July 30, 1997
VIA EDGAR TRANSMISSION
Securities and
Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20540
Re: Nicholas Equity Income Fund, Inc. (the "Fund")
SEC File No. 33-69804
Post-Effective Amendment No. 4
Registration Statement on Form N-1A
Gentlemen:
In connection with the amendment by the Fund of its
registration statement on Form N-1A under Section 8 of the
Investment Company Act of 1940, as amended, and pursuant to the
provisions of Rule 472 and Rule 485 under the Securities Act of
1933, as amended, and pursuant to Regulation S-T relating to
electronic filings, we enclose for filing Post-Effective
Amendment No. 4 to the Registration Statement, including
exhibits relating thereto, marked to show changes effected
by the Amendment.
This Amendment shall be effective on July 30, 1997, in
accordance with Rule 485(b). As legal counsel to the Fund, we
have prepared the Amendment, and we hereby represent pursuant to
Rule 485(b)(4) that the Amendment does not contain disclosures
which would render it ineligible to become effective pursuant to
Rule 485(b).
Very truly yours,
MICHAEL BEST & FRIEDRICH
/s/ Kate M. Fleming
_______________________
KMF/ljg Kate M. Fleming
Enclosure
As filed with the Securities and Exchange Commission on July 30, 1997
Registration No. 33-69804
811-8062
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 4
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Post-Effective Amendment No. 4
NICHOLAS EQUITY INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
700 North Water Street, Milwaukee, Wisconsin 53202
(Address of Principal Executive Offices and Zip Code)
414-272-6133 or 800-227-5987
(Registrant's Telephone Number, including Area Code)
ALBERT O. NICHOLAS, PRESIDENT
NICHOLAS EQUITY INCOME FUND, INC.
700 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
(Name and Address of Agent for Service)
Copy to:
KATE M. FLEMING
MICHAEL BEST & FRIEDRICH
100 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
It is proposed that the filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on July 30, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on ___________ pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on ________ pursuant to paragraph (a)(2) of Rule 485
Declaration Pursuant To Rule 24f-2
----------------------------------
Pursuant to Rule 24f-2 under the Investment Company Act of
1940, the Registrant hereby elects to register an indefinite
number of shares of its Common Stock. On May 27, 1997, the
Registrant filed the necessary Rule 24f-2 Notice and filing fee
with the Commission for its fiscal year ended March 31, 1997.
NICHOLAS EQUITY INCOME FUND, INC.
CROSS-REFERENCE SHEET
(As required by Rule 481(a))
Part A. Information Required in Heading
- ------- ----------------------- -------
Prospectus
----------
Item 1. Cover Page................ Cover Page
Item 2. Synopsis.................. Performance Data
Item 3. Condensed Financial
Information............... Consolidated Disclosure
of Fund Fees and
Expenses; Financial
Highlights; Management's
Discussion of Fund
Performance
Item 4. General Description of
Registrant................ Introduction; Investment
Objectives and Policies;
Investment Restrictions
Item 5. Management of the Fund.... Investment Adviser
Item 5A. Management's Discussion
of Fund Performance....... Management's Discussion
of Fund Performance.
Item 6. Capital Stock and Other
Securities................ Transfer of Capital
Stock; Dividends and
Federal Tax Status;
Capital Structure; Annual
Meeting; Shareholder
Reports
Item 7. Purchase of Securities
Being Offered............ Purchase and Redemption
of Capital Stock;
Exchange Between Funds;
Transfer of Capital
Stock; Determination of
Net Asset Value; Dividend
Reinvestment Plan;
Individual Retirement
Account; Systematic
Withdrawal Plan; Self-
Employed Master
Retirement Plan
Item 8. Redemption or Repurchase. Purchase of Capital
Stock; Redemption of
Capital Stock
Item 9. Pending Legal Proceedings Introduction
Part B. Information Required in Statement of Additional Information
- ------- -----------------------------------------------------------
Item 10. Cover Page............... Cover Page
Item 11. Table of Contents........ Table of Contents
Item 12. General Information and
History.................. Introduction
Item 13. Investment Objectives and
Policies................. Investment Objectives and
Policies; Investment
Restrictions
Item 14. Management of the
Fund..................... Investment Adviser;
Management - Directors,
Executive Officers and
Portfolio Managers of the
Fund
Item 15. Control Persons and
Principal Holders of
Securities............... Principal Shareholders
Item 16. Investment Advisory and
Other Services.......... Investment Adviser;
Custodian and Transfer
Agent; Independent
Accountants and Legal
Counsel
Item 17. Brokerage Allocation and
Other Practices.......... Brokerage
Item 18. Capital Stock and Other
Securities............... Transfer of Capital
Stock; Dividends and
Federal Tax Status;
Capital Structure;
Shareholder Reports;
Annual Meeting
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered............ Purchase of Capital
Stock; Redemption of
Capital Stock; Exchange
Between Funds; Transfer
of Capital Stock;
Determination of Net
Asset Value; Dividend
Reinvestment Plan;
Systematic Withdrawal
Plan; Individual
Retirement Account;
Master Retirement Plan
Item 20. Tax Status............... Dividends and Federal Tax
Status
Item 21. Underwriters............. N/A
Item 22. Calculations of
Performance Data......... Performance Data
Item 23. Financial Statements..... Financial Information
Part C Other information
- ------ -----------------
Item 24. Financial Statements and
Exhibits.................. Part C
Item 25. Persons Controlled By or
Under Common Control
with Registrant........... Part C
Item 26. Number of Holders of
Securities................ Part C
Item 27. Indemnification........... Part C
Item 28. Business and Other
Connections of Investment
Adviser................... Part C
Item 29. Principal Underwriters.... Part C
Item 30. Location of Accounts and
Records................... Part C
Item 31. Management Services....... Part C
Item 32. Undertakings.............. Part C
Nicholas Equity Income Fund, Inc.
Form N-1A
PART A: PROSPECTUS
NICHOLAS EQUITY INCOME FUND, INC.
PROSPECTUS
700 NORTH WATER STREET, SUITE 1010
MILWAUKEE, WISCONSIN 53202
414-272-6133
800-227-5987
Nicholas Equity Income Fund, Inc. (the "Fund") is an
open-end management investment company whose primary investment
objective is to produce reasonable income for the investor.
Moderate long-term growth is a secondary consideration. To
achieve its primary investment objective, the Fund generally will
have at least 65% of its total assets invested in income-
producing equity securities. See "Investment Objectives and
Policies" for a further description of the Fund's primary and
secondary investment objectives.
NO-LOAD FUND - NO SALES CHARGE
Investment Adviser
NICHOLAS COMPANY, INC.
Minimum Initial Investment - $2,000
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus sets forth concisely the information about
the Fund that a prospective investor should know before
investing. Additional information about the Fund has been filed
with the Securities and Exchange Commission in the form of a
Statement of Additional Information, dated July 30, 1997. Upon
request to the Fund at the address and telephone number set forth
above, the Fund will provide copies of the Statement of
Additional Information without charge to each person to whom a
Prospectus is delivered.
July 30, 1997
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE
TABLE OF CONTENTS
INTRODUCTION.......................................... 1
CONSOLIDATED DISCLOSURE OF FUND FEES AND EXPENSES..... 1
FINANCIAL HIGHLIGHTS.................................. 3
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE........... 3
PERFORMANCE DATA...................................... 5
INVESTMENT OBJECTIVES AND POLICIES.................... 5
INVESTMENT RESTRICTIONS............................... 9
INVESTMENT ADVISER.................................... 10
PURCHASE OF CAPITAL STOCK............................. 11
REDEMPTION OF CAPITAL STOCK........................... 12
EXCHANGE BETWEEN FUNDS................................ 14
TRANSFER OF CAPITAL STOCK............................. 15
DETERMINATION OF NET ASSET VALUE...................... 15
DIVIDENDS AND FEDERAL TAX STATUS...................... 15
DIVIDEND REINVESTMENT PLAN............................ 16
SYSTEMATIC WITHDRAWAL PLAN............................ 16
INDIVIDUAL RETIREMENT ACCOUNT......................... 16
MASTER RETIREMENT PLAN................................ 16
CAPITAL STRUCTURE..................................... 17
ANNUAL MEETING........................................ 17
SHAREHOLDER REPORTS................................... 17
CUSTODIAN AND TRANSFER AGENT.......................... 17
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL............. 17
No person has been authorized to give any information or to
make any representations other than those contained in this
Prospectus and the Statement of Additional Information dated July
31, 1997, and, if given or made, such information or
representations may not be relied upon as having been authorized
by Nicholas Equity Income Fund, Inc.
This Prospectus does not constitute an offer to sell
securities in any state or jurisdiction in which such offering
may not lawfully be made. The delivery of this Prospectus at any
time shall not imply that there has been no change in the affairs
of Nicholas Equity Income Fund, Inc. since the date hereof.
INTRODUCTION
Nicholas Equity Income Fund, Inc. (the "Fund") was
incorporated under the laws of Maryland on September 1, 1993.
The Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as
amended. As an open-end investment company, it obtains its
assets by continuously selling shares of its common stock, $.0001
par value per share, to the public. Proceeds from such sales are
invested by the Fund in securities of other companies. The
resources of many investors are combined and each individual
investor has an interest in every one of the securities owned by
the Fund. The Fund provides each individual investor with
diversification by investing in the securities of many different
companies in a variety of industries. The Fund also furnishes
experienced management to select and watch over its investments.
As an open-end investment company, the Fund will redeem any of
its outstanding shares on demand of the owner at the net asset
value next determined following receipt of the redemption
request. The investment adviser to the Fund is Nicholas Company,
Inc. (the "Adviser").
The Fund's primary objective is to produce reasonable income
for the investor. Moderate long-term growth is a secondary goal.
The Fund seeks an income yield that exceeds the composite
dividend yield on the securities included in the Standard &
Poor's 500r Composite Stock Price Index ("S&P 500 Index"). The
Fund generally will have at least 65% of its total assets
invested in income-producing equity securities to achieve these
objectives. The equity securities in which the Fund may invest
include, but are not limited to, common stocks, preferred stocks
and convertible securities. The Fund generally will focus on
dividend-paying stocks. The Fund is designed for investors who
seek higher current income and less volatility than the typical
growth or capital appreciation equity fund.
CONSOLIDATED DISCLOSURE OF FUND FEES AND EXPENSES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).......................... None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds,
as applicable)............................................... None
Redemption Fees (as a percentage of redemption
proceeds, if applicable)(1).................................. None
Exchange Fee(2)................................................ None
Annual Fund Operating Expenses(3) (as a percentage of average net assets)
Management Fees (net of reimbursement)(4)...................... 0.42%(4)
12b-1 Fees..................................................... None
Other Expenses................................................. 0.48%(4)
Total Fund Operating Expenses (net of reimbursement)(4)........ 0.90%(4)
- -------------------------
(1) There is a fee of up to $12.00 for federal fund wire redemptions.
(2) There is a $5.00 fee for telephone exchanges only.
(3) Annual Fund Operating Expense percentages are based on
expenses incurred for the fiscal year ended March 31, 1997.
(4) Management Fees and Total Fund Operating Expenses reflect
the Adviser's reimbursement for expenses during the fiscal
year ended March 31, 1997. Absent reimbursement of
expenses, Management Fees and Total Fund Operating Expenses
would have been 0.70% and 1.18%, respectively.
From time to time, the Adviser may decide to absorb all or a
portion of the Fund's operating expenses, including the
investment advisory fee, in excess of a certain percentage of the
average net assets of the Fund on an annual basis. As a result,
the Fund's total return, yield and distribution rate will be
higher than if the fees and expenses had been paid by the Fund.
Commencing on February 12, 1996, the Adviser began to
absorb all Fund operating expenses, including the investment
advisory fee, in excess of 0.90% of the average net assets of the
Fund on an annual basis, until further notice. As a result, the
Fund's total return, yield and distribution rate will be higher
than if the fees and expenses had been paid by the Fund. From
time to time and in its sole discretion, the Adviser may: (i)
further reduce or waive its fee or reimburse the Fund for certain
of its expenses in order to reduce the Fund's expense ratio; or
(ii) decrease the amount of absorption of, or eliminate its
absorption of, the Fund's operating expenses in excess of 0.90%
of the average net assets of the Fund on an annual basis.
EXAMPLE
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
A shareholder would pay the
following expenses on a $1,000
investment, assuming: (1) 5%
annual return and (2) redemption
at the end of each period... $9 $29 $50 $111
This Example is based upon total operating
expenses of the Fund, net of reimbursement,
as shown in the expense table. This Example
should not be considered a representation of
past or future expenses. Actual expenses may
be greater or lesser than those shown.
The purpose of the table is to assist the prospective
investor in understanding the various costs and expenses that an
investor in the Fund will bear directly and indirectly. For a
description of "Management Fees" and "Other Expenses," see
"Investment Adviser."
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
The following Financial Highlights of the Fund for the three
fiscal years ended March 31, 1997 and for the period from
November 23, 1993 (date of initial public offering) through March
31, 1994, have been examined by Arthur Andersen LLP, independent
public accountants, whose report thereon is included in the
Fund's Annual Report for the fiscal year ended March 31, 1997.
The Financial Highlights should be read in conjunction with the
financial statements and related notes included in the Fund's
Annual Report which is incorporated herein by reference.
Year Ended March 31,
--------------------
1997 1996 1995 1994 (1)
---- ---- ---- ----
[S] [C] [C] [C] [C]
NET ASSET VALUE,
BEGINNING OF YEAR $12.35 $10.56 $10.04 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .48 .36 .30 .06
Net gains or (losses) on
securities (realized
and unrealized) .44 1.77 .50 (.01)
----- ----- ----- -----
Total from investment
operations .92 2.13 .80 .05
----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends (from net
investment income) (.45) (.34) (.28) (.01)
Distributions (from
capital gains) (.55) -- -- --
----- ----- ----- ----
Total distributions (1.00) (.34) (.28) (.01)
------ ------ ------ -----
NET ASSET VALUE, END OF
YEAR $12.27 $12.35 $10.56 $10.04
----- ------ ------ -----
----- ------ ------ -----
TOTAL RETURN 7.83% 20.61% 8.13% .53% (2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions) $20.8 $15.8 $11.8 $5.8
Ratio of expenses to
average net assets 0.90%(3) 1.38%(3) 1.73% 1.70%(4)
Ratio of net investment
income to average net
assets 4.12%(3) 3.26%(3) 3.32% 2.53%(4)
Portfolio turnover rate 23.05% 68.85% 10.98% 0%
Average commission rate
paid by the Fund on
portfolio investment
transactions (5) $0.0467 $0.0472 N/A N/A
(1) For the period from November 23, 1993 (date of initial public
offering) through March 31, 1994.
(2) Not annualized.
(3) Net of reimbursements by the Adviser. Absent reimbursement
of expenses, the ratio of expenses to average net assets
would have been 1.18% and 1.40% for the fiscal years ended
March 31, 1997 and March 31, 1996, respectively. Also, the
ratio of net investment income to average net assets would
have been 3.84% and 3.24% for the fiscal years ended March 31,
1997 and March 31, 1996, respectively.
(4) Annualized.
(5) 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.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The Fund's primary investment objective is to produce
reasonable income for the investor,. Moderate long-term growth
is a secondary goal. The Fund seeks an income yield that exceeds
the composite dividend yield on the securities included in the
S&P 500 Index. The term "reasonable income" refers to the
Adviser's judgment that reasonable income would be an income
yield greater than the composite dividend yield on the securities
included in the S&P 500 Index. As of March 31, 1997, the Fund's
income yield (i.e., the 30-day SEC yield) was 3.72%, the Fund's
cash distribution rate was 4.19%, and the composite dividend
yield on the securities included in the S&P 500 Index was
approximately 2.0%. The Fund's total return for the fiscal year
ended March 31, 1997 was 7.83%, while the total return for the
S&P 500 Index was 19.83% and the total return for the Lehman
Brothers Intermediate Corporate Bond Index was 5.00%. Commencing
on February 12, 1996, the Adviser began to absorb expenses in
excess of 0.90% of total net assets, until further notice. As a
result, the Fund's total return, yield and distribution rate
during the fiscal year ended March 31, 1997, was higher than if
the Fund paid for all expenses and fees. If the Fund had paid
for all expenses and fees, the Fund's total return, yield and
distribution rate would have been 7.55% (compared to the actual
7.83%), 3.44% (compared to the actual 3.72%), and 3.91% (compared
to the actual 4.19%), respectively.
As of March 31, 1997, the Fund was invested approximately
68% in common stocks, 25% in convertible bonds, 12% in non-
convertible bonds, 3% in a preferred convertible stock, and the
remainder in cash equivalents. Of the Fund's investments in
common stocks, approximately 82% were in income-producing equity
securities, while the remainder were in securities of companies
which the Adviser believes offer possibilities for increase in
value and/or have favorable long-term prospects. The equity
investments made by the Fund tend to have higher cash dividend
returns than the equity investments made by the growth mutual
funds for which the Adviser serves as investment adviser.
Management believes this strategy should reduce the overall
volatility of the Fund and more adequately protect the Fund's
capital as compared to the other growth mutual funds for which
the Adviser serves as investment adviser.
Set forth below is a comparison of the initial account value
and subsequent account value at the end of each of the completed
fiscal quarters and years of the Fund, assuming a $10,000
investment in the Fund at the beginning of the period, to the
same investment over the same periods in the S&P 500 Index and
the Lehman Brothers Intermediate Corporate Bond Index.
(The performance graph plot points are as follows:)
<TABLE>
<CAPTION>
Lehman
Nicholas Intermediate
Equity Income % S&P 500 % Corporate %
Value returns Value returns Value returns
----- ------- ----- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
11/30/93 10,000.00 10,000.00 10,000.00
12/31/93 9,993.00 -0.07% 10,120.75 1.21% 10,062.00 0.62%
03/31/94 10,052.96 0.60% 9,736.90 -3.79% 9,787.31 -2.73%
06/30/94 10,108.25 0.55% 9,777.89 0.42% 9,710.97 -0.78%
09/30/94 10,540.88 4.28% 10,255.95 4.89% 9,810.99 1.03%
12/31/94 10,407.01 -1.27% 10,254.34 -0.02% 9,794.31 -0.17%
03/31/95 10,870.13 4.45% 11,252.75 9.74% 10,316.35 5.33%
06/30/95 10,969.04 0.91% 12,326.98 9.55% 10,963.18 6.27%
09/30/95 11,773.07 7.33% 13,306.74 7.95% 11,187.93 2.05%
12/31/95 12,196.90 3.60% 14,108.55 6.03% 11,654.46 4.17%
03/31/96 13,109.23 7.48% 14,865.99 5.37% 11,492.47 -1.39%
06/30/96 13,204.93 0.73% 15,533.25 4.49% 11,547.63 0.48%
09/30/96 13,367.35 1.23% 16,013.52 3.09% 11,772.81 1.95%
12/31/96 14,134.64 5.74% 17,348.28 8.34% 12,116.58 2.92%
03/31/97 14,134.64 0.00% 17,813.42 2.68% 12,066.90 -0.41%
</TABLE>
The Fund's average annual total returns for the one year and
life periods ended on the last day of the most recent fiscal year
are as follows:
Time Period From Inception
One Year Ended (November 23, 1993)
March 31, 1997 to March 31, 1997
-------------- ---------------------------
Average Annual Total Return 7.83% 10.89%
Total returns are historical and include change in share
price and reinvestment of dividend and capital gain
distributions. Past performance is not predictive of future
performance. Principal value and return will fluctuate so an
investment, when redeemed, may be worth more or less than
original cost.
PERFORMANCE DATA
The Fund may from time to time include its "total return,"
"average annual total return," "yield" and "distribution rate" in
advertisements or in information furnished to present or
prospective shareholders. The "total return" of the Fund is
expressed as a ratio of the increase (or decrease) in value of a
hypothetical investment in the Fund at the end of a measuring
period to the amount initially invested. The "average annual
total return" is the total return discounted for the number of
represented time periods and is expressed as a percentage. The
rate represents the annual rate achieved on the initial
investment to arrive at the ending redeemable value. The ending
value assumes reinvestment of dividends and capital gains and the
reduction of account charges, if any. This computation does not
reflect any sales load or other nonrecurring charges, since the
Fund is not subject to such charges.
The "30-day SEC yield" of the Fund is calculated by
dividing the Fund's net investment income per share, as defined
by the Securities and Exchange Commission, for the 30-day period
by the net asset value per share on the last day of the stated
period. Net investment income represents dividends and interest
generated by the Fund's portfolio securities reduced by all
expenses and any other charges that have been applied to all
shareholder accounts. The calculation assumes the 30-day net
investment income is compounded monthly for six months and then
annualized. The Fund's distribution rate is calculated by
annualizing the most recent per share income distribution 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 shareholder. Methods used to calculate
advertised yields and total returns are standardized for all bond
and stock mutual funds by the Securities and Exchange Commission.
All performance measurements will vary from time to time
depending upon market conditions, the composition of the Fund's
portfolio, operating expenses, and the distribution policy as
determined by the Board of Directors. These factors should be
considered when evaluating the Fund's performance. For
additional information regarding the calculation of these
performance data, see the Statement of Additional Information.
In sales materials, reports and other communications to
shareholders, the Fund may compare its performance to certain
indices, including, but not limited to, the Standard & Poor's
500r Composite Stock Price Index, the National Association of
Securities Dealers Automated Quotation System, the Russell 2000
Index and the United States Department of Labor Consumer Price
Index. The Fund also may include evaluations of the Fund
published by nationally recognized financial publications and
ranking services, such as Forbes, Money, Financial World, Lipper
Analytical Services Mutual Fund Performance Analysis and
Morningstar Mutual Funds.
INVESTMENT OBJECTIVES AND POLICIES
The Fund has adopted primary investment objectives, which
are fundamental policies and may not be changed without
shareholder approval. The Fund also has adopted secondary
investment objectives and certain other policies which are not
fundamental and may be changed by the Board of Directors without
shareholder approval. However, any such change will be made only
upon advance notice to shareholders. Such changes may result in
the Fund having secondary investment and other policy objectives
different from the objectives which a shareholder considered
appropriate at the time of investment in the Fund.
The Fund's primary investment objective is to produce
reasonable income for the investor, and the Fund seeks an income
yield that exceeds the composite dividend yield on the securities
included in the S&P 500 Index. The term "reasonable income"
refers to the Adviser's judgment that reasonable income would be
an income yield greater than the composite dividend yield on the
securities included in the S&P 500 Index. The Fund's secondary
investment objective is moderate long-term growth. The term
"moderate long-term growth" refers to the Adviser's judgment that
moderate long-term growth would be approximately three-fourths of
the average total return achieved over a five-year period on the
S&P 500 Index. The Fund will not be managed as a balanced
portfolio and is not required to maintain a portion of its
investments in each of the Fund's permitted investments at all
times. The asset allocation mix for the Fund will be determined
by the Adviser at any given time in light of its assessment of
current economic conditions and investment opportunities. There
is no assurance the Fund will achieve its investment objectives,
nor is there any assurance the Fund will achieve reasonable
income or moderate long-term growth, as such terms are defined by
the Adviser.
During normal market conditions, the Fund generally will
have at least 65% of its total assets invested in income-
producing equity securities with expected dividend yields that
are higher than the yield of the S&P 500 Index. The equity
securities in which the Fund may invest include common stocks,
preferred stocks and convertible securities. Most of the equity
securities purchased by the Fund will have a dividend-paying
history or will pay a current dividend, while the remainder of
the equity securities will be securities of companies which offer
possibilities for increase in value and/or have favorable long-
term prospects. To the extent the Fund invests in small and
medium-sized companies, such companies often have a limited
market for their securities, limited financial resources and
usually are more affected by changes in the economy in general,
and the market price of their securities often fluctuates more
than securities of larger companies. However, such small and
medium-sized companies also may have the potential for more
rapid, and greater, long-term growth because of newer and more
innovative products. If the Fund holds a stock that pays
dividends at a rate which is below the yield of the S&P 500 Index
at the time of purchase, the Adviser will attempt to offset this
lower rate through other holdings that pay dividends or interest
at rates deemed to be sufficient so that the Fund's income yield
exceeds the yield of the S&P 500 Index. The Fund also may
invest in preferred stock and convertible securities, but only to
the extent that such securities also provide a current interest
or dividend payment stream at date of purchase. The Fund may
invest in preferred stock and convertible securities which are
not rated in one of the top four rating categories by any of the
nationally recognized statistical rating organizations ("NRSROs")
as defined in Section 270.2a-7 of the Code of Federal
Regulations, or are unrated instruments but deemed by the Adviser
to be comparable in quality to instruments so rated on the date
of purchase; provided, however, that the Fund shall not invest
more than 35% of its total assets (at the time of purchase) in
preferred stocks, convertible securities or debt securities which
are not rated in one of the top four rating categories by any of
the NRSROs, or are unrated securities but deemed by the Adviser
to be comparable in quality to securities so rated on the date of
purchase, and provided further that the Fund may invest only in
securities rated at least B (or its equivalent) by any NRSRO (or
unrated but comparable in quality) at the time of purchase. (See
the Statement of Additional Information for a description of the
ratings used by Standard & Poor's Corporation and Moody's
Investor Services, Inc.) A convertible security typically is a
fixed income security, such as a bond or preferred stock, which
may be converted at a stated price within a specified period of
time into a specified number of shares of common stock of the
same or different issuer. While providing a fixed income stream
(generally higher in yield than the income derivable from a
common stock but lower than that afforded by a non-convertible
debt security), a convertible security also affords an investor
the opportunity, through its conversion feature, to participate
in the capital appreciation of the common stock into which it is
convertible. In general, the market value of a convertible
security is the higher of its investment value (i.e., its value
as a fixed income security) or its conversion value (i.e., the
value of the underlying shares of common stock if the security is
converted). Convertible securities frequently have speculative
characteristics.
The remainder of the Fund's assets generally will be
invested in corporate and governmental fixed income securities.
The Fund may invest in debt securities, including notes, bonds
and debentures, which are not investment grade quality on the
date of purchase (as rated by any of the NRSROs) or are unrated
obligations but deemed by the Adviser to be comparable in quality
to instruments so rated on the date of purchase; provided,
however, that the Fund shall not invest more than 35% of its
total assets (at the time of purchase) in preferred stocks,
convertible securities or debt securities which are not rated in
one of the top four rating categories by any of the NRSROs, or
are unrated securities but deemed by the Adviser to be comparable
in quality to securities so rated on the date of purchase, and
provided further that the Fund may invest only in securities
rated at least B (or its equivalent) by any NRSRO (or unrated but
comparable in quality) at the time of purchase. "Investment
grade" refers to fixed income securities ranked in one of the top
four categories as rated by Standard & Poor's Corporation,
Moody's Investor Services, Inc., or any other NRSRO.
Obligations rated in the lowest of the top four rating categories
are considered to have speculative characteristics. (See the
Statement of Additional Information for a description of the
ratings used by Standard & Poor's Corporation and Moody's
Investor Services, Inc.) Governmental fixed income securities
include obligations supported by the full faith and credit of the
United States, such as U.S. Treasury obligations and the
obligations of certain instrumentalities and agencies, and
mortgage-backed and related securities issued or guaranteed by
the United States Government, its agencies or instrumentalities,
such as GNMA or FNMA certificates, or issued or guaranteed by
private issuers and guarantors equivalent to the quality
standards of corporate fixed income securities. The net asset
value of the fixed income securities held by the Fund will be
affected primarily by changes in interest rates, average
maturaties and the investment and credit quality of the fixed
income securities.
Non-investment grade securities tend to reflect individual
corporate developments to a greater extent, tend to be more
sensitive to economic conditions and tend to have a weaker
capacity to pay interest and repay principal than higher rated
securities. Because the market for lower rated securities may be
thinner and less active than for higher rated securities, there
may be market price volatility for these securities and limited
liquidity in the resale market. Factors adversely impacting the
market value of high yielding, high risk securities will
adversely impact the Fund's net asset value. The Fund also may
incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal or interest
on its portfolio holding. In addition to relying, in part, on
the ratings assigned to the debt securities, the Fund also will
rely on the Adviser's judgment, analysis and experience in
evaluating the creditworthiness of the issuer. In this
evaluation, the Adviser will consider, among other things, the
issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters. The achievement of
the Fund's investment objectives may be more dependent on the
Adviser's own credit analysis than is the case for higher rated
securities.
Since some issuers do not seek ratings for their securities,
unrated securities will be considered for investment by the Fund,
but only when the Adviser believes the financial condition of the
issuers of such securities and/or protection afforded by the
terms of the securities limit the risk to the Fund to a degree
comparable to that of rated securities in which the Fund may
invest. Although unrated securities are not necessarily of lower
quality than rated securities, the market for them may not be as
broad and thus they may carry greater market risk and higher
yield than rated securities. These factors may have the effect
of limiting the availability of securities for purchase by the
Fund and also may limit the ability of the Fund to sell such
securities at their fair market value either to meet redemption
requests or in response to changes in the economy or in the
financial markets.
An investment in the Fund may be considered more speculative
than an investment in shares of a fund which invests primarily in
higher rated securities. All investments will be made in
conformance with the Fund's primary investment objective which is
to seek to obtain moderate income and moderate long-term growth.
While the risk of investing in lower rated securities with
speculative characteristics is greater than the risk of investing
in higher rated securities, the Fund will attempt to minimize
this risk through diversification of its investments and by
analysis of each issuer and its ability to make timely payments
of income and principal. The Fund may invest only in securities
rated at least B (or its equivalent) by any NRSRO (or unrated but
comparable in quality) at the time of purchase; however,
subsequent to purchase, the ratings of the securities so
purchased may fall below B (or its equivalent) and the Fund will
not be precluded from retaining such a security whose credit
quality is so downgraded. As of March 31, 1997, 37.39% of the
Fund's total net assets were invested in rated and unrated
convertible and non-convertible corporate debt securities ("Debt
Securities"). As of March 31, 1997, as rated by Standard &
Poor's Corporation, of the Fund's total net assets, 7.72% were
invested in Debt Securities rated A, 2.92% rated BBB, 2.44%
rated BB, 19.67% rated B, none were rated CCC, CC, C or D, and
4.64% were unrated by Standard & Poor's or Moody's but believed
to be equivalent to a B or better rating.
The Fund reserves the flexibility to temporarily invest its
assets in short-term, investment grade fixed income securities as
a defensive measure when conditions, such as a decline in the
stock market, are deemed to warrant such action or for investment
of idle cash balances. These short-term instruments include
United States ("U.S.") Government obligations (including Treasury
Bills, Treasury Notes and Treasury Bonds), certificates of
deposit, bankers' acceptances, commercial paper (rated A-1 or A-2
by Standard & Poor's or Prime-1 or Prime-2 by Moody's, or the
equivalent by any other NRSRO, or unrated but deemed by the
Adviser to be comparable in quality to instruments so rated on
the date of purchase), short-term corporate debt issues and
repurchase agreements. The Fund also may invest in securities
which are issued in private placements pursuant to Section 4(2)
of the Securities Act of 1933, as amended (the "Act"). Such
securities are not registered for purchase and sale by the public
under the Act. The determination of the liquidity of these
securities is a question of fact for the Board of Directors to
determine, based upon the trading markets for the specific
security, the availability of reliable price information and
other relevant information. There may be a risk of little or no
market for resale associated with such private placement
securities if the Fund does not hold them to maturity. In
addition, to the extent that qualified institutional buyers do
not purchase restricted securities pursuant to Rule 144A, the
Fund's investing in such securities may have the effect of
increasing the level of illiquidity in the Fund's portfolio.
The Fund has reserved the right to invest in repurchase
agreements as a temporary defensive measure, but only up to 20%
of its total net assets at the time of purchase. Repurchase
agreements may be entered into only with a member bank of the
Federal Reserve System or a primary dealer in U.S. Government
securities. Under such agreements, the selling bank or primary
dealer agrees to repurchase such securities from the Fund at a
specified time and place. While the obligation is a U.S.
Government security, the obligation of the seller to repurchase
the security is not guaranteed by the U.S. Government, thereby
creating the risk that the seller may fail to repurchase the
security. In the event of a bankruptcy or default of certain
sellers of repurchase agreements, the Fund could experience costs
and delays in liquidating the underlying security, which is held
as collateral, and the Fund might incur a loss if the value of
the collateral held declines during this period.
The Fund also may invest in the securities of real estate
investment trusts and other real estate-based securities
(including securities of companies whose assets consist
substantially of real property and interests therein) listed on a
national securities exchange or authorized for quotation on the
National Association of Securities Dealers Automated Quotation
System. Although the Fund will not invest directly in real
estate, it may invest in real estate-based securities, and
therefore, an investment in the Fund may be subject to certain
risks associated with the direct ownership of real estate. Risks
associated with investment in the real estate industry include
declines in the value of real estate, risks related to general
and local economic conditions, increases in property taxes and
operating expenses, costs associated with environmental problems,
changes in zoning laws, variations in rental income and changes
in interest rates. The value of securities of companies which
service the real estate industry also may be affected by such
risks. Investing in real estate investment trusts involves
certain other risks in addition to those risks associated with
investing in the real estate investment industry in general.
Real estate investment trusts may be affected by changes in the
value of the underlying property owned and the quality of any
credit extended, and are subject to cash flow dependency, default
by borrowers and tax exemption disqualification.
The Fund's objective stresses reasonable income. Although
the Adviser will consider the possibility of some capital
appreciation in selecting investments for the Fund, an investor
should not expect the Fund to reach the growth potential of funds
which have growth or capital appreciation as their primary
objective.
Since the Fund generally will invest a significant portion
of its assets in equity securities, its per share price will
fluctuate more than funds which primarily invest in fixed income
securities. Furthermore, there are market risks inherent in any
investment and there can be no assurance the objectives of the
Fund will be realized, nor can there be any assurance against
possible loss in the value of the Fund's portfolio.
Generally, the Fund does not intend to purchase securities
for short-term trading; however, when circumstances warrant,
securities may be sold without regard to the length of time held.
Furthermore, the Fund does not intend to engage in investment
techniques such as leveraging, short-selling, options and futures
transactions or lending portfolio securities. The Fund may
invest generally up to 10% of its total assets in securities of
other investment companies. Investments in the securities of
other investment companies will involve duplication of advisory
fees and certain other expenses.
INVESTMENT RESTRICTIONS
The Fund has adopted 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. Limitations set forth below apply on the
date of investment by the Fund.
1. The Fund will not purchase securities on margin, participate
in a joint trading account, sell securities short, or act as
an underwriter or distributor of securities other than its own
capital stock. The Fund will not 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) investment in repurchase agreements in an amount not to exceed
20% of the total net assets of the Fund; provided, however, that
repurchase agreements maturing in more than seven days will not
constitute more than 10% of the value of the total net assets;
and
d) the purchase of a portion of bonds, debentures or other debt
securities of types commonly distributed in private placements
to financial institutions, such illiquid amount of which shall
not exceed 10% of the value of the total net assets of the Fund.
2. The Fund may not issue senior securities in violation of the
Investment Company Act of 1940, as amended (the "1940 Act").
The Fund may make borrowings but only for temporary or emergency
purposes and then only in amounts not in excess of 5% of the
lower of cost or market value of the Fund's total net assets, and
the Fund may make borrowings from banks, provided that
immediately after any such borrowing all borrowings of the Fund
do not exceed one-third of the Fund's net assets.
3. The Fund will not mortgage, pledge or hypothecate any of its
assets except to secure permitted borrowings and then only in an
amount up to 15% of the value of the Fund's total net assets
taken at cost at the time of such borrowings.
4. Investments will not be made for the purpose of exercising
control or management of any company. In addition, the Fund will
not purchase securities of any issuer if, as a result of such
purchase, the Fund would hold more than 10% of the voting
securities of such issuer.
5. The Fund may not 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 the value of the holdings of the Fund in
the securities of such issuer exceeds 5% of the value of the
Fund's total assets.
6. Not more than 25% of the value of the Fund's total net assets
will be concentrated in companies of any one industry or group of
related industries. This restriction does not apply to U.S.
Government securities, which are obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities.
7. The Fund may not purchase or sell real estate or interests
in real estate, commodities or commodity futures. The Fund may
invest in the securities of real estate investment trusts and
other real estate-based securities (including securities of
companies whose assets consist substantially of real property and
interests therein) listed on a national securities exchange or
authorized for quotation on the National Association of
Securities Dealers Automated Quotation System, but not more than
10% in value of the Fund's total assets will be invested in real
estate investment trusts nor will more than 25% in value of the
Fund's total assets be invested in the real estate industry in
the aggregate.
In addition to the foregoing restrictions, the Fund has
adopted other restrictions to comply with the securities laws of
various states, including prohibiting the making of short sales
of securities. These restrictions may be changed by the Board of
Directors of the Fund without shareholder approval.
INVESTMENT ADVISER
Under an investment advisory agreement dated November 23,
1993, Nicholas Company, Inc. (the "Adviser"), 700 North Water
Street, Suite 1010, Milwaukee, Wisconsin, furnishes the Fund with
continuous investment service and is responsible for overall
management of the Fund's business affairs subject to supervision
by the Fund's Board of Directors. Nicholas Company, Inc. is the
investment adviser to five other mutual funds, which like the
Fund are sold without a sales charge, and to approximately 25
institutions and individuals with substantial investment
portfolios. The other funds for which Nicholas Company, Inc.
acts as investment adviser are Nicholas Fund, Inc., Nicholas
Income Fund, Inc., Nicholas II, Inc., Nicholas Limited Edition,
Inc. and Nicholas Money Market Fund, Inc.
The annual fee paid to the Adviser is paid monthly and is
based on the average net asset value of the Fund, as determined
by valuations made at the close of each business day of the
month. The annual fee is seven-tenths of one percent (.70 of 1%)
of the average net asset value of the Fund, up to and including
$50,000,000, and six-tenths of one percent (.60 of 1%) of the
average net asset value in excess of $50,000,000. From time to
time, the Adviser may voluntarily waive all or a portion of its
management fee and/or absorb certain Fund expenses without
further notification of the commencement or termination of such
waiver or absorption. Any such waiver or absorption will
temporarily lower the Fund's overall expense ratio and increase
the Fund's overall return to investors.
Under the Investment Advisory Agreement, the Adviser
furnishes the Fund with office space, office facilities,
executive officers and executive expenses (such as health
insurance premiums for executive officers), any or all of which
are subject to reimbursement by the Fund at the Adviser's
request. The Adviser bears all sales and promotional expenses of
the Fund other than expenses incurred in complying with laws
regulating the issuance or sale of securities. The Fund pays all
of its operating expenses. Included as "operating expenses" 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 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
related to the aforementioned items.
The Adviser also has undertaken to reimburse the Fund to the
extent that the aggregate annual operating expenses, including
the investment advisory fee but excluding interest, taxes,
brokerage commissions, litigation and extraordinary expenses,
exceed the lowest (i.e., most restrictive) percentage of the
Fund's average net assets established by the laws of the states
in which the Fund's shares are registered for sale, as determined
by valuations made as of the close of each business day of the
year. The Adviser shall reimburse the Fund at the end of any
fiscal year in which the aggregate annual operating expenses
exceed such restrictive percentage.
Albert O. Nicholas, President, Portfolio Manager and a
Director of the Fund, also has been President and a Director of
the Adviser. Mr. Nicholas owns 91% of the outstanding voting
securities of the Adviser. He has been Portfolio Manager (or Co-
Portfolio Manager, in the case of Nicholas Fund, Inc. since
November 1996) for, and primarily responsible for the day-to-day
management of, the portfolios of the Fund, Nicholas Fund, Inc.
and Nicholas Income Fund, Inc. since the Nicholas Company, Inc.
has served as investment adviser for such funds. He also was
Portfolio Manager for Nicholas II, Inc. and Nicholas Limited
Edition, Inc. from the date of each such fund's inception until
March 1993. He is a Chartered Financial Analyst. As of June 30,
1997, Mr. Nicholas may be deemed to beneficially own 28.18% of
the issued and outstanding shares of Common Stock of the Fund,
and therefore may be deemed to "control" the Fund, as such term
is defined in the 1940 Act.
Mr. David O. Nicholas, Senior Vice President of the Fund and
Senior Vice President of the Adviser, assists in the management
of the Fund. He has been employed by the Adviser since December
1985, and is a Chartered Financial Analyst. 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, and has been Co-
Portfolio Manager of Nicholas Fund, Inc. since November 1996.
PURCHASE OF CAPITAL STOCK
Applications for the purchase of shares are made to
Nicholas Equity Income Fund, Inc., c/o Firstar Trust Company,
P.O. Box 2944, Milwaukee, Wisconsin 53201-2944. The Fund has
available an Automatic Investment Plan for shareholders. Anyone
interested should contact the Fund for additional information.
The price per share will be the net asset value next
computed after the time the application is received in proper
order and accepted by the Fund. The determination of the net
asset value for a particular day is applicable to all
applications for the purchase of shares received at or before the
close of trading on the New York Stock Exchange (the "Exchange")
on that day (usually 4:00 p.m., New York time). Accordingly,
purchase orders received on a day the Exchange is open for
trading, prior to the close of trading on that day, will be
valued as of the close of trading on that day. Applications for
purchase of shares received after the close of trading on the
Exchange will be based on the net asset value as determined as of
the close of trading on the next day the Exchange is open.
The Fund does not consider the U.S. Postal Service or other
independent delivery services to be its agents; therefore,
deposit in the mail or with such services, or receipt at Firstar
Trust Company's Post Office Box, does not constitute receipt by
Firstar Trust Company or the Fund. Correspondence intended for
overnight courier should not be sent to the Post Office Box
address. OVERNIGHT COURIER DELIVERY SHOULD BE SENT TO FIRSTAR
TRUST COMPANY, THIRD FLOOR, 615 EAST MICHIGAN STREET, MILWAUKEE,
WISCONSIN 53202.
All applications to purchase capital stock are subject to
acceptance or rejection by authorized officers of the Fund and
are not binding until accepted. Applications will not be
accepted unless they are accompanied by payment. Payment should
be made by check or money order drawn on a U.S. bank, savings and
loan or credit union. The custodian will charge a $20.00 fee
against a shareholder's account, in addition to any loss
sustained by the Fund, for any payment check returned to the
custodian for insufficient funds. It is the policy of the Fund
not to accept applications under circumstances or in amounts
considered disadvantageous to shareholders. Any account
(including custodial accounts) opened without a proper social
security number or taxpayer identification number may be
liquidated and distributed to the owner(s) of record on the first
business day following the 60th day of investment (net of the
back-up withholding tax amount).
The Board of Directors has established $2,000 as the minimum
initial purchase. The minimum for any subsequent purchases is
$100 except in the case of dividend reinvestment. 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 $2,000 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 30 days advance written
notice to the accounts below such minimum.
Purchase of shares will be made in full and fractional
shares computed to three decimal places. To purchase additional
shares of the Fund by federal wire transfer, please send to:
FIRSTAR BANK MILWAUKEE, N.A.
ABA #0750-00022
TRUST FUNDS, ACCOUNT #112-952-137
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
FOR FURTHER CREDIT TO NICHOLAS EQUITY INCOME FUND, INC.
[YOUR ACCOUNT NUMBER AND THE TITLE OF THE ACCOUNT]
Please call Firstar Trust Company (414-276-0535 or 800-544-6547)
with the appropriate account information prior to sending the
wire.
Shares of Common Stock of the Fund may be purchased or sold
through certain broker-dealers, financial institutions or other
service providers ("Processing Intermediaries"). When shares of
Common Stock of the Fund are purchased this way, the Processing
Intermediary, rather than its customer, may be the shareholder of
record. Processing Intermediaries may use procedures and impose
restrictions in addition to or different from those applicable to
shareholders who invest in the Fund directly. A Processing
Intermediary may be required to register as a broker or dealer
under certain state laws.
An investor intending to invest in the Fund through a
Processing Intermediary should read the program materials
provided by the Processing Intermediary in conjunction with this
Prospectus. Processing Intermediaries may charge fees or other
charges for the services they provide to their customers.
Investors who do not wish to receive the services of a Processing
Intermediary, or pay the fees that may be charged for such
services, may want to consider investing directly with the Fund.
Direct purchase or sale of shares of Common Stock of the Fund may
be made without a sales or redemption charge.
Certificates representing Fund shares purchased will not be
issued unless the shareholder specifically requests certificates
by signed written request to the Fund. Signature guarantees may
be required. Certificates are mailed to requesting shareholders
approximately two weeks after receipt of the request by the Fund.
In no instance will certificates be issued for fractional shares.
When certificates are not requested, the Fund's transfer agent,
Firstar Trust Company, will credit the shareholder's account with
the number of shares purchased. Written confirmations are issued
for all purchases and redemptions of Fund shares.
REDEMPTION OF CAPITAL STOCK
A shareholder may require the Fund at any time during normal
business hours to redeem his/her shares in whole or in part. If
in writing, redemption requests must be signed by each
shareholder in the exact manner as the Fund account is registered
and must state the amount of redemption. The shareholder account
number and tax identification number or social security number
also are necessary. When shares are represented by certificates,
redemption is accomplished by delivering to the Fund, c/o Firstar
Trust Company, P.O. Box 2944, Milwaukee, Wisconsin 53201-2944,
the certificate(s) for the full shares to be redeemed. The
certificate(s) must be properly endorsed or accompanied by
instrument of transfer, in either case, with signatures
guaranteed by an "eligible guarantor institution" as defined in
Section 240.17Ad-15 of the Code of Federal Regulations. An
"eligible guarantor institution" includes a bank, a savings and
loan association, a credit union or a member firm of a national
securities exchange. A notary public is not an acceptable
guarantor.
If certificates have not been issued, redemption can be
accomplished by delivering an original signed written request for
redemption addressed to Nicholas Equity Income Fund, Inc., c/o
Firstar Trust Company. Facsimile transmission of redemption
requests is not acceptable. If the account registration is
individual, joint tenants, sole proprietorship, custodial
(Uniform Transfer to Minors Act) or general partners, the written
request must be signed exactly as the account is registered.
Both owners must sign if the account is owned jointly. Written
confirmations are issued for all redemptions of Fund shares.
The Fund may require additional supporting documents for
written redemptions made by corporations, executors,
administrators, trustees and guardians. Specifically, if the
account is registered in the name of a corporation or
association, the written request must be accompanied by a
corporate resolution signed by the authorized person(s). A
redemption request for accounts registered in the name of a legal
trust must have a copy of the title and signature page of the
trust agreement on file or be accompanied by the trust agreement
and signed by the trustee(s). A copy of the trust document
certified within the last 60 days is required if the trustee's
name is not registered on the account.
Please write or call Firstar Trust Company (414-276-0535 or
800-544-6547), prior to submitting a written redemption request
if there is doubt as to what documents or instruments are
necessary in order to redeem shares. A written redemption
request will not become effective until all documents have been
received in proper form by Firstar Trust Company.
Shareholders who have an individual retirement account
("IRA"), a master retirement plan or other retirement plan must
indicate on their written redemption requests whether or not to
withhold federal income tax. Redemption requests lacking an
election not to have federal income tax withheld will be subject
to withholding. Please consult your current Disclosure Statement
for any applicable fees.
The Fund does not consider the U.S. Postal Service or other
independent delivery services to be its agents. Therefore,
deposit in the mail or with such services or receipt at Firstar
Trust Company's Post Office Box of redemption requests does not
constitute receipt by Firstar Trust Company or the Fund. DO NOT
MAIL LETTERS BY OVERNIGHT COURIER TO THE POST OFFICE BOX ADDRESS.
CORRESPONDENCE MAILED BY OVERNIGHT COURIER SHOULD BE SENT TO
FIRSTAR TRUST COMPANY, THIRD FLOOR, 615 EAST MICHIGAN STREET,
MILWAUKEE, WISCONSIN 53202.
Telephone redemption is automatically extended to all
accounts in the Fund unless this privilege is declined in
writing. This option does not apply to IRA accounts and master
retirement plans for which Firstar Trust Company acts as
custodian. Telephone redemptions can only be made by calling
Firstar Trust Company at 414-276-0535 or 800-544-6547. In an
effort to prevent unauthorized or fraudulent redemption requests
by telephone, the Fund and its transfer agent employ reasonable
procedures to confirm that such instructions are genuine. In
addition to the account registration, you will be required to
provide the account number and the social security number.
Telephone calls will be recorded. Telephone redemption requests
must be received prior to the closing of the New York Stock
Exchange (usually 4:00 p.m., New York time) to receive that day's
net asset value. There will be no exceptions due to market
activity. The maximum telephone redemption is $25,000 per
account/per business day. The maximum telephone redemption for
related accounts is $100,000 per business day. The minimum
telephone redemption is $1,000 except when redeeming an account
in full.
The Fund reserves the right to refuse a telephone redemption
if it is believed advisable to do so. Procedures for redeeming
Fund shares by telephone may be modified or terminated at any
time by the Fund or Firstar Trust Company. Neither the Fund nor
Firstar Trust Company will be liable for following instructions
communicated by telephone that it reasonably believes to be
genuine.
The shareholder may instruct Firstar Trust Company to mail
the proceeds to the address of record or to directly mail the
proceeds to a pre-authorized bank account. The proceeds also may
be wired to a pre-authorized account at a commercial bank in the
United States. Firstar Trust Company charges a wire redemption
fee of up to $12.00. Please contact the Fund for the appropriate
form if you are interested in setting your account up with wiring
instructions.
The redemption price is the net asset value next computed
after the time of receipt by Firstar Trust Company of the
certificate(s) or written request in the proper form set forth
above, or pursuant to proper telephone instructions. A
redemption generally is treated as a sale of the shares being
redeemed for federal income tax purposes. This means the
shareholder recognizes a capital gain or loss equal to the
difference between the redemption price and the shareholder's
cost for the shares being redeemed.
All redemptions will be processed immediately upon receipt.
The Fund will return redemption requests that contain
restrictions as to the time or date redemptions are to be
effected. The Fund ordinarily will make payment for redeemed
shares within seven days after receipt of a request in proper
form, except as provided by the rules of the Securities and
Exchange Commission. Redemption proceeds to be wired
ordinarily will be wired within seven days after receipt of the
request, and normally will be wired on the next business day
after a net asset value is determined. Firstar Trust Company
charges a wire redemption fee of up to $12.00. The Fund reserves
the right to hold payment up to 15 days or until satisfied that
investments made by check have been collected.
Due to the fixed expenses incurred by the Fund in
maintaining individual accounts, the Fund reserves the right to
redeem accounts that fall below $2,000 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 30 days advance written notice to the accounts below such
minimum.
Signature Guarantees. A signature guarantee of each owner
is required to redeem shares in the following situations, for all
size transactions: (i) if you change the ownership on your
account; (ii) upon redemption of shares when certificates have
been issued for your account; (iii) when you want the redemption
proceeds sent to a different address than is registered on the
account; (iv) for both certificated and uncertificated shares if
the proceeds are to be made payable to someone other than the
account owner(s); (v) any redemption transmitted by federal wire
transfer to your bank not previously set up with the Fund; or
(vi) if a change of address request has been received by the Fund
or Firstar Trust Company within 15 days of a redemption request.
In addition, signature guarantees are required for all
redemptions of $100,000 or more from any shareholder account in
the Nicholas Family of Funds. A redemption will not be processed
until the signature guarantee, if required, is received in proper
form. A notary public is not an acceptable guarantor.
EXCHANGE BETWEEN FUNDS
If a shareholder chooses to exercise the exchange privilege,
the shares will be exchanged at their next determined net asset
value. When an exchange into the Nicholas Money Market Fund,
Inc. would involve investment of the exchanged amount on a day
when the New York Stock Exchange is open for trading but the
Federal Reserve Banks are closed, shares of the Fund will be
redeemed on the day upon which the exchange request is received;
however, issuance of Nicholas Money Market Fund, Inc. shares may
be delayed an additional day in order to avoid the dilutive
effect on return (i.e., reduction in net investment income per
share) which would result from issuance of such shares on a day
when the exchanged amount cannot be invested. In such a case,
the exchanged amount would be uninvested for this one day period.
Shareholders interested in exercising the exchange privilege must
obtain the appropriate prospectus from Nicholas Company, Inc.
Such an exchange constitutes a sale for federal tax purposes and
a capital gain or loss generally will be recognized upon the
exchange. This depends upon whether the net asset value at the
time is more or less than the shareholder's cost. An exchange
between the funds involving master retirement (Keogh) or IRA
accounts generally will not constitute a taxable transaction for
federal tax purposes.
The exchange privilege may be terminated or modified only
upon 60 days advance notice to shareholders. Shareholders are
reminded, however, that Nicholas Limited Edition, Inc. is
restricted in size, and thus the exchange privilege into that
fund may be terminated or modified at a time when that maximum is
reached.
Shares of the Fund may be exchanged for shares of other
investment companies for which Nicholas Company, Inc. serves as
the investment adviser. Nicholas Company, Inc. is also the
investment adviser to Nicholas Fund, Inc., Nicholas II, Inc.,
Nicholas Income Fund, Inc., Nicholas Limited Edition, Inc. and
Nicholas Money Market Fund, Inc. Nicholas Fund, Inc. has an
investment objective of capital appreciation. Nicholas II, Inc.
and Nicholas Limited Edition, Inc. have long-term growth as their
investment objective. Nicholas Income Fund, Inc.'s investment
objective is to seek high current income consistent with the
preservation and conservation of capital value. Nicholas Money
Market Fund, Inc. has an investment objective of achieving as
high a level of current income as is consistent with preserving
capital and providing liquidity.
Exchange of shares can be accomplished in the following
ways:
EXCHANGE BY MAIL. An exchange of shares of the Fund for
shares of other available Nicholas mutual funds will be made
without cost to the investor through written request.
Shareholders interested in exercising the exchange by mail
privilege may obtain the appropriate prospectus from Nicholas
Company, Inc. Signatures required are the same as previously
explained under "Redemption of Capital Stock."
EXCHANGE BY TELEPHONE. Shareholders may exchange by
telephone among all funds for which the Nicholas Company, Inc.
serves as investment adviser. Only exchanges of $l,000 or more
may be executed using the telephone exchange privilege. Firstar
Trust Company charges a $5.00 fee for each telephone exchange.
In an effort to avoid the risks often associated with large
market timers, the maximum telephone exchange per account per day
is set at $100,000, with a maximum of $l,000,000 per day for
related accounts. Four telephone exchanges per account during
any twelve month period will be allowed.
Procedures for exchanging Fund shares by telephone may be
modified or terminated at any time by the Fund or Firstar Trust
Company. Neither the Fund nor Firstar Trust Company will be
responsible for the authenticity of exchange instructions
received by telephone.
Telephone exchanges can only be made by calling Firstar
Trust Company at 414-276-0535 or 800-544-6547. You will be
required to provide pertinent information regarding your account.
Calls will be recorded.
TRANSFER OF CAPITAL STOCK
Shares of the Fund may be transferred in instances such as
the death of a shareholder, change of account registration,
change of account ownership and in cases where shares of the Fund
are transferred as a gift. Documents and instructions to
transfer capital stock can be obtained by writing or calling
Firstar Trust Company (414-276-0535 or 800-544-6547) or Nicholas
Company, Inc. (414-272-6133 or 800-227-5987) prior to submitting
any transfer requests.
DETERMINATION OF NET ASSET VALUE
The net asset value per share will be computed by the
Adviser as of the close of trading on the New York Stock Exchange
on each day the Exchange is open for unrestricted trading. The
net asset value per share is determined by dividing the total
current market value of the assets of the Fund, less its
liabilities, by the total number of shares outstanding at the
time of determination. A portfolio security which is traded on a
national securities exchange is valued at the price of the last
sale on such exchange. If no sale has occurred on the date as of
which assets are valued, or if the security is traded only in the
over-the-counter market, it normally will be valued at the latest
bid price, unless the Board of Directors, in good faith,
determines that some other price reflects more closely the true
market value.
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 sales price if the Fund's
pricing service believes that such price represents market value
of the security for institutional trades. The pricing of all
debt securities takes into account the fact that the Fund trades
in institutional size trading units. Securities for which
current quotations are not readily available and other assets of
the Fund are valued at fair value as determined in good faith by
the Fund's Board of Directors.
DIVIDENDS AND FEDERAL TAX STATUS
Dividends of the Fund, if any, are paid to shareholders in
April, July, October and December. In those years in which sales
of portfolio securities result in net realized capital gains
(after utilization of any available capital loss carryforwards),
such gains are distributed to shareholders in December or
January. It is the practice of the Fund to distribute capital
gains in shares of the Fund at net asset value or, at each
shareholder's election, in cash.
The Fund intends to continue to qualify annually as a
"regulated investment company" under the Internal Revenue Code of
1986 and intends to take all other action required to ensure that
little or no federal income or excise taxes will be payable by
the Fund.
Distributions by the Fund, whether received in cash or
invested in additional shares of the Fund, will be taxable to the
Fund's shareholders, except those shareholders that are not
subject to tax on their income. Long-term capital gain
distributed by the Fund will retain the character that it had at
the Fund level. Income distributed from the Fund's net
investment income and net realized short-term capital gains are
taxable to shareholders as ordinary income. The Fund will
provide information to shareholders concerning the character and
federal tax treatment of any distribution.
At the time of purchase of shares, the Fund may have
undistributed income or capital gains included in the computation
of the net asset value per share. Therefore, a dividend or
capital 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 net asset value per share.
Under federal law, some shareholders may be subject to a 31%
back-up withholding on reportable dividends, capital gain
distributions (if any) and redemption payments. Generally under
federal law, 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. An
investor must certify under penalties of perjury that the
taxpayer identification number supplied to the Fund is correct
and that he or she is not subject to backup withholding when
establishing an account.
The foregoing tax discussion relates solely to federal
income taxes only and is not intended to be a complete discussion
of all federal tax consequences. Shareholders should consult
with a tax adviser concerning the federal, state and local tax
aspects of an investment in the Fund.
DIVIDEND REINVESTMENT PLAN
Unless a shareholder elects to accept cash in lieu of
shares, all dividend and capital gain distributions are
automatically reinvested in additional shares of the Fund through
the Dividend Reinvestment Plan. An election to accept cash may
be made on an application to purchase shares or by separate
written notification or by telephone. All reinvestments are at
the net asset value per share in effect on the dividend or
distribution date and are credited to the shareholder's account.
Shareholders will be advised of the number of shares purchased
and the price following each reinvestment.
Shareholders may withdraw from or thereafter elect to
participate in the Dividend Reinvestment Plan at any time by
giving written or telephonic notice to the Transfer Agent. An
election must be received by the Transfer Agent prior to the
dividend record date of any particular distribution for the
election to be effective for that distribution. If an election
to withdraw from or participate in the Dividend Reinvestment Plan
is received between a dividend record date and payment date, it
shall become effective on the day following the payment date.
The Fund may modify or terminate the Dividend Reinvestment Plan
at any time on 30 days written notice to participants.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who have purchased or currently own Fund shares
worth $10,000 or more at the current market value may open a
Systematic Withdrawal Plan and receive monthly, quarterly, semi-
annual or annual checks for any designated amount. Firstar Trust
Company reinvests all income and capital gain dividends in shares
of the Fund. Shareholders may add shares to, withdraw shares
from, or terminate the Plan, at any time. Each withdrawal may be
a taxable event to the shareholder. Liquidation of shares in
excess of distributions may deplete or possibly use up the
initial investment, particularly in the event of a market
decline, and withdrawals cannot be considered a yield or income
on the investment. In addition to termination of the Plan by the
Fund or shareholders, the Plan may be terminated by Firstar Trust
Company upon written notice mailed to the shareholders. Please
contact the Nicholas Company for copies of the Plan documents.
INDIVIDUAL RETIREMENT ACCOUNT
Individuals may be able to establish their own tax sheltered
individual retirement accounts ("IRA"). The Fund offers a
prototype IRA Plan for adoption by individuals who qualify for
spousal, deductible and non-deductible IRA accounts.
As long as the aggregate IRA contributions meet the Fund's
minimum investment requirement of $2,000, the Fund will accept
any allocation of such contribution between spousal, deductible
and non-deductible accounts. The acceptability of this
calculation is the sole responsibility of the shareholder. For
this reason, it is advisable for taxpayers to consult with their
personal tax adviser to determine the deductibility of their IRA
contributions.
The applicable forms and a description of the applicable
service fees 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 because changes
occur from time to time in existing IRA regulations.
Because a retirement program involves commitments covering
future years, it is important that the investment objectives of
the Fund are consistent with your own retirement objectives.
Premature withdrawals from an IRA may result in adverse tax
consequences. See "Redemption of Capital Stock." Consultation
with a tax adviser regarding tax consequences is recommended.
MASTER RETIREMENT PLAN
The Fund has available a master retirement plan (formerly
called a "Keogh" Plan) for self-employed individuals. Any person
seeking additional information or wishing to participate in the
plan may contact the Fund. Consultation with a tax adviser
regarding the tax consequences of the plan is recommended.
CAPITAL STRUCTURE
The Fund is authorized to issue five hundred million
(500,000,000) shares of common stock, $.0001 par value per share.
Each full share has one vote and all shares participate equally
in dividends and other distributions by the Fund and in the
residual assets of the Fund in the event of liquidation. The
shares are fully paid and non-assessable when issued. There are
no conversion or sinking fund provisions applicable to shares,
and shareholders have no preemptive rights and may not cumulate
their votes in the election of directors. Shares are redeemable
and are transferable. Fractional shares entitle the shareholder
to the same rights as whole shares.
ANNUAL MEETING
Under the laws of the state of Maryland, registered
investment companies, such as the Fund, may operate without an
annual meeting of shareholders under specified circumstances if
an annual meeting is not required by the 1940 Act. The Fund has
adopted the appropriate provisions in its Articles of
Incorporation 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 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 with a report or a current
prospectus showing the Fund's portfolio and other information at
least semiannually. After the close of the Fund's fiscal year,
which ends March 31, an annual report or current prospectus
containing financial statements audited by the Fund's independent
public accountants will be sent to shareholders. Inquiries
concerning the Fund may be made by telephone at 414-272-6133 or
800-227-5987, or by writing to Nicholas Equity Income Fund, Inc.,
700 North Water Street, Suite 1010, Milwaukee, Wisconsin 53202.
CUSTODIAN AND TRANSFER AGENT
Firstar Trust Company, 615 East Michigan Avenue, Milwaukee,
Wisconsin 53202 acts as Custodian and Transfer Agent for the
Fund.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, are the independent accountants for the Fund.
