,847,700
400,000 Progressive Corporation (The) 53,875,000
1,368,500 Protective Life Corporation 99,900,500
3,300,000 SunAmerica, Inc. 157,987,500
-----------------
745,988,660
INVESTMENT MANAGEMENT - 1.11%
1,239,900 Franklin Resources, Inc. 65,714,700
-----------------
65,714,700
MEDIA, COMMUNICATIONS AND ENTERTAINMENT - 7.76%
2,090,000 ADC Telecommunications, Inc. * 57,605,625
1,730,000 Cincinnati Bell Inc. 61,631,250
2,975,000 General Motors Corporation - Class H * 134,618,750
2,073,100 LCI International, Inc. * 79,814,350
1,357,100 Loral Space & Communications Ltd. * 37,913,981
420,866 Pulitzer Publishing Company 33,616,672
938,164 Raytheon Company 53,358,078
-----------------
458,558,706
REAL ESTATE - 2.45%
1,300,000 Crescent Real Estate Equities, Inc. 46,800,000
916,327 Meditrust Corp., Paired Ctf. 28,291,596
690,300 National Health Investors, Inc. 27,525,713
666,828 National Health Realty, Inc. 11,502,783
1,153,000 Reckson Associates Realty Corp. 30,410,375
-----------------
144,530,467
RETAIL TRADE - 6.28%
1,800,000 AutoZone, Inc. * 60,975,000
1,210,800 Consolidated Stores Corporation * 51,988,725
1,200,000 Home Depot, Inc. (The) 80,925,000
1,262,000 Kohl's Corporation * 103,168,500
1,768,300 OfficeMax, Inc. * 31,608,362
1,200,000 Walgreen Co. 42,225,000
-----------------
370,890,587
TECHNOLOGY - 4.14%
1,270,000 Electronic Data Systems Corp. 58,261,250
1,000,000 Hewlett-Packard Company 63,375,000
800,000 Intel Corporation 62,450,000
1,000,000 Motorola, Inc. 60,625,000
-----------------
244,711,250
TRANSPORTATION - 0.60%
1,272,089 Heartland Express, Inc. * 35,300,470
-----------------
35,300,470
MISCELLANEOUS - 5.15%
3,959 Berkshire Hathaway Inc. - Class A * 266,044,800
38 Berkshire Hathaway Inc. - Class B * 85,310
960,000 Leucadia National Corporation 37,800,000
-----------------
303,930,110
-----------------
TOTAL COMMON STOCKS
(cost $2,332,052,226) 5,602,696,869
--------------
SHORT-TERM INVESTMENTS - 5.24%
Commercial Paper - 5.02%
$ 5,000,000 Nabisco, Inc.
5.60%, due April 1, 1998 5,000,000
3,000,000 Universal Foods Corporation
5.70%, due April 1, 1998 3,000,000
16,500,000 American Bankers Insurance Group, Inc.
5.62%, due April 2, 1998 16,497,424
8,000,000 American Bankers Insurance Group, Inc.
5.62%, due April 3, 1998 7,997,502
5,000,000 Universal Foods Corporation
5.70%, due April 3, 1998 4,998,417
5,100,000 Universal Foods Corporation
5.70%, due April 3, 1998 5,098,385
6,000,000 Conagra, Inc.
5.70%, due April 6, 1998 5,995,250
6,000,000 Harnischfeger Industries, Inc.
5.70%, due April 6, 1998 5,995,250
12,500,000 Cox Enterprises, Inc.
5.62%, due April 7, 1998 12,488,292
7,000,000 Lockheed Martin Corporation
5.62%, due April 8, 1998 6,992,350
10,000,000 Lockheed Martin Corporation
5.60%, due April 8, 1998 9,989,111
8,000,000 Harnischfeger Industries, Inc.
5.75%, due April 10, 1998 7,988,500
8,000,000 Quad/Graphics, Inc.
5.70%, due April 10, 1998 7,988,600
10,000,000 Heller Financial, Inc.
5.73%, due April 13, 1998 9,980,900
4,000,000 Quad/Graphics, Inc.
5.75%, due April 14, 1998 3,991,694
8,500,000 Tyson Foods, Inc.
5.66%, due April 14, 1998 8,482,627
3,000,000 Banta Corporation
5.75%, due April 16, 1998 2,992,813
9,000,000 Nabisco, Inc.
