May 31, 1999
Dear Fellow Shareholders:
Nicholas Equity Income Fund declined 8.65% for the
fiscal year ended March 31, 1999. Net assets at March 31,
1999 were $25 million. Returns for Nicholas Equity Income
and selected indices are provided in the chart below for
periods ended March 31, 1999.
<TABLE>
Average Annual Total Return*
---------------------------
One Year Three Five
Years Years
-------- ----- -----
<S> <C> <C> <C>
Nicholas Equity Income Fund
(Distributions Reinvested) (8.65)% 7.98% 10.43%
Standard & Poor's 500 Index
(Dividends Reinvested) 18.47% 28.06% 26.23%
Lehman Brothers Intermediate
Corporate Bond Index 6.52% 7.35% 7.76%
Ending value of $10,000
invested in Nicholas Equity
Income Fund (Distributions
Reinvested) $9,135 $12,592 $16,422
</TABLE>
The Fund's investment objective is to produce
reasonable income with moderate long-term growth. Implicit
in this strategy is less share price volatility and above-
average downside protection. As of March 31, 1999, the
Fund's 30-day annualized yield was 3.91%, which was one of
the highest yields in the equity income category. Higher
yielding investments generally have less capital
appreciation potential than lower yielding investments. In
recent markets, this has been a millstone in regard to
investment results.
At this time, asset composition is approximately as
follows: 81% equities, 7% convertible bonds and 12% cash
equivalents. It is management's intention to invest
primarily in stocks, which have a relatively high and rising
dividend return. This category of equities contains many
conservative, well-run, growth companies.
Thank you for your interest in Nicholas Equity Income
Fund. We believe that future results will improve over the
Fund's past performance.
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 March 31, 1999, is 9.82%.
Financial Highlights
(For a share outstanding throughout each period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.35 $12.27 $12.35 $10.56 $10.04
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .44 .47 .48 .36 .30
Net gains (losses) on
securities (realized
and unrealized) (1.66) 2.77 .44 1.77 .50
----- ----- ----- ----- -----
Total from investment
operations (1.22) 3.24 .92 2.13 .80
----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends (from net
investment income) (.48) (.50) (.45) (.34) (.28)
Distributions (from
capital gains) (.17) (.66) (.55) -- --
Distributions (in excess
of book realized gains) (.16) -- -- -- --
----- ----- ----- ----- -----
Total distributions (.81) (1.16) (1.00) (.34) (.28)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF
PERIOD $12.32 $14.35 $12.27 $12.35 $10.56
----- ----- ----- ----- -----
----- ----- ----- ----- -----
TOTAL RETURN (8.65)% 27.83% 7.83% 20.61% 8.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(millions) $25.0 $29.0 $20.8 $15.8 $11.8
Ratio of expenses to
average net assets 0.90%(1) 0.90%(1) 0.90%(1) 1.38%(1) 1.73%
Ratio of net investment
income to average net
assets 3.36%(1) 3.61%(1) 4.12%(1) 3.26%(1) 3.32%
Portfolio turnover rate 54.41% 36.83% 23.05% 68.85% 10.98%
</TABLE>
(1) Net of reimbursements by adviser. Absent reimbursement of expenses,
the ratio of expenses to average net assets would have been 1.10%,
1.08%, 1.18% and 1.40% for the fiscal years ended March 31, 1999,
1998, 1997 and 1996, respectively. Also, the respective ratios of
net investment income to average net assets would have been 3.16%,
3.43%, 3.84% and 3.24%.
The accompanying notes to financial statements
are an integral part of these statements.
Top Ten Portfolio Holdings
March 31, 1999 (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage
Name of Net Assets
- ---- -------------
<S> <C>
Atlantic Richfield Company ................................... 5.84%
Household International, Inc. ................................ 5.47%
American Home Products Corporation ........................... 5.22%
Firstar Corporation .......................................... 4.98%
U.S. Bancorp ................................................. 4.90%
Dean Foods Company ........................................... 4.27%
Thermo Optek Corporation, 5.00%, due October 15, 2000 * ...... 4.26%
RPM, Inc. .................................................... 4.26%
American General Corporation ................................. 4.23%
Young Broadcasting Inc., 9.00%, due January 15, 2006 ......... 4.20%
------
Total of top ten portfolio holdings ..................... 47.63%
------
------
</TABLE>
*Convertible Bond.
