Nicholas II, Inc.
5/27/99
Dear Fellow Shareholders:
The last six months ended March 31, 1999 witnessed a
continuation of the bear market in small company stocks
which began in April 1998. In fact, the first three months
of 1999 was one of the worst quarters of relative
performance as compared to large company stocks I have
observed in my career at Nicholas Company. The bright spot,
however, is small company stocks have bounced back since
March 31. In the six-week period from March 31 to May 14,
1999, the Russell 2000, a small company index, returned
11.4% while the Standard & Poor's 500 returned only 4.2%.
We continue to believe there are still many opportunities in
small companies due to their low valuations and strong
fundamentals.
Returns for Nicholas II and selected indices are
provided in the chart below for the periods ended March 31,
1999.
<TABLE>
<CAPTION>
Average Annual Total Return*
----------------------------------------
6 Months 1 Year 5 Years 10 Years 15 Years
-------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Nicholas II, Inc.
(Distributions Reinvested) 11.00% (8.24)% 17.99% 14.15% 15.68%
Lipper Mid Cap Fund Objective**
(Distributions Reinvested) 22.63% 0.19% 15.78% 14.55% 13.59%
Russell 2000 Index
(Dividends Reinvested) 10.01% (16.26)% 11.22% 11.46% 11.32%
Standard & Poor's 500 Index
(Dividends Reinvested)
Ending value of $10,000 27.34% 18.47% 26.23% 18.96% 18.47%
invested in Nicholas II
(Distributions Reinvested) $11,100 $9,176 $22,869 $37,578 $88,848
</TABLE>
Long-term absolute performance has been satisfactory
considering Nicholas II has been primarily invested in small-
to mid-cap companies and currently has approximately 22% in
small companies and 67% in smaller-sized mid-cap companies,
as defined by Morningstar. The Fund's short-term
performance, relative to other indices, has been affected by
an underlying weakness in the overall market. This weakness
has been masked by a small number of securities such as
Microsoft, Cisco, America Online, and other speculative
internet stocks which have inflated overall market
performance. Our philosophy prevents us from owning these
very speculative types of companies. Yahoo!, eBay and
Amazon.com, which have not made money and may never make
money in our opinion, trade at such high valuation levels
that at the very least peak our curiosity. The performance
of these stocks, on average, was up 57.9% for first quarter
of 1999, and has skewed small and mid-cap indices.
Highflying Internet stocks have significantly driven the
performance of these indices.
Nicholas II's first quarter performance was also
affected by our exposure to healthcare service stocks such
as Health Management Associates and HCR ManorCare. Fear of
reimbursement issues and government investigations have
caused these solid companies to be down on average 33.0% in
the first quarter of 1999. We still believe in the long-
term need for the hospital and nursing home industries and
these two companies in particular.
Finally, I want to address short-term performance.
Because our philosophy of investing has a contrarian element
(straw hats are cheaper in winter), there will be periods of
time when the fund may underperform. If we are right by
adhering to our philosophy and buying out-of-favor
companies, such as Health Management Associates and HCR
ManorCare, we will be positioned to outperform in the long-
term.
Although it has been somewhat difficult in the short-
term for value focused managers who invest in smaller-sized
mid-cap companies, we will continue to practice our time-
honored approach to investing, and feel the rewards will be
forthcoming just as they have been in the past.
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.
**Based on Lipper Investment objective performance summary
for all mid cap funds followed by Lipper Analytical
Services, Inc.
Financial Highlights
(For a share outstanding throughout each period)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
March 31, Year ended September 30,
1999 --------------------------------------------------------
(unaudited) 1998 1997 1996 1995 1994
----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $34.78 $40.65 $33.34 $30.07 $26.71 $26.94
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)........... (.01) .13 .08 .10 .24 .21
Net gains (losses) on securities
(realized and unrealized)........... 3.84 (.69) 10.47 5.84 5.22 1.23
------ ------ ------ ------ ------ ------
Total from investment operations...... 3.83 (.56) 10.55 5.94 5.46 1.44
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net
investment income).................. (.13) (.08) (.08) (.18) (.21) (.20)
Distributions (from capital gains)..... (4.01) (5.23) (3.16) (2.49) (1.89) (1.47)
------ ------ ------ ------ ------ ------
Total distributions................. (4.14) (5.31) (3.24) (2.67) (2.10) (1.67)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD........... $34.47 $34.78 $40.65 $33.34 $30.07 $26.71
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN............................. 11.00%** (1.66)% 34.94% 21.35% 22.39% 5.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)..... $1,025.4 $960.0 $994.4 $774.8 $682.2 $624.7
Ratio of expenses to average net assets.. .62%* .59% .61% .62% .66% .67%
Ratio of net investment income (loss)
to average net assets.................. (.07)%* .33% .23% .29% .68% .72%
Portfolio turnover rate.................. 24.51%* 20.47% 30.21% 24.47% 19.63% 17.38%
*Annualized.
