SHAREHOLDER REPORT
NICHOLAS II, INC.
700 North Water Street
Milwaukee, Wisconsin 53202
<PAGE>
December 31, 1995
NICHOLAS II, INC.
February 23, 1996
Dear Fellow Shareholders:
Since our last report just three months ago, the markets have
changed drastically. This past year's mania for technology stocks
came to a predictable crash leaving many of these stocks down 50 -
70% from their mid-summer peaks. We feel empathy for the lemmings
who followed the crowd into last summer's "Windows 95" hype.
The chart below shows the performance of Nicholas II and
various indices for the quarter, year, five years and ten years
ended December 31, 1995:
Average Annual Total Return*
____________________________
3 Months 1 Year 5 Years 10 Years
________ _______ ________ ________
Nicholas II (Distributions
Reinvested) +4.57% +28.55% +16.10% +12.50%
NASDAQ OTC Composite
(Excludes Income) +0.82% +39.91% +22.99% +12.47%
Russell 2000 (Income Reinvested) +2.17% +28.44% +20.99% +11.32%
Standard & Poor's 500
(Income Reinvested) +5.94% +37.50% +16.59% +14.78%
Consumer Price Index +0.5% +2.6% +2.8% +3.5%
Ending value of $10,000 invested in
Nicholas II (Distributions
Reinvested) $10,457 $12,855 $21,095 $32,474
* Total returns are historical and include change in share
price and reinvestment of dividend and capital gain distributions.
Past performance is no guarantee of future results. Principal
value and return will fluctuate so an investment, when redeemed,
may be worth more or less than original cost.
Nicholas II performed well for the year and quarter ended
December 31, 1995 in a very strong market environment. Financial
and health care stocks were strong performers for the Fund during
the year. Despite the limited exposure to the technology sector,
Nicholas II performed in line with the comparable Russell 2000
small company index while avoiding the volatility produced in
the fourth quarter by the technology selloff.
With the start of 1996, the economy seems to be weakening and
interest rates and inflation remain low. Your Fund is well
positioned with its list of high quality, non-cyclical growth
companies that should perform well financially through most
economic conditions. I would be remiss however, not to mention
our concerns regarding the high level of valuation that currently
exists in stocks today. It is much harder to find good companies
selling at reasonable, let alone, bargain prices. Therefore, we
remain cautious in the near term.
Thank you again for your continued support of our long-term
investment philosophy.
Sincerely,
/s/ David O. Nicholas
----------------------
David O. Nicholas
Portfolio Manager
<PAGE>
PORTFOLIO COMPANY STATISTICS
December 31, 1995 (unaudited)
<TABLE>
<CAPTION>
Latest Latest Five Year Market Latest to Book Debt
12 Month 12 Month Compounded Return Price Book 12 Month Value as a
Sales (1) Earnings Earnings on Per Value Earnings Per % of Dividend
Name and Principal Business of Company (Millions) PerShare(1) Growth Equity Share Per Share Per Share Share Capital Yield
- -------------------------------------- -------- ---------- -------- ------- ----- --------- --------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alco Standard Corporation -
Distributes paper and office equipment $ 9,892 $ 1.81 7.18% 14.50% $ 45.625 $ 12.55 25.2 3.6 27% 1.6%
Arbor Drugs, Inc. -
Operates drugstore chain in MI 731 0.96 12.86% 5.90% 21.000 5.28 21.9 4.0 0% 1.3%
Associated Banc-Corp-
Wisconsin bank holding, 7th largest 258 3.41 13.54% 15.16% 40.938 18.77 12.0 2.2 54% 2.9%
Block Drug Company, Inc. - Class A -
Denture, dental care products, drugs 719 2.67 2.04% 9.29% 34.750 25.59 13.0 1.4 6% 1.5%
Cardinal Health, Inc. -
Wholesale distributor drugs 8,020 2.10 38.81% 17.53% 54.750 12.98 26.1 4.2 29% 0.3%
Circuit City Stores, Inc. -
Retailer: video equipment, appliances 6,686 1.85 17.75% 17.70% 27.625 9.29 14.9 3.0 17% 0.3%
Consolidated Stores Corporation -
Retails close-out merchandise 1,428 1.24 NM 19.90% 21.750 6.88 17.5 3.2 22% None
DENTSPLY International Inc. -
Dental supplies and xray equipment 550 1.87 89.40% 22.90% 40.000 9.65 21.4 4.1 4% 1.0%
Elan Corporation, plc - ADR -
Drug formulating techniques 194 2.06 39.69% 22.60% 48.625 8.41 23.6 5.8 39% None
Expeditors International of Washington, Inc. -
