November 26, 1997
Report to Fellow Shareholders:
Nicholas Equity Income Fund had a total return of 15.50% for the six
month period ended September 30, 1997. Net assets at September 30 were
$25.6 million, and net asset value per share was $13.59. Returns for
periods ended September 30, 1997 are shown below:
Average Annual Total Return*
----------------------------
One Year Three Years
-------- ------------
Nicholas Equity Income Fund
(Distributions reinvested).............. +22.13% +15.70%
Standard & Poor's 500
(Dividends reinvested).................. +40.43% +29.89%
Lehman Brothers Intermediate
Corporate Bond Index.................... +13.86% +12.97%
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 September 30, 1997, the Funds' 30
day annualized SEC yield was 2.83%. The annualized composite dividend
return of the Standard & Poors 500 as of September 30 was approximately
1.70%
The portfolio consisted of 6.10% of assets in cash and equivalents,
10.20% in non-convertable bonds and 83.70% in stocks and convertible
securities. We expect less volatility in the net asset value per share
of this fund than with our growth funds.
Thank you for your interest in Nicholas Equity Income Fund.
Sincerely,
/S/ Albert O. Nicholas
----------------------
Albert O. Nicholas
President
*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, return and yield 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, 1997) is +13.57%.
Financial Highlights
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------
<TABLE>
Six Months Year Ended March 31,
Ended 9/30/97 -----------------------------------
(unaudited) 1997 1996 1995 1994(1)
--------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.27 $12.35 $10.56 $10.04 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .23 .48 .36 .30 .06
Net gains or (losses) on securities
(realized and unrealized) 1.61 .44 1.77 .50 (.01)
------ ------ ------ ------ ------
Total from investment operations 1.84 .92 2.13 .80 .05
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net investment income) (.25) (.45) (.34) (.28) (.01)
Distributions (from capital gains) (.27) (.55) -- -- --
------ ------ ------ ------ ------
Total distributions (.52) (1.00) (.34) (.28) (.01)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $13.59 $12.27 $12.35 $10.56 $10.04
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN 15.50%(2) 7.83% 20.61% 8.13% .53%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) $25.6 $20.8 $15.8 $11.8 $5.8
Ratio of expenses to average net assets 0.90%(3,4) 0.90%(4) 1.38%(4) 1.73% 1.70%(3)
Ratio of net investment income
to average net assets 3.72%(3,4) 4.12%(4) 3.26% 3.32% 2.53%(3)
Portfolio turnover rate 48.90%(3) $23.05% 68.85% 10.98% 0%
Average commission rate paid by the Fund
on portfolio investment
transactions (5) $0.0472 $0.0467 $0.0472 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. Absent reinbursement of expenses,
the ratio of expenses to average net assets for the six months ended
September 30, 1997 and the fiscal years ended 1997 and 1996 would
have been 1.10%, 1.18% and 1.40% respectively and the ratio of net
investment income to average net assets would have been 3.52%, 3.84%
and 3.24% 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.
Top Ten Portfolio Holdings
September 30, 1997 (unaudited)
- ---------------------------------------------------------------------
Percentage of
Total Net Assets
----------------
General Cable Corporation ..................................5.55%
Thermo Optek Corporation 5.00%, due October 15, 2000*.......5.37
RPM, Inc. ..................................................4.80
ThermoQuest Corporation 5.00%, due August 15, 2000*.........4.77
Tenet Healthcare Corporation 6.00%, due December 1, 2005*...4.71
General Motors Corporation - Class H .......................4.65
U.S. Bancorp ...............................................4.52
Household International, Inc. ..............................4.42
Wallace Computer Services, Inc. ............................4.32
American Home Products Corporation .........................4.28
------
Total of top ten holdings ............................47.39%
======
*Convertible Bond.
Schedule of Investments
September 30, 1997 (unaudited)
- ----------------------------------------------------------------------------
Shares or Quoted
Principal Market
Amount Value
- ----------- -------------
(Note 1 (a))
COMMON STOCKS - 60.42%
Banks and Finance - 18.87%
55,500 Bando McGlocklin Capital Corporation..... $ 520,313
20,000 Edwards (A.G.), Inc. .................... 1,027,500
23,600 Firstar Corporation...................... 855,500
10,000 Houshold International, Inc. ............ 1,131,875
13,238 InvestorsBancorp, Inc. *................. 138,999
12,000 U.S. Bancorp............................. 1,158,000
-----------
4,832,187
-----------
Business Services - 4.32%
30,000 Wallace Computer Services, Inc........... 1,106,250
-----------
Consumer Products and Services - 3.25%
10,000 Pitney Bowes Credit Corporation.......... 831,875
-----------
Health Care - 4.28%
15,000 American Home Products Corporation....... 1,095,000
-----------
Industrial Products and Services - 15.00%
40,000 General Cable Corporation................ 1,420,000
18,000 General Motors Corporation - Class H..... 1,190,250
60,000 RPM, Inc. ............................... 1,230,000
-----------
3,840,250
-----------
Insurance - 2.72%
10,000 Lincoln National Corporation............. 696,250
-----------
Real Estate - 9.05%
20,000 Meditrust Corporation, Paired ctf. ...... 830,000
27,000 National Health Investors, Inc. ......... 1,049,625
16,500 Reckson Associates Realty Corp. ......... 439 312
-----------
2,318,937
-----------
Miscellaneous - 2.93%
30,000 Landauer, Inc. .......................... 750,000
-----------
TOTAL COMMON STOCKS
(cost $11,929,739).................... 15,470,749
-----------
NON-CONVERTIBLE BONDS - 10.20%
Diversified Products and Services - 2.11%
$ 500,000 Fort Howard Corporation
9.00%, due February 1, 2006............. 540,999
-----------
Energy - 2.04%
500,000 Maxus Energy Corporation
9.875%, due October 15, 2002............ 522,500
-----------
Health Care - 4.09%
1,000,000 Beverly Enterprises, Inc.
