November 27, 1998
Report to Fellow Shareholders:
Nicholas Equity Income Fund had a negative total return of 14.27% for
the six month period ended September 30, 1998. Net assets at September 30
were $25.3 million, and the net asset value per share was $12.10. Returns
for periods ended September 30, 1998 are shown below:
<TABLE>
<CAPTION>
Average Annual Total Return*
----------------------------
One Year Three Year
--------- ------------
<S> <C> <C>
Nicholas Equity Income Fund
(Distributions Reinvested)...................................... (5.11)% 9.58%
Standard & Poor's 500 Index
(Dividends Reinvested).......................................... 9.05% 22.60%
Lehman Brothers Intermediate
Corporate Bond Index............................................ 9.92% 8.17%
</TABLE>
The Fund's objective is to produce reasonable income with moderate
long term growth. The Fund has a portfolio compostion of 56% common stocks,
22% convertible bonds, 4% in a non-convertible bond and 18% in cash
equivalents as of September 30, 1998 in an effort to meet this objective.
Nicholas Equity Income Fund's 4.49% 30-day annualized yield as of September
30 compares favorably with the Standard & Poor's 500 yield of approximately
1.70%.
By design, Nicholas Equity Income Fund can be expected to show the most
resistance during a stock market correction in relation to the Nicholas
growth funds which are equity funds. Upside potential in rising markets was
expected to be less. In particular, the chart below confirms this action.
<TABLE>
<CAPTION>
For the time period ended September 30, 1998
Average Annual Total Return
Three month -------------------------------------------
Return One Year Three year Five Year Ten Year
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nicholas Equity Income Fund........... (12.97)% (5.11)% 9.58% N/A* N/A*
Nicholas Fund......................... (15.89)% 0.77% 18.90% 15.99% 15.13%
Nicholas II........................... (15.62)% (1.66)% 17.21% 15.76% 13.51%
Nicholas Limited Edition.............. (17.01)% (14.53)% 12.69% 12.50% 14.27%
</TABLE>
Thank you for your interest in Nicholas Equity Income Fund.
Sincerely,
/S/Albert O. Nicholas
---------------------
Albert O. Nicholas
President
*The Fund's average annual total return for the life of the Fund (November
23, 1993 through September 30, 1998) is 9.44%. 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.
For more complete information on the above mentioned funds, including
management fees and expenses, call 1-800-227-5987 for a prospectus.
Please read it carefully before you invest or send money.
<TABLE>
<CAPTION>
Financial Highlights
(For a share outstanding throughout each period)
- -------------------------------------------------------------------------------
Six Months Year Ended March 31,
Ended 9/30/98 --------------------------------------------
(unaudited) 1998 1997 1996 1995 1994(1)
--------------- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.35 $12.27 $12.35 $10.56 $10.04 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .22 .47 .48 .36 .30 .06
Net (losses) gains on securities
(realized and unrealized) (2.24) 2.77 .44 1.77 .50 (.01)
------ ------ ------ ------ ------ ------
Total from investment operations (2.02) 3.24 .92 2.13 .80 .05
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net investment income) (.18) (.50) (.45) (.34) (.28) (.01)
Distributions (from capital gains) (.05) (.66) (.55) -- -- --
------ ------ ------ ------ ------ ------
Total distributions (.23) (1.16) (1.00) (.34) (.28) (.01)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.10 $14.35 $12.27 $12.35 $10.56 $10.04
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN (14.27)%(2) 27.83% 7.83% 20.61% 8.13% .53%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) $25.3 $29.0 $20.8 $15.8 $11.8 $5.8
Ratio of expenses to average net assets 0.90%(3,4) 0.90%(4) 0.90%(4) 1.38%(4) 1.73% 1.70%(3)
Ratio of net investment income
to average net assets 3.32%(3,4) 3.61%(4) 4.12%(4) 3.26%(4) 3.32% 2.53%(3)
Portfolio turnover rate 34.08%(3) 36.83% 23.05% 68.85% 10.98% 0%
(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, 1998 and the years ended 1998, 1997 and 1996 would have
been 1.11%, 1.08%, 1.18% and 1.40%, respectively. The ratio of net
investment income to average net assets would have been 3.11%, 3.43%,
3.84% and 3.24%, respectively.
