NICHOLAS EQUITY INCOME FUND
November 27, 2000
Report to Fellow Shareholders:
Through the first six months of fiscal 2001, Nicholas Equity
Income Fund's total return was 0.82%. This compares to (3.60)% for the
S&P 500 Index. Net assets were $17.8 million at September 30, 2000,
consisting of 91% common stocks and 9% cash and equivalents.
Returns for Nicholas Equity Income Fund and selected indices are
provided in the chart below for the periods ended September 30, 2000.
[CAPTION]
<TABLE> Average Annual Total Return*
9 Months 1 Year 3 Years 5 Years
-------- -------- ------- -------
<C> <C> <C> <C> <C>
Nicholas Equity Income Fund, Inc. (Distributions Reinvested) 6.79% 2.56% (0.79)% 6.25%
Standard & Poor's 500 Index (Dividends Reinvested) (1.39)% 13.27% 16.44)% 21.68%
Consumer Price Index 2.84% 3.46% 2.48% 2.53%
Ending value of $10,000 invested in Nicholas Equity Income
Fund, Inc. (Distributions Reinvested) $10,679 $10,256 $9,766 $13,543
The Fund's objective is to produce reasonable current income with
moderate long-term growth. The Fund holds 31 stocks at the present
time. All holdings are dividend paying and of high investment quality.
At September 30, 2000 the 30-day annualized yield was 2.44%* in
comparison the dividend yield on the S&P 500 was 1.13%. In an
atmosphere of declining stock prices, management feels confident that
our list of equities will perform relatively well.
Thank you for your interest in Nicholas Equity Income Fund.
Sincerely,
\s\
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, 2000 was 7.05%. Absent reimbursement, the 30-day annualized yield
would have been 2.15%.
Financial Highlights
(For a share outstanding throughout each period)
--------------------------------------------------------
<CAPTION>
</TABLE>
<TABLE>
Six Months Year Ended March 31,
Ended 09/30/2000 --------------------------------------------
(unaudited) 2000 1999 1998 1997 1996
---------------- ------ ------ ------ ------ ------
<C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.10 $12.32 $14.35 $12.27 $12.35 $10.56
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .15 .40 .44 .47 .48 .36
Net gains (losses) on securities
(realized and unrealized) (.06) (.94) (1.66) 2.77 .44 1.77
------ ------ ------ ------ ------ ------
Total from investment operations .09 (.54) (1.22) 3.24 .92 2.13
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
From net investment income (.08) (.44) (.48) (.50) (.45) (.34)
From capital gains -- -- (.17) (.66) (.55) --
In excess of book realized gains (Note 1(d)) -- (.24) (.16) -- -- --
------ ------ ------ ------ ------ ------
Total distributions (.08) (.68) (.81) (1.16) (1.00) (.34)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $11.11 $11.10 $12.32 $14.35 $12.27 $12.35
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN 0.82%(1) (4.20)% (8.65)% 27.83% 7.83% 20.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) $17.8 $18.3 $25.0 $29.0 $20.8 $15.8
Ratio of expenses to average net assets (3) 0.90%(2) 0.90% 0.90% 0.90% 0.90% 1.38%
Ratio of net investment income
to average net assets (3) 2.65%(2) 3.30% 3.36% 3.61% 4.12% 3.26%
Portfolio turnover rate 55.84%(2) 79.34% 54.41% 36.83% 23.05% 68.85%
</TABLE>
(1) Not annualized.
(2) Annualized.