Michael Best & Friedrich, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, has passed on the legality of the shares of
Common Stock of the Fund being offered.
PROSPECTUS
NICHOLAS EQUITY INCOME FUND, INC.
Investment Adviser
NICHOLAS COMPANY, INC.
Milwaukee
414-272-6133 or 800-227-5987
Custodian and Transfer Agent
FIRSTAR TRUST COMPANY
Milwaukee
414-276-0535 or 800-544-6547
Independent Public Accountants
ARTHUR ANDERSEN LLP
Milwaukee
Counsel
MICHAEL BEST & FRIEDRICH
Milwaukee
NICHOLAS EQUITY INCOME FUND, INC.
700 North Water Street
Milwaukee, Wisconsin 53202
July 30, 1997
Nicholas Equity Income Fund, Inc.
Form N-1A
PART B: STATEMENT OF ADDITIONAL INFORMATION
NICHOLAS EQUITY INCOME FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
700 North Water Street, Suite 1010
Milwaukee, Wisconsin 53202
414-272-6133 or 800-227-5987
This Statement of Additional Information, which is not a
prospectus, supplements and should be read in conjunction with
the current Prospectus of Nicholas Equity Income Fund, Inc. (the
"Fund"), dated July 30, 1997. To obtain a copy of the Fund's
Prospectus and Annual Report, please write or call the Fund at
the address and telephone number set forth above.
NO LOAD FUND - NO SALES CHARGE
Investment Adviser:
NICHOLAS COMPANY, INC.
July 30, 1997
TABLE OF CONTENTS
Page
INTRODUCTION............................................ 1
INVESTMENT OBJECTIVES AND POLICIES...................... 1
INVESTMENT RESTRICTIONS................................. 5
DESCRIPTION OF RATINGS.................................. 8
INVESTMENT ADVISER...................................... 12
MANAGEMENT - DIRECTORS, EXECUTIVE OFFICERS
AND PORTFOLIO MANAGERS OF THE FUND..................... 13
PRINCIPAL SHAREHOLDERS.................................. 16
PURCHASE OF CAPITAL STOCK............................... 16
REDEMPTION OF CAPITAL STOCK............................. 18
EXCHANGE BETWEEN FUNDS.................................. 19
TRANSFER OF CAPITAL STOCK............................... 20
DETERMINATION OF NET ASSET VALUE........................ 20
DIVIDENDS AND FEDERAL TAX STATUS........................ 21
DIVIDEND REINVESTMENT PLAN.............................. 21
SYSTEMATIC WITHDRAWAL PLAN.............................. 22
INDIVIDUAL RETIREMENT ACCOUNT........................... 22
MASTER RETIREMENT PLAN.................................. 22
BROKERAGE............................................... 22
PERFORMANCE DATA........................................ 24
CAPITAL STRUCTURE....................................... 25
STOCK CERTIFICATES...................................... 25
ANNUAL MEETING.......................................... 25
SHAREHOLDER REPORTS..................................... 26
CUSTODIAN AND TRANSFER AGENT............................ 26
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL............... 26
FINANCIAL INFORMATION................................... 26
INTRODUCTION
Nicholas Equity Income Fund, Inc. (the "Fund") was
incorporated under the laws of Maryland on September 1, 1993.
The Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as
amended. As an open-end investment company, it obtains its
assets by continuously selling shares of its common stock, $.0001
par value per share, to the public. Proceeds from such sales are
invested in securities of other companies by the Fund. The
resources of many investors are combined and each individual
investor has an interest in every one of the securities owned by
the Fund. The Fund provides each individual investor with
diversification by investing in the securities of many different
companies in a variety of industries. The Fund also furnishes
experienced management to select and watch over its investments.
As an open-end investment company, the Fund will redeem any of
its outstanding shares on demand of the owner at the net asset
value next determined following receipt of the redemption
request. The investment adviser to the Fund is Nicholas Company,
Inc. (the "Adviser").
The Fund's primary objective is to produce reasonable income
for the investor. Moderate long-term growth is a secondary goal.
The Fund seeks an income yield that exceeds the composite
dividend yield on the securities included in the Standard &
Poor's 500r Composite Stock Price Index ("S&P 500 Index"). The
Fund generally will have at least 65% of its total assets
invested in income-producing equity securities to achieve these
objectives. The equity securities in which the Fund may invest
include, but are not limited to, common stocks, preferred
stocks, or convertible securities. The Fund generally will
focus on dividend-paying stocks. The Fund is designed for
investors who seek higher current income and less volatility
than the typical growth or capital appreciation equity fund.
INVESTMENT OBJECTIVES AND POLICIES
The Fund has adopted primary investment objectives, which are
fundamental policies and may not be changed without shareholder
approval. The Fund also has adopted secondary investment
objectives and certain other policies which are not fundamental
and may be changed by the Board of Directors without shareholder
approval. However, any such change will be made only upon
advance notice to shareholders. Such changes may result in the
Fund having secondary investment and other policy objectives
different from the objectives which a shareholder considered
appropriate at the time of investment in the Fund.
The Fund's primary investment objective is to produce
reasonable income for the investor, and the Fund seeks an income
yield that exceeds the composite dividend yield on the securities
included in the S&P 500 Index. The term "reasonable income"
refers to the Adviser's judgment that reasonable income would be
an income yield greater than the composite dividend yield on the
securities included in the S&P 500 Index. The Fund's secondary
investment objective is moderate long-term growth. The term
"moderate long-term growth" refers to the Adviser's judgment that
moderate long-term growth would be approximately three-fourths of
the average total return achieved over a five-year period on the
S&P 500 Index. The Fund will not be managed as a balanced
portfolio and is not required to maintain a portion of its
investments in each of the Fund's permitted investments at all
times. The asset allocation mix for the Fund will be determined
by the Adviser at any given time in light of its assessment of
current economic conditions and investment opportunities. There
is no assurance the Fund will achieve its investment objectives,
nor is there any assurance the Fund will achieve reasonable
income or moderate long-term growth, as such terms are defined by
the Adviser.
During normal market conditions, the Fund generally will have
at least 65% of its total assets invested in income-producing
equity securities with expected dividend yields that are higher
than the yield of the S&P 500 Index. The equity securities in
which the Fund may invest include common stocks, preferred stocks
and convertible securities. Most of the equity securities
purchased by the Fund will have a dividend-paying history or will
pay a current dividend, while the remainder of the equity
securities will be securities of companies which offer
possibilities for increase in value and/or have favorable long-
term prospects. To the extent the Fund invests in small and
medium-sized companies, such companies often have a limited
market for their securities, limited financial resources and
usually are more affected by changes in the economy in general,
and the market price of their securities often fluctuates more
than securities of larger companies. However, such small and
medium-sized companies also may have the potential for more
rapid, and greater, long-term growth because of newer and more
innovative products. If the Fund holds a stock that pays
dividends at a rate which is below the yield of the S&P 500 Index
at the time of purchase, the Adviser will attempt to offset this
lower rate through other holdings that pay dividends or interest
at rates deemed to be sufficient so that the Fund's income yield
exceeds the yield of the S&P 500 Index. The Fund also may
invest in preferred stock and convertible securities, but only to
the extent that such securities also provide a current interest
or dividend payment stream at date of purchase. The Fund may
invest in preferred stock and convertible securities which are
not rated in one of the top four rating categories by any of the
nationally recognized statistical rating organizations ("NRSROs")
as defined in Section 270.2a-7 of the Code of Federal
Regulations, or are unrated instruments but deemed by the Adviser
to be comparable in quality to instruments so rated on the date
of purchase; provided, however, that the Fund shall not invest
more than 35% of its total assets (at the time of purchase) in
preferred stocks, convertible securities or debt securities which
are not rated in one of the top four rating categories by any of
the NRSROs, or are unrated securities but deemed by the Adviser
to be comparable in quality to securities so rated on the date of
purchase, and provided further that the Fund may invest only in
securities rated at least B (or its equivalent) by any NRSRO (or
unrated but comparable in quality) at the time of purchase. A
convertible security typically is a fixed income security, such
as a bond or preferred stock, which may be converted at a stated
price within a specified period of time into a specified number
of shares of common stock of the same or different issuer. While
providing a fixed income stream (generally higher in yield than
the income derivable from a common stock but lower than that
afforded by a non-convertible debt security), a convertible
security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation of
the common stock into which it is convertible. In general, the
market value of a convertible security is the higher of its
investment value (i.e., its value as a fixed income security) or
its conversion value (i.e., the value of the underlying shares of
common stock if the security is converted). Convertible
securities frequently have speculative characteristics.
The remainder of the Fund's assets generally will be invested
in corporate and governmental fixed income securities. The Fund
may invest in debt securities, including notes, bonds and
debentures, which are not investment grade quality on the date of
purchase (as rated by any of the NRSROs) or are unrated
obligations but deemed by the Adviser to be comparable in quality
to instruments so rated on the date of purchase; provided,
however, that the Fund shall not invest more than 35% of its
total assets (at the time of purchase) in preferred stocks,
convertible securities or debt securities which are not rated in
one of the top four rating categories by any of the NRSROs, or
are unrated securities but deemed by the Adviser to be comparable
in quality to securities so rated on the date of purchase, and
provided further that the Fund may invest only in securities
rated at least B (or its equivalent) by any NRSRO (or unrated but
comparable in quality) at the time of purchase. "Investment
grade" refers to fixed income securities ranked in one of the top
four categories as rated by Standard & Poor's Corporation,
Moody's Investor Services, Inc., or any other NRSRO.
Obligations rated in the lowest of the top four rating categories
are considered to have speculative characteristics. Governmental
fixed income securities include obligations supported by the full
faith and credit of the United States, such as U.S. Treasury
obligations and the obligations of certain instrumentalities and
agencies, and mortgage-backed and related securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities, such as GNMA or FNMA certificates, or issued
or guaranteed by private issuers and guarantors equivalent to the
quality standards of corporate fixed income securities. The
average maturity of the Fund's fixed income securities will vary
with economic conditions. The net asset value of the fixed
income securities held by the Fund will be affected primarily by
changes in interest rates, average maturities and the investment
and credit quality of the fixed income securities.
Non-investment grade securities tend to reflect individual
corporate developments to a greater extent, tend to be more
sensitive to economic conditions and tend to have a weaker
capacity to pay interest and repay principal than higher rated
securities. Because the market for lower rated securities may be
thinner and less active than for higher rated securities, there
may be market price volatility for these securities and limited
liquidity in the resale market. Factors adversely impacting the
market value of high yielding, high risk securities may
adversely impact the Fund's net asset value. The Fund also may
incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal or interest
on its portfolio holding. In addition to relying, in part, on
the ratings assigned to the debt securities, the Fund also will
rely on the Adviser's judgment, analysis and experience in
evaluating the creditworthiness of the issuer. In this
evaluation, the Adviser will consider, among other things, the
issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters. The achievement of
the Fund's investment objectives may be more dependent on the
Adviser's own credit analysis than is the case for higher quality
securities.
Since some issuers do not seek ratings for their securities,
unrated securities will be considered for investment by the Fund,
but only when the Adviser believes the financial condition of the
issuers of such securities and/or protection afforded by the
terms of the securities limit the risk to the Fund to a degree
comparable to that of rated securities in which the Fund may
invest. Although unrated securities are not necessarily of lower
quality than rated securities, the market for them may not be as
broad and thus they may carry greater market risk and higher
yield than rated securities. These factors may have the effect
of limiting the availability of securities for purchase by the
Fund and also may limit the ability of the Fund to sell such
securities at their fair market value either to meet redemption
requests or in response to changes in the economy or in the
financial markets.
An investment in the Fund may be considered more speculative
than an investment in shares of a fund which invests primarily in
higher rated securities. All investments will be made in
conformance with the Fund's primary investment objective which is
to seek to obtain reasonable income and moderate long-term
growth. While the risk of investing in lower rated securities
with speculative characteristics is greater than the risk of
investing in higher rated securities, the Fund will attempt to
minimize this risk through diversification of its investments
and by analysis of each issuer and its ability to make timely
payments of income and principal. The Fund may invest only in
securities rated at least B (or its equivalent) by any NRSRO (or
unrated but comparable in quality) at the time of purchase;
however, subsequent to purchase, the ratings of the securities
so purchased may fall below B (or its equivalent) and the Fund
will not be precluded from retaining such a security whose credit
quality is so downgraded. As of March 31, 1997, 37.39% of the
Fund's total net assets were invested in rated and unrated
convertible and non-convertible corporate debt securities ("Debt
Securities"). As of March 31, 1997, as rated by Standard & Poor's
Corporation, of the Fund's total net assets, 7.72% were
invested in Debt Securities rated A, 2.92% rated BBB, 2.44%
rated BB, 19.67% rated B, none were rated CCC, CC, C or D, and
4.64% were unrated by Standard & Poor's or Moody's but believed
to be equivalent to a B or better rating.
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 reserves the flexibility to temporarily invest its
assets in short-term, investment grade fixed income securities as
a defensive measure when conditions, such as a decline in the
stock market, are deemed to warrant such action or for investment
of idle cash balances. These short-term instruments include
United States ("U.S.") Government obligations (including Treasury
Bills, Treasury Notes and Treasury Bonds), certificates of
deposit, bankers' acceptances, commercial paper (rated A-1 or A-2
by Standard & Poor's or Prime-1 or Prime-2 by Moody's, or the
equivalent by any other NRSRO, or unrated but deemed by the
Adviser to be of comparable quality to instruments so rated on
the date of purchase), short-term corporate debt issues and
repurchase agreements. The Fund also may invest in securities
which are issued in private placements pursuant to Section 4(2)
of the Securities Act of 1933, as amended (the "Act"). Such
securities are not registered for purchase and sale by the public
under the Act. The determination of the liquidity of these
securities is a question of fact for the Board of Directors to
determine, based upon the trading markets for the specific
security, the availability of reliable price information and
other relevant information. There may be a risk of little or no
market for resale associated with such private placement
securities if the Fund does not hold them to maturity. In
addition, to the extent that qualified institutional buyers do
not purchase restricted securities pursuant to Rule 144A, the
Fund's investing in such securities may have the effect of
increasing the level of illiquidity in the Fund's portfolio.
The Fund has reserved the right to invest in repurchase
agreements as a temporary defensive measure, but only up to 20%
of its total net assets at the time of purchase. Repurchase
agreements may be entered into only with a member bank of the
Federal Reserve System or a primary dealer in U.S. Government
securities. Under such agreements, the selling bank or primary
dealer agrees to repurchase such securities from the Fund at a
specified time and place. While the obligation is a U.S.
Government security, the obligation of the seller to repurchase
the security is not guaranteed by the U.S. Government, thereby
creating the risk that the seller may fail to repurchase the
security. In the event of a bankruptcy or default of certain
sellers of repurchase agreements, the Fund could experience costs
and delays in liquidating the underlying security, which is held
as collateral, and the Fund might incur a loss if the value of
the collateral held declines during this period.
The Fund also may invest in the securities of real estate
investment trusts and other real estate-based securities
(including securities of companies whose assets consist
substantially of real property and interests therein) listed on a
national securities exchange or authorized for quotation on the
National Association of Securities Dealers Automated Quotation
System. Although the Fund will not invest directly in real
estate, it may invest in real estate-based securities, and
therefore, an investment in the Fund may be subject to certain
risks accounted with the direct ownership of real estate. Risks
associated with investment in the real estate industry include
declines in the value of real estate, risks related to general
and local economic conditions, increases in property taxes and
operating expenses, costs associated with environmental problems,
changes in zoning laws, variations in rental income and changes
in interest rates. The value of securities of companies which
service the real estate industry also may be affected by such
risks. Investing in real estate investment trusts involves
certain other risks in addition to those risks associated with
investing in the real estate investment industry in general.
Real estate investment trusts may be affected by changes in the
value of the underlying property owned and the quality of any
credit extended, and are subject to cash flow dependency, default
by borrowers and tax exemption disqualification.
The Fund's objective stresses reasonable income. Although
the Adviser will consider the possibility of some capital
appreciation in selecting investments for the Fund, an investor
should not expect the Fund to reach the growth potential of funds
which have growth or capital appreciation as their primary
objective.
Since the Fund generally will invest a significant portion of
its assets in equity securities, its per share price will
fluctuate more than funds which primarily invest in fixed income
securities. Furthermore, there are market risks inherent in any
investment and there can be no assurance the objectives of the
Fund will be realized, nor can there be any assurance against
possible loss in the value of the Fund's portfolio.
Generally, the Fund does not intend to purchase securities
for short-term trading; however, when circumstances warrant,
securities may be sold without regard to the length of time held.
Furthermore, the Fund does not intend to engage in investment
techniques such as leveraging, short-selling, options and futures
transactions or lending portfolio securities. The Fund may
invest generally up to 10% of its total assets in securities of
other investment companies. Investments in the securities of
other investment companies will involve duplication of advisory
fees and certain other expenses.
INVESTMENT RESTRICTIONS
The Fund has adopted 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 (all percentage limitations apply on the
date of investment by the Fund):
1. The Fund will not purchase securities on margin, participate
in a joint trading account, sell securities short, or act as
an underwriter or distributor of securities other than its own
capital stock. The Fund will not 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) investment in repurchase agreements in an amount not to exceed
20% of the total net assets of the Fund; provided, however, that
repurchase agreements maturing in more than seven days will not
constitute more than 10% of the value of the total net assets;
and
d) the purchase of a portion of bonds, debentures or other debt
securities of types commonly distributed in private placements
to financial institutions, such illiquid amount of which shall
not exceed 10% of the value of the total net assets of the Fund.
2. The Fund may not issue senior securities in violation of the
Investment Company Act of 1940, as amended (the "1940 Act").
The Fund may make borrowings but only for temporary or emergency
purposes and then only in amounts not in excess of 5% of the
lower of cost or market value of the Fund's total net assets, and
the Fund may make borrowings from banks, provided that
immediately after any such borrowing all borrowings of the Fund
do not exceed one-third of the Fund's net assets. The exceptions
to this restriction are not for investment leverage purposes but
are solely for extraordinary or emergency purposes and to
facilitate management of the Fund's portfolio by enabling the
Fund to meet redemption requests when the liquidation of
portfolio instruments is deemed to be disadvantageous or not
possible. While the Fund has borrowings in excess of 5% of the
value of the Fund's total assets outstanding, it will not make
any purchases of portfolio instruments. If due to market
fluctuations or other reasons, the net assets of the Fund fall
below 300% of its borrowings, the Fund will promptly reduce its
borrowings in accordance with the 1940 Act. To do this, the Fund
may have to sell a portion of its investments at a time when it
may be disadvantageous to do so.
3. The Fund will not mortgage, pledge or hypothecate any of its
assets except to secure permitted borrowings and then only in an
amount up to 15% of the value of the Fund's total net assets
taken at cost at the time of such borrowings.
4. Investments will not be made for the purpose of exercising
control or management of any company. In addition, the Fund will
not purchase securities of any issuer if, as a result of such
purchase, the Fund would hold more than 10% of the voting
securities of such issuer.
5. The Fund may not 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 the value of the holdings of the Fund in
the securities of such issuer exceeds 5% of the value of the
Fund's total assets.
6. Not more than 25% of the value of the Fund's total net assets
will be concentrated in companies of any one industry or group of
related industries. This restriction does not apply to U.S.
Government securities, which are obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities.
7. The Fund may not purchase or sell real estate or interests
in real estate, commodities or commodity futures. The Fund may
invest in the securities of real estate investment trusts and
other real estate-based securities (including securities of
companies whose assets consist substantially of real property and
interests therein) listed on a national securities exchange or
authorized for quotation on the National Association of
Securities Dealers Automated Quotation System, but not more than
10% in value of the Fund's total assets will be invested in real
estate investment trusts nor will more than 25% in value of the
Fund's total assets be invested in the real estate industry in
the aggregate.
In addition to the foregoing restrictions, the Fund has
adopted the following restrictions which may be changed by the
Board of Directors of the Fund without shareholder approval, in
order to comply with the securities laws of various states. Any
such change would be made only upon advance notice to
shareholders in the form of an amended Statement of Additional
Information filed with the Securities and Exchange Commission.
All percentage limitations apply on the date of investment by the
Fund.
1. The Fund will not acquire or retain any security issued by a
company if one or more directors, shareholders or other
affiliated persons of its investment adviser beneficially own
more than one half of one percent (.5 of 1%) of such company's
stock or other securities, and all of the foregoing persons
owning more than one-half of one percent (.5 of 1%) together own
more than 5% of such stock or security.
2. The Fund will not invest more than 5% of its total net
assets in equity securities which are not readily marketable and
in securities of unseasoned companies (i.e., companies which have
a record of less than three years' continuous operation,
including the operation of any predecessor business of a company
which came into existence as a result of a merger, consolidation,
reorganization or purchase of substantially all of the assets of
such predecessor business).
3. The Fund will not invest in interests in oil, gas or other
mineral leases, but this shall not prohibit the Fund from
investing in securities of companies engaged in oil, gas or
mineral activities.
4. The Fund will not invest in puts, calls, straddles, spreads
or any combination thereof, and will not invest in options,
financial futures or stock index futures, other than hedging
positions or positions covered by cash or securities, if as
result thereof, more than 5% of its assets would be so invested.
5. Securities of other open-end investment companies will not be
purchased.
6. The Fund will not purchase illiquid securities if, in the
aggregate, more than 15% of the value of the Fund's net assets
would be so invested. "Illiquid securities" are (a) securities
which at the time of such investment are not readily marketable;
b) securities restricted as to resale (excluding securities
determined by the Board of Directors of the Fund or the person
designated by the Board of Directors of the Fund to make such
determinations to be readily marketable); and (c) repurchase
agreements maturing in more than seven days.
7. The Fund will not engage in short sales of securities.
8. The Fund will not purchase or sell real property (including
limited partnership interests, but excluding readily marketable
interests in real estate investment trusts or readily marketable
services of companies which invest in real estate).
9. The Fund will not purchase securities of other investment
companies, except to the extent permitted by the 1940 Act.
Subject to certain exemptions, as of the date of this Statement
of Additional Information, the 1940 Act prohibits the Fund from
investing more than 5% of its total assets in securities of
another investment company, investing more than 10% of its total
assets in securities of such investment company and all other
investment companies, or purchasing more than 3% of the total
outstanding voting stock of another investment company.
Investments in the securities of other investment companies may
involve duplication of advisory fees and certain other expenses.
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.
DESCRIPTION OF RATINGS
As set forth in the Prospectus, the Fund may invest in
various debt securities, convertible securities and preferred
stock that are assigned specific ratings by NRSROs, including
Standard & Poor's Corporation and Moody's Investor Services, Inc.
A brief description of various of the ratings and their meanings
follows.
Debt Securities
STANDARD AND POOR'S CORPORATION. An S&P corporate debt
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment
may take into consideration obligors such as guarantors, insurers
or lessees. The ratings are based in varying degrees on the
following considerations: (i) likelihood of default-capacity and
willingness of the obligor as to the timely payment of interest
and repayment of principal in accordance with the terms of the
obligation; (ii) nature of and provisions of the obligation; and
(iii) protection afforded by, and the relative position of the
obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
S&P's rating categories are as follows:
AAA rated bonds are highest grade obligations. They
possess the ultimate degree of protection as to
principal and interest. Marketwise, they move with
interest rates, and hence, provide the maximum safety on
all counts.
AA rated bonds also qualify as high-grade obligations,
and in the majority of instances differ from AAA issues
only in a small degree. Here, too, prices move with the
long-term money market.
A rated bonds are regarded as upper medium-grade.
They have considerable investment strength but are not
entirely free from adverse effects of changes in
economic and trade conditions. Interest and principal
are regarded as safe. They predominantly reflect money
rates in their market behavior, but to some extent, also
economic conditions.
BBB rated bonds, or medium-grade category bonds, are
borderline between definitely sound obligations and
those where the speculative element begins to
predominate. These bonds have adequate asset coverage
and normally are protected by satisfactory earnings.
Their susceptibility to changing conditions,
particularly to depressions, necessitates constant
watching. Marketwise, the bonds are more responsive to
business and trade conditions than to interest rates.
This group is the lowest which qualifies for commercial
bank investment.
BB-B rated bonds are regarded, on balance, as
predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such
bonds will likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
CCC rated bonds have a currently identifiable
vulnerability to default, and are dependent upon
favorable business, financial and economic conditions to
meet timely payment of interest and repayment of
principal. In the event of adverse business, financial
or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
CC-C rated bonds are usually bonds which are
subordinated to senior debt that is assigned an actual
or implied "CCC" or "CCC-" rating. A "C" rated bond may
also 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 may also involve the filing of
a bankruptcy petition if debt service payments are
jeopardized.
MOODY'S INVESTORS SERVICES, INC. Moody's bond rating
categories are as follows:
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. Such issues 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.
Bonds so rated can be regarded as having extremely poor
prospects of ever attaining any real investment
standing.
The ratings of S&P and Moody's represent their opinions as to
the quality of the instruments rated by them. Such ratings,
which are subject to revision or withdrawal, are general and are
not absolute standards of quality.
Preferred Stock
STANDARD & POOR'S CORPORATION. An S&P preferred stock rating
is an assessment of the capacity and willingness of an issuer to
pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is
intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock rating
symbol will normally not be higher than the bond rating symbol
assigned to, or that would be assigned to, the senior debt of the
same issuer.
The preferred stock ratings are based on the following
considerations:
I. Likelihood of payment - capacity and willingness of the
issuer to meet the timely payment of preferred stock dividends
and any applicable sinking fund requirements in accordance with
the terms of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors'
rights.
S&P's rating categories for preferred stock are as follows:
AAA This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-
quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the "A"
category.
BB
B
CCC Preferred stock rated "BB," "B," and "CCC" are regarded, on
balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. "BB"
indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will
likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is
currently paying.
CA Preferred stock rated "C" is a non-paying issue.
DA Preferred stock rated "D" is a non-paying issue with the
issuer in default on debt instruments.
MOODY'S INVESTORS SERVICES, INC. Because of the fundamental
differences between preferred stocks and bonds, Moody's uses a
variation of its bond rating symbols in the quality ranking of
preferred stock. The symbols, presented below, are designed by
Moody's to avoid comparison with bond quality in absolute terms.
It should always be borne in mind that preferred stock occupies a
junior position to bonds within a particular capital structure
and these securities are rated by Moody's within the universe of
preferred stocks.
Moody's preferred stock ratings are as follows:
aaa An issue which is rated "aaa" is considered to be a top-
quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within
the universe of preferred stocks.
aa An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will
remain relatively well maintained in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-
medium grade preferred stock. While the risks are judged to
be somewhat greater than in the "aaa" and "aa"
classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium
grade preferred stock, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at
present but may be questionable over any great length of
time.
ba An issue which is rated "ba" is considered to have
speculative elements and its future cannot be considered well
assured. Earnings and asset protection may be very moderate
and not well safeguarded during adverse periods. Uncertainty
of position characterizes preferred stocks in this class.
b An issue which is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue
over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport
to indicate the future status of payments.
ca An issue which is rated "ca" is speculative in a high degree
and is likely to be in arrears on dividends with little
likelihood of eventual payments.
c This is the lowest rated class of preferred or preference
stock. Issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment
standing.
General
The S&P "AA" and "A" ratings may be modified by the addition
of a plus or minus sign to show relative standing within the
major rating categories.
Moody's security rating symbols may contain numerical
modifiers of a generic rating classification. The modifier 1
indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range
ranking, and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
The ratings of S&P and Moody's represent their opinions as to
the quality of the instruments rated by them. It should be
emphasized that such ratings, which are subject to revision or
withdrawal, are general and are not absolute standards of
quality.
INVESTMENT ADVISER
Under an investment advisory agreement dated November 23,
1993, Nicholas Company, Inc. (the "Adviser"), 700 North Water
Street, Suite 1010, Milwaukee, Wisconsin furnishes the Fund with
continuous investment service and is responsible for overall
management of the Fund's business affairs subject to supervision
by the Fund's Board of Directors. Nicholas Company, Inc. is the
investment adviser to five other mutual funds, which like the
Fund are sold without a sales charge, and to approximately 25
institutions and individuals with substantial investment
portfolios. The other funds for which Nicholas Company, Inc.
acts as investment adviser are Nicholas Fund, Inc., Nicholas
Income Fund, Inc., Nicholas II, Inc., Nicholas Limited Edition,
Inc. and Nicholas Money Market Fund, Inc., with primary
investment objectives and net assets as set forth below.
Net Assets at
Fund Primary Investment Objective March 31, 1997
------- ---------------------------- --------------
Nicholas Fund, Inc. Capital Appreciation $3,989,488,700
Nicholas II, Inc. Long-Term Growth $ 775,749,939
Nicholas Limited Edition, Inc. Long-Term Growth $ 226,852,547
Nicholas Income Fund, Inc. High Current Income $ 199,257,523
Nicholas Money Market Fund, Inc. Current Income $ 125,621,864
The annual fee paid to the Adviser is paid monthly and is
based on the average net asset value of the Fund, as determined
by valuations made at the close of each business day of the
month. The annual fee is seven-tenths of one percent (.70 of 1%)
of the average net asset value of the Fund, up to and including
$50,000,000, and six-tenths of one percent (.60 of 1%) of the
average net asset value in excess of $50,000,000. From time to
time, the Adviser may voluntarily waive all or a portion of its
management fee and/or absorb certain Fund expenses without
further notification of the commencement or termination of such
waiver or absorption. Any such waiver or absorption will
temporarily lower the Fund's overall expense ratio and increase
the Fund's overall return to investors. Effective February 12,
1996, the Adviser began to absorb all Fund expenses in excess
of 0.90% of net assets. For the fiscal year ended March 31,
1996, the Adviser reimbursed $2,144 to the Fund and for the
fiscal year ended March 31, 1997, the Adviser reimbursed $50,419
to the Fund. During the fiscal years ended March 31, 1995, 1996
and 1997, the Fund paid the Adviser an aggregate of $67,554,
$94,349 (after reimbursement of $2,144) and $77,384 (after
reimbursement of $50,419), respectively, in fees.
Under the Investment Advisory Agreement, the Adviser
furnishes the Fund with office space, office facilities,
executive officers and executive expenses (such as health
insurance premiums for executive officers), any of which are
subject to reimbursement by the Fund at the Adviser's request.
The Adviser bears all sales and promotional expenses of the Fund
other than expenses incurred in complying with laws regulating
the issue or sale of securities. The Fund pays all of its
operating expenses. Included as "operating expenses" 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 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.
The Adviser also has undertaken to reimburse the Fund to the
extent that the aggregate annual operating expenses, including
the investment advisory fee but excluding interest, taxes,
brokerage commissions, litigation and extraordinary expenses,
exceed the lowest (i.e., most restrictive) percentage of the
Fund's average net assets established by the laws of the states
in which the Fund's shares are registered for sale, as determined
by valuations made as of the close of each business day of the
year. The Adviser shall reimburse the Fund at the end of any
fiscal year in which the aggregate annual operating expenses
exceed such restrictive percentage. The total expenses of the
Fund as a percentage of net assets for the fiscal years ended
March 31, 1996 and 1997 were 1.38% and 0.90%, respectively. The
Adviser was not required to reimburse the Fund for excess
expenses for the fiscal years ended March 31, 1996 or 1997, but
did voluntarily waive a portion of its management fee during
these two years.
Albert O. Nicholas, President, Portfolio Manager and a
Director of the Fund, is also President and a Director of the
Adviser. Mr. Nicholas owns 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.
Lynn S. Nicholas, Senior Vice President of the Fund, is Senior
Vice President of the Adviser. She is the daughter of Albert O.
Nicholas. David O. Nicholas, Senior Vice President of the Fund,
is Senior Vice President and a Director of the Adviser. He is
the son of Albert O. Nicholas. Candace L. Lesak, Vice President
of the Fund, is an employee of the Adviser. Jeffrey T. May,
Senior Vice President and Treasurer of the Fund, is Senior Vice
President and Treasurer of the Adviser. David E. Leichtfuss,
Secretary and Director of the Adviser, is a partner in the law
firm of Michael Best & Friedrich, Milwaukee, Wisconsin, legal
counsel to both the Fund and the Adviser. Daniel J. Nicholas,
2618 Harlem Boulevard, Rockford, Illinois, is a Director of the
Adviser. Mr. Nicholas, a brother of Albert O. Nicholas, is a
private investor.
MANAGEMENT - DIRECTORS, EXECUTIVE OFFICERS AND PORTFOLIO MANAGERS
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 state of Maryland permits registered
investment companies, such as the Fund, to operate without an
annual meeting of shareholders under specified circumstances if
an annual meeting is not required by the Investment Company Act
of 1940, as amended. The Fund has adopted appropriate provisions
in its Articles of Incorporation and will not hold annual
meetings of shareholders to elect directors unless otherwise
required to do so. The Fund will hold shareholder meetings at
such time as may be required to fill existing vacancies on the
Board in the event less than a majority of the directors then in
office have been elected by shareholders. The following table
sets forth the pertinent information about the Fund's officers
and directors at June 30, 1997:
NAME AGE AND POSITIONS PRINCIPAL OCCUPATIONS
ADDRESS HELD WITH DURING PAST FIVE YEARS
FUND
- ------------------------ ----------- --------------------------------
* Albert O. Nicholas, 66 President, President and Director, Nicholas
700 N. Water Street Portfolio Company, Inc., since 1967. He
Milwaukee, WI 53202 Manager and 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.
and Nicholas Income Fund, Inc.
since the Nicholas Company, Inc.
has served as investment adviser
for such funds. He also was
Portfolio Manager for Nicholas
II, Inc. and Nicholas Limited
Edition, Inc. from the date of
each such fund's inception until
March 1993. He is a Chartered
Financial Analyst.
Melvin L. Schultz, 64 Director Director and Management
3636 N. 124th Street Consultant, Professional
Wauwatosa, WI 53222 Management of Milwaukee, Inc. He
offers financial advice to
members of the medical and dental
professions and is a Certified
Professional Business Consultant.
Richard Seaman, 71 Director Management Consultant, on an
5270 N. Maple Lane independent basis, primarily in
Nashotah, WI 53058 the areas of mergers,
acquisitions and strategic
planning.
Robert H. Bock, 65 Director Professor of Business Strategy,
3132 Waucheeta Trail Ethics and Venture Capital,
Madison, WI 53711 University of Wisconsin School of
Business, since 1965. From 1972
to 1984, he was Dean of the
School of Business.
David L. Johnson, 55 Executive Executive Vice President,
700 N. Water Street Vice Nicholas Company, Inc., the
Milwaukee, WI 53202 President Adviser to the Fund, and employed
by the Adviser since 1980. He is
a Chartered Financial Analyst.
Thomas J. Saeger, 53 Executive Executive Vice President and
700 N. Water Street Vice Assistant Secretary, Nicholas
Milwaukee, WI 53202 President Company, Inc., the Adviser to the
and Fund, and employed by the Adviser
Secretary since 1969. He is a Certified
Public Accountant.
Lynn S. Nicholas, 40 Senior Vice Senior Vice President, Nicholas
700 N. Water Street President Company, Inc., the Adviser to the
Milwaukee, WI 53202 Fund, and employed by the Adviser
since September 1983. She is a
Chartered Financial Analyst.
David O. Nicholas, 36 Senior Vice Senior Vice President, and a
700 N. Water Street President Director of Nicholas
Milwaukee, WI 53202 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, 41 Senior Vice Senior Vice President and
700 N. Water Street President Treasurer, Nicholas Company,
Milwaukee, WI 53202 and Inc., the Adviser to the Fund and
Treasurer employed by the Adviser since
July 1987. He is a Certified
Public Accountant.
Candace L. Lesak, 39 Vice Employee, Nicholas Company, Inc.,
700 N. Water Street President the Adviser to the Fund, since
Milwaukee, WI 53202 February 1983. She is a
Certified Financial Planner.
Tracy C. Eberlein, 36 Assistant Employee, Nicholas Company, Inc.,
700 N. Water Street Vice the Adviser to the Fund, since
Milwaukee, WI 53202 President January 1985. She is a Certified
Financial Planner.
* Mr. 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. Albert O. Nicholas serves as Portfolio Manager of the Fund
and is primarily responsible for the day-to-day management of the
Fund's portfolio. Mr. David O. Nicholas assists in such
management.
Reference is made to the Section "Investment Adviser" for a
description of the relationships of the officers of the Fund to
the Adviser and the family relationships between directors of the
Adviser and officers and directors of the Fund. All directors
and executive officers of the Fund as a group (eleven in number)
beneficially owned approximately 37.18% of the shares of Common
Stock of the Fund at June 30, 1997.
Mr. Nicholas is a member of the Board of Directors of
Nicholas Fund, Inc., Nicholas Income Fund, Inc., Nicholas Limited
Edition, Inc., Nicholas II, Inc., and Nicholas Money Market Fund,
Inc. Messrs. Bock and Seaman serve as directors of Nicholas
Fund, Inc. and Nicholas II, Inc. Mr. Schultz is a member of the
Board of Directors of Nicholas Fund, Inc., Nicholas II, Inc.,
Nicholas Limited Edition, Inc., Nicholas Income Fund, Inc. and
Nicholas Money Market Fund, Inc.
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 Equity Income Fund, Inc.
The table below sets forth the aggregate compensation
received from the Fund by all directors of the Fund during the
fiscal year ended March 31, 1997. No officers of the Fund
receive any compensation from the Fund, but rather, are
compensated by the Adviser in accordance with its investment
advisory agreement with the Fund.
<TABLE>
<CAPTION>
AGGRREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS ANNUAL BENEFITS FROM FUND TO FUND
FROM THE FUND PART OF FUND EXPENSES UPON RETIREMENT COMPLEX PAID TO DIRECTORS (1)
------------- --------------------- --------------- -------------------------
<S> <C> <C> <C> <C>
Albert O. Nicholas (2) $0 $0 $0 $0
Melvin L. Schultz (2) $1200 $0 $0 $17,400
Richard Seaman (2) $1200 $0 $0 $10,200
Robert H. Bock (2) $1200 $0 $0 $10,386
</TABLE>
(1) During the fiscal year ended March 31, 1997, the
Fund and other funds in its Fund Complex (i.e., those funds
which also have Nicholas Company, Inc. as its investment
adviser, namely Nicholas Fund, Inc., Nicholas II, Inc.,
Nicholas Limited Edition, Inc., Nicholas Income Fund, Inc.
and Nicholas Money Market 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 fiscal year ended March
31, 1997, the Fund compensated the disinterested directors
at a rate of $300 per director per meeting attended. The
disinterested directors did not receive any other form or
amount of compensation from the Fund Complex during the
fiscal year ended March 31, 1997. All other directors and
officers of the Fund were compensated by the Adviser in
accordance with its investment advisory agreement.
(2) Mr. Nicholas also is a member of the Board of Directors
of Nicholas Fund, Inc., Nicholas II, Inc., Nicholas Limited
Edition, Inc., Nicholas Income Fund, Inc. and Nicholas Money
Market Fund, Inc. Mr. Schultz also is a member of the Board of
Directors of Nicholas Fund, Inc., Nicholas II, Inc., Nicholas
Limited Edition, Inc., Nicholas Income Fund, Inc. and Nicholas
Money Market Fund, Inc. Mr. Seaman also is a member of the
Board of Directors of Nicholas Fund, Inc. and Nicholas II,
Inc. Mr. Bock also is a member of the Board of Directors of
Nicholas Fund, Inc. and Nicholas II, Inc.
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of
shares of Common Stock of the Fund at June 30, 1997 by each
person known to the Fund to own more than 5% of the issued and
outstanding shares of Common Stock of the Fund.
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF COMMON STOCK TOTAL
OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- ------------------- ------------------ ------------------
Albert O. Nicholas
700 North Water Street
Milwaukee, WI 53202 499,289(1) 28.18
Bessie Siegel, Trustee
For David Siegel Marital
Partnership Trust 101,780 5.7%
c/o Sattell, Johnson, Appel & Co.
700 N. Water Street
Milwaukee, WI 53202
(1) Nicholas Company, Inc., the investment adviser to the Fund,
owns no shares of Common Stock. Albert O. Nicholas,
President, Treasurer and a Director of the Fund, President
and a Director of the Adviser, and owner of 91% of the
outstanding voting securities of the Adviser, owns no shares
of Common Stock. Nancy Nicholas, the spouse of
Mr. Nicholas, owns 460,535 shares of Common Stock.
Mr. Nicholas, along with David E. Leichtfuss, are the
trustees of the Nicholas Company, Inc. Profit-Sharing
Trust, which owns 38,754 shares of Common Stock. Both have
the right, in conjunction with one another, to vote these
shares of Common Stock. As a beneficial owner of more than
25% of the issued and outstanding shares of Common Stock of
the Fund, Mr. Nicholas may be deemed to "control" the Fund,
as such term is defined in the Investment Company Act of
1940.
PURCHASE OF CAPITAL STOCK
Applications for the purchase of shares are made to
Nicholas Equity Income Fund, Inc., c/o Firstar Trust Company,
P.O. Box 2944, Milwaukee, Wisconsin 53201-2944. The Fund has
available an Automatic Investment Plan for shareholders. Anyone
interested should contact the Fund for additional information.
The price per share will be the net asset value next
computed after the time the application is received in proper
order and accepted by the Fund. The determination of the net
asset value for a particular day is applicable to all
applications for the purchase of shares received at or before the
close of trading on the New York Stock Exchange (the "Exchange")
on that day (usually 4:00 p.m., New York time). Accordingly,
purchase orders received on a day the Exchange is open for
trading, prior to the close of trading on that day, will be
valued as of the close of trading on that day. Applications for
purchase of shares received after the close of trading on the
Exchange will be based on the net asset value as determined as of
the close of trading on the next day the Exchange is open.
The Fund does not consider the U.S. Postal Service or other
independent delivery services to be its agents; therefore,
deposit in the mail or with such services, or receipt at Firstar
Trust Company's Post Office Box, does not constitute receipt by
Firstar Trust Company or the Fund. Correspondence intended for
overnight courier should not be sent to the Post Office Box
address. OVERNIGHT COURIER DELIVERY SHOULD BE SENT TO FIRSTAR
TRUST COMPANY, THIRD FLOOR, 615 EAST MICHIGAN STREET, MILWAUKEE,
WISCONSIN 53202.
All applications to purchase capital stock are subject to
acceptance or rejection by authorized officers of the Fund and
are not binding until accepted. Applications will not be
accepted unless they are accompanied by payment. Payment should
be made by check or money order drawn on a U.S. bank, savings and
loan or credit union. The custodian will charge a $20.00 fee
against a shareholder's account, in addition to any loss
sustained by the Fund, for any payment check returned to the
custodian for insufficient funds. It is the policy of the Fund
not to accept applications under circumstances or in amounts
considered disadvantageous to shareholders. Any account
(including custodial accounts) opened without a proper social
security number or taxpayer identification number may be
liquidated and distributed to the owner(s) of record on the first
business day following the 60th day of investment (net of the
back-up withholding tax amount).
The Board of Directors has established $2,000 as the minimum
initial purchase. The minimum for any subsequent purchases is
$100 except in the case of dividend reinvestment. 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 $2,000 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 30 days advance written
notice to the accounts below such minimum.
Purchase of shares will be made in full and fractional
shares computed to three decimal places. To purchase additional
shares of the Fund by federal wire transfer, please send to:
FIRSTAR BANK MILWAUKEE, N.A.
ABA #0750-00022
TRUST FUNDS, ACCOUNT #112-952-137
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
FOR FURTHER CREDIT TO NICHOLAS EQUITY INCOME FUND, INC.
[YOUR ACCOUNT NUMBER AND THE TITLE OF THE ACCOUNT]
Please call Firstar Trust Company (414-276-0535 or 800-544-6547)
with the appropriate account information prior to sending the
wire.
Shares of Common Stock of the Fund may be purchased or sold
through certain broker-dealers, financial institutions or other
service providers ("Processing Intermediaries"). When shares of
Common Stock of the Fund are purchased this way, the Processing
Intermediary, rather than its customer, may be the shareholder of
record. Processing Intermediaries may use procedures and impose
restrictions in addition to or different from those applicable to
shareholders who invest in the Fund directly. A Processing
Intermediary may be required to register as a broker or dealer
under certain state laws.
An investor intending to invest in the Fund through a
Processing Intermediary should read the program materials
provided by the Processing Intermediary in conjunction with this
Prospectus. Processing Intermediaries may charge fees or other
charges for the services they provide to their customers.
Investors who do not wish to receive the services of a Processing
Intermediary, or pay the fees that may be charged for such
services, may want to consider investing directly with the Fund.
Signature guarantees may be required. Direct purchase or sale of
shares of Common Stock of the Fund may be made without a sales or
redemption charge.
Certificates representing Fund shares purchased will not be
issued unless the shareholder specifically requests certificates
by signed written request to the Fund. Certificates are mailed
to requesting shareholders approximately two weeks after receipt
of the request by the Fund. In no instance will certificates be
issued for fractional shares. When certificates are not
requested, the Fund's transfer agent, Firstar Trust Company, will
credit the shareholder's account with the number of shares
purchased. Written confirmations are issued for all purchases
and redemptions of Fund shares.
REDEMPTION OF CAPITAL STOCK
A shareholder may require the Fund at any time during normal
business hours to redeem his/her shares in whole or in part. If
in writing, redemption requests must be signed by each
shareholder in the exact manner as the Fund account is registered
and must state the amount of redemption. The shareholder account
number and tax identification number or social security number
also are necessary. When shares are represented by certificates,
redemption is accomplished by delivering to the Fund, c/o Firstar
Trust Company, P.O. Box 2944, Milwaukee, Wisconsin 53201-2944,
the certificate(s) for the full shares to be redeemed. The
certificate(s) must be properly endorsed or accompanied by
instrument of transfer, in either case, with signatures
guaranteed by an "eligible guarantor institution" as defined in
Section 240.17Ad-15 of the Code of Federal Regulations. An
"eligible guarantor institution" includes a bank, a savings and
loan association, a credit union or a member firm of a national
securities exchange. A notary public is not an acceptable
guarantor.
If certificates have not been issued, redemption can be
accomplished by delivering an original signed written request for
redemption addressed to Nicholas Equity Income Fund, Inc., c/o
Firstar Trust Company. Facsimile transmission of redemption
requests is not acceptable. If the account registration is
individual, joint tenants, sole proprietorship, custodial
(Uniform Transfer to Minors Act) or general partners, the written
request must be signed exactly as the account is registered.
Both owners must sign if the account is owned jointly. Written
confirmations are issued for all redemptions of Fund shares.
The Fund may require additional supporting documents for
written redemptions made by corporations, executors,
administrators, trustees and guardians. Specifically, if the
account is registered in the name of a corporation or
association, the written request must be accompanied by a
corporate resolution signed by the authorized person(s). A
redemption request for accounts registered in the name of a legal
trust must have a copy of the title and signature page of the
trust agreement on file or be accompanied by the trust agreement
and signed by the trustee(s). A copy of the trust document
certified within the last 60 days is required if the trustee's
name is not registered on the account.
Please write or call Firstar Trust Company (414-276-0535 or
800-544-6547), prior to submitting a written redemption request
if there is doubt as to what documents or instruments are
necessary in order to redeem shares. A written redemption
request will not become effective until all documents have been
received in proper form by Firstar Trust Company.
Shareholders who have an individual retirement account
("IRA"), a master retirement plan or other retirement plan must
indicate on their written redemption requests whether or not to
withhold federal income tax. Redemption requests lacking an
election not to have federal income tax withheld will be subject
to withholding. Please consult your current Disclosure Statement
for any applicable fees.
The Fund does not consider the U.S. Postal Service or other
independent delivery services to be its agents. Therefore,
deposit in the mail or with such services or receipt at Firstar
Trust Company's Post Office Box of redemption requests does not
constitute receipt by Firstar Trust Company or the Fund. DO NOT
MAIL LETTERS BY OVERNIGHT COURIER TO THE POST OFFICE BOX ADDRESS.
CORRESPONDENCE MAILED BY OVERNIGHT COURIER SHOULD BE SENT TO
FIRSTAR TRUST COMPANY, THIRD FLOOR, 615 EAST MICHIGAN STREET,
MILWAUKEE, WISCONSIN 53202.
Telephone redemption is automatically extended to all
accounts in the Fund unless this privilege is declined in
writing. This option does not apply to IRA accounts and master
retirement plans for which Firstar Trust Company acts as
custodian. Telephone redemptions can only be made by calling
Firstar Trust Company at 414-276-0535 or 800-544-6547. In an
effort to prevent unauthorized or fraudulent redemption requests
by telephone, the Fund and its transfer agent employ reasonable
procedures to confirm that such instructions are genuine. In
addition to the account registration, you will be required to
provide the account number and the social security number.
Telephone calls will be recorded. Telephone redemption requests
must be received prior to the closing of the New York Stock
Exchange (usually 4:00 p.m., New York time) to receive that day's
net asset value. There will be no exceptions due to market
activity. The maximum telephone redemption is $25,000 per
account/per business day. The maximum telephone redemption for
related accounts is $100,000 per business day. The minimum
telephone redemption is $1,000 except when redeeming an account
in full.
The Fund reserves the right to refuse a telephone redemption
if it is believed advisable to do so. Procedures for redeeming
Fund shares by telephone may be modified or terminated at any
time by the Fund or Firstar Trust Company. Neither the Fund nor
Firstar Trust Company will be liable for following instructions
communicated by telephone that it reasonably believes to be
genuine.
The shareholder may instruct Firstar Trust Company to mail
the proceeds to the address of record or to directly mail the
proceeds to a pre-authorized bank account. The proceeds also may
be wired to a pre-authorized account at a commercial bank in the
United States. Firstar Trust Company charges a wire redemption
fee of $10.00. Please contact the Fund for the appropriate form
if you are interested in setting your account up with wiring
instructions.
The redemption price is the net asset value next computed
after the time of receipt by Firstar Trust Company of the
certificate(s) or written request in the proper form set forth
above, or pursuant to proper telephone instructions (see below).
A redemption generally is treated as a sale of the shares being
redeemed for federal income tax purposes. This means the
shareholder recognizes a capital gain or loss equal to the
difference between the redemption price and the shareholder's
cost for the shares being redeemed.
All redemptions will be processed immediately upon receipt.
The Fund will return redemption requests that contain
restrictions as to the time or date redemptions are to be
effected. The Fund ordinarily will make payment for redeemed
shares within seven days after receipt of a request in proper
form, except as provided by the rules of the Securities and
Exchange Commission. Redemption proceeds 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 net asset value is determined. Firstar Trust Company
charges a wire redemption fee of up to $12.00. The Fund reserves
the right to hold payment up to 15 days or until satisfied that
investments made by check have been collected.
Due to the fixed expenses incurred by the Fund in
maintaining individual accounts, the Fund reserves the right to
redeem accounts that fall below $2,000 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 30 days advance written notice to the accounts below such
minimum.
Signature Guarantees. A signature guarantee of each owner
is required to redeem shares in the following situations, for all
size transactions: (i) if you change the ownership on your
account; (ii) upon redemption of shares when certificates have
been issued for your account; (iii) when you want the redemption
proceeds sent to a different address than is registered on the
account; (iv) for both certificated and uncertificated shares if
the proceeds are to be made payable to someone other than the
account owner(s); (v) any redemption transmitted by federal wire
transfer to your bank not previously set up with the Fund; or
(vi) if a change of address request has been received by the Fund
or Firstar Trust Company within 15 days of a redemption request.
In addition, signature guarantees are required for all
redemptions of $100,000 or more from any shareholder account in
the Nicholas Family of Funds. A redemption will not be processed
until the signature guarantee, if required, is received in proper
form. A notary public is not an acceptable guarantor.
EXCHANGE BETWEEN FUNDS
If a shareholder chooses to exercise the exchange privilege,
the shares will be exchanged at their next determined net asset
value. When an exchange into the Nicholas Money Market Fund,
Inc. would involve investment of the exchanged amount on a day
when the New York Stock Exchange is open for trading but the
Federal Reserve Banks are closed, shares of the Fund will be
redeemed on the day upon which the exchange request is received;
however, issuance of Nicholas Money Market Fund, Inc. shares may
be delayed an additional day in order to avoid the dilutive
effect on return (i.e., reduction in net investment income per
share) which would result from issuance of such shares on a day
when the exchanged amount cannot be invested. In such a case,
the exchanged amount would be uninvested for this one day period.
Shareholders interested in exercising the exchange privilege must
obtain the appropriate prospectus from Nicholas Company, Inc.
Such an exchange constitutes a sale for federal tax purposes and
a capital gain or loss generally will be recognized upon the
exchange. This depends upon whether the net asset value at the
time is more or less than the shareholder's cost. An exchange
between the funds involving master retirement (Keogh) or IRA
accounts generally will not constitute a taxable transaction for
federal tax purposes.
The exchange privilege may be terminated or modified only
upon 60 days advance notice to shareholders. Shareholders are
reminded, however, that Nicholas Limited Edition, Inc. is
restricted in size, and thusthat the exchange privilege into that
fund may be terminated or modified at a time when that maximum is
reached.
Shares of the Fund may be exchanged for shares of other
investment companies for which Nicholas Company, Inc. serves as
the investment adviser. Nicholas Company, Inc. is also the
investment adviser to Nicholas Fund, Inc., Nicholas II, Inc.,
Nicholas Income Fund, Inc., Nicholas Limited Edition, Inc. and
Nicholas Money Market Fund, Inc. Nicholas Fund, Inc. has an
investment objective of capital appreciation. Nicholas II, Inc.
and Nicholas Limited Edition, Inc. have long-term growth as their
investment objective. Nicholas Income Fund, Inc.'s investment
objective is to seek high current income consistent with the
preservation and conservation of capital value. Nicholas Money
Market Fund, Inc. has an investment objective of achieving as
high a level of current income as is consistent with preserving
capital and providing liquidity.
Exchange of shares can be accomplished in the following
ways:
EXCHANGE BY MAIL. An exchange of shares of the Fund for
shares of other available Nicholas mutual funds will be made
without cost to the investor through written request.
Shareholders interested in exercising the exchange by mail
privilege may obtain the appropriate prospectus from Nicholas
Company, Inc. Signatures required are the same as previously
explained under "Redemption of Capital Stock."
EXCHANGE BY TELEPHONE. Shareholders may exchange by
telephone among all funds for which the Nicholas Company, Inc.
serves as investment adviser. Only exchanges of $l,000 or more
may be executed using the telephone exchange privilege. Firstar
Trust Company charges a $5.00 fee for each telephone exchange.
In an effort to avoid the risks often associated with large
market timers, the maximum telephone exchange per account per day
is set at $100,000, with a maximum of $l,000,000 per day for
related accounts. Four telephone exchanges per account during
any twelve month period will be allowed.
Procedures for exchanging Fund shares by telephone may be
modified or terminated at any time by the Fund or Firstar Trust
Company. Neither the Fund nor Firstar Trust Company will be
responsible for the authenticity of exchange instructions
received by telephone.
Telephone exchanges can ONLY be made by calling Firstar
Trust Company at 414-276-0535 or 800-544-6547. You will be
required to provide pertinent information regarding your account
(social security number and account number). Calls will be
recorded.
TRANSFER OF CAPITAL STOCK
Shares of the Fund may be transferred in instances such as
the death of a shareholder, change of account registration,
change of account ownership and in cases where shares of the Fund
are transferred as a gift. Documents and instructions to
transfer capital stock can be obtained by writing or calling
Firstar Trust Company (414-276-0535 or 800-544-6547) or Nicholas
Company, Inc. (414-272-6133 or 800-227-5987) prior to submitting
any transfer requests.
DETERMINATION OF NET ASSET VALUE
The net asset value per share will be computed by the
Adviser as of the close of trading on the New York Stock Exchange
on each day the Exchange is open for unrestricted trading. The
net asset value per share is determined by dividing the total
current market value of the assets of the Fund, less its
liabilities, by the total number of shares outstanding at the
time of determination. A portfolio security which is traded on a
national securities exchange is valued at the price of the last
sale on such exchange. If no sale has occurred on the date as of
which assets are valued, or if the security is traded only in the
over-the-counter market, it normally will be valued at the latest
bid price, unless the Board of Directors, in good faith,
determines that some other price reflects more closely the true
market value.
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 sales price if the Fund's
pricing service believes that such price represents market value
of the security for institutional trades. The pricing of all
debt securities takes into account the fact that the Fund trades
in institutional size trading units. Securities for which
current quotations are not readily available and other assets of
the Fund are valued at fair value as determined in good faith by
the Fund's Board of Directors.
DIVIDENDS AND FEDERAL TAX STATUS
Dividends of the Fund, if any, are paid to shareholders in
April, July, October and December. In those years in which sales
of portfolio securities result in net realized capital gains
(after utilization of any available capital loss carryforwards),
such gains are distributed to shareholders in December or
January. It is the practice of the Fund to distribute capital
gains in shares of the Fund at net asset value or, at each
shareholder's election, in cash.
The Fund intends to continue to qualify annually as a
"regulated investment company" under the Internal Revenue Code of
1986 and intends to take all other action required to insure that
little or no federal income or excise taxes will be payable by
the Fund.
Distributions by the Fund, whether received in cash or
invested in additional shares of the Fund, will be taxable to the
Fund's shareholders, except those shareholders that are not
subject to tax on their income. Long-term capital gain
distributed by the Fund will retain the character that it had at
the Fund level. Income distributed from the Fund's net
investment income and net realized short-term capital gains are
taxable to shareholders as ordinary income. The Fund will
provide information to shareholders concerning the character and
federal tax treatment of any distribution.
At the time of purchase of shares, the Fund may have
undistributed income or capital gains included in the computation
of the net asset value per share. Therefore, a dividend or
capital 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 net asset value per share.
Under federal law, some shareholders may be subject to a 31%
back-up withholding on reportable dividends, capital gain
distributions (if any) and redemption payments. Generally under
federal law, 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. An
investor must certify under penalties of perjury that the
taxpayer identification number supplied to the Fund is correct
and that he or she is not subject to backup withholding when
establishing an account.
The foregoing tax discussion relates solely to federal
income taxes only and is not intended to be a complete discussion
of all federal tax consequences. Shareholders should consult
with a tax adviser concerning the federal, state and local tax
aspects of an investment in the Fund.
DIVIDEND REINVESTMENT PLAN
Unless a shareholder elects to accept cash in lieu of
shares, all dividend and capital gain distributions are
automatically reinvested in additional shares of the Fund through
the Dividend Reinvestment Plan. An election to accept cash may
be made on an application to purchase shares or by separate
written notification or by telephone. All reinvestments are at
the net asset value per share in effect on the dividend or
distribution date and are credited to the shareholder's account.
Shareholders will be advised of the number of shares purchased
and the price following each reinvestment.
Shareholders may withdraw from or thereafter elect to
participate in the Dividend Reinvestment Plan at any time by
giving written or telephonic notice to the Transfer Agent. An
election must be received by the Transfer Agent prior to the
dividend record date of any particular distribution for the
election to be effective for that distribution. If an election
to withdraw from or participate in the Dividend Reinvestment Plan
is received between a dividend record date and payment date, it
shall become effective on the day following the payment date.
The Fund may modify or terminate the Dividend Reinvestment Plan
at any time on 30 days written notice to participants.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who have purchased or currently own Fund shares
worth $10,000 or more at the current market value may open a
Systematic Withdrawal Plan and receive monthly, quarterly, semi-
annual or annual checks for any designated amount. Firstar Trust
Company reinvests all income and capital gain dividends in shares
of the Fund. Shareholders may add shares to, withdraw shares
from, or terminate the Plan, at any time. Each withdrawal may be
a taxable event to the shareholder. Liquidation of shares in
excess of distributions may deplete or possibly use up the
initial investment, particularly in the event of a market
decline, and withdrawals cannot be considered a yield or income
on the investment. In addition to termination of the Plan by the
Fund or shareholders, the Plan may be terminated by Firstar Trust
Company upon written notice mailed to the shareholders. Please
contact the Nicholas Company for copies of the Plan documents.
INDIVIDUAL RETIREMENT ACCOUNT
Individuals may be able to establish their own tax sheltered
individual retirement plans or accounts ("IRA"). The Fund offers
a prototype IRA Plan for adoption by individuals who qualify for
spousal, deductible and non-deductible IRA accounts.
As long as the aggregate IRA contributions meet the Fund's
minimum investment requirement of $2,000, the Fund will accept
any allocation of such contribution between spousal, deductible
and non-deductible accounts. The acceptability of this
calculation is the sole responsibility of the shareholder. For
this reason, it is advisable for taxpayers to consult with their
personal tax adviser to determine the deductibility of their IRA
contributions.
The applicable forms and a description of the applicable
service fees 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 because changes
occur from time to time in existing IRA regulations.
Because a retirement program involves commitments covering
future years, it is important that the investment objectives of
the Fund are consistent with your own retirement objectives.
Premature withdrawals from an IRA may result in adverse tax
consequences. See "Redemption of Capital Stock." Consultation
with a tax adviser regarding tax consequences is recommended.
MASTER RETIREMENT PLAN
The Fund has available a master retirement plan (formerly
called a "Keogh" Plan) for self-employed individuals. Any person
seeking additional information or wishing to participate in the
plan may contact the Fund. Consultation with a tax adviser
regarding the tax consequences of the plan is recommended.
BROKERAGE
The Adviser, who decides to buy and sell securities, selects
a broker or dealer for the execution of a portfolio transaction
on the basis that such broker or dealer will execute the order as
promptly and efficiently as possible subject to the overriding
policy of the Fund. 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 issuers of securities and events and
current conditions in specific industries, and the rendering of
advice regarding general economic conditions affecting the stock
market and the U.S. economy.
The 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 also are considered
in view of the value of the research, statistical and price
quotation services, if any, rendered by the broker or dealer
through whom a transaction is placed.
Purchases and sales of portfolio securities are frequently
placed, without any agreement or undertaking to do so, with
brokers and dealers who provide the Adviser with such
supplemental research and statistical and price quotation
services. The Adviser understands that since the brokers and
dealers rendering such services are compensated therefor by
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 significantly increase the Fund's or the
Adviser's expenses.