5.68%, due April 16. 1998 8,978,700
3,000,000 Banta Corporation
5.75%, due April 17, 1998 2,992,333
4,805,000 Fiserv, Inc.
5.75%, due April 17, 1998 4,792,721
7,140,000 Harnischfeger Industries, Inc.
5.70%, due April 20, 1998 7,118,521
4,000,000 WICOR Industries, Inc.
5.70%, due April 20, 1998 3,987,967
10,000,000 Lockheed Martin Corporation
5.68%, due April 21, 1998 9,968,444
9,000,000 Harnischfeger Industries, Inc.
5.75%, due April 22, 1998 8,969,813
8,000,000 Tyson Foods, Inc.
5.65%, due April 23, 1998 7,972,378
7,980,000 Schreiber Foods, Inc.
5.75%, due April 24, 1998 7,950,685
12,000,000 Lockheed Martin Corporation
5.70%, due April 27, 1998 11,950,600
6,185,000 Nabisco, Inc.
5.70%, due April 28, 1998 6,158,558
6,000,000 Quad/Graphics, Inc.
5.75%, due April 28, 1998 5,974,125
9,250,000 Harnischfeger Industries, Inc.
5.80%, due April 29, 1998 9,208,272
8,000,000 Universal Foods Corporation
5.75%, due April 30, 1998 7,962,944
3,840,000 Fiserv, Inc.
5.75%, due May 4,1998 3,819,760
5,000,000 Heller Financial, Inc.
5.70%, due May 4, 1998 4,973,875
15,000,000 Fiserv, Inc.
5.70%, due May 6, 1998 14,916,875
17,500,000 Nabisco, Inc.
5.69%, due May 8, 1998 17,397,658
15,000,000 Cox Enterprises, Inc.
5.68%, due May 12, 1998 14,902,967
7,000,000 Fiserv, Inc.
5.75%, due May 13, 1998 6,953,042
4,000,000 WICOR Industries, Inc.
5.75%, due May 14, 1998 3,972,528
-------------
296,399,881
-------------
Variable Rate Demand Notes - 0.22%
3,581,606 Johnson Controls, Inc.
5.29%, due April 1, 1998 3,581,606
9,372,448 Warner-Lambert Company
5.27%, due April 1, 1998 9,372,448
-------------
12,954,054
-------------
TOTAL SHORT-TERM INVESTMENTS
(cost $308,232,258) 309,353,935
-------------
TOTAL INVESTMENTS 5,912,050,804
(cost $2,640,284,484) -------------
LIABILITIES, NET OF CASH
AND RECEIVABLES - (0.08%) (4,846,522)
-------------
TOTAL NET ASSETS (Basis of
percentages disclosed above) $5,907,204,282
--------------
--------------
This company is affiliated with the Fund; that is, the Fund holds 5%
or more of its outstanding voting securities. Such companies are
defined in Section 2(a)(3), of the Investment Company Act of 1940. (Note 5)
*Nondividend paying security.
The accompanying notes to financial statements
are an integral part of this schedule.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
- ----------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value (Note 1 (a)) --
Nonaffiliated issuers (cost $2,398,210,208)-see accompanying schedule of investments $5,284,821,131
Affiliated issuers (cost $242,074,276)-see accompanying schedule of investments (Note 5) 627,229,673
--------------
Total investments................................................................ 5,912,050,804
--------------
Receivables --
Dividends and interest.............................................................. 4,101,971
Investment securities sold.......................................................... 2,933,527
--------------
Total receivables............................................................. 7,035,498
--------------
Total assets.................................................................. 5,919,086,302
--------------
LIABILITIES:
Payables --
Investment securities purchased..................................................... 5,303,494
Management fee (Note 2)............................................................. 3,105,644
Other payables and accrued expenses................................................. 3,472,882
--------------
Total liabilities............................................................. 11,882,020
--------------
Total net assets ............................................................. $5,907,204,282
--------------
--------------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding..................................................... $2,475,804,833
Net unrealized appreciation on investments (Note 3) ................................... 3,270,644,643
Accumulated undistributed net realized gains on investments............................ 155,570,996
Accumulated undistributed net investment income........................................ 5,183,810
--------------
$5,907,204,282
--------------
--------------
NET ASSET VALUE PER SHARE ($.50 par value, 200,000,000 shares authorized)
offering price and redemption price ($5,907,204,282 ./. 62,856,621 shares
outstanding)........................................................................... $93.98
------
------
The accompanying notes to financial statements
are an integral part of this statement.
