NICHOLAS II, INC.
Report to Fellow Shareholders:
The stock market in the United States is suffering from a
hangover effect following the blowout millennium party of 2000; a
party which included rank speculation in IPOs, overvaluation of
technology stocks, and returns, driven by the speculative
blowout, in excess of 100% in some mutual funds. As
institutional and individual investors try desperately to
determine which of last year's high-flying stocks truly represent
good value, a lemming effect has resulted. With little regard
for fundamentals, investors have flocked to companies that meet
short-term expectations and have fled companies failing to do so.
As a result, we are experiencing a volatile "all or nothing"
market where meeting analyst expectations can propel a stock to
dizzying heights and failure to meet expectations can cause a
stock to plummet. In today's market dichotomy, companies with
the perfect outlook have extremely high valuation while those
with current short-term problems are selling at rock bottom
prices.
Returns for Nicholas II, Inc. and selected indices are provided
in the chart below for the periods ended
September 30, 2000.
Average Annual Return*
[CAPTION]
<TABLE>
1 5 10 15
Year Years Years Years
------ ------ ------ ------
<C> <C> <C> <C> <C>
Nicholas II, Inc. (Distributions Reinvested).......... 16.49% 13.97% 15.48% 13.35%
Russell 2000 Index (Dividends Reinvested)............. 23.39% 12.38% 16.93% 12.63%
Standard & Poors 500 Index (Dividends Reinvested ..... 13.27% 21.68% 19.43% 17.89%
Consumer Price Index ................................ 3.46% 2.53% 2.73% 3.21%
Ending value of $10,000 invested in Nicholas II, Inc.
(Distributions Reinvested)............................ $11,649 $19,227 $42,174 $65,480
The fiscal year for Nicholas II ended on September 30, 2000. The
Fund's return over this period was 16.49% as compared to 13.27%
for the Standard & Poor's 500 Index and 23.39% for the Russell
2000 (small-company) Index. While technology was generally weak
during the year, less speculative issues such as Fiserv and
Paychex, Inc. performed well, boosting our return. Healthcare,
which accounts for 22% of our portfolio, performed well, while
media and telecommunications companies lagged. The strong
performance of energy and utilities was a surprise. These are
industries that do not, generally, provide long-term growth so we
have not included them in our portfolio.
Nicholas II currently includes 30 to 35% technology stocks. We
feel that this industry will continue to grow more rapidly than
other areas of the economy. As we select technology issues for
the portfolio, we look for companies that provide essential
services such as security, storage, and productivity enhancing
business services. These companies must have solid business
models, strong management, and established revenue and earnings
growth. A good example of a Nicholas II technology holding is
Internet Security Systems, Inc., a leading provider of security
management software for the Internet, which just reported record
third-quarter revenues and its twenty-first consecutive quarter
of growth. As illustrated by the recent breach at Microsoft,
security will continue to be an important issue as corporate
America becomes more connected.
The enthusiasm of momentum investors pushed some long-term Fund
holdings to unexpectedly high valuations during 2000. We
capitalized upon this opportunity, trimmed our positions, and
captured profits. Fiserv is a good example of this phenomenon.
We have owned Fiserv for many years. In 1999, the company showed
weak performance. During this year, it doubled in value between
the first and third quarters. In response, we trimmed our
position and invested the proceeds in strong growth companies
whose stocks had become undervalued. Selling was a difficult
decision because the result will be a sizeable capital gains
distribution (approximately $12 to $13 per share as of November
20) at the end of this year. However, the short- and long-term
benefits were great: we captured significant gains; we generated
capital to invest in stocks that were out-of-favor; and we
minimized business risk by rebalancing a portion of our
portfolio.
We believe that our philosophy of patient, long-term investing
has served us well. While Nicholas II's returns this year appear
to be more closely aligned with certain benchmark indices, the
Fund is not an index or closet-index fund. It is a concentrated
portfolio of small- and mid-sized company stocks that includes
both growth and value ideas. We continue to select quality
companies with strong managements that are leaders in their
market niches. Our philosophy remains unchanged: consistency in
a world of change. While we continue to believe in patient
investing, the reactionary nature of the market today may cause
us to engage in more profit taking than normal, in order to
maintain appropriate risk levels in the portfolio. We will make
thoughtful portfolio adjustments as we work to achieve reasonable
returns with an appropriate level of risk.
Thank you for your support.
