November 27, 1996
Report to Fellow Shareholders:
Nicholas Equity Income Fund had a total return of +1.97% for the
six month period ended September 30, 1996. Net assets at September
30, 1996, were $17.5 million, and net asset value per share was
$11.99. Returns* for three periods ended September 30, 1996, are
shown below:
Three Six
Months Months 1 year
------ ------ ------
Nicholas Equity Income Fund
(Distributions Reinvested) +1.23% +1.97% +13.55%
Standard & Poor's 500
(Income Reinvested) +3.09% +7.72% +20.32%
Lehman Brothers Intermediate
Corporate Bond Index
(Includes Income) +1.95% +2.44% +5.23%
Consumer Price Index +0.64% +1.41% +3.00%
*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,
November 23, 1993, through September 30, 1996, is +10.72%. For
the six months ended September 30, 1996 the advisor absorbed
expenses of 0.28%. Otherwise the distribution rate and yield
would have been 3.16% and 3.80% respectively and returns would
have been lower.
As of September 30, Nicholas Equity Income Fund was invested as
follows: 11% cash, 11% non-convertible bonds, 18% convertible
securities, and 60% common stocks. The cash distribution rate and
the 30-day annualized yield as of September 30, 1996 were 3.44%* and
4.08%* respectively, in line with our attempt to produce a cash
return higher than stocks in general (approximately 2% on the S&P
500). The Fund's portfolio composition should result in an
above-average cash return, decent capital gain prospects and less
downside risk compared to many stock funds.
Nicholas Company, Inc., the advisor to the Fund, decided to
absorb expenses in excess of 0.90% of total net assets (see page 6
for further discussion) 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
SCHEDULE OF INVESTMENTS
September 30, 1996 (unaudited)
Shares or Quoted
Principal Market
Amount Value
------ (Note 1 (a))
COMMON STOCKS - 59.9% ------------
BANKS AND FINANCE - 19.1%
50,000 Bando McGlocklin Capital Corporation........ $ 512,500
11,800 Firstar Corporation......................... 569,350
10,000 First Bank System, Inc. .................... 668,750
38,000 First Merchants Acceptance Corporation *.... 760,000
24,000 MBNA Corporation............................ 834,000
-----------
3,344,600
-----------
CONSUMER PRODUCTS AND SERVICES - 8.3%
8,000 Eastman Kodak Company....................... 628,000
42,000 Sturm, Ruger & Company, Inc. ............... 824,250
-----------
1,452,250
-----------
HEALTH CARE - 6.5%
8,000 American Home Products Corporation.......... 510,000
30,000 Magellan Health Services Inc. *............. 622,500
-----------
1,132,500
-----------
INDUSTRIAL PRODUCTS AND DERVICES - 7.0%
14,000 General Motors Corporation - Class H........ 808,500
25,000 RPM, Inc. .................................. 412,500
-----------
1,221,000
-----------
PRINTING AND PUBLISHING - 4.3%
28,000 American List Corporation................... 759,500
-----------
REAL ESTATE - 9.1%
20,000 Meditrust................................... 692,500
27,000 National Health Investors, Inc.............. 901,125
-----------
1,593,625
-----------
UTILITIES - 2.2%
13,000 U.S. WEST Communications Group.............. 386,750
-----------
MISCELLANEOUS - 3.4%
30,000 Landauer, Inc. ............................. 596,250
-----------
TOTAL COMMON STOCKS
(cost $8,551,771)........................ 10,486,475
-----------
PREFERRED CONVERTIBLE STOCK - 4.1%
CONSUMER PRODUCTS AND SERVICES - 4.1%
8,000 Alco Standard Corporation - Class B
(cost $619,150).......................... 728,000
-----------
NON-CONVERTIBLE BONDS - 11.4%
DIVERSIFIED PRODUCTS AND SERVICES - 2.8%
$500,000 Fort Howard Corporation
9.00%, 2/01/06............................. 497,500
-----------
ENERGY - 2.9%
500,000 Maxus Energy Corporation
9.875%, 10/15/02........................... 508,750
-----------
HEALTH CARE - 2.8%
500,000 Beverly Enterprises, Inc.
9.00%, 2/15/06............................. 488,125
-----------
INDUSTRIAL AND CONSUMER ELECTRONICS - 2.9%
500,000 Unisys Corporation
9.50%, 7/15/98............................. 500,000
-----------
TOTAL NON-CONVERTIBLE BONDS
(cost $2,008,625)........................ 1,994,375
-----------
CONVERTIBLE BONDS - 13.4%
HEALTH CARE - 5.2%
500,000 Emeritus Corporation
6.25%, 1/01/06............................. 485,000
400,000 Tenet Healthcare Corporation
6.00%, 12/01/05............................ 421,500
-----------
906,500
-----------
900,000 INDUSTRIAL PRODUCTS AND SERVICES - 4.7%
Richey Electronics, Inc.
