May 29, 1997
Report to Fellow Shareholders:
Nicholas Equity Income Fund, Inc. had a total return of zero percent
for the quarter ended March 31, 1997. Net assets at March 31 were $21
million, and net asset value per share was $12.27. Returns for periods
ended March 31, 1997 are shown below:
<TABLE>
<CAPTION>
Average Annual Total Return*
----------------------------
3 Months* One Year* Three Years*
-------- --------- ------------
<S> <C> <C> <C>
Nicholas Equity Income Fund, Inc.
(Distribution reinvested)........................................ + 0.00% + 7.83% +12.03%
Standard & Poor's 500 Index
(Income reinvested).............................................. + 2.68% +19.83% +22.28%
Lehman Brothers Intermediate
Corporate Bond Index............................................. - 0.41% + 5.00% + 7.23%
</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, yield, share price 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 March 31, 1997) is
+10.89%.
The Equity Income Fund is pursuing its mission of producing a
reasonable current income yield while providing the opportunity for
long-term capital appreciation. As of March 31, 1997, the 30 day
annualized SEC yield was 3.72%. Also at March 31, the portfolio
composition was as follows: 12% of assets in cash, 12% in bonds and
76% in stocks and convertible securities. With this alignment, we
expect less volatility in share price than with our growth funds.
Thank you for your interest in Nicholas Equity Income Fund.
Sincerely,
/S/Albert O. Nicholas
------------------
Albert O. Nicholas
President
Schedule of Investments
March 31, 1997
- ----------------------------------------------------------------------
Shares or Quoted
Principal Market
Amount Value
- ----------- -------------
(Note 1 (a))
COMMON STOCKS - 47.81%
BANKS AND FINANCE - 9.62%
50,000 Bando McGlocklin Capital Corporation $ 625,000
10,000 First Bank System, Inc. 730,000
23,600 Firstar Corporation 649,000
-----------
2,004,000
-----------
CONSUMER PRODUCTS AND SERVICES - 9.98%
40,000 Day Runner, Inc. * 1,015,000
8,000 Eastman Kodak Company 607,000
4,000 Philip Morris Companies Inc. 456,500
-----------
2,078,500
-----------
HEALTH CARE - 5.85%
8,000 American Home Products Corporation 480,000
30,000 Magellan Health Services Inc. * 738,750
-----------
1,218,750
-----------
INDUSTRIAL PRODUCTS - 7.64%
14,000 General Motors Corporation -Class H 759,500
50,000 RPM, Inc. 831,250
-----------
1,590,750
-----------
PRINTING AND PUBLISHING - 3.29%
28,000 American List Corporation 686,000
-----------
REAL ESTATE - 8.40%
20,000 Meditrust 747,500
27,000 National Health Investors, Inc. 1,002,375
-----------
1,749,875
-----------
MISCELANEOUS - 3.03%
30,000 Landauer, Inc. 630,000
-----------
TOTAL COMMON STOCKS 9,957,875
(cost $7,924,196) -----------
PREFERRED CONVERTIBLE STOCK - 3.11%
CONSUMER PRODUCTS AND SERVICES - 3.11%
8,000 IKON Office Solutions, Inc. 647,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCK
(cost $619,150) 647,000
-----------
NON-CONVERTIBLE BONDS - 11.98%
DIVERSIFIED PRODUCTS AND SERVICES - 2.43%
$500,000 Fort Howard Corporation
9.00%, 2/01/06 505,000
-----------
ENERGY - 2.44%
500,000 Maxus Energy Corporation
9.875%, 10/15/02 507,500
-----------
HEALTH CARE - 4.71%
1,000,000 Beverly Enterprises, Inc.
9.00%, 2/15/06 980,000
-----------
INDUSTRIAL AND CONSUMER ELECTRONICS - 2.40%
500,000 Unisys Corporation
9.50%, 7/15/98 500,000
-----------
TOTAL NON-CONVERTIBLE BONDS 2,492,500
(cost $2,509,624) -----------
CONVERTIBLE BONDS - 25.41%
CONSUMER PRODUCTS AND SERVICES - 3.75%
800,000 ThermoQuest Corporation
5.00%, 8/15/2000 780,000
-----------
HEALTH CARE - 10.16%
1,195,000 Emeritus Corporation
6.25%, 1/1/06 966,456
1,000,000 TENET HEALTHCARE CORPORATION
6.00%, 12/1/05 1,148,750
-----------
2,115,206
-----------
INDUSTRIAL PRODUCTS AND SERVICES - 8.58%
900,000 Richey Electronics, Inc.