International airfreight forwarding 552 1.30 6.19% 12.20% 26.125 7.41 20.1 3.5 0% 0.6%
Fifth Third Bancorp -
Commercial banking in Cincinnati, OH 1,178 4.21 15.36% 17.90% 73.250 23.55 17.4 3.1 65% 2.2%
First Financial Corporation -
Savings & loan in Wisconsin 382 2.15 24.84% 18.59% 23.000 11.21 10.7 2.1 71% 2.7%
First National Bank of Anchorage (The) -
Banking in Alaska 97 130.97 10.01% 9.20% 1530.000 1497.64 11.7 1.0 NA 1.9%
Firstar Corporation -
Commercial banking, WI, IL,
MN, AZ and IA 1,273 2.82 10.06% 14.19% 39.625 19.90 14.1 2.0 63% 4.5%
FIserv, Inc. -
Data processing services 648 1.09 18.89% 11.20% 30.000 7.93 27.5 3.8 26% None
Forest Laboratories, Inc. -
Pharmaceutical manufacturer 436 2.33 24.34% 15.20% 45.250 14.95 19.4 3.0 0% None
General Motors Corporation - Class H -
High technology electronics 14,099 2.67 5.44% 12.10% 49.125 12.46 18.4 3.9 6% 2.1%
G & K Services, Inc. - Class A -
Rents and launders textile products 273 0.94 7.58% 15.60% 25.500 4.76 27.1 5.4 40% 0.5%
Health Care and Retirement Corporation -
Long-term care/rehab services 687 1.48 55.18% 12.71% 35.000 10.90 23.6 3.2 30% None
Health Management Associates, Inc. -
Class A -
Operates acute care hospitals 505 0.89 71.55% 19.70% 26.125 3.46 29.4 7.6 20% None
Healthsource, Inc. -
Multi-state HMO services 990 0.76 23.59% 14.50% 36.000 5.25 47.4 6.9 0% None
Heilig-Meyers Company -
Retail furniture stores 1,318 1.07 21.31% 14.30% 18.375 10.20 17.2 1.8 42% 1.3%
<PAGE>
PORTFOLIO COMPANY STATISTICS (Continued)
December 31, 1995 (unaudited)
Latest Latest Five Year Market Latest to Book Debt
12 Month 12 Month Compounded Return Price Book 12 Month Value as a
Sales (1) Earnings Earnings on Per Value Earnings Per % of Dividend
Name and Principal Business of Company (Millions) PerShare(1) Growth Equity Share Per Share Per Share Share Capital Yield
- -------------------------------------- -------- ---------- -------- ------- ----- --------- --------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Keane, Inc. -
Software programming services $ 369 $ 1.23 23.11% 16.10% $ 22.125 $ 9.04 18.0 2.4 31% None
Kohl's Corporation -
Operates department stores 1,783 1.98 NM 25.00% 52.500 9.72 26.5 5.4 17% None
Marshall & Ilsley Corporation -
Commercial banking in WI and AZ 1,179 1.92 14.00% 17.00% 26.000 11.58 13.5 2.2 62% 3.1%
MGIC Investment Corporation -
Provides private mortgage
insurance 502 3.28 39.02% 20.70% 54.250 17.32 16.5 3.1 0% 0.6%
Mutual Risk Management Ltd. -
Risk management services 129 2.15 33.74% 19.60% 45.750 9.97 21.3 4.6 6% 0.9%
Newell Co. -
Manufacturer of market
consumer/industrial products 2,414 1.38 11.64% 19.50% 25.875 7.52 18.8 3.4 39% 1.8%
O'Reilly Automotive, Inc. -
Operates automotive parts stores 193 1.48 34.57% 14.30% 29.000 7.02 19.6 4.1 0% None
PacifiCare Health Systems, Inc. -
Class B -
Health maintenance services 3,731 3.62 37.37% 22.40% 87.000 14.24 24.0 6.1 10% None
Patterson Dental Company -
Distributor of dental supplies
and equipment 556 1.19 28.83% 30.80% 27.000 3.90 22.7 6.9 4% None
Protective Life Corporation -
Holding: life, group, accident
and health 848 2.72 26.61% 18.60% 31.250 15.22 11.5 2.1 20% 2.3%
Quorum Health Group, Inc. -
Operates acute care hospitals 911 1.20 NM 17.21% 22.000 7.46 18.3 2.9 44% None
Sigma-Aldrich Corporation -
Biochemical and organic products 940 2.52 11.37% 18.10% 49.500 12.51 19.6 4.0 3% 1.1%
SPS Transaction Services, Inc. -
Transaction processing services 291 1.54 NM 27.72% 29.625 4.65 19.2 6.4 68% None
Tootsie Roll Industries, Inc. -
Manufacturer of branded candies 312 1.75 13.09% 19.10% 39.625 10.75 22.6 3.7 4% 0.6%
Unifi, Inc. -
Texturizing polyester yarns 1,583 1.80 18.00% 19.20% 22.125 8.99 12.3 2.5 25% 1.6%
Vencor, Inc. -
Acute/long-term care hospitals 605 1.39 157.40% 16.60% 32.500 9.07 23.4 3.6 46% None
Vivra Incorporated -
Dialysis and home health care 344 1.09 26.94% 14.40% 25.125 6.87 23.1 3.7 4% None
Watts Industries, Inc. - Class A -
Markets water and steam valves 680 1.57 7.66% 11.50% 23.250 12.67 14.8 1.8 24% 1.1%
------ ------ ------ ------ ------ ----- ---- --- --- ----
AVERAGE...................... 27.75% 17.02% 20.1x 3.7x 25% 0.9%
------ ------ ----- ---- --- ----
------ ------ ----- ---- --- ----
</TABLE>
Note - This list contains the top 40 portfolio issues exceeding
$8,816,000 in market value.
