UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-01728
Nicholas Fund, Inc.
(Exact name of registrant as specified in charter)
700 North Water Street, Milwaukee, Wisconsin 53202
(Address of principal executive offices) (Zip code)
Jeffrey T. May, Senior Vice President, Secretary and Treasurer
700 North Water Street
Milwaukee, Wisconsin 53202
(Name and address of agent for service)
Registrant's telephone number, including area code: 414-272-4650
Date of fiscal year end: 03/31/2007
Date of reporting period: 03/31/2007
Item 1. Report to Stockholders.
May 2007
Report to Fellow Shareholders:
For the first three months of calendar year 2007, Nicholas Fund returned (0.91)% versus 0.64% for the Standard & Poor's 500 Index. For the fiscal year ended March 31, 2007, the Fund was up 2.55% compared to 11.83% for its benchmark, the S&P 500. The Fund also is lagging in the three-and five-year periods. These numbers are unacceptable to management, and we are working hard to change it. For the period from the Fund's first public offering in July, 1969, we have outperformed the S&P 500.
Returns for Nicholas Fund, Inc. and selected indices are provided in the chart below for the period ended March 31, 2007.
| | Average Annual Total Return |
| | 3 Month | 1 Year | 3 Year | 5 Year | 10 Year | 15 Year | Life* |
| Nicholas Fund, Inc. | (0.91)% | 2.55% | 7.47% | 5.45% | 5.74% | 8.30% | 11.41% |
| Standard & Poor's 500 Index | 0.64% | 11.83% | 10.06% | 6.27% | 8.20% | 10.88% | 10.94% |
| Consumer Price Index | 1.16% | 2.78% | 3.10% | 2.82% | 2.53% | 2.62% | 4.67% |
| Ending value of $10,000 invested in Nicholas Fund, Inc. | $9,909 | $10,255 | $12,411 | $13,037 | $17,473 | $33,076 | $588,783 |
| Fund Expense Ratio (from 07/31/06 Prospectus): 0.77% |
* The life of the Fund is 37.7 years from the date of its initial public offering, July 14, 1969. Starting time period for the Standard & Poor's 500 Index and the Consumer Price Index was June 30, 1969.
The Fund's expense ratio for the period ended March 31, 2007 can be found in the financial highlights included within this report.
Performance data quoted represents past performance and is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by visiting www.nicholasfunds.com/returns.html.
The Fund is net of expenses, the market indices are gross of fees. The ending values above illustrate the performance of a hypothetical $10,000 investment made in the Fund over the timeframes listed. Assumes reinvestment of dividends and capital gains, but does not reflect the effect of any applicable sales charge or redemption fees. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. These figures do not imply any future performance.
At March 31, 2007, the Fund was fully invested with 3.41% cash. The diversified portfolio consisted of 49 equities. The Fund's top five holdings were Berkshire Hathaway - Class A, Affiliated Managers Group, Marshall & Ilsley, Thermo Fisher Scientific and Kinder Morgan Management. These stocks represented 24.24% of the total portfolio. In terms of sectors, the Fund had 27.77% in financials, 15.70% in consumer discretionary, 15.28% in industrials, 13.59% in health care and 8.01% in energy. Stocks that were helpful to the Fund's performance in the fiscal year were Berkshire Hathaway Class A, UST and Thermo Fischer Scientific. Stocks that hurt performance included NVR, Pentair and D.R. Horton.
In our view the U.S. economy is slowing. There are signs of strength, but more signs of weakness, lead by the housing industry slump, weak car sales and a decline in consumer spending. Gas prices over $3.00 a gallon are not helping. At this point, we expect this mid-cycle slowdown to continue but not turn into a recession. Inflation is still a concern of the Federal Reserve Board, but looks to be steady or declining at around 2 to 2 1/2 %. Based on these facts, we believe interest rates should hold around current levels, with the above-average probability that the Fed will cut short-term rates before the end of the year. The 10-year Treasury Bond, presently yielding approximately 4.69%, might yield closer to 4.0% by calendar year-end. We need to keep in mind that, in the aggregate, foreign economies, which represent approximately 70% of world Gross Domestic Product, are strong.
Management is concerned about stock prices, short-term, mainly because the market has not had a correction of 10% or more for over four years. Longer term, we are cautiously optimistic, feeling there are opportunities offered through astute stock picking.
Thank you for your continued interest in the Fund.
| Sincerely, | |
| Albert O. Nicholas | David O. Nicholas |
| Co-Portfolio Manager | Co-Portfolio Manager |
The Fund may invest in smaller companies, which involve additional risks such as limited liquidity and greater volatility.
Please refer to the Schedule of Investments in the report for complete Fund holdings information. Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security.
The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. The Consumer Price Index represents changes in prices of all goods and services purchased for consumption by urban households. One cannot invest directly in an index.
Must be preceded or accompanied by a prospectus.
The Nicholas Funds are distributed by Quasar Distributors, LLC. (05/07)
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
NICHOLAS FUND, INC. AND S&P 500 INDEX
The line graph which follows compares the initial account value and subsequent account value at the end of each of the most recently completed ten fiscal years of the Fund, to the same investment over the same periods in the S&P 500 Index. The graph assumes a $10,000 investment in the Fund and the index at the beginning of the period.
| | Nicholas Fund, Inc. | % Total Return | S&P 500 Index | % Total Return |
| 03/31/97 | 10,000.00 | | 10,000.00 | |
| 03/31/98 | 15,098.00 | 50.98% | 14,800.21 | 48.00% |
| 03/31/99 | 15,117.63 | 0.13% | 17,532.27 | 18.46% |
| 03/31/00 | 16,138.07 | 6.75% | 20,677.77 | 17.94% |
| 03/31/01 | 13,436.55 | (16.74)% | 16,195.56 | (21.68)% |
| 03/31/02 | 13,402.96 | (0.25)% | 16,234.43 | 0.24% |
| 03/31/03 | 10,105.83 | (24.60)% | 12,214.78 | (24.75)% |
| 03/31/04 | 14,078.44 | 39.31% | 16,502.66 | 35.10% |
| 03/31/05 | 15,178.49 | 7.81% | 17,607.35 | 6.69% |
| 03/31/06 | 17,038.60 | 12.25% | 19,670.95 | 11.72% |
| 03/31/07 | 17,472.71 | 2.55% | 21,998.81 | 11.83% |
The Fund's average annual total returns for the one-, five- and ten-year periods ended on the last day of the most recent fiscal year are as follows:
| | One Year Ended March 31, 2007 | Five Years Ended March 31, 2007 | Ten Years Ended March 31, 2007 |
| Average Annual Total Return | 2.55% | 5.45% | 5.74% |
Past performance is not predictive of future performance, and the above graph and table do not reflect deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Financial Highlights (NICSX)
For a share outstanding throughout each period
-----------------------------------------------------------------------------
Year ended March 31,
----------------------------------------------
2007 2006 2005 2004 2003
------ ------ ------ ------ ------
NET ASSET VALUE,
BEGINNING OF PERIOD ....... $61.49 $60.05 $56.14 $40.37 $53.74
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment income ... .80 .26 .10 .09 .18
Net gain (loss) on
securities (realized
and unrealized) ........ .71 6.75 4.29 15.77 (13.39)
------ ------ ------ ------ ------
Total from investment
operations .......... 1.51 7.01 4.39 15.86 (13.21)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment
income ................. (.82) (.25) (.07) (.09) (.16)
From net capital gain ... (4.33) (5.32) (.41) -- --
------ ------ ------ ------ ------
Total distributions .. (5.15) (5.57) (.48) (.09) (.16)
------ ------ ------ ------ ------
NET ASSET VALUE, END
OF PERIOD ................. $57.85 $61.49 $60.05 $56.14 $40.37
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN ............... 2.55% 12.25% 7.81% 39.31% (24.60)%
SUPPLEMENTAL DATA:
Net assets, end of
period (millions) ......... $2,213.5 $2,504.9 $2,434.5 $2,470.8 $1,985.2
Ratio of expenses to
average net assets ........ .75% .77% .75% .73% .75%
Ratio of net investment
income to average
net assets ................ 1.30% .41% .17% .17% .38%
Portfolio turnover rate .... 29.96% 32.48% 20.94% 18.18% 33.36%
The accompanying notes to financial statements are an integral part of these
highlights.
