November 26, 1997
Dear Fellow Shareholders:
Nicholas II ended its fiscal year with $994.4 million in total net
assets. During the fourth quarter of fiscal year 1997 the fund did reach
the $1 billion milestone. This milestone is significant to investors
because the assets have grown mainly through appreciation and not
new money inflows. This means each shareholder's account has grown in
size.
As of September 30, 1997 the Funds' portfolio consisted of 60
securities and remains essentially, fully invested in equity securities as
per our investment philosophy. Performance figures and comparison can be
seen in the chart below:
<TABLE>
Average Annual Total Return*
--------------------------------------------------------
Nine months ended
9/30/97 1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nicholas II
(Distributions Reinvested) +31.17% +34.94% +26.08% +19.28% +13.53%
NASDAQ OTC Composite
(Excludes Dividends) +30.57% +37.39% +30.17% +23.65% +14.26%
Russell 2000
(Dividends Reinvested) +26.60% +33.19% +22.96% +20.51% +12.23%
Consumer Price Index + 1.32% + 2.15% + 2.59% + 2.70% + 3.46%
Ending value of $10,000
invested in Nicholas II
(Distributions Reinvested) $13,117 $13,493 $20,040 $24,141 $35,574
</TABLE>
As can be seen by the above chart the Fund's year-to-date performance
is strong on an absolute as well as relative basis when compared to
the stock market indices. This performance in general has been driven
by selected healthcare, retail, bank and transportation issues. Also
small and mid-size companies recently seem to be out performing the large
multinational companies.
Longer term performance numbers also look good. The dedication to
quality companies with attractive valuations has served the Fund well
over the long-term.
During 1997 the fund lost two long-time and dear holdings. I was
sorry to see these high quality companies, which the Fund had owned for
over five years, go. In the case of Vivra, a dialysis service provider,
the company was purchased for cash by Gambro AB of Sweden. Over a
weighted average holding period of roughly 6 years the Fund had owned
Vivra, the stock returned 423% or approximately 33% compounded annually.
The other company, Keane Inc. an information technology service provider
returned 850% or approximately 53% compounded annually over a
weighted average holding period of roughly 5.25 years. Keane was sold due
to what I considered extreme overvaluation, resulting from the
exuberance surrounding their year 2000 computer consulting opportunities.
We will continue to look for companies such as these to help our
future performance, however, great performers like these are never
easy to replace.
Finally, as I write this letter, the markets seem to be in a state of
chaos. The emotions of traders are running wild. We try to remain
calm during these times and use the markets irrational ways to find
opportunities. The companies represented in Nicholas II are mainly small
to mid-sized domestic businesses which are not affected notably by
international economics. We therefore feel good about the future
prospects for Nicholas II.
Sincerely,
/s/ David O. Nicholas
-----------------
David O. Nicholas
Portfolio Manager
*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.
Financial Highlights
(For a share outstanding throughout the year)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
<TABLE>
Year Ended September 30,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR........................... $33.34 $30.07 $26.71 $26.94 $24.53 $23.87 $17.39 $21.76 $18.58 $21.01
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... .08 .10 .24 .21 .21 .23 .26 .36 .29 .36
Net gains or (losses) on
securities (realized and
unrealized).................... 10.47 5.84 5.22 1.23 3.24 1.07 6.70 (3.75) 3.31 (1.15)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations.................. 10.55 5.94 5.46 1.44 3.45 1.30 6.96 (3.39) 3.60 (.79)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net
investment income)............. (.08) (.18) (.21) (.20) (.24) (.24) (.34) (.31) (.34) (.34)
Distributions (from capital
gains)......................... (3.16) (2.49) (1.89) (1.47) (.80) (.40) (.14) (.67) (.08) (1.30)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (3.24) (2.67) (2.10) (1.67) (1.04) (.64) (.48) (.98) (.42) (1.64)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END
OF YEAR........................... $40.65 $33.34 $30.07 $26.71 $26.94 $24.53 $23.87 $17.39 $21.76 $18.58
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN....................... 34.94% 21.35% 22.39% 5.49% 14.19% 5.59% 40.91% (16.14%) 19.88% (1.48%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (millions)................... $994.4 $774.8 $682.2 $624.7 $715.8 $646.5 $490.9 $336.5 $422.2 $380.2
Ratio of expenses to average
net assets........................ .61% .62% .66% .67% .67% .66% .70% .71% .74% .77%
Ratio of net investment income
to average net assets............. .23% .29% .68% .72% .79% 1.01% 1.24% 1.78% 1.43% 1.97%
Portfolio turnover rate............ 30.21% 24.47% 19.63% 17.38% 27.32% 11.47% 12.46% 18.78% 8.22% 18.42%
Average commission rate paid by the
Fund on portfolio investment
transactions*.....................$0.0491 $0.0468 $0.0480 -- -- -- -- -- -- --
*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.