In instances where it is determined by the Adviser that the
supplemental research and statistical services are of significant
value, it is the practice of the Adviser to place the Fund's
transactions with brokers or dealers who are paid a higher
commission than other brokers or dealers. 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 Adviser's other client accounts,
which also are utilized by the Adviser in managing the Fund's
portfolio.
The Adviser, which is the investment adviser to the Nicholas
Fund, Inc., Nicholas Income Fund, Inc., Nicholas Limited Edition,
Inc., Nicholas II, Inc. and Nicholas Money Market Fund, Inc., as
well as to the Fund, may occasionally make investment decisions
which would involve the purchase or sale of securities for the
portfolios of more than one of the six funds at the same time.
As a result, the demand for securities being purchased or the
supply of securities being sold may increase, and this could have
an adverse effect on the price of those securities. It is the
Adviser's policy not to favor one fund over another in making
recommendations or in placing orders. If two or more of the
Adviser's clients are purchasing a given security on the same day
from the same broker or dealer, the Adviser may average the price
of the transactions and allocate the average among the clients
participating in the transactions. It is the Advisor's policy to
allocate the commission charged by such broker or dealer to each
fund in direct proportion to the number of shares bought or sold
by the particular fund involved.
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 generally are
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 $5,257, $13,577 and $10,970 for the
fiscal years ended March 31, 1995, 1996 and 1997, respectively.
The Fund's portfolio turnover rate was 68.85% and 23.05% for the
fiscal years ended March 31, 1996 and 1997, respectively.
PERFORMANCE DATA
The Fund may from time to time include its "total return,"
"average annual total return," "yield" (i.e., the "30-day SEC
yield") and "distribution rate" in advertisements or in
information furnished to present and prospective shareholders.
All performance figures are based on historical earnings and
are not intended to indicate future results. The "total return"
of the Fund is expressed as a ratio of the increase (or
decrease) in value of a hypothetical investment in the Fund
at the end of a measuring period to the amount initially
invested. The "average annual total return" is
the total return discounted for the number of represented time
periods and is expressed as a percentage. The rate represents
the annual rate achieved on the initial investment to arrive at
the ending redeemable value. The ending value assumes
reinvestment of dividends and capital gains and the reduction of
account charges, if any. This computation does not reflect any
sales load or other nonrecurring charges, since the Fund is not
subject to such charges.
The "average annual total return" and "total return" are
computed according to the following formulas:
n
P(1+T) = ERV
or
Total Return = ERV - 1
---
P
Average Annual Total Return = nth root of ERV
------ -1
P
where:
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment
made at the beginning of the one year and inception periods at the
end of the one year and inception periods.
For the One Year Period From Inception
Period Ended (November 23, 1993)
March 31, 1997 to March 31, 1997
---------------- ---------------------------
Total Return 7.83% 41.38%
Average Annual Total Return 7.83% 10.89%
For purposes of the above calculations, the following
assumptions are made: (1) all dividends and distributions by the
Fund are reinvested at the net asset value calculated on the
reinvestment dates during the period; (2) a complete redemption
at the end of the periods is made; and (3) all recurring fees
that are charged to all shareholder accounts are included.
These figures are computed by adding the total number of
shares purchased by a hypothetical $1,000 investment in the Fund
to all additional shares purchased within a one year period with
reinvested dividends and distributions, reducing the number of
shares by those redeemed to pay account charges, taking the value
of those shares owned at the end of the year and reducing it by
any deferred charges, and then dividing that amount by the
initial $1,000 investment. This computation does not reflect any
sales load or other nonrecurring charges, since the Fund is not
subject to such charges.
The "30-day SEC yield" of the Fund is calculated by
dividing the Fund's net investment income per share, as defined
by the Securities and Exchange Commission, for the 30-day period
by the net asset value per share on the last day of the stated
period. Net investment income represents dividends and interest
generated by the Fund's portfolio securities reduced by all
expenses and any other charges that have been applied to all
shareholder accounts. The calculation assumes the 30-day net
investment income is compounded monthly for six months and then
annualized. The Fund's distribution rate is calculated by
annualizing the most recent per share income distribution 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 ("distribution rate").
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
In sales materials, reports and other communications to
shareholders, the Fund may compare its performance to certain
indices, including, but not limited to, the S&P 500 Index,
National Association of Securities Dealers Automated Quotation
System, the Russell 2000 Index and 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, Lipper Analytical Services Mutual Fund
Performance Analysis and Morningstar Mutual Funds.
CAPITAL STRUCTURE
The Fund is authorized to issue five hundred million
(500,000,000) shares of Common Stock, $.0001 par value per share.
Each full share has one vote and all shares participate equally
in dividends and other distributions by the Fund and in the
residual assets of the Fund in the event of liquidation. The
shares are fully paid and non-assessable when issued. There are
no conversion or sinking fund provisions applicable to shares,
and shareholders have no preemptive rights and may not cumulate
their votes in the election of directors. Shares are redeemable
and are transferable. Fractional shares entitle the shareholder
to the same rights as whole shares.
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 Trust Company,
and direct that his account be credited with the shares. A
shareholder may in writing direct Firstar Trust Company 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 Investment Company Act
of 1940, as amended. The Fund has adopted the appropriate
provisions in its By-Laws and will not hold annual meetings of
shareholders for the following purposes unless otherwise required
to do so: (i) election of directors; (ii) approval of the
investment advisory agreement; (iii) ratification of the
selection of independent auditors; and (iv) approval of any
distribution agreement.
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
shareholders of the Fund for the purpose of voting upon the
question of removal of any Director when requested in writing to
do so by the record holders of not less than 10% of the
outstanding shares of Common Stock of the Fund. The affirmative
vote of two-thirds of the outstanding shares, cast in person or
by proxy at a meeting called for such purpose, is required to
remove a Director of the Fund. The Fund will assist shareholders
in communicating with each other for this purpose pursuant to the
requirements of Section 16(c) of the Investment Company Act of
1940, as amended.
SHAREHOLDER REPORTS
Shareholders will be provided at least semiannually with a
report or a current prospectus showing the Fund's portfolio and
other information. After the close of the Fund's fiscal year,
which ends March 31, an annual report or current prospectus
containing financial statements audited by the Fund's independent
public accountants, Arthur Andersen LLP, will be sent to
shareholders.
CUSTODIAN AND TRANSFER AGENT
Firstar Trust Company, 615 East Michigan Avenue, Milwaukee,
Wisconsin 53202, acts as Custodian of the Fund. As such, Firstar
Trust Company holds all securities and cash of the Fund, 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 officers of the Fund.
Firstar Trust Company does not exercise any supervisory function
over the management of the Fund, the purchase and sale of
securities or the payment of distributions to shareholders.
Firstar Trust Company also acts as the Fund's Transfer Agent and
Dividend Disbursing Agent.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, has been selected as the independent accountants
for the Fund. Michael Best & Friedrich, 100 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202, has passed on the legality of
the shares of Common Stock of the Fund being offered.
FINANCIAL INFORMATION
The financial statements and other financial information
relating to the Fund contained in the Annual Report of the Fund
for the fiscal year ended March 31, 1997 are incorporated herein
by reference.
Nicholas Equity Income Fund, Inc.
Form N-1A
PART C: OTHER INFORMATION
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: Per share income and capital
changes information with respect to the Registrant's Common Stock
appears in Part A; the Registrant's statement of assets and
liabilities, including the schedule of investments, as of March
31, 1997, and the related statement of operations for the year
then ended, and the per share income and capital changes for the
year then ended are incorporated in Parts A and B by reference to
the Annual Report to Shareholders of the Registrant for its
fiscal year ended March 31, 1997.
(b) Exhibits: All exhibits required to be filed with this
Form N-lA pursuant to Item 24(b) thereof are listed in the
Exhibit Index appearing elsewhere in this Registration Statement
and (i) appear in their entirety herein or (ii) were previously
filed.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
The Registrant is not under common control with any
other person. However, as of June 30, 1997, Albert O. Nicholas
may be deemed to beneficially own 28.18% of the issued and
outstanding shares of Common Stock of the Fund, and therefore may
be deemed to "control" the Fund, as such term is defined in the
Investment Company Act of 1940. The Registrant, Nicholas Fund,
Inc., Nicholas Income Fund, Inc., Nicholas Limited Edition, Inc.,
Nicholas II, Inc. and Nicholas Money Market Fund, Inc., which are
all Maryland corporations and are diversified management-type
investment companies registered under the Investment Company Act
of 1940, as amended, share a common investment adviser, Nicholas
Company, Inc.; however, each such fund has an independent Board
of Directors responsible for supervising the investment and
business management services provided by the Adviser. The
Registrant does not control any other person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of June 30, 1997, the number of record holders was:
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock, $.0001
par value per share 707
ITEM 27. INDEMNIFICATION
(a) Article Fourteenth of the Articles of Incorporation of
Registrant provides that the Registrant shall indemnify and
advance expenses to its current acting and its former officers
and directors to the fullest extent that indemnification of
officers and directors is permitted by the Maryland General
Corporation Law.
(b) Article VII, Section 7 of the By-laws of Registrant
provides for the indemnification of officers and directors of
Registrant for claims arising from his or her service to
Registrant, excepting claims in which such officer or director
has been adjudicated guilty of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his or her office. In the absence of any
adjudication, indemnification will be determined by resolution of
two-thirds of the members of the Board of Directors who are not
"interested persons" and not involved in such action or claim.
(c) Registrant will maintain insurance coverage for the
benefit of officers and directors with respect to many types of
claims that may be made against them, some of which may be in
addition to those described in Article VII, Section 7 of the By-
laws of Registrant, subject to the limitations of federal law
(see Item 27(e), below). The investment adviser 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.
(d) The Annotated Code of Maryland, Corporations and
Associations, Section 2-418 generally provides that, under
certain circumstances, corporations may indemnify any person who
was or is a party to any action by virtue of having been an
officer, director, employee or agent of the corporation,
including indemnification for judgments, fines, settlement
amounts and reasonable expenses actually incurred if the person
acted in good faith. This statute also provides a corporation
may maintain insurance on behalf of directors, officers,
employees or agents for liabilities arising out of such persons'
actions in such position. Such state law is subject to the
limitations of applicable federal law (see Item 27(e), below).
(e) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 or the Investment Company Act of
1940 may be permitted to officers, directors, controlling
persons, employees and agents of Registrant pursuant to the
Articles of Incorporation, Article VII, Section 7 of the By-laws
of Registrant, Maryland law or otherwise, Registrant has been
advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in said Acts and is, therefore, unenforceable. In the
event a claim for indemnification for such liabilities (other
than payment by Registrant of expenses incurred or paid by an
officer, director, controlling person, employee or agent in
connection with the successful defense of any action, suit or
proceeding) is asserted by such officer, director, controlling
person, employee or agent in connection with the securities being
registered, 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
said Acts and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
None.
ITEM 29. PRINCIPAL UNDERWRITERS
None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books or other documents required to be
maintained pursuant to Section 31(a) of the Investment Company
Act of 1940, as amended, and the rules of the Securities and
Exchange Commission promulgated thereunder, are located at the
offices of Registrant, 700 North Water Street, Milwaukee,
Wisconsin, and at the offices of Registrant's custodian and
transfer agent, Firstar Trust Company, 615 East Michigan Avenue,
Milwaukee, Wisconsin.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
The undersigned 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
security holders that 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 and Exchange Act
of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are 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 that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
LINE SPACING SET AT .95 EXHIBIT INDEX
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
----------- ----------- --------
(b)(1) Articles of Incorporation of Registrant(1)
(b)(2) By-Laws of Registrant(1)
(b)(3) None.
(b)(4) Specimen certificate evidencing common
stock, $.0001 par value per share, of
Registrant(2)
(b)(5) Investment Advisory Agreement between
Registrant and Nicholas Company, Inc.(1)
(b)(6) None.
(b)(7) None.
(b)(8) Custodian Agreement between Registrant
and Firstar Trust Company(1)
(b)(9) Transfer Agent Agreement between
Registrant and Firstar Trust Company(1)
(b)(10) Opinion of Michael Best &
Friedrich, counsel to the
Registrant, concerning the legality
of Registrant's common stock,
including consent to the use
thereof
(b)(11) Consent of Arthur Andersen LLP,
independent public accountants
(b)(12) Statements of Assets and Liabilities
of Registrant, including the Schedule
of Investments as of March 31, 1997,
and the related Statement of Change
in Net Assets and the Financial
Highlights for the period ended March
31, 997 (included in the Annual Report
to Shareholders of Registrant for the
fiscal year ended March 31, 1997.
(b)(13) Subscription Agreement between the
Registrant and the Nicholas
Company, Inc. Profit Sharing Trust
as initial shareholder representing
that the initial purchase was
without any present intention of
redeeming or reselling
(as amended) (2)
(b)(14.1) Registrant's Prototype IRA Plan (1)
(b)(14.2) Registrant's Master Retirement Plan
for Self-Employed Individuals (1)
(b)(15) None.
(b)(16) Schedule for computation of
performance quotation provided in
response to Item 22 of Form N-lA. ____
(b)(17) Financial Data Schedule ____
(b)(99) Powers of Attorney (1)
_________________________
(1) Previously filed on October 1, 1993, with the Registrant's
initial Registration Statement on Form N-1A.
(2) Previously filed on November 8, 1993, with the Registrant's
Pre-Effective Amendment No. 1 to its Registration Statement
on Form N-1A.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
Nicholas Equity 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(b) under the Securities Act of 1933, and has duly caused this
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 23rd day of July,
1997.
NICHOLAS EQUITY INCOME FUND, INC.
By: /s/ Thomas J. Saeger
------------------------
Thomas J. Saeger,
Executive Vice
President and Secretary
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
this Registration Statement has been signed below by the
following persons in the capacities indicated on the 23rd day of
July, 1997.
Signature Title
--------- -----
/s/ Albert O. Nicholas* President, Chief Executive
------------------- Officer and Director
Albert O. Nicholas
/s/ Thomas J. Saeger Executive Vice President,
----------------- Secretary, Chief Financial
Thomas J. Saeger Officer, and Chief
Accounting Officer
/s/Robert H. Bock* Director
----------------
Robert H. Bock
/s/Richard Seaman* Director
----------------
Richard Seaman
/s/Melvin L. Schultz* Director
------------------
Melvin L. Schultz
* By: /s/Thomas J. Saeger
--------------------
Thomas J. Saeger, as
Attorney-in-Fact for the above officers
and directors, under authority of
Powers of Attorney previously filed
ARTICLES OF INCORPORATION
OF
NICHOLAS EQUITY INCOME FUND, INC.
We, the undersigned natural persons of the age of eighteen
years or more, both of whose address is 700 North Water Street,
Suite 1010, Milwaukee, Wisconsin 53202, acting as Incorporators
of a corporation under the General Laws of the State of Maryland
authorizing the formation of corporations, adopt the following
Articles of Incorporation for such corporation:
FIRST: The name of the corporation (which is hereinafter
-----
called the "Corporation") is Nicholas Equity Income Fund, Inc.
SECOND: The period of its existence is perpetual.
------
THIRD: The purposes for which the Corporation is
-----
organized are:
A. To engage in the business of a diversified, open-
end management investment company under the Investment Company
Act of 1940, as amended;
B. To purchase or otherwise acquire, hold for
investment or otherwise, and to sell, exchange or otherwise
dispose of securities, or rights or warrants to acquire
securities, of any private or public company, corporation,
association, trust or syndicate, however organized;
C. To purchase or otherwise acquire, hold for
investment or otherwise, and to sell, exchange, or otherwise
dispose of, securities issued or guaranteed by the United States
of America, by any state of the United States of America, by any
political subdivision of any state, by any public instrumentality
of a state, or by any person controlled or supervised by and
acting as an instrumentality of the United States of America;
D. To deposit its funds, from time to time, in such
checking account or accounts as may reasonably be required, and
to deposit its funds at interest in any bank, savings bank or
trust company in good standing organized under the laws of the
United States of America or any state thereof, or of the District
of Columbia;
E. To conduct research and investigations with
respect to securities, organizations and business conditions in
the United States and elsewhere; to secure information and advice
pertaining to the investment and employment of the assets and
funds of the Corporation and to pay compensation to others for
the furnishing of any or all of the foregoing;
F. Subject to any restrictions contained in the
Investment Company Act of 1940, as amended, in applicable state
securities or "blue sky" laws, or in any rules or regulations
issued pursuant to any of the foregoing, to exercise in respect
of all securities, property and assets owned by it, all rights,
powers and privileges which could be exercised by any natural
person owning the same securities, property or assets;
G. To acquire all or any part of the goodwill,
property and business of any firm, person, association or
corporation heretofore or hereafter engaged in any business
similar to any business which it has power to conduct, and to
hold, utilize, enjoy and in any manner dispose of the whole or
any part of the rights, property and business so acquired and to
assume in connection therewith any liabilities of any such
person, firm, association or corporation;
H. Without the vote or consent of the shareholders of
the Corporation, to purchase, acquire, hold, dispose of, transfer
and reissue or cancel shares of its own capital stock, including
shares of stock of the Corporation in fractional denominations,
in any manner or to any extent now or hereafter permitted by the
laws of Maryland or by these Articles of Incorporation; and
I. To carry out all or any part of the aforesaid
objects and purposes and to conduct its business in all or any of
its branches in any or all states, territories, districts and
possessions of the United States of America and in foreign
countries; and to maintain offices and agencies in any and all
states, territories, districts and possessions of the United
States of America and in foreign countries.
The foregoing objects and purposes shall, except when
otherwise expressed, be in no way limited or restricted by
reference to or inference from the terms of any clause of this or
any other Section of these Articles of Incorporation, or of any
amendment thereto, and shall each be regarded as independent and
construed as powers as well as objects and purposes.
The Corporation shall be authorized to exercise and enjoy
all of the powers, rights and privileges granted to or conferred
upon corporations of a similar character by the General Laws of
the State of Maryland now or hereafter in force and the
enumeration of the foregoing powers shall not be deemed to
exclude any powers, rights or privileges so granted or conferred.
FOURTH: The aggregate number of shares which the
------
Corporation shall have authority to issue is Five Hundred Million
(500,000,000) consisting of one class only, designated as "Common
Stock," of the par value of $.0001 per share and of the aggregate
par value of Fifty Thousand Dollars ($50,000).
FIFTH: Provisions limiting or denying to shareholders the
-----
preemptive right to acquire additional shares of Common Stock of
the Corporation are:
No holder of any of the shares of Common Stock of this
Corporation shall, as such holder, have any preemptive or other
right to purchase or subscribe for any shares of Common Stock
which this Corporation may issue or sell other than such rights,
if any, as the board of directors, in its discretion, may from
time to time determine to offer to shareholders of this
Corporation.
SIXTH: The number of initial directors is four, and the
-----
names of the initial directors are:
Albert O. Nicholas
Melvin L. Schultz
Richard Seaman
Robert H. Bock
Thereafter, the number of directors shall be such number (but not
less than three), as is fixed from time to time by the By-laws.
SEVENTH: The address of the principal office of the
-------
Corporation is 700 North Water Street, Suite 1010, Milwaukee,
Wisconsin 53202. The address of the principal office of the
Corporation in Maryland is c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202. The
name of the resident agent of the Corporation in this State is
The Corporation Trust Incorporated, a corporation of this State,
and the address of the resident agent is 32 South Street,
Baltimore, Maryland 21202.
EIGHTH: The name and address of each incorporator are:
------
Name Address
---- -------
Albert O. Nicholas 700 North Water Street
Suite 1010
Milwaukee, Wisconsin 53202
Thomas J. Saeger 700 North Water Street
Suite 1010
Milwaukee, Wisconsin 53202
NINTH: The following provisions are hereby adopted for
-----
the purposes of defining, limiting and regulating the powers of
the Corporation and of the directors and shareholders:
A. The board of directors of the Corporation shall
authorize an initial issuance of shares of Common Stock
of the Corporation for such consideration not less than
the aggregate par value of the shares included in the
issuance as the board of directors shall determine.
After such initial issuance, the board of directors may
authorize the issuance (and reissuance), from time to
time, of shares of capital stock of any class, whether
now or hereafter authorized, for such consideration not
less than the aggregate par value of the shares so
issued, as said board of directors may deem advisable;
provided that, except with respect to shares issued as
a share dividend or distribution, such consideration
shall be not less than the net asset value of such
shares computed in accordance with this Article NINTH.
The Corporation, in its discretion, may reject, in
whole or in part, orders for the purchase of shares of
capital stock, and may, in addition, require such
orders to be in such minimum amounts as it shall
determine.
B. The Corporation may issue shares in fractional
denominations to the same extent as its whole shares,
and shares in fractional denominations shall be shares
of stock having proportionately to the respective
fractions represented thereby all the rights of whole
shares. Without limitation, the holders of any
fractional shares of the capital stock of the
Corporation shall be entitled to the payment of
dividends on such fractional shares, to receive the net
asset value thereof upon redemption, to share in the
assets of the Corporation upon liquidation and to
exercise any voting rights with respect to any
fractional share.
C. The Corporation shall have full power, in
accordance with good accounting practice: (1) to
determine what receipts of the Corporation shall
constitute income available for payment of dividends
and what receipts shall constitute principal and to
make such allocation of any particular receipt between
principal and income as it may deem proper; and (2)
from time to time, in its discretion (a) to determine
whether any and all expenses and other outlays paid or
incurred (including any and all taxes, assessments of
governmental charges which the Corporation may be
required to pay or hold under any present or future law
of the United States of America or of any other taxing
authority therein) shall be charged to or paid from
principal or income or both; and (b) to apportion any
and all of said expenses and outlays, including taxes,
between principal and income.
D. Each holder of record of stock of this Corporation
shall be entitled to one vote for each full share, and
a fractional vote for each fractional share thereof,
standing registered in his or her name on the books of
the Corporation. At all elections of directors of the
Corporation, each shareholder shall be entitled to vote
the shares owned of record by him or her for as many
persons as there are directors to be elected, but shall
not be entitled to exercise any right of cumulative
voting.
E. The board of directors shall have full power to
determine, from time to time, whether and to what
extent and at what times and places and under what
conditions and regulations the books, accounts and
documents of the Corporation, or any of them, shall be
open to the inspection of shareholders, except as
otherwise provided by statute or by law; and, except as
so provided, no shareholder shall have any right to
inspect any book, account or document of the
Corporation unless authorized to do so by resolution of
the board of directors.
F. When the total assets of the Corporation shall for
the first time have amounted to $100,000 or more, a
fact which shall be conclusively evidenced by a
resolution of the board of directors of the Corporation
specifying the date and time when such total assets
first amounted to $100,000 or more, each holder of
shares of the capital stock of the Corporation shall be
entitled, at any time thereafter, to require the
Corporation to redeem all or any part of the shares
standing in the name of such holder on the books of the
Corporation at the net asset value of such shares as
determined in accordance with the provisions of this
Article NINTH, subject to the provisions of Section K
of this Article.
G. The net asset value to which a holder of shares of
capital stock of the Corporation shall be entitled upon
redemption of shares held by him or her is the net
asset value next determined after the time when the
application for redemption is received in proper order
and accepted by the Corporation at such place as the
Corporation may, from time to time, designate.
H. The time of payment for shares redeemed shall be
within seven days after the application for redemption
has been received in proper form and accepted by the
Corporation in accordance with Section G of this
Article NINTH.
I. The net asset value of each share of the
Corporation shall be determined as of the close of
trading on the New York Stock Exchange each day that
said Exchange is open for trading and any such net
asset value shall be applicable to all transactions in
the capital stock of the Corporation occurring at or
before the close of business on that day and after the
close of business on the last preceding day on which
said Exchange was open for trading, subject to
appropriate adjustment for dividends or distributions,
or in accordance with any controlling provisions of the
Investment Company Act of 1940, as amended, or any rule
or regulation thereunder.
J. The net asset value of each share of the capital
stock of the Corporation at any particular time shall
be the quotient obtained by dividing the value of the
net assets of the Corporation (i.e., the value of the
assets of the Corporation, less its liabilities
exclusive of capital and surplus) at such time by the
total number of shares (including fractional shares)
outstanding at such time, all determined and computed
as follows:
(1) The value of any cash on hand or on
deposit, bills and demand notes and accounts
receivable, prepaid expenses, dividends receivable
(from and after the ex-dividend date) and interest
declared or accrued and not yet received shall be
deemed to be the full amount thereof unless the
board of directors shall have determined that any
such deposit, bill, demand note or account
receivable is not worth the full amount thereof,
in which event such value shall be the fair value
thereof as determined in good faith by the board
of directors;
(2) Securities listed or commonly dealt in
on the New York Stock Exchange or the American
Stock Exchange shall be valued at the last sale
prices on such Exchanges on the last day on which
such value is being computed (or, lacking any such
sales, the last bid price), unless the board of
directors in good faith determines that some other
price reflects more closely the true market value;
(3) Other securities as to which market
quotations are readily available shall be valued
in the same manner as securities listed or
commonly dealt in on the New York or American
Stock Exchanges;
(4) In the case of all other securities and
assets, the value thereof shall be the fair value
as determined in good faith by the board of
directors (but no value shall be assigned to
goodwill of the Corporation);
(5) The liabilities of the Corporation shall
be deemed to include all bills and accounts
payable, all administrative expenses payable
and/or accrued, including the estimated amount of
any fees payable under an investment advisory
agreement, all contractual obligations for the
payment of money or property, all reserves
authorized or approved by the board of directors
for taxes or contingencies, and all other
liabilities of the Corporation of whatsoever kind
and nature, except liabilities represented by
outstanding shares and surplus of the Corporation;
(6) Securities purchased shall be included
among the assets of the Corporation, and the cost
thereof shall simultaneously be regarded as a
liability, not later than the first business day
following the date of purchase, and securities
sold shall be excluded from such assets, and the
amount receivable therefore shall simultaneously
be included as an asset, not later than the first
business day following the date of sale;
(7) Shares of the capital stock of the
Corporation for which purchase orders have been
accepted shall be considered as issued and
outstanding as soon as the net asset value thereof
reasonably can be ascertained pursuant to the
provisions of this Article NINTH, and the amount
receivable therefor shall simultaneously become an
asset of the Corporation;
(8) Shares of the capital stock of the
Corporation delivered for redemption or repurchase
shall be considered as no longer outstanding as
soon as the net asset value thereof can reasonably
be ascertained pursuant to the provisions of this
Article NINTH, and the amount payable on such
redemption or repurchase shall simultaneously
become a liability of the Corporation; and
(9) Notwithstanding the provisions of
paragraphs (1) and (5) of this Section J, interest
declared or accrued and not yet received, and any
accrued expenses may be omitted from any
calculation of net asset value in the discretion
of the board of directors, if the net amount of
all such interest and expenses is less than one
percent of the net asset value per share.
K. In accordance with the provisions of the
Investment Company Act of 1940, as amended, and the
rules and regulations promulgated thereunder by the
Securities and Exchange Commission, the Corporation may
suspend the right of a holder of shares of capital
stock of the Corporation to have his or her shares
redeemed by the Corporation (1) for any period during
which trading on the New York Stock Exchange is
restricted; (2) for any period during which an
emergency exists as a result of which (a) disposal by
the Corporation of securities owned by it is not
reasonably practicable or (b) it is not reasonably
practicable for the Corporation fairly to determine the
value of its net assets; or (3) for such other periods
as the Securities and Exchange Commission may by order
permit for the protection of shareholders of the
Corporation. In addition, the Corporation shall have
the right at any time and with at least 30 days'
advance written notice to the shareholders to redeem,
for their then current net asset value per share, all
shares that are held by a shareholder whose shares of
the Corporation have an aggregate net asset value of
less than $5,000, or such other lesser or greater
amount as may be required by the Maryland General
Corporation Law or as the Board of Directors may from
time to time determine.
L. The Corporation may purchase in the open market or
otherwise acquire from any owner or holder thereof any
shares of its capital stock, in which case the
consideration paid therefor (in cash or in securities
in which the funds of the Corporation shall then be
invested) shall not exceed the net asset value thereof
determined or estimated in accordance with any method
deemed proper by the board of directors and producing
an amount approximately equal to the net asset value of
said shares (determined in accordance with the
provisions of this Article NINTH) at the time of the
purchase or acquisition by the Corporation thereof.
M. The board of directors shall have full power in
accordance with good accounting practice to declare and
pay dividends and distributions in cash, securities or
other property from any funds legally available
therefor, at such intervals (which may be as frequently
as daily) or on such other periodic basis, as it shall
determine; to declare such dividends or distributions
by means of a formula or other method of determination,
at meetings held less frequently than the frequency of
effectiveness of such declarations.
In respect of all powers, duties and authorities
conferred by the preceding Sections J, K and L and this
Section M, the Corporation may act by and through
agents from time to time designated and appointed by
the board of directors and the board of directors may
delegate to any such agent any and all powers, duties
and authorities conferred upon the Corporation or upon
the board of directors by said Sections, provided such
delegation does not violate the provisions of the
Investment Company Act of 1940, as amended, or the
provisions of the Maryland General Corporation Law.
TENTH: The Corporation reserves the right to enter into,
-----
from time to time, investment advisory agreements providing for
the management and supervision of the investments of the
Corporation and the furnishing of advice to the Corporation with
respect to the desirability of investing in, purchasing or
selling securities or other property. Such agreement shall
contain such other terms, provisions and conditions as the board
of directors of the Corporation may deem advisable.
The Corporation may designate custodians, transfer agents,
registrars and/or disbursing agents for the stock and assets of
the Corporation and employ and fix the powers, rights, duties,
responsibilities and compensation of each such custodian,
transfer agent, registrar and/or disbursing agent.
ELEVENTH: The Corporation reserves the right, from time to
--------
time, to make any amendment of these Articles of Incorporation
now or hereafter authorized by law, including any amendment which
alters the contract rights as expressly set forth in these
Articles of Incorporation of any outstanding stock, and all
rights herein conferred upon shareholders are granted subject to
such reservation. The board of directors shall have the power to
adopt, alter or repeal the By-laws of the Corporation, except to
the extent the By-laws otherwise provide or as otherwise provided
by applicable law. The Corporation may take or authorize such
action upon the concurrence of a majority of the aggregate number
of the votes entitled to be cast thereon.
TWELFTH: In the event of the dissolution of the Corporation
-------
and in the event there are assets available for distribution to
the shareholders, the trustees or receivers may take
distributions of assets in cash or in kind or partly in cash and
partly in kind, and it shall not be necessary for the trustees or
receivers to give each shareholder a pro rata share of each
asset, but the trustees or receivers may allocate certain assets
to certain shareholders and certain assets to other shareholders,
so long as there shall be distributed to each shareholder his pro
rata share in market value of the assets of the Corporation.
THIRTEENTH: If and to the extent permitted by Maryland
----------
law, the Corporation shall not be required to hold an annual
meeting of shareholders in any year in which none of the
following is required to be acted upon by shareholders under the
Investment Company Act of 1940, as amended: (A) election of
directors; (B) approval of any investment advisory agreement; (C)
ratification of the selection of independent auditors; and (D)
approval of a distribution agreement.
FOURTEENTH: The Corporation shall indemnify and advance
----------
expenses to its current acting and its former officers and
directors to the fullest extent that indemnification of officers
and directors is permitted by the Maryland General Corporation
Law. The board of directors may, through the By-laws, a
resolution or by agreement, make further provisions for
indemnification of directors, officers, employees and agents to
the fullest extent permitted by the Maryland General Corporation
Law. References to the Maryland General Corporation Law in this
Article Fourteenth are to the law as from time to time amended.
No amendment to the Articles of Incorporation of the Corporation
shall affect any right of any person under this Article
FOURTEENTH based on any event, omission or proceeding prior to
such amendment.
Dated: August 31, 1993.
/s/ Albert O. Nicholas
----------------------------------
Albert O. Nicholas, Incorporator
/s/ Thomas J. Saeger
----------------------------------
Thomas J. Saeger, Incorporator
STATE OF WISCONSIN )
) ss.
COUNTY OF MILWAUKEE )
I hereby certify that on August 31, 1993, before me, a
Notary Public of the State of Wisconsin in and for the County of
Milwaukee, personally appeared ALBERT O. NICHOLAS and THOMAS J.
SAEGER, and severally acknowledged the foregoing Articles of
Incorporation to be their act.
WITNESS my hand and notarial seal this 31st day of
August, A.D., 1993.
/s/ Kate M. Fleming
-----------------------------------
Notary Public
Milwaukee County, Wisconsin.
My commission is permanent.
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
NICHOLAS II, INC.
Nicholas II, Inc., a Maryland corporation (the
"Corporation") having its principal office located in the City of
Baltimore, Maryland, hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the Corporation are
hereby amended by striking out Article FOURTH of the Articles of
Incorporation and inserting in lieu thereof the following:
FOURTH: The aggregate number of shares which the
Corporation shall have the authority to issue is Two
Hundred Million (200,000,000) consisting of one class
only designated as "Common Stock" of the par value of
$.01 per share and of the aggregate par value of Two
Million Dollars ($2,000,000).
SECOND: The Board of Directors of the Corporation on
September 10, 1985, unanimously adopted a resolution in which was
set forth the foregoing amendment to the Articles of
Incorporation, declaring that the amendment to the Articles of
Incorporation as proposed was advisable and directing that it be
submitted for action thereon by the Shareholders of the
Corporation at the annual meeting to be held on January 15, 1986.
THIRD: Notice setting forth the amendment to the Articles
of Incorporation and stating that a purpose of the meeting of the
Shareholders would be to take action thereon, was given, as
required by law, to all Shareholders entitled to vote thereon.
The amendment to the Articles of Incorporation of the Corporation
as hereinabove set forth was approved by the Shareholders of the
Corporation at said meeting by the affirmative vote of 7,019,483
of all of the votes entitled to be cast thereon, which
represented in excess of a majority of the aggregate number of
votes entitled to be cast thereon.
FOURTH: The amendment to the Articles of Incorporation of
the Corporation as hereinabove set forth has been duly advised by
the Board of Directors and approved by the Shareholders of the
Corporation.
FIFTH: (a) The total number of shares of stock which the
Corporation was heretofore authorized to issue is Twenty Million
(20,000,000) consisting of one class only, designated as "Common
Stock," of the par value of $.01 per share and of the aggregate
par value of Two Hundred Thousand Dollars ($200,000).
(b) The total number of shares of stock is
increased by this amendment to Two Hundred Million (200,000,000)
consisting of one class only, designated as "Common Stock," of
the par value of $.01 per share and of the aggregate par value of
Two Million Dollars ($2,000,000).
(c) The information required by subsection
(b)(2)(i) of Section 2-607 of Corporations and Associations
Articles of the Annotated Code of Maryland was not changed by the
amendment.
IN WITNESS WHEREOF, Nicholas II, Inc. has caused these
presents to be signed in its name and on its behalf by its
President and attested by its Secretary as of the 31st day of
January, 1986.
NICHOLAS II, INC.
/s/ Albert O. Nicholas
-----------------------------
Albert O. Nicholas, President
Attest:
/s/ Thomas J. Saeger
------------------------------
Thomas J. Saeger, Vice
President and Secretary
THE UNDERSIGNED, President of Nicholas II, Inc., who
executed on behalf of the Corporation the foregoing Articles of
Amendment, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of the Corporation, the
foregoing Articles of Amendment to be the corporate act of the
Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set
forth therein with respect to the approval thereof are true in
all material respects, under the penalties of perjury.
/s/ Albert O. Nicholas
-----------------------------
Albert O. Nicholas
BY-LAWS
OF
NICHOLAS EQUITY INCOME FUND, INC.
(A WISCONSIN CORPORATION)
TABLE OF CONTENTS
ARTICLE I. SHAREHOLDERS' MEETINGS
Section 1. Place of Meetings 1
Section 2. Annual Meeting 1
Section 3. Special Meetings 1
Section 4. Notice of Meeting 1
Section 5. Quorum 2
Section 6. Stock Entitled to Vote 2
Section 7. Voting 2
Section 8. Informal Action 3
ARTICLE II. DIRECTORS
Section 1. Number 3
Section 2. Election and Qualification 3
Section 3. Vacancies 3
Section 4. Powers 4
Section 5. Removal 4
Section 6. Place of Meetings 4
Section 7. Regular Meetings 4
Section 8. Special Meetings 4
Section 9. Quorum and Vote Required for Action 4
Section 10. Meetings By Telephone Or by
Other Communication Technology 5
Section 11. Informal Action 5
Section 12. Committees 5
ARTICLE III. OFFICERS AND EMPLOYEES
Section 1. Election and Qualification 5
Section 2. Term, Removal and Vacancies 5
Section 3. Bonding 6
Section 4. President 6
Section 5. Executive Vice Presidents, Senior
Vice Presidents, Vice Presidents and
Assistant Vice Presidents 6
Section 6. Secretary and Assistant Secretaries 7
Section 7. Treasurer and Assistant Treasurers 7
ARTICLE IV.
RESTRICTIONS ON COMPENSATION, TRANSACTIONS AND INVESTMENTS
Section 1. Salary and Expenses 7
Section 2. Compensation and Profit from
Purchases and Sales 7
Section 3. Transactions with Affiliated Persons 8
Section 4. Investment Adviser 8
Section 5. Ownership of Stock by Officers
and Directors 8
Section 6. Portfolio Transactions 8
Section 7. General Business and Investment
Activities 9
ARTICLES V.
CERTIFICATED AND UNCERTIFICATED SHARES AND TRANSFER BOOKS
Section 1. Certificates 10
Section 2. Uncertificated Shares 11
Section 3. Lost Certificates 11
Section 4. Stock Ledger 11
Section 5. Registered Shareholders 11
Section 6. Transfer Agent and Registrar 11
Section 7. Fixing of Record Dates and
Closing of Transfer Books 11
ARTICLE VI.
ACCOUNTS, REPORTS AND CUSTODIAN
Section 1. Inspection of Books 12
Section 2. Reliance on Records 12
Section 3. Preparation and Maintenance of Accounts,
Records and Statements 12
Section 4. Auditors 12
Section 5. Custodian 13
Section 6. Agreement with Custodian 13
Section 7. Termination of Custodian Agreement 14
Section 8. Checks and Requisitions 14
ARTICLE VII.
GENERAL PROVISIONS
Section 1. Offices 15
Section 2. Seal 15
Section 3. Fiscal Year 15
Section 4. Notice and Waiver of Notice 15
Section 5. Voting of Stock 15
Section 6. Dividends 16
Section 7. Indemnification 16
Section 8. Amendments 17
BY-LAWS OF NICHOLAS EQUITY INCOME FUND, INC.
ARTICLE I.
SHAREHOLDERS' MEETINGS
Section 1. Place of Meetings. All meetings of shareholders
---------
shall be held at 700 North Water Street, Milwaukee, Wisconsin, or
such other location in the State of Wisconsin as determined by
the Board of Directors.
Section 2. Annual Meeting. If and to the extent permitted
--------- --------------
by Maryland law, the Corporation shall not be required to hold an
annual meeting of shareholders in any year in which none of the
following is required to be acted upon by shareholders under the
Investment Company Act of 1940, as amended: (1) election of
directors; (2) approval of any investment advisory agreement; (3)
ratification of the selection of independent auditors; and (4)
approval of a distribution agreement. In the event an annual
meeting is required to be held, such annual meeting shall be held
at 10:00 A.M., Milwaukee time, on the fourth Wednesday in July of
each year, if not a legal holiday, and if a legal holiday, then
on the next secular day following. Any business of the
Corporation may be transacted at the annual meeting without being
specifically designated in the notice, except such business as is
specifically required by statute to be stated in the notice.
Section 3. Special Meetings. Special meetings of the
---------- ----------------
shareholders may be called by the Board of Directors, the
President, an Executive Vice President or a Senior Vice
President, and shall be called by the Secretary upon the written
request of the holders of shares entitled to not less than 10% of
all the votes entitled to be cast at such meeting. Such request
shall state the purpose or purposes of such meeting and the
matters proposed to be acted on thereat. The Secretary shall
inform such shareholders of the reasonably estimated cost of
preparing and mailing such notice of the meeting, and upon
payment to the Corporation of such costs the Secretary shall give
notice stating the purpose or purposes of the meeting to all
shareholders entitled to vote at such meeting. No special
meeting need be called upon the request of the holders of shares
entitled to cast less than a majority of all votes entitled to be
cast at such meeting, to consider any matter which is
substantially the same as a matter voted upon at any special
meeting of the shareholders held during the preceding twelve
months. The business transacted at any special meeting of
shareholders shall be limited to the purposes stated in the
notice.
Section 4. Notice of Meeting. Not less than ten days nor
--------- -----------------
more than 90 days before the date of every shareholders' meeting,
the Secretary shall give to each shareholder entitled to vote at
such meeting, written or printed notice stating the time and
place of the meeting, and in the case of a special meeting the
purpose or purposes for which the meeting is called, either by
mail or by presenting it to him or her personally or by leaving
it at his or her residence or place of business. If mailed, such
notice shall be deemed to be given when deposited in the United
States mail addressed to the shareholder at his or her post
office address as it appears on the records of the Corporation,
with postage thereon prepaid.
Section 5. Quorum. At any meeting of shareholders the
---------- ------
presence in person or by proxy of shareholders entitled to cast a
majority of the votes thereat shall constitute a quorum, but this
section shall not affect any requirement under statute or under
the Articles of Incorporation for the vote necessary for the
adoption of any measure. If at any meeting a quorum is not
present or represented, the chairman of the meeting or the
holders of a majority of the stock present or represented may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is
present or represented, any business may be transacted which
might have been transacted at the meeting as originally called.
Section 6. Stock Entitled to Vote. Each issued share of
---------- ----------------------
stock shall be entitled to vote at any meeting of shareholders
except (i) shares as to which any installment payable thereon is
overdue and unpaid, and (ii) shares owned, other than in a
fiduciary capacity, by the Corporation or by another corporation
in which the Corporation owns shares entitled to more than 50% of
the votes entitled to be cast by all shares outstanding of such
corporation.
Section 7. Voting. Each full outstanding share of stock
---------- ------
entitled to vote at a meeting of shareholders shall be entitled
to one vote on each matter submitted to a vote, and fractional
shares shall have fractional votes. In all elections for
directors, every shareholder shall have the right to vote the
shares owned of record by him or her for as many persons as there
are directors to be elected. A shareholder may vote the shares
owned of record by him or her either in person or by proxy
executed in writing by the shareholder or by his or her duly
authorized attorney-in-fact. No proxy shall be valid after
eleven months from its date unless otherwise provided in the
proxy. At all meetings of shareholders, unless the voting is
conducted by inspectors, all questions relating to the
qualification of voters, the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman
of the meeting. A majority of the votes cast at a meeting of
shareholders, duly called and at which a quorum is present, shall
be sufficient to take or authorize any action which may properly
come before the meeting, unless a greater number is required by
statute or by the Articles of Incorporation. No vote upon any
matter, except the election of directors and except in those
cases where a vote is required under the provisions of the
Investment Company Act of 1940, as amended, need be by ballot
unless demanded by the holders of at least 10% of the shares of
stock present or represented at the meeting.
Section 8. Informal Action. Any action required or
---------- ----------------
permitted to be taken at any meeting of shareholders may be taken
without a meeting, if a consent in writing setting forth such
action is signed by all the shareholders entitled to vote on the
subject matter thereof and such consent is filed with the records
of the Corporation.
ARTICLE II.
DIRECTORS
Section 1. Number. The number of directors of the
---------- ------
Corporation shall be four. By vote of a majority of the
remaining members of the Board of Directors, the number of
directors fixed by the Articles of Incorporation or by these
By-laws may be increased or decreased from time to time to not
exceeding 15 nor less than three, but the tenure of office of a
director shall not be affected by any increase in the number of
directors so made by the Board.
Section 2. Election and Qualification. Until the first
---------- --------------------------
annual meeting of shareholders or until successors are duly
elected and qualify, the Board of Directors shall consist of the
persons named as such in the Articles of Incorporation. At the
first annual meeting of the shareholders, the shareholders shall
elect directors to hold office until the next annual meeting or
until their successors are elected and qualify. A director need
not be a shareholder of the Corporation, but must be eligible to
serve as a director of a registered investment company under the
Investment Company Act of 1940, as amended. Each director but
one may be an "affiliated" person of the investment adviser of
the Corporation, as defined in the Investment Company Act of
1940, as amended.
Section 3. Vacancies. Any vacancy on the Board of
---------- ---------
Directors occurring between shareholders' meetings called for the
purpose of electing directors may be filled, if immediately after
filling any such vacancy at least two-thirds of the directors
then holding office shall have been elected to such office at an
annual or special meeting of shareholders, in the following
manner: (i) for a vacancy occurring other than by reason of an
increase in directors, by a majority of the remaining members of
the Board, although such majority is less than a quorum; (ii) for
a vacancy occurring by reason of an increase in the number of
directors, by action of a majority of the entire Board. A
director elected by the Board to fill a vacancy shall be elected
to hold office until the next annual meeting of shareholders or
until his or her successor is elected and qualifies. If by
reason of the death, disqualification or bona fide resignation of
any director or directors, there is no member of the Board who is
not an "affiliated" person of the investment adviser of the
Corporation, as defined in the Investment Company Act of 1940, as
amended, such vacancy shall be filled within 30 days if it may be
filled by the Board, or within 60 days if a vote of shareholders
is required to fill such vacancy; provided that such vacancy may
be filled within such longer period as the Securities and
Exchange Commission may prescribe by rules and regulations upon
its own motion or by order upon application. In the event that
at any time less than a majority of the directors were elected by
the shareholders, the Board of Directors or a proper officer
shall forthwith cause to be held as promptly as possible (and in
any event within 60 days of such event) a meeting of shareholders
for the purpose of electing directors to fill any existing
vacancies in the Board unless the Securities and Exchange
Commission shall by order extend such period.
Section 4. Powers. The business and affairs of the
---------- ------
Corporation shall be managed by the Board of Directors, which may
exercise all of the powers of the Corporation, except such as are
by law or by the Articles of Incorporation or by these By-laws
conferred upon or reserved to the shareholders.
Section 5. Removal. At any meeting of shareholders duly
---------- -------
called and at which a quorum is present, the shareholders may, by
the affirmative vote of two-thirds of the outstanding shares
entitled to be cast thereon, remove any director or directors
from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of removed directors.
The Corporation shall assist shareholders in communicating with
each other for this purpose pursuant to the requirements of
Section 16(c) of the Investment Company Act of 1940, as amended.
Section 6. Place of Meetings. Meetings of the Board of
---------- -----------------
Directors, regular or special, may be held at any place in or out
of the State of Maryland as the Board may from time to time
determine or as may be specified in the call of any meeting.
Section 7. Regular Meetings. Regular meetings of the Board
--------- ----------------
of Directors may be held without notice at such time and place as
shall from time to time be determined by the Board.
Section 8. Special Meetings. Special meetings of the Board
--------- ----------------
of Directors may be called at any time by the Board, the
President, an Executive Vice President or a Senior Vice
President, a majority of the directors in writing with or without
a meeting. Notice of special meetings shall either be mailed by
the Secretary to each director at least three days before the
meeting or shall be given personally or telegraphed or telecopied
to each director at least 24 hours before the meeting. Such
notice shall set forth the time and place of such meeting but
need not, unless otherwise required by law, state the purposes of
the meeting.
Section 9. Quorum and Vote Required for Action. At all
---------- -----------------------------------
meetings of the Board of Directors, a majority of the entire
Board shall constitute a quorum for the transaction of business,
and the action of a majority of the directors present at any
meeting at which a quorum is present shall be the action of the
Board of Directors unless the concurrence of a greater proportion
is required for such action by statute, the Articles of
Incorporation or these By-laws. If at any meeting a quorum is
not present, a majority of the directors present may adjourn the
meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present.
Section 10. Meetings By Telephone Or By Other Communication
---------- -----------------------------------------------
Technology. Meetings of the Board of Directors or committees
- ----------
thereof may be conducted by telephone or by other communication
technology in accordance with Section 2-409 of the Annotated Code
of Maryland, Corporations and Associations.
Section 11. Informal Action. Any action required or
----------- ----------------
permitted to be taken at any meeting of the Board of Directors
may be taken without a meeting, if a written consent to such
action is signed by all members of the Board and such written
consent is filed with the minutes of proceedings of the Board,
except where applicable law specifically requires a meeting of
the Board of Directors at which votes are cast by the directors
in person.
Section 12. Committees. The Board of Directors, by the
----------- ----------
affirmative vote of a majority of the entire Board, may appoint
certain committees composed of two or more members (who need not
be members of the Board of Directors) and shall have such powers
as may be delegated or authorized by the resolution appointing
them. The Board may at any time change the members of any such
committee, fill vacancies or discharge any such committee. In
the absence of any member of any such committee, the members
thereof present at any meeting, whether or not they constitute a
quorum, may appoint a member of the Board to act in the place of
such absent member. A majority of any such committee may
determine its action and fix the time and place of its meetings,
unless the Board shall otherwise provide.
ARTICLE III.
OFFICERS AND EMPLOYEES
Section 1. Election and Qualification. At least annually
---------- --------------------------
at a meeting of the Board of Directors, there shall be elected a
President, one or more Vice Presidents, a Secretary and a
Treasurer. The Board also may elect one or more Executive Vice
Presidents, Senior Vice Presidents, Assistant Vice Presidents,
Assistant Secretaries and Assistant Treasurers. No officer
except the President need be a director. Two or more offices,
except those of President and Vice President, may be held by the
same person but no officer shall execute, acknowledge or verify
any instrument in more than one capacity, if such instrument is
required by law, the Articles of Incorporation or these By-laws
to be executed, acknowledged or verified by two or more officers.
Each officer must be eligible to serve as an officer of a
registered investment company under the Investment Company Act of
1940, as amended. Nothing herein shall preclude the employment
of other employees or agents by the Corporation from time to time
without action by the Board.
Section 2. Term, Removal and Vacancies. The officers shall
--------- ---------------------------
be elected to serve terms of one year and until their successors
are elected and qualify. Any officer may be removed by the
Board, with or without cause, whenever in its judgment the best
interests of the Corporation will be served thereby, but such
removal shall be without prejudice to the contractual rights, if
any, of the person so removed. A vacancy in any office may be
filled by the Board for the unexpired term.
Section 3. Bonding. Each officer and employee of the
---------- -------
Corporation who singly or jointly with others has access to
securities or funds of the Corporation, either directly or
through authority to draw upon such funds or to direct generally
the disposition of such securities, shall be bonded against
larceny and embezzlement by a reputable fidelity insurance
company authorized to do business in Wisconsin. Each such bond,
which may be in the form of an individual bond or a blanket bond
covering all such officers and employees, shall be in such form
and for such amount (determined at least annually) as the Board
of Directors shall determine in compliance with the requirements
of Section 17(g) of the Investment Company Act of 1940, as
amended, and the rules, regulations and orders of the Securities
and Exchange Commission thereunder.
Section 4. President. The President shall be the principal
--------- ---------
executive officer of the Corporation. He or she shall preside at
all meetings of the shareholders and directors, have general and
active management of the business of the Corporation, see that
all orders and resolutions of the Board of Directors are carried
into effect, and execute in the name of the Corporation all
authorized instruments of the Corporation, except where the
signing shall be delegated by the Board to some other officer or
agent of the Corporation.
Section 5. Executive Vice Presidents, Senior Vice
----------- -------------------------------------------
Presidents, Vice Presidents and Assistant Vice Presidents. The
- ----------------------------------------------------------
Executive Vice President, if any, or if there be more than one,
the Executive Vice Presidents in the order determined by the
Board of Directors, shall, in the absence or disability of the
President, perform the duties and exercise the powers of the
President, and shall have such other duties and powers as the
Board may from time to time prescribe or the President delegate.
The Senior Vice President, if any, or if there be more than one,
the Senior Vice Presidents in the order determined by the Board
of Directors, shall, in the absence or disability of the
President and the Executive Vice President(s) (if any), perform
the duties and exercise the powers of the President, and shall
have such other duties and powers as the Board may from time to
time prescribe or the President delegate. The Vice President, if
any, or if there be more than one, the Vice Presidents in the
order determined by the Board of Directors, shall, in the absence
or disability of the President, the Executive Vice President(s)
(if any) and the Senior Vice President(s) (if any), perform the
duties and exercise the powers of the President, and shall have
such other duties and powers as the Board may from time to time
prescribe or the President delegate. The Assistant Vice
President, if any, or if there be more than one, the Assistant
Vice Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the President,
the Executive Vice President(s) (if any), the Senior Vice
President(s) (if any), or the Vice President(s) (if any), perform
the duties and exercise the powers of the President, and shall
have such other duties and powers as the Board may from time to
time prescribe or the President delegate.
Section 6. Secretary and Assistant Secretaries. The
---------- --------------------------------------
Secretary shall give notice of, attend and record the minutes of
meetings of shareholders and directors, keep the corporate seal
and, when authorized by the Board, affix the same to any
instrument requiring it, attesting to the same by his or her
signature, and shall have such further duties and powers as are
incident to his or her office or as the Board may from time to
time prescribe. The Assistant Secretary, if any, or if there be
more than one, the Assistant Secretaries in the order determined
by the Board, shall in the absence or disability of the
Secretary, perform the duties and exercise the powers of the
Secretary, and shall have such other duties and powers as the
Board may from time to time prescribe or the Secretary delegate.
Section 7. Treasurer and Assistant Treasurers. The
---------- -------------------------------------
Treasurer shall be the principal financial and accounting officer
of the Corporation. He or she shall be responsible for the
custody and supervision of the Corporation's books of account,
and shall have such further duties and powers as are incident to
his or her office or as the Board of Directors may from time to
time prescribe. The Assistant Treasurer, if any, or if there be
more than one, the Assistant Treasurers in the order determined
by the Board of Directors, shall, in the absence or disability of
the Treasurer, perform the duties and exercise the powers of the
Treasurer, and shall have such other duties and powers as the
Board may from time to time prescribe or the Treasurer delegate.
ARTICLE IV.
RESTRICTIONS ON COMPENSATION,
TRANSACTIONS AND INVESTMENTS
Section 1. Salary and Expenses. Directors, officers and
---------- -------------------
employees as such shall not receive any salary for their services
or reimbursement for expenses from the Corporation; provided,
however, that the Corporation may pay fees in such amounts and at
such times as the Board of Directors shall determine to directors
who are not affiliated persons of the Corporation's investment
adviser for attendance at meetings of the Board of Directors.
Section 2. Compensation and Profit from Purchases and
---------- ---------------------------------------------
Sales. No "affiliated" person of the Corporation, as defined in
- -----
the Investment Company Act of 1940, as amended, or affiliated
person of such person, shall, except as permitted by Section
17(e) of the Investment Company Act of 1940, as amended, or the
rules, regulations or orders of the Securities and Exchange
Commission thereunder, (i) acting as agent, accept from any
source any compensation for the purchase or sale of any property
or securities to or for the Corporation or any controlled company
of the Corporation, as defined in the Investment Company Act of
1940, as amended, or (ii) receive from any source a commission,
fee or other remuneration for effecting such transaction. The
investment adviser of the Corporation shall not profit directly
or indirectly from sales of securities to or from the
Corporation.
Section 3. Transactions with Affiliated Persons. No
---------- ---------------------------------------
"affiliated" person of the Corporation, as defined in the
Investment Company Act of 1940, as amended, or affiliated person
of such person shall knowingly (i) sell any security or other
property to the Corporation or to any company controlled by the
Corporation, as defined in the Investment Company Act of 1940, as
amended, except shares of stock of the Corporation or securities
of which such person is the issuer and which are part of a
general offering to the holders of a class of its securities,
(ii) purchase from the Corporation or any such controlled company
any security or property, other than shares of stock of the
Corporation, (iii) acting as principal, effect any transaction in
which the Corporation or controlled company is a joint or joint
and several participant with such person; provided, however, that
this section shall not apply to any transaction permitted by
Sections 17(b), (c) or (d) of the Investment Company Act of 1940,
as amended, or the rules, regulations and orders of the
Securities and Exchange Commission thereunder.
Section 4. Investment Adviser. The Corporation shall
---------- ------------------
employ only one investment adviser, which employment shall be
pursuant to a written agreement in accordance with Section 15 of
the Investment Company Act of 1940, as amended.
Section 5. Ownership of Stock by Officers and Directors.
---------- ---------------------------------------------
No officer or director shall take a long or short position in the
stock of the Corporation; provided, however, that officers or
directors may purchase stock of the Corporation for investment
purposes at the same price as that available to the public at the
time of purchase, or in connection with the original
capitalization of the Corporation.
Section 6. Portfolio Transactions. The Corporation shall
--------- ----------------------
not purchase, acquire or retain:
(a) any security issued by or any interest in the
business of an investment company, insurance company,
broker, dealer, underwriter or investment adviser, except as
permitted under Sections 12(d), (e) and (g) of the
Investment Company Act of 1940, as amended, or the rules,
regulations and orders of the Securities and Exchange
Commission thereunder;
(b) voting securities of another issuer, the
acquisition or retention of which would result in circular
or cross-ownership, as defined in Section 20(c) of the
Investment Company Act of 1940, as amended; or
(c) during the existence of any underwriting or selling
syndicate, any security, except stock of the Corporation, a
principal underwriter of which is an officer, director,
investment adviser or employee of the Corporation, or is a
person (other than a company of the character described in
Sections 12(d)(3)(A) and (B) of the Investment Company Act
of 1940, as amended) of which any such officer, director,
investment adviser or employee is an affiliated person, as
defined in the Investment Company Act of 1940, as amended,
unless in acquiring such security the Corporation is itself
acting as a principal underwriter for the issue, except as
the Securities and Exchange Commission, by rules,
regulations or order shall permit.
Section 7. General Business and Investment Activities. The
--------- ------------------------------------------
Corporation shall not:
(a) purchase any security on margin, except such short
term credits as are necessary for the clearance of
transactions;
(b) participate on a joint or joint and several basis
in any trading account in securities;
(c) effect a short sale of any security;
(d) act as an underwriter in the distribution of any
security other than stock of the Corporation;
(e) make loans to other persons, except for (i) the
purchase of a portion of an issue of publicly distributed
debt securities; (ii) the purchase of debt securities issued
by the U.S. Treasury or by other federal agencies,
instrumentalities or corporations with a simultaneous resale
of such securities to the vendor for later delivery, in an
amount not exceeding 20% of the total net assets, taken at
market, of the Corporation; and (iii) the purchase of a
portion of bonds, debentures or other debt securities of
types commonly distributed privately to financial
institutions, in an amount not exceeding 10% of the total
net assets, taken at market, of the Corporation;
(f) borrow money or issue senior securities except to
the extent permitted under Sections 18(f), (g) and (h) of
the Investment Company Act of 1940, as amended;
(g) 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 the market value of the holdings of
the Corporation in the securities of such issuer exceeds 5%
of the market value of the Corporation's total assets;
(h) purchase or sell real estate or interests in real
estate, commodities or commodity futures, but the
Corporation may purchase the securities of a real estate
investment trust or other real estate-based security listed
on a national securities exchange or authorized for
quotation on the National Association of Securities Dealers
Automated Quotations System, provided that not more than 10%
in value of the Corporation's assets will be invested in
real estate investment trusts and not more than 25% in value
of the Corporation's assets will be invested in the real
estate industry in the aggregate;
(i) deviate from its policy in respect to concentration
of investments in any particular industry or group of
industries as reported in its registration statement under
the Investment Company Act of 1940, as amended, or deviate
from any fundamental policy recited in such registration
statement pursuant to Section 8(b)(2) of the Investment
Company Act of 1940, as amended;
(j) change the nature of its business so as to cease to
be an investment company;
(k) charge any sales load or commission in connection
with the issuance or sale of any stock of the Corporation,
provided that the Board of Directors may impose a redemption
charge in such amount, with such limitations and at such
times as the Board of Directors in its discretion shall
determine, but not more than 2% of the amount redeemed;
(l) mortgage or pledge any of its assets, except as a
temporary measure for extraordinary or emergency purposes;
and
(m) purchase the securities of any issuer, the business
of which has been in continuous operation for less than
three years, such period to include the period of operation
of any predecessor if the issuer whose securities are
proposed to be acquired has come into existence as the
result of a merger, consolidation, reorganization or the
purchase of substantially all of the assets of such
predecessor, if the purchase by the Corporation of any such
securities at that time would cause more than 5% of the
total assets of the Corporation as of the time of purchase
to be invested in securities of the type described in this
paragraph.
ARTICLE V.
CERTIFICATED AND UNCERTIFICATED SHARES AND TRANSFER BOOKS
Section 1. Certificates. Unless the Board of Directors
---------- ------------
authorizes the issuance of uncertificated shares in accordance
with Section 3 of this Article V below, upon written request to
the Corporation, each shareholder shall be entitled to a
certificate or certificates, in such form as the Board of
Directors shall from time to time approve, representing and
certifying the number of whole shares of stock owned by him or
her in the Corporation. Each certificate shall be signed,
manually or by facsimile signature by the President or an
Executive Vice President, countersigned, manually or by facsimile
signature by either the Secretary, an Assistant Secretary, the
Treasurer or an Assistant Treasurer, and sealed with the
corporate seal or facsimile thereof. In case any officer who has
signed any certificate, or whose facsimile signature appears
thereon, ceases to be an officer of the Corporation before the
certificate is issued, the certificate nevertheless may be issued
with the same effect as if the officer had not ceased to be such
officer as of the date of its issue. Any certificate
representing stock which is restricted or limited as to
transferability shall have a summary of such restriction or
limitation plainly stated thereon. No certificate shall be
issued for any share of stock until such share is fully paid.
Section 2. Lost Certificates. The Board of Directors may
--------- -----------------
direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen, destroyed or
mutilated (or may delegate such authority to one or more officers
of the Corporation) upon the making of an affidavit of that fact
by the person claiming his or her certificate to be lost, stolen,
destroyed or mutilated. The Board or such officer may, in its or
his or her discretion, require the owner of such certificate or
his or her legal representative to give bond with sufficient
surety to the Corporation to indemnify it against any loss or
claim which may arise or expense which may be incurred by reason
of the issuance of a new certificate.
Section 3. Uncertificated Shares. In accordance with
---------- ---------------------
Section 2-210 of the Annotated Code of Maryland, Corporations and
Associations, any and all shares of capital stock now or
hereafter authorized for issuance may be uncertificated shares.
