May 23, 2000
Dear Fellow Shareholders:
Through the first quarter of calendar year 2000, Nicholas Equity
Income Fund's total return was 5.92%. This compares with the 2.29%
advance for the S&P 500 Index. Net assets were $18.3 million at March
31, 2000, consisting of 87% stocks, 3% convertible bonds and 10% cash
and equivalents.
Returns for Nicholas Equity Income Fund and selected indices are
provided in the chart below for the periods ended March 31, 2000.
[CAPTION]
<TABLE>
Average Annual Total Return*
---------------------------
Three Five
3 Months One Year Years Years
------------------------------------------
<C> <C> <C> <C> <C>
Nicholas Equity Income Fund, Inc.
(Distributions Reinvested)....... 5.92% (4.20)% 3.81% 7.79%
Standard & Poor's 500 Index
(Dividends Reinvested)........... 2.29% 17.94% 27.39% 26.75%
Lehman Brothers U.S. Intermediate
Corporate Bond Index ............ 1.24% 1.40% 6.11% 6.92%
Consumer Price Index ............ 1.42% 3.69% 2.28% 2.50%
Ending value of $10,000
invested in Nicholas Equity
Income Fund (Distributions
Reinvested) .....................$10,592 $9,580 $11,187 $14,549
</TABLE>
The Fund's objective is to produce reasonable current income with
moderate long-term growth. In recent months management has moved more
toward income-producing stocks and away from bonds. In most
instances, we favor stocks of companies that have raised their
dividends with some consistency. In spite of the significant
reduction in bonds, the 30-day annualized yield* was still 3.88% at
March 31, 2000. We will continue to seek out equities of companies
that have growth in their net income and dividend payments over time.
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
March 31, 2000 is 7.49%.
Financial Highlights
(For a share outstanding throughout each period)
- ------------------------------------------------------------------------------
[CAPTION]
<TABLE>
Year Ended March 31,
--------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $12.32 $14.35 $12.27 $12.35 $10.56
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .40 .44 .47 .48 .36
Net gains (losses) on
securities (realized
and unrealized) (.94) (1.66) 2.77 .44 1.77
----- ----- ----- ----- -----
Total from investment
operations (.54) (1.22) 3.24 .92 2.13
----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
From net investment
income (.44) (.48) (.50) (.45) (.34)
From capital gains -- (.17) (.66) (.55) --
In excess of book realized
gains (Note 1(d)) (.24) (.16) -- -- --
----- ----- ----- ----- -----
Total distributions (.68) (.81) (1.16) (1.00) (.34)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF
PERIOD $11.10 $12.32 $14.35 $12.27 $12.35
----- ----- ----- ----- -----
----- ----- ----- ----- -----
TOTAL RETURN (4.20)% (8.65)% 27.83% 7.83% 20.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(millions) $18.3 $25.0 $29.0 $20.8 $15.8
Ratio of expenses to
average net assets (1) 0.90% 0.90% 0.90% 0.90% 1.38%
Ratio of net investment
income to average net
assets (1) 3.30% 3.36% 3.61% 4.12% 3.26%
Portfolio turnover rate 79.34% 54.41% 36.83% 23.05% 68.85%
</TABLE>
(1) Net of reimbursements by adviser. Absent reimbursement of expenses,
the ratio of expenses to average net assets would have been 1.18%, 1.10%,
1.08%, 1.18% and 1.40% for the fiscal years ended March 31, 2000, 1999,
1998, 1997 and 1996, respectively. Also, the respective ratio of
net investment income to average net assets would have been 3.02%, 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, 2000 (unaudited)
- ------------------------------------------------------------------------------
Percentage
Name of Net Assets
- ---- -------------
Waddell & Reed Financial, Inc. - Class A...................... 6.94%
RPM, Inc...................................................... 4.81%
General Motors Corporation.................................... 4.53%
Pharmacia & Upjohn, Inc....................................... 4.21%
Vulcan Materials Company...................................... 4.01%
Pfizer Inc.................................................... 4.00%
Firstar Corporation .......................................... 3.99%
American Home Products Corporation............................ 3.81%
Interpublic Group of Companies, Inc. (The).................... 3.62%
Aon Corporation............................................... 3.53%
------