**Not annualized.
The accompanying notes to financial statements are an
integral part of these statements.
</TABLE>
- -------------------------------------------------------------------------------
Top Ten Portfolio Holdings
March 31, 1999 (unaudited)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of
Net Assets
----------------
<S> <C>
Fiserv, Inc. ............................................. 5.04%
Mutual Risk Management Ltd. .............................. 4.62%
Tootsie Roll Industries, Inc. ............................ 4.51%
General Motors Corporation - Class H ..................... 3.66%
Protective Life Corporation .............................. 3.29%
Marshall & Ilsley Corporation ............................ 2.85%
Health Management Associates, Inc. - Class A ............. 2.81%
Expeditors International of Washington, Inc. ............. 2.68%
Fifth Third Bancorp ...................................... 2.36%
Select Appointments (Holdings) Public Limited Company .... 2.34%
-------
Total of top ten portfolio holdings 34.16%
-------
-------
</TABLE>
Schedule of Investments
March 31, 1999 (unaudited)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
Shares or Quoted
Principal Market
Amount Value
----------- ------------
<S> <C> <C>
(Note 1 (a))
COMMON STOCKS - 94.11%
Banks and Finance - 9.04%
653,483 Associated Banc-Corp ............. $ 20,870,613
367,030 Fifth Third Bancorp .............. 24,201,041
17,706 First National Bank
of Anchorage (The) .............. 18,414,240
527,900 Marshall & Ilsley Corporation .... 29,265,456
--------------
92,751,350
--------------
Business Services - 13.87%
377,500 Checkfree Holdings Corporation * . 16,067,344
963,750 Fiserv, Inc. * ................... 51,681,094
466,062 G&K Services, Inc. - Class A ..... 21,526,238
480,000 Keane, Inc. * .................... 10,230,000
900,000 Select Appointments (Holdings)
Public Limited Company .......... 24,018,750
1,294,500 Thermo Instrument Systems Inc. * . 18,689,344
--------------
142,212,770
--------------
Consumer Products
and Services - 3.73%
313,850 Newell Rubbermaid, Inc. .......... 14,907,875
171,985 Quintiles Transnational Corp. * .. 6,492,434
822,900 Thermedics Inc. * ................ 5,811,731
351,200 Valspar Corporation (The) ........ 11,084,750
--------------
38,296,790
--------------
Food and Beverage - 5.03%
1,003,123 Tootsie Roll Industries, Inc. .... 46,206,353
115,000 U.S. Foodservice * ............... 5,347,500
--------------
51,553,853
--------------
Health Care Products - 7.73%
340,000 BioChem Pharma Inc. * ........... 7,246,250
170,000 Biogen, Inc. * ................... 19,433,125
136,200 Elan Corporation PLC * .......... 9,499,950
262,000 Forest Laboratories, Inc. * ...... 14,770,250
162,545 Medtronic, Inc. .................. 11,662,604
389,650 Trex Medical Corporation * ....... 2,435,312
321,166 Watson Pharmaceuticals, Inc. * ... 14,171,450
--------------
79,218,941
--------------
Health Care Services - 11.34%
792,200 Boron, LePore
& Associates, Inc. * + .......... 8,219,075
257,168 Cardinal Health, Inc. ............ 16,973,088
752,750 HCR Manor Care, Inc. * ........... 17,172,109
2,362,183 Health Management Associates,
Inc. - Class A * ................ 28,789,105
674,000 Omnicare, Inc. ................... 12,848,125
506,400 Patterson Dental Company * ....... 21,901,800
1,033,750 Quorum Health Group, Inc. * ...... 10,337,500
--------------
116,240,802
--------------
Industrial Products
and Services - 8.87%
