As filed with the Securities and Exchange Commission on January 3, 1997
File No. 2-85030
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 13
January 31, 1997
VIA EDGAR TRANMISSION
Securities and
Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20540
Re: Nicholas II, Inc. (the "Fund")
SEC File No. 2-85030
Post-Effective Amendment No. 13
Registration Statement on Form N-1A
Gentlemen:
In connection with the amendment by the Fund of its
registration statement on Form N-1A under Section 8 of the
Investment Company Act of 1940, as amended, and pursuant to the
provisions of Rule 472 and Rule 485 under the Securities Act of
1933, as amended, and pursuant to Regulation S-T relating to
electronic filings, we enclose for filing a copy of Post-
Effective Amendment No. 13 to the Registration Statement,
including exhibits relating thereto, marked to show changes
effected by the Amendment.
This Amendment shall be effective on the date of filing, in
accordance with Rule 485(b). As legal counsel to the Fund, we
have prepared the Amendment, and we hereby represent pursuant to
Rule 485(b)(4) that the Amendment does not contain disclosures
which would render it ineligible to become effective pursuant to
Rule 485(b).
Very truly yours,
MICHAEL BEST & FRIEDRICH
Kate M. Fleming
KMF/ljg
Enclosure
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 13
NICHOLAS II, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
700 North Water Street, Milwaukee, Wisconsin 53202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(414) 272-6133
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Albert O. Nicholas, President
Nicholas II, Inc.
700 North Water Street
Milwaukee, Wisconsin 53202
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copy to:
Kate M. Fleming
Michael Best & Friedrich
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b)
on _____________ pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on ________ pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph(a)(2)
on _______________ pursuant to paragraph (a)(2) of Rule 485
Pursuant to Rule 24f-2, the Registrant hereby registers an
indefinite amount of securities. On November 29, 1996,
Registrant filed the necessary Rule 24f-2 Notice and filing fee
with the Commission for its fiscal year ended September 30, 1996.
NICHOLAS II, INC.
CROSS-REFERENCE SHEET
(As required by Rule 481(a))
Part A. Information Required in Prospectus Heading
- ------- ---------------------------------- ------
Item 1. Cover Page Cover Page
Item 2. Synopsis Performance Data
Item 3. Condensed Financial
Information Consolidated Disclosure
of Fund Fees and
Expenses; Financial
Highlights
Item 4. General Description of
Registrant Introduction; Investment
Objectives and Policies;
Investment Restrictions
Item 5. Management of the Fund Investment Adviser;
Item 5A. Management's Discussion of Management's Discussion
Fund Performance of Fund Performance
Item 6. Capital Stock and Other
Securities Transfer of Capital
Stock; Dividends and
Federal Tax Status;
Capital Structure; Annual
Meeting; Shareholder
Reports
Item 7. Purchase of Securities Being
Offered Purchase of Capital
Stock; Redemption of
Capital Stock; Exchange
Between Funds; Transfer
of Capital Stock;
Determination of Net
Asset Value; Individual
Retirement Account;
Master Retirement Plan
Item 8. Redemption or Repurchase Purchase of Capital
Stock; Redemption of
Capital Stock
Item 9. Pending Legal Proceedings N/A
Part B. Information Required in a Statement of Additional Information
- ------- -------------------------------------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and
History Introduction
Item 13. Investment Objectives and
Policies Investment Objectives and
Policies; Investment
Restrictions
Item 14. Management of the Fund Investment Adviser;
Management - Directors,
Executive Officers and
Portfolio Managers of the
Fund
Item 15. Control Persons and Principal
Holders of Securities Principal Shareholders
Item 16. Investment Advisory
and Other Services Investment Adviser;
Custodian and Transfer
Agent; Independent
Accountants and Legal
Counsel
Item 17. Brokerage Allocation and
Other Practices Brokerage
<PAGE>
CROSS-REFERENCE SHEET
(Continued)
Item 18. Capital Stock and Other
Securities Transfer of Capital
Stock; Dividends and
Federal Tax Status;
Capital Structure; Stock
Certificates; Shareholder
Reports; Annual Meeting
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered Purchase of Capital
Stock; Redemption of
Capital Stock; Exchange
Between Funds; Transfer
of Capital Stock;
Determination of Net
Asset Value; Dividend
Reinvestment Plan;
Individual Retirement
Account; Master
Retirement Plan
Item 20. Tax Status Dividends and Federal Tax
Status
Item 21. Underwriters N/A
Item 22. Calculation of Performance
Data Performance Data
Item 23. Financial Statements Financial Information
Part C Other information
- ------ -----------------
Item 24. Financial Statements and
Exhibits Part C
Item 25. Persons Controlled By or
Under Common Control
with Registrant Part C
Item 26. Number of Holders of
Securities Part C
Item 27. Indemnification Part C
Item 28. Business and Other
Connections of Investment
Adviser Part C
Item 29. Principal Underwriters Part C
Item 30. Location of Accounts and
Records Part C
Item 31. Management Services Part C
Item 32. Undertakings Part C
Nicholas II, Inc.
Form N-1A
PART A: PROSPECTUS
NICHOLAS II, INC.
PROSPECTUS
700 NORTH WATER STREET, SUITE 1010
MILWAUKEE, WISCONSIN 53202
414-272-6133 or 800-227-5987
Nicholas II, Inc. (the "Fund") is an open-end management
investment company having as its investment objective long-term
growth in which income is a secondary consideration. To achieve
its objective, the Fund will invest in a diversified list of
common stocks that have growth potential.
NO-LOAD FUND - NO SALES CHARGE
Investment Adviser
NICHOLAS COMPANY, INC.
Minimum Initial Investment - $1,000
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus sets forth concisely the information about
the Fund that a prospective investor should know before
investing. Additional information about the Fund has been filed
with the Securities and Exchange Commission in the form of a
Statement of Additional Information dated January 31, 1997. Upon
request to the Fund at the address and telephone number set forth
above, the Fund will provide copies of the Statement of
Additional Information without charge to each person to whom a
Prospectus is delivered.
January 31, 1997
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE
TABLE OF CONTENTS
PAGE
Introduction............................................. 2
Consolidated Disclosure of Fund Fees and Expenses........ 2
Financial Highlights..................................... 3
Management's Discussion of Fund Performance.............. 4
Performance Data......................................... 5
Investment Objectives and Policies....................... 6
Investment Restrictions.................................. 7
Investment Adviser....................................... 8
Purchase of Capital Stock................................ 9
Redemption of Capital Stock.............................. 10
Exchange Between Funds................................... 12
Transfer of Capital Stock................................ 13
Determination of Net Asset Value......................... 13
Dividends and Federal Tax Status......................... 13
Dividend Reinvestment Plan............................... 14
Systematic Withdrawal Plan............................... 14
Individual Retirement Account............................ 14
Master Retirement Plan................................... 15
Capital Stock............................................ 15
Annual Meeting........................................... 15
Shareholder Reports...................................... 15
Custodian and Transfer Agent............................. 15
Independant Accountants and legal counsel................ 15
No person has been authorized to give any information or to
make any representations other than those contained in this
Prospectus and the Statement of Additional Information dated
January 31, 1997 and, if given or made, such information or
representations may not be relied upon as having been authorized
by Nicholas II, Inc.
This Prospectus does not constitute an offer to sell
securities in any state or jurisdiction in which such offering
may not lawfully be made. The delivery of this Prospectus at any
time shall not imply that there has been no change in the affairs
of Nicholas II, Inc. since the date hereof.
INTRODUCTION
Nicholas II, Inc. (the "Fund") was incorporated under the
laws of Maryland on June 28, 1983. The Fund is an open-end,
diversified management investment company registered under the
Investment Company Act of 1940, as amended. As an open-end
investment company, it obtains its assets by continuously selling
shares of its Common Stock, $0.01 par value per share, to the
public. Proceeds from such sales are invested by the Fund in
securities of other companies. The resources of many investors
are combined and each individual investor has an interest in
every one of the securities owned by the Fund. The Fund provides
each individual investor with diversification by investing in the
securities of many different companies in a variety of industries
and furnishes experienced management to select and watch over its
investments. As an open-end investment company, the Fund will
redeem any of its outstanding shares on demand of the owner at
their net asset value next determined following receipt of the
redemption request. The investment adviser to the Fund is
Nicholas Company, Inc. (the "Adviser").
CONSOLIDATED DISCLOSURE OF FUND FEES AND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................... None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable).. None
Redemption Fees (as a percentage of redemption
proceeds, if applicable)(1)............................ None
Exchange Fee(2).......................................... None
ANNUAL FUND OPERATING EXPENSES(3) (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees.......................................... 0.52%
12b-1 Fees............................................... None
Other Expenses........................................... 0.10%
Total Fund Operating Expenses............................ 0.62%
__________
(1) There is a fee of up to $12.00 for federal wire redemptions.
(2) There is a $5.00 fee for telephone exchanges only.
(3) Annual Fund Operating Expenses are based on expenses incurred
for the fiscal year ended September 30, 1996.
EXAMPLE
1 Year 3 Years 5 Years 10 Years
------- ------- -------- --------
A shareholder would pay the
following expenses on a $1,000
investment, assuming: (1) 5%
annual return and (2) redemption
at the end of each period: $6 $20 $35 $77
This example should not be considered a representation of past
or future expenses. Actual expenses may be greater or lesser than
those shown.
The purpose of the table is to assist the prospective
investor in understanding the various costs and expenses that an
investor in the Fund will bear directly and indirectly. For a
description of "Management Fees" and "Other Expenses," see
"Investment Adviser."
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
The following Financial Highlights of the Fund for the ten
years ended September 30, 1996, have been examined by Arthur
Andersen LLP, independent public accountants, whose report
thereon is included in the Fund's Annual Report for the fiscal
year ended September 30, 1996. The table should be read in
conjunction with the financial statements and related notes
included in the Fund's Annual Report which are incorporated
herein by reference.
<TABLE>
YEAR ENDED SEPTEMBER 30,
-------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $30.07 $26.71 $26.94 $24.53 $23.87 $17.39 $21.76 $18.58 $21.01 $16.90
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .10 .24 .21 .21 .23 .26 .36 .29 .36 .24
Net gains or (losses) on
securities (realized
and unrealized) 5.84 5.22 1.23 3.24 1.07 6.70 (3.75) 3.31 (1.15) 4.80
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 5.94 5.46 1.44 3.45 1.30 6.96 (3.39) 3.60 (.79) 5.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net
investment income) (.18) (.21) (.20) (.24) (.24) (.34) (.31) (.34) (.34) (.42)
Distributions (from
capital gains) (2.49) (1.89) (1.47) (.80) (.40) (.14) (.67) (.08) (1.30) (.51)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (2.67) (2.10) (1.67) (1.04) (.64) (.48) (.98) (.42) (1.64) (.93)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END
OF YEAR $33.34 $30.07 $26.71 $26.94 $24.53 $23.87 $17.39 $21.76 $18.58 $21.01
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN 21.35% 22.39% 5.49% 14.19% 5.59% 40.91% (16.14)% 19.88% (1.48)% 31.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (millions) $774.8 $682.2 $624.7 $715.8 $646.5 $490.9 $336.5 $422.2 $380.2 $43.3
Ratio of expenses to
average net assets .62% .66% .67% .67% .66% .70% .71% .74% .77% .74%
Ratio of net investment
income to average net
assets .29% .68% .72% 0.79% 1.01% 1.24% 1.78% 1.43% 1.97% 1.37%
Portfolio turnover rate 24.47% 19.63% 17.38% 27.32% 11.47% 12.46% 18.78% 8.22% 18.42% 25.66%
Average commission
rate paid on portfolio
investment transactions $0.046 $0.048 - - - - - - - -
</TABLE>
* DISCLOSURE OF THIS RATE IS REQUIRED BY THE SECURITIES AND EXCHANGE
COMMISSION ON A PROSPECTIVE BASIS BEGINNING WITH THE FUND'S 1996
FISCAL YEAR END. THE FUND HAS CHOSEN TO DISCLOSE THIS RATE BEGINNING
IN FISCAL 1995.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Individual stock selection is the focal point of the
Adviser's equity philosophy. The Adviser's efforts are directed
toward purchasing stocks that represent good value based upon the
criteria outlined below. It is also the Adviser's strong
conviction that superior long-term results are achieved through
the minimization of capital losses during adverse periods in the
general market. The Adviser primarily seeks stocks where the
price/earnings ratio is low in relation to earnings growth or
where the price is reasonable in relation to book value. Above
average secular earnings growth and strong current earnings
momentum are important factors. The Fund's primary objective is
long-term capital appreciation. In an effort to achieve this
objective, the Adviser purchases stocks for the Fund in small and
medium size companies that represent good value in relation to
their growth prospects.
The Fund ended fiscal 1996 with a net asset value per share
of $33.34, an average annual total return of 21.35%
(distributions reinvested), and approximately $775 million in
total net assets. The Fund's average annual total return for
fiscal 1996 compares favorably to the average annual total return
of 13.13% (includes income) for the Russell 2000 Index, 20.32%
(income reinvested) for the S&P 500 Index and 17.57% (excludes
income) for the NASDAQ OTC Composite Index over the same period.
The Fund's performance in fiscal 1996 was driven primarily by
large individual holdings such as Keane, Inc. (business services)
and Expeditors International of Washington, Inc.
(transportation), along with finance-related holdings which
benefited from declining interest rates in fiscal 1996. The
Fund's health care services holdings, accounting for
approximately 21.7% of the Fund's investments at September 30,
1996, and the Fund's health care products holdings, accounting
for approximately 10.2% of the Fund's investments at September
30, 1996, did not perform as well in fiscal 1996, primarily due
to investor nervousness over the election and potential
government regulation.
The stock market in 1996 may be characterized by
outperformance of large capitalization companies over small.
This can be seen by the performance of the S&P 500 Index or
NASDAQ Index over the Russell 2000 Index for the calendar year
through September 30, 1996. However, the large capitalization
company rally appears to be rather narrow, only significantly
affecting a small number of large capitalization companies. This
large capitalization rally continues to be fueled by a steadily
growing economy, with little inflationary pressure and improving
productivity.
The long-term bull market since 1990, along with good price
performance by the Fund's portfolio companies, has caused the
Fund's price/earnings ratio to reach historically high levels.
This has caused the Adviser to examine closely the risk level of
the Fund's portfolio companies. The Adviser is comfortable with
the business risk in the portfolio at September 30, 1996 and
believes the Fund's portfolio companies should maintain a fair
value.
Set forth below is a comparison of the initial account value
and subsequent account values at the end of each of the most
recently completed ten fiscal years of the Fund, assuming a
$10,000 investment in the Fund at the beginning of the first
fiscal year, to the same investment over the same periods in the
Standard & Poor's 500 Composite Stock Price Index, the Russell
2000 Index and the NASDAQ OTC Composite Index.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
NICHOLAS II, INC. AND S&P 500 INDEX, RUSSELL 2000 INDEX
AND NASDAQ OTC COMPOSITE INDEX
Nicholas Russell S&P 500 Nasdaq
II 2000 Value OTC
[S] [C] [C] [C] [C]
9/30/86 10,000 10,000 10,000 10,000
9/30/87 13,144 12,940 14,332 12,670
9/30/88 12,949 11,540 12,535 11,056
9/30/89 15,524 14,021 16,637 13,487
9/30/90 13,018 10,213 15,077 9,824
9/30/91 18,344 14,818 19,794 15,025
9/30/92 19,369 16,144 21,974 16,634
9/30/93 22,118 21,494 24,830 21,754
9/30/94 23,333 22,069 25,738 21,798
9/30/95 28,557 27,225 33,395 29,756
9/30/96 34,653 30,799 40,188 34,986
The Fund's average annual total returns for the one, five and
ten year periods ended on the last day of the most recent fiscal
year are as follows:
ONE YEAR ENDED FIVE YEARS ENDED TEN YEARS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------ ------------------
Average Annual
Total Return 21.35% 13.57% 13.23%
Past performance is not predictive of future performance.
PERFORMANCE DATA
The Fund may from time to time include its "total return" or
"average annual total return" in advertisements or in information
furnished to present or prospective shareholders. The "total
return" of the Fund is expressed as a ratio of the increase (or
decrease) in value of a hypothetical investment in the Fund at
the end of a measuring period to the amount initially invested.
The "average annual total return" is the total return discounted
for the number of represented time periods and is expressed as a
percentage. The rate represents the annual rate achieved on the
initial investment to arrive at the ending redeemable value. The
ending value assumes reinvestment of dividends and capital gains
and the reduction of account charges, if any. This computation
does not reflect any sales load or other nonrecurring charges,
since the Fund is not subject to such charges.
The "total return" and the "average annual total return"
calculations are historical measures of performance and are not
necessarily indicative of future performance. Such measurements
will vary from time to time depending upon market conditions, the
composition of the Fund's portfolio, operating expenses, and the
distribution policy as determined by the Board of Directors.
These factors should be considered when evaluating the Fund's
performance. For additional information regarding the
calculation of this performance data, see the Statement of
Additional Information.
In sales materials, reports and other communications to
shareholders, the Fund may compare its performance to certain
indices, including the Standard & Poor's 500 Composite Stock
Price Index, the National Association of Securities Dealers
Automated Quotation System, the Russell 2000 Index and the United
States Department of Labor Consumer Price Index. The Fund also
may include evaluations of the Fund published by nationally
recognized financial publications and ranking services, such as
Forbes, Money, Financial World, Lipper Analytical Services Mutual
Fund Performance Analysis and Morningstar Mutual Funds.
INVESTMENT OBJECTIVES AND POLICIES
The Fund has adopted primary investment objectives, which
are fundamental policies. The Fund also has adopted secondary
investment objectives and certain other policies which are not
fundamental and may be changed by the Board of Directors without
shareholder approval. However, any changes will be made only
upon advance notice to shareholders. Such changes may result in
the Fund having secondary investment and other policy objectives
different from the objectives which a shareholder considered
appropriate at the time of investment in the Fund.
The primary investment objective of the Fund is long-term
growth, and securities are selected for its portfolio on that
basis. Current income will be a secondary factor in considering
the selection of investments. There are market risks inherent in
any investment and there can be no assurance the objective of the
Fund will be realized, nor can there be any assurance against
possible loss in the value of the Fund's portfolio.
It is the policy of the Fund to invest in securities which
are believed by both the Adviser and the Board of Directors of
the Fund to offer possibilities for increase in value, which for
the most part are common stocks of companies the Adviser
considers to have favorable long-term prospects. Since the major
portion of the Fund's portfolio consists of common stocks, its
net asset value may be subject to greater fluctuation than a
portfolio containing a substantial amount of fixed income
securities. Securities are not purchased with a view to rapid
turnover or to obtain short-term profits, which are defined as
profits on assets held less than twelve months.
The Fund's investment philosophy is basically a long-term
growth philosophy, inherent in which is the assumption that if a
company achieves superior growth in sales and earnings,
eventually the company's stock will achieve superior performance.
While small and medium size companies often have a limited market
for their securities and limited financial resources, and are
usually more affected by changes in the economy in general, they
also may have the potential for more rapid, and greater,
long-term growth because of newer and more innovative products.
In seeking capital appreciation, the Fund will often purchase
common stock of small and medium size companies which often
fluctuates in price more than common stocks of larger companies,
such as many of those included in the Dow Jones Industrial
Average. The Adviser believes a company's annual sales volume
and the market capitalization of a company are the factors most
illustrative of a company's size and are factors commonly used by
investors in determining size. The following standards are used
by the Adviser in distinguishing company size and are considered
reasonable:
ANNUAL SALES VOLUME MARKET CAPITALIZATION
------------------- ---------------------
Small 0 to $500 Million 0 to $500 Million
Medium $500 Million to $1.0 Billion $500 Million to $2.0 Billion
Large Over $1.0 Billion Over $2.0 Billion
Securities of unseasoned companies, where the risks are
considerably greater than with securities of more established
companies, also may be acquired from time to time by the Fund
when the Adviser believes such investments offer possibilities of
capital appreciation. However, the Fund is limited to 5% in the
percentage of total Fund assets which may be invested in the
securities of unseasoned companies (i.e., companies which have a
record of less than three years continuous operation).
