November 18, 1999
Report to Fellow Shareholders:
Nicholas Equity Income Fund declined 5.82% for the first six
months of fiscal year 2000 which ended September 30, 1999. Net
assets were $20 million at September 30, and cash and equivalents
were 30.70%. Returns for Nicholas Equity Income Fund and
selected indices are provided in the chart below for the periods
ended September 30, 1999.
Average Annual Total Return*
----------------------------
1 Year 3 Years 5 Years
------ ------- -------
Nicholas Equity Income Fund, Inc.
(Distributions Reinvested).... 0.35% 5.16% 8.08%
Standard & Poor's 500 Index
(Dividends Reinvested)........ 27.79% 25.08% 25.02%
Lehman Brothers Intermediate
Corporate Bond Index.......... 0.30% 6.45% 7.68%
Consumer Price Index 2.63% 2.09% 2.36%
Ending value of $10,000 invested
in Nicholas Equity Income Fund, Inc.
(Distributions Reinvested) .... $10,035 $11,630 $14,750
The Fund's investment objective is to produce reasonable
income with moderate long-term growth. While this conservative
strategy lessens share price volatility and hopefully protects on
the downside, it has definitely limited upside potential in the
current market situation. The Fund's 30-day annualized yield as
of September 30, 1999 was 4.03%, one of the highest yields in the
equity income category.
At September 30, 1999, asset composition was as follows:
66.61% equities, 2.69% convertible bonds and 30.70% cash
equivalents. Management intends to invest the cash in dividend-
yielding stocks of high quality and growth potential.
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, 1999, is
7.83%.
Financial Highlights
(For a share outstanding throughout each period)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended March 31,
Ended 9/30/99 --------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
--------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.32 $14.35 $12.27 $12.35 $10.56 $10.04
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .20 .44 .47 .48 .36 .30
Net gains (losses) on securities
(realized and unrealized) (.90) (1.66) 2.77 .44 1.77 .50
------ ------ ------ ------ ------ ------
Total from investment operations (.70) (1.22) 3.24 .92 2.13 .80
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
From net investment income (.15) (.48) (.50) (.45) (.34) (.28)
From capital gains -- (.17) (.66) (.55) -- --
In excess of book realized gains (Note 1(d)) (.16) -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions (.15) (.81) (1.16) (1.00) (.34) (.28)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $11.47 $12.32 $14.35 $12.27 $12.35 $10.56
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN (5.82)%(1) (8.65)% 27.83% 7.83% 20.61% 8.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) $20.1 $25.0 $29.0 $20.8 $15.8 $11.8
Ratio of expenses to average net assets 0.90%(2,3) 0.90%(3) 0.90%(3) 0.90%(3) 1.38%(3) 1.73%
Ratio of net investment income
to average net assets 3.07%(2,3) 3.36%(3) 3.61%(3) 4.12%(3) 3.26%(3) 3.32%
Portfolio turnover rate 63.75%(2) 54.41% 36.83% 23.05% 68.85% 10.98%
</TABLE>
(1) Not annualized.
(2) Annualized.
(3) Net of reimbursement by adviser. Absent reinbursement of expenses,
the ratio of expenses to average net assets for the six months ended
September 30, 1999 and the years ended 1999, 1998, 1997 and 1996
would have been 1.13%, 1.10%, 1.08%, 1.18% and 1.40%, respectively.