Sincerely,
/s/
David O. Nicholas
Portfolio Manager
Financial Highlights
(For a share outstanding throughout each period)
--------------------------------------------------------------------------
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</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD........................ $31.83 $34.78 $40.65 $33.34 $30.07 $26.71 $26.94 $24.53 $23.87 $17.39
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... .01 .01 .13 .08 .10 .24 .21 .21 .23 .26
Net gains (losses) on
securities (realized and
unrealized)................... 5.22 1.18 (.69) 10.47 5.84 5.22 1.23 3.24 1.07 6.70
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations................. 5.23 1.19 (.56) 10.55 5.94 5.46 1.44 3.45 1.30 6.96
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
From net investment income..... (.01) (.13) (.08) (.08) (.18) (.21) (.20) (.24) (.24) (.34)
From capital gains............. (.47) (4.01) (5.23) (3.16) (2.49) (1.89) (1.47) (.80) (.40) (.14)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (.48) (4.14) (5.31) (3.24) (2.67) (2.10) (1.67) (1.04) (.64) (.48)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END
OF PERIOD........................ $36.58 $31.83 $34.78 $40.65 $33.34 $30.07 $26.71 $26.94 $24.53 $23.87
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN...................... 16.49% 2.50% (1.66%) 34.94% 21.35% 22.39% 5.49% 14.19% 5.59% 40.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (millions)................ $775.4 $874.1 $960.0 $994.4 $774.8 $682.2 $624.7 $715.8 $646.5 $490.9
Ratio of expenses to average
net assets....................... .62% .61% .59% .61% .62% .66% .67% .67% .66% .70%
Ratio of net investment income
to average net assets............ .02% .03% .33% .23% .29% .68% .72% .79% 1.01% 1.24%
Portfolio turnover rate........... 65.46% 21.03% 20.47% 30.21% 24.47% 19.63% 17.38% 27.32% 11.47% 12.46%
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
------------------------------------------------------------------------
Top Ten Portfolio Holdings
September 30, 2000 (Unaudited)
-------------------------------------------------------------------------
Percentage
of Net Assets
-------------
General Motors Corporation - Class H ...................... 3.42%
Concord EFS, Inc. ......................................... 2.75%
Fiserv, Inc. .............................................. 2.71%
Health Management Associates, Inc. - Class A .............. 2.52%
Nationwide Financial Services, Inc. ....................... 2.51%
Artesyn Technologies, Inc ................................. 2.34%
Qwest Communications International Inc. ................... 2.31%
Biomet, Inc. .............................................. 2.27%
ChoicePoint Inc. .......................................... 2.27%
Sybron International Corporation .......................... 2.26%
------
Total of top ten holding .................................. 25.36%
------
------
Schedule of Investments
September 30, 2000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Shares or Quoted
Principal Market
Amount Value
--------- ------------
COMMON STOCKS - 94.79%
Capital Goods - 1.40%
416,635 Thermo Electron Corporation * 10,832,510
------------
Communication Servivces - 7.10%
150,000 American Tower Corporation 5,653,125
- Class A*
185,000 Crown Castle International Corp. * 5,746,562
378,000 FLAG Telecom Holdings Limited * 4,158,000
1,465,000 Global TeleSystems, Inc. * 6,684,063
300,000 McLeodUSA Incorporated * 4,293,750
372,590 Qwest Communications
International Inc. * 17,907,607
185,000 Western Wireless Corporation * 6,590,625
260,000 Winstar Communications, Inc. * 4,030,000
------------
55,063,732
------------
Consumer Cyclicals-Retail - 2.45%
155,600 Kohl's Corporation * 8,976,175
685,000 O'Reilly Automotive, Inc. * 10,018,125
------------
18,994,300
------------
Consumer Cyclicals-Services - 7.06%
383,302 ChoicePoint Inc. * 17,583,979
367,500 Cintas Corporation 16,009,219