</TABLE>
- ---------------------------------------------------------------------
Top Ten Equity Holdings
September 30, 1997 (Unaudited)
- ---------------------------------------------------------------------
Percentage of
Total Net Assets
----------------
Health Management Associates, Inc. - Class A .............. 4.64%
Expeditors International of Washington, Inc. .............. 4.16
Mutual Risk Management Ltd. ............................... 3.16
Fiserv, Inc. .............................................. 2.83
General Motors Corporation - Class H ...................... 2.79
Elan Corporation, plc ..................................... 2.72
Marshall & Ilsley Corporation ............................. 2.69
DENTSPLY International Inc. ............................... 2.50
Tootsie Roll Industries, Inc. ............................. 2.41
Patterson Dental Company .................................. 2.40
------
Total of top ten holdings ................................. 30.30%
------
------
Schedule of Investments
September 30, 1997
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Shares or Quoted
Principal Market
Amount Value
--------- ------------
(Note 1 (a))
COMMON STOCKS - 97.01%
Banks and Finance - 9.96%
409,227 Associated Banc-Corp 18,440,792
334,687 Fifth Third Bancorp 21,880,163
64,000 First Financial Corporation 2,180,000
8,853 First National Bank of Anchorage (The) 20,804,550
413,287 Litchfield Financial Corporation + 8,988,992
527,900 Marshall & Ilsley Corporation 26,724,937
-------------
99,019,434
-------------
Business Services - 11.03%
535,000 Checkfree Corporation * 11,301,875
220,000 Danka Business Systems PLC 9,790,000
270,000 ENVOY Corporation * 7,711,875
642,500 Fiserv, Inc. * 28,189,688
466,062 G&K Services, Inc. - Class A 16,195,654
554,800 Thermo Instrument Systems Inc. * 23,370,950
605,000 Viking Office Products, Inc. * 13,158,750
-------------
109,718,792
-------------
Consumer Products and Services - 5.32%
144,400 Central Parking Corporation 6,786,800
313,850 Newell Co. 12,554,000
593,500 Thermedics Inc. * 11,202,313
432,700 ThermoTrex Corporation * 11,331,331
351,200 Valspar Corporation (The) 11,018,900
-------------
52,893,344
-------------
Food and Beverage - 2.41%
472,770 Tootsie Roll Industries, Inc. 23,993,078
-------------
Health Care Products - 14.02%
193,000 Amgen Inc. * 9,251,938
310,000 BioChem Pharma Inc. * 9,765,000
325,000 Biogen, Inc. 10,542,187
331,689 Block Drug Company, Inc. - Class A 15,838,150
443,600 DENTSPLY International Inc. 24,841,600
541,200 Elan Corporation, plc * 27,093,825
376,000 Forest Laboratories, Inc. * 15,839,000
277,500 Sofamor Danek Group, Inc. * 15,852,187
242,050 Thermo Cardiosystems Inc. * 6,686,631
250,150 Trex Medical Corporation * 3,736,616
-------------
139,447,134
-------------
Health Care Services - 17.16%
351,585 American HomePatient, Inc. * 8,086,455
184,779 Cardinal Health, Inc. 13,119,309
621,000 Emeritus Corporation * + 9,315,000
508,750 Health Care and Retirement Corporation * 18,919,141
1,459,993 Health Managememt Associates,
Inc. - Class A * 46,172,279
589,600 Patterson Dental Company * 23,878,800
273,750 PhyCor, Inc. * 7,955,859
903,750 Quorum Health Group, Inc. * 22,085,391