-------------------------------------------------------------------------------
Top Ten Equity Portfolio Holdings
March 31, 2007 (unaudited)
-------------------------------------------------------------------------------
Percentage
Name of Net Assets
---- -------------
Berkshire Hathaway Inc. - Class A ..................... 7.09%
Affiliated Managers Group, Inc. ....................... 6.29%
Marshall & Ilsley Corporation ......................... 4.30%
Thermo Fisher Scientific Inc. ......................... 3.49%
Kinder Morgan Management, LLC ......................... 3.08%
O'Reilly Automotive, Inc. ............................. 3.07%
W.R. Berkley Corporation .............................. 3.03%
DaVita, Inc. .......................................... 3.01%
Tyco International Ltd. ............................... 2.78%
Apache Corporation .................................... 2.71%
------
Total of top ten ...................................... 38.85%
------
------
-------------------------------------------------------------------------------
Sector Diversification (As a Percentage of Portfolio)
March 31, 2007 (unaudited)
-------------------------------------------------------------------------------
BAR CHART PLOT POINTS
Financials ................................................ 27.77%
Consumer Discretionary .................................... 15.70%
Industrials ............................................... 15.28%
Health Care ............................................... 13.59%
Energy .................................................... 8.01%
Consumer Staples .......................................... 7.96%
Information Technology .................................... 4.21%
Materials ................................................. 3.63%
Short-Term Investments .................................... 3.41%
Telecommunication Services ................................ 0.44%
-------------------------------------------------------------------------------
Fund Expenses
For the six month period ended March 31, 2007 (unaudited)
-------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees and other operating
expenses. The following table is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with
those of other mutual funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period.
The first line of the table below provides information about the actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is
not the Fund's actual return. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Fund with other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as wire
fees. Therefore, the second line of the table is useful in comparing ongoing
costs only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Beginning Ending Expenses
Account Account Paid During
Value Value Period*
09/30/06 03/31/07 10/01/06 - 03/31/07
------------------------------------------------------------------
Actual $1,000.00 $1,048.00 $3.78
Hypothetical 1,000.00 1,021.31 3.73
(5% return before expenses)
* Expenses are equal to the Fund's six-month annualized expense ratio
of 0.74%, multiplied by the average account value over the period,
multiplied by 182 then divided by 365 to reflect the one-half year
period.
Schedule of Investments
March 31, 2007
-------------------------------------------------------------------------------
Shares or
Principal
Amount Value
----------- --------------
COMMON STOCKS - 96.61%
Consumer Discretionary - Consumer Durables &
Apparel -- 5.67%
700,000 Fortune Brands, Inc. $ 55,174,000
1,469,900 Helen of Troy Limited * 33,381,429
450,000 Mohawk Industries, Inc. * 36,922,500
--------------
125,477,929
--------------
Consumer Discretionary - Hotels,
Restaurants & Leisure -- 3.48%
443,300 California Pizza Kitchen, Inc. * 14,580,137
1,250,000 Six Flags, Inc. * 7,512,500
950,000 Yum! Brands, Inc. 54,872,000
--------------
76,964,637
--------------
Consumer Discretionary - Media -- 1.32%
1,125,000 Comcast Corporation * 29,193,750
--------------
Consumer Discretionary - Retail -- 5.24%
1,000,000 Bed Bath & Beyond Inc. * 40,170,000
2,050,000 O'Reilly Automotive, Inc. * 67,855,000
864,100 Sally Beauty Company, Inc. * 7,941,079
--------------
115,966,079
--------------
Consumer Staples - Food & Staple Retail -- 4.82%
1,200,000 Walgreen Co. 55,068,000
1,100,000 Wal-Mart Stores, Inc. 51,645,000
--------------
106,713,000
--------------
Consumer Staples - Food, Beverage &
Tobacco -- 2.25%
2,354,800 Constellation Brands, Inc. - Class A * 49,874,664
--------------
Consumer Staples - Household &
Personal Products -- 0.89%
864,100 Alberto-Culver Company 19,770,608
--------------
Energy -- 8.01%
850,000 Apache Corporation 60,095,000
230,000 Kayne Anderson Energy Development Company 5,729,300
700,000 Kayne Anderson Energy Total Return Fund, Inc. 18,711,000
700,000 Kayne Anderson MLP Investment Company 24,654,000
1,330,433 Kinder Morgan Management, LLC * 68,171,362
--------------
177,360,662
--------------
Financials - Banks -- 4.97%
1,300,000 Bank Mutual Corporation 14,781,000
2,054,126 Marshall & Ilsley Corporation 95,126,575
--------------
109,907,575
--------------
Financials - Diversified -- 10.67%
1,286,000 Affiliated Managers Group, Inc. * 139,338,100
800,000 American Express Company 45,120,000
685,340 Capital One Financial Corporation 51,715,756
--------------
236,173,856
--------------
Financials - Insurance -- 12.14%
1,439 Berkshire Hathaway Inc. - Class A * 156,836,610
760,800 Mercury General Corporation 40,352,832
100,000 Philadelphia Consolidated Holding Corp. * 4,399,000