Total of top ten ........................................ 43.45%
------
------
Schedule of Investments
March 31, 2000
- ------------------------------------------------------------------------------
Shares or Quoted
Principal Market
Amount Value
--------- ------------
(Note 1 (a))
COMMON STOCKS - 86.96%
Communication Services - 3.49%
9,000 GTE Corporation $ 639,000
---------------
Consumer Cyclicals - Products - 13.35%
10,000 General Motors Corporation 828,125
80,000 RPM, Inc. 880,000
16,000 Vulcan Materials Company 733,000
--------------
2,441,125
--------------
Consumer Cyclicals - Retail - 4.90%
20,000 Dollar General Corporation 537,500
15,000 Genuine Parts Company 358,125
--------------
895,625
--------------
Consumer Cyclicals - Services - 12.41%
15,000 Cintas Corporation 587,813
14,000 Interpublic Group of Companies, Inc. (The) 661,500
30,000 Landauer, Inc. 547,500
42,000 ServiceMaster Company (The) 472,500
--------------
2,269,313
--------------
Consumer Staples - Drug, Retail
Food & Beverages - 1.78%
10,300 Tootsie Roll Industries, Inc. 324,450
--------------
Consumer Staples - Products - 5.17%
10,000 Pitney Bowes Inc. 446,875
25,000 Wisconsin Energy Corporation 498,437
--------------
945,312
--------------
Financial - Banks &
Diversified Financials - 9.28%
31,808 Firstar Corporation 729,596
16,000 Household International, Inc. 597,000
20,000 National Commerce Bancorporation 370,000
--------------
1,696,596
--------------
Financial - Brokerage & Investment
Management - 6.94%
30,000 Waddell & Reed Financial, Inc. - Class A 1,269,375
--------------
Financial - Insurance - 11.69%
7,000 American General Corporation 392,875
20,000 Aon Corporation 645,000
3,000 Marsh & McLennan Companies, Inc. 330,937
15,000 Mercury General Corporation 442,500
8,000 Renaissance Holdings Ltd. 327,000
--------------
2,138,312
--------------
Financial Real Estate
Investment Trusts - 5.93%
44,850 Correctional Properties Trust 515,775
70,000 National Health Realty, Inc. 568,750
---------------
1,084,525
---------------
Health Care - Products - 12.02%
13,000 American Home Products Corporation 697,125
20,000 Pfizer Inc. 731,250
13,000 Pharmacia & Upjohn, Inc. 770,250
--------------
2,198,625
--------------
TOTAL COMMON STOCKS
(cost $14,523,424) 15,902,258
------------
CONVERTIBLE BOND - 3.21%
Health Care - Services - 3.21%
$1,000,000 Assisted Living Concepts, Inc.
6.00%, due November 1, 2002
(cost $970,000) 587,500
--------------
SHORT-TERM INVESTMENTS - 9.52%
Commercial Paper - 6.01%
500,000 Banta Corporation 499,912
6.35%, due April 4, 2000
600,000 WICOR Industries, Inc. 599,580
6.30%, due April 7, 2000
-------------
1,099,492
-------------
Variable Rate Demand Notes - 3.51%
555,489 General Mills, Inc.
5.74%, due April 3, 2000 555,489
86,350 Warner-Lambert Company
5.77%, due April 3, 2000 86,350
-------------
641,839
-------------
Total Short-Term Investments
(cost $1,740,487) 1,741,331
--------------
Total Investments
(cost $17,233,911) - 99.69% 18,231,089
--------------
Other Assets, Net of
Liabilities - 0.31% 56,715
--------------
TOTAL NET ASSETS -
(Basis of percentages disclosed above)- 100% $18,287,804
---------------
---------------
The accompanying notes to financial statements are an integral part of
this schedule.
Historical Record (unaudited)
- ------------------------------------------------------------------------------
[CAPTION]
<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 ** Investment ***
----------- -------------- ------------- -------------- -------------
<C> <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 0.3278 22.0 16,509
March 31, 2000......... 11.10 0.4447 (a) 0.2392 (a) 20.6 15,816
* Date of Initial Public Offering. (a) Paid $0.0460 in net investment income
** Based on latest 12 months accomplished earnings. on April 30, 1999 to
*** Assuming reinvestment of all distributions. shareholders of record April 29, 1999.
Paid $0.0995 in net investment income on July 29, 1999
to shareholders of record July 28, 1999.
Paid $0.0980 in net investment income on October 28, 1999
Range in quarter end price/earnings ratios to shareholders of record October 27, 1999.
Paid $0.2012 in net investment income and $0.2392
High Low in capital gains on December 29, 1999 to shareholders of
- -------------------- ----------------------- record December 28, 1999.