Debt securities and preferred stock that are convertible
into or carry rights to acquire common stock, and other debt
securities, such as those selling at substantial discounts, may
be acquired from time to time when the Adviser believes such
investments offer the possibility of appreciation in value. The
Adviser intends generally to limit the Fund's purchase of debt
securities and preferred stock to those which are rated in one of
the top four rating categories by any of the nationally
recognized statistical rating organizations ("NRSROs") as defined
in Section 270.2a-7 of the Code of Federal Regulations, or will
be unrated instruments but deemed by the Adviser to be comparable
in quality to instruments so rated on the date of purchase.
However, this policy will not preclude the Fund from retaining a
security if its credit quality is downgraded to a non-investment
grade level after purchase.
It is anticipated the major portion of the portfolio will be
invested in common stocks at all times. However, there is no
minimum or maximum percentage of the Fund's assets which is
required to be invested in any type of security. Cash and cash
equivalent securities will be retained by the Fund in an amount
sufficient to provide moderate liquid reserves so that the Fund
always has sufficient cash to meet shareholder redemption
requests and other operating expenses. The Fund reserves freedom
to temporarily invest its assets in investment grade fixed income
securities as a defensive measure when conditions are deemed to
warrant such action. "Investment grade fixed income securities"
refers to fixed income securities ranked in the top four debt
security rating categories by any of the NRSROs, or unrated but
deemed by the Adviser to be comparable in quality to instruments
so rated on the date of purchase. However, this policy will not
preclude the Fund from retaining a security if its credit quality
is downgraded to a non-investment grade level after purchase.
The fixed income securities described in the fourth category of
these rating services possess speculative characteristics. Non-
investment grade securities tend to reflect individual corporate
developments to a greater extent, tend to be more sensitive to
economic conditions and tend to have a weaker capacity to pay
interest and repay principal than higher rated securities.
Because the market for lower rated securities may be thinner and
less active than for higher rated securities, there may be market
price volatility for these securities and limited liquidity in
the resale market. Factors adversely impacting the market value
of high yielding, high risk securities will adversely impact the
Fund's net asset value.
The Fund has reserved the right to invest in repurchase
agreements as a defensive measure. Repurchase agreements may be
entered into only with a member bank of the Federal Reserve
System or a primary dealer in U.S. Government securities. While
the obligation is a U.S. Government security, the obligation of
the seller to repurchase the security is not guaranteed by the
U.S. Government, thereby creating the risk that the seller may
fail to repurchase the security. Furthermore, in the event of
default by the seller under a repurchase agreement construed to
be a collateralized loan, the underlying securities are not owned
by the Fund but only constitute collateral for the seller's
obligation to pay the repurchase price. Therefore, the Fund may
suffer time delays and incur costs or losses in connection with
the disposition of the collateral.
The Fund also may invest in securities which are issued in
private placements pursuant to Section 4(2) of the Securities Act
of 1933, as amended (the "Act"). Such securities are not
registered for purchase and sale by the public under the Act.
The determination of the liquidity of these securities is a
question of fact for the Board of Directors to determine, based
upon the trading markets for the specific security, the
availability of reliable price information and other relevant
information. There may be a risk of little or no market for
resale associated with such private placement securities if the
Fund does not hold them to maturity. In addition, to the extent
that qualified institutional buyers do not purchase restricted
securities pursuant to Rule 144A, the Fund's investing in such
securities may have the effect of increasing the level of
illiquidity in the Fund's portfolio. However, the Fund is
limited in its investments in Section 4(2) and Rule 144A debt
securities by the investment restriction set forth in 1(c) under
"Investment Restrictions" below. The Fund may invest generally
up to 10% of its total assets in securities of other investment
companies. Investments in the securities of other investment
companies will involve duplication of advisory fees and certain
other expenses.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions, which are
matters of fundamental policy and cannot be changed without the
approval of the holders of a majority of its outstanding shares,
or, if less, 67% of the shares represented at a meeting of
shareholders at which 50% or more of the holders are represented
in person or by proxy:
1. The Fund will not purchase securities on margin,
participate in a joint trading account, sell securities
short, or act as an underwriter or distributor of
securities other than its own capital stock. The Fund
will not lend money, except for:
(a) the purchase of a portion of an issue of
publicly distributed debt securities;
(b) investment in repurchase agreements in
an amount not to exceed 20% of the total net
assets, taken at market, of the Fund; provided,
however, that repurchase agreements maturing in
more than seven days will not constitute more than
5% of the value of total net assets, taken at
market; and
(c) the purchase of a portion of bonds,
debentures or other debt securities of types
commonly distributed privately to financial
institutions in an amount not to exceed 5% of the
value of total net assets, taken at market, of the
Fund;
provided, however, that the total investment of
the Fund in repurchase agreements maturing in more than
seven days, when combined with the type of investment
set forth in 1(c) above, will not exceed 5% of the
value of the Fund's total net assets, taken at market.
2. The Fund will not purchase or sell real estate or
interests in real estate, commodities or commodity
futures. The Fund may invest in the securities of real
estate investment trusts, but not more than 10% in
value of the Fund's total net assets will be so
invested.
3. The Fund may make temporary bank borrowings (not
in excess of 5% of the lower of cost or market value of
the Fund's total net assets).
4. The Fund will not pledge any of its assets.
5. Investments will not be made for the purpose of
exercising control or management of any company. The
Fund will not purchase securities of any issuer if, as
a result of such purchase, the Fund would hold more
than 10% of the voting securities of such issuer.
6. Not more than 5% of the Fund's total net assets,
taken at market value, will be invested in the
securities of any one issuer (not including United
States Government securities).
7. Not more than 25% of the value of the Fund's total
net assets will be concentrated in companies of any one
industry or group of related industries.
8. The Fund will not acquire or retain any security
issued by a company, if an officer or director of such
company is an officer or director of the Fund, or is an
officer, director, shareholder or other interested
person of the Adviser.
All percentage limitations apply on the date of investment
by the Fund.
All percentage limitations apply on the date of investment
by the Fund.
In addition to the foregoing restrictions, the Fund has
adopted other restrictions to comply with the securities laws of
various states. These restrictions may be changed by the Board
of Directors of the Fund without shareholder approval.
INVESTMENT ADVISER
Under an investment advisory agreement dated June 30, 1983,
Nicholas Company, Inc., 700 North Water Street, Suite 1010,
Milwaukee, Wisconsin, furnishes the Fund with continuous
investment service and is responsible for overall management of
the Fund's business affairs subject to supervision by the Fund's
Board of Directors. Nicholas Company, Inc. is the investment
adviser to five other mutual funds and to approximately 35
institutions and individuals with substantial investment
portfolios. The other funds for which Nicholas Company, Inc.
acts as investment adviser are Nicholas Fund, Inc., Nicholas
Income Fund, Inc., Nicholas Limited Edition, Inc., Nicholas Money
Market Fund, Inc. and Nicholas Equity Income Fund, Inc.
The annual fee paid to the Adviser is paid monthly and is
based on the average net asset value of the Fund, as determined
by valuations made at the close of each business day of the
month. The annual fee is three-fourths of one percent (0.75 of
1%) of the average net asset value of the Fund, up to and
including $50,000,000, six-tenths of one percent (0.6 of 1%) of
the average net asset value over $50,000,000 to and including
$100,000,000 and one-half of one percent (0.5 of 1%) of the
average net asset value in excess of $100,000,000. The annual
fee of 0.75 of 1% is higher than that paid by most other
investment companies.
Under the Investment Advisory Agreement, the Adviser, at its
own expense and without reimbursement from the Fund, furnishes
the Fund with office space, office facilities, executive officers
and executive expenses (such as health insurance premiums for
executive officers). The Adviser also bears all sales and
promotional expenses of the Fund other than expenses incurred in
complying with laws regulating the issue or sale of securities.
The Fund pays all of its operating expenses. Included as
"operating expenses" are fees of directors who are not interested
persons of the Adviser or officers or employees of the Fund,
salaries of administrative and clerical personnel, association
membership dues, auditing, accounting and tax consulting
services, legal fees and expenses, printing, fees and expenses of
any custodian or trustee having custody of Fund assets, postage,
charges and expenses of dividend disbursing agents, registrars
and stock transfer agents, including the cost of keeping all
necessary shareholder records and accounts and handling any
problems related thereto, and any other costs related to the
aforementioned items.
The Adviser has undertaken to reimburse the Fund to the
extent that the aggregate annual operating expenses, including
the investment advisory fee, but excluding interest, taxes,
brokerage commissions, litigation and extraordinary expenses,
exceed the lowest, i.e., most restrictive, percentage of the
Fund's average net assets established by the laws of the states
in which the Fund's shares are registered for sale, as determined
by valuations made as of the close of each business day of the
year. The Adviser shall reimburse the Fund at the end of any
fiscal year in which the aggregate annual operating expenses
exceed such restrictive percentage.
Albert O. Nicholas is President and a Director of both the
Fund and the Adviser. 91% of the outstanding voting securities of
the Adviser are owned by Albert O. Nicholas.
Mr. David O. Nicholas is Senior Vice President and the
Portfolio Manager of the Fund and is primarily responsible for
the day-to-day management of the Fund's portfolio. Mr. Nicholas
is Senior Vice President of the Adviser, and has been employed by
the Adviser since 1985. He has been Portfolio Manager for, and
primarily responsible for the day-to-day management of, the
portfolios of the Fund and Nicholas Limited Edition, Inc. since
March 1993. He also has been co-Portfolio Manager of Nicholas
Fund, Inc. since November 1996. He is a Chartered Financial
Analyst.
PURCHASE OF CAPITAL STOCK
Applications for the purchase of shares are made to
Nicholas II, Inc., c/o Firstar Trust Company, P.0. Box 2944,
Milwaukee, Wisconsin 53201-2944. The Fund has available an
Automatic Investment Plan for shareholders. Anyone interested
should contact the Fund for additional information.
The price per share will be the net asset value next
computed after the time the application is received in proper
order and accepted by the Fund. The determination of the net
asset value for a particular day is applicable to all
applications for the purchase of shares received at or before the
close of trading on the New York Stock Exchange ("Exchange") on
that day (usually 4:00 p.m., New York time). Accordingly,
purchase orders received on a day the Exchange is open for
trading, prior to the close of trading on that day, will be
valued as of the close of trading on that day. Applications for
purchase of shares received after the close of trading on the
Exchange will be based on the net asset value as determined as of
the close of trading on the next day the Exchange is open.
The Fund does not consider the U.S. Postal Service or other
independent delivery services to be its agents. Therefore,
deposit in the mail or with such services, or receipt at Firstar
Trust Company's Post Office Box, of purchase applications or
redemption requests does not constitute receipt by Firstar Trust
Company or the Fund. Correspondence intended for overnight
courier should not be sent to the Post Office Box address.
OVERNIGHT COURIER DELIVERY SHOULD BE SENT TO FIRSTAR TRUST
COMPANY, THIRD FLOOR, 615 EAST MICHIGAN STREET, MILWAUKEE,
WISCONSIN 53202.
All applications to purchase capital stock are subject to
acceptance or rejection by authorized officers of the Fund and
are not binding until accepted. Applications will not be
accepted unless they are accompanied by payment in U.S. funds.
Payment should be made by check drawn on a U.S. bank, savings and
loan or credit union. Checks are accepted subject to collection
at full face value in U.S. funds. The custodian will charge a
$20 fee against a shareholder's account, in addition to any loss
sustained by the Fund, for any payment check returned to the
custodian for insufficient funds. It is the policy of the Fund
not to accept applications under circumstances or in amounts
considered disadvantageous for shareholders. Any account
(including custodial accounts) opened without a proper social
security number or taxpayer identification number may be
liquidated and distributed to the owner(s) of record on the first
business day following the 60th day of investment, net of the
back-up withholding tax amount.
The Board of Directors has established $1,000 as the minimum
initial purchase and $100 as the minimum for any subsequent
purchase, except in the case of reinvestment of distributions.
The Automatic Investment Plan has a minimum monthly investment of
$50. Due to the fixed expenses incurred by the Fund in
maintaining individual accounts, the Fund reserves the right to
redeem accounts that fall below the $1,000 minimum required
investment due to shareholder redemption (but not solely due to a
decrease in net asset value of the Fund). In order to exercise
this right, the Fund will give advance written notice of at least
30 days to the accounts below such minimum.
Purchase of shares will be made in full and fractional
shares computed to three decimal places. To purchase additional
shares of the Fund by federal wire transfer, please send to:
FIRSTAR BANK MILWAUKEE, N.A.
ABA #0750-00022
TRUST FUNDS, ACCOUNT #112-952-137
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
FOR FURTHER CREDIT TO NICHOLAS II, INC.
[YOUR ACCOUNT NUMBER AND THE TITLE OF THE ACCOUNT]
If a wire purchase is to be an initial purchase, please call
Firstar Trust Company (414-276-0535 or 800-544-6547) with the
appropriate account information prior to sending the wire.
Shares of Common Stock of the Fund may be purchased or sold
through certain broker-dealers, financial institutions or other
service providers ("Processing Intermediaries"). When shares of
Common Stock of the Fund are purchased this way, the Processing
Intermediary, rather than its customer, may be the shareholder of
record. Processing Intermediaries may use procedures and impose
restrictions in addition to or different from those applicable to
shareholders who invest in the Fund directly. A Processing
Intermediary may be required to register as a broker or dealer
under certain state laws. An investor intending to invest in the
Fund through a Processing Intermediary should read the program
materials provided by the Processing Intermediary in conjunction
with this Prospectus. Processing Intermediaries may charge fees
or other charges for the services they provide to their
customers. Investors who do not wish to receive the services of
a Processing Intermediary, or pay the fees that may be charged
for such services, may want to consider investing directly with
the Fund. Direct purchase or sale of shares of Common Stock of
the Fund may be made without a sales or redemption charge.
Certificates representing Fund shares purchased will not be
issued unless the shareholder specifically requests certificates
by signed written request to the Fund. Signature guarantees may
be required. Certificates are mailed to requesting shareholders
approximately two weeks after receipt of the request by the Fund.
In no instance will certificates be issued for fractional shares.
Where certificates are not requested, the Fund's transfer agent,
Firstar Trust Company, Milwaukee, Wisconsin, will credit the
shareholder's account with the number of shares purchased.
Written confirmations are issued for all purchases of Fund
shares.
REDEMPTION OF CAPITAL STOCK
A shareholder may require the Fund to redeem shares in whole
or in part at any time during normal business hours. If in
writing, redemption requests must be signed by each shareholder
in the exact manner as the Fund account is registered and must
state the amount of redemption and identify the shareholder
account number. When shares are represented by certificates,
redemption is accomplished by delivering to the Fund, c/o Firstar
Trust Company, P.O. Box 2944, Milwaukee, Wisconsin 53201-2944,
the certificate(s) for the full shares to be redeemed. The
certificate(s) must be properly endorsed or accompanied by
instrument of transfer, in either case with signatures guaranteed
by an "eligible guarantor institution" as defined in Section
240.17Ad-15 of the Code of Federal Regulations. An "eligible
guarantor institution" includes a bank, a savings and loan
association, a credit union, or a member firm of a national
securities exchange. A notary public is not an acceptable
guarantor.
If certificates have not been issued, redemption can be
accomplished by delivering an original signed written request for
redemption addressed to Nicholas II, Inc., c/o Firstar Trust
Company. Facsimile transmission of redemption requests is not
acceptable. If the account registration is Individual, Joint
Tenants, Sole Proprietorship, Custodial (Uniform Transfer to
Minors Act), or General Partners, the written request must be
signed exactly as the account is registered. If the account is
owned jointly, all owners must sign. Written confirmations are
issued for all redemptions of Fund shares.
The Fund may require additional supporting documents for
written redemptions made by corporations, executors,
administrators, trustees and guardians. Specifically, if the
account is registered in the name of a corporation or
association, the written request must be accompanied by a
corporate resolution signed by the authorized person(s). A
redemption request for accounts registered in the name of a legal
trust must have a copy of the title and signature page of the
trust agreement on file or must be accompanied by the trust
agreement and signed by the trustee(s).
If there is doubt as to what documents or instructions are
necessary in order to redeem shares, please write or call Firstar
Trust Company (414-276-0535 or 800-544-6547), prior to submitting
a written redemption request. A written redemption request will
not become effective until all documents have been received in
proper form by Firstar Trust Company.
For federal income tax purposes, a redemption generally is
treated as a sale of the shares being redeemed, with the
shareholder recognizing capital gain or loss equal to the
difference between the redemption price and the shareholder's
cost for the shares being redeemed.
.95 Shareholders who have an individual retirement account
("IRA"), a master retirement plan or other retirement plan must
indicate on their written redemption requests whether or not to
withhold federal income tax. Redemption requests lacking an
election not to have federal income tax withheld will be subject
to withholding. Please consult your current Disclosure Statement
for any applicable fees.
All redemptions will be processed immediately upon receipt.
The redemption price is the net asset value next computed after
the time of receipt by Firstar Trust Company of the
certificate(s) or written request in the proper form set forth
above, or pursuant to proper telephone instructions (see below).
Shares tendered for redemption on a day the Exchange is open for
trading, prior to the close of trading on that day, will be
valued as of the close of trading on that day. Requests for
redemption of shares received after the close of trading on the
Exchange will be based on the net asset value as determined as of
the closing of trading on the next day the Exchange is open. The
redemption price will depend on the market value of the
investments in the Fund's portfolio at the time of redemption and
may be more or less than the cost of shares redeemed. The Fund
will return redemption requests that contain restrictions as to
the time or date redemptions are to be effected. The Fund
ordinarily will make payment for redeemed shares within seven
days after receipt of a request in proper form, except as
provided by the rules of the Securities and Exchange Commission.
Redemption proceeds to be wired also ordinarily will be wired
within seven days after receipt of the request, and normally will
be wired on the next business day after a net asset value is
determined. The Fund reserves the right to hold payment up to
twelve days or until satisfied that investments made by check
have been collected. The Fund does not consider the U.S.
Postal Service or other independent delivery services to be its
agents. Therefore, deposit in the mail or with such services or
receipt at Firstar Trust Company's Post Office Box of redemption
requests does not constitute receipt by Firstar Trust Company or
the Fund. DO NOT mail letters by overnight courier to the Post
Office Box address. CORRESPONDENCE MAILED BY OVERNIGHT COURIER
SHOULD BE SENT TO THE FIRSTAR TRUST COMPANY, THIRD FLOOR, 615
EAST MICHIGAN STREET, MILWAUKEE, WISCONSIN 53202.
Telephone redemption is automatically extended to all
accounts in the Fund unless this privilege is declined in
writing. This option does not apply to IRA accounts and master
retirement plans for which Firstar Trust Company acts as
custodian. Telephone redemptions can only be made by calling
Firstar Trust Company at 800-544-6547 or 414-276-0535. In
addition to the account registration, you will be required to
provide the account number and social security number. Telephone
calls will be recorded. Telephone redemption requests must be
received prior to the closing of the New York Stock Exchange
(usually 4:00 p.m., New York time) to receive that day's net
asset value. There will be no exceptions due to market activity.
The maximum telephone redemption is $25,000 per account/per
business day. The maximum telephone redemption for related
accounts is $100,000 per business day. The minimum telephone
redemption is $500 except when redeeming an account in full.
The Fund reserves the right to refuse a telephone redemption
if it is believed advisable to do so. Procedures for redeeming
Fund shares by telephone may be modified or terminated at any
time by the Fund or Firstar Trust Company. Neither the Fund nor
Firstar Trust Company will be responsible for the authenticity of
redemption instructions received by telephone.