2,024,312 W.R. Berkley Corporation 67,045,214
--------------
268,633,656
--------------
Health Care - Equipment -- 2.07%
936,196 Medtronic, Inc. 45,929,776
--------------
Health Care - Pharmaceuticals &
Biotechnology -- 3.49%
1,650,688 Thermo Fisher Scientific Inc. * 77,169,664
--------------
Health Care - Services -- 8.03%
801,087 Cardinal Health, Inc. 58,439,297
1,250,000 DaVita, Inc. * 66,650,000
650,000 WellPoint, Inc. * 52,715,000
--------------
177,804,297
--------------
Industrials - Capital Goods -- 9.67%
600,000 General Dynamics Corporation 45,840,000
1,130,600 Oshkosh Truck Corporation 59,921,800
1,500,000 Pentair, Inc. 46,740,000
1,950,000 Tyco International Ltd. 61,522,500
--------------
214,024,300
--------------
Industrials - Commerical Services &
Supplies -- 2.47%
1,100,000 Brady Corporation 34,320,000
450,000 Cintas Corporation 16,245,000
150,000 Copart, Inc. * 4,201,500
--------------
54,766,500
--------------
Industrials - Transportation -- 3.14%
550,000 FedEx Corporation 59,086,500
650,000 Heartland Express, Inc. 10,322,000
--------------
69,408,500
--------------
Information Technology - Hardware &
Equipment -- 3.02%
750,000 CDW Corporation 46,072,500
900,000 Dell Inc. * 20,889,000
--------------
66,961,500
--------------
Information Technology - Software &
Services -- 1.19%
900,000 Hewitt Associates, Inc. * 26,307,000
--------------
Materials -- 3.63%
850,000 Bemis Company, Inc. 28,381,500
1,300,000 CEMEX, S.A. de C.V. 42,575,000
355,300 STEPAN COMPANY 9,326,625
--------------
80,283,125
--------------
Telecommunication Services -- 0.44%
1,600,000 Level 3 Communications, Inc. * 9,760,000
--------------
TOTAL COMMON STOCKS
(cost $1,245,445,735) 2,138,451,078
--------------
SHORT-TERM INVESTMENTS -- 3.41%
Commercial Paper -- 3.24%
$4,000,000 Kraft Foods Inc. 04/02/07, 5.30% 4,000,000
4,000,000 Kraft Foods Inc. 04/03/07, 5.30% 3,999,411
775,000 Verizon Communications Inc. 04/03/07, 5.35% 774,885
4,000,000 Fiserv, Inc. 04/04/07, 5.32% 3,998,818
4,000,000 Prudential Financial, Inc. 04/05/07, 5.27% 3,998,243
4,625,000 Verizon Communications Inc. 04/09/07, 5.30% 4,620,234
6,000,000 Prudential Financial, Inc. 04/10/07, 5.27% 5,992,973
7,000,000 Verizon Communications Inc. 04/11/07, 5.27% 6,990,777
5,045,000 Walt Disney Company (The) 04/12/07, 5.25% 5,037,643
2,750,000 Fiserv, Inc. 04/13/07, 5.32% 2,745,530
2,439,000 Fiserv, Inc. 04/16/07, 5.32% 2,433,954
4,900,000 Fortune Brands, Inc. 04/17/07, 5.29% 4,889,200
1,750,000 Time Warner Cable Inc. 04/20/07, 5.33% 1,745,336
3,825,000 Fiserv, Inc. 04/25/07, 5.32% 3,811,999
1,425,000 Time Warner Cable Inc. 04/27/07, 5.34% 1,419,716
4,000,000 Time Warner Cable Inc. 04/30/07, 5.33% 3,983,418
2,175,000 General Mills, Inc. 05/04/07, 5.28% 2,164,792
2,650,000 Fortune Brands, Inc. 5/21/07, 5.30% 2,630,883
3,500,000 Barclays U.S. Funding Corp. 05/23/07, 5.225% 3,474,093
3,050,000 Fortune Brands, Inc. 05/24/07, 5.31% 3,026,606
--------------
71,738,511
--------------
Variable Rate Security -- 0.17%
3,749,637 Wisconsin Corporate Central Credit Union (1)
04/02/07, 4.99% 3,749,637
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $75,488,148) ........................ 75,488,148
--------------
TOTAL INVESTMENTS
(cost $1,320,933,883) -- 100.02% .......... 2,213,939,226
--------------
LIABILITIES, NET OF OTHER ASSETS -- (0.02)% ..... (408,336)
--------------
TOTAL NET ASSETS
(basis of percentages
disclosed above) -- 100% .................. $2,213,530,890
--------------
--------------
* Non-income producing security.
(1) Subject to a demand feature as defined by the Securities and Exchange Commission.
The accompanying notes to financial statements are an integral part of this schedule.
Statement of Assets and Liabilities
March 31, 2007
-------------------------------------------------------------------------------
ASSETS
Investments in securities at value (cost $1,320,933,883) .. $2,213,939,226
--------------
Receivables -
Investment securities sold ........................... 5,350,103
Dividend and interest ................................ 738,800
--------------
Total receivables ............................... 6,088,903
--------------
Other ..................................................... 18,188
--------------
Total assets .................................... 2,220,046,317
--------------
LIABILITIES
Payables -
Investment securities purchased ...................... 4,971,030
Due to adviser -
Management fee .................................. 1,268,139
Accounting and administrative fee ............... 46,698
Capital stock redemption ............................. 3,642
Other payables and accrued expense ................... 225,918
--------------
Total liabilities ............................... 6,515,427
--------------
Total net assets ................................ $2,213,530,890
--------------
--------------
NET ASSETS CONSIST OF
Paid in capital ........................................... $1,189,907,891
Net unrealized appreciation on investments ................ 893,005,343
Accumulated undistributed net realized
gain on investments ...................................... 129,186,422
Accumulated undistributed net investment income ........... 1,431,234
--------------
Total net assets ................................ $2,213,530,890
--------------
--------------
NET ASSET VALUE PER SHARE ($.50 par value,
200,000,000 shares authorized), offering price and
redemption price (38,261,971 shares outstanding) ............. $57.85
------
------
The accompanying notes to financial statements are an integral part of this
statement.