239,500 Fastenal Company 13,801,188
261,062 G&K Services, Inc.-Class A 7,326,052
------------
54,720,438
------------
Consumer Staples-
Drug, Retail, Food & Beverage - 2.25%
194,948 CVS Corporation 9,028,529
310,000 Outback Steakhouse, Inc. * 8,408,750
------------
17,437,279
------------
Consumer Staples-
Media & Entertainment - 6.99%
232,865 Clear Channel
Communications, Inc. * 13,156,872
418,926 International Speedway
Corporation-Class A 16,338,114
200,000 Lamar Advertising Company * 7,575,000
780,000 USA Networks, Inc. * 17,111,250
------------
54,181,236
------------
Financial
Banks & Diversified Financials - 5.40%
235,545 Fifth Third Bancorp 12,689,987
340,900 Marshall & Ilsley Corporation 17,087,613
605,000 National Commerce Bancorporation 12,062,187
------------
41,839,787
------------
Financial-Insurance - 4.20%
520,000 Nationwide Financial
Services, Inc. 19,435,000
440,000 Protective Life Corporation 13,145,000
------------
32,580,000
------------
Health Care-Products - 14.18%
130,000 ALZA Corportation * 11,245,000
120,000 Biogen, Inc. * 7,320,000
502,500 Biomet, Inc. 17,587,500
142,400 Elan Corporation, plc * 7,796,400
102,000 Forest Laboratories, Inc. * 11,698,125
235,500 Guidant Corporation * 16,646,907
45,000 MedImmune, Inc. * 3,476,250
40,000 MiniMed Inc. * 3,575,000
731,300 Sybron International Corporation * 17,551,200
201,166 Watson Pharmaceuticals, Inc. * 13,050,644
------------
109,947,026
------------
Health Care-Services - 7.71%
142,168 Cardinal Health, Inc. 12,537,440
940,183 Health Management Associates, Inc.
- Class A * 19,567,559
450,000 IMS Health Incorporated 9,337,500
198,800 Patterson Dental Company * 4,473,000
745,000 Renal Care Group, Inc. * 13,875,625
------------
59,791,124
------------
Technology-Communication Equipment - 7.30%
300,000 ADC Telecommunications, Inc. * 8,067,180
370,000 Andrew Corporation * 9,689,375
25,000 Brocade Communications
Systems, Inc. * 5,900,000
420,000 Harris Corporation 11,943,750
52,000 QLogic Corporation * 4,576,000
180,000 Tekelec * 5,917,500
220,000 Tellabs, Inc. * 10,505,000
------------
56,598,805
------------
Technology-Hardware - 5.99%
194,000 Apple Computer, Inc. * 4,995,500
623,400 Artesyn Technologies, Inc. * 18,156,525
195,000 Brooks Automation, Inc. * 6,459,375
142,500 Microchip Technology Incorporated * 4,711,406
205,000 Plantronics, Inc. * 7,790,000
125,000 Vishay Intertechnology, Inc. * 3,843,750
10,000 Zebra Technologies
Corporation-Class A * 480,625
------------
46,437,181
------------
Technology-Services - 15.77%
600,000 Concord EFS, Inc. * 21,309,360
75,000 Diamond Technology Partners
Incorporated * 5,568,750
350,625 Fiserv, Inc. * 20,993,672
712,500 General Motors Corporation
- Class H * 26,490,750
110,000 InterNAP Network Services
Corporation * 3,554,375
645,000 Keane, Inc. * 11,223,000
322,500 PanAmSat Corporation * 10,299,844
327,500 Paychex, Inc. 17,193,750
290,000 Proxicom, Inc. * 5,655,000
------------
122,288,501
------------
Technology-Software - 4.78%
75,000 BEA Systems, Inc. * 5,840,625
50,000 Business Objects S.A. * 5,653,125
60,000 Internet Security Systems, Inc. * 4,507,500
55,000 Mercury Interactive Corporation * 8,621,250
180,000 Rational Software Corporation * 12,487,500
------------
37,110,000
------------
Transportation - 2.21%
380,000 Expeditors International
of Washington, Inc. 17,123,750
------------
TOTAL COMMON STOCKS
(cost $504,986,196) 734,945,669
------------
Health Care Services - 0.45%
CONVERTIBLE BOND - 0.45%
6,000,000 Emeritus Corporation
6.25%, due January 1, 2006
(cost $4,980,500) 3,502,500
------------
SHORT-TERM INVESTMENTS - 3.99%
Commercial Paper - 3.12%
3,000,000 A.O. Smith Corporation
6.80%, due October 2, 2000 3,000,000
2,000,000 A.O. Smith Corporation
6.80%, due October 4, 2000 1,999,245
2,000,000 A.O. Smith Corporation
6.80%, due October 6, 2000 1,998,489
5,000,000 Universal Foods Corporation
6.80%, due October 10, 2000 4,992,444
1,500,000 WICOR Industries, Inc.