600,000 Fastenal Company ................. 21,037,500
939,750 General Cable Corporation ........ 9,926,109
1,137,400 Republic Services, Inc. * ........ 18,411,663
985,100 Superior Services, Inc. * ........ 19,517,294
881,300 Sybron International
Corporation * ................... 22,032,500
--------------
90,925,066
--------------
Insurance - 8.84%
407,500 Liberty Financial
Companies, Inc. ................. 9,601,719
1,238,400 Mutual Risk Management Ltd. ..... 47,368,800
890,000 Protective Life Corporation ...... 33,708,750
--------------
90,679,269
--------------
Media, Communications
and Entertainment - 13.95%
1,448,400 Artesyn Technologies, Inc. * ..... 17,923,950
743,100 General Motors
Corporation - Class H * ......... 37,480,106
325,000 International Speedway
Corporation - Class A ........... 17,143,750
50,000 Jacor Communications, Inc. * ..... 3,800,000
505,000 PanAmSat Corporation * ........... 15,718,125
222,000 Penske Motorsports, Inc. * ....... 7,825,500
283,795 Qwest Communications
International Inc. * ............ 20,459,860
134,300 Univision Communications Inc. * .. 6,715,000
447,500 USA Networks, Inc. * ............. 16,026,094
--------------
143,092,385
--------------
Real Estate - 1.61%
762,125 Prison Realty Corporation ........ 13,289,555
531,346 Ventas, Inc. * ................... 3,188,076
--------------
16,477,631
--------------
Retail Trade - 5.57%
735,000 AutoZone, Inc. * ................. 22,325,625
289,948 CVS Corporation .................. 13,772,530
157,800 Kohl's Corporation * ............. 11,184,075
220,000 O'Reilly Automotive, Inc. * ...... 9,845,000
--------------
57,127,230
--------------
Transportation - 4.53%
508,000 Expeditors International
of Washington, Inc. ............. 27,432,000
1,250,892 Heartland Express, Inc. * ........ 18,997,922
--------------
46,429,922
--------------
TOTAL COMMON STOCKS
(cost $580,652,500) ........... 965,006,009
--------------
CONVERTIBLE BOND - 0.41%
Health Care Services - 0.41%
$6,750,000 Emeritus Corporation
6.25%, due January 1, 2006
(cost $5,730,500) .............. 4,201,875
--------------
SHORT-TERM INVESTMENTS - 5.38%
Commercial Paper - 5.29%
3,000,000 Cox Enterprises, Inc.
5.00%, due April 1, 1999 ........ 3,000,000
3,750,000 Tyco International Group S.A.
5.00%, due April 6, 1999 ........ 3,747,396
1,905,000 Briggs & Stratton Corporation
5.05%, due April 8, 1999 ........ 1,903,129
2,000,000 Banta Corporation
5.05%, due April 12, 1999 ....... 1,996,914
1,260,000 Fiserv, Inc.
5.05%, due April 12, 1999 ....... 1,258,056
2,500,000 Briggs & Stratton Corporation
5.05%, due April 14, 1999 ....... 2,495,441
2,000,000 Briggs & Stratton Corporation
5.05%, due April 15, 1999 ....... 1,996,072
2,750,000 Tyco International Group S.A.
5.03%, due April 16, 1999 ....... 2,744,236
4,220,000 Lockheed Martin Corporation
5.01%, due April 16, 1999 ....... 4,211,191
2,500,000 Lockheed Martin Corporation
5.00%, due April 20, 1999 ....... 2,493,403
9,000,000 Tyson Foods, Inc.
5.00%, due April 22, 1999 ....... 8,973,750
1,500,000 WICOR Industries, Inc.
5.05%, due April 22, 1999 ....... 1,495,581
3,750,000 MCI WorldCom, Inc.
4.98%, due April 26, 1999 ....... 3,737,031
2,500,000 MCI WorldCom, Inc.
4.98%, due April 28, 1999 ....... 2,490,663
6,250,000 Lockheed Martin Corporation
4.98%, due April 30, 1999 ....... 6,224,927
2,000,000 Manpower Inc.
5.05%, due May 3, 1999 .......... 1,991,022
1,500,000 Quad/Graphics, Inc.
5.05%, due May 5, 1999 .......... 1,493,267
2,000,000 Quad/Graphics, Inc.