Statement of Operations
For the year ended March 31, 2007
-------------------------------------------------------------------------------
INCOME
Dividend .................................................. $ 43,117,455
Interest................................................... 5,007,611
Other ..................................................... 5,310
-------------
Total income ......................................... 48,130,376
-------------
EXPENSES
Management fee ............................................ 15,236,560
Transfer agent fees ....................................... 991,361
Accounting and administrative fees ........................ 732,994
Postage and mailing ....................................... 237,386
Custodian fees ............................................ 117,136
Insurance ................................................. 92,526
Printing .................................................. 61,236
Registration fees ......................................... 31,777
Audit and tax fees ........................................ 28,000
Directors' fees ........................................... 19,375
Telephone ................................................. 18,406
Accounting system and pricing service fees ................ 12,016
Legal fees ................................................ 10,724
Other operating expenses .................................. 5,193
-------------
Total expenses ....................................... 17,594,690
-------------
Net investment income ................................ 30,535,686
-------------
NET REALIZED GAIN (LOSS) ON INVESTMENTS
Nonaffiliated issuers ..................................... 256,162,197
Affiliated issuers (Note 5) ............................... (220,585)
-------------
255,941,612
-------------
CHANGE IN NET UNREALIZED APPRECIATION/DEPRECIATION
ON INVESTMENTS ............................................... (230,048,616)
-------------
Net realized and unrealized gain on investments ........... 25,892,996
-------------
Net increase in net assets resulting from operations ...... $ 56,428,682
-------------
-------------
The accompanying notes to financial statements are an integral part of this
statement.
Statements of Changes in Net Assets
For the years ended March 31, 2007 and 2006
-------------------------------------------------------------------------------
2007 2006
-------------- --------------
INCREASE IN NET ASSETS
FROM OPERATIONS
Net investment income .................. $ 30,535,686 $ 10,223,740
Net realized gain on investments ....... 255,941,612 185,767,499
Change in net unrealized
appreciation/depreciation
on investments ........................ (230,048,616) 90,179,671
-------------- --------------
Net increase in net assets
resulting from operations ........ 56,428,682 286,170,910
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............. (31,175,873) (9,973,063)
From net realized gain on investments .. (166,426,986) (211,181,343)
-------------- --------------
Total distributions ............... (197,602,859) (221,154,406)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares issued
(388,782 and 728,559
shares, respectively) ................. 23,039,681 44,522,535
Reinvestment of distributions
(3,133,778 and 3,430,247
shares, respectively) ................. 181,936,479 202,524,598
Cost of shares redeemed
(5,994,558 and 3,967,009
shares, respectively) ................. (355,161,454) (241,669,892)
-------------- --------------
Increase (decrease) in net assets
derived from capital share
transactions ..................... (150,185,294) 5,377,241
-------------- --------------
Total increase (decrease)
in net assets .................... (291,359,471) 70,393,745
-------------- --------------
NET ASSETS
Beginning of period .................... 2,504,890,361 2,434,496,616
-------------- --------------
End of period (including accumulated
undistributed net investment income
of $1,431,234 and $2,071,421,
respectively) ......................... $2,213,530,890 $2,504,890,361
-------------- --------------
-------------- --------------
The accompanying notes to financial statements are an integral part of these
statements.
Notes to Financial Statements
March 31, 2007
------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies --
Nicholas Fund, Inc. (the "Fund") is organized as a Maryland corporation and
is registered as an open-end, diversified management investment company
under the Investment Company Act of 1940, as amended. The primary
objective of the Fund is long-term growth. The following is a summary of
the significant accounting policies of the Fund:
(a) Equity securities traded on a stock exchange will ordinarily be valued
on the basis of the last sale price on the date of valuation on the
securities principal exchange, or if in the absence of any sale on
that day, the closing bid price. For securities principally traded on
the NASDAQ market, the Fund uses the NASDAQ Official Closing Price.
Debt securities, excluding short-term investments, are valued at their
current evaluated bid price as determined by an independent pricing
service, which generates evaluations on the basis of dealer quotes for
normal, institutional-sized trading units, issuer analysis, bond
market activity and various other factors. Securities for which
market quotations may not be readily available are valued at their
fair value as determined in good faith by procedures adopted by the
Board of Directors. Variable rate demand notes are valued at cost,
which approximates market value. U.S. Treasury Bills and commercial
paper are stated at amortized cost, which approximates market value.
Investment transactions for financial statement purposes are recorded
on trade date.
(b) Net realized gain (loss) on portfolio securities was computed on the
basis of specific identification.
(c) Dividend income is recorded on the ex-dividend date, and interest
income is recognized on an accrual basis. Non-cash dividends, if any,
are recorded at value on date of distribution. Dividends and
distributions paid to shareholders are recorded on the ex-dividend
date. Generally, discounts and premiums on long-term debt security
purchases, if any, are amortized over the expected lives of the
respective securities using the effective yield method.
(d) Provision has not been made for federal income taxes or excise taxes
since the Fund has elected to be taxed as a "regulated investment
company" and intends to distribute substantially all net investment
income and net realized capital gains on sales of investments to its
shareholders and otherwise comply with the provisions of Subchapter M
of the Internal Revenue Code applicable to regulated investment
companies.
(e) Distributions from net investment income are generally declared and
paid semiannually. Distributions of net realized capital gain, if
any, are declared and paid at least annually.
The amount of distributions from net investment income and net
realized capital gain are determined in accordance with federal income
tax regulations, which may differ from U.S. generally accepted
accounting principles. To the extent these book and tax differences
are permanent in nature, such amounts are reclassified among paid in
capital, accumulated undistributed net realized gain (loss) on
investments and accumulated undistributed net investment income. At
March 31, 2007, no reclassifications were recorded.
The tax character of distributions paid during the years ended March
31 were as follows:
2007 2006
------------ ------------
Distributions paid from:
Ordinary income ............ $ 31,175,873 $ 17,455,522
Long-term capital gain ..... 166,426,986 203,698,884
------------ ------------
Total distributions paid ... $197,602,859 $221,154,406
------------ ------------
------------ ------------
As of March 31, 2007, investment cost for federal tax purposes was
$1,321,229,582 and the tax basis components of net assets were as
follows:
Unrealized appreciation ..................... $ 908,440,565
Unrealized depreciation ..................... (15,730,921)
--------------
Net unrealized appreciation. 892,709,644
--------------
Undistributed ordinary income ............... 154,154
Accumulated undistributed net realized
capital gain ............................... 130,759,201
Paid in capital ............................. 1,189,907,891
--------------
Net assets .................................. $2,213,530,890
--------------
--------------
The differences between book-basis and tax-basis unrealized
appreciation (depreciation), undistributed ordinary income and
realized capital gain are attributable primarily to the tax deferral
of losses from wash sales, holdings in partnership interests and
return of capital from investments.
As of March 31, 2007, the Fund has no capital loss carryforward.
As of March 31, 2007, the Fund realized no post-October losses for tax
purposes.
As of March 31, 2007, the Fund had a tax deferral of wash loss sales
of approximately $1,573,000.
(f) The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from estimates.