The shareholder may instruct Firstar Trust Company to mail
the proceeds to the address of record or to directly mail the
proceeds to a pre-authorized bank account. The proceeds also may
be wired to a pre-authorized account at a commercial bank in the
United States. Firstar Trust Company charges a wire redemption
fee of up to $12.00. Please contact the Fund for the appropriate
form if you are interested in setting your account up with wiring
instructions.
Signature Guarantees. A signature guarantee of each owner is
required to redeem shares in the following situations, for all
size transactions: (i) if you change the ownership on your
account; (ii) upon redemption of shares when certificates have
been issued for your account; (iii) when you want the redemption
proceeds sent to a different address than is registered on the
account; (iv) for both certificated and uncertificated shares, if
the proceeds are to be made payable to someone other than the
account owner(s); (v) any redemption transmitted by federal wire
transfer to your bank not previously set up with the Fund; and
(vi) if a change of address request has been received by the Fund
or Firstar Trust Company within 15 days of a redemption request.
In addition, signature guarantees will be required for all
redemptions of $100,000 or more from any shareholder account in
the Nicholas Family of Funds. A redemption will not be processed
until the signature guarantee, if required, is received in proper
form. A notary public is not an acceptable guarantor.
EXCHANGE BETWEEN FUNDS
If a shareholder chooses to exercise the exchange privilege,
the shares will be exchanged at their next determined net asset
value. When an exchange into the Nicholas Money Market Fund,
Inc. would involve investment of the exchanged amount on a day
when the New York Stock Exchange is open for trading but the
Federal Reserve Banks are closed, shares of the Fund will be
redeemed on the day upon which the exchange request is received;
however, issuance of Nicholas Money Market Fund, Inc. shares may
be delayed an additional day in order to avoid the dilutive
effect on return (i.e. reduction in net investment income per
share) which would result from issuance of such shares on a day
when the exchanged amount cannot be invested. In such a case,
the exchanged amount would be uninvested for this one day period.
Shareholders interested in exercising the exchange privilege must
obtain the appropriate prospectus from Nicholas Company, Inc. An
exchange constitutes a sale for federal tax purposes and a
capital gain or loss generally will be recognized upon the
exchange, depending upon whether the net asset value at the time
is more or less than the shareholder's cost. An exchange between
the funds involving master retirement (Keogh) plan and IRA
accounts generally will not constitute a taxable transaction for
federal tax purposes. The exchange privilege may be terminated
or modified only upon 60 days advance notice to shareholders;
however, procedures for exchanging Fund shares by telephone may
be modified or terminated at any time by the Fund or Firstar
Trust Company.
Shares of the Fund may be exchanged for shares of other
investment companies for which Nicholas Company, Inc. serves as
the investment adviser and which permit such exchanges. Nicholas
Company, Inc. is also the investment adviser to Nicholas Fund,
Inc., Nicholas Income Fund, Inc., Nicholas Limited Edition, Inc.,
Nicholas Money Market Fund, Inc. and Nicholas Equity Income Fund,
Inc. Nicholas Fund, Inc. has an investment objective of capital
appreciation in which income is a secondary consideration.
Nicholas Income Fund, Inc.'s investment objective is to seek high
current income consistent with the preservation and conservation
of capital value. Nicholas Limited Edition, Inc. has as its
investment objective long-term growth in which income is a
secondary consideration. Shareholders are reminded, however,
that Nicholas Limited Edition, Inc. is restricted in size to ten
million shares, and that the exchange privilege into that fund
may be terminated or modified at a time when that maximum is
reached. Nicholas Money Market Fund, Inc. has an investment
objective of achieving as high a level of current income as is
consistent with preserving capital and providing liquidity.
Nicholas Equity Income Fund, Inc. has an investment objective of
reasonable income, with moderate long-term growth as a secondary
consideration.
Exchange of shares can be accomplished in the following ways:
EXCHANGE BY MAIL. An exchange of shares of the Fund for
shares of other available Nicholas mutual funds will be made
without cost to the investor through written request.
Shareholders interested in exercising the exchange by mail
privilege may obtain the appropriate prospectus from Nicholas
Company, Inc. Signatures required are the same as previously
explained under "Redemption of Capital Stock."
EXCHANGE BY TELEPHONE. Shareholders may exchange by
telephone among all funds for which the Nicholas Company, Inc.
serves as investment adviser. Only exchanges of $l,000 or more
may be executed using the telephone exchange privilege. Firstar
Trust Company charges a $5.00 fee for each telephone exchange.
In an effort to avoid the risks often associated with large
market timers, the maximum telephone exchange per account per day
is set at $100,000, with a maximum of $l,000,000 per day for
related accounts. Four telephone exchanges per account during any
twelve month period will be allowed.
Procedures for exchanging Fund shares by telephone may be
modified or terminated at any time by the Fund or Firstar Trust
Company. Neither the Fund nor Firstar Trust Company will be
responsible for the authenticity of exchange instructions
received by telephone. Telephone exchanges can only be made by
calling Firstar Trust Company at 414-276-0535 or 800-544-6547.
You will be required to provide pertinent information regarding
your account. Calls will be recorded.
TRANSFER OF CAPITAL STOCK
Shares of the Fund may be transferred in instances such as
the death of a shareholder, change of account registration,
change of account ownership and in cases where shares of the Fund
are transferred as a gift. Documents and instructions necessary
to transfer capital stock can be obtained by writing or calling
Firstar Trust Company (414-276-0535 or 800-544-6547) or Nicholas
Company, Inc. (414-272-6133 or 800-227-5987) prior to submitting
any transfer requests.
DETERMINATION OF NET ASSET VALUE
The net asset value of a share of the Fund is determined by
dividing the total value of the net assets of the Fund by the
total number of shares outstanding at that time. Net assets of
the Fund are determined by deducting the liabilities of the Fund
from total assets. The net asset value is determined as of the
close of trading on the New York Stock Exchange on each day the
Exchange is open for unrestricted trading.
Securities traded on a stock exchange will ordinarily be
valued on the basis of the last sale price on the date of
valuation, or in the absence of any sale on that day, the closing
bid price. Other securities will be valued at the current bid
price. Any securities for which there are no readily available
market quotations will be valued at fair value, as determined in
good faith by the Board of Directors. Brokerage commissions will
be excluded in calculating values. All assets other than
securities will be valued at their then current fair value as
determined in good faith by the Board of Directors.
DIVIDENDS AND FEDERAL TAX STATUS
The Fund intends to continue to qualify annually as a
"regulated investment company" under the Internal Revenue Code of
1986 and intends to take all other action required to ensure that
little or no federal income or excise taxes will be payable by
the Fund. As a result, the Fund generally will distribute
annually to its shareholders substantially all of its net
investment income and net capital gains (after utilization of any
available capital loss carryovers).
For federal income tax purposes, distributions by the Fund,
whether received in cash or invested in additional shares of the
Fund, will be taxable to the Fund's shareholders, except those
shareholders that are not subject to tax on their income. Long-
term capital gain distributed by the Fund will retain the
character that it had at the Fund level. Income distributed from
the Fund's net investment income and net realized short-term
capital gains are taxable to shareholders as ordinary income.
Distributions generally will be made annually in December. The
Fund will provide information to shareholders concerning the
character and federal tax treatment of any distribution.
Since at the time of purchase of shares the Fund may have
undistributed income or capital gains included in the computation
of the net asset value per share, a dividend or capital gain
distribution received shortly after such purchase by a
shareholder may be taxable to the shareholder, although it is, in
whole or in part, a return of capital and may have the effect of
reducing the net asset value per share.
Under federal law, some shareholders may be subject to a 31%
"backup withholding" on reportable dividends, capital gain
distributions (if any) and redemption payments. Generally,
shareholders subject to backup withholding will be those (i) for
whom a taxpayer identification number is not on file with the
Fund or who, to the Fund's knowledge, have furnished an incorrect
number, or (ii) who have failed to declare or underreported
certain income on their federal returns. When establishing an
account, an investor must certify under penalties of perjury that
the taxpayer identification number supplied to the Fund is
correct and that he or she is not subject to backup withholding.
The foregoing tax discussion relates to federal income taxes
only and is not intended to be a complete discussion of all
federal tax consequences. Shareholders should consult with a tax
adviser concerning the application of federal, state and local
taxes to an investment in the Fund.
DIVIDEND REINVESTMENT PLAN
Unless a shareholder elects to accept cash in lieu of shares,
all dividend and capital gain distributions are automatically
reinvested in additional shares of the Fund through the Dividend
Reinvestment Plan. An election to accept cash may be made in an
application to purchase shares, or by separate written
notification or by telephone. All reinvestments are at the net
asset value per share in effect on the dividend or distribution
record date and are credited to the shareholder's account.
Shareholders will be advised of the number of shares purchased
and the price following each reinvestment.
Shareholders may withdraw from or thereafter elect to
participate in the Dividend Reinvestment Plan at any time by
giving notice in writing or by telephone to the Transfer Agent.
An election must be received by the Transfer Agent prior to the
dividend record date of any particular distribution for the
election to be effective for that distribution. If an election
to withdraw from or participate in the Dividend Reinvestment
Plan is received between a dividend record date and payment
date, it shall become effective on the day following the payment
date. The Fund may modify or terminate the Dividend Reinvestment
Plan at any time on 30 days written notice to participants.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who have purchased or currently own $10,000 or
more of Fund shares at the current market value may open a
Systematic Withdrawal Plan and receive monthly, quarterly, semi-
annual or annual checks for any designated amount. Firstar Trust
Company reinvests all income and capital gain dividends in shares
of the Fund. Shareholders may add shares to, withdraw shares
from, or terminate the Plan, at any time. Each withdrawal may be
a taxable event to the shareholder. Liquidation of the shares in
excess of distributions may deplete or possibly use up the
initial investment, particularly in the event of a market
decline, and withdrawals cannot be considered a yield or income
on the investment. In addition to termination of the Plan by the
Fund or shareholders, the Plan may be terminated by Firstar Trust
Company upon notice in writing or by telephone mailed to the
shareholders. Please contact the Nicholas Company for copies of
the Plan documents.
INDIVIDUAL RETIREMENT ACCOUNT
Individuals may be able to establish their own tax-sheltered
IRA. The Fund offers a prototype IRA plan for adoption by
individuals who qualify for spousal, deductible and
non deductible IRA accounts.
As long as the aggregate IRA contributions meet the Fund's
minimum investment requirement of $1,000, the Fund will accept
any allocation of such contribution between spousal, deductible
and non deductible accounts. The acceptability of this
calculation is the sole responsibility of the shareholder. For
this reason, it is advisable for taxpayers to consult with their
personal tax adviser to determine the deductibility of their IRA
contributions.
A description of applicable service fees and application
forms are available upon request from the Fund. The IRA
documents also contain a disclosure statement which the IRS
requires to be furnished to individuals who are considering
adopting an IRA. It is important you obtain up-to-date
information from the Fund before opening an IRA.
Because a retirement program involves commitments covering
future years, it is important that the investment objectives of
the Fund are consistent with your own retirement objectives.
Premature withdrawals from an IRA may result in adverse tax
consequences. Consultation with a tax adviser regarding tax
consequences is recommended.
MASTER RETIREMENT PLAN
The Fund has available a master retirement plan (formerly
called a "Keogh" Plan) for self-employed individuals. Any person
seeking additional information or wishing to participate in the
plan may contact the Fund. Consultation with a tax adviser
regarding the tax consequences of the plan is recommended.
CAPITAL STRUCTURE
The Fund is authorized to issue 200,000,000 shares of Common
Stock, par value $0.01 per share. Each full share has one vote
and all shares participate equally in dividends and other
distributions by the Fund, and in the residual assets of the Fund
in the event of liquidation. There are no conversion or sinking
fund provisions applicable to shares. Holders have no preemptive
rights and may not cumulate their votes in the election of
directors. Shares are redeemable and are transferable.
Fractional shares entitle the holder to the same rights as whole
shares.
ANNUAL MEETING
Under the laws of the State of Maryland, registered
investment companies, such as the Fund, may operate without an
annual meeting of shareholders under specified circumstances if
an annual meeting is not required by the Investment Company Act
of 1940, as amended. The Fund has adopted the appropriate
provisions in its By-Laws and will not hold annual meetings of
shareholders.
In the event the Fund is not required to hold annual meetings
of shareholders to elect Directors, the Board of Directors of the
Fund will promptly call a meeting of shareholders of the Fund for
the purpose of voting upon the question of removal of any
Director when requested in writing to do so by the record holders
of not less than l0% of the outstanding shares of Common Stock of
the Fund. The affirmative vote of two-thirds of the outstanding
shares, cast in person or by proxy at a meeting called for such
purpose, is required to remove a Director of the Fund. The Fund
will assist shareholders in communicating with each other for
this purpose pursuant to the requirements of Section 16(c) of the
Investment Company Act of 1940, as amended.
SHAREHOLDER REPORTS
Shareholders will be provided with a report or a current
prospectus showing the Fund's portfolio and other information at
least semiannually. After the close of the Fund's fiscal year,
which ends September 30, an annual report or current prospectus
containing financial statements audited by the Fund's independent
public accountants, Arthur Andersen LLP, will be sent to
shareholders. Inquiries concerning the Fund may be made by
telephone at 414-272-6133 or 800-227-5987, or by writing to
Nicholas II, Inc., 700 North Water Street, Suite 1010, Milwaukee,
Wisconsin 53202, Attention: Corporate Secretary.
CUSTODIAN AND TRANSFER AGENT
Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as Custodian and Transfer Agent of the
Fund.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, are the independent accountants for the Fund.
Michael Best & Friedrich, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, has passed on the legality of the shares of
Common Stock of the Fund being offered.
PROSPECTUS
NICHOLAS II, INC.
INVESTMENT ADVISER
NICHOLAS COMPANY, INC.
Milwaukee
414-272-6133 or 800-227-5987
CUSTODIAN AND TRANSFER AGENT
FIRSTAR TRUST COMPANY
Milwaukee 414-276-0535 or 800-544-6547
INDEPENDENT PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP
Milwaukee
COUNSEL
MICHAEL BEST & FRIEDRICH
Milwaukee
NICHOLAS II, INC.
700 North Water Street
Milwaukee, Wisconsin 53202
January 31, 1997
Nicholas II, Inc.
Form N-1A
PART B: STATEMENT OF ADDITIONAL INFORMATION
-1-
NICHOLAS II, INC.
STATEMENT OF ADDITIONAL INFORMATION
700 North Water Street, Suite 1010
Milwaukee, Wisconsin 53202
414-272-6133
This Statement of Additional Information, which is not a
prospectus, supplements and should be read in conjunction with
the current Prospectus of Nicholas II, Inc. (the "Fund"), dated
January 31, 1997, and the Fund's Annual Report for the fiscal
year ended September 30, 1996, which is incorporated herein by
reference, as they may be revised from time to time. To obtain a
copy of the Fund's Prospectus and Annual Report, please write or
call the Fund at the address and telephone number set forth
above.
NO LOAD FUND - NO SALES CHARGE
Investment Adviser
NICHOLAS COMPANY, INC.
Page
INTRODUCTION 1
INVESTMENT OBJECTIVES AND POLICIES 1
INVESTMENT RESTRICTIONS 3
INVESTMENT ADVISER 5
MANAGEMENT - DIRECTORS EXECUTIVE OFFICERS
OF THE FUND 7
PRINCIPAL SHAREHOLDERS 9
PURCHASE OF CAPITAL STOCK 9
REDEMPTION OF CAPITAL STOCK 11
EXCHANGE BETWEEN FUNDS 13
TRANSFER OF CAPITAL STOCK 14
DETERMINATION OF NET ASSET VALUE 14
DIVIDENDS AND FEDERAL TAX STATUS 14
DIVIDEND REINVESTMENT PLAN 15
SYSTEMATIC WITHDRAWL PLAN 15
INDIVIDUAL RETIREMENT ACCOUNT 15
MASTER RETIREMENT PLAN 16
BROKERAGE 16
PERFORMANCE DATA 17
CAPITAL STRUCTURE 18
STOCK CERTIFICATES 18
ANNUAL MEETING 18
SHAREHOLDER REPORTS 19
CUSTODIAN AND TRANSFER AGENT 19
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL 19
FINANCIAL INFORMATION 19
INTRODUCTION
Nicholas II, Inc. ("Fund") was incorporated under the laws
of Maryland on June 28, 1983. The Fund is an open-end,
diversified management investment company registered under the
Investment Company Act of 1940, as amended. As an open-end
investment company, it obtains its assets by continuously selling
shares of its Common Stock, $0.01 par value per share, to the
public. Proceeds from such sales are invested by the Fund in
securities of other companies. The resources of many investors
are combined and each individual investor has an interest in
every one of the securities owned by the Fund. The Fund provides
each individual investor with diversification by investing in the
securities of many different companies in a variety of industries
and furnishes experienced management to select and watch over its
investments. As an open-end investment company, the Fund will
redeem any of its outstanding shares on demand of the owner at
their net asset value next determined following receipt of the
redemption request. The investment adviser to the Fund is
Nicholas Company, Inc. ("Adviser").
INVESTMENT OBJECTIVES AND POLICIES
The Fund has adopted primary investment objectives, which
are fundamental policies. The Fund also has adopted secondary
investment objectives and certain other policies which are not
fundamental and may be changed by the Board of Directors without
shareholder approval. However, any changes will be made only
upon advance notice to shareholders. Such changes may result in
the Fund having secondary investment and other policy objectives
different from the objectives which a shareholder considered
appropriate at the time of investment in the Fund.
The primary investment objective of the Fund is long-term
growth, and securities are selected for its portfolio on that
basis. Current income will be a secondary factor in considering
the selection of investments. There are market risks inherent in
any investment and there can be no assurance the objective of the
Fund will be realized, nor can there be any assurance against
possible loss in the value of the Fund's portfolio.
It is the policy of the Fund to invest in securities which
are believed by both the Adviser and the Board of Directors of
the Fund to offer possibilities for increase in value, which for
the most part are common stocks of companies the Adviser
considers to have favorable long-term prospects. Since the major
portion of the Fund's portfolio consists of common stocks, its
net asset value may be subject to greater fluctuation than a
portfolio containing a substantial amount of fixed income
securities. Securities are not purchased with a view to rapid
turnover or to obtain short-term trading profits, which are
defined as profits on assets held less than twelve months.
The Fund's investment philosophy is basically a long-term
growth philosophy, inherent in which is the assumption that if a
company achieves superior growth in sales and earnings,
eventually the company's stock will achieve superior performance.
While small and medium size companies often have a limited market
for their securities and limited financial resources, and are
usually more affected by changes in the economy in general, they
also may have the potential for more rapid, and greater,
long-term growth because of newer and more innovative products.
The Adviser believes a company's annual sales volume and the
market capitalization of a company are the factors most
illustrative of a company's size and are factors commonly used by
investors in determining size. The following standards are used
by the Adviser in distinguishing company size and are considered
reasonable:
ANNUAL SALES VOLUME MARKET CAPITALIZATION
------------------- ---------------------
Small 0 to $500 Million 0 to $500 Million
Medium $500 Million to $1.0 Billion $500 Million to $2.0 Billion
Large Over $1.0 Billion Over $2.0 Billion
In seeking capital appreciation, the Fund will often
purchase common stock of small and medium size companies which
often fluctuates in price more than common stocks of larger
companies, such as many of those included in the Dow Jones
Industrial Average. Therefore, during the history of the Fund,
its price per share has often been more volatile, in both "up"
and "down" markets than most of the popular stock averages.
.95 Securities of unseasoned companies, where the risks are
considerably greater than with securities of more established
companies, also may be acquired from time to time by the Fund
when the Adviser believes such investments offer possibilities of
capital appreciation. However, the Fund is limited in the
percentage of total fund assets which may be invested in the
securities of unseasoned companies (i.e., companies which have a
record of less than three years continuous operation.)