511,346 Vencor, Inc. * 21,093,022
-------------
170,625,256
-------------
Industrial Products and Services - 3.60%
606,500 General Cable Corporation 21,530,750
500,000 Superior Services, Inc. * 14,250,000
-------------
35,780,750
-------------
Insurance - 7.00%
297,400 Liberty Financial Companies, Inc. 15,613,500
619,200 Mutual Risk Management Ltd. 31,463,100
445,000 Protective Life Corporation 22,472,500
-------------
69,549,100
-------------
Media, Communications
and Entertainment - 8.07%
460,000 American Mobile Satellite Corporation * 4,715,000
420,000 General Motors Corporation - Class H 27,772,500
655,000 LCI International, Inc. * 17,439,375
535,000 PanAmSat Corporation * 23,071,875
215,000 Penske Motorsports, Inc. * 7,215,937
-------------
80,214,687
-------------
Real Estate - 0.94%
225,000 Meditrust Corporation, Paired CtF. 9,337,500
-------------
Retail Trade - 11.41%
942,750 Arbor Drugs, Inc. 21,918,938
685,000 AutoZone, Inc. * 20,550,000
195,000 Circuit City Stores, Inc.-
CarMax Group * 3,229,688
335,000 Circuit City Stores, Inc.-
Circuit City Group 13,504,687
87,343 Consolidated Stores Corporation * 3,657,488
286,400 Kohl's Corporation * 20,334,400
1,006,000 OfficeMax, Inc. * 15,278,625
660,000 O'Reilly Automotive, Inc. * 15,015,000
-------------
113,488,826
-------------
Transportation - 6.09%
988,000 Expeditors International of
Washington, Inc. 41,372,500
693,892 Heartland Express, Inc. * 19,168,766
-------------
60,541,266
-------------
TOTAL COMMON STOCKS
(cost $503,543,664) 964,609,167
-------------
CONVERTIBLE BOND - 0.63%
$7,000,000 Emeritus Corporation, +
6.25%, due January 1, 2006
(cost $5,980,500) 6,308,750
------------
SHORT-TERM INVESTMENTS - 2.42%
Commercial Paper - 1.88%
3,500,000 Quad/Graphics, Inc.,
5.70%, due October 3, 1997 3,498,892
3,000,000 Boston Scientific Corporation,
5.67%, due October 7, 1997 2,997,165
1,000,000 Quad/Graphics, Inc.,
5.70%, due October 8, 1997 998,892
2,000,000 American Bankers Insurance Group, Inc.,
5.73%, due October 9, 1997 1,997,453
1,500,000 Banta Corporation,
5.70%, due October 14, 1997 1,496,913
2,000,000 Hughes Electronics Corporation,
5.71%, due October 14, 1997 1,995,876
2,000,000 Harnischfeger Industries, Inc.,
5.70%, due October 16, 1997 1,995,250
1,500,000 Harnischfeger Industries, Inc.,
5.70%, due October 20, 1997 1,495,487
1,250,000 Manpower Inc.,
5.72%, due October 22, 1997 1,245,829
1,000,000 Banta Corporation,
5.72%, due October 30, 1997 995,392
------------
18,717,149
------------
Variable Rate Demand Notes - 0.54%
1,270,000 General Mills, Inc.,
5.13%, due October 1, 1997 1,270,000
415,131 Johnson Controls, Inc.,
5.17%, due October 1, 1997 415,131
3,111,509 Warner-Lambert Company,
5.13%, due October 1, 1997 3,111,509
507,177 Wisconsin Electric Power Company
5.19%, due October 1, 1997 507,177
------------
5,303,817
------------
TOTAL SHORT-TERM
INVESTMENTS
(cost $23,971,493) 24,020,966
------------
TOTAL INVESTMENTS 994,938,883
(cost $533,495,657) ------------
LIABILITIES, NET OF CASH
AND RECEIVABLES - (0.06%) (558,258)
------------
TOTAL NET ASSETS (Basis of
percentages disclosed above) $994,380,625
------------
------------
* Nondividend paying security.