(2) Related Parties--
(a) Investment Adviser and Management Agreement --
The Fund has an agreement with Nicholas Company, Inc. (with whom
certain officers and directors of the Fund are affiliated) (the
"Adviser") to serve as investment adviser and manager. Under the
terms of the agreement, a monthly fee is paid to the Adviser based on
an annualized fee of .75% of the average net asset value up to and
including $50 million and .65% of the average net asset value in
excess of $50 million. Also, the Adviser may be paid for accounting
and administrative services rendered by its personnel, subject to the
following guidelines: (i) up to five basis points, on an annual basis,
of the average net asset value of the Fund up to and including $2
billion and up to three basis points, on an annual basis, of the
average net asset value of the Fund greater than $2 billion, based on
the average net asset value of the Fund as determined by valuations
made at the close of each business day of each month, and (ii) where
the preceding calculation results in an annual payment of less than
$50,000, the Adviser, in its discretion, may charge the Fund up to
$50,000 for such services.
(b) Legal Counsel --
A director of the Adviser is affiliated with a law firm that provides
services to the Fund. The Fund incurred expenses of $6,224 for the
year ended March 31, 2007 for legal services rendered by this law firm.
(3) Investment Transactions --
For the year ended March 31, 2007, the cost of purchases and the proceeds
from sales of investment securities, other than short-term obligations,
aggregated $676,417,037 and $1,019,231,360, respectively.
(4) Future Adoption of New Accounting Standards --
On July 13, 2006, the Financial Accounting Standards Board ("FASB") released FASB Interpretation No. 48 "Accounting for Uncertainty in Income
Taxes" ("FIN 48"). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial
statements. FIN 48 requires the evaluation of tax positions taken or
expected to be taken in the course of preparing the Fund's tax returns to
determine whether the tax positions are "more-likely-than-not" of being
sustained by the applicable tax authority. To the extent that a tax
benefit of a position is not deemed to meet the more-likely-than-not
threshold, the Fund would report an income tax expense in the Statement of
Operations. The adoption of FIN 48 is required for the last net asset
value calculation in the first financial statement reporting period for
fiscal years beginning after December 15, 2006. The Fund will apply FIN 48
to all open tax years on the date of adoption. At this time, management is
evaluating the implications of FIN 48 and its impact in the financial
statements has not yet been determined.
In September 2006, FASB issued Statement on Financial Accounting Standards
No. 157, "Fair Value Measurements" ("FAS 157"). This standard clarifies the definition of fair value for financial reporting, establishes a framework
for measuring fair value and requires additional disclosures about the use
of fair value measurements. FAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. As of March 31, 2007, the Fund does not
believe the adoption of FAS 157 will impact the amounts reported in the
financial statements, however, additional disclosures will be required
about the inputs used to develop the measurements of fair value and the
effect of certain of the measurements reported in the statement of
operations for a fiscal period.
(5) Transactions with Affiliates -
Following is a summary of fiscal 2007 transactions with "affiliated
companies" as defined by the Investment Company Act of 1940:
Amount of
Capital
Amount of Gain/(Loss)
Dividends Realized
Share Activity Credited on Sale
-------------------------------------------- to Income of Shares
Balance Balance in Fiscal in Fiscal
Security Name 03/31/06 Purchases Sales 03/31/07 2007 2007
------------- ---------- --------- --------- ---------- ----------- -----------
Helen of Troy Limited 1,715,000 -- 245,100 1,469,900 $ -- $(220,585)
----------- -----------
----------- -----------
As of March 31, 2007, the Fund is no longer affiliated with this company.
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------------------------------
To the Shareholders and Board of Directors of Nicholas Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Nicholas Fund, Inc. (the "Fund"), including the schedule of investments, as of
March 31, 2007, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purposes
of expressing an opinion on the effectiveness of the Fund's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of March 31, 2007, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Nicholas Fund, Inc., at March 31, 2007, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois,
May 3, 2007
Historical Record
(unaudited)
--------------------------------------------------------------------------------------------------
Net Investment Dollar Growth of
Net Income Capital Gain Weighted an Initial
Asset Value Distributions Distributions Price/Earnings $10,000
Per Share Per Share Per Share Ratio (2) Investment (3)
----------- -------------- ------------- -------------- --------------
July, 14 1969 (1) ...... $ 6.59 $ -- $ -- -- $ 10,000
March 31, 1985 ......... 29.24 0.6420 1.5760 13.2 times 69,858
March 31, 1986 ......... 35.26 0.5750 0.6100 15.8 87,699
March 31, 1987 ......... 39.94 0.8820 0.1870 16.3 102,387
March 31, 1988 ......... 32.15 1.8400 4.0340 14.1 98,557
March 31, 1989 ......... 35.27 1.0250 0.4510 13.2 113,155
March 31, 1990 ......... 37.72 0.9240 1.0540 14.9 127,360
March 31, 1991 ......... 42.99 0.7900 0.2250 16.9 149,180
March 31, 1992 ......... 49.68 0.6790 0.8240 19.4 178,011
March 31, 1993 ......... 52.91 0.6790 2.0420 18.5 200,098
March 31, 1994 ......... 51.10 0.8175 1.0470 16.7 200,182
March 31, 1995 ......... 52.22 0.7070 3.3170 17.2 221,970
March 31, 1996 ......... 63.81 0.5650 4.0945 21.0 293,836
March 31, 1997 ......... 67.11 0.4179 5.3166 21.7 336,973
March 31, 1998 ......... 93.98 0.3616 5.8002 30.0 508,762
March 31, 1999 ......... 85.20 0.5880 8.2716 31.7 509,446
March 31, 2000 ......... 84.56 0.3114 5.9433 37.3 543,813
March 31, 2001 ......... 54.11 0.1900 19.2500 26.6 452,780
March 31, 2002 ......... 53.74 0.2360 -- 23.8 451,627
March 31, 2003 ......... 40.37 0.1585 -- 16.4 340,547
March 31, 2004 ......... 56.14 0.0905 -- 19.4 474,406
March 31, 2005 ......... 60.05 0.0678 0.4100 19.4 511,476
March 31, 2006 ......... 61.49 0.2512 5.3194 18.4 574,151
March 31, 2007 ......... 57.85 0.8173 (a) 4.3310 (b) 16.6 588,783
(1) Date of Initial Public Offering.
(2) Based on latest 12 months accomplished earnings.
(3) Assuming reinvestment of all distributions.
(a) Paid $0.0833 on June 7, 2006 to shareholders of record on June 6, 2006.
Paid $0.7340 on December 26, 2006 to shareholders of record on December 22, 2006.
(b) Paid $1.0310 on June 7, 2006 to shareholders of record on June 6, 2006.
Paid $3.3000 on December 26, 2006 to shareholders of record on December 22, 2006.
Range in quarter end price/earnings ratios since December 31, 1974
High Low
-------------------- -------------------
March 31, 2000 37.3 March 31, 1982 8.3
Approval of Investment Advisory Contract
(unaudited)
-------------------------------------------------------------------------------
A discussion of the Approval by the Board of Directors of the Fund's Investment
Advisory Contract can be found in the Fund's Semiannual Report dated September
30, 2006.
