NICHOLAS EQUITY INCOME FUND, INC.
May 27, 1996
Report to Fellow Shareholders:
Nicholas Equity Income Fund had a total return of 7.48% for the first
calendar quarter ended March 31. Net assets at March 31 were $15.8 million,
and net asset value per share was $12.35.
<TABLE>
<CAPTION>
3 Month
Return
1/1/96-3/31/96 One Year Total Return
_______________ _____________________
<S> <C> <C>
Nicholas Equity Income Fund
(Distributions reinvested) +7.48% +20.61%
Standard and Poor's 500
(Income Reinvested) +5.37% +32.11%
Lehman Brothers Intermediate
Corporate Bond Index -1.39% 11.40%
</TABLE>
*Total returns are historical and include change in share price and
reinvestment of dividend and capital gain distributions. Past performance is
no guarantee of future results. Principal value and return will fluctuate so
an investment, when redeemed, may be worth more or less than original cost.
The Fund's average annual total return for the life of the Fund (2.35 years)
is +12.21%.
To repeat our goals for Nicholas Equity Income Fund, management plans
to produce a cash dividend yield in excess of what the S&P 500 returns
(currently 2.2%) through investment in a diversified list of bonds and stocks.
At the same time, with a majority of portfolio assets in equities, we hope to
accrue a reasonable amount of capital appreciation. At March 31, 1996,
approximately 5% of assets were in cash, 12% in bonds and 83% in stocks and
convertible securities. With this portfolio alignment, we expect less
volatility in share price than with our growth funds.
Effective February 12, 1996, Nicholas Company, Inc., the advisor to the
Fund, has decided to absorb all expenses, including the investment advisory
fee, in excess of 0.90% of total net assets, until further notice. As a
result, the Fund's total return, yield and distribution rate will be higher
than if the Fund paid for all expenses and fees. Since the agreement to absorb
all expenses in excess of 0.90% was not implemented until February 12, it had
a very minor effect during the fiscal year ended March 31, 1996. The full
effect, and maximum of 0.90% will occur during the current fiscal year ending
March 31, 1997. This decision should place the Fund's expense ratio more in
line with our other funds and significantly below the average of all the funds
in the equity income fund category.
Thank you for your interest in Nicholas Equity Income Fund.
Sincerely,
/s/ Albert O. Nicholas
Albert O. Nicholas
President
<PAGE>
SCHEDULE OF INVESTMENTS
MARCH 31, 1996
<TABLE>
<CAPTION>
SHARES OR QUOTED
PRINCIPAL MARKET
AMOUNT VALUE
________ ___________
(Note 1 (a))
<C> <C>
COMMON STOCKS - 68.1%
BANKS AND FINANCE - 20.4%
50,000 Bando McGlocklin Capital Corporation $ 550,000
38,000 First Merchants Acceptance Corporation 840,750
10,000 First Bank System, Inc. 596,250
11,800 Firstar Corporation 528,050
24,000 MBNA Corporation 711,000
__________
3,226,050
__________
CONSUMER PRODUCTS AND SERVICES - 8.7%
8,000 Eastman Kodak Company 568,000
21,000 Sturm, Ruger & Company, Inc. 808,500
__________
1,376,500
__________
HEALTH CARE - 7.0%
4,000 American Home Products Corporation 433,500
30,000 Magellan Health Services Inc. * 675,000
__________
1,108,500
__________
INDUSTRIAL PRODUCTS - 8.0%
14,000 General Motors Corporation - Class H 885,500
12,000 RPM, Inc. 384,375
__________
1,269,875
__________
PRINTING AND PUBLISHING - 4.0%
20,000 American List Corporation 630,000
__________
REAL ESTATE - 8.4%
20,000 Meditrust 677,500
20,000 National Health Investors, Inc. 650,000
__________
1,327,500
__________
RETAIL TRADE - 5.0%
57,000 Shopko Stores, Inc. 798,000
__________
UTILITIES - 2.7%
30,000 U.S. West Communications Group 420,875
__________
MISCELLANEOUS - 3.9%
30,000 Landauer, Inc. 618,750
__________
TOTAL COMMON STOCKS
(cost $8,751,684) 10,776,050
PREFERRED CONVERTIBLE STOCK - 4.8%
CONSUMER PRODUCTS AND SERVICES - 4.8%
8,000 Alco Standard Corporation - Class B $ 752,000
__________
TOTAL CONVERTIBLE PREFERRED
STOCK (cost $619,150) 752,000
__________
NON-CONVERTIBLE BONDS - 12.4%
DIVERSIFIED PRODUCTS AND SERVICES - 3.1%