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
Top Ten Portfolio Holdings
September 30, 1998 (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
Percentage of
Net Assets
----------------
<S> <C>
U.S. Bancorp................................................ 5.06%
Firstar Corporation......................................... 4.73%
RPM, Inc. .................................................. 4.57%
ThermoQuest Corporation, 5.00%, due August 15, 2000 ........ 4.54%
Household International, Inc................................ 4.45%
General Cable Corporation................................... 4.39%
Dean Foods Company.......................................... 4.35%
American Home Products Corporation.......................... 4.14%
Thermo Optek Corporation, 5.00%, due October 15, 2000 ...... 4.05%
Beverly Enterprises, Inc. 9.00%, due February 15, 2006...... 3.88%
------
Total of top ten holdings ............................ 44.16%
------
------
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
September 30, 1998 (unaudited)
- ----------------------------------------------------------------------------
Shares or Quoted
Principal Market
Amount Value
- ----------- -------------
(Note 1 (a))
<S> <C> <C>
COMMON STOCKS - 55.93%
Banks and Finance - 21.60%
30,000 Edwards (A.G.), Inc...................... $ 909,375
23,600 Firstar Corporation...................... 1,194,750
30,000 Household International, Inc............. 1,125,000
13,238 InvestorsBancorp, Inc *.................. 115,833
53,000 Medallion Financial Corporation.......... 834,750
36,000 U.S. Bancorp............................. 1,280,250
-----------
5,459,958
-----------
Food and Beverage - 4.35%
25,000 Dean Foods Company....................... 1,100,000
-----------
Health Care - 4.14%
20,000 American Home Products Corporation 1,047,500
-----------
Industrial Products and Services - 8.96%
60,000 General Cable Corporation................ 1,110,000
80,000 RPM, Inc................................. 1,155,000
-----------
2,265,000
-----------
Insurance - 3.79%
15,000 American General Corporation............. 958,125
-----------
Investment Management - 1.88%
25,000 Waddell & Reed Financial, Inc. - Class A 475,000
-----------
Real Estate - 8.18%
55,500 Bando McGlocklin Capital Corporation..... 499,500
32,750 Correctional Properties Trust............ 585,406
19,200 National Health Investors, Inc........... 595,200
16,500 Reckson Associates Realty Corporation.... 387,750
-----------
2,067,856
-----------
Miscellaneous - 3.03%
30,000 Landauer, Inc. .......................... 765,000
-----------
TOTAL COMMON STOCKS
(cost $12,098,006).................... 14,138,439
-----------
NON-CONVERTIBLE BONDS - 3.87%
Health Care - 3.87%
1,000,000 Beverly Enterprises, Inc.
9.00%, due February 15, 2006............ 980,000
----------
TOTAL NON-CONVERTIBLE BONDS
(cost $1,000,250)..................... 980,000
-----------
CONVERTIBLE BONDS - 22.23%
Consumer Products and Services - 8.08%
1,225,000 ThermoQuest Corporation
5.00%, due August 15, 2000.............. 1,146,906
1,100,000 ThermoTrex Corporation
3.25%, due November 1, 2007............. 895,125
-----------
2,042,031
-----------
Health Care - 6.92%
1,000,000 Assisted Living Concepts, Inc.
6.00%, due November 1, 2002............. 868,750
1,195,000 Emeritus Corporation
6.25%, due January 1, 2006 ............ 881,313
-----------
1,750,063
-----------
Industrial Products and Services - 7.23%
1,100,000 Richey Electronics, Inc.