7.00%, 3/01/06 959,625
800,000 Thermo Optek Corporation
5.00%, 10/15/2000 827,000
-----------
1,786,625
-----------
MISCELLANEOUS - 2.92%
600,000 Leucadia National Corporation
5.25%, 2/1/03 609,000
-----------
TOTAL CONVERTIBLE BONDS
(cost $5,305,025) 5,290,831
-----------
SHORT-TERM INVESTMENTS - 11.01%
COMMERCIAL PAPER - 9.47%
200,000 Schreiber Foods, Incorporated
5.45%, due April 2, 1997 199,970
250,000 Houston Industries Incorporated
5.62%, due April 3, 1997 249,922
200,000 Tyson Foods, Incorporated
5.70%, due April 4, 1997 199,905
325,000 Houston Industries Incorporated
5.75%, due April 7, 1997 324,689
250,000 Mosinee Paper Corporation
5.75%, due April 8, 1997 249,720
250,000 Mosinee Paper Corporation
5.75%, due April 10, 1997 249,641
300,000 Manpower, Incorporated
5.75%, due April 15, 1997 299,329
200,000 Fiserv, Incorporated
5.50%, due April 16, 1997 199,541
-----------
1,972,717
-----------
VARIABLE RATE DEMAND NOTES - 1.54%
304,981 Johnson Controls, Incorporated
5.31%, due April 1, 1997 304,981
16,145 Wisconsin Electric Power Company
5.33%, due April 1, 1997 16,145
-----------
321,126
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $2,291,225) 2,293,843
-----------
TOTAL INVESTMENTS 20,682,049
-----------
CASH AND RECEIVABLES,
NET OF LIABILITIES - 0.68% 139,260
-----------
TOTAL NET ASSETS
(Basis of percentages
disclosed above) $20,821,309
-----------
-----------
The accompanying notes to financial statements are an integral
part of this schedule.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
- -----------------------------------------------------------------------------
<TABLE>
<S>
ASSETS: <C>
Investments in securities at market value (cost $18,649,220)(Note 1 (a))................... $20,682,049
Dividends and interest receivables......................................................... 174,998
-----------
Total assets................................................................... 20,857,047
-----------
LIABILITIES:
Payables --
Management fee (Note 2).............................................................. 19,273
Other payables and accrued expenses.................................................. 16,465
-----------
Total liabilities.............................................................. 35,738
-----------
Total net assets............................................................... $20,821,309
-----------
-----------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding......................................................... $18,108,230
Net unrealized appreciation on investments (Note 3)........................................ 2,030,211
Accumulated undistributed net realized gains on investments................................ 474,802
Accumulated undistributed net investment income............................................ 208,066
-----------
$20,821,309
-----------
-----------
NET ASSET VALUE PER SHARE ($.0001 par value, 500,000,000 shares authorized),
offering price and redemption price ($20,821,309 / 1,696,902 shares outstanding)........... $12.27
------
------
The accompanying notes to financial statements are an integral
part of this statement.
</TABLE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
- ----------------------------------------------------------------------------
<TABLE>
<S> <C>
INCOME:
Interest..................................................................................... $459,801
Dividends (Note 1 (d))....................................................................... 456,636
-----------
916,437
-----------
EXPENSES:
Management fee (Note 2)...................................................................... 127,803
Registration fees............................................................................ 25,814
Legal fees................................................................................... 25,522
Audit and tax consulting fees................................................................ 15,750
Transfer agent fees.......................................................................... 8,638
Directors' fees.............................................................................. 3,600
Insurance.................................................................................... 3,098
Postage and mailing fees..................................................................... 2,263
Printing..................................................................................... 1,340
Custodian fees............................................................................... 909
-----------
Total expenses before reimbursement................................................. 214,737
Reimbursement of expenses by adviser (Note 2)....................................... 50,419
-----------
164,318
-----------
Net investment income............................................................... 752,119
-----------
NET REALIZED GAINS ON INVESTMENTS (Note 1 (b))..................................................... 717,947
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS............................................. (113,756)
-----------
Net gain on investments............................................................. 604,191
-----------
Net increase in net assets resulting from operations................................ $1,356,310
-----------
-----------
The accompanying notes to financial statements are an
integral part of this statement.
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended March 31, 1997 and 1996
- -------------------------------------------------------------------
<TABLE>
1997 1996
---------- ---------
<S>
OPERATIONS: <C> <C>
Net investment income...................................................... $ 752,119 $ 451,415
Net realized gain on investments (Note 1 (b)).............................. 717,947 557,867
Net (decrease) increase in unrealized appreciation on investments.......... (113,756) 1,668,395
----------- ----------
Net increase in net assets resulting from operations.................. 1,356,310 2,677,677
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS (Note 1 (d)):
Distributions from net investment income
($0.4527 and $0.3370 per share, respectively)............................ (665,203) (412,917)
Distrbutions from net realized gains on investment transactions
($0.5483 per share, in fiscal year 1997)................................. (760,192) --
----------- -----------
Total distributions................................................... (1,425,395) (412,917)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (463,715 and 300,013 shares, respectively)..... 5,666,425 3,287,697
Net asset value of shares issued in distributions from net investment
income (114,109 and 36,390 shares, respectively)......................... 1,376,641 396,905
Cost of shares redeemed (161,928 and 168,391 shares, respectively)......... (1,968,355) (1,883,897)
----------- ----------
Increase in net assets derived from capital
share transactions.................................................. 5,074,711 1,800,705
----------- ----------
Total increase in net assets.......................................... 5,005,626 4,065,465
----------- ----------
NET ASSETS, at the beginning of the year (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 year (including undistributed net
investment income of $208,066 and $121,150, respectively)..................... $20,821,309 $15,815,683
------------ ----------
----------- - ----------
The accompanying notes to financial statements are an integral
part of these statements.
