May 27, 1998
Report to Fellow Shareholders:
Nicholas Equity Income Fund had a total return of 27.83% for the fiscal
year ended March 31, 1998. Net assets at March 31 were $29 million, and net
asset value per share was $14.35. Returns for periods ended March 31, 1998
are shown below:
<TABLE>
Average Annual Total Return*
---------------------------
3 Months* One Year* Three Years*
-------- --------- ------------
<S> <C> <C> <C>
Nicholas Equity Income Fund
(Distributions reinvested).................... + 7.09% +27.83% +18.46%
Standard & Poor's 500
(Dividends reinvested)........................ +13.94% +47.96% +32.79%
Lehman Brothers Intermediate
Corporate Bond Index.......................... + 1.68% +10.64% + 8.98%
</TABLE>
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, 1998, the 30-day annualized yield was 2.59%.
The annualized composite dividend return of the Standard & Poor's 500 as of
March 31 was approximately 1.70%. Also at March 31, the portfolio composition
was a follows: 6.8% of assets in cash, 3.6% in bonds and 89.6% 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
*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 March 31, 1998) is 14.57%
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the year)
- ---------------------------------------------------------------------
<TABLE>
Year Ended March 31,
--------------------
1998 1997 1996 1995 1994 (1)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $12.27 $12.35 $10.56 $10.04 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .47 .48 .36 .30 .06
Net gains (losses) on
securities (realized
and unrealized) 2.77 .44 1.77 .50 (.01)
----- ----- ----- ----- -----
Total from investment
operations 3.24 .92 2.13 .80 .05
----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends (from net
investment income) (.50) (.45) (.34) (.28) (.01)
Distributions (from
capital gains) (.66) (.55) -- -- --
----- ----- ----- ----- ----
Total distributions (1.16) (1.00) (.34) (.28) (.01)
----- ------ ------ ------ -----
NET ASSET VALUE, END OF
YEAR $14.35 $12.27 $12.35 $10.56 $10.04
----- ----- ------ ------ -----
----- ----- ------ ------ -----
TOTAL RETURN 27.83% 7.83% 20.61% 8.13% .53% (2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions) $29.0 $20.8 $15.8 $11.8 $5.8
Ratio of expenses to
average net assets 0.90%(4) 0.90%(4) 1.38% (4) 1.73% 1.70% (3)
Ratio of net investment
income to average net
assets 3.61%(4) 4.12%(4) 3.26% (4) 3.32% 2.53% (3)
Portfolio turnover rate 36.83% 23.05% 68.85% 10.98% 0%
Average commission rate
paid by the Fund on
portfolio investment
transactions (5) $0.0473 $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 1.08%,
1.18% and 1.40% for the fiscal years ended March 31, 1998, 1997 and
1996 respectively. Also, the respective ratios of net investment
income to average net assets would have been 3.43%, 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.
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
TOP TEN HOLDINGS
March 31, 1998 (unaudited)
- ----------------------------------------------------------------------
Percentage
Name of Net Assets
- ---- -------------
General Cable Corporation..................................... 6.26%
U.S. Bancorp.................................................. 5.17%
Medallion Financial Corporation............................... 4.96%
American Home Products Corporation............................ 4.94%
Wallace Computer Services, Inc................................ 4.78%
Household International, Inc.................................. 4.75%
Thermo Optek Corporation, 5.00%, due October 15, 2000*........ 4.69%
RPM, Inc...................................................... 4.61%
Edwards (A.G.), Inc........................................... 4.53%
ThermoQuest Corporation, 5.00%, due August 15, 2000*........... 3.95%
-------
Total of top ten holdings................................ 48.64%
-------
-------
*Convertible Bond.