6.80%, due October 11, 2000 1,497,450
2,000,000 WICOR Industries, Inc.
6.80%, due October 13, 2000 1,995,845
3,000,000 Wausau-Mosinee Paper Corporation
6.85%, due October 16, 2000 2,992,008
5,750,000 Quad/Graphics, Inc.
6.85%, due October 18, 2000 5,732,494
------------
24,207,975
------------
Variable Rate Demand Note - 0.87%
6,746,930 Firstar Bank U.S.A., N.A.
6.29%, due October 2, 2000 6,746,930
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $30,903,255) 30,954,905
------------
TOTAL INVESTMENTS
(cost $540,869,951) - 99.23% 769,403,074
------------
OTHER ASSETS,
NET OF LIABILITIES - 0.77% 5,952,802
------------
TOTAL NET ASSETS
(Basis of percentages
disclosed above) - 100% $775,355,876
------------
------------
* Nondividend paying security.
The accompanying notes to financial statements
are an integral part of this schedule.
Statement of Assets and Liabilities
September 30, 2000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<C> <C>
Investments in securities at market value (cost $540,869,951) (Note 1 (a)).. $769,403,074
------------
Receivables --
Investment securities sold................................................ 7,479,323
Dividends and interest.................................................... 328,746
------------
Total receivables.................................................... 7,808,069
------------
Total assets......................................................... 777,211,143
------------
LIABILITIES:
Payables --
Investment securities purchased........................................... 1,328,834
Management fee (Note 2)................................................... 345,689
Other payables and accrued expenses....................................... 180,744
------------
Total liabilities.................................................... 1,855,267
------------
Total net assets..................................................... $775,355,876
------------
------------
NET ASSETS CONSIST OF:
Fund shares issued and outstanding.......................................... $294,474,181
Net unrealized appreciation on investments (Note 3)......................... 228,481,473
Accumulated undistributed net realized gains on investments................. 252,400,222
------------
$775,355,876
------------
------------
NET ASSET VALUE PER SHARE ($.01 par value, 200,000,000 shares
authorized), offering price and redemption price
($775,355,876 ./. 21,196,342 shares outstanding).............................. $36.58
------
------
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
Statement of Operations
For the Year Ended September 30, 2000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME:
<C> <C>
Interest....................................................... $2,691,660
Dividends...................................................... 2,635,078
------------
5,326,738
------------
EXPENSES:
Management fee (Note 2)........................................ 4,346,183
Transfer agent fees............................................ 517,442
Postage and mailing............................................ 64,323
Custodian fees................................................. 40,359
Registration fees.............................................. 40,163
Printing....................................................... 36,086
Legal fees..................................................... 32,384
Audit and tax consulting fees.................................. 22,000
Directors' fees................................................ 15,000
Other operating expenses....................................... 17,508
Telephone...................................................... 9,182
------------
5,140,630
------------
Net investment income................................. 186,108
------------
NET REALIZED GAINS ON INVESTMENTS ................................ 252,475,919
NET DECREASE IN UNREALIZED APPRECIATION ON INVESTMENTS............ (121,859,465)
------------
Net realized and unrealized gains on investments...... 130,616,454
------------
Net increase in net assets resulting from operations.. $130,802,562
------------
------------
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, 2000 and 1999
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
2000 1999
------------ -------------
<C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................... $ 186,108 $ 270,041
Net realized gains on investments....................................... 252,475,919 22,672,428
Net increase (decrease) in unrealized appreciation on investments ...... (121,859,465) 11,314,637
------------ ------------
Net increase in net assets resulting from operations............ 130,802,562 34,257,106
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.0100 and $0.1337 per share, respectively)......................... (259,783) (3,694,992)
Distributions from net realized gains on investment transactions
($0.4701 and $4.0049 per share, respectively)......................... (12,212,372) (110,681,240)
------------ ------------
Total distributions............................................. (12,472,155) (114,376,232)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (3,663,634 and 4,328,067
shares, respectively)................................................. 127,210,015 154,027,842
Reinvestment of distributions
(329,925 and 3,119,952 shares, respectively).......................... 11,623,249 107,638,328
Cost of shares redeemed (10,260,168 and 7,591,153 shares, respectively). (355,953,084) (267,431,680)
------------ ------------
Decrease in net assets derived from
capital share transactions.................................... (217,119,820) (5,765,510)
------------ ------------
Total decrease in net assets................................... (98,789,413) (85,884,636)
------------ ------------
NET ASSETS:
Beginning of the period (including undistributed net
investment income of $0 and 3,168,886, respectfully).................. 874,145,289 960,029,925
------------ ------------
End of the period (there was no undistributed net
investment income in 2000 or 1999) ................................... $775,355,876 $874,145,289
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
Notes to Financial Statements
September 30, 2000
--------------------------------------------------------------------------
(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 identification.