+ This company is affiliated with the Fund as defined in Section 2(a)(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.
Statement of Assets and Liabilities
September 30, 1997
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value (Note 1 (a)) --
Nonaffiliated issuers (cost $514,544,910)-see accompanying schedule of investments........ $970,326,141
Affiliated issuers (cost $18,950,747)-see accompanying schedule of investments (Note 5)... 24,612,742
-------------
Total investments.................................................................. 994,938,883
-------------
Receivables --
Dividends and interest receivable....................................................... 463,100
-------------
Total assets....................................................................... 995,401,983
-------------
LIABILITIES:
Payables --
Investment securities purchased......................................................... 432,188
Management fee (Note 2)................................................................. 404,033
Other payables and accrued expenses..................................................... 185,137
-------------
Total liabilities.................................................................. 1,021,358
-------------
Total net assets................................................................... $994,380,625
------------
------------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding......................................................... $403,523,999
Net unrealized appreciation on investments (Note 3)........................................ 461,393,753
Accumulated undistributed net realized gains on investments................................ 127,847,278
Accumulated undistributed net investment income............................................ 1,615,595
------------
$994,380,625
------------
------------
NET ASSET VALUE PER SHARE ($.01 par value, 200,000,000 shares authorized)
offering price and redemption price ($994,380,625 ./. 24,462,981 shares
outstanding)............................................................................... $40.65
------------
------------
</TABLE>
The accompanying notes to financial statements are an integral
part of this statement.
Statement of Operations
For the Year Ended September 30, 1997
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
INCOME:
Dividends --
Nonaffiliated issuers................................................................... $ 4,221,089
Affiliated issuers (Note 5)............................................................. 20,664
Interest.--...............................................................................
Nonaffiliated issuers................................................................... 2,420,220
Affiliated issuers (Note 5)............................................................. 417,985
---------
7,079,958
---------
EXPENSES:
Management fee (Note 2)................................................................... 4,371,278
Transfer agent fees....................................................................... 484,169
Registration fees......................................................................... 52,488
Postage and mailing fees.................................................................. 46,269
Custodian fees............................................................................ 42,317
Legal fees................................................................................ 29,145
Printing.................................................................................. 27,424
Audit and tax consulting fees............................................................. 22,325
Telephone................................................................................. 12,110
Directors' fees........................................................................... 12,000
Insurance................................................................................. 7,820
Other operating expenses.................................................................. 633
------------
5,107,978
------------
Net investment income..................................................... 1,971,980
------------
NET REALIZED GAINS ON INVESTMENTS (Note 1 (b)):
Nonaffiliated issuers .................................................................... 57,332,229
Affiliated issuers (Note 5)............................................................... 77,635,603
------------
134,967,832
------------
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS:...................................... 122,983,697
------------
Net gains on investments.. ............................................... 257,951,529
------------
Net increase in net assets resulting from operations...................... $259,923,509
------------
------------
</TABLE>
The accompanying notes to financial statements are an integral
part of this statement.
Statements of Changes in Net Assets
For the Years Ended September 30, 1997 and 1996
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1997 1996
------------ ------------
OPERATIONS:
Net investment income................................................. $ 1,971,980 $ 2,112,316
Net realized gains on investments (Note 1 (b))........................ 134,967,832 73,968,832
Net increase in unrealized appreciation on investments................ 122,983,697 62,431,510
------------ ------------
Net increase in net assets resulting from operations.......... 259,923,509 138,512,658
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.0779 and $0.1750 per share, respectively)........................ (1,794,421) (3,881,013)
Distributions from net realized gains on investment transactions
($3.1621 and $2.4979 per share, respectively)........................ (72,841,242) (55,403,755)
------------ ------------
Total distributions............................................ (74,635,663) (59,284,768)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (1,483,510 and 1,894,643)
shares, respectively)................................................ 51,370,208 60,059,790
Net asset value of shares issued in distributions from
net investment income and net realized gains
(2,289,431 and 1,967,328 shares, respectively)....................... 69,507,135 55,675,398
Cost of shares redeemed (2,545,256 and 3,315,408 shares, respectively). ( 86,539,799) (102,441,820)
------------ ------------
Increase in net assets derived from
capital share transactions.................................... 34,337,544 13,293,368
------------ ------------
Total increase in net assets.................................. 219,625,390 92,521,258
------------ ------------
NET ASSETS, at the beginning of the year (including undistributed net
investment income of $1,438,036 and $3,206,733, respectively).......... 774,755,235 682,233,977
------------ ------------
NET ASSETS, at the end of the year (including undistributed net
investment income of $1,615,595 and $1,438,036, respectively).......... $994,380,625 $774,755,235
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
Notes to Financial Statements
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
(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 equity security is valued at the last sale price reported by the
principal security exchange on which the issue is traded, or if no
sale is reported, the latest bid price. Market values of most debt
securities are based on valuations provided by a pricing service,
which determinesvaluations for normal, institutional-size trading
units of securities using market information, transactions for
comparable securities and various other relationships between
securities which are generally recognized by institutional traders.