</TABLE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------
(For a share outstaning throughout the year)
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1997 1996 1995 1994 (1)
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $12.35 $10.56 $10.04 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .48 .36 .30 .06
Net gains or (losses) on
securities (realized
and unrealized) .44 1.77 .50 (.01)
----- ----- ----- -----
Total from investment
operations .92 2.13 .80 .05
----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends (from net
investment income) (.45) (.34) (.28) (.01)
Distributions (from
capital gains) (.55) -- -- --
----- ----- ----- ----
Total distributions (1.00) (.34) (.28) (.01)
------ ------ ------ -----
NET ASSET VALUE, END OF
YEAR $12.27 $12.35 $10.56 $10.04
----- ------ ------ -----
----- ------ ------ -----
TOTAL RETURN 7.83% 20.61% 8.13% .53% (2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions) $20.8 $15.8 $11.8 $5.8
Ratio of expenses to
average net assets 0.90%(4) 1.38%(4) 1.73% 1.70%(3)
Ratio of net investment
income to average net
assets 4.12%(4) 3.26%(4) 3.32% 2.53%(3)
Portfolio turnover rate 23.05% 68.85% 10.98% 0%
Average commission rate
paid by the Fund on
portfolio investment
transactions (5) $0.0467 $0.0472 N/A N/A
(1) For the period from November 23, 1993 (date of initial public offering)
through March 31, 1994.
(2) Not annualized
(3) Annualized
(4) Net of reimbursements by adviser. Absent reimbursement of expenses,
the ratio of expenses to average net assets would have been 1.18% and
1.40% for the fiscal years ended March 31, 1997 and March 31, 1996
respectively. Also, the respective ratios of net investment income to
average net assets would have been 3.84% and 3.24%.
(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.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
- -------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies --
The Nicholas Equity Income Fund, Inc. (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
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 rate
demand notes are valued at cost which approximates market
value. U.S. Treasury Bills and commercial paper are stated at
market value with the resultant difference between market
value and original purchase price being recorded as interest
income. Investment transactions are recorded no later than
the first business day after the trade date. Cost amounts, as
reported on the schedule of investments and the statement of
assets and liabilities, are the same for Federal income tax
purposes.
(b) Net realized gains and losses on common stocks 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 ADVISOR 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. The adviser
reimbursed $50,419 to the Fund which represents the expenses in
excess of .90% (annualized) of net assets for the fiscal year ended
March 31, 1997. 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, 1997, based on investment cost for Federal tax purposes is as
follows:
</TABLE>
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation on investments ........................... $2,519,899
Aggregate gross unrealized depreciation on investments ........................... (489,688)
Net unrealized appreciation ................................................. $2,030,211
(4) INVESTMENT TRANSACTIONS --
For the year ended March 31, 1997, the cost of purchases and the
proceeds from sales of investments, other than short-term
obligations, aggregated $6,622,775 and $3,914,185, respectively.
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, 1997, and the
related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of March 31, 1997, by
correspondence with the custodian and brokers. 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, 1997, and the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period
then ended and the financial highlights for the periods presented in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
April 25, 1995.
HISTORICAL RECORD (unaudited)
- --------------------------------------------------------------------------
</TABLE>
<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 31, 1996............................. 12.35 .3370 -- 16.8 13,111
March 31, 1997............................. 12.27 .4527 (4) .5483 (4) 15.9 14,138
(1) Date of Initial Public Offering.
(2) Based on latest 12 months accomplished earnings for
common stock investments.
(3) Assuming reinvestment of all distributions.
(4) Paid $0.0952 in net investment income and $0.3998 in
capital gains on April 30, 1996 to shareholders of
record April 25, 1996.
Paid $0.1030 in net investment income on July 24,
1996 to shareholders of record July 18, 1996.
Paid $0.1170 in net investment income on October 23,
1996 to shareholders of record October 17, 1996.
Paid $0.1375 in net investment income and $0.1485
in capital gains on December 31, 1996 to
shareholders of record December 27, 1996.
Range in quarter end price/earnings ratios.
High Low
---- ---
12/31/96 17.0 12/31/94 13.9
</TABLE>
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
JEFFREY T. MAY
Senior Vice President and Treasurer
CANDACE L. LESAK
Vice President
TRACY C. EBERLEIN
Assistant Vice President
Investment Advisor
NICHOLAS COMPANY, INC.
Milwaukee
414-276-6133 or 800-227-5987
Custodian and Transfer Agent
FIRSTAR TRUST COMPANY
Milwaukee
414-276-0535 or 800-544-6547
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