5.05%, due May 7, 1999 .......... 1,989,900
--------------
54,241,979
--------------
Variable Rate Demand Notes - 0.09%
556,000 Warner-Lambert Company,
4.55%, due April 1, 1999 ........ 556,000
358,451 Wisconsin Electric Power Company,
4.55%, due April 1, 1999 ........ 358,451
--------------
914,451
--------------
TOTAL SHORT-TERM
INVESTMENTS
(cost $54,965,066) ............ 55,156,430
--------------
TOTAL INVESTMENTS
(cost $641,348,066) ........... 1,024,364,314
--------------
CASH AND RECEIVABLES,
NET OF LIABILITIES - 0.10% ..... 1,079,419
--------------
TOTAL NET ASSETS (Basis of
percentages disclosed above) .. $1,025,443,733
--------------
--------------
</TABLE>
* 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. (Note 5)
The accompanying notes to financial statements
are an integral part of this schedule.
Statement of Assets and Liabilities
March 31, 1999 (unaudited)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value (Note 1 (a))--
Nonaffiliated issuers (cost $626,464,156)-see accompanying schedule of investments ... $1,016,145,239
Affiliated issuers (cost $14,883,910)-see accompanying schedule of investments (Note 5) 8,219,075
--------------
Total investments ............................................................... 1,024,364,314
--------------
Receivables --
Investment securities sold ........................................................... 1,551,402
Dividends and interest ............................................................... 308,642
--------------
Total receivables ............................................................... 1,860,044
--------------
Total assets .................................................................... 1,026,224,358
--------------
LIABILITIES:
Payables --
Investment securities purchased ...................................................... 224,386
Management fee (Note 2) .............................................................. 460,547
Other payables and accrued expenses .................................................. 95,692
--------------
Total liabilities ......................................................... 780,625
--------------
Total net assets .......................................................... $1,025,443,733
--------------
--------------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding ........................................................ $ 591,268,160
Net unrealized appreciation on investments (Note 3) ....................................... 382,824,884
Accumulated undistributed net realized gains on investments ............................... 52,220,173
Accumulated undistributed net (loss) ...................................................... (869,484)
--------------
$1,025,443,733
--------------
--------------
NET ASSET VALUE PER SHARE ($.01 par value, 200,000,000 shares authorized),
offering price and redemption price ($1,025,443,733 / 29,750,329 shares
outstanding) .............................................................................. $34.47
------
------
The accompanying notes to financial statements
are an integral part of this statement.
</TABLE>
Statement of Operations
For the six months ended March 31, 1999 (unaudited)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCOME:
Interest ................................................. $ 2,019,254
Dividends ................................................ 848,987
------------
2,868,241
------------
EXPENSES:
Management fee (Note 2) .................................. 2,680,435
Transfer agent fees ...................................... 277,691
Registration fees ........................................ 70,936
Legal fees ............................................... 56,699
Postage and mailing fees ................................. 46,964
Printing fees ............................................ 29,350
Custodian fees ........................................... 25,097
Insurance fees ........................................... 8,463
Directors' fees .......................................... 7,500
Telephone fees ........................................... 4,579
Audit and tax consulting fees ............................ 1,225
Other operating expenses ................................. 2,680
------------
3,211,619
------------
Net (loss) ......................................... (343,378)
------------
NET REALIZED GAINS (LOSSES) ON INVESTMENTS:
Nonaffiliated issuers .................................... 64,105,889
Affiliated issuers (Note 5) .............................. (1,679,702)
------------
62,426,187
------------
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS ...... 43,798,582
------------
Net gains on investments .......................... 106,224,769
------------
Net increase in net assets resulting from operations $105,881,391
------------
------------
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
Statements of Changes in Net Assets
For the six months ended March 31, 1999
(unaudited) and the year ended September 30, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
1999 1998
--------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ..................................... $ (343,378) $ 3,535,098
Net realized gains on investments ................................ 62,426,187 100,477,543
Net increase (decrease) in unrealized appreciation on investments 43,798,582 (122,367,451)
-------------- ------------
Net increase (decrease) in net assets
resulting from operations.............................. 105,881,391 (18,354,810)
-------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.1337 and $0.0810 per share, respectively) .................. (3,694,992) (1,981,807)
Distributions from net realized gains on investment transactions
($4.0049 and $5.2282 per share, respectively) .................. (110,681,240) (127,849,595)
-------------- ------------
Total distributions....................................... (114,376,232) (129,831,402)
-------------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (2,383,901 and 4,358,514
shares, respectively) .......................................... 85,688,867 173,967,874
Net asset value of shares issued in distributions to shareholders
(3,119,952 and 3,389,898 shares, respectively) ................. 107,638,329 120,442,883
Cost of shares redeemed (3,359,609 and 4,605,308 shares,
respectively) .................................................. (119,418,547) (180,575,245)
-------------- ------------
Increase in net assets derived from capital
share transactions .................................... 73,908,649 113,835,512
-------------- ------------
Total increase (decrease) in net assets ................. 65,413,808 (34,350,700)
-------------- ------------
NET ASSETS, at the beginning of the period (including undistributed net
investment income of $3,168,886 and $1,615,595, respectively) ...... 960,029,925 994,380,625
-------------- ------------
NET ASSETS, at the end of the period (including undistributed net
investment income (loss) of $(869,484) and $3,168,886, respectively) $1,025,443,733 $960,029,925
-------------- -------------
-------------- -------------
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
Notes to Financial Statements
March 31, 1999 (unaudited)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(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 growth 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 last bid price. Most debt securities,
excluding short-term investments, are valued at current evaluated
bid price. 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 generally 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.