SCHEDULE OF INVESTMENTS
March 31, 1998
- ---------------------------------------------------------------------
Shares or Quoted
Principal Market
Amount Value
- ----------- -------------
(Note 1 (a))
COMMON STOCKS - 70.28%
Banks and Finance - 25.26%
55,500 Bando McGlocklin Capital Corporation $ 638,250
30,000 Edwards (A.G.), Inc. 1,312,500
23,600 Firstar Corporation 932,200
10,000 Household Internatianal , Inc. 1,377,500
13,238 InvestorsBancorp, Inc. * 122,452
53,000 Medallion Financial Corporation 1,437,625
12,000 U.S. Bancorp 1,497,000
-----------
7,317,527
-----------
BUSINESS SERVICES - 4.78%
40,000 Wallace Computer Services, Inc. 1,385,000
-----------
CONSUMER PRODUCTS AND SERVICES - 3.46%
20,000 Pitney Bowes Credit Corporation 1,003,750
-----------
HEALTH CARE - 4.94%
15,000 American Home Products Corporation 1,430,625
-----------
INDUSTRIAL PRODUCTS AND SERVICES - 10.87%
40,000 General Cable Corporation 1,815,000
75,000 RPM, Inc. 1,335,938
-----------
3,150,938
-----------
INSURANCE - 3.35%
15,000 American General Corporation 970,312
-----------
INVESTMENT MANAGEMENT - 2.24%
25,000 Waddell & Reed Financial, Inc. - Class A 650,000
-----------
MEDIA, COMMUNICATIONS AND ENTERTAINMENT - 4.80%
18,000 General Motors Corporation - Class H* 814,500
10,123 Raytheon Company - Class A 575,746
----------
1,390,246
----------
REAL ESTATE - 7.78%
24,032 Meditrust Corporation, Paired ctf. 741,988
27,000 National Health Investors, Inc. 1,076,625
16,500 Reckson Associates Realty Corporation 435,187
----------
2,253,800
----------
MISCELLANEOUS - 2.80%
30,000 Landauer, Inc. 810,000
----------
TOTAL COMMON STOCKS 20,362,198
(cost $14,149,226) ----------
NON-CONVERTIBLE BOND - 3.60%
HEALTH CARE - 3.60%
$1,000,000 Beverly Enterprises, Inc.
9.00%, February 15, 2006 1,042,500
----------
TOTAL NON-CONVERTIBLE BOND 1,042,500
(cost $1,000,250) ----------
CONVERTIBLE BONDS - 19.34%
CONSUMER PRODUCTS AND SERVICES - 7.62%
1,000,000 ThermoQuest Corporation
5.00%, August 15, 2000 1,145,000
1,100,000 ThermoTrex Corporation
3.32%, November 1, 2007 1,062,875
----------
2,207,875
----------
HEALTH CARE - 3.28%
1,195,000 Emeritus Corporation
6.25%, January 1, 2006 950,025
----------
INDUSTRIAL PRODUCTS AND SERVICES - 8.44%
1,100,000 Richey Electronics, Inc.
7.00%, March 1, 2006 1,086,250
1,100,000 Thermo Optek Corporation
5.00%, October 15, 2000 1,358,500
----------
2,444,750
----------
TOTAL CONVERTIBLE BONDS
(cost $5,377,024) 5,602,650
----------
SHORT-TERM INVESTMENTS - 6.60%
Commercial Paper - 5.17%
500,000 WICOR Industries, Inc.
5.75%, due April 3, 1998 499,840
1,000,000 Manpower Inc.
5.75%, due April 8, 1998 998,882
----------
1,498,722
----------
Variable Rate Demand Notes - 1.43%
10,838 Johnson Controls, Incorporated
5.29%, due April 1, 1998 10,838
84,496 Pitney Bowes Credit Corporation
5.29%, due April 1, 1998 84,496
114,490 Sara Lee Corporation
5.29%, due April 1, 1998 114,490
205,009 Warner Lambert Company
5.27%, due April 1, 1998 205,009
----------
414,833
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,911,878) 1,913,555
-----------
TOTAL INVESTMENTS
(cost $22,438,378) 28,920,903
-----------
CASH AND RECEIVABLES,
NET OF LIABILITIES - 0.18% 50,990
-----------
TOTAL NET ASSETS
(Basis of percentages
disclosed above) $28,971,893
-----------
-----------
* Nondividend paying security.
The accompanying notes to financial statements
are an integral part of this schedule.
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 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(4) 0.6586(4) 23.0 18,072
(1) Date of Initial Public Offering. (4) Paid $0.1210 in net investment income and $0.2750 in
(2) Based on latest 12 months accomplished earnings. capital gains on May 2, 1997 to shareholders of
(3) Assuming reinvestment of all distributions. record April 30, 1997.
Paid $0.1250 in net investment income on July 30, 1997
to shareholders of record July 24, 1997.
Paid $0.1040 in net investment income on October 29, 1997
Range in quarter end price/earnings ratios to shareholders of record October 23, 1997.
Paid $0.1514 in net investment income and $0.3836
High Low in capital gains on December 31, 1997 to shareholders of
--------- --------- record December 29, 1997.