Section 4. Stock Ledger. The Corporation shall maintain at
--------- ------------
its office in Milwaukee, Wisconsin, or at the office of its
principal transfer agent, if any, an original or duplicate stock
ledger containing the names and addresses of all shareholders and
the number of shares held by each shareholder.
Section 5. Registered Shareholders. The Corporation shall
--------- -----------------------
be entitled to recognize the exclusive right of a person
registered on its books as such, as the owner of shares for all
purposes, and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any
other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the
State of Maryland.
Section 6. Transfer Agent and Registrar. The Corporation
---------- ----------------------------
may maintain one or more transfer offices or agencies, each in
charge of a transfer agent designated by the Board of Directors,
where the shares of stock of the Corporation shall be
transferable. The Corporation also may maintain one or more
registry offices, each in charge of a registrar designated by the
Board of Directors, where such shares of stock shall be
registered. The same person or entity may be both a transfer
agent and registrar.
Section 7. Fixing of Record Dates and Closing of Transfer
---------- ----------------------------------------------
Books. The Board of Directors may fix, in advance, a date as the
- -----
record date for the purpose of determining shareholders entitled
to notice of, or to vote at, any meeting of shareholders, or
shareholders entitled to receive payment of any dividend or the
allotment of any rights, or in order to make a determination of
shareholders for any other proper purpose. Such date, in any
case, shall be not more than 90 days, and in case of a meeting of
shareholders not less than ten days, prior to the date on which
the particular action requiring such determination of
shareholders is to be taken. In lieu of fixing a record date,
the Board may provide that the stock transfer books shall be
closed for a stated period but not to exceed, in any case, 20
days. If the stock transfer books are closed for the purpose of
determining shareholders entitled to vote at a meeting of
shareholders, such books shall be closed for at least ten days
immediately preceding such action.
ARTICLE VI.
ACCOUNTS, REPORTS AND CUSTODIAN
Section 1. Inspection of Books. The Board of Directors
---------- -------------------
shall determine from time to time whether, and if allowed, when
and under what conditions and regulations the accounts and books
of the Corporation (except such as may by statute be specifically
open to inspection) or any of them, shall be open to the
inspection of the shareholders and the shareholders rights in
this respect shall be limited accordingly.
Section 2. Reliance on Records. Each director and officer
--------- -------------------
shall, in the performance of his or her duties, be fully
protected in relying in good faith on the books of account or
reports made to the Corporation by any of its officials, by an
independent public accountant, or by any appraiser selected with
reasonable care by the Board, and in relying in good faith upon
other records of the Corporation.
Section 3. Preparation and Maintenance of Accounts, Records
--------- ------------------------------------------------
and Statements. The President, an Executive Vice President, a
- ---------------
Senior Vice President, a Vice President or the Treasurer shall
prepare or cause to be prepared annually, a full and correct
statement of the affairs of the Corporation, including a balance
sheet or statement of financial condition and a financial
statement of operations for the preceding fiscal year, which
shall be submitted at the annual meeting of the shareholders (if
there is one) and filed within 20 days thereafter at the
principal office of the Corporation in the State of Maryland.
The proper officers of the Corporation also shall prepare,
maintain and preserve or cause to be prepared, maintained and
preserved the accounts, books and other documents required by
Section 31 of the Investment Company Act of 1940, as amended, and
shall prepare and file or cause to be prepared and filed the
reports required by Section 30 of the Investment Company Act of
1940, as amended. No financial statement shall be filed with the
Securities and Exchange Commission unless any officer or employee
who prepared or participated in the preparation of such financial
statement has been designated for such purpose by the Board of
Directors.
Section 4. Auditors. No independent public accountant
---------- --------
shall be retained or employed by the Corporation to examine,
certify or report on its financial statements for any fiscal year
unless such selection (i) shall have been approved by a majority
of the entire Board of Directors within 30 days before or after
the beginning of such fiscal year or before the annual meeting of
shareholders for such fiscal year (if there is one); (ii) shall
have been ratified at the next succeeding annual meeting of
shareholders, provided that any vacancy occurring between annual
meetings due to the death or resignation of such accountant may
be filled by the Board; and (iii) shall otherwise meet the
requirements of Section 32 of the Investment Company Act of 1940,
as amended.
Section 5. Custodian. All securities, evidences of
---------- ---------
indebtedness and funds of the Corporation shall be entrusted to
the custody of one or more custodians or depositaries, each of
which shall be a bank or trust company which is a member of the
Federal Reserve System having capital, surplus and undivided
profits of not less than Two Million ($2,000,000) Dollars, as set
forth in its most recently published report of condition, and the
qualifications prescribed by and pursuant to Sections 17(f) and
26 of the Investment Company Act of 1940, as amended, employed as
agent or agents of the Corporation by the Board of Directors.
Section 6. Agreement with Custodian. Each custodian shall
--------- ------------------------
be employed pursuant to a written agreement which shall conform
to the requirements prescribed by any applicable rules and
regulations of the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and, except as
otherwise provided by such rules and regulations, shall provide
substantially as follows:
(a) The custodian shall keep (i) all cash on deposit
with it or with such other banks in the name of the
custodian as the Corporation shall direct, and (ii) all
securities in a separate account, not commingled with other
assets, in the name of the custodian, its nominee or the
Corporation in care of the custodian, or in the custody of
the custodian or its agents in street certificate or bearer
form. The custodian shall receive and collect the income or
funds due with respect to such securities.
(b) Securities and cash held by the custodian may be
withdrawn only upon written order signed on behalf of the
Corporation by two employees, at least one of whom shall be
an officer, included within a list of officers and employees
certified for such purpose by resolution of the Board of
Directors.
(c) Securities held by the custodian may be withdrawn
only for the following purposes:
(i) The sale of such securities for the
account of the Corporation with delivery and payment
therefor in accord with procedures and customs used by
the custodian in the sale of securities for the trust
estates of which it is trustee;
(ii) The delivery of securities in exchange
for or conversion into other securities alone, cash or
cash and other securities pursuant to the provisions of
such securities or a plan of merger, consolidation,
reorganization, recapitalization or readjustment of the
securities of the issuer thereof;
(iii) The surrender of warrants, rights or
similar securities in the exercise of such warrants,
rights or similar securities or the surrender of
interim receipts or temporary securities for definitive
securities;
(iv) The delivery of securities to a lender
as collateral on borrowing effected by the Corporation;
and
(v) The delivery of securities as a
redemption in kind of or distribution on stock of the
Corporation;
provided that in each case specified in clauses (ii), (iii)
and (iv) the payment, collateral or securities to be
received are delivered to the custodian simultaneously or as
promptly thereafter as possible.
(d) Cash held by the custodian may be withdrawn only
for the following purposes:
(i) The purchase of securities to be retained
by the custodian with delivery and payment therefor in
accord with procedures and customs used by the
custodian in the purchase of securities for the trust
estates of which it is trustee;
(ii) The redemption or purchase of stock of
the Corporation;
(iii) The payment of dividends or other
distributions on stock of the Corporation;
(iv) The payment of taxes, interest, or the
investment adviser's fees incurred in connection with
the operation of the Corporation;
(v) The payment in connection with the
conversion, exchange or surrender of securities owned
by the Corporation; and
(vi) The deposit of funds in the name of the
custodian in or with any other bank or trust company
designated by the Corporation.
Section 7. Termination of Custodian Agreement. Any
---------- -------------------------------------
agreement with a custodian shall be terminable on 60 days' notice
in writing by the Board of Directors or the custodian and upon
any such termination the custodian shall turn over only to the
succeeding custodian designated by the Board of Directors all
funds, securities and property and documents of the Corporation
in its possession.
Section 8. Checks and Requisitions. Except as otherwise
---------- -----------------------
authorized by the Board of Directors, all checks and drafts for
the payment of money shall be signed in the name of the
Corporation by a custodian, and all requisitions or orders for
the payment of money by a custodian or for the issue of checks
and drafts therefor, all promissory notes, all assignments, or
stock or securities standing in the name of the Corporation, and
all requisitions or orders for the assignment of stock or
securities standing in the name of a custodian or its nominee, or
for the execution of powers to transfer the same, shall be signed
in the name of the Corporation by not less than two persons (who
shall be among those persons designated for this purpose by the
Board of Directors) at least one of which shall be an officer.
Promissory notes, checks or drafts payable to the Corporation may
be endorsed only to the order of a custodian or its nominee or
the Treasurer or President or by such other person or persons as
shall be thereto authorized by the Board of Directors.
ARTICLE VII.
GENERAL PROVISIONS
Section 1. Offices. The principal office of the
---------- -------
corporation in the State or Maryland shall be in the City of
Baltimore. The Corporation also may have offices at such other
places within and without the State of Maryland as the Board of
Directors may from time to time determine. Except as otherwise
required by statute, the books and records of the Corporation may
be kept outside the State of Maryland.
Section 2. Seal. The corporate seal shall have inscribed
---------- ----
thereon the name of the corporation, and the words "Corporate
Seal" and "Maryland." The seal may be used by causing it or a
facsimile thereof to be impressed, affixed, reproduced or
otherwise.
Section 3. Fiscal Year. The fiscal year of the corporation
--------- -----------
shall be fixed by the Board of Directors.
Section 4. Notice and Waiver of Notice. Whenever any
---------- ----------------------------
notice of the time, place or purpose of any meeting of
shareholders or directors is required to be given under the
statute, the Articles of Incorporation or these By-laws, a waiver
thereof in writing, signed by the person or persons entitled to
such notice and filed with the records of the meeting, either
before or after the holding thereof, or actual attendance at the
meeting of shareholders in person or by proxy or at the meeting
of directors in person, shall be deemed equivalent to the giving
of such notice to such persons. No notice need be given to any
person with whom communication is made unlawful by any law of the
United States or any rule, regulation, proclamation or executive
order issued under any such law.
Section 5. Voting of Stock. Unless otherwise ordered by
---------- ---------------
the Board of Directors, or unless otherwise delegated to the
Investment Adviser in an investment advisory agreement, the
President shall have full power and authority, in the name and on
behalf of the Corporation, (i) to attend, act and vote at any
meeting of shareholders of any company in which the Corporation
may own shares of stock of record, beneficially (as the proxy or
attorney-in-fact of the record holder) or of record and
beneficially, and (ii) to give voting directions to the record
shareholder of any such stock beneficially owned. At any such
meeting, he or she shall possess and may exercise any and all
rights and powers incident to the ownership of such shares and
which, as the holder or beneficial owner and proxy of the holder
thereof, the Corporation might possess and exercise if personally
present, and may exercise such power and authority through the
execution of proxies or may delegate such power and authority to
any other officer, agent or employee of the Corporation.
Section 6. Dividends. Dividends upon the stock of the
---------- ---------
Corporation, subject to the provisions of the Articles of
Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting, or by unanimous written
consent, all pursuant to law. The source of each dividend
payment shall be disclosed to the shareholders receiving such
dividend, to the extent required by the laws of the State of
Maryland and by Section 19 of the Investment Company Act of 1940,
as amended, and the rules and regulations of the Securities and
Exchange Commission thereunder. Before payment of any dividend,
there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from
time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends,
or for repairing or maintaining any property of the Corporation,
or for such other purpose as the directors shall think conducive
to the interests of the Corporation, and the directors may modify
or abolish any such reserve in the manner in which it was
created.
Section 7. Indemnification. Any person who is serving or
--------- ---------------
has served as a director or officer of the Corporation or, at its
request, as a director or officer of another Corporation in which
it owns stock or of which it is a creditor, shall be indemnified
by the Corporation against expenses (including judgments, amounts
paid in settlement and fees and expenses of counsel and experts)
actually and necessarily incurred by him or her in connection
with the defense of any action, suit or proceeding in which he or
she is made a party, or from any claim with which he or she is
threatened by reason of his or her being or having been a
director or officer of the Corporation or any such other
corporation (whether or not he or she continues to be a director
or officer at the time such expense is incurred by him or her),
except in relation to matters as to which such person has been
adjudged liable because of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his or her office. In the absence of an adjudication
which expressly absolves such person from liability to the
Corporation or its shareholders for willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, indemnification
shall be conditioned upon the prior determination by a resolution
of two-thirds of those members of the Board of Directors of the
Corporation who are not involved in the action, suit, proceeding
or claim and who are not interested directors as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as
amended (or, if a majority of such members are so involved, upon
the prior written opinion of independent counsel), that such
person has no liability by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Amounts paid in
settlement shall not exceed costs, fees and expenses which would
have been reasonably incurred if the action, suit or proceeding
had been litigated to a conclusion. Such a determination by the
Board of Directors, or by independent counsel, and the payments
of amounts by the Corporation on the basis thereof shall not
prevent a shareholder from challenging such indemnification by
appropriate legal proceedings on the grounds that the person
indemnified was liable to the Corporation or its security holders
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
or her office. In the event of such person's death, the right to
indemnification shall extend to his or her legal representative.
The Corporation may advance attorneys' fees or other expenses
incurred by its directors, officers, investment adviser, agent or
employee in defending a proceeding, upon the undertaking by or on
behalf of the person to be indemnified ("indemnitee") to repay
the advance unless it is ultimately determined that he or she is
entitled to indemnification, so long as the advance is
conditioned on one of the following: (i) the indemnitee shall
provide a security for his or her undertaking; (ii) the
Corporation shall be insured against losses arising by reason of
any lawful advances; or (iii) a majority of a quorum of the
disinterested non-party directors of the Corporation, or
independent legal counsel in a written opinion, shall determine,
based on a review of readily available facts, that there is
reason to believe that the indemnitee ultimately will be found
entitled to indemnification. The foregoing rights of
indemnification shall be exclusive of any other rights to which
the officers and directors may be entitled according to law.
Section 8. Amendments. The Board of Directors shall have
--------- ----------
the power to alter or repeal any By-laws of the Corporation and
to make new By-laws, except that the Board shall not alter or
repeal any By-law made by the shareholders and shall not alter or
repeal Section 5 of Article II, Section 3 of Article III,
Sections 2, 3, 6 and 7 of Article IV, Sections 3 through 5 of
Article VI and Sections 6 through 8 of Article VII. The
shareholders shall have the power at any meeting, if notice
thereof be included in the notice of such meeting, to alter or
repeal any By-laws of the Corporation and to make new By-laws.
FRONT
NUMBER SHARES
SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 653734 10 3
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
NICHOLAS EQUITY INCOME FUND, INC.
This certifies that is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CAPITAL STOCK, PAR VALUE $.0001 PER
SHARE OF THE NICHOLAS EQUITY INCOME FUND, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate is not valid until countersigned by the Transfer Agent
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
/S/ Thomas J. Saeger /S/ Albert O. Nicholas
------------------ ------------------
Thomas J. Saeger Albert O. Nicholas
Secretary President
Dated:
COUNTERSIGNED:
FIRSTAR TRUST CO. (Milwaukee)
BY TRANSFER AGENT
- ---------------------------------------------
Authorized Signature
BACK
The following abbreviations, when used in the inscription on the face of this
certificate, shall be constructed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - ___________________ Custodian _________________
(Cust) (Minor)
under Uniform Gifts to Minors Act _____________
State
Additional abbreviations may also be used though not in the
above list.
TRANSFER FORM
COMPLETE THIS FORM ONLY WHEN TRANSFERRING TO ANOTHER PERSON
For value received ________________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNED ___________________________________
____________________________________ Please print or typewrite name and
address
___________________________________
___________________________________
___________________________________
of the capital stock represented by the within certificate and do hereby
irrevocably constitute and appoint __________________________ attorney to
transfer the same on the books of the within-named corporation, with full
power of substitution in the premises.
Dated ________________________________________________
SIGNATURE GUARANTEE BY:
__________________________________________ ________________________________
SIGNATURE(S)
Signature guarantee must be made by a NOTICE: the signature(s) to this
member or a member organization of the assignment must correspond with
New York Stock Exchange, or by a the name as written upon the face
commercial bank (not a savings bank), of the certificate in every
or by a trust company. particular, without alteration or
enlargement or any change whatever.
---------------------
REDEMPTION FORM
COMPLETE THIS FORM ONLY WHEN REDEEMING SHARES
The undersigned hereby tenders the written certificate properly endorsed
in blank or in favor of the corporation with any requisite guarantee of
signature and supporting papers and requests the redemption of
___________________________________________________(______________) shares
of capital stock represented by the within certificate in accordance with
the terms of the articles of incorporation of the corporation.
Dated: ____________________________
SIGNATURE GUARANTEE BY:
__________________________________________ ________________________________
SIGNATURE(S)
Signature guarantee must be made by a NOTICE: the signature(s) to this
member or a member organization of the assignment must correspond with
New York Stock Exchange, or by a the name as written upon the face
commercial bank (not a savings bank), of the certificate in every
or by a trust company. particular, without alteration or
enlargement or any change whatever.
---------------------------------
---------------------------------
Address
INVESTMENT ADVISORY AGREEMENT
-----------------------------
This Investment Advisory Agreement is made as of this 23rd
day of November, 1993, between NICHOLAS EQUITY INCOME FUND, INC.,
a Maryland corporation (the "Fund"), and NICHOLAS COMPANY, INC.,
a Wisconsin corporation (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Fund is an open-end, diversified management
investment company registered under the Investment Company Act of
1940, as amended ("1940 Act"); and
WHEREAS, the Fund desires to retain the Adviser to render
investment advisory services to the Fund and the Adviser is
willing to render such services;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto agree
as follows:
1. Employment of Adviser. The Fund hereby employs the
---------------------
Adviser to manage the investment and reinvestment of the assets
of the Fund for the period and on the terms set forth in this
Agreement. The Adviser hereby accepts such employment for the
compensation herein provided and agrees, during such period, to
render the services and to assume the obligations herein set
forth.
2. Duties of Adviser. Subject to the general supervision
-----------------
of the Board of Directors of the Fund, the Adviser shall manage
the investment operations of the Fund and the composition of the
Fund's assets, including the purchase, retention and disposition
thereof. In this regard, the Adviser
(i) shall provide supervision of the Fund's
assets, furnish a continuous investment program for the
Fund, determine from time to time what investments or
securities will be purchased, retained or sold by the
Fund, and what portion of the assets will be invested
or held uninvested as cash;
(ii) shall place orders pursuant to its
determinations either directly with the issuer or with
any broker and/or dealer who deals in the securities in
which the Fund is active. In placing orders, the
Adviser shall be entitled to rely upon the provisions
of Section 28(e) of the Securities Exchange Act of
1934, as amended; and
(iii) may, on occasions when it deems the
purchase or sale of a security to be in the best
interests of the Fund as well as its other customers
(including any other investment company or advisory
account for which the Adviser acts as adviser),
aggregate, to the extent permitted by applicable laws
and regulations, the securities to be sold or purchased
in order to obtain a more favorable net price or
execution. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred
in the transaction, will be made by the Adviser in the
manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund
and to such other customers.
In addition, subject to the general supervision of the
Board of Directors of the Fund, the Adviser shall arrange for the
administration of all other affairs of the Fund. In this regard,
the Adviser
(i) giving due recognition to the fact that
certain of such operations are performed by others
pursuant to a Custodian Agreement and a Transfer Agent
Agreement, and may be performed by others pursuant to a
shareholder servicing agreement, an accounting services
agreement, an administrative servicing agreement or any
similar agreement (collectively, "Other Agreements"),
shall provide supervision of all aspects of the Fund's
operations;
(ii) shall, to the extent not provided
pursuant to the Other Agreements, provide the Fund with
personnel to perform such executive, administrative and
clerical services as are reasonably necessary to
provide effective administration of the Fund;
(iii) shall, to the extent not provided
pursuant to the Other Agreements, arrange for (A) the
preparation for the Fund of all required tax returns,
(B) the preparation and submission of reports to
existing shareholders, and (C) the periodic updating of
the Prospectus and Statement of Additional Information
and the preparation of reports filed with the
Securities and Exchange Commission and other regulatory
authorities;
(iv) shall, to the extent not provided
pursuant to the Other Agreements, provide the Fund with
adequate office space and all necessary office
equipment and services including telephone service,
heat, utilities, stationary supplies and similar items;
and
(v) shall have full power and authority in
the name and on behalf of the Fund, to attend, act and
vote at any meeting of shareholders of any company in
which the Fund may own shares of stock of record or
beneficially, and to give voting directions to the
record shareholder of any such stock beneficially
owned.
Any of such services listed above in subsections (ii),
(iii) or (iv) that are provided to the Fund by the Adviser may be
billed to the Fund at the Adviser's cost. The Adviser, in the
performance of its duties hereunder, shall act in conformity with
the Articles of Incorporation, By-Laws, Prospectus, Statement of
Additional Information and the Registration Statement on Form N-
1A and with the instructions and directions of the Board of
Directors of the Fund, and will comply with and conform to the
requirements of the 1940 Act, the Investment Advisers Act of
1940, as amended, and all other applicable federal and state
laws, regulations and rulings.
The Adviser shall render to the Board of Directors of
the Fund such periodic and special reports as the Board may
reasonably request.
The services of the Adviser hereunder are not deemed
exclusive and the Adviser shall be free to render similar
services to others so long as its services under this Agreement
are not impaired thereby.
3. Status of Adviser as Independent Contractor. The
----------------------------------------------
Adviser, for all purposes herein, shall be deemed to be an
independent contractor and, unless otherwise expressly provided
or authorized, shall have no authority to act for or represent
the Fund in any way or otherwise be deemed an agent of the Fund.
However, one or more shareholders, officers, directors or
employees of the Adviser may serve as directors and/or officers
of the Fund, but without compensation or reimbursement of
expenses for such services from the Fund. Nothing herein
contained shall be deemed to require the Fund to take any action
contrary to its Articles of Incorporation or any applicable
statute or regulation, or to relieve or deprive the Board of
Directors of the Fund of its responsibility for and control of
the affairs of the Fund.
4. Expenses. The Adviser, subject to any reimbursement as
--------
provided in Section 2 hereof, shall furnish office space, office
facilities and executive officers and executive expenses (such as
health insurance premiums) for managing the assets of the Fund.
The Adviser also shall bear all sales and promotional expenses of
the Fund, including the cost of prospectuses delivered to
prospective investors, other than those sent to existing
shareholders and those who have made unsolicited requests for
information from the Fund. In addition, the Adviser shall pay
all expenses incurred in connection with the organization of the
Fund and the initial public offering and sale of its shares to
the public pursuant to such offering, and only in such event, the
Fund shall become liable for, and to the extent requested
reimburse the Adviser for, registration fees payable to the
Securities and Exchange Commission and for an additional amount
not exceeding $75,000 as its agreed share of such expenses (which
includes Blue Sky fees and expenses). The Fund generally shall
bear the expenses incurred in complying with laws regulating the
offer, issuance or sale of securities. Fees paid for attendance
at meetings of the Fund's Board of Directors to directors of the
Fund who are not interested persons of the Adviser, as defined in
the 1940 Act, or officers or employees of the Fund, shall be
borne by the Fund. The Fund shall bear all other expenses of its
operations, or shall reimburse the Adviser for such other
expenses initially incurred by it, provided that the total
expenses borne by the Fund, including the Adviser's fee but
excluding all Federal, state and local taxes, interest and
brokerage charges, shall not in any year exceed that percentage
of average net asset value of the Fund for such year, as
determined by appraisals made as of the close of each business
day, which is the most restrictive percentage provided by the
state laws of the various states in which the Fund's common stock
is qualified for sale. The expenses of the Fund's operation
borne by the Fund include, by way of illustration and not
limitation, the costs of preparing and printing its Registration
Statements required under the Securities Act of 1933, as amended,
and the 1940 Act, (and amendments thereto), the expenses of
registering its shares with the Securities and Exchange
Commission and in the various states, the cost of prospectuses,
the cost of stock certificates, reports to shareholders, interest
charges, taxes, legal expenses, non-interested directors' fees,
salaries of administrative and clerical personnel, association
membership dues, auditing and accounting services, fees and
expenses of the custodian of the Fund's assets, postage, charges
and expenses of dividend disbursing agents, registrars and stock
transfer agents, the cost of keeping all necessary shareholder
records and accounts, and any other costs related to the
aforementioned items. The Adviser shall not be obligated to pay
any expenses of or for the Fund not expressly assumed by the
Adviser pursuant to this Section 4.
The Fund shall monitor its expense ratio on a regular basis.
The Adviser shall reimburse the Fund to the extent that the
aggregate annual operating expenses, including the investment
advisory fee but excluding interest, taxes, brokerage
commissions, litigation and extraordinary expenses, exceed the
lowest (i.e., most restrictive) percentage of the Fund's average
net assets established by the laws of the states in which the
Fund's shares are registered for sale, as determined by
valuations made as of the close of each business day of the year.
The Adviser shall reimburse the Fund at the end of any fiscal
year in which the aggregate annual operating expenses exceed such
restrictive percentage.
In addition to the foregoing, the Adviser may from time to
time at its option (but shall be under no obligation to)
voluntarily assume or undertake to reimburse the Fund for all or
a portion of its expenses not otherwise required to be borne or
reimbursed by the Adviser. Any such voluntary assumption or
undertaking may be discontinued or modified at any time by the
Adviser.
5. Adviser Compensation. For the services to be rendered
--------------------
hereunder, the Fund shall pay to the Adviser an annual fee, paid
monthly, based on the average net asset value of the Fund, as
determined by appraisals made as of the close of each business
day of the month. The annual fee shall be .70% of the average
net asset value of the Fund up to and including $50.0 million,
and .60% of the average net asset value of the Fund in excess of
$50.0 million. Such fee shall be prorated in any month in which
this Agreement is not in effect for the entire month. Such fee
shall commence accruing as of the date of the initial
effectiveness of the Fund's Registration Statement on Form N-1A
filed with the Securities and Exchange Commission.
6. Books and Records. The Adviser shall maintain all of
-----------------
the Fund's records (other than those maintained pursuant to the
Other Agreements). The Adviser agrees that all records which it
maintains for the Fund are the property of the Fund and it will
surrender promptly to the Fund any of such records upon the
Fund's request. The Adviser further agrees to preserve for the
periods prescribed by Rule 31a-2 of the Securities and Exchange
Commission under the 1940 Act, any such records as are required
to be maintained by Rule 31a-1 of the Securities and Exchange
Commission under the 1940 Act.
7. Fund Investment Restrictions. The Adviser shall not
----------------------------
take, and shall not permit any of its shareholders, officers,
directors or employees to take, a long or short position in the
shares of the Fund, except for the purchase of shares of the Fund
for investment purposes at the same price as that available to
the public at the time of purchase, or in connection with the
original capitalization of the Fund.
8. Name of the Fund. The services of the Adviser to the
----------------
Fund hereunder are not to be deemed exclusive and the Adviser
shall be free to furnish similar services to others so long as
the services hereunder are not impaired thereby. Although the
Adviser has permitted and is permitting the Fund to use the name
"Nicholas," it is understood and agreed that the Adviser reserves
the right to use and permit other persons, firms or corporations,
including investment companies, to use such name. At such time
as this Agreement or any extension, renewal or amendment hereof,
or such other similar agreement shall no longer be in effect, the
Fund will (by corporate action if necessary) cease to use any
name derived from the name "Nicholas," any name similar thereto
or any other name indicating that it is advised by or otherwise
connected with the Adviser or with any organization which shall
have succeeded to the Adviser's business as investment adviser.
9. Amendment of Agreement. This Agreement may not be
----------------------
amended without the approval of the Board of Directors of the
Fund, including a majority of the disinterested directors, in the
manner required by the 1940 Act, and if such amendment is
material, by the affirmative vote of a majority of the
outstanding voting securities of the Fund, as defined in the 1940
Act.
10. Duration and Termination. This Agreement may be
--------------------------
terminated at any time, without the payment of any penalty, by
the Fund (by vote of either a majority of the Board of Directors
of the Fund or by the affirmative vote of the majority of the
outstanding voting securities of the Fund, as defined in the 1940
Act), upon giving 60 days' written notice to the Adviser. This
Agreement may be terminated by the Adviser at any time upon the
giving of 60 days' written notice to the Fund. This Agreement
shall terminate automatically in the event of its assignment (as
defined in Section 2(a)(4) of the 1940 Act). Until terminated as
hereinbefore provided, this Agreement shall continue in effect
for successive annual periods so long as such continuance is
specifically approved annually by (i) the Board of Directors of
the Fund or by the affirmative vote of a majority of the
outstanding voting securities of the Fund, as defined in the 1940
Act, and (ii) by vote of a majority of the disinterested members
of the Board of Directors of the Fund cast in person at a meeting
called for the purpose of voting on such approval, or otherwise
in the manner required by the 1940 Act, provided that any such
approvals may be made effective not more than 90 days thereafter.
11. Indemnification. The Fund hereby agrees to indemnify
---------------
and hold harmless the Adviser, its directors, officers and
employees and each person, if any, who controls the Adviser
(collectively, the "Indemnified Parties") against any and all
losses, claims, damages or liabilities, joint or several, to
which any such Indemnified Party may become subject under the
Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the 1940 Act, or other federal or state
statutory law or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon
(i) Any untrue statement or alleged untrue statement
of a material fact or any omission or alleged omission to
state a material fact required to be stated or necessary to
make the statements made not misleading in (x) the
Prospectus, the Statement of Additional Information or the
Registration Statement on Form N-1A, (y) any advertisement
or sales literature authorized by the Fund for use in the
offer and sale of its shares of common stock, or (z) any
application or other document filed in connection with the
qualification of the Fund or its shares of common stock
under the Blue Sky or securities laws of any jurisdiction,
except insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon any such untrue statement or omission or
alleged untrue statement or omission either pertaining to a
failure to disclose a breach of the Adviser's duties in
connection with this Agreement or made in reliance upon and
in conformity with information furnished to the Fund by or
on behalf of the Adviser for use in connection with any
document referred to in clauses (x), (y), or (z), or
(ii) subject in each case to clause (i) above, the
Adviser acting hereunder;
and the Fund will reimburse each Indemnified Party for any
legal or other expenses incurred by such Indemnified Party
in connection with investigating or defending any such loss,
claim, damages, liability or action.
If the indemnification provided for in this paragraph 11 is
available in accordance with the terms of such paragraph but is
for any reason held by a court to be unavailable from the Fund,
then the Fund shall contribute to the aggregate amount paid or
payable by the Fund and the Indemnified Parties as a result of
such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect
(i) the relative benefits received by the Fund and such
Indemnified Parties in connection with the operations of the
Fund, (ii) the relative fault of the Fund and such Indemnified
Parties, and (iii) any other relevant equitable considerations.
The Fund and the Adviser agree that it would not be just and
equitable if contribution pursuant to this subparagraph were
determined by pro rata allocation or any other method of
allocation which does not take into account the equitable
considerations referred to above in this subparagraph. The
aggregate amount paid or payable as a result of the losses,
claims, damages or liabilities (or actions in respect thereof)
referred to above in this subparagraph shall be deemed to include
any legal or other expenses incurred by the Fund and the
Indemnified Parties in connection with investigating or defending
any such loss, claim, damage, liability or action. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act of 1933, as amended) shall be
entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
It is understood, however, that nothing in this paragraph 11
shall protect any Indemnified Party against, or entitle any
Indemnified Party to indemnification against or contribution with
respect to, any liability to the Fund or its shareholders to
which such Indemnified Party is subject, by reason of its willful
misfeasance, bad faith or gross negligence in the performance of
its duties, or by reason of any reckless disregard of its
obligations and duties, under this Agreement, or otherwise to an
extent or in a manner inconsistent with Section 17(i) or Section
36 of the 1940 Act.
12. Certain Definitions. For purposes of this Agreement,
-------------------
the "affirmative vote of a majority of the outstanding voting
securities of the Fund" means the affirmative vote, at a duly
called and held meeting of shareholders of the Fund, (a) of the
holders of 67% or more of the shares of the Fund present (in
person or by proxy) and entitled to vote at such meeting, if the
holders of more than 50% of the outstanding shares of the Fund
entitled to vote at such meeting are present in person or by
proxy, or (b) of the holders of more than 50% of the outstanding
shares of the Fund entitled to vote at such meeting, whichever is
less.
For purposes of this Agreement, the terms "affiliated
person," "control," "interested person" and "assignment" shall
have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange
Commission under the 1940 Act; the term "specifically approve at
least annually" shall be construed in a manner consistent with
the 1940 Act and the Rules and Regulations thereunder; and the
term "brokerage and research services" shall have the meaning
given in the Securities Exchange Act of 1934 and the Rules and
Regulations thereunder.
13. Miscellaneous. The captions in this Agreement are
-------------
included for convenience of reference only and in no way define
or limit any of the provisions hereof or otherwise affect their
construction or effect. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be construed in accordance with
applicable federal laws and the laws of the State of Wisconsin
and shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors, subject to
paragraph 10 hereof. Anything herein to the contrary
notwithstanding, this Agreement shall not be construed to
require, or to impose any duty upon, either of the parties to do
anything in violation of any applicable laws or regulations.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first written.
NICHOLAS COMPANY, INC. NICHOLAS EQUITY INCOME FUND, INC.
By: \s\ Albert O. Nicholas By: \s\ Albert O. Nicholas
----------------------------- ------------------------------
Albert O. Nicholas, President Albert O. Nicholas, President
Attest: \s\ Thomas J. Saeger Attest: \s\ Thomas J. Saeger
------------------------- -------------------------
Thomas J. Saeger, Thomas J. Saeger,
Executive Vice President Executive Vice President
and Assistant Secretary and Secretary
CUSTODIAN AGREEMENT
THIS AGREEMENT is made as of the 23rd day of November, 1993,
between NICHOLAS EQUITY INCOME FUND, INC., a Maryland corporation
(the "Fund"), and FIRSTAR TRUST COMPANY, a Wisconsin corporation
(the "Custodian").
W I T N E S S E T H:
WHEREAS, the Fund desires that its securities and cash shall
be hereafter held and administered by the Custodian pursuant to
the terms of this Agreement and the Custodian desires to hold and
administer such securities and cash.
NOW, THEREAFTER, in consideration of the mutual agreements
herein made, the Fund and the Custodian agree as follows:
Section 1. Appointment and Acceptance of Custodian.
---------------------------------------
The Fund hereby constitutes and appoints the Custodian as
custodian of all of its securities and cash and the Custodian
hereby accepts such appointment. The Fund will promptly deliver
to the Custodian all securities and cash now owned by it and
hereafter from time to time conveyed into its possession.
Section 2. Definitions; Names, Titles and Signatures of
---------------------------------------------
Fund's Officers.
---------------
The word "securities" as used herein includes stocks,
shares, bonds, debentures, notes, mortgages or other obligations
and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the
same, or evidencing or representing any other rights or interests
therein or in any property or assets.
The words "officers' certificate" shall mean a request or
direction or certification in writing signed in the name of the
Fund by either any two of the President, an Executive Vice
President, a Senior Vice President, a Vice President, the
Secretary and the Treasurer of the Fund, or any one of the
foregoing officers and one of the Fund's directors or the Fund's
counsel.
The President or an Executive Vice President, Senior Vice
President, Vice President, Secretary or Assistant Secretary of
the Fund will certify to the Custodian the names and signatures
of those persons authorized to sign the officers' certificates
described in this Section 2 and the names of the members of the
Board of Directors, together with any changes which may occur
from time to time.
Section 3. Receipt and Disbursement of Money.
---------------------------------
The Custodian shall hold in a separate account or accounts,
and physically segregated at all times from those of any other
persons, firms or corporations, pursuant to the provisions
hereof, in the name of the Fund subject only to draft or order by
the Custodian acting pursuant to the terms of this Agreement, all
cash received by it from or for the account of the Fund. The
Custodian shall credit to such account or accounts of the Fund
all cash received by it for the account of the Fund, allocated
into such principal and interest accounts as the Fund shall
direct. Upon receipt of an officers' certificate from the Fund,
the Custodian may open and maintain an additional account or
accounts in such other banks or trust companies as may be
designated in such officers' certificate, such accounts, however,
to be in the name of the Custodian and subject only to its draft
or order.
The Custodian shall make payments of cash to, or for the
account of, the Fund from such cash only:
(a) for the purchase of securities for the
portfolio of the Fund upon the delivery of such
securities to the Custodian, registered in the
name of the Fund or of the nominee of the
Custodian referred to in Section 7 hereof or in
proper form for transfer;
(b) for the purchase or redemption of shares
of Common Stock of the Fund upon delivery thereof
to the Custodian;
(c) for the payment of interest, dividends,
capital gains (if any), taxes, management or
supervisory fees or operating expenses (including,
without limitation, fees for legal, accounting,
auditing, custodian, dividend disbursement and
transfer agent services);
(d) for payments in connection with the
conversion, exchange or surrender of securities
owned or subscribed to by the Fund held by or to
be delivered to the Custodian; or
(e) for other proper corporate purposes.
Except as provided below, before making any such payment the
Custodian shall receive (and may rely upon) either an officers'
certificate requesting such payment and stating that it is for a
purpose permitted under the terms of items (a), (b), (c) or (d)
above, or, in respect of item (e), an officers' certificate and a
certified copy of a resolution of the Board of Directors signed
by an officer of the Fund and certified by its Secretary or an
Assistant Secretary specifying the amount of such payment setting
forth the purpose for which such payment is to be made, declaring
such purpose to be a proper corporate purpose, and naming the
person or persons to whom such payment is to be made.
An officers' certificate need not precede the disbursement
of cash for the purpose of purchasing a money market instrument
if any one of the Fund's officers issues oral instructions to the
Custodian and an appropriate officers' certificate is received by
the Custodian within two business days thereafter.
The Custodian is hereby authorized to endorse and collect
all checks, drafts or other orders for the payment of money
received by the Custodian for the account of the Fund.
Section 4. Receipt of Securities.
---------------------
The Custodian shall deposit and hold in a separate account
and physically segregated at all times from those of any other
persons, firms or corporations, pursuant to the provisions
hereof, all securities received by it from and for the account of
the Fund. The Custodian, by book entry or otherwise, shall
identify as belonging to the Fund a quantity of securities in a
fungible bulk of securities registered in the name of the
Custodian or its nominee or shown in the Custodian's book entry
system. All such securities are to be held or disposed of by the
Custodian for, and subject at all times to the instructions of,
the Fund pursuant to the terms of this Agreement. The Custodian
shall have no power or authority to assign, hypothecate, pledge
or otherwise dispose of any such securities and investments
except pursuant to the directive of the Fund and only for the
account of the Fund as set forth in Section 5 of this Agreement.
Section 5. Transfer, Exchange, Redelivery, etc. of
--------------------------------------------
Securities.
----------
The Custodian shall have sole power to release or deliver
any securities of the Fund held by it pursuant to this Agreement.
The Custodian agrees to transfer, exchange or deliver securities
held by it hereunder only:
(a) for sales of such securities for the
account of the Fund upon receipt by the Custodian
of payment therefor;
(b) when such securities are called,
redeemed or retired or otherwise become payable;
(c) for examination by any broker selling
any such securities in accordance with "street
delivery" customs;
(d) in exchange for or upon conversion into
other securities alone or other securities and
cash whether pursuant to any plan of liquidation,
refinancing, merger, consolidation,
reorganization, recapitalization, readjustment, or
otherwise;
(e) upon conversion of such securities
pursuant to their terms into other securities;
(f) upon exercise of subscription, purchase
or other similar rights represented by such
securities;
(g) for the purpose of exchanging interim
receipts or temporary securities for definitive
securities;
(h) for the purpose of redeeming in kind
shares of capital stock of the Fund upon delivery
thereof to the Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (b),
(d), (e), (f) and (g), securities or cash receivable in exchange
therefor shall be deliverable to the Custodian. Before making
any such transfer, exchange or delivery the Custodian shall
receive (and may rely upon) either an officers' certificate
requesting such transfer, exchange or delivery and stating that
it is for a purpose permitted under the terms of items (a), (b),
(c), (d), (e), (f), (g) or (h) of this Section 5 or, in respect
of item (i), an officers' certificate and a copy of a resolution
of the Board of Directors certified by its Secretary or an
Assistant Secretary specifying the securities to be transferred,
exchanged or delivered setting forth the purpose for which such
transfer, exchange or delivery is to be made, declaring such
purpose to be a proper corporate purpose and naming the person or
persons to whom such transfer, exchange or delivery of such
securities is to be made. An officers' certificate need not
precede such transfer, exchange or delivery of securities if any
one of the Fund's officers issues oral instructions to the
Custodian and an appropriate officers' certificate is received by
the Custodian within two business days thereafter.
Section 6. Custodian's Acts Without Instructions.
-------------------------------------
Unless and until the Custodian receives an officers'
certificate to the contrary, the Custodian shall:
(a) present for payment all coupons and
other items held by it for the account of the Fund
which call for payment upon presentation and hold
the cash received by it upon such payment for the
account of the Fund;
(b) collect all income, profits, earnings,
dividends, rights, interest and other
distributions and collect all payments on account
of principal or securities sold, due, exchanged or
called for redemption;
(c) hold for the account of the Fund
hereunder all stock dividends, rights and similar
securities issued with respect to any security
held by it hereunder;
(d) surrender securities in temporary form
for definitive securities; and
(e) execute as agent on behalf of the Fund
all necessary ownership certificates required by
the Internal Revenue Code or the Income Tax
Regulations of the United States Treasury
Department or under the laws of any State now or
hereafter in effect, inserting the Fund's name on
such certificates as the owner of the securities
covered thereby, to the extent it may lawfully do
so.
Section 7. Registration of Securities.
--------------------------
Except as otherwise directed by an officers' certificate,
the Custodian shall register all securities, except such as are
in bearer form, in the name of a registered nominee of the
Custodian as defined in the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder or in
any provision of any subsequent Federal tax law exempting such
transaction from liability for stock transfer taxes, and shall
execute and deliver all such certificates in connection therewith
as may be required by such laws or Regulations or under the laws
of any State. The Custodian shall use its best efforts to the
end that the specific securities held by it hereunder shall be at
all times identifiable in its records.
The Fund shall from time to time furnish to the Custodian
appropriate instruments to enable the Custodian to hold or
deliver in proper form for transfer, or to register in the name
of its registered nominee, any securities which it may hold for
the account of the Fund and which may from time to time be
registered in the name of the Fund.
Section 8. Deposit of Portfolio Securities in Book Entry
----------------------------------------------
Systems.
-------
The Custodian may deposit all or any part of the securities
held by it under this Agreement and eligible therefor in the
Federal book entry system or any clearing agency acting as a
securities depository ("Depository System") covered by Rule 17f-
4(b) under the Investment Company Act of 1940, as amended (the
"1940 Act"). In the case of the Federal book entry system, the
Custodian may deposit such securities through an agent which is
qualified to act as a custodian for investment companies under
the 1940 Act. Any such deposits must be made in compliance with
the following:
(a) the Custodian and its agent shall comply
in all respects with clauses (d)(1) through (d)(4)
of Rule 17f-4 under the 1940 Act;
(b) all books and records maintained by the
Custodian and its agent which relate to the Fund's
participation in such Depository Systems will at
all times during regular business hours be open to
inspection by the Fund's duly authorized officers,
employees, agents and auditors, and the Fund will
be furnished with all the information in respect
of the services rendered to it as it may require;
(c) in connection with the use of such
Depository Systems, the Custodian will be liable
to the Fund for any losses or damages relating to
the failure to effectively enforce such rights as
may exist against such Depository Systems;
(d) payment for securities purchased for the
account of the Fund shall be made only upon:
(i) receipt of advice from the
Depository System that such purchased
securities have been transferred to the
account (the "Customer Only Account")
contemplated by clause (d)(2) of Rule 17f-4
under the 1940 Act; and
(ii) the making of an entry on the
records of the Custodian to reflect such
payment and transfer for the account of the
Fund; and
(e) transfer of securities sold for the
account of the Fund shall be made only upon:
(i) receipt of advice from the
Depository System that payment for such
securities have been transferred to the
Customer Only Account; and
(ii) the making of an entry on the
records of the Custodian to reflect such
transfer of sold securities and transfer of
payment for the account of the Fund.
Section 9. Voting and Other Action.
-----------------------
Neither the Custodian nor any nominee of the Custodian shall
vote any of the securities held hereunder by or for the account
of the Fund, except in accordance with the instructions contained
in an officers' certificate. The Custodian shall deliver, or
cause to be executed and delivered to the Fund, all notices,
proxies and proxy soliciting materials with relation to such
securities, such proxies to be executed by the registered holder
of such securities (if registered otherwise than in the name of
the Fund), but without indicating the manner in which such
proxies are to be voted.
Section 10. Transfer Tax and Other Disbursements.
------------------------------------
The Fund shall pay or reimburse the Custodian from time to
time for any transfer taxes payable upon transfers of securities
made hereunder and for all other necessary and proper
disbursements and expenses made or incurred by the Custodian in
the performance of this Agreement.
The Custodian shall execute and deliver such certificates in
connection with securities delivered to it or by it under this
Agreement as may be required under the provisions of the Internal
Revenue Code and any Regulations of the Treasury Department
issued thereunder or under the laws of any State, to exempt from
taxation any exemptible transfers and/or deliveries of any such
securities.
Section 11. Concerning Custodian.
--------------------
The Custodian shall be paid as compensation for its services
pursuant to this Agreement such compensation as may from time to
time be agreed upon in writing between the two parties. Until
modified in writing between the Custodian and the Fund, such
compensation shall be as set forth in Exhibit A attached hereto.
The Custodian shall not be liable for any action taken in
good faith upon any certificate herein described or certified
copy of any resolution of the Board of Directors, and may rely on
the genuineness of any such document which it may in good faith
believe to have been validly executed.
The Fund agrees to indemnify and hold harmless the Custodian
and its nominee from all taxes, charges, expenses, assessments,
claims and liabilities (including legal counsel fees) incurred or
assessed against it or its nominee in connection with the
performance of this Agreement, except such as may arise from its
or its nominee's own negligent action, negligent failure to act
or willful misconduct. The Custodian is authorized to charge any
account of the Fund for such items. In the event of any advance
of cash for any purpose made by the Custodian resulting from
orders or instructions of the Fund or in the event that the
Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as
may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at
any time held for the account of the Fund shall be security
therefor.
Section 12. Reports by Custodian.
--------------------
The Custodian shall furnish the Fund with the following
written reports or advices:
(a) daily advices or confirmations showing
all securities purchased and prices paid therefor,
securities sold and prices received therefor and
all other transactions affecting securities held
for the account of the Fund;
(b) daily statements setting forth a summary
of all transactions made or which took place with
respect to the account of the Fund;
(c) promptly, all reports it receives from
the appropriate Federal Reserve Bank or clearing
agency, any other regulatory authority, or
independent auditors on its respective system of
internal accounting control; and
(d) all reports reasonably requested by the
Fund from time to time relating to the Custodian's
or its agent's own system of internal accounting
control.
The books and records of the Custodian pertaining to its
actions under this Agreement shall be open to inspection and
audit at reasonable times by officers of and auditors employed by
the Fund.
Section 13. Termination or Assignment.
-------------------------
This Agreement may be terminated by the Fund, or by the
Custodian, on 60 days' notice, given in writing and sent by
certified mail to the Custodian at 615 East Michigan Avenue,
Milwaukee, Wisconsin 53202, or to the Fund at 700 North Water
Street, Milwaukee, Wisconsin 53202, as the case may be. The
notice to the Custodian shall be given pursuant to a resolution
adopted by the Board of Directors of the Fund. Upon termination
of this Agreement, the Custodian shall deliver to the successor
custodian of the Fund designated in a certified copy of a
resolution of the Board of Directors of the Fund filed with the
Custodian all cash, securities and related instruments held by
the Custodian. Any securities registered in the name of the
Custodian or its nominee shall be endorsed in form for transfer.
The Fund agrees to name such successor custodian within 60 days
after the written notice of termination of this Agreement is
received or delivered by it.
This Agreement may not be assigned by Custodian without the
consent of the Fund, authorized or approved by a resolution of
its Board of Directors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and their respective corporate seals to
be affixed hereto as of the date first above written by their
respective officers thereunto duly authorized.
Executed in several counterparts, each of which is an
original.
FIRSTAR TRUST COMPANY
By: /s/ James C. Tyler
--------------------------------
Authorized Officer
Attest: /s/ Andrea Lydolph
---------------------------
Assistant Secretary
NICHOLAS EQUITY INCOME FUND, INC.
By: /s/ Albert O. Nicholas
-------------------------------
Albert O. Nicholas, President
Attest: /s/ Thomas J. Saeger
---------------------------
Thomas J. Saeger,
Executive Vice President
and Secretary
<PAGE>
FIRSTAR TRUST COMPANY
To: Tom Saeger
From: Jim Tyler
Date: December 24, 1997
Re: Nicholas Fund Fees For Calendar Years 1998 through 2000
TRANSFER AGENT FEES
Current
1997 1998 1999 2000
---- ---- ---- ----
First 20,000 $13.40 $14.00 $14.20 $14.40
Next 40,000 12.65 13.25 13.45 13.65
Next 40,000 12.15 12.75 12.95 13.15
100,000 to 275,000 11.90 12.50 12.70 12.90
Over 275,000 10.00 10.60 10.80 11.00
Money Market Fund 14.40 15.00 15.20 15.40
Closed Accounts Billed @ $6.00 per account
CUSTODIAN FEES:
MARKET VALUE BASED FEE:
First 7 Billion: 1/2 Basis Point or (.00005)
Excess over 7 Billion: 4/10 Basis Point or (.00004)
TRANSACTION BASED FEES:
DTC/Fed Book Entry Transactions: The fees for the first 6,000 trades per
year will be waived, we will charge $6.00 for these trades thereafter.
Physical Delivery trades will be charged @ $12.00 per trade.
There will be no fees for commercial paper or demand note transactions.
NICHOLAS
FAMILY OF FUNDS
[LOGO]
INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
TRADITIONAL
ROTH
EDUCATIONAL
TABLE OF CONTENTS
Page
General Information 3
Initial Investment Minimums 3
Firstar Trust Company Custodial Fees 3
Instructions for Establishing an IRA 3
Opening an IRA 3
Transferring an IRA 4
Conversion of Traditional IRA a Roth IRA 4
Where to Obtain Assistance on Your Nicholas IRA 4
Disclosure Statement 5
Terms and Definitions 5
Questions and Answers 7
General IRA Information 7
Traditional IRA 9
Roth IRA 14
Education IRA 17
Individual Retirement Account Custodial Agreements (5305 Series)
5305-A, Traditional IRA 19
5305-RA, Roth IRA 21
5305-EA, Education IRA 23
NICHOLAS FAMILY OF FUNDS
GENERAL INFORMATION
Welcome to the Nicholas Family of Funds. Please take some time
to review this Individual Retirement Account (IRA) Disclosure
Statement as well as the fund prospectus(es) you are considering
investment in. The following information in this General
Information section will help you by outlining investment options
and minimums, identifying fees associated with IRA accounts,
providing instructions for establishing your IRA account, and
identifying where you can receive assistance on your Nicholas
account.
The Taxpayer Relief Act of 1997 brings many changes beginning in
1998 to the Traditional IRA as well as the introduction of two
new products: the Roth IRA and the Education IRA. These changes
extend the opportunity for tax-deferred, and in some instances
tax-exempt, savings through the use of IRA accounts.
The remainder of this Disclosure Statement is divided into
sections to provide easier access to the information pertaining
specifically to the type of IRA account you are considering
investment in. Please refer to the table of contents for faster
location of information pertinent to your situation. We hope
that this Disclosure Statement is a useful tool for your IRA
decision making process. Thank you for considering investing in
the Nicholas Family of Funds.
INITIAL INVESTMENT MINIMUMS:
Nicholas Fund - $500 Nicholas Equity Income Fund - $2,000
Nicholas II Fund - $500 Nicholas Income Fund - $500
Nicholas Limited Edition* - $2,000 Nicholas Money Market Fund - $2,000
*NICHOLAS LIMITED EDITION HAS A LIMITED NUMBER OF SHARES FOR SALE
AND MAY NOT BE AVAILABLE AT THIS TIME. PLEASE CONTACT THE
NICHOLAS FAMILY OF FUNDS REGARDING THE AVAILABILITY OF NICHOLAS
LIMITED EDITION.
FIRSTAR TRUST COMPANY CUSTODIAL FEES:
(a) Annual maintenance fee; Traditional and Roth IRA - $12.50
per account
(There is a cap of $25.00 for two or more accounts
under one social security or taxpayer identification number. Education IRA
accounts are not included in this cap. The $25.00 will be divided equally
between all IRA accounts.)
Annual maintenance fee for Education IRA - $5.00 per account
THE ANNUAL MAINTENANCE FEE WILL BE DEDUCTED FROM YOUR
ACCOUNT ANNUALLY, UNLESS IT IS PAID BY SEPTEMBER 15TH.
ACCOUNTS CLOSED PRIOR TO THAT WILL BE ASSESSED THE ANNUAL
MAINTENANCE FEE UPON REDEMPTION.
(b) Transfer to a successor trustee-$15.00.
(c) Distribution to a participant-$15.00. (Excluding Systematic
Withdrawal Plan distributions)
(d) Refund of excess contribution-$15.00.
The charge for refunding excess contributions will be
deducted from your account at the time of the refund.
(e) Any outgoing wire transfer-$12.00.
Enough fund shares will be redeemed to cover these fees. These
fees will apply regardless of the size of your account. The fees
are subject to change.
INSTRUCTIONS FOR ESTABLISHING AN IRA
OPENING AN IRA:
1) Please read the prospectus for the fund you are interested
in. If you do not have the applicable investment kit which
contains the prospectus, contact Nicholas Family of Funds. This
material contains more complete information regarding charges and
expenses.
2) Fill in the information required on the IRA Custodial
Account Application - Form A (A through F) for Traditional and
Roth IRA accounts, and on the IRA Custodial Account Application -
Form B (A through G) for Education IRA accounts.
3) Please make your check payable to the fund you are investing
in. If you are investing in more than one fund, one check made
payable to Nicholas Family of Funds is appropriate.
4) Direct Rollover contributions (for use with Traditional IRA
accounts only) from an employer plan or tax-sheltered annuity
should be made payable to:
Firstar Trust Company, Custodian
Nicholas Family of Funds IRA
FBO (your name)
5) Send the completed application along with your check in the
envelope provided to:
Firstar Trust Company
Corporate Trust Department-IRA
P.O. Box 2944
Milwaukee, WI 53201-2944
A confirmation verifying your IRA investment will be mailed to
you within a week to 10 days after receipt of your deposit.
NOTE: If a fund has not been selected on the application or is
not indicated on the check, the investment will be made in the
Nicholas Money Market Fund.
TRANSFERRING AN IRA:
Use the transfer form (Form C) enclosed to transfer an existing
IRA from a current custodian or trustee to the Nicholas Family of
Funds. Be sure to fill in all of the information required. Return
the form, intact, with the IRA Custodial Account Application, and
we will handle the transfer for you. If the current custodian
sends you a check for the money in your account, forward a check
to the Firstar Trust Company within 60 days to avoid any tax
liability (please see "rollover" in the terms and definitions).
This last type of transaction is permitted only once every 12
months. PLEASE NOTE THAT MOST CUSTODIANS WILL REQUIRE THAT YOUR
SIGNATURE BE GUARANTEED BY A COMMERCIAL BANK, A MEMBER OF THE NEW
YORK STOCK EXCHANGE OR A SAVINGS AND LOAN ASSOCIATION.
TRANSFERS CAN ONLY BE MADE BETWEEN LIKE IRA ACCOUNTS; TRADITIONAL
IRA TO TRADITIONAL IRA, ROTH IRA TO ROTH IRA, OR EDUCATION IRA TO
EDUCATION IRA.
CONVERSION OF TRADITIONAL IRA TO ROTH IRA:
1) Please read the Question and Answer section pertaining to
Roth IRA accounts.
2) Complete Form D - Conversion of Traditional IRA to Roth IRA
3) Complete Form A - IRA Custodial Account Application for
Traditional or Roth IRA Account.
It is not necessary to return the Form 5305-RA.
4) Send completed Form A and Form D to:
Firstar Trust Company
Corporate Trust Department-IRA
P.O. Box 2944
Milwaukee, WI 53201-2944
A confirmation verifying your IRA investment will be mailed to
you within a week to 10 days after the conversion is complete.
NOTE: The conversion Roth will be established in the same fund
the Traditional IRA is invested in unless otherwise noted on the
conversion form (Form D) and the IRA application (Form A).
WHERE TO OBTAIN ASSISTANCE ON YOUR NICHOLAS IRA ACCOUNT
ACCOUNT QUESTIONS AND TRANSACTIONS:
Questions regarding your IRA account transactions should be
directed TO FIRSTAR TRUST COMPANY AT (800)544-6547 OR
(414)276-0535. As the Custodian of Nicholas Family of Funds IRA
accounts, Firstar can answer questions regarding purchases,
redemptions, and compliance issues. Representatives are
available Monday through Friday between 8:00 a.m. and 7:00 p.m.,
Central time to speak with investors. Account holders may access
their account information through our Voice Response Unit 24
hours a day by receiving computerized updates.
INVESTMENT OPTIONS AND PORTFOLIO QUESTIONS:
Questions regarding the Fund objectives, performance, or
management should be directed to NICHOLAS FAMILY OF FUNDS AT
(800)227-5987 OR (414)272-6133. Our registered representatives
are available to assist you personally between 8:15 a.m. and 4:30
p.m., Central time. After regular business hours, investors may
leave a message on our answering machine to receive additional
information or to have a representative return their call the
following business day.
INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
The Internal Revenue Service requires that you be given a
Disclosure Statement for the purpose of understanding individual
retirement accounts. The following Question/Answer Series is part
of our Disclosure Statement. Please read this section, the
Custodial Agreement (Forms 5305-A, 5305-RA, and 5305-EA) and the
appropriate Prospectus very carefully before deciding to invest.
You may revoke your IRA within seven days from the date the
individual retirement account is established. Upon revocation you
will receive the entire amount of consideration paid for your
account without adjustment for losses, gains or administrative
expenses. You may revoke your IRA by mailing or delivering a
written notice to the address listed below. A mailed notice,
properly addressed with first class postage prepaid, is deemed
mailed on the date of its postmark, certification or
registration.
Firstar Trust Company, Custodian
Nicholas Family of Funds, IRA
P.O. Box 2944
Milwaukee, Wisconsin 53201-2944
If you need further assistance in answering questions pertaining
to the Nicholas Family of Funds IRA, please call us at (414)
272-6133, or (800) 227-5987 or write to:
Nicholas Family of Funds
Individual Retirement Accounts
700 N. Water St., Suite 1010
Milwaukee, Wisconsin 53202
We recommend that you consult your lawyer, accountant or personal
tax adviser regarding questions on tax and legal implications.
TERMS AND DEFINITIONS
ACTIVE PARTICIPANT - An employee who is eligible to participate
in, actually participates in, or receives a contribution in
(including forfeitures) an employer-sponsored retirement plan.
BENEFICIARY - The individual(s) identified to receive your IRA
proceeds in the event of your death. Special rules apply to the
Education IRA; please read the 5305-EA and related materials
closely.
COMPENSATION INCOME - Income reported to you by an employer on
Form W-2 or on Schedule C for self-employed individuals.
CONDUIT IRA - This is an IRA account established as a "holding
account" for proceeds from a previous employer's retirement plan.
You may roll over those assets into another qualified employer's
plan only if they are made up of the funds received from the
first employer's plan (plus earnings), and you did not commingle
regular contributions or funds from other sources with them.
CONTRIBUTION - The annual dollar amount deposited to an IRA
account for a specific calendar year. Contribution limits vary
depending on individual circumstances. Please review the
Question and Answer section of the IRA type you are considering
for a more detailed discussion.
CUSTODIAN - A bank, federally insured credit union, savings &
loan association, or other person found acceptable by the
Secretary of the Treasury. Firstar Trust Company acts as
Custodian on Nicholas Family of Funds IRA accounts.
DIRECT ROLLOVER - A direct rollover to a Traditional IRA is
payment of a distribution from an employer-sponsored plan to the
IRA custodian instead of to you. You are entitled to have all or
part of an eligible rollover distribution made after 1992 from a
qualified plan or tax-sheltered annuity paid as a direct
rollover.
DISTRIBUTION - Any money or property you receive due to a
withdrawal or "pay out" from your IRA account or annuity is a
distribution. Generally, distributions are to be included in
your gross income in the year you receive them. Exceptions to
the general rule are rollovers made within the 60 day limitation
period and tax-free withdrawals of excess contributions. If you
made nondeductible contributions for tax years after 1986, a
portion of each distribution will be tax-free, up to the total
amount of nondeductible contributions you made.
EARNED INCOME - Income earned by providing a service to another
individual or entity. This does not include investment income
(such as dividends and capital gains). Earned income does
include income from royalties, commissions, and taxable alimony.
EDUCATION IRA - An Education IRA is a specialized savings vehicle
to be used for post-secondary education expenses incurred by the
designated beneficiary of the account. Contributions do not
receive a current deduction and are made to an IRA maintained on
behalf of a designated beneficiary. However, if amounts are used
for certain educational purposes, neither the contributor nor the
beneficiary of the IRA are taxed upon distribution.
EXCESS CONTRIBUTION - The amount you contribute to your IRA
(other than rollover contributions and transfers) that is greater
than the allowable contribution limits outlined in the specific
IRA Question and Answer section. Contributions that exceed the
allowable maximum for federal income tax purposes are treated as
excess contributions. A nondeductible penalty tax of 6% of the
excess amount contributed will be added to your income tax for
each year in which the excess contribution remains in your
account. Firstar Trust Company, as Custodian, charges a $15.00
fee to refund any excess amounts.
IRA - "IRA" stands for Individual Retirement Arrangement. In
general, an IRA is a savings program that lets you set money
aside for future retirement (except with the Education IRA).
Please refer to the Question and Answer section on the type of
IRA you are considering establishing to determine the
deductibility of contributions and the taxation of future
distributions.
MAINTENANCE FEE - The annual fee assessed by the Custodian to
offset expenses related to maintaining IRA accounts within IRS
limitations.
PASSIVE INCOME - Income which is not earned, such as investment
income from dividends and capital gains.
PREMATURE DISTRIBUTION - Any distribution from your IRA made
prior to the minimum standards established by the IRS. Different
terms govern the different IRA accounts available. Please refer
to the Question and Answer section for the type of account you
are considering for more specific terms.
