{Letterhead}
NICHOLAS II, INC.
February 11, 1998
Report to Fellow Shareholders:
1997 produced excellent results for Nicholas II shareholders. Total
return was 37.01% with distributions reinvested, compared to 33.35% for the S&P
500, 22.36% for the Russell 2000 small company index and 19.68% for the Lipper
Mid-Cap Fund Index. Nicholas II is more of a small to mid-capitalization fund
which we feel should be more directly compared to the Russell 2000. The
long-term record of Nicholas II is also favorable when compared to relative
indexes and funds as can be seen in the chart below.
<TABLE>
<CAPTION>
Average Annual Total Return*
___________________________________________________________
October 17, 1983**
One year Five years Ten years 14.21 years
________ _________ _________ ___________
<S> <C> <C> <C> <C>
Nicholas II (Distributions Reinvested) +37.01% +17.71% +16.14% +16.34%
Lipper Mid-Cap Fund Index (Distributions Reinvested) +19.68% +15.45% +16.77% N/A
Russell 2000 (Dividends Reinvested) +22.36% +16.41% +15.76% +11.73%
Standard & Poor' s 500 (Dividends Reinvested) +33.35% +20.25% +18.04% +16.87%
Consumer Price Index +1.70% +2.60% +3.42% +3.41%
Ending Value of $10,000 invested in
Nicholas II (Distributions Reinvested) $13,701 $22,603 $44,665 $85,866
</TABLE>
Performance in 1997 was driven by individual stock selection in areas
such as banking, health care, retailing and consumer products. Also,
the avoidance of what is known in the industry as "blow ups" was a critical
factor in superior performance. "Blow ups" refer to stocks that collapse in one
day after failing to meet earnings expectations.
The market continues to follow the old adage "bigger is better". Mega
consolidations are occurring every day and large-capitalization stocks
continue their long-term dominance in performance over small-capitalization
stocks. We plan to stick to our proven philosophy of investing in small and
mid size companies even though the wind is in our face. Despite the prevailing
wind Nicholas II has been able to remain compatitive.
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.
** Date of initial public offering.
700 North Water Street - Milwaukee, Wisconsin - 53202-4276
800-227-5987 - 414-272-6133
Nicholas II, Inc.
December 31, 1997
NET ASSETS: $1.025 Billion
NUMBER OF HOLDINGS: 61
INCEPTION DATE: 10/17/83
TICKER SYMBOL: NCTWX
P/E: 31.93 (latest 12 month earnings)
MEDIAN MARKET
CAPITALIZATION: $1.741 Billion
TURNOVER RATE: 30.21%*
EXPENSE RATIO: 0.61%*
*As of most recent fiscal year ended September 30, 1997.
Top Ten Holdings
December 31, 1997
Percentage
Name of Net Assets
_____ _____________
Health Management
Associates, Inc. 5.39%
Expeditors International
of Washington 3.71
Mutual Risk
Management, Ltd. 3.62
Marshall & Ilsley
Corporation 3.20
Fiserv, Inc. 3.08
Tootsie Roll
Industries, Inc. 2.88
Elan Corporation, plc 2.70
DENTSPLY
International Inc. 2.64
Patterson Dental
Company 2.60
Protective Life
Corporation 2.59
_______
32.41%
_______
_______
Equity Sector Weightings
December 31, 1997
Durables 1.3%
Technology 2.3%
Staples 3.1%
Cyclicals 7.9%
Retail 12.4%
Financials 16.0%
Services 20.9%
Health 36.1%
Historical Record (Unaudited)
<TABLE>
<CAPTION>
Dollar
Net Weighted Growth of an
Asset Value Distributions Price/Earnings Initial $10,000
Per Share Per Share Ratio** Investment***
___________ ____________ _____________ _____________
<S> <C> <C> <C> <C>
October 17, 1983* $10.00 $ $10,000
September 30, 1986 16.90 0.2240 15.0 times 17,581
September 30, 1987 21.01 0.9330 20.9 23,108
September 30, 1988 18.58 1.6410 15.0 22,766
September 30, 1989 21.76 0.4150 17.1 27,291
September 30, 1990 17.39 0.9810 14.8 22,888
September 30, 1991 23.87 0.4856 17.8 32,250
September 30, 1992 24.53 0.6489 17.3 34,052
September 30, 1993 26.94 1.0350 18.1 38,885
September 30, 1994 26.71 1.6700 18.5 41,020
September 30, 1995 30.07 2.1000 20.8 50,205
September 30, 1996 33.34 2.6729 28.9 60,922
September 30, 1997 40.65 3.2400 31.4 82,206
December 31, 1997 36.94 5.3092 (a) 31.9 85,866
* Date of Initial Public Offering (a) Paid December 31, 1997
** Based on latest 12 months accomplished earnings to shareholders of record
*** Assuming reinvestment of all distributions December 24, 1997.
Range in quarter end price/earnings ratios
High Low
______________ _____________
12/31/97 31.9 9/30/85 11.7
</TABLE>