</TABLE>
STATEMENT OF OPERATIONS
For the Year Ended March 31, 1998
- ----------------------------------------------------------------------
<TABLE>
<S> <C>
INCOME:
Dividends (Note 1 (d)) --
Nonaffiliated issuers.................................................... $ 38,114,222
Affiliated issuers (Note 5) ............................................ 6,505,708
Interest................................................................... 11,951,887
Other...................................................................... 56,185
-------------
56,628,002
-------------
EXPENSES:
Management fee (Note 2) ................................................... 32,093,490
Transfer agent fees........................................................ 2,022,896
Postage and mailing fees................................................... 226,162
Custodian fees............................................................. 258,021
Printing................................................................... 105,829
Registration fees.......................................................... 179,908
Telephone.................................................................. 47,079
Legal fees................................................................. 27,658
Audit and tax consulting fees.............................................. 19,600
Directors' fees............................................................ 11,390
Insurance ................................................................. 17,917
Other operating expenses................................................... 1,340
-------------
35,011,290
-------------
Net investment income.................................................... 21,616,712
-------------
NET REALIZED GAINS ON INVESTMENTS (Note 1 (b)):
Nonaffiliated issuers...................................................... 419,655,088
Affiliated issuers (Note 5)................................................ 17,256,565
-------------
436,911,653
-------------
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS ........................ 1,553,035,607
-------------
Net gains on investments................................................... 1,989,947,260
-------------
Net increase in net assets resulting from operations....................... $2,011,563,972
-------------
-------------
The accompanying notes to financial statements
are an integral part of this statement.
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended March 31, 1998 and 1997
- ----------------------------------------------------------------------
<TABLE>
1998 1997
------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................. $ 21,616,712 $ 23,381,414
Net realized gains on investments (Note 1 (b)).................... 436,911,653 221,339,536
Net increase in unrealized appreciation on investments............ 1,553,035,607 282,923,851
------------- --------------
Net increase in net assets resulting from operations..... 2,011,563,972 527,644,801
------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (Note 1 (d)):
Distributions from net investment income
($0.3616 and $0.4179 per share, respectively)................... (21,461,299) (24,092,988)
Distributions from net realized gains on investment transactions
($5.8002 and $5.3166 per share, respectively)................... (344,374,893) (305,905,425)
-------------- --------------
Total distributions...................................... (365,836,192) (329,998,413)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (3,910,077 and 3,206,018
shares, respectively)........................................... 316,714,028 193,274,295
Net asset value of shares issued in distributions from net
investment income and net realized gains (4,286,977 and
4,795,847 shares, respectively)................................. 342,434,753 310,941,521
Cost of shares redeemed (4,783,859 and 5,842,762 shares,
respectively)................................................... (387,160,979) (367,673,135)
------------- --------------
Increase in net assets derived from capital
share transactions .................................... 271,987,802 136,542,681
------------- --------------
Total increase in net assets............................. 1,917,715,582 334,189,069
------------- --------------
NET ASSETS, at the beginning of the year (including undistributed net
investment income of $5,028,397 and $5,739,971, respectively)....... 3,989,488,700 3,655,299,631
-------------- --------------
NET ASSETS, at the end of the year (including undistributed net
investment income of $5,183,810 and $5,028,397, respectively)....... $5,907,204,282 $3,989,488,700
-------------- --------------
-------------- --------------
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
- ----------------------------------------------------------------------
(1) Summary of Significant Accounting Policies --
Nicholas Fund, Inc. (the "Fund") is an open-end, diversified management
company registered under the Investment Company Act of 1940, as amended.
The primary objective of the Fund is capital appreciation in which income
is a secondary consideration. To achieve its objective, the Fund invests
in a diversified list of common stocks having growth potential. The
following is a summary of the significant accounting policies of the Fund.
(a) Each equity security is valued at the last sale price reported by the
principal security exchange on which the issue is traded, or if no
sale is reported, the last bid price. Most debt securities, excluding
short-term investments, are valued at current evaluated bid price.
Variable rate demand notes are valued at cost which approximates
market value. U.S. Treasury Bills and commercial paper are stated at
market value with the resultant difference between market value and
original purchase price being recorded as interest income. Investment
transactions are recorded no later than the first business day after
the trade date. Cost amounts, as reported on the schedule of
investments and the statement of assets and liabilities, are the same
for Federal income tax purposes.