$500,000 Fort Howard Corporation
9.00%, 2/01/06 490,000
__________
ENERGY - 3.2%
500,000 Maxus Energy Corporation
9.875%, 10/15/02 502,500
__________
HEALTH CARE - 3.0%
500,000 Beverly Enterprises
9.00%, 2/15/06 477,500
__________
INDUSTRIAL AND CONSUMER ELECTRONICS - 3.1%
500,000 Unisys Corporation
9.50%, 7/15/98 491,250
__________
TOTAL NON-CONVERTIBLE BONDS
(cost $2,008,625) 1,961,250
__________
CONVERTIBLE BONDS - 10.0%
HEALTH CARE - 6.2%
500,000 Emeritus Corporation - CTV
6.25%, 1/1/06 540,625
400,000 Tenet Healthcare Corporation
6.00%, 12/1/05 438,000
__________
978,625
__________
MISCELLANEOUS - 3.8%
600,000 Leucadia National Corporation
5.25%, 2/1/03 607,500
__________
TOTAL CONVERTIBLE BONDS
(cost $1,552,000) 1,586,125
__________
<PAGE>
SHORT-TERM INVESTMENTS - 4.2%
COMMERCIAL PAPER - 2.8%
$250,000 Payco American Corporation
5.60%, due April 4, 1996 $ 249,883
200,000 Schreiber Foodside Associates, Inc.,
5.60%, due April 12, 1996 199,658
__________
449,541
__________
VARIABLE DEMAND NOTES - 1.4%
$219,900 Sara Lee Corporation
5.09%, due April 1, 1996 $ 219,900
__________
TOTAL SHORT-TERM INVESTMENTS
(cost $669,044) 669,441
__________
TOTAL INVESTMENTS 15,744,866
__________
CASH AND RECEIVABLES,
NET OF LIABILITIES - 0.5% 70,817
__________
TOTAL NET ASSETS
(Basis of percentages
disclosed above) $15,815,683
__________
__________
</TABLE>
The accompanying notes to financial statements are an integral part of this
schedule.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value (cost $13,600,503)(Note 1 (a)) $15,744,866
Receivables -
Dividends and interest 100,808
__________
Total assets 15,845,674
__________
LIABILITIES:
Payables -
Management fee (Note 2) 12,254
Other payables and accrued expenses 17,737
__________
Total liabilities 29,991
__________
Total net assets $15,815,683
__________
__________
NET ASSETS CONSIST OF:
Fund shares issued and outstanding $13,033,520
Net unrealized appreciation on investments (Note 3) 2,143,966
Accumulated undistributed net realized gains on investments 517,047
Accumulated undistributed net investment income 121,150
__________
$15,815,683
__________
__________
NET ASSET VALUE PER SHARE ($.0001 par value, 500,000,000 shares authorized),
offering price and redemption price ($15,815,683 ./. 1,281,006 shares
outstanding) $12.35
______
______
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996
<TABLE>
<S> <C>
INCOME:
Interest $ 320,537
Dividends 22,279
_________
642,816
_________
EXPENSES:
Management fee (Note 2) 96,493
Registration fees 28,759
Legal fees 27,556
Audit and tax consulting fees 16,400
Transfer agent fees 6,344
Directors'fees 3,600
Custodian fees 3,346
Postage 3,095
Printing 1,825
Pricing service fees 1,540
Other operating expenses 4,587
_________
Total expenses before reimbursement 193,545
Reimbursement of expenses by adviser 2,144
_________
191,401
_________
Net investment income 451,415
_________
NET REALIZED GAINS ON INVESTMENTS (Note 1 (b)) 557,867
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 1,668,395
_________
Net gains on investments 2,226,262
_________
Net increase in net assets resulting from operations $2,677,677
_________
_________
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
__________ __________
<S> <C> <C>
OPERATIONS:
Net investment income $ 451,415 $ 320,942
Net realized gain (loss) on investments (Note 1 (b)) 557,867 (40,819)
Net increase in unrealized appreciation on investments 1,668,395 512,364
__________ __________
Net increase in net assets resulting from operations 2,677,677 792,487
__________ __________
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($0.3370 and $0.2810 per share, respectively) (412,917) (267,262)
__________ __________
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (300,013 and 672,575 shares, respectively) 3,287,697 6,267,369
Net asset value of shares issued in distributions from net investment
income (36,390 and 25,222 shares, respectively) 396,905 255,411
Cost of shares redeemed (168,391 and 159,402 shares, respectively) (1,883,897) (1,068,273)