REQUIRED MINIMUM DISTRIBUTION - Distributions from a Traditional
IRA must begin by April 1 in the year following the year an IRA
owner attains 70 1/2. Roth IRAs do not require a minimum
distribution.
ROLLOVER - A rollover is the deposit of cash, stock, etc. from
one retirement program into another tax-free where by the IRA
OWNER RECEIVES A CHECK from the resigning custodian, and upon
receipt of the check has 60 days to deposit the proceeds into
another custodial account. Only one rollover is permitted per
IRA account in any twelve month period.
ROTH IRA - A Roth IRA is a new IRA product available beginning
with contributions made for tax year 1998. Amounts contributed to
your IRA are taxed at the time of contribution, but distributions
from the IRA may not be subject to tax if you have held the IRA
for certain minimum periods of time (generally, until age 59 1/2
but in some cases longer).
SPOUSAL IRA - An IRA account for a spouse without earned income.
Contribution limits and deductibility of contributions will vary
depending on the situation. Please refer to the Question and
Answer section for the account type you are considering.
TOTAL RETURN - This is the increase (or decrease) in the Fund's
share price, plus the reinvestment of all dividends and capital
gains, over a specific period of time. Total return is a measure
of actual past performance and can be used as an indicator of the
future potential growth of a fund, but it is in no way a
guarantee of future performance.
TRADITIONAL IRA - A Traditional IRA is a specialized IRA
account where amounts contributed to the IRA may be tax
deductible at the time of contribution. Distributions from the
IRA will be taxed at distribution except to the extent that the
distribution represents a return of your own contributions for
which you did not claim (or where not eligible to claim) a
deduction.
TRANSFER - This is THE MOVEMENT OF IRA PROCEEDS DIRECTLY FROM ONE
CUSTODIAN TO ANOTHER with the funds never coming under your
direct control. The IRS allows transfers as often as the IRA
owner desires; however, the fund you are considering may impose
restrictions. Transfers are accomplished with written
instructions, using a Transfer Form provided by the receiving
custodian.
1099-R - The government form used to report distributions (all
except transfers between custodians) from your IRA account. A
copy is sent to you and to the IRS in January following the year
of distribution.
5498 - The government form used to report annual contributions
and rollovers (but not transfers) as well as the year-end market
value of your IRA account for each calendar year. Copies are
sent to you and to the IRS in May of the following year.
QUESTION AND ANSWERS
GENERAL IRA ACCOUNT INFORMATION
1) HOW WILL MY ACCOUNT BE INVESTED?
Contributions made to an IRA will be invested, at your
election, in one or more of the regulated investment companies
for which Nicholas Company, Inc. serves as Investment Advisor or
any other regulated investment company designated by Nicholas
Company, Inc. No part of the IRA may be invested in life
insurance contracts; further, the assets of the IRA may not be
commingled with other property.
Information about the shares of each mutual fund available for
investment by your IRA must be furnished to you in the form of a
prospectus governed by rules of the Securities and Exchange
Commission. Please refer to the prospectus for detailed
information concerning your mutual fund. You may obtain further
information concerning IRAs from any District Office of the
Internal Revenue Service.
2) WHAT IS THE RATE OF RETURN ON MY NICHOLAS IRA CONTRIBUTION?
The rate of return on your investment depends on the increase
or decrease of the fund share price in relation to your purchase
price, plus a reinvestment of all distributions. Growth in the
value of your account is in no way guaranteed by the fund you
choose, Nicholas Company, or the Custodian. Market risks are
inherent in any investment and there can be no assurance against
possible loss in the value of any of the fund's portfolios.
Future earnings on your contributions cannot be projected because
of the fluctuations in the value of the funds.
3) MAY I TRANSFER MY BALANCE BETWEEN THE FUNDS MANAGED BY
NICHOLAS COMPANY?
Yes. Please review the final article of each Individual
Retirement Account Custodial Agreement (5305 series) for specific
rules. Exchanges made between Nicholas funds are considered
transfers for tax purposes and are not limited by the IRS as to
frequency. However, Fund policy may limit frequency of
transactions. Please review your Fund prospectus regarding
exchanges between funds.
4) WHAT IS THE DEADLINE FOR MAKING IRA CONTRIBUTIONS?
The deadline for making contributions to the IRA is the due
date your tax return for the year in which the deduction is
claimed, without extensions. Consequently, you must make your
contribution before April 15, even if you obtain an extension for
filing your tax returns.
You must fully execute the IRA Custodial Account Application
by April 15. One exception applies to Education IRAs. At the
time of this printing, current legislation appears to require
contributions to an Education IRA be made during the calendar
year the contribution applies to.
5) AM I REQUIRED TO CONTRIBUTE TO AN IRA EVERY YEAR?
No.
6) CAN I HAVE MORE THAN ONE IRA ACCOUNT?
Yes. You may establish more than one IRA account provided that
the total contributions to all of your IRAs (including
Traditional, Roth, and Education where applicable) for the
taxable year do not exceed the maximum limits. For example, you
may wish to place a portion of your contribution in a mutual fund
IRA, and place the remainder with an IRA offered by a savings and
loan or bank.
7) WHAT HAPPENS IF I MAKE AN EXCESS CONTRIBUTE TO MY IRA?
If you make a contribution in excess of your allowable
maximum, you may correct the excess contribution and avoid the 6%
penalty tax for that year by withdrawing the excess contribution
and its earnings on or before the date, including extensions, for
filing your tax return for the tax year for which the
contribution was made. Any earnings on the withdrawn excess
contribution may be subject to a 10% early distribution penalty
tax if you are under age 59 1/2. In addition, in certain cases an
excess contribution may be withdrawn after the time for filing
your tax return. Finally, excess contributions for one year may
be carried forward and applied against the contribution
limitation in succeeding years.
8) WHAT DO I DO IN THE EVENT I WISH A REFUND OF THE EXCESS
CONTRIBUTION AND EARNINGS IN MY NICHOLAS IRA?
To request a refund you must submit a letter, addressed to the
Custodian at the address given on page 5 of this Disclosure
Statement, indicating the principal amount of the excess
contribution which should be redeemed and refunded to you. This
letter should include the date of the contribution, state that
this redemption is due to an over-contribution and that the net
income attributable to the contribution should also be returned.
The letter must bear your signature.
9) HOW ARE DISTRIBUTIONS MADE?
If you wish to receive a full or partial distribution, or
installment payments from your IRA account in the Nicholas Family
of Funds, an IRA Distribution Request Form must be completed and
returned to the Custodian prior to distribution. This form can be
obtained by writing or calling Firstar Trust Company
(414-276-0535 or 800-544-6547). A written request for
distribution is also acceptable provided it contains a facsimile
notice of federal income tax withholding as it appears on our
form.
Distributions can be made in a single sum payment or in
various installment methods which are described in greater detail
in the appropriate 5305 form at the end of this Disclosure
Statement.
10) CAN ANYTHING CAUSE DISQUALIFICATION OF MY IRA?
Yes. If you or your beneficiary engage in a prohibited
transaction (i.e. self-dealing types of activities, including
borrowing of money from the account) described in section 4975(c)
of the Internal Revenue Code with respect to your IRA, the
account will lose its tax-deferred status as of the first day of
the taxable year in which the prohibited transaction occurs. The
fair market value of the account as of the first day of the
taxable year must be included in your gross income, or in the
gross income of your beneficiary. If your account is disqualified
in this manner, and you are not disabled or 59 1/2 years of age on
the first day of the taxable year, you must also pay the 10%
additional tax as though there had been a premature distribution.
11) MAY I REDEEM PERSONAL SHARES AND TRANSFER THE CASH INTO AN
IRA?
Yes, however, you should take into consideration that any
realized gains made on the redemption may be subject to federal
and state income taxes.
12) MAY I PLEDGE MY IRA AS SECURITY FOR A LOAN?
If you pledge your IRA as security for a loan, the portion so
pledged is treated as a fully taxable distribution. If you have
not attained the age of 59 1/2 at the time of the pledge, the
distribution is also subject to a 10% nondeductible excise tax as
a premature distribution.
13) WHERE MAY I OBTAIN ADDITIONAL INFORMATION ABOUT MY IRA?
You may obtain additional information about your IRA from your
local Internal Revenue Service district office.
NOTE: As of calendar year 1997, the 15% excess distribution tax
is repealed, as is the 15% excess accumulation at death tax.
TRADITIONAL IRA ACCOUNTS
1) WHAT ARE SOME OF THE RULES GOVERNING TRADITIONAL INDIVIDUAL
RETIREMENT ACCOUNTS?
An Individual Retirement Account (IRA) is either a trust or
custodial account. It must be created by document for your
exclusive benefit, as an individual, or for your beneficiaries.
It also must meet the following IRS requirements:
(a) The custodian must be a bank, federally insured credit union,
savings and loan association, or other person found acceptable by
the Secretary of the Treasury.
(b) Contributions may not exceed $2,000 (or your full income,
whichever is less) in any taxable year and are combined with any
other contributions made for your benefit to other IRA accounts
such as Roth IRAs or Education IRAs. Distributions from
qualified employer retirement plans or tax-sheltered annuities
purchased for you by a public school or charitable employer are
not included in the annual $2,000 limit. Contributions must be
made by check and not in the form of securities.
(c) No part of the assets of the savings plan fund may be
invested in ordinary life insurance contracts.
(d) The assets of the custodial account may not be commingled
with other property except in a common trust fund or common
investment fund.
(e) Your interest, as a depositor, in the balance of your IRA
must be non-forfeitable.
(f) The entire interest, in a Traditional IRA maintained for your
benefit, must be distributed to you by the "required beginning
date for distributions", which is April 1 following the close of
the calendar year in which you attain age 70 1/2. Alternatively,
the entire interest must be distributed, beginning no later than
the required beginning date for distributions, over either:
(i) your life as depositor, or the joint lives of you and
your designated beneficiary; or over
(ii) a period not extending beyond your life expectancy, or
the joint life expectancy of you and your designated beneficiary.
(g) If you die on or after the date distribution of your interest
has begun, the remaining interest will continue to be distributed
to your beneficiaries under the same method in effect prior to
your death. If you die before the distribution of your interest
has begun, the entire remaining interest will, at the election of
your beneficiary or beneficiaries, be distributed either:
(i) by December 31 of the year containing the fifth (5th)
anniversary of the your death; or
(ii) in equal or substantially equal payments over the life
or life expectancy of the designated beneficiary or
beneficiaries.
The election of either (i) or (ii) above must be made by December
31 of the year following the year of your death. If the
beneficiary or beneficiaries do not elect either of the
distribution options by that time, distribution will be made in
accordance with (ii) if the beneficiary is your surviving spouse,
and in accordance with option (i) if the beneficiary or
beneficiaries are or include anyone other than your surviving
spouse. Distributions under option (ii) must begin by December 31
of the year following the year of your death. However, if your
spouse is the beneficiary, distributions need not begin until
December 31 of the year you would have attained age 70 1/2. The
spouse, as beneficiary, has the option to rollover your account
into their own IRA and take distributions according to
Traditional IRA rules. It should be noted that the deferral on
income recognition may be available to the surviving spouse upon
proper elections being made. Professional advice should be
obtained to effect the deferral of income recognition.
2) DOES THE NICHOLAS IRA MEET ALL OF THE INTERNAL REVENUE SERVICE
REQUIREMENTS?
Yes. The Nicholas IRA has been approved, in form, by the
Internal Revenue Service. IRS approval is not a determination of
the merit of the Nicholas IRA as an investment.
3) WHO IS ELIGIBLE TO PARTICIPATE IN A TRADITIONAL IRA?
Anyone under age 70 1/2 who has earned income at some time
during the year may participate in an IRA. You may contribute
whether or not you are an active participant in an
employer-sponsored retirement plan. However, if you are an active
participant in an employer-sponsored plan, your contributions
will be deductible only if the income of you and your spouse, if
any, is below certain limits (see Question 6 on page 10).
4) ARE THERE LIMITATIONS ON THE AMOUNT OF CONTRIBUTIONS I CAN
MAKE TO AN IRA?
Yes, yearly IRA contributions may not exceed the lesser of the
following amounts: (1) $2,000, or (2)100 % of your annual
compensation (earned income) that is includable in your gross
income. Please see the answer to Question 6 on page 10 for rules
relating to the deductibility of IRA contributions.
5) DO THE IRA LIMITATIONS MENTIONED PREVIOUSLY APPLY SEPARATELY
TO A HUSBAND AND WIFE WHO BOTH WORK?
Yes, a husband can contribute $2,000 maximum per year to his
IRA, and his wife may contribute $2,000 maximum per year to her
IRA.
It is important to note that there can be no joint IRA
accounts. IRAs are set aside in the name of one person; however,
beneficiaries are designated in the event of death.
6) ARE TRADITIONAL IRA CONTRIBUTIONS FULLY TAX DEDUCTIBLE?
Your Traditional IRA contributions will be fully tax
deductible (up to the maximum contribution limit) if you, or you
and your spouse, are not an active participant(s) in an
employer-sponsored retirement plan. Your Traditional IRA
contributions will also be fully deductible if you are not an
active participant in an employer sponsored retirement plan, but
your spouse is and your adjusted gross income is less than
$150,000 for the taxable year the contribution is being made.
(If your adjusted gross income is between $150,000 and $160,000,
your contribution will be partially deductible.)
If you are an active participant in an employer-sponsored
plan, please refer to the following charts to determine
deductibility. These limits are subject to changes by the IRS
and you should consult with the IRS or your tax advisor for the
most recent levels.
If you are married and file a separate return and are not an
"active participant" in an employer-sponsored retirement plan,
you may make a fully deductible contribution to a Traditional IRA
(up to the contribution limits described above). If you are
married and filing separately and are an "active participant" in
an employer-sponsored retirement plan, you may not make a fully
deductible contribution to a Traditional IRA. A partial deduction
is available if your 1998 adjusted gross income is less than
$10,000. This amount is not adjusted for cost-of-living changes
or otherwise.
EARNED INCOME LEVELS FOR "ACTIVE PARTICIPANTS"
TRADITIONAL IRA CONTRIBUTIONS
SINGLE and HEAD OF HOUSEHOLD:
Eligible To Make A Eligible To Make A Not Eligible To Make
Deductible Partially Deductible A Deductible
Year Contribution If AGI Contribution If AGI Contribution
Less Than Or Between If AGI is Equal to
Equal To or Greater Than
---- -------------------- ------------------- -------------------
[S] [C] [C] [C]
1998 $30,000 $30,001 - $39,999 $40,000
1999 $31,000 $31,001 - $40,999 $41,000
2000 $32,000 $32,001 - $41,999 $42,000
2001 $33,000 $33,001 - $42,999 $43,000
2002 $34,000 $34,001 - $43,999 $44,000
2003 $40,000 $40,001 - $49,999 $50,000
2004 $45,000 $45,001 - $54,999 $55,000
2005 and thereafter $50,000 $50,001 - $59,999 $60,000
MARRIED FILING JOINTLY:
Eligible To Make A Eligible To Make A Not Eligible To Make
Deductible Partially Deductible A Deductible
Year Contribution If AGI Contribution If AGI Contribution
Less Than Or Between If AGI is Equal to
Equal To or Greater Than
---- -------------------- ------------------- -------------------
[S] [S] [S] [S]
1998 $50,000 $50,001 - $59,999 $60,000
1999 $51,000 $51,001 - $60,999 $61,000
2000 $52,000 $52,001 - $61,999 $62,000
2001 $53,000 $53,001 - $62,999 $63,000
2002 $54,000 $54,001 - $63,999 $64,000
2003 $60,000 $60,001 - $69,999 $70,000
2004 $65,000 $65,001 - $74,999 $75,000
2005 $70,000 $70,001 - $79,999 $80,000
2006 $75,000 $75,001 - $84,999 $85,000
2007 and thereafter $80,000 $80,001 - $99,999 $100,000
7) IF MY IRA CONTRIBUTIONS ARE NOT FULLY DEDUCTIBLE, MAY I MAKE
NONDEDUCTIBLE CONTRIBUTIONS?
Yes, as long as your total contributions do not exceed the
yearly maximum described in the answer to Question 4. For
example, if you are single and can only make a $1,000 deductible
IRA contribution in a certain year, you can make an additional,
nondeductible contribution that year of $1,000 as long as you
have earned income of at least $2,000. All earnings will
continue to accumulate tax-free until distributed.
You must designate all nondeductible contributions as such on
your tax return (use IRS Form 8606) for the taxable year for
which they are made.
8) CAN A TRADITIONAL IRA BE ESTABLISHED FOR A SPOUSE WITHOUT
EARNED INCOME?
Yes, this is referred to as a Spousal IRA. A working spouse
also can elect in any year to be treated as having no
compensation for that year in order to be eligible for a Spousal
IRA.
If you are married and file a joint income tax return, you may
make contributions to your spouse's IRA. However, the maximum
amount contributed to both your own and to your spouse's IRA may
not exceed 100% of your combined taxable compensation or $4,000,
whichever is less. Moreover, the annual contribution to each
individual IRA may not exceed $2,000.
If either you or your spouse is an active participant in an
employer-sponsored retirement plan, the allowable tax deduction
for a Spousal IRA for that year may be reduced or eliminated in
accordance with the rules explained in the answer to Question 6.
Nondeductible contributions may still be made as long as the
combined total contributions to both IRAs for the tax year do not
exceed the lesser of $4,000 or 100% of your combined taxable
income.
9) WHAT IS THE TAX STATUS OF EARNINGS ON MY TRADITIONAL IRA?
IRA earnings, including both dividends and capital gains, are
exempt from federal income tax as long as your plan remains
qualified and until distributions are made.
10) WHEN CAN DISTRIBUTIONS FROM MY TRADITIONAL IRA BEGIN?
Generally, you must be at least 59 1/2 years old to receive a
penalty-free IRA distribution. Other penalty-free distributions
may be made before age 59 1/2 in the event of death, disability,
or if they are in the form of lifetime, periodic payments which
meet IRS requirements.
The Health Insurance Portability and Accountability Act of
1996 permits penalty-free early withdrawals from your IRA where
such withdrawn amounts are used for:
1) qualified medical expenses exceeding 7.5% of adjusted
gross income; or
2) the payment of medical insurance premiums for qualified
unemployed individuals.
Additionally, beginning with tax year 1997, penalty-free
premature distributions may be made from your Traditional IRA
for:
1) First time home purchase (up to $10,000 lifetime limit)
2) Post-secondary education expenses.
You should consult your tax adviser before you take any
distributions. Premature distributions will be penalized by a 10%
nondeductible excise tax on the amount of the distribution that
is includable in gross income. A premature distribution must also
be added to your gross income for the taxable year (except any
portion representing nondeductible contributions), and may result
in additional income taxes. An individual receiving a premature
distribution must file Form 5329 with the IRS for the year in
which the distribution is received.
11) How will I be taxed on distributions from my Traditional IRA
after the age of 59 1/2?
Distributions are taxable as ordinary income. Capital gain
treatment or income averaging is not available for IRA
distributions. Installment payments are taxable as ordinary
income in the year of receipt. Distributions to persons who have
attained the age of 65 prior to the close of the taxable year may
qualify for credit for the elderly.
A proportionate amount of each distribution will be tax-free
if you have made nondeductible contributions for tax years after
1986. For this purpose, all distributions during any year from
any of your IRAs must be totaled and treated like a single
distribution, and all of your IRAs are treated like a single IRA.
The total amounts you receive tax-free for all years cannot
exceed the total nondeductible contributions made.
(Any distributions from your IRA represent a return of pre-tax
and after-tax dollars. You must determine what percentage of
your prior year-end market value on all of your IRA accounts is
represented by after-tax contributions. That same percentage of
any distributions during the current calendar year will not be
taxable; the balance of the distribution will be taxable at
ordinary income levels for the current calendar year. Any return
of after-tax dollars due to partial distributions from your IRA
reduces the remaining after-tax dollars represented in the
balance of your IRA in future years. This new balance will be
used for calculating the percentage of after-tax dollars in
future distributions.)
12) HOW LONG MAY I DELAY DISTRIBUTIONS FROM MY TRADITIONAL IRA?
You must comply with certain "minimum distribution rules" that
apply to your IRA under the Internal Revenue Code. The failure to
satisfy these rules can result in significant adverse tax
consequences for you, such as being taxed on your entire IRA
account balance and paying other tax penalties.
I. PRE-DEATH DISTRIBUTIONS
The minimum distribution rules require that in your 70 1/2
year, and each year thereafter, you make withdrawals from the IRA
that are at least equal to the "minimum distribution." Your 70 1/2
year is the calendar year that contains the date six months after
your seventieth birthday. The amount of the minimum distribution
is usually determined by dividing the account balance of the IRA
as of December 31 of the prior year by a divisor that is based on
your life expectancy, or the joint life expectancy for you and
your beneficiary. However, there are a number of rules that
determine how the calculation of your minimum distribution should
be made, including special exceptions that may apply to you.
These are discussed in IRS Publication 590, Individual Retirement
Arrangements, which you should consult.
Generally, you must withdraw an amount at least equal to the
minimum distribution by December 31 of each year. However, you
may delay your minimum required distribution for your 70 1/2 year
until April 1 of the following year. This means that if you wait
to make your withdrawal for the 70 1/2 year until April 1 of the
following year, your total withdrawal in that year must equal the
minimum distributions for two years-a withdrawal by April 1 that
is equal to the minimum distribution for the 70 1/2 year, and a
second withdrawal by December 31 that is equal to the minimum
distribution for the current year. In each following year you
must withdraw the minimum distribution for that year by December
31.
II. DISTRIBUTIONS AFTER DEATH
If you are the beneficiary of an IRA account for which the
owner is deceased, the minimum distribution rules also apply to
you. Specific information on how the minimum distribution rules
apply to beneficiaries of an IRA is contained in IRS Publication
590, Individual Retirement Arrangements. In general, the amount
that you must withdraw in each year depends upon whether the IRA
owner reached age 70 1/2 before death, and whether you are the
surviving spouse of the IRA owner.
If the IRA owner was age 70 1/2 before death, then regardless
of your age you must withdraw an amount in each year that is at
least equal to the amount that the IRA owner would have been
required to withdraw. This rule also applies if you are the
surviving spouse of the IRA owner, and you choose not to roll the
account into an IRA of your own.
If the IRA owner was not age 70 1/2 before death and you are
not the surviving spouse, there are two possible options. Under
the first option, you must withdraw the entire IRA account by
December 31 of the fifth year following the year of the IRA
owner's death. Under the second option, you must, by December 31
of the year following the year of the IRA owner's death and in
each year thereafter, withdraw an amount that is at least equal
to the IRA account balance divided by your life expectancy. If
you are the surviving spouse, the same two options apply, but
additional options are available to you for satisfying the
minimum distribution requirements.
III. OTHER RULES
You can satisfy the minimum distribution rules by withdrawing
from one IRA the amount required to satisfy the minimum
distribution requirement for all of your IRAs.
Unless you or your spouse elects otherwise, your life
expectancy and/or the life expectancy of your spouse will be
recalculated annually. An election not to recalculate life
expectancy(ies) is irrevocable and will apply to all subsequent
years. The life expectancy of a nonspouse beneficiary may not be
recalculated.
Distributions from your IRA must satisfy the special "minimum
distribution incidental benefit" rules of the Internal Revenue
Code. These provisions set forth certain limitations on the
determination of the joint life expectancy of you and your
beneficiary. Special rules will determine how you calculate the
joint life expectancy of you and your beneficiary if your
beneficiary is not your spouse and is more than 10 years younger
than you.
This explanation only summarizes the minimum distribution
rules. Other rules and exceptions may apply to you that are not
discussed in this summary including rules which, in some cases,
would prevent you from using certain options described above. You
should consult your personal tax adviser or IRS publication 590,
Individual Retirement Arrangements, for more detailed
information. This publication is available from your local IRS
office or by calling 1-800-TAX-FORM.
13) WHAT HAPPENS TO MY TRADITIONAL IRA IN THE EVENT OF DEATH?
Part E of the IRA Custodial Account Application (Form A)
permits you to name a beneficiary or beneficiaries to receive any
amounts remaining in your IRA at the time of your death. If you
do not name a beneficiary, your beneficiary will be your estate.
The act of naming a beneficiary to receive IRA benefits upon your
death is not considered a gift subject to federal gift taxes.
Your beneficiary designation can be revoked at any time by
completing a Change of Beneficiary form. Contact Nicholas Family
of Funds at 1-800-227-5987 for this form.
Amounts remaining in your Traditional IRA at death will be
included in your estate and may be subject to estate tax.
See Question 1(g) for information on the timing of
distributions to your beneficiaries.
14) What are the Specific Limitations of Rollovers?
The IRS allows one rollover per IRA account in any 12 month
period. When the rollover represents a distribution from an
employer-sponsored retirement plan or a tax-sheltered "403(b)"
annuity purchased for you by a public school or charitable
employer, a penalty tax of 20% is withheld upon distribution to
you and it is your responsibility to deposit the full amount of
the employer plan proceeds into an IRA custodial account within
60 days to avoid IRS penalties and taxes. The 20% withholding
can be returned through your annual tax filing. Rollover
contributions are not tax deductible.
Most distributions made after 1992 of all or part of your
interest in a qualified plan or tax-sheltered annuity are
eligible rollover distributions, unless the distribution is: a
return of your after-tax contributions; part of a series of
substantially equal installments being paid over a period of 10
years or more, or a period measured by one or more lives or life
expectancies; or a required minimum distribution (e.g., if you
have reached age 70 1/2 ). Certain other exceptions may also
apply.
15) WHY SHOULD I CONSIDER A DIRECT ROLL OVER FROM MY PREVIOUS
EMPLOYER WHEN THEY CAN GIVE ME A CHECK?
The direct rollover option is important because if you do not
elect a direct rollover of the distribution (to a Traditional IRA
or certain other eligible plans), 20% of the distribution will be
withheld for income taxes. You can still make a rollover
contribution other than a direct rollover, but you will not fully
avoid taxes.
For example, if the eligible rollover distribution is $10,000
and it is paid to you instead of paid as a direct rollover,
$2,000 will be withheld. You will only receive $8,000. If you
rollover only the $8,000, the other $2,000 will be taxed as a
distribution as described in the answers to Questions 10 and 11.
In order to avoid these taxes, you will have to add $2,000 of
your own funds to the rollover to make up for the amounts
withheld. The withheld amounts will not be refunded by the IRS
until your tax return for the year is filed.
In order to make a direct rollover to a Nicholas Traditional
IRA, make sure the distribution check from your qualified plan or
tax-sheltered annuity is made payable as described under "Opening
an IRA" (see page 3). You may also need to provide certain other
information required by the plan administrator or annuity
provider.
ROTH IRA ACCOUNTS
1 Am I eligible to contribute to a Roth IRA?
Anyone with compensation income whose adjusted gross income
does not exceed the limits described below is eligible to
contribute to a Roth IRA. You may also establish a Roth IRA to
receive rollover contributions or transfers from another Roth IRA
or, in some cases, from a Traditional IRA. You may not roll
amounts into a Roth IRA from other retirement plans such as an
employer-sponsored qualified plan. However, current law does not
appear to prohibit a rollover from a qualified plan into a
Traditional IRA, and then from the Traditional IRA into a Roth
IRA.
The limits to AGI are as follows:
Full Contribution if Partial Contribution No Contribution
AGI is Less Than or if AGI is Between Allowed if AGI is
Equal to Equal to or
Greater Than
--------------------- -------------------- -----------------
[S] [C] [C] [C]
Single and Head of
Household Filers $95,000 $95,001 - $109,999 $110,000
Married Filing Jointly $150,000 $150,001 - $159,999 $160,000
Married Filing Separately $0 $1 - $14,999 $15,000
Note that the amount you may contribute to a Roth IRA is not
affected by your participation in an employer-sponsored
retirement plan.
2) WHEN CAN I MAKE CONTRIBUTIONS?
You may make annual contributions to your Roth IRA any time up
to and including the due date for filing your tax return for the
year, not including extensions. Unlike a Traditional IRA, you may
continue to make regular contributions to your Roth IRA even
after you attain age 70 1/2 as long as you have earned income. In
addition, rollover contributions and transfers (to the extent
permitted as discussed below) may be made at any time, regardless
of your age.
3) HOW MUCH MAY I CONTRIBUTE TO A ROTH IRA?
You may make annual contributions to a Roth IRA in any amount
up to 100% of your compensation for the year or $2,000, whichever
is less. The $2,000 limitation is reduced by any contributions
made by you or on your behalf to any other individual retirement
plan (such as a Traditional IRA). (Legislation pending as of this
printing clarifies that, for this purpose, the term individual
retirement plan does not include SEP IRAs or SIMPLE IRAs.) Also,
your annual contribution limitation is not reduced by
contributions you make to an Education IRA that covers someone
other than yourself. Qualifying rollover contributions and
transfers are not subject to these limitations.
In addition, if you are married and file a joint return, you
may make contributions to your spouse's Roth IRA. Also, the
maximum amount contributed to both your own and to your spouse's
Roth IRA may not exceed 100% of your combined compensation or
$4,000, whichever is less. The maximum amount that may be
contributed to either your Roth IRA or your spouse's Roth IRA is
$2,000. Again, these dollar limits are reduced by any
contributions made by or on behalf of you or your spouse to any
other individual retirement plan (such as a Traditional IRA),
except that the limit is not reduced for contributions either of
you make to an Education IRA for someone other than yourselves.
Please note that these contribution limits may be reduced or
eliminated if your filing status and AGI are within certain
limits. Please refer to the chart in Question #1 (above) for the
1998 income limitations.
4) CAN I ROLL OVER OR TRANSFER AMOUNTS FROM OTHER ROTH IRAS?
You are allowed to "roll over" a distribution or transfer your
assets from one Roth IRA to another without any tax liability.
Rollovers between Roth IRAs are permitted once per 12 month
period per account and must be accomplished within 60 days after
receipt of the distribution.
Transfers between Roth accounts may also be transacted and are
not restricted by the IRS. Please consult your Fund prospectus
for any Fund restrictions.
5) CAN I MOVE MONEY FROM MY TRADITIONAL IRA INTO A ROTH IRA?
Yes. This transaction is called a "conversion". If you are a
single, head of household or married filing jointly taxpayer and
your adjusted gross income (as measured at the calendar year end
for the year of conversion) is not more than $100,000, you may
roll over amounts from another individual retirement plan (such
as a Traditional IRA) to a Roth IRA. Such amounts are subject to
tax as if they were additional income to you for the year, but
are not subject to the 10% penalty tax. (However, under
legislation pending as of this printing, if the amount rolled
over is distributed before the end of the five-tax-year period
beginning with the beginning of the tax year of the rollover, a
10% penalty tax will apply to the taxed portion of the rollover
as well as a potential additional penalty tax on the premature
Roth distributions for conversions done in 1998.)
6) CAN I ROLL OVER FROM OTHER RETIREMENT PLANS INTO MY ROTH IRA?
You may not roll amounts into a Roth IRA from other retirement
plans such as an employer-sponsored qualified plan. However,
current law does not appear to prohibit a rollover from a
qualified plan into a Traditional IRA and then from the
Traditional IRA into a Roth IRA, as long as you are within the
established income levels for doing a conversion transaction.
(See question 5, page 14)
7) ARE THERE SPECIAL TAX ISSUES I SHOULD BE AWARE OF REGARDING
CONVERSIONS FROM TRADITIONAL IRAS TO ROTH IRAS?
If you roll over amounts from a Traditional IRA to a Roth IRA
during 1998, you may take advantage of special tax treatment.
Under the special rules, you may take your rollover into income
as if one quarter of the amount rolled over was distributed to
you in 1998 and one quarter of the amount was distributed to you
in each of the following three years.
(Legislation pending as of this printing indicates that if you
die prior to taking all four amounts into income, the remaining
amounts are included in income for the year of your death unless
you have a spouse who elects to take those amounts into his or
her income over the remaining period.)
Subject to the foregoing limits, you may also directly convert
a Traditional IRA to a Roth IRA with similar tax results.
Furthermore, if you have made contributions to a Traditional
IRA during the year in excess of the deductible limit, you may
convert those nondeductible IRA contributions to contributions to
a Roth IRA (subject to the contribution limit for a Roth IRA).
You may not roll over amounts to a Roth IRA from a qualified
retirement plan or any other retirement plan that is not an
individual retirement plan.
8) WHAT IF I MAKE AN EXCESS CONTRIBUTION?
Contributions that exceed the allowable maximum for federal
income tax purposes are treated as excess contributions. A
nondeductible penalty tax of 6% of the excess amount contributed
will be added to your income tax for each year in which the
excess contribution remains in your account.
9) HOW DO I CORRECT AN EXCESS CONTRIBUTION?
If you make a contribution in excess of your allowable
maximum, you may correct the excess contribution and avoid the 6%
penalty tax for that year by withdrawing the excess contribution
and its earnings on or before the date, including extensions, for
filing your tax return for the tax year for which the
contribution was made. Any earnings on the withdrawn excess
contribution may also be subject to the 10% early distribution
penalty tax if you are under age 59 1/2 or have not satisfied the
five-year requirement described below. In addition, although you
will still owe penalty taxes for one or more years, excess
contributions may be withdrawn after the time for filing your tax
return. Finally, excess contributions for one year may be carried
forward and applied against the contribution limitation in
succeeding years.
(Legislation pending as of this printing would permit an
individual who is partially or entirely ineligible for a Roth IRA
to transfer amounts of up to $2,000 to a nondeductible
Traditional IRA (subject to reduction for amounts remaining in
the Roth IRA and for other Traditional IRA contributions).)
10) CAN I COMBINE MY CONVERSION ROTH ACCOUNT WITH MY CURRENT
YEAR ROTH CONTRIBUTIONS?
No. Form 5303-RA, Article I, number 2 states "If this Roth
IRA is designated as a Roth conversion IRA, no contributions
other than IRA conversion contributions made during the same tax
year will be accepted."
11) HOW ARE DISTRIBUTIONS FROM A CONTRIBUTION ROTH IRA TREATED?
Distributions from Roth accounts which represent annual
contributions are treated as contributions being removed first.
Contributions can be removed at any time without tax or penalty.
Any earnings removed before the later of five years or age 59 1/2
will be subject to an early withdrawal penalty tax of 10% and
will be treated as ordinary income in the year of the
distribution, unless the distribution is for a qualified purpose.
12) HOW DO DISTRIBUTIONS FROM CONVERSION ROTH ACCOUNTS DIFFER
FROM CONTRIBUTORY ROTH ACCOUNT DISTRIBUTIONS?
According to legislation currently pending, contributions plus
earnings must remain in a Conversion Roth account for a minimum
of five calendar years, beginning with the calendar year of the
conversion, to avoid any penalty taxes and income tax. After the
five calendar year waiting period, the principal converted may be
removed without penalty, regardless of the depositor's age. The
earnings must remain in the Roth account until the depositor
attains age 59 1/2 to avoid a penalty tax of 10% and treatment as
ordinary income for tax purposes. Any distributions of principal
and/or earnings prior to the five year waiting period will be
subject to a 10% early distribution penalty. Plus, distributions
representing a return of principal converted to a Roth IRA in
1998 may be subject to an additional penalty tax.
13) ARE THERE ANY SPECIAL CIRCUMSTANCES WHEN EARNINGS CAN BE
WITHDRAWN BEFORE THE LATER OF FIVE YEARS OR 59 1/2 WITHOUT
PENALTY?
Yes. No penalty tax nor income tax will be assessed on
qualified distributions. Qualified Distributions include first
time home purchases (maximum $10,000 lifetime limit), disability,
medical expenses in excess of 7.5% of AGI, or death.
Distribution for qualified post-secondary education expenses may
be penalty-free, but not tax free.
14) ARE THERE ANY OTHER SPECIAL TAX ISSUES I SHOULD BE AWARE OF?
To the extent a distribution would be taxable to you, neither
you nor anyone else can qualify for capital gains treatment for
amounts distributed from your account. Similarly, you are not
entitled to the special five- or ten-year averaging rule for
lump-sum distributions that may be available to persons receiving
distributions from certain other types of retirement plans.
Rather, the taxable portion of any distribution is taxed to you
as ordinary income. Your Roth IRA is not subject to taxes on
excess distributions or on excess amounts remaining in your
account as of your date of death.
You may be required to indicate on distribution requests
whether or not federal income taxes should be withheld on the
taxable portion (if any) of a distribution from a Roth IRA.
Redemption requests not indicating an election not to have
federal income tax withheld will be subject to withholding with
respect to the taxable portion (if any) of a distribution to the
extent required under federal law. (Note that legislation pending
as of this printing clarifies that, for federal tax purposes,
Roth IRAs are taxed separately from Traditional IRAs, Roth IRAs
with rollovers are taxed separately from Roth IRAs without
rollovers, and Roth IRAs with rollovers with different five-year
periods are taxed separately.)
15) WHEN MUST DISTRIBUTIONS FROM A ROTH IRA BEGIN?
Unlike Traditional IRAs, there is no requirement that you
begin distribution of your account at any particular age.
16) ARE THERE DISTRIBUTION RULES THAT APPLY AFTER MY DEATH?
Your account must be distributed after your death in
accordance with rules similar to those that apply to
distributions from a Traditional IRA. Thus, although the IRS has
not issued guidance it is expected that the rules will require
that your remaining interest in your Roth IRA will, at the
election of your beneficiary or beneficiaries, (i) be distributed
by December 31 of the year in which occurs the fifth anniversary
of your death, or (ii) must commence distributions by December 31
of the year following your death over a period not exceeding the
life or life expectancy of your designated beneficiary or
beneficiaries. If your beneficiary is your spouse, he/she will
have the option to roll your Roth IRA into a Roth IRA of his/her
own under the same rules for other Roth accounts.
17) WHAT IF I PLEDGE MY ACCOUNT?
If you use (pledge) all or part of your Roth IRA as security
for a loan, your account may lose its tax-favored status.
18) HOW ARE CONTRIBUTIONS TO A ROTH IRA REPORTED FOR FEDERAL TAX
PURPOSES?
As of the date of this printing, the Internal Revenue Service
had not issued forms for reporting information related to
contributions to or distributions from a Roth IRA.
19) IS THERE ANYTHING ELSE I SHOULD KNOW?
Your Roth Individual Retirement Account Plan has been approved
as to form by the Internal Revenue Service. The Internal Revenue
Service approval is a determination only as to the form of the
Plan and does not represent a determination of the merits of the
Plan as adopted by you. You may obtain further information with
respect to your Roth Individual Retirement Account from any
district office of the Internal Revenue Service. The statute
provides that Roth IRAs are to be treated the same as Traditional
IRAs for most purposes. As the IRS clarifies its interpretation
of the statute, revised or updated information will be provided.
EDUCATION IRA ACCOUNTS
1) Who is eligible for an Education IRA?
The beneficiary of an Education IRA must be under age 18 at
the time a contribution is made to an Education IRA on his or her
behalf. An Education IRA may also be established to receive
rollover contributions or transfers from another Education IRA.
For purposes of this discussion, except as noted, the term
"beneficiary" is used to refer to an individual whose education
is to be financed, in part or in whole, through an Education IRA.
2) Who can contribute to an Education IRA?
Anyone may contribute to an Education IRA regardless of his or
her relationship to the beneficiary as long as they are within
certain limits for AGI. Please refer to the following chart:
Full Contribution if Partial Contribution No Contribution
AGI is Less Than or if AGI is Between Allowed if AGI is
Equal to Equal to or
Greater Than
--------------------- -------------------- -----------------
[S] [C] [C] [C]
Single/Head of
Household/Married $95,000 $95,001 - $109,999 $110,000
Filing Separately
Married Filing Jointly $150,000 $150,001- $159,999 $160,000
3) WHEN CAN I MAKE CONTRIBUTIONS TO AN EDUCATION IRA?
You may make contributions to an Education IRA for the
calendar year during the calendar year regardless of your age.
At the time of this printing, current legislation appears to
require contributions for a specific calendar year be made during
that calendar year, without the allowance of the April 15th
deadline given to Traditional and Roth IRA contributions.
However, you may not make a contribution to an Education IRA
after the beneficiary attains age 18. In addition, rollover
contributions and transfers (as discussed below) may be made at
any time, regardless of the age of the beneficiary
4) HOW MUCH MAY I CONTRIBUTE TO AN EDUCATION IRA?
The total of all contributions made to all Education IRAs that
cover a particular beneficiary may not exceed $500 in a taxable
year. It is the joint responsibility of the contributor and the
beneficiary (or the person legally responsible if the beneficiary
is under 18) to verify that excess contributions are not made on
behalf of a particular beneficiary. Qualifying rollover
contributions and transfers are not subject to these limitations.
Note that special rules apply to contributions to Education IRAs
for purposes of gift and estate taxes.
The total amount a contributor may deposit on behalf of a
beneficiary may be reduced or eliminated depending on the
contributor's AGI. Please refer to the chart in question #2
(above).
In addition to the limitations described above, the $500 limit
may be reduced by other amounts contributed to an individual
retirement plan for the benefit of a particular beneficiary, but
is not affected by the adjusted gross income of the beneficiary.
If the beneficiary of the Education IRA also maintains a
Traditional or Roth IRA, his or her overall contributions to
other individual retirement plans may be limited. Please contact
your tax advisor for more information.
5) CAN I ROLL OVER OR TRANSFER AMOUNTS FROM ANOTHER EDUCATION
IRA?
Amounts may be "rolled over" from one Education IRA to another
Education IRA benefiting the same beneficiary. In addition,
amounts may be rolled over without any tax liability to benefit
(i) the spouse of the beneficiary, (ii) an ancestor of the
beneficiary, (iii) a descendant of the beneficiary, of the
beneficiary's parents, or of the beneficiary's spouse, or (iv)
the spouse of a lineal descendant of an individual described in
(iii). Rollovers between Education IRAs may be made once per 12
month period and must be accomplished within 60 days of receipt
of the distribution.
You may also transfer Education IRA accounts directly between
IRA custodians without IRS restrictions. Please contact the
receiving custodian for the appropriate transfer form.
6) WHAT IF I MAKE AN EXCESS CONTRIBUTION?
Contributions that exceed the allowable maximum for federal
income tax purposes are treated as excess contributions. A
nondeductible penalty tax of 6% of the excess amount contributed
must be paid for each year in which the excess contribution
remains in the beneficiary's account.
7) HOW DO I CORRECT AN EXCESS CONTRIBUTION?
If a contribution in excess of the allowable maximum is made,
it may be corrected to avoid the 6% penalty tax for that year by
withdrawing the excess contribution and its earnings on or before
the due date, including extensions, for filing the tax return for
the contributor's tax year for which the contribution was made.
(Legislation pending as of this printing would use the
beneficiary's tax year rather than the contributor's.) Any
earnings on the withdrawn excess contribution will be taxable in
the year the excess contribution was made and will be subject to
a 10% penalty tax.
8) WHAT FORMS OF DISTRIBUTION ARE AVAILABLE FROM AN EDUCATION
IRA?
Distributions may be made as a lump sum of the entire account,
or distributions of a portion of the account may be requested.
9) WHEN MUST DISTRIBUTIONS FROM AN EDUCATION IRA BEGIN?
There is no requirement that a beneficiary begin distribution
of an Education IRA account at any particular age. (Legislation
pending as of the date of this printing would in general require
distribution within 30 days of the earlier of the beneficiary's
death or attainment of age 30 and would deem distribution to
occur for any amounts not distributed within such time.)
10) ARE THERE DISTRIBUTION RULES THAT APPLY AFTER DEATH?
Special rules apply in the case of the divorce or death of a
beneficiary of an Education IRA. (In particular, under
legislation pending as of this printing, any balances to the
credit of a beneficiary must be distributed to his or her estate
within 30 days of death.)
11) HOW ARE DISTRIBUTIONS FROM AN EDUCATION IRA TAXED FOR
FEDERAL INCOME TAX PURPOSES?
Amounts distributed are generally excludable from gross income
if they do not exceed the beneficiary's "qualified higher
education expenses" for the year, or are rolled over to another
Education IRA. "Qualified higher education expenses" generally
include the cost of tuition, fees, books, supplies, and equipment
for enrollment at (i) accredited post-secondary educational
institutions offering credit toward a bachelor's degree, an
associate's degree, a graduate-level or professional degree or
another recognized post-secondary credential and (ii) certain
vocational schools. In addition, room and board may be covered
if the beneficiary is at least a "half-time" student. This
amount may be reduced by certain scholarships, qualified state
tuition programs, HOPE, Lifetime Learning tax credits, and other
amounts paid on the beneficiary's behalf. To the extent payments
during the year exceed such amounts, they are partially taxable
and partially nontaxable, similar to payments received from an
annuity. Any taxable portion of a distribution is subject to a
10% penalty tax in addition to income tax unless the distribution
is due to the death or disability of the beneficiary or is made
on account of scholarship received by the beneficiary. A
beneficiary may elect to waive the exclusion from gross income
for qualified higher education expenses and treat the entire
distribution as if it were a payment from an annuity.
To the extent a distribution is taxable, capital gains
treatment does not apply to amounts distributed from the account.
Similarly, the special five- and ten-year averaging rules for
lump-sum distributions do not apply to distributions from an
Education IRA. The taxable portion of any distribution is taxed
as ordinary income except the portion of a distribution that
represents a return of nondeductible contributions.
The recipient of a distribution may need to indicate on
certain distribution requests whether or not federal income taxes
should be withheld. Redemption requests not indicating an
election not to have federal income tax withheld will be subject
to withholding with respect to the taxable portion (if any) of
the distribution to the extent required under federal law.
12) WHAT IF A PROHIBITED TRANSACTION OCCURS?
If a "prohibited transaction," as defined in Section 4975 of
the Internal Revenue Code, occurs, the Education IRA could be
disqualified. Rules similar to those that apply to Traditional
IRAs will apply.
13) WHAT IF THE EDUCATION IRA IS PLEDGED?
If all or part of the Education IRA is pledged as security for
a loan, rules similar to those that apply to Traditional IRAs
will apply. In general, those rules provide that the amount
pledged is treated as distributed.
14) HOW ARE CONTRIBUTIONS TO AN EDUCATION IRA REPORTED FOR
FEDERAL TAX PURPOSES?
As of the date of this Disclosure Statement, the Internal
Revenue Service had not issued forms for reporting information
related to contributions to or distributions from an Education
IRA.
15) IS THERE ANYTHING ELSE I SHOULD KNOW?
As the IRS clarifies its interpretation of the Education IRA
provisions of the Code, revised or updated information will be
provided to you.
[Form 5305-A Individual Retirement Custodial Account]
(Under Section 408(a) of the Internal Revenue Code)
[Form 5305-RA Roth Individual Retirement Custodial Account]
(Under Section 530 of the Internal Revenue Code)
[Form 5305-EA Education Individual Retirement Custodial Account]
(Under Section 530 of the Internal Revenue Code)
NICHOLAS FAMILY OF FUNDS
IRA CUSTODIAL ACCOUNT APPLICATION
__Traditional IRA Account __Contributory Roth IRA __Conversion Roth IRA
______________________________________________________________________________
After reading the prospectus(es) for the fund(s) you are interested in,
PLEASE COMPLETE THE INFORMATION BELOW WHICH IS REQUIRED TO SET UP AN ACCOUNT.
If you are interested in a fund that you do not have a prospectus for, please
contact the Nicholas Family of Funds at (800) 227-5987 or (414) 272-6133. The
prospectus contains more complete information regarding charges and expenses.
Read it carefully before you invest.
A. __Nicholas Fund $_________ __Nicholas Equity Income Fund $____________
$500 minimum $2,000 minimum
__Nicholas II $_________ __Nicholas Income Fund $_________
$500 minimum $500 minimum
__*Nicholas Limited Edition $_________
$2000 minimum
__Nicholas Money Market Fund $_________
$2,000 minimum
*This Fund may close at any time. Call Nicholas for details.
B. TOTAL AMOUNT OF CONTRIBUTION $__________________________
This should be applied to (choose one):
__Traditional IRA Contribution for tax year ________
__Roth IRA Contribution for tax year ________
__Conversion Roth IRA Contribution for tax year ________
(redemption of Traditional IRA deposited into Roth IRA)
__Transfer (Traditional IRA to Traditional IRA; Roth IRA to Roth IRA)
__Roll Over (You have received a check within the last 60 days payable
to you from an IRA or employer retirement plan.)
__Direct Roll Over (Attached is a check from your employer retirment
plan made payable to: Firstar Trust Co. as custodian of Nicholas
IRA fbo: employee's name.)
C. GENERAL INFORMATION (Please print clearly)
______________________________________________________________________________
Name
____________________________________ __________________ ________ ________
Street Address City State Zip
____________________________________ __________________ _______________
Date of Birth Social Security Number Daytime Phone
D. TELEPHONE OPTIONS (Details are provided in your Fund prospectus. If no
option is indicated, telephone exchange privileges will automatically be
available on your account(s)). PHONE REDEMPTION IS NOT AVAILABLE ON IRAS.
-----------------------------------------
__YES Telephone exchange - transfer of assets among all funds in the
Nicholas Family by telephone.
__NO Telephone exchange - exchanges among all funds in the Nicholas
Family must be done in writing.
E. BENEFICIARY DESIGNATION
Hereby revoking all prior designations, I designate as my beneficiary(ies)
under the Nicholas Funds IRA Custodial Account the following person(s):
PRIMARY BENEFICIARY
________________________ _____________ _________________ _______________
Name Relationship Address Social Security #
(if available)
SECONDARY BENEFICIARY
________________________ _____________ _________________ _______________
Name Relationship Address Social Security #
(if available)
I retain the right to revoke this designation and to designate a new
beneficiary or beneficiaries at any time by communicating to the Firstar
Trust Company in writing similarly executed. I understand that if no
designated beneficiary survives me, then in accordance with the Custodial
Agreement, any benefits due upon my death shall be paid to my estate.
F. DEPOSITOR'S STATEMENT
I attest that I have read the form 5305-A Custodial Agreement or form
5305-RA Roth Custodial Agreement, the Disclosure Statement and the
applicable fund prospectus, and that I meet the eligibility
requirements for the type of account I am establishing. I understand
and agree to be governed by the provisions of the Custodial Agreement
and this Application, and understand that I alone am responsible for
ascertaining the deductibility and tax consequences of any
contribution and/or withdrawal to or from my account. I hereby
authorize Firstar Trust Company to act as custodian of my shares of
the Nicholas fund indicated above.
___________________________________ __________________________
Signature Dated
G. ACCEPTANCE BY CUSTODIAN
This Application is hereby accepted by the Custodian, Firstar Trust Company.
___________________________________ __________________________
Signature Dated
_____________________________________________________________________________
3/98
NICHOLAS FAMILY OF FUNDS
EDUCATION IRA CUSTODIAL ACCOUNT APPLICATION B
After reading the prospectus for the fund(s) you are interested in,
PLEASE CANT PLETE THE INFORMATION BELOW WHICH IS REQUIRED TO SET UP
AN ACCOUNT. If you are interested in a fund that you do not have a
prospectus for, please contact the Nicholas Family of Funds at
(800)227-5987 or (414)2726133. The prospectus contains more complete
information regarding charges and expenses. Please read it carefully
before you invest.
A. FUND CHOICES (initial investment is $500 for each fund);
Nicholas Fund $______________________________
Nicholas II $________________________________
Nicholas Income Fund $_______________________
B. TRANSACTION TYPE:
__ Calendar Year Contribution (maximum $500 annually
to beneficiary under 18 years old)
__Transfer (Education IRA to Education IRA only)
__Rollover (Education IRA to Education IRA only)
C. BENEFICIARY INFORMATION:
___________________________________ _______ ____________________________
First Name of Beneficiary M.I. Last Name of Beneficiary
___________________________________ _______ ____________________________
First Name of Person Legally M.I. Last Name of Person Legally
Responsible for the Beneficiary Responsible for the Beneficiary
(if applicable) (if applicable)
___________________________________ ________________________________
Address Birth Date of Beneficiary
____________________________________
Telephone Number
D. DEPOSITOR INFORMATION:
_________________________ ____ _____________________ ____________________
First Name M.I. Last Name Social Security Number
_________________________ __________________ ____________ ________________
Address City State Zip code
E. TELEPHONE OPTIONS (Details are provided in your fund
prospectus. If no option is indicated, telephone exchange
privileges will automatically be available on your
account(s)). PHONE REDEMPTION IS NOT AVAILABLE ON IRA'S.
------------------------------------------
__YES - Telephone exchange - exchanges of assets among all funds in the
Nicholas Family by telephone.
__NO - Telephone exchange - exchanges of assets among all funds in the
Nicholas Family must be done in writing.
F. DEPOSITOR'S STATEMENT
I attest that I have read the form 5305-EA Education Individual Retirement
Custodial Account Agreement, the Disclosure Statement, and the applicable
fund prospectus(es), and that I meet the eligibility requirements, including
earned income limitations, to make a deposit on behalf of the above
identified beneficiary. I understand that I alone am responsible for
ascertaining any tax consequences of any contribution to this beneficiary's
account
________________________________________ ________________________________
Signature of Donor Dated
C. BENEFICIARY'S STATEMENT (or Person Legally Responsible for the Beneficiary)
I attest that I have read the form 5305-EA Education Individual Retirement
Custodial Account Agreement, the Disclosure Statement, and the applicable
fund prospectus(es), and that l meet the eligibility requirements for the
type of account I am establishing. I understand and agree to be governed by
the provisions of the Custodial Agreement, as well as this Application. I
understand that I alone am responsible for ascertain any tax consequences
of any contribution and/or withdrawal to or from my account. I hereby
authorize Firstar Trust Company at P.O. Box 2944, Milwaukee, WI 53201-2944,
to act as custodian of my shares of the Nicholas fund(s) indicated above.
_______________________________________ ___________________________________
Signature of Beneficiary (or Person Dated
Legally Responsible for the Beneficiary)
H. ACCEPTANCE BY CUSTODIAN
This application is hereby accepted by the Custodian, Firstar Trust Company.
______________________________________ ____________________________________
Signature Dated
TRANSFER FORM - NICHOLAS FAMILY OF FUNDS C
______________________________________________________________________________
INSTRUCTIONS:
Use this form to transfer assets of an existing IRA or employer retirement
plan to a plan with the NICHOLAS FAMILY OF FUNDS.
If you are opening a new account, the appropriate Nicholas application
form MUST accompany this form. Do NOT retain a copy of this form.
Transactions that constitute a rollover or a distribution from an
employer-sponsored plan will result in tax reporting to the IRS.
Please be aware that your resigning trustee/custodian may impose a fee
or penalty, and may require additional documentation. Consult your
resigning trustee/custodian to see if they require a signature guarantee
by a commercial bank or NYSE member. Most trustees/custodians WILL REQUIRE
it to process a direct transfer.
Fill in ALL of the information in Section I (A & B). Incomplete forms will
delay your transfer. Including a copy of your latest statement may assist
us with this transfer. Mail this form with your application (Form A or B)
in the enclosed envelope to:
FIRSTAR TRUST COMPANY, P.O. Box 2944, Milwaukee, WI 53201-2944.
We will contact your current trustee/custodian and handle the transfer for
you. Nicholas Family of Funds will send you confirmation when the transfer
is complete and your funds are invested.
SECTION I.
A. _________________________________ ___________________________________
Name of owner (or person legally name of resigning trustee/custodian
responsible - Education IRA only)
_________________________________ ___________________________________
street address resigning fund name (if applicable)
__________________________________ ___________________________________
city state zip resigning account number
__________________________________ ___________________________________
daytime phone number address of resigning trustee/custodian
______________________ __________ ___________________________________
social security number date of birth city state zip
Attention: Retirement Plan Department
__ Transfer on receipt of this request __ Transfer on maturity date of_________
Please accept this authorization to sell and transfer the sum of
__All of my assets $______ of assets in the above mentioned
account and prepare a check made payable to the NICHOLAS FAMILY OF FUNDS.
The resigning trustee/custodial account is (choose one):
__Traditional IRA __ SEP IRA __Master Retirement Plan/Profit Sharing
__Contributory Roth IRA __ SAR-SEP IRA __Master Retirement Plan/Money Purchase
__Conversion Roth IRA for tax year __5304-SIMPLE IRA
__Other Employer-Sponsored Retirement Plan __Education IRA
It is my intention to transfer these assets to the Nicholas Family of Funds as
(choose one):
__Traditional IRA __ SEP IRA __Master Retirement Plan/Profit Sharing
__Contributory Roth IRA __ SAR-SEP IRA __Master Retirement Plan/Money Purchase
__Conversion Roth IRA for tax year __5304-SIMPLE IRA
__Other Employer-(from employer plan) __Education IRA
If I am over 70 1/2, I certify that none of the amount transferred will include
the required minimum distribution per the Internal Revenue Code for the current
year.
_____________________________ _______________
signed dated
______________________________________________________________________________
signature guarantee if required by resigning trustee/custodian
B. PLEASE CHECK
This is a new account for:
__Nicholas Fund __ Nicholas II __Nicholas Limited Edition*
__Nicholas Equity Income Fund __Nicholas Income Fund
__Nicholas Money Market Fund
__Deposite to my existing Nicholas retirement account________________________
account number
*Nicholas Limited Edition has a limited number of shares for sale.
The Fund may be closed at the time assets are received. A Nicholas
Money Market account will be established if Nicholas Limited Edition
is closed. Call Nicholas Family of Funds at 1-8O0-227-5987 to check
on the availability of Nicholas Limited Edition shares.
______________________________________________________________________________
SECTION II. (To be completed by the Firstar Trust Company - trustee/custodian
for the Nicholas Family of Funds)
Custodian:
We have been requested to send you a letter of acceptance in order to transfer
the assets of the above mentioned account for deposit to the NICHOLAS FAMILY
OF FUNDS. To ensure proper crediting, please return the check made payable to
NICHOLAS FAMILY OF FUNDS for the benefit of the individual named above.
Mail to: Nicholas Family of Funds, Firstar Trust Company, P.0. Box 2944,
Milwaukee, WI 53201-2944.
Please include a copy of this form to identify the check as a transfer of
assets. This is to be executed as a fiduciary to fiduciary transfer so as
not to put the plan participant in actual or constructive receipt of all
or any part of the transferred assets.
Tax reporting will be issued on transactions between Traditional IRA and
Conversion Roth IRA accounts and between Master Retirement Plan/Employer-
Sponsored Retirement Plan accounts and Traditional IRA accounts.
Thank you for your prompt attention to this matter.
_____________________________________ ____________________________________
dated authorized signature
SUBMIT THIS FORM INTACT TO: Nicholas Family of Funds
c/o Firstar Trust Company
P.O. Box 2944, Milwaukee, WI 53201-2944
2/98 800-544-6547 414-276-0535
NICHOLAS FAMILY OF FUNDS
Dear Investor:
Enclosed is the Master Retirement Plan package for the
Nicholas Master Retirement Profit Sharing and Money
Purchase plans.
The Internal Revenue Service has issued opinion letters
approving the form of these plans. The Internal Revenue
Service has categorized the Nicholas Profit Sharing and
Money Purchase plans as "standardized," "paired" plans.
As a result, the individual employer-sponsors are not
required to apply by submitting Form 5307 to the Internal
Revenue Service for a determination letter with regard to
the employer's participation in the plans unless:
1. The employer ever maintained another qualified plan
for one or more employees who are covered by the Nicholas
Plans, other than a specified paired plan within the
meaning of Section 7 of Rev. Proc. 89-9, 1989-6 I.R.B.
14; or
2. After December 31,1985, the employer maintains a
welfare benefit fund defined in Internal Revenue Code
Section 419(e), which provides post-retirement medical
benefits allocated to separate accounts for key employees
as defined in Code Section 419(A)(d)(3).
If either of the two exceptions applies, the employer
should request a determination letter as to whether the
Nicholas Plan, considered with all related qualified
plans and, if appropriate, welfare benefit funds,
satisfies the requirements of the Internal Revenue Code.
An employer who does not fall within one of the two
exceptions who adopts one of the Nicholas Plans will be
considered to have a plan qualified under Code Section
401 (a) provided all the terms of the plan are followed,
and the eligibility requirements and contributions are
not more favorable for officers, owners or highly
compensated employees than for other employees.
Employers must provide notice of the adoption (or
amendment) of the Nicholas Plan(s), or if applicable as
described above, of the intent to apply for a
determination letter; to interested parties in accordance
with the requirements of Sections 16, 17 and 18 of IRS
Revenue Procedure 94-6 (or of any subsequent IRS
pronouncement which may modify or supersede these
sections of Rev. Proc. 94-6).
We have enclosed a copy of the Internal Revenue Service
opinion letters together with the Basic Plan Document and
all related documents which have been approved by the
Internal Revenue Service. Employers should complete and
submit separate Participation Agreements for the profit
sharing plan and the money purchase plan. We have
enclosed both Participation Agreements for your use. Of
course, if you intend to participate in only one of the
two plans, your should complete and return only the
Participation Agreement for that plan.
We would like to remind all employers that the Nicholas
Company does not provide plan administration forms or
services. Forms necessary for plan administration (such
as a summary Plan Description, if necessary, Beneficiary
Designations and Benefit Election and Distribution Forms)
must be provided by the employer or other plan
administrator designated by the employer, and should be
prepared in consultation with legal counsel to ensure
compliance with the requirements of the Internal Revenue
Code and ERISA.
We have enclosed for all employers an explanation of the
Nicholas Master Retirement Plan which answers some of the
most frequently asked questions. Please keep this form
for your reference. Also enclosed is a brief checklist
for your use along with a list of custodian fees. If not
separately included, all fees will be deducted equally
from each account.
If you have any questions after looking over the
information enclosed, you should contact me at
(414) 272-6133.
NICHOLAS FAMILY OF FUNDS
Candace L. Lesak
Vice-President
12/94
NICHOLAS MASTER RETIREMENT PLAN
FOR SELF-EMPLOYED INDIVIDUALS
As Amended to January 1, 1989
Basic Plan Document Number 01
SECTION 1
PURPOSE
This Master Plan has been established by Nicholas Company,
inc., for use by self-employed individuals and partnerships
who wish to establish retirement plans which qualify under
the Self-Employed Individuals Tax Retirement Act of 1962, as
amended, and the Employee Retirement income Security Act of
1974.