(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 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% (.60 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% (.50 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 March 31,
1999, based on investment cost for federal tax purposes is as follows:
Aggregate gross unrealized appreciation on investments.. $489,573,365
Aggregate gross unrealized depreciation on investments.. (106,748,481)
------------
Net unrealized appreciation ........................ $382,824,884
------------
------------
(4) Investment Transactions --
For the period ended March 31, 1999, the cost of purchases and the
proceeds from sales of investment securities, other than short-term
obligations, aggregated $119,297,129 and $175,977,956, respectively.
(5) Transactions with Affiliates --
Following is an analysis of transactions with "affiliated companies" for
the six months ended March 31, 1999, as defined by the Investment Company
Act of 1940:
<TABLE>
<CAPTION>
Amount of
Capital Gain/
(Loss) Realized
Share Activity on Sale
-------------------------------------------- of Shares
Balance Balance in Fiscal
Security Name 9/30/98 Purchases Sales 3/31/99 1999
------------- -------- --------- ----- ------- -----------
<S> <C> <C> <C> <C> <C>
Emeritus Corporation (a)................ 621,000 --- 621,000 --- $(1,679,702)
Boron, LePore & Associates, Inc. ....... --- 792,200 --- 792,200 ---
-----------
$(1,679,702)
-----------
-----------
(a) As of March 31, 1999 the Fund is no longer affiliated with this company.
Historical Record (unaudited)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<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
September 30, 1997........... 40.65 0.0779 3.1621 31.4 82,206
September 30, 1998........... 34.78 0.0810 5.2282 28.6 80,845
March 31, 1999............... 34.47 0.1337 (a) 4.0049 (a) 29.1 89,736
*Date of Initial Public Offering. (a) Paid December 31, 1998 to shareholders of
**Based on latest 12 months accomplished earnings. record December 22, 1998.
***Assuming reinvestment of all distributions.
</TABLE>
Range in quarter end price/earnings ratios
High Low
- -------------------- ---------------- -------
March 31, 1998 32.9 September 30, 1985 11.7
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 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> <C>
$1,000 initial investment on 10/17/83* 3/31/89
Number of years of investing $100
each month following the date of initial investment 15.5 10
Total cash invested $ 19,600 $13,000
Total dividends and capital gains reinvested $ 32,358 $11,654
Total full shares owned 3/31/99 2,110 879
Total market value on 3/31/99 $ 72,726 $30,304
</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.
* Date of Initial Public Offering.
NICHOLAS FAMILY OF FUNDS
Services Offered
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* IRAs
*Traditional *Educational
*Roth *SEP
*Self-employed Master Retirement Plan
*Money Purchase *Profit Sharing
*Automatic Investment Plan
*Direct Deposite of Distributions
*Systematic Withdrawl Plan
*Monthly Automatic Exchange between Funds
*Telephone Redemption (Regular accounts only)
*Telephone Exchange
*24-hour Automated Account Information (800-544-6547)
Please call a shareholder representative for further information on
the above services or with any other questions you may have regarding
the Nicholas Family of Funds.
800-227-5987
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
MARK J. GIESE
Vice President
CANDACE L. LESAK
ice President
TRACY C. EBERLEIN
Assistant Vice President
KATHLEEN A. EVANS
Assistant Vice President
Investment Adviser
NICHOLAS COMPANY, INC.
Milwaukee, Wisconsin
414-272-6133 or 800-227-5987
Transfer Agent
FIRSTAR MUTUAL FUND SERVICES, LLC
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547
Custodian
FIRSTAR BANK MILWAUKEE, N.A.
Milwaukee, Wisconsin
Auditors
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
Counsel
MICHAEL, BEST & FRIEDRICH LLP
Milwaukee, Wisconsin
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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.