__________ __________
Increase in net assets derived from capital share transactions 1,800,705 5,454,507
__________ __________
Total increase in net assets 4,065,465 5,979,732
__________ __________
NET ASSETS, at the beginning of the year (including undistributed net
investment income of $82,652 and $28,972, respectively) 11,750,218 5,770,486
__________ __________
NET ASSETS, at the end of the year (including undistributed net
investment income of $121,150 and $82,652, respectively) $15,815,683 $11,750,218
__________ __________
__________ __________
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
Year Ended March 31,
______________________
1996 1995 1994 (1)
______ ______ ______
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.56 $10.04 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .36 .30 .06
Net gains or (losses) on securities (realized and unrealized) 1.77 .50 (.01)
______ ______ ______
Total from investment operations 2.13 .80 .05
______ ______ ______
LESS DISTRIBUTIONS:
Dividends (from net investment income) (.34) (.28) (.01)
Distributions (from capital gains) - - -
______ ______ ______
Total distributions (.34) (.28) (.01)
______ ______ ______
NET ASSET VALUE, END OF YEAR $12.35 $10.56 $10.04
______ ______ ______
______ ______ ______
TOTAL RETURN 20.61% 8.13% 53% (2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions) $15.8 $11.8 $5.8
Ratio of expenses to average net assets (4) 1.38% 1.73% 1.70% (3)
Ratio of net investment income to average net assets (4) 3.26% 3.32% 2.53% (3)
Portfolio turnover rate 68.85% 10.98% 0%
Average commission rate paid by the Fund on portfolio investment transactions (5) $0.047 N/A N/A
</TABLE>
(1) For the period from November 23, 1993 (date of initial public offering)
through March 31, 1994.
(2) Not annualized
(3) Annualized
(4) Net of reimbursement by adviser for fiscal year ended March 31, 1996.
Absent reimbursement of expenses, the ratio of expenses to average net
assets and the ratio of net investment income to average net assets would
have been 1.40% and 3.28% respectively.
(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.
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
The Fund is an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended. The
primary objective of the Fund is to produce reasonable income with
moderate long-term growth as a secondary consideration. To achieve its
primary objective, the Fund generally will have at least 65% of its total
assets invested in income-producing equity securities. The following is a
summary of the significant accounting policies of Nicholas Equity Income
Fund, Inc. (the "Fund"):
(a) Each equity security is valued at the last sale price reported by the
principal security exchange on which the issue is traded, or if no
sale is reported, the latest bid price. Market values of most debt
securities are based on valuations provided by a pricing service,
which determines valuations for normal, institutional-size trading
units of securities using market information, transactions for
comparable securities and various other relationships between
securities which are generally recognized by institutional traders.
Variable demand notes are valued at cost which approximates market
value. U.S. Treasury Bills and commercial paper are stated at market
value with the resultant difference between market value and original
purchase price being recorded as interest income. Investment
transactions are recorded no later than the first business day after
the trade date. Cost amounts, as reported on the schedule of
investments and the statement of assets and liabilities, are the same
for Federal income tax purposes.
(b) Net realized gains and losses on common stocks were computed on the
basis of specific certificates.
(c) Provision has not been made for Federal income taxes or excise taxes
since the Fund has elected to be taxed as a "regulated investment
company" and intends to distribute substantially all taxable income
to its shareholders and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies.