SECTION 2
DEFINITIONS
The following words and terms as used herein shall have
the following meanings:
(a) BENEFICIARY shall mean the person designated by a
Participant as his beneficiary on the Beneficiary
Designation Form, or in the absence thereof, the person
designated in accordance with the procedure established by
Section 7.5. Any designation of a non-spouse Beneficiary
shall be automatically revoked upon the marriage or
remarriage of a Participant, and the designation of any non-
spouse Beneficiary which has not been consented to in
writing by the Participant's spouse on a Beneficiary
Designation Form provided by the Plan Administrator shall
also be automatically evoked.
(b) BENEFICIARY DESIGNATION Form shall mean the
instrument by which the Participant designates his
beneficiary.
(c) BREAK IN SERVICE shall occur in any twelve
consecutive month period (computation period) used to
compute a Year of Service under Section 2(ff) in which a
Participant has not accumulated more than five hundred
(500) Hours of Service. A one (1) year Break in Service
will not be deemed to have occurred during the first
computation period that the Participant failed to earn at
least five hundred and one (501) Hours of Service because
of (i) pregnancy of the Participant, (ii) birth of a
child of the Participant, (iii) placement of a child for
adoption with the Participant, or (iv) caring for a child
during the period immediately following such a birth or
placement. A Participant who takes a leave of absence for
one of the above reasons shall certify on such forms as
are provided by the Plan Administrator that the leave was
taken for one of the above reasons and shall supply such
supporting documentation as shall be required under
uniform rules adopted by the Plan Administrator.
(d) CODE shall mean the Internal Revenue Code of 1986
and amendments thereto.
(e) COMPENSATION, as elected by the Employer in the
Participation Agreement, shall mean all of each
Participant's (i) W-2 earnings or (ii) compensation (as
that term is defined in section 415(c) (3) of the Code).
For any Self-Employed Individual covered under the Plan,
Compensation will mean Earned Income. Compensation shall
include only that compensation which is actually paid to
the Participant during the Applicable Period. Except as
provided elsewhere in this Plan, the Applicable Period
shall be the period elected by the Employer in the
Participation Agreement if the Employer makes no
election, the Applicable Period shall be the Plan Year.
Notwithstanding the above, if elected by the Employer
in the Participation Agreement, Compensation shall
include any amount which is contributed by the Employer
pursuant to a salary reduction agreement and which is not
includible in the gross income of the Employee under
Sections 125, 402(a) (8), 402(h) or 403(b) of the Code.
If the above definition of Compensation replaces
another definition of Compensation under the Employer's
Plan and is being adopted as part of the Employer's
amendment of its plan to comply with the Tax Reform Act
of 1986, the above definition of Compensation shall take
effect as of the first day of the first Plan Year after
the Plan Year in which the amendment is adopted. The
following limitation, however, is effective January 1,
1989.
The annual Compensation of each Participant taken into
account under the Plan for any year shall not exceed
$200,000, as adjusted by the Secretary at the same time
and in the same manner as under Section 415 (d) of the
Code. In determining the Compensation of a Participant
for purposes of this limitation, the rules of Section 414
(q)(6) of the Code shall apply, except in applying such
rules, the term "family" shall include only the spouse of
the Participant and any lineal descendants of the
Participant who have not attained age 19 before the close
of the year. If, as a result of the application of such
rules the adjusted $200,000 limitation is exceeded, then
the limitation shall be prorated among the affected
individuals in proportion to each such individual's
Compensation as determined under this Section prior to
the application of this limitation.
OBRA '93 COMPENSATION LIMIT: In addition to other
applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the
contrary for Plan Years beginning on or after January 1,
1994, the annual Compensation of each Employee taken into
account under the Plan shall not exceed the OBRA '93
Annual Compensation Limit. The OBRA '93 Annual
Compensation Limit is $150,000, as adjusted by the
Commissioner for increases in the cost of living in
accordance with Section 401(a)(17)(B) of the Internal
Revenue Code. The cost-of-living adjustment in effect for
a calendar year applies to any period not exceeding 12
months, over which Compensation is determined
(determination period) beginning in such calendar year.
If a determination period consists of fewer than 12
months, the OBRA '93 Annual Compensation Limit will be
multiplied by a fraction, the numerator of which is the
number of months in the determination period, and the
denominator of which is 12.
For Plan Years beginning on or after January 1, 1994,
any reference in this Plan to the limitation under
Section 401(a)(17) of the Code shall mean the OBRA '93
Annual Compensation Limit set forth in this provision.
If Compensation for any prior determination period is
taken into account in determining an employee's benefits
accruing in the current Plan Year, the Compensation for
that prior determination period is subject to the OBRA
'93 Annual Compensation Limit in effect for that prior
determination period. For this purpose, for determination
periods beginning before the first day of the first Plan
Year beginning on or after January 1, 1994, the OBRA '93
Annual Compensation Limit is $150,000.
(f) CUSTODIAL AGREEMENT shall mean the instrument
attached hereto, as amended from time to time subject to
the conditions of Section 13A of the Plan, which the
Employer shall be deemed to have adopted by executing the
Participation Agreement.
(g) CUSTODIAN shall mean the bank designated as
Custodian under the Custodial Agreement, and any
successor thereto. The Custodian shall be a fiduciary
under the Employee Retirement income Security Act of 1974
(hereinafter referred to as "ERISA").
(h) EARNED INCOME shall mean the net earnings from self-
employment in the trade or business with respect to which
the Plan is established, for which personal services of
the individual are a material income-producing factor.
Net earnings will be determined without regard to items
not included in gross income and the deductions allocable
to such items. Net earnings are reduced by contributions
by the Employer to a qualified plan to the extent
deductible under Section 404 of the Code. Net earnings
shall be determined with regard to the deduction allowed
to the Employer by Section 164 (f) of the Code for
taxable years beginning after December31, 1989.
(i) EMPLOYEE shall mean any employee of the Employer
maintaining the Plan or f any other employer required to
be aggregated with such Employer under Sections 414(b),
(c), (m) or (o) of the Code. The term Employee shall also
include any Leased Employee deemed to be an employee of
any employer described in the previous sentence as pro
vided in Sections 414 (n) or (o) of the Code.
(j) EMPLOYER shall mean the individual proprietor or
partnership that establishes or maintains the Plan, any
"Affiliated Employer" and any successor of such
establishing Employer.
"Affiliated Employer" shall mean any corporation which
is a member of a controlled group of corporations (as
defined in Section 414(b) of the Code) which includes the
Employer; any trade or business (whether or not
incorporated) which is under common control (as defined
in Section 414(c) of the Code) with the Employer; any
organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in
Section 414(m) of the Code) which includes the Employer;
and any other entity required to be aggregated with the
Employer pursuant to regulations under Section 414(o) of
the Code.
(k) FIVE PERCENT OWNER shall mean any person who owns
(or is considered to own within the meaning of Section
318 of the Code) five percent (5%) or more of the capital
or profits interest in the Employer.
(1) HIGHLY COMPENSATED EMPLOYEE shall include highly
compensated active Employees and highly compensated
former Employees.
A highly compensated active Employee includes any
Employee who performs service for the Employer during the
determination year and who, during the look-back year:
(i) received compensation from the Employer in excess of
$75,000 (as adjusted pursuant to Section 415(d) of the
Code); (ii) received compensation from the Employer in
excess of $50,000 (as adjusted pursuant to Section 415(d)
of the Code) and was a member of the top paid group for
such year; or (iii) was an officer of the Employer and
received compensation during such year that is greater
than 50 percent of the dollar limitation in effect under
Section 415 (b) (1) (A) of the Code.
The term Highly Compensated Employee also includes:
(i) Employees who are both described in the preceding
sentence if the term "determination year" is substituted
for the term "look-back year" and the Employee is one of
the 100 Employees who received the most compensation from
the Employer during the determination year; and (ii)
Employees who are Five Percent Owners at any time during
the look- back year or determination year.
If no officer has satisfied the compensation
requirement of sub paragraph (iii) above during either a
determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly
Compensated Employee.
For this purpose, the determination year shall be the
Plan Year. The look-back year shall be the twelve-month
period immediately preceding the determination year.
A highly compensated former Employee includes any
Employee who separated from service (or was deemed to
have separated) prior to the determination year, performs
no service for the Employer during the determination
year, and was a highly compensated active Employee for
either the separation year or any determination year
ending on or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-
back year, a family member of either a Five Percent Owner
who is an active or former Employee or a Highly
Compensated Employee who is one of the 10 most highly
compensated Employees ranked on the basis of compensation
paid by the Employer during such year, then the family
member and the Five Percent Owner or top-ten highly
compensated Employee shall be aggregated. In such case,
the family member and Five Percent Owner or top-ten
highly compensated Employee shall be treated as a single
Employee receiving compensation and Plan contributions or
benefits equal to the sum of such compensation and
contributions or benefits of the family member and Five
Percent Owner or top-ten highly compensated Employee. For
purposes of this section, family member includes the
spouse, lineal ascendants and descendants of the Employee
or former Employee and the spouses of such lineal
ascendants and descendants.
The determination of who is a Highly Compensated
Employee, including the determinations of the number and
identity of Employees in the top-paid group, the top 100
Employees, the number of Employees treated as officers
and the compensation that is considered, will be made in
accordance with Section 414(q) of the Code and the
regulations thereunder.
(m) HOUR OF SERVICE shall mean:
(i) Each hour for which an Employee is paid, or
entitled to payment, for the performance of duties
for the Employer. These hours will be credited to the
Employee for the computation period in which the
duties are per- formed; and
(ii) Each hour for which an Employee is paid, or
entitled to payment, by the Employer on account of a
period of time during which no duties are performed
(irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty,
military duty or leave of absence. No more than 501
hours of service will be credited under this
paragraph for any single continuous period (whether
or not such period occurs in a single computation
period). Hours under this paragraph will be
calculated and credited pursuant to Section 2530.200b-
2 of the Department of Labor Regulations which is
incorporated herein by this reference; and
(iii) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to
by the Employer. The same hours of service will not
be credited both under subparagraph (i) or
subparagraph (ii), as the case may be, and under this
subparagraph (iii). These hours will be credited to
the Employee for the computation period or periods to
which the award or agreement pertains rather than the
computation period in which the award, agreement or
payment is made.
Hours of service will be credited for employment with
other members of an affiliated service group (under Section
414(m) of the Code), a controlled group of corporations
(under Section 414(b) of the Code), or a group of trades or
businesses under common control (under Section 414(c) of the
Code) of which the adopting Employer is a member, and any
other entity required to be aggregated with the Employer
pursuant to Section 414(o) of the Code and the regulations
thereunder.
Hours of service will also be credited for any individual
considered an Employee for purposes of this Plan under
Section 414(n) or Section 414(o) of the Code and the
regulations thereunder.
Solely for purposes of determining whether a Break in
Service, as defined in Section 2(c), has occurred in a
computation period, an individual who is absent from work
for maternity or paternity reasons shall receive credit for
the Hours of Service which would otherwise have been
credited to such individual but for such absence, or in any
case in which such hours cannot be determined, eight (8)
Hours of Service per day of such absence. For purposes of
this paragraph, an absence from work for maternity or
paternity reasons means an absence (i) by reason of the
pregnancy of the individual, (ii) by reason of a birth of a
child of the individual, (iii) by reason of the placement of
a child with the individual in connection with the adoption
of such child by such individual, or (iv) for purposes of
caring for such child for a period beginning immediately
following such birth or placement The Hours of Service
credited under this paragraph shall be credited (i) in the
computation period in which the absence begins if the
crediting is necessary to prevent a Break in Service in that
period, or (ii) in all other cases, in the following
computation period.
(n) INVESTMENT COMPANY shall mean an investment company
as defined in Internal Revenue Code Section 851(a), for
which Nicholas Company, Inc. serves as an investment adviser
and which has agreed to offer shares for investment under
this Plan. Investment Company Shares or Shares shall mean
shares of capital stock of the Investment Company.
(o) KEY EMPLOYEE shall mean any Employee or former
Employee (and the Beneficiaries of such Employee) who at any
time during the Determination Period was an officer of the
Employer if such individual's Annual Compensation exceeds 50
percent of the dollar limitation under Section 415(b)(1)(A)
of the Code, an owner (or considered an owner under Section
318 of the Code) of one of the ten largest interests in the
Employer if such individual's compensation exceeds 100
percent of the dollar limitation under Section 415(c)(l)(A)
of the Code, a Five Percent owner of the Employer, or a one
percent owner of the Employer who has an Annual Compensation
of more than $150,000. Annual Compensation means
compensation as defined in Section 415(c)(3) of the Code,
but including amounts contributed by the Employer pursuant
to a salary reduction agreement which are excludible from
the Employee's gross income under Section 125, Section
402(a) (8), Section 402(h) or Section 403(b) of the Code.
The Determination Period is the Plan Year containing the
Determination Date and the four (4) preceding Plan Years.
The determination of who is a Key Employee will be made in
accordance with Section 416(i)(1) of the Code and the
regulations thereunder.
The Determination Date for any Plan Year subsequent to
the first Plan Year is the last day of the preceding Plan
Year. For the first Plan Year of the Plan, the Determination
Date is the last day of that year.
(p) LEASED EMPLOYEE shall mean any person (other than an
employee of the recipient) who pursuant to an agreement
between the recipient and any other person ("leasing
organization") has performed services for the recipient (or
for the recipient and related persons deter- mined in
accordance with Section 414(n)(6) of the Code) on a
substantially full time basis for a period of at least one
year, and such services are of a type historically performed
by employees in the business field of the recipient
employer. Contributions or benefits provided a leased
employee by the leasing organization which are attributable
to services performed for the recipient employer shall be
treated as provided by the recipient employer.
A leased employee shall not be considered an employee of
the recipient if: (i) such employee is covered by a money
purchase pension plan providing: (A) a nonintegrated
employer contribution rate of at least ten percent (10%) of
compensation, as 4efined in Section 415(c)(3) of the Code,
but including amounts contributed pursuant to a salary
reduction agreement which are excludable from the employee's
gross income under Section 125, Section 402(a)(8), Section
402(h) or Section 403(b) of the Code, (B) immediate
participation, and (C) full and immediate vesting; and (ii)
leased employees do not constitute more than twenty percent
(20%) of the recipient's nonhighly compensated workforce.
(q) MONEY PURCHASE ACCOUNT shall mean the account
established and maintained by the Custodian under Section
5.1 of the Plan consisting of that portion of all
contributions of the Employer under the Money Purchase Plan
Participation Agreement.
(r) NET INCOME OF THE EMPLOYER shall mean the net income
determined from the Employer's books in accordance with
generally accepted accounting principles, but before
deduction for state and federal net income taxes,
surtaxes and excess profits taxes and contributions under
this Plan, or under any other pension or retirement plan
to which the Employer contributes.
(s) NON-OWNER PARTNER shall mean a partner who is not an
Owner or self-employed Individual.
(t) NORMAL RETIREMENT AGE shall be the age selected
in the Participation Agreement. If the Employer enforces a
mandatory retirement age, the Normal Retirement Age is the
lesser of the mandatory age or the age specified in the
Participation Agreement.
(u) OWNER shall mean a person who is the sole proprietor
of the Employer or a partner having an interest of more than
10% in the capital or profits of the Employer.
(v) PARTICIPANT shall mean an Employee who has satisfied
the participation requirements established under Section 3
of this Plan.
(w) PARTICIPANT'S ACCOUNT AND/OR PARTISIPANT ACCOUNT
shall mean the individual investment accounts maintained by
the Custodian pursuant to Section 5 containing each
Participant's entire interest in the Plan.
(x) PARTICIPATION AGREEMENT shall mean the instruments by
which the Employer adopts the Plan.
(y) PLAN shall mean the Nicholas Master Retirement Plan
for Self- Employed Individuals set forth herein, as it may
be amended from time to time.
(z) PLAN ADMINISTRATOR shall mean the Employer unless
other- wise indicated in Paragraph 6 of the Participation
Agreement. The Plan Administrator shall be the named
fiduciary under ERISA.
(aa) PLAN YEAR means the calendar year.
(bb) PROFIT SHARING ACCOUNT shall mean the account
established and maintained by the Custodian under Section
5.1 of the Plan consisting of that portion of the Employer's
contributions under the Profit Sharing Plan Participation
Agreement.
(cc) ROLLOVER CONTRIBUTION ACCOUNT shall mean an account
established and maintained by the Custodian under Sections
4.6 and 5.1 of the Plan consisting of any rollover
contributions of the Participant as described in Section 4.6
of the Plan. An ADEC Rollover Account shall mean a separate
Rollover Contribution Account consisting solely of amounts
which represent accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of
the Code.
(dd) SELF-EMPLOYED INDIVIDUAL shall mean an individual
who has Earned Income for the taxable year from the trade or
business for which the Plan is established; also an
individual who would have had Earned Income but for the fact
that the trade or business had no net profits for the
taxable year.
(ee) VOLUNTARY CONTRIBUTION ACCOUNT shall mean the
account established and maintained by the Custodian under
Section 5.1 of the Plan consisting of the voluntary
contributions made by each Participant.
(ff) YEAR OF SERVICE shall mean a l2 consecutive month
period (computation period), computed with reference to the
Employee's date of employment or anniversaries thereof,
during which the Employee has completed at least 1000 Hours
of Service (or such lesser number of Hours of Service as the
Employer designates in the Participation Agreement).
(gg) YEARS OF CREDITED SERVICE shall mean the total Years
of Service of an Employee; provided that Years of Service
accumulated prior to a Break in Service shall not be given
credit in determining Years of Credited Service for an
Employee who has not satisfied the participation
requirements established under Section 3 of this Plan. In
the event the Employer maintains the plan of a predecessor
Employer, service for such predecessor shall be treated as
service for the Employer.
SECTION 3
PARTICIPATION
3.1 AN EMPLOYEE WHO HAS COMPLETED THE MINIMUM NUMBER OF
YEARS OF CREDITED SERVICE AND REACHED THE MINIMUM AGE
REQUIRED UNDER SECTION 3(A)(I) AND (II) OF THE PARTICIPATION
AGREEMENT SHALL BECOME A PARTICIPANT ON THE FIRST DAY OF THE
PLAN YEAR DURING WHICH HE OR SHE MEETS THE SERVICE AND AGE
REQUIREMENTS. A FORMER PARTICIPANT WILL BECOME A PARTICIPANT
IMMEDIATELY UPON RETURNING TO THE EMPLOY OF THE EMPLOYER.
3.2 If this Plan provides contributions or benefits
for one or more Owners who control both the business for
which this Plan is established and one or more other trades
or businesses, this Plan and the plan established for such
other trades or businesses must, when looked at as a single
plan, satisfy Sections 401(a) and (d) of the Code for the
Employees of this and all other trades or businesses.
If this Plan provides contributions or benefits for one
or more Owners who control one or more other trades or
businesses, the Employees of the other trades or businesses
must be included in a plan which satisfies Section 401 (a)
and (d) of the Code and which provides contributions and
benefits not less favorable than provided for such Owners
under this Plan.
If an individual is covered as an Owner under the plans
of two or more trades or businesses which are controlled and
such individual controls a trade or business, then the
contributions or benefits of the Employees under the plan of
the trades or businesses which are controlled must be as
favorable as those provided for him under the most favorable
plan of the trade or business which is not controlled.
For purposes of the preceding paragraphs, an Owner or two
or more Owners shall be considered to control a trade or
business if such Owner or such two or more Owners together:
(i) own the entire interest in an unincorporated trade
or business, or
(ii) in the case of a partnership, own more than fifty
percent (50%) of either the capital interest or the profits
interest in such partnership.
For purposes of the preceding sentence, an Owner, or
two or more Owners shall be treated as owning any interest
in a partnership which is owned, directly or indirectly, by
a partnership which such Owner, or such two or more Owners,
are considered to control within the meaning of the
preceding sentence.
3.3 In the event a Participant is no longer a member of
an eligible class of Employees and becomes ineligible to
participate but has not incurred a Break in Service, such
Employee will participate immediately upon returning to an
eligible class of Employees. If such Participant incurs a
Break in Service, eligibility will be determined under the
Break in Service rules of the Plan.
In the event an Employee who is not a member of an
eligible class of Employees becomes a member of an eligible
class, such Employee will participate immediately if such
Employee has satisfied the minimum age and service
requirements and would have otherwise previously become a
Participant
SECTION 4
CONTRIBUTIONS
4.1 The Employer shall make contributions as set forth
in paragraph 5 of the Participation Agreement and deliver
the contributions to the Custodian not later than the due
date for filing the Employer's income tax return, including
extensions thereof. All contributions shall be in cash.
In the case of contributions to Profit Sharing Accounts, if
the Employer has elected in paragraph 5(b) of the
Participation Agreement to have this provision apply, then
notwithstanding any other provisions of the Plan, Employer
contributions for Plan Years specified in paragraph 5(b) of
the Participation Agreement shall be made to the Plan
without regard to current or accumulated earnings and
profits for the taxable year or years ending with or within
such Plan Year. The Plan with respect to which the Profit
Sharing Account is maintained shall continue to be designed
to qualify as a profit sharing plan for purposes of Sections
401(a), 402, 412 and 417 of the Code. In the absence of such
an election, Employer contributions to Profit Sharing
Accounts shall be made out of current or accumulated Net
Income.
4.2 Except as otherwise provided below, the Employer
contributions allocated on behalf of any Participant who is
not a Key Employee for any Plan Year shall not be less than
the lesser of three percent (3%) of such Participant's
Compensation or in the case where the Employer has no
defined benefit plan which designates this Plan to satisfy
Section 401 of the Code, the largest percentage of Employer
contributions, as a percentage of the first $200,000 of the
Key Employee's Compensation, allocated on behalf of any Key
Employee for that year. The minimum allocation is determined
without regard to any Social Security contribution. For
purposes of computing the minimum allocation, Compensation
shall mean Compensation as defined in Section 2(e) of the
Plan. This Section shall not apply to any Participant to the
extent the Participant is covered under any other plan or
plans of the Employer and the Employer has provided in
paragraph 13 of the Participation Agreement that the minimum
allocation or benefit requirement will be met in the other
plan or plans.
4.3 During any Plan Year prior to January 1, 1988, any
Participant may voluntarily contribute to the Plan an amount
equal to not more than ten percent (10%) of his Compensation
or Earned Income. This limitation applies in the aggregate
to voluntary contributions by any Participant to two or more
plans maintained by the same Employer.
If an Owner is covered under any other self-employed
retirement plan qualified under Section 401 of the Internal
Revenue Code to which he makes voluntary contributions, the
total amount of voluntary contributions to all such
qualified plans shall be taken into account in determining
the maximum voluntary contributions for such Owner under the
preceding paragraph.
This Plan will not accept voluntary Employee
contributions for Plan Years beginning after December 31,
1987. Employee contributions for Plan Years beginning after
December 31, 1986, will be limited so as to meet the
nondiscrimination test of Section 401(m) of the Code.
4.4 A Participant may at any time withdraw the amount of
his Voluntary Contributions Account, provided that the
entire amount in such Voluntary Contributions Account (based
upon the published market value of the Investment Company
shares on the close of trading on the day before the
withdrawal is accomplished) is withdrawn at such time, and
also provided that if the Participant is married, his or her
spouse consents in writing to the withdrawal. Any
Participant who shall elect to withdraw his voluntary
contributions shall not be permitted to make further
voluntary contributions for a period of one year.
4.5 Except as provided in Section 6.1 of this Plan and
Section 4.3 of the Custodial Agreement, no contributions
made by the Employer nor any assets held by the Custodian
shall ever revert to the Employer or ever be diverted to
purposes other than for the exclusive benefit of the
Participants and their beneficiaries.
4.6 An Employee may transfer to the Plan accrued benefits
attributable to employer contributions, or to accumulated
deductible employee contributions within the meaning of
Section 72(o)(5)(B) of the Code, from another plan which
meets the requirements of Section 401(a) of the Code,
provided that the distribution of such benefits qualifies
under the requirements of Section 402(a)(5) of the Code for
treatment as a tax-flee rollover. The Plan Administrator
shall develop such procedures, and may require such
information from an Employee desiring to make such a
transfer, as the Plan Administrator deems necessary to
determine that the proposed transfer will meet the
requirements of the Code. Upon approval by the Plan
Administrator the amount transferred shall be deposited with
the Custodian and shall be credited to a Rollover
Contribution Account, or in the case of amounts representing
accumulated deductible employee contributions within the
meaning of Section 72(o)(5)(B), to an ADEC Rollover Account,
which shall be established and maintained by the Custodian
for that purpose. An Employee shall at all times have a one
hundred percent (100%) vested interest in his Rollover
Contribution Account or ADEC Rollover Account, but shall not
share in Employer contributions hereunder by reason of the
Employee's Rollover Contribution Account or ADEC Rollover
Account Subject to Section 7 relating to Joint and Survivor
Annuity requirements (if applicable), the Participant may
withdraw any part of the ADEC Rollover Account by making a
written application to the Plan Administrator. Upon
termination of employment, the total amount of the
Employee's Rollover Contribution Account or ADEC Rollover
Account shall be distributed in accordance with Section 7.
SECTION 5
ACCOUNTS OF PARTICIPANT
5.1 The Custodian shall cause to be maintained for each
Participant (a) a separate Profit Sharing Account which
shall consist of that portion of all contributions of the
Employer under the Employer's Profit Sharing Plan
Participation Agreement allocated to a Participant; (b) a
separate Money Purchase Account which shall consist of that
portion of all contributions of the Employer under the
Employer's Money Purchase Plan Participation Agreement
allocated to a Participant; (c) a separate Voluntary
Contribution Account for the voluntary contributions made by
each Participant; and (d) in the event of any rollover
contributions as described in Section 4.6, separate Rollover
Contribution and/or ADEC Rollover Accounts for such rollover
contributions.
5.2 Contributions by or on behalf of all Participants
under the Plan shall be transferred to the Custodian by the
Employer and shall be invested by the Custodian in whole or
fractional Investment Company Shares. All contributions
transferred to the Custodian shall be allocated, pursuant to
the written instructions of the Plan Administrator as
provided under the Custodial Agreement, to accounts of
Employees eligible to participate in the Plan as defined in
paragraph 3(a) of the Participation Agreement (including
eligible Employees who have died or retired during such Plan
Year), provided that for the Plan Year beginning January 1,
1989, no such allocation shall be made to the account of any
Employee (a "1989 Terminee") who is otherwise eligible to
participate under Paragraph 3(a)(i) and (ii) of the
Participation Agreement and who terminates employment during
such Plan Year (other than by reason of death or retirement)
and is not an Employee as of the last day of such Plan Year.
All 1989 Terminees shall nevertheless be treated as
benefiting under the Plan pursuant to Proposed Treasury
Regulations Sections 1.401(a)(26)-8(b)(6) and 1.410(b)-
10(b)(2). Employer contributions under Paragraph 5 of the
Profit Sharing Plan Participation Agreement (Paired Plan 01-
001) shall be allocated to each Participant in the ratio
that such Participant's Compensation bears to the
Compensation of all Participants. Employer contributions
under the Money Purchase Plan Participation Agreement
(Paired Plan 01-002) shall be allocated to each Participant
in an amount equal to the amount contributed on behalf of
such Participant under Paragraph 5(a) of the Money Purchase
Plan Participation Agreement Each Participant shall direct
the Plan Administrator as to the specific Investment Company
Shares to be purchased for the Participant's Account(s). The
Plan Administrator shall then provide written instructions
to the Custodian, in form acceptable to the Custodian,
designating the specific Investment Company Shares to be
purchased for each Participant's Account(s), as directed by
the Participant All income, dividends and capital gain
distributions received on the Investment Company Shares held
in each Participant Account shall be reinvested in such
Shares, which shall be credited to such Account. All
contributions made by or on behalf of each Participant and
all investments made with such contributions, and the
earnings thereon, shall immediately become and at all times
remain fully vested and nonforteitable.
5.3 Investment Company Shares acquired by the Custodian
shall be registered in the name of the Custodian or its
nominee. The Participant for whom such shares are
acquired shall be the beneficial owner of all such shares
held in the Custodial Account and shall have the right to
diect the manner of voting such stock.
5.4 At the close of each calendar year the Custodian
shall, taking into account the contributions during said
calendar year, determine as of the end of such calendar
year the fair market value of each Participant account.
5.5 In the event the Employer's plan fails to attain or
retain its status as a qualified plan, the Custodian
shall segregate the assets affected thereby from the
assets of the master custodial account as soon as
administratively feasible.
SECTION 6
LIMITATIONS ON ALLOCATIONS
6.1 PARTICIPANTS NOT COVERED BY OTHER PLANS.
(a) If the Participant does not participate in, and has
never participated in another qualified plan maintained
by the Employer or a welfare benefit fund, as defined in
Section 419(e) of the Cede maintained by the Employer, or
an individual medical account, as defined in Section
415(1)(2) of the Code, maintained by the Employer, which
provides an Annual Addition as defined in Subsection
6.5(a) of this Plan, the amount of Annual Additions which
may be credited to the Participant's account for any
Limitation Year will not exceed the lesser of the Maximum
Permissible Amount or any other limitation contained in
this Plan. If the Employer contribution that would
otherwise be contributed or allocated to the
Participant's account would cause the Annual Additions
for the Limitation Year to exceed the Maximum Permissible
Amount, the amount contributed or allocated will be
reduced so that the Annual Additions for the limitation
Year will equal the Maximum Permissible Amount
(b) Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer may
determine the Maximum Permissible Amount for a
Participant on the basis of a reasonable estimation of
the Participant's Compensation for the Limitation Year,
uniformly determined for all Participants similarly
situated.
(c) As soon as is administratively feasible after the
end of the Limitation Year, the Maximum Permissible
Amount for the Limitation Year will be determined on the
basis of the Participant's actual Compensation for the
Limitation Year.
(d) If pursuant to Subsection 6.1(c) there is an excess
amount, the excess will be disposed of as follows:
(i) Any nondeductible voluntary Employee
contributions, to the extent they would reduce the
excess amount, will be returned to the Participant;
(ii) If after the application of subparagraph (i) an
excess amount still exists, and the Participant is
covered by the Plan at the end of the Limitation
Year, the excess amount in the Participant's account
will be used to reduce Employer contributions for
such Participant in the next Limitation Year, and
each succeeding Limitation Year if necessary.
(iii) If after the application of paragraph (i) an
excess amount still exists, and the Participant is
not covered by the Plan at the end of a Limitation
Year, the excess amount will be held unallocated in a
suspense account The suspense account will be applied
to reduce future Employer contributions for all
remaining Participants in the next Limitation Year,
and each succeeding Limitation Year if necessary.
(iv) If a suspense account is in existence at any
time during a Limitation Year pursuant to this
section, the suspense account shall be invested by
the Custodian in whole or fractional Investment
Company Shares. If a suspense account is in existence
at any time during a particular Limitation Year, all
amounts in the suspense account must be allocated and
reallocated to Participants' accounts before any
Employer or any Employee contributions may be made to
the Plan for that Limitation Year. Excess amounts may
not be distributed to Participants or former
Participants. In the event of termination of the Plan
the suspense account shall revert to the Employer to
the extent it may not then be allocated to any
Participant's account.
6.2 PARTICIPANTS COVERED BY OTHER MASTER OR PROTOTYPE
DEFINED CONTRIBUTION PLANS.
(a) This subsection applies if, in addition to this
Plan, the Participant is covered under another qualified
master or prototype defined contribution plan maintained
by the Employer, a welfare benefit fund, as defined in
Section 419(e) of the Code maintained by the Employer, or
an individual medical account, as defined in Section
415(1)(2) of the Code, maintained by the Employer, which
provides an Annual Addition as defined in Subsection
6.5(a), during any Limitation Year. The Annual Additions
which maybe credited to a Participant's Account under
this Plan for any such Limitation Year will not exceed
the Maximum Permissible Amount reduced by the Annual
Additions credited to a Participant's account under the
other plans and welfare benefit funds for the same
Limitation Year. If the Annual Additions with respect to
the Participant under other defined contribution plans
and welfare benefit funds maintained by the Employer are
less than the Maximum Permissible Amount and the Employer
contribution that would otherwise be contributed or
allocated to the Participant's account under this Plan
would cause the Annual Additions for the Limitation Year
to exceed this limitation, the amount contributed or
allocated will be reduced so that the Annual Additions
under all such plans and funds for the Limitation Year
will equal the Maximum Permissible Amount If the Annual
Additions with respect to the Participant under such
other defined contribution plans and welfare benefit
funds in the aggregate are equal to or greater than the
Maximum Permissible Amount, no amount will be contributed
or allocated to the Participant's account under this Plan
for the Limitation Year.
(b) Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer may
determine the Maximum Permissible Amount for a
Participant in the manner described in Subsection 6.1(b).
(c) As soon as is administratively feasible after the
end of the Limitation Year, the Maximum Permissible
Amount for the Limitation Year will be determined on the
basis of the Participant's actual Compensation for the
Limitation Year.
(d) If, pursuant to Subsection 6.2(c) or as a result of
the allocation of forfeitures, a Participant's Annual
Additions under this Plan and such other plans would
result in an excess amount for a Limitation Year, the
excess amount will be deemed to consist of the Annual
Additions last allocated, except that Annual Additions
attributable to a welfare benefit fund or individual
medical account will be deemed to have been allocated
first regardless of the actual allocation date.
(e) If an excess amount was allocated to a Participant
on an allocation date of this Plan which coincides with
an allocation date of another plan, the excess amount
attributed to this Plan will be the product of:
(i) the total excess amount allocated as of such
date, times
(ii) the ratio of (A) the Annual Additions allocated
to the Participant for the Limitation Year as of such
date under this Plan to (B) the total Annual
Additions allocated to the Participant for the
Limitation Year as of such date under this and all
the other qualified master or prototype defined
contribution plans.
(f) Any excess amount attributed to this plan will be
disposed in the manner described in Subsection 6.1(d).
6.3 PARTICIPANTS COVERED BY OTHER NON-MASTER OR NON-
PROTOTYPE DEFINED CONTRIBUTION PLANS.
If the Participant is covered under another qualified
defined contribution plan maintained by the Employer which
is not a master or prototype plan, Annual Additions which
may be credited to the Participant's
account under this Plan for any Limitation Year will be
limited in accordance with Subsections 6.2(a) through 62(f)
as though the other plan were a master or prototype plan
unless the Employer provides other limitations in paragraph
10(a) of the Participation Agreement.
6.4 EMPLOYERS WITH DEFINED BENEFIT PLAN.
If the Employer maintains, or at any time maintained, a
qualified defined benefit plan covering any Participant in
this Plan, the sum of the Participant's Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction will not
exceed 1.0 in any Limitation Year. The Annual Additions
which may be credited to the Participant's account under
this Plan for any Limitation Year will be limited in
accordance with paragraph 10(0) of the Participation
Agreement
6.5 DEFINITIONS.
(A) ANNUAL ADDITIONS: The sum of the following amounts
credited to a Participant's account for the Limitation
Year:
(i) Employer contributions,
(ii) Employee contributions,
(iii) forfeitures, and
(iv) amounts allocated, after March 31, 1984, to an
individual medical account, as defined in Section 415
(1) (2) of the Code, which is part of a pension or
annuity plan maintained by the Employer are treated
as Annual Additions to a defined contribution plan.
Also, amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years
ending after such date, which are attributable to
post-retirement medical benefits, allocated to the
separate account of a Key Employee, as defined in
Section 419A(d) (3) of the Code, under a welfare
benefit fund, as defined in Section 419(e) of the
Code, maintained by the Employer are treated as
Annual Additions to a defined contribution plan.
For this purpose, any excess amount applied under
Subsections 6.1(d) or 62(f) in the Limitation Year to
reduce Employer contributions will be considered Annual
Additions for such Limitation Year.
(b) COMPENSATION: A Participant's Earned Income, wages,
salaries, and fees for professional services and other
amounts received for personal services actually rendered
in the course of employment with the Employer maintaining
the Plan (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums,
tips and bonuses), and excluding the following:
(i) Employer contributions to a plan of deferred
compensation which are not includible in the
Employee's gross income for the taxable year in which
contributed, or Employer contributions under a
simplified employee pension plan to the extent such
contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
(ii) Amounts realized from the exercise of a
nonqualified stock option, or when restricted stock
(or property) held by the Employee either becomes
freely transferable or is no longer subject to a
substantial risk of forfeiture;
(iii) Amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified
stock option; and
(iv) other amounts which received special tax
benefits, or contributions made by the Employer
(whether or not under a salary reduction agreement)
towards the purchase of an annuity described in
Section 403(0) of the Internal Revenue Code (whether
or not the amounts are actually excludible from the
gross income of the Employee).
For purposes of applying the limitations of this section,
Compensation for a Limitation Year is the Compensation
actually paid or includible in gross income during such
Limitation Year.
(c) DEFINED BENEFIT FRACTION: A fraction, the numerator
of which is the sum of the Participant's projected annual
benefits under all the defined benefit plans (whether or not
terminated) maintained by the Employer, and the denominator
of which is the lesser of 125 percent of the dollar
limitation determined for the Limitation Year under Sections
415(0) and (d) of the Code or 140 percent of the Highest
Average Compensation, including any adjustments under
Section 415(0) of the Code.
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first Limitation
Year beginning after December31, 1986, in one or more
defined benefit plans maintained by the Employer which
were in existence on May 6, 1986, the denominator of this
fraction will not be less than 125 percent of the sum of
the annual benefits under such plans which the
Participant had accrued as of the close of the last
Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of
the plan after May 5, 1986. The preceding sentence
applies only if the defined benefit plans individually
and in the aggregate satisfied the requirements of
Section 415 of the Code for all Limitation Years
beginning before January 1, 1987.
(d) DEFINED CONTRIBUTION DOLLAR LIMITATION: $30,000 or
if greater, one-fourth of the defined benefit dollar
limitation set forth in Section 415(0)(1) of the Code as in
effect for the Limitation Year.
(e) DEFINED CONTRIBUTION FRACTION: A fraction, the
numerator of which is the sum of the Annual Additions to the
Participant's account under all the defined contribution
plans (whether or not terminated) maintained by the Employer
for the current and all prior Limitation Years (including
the Annual Additions attributable to the Participant's
nondeductible employee contributions to all defined benefit
plans, whether or not terminated, maintained by the
Employer, and the Annual Additions attributable to all
welfare benefit funds, as defined in Section 419(e) of the
Code, and individual medical accounts, as defined in Section
415(1)(2) of the Code, maintained by the Employer), and the
denominator of which is the sum of the maximum aggregate
amounts for the current and all prior Limitation Years of
service with the Employer (regardless of whether a defined
contribution plan was maintained by the Employer). The
maximum aggregate amount in any Limitation Year is the
lesser of 125 percent of the dollar limitation determined
under Sections 415(0) and (d) of the Code in effect under
Section 415(c)(1)(A) of the Code or 35 percent of the
Participant's Compensation for such year.
If the Employee was a Participant as of the end of the
first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined contribution plans
maintained by the Employer which were m existence on May 6,
1986, the numerator of this fraction will be adjusted if the
sum of this fraction and the Defined Benefit Fraction would
otherwise exceed 1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the
denominator of this fraction, will be permanently subtracted
from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as
of the end of the last Limitation Year beginning before
January 1, 1987, and disregarding any changes in the terms
and conditions of the Plan made after May 5, 1986, but using
the Section 415 limitation applicable to the first
Limitation Year beginning on or after January 1, 1987.
The Annual Addition for any Limitation Year beginning
before January 1, 1987, shall not be recomputed to treat all
Employee contributions as Annual Additions.
(f) EMPLOYER: For purposes of this Section 6, Employer
shall mean the Employer that adopts this Plan, and all
members of a controlled group of corporations (as defined in
Section 414(0) of the Code as modified by Section 415(0)),
all commonly controlled trades or businesses (as defined in
Section 414(c) as modified by Section 415(0)) or affiliated
service groups (as defined in Section 414(m)) of which the
adopting Employer is a part, and any other entity required
to be aggregated with the Employer pursuant to regulations
under Section 414(0) of the Code.
(g) EXCESS AMOUNT: The excess of the Participant's
Annual Additions for the Limitation Year over the Maximum
Permissible Amount
(h) HIGHEST AVERAGE COMPENSATION: The average
Compensation for the three consecutive Years of Service with
the Employer that produces the highest average. A Year of
Service with the Employer is the 12- consecutive month
period defined in Section 2(gg) of this Plan.
(i) LIMITATION YEAR: A calendar year, or the
12~onsecutive month period elected by the Employer in
paragraph 12 of the Participation Agreement. All qualified
plans maintained by the Employer must use the same
Limitation Year. If the Limitation Year is amended to a
different 12~onaecutive month period, the new Limitation
Year must begin on a date within the Limitation Year in
which the amendment is made.
(j) Master or Prototype Plan: A plan the form of which
is the subject of a favorable opinion letter from the
Internal Revenue Service.
(k) Maximum Permissible Amount: The maximum Annual
Addition that may be contributed or allocated to a
Participant's account under the Plan for any Limitation Year
shall not exceed the lesser of:
(i) the Defined Contribution Dollar Limitation, or
(ii) 25 percent of the Participant's Compensation for
the Limitation Year.
The Compensation limitation referred to in Subparagraph
(ii) shall not apply to any contribution for medical
benefits (within the meaning of Section 401(h) or Section
419A(f)(2) of the Code which is otherwise treated as an
Annual Addition under Section 415(l)(l) or 419A(d)(2) of the
Code.
If a short Limitation Year is created because of an
amendment changing the Limitation Year to a different
l2consecutive month period, the Maximum Permissible Amount
will not exceed the Defined Contribution Dollar Limitation
multiplied by the following fraction:
NUMBER OF MONTHS IN THE SHORT LIMITATION YEAR
12
(1) PROJECTED ANNUAL BENEFIT: The annual retirement
benefit (adjusted to an actuarially equivalent straight life
annuity if such benefit is expressed in a form other than a
straight life annuity or qualified joint and survivor
annuity) to which the Participant would be entitled under
the terms of the Plan assuming:
(i) the Participant will continue employment until
Normal Retirement Age under the Plan (or current age,
if later), and
(ii) the Participant's Compensation for the current
Limitation Year and all other relevant factors used
to determine benefits under the Plan will remain
constant for all future Limitation Years.
SECTION 7
PAYMENT OF BENEFFIS
7.1 For purposes of this Section, the term
"Participant" shall mean an Employee who has received a
contribution to his Participant account and who retains a
balance in such account A Participant who dies, retires,
terminates service with the Employer or who is a Participant
on the date the Plan terminates shall have the right to have
the balance of his account(s) applied for his benefit For
purposes of making lump sum distributions, or purchasing
annuity contracts, the value of such Participant's
account(s) shall be based upon the published market value of
the Investment Company Shares on the close of trading on the
day before the distribution is made.
7.2 (a) Upon retirement or termination of the
Participant's services with the Employer if the value of the
Participant's Account Balance(s) derived from Employer and
Participant contributions is not greater than $3,500, the
Participant will receive a distribution of the value of his
Account Balance(s). However, no distribution shall be made
pursuant to the preceding sentence after the first day of
the first period for which an amount is received as an
annuity unless the Participant and his or tier Spouse (or
the Participant's Surviving Spouse) consent in writing to
such distribution.
(b) If the value of a Participant's Account Balance(s)
derived from Employer and Participant contributions exceeds
(or at the time of any prior distribution exceeded) $3,000,
and the Account Balance(s) are Immediately Distributable,
the Participant and the Participant's Spouse (or where
either the Participant or the Spouse has died, the survivor)
must consent to any distribution of such Account Balance(s).
The consent of the Participant and the Participant's Spouse
shall be obtained in writing within the 90-day period ending
on the Annuity Starting Date. The Annuity Starting Date is
the first day of the first period for which an amount is
paid as an annuity or any other form. The Plan Administrator
shall notify the Participant and the Participant's Spouse of
the right to defer any distribution until the Participant's
Account Balance(s) are no longer Immediately Distributable.
Such notification shall include a general description of the
material features, and an explanation of the relative values
of, the optional forms of benefit available under the Plan
in a manner that would satisfy the notice requirements of
Section 417(a)(3) of the Code, and shall be provided no less
than 30 days and no more than 90 days prior to the Annuity
Starting Date. If a distribution is one to which Sections
401(a)(11) and 417 of the Internal Revenue Code do not
apply, such distribution may commence less thin 30 days
after the notice required under Section 1.411(a)-11(c) of
the Income Tax Regulations is given, provided that:
(i) the Plan Administrator clearly informs the
Participant that the Participant has a right to a
period of at least 30 days after receiving the notice
to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular
distribution option), and
(ii) the Participant, after receiving the notice,
affirmatively elects a distribution.
Notwithstanding the foregoing, only the Participant
need consent to the commencement of a distribution in the
form of a Qualified Joint and Survivor Annuity while the
Account Balance(s) are Immediately Distributable.
(Furthermore, with respect to any Profit Sharing Plan
Account Balance(s), only the Participant need consent to the
distribution of Account Balance(s) that are Immediately
Distributable.) Neither the consent of the Participant nor
the Participant's Spouse shall be required to the extent
that a distribution is required to satisfy Section 401(a)(9)
or Section 415 of the Code. In addition, upon termination of
this Plan if the Plan does not offer an annuity option
(purchased from a commercial provider), the Participant's
Account Balance(s) may, without the Participant's consent,
be distributed to the Participant or transferred to another
defined contribution plan (other thin an employee stock
ownership plan as defined in Section 4975(e)(7) of the Code)
within the same controlled group.
An account balance is Immediately Distributable if any
part of the account balance could be distributed to the
Participant (or Surviving Spouse) before the Participant
attains (or would have attained if not deceased) the later
of Normal Retirement Age or age 62.
For purposes of determining the applicability of the
foregoing consent requirements to distributions made before
January 1, 1989, the Participant's Account Balance(s) shall
not include amounts attributable to accumulated deductible
employee contributions within the meaning of Section
72(o)(5)(B) of the Code.
7.3 (a) TIME OF PAYMENT Unless the Participant elects
otherwise, distribution of benefits will begin no later than
the 60th day after the latest of the close of the Plan Year
in which:
(i) the Participant attains age 65 (or Normal
Retirement Age, if earlier);
(ii) occurs the 10th anniversary of the year in which
the Participant commenced participation in the Plan;
or,
(iii) the Participant terminates service with the
Employer.
(b) ELECTION. A Participant may elect to have benefit
payments commence at a date later thin that allowed by
Subparagraph (a), pr~ vided that benefit payments shall
commence not later thin the Required Beginning Date
specified in Section 7.9. The Participant may make such
an election by submitting to the Plan Administrator for
transmittal to the Custodian, a signed written statement
describing the benefit and the date on which the payment
of such benefit shall commence.
Notwithstanding the foregoing, the failure of a
Participant and Spouse to consent to a distribution while
a benefit is Immediately Distributable, within the
meaning of Section 7.2(b) of the Plan, shall be deemed to
be an election to defer commencement of payment of any
benefit sufficient to satisfy this Section 7.3(b).
7.4 RETIREMENT BENEFITS. The provisions of Sections 7.4
and 7.5 shall apply to any Participant who is credited
with at least one Hour of Service with the Employer on or
after August 23, 1984, and such other Participants as
provided in Section 7.8.
(a) MONEY PURCHASE PLAN RETIREMENT BENEFITS. Unless an
optional form of benefit is selected pursuant to a
Qualified Election with-in the ninety (90) day period
ending on the Annuity Starting Date, a married
Participant's Money Purchase Plan Account Balance(s)
shall be paid in the form of a Qualified Joint and
Survivor Annuity and an unmarried Participant's Money
Purchase Plan Account Balance(s) shall be paid in the
form of a life annuity. The Participant may elect to have
such annuity distributed upon attainment of the Earliest
Retirement Age under the Plan.
A Participant in the Money Purchase Plan who has made a
Qualified Election, will receive his Money Purchase Plan
Account Balance(s) in one of the following optional forms
of distribution as selected by the Participant
(i) By a single payment in cash; or
(ii) By equal or substantially equal annual
installments over a period certain not to exceed the
life expectancy of the Participant or the joint life
or life expectancy of the Participant and his
Beneficiary.
(b) PROFIT SHARING PLAN RETIREMENT BENEFITS. The Profit
Sharing Plan Account Balance(s) of each Participant shall
be distributed upon direction of the Participant by one
or a combination of the following methods:
(i) By a single payment in cash; or
(ii) By equal or substantially equal annual
installments over a period certain not to exceed the
life expectancy of the Participant or the joint life
or life expectancy of the Participant and his
Beneficiary.
A Participant may not elect payments in the form of a life
annuity with respect to any Profit Sharing Plan Account
Balance(s).
7.5 DEATH BENEFITS.
(a) Qualified Preretirement Survivor Annuity. Unless an
optional form of benefit identified in Section 7.4(a) is
selected within the Election Period pursuant to a Qualified
Election, if a Participant dies before the Annuity Starting
Date then the Participant's Money Purchase Plan Account
Balance(s) shall be applied toward the purchase of an
annuity for the life of the Surviving Spouse. The Surviving
Spouse may elect to have such annuity distributed within a
reasonable period after the Participant's death.
(b) BENEFITS TO PROFIT SHARING PLAN PARTICIPANTS AND
UNMARRIED MONEY PURCHASE PLAN PARTICIPANTS. In the event of
the death of a Participant, the Participant's Profit Sharing
Plan Account Balance(s) (and/or the Participant's Money
Purchase Plan Account Balance(s), if the Participant is
unmarried) shall be distributed to the Participant's
Surviving Spouse, but if there is no Surviving Spouse, or if
the Surviving Spouse has consented in a manner conforming to
a Qualified Election, then to the Beneficiaries designated
in the Beneficiary Designation Form. In the event the
Participant has not designated any Beneficiaries, or all of
the designated Beneficiaries are deceased, then the Profit
Sharing Plan Account Balance(s) (and/or Money Purchase Plan
Account Balance(s)) shall be distributed to the following
persons, to take in the order named:
(i) Spouse of the Participant; (ii) if the Spouse shall
predecease the Participant, then in equal shares to any
children surviving the Participant and to the descendants
then living of a deceased child, by right of representation;
(iii) if the Participant shall leave neither Spouse nor
descendants surviving then to the personal representative of
the Participant's estate.
The Surviving Spouse (if any) may elect to have
distribution of any Profit Slating Plan Account Balance(s)
commence within the ninety (9O-day period following the date
of the Participant's death. The Profit Sharing Plan or Money
Purchase Plan Account Balance(s) (as the case may be) shall
be adjusted for gains or losses occurring after the
Participant's death in accordance with the provisions of
this Plan governing the adjustment of Account Balances for
other types of distributions.
The Participant may waive the spousal death benefit
described in this Section at any time provided that no such
waiver shall be effective unless it satisfies the conditions
of Section 7.6(c) (other than the notification requirement
referred to therein) that would apply to the Participant's
waiver of the Qualified Preretirement Survivor Annuity
(c) DEATH CERTIFICATE. Before making any distribution
upon the death of a Participant, the Plan Administrator
shall furnish the Custodian with a certified copy of the
death certificate of the Participant.
7.6 DEFINITIONS. For purposes of this Section 7, the
following terms shall have their respective meanings set
forth below, unless a different meaning is clearly required
by the context:
(a) ELECTION PERIOD means the period which begins on
the first day of the Plan Year in which the Participant
attains age thirty-five (35) and ends on the date of the
Participant's death. If a Participant separates from service
prior to the first day of the Plan Year in which age thirty-
five (35) is attained, with respect to the Participant's
Account balance(s) as of the date of separation, the
Election Period shall begin on the date of separation.
Pre-age 35 waiver: A Participant who will not yet
attain age 35 as of the end of any current Plan Year may
make a special Qualified Election to waive the Qualified
Preretirement Survivor Annuity for the period beginning on
the date of such election and ending on the first day of the
Plan Year in which the Participant will attain age 35. Such
election shall not be valid unless the Participant receives
a written explanation of the Qualified Preretirement
Survivor Annuity in such terms as are comparable to the
explanation required under Section 7.7(a). Qualified
Preretirement Survivor Annuity coverage will be
automatically reinstated as of the first day of the Plan
Year in which the Participant attains age 35. Any new waiver
on or after such date shall be subject to the hall
requirements of this Section 7.
(b) EARLIEST RETIREMENT AGE means the earliest date on
which, under the Plan, the Participant could elect to
receive retirement benefits.
(c) QUALIFIED ELECTION means a waiver of a Qualified Joint
and
Survivor Annuity or a Qualified Preretirement Survivor
Annuity. Any waiver of a Qualified Joint and Survivor
Annuity or a Qualified Preretirement Survivor Annuity shall
not be effective unless:
(i) the Participant's Spouse consents in writing to
the election;
(ii) the election designates a specific Beneficiary,
including any class of Beneficiaries or any
contingent Beneficiaries, which may not be changed
without Spousal consent (or the Spouse expressly
permits designations by the Participant without any
further Spousal consent);
(iii) the Spouse's consent acknowledges the effect of
the election; and
(iv) the Spouse's consent is witnessed by a Plan
representative or notary public. Additionally, a
Participant's waiver of the Qualified Joint and
Survivor Annuity shall not be effective unless the
election designates a form of benefit payment which
may not be changed without Spousal consent (or the
Spouse expressly permits designations by the
Participant without any further Spousal consent).
If it is established to the satisfaction of a Plan
representative that there is no Spouse or that the Spouse
cannot be located, a waiver will be deemed a Qualified
Election.
Any consent by a Spouse obtained under this provision (or
establishment that the consent of a Spouse may not be
obtained) shall be effective only with respect to such
Spouse. A consent that permits designations by the
Participant without any requirement of further consent by
such Spouse must acknowledge that the Spouse has the right
to limit consent to a specific Beneficiary, and a specific
form of benefit where applicable, and that the Spouse
voluntarily elects to relinquish either or both of such
rights. A revocation of a prior waiver maybe made by a
Participant without the consent of the Spouse at any time
before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under
this provision shall be valid unless the Participant has
received notice as provided in Section 7.7 below.
(d) QUALIFIED JOINT AND SURVIVOR ANNUITY means an
immediate annuity for the life of the Participant with a
survivor annuity for the life of the Spouse which is fifty
percent (50%) of the amount of the annuity which is payable
during the joint lives of the Participant and the Spouse and
which is the amount of benefit which can be purchased with
the Participant's Account Balance(s).
(e) SPOUSE OR SURVIVING SPOUSE means the Spouse or
Surviving Spouse of the Participant, provided that a former
Spouse will be treated as the Spouse or Surviving Spouse and
a current Spouse will not be treated as the Spouse or
Surviving Spouse only to the extent provided under a
qualified domestic relations order as described in Section
414(p) of the Code.
(f) ANNUITY STARTING DATE means the first day of the first
period for which an amount is paid as an annuity or any
other form.
(g) ACCOUNT BALANCE(S) means the aggregate value of the
Participant's Account balances derived from Employer and
Participant contributions (including rollovers).
7.7 NOTICE REQUIREMENTS.
(a) In the case of a Qualified Joint and Survivor
Annuity, the Plan Administrator shall no less than thirty
(30) days and no more than ninety (90) days prior to the
Annuity Starting Date provide each Participant a written
explanation of: (i) the terms and conditions of a Qualified
Joint and Survivor Annuity; (ii) the Participant's right to
make and the effect of an election to waive the Qualified
Joint and Survivor Annuity form of benefit; (iii) the rights
of a Participant's Spouse; and (iv) the right to make and
the effect of a revocation of a previous election to waive
the Qualified Joint and Survivor Annuity.
(b) In the case of a Qualified Preretirement Survivor
Annuity as described in Section 7.5(a), the Plan
Administrator shall provide each Participant within the
Applicable Period for such Participant a written explanation
of the Qualified Preretirement Survivor Annuity in such
terms and in such manner as would be comparable to the
explanation provided for meeting the requirements of Section
7.7(a) applicable to a Qualified Joint and Survivor Annuity.
The Applicable Period for a Participant is whichever of
the following periods ends last: (i) the period beginning
with the first day of the Plan Year in which the Participant
attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age
35; (ii) a reasonable period ending after the individual
becomes a Participant; (iii) a reasonable period ending
after Section 7.7(c) ceases to apply to the Participant;
(iv) a reasonable period ending after this Section 7 first
applies to the Participant Notwithstanding the foregoing,
notice must be provided within a reasonable period ending
after separation from service in the case of a Participant
who separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a
reasonable period ending after the enumerated events
described in subparagraphs (ii), (iii) and (iv) is the end
of the two-year period beginning one year prior to the date
the applicable event occurs, and ending one year after that
date. In the case of a Participant who separates from
service before the Plan Year in which age 35 is attained,
notice shall be provided within the two-year period
beginninng one year prior to separation and ending one year
after separation. If such a Participant thereafter returns
to employment with the Employer, the Applicable Period for
such Participant shall be redetermined.
(c) Notwithstanding the other requirements of this
Section 7.7, the respective notices prescribed by this
Section need not be given to a Participant if: (i) the Plan
"fully subsidizes" the costs of a Qualified Joint and
Survivor Annuity or Qualified Preretirement Survivor
Annuity; and (ii) the Plan does not allow the Participant to
waive the Qualified Joint and Survivor Annuity or Qualified
Preretirement Survivor Annuity and does not allow a married
Participant to designate a nonspouse Beneficiary. For
purposes of this Section 7.7(c), a Plan fully subsidizes the
costs of a benefit if no increase in cost, or decrease in
benefits to the Participant may result from the
Participant's failure to elect another benefit.
7.8 TRANSITIONAL RULES.
(a) Any living Participant not receiving benefits on
August 23, 1984, who would otherwise not receive the
benefits prescribed by the previous sections of this Section
7 must be given the opportunity to elect to have the prior
sections of this Section 7 apply if such Participant is
credited with at least one Hour of Service under this Plan
or a predecessor Plan in a Plan Year beginning on or after
January 1, 1976, and such Participant had at least ten (10)
years of vesting service when he or she separated from
service.
(b) Any living Participant not receiving benefits on
August 23, 1984, who was credited with at least one Hour of
Service under this Plan or a predecessor plan on or after
September 2, 1974, and who is not otherwise credited with
any service in a Plan Year beginning on or after January 1,
1976, must be given the opportunity to have his or her
benefits paid in accordance with Section 7.8(d).
(c) The respective opportunities to elect (as described
in Sections 7.8(a) and 7.8(b) above) must be afforded to
the appropriate Participants during the period commencing
on August 23, 1984, and ending on the date benefits would
otherwise commence to said Participant
(d) Any Participant who has elected pursuant to Section
7.8(b) and any Participant who does not elect under
Section 7.8(a) or who meets the requirements of Section
7.8(a) except that such Participant does not have at
least ten (10) years of vesting service when he or she
separates from service, shall have his or her benefits
distributed in accordance with all of the following
requirements if benefits would have been payable in the
form of a life annuity:
(i) AUTOMATIC JOINT AND SURVIVOR ANNUITY. If
benefits in the form of a life annuity become payable
to a married Participant who:
(A) begins to receive payments under the Plan on
or after Normal Retirement Age; or
(B) dies on or after Normal Retirement Age while
still working for the Employer; or
(C) begins to receive payments on or after the
Qualified Early Retirement Age; or
(D) separates from service on or after attaining
Normal Retirement Age (or the Qualified Early
Retirement Age) and after satisfying the
eligibility requirements for the payment of
benefits under the Plan and thereafter dies before
beginning to receive such benefits;
then such benefits will be received under this Plan in
the form of a Qualified Joint and Survivor Annuity,
unless the Participant his elected otherwise during the
Election Period. The Election Period must begin at least
six (6) months before the Participant attains Qualified
Early Retirement Age and end not more than ninety (90)
days before the commencement of benefits. Any election
hereunder will be in writing and maybe changed by the
Participant at any time.
(ii) ELECTION OF EARLY SURVIVOR ANNUITY. A Participant
who is employed after attaining the Qualified Early
Retirement Age will be given the opportunity to elect,
during the Election Period, to have a survivor annuity
payable on death. Ii the Participant elects the survivor
annuity, payments under such annuity must not be less
than the payments which would have been made to the
Spouse under the Qualified Joint and Survivor Annuity if
the Participant had retired on the day before his or her
death. Any election under this provision will be in
writing and maybe changed by the Participant at any time.
The Election Period begins on the later of (1) the 9Oth
day before the Participant attains the Qualified Early
Retirement Age, or (2) the date on which participation
begins, and ends on the date the Participant terminates
employment.
(iii) For purposes of this Section 7.8(d):
(A) QUALIFIED EARLY RETIREMENT AGE is the latest
of:
(1) the earliest date, under the Plan, on
which the Participant may elect to receive
retirement benefits;
(2) the first day of the 12Oth month
beginning before the Participant reaches Normal
Retirement Age, or
(3) the date the Participant begins
participation.
(B) Qualified Joint and Survivor Annuity is an
annuity for the life of the Participant with a
survivor annuity for the life of the Spouse as
described in Section 7.6(d).
7.9 DISTRIBUTION REQUIREMENTS.
(a) GENERAL RULES.
(i) Subject to Sections 7.4 through 7.8 of this
Plan, the requirements of this Section 7.9 shall
apply to any distribution of a Participant's interest
and will take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified,
the provisions of this Section 7.9 apply to calendar
years beginning after December 31, 1984.
(ii) All distributions required under this Section
7.9 shall be determined and made in accordance with
the Proposed Regulations under Section 401(a)(9) of
the Code, including the minimum distribution
incidental benefit requirement of Section 1.401(a)(9)-
2 of the Proposed Regulations.
(b) Required Beginning Date. The entire interest of a
Participant must be distributed or begin to be distributed
no later than the Participant's Required Beginning Date.
(c) Limits on Distribution Periods. As of the first
Distribution Calendar Year, distributions, if not made in a
single sum, may only be made over one of the following
periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and a Designated
Beneficiary;
(iii) a period certain not extending beyond the Life
Expectancy of the Participant, or
(iv) a period certain not extending beyond the Joint
and Last Survivor Expectancy of the Participant and a
Designated Beneficiary.
(d) DETERMINATION OF AMOUNT TO BE DISTRIBUTED EACH
YEAR. if the Participant's interest is to be distributed in
other than a single sum, the following minimum distribution
rules shall apply on or after the Required Beginning Date:
(i) INDIVIDUAL ACCOUNT
(A) If a Participant's Benefit is to be
distributed over (1) a period not extending beyond
the Life Expectancy of the Participant or the
Joint Life and Last Survivor Expectancy of the
Participant and the Participant's designated
Beneficiary or (2) a period not extending beyond
the Life Expectancy of the Designated Beneficiary;
the amount required to be distributed for each
calendar year, beginning with distributions for
the first Distribution Calendar Year, must at
least equal the quotient obtained by dividing the
Participant's Benefit by the Applicable Life
Expectancy.