Debt securities and preferred stock that are convertible
into or carry rights to acquire common stock, and other debt
securities, such as those selling at substantial discounts, may
be acquired from time to time when the Adviser believes such
investments offer the possibility of appreciation in value. The
Adviser intends generally to limit the Fund's purchase of debt
securities and preferred stock to those which are rated in one of
the top four rating categories by any of the nationally
recognized statistical rating organizations ("NRSROs") as defined
in Section 270.2a-7 of the Code of Federal Regulations, or will
be unrated instruments but deemed by the Adviser to be comparable
in quality to instruments so rated on the date of purchase.
However, this policy will not preclude the Fund from retaining a
security if its credit quality is downgraded to a non-investment
grade level after purchase.
It is anticipated the major portion of the portfolio will be
invested in common stocks at all times. However, there is no
minimum or maximum percentage of the Fund's assets which is
required to be invested in any type of security. Cash and cash
equivalent securities will be retained by the Fund in an amount
sufficient to provide moderate liquid reserves so that the Fund
always has sufficient cash to meet shareholder redemption
requests and other operating expenses. The Fund reserves freedom
to temporarily invest its assets in investment grade fixed income
securities as a defensive measure when conditions are deemed to
warrant such action. "Investment grade fixed income securities"
refers to fixed income securities ranked in the top four debt
security rating categories of any of the NRSROs, or unrated but
deemed by the Adviser to be comparable in quality to instruments
so rated on the date of purchase. However, this policy will not
preclude the Fund from retaining a security if its credit quality
is downgraded to a non-investment grade level after purchase.
The fixed income securities described in the fourth category of
these rating services possess speculative characteristics. Non-
investment grade securities tend to reflect individual corporate
developments to a greater extent, tend to be more sensitive to
economic conditions and tend to have a weaker capacity to pay
interest and repay principal than higher rated securities.
Because the market for lower rated securities may be thinner and
less active than for higher rated securities, there may be market
price volatility for these securities and limited liquidity in
the resale market. Factors adversely impacting the market value
of high yielding, high risk securities will adversely impact the
Fund's net asset value.
Securities are not purchased with a view to rapid turnover
or to obtain short-term trading profits. Short-term trading
profits are defined as profits on assets held less than twelve
months. The term "portfolio turnover rate" refers to the
percentage determined by dividing the lesser of the cost of
purchases or the proceeds from sales of portfolio securities
during the year by the average of the value of the portfolio
securities owned by the Fund during the year. "Portfolio
turnover rate" excludes investments in securities with less than
one year to maturity at the time of purchase.
The Fund has reserved the right to invest in repurchase
agreements as a defensive measure. Repurchase agreements may be
entered into only with a member bank of the Federal Reserve
System or a primary dealer in U.S. Government securities. Under
such agreements, the bank or primary dealer agrees, upon entering
into the contract, to repurchase the security from the Fund at a
mutually agreed upon time and price. The prices at which the
trades are conducted do not reflect accrued interest on the
underlying obligation. While the obligation is a U.S. Government
security, the obligation of the seller to repurchase the security
is not guaranteed by the U.S. Government, thereby creating the
risk that the seller may fail to repurchase the security.
Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities
transferred to the purchaser. The Fund will require the seller
to provide additional collateral if the market value of the
securities falls below the repurchase price at any time during
the term of the repurchase agreement. In the event of default by
the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by
the Fund but only constitute collateral for the seller's
obligation to pay the repurchase price. Therefore, the Fund may
suffer time delays and incur costs or losses in connection with
the disposition of the collateral. The Fund would also retain
ownership of the securities in the event of a default under a
repurchase agreement that is construed not to be a collateralized
loan. In such event, the Fund would also have rights against the
seller for breach of contract with respect to any losses arising
from market fluctuations following the failure of the seller to
perform.
1 The Fund also may invest in securities which are issued in
private placements pursuant to Section 4(2) of the Securities Act
of 1933, as amended (the "Act"). Such securities are not
registered for purchase and sale by the public under the Act.
The determination of the liquidity of these securities is a
question of fact for the Board of Directors to determine, based
upon the trading markets for the specific security, the
availability of reliable price information and other relevant
information. There may be a risk of little or no market for
resale associated with such private placement securities if the
Fund does not hold them to maturity. In addition, to the extent
that qualified institutional buyers do not purchase restricted
securities pursuant to Rule 144A, the Fund's investing in such
securities may have the effect of increasing the level of
illiquidity in the Fund's portfolio. However, the Fund is
limited in its investments in Section 4(2) and Rule 144A debt
securities by the investment restriction set forth in 1(c) under
"Investment Restrictions" below. The Fund may invest generally
up to 10% of its total assets in securities of other investment
companies. Investments in the securities of other investment
companies will involve duplication of advisory fees and certain
other expenses.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions, which are
matters of fundamental policy and cannot be changed without the
approval of the holders of a majority of its outstanding shares,
or, if less, 67% of the shares represented at a meeting of
shareholders at which 50% or more of the holders are represented
in person or by proxy.
1. The Fund will not purchase securities on margin,
participate in a joint trading account, sell securities
short, or act as an underwriter or distributor of
securities other than its own capital stock. The Fund
will not lend money, except for:
(a) the purchase of a portion of an issue of
publicly distributed debt securities;
(b) investment in repurchase agreements in
an amount not to exceed 20% of the total net
assets, taken at market, of the Fund; provided,
however, that repurchase agreements maturing in
more than seven days will not constitute more than
5% of the value of total net assets, taken at
market; and
(c) the purchase of a portion of bonds,
debentures or other debt securities of types
commonly distributed privately to financial
institutions in an amount not to exceed 5% of the
value of total net assets, taken at market, of the
Fund;
provided, however, that the total investment of
the Fund in repurchase agreements maturing in more than
seven days, when combined with the type of investment
set forth in 1(c) above, will not exceed 5% of the
value of the Fund's total net assets, taken at market.
2. The Fund will not purchase or sell real estate or
interests in real estate, commodities or commodity
futures. The Fund may invest in the securities of real
estate investment trusts, but not more than 10% in
value of the Fund's total net assets will be so
invested.
3. The Fund may make temporary bank borrowings (not
in excess of 5% of the lower of cost or market value of
the Fund's total net assets).
4. The Fund will not pledge any of its assets.
5. Investments will not be made for the purpose of
exercising control or management of any company. The
Fund will not purchase securities of any issuer if, as
a result of such purchase, the Fund would hold more
than 10% of the voting securities of such issuer.
6. Not more than 5% of the Fund's total net assets,
taken at market value, will be invested in the
securities of any one issuer (not including United
States Government securities).
7. Not more than 25% of the value of the Fund's total
net assets will be concentrated in companies of any one
industry or group of related industries.
8. The Fund will not acquire or retain any security
issued by a company, if an officer or director of such
company is an officer or director of the Fund, or is an
officer, director, shareholder or other interested
person of the Adviser.
In addition to the foregoing restrictions, the Fund has
adopted the following restrictions which may be changed by the
Board of Directors of the Fund without shareholder approval. Any
such change would be made only upon advance notice to
shareholders in the form of an amended Statement of Additional
Information filed with the Securities and Exchange Commission.
1. The Fund will not acquire or retain any security
issued by a company if one or more directors or
shareholders or other affiliated persons of its
investment adviser beneficially own more than one half
of one percent (.5 of 1%) of such company's stock or
other securities, and all of the foregoing persons
owning more than one-half of one percent (.5 of 1%)
together own more than 5% of such stock or security.
2. The Fund will not invest more than 5% of its total
net assets in equity securities which are not readily
marketable and in securities of unseasoned companies
(i.e., companies which have a record of less than three
years' continuous operation, including the operation of
any predecessor business of a company which came into
existence as a result of a merger, consolidation,
reorganization or purchase of substantially all of the
assets of such predecessor business).
3. The Fund will not invest in interests in oil, gas
or other mineral exploration programs, but this shall
not prohibit the Fund from investing in securities of
companies engaged in oil, gas or mineral activities.
4. The Fund will not invest in puts, calls,
straddles, spreads or any combination thereof.
5. The Fund will not purchase any securities which
would cause more than 2% of its total net assets at the
time of such purchase to be invested in warrants which
are not listed on the New York Stock Exchange or the
American Stock Exchange, or would cause more than 5% of
its total net assets to be invested in warrants whether
or not so listed, such warrants in each case to be
valued at the lesser of cost or market, but assigning
no value to warrants acquired by the Fund in units with
or attached to debt securities.
6. The Fund will not invest more than 10% of its
total net assets in restricted securities (i.e.,
securities acquired directly or indirectly from an
issuer, or from a person in a control relationship with
such an issuer (an affiliate) in a transaction or chain
of transactions not involving any public offering.)
7. Securities of other open-end investment companies
will not be purchased.
8. The Fund will not invest in bonds, debentures or
other debt securities of types commonly distributed in
private placements to financial institutions,
repurchase agreements maturing in more than seven days,
other securities that are not readily marketable, and
all other illiquid securities which, taken in the
aggregate, would exceed 10% of the value of the Fund's
total net assets.
9. The Fund may not issue senior securities in
violation of the Investment Company Act of 1940, as
amended. The Fund may make borrowings but only for
temporary or emergency purposes and then only in
amounts not in excess of 5% of the lower of cost or
market value of the Fund's total net assets.
All percentage limitations apply on the date of investment
by the Fund. As a result, if a percentage restriction is adhered
to at the time of investment, a later increase in percentage
resulting from a change in market value of the investment or the
total assets of the Fund will not constitute a violation of that
restriction.
INVESTMENT ADVISER
Under an investment advisory agreement dated June 30, 1983,
Nicholas Company, Inc., 700 North Water Street, Suite 1010,
Milwaukee, Wisconsin, furnishes the Fund with continuous
investment service and is responsible for overall management of
the Fund's business affairs, subject to supervision by the Fund's
Board of Directors. The Adviser is the investment adviser to
approximately 35 institutions and individuals with substantial
investment portfolios, and to five other mutual funds, which are
sold without sales charge. The other funds for which the Adviser
serves as investment adviser are Nicholas Fund, Inc., Nicholas
Income Fund, Inc., Nicholas Limited Edition, Inc., Nicholas Money
Market Fund, Inc. and Nicholas Equity Income Fund, Inc.
Nicholas Fund, Inc. has a primary objective of capital
appreciation. It had net assets of $3,812,126,68 as of September
30, 1996. Nicholas Income Fund, Inc. had net assets of
$175,572,808 as of September 30, 1996. Its investment objective
is high current income consistent with the preservation and
conservation of capital values. Nicholas Limited Edition, Inc.
had net assets of $232,451,849 as of September 30, 1996. Its
investment objective is long-term growth in which income is a
secondary consideration. Nicholas Money Market Fund, Inc. had
net assets of $113,455,382 as of September 30, 1996. Its
investment objective is achieving as high a level of current
income as is consistent with preserving capital and providing
liquidity. Nicholas Equity Income Fund, Inc. has a primary
investment objective to produce reasonable income for the
investor, and had net assets of $17,512,424 as of September 30,
1996.
The annual fee paid to the Adviser is paid monthly and is
based on the average net asset value of the Fund, as determined
by valuations made at the close of each business day of the
month. The annual fee is three-fourths of one percent (0.75 of
1%) of the average net asset value of the Fund, up to and
including $50,000,000, six-tenths of one percent (.6 of 1%) of
the average net asset value over $50,000,000 to and including
$100,000,000, and one-half of one percent (.5 of 1%) of the
average net asset value in excess of $100,000,000. The annual
fee of 0.75 of 1% is higher than that paid by most other
investment companies. As of September 30, 1996, total net assets
of the Fund were $774,755,235. The fee paid to the Adviser for
the fiscal year of the Fund ended September 30, 1996 was
$3,830,524.
Under the Investment Advisory Agreement, the Adviser, at its
own expense and without reimbursement from the Fund, furnishes
the Fund with office space, office facilities, executive officers
and executive expenses (such as health insurance premiums for
executive officers). The Adviser also bears all sales and
promotional expenses of the Fund other than expenses incurred in
complying with laws regulating the issue or sale of securities,
and fees paid for attendance at Board meetings to directors who
are not interested persons of the Adviser or officers or
employees of the Fund. The Fund pays all of its operating
expenses, including, but not limited to, the costs of preparing
and printing post-effective amendments to its registration
statements required under the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, and any
amendments thereto and of preparing and printing registration
statements in the various states, the printing and distribution
cost of prospectuses mailed to existing shareholders, the cost of
stock certificates, reports to shareholders, interest charges,
taxes and legal expenses. Also included as "operating expenses"
which are paid by the Fund are fees of directors who are not
interested persons of the Adviser or officers or employees of the
Fund, salaries of administrative and clerical personnel,
association membership dues, auditing, accounting and tax
consulting services, fees and expenses of any custodian or
trustees having custody of Fund assets, postage, charges and
expenses of dividend disbursing agents, registrars and stock
transfer agents, including the cost of keeping all necessary
shareholder records and accounts and handling any problems
related thereto, and any other costs related to the
aforementioned items.
The Adviser has undertaken to reimburse the Fund to the
extent the aggregate annual operating expenses, including the
investment advisory fee, but excluding interest, taxes, brokerage
commissions, litigation and extraordinary expenses exceed the
lowest, i.e., most restrictive, percentage of the Fund's average
net assets established by the laws of the states in which the
Fund's shares are registered for sale, as determined by
valuations made as of the close of each business day of the year.
The Adviser shall, on a monthly basis, reimburse the Fund by
offsetting against its monthly fee all expenses in excess of
these amounts as pro rated on an annual basis. During the fiscal
years ended September 30, 1996, September 30, 1995, and
September 30, 1994, the Fund paid the Adviser an aggregate of
$3,830,524, $3,321,192 and $3,491,703, respectively, in fees.
During none of the foregoing fiscal years did the expenses borne
by the Fund exceed the expense limitation then in effect and the
Adviser was not required to reimburse the Fund for any additional
expenses.
1. The Investment Advisory Agreement with the Adviser is not
assignable and may be terminated by either party, without
penalty, on 60 days notice. Otherwise, the Investment Advisory
Agreement continues in effect so long as it is approved annually
by (i) the Board of Directors or by a vote of a majority of the
outstanding shares of the Fund and (ii) in either case, by the
affirmative vote of a majority of directors who are not parties
to the Investment Advisory Agreement or "interested persons" of
the Adviser or of the Fund, as defined in the Investment Company
Act of 1940, as amended, cast in person at a meeting called for
the purpose of voting for such approval.
The Investment Advisory Agreement with the Adviser provides
for payment by the Fund of fees for attendance at meetings of the
Fund's Board of Directors to directors who are not interested
persons of the Fund. The amount of such fees is subject to
increase or decrease at any time, but is subject to the overall
limitation of the Fund's annual expenses. During the fiscal year
ended September 30, 1996, a total of $9,000 was paid in fees to
the Fund's non-interested directors, including reimbursed out-of-
pocket travel expenses.
Albert O. Nicholas is President and a Director of both the
Fund and the Adviser. Thomas J. Saeger, Executive Vice President
and Secretary of the Fund, is Executive Vice President and
Assistant Secretary of the Adviser. David L. Johnson is
Executive Vice President of the Fund and Executive Vice President
of the Adviser. He is a brother-in-law of Albert O. Nicholas.
Lynn S. Nicholas and David O. Nicholas, Senior Vice Presidents of
the Fund, are also Senior Vice Presidents of the Adviser. Lynn
S. Nicholas is the daughter of Albert O. Nicholas, and David
Nicholas is the son of Albert O. Nicholas. Kathleen A. Evans,
Assistant Vice President of the Fund, is also a Vice President of
the Adviser. Candace L. Lesak, Vice President of the Fund, is
also an employees of the Adviser. Jeffrey T. May, Vice President
and Treasurer of the Fund, also is Senior Vice President and
Treasurer of the Adviser. John J. O'Hare II, Vice President of
the Fund, also is Vice President of the Adviser. David E.
Leichtfuss, 100 E. Wisconsin Avenue, Milwaukee, Wisconsin is a
Director and the Secretary of the Adviser. Mr. Leichtfuss is a
partner with the law firm of Michael Best & Friedrich, Milwaukee,
Wisconsin, legal counsel to the Fund and the Adviser. Daniel J.
Nicholas, 2618 Harlem Boulevard, Rockford, Illinois, is the only
other Director of the Adviser. Mr. Nicholas, a brother of Albert
O. Nicholas, is a private investor.
91% of the outstanding voting securities of the Adviser are
owned by Albert O. Nicholas.
MANAGEMENT - DIRECTORS, EXECUTIVE OFFICERS
AND PORTFOLIO MANAGER OF THE FUND
The overall operations of the Fund are conducted by the
officers of the Fund under the control and direction of its Board
of Directors. The following table sets forth the pertinent
information about the Fund's officers and directors as of
December 31, 1996:
NAME, AGE AND POSITIONS HELD PRINCIPAL OCCUPATIONS
ADDRESS WITH FUND DURING PAST FIVE YEARS
Albert O. Nicholas, 65 President and President and
700 N. Water Street Director Director, Nicholas
Milwaukee, WI 53202 Company, Inc., since
1967. He has been
Portfolio Manager
(or Co-Portfolio
Manager, in the case
of Nicholas Fund,
Inc., since November
1996) for, and
primarily Responsible
for the
day-to-day management
of, the portfolios of
Nicholas Fund, Inc.,
Nicholas Income Fund,
Inc., Nicholas Money
Market Fund, Inc. and
Nicholas Equity
Income Fund, Inc.
since the Nicholas
Company, Inc. has
served as investment
adviser for such
funds. He also was
Portfolio Manager for
the Fund and Nicholas
Limited Edition, Inc.
from the date of each
such fund's inception
until March 1993. He
is a Chartered
Financial Analyst.
Melvin L. Schultz, 63 Director Director and
10625 W. North Ave. Management
Wauwatosa, WI 53226 Consultant,
Professional
Management of
Milwaukee, Inc. He
offers financial
advice to members of
the medical and
dental professions
and is a Certified
Professional Business
Consultant.
Richard Seaman, 71 Director Management
5270 N. Maple Lane Consultant, on an
Nashotah, WI 53058 independent basis,
primarily in the
areas of mergers,
acquisitions and
strategic planning.
Robert H. Bock, 64 Director Professor of Business
3132 Waucheeta Trail Strategy, Ethics and
Madison, WI 53711 Venture Capital,
University of
Wisconsin School of
Business, since 1965.
From 1972 to 1984, he
was Dean of the
School of Business.
David L. Johnson, 54 Executive Vice Executive Vice
700 N. Water Street President President, Nicholas
Milwaukee, WI 53202 Company, Inc., the
Adviser to the Fund,
and employed by the
Adviser since 1980.
He is a Chartered
Financial Analyst.
Thomas J. Saeger, 52 Executive Vice Executive Vice
700 N. Water Street President and President and
Milwaukee, WI 53202 Secretary Assistant Secretary,
Nicholas Company,
Inc., the Adviser to
the Fund, and
employed by the
Adviser since 1969.
He is a Certified
Public Accountant.
Lynn S. Nicholas, 40 Senior Vice Senior Vice
700 N. Water Street President President, Nicholas
Milwaukee, WI 53202 Company, Inc., the
Adviser to the Fund,
and employed by the
Adviser since
September 1983. She
is a Chartered
Financial Analyst.
David O. Nicholas, 35 Senior Vice Senior Vice
700 N. Water Street President and President, Nicholas
Milwaukee, WI 53202 Portfolio Company, Inc., the
Manager Adviser to the Fund,
and employed by the
Adviser since
December 1985. He
has been Portfolio
Manager for, and
primarily responsible
for the day-to-day
management of, the
portfolios of
Nicholas II, Inc. and
Nicholas Limited
Edition, Inc. since
March 1993. He also
is a Chartered
Financial Analyst.