(d) Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Non-cash dividends, if any, are recorded at fair
market value on date of distribution.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT -
The Fund has an agreement with Nicholas Company, Inc. (with whom certain
officers and directors of the Fund are affiliated) to serve as investment
adviser and manager. Under the terms of the agreement, a monthly fee is
paid to the investment adviser based on approximately 1/17th of 1% (.70 of
1% on an annual basis) of the average net asset value up to and including
$50 million, and 1/20th of 1% (.60 of 1% on an annual basis) of the
average net asset value in excess of $50 million. The adviser has decided
to absorb all expenses of the fund in excess of 0.90% of net assets,
effective February 12, 1996. For the year ended March 31, 1996 the
adviser reimbursed $2,144 to the fund. This amount represents the
expenses in excess of .90% (annualized) of net assets for the time period
of February 12, 1996 to March 31, 1996. Also, the investment adviser may
be reimbursed for clerical and administrative services rendered by its
personnel. The advisory agreement is subject to an annual review by the
Directors of the Fund.
(3) NET UNREALIZED APPRECIATION -
Aggregate gross unrealized appreciation (depreciation) as of March 31,
1996, based on investment cost for Federal tax purposes is as follows:
Aggregate gross unrealized appreciation on investments $2,391,436
Aggregate gross unrealized depreciation on investments (247,470)
_________
Net unrealized appreciation $2,143,966
_________
_________
(4) INVESTMENT TRANSACTIONS -
For the year ended March 31, 1996, the cost of purchases and the proceeds
from sales of investments, other than short-term obligations, aggregated
$11,229,948 and $8,724,568, respectively.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Nicholas Equity Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
NICHOLAS EQUITY INCOME FUND, INC. (a Maryland corporation), including the
schedule of investments, as of March 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets for
the year ended March 31, 1995 and the period from November 23, 1993 (date of
initial public offering) through March 31, 1994, and the financial highlights
for each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1995, by correspondence with the custodian and brokers.
As to securities purchased but not yet received as of year end, we requested
confirmation from brokers and, when replies were not received, we carried out
other alternative auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Nicholas Equity Income Fund, Inc. as of March 31, 1995, and the results of its
operations for the year then ended, the changes in its net assets for the year
ended March 31, 1995, and the period from November 23, 1993 (date of initial
public offering) through March 31, 1994, and the financial highlights for the
periods presented in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
April 28, 1996.
HISTORICAL RECORD (UNAUDITED)
<TABLE>
<CAPTION>
Dollar Growth of
Net Dividend Capital Gain Weighted An Initial
Asset Value Distributions Distributions Price/Earnings $10,000
Per Share Per Share Per Share Ratio (2) Investment (3)
___________ _____________ _____________ ______________ _____________
<S> <C> <C> <C> <C> <C>
November 23, 1993 (1) $10.00 $ - $ - - $10,000
December 31, 1993 9.98 .0133 - 16.0 times 9,993
March 31, 1994 10.04 - - 14.4 10,053
March 31, 1995 10.56 - - 14.6 10,871
June 30, 1995 10.58 .0750 - 14.2 10,970
September 30, 1995 11.27 .0810 (4) - 15.7 11,774
December 31, 1995 11.49 .1810 (5) - 15.2 12,198
March 31, 1996 12.35 - - 16.8 13,111
(1) Date of Initial Public Offering (4) Paid July 26, 1995 to shareholders of record July 21, 1995.
(2) Based on latest 12 months accomplished earnings (5) Paid $0.088 October 25, 1995 to shareholders of record
(3) Assuming reinvestment of all distributions October 20, 1995.
Paid $0.093 December 31, 1995 to shareholders of record
Range in price/earnings ratios December 28, 1995.
High 19.5 Low 13.3
January 3, 1994 December 8, 1994
</TABLE>
<PAGE>
ANNUAL REPORT
NICHOLAS
EQUITY INCOME
FUND, INC.
Officers and Directors
ALBERT O. NICHOLAS
President and Director
ROBERT H. BOCK
Director
MELVIN L. SCHULTZ
Director
RICHARD SEAMAN
Director
DAVID L. JOHNSON
Executive Vice President
THOMAS J. SAEGER
Executive Vice President and Secretary
LYNN S. NICHOLAS
Senior Vice President
DAVID O. NICHOLAS
Senior Vice President
CANDACE L. LESAK
Vice President
JEFFREY T. MAY
Vice President
CHERYL L. KING
Treasurer
Custodian and Transfer Agent
FIRSTAR TRUST COMPANY
Milwaukee
(414) 276-0535
Counsel
MICHAEL, BEST & FRIEDRICH
Milwaukee
Auditors
ARTHUR ANDERSEN LLP
Milwaukee
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.
700 North
Water Street
Milwaukee,
Wisconsin 53202
March 31, 1996