(1) Source: Corporate Reports.
NA - Not available.
NM - Not meaningful.
<PAGE>
HISTORICAL RECORD (UNAUDITED)
<TABLE>
<CAPTION>
Capital Gain Dollar Growth of
Net Dividend and Other 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>
October 17, 1983* $10.00 $ - $ - - $10,000
September 30, 1986 16.90 .163 .061 15.0 times 17,581
September 30, 1987 21.01 .420 .513 20.9 23,108
September 30, 1988 18.58 .338 1.303 15.0 22,766
September 30, 1989 21.76 .335 .080 17.1 27,291
September 30, 1990 17.39 .3124 .6686 14.8 22,888
September 30, 1991 23.87 .3422 .1434 17.8 32,251
September 30, 1992 24.53 .2447 .4042 17.3 34,054
September 30, 1993 26.94 .2350 .8000 18.1 38,885
September 30, 1994 26.71 .2000 1.4700 18.5 41,020
September 30, 1995 30.07 .2056 (a) 1.8944 (a) 20.8 50,205
December 31, 1995 28.73 .1750 (b) 2.4979 (b) 22.6 52,498
</TABLE>
* Date of Initial Public Offering (a) Paid December 31, 1994
** Based on latest 12 months to shareholders of record
accomplished earnings December 27, 1994.
*** Assuming reinvestment of all (b) Paid December 31, 1995
distributions to shareholders of record
December 26, 1995.
Range in price/earnings ratios
Highs Low
-------------- -------------
6/30/87 23.4 9/30/85 11.7
12/31/95 22.6
<PAGE>
CAN YOU AFFORD NOT TO INVEST IN AN IRA?
The maximum yearly IRA contribution is the lesser of $2,000
or 100% of your compensation. Every year that you contribute this
amount you may also deduct it from your Federal income taxes,
unless you (or your spouse) are an eligible participant in an
employer-sponsored retirement plan and your adjusted gross income
exceeds certain limits as defined by the Internal Revenue Code.
This deduction can lead to substantial savings, especially when
you look at the relationship between higher tax brackets and the
net cost of investing. The table below illustrates a schedule of
tax brackets, resulting tax savings, and the net cost of investing
$2,000 in an IRA, assuming full deductibility of your
contributions.
TABLE I
Federal Tax Federal Tax Net Cost of Investing
Brackets Savings $2,000 in an IRA
---------- ---------- ------------------
15% $300 $1,700
28% 560 1,440
31% 620 1,380
36% 720 1,280
39.6% 792 1,208
Even if you are an eligible participant in an employer-
sponsored retirement plan, you may still make a non-deductible IRA
contribution (subject to the $2,000/100% of compensation limit).
Another tax advantage to investing in an IRA is that any amounts
received from dividends, interest, etc., accumulate tax deferred,
whether or not your contribution is fully deductible. Taxes will
have to be paid when you receive distributions.
Finally, Table II shows the various amounts accumulated in an
IRA under different annual rates of return, based on a $2,000
annual year end contribution. These figures are purely
hypothetical since investment returns are rarely constant year to
year. Yet, one can get a good idea that investing in an IRA plan
provides a good nest egg for retirement.
TABLE II
Amounts accumulated in an IRA
Annual Rates of Return
-------------------------------------------------
After 8% 10% 12% 15%
----- ------- ------- ------- -------
10 Years $ 28,973 $ 31,874 $ 35,096 $ 40,606
20 Years 91,524 114,550 144,104 204,880
30 Years 226,566 328,980 482,660 869,480
40 Years 518,113 885,180 1,534,180 3,558,000
<PAGE>
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
CHERYL L. KING
Treasurer and Vice President
CANDACE L. LESAK
Vice President
JEFFREY T. MAY
Vice President
JOHN J. O'HARE II
Vice President
KATHLEEN A. EVANS
Assistant Vice President
Custodian and Transfer Agent
FIRSTAR TRUST COMPANY
Milwaukee
(414) 276-0535
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.