Tax Information
March 31, 2007 (unaudited)
------------------------------------------------------------------------------
The Fund designates 100% of its ordinary income distribution for the year ended
March 31, 2007 as qualified dividend income under the Jobs and Growth Tax
Relief Reconciliation Act of 2003.
For the year ended March 31, 2007, 100% of the dividends paid from net ordinary
income qualify for the dividends received deduction available to corporate
shareholders.
The Fund hereby designates approximately $166,426,986 as a capital gain
dividend for the year ended March 31, 2007.
Information on Proxy Voting
(unaudited)
-------------------------------------------------------------------------------
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities is available, without
charge, upon request by calling 800-544-6547 (toll-free) or 414-276-0535. It
also appears in the Fund's Statement of Additional Information, which can be
found on the SEC's website, www.sec.gov. A record of how the Fund voted its
proxies for the most recent twelve-month period ended June 30, also is
available on the Fund's website, www.nicholasfunds.com, and the SEC's website,
www.sec.gov.
Quarterly Portfolio Schedule
(unaudited)
------------------------------------------------------------------------------
The Fund files its complete schedule of investments with the SEC for the first
and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q's are
available on the SEC's website at www.sec.gov and may be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Directors and Officers of the Fund
(unaudited)
-----------------------------------------------------------------------------------------------------------------------
The following table sets forth the pertinent information about the Fund's directors and officers as of March 31,
2007. Unless otherwise listed, the business address of each director and officer is 700 North Water Street, Milwaukee,
WI 53202.
Number of
Term of Portfolios in Other
Office and Fund Complex Directorships
Positions Held Length of Principal Occupations Overseen Held
Name and Age With Fund Time Served During Past 5 Years by Director by Director
-----------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR
Albert O. Nicholas, 76 (1), (3) President, (2), 38 years Chief Executive Officer, 3 None
Co-Portfolio President and Chairman of the
Manager and Board, Nicholas Company, Inc.,
Director the Adviser to the Fund.
He is Co-Portfolio Manager of
Nicholas Equity Income Fund, Inc.
and the Fund since each fund's
inception.
DISINTERESTED DIRECTORS
Robert H. Bock, 75 Director (2), 29 years Private Investor, Consultant, 6 None
Dean Emeritus of Business
Strategy and Ethics, University of
Wisconsin School of Business,
1997 to present.
Jay H. Robertson, 55 Director (2), 4 years Private Investor, April 2000 7 None
to present. Chairman of the
Board of Robertson-Ryan and
Associates, Inc., an insurance
brokerage firm from 1993 to
March 2000.
OFFICERS
David L. Johnson, 65 (3) Executive Annual, Executive Vice President,
Vice President 27 years Nicholas Company, Inc., the
Adviser to the Fund.
Jeffrey T. May, 50 Senior Vice Annual, Senior Vice President, Treasurer
President, 14 years and Chief Compliance Officer, Nicholas
Treasurer, Company, Inc., the Adviser to the
Secretary and Fund. He is Portfolio Manager
Chief Compliance of Nicholas Money Market Fund, Inc.
Officer
David O. Nicholas, 45 (3) Senior Vice Annual, Chief Investment Officer and
President and 18 years Director, Nicholas Company, Inc.,
Co-Portfolio the Adviser to the Fund.
Manager He is Portfolio Manager
of Nicholas II, Inc. and
Nicholas Limited Edition, Inc.
and is Co-Portfolio Manager
of Nicholas High Income Fund, Inc.,
Nicholas Equity Income Fund, Inc.
and the Fund.
Lynn S. Nicholas, 50 (3) Senior Vice Annual, Senior Vice President, Nicholas
President 21 years Company, Inc. the Adviser to the
Fund.
Lawrence J. Pavelec, 48 Senior Vice Annual, Senior Vice President, Nicholas
President 2 years Company, Inc., the Adviser to the
Fund. He has been Co-Portfolio
Manager of Nicholas High Income Fund,
Inc. since April 2003. He was a
portfolio manager for Brandes
Investment Partners from 1999 to
April 2003.
Mark J. Giese, 36 Vice President Annual, Vice President, Nicholas Company,
10 years Inc., the Adviser to the Fund. He is
Portfolio Manager of Nicholas
Liberty Fund.
Candace L. Lesak, 49 Vice President Annual, Employee, Nicholas Company, Inc.,
21 years the Adviser to the Fund.
____________________
(1) Albert O. Nicholas is the only director of the Fund who is an "interested person" of the Fund,
as that term is defined in the 1940 Act. Mr. Nicholas is Chief Executive Officer, President and a Director of
the Adviser and owns 97% of the outstanding voting securities of the Adviser.
(2) Until duly elected or re-elected at a subsequent annual meeting of the Fund.
(3) David O. Nicholas and Lynn S. Nicholas are the son and daughter, respectively, of Albert O.
Nicholas. David L. Johnson is a brother-in-law of Albert O. Nicholas.
The Fund's Statement of Additional Information includes additional information about Fund
directors and is available, without charge, upon request, by calling 800-544-6547 (toll-free)
or 414-276-0535.
Privacy Policy
(unaudited)
-------------------------------------------------------------------------------
Nicholas Fund, Inc. respects each shareholders' right to privacy. We are
committed to safeguarding the information that you provide us to maintain and
execute transactions on your behalf.
We collect the following non-public personal information about you:
* Information we receive from you on applications or other forms, whether
we receive the form in writing or electronically. This includes, but is not
limited to, your name, address, phone number, tax identification number, date
of birth, beneficiary information and investment selection.
* Information about your transactions with us and account history with
us. This includes, but is not limited to, your account number, balances and
cost basis information. This also includes transaction requests made through
our transfer agent.
* Other general information that we may obtain about you such as
demographic information.
WE DO NOT SELL ANY NON-PUBLIC PERSONAL INFORMATION
ABOUT CURRENT OR FORMER SHAREHOLDERS.
INFORMATION SHARED WITH OUR TRANSFER AGENT,
A THIRD PARTY COMPANY, ALSO IS NOT SOLD.
We may share, only as permitted by law, non-public personal information
about you with third party companies. Listed below are some examples of third
parties to whom we may disclose non-public personal information. While these
examples do not cover every circumstance permitted by law, we hope they help
you understand how your information may be shared.
We may share non-public personal information about you:
* With companies who work for us to service your accounts or to process
transactions that you may request. This would include, but is not limited to,
our transfer agent to process your transactions, mailing houses to send you
required reports and correspondence regarding the Fund and its Adviser, the
Nicholas Company, Inc., and our dividend disbursing agent to process fund
dividend checks.
* With a party representing you, with your consent, such as your broker
or lawyer.
* When required by law, such as in response to a subpoena or other legal
process.
The Fund and its Adviser maintain policies and procedures to safeguard
your non-public personal information. Access is restricted to employees who
the Adviser determines need the information in order to perform their job
duties. To guard your non-public personal information we maintain physical,
electronic, and procedural safeguards that comply with federal standards.