7.00%, 3/01/06............................. 829,125
-----------
MISCELLANEOUS - 3.5%
600,000 Leucadia National Corporation
5.25%, 2/01/03............................. 603,750
-----------
TOTAL CONVERTIBLE BONDS
(cost $2,445,000)........................ 2,339,375
-----------
SHORT-TERM INVESTMENTS - 12.3%
COMMERCIAL PAPER - 9.7%
200,000 NEC Industries Inc.
5.60%, due October 1, 1996................. 200,000
250,000 Schreiber Foods, Inc.
5.55%, due October 9, 1996................. 249,692
250,000 Schreiber Foods, Inc.
5.55%, due October 15,1996................. 249,460
250,000 Fiserv, Inc.
5.55%, due October 16,1996................. 249,422
250,000 AMCORE Financial, Inc.
5.55%, due October 17,1996................. 249,383
250,000 Fiserv, Inc.
5.55%, due October 18,1996................. 249,345
250,000 Fiserv, Inc.
5.50%, due October 30, 1996................ 248,892
-----------
1,696,194
-----------
VARIABLE DEMAND NOTES - 2.6%
392,365 Johnson Controls, Inc.
5.22%, due October 1, 1996................. 392,365
59,713 Pitney Bowes Credit Corporation
5.19%, due October 1, 1996................. 59,713
-----------
452,078
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $2,144,112)........................ 2,148,272
-----------
TOTAL INVESTMENTS......................... 17,696,497
-----------
LIABILITIES, NET OF CASH
AND RECEIVABLES - (1.1%).................. (184,073)
-----------
TOTAL NET ASSETS
(Basis of percentages
disclosed above)........................ $17,512,424
-----------
-----------
The accompanying notes to financial statements are
an integral part of this schedule.
Statement of Assets and Liabilities
September 30, 1996 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value (cost $15,768,658) (Note 1 (a)).................. $17,696,497
Receivables -
Dividends and interest............................................................... 99,329
-----------
Total assets................................................................... 17,795,826
-----------
LIABILITIES: -----------
Payables -
Investment securities purchased...................................................... 233,100
Management fee (Note 2).............................................................. 26,784
Other payables and accrued expenses.................................................. 23,518
-----------
Total liabilities.............................................................. 283,402
-----------
Total net assets............................................................... $17,512,424
-----------
-----------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding......................................................... $15,195,452
Net unrealized appreciation on investments (Note 3)........................................ 1,923,679
Accumulated undistributed net realized gains on investments................................ 219,443
Accumulated undistributed net investment income............................................ 173,850
-----------
$17,512,424
-----------
-----------
NET ASSET VALUE PER SHARE ($.0001 par value, 500,000,000 shares authorized),
offering price and redemption price ($17,512,424 / 1,461,049 shares outstanding)................ $11.99
------
------
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
Statement of Operations
For the six months ended September 30, 1996 (unaudited)
INCOME:
Dividends.............................................. $211,788
Interest............................................... 186,849
-----------
398,637
-----------
EXPENSES:
Management fee (Note 2)................................ 58,912
Legal fees............................................. 14,061
Registration fees...................................... 12,166
Audit and tax consulting fee .......................... 5,072
Transfer agent fees.................................... 4,109
Directors' fees ....................................... 1,800
Postage ............................................... 1,124
Printing .............................................. 620
Pricing service fees................................... 500
Custodian fees ........................................ 422
Total expenses before reimbursement.............. 98,786
Reimbursement of expenses by adviser............. (23,042)
-------
75,744
-------
Net investment income............................ 322,893
-----------
NET REALIZED GAINS ON INVESTMENTS (Note 1 (b)) ............... 219,458
-----------
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS ....... (220,287)
Net loss on investments.......................... (829)
Net increase in net assets resulting
from operations.................................. $ 322,064
-----------
-----------
The accompanying notes to financial statements are
an integral part of this statement.