(B) For calendar years beginning before January
1, 1989, if the Participant's Spouse is not the
Designated Beneficiary; the method of distribution
selected must assure that at least 50% of the
present value of the amount available for
distribution is paid within the Life Expectancy of
the Participant
(C) For calendar years beginning after December
31, 1988, the amount to be distributed each year;
beginning with distributions for the first
Distribution Calendar Year shall not be less than
the quotient obtained by dividing the
Participant's Benefit by the lesser of (1) the
Applicable Life Expectancy or (2) if the
Participant's Spouse is not the Designated
Beneficiary, the applicable divisor determined
from the table set forth in Q&A-4 of Section
1.401(a)(9)-2 of the Proposed Regulations.
Distributions after the death of the Participant
shall be distributed using the applicable life
expectancy in Section 7.9(d)(i)(A) above as the
relevant divisor without regard to Proposed
Regulations Section 1.401(a)(9)-2.
(D) The minimum distribution required for the
Participant's first Distribution Calendar Year
must be made on or before the Participant's
Required Beginning Date. The minimum distribution
for other calendar years, including the minimum
distribution for the Distribution Calendar Year in
which the Participant's Required Beginning Date
occurs, must be made on or before December 31 of
that Distribution Calendar Year.
(ii) OTHER FORMS.
(A) If the Participant's Benefit is distributed
in the form of an annuity purchased from an
insurance company, distributions thereunder shall
be made in accordance with the requirements of
Section 401(a)(9) of the Code and the Proposed
Regulations thereunder.
(e) DEATH DISTRIBUTION PROVISIONS.
(i) DISTRIBUTION BEGINNING BEFORE DEATH. If the
Participant dies after distribution of his or her
interest has begun, the remaining portion of such
interest will continue to be distributed at least as
rapidly as under the method of distribution being used
prior to the Participant's death.
(ii) DISTRIBUTION BEGINNING AFTER DEATH. If the
Participant dies before distribution of his or her
interest begins, distribution of the Participant's entire
interest shall be completed by December 31 of the
calendar year containing the fifth anniversary of the
Participant's death except to the extent that an election
is made to receive distributions in accordance with (A)
or (B) below:
(A) if any portion of the Participant's
interest is payable to a Designated Beneficiary
distributions may be made over the life or over a
period certain not greater than the Life Expectancy
of the Designated Beneficiary commencing on or before
December 31 of the calendar year immediately
following the calendar year in which the Participant
died;
(B) if the Designated Beneficiary is the
Participant's Surviving Spouse, the date
distributions are required to begin in accordance
with (A) above shall not be earlier than the later of
(1) December 31 of the calendar year immediately
following the calendar year in which the Participant
died and (2) December 31 of the calendar year in
which the Participant would have attained age 70-1/2.
If the Participant has not made an election
pursuant to this subparagraph (ii) by the time of his or
her death, the Participant's Designated Beneficiary must
elect the method of distribution no later than the
earlier of (1) December 31 of the calendar year in which
distributions would be required to begin under this
subparagraph (ii), or (2) December 31 of the calendar
year which contains the fifth anniversary of the date of
death of the Participant If the Participant has no
Designated Beneficiary or if the Designated Beneficiary
does not elect a method of distribution, distribution of
the Participant's entire interest must be completed by
December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
(iii) For purposes of subparagraph (ii) above,
if the Surviving Spouse dies after the Participant, but
before payments to such Spouse begin, the provisions of
subparagraph (ii), with the exception of clause (B)
therein, shall be applied as if the Surviving Spouse were
the Participant.
(iv) For purposes of this paragraph (e), any
amount paid to a child of the Participant will be treated
as if it had been paid to the Surviving Spouse if the
amount becomes payable to the Surviving Spouse when the
child reaches the age of majority.
(v) For the purposes of this paragraph (e),
distribution of a Participant's interest is considered to
begin on the Participant's Required Beginning Date (or,
if subparagraph (iii) above is applicable, the date
distribution is required to begin to the Surviving Spouse
pursuant to su~ paragraph (li) above). If distribution in
the form of an annuity irrevocably commences to the
Participant before the Required Beginning Date, the date
distribution is considered to begin is the date
distribution actually commences.
(f) DEFINITIONS.
(i) APPLICABLE LIFE EXPECTANCY means the Life
Expectancy (or Joint and Last Survivor Expectancy)
calculated using the attained age of the Participant (or
Designated Beneficiary) as of the Participant's (or
Designated Beneficiary's) birthday in the Applicable
Calendar Year reduced by one for each calendar year which
has elapsed since the date Life Expectancy was first
calculated. If Life Expectancy is being recalculated, the
Applicable Life Expectancy shall be the Life Expectancy
as so recalculated. The Applicable Calendar Year shall be
the first Distribution Calendar Year and if Life
Expectancy is being recalculated such succeeding calendar
year.
(ii) DESIGNATED BENEFICIARY means the
individual who is designated as the Beneficiary under the
Plan in accordance with Section 401(a)(9) of the Code and
the Proposed Regulations thereunder.
(iii) DISTRIBUTION CALENDAR YEAR means a
calendar year for which a minimum distribution is
required. For distributions beginning before the
Participant's death, the first Distribution Calendar Year
is the calendar year immediately preceding the calendar
year which contains the Participant's Required Beginning
Date. For distributions beginning after the Participant's
death, the first Distribution Calendar Year is the
calendar year in which distributions are required to
begin pursuant to paragraph (e).
(iv) LIFE EXPECTANCY. Life Expectancy and Joint
and Last Survivor Expectancy are computed by use of the
expected return multiples in Tables V and VI of Section
1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or
Spouse, in the case of distributions described in
paragraph (e)(ii)(B) above) by the time distributions are
required to begin, Life Expectancies shall be
recalculated annually. Such election shall be irrevocable
as to the Participant (or Spouse) and shall apply to all
subsequent years. The Life Expectancy of a non-Spouse
Beneficiary may not be recalculated.
(v) PARTICIPANT'S BENEFIT.
(A) The account balance as of the last valuation date in
the calendar year immediately preceding the Distribution
Calendar Year (Valuation Calendar Year) increased by the
amount of any contributions allocated to the account balance
as of dates in the Valuation Calendar Year after the
valuation date and decreased by distributions made in the
Valuation Calendar Year after the valuation date.
(B) Exception for second Distribution Calendar Year. For
purposes of clause (A) above, if any portion of the minimum
distribution for the first Distribution Calendar Year is
made in the second Distribution Calendar Year on or before
the Required Beginning Date, the amount of the minimum
distribution made in the second Distribution Calendar Year
shall be treated as if it had been made in the immediately
preceding Distribution Calendar Year.
(vi) REQUIRED BEGINNING DATE.
(A) GENERAL RULE. The Required Beginning Date of a
Participant is the first day of April of the calendar
year following the calendar year in which the
Participant attains age 70-1/2.
(B) TRANSITIONAL RULES. The Required Beginning
Date of a Participant who attains age 70-1/2 before
January 1, 1988, shall be deter- mined in accordance
with (1) or (2) below:
(1) Non-Five Percent Owners. The Required
Begin- ding Date of a Participant who is not a
Five Percent Owner is the first day of April of
the calendar year following the calendar year in
which the later of retirement or attainment of age
70-1/2 occurs.
(2) Five Percent Owners. The Required
Beginning Date of a Participant who is a Five
Percent Owner during any year beginning after
December 31, 1979, is the first day of April
following the later of: (I) the calendar year in
which the Participant attains age 70-1/2, or (II)
the earlier of the calendar year with or within
which ends the Plan Year in which the Participant
becomes a Five Percent Owner, or the calendar year
in which the Participant retires.
The Required Beginning Date of a Participant who
is not a Five Percent Owner who attains age 70-1/2
during 1988 and who has not retired as of January 1,
1989, is April 1,1990.
(C) Five Percent Owner. A Participant is treated
as a Five Percent Owner for purposes of this
paragraph (f) if such Participant is a Five Percent
Owner as defined in Section 416(i) of the Code
(determined in accordance with Section 416 but
without regard to whether the Plan is top heavy) at
any time during the Plan Year ending with or within
the calendar year in which such Owner attains age 66-
1/2 or any subsequent Plan Year.
(D) Once distributions have begun to a Five
Percent Owner under this paragraph (f), they must
continue to be distributed, even if the Participant
ceases to be a Five Percent Owner in a subsequent
year.
(g) TRANSITIONAL RULE.
(i) Notwithstanding the other requirements of this
Section 7.9 and subject to the requirements of Sections 7.4
through 7.8, distribution on behalf of any Participant,
including a Five Percent Owner, may be made in accordance
with all of the following requirements (regardless of when
such distribution commences):
(A) The distribution is one which would not have
disqualified the Plan under Section 401(a)(9) of the
Internal Revenue Code as in effect prior to amendment
by the Deficit Reduction Act of 1984.
(B) The distribution is in accordance with a
method of distribution designated by the Participant
whose interest is being distributed or, if the
Participant is deceased, by a Beneficiary of such
Participant.
(C) Such designation was in writing, was signed
by the Participant or the Beneficiary; and was made
before January 1, 1984.
(D) The Participant had accrued a benefit under
the Plan as of December 31, 1983.
(E) The method of distribution designated by the
Participant or the Beneficiary specifies the time at
which distribution will commence, the period over
which distributions will be made, and in the case of
any distribution upon the Participant's death, the
Beneficiaries of the Participant listed in order of
priority.
(ii) A distribution upon death will not be covered
by this transitional rule unless the information in the
designation contains the required information described
above with respect to the distributions to be made upon
the death of the Participant.
(iii) For any distribution which commences before
January 1,1984, but continues after December31, 1983,
the Participant, or the Beneficiary, to whom such
distribution is being made, will be presumed to have
designated the method of distribution under which the
distribution is being made if the method of
distribution was specified in writing and the
distribution satisfies the requirements in
subparagraphs (g)(i)(A) and (E).
(iv) If a designation is revoked any subsequent
distribution must satisfy the requirements of Section
401(a)(9) of the Code and the Proposed Regulations
thereunder. if a designation is revoked subsequent to
the date distributions are required to begin, the
Custodian must distribute by the end of the calendar
year following the calendar year in which the
revocation occurs the total amount not yet distributed
which would have been required to have been distributed
to satisfy Section 401(a)(9) of the Code and the
Proposed Regulations thereunder, but for the Section
242(b)(2) election. For calendar years beginning after
December 31, 1988, such distributions must meet the
minimum distribution incidental benefit requirements in
Section 1.401(a)(9)-2 of the Proposed Regulations. Any
changes in the designation will be considered to be a
revocation of the designation. However, the mere
substitution or addition of another Beneficiary (one
not named in the designation) under the designation
will not be considered to be a revocation of the
designation, so long as such substitution or addition
does not after the period over which distributions are
to be made under the designation, directly or
indirectly (for example, by altering the relevant
measuring life). In the case in which an amount is
transferred or rolled over from one plan to another
plan, the rules in Q&A J-2 and Q&A J-3 shall apply.
7.10 ANNUITY CONTRACTS. Any annuity contract
distributed under this Plan must be nontransferable.
The terms of any annuity contract purchased and
distributed by the Plan to a Participant or Spouse
shall comply with the requirements of this Plan. The
Custodian will not issue annuity contracts. The Plan
Administrator shall be responsible for the purchase of
any annuity contracts required to be distributed under
the terms of this Plan. The Custodian shall pay over
the amount required to purchase such annuity contract
to the Plan Administrator or directly to the annuity
issuer designated by the Plan Administrator, as
directed by the Plan Administrator in written
instructions to the Custodian.
7.11(a) DIRECT ROLLOVER ELECTION. This Section
applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect,
at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an eligible
rollover distribution paid directly to an eligible
retirement plan specified by the distributes in a
direct rollover.
(b) DEFINITIONS.
(i) ELIGIBLE ROLLOVER DISTRIBUTION: An
eligible rollover distribution is any distribution
of all or any portion of the balance to the credit
of the distributee, except that an eligible
rollover distribution does not include: any
distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or
life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the
distributes and the distributee's designated
beneficiary, or for a specified period of ten
years or more; any distribution to the extent such
distribution is required under Section 401(a)(9)
of the Code; and the portion of any distribution
that is not includible in gross income (determined
without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(ii) ELIGIBLE RETIREMENT PLAN: An eligible
retirement plan is an individual retirement
account described in Section 408(a) of the Code,
an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the
Code, that accepts the distributee's eligible
rollover distribution However, in the case of an
eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an
individual retir~ ment account or individual
retirement annuity.
(iii) DISTRIBUTEE: A distributee includes an
employee or former employee. In addition, the
employee's or former employee's surviving spouse
and the employee's or former employee's spouse or
former spouse who is the alternate payee under a
qualified domestic relations order, as defined in
Section 414(p) of the Code, are distributees with
regard to the interest of the spouse or former
spouse.
(iv) DIRECT ROLLOVER: A direct rollover is a
payment by the Plan to the eligible retirement
plan specified by the distributee.
SECTION B
PLAN ADMINISTRATOR
(a) The Plan Administrator shall be the
Employer unless the Employer has designated another
person or business entity as the Plan Administrator under
paragraph 6 of the Participation Agreement. A designated
Plan Administrator may resign at any time by filing a
written notice of resignation with the Employer and may
be removed at any time by the Employer. In the event of a
vacancy in the office of Plan Administrator, the Employer
may appoint a successor, in which event, the Employer
shall notify the Custodian of the change in the office of
Plan Administrator by delivering a signed and completed
copy of an amended Participation Agreement to the
Custodian prior to the end of the Plan Year for which
such change is effective. The Custodian shall be
protected in acting upon the directions of the Plan
Administrator designated in the most recent Participation
Agreement of the Employer filed with the Custodian until
receipt of the amended Participation Agreement giving
notice of the change in Plan Administrator.
(b) The Plan Administrator shall
administer the Plan in accordance with its terms and
shall have all powers necessary to effectuate the
provisions of the Plan. The Plan Administrator shall
interpret the Plan and determine all questions arising in
the administration, interpretation and application of the
Plan, and shall, from time to time, formulate and issue
such rules and regulations as may be necessary for the
purpose of administering the Plan. Any determination,
rule or regulation issued by the Plan Administrator shall
be conclusive and binding on all persons, except as may
otherwise be provided herein.
(c) Except as may otherwise be provided,
whenever under the provisions of the Plan the Employer
shall have authority right or power to act, such action
shall be evidenced by a written document signed by the
Plan Administrator. The Plan Administrator shall have the
authority to give to the Custodian, in writing, any other
notice or direction permitted by the terms of the Plan,
and the Custodian shall be entitled to rely upon such
writing until such time as the Plan Administrator shall
file a written revocation of the notice or direction with
the Custodian.
(d) The Plan Administrator shall keep a
record of all his actions, and shall keep such books of
account, records and other data as may be necessary for
the proper administration of the Plan. The Plan
Administrator shall notify the Custodian and the Employer
of any action taken and, when required, shall notify any
other interested person or persons.
(e) The Plan Administrator shall timely
file, or cause to be timely filed, all annual reports,
financial and other statements as may be required of the
Plan Administrator by any federal or state statute,
agency or authority. The Plan Administrator shall timely
furnish, or cause to be furnished, all such reports,
statements and other documents as may be required by any
federal or state statute, agency or authority to be
furnished by the Plan Administrator to any Participant,
Beneficiary or interested party.
(f) The Plan Administrator shall have the
authority to accept service of process on behalf of the
Plan.
(g) If the Plan Administrator is an
Employee, he shall not be compensated.
(h) In the event of the death of a sole
proprietor Employer who was serving as Plan
Administrator, the estate of the sole proprietor shall be
deemed the Plan Administrator. In the event of the
dissolution of a partnership Employer that was serving as
Plan Administrator, the remaining ex-partners shall
collectively be deemed the Plan Administrator.
SECTION 9
FIDUCIARY DUTIES AND RESPONSIBILITIES
9.1 All fiduciaries shall discharge their duties
with respect to the Plan and/or Trust solely in the interest
of the Participants and Beneficiaries; for the exclusive
purpose of providing benefits to participating Employees and
their Beneficiaries, and defraying reasonable expenses of
administering the Plan and/or Trust; with the care, skill,
prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity
and familiar with such matters would use; and in accordance
with the Plan documents and instruments insofar as such
documents and instruments are consistent with the provisions
of the Self-Employed Individuals Retirement Act of 1962, and
the Employee Retirement Income Security Act of 1974, and any
acts amendatory thereof.
9.2 To the extent that a fiduciary may be relieved
of liability under Section 410(a) of ERISA for breach of any
responsibility, obligation or duty provided for by Title I,
Part 4 of ERISA, no fiduciary shall be liable for any action
or failure to act hereunder, except for bad faith, willful
misconduct or gross negligence. To the extent that a
fiduciary may be relieved of liability under Section 410(a)
of ERISA for a breach by another fiduciary of any
responsibility, obligation or duty provided for by Title I,
Part 4 of ERISA, no fiduciary shall be liable for a breach
committed by any other fiduciary unless the fiduciary:
(a) Knowingly participated in or knowingly
concealed a breach by such other fiduciary;
(b) By its failure to comply with the
fiduciary duties set out in Section 9.1, it has enabled
such other fiduciary to commit a breach; or,
(c) It has failed to make reasonable
efforts under the circumstances to remedy the breach of
another fiduciary of which it has knowledge.
To the same extent, no fiduciary shall be
personally liable for the acts or omissions of any
attorney or agency employed by the fiduciary hereunder,
if such attorney or agent shall have been selected with
reasonable care.
SECTION 10
CLAIMS PROCEDURE
10.1 If an Employee, or his Beneficiary
shall make a claim for Benefits under the Plan, the clain
shall be referred to the Plan Administrator for
resolution. Within thirty (30) days after receipt of a
claim the Plan Administrator shall render a written
decision concerning the merits of the request If the
claim is denied, the written decision shall set forth:
(a) The specific reason or reasons for the
denial;
(b) Specific reference to pertinent Plan
provisions on which the denial is based;
(c) A description of any additional
material or information; and
(d) An explanation of the Plan's claim
review procedure.
If a claimant is not furnished a written decision
containing such information within thirty (30) days, the
claim shall be deemed denied and automatically proceed to
the review stage.
10.2 The claimant may file a written
request with the Plan Administrator for a review of the
decision rendered under paragraph 10.1 within sixty (60)
days after receiving a written decision denying the
claim, or, if no written decision is rendered, within
ninety (90) days after filing the claim. The claimant may
review pertinent Plan documents prior to such request,
and submit written issues and comments. The Plan
Administrator shall render a written decision within
thirty (30) days after receipt of the request for review,
setting forth the specific reasons for the decision in
language calculated to be understood by the claimant,
with specific reference to the pertinent Plan provisions
on which the decision is based.
SECTION 11
AMENDMENT AND TERMINATION
11.1 The Plan may be amended at anytime by the Board of
Directors of Nicholas Company, Inc., provided that no such
amendment shall be effective which shall cause or permit:
(a) Any portion of the assets held by the
Custodian to be diverted to purposes other than for the
exclusive benefit of the Participants or their
Beneficiaries; or
(b) Any portion of such assets to revert to or to
become the property of the Employer.
No such amendment shall take effect until at least
ten (10) days after the mailing of notice by regular mall to
the last known address of each Employer affected thereby.
11.2 The Employer may (a) change the choice of options
in the Participation Agreement for any Plan Year by
delivering a signed and completed copy of such amended
Participation Agreement to the Custodian prior to the end of
such Plan Year, (b) add overriding language in the
Participation Agreement when such language is necessary to
satisfy Section 415 or Section 416 of the Code because of
the required aggregation of multiple plans, and (c) add
certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will
not cause the Plan to be treated as individually designed.
An Employer that amends the Plan for any other reason,
including a waiver of the minimum funding requirement under
Section 412(d) of the Code, will no longer participate in
this Master Plan and will be considered to have an
individually designed plan.
11.3 No amendment to the Plan or the Participation
Agreement shall be effective to the extent that it has the
effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's
account balance may be reduced to the extent permitted under
Section 412(c)(8) of the Code. For purposes of this
paragraph, a Plan amendment which has the effect of
decreasing a Participant's account balance or eliminating an
optional form of benefit, with respect to benefits
attributable to service before the amendment shall be
treated as reducing an accrued benefit. Furthermore, if the
vesting schedule of the Plan is amended, in the case of an
Employee who is a Participant as of the later of the date
such amendment is adopted or the date it becomes effective,
the nonforfeitable percentage (determined as of such date)
of such Employee's right to his Employer-derived accrued
benefit will not be less than his percentage computed under
the Plan without regard to such amendment.
11.4 If the Plan's vesting schedule is amended, or the
Plan is amended in any way that directly or indirectly
affects the computation of the Participant's nonforfeitable
percentage, each Participant with at least 3 Years of
Service with the Employer may elect, within a reasonable
period after the adoption of the amendment or change, to
have the non-forfeitable percentage computed under the Plan
without regard to such amendment or change. For Participants
who do not have at least 1 Hour of Service in any Plan Year
beginning after December 31, 1988, the preceding sentence
shall be applied by substituting "5 Years of Service" for "3
Years of Service" where such language appears.
The period during which the election may be made shall
commence with the date the amendment is adopted or deemed to
be made and shall end on the latest of:
(1) 60 days after the amendment is adopted;
(2) 60 days after the amendment becomes effective; or
(3) 60 days after the Participant is issued written
notice of the amendment by the Employer or Plan
Administrator.
11.5 The Employer shall have the right to terminate the
Plan upon sixty (60) days notice in writing to the
Custodian. The Plan shall automatically terminate on the
death of the Employer, if the Employer is a sole proprietor,
or upon the termination of the partnership, if the Employer
is a partnership, unless provision is made by a successor to
the business of the Employer for the continuation of the
Plan.
11.6 Upon termination of the Plan, all assets held by
the Custodian shall be distributed as soon as is
administratively feasible to the Participants pursuant to
the provisions of Section 7 hereof.
SECTION 12
TRANSFERS TO AND FROM OTHER QUALIFIED PLANS
12.1 The Employer may cause to be transferred in cash
to the Custodian the assets held (whether by a trustee,
Custodian, or otherwise) in respect of any other self-
employed retirement plan which satisfies the applicable
requirements of the Internal Revenue Code and which is
maintained by the Employer for the benefit of any of the
Participants. Any cash so transferred shall be accompanied
by written instructions from the Plan Administrator naming
the persons for whose benefit such cash has been transferred
and showing separately the respective contributions by the
Employer and by the Participants and the amount of cash
attributable thereto.
12.2 Upon receipt of any cash transferred to it
pursuant to Section 12.1, the Custodian shall immediately
invest such moneys in designated whole or fractional
Investment Company Shares and, in accordance with the
instructions of the Plan Administrator, make appropriate
credits to the accounts of the persons for whose benefit
such cash has been transferred. Provided, however, the
Employer may not cause to be transferred to this Plan and
credited to the Profit Sharing Plan Account Balance(s) of
Participants any assets held in respect of any retirement
plan which is a defined benefit plan, money purchase plan
(including a target benefit plan), stock bonus, or profit
sharing plan which is subject to the survivor annuity
requirements of Sections 401(a)(11) and 417 of the Code.
Provided further that the Plan Administrator shall not
permit any transfer to this Plan, and no transaction
amending or having the effect of amending a plan or plans to
transfer benefits to this Plan shall be permitted, if such
transfer or similar transaction would result in elimination
or reduction of: any benefits described in Section
411(d)(6)(A) of the Code; any early retirement benefits or
retirement-type subsidies described in Section
411(d)(6)(B)(i) of the Code; or any optional forms of
benefit described in Section 411(d)(6)(B)(ii) of the Code.
The preceding sentence shall not apply to the extent that
any such benefits have not accrued or that elimination or
reduction of such benefits would be permitted by applicable
regulations under the Code. Any amounts so credited as
contributions previously made by the Employer or by such
persons under such other Plan, as specified by the Plan
Administrator, shall be treated as contributions previously
made under the Plan by the Employer or by such persons, as
the case may be. Transferred amounts representing
accumulated deductible employee contributions within the
meaning of Section 72(o)(5)(B) of the Code shall be credited
to a separate ADEC Rollover Account as described in Section
4.6.
12.3 The Employer may request the Custodian to transfer
Plan assets held by the Custodian to itself or any bank as
Custodian or trustee of any other plan maintained by the
Employer which satisfies the requirements of the Internal
Revenue Code, provided that such transfer is permitted by
such other plan and the Custodian is provided with (a) a
letter of direction signed by the Owner or all partners
directing the transfer of Plan assets, which letter shall
indicate the name of the successor trustee or Custodian and
verify that a new qualified plan has been established with
such successor; (b) a signed acceptance by the successor
Custodian or trustee of the new plan verifying that the plan
is a qualified retirement trust and indicating the date of
qualification and Internal Revenue Service qualification
number; and (c) such other information as the Custodian may
require.
12.4 In the event of a merger or consolidation with, or
transfer of assets or liabilities to, any other plan, each
Participant shall, if the plan then terminates, receive a
benefit immediately after the merger, consolidation or
transfer, which is equal to or greater than the benefit the
Participant would have been entitled to receive immediately
before the merger, consolidation or transfer, assuming that
the plan had then terminated.
SECTION 13
MISCELLANEOUS
13.1 Neither the establishment of the Plan, including
the execution of the Custodial Agreement and the
Participation Agreement, nor any modification or amendment
thereof, nor the creation of any fund or account, nor the
payment of any benefit, shall be construed as giving to any
Participant or other person any legal or equitable right
against the Employer or the Custodian except as herein
provided; and in no event shall the terms of employment of
any Participant be modified or enlarged or in any way
affected hereby.
13.2 The benefits provided hereunder shall not be
subject to any voluntary or involuntary alienation,
assignment, garnishment, attachment, execution or levy of
any kind, and any attempt to cause such benefits to be so
subjected shall not be recognized. The preceding sentence
shall also apply to the creation, assignment, or recognition
of a right to any benefit payable with respect to a
Participant pursuant to a domestic relations order, unless
such order is determined by the Plan Administrator to be a
"qualified domestic relations order," as defined in Section
4l4(p) of the Code or is a domestic relations order entered
before January 1985.
13.3 The masculine gender wherever used in this Plan
shall include the feminine as well; the singular shall
include the plural, and the plural the singular wherever
appropriate for the proper interpretation of this Plan.
13.4 This Plan shall be construed, administered and
enforced according to the laws of the State of Wisconsin
where not superseded by federal law. In the event of a
conflict between the terms of this Plan and those of the
Custodial Agreement, the former shall prevail.
SECTION 14
EFFECTIVE DATE
This Plan, as amended, is declared effective commencing
with the Plan Year commencing January 1, 1989, subject to
the Employer obtaining a determination from the Internal
Revenue Service ("IRS") that the Plan and its supporting
documents meet the requirements for qualification contained
in the Code (unless the Employer is permitted by applicable
IRS rulings or procedures to rely on the IRS opinion letter
approving the form of this master Plan without obtaining a
determination with respect to the Employer's plan). If the
Employer's plan fails to attain or retain qualification,
such plan will no longer participate in this master plan and
will be considered an individually designed plan.
NICHOLAS MASTER RETIREMENT PLAN
FOR SELF-EMPLOYED INDIVIDUALS
CUSTODIAL AGREEMENT
SECTION 1. PURPOSE AND APPLICATION OF AGREEMENT
The purpose of this Custodial Agreement is to provide for
the receipt of contributions made under the Nicholas
Master Retirement Plan for Self-Employed Individuals
hereinafter "Plan") and the investment of the
contributions and the earnings thereon in Investment
Company Shares for the exclusive benefit of the
Participants in said Plan.
SECTION 2. DEFINITIONS.
All terms defined in the Plan shall have the same meaning
when used in the Custodial Agreement unless the contrary
is specifically expressed or the context clearly
indicates otherwise.
SECTION 3. PARTICIPANTS' ACCOUNTS.
The Custodian shall open and maintain the following
accounts for each individual as the Plan Administrator
shall from time to time certify to the Custodian as a
Participant in the Plan:
(a) a Profit Sharing Account which shall consist of
that portion of all contributions of the Employer
under the Employer's Profit Sharing Plan
Participation Agreement allocated to the Participant,
and earnings thereon;
(b) a Money Purchase Plan Account which shall
consist of that portion of all contributions of the
Employer under the Employer's Money Purchase Plan
Participation Agreement allocated to the Participant,
and earnings thereon;
(c) a Voluntary Contribution Account for the
voluntary contributions made by the Participant and
earnings thereon; and
(d) a Rollover Contribution Account or ADEC Rollover
Account for any rollover contributions of a
Participant as described in Section 4.6 of the Plan,
and earnings thereon.
SECTION 4. RECEIPT AND INVESTMENT OF CONTRIBUTIONS.
4.1 All contributions shall be made only by or
through the Employer. Notwithstanding the preceding
sentence, rollover contributions as described in Section
4.6 of the Plan may be transferred directly to the
Custodian from the distributing plan. All contributions
shall be in cash. Each Participant shall direct the Plan
Administrator as to the specific Investment Company
Shares to be purchased with such contributions.
4.2 All contributions shall be in accordance
with the terms of the Plan and shall be accompanied by
signed written instructions from the Plan Administrator
to the Custodian indicating the amount thereof which is
to be allocated to each Participant's Account and any
portion thereof which is the Participant's voluntary
contribution. In addition, each set of such instructions
shall designate for each Participant the Investment
Company(ies) in which the Participant has directed the
Plan Administrator to cause the contribution made by or
on behalf of the Participant to be invested.
4.3 In the event that the Custodian in its sole
discretion shall determine that the Plan Administrator's
instructions are inadequate, the Custodian may return the
contribution to the Plan Administrator without any
liability Immediately upon receipt of contributions by or
on behalf of a Participant, the Custodian shall invest
such contributions in whole or fractional Shares of the
Investment Company designated by the Plan Administrator,
pursuant to the direction of the Participant, at the
price and in the manner in which such Shares are then
being publicly offered by the Investment Company, which
shares shall then be appropriately credited to the
Participant's Account. All distributions received on
Investment Company Shares held in a Participant's Account
shall be reinvested in such Shares and credited to such
Participant's Account. If any distribution of Investment
Company Shares may be received at the election of the
shareholder in additional shares or in cash or other
property the Custodian shall elect to receive such
distribution in additional Investment Company Shares.
4.4 The minimum initial contribution which the
Custodian shall be required to accept with respect to
either the Profit Sharing Plan or the Money Purchase Plan
shall be $500 per Participant if either the Nicholas Fund
or Nicholas Income Fund is designated as the Investment
Company, $1,000 per Participant if Nicholas II is
designated as the Investment Company, and $2,000 per
Participant if Nicholas Limited Edition, Inc. is
designated as the Investment Company. The minimum
contribution which the Custodian shall thereafter be
required to accept shall be $100 per Participant.
SECTION 5. DISTRIBUTIONS.
Distributions and repayments shall be made only
as authorized or required by the Plan. The Custodian
shall make such distributions on the basis of information
supplied in writing by the Plan Administrator and shall
be fully protected in so doing.
SECTION 6. BENEFICIARY DESIGNATION.
If a Participant, as permitted by the Plan,
designates a beneficiary to receive any undistributed
balance of the Participant's Account(s) on the
Participant's death, the Plan Administrator shall file
such designation with the Custodian. In the absence of an
effective designation so filed, any such undistributed
balance shall, on the Participant's death, be paid
pursuant to Section 7.5 of the Plan.
SECTION 7. RELIANCE UPON RECORDS, CERTIFICATES, ETC.
7.1 Notices and communications from the Plan
Administrator or Employer to the Custodian shall be
considered to have been made only upon delivery to the
main office of the Custodian in Milwaukee, Wisconsin. All
notices and other communications from the Custodian to
the Employer, the Plan Administrator or any Participant
shall be considered sufficient if mailed by regular first
class mail (unless other- wise required herein) to the
Employer's last address as listed on the Custodian's
records.
7.2 The Custodian may rely upon any affidavit,
certificate, letter, notice, telegram or other paper or
document believed by it to be genuine, and upon any
evidence believed by it to be sufficient, and it shall
not be liable for any payment made hereunder if made in
good faith and without actual notice or knowledge of any
fact which would make such payment improper. The
Custodian may rely upon any instructions received from
the Plan Administrator and may conclusively presume,
without any duty to inquire, that all instructions of the
Plan Administrator regarding specific Investment Company
Shares to be purchased for a Participant's Account(s)
reflect the directions of such Participant in accordance
with the Plan.
7.3 The Custodian shall be under no duty to
examine the records of the Employer to determine the
accuracy thereof or whether any certification has been or
should have been made, or the accuracy of any information
which shall have been received from the Plan
Administrator or Employer, or whether any contribution
under the Plan has been properly determined by the
Employer, nor shall the Custodian have any duty or
responsibility to enforce contributions.
7.4 The Custodian shall not be liable for any
action taken upon any certification or direction of the
Plan Administrator or Employer, or for acting upon any
written notice, certification or other document or
writing believed by it to be genuine and to have been
signed and delivered by proper person or persons. The
Custodian shall be under no duty to make any
investigation or inquiry as to statements contained in
any such notice, certification or other document in
writing, and may accept the same as conclusive evidence
of the truth and accuracy of the statements therein
contained but, in its sole and absolute discretion, the
Custodian may require such further or additional evidence
as to it may seem reasonable.
7.5 The approval by the Employer of any report
or accounting by the Custodian, including but not limited
to an account by any resigned or removed Custodian, shall
be a complete release and discharge of the Custodian or
of such resigned or removed Custodian (as the case may
be), if not prohibited by section 410(a) of ERISA, and
shall be binding upon all Participants and all persons
claiming under them. No successor Custodian shall be in
any way liable or responsible for anything done or
omitted in the administration of the Participant's
Accounts prior to the date it becomes a Custodian.
Anything herein to the contrary notwithstanding, the
Employer shall be without power to approve any action
taken by the Custodian which is in contravention of any
of the terms or provisions of the Plan or Custodial
Agreements.
SECTION 8. ACCOUNTING, RECORDS AND RETURNS.
8.1 Within 90 days after the close of each Plan
Year or the date of its removal or resignation, the
Custodian shall file with the Employer an account of its
administration of all transactions hereunder during the
preceding year or from the close of the last Plan Year to
the date of removal or resignation. If the Employer or
the Plan Administrator has not objected to any accounting
by the Custodian within 90 days of receipt thereof, such
accounting shall be deemed to have been approved by the
Employer and the Plan Administrator. All transactions
hereunder shall be recorded by the Custodian in records
open to inspection by the Employer or persons designated
by the Employer.
8.2 The Custodian shall file with the Internal
Revenue Service such returns and other information
required of it pursuant to the Internal Revenue Code.
8.3 The Custodian shall mail to the Employer
all notices, prospectuses, financial statements, proxies
and proxy soliciting material relating to Investment
Company Shares held hereunder, which notices, etc. shall
be distributed by the Plan Administrator to the
appropriate Participants.
SECTION 9. COMPENSATION OF THE CUSTODIAN.
The Custodian shall receive compensation for
its services hereunder in accordance with the current
schedule of rates as agreed to between Nicholas Company,
Inc. and the Custodian.
SECTION 10. RESIGNATION AND REMOVAL OF THE CUSTODIAN.
10.1 The Custodian may resign by giving written
notice to Nicholas Company, Inc. by certified or
registered mail, which resignation shall be effective no
less than sixty (60) days after receipt by Nicholas
Company, Inc. of such notice, unless otherwise agreed by
the Custodian and Nicholas Company, Inc. In the event of
resignation by the Custodian, Nicholas Company, Inc.
shall amend the Plan in accordance with Section 11.1 of
the Plan and create a new trust or other funding vehicle
within sixty (60) days after receipt of the notice of
resignation. Should Nicholas Company, Inc. fail so to
act, the Plan shall terminate and the Participant's
Accounts shall be distributed in accordance with Section
11.5 of the Plan.
10.2 The Board of Directors of Nicholas
Company, Inc. may remove the Custodian by giving written
notice by certified or registered mail, which removal
shall be effective no less than sixty (60) days after
receipt by the Custodian of such notice, unless otherwise
agreed by the Custodian and Nicholas Company, Inc. In the
event of removal of the Custodian, Nicholas Company, Inc.
shall amend the Plan in accordance with Section 11.1 of
the Plan and create a new trust or other funding vehicle
within sixty (60) days after the Custodian's receipt of
the notice of removal. Should Nicholas Company, Inc. fall
so to act, the Plan shall terminate and the Participant's
Accounts shall be distributed in accordance with Section
11.5 of the Plan.
SECTION 11. CONCERNING THE CUSTODIAN.
11.1 The Custodian need not engage in
litigation unless first indemnified against expense by
the Employer or unless the litigation is occasioned by
the fault of the Custodian or involves a question of its
fault.
11.2 Nothing contained in the Plan, either
expressly or by implication, shall be deemed to impose
any powers, duties or responsibilities on the Custodian
other than those set forth in this Agreement The
Custodian shall be under no duty to take any other
action unless the Employer or Plan Administrator shall
furnish the Custodian with instructions in proper form
and such instructions shall have been specifically
agreed to by the Custodian in writing.
11.3 The Employer shall have the sole authority
to enforce this Agreement on behalf of any and all
persons having or claiming any interest in the
Participant's Account(s) by virtue of the Custodial
Agreement or Plan. To protect the Participant's
Account(s) from expenses which might otherwise be
incurred, it is imposed as a condition to the acquisition
of any interest in the Participant's Account(s), and it
is hereby agreed, that no person other than the Employer
may institute or maintain any action or proceeding
against the Custodian in the absence of written authority
from the Employer or a determination of a court of
competent jurisdiction that in refusing such authority
the Employer has acted fraudulently or in bad faith
11.4 The Custodian shall have the following
specific powers:
(a) To hold securities in its name or the name of a
nominee;
(b) To employ suitable agents or counsel;
(c) To continue to have the powers granted under
this Agreement until final distribution of assets
regardless of termination of the Plan or Custodial
Agreements; and
(d) To act in any jurisdiction without bond unless
otherwise required by law.
SECTION 12. RULES AND REGUMTIONS.
The Custodian shall, from time to time, formulate and
issue such rules and regulations as it may deem necessary
for the purpose of its administration of the Plan, but no
such rule or regulation shall be effective which shall
attempt to divest any Participant from any beneficial
interest or right accruing to him under the terms hereof,
or which shall attempt to vest in the Employer at any
time any property rights in or to funds or property held
by the Custodian.
SECTION 13. AMENDMENT
The Custodian may with the approval of Nicholas Company,
Inc. amend the provisions of this Custodial Account at
any time. Amendments may be retroactive, and may be
applicable to existing as well as future Custodial
Agreements of which this Custodial Agreement is a part,
but no amendment, whether or not retroactive, shall take
effect until ten (10) days subsequent to the mailing of
notice thereof by the Custodian to each Employer, if any,
whose Custodial Agreement will be affected thereby.
EXHIBIT B
NICHOLAS MASTER RETIREMENT PLAN
GENERAL INFORMATION
In 1962, the Federal Government established the
Self-Employed Individual Tax Retirement Act. It is
commonly called the Keogh Act in honor of the sponsor.
The purpose of the Act is to help self-employed
individuals provide for their own retirement by
establishing retirement plans. Your yearly contributions
to a Keogh plan are a tax deductible expense, and the
earnings of the fund accumulate tax-free until
retirement.
The Nicholas Master Retirement Plan for Self-
Employed Individuals includes two types of plans - a
profit sharing plan allowing a flexible rate of
contributions from year to year, and a money purchase
plan requiring the same fixed rate of contributions each
year. You can adopt either or both plans. If you adopt
both, you will be considered as having two Keogh plans.
The Nicholas Company, Inc. provides you with
IRS approved master plan documents (consisting of the
Basic Plan Document Number 01 and the Participation
Agreement or Agreements you complete and sign), and also
provides professional investment management through the
Nicholas Family of Mutual Funds.
You are responsible for administering the plan
or plans you adopt in accordance with the terms of the
plan documents and applicable laws and regulations, and
for preparing any notices, descriptions, elections,
consents, beneficiary designations, reports or similar
materials that may be required in the course of
administering your plan(s). Failure to operate your
plan(s) in accordance with the master plan documents may
result in disqualification of your plan(s) by the IRS,
even though the IRS has approved the master plan
documents. You should work in close consultation with
your own professional advisors in adopting and
administering a plan or plans.
The following questions and answers address
questions that are frequently asked about Keogh plans.
Many facets of life have their own "language"
and Keogh plans are no exception. A complete
understanding of the terms and definitions of Keogh plans
is necessary Defined terms used in the following
"question and answer section" and the other Keogh
documents are explained in Section 2 of the Nicholas
Master Retirement Plan for Self-Employed Individuals.
Please refer to these definitions frequently as you read
this.
I. GENERAL
(1) WHO MAY ESTABLISH A KEOGH PLAN?
Incorporated businesses cannot establish a
Nicholas Plan. Generally, anyone who receives income for
personal services in an unincorporated business may do
so. Examples include persons running small commercial or
industrial unincorporated businesses and professional
people in private practice. Eligibility in some
situations can be more difficult to determine. Many
individuals who work with a company, such as
manufacturers' representatives, may still be considered
self-employed and eligible for a Keogh plan on their own.
Another example would be that some real estate agents are
deemed independent contractors even though they work for
a realtor organization. Where there is a question, your
tax adviser or the IRS can usually clarify the situation
quickly.
Many people who work for corporations engage in
part-time work for themselves and may set up a Keogh plan
for that portion of their income.
(2) DO ALL YOUR EMPLOYEES HAVE TO BE COVERED?
All regular "employees" and "non-owner
partners" must be covered subject to the conditions noted
below These people may not exclude themselves from
coverage.
(a) You may establish a waiting period of up to two years
of service before entering the plan. You may establish a
minimum age requirement for participation, but the minimum
age may not be later than age 21. All owners must satisfy
the same waiting period as their employees.
(b) Part-time employees do not have to be covered. For
example, a person who never works over 1,000 hours in a year
may be considered a part-time employee. If 1,000 hours is
established as the cutoff point, owners will not get credit
for a "year of service" if they do not accumulate 1,000
hours of service. The cutoff point for a year of service can
be set lower than 1,000 hours, but not higher. Refer to
paragraph 3(b) of the Participation Agreement.
(3) MUST ALL "OWNERS" BE COVERED?
All employees, including owner-employees, must
be covered by the same rules governing participation.
(4) HOW MUCH MAY BE CONTRIBUTED ON BEHALF OF
PARTICIPANTS UNDER A KEOGH PLAN?
An owner who maintains one or more Keogh plans
for his business or who maintains a defined contribution
plan may contribute up to the lesser of 25% of
compensation or $30,000 for each participant. The maximum
deductible contribution to any profit sharing plan,
however, is 15% of compensation, not counting
compensation in excess of $150,000. (The $30,000 and
$150,000 limits are subject to cost of living increases
announced by the IRS from time to time. See your tax
adviser for further information on the applicable
limits.)
You should be aware that the percentage
limitation on the deductible contribution must be
computed for owners by reducing the owner's compensation
by the amount of the contribution made by the employer on
behalf of the owner to the Plan (or any other qualified
plan) and also by the amount of any self-employment tax
deduction. The formula to determine the dollar amount of
your contribution is to multiply the percentage of
compensation you want to contribute within the above
limits by the following amount: [Your Net Profits minus
1/2 Self-Employment Tax] divided by [1 + Your Desired
Contribution Percentage]. Please consult your tax adviser
to determine the exact amount of the maximum deductible
contribution you may make each year.
Only the first $150,000 of earned income or compensation
is considered under the Nicholas Plan in determining
contributions. The $150,000 limit applies, in many cases,
to the combined compensation of the owner and any spouse
or children who are also employed by the business.
Part-time, self-employed persons can also
contribute to a Keogh plan subject to the above limits.
It is recommended that the part-time, self-employed
consult their tax advisers before making any
contributions.
The percentage contributed for your employees
is determined by the formula of your plan. You must
contribute to each employee no less of a percentage than
you contribute for yourself.
(5) WHAT IS A PARTICIPANT'S "COMPENSATION"?
For owners, "compensation" means the owner's
earned income (see Section 2(h) of the Plan). In
determining earned income, any deductible contributions
made by the employer on behalf of the owner to this Plan
or any other qualified plan, and any deduction allowed to
the employer for self-employment taxes, must be
subtracted from the total earnings of the owner.
For other participants, "compensation" will
mean either W-2 earnings or "compensation" as defined in
Section 415(c)(3) of the Internal Revenue Code. You must
select the applicable definition in the Participation
Agreement.
IRS regulations identify W-2 compensation as
compensation received by the employee from the employer
that is required to be reported as wages on the
employee's Form W-2 for income tax purposes. Section
415(c)(3)(A) of the Internal Revenue Code defines
"compensation" for any year to mean "the compensation of
the participant from the employer for the year." IRS
regulations specify that Section 415(c)(3)(A)
compensation does not include: contributions to a
deferred compensation plan that are not taxable to the
employee in the year of contribution; amounts realized
upon the exercise of a non-qualified stock option;
amounts realized upon the sale of stock acquired under a
qualified stock option; other amounts that receive
special tax benefits (such as group term life insurance
premiums or amounts realized when restricted property is
no longer subject to a risk of forfeiture); or
distributions from a deferred compensation plan (whether
or not includable in the employee's gross income).
You must also elect in the Participation
Agreement whether "compensation" will include or exclude
contributions made pursuant to a salary reduction
agreement and which are not includable in the employee's
gross income because of Code Sections 125 [cafeteria
plans], 402(a)(8) [now 402(e)(3), cash or deferred
arrangements], 402(h) [SEPs] or 403(b) [tax-deferred
annuities].
Employers should consult their tax advisers
regarding which definition of "compensation" is most
suitable to them.
(6) AM I LOCKED INTO THE SAME ANNUAL CONTRIBUTION EACH
YEAR?
The annual contribution percentages to the
profit sharing plan may be changed by the employer to
allow for changes in business conditions. If you wish to
change your annual contribution percentage to the profit
sharing plan, you must submit an amended Participation
Agreement to the custodian. Fluctuations in annual
contributions must not discriminate in favor of owners or
be used as an income averaging device by owners.
The annual contribution percentage to the money purchase
plan may not be varied from year to year because that may
adversely affect the plan's tax status.
(7) WHAT ABOUT EMPLOYERS WITH OTHER KEOGH PLANS OR OTHER
EMPLOYEE BENIFT PLANS?
Generally, limits on contributions apply to the
sum of all plans maintained by a single employer. Please
refer to Sections 6.2, 6.3 and 6.4 of the Nicholas Master
Retirement Plan for Self-Employed lndividuals. Employers
in the situation described in Sections 6.3 or 6.4 of the
Plan should consult their tax advisers regarding proper
allocation to more than one Keogh plan.
(8) HOW LONG MAY CONTRIBUTIONS BE MADE ON BEHALF OF AN
OWNER?
The owner may continue to make contributions to
the plan as long as he continues to work.
(9) WHAT BENEFITS IS AN EMPLOYEE ENTITLED TO RECEIVE IF
HE LEAVES THE EMPLOYER?
The Nicholas Plan provides that the account of
a participant is 100% "vested" at all times (i.e.,
nonforfeitable, whether or not he continues to work for
the employer). Consequently, a participant who leaves the
employer would be entitled to receive 100% of his or her
account.
(10) WHEN CAN THE PAYMENT OF BENEFITS BEGIN?
Payment of benefits generally may begin when a
participant's employment terminates (including retirement
or death). However, the participant and, in some cases,
the participant's spouse, must sign a written consent to
any payment of benefits before the participant reaches
age 62 or, if later, the normal retirement age you
specify in the participation agreement
A 10% additional tax (in addition to regular
income taxes) is imposed on distributions before a self-
employed participant reaches age 59-1/2, unless the
participant makes a tax-free rollover or in situations
where certain other limited exceptions apply. See
question (12) for more information on rollovers.
Generally, benefit distribution for all
participants must begin by the April 1 following the
calendar year in which the participant reaches age 70-
1/2. For participants who attained age 70-1/2 before
January 1, 1989, special rules apply. Please consult
your tax adviser and Section 1.401(a)(9) of the Proposed
Income Tax Regulations concerning the timing and amount
of any required minimum distributions.
(11) HOW MAY DISTRIBUTIONS BE MADE?
In the case of married participants in the
money purchase plan who die prior to the commencement of
benefits, distributions from the money purchase plan must
be made to the participant's surviving spouse in the form
of a pre-retirement survivor annuity unless the married
participant makes a qualified election to have benefits
distributed in an optional form.
In addition, retirement benefits to a married
participant in the money purchase plan must be paid in
the form of a qualified joint and survivor annuity and in
the form of a life annuity to an unmarried participant,
unless the participant makes a qualified election to have
benefits distributed in an optional form.
Distributions from the profit sharing plan to a
participant or his beneficiary may be made in a single
payment or in installments.
If a participant dies before his entire
interest in the profit sharing plan is distributed to
him, his remaining interest may have to be distributed
within five (5) years. The five-year rule may also apply
to post-death distributions from the money purchase plan,
if the participant was single or made a qualified
election not to have benefits paid as a pre-retirement
survivor annuity. Please refer to Section 7.9(e) of the
Plan for additional details.
The plan administrator (see question (24)) is
responsible for making sure that distributions comply
with the consent procedures and other requirements and
restrictions described in Section 7 of the Plan.
(12) HOW IS THE DISTRIBUTION TAXED?
Unless part of your distribution has resulted
from assets transferred to the Nicholas Master Retirement
Plan for Self-Employed Individuals from an older plan,
all distributions are taxed as ordinary income.
If the entire amount is paid in one year it is
considered ordinary income. Participants who turned 50
before January 1, 1986 may elect a form of ten-year
averaging. Other participants may be eligible to elect a
special five-year forward averaging for lump sum
distributions however, a distribution before age 59-1/2
to a self-employed individual on account of separation
from service does not qualify). Distributions taken in
installments are taxed as ordinary income as received.
Distributions generally are subject to
mandatory 20% withholding for federal income taxes.
Participants can avoid this withholding and defer taxes
by electing to have the distribution paid directly to the
trustee or custodian of an IRA or of another retirement
plan that accepts rollovers. This type of transaction is
sometimes called a "Direct Rollover." The plan
administrator (see question (24)) is required to provide
a written explanation of the mandatory withholding and
direct rollover rules before the distribution is made.
Please consult your tax adviser before a
distribution is made to review the alternatives and the
tax. Be particularly careful if you made any
contributions to a Keogh plan before December 31, 1973.
Your tax adviser can determine, in such a situation, if
part of any distribution is eligible for capital gain
treatment.
(13) MAY VOLUNTARY CONTRIBUTIONS BE MADE?
No.
(14) ARE THERE PENALTIES IMPOSED UNDER CERTAIN
SITUATIONS?
There may be a 10% penalty on distributions
before age 59-1/2, as described in the answer to question
(10) above. An individual receiving distributions from
qualified retirement plans, tax sheltered annuities and
IRAs in excess of $150,000 may be subject to a 15% excise
tax. There are exceptions, however, for payments: (a) to
a beneficiary after a participant's death; (b) directed
by a qualified domestic relations order; (c) of after-tax
employee contributions; or (d) rolled over to an IRA or
another qualified plan.
(15) WHAT GOVERNMENT FORMS MUST BE FILED AND WHAT
INFORMATION MUST BE DISTRIBUTED TO PARTICIPANTS?
Most adopting employers may rely on the
favorable opinion letters issued by the Internal Revenue
Service to the Nicholas Company on the qualification of
the Master Plan. The following employers may not rely on
the opinion letters issued by the IRS on the Nicholas
Plan, and must apply to the IRS for a separate
determination that their participation in the Nicholas
Plan qualifies for favorable tax treatment:
(a) An employer who maintains or ever has
maintained another qualified plan for one or more
employees who are covered by the Nicholas Plan(s), other
than a specified paired plan within the meaning of
Section 7 of Rev. Proc. 89-9, 1989-6 I.R.B. 14; or
(b) An employer who maintains a welfare benefit
fund defined in Internal Revenue Code Section 419(e),
which provides post retirement medical benefits allocated
to separate accounts for key employees as defined in Code
Section 419A(d)(3).
If either of the two exceptions apply, the
employer should request a determination letter as to
whether the Nicholas Plan(s), considered with all related
qualified plans and, if appropriate, welfare benefit
funds, satisfies the requirements of Code Section
401(a)(16) as to limitations on benefits and
contributions in Code Section 415.
An adopting employer must provide notice of the
adoption (or amendment) of the Nicholas Plan(s) or, if
applicable, of the intent to apply for a determination
letter, to interested parties in accordance with the
requirements of Sections 16, 17 and 18 of IRS Rev. Proc.
94-6, I.R.B. 1994-1, 142 (or any successor instructions
from the IRS).
The Internal Revenue Service and Department of
Labor require certain forms to be filed each year. The
plan administrator (which is normally the employer) is
responsible for filing these forms on a timely basis.
These forms may be obtained directly from either of these
agencies. Nicholas Company and the custodian will provide
certain data each year that the employer or his plan
administrator, can insert on the applicable forms. In the
initial plan year and every third year, the employer must
file a form number 5500C. In the intervening two years
the employer must file a shorter, less complicated Form
5500R. One-participant plans may generally use Form
5500EZ, and may not need to file at all if total plan
assets are $100,OOO or less.
A summary plan description, which is a "plain
language" description of the Plan must also be prepared
and submitted to the Department of Labor and to each new
participant. A summary description of any amendments to
the Plan must also be prepared, distributed to Plan
participants, and filed with the Department of Labor each
time the Plan is amended. In addition, each year the plan
administrator must also distribute to each participant a
summary of the annual report filed on the IRS Form 5500
series.
Certain notices, elections and consents may be
required in connection with beneficiary designations and
benefit distributions. These requirements are detailed in
specific Plan Document sections, especially Section 7.
The IRS and Department of Labor may change the
filing and notice requirements from time to time.
Employers, or their administrators, should check with
their legal tax advisers before the end of each calendar
year. These functions are the responsibility of the plan
administrator and neither Nicholas nor the custodian will
monitor the employer's compliance.
(16) HOW MANY INVESTMENT COMPANIES CURRENTLY ADVISED BY
NICHOLAS COMPANY ARE AVAILABLE FOR CONTRIBUTIONS?
Currently Nicholas offers a choice of six
mutual funds:
- Nicholas Fund
- Nicholas II
- Nicholas Limited Edition
- Nicholas Equity Income Fund
- Nicholas Income Fund
- Nicholas Money Market Fund
See question (19) for information regarding the
investment objectives of these funds. If you do not have
the applicable fund prospectus, please contact the
Nicholas Family of Funds. The prospectus contains more
complete information regarding charges and expenses. Read
it carefully before you invest.
(17) MUST ALL MY CONTRIBUTIONS BE MADE TO INVESTMENT
COMPANIES ADVISED BY NICHOLAS COMPANY?
All contributions to this self-employed plan
must be invested in investment companies advised by
Nicholas Company. However, employers may also contribute
to other qualified retirement plans. Contributions to all
plans are added together in regards to maximum limits
allowed per year.
(18) WHY SHOULD I CONSIDER A MUTUAL FUND FOR MY KEOGH
ACCOUNT?
A mutual fund, through its adviser, provides
its investors with professional investment management. It
also provides the investor with diversification of
portfolio investments.
(19) WHAT ARE THE INVESTMENT OBJECTIVES OF THE VARIOUS
MUTUAL FUNDS OFFERED BY NICHOLAS COMPANY?
The primary investment objective of Nicholas
Fund is capital appreciation, and securities are selected
for its portfolio on this basis. Current income will be
only a secondary factor in considering the selection of
investments and incidental to the primary objective of
appreciation. Nicholas II has an investment objective of
long-term growth in which income is a secondary
consideration. Nicholas Limited Edition, a growth fund
with a similar objective of long-term growth in which
income is a secondary consideration, is limited in the
amount and scope of its offering. The primary investment
objective of Nicholas Equity Income Fund is to produce
reasonable income, with moderate long-term growth as a
secondary consideration. Nicholas Income Fund seeks high
current income consistent with the conservation of
capital values. There are market risks inherent in any
equity investment and there can be no assurance against
possible loss in the value of the Fund's portfolio.
Nicholas Money Market Fund has an investment objective of
achieving as high a level of current income as is
consistent with preserving capital and providing
liquidity.
(20) WHEN MUST THE PLAN BE STARTED?
The Nicholas Master Retirement Plan
Participation Agreement must be signed by both the
employer and the custodian before the end of the
employer's tax year (generally December 31). The minimum
contribution is $500 for the Nicholas Fund and the
Nicholas Income Fund, $1,000 for Nicholas II, and $2,000
for Nicolas Limited Edition, Nicholas Equity Income Fund
and Nicholas Money Market Fund. This contribution must be
received by the custodian at the time the plan is
started.
The balance of the employer's contribution must
be received by the custodian prior to the due date of the
employer's tax return (generally April 15) or any
extension thereof.
(21) WHAT FEES MUST BE PAID?
Please refer to the enclosed fee schedule for a list and
explanation of the current custodian fees.
II. PROCEDURES
(22) HOW DO I ESTABLISH MY SELF EMPLOYED RETIREMENT PLAN
AND MAKE MY INITIAL CONTRIBUTION?
The employer must complete and execute two
copies of the Participation Agreement and forward them
directly to the custodian at the following address:
Nicholas Master HR-10 Plan
c/o Firstar Trust Company
P0. Box 2944
Milwaukee, Wisconsin 53201-2944
Along with the Participation Agreements, the employer must
also forward to the custodian a completed and executed
Application for Participation for each participant,
including each owner or partner. Each application must be
approved by the plan administrator. The plan administrator
must also obtain directions from each participant as to the
investment fund(s) the participant desires the contribution
on his or her behalf to be invested in. A completed initial
Contribution Summary Form must be sent to the custodian
indicating the amount contributed on behalf of each
participant and the investment fund(s) in which the
participant has directed the contribution on his or her
behalf to be invested. To establish a valid self-employed
retirement plan, the above documents must be received by the
custodian prior to the end of the employer's taxable year
(generally December 31).
(23) WHAT IF A PARTICIPANT MAKES AN IMPRUDENT INVESTMENT
DECISION?
Department of Labor regulations under a federal law
referred to as "ERISA 404(c)" describe conditions under
which you (or any other administrator of your plan) may be
relieved of responsibility or potential legal liability that
might otherwise apply in connection with participant
investment decisions.
To qualify for this special protection, the new
regulations will require that you follow certain
administrative procedures. Generally speaking, participants
must be allowed to change investments at least quarterly,
and they must be given certain disclosures regarding the
investment options, how to give investment instructions, and
whether the plan is intended to qualify for ERISA 404(c)
protection.
Please consult an attorney with expertise in
this area for specific guidance on how to qualify for
this protection.
(24) WHAT IS A "PLAN ADMINISTRATOR"?
Section 2(z) of the Plan and Paragraph 6 of the
Participation Agreement name the employer as "plan
administrator." An employer is permitted to delegate that
duty to someone else (but not to the Nicholas Company or to
the custodian) if he chooses. A plan administrator is
generally responsible for transmitting contributions,
payments and information between the employer, participants
and the custodian. The specific duties of the plan
administrator are found in Section 8 of the Plan. There are
additional duties and responsibilities placed on the plan
administrator by regulations issued by the Internal Revenue
Service and the U.S. Department of Labor, some of which are
described in the answer to question (15) above. You should
consult with your attorney or other counsel to determine
those additional responsibilities.
(25) HOW DO I MAKE ADDITIONAL CONTRIBUTIONS?
You should forward to the custodian a Contribution
Summary Form with each contribution submitted to the
custodian. The Contribution Summary Form should indicate the
name of each participant for whom a contribution is being
made, the amounts contributed and whether they are employer
or rollover contributions, and the account number to which
the additional contributions are being made. The form should
also designate the investment fund(s) in which the
participant has directed the contribution for him or her to
be invested. The form must be signed by the plan
administrator. The minimum additional contribution is $100.
Please notify Nicholas Company if you require additional
Contribution Summary Forms.
(26) HOW WILL I KNOW WHAT HAS BEEN INVESTED FOR THE
PARTICIPANTS' ACCOUNTS?
Upon receipt of your Contribution Summary Form, the
custodian will invest contributions in the specified
investment funds and will forward to the plan administrator
a confirmation for each amount invested showing the dollar
amount invested and the number of shares purchased by the
contribution. At the end of the year, the custodian will
forward to the plan administrator annual statements showing
the contributions and dividend reinvestments for the account
for the entire year.
(27) WHAT HAPPENS WHEN A NEW PARTICIPANT BECOMES ELIGIBLE
FOR THE PLAN?
When a new participant first becomes eligible he should
execute an Application for Participation. At the time a
contribution is first made for that participant, the plan
administrator should approve his application and forward it
to the custodian along with the Contribution Summary Form
indicating his initial contribution. The plan administrator
should also have the participant direct the plan
administrator as to which investment fund(s) the
contribution for that participant is to be invested in, and
the plan administrator must designate the participant's
investment choice on the Contribution Summary Form.
(28) WHAT HAPPENS WHEN A PARTICIPANT TERMINATES EMPLOYMENT?
As soon as possible after a participant terminates
employment with the employer, the plan administrator should
complete the Benefit Payment Authorization Form, a sample of
which is enclosed. The plan administrator should make
additional copies of this form as necessary. If the reason
for payment of benefit is death of the participant, a
participant's certified death certificate, beneficiary
designation (and/or survivor annuity benefit waiver and
spousal consent) must be forwarded to the custodian with the
Payment Authorization Form. If termination of employment is
due to disability, a doctor's certification of the
disability must also be forwarded to the custodian. Please
note that both the participant's signature and the plan
administrator's signature must appear on the Benefit Payment
Authorization Form.
Your plan administrator is also responsible for
complying with any notice, election, consent or other
requirements specified in the plan documents (especially in
Section 7) relating to distributions.