In the event that you hold shares of the Fund with a financial
intermediary, including, but not limited to, a broker-dealer, bank, or trust
company, the privacy policy of your financial intermediary would govern how
your non-public personal information would be shared with non-affiliated third
parties.
AUTOMATIC INVESTMENT PLAN - AN UPDATE
(unaudited)
-------------------------------------------------------------------------------
The Nicholas Family of Funds' Automatic Investment Plan provides a simple
method to dollar cost average into the fund(s) of your choice.
Dollar cost averaging involves making equal systematic investments over an
extended time period. A fixed dollar investment will purchase more shares when
the market is low and fewer shares when the market is high. The automatic
investment plan is an excellent way for you to become a disciplined investor.
The following table illustrates what dollar cost averaging can achieve. Please
note that past performance is no guarantee of future results. Nicholas Company
recommends dollar cost averaging as a practical investment method. It should
be consistently applied for long periods so that investments are made through
several market cycles. The table will be updated and appear in future
financial reports issued by the Fund.
Nicholas Fund
-------------------
$1,000 initial investment on ....................... 07/14/69* 03/31/97
Number of years investing $100 each month following
the date of initial investment .................... 37.7 10
Total cash invested ................................ $46,300 $13,000
Total dividends and capital gains distributions
reinvested ........................................ $728,853 $5,020
Total full shares owned at 03/31/07 ................ 15,422 289
Total market value at 03/31/07 ..................... $892,197 $16,726
The results above assume purchase on the last day of the month. The Nicholas
Automatic Investment Plan actually invests on the 20th of each month (or on the
alternate date specified by the investor). Total market value includes
reinvestment of all distributions.
*Date of Initial Public Offering.
Nicholas Funds Services Offered
(unaudited)
-------------------------------------------------------------------------------
* IRAs
* Traditional * SIMPLE
* Roth * SEP
* Coverdell Education Accounts
* Profit Sharing Plan
* Automatic Investment Plan
* Direct Deposit of Dividend and Capital Gain Distributions
* Systematic Withdrawal Plan with Direct Deposit
* Monthly Automatic Exchange between Funds
* Telephone Redemption
* Telephone Exchange
* 24-hour Automated Account Information (1-800-544-6547)
* 24-hour Internet Account Access (www.nicholasfunds.com)
Please call a shareholder representative for further information on the above
services or with any other questions you may have regarding the Nicholas Funds
(1-800-544-6547).
Directors and Officers
ALBERT O. NICHOLAS, President and Director
ROBERT H. BOCK, Director
JAY H. ROBERTSON, Director
DAVID L. JOHNSON, Executive Vice President
DAVID O. NICHOLAS, Senior Vice President
LYNN S. NICHOLAS, Senior Vice President
JEFFREY T. MAY, Senior Vice President, Secretary,
Treasurer and Chief Compliance Officer
LAWRENCE J. PAVELEC, Senior Vice President
MARK J. GIESE, Vice President
CANDACE L. LESAK, Vice President
Investment Adviser
NICHOLAS COMPANY, INC.
Milwaukee, Wisconsin
www.nicholasfunds.com
414-276-0535 or 800-544-6547
Transfer Agent
U.S. BANCORP FUND SERVICES, LLC
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
Distributor
QUASAR DISTRIBUTORS, LLC
Milwaukee, Wisconsin
Custodian
U.S. BANK N.A.
Milwaukee, Wisconsin
Independent Registered Public Accounting Firm
ERNST & YOUNG LLP
Chicago, Illinois
Counsel
MICHAEL BEST & FRIEDRICH LLP
Milwaukee, Wisconsin
This report is submitted for the information of shareholders of the Fund. It
is not authorized for distribution to prospective investors unless preceded or
accompanied by an effective prospectus.
Item 2. Code of Ethics.
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND
SENIOR FINANCIAL OFFICERS
I. Covered Officers/Purpose of the Code
The Nicholas Family of Funds code of ethics (this "Code") for the investment companies within the complex (collectively, "Funds" and each, "Company") applies to the Company's Principal Executive Officer and Principal Financial Officer (the "Covered Officers" each of whom are set forth in Exhibit A) for the purpose of promoting:
* honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
* full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Company;
* compliance with applicable laws and governmental rules and regulations;
* the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and
* accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.
II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest
Overview. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his service to, the Company. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Company.
Certain conflicts of interest arise out of the relationships between Covered Officers and the Company and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Company because of their status as "affiliated persons" of the Company. The Company's and the investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code.
Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Company and the investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Company or for the adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the adviser and the Company. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Company and the adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Company. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Directors ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes.
Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Company.
* * *
Each Covered Officer must:
* not use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Company whereby the Covered Officer would benefit personally to the detriment of the Company;
* not cause the Company to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Company;
* not use material non-public knowledge of portfolio transactions made or contemplated for the Company to trade personally or cause others to trade personally in contemplation of the market effect of such transactions;
* report, at least annually:
* officer and director positions in corporations, public or private, for profit or not for profit, or in which the Covered Officer or any of his immediate family members holds 5% or more of its outstanding stock;
* Positions as a trustee, executor or other fiduciary;
* Ownership interest in any broker-dealer or bank;
* Transactions between the Covered Officer and any of the Nicholas Family of Funds, the Nicholas Company or any company in which any director of any of the Nicholas Family of Funds is an officer or director.
* Situations in which any immediate family member of the Covered Employee is an officer, director or employee of any company in which any officer or director of the Nicholas Company or any of the Nicholas Family of Funds is a director or executive officer.
There are some conflict of interest situations that should always be discussed with the appropriate officer if material. If the matter involves Jeffrey T. May, he should discuss the matter with David O. Nicholas. If the matter involves any other person, that person should discuss the matter with Jeffrey T. May. In each case, the officer with whom such matter is discussed is encouraged to review the matter with counsel to the Company. Examples of these include:
* service as a director on the board of any public company;
* the receipt of any non-nominal gifts;
* the receipt of any entertainment from any company with which the Company has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety;
* any ownership interest in, or any consulting or employment relationship with, any of the Company's service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof;
* a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Company for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership.
III. Disclosure and Compliance
* Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the Company;
* each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Company to others, whether within or outside the Company, including to the Company's directors and auditors, and to governmental regulators and self-regulatory organizations;
* each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds files with, or submits to, the SEC and in other public communications made by the Funds; and
* it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations.
IV. Reporting and Accountability
Each Covered Officer must:
* upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he has received, read, and understands the Code;
* annually thereafter affirm to the Board that he has complied with the requirements of the Code;
* not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and
* notify the appropriate person promptly if he knows of any violation of this Code. Failure to do so is itself a violation of this Code. Each Covered Officer should notify Jeffrey T. May unless the person violating the Code is Jeffrey T. May, in which case such person should notify David O. Nicholas. In each case, each Covered Officer is encouraged to also contact counsel to the Fund.