(b) Net realized gains and losses on common stocks and bonds were
computed on the basis of specific certificates.
(c) Provision has not been made for Federal income taxes or excise taxes
since the Fund has elected to be taxed as a "regulated investment
company" and intends to distribute substantially all taxable income
to its shareholders and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies.
(d) Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Non-cash dividends, if any, are recorded at
fair market value on date of distribution.
(e) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from the estimates.
(2) Investment Adviser and Management Agreement --
The Fund has an agreement with Nicholas Company, Inc. (with whom certain
officers and directors of the Fund are affiliated) to serve as investment
adviser and manager. Under the terms of the agreement, a monthly fee is
paid to the investment adviser based on 1/16th of 1% (.75 of 1% on an
annual basis) of the average net asset value up to and including $50
million and 2/37th of 1% (.65 of 1% on an annual basis) of the average
net asset value in excess of $50 million. Also, the investment adviser
may be reimbursed for clerical and administrative services rendered by
its personnel. This advisory agreement is subject to an annual review by
the Directors of the Fund.
(3) Net Unrealized Appreciation --
Aggregate gross unrealized appreciation (depreciation) as of March 31,
1998, based on investment cost for Federal tax purposes is as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation on investments.................... $3,276,358,256
Aggregate gross unrealized depreciation on investments.................... (5,713,613)
---------------
Net unrealized appreciation ......................................... $3,270,644,643
---------------
---------------
</TABLE>
(4) Investment Transactions --
For the year ended March 31, 1998, the cost of purchases and the proceeds
from sales of investment securities, other than short-term obligations,
aggregated $802,527,363 and $1,068,707,203 respectively.
NOTES TO FINANCIAL STATEMENTS (Continued)
March 31, 1998
- ----------------------------------------------------------------------
(5) Transactions with Affiliates --
Following is an analysis of fiscal 1998 transactions with "affiliated
companies" as defined by the Investment Company Act of 1940:
<TABLE>
Amount of
Capital
Amount of Gain (Loss)
Dividends Realized
Share Activity Credited on Sale
-------------------------------------------- to Income of Shares
Balance Balance in Fiscal in Fiscal
Security Name 3/31/97 Purchases Sales 3/31/98 1998 1998
------------- -------- --------- ----- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
CSS Industries, Inc. 789,200 62,800 -- 852,000 $ -- $ --
Foremost Corporation of America 888,777 1,802 554 50,000 2,641,331 930,629 700,900
General Cable Corporation -- 1,534,800 -- 1,534,800 119,160 --
Heilig-Meyers Company (a) 3,150,000 -- 3,150,000 -- 206,500 9,791,641
International Dairy Queen, Inc.
Class A (a)(c) 1,683,000 -- 1,683,000 -- -- --
Class B (a)(c) 720,000 -- 720,000 -- -- --
Magellan Health Services, Inc. (a) 2,570,000 -- 2,570,000 -- -- 476,838
Marshall Industries (a) 900,000 -- 900,000 -- -- (1,665,108)
Mercury General Corporation (d) 5,045,600 -- -- 5,045,600 3,077,816 --
National HealthCare Corporation (e) -- 798,552 -- 798,552 -- --
National Health Realty, Inc. (e) -- 798,352 131,524 666,828 221,720 908,894
Security Capital Corporation (a)(b) 645,000 -- 645,000 -- 387,000 7,043,400
Wallace Computer Services, Inc. 1,985,200 1,214,800 -- 3,200,000 1,562,883 --
---------- ----------
$6,505,708 $17,256,565
---------- -----------
---------- -----------
</TABLE>
(a) As of March 31, 1998, the Fund is no longer affiliated with this company.
(b) Security Capital Corporation was merged with Marshall & Ilsley
Corporation. The Fund received cash and shares of Marshall & Ilsley
Corporation in consideration for the shares of Security Capital
Corporation.
(c) The Fund received shares of Berkshire Hathaway Inc. Class A and Class B
stock in exchange for the shares held of International Dairy Queen,
Inc. Class A and Class B stock.
(d) The share activity has been adjusted to reflect a stock split/dividend.
(e) Except for the purchase of 200 shares of National HealthCare Corporation,
purchase share activity was the result of a conversion of $10,290,000
par value National Healthcare L.P convertible bonds 6.00% due July 1, 2000.
The Fund also received shares of National Health Realty, Inc. in the
conversion.