Schedule of Investments
March 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or Quoted
Principal Market
Amount Value
--------- ------------
(Note 1 (a))
<S> <C>
COMMON STOCKS - 68.78%
Banks and Finance - 19.70%
30,000 Edwards (A.G.), Inc. $ 980,625
13,936 Firstar Corporation ................ 1,247,272
30,000 Household International, Inc. ...... 1,368,750
13,238 InvestorsBancorp, Inc. * 105,904
36,000 U.S. Bancorp ....................... 1,226,250
--------------
4,928,801
--------------
Business Services - 2.30%
50,000 Analysts International Corporation 575,000
--------------
Energy - 5.83%
20,000 Atlantic Richfield Company 1,460,000
--------------
Food and Beverage - 4.27%
30,000 Dean Foods Company ................. 1,068,750
--------------
Health Care - 5.22%
20,000 American Home Products Corporation 1,305,000
--------------
Industrial Products
and Services - 4.26%
80,000 RPM, Inc. 1,065,000
--------------
Insurance - 10.33%
15,000 American General Corporation 1,057,500
16,000 LaSalle Re Holdings Limited 236,000
10,000 Marsh & McLennan Companies, Inc. 741,875
15,000 PXRE Corporation 270,000
8,000 RenaissanceRe Holdings Ltd. 279,500
--------------
2,584,875
--------------
Investment Management - 3.28%
40,000 Waddell & Reed Financial, Inc. - Class A 820,000
--------------
Media, Communications
and Entertainment - 2.69%
30,000 Cincinnati Bell Inc. 673,125
--------------
Real Estate - 8.01%
55,500 Bando McGlocklin Capital Corporation 561,937
44,850 Correctional Properties Trust 672,750
70,000 National Health Realty, Inc. 770,000
--------------
2,004,687
--------------
Miscellaneous - 2.89%
30,000 Landauer, Inc. 723,750
--------------
TOTAL COMMON STOCKS
(cost $13,983,864) ........... 17,208,988
--------------
NON-CONVERTIBLE BONDS - 8.12%
Media, Communications
and Entertainment - 4.20%
$1,000,000 Young Broadcasting Inc.
9.00%, due January 15, 2006 1,050,000
--------------
Health Care - 3.92%
1,000,000 Quorum Health Group, Inc.
8.75%, due November 1, 2005 980,000
--------------
TOTAL NON-CONVERTIBLE BONDS
(cost $2,019,000) ........... 2,030,000
--------------
CONVERTIBLE BONDS - 6.32%
Health Care - 2.06%
1,000,000 Assisted Living Concepts, Inc.
6.00%, due November 1, 2002 515,000
--------------
Industrial Products
and Services - 4.26%
1,100,000 Thermo Optek Corporation
5.00%, due October 15, 2000 1,067,000
--------------
TOTAL CONVERTIBLE BONDS
(cost $2,139,000) ........... 1,582,000
--------------
SHORT-TERM INVESTMENTS - 16.50%
Commercial Paper - 13.97%
1,000,000 ConAgra, Inc.
5.01%, due April 6, 1999 .......... 999,304
500,000 Fiserv, Inc.
5.05%, due April 7, 1999 ......... 499,579
800,000 Manpower Inc.
5.05%, due April 9, 1999 .......... 799,102
600,000 Tyco International Group S.A.
5.07%, due April 12, 1999 ......... 599,071
600,000 Banta Corporation
5.05%, due April 19, 1999 ......... 598,485
--------------
3,495,541
--------------
Variable Rate Demand Notes - 2.53%
263,076 General Mills, Inc.
4.54%, due April 1, 1999 .......... 263,076
65,449 Pitney Bowes Credit Corporation
4.54%, due April 1, 1999 .......... 65,449
304,642 Warner-Lambert Company
4.55%, due April 1, 1999 .......... 304,642
--------------
633,167
--------------
TOTAL SHORT-TERM
INVESTMENTS
(cost $4,123,510) ............ 4,128,708
--------------
TOTAL INVESTMENTS
(cost $22,265,374) ................ 24,949,696
--------------
CASH AND RECEIVABLES,
NET OF LIABILITIES - 0.28% ....... 71,154
--------------
TOTAL NET ASSETS (Basis of
percentages disclosed above) ... $ 25,020,850
--------------
--------------
</TABLE>
* Nondividend paying security.
The accompanying notes to financial statements are an integral part of
this schedule.
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 ** Investment ***
----------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
November 23, 1993 *........................ $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
March 31, 1999............................. 12.32 0.4843 (a) 0.3278 (a) 22.0 16,509
* Date of Initial Public Offering. (a) Paid $0.0875 in net investment income and $0.0515 in
** Based on latest 12 months accomplished earnings. capital gains on May 6, 1998 to shareholders of
*** Assuming reinvestment of all distributions. record April 30, 1998.
Paid $0.0940 in net investment income on August 5, 1998
to shareholders of record July 30, 1998.
Paid $0.1260 in net investment income on October 27, 1998
Range in quarter end price/earnings ratios to shareholders of record October 22, 1998.
Paid $0.1768 in net investment income and $0.2763
High Low in capital gains on December 31, 1998 to shareholders of
- -------------------- ----------------------- record December 29, 1998.