Jeffrey T. May is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation; provided that if the situation involves Jeffrey T. May directly, then Mr. David O. Nicholas is responsible for applying the Code to him and he has authority to interpret the Code with respect to such application. Both Jeffrey T. May and David O. Nicholas are encouraged to discuss the matter with counsel to the Fund. However, any approvals or waivers sought by the Principal Executive Officer will be considered by the Independent Directors (the "Committee").
The Company will follow these procedures in investigating and enforcing this Code:
* Jeffrey T. May or David O. Nicholas, with the advice of counsel will take all appropriate action to investigate any potential violations reported to him;
* if, after such investigation, the officer making such investigation believes that no violation has occurred, he is not required to take any further action;
* any matter that the officer making the investigation believes is a violation will be reported to the independent directors;
* if the independent directors concur that a violation has occurred, they will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer;
* the independent directors will be responsible for granting waivers, as appropriate; and
* any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules.
V. Other Policies and Procedures
This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment adviser's codes of ethics under Rule 17j-1 under the Investment Company Act and the adviser's more detailed policies and procedures are separate requirements applying to the Covered Officers and others, and are not part of this Code.
VI. Amendments
Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the Board, including a majority of independent directors.
VII. Confidentiality
All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Board and its counsel, the appropriate Company and the Nicholas Company.
VIII. Internal Use
The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Company, as to any fact, circumstance, or legal conclusion.
Date: November 20, 2003
Affirmed: November 6, 2006
Exhibit A
Persons Covered by this Code of Ethics
The Nicholas Company | Albert O. Nicholas | Jeffrey T. May |
Nicholas Fund, Inc. | Albert O. Nicholas | Jeffrey T. May |
Nicholas II, Inc. | David O. Nicholas | Jeffrey T. May |
Nicholas Limited Edition, Inc. | David O. Nicholas | Jeffrey T. May |
Nicholas Income Fund, Inc. | David O. Nicholas | Jeffrey T. May |
Nicholas Equity Income Fund, Inc. | Albert O. Nicholas | Jeffrey T. May |
Nicholas Liberty Fund | David O. Nicholas | Jeffrey T. May |
Nicholas Money Market Fund, Inc. | Albert O. Nicholas | Jeffrey T. May |
Item 3. Audit Committee Financial Expert.
The Fund's Board of Directors has determined that no member of the Board of Directors is an audit committee financial expert as that term is defined for purposes of this item. The Fund's Board of Directors routinely holds its meetings with the other six funds in the Nicholas complex, there is substantial overlap in the boards of each of those funds, auditors for funds in the Nicholas complex make presentations jointly to the boards of the funds which they audit and three of those funds have the same auditor as the Fund. The boards of directors of five of those other funds have determined that one of their members meets the definition of an audit committee financial expert; however, that person is not a director of the Fund. The Fund believes that the joint meetings and presentations with the other funds in the Nicholas complex and the availability and presence of the board member of other funds in the Nicholas complex who is an audit committee financial expert gives the Fund some of the benefit of having a board member who meets the definition of an audit committee financial expert. The Fund can call upon this person from time to time should circumstances warrant. The independent members of the Fund's Board of Directors are considering the possibility of adding that person as an independent director of the Fund and adding other independent directors; however, under present SEC rules, such additions may require that the Fund hold a meeting of the shareholders. Current SEC proposals, if adopted, may change the required percentage of independent directors for mutual funds. The Board of Directors of the Fund believes that it is not in the best interest of the Fund to hold a shareholder meeting until after such SEC proposals are finalized, at which time the Board can more easily evaluate the resulting requirements, the methods which will then be available to satisfy those requirements and the benefit to the Fund of holding a shareholder meeting.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal years (the "Reporting Periods") for professional services rendered by the Fund's principal accountant (the "Auditor") for the audit of the Fund's annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $23,000 in 2007 and $25,000 in 2006.
(b) Audit-Related Fees. There were no fees billed in each of the last two fiscal years for assurance and related services rendered by the Auditor to the Fund that are reasonably related to the performance of the audit of the Fund's financial statements and are not reported under paragraph (a) of this Item 4.
(c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning ("Tax Services") were $5,000 in 2007 and $4,500 in 2006. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held.
There were no fees billed in each of the last two fiscal years for Tax Services by the Auditor to the Fund's investment adviser which required pre-approval by the Board of Directors as described in paragraph (e)(1) of this Item 4.
(d) All Other Fees. The aggregate fees billed for professional services rendered by the Auditor to the Fund's investment adviser were $15,000 in 2006 and $10,000 in 2005. These services were for the audit of the investment adviser for the adviser's fiscal years ended 10/31/2006 and 10/31/2005.
There were no fees billed in each of the last two fiscal years for Non-Audit Services by the Auditor to the Fund's investment adviser which required pre-approval by the Board of Directors as described in paragraph (e)(1) of this Item 4.
(e) Audit Committee Pre-Approval Policies and Procedures. The Fund's Board of Director's has not adopted any pre-approval policies and procedures as described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. The Fund's Board of Directors meets with the Auditors and management to review and pre-approve the Auditor's engagements for audit and non-audit services to the Fund and its Adviser prior to each engagement.
(f) No disclosures are required by this Item 4(f).
(g) There were no non-audit fees billed in each of the last two fiscal years by the Auditor for services rendered to the Fund or the Fund's investment adviser that provides ongoing services.
(h) No disclosures are required by this Item 4(h).
Item 5. Audit Committee of Listed Registrants.
Not applicable to this filing.
Item 6. Schedule of Investments.
The schedule of investments in securities of unaffiliated issuers is included as part of the report to shareholders filed under Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Applicable only to annual reports filed by closed-end funds.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Applicable only to annual reports filed by closed-end funds.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.
Applicable only to closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable to this filing.
Item 11. Controls and Procedures.
The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation.
Item 12. Exhibits.
(a)(1) Code of Ethics -- Any code of ethics, or amendments thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit.
Not applicable to this filing.
(a)(2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbannes-Oxley Act of 2002, attached hereto as part of EX-99.CERT.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more person.
Applicable only to closed-end funds.
(b) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbannes-Oxley Act of 2002, attached hereto as part of EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nicholas Fund, Inc.
By: /s/ Albert O. Nicholas
Name: Albert O. Nicholas
Title: Principal Executive Officer
Date: 05/30/2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Albert O. Nicholas
Name: Albert O. Nicholas
Title: Principal Executive Officer
Date: 05/30/2007
By: /s/ Jeffrey T. May
Name: Jeffrey T. May
Title: Principal Financial Officer
Date: 05/30/2007