Jeffrey T. May, 40 Vice President Senior Vice President
700 N. Water Street and Treasurer and Treasurer,
Milwaukee, WI 53202 Nicholas Company,
Inc., the Adviser to
the Fund, and
employed by the
Adviser since July
1987. He is a
Certified Public
Accountant.
Candace L. Lesak, 39 Vice President Employee, Nicholas
700 N. Water Street Company, Inc., the
Milwaukee, WI 53202 Adviser to the Fund,
since February 1983.
She is a Certified
Financial Planner.
John J. O'Hare, II, 38 Vice President Vice President,
700 N. Water Street Nicholas Company Inc.
Milwaukee, WI 53202 the Adviser to the
Fund, and employed
by the Adviser since
June 1992. Prior to
that time he was
employed as an analyst
by various regional
brokerage firms. He
is a Chartered
Financial Analyst.
Kathleen A. Evans, 48 Assistant Vice Vice President,
700 N. Water Street President Nicholas Company,
Milwaukee, WI 53202 Inc., the Adviser to
the Fund, and
employed by the
Adviser since March
1985.
* Mr. Nicholas is the only director of the Fund who is an
"interested person" in the Adviser, as that term is defined
in the Investment Company Act of 1940, as amended.
Mr. David O. Nicholas is the Portfolio Manager of the Fund
and is primarily responsible for the day-to-day management of the
Fund's portfolio.
Mr. Albert O. Nicholas is a member of the Board of Directors
of Nicholas Fund, Inc., Nicholas Income Fund, Inc., Nicholas
Limited Edition, Inc., Nicholas Money Market Fund, Inc. and
Nicholas Equity Income Fund, Inc. Messrs. Bock and Seaman serve
as directors of Nicholas Fund, Inc. and Nicholas Equity Income
Fund, Inc. Mr. Schultz is a member of the Board of Directors of
Nicholas Fund, Inc., Nicholas Limited Edition, Inc., Nicholas
Equity Income Fund, Inc., Nicholas Income Fund, Inc. and Nicholas
Money Market Fund, Inc.
.95 The Investment Advisory Agreement between the Fund and
Nicholas Company, Inc. states that the Fund shall pay the
directors' fees of directors who are not interested persons of
Nicholas II, Inc. The amount of such fees is subject to increase
or decrease at any time, but is subject to the overall limitation
on the Fund's annual expenses.
The table below sets forth the aggregate compensation
received from the Fund by all directors of the Fund during the
fiscal year ended September 30, 1996. No officers of the Fund
receive any compensation from the Fund, but rather, are
compensated by the Adviser in accordance with its investment
advisory agreement with the Fund.
<TABLE>
AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENRFITS ACCRUED AS ANNUAL BENEFITS FROM FUND AND FUND
NAME AND POSITION FROM THE FUND PART OF FUND EXPENSES UPON RETIREMENT COMPLEX PAID TO DIRECTORS(1)
- ----------------- ------------- --------------------- --------------- ----------------------------
<S> <C> <C> <C> <C>
Albert O. Nicholas(2) $0 $0 $0 $0
Melvin L. Schultz(2) $3,000 $0 $0 $14,050
Richard Seaman(2) $3,000 $0 $0 $ 7,650
Robert H. Bock(2) $3,000 $0 $0 $ 7,787
</TABLE>
(1) During the fiscal year ended September 30, 1996, the Fund and
other funds in its Fund Complex (i.e., those funds which also
have Nicholas Company, Inc. as its investment adviser, namely
Nicholas Fund, Inc., Nicholas Equity Income Fund, Inc.,
Nicholas Limited Edition, Inc., Nicholas Income Fund, Inc.
and Nicholas Money Market Fund, Inc.) compensated those
directors who are not "interested persons" of the Adviser in
the form of an annual retainer per director per fund and
meeting attendance fees. During the fiscal year ended
September 30, 1996, the Fund compensated the disinterested
directors at a rate of $500 per director per meeting attended
and an annual retainer of $2,000 per year. The disinterested
directors did not receive any other form or amount of
compensation from the Fund Complex during the fiscal year
ended September 30, 1996. All other directors and officers
of the Fund were compensated by the Adviser in accordance
with its investment advisory agreement.
(2) Mr. Nicholas also is a member of the Board of Directors of
Nicholas Fund, Inc., Nicholas Equity Income Fund, Inc.,
Nicholas Limited Edition, Inc., Nicholas Income Fund, Inc.
and Nicholas Money Market Fund, Inc. Mr. Schultz also is a
member of the Board of Directors of Nicholas Fund, Inc.,
Nicholas Limited Edition, Inc., Nicholas Income Fund, Inc.,
Nicholas Equity Income Fund, Inc. and Nicholas Money Market
Fund, Inc. Mr. Seaman also is a member of the Board of
Directors of Nicholas Fund, Inc. and Nicholas Equity Income
Fund, Inc. Mr. Bock also is a member of the Board of
Directors of Nicholas Fund, Inc. and Nicholas Equity Income
Fund, Inc.
PRINCIPAL SHAREHOLDERS
No persons are known to the Fund to own beneficially or of
record 5% or more of the full shares of Common Stock of the Fund
as of September 30, 1996. All directors and executive officers
of the Fund as a group (12 in number) own approximately 0.72% of
the full shares of Common Stock of the Fund as of September 30,
1996.
PURCHASE OF CAPITAL STOCK
Applications for the purchase of shares are made to
Nicholas II, Inc., c/o Firstar Trust Company, P.0. Box 2944,
Milwaukee, Wisconsin 53201-2944. [The Fund has available an
Automatic Investment Plan for shareholders. Anyone interested
should contact the Fund for additional information.]
The price per share will be the net asset value next
computed after the time the application is received in proper
order and accepted by the Fund. The determination of the net
asset value for a particular day is applicable to all
applications for the purchase of shares received at or before the
close of trading on the New York Stock Exchange ("Exchange") on
that day (usually 4:00 p.m., New York time). Accordingly,
purchase orders received on a day the Exchange is open for
trading, prior to the close of trading on that day, will be
valued as of the close of trading on that day. Applications for
purchase of shares received after the close of trading on the
Exchange will be based on the net asset value as determined as of
the close of trading on the next day the Exchange is open.
1 The Fund does not consider the U.S. Postal Service or other
independent delivery services to be its agents. Therefore,
deposit in the mail or with such services, or receipt at Firstar
Trust Company's Post Office Box, of purchase applications or
redemption requests does not constitute receipt by Firstar Trust
Company or the Fund. Correspondence intended for overnight
courier should not be sent to the Post Office Box address.
OVERNIGHT COURIER DELIVERY SHOULD BE SENT TO FIRSTAR TRUST
COMPANY, THIRD FLOOR, 615 EAST MICHIGAN STREET, MILWAUKEE,
WISCONSIN 53202.
All applications to purchase capital stock are subject to
acceptance or rejection by authorized officers of the Fund and
are not binding until accepted. Applications will not be
accepted unless they are accompanied by payment in U.S. funds.
Payment should be made by check drawn on a U.S. bank, savings &
loan or credit union. Checks are accepted subject to collection
at full face value in U.S. funds. The custodian will charge a
$20 fee against a shareholder's account, in addition to any loss
sustained by the Fund, for any payment check returned to the
custodian for insufficient funds. It is the policy of the Fund
not to accept applications under circumstances or in amounts
considered disadvantageous for shareholders. Any account
(including custodial accounts) opened without a proper social
security number or taxpayer identification number may be
liquidated and distributed to the owner(s) of record on the first
business day following the 60th day of investment, net of the
back-up withholding tax amount.
The Board of Directors has established $1,000 as the minimum
initial purchase and $100 as the minimum for any subsequent
purchase, except in the case of reinvestment of distributions.
The Automatic Investment Plan has a minimum monthly investment of
$50. Due to the fixed expenses incurred by the Fund in
maintaining individual accounts, the Fund reserves the right to
redeem accounts that fall below the $1,000 minimum required
investment due to shareholder redemption (but not solely due to a
decrease in net asset value of the Fund). In order to exercise
this right, the Fund will give advance written notice of at least
30 days to the accounts below such minimum.
Purchase of shares will be made in full and fractional
shares computed to three decimal places. To purchase additional
shares of the Fund by federal wire transfer, please send to:
FIRSTAR BANK MILWAUKEE, N.A.
ABA #0750-00022
TRUST FUNDS, ACCOUNT #112-952-137
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
FOR FURTHER CREDIT TO NICHOLAS II, INC.
[YOUR ACCOUNT NUMBER AND THE TITLE OF THE ACCOUNT]
If a wire purchase is to be an initial purchase, please call
Firstar Trust Company (414-276-0535 or 800-544-6547) with the
appropriate account information prior to sending the wire.
Shares of Common Stock of the Fund may be purchased or sold
through certain broker-dealers, financial institutions or other
service providers ("Processing Intermediaries"). When shares of
Common Stock of the Fund are purchased this way, the Processing
Intermediary, rather than its customer, may be the shareholder of
record. Processing Intermediaries may use procedures and impose
restrictions in addition to or different from those applicable to
shareholders who invest in the Fund directly. A Processing
Intermediary may be required to register as a broker or dealer
under certain state laws. An investor intending to invest in the
Fund through a Processing Intermediary should read the program
materials provided by the Processing Intermediary in conjunction
with this Prospectus. Processing Intermediaries may charge fees
or other charges for the services they provide to their
customers. Investors who do not wish to receive the services of
a Processing Intermediary, or pay the fees that may be charged
for such services, may want to consider investing directly with
the Fund. Direct purchase or sale of shares of Common Stock of
the Fund may be made without a sales or redemption charge.
Certificates representing Fund shares purchased will not be
issued unless the shareholder specifically requests certificates
by signed written request to the Fund. Certificates are mailed
to requesting shareholders approximately two weeks after receipt
of the request by the Fund. In no instance will certificates be
issued for fractional shares. Where certificates are not
requested, the Fund's transfer agent, Firstar Trust Company,
Milwaukee, Wisconsin, will credit the shareholder's account with
the number of shares purchased. Written confirmations are issued
for all purchases of Fund shares.
REDEMPTION OF CAPITAL STOCK
A shareholder may require the Fund to redeem his or her
shares in whole or in part at any time during normal business
hours. If in writing, redemption requests must be signed by each
shareholder in the exact manner as the Fund account is registered
and must state the amount of redemption and identify the
shareholder account number. When shares are represented by
certificates, redemption is accomplished by delivering to the
Fund, c/o Firstar Trust Company, P.O. Box 2944, Milwaukee,
Wisconsin 53201-2944, the certificate(s) for the full shares to
be redeemed. The certificate(s) must be properly endorsed or
accompanied by instrument of transfer, in either case with
signatures guaranteed by an "eligible guarantor institution" as
defined in Section 240.17Ad-5 of the Code of Federal Regulation.
An "eligible guarantor institution" includes a bank, a savings
and loan association, a credit union or a member firm of a
national securities exchange. A notary public is not an
acceptable guarantor.
If certificates have not been issued, redemption can be
accomplished by delivering an original signed written request for
redemption addressed to Nicholas II, Inc., c/o Firstar Trust
Company. Facsimile transmission of redemption requests is not
acceptable. If the account registration is Individual, Joint
Tenants, Sole Proprietorship, Custodial (Uniform Transfer to
Minors Act), or General Partners, the written request must be
signed exactly as the account is registered. If the account is
owned jointly, all owners must sign. Written confirmations are
issued for all redemptions of Fund shares.
The Fund may require additional supporting documents for
written redemptions made by corporations, executors,
administrators, trustees and guardians. Specifically, if the
account is registered in the name of a corporation or
association, the written request must be accompanied by a
corporate resolution signed by the authorized person(s). A
redemption request for accounts registered in the name of a legal
trust must have a copy of the title and signature pages of the
trust agreement on file or be accompanied by the trust agreement
and signed by the trustee(s
If there is doubt as to what documents or instructions are
necessary in order to redeem shares, please write or call Firstar
Trust Company (414-276-0535 or 800-544-6547), prior to submitting
a written redemption request. A written redemption request will
not become effective until all documents have been received in
proper form by Firstar Trust Company.
Shareholders who have an individual retirement account
("IRA"), master retirement plan or other retirement plan must
indicate on their written redemption requests whether or not to
withhold federal income tax. Redemption requests lacking an
election not to have federal income tax withheld will be subject
to withholding. Please consult your current Disclosure Statement
for any applicable fees.
All redemptions will be processed immediately upon receipt.
The redemption price is the net asset value next computed after
the time of receipt by Firstar Trust Company of the
certificate(s) or written request in the proper form set forth
above, or pursuant to the proper telephone instructions (see
below). Shares tendered for redemption on a day the Exchange is
open for trading, prior to the close of trading on that day, will
be valued as of the close of trading on that day. Requests for
redemption of shares received after the close of trading on the
Exchange will be based on the net asset value as determined as of
the closing of trading on the next day the Exchange is open. The
redemption price will depend on the market value of the
investments in the Fund's portfolio at the time of redemption and
may be more or less than the cost of shares redeemed. The Fund
will return redemption requests that contain restrictions as to
the time or date redemptions are to be effected. The Fund
ordinarily will make payment for redeemed shares within seven
days after receipt of a request in proper form, except as
provided by the rules of the Securities and Exchange Commission.
Redemption proceeds to be wired also ordinarily will be wired
within seven days after receipt of the request, and normally will
be wired on the next business day after a net asset value is
determined. The Fund reserves the right to hold payment up to 12
days or until satisfied that investments made by check have been
collected.
<R/>
The Fund does not consider the U.S. Postal Service or other
independent delivery services to be its agents. Therefore,
deposit in the mail or with such services or receipt at Firstar
Trust Company's Post Office Box of redemption requests does not
constitute receipt by Firstar Trust Company or the Fund. DO NOT
mail letters by overnight courier to the Post Office Box address.
Correspondence mailed by overnight courier should be sent to the
Firstar Trust Company, Third Floor, 615 East Michigan Street,
Milwaukee, Wisconsin 53202.
Telephone redemption is automatically extended to all
accounts in the Fund unless this privilege is declined in
writing. This option does not apply to IRA accounts and master
retirement plans for which Firstar Trust Company acts as
custodian. Telephone redemptions can only be made by calling
Firstar Trust Company at 800-544-6547 or 414-276-0535. In
addition to the account registration, you will be required to
provide the account number and social security number. Telephone
calls will be recorded. Telephone redemption requests must be
received prior to the closing of the New York Stock Exchange
(usually 4:00 p.m., Eastern time) to receive that day's net asset
value. There will be no exceptions due to market activity. The
maximum telephone redemption is $25,000 per account/per business
day. The maximum telephone redemption for related accounts is
$100,000 per business day. The minimum telephone redemption is
$500 except when redeeming an account in full.
The Fund reserves the right to refuse a telephone redemption
if it is believed advisable to do so. Procedures for redeeming
Fund shares by telephone may be modified or terminated at any
time by the Fund or Firstar Trust Company. Neither the Fund nor
Firstar Trust Company will be responsible for the authenticity of
redemption instructions received by telephone
The shareholder may instruct Firstar Trust Company to mail
the proceeds to the address of record or to directly mail the
proceeds to a pre-authorized bank account. The proceeds may also
be wired to a pre-authorized account at a commercial bank in the
United States. Firstar Trust Company charges a wire redemption
fee of up to $12.00. Please contact the Fund for the appropriate
form if you are interested in setting your account up with wiring
instructions.
Although not anticipated, it is possible that conditions may
arise in the future which would, in the opinion of the Fund's
Adviser or Board of Directors, make it undesirable for the Fund
to pay for all redemptions in cash. In such cases, the Board may
authorize payment to be made in portfolio securities or other
property of the Fund. However, the Fund has obligated itself
under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder up to $250,000 (or 1% of the
Fund's net assets if that is less) in any 90-day period.
Securities delivered in payment of redemptions would be valued at
the same value assigned to them in computing the net asset value
per share. Shareholders receiving such securities would incur
brokerage costs when these securities are sold.
The right of redemption may be suspended for any period
during which the New York Stock Exchange is closed other than the
customary weekend and holiday closings, and may be suspended for
any period during which trading on the Exchange is restricted as
determined by the Securities and Exchange Commission, or the
Commission has by order permitted such suspension, or the
Commission has determined that an emergency exists as a result of
which it is not reasonably practicable for the Fund to dispose of
its securities or to determine fairly the value of its net
assets. For federal income tax purposes, a redemption generally
is treated as a sale of the shares being redeemed, with the
shareholder recognizing capital gain or loss equal to the
difference between the redemption price and the shareholder's
cost for the shares being redeemed.
Signature Guarantees. A signature guarantee of each owner
is required to redeem shares in the following situations, for all
size transactions: (i) if you change the ownership on your
account; (ii) upon redemption of shares when certificates have
been issued for your account; (iii) when you want the redemption
proceeds sent to a different address than is registered on the
account; (iv) for both certificated and uncertificated shares, if
the proceeds are to be made payable to someone other than the
account owner(s); (v) any redemption transmitted by federal wire
transfer to your bank; and (vi) if a change of address request
has been received by the Fund or Firstar Trust Company within 15
days of a redemption request. In addition, signature guarantees
will be required for all redemptions of $100,000 or more from any
shareholder account in the Nicholas Family of Funds. A
redemption will not be processed until the signature guarantee,
if required, is received in proper form. A notary public is not
an acceptable guarantor.
EXCHANGE BETWEEN FUNDS
If a shareholder chooses to exercise the exchange privilege,
the shares will be exchanged at their next determined net asset
value. When an exchange into the Nicholas Money Market Fund,
Inc. would involve investment of the exchanged amount on a day
when the New York Stock Exchange is open for trading but the
Federal Reserve Banks are closed, shares of the Fund will be
redeemed on the day upon which the exchange request is received;
however, issuance of Nicholas Money Market Fund, Inc. shares may
be delayed an additional day in order to avoid the dilutive
effect on return (i.e., reduction in net investment income per
share) which would result from issuance of such shares on a day
when the exchanged amount cannot be invested. In such a case,
the exchanged amount would be uninvested for this one day period.
Shareholders interested in exercising the exchange privilege must
obtain the appropriate prospectus from Nicholas Company, Inc. An
exchange constitutes a sale for federal tax purposes and a
capital gain or loss generally will be recognized upon the
exchange, depending upon whether the net asset value at the time
is more or less than the shareholder's cost. An exchange between
the funds involving master retirement (Keogh) plan and IRA
accounts generally will not constitute a taxable transaction for
federal tax purposes. The exchange privilege may be terminated or
modified only upon 60 days advance notice to shareholders;
however, procedures for exchanging Fund shares by telephone may
be modified or terminated at any time by the Fund or Firstar
Trust Company.
Shares of the Fund may be exchanged for shares of other
investment companies for which Nicholas Company, Inc. serves as
the investment adviser and which permit such exchanges. Nicholas
Company, Inc. is also the investment adviser to Nicholas Fund,
Inc., Nicholas Income Fund, Inc., Nicholas Limited Edition, Inc.,
Nicholas Money Market Fund, Inc. and Nicholas Equity Income Fund,
Inc. Nicholas Fund, Inc. has an investment objective of capital
appreciation in which income is a secondary consideration.
Nicholas Income Fund, Inc.'s investment objective is to seek high
current income consistent with the preservation and conservation
of capital value. Nicholas Limited Edition, Inc. has as its
investment objective long-term growth in which income is a
secondary consideration. Shareholders are reminded, however,
that Nicholas Limited Edition, Inc. is restricted in size to ten
million shares, and the exchange privilege into that fund may be
terminated or modified at a time when that maximum is reached.
Nicholas Money Market Fund, Inc. has an investment objective of
achieving as high a level of current income as is consistent with
preserving capital and providing liquidity. Nicholas Equity
Income Fund, Inc. has an investment objective of reasonable
income, with moderate long-term growth as a secondary
consideration.
Exchange of shares can be accomplished in the following
ways:
EXCHANGE BY MAIL. An exchange of shares of the Fund for
shares of other available Nicholas mutual funds will be made
without cost to the investor through written request.