(3) Net of reimbursement by adviser. Absent reimbursement of expenses,
the ratio of expenses to average net assets would have been 1.19%,
1.18%, 1.10%, 1.08%, 1.18% and 1.40% for the six months ended
September 30, 2000 and the fiscal years ended 2000, 1999, 1998, 1997
and 1996, respectively. Also, the respective ratio of net investment
income to average net assets would have been 2.36%, 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
September 30, 2000 (unaudited)
----------------------------------------------------------------
Percentage
Name of Net Assets
---- -------------
Pharmacia Corporation ..................................... 5.22%
Household International, Inc. ............................. 5.08%
Pfizer Inc. ............................................... 5.04%
Exxon Mobil Corporation ................................... 4.50%
Aon Corporation ........................................... 4.40%
American Home Products Corporation ........................ 4.13%
Waddell & Reed Financial, Inc. - Class A .................. 4.00%
Sherwin-Williams Company (The) ............................ 3.84%
Vulcan Materials Company .................................. 3.61%
National Health Realty, Inc. .............................. 3.34%
------
Total of top ten .......................................... 43.16%
------
------
Schedule of Investments
September 30, 2000 (unaudited)
------------------------------------------------------------------------
Shares or Quoted
Principal Market
Amount Value
----------- ------------
(Note 1 (a))
COMMON STOCKS -- 91.35%
Basic Materials -- 3.61%
16,000 Vulcan Materials Company ........................ $ 643,000
-----------
Communication Services -- 4.63%
10,000 AT&T Corp. ...................................... 293,750
10,980 Verizon Communications .......................... 531,844
-----------
825,594
-----------
Consumer Cyclicals - Products -- 2.20%
7,000 Illinois Tool Works Inc. ........................ 391,125
-----------
Consumer Cyclicals - Retail -- 5.59%
25,000 Dollar General Corporation ...................... 418,750
15,000 Genuine Parts Company ........................... 285,937
20,000 La-Z-Boy Incorporated ........................... 291,250
-----------
995,937
-----------
Consumer Cyclicals - Services -- 8.49%
12,000 Cintas Corporation .............................. 522,750
14,000 Interpublic Group of Companies, Inc. (The) ...... 476,875
52,000 ServiceMaster Company (The) ..................... 513,500
-----------
1,513,125
-----------
Consumer Staples - Drug, Retail
Food & Beverages -- 4.13%
11,000 McDonald's Corporation .......................... 332,063
10,300 Tootsie Roll Industries, Inc. ................... 404,275
-----------
736,338
-----------
Consumer Staples - Media &
Entertainment -- 2.20%
9,000 Tribune Company ................................. 392,625
-----------
Consumer Staples - Products -- 8.13%
8,000 Avery Dennison Corporation ...................... 371,000
10,000 Pitney Bowes Inc. ............................... 394,375
32,000 Sherwin-Williams Company (The) .................. 684,000
-----------
1,449,375
-----------
Energy -- 4.50%
9,000 Exxon Mobil Corporation ......................... 802,125
-----------
Financial - Banks &
Diversified Financials -- 10.62%
21,808 Firstar Corporation ............................. 487,954
16,000 Household International, Inc. ................... 906,000
25,000 National Commerce Bancorporation ................ 498,437
-----------
1,892,391
-----------
Financial - Brokerage &
Investment Management -- 4.00%
23,000 Waddell & Reed Financial, Inc. -
Class A ........................................ 713,000
-----------
Financial - Insurance -- 11.34%
7,000 American General Corporation .................... 546,000
20,000 Aon Corporation ................................. 785,000
2,000 Marsh & McLennan Companies, Inc. ................ 265,500
15,000 Mercury General Corporation ..................... 424,688
-----------
2,021,188
-----------
Financial - Real Estate
Investment Trusts -- 6.26%
54,850 Correctional Properties Trust ................... 521,075
70,000 National Health Realty, Inc. .................... 595,000
-----------
1,116,075
-----------
Health Care - Products -- 14.39%
13,000 American Home Products Corporation .............. 735,312
20,000 Pfizer Inc. ..................................... 898,750
15,470 Pharmacia Corporation ........................... 931,101
-----------
2,565,163
-----------
Technology - Hardware -- 1.26%
2,000 International Business Machines Corporation ..... 225,000
-----------
TOTAL COMMON STOCKS
(cost $15,310,248) ..................... 16,282,061
-----------
SHORT-TERM INVESTMENTS -- 8.60%
Commercial Paper -- 5.61%
500,000 Banta Corporation
6.80%, due October 2, 2000 .................... 500,000
500,000 Badger Meter, Inc.
6.80%, due October 5, 2000 .................... 499,717
-----------
999,717
-----------
Variable Rate Demand Notes -- 2.99%
423,854 Firstar Bank U.S.A., N.A.
6.29%, due October 2, 2000 .................... 423,854
109,672 Wisconsin Electric Power Company
6.24%, due October 2, 2000 .................... 109,672
-----------
533,526
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,532,204) ...................... 1,533,243
-----------
TOTAL INVESTMENTS
(cost $16,842,452) -- 99.95% ........... 17,815,304
-----------
OTHER ASSETS,
NET OF LIABILITIES -- 0.05% ............. 8,660
-----------
TOTAL NET ASSETS
(Basis of percentages
disclosed above) -- 100%............... $17,823,964
-----------
-----------
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(2) Investment(3)
----------- ------------- ------------- -------------- -------------
<C> <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
March 31, 2000............................. 11.10 0.4447 0.2392 20.6 15,816
September 30, 2000......................... 11.11 0.0780 (a) -- 22.2 15,946
</TABLE>
(1) Date of Initial Public Offering.
(2) Based on latest 12 months accomplished earnings.
(3) Assuming reinvestment of all distributions.
(a) Paid $0.0780 in net investment income on July 31, 2000
to shareholders of record on July 28, 2000.