7.00%, due March 1, 2006................ 805,750
1,100,000 Thermo Optek Corporation
5.00%, due October 15, 2000............. 1,023,000
-----------
1,828,750
-----------
TOTAL CONVERTIBLE BONDS
(cost $6,601,275)..................... 5,620,844
-----------
SHORT-TERM INVESTMENTS - 17.68%
Commercial Paper - 15.50%
$250,000 Universal Foods Corporation
5.70%, due October 2, 1998.............. 249,960
300,000 Universal Foods Corporation
5.70%, due October 5, 1998.............. 299,810
525,000 Fiserv, Inc.
5.70%, due October 7, 1998.............. 524,501
500,000 Applied Power Inc.
5.70%, due October 9, 1998.............. 499,367
500,000 Badger Meter, Inc.
5.70%, due October 13, 1998............. 499,050
850,000 Marriott International, Inc.
5.72%, due October 15, 1998............. 848,109
500,000 WEYCO Group, Inc.
5.70%, due October 16, 1998............. 498,813
500,000 Manpower Inc.
5.45%, due October 20, 1998............. 498,562
-----------
3,918,172
-----------
Variable Rate Demand Notes - 2.18%
261,559 Pitney Bowes Credit Corporation
4.95%, due October 1, 1998.............. 261,559
253,576 Wisconsin Electric Power Company
4.96%, due October 1, 1998.............. 253,576
35,137 Warner Lambert Company
4.96%, due October 1, 1998.............. 35,137
-----------
550,272
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $4,459,871)..................... 4,468,444
-----------
TOTAL INVESTMENTS
(cost $24,159,402).................... 25,207,727
-----------
CASH AND RECEIVABLES,
NET OF LIABILITIES - 0.29%............. 72,474
-----------
TOTAL NET ASSETS
(Basis of percentages
disclosed above)..................... $25,280,201
-----------
-----------
*Nondividend paying security.
The accompanying notes to financial statements
are an integral part of this schedule.
</TABLE>
Historical Record (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
March 31, 1998............................. 14.35 0.5014 0.6586 23.0 18,072
September 30, 1998......................... 12.10 0.1815 (4) 0.0515 (4) 17.6 15,494
</TABLE>
(1) Date of Initial Public Offering.
(2) Based on latest 12 months accomplished earnings.
(3) Assuming reinvestment of all distributions.
(4) Paid $0.0875 in net investment income and $0.0515 in capital
gains on May 6, 1998 to shareholders of record on April 30, 1998.
Paid $0.0940 in net investment income on August 5, 1998
to shareholders of record on July 30, 1998.
Range in quarter end price/earnings ratios
High 22.7 Low 13.9
--------- --------
June 30, 1998 December 31, 1994
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities at market value
(cost $24,159,402) (Note 1 (a))......... $25,207,727
Dividends and interest receivable................... 158,448
Cash................................................ 1,517
-----------
Total assets............................ 25,367,692
-----------
LIABILITIES:
Payables --
Management fee (Note 2)....................... 59,503
Other payables and accrued expenses........... 27,988
-----------
Total liabilities....................... 87,491
-----------
Total net assets........................ $25,280,201
------------
------------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding.................. $23,298,124
Net unrealized appreciation on investments (Note 3). 1,039,752
Accumulated undistributed net realized gains on investments 675,968
Accumulated undistributed net investment income.... . 266,357
-----------
$25,280,201
-----------
-----------
NET ASSET VALUE PER SHARE ($.0001 par value, 500,000,000 shares authorized),
offering price and redemption price
($25,280,201 /2,089,915 shares outstanding)........... $12.10
------
------
The accompanying notes to financial statements are an
integral part of this statement.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the six months ended September 30, 1998 (unaudited)
- -------------------------------------------------------------------------------
<S> <C> <C>
INCOME:
Dividends........................................ $ 278,523
Interest......................................... 311,962
----------
590,485
----------
EXPENSES:
Management fee (Note 2).......................... 98,209
Legal fees....................................... 18,760
Registration fees................................ 11,152
Audit and tax consulting fees.................... 9,050
Transfer agent fees.............................. 8,255
Postage and mailing fees......................... 1,966
Printing fees.................................... 1,966
Other operating expenses......................... 1,956
Pricing Service Fees............................. 1,251
Insurance fees................................... 1,000
Directors' fees ................................. 900
Custodian fees .................................. 687
----------
Total expenses before reimbursement........ 155,152
----------
Reimbursement of expenses by adviser (Note 2) (28,884)
----------
126,268
----------
Net investment income..................... 464,217
----------
NET REALIZED GAINS ON INVESTMENTS...................... 753,097
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (5,441,096)
----------
Net loss on investments................... (4,687,999)
----------
Net decrease in net assets resulting from operations $(4,223,782)
----------
----------
The accompanying notes to financial statements are
an integral part of this statement.