9.00%, due February 15, 2006............ 1,047,500
----------
Industrial and Consumer Electronics - 1.96%
500,000 Unisys Corporation
9.50%, due July 15, 1998................ 501,250
-----------
TOTAL NON-CONVERTIBLE BONDS
(cost $2,509,624)..................... 2,612,249
-----------
CONVERTIBLE BONDS - 23.28%
Consumer Products and Services - 4.77%
1,000,000 ThermoQuest Corporation
5.00%, due August 15, 2000.............. 1,222,500
-----------
Health Care - 8.92%
1,195,000 Emeritus Corporation
6.25%, due January 1, 2006.............. 1,076,994
1,000,000 Tenet Healthcare Corporation
6.00%, due December 1, 2005............. 1,206,250
-----------
2,283,244
-----------
Industrial Products and Services - 9.59%
1,100,000 Richey Electronics, Inc.
7.00%, due March 1, 2006................ 1,079,375
1,100,000 Thermo Optek Corporation
5.00%, October 15, 2000................. 1,376,375
-----------
2,455,750
-----------
TOTAL CONVERTIBLE BONDS
(cost $5,376,525)..................... 5,961,494
-----------
SHORT-TERM INVESTMENTS - 5.77%
Commercial Paper - 4.68%
750,000 Mosinee Paper Corporation
5.70%, due October 7, 1997.............. 749,288
450,000 Cox Enterprises, Inc.
5.70%, due October 9, 1997.............. 449,430
-----------
1,198,718
-----------
Variable Rate Demand Notes - 1.09%
15,985 Johnson Controls, Incorporated
5.17%, due October 1, 1997.............. 15,985
247,758 Pitney Bowes Credit Corporation
5.14%, due October 1, 1997.............. 247,758
16,742 Wisconsin Electric Power Company
5.19%, due October 1, 1997.............. 16,742
-----------
280,485
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,477,137)..................... 1,479,203
-----------
TOTAL INVESTMENTS
(cost $21,293,025).................... 25,523,695
-----------
CASH AND RECEIVABLES
NET OF LIABITIES - 0.33%............... 83,685
-----------
TOTAL NET ASSETS
(Basis of percentages
disclosed above)..................... $25,607,380
-----------
-----------
*Nondividend paying security.
The accompanying notes to financial statements are an integral
part of this schedule.
Statement of Assets and Liabilities
- ---------------------------------------------------------------------
ASSETS:
Investments in securities at market value
(Cost $21,293,025) (Note 1 (a))......... $25,523,695
Dividends and interest receivable................... 149,294
-----------
Total assets............................ 25,672,989
-----------
LIABILITIES:
Payables --
Management fee (Note 2)....................... 37,794
Other payables and accrued expenses........... 27,815
-----------
Total liabilities....................... 65,609
-----------
Total net assets........................ $25,607,380
------------
------------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding.................. $20,465,140
Net unrealized appreciation on investments (Note 3). 4,228,604
Accumulated undistributed net realized gains on investments 716,016
Accumulated undistributed net investment income.... . 197,620
-----------
$25,607,380
-----------
-----------
NET ASSET VALUE PER SHARE ($.0001 par value, 500,000,000 shares authorized),
offering price and redemption price
($25,607,380 / 1,884,386 shares outstanding)........... $13.59
------
------
The accompanying notes to financial statements are an
integral part of this statement.