March 31, 1998 23.0 December 31, 1994 13.9
</TABLE>
Statement of Assets and Liabilities
March 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at market value (cost $22,265,374)(Note 1 (a))... $24,949,696
Dividend and interest receivables.......................................... 163,389
-----------
Total assets................................................... 25,113,085
-----------
LIABILITIES:
Payables --
Management fee (Note 2).............................................. 68,152
Other payables and accrued expenses.................................. 24,083
-----------
Total liabilities.............................................. 92,235
-----------
Total net assets............................................... $25,020,850
-----------
-----------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding......................................... $22,568,631
Net unrealized appreciation on investments (Note 3)........................ 2,679,124
Accumulated undistributed net investment income............................ 89,042
Distributions in excess of book realized gains (Note 1 (d))................ (315,947)
-----------
$25,020,850
-----------
-----------
NET ASSET VALUE PER SHARE ($.0001 par value, 500,000,000 shares authorized),
offering price and redemption price ($25,020,850/2,030,594 shares
outstanding).............................................................. $12.32
------
------
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
Statement of Operations
For the year ended March 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCOME:
Interest...................................... $ 573,854
Dividends..................................... 573,954
-----------
1,147,808
-----------
EXPENSES:
Management fee (Note 2)...................... 188,511
Legal fees................................... 31,873
Registration fees............................ 21,494
Audit and tax consulting fees................ 16,575
Transfer agent fees.......................... 15,177
Postage and mailing fees..................... 4,669
Insurance fees............................... 3,922
Printing fees................................ 2,861
Directors' fees.............................. 2,700
Pricing fees................................. 2,115
Custodian fees............................... 1,332
Other operating expenses .................... 4,027
-----------
Total expenses before reimbursement 295,256
Reimbursement of expenses by adviser (Note 2) (52,886)
-----------
242,370
-----------
Net investment income.............. 905,438
-----------
NET REALIZED GAINS ON INVESTMENTS................. 319,270
-----------
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (3,801,724)
-----------
Net loss on investments............ (3,482,454)
-----------
Net decrease in net assets resulting
from operations................... $(2,577,016)
-----------
-----------
</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, 1999 and 1998
- -------------------------------------------------------------------------------
<TABLE>
1999 1998
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income..................................................... $ 905,438 $ 901,343
Net realized gains on investments......................................... 319,270 778,333
Net increase (decrease) in unrealized appreciation on investments......... (3,801,724) 4,450,636
----------- -----------
Net increase (decrease) in net assets resulting from operations...... (2,577,016) 6,130,312
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.4843 and $0.5014 per share, respectively)........................... (993,087) (932,718)
Distributions from net realized gains on investment transactions
($0.1717 and $0.6586 per share, respectively)........................... (347,309) (1,225,096)
Distributions in excess of book realized gains
($0.1561 per share) (Note 1 (d))....................................... (315,947) ___
----------- -----------
Total distributions.................................................. (1,656,343) (2,157,814)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (264,804 and 447,302 shares, respectively)..... 3,490,779 5,856,564
Net asset value of shares issued in distributions
to shareholders (121,051 and 158,330 shares, respectively)............... 1,564,910 2,037,382
Cost of shares redeemed (374,179 and 283,616 shares, respectively)......... (4,773,373) (3,715,860)
----------- -----------
Increase in net assets derived from capital
share transactions.................................................. 282,316 4,178,086
----------- -----------
Total increase (decrease) in net assets............................... (3,951,043) 8,150,584
----------- -----------
NET ASSETS, at the beginning of the period (including undistributed net
investment income of $176,691 and $208,066, respectively).................... 28,971,893 20,821,309
----------- -----------
NET ASSETS, at the end of the period (including undistributed net
investment income of $89,042 and $176,691, respectively)...................... $25,020,850 $28,971,893
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
Notes to Financial Statements
March 31, 1999
- -----------------------------------------------------------------------------
(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 last 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 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) Excess distributions of book realized gains is the result of
different accounting treatment for book and tax purposes and
should not be treated as a return of capital for income tax
reporting. The Fund is required to distribute at least 98
percent of realized gains through October 31 to avoid paying a
federal excise tax. The excess distribution generally represents
losses on the sale of portfolio securities in the months of
November and December. These losses are used to offset future
gains.
(e) 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.
(f) 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 .70 of 1% on an
annual basis of the average net asset value up to and including $50
million, and .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 .90% of net assets. The adviser
reimbursed $52,886 to the Fund which represents the expenses in
excess of .90% (annualized) of net assets for the fiscal year ended
March 31, 1999. 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, 1999, based on investment cost for federal tax purposes is as
follows:
Aggregate gross unrealized
appreciation on investments ................. $4,332,590
Aggregate gross unrealized
depreciation on investments ................. (1,653,466)
-----------
Net unrealized appreciation .............. $2,679,124
-----------
-----------
(4) Investment Transactions --
For the year ended March 31, 1999, the cost of purchases and the
proceeds from sales of investments, other than short-term
obligations, aggregated $12,999,214 and $15,703,120, 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, 1999, 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, 1999, 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, 1999, 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 22, 1999.
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
MARK J. GIESE
Vice President
CANDACE L. LESAK
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
Auditors
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
Counsel
MICHAEL, BEST & FRIEDRICH 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.