Range in quarter end price/earnings ratios
High Low
---------- ---------
March 31, 1998 23.0 December 31, 1994 13.9
Statement of Assets and Liabilities
------------------------------------------------------------------
ASSETS:
Investments in securities at market value
(cost $16,842,452) (Note 1 (a)) ......................... $17,815,304
Dividend and interest receivables ........................ 50,752
-----------
Total assets ................................. 17,866,056
-----------
LIABILITIES:
Management fee (Note 2) .................................. 23,052
Other payables and accrued expenses ...................... 19,040
-----------
Total liabilities ............................ 42,092
-----------
Total net assets ............................. $17,823,964
-----------
-----------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding ....................... $17,449,526
Net unrealized appreciation on investments (Note 3) ...... 971,813
Accumulated net realized book loss on investments ........ (709,316)
Accumulated undistributed net investment income .......... 111,941
-----------
$17,823,964
-----------
-----------
NET ASSET VALUE PER SHARE ($.0001 par value, 500,000,000 shares authorized),
offering price and redemption price
($17,823,964 / 1,604,530 shares outstanding) .................. $11.11
------
------
The accompanying notes to financial statements are an
integral part of this statement.
Statement of Operations
For the six months ended September 30, 2000 (unaudited)
-----------------------------------------------------------------------------
INCOME:
Dividends........................................ $ 267,260
Interest......................................... 51,342
---------
318,602
---------
EXPENSES:
Management fee (Note 2).......................... 62,754
Legal fees....................................... 12,670
Registration fees................................ 9,593
Audit and tax consulting fees.................... 8,500
Transfer agent fees.............................. 6,022
Directors' fees ................................. 1,800
Postage and mailing ............................. 1,202
Printing ........................................ 911
Custodian fees .................................. 444
Other operating expenses......................... 3,240
---------
Total expenses before reimbursement........ 107,136
---------
Reimbursement of expenses by adviser (Note 2) (26,452)
---------
80,684
---------
Net investment income..................... 237,918
---------
NET REALIZED LOSS ON INVESTMENTS....................... (87,937)
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (24,521)
---------
Net loss on investments................... (112,458)
---------
Net increase in net assets resulting from operations $ 125,460
---------
----------
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, 2000 (unaudited) and the year
ended March 31, 2000
-------------------------------------------------------------------------------
[CAPTION]
<TABLE>
Six Months
Ended 09/30/2000 2000
OPERATIONS: ----------- -----------
<C> <C> <C>
Net investment income ..................................................... $ 237,918 $ 693,473
Net realized gain (loss) on investments ................................... (87,937) 101,762
Net decrease in unrealized appreciation on investments .................... (24,521) (1,682,790)
----------- -----------
Net increase (decrease) in net assets resulting from operations ...... 125,460 (887,555)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.0780 and $0.4447 per share, respectively) ............................ (125,977) (782,515)
Distributions in excess of book realized gains ($0.2392 per share) (Note 1(d)) -- (407,194)
----------- -----------
Total distributions................................................... (125,977) (1,189,709)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (67,173 and 97,105 shares, respectively) ...... 748,889 1,146,863
Reinvestment of distributions
(11,148 and 102,367 shares, respectively) ................................ 118,948 1,126,193
Cost of shares redeemed (120,964 and 582,893 shares, respectively) ........ (1,331,160) (6,928,838)
----------- -----------
Decrease in net assets derived
from capital share transactions ..................................... (463,323) (4,655,782)
----------- -----------
Total decrease in net assets ......................................... (463,840) (6,733,046)
----------- -----------
NET ASSETS:
Beginning of period (including undistributed net
investment income of $0 and $89,042, respectively) .......................... 18,287,804 25,020,850
----------- -----------
End of period (including undistributed net investment
income of $111,941 and $0, respectively) .................................... $17,823,964 $18,287,804
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
Notes to Financial Statements
September 30, 2000 (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 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 September 30, 2000,
no reclassifications were required.
(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 $26,452 to the Fund
which represents the expenses in excess of .90% (annualized) of
average net assets for the six months ended September 30, 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 September
30, 2000, based on investment cost for federal tax purposes is as follows:
<TABLE>
<C> <C>
Aggregate gross unrealized appreciation on investments ......................... $ 3,049,304
Aggregate gross unrealized depreciation on investments ......................... (2,077,491)
-----------
Net unrealized appreciation ............................................. $ 971,813
-----------
</TABLE>
(4) Investment Transactions --
For the period ended September 30, 2000, the cost of purchases and the
proceeds from sales of investments, other than short-term obligations,
aggregated $4,638,451 and $4,733,691, 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
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
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.