Variable rate demand notes are valued at cost which approximates
market value. U.S. Treasury Bills and commercial paper are stated at
market value with the resultant difference between market value and
original purchase price being recorded as interest income. Investment
transactions are recorded no later than the first business day after
the trade date. Cost amounts, as reported on the schedule of
investments and the statement of assets and liabilities, are the same
for Federal income tax purposes.
The Fund currently holds 173,900 shares of Programming and Systems,
Inc. ("the Company") common stock which was delisted by NASDAQ after
the Securities and Exchange Commission suspended trading. After the
company was delisted, an attempt to reorganize and resolve issues
facing the Company included a spin-off of a new entity to existing
shareholders called FRM Nexus, Inc., of which the Fund received 57,966
common shares. The Board of Directors of the Fund have continued to
deem the shares of both companies worthless until additional
information including audited financial statements and exchange
listing information is released by the companies.
(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, 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,
1997, based on investment cost for Federal tax purposes is as follows:
Aggregate gross unrealized appreciation on investments.. $471,343,996
Aggregate gross unrealized depreciation on investments. ( 9,950,243)
------------
Net unrealized appreciation ....................... $461,393,753
------------
------------
(4) Investment Transactions --
For the year ended September 30, 1997, the cost of purchases and the
proceeds from sales of investment securities, other than short-term
obligations, aggregated $241,460,001 and $270,699,840, respectively.
(5) Transactions with Affiliates --
Following is an analysis of fiscal 1997 transactions with "affiliated
companies" as defined by the Investment Company Act of 1940:
<TABLE>
Share Activity Amount of
-------------------------------------------- Amount of Capital Gain
Dividends Realized
Balance Balance Credited on Sale
Security Name 9/30/96 Purchases Sales 9/30/97 to Income of Shares
------------- ------- --------- ----- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Emeritus Corporation (a)............ 581,000 40,000 -- 621,000 $ -- $ ---
Keane, Inc (b)...................... 1,817,350 -- 1,817,350 -- -- 77,635,603
Litchfield Financial Corporation.... 413,287 -- -- 413,287 20,664 ---
--------- -----------
$ 20,664 $77,635,603
--------- -----------
--------- -----------
</TABLE>
(a) In addition to the common stock, the Fund holds 7,000,000 principal (par)
value of an Emeritus Corporation convertible debenture at fiscal year end.
The Fund earned $417,985 in interest on this bond.
(b) The balance(s) and/or share activity has been adjusted to reflect a stock
split/dividend. As of September 30, 1997 the Fund is no longer affiliated
with this company.