Shareholders interested in exercising the exchange by mail
privilege may obtain the appropriate prospectus from
Nicholas Company, Inc. Signatures required are the same as
previously explained under "Redemption of Capital Stock."
EXCHANGE BY TELEPHONE. Shareholders may exchange by
telephone among all funds for which the Nicholas Company,
Inc. serves as investment adviser. Only exchanges of $l,000
or more may be executed using the telephone exchange
privilege. Firstar Trust Company charges a $5.00 fee for
each telephone exchange. In an effort to avoid the risks
often associated with large market timers, the maximum
telephone exchange per account per day is set at $100,000
with a maximum of $l,000,000 per day for related accounts.
Four telephone exchanges per account during any twelve month
period will be allowed. Exchanges between the Fund and
Nicholas Equity Income Fund, Inc. are limited to $25,000 per
day and $100,000 per day for related accounts.
Procedures for exchanging Fund shares by telephone may be
modified or terminated at any time by the Fund or Firstar Trust
Company. Neither the Fund nor Firstar Trust Company will be
responsible for the authenticity of exchange instructions
received by telephone. Telephone exchanges can only be made by
calling Firstar Trust Company at 414-276-0535 or 800-544-6547.
You will be required to provide pertinent information regarding
your account. Calls will be recorded.
TRANSFER OF CAPITAL STOCK
Shares of the Fund may be transferred in instances such as
the death of a shareholder, change of account registration,
change of account ownership and in cases where shares of the Fund
are transferred as a gift. Documents and instructions necessary
to transfer capital stock can be obtained by writing or calling
Firstar Trust Company (414-276-0535 or 800-544-6547) or Nicholas
Company, Inc. (414-272-6133 or 800-227-5987) prior to submitting
any transfer requests.
DETERMINATION OF NET ASSET VALUE
The net asset value of a share is determined by dividing the
total value of the net assets of the Fund by the total number of
shares outstanding at that time. Net assets of the Fund are
determined by deducting the liabilities of the Fund from total
assets. The net asset value is determined as of the close of
trading on the New York Stock Exchange on each day the Exchange
is open for trading.
Securities traded on a stock exchange will ordinarily be
valued on the basis of the last sale price on the date of
valuation, or in the absence of any sale on that day, the closing
bid price. Other securities will be valued at the current bid
price. Any securities for which there are no readily available
market quotations will be valued at fair value, as determined in
good faith by the Board of Directors. Brokerage commissions will
be excluded in calculating values. All assets other than
securities will be valued at their then current fair value as
determined in good faith by the Board of Directors.
DIVIDENDS AND FEDERAL TAX STATUS
The Fund intends to continue to qualify annually as a
"regulated investment company" under the Internal Revenue Code of
1986 and intends to take all other action required to ensure that
little or no federal income or excise taxes will be payable by
the Fund. As a result, the Fund generally will distribute
annually to its shareholders substantially all of its net
investment income and net realized capital gain (after
utilization of any available capital loss carryovers).
For federal income tax purposes, distributions by the Fund,
whether received in cash or invested in additional shares of the
Fund, will be taxable to the Fund's shareholders, except those
shareholders that are not subject to tax on their income. Long-
term capital gain distributed by the Fund will retain the
character that it had at the Fund level. Income distributed from
the Fund's net investment income and net realized short-term
capital gains are taxable to shareholders as ordinary income.
Distributions generally will be made annually in December. The
Fund will provide information to shareholders concerning the
character and federal tax treatment of any distribution.
Since at the time of purchase of shares the Fund may have
undistributed income or capital gains included in the computation
of the net asset value per share, a dividend or capital gain
distribution received shortly after such purchase by a
shareholder may be taxable to the shareholder, although it is, in
whole or in part, a return of capital and may have the effect of
reducing the net asset value per share.
Under federal law, some shareholders may be subject to a 31%
"backup withholding" on reportable dividends, capital gain
distributions (if any) and redemption payments. Generally,
shareholders subject to backup withholding will be those (i) for
whom a taxpayer identification number is not on file with the
Fund or who, to the Fund's knowledge, have furnished an incorrect
number, or (ii) who have failed to declare or underreported
certain income on their federal returns. When establishing an
account, an investor must certify under penalties of perjury that
the taxpayer identification number supplied to the Fund is
correct and that he is not subject to backup withholding.
The foregoing tax discussion relates to Federal income taxes
only and is not intended to be a complete discussion of all
federal tax consequences. Shareholders should consult with a tax
advisor concerning the application of federal, state and local
taxes to an investment in the Fund.
DIVIDEND REINVESTMENT PLAN
Unless a shareholder elects to accept cash in lieu of
shares, all dividend and capital gain distributions are
automatically reinvested in additional shares of the Fund through
the Dividend Reinvestment Plan. An election to accept cash may
be made in an application to purchase shares, or by separate
written notification or by telephone. All reinvestments are at
the net asset value per share in effect on the dividend or
distribution record date and are credited to the shareholder's
account. If the application of such distributions to the
purchase of additional shares of the Fund would result in the
issuance of fractional shares, the Fund may, at its option,
either issue fractional shares (computed to three decimal places)
or pay to the shareholder cash equal to the value of the
fractional share on the dividend or distribution payment date.
Shareholders will be advised of the number of shares purchased
and the price following each reinvestment. As in the case of
normal purchases, stock certificates are not issued unless
requested. In no instance will a certificate be issued for a
fraction of a share.
Shareholders may withdraw from or thereafter elect to
participate in the Dividend Reinvestment Plan at any time by
giving written notice to the Transfer Agent. An election must be
received by Firstar Trust Company prior to the dividend record
date of any particular distribution for the election to be
effective for that distribution. If an election to withdraw from
or participate in the Dividend Reinvestment Plan is received
between a dividend record date and payment date, it shall become
effective on the day following the payment date. The Fund may
modify or terminate the Dividend Reinvestment Plan at any time on
30 days written notice to participants.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who have purchased or currently own Fund shares
worth $10,000 or more at the current market value may open a
Systematic Withdrawal Plan and receive monthly, quarterly, semi-
annual or annual checks for any designated amount. Firstar Trust
Company reinvests all income and capital gain dividends in shares
of the Fund. Shareholders may add shares to, withdraw shares
from, or terminate the Plan, at any time. Each withdrawal may be
a taxable event to the shareholder. Liquidation of shares in
excess of distributions may deplete or possibly use up the
initial investment, particularly in the event of a market
decline, and withdrawals cannot be considered a yield or income
on the investment. In addition to termination of the Plan by the
Fund or shareholders, the Plan may be terminated by Firstar Trust
Company upon written notice mailed to the shareholders. Please
contact the Nicholas Company for copies of the Plan documents.
INDIVIDUAL RETIREMENT ACCOUNT
Individuals may be able to establish their own tax-sheltered
IRA. The Fund offers a prototype IRA plan for adoption by
individuals who qualify for spousal, deductible and
non-deductible IRA accounts.
As long as the aggregate IRA contributions meet the Fund's
minimum investment requirement of $1,000, the Fund will accept
any allocation of such contributions between spousal, deductible
and non-deductible accounts. The acceptability of this
calculation is the sole responsibility of the shareholder. For
this reason, it is advisable for taxpayers to consult with their
personal tax adviser to determine the deductibility of their IRA
contributions.
A description of applicable service fees and application
forms are available upon request from the Fund. The IRA
documents also contain a disclosure statement which the Internal
Revenue Service requires to be furnished to individuals who are
considering adopting an IRA. It is important you obtain
up-to-date information from the Fund before opening an IRA.
Because a retirement program involves commitments covering
future years, it is important that the investment objectives of
the Fund be consistent with the participant's retirement
objectives. Premature withdrawals from a retirement plan may
result in adverse tax consequences. Consultation with a tax
adviser regarding the tax consequences of the Plan is
recommended.
MASTER RETIREMENT PLAN
The Fund has available a master retirement plan (formerly
called a "Keogh" Plan) for self-employed individuals. Any person
seeking additional information or wishing to participate in the
Plan may contact the Fund. Consultation with a tax adviser
regarding the tax consequences of the Plan is recommended.
BROKERAGE
The Adviser, who decides to buy and sell securities, selects
a broker or dealer for the execution of a portfolio transaction
on the basis that such broker or dealer will execute the order as
promptly and efficiently as possible subject to the overriding
policy of the Fund. This policy is to obtain the best market
price and reasonable execution for all its transactions, giving
due consideration to such factors as reliability of execution and
the value of research, statistical and price quotation services
provided by such broker or dealer. The research services
provided by brokers consist of recommendations to purchase or
sell specific securities, the rendering of advice regarding
events involving specific issuers of securities and events and
current conditions in specific industries, and the rendering of
advice regarding general economic conditions affecting the stock
market and the U.S. economy.
The Adviser does not specifically negotiate commissions and
charges with a broker or dealer in advance of each transaction.
The approximate brokerage discount and charges are, however,
generally known to the Adviser prior to effecting the
transaction. In determining the overall reasonableness of the
commissions paid, the Adviser compares the commission rates to
those it pays on transactions for its other client accounts and
to the rates generally charged in the industry to institutional
investors such as the Fund. The commissions are also considered
in view of the value of the research, statistical and price
quotation services, if any, rendered by the broker or dealer
through whom a transaction is placed.
Purchases and sales of portfolio securities are frequently
placed, without any agreement or undertaking to do so, with
brokers and dealers who provide the Adviser with such
supplemental research and statistical and price quotation
services. The Adviser understands that since the brokers and
dealers rendering such services are compensated throught
commissions, such services would be unilaterally reduced or
eliminated by the brokers and dealers if none of the Fund's
transactions were placed through them. While these services have
value which cannot be measured in dollars, the Adviser believes
such services do not reduce the Fund's or the Adviser's expenses.
In instances where it is determined by the Adviser that the
supplemental research and statistical services are of significant
value, it is the practice of the Adviser to place the Fund's
transactions with brokers or dealers who are paid a higher
commission than other brokers or dealers. However, commissions
paid are generally lower than those paid prior to the elimination
of fixed minimum rates in 1975 and are no higher than rates which
could be obtained from other brokers or dealers who would also
furnish comparable supplemental research and statistical
services. The Adviser utilizes research and other information
obtained from brokers and dealers in managing its other client
accounts. On the other hand, the Adviser obtains research and
information from brokers and dealers who transact trades for the
Advisor's other client accounts, which are also utilized by the
Adviser in managing the Fund's portfolio. The aggregate amount
of brokerage commissions paid by the Fund for its fiscal year
ended September 30, 1996 was $415,710 Brokerage commissions paid
by the Fund during the fiscal years ended September 30, 1995 and
September 30, 1994 totalled $326,990 and $438,049, respectively.
The Fund's portfolio turnover rates were 24.47%, 19.63% and
17.38%, respectively, for the fiscal years ended September 30,
1996, September 30, 1995, and September 30, 1994.
The Adviser, which is the investment adviser to the Nicholas
Fund, Inc., Nicholas Income Fund, Inc., Nicholas Limited Edition,
Inc., Nicholas Money Market Fund, Inc. and Nicholas Equity Income
Fund, Inc., as well as to the Fund, may occasionally make
investment decisions which would involve the purchase or sale of
securities for the portfolios of more than one of the six funds
at the same time. As a result, the demand for securities being
purchased or the supply of securities being sold may increase,
and this could have an adverse effect on the price of those
securities. It is the Adviser's policy not to favor one fund
over another in making recommendations or in placing orders. If
two or more of the Adviser's clients are purchasing a given
security on the same day from the same broker or dealer, the
Adviser may average the price of the transactions and allocate
the average among the clients participating in the transactions.
It is the Advisor's policy to allocate the commission charged by
such broker or dealer to each fund in direct proportion to the
number of shares bought or sold by the particular fund involved.
The Adviser may effect portfolio transactions with brokers
or dealers who recommend the purchase of the Fund's shares. The
Adviser may not allocate brokerage on the basis of
recommendations to purchase shares of the Fund.
Over-the-counter market purchases and sales are generally
transacted directly with principal market makers who retain the
difference between their cost in a security and its selling
price. In some circumstances where, in the opinion of the
Adviser, better prices and executions are available elsewhere,
the transactions are placed through brokers who are paid
commissions directly.
PERFORMANCE DATA
The Fund may quote a "total return" or an "average annual
total return" from time to time in advertisements or in
information furnished to present or prospective shareholders.
The "total return" of the Fund is expressed as a ratio of the
increase (or decrease) in value of a hypothetical investment in
the Fund at the end of a measuring period to the amount initially
invested. The "average annual total return" is determined by
discounting the "total return" for the number of time periods
represented. The rate represents the annual rate achieved on the
initial investment to arrive at the ending redeemable value. The
ending value assumes reinvestment of dividends and capital gains
and the reduction of account charges, if any. This computation
does not reflect any sales load or other nonrecurring charges,
since the Fund is not subject to such charges. These values are
computed according to the following formulas:
The "average annual total return" and "total return" are
computed according to the following formulas:
n
P(1+T) = ERV
or
Total Return = ERV - 1
---
P
n
Average Annual Total Return = THE NTH ROOT ERV - 1
P
where:
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment
made at the beginning of the 1, 5 and 10 year periods at the end
of the 1, 5 or 10 year periods.
<TABLE>
ONE YEAR ENDED FIVE YEARS ENDED TEN YEARS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
---------------------- ---------------------- ------------------
<S> <C> <C> <C>
Total Return 16.05% 88.90% 246.52%
Average Annual Total
Return 16.05% 13.57% 13.23%
</TABLE>
For purposes of these calculations, the following
assumptions are made: (1) all dividends and distributions by
the Fund are reinvested at the net asset value calculated on the
reinvestment dates during the period; (2) a complete redemption
at the end of the periods is made; and (3) all recurring fees
that are charged to all shareholder accounts are included.
These figures are computed by adding the total number of
shares purchased by a hypothetical $1000 investment in the Fund
to all additional shares purchased within a one year period with
reinvested dividends and distributions, reducing the number of
shares by those redeemed to pay account charges, taking the value
of those shares owned at the end of the year and reducing it by
any deferred charges, and then dividing that amount by the
initial $1000 investment. This computation does not reflect any
sales load or other nonrecurring charges, since the Fund is not
subject to such charges.
The "total return" and "average annual total return"
calculations are historical measures of performance and are not
necessarily indicative of future performance. Such measurements
will vary from time to time depending upon market conditions, the
composition of the Fund's portfolio, operating expenses, and the
distribution policy as determined by the Board of Directors.
These factors should be considered when evaluating the Fund's
performance.
In sales materials, reports and other communications to
shareholders, the Fund may compare its performance to certain
indices, including the S&P 500 Index, the National Association of
Securities Dealers Automated Quotation System, the Russell 2000
Index and the United States Department of Labor Consumer Price
Index. The Fund also may include evaluations of the Fund
published by nationally recognized financial publications and
ranking services, such as Forbes, Money, Financial World, Lipper
Analytical Services Mutual Fund Performance Analysis and
Morningstar Mutual Funds.
CAPITAL STRUCTURE
The Fund is authorized to issue 200,000,000 shares of Common
Stock, par value $0.01 per share. Each share has one vote and
all shares participate equally in dividends and other
distributions by the Fund, and in the residual assets of the Fund
in the event of liquidation. There are no conversion or sinking
fund provisions applicable to shares, and holders have no
preemptive rights and may not cumulate their votes in the
election of directors. Shares are redeemable and are
transferable. Fractional shares entitle the holder to the same
rights as whole shares except fractional shares have no voting
rights.
STOCK CERTIFICATES
The Fund will not issue certificates evidencing shares
purchased unless so requested in writing. Where certificates are
not issued, the shareholder's account will be credited with the
number of shares purchased, relieving shareholders of
responsibility for safekeeping of certificates and the need to
deliver them upon redemption. Written confirmations are issued
for all purchases of shares. Any shareholder may deliver
certificates to the Fund's transfer agent, Firstar Trust Company,
and direct that his account be credited with the shares. A
shareholder may in writing direct Firstar Trust Company at any
time to issue a certificate for his shares without charge.
ANNUAL MEETING
Under the laws of the State of Maryland, registered
investment companies, such as the Fund, may operate without an
annual meeting of shareholders under specified circumstances if
an annual meeting is not required by the Investment Company Act
of 1940, as amended. The Fund has adopted the appropriate
provisions in its By-Laws and will not hold annual meetings of
shareholders unless otherwise required to do so.
In the event the Fund is not required to hold annual
meetings of shareholders to elect Directors, the Board of
Directors of the Fund will promptly call a meeting of
shareholders of the Fund for the purpose of voting upon the
question of removal of any Director when requested in writing to
do so by the record holders of not less than l0% of the
outstanding shares of Common Stock of the Fund. The affirmative
vote of two-thirds of the outstanding shares, cast in person or
by proxy at a meeting called for such purpose, is required to
remove a Director of the Fund. The Fund will assist shareholders
in communicating with each other for this purpose pursuant to the
requirements of Section 16(c) of the Investment Company Act of
1940, as amended.
1SHAREHOLDER REPORTS
Shareholders will be provided at least semiannually with a
report or a current prospectus showing the Fund's portfolio and
other information. After the close of the Fund's fiscal year,
which ends September 30, an annual report or current prospectus
containing financial statements audited by the Fund's independent
public accountants, Arthur Andersen LLP, will be sent to
shareholders.
CUSTODIAN AND TRANSFER AGENT
Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as Custodian of the Fund. As such, Firstar
Trust Company holds all securities and cash of the Fund, delivers
and receives payment for securities sold, receives and pays for
securities purchased, collects income from investments and
performs other duties, all as directed by officers of the Fund.
Firstar Trust Company does not exercise any supervisory function
over the management of the Fund, the purchase and sale of
securities or the payment of distributions to shareholders.
Firstar Trust Company also acts as the Fund's Transfer Agent and
Dividend Disbursing Agent.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, are the independent accountants for the Fund.
Michael Best & Friedrich, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, has passed on the legality of the shares of
Common Stock of the Fund being offered.
FINANCIAL INFORMATION
The schedule of investments, the financial statements and
notes thereto and the Report of Independent Public Accountants
contained in the Annual Report of the Fund for the fiscal year
ended September 30, 1996, are incorporated herein by reference.
Nicholas II, Inc.
Form N-1A
PART C: OTHER INFORMATION
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS: Per share income and capital
changes information with respect to the Registrant's common stock
appears in Part A; the Registrant's statement of assets and
liabilities, including the schedule of investments, as of
September 30, 1996, and 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 per share
income and capital changes for each of the years in the period
then ended are incorporated in Parts A&B by reference to the
Annual Report to Shareholders of the Registrant for its fiscal
year ended September 30, 1996.
(b) EXHIBITS: All exhibits required to be filed with this
Form N-lA pursuant to Item 24(b) thereof are listed in the
Exhibit Index appearing elsewhere in this Registration Statement
and (i) appear in their entirety herein or (ii) are incorporated
by reference to previous filings with the Securities and Exchange
Commission.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
The Registrant is not under common control with any
other person. The Registrant, Nicholas Fund, Inc., Nicholas
Income Fund, Inc., Nicholas Limited Edition, Inc., Nicholas Money
Market Fund, Inc. and Nicholas Equity Income Fund, Inc., which
are all Maryland corporations, share a common investment adviser,
Nicholas Company, Inc.; however, each such fund has an
independent Board of Directors responsible for supervising the
investment and business management services provided by the
adviser. The Registrant does not control any other person.
Item 26. NUMBER OF HOLDERS OF SECURITIES
As of September 30, 1996, the number of record holders
was:
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
Common Stock, $0.01
par value per share 37,361
Item 27. INDEMNIFICATION
Article VII, Section 7 of the By-Laws of the Registrant
provides for the indemnification of its officers and director
against liabilities incurred in such capacities to the extent
described therein, subject to the provisions of the Maryland
General Business Corporation Law; such Section 7 is incorporated
herein by reference to the By-Laws of the Registrant previously
filed with the Securities and Exchange Commission.