Also the respective ratio of net investment income to average net
assets would have been 2.84%, 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
September 30, 1999 (unaudited)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of
Net Assets
----------------
<S> <C>
RPM, Inc. ................................................. 4.86%
Dean Foods Company ........................................ 4.34%
Firstar Corporation ....................................... 4.06%
Landauer, Inc. ............................................ 3.76%
National Health Realty, Inc. .............................. 3.71%
Waddell & Reed Financial, Inc. - Class A .................. 3.32%
Pharmacia & Upjohn, Inc. .................................. 3.22%
Household International, Inc. ............................. 3.20%
Correctional Properties Trust ............................. 3.09%
U.S. Bancorp .............................................. 3.01%
------
Total of top ten .......................................... 36.57%
------
------
</TABLE>
Schedule of Investments
September 30, 1999 (unaudited)
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or Quoted
Principal Market
Amount Value
----------- -------------
(Note 1 (a))
<S> <C> <C>
COMMON STOCKS - 66.61%
Banks and Finance - 12.47%
31,808 Firstar Corporation ............................. $ 815,080
16,000 Household International, Inc. ................... 642,000
20,000 National Commerce Bancorporation ................ 439,376
20,000 U.S. Bancorp .................................... 603,750
-----------
2,500,206
-----------
Consumer Products and Services - 2.96%
37,000 ServiceMaster Company (The) ..................... 594,312
-----------
Food and Beverage - 4.34%
20,000 Dean Foods Company .............................. 871,250
-----------
Health Care - 5.91%
13,000 American Home Products Corporation .............. 539,500
13,000 Pharmacia & Upjohn, Inc. ........................ 645,125
-----------
1,184,625
-----------
Industrial Products
and Services - 9.77%
15,000 Genuine Parts Company ........................... 398,438
80,000 RPM, Inc. ....................................... 975,000
16,000 Vulcan Materials Company ........................ 586,000
-----------
1,959,438
-----------
Insurance - 10.69%
7,000 American General Corporation .................... 442,313
20,000 Horace Mann Educators Corporation ............... 516,250
16,000 LaSalle Re Holdings Limited * ................... 222,000
6,000 Marsh & McLennan Companies, Inc. ................ 411,000
10,000 Mercury General Corporation ..................... 275,625
8,000 RenaissanceRe Holdings Ltd. ..................... 277,500
-----------
2,144,688
-----------
Investment Management - 3.32%
30,000 Waddell & Reed Financial, Inc. - Class A ........ 665,625
-----------
Real Estate - 9.19%
55,500 Bando McGlocklin Capital Corporation ............ 478,687
44,850 Correctional Properties Trust ................... 619,491
70,000 National Health Realty, Inc. .................... 743,750
-----------
1,841,928
-----------
Retail Trade - 4.20%
10,000 Albertson's, Inc. ............................... 395,625
13,000 J.C. Penney Company, Inc. ....................... 446,875
-----------
842,500
-----------
Miscellaneous - 3.76%
30,000 Landauer, Inc. .................................. 753,750
-----------
TOTAL COMMON STOCKS
(cost $12,916,332) ..................... 13,358,322
-----------
CONVERTIBLE BOND - 2.69%
Health Care - 2.69%
$1,000,000 Assisted Living Concepts, Inc.
6.00%, due November 1, 2002
(cost $970,000) ........................ 540,000
-----------
SHORT-TERM INVESTMENTS - 23.95%
Commercial Paper - 20.16%
750,000 Marcus Corp.
5.50%, due October 5, 1999 .................... 749,542
750,000 Manpower Inc.
5.50%, due October 8, 1999 .................... 749,198
500,000 Weyco Group, Inc.
5.50%, due October 12, 1999 ................... 499,160
800,000 Briggs & Stratton Corporation
5.50%, due October 15, 1999 ................... 798,289
350,000 Banta Corporation
5.50%, due October 19, 1999 ................... 349,037
900,000 Wausau-Mosinee Paper Corp.
5.50%, due October 22, 1999 ................... 897,112
-----------
4,042,338
-----------
Variable Rate Demand Notes - 3.79%
419,147 Wisconsin Electric Power Company
5.02%, due October 1, 1999 .................... 419,147
341,771 Firstar Bank U.S.A., N.A.
5.05%, due October 1, 1999 .................... 341,771
-----------
760,918
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $4,797,558) ...................... 4,803,256
-----------
TOTAL INVESTMENTS
(cost $18,683,890) ..................... 18,701,578
-----------
CASH AND RECEIVABLES,
NET OF LIABILITIES - 6.75% .............. 1,351,808
-----------
TOTAL NET ASSETS
(Basis of percentages
disclosed above) ...................... $20,053,386
-----------
-----------
</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(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
March 31, 1999............................. 12.32 0.4843 0.3278 22.0 16,509
September 30, 1999......................... 11.47 0.1455 (4) -- 16.6 15,548
</TABLE>
(1) Date of Initial Public Offering.
(2) Based on latest 12 months accomplished earnings.
(3) Assuming reinvestment of all distributions.
(4) Paid $0.0460 in net investment income on April 30, 1999
to shareholders of record on April 29, 1999.
Paid $0.0995 in net investment income on July 29, 1999
to shareholders of record on July 28, 1999.