(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) The amount of dividends and distributions from net investment
income and net realized capital gains are determined in
accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. To the extent
these book and tax differences are permanent in nature, such
amounts are reclassified among fund shares issued and
outstanding, accumulated undistributed net realized gains on
investments and accumulated undistributed net investment income.
Accordingly, at September 30, 2000, reclassifications were
recorded to increase accumulated undistributed net investment
income and decrease accumulated undistributed net realized gains
on investments by $73,673.
(e) 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.
(f) 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 .75 of 1% on an
annual basis of the average net asset value up to and including $50
million, .60 of 1% on an annual basis of the average net asset value
over $50 million up to and including $100 million and .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
September 30, 2000, based on investment cost for federal tax
purposes of $541,143,230 is as follows:
Aggregate gross unrealized appreciation on investments.. $289,850,806
Aggregate gross unrealized depreciation on investments.. (61,590,962)
------------
Net unrealized appreciation ....................... $228,259,844
------------
------------
(4) Investment Transactions --
For the year ended September 30, 2000, the cost of purchases and the
proceeds from sales of investment securities, other than short-term
obligations, aggregated $516,496,293 and $679,989,805, respectively.
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. (a Maryland corporation), including the schedule of
investments, as of September 30, 2000, 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 auditing standards generally
accepted in the United States. 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, 2000, 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, 2000, 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 accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
October 22, 2000
-------------------------------------------------------------------------
Historical Record (unaudited)
-------------------------------------------------------------------------
<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***
----------- -------------- ------------- -------------- ----------
<C> <C> <C> <C> <C> <C>
October 17, 1983*............ $10.00 $ -- $ -- -- $10,000
September 30, 1984........... 11.66 -- -- 12.6 times 11,660
September 30, 1985........... 14.39 0.0930 0.1860 11.7 14,742
September 30, 1986........... 16.90 0.1630 0.0610 15.0 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
September 30, 1999........... 31.83 0.1337 4.0049 29.0 82,864
September 30, 2000........... 36.58 0.0100(a) 0.4701(a) 35.1 96,527
* Date of Initial Public Offering.
** Based on latest 12 months accomplished earnings.
*** Assuming reinvestment of all distributions.
(a) Paid December 23, 1999 to shareholders of record December 22, 1999.
Range in quarter end price/earnings ratios
High Low
------------------------ ---------------------------
September 30, 2000 35.1 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.
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<CAPTION>
Nicholas II
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<C> <C>
$1,000 initial investment on................................. 10-17-83* 09-30-90
Number of years investing $100 on the last day of each
month following the date of initial investment........... 17 10
Total cash invested.......................................... $21,400 13,000
Total dividends and capital gains distributions reinvested... $33,382 9,242
Total full shares owned 9/30/00.............................. 2,190 764
Total market value on 9/30/00................................ $80,122 27,932
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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.
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Dividend Distribution Schedule
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<CAPTION>
NICHOLAS FAMILY OF FUNDS DECEMBER 2000 DISTRIBUTION SCHEDULE
FUND RECORD DATE EX-DIVIDEND DATE PAYMENT DATE
<C> <C> <C> <C>
NICHOLAS II 12/20/2000 12/21/2000 12/21/2000
NICHOLAS FUND 12/21/2000 12/22/2000 12/22/2000
NICHOLAS LIMITED EDITION 12/27/2000 12/28/2000 12/28/2000
NICHOLAS EQUITY INCOME 12/26/2000 12/27/2000 12/27/2000
NICHOLAS INCOME 12/27/2000 12/28/2000 12/28/2000
Please visit our website, www.nicholasfunds.com or call 800-227-5987 for current estimates.
</TABLE>
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, 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 INSTITUTIONAL CUSTODY SERVICES
Cincinnati, Ohio
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.