- ---------------------------------------------------------------------
Historical Record (Unaudited)
- ---------------------------------------------------------------------
<TABLE>
Net Investment Dollar Growth of
Net Income Capital Gain Weighted An Initial
Asset Value Distributions Distributions Price/Earnings $10,000
Per Share Per Share Per Share Ratio** Investment***
----------- -------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
October 17, 1983*............ $10.00 $ -- $ -- -- $ 10,000
September 30, 1986........... 16.90 0.1630 0.0610 15.0 times 17,581
September 30, 1987........... 21.01 0.4200 0.5130 20.9 23,108
September 30, 1988........... 18.58 0.3380 1.3030 15.0 22,766
September 30, 1989........... 21.76 0.3350 0.0800 17.1 27,291
September 30, 1990........... 17.39 0.3124 0.6686 14.8 22,888
September 30, 1991........... 23.87 0.3422 0.1434 17.8 32,250
September 30, 1992........... 24.53 0.2447 0.4042 17.3 34,052
September 30, 1993........... 26.94 0.2350 0.8000 18.1 38,885
September 30, 1994........... 26.71 0.2000 1.4700 18.5 41,020
September 30, 1995........... 30.07 0.2056 1.8944 20.8 50,205
September 30, 1996........... 33.34 0.1750 2.4979 28.9 60,922
September 30, 1997........... 40.65 0.0779(a) 3.1621(a) 31.4 82,206
*Date of Initial Public Offering (a) Paid December 31, 1996 to shareholders of
**Based on latest 12 months accomplished earnings record December 24, 1996.
***Assuming reinvestment of all distributions
Range in quarter end price/earnings ratios
High Low
- ------------------------ -------------------------
September 30 1997 31.4 September 30, 1985 11.7
</TABLE>
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, 1997, 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, 1997, 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, 1997, 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,
October 24, 1997.
AUTOMATIC INVESTMENT PLAN - AN UPDATE (UNAUDITED)
The Nicholas Family of Funds' Automatic Investment Plan provides a simple
method to dollar cost average into the fund(s) of your choice.
Dollar cost averaging involves making equal systematic investments over an
extended time period. A fixed dollar investment will purchase more shares
when the market is low and fewer shares when the market is high. The
automatic investment plan is an excellent way for you to become a
disciplined investor.
The following table illustrates what dollar cost averaging can achieve.
Please note that past performance is no guarantee of future results.
Nicholas Company recommends dollar cost averaging as a practical
investment method. It should be consistently applied for long periods
(5-10 years or more) so that investments are made through several market
cycles. The table will be updated and appear in future financial reports
issued by the Nicholas Family of Funds.
<TABLE>
<CAPTION>
Nicholas II
___________
<S> <C>
$1,000 initial investment on 10-17-83
$100 invested on the last day of each month following
the date of the initial investment (in years) 14.0
Total cash invested $17,800
Total dividends and capital gains distributions reinvested $16 094
Total full shares owned 9/30/97 1,598
Total market value on 9/30/97 $64,955
</TABLE>
The results above assume purchase on the last day of the month. The Nicholas
Automatic Investment Plan actually invests on the 20th of each month (or on
the alternate date specified by the investor). Total market value includes
reinvestment of all distributions.
NICHOLAS FAMILY OF FUNDS DECEMBER DISTRIBUTION SCHEDULE
FUND RECORD DATE EX-DIVIDEND DATE PAYMENT DATE
- ---------------- ----------- ---------------- ------------
NICHOLAS II 12/24/97 12/26/97 12/31/97
NICHOLAS FUND 12/26/97 12/29/97 12/31/97
NICHOLAS LIMITED
EDITION 12/29/97 12/30/97 12/31/97
NICHOLAS EQUITY
INCOME 12/29/97 12/30/97 12/31/97
NICHOLAS INCOME 12/29/97 12/30/97 12/31/97
Officers and Directors
ALBERT O. NICHOLAS
President and Director
ROBERT H. BOCK
Director
MELVIN L. SCHULTZ
Director
RICHARD SEAMAN
Director
DAVID L. JOHNSON
Executive Vice President
THOMAS J. SAEGER
Executive Vice President and Secretary
DAVID O. NICHOLAS
Senior Vice President
LYNN S. NICHOLAS
Senior Vice President
JEFFREY T. MAY
Senior Vice President and Treasurer
CANDACE L. LESAK
Vice President
MARK J. GIESE
Assistant Vice President
KATHLEEN A. EVANS
Assistant Vice President
TRACY C. EBERLEIN
Assistant Vice President
Investment Adviser
NICHOLAS COMPANY, INC.
Milwaukee, Wisconsin
414-272-6133 or 800-227-5987
Custodian and Transfer Agent
FIRSTAR TRUST COMPANY
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
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.