Range in quarter end price/earnings ratios
High Low
---------- ---------
March 31, 1998 23.0 December 31, 1994 13.9
Statement of Assets and Liabilities
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at market value
(cost $18,683,890) (Note 1 (a)) .............. $18,701,578
Receivables -
Investment securities sold ......................... 1,355,955
Dividends and interest receivable .................. 81,785
-----------
Total receivables ............................ 1,437,740
-----------
Total assets ................................. 20,139,318
-----------
LIABILITIES:
Payables --
Management fee (Note 2) ............................ 68,697
Other payables and accrued expenses ................ 17,235
-----------
Total liabilities ............................ 85,932
-----------
Total net assets ............................. $20,053,386
-----------
-----------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding ....................... $18,992,482
Net unrealized appreciation on investments (Note 3) ...... 11,990
Accumulated undistributed net
realized gains on investments ........................... 876,294
Accumulated undistributed net investment income .......... 172,620
-----------
$20,053,386
-----------
-----------
NET ASSET VALUE PER SHARE ($.0001 par value, 500,000,000 shares authorized),
offering price and redemption price
($20,053,386 / 1,747,865 shares outstanding) .................. $11.47
------
------
</TABLE>
The accompanying notes to financial statements are an
integral part of this statement.
Statement of Operations
For the six months ended September 30, 1999 (unaudited)
-------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INCOME:
Dividends........................................ $ 297,869
Interest......................................... 160,778
----------
458,647
----------
EXPENSES:
Management fee (Note 2).......................... 81,175
Legal fees....................................... 20,392
Audit and tax consulting fees.................... 10,275
Transfer agent fees.............................. 8,030
Registration fees................................ 3,393
Directors' fees ................................. 1,800
Printing ........................................ 1,302
Insurance ....................................... 1,000
Postage and mailing ............................. 851
Custodian fees .................................. 549
Other operating expenses......................... 1,930
----------
Total expenses before reimbursement........ 130,697
----------
Reimbursement of expenses by adviser (Note 2) (26,330)
----------
104,367
----------
Net investment income..................... 354,280
----------
NET REALIZED GAINS ON INVESTMENTS...................... 1,192,241
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (2,667,134)
----------
Net loss on investments................... (1,474,893)
----------
Net decrease in net assets resulting from operations $(1,120,613)
----------
----------
</TABLE>
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, 1999 (unaudited) and the year
ended March 31, 1999
-------------------------------------------------------------------------------
<TABLE>
Six Months
Ended 9/30/99 1999
OPERATIONS: ----------- -----------
<S> <C> <C> <C>
Net investment income ..................................................... $ 354,280 $ 905,438
Net realized gains on investments ......................................... 1,192,241 319,270
Net decrease in unrealized appreciation on investments .................... (2,667,134) (3,801,724)
----------- -----------
Net decrease in net assets resulting from operations ................. (1,120,613) (2,577,016)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.1455 and $0.4843 per share, respectively) ............................ (270,702) (993,087)
Distributions from net realized gains on investment transactions
($0.1717 per share in fiscal year 1999) .................................. -- (347,309)
Distributions in excess of book realized gains ($0.1561 per share) (Note 1(d)) -- (315,947)
----------- -----------
Total distributions................................................... (270,702) (1,656,343)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (61,560 and 264,804 shares, respectively) ..... 770,395 3,490,779
Net asset value of shares issued in distributions to shareholders
(20,263 and 121,051 shares, respectively) ................................ 254,931 1,564,910
Cost of shares redeemed (364,552 and 374,179 shares, respectively) ........ (4,601,475) (4,773,373)
----------- -----------
Increase (decrease) in net assets
derived from capital share transactions ............................. (3,576,149) 282,316
----------- -----------
Total decrease in net assets ......................................... (4,967,464) (3,951,043)
----------- -----------
NET ASSETS, at the beginning of the period (including undistributed net
investment income of $89,042 and $176,691, respectively) .................... 25,020,850 28,971,893
----------- -----------
NET ASSETS, at the end of the period (including undistributed net investment
income of $172,620 and $89,042, respectively) ............................... $20,053,386 $25,020,850
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
Notes to Financial Statements
September 30, 1999 (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 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 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) Excess distributions of book realized gains is the result of
the 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% 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 through the Fund's fiscal year end. 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
on .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 $26,330 to the Fund which
represents the expenses in excess of .90% (annualized) of net
assets for the six months ended September 30, 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 September
30, 1999, based on investment cost for federal tax purposes is as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation on investments ......................... $ 1,922,856
Aggregate gross unrealized depreciation on investments ......................... (1,910,866)
-----------
Net unrealized appreciation ............................................. $ 11,990
-----------
-----------
</TABLE>
(4) Investment Transactions --
For the period ended September 30, 1999, the cost of purchases and the
proceeds from sales of investments, other than short-term obligations,
aggregated $6,017,056 and $11,464,829, 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
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 INSTITUTIONAL CUSTODY SERVICES
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.