Statements of Changes in Net Assets
For the six months ended September 30, 1996 (unaudited)
and the year ended March 31, 1996
<TABLE>
Six Months
Ended 9/30/96
(unaudited) 1996
<S> -------------- ----------
OPERATIONS: <C> <C>
Net investment income...................................................... $ 322,893 $ 451,415
Net realized gains investments (Note 1 (b))................................ 219,458 557,867
Net increase (decrease) in unrealized appreciation on investments.......... (220,287) 1,668,395
----------- ----------
Net increase in net assets resulting from operations.................. 322,064 2,677,677
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.1982 and $0.3370 per share, respectively)............................. (270,193) (412,917)
----------- ----------
Distributions from net realized gains on investment transactions
($0.3998 per share, in the six month period ended September 30, 1996).... (517,062) --
----------- ----------
Total distributions................................................... (787,255) (412,917)
----------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (173,976 and 300,013 shares, respectively)..... 2,083,761 3,287,697
----------- ----------
Net asset value of shares issued in distributions
from net investment income and net realized gains
(63,501 and 36,390 shares, respectively).................................. 759,568 396,905
----------- ----------
Cost of shares redeemed (57,434 and 168,391 shares, respectively).......... (681,397) (1,883,897)
----------- ----------
Increase in net assets derived from capital share transactions........ 2,161,932 1,800,705
----------- ----------
Total increase in net assets.......................................... 1,696,741 4,065,465
----------- ----------
NET ASSETS, at the beginning of the period (including undistributed net
investment income of $121,150 and $82,652, respectively)..................... 15,815,683 11,750,218
------------ ----------
NET ASSETS, at the end of the period (including undistributed net investment
income of $173,850 and $121,150 respectively)................................ $17,512,424 $15,815,683
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
Historical Record (unaudited)
<TABLE>
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)
----------- --------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
November 23, 1993(1)....................... $10.00 $ -- $ -- -- $10,000
March 31, 1994............................. 10.04 .0133 -- 14.4 10,053
March 31, 1995............................. 10.56 .2810 -- 14.6 10,871
March 30, 1996............................. 12.35 .3370 -- 16.8 13,111
September 30, 1996......................... 11.99 .1982 (4) .3998 (4) 16.4 13,370
(1) Date of Initial Public Offering (4) Paid $0.0952 in net investment income and $0.3998 in
(2) Based on latest 12 months accomplished earnings capital gains on April 30, 1996 to shareholders of
(3) Assuming reinvestment of all distributions record April 25, 1996.
Paid $0.103 in net investment income on July 24, 1996
Range in quarter end price/earnings ratios to shareholders of record July 18, 1996.
High 16.8 Low 13.9
March 31, 1996 December 31, 1994
</TABLE>
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
Six Months YEAR ENDED MARCH 31,
Ended 9/30/96 --------------------------
(unaudited) 1996 1995 1994(1)
------------- ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $12.35 $10.56 $10.04 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... .22 .36 .30 .06
Net gains or (losses) on securities
(realized and unrealized).............. .02 1.77 .50 (.01)
------ ------ ------ ------
Total from investment operations.... .24 2.13 .80 .05
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net investment income)... (.20) (.34) (.28) (.01)
Distributions (from capital gains)....... (.40) -- -- --
------ ------ ------ ------
Total distributions................. (.60) (.34) (.28) (.01)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............. $11.99 $12.35 $10.56 $10.04
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN............................... 1.97%(2) 20.61% 8.13% .53%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) $17.5 $15.8 $11.8 $5.8
Ratio of expenses to average net assets .90%(3,4) 1.38%(4) 1.73% 1.70%(3)
Ratio of net investment income
to average net assets 3.84%(3,4) 3.26%(4) 3.32% 2.53%(3)
Portfolio turnover rate 11.12%(3) 68.85% 10.98% 0%
Average commission rate paid by the Fund //
on portfolio investment transactions (5) $0.050 $0.047 N/A N/A
(1) For the period from November 23, 1993 (date of initial public offering) through March 31, 1994.
(2) Not annualized
(3) Annualized
(4) Net of reimbursement by adviser for semiannual period ended September 30, 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 1.18% and 3.57%, 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.
</TABLE>
Notes to Financial Statements
September 30, 1996 (unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
Nicholas Equity Income Fund, Inc. (The "Fund") is an open-end,
diversified management investment company registred 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 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 and bonds
were computed on the basis of specific certificates.
(c) Provision has not been made for Federal income taxes or
excise taxes since the Fund has elected to be taxed as a
"regulated investment company" and intends to distribute
substantially all taxable income to its shareholders and
otherwise comply with the provisions of the Internal
Revenue Code applicable to regulated investment
companies.
(d) Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Non-cash dividends,
if any, are recorded at fair market value on date of
distribution.
(e) The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from the estimates.
(2) Investment Adviser and Management Agreement --
The Fund has an agreement with Nicholas Company, Inc. (with
whom certain officers and directors of the Fund are
affiliated) to serve as investment adviser and manager.
Under the terms of the agreement, a monthly fee is paid to
the investment adviser based on 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 advisor has decided to absorb all
expenses of the Fund in excess of 0.90% of net assets. For
the semiannual period ended September 30, 1996, the advisor
reimbursed $23,042 to the Fund. This amount represents the
expenses in excess of .90% (annualized) of net assets for the
six months ended September 30, 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
September 30, 1996, based on investment cost for Federal tax
purposes is as follows:
Aggregate gross unrealized appreciation on investments $2,354,324
Aggregate gross unrealized depreciation on investments (430,645)
----------
Net unrealized appreciation $1,923,679
----------
----------
(4) Investment Transactions --
For the period ended September 30, 1996, the cost of
purchases and the proceeds from sales of investments, other
than short-term obligations, aggregated $1,347,125 and
$873,496, respectively.
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 and Treasurer
CUSTODIAN AND TRANSFER AGENT
FIRSTAR TRUST COMPANY
Milwaukee
(414) 276-0535
COUNSEL
MICHAEL, BEST & FRIEDRICH
Milwaukee
AUDITORS
ARTHUR ANDERSON LLP
Milwaukee
Member of 100% NO-LOAD tm MUTUAL FUND
COUNCIL
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.