(29) WHAT HAPPENS IF THE EMPLOYER INCORPORATES?
If the employer incorporates, contributions to his self-
employed plan must cease. You should consult your legal or
tax advisers regarding the disposition of your Keogh plan
before incorporating your business.
(30) MAY I TRANSFER MY CONTRIBUTIONS FROM ONE FUND TO
ANOTHER AFTER THEY HAVE BEEN INVESTED?
Yes, if you are interested in this, please contact
Nicholas Company for details.
(31) MAY I ROLLOVER A DISTRIBUTION I RECEIVE FROM ANOTHER
QUALIFIED RETIREMENT PLAN INTO EITHER OF THE NICHOLAS PLANS?
Yes. The Internal Revenue Code was amended effective
beginning in 1987 to remove certain restrictions on rollover
contributions by key employees. Therefore, beginning in
1987, the Nicholas Plan will accept rollover contributions
which qualify as tax-free rollovers under the requirements
of the Internal Revenue Code. You should consult your tax
adviser for more information and guidance about making a
rollover contribution. Please note that, among other
requirements, a rollover must be accomplished within sixty
(60) days of receipt of the distribution to qualify. In
order to avoid mandatory tax withholding on a distribution
from a qualified plan, a rollover should be made by means of
a direct payment from the distributing plan to the
custodian.
(32) WHERE CAN I GET MORE INFORMATION ABOUT THE NICHOLAS
MASTER RETIREMENT PLAN FOR SELF-EMPLOYED INDIVIDUALS?
If your question deals with general, legal or tax
aspects of a self-employed retirement plan, you may obtain
additional information from your local Internal Revenue
Service office. Your attorney or other professional adviser
should be consulted regarding the legal and tax
considerations of your using the Nicholas Master Retirement
Plan.
NICHOLAS MASTER RETIREMENT PLAN
CHECKLIST OF ENCLOSURES
A. TO BE FILLED OUT AND FILED WITH THE CUSTODIAN - FIRSTAR TRUST COMPANY
1. Participation Agreements (Profit Sharing, Money Purchase
Plan or both) DUPLICATE - FORMS 1 and 2
2. Contribution Summary Form - FORM 3
3. Application for Participation (ONE FOR EACH PARTICIPANT) - FORM 4
B. TO BE FILED WITH THE PLAN ADMINISTRATOR FOR FUTURE USE OR REFERENCE
1. Nicholas Company Master Retirement Plan - EXHIBIT A
2. Custodial Agreement - EXHIBIT A
3. General Information - EXHIBIT B
4. Benefit Payment Authorization - FORM 5
CUSTODIAN FEES*
Annual Maintenance Fee per Participant**
Account Maintained $12.50
Transfer to Successor Trustee 15.00
Lump Sum or Partial Distribution to a Participant 15.00
Systematic Withdrawal Plan Distributions No Fee
Refund of Excess Contribution 15.00
Any Outgoing Wire 7.50
*THESE FEES MAY BE SUBJECT TO CHANGE
**DUE BY SETTEMBER 15th EACH YEAR OR DEDUCTED AUTOMATICALLY
700 North Water Street . Milwaukee Wisconsin . 53202-4276 . 414-272-6133
[logo] 12/94
<PAGE>
Form 1
NICHOLAS MASTER RETIREMENT PLAN
[ ] New
[ ] Amended
PARTICIPATION AGREEMENT
(PROFIT-SHARING PLAN)
(PAIRED PLAN 01-001)
The _________________________________________ Retirement Plan
The Sole Proprietor or Partnership named below (hereinafter
called "Employer") hereby agrees to participate in the Nicholas
Master Retirement Plan for Self-Employed Individuals (consisting
of this Participation Agreement and Basic Plan Document Number
01) and the Nicholas Custodial Agreement effective for the
calendar year ending December 31, 1 9__. (NOTE TO EMPLOYERS: If
you are adopting this Plan as an amendment to an existing Profit-
Sharing Plan in order to comply with the Tax Reform Act of 1986,
insert "89" in this blank, or if later, the first year for which
the existing plan was effective. The terms of this replacement
Plan will be effective retroactively for all Plan Years beginning
after 1988, except as otherwise specified in this Participation
Agreement or in the Basic Plan Document.) The Employer also
hereby agrees to be bound by said Plan and Custodial Agreement,
as from time to time amended, and all terms and provision
thereof. All words or terms defined in the Basic Plan Document
shall have the same definition in this Participation Agreement.
Participation by the Employer in said Plan and Custodial
Agreement shall be upon the following additional terms and
conditions:
1.__________________________________________________________
Name of Employer
__________________________________________________________
Street Address
__________________________________________________________
City State Zip Code
___________________________________________________________
Nature of Business or Profession
_________________________________________________________
Employer's Federal Tax Identification Number
(Enter your 9-digit employer identification number
(EIN) assigned by IRS. If you do not have one, enter
"applied for" and apply for one on Form SS-4, available
from your local IRS office. This number will be needed
for your Form 5500 CIR annual reports and other IRS
filings. Notify us of your EIN as soon as one is
assigned to you.)
Employer's Taxable Year for Federal Income Tax Purposes:
( ) Calendar Year
( ) Fiscal Year Ending
Serial Number of the Plan ___________________________________
(You should assign a three-digit number, beginning with "001"
and continuing in numerical sequence, to each tax-qualified
retirement plan you adopt. This numbering will differentiate your
plans on reports or returns you file with IRS and other agencies.
For instance, if this Plan is the only plan you maintain, enter
"001", or if this Plan is the second plan you have adopted, enter
"002".)
2. EMPLOYER APPOINTS FIRST WISCONSIN TRUST COMPANY AS
CUSTODIAN. Custodian shall invest all contributions received
under the Plan in Investment Company Shares designated by the
Plan Administrator and in accordance with the Custodial
Agreement.
3. ELIGIBILITY.
(a) Each Employee will be eligible to participate in this Plan
in accordance with Section 3 of the Basic Plan Document, except
the following:
(i) Employees who have not attained the age of
__________ (cannot exceed 21).
(ii) Employees who have not completed ___________ Years
of Credited Service (as defined in the Basic Plan
Document). This requirement shall not be greater than
two (2) years and shall be deemed to be two (2) years
unless otherwise indicated. Employers may not use
fractional Years of Credited Service.
(iii) Employees who terminate employment (other than by
reason of death or retirement) during the Plan Year with
not more than 500 Hours of Service and who are not
Employees as of the last day of the Plan Year. (NOTE TO
EMPLOYERS: Under a special transition rule reflected in
Section 5.2 of the Basic Plan Document, Participants
whose employment terminates during 1989 and who are not
Employees as of December 31, 1989 other than because of
death or retirement do not share in employer
contributions to the Plan for 1989, even if they had
more than 500 Hours of Service for 1989. All such
Participants must nevertheless be treated as benefiting
under the Plan in 1989 for purposes of the minimum
participation and coverage rules under IRC Sections 401
(a)(26) and 410(b). See Proposed Treasury Regulations
Sections 1.401 (a) (26)-8(b) (6) and 1.410(b)-10(b)(2).)
For purposes of this Section, the term "Employee" shall include
all employees of this Employer or any employee aggregated with
this Employer under IRC Sections 414(b), (c), (m) or (o) and
leased employees required to be considered employees of any such
Employer under IRC Section 414(n) or (0).
(b) The number of Hours of Service, as that term is defined in
the Basic Plan Document, which shall constitute a Year of Service
shall be ___________ hours. This amount shall be no greater than
1,000 hours and shall be deemed to read 1,000 hours unless a
smaller number is filled in. (NOTE TO EMPLOYERS: The number you
fill in is the number of Hours of Service an Employee must
complete within the 12 month period after he or she is hired or
after an anniversary of that date in order to receive a Year of
Credited Service towards eligibility to participate in the Plan
under paragraph 3(a) (ii) above. A former Participant will become
a Participant immediately upon returning to the employ of the
Employer.)
4. COMPENSATION. (NOTE TO EMPLOYERS: The Nicholas Master
Retirement Plan for Self-Employed Individuals formerly defined
"Compensation" to mean a Participant's total W-2 earnings for the
Plan Year. If you are adopting this Plan as an amendment to an
existing Profit-Sharing Plan in order to comply with the Tax
Reform Act of 1986, and the definition of Compensation elected
below replaces another definition of Compensation under the
existing plan, the definition elected below will be effective as
of January 1 of the year after the year in which this Participant
Agreement is executed. Employers also note: For any Self-Employed
Individual covered under the Plan, Compensation means Earned
Income, regardless of the definition selected below.)
Compensation will mean all of each Participant's (check one):
[ ] W-2 earnings
[ ] compensation (as that term is defined in Section 415(c)(3) of
the Code - see Question 5 of your General Information form)
which is actually paid to the Participant during (check one):
[ ] the Plan Year
[ ] the taxable year ending with or within the Plan Year
[ ] the Limitation Year ending with or within the Plan Year.
Compensation (check one):
[ ] shall include
[ ] shall not include
Employer contributions made pursuant to a salary reduction
agreement which are not includible in the gross income of the
Employee under Section 125, 402(a)(8), 402(h) or 403(b) of the
Code.
5. CONTRIBUTIONS
(a) Subject to the limitations contained in Section 6 (and the
minimum contribution requirements of Section 4.2) of the Basic
Plan Document, the Employer shall contribute on behalf of each
Participant an amount equal to ___________ percent of such
individual's Compensation (limited to Earned Income for an Owner
or Self-Employed Individual). Unless otherwise indicated, the
percent of Compensation (or Earned Income for an Owner or Self-
Employed Individual) shall be deemed to be 15%. The Employer may
change the percentage of Compensation (or Earned Income for an
Owner or Self-Employed Individual) to be contributed for a Plan
Year by delivering a signed and completed copy of an amended
Participation Agreement to the Custodian prior to the end of such
Plan Year.
(b) If checked here [ ] by the adopting Employer; then
effective beginning with the first calendar year for which this
Participation Agreement is effective (as specified in the first
paragraph of this Participation Agreement), or effective instead
beginning with the Plan Year ending December 31, 19__ (insert a
year only if you want to delay the effective date to a later
year), and notwithstanding any other provision of the Plan, the
Employer contributions under subparagraph (a) above shall be made
without regard to current or accumulated earnings and profits for
the taxable year or years ending with or within the Plan Year for
which the contribution is made. If the preceding sentence does
not apply for a Plan Year; then Employer contributions under
subparagraph (a) above shall be made out of current or
accumulated Net Income and shall be ratably reduced in the event
the Net Income of the Employer is less than the total
contributions required to be made for such Plan Year under
subparagraph (a) above. (Note to Employers: If you choose to have
this subparagraph (b) apply, then you will be required to make
the full contribution specified in subparagraph (a) each year
whether or not you have any current or accumulated profits, and
this Plan will still be considered a Profit-Sharing Plan.)
(c) The Annual Addition for each Participant, as described
in Section 6.5(a) of the Basic Plan Document, shall not exceed
for any Limitation Year the lesser of the Defined Contribution
Dollar Limitation ($30,000 or one4ourth of the defined benefit
dollar limitation in effect for the Limitation Year under Section
415(b)(1) of the Code, whichever is greater) or 25% of the
Participant's Compensation (limited to Earned Income for an
Owner) for such Limitation Year.
6. PLAN ADMINISTRATOR. The Plan Administrator is_____________.
The Plan Administrator must not be the Custodian or the
sponsoring organization identified in paragraph
15, and shall be deemed to be the Employer unless otherwise
indicated. The Employer shall notify the Custodian of any change
in the Plan Administrator by delivering a signed and completed
copy of an Amended Participation Agreement to the Custodian prior
to the end of the Plan Year for which such change is effective.
(Note to Employers: The Plan Administrator is the party who has
the legal responsibility for administering and interpreting the
Plan, as detailed more fully in Section 8 of the Basic Plan
Document. The Plan Administrator must, among other things, keep
all necessary books and records relating to the Plan, file annual
reports and other forms required by government agencies, and
provide to or obtain from Participants or beneficiaries
appropriate summaries, notices and elections regarding the Plan
and benefits to be distributed under the Plan. The Custodian and
Nicholas Company, Inc. do not provide plan administration
services. Such services are available for a fee through other
professional consultants and advisers.)
7. CUSTODIAN'S FEES. The Custodian shall receive fees for
its services in respect to each Participant's account in
accordance with the attached fee schedule, which may be changed
by the Custodian with advance notice from time to time. lf not
separately included, any acceptance fee listed in the attached
schedule will be deducted from the initial contribution received
from the Employer. Any acceptance or other Custodian fees
excluding annual maintenance or activity fees not separately
included will be deducted equally from each Owner's contribution
or account. Annual maintenance fees for each Participant's
account and any fees directly related to activity in that
Participant's account shall be deducted from his account. Annual
maintenance fees will be deducted on the last business day in
September of each year and activity fees will be deducted at the
time incurred. Sufficient Investment Company Shares will be
redeemed to cover this fee.
Extraordinary services resulting from unusual administrative
responsibilities not contemplated by this schedule will be
subject to such additional charges as will reasonably compensate
the Custodian for the services performed.
8. EMPLOYER'S DUTIES. The Employer hereby agrees that it
will distribute copies of the current prospectus of the
appropriate Investment Company or Companies, the Basic Plan
Document, the Custodial Agreement, and this completed
Participation Agreement, to each and every Participant on whose
behalf a contribution is made. The Employer or Plan Administrator
also agrees to distribute to Participants, and file with the
appropriate government agency, such forms (including annual
reports, summary plan descriptions and any other forms) as may be
required by the Internal Revenue Service, Department of Labor or
any other government agency.
9. AUTOMATIC TERMINATION OF PLAN. If the Employer's plan fails
to attain or retain qualification, such plan will no longer
participate in this Master Plan and will be considered an
individually designed plan.
10. LIMITATIONS ON ALLOCATIONS. If you maintain or ever
maintained another qualified plan (other than paired plan 01-002)
in which any Participant in this Plan is (or was) a participant
or could possibly become a participant, you must complete this
paragraph. You must also complete this paragraph if you maintain
a welfare benefit fund, as defined in Section 419(e) of the Code,
or an individual medical account, as defined in Section 415(1)(2)
of the Code, under which amounts are treated as Annual Additions
with respect to any Participant in this Plan. (NOTE TO EMPLOYERS:
You do not need to complete this paragraph unless either: (a) you
are currently maintaining another qualified defined contribution
plan which is not a master or prototype plan; or (b) you are
currently maintaining or have ever previously maintained a
qualified defined benefit plan.)
(a) If you maintain a qualified defined contribution plan,
other than a master or prototype plan, the provisions of Section
6.2 of the Basic Plan Document will apply as if the other plan
were a master or prototype plan, unless you provide another
method below under which the plans will properly limit total
Annual Additions to the Maximum Permissible Amount, and will
properly reduce any excess amounts, in a manner that precludes
Employer discretion (see your legal or tax counsel for guidance):
_________________________________________________________________
_________________________________________________________________
(b) If the Participant is or ever has been a participant in
a defined benefit plan maintained by you, provide language that
will satisfy the 1.0 limitation of Section 415(e) of the Code.
Such language must preclude employer discretion. See Section
1.415)1 of the Treasury Regulations and consult your legal or tax
counsel for guidance:
_________________________________________________________________
_________________________________________________________________
11. NORMAL RETIREMENT AGE. For each Participant Normal
Retirement Age is age ___ (not to exceed 65). (NOTE TO EMPLOYERS:
If no age is specified, Normal Retirement Age shall be age 65. If
the Employer enforces a mandatory retirement age, the Normal
Retirement Age is the lesser of that mandatory retirement age or
the age specified in this paragraph).
12. LIMITATION YEAR. The Limitation Year for purposes of
the Plan shall be the 12-consecutive month period ending on _____
(Note to Employers: The Limitation Year is the period used for
purposes of applying the annual limits on Plan contributions and
allocations under paragraphs 5(c) and 10 above and Section 6 of
the Basic Plan Document. If no Limitation Year is specified, the
Limitation Year shall be the calendar year. All qualified plans
maintained by the Employer must use the same limitation year.)
13. MINIMUM ALLOCATION. Complete (a) or (b) of this
paragraph (as appropriate) only if you maintain another qualified
plan or plans (including Paired Plan 01-002) and any non-Key
Employee is or could possibly become a Participant in this Plan
and any of the other plans at the same time. Otherwise go on to
paragraph 14. See Section 2(o) of the Basic Plan Document for a
definition of who are Key Employees.
(a) ALL OTHER PLANS ARE ALSO DEFINED CONTRIBUTION PLANS.
(NOTE TO EMPLOYERS: Paired Plan 01-002, the Money Purchase Plan,
is a defined contribution plan). This Profit-Sharing Plan is a
"deemed top-heavy' plan" designed to operate as though it were
always "top-heavy" under IRC Section 416, whether or not it
actually would be "top-heavy" under the provisions of that
Section. Section 4.2 of the Basic Plan Document and IRC Section
416(c)(2) require certain non-Key Employees to receive a minimum
allocation of contributions (generally 3% of Compensation) for
each year they are Participants in the Plan and would not
otherwise be entitled to receive a greater allocation of
contributions under the Plan. lf you maintain more than one
qualified defined contribution plan covering the same non-Key
Employee, only one of the plans must provide the required minimum
allocation. In such a case (check one):
[ ] the required minimum allocation specified in Section 4.2
of the Basic Plan Document will be provided by this Plan.
[ ] the required minimum allocation specified in Section
4.2 of the Basic Plan Document will be provided by Paired
Plan 01-002, the Nicholas Money Purchase Plan (this option
is available only if the Employer has adopted that plan and
the non-Key Employee is a Participant in that plan).
[ ] the method under which the plans will provide the
required minimum allocation in a manner that will preclude
Employer discretion and avoid inappropriate omissions is as
follows (see IRC Section 416(c)(2) and Treasury Regulations
Section 1.416-1, Part M, and consult your legal or tax
counsel before completing the blanks below):
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(b) EMPLOYER ALSO MAINTAINS ONE OR MORE DEFINED BENEFIT
PLANS. If you maintain a defined benefit plan in addition to this
Plan (which is a defined contribution plan), specify the method
by which the plans will satisfy the minimum allocation and/or
benefit requirements of IRC Section 416(c), as modified by IRC
Section 416(h), including any required adjustments in computing
the denominators of the Defined Benefit and Defined Contribution
Fractions, in a manner that will preclude Employer discretion and
avoid inappropriate omissions (see IRC Sections 416(c) and 416(h)
and Treasury Regulations Section 1 .416-1, Part M, and consult
your legal or tax counsel before completing the blanks below):
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(c) The Employer may change the method specified in (a) or
(b) above only by executing a new Participation Agreement setting
forth the new method that is to apply.
14. CAUTION TO ADOPTING EMPLOYERS: Failure to properly fill
out this Participation Agreement may result in disqualification
of the Plan.
15. SPONSORING ORGANIZATION. The sponsoring organization
for the Nicholas Master Retirement Plan for Self-Employed
Individuals is the Nicholas Company, Inc., 700 North Water
Street, Milwaukee, Wisconsin 53202, telephone number (414) 272-
6133. The sponsoring organization will inform you of any
amendments made to the Plan or of the discontinuance or
abandonment of the Plan.
AN EMPLOYER WHO HAS EVER MAINTAINED OR WHO LATER ADOPTS ANY PLAN
(INCLUDING A WELFARE BENEFIT FUND, AS DEFINED IN IRC SECTION
419(e), WHICH PROVIDES POST RETIREMENT MEDICAL BENEFITS ALLOCATED
TO SEPARATE ACCOUNTS FOR KEY EMPLOYEES, AS DEFINED IN IRC SECTION
419(d)(3) OR AN INDIVIDUAL MEDICAL ACCOUNTS DEFINED IN IRC
SECTION 415(1)(2)) IN ADDITION TO THIS PLAN (OTHER THAN PAIRED
PLAN NO.01-002) MAY NOT RELY ON THE OPINION LETTER ISSUED BY
THE NATIONAL OFFICE OF THE INTERNAL REVENUE SERVICE AS EVIDENCE
THAT THIS PLAN IS QUALIFIED UNDER IRC SECTION 401. IF THE
EMPLOYER WHO ADOPTS OR MAINTAINS MULTIPLE PLANS WISHES TO OBTAIN
RELIANCE THAT HIS OR HER PLAN(S) ARE QUALIFIED, APPLICATION FOR
A DETERMINATION LETTER SHOULD BE MADE TO THE APPROPRIATE KEY
DISTRICT DIRECTOR OF INTERNAL REVENUE SERVICE. THIS ADOPTION
AGREEMENT MAY BE USED ONLY IN CONNECTION WITH BASIC PLAN DOCUMENT
NUMBER 01.
The Participation Agreement has been signed by the Employer
this _______ day of 19__.
_____________________________________
(Print Name of Employer -
Specify if a Partnership)
By: _____________________________________
(Signature of Employer. If Employer
is a Partnership, must be signed
by authorized general partner.)
Appointment as Plan Administrator accepted:
___________________________________________
(Signature of Plan Administrator)
___________________________________________
Address (If different from Employer's)
Date: ____________________
Appointment as Custodian accepted:
By:________________________________________
Date: ____________________
Form 2
NICHOLAS MASTER RETIREMENT PLAN
[ ] New
[ ] Amended
PARTICIPATION AGREEMENT
(Money Purchase Plan)
(Paired Plan 01-002)
The ____________________________________________ Retirement Plan
The Sole Proprietor or Partnership named below (hereinafter
called "Employer") hereby agrees to participate in the Nicholas
Master Retirement Plan for Self-Employed Individuals (consisting
of this Participation Agreement and Basic Plan Document Number
01) and the Nicholas Custodial Agreement effective for the
calendar year ending December 31, 19__. (NOTE TO EMPLOYERS: If you
are adopting this Plan as an amendment to an existing Money
Purchase Plan in order to comply with the Tax Reform Act of 1985,
insert "89" in this blank, or if later; the first year for which
the existing plan was effective. The terms of this replacement
Plan will be effective retroactively for all Plan Years beginning
after 1988, except as otherwise specified in this Participation
Agreement or in the Basic Plan Document.) The Employer also
hereby agrees to be bound by said Plan and Custodial Agreement,
as from time to time amended, and all terms and provision
thereof. All words or terms defined in the Basic Plan Document
shall have the same definition in this Participation Agreement.
Participation by the Employer in said Plan and Custodial
Agreement shall be upon the following additional terms and
conditions:
1.__________________________________________________________
Name of Employer
__________________________________________________________
Street Address
__________________________________________________________
City State Zip Code
___________________________________________________________
Nature of Business or Profession
_________________________________________________________
Employer's Federal Tax Identification Number
Employer's Federal Tax Identification Number (Enter
your 9-digit employer identification number (EIN)
assigned by IRS. If you do not have one, enter "applied
for" and apply for one on Form SS-4, available from
your local IRS office. This number will be needed for
your Form 5500 C/R annual reports and other IRS
filings. Notify us of your EIN as soon as one is
assigned to you.)
Employer's Taxable Year for Federal Income Tax Purposes:
[ ] Calendar Year
[ ] Fiscal Year Ending
Serial Number of the Plan ______________________________ (you
should assign a three-digit number; beginning with "001" and
continuing in numerical sequence, to each tax-qualified
retirement plan you adopt This numbering will differentiate your
plans on reports or returns you file with IRS and other agencies.
For instance, if this Plan is the only plan you maintain, enter
"001", or if this Plan is the second plan you have adopted, enter
"002".)
2. Employer appoints First Wisconsin Trust Company as
Custodian. Custodian shall invest all contributions received
under the Plan in Investment Company Shares designated by the
Plan Administrator and in accordance with the Custodial
Agreement.
3. ELIGIBILITY.
(a) Each Employee will be eligible to participate in this Plan
in accordance with Section 3 of the Basic Plan Document, except
the following:
(i) Employees who have not attained the age of __________
(cannot exceed 21).
(ii) Employees who have not completed ___________ Years of
Credited Service (as defined in the Basic Plan Document).
This requirement shall not be greater than two (2) years and
shall be deemed to be two (2) years unless otherwise
indicated. Employers may not use fractional Years of
Credited Service.
(iii) Employees who terminate employment (other than by
reason of death or retirement) during the Plan Year with not
more than 500 Hours of Service and who are not Employees as
of the last day of the Plan Year. (NOTE TO EMPLOYERS: Under
a special transition rule reflected in Section 5.2 of the
Basic Plan Document, Participants whose employment
terminates during 1989 and who are not Employees as of
December 31, 1989 other than because of death or retirement
do not share in employer contributions to the Plan for 1989,
even lf they had more than 500 Hours of Service for 1989.
All such Participants must nevertheless be treated as
benefiting under the Plan in 1989 for purposes of the
minimum participation and coverage rules under IRC Sections
401(a) (26) and 410(b). See Proposed Treasury Regulations
Sections 1.401 (a)(26)-8(b)(6) and 1.410(b)-10(b)(2).)
For purposes of this Section, the term "Employee" shall include
all employees of this Employer or any employee aggregated with
this Employer under IRC Sections 414(b), (c), (m) or (o) and
leased employees required to be considered employees of any such
Employer under IRC Section 414(n) or (o).
(b) The number of Hours of Service, as that term is defined
in the Basic Plan Document, which shall constitute a Year of
Service shall be _________ hours. This amount shall be no greater
than 1,000 hours and shall be deemed to read 1 ,000 hours unless
a smaller number is filled in. (Note to Employers: The number you
fill in is the number of Hours of Service an Employee must
complete within the 12 month period after he or she is hired or
after an anniversary of that date in order to receive a Year of
Credited Service towards eligibility to participate in the Plan
under paragraph 3(a)(ii) above. A former Participant will become
a Participant immediately upon returning to the employ of the
Employer.)
4. COMPENSATION. (NOTE TO EMPLOYERS: The Nicholas Master
Retirement Plan for Self-Employed Individuals formerly defined
"Compensation" to mean a Participant's total W-2 earnings for the
Plan Year. If you are adopting this Plan as an amendment to an
existing Money Purchase Plan in order to comply with the Tax
Reform Act of 1986, and the definition of Compensation elected
below replaces another definition of Compensation under the
existing plan, the definition elected below will be effective as
of January 1 of the year after the year in which this Participant
Agreement is executed. Employers also note: For any Self-Employed
Individual covered under the Plan, Compensation means Earned
Income, regardless of the definition selected below.)
Compensation will mean all of each Participant's (check one):
[ ] W-2 earnings
[ ] compensation (as that term is defined in Section 415(c)(3) of
the Code - see Question 5 of your General Information form)
which is actually paid to the Participant during (check one):
[ ] the Plan Year
[ ] the taxable year ending with or within the Plan Year
[ ] the Limitation Year ending with or within the Plan Year.
Compensation (check one):
[ ] shall include
[ ] shall not include
Employer contributions made pursuant to a salary reduction
agreement which are not includible in the gross income of the
Employee under Section 125, 402(a)(8), 402(h) or 403(b) of the
Code.
5. CONTRIBUTIONS
(a) Subject to the limitations contained in Section 6 (and
the minimum contribution requirements of Section 4.2) of the
Basic Plan Document, the Employer shall contribute for each Plan
Year on behalf of each Participant an amount equal to __________
(not to exceed 25) percent of such individual's Compensation
(limited to Earned Income for an Owner or Self-Employed
Individual). In the event the Net Income of the Employer is less
than the total contributions required to be made during such Plan
Year on behalf of all Plan Participants, the Employer will make
contributions regardless of the amount of Net Income.
(b) The Annual Addition for each Participant, as defined in
Section 6.5(a) of the Basic Plan Document, shall not exceed for
any Limitation Year the lesser of the Defined Contribution Dollar
Limitation ($30,000 or one4ourth of the defined benefit dollar
limitation in effect for the Limitation Year under Section 415(b)
(1) of the Code, whichever is greater) or 25% of the
Participant's Compensation (limited to Earned Income for an Owner
or Self-Employed Individual) for such Limitation Year.
6. PLAN ADMINISTRATOR. The Plan Administrator is_____________.
The Plan Administrator must not be the Custodian or the
sponsoring organization identified in paragraph
15, and shall be deemed to be the Employer unless otherwise
indicated. The Employer shall notify the Custodian of any change
in the Plan Administrator by delivering a signed and completed
copy of an Amended Participation Agreement to the Custodian prior
to the end of the Plan Year for which such change is effective.
(Note to Employers: The Plan Administrator is the party who has
the legal responsibility for administering and interpreting the
Plan, as detailed more fully in Section 8 of the Basic Plan
Document. The Plan Administrator must, among other things, keep
all necessary books and records relating to the Plan, file annual
reports and other forms required by government agencies, and
provide to or obtain from Participants or beneficiaries
appropriate summaries, notices and elections regarding the Plan
and benefits to be distributed under the Plan. The Custodian and
Nicholas Company, Inc. do not provide plan administration
services. Such services are available for a fee through other
professional consultants and advisers.)
7. CUSTODIAN'S FEES. The Custodian shall receive fees for
its services in respect to each Participant's account in
accordance with the attached fee schedule, which may be changed
by the Custodian with advance notice from time to time. If not
separately included, any acceptance fee listed in the attached
schedule will be deducted from the initial contribution received
from the Employer. Any acceptance or other Custodian fees
excluding annual maintenance or activity fees not separately
included will be deducted equally from each Owner's contribution
or account. Annual maintenance fees for each Participant's
account and any fees directly related to activity in that
Participant's account shall be deducted from his account. Annual
maintenance fees will be deducted on the last business day in
September of each year and activity fees will be deducted at the
time incurred. Sufficient Investment Company Shares will be
redeemed to cover this fee.
Extraordinary services resulting from unusual administrative
responsibilities not contemplated by this schedule will be
subject to such additional charges as will reasonably compensate
the Custodian for the services performed.
8. EMPLOYER'S DUTIES. The Employer hereby agrees that it will
distribute copies of the current prospectus of the appropriate
Investment Company or Companies, the Basic Plan Document, the
Custodial Agreement, and this completed Participation Agreement,
to each and every Participant on whose behalf a contribution is
made. The Employer or Plan Administrator also agrees to
distribute to Participants, and file with the appropriate
government agency, such forms (including annual reports, summary
plan descriptions and any other forms) as may be required by the
Internal Revenue Service, Department of Labor or any other
government agency.
9. AUTOMATIC TERMINATION OF PLAN. If the Employer's plan
fails to attain or retain qualification, such plan will no longer
participate in this Master Plan and will be considered an
individually designed plan.
10. LIMITATIONS ON ALLOCATIONS. If you maintain or ever
maintained another qualified plan (other than paired plan 01-001)
in which any Participant in this Plan is (Or was) a participant
or could possibly become a participant, you must complete this
paragraph. You must also complete this paragraph if you maintain
a welfare benefit fund, as defined in Section 419(e) of the Code,
or an individual medical account, as defined in Section 415(1)(2)
of the Code, under which amounts are treated as Annual Additions
with respect to any Participant in this Plan. (Note to Employers:
You do not need to complete this paragraph unless either: (a) you
are currently maintaining another qualified defined contribution
plan which is not a master or prototype plan; or (b) you are
currently maintaining or have ever previously maintained a
qualified defined benefit plan.)
(a) If you maintain a qualified defined contribution plan,
other than a master or prototype plan, the provisions of Section
6.2 of the Basic Plan Document will apply as if the other plan
were a master or prototype plan, unless you provide another
method below under which the plans will properly limit total
Annual Additions to the Maximum Permissible Amount, and will
properly reduce any excess amounts, in a manner that precludes
Employer discretion (see your legal or tax counsel for guidance):
_________________________________________________________________
_________________________________________________________________
(b) If the Participant is or ever has been a participant in
a defined benefit plan maintained by you, provide language that
will satisfy the 1.0 limitation of Section 415(e) of the Code.
Such language must preclude employer discretion. See Section
1.415-1 of the Treasury Regulations and consult your legal or tax
counsel for guidance:
_________________________________________________________________
_________________________________________________________________
11. NORMAL RETIREMENT AGE. For each Participant Normal
Retirement Age is age ___ (not to exceed 65). (NOTE TO EMPLOYERS:
If no age is specified, Normal Retirement Age shall be age 65. If
the Employer enforces a mandatory retirement age, the Normal
Retirement Age is the lesser of that mandatory retirement age or
the age specified in this paragraph).
12. LIMITATION YEAR. The Limitation Year for purposes of
the Plan shall be the 12-consecutive month period ending on _____
(Note to Employers: The Limitation Year is the period used for
purposes of appyling the annual limits on Plan contributions and
allocations under paragraphs 5(c) and 10 above and Section 6 of
the Basic Plan Document. If no Limitation Year is specified, the
Limitation Year shall be the calendar year. All qualified plans
maintained by the Employer must use the same limitation year.)
13. MINIMIUM ALLOCATION. Complete (a) or (b) of this
paragraph (as appropriate) only lf you maintain another qualified
plan or plans (including Paired Plan 01-001) and any non-Key
Employee is or could possibly become a Participant in this Plan
and any of the other plans at the same time. Otherwise, go on to
paragraph 14. See Section 2(0) of the Basic Plan Document for a
definition of who are Key Employees.
(a) ALL OTHER PLANS ARE ALSO DEFINED CONTRIBUTION PLANS.
(Note to Employers: Paired Plan 01-001, the Profit-Sharing Plan,
is a defined contribution plan). This Money Purchase Plan is a
"deemed top-heavy plan" designed to operate as though it were
always "top-heavy" under IRC Section 416, whether or not it
actually would be "top-heavy" under the provisions of that
Section. Section 4.2 of the Basic Plan Document and IRC Section
416(c)(2) require certain non-Key Employees to receive a minimum
allocation of contributions (generally 3% of Compensation) for
each year they are Participants in the Plan and would not
otherwise be entitled to receive a greater allocation of
contributions under the Plan. If you maintain more than one
qualified defined contribution plan covering the same non-Key
Employee, only one of the plans must provide the required minimum
allocation. In such a case (check one):
[ ] the required minimum allocation specified in Section 4.2 of
the Basic Plan Document will be provided by this Plan.
[ ] the required minimum allocation specified in Section 4.2 of
the Basic Plan Document will be provided by Paired Plan 01-001,
the Nicholas Profit-Sharing Plan (this option is available only
if the Employer has adopted that plan and the non-Key Employee is
a Participant in that plan).
[ ] the method under which the plans will provide the required
minimum allocation in a manner that will preclude Employer
discretion and avoid inappropriate omissions is as follows (see
IRC Section 41 6(c)(2) and Treasury Regulations Section 1.416-1,
Part M, and consult your legal or tax counsel before completing
the blanks below):
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(b) EMPLOYER ALSO MAINTAINS ONE OR MORE DEFINED BENEFIT
PLANS. If you maintain a defined benefit plan in addition to this
Plan (which is a defined contribution plan), specify the method
by which the plans will satisfy the minimum allocation and/or
benefit requirements of IRC Section 416(c), as modified by IRC
Section 416(h), including any required adjustments in computing
the denominators of the Defined Benefit and Defined Contribution
Fractions, in a manner that will preclude Employer discretion and
avoid inappropriate omissions (see IRC Sections 416(c) and 416(h)
and Treasury Regulations Section 1 .416-1, Part M, and consult
your legal or tax counsel before completing the blanks below):
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(c) The Employer may change the method specified in (a) or
(b) above only by executing a new Participation Agreement setting
forth the new method that is to apply.
14. CAUTION TO ADOPTING EMPLOYERS: Failure to properly fill
out this Participation Agreement may result in disqualification
of the Plan.
15. SPONSORING ORGANIZATION. The sponsoring organization
for the Nicholas Master Retirement Plan for Self-Employed
Individuals is the Nicholas Company, Inc., 700 North Water
Street, Milwaukee, Wisconsin 53202, telephone number (414) 272-
6133. The sponsoring organization will inform you of any
amendments made to the Plan or of the discontinuance or
abandonment of the Plan.
AN EMPLOYER WHO HAS EVER MAINTAINED OR WHO LATER ADOPTS ANY PLAN
(INCLUDING A WELFARE BENEFIT FUND, AS DEFINED IN IRC SECTION
419(e), WHICH PROVIDES POST RETIREMENT MEDICAL BENEFITS ALLOCATED
TO SEPARATE ACCOUNTS FOR KEY EMPLOYEES, AS DEFINED IN IRC SECTION
419(d)(3) OR AN INDIVIDUAL MEDICAL ACCOUNT AS DEFINED IN IRC
SECTION 415(1)(2)) IN ADDITION TO THIS PLAN (OTHER THAN PAIRED
PLAN NO.01-001) MAY NOT RELY ON THE OPINION LETTER ISSUED BY THE
NATIONAL OFFICE OF THE INTERNAL REVENUE SERVICE AS EVIDENCE THAT
THIS PLAN IS QUALIFIED UNDER IRC SECTION 401. IF THE EMPLOYER WHO
ADOPTS OR MAINTAINS MULTIPLE PLANS WISHES TO OBTAIN RELIANCE THAT
HIS OR HER PLAN(S) ARE QUALIFIED, APPLICATION FOR A DETERMINATION
LETTER SHOULD BE MADE TO THE APPROPRIATE KEY DISTRICT DIRECTOR OF
INTERNAL REVENUE SERVICE. THIS ADOPTION AGREEMENT MAY BE USED
ONLY IN CONNECTION WITH BASIC PLAN DOCUMENT NUMBER 01.
The Participation Agreement has been signed by the Employer
this _______ day of 19__.
_____________________________________
(Print Name of Employer -
Specify if a Partnership)
By: _____________________________________
(Signature of Employer. If Employer
is a Partnership, must be signed
by authorized general partner.)
Appointment as Plan Administrator accepted:
___________________________________________
(Signature of Plan Administrator)
___________________________________________
Address (If different from Employer's)
Date: ____________________
Appointment as Custodian accepted:
By:________________________________________
Date: ____________________
<PAGE>
NICHOLAS MASTER RETIREMENT PLAN Form 3
CONTRIBUTION SUMMARY FORM
The following contribution enclosed herewith is to be credited to the
respective accounts of the following Participants in the amounts set
forth opposite their names, and each Participant has chosen to have
such amount(s) invested in the fund(s) indicated.
<TABLE>
Social Nicholas Nicholas Nicholas Nicholas
Security Nicholas Nicholas Limited Equity Income Income Money
Name of Participant Number Fund II Edition* Fund Fund Market
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Employer Profit ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
Sharing
Contributions ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
===================================
Employer Money ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
Purchase
Contributions ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
===================================
Qualified ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
Non-ADEC**
Rollover ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
Contributions
(Designate "PS" ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
by name ifto
Profit Sharing
Plan, "MP" if
to Money
Purchase Plan)
===================================
Qualified ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
ADEC**
Rollover ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
Contributions
(Designate "PS" ___________________ ________ $_______ $_______ $_______ $________ $________ $_______
by name ifto
Profit Sharing Subtotals...................... $_______ $_______ $_______ $________ $________ $_______
Plan, "MP" if
to Money Total custodian Charges..................................................................... $_______
Purchase Plan)
Total Contribution (Employer, Rollover and Custodian Charges)
NOTE: MINIMUM - $500 for Nicholas Fund and Niholas Income Fund, $1,000 for Nicholas II, Inc.,$2000 for Nicholas
Equity Income Fund, Nicholas Limited Edition and Nicholas Money Market Fund. If you do not have the applicable
Fund propsectus, please contact the Nicholas Family of Funds. The prospectus contains more complete information
regarding charges and expenses. Read it carefully before you invest. $_______
The Custodian will not bill any employer for its fees; therefore, any Custodian charges not seperately included with this
participation agreement will be deducted in equal amounts from the contributions made on behalf of each Owner. Owners must be
identified as such on this form. If additional space is required to report contributions, please attach a seperate sheet hereto.
A completely-executed and approved "Application for Participation" form for each Participant (including Owners/Pertners) must
be attached to this summary contribution Form or the Custodian cannot accept this form. This form and all application forms must
be signed and dated by the Plan Administrator.
_________________________________
(Print name of Employer)
Date _____________________
by:______________________________
Plan Administrator Signature
Approved: FIRSTAR TRUST CO.
Date ______________________
by:_______________________________
*See Share Limitation in the current edition of this Fund's prospectus. Investments received after the Fund is closed will be
returned. If you are up against a tax deadline, please call our offices to check on the status of Nicholas Limted Edtion
**ADEC refers to amounts attributable to accumulated deductable employee contributions within the meaning of
IRC Section 72(0)(5)(B), See Section 2.cc and 4.6 of Plan Document.
</TABLE>
<PAGE>
Form 4
NICHOLAS MASTER RETIREMENT PLAN
Application For Participation
(This form to be filed with
Custodian after approval by
Plan Administrator.)
(Please Print)
Name of Employer ____________________________________________________
Name of Participant _________________________________________________
Current Address _____________________________________________________
Social Security Number ______________________________________________
Date of Birth _______________________________________________________
Date of Employment __________________________________________________
Date of Participation January 1, 19__.
Owner (as defined in Plan) (check one): ____Yes ____No
I have completed the eligibility requirements for participation
in the above-named self-employed retirement plan and hereby apply
to become a participant in that plan. I agree to furnish the Plan
Administrator (the employer or its delegate) all information
necessary to implement my initial and continuing participation in
the plan. I agree to be bound by all terms of the plan and to
keep the Plan Administrator advised of my current address at all
times when there is an account balance being held in my name. If
I am not an Owner or Partner, I agree to notify the Plan
Administrator and Custodian if I should at any later date become
an Owner or Partner.
I acknowledge that I have received a copy of the summary plan
description for the above-named self-employed retirement plan and
that the Plan Administrator has explained to my satisfaction my
rights and duties under the plan.
_____________ ______________________________________________________
(Date) (Signature of Participant)
_____________ ______________________________________________________
(Date) Approval by Plan Administrator
5/90
<PAGE>
NICHOLAS MASTER RETIREMENT PLAN Form 5
BENEFIT PAYMENT AUTHORIZATION
Name of Employer:_______________________________________________
1. Participant's Name __________________________________________
2. Current Mailing Address______________________________________
Street Address
______________________________________
City State Zip Code
3. Social Security No.________________ 4. Date of Birth______________
5. Date of Employment ___________________ 6. Date of Termination__________
7. Date of Initial Participation in Plan ____________________
8. Reason for Payment (check appropriate line)
[ ] Employment Terminated [ ] Death
[ ] Retirement [ ] Other (Explain) ___________________________
(If "Death," include a certified copy of the death certificate,
beneficiary's full name, address, social security number and
copies of Beneficiary Designation and/or required Benefit Waiver
and Spousal Consent, if any)
9. Method of distribution of benefits (check appropriate line):
(A Participant's benefits under the Money Purchase Plan can be
paid in a f6rm other than Survivor Annuity only if a valid
Benefit Waiver and Spousal Consent is filed with the Plan
Administrator.)
[ ] Single lump-sum cash payment (See Item 10 Below)
[ ] Equal annual installment over a period of ____ years (See Item 10 Below)
[ ] Qualified Joint and Survivor Annuity
[ ] Pre-retirement Survivor Annuity
[ ] Other (Explain)
10. Direct Rollover: Is all or part of the distribution to be
paid directly to an eligible retirement plan in a Direct
Rollover? (CAUTION: a Direct Rollover normally is available
only for a lump sum distribution or distribution in
installments over less than 10 years. Certain distributions,
such as distributions of after-tax contributions or minimum
required distributions under Code Section 401(a) (9), do not
qualify for a Direct Rollover. See your legal or other
professional advisor to make sure the distribution is an
"eligible rollover distribution" and that all applicable
requirements for such distributions, including the requirement
of a written explanation to the distributee, have been met.)
____ Yes ____ No
If Yes, complete (a) and (b):
(a) Provide the following information about the plan
receiving the Rollover:
Name of Plan: ______________________________________________
Name and Address of Trustee or Custodian
____________________________________________________________
____________________________________________________________
____________________________________________________________
(over please)
Type of Plan (check one - if none applies, a Direct Rollover
cannot be made):
[ ] Qualified IRA, described in Section 408(a) of the
Internal Revenue Code.
[ ] Qualified Individual Retirement Annuity (other than
endowment contract), described in Code Section 408~),
issued by an insurance company
*[ ] Qualified Annuity Plan of employer for employees, described
in Code Section 408(a).
*[ ] Qualified employer pension, profit sharing or stock
bonus plan and trust described in Code Sections 401(a) and
501(a), that is a defined contribution plan and accepts
rollover contributions.
_____________________
*Surviving spouse cannot elect a Direct Rollover to these
types of plans.
(b) Amount of Direct Rollover (if less than entire
distribution): $_______________________________
11. Does Participant participate in another pension or profit
sharing plan maintained by the Employer? ___Yes ____No
12. Participant invested in these investment funds (give
names and account numbers):
(a)
(b)
(c)
(d)
13. BY SIGNING BELOW, THE PLAN ADMINISTRATOR CERTIFIES that any
and all explanations, notices and election forms required by the
plan and by applicable Internal Revenue Code provisions and
Treasury Regulations to be given to the Participant in connection
with the benefit distribution requested have been or will be
provided within the required time periods.
Payment approved by ______________________________________ (Date) _________
(Plan Administrator's Signature)
BY SIGNING BELOW, THE DISTRIBUTEE CERTIFIES that if a Direct
Rollover is selected at Item 10, the name, type of plan, and
other information shown about the plan to receive the Rollover is
correct.
Payment requested by _____________________________________ (Date) _________
(Distributee's Signature)
[LOGO] 12/94
<PAGE>
Department of the Treasury
Internal Revenue Service Washington DC 20224
Plan Description: Master Standardized Profit Sharing Plan & Trust
FFN: 50271590001-00l Case 9000951 EIN: 39-1091673
BPD: 0l Plan: 001 Letter Serial No: D245323a
Person to Contact: Mr. Westry
Nicholas Co Inc Telephone Number (2O2) 535-4972
700 North Water Street Refer Reply to E:EP:Q:4
Suite 1010
Milwaukee WI 53202 Date: 04/04/90
Dear Applicant:
In our opinion. the form of the plan identified above is
acceptable under section 401 of the Internal Revenue Code for
use by employers for the benefit of their employees. This
opinion relates only to the acceptability of the form of the
plan under the Internal Revenue Code. It is not an opinion of
the effect of other Federal or local statutes.
We have determined that the related trust or custodial account
under this Master plan is exempt from income tax under Code
section 501(a).
You must furnish a copy of this letter to each employer who
adopts this plan. You are also required to send a copy of
the approved form of the plan, any approved amendments and
related documents to each Key District Director of Internal
Revenue Service in whose jurisdiction there are adopting
employers.
Our opinion on the acceptability of the form of the plan is
not a ruling or determination as to whether an employer's
plan qualifies under Code section 401(a). an employer who
adopts this plan will be considered to have a plan qualified
under Code section 401(a) provided all the terms of the plan
are followed) and the eligibility requirements and
contribution or benefit provisions are not More favorable
for officers, owners, or highly compensated employees than for
other employees. Except as stated below) the Key District
Director will not issue a determination letter with regard to
this plan.
Our opinion does not apply to the form of the plan for
purposes of Code section 401(a)(16) if: (1) an employer ever
maintained another qualified plan for one or more employees
who are covered by this plan, other than a specified paired
plan within the Meaning of section 7 of Rev. Proc. 89-9, 1989-
6 I.R.B. 14; or (2) after December 3I, 1985, the employer
Maintains a welfare benefit fund defined in Code section
419(e), which provides postretirement medical benefits
allocated to separate accounts for key employees as defined in
Code section 419A(d)(3). In such situations, the employer
should request a determination as to whether the plan,
considered with all related qualified plans and, if
appropriate1 welfare benefit funds, satisfies the
requirements of Code section 401(a)(16) as to limitations
on benefits and contributions in Code section 415.
If you, the pan sponsor, have any questions concerning the
IRS processing of this case, please call the above telephone
number. This number is only for use of the plan sponsor.
Individual participants and/or adopting employers with
questions concerning the plan should contact the plan sponsor.
The plan's adoption agreement Must include the sponsor's
address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide
your telephone number and the Most convenient time for us to
call in case we need more information. Whether you call or
write, please refer to the Letter Serial Number and File
Folder number shown in the heading of this letter.
You should keep this letter as a permanent record. Please
notify us if you modify or discontinue sponsorship of this
plan.
Sincerely yours,
Chief, Employee Plan Qualifications Branch
<PAGE>
Internal Revenue Service
Plan Description: Master Standardized Money Purchase Pension Plan
& Trust
FFN: 50271590001-001 Case: 9000954 EIN: 39-1091673
BPD: 0l Plan: 002 Letter Serial No: D245324a
Person to Contact: Mr. Westry
Nicholas Co Inc Telephone Number (2O2) 535-4972
700 North Water Street Refer Reply to E:EP:Q:4
Suite 1010
Milwaukee WI 53202 Date: 04/04/90
Dear Applicant:
In our opinion the form of the plan identified above is
acceptable under section 401 of the Internal Revenue Code for
use by employers for the benefit of their employees This
opinion relates only to the acceptability of the form of the
plan under the Internal Revenue Code. It is not an opinion of
the effect of other Federal or local statutes.
We have determined that the related trust or custodial account
under this master plan is exempt from income tax under Code
section 501(a).
You Must furnish a copy of this letter to each employer who
adopts this plan. You are also required to send a copy of
the approved form of the plan, any approved amendments and
related documents to each Key District Director of Internal
Revenue Service in whose jurisdiction there are adopting
employers.
Our opinion on the acceptability of the form of the plan is
not a ruling or determination as to whether an employer's
plan qualifies under Code section 401(a). an employer who
adopts this plan will be considered to have a plan qualified
under Code section 401(a) provided all the terms of the plan
are followed, and the eligibility requirements and
contribution or benefit provisions are not more favorable
for officers, owners, or highly compensated employees than for
other employees. Except as stated below, the Key District
Director will not issue a determination letter with regard to
this plan.
Our opinion does not apply to the form of the plan for
purposes of Code section 401(a)(16) if: (I) an employer ever
maintained another qualified plan for one or More employees
who are covered by this plan, other than a specified paired
plan within the meaning of section 7 of Rev. Proc. 89-9, 1989-
6 I.R.B. 14; or (2) after December 31, 1985 the employer
maintains a welfare benefit fund defined in Code section
419(e), which provides postretirement medical benefits
allocated to separate accounts for key employees as defined in
Code section 419A(d)(3). In such situations, the employer
should request a determination as to whether the plan,
considered with all related qualified plans and, if
appropriate, welfare benefit funds, satisfies the
requirements of Code section 401(a)(16) as to limitations
on benefits and contributions in Code section 415.
If you, the plan sponsor, have any questions concerning the
IRS processing of this case, please call the above
telephone number. This number is only for use of the plan
sponsor. Individual participants and/or adopting employers
with questions concerning the plan should contact the plan
sponsor. The plan's adoption agreement must include the
sponsor's address and telephone number for inquiries by
adopting employers.
If you write to the IRS regarding this plan, please provide
your telephone number and the most convenient time to us to
call in case we need more information. Whether you call or
write, please refer to the Letter Serial Number and File
Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please
notify us if you modify or discontinue sponsorship of this
plan.
Sincerely yours,
Chief, Employee Plans Qualifications Branch
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, Nicholas Equity Income Fund,
Inc., a corporation organized and existing under the laws of the State of
Maryland, has duly caused this Registration Statement to be signed on its
behalf by the undersigned on the 30th day of September, 1993.
NICHOLAS EQUITY INCOME FUND, INC.
By: /s/ Albert O. Nicholas
------------------------------------
Albert O. Nicholas, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, this
Registration Statement has been signed below by the following persons in
the capacity indicated on the dates indicated.
KNOW ALL MEN BY THESE PRESENTS, that each of the persons whose
signature appears below constitutes and appoints Albert O. Nicholas and
Thomas J. Saeger, and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution for him and
in his name, place and stead, and in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any
of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Albert O. Nicholas President, Chief September 30, 1993
- ---------------------- Executive Officer
Albert O. Nicholas and Director
/s/ Thomas J. Saeger Executive Vice September 30, 1993
- --------------------- President,
Thomas J. Saeger Secretary, Chief
Financial Officer,
and Chief Accounting
Officer
Robert H. Bock Director September 30, 1993
- --------------------
/s/ Robert H. Bock
/s/ Richard Seaman Director September 30, 1993
- ---------------------
Richard Seaman
/s/ Melvin L. Schultz Director September 30, 1993
- ----------------------
Melvin L. Schultz
TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made on this 23rd day of November, 1993,
by and between NICHOLAS EQUITY INCOME FUND, INC. (the "Fund") and
FIRSTAR TRUST COMPANY, a corporation organized under the laws of
the State of Wisconsin (the "Agent").
W I T N E S S E T H:
WHEREAS, the Fund is an open-ended management investment
company which is registered under the Investment Company Act of
1940, as amended; and
WHEREAS, the Agent is a trust company and, among other
things, is in the business of administering transfer and dividend
disbursing agent functions for the benefit of its customers;
NOW, THEREFORE, the Fund and the Agent do mutually promise
and agree as follows:
1. Terms of Appointment; Duties of the Agent
-----------------------------------------
Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints the Agent to act
as transfer agent and dividend disbursing agent.
The Agent shall perform all of the customary services of a
transfer agent and dividend disbursing agent, and as relevant,
agent in connection with accumulation, open account or similar
plans (including, without limitation, any periodic investment
plan or periodic withdrawal program), including but not limited
to the following:
A. Receive orders for the purchase of shares, with
prompt delivery, where appropriate, of payment and
supporting documentation to the Fund's custodian;
B. Process purchase orders and issue the appropriate
number of certificated or uncertificated shares with
such uncertificated shares being held in the
appropriate shareholder account;
C. Process redemption requests received in good order
and, where relevant, deliver appropriate documentation
to the Fund's custodian;
D. Pay monies (upon receipt from the Fund's
custodian, where relevant) in accordance with the
instructions of redeeming shareholders;
E. Process transfers of shares in accordance with the
shareowner's instructions;
F. Process exchanges between funds within the same
family of funds;
G. Issue and/or cancel certificates as instructed,
and replace lost, stolen or destroyed certificates upon
receipt of satisfactory indemnification or surety bond;
H. Prepare and transmit payments for dividends and
distributions declared by the Fund;
I. Make changes to shareholder records, including,
without limitation, address changes and changes in
plans (i.e., systematic withdrawal, automatic
investment, dividend reinvestment, etc.);
J. Record the issuance of shares of the Fund and
maintain, pursuant to Rule 17ad-10(e), a record of the
total number of shares of the Fund which are
authorized, issued and outstanding;
K. Prepare shareholder meeting lists and, if
applicable, mail, receive and tabulate proxies;
L. Mail shareholder reports and prospectuses to
current shareholders;
M. Prepare and file U.S. Treasury Department Forms
1099 and other appropriate information returns required
with respect to dividends and distributions for all
shareholders;
N. Provide shareholder account information upon
request and prepare and mail confirmations and
statements of account to shareholders for all
purchases, redemptions and other confirmable
transactions as agreed upon with the Fund;
O. Provide a Blue Sky System which will enable the
Fund to monitor the total number of shares sold in each
state. In addition, the Fund shall identify to the
Agent in writing those transactions and assets to be
treated as exempt from the Blue Sky reporting to the
Fund for each state. The responsibility of the Agent
for the Fund's Blue Sky state registration status is
solely limited to the initial compliance by the Fund
and the reporting of such transactions to the Fund; and
P. Provide periodic reports to the Fund, as the Fund
may from time to time request.
2. Compensation to Agent
---------------------
The Fund agrees to pay the Agent for performance of the
duties listed in this Agreement as may from time to time be
agreed upon in writing between the two parties. The Fund will
reimburse the Agent for all out-of-pocket expenses including
printing, postage, forms, stationery, record retention, mailing,
insertion, programming, labels, shareholder lists and proxy
expenses. These fees and reimbursable expenses may be changed
from time to time subject to mutual written agreement between the
Fund and the Agent.
3. Representations of Agent
------------------------
The Agent represents and warrants to the Fund that:
A. It is a trust company duly organized, existing and
in good standing under the laws of Wisconsin;
B. It is duly qualified to carry on its business in
the state of Wisconsin;
C. It is empowered under applicable laws and by its
charter and bylaws to enter into and perform this
Agreement;
D. All requisite corporate proceedings have been
taken to authorize it to enter and perform this
Agreement; and
E. It has and will continue to have access to the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement.
4. Representations of the Fund
---------------------------
The Fund represents and warrants to the Agent that:
A. The Fund is an open-ended diversified investment
company under the Investment Company Act of 1940, as
amended;
B. The Fund is a corporation organized, existing and
in good standing under the laws of Maryland;
C. The Fund is empowered under applicable laws and by
its Articles of Incorporation and Bylaws to enter into
and perform this Agreement;
D. The Fund will comply with all applicable
requirements of the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended,
the Investment Company Act of 1940, as amended, and any
laws, rules and regulation of governmental authorities
having jurisdiction; and
E. A registration statement under the Securities Act
of 1933 is currently effective and will remain
effective, and appropriate state securities law filings
have been made and will continue to be made, with
respect to all shares of the Fund being offered for
sale.
5. Covenants of Fund and Agent
---------------------------
The Fund shall furnish the Agent a certified copy of the
resolution of the Board of Directors of the Fund authorizing the
appointment of the Agent and the execution of this Agreement.
The Fund shall provide to the Agent a copy of the Articles of
Incorporation and Bylaws of the Fund, and all amendments relating
thereto.
The Agent shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem
advisable. To the extent required by Section 31 of the
Investment Company Act of 1940, as amended, and the rules
thereunder, the Agent agrees that all such records prepared or
maintained by the Agent relating to the services to be performed
by the Agent hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such
section and rules and will be surrendered to the Fund on and in
accordance with its request.
6. Indemnification; Remedies Upon Breach
-------------------------------------
The Agent agrees to use reasonable care and act in good
faith in performing its duties hereunder.
Notwithstanding the foregoing, the Agent shall not be liable
or responsible for delays or errors occurring by reason of
circumstances beyond its control, including acts of civil or
military authority, national or state emergencies, fire,
mechanical or equipment failure, flood or catastrophe, acts of
God, insurrection or war. In the event of a mechanical breakdown
beyond its control, the Agent shall take all reasonable steps to
minimize service interruptions for any period that such
interruption continues beyond the Agent's control. The Agent
will make every reasonable effort to restore any lost or damaged
data, and the correcting of any errors resulting from such a
breakdown will be at the Agent's expense. The Agent agrees that
it shall, at all times, have reasonable contingency plans with
appropriate parties, making reasonable provision for emergency
use of electrical data processing equipment to the extent
appropriate equipment is available. Representatives of the Fund
shall be entitled to inspect the Agent's premises and operating
capabilities at any time during regular business hours of the
Agent, upon reasonable notice to the Agent.
The Fund will indemnify and hold the Agent harmless against
any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from
any claim, demand, action or suit not resulting from the Agent's
bad faith or negligence, and arising out of or in connection with
the Agent's duties on behalf of the Fund hereunder.
Further, the Fund will indemnify and hold the Agent harmless
against any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action or suit as a result of
the negligence of the Fund (unless contributed to by the Agent's
own negligence or bad faith); or as a result of the Agent acting
upon telephone instructions relating to the exchange or
redemption of shares received by the Agent and reasonably
believed by the Agent to have originated from the record owner of
the subject shares; or as a result of the Agent acting upon any
instructions executed or orally communicated by a duly authorized
officer or employee of the Fund, according to such lists of
authorized officers and employees furnished to the Agent and as
amended from time to time in writing by a resolution of the Board
of the Fund; or as a result of acting in reliance upon any
genuine instrument or stock certificate signed, countersigned or
executed by any person or persons authorized to sign, countersign
or execute the same.
In order for this section to apply, it is understood that if
in any case the Fund may be asked to indemnify or hold harmless
the Agent, the Fund shall be advised of all pertinent facts
concerning the situation in question, and it is further
understood that the Agent will use reasonable care to notify the
Fund promptly concerning any situation which presents or appears
likely to present a claim for indemnification against the Fund.
The Fund shall have the option to defend the Agent against any
claim which may be the subject of this indemnification and, in
the event that the Fund so elects, the Agent will so notify the
Fund, and thereupon the Fund shall take over complete defense of
the claim and the Agent shall sustain no further legal or other
expenses in such situation for which the Agent shall seek
indemnification under this section. The Agent will in no case
confess any claim or make any compromise in any case in which the
Fund will be asked to indemnify the Agent, except with the Fund's
prior written consent.
7. Confidentiality
---------------
The Agent agrees on behalf of itself and its employees to
treat confidentially all records and other information relative
to the Fund and its shareholders and shall not be disclosed to
any other party, except after prior notification to and approval
in writing by the Fund, which approval shall not be unreasonably
withheld and may not be withheld where the Agent may be exposed
to civil or criminal contempt proceedings for failure to comply
after being requested to divulge such information by duly
constituted authorities.
8. Wisconsin Law to Apply
----------------------
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the state of
Wisconsin.
9. Amendment, Assignment, Termination and Notice
---------------------------------------------
A. This Agreement may be amended by the mutual
written consent of the parties.
B. After the first full year, this Agreement may be
terminated upon 90 days' written notice given by one
party to the other.
C. This Agreement and any right or obligation
hereunder may not be assigned by either party without
the signed, written consent of the other party.
D. Any notice required to be given by the parties to
each other under the terms of this Agreement shall be
in writing, addressed and delivered, or mailed to the
principal place of business of the other party.
E. In the event that the Fund gives to the Agent its
written intention to terminate and appoint a successor
transfer agent, the Agent agrees to cooperate in the
transfer of its duties and responsibilities to the
successor, including any and all relevant books,
records and other data established or maintained by the
Agent under this Agreement.
F. Should the Fund exercise its right to terminate,
all out-of-pocket expenses associated with the movement
of records and material will be paid by the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and their respective corporate seals to
be affixed hereto as of the date first above written by their
respective officers thereunto duly authorized.
Executed in several counterparts, each of which is an
original.
FIRSTAR TRUST COMPANY
By:
-------------------------------
Authorized Officer
Attest:
---------------------------
NICHOLAS EQUITY INCOME FUND, INC.
By:
-------------------------------
Albert O. Nicholas, President
Attest:
---------------------------
Thomas J. Saeger, Executive
Vice President and Secretary