March 31, 1998 23.0 December 31, 1994 13.9
</TABLE>
Statement of Assets and Liabilities
March 31, 2000
- -------------------------------------------------------------------------------
[CAPTION]
<TABLE>
<C> <C>
ASSETS:
Investments in securities at market value (cost $17,233,911)(Note 1 (a))... $18,231,089
Dividend and interest receivables.......................................... 95,358
-----------
Total assets................................................... 18,326,447
-----------
LIABILITIES:
Payables and accrued expenses........................................ 38,643
-----------
Total net assets............................................... $18,287,804
-----------
-----------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding......................................... $17,912,849
Net unrealized appreciation on investments (Note 3)........................ 996,334
Distributions in excess of book realized gains (Note 1 (d))................ (407,194)
Accumulated net realized book loss on investments.......................... (214,185)
-----------
$18,287,804
-----------
-----------
NET ASSET VALUE PER SHARE ($.0001 par value, 500,000,000 shares authorized),
offering price and redemption price ($18,287,804/1,647,173 shares
outstanding)...................................................... $11.10
------
------
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
Statement of Operations
For the year ended March 31, 2000
- -------------------------------------------------------------------------------
<TABLE>
<C> <C>
INCOME:
Dividend ..................................... $ 579,033
Interest ..................................... 303,370
-----------
882,403
-----------
EXPENSES:
Management fee (Note 2)...................... 146,946
Legal fees................................... 40,804
Audit and tax consulting fees................ 19,975
Registration fees............................ 13,177
Transfer agent fees.......................... 13,080
Directors' fees.... ......................... 3,600
Postage and mailing.......................... 3,049
Insurance ................................... 2,965
Printing .................................... 2,069
Pricing ..................................... 1,222
Custodian ................................... 985
Other operating expenses .................... 504
-----------
Total expenses before reimbursement 248,376
Reimbursement of expenses by adviser (Note 2) (59,446)
-----------
188,930
-----------
Net investment income.............. 693,473
-----------
NET REALIZED GAIN ON INVESTMENTS.................. 101,762
-----------
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (1,682,790)
-----------
Net realized and unrealized loss
on investments.................... (1,581,028)
-----------
Net decrease in net assets resulting
from operations................... $(887,555)
-----------
-----------
</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, 2000 and 1999
- ------------------------------------------------------------------------------
[CAPTION]
<TABLE>
INCREASE (DECREASE) IN NET ASSETS: 2000 1999
----------- -----------
<C>
OPERATIONS: <C> <C>
Net investment income..................................................... $ 693,473 $ 905,438
Net realized gain on investments.......................................... 101,762 319,270
Net decrease in unrealized appreciation on investments.................... (1,682,790) (3,801,724)
----------- -----------
Net decrease in net assets resulting from operations................. (887,555) (2,577,016)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.4447 and $0.4843 per share, respectively)........................... (782,515) (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
($0.2392 and $0.1561 per share, respectively) (Note 1 (d)).............. (407,194) (315,947)
----------- -----------
Total distributions.................................................. (1,189,709) (1,656,343)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (97,105 and 264,804 shares, respectively)..... 1,146,863 3,490,779
Reinvestment of distributions
(102,367 and 121,051 shares, respectively).............................. 1,126,193 1,564,910
Cost of shares redeemed (582,893 and 374,179 shares, respectively)........ (6,928,838) (4,773,373)
----------- -----------
Increase (decrease) in net assets derived from capital
share transactions................................................. (4,655,782) 282,316
----------- -----------
Total decrease in net assets......................................... (6,733,046) (3,951,043)
----------- -----------
NET ASSETS:
Beginning of period (including undistributed net
investment income of $89,042 and $176,691, respectively)................. 25,020,850 28,971,893
----------- -----------
End of period (including undistributed net
investment income of $89,042 in fiscal year 1999)........................ $18,287,804 $25,020,850
----------- -----------
----------- -----------
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
Notes to Financial Statements
March 31, 2000
- -----------------------------------------------------------------------------
(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 identification.
(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) The amount of dividends and distributions from net investment
income and net realized capital gains are determined in accordance
with federal income tax regulations, which may differ from
generally accepted accounting principles. To the extent these book
and tax differences are permanent in nature, such amounts are
reclassified among fund shares issued and outstanding, accumulated
undistributed net realized gains on investments and accumulated
undistributed net investment income. Accordingly, at March 31,
2000, no reclassifications were recorded.
The fund hereby designates approximately $384,000 as long term
capital gain for the purposes of the dividends paid deduction.
(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 average net assets. The
adviser reimbursed $59,446 to the Fund which represents the expenses in
excess of .90% of average net assets for the fiscal year
ended March 31, 2000. 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, 2000 based on investment cost for federal tax purposes is as
follows:
Aggregate gross unrealized
appreciation on investments ................. $2,615,873
Aggregate gross unrealized
depreciation on investments ................. (1,619,539)
-----------
Net unrealized appreciation .............. $996,334
-----------
-----------
(4) Investment Transactions --
For the year ended March 31, 2000, the cost of purchases and the
proceeds from sales of investments, other than short-term
obligations, aggregated $13,117,837 and $15,868,040, 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, 2000, 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 auditing standards generally
accepted in the United States. 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, 2000, 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, 2000, 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 accounting principles
generally accepted in the United States.
April 24, 2000
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
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 MUTUTAL FUND SERVICES, LLC
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
Custodian
FIRSTAR INSTITUTIONAL CUSTODY SERVICES
Cincinnati, Ohio
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.