The investment adviser to the Registrant, Nicholas
Company, Inc., has, by resolution of its Board of Directors,
agreed to indemnify Registrant's officers, directors and
employees to the extent of any deductible or retention amount
required under insurance policies providing coverage to such
persons in connection with liabilities incurred by them in such
capacities.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
None.
Item 29. PRINCIPAL UNDERWRITERS
None.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books or other documents required to be
maintained pursuant to Section 31(a) of the Investment Company
Act of 1940, as amended, and the rules of the Securities and
Exchange Commission promulgated thereunder, are located at the
offices of Registrant, 700 North Water Street, Milwaukee,
Wisconsin, and at the offices of Registrant's custodian and
transfer agent, Firstar Trust Company, 615 East Michigan Street,
Milwaukee, Wisconsin.
Item 31. MANAGEMENT SERVICES
None.
Item 32. UNDERTAKINGS
The Registrant's By-Laws provide that it will indemnify
the Officers and Directors of Registrant for liabilities incurred
by them in any proceeding arising by reason of the fact that any
such person was or is a director or officer of the Registrant.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended ("Act") may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the Act, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and may, therefore, be unenforceable. In
the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes to deliver
or cause to be delivered with the prospectus, to each person to
whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the requirements
of Rule 14a-3 or Rule 14c-3 under the Securities and Exchange Act
of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person
to whom the prospectus is sent or given, the latest quarterly
report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
(b)(1) Articles of Incorporation of Registrant. *
(b)(2) By-Laws of Registrant. *
(b)(4) Specimen certificate evidencing common
stock, $.01 par value, of Registrant. *
(b)(5) Investment Advisory Agreement between
Registrant and Nicholas Company, Inc. *
(b)(8) Custodian Agreement between Registrant
and Firstar Trust Company. *
(b)(10) Opinion of Michael Best & Friedrich,
counsel to the Registrant, concerning
the legality of Registrant's common
stock, including consent to the use
thereof. _____
(b)(11) Consent of Arthur Andersen LLP,
independent public accountants. _____
(b)(12) Statements of Assets and Liabilities
of Registrant, including the Schedule
ofInvestments, as of September 30, 1996,
and 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 ended
September 30, 1996, and the Financial
Highlights and Ratios for each of the
ten years in the period ended
September 30, 1996 [included in the
Annual Report to Shareholders of
Registrant for the fiscal year ended
September 30, 1996]. _____
(b)(14.1) Registrant's Prototype IRA Plan. *
(b)(14.2) Registrant's Master Retirement Plan
for Self-Employed Individuals. *
(b)(16) Schedule for computation of
performance quotation
provided in response to
Item 22 of Form N-lA.
(b)(17) Financial Data Schedule _____
(b)(99) Power of Attorney. *
* Incorporated by reference to previous filings with the
Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant, Nicholas II, Inc., a corporation organized and
existing under the laws of the State of Maryland, hereby
certifies that it meets all of the requirements for effectiveness
of this Amendment to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and has duly caused this
Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 28th
day of January, 1997.
NICHOLAS II, INC.
By: /s/ Thomas J. Saeger
-------------------------
Thomas J. Saeger, Executive
Vice President, Secretary and
Principal Financial
and Accounting Officer
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
this Amendment to the Registration Statement has been signed
below by the following persons in the capacity indicated on the
28th day of January, 1997.
Albert O. Nicholas*
- --------------------- President (Chief Executive
Albert O. Nicholas Officer), and Director
Thomas J. Saeger*
- -------------------- Executive Vice President,
Thomas J. Saeger Secretary, Chief Financial
Officer, and Chief Accounting
Officer
Robert H. Bock*
- --------------- Director
Robert H. Bock
Melvin L. Schultz*
- ------------------ Director
Melvin L. Schultz
Richard Seaman*
- --------------- Director
Richard Seaman
* By: /s/ Thomas J. Saeger
----------------------------------
Thomas J. Saeger, as
Attorney-in-Fact for the above officers
and directors, under authority of
Powers of Attorney previously filed
LIST OF CONSENTS
1. Consent of Michael, Best & Friedrich
(included in Exhibit (b)(10))
2. Consent of Arthur Andersen LLP
(included as Exhibit (b)(11))
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report,
and to all references to our Firm, included in or made a part of this Form N-1A
registration statement for Nicholas II, Inc.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 31, 1997.
SEMIANNUAL REPORT
=================
NICHOLAS II, INC.
700 North
Water Street
Milwaukee,
Wisconsin 53202
September 30, 1996
<PAGE>
November 27, 1996
Dear Fellow Shareholders:
Nicholas II, Inc. ended it's fiscal year, September 30, 1996, with a net
asset value per share of $33.34, a return of 21.35% and $760 million in total
net assets. This performance compares favorably to the benchmark Russell
2000 which returned 13.13% for the same period.
Performance of the Fund is shown below for the time periods ended
September 30, 1996:
<TABLE>
<CAPTION>
Average Annual Total Return*
---------------------------------------
1/1/96-9/30/96 1 Year 3 Years 5 Years 10 Years
-------------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Nicholas II (Distributions Reinvested).......... +16.05% +21.35% +16.14% +13.57% +13.23%
NASDAQ OTC Composite (Excludes Income).......... +16.61% +17.57% +17.17% +18.42% +13.34%
Standard & Poor's 500 (Income Reinvested)....... +13.49% +20.32% +17.44% +15.21% +14.97%
Russell 2000 (Includes Income).................. +10.73% +13.13% +12.74% +15.76% +11.91%
Ending value of $10,000 invested in Nicholas II
(Distributions Reinvested).................... $11,605 $12,135 $15,667 $18,891 $34,653
</TABLE>
*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.
The Fund's performance for the year was driven by long-term holdings such
as Keane and Expeditors International, along with financial holdings which
benefited from declining interest rates. The Fund's large healthcare exposure
did not help much due to investor nervousness over the election and potential
government regulation. This sector should benefit from a more certain
regulatory environment and continued strong fundamentals.
As I write this letter, major market indices seem to reach all-time highs
daily. This year's market has been characterized by outperformance of large
capitalization companies over small. This can be seen by the performance of
the S&P 500 or NASDAQ over the Russell 2000 for the calendar year through
September 30, 1996. What is astonishing this year, is the narrowness of the
rally. For example, if you take Microsoft ($89.9 billion market
capitalization) and Intel ($100.0 market capitalization) out of the NASDAQ
index, the approximate return drops from 16% to 12% for the nine months ended
September 30, 1996. This large capitalization rally continues to be fueled by
a steadily growing economy, with little inflationary pressure and improving
productivity.
The long-term bull market since 1990, along with good price performance by
the Nicholas II portfolio companies has caused the Fund's price/earnings ratio
to reach historical high levels. This has caused us to examine closely the
risk level of the Fund. We are comfortable with the business risk in the
portfolio and believe in being fully invested. Our quality companies will
most likely maintain a fair value. I like to fall back on what Warren Buffett
once said, "You limit your downside risk by holding high quality businesses
run by high quality managements." If we lower the quality of the companies we
hold, we may increase the business risk therefore increasing downside risk.
The long-running bull market has also brought with it a proliferation of
new mutual funds and financial advisors. We see ads in newspapers for mutual
funds with 70% to 90% returns in boldface letters. Then we read the fine
print to find out the fund is only six months old and has less than
$10,000,000 in total assets. We also are amazed at how many funds claim to be
#1 because of some obscure category they are in. In my opinion, these ads are
irresponsible and can encourage shareholders to have a "gamblers" mentality
when it comes to investing. A true "investors" fund has a turnover ratio of
less than 40%, and a total expense ratio of less than 1.25%, including any
12b-1 expenses. Nicholas II's turnover averages less than 20%, has a total
expense ratio of only .62% (one of the lowest in the industry) and no 12b-1
expense. We believe in giving the performance to the shareholders, not the
middlemen.
As you can probably sense, our age old saying applies now more than ever,
"We remain short-term cautious, yet long-term bullish." I am excited about the
long-term prospects of the companies in the portfolio along with the ability
of our staff to find, research and understand quality companies with good
long-term growth prospects. We also want to thank you, our shareholders, whom
I believe are well educated when it comes to the pure investment process.
Sincerely,
/S/ David O. Nicholas
David O. Nicholas
Portfolio Manager
<PAGE>
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------
QUOTED
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 1 (A))
--------- ------------
COMMON STOCKS - 95.7%
BANKS AND FINANCE - 9.1%
306,023 Associated Banc-Corp $ 12,355,679
223,125 Fifth Third Bancorp 12,969,141
144,800 First Financial Corporation 3,475,200
8,803 First National Bank of Anchorage (The) 13,556,620
413,287 Litchfield Financial Corporation + 5,786,018
527,900 Marshall & Ilsley Corporation 15,902,988
195,000 MBNA Corporation 6,776,250
------------
70,821,896
------------
BUSINESS SERVICES - 17.2%
330,000 Alco Standard Corporation 16,458,750
420,000 Checkfree Corporation * 8,400,000
200,000 Danka Business Systems PLC 7,950,000
75,000 Envoy Corporation * 2,906,250
642,500 Fiserv, Inc. * 24,575,625
419,062 G&K Services, Inc. - Class A 12,257,563
1,018,675 Keane, Inc. * + 48,896,400
449,500 Micro Warehouse, Inc. * 11,574,625
173,900 Programming and Systems, Inc. *
(Note 1 (a)) 0
------------
133,019,213
------------
CONSUMER PRODUCTS AND SERVICES - 3.6%
146,900 Central Parking Corporation 4,774,250
313,850 Newell Co. 9,415,500
126,000 ThermoTrex Corporation * 4,662,000
175,600 Valspar Corporation (The) 8,648,300
------------
27,500,050
------------
FOOD AND BEVERAGE - 2.9%
250,000 Outback Steakhouse, Inc. * 6,031,250
459,000 Tootsie Roll Industries, Inc. 16,237,125
------------
22,268,375
------------
HEALTH CARE PRODUCTS - 10.2%
108,000 Amgen Inc. * 6,817,500
322,029 Block Drug Company, Inc. - Class A 14,451,051
315,900 DENTSPLY International Inc. 14,057,550
591,200 Elan Corporation, plc * 17,662,100
376,000 Forest Laboratories, Inc. * 13,583,000
227,500 Sofamor/Danek Group, Inc. * 7,024,063
130,000 Thermo Cardiosystems Inc. * 4,761,250
47,250 Trex Medical Corporation * 927,281
------------
79,283,795
------------
HEALTH CARE SERVICES - 21.7%
141,585 American HomePatient, Inc. * 3,150,266
119,853 Cardinal Health, Inc. 9,902,854
581,000 Emeritus Corporation * + 9,150,750
458,750 Health Care and Retirement Corporation * 10,780,625
1,459,993 Health Management
Associates, Inc. Class A * 36,317,326
555,600 Healthsource, Inc. * 8,195,100
145,000 Oxford Health Plans, Inc. * 7,213,750
173,500 PacifiCare Health Systems, Inc. * 15,007,750
466,600 Patterson Dental Company * 12,481,550
153,750 PhyCor, Inc. * 5,852,186
522,500 Quorum Health Group, Inc. * 12,931,875
425,646 Vencor, Inc. * 13,727,083
713,955 VIVRA Incorporated * 23,292,782
------------
168,003,897
------------
INDUSTRIAL PRODUCTS AND SERVICES - 0.4%
169,000 Watts Industries, Inc. - Class A 3,316,625
------------
INSURANCE - 6.9%
110,000 Foremost Corporation of America 6,050,000
187,500 MGIC Investment Corporation 12,632,813
619,200 Mutual Risk Management Ltd. 17,956,800
445,000 Protective Life Corporation 16,798,750
------------
53,438,363
------------
MEDIA, COMMUNICATIONS AND ENTERTAINMENT - 7.0%
460,000 American Mobile Satellite Corporation * 6,670,000
105,000 British Sky Broadcasting Group plc 5,775,000
335,000 General Motors Corporation - Class H 19,346,250
175,000 Penske Motorsports, Inc. * 6,146,875
310,000 PanAmSat Corporation * 8,622,030
335,000 United States Satellite Broadcasting
Company, Inc. - Class A * 7,788,750
------------
54,348,905
------------
RETAIL TRADE - 13.0%
628,500 Arbor Drugs, Inc. 13,669,875
320,000 AutoZone, Inc. * 9,280,000
335,000 Circuit City Stores, Inc. 12,101,875
562,500 Consolidated Stores Corporation * 22,500,000
521,500 Heilig-Meyers Company 8,148,437
471,400 Kohl's Corporation * 16,970,400
526,000 OfficeMax, Inc. * 7,364,000
<PAGE>
QUOTED
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 1 (A))
--------- ------------
RETAIL TRADE - 13.O% (CONTINUED)
310,000 O'Reilly Automotive, Inc. * $ 10,695,000
------------
100,729,587
------------
TRANSPORTATION - 3.7%
494,000 Expeditors International of
Washington, Inc. 17,413,500
392,595 Heartland Express, Inc. * 11,090,809
------------
28,504,309
------------
TOTAL COMMON STOCKS
(cost $402,794,950) 741,235,015
------------
CONVERTIBLE BOND - 041%
$1,000,000 Emeritus Corporation,
6.25%, due January 1, 2006
(cost $1,000,000)+ 970,000
------------
SHORT-TERM INVESTMENTS - 4.1%
COMMERCIAL PAPER - 3.2%
2,000,000 Harnischfeger Industries, Inc.,
5.50%, due October 2, 1996 1,999,694
2,000,000 Quad/Graphics, Inc.,
5.50%, due October 4, 1996 1,999,083
2,000,000 Harnischfeger Industries, Inc.,
5.50%, due October 7, 1996 1,998,167
2,500,000 Quad/Graphics, Inc.,
5.55%, due October 9, 1996 2,496,917
2,075,000 Fiserv, Inc.,
5.55%, due October 16, 1996 2,070,201
2,075,000 Fiserv, Inc.,
5.55%, due October 18, 1996 2,069,562
2,750,000 Mosinee Paper Corporation,
5.55%, due October 21, 1996 2,741,521
2,000,000 Harnischfeger Industries, Inc.,
5.55%, due October 23, 1996 1,993,217
2,000,000 Quad/Graphics, Inc.,
5.55%, due October 25, 1996 1,992,600
2,000,000 Schreiber Foods, Inc.,
5.60%, due October 28, 1996 1,991,600
1,500,000 Columbia/HCA Healthcare Corporation,
5.52%, due November 4, 1996 1,492,180
2,000,000 Fiserv, Inc.,
5.50%, due November 6, 1996 1,989,000
------------
24,833,742
------------
VARIABLE DEMAND NOTES - 0.9%
384,600 General Mills, Inc.,
5.19%, due October 1, 1996 384,600
2,738,935 Johnson Controls, Inc.,
5.22%, due October 1, 1996 2,738,935
488,900 Pitney Bowes Credit Corporation,
5.19%, due October 1, 1996 488,900
1,611,630 Sara Lee Corporation,
5.17%, due October 1, 1996 1,611,630
2,213,500 Warner-Lambert Company,
5.17%, due October 1, 1996 2,213,500
------------
7,437,565
------------
TOTAL SHORT-TERM
INVESTMENTS
(cost $32,199,550) 32,271,307
------------
TOTAL INVESTMENTS 774,476,322
------------
CASH AND RECEIVABLES, NET
OF LIABILITIES - 0.1% 278,913
------------
TOTAL NET ASSETS (Basis of
percentages disclosed above) $774,755,235
============
* Nondividend paying security
+ This company is affiliated with the Fund as defined in Section 2(a)(2)-(3)
of the Investment Company Act of 1940, in that the Fund holds 5% or more of
its outstanding voting securities.
The accompanying notes to financial statements are an integral part of
this schedule.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities at market value (Note 1 (a)) --
Nonaffiliated issuers (cost $414,332,717)-see accompanying schedule of investments........ $710,643,154
Affiliated issuers (cost $21,661,783)-see accompanying schedule of investments (Note 5)... 63,833,168
------------
Total investments................................................................. 774,476,322
------------
Cash...................................................................................... 94,014
------------
Receivables --
Investment securities sold.............................................................. 1,188,118
Dividends and interest.................................................................. 460,557
------------
Total receivables................................................................. 1,648,675
------------
Total assets...................................................................... 776,219,011
------------
LIABILITIES:
Payables --
Investment securities purchased......................................................... 1,019,138
Management fee (Note 2)................................................................. 303,761
Other payables and accrued expenses..................................................... 140,877
------------
Total liabilities................................................................. 1,463,776
------------
Total net assets.................................................................. $774,755,235
============
NET ASSETS CONSIST OF:
Fund shares issued and outstanding......................................................... $369,186,422
Net unrealized appreciation on investments (Note 3)........................................ 338,410,065
Accumulated undistributed net realized gains on investments................................ 65,720,712
Accumulated undistributed net investment income............................................ 1,438,036
------------
$774,755,235
============
NET ASSET VALUE PER SHARE ($.01 par value, 200,000,000 shares authorized)
offering price and redemption price ($774,755,235 ./. 23,235,296 shares
outstanding)............................................................................... $33.34
======
</TABLE>
The accompanying notes to financial statements are an integral part of
this statement.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C>
INCOME:
Dividends --
Nonaffiliated issuers................................................................... $ 5,158,996
Affiliated issuers (Note 5)............................................................. 13,230
Interest................................................................................ 1,436,690
Other................................................................................... 26,444
-----------
6,635,360
-----------
EXPENSES:
Management fee (Note 2)................................................................... 3,830,524
Transfer agent fees....................................................................... 440,741
Postage................................................................................... 60,844
Custodian fees............................................................................ 51,415
Printing.................................................................................. 30,112
Registration fees......................................................................... 29,274
Legal fees................................................................................ 24,841
Audit and tax consulting fees............................................................. 23,775
Telephone................................................................................. 14,302
Directors' fees........................................................................... 9,000
Insurance................................................................................. 4,956
Other operating expenses.................................................................. 3,260
-----------
4,523,044
-----------
Net investment income..................................................... 2,112,316
-----------
NET REALIZED GAINS ON INVESTMENTS (Note 1 (b)):
Nonaffiliated issuers .................................................................... 73,968,832
Affiliated issuers (Note 5)............................................................... -
-----------
73,968,832
-----------
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS....................................... 62,431,510
------------
Net gains on investments.. ............................................................... 136,400,342
------------
Net increase in net assets resulting from operations...................................... $138,512,658
============
</TABLE>
The accompanying notes to financial statements are an integral part of
this statement.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
- -------------------------------------------------------------------------------------------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................. $ 2,112,316 $ 4,279,862
Net realized gains on investments (Note 1 (b))......................... 73,968,832 53,181,461
Net increase in unrealized appreciation on investments................. 62,431,510 71,740,215
------------ ------------
Net increase in net assets resulting from operations........... 138,512,658 129,201,538
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.1750 and $0.2056 per share, respectively)........................ (3,881,013) (4,696,388)
Distributions from net realized gains on investment transactions
($2.4979 and $1.8944 per share, respectively)........................ (55,403,755) (43,254,533)
------------ ------------
Total distributions............................................ (59,284,768) (47,950,921)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (1,894,643 and 1,264,903)
shares, respectively)................................................ 60,059,790 33,523,121
Net asset value of shares issued in distributions from
net investment income and net realized gains
(1,967,328 and 1,867,730 shares, respectively)....................... 55,675,398 45,012,292
Cost of shares redeemed (3,315,408 and 3,835,468 shares, respectively). (102,441,820) (102,224,623)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions.................................... 13,293,368 (23,689,210)
------------ ------------
Total increase in net assets................................... 92,521,258 57,561,407
------------ ------------
NET ASSETS, at the beginning of the year (including undistributed net
investment income of $3,206,733 and $3,623,259, respectively).......... 682,233,977 624,672,570
------------ -----------
NET ASSETS, at the end of the year (including undistributed net
investment income of $1,438,036 and $3,206,733, respectively).......... $774,755,235 $682,233,977
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended September 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR............................ $30.07 $26.71 $26.94 $24.53 $23.87 $17.39 $21.76 $18.58 $21.01 $16.90
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............ .10 .24 .21 .21 .23 .26 .36 .29 .36 .24
Net gains or (losses) on
securities (realized and
unrealized)..................... 5.84 5.22 1.23 3.24 1.07 6.70 (3.75) 3.31 (1.15) 4.80
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations................... 5.94 5.46 1.44 3.45 1.30 6.96 (3.39) 3.60 (.79) 5.04
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net
investment income).............. (.18) (.21) (.20) (.24) (.24) (.34) (.31) (.34) (.34) (.42)
Distributions (from capital
gains).......................... (2.49) (1.89) (1.47) (.80) (.40) (.14) (.67) (.08) (1.30) (.51)
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (2.67) (2.10) (1.67) (1.04) (.64) (.48) (.98) (.42) (1.64) (.93)
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END
OF YEAR............................ $33.34 $30.07 $26.71 $26.94 $24.53 $23.87 $17.39 $21.76 $18.58 $21.01
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN........................ 21.35% 22.39% 5.49% 14.19% 5.59% 40.91% (16.14%) 19.88% (1.48%) 31.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (millions).................... $774.8 $682.2 $624.7 $715.8 $646.5 $490.9 $336.5 $422.2 $380.2 $432.3
Ratio of expenses to average
net assets......................... .62% .66% .67% .67% .66% .70% .71% .74% .77% .74%
Ratio of net investment income
to average net assets.............. .29% .68% .72% .79% 1.01% 1.24% 1.78% 1.43% 1.97% 1.37%
Portfolio turnover rate............. 24.47% 19.63% 17.38% 27.32% 11.47% 12.46% 18.78% 8.22% 18.42% 25.66%
Average commission rate paid by the
Fund on portfolio investment
transactions*...................... $0.046 $0.048 -- -- -- -- -- -- -- --
</TABLE>
*Disclosure of this rate is required by the Securities and Exchange Commission
on a prospective basis beginning with the Fund's 1996 fiscal year end. The
Fund has chosen to disclose this rate beginning in fiscal 1995.
