NICHOLAS II, INC.
February 22, 1997
Report to Fellow Shareholders:
It is a pleasure to report that Nicholas II had a good
calendar year in 1996. Total return to shareholders was 19.38%
with distributions reinvested. While Nicholas II's total return
fell below the return of the larger market capitalization index,
the S&P 500, it did exceed the smaller market capitalization
index represented by the Russell 2000. Nicholas II tends to
own stocks in both categories. As is our custom, we are fully
invested with 3.3% in cash.
Long-term performance of the Fund is shown below for time
periods ended December 31, 1996.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
________________________________
1 YEAR 5 YEARS 10 YEARS
_______ _________ ________
<S> <C> <C> <C>
Nicholas II (Distributions Reinvested) +19.38% +12.53% +13.39%
Standard & Poor's 500 (Income Reinvested) +22.95% +15.20% +15.28%
Russell 2000 (Includes Income) +16.49% +15.64% +12.41%
Consumer Price Index +3.31% +2.84% +3.68%
Ending value of $10,000 invested in
Nicholas II (Distributions Reivested) $11,938 $18,044 $35,130
</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.
In addition to our constant emphasis on investment
performance, management wants shareholders to know that our
staff is dedicated to working efficiently in a cost-conscious
manner. This effort is an important part of achieving good
investment results. As most of you know, we are a PURE no-load
mutual fund with no front or back-end sales charges and no 12b-1
fees. Total annual operating expenses (which include management
fees) for Nicholas II amounts to about .62% of assets compared
to approximately 1.40% for the average domestic stock fund. We
are very pleased and proud of the accomplishments of this aspect
of our operations.
Management hopes to build on the solid foundation of the
past few years via intense research, competent stock selection,
larger positions in favored stocks and patience. Please keep in
mind that Nicholas Company is attempting to achieve reasonable
returns in a low risk, conservative manner.
A listing of the Fund's top[ ten holdings and historical record
are located on the reverse side of this letter. Thank you for
being part of the Nicholas II fund.
Sincerely,
NICHOLAS II, INC.
Nicholas II, Inc.
TOP TEN PORTFOLIO HOLDINGS
December 31, 1996
Percentage
of
Name Net Assets
------ ------------
Keane, Inc. 5.79%
Health Management Associates, Inc. - Class A 4.19%
Fiserv, Inc. 3.01%
Mutual Risk Management Ltd. 2.92%
Expeditors International of Washington, Inc. 2.90%
General Motors Corporation - Class H 2.69%
VIVRA Incorporated 2.52%
Elan Corporatio, plc 2.51%
Kohl's Corporation 2.36%
Marshall & Ilsley Corporation 2.33%
Total of top ten holdings
as a percent of net assets 31.22%
- --------------------------------------------------------------------
HISTORICAL RECORD
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
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
December 31, 1996............ 30.99 0.8000(a) 3.1600(a) 29.0 62,671
*Date of Initial Public Offering (a) Paid 12/31/96 to shareholders of
**Based on latest 12 months accomplished earnings record 12/24/96f
***Assuming reinvestment of all distributions
Range in quarter end price/earnings ratios
High Low
------ -----
12/31/96 29.0 9/30/85 11.7
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