Statement of Operations
For the six months ended September 30, 1997 (unaudited)
- ---------------------------------------------------------------------
INCOME:
Dividends........................................ $ 188,306
Interest......................................... 344,301
----------
532,607
----------
EXPENSES:
Management fee (Note 2).......................... 80,923
Legal fees....................................... 20,285
Audit and tax consulting fee .................... 10,075
Registration fees................................ 6,898
Transfer agent fees.............................. 4,852
Postage and mailing fees......................... 1,273
Printing ........................................ 912
Directors' fees ................................. 900
Custodian fees .................................. 591
Other operating expenses......................... 233
----------
Total expenses before reimbursement........ 126,942
Reimbursement of expenses by adviser (Note 2) 22,898
----------
104,044
----------
Net investment income..................... 428,563
----------
NET REALIZED GAINS ON INVESTMENTS (Note 1 (b)) ........ 716,580
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 2,198,394
----------
Net gain on investments................... 2,914,974
----------
----------
Net increase in net assets resulting from operations $3,343,537
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, 1997 (unaudited) and the year
ended March 31, 1997
- ---------------------------------------------------------------------
<TABLE>
Six Months
Ended 9/30/97
(unaudited) 1997
-------------- ----------
<S> <C> <C>
OPERATIONS: ----------- ----------
Net investment income...................................................... $ 428,563 $ 752,119
Net realized gains investments (Note 1 (b))................................ 716,580 717,947
Net increase (decrease) in unrealized appreciation on investments.......... 2,198,394 (113,756)
----------- ----------
Net increase in net assets resulting from operations.................. 3,343,537 1,356,310
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.2460 and $0.4527 per share, respectively)............................. (439,009) (665,203)
Distributions from net realized gains on investment transactions
($0.2750 and $0.5483 per share, respectively)............................. (475,367) (760,192)
----------- ----------
Total distributions................................................... (914,376) (1,425,395)
----------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (205,828 and 463,715 shares, respectively)..... 2,615,226 5,666,425
Net asset value of shares issued in distributions
from net investment income and net realized gains
(70,694 and 114,109 shares, respectively)................................. 867,988 1,376,641
Cost of shares redeemed (89,038 and 161,928 shares, respectively).......... (1,126,304) (1,968,355)
----------- ----------
Increase in net assets derived from capital share transactions........ 2,356,910 5,074,711
----------- ----------
Total increase in net assets.......................................... 4,786,071 5,005,626
----------- ----------
NET ASSETS, at the beginning of the period (including undistributed net
investment income of $208,066 and $121,150, respectively).................... 20,821,309 15,815,683
----------- ----------
NET ASSETS, at the end of the period (including undistributed net investment
income of $197,620 and $208,066 respectively)................................ $25,607,380 $20,821,309
----------- ----------
----------- ----------
</TABLE>
The accompanying notes to financial statements are an
integral part of this statement.
Notes to Financial Statements
September 30, 1997 (unaudited)
- ---------------------------------------------------------------------
(1) Summary of Significant Accounting Policies --
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 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 adviser has decided to
absorb all expenses of the Fund in excess of 0.90% of net assets.
The adviser reimbursed $22,898 to the Fund which represents the
expenses in excess of 0.90% (annualized) of net assets for the six
months ended September 30, 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 September
30, 1997, based on investment cost for Federal tax purposes is as
follows:
Aggregate gross unrealized appreciation on investments ... $4,500,511
Aggregate gross unrealized depreciation on investments ... (271,907)
----------
Net unrealized appreciation ......................... $4,228,604
==========
(4) Investment Transactions --
For the period ended September 30, 1997, the cost of purchases and the
proceeds from sales of investments, other than short-term obligations,
aggregated $7,743,366 and $5,002,054, respectively.
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 0.0133 -- 14.4 times 10,053
March 31, 1995............................. 10.56 0.2810 -- 14.6 10,871
March 31, 1996............................. 12.35 0.3370 -- 16.8 13,111
March 31, 1997............................. 12.27 0.4527 0.5483 15.9 14,138
September 30, 1997......................... 13.59 0.2460 (4) 0.2750 (4) 19.1 16,328
</TABLE>
(1) Date of Initial Public Offering.
(2) Based on latest 12 months accomplished earnings.
(3) Assuming reinvestment of all distributions.
(4) Paid $0.1210 in net investment income and $0.2750 in
capital gains on May 2, 1997 to shareholders of
record on April 30, 1997. Paid $0.1250 in net
investment income on July 30, 1997 to shareholders
of record on July 24, 1997.
Range in quarter end price/earnings ratios
High 19.1 Low 13.9
-------------------- ---------------------
September 30, 1997 December 31, 1994
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
DAVID O. NICHOLAS
Senior Vice President
LYNN S. NICHOLAS
Senior Vice President
JEFFREY T. MAY
Senior Vice President and Treasurer
CANDACE L. LESAK
Vice President
TRACY C. EBERLEIN
Assistant Vice President
MARK J. GIESE
Assistant Vice President
Investment Adviser
NICHOLAS COMPANY, INC.
Milwaukee, Wisconsin
414-272-6133 or 800-227-5987
Custodian and Transfer Agent
FIRSTAR TRUST COMPANY
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
Counsel
MICHAEL, BEST & FRIEDRICH
Milwaukee, Wisconsin
Auditors
ARTHUR ANDERSON 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.