3/31/98 - 23.0 12/31/94 - 13.9
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
- ----------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value (cost $22,438,378)(Note 1 (a))................... $28,920,903
Dividend and interest receivables.......................................................... 126,859
-----------
Total assets................................................................... 29,047,762
-----------
LIABILITIES:
Payables --
Management fee (Note 2).............................................................. 55,003
Other payables and accrued expenses.................................................. 20,866
-----------
Total liabilities.............................................................. 75,869
-----------
Total net assets............................................................... $28,971,893
-----------
-----------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding......................................................... $22,286,315
Net unrealized appreciation on investments (Note 3)........................................ 6,480,848
Accumulated undistributed net realized gains on investments................................ 28,039
Accumulated undistributed net investment income............................................ 176,691
-----------
$28,971,893
-----------
-----------
NET ASSET VALUE PER SHARE ($.0001 par value, 500,000,000 shares authorized),
offering price and redemption price ($28,971,893 /2,018,918 shares outstanding)........... $14.35
------
------
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
STATEMENT OF OPERATIONS
For the year ended March 31, 1998
- ----------------------------------------------------------------------
<TABLE>
<S> <C>
INCOME:
Interest..................................................................................... $639,050
Dividends.................................................................................... 448,816
Other Income................................................................................. 38,769
-----------
1,126,635
-----------
EXPENSES:
Management fee (Note 2)...................................................................... 175,227
Legal fees................................................................................... 33,141
Registration fees............................................................................ 22,448
Audit and tax consulting fees................................................................ 18,775
Transfer agent fees.......................................................................... 8,391
Insurance.................................................................................... 3,810
Directors' fees.............................................................................. 3,600
Postage and mailing fees..................................................................... 2,780
Printing..................................................................................... 2,021
Custodian fees............................................................................... 1,267
-----------
Total expenses before reimbursement................................................. 271,460
Reimbursement of expenses by adviser (Note 2)....................................... 46,168
-----------
225,292
-----------
Net investment income............................................................... 901,343
-----------
NET REALIZED GAINS ON INVESTMENTS (Note 1 (b))..................................................... 778,333
-----------
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS............................................. 4,450,636
-----------
Net gain on investments............................................................. 5,228,969
-----------
Net increase in net assets resulting from operations................................ $6,130,312
-----------
-----------
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended March 31, 1998 and 1997
- ----------------------------------------------------------------------
1998 1997
--------- ---------
OPERATIONS:
Net investment income......................... $ 901,343 $ 752,119
Net realized gain on
investments (Note 1 (b))...................... 778,333 717,947
Net increase (decrease) in
unrealized appreciation on investments........ 4,450,636 (113,756)
------------ ---------
Net increase in net assets
resulting from operations................ 6,130,312 1,356,310
------------ ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.5014 and $0.4527 per share, respectively) (932,718) (665,203)
Distrbutions from net realized gains on ------------ ---------
investment transactions ($0.6586 and $0.5483
respectively)................................. (1,225,096) (760,192)
----------- -----------
Total distributions...................... (2,157,814) (1,425,395)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (447,302 and 463,715
shares, respectively)....................... 5,856,564 5,666,425
Net asset value of shares issued in
distributions from net investment income
and net realized gains (158,330 and
114,109 shares, respectively)............... 2,037,382 1,376,641
Cost of shares redeemed (283,616 and 161,928
shares, respectively)....................... (3,715,860) (1,968,355)
------------ ----------
Increase in net assets derived from
capital share transactions............... 4,178,086 5,074,711
------------ ----------
Total increase in net assets............. 8,150,584 5,005,626
------------ ----------
NET ASSETS, at the beginning of the year (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 year (including
undistributed net investment income of $176,691
and $208,066, respectively).....................$ 28,971,893 $20,821,309
----------- ----------
----------- ----------
The accompanying notes to financial statements
are an integral part of these statements.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
- ----------------------------------------------------------------------
(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 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 $46,168 to the Fund which represents the expenses in
excess of .90% (annualized) of net assets for the fiscal year ended
March 31, 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 March
31, 1998, based on investment cost for Federal tax purposes is as
follows:
Aggregate gross unrealized appreciation on investments $6,723,943
Aggregate gross unrealized depreciation on investments (243,095)
----------
Net unrealized appreciation ...................... $6,480,848
----------
----------
(4) Investment Transactions --
For the year ended March 31, 1998, the cost of purchases and the
proceeds from sales of investments, other than short-term
obligations, aggregated $11,623,229 and $8,233,057, 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, 1998, 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
finanial 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, 1998, by correspondence with the custodian
and brokers. As to securities purchased but not yet received, 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, 1998, 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 24, 1998
NICHOLAS FAMILY OF FUNDS
Services Offered
- ---------------------------------------------------------------------
* IRAs
*Traditional *Educational
*Roth *SEP
*Self-employed Master Retirement Plan
*Money Purchase *Profit Sharing
*Automatic Investment Plan
*Direct Deposite of Distributions
*Systematic Withdrawl Plan
*Monthly Automatic Exchange between Funds
*Telephone Redemption (Regular accounts only)
*Telephone Exchange
*24-hour Automated Account Information (800-544-6547)
Please call a shareholder representative for further information on
the above services or with any other questions you may have regarding
the Nicholas Family of Funds.
800-227-5987
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
Custodian and Transfer Agent
FIRSTAR TRUST COMPANY
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
Counsel
MICHAEL, BEST & FRIEDRICH LLP
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.