AUTOMATIC INVESTMENT PLAN - AN UPDATE (UNAUDITED)
The Nicholas Family of Funds' Automatic Investment Plan provides a simple
method to dollar cost average into the fund(s) of your choice.
Dollar cost averaging involves making equal systematic investments over
an extended time period. A fixed dollar investment will purchase more
shares when the market is low and fewer shares when the market is high.
The automatic investment plan is an excellent way for you to become a
disciplined investor.
The following table illustrates what dollar cost averaging can achieve.
Please note that past performance is no guarantee of future results.
Nicholas Company recommends dollar cost averaging as a practical
investment method. It should be consistently applied for long periods
(5-10 years or more) so that investments are made through several market
cycles. The table will be updated and appear in future financial reports
issued by the Nicholas Family of Funds.
<TABLE>
Nicholas Fund
______________________________
<S> <C> <C>
$1,000 initial investment on 7-14-69* 3-31-88
Number of years of investing $100 per month on the last
day of each month following the date of initial investment 28.7 10
Total cash invested $ 35,500 $13,000
Total dividends and capital gains reinvested $244,138 $ 8,212
Total full shares owned 3/31/98 8,081 418
Total market value on 3/31/98 $759,439 $39,290
</TABLE>
The results above assume purchase on the last day of the month. The
Nicholas Automatic Investment Plan actually invests on the 20th of each
month (or on the alternate date specified by the investor). Total market
value includes reinvestment of all distributions.
* Date of Initial Public Offering.
Report of Independent Public Accountants
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
To the Shareholders and Board of Directors
of Nicholas Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities of NICHOLAS FUND, INC. (a Maryland corporation),
including the schedule of investments, as of March 31, 1998, and the
related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of March
31, 1998, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmation from
brokers and, when replies were not received, we carried out other
alternative auditing procedures. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Nicholas Fund, Inc. as of March 31, 1998, the
results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
April 24, 1998.
HISTORICAL RECORD (Unaudited)
<TABLE>
(Adjusted for Two-for-One Stock Split June 15, 1979)
Net Investment
Net Income Capital Gain Dollar Weighted Growth of An
Asset Value Distributions 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, 1985............... 29.24 0.6420 1.5760 13.2 times 69,858
March 31, 1986............... 35.26 0.5750 0.6100 15.8 87,699
March 31, 1987............... 39.94 0.8820 0.1870 16.3 102,387
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 16.9 149,180
March 31, 1992............... 49.68 0.6790 0.8240 19.4 178,011
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
March 31, 1997............... 67.11 0.4179 5.3166 21.7 336,973
March 31, 1998............... 93.98 0.3616(a) 5.8029(a) 30.0 508,762
*Date of Initial Public Offering. (a) Paid $0.1407 in net investment income and
**Based on latest 12 months accomplished earnings. $1.0643 in capital gains on May 21, 1997 to
***Assuming reinvestment of all distributions. shareholders of record May 15, 1997.
Range in quarter end price/earnings ratios since Paid $0.2209 in net investment income and
December 31, 1974 $4.7359 in capital gains on December 31, 1997
High Low to shareholders of record December 26, 1997.
---- ---
3/31/98 30.0 3/31/82 8.3
</TABLE>
Officers and Directors
ALBERT O. NICHOLAS
President and Director
ROBERT H. BOCK
Director
MELVIN L. SCHULTZ
Director
RICHARD SEAMAN
Director
DAVID L. JOHNSON
Executive Vice President
THOMAS J. SAEGER
Executive Vice President and Secretary
DAVID O. NICHOLAS
Senior Vice President
LYNN S. NICHOLAS
Senior Vice President
JEFFREY T. MAY
Senior Vice President and Treasurer
CANDACE L. LESAK
Vice President
MARK J. GIESE
Vice President
KATHLEEN A. EVANS
Assistant Vice President
TRACY C. EBERLEIN
Assistant Vice President
Investment Adviser
NICHOLAS COMPANY, INC.
Milwaukee, Wisconsin
414-272-6133 or 800-227-5987
Custodian and Transfer Agent
FIRSTAR TRUST COMPANY
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
Counsel
DAVIS & KUELTHAU, S.C.
Milwaukee, Wisconsin
Auditors
ARTHUR ANDERSON LLP
Milwaukee, Wisconsin
This report is submitted for the information of shareholders
of the Fund. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