</TABLE>
Statements of Changes in Net Assets
For the six months ended September 30, 1998 (unaudited) and the year
ended March 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended 9/30/98 1998
OPERATIONS: ----------- ----------
<S> <C> <C>
Net investment income...................................................... $ 464,217 $ 901,343
Net realized gains on investments.......................................... 753,097 778,333
Net (decrease) increase in unrealized appreciation on investments.......... (5,441,096) 4,450,636
----------- ----------
Net (decrease) increase in net assets resulting from operations....... (4,223,782) 6,130,312
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.1815 and $0.5014 per share, respectively)............................. (374,551) (932,718)
Distributions from net realized gains on investment transactions
($0.0515 and $0.6586 per share, respectively)............................. (105,168) (1,225,096)
----------- ----------
Total distributions................................................... (479,719) (2,157,814)
----------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (171,467 and 447,302 shares, respectively)..... 2,323,078 5,856,564
Net asset value of shares issued in distributions
from net investment income and net realized gains
(32,337 and 158,330 shares, respectively)................................. 451,617 2,037,382
Cost of shares redeemed (132,807 and 283,616 shares, respectively).......... (1,762,886) (3,715,860)
----------- ----------
Increase in net assets derived from capital share transactions........ 1,011,809 4,178,086
----------- ----------
Total increase (decrease) in net assets............................. (3,691,692) 8,150,584
----------- ----------
NET ASSETS, at the beginning of the period (including undistributed net
investment income of $266,357 and $208,066, respectively).................... 28,971,893 20,821,309
----------- ----------
NET ASSETS, at the end of the period (including undistributed net investment
income of $197,840 and $176,691, respectively)................................ $25,280,201 $28,971,893
----------- ----------
----------- ----------
The accompanying notes to financial statements are an
integral part of these statements
</TABLE>
Notes to Financial Statements
September 30, 1998 (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 generally 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 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 $28,884 to the Fund which represents the
expenses in excess of 0.90% (annualized) of net assets for the six
months ended September 30, 1998. 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, 1998, based on investment cost for Federal tax purposes is as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation on investments ..... $3,042,834
Aggregate gross unrealized depreciation on investments ..... (2,003,082)
Net unrealized appreciation ........................... $1,039,752
</TABLE>
(4) Investment Transactions --
For the period ended September 30, 1998, the cost of purchases and the
proceeds from sales of investments, other than short-term obligations,
aggregated $4,195,761 and $5,777,187, 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
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
MARK J. GIESE
Vice President
TRACY C. EBERLEIN
Assistant Vice President
Investment Adviser
NICHOLAS COMPANY, INC.
Milwaukee, Wisconsin
414-272-6133 or 800-227-5987
Transfer Agent
FIRSTAR MUTUAL FUND SERVICES, LLC
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
Custodian
FIRSTAR BANK MILWAUKEE, N.A.
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
Counsel
MICHAEL, BEST & FRIEDRICH LLP
Milwaukee, Wisconsin
Auditors
ARTHUR ANDERSEN 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.
700 North Water Street
Milwaukee, Wisconisn 53202
www.nicholasfunds.com