The accompanying notes to financial statements are an integral part of
these statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
Nicholas II, 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 capital appreciation in
which income is a secondary consideration. To achieve its objective, the
Fund invests in a diversified list of common stocks having growth
potential. The following is a summary of the significant accounting
policies of the Fund.
(a) Each security, excluding short-term investments, 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 latest bid price.
Variable 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 recorded no later than the first business day after
the trade date. Cost amounts, as reported on the statement of assets
and liabilities, are the same for Federal income tax purposes.
Programming and Sytems, Inc., (the "Company"), common stock was
delisted by NASDAQ after the Securities and Exchange Commission
suspended trading. The Board of Directors of the Fund have deemed the
shares worthless until additional information, including audited
financial statements, is released by the Company. Currently the
Company is attempting to resolve this issue.
(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) 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.
(e) 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 the 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 1/16th of 1% (.75 of 1% on an
annual basis) of the average net asset value up to and including $50
million and 1/20th of 1% (.6 of 1% on an annual basis) of the average net
asset value over $50 million up to and including $100 million and 1/24th of
1% (.5 of 1% on an annual basis) of the average net asset value in excess
of $100 million. Also, the investment adviser may be reimbursed for
clerical and administrative services rendered by its personnel. This
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,
1996, based on investment cost for Federal tax purposes is as follows:
Aggregate gross unrealized appreciation on investments.. $351,241,396
Aggregate gross unrealized depreciation on investments.. (12,831,331)
-----------
Net unrealized appreciation ....................... $338,410,065
============
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
(4) INVESTMENT TRANSACTIONS --
For the year ended September 30, 1996, the cost of purchases and the
proceeds from sales of investment securities, other than short-term
obligations, aggregated $173,441,963 and $223,550,994, respectively.
(5) TRANSACTIONS WITH AFFILIATES --
Following is an analysis of fiscal 1996 transactions with "affiliated
companies" as defined by the Investment Company Act of 1940:
<TABLE>
<CAPTION>
AMOUNT OF
DIVIDENDS
SHARE ACTIVITY CREDITED
----------------------------------------- TO INCOME
BALANCE BALANCE IN FISCAL
SECURITY NAME 9/30/95 PURCHASES SALES 9/30/96 1996
------------- ------- --------- ----- ------- ---------
<S> <C> <C> <C> <C> <C>
Emeritus Corporation................ -- 581,000 -- 581,000 $ --
Keane, Inc.......................... 963,675 55,000 -- 1,018,675 --
Litchfield Financial Corporation (a) 347,287 66,000 -- 413,287 13,230
$ 13,230
</TABLE>
(a) The share activity has been adjusted to reflect a stock split/dividend.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
HISTORICAL RECORD (UNAUDITED)
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>
October 17, 1983*............ $10.00 $ -- $ -- -- $ 10,000
September 30, 1987........... 21.01 .420 .513 20.9 times 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 32,250
September 30, 1992........... 24.53 .2447 .4042 17.3 34,052
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
September 30, 1996........... 33.34 .1750(b) 2.4979(b) 28.9 60,922
*Date of Initial Public Offering (a) Paid December 31, 1994 to shareholders of
**Based on latest 12 months accomplished earnings record December 27, 1994.
***Assuming reinvestment of all distributions
(b) Paid December 31, 1995 to shareholders of
Range in quarter end price/earnings ratios record December 26, 1995.
High Low
9/30/96 28.9 9/30/85 11.7
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of Nicholas II, Inc.:
We have audited the accompanying statement of assets and liabilities of
NICHOLAS II, INC. (the "Fund", a Maryland corporation), including the
schedule of investments, as of September 30, 1996, and the related statement of
operations for the year then ended, the statements 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 September 30, 1996, by correspondence with the custodian and
brokers. As to securities purchased but not 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 II, Inc. as of September 30, 1996, 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,
November 8, 1996.
<PAGE>
CAN YOU AFFORD NOT TO INVEST IN AN IRA?
The maximum yearly IRA contribution is the less 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 a 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
- ------------------------------------------------------------------------------
Top Ten Equity Holdings
September 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------
Percentage of
Total Net Assets
Keane, Inc. 6.31%
Health Management Associates, Inc. Cl A 4.69%
Fiserv, Inc. 3.17%
VIVRA Incorporated 3.01%
Consolidated Stores Corporation 2.90%
General Motors Corporation - Class H 2.50%
Mutual Risk Management Ltd. 2.32%
Elan Corporation, plc 2.28%
Expeditors International of Washington, Inc. 2.25%
Kohl's Corporation 2.19%
<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
CANDACE L. LESAK
Vice President
JEFFREY T. MAY
Vice President and Treasurer
JOHN O'HARE II
Vice President
KATHLEEN A. EVANS
Assistant Vice President
CUSTODIAN AND TRANSFER AGENT
FIRSTAR TRUST COMPANY
Milwaukee
(414) 276-0535
Member of 100% NO-LOAD tm MUTUAL FUND
COUNCIL
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.
January 28, 1997
Nicholas II, Inc.
700 North Water Street
Suite 1010
Milwaukee, WI 53202
Gentlemen:
We have acted as counsel to Nicholas II, Inc. (the "Fund"),
a corporation organized under the laws of the State of Maryland,
in connection with the preparation and filing of a registration
statement on Form N-1A and amendments thereto ("Registration
Statement"), relating to the registration of the shares of common
stock of the Fund ("Common Stock") under the Securities Act of
1933, as amended.
We have reviewed the Articles of Incorporation and By-Laws
of the Fund and the Registration Statement; we also have examined
such other corporate records, certified documents and other
documents as we deem necessary for the purposes of this opinion
and we have considered such questions of law as we believe to be
involved. We have assumed without independent verification the
genuineness of signatures and the conformity with originals of
all documents submitted to us as copies. Based upon the
foregoing, we are of the opinion that:
1. The Fund is validly incorporated under the laws of the
State of Maryland, and has the corporate power to carry on its
present business.
2. The Fund is authorized to issue up to two hundred
million (200,000,000) shares of Common Stock, par value $.01 per
share, including those shares currently issued and outstanding.
Nicholas II, Inc.
January 28, 1997
Page Two
3. The shares of Common Stock of the Fund to be offered
for sale pursuant to the Registration Statement have been duly
authorized and, upon the effectiveness of Post-Effective
Amendment No. 13 to the Registration Statement and compliance
with applicable federal and state securities laws and
regulations, when sold, issued (within the limits authorized
under the Articles of Incorporation of the Fund) and paid for as
contemplated in the Registration Statement, such shares will have
been validly and legally issued, fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to us in the
prospectus comprising Part A and elsewhere in the Registration
Statement.
Very truly yours,
MICHAEL BEST & FRIEDRICH
David E. Leichtfuss
DEL/ljg
<TABLE>
<CAPTION>
Compound and Total Return Calculation Nicholas II, Inc.
Starting date: 09/30/95 future value 1,213.47
Ending date: 09/30/96 present value 1,000.00
Total Return 21.3466% # years 1
Average annual return 21.3466% # days 366.00
Investment Redemption
Lump sum Lump sum
Annuity Annuity
PRICE INV INC CAP GAIN # of SHARES REINVESTEREINVESTE CUM TOTAL
DATE /SHARE /SHARE /SHARE INVEST PURCHASED INV INC CAP GAIN SHARES MARKET VALUE
------------------------------------------------------ ---------- --------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
09/30/95 Q 30.07 1000 33.256 33.256 $1,000.00
12/26/95 D 28.30 0.2716 2.4013 0.000 0.319 2.822 36.397 $1,030.03
12/31/95 A 28.73 0.000 0.000 0.000 36.397 $1,045.68
03/31/96 Q 32.18 0.000 0.000 0.000 36.397 $1,171.25
06/30/96 S 32.11 0.000 0.000 0.000 36.397 $1,168.70
09/30/96 Q 33.34 0.000 0.000 0.000 36.397 $1,213.47
</TABLE>
<TABLE>
<CAPTION>
Starting date: 09/30/91 future value 1,889.05
Ending date: 09/30/96 present value 1,000.00
Total Return 88.9045% # years 5
Average annual return 13.5660% # days 1827.00
Investment Redemption
Lump sum Lump sum
Annuity Annuity
PRICE INV INC CAP GAIN # of SHARES REINVESTEREINVESTE CUM TOTAL
DATE /SHARE /SHARE /SHARE INVEST PURCHASED INV INC CAP GAIN SHARES MARKET VALUE
------------------------------------------------------ ---------- --------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
09/30/91 Q 23.87 1000 41.894 41.894 $1,000.00
12/23/91 D 23.62 0.2447 0.4042 0.000 0.434 0.717 43.045 $1,016.71
12/31/91 A 25.02 0.000 0.000 0.000 43.045 $1,076.97
03/31/92 Q 25.08 0.000 0.000 0.000 43.045 $1,079.56
06/30/92 S 24.03 0.000 0.000 0.000 43.045 $1,034.36
09/30/92 Q 24.53 0.000 0.000 0.000 43.045 $1,055.88
12/29/92 D 26.03 0.2350 0.8000 0.000 0.389 1.323 44.756 $1,165.00
12/31/92 A 26.32 0.000 0.000 0.000 44.756 $1,177.98
03/31/93 Q 26.24 0.000 0.000 0.000 44.756 $1,174.40
06/30/93 S 26.30 0.000 0.000 0.000 44.756 $1,177.08
09/30/93 Q 26.94 0.000 0.000 0.000 44.756 $1,205.73
12/28/93 D 26.09 0.2700 1.4000 0.000 0.463 2.402 47.621 $1,242.43
12/31/93 A 26.32 0.000 0.000 0.000 47.621 $1,253.38
03/31/94 Q 25.55 0.000 0.000 0.000 47.621 $1,216.71
06/30/94 S 25.46 0.000 0.000 0.000 47.621 $1,212.43
09/30/94 Q 26.71 0.000 0.000 0.000 47.621 $1,271.95
12/27/94 D 24.10 0.3100 1.7900 0.000 0.613 3.537 51.770 $1,247.67
12/31/94 A 24.46 0.000 0.000 0.000 51.770 $1,266.30
03/31/95 Q 26.61 0.000 0.000 0.000 51.770 $1,377.61
06/30/95 S 27.46 0.000 0.000 0.000 51.770 $1,421.61
09/30/95 Q 30.07 0.000 0.000 0.000 51.770 $1,556.74
12/26/95 D 28.30 0.2716 2.4013 0.000 0.497 4.393 56.660 $1,603.48
12/31/95 A 28.73 0.000 0.000 0.000 56.660 $1,627.84
03/31/96 Q 32.18 0.000 0.000 0.000 56.660 $1,823.32
06/30/96 S 32.11 0.000 0.000 0.000 56.660 $1,819.35
09/30/96 Q 33.34 0.000 0.000 0.000 56.660 $1,889.05
</TABLE>
<TABLE>
<CAPTION>
Starting date: 09/30/86 future value 3,465.25
Ending date: 09/30/96 present value 1,000.00
Total Return 246.5248% # years 10
Average annual return 13.2331% # days 3653.00
Investment Redemption
Lump sum Lump sum
Annuity Annuity
PRICE INV INC CAP GAIN # of SHARES REINVESTEREINVESTE CUM TOTAL
DATE /SHARE /SHARE /SHARE INVEST PURCHASED INV INC CAP GAIN SHARES MARKET VALU
------------------------------------------------------ ---------- --------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
09/30/86 Q 16.90 1000 59.172 59.172 $1,000.00
10/23/86 D 16.29 0.4200 0.5130 0.000 1.526 1.863 62.561 $1,019.11
12/31/86 A 16.22 0.000 0.000 0.000 62.561 $1,014.73
03/31/87 Q 19.88 0.000 0.000 0.000 62.561 $1,243.71
06/30/87 S 20.45 0.000 0.000 0.000 62.561 $1,279.36
09/30/87 Q 21.01 0.000 0.000 0.000 62.561 $1,314.40
10/27/87 D 14.48 0.2450 1.2600 0.000 1.059 5.444 69.063 $1,000.03
12/15/87 D 14.87 0.0930 0.0430 0.000 0.432 0.200 69.695 $1,036.36
12/31/87 A 15.69 0.000 0.000 0.000 69.695 $1,093.51
03/31/88 Q 17.59 0.000 0.000 0.000 69.695 $1,225.93
06/30/88 S 18.47 0.000 0.000 0.000 69.695 $1,287.26
09/30/88 Q 18.58 0.000 0.000 0.000 69.695 $1,294.93
12/15/88 D 17.59 0.3350 0.0800 0.000 1.327 0.317 71.339 $1,254.85
12/31/88 A 17.98 0.000 0.000 0.000 71.339 $1,282.67
03/31/89 Q 19.04 0.000 0.000 0.000 71.339 $1,358.29
06/30/89 S 20.36 0.000 0.000 0.000 71.339 $1,452.46
09/30/89 Q 21.76 0.000 0.000 0.000 71.339 $1,552.33
12/15/89 D 19.86 0.3170 0.6640 0.000 1.139 2.385 74.863 $1,486.77
12/31/89 A 20.16 0.000 0.000 0.000 74.863 $1,509.23
03/31/90 Q 19.53 0.000 0.000 0.000 74.863 $1,462.07
06/30/90 S 21.01 0.000 0.000 0.000 74.863 $1,572.87
09/30/90 Q 17.39 0.000 0.000 0.000 74.863 $1,301.86
12/21/90 D 18.30 0.3559 0.1297 0.000 1.456 0.531 76.849 $1,406.34
12/31/90 A 18.42 0.000 0.000 0.000 76.849 $1,415.56
03/31/91 Q 22.25 0.000 0.000 0.000 76.849 $1,709.90
06/30/91 S 23.20 0.000 0.000 0.000 76.849 $1,782.90
09/30/91 Q 23.87 0.000 0.000 0.000 76.849 $1,834.39
12/23/91 D 23.62 0.2447 0.4042 0.000 0.796 1.315 78.960 $1,865.05
12/31/91 A 25.02 0.000 0.000 0.000 78.960 $1,975.59
03/31/92 Q 25.08 0.000 0.000 0.000 78.960 $1,980.33
06/30/92 S 24.03 0.000 0.000 0.000 78.960 $1,897.42
09/30/92 Q 24.53 0.000 0.000 0.000 78.960 $1,936.90
12/29/92 D 26.03 0.2350 0.8000 0.000 0.713 2.427 82.100 $2,137.07
12/31/92 A 26.32 0.000 0.000 0.000 82.100 $2,160.87
03/31/93 Q 26.24 0.000 0.000 0.000 82.100 $2,154.31
06/30/93 S 26.30 0.000 0.000 0.000 82.100 $2,159.23
09/30/93 Q 26.94 0.000 0.000 0.000 82.100 $2,211.78
12/28/93 D 26.09 0.2700 1.4000 0.000 0.850 4.406 87.355 $2,279.10
12/31/93 A 26.32 0.000 0.000 0.000 87.355 $2,299.19
03/31/94 Q 25.55 0.000 0.000 0.000 87.355 $2,231.93
06/30/94 S 25.46 0.000 0.000 0.000 87.355 $2,224.07
09/30/94 Q 26.71 0.000 0.000 0.000 87.355 $2,333.26
12/27/94 D 24.10 0.3100 1.7900 0.000 1.124 6.488 94.967 $2,288.71
12/31/94 A 24.46 0.000 0.000 0.000 94.967 $2,322.90
03/31/95 Q 26.61 0.000 0.000 0.000 94.967 $2,527.08
06/30/95 S 27.46 0.000 0.000 0.000 94.967 $2,607.80
09/30/95 Q 30.07 0.000 0.000 0.000 94.967 $2,855.66
12/26/95 D 28.30 0.2716 2.4013 0.000 0.911 8.058 103.937 $2,941.41
12/31/95 A 28.73 0.000 0.000 0.000 103.937 $2,986.10
03/31/96 Q 32.18 0.000 0.000 0.000 103.937 $3,344.68
06/30/96 S 32.11 0.000 0.000 0.000 103.937 $3,337.41
09/30/96 Q 33.34 0.000 0.000 0.000 103.937 $3,465.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 435994500
<INVESTMENTS-AT-VALUE> 774476322
<RECEIVABLES> 1648675
<ASSETS-OTHER> 94014
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 776219011
<PAYABLE-FOR-SECURITIES> 1019138
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 444638
<TOTAL-LIABILITIES> 1463776
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 369186422
<SHARES-COMMON-STOCK> 23235296
<SHARES-COMMON-PRIOR> 22688733
<ACCUMULATED-NII-CURRENT> 1438036
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65720712
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 338410065
<NET-ASSETS> 774755235
<DIVIDEND-INCOME> 5172226
<INTEREST-INCOME> 1436690
<OTHER-INCOME> 26444
<EXPENSES-NET> 4523044
<NET-INVESTMENT-INCOME> 2112316
<REALIZED-GAINS-CURRENT> 73968832
<APPREC-INCREASE-CURRENT> 62431510
<NET-CHANGE-FROM-OPS> 138512658
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3881013
<DISTRIBUTIONS-OF-GAINS> 55403755
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1894643
<NUMBER-OF-SHARES-REDEEMED> 3315408
<SHARES-REINVESTED> 1967328
<NET-CHANGE-IN-ASSETS> 92521258
<ACCUMULATED-NII-PRIOR> 3206733
<ACCUMULATED-GAINS-PRIOR> 47155635
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3830524
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4523044
<AVERAGE-NET-ASSETS> 734003942
<PER-SHARE-NAV-BEGIN> 30.07
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> 5.84
<PER-SHARE-DIVIDEND> .18
<PER-SHARE-DISTRIBUTIONS> 2.49
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 33.34
<EXPENSE-RATIO> .62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>